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Tax Notes

Guidelines on transfer pricing audits

The Revenue Audit Memorandum Order (Ramo) 1-2019 was issued as supplement for Ramo 1-2000 (Updated Handbook on Audit Procedures and Techniques Volume 1) and Ramo 1-2008 (Computer Assisted Audit Tools and Techniques) and to provide standardized audit procedures and techniques in auditing taxpayers with related party and/or intra-firm transactions to ensure quality audit.

The Ramo 1-2019 covers the audit of the following transactions, but is not limited to: Controlled transactions between related parties/associated enterprises, where at least one party is assessable or chargeable to tax in the Philippines:

— Sale, purchase, transfer, and utilization of tangible and intangible assets;

— Provision of intra-group services;

— Interest payments; and

— Capitalization

Transactions between permanent establishments (PE) and its head office or other branches. According to the Ramo 1-2019, the PE shall be treated as a separate and distinct enterprise from its head office or other related branches/subsidiaries for tax purposes.

1. Restructuring within

a multinational group

2. Intra-group services

3. Intangible asset


4. Cost contribution


5. Interest payment


The Ramo provided for three phases of the transfer pricing audit, as follows:

1. Preparation of the transfer pricing audit.

During this phase, the BIR will request information and/or documents pertinent to the taxpayer’s related party transactions, as well as request meetings to discuss the taxpayer’s business operations and findings, among others.

The BIR will likewise require the taxpayer to submit within five working days from receipt of notice, various information/proof, in prescribed formats, on the following:

— Related party transactions;

— Segmented financial statement;

— Supply chain management analysis;

— Function, assets and risks analysis;

— Characteristics of business; and

— Comparability analysis.

2. Implementation of audit on transfer pricing, which comprises of the determination of the characteristics of the taxpayer’s business, selection of the transfer pricing method, and application of the arm’s length principle.

3. Preparation of the transfer pricing audit report, which should include the following:

Executive summary;

Factual background and functional analysis of the taxpayer and the related party transaction/s at issue;

Summary of the taxpayer’s proposed economic analysis for the related party transaction/s at issue;

Critique the taxpayer’s methodology and analysis for the related party transaction/s at issue;

Revenue Officer’s determination of arm’s length price based on economic analysis; and Summary and conclusion.

The Revenue Officer should also meet with the taxpayer to discuss audit findings on all issues before finalizing the report.

Please be guided accordingly.

Source: P&A Grant Thornton

Certified Public Accountants


As published in SunStar Cebu, dated 07 November 2019