Nonfinancial MNCs that were in compliance with existing tax reporting and withholding requirements are discovering they have many new responsibilities and requirements as a result of the modifications to the regulations.
The requirements of the Foreign Account Tax Compliance Act (FATCA) and other recently issued US information reporting regulations are either effective immediately or are set to apply beginning on July 1. These rules not only impact the financial services sector, but are expected to affect many nonfinancial services entities with operations both in and outside of the United States. Unfortunately, many nonfinancial multinational companies (MNCs) believe the two sets of recently released final and temporary regulations do not affect them. Moreover, MNCs believe that they do not need to take any action to be compliant with FATCA or to accommodate the overall changes to existing information reporting and withholding processes and procedures.
Nonfinancial MNCs that were in compliance with existing tax reporting and withholding requirements are discovering they have many new responsibilities and requirements as a result of the modifications to the regulations. These regulations not only impact payment flows; they also impact payee documentation requirements and the associated presumption rules when documentation is not provided. Moreover, nonfinancial MNCs are discovering that foreign financial institutions exist in their group despite FATCA providing many exceptions and special carve outs that limit which entities are considered to be financial institutions.
FATCA implementation dates are fast-approaching. Accordingly, time is of the essence to analyze the impact of the FATCA rules on your organization and comprise an overall compliance plan going forward. Companies should give FATCA compliance a greater priority to minimize payment delays and unexpected withholding costs relating to its status as either a payee or payor.