Confirmation requests, requests for tax treaty relief and requests for tax sparing credits

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IN 2021, the Bureau of Internal Revenue (BIR) issued Revenue Memorandum Order (RMO) 14-2021 and Revenue Memorandum Circular (RMC) 77-2021, which simplified the procedure for enjoying benefits under the tax treaty applies. These issuances also introduced the nature of the application to be filed by the taxpayer as well as the issuance of a Certificate of Treaty Benefit Eligibility (COE) by the BIR.

For payments made by a Philippine income payer to nonresidents who applied the provisions of a relevant tax treaty, a Consolidated Request for Confirmation (RFC) per nonresident income payee must be filed by the income payer ( as withholding agent) with the BIR. International Fiscal Affairs Division (ITAD) to obtain confirmation of the accuracy or entitlement to treaty benefits. The filing of the RFC must be made at any time after payment of the withholding tax, but no later than the last day of the fourth month following the close of each tax year.

If the income payment was subject to the normal tax rate, the non-resident income recipient is required to file a TTRA with ITAD if they intend to claim entitlement to treaty benefits. A refund request can also be filed independently or jointly with the TTRA. Failure to prove entitlement to treaty benefits may result in confirmation of the previously applied income tax rate and possible denial of the TTRA (and claim for refund).

On February 17, 2022, the BIR issued RMC 20-2022, which aims to limit the number of RFCs and TTRAs filed with ITAD and to provide guidance on filing Confirmation Requests, Requests for Relief tax treaty claims and tax reduction claims, as well as taxpayers who have already received a COE.

For recurring transactions, such as payment of dividends, branch profits tax, interest, royalties, air or sea transportation income and other recurring income, taxpayers who have previously received a COE n just check the requirements mentioned in the COE. If the tenor permits the application of the ruling to subsequent or future income payments of a similar nature and to the same non-resident payee, the filing of a new RFC or TTRA is not required. Thus, if the COE lists tax residency as a prerequisite for continued enjoyment of treaty benefits, the income payer should require the nonresident to first submit a tax residency certificate duly issued by the tax authority. before making the income payment for that relevant year. If any of the requirements in the COE are not met, a new RFC or TTRA or tax savings request must be submitted.

During a tax audit, a copy of the duly issued COE and proof of fulfillment of the required conditions must be presented. The revenue examiner is responsible for ensuring the authenticity of these documents provided by the revenue payer. In case of doubt, he can also request the assistance of ITAD.

For non-recurring transactions (e.g. business profits, service income (dependent or independent), capital gains, teacher income), the COE limits the applicability of the ruling to one transaction or period of special commitment. Therefore, RFCs or TTRAs should always follow the procedures and requirements outlined in RMO 14-2021 and RMC 77-2021.

With regard to the annual update of the long-term service contract, the taxpayer concerned must provide the following:

– Certificate of tax residence of the non-resident for the year concerned

– Sworn statement indicating the services provided by the foreign company, the place of performance of these services, the persons who rendered the services on behalf of the foreign company, their functions/designations and their professional background, and the length of stay in the Philippines of said persons

– Certified copy of their passports or a certificate duly issued by the Bureau of Immigration indicating their dates of arrival and departure in the Philippines

– Certificate of project completion duly signed by the income recipient and duly accepted by the national payer, if applicable

– Invoice(s) duly issued by the income recipient in accordance with the invoicing requirements of the country of residence, if applicable

– Bank documents or certificate of deposit or telegraphic or telex transfer or money transfer evidencing payment or remittance of income, if applicable.

Indeed, the issuance of the RMC 20-2022 offers convenience and efficiency both to taxpayers (and income recipients) and to our tax authorities, in particular the ITAD. For taxpayers with recurring transactions, the burden of repeatedly filing a Confirmation Request, TTRA, or applying the Tax Savings Rule is eliminated. By not requiring taxpayers with recurring transactions to repeatedly file their demands and demands for the same nature of income payment and the same non-resident payee, ITAD will not be overwhelmed with demands and demands.

Nica Marsha V. Gasapo is a junior partner at Mata-Perez, Tamayo & Francisco (MTF Counsel). This article is provided for informational purposes only and does not replace professional advice when the facts and circumstances warrant it. If you have any questions or comments regarding this article, you can email the author at [email protected] or visit the MTF website at www.mtfcounsel.com.

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