KPMG, on Behalf of French Bankers, Criticizes IRS's Model QI Agreement

According to KPMG, the model agreement's customer documentation requirements are administratively burdensome and place the French banks at a competitive disadvantage. Also, it says that, "to be workable in France," the model must clarify the treatment of specific French entities. In that regard, KPMG suggests modifying the presumptions of the model consistent with the AFB model agreement.

In its comprehensive comments, KPMG also discusses the documentation requirements for partnerships; disclosure of non-U.S. persons; the statement of asset classes to withholding agent; reporting on Form 1042-S; market clearing agency; the treatment of zero-coupon bonds; bank confidentiality; external auditor reports; the frequency of external reviews; withholding adjustments by the QI; and effective date relief.

[1] On behalf of the de l'Association Francaise des Banques (French Banker's Association, or "AFB") and other members of the French financial institution community, we are submitting comments, as requested in IRS Notice 99-8, on the proposed IRS Model withholding agreement ("the IRS Model").

[2] We are extremely concerned that the IRS Model imposes significant burdens on qualified intermediaries ("QIS") and ignores various commercial realities facing financial institutions. We also are disappointed that many of our earlier recommendations (copies of which are attached for your reference) were not adopted in the IRS Model. We reiterate the need to adopt those recommendations here.

[3] Furthermore, this letter provides our comments on the provisions of the IRS Model that we believe are most impractical and create serious doubts about the feasibility of the QI concept.

CUSTOMER DOCUMENTATION REQUIREMENTS

[4] As previously stated in a letter to your office, dated July 20, 1998, we are troubled by the requirement of the IRS Model to obtain representations from non-individuals claiming treaty benefits. The representations relate to the beneficial owner's ability to meet any Limitation on Benefits requirements, and that the beneficial owner "derives" the income for which treaty benefits are claimed.

[5] We maintain that any marginal benefit the IRS may derive from requiring these representations is clearly outweighed by the administrative burdens they would impose on QIs. To make such a representation, many customers would be required to undergo a difficult and complicated analysis of treaty concepts. Additionally, this requirement places the French banks at a competitive disadvantage in relation to U.S. treaty partners whose income tax treaty with the U.S. presently does not contain a limitations on benefit clause.

[6] However, the French Banker's Association would agree to this provision with respect to legal entities provided that:

o The treaty representations only apply to customers which open

[8] We note that similar transition relief was allowed with respect to substitute payments on reverse repurchase agreements (see Notice 97-66, Section 2). It also seems that the IRS envisions some transition relief on documentation, although the scope of such relief is not clear. Rev. Proc. 98-27, Section 5.14.

TREATMENT OF FRENCH ENTITIES

[9] In order for a model agreement to be workable in France, it is important that the agreement clarify the treatment of certain French entities. In particular, account holders that are partnerships are subject to significantly different procedures than corporations. In this regard, the "presumptions" of the IRS Model should be modified as follows, consistent with the AFB Model agreement submitted to the IRS last year:

o Any customer organized as an entity listed in Treasury

DOCUMENTATION REQUIREMENTS FOR PARTNERSHIPS (OTHER THAN WITHHOLDING FOREIGN PARTNERSHIPS)

[11] The IRS Model also includes new and cumbersome documentation requirements for partnership customers. Again, as stated above, we believe that any marginal benefit the IRS may derive from requiring these representations is clearly outweighed by the administrative burdens that they would impose not only on QIs but also on the partnerships. However, the French Banker's Association would agree to the documentation requirements with respect to partnerships provided that it only applies to customers which open an account on or after January 1, 2000, and purchase U.S. securities.

DISCLOSURE OF NON-U.S. PERSONS

[12] With respect to non-U.S. persons (other than individuals) receiving U.S. source income subject to treaty rate withholding, the IRS Model requires the QI to disclose the identity of the account holder to the IRS if the account holder receives more than $100,000 of income.

[13] The French Banker's Association propose, as it did in its proposed model withholding agreement (submitted on July 20, 1998), that this income threshold be increased to $10 million before the QI is required to disclose the identity of the non-individual receiving U.S. source income subject to treaty rate withholding. The French Banker's Association will furnish statistical data demonstrating that the $10 million threshold is justified.

STATEMENT OF ASSET CLASSES TO WITHHOLDING AGENT

[14] In the AFB Model submitted last year, a QI would pool accounts into four classes based on the applicable withholding rate -- 0%, 15%, 30%, and 31% (and potentially other pools for different treaty rates). This approach would apply to any QI that does not assume primary withholding responsibility.

[15] The IRS Model should explicitly permit such a pooling arrangement between the QI and the U.S. custodian. The only information that should be required by the withholding agent is information on the proper amount to withhold (at least with respect to non-U.S. beneficial owners). As currently drafted, however, Section 7 of the IRS Model would require the QI to provide much more detailed information, which we feel is completely unnecessary and unwarranted.

FORM 1042-S REPORTING

[16] The IRS Model continues to require a QI to report income received by customers on a country-by-country basis. Such information, which we understand serves no IRS tax administration goal, would create substantial burdens on QIs and significantly diminishes the appeal of being a QI. We reiterate our earlier recommendation that such reporting not be required.

[17] The IRS Model also would require a QI to report payments to nonqualified intermediaries and foreign partnerships (other than withholding foreign partnerships). Again, such reporting adds substantial burdens to a QI, yet the value of such information to the IRS is unclear.

[18] Furthermore, the non-QI establishments will prefer to cease their collaboration with the QI establishments rather than having to disclose the identification of their clients to the QI establishments.

