DURING the state visit of French President François Hollande in the Philippines, he expressed his hope to expand and strengthen bilateral ties between the Philippines and France. It is, thus, not surprising that in the wake of the French president’s state visit, the Bureau of Internal Revenue issued Revenue Memorandum Circular (RMC) 65-2015 on October 7, 2015, circularizing the full text of the “Protocol Amending the Agreement between the Republic of the Philippines and the Government of the French Republic for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income.”
The said protocol was signed on November 25, 2011, and entered into force on February 1, 2013, introducing a new Article 26 of the convention between the Government of the Republic of the Philippines and the Government of the French Republic for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income. The change was introduced to reflect internationally agreed standards on tax transparency and exchange of information.
The original text of Article 26 of the convention provides that the competent authorities of the contracting states shall exchange information at their disposal, necessary for the prevention of fiscal fraud or evasion of income taxes. Information so exchanged shall be kept secret, and will not be disclosed to any persons or authorities, court or administrative bodies, concerned with the assessment, collection or enforcement of income taxes. However, the obligation to exchange information does not require the state parties to carry out administrative measures, or to obtain information, against their laws or administrative processes. Likewise, the obligation to exchange information does not require the parties to supply any trade, business, industrial, commercial or professional secret of trade information, the disclosure of which would be contrary to public policy.
With the entry into force of the Protocol on February 1, 2013, Article 26 of the convention was deleted, and replaced by a new Article 26, which, though containing provisions similar to the original article, expanded the obligations of the parties on exchange of information. The new Article 26 provides that the obligation to exchange information is not limited by Article 1 of the convention, regarding the persons covered by the convention, and neither is it limited by Article 2, regarding the type of taxes covered by the convention. Thus, the information, which may be exchanged between the state parties, are not limited to information concerning residents of either or both state parties, and neither is such information limited to those involving income or other similar taxes. However, the use of the information should only be for purposes of assessment or collection of taxes, enforcement or prosecution in respect of taxes, the determination of appeals in relation to taxes, or the oversight thereof. And though still treated as secret, the information exchanged may be disclosed in public court proceedings or in judicial decisions. Likewise, the state parties are required to take necessary measures to ensure availability of the information, and the ability of competent authorities to access such information and to transmit it to the other state party.
The protocol requires a state to use its information-gathering measures to obtain information requested by the other state, even if the requested state does not need the information for its own tax purposes. And, a state cannot decline to supply information solely because it has no interest in such information. A state is also prohibited from declining to supply information because of the reason that the information is held by a bank, other financial institution, nominee or person acting in an agency or fiduciary capacity, or because the information related to ownership interests in a person. It must be pointed out that this is in line with the Philippines’s own domestic laws, since, under Republic Act 10021, the local tax authorities can request for information and records from banks and financial institutions, when requested by the tax authority of a country which has a tax treaty with the Philippines, or is a party to a convention wherein the Philippines is also a member.
The changes introduced by the protocol, as outlined above, are relevant in light of the Philippine president’s invitation for French companies to invest in the Philippines. With the projected influx of French investments in the country, tax transparency and exchange of information between the Philippines and France are of utmost importance. It is, thus, the opportune time for both states to abide by the provisions of the Protocol to ensure that a viable channel for exchange of information be put in place.
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The author is a junior associate of Du-Baladad and Associates Law Offices, a member-firm of World Tax Services Alliance.
The article is for general information only and is not intended, nor should be construed, as a substitute for tax, legal or financial advice on any specific matter. Applicability of this article to any actual or particular tax or legal issue should be supported therefore by a professional study or advice. If you have any comments or questions concerning the article, you may e-mail the author at esther.weigand@bdblaw.com.ph or call 403-2001 local 340.