Banks warned of US tax rules
MANILA, Philippines—Local banks could be penalized if they failed to comply with disclosure rules on their dealings with American citizens, which could expose lenders to legal and reputational risks.
The Bangko Sentral ng Pilipinas (BSP) said banks would need to weigh the risks and returns of maintaining the secrecy of the identities of their clients from the United States amid regulatory clampdown on American citizens hiding their taxable assets abroad.
“It’s not a Philippine law so we can’t sanction a bank directly for not complying. But our take is, if a bank does not comply, that would have an impact on its financial position because of the hefty penalties and the reputational risk,” BSP Deputy Govenor Nestor A. Espenilla Jr. said.
The central bank official was referring to the Foreign Account Tax Compliance Act (FATCA), which requires banks that deal with American citizens to disclose their clients’ identities to the US Internal Revenue Service (IRS).
This is part of the Obama administration’s efforts to raise revenue to relieve pressure on the US government’s cash-strapped and debt-riddled coffers.
Issued in July last year, FATCA rules will take effect this October.
Speaking to reporters late Friday, Espenilla said local banks’ noncompliance could lead to reputational and operational risks, which would force the BSP to impose capital charges on their US citizen-linked assets.
This makes it more expensive for local banks to deal with US citizens.
Hefty fines that may be imposed by the IRS would also affect banks’ finances, which could prompt the BSP to implement corrective measures.
“The simple remedy is, they can just discontinue the accounts,” Espenilla said, noting that while banks may lose the business, they would also protect themselves from the IRS.
“There’s a risk-return trade-off that they have to consider,” he explained.
Locally, the Bureau of Internal Revenue (BIR) has agreed to serve as the conduit between local banks and the IRS. Banks may voluntarily disclose information to the BIR, which will turn over these reports to US tax authorities.
Banks that fail to comply with FATCA rules face a 30-percent withholding tax on all their US-sourced income.
