RR No. 02-2013 applies to cross-border and domestic related-party transactions.
Transfer pricing methods
The transfer pricing regulations in the Philippines provide that the most appropriate of transfer pricing methods (under the Organisation for Economic Cooperation and Development Transfer Pricing Guidelines) is to be used in determining the arm’s length result. These are:
- Comparable uncontrolled price method
- Resale price method
- Cost plus method
- Profit split method
- Transactional net margin method
RR No. 02-2013 does not indicate a preference for any one method. Instead, the method that produces the most reliable results, taking into account the quality of available data and the degree of accuracy of adjustments, is to be used.
RR No. 02-2013 also recognizes the authority of the Commissioner of Internal Revenue to make transfer pricing adjustments so that taxpayers clearly reflect income attributable to related-party transactions and to prevent the avoidance of taxes with respect to such transactions.
RR. No. 02-2013 requires taxpayers to maintain adequate documentation for purposes of:
- Defending their transfer pricing analysis
- Addressing transfer pricing adjustments arising from tax examinations
- Supporting applications for the mutual agreement procedure
A mutual agreement procedure (MAP) is a means under the income tax treaties entered into by the Philippines with other tax jurisdictions through which tax administrations consult to resolve disputes regarding the application of these tax treaties. It is also a mechanism for eliminating double taxation issues arising from transfer pricing adjustments. Separate guidelines are to be issued, to provide guidance as to how taxpayers can apply for a MAP.
Transfer pricing documentation is not required to be submitted with the filed tax returns. However, such documentation is to be retained by taxpayers within the period provided under the tax law and submitted to the Bureau of Internal Revenue when required or requested to do so.
Transfer pricing documentation is to be contemporaneous (i.e., existing or is brought into existence at the time the related parties develop or implement any arrangement that might give rise to transfer pricing issues or review these arrangements when preparing tax returns).
RR No. 02-2013 is effective 15 days following its publication in a newspaper of general circulation.
Read a January 2013 report [PDF 226 KB] prepared by the KPMG member firm in the Philippines: The Secretary of Finance issues the Transfer Pricing Regulations
Contact a tax professional with KPMG's Global Transfer Pricing Services.