Senate passes bill amending revenue code to allow tax information exchange with foreign governments

The Senate has passed a bill seeking to amend the National Internal Revenue Code of 1997, which when signed into law, will allow the Bureau of Internal Revenue to exchange information on tax matters with foreign tax authorities in compliance with internationally agreed tax standards (IATS).

Senate Bill No. 3220, principally authored by Senate President Juan Ponce Enrile, was approved on third reading under the sponsorship of Sen. Ping Lacson, Chairman of the committee on ways and means. It is now awaiting approval from the House of Representatives.

Enrile said the proposed amendment will allow the Philippines to conform to the Organization for Economic Cooperation and Development (OECD) Model Agreement on Exchange of Information and will allow foreign tax authorities to obtain information held by local banks and financial institutions of taxpayers, through the Commissioner of Internal Revenue, for the proper determination and collection of taxes on the foreign-sourced income of taxpayers of the foreign tax authority.

"The bill seeks to comply with the Internationally Agreed Tax Standard (IATS) for Exchange of Information to more effectively carry out the country's commitments under bilateral tax treaties designed to combat tax abuses," Enrile said. "This will significantly strengthen the authority of our tax administration to directly respond to requests for tax information from treaty partners," he added.

The Senate President filed the bill in response to an OECD report which included the Philippines as one of four countries included in the list of tax jurisdictions that have not committed to the internationally agreed tax standards.

Also, in response to the said OECD report, the Philippines, through the Department of Finance, made known to the OECD Secretary General the country's commitment to comply with the international standards on information exchange and its full cooperation to help fight international tax evasion.

According to Enrile, "the Philippines had always been ready to comply with international standards required for the exchange of tax information. In fact, we have more than thirty tax treaties which provide for exchange of information on request."

He said, however, that it has been "difficult for our tax administration to comply with the provisions on the exchange of information set by international organizations due to some domestic legal restrictions, particularly the country's stringent bank secrecy laws. There is therefore an urgent need to amend some pertinent provisions the National Internal Revenue Code of 1997 (NIRC)."

Senate Bill No. 3220, once signed into law, is also seen to benefit the Philippines as it will allow the BIR to obtain information from the country's tax treaty partners to effectively reach the foreign income of taxpayers and determine their correct tax liabilities under our tax laws.

"In a recent OECD report, the Philippines, rightly or wrongly, was one of the four countries which were included in the list of tax jurisdictions that have not committed to the internationally agreed tax standards," Enrile said in explanatory note of the bill. "In response to the said OECD report, the Philippines, through the Secretary of Finance, manifested to the OECD Secretary General the country's commitment to comply with the international standards on information exchange and its full cooperation to help fight international tax evasion."

Enrile noted that the Philippines was subsequently removed from the OECD list and "avoided possible sanctions which include, among others, the reduction of aid and use of political pressure on global companies to withhold investment in countries that fail to observe said standard."

According to Enrile, the bill will authorize the BIR Commissioner to inquire into bank deposits and other related information held by financial institutions to supply information to a requesting foreign tax authority pursuant to a convention or agreement to which the Philippines is a signatory.

"The bill will also allow requesting foreign tax authority to examine the income tax returns of taxpayers upon order of the President subject to rules and regulations on the necessity and relevance that may be promulgated upon enactment of the law," Enrile said.

It will also penalize BIR personnel for unlawful divulgence of information obtained from banks and financial institutions pursuant to Section 6(F) of the revenue code to persons other than the requesting foreign tax authority, the Senate President added.

"To assure effective implementation of the information exchange, the bill will also provide for sanctions for officers of banks and financial institutions that refuse to supply information and also require the commitment of every requesting foreign tax authority to maintain confidentiality of the information received." Enrile added.