(NAR) VOL. 24 NO. 1 / JANUARY - MARCH 2013
In the last decade, the world has witnessed a growth in volume and complexity of cross-border commercial and financial transactions. With the liberalization and globalization of economies, however, innovative tax practices by taxpayers that have access to international markets have also emerged alongside an increase in international tax evasion. The harmful effects of some of these practices, e.g. abusive transfer pricing and capital flight, have resulted in significant losses of tax revenues for governments. To confront the challenges presented by globalization, many jurisdictions have emphasized the need for more effective exchange of tax information between national tax authorities.
In response to this changing fiscal environment, the Philippine Government enacted, on March 5, 2010, Republic Act (RA) No. 10021 otherwise known as the “Exchange of Information Act of 2010” which ensures that information held by our banks and financial institutions can be made available to foreign tax authorities, upon request, in accordance with the terms of our Double Taxation Agreements (DTAs) and Tax Information Exchange Agreements (TIEAs)[1] hereafter referred to as Exchange of Information or EOI arrangements. This development solidifies the Philippines’ commitment to comply with internationally-agreed standards on tax transparency and effective exchange of tax information. At the same time, it impacts the manner in which the Bureau handles requests for information exchange pursuant to the relevant treaty provisions.
To ensure that the exchange of information mechanism with our 37 tax treaty partners remains effective in this new environment, the procedures on specific exchange of information (or exchange of information on request),[2] which were last amended in 1997, are being updated - to reflect the foregoing changes in the global economy and the Philippine legal system.
II. POLICY
It is the policy of the Bureau of Internal Revenue to cooperate with foreign tax authorities in combating international tax evasion and other criminal tax offenses and to address tax concerns that affect international trade and investment by fully utilizing the mechanism of exchange of information. To this end, the Bureau shall adopt procedures on specific exchange of information that: 1) Allow for effective information exchange with other jurisdictions with which we have EOI arrangements; 2) Ensure the confidentiality of information received under such arrangements; and 3) Safeguard the rights of taxpayers and third parties.
III. OBJECTIVES
In order to carry-out this stated policy, this Order:
1. Identifies the scope of exchange of information on request, the subjects covered and the limitations to exchange information;
2. Prescribes the standard procedures to be followed in handling a request for information made to, or received from, a foreign tax authority pursuant to an EOI arrangement; and
3. Prescribes the forms to be used in requesting information from foreign tax authorities, banks and financial institutions and other holders of taxpayer information, and the forms to be used in responding to requests for information from foreign tax authorities pursuant to an EOI arrangement.
IV. COMPETENT AUTHORITY
The competent authority acts as a contact point for the competent authorities of treaty partners for EOI purposes.
Exchange of information can only take place between competent authorities or their authorized representatives. This ensures that the rules applicable to exchange of information (and in particular the confidentiality of information exchanged) are respected and consistently applied. Bypassing the competent authorities constitutes a breach of tax confidentiality which is expressly prohibited by Section 270 of the National Internal Revenue Code (NIRC) and by the terms of our DTAs and TIEAs.
Our DTAs generally provide that “the Secretary of Finance or his authorized representative(s)” are the competent authorities for the Philippines. The DTAs with Bahrain, Bangladesh, Czech Republic, Sweden and United Arab Emirates provide that the competent authority is “the Secretary of Finance or the Commissioner of Internal Revenue”. The DTA with the United States indicates that the competent authority is “the Secretary of Finance or his delegate.”
Section 4 of Revenue Regulations 10-2010 expressly designates the Commissioner of Internal Revenue (Commissioner) as the Philippine competent authority for EOI purposes.
V. SCOPE AND COVERAGE OF EXCHANGE OF INFORMATION
Exchange of information covers any information that is necessary or foreseeably relevant to the administration or enforcement of the domestic laws of the contracting parties concerning income taxes and other taxes covered by the terms of our EOI arrangements. It includes information for cases that involve tax evasion and other criminal tax offenses but is not limited to such cases.
A request for information can include any or all of the following items but not limited to:
It must be stressed, however, that the scope of exchange of information is not limited to taxpayer-specific information but also includes information related to tax administration and compliance improvement, such as statistics, information about a particular industry, tax evasion trends, administrative interpretations and practices,[4] laws, court decisions, official publications and other subjects.
Time periods during which tax situations may be examined vary from country to country, and the beginning of the tax year does not always coincide with the calendar year. Where there is a significant time lag between the time the information is supplied and the year to which the information relates, a statute of limitations issue may arise. The question of whether use of the information is time barred has to be determined by reference to the statute of limitations rules of the country where the information is to be used.[5]
VI. LIMITATIONS TO EXCHANGE OF INFORMATION
The obligation to exchange information is mandatory and is not limited to information contained in the tax files held by the Bureau. When a request is received from a treaty partner, the Bureau will have to take action to obtain the information requested, if it is not available on its files. It cannot rely solely on the information in its possession. However, the Bureau is not bound to go beyond its own internal laws and administrative practice in putting information at the disposal of the requesting state.
Thus, the Commissioner can order the obtention of information, and even summon, examine and take the testimony of a person to acquire the information requested since these acts are authorized under Section 5 of the National Internal Revenue Code (NIRC). In addition, the Commissioner can inquire into bank deposit accounts pursuant to Section 6(F) of the NIRC, as amended by RA 10021. Moreover, the income tax return/s of specific taxpayer/s subject of a request of a treaty partner may be open to inspection upon the order of the President.
