Tax Alerts

Clarifications on the submission of BIR Form 1709 and attachments

(Revenue Memorandum Circular No. 76-2020, issued on July 29, 2020)

This Tax Alert is issued to inform all concerned on the following clarifications regarding the submission of Information Return on Transactions with Related Party (BIR Form 1709) and its required attachments as attachment to the annual income tax return as required under Revenue Regulations (RR) No. 19-2020.

Purpose of BIR Form 1709

  • With the new BIR Form 1709, the BIR will be able to perform transfer pricing risk assessment and decide whether or not to conduct a thorough review/audit of a particular entity or transaction. It will now be easier for the BIR to identify the countries to whom requests for information shall be sent for verification purposes

Covered taxpayers

  • BIR Form 1709 shall be completed by Philippine taxpayers with related party transactions (RPTs) regardless of the amount and volume of transactions.
  • Individuals who are considered related parties of a reporting company are also required to separately submit BIR Form 1709 and required attachments.
  • BIR Form 1709 is required to be submitted by taxpayers starting with those fiscal year ending March 31, 2020 and succeeding taxable years. Calendar year 2019 and fiscal years ending Jan. 31, 2020 and February 29, 2020 are not covered.
  • Taxpayers with fiscal year ending March 31, 2020 who filed their AITR and attachments prior to effectivity of RR No. 19-2020 on July 25, 2020 are still required to submit BIR Form 1709 and its attachments. When submitting the BIR Form 1709, the taxpayer shall attach a photocopy of the filed AITR.
  • Taxpayers with fiscal year ending March 31, 2020 are given until September 30, 2020 to prepare, file and submit BIR Form 1709 and its attachments.
  • Since non-stock, non-profit corporations are allowed to engage in activities conducted for profit without losing its tax-exempt status, it is also required to submit BIR Form 1709 if it has RPTs.

Deadline and manner of filing of BIR Form 1709 and attachments

  • The deadline for filing of BIR from 1709 and attachments are as follows:

- Manual filers: On or before the statutory due date of filing of AITR

- eFPS filers: 15 days from the statutory due date or actual date of electronic filing of the AITR, whichever comes later.

  • BIR Form 1709 shall be manually filed at the LT Division/RDO where the taxpayer is registered.

Transactions to be disclosed in BIR Form 1709

  • The following shall be disclosed in the RPT Form:

- All RPTs that result in the transfer of resources, services, obligations, irrespective of their arrangement (with cost-recovery/cost-sharing/recharging) and regardless of whether a price is charged

In preparing BIR Form 1709, taxpayers cannot rely entirely on PAS 24 disclosures since the form requires more details which are not usually disclosed in the notes to financial statements such as the taxation aspect or tax treatment and the substance of the RPTs.

- Dividends and redemption of shares between and among related parties

  • Tax treaty relief application (TTRA) to be indicated on Part IV of BIR Form 1709 must be those filed with ITAD relative to income payments made by the Philippine taxpayer to its related parties.

Required attachments to BIR Form 1709

  • All taxpayers with RPTs are required to attach a transfer pricing documentation (TPD), local or otherwise, regardless of the amount and the volume of the RPTs.
  • The TPD should be prepared prior to or at the time of the transaction, or after the transaction but not later than the date of filing of the AITR covering the transactions.
  • TPD should be updated if there are significant changes in the business model, the factors or conditions considered in drafting the TPD, and nature of the RPTs.
  • Taxpayers may use the TPD of their parent companies, TPD of other transacting related party, or master file of the group, provided that the taxpayer relied upon such TPD in determining the transfer price. However, local file is preferred.
  • For cost-sharing arrangements, submission of a formal written arrangement/contract and other documents to substantiate the same, is required to prove that these are legitimate business expenses.
  • All contracts are required to be attached, regardless of volume. In lieu of submission of hard copies, scanned copies may be submitted.
  • Any taxes paid to a foreign country must be declared in, and the proof of payment thereof must be attached to the BIR Form 1709. Proof of payment of foreign taxes or copy of foreign ruling duly issued by relevant foreign tax authority must be duly authenticated and apostilled.

Penalties for non-filing of BIR Form 1709 and attachments

  • A penalty of not less than P1,000 but not more than P25,000 shall be imposed for failure to file BIR Form 1709 and its required attachments due to reasonable cause and not willful neglect.
  • In case of repetition of offense, the maximum penalty of P25,000 shall be imposed.
  • If after receiving valid summons to produce the form and attachments, and the taxpayer still fails to neglects to produce the same, the responsible officers shall be punished by a fine of not less than P5,000 but not more than P10,000 and suffer imprisonment of not less than1 year but not more than 2 years.

For other clarifications on the submission of BIR Form 1709 and required TPD, see full text of RMC No. 76-2020.