MARKET CLEARING AGENCY

[19] In France, a French bank will often centralize the payments, from and among other banks, on behalf of a market clearing agency (i.e., "SICOVAM") to a U.S. company that is issuing securities. In this situation, under the final U.S. withholding regulations, the central bank and all of its correspondents would have to sign a QI agreement. Unfortunately, the IRS Model is so burdensome that many French banks may opt for non-QI status. If there are a significant number of NQI institutions, the market clearing function of SICOVAM would be disrupted unnecessarily.

[20] We understand that the IRS has an interest in providing a general model withholding agreement for all of the countries. However, the IRS Model should be adapted to each country's legal and cultural context before a majority of non-U.S. banks will enter into such agreements with the IRS.

TREATMENT OF ZERO COUPON BONDS

[21] French banks do not specify the amount of the accrued interest coupon or the zero coupon, as these coupons are included in an undifferentiated manner in the capital gains realized by their customers upon the sale of securities. Thus, they are unable to fulfill any declaratory obligation whatsoever regarding these coupons. We recommend that the effective date for this provision be suspended indefinitely with respect to a QI's responsibility to withhold on such transactions.

BANK CONFIDENTIALITY

[22] The IRS Model would require a QI to disclose the identities of its account holders (except as specifically required under Section 6 of the IRS Model) to a withholding agent to whom it provides a Form W-8IMY. If a French bank discloses the identity of a customer, it would be in violation of the bank confidentiality laws of France. Consequently, under the IRS Model, French banks could not enter into a QI agreement with the IRS and comply with the laws of France, since these provisions are in direct conflict with one another. Therefore, to comply with both French internal law and the IRS Model, an effective system of anonymity must be established that would allow customers of French banks to choose between this system of anonymity or disclosure to a withholding agent.

[23] One potential solution is the application of a 39.6 percent rate of withholding on certain interest and dividends received on behalf of an undisclosed U.S. account holder. This could be achieved through an additional 8.6 percent withholding, imposed by the QI, on reportable interest and dividends (but not gross sales proceeds) received on behalf of the U.S. account holder. Thus, the additional amounts subject to 8.6 percent withholding would include: (1) U.S. source interest and dividends; and (2) non-U.S. source interest and dividends received through a U.S. custodian.

EXTERNAL AUDITOR REPORTS

[24] The IRS Model requires the external auditor to send its findings (i.e., a report, or reports) directly to the IRS, however, the external auditor's report is not required to divulge the identity of the QIs account holders to the IRS.

[25] As previously discussed, French banks are subject to banking confidentiality laws in France which subject the banks to both criminal and civil liability if they disclose the identity of an account holder. Therefore, the French Banker's Association requests that the IRS Model clarify that a QI be entitled to review the external auditor report to ensure that its customers are not disclosed in the report to avoid criminal and civil liability.

FREQUENCY OF EXTERNAL REVIEWS

[26] Requiring two external reviews for each six-year withholding agreement appears to be excessive and unnecessary. If a QI receives favorable external reviews during the first six year term as QI, we believe the subsequent agreement should require only one external review.

[27] We understand, moreover, that the task of the external auditors will only concern the control procedures.

WITHHOLDING ADJUSTMENTS BY THE QI

[28] Although a QI generally could make withholding adjustments by March 15, the IRS Model does not address potential penalties resulting from such adjustments. We recommend that such adjustments not be subject to IRS penalties.

EFFECTIVE DATE RELIEF

[29] There is very little time remaining this year to: (1) finalize all the details for a model withholding agreement; (2) prepare and process individual applications for withholding agreements; and (3) implement the procedural and systems changes to comply with such an agreement. An outright postponement in the effective date may be necessary. At the very least, the IRS should provide significant transition relief for entities willing to become QIs.

[30] In addition, the IRS should provide significant transition relief of AT LEAST TWO YEARS for entities willing to become QIs.

NO BOND OR OTHER GUARANTEE

[31] The last AFB submission (dated November 17, 1998) requested that no bond or other guarantee be required from a French QI, due to the presence of Article 28 of the U.S.- France income tax treaty (dealing with mutual assistance). It appears from the IRS Model that this suggestion has been adopted, although we request specific confirmation on this issue.

FRENCH "KNOW-YOUR-CUSTOMER" RULES

[32] A response to the eighteen know-your-customer rule questions enumerated in Notice 99-8 will be provided in the near future under separate cover.

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[33] We appreciate your consideration of these recommendations. If you have any questions, please call me at 467-2407.

Very truly yours,

[35] In general, the Proposal has been developed in accordance with section 1.1441-1(e)(5) of the Regulations and Revenue Procedure 98-27. Some aspects of this revenue procedure, however, are not reflected in the Proposal. We intentionally excluded some aspects of Rev. Proc. 98-27 in order to limit the administrative burdens imposed on French qualified intermediaries (QIs). The remainder of this letter addresses some significant aspects of our Proposal.

CUSTOMER DOCUMENTATION

[36] Customer documentation requirements are based on French "know-your-customer" ("KYC") requirements. For individuals, such documentation consists of a National identification card, passport, residence permit, or certificate issued by the French Tax Administration. For non-individuals, such documentation includes an organizational document (e.g., articles of incorporation), a registration certificate ("K bis") issued by the Commercial and Corporate Registry, or similar documentation.

[37] Please realize that any departure from standard KYC documentation will result in new administrative burdens for QIs. Requesting customers to make declarations on esoteric U.S. tax principles would result in substantial confusion for those customers, and a QI's personnel would be expected to handle the inquiries.

