Foreign tax authorities will be allowed to look into the returns and bank deposits of taxpayers as part of Finance department-endorsed steps to comply with standards set by the Organization for Economic Cooperation and Development (OECD).

The country was last month placed in the OECD’s blacklist of territories that had not committed to an internationally agreed standard regarding the exchange of tax information. It came as G20 leaders meeting in London vowed to punish so-called tax havens as part of the efforts to address the global financial crisis.

Shortly after, however, the Philippines, along with Costa Rica, Malaysia, and Uruguay were moved to the so-called grey list, or countries "that have committed to the internationally agreed tax standard, but have not yet substantially implemented." The Finance department committed to work with Congress to amend existing laws and satisfy the OECD requirements.

Under the proposed Exchange of Information on Tax Matters Act of 2009 presented by the department to the House of Representatives last week, the Bureau of Internal Revenue (BIR) chief will be authorized to inquire into bank deposits and provide information to foreign tax authorities who request the data.

This would expand Section 6(f) of the National Internal Revenue Code which allows the BIR commissioner to inquire into bank deposits to only determine the gross estate of a deceased person and to verify the financial incapacity of a taxpayer who applies for a compromise.

The Finance department proposal also seeks to amend Section 71 of the law by allowing foreign tax authorities to inspect income tax returns including those not yet assessed by the BIR chief. At present, inspection can only be done upon the order of the President and covers only those assessed or corrected by the BIR commissioner.

The Finance department also wants to expand Section 270 of the law which penalizes state workers who unlawfully divulge trade secrets to include all data obtained in the course of information exchange.

The proposal also proposes penalties against banks that refuse to supply the needed information. No specific penalties were mentioned.

The Finance department said safety nets should be put in place to protect the rights of taxpayers, including conditions that will ensure the request for information is not a mere "fishing expedition".

"The objective is to take the necessary steps to be fully compliant and maximize the benefits of information exchange," the proposal states.

It said the measures should be reflected in treaties with other countries to allow local revenue authorities the same leeway.

Lawmakers were not immediately available for comment but tax experts welcomed the development.

"That is okay. Otherwise, it will be easy for people to evade taxes by hiding their money to another country," Punongbayan & Araullo Tax Advisory and Compliance division head Benedicta Du-Baladad said.

"Hopefully, that will result in a better revenue collection. I would assume the administration will consider it a priority bill," said Isla Lipana chairman and senior partner Tammy H. Lipana.