Philippines

The Philippines is not a member of the OECD or the OECD/G20 Inclusive Framework, and it lacks formal transfer pricing documentation requirements. While preparing transfer pricing documents is recommended, it’s not obligatory. Taxpayers must, however, submit BIR Form 1709 for all related party transactions.

Laws & Regulations

• a) The legal framework for transfer pricing in the Philippines is based on Section 50 of the National Internal Revenue Code, aligning with OECD guidelines.
• b) The definition of related parties is comprehensive, including those with direct or indirect participation in another enterprise’s management, control, or capital. Control is assumed when one entity holds at least 30% of voting shares in a corporation.
• c) The Philippines tax authorities accept and rely on the OECD Guidelines, and certain transfer pricing regulations are based on the OECD Commentaries.
• d) The Philippines does not have a blacklist provision for tax havens.
• e) The country allows unilateral, bilateral, and multilateral Advance Pricing Agreements (APAs), although none have been finalized.
• f) Transfer pricing audits are conducted by local tax authorities and are typically applied to specific areas of focus.

Transfer Pricing Documentation

• a) While there is no statutory obligation for transfer pricing documentation, taxpayers are recommended to prepare documentation to respond to BIR queries. The depth of detail provided is at the discretion of the taxpayer.
• b) Examples of helpful information for analyzing related party transactions include the organization’s structure, business models, and financial data.

Industry Analysis

Identifying value drivers within the relevant industry provides insights into profitability.

Company Analysis

This section involves describing the local entity’s management structure, business strategy, and involvement in business restructurings or intangibles transfers.

Functional Analysis

An assessment is made of significant activities, responsibilities, tangible/intangible assets, and risks related to intercompany transactions.

Choice of Transfer Pricing Method

The Philippines follows the 2010 OECD Transfer Pricing Guidelines and accepts various methods, depending on the circumstances.

Economic Analysis – Benchmark Study

Local comparables are preferred, but foreign comparables are accepted with scrutiny.

Inter-company (IC) Legal Agreement

Inter-company legal agreements formalize relationships but have a lower ranking compared to the ‘conduct of parties.’

Financial Statements

Related party disclosures must be submitted with the annual income tax return.

Production Process for TP Relevant Returns, Documents, Forms, and Financials The chart illustrates the filing requirements and other details.

Notification Requirement

The Philippines does not have a Country-by-Country notification requirement.

Record Keeping

Documentation must be retained for three years after the filing deadline.

Penalties and Interest Charges

Penalties and interest charges apply in cases of transfer pricing adjustments that result in additional income tax.