BIR guides the filing of requests for Confirmation, Tax Treaty Relief Applications and Tax Sparing Applications

The Bureau of Internal Revenue (BIR) released Revenue Memorandum Circular (RMC) No. 20-2022 to help users file requests for Confirmation, Tax Treaty Relief Applications, and Tax Sparing Applications. This memorandum was created in response to the issuance of Revenue Memorandum Order (RMO) No. 1 4-2021 and RMC No. 77-2021; these state withholding agents or income payors are mandated to file a consolidated request for confirmation (RFC) per nonresident-income payee if the income payment was subjected to tax under the provisions of the relevant double taxation agreement or a tax treaty.  

Additionally, these require any nonresident-income payee needed to file a tax treaty relief application (TTRA) if he/she/it intends to obtain a confirmation of entitlement to treaty benefits if their income was subjected to the regular tax rate under the amended National Internal Revenue Code of 1997 (Tax Code).  

These previous memorandums included the Issuance of a Certificate of Entitlement to Treaty Benefit (COE) for approved TTRAs and RFCs instead of a BIR Ruling. There were two types of COEs, but one limited the applicability of a ruling to a particular transaction or period of engagement and is usually issued for business profits, capital gains, the income of teachers, and income from services (dependent or independent). The other type is for recurring transactions that contain a proviso stating that the same ruling shall apply to future or subsequent income payments to the same nonresident-income payee/recipient provided that the conditions set forth therein are present, which is intended for dividends, branch profit remittances, interest, royalties, income from air and shipping transport and other income such as guarantee or substitution fees. 

The goal of RMC No. 20-2022 is to limit the number of RFCs and TTRAs filed with the International Tax Affairs Division (ITAD), along with clarifying that taxpayers who have already been issued with COEs no longer need to file an RFC or TTRA every time an income of similar nature is paid to the same nonresident; due to the tenor allowing the ruling to be applied to subsequent or future income payments.  

The income payor or withholding agent who wishes to apply the confirmed treaty benefit towards any future income payments shall always be guided by the requisites mentioned in the COE. However, suppose the COE notes that tax residency is a requisite for continuous enjoyment of treaty benefit. In that case, the income payor must first require the nonresident to submit a Tax Residency Certificate (TRC) for such a relevant year before making any payment. 

This foregoing shall also apply to the Certificate of Entitlement to the Reduced Dividend Rate issued by the BIR for tax sparing applications, and all new RFC, TTRA or tax sparing applications shall only be filed if any of the requisites mentioned in the certificate is absent. 

The BIR will require the following documents from the income payor during a tax Audit.  

• A copy of the duly issued COE  

• Proof of satisfaction of the requisites stated therein  

Afterwards, tax auditors will need to ensure the authenticity of the submitted documents. If the tax auditor is unsure about their findings, they may seek the assistance of ITAD. 

The RFCs or TTRAs will still need to follow the procedures and requirements laid down in RMO No. 14-2021, as amended by RMC No.77-2021, if they come from business profits, income from services (dependent or independent), capital gains, income derived by teachers, and such other income from non-recurring transactions.  

Taxpayers will need to submit the following documents regarding the annual updating that is required for all long-term contracts of services:  

1. TRC of the nonresident for the relevant year.  
2. Sworn Certification stating the following: 
   • services provided by the foreign enterprise 
   • place of performance of such services 
   • individuals who rendered the services on behalf of the foreign enterprise, their positions/designations and professional background 
   • duration of stay in the Philippines of said individuals (Annex "A") 
3. Certified true copy of their passports or a Certification duly issued by the Bureau of Immigration stating their dates of arrival in, and departure from, the Philippines.
4. Certificate of Completion of the project duly signed by the income recipient and duly accepted by the domestic income payor, if applicable.
5. Invoice(s) duly issued by the income recipient in accordance with the invoicing requirements of the country of residence, if applicable.
6. Bank documents/certificate of deposit/telegraphic transfer/telex/money transfer evidencing the payment/remittance of income, if applicable.