By LEE C. CHIPONGIAN
The much-debated tax issue between the Bureau of Internal Revenue and local and foreign banks’ Foreign Currency Deposit Units may come to an end soon, and tax officials are hoping to resolve the issue as early as next month.
BIR Deputy Commissioner Kim Henares said the government is hoping to finally end the tax disputes with the FCDUs by May. "I don’t believe they (foreign banks) are lukewarm to the idea but they are awaiting results of the (congressional) committee report," The FCDU tax issue – about
P30 billion from 1998 to 2003, is dependent on a pending review now in Congress, which would amend tax regulations including FCDU tax.
"They (banks) want the oversight committee to compromise and that is what everybody is waiting for," Henares explained. The banks argued that despite amendments made to the National Internal Revenue Code, FCDUs remain exempt from all taxes.
But this "exempt from all taxes" phrase was apparently missing from the current Congressional committee hearing, which is deliberating on proposed revisions to the Comprehensive Tax Reform Program. The omission has created some confusion, hence the issue of back taxes between the BIR and the FCDUs.
However, issues have apparently reached a monkey wrench after a major international bank reportedly paid in full its back taxes with the BIR.
Banking sources said Citibank N.A., the country’s largest foreign bank have allegedly remitted to the BIR some
P6 billion worth of back taxes which was the original estimate, charged as business tax and branch profit remittance tax.
When asked for a confirmation, Henares neither confirmed nor denied the Citibank payment. "A bank paid what was due but I cannot disclose which bank," is what she said.. Observers said Citibank may have paid the BIR as a compromise but bankers familiar with the situation said this is not the case.
A central bank official said Citibank "did what they had to do" because the foreign bank has been instructed by its head office in the United States to settle tax payments. "They have been instructed to pay their taxes to avoid trouble with US regulators so they need to settle their foreign taxes," the official said.
The Bankers Association of the Philippines has been at odds with the BIR for years with regards with the FCDU tax, which they claim are not in the law. The BIR has issued notices to local banks and branches of foreign banks asking them to pay three more taxes such as gross income tax, documentary stamp tax and branch profit remittance tax.
The banking sector has warned the BIR earlier that if the new taxes are imposed, they will shut down their FCDU operations.
Based on the latest statistics, the Bangko Sentral ng Pilipinas said FCDU accounts of universal and commercial banks as of the first week of March stood at $15.49 billion, up 12.56 percent compared to $13.76 billion of the previous year.
In the meantime the level of FCDU deposit liabilities expanded by $1.73 billion during the comparable period. Dollar remittances from overseas Filipino workers and the hefty inflows of foreign portfolio investments in the stock market pushed FCDU accounts higher.
In the meantime the highest FCDU total assets posted was in 1997 when it reached $20.52 billion. Universal and commercial banks accounted for 96 percent of total FCDU assets while thrift banks have three percent.
The banking system’s FCDU base is largely composed of dollar deposits by residents, in particular accounts of OFWs.
The top five lenders have remained the same since 2001. These consist of four local commercial banks and one foreign bank branch whose combined exposures accounted for 48 percent of the entire FCDU portfolio.
FCDU tax is an industry issue and negotiations are done and completed between the BIR and the banks.
The BIR is now under pressure to deliver to keep fiscal deficit within tolerable levels.
In the meantime the BSP is keeping mum on the issue of FCDU back taxes, owing to its sensitivity. Foreign banks could very well pull out of the country if they become nervous about BIR’s witchhunting.
