REVENUE MEMORANDUM CIRCULAR NO. 76-2020 issued on July 29, 2020 clarifies certain issues on the filing of BIR Form No. 1709 [Related Party Transaction (RPT) Form], and its attachments pursuant to Revenue Regulations (RR) No. 19-2020.

The RPT Form shall be accomplished and filed manually by Philippine taxpayers with related party transactions (RPTs) regardless of the amount and volume of transactions. Individuals who are considered related parties of a reporting company are also required to submit the RPT Form in their individual capacities. A transfer pricing documentation (TPD) is required to be attached in the RPT Form.

Since the law took effect on July 25, 2020, the RPT Form is now required to be submitted as an attachment to the Annual Income Tax Return (AlTR) for fiscal year ending March 31, 2020, tentative or otherwise, irrespective of the date of filing of the said AITR, and to all AITRs to be submitted after such date. Thus, taxpayers who manually filed their AlTR and submitted the attachments for fiscal year ending March 31, 2020 prior to the effectivity of RR No. 19-2020 are still required to file and submit the RPT Form and its attachments on or before July 30, 2020. AITRs for calendar year 2019 or for fiscal year ending before March 31, 2020 are not covered by RR No. 19- 2020.

However, considering the unanticipated effectivity of RR No. 19-2020 five (5) days before the deadline set for the filing of the required attachments to the AlTR for fiscal year ending March 31, 2020 and further considering the COVID-19 pandemic situation, the taxpayers are given another two (2) months from July 30, 2020, or until September 30, 2020, within which to prepare, file and submit the RPT Form and its required attachments.

If there is an extension to submit the attachments, there is no need to resubmit the AlTR to the BIR. The taxpayer will only have to attach a photocopy of the duly filed AITR when submitting the RPT Form and its attachments. The RPT Form is downloadable from the BIR website as BIR Form
No. 1709.

For manual filers, the RPT Form and its required attachments must be submitted, together with the AlTR and other required attachments, at the Large Taxpayers (LT) Division/Revenue District Office (RDO) where the taxpayer is registered, on or before the statutory due date. For eFPS filers, the hard copy of RPT Form and its required attachments must be submitted manually and stamped “Received” at the LT Division/RDO where the taxpayer is registered, within fifteen (15) days from
the statutory due date or actual date of electronic filing of the AITR, whichever comes later.

If the parent company has a TPD already covering the transactions with subsidiaries, the subsidiaries can use the same TPD, provided the taxpayer relied upon such TPD in determining the transfer prices. The local file is preferred, however, since it provides a more detailed information relating to specific intercompany transactions.

The TPD should include the date of creation or preparation so as to ensure its applicability to the RPTs conducted in the taxable year concerned. The TPD should be prepared prior to or at the time of the transaction, or after the transaction but not later than the date of filing of the tax return for the fiscal/calendar year in which the transaction takes place. The TPD has to be updated yearly if there are significant changes in the business model, the factors or conditions considered in drafting
the TPD, and the nature of the RPTs.

The TPD for the immediately preceding year may apply to subsequent RPTs if the transaction for which the past TPD was prepared is of the same type as the transaction undertaken in the taxable year concerned and was undertaken with the same related party/ies; and if the taxpayer can prove that the same conditions, which were made the bases for the past TPD, are squarely applicable to the RPTs in the taxable year concerned, including, but not limited to, the following;
a. the relationship between the taxpayer and its related party;
b. the conditions made or imposed between them;
c. the transfer pricing method/s used for the transaction; and
d. the arm’s length conditions.
RR No. 19-2020 requires full disclosure of all RPTs, which is defined as transfer of resources, services or obligations between a reporting entity and a related party, regardless of whether a price is charged. Unlike the disclosure of related party transactions in the notes to the financial statements, the Regulations requires more details to be disclosed in Parts Il and Ill of the RPT Form, which are not usually disclosed by the company in the financial statements. Said details are specified in the
Circular.

