|CLARIFICATIONS ON TRANSFER PRICING REQUIREMENTS ON RELATED-PARTY TRANSACTIONS
|Taxpayers required to file RPT Form
- It is required to file an Annual ITR
- It has transactions with related party (domestic or foreign) during the concerned period; AND
- It falls under ANY of the following categories:
- (a) Large taxpayers*
- (b) Taxpayers enjoying incentives (i.e. Board of Investments-registered and ECOZONE*** enterprises, enjoying ITH or subject to preferential income tax rate**
- (c) taxpayers reporting net operating losses***** for the current taxable year and the immediately preceding two (2) consecutive taxable years
- A related party that has transactions with (a) (b) (c) (it is imperative to check whether the related party with whom ordinary corporation transacts falls under this category)
||Not required to file RPT Form even if it has dealings with related party under (a) (b) or (c)
|Materiality threshold for reportable related party transaction
|Annual Gross Revenue (combined from related party or otherwise); and
|Total amount of related party transaction (involving all related parties)
||Sale of tangible goods (specific related party only)
||Service, interest, intangible goods, or other related party transactions
||If TPD is required to be prepared during immediately preceding taxable period for exceeding a) to c)
- No threshold if taxpayer is required to file the RPT Form; disclosure of all related party transaction irrespective of the amount is a must;
- Relevant only as to who is required to prepare a Transfer Pricing Documentation;
- Taxpayer who meets the threshold but is not required to submit RPT Form = not required to submit TPD
- Similar transactions with the same related party transactions must be segregated, if possible.
- TPD and other supporting documents shall no longer be attached to the RPT Form but shall be made available during audit
- Actual amount must declared. Reasonable estimate is not allowed. Declaration is subject to perjury clause.
|*A large taxpayer is a taxpayer who has been classified and duly notified (via registered mail, publication, or any other mode of service) by the CIR as such. Taxpayer is not a large taxpayer even it meets the criteria to be a large taxpayer but was not notified by the CIR.
**Taxpayer subject to preferential income tax rate –
Corporate taxpayer subject to regular corporate income tax but has transactions subject to preferential income tax rate under tax treaty or Tax Code is not required to file an RPT Form
Examples of taxpayers subject to preferential income tax rate:
- proprietary educational institutions and hospitals;
- and regional operating headquarters
- International carriers
| Type of international carrier
|Those subject to tax based on GPB or gross revenues
|Those that are exempt from tax under the tax treaty or on the basis of reciprocity
|Those subject to tax on profits from sources within the Philippines
***Not required to file RPT Form if ECOZONE enterprise is subject to RCIT. Only those subject to ITH or 5% special tax are required to file RPT Form, unless it falls under (a) (c) or (d).
****Tax exempt –
- Those exempt under Section 30 or similar provisions of the Tax Code or special laws;
- Regional or area headquarters and representative offices of foreign corporations that are not allowed by law to derive income from the Philippines
- Post-employment benefit plans (if their related party transactions consist only of the contributions from their sponsor employers)
*****Net operating loss for tax purposes and not the amount per AFS
- Means excess of allowable deductions over the gross income of the business in a taxable year
- Allowable deductions – ordinary and necessary expenses paid or incurred during the taxable year (directly attributable to the development, management, operation and/or conduct of trade, business or exercise of profession)
- Registration fees, business permits, and licenses and taxes, (except Section 34 (c) (1) of Tax Code) are allowable deductions
Domestic corporation not required to report if the related party suffering loss is a NRFC.
- Share in the net income of an associate is akin to dividend; not required to be reported in the RPT Form
- If taxpayer is required to prepare a TPD for 2020 RPT transaction, it shall also be required to prepare TPD for 2021 transaction despite not meeting any materiality threshold.
- Failure to supply material information – RPT Form is treated not filed and penalty for failure to file will be imposed
- Currency – foreign currency and its equivalent, unless several currencies were used and it seems impractical to indicate all of them in RPT Form
- Exchange rate – Rate of transaction