Tax Alert No. 28 [Revenue Memorandum Order (RMO) No. 14-2021 dated 31 March 2021]

Streamlining the procedures and documents for the availment of treaty benefits

The Commissioner of Internal Revenue (CIR) has issued RMO 14-2021 to update the administrative guidelines for the processing of Tax Treaty Relief Applications (TTRAs). The RMO covers all items of income derived by the non-resident taxpayers from Philippine sources that are entitled to relief from double taxation under the relevant tax treaty.

The salient provisions of RMO 14-2021 are as follows:

• The withholding agent or income payor may rely on the submitted BIR Form No. 0901 or Application Form for Treaty Purposes (“Application Form”), Tax Residency Certificate (TRC) duly issued by the foreign tax authority, and the relevant provision of the applicable tax treaty in applying a reduced tax rate or tax exemption on the income derived by a non-resident taxpayer from all sources within the Philippines. The said documents must be submitted to each withholding agent or income payor prior to the payment of income for the first time. Failure to provide the said documents may lead to the withholding of tax using the regular rates prescribed under the Tax Code.
• When the treaty rates have been applied, the withholding agent shall file with the International Tax Affairs Division (ITAD) a request for confirmation on the propriety of the withholding tax rates applied. The request must be filed any time after the payment of withholding tax but shall in no case be later than the last day of the fourth month following the close of each taxable year.
• If the regular rates have been applied, the nonresident shall file a TTRA with the ITAD at any time after receipt of income.
• One TTRA or request for confirmation shall be filed for each transaction. However, for long-term contracts which are effective for more than a year (e.g., loan agreements, contracts for service, license agreements), an annual updating shall be made until the termination of the contract. The non-resident taxpayer shall file an updated Application Form, a new TRC (if the validity period of the previously submitted TRC has already lapsed), and other relevant documents not later than the last day of the fourth month following the close of each taxable year.
• New TTRAs shall be processed within four (4) months from the submission of complete documents or as soon as practicable provided that the ITAD has addressed all its backlogs.
• The RMO sets out the general and specific requirements as well as the appropriate application forms for each type of income.
• All documents executed in a foreign country must either be authenticated by the Philippine Embassy stationed therein or apostilled if the said foreign country is a signatory to the Convention Abolishing the Requirement of Legalisation for Foreign Public Documents (HCCH 1961 Apostille Convention).
• If the withholding tax rate applied is proper or higher than the rate that should have been imposed, the BIR will issue a certificate confirming the non-residents entitlement to treaty benefits in lieu of the usual BIR Ruling and Compliance Check Report. For the latter case, a refund of excess withholding tax may be filed independently of, or simultaneously with, the TTRA.
• In cases of denial or a ruling of first impression, a BIR Ruling signed by the CIR or his/her authorized representative shall instead be issued.
• All adverse rulings are appealable to the Department of Finance (DOF) within thirty (30) days from receipt thereof pursuant to existing rules and regulations.
• Late filing of requests for confirmation shall be subject to penalties.
• If in the course of audit, the tax auditor finds any inconsistencies in the facts and the representations made in the ruling, he shall inform the ITAD of such findings. In turn, the ITAD shall re-evaluate the case and issue an amendatory certificate or ruling.
• Taxpayers with pending TTRAs for income earned in 2020 and prior years, including those with Notice of Archiving, are given three (3) months from receipt of a Final Notice to Submit Additional Documents (Final Notice), or from the effectivity of this Order, whichever is later, to submit the lacking documents. Taxpayers who were issued a Notice of Archiving will no longer receive a Final Notice. Failure to submit the requested documents would result in the automatic denial of the TTRA.
• All pending TTRAs shall be processed following the manner set out in the RMO.
• For dividends, interest and royalties, the submission of Certificate of Residence for Treaty Relief (CORTT) Form shall be discontinued. Previously submitted CORTT Forms shall still be forwarded to the concerned Revenue District Offices for compliance check.