Firms told to prepare for FATCA implementation
THE BUREAU of Internal Revenue (BIR) has advised Philippine financial institutions to start preparing for the implementation of a United States law requiring the reporting of bank accounts held by American taxpayers locally.
In an advisory, the BIR said the start of reporting will not yet take place at the end of the month as the intergovernmental agreement (IGA) between the US and the Philippines for the implementation of the Foreign Account Tax Compliance Act (FATCA) has not yet entered into force.
“However, PFls (Philippine financial institutions) must take the necessary steps to prepare for full implementation of the terms of the IGA and the concomitant submission of information on reportable accounts beginning the second quarter of 2016,” the BIR said.
The first batch of reports, the bureau said, will cover reportable accounts in 2014 and 2015.
“In coordination with other regulatory agencies of the Philippine Government, the Bureau of Internal Revenue shall notify the public of further updates and promulgate the necessary rules and guidelines to facilitate compliance of PFIs with FATCA,” the BIR said.
The Philippines and the US in July signed an agreement to implement the FATCA, a 2010 law which targets non-compliance of US taxpayers to pay income tax dues in offshore bank accounts.
The signing of the agreement formalizes the Philippine government’s participation under FATCA after it reached an “agreement in substance” with the US last November 30, 2014 to adopt a Model 1 IGA. A country adopting Model 1 agrees to report to the Internal Revenue Service (IRS) specified information of US accounts maintained by foreign financial institutions (FFI) operating locally.
Model 2, on the other hand, allows FFIs to directly report to IRS information about their US accounts.
Under the IGA, the Philippines’ BIR will provide IRS with the financial information of US taxpayers maintaining accounts in the country. In turn, the IRS will supply BIR with data related to Philippine residents maintaining bank accounts in the US.
The IGA eases the compliance of local banks and financial institutions which risk a 30% withholding tax on US-sourced income if they fail to comply with reportorial requirements under the FATCA.