BIR Releases New Form to Address Tax Leaks in the Philippines

The Bureau of Internal Revenue (BIR) released Revenue Regulations (RR) No. 19-2020 prescribing the utilization of the new BIR Form No. 1709, otherwise known as the Information Return on Related Party Transactions (Domestic and/or Foreign), which replaces BIR Form No. 1702H or Information Return on Transactions with Related Foreign Persons.

The new form aims to address the issues on tax leakages involving unreported related-party transactions. The Bureau mandates the proper declaration of domestic and/or foreign-related parties and arrangements. 

RELATED PARTIES

The following rules shall be determining factors on whether an entity is considered a related party:

• Close member of the family
• The entity and reporting entity belong to the same group (parent, subsidiary, and fellow subsidiary)
• Entity is a joint venture of the other entity
•  A person has influence over the entity

RELATED PARTY TRANSACTIONS

The following shall be considered under related-party transactions:

• purchases/sales of goods (finished or unfinished)
• purchases/sales of property and other assets
• rendering or receiving of services
• leases
• transfers of research and development
• transfers under license agreements
• transfers under finance arrangements (including loans and equity contributions in cash or in kind)
• provision of guarantees or collateral
• commitments to do something if a particular event occurs or does not occur in the future, including executory contracts
• settlement of liabilities on behalf of the entity or by the entity on behalf of that related party

RELATED PARTY DISCLOSURES

The following shall have separate disclosures on transactions and outstanding balances:

• Parent
• Entities with joint control/influence over the entity
• Subsidiaries
• Associates
• Joint ventures in which the entity is a joint venturer
• Key management personnel of the entity or its parent
• Other “related parties”

The following shall be declared for each category under the related party disclosures:

• Amount of the transactions
• Amount of outstanding balances, including the ff.:
  • Commitments
  • Terms and conditions
  • Declaration whether they are secured
  • Nature of considerations to be given
  • Guarantees given or received
• Provisions for doubtful debts related to the amount of outstanding balances
• Expense recognized during the period in respect of bad or doubtful debts due from related parties.

PROCEDURES AND GUIDELINES

Upon the accomplishment of BIR Form No. 1709, the following shall also be observed and attached to the form:

• Certified true copy of the contracts or proof of transaction
• Withholding tax returns and the corresponding proof of payment of taxes withheld and remitted
• Proof of payment of foreign taxes or ruling duly issued by the foreign tax authority where the other party is a resident
• Certified true copy of Advance Pricing Agreement (APA) *if any
• Transfer pricing documentation

Failure to comply with the provisions under this issuance shall result in a penalty of P1,000-25,000 as provided under Section 250 of the Tax Code.