Local banks told to comply with US tax law

BANKS in the country that transact with US nationals have been advised under a central bank memorandum to comply with a United States tax law and be ready to cut ties with uncooperative American clients in order to avoid hefty penalties.

This, as local bankers are pushing for an easier way to comply with the US’ Foreign Account Tax Compliance Act (FATCA).

Bangko Sentral ng Pilipinas (BSP) Memorandum No. M-2013-030, dated July 1 but posted on the central bank’s Web site only yesterday, reminded all “BSP-supervised institutions” to evaluate if they are covered by FATCA, “study the potential effets of FATCA to their businesses and determine the necessary steps to take to avoid the unfavorable consequences of non-compliance...”

“BSP-supervised institutions, which have determined the applicability of FATCA to them, are also enjoined to establish a policy and prepare their operating systems which would enable them to capture and perform tagging of their account holders subject of the FATCA requirement,” the memoradum read.

Enacted in 2010 as part of the US Hiring Incentives to Restore Employment Act, FATCA is designed to ensure that American citizens and permanent residents pay taxes on their foreign accounts and assets.

Under FATCA, banks outside the US with accounts of American nationals should register with the Internal Revenue Service (IRS) as foreign financial institutions (FFIs). As FFIs, such banks are required to audit their accounts and report those that hold US income.

While the IRS is yet to issue FATCA implementing rules and regulations, banks have until next year to register as FFIs.

Penalties will kick in after that deadline expires. Financial institutions that fail to sign up with the IRS will be slapped with a 30% withholding tax on all their US-sourced income.

“[Complying with FATCA] is ultimately a business decision of banks. FATCA imposes reporting responsibilities upon all banks dealing with customers who are US nationals,” Bangko Sentral ng Pilipinas Deputy Governor Nestor A. Espenilla, Jr., said in a text message yesterday. “Such customers will be expected by banks to give written consent so banks can report to US tax authority; otherwise, banks may be constrained to terminate the relationship.”

Philippine banks, however, find it difficult to comply with FATCA under the country’s strict confidentiality laws. Among other relevant Philippine laws, Republic Act 1405 or the Law on Secrecy of Bank Deposits provides that “all deposits of whatever nature with banks or banking institutions in the Philippines...are hereby considered as of an absolutely confidential nature,” except in a few circumstances.

Hence, Mr. Espenilla said, “The BAP (Bankers’ Association of the Philippines) is requesting an alternative reporting mechanism through an intergovernmental agreement.” The banks’ proposal, he said, should make it somewhat “easier” for them to comply with the US law’s reporting requirements. “The BSP has endorsed the matter to the BIR (Bureau of Internal Revenue) for consideration...” he said. -- Ann Rozainne R. Gregorio

source:  Businessworld