Comprehensive transfer pricing – 15 Asia Pacific countries – 400 pages: Australia, China, Hong Kong, India, Indonesia, Japan, Malaysia, New Zealand, Philippines, Singapore, South Korea, Sri Lanka, Taiwan, Thailand, Vietnam.
Transfer Pricing ASIA
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Transfer Pricing Asia Overview

Transfer Pricing Asia
Robert Feinschreiber, Esq.
Attorney and Counselor
Margaret Kent, Esq.
Attorney and Counselor
TransferPricingConsortium.com

Philippine Transfer Pricing Regulations

The Republic of the Philippines is in the process of developing transfer pricing regulations. The Philippine Department of Finance, Bureau of Internal Revenue (BIR), issued a draft of these transfer pricing regulations on June 21, 2006. Despite expectations to the contrary, the Bureau of Internal Revenue has not issued final regulations as of March 19, 2010.

Control The draft Philippine transfer pricing provisions would impose broad definition of “control” so as to include any type of control, direct or indirect, whether or not legally enforceable, and however exercisable or exercised. Section 3 would impose a “reality test” as to the control: “It is the reality of the control that is decisive, not the form or mode of its exercise.”

Most importantly, the draft Philippine transfer pricing provisions would impose a 30 percent shareholding test to impose control. “A control is said to exist if one entity holds not less than 30% percent of the outstanding shares entitled to vote of a corporation.”

Controlled taxpayers These measures would provide the Bureau with “special scrutiny” over the enterprise. At the same time, the draft Philippine transfer pricing provisions would lower the threshold as to modifying “true taxable income” to modifications the enterprise made through “either by inadvertance or design.”

Divergence of interests and contract terms The draft Philippine transfer pricing provisions would give specific recognition to the importance of the “divergence of interests” between independent parties. The drafters provide that “it is important to examine whether the conduct of the parties conform to the terms of the contract,” or “whether the parties’ conduct indicates that the conractual terms have not been followed or are a sham.”

Profit split method The draft Philippine transfer pricing provisions in Section 8 portray the profit split method as the splitting of the profits between “involved associated enterprises” on an “economically valid basis.” The draft Philippine transfer pricing provisions visual the enterprise splittting profits on the basis of the “relative contribution of each member.”

In house comparables The draft Philippine transfer pricing provisions express a clear preference for in-house comparables rather than external comparables. Transactions having “similar characteristics are more likely found among sales of products/services by the same supplier than among sales of other suppliers.”

Best transfer pricing method The draft Philippine transfer pricing provisions provide that “neither the BIR nor the taxpayer is held to the hierarchy of methods specified in Section 8 of these Regulations.”

Documentation The BIR is conscious the taxpayers might face compliance and admistrative costs in keeeping adequate documentation. In response to these considerations, BIR imposes a “reasonable assessment” standard. “Taxpayers are only required to prepare and obtain documents necessary to allow a reasonable assessment of whether they have complied with the arm’s length prinicple.”


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Robert Feinschreiber & Margaret Kent

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