MANILA — Ambassador Philip S. Goldberg and Philippine Finance Secretary Cesar V. Purisima signed an Intergovernmental Agreement (IGA) to implement provisions of the Foreign Account Tax Compliance Act (FATCA) to promote transparency in financial accounts between the two nations on 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.
Ambassador Goldberg stated, “Today’s signing marks a significant step forward in our efforts to work collaboratively to combat offshore tax evasion – an objective that mutually benefits our two countries. 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.”
Finance Secretary Purisima, who signed on behalf of the Republic of the Philippines, said, “The Philippines continues to stand at the forefront of fiscal transparency across the Asia-Pacific region, reaping 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 two countries have an existing tax treaty containing an Exchange of Information provision, a valuable tool for promoting tax cooperation between countries. Under that provision, information may be exchanged between the competent authorities in response to a specific request, or on an automatic basis, or spontaneously.
The innovation that the IGA introduces is the automatic reporting of financial accounts maintained by U.S. persons in Philippine financial institutions to the Bureau of Internal Revenue (BIR), which, in turn, will annually transmit the information to the U.S. 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 U.S. financial institutions. According to Secretary Purisima, signing the IGA also eases the compliance burden of Philippine financial institutions, who risked facing a 30 percent withholding tax on certain U.S.-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. Once in place, these measures will trigger the automatic exchange.
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. The United States enacted FATCA in 2010 to combat offshore tax evasion by encouraging transparency and obtaining information on accounts held by U.S. taxpayers in other countries.#