Reminder on the submission of the Related Party Transaction (RPT) Form due on April 2023 for calendar year taxpayers and Preparation of Transfer Pricing Documentation
(Revenue Regulation No. 34-2020 issued on December 18, 2020;
Revenue Memorandum Circular No. 76-2020 issued on July 29, 2020
Revenue Memorandum Circular No. 54-2021 issued on April 27, 2021)
This Tax Alert is issued to remind all concerned taxpayers for the submission of the Related Party Transaction (RPT) Form due on April 2023 for the calendar year ended December 31, 2022 and preparation of the Transfer Pricing Documentation (TPD).
Taxpayers required to submit BIR Form 1709
A taxpayer is required to file an RPT Form if the following conditions are present:
1. It is required to file an Annual Income Tax Return (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, i.e., Board of Investments (BOl)-registered and economic zone enterprises, those enjoying Income Tax Holiday (ITH) or subject to a preferential income tax rate
c. Taxpayers reporting net operating losses for the current taxable year and the immediately preceding two (2) consecutive taxable years
d. A related party that has transactions with (a), (b) or (c) of the sub-criteria above.
Filling out and submission of BIR Form 1709
A. On reporting of related party transactions:
- All related party transactions must be disclosed irrespective of amounts.
- Similar transactions with the same related party must be aggregated if possible.
- The actual amounts (not estimates) of the related party transactions shall be declared in the RPT Form.
- The amounts that should be disclosed in the RPT Form should be the amounts in foreign currency and its equivalent in the local currency. However, if several currencies were used for the related party transactions, and it seems impractical to indicate all of them in the RPT Form, their equivalent in the local currency should instead be disclosed. In all cases, the exchange rates to be used should be the rate at the transaction date.
- The share in the net income of an associate or joint venture is not required to be reported in the RPT Form.
- Contributions to the post employment benefit plans need not be included in the RPT Form.
B. The TPD and other supporting documents are not required to be attached to the RPT Form but should be made available during BIR audit.
C. The filing of RPT Form as attachment for short period returns shall only be required for short period returns to be filed in 2021 and subsequent years.
D. If the taxpayer fails to provide any material information (e.g. details of the related parties and related party transactions, etc.), the RPT Form will be disregarded, and the penalty for failure to file such information return will be imposed.
E. Advance Pricing Agreement (APA) should be approved and accepted by the BIR for the related party transactions covered by the said APA to be exempt from disclosure in the RPT Form.
Taxpayers required to prepare TPD
A. A taxpayer who is required to file the RPT Form shall only prepare its TPD if it meets any of the threshold under Sec. 3 of RR No. 34-2020. If the taxpayer is not required to file the RPT Form, then it is not also mandated to prepare a TPD
B. The preparation of TPD shall be mandatory if the taxpayer meets any of the following thresholds, as clarified by the BIR:
1. Annual gross sales/revenue for the subject taxable period exceeding One Hundred Fifty Million Pesos (₱150,000,000) and the total amount of related party transactions with foreign and domestic related parties exceeds Ninety Million Pesos (₱90,000,000).
In computing the above threshold, the following items shall be included:
i. Amounts received and/or receivable from related parties or paid and/or payable to related parties during the taxable year but excluding compensation paid to key management personnel, dividends and branch profit remittances; and
ii. Outstanding balances of loans and non-trade amounts due from/to all related parties.
Related party transactions covered by an Advance Pricing Agreement (APA) need not be disclosed in the RPT Form but shall nonetheless be included in the computation of the amount of related party transactions following the prescribed formula; or
2. Related party transactions meeting the following materiality threshold:
i. If involving sale of tangible goods in the aggregate amount exceeding Sixty Million Pesos (₱60,000,000) within the taxable year;
ii. If involving service transaction, payment of interest, utilization of intangible goods or other related party transaction in the aggregate amount exceeding Fifteen Million Pesos (₱15,000,000.00) within the taxable year; or
3. If TPD was required to be prepared during the immediately preceding taxable period for exceeding either (a) or (b) above.
C. Nothing prevents any taxpayer from preparing a TPD and presenting the same during audit to prove that its related party transactions were conducted at arm's length. Taxpayers who are not required to prepare a TPD, still need to reasonably assess and prove whether its dealings with related parties adhere to the arm's length principle.
D. The BIR still retains the right to conduct transfer pricing audit against taxpayers with related party transactions, irrespective of whether or not they are required to file the RPT Form and prepare a TPD.
What is the manner of submission and When is the deadline?
The taxpayer has the option to submit the RPT form manually or online (i.e., upload in eAFS).
For taxpayers with tax payable and who have opted to submit manually, the RPT form shall be submitted to authorized agent banks (AAB) on or before April 15. If without tax payable, the RPT form shall be submitted to the Large Taxpayers (LT) Division/Revenue District Office (RDO) where the corporation is registered within 15 days from April 15 or date of filing of Annual Income Tax Return (AITR), whichever comes later.
For electronic filers who opt to submit manually, the RPT form shall be submitted to the LT Division/RDO where the corporation is registered within 15 days from April 15 or the date of filing of AITR, whichever comes later. For corporations who opt to submit through the eAFS, regardless if manual or electronic filers, attachments shall be uploaded to the eAFS within 15 days from April 15 or the date of filing of AITR, whichever comes later.
On the other hand, the TPD is no longer required to be attached to the RPT Form, but the BIR requires the TPD to be prepared prior to or at the time of the transaction, or after the transaction but not later than the date of filing of the tax return for the fiscal/calendar year in which the transaction takes place. Requiring the submission of contemporaneous documentation ensures the integrity of the taxpayers' positions. The TPD and other supporting documents shall be submitted within thirty (30) calendar days upon receipt of request by the BIR pursuant to a duly issued Letter of Authority (LOA).