Tax Alert No. 1 - [UPDATE] Related Party Transactions

Taxpayers required to file and submit BIR Form 1709 (RPT Form), together with the Annual Income Tax Return (AITR) under Sec. 2 of the regulations:

1. Large Taxpayers;
2. Taxpayers enjoying tax incentives, i.e. Board of Investments (BOI)-registered and economic zone enterprises, those enjoying Income Tax Holiday (ITH) or subject to preferential income tax rate;
3. Taxpayers reporting net operating losses for the current taxable year and the immediately preceding two (2) consecutive taxable years; and,
4. A related party, as defined under Section 3 of Revenue Regulations (RR) No. 19- 2020, which has transactions with (1), (2) or (3). For this purpose, key management personnel (KMP), as defined under Section 3(7) of RR No. 19-2020, shall no longer be required to file and submit the RPT Form, nor shall there be any requirement to report any transaction between KMP and the reporting entity/parent company of the latter in the RPT Form.
5. Taxpayers mentioned under Section 2 of the Regulations are mandatorily required to prepare and submit Transfer Pricing Documentation (TPDs) under RR No. 02-2013, if they meet the following materiality thresholds:

When short period AITR are required by law or existing issuances to be filed the RPT Form shall still be accomplished regardless of the reason for filing the said short period return. However, compliance herewith shall only be mandatory for short period returns filed in 2021 and subsequent years.

Taxpayers mentioned under Section 2 of the Regulations are mandatorily required to prepare and submit Transfer Pricing Documentation (TPDs) under RR No. 02-2013, if they meet the following materiality thresholds:

1. Annual gross sales/revenue for the subject taxable period exceeding One Hundred Fifty Million Pesos (₱150,000,000) and the total amount of related party transactions with foreign and domestic related parties exceeds Ninety Million Pesos (₱90,000,000).In computing the above threshold, the following items shall be included:
   1. Amounts received and/or receivable from related parties or paid and/or payable to related parties during the taxable year but excluding compensation paid to key management personnel, dividends and branch profit remittances; and
   2. Outstanding balances of loans and non-trade amounts due from/to all related parties.
   Related party transactions covered by an Advance Pricing Agreement (APA) need not be disclosed in the RPT Form but shall nonetheless be included in the computation of the amount of related party transactions following the prescribed formula; or
2. Related party transactions meeting the following materiality threshold:
   1. If involving sale of tangible goods in the aggregate amount exceeding Sixty Million Pesos (₱60,000,000) within the taxable year;
   2. If involving service transaction, payment of interest, utilization of intangible goods or other related party transaction in the aggregate amount exceeding Fifteen Million Pesos (₱15,000,000.00) within the taxable year; or
3. If TPD was required to be prepared during the immediately preceding taxable period for exceeding either (1) or (2) above.

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 AITR, subject to non-extendible period of 30 calendar days based on meritorious grounds.

• Additional Disclosure Requirements for Taxpayers with Related Party Transactions under Section 4
  In addition to the requirements provided under RR No. 21-2002, as amended by RR No. 15-2010, taxpayers who are not covered under Section 2 are required to disclose in the Notes to the Financial Statements that they are not covered by the requirements and procedures for related party transactions provided under this RR.

• The old form shall be replaced by the simplified version of RPT Form;
• Penalties under Sections 250 and 266 of the NIRC and relevant issuances shall be imposed, for violations of any provisions of the issuance.