Philippines

Market overview

Since the issuance of its transfer pricing regulations in 2013, there have not been many changes to the field of transfer pricing in the Philippines. The tax office made no regulation changes except for the draft of advance pricing agreement (APA) rules, but even these APA rules have not been issued to date.

In the second half of 2015 however, according to Fredieric Landicho of Deloitte, the tax office employed a foreign consultant to train their staff, enabling the tax office to form a TP audit team. This TP audit team is incorporated into the large taxpayers service in the national office, demonstrating large taxpayers are the focus of the Philippines audit activity.

"The tax office made huge progress also when it subscribed to a commercial database (Bureau van Dijk) during the latter part of 2015. With access to commercial database, the TP audit team was able to select potential cases for TP audit from different industries, focusing mainly on cross-border related-party transactions and transactions of enterprises who are enjoying the Philippines economic zone authority or board of investments tax incentives," said Landicho. "Given these significant developments in the capacity and capability of the TP audit team, we can expect to see TP audits over the next 12 to 18 months," he added.

BEPS has also been an area of concern in the Philippines as taxpayers become more aware of it. The former commissioner of the Bureau of Internal Revenue, Kim Jacinto-Henares was an active participant at the OECD.

According to a KPMG report, the BIR is particularly focusing on the following areas: limiting base erosion involving interest deductions and other financial payments; preventing the artificial avoidance of permanent establishment status; aligning transfer pricing outcomes with value creation; and measuring and monitoring BEPS. Notably, the Philippines is projected to implement the standard of automatic exchange of information sometime in 2018.


Tax authorities

Bureau of Internal Revenue
BIR National Office Bldg, BIR Road, Diliman, Quezon City
Tel: +63 981 8888; +63 981 7000
Email: contact_us@cctr.bir.gov.ph
Website: www.bir.gov.ph/index.php/international-tax-matters.html


Tax rates at a glance

(As of January 1 2016)

Corporate income tax rate 30%
Capital gains tax rate
Real property 6%
Shares 5/10% (a)
Branch tax rate 30% (b)
 
Withholding tax
Dividends n.a. (c)
Interest on peso deposits 20% (d)(e)
Royalties from patents, know-how, etc. 20% (e)
Branch remittance tax 15%
 
Net operating losses (years)
Carryback 0
Carryforward 3

  1. These rates apply to capital gains on shares in domestic corporations not traded on a local stock exchange.
  2. Certain types of Philippine-source income of foreign corporations are taxed at preferential rates.
  3. Under domestic law, dividends paid to domestic corporations or resident foreign corporations are not subject to tax. Dividends paid to non-resident foreign corporations are generally subject to a final withholding tax of 30%. However, this rate may be reduced to 15% if certain conditions are met.
  4. The withholding tax rate for interest on peso deposits derived by domestic and resident foreign corporations is 20%.
  5. Under domestic law, if the recipient is a non-resident foreign corporation, the final withholding tax rate is 30%. For reduced rates under tax treaties for non-resident foreign corporations.

Source: EY 2016 Worldwide Corporate Tax Guide


Firm contact details

Du-Baladad and Associates