Fund Taxation Alert 2023-01

IRS issues the New Qualified Intermediary Agreement applicable 1st January 2023

IRS issues the New Qualified Intermediary Agreement applicable 1st January 2023

IRS issued the new Qualified Intermediary (QI) Agreement

On 13 December 2022, the IRS issued the new QI Agreement which took effect on 1 January 2023. This new agreement has impacts for Investment Funds investing into Publicly Traded Partnerships (PTP) through banks acting as QIs.


Under the QI Agreement, non-U.S. banks can enter in agreement with the IRS to assume documentation, withholding and reporting responsibilities with respect to U.S. source income.

Many changes to the QI Agreement were suggested by the IRS in Notice 2022-23, notably allowing non-U.S. intermediaries to oversee the withholding and reporting responsibilities under sections 1146(a) and (f)) when dealing with the transfer of an interest in a publicly traded partnership (PTP) on behalf of one of their account holders. For more information, read our newsletter on the aforementioned Notice.

Moreover, banks acting as QIs need to implement the new Tres. Section 1446(f) that imposes a 10% withholding tax on the sale or transfer of PTP interests.

Impact for Investment Funds

Non-U.S. Investment funds or other investors in PTPs will be impacted in many ways:

  • Identification of PTP assets: As a first step, investors will need to assess whether they have PTP assets in their portfolio;
  • Documentation: If investing in PTPs, the investor will be required to provide its custodian (acting as a QI) with new documentation (including a U.S. Tax Identification Number or TIN);
  • Withholding: Brokers or custodians acting on behalf of the transferee (e.g. an Investment fund) of interests in a PTP must withhold a 10% tax on the transaction. Certain exceptions from withholding exist depending on the status of the investor or PTP; and
  • Reporting and tax return: If the investor or Investment Fund receives a Schedule K-1 with income effectively connected with the conduct of a trade or business in the United States (ECI), the investor will need to file a U.S. federal and state tax return.

Entry into force

The new QI Agreement took effect as of January 1st, 2023.

Due to the growing importance of reporting standards, it is highly recommended that Luxembourg entities with U.S. investors or investments ensure they are fully compliant with the new U.S. regulations and other U.S. tax compliance obligations (including tax filings, Passive Foreign Investment Company (PFIC) reporting, K-1, etc.).

If you have any questions or would like additional advice, please get in touch.

Reference: Revenue Procedure 2022-43, setting forth the 2023 QI agreement, can be found here.