No requirement to renew documentation

[38] Consistent with French KYC rules, the QI would not be required to renew customer documentation every three years. However, to help ensure the continued accuracy of customer documentation, the QI would be required to exercise due diligence.

Status of customer as partnership under U.S. tax principles

[39] For non-individual customers, the QI would be required in some cases to obtain a representation as to whether the customer is a partnership under U.S. tax principles. However, representations would not be required from customers included in the IRS list of "per se" corporations. Reg. section 301.7701-2(b)(8). Similarly, partnership representations would not be required from entities whose members all have limited liability, and these entities could be treated as corporations under U.S. principles. Reg. section 301.7701- 3(b)(2)(i)(B). Finally, if the QI knows the customer is not a partnership under U.S. principles, the QI is not required to request a representation from the partnership. A similar "knowledge" standard exists with respect to identifying U.S. exempt recipients. See Reg. section 1.6049-4(c)(1)(ii).

Treaty certifications

[40] We are particularly troubled by the requirement of Rev. Proc. 98-27 to obtain representations from non-individuals claiming treaty benefits. The representations relate to the beneficial owner's ability to meet any Limitation on Benefits requirements, and that the beneficial owner "derives" the income for which treaty benefits are claimed. We believe that any marginal benefit the IRS may derive from requiring these representations is clearly outweighed by the administrative burdens they would impose on QIs. In order to make such a representation, many customers would be required to undergo a difficult and complicated analysis of treaty concepts.

[41] Accordingly, the Proposal does not include a requirement of a QI to obtain a representation from its customer regarding eligibility for treaty benefits.

PRIVATE ARRANGEMENTS

[42] Based on the preamble to the final withholding regulations (T.D. 8734), the Proposal would allow the QI to enter into private arrangements with intermediary customers. This added flexibility would enable the QI's customer to follow the terms of the QI's withholding agreement and not disclose customer identities to the QI. Since some QI customers may be reluctant to sign their own withholding agreement with the IRS, however, the private arrangement option may prove to be quite helpful.

DE MINIMIS EXCEPTION

[43] To limit the potential administrative costs on QIs, the Proposal includes a de minimis exception to the customer documentation requirements. The Proposal would allow the QI to presume that a customer receiving $3,000 or less in a calendar year of U.S. source income is a resident of France. This would substantially ease the QI's efforts to classify its accounts, yet provide minimal risk to the fisc.

WITHHOLDING OPTIONS AND ASSET CLASSIFICATION

[44] A French QI could elect either to assume primary withholding responsibility or to defer such responsibility to the U.S. withholding agent. Such an election could be made on an account- by-account basis.

[45] If electing to assume primary withholding responsibility, the French QI would be responsible for apply 30 percent withholding or 31 percent "backup" withholding. No such withholding taxes would be deducted by the U.S. withholding agents.

[46] If the French QI does not assume primary withholding liability, essentially four asset classes would be established based on the withholding rate applicable to income generated by those assets: (1) a 0% class (for U.S. and non-U.S. persons exempt from withholding); (2) a 15% class (for non-U.S. beneficial owners entitled to a treaty withholding at that rate); (3) a 30% class (for non-U.S. beneficial owners subject to full withholding); and (4) a 31% class (for U.S. persons or certain undocumented persons subject to backup withholding).

DISCLOSURE OF NON-U.S PERSONS

[47] With respect to non-U.S. persons (other than individuals) receiving U.S. source income subject to treaty rate withholding, Rev. Proc. 98-27 requires the QI to disclose the identity of the account holder to the IRS if the account holder receives more than a certain threshold of income. The income threshold would be no more than $100,000.

[48] The Proposal modifies this requirement in two respects. First, the income threshold would be set at $10 million. Second, when the account holder received more than $10 million, the QI would have the option to either: (i) disclose the customer's identity to the IRS (upon request by the IRS); or (ii) request its external auditor to verify the customer's eligibility for treaty benefits. Although option (ii) would result in non-disclosure to the IRS, we believe the IRS's enforcement concerns will be satisfied through the role of the external auditor. Given the critical role that external auditors have with respect to verifying a QI's compliance, expanding this role to cover these situations provide added flexibility to the QI.

TREATMENT OF U.S. CUSTOMERS

U.S. persons disclosed only if certain payments received

[49] Consistent with Reg. section 1.1441-1(e)(3)(iv), a French QI will be required to disclose the identity of a U.S. person (other than an exempt recipient) if the U.S. person receives the items of income described in that section -- generally U.S. source interest and dividends. U.S. persons receiving only non-U.S. source income, therefore, would not be disclosed to the U.S. withholding agent.

[50] Once a U.S. person is disclosed to a U.S. withholding agent, however, all reportable payments (including non-U.S. source income) to that person are reportable on Form 1099.

Omnibus account structure permitted

[51] Rev. Proc. 98-27 anticipates that a separate account would be established for every U.S. person (other than exempt recipient). The additional costs for establishing each account, however, could be substantial. To help limit these increased costs, the Proposal permits the QI to have a single class (i.e., a single account with the U.S. withholding agent) for assets generating income exempt from U.S. withholding. This class could include both U.S. persons exempt from backup withholding and non-U.S. persons exempt from nonresident alien withholding. Payments to the account would be exempt from all U.S. withholding taxes. By January 21 of the following year, the QI would provide information to the U.S. withholding agent necessary to file all Forms 1099. A separate asset class would be established for income subject to backup withholding -- i.e., all assets held by U.S. persons subject to backup withholding, plus bank deposits and 183-day original issue discount obligations held by undocumented non-U.S. persons.

