The transfer pricing compliance requirements introduced by the Bureau of Internal Revenue (BIR) in July 2020 are believed to be game-changers for taxpayers to ensure that their transactions with their related parties are planned, executed, and carried out in the same manner as dealing with independent third parties — what is called the “arm’s-length principle” or ALP.

While the authority of the BIR Commissioner to ensure that the ALP is followed by related parties when dealing with each other has been around for eight decades, compliance with the ALP is thought to be low. To avoid being left behind by other Asian countries, the BIR released the Transfer Pricing Guidelines in 2013 which, among others, requires taxpayers with related party transactions (RPTs) to maintain transfer pricing documentation (TPD) to prove adherence to ALP, and seven years later, the guidelines on transfer pricing audit procedures and techniques.

Despite these safeguards, the BIR felt that effective enforcement should be put in place. The BIR espoused the idea of “to see is to believe” when in July 2020 it required all taxpayers to submit the Information Return on Related Party Transactions (BIR Form No. 1709 or RPT Form) and supporting documents, including the TPD, as an attachment to the Annual Income Tax Return (AITR).

The BIR requires full disclosure of all RPTs in the RPT Form. The intention is to include within the term of RPT all transactions between related parties that result in the transfer of resources, services, or obligations, irrespective of their arrangement (with cost-recovery or cost-sharing or recharging) and regardless of amount and whether a price is charged except for dividends, share in net income from associate or joint ventures, branch profit remittance, compensation paid to key management personnel, RPTs covered by an Advance Pricing Agreement (APA) as duly approved and accepted by the BIR, and contribution of the sponsor employer to the post employment benefit plan. 

Because of the untimely and resource-consuming requirements that were issued amidst the pandemic, the BIR heeded the call of taxpayers and stakeholders by adjusting and relaxing some of the requirements.


Not all taxpayers shall submit the RPT Form but only those taxpayers who meet all three conditions below:

(1) it is required to file an AITR;

(2) it has transactions with a domestic or foreign related party during the concerned taxable period; and

(3) it falls under any of the following categories:

a. large taxpayers;

b. taxpayers enjoying tax incentives;

c. taxpayers reporting net operating losses for the current taxable year and the immediately preceding two (2) consecutive taxable years; or

d. a related party that has transactions with (a), (b) or (c).

Taxpayers enjoying tax incentives include Board of Investments (Bol)-registered enterprises, economic zone enterprises, entities enjoying Income Tax Holiday (ITH) or entities subject to preferential income tax rate. Some examples of entities subject to preferential income tax rate include proprietary educational institutions and hospitals and regional operating headquarters, among others.


The earlier enumeration of who are required to submit the RPT Form is exclusive, such that all taxpayers not included in the list are not required to file the RPT Form. The taxpayers not required to file a RPT Form shall include, but are not limited to, the following:

(1) those who did not meet the conditions set forth in the enumeration of who are required to submit the RPT Form;

(2) those subject to regular corporate income tax as a whole but have transactions subject to preferential tax rate under tax treaties or the Tax Code, as amended;

(3) taxpayers operating within the economic zone but subject to regular corporate income tax;

(4) international carriers if they are either subject to tax based on their Gross Philippine Billings or gross revenues;

(5) international carriers that are exempt from tax under the tax treaty or on the basis of reciprocity;

(6) taxpayers who are exempt from income tax under Section 30 or similar provisions of the Tax Code or special laws;

(7) regional or area headquarters and representative offices of foreign corporations that are not allowed by law to derive income from the Philippines;

(8) post-employment benefit plan if its RPTs consist only of contributions from its sponsor employers; and

(9) those required to file a short period return as originally required by law or existing revenue issuances due for filing in 2020, even if the deadline for filing was extended to 2021.

For items (2) and (3), they are not required to file an RPT Form provided they do not fall under 3 (a), (c) and (d) in the earlier enumeration of who are required to submit the RPT Form.


Only those taxpayers who are required to submit the RPT Form and meet any of the following materiality thresholds are mandated to prepare a TPD:

a. annual gross sales/revenue for the subject taxable period exceeding One Hundred Fifty Million Pesos (P150,000,000), irrespective of the source and identity of the other party to the transaction (i.e., related or otherwise), and the total amount of RPTs with foreign and domestic related parties exceeds Ninety Million Pesos (P90,000,000);

b.  sale of tangible goods involving the same related party exceeding Sixty Million Pesos (P60,000,000) within the taxable year;

c. service transaction, payment of interest, utilization of intangible goods or other related party transaction involving the same related party exceeding Fifteen Million Pesos (P15,000,000.00) within the taxable year; or

d. if the TPD was required to be prepared during the immediately preceding taxable period for exceeding (a) to (c).

The TPD and other supporting documents shall no longer be attached to the RPT Form but are to be submitted within 30 calendar days upon receipt of request by the BIR during tax audit subject to a non-extendible period of 30 calendar days based on meritorious grounds.


If the taxpayer is not required to file the RPT Form, then it is not also mandated to prepare a TPD. However, nothing prevents any taxpayer from preparing a TPD and presenting the same during tax audit. Though not required to prepare a TPD, the taxpayer must still present sufficient evidence to prove that their RPTs were conducted at arm’s length.


The BIR’s rationale for requiring the submission of the RPT Form and to maintain TPD is to improve and strengthen its transfer pricing risk assessment and audit. The BIR will study and analyze the information gathered from these submissions when selecting taxpayers to be subjected to tax investigation and in determining whether to conduct a thorough review/audit of a particular entity or transactions. The BIR will focus its audit and commit its resources only to the most important transfer pricing issues.

Needless to say, transfer pricing audits could start anytime soon. They may have already started. 

Let’s Talk Tax is a weekly newspaper column of P&A Grant Thornton that aims to keep the public informed of various developments in taxation. This article is not intended to be a substitute for competent professional advice.


As published in BusinessWorld, dated 08 June 2021