The Bureau of Internal Revenue (BIR) released on July 10, 2020 Revenue Regulations (RR) No. 19-2020 to prescribe the use of BIR Form No. 1709 or the Information Return on Related Party Transactions (International and/or Domestic) and the submission of its attachments. The form will be used by the taxpayers with related party transactions for the proper disclosures and as support in the implementation of Philippine Accounting Standards (PAS) 24 on Related Party Disclosures.

The RR is rooted on the Transfer Pricing Guidelines prescribed in RR No. 2-2013. Seemingly, BIR is now being active with its implementation to go after the non-compliant taxpayers.

Overview to RR No. 2-2013 

Due to the increase in globalization in trade, the Philippines is now faced with the risk of abuse of the tax practices. More often, taxpayers find a way to benefit in the loopholes of our tax system and rules. One example of the most prone to abuse is the related party transaction. Complex transactions between related parties, either domestically or internationally affiliated parties, may welcome the possibility of under-reporting of income or excessive claiming of expenses. These harmful tax practices may equate to millions, or even billions of losses in the Government revenues. Hence, BIR issued RR No. 2-2013 to set-up guidelines on transfer pricing. 

What is Transfer Pricing?

It is the pricing of cross-border, intra firm, or domestic transactions between related parties or associated enterprises. The Company with related party transactions should adopt a transfer pricing, under different transfer pricing methods, which should produce the most reliable result and which follows the arm’s length principle. 

What is Arm’s Length Principle?

It is the internationally recognized standard for transfer pricing between associated enterprises. In determining transfer price under the arm’s length transaction, there should be a comparability analysis between the pricing taken or used by the taxpayer (with related party transactions) and those adopted by other entities with similar transactions.

Related Party – Definition and Coverage

A related party is defined under RR No. 19-2020 as follows:

1. A person or a close member of that person’s family is a related party if he/she:

a. has control or joint control of the reporting entity; 

b. has significant influence over the reporting entity; or,

c. is a member of the key management personnel of the reporting entity or of a parent of the reporting entity. 

2. An entity is a related party if any of the following conditions are present: 

a. The entity and the reporting entity are members of the same group;

b. One entity is an associate or joint venture of the other entity;

c. Both entities are joint ventures of the same third party;

d. One entity is a joint venture of a third entity and the other entity is an associate of the third entity;

e. The entity is a post-employment benefit plan for the benefit of employees of either the reporting entity or an entity related to the reporting entity. If the reporting entity is itself such a plan, the sponsoring employers are also related to the reporting entity;

f. The entity is controlled or jointly controlled by a person identified in (1). 

g. A person identified in (1a) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity); or,

h. The entity, or any member of a group of which it is a parent provides key management personnel services to the reporting entity or to the parent of the reporting entity.

Related Party Transactions – Definition and Coverage

Related party transactions include, but not limited to, the following: 

  • purchases or sales of goods (finished or unfinished); 
  • purchases or 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; and,
  • settlement of liabilities on behalf of the entity or by the entity on behalf of that related party.

Accomplishing BIR Form No. 1709

Basically, the new BIR Form has four (4) parts namely:

Part I: Background Information – This includes basic information of the taxpayer which are normally presented in regular tax returns such as Taxpayer Identification Number (TIN) and registered address.

Part II: Summary of Related Party Transactions – This is divided on transactions with a foreign related party or domestic related party. This includes the following information:

    • Nature of transaction
    • Name, TIN, and address of foreign/domestic related party
    • Availment of Tax Treaty Benefits, if foreign related party
    • Amount of Income/Expense and the tax withheld on income payments to related party for expenses and tax withheld by the related party for income

Part III: Details of Related Party Transactions per Category – This discloses the transactions and outstanding balances for each of the following categories:

    • the parent; 
    • entities with joint control or significant 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; and 
    • other related parties

For each of above category, the following information shall be provided: 

    • the amount of the transactions; 
    • the amount of outstanding balances, including commitments, and their terms and conditions, including whether they are secured, and the nature of the consideration to be provided in settlement, and details of any guarantees given or received; 
    • provisions for doubtful debts related to the amount of outstanding balances; 
    • the expense recognized during the period in respect of bad or doubtful debts due from related parties.

Part IV: Other Information – This discloses other information related to the taxpayer such as its functional profile or a description of the taxpayer’s business, industry in which it operates, and of the business of the related parties with whom the taxpayer has transacted. This is also a disclosure of the business overview of the ultimate parent, i.e. profile of the multinational group of which the taxpayer belongs, name, address, legal status and country of tax residence of each of the related parties, and ownership linkages among them.

Required Attachments

The following are required attachments to BIR Form No. 1709: 

  1. Certified true copy of the relevant contracts or proof of transaction; 
  2. Withholding tax returns and the corresponding proof of payment of taxes withheld and remitted to the BIR; 
  3. Proof of payment of foreign taxes or ruling duly issued by the foreign tax authority where the other party is a resident; 
  4. Certified true copy of Advance Pricing Agreement (APA), if any; and,
  5. Any transfer pricing documentation.

Many taxpayers may view this as an additional burden on the reporting side considering the attachments needed. With this new RR, BIR is now stepping up to chase taxpayers taking advantage of the special connections with its related parties which may result to misstatements in the reported revenues and expenses thereby eroding the supposed tax base. On the other note, BIR has already issued last year Revenue Audit Memorandum Order (RAMO) No. 1-2019 setting guidelines on the Transfer Pricing Audit to be followed by its revenue officials. 

With all these developments in the BIR rules in transfer pricing, concerned taxpayers should now be conscious with their compliance on transfer pricing requirements and documentations.


RR No. 19-2020 –

RR No. 2-2013 –

RAMO No. 1-2019