The Philippines should not be left behind in the realm of international tax developments and tax administration innovations. In the process, the BIR can enhance its efforts to generate higher and more efficient tax collections. This will also improve the BIR’s standing and recognition in the global tax community.
The BIR must complete its Advance Pricing Arrangement regulations. In 2014, the BIR started discussions with taxpayers and practitioners on regulations to be issued for the APA. The APA is similar to securing a tax ruling from the BIR. The purpose of this type of tax ruling is to ascertain in advance whether the arm’s length principle is met in specified transactions of the taxpayer applying for the APA ruling. Obtaining such an APA ruling will provide some form of agreement between the BIR and the taxpayer on the mutual reliance on the transfer prices on transactions covered by the APA ruling. This can mitigate disputes on transfer pricing issues. If implemented effectively, the BIR can claim the best practices in APA for sharing with the global tax community.
The BIR should collaborate more effectively with its sister agencies in the Department of Finance, namely the Securities and Exchange Commission and the Bureau of Customs. These two agencies have certain information that can be shared with the BIR in ferreting out transfer pricing cases for audit by the BIR. The SEC has data on the “beneficial ownership” of corporations coming from the implementation of SEC Circular 1 in early 2021. Corporations are required to submit information to the SEC on the ultimate owners of the stocks of covered corporations. This information is useful to the BIR in ascertaining the extent of the genuine relationship of groups of companies that may be prone to transfer taxing practices to reduce their overall tax liabilities. The Bureau of Customs will have information on the misvalued export and import transactions of taxpayers. These can be shared with the BIR for their reference in assessing the internal revenue tax implications of the transfer pricing practices of these taxpayers identified by the BOC. Department of Finance (DOF) Secretary Ralph Recto should take the lead in having these three agencies under his wing talk to each other to enhance revenue tax collections. The best practices that will arise in this collaboration can be shared by the BIR with other tax authorities in the process of attaining global tax leadership.
Finally, these efforts of the BIR can lead to the Philippines hosting a Tax Transfer Pricing Academy. A training institute can be organized in the Philippines that will deliver training and research activities in the area of transfer pricing. This academy can take charge of transfer pricing training to the BIR auditors and other parties, including taxpayers, DOF officials, members of the legislature, and others. This academy should also be available for the training of tax officials from other countries. The funding and technical support for the formation and operations of the academy can be funded by the Philippines and other international organizations, such as the World Bank, International Monetary Fund, Asian Development Bank, and the Organization for Economic Cooperation and Development.
These directions can propel the Philippines and the BIR to attain global tax leadership.
To be continued
Joel L. Tan-Torres was the former Dean of the University of the Philippines Virata School of Business. Previously, he was the Commissioner of the Bureau of Internal Revenue, the chairman of the Professional Regulatory Board of Accountancy, and Tax partner of Reyes Tacandong & Co. and the SyCip Gorres and Velayo & Co. He is a Certified Public Accountant who garnered No. 1 in the CPA Board Examination of May 1979. He is now back to his tax and consultancy practice and can be contacted at firstname.lastname@example.org and his firm JL2T Consultancy.