MANILA, Philippines – Financial institutions were asked to prepare for the effectivity of a US order next year targeted at running after American tax evaders offshore and seen having an impact on their operations.
Local and foreign firms transacting with “US persons” will be hit next year by the Foreign Account Tax Compliance Act (FATCA), which orders the charging of taxes against any non-compliant financial institution engaged with US citizens.
The Bangko Sentral ng Pilipinas (BSP), in a memorandum, said its supervised institutions – including commercial and investment banks – must “evaluate” if they are covered by FATCA and if applicable, must “establish a policy” to comply.
“They are advised to study the potential effects of FATCA to their businesses and determine the necessary steps to take to avoid the unfavorable consequences of non-compliance with FATCA requirements,” said Memorandum 2013-030 dated July 1.
FATCA is part of the US’s Hiring Incentives to Restore Employment Act enacted into law in 2010 as part of stimulus measures to boost US economic activity and employment.
According to the US Internal Revenue Service (IRS), firms may register between this month until Oct. 25 through its online portal to become “FATCA-compliant.” In doing so, they are agreeing to provide “certain information” to the IRS concerning US accounts they hold.
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In addition, US citizens who have foreign assets in excess of $50,000 must report their holdings to the IRS.
If they chose not to register though, FATCA orders individuals or entities engaging in business with the non-compliant company to withheld 30-percent tax from US-sourced payments.
In a chance interview yesterday, BSP Deputy Governor Nestor Espenilla Jr. told reporters the law’s “significant impact” may be felt by local commercial banks, especially since they are the ones which have transactions with US nationals.
Filipinos who are naturalized US citizens holding bank accounts locally and abroad will also be affected, he added.
In the BSP memo, financial entities were also told to “carefully consider” the implications of FATCA to local and foreign deposit secrecy laws, which prohibit the giving out of any bank account information to anyone.
“It’s not a matter of commitment…Our tone is a reminder. Any bank has an option,” Espenilla pointed out.
Bank officials were not immediately available for comment.