Assumption of "withholding" responsibility even if no U.S. branch

[52] The Proposal also allows a QI to assume withholding responsibility with respect to U.S. persons, even if the QI does not have a U.S. branch. The QI would provide Form 1099 information to the U.S. withholding agent in the manner described in the paragraph above, and Forms 1099 would be filed by the U.S. withholding agent. Furthermore, the QI would be responsible for any backup withholding required. This would be accomplished by the QI either paying the backup withholding (either from its own funds or customer funds) or obtaining a Form 4669 by April 30 of the year following the reportable payment.

FORM 1042 REPORTING -- NO COUNTRY-BY-COUNTRY INFORMATION

[53] Rev. Proc. 98-27 would require a QI to report the amount of income received for beneficial owners resident of a particular country. This country-by-country breakout of information would apply even if the withholding rates are the same. We believe this requirement provides no valuable information for purposes of IRS tax administration. The burdens to a QI, however, would be substantial, and we therefore do not include it in the Proposal.

RECORD RETENTION

[54] With respect to record retention, the Proposal would allow a QI to rely on an employee statement that he or she reviewed a customer's documentation. This would enable a QI to satisfy the customer documentation requirements of the agreement if a particular operation did not photocopy such documentation.

* * * * *

[55] We appreciate the opportunity to present you with this proposal. If you have any questions, please contact me at (202) 467- 2407.

Very truly yours,

1. NO GUARANTEE BY QI.

[57] Section VII.3 (relating to guarantee of payment) has been revised to state that a qualified intermediary (QI) "is not required to arrange any form of a guarantee with the IRS, such as a bond or letter of credit." We believe that no bond or letter of credit is necessary in light of Article 28 of the U.S.-France income tax treaty, which generally provides that each country may assist the other in the collection of taxes. This article should eliminate the need for a formal guarantee by the QI.

2. NO DISCLOSURE OF NON-U.S PERSONS TO THE IRS.

[58] Section V.3 (relating to potential disclosure of non- individuals to the IRS) has been revised to state that the QI "is not obligated to disclose the identity of any non-individual customer who benefits from reduced withholding under an income tax treaty with the U.S." In general, Revenue Procedure 98-27 requires a QI to disclose account holders THAT HAVE CERTIFIED TO MEETING A LIMITATION ON BENEFITS PROVISION AND THAT "DERIVE" THE INCOME WITHIN THE MEANING OF U.S. TAX RULES. However, the FBA Model would allow a QI to grant treaty benefits WITHOUT obtaining treaty certifications from the non- individual customer. Accordingly, a QI should not be required to disclose the identity of any non-individual customers that benefit from lower treaty withholding rates.

3. NO TINS FROM NON-U.S. CUSTOMERS.

[59] Section IV.12 (relating to TINs) has been revised to state that the QI "is not required to obtain U.S. taxpayer identification numbers (TINs) from its non-U.S. customers." As discussed above, a QI should not be required to disclose the identity of non-individuals to the IRS. Since a TIN is somewhat meaningless for a customer that is not disclosed to the IRS, the FBA Model would eliminate the TIN requirement altogether.

[60] For your convenience, we have provided a copy of the revised FBA Model with the revisions highlighted (but the appendices are not included). Please note that the text containing the revisions discussed above is underlined. If you have any questions, please contact me at (202) 467-2407.

Very truly yours,

____________________________ (name of entity entering into withholding agreement), which is one of the following types of financial institutions doing business in France: (i) an institution regulated by French Banking Law dated 24 January, 1984; (ii) enterprise d'investissernent regulated by French Law dated 2 July, 1996; (iii) the Caisse des Depots et Consignations; or (iv) the French central bank (referred to in this document as "Financial Institutions" ("F.I.s"))

AND

the Internal Revenue Service (the "IRS").

I. PURPOSE

[62] An F.I. that enters into this withholding agreement will be a "qualified intermediary" ("QI") as described under U.S. Treasury Regulation ("Reg.") section 1.1441-1(e)(5) and Revenue Procedure 98-27.

II. SCOPE

1. PAYMENTS SUBJECT TO AGREEMENT -- "REPORTABLE PAYMENTS.

[63] This agreement applies to the following payment types received by the F.I.: (1) U.S. source interest, dividends, and other fixed or determinable annual or periodical income potentially subject to 30 percent withholding under Internal Revenue Code ("Code") sections 1441 and 1442; and (2) interest, dividends, gross sales proceeds, and other reportable payments potentially subject to 31 percent backup withholding under Code section 3406.

2. F.I. OPERATIONS SUBJECT TO AGREEMENT.

[64] This agreement applies only to the F.I.'s operations within France as designated in this agreement. Although all of the F.I.'s operations within France may be included in the agreement (if so designated in the agreement), the agreement could be limited to cover only certain specific operations (e.g., custody). The agreement may be modified and expanded to cover operations conducted outside of France. Other agreements covering operations conducted through branches or subsidiaries of the F.I. may also be added to this agreement.

3. LIMITATION OF F.I.'S RESPONSIBILITIES.

[65] The F.I.'s responsibilities to the IRS with respect to withholding and reporting requirements for the payments subject to this agreement shall be limited to those expressly provided for in this agreement (or any subsequent agreement between the F.I. and the IRS).

III. IDENTIFYING INFORMATION

[66] Please provide the following identifying information:

Name(s) and address(es)

[67] The F.I.'s requirements to request documentation from customers are set forth below.

