|Navarro Amper & Co|
|RG Manabat & Co|
|SyCip Gorres Velayo & Co|
|Du-Baladad and Associates|
The Philippine government in 2013 issued new TP regulations to give guidance on the application of the arm's-length principle based on the OECD's BEPS principles. The principle applies to cross-border and domestic transactions between associated enterprises. These regulations may not be enough to handle the rising tide of transfer pricing challenges, even though they took almost seven years to be agreed upon.
Maria Carmela Peralta, head of TP at R.G. Manabat & Co, recently commented on the state of transfer pricing for International Tax Review, saying that "the regulations do not have real teeth as there are no enforcement mechanisms in place".
Peralta highlighted the issues the Bureau of the Internal Revenue (BIR), the country's tax authority, has been having. Although it is at the forefront of the war against base erosion, not all tax practitioners are confident that the BIR is up to the task. Peralta said that the BIR faces many challenges in implementing the regulations and in releasing more guidelines.
"One factor to explain this is that many of its trained personnel have left. The BIR is still building capacity in transfer pricing," she said. "Within this transfer pricing landscape, it is unlikely for the BIR to push for the adoption of the master file, CbCR, and the local file requirements of the BEPS action plan in the near future."
This does not mean that businesses in the Philippines are unaffected by BEPS, as they have to engage with inbound and outbound transactions. Counterparties may be located in countries that have signed up to the BEPS action plan, particularly Action 13 regarding CbCR.
Deonah Marco-Go, a tax partner at SyCip Gorres Velayo & Co, commented that it is best that such businesses adopt a cautious approach to these circumstances.
"This may have potential effects on Filipino companies that do business and invest or have outbound transactions in countries which have already adopted the action plan," she said. "Filipino companies with outbound transactions may be required to comply with the new transfer pricing documentation and CbCR requirements in countries where they are doing business, and failure to comply may result in significant penalties. In such critical matters involving taxation and regulatory compliance, it may be advisable for Filipino companies to err on the side of caution," said Marco-Go.
While there are some reservations about the BIR's capability where transfer pricing is concerned, its current and potential actions give another perspective. The Philippines is not be a member of the OECD, but the BIR applies the OECD's guiding principles when tackling tax issues.
Proposed reforms by the government may increase the BIR's powers. Emmanuel Bonoan, vice chairman and CEO of R.G. Manabat & Co., said that the proposed reforms would give the Commissioner of the Inland Revenue of the BIR greater powers to obtain banking information of taxpayers. This would occur where there is an obligation to exchange information with a foreign tax authority.
Bureau of Internal Revenue
BIR National Office Bldg, BIR Road, Diliman, Quezon City
Tel: +63 981 8888; +63 981 7000
(As of August 2017)
|Corporate income tax rate||30%|
|Capital gains tax rate|
|Branch tax rate||30%/15% (b) (f)|
|Interest on peso deposits||20% (d)(e)|
|Royalties from patents, know-how, etc.||20% (e)|
|Branch remittance tax||15%|
Net operating losses (years)
Source: EY 2017 Worldwide Corporate Tax Guide and Deloitte