Related-Party Transactions in the Philippines (Updated 2021)
Related-Party Transactions  in the Philippines – New BIR Requirements!

Related-Party Transactions in the Philippines – New BIR Requirements!

Posted on September 17, 2020
4 mins read

Please Note: The requirements for related-party transactions and transfer pricing documentation in the Philippines has since been updated since the introduction of BIR Revenue Regulation No.34 of 2020. Please refer to our more recent article for more information on this topic.

The BIR recently released new compliance requirements for related-party transactions involving businesses in the Philippines. This will have significant implications for accounting, bookkeeping, compliance and financial reporting in the Philippines. 

The BIR has also introduced a new BIR Form (Form 1709) to be submitted with Annual Income Tax Returns. This applies to all companies, including startups, SMEs and larger corporates, engaging in related-party transactions.

In this article, we explain:

  1. Why the BIR has introduced these new requirements;
  2. What is meant by a “Related Party”?; 
  3. What is meant by a “Related-Party Transaction” ?
  4. The requirements and guidelines for submitting BIR Form 1709
  5. Timelines for submission of BIR Form 1709

Wondering about the compliance framework in the Philippines? Check out our recent article on why taxation is so complex for corporations in PH!


So, what’s new in the area of Transfer Pricing and Related-Party Transactions in the Philippines?

  • In July 2020, the BIR published Revenue Regulations (RR) No. 19-2020. These regulations impose a new requirement on all businesses in the Philippines to submit information to the BIR regarding Related-Party Transactions entered into during the previous financial year.
  • The BIR subsequently released Revenue Memorandum Circular No. 76-2020 – a type of FAQ or “explainer” on these new compliance requirements.  
  • On 15 September 2020, the BIR released Revenue Memorandum Circular 98-2020, which extends the deadlines for complying with these new reporting requirements.

Background to the new BIR Regulations

According to the BIR, commercial transactions around the world have become more complex in recent years, resulting in increased opportunities for abuse by taxpayers with an intent to evade taxes. The BIR notes that this is a larger concern in transactions that occur between parties that are related to each another.

The “Philippine Accounting Standards (PAS) 24 – Related Party Disclosures” already requires companies to disclose, in the annual accounts, where transactions have been conducted between a reporting company and parties related to the reporting company.

However, the BIR believes that a framework and enforcement mechanism should be in place to help ensure that all Related-Party Transactions are conducted at arm’s length (i.e. at the correct and fair market rates) and that revenues are not understated and expenses are not overstated in financial accounts.

In line with this, the BIR introduced Revenue Regulations (RR) No. 19-20 and BIR Form 1709.

So, what is a “Related Party”?

RR No. 19-20 outlines specific criteria for determining if an individual or an entity is a “Related Party”.

Note: A reporting entity below refers to an entity that is reporting its financial information to the BIR. 


An individual or a close member of the individual’s family will be considered related to a reporting entity if the individual has control or joint control of the reporting entity, has significant influence over the reporting entity or is a member of key management personnel of the reporting entity or its parent. 


An entity will be related to a reporting entity if any of the following apply:

  1. The entity and reporting entity are members of the same corporate group;
  2. One of the entities is an associate or a joint venture of the other entity (or of another member of the group of which the other entity is a member);
  3. Both entities are joint ventures or associates with a common third party;
  4. The entity is controlled or jointly controlled by someone identified in the “Individuals” section above or that individual has significant influence or management responsibility over the entity;
  5. The entities are related by virtue of a post-employment benefit plan; 
  6. The entity, or any member of a group of which the entity is a member, provides key management personnel services to the reporting entity or to its parent. 

Key terms above such as “Associate”, “Close Member of the Family”, “Control”, “Significant Influence and Key Management Personnel” are all defined in RR No. 19-20.

Important! When determining if a related-party relationship exists, the substance of the relationship must be considered – not just the legal contract or agreement!  

Ok, clear! So what’s a Related-Party Transaction?

A Related-Party Transaction is a transaction that occurs between two related parties and which involves the transfer of resources, services or obligations between the two parties. 

