Introduction
The Philippines has strengthened its Transfer Pricing regulations to ensure fair taxation of related party transactions. This approach responds to the growth of international trade and intends to attract foreign investments under a transparent tax framework aligned with the OECD guidelines.
Evolving Regulatory Framework
The Bureau of Internal Revenue (BIR) in the Philippines requires that related party transactions be according to the Arm’s Length Principle, which means that agreed prices must match those agreed between independent companies under similar conditions.
Since 2013, the Philippines adopted a more structured approach to Transfer Pricing, culminating in the issuance of Revenue Regulations No. 34-2020, which details documentary obligations for certain companies.
Key Obligations for Foreign Investors
Companies subject to Transfer Pricing in the Philippines must prepare three types of documentation:
- Country-by-Country Report: Aggregate data report on the global allocation of revenues, profits, taxes paid, and economic activity among the tax jurisdictions in which they operate.
- Master File: Global information on the multinational group.
- Local File: Specific details of the taxpayer’s operations in the Philippines.
- Form BIR No. 1709 Information: Information statement detailing related party transactions.
These obligations primarily apply to companies with gross revenues exceeding PHP 150 million and significant intercompany transactions. In particular, as per the Country by Country Report, companies must have consolidated annual revenues amounting to PHP 50 billion.
Non-Compliance Risks
Transfer Pricing non-compliance may result in tax adjustments, penalties, and audits by the tax administration. In addition, the Philippines is progressing towards greater international cooperation in tax matters, which raises standards for local and foreign taxpayers.
Call to Action
At TPC Group, we provide expert advice to ensure compliance with the Philippine Transfer Pricing regulations. If you perform related party transactions in the Philippines, start avoiding tax risks and strengthening your compliance strategy – contact us today!
Source: Asean Briefing