1. CUSTOMER DEFINED.

[68] For purposes of this agreement, the "customer" is defined as the person or entity whose name is listed on the F.I.'s records as the owner of an account.

2. INDIVIDUAL CUSTOMERS.

[69] For an individual customer, the F.I. must request one of the following documents:

(i) A National identification card issued by the French

[70] With respect to a customer other than an individual, the F.I. must request one of the following documents:

(i) An organizational document from that entity, such as the

[71] The F.I. may determine if a non-individual customer is a partnership under U.S. tax principles based on the following rules:

(i) Any customer organized as an entity listed in Treasury

[72] The F.I. may treat a customer as a QI only if the customer certifies its QI status on Form W-8 (or acceptable substitute form). If the QI customer assumes primary withholding responsibility, the F.I. must not withhold U.S. taxes on accounts held by that QI customer. If the QI customer does not assume primary withholding responsibility, it must classify its accounts in accordance with the procedures of Section VIII.

6. CUSTOMERS THAT ARE INTERMEDIARIES (OTHER THAN QIs).

(i) IN GENERAL. If the F.I.'s customer is another intermediary

[73] The F.I. may treat a customer as an international organization (as defined under Code section 7701(a)(18)) if the customer's name is one that is designated as an international organization by executive order pursuant to 22 United States Code 288 through 288(f) and other facts surrounding the transaction reasonably indicate that the international organization is the beneficial owner of the payment.

8. NON-U.S. GOVERNMENTS.

[74] Non-U.S. governments may provide an IRS Form W-8 to claim exemption from U.S. withholding taxes pursuant to Code section 892.

9. NON-U.S. TAX EXEMPT ORGANIZATIONS AND PRIVATE FOUNDATIONS.

[75] Tax exempt organizations organized outside the U.S. may provide an IRS Form W-8 (including a TIN) to claim an exemption from U.S. withholding taxes, provided all required representations on that form are provided. If such an organization is described in Code section 501(c)(3), the organization also must indicate if it is a private foundation described in Code section 509.

10. OPTION TO USE FORM W-8 FOR ANY NON-U.S. CUSTOMER.

[76] The F.I. may obtain an IRS Form W-8 (or adequate substitute form) to determine the proper treatment of any non-U.S. customer. The Form W-8 may be signed by any person authorized to sign a U.S. income tax return for the non-U.S. customer, such as a person acting under a valid power-of-attorney. The F.I. itself may sign such forms if it has the authority to do so from the non-U.S. customer. Any Forms W-8 obtained by the F.I., however, will not be subject to the three-year renewal requirement described in Reg. section 1.1441- 1(e)(4)(ii)(A).

11. ADDITIONAL DOCUMENTATION FROM U.S. PERSONS.

[77] If the documentation described above indicates the customer is a U.S. person (other than an exempt recipient), or if the F.I. otherwise knows that the customer is a U.S. person, the F.I. must request a Form W-9 from that customer. Exempt recipients, and the method of identifying them, are listed in Attachment B.

12. TINS NOT REQUIRED FROM NON-U.S. CUSTOMERS.

[78] The F.I. is not required to obtain U.S. taxpayer identification numbers (TINs) from its non-U.S. customers.

13. THE F.I. MAY RELY ON CUSTOMER DOCUMENTATION.

[79] The F.I. may rely on the documentation received from a customer.

14. DE MINIMIS EXCEPTION.

[80] The documentation requirements described above do not apply to any account earning $3,000 or less of U.S. source Reportable Payments. The F.I. may treat income generated from such assets as benefically owned and derived by a resident of France.

V. DISCLOSURE OF CUSTOMER INFORMATION TO THIRD PARTIES

1. NO REQUIREMENT TO PROVIDE DOCUMENTATION OF NON-U.S. CUSTOMERS TO U.S. WITHHOLDING AGENT.

[81] The F.I. is not required to provide a copy of the documentation of its non-U.S. customers to any U.S. withholding agent.

2. DISCLOSURE OF CERTAIN U.S. PERSONS TO U.S. WITHOLDING AGENT.

[82] If the F.I.'s customer is a U.S. person (other than an exempt recipient), the F.I. must provide a copy of that person's Form W-9 (or any other available identifying information including name, address, and TIN) to the U.S. withholding agent if the U.S. person receives one of the following types of income: income subject to withholding within the meaning of Reg. section 1.1441-2(a) (e.g., U.S. source interest and dividends potentially subject to 30 percent withholding); U.S. source bank deposit interest described in section 871(i)(2)(A); interest or original issue discount on short-term (183- day or less) obligations described in section 871(g)(1)(B). However, U.S. source income from bank deposits or sale/repurchase agreements that close within 14 days, or income from bearer obligations described in Reg. section 1.6049-5(b)(7), (10), or (11), is excluded from the preceding sentence.

3. POTENTIAL DISCLOSURE OF CERTAIN NON-U.S. PERSONS (OTHER THAN INDIVIDUALS) TO THE IRS.

[83] With respect to a non-U.S. customer (other than an individual), THE F.I. IS NOT OBLIGATED TO DISCLOSE THE IDENTITY OF ANY NON-INDIVIDUAL CUSTOMER WHO BENEFITS FROM REDUCED WITHHOLDING UNDER AN INCOME TAX TREATY WITH THE U.S.

VI. DUE DILIGENCE REOUIREMENTS

1. DUE DILIGENCE REVIEW OF DOCUMENTATION.

[84] The F.I. will apply the due diligence procedures described in Attachment C when reviewing the documentation received from a customer.

