By
2015, the ASEAN Economic Community (AEC) shall be the goal of
regional economic integration. It envisions the following key characteristics:
(a) a single market and production base, (b) a highly competitive economic
region, (c) a region of equitable economic development, and (d) a region fully
integrated into the global economy. Basically, the AEC will transform ASEAN
into a region with free movement of goods, services, investment, skilled labour,
and freer flow of capital.
The picture of AEC, while being desirable because of the promising opportunities and growth of the Philippine economy, interposes the question of whether the Philippines is, from a tax perspective, is ready for its implementation. The ASEAN integration, at this stage, creates pressure on addressing the double taxation problems on transactions entered into between the Philippines with other ASEAN member countries, and improving the current tax structure of the Philippines that would place the country in a competitive advantage in terms of acquiring foreign investments and engaging in tax efficient cross border transactions.
It seems that the ASEAN Leaders have also considered the effect of taxation on the ASEAN integration when it listed down the following actions in the AEC blueprint: (a) to work towards establishing an effective network of bilateral agreements on avoidance of double taxation among ASEAN countries; and (b) to enhance withholding tax structure, where possible, to promote the broadening of investor base in ASEAN debt issuance; (c) ASEAN member countries should complete the network of bilateral agreements on avoidance of double taxation among by 2010, to the extent possible.
[International Juridical] Double taxation can be generally defined as the imposition of comparable taxes in two (or more) States on the same taxpayer in respect of the same subject matter and for identical periods. Its harmful effects on the exchange of goods and services and movements of capital, technology and persons are so well known that it is scarcely necessary to stress the importance of removing the obstacles that double taxation presents to the development of economic relations between countries.[1]
To minimize the risk on double taxation between or among states, bilateral agreements in the form of Tax Treaties are being signed between the states. For instance, the Philippines concluded several Tax Treaty Agreements, among which are with ASEAN member countries such as Singapore, Indonesia, and Thailand, as well as non-ASEAN member countries such as US, Germany, and Korea. Sadly, however, the Philippines had not concluded a double tax treaty with some other ASEAN member countries such as Brunei, Cambodia, Laos, and Myanmar.
As a matter of fact, one of the major considerations of foreign investors in deciding whether or not to pursue an investment in a country is the cost that they may incur which includes taxes. In the absence of a Tax Treaty Agreement, income payments to foreign corporations may be subjected to higher tax rates and double taxation may arise if the same income would be taxed in the Philippines and in the country where the foreign entity resides. These instances would translate to missed investment opportunities, which is detrimental to Philippine economy and would put the Philippines in a disadvantage position during the ASEAN integration.
Another issue is the current tax system adopted by the Philippines which has recently become unstable and inconsistent brought by the attitude of the present BIR administration which is leaning towards a very strict interpretation of tax laws and regulations. It may be noted that there are various instances when the BIR has issued new interpretations and reversed tax positions of the previous BIR administration. One of the most relevant is the BIR-imposed requirement to file a Tax Treaty Relief Application prior to availing the preferential rates accorded by the Tax Treaties. This imposes additional burden on the part of taxpayers, but of course, they cannot refuse to do so as it would be fatal on their right to use the lower or zero rates under the Tax Treaties. The recent actions of the BIR have caused so much anxiety in the business sector which prompted businesses to hesitate before expanding their business operations in the country. This, I believe, would have an impact in the 2015 ASEAN integration.
As it is, it now becomes a challenge for the Philippine government to develop a tax efficient structure through entering into bilateral tax treaties with all other ASEAN member countries and to ensure consistency in the application, implementation and interpretation of tax laws and regulations, in order to be aligned with the objectives of the EAC.
[1]
OECD (2014), Model Tax
Convention on Income and on Capital: Condensed Version 2014, OECD Publishing. http://dx.doi.org/10.1787/mtc_cond-2014-en
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