GLOBAL FORUM ON TRANSPARENCY AND EXCHANGE OF INFORMATION FOR TAX PURPOSES

GLOBAL FORUM ON TRANSPARENCY AND EXCHANGE OF INFORMATION FOR TAX PURPOSES
Peer Review Report Phase 2 Implementation of the Standard in Practice

THE PHILIPPINES
Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Reviews: Philippines 2013
PHASE 2: IMPLEMENTATION OF THE STANDARD IN PRACTICE
November 2013 (reflecting the legal and regulatory framework as at August 2013)
This work is published on the responsibility of the Secretary-General of the OECD. The opinions expressed and arguments employed herein do not necessarily reflect the official views of the OECD or of the governments of its member countries or those of the Global Forum on Transparency and Exchange of Information for Tax Purposes. This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.
Please cite this publication as: OECD (2013), Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Reviews: Philippines 2013: Phase 2: Implementation of the Standard in Practice, OECD Publishing. http://dx.doi.org/10.1787/9789264206236-en
ISBN 978-92-64-20622-9 (print) ISBN 978-92-64-20623-6 (PDF)
Series: Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Reviews ISSN 2219-4681 (print) ISSN 2219-469X (online)
Corrigenda to OECD publications may be found on line at: www.oecd.org/publishing/corrigenda.
OECD 2013
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TABLE OF CONTENTS 3
Table of Contents
About the Global Forum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 Information and methodology used for the peer review of the Philippines. . . . . .11 Overview of the Philippines. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Compliance with the Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 A. Availability of Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A.1. Ownership and identity information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A.2. Accounting records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A.3. Banking information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 21 52 60
B. Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 B.1. Competent Authoritys ability to obtain and provide information . . . . . . . . 66 B.2. Notification requirements and rights and safeguards. . . . . . . . . . . . . . . . . . 76 C. Exchanging Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 C.1. Exchange of information mechanisms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 C.2. Exchange of information mechanisms with all relevant partners . . . . . . . . 91 C.3. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 C.4. Rights and safeguards of taxpayers and third parties. . . . . . . . . . . . . . . . . . 99 C.5. Timeliness of responses to requests for information . . . . . . . . . . . . . . . . . 100 Summary of Determinations and Factors Underlying Recommendations. . . .111
PEER REVIEW REPORT PHASE 2 THE PHILIPPINES OECD 2013
4 TABLE OF CONTENTS Annex 1: Jurisdictions response to the review report . . . . . . . . . . . . . . . . . . . .117 Annex 2: List of All Exchange-of-Information Mechanisms in Effect . . . . . . .119 Annex 3: List of All Laws, Regulations and Other Relevant Material . . . . . . .121 Annex 4: People Interviewed During On-site Visit . . . . . . . . . . . . . . . . . . . . . 122
ABOUT THE GLOBAL FORUM 5
About the Global Forum

The Global Forum on Transparency and Exchange of Information for Tax Purposes is the multilateral framework within which work in the area of tax transparency and exchange of information is carried out by over 120 jurisdictions, which participate in the Global Forum on an equal footing. The Global Forum is charged with in-depth monitoring and peer review of the implementation of the international standards of transparency and exchange of information for tax purposes. These standards are primarily reflected in the 2002 OECD Model Agreement on Exchange of Information on Tax Matters and its commentary, and in Article 26 of the OECD Model Tax Convention on Income and on Capital and its commentary as updated in 2004. The standards have also been incorporated into the UN Model Tax Convention. The standards provide for international exchange on request of foreseeably relevant information for the administration or enforcement of the domestic tax laws of a requesting party. Fishing expeditions are not authorised but all foreseeably relevant information must be provided, including bank information and information held by fiduciaries, regardless of the existence of a domestic tax interest. All members of the Global Forum, as well as jurisdictions identified by the Global Forum as relevant to its work, are being reviewed. This process is undertaken in two phases. Phase 1 reviews assess the quality of a jurisdictions legal and regulatory framework for the exchange of information, while Phase 2 reviews look at the practical implementation of that framework. Some Global Forum members are undergoing combined Phase 1 and Phase 2 reviews. The Global Forum has also put in place a process for supplementary reports to follow-up on recommendations, as well as for the ongoing monitoring of jurisdictions following the conclusion of a review. The ultimate goal is to help jurisdictions to effectively implement the international standards of transparency and exchange of information for tax purposes. All review reports are published once adopted by the Global Forum. For more information on the work of the Global Forum on Transparency and Exchange of Information for Tax Purposes, and for copies of the published review reports, please refer to www.oecd.org/tax/transparency and www.eoi-tax.org.
EXECUTIVE SUMMARY 7
Executive Summary
1. This report summarises the legal and regulatory framework for transparency and exchange of information in the Philippines as well as the practical implementation of that framework. The international standard which is set out in the Global Forums Terms of Reference to Monitor and Review Progress Towards Transparency and Exchange of Information (ToR), is concerned with the availability of relevant information within a jurisdiction, the competent authoritys ability to gain timely access to that information, and in turn, whether that information can be effectively exchanged with its exchange of information partners. The assessment of effectiveness in practice has been performed in relation to a three-year period (1 July 2009 to 30 June 2012). While the Philippines has a well developed legal and regulatory framework, the report identifies a number of areas where the Philippines could improve its legal infrastructure and its practice within that framework to more effectively implement the international standard. The report includes recommendations to address these shortcomings. The Philippines consists of more than 7 000 islands occupying a stra2. tegically important location off the southeast coast of mainland Asia. With a population of over 90 million people it is the 12th most populous country in the world. 3. As a member of the Global Forum since 2005, the Philippines has participated in all of the Global Forums annual assessments. In 2009, it undertook to amend its domestic laws by the end of the year to address shortcomings, particularly in relation to access to bank information, and thus bring its treaties in line with the international standard. To this end, the Philippines enacted the Exchange of Information Act and its accompanying regulations in 2010. Restrictions on access to bank information for exchange purposes have been removed and, on the whole, the Philippines meets the international standards for exchange of information (EoI). 4. The Philippines has a wide ranging treaty network with 39 DTCs currently in force that provide for the exchange of information. It has recently developed a model Tax Information Exchange Agreement (TIEA), approved in February 2013, with the goal of expanding its exchange of information
8 EXECUTIVE SUMMARY
network. With a few exceptions, its treaties meet the international standard for exchange of information. However, some of the exceptions involve treaties with significant trading partners, although the deficiencies in a number of cases arise because of impediments to exchange of information in the case of the treaty partners, rather than the Philippines. Also, the Philippines does not have a treaty with one of its major trading partners, but is actively seeking to negotiate or renegotiate TIEAs or Protocols to update EOI provisions under existing DTCs with its three major partners. 5. The Philippines treaty network is complemented by wide-ranging powers to access information, including ownership, identity and accounting information. The authorities also have powers to compel production of this information. These powers include general access powers under the income tax code as well as specific powers granted by the Exchange of Information Act and its accompanying regulations. The Philippines laws provide rights and safeguards to persons who are the subject of EoI requests, including notification requirements. 6. Regarding the availability of information, the legal and regulatory framework is generally in place to ensure the maintenance of ownership and identity information for all entities and arrangements. Domestic corporations are required to keep a stock and transfer book with ownership information as well as the records of all business transactions by the corporation and the minutes of any meetings. The requirement to keep a record of all business transactions and meeting minutes applies to foreign corporations as well, although there is no requirement for a foreign corporation to keep a stock and transfer book with ownership information. In addition, domestic corporations, limited partnerships and partner7. ships (with a capital of more than PHP 3 000, approximately USD 68), are required to register with the Securities Exchange Commission. In the case of domestic corporations and limited partnerships, registration requires the disclosure of the identity of shareholders or partners and this information must be updated annually. Separately, regulated entities such as banks, with the exception of offshore banks, or corporations qualifying for certain incentives are obliged to provide ownership information to the regulatory authorities or the Board of Investments. 8. For tax purposes, all partnerships must keep a journal and ledger or their equivalent and these books will necessarily show the identity of the partners. Partners also have a duty to render on demand true and full information on all things affecting the partnership to any partner. 9. The Philippines laws allow for the creation of trusts. Although no registration requirements exist, only a stock corporation or person authorised by the Monetary Board to engage in a trust business may act as a trustee as part
EXECUTIVE SUMMARY 9
of a trade or business. In addition, any natural and juridical persons acting as trustees, regardless of whether engaged in a trade or business, are also subject to the AML laws and are therefore subject to strict recordkeeping, customer identification and covered and suspicious transaction reporting requirements. There are clear requirements in the Philippines for entities to maintain 10. accounts. However, with the exception of entities subject to the anti-moneylaundering (AML) laws, records are only required to be kept for three years, falling short of the five year standard in the Terms of Reference. In addition, it is unclear whether underlying documents must be maintained in the case of all entities. The report, therefore, contains recommendations in this regard. 11. Compliance in respect of all entities obligations to maintain ownership, accounting and banking information is monitored by the Philippines tax authorities and other public authorities, such as the SEC and the respective supervisory bodies. Monitoring is carried out via a combination of routine inspections, desktop examinations and compliance visits. Sanctions are set at the appropriate level to ensure compliance with information keeping requirements and sanctions, such as administrative fines, are regularly enforced in practice. According to the feedback received from peers, no issues have arisen with respect to obtaining ownership, accounting and banking information during the review period, other than delays. 12. In the Philippines, the unit in charge of exchanging information for tax purposes is located within the International Tax Affairs Division, which is part of the Bureau of Internal Revenue (BIR). For EOI purposes, the Commissioner of BIR is designated as the Philippine competent authority. Since 2012, the Philippines has had in place appropriate organisational processes and resources to ensure effective exchange of information in practice. However, concerns have been expressed by its EOI partners with respect to delays in receiving responses from the Philippine competent authority and the lack of consistency in providing status updates when the Philippines was unable to provide the requested information within 90 days. Despite the delays in response times, feedback from peers indicates that the responses provided by the Philippines are comprehensive and of good quality. 13. Over the three-year review period, the Philippines received 67 requests from twelve EOI partners, to which the Philippines was in a position to provide a final response within 90 days in 7 cases (10%), within a period of between 91 and 180 days in another 20 cases (30%), between 181 days and one year in an additional 11 cases (17%), in more than one year in another 23 cases (34%) and the remainder 6 cases (9%) were still pending at the end of the review period. During the last part of the three-year period under review (July 2009 June 2012), response times decreased significantly, mainly due to the streamlining of the EOI process and the introduction of an EOI work manual, now formalised in two recent Revenue Memorandum Orders.
10 EXECUTIVE SUMMARY
14. The Philippines has been assigned a rating 1 for each of the 10 essential elements as well as an overall rating. The ratings for the essential elements are based on the analysis in the text of the report, taking into account the Phase 1 determinations and any recommendations made in respect of the Philippines legal and regulatory framework and the effectiveness of its exchange of information in practice. On this basis, the Philippines has been assigned the following ratings: Compliant for elements A.3, B.1, B.2, C.2, C.3 and C.4, Largely Compliant for elements A.1, C.1 and C.5, and Partially Compliant for element A.2. In view of the ratings for each of the essential elements taken in their entirety, the overall rating for the Philippines is Largely Compliant. 15. A follow up report on the steps undertaken by the Philippines to answer the recommendation made in this report should be provided to the PRG within 12 months after the adoption of this report.
1.
This report reflects the legal and regulatory framework as at the date indicated on page 1 of this publication. Any material changes to the circumstances affecting the ratings may be included in Annex 1 to this report.
INTRODUCTION 11
Introduction
Information and methodology used for the peer review of the Philippines
16. The assessment of the legal and regulatory framework of the Philippines and the practical implementation and effectiveness of this framework was based on the international standards for transparency and exchange of information as described in the Global Forums Terms of Reference, and was prepared using the Global Forums Methodology for Peer reviews and NonMember Reviews. The assessment has been conducted in two stages: Phase 1 assessed the Philippines legal and regulatory framework for the exchange of information as at February 2011, while Phase 2, performed in relation to a three-year period (July 2009 through June 2012), looked at the practical implementation of that framework, as well as any amendments made to the legal and regulatory framework since the Phase 1 review. 17. The assessment was based on the laws, regulations, and exchangeof-information mechanisms in force or effect as at 22 August 2013. It reflects the Philippines responses to the Phase 1 and Phase 2 questionnaires, supplementary questions, other materials supplied and explanations provided by the Philippines during the onsite visit that took place from 5-7 March 2013 in Quezon City, the Philippines, and information supplied by partner jurisdictions. The Philippines responses to the Phase 1 and Phase 2 questionnaires, supplementary questions and other materials supplied by the Philippines, information supplied by exchange of information partners and explanations provided by the Philippines during the on-site visit. During the onsite visit, the assessment team met with officials and representatives of the Ministry of Finance, Bureau of Internal Revenue (BIR), Securities and Exchange Commission (SEC), Department of Trade and Industry (DTI), Board of Investments (BOI), Bangko Sentral ng Pilipinas (Central Bank or BSP), Anti-Money Laundering Council (AMLC), Insurance Commission, Cooperative Development Authority (CDA) and National Tax Research Center (NTRC). A list of all those interviewed during the onsite visit is attached to this report at Annex 4.
12 INTRODUCTION
18. The Phase 1 and Phase 2 assessments were conducted by assessment teams which consisted of two assessors and a representative of the Global Forum Secretariat. For the Phase 1 review, these were: Mrs. Sylvia Moses of the British Virgin Islands, Mr. Sergio Luis Prez Cruz of Mexico and Ms. Amy ODonnell of the Global Forum Secretariat. For the Phase 2 review, the assessment team was composed of: Ms. La Toya James of the British Virgin Islands, Mr. Sergio Luis Prez Cruz of Mexico and Mrs. Renata Fontana of the Global Forum Secretariat. 19. The Terms of Reference break down the standards of transparency and exchange of information into 10 essential elements and 31 enumerated aspects under three broad categories: (A) availability of information; (B) access to information; and (C) exchanging information. This review assesses the Philippines legal and regulatory framework and the implementation and effectiveness of this framework against these elements and each of the enumerated aspects. In respect of each essential element a determination is made regarding the Philippines legal and regulatory framework that either: (i) the element is in place, (ii) the element is in place but certain aspects of the legal implementation of the element need improvement, or (iii) the element is not in place. These determinations are accompanied by recommendations for improvement where relevant. In addition, to reflect the Phase 2 component, recommendations are made concerning the Philippines practical application of each of the essential elements and a rating of either: (i) compliant, (ii) largely compliant, (iii) partially compliant, or (iv) non-compliant is assigned to each element. An overall rating is also assigned to reflect the Philippines overall level of compliance with the standards. 20. The ratings assigned in this report were adopted by the Global Forum in November 2013 as part of a comparative exercise designed to ensure the consistency of the results. An expert team of assessors was selected to propose ratings for a representative subset of 50 jurisdictions. Consequently, the assessment teams that carried out the Phase 1 and Phase 2 reviews were not involved in the assignment of ratings. These ratings have been compared with the ratings assigned to other jurisdictions for each of the essential elements to ensure a consistent and comprehensive approach.
Overview of the Philippines

21. The Republic of the Philippines is an archipelago made up of 7 107 islands, located between China and Borneo, and approximately 800 km from the Asian mainland. The 11 largest islands contain 94% of the Philippines total land area. It benefits from its direct access to Asias main water bodies: the South China Sea, the Philippine Sea, the Sulu Sea, the Celebes Sea and the Luzon Strait.
INTRODUCTION 13
22. The Philippines is the 12th most populous country in the world with a population of approximately 95 million people. Filipino and English are the official languages. About 11 million Filipinos live overseas, 3 million of whom are in the US and an estimated 2 million in the Middle East, over half of whom reside in Saudi Arabia. Remittances from Filipinos working overseas amount to around USD 17.3B per year, accounting for 11% of the Philippines GDP in 2009. 23. The Philippines location on the Pacific Ring of Fire and its tropical location make it prone to earthquakes and typhoons, but it also has significant natural resources. Its mineral deposits are among the largest in the world, and are particularly rich in gold and copper. They also include silver, nickel and cobalt. The Philippines economy ranks 48th in the world in terms of size. Its GDP in 2009 was USD 161 billion. Its currency is the Philippine peso (PHP). 2 24. The Philippines biggest trading partners are the US; Japan; China; Singapore; Hong Kong, China; South Korea; Thailand and Malaysia. The service sector contributes to about half of overall Philippine output, followed by industry (mainly food processing, textiles, garments, electronics, auto parts and business process outsourcing) then agriculture. The fastest growing segment of the Philippine economy is business process outsourcing, for which the Philippines accounts for almost 15% of the global market. The Philippines has endeavoured to attract foreign investment into its 25. economy and foreign companies play a significant role in creating employment. Along with reforms such as trade liberalisation, privatisation and economic deregulation, it has also accelerated the liberalisation of foreign direct investment, most significantly by passage of the Foreign Investment Act (FIA) in 1991. Now, foreign investment can be up to 100% in many sectors, excepting financial services and other sectors specified on the Foreign Investment Negative List. Prior to passage of the FIA, such investments required prior approval from the Board of Investments (BOI), which regulates and promotes investment in the Philippines. The negative list has decreased over time and the sectors with remaining foreign ownership restrictions are limited to mass media, land ownership, natural resources, firms that supply to government owned corporations or agencies and public utilities. 26. The BOI also prepares an annual investment plan, listing specific areas of investment that can qualify for incentives. Incentives include income tax holidays, tax credits on raw materials used in the manufacture, processing or production of export products, deductions for infrastructure expenses for businesses in less developed areas, and exemption of exports from certain export taxes and duty fees. Enterprises not engaged in a preferred area of investment can still be entitled to incentives if they are Filipino owned and
2. PHP 1 = USD 0.02 and USD 1 = PHP 43.80 as at 15 August 2013 (www.xe.com).
14 INTRODUCTION
at least 50% of production is for export or if they are majority foreign-owned and at least 70% of production is for export. 27. The Philippines Economic Zone Authority (PEZA), attached to the Department of Trade and Industry (DTI), is the Philippine government agency tasked to promote investment, extend assistance, register, grant incentives to and facilitate the business operations of investors in exportoriented manufacturing and service facilities inside selected areas throughout the country. These areas are proclaimed by the President to be Economic Zones or Ecozones. One-hundred percent foreign ownership is permitted in Ecozones provided that total production is for export. Generally, PEZA registered enterprises are granted income tax holidays for a period of four or six years, or can opt to be taxed at 5% on gross income earned in lieu of all taxes, except real property tax.
General information on legal system and the taxation system

28. The Philippines achieved independence in 1946. Previously, it was colonised by Spain in the late 16th century and was subsequently ruled by the United States. As a result, the governmental system resembles the US in many ways, with some Spanish influences. Under the 1987 constitution the Philippines is now a democratic republic with a presidential form of government. 29. The 1987 Constitution is the fundamental law of the land and creates three co-equal branches of government: the Executive, the Legislative and the Judiciary. The executive branch consists of a President, elected for a six-year term and serving as both chief of state and head of government. The Legislative branch is made up of a bicameral Congress with a Senate and House of Representatives. The Judicial Branch consists of a Supreme Court, a Court of Appeals, regional and municipal trial courts and Anti-Graft Court 3 and a Court of Tax Appeals. The Philippines legal system is a blend of civil law and common law, 30. as well as indigenous law to a lesser extent. The civil law tradition comes from Spain, while the common law tradition and jurisprudence was influenced by the United States. The two main sources of law are statutes and case law. Agencies are often given the power to promulgate rules and regulations, which have the force and effect of law, so long as they are in pursuance of the procedure or authority conferred upon the administrative agency by law. Bills relating to the national internal revenue taxes originate from the House of Representatives and are approved, modified or not approved by the Senate (Sec. 24, Art. VI, Philippine Constitution).
3. Also known as the Sandiganbayan, it was created to maintain integrity, honesty and efficiency in government service (Philippines Constitution).
INTRODUCTION 15
31. Tax laws are contained within the National Internal Revenue Code (NIRC), which is patterned after the US Internal Revenue Code. It underwent substantial revision in 1997 with the passage of the Tax Reform Act. The Bureau of Internal Revenue (BIR) administers taxation, including assessment, collection, processing and taxpayer assistance. The BIR is headed by a Commissioner with jurisdiction to interpret the provisions of the Code and other tax laws and with jurisdiction over assessments, refunds, penalties and fees. 32. The primary forms of taxation in the Philippines are the corporate income tax, individual income tax, value added tax, excise tax and customs duties. A corporation may be either a domestic or a foreign corporation. A foreign corporation is one that is incorporated under laws other than the Philippines laws. It is considered a resident foreign corporation if it engages in trade or business in the Philippines. Otherwise it is a non-resident foreign corporation. 33. The corporate tax in the Philippines applies to both domestic and foreign corporations, and the statutory rate is 30%. Philippine domestic corporations are taxed on worldwide income, while foreign corporations, whether resident or non-resident, are taxed on income derived from sources within the Philippines. Income is considered to be sourced in the Philippines if it is derived from property or activities within the Philippines. A branch profit remittance tax of 15% is imposed on any profits remitted by a branch to its head office. Individual income is taxed at progressive rates, depending on the level of income, the highest rate being 32%.
Overview of the financial sector and relevant professions

34. The Securities and Exchange Commission (SEC) has jurisdiction over corporations and partnerships and also acts as the registrar of companies and partnerships. These are the main types of entities through which business enterprises are carried on. Banks, quasi-banks and institutions that perform similar functions are regulated by the Bangko Sentral ng Pilipinas (Central Bank) or BSP, while the Insurance Commission regulates the operations of insurance companies. Mutual funds are under the supervision of the SEC. 35. Regulated Entities in the Philippines can be banks or non-bank financial intermediaries (NBFIs). Banks can be either domestic, resident foreign or offshore banks, with resident foreign banks including a branch office of a foreign bank. The Philippines banking structure consists of the government owned Central Bank, which acts as the governments fiscal agent and administers the monetary and banking system. As at March 2013, there were 20 universal banks, 16 commercial banks, 70 thrift banks, 581 rural banks. Of these, 18 are foreign banks consisting of six universal banks, ten commercial banks and two thrift banks.
16 INTRODUCTION
36. In addition to banks, there are 6 408 NBFIs under the supervision and regulation of the Central Bank, 13 of which have quasi banking functions. The majority of NBFIs, however, are pawnshops (6 279), most of which are stand-alone companies and are not subsidiaries or affiliates of banks. The most common form of quasi-bank NBFIs are investment houses and financing companies, although both can also operate without quasi-banking functions. Many NBFIs are subsidiaries and affiliates of banks, so there is some overlap. NBFIs without quasi-banking license, and which are not subsidiaries or affiliates of banks, are not within the supervision or regulation of the Central Bank. 37. The Philippines allows foreign banks to establish offshore banking units (OBUs) which are intended to encourage the flow of capital into the Philippines. They are exempt from tax on income sourced outside the Philippines. Income from foreign currency transactions with local banks is subject to a final 10% tax rate. Non-residents are exempt from income tax on income they derive from transactions with OBUs. As of March 2013, there are four offshore banks in the Philippines. 4 38. According to Financial Action Task Force (FATF), at June 2000, the Philippines lacked a basic set of anti-money laundering regulations such as customer identification and record keeping. Bank records had been subject to excessive secrecy provisions. Moreover it did not have any specific legislation to criminalise money laundering per se. However, in September 2001 the Philippines enacted the Anti-Money Laundering Act (AMLA), criminalising money laundering, introducing the mandatory reporting of certain transactions and requiring customer identification. In 2003 this act was amended and improved upon. On the basis of this progress, FATF delisted the Philippines from its Non-Cooperative Countries or Territories List in February 2005 (FATF Annual and Overall Review of Non-Cooperative Countries or Territories, 10 June 2005). 39. In February 2010, the Philippines was referred to the FATF-International Cooperation Review Groups (ICRG) monitoring process due to the strategic deficiencies of the Philippines anti-money laundering and combating the financing of terrorism (AML/CFT) regime. The deficiencies include: not adequately criminalizing money laundering; non-inclusion of designated nonfinancial businesses and professions; application for bank inquiry is with notice and hearing; and non-criminalisation of terrorism financing as a stand-alone offense. However, in June 2013, the FATF removed the Philippines from its list of vulnerable jurisdictions as the Philippines had established the legal and regulatory frameworks to meet its commitments in its Action Plan regarding the strategic deficiencies that the FATF had identified in October 2010.
4. A Status Report on the Philippine Financial System, First Semester 2010, Schedule 1.
INTRODUCTION 17
40. The Philippines has systems in place for the regulation of legal and financial professionals. Any person duly admitted as a member of the Philippine bar and who is in good and regular standing, is entitled to practice law. 5 The Supreme Court promulgates rules concerning the admission to the practice of law and the integrated bar. 6 For accountants, all applicants for registration for the practice of accountancy are required to undergo a licensure exam given by the Board of Accountancy (BOA) and are subject to compliance with the requirements prescribed by the Professional Regulation Commission (PRC). No person is allowed to practice accountancy without a certificate of registration/professional license and a professional identification card or a valid temporary/special permit from the BOA and PRC. 7
Other relevant factors relating to exchange of information

