BIR defines limits of Bank Secrecy Law

MANILA, Philippines - Only bank deposits and government securities are subject to the provisions of the Bank Secrecy Law, the Bureau of Internal Revenue said yesterday.

The BIR issued this statement amid strong opposition by the local business community to BIR Revenue Regulation 1-2014, which requires all withholding agents to submit an alphabetical list of payees of income payments subject to creditable and final withholding taxes.  The new regulation also prohibits the lumping into a single amount and account of various income payments and taxes withheld.

The banking and capital markets sector said the new regulations would violate citizens’ rights under bank secrecy.

Under section 2 of Republic Act (RA) 1405 (An Act Prohibiting Disclosure of or Inquiry into, Deposits with any Banking Institution and Providing Penalty Therefore), all deposits of whatever nature in banks or banking institutions in the Philippines and investments in government bonds are absolutely confidential in nature.

Deposits refer to money or funds placed with a bank that can be withdrawn on the depositor’s order or demand, such as deposit accounts in the form of savings, current and time deposits while investments in government bonds refer to investments in bonds issued by the Government of the Philippines, its political subdivision and its instrumentalities.

Government bonds are debt securities which are unconditional obligations of the State, and backed by its full taxing power.  They include include Treasury bills, treasury notes, retail treasury bonds, dollar linked peso notes and other risk free bonds.

The BIR pointed out that corporate bonds and  purchases of shares of stocks, receivables of business, and foreign exchange are not covered by the bank secrecy law.

“The rule is, interest income paid to bank deposits is subject to a final withholding tax. For those claiming exemption from taxes on interest income on deposits, they should prove that they are entitled to said exemption; otherwise, the said income is subject to the final withholding tax,” the BIR said.

The BIR likewise insisted that the requirement for the business, banking and financial sectors to withhold and provide alpha lists has been in place as early as January 1997.

RR No. 1-2014, issued in December 17, 2013, only further tightened the requirements by mandating taxpayers to list down each person to whom income payment was made.

“Lumping into one single amount (e.g. “various employees,” “various payees,” etc.) is prohibited and deduction thereof for purposes of taxation will not be allowed,” the BIR said.

“There was nothing new that was added in the regulations, we only made it stricter. Investors have nothing to fear if they are tax compliant,” Internal Revenue Commissioner Kim Henares said.

“Logic dictates that if you have a lot of money to invest, then you must have earned it and have paid the right taxes on your earning. Rest assured though that information in the hands of the BIR are confidential and cannot be disclosed without the approval of the President of the Philippines, under pain of imprisonment,” Henares added.

The financial markets industry said the new requirements discourage portfolio inflows and could hamper the country’s economic growth.

They said foreign investors started exiting the Philippine stock market as they sought a safe heaven for their money.

Foreign trades  account for more than half of total PSE transactions.

Among the other  business groups that  called for the revocation of the new regulations were the Bankers Association of the Philippines, Employers Confederation of the Philippines, Federation of Filipino-Chinese Chambers of Commerce & Industry, Inc., Fund Managers Association of the Philippines, Investment Houses Association of the Philippines, Philippine Association of Securities Brokers and Dealers, Inc., Philippine Chamber of Commerce and Industry, and the Trust Officers Association of the Philippines.