Member Article

SyCipLaw TIP 1:

Based on reports, the BIR is considering applying a minimum threshold on who will be required to submit BIR Form No. 1709. The threshold may be based on the assets or revenue of the entity or the size of the transaction, or both. However, until the BIR issues the relevant circular, a taxpayer entering into transactions with related parties must ensure that it complies with the requirements under RR No. 19-20, including the requirement to submit supporting documents for each related party transaction with Bl R Form No. 1709, to avoid incurring any penalties.

1. What must a taxpayer disclose when entering into transactions with related parties?
   
   Revenue Regulations No. 19-2020 ("RR No. 19-2G') has prescribed the use of Bureau of Internal Revenue ("BIR") Form No. 1709, which is the Information Return on Related Party Transactions (Domestic and/or Foreign), replacing BIR Form No. 1702H.
   
   RR No. 19-20 defines a "related party" as "a person or entity that is related to the reporting entity, i.e., the entity that is preparing its financial statements." It also defines a "related party transaction" as "the transfer of resources, services or obligations between a reporting entity and a related party, regardless of whether a price is charged."
   
   BIR Form No. 1709 must be attached to, and made an integral part of, the income tax returns of a taxpayer. The following information must be disclosed in BIR Form No. 1709: "(i) the amount of the transactions; (ii) the amount of outstanding balances, including commitments, and their terms and conditions, including whether they are secured, and the nature of the consideration to be provided in settlement, and details of any guarantees given or received; (iii) provisions for doubtful debts related to the amount of outstanding balances; (iv) the expense recognized during the period in respect of bad or doubtful debts due from related parties." 
   
   In the section of the form on "business overview of the ultimate parent company," the taxpayer is required to include the profile of the multinational group of which the taxpayer belongs, along with the name, address, legal status and country of tax residence of each of the related parties with whom intra-group transactions have been entered into by the taxpayer, and ownership linkages among them. In the section for "functional profile," the taxpayer must include a broad description of its business and the industry in which it operates, and of the business of the related parties with whom the taxpayer has transacted. 
   
   

View the complete TIPS Bulletin.