A PAI agreement is a private contract between a non-US financial institution and a QI. The required content of a PAI agreement is set forth in section 4 of the QI Agreement (Rev. Proc. 2017-15). A PAI agreement can only be established between a QI and a non-US financial intermediary that has a FATCA status of Certified Deemed-Compliant FFI.

The PAI agreement is not provided to the IRS, however the QI must inform the IRS of the existence of a PAI relationship before the first payment is made to the PAI.

A PAI relationship essentially is a “private QI” relationship that exists only between the PAI and the QI with which it has entered a PAI agreement. The QI treats the direct non-US clients of the PAI as its own clients.

Under the PAI agreement the PAI agrees to implement and comply with the same documentary procedures as the QI. The PAI is also subject to the period review in the same year as the QI.

The QI retains all withholding and documentary responsibility for payments made to the PAI, and this responsibility cannot be transferred to the PAI. All payments made by the QI to the direct clients of the PAI are reported by the QI on Form 1042-S on a pool basis.