41. In March of 2010, the Philippines passed legislation, the Exchange of Information Act (EOI Act), removing the restrictions in its domestic legislation on access to bank information for exchange purposes. In late September 2010, the Philippines adopted regulations to implement this legislation. The Philippines has a wide ranging treaty network and has concluded 42. 42 bilateral income tax treaties, 39 of which are currently in force and containing exchange of information provisions. Twenty-two of these treaties are with OECD member countries, namely: Australia, Austria, Belgium, Canada, Czech Republic, Denmark, Finland, France, Germany, Hungary, Italy, Japan, Korea (Rep.), the Netherlands, New Zealand, Norway, Poland, Spain, Sweden, the UK and the US. In addition, it has concluded five treaties with G-20 countries which are not members of the OECD, these being: Brazil, China, India, Indonesia and Russia. 43. The Philippines adopted a model tax information exchange agreement (TIEA) in February 2013, which should help it to more efficiently expand its network of EOI arrangements. The Philippines is currently negotiating or has initialled 15 TIEAs with Global Forum members and nonmembers, and it is negotiating or has initialled ten Protocols in order to bring existing DTCs in line with the standard.
5. 6. 7.
Section 1, Rule 138, Philippine Rules of Court. Section 5, Article VIII of the Philippine Constitution. Sections 13 and 26 of the Philippine Accountancy Act of 2004 (Republic Act No. 9298, 13 May 2004).
18 INTRODUCTION
Recent developments
44. Financial and technical resources needed to implement the international standards were identified in May 2012. Since then, the EOI unit has been provided with its own workstation, as well as with restricted access and secure storage cabinets, to ensure compliance with confidentiality rules. The EOI Program was included in the BIRs Priority Programs for 2013. As a result, two new Revenue Memorandum Orders (RMO) Nos. 2-2013 and 3-2013, directed to EOI officers receiving requests and other offices within the BIR, now formalise in greater detail the policies, guidelines and procedures, which have been developed over the last two years in processing specific EOI requests pursuant to the EOI provisions of Philippine EOI agreements. RMO No. 2-2013 describes the procedures to be followed for handling requests throughout the BIR, including in Revenue District Offices (RDOs), while the RMO No. 3-2013 introduces the EOI work manual, establishing internal deadlines and procedures within the EOI Unit to ensure that EOI requests are dealt with effectively. 45. Republic Act No. 10365, approved on 15 February 2013, introduced the third amendment to the Anti-Money Laundering Act of 2001 (AMLA), expanding its scope to include among others company service providers acting by way of business as nominees, and persons acting as trustees, as covered persons under Section 3(a) of the AMLA. The term covered persons refers both to natural and juridical persons. As such, they are subject to strict recordkeeping, customer identification and suspicious transaction reporting requirements.
COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION 19
Compliance with the Standards
A. Availability of Information
Overview
46. Effective exchange of information requires the availability of reliable information. In particular, it requires information on the identity of owners and other stakeholders as well as information on the transactions carried out by entities and other organisational structures. Such information may be kept for tax, regulatory, commercial or other reasons. If the information is not kept or it is not maintained for a reasonable period of time, a jurisdictions competent authority may not be able to obtain and provide it when requested. This section of the report assesses the adequacy of the Philippines legal and regulatory framework on availability of information. It also assesses the effectiveness of this framework in practice. 47. The Philippines has strong ownership reporting requirements for domestic corporations, requiring registration with the SEC as well as the filing of an annual General Information Sheet with the names, addresses and nationalities of all stockholders. All domestic corporations are also required to keep a stock and transfer book with ownership information, including on new issuances, that is updated with every transfer of shares (Corporation Code, Sec. 74). 48. Since February 2013, company service providers acting by way of business as nominees are considered covered persons subject to the AML laws. In addition, natural and juridical persons, whether or not acting in a professional capacity, and providing services of management of money,
20 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION

securities or other assets for a third party, are captured as covered persons under the amended AML laws. As such, both professional and non-professional nominees are subject to strict recordkeeping, customer identification and covered and suspicious transaction reporting requirements under the AML framework. 49. Although there is a requirement for resident foreign corporations carrying on business 8 in the Philippines to register with the SEC and with the relevant agency in the case of regulated entities, there is no requirement to provide ownership information to the government nor is there a requirement for the foreign corporation itself to retain such information. A recommendation is included on this point. Under the powers given in the NIRC, the Commissioner could, however, require that a foreign corporation provide this information. While the Corporations Code does not specifically prohibit the issue 50. of bearer shares, share transfers must be recorded in the books of the corporation, including the names of the parties to the transaction. Therefore, in practice, bearer shares cannot be issued. 51. Regulated Entities in the Philippines can be banks or non-bank financial intermediaries (NBFIs). Banks can be either domestic, resident foreign or offshore banks. In the case of domestic and resident foreign banks, the General Banking Act imposes ownership reporting requirements to the regulatory authorities and the Corporation Code would also impose obligations to keep records of ownership. NBFIs have ownership reporting and recordkeeping requirements under the Corporation Code. For offshore banks, although they must register with the Central Bank, ownership retention or reporting is not required. 52. Partnerships 9 must register with the SEC and it is clear that in the case of limited partnerships such registration must include the identity of all partners. Partnerships are treated the same as corporations for tax purposes and therefore have the same duty as corporations to keep a journal and ledger under the NIRC which would necessarily include ownership and identity information. While anyone who is not legally impaired can act as a trustee, only a 53. stock company or person duly authorised by the Monetary Board to engage
8. The NIRC does not define this phrase, but courts have interpreted it to imply a continuity of commercial dealings and arrangements, the performance of acts or works or the exercise of some of the functions normally incidental to, and in progressive prosecution of, the purpose and objects of the organisation. Only partnerships with capital greater than PHP 3 000 (approximately USD 68) are required to register.
9.
in a trust business may act as a trustee as part of a trade or business (General Banking Act, Sec. 79). In addition, as of February 2013, natural and juridical persons (regardless of whether engaged in a trade or business) managing of client money, securities or other assets or providing services of creation, operation and management of juridical persons or arrangements are also subject to the AMLA and would therefore have strict recordkeeping and ownership requirements. 54. The Philippines has laws in place with accounting requirements for all entities with few exceptions. It also has a clear requirement to retain records for three years. However, this falls short of the five-year standard in the Terms of Reference. Additionally, it is unclear whether underlying documents must be retained in the case of all entities. The report recommends that the Philippines conform its accounting requirements with the international standards in this regard. 55. Compliance in respect of all entities obligations to maintain ownership, accounting and banking information is monitored by the Philippines tax authorities and other public authorities, such as the SEC and the respective supervisory bodies. Monitoring is carried out via a combination of routine inspections, desktop examinations and compliance visits. Sanctions and administrative fines are set at the appropriate level to ensure compliance with information keeping requirements and such measures are regularly enforced in practice. According to the feedback received from peers, no issues have arisen with respect to obtaining ownership, accounting and banking information during the review period, other than delays.
A.1. Ownership and identity information

Jurisdictions should ensure that ownership and identity information for all relevant entities and arrangements is available to their competent authorities.
Companies (ToR A.1.1) Types of Companies

56. In the Philippines, a corporation is created by operation of law, having powers expressly authorised by law. The Corporation Code of the Philippines of 1980 (Corporation Code) is the central statute governing the establishment and management of corporations in the Philippines. 57. Corporations may be either stock or non-stock corporations. Stock corporations are those with capital stock divided into shares that are authorised to distribute dividends or allotments of the surplus profits of the company. Essentially anything else is a non-stock corporation. Non-stock corporations may only be formed or organised for charitable, educational or

religious purposes and any profits earned must be incidental to the corporations operations, may not be distributed and may only be used in furtherance of the corporations main purpose. The remainder of the report deals only with stock corporations. 58. In practice, the obligations applicable to corporations and partnerships to maintain reliable identity and ownership information, pursuant to the Corporation Code, Foreign Investments Act, Securities Regulation Code and other pertinent laws (as further described below in this section), are presided over by the SEC. Under its mandate, the SEC may approve, reject, suspend, revoke or require amendments to registration statements, and registration and licensing applications. In addition, the SEC regulates, investigates or supervises the activities of registered entities to ensure compliance, and it imposes sanctions for the violation of laws and the rules, regulations and orders issued pursuant thereto. As of May 2013, the following entities were registered with the SEC: 264 623 stock corporations (including 261 534 domestic and 3 089 foreign stock corporations), 136 719 non-stock corporations (including 136 556 domestic and 163 foreign non-stock corporations), 594 insurance companies and 147 investment companies.
Company ownership and identity information required to be provided to government authorities

59. All corporations organised under the Corporation Code must file articles of incorporation with the Securities and Exchange Commission (SEC), which contain the following: the name of the corporation and the purpose(s) for which it is being incorporated the place where the principal office is to be located, which must be within the Philippines names, nationalities and residences of persons who shall act as directors or trustees names, nationalities and residences of the original subscribers and the amount subscribed by each (Corporation Code, Sec. 14)
In order to make any change to the articles of incorporation, a corpo60. ration must submit amended articles along with a copy of the original to the SEC. Amendments take effect upon approval by the SEC or, if the SEC does not act upon the submission within six months from the date of filing, then from the date of filing (Corporation Code, Sec. 16). 61. Any articles of incorporation or amendment thereto of banks, banking and quasi-banking institutions, building and loan associations, trust companies
and other financial intermediaries, insurance companies () or other corporations governed by special laws must be accompanied by a statement from the appropriate government agency that the articles or the amendment are in accordance with the relevant law (Corporation Code, Sec. 17, see also section on Regulated Entities below). 62. Every corporation must also submit to the SEC an annual report of its operations. This must include a financial statement of its assets and liabilities for the previous fiscal year, approved by a certified public accountant in the case of corporations with paid in capital greater than PHP 50 000, which is approximately USD 1 140 (Sec. 141). This must be submitted within 30 days from the date of the annual shareholders meeting. To satisfy Section 141, the SEC requires a form called a General Information Sheet. For domestic corporations, this sheet would include the names of all stockholders, their nationality, current address and percentage ownership. 63. The SEC maintains paper copies of all corporate records of corporations (and partnerships) registered with it for a period of ten years after the lifetime of the entity. These documents are also micro-filmed and digitised. As a matter of practice, micro-films and digital copies are kept indefinitely and they are available to the public (i.e. private individuals or governmental agencies) at the SEC database (SEC i-Report), via pre-paid accounts. All corporate records available and accessible via the SEC database may be downloaded and reproduce via the use of a pin-mailer. The SEC has embarked on a clean-up database project to update all corporate records contained in the SEC database. 64. At the SEC, there are two systems for monitoring compliance with annual filing obligations, via the clearing mechanism and the SEC database. The SEC carries out desktop examinations via the clearance mechanism, which is triggered whenever a corporation (or partnership) files an amendment to its articles of incorporation. In addition, monitoring is also carried out via routine inspections of information electronically available in the SEC database. In the two years 2010-12, the SEC issued approximately 27 350 Notices of Conference and carried out walk-in-monitoring in roughly 28 600 cases. 65. When the SEC detects that an entity failed to file its annual report on time and/or in full, a letter is issued by the SEC, requesting this entity to file the missing or incomplete annual report within 30 days. In the same letter, the SEC also informs this entity about the applicable penalty for late and/or incomplete filing, which is due even if the annual report is provided within this timeframe. If this non-compliance persists, the SEC has the power to revoke the licence of this entity. During the last three years (2010-12), fines and penalties were imposed on 27 490 corporations, amounting to roughly PHP 472 million (approximately USD 10.8 million). In addition, the SEC published 28 636 revocations.

66. The NIRC also imposes information reporting requirements on corporations. Every corporation, except foreign corporations not engaged in trade or business in the Philippines (see Foreign Corporations below), must file a quarterly income tax return (Sec. 52). This return must be filed by the president, vice-president or other principal officer of the corporation and must be sworn to by that officer as well as the treasurer or assistant treasurer. This return does not, however, include ownership information. 67. In addition, every corporation subject to tax must register with the appropriate Revenue District Officer (RDO) within ten days from the commencement of business, before payment of any tax due or upon filing of a return, statement or declaration as required by the NIRC (Sec. 236). This registration must contain the taxpayers name, place of residence, business and any other information required by the Commissioner. Any corporation required to register must also update its registration information specifying any change (Sec. 236(E)). There is no requirement under the NIRC to provide ownership information on registration. However, pursuant to Section 5, the tax authorities may ask for the information (see Part B of this report). As at December 2012, there were 635 255 corporations registered with the BIR. 68. The BIR carries out tax audits and onsite inspections based on a risk assessment, which considers the taxpayers profile and compliance with its tax filing obligations and the payment of taxes. All taxpayers registered with the BIR are required to file either income tax returns or business tax returns or simple information returns. Compliance with these annual tax filing obligations is monitored on a monthly basis by the respective RDO where the taxpayer is registered. In total, there are 131 RDOs, of which 124 are under 19 Regional Offices and seven are under the Large Taxpayers Service. 69. Revenue Memorandum Order No. 41-2011, of 10 October 2011, consolidated and enhanced the guidelines and procedures in identifying, handling, closing and monitoring compliance with these annual tax filing obligations. The vast majority of RDOs use an automated monitoring system called the Returns Compliance System (RCS) to identify registered taxpayers who fail to file the required tax return within the prescribed due date. If a taxpayer fails to comply with the applicable filing obligations, the RCS tags this taxpayer as a stop-filer. Monthly reports on all stop-filer cases created by the RCS are generated by the Revenue Data Centers and transmitted to the concerned tax offices for appropriate monitoring and action. In 2012, 128 292 taxpayers were visited by tax offices based on these tax compliance reports. Only four 10 of the 131 RDOs in the BIR are non-computerised and in these RDOs the identification, closure and monitoring of stop-filers is done
10. RDO No. 94-Isabela, Basilan; RDO No. 95-Jolo, Sulu; RDO No. 96-Bongao, Tawi-Tawi; and RDO No. 102-Marawi City.
manually by the concerned tax offices via a monthly consultation to the tax database. When the RDO detects an irregularity, it will issue a letter to the tax70. payer, requesting it to regularise or explain its situation. If the taxpayer fails to comply with this request, the RDO may conduct an actual investigation or tax compliance verification through a mission order signed by the Director. Between 2009 and 2012, the BIR conducted over 110 000 regular tax audits (i.e. not connected to tax fraud). 71. Corporations, both domestic and foreign, that enjoy benefits under the Omnibus Investment Code Act of 1987 (OIC) are subject to additional reporting requirements. The Board of Investments (BOI) regulates and promotes investment in the Philippines and makes an annual list of investments that can qualify for certain incentives. For an entity to be eligible for such incentives, it must register with the BOI and satisfy the board that at least 60% of its ownership is held by Philippine nationals (OIC, Ch. 3, Art. 32). The form 501 that an applicant must present to the Department of Trade and Industry (DTI) to prove majority Filipino ownership includes the names, tax identification numbers, and country of residence of all shareholders. In addition, entities registered with the BOI must file, on an annual basis, a S1 form containing updated ownership information on major stockholders. 11 Any changes in the ownership information submitted to the BOI must be reported, but no specific deadlines are prescribed for this obligation. As at December 2012, there were 275 entities registered with the BOI. 72. Monitoring is carried out by the BOIs Supervision and Monitoring Department. In 2012, the BOI carried out onsite inspections at 58 entities, selected on the basis of a priority list (not necessarily related to potential irregularities). The BOI is implementing a new system (IRIS), operational since April 2013, in which the entire registration, incentive provisions and monitoring process is integrated, and the generation of reports is automated. In 2007, the BOI concluded a memorandum of agreement with the BIR, under which the BOI provides the BIR with relevant information on a regular basis. 73. Where a registered entity fails to comply with its annual filing obligations, the BOI will send letters requesting the entity to comply with its filing obligations and imposing administrative fines. If this irregular situation persists, the entitys registration may be cancelled by the BOI and the entity will no longer qualify for the incentives. During the last three years (201012), administrative penalties were imposed in 66 cases, amounting to roughly PHP 2 million (approximately USD 45.7 million).
11.
www.boi.gov.ph/pdf/downlodableforms/supervision/S-1%20Report.pdf.

74. Ownership information would also be available to the government through the Foreign Investments Act of 1991 (FIA). The FIA limits the amount of foreign equity ownership for companies operating in certain sectors, including in the financial services sector, as well as other sectors, as designated by the Foreign Investment Negative List. The Department of Trade and Industry (DTI) is responsible for monitoring compliance with the FIA. In order to determine compliance with the FIA, details of the legal owners of companies operating in these sectors must be provided to the DTI. 75. The Business Names Act provides that every business, whether a partnership, sole proprietorship or corporation and no matter what the nature of the business activity must register with the DTI, the BIR and the city/ municipal government (RA 3883). A Certificate of Registration of Business Name is valid for five years, and, upon expiration, the owner must apply for renewal. A surcharge of PHP 100 (approximately USD 2) is imposed if renewal is not made within three months from the date it lapses. Anyone wishing to terminate the business name prior to the expiration of five years must file an affidavit of cancellation with the DTI. 76. The DTI must be satisfied with the identity and citizenship of the person or persons registering, before effecting any original or renewal registration. It is not clear exactly how such identity is satisfied or whether identity for a corporation would mean solely the applicant or would include shareholders. 77. All businesses are also required to obtain a Permit to Operate (PTO) from the city or municipal government where the business activity is to be undertaken. In the case where a company is engaged in a business activity regulated by law, the company would obtain a PTO from the agency that regulates the industry.
Company ownership and identity information required to be held by companies

78. The Corporation Code requires that every corporation, both foreign and domestic: keep and carefully preserve at its principal office a record of all business transactions and minutes of all meetings of stockholders or members, or of the board of directors or trustees. Records of all business transactions and minutes of the meetings must be open to inspection by any director, trustee, stockholder, or member of the corporation (Sec. 74). 79. Domestic stock corporations must also keep a stock and transfer book, with a record of all stocks in the names of the stockholders alphabetically arranged; the instalments paid and unpaid () and the date of payment; a statement of every alienation, sale or transfer of stock made, the
date thereof, and by and to whom made; and such other entries as the by-laws may prescribe (Sec. 74). No transfer of shares is valid until the transfer is recorded in the stock 80. and transfer book of the corporation. This book must be kept at the principal office of the corporation or in the office of its stock transfer agent, which must be in the Philippines, and must be kept open for inspection by any director or stockholder of the corporation. There is nothing in the Corporate Code that says for how long a stock and transfer record or other records must be kept. The Philippines advised that it is implicit in Section 74 that the stock and transfer record must be kept continuously from incorporation.
Nominees
81. Republic Act No. 10365, of 15 February 2013 (RA 10365), introduced the third amendment to the Anti-Money Laundering Act of 2001 (AMLA), expanding its scope to include both natural and juridical persons referred to as covered persons under Section 3(a) of the AMLA. Pursuant to section 3(a)(6), company service providers acting by way of business as nominees are considered covered persons and, as such, they are subject to strict recordkeeping, customer identification and suspicious transaction reporting requirements (see AML section below). The activities of company service providers are enumerated under the AMLA and implementing rules and regulations will be issued to define the term company service provider. According to the Philippines, the term company service providers encompasses both natural and juridical persons, as it falls within the definition of covered persons under section 3(a). In practice, these obligations are monitored by the AMLC. 82. In addition, a new Section 3(a)(7) was introduced by RA 10365, which states that natural or juridical persons providing services of: (i) managing of client money, securities or other assets are also considered covered persons. This provision is not restricted to person providing the services described therein in a professional capacity. As such, non-professional nominees are also subject to strict recordkeeping, customer identification and suspicious transaction reporting requirements under the AMLA. Furthermore, these nominees might establish a relationship with a covered person in the Philippines (e.g. opening a bank account to receive dividends on the shares they hold), in which case the covered person for AML purposes (see AML section below) is required to establish and record the true and full identity of the nominee and the beneficial owner or person on whose behalf the transaction is being conducted. 83. In summary, the amended AMLA requires natural and juridical persons acting as nominees, whether or not in a professional capacity, to

maintain ownership information with regard to the person on behalf of whom they act. As RA 10365 has only been in effect since 7 March 2013, it is largely untested in practice. Therefore, it is recommended that the Philippines monitors the implementation of the AMLA provisions with regard to professional and non-professional nominees on an ongoing basis.
Foreign Corporations
84. A foreign corporation is one formed, organised or existing under any laws other than those of the Philippines and whose laws allow Filipino citizens and corporations to do business in its own country or state. The Corporation Code provides that the law governing foreign corporations creation, formation, dissolution and liquidation is the law of the country where the corporation is established and organised. 85. Foreign corporations can take three different forms in the Philippines: A branch office, organised and existing under foreign laws that carries out the business activities of the head office and derives income from the Philippines. If a foreign corporation/branch office is considered a domestic market enterprise (DME) it is required to have minimum paid up capital of USD 200 000, which can be reduced if the activity involves advanced technology or the company employs at least 50 direct employees. If considered an export market enterprise (EME), capital requirements are reduced. It is considered an EME if 60% of the products or services of that company will be exported. 12 Registration with the SEC is mandatory. A Regional or Area Headquarters (RHQ), organised and existing under foreign laws that does not derive income in the Philippines and is fully subsidised by its foreign parent. It deals directly with the clients of the parent company and does things like information dissemination, acts as a communications center, promotes company products and acts as a quality control of products for export. It must have an annual inward remittance of USD 50 000 to cover its operating expenses and must register with the SEC. A Regional Operating Headquarters (ROHQ) for a foreign company, meaning a foreign business entity which is allowed to derive income in the Philippines by performing certain qualified services to its affiliates, subsidiaries or branches in the Philippines, the Asia-Pacific Region and in other foreign markets. Such qualified services include general business administration and planning, business planning and
12.
For reduction of required minimum paid up capital for DMEs, the company must submit a certification to satisfy the requirement.
coordination, sourcing and procurement of raw materials, corporate finance advisory services, sales promotion, training and personnel management and other prescribed services. An ROHQ must also show proof of remittance of USD 200 000 upon registration. 86. RA 8756, which amended the Omnibus Investments Code Act (OIC) in 1999, provides that a foreign corporation may only transact business in the Philippines after obtaining a licence from the SEC and upon a favourable recommendation of the Board of Investments. In addition, foreign banking, financial and insurance corporations must also comply with the provisions of existing laws applicable to regulated entities (Sec. 125 and see Regulated Entities section below). A violation of any provision of the OIC can result in a cancellation of a corporations license. 87. In practice, the obligations applicable to these three different forms of foreign corporations to register and to obtain a license, pursuant to the Corporation Code, Foreign Investments Act, Securities Regulation Code, Omnibus Investments Code Act and other pertinent laws (as further described below in this section), are presided over by the SEC. As of 7 May 2013, there were 3 089 foreign stock corporations and 163 foreign non-stock corporations registered at SEC. 88. Under the Corporation Code, 13 a foreign corporation must submit to the SEC a copy of its articles of incorporation and by-laws, which must be certified. However, the availability of information that identifies the owners of a foreign corporation will generally depend on whether the laws of the jurisdiction in which the company is formed requires this information (and amendments thereto) to be included in the articles of incorporation and by-laws of the foreign corporation. Therefore, identity and ownership information concerning foreign corporations may not be available to the
13. In addition to registration requirements under the Corporation Code, which are the same for all foreign corporations, RHQs and ROHQs must submit additional information to the SEC. RHQs must submit a certificate from the Philippine Consulate or a certification from the DTI or its equivalent in the firms home country saying that it is an entity engaged in international trade with affiliate, subsidiaries or branch offices in the Asia-Pacific region and other foreign markets. It must also supply an authenticated certification from its principal officer that says it has been authorised by its board of directors to establish a RHQ in the Philippines and proof of remittance of USD 50 000 operating capital upon organisation and then annually. An RHOQ must also provide a certification from DTI or its equivalent and a certification from its principal officer. In addition, this certification must specify that it will only engage in qualified services and will not offer such services to entities other than their affiliates, branches or subsidiaries or solicit or market goods or services directly.

Philippines authorities in all cases. The application for a license to do business in the Philippines is under oath, and, unless it is already in its articles of incorporation, must state: date and term of incorporation; the address, including the street number, of the principal office of the corporation in the country or state of incorporation; the name and address of its resident agent authorised to accept summons and process in all legal proceedings and, pending the establishment of a local office, all notices affecting the corporation; the names and addresses of the present directors and officers of the corporation
89. If the articles of incorporation or by-laws of the foreign corporation are amended, the corporation must file these changes within 60 days to the SEC and with the appropriate government agency (Sec. 130). The SEC maintains paper copies of all corporate records of foreign corporations registered with it for a period of ten years after the lifetime of the entity. As a matter of practice, micro-films and digital copies of these corporate records are kept indefinitely by the SEC. These corporate records are available to the public (i.e. private individuals or governmental agencies) at the SEC database (SEC i-Report), via pre-paid accounts, and may be downloaded and reproduced via the use of a pin-mailer. The SEC has embarked in a clean-up database project to update all corporate records contained in the SEC database. 90. A foreign corporation must have a resident agent in the Philippines, who may be either an individual residing in the Philippines or a domestic corporation lawfully transacting business in the Philippines (Sec. 127). The corporation must file with the SEC a written power of attorney designating this person as able to be served in all actions against the corporation. 91. Any foreign corporation doing business without a license can still be sued or proceeded against in a legal action, but cannot maintain or intervene in any action or proceeding in any court or administrative agency of the Philippines (Sec. 133). The SEC may revoke the license of a foreign corporation if it fails to file its annual report (see paragraph 56) or pay any fees; fails to appoint and maintain a resident agent; or fails, after change of its resident agent or address, to submit to the SEC a statement of such change; among other reasons (Sec. 134). 92. In addition to its SEC licensing requirements, foreign corporations must also submit a General Information Sheet to the SEC and a financial statement stamped and received by the BIR within 120 days from the end of the fiscal year. However, there is no requirement to identify the legal owners of the foreign company under the Corporation Code. While, like a domestic
corporation, a foreign corporation is required to file a General Information Statement annually with the SEC, the form for a foreign corporation is different from that of a domestic corporation and does not require the names, addresses or nationalities of the corporations legal owners. 93. The Corporation Code provides that any foreign corporation doing business in the Philippines shall be bound by all laws, rules and regulations applicable to domestic corporations of the same class, except such only as provide for the creation, formation, organisation or dissolution of corporations or those which fix the relations, liabilities, responsibilities or duties of stockholders, members, or officers of corporations to each other or to the corporation (Sec. 129). Although a foreign corporation would be required to keep a record of all business transactions of the corporation and the minutes of any meetings, it is not required to keep a stock and transfer book that records ownership. 94. Foreign corporations engaged in a trade or business in the Philippines (resident foreign corporations) are subject to the same reporting requirements in the NIRC as are domestic corporations, meaning that they must file quarterly income tax statements and register with a Revenue District Officer (RDO). As at December 2012, there were 5 496 foreign corporations registered with the BIR, of which 1 822 are resident foreign corporations and 3 674 are non-resident foreign corporations. There is no requirement to report ownership information when registering or filing returns. However, under Section 5 of the NIRC, the Commissioner could ask for the names of the corporations owners. 95. In summary, foreign corporations, while required to register with the SEC and BIR, are not required to maintain records of ownership or identity. In order to address this gap, the BIR intends to issue new regulations to require foreign corporations to disclose ownership information upon registration.
Regulated Entities
96. Regulated entities in the Philippines can be banks or non-bank financial intermediaries (NBFIs). Banks can be either domestic, resident foreign or offshore banks. As at March 2013, there were 687 banks (including 20 universal banks, 16 commercial banks, 70 thrift banks, and 581 rural banks) and 6 408 NBFIs (13 of which have quasi banking functions) under the supervision and regulation of the Central Bank. 97. Domestic and resident foreign banks are governed by the General Banking Law of 2000 (General Banking Act) and the Corporation Code and regulated by the Central Bank, while offshore banks are authorised under Presidential Decree No. 1034 (Offshore Bank Decree) and supervised by

the Central Bank. NBFIs are governed by the Corporation Code and other acts depending on the services offered and regulated by both the Central Bank and the SEC. Investment companies are a form of NBFI and manage collective investment vehicles like mutual funds, which are governed by the Corporation Code and the Investment Company Act of 1960. 14 98. An offshore bank (OBU) is a branch, subsidiary or affiliate of a foreign banking corporation which is duly authorised by the Central Bank to transact offshore banking business in the Philippines. International financial institutions may establish and manage offshore banks (OBUs), which may provide all traditional banking services to non-residents in any currency other than the Philippines peso. Banking transactions to residents are limited in that they do not have full branch banking powers, such as peso deposit taking and lending. They can engage in lending to Philippine residents, but only in foreign currencies. As at March 2013, there four offshore banks operating in the Philippines and the total combined assets of the Philippines offshore banking sector represents 0.15% of the total assets of the Philippine banking system, as a whole. 99. Domestic banks must be organised in the form of stock corporations and are therefore subject to the same ownership, accounting and reporting requirements as domestic corporations contained in the Corporations Code and the NIRC (General Banking Act, Sec. 8). Pursuant to the Foreign Bank Liberalization Act (RA 7721), the provisions of the Banking Act, insofar as they do not conflict with RA 7721, apply to resident foreign banks. Therefore, resident foreign banks would be bound by requirements in the Corporation Code and the NIRC as well. NBFIs that are investment companies must be organised as stock corporations in the Philippines; therefore, they are also bound by the Corporation Code and the NIRC. 100. Pursuant to the Corporation Code, domestic and resident foreign banks and NBFIs must register with the SEC. The SEC cannot register the articles of incorporation of any regulated entity unless accompanied by a certificate of authority issued by the Monetary Board. In issuing such certificate, the Board can review the qualifications of bank directors and officers (General Banking Act, Sec. 14). This is also true for foreign banks, which must also have an agent in the Philippines authorised to accept summons and legal process (Sec. 76). 101. For investment companies, all members of the board must be citizens of the Philippines (ICA, Sec. 15). All of the shares that an investment
14. Subject to the approval of the Monetary Board, banks can be authorised to engage in the business of a trust company (Sec. 79). Trust companies are not considered banks for purposes of the General Banking Act, but are nonetheless also regulated by the Monetary Board (see Trust section below).
company issues and distributes must be registered with the SEC (ICA, Sec. 7(b)(4)). Investment companies appoint independent fund managers to manage mutual funds pursuant to the requirements of the SEC and these fund managers must register with the SEC before assuming such position (ICA, rule 35-1). 102. For domestic banks, there are limitations on the amount of bank equity that can be held by individual corporations and on foreign owned voting stock. At least 60% must be owned by citizens of the Philippines, with very few exceptions (General Banking Act, Sec. 11). In order to ensure compliance with these limitations, in the event of any sale or transfer of ownership, registration of voting trust agreements or any form of agreement vesting the right to vote the voting shares of stock, the corporate secretary of the regulated entity must ascertain the identity and citizenship of the person either purchasing or exercising a right to a share and require the person to submit proof of citizenship. The corporate secretary must also require the transferee of the shares to execute an affidavit stating that he is a bona fide owner of shares (Manual of Regulations for Banks (MORB) Sec. X126.2). 103. The Central Bank is the supervisory authority for offshore banks and requires that OBUs apply to receive a certificate of authority to operate in the Philippines (Section 4 of Presidential Decree No. 1034 of 1976 and Section 48 of the Manual of Regulations for Foreign Exchange Transactions). In applying for this certificate, the OBU must submit a sworn statement of its head office, parent or holding company, supported by a resolution of the board of directors that it will cover liquidity, operate with prudence and maintain net funds of USD 1 million. 104. While the Central Bank requires domestic banks to submit a complete list of stockholders and their holdings annually, OBUs are not required to do so. Therefore, offshore banks would not be required to retain or report ownership information to the regulatory authorities.
Service Providers and Anti-Money Laundering Laws

