REVENUE MEMORANDUM ORDER NO. 2-2013 issued on February 18, 2013 prescribes the policies, guidelines and procedures in processing specific requests for information pursuant to the exchange of information provision of Philippine Tax Treaties, in relation to Republic Act (RA) No. 10021, as implemented by Revenue Regulations (RR) No. 10-2010. Exchange of information can only take place between competent authorities or their authorized representatives. Bypassing the competent authorities 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 the BIR’s Double Taxation Agreements (DTAs) and Tax Information Exchange Agreements (TIEAs). Section 4 of RR No.10-2010 expressly designates the Commissioner of Internal Revenue (Commissioner) as the Philippine competent authority for Exchange of Information (EOI) purposes. Exchange of information covers any information that is necessary or foreseeably relevant to the administration or enforcement of the domestic laws of the contracting parties concerning Income Taxes and other taxes covered by the terms of the BIR’s EOI arrangements. It includes information for cases that involve tax evasion and other criminal tax offenses but is not limited to such cases. A request for information can include any or all of the following items but not limited to: a. The fiscal residence of an individual or a company; b. The tax status of a legal entity; c. The nature of income in the source country; d. The income and expenses shown on a tax return; e. Business records (for instance to determine the amount of commissions paid to a company of another State); f. Formation documents of an entity and documents about subsequent changes of shareholders/partners; g. Name and address of the entity at the time of formation and all subsequent name and address changes; h. Number of entities residing at the same address as the requested entity; i. Names and addresses of the directors, managers, and other employees of a company for the relevant years, evidence (contracts and bank statements) of their remuneration, social security-payments and information about their occupation with regard to any other entities; j. Banking records; k. Accounting records and financial statements; l. Copies of invoices, commercial contracts, etc.; and m. The price paid for goods in a transaction between independent companies in both States It must be stressed, however, that the scope of exchange of information is not limited to taxpayer-specific information but also includes information related to tax administration and compliance improvement, such as statistics, information about a particular industry, tax evasion trends, administrative interpretations and practices, laws, court decisions, official publications and other subjects. Time periods during which tax situations may be examined vary from country to country, and the beginning of the tax year does not always coincide with the calendar year. Where there is a significant time lag between the time the information is supplied and the year to which the information relates, a statute of limitations issue may arise. The question of whether use of the information is time barred has to be determined by reference to the statute of limitations rules of the country where the information is to be used. The obligation to exchange information is mandatory and is not limited to information contained in the tax files held by the BIR. When a request is received from a treaty partner, the BIR will have to take action to obtain the information requested, if it is not available on its files. However, the BIR is not bound to go beyond its own internal laws and administrative practice in putting information at the disposal of the requesting state. Thus, the Commissioner can order the obtention of information, and even summon, examine and take the testimony of a person to acquire the information requested. In addition, the Commissioner can inquire into bank deposit accounts pursuant to Section 6(F) of the NIRC, as amended by RA No. 10021. Moreover, the Income Tax Return/s of specific taxpayer/s subject of a request of a treaty partner may be open for inspection upon the order of the President. There are instances, however, where the obligation to exchange information is lifted and a request for information can be declined, viz: a. Information that the requesting party would not be able to obtain under similar circumstances under its own laws or administrative practice; b. Information relating to years not covered by DTAs or taxes not covered; c. Disclosure of information requested would be contrary to public policy; d. Information relating to the administration or enforcement of a provision of the tax laws which discriminates against a national of the requested party (i.e., Philippines) as compared with a national of the applicant party in the same circumstances; and e. Information subject to legal privilege; that is confidential communications between attorneys or other admitted legal representatives in their role as such and their clients to the extent that the communications are protected from disclosure under domestic law. The international standard for processing requests for information is 90 days from receipt of a request by the tax authority. However, this period may be extended where difficulties in obtaining and providing information are encountered. The procedures in responding to requests for information from tax treaty partners and making a request for information to tax treaty partners are specified in the Order. All taxpayer information obtained pursuant to this Order are confidential and may only be disclosed in accordance with Philippine law (e.g., Section 270 of the NIRC). Confidentiality obligations are also imposed under the BIR’s EOI arrangements, which generally follow the rules of the OECD Model Tax Convention or Model TIEA. Moreover, the provisions cover not only information received in response to a request, but also information contained in competent authority letters, including the letter requesting information. Generally, the Exchange of Information article in the BIR’s DTAs provides that any information received shall be treated by the Bureau as secret in the same manner as information obtained under the domestic laws of the Philippines 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 taxes on income. Such persons or authorities shall use the information only for such purposes, but they may disclose the information in public court proceedings or in judicial decisions. However, some of the Philippines’ DTAs, e.g., those with Canada and Singapore, have even more restrictive confidentiality provisions. Accordingly, any disclosure of taxpayer information received under an EOI arrangement, outside of the BIR, must be in accordance with the terms of the relevant EOI arrangement and shall only be allowed after sign-off by the Commissioner or his/her duly authorized representative for this purpose. The gathering of information by the BIR for a foreign tax authority pursuant to the latter’s request does not constitute an actual investigation of the BIR on the subject taxpayer or taxpayers nor authorizes the BIR to issue corresponding Letters of Authority on the request, unless warranted. However, information supplied by a bank or a financial institution to the BIR may be used by it in its own assessment, verification, audit, and enforcement of the taxpayer whose account and his or its transactions are now made known to the Bureau. Likewise, the BIR shall not be precluded from carrying out subsequent investigations on taxpayers whose transactions with foreign taxpayers were subject of examination by foreign tax authorities.