Finally, the Philippines has now issued its transfer pricing guidelines this 2013. This is the response of the tax authority in the increase in globalization trade that may possibly lead to harmful tax practices, particularly the issue on 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 guidelines, transfer pricing is defined as the pricing of cross-border, intrafirm transactions between related parties or associated enterprises. It is also applicable to domestic transactions.
Further, the Philippine transfer pricing guidelines are largely based on the arm’s length methodologies as set out under the Organisation 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