105. The Anti-Money Laundering Act of 2001 (AMLA) amended the Foreign Currency Deposit Act, which previously ensured almost absolute confidentiality for foreign currency deposits in the Philippines banks by prohibiting such deposits from being examined, inquired or looked into by anyone without the written permission of the depositor. The AMLA created the Anti-Money Laundering Council (AMLC) as the countrys financial intelligence unit (FIU). 106. Pursuant to Section 11 of the AMLA, as amended by Republic Act No. 10167 of 18 June 2012 (RA 10167), the AMLC may inquire into or examine any particular deposit or investment, including related accounts,

with any bank or non-bank financial institution upon the order of any competent court based on an ex parte application. No court order, however, is required in cases where the unlawful activity involved relates to: (i) kidnapping for ransom; (ii) illegal drug-related offenses; (iii) hijacking, destructive arson, and murder; (iv) offenses of similar nature to the first three, which are punishable under the penal laws of other countries; (v) terrorism; and (vi) financing of terrorism. 107. Covered institutions for AMLA purposes (referred to as covered persons since the amendment introduced by RA 10365 of 15 February 2013) include all entities supervised or regulated by the Central Bank, the SEC and the Insurance Commission. Specifically, this includes among other entities: banks (domestic, resident foreign and OBUs); NBFIs with quasi-bank functions; trust entities/companies; insurance companies; securities dealers, brokers and salesmen or any person rendering services as investment agent, advisor, or consultant; investment companies or similar enterprises regulated by the SEC; mutual funds, investment companies and other similar entities; foreign exchange corporations, money changers, money payment, remittance, and transfer companies and other similar entities; and other entities administering or otherwise dealing in currency, commodities or financial derivatives based thereon, valuable objects, cash substitutes and other similar monetary instruments or property supervised or regulated by the SEC.
108. Pursuant to Section 3(a) of the AMLA, as amended by RA 10365 of 15 February 2013, the following natural or juridical persons are considered covered persons, among others: company service providers which, as a business, provide any of the following services to third parties: (i) acting as a formation agent of juridical persons; (ii) acting as (or arranging for another person to act as) a director or corporate secretary of a company, a partner of a partnership, or a similar position in relation to other juridical persons; (iii) providing a registered office, business address or accommodation, correspondence or administrative address for company, a partnership or any other legal person or arrangement; and (iv) acting
as (or arranging for another person to act as) a nominee shareholder for another person; and persons who provide any of the following services: (i) managing of client money, securities or other assets; (ii) management of bank, savings or securities accounts; (iii) organisation of contributions for creation, operation or management of companies; and (iv) creation, operation or management of juridical persons or arrangements, and buying and selling business entities.
109. Stock transfer agents, or those principally engaged in the business of registering stock transfers on behalf of a stock corporation, are both subject to the AMLA and must also secure a license from the SEC (Sec. 74). 110. All covered persons are required to establish and record the true identity of all of their customers, based on official documents and must report all transactions covered by the law to the AMLC (AMLA, Sec. 9(a)). Pursuant to Rule 3.b of the Revised Implementing Rules and Regulations (RIRR), customer refers to any person or entity that keeps an account, or otherwise transacts business, with a covered institution and any person or entity on whose behalf an account is maintained or a transaction is conducted, as well as the beneficiary of said transactions. A customer also includes the beneficiary of a trust, an investment fund, a pension fund or a company or person whose assets are managed by an asset manager, or a grantor of a trust. It includes any insurance policy holder, whether actual or prospective. 111. Covered persons must also maintain a system to verify the true identity of their customers based on official documents. A corporation must have a system to verify a customers legal existence and organizational structure and identification of all persons purporting to act on their behalf, as well as their authority for doing so RIRR, Rule 9.a.1). A customer must open an account in the true and full name of the account owner or holder and only with face-to-face contact (AMLA, Sec. 9(a)). 112. In the case of a customer who is acting as a trustee, nominee, agent or in any capacity on behalf of another, covered persons must verify and record the true and full identity of both the person on whose behalf a transaction is being conducted and the person acting on their behalf (RIRR, Rule 9.a.2). 113. The documents required for individual customers must be originals and documents of identity must be issued by an official authority and bear a photograph of the customer, like an identity card or a passport. The Regulations provide a list of minimum information and documents that must be obtained from individual customers, which includes: name, present and permanent address, date and place of birth, nationality, nature of work and

name of employer or nature of self-employment/business, contact information, tax identification number, social security number, signature, source of funds and the names of the beneficiaries in case of insurance contracts and whenever applicable (Rule 9.a.3 and Rule 9.a.4). 114. For corporate entities, the RIRR require that the minimum information to be obtained before establishing a business relationship includes the latest General Information Sheet which lists the names of directors/trustees/ partners, principal shareholders, defined as owning more than 20% of the shares of the outstanding capital stock and primary officers such as the President and Treasurer (Rule 9.a.5). 115. If a customer is a corporation, covered persons must ensure that it has not been or is not in the process of being dissolved or that its business or operations are not in the process of being closed. The implementing rules and regulations advise that dealings with shell companies should be undertaken with extreme caution (Rule 9.a.5). 116. Identity records must be maintained and stored for five years from the date of transaction (Rule 9.b.1). The act imposes a penalty of imprisonment from six months to one year or a fine of not less than PHP 100 000 but not more than PHP 500 000 (approximately USD 2 230 to 11 400) or both for failure to keep records (Rule 14.b). The RIRR also provide that the records on customer identification, account files and business correspondence must be kept for at least five years from the date the account is closed (Rule 9.b.3). 117. In practice, the obligations applicable to covered persons to maintain reliable identity and ownership information, pursuant to the General Banking Act and the AMLA, are presided over by the Central Bank and the AMLC. The Central Bank supervises operations of banks and exercises regulatory powers over NBFIs with quasi-banking functions and provides policy direction in the areas of money, banking and credit. It also ensures the safety and soundness of the banking sector and other supervised entities through periodic onsite examinations and offsite surveillance/monitoring of their activities. 118. Under the Central Banks legal mandate, it has to examine each bank on an annual basis, and there must be an interval of at least 12 months between an onsite examination and the last closing or termination date of the previous onsite examination (Section 28 (Examination and Fees) of the New Central Bank Act, Republic Act No. 7653). The number of members comprising the onsite examination team depends upon the size, risk profile and complexity of operations of banks or NBFIs. For small rural banks, onsite examinations may be carried out by at least two examiners for an average duration of five to ten banking days, while for large-sized universal and commercial banks, onsite examinations may be carried on by a team of 20
to 30 persons and take on average 20 to 30 banking days. As of December 2012, the Examination Group had a total of 784 personnel, of which 466 were involved in conducting onsite regular examinations of banks and NBFIs. 119. As regards AML compliance monitoring, the Central Bank undertakes the following measures, among others to ensure compliance with the various requirements under the AMLA, the RIRR and other Central Bank AML regulations: A system of AML examinations focusing on areas of banking operations or products and services with elevated risk of money laundering, which is undertaken in conjunction with the risk-based regular examination by the Central Bank Anti-Money Laundering Specialist Group (AMLSG). AMLSG prioritises examination of large and complex banking organisations such as universal, commercial and local branches of foreign banks operating in the Philippines. Assessment of the banks AML risk management system with the use of a supervisory tool, known as the AML Risk Rating System (ARRS), which was adopted in March 2012.
120. The Central Bank also conducts AML onsite examinations in conjunction with any regular onsite examination. The total number of regular onsite examinations conducted by Central Bank, that included evaluating compliance with AML requirements, was 520 in 2010, 532 in 2011 and 795 in 2012. The number of AML examiners also varies according to the size risk profile and complexity of the bank or entity to be examined. All findings concerning AML compliance are reported to the AMLC, so that appropriate action may be taken by the AMLC (pursuant to Rule 11.c.1 of the AMLA-RIRR). This requirement is also embodied in the Central Banks Examination Procedures for AML/CFT Activities approved in June 2004 and in a Memorandum of Understanding between the Central Bank and the AMLC executed in February 2007. 121. From 2010-12, the AMLC received a total of 1 605 reports of examination of banks and NBFIs concerning AML compliance. As of 30 April 2013, the investigations in 756 reports were already completed and closed. Out of 716 reports, 682 (or 95%) of investigated banks and NBFIs were found compliant with their obligations under the AMLA. On the other hand, 34 covered persons were found to be non-compliant, 29 were reprimanded and five were ordered to pay administrative fines. 122. The AMLC is the Philippines Financial Intelligence Unit. It is an independent tri-partite government agency tasked with implementing the AMLA. The AMLC requires, receives and analyses suspicious transaction reports (STRs) and covered transaction reports (CTRs) from covered persons and acts as an investigative and asset discovery agency that investigates suspicious

transactions and transactions related to unlawful activities or money laundering offences. Is also operates as a quasi-judicial body that hears and decides administrative cases involving AMLA violations by covered persons and that imposes administrative sanctions on covered persons, in coordination with the other Supervising Authorities (i.e. Central Bank, SEC and Insurance Commission). As of August 2013, the AMLC is staffed by 103 personnel, all of whom hold permanent and full time positions in the Central Bank. 123. To assist the AMLC in effectively implementing the AMLA, the Supervisory Authorities (i.e. Central Bank, SEC and Insurance Commission) conduct the on-site examination or verification of the covered persons under their respective jurisdictions to determine their compliance with the AMLA, its RIRRs, and the respective AML/CFT Guidelines and Circulars issued by the said supervisory authorities. On the other hand, the AMLC conducts investigations of possible money laundering offenses and other violations of the AMLA and its RIRRs. As of July 2013, there are 13 675 covered persons or persons submitting transaction reports to the AMLC. 124. The Insurance Commission ensures that laws and anti-money laundering obligations relating to entities under its jurisdiction are faithfully executed. As at December 2012, 116 insurance companies, 28 mutual benefit associations, 21 pre-need companies, 78 brokers, 3 trusts and 67 304 agents were registered with the Insurance Commission. Monitoring is conducted on the basis of a risk analysis and approximately half of the insurance companies are subjected to onsite visits on an annual basis. In 2012, approximately 80 onsite visits were conducted by the Insurance Commission.
Conclusion
125. The Philippines has strong ownership reporting requirements for domestic corporations, requiring registration with the SEC as well as the filing of an annual General Information Sheet with the names, addresses and nationalities of all stockholders. In addition, all domestic corporations are required to keep a stock and transfer book with updated ownership information. As of March 2013, natural and juridical persons acting as nominees are considered covered persons subject to the AMLA and, as such, they are subject to strict recordkeeping, customer identification and suspicious transaction reporting requirements. In addition, covered persons are required to keep beneficial ownership information with respect to nominees who are acting on behalf of their customers. Although there is a requirement for resident foreign corporations car126. rying on business 15 in the Philippines to register with the SEC (and with the
15. The NIRC does not define this phrase, but courts have interpreted it to imply a continuity of commercial dealings and arrangements, the performance of acts
relevant agency in the case of regulated entities), there is no legal requirement to provide ownership information to the government in all cases, nor is there a requirement for the foreign corporation itself to retain such information. Under the powers given in the NIRC, the Commissioner could, however, require that a foreign corporation provide ownership information. 127. In practice, when the Philippine competent authority receives an exchange of information (EOI) request for identity or ownership information concerning corporations, she first consults the BIR and SEC databases and, if the requested information is not at her disposal, she requests it from the person under investigation or third parties, via the RDO where the corporation is registered. During the three-year period under review (July 2009 June 2012), 12 out of 67 EOI requests received by the Philippine competent authority related to identity or ownership information concerning domestic corporations. No EOI requests were received by the Philippine competent authority during the review period with respect to foreign corporations or nominees. 128. In all of these 12 cases, information for a particular request was obtained from different sources. The Philippine competent authority had partial information at her disposal in all of these cases by consulting the BIR tax database, while additional information had to be obtained from the SEC database. In one case, the Philippine competent authority also sought ownership information directly from the person under investigation. The Philippine competent authority experienced no difficulties in retrieving ownership and identity information concerning domestic corporations, apart from some delays in all 12 cases.
Bearer shares (ToR A.1.2)

129. While the Corporations Code does not specifically prohibit the issue of bearer shares Section 63 of the Corporations Code provides that no transfer of shares is valid, except as between the parties, until the transfer is recorded in the books of the corporation showing the names of the parties to the transaction, the date of the transfer, the number of the certificate or certificates and the number of shares transferred. Therefore, in practice, bearer shares cannot be issued. The Philippines authorities and feedback from peers confirm that no information regarding bearer shares has ever been requested from the Philippines.
or works or the exercise of some of the functions normally incidental to, and in progressive prosecution of, the purpose and objects of the organisation.
Partnerships (ToR A.1.3) Types of Partnerships

130. Partnerships in the Philippines are created by operation of law, proceeding from the concept that persons may combine their funds to engage in the pursuit of a common business objective. A partnership is considered a separate legal entity, apart from its partners. There are no specific governing laws for partnerships like for corporations. Instead, partnerships are governed by and covered under Articles 1767 to 1867 of the Civil Code of the Philippines of 1949 (Civil Code). These provisions govern all aspects of partnerships, including their creation and obligations to the government 131. Partnerships may be either general or limited. A limited partnership being one formed by two or more persons and having at least one general partner and at least one limited partner, who is bound to the extent of his capital contribution to the partnership. As of 7 May 2013, there were 75 426 general partnerships and 8 294 limited partnership registered with the SEC. 132. Corporations can form partnerships with individuals or other corporations provided that the following criteria are met: (i) authority to enter into a partnership is expressly conferred by the charter or the articles of the corporation; (ii) the nature of the business venture is in line with the business authorised by the charter or articles of the corporation; and (iii) if it is a foreign corporation, it obtains a license to transact business in the country in accordance with the Corporation Code and the Foreign Investments Act. 16 133. The NIRC defines a corporation to include partnerships, both general and limited (Sec. 22(B)). Therefore partnerships, like corporations, are taxed at the entity level.
Ownership information provided to the government

134. A general partnership with capital of PHP 3 000 (approximately USD 68) or more must register with the SEC and appear in a public instrument (Civil Code, Art. 1772). The Philippines advises that the identity of the partners is disclosed in this public instrument. As a matter of practice, the SEC does not register a partnership unless this is disclosed; however the law does not expressly state this. Failure to register does not affect the liability of the partners to third persons (Art. 1772). If there is a change in the members of the partnership, the partnership is dissolved and the partnership must file an amended instrument. The SEC carries out desktop examinations via the
16. See SEC Opinion of 17 August 1995 and 1 December 1993. Prior to these rulings, it was believed that corporations could not act as partners in a partnership.
clearance mechanism, which is triggered whenever a partnership files an amendment to its records. For limited partnerships, registration with the SEC is always required 135. and registration must include the names of all general and limited partners. A limited partnership is formed by filing a record with the SEC stating: the name of the partnership and character of the business; the location of the principal place of business; and the name and place of residence of each member, general and limited partners being respectively designated (Art. 1884).
136. However, Art. 1884 of the Civil Code states that the partnership is formed if there has been substantial compliance in good faith with the forgoing requirements. 137. The record filed with the SEC must be amended when a person is substituted as a limited partner or an additional limited partner or general partner is admitted (Art. 1864). This certificate must be signed and sworn to by all the members, and if a partner is added it must be signed by that member and when substituted signed by the assigning partner (Art. 1865). 138. Original paper copies of all partnership records registered with the SEC may be destroyed ten years after the entity is dissolved, provided these records are indexed, microfilmed and scanned. As a matter of practice, micro-films and digital copies of these records are kept indefinitely and they are available to the public (i.e. private individuals or governmental agencies) at the SEC database (SEC i-Report), via pre-paid accounts. All records available and accessible via the SEC database may be downloaded and reproduced via the use of a pin-mailer. Monitoring is carried out via routine inspections of information electronically available in the SEC database. In the two years 2010-12, the SEC issued approximately 27 350 Notices of Conference and carried out walk-in-monitoring in roughly 28 600 cases. In addition, the SEC published 28 636 revocations. 139. An additional reporting requirement is found in the NIRC, which provides that any person subject to any tax must register with the BIR before commencing any business or before payment of any tax or filing a statement or return under the NIRC. The information required includes the taxpayers name, address and place of business, which would be the name of the partnership, not its partners. 140. The NIRC further requires that partnerships file a quarterly income tax return which must be sworn to by a principal officer and by the treasurer or assistant treasurer (Sec. 52(A)). According to the Philippines, each individual partner must also make a return and therefore individual partners

would be identified. However, this is not expressly provided for in the law and therefore the source of this duty is unclear.
Information required to be held by the partnership

141. The partnership must keep books at the principal place of business of the partnership and every partner has a right to access, inspect and copy them. Partners also have a duty to render on demand the true and full information of all things affecting the partnership to any partner (Art. 1806). Limited partners have the same rights as general partners in this regard (Art. 1851). Further, the NIRC obligations for corporations apply to partnerships as well. Therefore all partnerships must keep a journal and ledger or their equivalents. These books would necessarily show the identity of the partners. 142. Partnership books must be kept at the principal place of business of the partnership, unless the partners agree otherwise (Civil Code, Art. 1805). The NIRC does not require partnerships to retain records within the Philippines, but the records are subject to annual examination and inspection by inland revenue officers and must therefore be readily available (Sec. 235).
Conclusion
143. In summary, all limited partnerships and all general partnerships (with a capital of more than PHP 3 000 or approximately USD 68) are required to register with the SEC. Such registration would include ownership information, although this is not expressly stated in the case of a general partnership. In addition, both general partnerships and limited partnerships are required to retain ownership and identity information themselves. 144. During the three-year period under review (July 2009 June 2012), the Philippine competent authority received no EOI requests related to identity or ownership information concerning domestic or foreign partnerships. In practice, should the Philippine competent authority receive an EOI request for identity or ownership information concerning a partnership, she would first consult the BIR and SEC databases and, if the requested information were not at her disposal, she would request it from the person under investigation or a third party, via the RDO where the partnership is registered.
Trusts (ToR A.1.4)

145. Trusts can be formed in the Philippines under Title V of the Civil Code. This names the person who establishes the trust the trustor and defines a trustee as one in whom confidence is reposed as regards property for
the benefit of another person (Art. 1440). The beneficiary is the person for whose benefit the trust has been created. 146. Trusts are either express or implied, with express trusts created by the intention of the trustor or of the parties and implied trusts coming into being by operation of law (Art. 1441). An express trust can be created without words. All that is required is sufficient proof that a trust is clearly intended. Acceptance by a trustee is not necessary, whereas acceptance by the beneficiary is, unless the trust does not impose an onerous condition on the beneficiary, in which case his acceptance will be presumed without contrary evidence (Art. 1446). The Civil Code provides that anyone who is not legally impaired may 147. act as a trustee. However, only a stock company or person duly authorised by the Monetary Board to engage in a trust business may act as a trustee as part of a trade or business (General Banking Act, Sec. 79). Such companies are subject to the requirements of the General Banking Act and regulated by the Central Bank. As at March 2013, there were 48 financial institutions (all stock companies) with trust licenses, and no individuals, duly authorised by the Central Bank to engage in a trust business. 148. In practice, the obligations applicable to stock companies authorised to act as trustees to maintain reliable identity and ownership information, pursuant to the General Banking Act and the AMLA, are monitored by the Central Bank and the AMLC. Trust operations and the business of banks and NBFIs are subject to offsite monitoring by the Central Point of Contact Departments (CPCDs) of the Central Bank, as well as regular onsite examination that is conducted by the AML Examination Team and the Trust Specialist Group (TSG). In practice, the regular onsite examination of the trust operation is conducted in conjunction with the annual examination of the financial institution. Between 2010 and 2012, the Trust Specialist Group conducted, on average, 30 onsite examinations per year. 149. The Trust Specialist Group focuses on compliance with various trust regulations while the AML Examination Team focuses on AML compliance that includes proper customer identification of trust clients. As such, information on reliable identity and ownership structure of trustees is verified by AML Examiners to ensure that proper customer identification for such type of clients is complied with through transaction sampling in accordance with the Central Banks Examination Procedures for AML/CFT Activities. To date, there were no instances where the Central Bank revoked a trust license issued to an entity. 150. RA 10365 introduced the third amendment to the AMLA, expanding its scope to include covered persons under Section 3(a) of the AMLA. Pursuant to the new Section 3(a)(7), a natural or juridical person providing

services of: (i) managing of client money, securities or other assets, or of (iv) creation, operation and management of juridical persons or arrangements, and buying and selling of business entities are considered covered persons. As such, any trustees in the Philippines, even if not licensed by the Central Bank and not acting as part of a trade or business, are subject to strict recordkeeping, customer identification and suspicious transaction reporting requirements under the AMLA. Citizens of the Philippines may also act as trustees for foreign trusts. 151. In the case of a trust company acting as a trustee for a foreign trust, it must be authorised to engage in trust business as provided for under Section 79 of the General Banking Act and would therefore be subject to the AMLA and the General Banking Act. 152. Trusts are separate entities for tax purposes, similar to a partnership or a corporation (NIRC, Sec. 22). The tax is first paid on the net income of a trust by the trustee. When distributed to the beneficiaries, the net income on which the tax is paid is then free from tax. The imposition of the tax does not change when the ultimate beneficiary is a person exempt from tax.
Information provided to the government

153. The Civil Code does not require a trustee to register a trust with the government. In the case of a bank acting as a trustee, Central Bank rules and regulations do not generally require banks to register their trust accounts with the Central Bank, although they do subject trust entities to periodic examination and in the process, they are required to submit to examiners listings of the trust accounts being handled by them. Requirements to provide information to the government regarding banks acting as trustees are instead found in the NIRC. Because the NIRC treats a trust the same as a corporation, a trust must be registered with the appropriate Revenue District Officer (RDO) within ten days from the date of commencement, before payment of any tax due or upon filing of a return, statement or declaration (Sec. 236). As at December 2012, there were 1 101 trusts registered with the BIR. Such registration must contain the trustees name and place of residence or business. Any person required to register must update the registration information specifying any change (Sec. 236(E)). 154. In practice, the BIR carries out tax audits and onsite inspections based on a risk assessment, which considers the taxpayers profile and compliance with its tax filing obligations and the payment of taxes. Section 65 of the NIRC provides that trustees and all persons acting in a fiduciary capacity must file an income tax return for the person, trust or estate for which they act. Compliance with these annual tax filing obligations is monitored on a monthly basis by the respective RDO where the trust is registered. Details of
the settlor or beneficiaries do not have to be included on this return. However, pursuant to Section 5 of the NIRC, the Commissioner could ask for this information. When the RDO detects an irregularity, it will issue a letter to the tax155. payer, requesting it to regularise or explain its situation. If the taxpayer fails to comply with this request, the RDO may conduct an actual investigation or tax compliance verification through a mission order signed by the Director. Between 2009 and 2012, the Large Taxpayer Unit identified 16 stop-filer or late-filer cases involving registered banks, some of which held trusts licenses, and over PHP 62 million (approximately USD 1.4 million) were collected on taxes and fines. During the same period, the BIR conducted 27 regular tax audits (i.e. not connected to tax fraud) involving registered banks, some of which held trusts licenses.
Information held by the trustee

156. Trust companies or banks that act as trustees are covered persons, while natural and juridical persons that act as trustees are covered persons, for purposes of the AMLA. Covered persons are therefore required to establish the true identity of their customers (see AML section above), which in this case would include knowing the settlor and beneficiaries. In addition, while there is no requirement in the Civil Code for a trustee to know the settlor and beneficiary, where the Civil Code is silent or so far as it is not in conflict with the Civil Code, trustees are also bound by common law duties or the general laws of trusts (Art. 1442). This refers to general principles on trusts applied or acknowledged in other jurisdictions. 17 The Philippines advises that under the general laws of trusts, a trustee has a duty to know the settlor and beneficiaries of a trust. 157. During the review period, the Philippines received no EOI requests for information held by trustees, whether or not action as part of a trade or business. As a result, the practical application of general laws of trust to non-professional trustees could not be assessed. As RA 10365 has only been in effect since 7 March 2013, it is largely untested in practice. While existence of trustees not acting as part of a trade or business has not affected EOI practices to date, it is recommended that the Philippines monitors the implementation of the AMLA provisions with regard to non-professional trustees on an ongoing basis.
17. The Philippines courts often refer to US laws in their opinions. See, for example, Roa, Jr. v. Court of Appeals (123 SCRA 1) and Josue Arlegui v. Court of Appeals (G.R. No. 126437, March 6, 2002) where the Philippines Supreme Court resorted to US law and jurisprudence in the resolution of certain questions pertaining to trusts.

