On the basis of the proposed regulations, participation in the APA program is initiated by the taxpayer by filing a notification of the APP. As part of the APP procedure, the subject proposes a transfer pricing method for the transaction with related parties and provides relevant data and information to demonstrate that its proposed method is the most appropriate method for transfer pricing. Transfer pricing checks are carried out to test the compliance of subjects to transactions with parties related to the arm length principle. In accordance with No. In-RAMO 01-2019, tax officials are required to prepare a report after review or investigation. The report must meet all of the usage requirements specifically identified in the transfer pricing guidelines, which include a functional analysis, economic analysis, summary and conclusion, as well as a critique of the subject`s methodology and analysis for the disputed transaction. Transfer pricing has long been identified by the BIR as one of its priority programs and plans. As a result, in February 2013, BIR adopted the Sales Tax Regulation („RR“) No. 02-2013 or the Philippine Transfer Pricing Regulations.
Since the information contained in Form Bir 1709 can be used for the identification of companies for transfer pricing audits, Filipino companies using TPPs should check their transfer pricing positions and documents to ensure that the principle of arm length is supported. In fact, the underlying question is how the BIR intends to conduct a transfer pricing risk assessment. In other words, in such an assessment, will the BIR only consider the RPT form and its adhesions? Therefore, when taxpayers knock on the door to conduct transfer pricing checks, they already know which transactions will be reviewed with close parties and will take the next steps, starting with functional analysis. Or will the BIR always ask taxpayers the same questions as those raised by the RPT form when carrying out transfer pricing controls and even require copies of the properly filed RPT form and its annexes? The latter scenario seems likely, given that this is what the Transfer Pricing Review Guidelines (RAMO 1-2019) provide for. Not to mention the BIR`s practice in tax investigations of requiring taxpayers to copy documents already filed with the BIR. After the verification and negotiation phase, the competent authority formalizes the APP. The APA concluded is a binding agreement between the subject and the BIR. During the implementation and follow-up phase, the taxpayer submits an annual compliance report to the LTS, otherwise a failure will lead to the cancellation of the APA and the taxpayer will therefore be open to review.
In this context, it may be useful to assess whether the information required in the TPP is still relevant to a transfer pricing assessment: the taxpayer generally moves from five phases in an APP application, including: 1) consultation in the event of a written question to the tax authorities on the scope of the APA; (2) filing of the official APA file; (3) the assessment of the adequacy and objectivity of the information provided by the subject to assess the method of calculating prices; (4) discussion and negotiation of the APA file; and (5) the conclusion and dissemination of the APA after the tax authorities and taxpayers have agreed on all issues in the proposed APP. RMC No. 76-2020 explained the reasons for the edition of RR 19-2020. The RMC indicates that with the information collected in the RPT form and its schedules, the BIR will be able to conduct a transfer pricing risk assessment and quickly make an informed decision as to whether or not a particular company or transaction should be thoroughly reviewed. In accordance with RMC 76-2020, the BIR will be able to focus its audit and focus its resources solely on key transfer pricing issues, due to its limited resources.