2. DUE DILIGENCE MONITORING OF ACCOUNT.

[85] The F.I. will monitor changes of account information during the life of the account, in accordance with the due diligence principles described in Attachment C. For example, if an individual citizen and resident of France changes his residence address from France to another country that does not have an income tax treaty with the U.S., and the customer receives dividends potentially eligible for a 15 percent withholding rate under the U.S.-France treaty, the F.I. must inquire as to whether that customer's tax residence has changed.

3. ANNUAL MAILING OPTION.

[86] In lieu of the due diligence requirements set forth in paragraph (2) above, the F.I. may satisfy its due diligence requirements by conducting a mailing to each customer receiving U.S. income described in Section II.1. The mailing must consist of: (1) a letter describing the F.I.'s current classification of the account holder for U.S. tax purposes; and (2) an IRS Form W-8. If the customer does not certify a different status on the Form W-8, the F.I. may consider the customer's status as being unchanged.

4. NO REQUIREMENT TO RENEW DOCUMENTATION.

[87] The F.I. is not required to renew the documentation received from its customers.

VII. WITHHOLDING RESPONSIBILITIES FOR U.S. TAXES

1. DESIGNATION OF WITHHOLDING RESPONSIBILITY (the F.I. must select one of the following options in its proposed withholding agreement with the IRS).

(i) NO ASSUMPTION OF PRIMARY WITHHOLDING RESPONSIBILITY.

[88] The F.I. does not assume "primary withholding responsibility," as this term is described in Treas. Reg. section 1.1441-1(e)(5)(iv). A U.S. withholding agent making payments to the F.I. must: (1) apply U.S. withholding taxes according to the asset classification information (described in section VIII) provided by the F.I.; and (2) report payments to the F.I. on Forms 1042 and 1042- S. Furthermore, a U.S. withholding agent will be responsible for filing Forms 1099 and applying backup withholding, if required, for any U.S. customers identified by the F.I.

(ii) ASSUMPTION OF PRIMARY WITHHOLDING RESPONSIBILITY.

[89] The F.I. assumes "primary withholding responsibility," as this term is described in Reg. section 1.1441-1(e)(5)(iv). Consequently, the F.I. will receive 100 percent of all U.S. source income, and the F.I. must withhold all U.S. taxes on such income according to the asset classification information (described in section VIII).

[90] By electing primary withholding responsibility, the F.I. is responsible for the depositing of taxes withheld to the U.S. Treasury. Taxes withheld during a calendar month must be deposited by the 15th day of the following calendar month.

[91] Reporting on IRS Forms 1099 for payments to U.S. persons (other than exempt recipients) will be performed by [select one]:

o The U.S. withholding agent.

[93] If the U.S. withholding agent (not the U.S. branch of the F.I.) is responsible for filing Forms 1099, the following procedures apply:

o The F.I. must provide the U.S. withholding agent with

2. REFLECTING WITHHOLDING RESPONSIBILITY ON FORM W-8 COMPLETED BY F.I.

[95] The Form W-8 completed by the F.I. and furnished to the U.S. withholding agent must reflect whether the F.I. has assumed primary withholding responsibility.

3. NO BOND REQUIRED.

[96] The F.I. is not required to arrange any form of a guarantee with the IRS, such as a bond or letter of credit.

VIII. CLASSIFICATION OF ASSETS

1. GENERAL REQUIREMENTS.

[97] In general, the F.I. must identify the relevant classes of assets, with each class producing income subject to the same withholding rate.

2. ANTICIPATED ASSET CLASSES.

[98] It is anticipated that the F.I. will identify the following asset classes:

o 0% NRA/U.S. Class. This class includes:

3. ALLOCATION INFORMATION REGARDING U.S. CUSTOMERS IF F.I. ASSUMES PRIMARY WITHHOLDING (AND FORM 1099 REPORTING) RESPONSIBILITY.

[100] If the F.I. assumes primary withholding responsibility for its U.S. customers, and the U.S. branch of the F.I. assumes the Form 1099 reporting and backup withholding responsibilities for such customers (see Section VII.1.ii), the F.I. is not required to provide allocation information regarding its U.S. customers to the U.S. withholding agent. If the F.I. does not have a U.S. branch that assumes such a responsibility, the F.I. must provide information to the U.S. withholding agent with respect to U.S. persons as described in Section VII.1.ii.

4. ALLOCATION INFORMATION REGARDING U.S. CUSTOMERS IF F.I. DOES NOT ASSUME PRIMARY WITHHOLDING RESPONSIBILITY; POTENTIAL BACKUP WITHHOLDING LIABILITY.

[101] If the F.I. does not assume primary withholding responsibility for its U.S. customers, the F.I. must provide the U.S. withholding agent with information on the allocation of Reportable Payments described in Section II.1 (interest, dividends, and gross sales proceeds) for each U.S. person who is not an exempt recipient and whose identity must be disclosed to the U.S. withholding agent. Such allocation information, however, relates only to Reportable Payments received from the U.S. withholding agent. The F.I. must provide such information to the U.S. withholding agent by January 21 of the year following the year of the Reportable Payment. Failing to provide such information to the U.S. withholding agent would potentially result in a penalty to the F.I. under Code sections 6721 and 6722.

5. OPTION TO DESIGNATE SEPARATE ASSET CLASS FOR EACH U.S. CUSTOMER.

[102] The F.I. may elect to designate a separate asset class for each U.S. customer (other than an exempt recipient) in lieu of providing allocation information. One asset class could be designated for exempt recipients.

