The Philippines and the United States on Monday signed a reciprocal intergovernmental agreement (IGA) to implement provisions of the Foreign Account Tax Compliance Act (FATCA), in line with the promotion of transparency in financial accounts between the two countries.
In a statement, the Department of Finance (DOF) said FATCA is rapidly becoming the global standard in the effort to curtail offshore tax evasion.
Finance Secretary Cesar Purisima said the signing of the IGA also eases the compliance burden of Philippine financial institutions, which risk facing a 30 percent withholding tax on certain US-sourced income if they failed to comply with FATCA-related reporting requirements.
The law was 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.
To date, 65 FATCA IGAs have been signed, 47 agreements have been agreed to in substance, and several others are under discussion.
“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,” Purisima said during the signing.
Purisima continued that tax evasion across borders is an alarming problem that can beat back with openness and mutual cooperation.
“This IGA is an affirmation of that ideal,” he said.
Meanwhile, US Ambassador to the Philippines Philip Goldberg said the signing of the IGA marks a significant step forward the two countries’ efforts to work collaboratively to combat offshore tax evasion.
“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,” he said.
The IGA between the Philippines and the US2 underscores growing international cooperation to curb offshore tax evasion and avoidance, the DOF noted.
It said 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,” it said.
The DOF added that 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, it added.