THE BIR recently issued Revenue Memorandum Circular (RMC) No. 14 -2006 listing its twenty six (26) priority programs for the calendar year 2016. Among them is the Transfer Pricing Program, which seeks to complement the Transfer Pricing Guidelines issued by the BIR through Revenue Regulations (RR) No. 2-2013.
RR No. 2-2013 prescribed the guidelines in determining the appropriate revenues and taxable income of the parties in controlled transactions, which is largely based on the Economic Cooperation and Development (OECD) Transfer Pricing Guidelines. It requires the maintenance or safekeeping of the documents necessary for the taxpayer to prove that efforts were exerted to determine the arm’s-length standard for its transactions with related parties. The guidelines state that adequate documentation will enable the taxpayers to defend their transfer pricing analysis, prevent transfer pricing adjustments arising from tax examinations, and support their applications for Mutual Agreement Procedure (MAP).
The documents may include the following:
Assumptions, strategies, policies
Cost contribution arrangements (CCA)
Comparability, functional and risk analysis
Selection of the transfer pricing method
Application of the transfer pricing method
Index to documents
The documentation must be contemporaneous, that is, it must be in existence before or at the time of the transaction or at the time of filing the income tax return. It must be submitted upon request of the BIR.
To supplement the Transfer Pricing guidelines, the 2016 transfer pricing program aims to prioritize the subscription to a commercial database for transfer pricing studies, development of a transfer pricing test case for LTS, finalization of transfer pricing-related issuances such as the Revenue Regulations on Advance Pricing Agreement (APA) and the Revenue Memorandum Orders on transfer pricing documentation and transfer pricing risk assessment.
With this priority program, it becomes more evident that companies need to prepare/maintain transfer pricing documentation.
The full version of the circular, which took effect on Feb. 15, may be accessed through the BIR website.