BSP urges local banks, reconcile FATCA, local laws

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Financial institutions in the Philippines which have chosen to be considered as foreign financial institutions or FFIs under United States’ Foreign Account Tax Compliance Act (FATCA) must also ensure compliance with domestic laws to avoid violating the tax laws of either country, the Bangko Sentral ng Pilipinas (BSP) said.

In an emailed statement to reporters, BSP Gov. Amando Tetangco Jr. said FFIs must also comply with Philippine tax laws or face penalty.

The BSP had previously warned local banks to carefully consider the provisions of domestic laws such as the Law on Secrecy of Bank Deposits, the Foreign Currency Deposit Act, and the Data Privacy Act even as they comply with FATCA rules.

The US Congress enacted the FATCA in 2010 to prevent offshore tax abuses by US taxpayers. FATCA requires FFIs to register online with the US Internal Revenue Service (IRS) and report to the IRS information about financial accounts in which US taxpayers hold a substantial ownership interest.


If a financial institution belongs to the FFI category and decides to accept or maintain accounts by US clients or individuals, it must manage all risks associated with such accounts, including all compliance issues, according to FATCA rules.

“If the financial institution does not want to be covered by such rules, then it should simply refrain from handling US clients,” Tetangco said.

The BSP governor added that the monetary authority will study the appropriate sanctions for violations by such banks maintaining accounts for US individuals but exposes itself to financial and legal risks by not complying with the local laws.

”The BIR has recommended (and the DOF has agreed) that the Philippines would adopt the Model1 Intergovernmental Agreement (IGA). Under the Model 1 IGA, FFIs will provide information to the FATCA partner (in the case of the Philippines, possibly the BIR), who will in turn be the one to provide information to the IRS,” he said.

Likewise, non-compliance with FATCA requirements will result in the imposition of a 30-percent withholding tax on payments of US-sourced income to FFIs.

”In a Memorandum to Banks in July 2013, we advised the banks that they’re to individually evaluate if they are covered by FATCA, the potential implications on their respective businesses, if any, and prepare their operating businesses as appropriate,” Tetangco said.

In the memorandum, the BSP stated that its supervised institutions, which have determined the applicability of FATCA to them, are also enjoined to establish a policy to prepare their operating systems, which would enable them to capture and perform tagging of their account holders subject to the FATCA requirement.

Meanwhile, an analyst said FATCA is an issue that should be carefully studied by the banks and the BSP as well.

Justino Calaycay, an analyst at Accord Capital Equities Corp., said that some contentious points arise on FATCA’s requirement for foreign banks and institutions to include in their report information such as the account holder’s name, tax identification number, address and, more importantly, account balances, receipts and withdrawals – in essence, the movement of those funds.

Calaycay added that under Philippine law, banks and financial institutions are not allowed, except under a duly issued court order and with the acquiescence of the account owner, to divulge such information to anyone.

”But assuming for the sake of argument that this prohibition does not exist in our laws, allowing this reporting, while possibly increasing the transparency of local banks, may serve as a turn-off for some foreign clients and may be a cause of capital flight. That is the extreme argument,” he said.

”At this point, it is difficult to say whether its eventual impact on the domestic financial market, particularly its attractiveness to foreign, particularly US funds and investors, will be positive or negative,” he added.

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