FATCA FAQs

1. What is the Foreign Account Tax Compliance Act or FATCA?

FATCA is a US legislation passed in 2010 aimed at improving tax compliance of US persons

who are evading US tax by using financial accounts held outside of the US.1 FATCA requires all
non-US financial institutions (also known as Foreign Financial Institutions or FFIs) to report
relevant information on financial accounts held by US persons to the US Internal Revenue Service
(IRS).

2. What is the policy behind FATCA reporting by FFIs?

The US Treasury explains that the reporting requirement on FFIs ensures that US
taxpayers who have access to international investment opportunities and maintain foreign
financial accounts are placed on an equal footing with US taxpayers who choose to invest in the
US and hold onshore accounts, and whose income are reported by US FIs to the IRS.

3. Who are affected by FATCA?

The reporting obligation of FATCA primarily affects FFIs which include banks, investment
entities, custodians and insurance companies. Unless FFIs are deemed compliant under the
FATCA law, or enter into FFI Agreement with the IRS, they will be subject to a 30% withholding
tax on certain gross payments coming from the US after December 31, 2013.

4. What are US payments subject to FATCA withholding?

Gross payments subject to FATCA withholding are referred to as US withholdable

payments which are defined in the US Tax Code as follows:

a. Any payment of interest, dividends, rents, salaries, wages, premiums, annuities,

compensations, remunerations, emoluments, and other fixed or determinable
annual or periodical gains, profits, and income (FDAP income), if such payment is
from sources within the US; and
b. Any gross proceeds from the sale or other disposition of any property of a type
which can produce interest or dividends within the US.

1
FATCA has other provisions targeting reporting by US taxpayers which are not discussed in this FAQ.
4. What is an FFI?

Under US FATCA Regulations, an FFI is a non-US entity that:

a. Accepts deposits in the ordinary course of a banking or similar business;

b. As a substantial portion of its business, holds financial assets for the account of others;
c. Conducts as a business (or is managed by an entity that conducts as a business) one
or more of these activities/operations for or on behalf of a customer:
(i) trading in money market instruments; foreign exchange; exchange, interest
rate and index instruments; and transferable securities; or commodity futures
trading;
(ii) individual and collective portfolio management; or
(iii) otherwise investing, administering, or managing funds or money on behalf of
other persons;
d. Is an insurance company (or the holding company of an insurance company) that
issues, or is obligated to make payments with respect to, a Cash Value Insurance
Contract or an Annuity Contract.

8. What is the impact of FATCA on individuals and businesses?

FFIs will be liable for reporting on financial accounts held by US persons. As FATCA
requires FFIs to implement procedures that will allow them to collect all required information
and documentation from new customers to identify US persons, individuals and businesses may
be subject to additional onboarding procedures, such as completion of self-certification forms
for verification of their US tax status during account opening. Individuals or businesses that
require advice on their tax status for FATCA purposes should seek professional tax/legal advice.

9. Who is considered as a US person for purposes of FATCA?

For the purposes of FATCA, a US Person means:

a) A citizen or lawful permanent resident (including US green card holder) of the US; or
b) A partnership or corporation organized in the US or under the laws of the US or any State
thereof, or a trust if: (i) a court within the US would have authority under the applicable
law to render orders or judgments concerning substantially all issues regarding the
administration of the trust; and (ii) one or more US persons have the authority to control
all substantial decisions of the trust, or an estate of a decedent that is a citizen or resident
of the US.

The definitions above are to be interpreted in accordance with the provisions of the US Internal
Revenue Code. US persons generally have an obligation to file annual tax returns and other
information with the US government. For more information about these obligations, visit the IRS
website: http://www.irs.gov or consult a tax advisor.
PH- US IGA

10. The US has entered into inter-governmental agreements (IGA) with various jurisdictions
to implement FATCA and facilitate FFIs’ compliance, has the Philippine government signed a
similar agreement with the US?

On July 13, 2015, the Philippines signed an IGA Model 1A with the US on July 13, 2015

Under the IGA, Philippine financial institutions (PFIs) will report relevant information on
accounts of US persons to the Bureau of Internal Revenue (BIR) rather than directly to the IRS.
The IRS will, in turn, transmit to the BIR relevant information on US accounts of Philippine
residents.

11. Why did the Philippine government enter into Model1 IGA?

The adoption of Model 1 IGA was advocated by the various industry associations of PFIs
to help them manage their FATCA compliance burden. Because of its reciprocal nature, Model 1
was also endorsed by BIR to enhance domestic tax compliance and facilitate the enforcement of
Philippine income tax laws.

12. How does the IGA facilitate FATCA compliance of PFIs?

The IGA facilitates PFIs’ compliance by:

a. Eliminating the obligation of each PFI to enter into an FFI agreement directly with the IRS;
b. Simplifying due diligence procedures in identifying financial accounts held by US persons
as they are more closely aligned with Anti-Money Laundering Procedures;
c. Eliminating the 30% FATCA withholding tax on payments to PFIs (i.e. by identifying all PFIs
as participating FFIs or deemed-compliant FFIs); and
d. Carving out from the application of FATCA a significant number of PFIs.

