Philippines: Proposed legislation, taxation of digital economy

Philippines: Proposed legislation

The Bureau of Internal Revenue (BIR) released guidance (Revenue Memorandum Circular (RMC) No. 60-2020) as a reminder to entities doing business through digital means to register with the BIR.


Persons conducting business through online transactions are required to register, withhold, and remit the proper taxes and to file the applicable tax returns. The circular reiterates guidance previously provided in 2013 in relation to online business transactions.

Proposed legislation

The “Digital Economy Taxation Act of 2020” (House Bill No. 6765) was filed in response to the urgency of generating more funds in light of the COVID-19 pandemic and in anticipation of the increased digitalization of the country’s economy.

Services that would be subject to the 12% value added tax (VAT) include:

  • Services rendered electronically in the course of trade or business
  • Digital advertising services supplied by any resident or nonresident
  • Subscription-based services supplied by any resident or nonresident and all other services that can be delivered through an information infrastructure (i.e., the internet)

For purposes of the bill, persons responsible for the appropriate Philippine taxes would include: 

  • “Network orchestrators” (in general, those using information technology to create a network of accredited service providers and service consumers, acting as intermediaries that facilitate the matching of a consumer’s service needs with a provider’s available services)
  • Electronic commerce platforms (typically information technology companies that act as intermediaries by connecting sellers and consumers through an electronic means of transmission)

Network orchestrators and electronic commerce platforms under the proposed legislation would be appointed to be withholding agents of the seller for VAT purposes if the payment for the VAT-able sale are channeled through them and have been derived from membership in a network orchestrator system or electronic commerce platform. The VAT withheld would be required to be remitted within 10 days following the end of the month of withholding. Network orchestrators would also withhold tax on the income and/or revenue derived by the persons through their membership in the network orchestrator system.

Non-residents that render digital services, or those that act as network orchestrators or electronic commerce platforms, would have the privilege to do business in the Philippines exclusively through a representative office or an agent which would be a resident corporation in the Philippines. Under current provisions of the tax law, non-residents not engaged in trade or business in the Philippines are generally not subject to Philippine income tax unless they derive income from sources within the Philippines. Further, services (when performed by non-residents in the Philippines) are considered as Philippine-sourced income subject to VAT that to be withheld and remitted by the Philippine-based buyer. 

KPMG observation

In the case of digital transactions, it may be arguable whether the income earned by a non-resident through services rendered online are Philippine-sourced or otherwise. Similarly, a common observation among tax practitioners is that the enactment of the bill still would not address rules on the situs of income earned using online platforms. 

It is expected that the legislation will undergo revisions as further deliberations are made in Congress.

Read an August 2020 report prepared by the KPMG member firm in the Philippines

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