6. CLASSIFYING ASSETS HELD BY CUSTOMERS.

[103] The F.I. will classify assets held by a customer based on the documentation provided by that customer. For example:

o With respect to a customer that has provided the documentation

[104] The F.I. must certify to the U.S. withholding agent the status of each class (i.e., whether the assets are held by U.S. or non-U.S. persons) and the applicable withholding rate with the intermediate withholding certificate. The F.I. must update asset classification information provided to the U.S. withholding agent as often as necessary to enable the U.S. withholding agent to withhold at the appropriate rate on each payment.

IX. INFORMATION REPORTING

1. FORM 1042 REPORTING.

[105] The F.I. will report U.S. source income to the IRS annually on Form 1042 in the manner described below.

2. SCOPE OF INCOME REPORTABLE ON FORM 1042.

[106] The F.I. will be responsible for reporting U.S. source income on Form 1042 only to the extent such income is subject to reporting on Form 1042-S under the applicable Treasury Regulations. Thus, income from original issue discount obligations with a term of 183 days or less will not be reported by the F.I. on Form 1042.

3. REPORTING BASED ON SEPARATE ASSET CLASSES.

[107] The F.I. is required to report the amount of income received (and the amount of related U.S. withholding taxes) based on the nature of the income (e.g., interest or dividends) and the applicable withholding rate. For example, the F.I. would separately report the amount of the following items of income:

(i) Interest exempt from withholding (including portfolio

4. OVER- AND UNDERWITHHOLDING, ADJUSTMENTS, ETC.

[109] The Form 1042 must include information regarding overpayments or balances due, adjustments, and an explanation for the over- or underwithholding.

5. INTERNAL AUDIT REPORT.

[110] If applicable, a statement regarding the audit performed by the QI's internal auditors must be attached. The statement must disclose any noncompliance noted during the audit and steps taken to correct the action.

6. EXTERNAL AUDIT REPORT.

[111] If applicable, a statement regarding the audit performed by the F.I.'s external auditors must be attached. The statement must disclose any noncompliance noted during the audit and steps taken to correct the action.

7. NO FORM 1042-S REPORTING TO BENEFICIAL OWNERS.

[112] The F.I. is not required to file Forms 1042-S with respect to its customers.

8. LIST OF U.S. WITHHOLDING AGENTS.

[113] The F.I. also must provide a list of all U.S. withholding agents from whom such amounts were received, but only if the F.I. receives a Form 1042-S from that U.S. withholding agent for the applicable year.

9. NO REPORTING OF INCOME RECEIVED ON COUNTRY-BY-COUNTRY BASIS.

[114] For each category of income reported by the F.I. on the schedule attached to the Form 1042, the F.I. is not required to report the amount received by beneficial owners from a particular country.

X. REFUNDS

1. REFUND FROM WITHHOLDING AGENT.

[115] If excess withholding occurs (as a result of, e.g., late documentation from the customer or due to a reclassification of income), the F.I. may request a refund directly from the U.S. withholding agent, and the withholding agent may grant the refund in accordance with Treasury Regulation section 1.1461-2(a). Therefore, the U.S. withholding agent may provide the refund -- by either repaying the F.I. for the excess amount withheld, or reducing amounts withheld on subsequent payments to the F.I. -- before the March 15 due date (without regard to extensions) for filing the Form-1042-S for the calendar year of the overwithholding.

2. REFUND FROM IRS.

[116] If excess withholding occurs and the U.S. withholding agent does not refund the excess amount to the F.I., the F.I. may request a refund by filing a request with the IRS. The F.I. must provide the IRS with a statement that (1) the F.I. will not and has not reported the withheld taxes on Form 1042-S and the F.I. will furnish the refund to its customer; and (2) the F.I. has notified the beneficial owners that they may not claim refunds with respect to such excess withholding.

XI. VERIFICATION

1. NO ON-SITE IRS AUDITS.

[117] The IRS will not perform on-site audits to verify the F.I.'s compliance with this agreement. Instead, the IRS may verify the F.I.'s compliance through the external and internal audit procedures described below.

2. EXTERNAL AUDIT PROCEDURES.

[118] An external auditor may verify the F.I.'s compliance with the withholding agreement by issuing a favorable "External Auditor's Report" (the "External Report") to the F.I. In general, a favorable External Report will be issued if the external auditor has reasonable assurance that: (1) the procedures developed by the F.I. were reasonably designed to ensure that the F.I. complies with the terms of this agreement; (2) the procedures were in place at the time of the review; and (3) the controls tested were operating with sufficient effectiveness to provide reasonable, but not absolute, assurance that the specified control objectives were achieved during the period of time covered by the External Report. The auditor's methodology also must be described in the External Report. The F.I. agrees to allow its external auditor to have access to all of its relevant records.

3. INTERNAL AUDIT PROCEDURES.

[119] The F.I.'s internal audit department (or similar department) may verify the F.I.'s compliance with the withholding agreement by issuing a favorable "Internal Auditor's Report" (the "Internal Report"). In general, a favorable Internal Report will be issued only if the department has the same assurances described in paragraph (2) above.

4. FREQUENCY OF EXTERNAL AND INTERNAL AUDITS.

[120] The F.I. will be subject to:

o Internal audits conducted annually; and

[121] The Internal (and when required, External) Report must be completed within six months after the end of the F.I.'s fiscal year during which the verification was conducted. Copies of the Report must be provided to the F.I. senior management and the IRS. Reports for the IRS may be submitted with the next Form 1042 due to the IRS.

