March 1, 2021
Philippines provides guidelines and procedures for transfer pricing reporting
The Philippine Bureau of Internal Revenue (BIR) issued Revenue Regulations (RR) No. 34-20201 (the Regulations) providing guidelines and procedures for the submission of a new and simplified BIR Form No. 1709 (the Related Party Transactions (RPT)Form), transfer pricing (TP) documentation and other supporting documents. Safe harbors and materiality thresholds have also been provided. The Regulations became effective on 23 December 2020.
This Tax Alert summarizes the guidelines and procedures under the Regulations.
The following taxpayers are required to file and submit the new RPT Form, together with the Annual Income Tax Return (AITR):
The RPT Form shall also be attached to short period returns required to be filed under existing laws or regulations commencing for 2021 and subsequent years.
Submission of TP documentation and other supporting documents
Submission of TP documentation is mandatory for the above taxpayers who meet any of the following materiality thresholds:
a. Annual gross sales/revenue for the subject taxable period exceeding PHP150 million (US$3.1 million) and the total amount of related party transactions with foreign and domestic related parties exceeds PHP90 million (US$1.9 million).
In computing the above thresholds, the following items must be included:
Related party transactions covered by an Advance Pricing Agreement (APA) need not be disclosed in the RPT Form but must be included in the computation of the amount of related party transactions following the prescribed formula
b. Related party transactions meeting the following materiality thresholds:
c. If TP documentation was required to be prepared during the immediately preceding taxable period for exceeding either (a) or (b) above.
The TP documentation and other supporting documents are no longer required to be attached to the RPT Form upon filing. Instead, the TP documentation and other supporting documents must be submitted to the BIR within 30 calendar days upon receipt of a request during a tax audit, subject to a 30 calendar days extension based on meritorious grounds.
The new RPT Form also requires a taxpayer to confirm if it has prepared TP documentation that is compliant with the documentation requirements of RR No. 2-2013 or the TP Regulations.
Additional disclosure requirements for taxpayers with related party transactions
Taxpayers who are not required to file and submit the RPT Form as detailed above are required to disclose in the Notes to the Financial Statements that they are not covered by the requirements and procedures for related party transactions provided under the Regulations.
Any violation of this Regulation is subject to penalties.
The pertinent provisions of RR No. 19-2020, its clarifying Revenue Memorandum Circular No. 76-2020 and other relevant issuances that are inconsistent herewith are repealed, amended or modified accordingly.
The information disclosed in the RPT Form will be used by the BIR for transfer pricing risk assessments, audits and the exchange of information. Consequently, Philippine companies with RPTs should review their transfer pricing positions to ensure that their RPTs are: (i) within the arm's-length range; (ii) supported by contemporaneously prepared TP documentation and relevant documents; and (iii) properly disclosed in the annual RPT Form and in the Notes to the Financial Statements.
For additional information with respect to this Alert, please contact the following:
Ernst & Young Philippines (SGV & Co.), Makati City
Ernst & Young LLP (United States), Philippines Tax Desk, New York
Ernst & Young LLP (United States), Asia Pacific Business Group, New York
1 Issued on 21 December 2020. Full text of Revenue Regulations No. 34-2020 and its Annex (BIR Form No. 1709) are available on the BIR website.
2 A "large taxpayer" under the regulations is a taxpayer, regardless of its location in the country, which has been classified and notified in writing by the BIR as one that has satisfied the criteria for determining large taxpayers.