13. What is a PFI under the IGA?

PFI means:

a. Any Financial Institution organized under the laws of the Republic of the Philippines,
but excluding any branch of such Financial Institution that is located outside the
Republic of the Philippines, and
b. Any branch of a Financial Institution not organized under the laws of, the Republic of
the Philippines, if such branch is located in the Republic of the Philippines.
 An illustration of the definition is provided below:

Philippines Country X
Entity A

Branch 1 Branch 2

Entity B

Branch 3 Branch 4

Based on this diagram, Entity A, Branch 1 and Branch 3 are considered PFIs for FATCA
purposes.

14. Are PFIs required to register with the IRS even if there is an IGA?

Yes. PFIs, unless exempt under Annex II of the IGA, are required to register with the IRS
to benefit from an IGA status. If you need further clarification on your FATCA status, please seek
professional tax advice.

15. Which PFIs are exempt from FATCA registration and reporting obligations and hence,
FATCA withholding?

Annex II enumerates which PFIs are nonreporting financial institutions because they are
treated under US Treasury Regulations as exempt beneficial owners or deemed compliant FFIs.
A nonreporting financial institution is not required to register and report FATCA information
unless it (1) is subject to a registration requirement under its QI Agreement (see Rev. Proc. 2014-
39) or its WP or WT Agreement (see Rev. Proc. 2014-47), (2) will act as a sponsoring entity, (3)
will act as a lead FI for one or more related entities, (4) is explicitly required to register under the
applicable IGA, or (5) has a financial account on which to report to the Model 1 jurisdiction under
the requirements of the applicable IGA.

16. What are the obligations of Reporting PFIs under the IGA?

PFIs are required to:

a. Register with the IRS and obtain their Global Intermediary Identification Number (GIINs);
b. Apply the due diligence procedures in Annex 1 of the IGA to accounts already existing as
of the November 30, 2014 - Determination Date (Preexisting Accounts) and to those
 accounts opened after said date (New Accounts) to identify US accounts and accounts
held by nonparticipating financial institutions, as the terms are defined in Article 1 of the
IGA; and
c. Report the information required to be reported under Article 2 of the IGA in a manner
consistent with Article 3 of the IGA.

19. What information will be reported by PFIs?

Pursuant to Article 2 of the IGA, information that will be reported by the PFIs are as
follows:

a. For 2014 Reportable Accounts:

i. the name, address, and U.S. TIN or date of birth if no US TIN

available;
ii. the account number (or functional equivalent in the absence of an
account number);
iii. the name and identifying number of the Reporting Philippine
Financial Institution;
iv. the account balance or if the account was closed during such year,
immediately before closure;

b. For 2015 Reportable Accounts:

i. Information stated in a. i-iv above;

ii. For Custodial Accounts:
a. the total gross interest, total gross dividends, and the total
gross amount of other income generated with respect to the
assets held in the account;
iii. For Depository Accounts: the total gross amount of interest paid
or credited to the account; and
iv. For any other account: the total gross proceeds paid or credited to
the Account Holder;

c. For 2016 and subsequent years Reportable Accounts:

i. Information stated in b. i-iv above; and

ii. The total gross proceeds from the sale or redemption of property paid
or credited to the account.
 d. For each of 2015 and 2016, the name of each Nonparticipating Financial
Institution to which the PFI has made payments and aggregate amounts for
such payments

20. What reporting period will be used by PFIs to report FATCA information?

PFIS shall use the calendar year as reporting period.

21. Are all financial accounts covered by FATCA?

Not all financial accounts are covered by FATCA. Certain financial accounts are seen to
be low risk of being used to evade taxes and are therefore excluded from needing to be reviewed.
These are called Excluded Accounts and they are found in Annex 2 of the IGA. In addition,
individual depository accounts which do not exceed 50,000 USD, pre-existing individual cash
value insurance or annuity contracts which do not exceed 250,000 USD, and pre-existing entity
accounts which do not exceed 250,000 USD are excluded accounts.

21. When do PFIs transmit their FATCA reports to BIR? What years will be included in the
report?

The PFIs’ obligation to transmit financial information shall ensue once the IGA has been
concurred in by the Senate and has entered into force. If the IGA enters into force by 2016, BIR
shall exchange information with the IRS on September 30, 2016. It is expected that PFIs shall be
required to submit their first batch of reports during the second quarter of 2016. The first batch
of reports to be submitted shall include all required information relating to the PFIs’ 2014 and
2015 reportable accounts.

22. What is the mode of exchange for FATCA information? Will the BIR use its own IT system?

BIR shall use Model 1 Option2 arrangement in exchanging information with IRS for 2016
and 2017. Under this arrangement, reporting PFIs will transmit their FATCA reporting data
directly to the International Data Exchange System (IDES) and BIR will approve the data before it
is released to the IRS.