The Bureau of Internal Revenue (“BIR”) in the Philippines is close to releasing its first APA guidelines. It is understood that one multinational has indicated its intention to the BIR that it is keen on entering into an APA and that therefore, the BIR has accelerated the development and future release date of the APA guidelines as a result of such a move. The BIR has no experience of concluding APAs to date, but it has indicated that it views APAs as an attractive option to secure the tax base and reduce uncertainty over tax collections.
In order to meet challenging tax collection targets, the BIR is devoting considerable resources to the development of its transfer pricing compliance and enforcement regime. The release of APA guidelines in the near future will be followed with release of formal transfer pricing documentation guidelines and transfer pricing review and audit guidelines, both of which are still under development. The BIR will likely adopt a risk-based approach to the selection of taxpayers for transfer pricing review, focusing on for example loss-making companies, those experiencing a sharp decline in profits after expiry of a tax holiday, or companies paying royalties or service fees to overseas related parties.
We will release more details of these developments in due course. It is safe to say that the preparation of specific local transfer pricing documentation, and the introduction of proper transfer pricing systems, will increase in importance rapidly in the coming months and years for multinational companies doing business in the Philippines.
Written by Doug Fone, a Managing Director – Asia of Quantera Global (Partner firm with DFDL Legal & Tax)