BIR: Transfer pricing rules released soon

MANILA, Philippines - The Bureau of Internal Revenue (BIR) is set to issue regulations covering transfer pricing as part of plans to raise tax revenues. BIR Deputy Commissioner Nelson M. Aspe said the transfer pricing rules will make sure transactions between parent firms and their subsidiaries are done in "arms length," such that when a company sells a product to a related party, the government won’t be cheated of taxes. "There should be a threshold in selling to determine the right pricing. A lot of tax practitioners welcome this [revenue regulation]," he told reporters recently. Mr. Aspe said the BIR has issued a memorandum circular, which provides guidelines for transfer pricing, while the revenue regulations are being finalized. BIR wants to ensure that prices charged between related firms for goods, services, intangible assets, or others will be the same as in transactions with independent parties. If companies with the same owners take advantage of the relationship to transfer income or expenses among themselves and reduce tax liabilities, tax leakages will result. The tax agency, which has to collect P844.95 billion this year, will also put bar codes on cigarettes and alcohol products to check smuggling and raise collections. Mr. Aspe said the BIR expects to put the system in place by the last quarter, citing strict government procurement rules. BIR Commissioner Lilian B. Hefti earlier said BIR is looking at improving the administration of the excise tax, with collections expected to increase by 15.26% at P63.44 billion this year, along with intensifying enforcement, enhancing audit programs, and strengthening the use of "business intelligence." In 2007, the BIR collected P55.04 billion from excise taxes. This was below the P58.72-billion target set last year. Ms. Hefti said the BIR would be hard-pressed to collect more taxes considering the strengthening peso which she said has created a negative impact on the operations of the Bangko Sentral ng Pilipinas and exporters; lower than expected interest rates; inadequate human resources; insufficient logistics; and the lack of financial resources needed to upgrade information technogy equipment. - R.A.M. Rubio