Philippines streamlines process for claiming tax treaty benefits

The Philippine Bureau of Internal Revenue (BIR) issued Revenue Memorandum Order (RMO) No. 14-2021 (the Order) 1 which provides updated guidelines for the processing of tax treaty relief applications (TTRA) on all Philippine-sourced income derived by nonresidents. The guidelines took effect immediately upon their issuance on 31 March 2021.

This Tax Alert summarizes the key changes in the procedures and documents for claiming tax treaty relief.

Summary of key changes

• The submission of a Certificate of Residence for Tax Treaty Relief (CORTT) Form for dividends, interest and royalties, and the submission of a TTRA for all other types of income within 15 days before the first taxable event is no longer required.

• Nonresidents must submit a completed BIR Form No. 0901 or Application Form for Treaty Purposes and their Tax Residency Certificate (TRC) duly issued by the foreign tax authority to the withholding agent prior to the first payment of any type of income.

• The withholding agent, if applying the tax treaty rate, must file with the International Tax Affairs Division (ITAD) a request for confirmation of the tax treaty rate applied after the payment of the withholding tax but not later than the last day of the fourth month following the close of each taxable year.

• If the withholding agent applied the regular (non-treaty) rates and the nonresident would like to get a refund of excess taxes withheld, the nonresident must file a TTRA with the ITAD at any time after the receipt of the income. After obtaining a certificate confirming entitlement to tax treaty benefits, the nonresident may claim a refund of excess tax withheld by filing a completed BIR Form No. 1913 (with its request letter) within two years from the date of payment of the withholding tax.

• For long-term contracts (effective for more than one year), an updated Application Form, a new TRC (if validity period has lapsed), and other relevant documents must be filed annually until the end of the contract to ensure the proper withholding tax rate is applied.

• The guidance also provides additional documentary requirements for foreign fiscally transparent entities (e.g., a list of owners or beneficiaries of the entity) and clarifies that members of a fiscally transparent entity must claim tax treaty benefits pursuant to the tax treaty between the Philippines and the member’s state of residence.

• Taxpayers with pending TTRAs for income earned in 2020 and prior years, including those which received a Notice of Archiving, are given three months from the receipt of a “Final Notice to Submit Additional Documents” (Final Notice), or from the effective date of the Order, whichever is later, to submit the missing documents. Taxpayers who were issued a Notice of Archiving will no longer receive a Final Notice. Failure to submit the requested documents would result in the automatic denial of the TTRA for failure of the nonresident to prove entitlement to the tax treaty benefits.

• Any violation of this Order, including failure to file a request for confirmation within the prescribed period, shall be subject to penalties.

Implications

Nonresidents deriving Philippine-sourced income should discuss with their agent banks and/or tax advisors and review their compliance with the updated procedures and documentary requirements for claiming tax treaty benefits.

For additional information with respect to this Alert, please contact the following:

Ernst & Young Philippines (SGV & Co.), Makati City

• Fabian K. Delos Santos
• Fidela T. Isip-Reyes

Ernst & Young LLP (United States), Philippines Tax Desk, New York

• Michelle C. Arias

Ernst & Young LLP (United States), Asia Pacific Business Group, New York

• Chris J. Finnerty
• Bee Khun Yap
• Dhara Sampat

For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert.