No sanctions for FATCA breach - BSP

THE BANGKO Sentral ng Pilipinas (BSP) will keep an eye on banks’ compliance with a US tax law but has not set any definite sanctions should lenders fail to fulfill their obligations, its chief said.

“The BSP has no defined sanctions for non-compliance,” central bank governor Amando M. Tetangco, Jr. said in an e-mail to reporters in response to a query on how it intends to implement the Foreign Account Tax Compliance Act (FATCA) here.

“The ultimate consequence of non-compliance is the withholding by the US government of 30% of income sourced from the US,” he said.

Mr. Tetangco said that what is within the BSP’s ambit is to direct banks to take measures “should non-compliance result in unfavorable consequences on the operations of banks.”

“The BSP’s actions would be more on working to encourage banks to establish systems that they would need to enable them to comply with the FATCA requirements,” said the BSP chief.

Legislated in the US four years ago, the FATCA is aimed at compelling Americans who are hiding money in offshore accounts to pay the right taxes.

Under FATCA, financial institutions outside the US with accounts of American nationals should register with the Internal Revenue Service (IRS) as foreign financial institutions (FFIs), and are required to audit their accounts and report those that hold US income.

Those that fail to sign up with the IRS by end-June 2014 will be slapped a 30% withholding tax on all US-sourced income starting July 1.

A list published by the IRS early this month showed a total of 148 Philippine financial institutions that registered with the US tax authority by May 5 and secured approvals as of May 23.

All in all, there are 26 universal and commercial banks, 14 thrift banks and three rural banks on the IRS list.

The 148 Philippine FFIs signed up with the IRS in the absence of an intergovernmental agreement (IGA), which is still being negotiated between the Philippines and the US.

The IGA will facilitate the transmission of information from these FFIs to the Philippines’ tax authority, the Bureau of Internal Revenue (BIR), which will then pass on the information to the IRS.

BIR Commissioner Kim S. Jacinto-Henares has said that the Philippines will adopt the “Model 1A IGA,” and that the country has up to the end of the year to sign an agreement. Under this model, institutions will report to the BIR and the agency will give the necessary information to the US IRS for them.

The Philippine financial institutions signed up with IRS under “Model 2,” where they will give information on accounts held by “US persons” with at least an aggregate value of $50,000, in the case of individual account holders, and $250,000, in the case of corporations, directly to the IRS. -- Bettina Faye V. Roc

sourcE:  Businessworld