The mandatory reporting of financial information on US nationals by local financial institutions, as required under the new treaty on Foreign Account Tax Compliance Act (Fatca) between the Philippines and the US, has been moved to the second quarter of 2016.
Internal Revenue Commissioner Kim Jacinto-Henares has advised Philippine financial institutions that the required reporting of financial information on US nationals will not take place on September 30, as originally intended.
The deferment was because the intergovernmental agreement (Iga) on Fatca has yet to be ratified by the Senate as a treaty.
“However, Philippine financial institutions must take the necessary steps to prepare full implementation of the terms of the Iga and the concomitant submission of information on reportable accounts beginning the second quarter of 2016,” according to Henares’s advisory statement.
“Philippine financial institutions are also reminded that the first batch of reports to be submitted shall include information relating to their 2014 and 2015 reportable accounts as detailed in the Iga,” the advisory added.
Under the Fatca, Philippine financial institutions, including private banks and insurance companies, would have to report to the US Internal Revenue Service on the accounts of US nationals, including on the dividends, interest income and cash surrender values of those accounts or insurance policies.
The exceptions to the reporting requirements include those financial institutions with a local client base, local banks and governmental entities.
US financial institutions, on the other hand, would also provide the Bureau of Internal Revenue (BIR) with the same information that they have regarding the accounts of Filipino nationals established with them.
Henares said the treaty would be more beneficial to the Philippines, than it would be for the US, because there are more Filipinos who put their money in the US which the BIR would like to know about for purposes of determining whether these Filipinos are reporting their correct income, especially on passive investment income, such as dividends and interest on bank deposits, and are paying the appropriate taxes on these income.
This is because under the Tax Code, resident citizen taxpayers and domestic corporations should pay income tax on all sources of income, whether such income comes from business activity in the Philippines or outside of the Philippines.