Tax Alert No. 34 [Revenue Memorandum Circular (RMC) No. 54-2021 dated 27 April 2021]

Clarifies certain provisions of Revenue Regulation No. 34-2020

The Commissioner of Internal Revenue has issued RMC No. 54-2021 to address the frequently asked questions regarding the submission of BIR Form No. 1709, or the Related Party Transactions (RPT Form), and the preparation of Transfer Pricing Documentation. We highlight below some salient provisions.

Clarifications on the taxpayers required to file the RPT Form

• A taxpayer is required to file an RPT Form if (1) it is required to file an Annual lncome Tax Return; (2) it has transactions with a domestic or foreign related party during the concerned taxable period; and (3) it falls under any of the categories enumerated in Section 2 of RR No. 34-2020.
• Proprietary educational institutions and hospitals, regional operating headquarters, and international carriers that are subject to tax on their profits from sources within the Philippines are considered as taxpayers subject to preferential income tax rate. Hence, they are required to file an RPT Form.
• Only taxpayers enjoying tax incentives with respect to income tax (i.e., Income Tax Holiday or 5% Special Tax on Gross Income) are required to file the RPT Form

Clarifications on the taxpayers not required to file the RPT Form 

• Taxpayers operating within the economic zone but are subject to regular corporate income tax are not required to file RPT Form unless they fall under a different criteria in Section 2 of RR No. 34-2020.
• Taxpayers who are exempt from income tax, including regional or area headquarters and representative offices of foreign corporations that are not allowed by law to derive income from the Philippines, are not required to file an RPT Form.
• Post-employment benefit plans are also not required to file an RPT Form if their related party transactions consist only of the contributions from their sponsor employers.

Clarifications on the information to be disclosed in the RPT Form 

• All related party transactions, irrespective of amounts, must be disclosed in the RPT Form.
• Unless impractical due to numerous currencies used, amounts of transaction in foreign currency and its equivalent in the local currency using the exchange rate at the transaction date shall be disclosed in the RPT Form.

Other Matters

• The BIR will regard the RPT Form that fails to provide any material information as if it is not duly filed. Hence, penalties imposed for failure to file an information return shall apply.
• The BIR still retains the right to conduct a TP audit regardless of the compliance with the RPT Form submission. The BIR will determine the taxpayers which will be subjected to a TP audit based on the results of its initial TP risk assessment of the RPT Forms submitted by taxpayers.
• RR No. 34-2020 took effect on 23 December 2020. The provisions thereof shall only apply to the RPT Forms that are required to be submitted after its effectivity.

You may access the full version of this issuance through the BIR website.