There are instances, however, where the obligation to exchange information is lifted and a request for information can be declined, viz:
VII. PROCEDURES
A. Responding to a Request for Information
The international standard for processing requests for information is ninety (90) days from receipt for a request by the tax authority. However, this period may be extended where difficulties in obtaining and providing information are encountered. In order to respond promptly to requests from tax treaty partners, the following procedures are hereby adopted:
Receipt, Evaluation and Acknowledgment of Requests
4.1 If a request is found to be sufficient, and the information cannot readily be provided by ITAD, the Commissioner or his/her duly authorized representative will send letters to the appropriate information holders (e.g., government or BIR offices, banks, or financial institutions) requesting the relevant information. (Refer to Templates “4”, “5” and “6”). 4.2 If a request is considered to be insufficient, the requesting tax authority will be asked in the acknowledgment letter to clarify the request or to furnish additional documents or information as required to allow a response to be made. 4.3 Where there is ground to refuse or decline a request, the requesting tax authority will be informed in the acknowledgment letter of the grounds for such refusal.Gathering of Information by BIR Offices
A revenue official or employee shall under no circumstances communicate directly to the requesting foreign tax authority (or a representative thereof) on matters pertaining to the latter’s request for information without prior approval of the Commissioner.
Issuance of Subpoena Duces Tecum to Officers of Banks and Financial Institutions
Should the officer, owner, agent, manager, director or officer-in-charge of such bank or financial institution fail to comply with the subpoena duces tecum (SDT), ITAD shall refer the case to the Prosecution Division for the filing of appropriate criminal actions against such person (i.e., for violation of Sections 6 and Section 266 of the NIRC and RA 10021).
Sending of Information to the Requesting Tax Treaty Partner
Notice to Taxpayer
This Bureau shall not be at default of this provision should it fail to inform the taxpayer by reason that his or its address is not known to or is not supplied to the Bureau, when he or it cannot be located in the address registered/given by him to the Bureau, or that the notice was not sent to the current address of the taxpayer but to that only known or supplied to the Bureau.
B. Making a Request for Information to a Tax Treaty Partner
The following shall be observed when making a request for information to our tax treaty partners:[6]
Form of Request
Any additional information that may facilitate the request (e.g., taxpayer’s date of birth, middle or maiden name, foreign address), the type and required form of document (e.g., if authentication is required) and timeline for the request should be indicated.
ITAD shall prepare the acknowledgement letters to the concerned office of the Bureau confirming receipt of request for information.
Sending of Request to Tax Treaty Partners
Receipt and Transmittal of Information
VIII. CONFIDENTIALITY
All taxpayer information obtained pursuant to this Order are confidential and may only be disclosed in accordance with Philippine law (e.g., Section 270 of the NIRC). Confidentiality obligations are also imposed under our EOI arrangements which generally follow the rules of the OECD Model Tax Convention or Model TIEA. Moreover, the provisions cover not only information received in response to a request, but also information contained in competent authority letters, including the letter requesting information.
Generally, the Exchange of Information article in our DTAs provides that any information received shall be treated by the Bureau as secret in the same manner as information obtained under the domestic laws of the Philippines and shall be disclosed only to persons or authorities (including courts and administrative bodies) concerned with the assessment or collection of, the enforcement or prosecution in respect of, or the determination of appeals in relation to taxes on income. Such persons or authorities shall use the information only for such purposes, but they may disclose the information in public court proceedings or in judicial decisions. However, some of the Philippines’ DTAs, e.g., those with Canada and Singapore, have even more restrictive confidentiality provisions. Accordingly, any disclosure of taxpayer information received under an EOI arrangement, outside of the Bureau, must be in accordance with the terms of the relevant EOI arrangement and shall only be allowed after sign-off by the Commissioner or his/her duly authorized representative for this purpose.
IX. FINAL PROVISIONS
The gathering of information by this Bureau for a foreign tax authority pursuant to the latter’s request does not constitute an actual investigation of this Bureau on the subject taxpayer or taxpayers nor authorizes the Bureau to issue corresponding Letters of Authority on the request, unless warranted.
However, information supplied by a bank or a financial institution to the Bureau may be used by it in its own assessment, verification, audit, and enforcement of the taxpayer whose account and his or its transactions are now made known to the Bureau. Likewise, the Bureau shall not be precluded from carrying out subsequent investigations on taxpayers whose transactions with foreign taxpayers were subject of examination by foreign tax authorities.
X. REPEALING CLAUSE
All issuances or portions thereof not consistent with the provisions of this Order are hereby repealed or amended accordingly.
XI. EFFECTIVITY
This Order takes effect immediately.
(SGD) KIM S. JACINTO-HENARES
Commissioner of Internal Revenue
[2] Refers to a situation where the competent authority of one country asks for particular information from the competent authority of another contracting party.
[3] Par. 26, Module 1, OECD Manual of Exchange of Information
[4] Par. 27, Module 1, OECD Manual of Exchange of Information
[5] Par. 30, supra
[6] See List of Tax Treaty Partners