Special InTAX: July 2020 Issue 1 | Volume 1

InTAX is an official publication of R.G. Manabat & Co.'s Tax Group

InTAX is an official publication of R.G. Manabat & Co.'s Tax Group

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Department of Finance


The Department of Finance (DOF) issued the following:

Revenue Regulations (RR) No. 19-2020, 08 July 2020, to prescribe the use of the new BIR Form No. 1709 or Information Return on Related Party Transactions (Domestic and/or Foreign) replacing BIR Form 1702H – Information Return on Transactions with Related Foreign Persons, series of 1992.

The RR aims to ensure that proper disclosures of related party transactions are performed to evaluate whether such transactions have been conducted at arm’s length and to properly implement Philippine Accounting Standards 24 on Related Party Disclosures for tax purposes. To do this, the said issuance requires the submission of BIR Form No. 1709 and its supporting documents, following pertinent guidelines on the submission of required attachments to the Annual Income Tax Return.

Further, the RR provides for the rules in determining whether a person or entity is a related party, to wit:

Related Person to a Reporting Entity*

Related Entity to a Reporting Entity*

1. If a person has control or joint control of the reporting entity;

1. The entity and the reporting entity are members of
     the same group (which means that each parent,
     subsidiary and fellow subsidiary is related to the

2. One entity is an associate or joint venture of the
    other entity (or an associate or joint venture of a
    member of a group of which the other joint entity is a

3. Both entities are joint ventures of the same third

2. If a person has significant influence over the reporting entity; or

4. One entity is a joint venture of a third entity and the
    other entity is an associate of the third entity;

5. The entity is a post-employment benefit plan for the    
    benefit of employees of either the reporting entity or
    an entity related to the reporting entity. If the
    reporting entity is itself such a plan, the sponsoring
    employees are also related to the reporting entity;

3. If a person is a member of the key management personnel of the reporting entity or of a parent of the reporting entity.

6. The entity is controlled or jointly controlled by a
    person identified as a related person

7. A person with control or joint control of the reporting
    entity with significant influence over the entity or is a
    member of the key management or personnel of the
    entity (or of a parent of the entity); or

8. The entity, or any member of a group of which it is a
    part, provides key management personnel services
    to the reporting entity or to the parent of the
    reporting entity.

Note: The list above is not exhaustive. Other family members could qualify as close members of the family depending on the assessment of the specific facts and circumstances.



* Please note that in all cases the substances of relationships between entities shall be taken into

  account and not merely the legal form.

In addition, the RR provided for the list of related party transactions which shall include, but not limited to, the following:

Related Party Transactions

a)         Purchase or sales of goods (finished or unfinished);

b)         Purchase or sales of property and other assets;

c)         Rendering or receiving of services;

d)         Leases;

e)         Transfers of research and development;

f)          Transfers under license agreements;

g)         Transfers under finance agreements (including loans and equity contributions in cash or in kind);

h)         Provisions of guarantees or collateral;

i)          Commitments to do something if a particular event occurs or does not occur in the future, including executory contracts; and

j)          Settlement of liabilities on behalf of the entity or by the entity on behalf of the related party


The RR also requires taxpayers, who may either be the reporting entity or a related party, to provide disclosures and specific information on transactions and outstanding balances for each of the categories listed in the said RR.

Moreover, the BIR Form No. 1709, which is annexed to RR No. 19-2020, shall be an integral part and annexed to the taxpayer’s Annual Income Tax Returns for the current taxable year and subsequent years. The nature of the transactions and affected accounts are required to be disclosed in detail.

The business overview of the ultimate parent company in Part IV(A) of the said BIR Form should include the profile of the multinational group of which the taxpayer is part of as well as other information such as the name/s, country/ies of tax residence of each of the related party/ies with whom intragroup transactions have been entered into by the taxpayer and ownership linkages among them. Further, the following are required attachments to the BIR Form No. 1709:


Required attachments to BIR Form No. 1709

Certified true copies of the relevant contracts or proof of transactions;

Withholding tax returns and the corresponding proof of payment of taxes withheld and remitted to the BIR

Proof of payment of foreign taxes or ruling duly issued by the foreign tax authority where the other party is a resident

Certified true copy of Advance Pricing Agreement, if any

Any transfer pricing documentation


Finally, the RR mandates tax examiners to conduct a thorough examination of the related party transactions of entities and to ensure that revenues are not understated and that expenses are not overstated in the financial statements as a result of related party transactions.  Further, any violation of the provisions of the RR shall be subject to penalties provided in Section 250 and other pertinent provisions of the Tax Code, as amended.

(RGM & Co. Note:  The RR was published in Malaya Business Insight on 10 July 2020.)

RR No. 18-2020, 26 June 2020, to implement Section 1 of Republic Act (RA) No. 11467, amending Section 109 (AA) of the National Internal Revenue Code (Tax Code) of 1997, as amended by RA No. 10963 or “TRAIN Law” providing for Value-Added Tax (VAT) Exemption on the sales and importation of drugs and medicines prescribed for diabetes, high cholesterol, hypertension, cancer, mental illness, tuberculosis and kidney diseases.

Salient points of RR No. 18-2020 are as follows: 

  • The sale or importation of prescribed drugs and medicines for diabetes, high cholesterol and hypertension beginning 1 January 2020, as well as medicines for cancer, mental illness, tuberculosis and kidney diseases beginning 1 January 2023 shall be exempt from VAT. 
  • The VAT exemption shall only apply to the sale or importation by the manufacturers, distributors, wholesalers and retailers of drugs and medicines included in the “list of approved drugs and medicines” issued by the Department of Health. 
  • VAT on importation of prescription drugs and medicines for diabetes, high cholesterol and hypertension included in the Department of Health-Food and Drug Administration’s (DOH-FDA) approved list from the effectivity of RA No. 11467 on 27 January 2020 until the effectivity of RR No. 18-2020 shall be refunded provided that the input tax on the imported items have not been reported and claimed as input tax credit in the filed VAT returns. The same shall also not be allowed as input tax credits for purposes of computing for the VAT payable of the concerned taxpayer/s for the said period. 

(RGM & Co. Note:  The RR was published in Malaya Business Insight on 9 July 2020.)

RR No. 18-2020

RR No. 19-2020

RR No.19-2020 (Annex A)


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