Tax Alert No. 34 [Revenue Memorandum Circular (RMC) No. 54-2021 dated 27 April 2021] (2024)

Clarifies certain provisions of Revenue Regulation No. 34-2020

The Commissioner of Internal Revenue has issued RMC No. 54-2021 to address the frequently asked questions regarding the submission of BIR Form No. 1709, or the Related Party Transactions (RPT Form), and the preparation of Transfer Pricing Documentation. We highlight below some salient provisions.

Clarifications on the taxpayers required to file the RPT Form

A taxpayer is required to file an RPT Form if (1) it is required to file an Annual lncome Tax Return; (2) it has transactions with a domestic or foreign related party during the concerned taxable period; and (3) it falls under any of the categories enumerated in Section 2 of RR No. 34-2020.
Proprietary educational institutions and hospitals, regional operating headquarters, and international carriers that are subject to tax on their profits from sources within the Philippines are considered as taxpayers subject to preferential income tax rate. Hence, they are required to file an RPT Form.
Only taxpayers enjoying tax incentives with respect to income tax (i.e., Income Tax Holiday or 5% Special Tax on Gross Income) are required to file the RPT Form

Clarifications on the taxpayers not required to file the RPT Form

Taxpayers operating within the economic zone but are subject to regular corporate income tax are not required to file RPT Form unless they fall under a different criteria in Section 2 of RR No. 34-2020.
Taxpayers who are exempt from income tax, including regional or area headquarters and representative offices of foreign corporations that are not allowed by law to derive income from the Philippines, are not required to file an RPT Form.
Post-employment benefit plans are also not required to file an RPT Form if their related party transactions consist only of the contributions from their sponsor employers.

Clarifications on the information to be disclosed in the RPT Form

All related party transactions, irrespective of amounts, must be disclosed in the RPT Form.
Unless impractical due to numerous currencies used, amounts of transaction in foreign currency and its equivalent in the local currency using the exchange rate at the transaction date shall be disclosed in the RPT Form.

Other Matters

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Now, let's delve into the key concepts presented in the article that discusses Revenue Memorandum Circular (RMC) No. 54-2021, which addresses clarifications regarding the submission of BIR Form No. 1709 (Related Party Transactions or RPT Form) and the preparation of Transfer Pricing Documentation, in light of Revenue Regulation No. 34-2020.

RPT Form Filing Requirements:
- A taxpayer must file an RPT Form if:
  - It is required to file an Annual Income Tax Return.
  - It has transactions with a domestic or foreign related party during the concerned taxable period.
  - It falls under any of the categories enumerated in Section 2 of RR No. 34-2020.
Taxpayers Subject to Preferential Income Tax Rate:
- Certain entities such as proprietary educational institutions, hospitals, regional operating headquarters, and international carriers subject to tax on their profits from sources within the Philippines must file an RPT Form.
Tax Incentives and RPT Form Filing:
- Taxpayers enjoying tax incentives, such as Income Tax Holiday or 5% Special Tax on Gross Income, are required to file the RPT Form.
Exemption from RPT Form Filing:
- Taxpayers operating within economic zones subject to regular corporate income tax are not required to file RPT Form unless falling under different criteria in Section 2 of RR No. 34-2020.
- Taxpayers exempt from income tax, including regional or area headquarters and representative offices of foreign corporations not allowed to derive income from the Philippines, are exempt from filing RPT Form.
- Post-employment benefit plans are exempt if related party transactions consist only of contributions from sponsor employers.
Information Disclosure in RPT Form:
- All related party transactions, irrespective of amounts, must be disclosed in the RPT Form.
- Transaction amounts in foreign currency and their equivalents in the local currency, based on the exchange rate at the transaction date, should be disclosed, unless impractical due to numerous currencies used.
Penalties for Incomplete RPT Forms:
- RPT Forms lacking material information will be treated as not duly filed, and penalties for failure to file an information return will apply.
Transfer Pricing (TP) Audit:
- The BIR retains the right to conduct a TP audit regardless of RPT Form compliance.
- TP audit targets are determined based on the results of the initial TP risk assessment of RPT Forms submitted by taxpayers.
Effective Date of RR No. 34-2020:
- RR No. 34-2020 took effect on December 23, 2020.
- Its provisions apply only to RPT Forms required to be submitted after its effective date.

For more detailed information, the full version of RMC No. 54-2021 can be accessed through the BIR website.