If income is paid to an agent who acts on behalf of the beneficial owner, the beneficial owner is the recipient, not the agent, unless the agent has an agreement with the IRS to take responsibility for NRA withholding and reporting. When income is received by a partnership (Recipient Code 03) or other intermediary that receives the income on behalf of a beneficial owner or owners, such as simple or grantor trusts (Recipient Code 05), the beneficial owners are generally the recipients (unless an owner is also a flow-through entity). However, if the income is effectively connected to a U.S. trade or business (such as compensation for services performed in the U.S. by an entity) and the flow-through entity provides a valid Form W-8ECI, the entity is the recipient. The flow-through entity is also the recipient if the entity is a resident of the treaty country for treaty purposes under the applicable treaty’s residency article and is eligible to claim a reduction of, or exemption from, withholding under a treaty provision on Form W-8BEN.
An intermediary or agent that enters into an agreement with the IRS to accept responsibility for NRA withholding and reporting is the recipient for Form 1042-S purposes. Such responsibility is generally indicated on a Form W-8IMY, which may be submitted to the payer by a withholding foreign partnership or withholding foreign trust (Recipient Code 04). In this case, reporting and withholding is in the name of the agent or intermediary. Payers making payments to a recipient whose payments are instead covered by a Central Withholding Agreement (CWA) are identified by a letter from the IRS and relieved of Form 1042-S reporting as well as NRA withholding.