On January 9, the Philippine Bureau of Internal Revenue announced an eventual establishment of a Transfer Pricing Commission after a meeting with the Japan International Cooperation Agency (JICA). It is due to the significant amount of revenue lost by the Bureau from international transactions due to the Transfer Pricing mishandling.
1. New Target for Collected Taxes
The Department of Finance and the Bureau of Internal Revenue have expressed through a notice that the new target for collected taxes as a percentage of GDP for 2028 is 17.1%. It should be mentioned that it was 14.6% in 2022.
This target is expected to be achieved due to economic growth and by making it easier for taxpayers through tax digitalization programs. Likewise, there will be an increase in audits by the Bureau, especially on Transfer Pricing.
2. Regulations in Force
Although there is no rule for the constitution of this new Transfer Pricing Commission in the Bureau, there are already regulations concerning Transfer Pricing inspections, specifically in the Audit Memorandum Order No. 1-19.
According to this Order, the Bureau establishes the selection process, performs a risk assessment, identifies high-risk Transfer Pricing issues, and selects the entity or transaction subject to audit.
Once an agent of the Bureau becomes aware, this will begin the process with a review and analysis of the information contained in Form 1709 (Information Statement on Related Party Transactions) to be filed by the taxpayer.
At that point, the agent will perform a Transfer Pricing risk assessment and decide, at this phase, whether to perform an exhaustive review or an audit of a particular entity or transaction.
3. Phases and Required Documentation of the Transfer Pricing Inspection
A Transfer Pricing inspection verifies compliance with the tax obligations of a taxpayer with related party transactions. The procedure consists of preparation, implementation, and reporting.
On the other hand, the agent will require the taxpayer to prepare and file annexes within five days following the date of receiving the request. It should be noted that most of the information contained in the annexes is also in the Transfer Pricing documentation.
4. New Wave of Transfer Pricing Inspections
With the proposal to institutionalize a Transfer Pricing commission in the Bureau, we can assume that regular Transfer Pricing inspections are coming for multinational companies. This will enable the taxpayer to reevaluate its Transfer Pricing policies prior to these upcoming audits.
Therefore, with this new wave of Transfer Pricing inspections, the tax administration expects to collect higher revenues to benefit the economic development of the country.
Source: Business World 28/03/22