THE Bureau of Internal Revenue (BIR) recently issued Revenue Regulation (RR) 19-2020, requiring the submission of Information Return on Related Party Transactions (BIR Form 1709) and its supporting documents, as attachment to the Annual Income Tax Return (ITR), effective July 25, 2020.
In addition to the requirement of the Philippine Accounting Standards (PAS) 24 to disclose related party transactions in the notes to financial statements, the following information are required to be reported in BIR Form 1709:
1. Summary of related party transactions with foreign related parties and domestic related parties, together with the amount of tax withheld, if any;
2. Details of related party transactions per category (e.g. transactions with parent, subsidiaries, associates); and,
3. Other information such as the business overview of the ultimate parent company, functional profile of the taxpayer and pending tax treaty relief application details.
If some portions of the form are not applicable to the taxpayer, such fact shall be stated.
The following documents are required to be attached to BIR Form 1709:
1. Certified true copy of the relevant contracts or proof of transaction;
2. Withholding tax returns and the corresponding proof of payment of taxes withheld and remitted to the BIR;
3. Proof of payment of foreign taxes or ruling duly issued by the foreign tax authority where the other party is a resident;
4. Certified true copy of advance pricing agreement, if any; and
5. Any transfer pricing documentation.
The transfer pricing documentation applies to any controlled transactions between associated enterprises as provided under RR 02-2013.
To ensure compliance, the revenue regulations also enjoined tax examiners to conduct a thorough examination of related party transactions of taxpayers.
P&A Grant Thornton
Certified Public Accountants