2 key points to note about Related-Party Transactions

  1. A Related-Party Transaction can arise whether a price is charged or not; and
  2. Related-Party Transactions can be between both domestic and foreign parties.  

Examples of Related-Party Transactions

Under RR. No. 19-20, a Related-Party Transaction might include, but is not limited to:

  • Purchase or sale of goods;
  • Purchase or sale of property or other assets, or leases;
  • Rendering or receiving services;
  • Provision of collateral or guarantees
  • Transfers under license agreements;
  • Transfers under finance arrangements;
  • Certain commitments under contracts;
  • Settlement of liabilities on behalf of another entity (e.g. loans, equity contributions);
  • Research and development transfers.

Related Party Disclosures

As mentioned above, the “Philippine Accounting Standards (PAS) 24 – Related Party Disclosures” outlines various requirements for disclosing Related-Party Transactions in the Notes to the Financial Statements. In order to adhere to the objectives of PAS 24, the following requirements are listed by the BIR under RR No. 19-20: 

  1. Any disclosures on Related-Party Transactions should be made separately by each related party (see “Related-Party” section above for categories of related-party)
  2. For each of these categories, the following information shall be provided:
    • The amount of the transaction(s);
    • The amount of any outstanding balances and details of such balances (e.g. commitment, terms, security, guarantees, etc);
    • Doubtful debts provisions relevant to any outstanding balances;
    • Any expense recognized during the period relating to bad or doubtful debts due from related parties. 

Procedures and Guidelines for BIR Form No. 1709

When completing BIR Form No. 1709, taxpayers are required to:

  1. Complete the Form truthfully and in full. All sections should be completed (insert “Not Applicable” where relevant); 
  2. Attach the completed BIR Form No. 1709 to the company’s Annual Income Tax Return, commonly known as the AITR;
  3. Describe the nature of any Related-Party Transaction(s) in detail together with how company accounts are affected;
  4. The “Business Overview of the Ultimate Parent Company” section of BIR Form No. 1709 should include the profile of the multinational group to which the taxpayer belongs, as well as the details of any intra-group party involved in a Related-Party Transaction;
  5. The “Functional Profile” section of BIR Form No. 1709 should include the details of the business and industry of the taxpayer and any related-parties.
  6. The following documents must also be submitted with BIR Form No. 1709:
    • Certified true copy of the relevant contracts/proof of transaction;
    • Proof of payment of foreign taxes or any tax ruling (if relevant) by the tax authority where the other party is resident;
    • Withholding tax returns and proof of payment of taxes withheld and paid to the BIR;
    • Certified true copy of advance pricing agreement (if applicable);
    • Transfer pricing documentation (if relevant).

Timelines for Submitting BIR Form No. 1709

Going forward, all companies, from startups to SMEs to larger corporates, will be required to submit BIR Form 1709 together with their Annual Income Tax Return each year.

The deadline for which companies are required to start filing BIR Form 1709 has been extended a number of times since RR No. 19-20 was issued.

However, on 15 September 2020, in light of COVID-19 and to give companies sufficient time to comply, the BIR released Revenue Memorandum Circular 98-2020 which outlines the extended deadline dates for companies submitting BIR Form 1709, as follows:

  • Companies with Fiscal Year Ending March 31, 2020 and April 30, 2020, the extended deadline date is 29 December 2020.
  • Companies with Fiscal Year Ending May 31, 2020 and June 30, 2020, the extended deadline date is 31 January 2021.
  • Companies with Fiscal Year Ending July 31, 2020 and August 31, 2020, the extended deadline date is 1 March 2021.
  • Companies with Fiscal Year Ending September 30, 2020 and October 31, 2020, the extended deadline date is 31 March 2021.
  • Companies with Fiscal Year Ending November 30, 2020 and December 31, 2020, the extended deadline date is 30 April 2021.

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DISCLAIMER: This article is strictly for general information purposes only. Nothing in this article constitutes or intends to constitute financial, accounting, regulatory or legal advice and must not be used as a substitute for professional advice. It is still necessary to consult your relevant professional adviser regarding any specific matter referenced above.

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