Tax Articles

MAPping out Philippine Transfer Pricing Regulations

By: Atty. Jomel N. Manaig

From 2020 to 2021, the BIR came into the transfer pricing scene swinging with a slew of issuances to beef up its abilities to address erosion of tax base. Though the news about transfer pricing had mellowed out since the initial requirement of filing the BIR Form 1709 and preparation of the Transfer Pricing Documentation, the BIR recently issued Revenue Regulations (“RR”) No. 10-2022 to remind taxpayers that transfer pricing is not a foregone matter.

RR No. 10-2022 was issued to focus on a very specific transfer pricing matter: Mutual Agreement Procedures (“MAP”). MAP is a process in the Double Tax Agreements (“DTA”) between the Philippines and foreign jurisdictions that allows the “competent authorities” (normally the tax authorities) from the contracting states to interact with the intent to resolve international tax disputes normally arising from double taxation. Although the procedure is mainly for the competent authorities of the taxing jurisdictions, taxpayers are not entirely left out since the latter are the ones affected by double taxation. Instead of appealing, either through administrative or judicial means, assessments arising from double taxation, MAP gives taxpayers another avenue to resolve the dispute.

This is a welcome respite for taxpayers that are subjected to taxation not in accordance with a tax convention. Through the process set out in the RR, taxpayers can request MAP assistance from the Philippine competent authority, the Commissioner of Internal Revenue (“CIR”), to resolve disputes arising from taxation not in accordance with the provisions of the relevant DTA.

Before making a formal MAP request, the concerned taxpayer is required to request for a “Pre-filing Consultation” with the International Tax Affairs Division (“ITAD”). If the Chief of the ITAD believes that issues may be resolved through MAP, the taxpayer shall be requested to submit a formal request for MAP assistance which shall contain the required minimum information and required supporting documentation.

The request must be submitted within the time limit specified in the DTA which may be within two (2) or three (3) years from the first notification of the action resulting in taxation not in accordance with the DTA. In cases where the DTAs do not provide a time limit, the MAP request must be submitted within three (3) years from the first notification. The filing period shall be reckoned from receipt of the Final Assessment Notice, or ruling denying the claim for treaty benefits, or any equivalent document containing the action which results to double taxation.

It should also be noted that the MAP assistance does not come for free. Fees associated with the resulting negotiation shall be shouldered by the taxpayer initiating the MAP request.

Once the request for MAP assistance is filed, the BIR shall analyze the request and determine if the action that resulted in the taxation not in accordance with the DTA is due to a measure taken in the Philippines. If so, the BIR may decide to resolve the request unilaterally. If a unilateral solution is not possible, the case will move to a bilateral stage where both competent authorities shall endeavor to resolve the case by mutual agreement. It should be noted that the competent authorities are not obliged to enter into an agreement for each individual MAP case.

In case a bilateral approach is warranted, actual discussions shall be between the competent authorities of the contracting states only. The involvement of the taxpayer shall be limited to presenting facts, its views, and other relevant information.

MAP cases shall be resolved within twenty four (24) months from receipt of the complete MAP request. Any agreement reached, or the failure to reach an agreement, shall be communicated to the taxpayer within thirty (30) days after the consultation or meeting. Another thirty (30) days will be given to the taxpayer to convey his acceptance or disapproval.

A request for MAP assistance is not an exclusive remedy and may be availed of even if there is a pending judicial or administrative appeal. It must be emphasized, however, that a MAP case cannot proceed simultaneously with the other remedies and the remedies availed of may be held in abeyance depending on the circumstances. With respect to decisions of local courts, a MAP case will not operate to overrule the former. Only issues not decided with finality by local courts will be discussed in MAP proceedings. Decisions of foreign courts, on the other hand, will not bind the BIR and the latter may choose to unilaterally provide relief to the taxpayer.

With the effectivity of RR No. 10-2022, taxpayers now have another remedy in its pocket. It may be worth it to explore this remedy to the fullest and go gain all benefits that come along with it. In the age of increased globalization and cross-border transactions, any and all remedies to avoid or alleviate double taxation is a welcome development. The effectivity and efficiency of implementation, though, is still up in the air. Hopefully, the competent authorities could make seeking MAP assistance worthwhile for taxpayers.