PHILIPPINES Law and Practice Contributed by: Carina Laforteza, Joanna Marie Joson, Kristina Paola Frias and Joanna Marie Reyes, SyCip Salazar Hernandez & Gatmaitan
6.5 Controlled Foreign Corporation-Type Rules There are no controlled foreign corporation (CFC) rules in the Philippines. As a rule, Philippine tax law does not tax a local parent company on the CFC’s taxable income unless the CFC distributes dividends to the parent company. 6.6 The Substance of Non-Local Affiliates Following the concept of separate legal personality and piercing the veil of a corporate entity, a non-local affiliate will be considered a resident of the Philippines if circumstances show that the affiliate is just an exten - sion of the juridical personality of the local corpora - tion. However, this is largely a fact-driven exercise. 6.7 The Sale of Shares in Non-Local Affiliates The gain realised by local corporations on the sale of shares in non-local affiliates is subject to a 15% CGT pursuant to CMEPA.
The BIR’s Revenue Memorandum Order No 036-2025 added the following as mandatory audit cases: erro - neous input tax carry-over, mission order findings of understatement of sales by 30% or more, non-com - pliance with tax obligations arising from spontaneous exchange of information, or policy cases/industry issues identified by the CIR. Priority audit cases include cases electronically selected on risk-based criteria, VAT cases or those approved by the CIR. If a taxpayer is subject to an audit, the BIR will issue a letter of authority to examine the taxpayer’s books, accounts and other records for a specific taxable year. The taxpayer has the opportunity to contest the BIR’s findings through administrative or judicial process. The BIR has three years from the prescribed date for filing or actual filing of the taxpayer’s tax return, which - ever is later, to assess deficiency taxes, except in cases of non-filing, false returns or fraudulent returns with intent to evade tax, where the BIR has a right to assess within ten years from discovery. 9. BEPS 9.1 Adoption of BEPS Recommendations The recommended changes under the BEPS Action Plan have not yet been incorporated in local tax laws and regulations. Nonetheless, the Philippines has transfer pricing regulations implementing the authority of the CIR to allocate income or deductions between two or more organisations owned or controlled directly or indirectly by the same interests. It also includes the requirement for taxpayers to keep adequate documentation that will demonstrate the taxpayer’s compliance with the “arm’s length” principle. The transfer pricing regula - tions state that additional regulations relating to the application of the APA process will be issued, but these have yet to be released. 9.2 Government Policy and Objectives Approach The Philippines joined the OECD/G20 Inclusive Frame - work on BEPS on 8 November 2023. The Philippine
7. Anti-Avoidance Provisions 7.1 Overarching Provisions
The Philippines’ anti-avoidance rules are based on jurisprudence. The Supreme Court makes a distinc - tion between tax avoidance and tax evasion. Tax avoidance is recognised as a tax-saving device using means sanctioned by law. Nonetheless, the Supreme Court has ruled that a transaction that is prompted more by the mitigation of tax liabilities than for legiti - mate business purposes constitutes tax evasion, which is subject to both criminal and civil penalties.
8. Audit Cycles 8.1 Regular Routine Audit Cycle
In general, all taxpayers are considered possible can - didates for audit, but certain transactions or taxpayers are considered mandatory or priority audit cases by the BIR. The mandatory audit cases include claims for tax refund/credit on erroneous/double payment of taxes, regardless of the amount or requests for tax clearance of taxpayers undergoing corporate reorganisations.
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