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 BIR under the Regulations, which are: (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.

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.

Under BIR Regulations, a taxpayer should file BIR Form No. 1709 (Related Party Transactions Form) if it is required to file an Annual Income Tax Return (AITR), it has transactions with a domestic or foreign related party during the concerned taxable year, and it falls under any of the following categories: (i) large taxpayers, (ii) taxpayers enjoying tax incentives, (iii) taxpayers reporting net operating losses for the current taxable year and immediately preceding two consecutive taxable years, or (iv) a related party that has transactions with either (i), (ii), or (iii).

Those required to file the Related Party Transactions Form are required to prepare Transfer Pricing Documentation should they breach any of the following materiality thresholds namely: (i) annual gross revenue for the taxable year exceeding PHP 150 million and the total amount of related party transactions exceeds PHP 90 million, (ii) sale of tangible goods involving the same related party exceeding PHP 60 million within the taxable year, (iii) service transactions, interest payments, utilisation of intangible goods, or other related party transactions involving the same related party exceeding PHP 15 million within the taxable year, and (iv) if Transfer Pricing Documentation was required to be prepared during the immediately preceding taxable year for exceeding (i), (ii), or (iii).

Thin capitalisation

There are generally no thin capitalisation rules in the Philippines.

Controlled foreign companies (CFCs)

There are no CFC rules in the Philippines.