15jul12 – Phl bank accounts open to IRS probing

POSTSCRIPT / July 12, 2015 / Sunday
 
Phl bank accounts open to IRS probing
By FEDERICO D. PASCUAL JR.

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AS Filipino-Americans and green card holders dither complying with a law for them to declare their bank accounts outside the US, depositors in the Philippines are being required to disclose if they are “US persons” subject to that federal law.

“US persons” include Americans (even those living or working in the Philippines), lawful US residents, corporations, partnerships, and limited liability companies, trusts and estates created under US laws that are holding or managing financial accounts outside the US.

They must file on time a Report of Foreign Bank and Financial Accounts (FBAR) if they have a financial interest in or signature authority over at least one financial account outside the US whose total value exceeds $10,000 during the calendar year reported.

This rule is in addition to the requirement for all US persons to report their non-US financial accounts to the Financial Crimes Enforcement Network (FinCEN). Failure to file the required report may result in civil liabilities.

As the information given in this Postscript is oversimplified to fit space, dual citizens and those who “feel” covered are advised to consult the US embassy, their banks, or legal/tax counsellors.

• FATCA annoys small bank depositors

LOCAL banks are engrossed with the Foreign Account Tax Compliance Act (FATCA), a US law requiring banks and other foreign financial institutions (FFIs)) to regularly submit information to the Internal Revenue Service (IRS) on accounts held by US persons.

FATCA targets tax evaders and other crooks using foreign financial accounts. Failure to comply with the reporting obligations will result in the US government imposing a 30-percent withholding tax on certain payments made from the US to non-compliant FFIs.

Drugs syndicates, terrorist groups, money launderers and corrupt officials hiding illicit wealth may be logical targets of FATCA, but it harasses even average bona fide depositors who maintain bank accounts for normal legitimate purposes.

Many small bank depositors complain that while FATCA’s goals may be laudable, it violates bank secrecy norms and allows a foreign government (the US) to impose on the banking system of another country (the Phillippines).

A small wage-earner wonders if these rules on foreign accounts are also enforced on top officials, including the President, Vice President, Supreme Court and Court of Appeals justices, Cabinet members, senators, congressmen, and generals.

Bank depositors must now declare if they are US persons. Responsible bank officers also interview account holders as to the source of their funds, if substantial, and the nature of their business.

• BIR, IRS swap info on bank deposits

UNDER a FATCA Intergovernmental Agreement (IGA) with the US, while the Bureau of Internal Revenue gathers financial information on US persons in the Philippines, the IRS in turn supplies the BIR with similar data on Filipinos’ financial holdings in the US.

We sought more FATCA details from the Banko Sentral ng Pilipinas and received BSP’s replies in Q&A form:

Q: What are FATCA obligations applicable to a Philippine FI?

A: PFIs will need to perform due diligence checks to identify financial accounts held by US persons. Thereafter, the PFIs will need to transmit information on such accounts to the BIR, which will in turn transmit the information to the IRS.

Q: Why is the Philippines entering into a FATCA Intergovernmental Agreement with the US?

A: Following various representations made by the industry associations of financial institutions where they advocate adoption by the Philippines of a Model 1 IGA with the US, the Philippines agreed to enter into a FATCA IGA with the US to help Philippine Fls (PFIs) manage their FATCA compliance burden. Without the IGA, individual Fls outside the US will have to enter into individual FFI agreements with the US to avoid FATCA-related withholding tax. With the IGA, PFIs will benefit from simplified compliance procedures with regard to identifying and reporting on financial accounts held by US persons. Moreover, since the IGA is reciprocal between the US and the Philippines, the Bureau of Internal Revenue will also receive from the US information on financial accounts of Philippine residents in the US.

Q: What is a FATCA Model 1 IGA, a FATCA Model 2 IGA?

A: The US has developed two Model IGAs to simplify and overcome legal issues relating to the implementation of FATCA. Model 1 establishes a framework for Fls outside the US to report account information of US persons to the relevant domestic authority (BIR in the Philippines’s case) which in turn provides the information to the IRS. Model 2 establishes a framework for FIs outside the US to directly report account information of US persons to the IRS, which is supplemented by information exchange upon request between the IRS and its relevant government counterpart.

Q: Does a business need to register with the IRS for FATCA?

A: All PFIs must register with the IRS, unless they are exempt. Annex II to the IGA lists the Non-Reporting PFIs that are treated as Exempt Beneficial Owners or Deemed Compliant FFIs. Until the IGA is signed, the entities listed in the 30 November 2014 IGA Model 1 template are the entities considered as Exempt Beneficial Owners or Deemed Compliant FFIs.

Q: Who is considered as a US person?

A: For the purposes of FATCA, “US person” means: (a) a citizen or lawful permanent resident (including US green card holder) of the US; or (b) a partnership or corporation organized in the US or under the laws of the US or any State thereof, or a trust if: (i) a court in the US would have authority under the applicable law to render orders or judgments concerning substantially all issues regarding the administration of the trust; and (ii) one or more US persons have the authority to control all substantial decisions of the trust, or an estate of a decedent that is a citizen or resident of the US.

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