DoF says ratified tax deal gives it more tools to combat tax evasion

THE Department of Finance (DoF) said the ratification of a global agreement on tax cooperation a decade after it was signed by the Philippines will help fight tax evasion and improve the government’s chances of meeting its revenue targets with the possibility of possible information exchanges with foreign partners.

“This is definitely a crucial weapon in our arsenal to fight tax evasion that ultimately denies every Filipino’s right to have the quality public goods and services,” Finance Secretary Ralph G. Recto said in a statement on Thursday.

It took the Senate 10 years to ratify the Convention on Mutual Administrative Assistance in Tax Matters, an agreement that the Philippine government signed in 2014 in Paris.

Mr. Recto said the agreement gives the government “access to data exchange, assessment, and enforcement tools with over a hundred partner signatories.”

The mechanism allows the Philippines to enter into agreements on simultaneous tax examinations and exchanges of information, he added.

The Philippines also gains the ability to access tax information of other jurisdictions, decrease the risk of a downgrade of its tax transparency ratings, and save time and resources on treaty negotiations.

Mr. Recto said the Philippines also gains third-party information to support assessment and enforcement programs like the Bureau of Internal Revenue’s (BIR) Run After Tax Evaders Program.

He noted that the mechanism contains safeguards to protect the confidentiality of information exchanged between tax authorities, upholding taxpayers’ right to privacy.

“To fund our people’s growing needs, we need more tools like this to enhance our revenue-generating capacity,” Mr. Recto said.

Eleanor Lucas Roque, principal of the Tax Advisory & Compliance division of P&A Grant Thornton, said the agreement provides tax authorities with “additional sources of information to combat tax evasion.”

“With the network of jurisdictions which have adopted the convention, the world is getting smaller for tax evaders,” she said via Viber.

She said an important development before the ratification was the country’s December 2023 membership in the Organization for Economic Cooperation and Development (OECD)/G20’s Inclusive Framework on Base Erosion and Profit Shifting (BEPS), which ensures that multinational enterprises (MNEs) pay taxes fairly wherever they operate.

“Developments in the OECD rules such the BEPS point to global cooperation of tax jurisdictions in determining whether correct taxes are paid in each jurisdiction,” Ms. Roque said.

“Information sharing among the tax authorities is now the norm preventing taxpayers from disclosing inconsistent information across various jurisdictions.”

Under the BEPS, Manila commits to implement 15 action points and two pillar programs, including one that requires multinational enterprises that have at least 20 billion euros in revenue to “allocate their residual profit to market jurisdictions using a formula,” PwC Philippines Tax Manager Mac Kerwin Visda said in December.

“For the Philippines, although there may be none or very few headquarters within the threshold located here, it will be a new source of revenue for us. If we are considered a qualified market jurisdiction for these MNEs’ digital businesses, profit can be allocated to us from our subscriptions to these online goods and services,” he said.

BIR collections stood at P1.68 trillion at the end of July, falling short of its P1.83-trillion collection goal for the period by 8.2%. But this was 12.58% higher than last year’s P1.49 trillion.

The tally at the end of July accounts for 55.08% of the BIR’s P3.05-trillion collection target for 2024.

The government aims to generate P4.27 trillion in revenue, including P3.83 trillion in tax revenue, for this year. 

“Since the government relies mostly on indirect taxes through the value-added tax, tax evasion measures are insignificant,” said Leonardo A. Lanzona, who teaches economics at the Ateneo de Manila.

“Nobody can avoid these taxes since these are attached to the prices of the goods sold,” he said via Messenger chat.

“Nevertheless, these tax cooperation conventions will truly be helpful when the government begins to impose wealth taxes which are badly needed during this period of fiscal consolidation.” — Kyle Aristophere T. Atienza