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Tax Notes

Guidelines in securing a Tax Residency Certificate

THE Philippines is home to individuals and corporations who enter business with other entities outside the country. As follows, Philippine residents earn income from foreign sources. Countries, otherwise called as Contracting States, have entered to tax treaties to make sure that there is no double taxation or double non-taxation on any foreign-sourced income by its residents. Needless to say, tax treaties, which allow for certain income tax benefits, are implemented in the Philippines to encourage foreign trade and investments.

The benefits provided for in the tax treaties need to be regulated in order to avoid any abuse. This is where the International Tax Affairs Division (Itad) of the Bureau of Internal Revenue (BIR) comes in. In the recently issued Revenue Memorandum Order (RMO) 51-2019, the BIR has set guidelines for the processing and issuance of Tax Residency Certificates (TRC).

First and foremost, it is being established that only residents of a Contracting State who are subject to tax on their worldwide income are entitled to claim treaty benefits, which entails the need to secure the TRC for documentation purposes. In other words, “residents of a Contracting State” for treaty purposes refer to resident citizens and domestic corporations only. Although considered as resident for domestic tax purposes, resident aliens and resident foreign corporations are not eligible to secure a TRC.

With the issuance of the RMO, concerned taxpayers would expect to have their application processed within 14 working days from the submission of the complete documents to the Itad. The documentary requirements have been enumerated in annex B and annex C of the RMO. The list includes a letter request, proof of transaction, articles of incorporation, all income tax and value-added tax returns and audited financial statements. The BIR has also designed its own TRC, and will no longer sign TRC forms of foreign jurisdictions. The application shall be denied if the taxpayer is not entitled to any tax treaty benefits or if the taxpayer has submitted fake documents.

Through the issuance of these guidelines, the BIR intends to establish the creation of a database of Philippine residents with foreign-sourced income and monitor the declaration of such income. The Itad, who will become the repository of documents substantiating the foreign-sourced income, shall have the responsibility of furnishing the appropriate Revenue District Office (RDO) or Large Taxpayers Division (LTD) of the documents submitted by the applicants. Following the procedures for conducting tax investigations, the RDO or LTD shall assess deficiency taxes, if any.

P&A Grant Thornton

Certified Public Accountants


As published in SunStar Cebu, dated 29 October 2019