Tax Blog: Transfer Pricing Guidelines in the Philippines

March 7, 2013

Finally, the Philippines issued its Transfer Pricing Guidelines in the Philippines in 2013. This move responds to the increasing globalization of trade, which may lead to harmful tax practices, particularly concerning transfer pricing.

Transfer pricing was defined in the revenue regulations based on the definition provided by the UN Practical Manual on Transfer Pricing for Developing Countries. According to the Transfer Pricing Guidelines in the Philippines, transfer pricing refers to the pricing of cross-border, intrafirm transactions between related parties or associated enterprises. This ensures that transactions between entities under common control are conducted at arm’s length, meaning they should be priced as if the entities were independent of each other. These guidelines also apply to domestic transactions, particularly when there is a risk of tax avoidance or profit shifting. Proper documentation and compliance with these guidelines are essential to prevent disputes with tax authorities and ensure transparency in financial reporting.

Further, the Philippine transfer pricing guidelines are largely based on the arm’s length methodologies as set out under the Organization for Economic Cooperation and Development (OECD) Transfer Pricing Guidelines. The issuance of the transfer pricing guidelines was based on the authority of the Commissioner of Internal Revenue as provided under Section 50 of the Philippine Tax Code.

In case that a taxpayer under tax investigation is being questioned by the BIR relative to transfer pricing issue, he must demonstrate that the transfer prices are consistent with the arm’s length principle. The documentations are not required to be submitted when the tax returns are filed but such should be retained and submitted to the BIR when required or requested.

The details of transfer pricing documents include, but are not limited to, the following:

(1) Organizational structure

(2) Nature of the business/industry and market conditions

(3) Controlled transactions

(4) Assumptions, strategies, policies

(5) Cost contribution arrangements (CCA)

(6) Comparability, functional and risk analysis

(7) Selection of the transfer pricing method

(8) Application of the transfer pricing method

(9) Background documents

(10) Index to documents

To know more about Philippine transfer pricing guidelines or if you need any assistance on your tax or accounting matters, please contact Triple i Consulting.

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