The United States and the Philippines signed an agreement to share tax information in their common aim to curb offshore tax evasion and strengthen the global financial system.
The Intergovernmental Agreement (IGA), which will implement provisions of the Foreign Account Tax Compliance Act (Fatca), was signed by Finance Secretary Cesar Purisima and US Ambassador to Manila Philip Goldberg.
A statement from the US Embassy in Manila said the agreement will promote transparency in financial accounts between the two countries when it comes to tax matters.
“The agreement underscores growing international cooperation to curb offshore tax evasion and marks a step forward in building a stronger, more stable, more accountable global financial system,” the embassy added.
Goldberg said the signing of the agreement is a testament to the two countries’ commitment to work together in combating offshore tax evasion, which is mutually beneficial to the Philippines and the US.
“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 added.
On the other hand, Purisima said the Philippines is a leader of “fiscal transparency” in the Asia Pacific region, something that reaped “measurable returns for our people.”
“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.”
The US and the Philippines already have an existing treaty that contains an Exchange of Information provision, which is seen as a valuable tool to promote tax cooperation among countries.
According to an embassy statement, the exchange provides that tax information may be shared between “competent authorities” either as a response to a specific request or on an automatic basis.
What IGA will be bringing to the already existing provision 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 IGA’s “reciprocal nature” is an equivalent benefit to the Philippines because the IRS will regularly provide the BIR with reports on financial accounts maintained by Philippine residents in US financial institutions.
Purisima said the signing also eases the compliance burden on Philippine financial institutions, which 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 affect timely, accurate and secure exchange,” the embassy said.
The measures will trigger an automatic exchange once they are in place.
The embassy said that Fatca is rapidly becoming the global standard in the effort to curtail offshore tax evasion.
The United States has intergovernmental agreements with more than 110 jurisdictions treated as in effect and several others are under discussion.
It enacted Fatca in 2010 to combat offshore tax evasion by encouraging transparency and obtaining information on accounts held by US taxpayers in other countries.