Guidelines in processing request for exchange of information

The BIR has issued the following guidelines and procedures in the processing of requests for information pursuant to the exchange of information provision of Philippine tax treaties, in relation to Republic Act No. (RA) 10021 (otherwise known as the Exchange of Information Act of 2010), as implemented by Revenue Regulations No. (RR) 10-2010.

Scope and coverage of exchange of information

The exchange of information covers any information that is necessary or foreseeably relevant to the administration or enforcement of the domestic laws of the contracting parties concerning income taxes and other taxes covered by the terms of exchange of information agreements.

A request for information may include, among others, information such as the fiscal residence of the taxpayer, tax status of a legal entity, income and expenses shown in the income tax returns, business records, formation documents of an entity, banking records, accounting records, and the price for goods in a transaction between independent companies in both states.

The scope of information is not limited to taxpayer-specific information but also includes information related to tax administration and compliance such as statistics, tax administration trends, laws, and court decisions.

Limitations to the exchange of information

The obligation for exchange of information is mandatory and is not limited to information contained in the tax files of the BIR. When a request for information is received by the BIR, the bureau has to take action to obtain the information requested if it is not available on its tax files. However, the BIR is not bound to go beyond its own internal laws and administrative practice in putting information at the disposal of the requesting state.

Instances where the obligation to exchange information is lifted and request for information may be declined include:

(a) when the requesting party would not be able to obtain the information it is asking for under similar circumstances under its own laws or administrative practice;

(b) when the information being asked for relates to years not covered by double taxation agreements or taxes not covered;

(c) if disclosure of information would be contrary to public policy;

(d) when the information being asked for relates to administration enforcement of a provision of the tax laws that would discriminate against a national of the requested party as compared with a national of the applicant party in the same circumstances; and

(e) when the information is subject to legal privilege.

Procedures for responding to a request for information

The international standard for processing request for information is 90 days from receipt of request by the tax authority.

The 90-day period may be extended where there are difficulties encountered in obtaining and providing the information. In this regard, the Commissioner or his/her duly authorized representative shall inform the requesting foreign tax authority of the obstacles encountered in obtaining the information and reasons for failure to provide the information.

With respect to requests for information held by banks or financial institutions, the Commissioner or his/her duly authorized representative shall, within 60 days from receipt of all requested information, send notice to the concerned taxpayer that he/it/is or was the subject of a request for information by the foreign tax authority.

Confidentiality of information

All taxpayer information obtained pursuant to a request for exchange of information is confidential and may only be disclosed in accordance with Philippine law.

Generally, the exchange of information article in the Philippine double taxation agreements (DTAs) provides that any information received by the BIR shall be treated as secret in the same manner as information obtained under the domestic laws of the Philippines, and shall be disclosed only to persons or authorities (including courts and administrative bodies) concerned with the assessments or collection of, the enforcement or prosecution in respect of, or the determination of appeals in relation to taxes on income. However, some of the Philippines’ DTAs, such as Canada and Singapore, have even more restrictive confidentiality provisions, i.e., it only allows disclosure after sign off by the Commissioner or his/her duly authorized representative for this purpose.

BIR treatment of requested information

The gathering of information by the BIR for a foreign tax authority pursuant to a request for information does not constitute an actual investigation of the concerned taxpayer nor does it authorize the BIR to issue corresponding letters of authority on the request, unless warranted.

However, information supplied by a bank or a financial institution to the BIR may be used by it in its own assessment, verification, and audit of the taxpayer whose account and his or its transactions are made known to the BIR. The BIR is also not precluded from carrying out subsequent investigation on taxpayers whose transactions with foreign taxpayers were the subject of examination by foreign tax authorities.

(Revenue Memorandum Order No. 02-2013, February 18, 2013)

Tax Brief – March 2013

Punongbayan and Araullo