Philippines urged to enact reforms on bank secrecy, money laundering

MANILA, Philippines - Remittance senders could face higher costs and the country could again be proclaimed a tax haven come 2018, if the Philippines fails to enact reforms on bank secrecy and money laundering laws necessary to pass two international evaluations.

The Global Forum on Transparency and Exchange of Information is currently conducting a pilot program on the Philippines to prepare the country’s compliance to the automatic exchange of information (AEOI) tax standard, Bureau of Internal Revenue (BIR) Commissioner Kim Jacinto-Henares said.

The AEOI, according to the Forum’s website, mandates the automatic sharing of tax information between the BIR and its global counterparts.

The standard is “very similar” to the one used by the US’s Foreign Account Tax Compliance Act (FATCA) which the Philip- pines currently implements.

“There will be two reviews that will happen in 2018. FAT- CA and the Forum. If we fail the Forum’s evaluation particularly, we will get thrown back to the grey list,” Henares told The STAR in a phone interview.

Failure on FATCA’s evaluation, meanwhile, could mean higher costs for Philippine transactions abroad, she explained. According to tax firm Price Waterhouse Coopers, local banks, in particular, could get charged 30-percent with- holding tax on their foreign investments.

This, in turn, could be passed on to depositors in the form of larger transaction costs.

In 2010, the Philippines was upgraded to the “white list” of countries that implement international tax standards following the enactment of Republic Act (RA) 10021 that gave BIR the power to share tax information to other nations by request.

Two peer reviews, which the country passed in 2013, were then conducted by the Organization for Economic Cooperation and Development (OECD) to evaluate compliance. A third one will be undertaken soon.

Henares said the ongoing AEOI pilot program aims to determine how the country can facilitate “automatic” and not only by request tax information sharing with other jurisdictions. Unfortunately, the Bank Secrecy Law seems to be a hurdle.

“You have to recognize that globally, everyone is moving towards transparency. This is something that will happen and we cannot prevent it. Now, it is up to us if we want to be part of it, or be left out,” she explained during last week’s roundtable with The STAR.

“That is why we are pushing for this reform. We are always taking the opportunity to talk about this because we know this will happen, maybe not now, but in the future,” she added.

Asked later on in a text message if the country can be AEOI-compliant without lifting bank secrecy, the BIR chief replied: “Not really.” Enacted in 1955, RA 1405

was put in place after World War II to facilitate the revival of the local banking industry and capital markets by ensuring the privacy of deposits at a time when cash hoarding was rampant.

Efforts to amend the bill have been scuttled by concerns bank information may be used for harassment, but Henares said the administration only wants “access for tax authorities only,” something all countries, but three – Switzerland, Lebanon, and the Philippines – have.

Last week, Sen. Juan Edgardo Angara urged the BIR to submit a draft bill to amend RA No. 1405 so that it could be tackled by Congress.

For his part, Finance Seretary Cesar Purisima said amendments should also be made to the Anti-Money Laundering Act (AMLA) so that tax evasion could be included as a predicate crime. He said this is necessary to ensure continued compliance with FATCA.

The last amendments to AMLA were enacted in 2013 through RA No. 10167 and 10168. The former allowed the examination of bank deposits through a court order, while the latter criminalized terrorist financing activities.

“For AMLA, we are one in only two countries which do not treat tax evasion as a predicate crime, the other one being Lebanon. If this is approved, we will even be able to improve our collection of income taxes,” Purisima explained.