MANILA, Philippines — Taxpayers were given more time to prepare for new regulations that order the reporting of deals entered into by companies and their subsidiaries.
Under Revenue Memorandum Circular 98-2020 dated September 15, the Bureau of Internal Revenue (BIR) pushed back the end-September deadline for reporting of “related party transactions” (RPT) due to “continuing adverse impacts of COVID-19 pandemic.” The new deadline was set on December 29.
The transactions need to be attached on annual income tax returns submitted on varying schedules by firms. The later the period covered by the return, the later the deadline such that returns covering November to December this year due April 30 next year would have to contain the information.
A new BIR Form No. 1709 will be used for this purpose.
BIR wants to monitor RPT in a bid to plug potential tax leaks from deals such as property purchases, leases or license agreements. These transactions are charged final withholding taxes, not income levies so they do not get captured on traditional returns.
Apart from pandemic disruptions, Eleanor Roque, tax principal at P&A Grant Thornton, an auditing firm, said complying with RPT disclosure rules can be tedious because of extensive information and attachments the new regulation requires.
“It also introduced new requirements such as the new BIR Form and submission of the transfer pricing documentation. Thus, there were requests to give the taxpayers sufficient time to collate and prepare the requirements,” Roque said in a text message.
“Thankfully, the BIR listened and issued the latest memo extending the deadlines,” she added.
BIR, which accounts for around 80% of tax revenues yearly, has struggled to collect revenues this year as consumers held back on spending while staying in their homes, while brick and mortar firms shut down.
From January to July, BIR has so far generated P1.12 trillion, down 10.5% year-on-year, Treasury data showed. BIR is tasked to collect P1.7 trillion, a goal revised downwards thrice this year after the health crisis messed with the government’s budget plans.
The downwardly revised target is also 25.3% from last year’s collection of P2.33 trillion.
For Roque, plugging tax leaks from RPTs has now become more important than ever before for the government. “The BIR wants to ensure that RPT transactions of group of companies follow the arm’s length principle and that there is no profit shifting or expenses shifting among the group,” she said.