Disclosure Requirements

Related party disclosures (domestic and/or foreign) are required to be made in the audited financial statements in the Philippines. Related party transactions (RPT) are required to be disclosed in a specified form along with the annual income tax return (AITR). Revenue Regulations (RR) 19-2020, as amended by RR 34-2020, introduced BIR Form No. 1709 (RPT Form), which replaced the earlier Form No. 1702H. The RPT Form must be filed by the specified Philippine taxpayers (previously applicable to all taxpayers) for fiscal years ending on or after 31 March 2020, along with the AITR.

The following taxpayers are required to submit the RPT Form and its attachments:

Large Taxpayers;
Taxpayers enjoying tax incentives (including enterprises and economic zone enterprises registered with the Board of Investments), income tax holiday or subject to a preferential income tax rate;
Taxpayers reporting net operating losses for the current tax year and the immediately preceding two consecutive tax years; and
Related parties, as defined under Section 3 of RR No. 19- 2020 (see Sec 12.4.1), which have transactions with the above taxpayers.

The following transactions are not required to be reported in the RPT Form:

Transactions between Key Management Personnel (KMP) and the reporting entity/parent company of the latter; and
Related party transactions that are covered by an Advance Pricing Agreement (APA).

The filing process for the RPT Form and its attachments is as follows:

Taxpayers filing the AITR manually are required to submit the RPT Form and attachments along with the AITR; and
Taxpayers filing the AITR electronically (see Sec. 13.3.) are required to file a hard copy of the RPT Form and attachments within 15 days from the statutory due date or the actual date of electronic filing of the AITR, whichever is later.

Taxpayers not required to submit the RPT Form must make a disclosure in the notes to the Financial Statements to the effect that they are not covered by the above requirements.

Standard Documentation

Effective 22 December 2020, the transfer pricing documentation must be prepared and submitted by the taxpayers required to submit the RPT Form and meeting the following criteria:

Annual gross sales/revenue for the relevant tax year exceeding PHP 150 million and total related party transactions with foreign and domestic related parties exceeding PHP 90 million; or
Following related party transactions during the relevant tax year:

the aggregate amount of sale of tangible goods exceeding PHP 60 million; or
the aggregate amount of service transactions, payment of interest, utilization of intangible goods, or other related party transaction exceeding PHP 15 million; or

If the transfer pricing documentation was required to be prepared during the immediately preceding tax year since covered by the criteria mentioned above.

The transfer pricing documentation should include the following:

Organizational Structure;
Nature of the business/industry and market conditions;
Controlled transactions;
Assumptions, strategies, and policies;
Cost contribution arrangements;
Comparability, function, and risk analysis;
Transfer pricing methods selected and their application; and
Any other relevant documentation/information.

The transfer pricing documentation must be contemporaneous. It is considered contemporaneous if it exists or is brought into existence at the time the associated (related) enterprises develop or implement any arrangement that might raise transfer pricing issues or review these arrangements when preparing tax returns. Documentation is required to be submitted within 30 days of request by the tax authorities, which may be extended by an additional 30 days based on meritorious grounds.

Country-by-Country (CbC) Report

The Philippines has not yet implemented the Country-by-Country reporting requirement and has not yet joined the OECD's Inclusive Framework, membership of which presupposes a commitment to implement the BEPS minimum standards, including Country-by-Country reporting. The Philippines is, however, a party to the Mutual Assistance Convention.

Language of Documentation

The transfer pricing documentation can be prepared and submitted in the English language.

Penalties

Penalties for failure to comply with the related party provisions are PHP 1,000 for each failure/violation, with the aggregate amount of penalties imposed for all such failures not exceeding PHP 25,000 per calendar year.

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