100 Philippine piso bills and calculator with glasses and pen. Tax payment season concept or investment solutions. Searching a job with high salary earnings

Transfer Pricing Requirements

  • Taxpayers must demonstrate that their transfer prices are consistent with the arm's length principle. 
  • Purpose of taxpayers to keep documentation

‒ defend their transfer pricing analysis

‒ prevent transfer pricing adjustments arising from tax examinations

‒ support applications for MAP

  • Must be contemporaneous

‒ When is documentation contemporaneous?

If it exists or is brought into existence at the time the related parties develop or implement any arrangement that might raise transfer pricing issues or review these arrangements when preparing tax returns

‒ Possibly administrative penalties only for failure to comply with this requirement

  • Not required to be submitted to the Bureau of Internal Revenue (“BIR”) when the income tax return is filed; but should be submitted when required by the BIR in an investigation authorized under a Letter of Authority 
  • Under the rules on BIR Form No. 1709 [the “Information Return on Related-Party Transactions (Domestic and/or Foreign)” or “RPT Form”], taxpayers mandated to submit BIR Form No. 1709 are required to prepare the documentation if they meet any of the following conditions:

a) annual gross sales/revenue exceeding Php150,000,000 and the total amount of related-party transactions with foreign and domestic related parties exceeds Php90,000,000

In computing the above threshold, the following items shall be included:

‒ Amounts received and/or receivable from related parties or paid and/or payable to related parties during the taxable year but excluding compensation paid to key management personnel, dividends and branch profit remittances

‒ Outstanding balances of loans and non-trade amounts due from/to all related parties.

b) sale of tangible goods involving the same related party exceeding Php60,000,000 within the taxable year

c) service transaction, payment of interest, utilization of intangible goods or other related-party transaction involving the same related party exceeding Php15,000,000.00 within the taxable year

d) if the documentation was required to be prepared during the immediately preceding taxable period for exceeding (a) to (c)

  • However, it still advisable to prepare the documentation whether or not the taxpayer is required to submit BIR Form No. 1709
  • Local comparables not mandated by transfer pricing rules but BIR’s preference is for local comparables

Open notebook with cup of coffee on wooden desk

BIR Form No. 1709

  • An attachment to the annual income tax return (“AITR”)
  • Required to submit BIR Form No. 1709:

‒ Large Taxpayers (i.e., those classified and duly notified by the BIR that they are large taxpayers for having satisfied any or a combination of set criteria)

‒ Taxpayers enjoying tax incentives

‒ Taxpayers reporting net operating losses for the current taxable year and the immediately preceding two consecutive taxable years

‒ A related party which has transactions with any of the above

  • Still required to be filed for short period AITRs regardless of the reason for filing the said short period returns
  • No materiality threshold for reportable related party transactions
  • Taxpayers not required to submit BIR Form No. 1709 should disclose in the Notes to the Financial Statements that they are not covered by such requirements