158. The mechanisms described in this section ensure the availability of information on trusts, whether Philippines or foreign law trusts, where significant elements of the trust such as a resident professional trustee, are connected with the Philippines. Nevertheless, it is conceivable that a trust could be created under the laws of the Philippines which has no other connection with the Philippines. In that event there may be no information about the trust available in the Philippines. 159. There do not appear to be sanctions for non-compliance with the Civil Code. There are sanctions for non-compliance with the NIRC, which would be the same as for corporations and partnerships. In addition, the sanctions for non-compliance with the AMLA are the same as for other entities. For banks acting as trustees, in addition to sanctions under the Banking Act, there are sanctions for non-compliance with the Manual of Regulations for Banks (MORB) that vary based on the offence and can range from PHP 10 000 to 30 000 per day of the violation (approximately USD 230 to 685) and from reprimand for those responsible to revocation of a trust license.
Conclusion
160. In summary, only a stock company or person duly authorised by the Monetary Board to engage in a trust business may act as a trustee by way of trade or business. In addition, as of February 2013, natural and juridical persons (regardless of whether engaged in a trade or business) managing of client money, securities or other assets or providing services of creation, operation and management of juridical persons or arrangements are also subject to the AMLA and would therefore have to meet strict recordkeeping and ownership requirements, in line with the international standards. Furthermore, under the general laws of trusts, any trustee has a duty to know the settlor and beneficiaries of a trust. 161. During the three-year period under review (July 2009 June 2012), the Philippine competent authority received no EOI requests related to identity or ownership information concerning domestic or foreign trusts. In practice, should the Philippine competent authority receive an EOI request for identity or ownership information concerning a trust, she would first consult the BIR databases and, if the requested information were not at her disposal, she would request it from the person under investigation or third parties, via the RDO where the trust is registered.
Foundations (ToR A.1.5)

162. Foundations exist in the Philippines in the form of non-stock corporations, subject to the Corporation Code. As of 7 May 2013, there were 10 847 foundations registered with the SEC. The NIRC provides a definition for
private foundation in Section 34, which says that a private foundation is a non-government organisation which is a not-for-profit domestic corporation and may only be established for scientific, educational or religious purposes. Such entities are the same as non-stock corporations under the Corporation Code discussed in paragraph 56 above. 163. During the three-year period under review (July 2009 June 2012), the Philippine competent authority received no EOI requests related to identity or ownership information concerning foundations.
Enforcement provisions to ensure availability of information (ToR A.1.6)

164. Jurisdictions should have in place effective enforcement provisions to ensure the availability of information, one possibility among others being sufficiently strong compulsory powers. However, this would also include punishments and fines for violation of its laws. In most cases, the Philippines has in place strong compulsory powers. Most of its powers are derived from the NIRC Section 5, under which the Commissioner may compel information from a taxpayer. This is the subject of further discussion in Part B of this report. For NIRC purposes, corporations, partnerships and trusts are treated 165. the same, therefore the same penalties for noncompliance would apply for each. For a failure to pay a tax owed, in addition to the amount due, civil penalties can be imposed on taxpayers. Penalties of an additional 25% of the amount due are imposed in the following cases: failure to file a return, filing a return with the wrong internal revenue officer, failure to pay the deficiency tax within the time prescribed or failure to pay the tax shown (Sec. 248). For a wilful neglect to file the return, or for a false or fraudulent return, the penalty is 50%. 166. In the case of failure to file an information return, statement or list or to keep any record or supply information required the penalty is PHP 1 000 for each failure, not to exceed PHP 25 000 (approximately USD 23 to 570) (Sec. 254). Revenue Memorandum Order No. 41-2011, of 10 October 2011, consolidated and enhanced the guidelines and procedures in identifying, handling, closing and monitoring compliance with these annual tax filing obligations. 167. The vast majority of RDOs use an automated monitoring system called the Returns Compliance System (RCS) to identify registered taxpayers who fail to file the required tax return within the prescribed due date. If a taxpayer fails to comply with the applicable filing obligations, the RCS tags this taxpayer as a stop-filer. Monthly reports on all stop-filer cases created by the RCS are generated by the Revenue Data Centers and transmitted

to the concerned tax offices for appropriate monitoring and action. During 2012, 128 292 taxpayer visits were conducted by tax offices based on these tax compliance reports. 168. When the RDO detects an irregularity, it will issue a letter to the taxpayer, requesting it to regularise or explain its situation. If the taxpayer fails to comply with this request, the RDO may conduct an actual investigation or tax compliance verification through a mission order signed by the Director. Between 2009 and 2012, the BIR conducted over 110 000 regular tax audits (i.e. not connected to tax fraud). In 2012, approximately 3% of the total BIR collection was a result of collection arising from tax audits. This would total approximately PHP 31.65 billion or (USD 754 million). 169. In addition, any person who wilfully attempts to evade taxes can on conviction also be punished by a fine not less than PHP 30 000 and not more than PHP 100 000 (approximately USD 685 to 2 300) as well as imprisonment from two to four years. For failure to pay a tax, keep any record or supply correct and accurate information the penalty on conviction, in addition to other penalties, is PHP 10 000 (approximately USD 230) and imprisonment from one to ten years. For a corporation or general partnership liable for any act or omission penalised under the code, in addition to the penalties imposed, the responsible corporate officers, partners or employees are liable on conviction for a punished by a fine of PHP 50 000 to 100 000 (approximately USD 1 140 to 2 300) (Sec. 256). 170. Any financial officer or certified public accountant (CPA) who, pursuant to the NIRC Sec. 232(A) is responsible for examining and auditing books of accounts and who wilfully falsifies a report or statement or renders a statement that has not been verified by him personally or certifies financial statements containing an essential misstatement of fact or omission will be liable upon conviction and punished by a fine from PHP 50 000 to 100 000 (approximately USD 1 140 to 2 230) and suffer imprisonment of two to six years; in addition, his license as a CPA will be revoked (Sec. 257). Over the period 2010-12, 14 CPAs were charged under Section 254 (Attempt to Evade Taxes/failure to supply correct and accurate information), Section 255 (Tax Evasion), Section 267 (Penalties of Perjury), and Section 275 (Other Penalties) in relation to Section 236 (Registration Requirements) of the NIRC. 171. The penalty is the same for any person who examines and audits books without being a CPA, offers to sign and certify financial statements without an audit, offers accounting services not in conformity with the NIRC, or knowingly makes a false entry in books of accounts or records, keeps two or more sets of such records or fails to keep books of accounts in a native language or wilfully attempts to evade or defeat any tax. If the person is not a citizen of the Philippines, conviction under the code results in immediate deportation after serving any sentence.
172. For corporations and partnerships subject to the Corporation Code, a violation, such as a refusal to allow someone with the right to examine records to examine the records of business transactions or failure to keep a stock transfer book under Section 74, is punishable by a fine of PHP 1 000 to 10 000 (approximately USD 23 to 230) or imprisonment for not less than 30 days but not more than five years, or both. A person who refuses to allow someone to examine records is also liable to that person for damages. If the corporation commits the violation, the SEC may dissolve the corporation (Sec. 144). During the last three years (2010-12), fines and penalties were imposed on 27 490 corporations, amounting to roughly PHP 472 million (approximately USD 10.8 million). 173. For foreign corporations, the SEC may revoke its license if it fails to file its annual report or pay any fees; fails to appoint and maintain a resident agent; or fails, after change of its resident agent or address, to submit to the SEC a statement of such change, among other reasons (Sec. 134). 174. In the exercise of its supervisory powers, the SEC may issue subpoena duces tecum and summon witnesses to appear in any proceedings of the SEC and, in appropriate cases, it may order the examination, search and seizure of all documents, paper, files and records, tax returns, and books of accounts of any entity or person under investigation, as may be necessary for the proper disposition of the cases before it, subject to the provision of existing laws. 175. The AMLC has the power to require covered persons to submit identity documents. However, it must obtain a court order allowing the inquiry into or examination of bank accounts or investments, except in the case where the unlawful activity involved relates to: (i) kidnapping for ransom; (ii) illegal drug-related offenses; (iii) hijacking, destructive arson, and murder; (iv) offenses of similar nature to the first three which are punishable under the penal laws of other countries; (v) terrorism; and (vi) financing of terrorism (AMLA, Sec. 11). 176. The AMLA has a detailed set of penalties that apply to covered persons. Any person who knows that a monetary instrument or property is required to be disclosed to the AMLC and fails to do so can face imprisonment from six months to four years and/or a fine of PHP 100 000 to 500 000 (approximately USD 2 300 to 11 400). The same penalty is possible for a failure to keep records as well as for malicious reporting, defined as when a person who with malice, or in bad faith, reports or files a completely unwarranted or false information relative to money laundering transactions against any person. From 2010-12, the AMLC handled 12 administrative cases related to non-filing or delayed submission of suspicious transaction reports (STRs) and covered transaction reports (CTRs) and, as a result, ten covered

persons were reprimanded and two were ordered to pay a fine equivalent to PHP 100 000 each (approximately USD 2 230). 177. The AMLA carries strict penalties for failure to comply with an AMLC Resolution or court order directing the production of bank records. Pursuant to Rule 14.1d, the AMLC can impose fines upon any covered person, its officers and employees, or any person who violates its provisions of not more than PHP 500 000 (approximately USD 11 400). From 2010-12, the AMLC received a total of 1 565 reports of examination of banks and NBFIs concerning AML compliance. As of 30 April 2013, the investigation of 756 reports were completed and terminated. Out of 756 reports, 34 covered persons were found to be non-compliant, 29 were reprimanded and five were ordered to pay administrative fines. Out of these 34 administrative cases, 12 related to non-filing or delayed submission of STRs and CTRs. 178. For corporations, partnerships or any juridical person, the penalty is imposed on the responsible officers. If the person is a juridical person, the court may suspend or revoke its license. If the offender is an alien, in addition to these penalties, he shall be deported without further proceedings after serving the sentence. Any public official or employee who is called to testify and refuses to do so is also subject to penalties under the AMLA, however it is unclear what these penalties are. The EOI Act imposes penalties where an officer, owner, agent, man179. ager, director or officer-in-charge of any bank or financial institution who is required in writing by the commissioner to supply information and wilfully refuses to do so can be fined from PHP 50 000 to 100 000 (approximately USD 1 400 to 2 300) and/or be imprisoned for two to five years (Sec. 6). 180. Section 66 of the General Banking Act also provides that penalties in the New Central Bank Act (RA 7653) are applicable to domestic and foreign banks and NBFIs. Monetary penalties provided under Sections 34, 35 and 36 of RA 7653 are criminal sanctions imposed that may be applied by the Court, after due proceedings are conducted. Administrative sanctions provided under Section 37 of RA 7653 may be imposed by the Central Banks Monetary Board upon any bank or quasi-bank, their directors and/or officers, for wilful violations involving same offenses under Sections 34, 35 and 36 of RA 7653. 181. Penalties range depending on the offense. For example, any person who refuses to file a required report or permit a lawful examination is subject to a fine of PHP 50 000 to 100 000 (approximately USD 1 140 to 2 300), and/ or imprisonment of one to five years (Sec. 34). For making a false statement the penalty increases to PHP 100 000 to 200 000 (approximately USD 2 300 to 4 570) and/or imprisonment of up to five years (Sec. 35). For another violation of the act, the penalty is PHP 50 000 to 200 000 (approximately USD 1 140 to 4 570) and/or imprisonment for two to ten years (Sec. 36).
Between 2010 and 2012, eight persons and five entities were convicted to imprisonment and/or given monetary penalties provided under Sections 34, 35 and 36 of RA 7653. There are also administrative sanctions for the above offenses, including fines, suspension of privileges, and suspension of lending and revocation of license (Sec. 37). During the same period, the total amount of administrative sanctions imposed by the Central Bank for violations of Section 37 of RA 7653 corresponded to approximately PHP 550 billion (approximately USD 12.5 billion). The Monetary Board may also suspend any director or officer.
Determination and factors underlying recommendations
Determination The element is in place. Factors underlying recommendations Companies incorporated outside of the Philippines but having their effective management in the Philippines, which gives rise to a permanent establishment, are not required to provide or maintain information identifying any owners. The availability of information that identifies the owners of such companies will generally depend on the law of the jurisdiction in which the company is incorporated and so may not be available in all cases. Recommendations In such cases, the Philippines should ensure that ownership and identity information is available.
Phase 2 rating Largely Compliant Factors underlying recommendations The Anti-Money Laundering Act was amended in February 2013 to cover natural and juridical persons acting as professional and non-professional nominees, as well as non-professional trustees. However, these legal requirements are untested in practice. Recommendations The Philippines should monitor the antimoney laundering obligations extended to natural and juridical persons acting as professional and non-professional nominees, as well as non-professional trustees, which ensure the availability of ownership and identity information with regard to persons on behalf of whom they act in all cases.
A.2. Accounting records

Jurisdictions should ensure that reliable accounting records are kept for all relevant entities and arrangements.
General requirements (ToR A.2.1) NIRC

182. The NIRC is the main source of accounting obligations for corporations, partnerships or persons required by law to pay internal revenue taxes and requires them to keep a journal or ledger of their equivalents. Because the definition of person includes a trust, these accounting requirements would also apply to trusts (Sec. 22(A)), although an additional obligation to keep all accounts arises under the common law as one of the duties of a trustee. 183. There is an exemption for entities whose quarterly sales, earnings, receipts or output are less than PHP 50 000 (approximately USD 1 400). In this case, entities may keep a simplified set of bookkeeping records where in all transactions and results of operations are shown and from which all taxes due the government may readily and accurately be ascertained and determined any time of the year. 184. If a taxpayers gross quarterly sales, earnings, receipts or output is greater than PHP 150 000 (approximately USD 3 425), the NIRC directs that its books of accounts be audited and examined yearly by an independent Certified Public Accountant. 18 In addition, the income tax returns of such taxpayers must be accompanied by an Account Information Form (AIF) containing information from certified balance sheets, profit and loss statements, schedules listing income-producing properties and the corresponding income therefrom and other relevant statements (Sec. 232(A)). Entities subject to this section of the NIRC may keep subsidiary books of account, as their business may require, however these books will be considered part of the taxpayers accounting system and subject to the same rules and regulations as apply to the journal or ledger (Sec. 233). 185. Although the NIRC doesnt specifically require that entities retain accounting records in the Philippines, these are subject to annual examination and inspection by inland revenue officers and must therefore be readily available (Sec. 235). In practice, there are a number of domestic tax cases filed by the legal division for failure, on the part of the taxpayer, to submit books and
18. The NIRC defines Independent Certified Public Accountant as an accountant who possesses the independence as defined in the rules and regulations of the Board of Accountancy promulgated pursuant to Presidential Decree No. 692, otherwise known as the Revised Accountancy Law (Sec. 232(B)).
other accounting records. Both the taxpayer and the accountant are charged where there is evidence to show that there is an obvious collusion, e.g. where the accountant may be trying to impede the investigation they are charged, or where the accountant gives false auditors reports. 186. Once a case is filed in court, there is no way to withdraw the case and, upon conviction, the taxpayer is required to file the accounting records and charged with a penalty of PHP 5 000 to PHP 10 000 (approximately USD 114 to 230) and/or one to two years of imprisonment. If there is no obvious collusion, and the accountant makes false entries, records or reports, or uses falsified or fake accountable forms, the accountants certificate is automatically revoked, and a penalty of PHP 50 000 to 100 000 (USD 1 140 to 2 300) and/or imprisonment of two to six years is imposed upon conviction, pursuant to Section 257 of the NIRC. Over the period 2010-12, 285 taxpayers and 14 certified public accountants were charged with tax evasion by the Prosecutors Office, under Section 254 (Attempt to Evade Taxes/failure to supply correct and accurate information), Section 255 (Tax Evasion), Section 267 (Penalties of Perjury), and Section 275 (Other Penalties) in relation to Section 236 (Registration Requirements) of the NIRC. 187. In the case of partnerships, the NIRC further provides that a person who retires from a partnership must, within ten days from the date of retirement or within such period as the Commissioner allows, submit their books of account, including subsidiary books and other accounting records to the Commissioner for examination. Partnerships contemplating dissolution must notify the Commissioner and cannot be dissolved until cleared of any tax liability.
Civil Code
188. In addition to a duty to keep partnership accounts under the NIRC, a partnership also has a duty under the Civil Code. Article 1806 provides that partners are required to render true and full information of all things affecting the partnership to any partner or the legal representative of any deceased partner or of any partner under legal disability. Further, a limited partner would have the same rights as a general partner in a limited partnership to demand full information on all things affecting the partnership and a formal account of partnership affairs whenever circumstances render it just and reasonable (Art. 1851). 189. The Civil Code further provides that partnership books must be kept at the principal place of business of the partnership, unless the partners agree otherwise (Art. 1805).
Corporation Code
190. The Corporation Code also creates a duty for corporations to keep accounts, arising from the duty for every corporation to submit to the SEC an annual report of its operations. This must include a financial statement of its assets and liabilities for the previous fiscal year, approved by a certified public accountant in the case of entities with paid in capital greater than PHP 50 000 (approximately USD 1 140) (Sec. 141). 191. Original paper copies of all financial statements filed with the SEC are retained for two years and disposed thereafter, provided these records were scanned and microfilmed. As a matter of practice, these micro-films and digital copies are kept indefinitely. These electronic files are available to the public (private individuals or governmental agencies) at the SEC database (SEC i-Report), via pre-paid accounts. All financial records available and accessible via the SEC database may be downloaded and reproduce via the use of a pin-mailer. The SEC has embarked in a clean-up database project to update all financial records contained in the SEC database. 192. Monitoring compliance with annual filing obligations is carried out by the SEC via routine inspections of information available at the SEC electronic database. When the SEC detects that an entity failed to file its annual report on time and/or in full, a letter is issued by the SEC, requesting the entity to file the missing or incomplete annual report within 30 days. In the same letter, the SEC also informs the entity about the applicable penalty for late and/or incomplete filing, which is due even if the annual report is provided within this timeframe. If this non-compliance persists, the SEC has the power to revoke the licence of the entity. 193. In addition, Section 74 of the Corporation Code requires all stock corporations to keep a stock and transfer book. Aside from records of ownership, this book must also record the instalments paid and unpaid on all stock and a statement of every alienation, sale or transfer of stock made, the date thereof, and by and to whom made. 194. Failure to keep a stock ledger under Section 74 is punishable by a fine of PHP 1 000 to 10 000 (approximately USD 23 to 230) or imprisonment for 30 days to five years, or both. If the corporation commits the violation, the SEC may dissolve the corporation (Sec. 144).
AMLA
195. Covered persons under the AMLA have a duty to keep records of all transactions. The Revised Implementing Rules and Regulations (RIRR), most recently supplemented by Circular No. 706 issued by the Central Bank on 5 January 2011, define transaction as any act establishing any right or
obligation or giving rise to any contractual or legal relationship between the parties thereto. It also includes any movement of funds by any means with a covered institution (Section X803(E)). The regulations specify that records of transactions must be kept such that any account, relationship or transaction can be reconstructed as to enable the AMLC and/or the courts to establish an audit trail (Rule 9.b.1). However, the requirements to maintain records for AML purposes may not capture all relevant accounting records, including underlying documentation, consistent with the Terms of Reference. 196. In practice, the obligations applicable to covered persons to maintain reliable accounting records, pursuant to the General Banking Act and the AMLA, are presided over by the Central Bank and the AMLC. Monitoring is normally carried out via desktop examinations and onsite investigations. Between 2010 and 2012, AML cases were opened leading to onsite investigations of 756 banks and NBFIs, of which 682 (or 90%) were found compliant with their obligations under the AMLA. On the other hand, 34 covered persons were found to be non-compliant, 29 were reprimanded and five were ordered to pay administrative fines. According to the Central Bank, the level of compliance with record keeping obligations by supervised and regulated is very good. While some weaknesses may have been noted, these were not systemic in nature or just isolated cases that did not pose serious supervisory concerns. Although these cases were given appropriate corrective actions, the Central Bank has no consolidated data regarding fines collected for failure to comply with accounting record keeping obligations. 197. Additionally, both the General Banking Act at Section 87 and the MORB require trust departments of banks to keep books and records on trusts separate and distinct from the books and records of its other businesses (MORB, Sec. X421). It also requires that a trustee banks books and records contain full information relative to each trust. These records must be kept as to allow inspection by Central Bank examiners or submission of information or reports as may be required by the competent authorities. The banks trust department is also required to adopt appropriate systems, internal control procedures and audit trail mechanisms to ensure that the correct amount of final tax is withheld or exempted from such accounts. 198. Further, MORB Section X425.1 requires banks acting as trustees to render reports on the trust accounts to the party in interest or the court concerned or any party designated by court order. The report must be in such form as to apprise the party concerned of the significant developments in the administration of the account and must consist of a balance sheet, income statement, schedule of earning assets of the account and any investment activity. The reports must be prepared at least once every quarter. 199. In practice, trust operations/business of banks and NBFIs are subject to offsite monitoring by the Central Point of Contact Departments (CPCDs)

of the Central Bank, as well as regular onsite examination conducted by the AML Examination Team and the Trust Specialist Group (TSG). Section X421 (Books and Records) of the MORB provides guidelines on record keeping requirements of the trust business of an entity. Compliance with these requirements is generally determined through transaction sampling in the course of review of trust transactions undertaken by the Trust Specialist Group and by AML examiners from the Anti-Money Laundering Specialist Group. Between 2010 and 2012, the Trust Specialist Group conducted, on average, 30 onsite examinations per year. 200. Offshore banks are subject to two sets of accounting requirements. Because offshore banks are liable for a tax of 10% on income from transactions with Philippine residents and must also substantiate any exclusion from income tax liability, they are subject to requirements contained in the NIRC, including the requirement to file an annual return. They must also keep a journal and ledger pursuant to the NIRC. In addition, offshore banks are regulated by the Central Bank and subject to its regulations. Specifically, Section 57 of the Manual of Regulations for Foreign Exchange Transactions provides that OBUs shall maintain an accounting system in accordance with guidelines prescribed by the [Central Bank]. Periodically, or as required, existing reports shall continue to be submitted in the prescribed forms to the [Central Bank].
Underlying documentation (ToR A.2.2)

201. Accounting records should further include underlying documents such as invoices, contracts, etc. and should reflect details of (i) all sums of money received and expended and the matters in respect of which such expenditure takes place, (ii) all sales and purchases and other transactions; and (iii) the assets or liabilities of the relevant entity or arrangement. 202. The Philippines law is not entirely clear on the underlying documents that must be retained. While under the NIRC, an entity would have to have a record of its assets or liabilities and sums of money received and expended, there is no requirement to keep invoices or contracts, for example. The Philippines advises that they interpret the NIRC to require underlying documentation to be preserved to support entries in the journal and ledger, otherwise there is no basis on which to verify these entries. However, this requirement is not expressly stated in the law. 203. In addition, there is a requirement under section 34(A)(1) of the NIRC that in order for a taxpayer to claim an ordinary and necessary trade, business or professional expense, the taxpayer must substantiate with sufficient evidence, such as official receipts or other adequate records, the amount of the expense and its direct connection to the conduct of the trade or business. This would not,
however, encompass all the underlying documents envisaged by the Terms of Reference. 204. In addition, the Philippines points to Revenue Regulation V-1, which was issued in 1947 and regards bookkeeping, for the standard to retain underlying documents. The regulations provide that if a person is engaged in any taxable business, the original of each sales invoice or receipts for each sale or transfer of merchandise or for services rendered must be kept and preserved in his place of business for a period of five years from the date of the invoice or receipt. While this regulation may require retention of invoices and receipts in most circumstances, it is not clear that it would apply to all relevant entities, nor is it clear that it would require the retention of all underlying documents in line with the Terms of Reference. While the Corporate Code does require detailed books to be kept for 205. corporations, it is unclear what the underlying document requirements are. The Civil Code does not provide for the specific type of accounting records that a partnership must keep. The Philippines advises that the nature of the records would depend on the nature of the business. 206. For regulated entities, the MORB provides in Subsection X185.1 that all banks must maintain proper and adequate accounting records which should be kept up-to-date and must contain sufficient detail so that an audit trail can be established. However, the MORB does not specify what these records must include. The Central Bank does specify that rural and cooperative banks must keep tickets and supporting papers and official receipts, but there is no similar requirement for other banks. In practice, however, the same accounting record keeping obligations 207. consistently apply to all banks and records must generally include copies of official receipts, invoice or quotation, accounting tickets, agreements, and other forms of transactions records dependent upon the nature of the transaction. In addition, general and subsidiary ledgers must also be kept in manual/ hard or electronic medium, to provide audit trail and comply with accounting recordkeeping requirements.
Document retention (ToR A.2.3)

208. The NIRC requires that books of account and records be kept until the last day prescribed in Section 203 of the NIRC, which deals with statutes of limitations (Sec. 235). Section 203 provides that the statute of limitations is three years after the last day prescribed by law for the filling of the return. Therefore, a taxpayer subject to the accounting requirements of the NIRC must keep these records for three years after the date of filing of the return. This can be extended for up to ten years for a fraudulent return. In addition,

the underlying documents referred to in Revenue Regulation V-1 (mentioned above) requires that underlying documents be retained for five years. 209. Although the NIRC does not explicitly require corporations to keep their accounting records within the Philippines, these are subject to annual examination and inspection by Inland Revenue officers and must therefore be readily available (Section 235). The Philippines advises that, as a matter of practice, information held 210. by government agencies, such as the tax authorities, the SEC or the BOI, is held indefinitely. 211. The Civil Code provides that partnerships must retain records at the principal place of business of the partnership, unless the partners have agreed otherwise (Art. 1805). This is true for both general and limited partnerships. It does not specify for how long these records must be maintained. 212. For AML purposes, the AMLA requires that records of all transactions of covered persons must be kept for five years from the date of the transactions. The Regulations also provide that the records on customer identification, account files and business correspondence must be kept for at least five years from the date the account is closed (Rule 9.b.1 and Rule 9.b.3).
Conclusion
213. Therefore, although there are clear requirements in the Philippines for entities to maintain accounting records, such records are only required to be kept for three years and it is unclear whether underlying documents must also be maintained, in line with the Terms of Reference. A draft legislative bill has been prepared to increase the retention period to five years. 214. Over the three year period under review (July 2009 June 2012), the Philippine competent authority received 31 EOI requests concerning accounting information. In relation to all these 31 EOI requests, the Philippine competent authority had partial information at her disposal by consulting the BIR tax database, while in 12 cases additional information was obtained from the SEC database. In 16 cases, the Philippine competent authority also sought additional accounting information directly from the person under investigation and in three cases accounting information was also sought from the Land Registration Authority. In most of these cases, information for a particular request was obtained from different sources. The information requested included information on books of account, annual returns, statements of solvency, and financial statements. 215. As far as gathering accounting information from taxpayers themselves is concerned, the BIR experienced difficulties in one case where it requested a taxpayer to provide sales records and invoices pursuant to an
EOI request but the taxpayer explained that these documents had been lost when a major flood hit the taxpayers place of business, and the taxpayer also denied any transaction with a foreign taxpayer. In four other cases, the BIR could not obtain all information or documents requested by the requesting tax authority. Two of the four cases involved fictitious corporations which were not legally incorporated in the Philippines. 19 The other two cases involved corporations registered in the Philippines, which had failed to inform relevant authorities of changes in business address and which were in breach of their tax filing obligations. Nevertheless, the Philippines was able to obtain and provide partial information, including some accounting information, to its treaty partners, although the record keeper was no longer doing business at the given address and could not be found. In each of these five cases, the BIR informed the requesting tax authority that it could not provide all the requested information. Follow up action is being taken in the case of the two corporations registered in the Philippines.
Determination The element is in place, but certain aspects of the legal implementation of the element need improvement. Factors underlying recommendations Although, there is a requirement for most businesses to retain invoices and receipts for transactions, there is no express requirement that all relevant entities and arrangements keep all underlying documentation. There is currently no express obligation for entities, other than covered persons for AML purposes, to maintain accounting records for a minimum 5 year period Recommendations Introduce consistent obligations for all relevant entities and arrangements to maintain underlying documents, in line with the Terms of Reference
The record keeping requirements for all relevant entities should require retention of records for a minimum 5 year period.
Phase 2 rating Partially Compliant
19.
However, banking information was provided in relation to an individual referred to in one of the requests.
A.3. Banking information

