Exchanging tax information

Businesses today thrive on the information it gathers from every source imaginable. Any information about competitors, market demands, economic background and even information on the political scene serves as leverage for businesses when making decisions.

The same logic seems to be the case for different tax offices around the world determined on utilizing exchange of information mechanisms between tax jurisdictions.

The Double Taxation Agreements (DTAs) entered into by the Philippines with almost 40 tax jurisdictions have a portion entitled “Exchange of Information”.   This portion allows for the exchange of information between the contracting states as necessary to carry out the DTA. Of course, the exchange of information is subject to certain conditions. In addition, the Philippines intends to enter into Tax Information Exchange Agreements.

In relation to these agreements, the Bureau of Internal Revenue (BIR) has issued Revenue Memorandum Order (RMO) No. 02-2013, dated Feb. 18,  2013, and subsequently RMO No. 03-2013, dated March 1, 2013.

RMO No. 02-2013 prescribes the policies, guidelines and procedures in processing specific requests for information pursuant to the exchange of information provisions of the DTAs.  On the other hand, RMO No. 03-2013 prescribes the usage of the Exchange of Information Work Manual for the International Tax Affairs Division (ITAD) of the BIR where the information requested would be processed.

However, it should be remembered that the exchange of information can be two-way. A tax treaty country could request information from our Commissioner of Internal Revenue and vice versa. In the case of the requests from the Commissioner of Internal Revenue to our tax treaty partners, all requests for information by the different offices of the BIR (e.g., Regional Offices, Revenue District Offices, Large Taxpayers Service, Large Taxpayers District Offices, National Investigation Division) should be coordinated with ITAD.

Under RMO No. 02-2013, 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 the BIR’s exchange of information arrangements.  It is not limited to information for cases that involve tax evasion and other criminal tax offenses, taxpayer-specific information, information related to tax administration and compliance improvement.

RMO No. 02-2013 states that a request for information could include any or all of the following terms but not limited to:

• fiscal residence of an individual or a company.

• tax status of a legal entity.

• nature of income in the source country.

• income and expenses shown on a tax return.

• business records (for instance to determine the amount of commissions paid to a company of another state).

• formation documents of an entity and documents about subsequent changes of shareholders/partners.

• name and address of the entity at the time of formation and all subsequent name and address changes.

• number of entities residing at the same address as the requested entity.

• names and addresses of the directors, managers, and other employees of a company for the relevant years, evidence (contracts and bank statements) of their remuneration, social security-payments and information about their occupation with regard to any other entities.

• banking records.

• accounting records and financial statements.

• copies of invoices, commercial contracts, etc..

• price paid for goods in a transaction between independent companies in both states.

With respect to the request for information from a tax treaty partner to the Commissioner of Internal Revenue, the obligation to exchange information is mandatory and is not limited to information contained in the tax files held by the BIR. The BIR is required to take action to obtain the information requested if it is not available on file. Hence, the Commissioner of Internal Revenue has the power to summon, examine and take the testimony of a person to acquire the information requested and to inquire into bank deposit accounts as allowed by current Philippines laws. However, the BIR is not bound to go beyond its own internal laws and administrative practice in obtaining such information.

With this environment that promotes tax transparency, multinational companies should seriously review their tax and reporting compliance not only in the Philippines but also abroad.

Valerie Jill S. Reyes is a supervisor from the tax group of Manabat Sanagustin & Co. (MS&Co.), the Philippine member firm of KPMG International.

This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity.

The view and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG International or MS&Co. For comments or inquiries, please email [email protected] or [email protected].