The Bureau of Internal Revenue (BIR) issued Revenue Regulation (RR) No. 19-2020 to strengthen the monitoring of transactions between related parties. Effective since December 2020, this measure aims to ensure transparency, prevent tax avoidance, and align with international best practices on transfer pricing documentation.
If your company has dealings with related parties, whether local or foreign, failing to make the proper disclosures could lead to penalties, increased scrutiny, or audits. Read more to learn how to properly disclose related-party transactions and stay compliant.
What Counts as a Related Party Transaction
According to BIR, Related Party Transactions or RPTs are the “transfer of resources, services or obligations between a reporting entity and a related party, regardless of whether a price is charged.” The related party is a “person or entity that is related to the reporting entity.”
Under RR No. 19-2020, related parties include:
- Parent and subsidiary companies
- Entities under common control
- Key management personnel and their close family members
- Shareholders with significant influence over the entity
- Joint ventures and associates
Examples of RPTs include loans between related companies, the sale or purchase of goods or assets, service arrangements, royalty or licensing fees, and lease agreements. Even if the transaction is conducted at fair market value, it must still be disclosed if the parties are related.
Who Is Required to File Related Party Disclosures
Entities engaged in RPTs are required to file disclosures, including:
- Corporations and partnerships registered with the BIR
- Branches of foreign corporations operating in the Philippines
- Entities subject to transfer pricing documentation
- Taxpayers availing of preferential tax rates or incentives who transact with related parties
In addition, even individuals such as sole proprietors may be required to disclose if they are engaged in significant related party transactions that affect taxable income.
Required Forms Under Revenue Regulation No. 19-2020
RR No. 19-2020 introduced BIR Form No. 1709 (Information Return on Related Party Transactions), which the taxpayer or its authorized representative/s must accomplish. It must be filed together with your Annual Income Tax Return (ITR).
The form covers details such as related parties’ identity, the transactions’ nature and terms, and the amounts involved. You must also prepare and submit the following supporting documents:
- Certified true copy of the relevant contracts or proof of transaction
- Withholding tax returns and the corresponding proof of payment of taxes withheld and remitted to the BIR
- Proof of payment of foreign taxes or a ruling duly issued by the foreign tax authority where the other party is a resident
- Certified true copy of the Advance Pricing Agreement, if any
- Any transfer pricing documentation
Triple i Consulting can assist you with preparing these documents and ensuring your filing is complete, accurate, and in full compliance.
Filing Deadlines and Submission Methods
The submission deadline will vary depending on the taxpayer’s declared accounting period:
| Annual Income Tax Return for Fiscal Year (FY)/Calendar Year (CY) | Extended Deadline |
| FY ending 31 March 2020 and 30 April 2020 | 29 December 2020 |
| FY ending 31 May 2020 and 30 June 2020 | 31 January 2021 |
| FY ending 31 July 2020 and 31 August 2020 | 1 March 2021 |
| FY ending 30 September 2020 and 31 October 2020 | 31 March 2021 |
| FY ending 30 November 2020 and CY ending 31 December 2020 | 30 April 2021 |
Submission of BIR Form 1709 is now possible electronically through the BIR’s eAFS (Electronic Audited Financial Statements) system. Be careful, as incomplete, inaccurate, or late submissions can result in penalties.
Penalties for Non-Compliance
Section 250 of the Tax Code is very clear in the penalties imposed on taxpayers who fail to file certain information returns, in this case, the BIR Form 1709. Violators can expect a maximum penalty of Php 25,000.00 (approximately USD 520.00).
Other consequences include:
- Related party expenses could be disallowed for income tax purposes.
- Higher risk of audits and potential tax assessments.
- For repeat violations, the BIR may impose higher penalties and even recommend criminal prosecution for tax evasion if there is intent to conceal transactions.
Final Thoughts
Companies must disclose related-party transactions using BIR Form No. 1709, filed along with their annual income tax return. Ensure your application details are accurate, all accompanying documents are complete, and the submission meets the deadline. Properly disclosing related party transactions protects your business from penalties, maintains credibility with regulators, and helps demonstrate that your transactions are priced fairly and at arm’s length.
Do You Need Assistance Filing Form 1709 and Other Supporting Documents with Your Annual ITR?
Filing Form 1709 and other supporting documents with your Annual ITR can be complex, especially with strict documentation requirements and deadlines set by the BIR. Missing information, incomplete attachments, or late submission may lead to penalties, disallowance of related party expenses, or increased audit risk.
That’s where Triple i Consulting comes in. Our team of experienced lawyers and accountants provides comprehensive support for your business registration, so you don’t have to stress over the paperwork.
Contact us today to schedule an initial consultation with one of our experts:
- Fill out the form below
- Call us at: +63 (02) 8540-9623
- Send an email to: info@tripleiconsulting.com