Banking information should be available for all account-holders.
Record-keeping requirements (ToR A.3.1)

216. Banks and financial institutions are regulated by the Central Bank and are subject to both the General Banking Act and the Corporation Code and are covered persons for purposes of the AMLA. Obligations to retain records on accounts are found in the AMLA. As at March 2013, there were 687 banks (including 20 universal banks, 16 commercial banks, 70 thrift banks, and 581 rural banks) and 6 408 NBFIs (13 of which have quasi banking functions) under the supervision and regulation of the Central Bank. 217. Covered persons under the AMLA have a duty to keep records of all transactions. The Revised Implementing Rules and Regulations (RIRR), most recently supplemented by Circular No. 706 issued by the Central Bank on 5 January 2011, define transaction as any act establishing any right or obligation or giving rise to any contractual or legal relationship between the parties thereto. It also includes any movement of funds by any means with a covered institution (Section X803(E)). The regulations specify that records of transactions must be kept such that any account, relationship or transaction can be reconstructed as to enable the AMLC and/or the courts to establish an audit trail. 218. Records of transactions of covered persons must include the full and true identity of the owners or holders of the accounts involved in the covered transactions and all other customer identification documents. Section 9 (a) of the AMLA requires covered persons to establish and record the identity of all its clients based on official documents. In the case of corporate and juridical entities, covered persons are also required to have a system for verifying their legal existence and organisational structure, as well as the authority and identification of all persons purporting to act on their behalf. Records must be maintained and stored for five years from the date of transaction. 219. Under Circular No. 706 of 5 January 2011 (Updated AML Rules and Regulations UARR), the Central Bank issued detailed guidelines related to the customer identification process for all types of clients (X806), record keeping and retention (X808) and BSP authority and enforcement actions (X810), among other topics. All Central Bank covered persons are required to comply with the following record-keeping requirements: Customer identification records, i.e. maintain/safely store as long as the account exists (X808);
Transaction records, including all unusual or suspicious patterns of account activity whether or not an STR was filed with the AMLC, i.e. maintain/safely store for five years from the date of transaction (X808) or, for closed account, for five years from date of closure (X808.1) or, if a money laundering case is pending, until the case is finally resolved or terminated (X808.2); Requirement to designate at least two officers who will be jointly responsible in the safekeeping of all records and documents (X808.3); and Records and documents must be readily available without delay during BSP regular or special examinations. (X808.3) and they must be retained as originals or copies in such forms as are admissible in court (X808.4).
220. The AMLA imposes a penalty of imprisonment from six months to one year or a fine of not less than PHP 100 000 but not more than PHP 500 000 (approximately USD 2 230 to 11 400) or both for failure to keep records (Rule 14.b).
Availability of banking information in practice

221. The obligations applicable to covered persons to maintain reliable banking records for five years, pursuant to the General Banking Act and the AMLA, are presided over by the Central Bank and the AMLC. The Central Bank supervises operations of banks and exercises regulatory powers over NBFIs with quasi-banking functions and provides policy directions in the areas of money, banking and credit. It also ensures the safety and soundness of the banking sector and other supervised entities through periodic onsite examinations and offsite surveillance/monitoring of their activities. 222. Under the Central Banks legal mandate, it has to examine each bank on an annual basis, and there must be an interval of at least 12 months between an onsite examination and the last closing or termination date of the previous onsite examination (Section 28 (Examination and Fees) of the New Central Bank Act, RA 7653). The number of regular onsite examinations conducted by the Central Bank, that included evaluating compliance with AML requirements, were 520 in 2010, 532 in 2011 and 795 in 2012. The number of members comprising the onsite examination team depends upon the size, risk profile and complexity of operations of banks or NBFIs. For small rural banks, onsite examinations may be carried out by at least two examiners for an average duration of five to ten banking days, while for large-sized universal and commercial banks, onsite examinations may be carried on by a team of 20 to 30 persons and take on average 20 to 30 banking days. As of December 2012, the Examination Group had a total of 784 personnel, of

which 466 were involved in conducting onsite regular examinations of banks and NBFIs. 223. The AMLC is the Philippines Financial Intelligence Unit. It is an independent tri-partite government agency tasked with implementing the AMLA. The AMLC requires, receives and analyses suspicious transaction reports (STRs) and covered transaction reports (CTRs) from covered persons and acts as an investigative and asset recovery agency that investigates suspicious transactions and transactions related to unlawful activities or money laundering offenses. Is also operates as a quasi-judicial body that hears and decides administrative cases involving AMLA violations by covered persons and that imposes administrative sanctions on covered persons, in coordination with the other Supervising Authorities (Central Bank, SEC and IC). As of August 2013, the AMLC is staffed by 103 personnel, all of whom hold permanent and full time positions in the Central Bank. 224. The Central Bank has the power to issue Enforcement Actions against non-complying supervised entities pursuant to Section 36 (Proceedings Upon Violation of This Act and Other Banking Laws, Rules, Regulations, Orders or Instructions) and Section 37 (Administrative Sanctions on Banks and Quasi-banks) of the New Central Bank Act (RA 7653). In order to implement the provision of Section 37 of RA 7653, the Central Bank issued Circular No. 496 of 29 September 2005 (Monetary Penalty Guidelines) and Circular No. 585 of 15 October 2007 (additional Guidelines on Imposition of Monetary Penalties on BSP Supervised Financial Institutions). The schedule of penalties under Circular No. 496, categorises offences based on: (i) nature of offenses (minor, less serious, serious); (ii) assets size of the bank/quasi banks (five buckets); (iii) aggravating and mitigating factors; and (iv) minimum, medium and maximum range of penalties. Between 2010 and 2012, eight persons and five entities were convicted to imprisonment and/or given monetary penalties provided under Sections 34, 35 and 36, while administrative sanctions amounting approximately PHP 550 billion (USD 12.5 billion) were imposed by the Central Bank for violations of Section 37 of RA 7653. 225. Non-compliance with AML requirements is usually subject to nonmonetary sanctions provided under Section X811 of Circular No. 706, which are addressed to the board of directors, in the form of a warning, written reprimand, suspension, removal or disqualification from office. In addition, monetary penalties may be imposed on the basis of the overall assessment of the covered persons AML risk management system. Thus, the Central Bank adopted, in March 2012, the AML Risk Rating System (ARRS) in order to implement the provisions of Circular No. 706. Covered persons that commit offenses of a serious nature may have their licences revoked. In practice, revocation of banking license is done only under extreme cases, particularly when it is deemed that continued banking operation poses serious threat or
loss to its depositors and clients, arising from serious operational and management problems. Between 2010 and 2012, AML cases were opened leading to onsite investigations of 756 banks and NBFIs, of which 682 (or 90%) were found compliant with their obligations under the AMLA. On the other hand, 34 covered persons were found to be non-compliant, 29 were reprimanded and five were ordered to pay administrative fines. 226. Over the three-year period under review, the Philippine competent authority received 12 EOI requests concerning banking information, of which information was obtained directly from banks and NBFIs with quasibanking functions in all cases. The information requested related to bank information, including savings and checking account records such as bank statements, signature cards, instructions given by account holder to the bank for the operation of the accounts, paying-in and disbursement slips, written remittance orders, detailed records of deposits and withdrawals, cancelled checks, cashier checks, money orders, and wire transfers; loan records, such as loan agreements, notes or mortgages; safe deposit box records; certificates of deposit and money market certificates; credit card records; purchases of bank checks; among other records and documents.
Determination The element is in place. Phase 2 rating Compliant
COMPLIANCE WITH THE STANDARDS: ACCESS TO INFORMATION 65
B. Access to Information
Overview
227. A variety of information may be needed in a tax enquiry and jurisdictions should have the authority to obtain all such information. This includes information held by banks and other financial institutions as well as information concerning the ownership of companies or the identity of interest holders in other persons or entities, such as partnerships and trusts, as well as accounting information in respect of all such entities. This section of the report examines whether the Philippines legal and regulatory framework gives the authorities access powers that cover the right types of persons and information and whether rights and safeguards would be compatible with effective exchange of information. It also assesses the effectiveness of this framework in practice. 228. The Philippines tax authorities have sufficient powers to obtain ownership, identity, and accounting information and have measures to compel the production of such information. These powers were previously limited by bank secrecy laws, with two very limited exceptions allowing access in the case of death of a taxpayer or a taxpayer who files for compromise of his tax liability for financial incapacity. The Exchange of Information on Tax Matters Act of March 2010 (EOI Act) and the Regulations to accompany the EOI Act of September 2010 (EOI Regulations) removed the restrictions on access to bank information. 229. The ability of the Philippines tax authorities to obtain information for EOI purposes is derived from its general access powers under the NIRC, coupled with the authority provided by the relevant EOI agreements. These powers may be exercised for the purpose of ascertaining the correctness of any return, in making a return where none has been made, in determining or collecting any persons internal revenue tax liability, or in evaluating tax compliance. No domestic interest requirement exists for the Philippine competent authority to exercise their information gathering powers.
66 COMPLIANCE WITH THE STANDARDS: ACCESS TO INFORMATION

230. The Philippines domestic law provides rights and safeguards to taxpayers who may be the recipient of an EOI request from the Philippines tax authorities, including notification requirements. Their scope is in line with the rights and safeguards provided for under the international standard for exchange of information. 231. In practice, the Philippine competent authority has direct and unrestricted access to the BIR Integrated Tax System, where a significant amount of taxpayer-related identity, ownership and accounting information is readily available. The Philippine competent authority has also access to the Securities and Exchange Commission (SEC) electronic database, via pre-paid accounts, to search for ownership and accounting information concerning entities registered with SEC. Any request for information or documentation which is not readily available to the EOI unit, may be obtained directly by the EOI unit from public sources, any other departments within the BIR, or other government agencies. 232. In addition, the BIR has a range of access powers at its disposal to access ownership, accounting and banking information held by the taxpayer or third parties, and it makes full use of these powers in order to access information in response to an EOI request, regardless of whether the Philippines needs the information for its own tax purposes. In the event of non-compliance with an EOI request, adequate enforcement measures are available to compel the disclosure of information, but in practice these have never had to be used for EOI purposes.
B.1. Competent Authoritys ability to obtain and provide information

Competent authorities should have the power to obtain and provide information that is the subject of a request under an exchange of information arrangement from any person within their territorial jurisdiction who is in possession or control of such information (irrespective of any legal obligation on such person to maintain the secrecy of the information).
The Philippine competent authority

233. In the Philippines, the competent authority for information exchange for international tax purposes is the Secretary of Finance or his authorised representative(s), as stipulated in most of its EOI agreements. Section 4 of the EOI Regulations expressly designates the Commissioner of Internal Revenue (Commissioner) as the Philippine competent authority for EOI purposes. The contact details of the Philippines competent authority and the help contact point (i.e. the Chief of the ITAD) are available on the BIR website, under the International Tax Matters icon. 20
20. ftp://ftp.bir.gov.ph/webadmin1/pdf/bir_itm_phil_competent_authority.pdf.
234. The International Tax Affairs Division (ITAD) serves under the Competent Authority. All EOI requests are handled by the ITAD, but actions related to information gathering to replying to requesting tax jurisdiction are reviewed by the Office of the Assistant Commissioner for Legal Service, and further reviewed by the Office of the Deputy Commissioner for Legal and Inspection Group, before they are approved by the Philippine competent authority. 235. Since its creation in the 1980s, the ITAD has had an EOI unit formerly known as the Competent Authority and Exchange of Information Section (CAEIS). As a result of a reorganisation in early 2000, the ITAD came under the supervision of the Legal Service and the CAEIS was renamed the Tax Treaty Implementation and Exchange of Information Section (TTIEIS). TTIEIS is headed by an EOI section chief and it has one additional EOI case officer, handling all EOI inbound and outbound requests under the supervision of the Chief of the ITAD. Hence, there are three personnel in the ITAD directly involved in performing EOI functions.
Ownership and identity information (ToR B.1.1) and accounting records (ToR B.1.2)
236. The Commissioner of Internal Revenue is the competent authority for exchange of information purposes. The Commissioner also has broad powers under the NIRC to interpret tax laws and to decide tax cases. Specifically, Section 4 provides that the power to interpret the NIRC and other tax laws is exclusive to the Commissioner, subject to review by the Secretary of Finance. The Commissioner also has the power to decide disputed assessments, refund taxes, fees or other charges and impose penalties, among other powers. 237. The powers available to the Philippines tax authorities are found in Section 5 of the NIRC. It gives the Commissioner the power to obtain information and to summon, examine and take testimony of persons in ascertaining the correctness of any return, or in making a return when none has been made, or in determining the liability of any person for any internal revenue tax, or in collecting any such liability or in evaluating tax compliance. Pursuant to this the Commissioner may do the following: (A) Examine any book, paper, record or other data which may be relevant or material to such inquiry. (B) Obtain on a regular basis from any person other than the person whose internal revenue liability is subject to audit or investigation, or from any office or officer of the government (including the Central Bank) any information, including costs and volume of production, receipts or sales and gross incomes of taxpayers, and the names, addresses, and financial statements of corporations, mutual fund

companies, insurance companies, regional operating headquarters of multinational companies, joint accounts, associations, joint ventures of consortia and registered partnerships and their members. (C) To summon the person liable for tax or required to file a return, or that persons officer or employee or any person having possession, custody or care of the books of accounts and other accounting records containing entries relating to the business of the person liable for tax, or any other person, to appear before the Commissioner or his duly authorised representative at a time and place specified in the summons and to produce such books, papers, records or other data, and to give testimony; and (D) To take such testimony under oath. (E) To cause revenue officers and employees to make a canvass from time to time of any revenue district and inquire after and concerning all persons owning or having the care, management or possession of any object with respect to which a tax is imposed. Therefore, the Commissioner has access to both ownership informa238. tion and accounting records under Section 5. In addition, the Commissioner can obtain any information and compel testimony from the person liable for tax or his officer or employee. 239. For domestic tax purposes, books and records of a taxpayer can only be examined and inspected by internal revenue officers once a year (NIRC, Sec. 235). However, exceptions apply in the following cases: fraud, irregularity or mistakes, as determined by the Commissioner; the taxpayer requests reinvestigation; verification of compliance with withholding tax laws and regulations; verification of capital gains tax liabilities; and in the exercise of the Commissioners power under Section 5(B) to obtain information from other persons.
240. The BIR applies the restriction in relation to the examination of books and records contained in Section 235 only to cases of domestic tax. It does not limit the Commissioners Section 5 access powers for EOI purposes. While there might have been a theoretical possibility of challenging this interpretation in the past, the passage of the EOI Act and its regulations make it clear that the Commissioner can access information for EOI purposes at any time.
Information gathering measures in practice

241. The collection of information to respond to an EOI request for information is solely entrusted to the EOI unit. Some of the information requested is directly accessible from the following databases available to the members of the EOI unit: BIR Integrated Tax System (ITS), which is a set of related systems and processes that facilitate the BIRs core business functions and supports the BIR in servicing taxpayers on different aspects of the tax collection and administration process. ITS is installed in the EOI unit, providing direct access to taxpayer-related information, such as identity, ownership and accounting information. SEC database (SEC i-Report), via pre-paid accounts, which also facilitates the collection of ownership and accounting information concerning corporations, partnerships and foundations registered with SEC.
242. Any request for information or documentation which is not readily available to the EOI unit, may be obtained directly by the EOI unit from public sources, any other departments within the BIR, or other government agencies. If a request for taxpayer information is forwarded to another office within the BIR, that office has to act on the request within 60 days from the date of the request. The information request may already be at the disposal of the requested BIR office or it may require information gathering measures. 243. If a request for information or documentation cannot be obtained from the tax files, the BIR writes a letter to other agencies, addressed to their respective heads, to request the information. The following government agencies are usually requested to provide information: National Statistics Office: registered addresses of individuals who are not registered taxpayers of the BIR. Social Security System: registered addresses of individuals who are not registered taxpayers of the BIR. Land Registration Authority: real properties which are in the name of individuals and companies in the Philippines. Securities and Exchange Commission: general information on registered corporations and partnerships in the Philippines; their stockholders, directors and officers; and audited financial statements. Bureau of Customs: importation of goods to the Philippines. Bureau of Immigration: details of arrival and departure in the Philippines of individuals.

244. Except for the Land Registration Authority, all requests for information sent to these agencies are signed by the Deputy Commissioner for Legal and Inspection Group. Requests sent to the Land Registration Authority are signed by the Commissioner. 245. An inter-agency meeting was held to designate the agencies contact persons for EOI purposes and an inter-agency cooperation memorandum is being prepared by the Department of Finance and BIR, through the EOI Technical Working Committee, in the interests of standardising inter-agency cooperation in the area of exchange of information. Whilst no timeframes were in place during the review period for the information to be provided through interagency cooperation, the Philippines authorities confirmed that this information was supplied expeditiously. 246. In the Philippines, there are 19 Regional Offices, which are under the BIR Operations Group. These regional offices have direct guidance and control of 124 Revenue District Offices. In addition, there are seven RDOs which operate under the Large Taxpayers Service. The Regional Offices operate as mini BIR offices, carrying on all the functional divisions of the National Office at the local level, including their own legal divisions and special investigation offices. The Revenue District Offices are responsible for auditing and collecting internal revenue taxes. If access to a taxpayers records is required to obtain the information sought, the concerned Revenue District Officer issues an Access to Records/Request for Information to the taxpayer or entity concerned and serves it within seven days from date of issuance. Revenue District Officers are requested, to the extent possible, to secure records requested within 30 days from date of service to the taxpayers.
Use of information gathering measures absent domestic tax interest (ToR B.1.3)
247. Prior to passage of the EOI Act and its subsequent Regulations, there was some ambiguity as to whether the Commissioners access to information could be impeded by a domestic tax interest. Such ambiguity arose from the fact that Section 5 of the NIRCs powers could be interpreted to be limited to access for purposes of a Philippines tax by the following statement: In ascertaining the correctness of any return, or in making a return where none has been made, or in determining the liability of any person for any internal revenue tax or in collecting any such liability, or in evaluating tax compliance, the Commissioner is authorised [emphasis added ]. 248. The Philippines advised that this statement never served as an impediment to access to information absent a domestic tax interest. In fact, the Philippines tax authorities interpret the statement in evaluating tax compliance to mean that the Philippines tax authorities are able to access
information concerning both resident and non-resident persons, whether or not subject to tax liability in the Philippines, in order to evaluate their tax compliance. Section 2 of the EOI Regulations, serves to support the Philippines interpretation stating that, in addition to the powers granted to the Commissioner by the tax code, the Commissioner is authorised to obtain any information (), as may be required to respond to a request pursuant to an international convention or agreement on tax matters to which the Philippines is a signatory or part to [emphasis added ]. 249. Therefore, the EOI Regulations make clear that the Commissioners powers to obtain any information apply to execute a request for exchange of information in compliance with tax treaty obligations, regardless of whether the Philippines needs the information for its own tax purposes. The Philippines and feedback from peers indicated that, apart from delays, no difficulties have arisen in practice with obtaining or providing information requested by foreign competent authorities under an EOI agreement, regardless of whether the Philippines needed the information for its own tax purposes.
Compulsory powers (ToR B.1.4)

250. The EOI Act and its Regulations give the BIR Commissioner broad powers to compel information. Whereas the actual tax returns were not available previously to a foreign tax authority pursuant to an EOI request, now the President, upon recommendation of the Commissioner, may make income tax returns of specific taxpayers who are the subject of a request for exchange of information open to inspection (EOI Act, Section 4). 251. Enforcement provisions to compel the production of information from banks or financial institutions can be found in the EOI Act as well. The Act says that any officer, owner, agent, manager, director or officerin-charge of any bank or financial institution that refuses a request from the Commissioner to supply information is subject to a fine of PHP 50 000 to 100 000 (approximately USD 1 140 to 2 300) or imprisonment of two to five years or both (Sec. 6). 252. Under Section 266 of the NIRC, any person who, being duly summoned to appear to testify or to appear and produce books of accounts, records, memoranda or other papers, or to furnish information as required under the pertinent provisions of the Code, who neglects to do so is, if convicted, subject to a fine of PHP 5 000 to 10 000 (approximately USD 114 to 230) and imprisonment of one to two years. 253. During the three-year period under review, the EOI unit encountered no cases where a person who had possession of the requested information or documents challenged the obligation to furnish such information

or documents to the BIR. Nonetheless, pursuant to Section 3.1 of RMO No. 10-2013, the BIR can issue a subpoena duces tecum (SDT) to compel information holders to provide information requested for EOI purposes. In addition, Section VII(A) of RMO No. 2-2013 sets forth special procedures for compelling banks or financial institutions to provide the information for EOI purposes, as follows: Issuance of Subpoena Duces Tecum to Officers of Banks and Financial Institutions If a bank or financial institution is requested to provide information but does not reply to a request for that information within the period specified in the request, or provides incomplete information, the Commissioner or his/her duly authorised representative, upon request of ITAD, shall issue a subpoena duces tecum (SDT) against the said bank or financial institution pursuant to existing revenue issuances, copy furnished the Bangko Sentral ng Pilipinas. Should the officer, owner, agent, manager, director or officer-incharge of such bank or financial institution fail to comply with the subpoena duces tecum (SDT), ITAD shall refer the case to the Prosecution Division for the filing of appropriate criminal actions against such person (i.e. for violation of Sections 6 and Section 266 of the NIRC and RA 10021). 254. Even though the BIR did not have to resort to such a measure in order to obtain information for EOI purposes, the SDT is widely used by the BIR for domestic purposes. Between June 2009 and June 2012, the Prosecution Division, which is situated in the BIR National Office, handled approximately 160 SDT cases referred to by the National Investigation Division, which is the office in charge of handling tax fraud and criminal tax cases. During the same period, the Special Revenue Regions Nos. 7 (Quezon City) and 8 (Makati City), which are the premiere business districts of the Philippines, issued over 6 000 SDTs (mainly to non-individual taxpayers) which generated over 2 000 SDT cases. As a result of these SDT cases, the BIR collected over PHP 20.4 million (approximately USD 465 000) in taxes and fines. Due to administrative limitations, the consolidated figures concerning SDT cases handled by each of the 124 Revenue District Offices are not available.
Secrecy provisions (ToR B.1.5)

255. Although the Philippines has strong bank secrecy laws that were previously an impediment to the effective access to information, with the passage of the EOI Act and its Regulations, the bank secrecy laws no longer restrict access to bank information for exchange of information purposes.
256. The Philippines has a history of strong bank secrecy laws. In 1972, the Philippines passed the Foreign Currency Deposit Act, which ensured almost absolute confidentiality for foreign currency deposits in the Philippines banks. Under the act, such deposits could not be examined, inquired or looked into by the Philippines authorities without the written permission of the depositor. 257. The AML Act of 2001, as amended, created an exception to this act. Since its passage, the Anti-Money Laundering Council (AMLC) can now examine a deposit, with a court order, 21 if the deposit is related to unlawful activities enumerated in the AMLA. 22 258. Further progress was made with the EOI Act, which amended section 6(F) of NIRC. Previously, the only reasons for which the Commissioner could inquire into the bank deposit account of a taxpayer was for a decedent to determine his gross estate or for any taxpayer who has filed for a compromise of his tax liability for financial incapacity. However, the EOI Act amended this section to say that, notwithstanding the Foreign Currency Deposit Act, the Commissioner can now inquire into bank deposits and other related information held by financial institutions and may do so, additionally when: (3) A specific taxpayer or taxpayers subject of a request for the supply of tax information from a foreign tax authority pursuant to an international convention or agreement on tax matters to which the Philippines is a signatory or a party of: Provided, That the information obtained from banks and other financial institutions may be used by the Bureau of Internal Revenue for tax assessment, verification, audit and enforcement purposes. 259. The Philippines advises that the language: Provided, That the information obtained from banks and other financial institutions may be used by the Bureau of Internal Revenue for tax assessment, verification, audit and enforcement purposes is intended to give the BIR the authority to use for its own domestic tax purposes the information obtained for exchange of information purposes after sharing it with a treaty partner. This position is further supported by Section 3 of the EOI Regulations, which authorise the BIR to use, for tax assessment, verification, audit and enforcement purposes,
21. 22. Information can be obtained without a court order in certain instances, including cases of kidnap or ransom, dangerous drugs, terrorism, hijacking and destructive arson. An additional exception to the Philippines bank secrecy laws was created with an Amendment to the Philippine Deposit Insurance Corporation (PDIC) Charter (R.A. No. 9576), which provides that the Central Bank may inquire into or examine deposit accounts and all information related thereto in case there is a finding of unsafe or unsound banking practice.

any information obtained from financial institutions pursuant to a request for exchange of information under an international convention or agreement on tax matters. The EOI Regulations further clarify that there is no longer a restriction 260. on access to bank information for exchange of information purposes according to an international agreement. Section 2 provides that pursuant to Section 3 of the EOI Act, for the purpose of complying with an international agreement, the Commissioner has the power to obtain any information, including but not limited to bank deposits and other related information held by financial institutions, as may be required to respond to a request pursuant to an international convention or agreement on tax matters to which the Philippines is a signatory or a party to [emphasis added]. The Philippines supports that these regulations have the force of law because the Commissioner has broad powers under Section 4 of the NIRC to interpret the tax laws. 261. This means that, pursuant to the NIRC, the Philippines tax authorities may undertake enquiries or obtain information, including bank information, that is required only for the purposes of a tax liability in another country with which the Philippines has an exchange of information agreement. It is also clear that information which is in the possession of the Philippines tax authorities, information which may be required for the Philippines tax purposes or information which is publicly available can also be exchanged. 262. As regards attorney client privilege, under the Rules of Court in the Philippines, an attorney cannot, without the consent of his client, be examined as to any communication made by the client to him, or his advice given thereon in the course of or with a view to professional employment (emphasis added). The Code of Professional Responsibility at Canon 15 further provides that a lawyer shall be bound by the rule on privileged communication in respect of matters disclosed to him by a prospective client. On its face, this could be broader than the standard envisaged by the Terms of Reference, which protects communications which are produced for the purposes of seeking or providing legal advice. In a court case on the matter involving information regarding the sale of property, the court found that under the Rules of Court, an attorney cannot refuse to disclose the amount of the sale or account for the proceeds of property, as this information would not be considered privileged (A.C. No. 4426, February 17, 2000). However, the Philippine Supreme Court found in Regala v. Sandiganbayan (GR No. 105938 September 20, 1996) that attorneys assisting in incorporating companies for a client, including acting as nominee shareholders, did not have a duty to disclose the names of their clients in certain circumstances. In this case, the court held that although, as a general rule, the identity of the client is not a privileged matter, the rule is qualified by important exceptions, including where a strong probability exists that revealing the clients
name would implicate that client in the very activity for which he sought the lawyers advice.
Secrecy provisions in practice

263. Under Philippine law and case law, it is well established that it is not enough to simply assert the attorney-client privilege. The presence of the following factors 23 must first be proven that: A (prospective) attorney-client relationship exists and the client made the communication by virtue of this relationship. A communication from a (prospective) client to a lawyer for some purpose other than on account of the (prospective) attorney-client relationship is not privileged. 24 The client made the communication in confidence. That is to say, the client must intend the communication to be confidential. The mere relation between attorney and client does not raise a presumption of confidentiality. The legal advice must be sought from the attorney in his/her professional capacity. The communication must have been transmitted by a client to the attorney for the purpose of seeking legal advice. Any communication made for mere information purposes is not privileged.
264. If the client seeks an accounting service, or business or personal assistance, and not legal advice, the privilege does not attach to a communication disclosed for such purpose. Furthermore, the privilege against disclosure of confidential communications or information is limited only to communications which are legitimately and properly within the scope of a lawful employment of a lawyer. It does not extend to those made in contemplation of a crime or perpetration of a fraud. 25 265. In respect of legal professional privilege, the Philippines authorities indicated that assertions of attorney-client privilege rarely arise in the Philippines. During the review period, the Philippines had no need to seek information protected by professional privilege and no assertions of legal professional privilege have ever been raised with regard to information sought for EOI purposes (see also section C.4 Right and safeguards of taxpayers and third parties below).
23. 24. 25.
Mercado v. Vitriolo, A.C. No. 5108, May 26, 2005. Pfleider v. Palanca, Adm. Case No. 927, September 28, 1970. Genato v. Silapan, A.C. No. 4078, July 14, 2003.

