Skip to content

8box Solutions Inc.


Contact Number: 09369340340

REVENUE MEMORANDUM CIRCULAR NO. 77-2021 issued on June 15, 2021 clarifies certain provisions of Revenue Memorandum Order (RMO) No. 14-2021.
        Only persons, natural or juridical, who are residents of one or both of the Contracting States may avail of treaty benefits. To establish the fact of residency in a contracting state, the nonresident income recipient should submit a Tax Residency Certificate (TRC) duly issued by the tax authority of the country of residence. Failure to submit the same would result in the denial of the nonresident’s claim.
        The denial based on the issue of residency will not contravene the pronouncement of the Supreme Court in the case of Deutsche Bank AG Manila Branch vs. Commissioner of Internal Revenue (G.R. No. 188550, August 19, 2013). The issue in the said case was premised on the nonresident’s failure to file a tax treaty relief application (TTRA) within the 15-day period prescribed under RMO No. 1-2000.
         The rationale of RMO No. 14-2021 is to ensure that the reliefs granted under tax treaties are accorded to the parties clearly entitled thereto. Certainly, relief from double taxation will not be granted to a nonresident who fails to establish their residency in a contracting state. Pursuant to Revenue Administrative Order No. 1-2019, the International Tax Affairs Division (ITAD) of the Bureau of Internal Revenue (BIR) has the original jurisdiction over matters involving the application and interpretation of tax treaties. Therefore, rulings involving the application and interpretation of tax treaties should originate from the ITAD.
        If the nonresident submitted to the income payor a TRC and the appropriate BIR Form No. 0901 prior to the payment of income, the income payor may apply the provisions of the applicable treaty in the withholding of taxes; provided that all the conditions for the availment thereof, other than residency, have been satisfied. Otherwise, the regular rates imposed under the Tax Code should be applied.
        When an item of income was subjected to taxation in accordance with the provisions of the relevant tax treaty, the withholding agent/income payor shall file with ITAD a request for confirmation that the tax treatment of such income was proper.
         If the treaty rate was applied on the nonresident’s income, the income payor (domestic or foreign), should be the one to file the request for confirmation with the ITAD. The income payor is not prevented, however, from authorizing the nonresident or any other person to file such request for and on its behalf, provided that the latter is equipped with a Special Power of Attorney (SPA).
          Depending on the type of income, the request for confirmation with complete documentary requirements shall be filed by the withholding agent, domestic or foreign, on or before the dates prescribed below:

Type of Income Date of Filing
Capital Gains At any time after the transaction but shall not be later than the last day of the fourth month following the close of the taxable year when the income is paid or when the transaction is consummated
Other types of income At any time after the close of the taxable year but not later than the last day of the fourth month following the close of such taxable year when the income is paid or becomes payable, or when the expense/asset is accrued or recorded in the books, whichever comes first

