Philippines

There is no group taxation in the Philippines.

Transfer pricing

Transfer Pricing Regulations govern the cross-border and domestic transactions between associated enterprises. The Regulations state that the 'arm’s-length principle' shall be adopted in determining the transfer price in related-party transactions. The application of the arm's-length principle may follow a 'three-step' approach prescribed by the Bureau of Internal Revenue (BIR) under the Regulations, to wit: (i) the conduct of a comparability analysis, (ii) the identification of the tested party and the appropriate transfer pricing method, and (iii) the determination of the arm's-length results.

Taxpayers must keep adequate documentation supporting their transfer prices so that they can defend their transfer pricing analysis, mitigate the risk of transfer pricing adjustments arising from tax examinations, and support their applications for Mutual Agreement Procedure (MAP). There is also a 'contemporaneous' requirement that transfer pricing documents must exist or be brought into existence at the time the taxpayers develop or implement any arrangements that may raise transfer pricing issues. Certain taxpayers are also required to file BIR Form No. 1709 (Information Return on Transactions with Related Party) with their annual income tax returns while transfer pricing documentation should be maintained and submitted to the BIR when required or requested during an audit/investigation.

An Advance Pricing Arrangement (APA) is an agreement entered into between the taxpayer and the BIR to determine in advance an appropriate set of criteria (e.g. method, comparables, appropriate adjustments thereto) to ascertain the transfer prices of controlled transactions over a fixed period of time. While APAs are recognised in the Transfer Pricing Regulations issued in 2013, the BIR is still in the process of drafting more detailed guidelines. The APA is not mandatory but may be advisable since the purpose of the APA is to reduce the risk of transfer pricing re-examination and double taxation.

The BIR has issued a Revenue Audit Memorandum Order that provides guidelines to BIR examiners in relation to the audit of transfer pricing of related-party transactions.

These guidelines apply to, but are not limited to, controlled transactions between related parties/associated enterprises, where at least one party is assessable or chargeable to tax in the Philippines on transactions between a PE and its head office or other branches. Based on this, the PE will be treated as a separate and distinct enterprise from its head office or other related branches/subsidiaries for tax purposes.

Moreover, the BIR also issued implementing guidelines and procedures for taxpayers seeking MAP assistance in the Philippines. MAP is a set of procedures that allows the competent authorities of the contracting countries to a double taxation agreement (DTA) to resolve by mutual agreement any difficulties or doubts on a tax treaty’s interpretation or application. Stated another way, it is a conflict resolution tool for international tax (i.e. a mechanism by which the parties to the treaty may confer with each other to potentially resolve disputes).

Thin capitalisation

There are generally no thin capitalisation rules in the Philippines.

Controlled foreign companies (CFCs)

There are no CFC rules in the Philippines.