B.2. Notification requirements and rights and safeguards

The rights and safeguards (e.g. notification, appeal rights) that apply to persons in the requested jurisdiction should be compatible with effective exchange of information.
Not unduly prevent or delay exchange of information (ToR B.2.1)

266. Requests for information in the Philippines that are pursuant to an international convention or agreement on tax matters must go through the International Tax Affairs Division (ITAD) of the BIR. A revenue official is forbidden from communicating directly with the competent authority without prior approval of the Commissioner (EOI Regulations, Sec. 8). 267. Pursuant to the EOI Act, a request for information must clearly state: The identity of the person under examination or investigation; A statement of the information being sought including its nature and the form in which the treaty partner prefers to receive it; The tax purpose for which the information is being sought; Grounds for believing that the information requested is held in the Philippines or is in the possession or control of a person within the jurisdiction of the Philippines; To the extent known, the name and address of any person believed to be in possession of the requested information; A statement that the request is in conformity with the law and administrative practices of the said foreign tax authority, such that if the requested information was within the jurisdiction of the said foreign tax authority then it would be able to obtain the information under its laws or in the normal course of administrative practice and that it is in conformity with an international convention or agreement on tax matters;
A statement that the requesting foreign tax authority is also allowed under its domestic laws to exchange or furnish the information subject of the request; and A statement that the requesting foreign tax authority has exhausted all means available in its own territory to obtain the information, except those that would give rise to disproportionate difficulties.
268. Specifically for EOI requests concerning banking information, Section 8 of the EOI Regulations provides that, after the ITAD evaluates a request, the Commissioner sends the request in writing to the financial institution concerned. That institution has 15 days from receipt of the notice to provide the information. If the institution is unable to provide the information, it must state the reasons for failure to do so and may request not more than 15 days of additional time. Any officer, owner, agent, manager, director or officer-in-charge of any bank or financial institution that refuses a request from the Commissioner to supply information is subject to a fine of PHP 50 000 to 100 000 (approximately USD 1 140 to 2 300) or imprisonment of two to five years or both (EOI Act, Sec. 6). 269. If the institution fails to provide the requested information with 15 days or 30 days where an extension is granted, the BIR will issue a subpoena duces tecum against the institution, as set forth under Section VII(A) of RMO No. 2-2013. In this case, the institution is obliged to provide the requested information by the 14th day from the date of issue of the subpoena duces tecum. This means that, in practice, financial institutions have up to 30 or 45 days where and extension was granted, to provide the requested information. If the institution neglects to do so, it will be, upon conviction, subject to a fine of PHP 5 000 to 10 000 (approximately USD 114 to 230) and imprisonment of one to two years (Section 266 of the NIRC). 270. Under Section 8 of the EOI Act, the Commissioner must notify a taxpayer in writing when a foreign tax authority requests information held by a financial institution pursuant to a tax convention or agreement to which the Philippines is a signatory. The EOI Regulations further specify that the notification must take place within 60 days of receipt of a request from a foreign tax authority (Sec. 10). Section 10 of the EOI Regulations states that the taxpayer must be notified when a foreign tax authority is requesting information.
Notification requirements, rights and safeguards in practice

271. The Philippines advised that, in practice, the 60-day notification requirement does not delay or prevent exchange of information as the Philippines tax authorities are allowed to exchange information during that time period, even before actually notifying the taxpayer. Over the review

period, banking information was always obtained and transmitted to the requesting foreign authorities before the 60-day timeframe elapsed and, accordingly, no practical issues have arisen thus far. After transmission of the banking information, the taxpayer is notified via a letter signed by the Commissioner. As a matter of practice, this letter is issued close to the conclusion of the 60-day timeframe regardless of the date of transmission of the banking information to the requesting jurisdiction. In this letter, the taxpayer is notified that he or she has been the subject of a request for bank information under the applicable exchange of information provision of the treaty with the requesting jurisdiction. There is no similar notification requirement for requests concerning information held by the taxpayer or third parties which are non-financial institutions. 272. During the period under review, no practical difficulties have been experienced thus far in the Philippines with regard to the notification requirement, in the case of banks, or any other rights and safeguards, such as appeal rights. Nevertheless, the Philippines should monitor the notification requirement to ensure that it does not unduly prevent or delay effective exchange of information in cases where it is likely to undermine the chance of success of the investigation conducted by the requesting jurisdiction.
COMPLIANCE WITH THE STANDARDS: EXCHANGING INFORMATION 79
C. Exchanging Information
Overview
273. Jurisdictions generally cannot exchange information for tax purposes unless they have a legal basis or mechanism for doing so. In the Philippines, the legal authority to exchange information derives from bilateral mechanisms (double tax conventions) as well as from domestic law. This section of the report examines whether the Philippines has a network of information exchange that would allow it to achieve effective exchange of information in practice. 274. The Philippines has an extensive treaty network that allows for exchange of information for tax purposes with all relevant partners. The Philippines has double tax conventions (DTCs) containing exchange of information provisions in force with 39 jurisdictions. Amongst those jurisdictions are 22 OECD member countries 26 and five G-20 countries which are not members of the OECD, namely Brazil, China, India, Indonesia and Russia. Despite its extensive network of treaties, until recently, exchange of information with the Philippines was constrained by its domestic laws. In particular, there was no access to bank accounts for any tax purposes, but for two very limited circumstances. 275. In April 2009, the Philippines endorsed the OECD standards and undertook to amend its laws to comply with the international standards for exchange of information. Most notably, in May of 2010, the Exchange of Information Act became law. This law, together with its corresponding regulations which were adopted in September 2010, amend the NIRC to ensure that tax authorities have power to obtain information for exchange of information purposes to the same extent that they can obtain information for domestic tax purposes. Combined, they also give the tax authorities power
26. Australia, Austria, Belgium, Canada, Czech Republic, Denmark, Finland, France, Germany, Hungary, Italy, Japan, Korea (Rep.), the Netherlands, New Zealand, Norway, Poland, Spain, Sweden, the United Kingdom and the United States.
80 COMPLIANCE WITH THE STANDARDS: EXCHANGING INFORMATION

to access bank information for the purposes of responding to a request for exchange of information from a treaty partner. Most of the 42 DTCs concluded by the Philippines contain the neces276. sary provisions to allow it to exchange information in accordance with the international standard. However, eight DTCs do not meet the standard either due to their restricted scope to information exchange for the purposes of the Convention or due to the absence of provisions which mirror Articles 26(4) and 26(5) of the OECD Model Tax Convention combined with restrictions in these treaty partners domestic laws. The Philippines is currently renegotiating the EOI provisions under these DTCs to bring them in line with the standard. In addition, the Philippines continues to expand its network of exchange of information instruments, with new DTCs and tax information exchange agreements (TIEAs) under different stages of negotiation. 277. All exchange of information provisions in the Philippines DTCs contain confidentiality provisions to ensure that the information exchanged will be disclosed only to persons authorised by the agreements. While each of the articles might vary slightly in wording, these provisions generally contain all of the essential aspects of Article 26(2) of the Model Tax Convention. This is reinforced by the confidentiality provisions under the Philippines recently adopted domestic laws. In practice, all information exchanged and related documentation regarding EOI requests is physically stored in locked cabinets in the EOI units office and electronic files are stored on a separate area of the IT system which can only be accessed by the EOI unit. 278. The DTCs concluded by the Philippines ensure that the contracting parties are not obliged to provide information which would disclose trade, business, industrial, commercial or professional secrets or trade process or to make disclosures which would be contrary to public policy. The Philippines has indicated that no cases have occurred in practice where the requested information related to a trade, business, commercial or industrial secret or where the disclosure of the information would be contrary to public policy. In respect of legal professional privilege, the Philippines has indicated that assertions of attorney-client privilege rarely arise in the Philippines and any assertions of legal professional privilege to date have not been with regard to information sought for EOI purposes. International agreements in the Philippines become effective through 279. a series of procedures. First, negotiations are concluded after the issuance of full powers or special authority by the President to negotiate an agreement. When the agreement is signed it is then ratified by the President and requires the concurrence of the Senate. Next, a notification of such ratification is issued and the agreement enters into force according to its terms. A binding treaty or international agreement becomes part of the law of the land, and has equal standing with domestic legislative enactments. When the two are
in conflict, an interpretation that will reconcile both the treaty and the statute is resorted to. When the conflict is irreconcilable, a choice is made: a treaty may repeal a statute and a statute may repeal a treaty. Both are subject to invalidation if they are in conflict with the Constitution, which is the highest law of the land. 280. In the Philippines, the unit in charge of exchanging information for tax purposes (EOI unit) is located within the International Tax Affairs Division (ITAD) which is part of the Bureau of Internal Revenue (BIR). For EOI purposes, the Commissioner of BIR is designated as the Philippine competent authority. Since 2012, the Philippines has had in place appropriate organisational processes and resources to ensure effective exchange of information in practice. The EOI unit is headed by an EOI Section Chief and it has one additional EOI case officer, handling all EOI inbound and outbound requests under the supervision of the Chief of the ITAD. 281. There are no legal restrictions on the ability of the Philippines competent authority to respond to requests within 90 days of receipt by providing the information requested or by providing an update on the status of the request. However, concerns were expressed by its EOI partners with respect to delays in receiving responses from the Philippine competent authority and the lack of consistency in providing status updates when the Philippines was unable to provide the requested information within 90 days. Despite the delays in response times, feedback from peers indicates that the responses provided by the Philippines are comprehensive and of good quality. 282. Over the three-year review period, the Philippines received 67 requests from twelve EOI partners, to which the Philippines was in a position to provide a final response within 90 days in 7 cases (10%), within a period of between 91 and 180 days in another 20 cases (30%), between 181 days and one year in an additional 11 cases (17%), in more than one year in another 23 cases (34%) and the remainder 6 cases (9%) were still pending at the end of the review period. During the last part of the three-year period under review (July 2009 June 2012), response times decreased significantly, mainly due to the streamlining of the EOI process and the introduction of the EOI work manual, as confirmed by most of the peers.
C.1. Exchange of information mechanisms

Exchange of information mechanisms should allow for effective exchange of information.
283. Exchange of information can only take place between competent authorities or their authorised representatives. This ensures that the rules applicable to exchange of information (and in particular the confidentiality of information exchanged) are respected and consistently applied. In the

Philippines, bypassing the competent authority constitutes a breach of tax confidentiality which is expressly prohibited by Section 270 of the National Internal Revenue Code (NIRC) and by the terms of its DTCs and TIEAs. 284. The Philippines DTCs generally provide that the Secretary of Finance or his authorised representative(s) are the competent authorities for the Philippines. The DTCs with Bahrain, Bangladesh, Czech Republic, Sweden and United Arab Emirates provide that the competent authority is the Secretary of Finance or the Commissioner of Internal Revenue. The DTC with the United States indicates that the competent authority is the Secretary of Finance or his delegate. Section 4 of Revenue Regulations 10-2010 expressly designates the Commissioner of BIR (Commissioner) as the Philippine competent authority for EOI purposes.
Foreseeably relevant standard (ToR C.1.1)

285. The international standard for exchange of information envisages information exchange to the widest possible extent. Nevertheless, it does not allow for fishing expeditions, i.e. speculative requests for information that have no apparent nexus to an open inquiry or investigation. The balance between these two competing considerations is captured in the standard of foreseeable relevance which is included in paragraph 1 of Article 26 of the OECD Model Tax Convention set out below: The competent authorities of the contracting states shall exchange such information as is foreseeably relevant to the carrying out of the provisions of this Convention or to the administration or enforcement of the domestic laws concerning taxes of every kind and description imposed on behalf of the contracting states or their political subdivisions or local authorities in so far as the taxation thereunder is not contrary to the Convention. The exchange of information is not restricted by Articles 1 and 2. 286. Thirty-six of the 42 DTCs concluded by the Philippines provide for the exchange of information that is necessary for carrying out the provisions of the Convention or of the domestic tax laws of the Contracting States. The commentary to Article 26 of the OECD Model Tax Convention, paragraph 5, refers to the standard of foreseeable relevance and states that the contracting States may agree to an alternative formulation of this standard that is consistent with the scope of the Article, for instance by replacing foreseeably relevant with necessary or relevant. In view of this recognition, all but two of the Philippines DTCs meet the foreseeably relevant standard. The Philippine competent authority stated that no EOI request has ever been declined for reasons of foreseeable relevance and this is consistent with the feedback received from peers.
287. The Philippines DTCs with Brazil and Germany only provide for the exchange of information necessary for carrying out the provisions of the convention. These treaties, therefore, are not to the standard. The Philippines is renegotiating the EOI provision under its DTC with Brazil and initialled a DTC with Germany to bring both DTCs in line with the standard. 288. In its DTC with the Netherlands, the Philippines has agreed to a standard of exchange of such information (being information which such authorities have in proper order at their disposal ) [emphasis added ]. Similarly, the Exchange of Letters for its DTC with Switzerland provides for the exchange of such information (being information which is at its disposal under its taxation laws in the normal course of administration) [emphasis added ]. This language imposes a significant restriction, as it can effectively limit the information that can be exchanged to information that is already available to the tax authorities. Since its Phase 1 review, the Philippines requested an amendment to the EOI provision of the DTC with the Netherlands to bring it in line with the standard. In addition, the Philippines proposed to enter into TIEA negotiations with Switzerland.
Other forms of exchange

289. In the Philippines DTCs with India, Indonesia, Thailand and the United States, there is the possibility of routine exchange of information, in addition to exchange of information upon request. 27 The BIR is a recipient of spontaneous and automatic information from some EOI partners. To date, the Philippines has only provided information on request, but it confirmed that it is in a position to engage in a routine exchange of information and also to provide information on a spontaneous basis.
In respect of all persons (ToR C.1.2)

290. For exchange of information to be effective it is necessary that a jurisdictions obligation to provide information is not restricted by the residence or nationality of the person to whom the information relates or by the residence or nationality of the person in possession or control of the information requested. For this reason, the international standard for exchange of information envisages that exchange of information mechanisms will provide for exchange of information in respect of all persons.
27. For example, in the Philippines-India DTC, it states that: the exchange of information or documents shall be either on a routine basis or on request with reference to a particular case or both. It then instructs the competent authorities to consult and agree on a list of information or documents to be furnished on a routine basis.

291. Article 26(1) of the OECD Model Tax Convention indicates that [t] he exchange of information is not restricted by Article 1, which defines the personal scope of application of the Convention and indicates that it applies to persons who are residents of one or both of the Contracting States. Seventeen 28 of the Philippines 42 DTCs with EOI provisions do not contain this sentence. 292. However, in all but two of these DTCs, Article 26(1) applies carrying out the provisions of the Convention or of the domestic laws of the Contracting States or statutory provisions against tax avoidance concerning taxes covered by the Convention. As a result of this language, these DTCs would not be limited to residents because all taxpayers, resident or not, are liable to the domestic taxes listed in Article 2. Exchange of information in respect of all persons is thus possible under the terms of these DTCs. The Philippines and feedback from peers indicated that, in practice, no difficulties have arisen with any of its EOI partners regarding an exchange request relating to residents of either of the contracting states or residents of third party jurisdictions. 293. In contrast, under Article 26(1) of the DTCs with Brazil and Germany, the information that can be exchanged is limited to information necessary for carrying out such DTCs, and does not extend to the domestic laws of the contracting States. As a result of the limitation on the exchange of information to residents of either contracting State, these two DTCs do not meet the international standard. The Philippines is renegotiating the EOI provision under its DTC with Brazil and initialled a DTC with Germany to bring both DTCs in line with the standard.
Exchange information held by financial institutions, nominees, agents and ownership and identity information (ToR C.1.3)
294. Jurisdictions cannot engage in effective exchange of information if they cannot exchange information held by financial institutions, nominees or persons acting in an agency or a fiduciary capacity. Both the OECD Model Convention and the Model Agreement on Exchange of Information, which are the authoritative sources of the standards, stipulate that bank secrecy cannot form the basis for declining a request to provide information and that a request for information cannot be declined solely because the information relates to an ownership interest.
28.
Belgium, Brazil, Canada, Germany, India, Japan, Kuwait, Malaysia, the Netherlands, New Zealand, Pakistan, Vietnam, Poland, the United States, the United Kingdom, Thailand (neither the 1982 or the 2013 DTC) and Singapore.
295. The Philippines DTCs contain no restrictions on exchange of information based on what entity has the information. However, except for the DTC with France as amended by its 2011 Protocol, none of its DTCs contain language similar to Article 26(5) of the OECD Model Tax Convention, which provides that a contracting state may not decline to supply information solely because the information is held by a bank, other financial institution, nominee, or person acting in an agency or a fiduciary capacity or because it relates to ownership interests in a person. 296. The absence of this paragraph does not automatically create restrictions on exchange of bank information. The Commentary to Article 26(5) indicates that while paragraph 5, added to the Model Tax Convention in 2005, represents a change in the structure of the Article, it should not be interpreted as suggesting that the previous version of the Article did not authorise the exchange of such information. The Philippines has access to bank information and information held by fiduciaries for tax purposes in its domestic law (see Part B above), and is able to exchange this type of information when requested. 29 297. According to Tax Co-operation 2010: Towards a Level Playing Field Assessment by the Global Forum on Transparency and Exchange of Information for Tax Purposes, an additional 26 treaty partners of the Philippines 30 reported that information held by banks and fiduciaries can be exchanged without limitations under their domestic laws. The DTCs concluded with such jurisdictions will not require the inclusion of Article 26(5) of the OECD Model Tax Convention to be considered as meeting the standard. However, four of the Philippines treaty partners Austria, Malaysia, 298. Singapore and the United Arab Emirates either currently have or have just removed restrictions on access to bank information under their domestic laws, that apply in the absence of a specific DTC provision requiring such access for EOI purposes. Therefore, those DTCs need to be updated to include a provision similar to Article 26(5) of the OECD Model Taxation Convention before exchange of banking information can actually take place.
29.
30.
Section 3 of the EOI Act and section 2 of the Regulations on the EOI Act provide that the Commissioner shall provide tax information from banks and financial institutions as part of an exchange of information agreement upon request, provided that the requesting jurisdiction provides evidence to demonstrate foreseeable relevance. Australia, Belgium, Brazil, Canada, China, Czech Republic, Denmark, Finland, France, Germany, Hungary, India, Indonesia, Israel, Italy, Japan, (Republic of) Korea, the Netherlands, New Zealand, Norway, Poland, Russia, Spain, Sweden, the United Kingdom and the United States.

299. The Philippines is currently renegotiating the EOI provisions under these DTCs to bring them in line with the standard. With regard to on of these jurisdictions, amendments to its legislation are underway to allow it to exchange information with its EOI partners even in the absence of a provision equivalent to Article 26(4) and (5) of the OECD Model Tax Convention. As a result, there will be no need to renegotiate this DTC. The Philippines should continue to renegotiate the other DTCs to include a provision similar to Article 26(5) of the OECD Model Taxation Convention. 300. It is also noted that some of the Philippines other treaty partners may not be able to access bank information or information held by fiduciaries for the purpose of EOI in the absence of a provision similar to Article 26(5) of the OECD Model Tax Convention. There has been no issue in practice with exchanging information held by banks, financial institutions, agents and fiduciaries. At least two peers reported requesting banking information from the Philippines, which was provided in the form requested.
Absence of domestic tax interest (ToR C.1.4)

301. The concept of domestic tax interest describes a situation where a contracting party can only provide information to another contracting party if it has an interest in the requested information for its own tax purposes. An inability to provide information based on a domestic tax interest requirement is not consistent with the international standard. Contracting parties must use their information gathering measures even though invoked solely to obtain and provide information to the other contracting party. 302. Only four of the Philippines DTCs with France (as amended by the 2011 Protocol), Romania, Russia and the United States 31 contain explicit language obliging the treaty parties to use information-gathering measures to exchange requested information without regard to a domestic tax interest. The remaining 38 DTCs do not contain such a provision. During the review period, feedback from peers confirmed that the Philippines has provided information to its EOI partners regardless of whether or not it has an interest in the requested information for its own tax purposes and, apart from delays, no concerns have been expressed by peers regarding domestic tax interest in relation to any of the Philippines DTCs.
31.
In Article 26(3) of the DTCs with Romania and Russia and Article 26(4) of the DTC with the United States, the Philippines agreed to the following language: A contracting state may obtain information from or with respect to its residents or corporation in accordance with this paragraph for the sole purpose of assisting the other Contracting State in the determination of the taxes of that other State..
303. The EOI Regulations remove any ambiguity about whether a domestic tax interest limitation may have existed (see section B.1.3 above). Furthermore, information can be exchanged regardless of the existence of a domestic tax interest with 28 treaty partners, 32 which are able to use their information gathering measures even though invoked solely to obtain and provide information to the requesting jurisdiction. Therefore, the Philippines DTCs with such jurisdictions should be considered as meeting the international standard for exchange of information, even in the absence of Article 26(4). 33 304. While there are no restrictions in the Philippines domestic law, such restrictions may exist in other jurisdictions with which the Philippines has a DTC, but which have not yet been reviewed by the Global Forum. 34 In such cases, the absence of a specific provision requiring exchange of information unlimited by domestic tax interest may serve as a limitation on the exchange of information which can occur under the relevant DTC. Although no issues have arisen in practice in this regard, the Philippines should continue to renegotiate such DTCs to include a provision similar to Article 26(4) of the OECD Model Taxation Convention.
32.
33.
34.
Australia, Austria, Belgium, Brazil, Canada, China, Czech Republic, Denmark, Finland, France, Germany, Hungary, India, Indonesia, Israel, Italy, Japan, (Republic of) Korea, Malaysia, the Netherlands, New Zealand, Norway, Poland, Spain, Sweden, the United Arab Emirates and the United Kingdom. Paragraph 19.6 of the commentary to Article 26(4) states Paragraph 4 was added in 2005 to deal explicitly with the obligation to exchange information in situations where the requested information is not needed by the requested State for domestic tax purposes. Prior to the addition of paragraph 4 this obligation was not expressly stated in the Article, but was clearly evidenced by the practices followed by member countries which showed that, when collecting information requested by a treaty partner, Contracting States often use the special examining or investigative powers provided by their laws for purposes of levying their domestic taxes even thought they do not themselves need the information these purposes.. Bangladesh, Kuwait, Pakistan, Sri Lanka, Thailand and Vietnam. The new DTC with Thailand was initialled in 2000 and signed in June 2013. Before signature, the Philippines requested Thailand to update the EOI provision in line with the standard. However, Thailand declined the request as it would be difficult to obtain Parliamentary approval for a revised text at this stage. As a result, it does not contain a provision equivalent to Article 26(4) and (5) of the OECD Model Taxation Convention. However, the parties agreed to start renegotiations to include the revised EOI provision once the DTC was signed.
Absence of dual criminality principles (ToR C.1.5)

305. The principle of dual criminality provides that assistance can only be provided if the conduct being investigated (and giving rise to an information request) would constitute a crime under the laws of the requested country if it had occurred in the requested country. In order to be effective, exchange of information should not be constrained by the application of the dual criminality principle. 306. None of the Philippines DTCs are limited to cases that have dual criminality. Nor are there provisions in the domestic laws of the Philippines that would lead to any such restriction. In practice, no request has been turned down on this basis during the period under review.
Exchange of information in both civil and criminal tax matters (ToR C.1.6)
307. Information exchange may be requested both for tax administration purposes and for tax prosecution purposes. The international standard is not limited to information exchange in criminal tax matters but extends to information requested for tax administration purposes (also referred to as civil tax matters). 308. There is no distinction drawn in any of the Philippines DTCs between civil and criminal matters as far as taxation is concerned. Most DTCs concluded by the Philippines are entitled Convention for avoidance of double taxation and prevention of fiscal evasion. In addition, the first paragraph of the exchange of information provision in DTCs concluded with 19 treaty partners 35 specifically mentions that the information exchange will occur inter alia for the prevention of fraud or evasion of such taxes. Nothing in the Philippines laws would prevent the Philippines from exchanging information in both civil and criminal matters. In practice, the BIR makes no distinction between EOI requests, whether they relate to a civil examination or a criminal tax investigation. During the period under review, the Philippine competent authority provided information in response to all EOI requests for civil and criminal tax matters.
35.
Belgium, Canada, Czech Republic, Denmark, France, Germany, Hungary, India, Indonesia, Israel, (Republic of) Korea, the Netherlands, Nigeria, Romania, Singapore, Spain, the United Kingdom, the United States and Vietnam.
Provide information in specific form requested (ToR C.1.7)

309. The majority of the Philippines DTCs make no reference to the specific form of the exchange of information. Only the DTCs with Romania and the United States explicitly provide for the form in which information may be provided. Those DTCs specify that: () depositions of witnesses and copies of unedited original documents (including books, papers, statements, records, accounts or writings) may be provided by the competent authority of a Contracting State if specifically requested by the competent authority of the other Contracting State. The DTCs with Denmark, Hungary, Romania, Spain, Vietnam, India 310. and (Republic of) Korea provide that the competent authorities shall consult to develop appropriate methods and techniques for exchange of information. During the review period, the Philippine competent authority has advised that they have provided information in the specific form requested, which is confirmed by feedback received from peers.
In force (ToR C.1.8)

