FATCA is Not Just for Financial Institutions. It Affects U.S. Individuals, Including Settlors and Beneficiaries of Foreign Trusts, and Multinational Corporations Too

Most of the focus for FATCA has been on how financial institutions will cope, but multinational corporations and individuals, including those involved with foreign trusts and foreign entities also will have to comply because any U.S. source payment to a non-U.S. entity could be subject to the 30% withholding tax.

MNCs will have to reengineer their accounts payable systems so that they can:

•  Determine if the payment is a "withholdable payment" under FATCA (many royalties and rents will be) or income that is effective connected with the non-U.S. entity's U.S. trade or business (and therefore exempt),
• Tell whether a non-U.S. entity is a foreign financial institution ("FFI") or a non-financial foreign entity ("NFFE"),
• If an FFI, determine if it is a "good" FFI that is cooperating with the IRS or a "bad" FFI subject to withholding, and
• If an NFFE, request and report any information about substantial U.S. owners and withhold if the information is not forthcoming.

U.S. individuals will have to review their foreign activities, including those who maintain bank accounts, trusts and other entities outside the United States.