Wednesday, August 13, 2014

BIR defines limits of Bank Secrecy Law

See - BIR defines limits of Bank Secrecy Law

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Deposits refer to money or funds placed with a bank that can be withdrawn on the depositor’s order or demand, such as deposit accounts in the form of savings, current and time deposits while investments in government bonds refer to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

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