HAS there been any development in the field of transfer pricing in the Philippines? As this Year of the Sheep is about to end, let’s take a moment to revisit relevant issuances relative to this subject matter.
As may be recalled, it was only on January 3, 2013, when the much-awaited consolidated transfer-pricing rules and regulations in the Philippines was issued by the Department of Finance as embodied in Revenue Regulations 2-2013. Said RR prescribed the guidelines in determining the appropriate revenues and taxable income of the parties in controlled transactions, which is largely based on the Organization of Economic Cooperation and Development transfer- pricing guidelines.
Thereafter, sometime in 2014, the Bureau of Internal Revenue (BIR) drafted another revenue regulation prescribing the guidelines and procedures in administering the Advance Pricing Agreement (APA) program. As early as October 2014, several roundtable discussions on the draft RR on APA were conducted with the participation of invited panelists from both the private and public sector. As of date, however, the Philippine tax bureau has not finalized the RR on APA.
Like any other year, the government’s explicit direction, with respect to its main areas of concern, is specifically laid down. In particular, on January 13 of this year, Revenue Memorandum Circular (RMC) 3-2015 was promulgated by the BIR. Said RMC enumerated the 27 priority programs/projects of the Philippine government for the calendar year 2015 that are intended to help the bureau in attaining its revenue target.
Pursuant to this latest RMC, the BIR’s collection target for calendar year 2015 is 25.4 percent higher than the P1.34 trillion collected last year. Albeit, the bureau’s collection last year was also short of the 2014 goal of P1.46 trillion.
In order to manage the bureau’s drive for unrealistic higher revenue collection, included in the 2015 top priority programs is a special focus on transfer pricing. The transfer-pricing program seeks to complement the transfer-pricing guidelines of the BIR through RR 2-2013.
Further, the proposed transfer-pricing program will include the commercial database subscription for transfer-pricing studies and the crafting/finalization of related issuances on transfer pricing, which are as follows:
- RR on APA;
- Revenue Memorandum Order (RMO) on transfer-pricing documentations; and
- RMO on transfer-pricing risk assessment.
With the issuance of RMC 3-2015, all bureau offices are, thus, enjoined to align their activities, projects and other undertakings with the enumerated priority programs to sustain the positive trend of improved collection efficiency that has been observed over the past three years.
It must be noted that the bureau’s Large Taxpayers Service (LT Audit Division), in coordination with legal group (International Tax Affairs Division), shall be the lead offices assigned to handle the transfer-pricing program. With the guidelines clearly set by RMC 3-2015, let’s evaluate how the Tax Bureau’s collection effort turned out this year. Was it able to achieve its overall revenue target?
It must be noted that on August 17, the BIR issued RMO 17-2015, which revised the targets for the months of August and September. The programmed collection for August was cut to P131.7 billion, from P160.7 billion previously. The goal for September, meanwhile, was raised to P149.2 billion, from the original P120.2 billion. Nevertheless, the full-year collection target was kept at P1.67 trillion.
As disclosed, based on the data released by the Department of Finance, by the end of August the BIR collected a total of P962.6 billion. This is up by 8 percent from P890.7 billion in the first eight months of last year.
Notwithstanding this remarkable performance, available statistics would reveal that the BIR still missed the adjusted end-August goal of almost P1.1 trillion.
How about the tax bureau’s target for next year? The incumbent commissioner announced that the tax take had been programmed by the Cabinet-level interagency Development Budget Coordination Committee to jump by 21 percent to P2.03 trillion, the first time collections could breach the P2-trillion mark. With these interesting developments, it is quite apparent that the tax bureau has the proclivity to explore more areas which are tagged as potential source of tax collections, in line with the BIR’s ambitious revenue-collection agenda. It would seem that the transfer-pricing program has been explicitly targeted as a promising revenue-generating activity. As such, concerned taxpayers with related party transactions must be mindful of their transfer-pricing compliance.
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The author is a senior associate of Du-Baladad and Associates Law Offices (BDB Law), a member-firm of World Tax Services (WTS) Alliance.
The article is for general information only and is not intended, nor should be construed as a substitute for tax, legal or financial advice on any specific matter. Applicability of this article to any actual or particular tax or legal issue should be supported therefore by a professional study or advice. If you have any comments or questions concerning the article, you may e-mail the author at filamer.miguel@bdblaw.com.ph or call 403-2001 local 360.