RMC No. 76-2020: Clarifications on the Filing of BIR Form 1709

By: Hergie Ann De Guzman

The issuance of Revenue Regulations (RR) No. 19-2020 last month created clamor among taxpayers on how they will comply with the BIR Form 1709 or the Related Party Transaction (RPT) Form. To answer the questions of the taxpayers, BIR issued this RMC. Listed below are the highlight discussions in the RMC:

Who will need to submit BIR Form 1709?

All PH taxpayers, either individual or non-individual (including non-stock non-profit organizations for the activities conducted for profit) with related party transactions (RPTs) shall complete and submit BIR Form 1709.

Effectivity of the reporting requirement

Basically, BIR Form 1709 is a new attachment in the Annual Income Tax Returns of those with RPTs. The first set of taxpayers to comply with the new reporting are those taxpayers with fiscal year ended March 31, 2020. With this, the deadline for the submission of the RPT Form, together with ITR attachments, supposedly is on July 30, 2020. However, BIR granted the said taxpayers until September 30, 2020 to file and submit the RPT Form and the required attachments.

What if the said taxpayers have already filed the Annual ITR for the fiscal year ended March 31, 2020 prior to the effectivity of the RR?

The taxpayers are still required to submit the RPT Form and its attachments. Photocopy of the filed Annual ITR should be attached when the RPT Form is submitted to BIR.

Annual ITRs prior to the fiscal year ending March 31, 2020 is not covered by the RR.

Manner of Filing of the RPT Form

Manual filing, unless a revenue issuance is released allowing electronic filing.

When and where to file?

1. For manual-filers – to be submitted at Revenue District Office (RDO)/Large Taxpayers (LT) Division where taxpayer is registered on or before the statutory due date.
2. For eFPS-filers – to be submitted to RDO/ LT Division where the taxpayer is registered within 15 days from the statutory due date or actual date of electronic filing, whichever is later. 

Are all taxpayers required to attach Transfer Pricing Documentation (TPD)?

Yes, regardless of amount and volume of transactions.

What is the required TPD?

The TPD to be submitted is the one prepared on or before the RPT or after the RP but before the filing of the annual ITR for the reporting year. 

The TPDs need not be updated unless there are significant changes in the Company’s business model and nature of the RPTs. In occasions when the parent Company already has TPD for RPTs with its subsidiary/ies, the subsidiary/ies can use this TPD as long as such was used in determining the transfer prices of the subsidiary/ies.

Proceeding year’s TPDs can still be used for subsequent RPTs provided that both have the same type of transactions and was undertaken by the same related parties. The taxpayer shall prove that the same conditions, for which the last year’s TPD was made, is also applicable to subsequent RPTs.

Can taxpayers rely on the disclosures made in the Audited Financials Statement (AFS) for the RPTs, as required Philippine Accounting Standards (PAS) 24?

No, RR 19-2020 requires more RPT details to be disclosed in the BIR Form 1709.

The enumeration of RPTs in RR No. 19-2020 is not exclusive

All transactions with related parties that result in the transfer of resources, services or obligations, irrespective of arrangement and regardless of whether a price is charged.

Clarifications on Certain Attachments in the RPT Form

1. For cost-sharing arrangements, submission of formal written agreement is needed together with documents to substantiate such.
2. All contracts are required to be submitted regardless of volume either through hardcopy or softcopy (DVD-R).
3. Proof of payment of foreign taxes (for related party income abroad) and ruling from foreign tax authority

• If the deadline for the payment of foreign taxes is after the deadline of filing the RPT Form, the income derived abroad should still be declared and the RPT Form, with proper statement that the related tax is not yet paid. 
• The PH taxpayer should have a copy and details of the foreign tax paid and the rights over the same.
• The said documents for proof of payments and the ruling should be consularized or apostilled.

Penalties for Non-Filing of RPT Form

First Offense: Penalty of not less that PhP1,000.00 but nor more that PhP25,000.00. (Section 250 of the Tax Code, as amended).

Second Offense: Penalty of PhP25,000.00 (Section 274 of the Tax Code, as amended).

With Valid Summons: Failure to still provide will have a responsible employee/party fined by not less than PhP5,000.00 but not more than PhP10,000.00 and 1-2 year imprisonment (Section 266 of the Tax Code, as amended).

Read RR 19-2020 here.