by Brian Mahany
FATCA is short for the Foreign Account Tax Compliance Act – the Obama administration’s push to end tax secrecy around the world. Under the new FATCA law, foreign banks and other financial institutions will be required to review and report accounts with ties to the United States. Although the Bank Secrecy Act has required Americans to disclose foreign accounts for decades, compliance has been spotty at best. Now the IRS and Treasury hope to force foreign banks to do the IRS’ work.
FATCA is being implemented through a series of intergovernmental agreements. The U.S. hopes to sign agreements with most countries around the world. Some countries, like China, are resisting while others have said they will cooperate. One of those nations that has said it will cooperate is the Philippines. The question is, can they?
The Philippine courts have long said that bank secrecy is a right protected under Philippine law. While the legislature is free to pass new laws, the Philippine Supreme Court has suggested that bank secrecy is a Constitutional right. Only the people can change the Constitution.
Professor Edzyl Josef Magante of law at the Ateneo de Manila Law School claims that recent cases decided by the Philippine Supreme Court suggest the right to financial privacy is constitutionally protected. That means any attempts by the Philippine Congress to contract away those privacy rights will have no effect.
Earlier this week the Swiss Federal Council approved changes to Switzerland’s bank secrecy laws paving the way for an intergovernmental agreement between Switzerland and the United States. The Philippines, and perhaps some other countries, may not have that ability, however.
It’s an interesting developing story and one worth following.
Congress has no jurisdiction over foreign banks but it can levy taxes on banks that attempt to do business here. Because we remain an important center of global commerce, foreign banks need to be able to transact business in the U.S. Although no bank likes FATCA, they mostly recognize that it is better to cooperate than to be effectively locked out of the American marketplace or taxed to death. Philippine banks may not have any say in the matter if Professor Magante is correct.
Foreign bank and other accounts must be reported yearly on a Report of Foreign Bank and Financial Accounts (also known as an FBAR or TD F 90-22.1 form). The penalties for not reporting these accounts are huge. Unfortunately, some taxpayers are sitting on the fence wondering if they should come into compliance or risk getting caught.
Whether or not the Philippines and other countries adopt FATCA, the IRS still has many ways of identifying people with unreported accounts. The risks and attendant penalties are so high that we recommend exploring one of the IRS’ amnesty options instead of simply praying that IRS won’t get lucky. With or without FATCA, the IRS has proven itself quite adept at gathering information about offshore accounts. (Spend 5 minutes on our Due Diligence blog and use the search feature to search the term “FBAR” for dozens of stories on how the IRS finds offshore accounts.)
For more information, contact attorney Bethany Kroes at or by telephone at (414) 223-0464. All inquiries are protected by the attorney – client privilege and kept in strict confidence. Whether you hire or us or not, we will gladly discuss your options at no cost and without obligation.
Mahany & Ertl – America’s Tax Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine; Minneapolis, Minnesota and San Francisco, California. IRS tax services available worldwide.