Special InTAX: July 2020 Issue 1 | Volume 2
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
Bureau of Internal Revenue
The Bureau of Internal Revenue (BIR) issued the following:
Revenue Memorandum Circular (RMC) No. 76-2020, 29 July 2020, which clarifies certain issues on the filing of BIR Form No. 1709 of the Related Party Transaction (RPT) Form and its attachments. The salient points of RMC No. 76-2020 are as follows:
Operationalizing Revenue Regulations (RR) No. 19-2020
- RR No. 19-2020 was issued to ensure that proper disclosures of related party transactions are made to the BIR and that these transactions have been conducted at arm’s length to protect the tax base.
- Examiners are expected to conduct a more detailed transfer pricing analysis of individual transactions and prices based on a functional analysis, taking into account the economically significant activities and responsibilities undertaken, assets used or contributed and risks assumed by the parties to the transactions and comparability analysis between controlled and uncontrolled transactions. The new form will also make it easier for the BIR to identify countries to whom requests for information shall be sent for verification purposes.
- The RPT Form and the Transfer Pricing Documentation (TPD) are required to be completed by Philippine taxpayers including non-stock and non-profit corporations/organizations and individual taxpayers with related party transactions regardless of the amount and volume of transactions.
- All RPTs should be disclosed regardless of arrangement (with cost-recovery/cost-sharing/recharging) and whether a price is charged or not. Dividends and redemptions of shares should be disclosed in the RPT form. Individuals who are considered related parties of a reporting company are also required to submit the RPT form in their individual capacities.
- Files which must be maintained to document payment of dividends, purchases of goods from non-resident foreign corporations, and for cost sharing arrangements and requirements and rules which govern disclosures regarding payment of foreign taxes are specified in the RMC.
Effectivity of RR No. 19-2020
- The RPT Form is required to be attached only to the Annual Income Tax Returns (AITRs). Since the requirement took effect on 25 July 2020, the RPT Form is required to be submitted as an attachment to the AITR for fiscal year ending 31 March 2020, tentative or otherwise, irrespective of the date of filing of the said AITR. This is due to the fact that the attachments to the AITR for fiscal year ending 31 March 2020 are required by law to be submitted on or before 30 July 2020 or 5 days after the effectivity of RR No. 19-2020.
- Taxpayers with fiscal year ending 31 March 2020 are given another two (2) months from 30 July 2020 or until 30 September 2020 within which to prepare, file and submit the RPT Form and its required attachments. There is no need to resubmit AITRs after it has been filed with the BIR to be able to avail of the extension of time to submit the RPT form and the required attachments. Taxpayers will only have to attach a photocopy of the duly filed AITR when submitting the RPT Form and its attachments.
- AITRs for calendar year 2019 or for fiscal years ending before 31 March 2020 are not covered by RR No. 19-2020.
Manner of submission of the RPT Form and required attachments
- The RPT Form and its attachments shall be manually filed unless there is another revenue issuance mandating their filing electronically. All RPT contracts covering RPTs for the year regardless of date of execution and of volume are required to be attached. These can be submitted in DVD-R Format following the guidelines in RMC No. 76-2020. Taxpayers may use additional sheets as necessary in properly accomplishing the RPT Form.
- For manual filers, the RPT Form and its required attachments together with the AITR shall be submitted at the Large Taxpayers (LT) Division/Revenue District Office (RDO) where the taxpayer is registered on or before the statutory due date. For eFPS filers, the hard copies of the RPT Form and attachments should be submitted manually and stamped received by the LT Division/RDO where the taxpayer is registered within fifteen (15) days from the statutory due date or actual date of electronic filing of the AITR, which comes later.
On the TPD requirement
- All taxpayers with RPTs are required to attach a TPD local or otherwise and regardless of the amount and volume of related party transactions. The TPD should specify the date of its creation or preparation. The TPD to be submitted must be the documentation relied upon by the taxpayer to determine the transfer pricing prior to or at the time of undertaking the RPTs. The BIR requires the TPD be prepared prior to or at the time of the transaction or after the transaction but not later than the date of filing of the tax return for the taxable year in which the transaction takes place.
