U.S. Tax Compliance: FATCA & Withholding Taxes.
At $18 trillion, the outward-looking economy of the United States is the largest in the world - c.25% of the global total. As the world's favourite partner for trade and investment, any tax regime affecting foreign partners is bound to have a major impact.
U.S. with-holding taxes have been in place for over 60 years but the implementation of FATCA in 2014 added another layer of complexity. Not only did tax forms become more complicated for those having to complete them but a whole layer of administration was added.
Compliance & The Paper Trail
If you're playing it safe, then to avoid your investors/suppliers getting withheld unnecessarily it all starts with a tax form. Tax forms were never easy to start with but have become even more complicated. And there are more of them. To support that you may need additional documentation, which may already be part of even a rudimentary KYC process. With the increased emphasis internationally on financial crime and tax evasion, financial institutions are expected to have more comprehensive compliance procedures. With compliance comes cost: manpower, technology and consultants. It's still cheaper than the alternative, though, which is fines or inability to to trade effectively. So build a full paper trail documenting compliacen is the only way to play it safe. Why not do it digitally?
It's not just the U.S.
Withholding taxes aren't unique to the U.S., with India, Japan and range of other key jurisdictions also implementing them. There are instances where payees wih U.S.-sourced income may be at risk of double taxation by both jurisdiction. This is often addressed in Inter Governmental Agreements between the U.S. and the relevant jurisdiction but the method of avoiding this double whammy may vary.