6. REPORT MUST NOTE IF EXTERNAL OR INTERNAL AUDITOR DOES NOT HAVE REASONABLE ASSURANCE.

[122] If the external or internal auditor does not have reasonable assurance of the items listed in Section XI.2. and 3., this finding must be noted in the Report.

7. PERSONS ELIGIBLE TO ACT AS EXTERNAL AUDITORS.

[123] Persons eligible to act as external auditors are accounting firms subject to regulatory supervision in either France or the U.S.

8. EXTERNAL AUDITOR'S RECORDS AVAILABLE TO THE IRS.

[124] The IRS may request to examine the external auditor's records, including workpapers, reports, and a description of the audit methodology used by the auditor. The IRS will not, however, request the external auditor to provide information regarding the identity of the F.I.'s customers.

9. IDENTITY OF F.I.'s EXTERNAL AUDITOR.

[125] The following person has agreed to act as the F.I.'s external auditor. The F.I. must inform the IRS within 60 days if a different external auditor is used.

Name: ________________________________

1. ERRORS RESULTING FROM INCORRECT INFORMATION PROVIDED BY ANOTHER PERSON.

[126] If an error resulting from incorrect information provided by another person (e.g., a F.I. customer) is detected by either the F.I. or the external auditor, the F.I. must correct such errors within 90 days on a prospective basis. The F.I. is not liable to the IRS for such underwithholding, or any interest and penalties related to the underwithholding.

2. ERRORS RESULTING FROM F.I. NONCOMPLIANCE.

[127] If the F.I. commits an error by not complying with the terms of this agreement, the F.I. will be liable for any underwithholding resulting from that error, and the F.I. must pay such underwithholding to the IRS (including any underwithholding identified by a Internal or External Audit) with the filing of its Form 1042. The F.I. is liable for any interest due on the underwitholding but no penalties are to be imposed on the F.I. with respect to this underwithholding.

3. NO WITHHOLDING LIABILITY, INTEREST, OR PENALTIES IF ERROR DOES NOT RESULT IN UNDERPAYMENT OF U.S. TAX.

[128] If no underpayment of U.S. tax results from a F.I. error, the F.I. will not be held liable for any underwithholding, interest, or penalties. For example, assume that a F.I. customer receives U.S. source dividends but has not provided any documentation. If the F.I. treats that customer as entitled to a 15 percent withholding rate under the U.S.-France income tax treaty, the F.I. will not be held liable for underwithholding, interest, or penalties if it eventually receives documentation supporting such treatment.

4. RESULT OF UNSATISFACTORY REPORT.

[129] As a result of an unsatisfactory Report (Internal or External), the IRS may request additional information from the External or Internal Auditor. If the IRS determines that the F.I. has not complied with the terms of this agreement and is in default, the IRS may provide the F.I. with a written notice of default describing the noncompliance.

5. NO UNSATISFACTORY REPORTS FOR DE MINIMIS UNDERWITHHOLDING.

[130] The External or Internal Auditor shall not issue an unsatisfactory Report solely because of de minimis underwithholding errors (i.e., underwithholding of $50,000 or less). Although the Reports must note such underwithholding, the IRS may not request additional information due to this error alone.

6. EVENTS OF DEFAULT.

[131] A F.I. will be considered to be in default of the agreement if one of the following exists:

(i) The amount of underwithholding for a calendar year is the

[132] After issuing a notice of default, the IRS shall permit the F.I. to either respond or correct the error within 90 days. If the matter remains unresolved after this period, the IRS may issue a notice of termination to the F.I. The F.I. also may terminate this agreement by issuing a notice of termination to the IRS. A notice of termination shall be effective no sooner than 30 days from the date it is issued by the IRS or the F.I.

8. REQUEST FOR NEW AGREEMENT BY QI.

[133] If the IRS adopts a model withholding agreement (for a country other than France) that includes terms less burdensome than this agreement, the QI may request a new agreement. It is anticipated that the IRS would grant such a request promptly.

XIII. TERM OF AGREEMENT, EFFECTIVE DATE, AND RENEWAL

1. TERM.

[134] This agreement shall be valid for a period of ten (10) years from the date it is signed, unless terminated by the IRS or the F.I.

2. EFFECTIVE DATE.

[135] This agreement is effective January 1, 2000.

3. RENEWAL.

[136] An application to renew the withholding agreement must be made by the F.I. no later than six months before the expiration date of the existing agreement. The renewal application should be sent to the IRS and include updated information with respect to the above sections. If the F.I. and the IRS are unable to reach an agreement on the renewal of the agreement by the expiration of the existing agreement, the existing QI agreement may be extended until such time as the F.I. and the IRS reach an agreement.

XIV. RECORD RETENTION

1. COPIES OF CUSTOMER DOCUMENTATION OR EMPLOYEE AFFIDAVITS.

[137] Customer documentation described in Section III must be retained in one of the following ways:

(i) For accounts opened on or after January 1, 2000, the F.I.

[138] The F.I. must retain either physical (hard) copies of the documentation described in the paragraph above, or retain such documentation on microfiche, microfilm, or electronic data storage system. All customer documentation must be retained for the term of the account, plus three years from the date the account is closed.

3. OTHER DOCUMENTATION.

[139] All other documentation relating to compliance with this agreement, such as copies of Forms 1042 and communications to U.S. withholding agents on account classification, must be maintained for three years from the time such communications are provided.

XV. SIGNATURES

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