1.  The IRS Wants to Really Know Your U.S. Customers.  

FATCA includes a new 30% withholding tax, but the IRS has publicly said that it hopes to generate zero revenue from it.  The IRS would much rather know which Americans are using non-U.S. accounts and investment vehicles, which the IRS presumes are often used to evade U.S. income taxes.  The withholding tax is designed to compel disclosures, not generate revenue.  

2.  The IRS and Treasury Hold Tremendous Power to Write the Rules -- and Make Exceptions.

Although the statute defines the broad outline of the FATCA regime, it also gives the IRS and Treasury wide discretion to write the implementing rules.  The IRS and Treasury have the power to completely exempt entities or payments from FATCA if there is a low risk of tax evasion.   They will also decide what procedures withholding agents and non-U.S. entities must follow.  At this moment, the best thing you can do to make compliance easier in the long run is to convince the IRS and Treasury to make sensible rules.

3.  FATCA is Not Just for Financial Institutions.  It Affects U.S. 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:

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

4.  Get Ready to Withhold on Proceeds.

The U.S. has never before required withholding on the proceeds of the sale of U.S. securities by foreign persons.  FATCA ups the ante by requiring withholding of 30% of those proceeds - regardless of the amount of gain, or even whether there is a gain or loss on the sale – unless the appropriate disclosures are made.  Custodians and brokers will need the ability to distinguish between U.S. and non-U.S. securities and withhold tax when necessary.  Transfer agents who also act as custodians will need to prepare to withhold on proceeds as well.

5.  You Need to Choose Whether to Be "Good" or "Bad."

A non-U.S. entity faces three options: comply with the FATCA disclosure rules (“good”), accept thirty percent withholding on U.S. source payments (“bad”), or avoid U.S. source income and investments altogether.

An FFI will have to choose whether to enter into a contract with the IRS to report on U.S. customers (and substantial U.S. owners of non-U.S. entities).  The contract will also specify the due diligence rules the FFI will have to follow, and will require the FFI withhold on the accounts of recalcitrant account holders or close the accounts altogether.  If an FFI chooses not to enter into the contract, all U.S. source income and proceeds from U.S. investments will be subject to 30% withholding, even if the FFI's U.S. customers are entitled to no share of those payments.  Even an FFI with no U.S. customers will be subject to withholding unless it complies with rules (to be written by the IRS and Treasury) to assure that it does not inadvertently open a U.S. account.

An NFFE will have to choose whether to disclose any substantial U.S. owners.  A substantial U.S. owner of an NFFE is one holding 10% or more of the NFFE.  However, certain U.S. persons do not count as substantial U.S. owners, including publicly traded companies and their affiliates, tax exempt organizations and trusts, governments, banks, real estate investment trusts, and regulated investment companies (primarily mutual funds).  If an NFFE does not disclose its substantial U.S. owners, it, too, will be saddled with 30% withholding on withholdable payments.

6.  You Still Need to Do NRA Withholding.

 FATCA is an extra layer of withholding tax that applies in addition to other U.S. tax rules.  Traditional "NRA" withholding under section 1441 continues.  Consequently, even if a payment escapes FATCA withholding, it still might be subject to NRA withholding at a 30% rate.

7.  You Might be a Financial Institution and Not Even Know It. 

A controversial element of FATCA is that non-U.S. investment vehicles, even those which do not solicit outside investors (such as personal investment companies and special purpose vehicles) are likely to be considered FFIs.  Depending upon how the IRS writes the rules, this could impose substantial new compliance costs on a wide array of common ownership structures.  Moreover, any U.S. ownership of an FFI (other than by certain exempt entities) is considered “substantial,” no matter how tiny the U.S. ownership interest is, and therefore must be disclosed to the IRS.  It will pay to know whether any part of your organization might be ensnared by FATCA's long reach.

8.  Successful Implementation Requires Strategic Planning Now.

Implementing FATCA in your organization will require time and expertise across a broad array of disciplines - tax, operations, systems and management.  The 2013 effective date will be here quickly.  Leaving everything until the last minute or when the IRS finalizes the rules is a recipe for disaster.