The Philippines Signs IGA on FATCA with the United States
On July 15, the Philippines entered into an Intergovernmental Agreement (IGA) on tax information sharing with the United States in order to comply with the U.S. Foreign Account Tax Compliance Act (FATCA).
FATCA requires all financial institutions outside of the United States to periodically transmit information on financial accounts held by American persons to the U.S. Internal Revenue Service (IRS), or face a 30 percent withholding tax on payments made from the U.S. The agreement is an attempt to add greater transparency in financial accounts in order to curb offshore tax avoidance and evasion.
U.S. Ambassador to the Philippines Philip S. Goldberg, who was present at the signing, hailed the new agreement, saying: “Tax evasion across borders is an alarming problem that we can beat back with openness and mutual cooperation. This IGA is an affirmation of that ideal.”
The type of negotiated IGA tends to differ depending on the country and there are two main forms: Model 1 and Model 2. The Philippines has negotiated a Model 1 IGA. Under the terms of this agreement, financial accounts maintained by U.S. persons in Philippine financial institutions will be automatically reported to the Bureau of Internal Revenue (BIR). The BIR will then send that information to the IRS in the United States. In turn, the IRS will also provide the BIR information relating to the financial accounts of Philippine residents using U.S. financial institutions.
The Philippines is not the only country in Southeast Asia to have entered into an IGA agreement with the United States. On December 9, 2014, Singapore became the first country in Southeast Asia to sign a Model 1 IGA on tax information sharing with the U.S. Malaysia is also currently implementing the regulations associated with a Model 1 IGA; Indonesia has reached an “agreement in substance” on a Model 1 IGA.
Other Asian countries have signed a Model 2 IGA, these include: Hong Kong and Japan. Under this model, financial institutions in these countries have to directly register with the IRS.
Original FATCA regulations created a reporting regime under which all foreign financial institutions would have to sign individual agreements to disclose their U.S. clients to the IRS. This regime was modified through the introduction of IGAs, which were intended to increase compliance and impose a heavier legal burden on financial institutions by integrating FATCA into local law.
As of 2015, the FATCA information-sharing regime has grown to encompass over 65 countries that have formally signed an IGA with the United States and 47 countries that have reached agreement in substance to sign the agreements.
The Philippines and the U.S. also have a double taxation agreement (DTA) in place. The DTA outlines the basis for the exchange of financial information between the IRS and the BIR. The new IGA builds off of this existing framework. To view the rest of the Philippines’ DTA and its other treaties, please see here.
The full text of the Philippines’ IGA can be found here.
To learn more about how FATCA may affect your business in Southeast Asia and throughout the wider region, please contact the tax and accounting specialists at Dezan Shira & Associates.
Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email email@example.com or visit www.dezshira.com.
Stay up to date with the latest business and investment trends in Asia by subscribing to our complimentary update service featuring news, commentary and regulatory insight.
Tax, Accounting, and Audit in Vietnam 2014-2015
The first edition of Tax, Accounting, and Audit in Vietnam, published in 2014, offers a comprehensive overview of the major taxes foreign investors are likely to encounter when establishing or operating a business in Vietnam, as well as other tax-relevant obligations. This concise, detailed, yet pragmatic guide is ideal for CFOs, compliance officers and heads of accounting who need to be able to navigate the complex tax and accounting landscape in Vietnam in order to effectively manage and strategically plan their Vietnam operations.
An Introduction to Tax Treaties Throughout Asia
In this issue of Asia Briefing Magazine, we take a look at the various types of trade and tax treaties that exist between Asian nations. These include bilateral investment treaties, double tax treaties and free trade agreements – all of which directly affect businesses operating in Asia.
The 2015 Asia Tax Comparator
In this issue, we compare and contrast the most relevant tax laws applicable for businesses with a presence in Asia. We analyze the different tax rates of 13 jurisdictions in the region, including India, China, Hong Kong, and the 10 member states of ASEAN. We also take a look at some of the most important compliance issues that businesses should be aware of, and conclude by discussing some of the most important tax and finance concerns companies will face when entering Asia.