United States

FATCA for Non-financials: Issues for the Withholding Agent

Kim Majure is a principal in the International Tax Services group of the Washington National Tax practice, focusing on inbound and outbound tax planning and controversy. Kim advises clients on international tax planning and controversy issues, including cash management and deferral planning, withholding, cross-border financing, and multinational structuring.

Visit KPMG’s FATCA site for more insights. View the video.



Kim Majure: So if you're a withholding agent and you're facing this potential secondary liability, as well as potential penalties for not properly reporting your payments and payees, you know, you're going to be paying attention to your systems, because this all comes down to a systems issue.

The problem is that most company's systems are relatively simple. They're just not built for this. These are brand new rules. These are brand new pieces of information that need to be, you know, obtained from the payees and reported into the government and shuffled on to returns some way.  And when you have a large volume of payments you've got to go back to your AP systems and figure out how are we going to get this done.

The other problem with the payments is that, you know, if you think about it, identifying the types of payments that you're making is a very factual kind of analysis.  And AP or tax or whoever it is who is talking to the IRS about compliance aren't really the types of people who understand what the facts are in terms of their contracts.  They don't understand the contract terms because they're not negotiating them.  But the people who are negotiating the contract terms aren't the ones talking to the IRS, nor are they the ones typically that have the information about tax law to be doing the analysis as to what pieces of information they really need to pull out.

And in the middle of all the facts on the one side and all the law on the other side, are these big systems. I won't name them, but, you know, big AP systems that are relatively simple.  You name a vendor. You name maybe one kind of income that they're receiving.  You have remittance addresses and you may have other bits and pieces of information, but none of it is necessarily going to be responsive to the new rules, and with a lot--again, like with significant potential penalties on the line and secondary liability on the line, withholding agents really want to get this right.

But it's hard. It's hard to fix a system. Right? I mean, it's like turning the Titanic, to a certain extent, so it takes a long time and it takes the cooperation of a lot of different internal stakeholders who otherwise don't really talk to each other.