RMC No. 24‑2026: Clarifying the tax treatment of cross‑border services

The Bureau of Internal Revenue (BIR) issued Revenue Memorandum Circular (RMC) No. 24‑2026 to clarify the proper application of RMC Nos. 5‑2024 and 38‑2024 on the tax treatment of cross‑border services. The Circular aims to ensure consistent tax assessments and alignment with statutory and jurisprudential standards.

Cross‑border services are not automatically taxable

The BIR clarified that the mere classification of a service as a cross‑border service does not automatically subject it to Philippine income tax or final withholding tax. While RMC No. 5‑2024 provides examples of cross‑border services, such as consulting, IT outsourcing, and telecommunications, taxability must still be determined based on whether the income is sourced within the Philippines.

As a general rule, income from services is sourced from where the service is performed. However, the Aces Philippines case expanded the situs rule by allowing consideration of where the benefit is received or where the service is completed in determining Philippine taxability. Revenue officers invoking this rule must establish that the income‑producing activity resulted in economic benefit arising from within the Philippines.

Framework for determining income source

In evaluating the taxability of cross‑border services, revenue officers are required to examine the service agreement as a whole and must not isolate a single activity as the sole income‑producing act. The BIR emphasised that an obligation is deemed performed only upon the complete delivery or rendering of the service. Tax assessments must clearly state the factual and legal bases supporting the determination.

For income to be considered sourced within the Philippines, the following essential elements must be established:

• the parties involve a Philippine resident payor and a non‑resident service provider;
• the service performed is integral to the completion of the non‑resident’s service and resulted in actual payment or accrual constituting economic benefit to the non‑resident service provider;
• the situs of the income‑producing activity is within the Philippines; and
• no applicable income tax exemption applies under tax treaties or domestic law.

Passive income, income from the sale of goods, and pass‑through payments to another non‑resident for services rendered outside the Philippines are expressly excluded from this framework.

Documentary requirements during audit

The Circular reiterates that the burden of proof rests with the taxpayer to establish that income paid to a non‑resident service provider is derived from sources outside the Philippines. To support such claim, taxpayers may be required to present documentary evidence, including sworn statements, service agreements, proof of non‑registration in the Philippines, tax residency certificates, proof of outward remittance, and relevant BIR rulings or treaty entitlement certificates, as applicable.

Photocopies of documents may be accepted if certified as true and faithful reproductions, subject to verification within the authorised scope of audit.

BIR ruling not a prerequisite

The BIR clarified that a prior confirmatory ruling is not a condition precedent for the application of the correct tax treatment. The absence of such ruling does not, by itself, prejudice the taxpayer’s position, provided that the legal and factual bases for non‑taxability are sufficiently established during assessment. Taxpayers may nonetheless request a ruling following existing rules and procedures.

RMC No. 24‑2026 took effect immediately upon issuance on 30 March 2026.

Please be guided accordingly.

Source:  

P&A Grant Thornton  

Certified Public Accountants  

P&A Grant Thornton is the Philippine member firm of Grant Thornton International Ltd.

As published in SunStar Cebu, dated 15 April 2026