BIR tightens noose on tax evaders

MANILA, Philippines - The Bureau of Internal Revenue (BIR) is upgrading procedures on specific exchange of information with its foreign counterparts to tighten the noose on tax evaders amid increased cross border activity.

BIR commissioner Kim Henares emphasized the need for more effective exchange of tax information with foreign tax authorities due to 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,” Henares noted.

Henares said the harmful effects of some of these practices such as abusive transfer pricing and capital flight, have resulted in significant losses of tax revenues for governments.

“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) which were last amended in 1997, are being updated to reflect the changes in the global economy and the Philippine legal system,” Henares added.

Henares said the new procedures ensure the confidentiality of information received from other foreign jurisdictions and safeguard the rights of taxpayers and third parties.

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 exchange of information arrangements.  It includes information for cases that involve tax evasion and other criminal tax offenses.

A request for information can include any of the following:  the fiscal residence of an individual or a company, the tax status of a legal entity, the nature of income in the source country, the income and expenses shown on a tax return, business records, formation documents of an entity and documents about subsequent changes of shareholders/partners, names and addresses of the directors, managers and other employees, banking records, account journal and financial statements, copies of commercial contracts and the price paid for goods in a transaction between independent companies in both states.

When a request is received from a treaty partner, the BIR will have to take action to obtain the information requested if it is not available on its files.  The international standard for processing requests for information is 90 days from receipt for a request by the tax authority. The period may be extended where difficulties in obtaining information are encountered.

There are instances, however, where the obligation to exchange information is lifted when the information requested is subject to legal privilege, and contrary to public policy. A request for information can also be declined when it discriminates against a national of the requested party.

Appropriate criminal sanctions will be filed against a bank or financial institution that fails to provide the requested information despite the issuance of a subpoena duces tecum.

Information supplied by a bank may be used by the BIR 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.