ASEAN taxation cooperation via automatic information exchange
IN 2015, the ASEAN Economic Community (AEC) Blueprint 2025 was adopted as part of the ASEAN 2025: Forging Ahead Together plan. This collaboration charts the broad trajectories of ASEAN economic integration from 2016 to 2025. It aims to strengthen and reinforce by 2025 these five AEC characteristics:
1. A highly integrated and cohesive economy;
2. A competitive, innovative and dynamic ASEAN;
3. Enhanced connectivity and sectoral cooperation;
4. A resilient, inclusive and people-oriented, people-centered ASEAN; and
5. A global ASEAN.
According to the AEC Consolidated Strategic Action Plan, taxation cooperation is vital towards attaining the second characteristic. A competitive, innovative and dynamic ASEAN will be able to support regional competitiveness by resolving fiscal barriers. The ASEAN Forum for Taxation (AFT) is the sectoral body tasked with achieving this objective.
Composed of tax authorities from member states, the AFT will address tax-related issues pertaining to regional economic integration. Significant progress was made in 2017 when the AFT-Working Group (AFT-WG) was able to formulate initiatives which would allow the ASEAN to move forward with tax agreements in support of regional integration. The AFT-WG also came to an agreement to push for the exchange of information among member states.
THE ROLE OF AEOI IN REGIONAL TAXATION COOPERATION
One of AEC’s strategic measures to promote taxation cooperation is to improve the implementation of the Automatic Exchange of Information (AEoI) in accordance with international standards. The prevalence of the Organisation of Economic Co-operation and Development’s (OECD) Common Reporting Standard (CRS) among member states is likewise in accordance with the said measure.
As a brief background, CRS is designed to curb tax evasion in offshore investments. CRS requires certain financial institutions of a participating jurisdiction to gather financial information about account holders that are tax residents of reportable jurisdictions. Such financial information is periodically reported to the tax authority of participating jurisdictions. In turn, the tax authority will exchange, on an automatic basis, such financial information with a tax authority from another jurisdiction pursuant to an existing competent authority agreement (CAA). The CAA formalizes and governs the relationship between the jurisdictions that will periodically exchange financial information.
Brunei Darussalam, Indonesia, Malaysia and Singapore are the member states that have committed to participation in the CRS initiative. Singapore leads all the member states as its tax authority, the Inland Revenue Authority of Singapore (IRAS), has started collecting CRS reports from financial institutions this year. Within 2018 also, the IRAS will exchange financial information it has gathered with other participating jurisdictions.
Currently, other member states are strongly considering participation in the CRS initiative. Thailand, for example, has joined the Global Forum on Transparency and Exchange of Information for Tax Purposes as its 139th member. It has committed to updating its reporting standard to be in accordance with the CRS. We should note, though, that there is no specific CRS requirement in place yet. However, it is expected that Thailand will fully implement CRS by 2022, which is within the AEC time frame ending 2025.
The Philippine government has signified its intent to participate in the CRS initiative on several occasions in the past.
The Philippines took a big leap towards entering the AEoI arena back in July 2015 when it signed an intergovernmental agreement (IGA) with the US to exchange financial information on a reciprocal basis. By being a signatory to the IGA, the Philippines undertakes to implement the US Foreign Account Tax Compliance Act (FATCA) within the country, requiring Philippine financial institution to collect financial information relating to account holders that are classified as US persons. Like CRS, the financial information will be submitted to the Bureau of Internal Revenue (BIR), which will, in turn, exchange the same with the US Internal Revenue Service (IRS).
The FATCA IGA was ratified by President Duterte and submitted for concurrence of the Senate on Jan. 10, 2017. To date, it remains pending with the Committee of Foreign Relations.
As for CRS, and the AEoI in general, amendments were proposed to relax data privacy and secrecy laws. These amendments were included in the proposed Tax Reform for Acceleration and Inclusion (TRAIN) Package 1B bill, which aims to implement a general tax amnesty in support of the current administration’s plan to augment tax collections and increase financing. Incorporated in the latest versions of the proposed tax amnesty bills of the House of Representatives and the Senate of the Philippines as of August 2018 is the provision that will give the Commissioner of Internal Revenue the authority to inquire into and receive information on bank accounts and other related data held by financial institutions of a specific taxpayer or taxpayers upon an obligation to exchange tax information with a foreign tax authority, whether on request or automatic. This authority is pursuant to an international convention, agreement or treaty on tax matters to which the Philippines is a signatory or a party of, duly ratified and concurred with by the Senate of the Philippines.
Should the above provision be included in the enacted version, it will pave the way for participation and implementation of FATCA and/or CRS. Stakeholders are still hopeful that the general amnesty tax amnesty bill will be passed and implemented within 2018.
In our next article, we will discuss the country’s key considerations and potential challenges regarding its continuing aim of promoting and implementing FATCA and/or CRS. We will also cover critical matters that could affect other stakeholders such as financial institutions, as well as the consumers of financial products and services who would be significantly impacted by the AEoI agenda.