BIR stands pat on bank secrecy law position

The Bureau of Internal Revenue (BIR) on Tuesday said the days of investors profiting from the lax implementation of disclosure rules were over, as the agency defended its move to require more information from holders of privately issued securities.

In a statement, the BIR reminded the business, banking, and financial sectors that only bank deposits and government securities were subject to the provisions of the bank secrecy law.

Section 2 of the Deposit Secrecy Law said that “all deposits of whatever nature in banks or banking institutions in the Philippines and investments in government bonds are absolutely confidential in nature,” the BIR said.

Deposits refer to money or funds placed with bank that can be withdrawn on the depositor’s order or demand, such as deposit accounts in the form of savings, current and time deposits, while investments in government bonds refer to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

Government bonds include treasury bills, treasury notes, retail treasury bonds, dollar linked peso notes and other risk- free bonds.

Not covered by the bank secrecy law are investments which are not bank deposits or government securities such as corporate bonds, purchases of shares of stocks, purchases of receivables of business and purchases of foreign exchange.

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 the exemption; otherwise, the income is subject to the final withholding tax.

“There was nothing new that was added in the regulations. We only made it stricter,” BIR Commissioner Kim Jacinto-Henares said in a statement.

This comes amid the recent position paper by various industry groups attacking Revenue Regulation No. 2-98, which requires taxpayers to list down each person to whom income payment was made.

The practice of lumping into one single amount (e.g. “various employees,” “various payees,” etc.) is now prohibited and deduction thereof for purposes of taxation is no longer allowed.

To comply with these rules, banks and investment firms have started to ask their clients to provide more detailed personal information, which would be disclosed to tax authorities.

“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,” the BIR said. “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.”