Dividends and redemption of shares between and among related parties (either paid or payable, received or receivable), though not usually covered by a TPD, should likewise be disclosed in the RPT Form. The following documents have to be maintained as proof of dividend payment:
a. Notarized Board of Directors’ resolution approving the issuance of dividends, which shall include the amount of dividends, and dates of declaration and payment, among others;
b. Certification under oath by the corporate secretary/custodian banks/depository account holders/broker dealers stating in detail the legal and beneficial owners of all issued and outstanding shares as of record date, their corresponding subscriptions, date/s of acquisition, percentage of ownership and the allocation of dividend;
c. General Information Sheet for the year immediately preceding the date of declaration;
d. Proof of payment of such dividends (e.g. bank certificate, telegraphic or wire transfer, etc.); and
e. Proof of payment of withholding tax.

The contracts to be attached to the RPT Form are those executed by the parties to substantiate the RPTs in the taxable year concerned. Thus, if the related parties executed a contract in the taxable year concerned but are intended for transactions to be entered into in a subsequent year, said contract is not required to be attached. On the other hand, contracts executed in the previous year, but are still enforceable and applicable to the RPTs in the taxable year concerned, have to be attached.

Any taxes paid to a foreign country by a Philippine taxpayer must be declared in, and the proof of payment thereof must be attached to, the RPT Form so the BIR would be able to compute the correct amount of foreign taxes to be credited against the tax due for the taxable year concerned, provided said foreign taxes were not claimed as deductions during the year.

If the taxpayer earned an income from its related party in a foreign country but has yet to pay the tax thereon after the filing of the RPT Form, the taxpayer still has to declare in the RPT Form such income and indicate in the column for withholding taxes that it did not pay any tax thereon. The taxpayer must attach the relevant contract, proof of receipt of such income, and a copy of the Tax Residency Certificate issued by International Tax Affairs Division (ITAD) and submitted to the
foreign country when it obtained treaty benefits. However, if the taxpayer paid the corresponding tax after the filing of the RPT Form, the taxpayer must inform the tax examiner during audit of such fact and present the proof of payment thereof.

Normally, it will be the related party abroad that will have a copy of the “proof of payment of foreign taxes or ruling duly issued by the foreign tax authority”. However, the Philippine taxpayer is typically the one who bears the Income Tax on any income derived abroad. Therefore, it has the right to know how much taxes it has to pay in the foreign country and the right to obtain any document related to the payment of foreign taxes, such as a copy of the return filed for said income and/or a copy of the ruling issued by the foreign tax authority.

The BIR, in turn, has the right to obtain the relevant information and documents from the Philippine taxpayer and, in so doing, may enforce all its rights to obtain the same within the bounds of the law. This is without prejudice, however, to the BIR enforcing its right to obtain said information pursuant to existing and effective tax treaty. To be acceptable as proof, the document showing payment of foreign taxes or copy of foreign ruling duly issued by the relevant foreign tax authority
must be duly authenticated or apostillized.

The Tax Treaty Relief Application (TTRA) to be indicated in the RPT Form must be those filed with the ITAD relative to the income payments made by the Philippine taxpayer to its related party/ies. It is imperative then for the tax examiners to coordinate with the ITAD as to the status of these pending TTRAs.

A penalty of not less than One Thousand Pesos (₱ 1,000) but not more than Twenty-Five Thousand Pesos (₱ 25,000) shall be imposed for failure to file the RPT Form and its attachments due to reasonable cause and not to willful neglect pursuant to Section 50 of the Tax Code. In case of repetition of such offense, the maximum of the penalty (₱ 25,000) prescribed therefor shall be imposed pursuant to Section 274 of the Tax Code.

If, after receiving valid summons to produce the attachments, the taxpayer still fails or neglects to produce the same, the partner, president, general manager, branch manager, treasurer, officer-in-charge, and the employees responsible for the violation shall, upon conviction, be punished by a fine of not less than Five Thousand Pesos (₱ 5,000) but not more than Ten Thousand Pesos (₱ 10,000) and suffer imprisonment of not less than one (1) year but not more than two (2) years,
pursuant to Section 266 of the Tax Code.