Update on Transfer Pricing

Revenue Regulations No. 2-2013

(Dated January 23, 2013)
Implements Section 50 of the Philippine Tax Code, which empowers the
Commissioner to make allocation of income and expenses between or
among controlled group of companies if he determines that a related
taxpayer has not reported its true taxable income

Largely based on Organization for Economic Cooperation and

Development (OECD) Transfer Pricing Guidelines

Effectivity Date: February 9, 2013

With the issuance of the TP Regulations, taxpayers engaged in

related party transactions are required to have a TP documentation in
place.
Covers cross border and domestic related party transactions

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Documentation Requirements
Documentation Details*
Organizational structure
Nature of the business/industry and market conditions
Controlled transactions
Assumptions, strategies, policies
Cost contribution arrangements
Comparability, functional and risk analysis
Selection of the TP method
Background documents
Index to documents

* List is not exclusive

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Documentation Requirements
Timing of Preparation: Contemporaneous, that is, the TP documentation
exists or is brought into existence at the time the associated enterprise
develops or implements any arrangement that might raise TP issues or
review these arrangement when preparing tax returns

Retention Period: 10 years

Submission: Not required to be submitted when the tax returns are filed.
However, it must be submitted as required or upon request by the BIR

Penalties: 25% surcharge; 20% per annum interest penalty in case of

income adjustments
Compromise penalty of a maximum of 50,000 for noncompliance with
the TP documentation

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Recent Developments
BIR continues to build up its capabilities to effectively enforce the Transfer
Pricing Regulations; BIR officers attending global and regional seminars on
TP and BEPS

Advance Pricing Arrangements (APA)

The TP Committee composed of officers from the BIR Legal Service, International
Tax Affairs Division and Large Taxpayers Division, has already completed drafting
the APA Guidelines

Draft APA Guidelines was released to TP practitioners for comments

A roundtable discussion with TP practitioners was conducted by the BIR last

October 2014

BIR has revised the draft based on comments/feedbacks from TP practitioners

Page 5 Awaiting final approval and issuance of the APA Guidelines
Recent Developments

A Special Team composed of officers/examiners from the Large Taxpayers

Division has recently been formed specifically to conduct TP audits on certain
industries

Reactivation of Performance Benchmarking Method under RMO No. 5-2012

Transfer pricing audits conducted as part of the regular audits

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Global Business Power Group
Transfer Pricing Documentation Requirements

Page 7 Update on Transfer Pricing

 Covered Related Party Transactions

COMPANY PARTICULARS
GBPC Service contracts for the following services (SLA) with CEDC, PEDC, PPC, TPC,
GPRI
Procurement Services
Human Resources Services
Data Processing
Processing of Checks
Security Monitoring
Treasury Services
Billing and Collection
Payroll Processing
Administrative Services
ICT Services

GESC Service contracts for the following services (SLA) with CEDC, PEDC, PPC, TPC
Daily trading activities in the Wholesale Electricity Spot Market (WESM).

Consolidation and reconciliation of energy deliveries with customers for

monthly billing determinants.

Provide coordination to Operations and Maintenance Group (O&M) with

the System Operator, Market Operator and Metering Services Provider
(MSP).

Page 8 Update on Transfer Pricing

 Covered Related Party Transactions

COMPANY PARTICULARS
GESC Management Services

Marketing Services

Power supply agreement for RES with PEDC, TPC

THC Land lease agreement with PPC (CEDC and TPC lots were recently sold)

PEDC Supply of replacement power from PPC

PPC Supply of replacement power from PEDC

TPC Coal inventory transfer to TCITRC

TCITRC Service fee to TPC related to the FSMA of TPC with CCC

Page 9 Update on Transfer Pricing

Clarificatory Questions
Do TPC and TCIRC sell coal to and purchase coal from
each other?

For TCIRC, please explain the related party transaction:

Service fee to TPC related to the FSMA of TPC with
CCC

What do FSMA and CCC mean?

Page 10 Update on Transfer Pricing