311. Exchange of information cannot take place unless a jurisdiction has exchange of information arrangements in force. Where exchange of information agreements have been signed the international standard requires that jurisdictions must take all steps necessary to bring them into force expeditiously. The Philippines has 39 DTCs in force which contain exchange of information provisions.
In effect (ToR C.1.9)

312. For information exchange to be effective the parties to an exchange of information arrangement need to enact any legislation necessary to comply with the terms of the arrangement. In 2010, the Philippines enacted the EOI Act and promulgated its accompanying Regulations to allow for exchange of information in all cases and to comply with the terms of its DTCs. 313. International agreements in the Philippines become effective through a series of procedures. First, negotiations are concluded after the issuance of full powers or special authority by the President to negotiate an agreement. When the agreement is signed it is then ratified by the President and requires the concurrence of the Senate (Section 21, Article VII of the 1987 Constitution). Next, a notification of such ratification is issued and the agreement enters into force according to its terms. 314. A binding treaty or international agreement becomes part of the law of the land, and has equal standing with domestic legislative enactments. When the two are in conflict, an interpretation that will reconcile both the

treaty and the statute is resorted to. The Philippine competent authority can resolve issues concerning the interpretation and application of tax treaties. Application of treaty relief or benefits, which may be confirmed by way of a ruling, is delegated to the Commissioner; however, in case of a denial, the affected taxpayer (which is generally the foreign taxpayer) can lodge an appeal with the Secretary of Finance. Other than treaty benefits, issues concerning exchange of information, transfer pricing, and mutual agreement procedure are also delegated to the Commissioner. 315. When the conflict is irreconcilable, a choice is made: a treaty may repeal a statute and a statute may repeal a treaty. Both are subject to invalidation if they are in conflict with the Constitution, which is the highest law of the land. A treaty must be declared first as constitutionally infirmed by the Philippine Supreme Court before it can be repealed. The fact that income tax treaties undergo ratification by the President (Executive Department) and concurrence by the Senate (Legislative Department) means that a treatys validity has been checked before it is approved and becomes effective.
Determination This element is in place, but certain legal aspects of the legal implementation of this element require improvement. Factors underlying recommendations Two DTCs limit exchange of information to the carrying out of the provisions of the Convention and do not extend to the administration and enforcement of domestic laws of the contracting states. Two other DTCs limit exchange of information to information already at the disposal of tax authorities. Four DTCs concluded by the Philippines with jurisdictions which were not able to access information held by banks or fiduciaries do not contain a provision similar to Article 26(5) OECD Model Tax Convention, resulting in an impediment to the effective EOI for tax purposes. Recommendations The Philippines should continue to negotiate with existing partners (or take steps to expedite entry into force of) new DTCs and protocols where the existing DTCs do not meet the international standard.
The Philippines should work with the relevant DTC partners to incorporate Article 26(5) OECD Model Tax Convention into these DTCs.
Phase 2 rating Largely Compliant
C.2. Exchange of information mechanisms with all relevant partners

The jurisdictions network of information exchange mechanisms should cover all relevant partners.
316. Ultimately, the international standard requires that jurisdictions exchange information with all relevant partners, meaning those partners who are interested in entering into an information exchange arrangement. Agreements cannot be concluded only with counterparties without economic significance. If it appears that a jurisdiction is refusing to enter into agreements or negotiations with partners, in particular ones that have a reasonable expectation of requiring information from that jurisdiction in order to properly administer and enforce its tax laws it may indicate a lack of commitment to implement the standards. 317. The Philippines has a network of 42 DTCs developed over almost four decades. It continues to negotiate new EOI agreements and to update old DTCs through Protocols and new EOI agreements. It has recently developed a model Tax Information Exchange Agreement (TIEA), approved in February 2013, with the goal of expanding its exchange of information network. The Philippines is currently negotiating or has initialled an additional 15 TIEAs with Global Forum members and non-members, and is negotiating or has initialled ten Protocols in order to bring existing DTCs in line with the standard. 318. The Philippines currently has DTCs containing exchange of information provisions in force with all of but one of its major trading partners: Hong Kong, China. In addition, under DTCs with two major trading partners, Malaysia and Singapore, banking information may not be exchanged before these DTCs are updated to include a provision similar to Article 26(5) OECD Model Tax Convention. Since the Phase 1 review, the Philippines has been actively seeking to negotiate or (re)negotiate TIEAs or Protocols to update EOI provisions under existing DTCs with these three major partners. Negotiations are ongoing with one of these jurisdictions. In another case, the jurisdiction concerned has until recently been unable to enter into TIEAs due to domestic law restrictions. With regard to the third jurisdiction, amendments to its legislation are underway to allow it to exchange information with its EOI partners even in the absence of a provision equivalent to Article 26(4) and (5) of the OECD Model Tax Convention. As a result, there will be no need to renegotiate this DTC.

319. During the course of the Phase 1 review, comments were sought from the jurisdictions participating in the Global Forum and one jurisdiction advised the assessment team that it contacted the Philippines to renegotiate its DTC to meet the international standard and did not receive a response. In response to this call, the BIR sent an official letter to the competent authority of this jurisdiction on 28 June 2012 indicating no objection to the draft Protocol amending the EOI provision under the existing DTC. The initial preparations for the initialling and signing of the text of the Protocol are now underway. During the course of the Phase 2 review, no jurisdiction has advised that it was interested in entering into an EOI agreement with the Philippines but that the Philippines had refused to negotiate or enter into such an agreement with it. The BIR is responsible for treaty negotiations and the ITAD provides 320. research and evaluation in preparation for these negotiations. The negotiating team is usually composed by the Commissioner (as Chief negotiator), the Chief of the ITAD, the Undersecretary of the Department of Finance, and a representative from the Department of Foreign Affairs. The Secretary for Finance or the Ambassador for the Philippines is the person who actually signs EOI agreements or, on occasion, the Commissioner may sign providing she gets full powers from the President.
Determination This element is in place, but certain legal aspects of the legal implementation of this element require improvement. Factors underlying recommendations Recommendations
The Philippines should continue The Philippines has a wide treaty to develop its EOI network with all network. It does not have an EOI relevant partners. agreement with one of its important trade partners and it does not have DTCs to the standard with two of its important trade partners. The Philippines has no restrictions in its domestic law to exchange information and it has actively taken the necessary steps to (re)negotiate these EOI agreements. Phase 2 rating Compliant
C.3. Confidentiality
The jurisdictions mechanisms for exchange of information should have adequate provisions to ensure the confidentiality of information received.
321. Governments would not engage in information exchange without the assurance that the information provided would only be used for the purposes permitted under the exchange mechanism and that its confidentiality would be preserved. Information exchange instruments must therefore contain confidentiality provisions that spell out specifically to whom the information can be disclosed and the purposes for which the information can be used. In addition to the protections afforded by the confidentiality provisions of information exchange instruments countries with tax systems generally impose strict confidentiality requirements on information collected for tax purposes. 322. The text of Article 26(2) of the OECD Model Tax Convention reads: Any information received under paragraph 1 by a Contracting State shall be treated as secret in the same manner as information obtained under the domestic laws of that State and shall be disclosed only to persons or authorities (including courts and administrative bodies) concerned with the assessment or collection of, the enforcement or prosecution in respect of, the determination of appeals in relation to the taxes referred to in paragraph 1, or the oversight of the above. Such persons or authorities shall use the information only for such purposes. They may disclose the information in public court proceedings or in judicial decisions.
Information received: disclosure, use, and safeguards (ToR C.3.1) Double tax conventions
323. All the Philippines DTCs have confidentiality provisions, based on the 1963 OECD Draft Convention or the 1977 OECD Model Convention, to ensure that the information exchanged will be disclosed only to persons authorised by the DTCs. While each of the exchange of information provisions might vary slightly in wording, 36 most of these provisions generally take the following form, which contain all of the essential aspects of paragraph 2 of Article 26 of the OECD Model Tax Convention: Any information received by a Contracting State shall be treated as secret in the same manner as information obtained under the
36. The Philippines-United States DTC uses a completely different language, but the confidentiality obligations under this DTC also meet the standard.

domestic laws of that State and shall be disclosed only to persons or authorities (including courts and administrative bodies) concerned with the assessment or collection of, the enforcement or prosecution in respect of, or the determination of appeals in relation to, the taxes covered by the Agreement. Such persons or authorities shall use the information only for such purposes. They may disclose the information in public court proceedings or in judicial decisions. 324. However, fifteen DTCs depart from this text. The confidentiality provisions of the DTCs with Canada and Singapore restrict the disclosure of information to persons or authorities concerned with the assessment or collection of the taxes subject to such DTCs, while all the other DTCs concluded by the Philippines implicitly or explicitly allow the information exchanged to be disclosed to courts or to person or authorities concerned with the enforcement of or litigation with respect to the taxes covered by such DTCs. Moreover, those two DTCs and the DTCs concluded with 12 other treaty partners 37 do not specify that the information exchanged can be disclosed in public court proceedings or in judicial decisions. This could be restrictive as it could lead to information being inadmissible in court. The Philippines and feedback from EOI partners has indicated that, in practice, no difficulties have ever arisen regarding the use of information exchanged under these DTCs. In any case, this provision would benefit from being improved on the occasion of a more general upgrading of those DTCs. 325. Many of the Philippines DTCs require the information exchanged to be treated as secret in the same manner as information obtained under the domestic law. However, eight of the Philippines DTCs (with Belgium, Brazil, Canada, China, Germany, Indonesia 38, Japan, and Malaysia) do not specifically refer to the confidentiality duties under the domestic laws of the contracting States. This deviation from Article 26(2) of the OECD Model Tax Convention does not allow for the disclosure of information, other than to persons or authorities referred to in the relevant article, and does not prevent the enforcement of the confidentiality provisions under domestic laws. Nevertheless, it would also benefit from being improved at the occasion of more general upgrading of those DTCs as it appears to be inconsistent with the recently enacted EoI legislation.
37.
38.
Australia, Belgium, Brazil, Germany, Indonesia, Japan, Malaysia, the Netherlands, Nigeria, Pakistan, Thailand and the United Kingdom. The new DTC signed with Thailand in June 2013, which is not yet in force, contains explicit language permitting the contracting States to disclose exchanged information in public court proceedings or in judicial decisions. Reference is to the 1981 DTC, which is in force.
The Philippines legislation

326. The Philippines added Section 7 of the EOI Act in order to ensure its own citizens that the information exchanged would be treated as confidential by a foreign treaty partner. Section 7 states that in the case of a request from a foreign tax authority for tax information held by banks and financial institutions, the exchange of information shall be done in a secure manner to ensure confidentiality thereof under such rules and regulations as may be promulgated by the Secretary of Finance, upon recommendation of the Commissioner. The EOI Regulations reinforce the treaty obligations concerning confidentiality by providing that: Any information received by a foreign tax authority from the BIR pursuant to an international convention or agreement on tax matters shall be treated by the authority as absolutely confidential in nature in the same manner as information obtained by the latter under its laws and regulations, and shall be disclosed only to persons or authorities, including courts or administrative bodies, involved in the assessment or collection of, the enforcement or prosecution in respect of, or the determination of appeals in relation to, the taxes covered by such conventions or agreements (Sec. 6). However, this language may have no practical effect for confidentiality purposes because it is not binding on the foreign tax authorities. 327. Section 5 of the EOI Act also amended Section 270 of the NIRC to provide that any officer or employee of the BIR, except as allowed under the Section 6(F) of the NIRC, who: divulges to any person or makes known in any other manner than may be provided by law information regarding the business, income or estate of any taxpayer, the secrets, operation, style or work, or apparatus of any manufacturer or producer, or confidential information regarding the business of any taxpayer, knowledge of omission is punishable with a fine of PHP 50 000 to 100 000 (approximately USD 1 140 to 2 300) and/or imprisonment for two to five years. In practice, two BIR employees have been charged with violation of Section 270, but these cases are still pending with the Internal Security Division for further investigation. None of these cases concern information received by the Philippines for EOI purposes and, to date, there are no cases where EOI officers have ever been charged with violation of their confidentiality duties.
All other information exchanged (ToR C.3.2)

328. Confidentiality rules should apply to all types of information exchanged, including information provided in a request, information transmitted in response to a request and any background documents to such requests. The Philippines domestic laws, specifically the EOI Act, refer to any information and do not differentiate between types of information.
Ensuring confidentiality in practice

329. In addition to the general confidentiality obligations provided under the EOI Act and Section 270 of the NIRC, the Philippine competent authority issued, on 18 February 2013, the Revenue Memorandum Orders (RMO) Nos. 2-2013 and 3-2013, directed to EOI officers receiving requests and other offices within the BIR. The RMO No. 2-2013 describes the procedures in place since 2011 while the RMO No. 3-2013 introduces an EOI work manual, describing in greater detail the procedures to guarantee the confidentiality of exchanged information pursuant to an EOI agreement. To the extent possible, the Philippine competent authority also applies the provisions of Keeping It Safe the OECD Guide on the Protection of Confidentiality of Information Exchanged for Tax Purposes.
General procedures applying to access to electronic and physical records

330. The level of security depends on the classification of the information. The Chief of ITAD decides whether a request is classified as confidential or highly confidential. Generally, requests related to politically exposed persons or persons with a high public profile are considered highly confidential. These requests will, generally, be dealt with by the Chief of Section in consultation with the Chief of ITAD. 331. All of the information received in the EOI unit is considered confidential. Any mail received from foreign competent authorities is delivered directly to the EOI unit and stored in secure storage units, which are accessible only to the Chief of Section or the case officer assigned to them (or a nominated replacement officer). Access to passwords, combinations and keys is restricted to officers working in the EOI unit and the Chief of ITAD. Highly confidential files are stored separately and are only accessible to the Chief of ITAD and the Chief of Section. If the Chief of ITAD considers that information is highly confidential, s/he may use codes or ciphers to encrypt messages. 332. Hard copies of incoming information are only made by the EOI Section if strictly necessary, such as when documents must be forwarded to other areas of the tax administration. The same security level applies to the hard copies as to the original documents. Any hard copies are disposed of in a secure manner (i.e. by using a shredder) when no longer necessary.
Sending information to a foreign competent authority

333. Exchange of information pursuant to a DTC or TIEA can only take place between competent authorities or their authorised representatives. All letters containing taxpayer information must, therefore, be signed by the Commissioner, who is the Philippine competent authority (i.e. to date, authority to exchange information has not been delegated to any other officials). 334. Prior to sending information to a foreign competent authority the Chief of Section always confirms that the person who has requested the information is authorised to make the request and to receive the information. He also confirms that the foreign competent authoritys name and address are correct before sending any information. All documents related to an exchange of information case bear a clearly visible confidentiality stamp, stating CONFIDENTIAL INFORMATION NOT TO BE DISCLOSED. 335. On providing the information to an EOI partner, physical mail is only sent via an international registration system where a mail tracking function is in place. The cover letter to the foreign competent authority emphasises the confidentiality of the information, by including the following statement: This information is furnished under the provisions of a DTA/TIEA and its use and disclosure are governed by the provisions of such DTA/TIEA. 336. Over the period under review, the BIR exchanged taxpayer information only by mail and did not exchange information electronically. That would require that the information is encrypted or sent on a secure platform and, as yet, the BIR does not have the facilities to do this. Where e-mail correspondence relating to a request is received without encryption, e.g. where clarification is requested by an EOI partner without encryption, the content of the e-mail and any e-mail response is always anonymised.
Sending information to other areas of the tax administration

337. It is often necessary for information to be sent by the EOI Section to other tax officials or authorities within the BIR. In these cases, a record is kept on file showing who the information has been disclosed to, how many copies have been produced and who has a copy in their possession at any time. Whenever confidential information needs to be forwarded from the EOI unit to other areas of the tax administration, it is made clear to the person receiving it that it concerns treaty protected confidential information. This is emphasised in the cover letter by stating that the information must be kept confidential pursuant to a DTC or TIEA, as well as section 270 NIRC.
Disclosure in certain specific circumstances

338. Any disclosure outside the EOI unit or tax administration is only allowed after sign-off by the Chief of ITAD or the Chief of Section on the basis of a report clarifying that such disclosure is allowed under the respective DTC or TIEA and Philippine domestic legislation. If a request for information or documentation cannot be met from the tax files, the BIR writes a letter to other governmental agencies, addressed to their respective heads, to request the information. When requesting information from other governmental agencies, such as the Bureau of Immigration or SEC, it is not necessary for the EOI unit to provide any information contained in the request letter from the foreign competent authority to that agency, other than what is strictly needed to action the request. 339. In letters addressed to banks, the Philippines competent authority only discloses the minimum amount of information which is necessary for obtaining the requested banking information. As a matter of practice, information concerning a request that is normally disclosed to third parties, such as banks, consists of: the name; identification number; date of birth and residential address of the subject of the request; the relevant EOI instrument (and identification of such instrument); the relevant information that is being requested; the time limit given to reply to the request for information and the statement of applicable penalties. There were instances where less information was provided, e.g. a request for information made on the basis of a bank account number only. It is noted that there are no legal requirements as to the minimum amount of information to be disclosed. 340. The BIR is not required to notify a taxpayer that it has received a request to exchange information, except in the case of banking information. Therefore, other than for banking information, taxpayers are not notified, regardless of whether or not the treaty partner has requested the BIR not to inform the taxpayer about the EOI request. Where the information required is in the hands of a taxpayer, however, it may be necessary to explain the circumstances in which s/he is being requested to provide information and to provide the minimum amount of information needed to allow the taxpayer respond to the request (but not the letter of request itself). 341. Feedback from peers indicates that there have been no issues with confidentiality as it relates to exchange of information requests to date. The BIR confirmed that, to date, there have been no cases in which information received by the Philippine competent authority from an EOI partner has been made public or disclosed to a third party other than in accordance with the terms under which it was provided and the international standard.

Determination This element is in place. Phase 2 rating Compliant
C.4. Rights and safeguards of taxpayers and third parties

The exchange of information mechanisms should respect the rights and safeguards of taxpayers and third parties.
342. The international standard allows requested parties not to supply information in response to a request in certain identified situations where an issue of trade, business or other legitimate secret may arise. Among other reasons, an information request can be declined where the requested information would disclose confidential communications protected by the attorney-client privilege. Attorney-client privilege is a feature of the legal systems of many countries. 343. However, communications between a client and an attorney or other admitted legal representative are, generally, only privileged to the extent that, the attorney or other legal representative acts in his or her capacity as an attorney or other legal representative. Where attorney-client privilege is more broadly defined it does not provide valid grounds on which to decline a request for EOI. To the extent, therefore, that an attorney acts as a nominee shareholder, a trustee, a settlor, a company director or under a power of attorney to represent a company in its business affairs, EOI resulting from and relating to any such activity cannot be declined because of the attorneyclient privilege rule.
Exceptions to requirement to provide information (ToR C.4.1)

344. All the Philippines DTCs contain a provision which ensures that the contracting States are not obliged to provide information which would disclose any trade, business, industrial, commercial or professional secret, trade process or information the disclosure of which would be contrary to public policy. The EOI Act does not contain exceptions for attorney-client privilege. 345. However, under the Rules of Court in the Philippines, attorney-client privilege is respected. Specifically, an attorney cannot, without the consent of his client, be examined as to any communication made by the client to him, or his advice given thereon in the course of or with a view to professional

employment. While, as discussed in section B.1.4, the Philippines attorney-client privilege standard could be over-broad on its face, it is unclear whether this would constitute an impediment to the exchange of information in practice. The Philippines has indicated that no cases have occurred in practice 346. where the requested information related to a trade, business, commercial or industrial secret or where the disclosure of the information would be contrary to public policy. In respect of legal professional privilege, the Philippines has indicated that assertions of attorney-client privilege rarely arise in the Philippines and assertions of legal professional privilege have never been raised with regard to information sought for EOI purposes. Peers have not raised any issues in relation to rights and safeguards of taxpayers and third parties.
Determination This element is in place. Phase 2 rating Compliant
C.5. Timeliness of responses to requests for information

The jurisdiction should provide information under its network of agreements in a timely manner.
Responses within 90 days (ToR C.5.1)

347. In order for exchange of information to be effective it needs to be provided in a timeframe which allows tax authorities to apply the information to the relevant cases. If a response is provided but only after a significant lapse of time the information may no longer be of use to the requesting authorities. This is particularly important in the context of international cooperation as cases in this area must be of sufficient importance to warrant making a request. 348. None of the Philippines DTCs specify a timeframe for a response to a request for information. However, both the EOI Act and its Regulations provide that the Commissioner must respond as promptly as possible to the request and must confirm receipt of a request in writing to the requesting foreign tax authority and shall notify the latter of deficiencies in the request, if any, within 60 days from receipt of the request. This would clearly meet the standard for response within 90 days.
349. The Philippines receives more requests than it sends. Over the threeyear review period, the Philippines has received 67 EOI requests from 12 different partner jurisdictions and sent two requests in connection with criminal tax investigations. In terms of the number of requests received by the Philippines, the most significant EOI partners are Japan, the United States, (Republic of) Korea, Canada and Norway. When the Philippine competent authority receives a request for information, it is considered as a new case and given a reference number accordingly, irrespective of the number of persons or entities which are the subject of an inquiry or whether more than one piece of information is requested. When the Philippine competent authority receives a further communication relating to an existing request for information, the second letter is considered as part of the same EOI request, unless the foreign authority assigns a different foreign reference number to the case. 350. Out of these 67 EOI requests, 35 cases related to simple EOI requests where the requested information was either at the disposal of the Philippine competent authority through the BIR database (e.g. the registered address of an individual taxpayer) or it could be obtained from certain government agencies such as the National Statistics Office, the Social Security System and the Bureau of Immigration. The other 32 cases were considered more complex by the Philippine competent authority, since the requested information either (a) involved more than identity or ownership information; (b) required an inspection or visit to the residence of the taxpayer for further inquiry; (c) involved banking information; (d) required further examination of the information obtained, such as if a particular payment received from foreign sources is declared by the local recipient in its tax returns; and (e) could only be obtained from other government agencies, such as the Land Registration Authority (e.g. real property held in the Philippines by the subject taxpayer). 351. In a total of 67 requests received during the period under review, the Philippines was in a position to provide a final response within 90 days in 7 cases (10%), with another 20 cases (30%) being processed within between 91 and 180 days, and 11 cases (17%) processed within between 181 days and one year. The remaining 23 cases (34%) were processed in more than one year and 6 cases (9%) were still pending at the end of the review period. The response time starts running from the date that the EOI request is received by the Philippine competent authority, and only stops once a final reply has been sent to the requesting jurisdiction. Further details can be found in the table below.

Response times for requests received during the three-year review period
Jul-Dec 2009 nr. Total number of requests received* Full response**: 90 days 180 days (cumulative) 1 year (cumulative) 1 year+ Declined for valid reasons Requests still pending at end of review period 0 0 (a) 3 (b) 4 (c) 0 (e) 0 % 2010 nr. % 6% 35% 47% 0% 6% 0% 2011 nr. 0 % 0% Jan-Jun 2012 Total Average nr. % nr. 7 % 100% 10% 40% 57% 31% 0% 3% 9%
(a+b+c+d+e) 8 100% 17 100% 21 100% 21 100% 67 0% 1 0% 6 38% 8 50% 8 0% 0 13% 1 0% 0 6 29% 6 29% 15 9 43% 0 0 0 0% 0% 0% 0 0 0 71% 27 71% 38 0% 21 0% 0% 0 2 6
47% 12 57% 15
Failure to obtain and provide information requested (d) 1
6 29%
* The Philippines counts each written request from an EOI partner as one EOI request even where more than one person is the subject of an inquiry and/or more than one piece of information is requested. ** The time periods in this table are counted from the date of receipt of the request to the date on which the final and complete response was received.
352. It is noted that the Philippines was not able to provide full information in two cases involving corporations registered in the Philippines, which had failed to inform relevant authorities of changes in business address and which were in breach of their tax filing obligations. Nevertheless, the Philippines was able to obtain and provide partial information, including some accounting information, to its treaty partners, although the record keeper was no longer doing business at the given address and could not be found. In each of these cases, the BIR informed the requesting tax authority that it could not provide all the requested information and it is taking followup actions by pursuing the officers of the corporations. During the three-year period under review, concerns were expressed 353. by several peers about the lack of response to some EOI requests or about excessive delays in receiving responses from the Philippine competent authority. There were systematic delays in response times but, despite these delays, feedback from peers indicates that the responses provided by the Philippines are comprehensive and of good quality. According to the Philippines, the EOI unit experienced practical difficulties in obtaining information from revenue district offices, whose primary goal is to achieve their collection targets. In addition, delays experienced during the period under review were a result of the lack of internal processes and systems for monitoring of response times and approaching deadlines.
354. The EOI Program was included in the BIRs Priority Programs for 2013. In this context, the EOI unit expects to improve operations and to shorten the response time. According to the Philippines, the ability to personally visit revenue district offices and taxpayers will speed-up the process of obtaining the requested information and documents, by raising their awareness about the importance of EOI and about the new EOI procedures established by Revenue Memorandum Order (RMO) Nos. 2-2013 (see section C.5.2 Organisational process and resources below for more details). 355. Since February 2011, the Philippines has established interim procedures to prescribe the process flow for incoming EOI requests, based on the 2010 EOI Act and EOI Regulations. These provide timeframes for each key step in the internal and external processing of requests and retrieval of information in order to respond to requests in a timely manner (see section C.5.2 Organisational process and resources below for more details). Although progress has been made for the last year under review, the Philippines should ensure that the new internal deadlines are respected to enable it to respond to EOI requests in a timely manner, and consider what further measures could be taken to shorten the response time. 356. Over the three-year period under review, the BIR failed to provide status updates to its EOI partners when it was unable to provide the requested information within 90 days, and this is confirmed by peer inputs. Since June 2012, the EOI unit has been endeavouring to meet the 90 days standard and this requirement is now built into its internal guidelines (Revenue Memorandum Orders Nos. 2-2013 and 3-2013, of 18 February 2013). Further improvements in response times are expected upon the introduction of a new EOI database, which will automatically alert the EOI unit and bring the file forward for review at the 90th day mark (see C.5.2 Organisational process and resources for more details). It is therefore, recommended that the Philippines monitors the implementation of the procedures that are now in place and the tools that have been developed to ensure that response times are significantly reduced and status updates are consistently provided to its EOI partners.
Organisational process and resources (ToR C.5.2)