          The general requirements shall be submitted only whenever they are applicable to the case. Thus, if an expense has not yet been paid but has already been accrued in the books of the withholding agent, the proof of remittance is not required to be submitted. It is imperative for the nonresident income payor-withholding agent to appoint his/her/its authorized representative in the Philippines.
           One consolidated request for confirmation per nonresident income recipient, regardless of the number and type of income payments made during the year, shall be filed. The nonresident has to submit one original and authenticated TRC to each income payor per year. In the alternative, a certified true copy of the original may be submitted to other payors of income if the original copy is no longer available, with a notation as to whom the original copy was previously submitted.
       The same rule applies to the proof of establishment or incorporation, Certificate of Nonregistration or License to Do Business in the Philippines duly issued by the Securities and Exchange Commission, and Certificate of Business Registration/ Presence duly issued by the Department of Trade and Industry.
        The nonresident, or its authorized representative, should file a TTRA with complete documentary requirements and a claim for refund at any time after the payment of the withholding tax if the regular rate under the Tax Code was applied on the income instead of the treaty rates. For long-term contracts involving the payment of interests and royalties and other types of income where the condition for entitlement to treaty benefits is not dependent on time threshold, the annual updating is not mandatory. In this case, the BIR will issue a one-time certification that is presumably valid for the whole duration of the contract so long as there is no relevant and significant change in the facts or circumstances upon which the ruling was based (e.g. change in the country of residence, the recipient of the income or the beneficial owner of the income, or the legal basis).
             It shall be the duty of the withholding agent to ensure that the nonresident continues to be a resident of the same country for the whole duration of the contract, and for this purpose, it may require the submission of TRC at the beginning of each year. If there would be material changes in the facts or circumstances upon which the previous ruling was based in the succeeding year, a request for confirmation shall again be filed by the withholding agent.
         During audit, the withholding agent shall be required by the tax auditor to prove that the facts and circumstances did not change at any time after the issuance of the Certificate of Entitlement to Treaty Benefit (COE). On the other hand, in the case of long-term contract of services where the existence of a Permanent Establishment (PE) in the Philippines is dependent on time threshold (e.g. days of physical presence of the nonresident company’s employees in the Philippines within a twelvemonth period or calendar year or taxable year), the annual updating is mandatory. For contract of services, the COE shall be limited to a particular period of engagement.
            Applications with incomplete documents will no longer be accepted, given the limited storage of ITAD. In case an application with incomplete documents was inadvertently accepted, the filer shall be duly notified of the result of evaluation and the docket shall be returned immediately to said filer.
The intention of RMO No. 14-2021 is to require all filers, other than the nonresident income recipient or withholding agent, to present a notarized SPA when filing an application with ITAD. The notarized SPA shall expressly state the authorized representative(s)’s authority to sign the Application Form and/or to file the TTRA or request for confirmation.
        A foreign enterprise may submit the audited financial statements (AFS) of the permanent establishment (PE) to prove that the income is not effectively connected with its PE in the Philippines. If the same is not yet available at the time of filing, it may submit a Sworn Certification signed by a principal officer of the PE, which shall contain material facts that may lead the BIR to believe that the income is not effectively connected with the PE and that the PE is not material to the realization of such income. In evaluating the case, ITAD may, even after the filing of the application, still require the presentation of the AFS of the PE if the same is already available.
           To prove that the interest rate imposed on a loan or debt-claims is arm’s length if the debtor and creditor are related parties is the transfer pricing documentation (TPD) of the nonresident creditor. In the event that a full TPD is not available, the nonresident may prove, through its Transfer Pricing Policy for Intercompany Loans or any equivalent transfer pricing study, that the interest rate imposed on the loan or debt-claim is arm’s length.
            The BIR prefers the audited interim FS when computing the real property interest of the issuing domestic corporation at the time of the transaction. In the alternative, the unaudited interim FS; and lapsing schedule as of the date of transfer or alienation of property, may be submitted. There will be no automatic denial for failure of the filer to file the RFC within the prescribed period. Denials will purely be based on the merits of the case, i.e., whether or not the nonresident has established and proved their entitlement to treaty benefit. However, the penalty for late filing shall be imposed (Section 13 of RMO No. 14-2021). In meritorious cases, the nonresident or withholding agent may be granted an extension within which to submit the required documents but in no case shall it exceed thirty (30) days.
                All taxpayers with pending TTRAs will still receive a “Final Notice to Submit Additional Documents” despite receiving a notice prior to the effectivity of the new RMO, and will be given three (3) months from receipt thereof to submit the required documents. Those who have been notified that their applications have been archived will no longer receive a Final Notice but are obliged to submit the required documents indicated in the previous notice/s within four (4) months from the effectivity of the new RMO.
                 If the RFC or TTRA is approved, the BIR will issue a COE instead of the usual BIR Ruling. The COE will still contain the material facts of the case and a ruling confirming the nonresident’s entitlement to treaty benefit. For TTRAs relating to interests, dividends, and royalties, which were filed prior to the effectivity of RMO No. 8-2017, the BIR may still issue a Compliance Check Report to be consistent with the manner of approving similar applications prior to the effectivity of the new RMO.
           If the nonresident has income payments subjected to treaty rates in 2020 and prior years but no TTRA or Certificate of Residence for Tax Treaty Relief (CORTT) Form was filed therefor, the withholding agent has until the last working day of 2021 to file an RFC with complete documentary requirements. Failure to file the same within the prescribed deadline would be subject to the provisions of Sections 250 and 255 of the Tax Code. A penalty of ₱1,000 per failure to file a CORTT Form for dividends, interests and royalties paid after the effectivity of RMO No. 8-2017 until December 31, 2020 shall, however, be imposed to be fair with the taxpayers who previously complied with the provisions of such RMO.
          The specific requirements that must accompany each RFC or TTRA pertaining to dividends is amended to include Certified true copy of the audited financial statements (AFS) as of the taxable year immediately preceding the date of declaration, which was duly filed with the BIR and SEC.
           Beneficiaries of a trust who have been issued a TRC by the tax authority of the United States of America (US) confirming that all of them are residents of the state are no longer required to submit individual TRCs. If, on the other hand, the TRC states that not all of the beneficiaries of such trust are residents of the US, those who are residents of a third state shall be required to present their separate TRCs. The income attributable to them will be taxed based on the provisions of the tax treaty between the Philippines and that third state, if any, or of the Tax Code. Notarized Board of Directors’ resolution authorizing the redemption or buy-back of shares; and Articles of Incorporation and By-Laws of the issuing corporation are required for redemption or buy-back of common shares.