Special InTAX: January 2024 Issue 1 | Volume 4

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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Bureau of Internal Revenue


The Bureau of Internal Revenue (BIR) issued Revenue Memorandum Circular (RMC) No. 5-2024, dated 10 January 2024, to further clarify the proper tax treatment of cross-border services in light of the Supreme Court En Banc Decision in Aces Philippines Cellular Satellite Corp. v. Commissioner of Internal Revenue, G.R. No. 226680, dated 30 August 2022.

This RMC will serve as a framework for the BIR to make informed determinations based on established legal interpretations in assessing the final withholding tax (FWT) and final withholding VAT (FWVAT) of the activities of non-resident foreign corporations (NRFC) within the Philippine jurisdiction.

The BIR discussed in the RMC the salient features of the Supreme Court’s En Banc Decision in Aces Philippines which focused on the satellite airtime fee payments of Aces Philippines to Aces Bermuda being subject to FWT based on a two-tiered approach of determining: (1) the source of the income and (2) the situs of that source. (Q&A No. 1)

Other relevant information mentioned:

  • Cross border-services that are considered akin to Aces v. CIR include consulting services; IT outsourcing; financial services; telecommunications; engineering and construction; education and training; tourism and hospitality; or similar transactions rendered by a service-based company operating in various countries which follow the same concept of being provided, processed, or performed overseas and then utilized, applied, executed, or consumed within the Philippines. (Q&A No. 2)
  • To establish the situs of taxation for the cross-border services occurs within the Philippines, the source of income is in the Philippines if the revenue-generating activity (i.e., property, activity or service that produces the income) is in the Philippines. Align with the benefits-received theory, if the income-generating activities in the Philippines are deemed essential (that the entire service transaction cannot be accomplished without them), the income derived from these activities would be considered as sourced from the Philippines for tax purposes, irrespective of where the payment is ultimately received. (Q&A No. 3)
  • Reimbursable or allocable expenses for cross-border services between or among related parties (including charges by a foreign corporation to the local company with the affiliates abroad facilitating the payment to other affiliates or third parties for common incurred expenses) is viewed as a form of income for the foreign corporation because such reduction of expenses represents a financial gain or savings for the company as it effectively increases the foreign corporation's net income or profit. This is because the company is spending less on its operations, resulting in additional funds that can be used for other purposes or retained as profit. (Q&A No. 4)
  • Under the source-based principle, the jurisdiction where the economic activity occurs should have the right to tax the income derived from that activity, regardless of where the payment is made or received, to prevent tax avoidance. If the income is not conducted through business activities conducted in the Philippines or does not provide benefits to the local company (making the payment unnecessary for regular commercial activity), it may be seen as an attempt to evade taxes or manipulate profits by funneling them to a foreign entity. (Q&A Nos. 5 and 6)
  • Even if the service provider is located outside the country, if the service is utilized, applied, executed, or consumed for a recipient within the Philippines, the income payment for such service is considered sourced within the country and thus, VAT applies and consequently, FWVAT. (Q&A No. 7)


Here is the full text of RMC No. 5-2024 and a copy of Special InTAX: February 2023 Issue 1 | Volume 1 on the Supreme Court’s En Banc Decision in Aces Philippines.




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