- Whether or not the TPD should be updated yearly would depend on the existence of significant changes in the business model and the nature of the RPTs. If there are, then the TPD must be updated. Otherwise, there is no need to update and the old TPD should suffice.
- If the parent company has a TPD covering transactions with subsidiaries, then the subsidiaries who relied on such TPD in determining its transfer pricing process may submit the same TPD. However, the BIR prefers a local file.
- For this year’s filing, taxpayers may attach the past year’s TPD if the transaction for which the past TPD was prepared is of the same type as the transaction undertaken in the taxable year concerned and was undertaken with the same related parties and the taxpayer can prove that the same conditions are squarely applicable to the RPTs in the taxable year concerned.
Penalties for non-compliance
- A penalty of not less than one thousand pesos (PhP1,000) but not more than twenty-five thousand pesos (PhP25,000) shall be imposed for failure to file the RPT and its attachments due to reasonable cause and not willful neglect. In case of repetition of such offense, the maximum penalty or PhP25,000 shall be imposed. If after receiving summons to produce the said attachments and the taxpayer fails to produce the same, fine and imprisonment under Section 266 of the Tax Code, as amended may apply.
Difference between RR No. 19-2020 and Philippine Accounting Standards (PAS) 24 Disclosures
- RR No. 19-2020 is different from PAS 24 because the former requires full disclosure of all RPTs. Unlike disclosure of RPTs in the notes to financial statements, RR No. 19-2020 requires more details to be disclosed in Parts II and III of the RPT Form which are not usually disclosed by the company in financial statements.
Data Privacy Considerations
- The BIR cites the Commissioner of Internal Revenue’s power to obtain the necessary information to ascertain correctness of any return or in determining the liability of any person for any internal revenue tax under the Tax Code, to justify the new set of requirements. Though not explicitly covered in RR No. 19-2020, there is an inherent irresponsibility for the revenue officers to use the right to obtain information in a rational manner. Revenue officers are obligated to ensure the confidentiality of information required in the exercise of their powers and shall not make them available for public use. Penalties under Section 270 of the Tax Code, as amended, may also apply.
RR No. 19-2020 and the Bank Secrecy Law
- In requiring the submission of BIR Form No. 1709 and its required attachments, the BIR is not examining, requiring or looking into deposits of whatever nature with banks or banking institutions in the Philippines of any person or of the bank itself. RR No. 19-2020 only requires the banks to fully disclose their related party transactions and to prove that the same were conducted in arm’s length. Nothing in the said RR requires the submission of bank statements. Therefore, the Bank Secrecy Law cannot be used to justify the non-submission of the required documents per RR No. 19-2020.
RMC No. 74-2020, 15 July 2020, which amends and clarifies the penultimate paragraph of RMC No. 34-2020.
The amended paragraph now provides that the suspension of the running of the Statute of Limitations under Section 203 and 222 of the Tax Code, as amended, shall be suspended beginning 16 March 2020 until the lifting of the Extreme Community Quarantine (ECQ) and for sixty (60) days thereafter. Such suspension shall also apply with respect to the issuance and service of assessment notices, warrants and enforcement and/or collection of deficiency taxes. This applies nationwide on areas placed under ECQ and is effective immediately.
RMC No. 72-2020, 17 July 2020, which amends the reportorial requirements on RMC No. 36-2020.
The RMC removed the requirement of submission of photocopies of documents evidencing credit extensions and credit restructurings granted by covered institutions during the Enhanced Community Quarantine.
As such, only the hard copy of the summary listing of all preexisting loans, pledges and other instruments as of 17 March 2020
, which were granted extension of payment and/or maturity periods, shall be made under oath as to the completeness, truth and accuracy thereof by a duly authorized officer or representative of the taxpayer.
Furthermore, the same shall be subject to post audit/verification by the BIR, whether the summary list pertains to qualified loans only.
Attached are the full texts of the issuances.
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