FATCA, the Foreign Account Tax Compliance Act, was enacted in 2010 to prevent and detect offshore tax evasion. Based on the name and a quick reading of the rules, FATCA seems to be directed at financial institutions. So, many global companies outside the financial services industry mistakenly believe that they are not affected. However, upon closer review, many realize the surprising fact that they have entities in their worldwide network falling under the purview of FATCA, or have operational areas that make or receive payments subject to FATCA.
Multinational enterprises that are withholding agents are already currently obligated to report, withhold on payments, and document payees, but FATCA requires changes to these activities. FATCA mandates that multinational businesses evaluate entity payees differently, engage in withholding on certain gross proceeds transactions (a change from historic processes), as well as report different information to the Internal Revenue Service (IRS).
So, the important analysis is to determine how FATCA’s complex regime will affect your organization and what changes and new steps are required. This demands understanding the types of entities in your company’s organizational structure and which payment types create new or different obligations.