The Bureau of Internal Revenue (BIR) reinforces stricter mechanics in the disclosure of covered transactions subject to taxes through the introduction of new BIR form 1709 under Revenue Regulation (RR) No. 19-2020 . Form 1709 replaces 1702H which was being used since the early 90s for reporting information on return on transactions with related foreign persons.
The ultimate goal of the new revenue regulation is to ensure that related party transactions are fully disclosed, regardless of amount and volume by Philippine taxpayers and that such are not being used for tax evasion.
Related Party and Related Party Transactions defined
According to BIR, Related Party Transactions or RPTs pertain to the “transfer of resources, services or obligations between a reporting entity and a related party, regardless of whether a price is charged.” The related party , on the other hand, is a “person or entity that is related to the reporting entity, i.e., the entity that is preparing its financial statement.”
The new form and its attachments
BIR Form 1709 must be accomplished by the taxpayer or its authorized representative/s. This form will be required to be attached in the Income Tax Returns due for the current taxable year and the years thereafter.
The form will further require the detailed nature of the transaction and the accounts covered, including the “business overview of the ultimate parent company”.
Apart from form 1709, the following documents will be attached upon submission to the BIR:
a) certified true copy of the relevant contracts or proof of transaction;
b) withholding tax returns and the corresponding proof of payment of taxes withheld and remitted to the BIR;
c) proof of payment of foreign taxes or ruling duly issued by the foreign tax authority where the other party is a resident; and
d) certified true copy of Advance Pricing Agreement, if any; and
e) any transfer pricing documentation.
Penalties for non-compliance
Section 250 of the Tax Code is very clear in the penalties to be imposed for taxpayers who will fail to file certain information returns, in this case, the BIR Form 1709. Violators can expect a maximum penalty of Php 25,000.00 (approximately USD 520.00).
Deadline of Filing
The submission deadline will vary depending on the taxpayer’s declared accounting period:
|Annual Income Tax Return for Fiscal Year (FY)/Calendar Year (CY)||Extended Deadline|
|FY ending 31 March 2020 and 30 April 2020||29 December 2020|
|FY ending 31 May 2020 and 30 June 2020||31 January 2021|
|FY ending 31 July 2020 and 31 August 2020||1 March 2021|
|FY ending 30 September 2020 and 31 October 2020||31 March 2021|
|FY ending 30 November 2020 and CY ending 31 December 2020||30 April 2021|
To know more about Related Party Transaction and the reporting requirements related to it, check out BIR’s published FAQ .
Triple i Consulting, Inc. can help you with the filing of 1709. We can also assist in conducting a Transfer Pricing Analysis to aid your company in the compliance of the new BIR form. Interested? Send us an email at email@example.com or call us at +63 2 8851 9012.
IMPORTANT UPDATE as of December 28, 2020: BIR has released a new Revenue Regulation No. 34-2020 stating that “the TPDs and other supporting documents as set out in Section 6 of RR No. 19-2020 shall no longer be attached to the RPT Form but shall be submitted within thirty (30) calendar days upon receipt of request by the Commissioner or his/her duly authorized representatives, pursuant to a duly issued Letter of Authority covering All Internal Revenue Taxes (AITR), subject to non-extendible period of calendar days based on meritorious grounds.”