Beginning July 1, 2014, the Foreign Account Tax Compliance Act (FATCA) introduces significant new documentation, information reporting, and tax withholding requirements on certain entities making cross-border payments. Because FATCA is directed primarily at financial institutions, many companies whose primary business activities lie outside the traditional financial services arena mistakenly believe that they are not affected by the new regime. However, because FATCA’s statutory language is broadly written, the new regime applies to a wide range of companies across all industries, including industrial products and services companies.
To ensure compliance with its requirements, FATCA imposes a 30% withholding tax on certain ‘withholdable payments’ made by and to certain non-US entities. Failure to comply with FATCA’s requirements may impact companies as both payor and payee. Accordingly, companies should determine whether they have entities or operational areas within their global corporate structures that make or receive withholdable payments subject to FATCA’s new requirements. Upon determining exactly how FATCA applies to their organizations, multinational industrial products and services companies should develop an action plan to implement processes and procedures to comply with the new requirements.