PHILIPPINES Law and Practice Contributed by: Carina Laforteza, Joanna Marie Joson, Kristina Paola Frias and Joanna Marie Reyes, SyCip Salazar Hernandez & Gatmaitan
submitted with tax returns, unless requested by the tax authorities. The taxation of profits from intellectual property is not currently a particularly controversial issue in the Phil - ippines. The Philippines’ transfer pricing regulations apply to two major categories of intangible properties or assets: manufacturing intangibles and marketing intangibles. Manufacturing intangibles are generally created through R&D activities, which are risky and entail expenses. Marketing intangibles include trade marks or trade names that help increase the marketing of goods and services and have important promotional value for the products. To determine arm’s length transactions, the existence of intangible assets must be considered as it often yields higher profitability level than the average for the industry. Thus, the owner will necessarily require, and should be compensated with, more than a mere return to recover the costs incurred for the development of such intangible assets. The Philippines also imposes FWT on the gross income earned by non-resident foreign corpora - tions from Philippine sources. Gross income includes income derived from rents or royalties, which are con - sidered to be Philippine-sourced if the income arises from property located in the Philippines or from any interest in such property, or the use of, or the right or privilege to use in the Philippines, any intellectual property. If the intellectual property is owned by a domestic corporation, royalties earned on such intel - lectual property from sources outside the Philippines will form part of its gross income for purposes of cal - culating taxable income. 9.11 Country-by-Country Reporting and Transparency Provisions The Exchange of Information on Tax Matters Act of 2009 provides for the Philippines’ compliance with, or commitment to, the internationally agreed tax stand -
ards required for the exchange of tax information with its tax treaty partners to help combat international tax evasion and avoidance. Under the law, information received by the foreign tax authority from the BIR pur - suant to an international convention or agreement on tax matters is considered absolutely confidential, and disclosure of such information shall be limited to the assessment or collection, enforcement or prosecution of the taxes covered under such international conven - tion or agreement. 9.12 Digital Economy Businesses On 2 October 2024, Republic Act No. 12023 was enacted, subjecting digital services delivered by non- resident digital service providers to 12% VAT, if the services are consumed in the Philippines. Non-resi - dent digital service providers are required to register as VAT taxpayers with the BIR if their gross sales for the past 12 months exceed, or if they have reasonable grounds to believe that their gross sales for the next 12 months will exceed, PHP3 million. 9.13 Approach to Digital Services Taxation Republic Act No. 12023 has been enacted, providing that digital services delivered by digital service provid - ers, whether resident or non-resident, shall be subject to 12% VAT, as long as the services are consumed in the Philippines. Under the law, resident and non-resident digital ser - vice providers are required to assess, collect and remit the VAT on the digital services consumed in the Philip - pines, subject to provisions on withholding. For non-resident digital service providers, VAT-regis - tered consumers shall be responsible for withholding and remitting to the BIR the VAT due on their purchase of digital services consumed in the Philippines. How - ever, if the consumers are not VAT-registered, the non- resident digital service providers shall be liable for the remittance of VAT on the said digital services. Educational services and the services of banks and non-bank financial intermediaries, even if provided online, remain exempt from VAT.
471 CHAMBERS.COM
Powered by FlippingBook