FINANCE Secretary Cesar V. Purisima and US Ambassador to the Philippines Philip S. Goldberg have signed an intergovernmental agreement (IGA) implementing provisions of the Foreign Account Tax Compliance Act (Fatca) that promotes transparency in financial accounts between the two nations for tax purposes. The agreement underscores a growing international cooperation designed to curb offshore tax evasion and avoidance.
Purisima said, “The Philippines continues to stand at the forefront of fiscal transparency across the Asia-Pacific region, reaping measurable returns for our people. In fact, fiscal transparency is one of the four pillars of the Cebu Action Plan the Philippines is advancing in its hosting of the Asia Pacific Economic Cooperation Finance Ministers’ Process meetings. Tax evasion across borders is an alarming problem that we can beat back with openness and mutual cooperation. This IGA is an affirmation of that ideal.”
Ambassador Goldberg in response said, “Today’s signing marks a significant step forward in our efforts to work collaboratively to combat offshore tax evasion – an objective that mutually benefits our two countries. By working together to detect, deter, and discourage tax abuses through increased transparency and enhanced reporting, we can help to build a stronger, more stable, and more accountable global financial system.”
The two countries have an existing tax treaty containing an exchange of information provision, essentially a tool for promoting tax cooperation between countries. Under the provision, information may be exchanged between the authorities in response to a specific request, or on an automatic basis, or spontaneously.
The innovation that the IGA introduces is the automatic reporting of financial accounts maintained by US persons in Philippine financial institutions to the Bureau of Internal Revenue (BIR), which, in turn, will annually transmit the information to the US Internal Revenue Service (IRS).
The reciprocal nature of the IGA provides the equivalent benefit to the Philippines as the IRS will routinely provide the BIR reports on financial accounts maintained by Philippine residents in US financial institutions. According to Purisima, signing the IGA also eases the compliance burden of Philippine financial institutions, who risked facing a 30 percent withholding tax on certain US-sourced income if they failed to comply with FATCA-related reporting requirements.
The automatic reporting of financial accounts is premised on the appropriate safeguard measures to ensure confidentially of information that will be used solely for tax purposes, and the necessary infrastructure to effect timely, accurate, and secure exchange. Once in place, these will trigger the automatic exchange.
Enacted by the US in 2010 to combat offshore tax evasion by encouraging transparency and obtaining information on accounts held by US taxpayers in other countries, FATCA is rapidly becoming the global standard in the effort to curtail offshore tax evasion. To date, 65 FATCA IGAs have been signed, 47 agreements have been agreed to in substance, and several others are under discussion.