Special InTAX: April 2021 Issue 3 | Volume 1
InTAX is an official publication of R.G. Manabat & Co.'s Tax Group
InTAX is an official publication of R.G. Manabat & Co.'s Tax Group
Bureau of Internal Revenue
The Bureau of Internal Revenue (BIR) issued the following:
Revenue Memorandum Circular (RMC) 54-2021, 27 April 2021, to clarify certain provisions of Revenue Regulations (RR) No. 34-2020.
Below are the clarifications provided in the RMC:
- A taxpayer is required to file BIR Form 1709 (RPT Form) if the following conditions are present:
1. The taxpayer is required to file an Annual Income Tax Return (AITR);
2. The taxpayer has transactions with a domestic or foreign related party during the concerned taxable period; and
3. The taxpayer falls under any of the following categories:
a) Large Taxpayers;
b) Taxpayers enjoying tax incentives, i.e., Board of Investments (BOI)-registered and economic zone enterprises, those enjoying Income Tax Holiday (ITH) or subject to preferential income tax rate;
c) Taxpayers reporting net operating losses for the current taxable year and the immediately preceding two (2) consecutive taxable years;
d) A related party that has transactions with (a), (b) or (c).
- A Large Taxpayer is a taxpayer who has been classified and duly notified by the Commissioner of Internal Revenue (CIR) for having satisfied any or a combination of set criteria as prescribed in the said Regulations or any amendatory regulations.
- A corporate taxpayer that is subject to regular corporate income tax but has transactions that are subject to preferential income tax rate under tax treaties or the Tax Code are not required to file an RPT Form, provided that they do not fall under Section 2(a), (c) and (d) of RR No. 34-2020.
- Taxpayers referred under Sec 2 (b) of RR 34-2020 include, but are not limited to:
1. Proprietary educational institutions
2. Hospitals and regional operating headquarters
- International carriers, though subject to preferential rate under Section 28(AX3) of the Tax Code or under the relevant tax treaty, are not required to file an RPT Form if they are either subject to tax based on their Gross Philippine Billings or gross revenues. The same rule applies to international carriers that are exempt from tax under the tax treaty or on the basis of reciprocity. On the other hand, international carriers that are subject to tax on their profits from sources within the Philippines are required to file an RPT Form.
- For a taxpayer operating within the economic zone, generally, only those enjoying tax incentives with respect to income tax are required to file an RPT Form. However, if the taxpayer falls under Section 2(a), 2(c) or 2(d) of RR No. 34-2020, then it is required to file an RPT Form.
- Taxpayers who are exempt from income tax under Section 30 or similar provisions of the Tax Code or special laws are not required to file an RPT form regardless of whether such taxpayer had dealings with a related party that falls under Section 2 (a), (b) or (c) of RR No. 34-2020.
- Post-employment benefit plans are not required to file an RPT Form if their related party transactions consist only of the contributions from their sponsor employers.
- The net operating losses for income tax purposes should be the basis and not the amount reflected in the Audited Financial Statements (AFS).
- To determine whether a taxpayer is required to file an RPT Form pursuant to Section 2(d) of RR No. 34-2020, the transacting taxpayer must verify first if its related party is required to file an RPT Form for falling under categories a to c.
- The materiality threshold is only relevant when determining who are required to prepare a TPD. A taxpayer who is required to file an RPT Form must disclose all related party transactions irrespective of the amount.
- In filling out the RPT Form, similar transactions with the same related party must be aggregated.
- The TPD and other supporting documents shall no longer be attached to the RPT Form but shall instead be made available during audit.
- Actual amounts of the related party transactions shall be declared in the RPT Form.
- The filing of RPT Form shall only be mandatory for short period returns that are originally required by law or existing revenue issuances to be filed in 2021 and subsequent years.
- A taxpayer who is required under Section 2 to file the RPT Form shall only prepare its TPD if it satisfies any of the conditions set out under Section 3. If the taxpayer is not required to file the RPT Form, it is not also mandated to prepare a TPD.
- The preparation of a TPD shall be mandatory if the taxpayer meets any of the following conditions:
o Annual gross sales/revenue for the subject taxable period exceeding One Hundred Fifty Million Pesos (P150,000,000) and the total amount of related party transactions with foreign and domestic related parties exceeds Ninety Million Pesos (P90,000,000)
o Sale of tangible goods involving the same related party exceeding Sixty Million Pesos (P60,000,000) within the taxable year
o Service transaction, payment of interest, utilization of intangible goods or other related party transaction involving the same related party exceeding Fifteen Million Pesos (P15,000,000.00) within the taxable year
o If the TPD was required to be prepared during the immediately preceding taxable period for exceeding (a) to (c).
- The annual gross sales or revenue referred to under Section 3(a) of RR No. 34-2020 is the amount of gross sales/receipts/revenues/fees reported in the AITR, irrespective of the source and identity of the other party to the transaction.
- In computing the total amount of related party transactions with foreign and domestic related parties, the following items shall be totaled:
i. Amounts received and/or receivable (trade receivables) from related parties during the taxable year
ii. Amounts paid and/or payable (trade payables) to related parties during the taxable year less any
iii. Outstanding balances of loans and non-trade amounts due from/to all related parties (non-trade receivables and payables).
Any compensation paid to key management personnel, dividends and branch profit remittances shall not be included in the computation.
- The share in the net income of an associate or joint venture is not required to be reported in the RPT Form.
- If a TPD was required to be prepared during the immediately preceding taxable period for exceeding the thresholds under Section 3(a) or (b) of RR No. 34- 2020, the taxpayer is also mandated to prepare a TPD for the current taxable year despite not meeting any of the materiality thresholds.
- If the taxpayer fails to provide any material information (e.g. details of the related parties and related party transactions, etc.), the Bureau will regard the RPT Form as not duly filed and the penalty for failure to file such information return will be imposed.
- The RPT Form requires the amounts in foreign currency and its equivalent in the local currency. However, if several currencies were used for the related party transactions and it seems impractical to indicate all of them in the RPT Form, their equivalent in the local currency should instead be disclosed. In all cases, the exchange rates to be used should be the rate at the transaction date. The same rule applies to the preparation of a TPD.
- For the related party transactions covered by an Advance Pricing Agreement (APA) to be exempt from disclosure in the RPT Form, the APA should be approved and accepted by the BIR.
- RR No. 34-2020 has no retroactive effect.
- Effectivity date of RR No. 34-2021 is on 23 December 2020
RMC 55-2021, 27 April 2021, to circularize the updated list of BIR Forms and its availability.
The updated list of BIR Forms (attached as “Annex A”) are available for use/downloading, through the following:
- Electronic Filing and Payment System (eFPS); or
- Offline Electronic Bureau of Internal Revenue Forms (eBIR forms) Package v7.8; or
- BIR website (www.birg.gov.ph) under the Forms section.
Attached are the full texts of the issuances.
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