What’s next for taxpayers?

If we ask taxpayers what they think about what’s next for them, we could certainly get varying responses. One would answer, “Tax deadlines, of course!” Another would say, “Tax assessments and maybe, tax reform?” One might even say, “I would rather not think about it right now; don’t spoil my December!”

As we hit the final stretch of the year, taxpayers are busy with their financial year-end closing; while some may be occupied with the active assessments and catch-up collection efforts of the Bureau of Internal Revenue (BIR). Aside from these usual year-enders, what’s next for taxpayers? Here are some possible answers.

ANTICIPATED TRANSFER PRICING AUDITS
When Revenue Audit Memorandum Order (RAMO) No. 1-2019, Transfer Pricing Audit Guidelines, was issued more than three months ago, a lot of taxpayers asked how the BIR would actually conduct their transfer pricing audits. So far, some taxpayers have been experiencing the BIR’s inquiries on related-party transactions during the regular tax audits. While some BIR examiners appear to scrutinize certain transfer pricing documentation, it remains to be seen how the BIR would actually support its possible finding, should it disallow the analysis and conclusions in the documentation. In case of a BIR finding, taxpayers can reasonably expect the BIR to come up with its own transfer pricing analysis and possible adjustments and not to just expediently disallow the transactions.

Given that transfer pricing rules in the Philippines are relatively new compared to other jurisdictions that are mature in applying the concept of transfer pricing based on international principles, the challenge would be how a possible issue could be resolved between a taxpayer and a BIR examiner. This will inevitably arise, in particular, when the related party transactions have a cross-border element.

Nevertheless, taxpayers should be reminded about being ready with their transfer pricing documentation, considering Revenue Regulations No. 02-2013, Transfer Pricing Guidelines, and RAMO 1-2019, among others.

TECHNOLOGY BOOST TO TAX PROCESSES
In October 2019, the BIR invited technology experts to take part in its app development contest, “Hackatax.” According to reports, the BIR’s objective was to address the taxpayers’ pain points through simple tax forms and streamlined processes. Developers who took part in Hackatax were expected to come up with solutions to tax payment bottlenecks. Further, the project was reportedly aimed to cater more to self-employed taxpayers and owners of micro and small enterprises.

Seeing the fast pace in the development of technology, perhaps it is time that another technology-related project is launched, in addition to the existing eFPS and e-BIR Forms, to help address the problems encountered in a manual filing system with long queues.

I hope the Hackatax project will result in prompt and definitive technology-based solutions for taxpayers.

CITIRA BILL
Talk about the passage of the Corporate Income Tax and Incentives Rationalization Act (CITIRA) Bill appear to have quieted down.

One of the most debated provisions in the CITIRA Bill is the rationalization of incentives given to Philippine Economic Zone Authority (PEZA)-registered entities. Existing PEZA entities could eventually lose their 5% special gross income tax regime incentive within five years or so. PEZA itself fears that foreign investors will pull out of our country, and that there will be massive job losses.

Critics of the CITIRA Bill are apprehensive that limiting the fiscal incentives to certain prioritized investment activities with time-bound conditions might discourage not only the existing foreign investors but potential investors as well. Proponents of the bill, however, counter that the rationalization of incentives is fair to taxpayers; in addition, there is a proposed gradual lowering of corporate income tax from 30 to 20%.

When the CITIRA Bill will become a law is difficult to assess; as it was even recently reported that another version of the bill in the Senate could be possibly at hand this December.

WAIT AND SEE ON THE GENERAL TAX AMNESTY PROGRAM
Last year, we were so close to having a general tax amnesty program. As it turned out, however, only the estate tax amnesty and the amnesty on tax delinquencies were passed into law. The main issue was the non-inclusion of the relaxation of the bank secrecy law for tax amnesty applicants. Reports say that Congress is still working to address the issue, and that the automatic exchange of information among government agencies will also be included as part of the new general tax amnesty program to be proposed.

Like the CITIRA Bill, taxpayers can only hope for prompt developments in the general tax amnesty program.

CONTINUOUS INFLUX OF VAT REFUNDS
This year, the BIR issued a directive that, for applicants of input value-added tax (VAT) refund related to VAT zero-rated sales and to cancellation of VAT registration, they will have their refund money within 90 days from the date of application. While it is true that the 90-day period is being observed by the BIR, taxpayers should continue to expect that the BIR reviewers will be very strict in checking the documents attached to the applications.

The government’s proposed enhanced VAT refund system is still in the pipeline, and taxpayers should keep themselves abreast of developments to preserve their input VAT assets.

The tax matters above are just some of what taxpayers can expect next. It’s difficult to weigh whether the anticipation should excite us or make us anxious about the uncertainty.

I fondly recall the usual advice of elders to expectant parents, such as myself (I have a baby on the way soon) — that, there is no substitute for being adequately prepared for any contingency concerning our children. And as taxpayers, we should always be equipped for what’s next by staying up to date on tax developments, so that we can act accordingly.

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.

Olivier D. Aznar is a partner of Tax Advisory & Compliance division of P&A Grant Thornton, the Philippine member firm of Grant Thornton International Ltd. For comments and inquiries, please e-mail pagrantthornton@ph.gt.com.

As published in BusinessWorld, dated 10 December 2019