357. It is important that a jurisdiction have appropriate organisational processes and resources in place to ensure a timely response. 358. The EOI Regulations provide that requests must go through the International Tax Affairs Division (ITAD) of the BIR. A revenue official or employee cannot communicate directly with a competent authority or foreign tax authority without prior approval from the Commissioner. ITAD is responsible for compliance with a request and verifies all requests.
Organisational process
359. The unit in charge of exchanging information for tax purposes (EOI unit) is located within the ITAD, which is part of the BIR. The BIR is an agency under the Department of Finance (DOF). Since its creation in the 1980s, the ITAD has an EOI unit formerly known as the Competent Authority and Exchange of Information Section (CAEIS). As a result of a reorganisation in early 2000, the ITAD came under the supervision of the Legal Service and the CAEIS was renamed as the Tax Treaty Implementation and Exchange of Information Section (TTIEIS). The EOI unit is headed by an EOI Section Chief and it has one additional EOI case officer, handling all EOI inbound and outbound requests under the supervision of the Chief of the ITAD. Hence, there are three personnel in the ITAD directly involved in performing EOI functions. 360. There may be a delegation of competent authority for different functions (e.g. mutual agreement procedures or EOI). Delegation of authority to sign for the competent authority is effected through a Revenue Delegation Authority Order (RDAO). However, to date there has been no delegation of authority on EOI matters, other than for the purpose of attending competent authority meetings, which results in the requirement that all contacts with treaty partners for EOI purposes, where taxpayer information is being exchanged, must be channelled through the Commissioner. The contact details of the Philippines competent authority and the help contact point (i.e. the Chief of the ITAD) are available on the BIR website, under the International Tax Matters icon. 39 Any changes to these details should be communicated to treaty partners within seven days of the date of change. 361. The Philippines has established regular contact and has held faceto-face meetings with significant EOI partners, namely Japan, Republic of Korea and the United States. For Japan, there is a resident official from the National Tax Agency currently holding office at the ITAD, who regularly follows-up Japans pending EOI requests. In addition, the Philippine competent authority and members of the EOI unit participate in various multilateral meetings with competent authorities of other jurisdictions, including the annual meeting of the Global Forum on Transparency and Exchange of Information for Tax Purposes. 362. Following the adoption of the EOI Act and the EOI Regulations in 2010, the Philippine competent authority issued, on 22 February 2011, interim procedures to prescribe the process flow for incoming EOI requests. The interim procedures also identify, within the BIR, the authorised signatories of letters to be sent to other BIR offices, government agencies, individuals and entities that are holders of information sought for EOI purposes. On 18 February 2013, the Philippine competent authority issued Revenue
39. ftp://ftp.bir.gov.ph/webadmin1/pdf/bir_itm_phil_competent_authority.pdf.
Memorandum Orders (RMO) Nos. 2-2013 and 3-2013, directed to EOI officers receiving requests and other offices within the BIR, setting out in greater detail the policies, guidelines and procedures in processing specific EOI requests pursuant to the EOI provision of Philippine EOI agreements. The RMO No. 2-2013 describes the procedures in place since 2011 while the RMO No. 3-2013 introduces an EOI work manual, establishing internal deadlines to ensure that EOI requests are dealt with effectively. 363. Upon receipt of an EOI request, the ITAD assigns a reference number to the request for identification of cases and refers it to the EOI unit, where its validity is checked against a checklist that mirrors Article 5(5) of the OECD Model TIEA. Where there is ground to refuse or decline a request, the requesting authority will be informed in the acknowledgment letter of the grounds for such refusal. Before formally declining the request, the Philippine competent authority always engages with the foreign competent authority to seek clarifications. The Philippine competent authority has stated that no EOI request has ever been declined for reasons of foreseeable relevance and this is consistent with the feedback received from peers. In addition, the Philippine competent authority may ask the requesting authority to clarify the request or to furnish additional documents or information, as required, to allow a response to be made. During the three-year review period, additional information or clarifications have been sought in two cases and this has not caused further delays. 364. Both the EOI Act and its Regulations require that the Commissioner confirm receipt of a request in writing to the requesting foreign tax authority, noting any deficiencies in the request within 60 days from receipt of the request. The ITAD prepares an acknowledgment letter to the requesting authority, which is signed by the Commissioner or his/her duly authorised representative within seven days from receipt of the request. If the request is a simple request, such as the registered address of a taxpayer which can be verified in the BIR Integrated Tax System, the Section Chief includes this information in the acknowledgement letter to the EOI request. If the requested information cannot readily be provided by the ITAD, the Commissioner or his/her duly authorised representative sends letters to the appropriate information holders (e.g. other BIR or government offices, banks or financial institutions, a taxpayer, etc.) requesting the relevant information. 365. Specifically for EOI requests concerning banking information, the Philippines procedures pursuant to the EOI Act and Regulations provide for unrestricted exchange of information. After the ITAD evaluates a request, the Commissioner must inform any financial institution concerned of the request in writing. That institution has 15 days from receipt of the notice to provide the information. If the institution is unable to provide the information, it must state the reasons for failure to do so and may request not more than 30 days of

additional time. Over the review period, banking information was obtained from banks and financial institutions without delay, i.e. within 15 days or within 30 days in a few (less than five) instances where an extension was requested by the holder. 366. With regard to taxpayer notification, Section 10 of the EOI Regulations requires that a taxpayer be notified within 60 days from the receipt of the request, when a foreign tax authority is requesting information held by a financial institution. There are no legal requirements that would prevent the BIR from handing over banking information to the requesting foreign authority before actually notifying the taxpayer. Over the review period, banking information was obtained and transmitted to the requesting foreign authorities before the 60-day timeframe elapsed. Upon transmission of the banking information, the taxpayer was notified via a letter signed by the Commissioner. There is no similar notification requirement for requests concerning information held by non-financial institutions. 367. If a request for taxpayer information is forwarded to another office within the BIR, that office now has to act on the request within 60 days from the date of the request. The information request may already be at the disposal of the requested BIR office or it may require information gathering measures (see section B.1 above for further details). If access to a taxpayers records is required to obtain the information requested by the foreign tax authority, the concerned revenue district officer issues an Access to Records/ Request for Information to the taxpayer or entity concerned and serves it within seven days from date of issuance. Revenue district officers are requested, to the extent possible, to secure records requested within 30 days from date of service to the taxpayers. Once obtained, revenue district officers are required to forward the information to the Chief of the ITAD, using a standard Feedback Sheet. The same Feedback Sheet must also be used if the action/information requested cannot be provided by the revenue district officer at the end of the 60-day timeframe. These procedures/requirements are now met in practice. 368. All information and documents obtained under an EOI request are evaluated by the EOI Section Chief and the ITAD Chief. It is the responsibility of the EOI unit to check on the quality of the information received and to ensure that, when sending out a response to the requesting jurisdiction, the information furnished is complete and of good quality. The EOI unit may request further information and documents if the ones furnished were not adequate to respond to the questions of the foreign tax authority. 369. For the three-year period under review, the EOI unit utilised a manual system of recording EOI requests. All inbound and outbound EOI requests were recorded in a logbook by the ITAD receiving officer and then encoded in the computer by the EOI case officer. Upon receipt, an incoming
EOI request is assigned a unique reference number by the ITAD receiving officer. Both the logbook and the electronic file where the EOI requests are registered are updated from time-to-time by the EOI case officer to track the location of correspondence relating to these EOI requests. From September 2013, a new computerised database will be adopted by the EOI unit, for easier tracking and monitoring of inbound and outbound EOI requests. This system is aimed at replacing the manual logbook. However, as this initiative commenced outside of the review period, its effectiveness could not be assessed.
Performance measures
370. To monitor its EOI Program, the Philippine competent authority uses the following indicators/performance measures: Response Time: to measure the length of time before a reply (whether an acknowledgement, interim or final) is issued in each case, on average and for each jurisdiction. Number of requests handled: to measure workload of EOI unit. Number of open cases and age of cases (i.e. if a request is under 90 days, between 90 days and 180 days, between 180 days and 360 days, and over 360 days): to ensure that cases are continually being dealt with. Number of closed cases: to measure accomplishments of the EOI unit.
371. When necessary, management reports are manually prepared by the EOI unit and provided to the Philippine competent authority. The new EOI database, which will be operational from September 2013, is capable of generating management reports automatically, including performance measures for the effective monitoring of the EOI Program. However, as this initiative commenced outside of the review period, its effectiveness could not be assessed.
Resources
372. Financial and technical resources needed to fully implement the international standards were only identified in May 2012. Since then, the EOI unit has been provided with its own workstation, as well as with restricted access and secure storage cabinets, to ensure compliance with confidentiality rules. The EOI personnel have also given direct access to (i) the BIRs Integrated Tax System and (ii) the Securities and Exchange Commission database, via pre-paid accounts, to search for entities registered with SEC. 373. For the period June 2009 to July 2012, there was no specialist training on EOI available to the EOI personnel. Nevertheless, the EOI case

officer and EOI Section Chief attended international tax courses with EOI modules. From July 2012 to October 2012, the EOI personnel received EOIfocused training to update their skills and knowledge. During this period, the Chief of the ITAD, the Assistant Commissioner of Legal Service, the EOI Section Chief and the EOI case officer attended EOI seminars on the latest developments and which were focused on the Asia-Pacific Region. 374. As regards personnel, the Philippines has indicated that the resource levels are set at an appropriate level to deal with the volume of information exchange requests received in the past three years. Nevertheless, anticipating an increasing workload in the coming years, a request to hire additional EOI personnel has already been communicated to the BIRs HR department.
Conclusion
375. For the three-year period under review, several peers expressed concerns with the lack of response to some EOI requests or with excessive delays in receiving responses. According to the BIR, the delays experienced in the past years are mainly due to the lack of prioritisation of the EOI Programme and the EOI units inability to follow-up on pending actions and to obtain information sought from the revenue district offices, taxpayers and other information holders in a timely manner. Nevertheless, the EOI Programme was included in the BIRs Priority Programs for 2013 and, with this pronouncement, the EOI unit expects to further improve its EOI operations. Many peers also expressed concerns with the lack of consistency in providing status updates when a response is not provided within 90 days from the receipt of the EOI request by the BIR. 376. Since May 2012, the EOI unit has been provided with adequate financial and technical resources dedicated to EOI. In 2013, RMOs Nos. 2-2013 and 3-2013, the EOI work manual and the EOI database have been important developments which should ensure that a streamlined, efficient and responsive procedure is in place to facilitate the exchange of information in practice. It is recommended that the Philippines closely monitor the new procedures established by RMO No. 2-2013 and the EOI work manual established by RMO No. 3-2013. This is to ensure that internal deadlines are respected in practice, to enable the BIR to respond to EOI requests in a timely manner or to provide status updates when it is unable to provide a final response within 90 days. It is also recommended that the Philippines consider what measures could be taken to further shorten the response time.
Absence of unreasonable, disproportionate, or unduly restrictive conditions on exchange of information (ToR C.5.3)
377. Exchange of information should not be subject to unreasonable, disproportionate or unduly restrictive conditions. As noted in Part B of this Report, there are no aspects of the Philippines domestic laws that appear to impose additional restrictive conditions on exchange of information. Likewise, the Philippines DTCs do not contain such restrictive conditions. 378. Therefore, in practice, the Philippines domestic legislation and processes allow for exchange of information without unreasonable, disproportionate or unduly restrictive conditions.
Determination This element involves issues of practice that are assessed in the Phase 2 review. Accordingly no Phase 1 determination has been made. Phase 2 rating Largely Compliant Factors underlying recommendations Although the Philippines has made significant progress in response times over the three-year period, in many instances the competent authority has been unable to answer incoming requests in a timely manner. The EOI structure and processes for handling EOI requests, which obtained for much of the review period, in particular the lack of clear monitoring of timeframes for obtaining and providing information, has inhibited expedient responses to EOI requests. The Philippines does not always provide an update or status report to its EOI partners within 90 days in the event that it is unable to provide a substantive response within that time. Recommendations The Philippines should continue to improve its resources and streamline its processes for handling EOI requests to ensure that all EOI requests are responded to in a timely manner.
The Philippines should ensure that the new internal procedures put in place to provide status updates to EOI partners within 90 days in those cases where it is not possible to provide a complete response within that timeframe operates effectively.
SUMMARY OF DETERMINATIONS AND FACTORS UNDERLYING RECOMMENDATIONS 111
Summary of Determinations and Factors Underlying Recommendations

Factors underlying recommendations
Determination
Recommendations
Jurisdictions should ensure that ownership and identity information for all relevant entities and arrangements is available to their competent authorities (A.1) The element is in place. Companies incorporated outside of the Philippines but having their effective management in the Philippines, which gives rise to a permanent establishment, are not required to provide or maintain information identifying any owners. The availability of information that identifies the owners of such companies will generally depend on the law of the jurisdiction in which the company is incorporated and so may not be available in all cases. The Anti-Money Laundering Act was amended in February 2013 to cover natural and juridical persons acting as professional and nonprofessional nominees, as well as non-professional trustees. However, these legal requirements are untested in practice. In such cases, the Philippines should ensure that ownership and identity information is available.
Phase 2 rating: Largely Compliant
The Philippines should monitor the anti-money laundering obligations extended to natural and juridical persons acting as professional and non-professional nominees, as well as non-professional trustees, which ensure the availability of ownership and identity information with regard to persons on behalf of whom they act in all cases.
112 SUMMARY OF DETERMINATIONS AND FACTORS UNDERLYING RECOMMENDATIONS

Determination
Recommendations
Jurisdictions should ensure that reliable accounting records are kept for all relevant entities and arrangements (A.2) The element is in place, but certain aspects of the legal implementation of the element need improvement. There is no express requirement that all relevant entities and arrangements keep underlying documentation. There is currently no express obligation for entities, other than covered persons for AML purposes, to maintain accounting records for a minimum 5 year period Phase 2 rating: Partially Compliant Banking information should be available for all account-holders (A.3) The element is in place. Phase 2 rating: Compliant Competent authorities should have the power to obtain and provide information that is the subject of a request under an exchange of information arrangement from any person within their territorial jurisdiction who is in possession or control of such information (irrespective of any legal obligation on such person to maintain the secrecy of the information). (B.1) The element is in place. Phase 2 rating: Compliant The rights and safeguards (e.g. notification, appeal rights) that apply to persons in the requested jurisdiction should be compatible with effective exchange of information. (B.2) The element is in place. Phase 2 rating: Compliant Introduce consistent obligations for all relevant entities and arrangements to maintain underlying documents, in line with the Terms of Reference The record keeping requirements for all relevant entities should require retention of records for a minimum 5 year period.
Determination
Recommendations
Exchange of information mechanisms should allow for effective exchange of information (C.1) The element is in place, but certain aspects of the legal implementation of the element need improvement. Two DTCs limit exchange of information to the carrying out of the provisions of the Convention and do not extend to the administration and enforcement of domestic laws of the contracting states. Two other DTCs limit exchange of information to information already at the disposal of tax authorities. Four DTCs concluded by the Philippines with jurisdictions which were not able to access information held by banks or fiduciaries do not contain a provision similar to Article 26(5) OECD Model Tax Convention, resulting in an impediment to the effective EOI for tax purposes. Phase 2 rating: Largely Compliant The jurisdictions network of information exchange mechanisms should cover all relevant partners (C.2) The element is in place, but certain aspects of the legal implementation of the element need improvement. The Philippines has a wide treaty network. It does not have an EOI agreement with one of its important trade partners and it does not have DTCs to the standard with two of its important trade partners. The Philippines has no restrictions in its domestic law to exchange information and it has actively taken the necessary steps to (re)negotiate these EOI agreements. The Philippines should continue to develop its EOI network with all relevant partners. The Philippines should continue to negotiate with existing partners (or take steps to expedite entry into force of) new DTCs and protocols where the existing DTCs do not meet the international standard.
The Philippines should work with the relevant DTC partners to incorporate Article 26(5) OECD Model Tax Convention into these DTCs.
114 SUMMARY OF DETERMINATIONS AND FACTORS UNDERLYING RECOMMENDATIONS

Determination Phase 2 rating: Compliant
Recommendations
The jurisdictions mechanisms for exchange of information should have adequate provisions to ensure the confidentiality of information received. (C.3) The element is in place. Phase 2 rating: Compliant The exchange of information mechanisms should respect the rights and safeguards of taxpayers and third parties. (C.4) The element is in place. Phase 2 rating: Compliant The jurisdiction should provide information under its network of agreements in a timely manner. (C.5) This element involves issues of practice that are assessed in the Phase 2 review. Accordingly no Phase 1 determination has been made.
Determination Phase 2 rating: Largely Compliant
Factors underlying recommendations Although the Philippines has made significant progress in response times over the threeyear period, in many instances the competent authority has been unable to answer incoming requests in a timely manner. The EOI structure and processes for handling EOI requests, which obtained for much of the review period, in particular the lack of clear monitoring of timeframes for obtaining and providing information, has inhibited expedient responses to EOI requests. The Philippines does not always provide an update or status report to its EOI partners within 90 days in the event that it is unable to provide a substantive response within that time.
Recommendations The Philippines should continue to improve its resources and streamline its processes for handling EOI requests to ensure that all EOI requests are responded to in a timely manner.
The Philippines should ensure that the new internal procedures put in place to provide status updates to EOI partners within 90 days in those cases where it is not possible to provide a complete response within that timeframe operates effectively.
ANNEXES 117
Annex 1: Jurisdictions response to the review report 40

The Philippine delegation would like to express its appreciation to the Global Forum Secretariat for their hard work and efforts in writing this Report. To the Assessment Team, Mrs. Renata Fontana of the Global Forum Secretariat, Ms. La Toya James of the British Virgin Islands and Mr. Sergio Luis Perez of Mexico, we are especially grateful. The Philippines also thanks the Expert Team for their work and consideration of the circumstances peculiar to our jurisdiction in the assignment of ratings. The Philippines agrees with the contents of this Report and accepts the over-all rating of largely compliant. Bearing in mind the recommendations made in the Phase 1 Review, the Philippines adopted a policy to prioritize the renegotiations of the EOI Article of its DTCs and expedite the signing and ratification of renegotiated agreements. The Philippines renegotiated its DTC with Germany last year to update, among others, its EOI Article. The renegotiated DTC was signed in Berlin on September 9, 2013. The initialing of the Protocol amending the EOI article of the Philippines-Brazil tax treaty is underway. The Philippines also requested to renegotiate the EOI provisions of its DTCs with Malaysia and Singapore. However, these countries are now in the process of changing their policy or legislation in a way that will allow them to exchange information with their treaty partners in accordance with the standards without need of formally updating the DTCs. The Philippines continues to build a stronger EOI network and now has an approved TIEA Model to facilitate the negotiations of new EOI agreements. To date, the Philippines has approached various jurisdictions including Hong Kong for the negotiation of a TIEA. The Philippines is also working towards signing the Mutual Assistance Convention to further enhance its network and speed up the negotiation process. The Philippines has likewise taken steps to address the issues concerning its regulatory framework. The new regulations, Revenue Regulations No. 17-2013 that set the record-keeping obligation for a minimum period of 10 years was
40. This Annex presents the jurisdictions response to the review report and shall not be deemed to represent the Global Forums views.
118 ANNEXES
approved by the Department of Finance last September 27, 2013 and shall take effect on October 13, 2013. Moreover, the Philippines has formed a special task force within the Bureau of Internal Revenue to review the registration process of foreign corporations in order to ensure that the Philippines can systematically obtain identity information of the owners of foreign corporations. A number of practical steps have also been taken since the Phase 1 review to make EOI more effective. For example, the Philippines has since 2012: (i) set-up a dedicated EOI unit; (ii) defined EOI processes through regulations that provide clear timeframes to process incoming and outgoing requests; (iii) provided technical and financial resources for EOI operations; (iv) introduced an EOI Work Manual; and (v) trained its EOI personnel to handle requests more effectively. EOI is now included in the tax administrations strategic plan and priority programs. The Philippines will also begin to use by November 2013 the new EOI database, developed by the Global Forum Secretariat and the World Bank Group, for tracking and monitoring its EOI cases. The Philippines remains committed to the ideals and principles of effective EOI and its role in fostering regional and global economic growth. It will continue working to improve its practices and procedures even further.
ANNEXES 119
Annex 2: List of All Exchange-of-Information Mechanisms in Effect
Jurisdiction 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 21 Australia Austria Bahrain Bangladesh Belgium Brazil Canada China Czech Republic Denmark Finland France Germany Hungary India Indonesia Israel Italy Japan Kuwait
Type of EoI arrangement DTC DTC DTC DTC DTC DTC DTC DTC DTC DTC DTC DTC Protocol DTC DTC DTC DTC DTC DTC DTC DTC DTC DTC
Date signed 11 May 1979 9 April 1981 7 November 2001 8 September 1997 2 October 1976 29 September 1983 11 March 1976 18 November 1999 13 November 2000 30 June 1995 13 October 1978 9 January 1976 25 November 2011 22 July 1983 13 June 1997 12 February 1990 18 June 1981 9 June 1992 5 December 1980 13 February 1980 21 February 1984 3 November 2009 27 April 1982
Date entered into force 17 June 1980 1 April 1982 14 October 2003 24 October 2003 9 July 1980 7 October 1991 21 December 1977 23 March 2001 23 September 2003 24 December 1997 1 October 1981 24 August 1978 1 February 2013 14 December 1984 7 February 1998 21 March 1994 20 May 1982 27 May 1997 15 June 1990 20 July 1980 9 November 1986 22 April 2013 27 July 1984
20 Korea, Republic of 22 Malaysia
120 ANNEXES
Type of EoI arrangement DTC DTC DTC DTC DTC DTC DTC DTC DTC DTC DTC DTC DTC DTC DTC DTC (new) DTC DTC DTC DTC DTC Date entered into force 20 September 1991 14 May 1981 23 October 1997 Not yet in force 24 June 1981 7 April 1997 11 May 2011 27 November 1997 12 September 1997 16 November 1977 12 September 1994 Not yet in force 1 November 2003 30 April 2001 11 April 1983 Not yet in force Not yet in force 2 October 2008 23 January 1978 16 October 1982 29 September 2003
Jurisdiction 23 Netherlands 24 New Zealand 25 Norway 26 Nigeria 27 Pakistan 28 Poland 29 Qatar 30 Romania 31 Russia 32 Singapore 33 Spain 34 Sri Lanka 35 Sweden 36 Switzerland 37 Thailand
Date signed 9 March 1989 29 April 1980 9 July 1987 30 September 1997 22 February 1980 9 September 1992 14 December 2008 18 May 1994 26 April 1995 1 August 1977 14 March 1989 11 December 2000 24 June 1998 24 June 1998 14 July 1982 21 June 2013 18 March 2009 21 September 2003 10 June 1976 1 October 1976 14 November 2001
38 Turkey 39 United Arab Emirates 40 United Kingdom 41 42 United States Vietnam
ANNEXES 121
Annex 3: List of All Laws, Regulations and Other Relevant Material

Exchange of Information on Tax Matters Act (EOI Act) of 2010 Exchange of Information Regulations Foreign Investment Act of 1991 The Philippines Constitution National Internal Revenue Code (NIRC) Anti-Money Laundering Act (AMLA) of 2001, as amended The Philippines Accountancy Act of 2004 The Corporation Code of the Philippines of 1980 The Omnibus Investment Code Act of 1987, as amended General Banking Law of 2000 (General Banking Act) Foreign Bank Liberalization Act Investment Company Act of 1960 Foreign Currency Deposit Act Manual of Rules on Banking Business Names Act Civil Code of the Philippines of 1949 New Central Bank Act AML Revised Implementing Rules and Regulations (RIRR)
122 ANNEXES
Annex 4: People Interviewed During On-site Visit
Department of Finance
Technical Assistant, Revenue Operations and Legal Group Chief of Staff, Revenue Operations and Legal Affairs Group Director IV Chief, International Economy Division Economist
Bureau of Internal Revenue (BIR)

Deputy Commissioner, Legal Group Assistant Revenue District Officer RDO No. 44 Revenue District Officer RDO No. 81 OIC-Chief, International Tax Affairs Division (ITAD) OIC Assistant Chief, ITAD Case Officer, ITAD Section Chief, ITAD Chief Audit Information, Tax Exemption and Incentives Division
Securities and Exchange Commission (SEC)

Assistant Director Division Head Securities Financial Specialist III
ANNEXES 123
Bangko Sentral ng Pilipinas (Central Bank or BSP)/Anti-Money Laundering Council (AMLC)

Director Bank Officer IV Assistant Manager
Insurance Commission
Deputy Commissioner
Department of Trade and Industry (DTI)/Board of Investments (BOI)

Director Investment Specialist OIC-Director Attorney V OIC Director
Cooperative Development Authority (CDA)

Chief Planning Executive Director III
National Tax Research Center (NTRC)

Chief, Tax Specialist
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Global Forum on Transparency and Exchange of Information for Tax Purposes
PEER REVIEWS, PHASE 2: THE PHILIPPINES

This report contains a Phase 2: Implementation of the Standard in Practice review, as well as revised version of the Phase 1: Legal and Regulatory Framework review already released for this country. The Global Forum on Transparency and Exchange of Information for Tax Purposes is the multilateral framework within which work in the area of tax transparency and exchange of information is carried out by 120 jurisdictions, which participate in the Global Forum on an equal footing. The Global Forum is charged with in-depth monitoring and peer review of the implementation of the international standards of transparency and exchange of information for tax purposes. These standards are primarily reected in the 2002 OECD Model Agreement on Exchange of Information on Tax Matters and its commentary, and in Article 26 of the OECD Model Tax Convention on Income and on Capital and its commentary as updated in 2004. The standards have also been incorporated into the UN Model Tax Convention. The standards provide for international exchange on request of foreseeably relevant information for the administration or enforcement of the domestic tax laws of a requesting party. Fishing expeditions are not authorised but all foreseeably relevant information must be provided, including bank information and information held by duciaries, regardless of the existence of a domestic tax interest or the application of a dual criminality standard. All members of the Global Forum, as well as jurisdictions identied by the Global Forum as relevant to its work, are being reviewed. This process is undertaken in two phases. Phase 1 reviews assess the quality of a jurisdictions legal and regulatory framework for the exchange of information, while Phase 2 reviews look at the practical implementation of that framework. Some Global Forum members are undergoing combined Phase 1 and Phase 2 reviews. The Global Forum has also put in place a process for supplementary reports to follow-up on recommendations, as well as for the ongoing monitoring of jurisdictions following the conclusion of a review. The ultimate goal is to help jurisdictions to effectively implement the international standards of transparency and exchange of information for tax purposes. All review reports are published once approved by the Global Forum and they thus represent agreed Global Forum reports. For more information on the work of the Global Forum on Transparency and Exchange of Information for Tax Purposes, and for copies of the published review reports, please refer to www.oecd.org/tax/transparency and www.eoi-tax.org.
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GLOBAL FORUM ON TRANSPARENCY AND EXCHANGE OF INFORMATION FOR TAX PURPOSES

Peer Review Report Phase 2 Implementation of the Standard in Practice

ISBN 978-92-64-20622-9 (print) ISBN 978-92-64-20623-6 (PDF)

Corrigenda to OECD publications may be found on line at: www.oecd.org/publishing/corrigenda.

PEER REVIEW REPORT PHASE 2 THE PHILIPPINES OECD 2013

PEER REVIEW REPORT PHASE 2 THE PHILIPPINES OECD 2013

ABOUT THE GLOBAL FORUM 5

About the Global Forum

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Overview of the Philippines

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General information on legal system and the taxation system

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Overview of the financial sector and relevant professions

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Other relevant factors relating to exchange of information

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COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION 19

Compliance with the Standards

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A.1. Ownership and identity information

Companies (ToR A.1.1) Types of Companies

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Company ownership and identity information required to be provided to government authorities

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Company ownership and identity information required to be held by companies

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Service Providers and Anti-Money Laundering Laws

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