Introduction: We have come a long way, but are we there yet?
It has been more than a decade since RR No. 2-2013, or the Philippine TP Regulations, was formally established. Much has changed since then-from the audit techniques introduced under Revenue Audit Memorandum Order No. 1-2019 to BIR Form 1709, which requires certain taxpayers to disclose their related-party transactions. There is certainly an intention on the part of the tax administration to go after MNEs and domestic enterprises that may be taking advantage of related-party relationships to reduce their tax payments.
However, while we have come a long way, we still have a lot of catching up to do. While neighboring ASEAN members are already implementing their own versions of Pillar Two, the Philippines is only beginning to move in this direction. In August 2025, the BIR also presented draft regulations for a formal Advance Pricing Agreement program.
These are significant developments and, if I may say, long overdue. But the bigger question remains: Is the Philippines ready?
APA: A welcome development toward a more mature TP framework
An Advance Pricing Agreement (APA) is an arrangement between a taxpayer and the tax authorities to determine in advance how transactions between related companies will be priced for tax purposes. While prevalent mostly for cross-border transactions, it can also be entered into domestically through a domestic APA.
Controlled transactions covered by an APA generally cannot be audited by the BIR for a period of five years. Therefore, an APA provides tax certainty, especially for complex intercompany transactions. It also helps prevent double taxation since the contracting parties-or jurisdictions-are bound to respect and implement its provisions.
Among these benefits, I would like to emphasize the first one: tax certainty.
Transfer pricing involves considerable professional judgment. Taxpayers and the BIR may arrive at different conclusions despite evaluating similar facts and circumstances. They may disagree on the characterization of the entity, the most appropriate transfer pricing method, the tested party, whether domestic or regional comparables are appropriate, or even the arm’s-length outcome.
A taxpayer can therefore prepare extensive documentation today, only to discover several years later during an audit that the BIR has taken an opposing position. If transfer pricing is inherently judgment-driven, certainty may be just as important as having the right rules.
An effective APA program could provide this certainty and prevent burdensome and lengthy disputes. It could also allow the BIR to focus more resources on tax collection and other responsibilities that matter, while greater predictability could mean a great deal to investors considering the Philippines for their next ventures.
But an APA should not be viewed simply as another addition to the BIR’s transfer pricing arsenal. Its success should ultimately be measured by whether it makes the tax system more predictable and efficient.
The bigger question: Are we modernizing tax administration-or simply adding more compliance?
The continued development of Philippine transfer pricing is certainly welcome. But modernization should not automatically mean more compliance, more assessments, or more burden on taxpayers. If an APA program represents the next stage of Philippine transfer pricing, the more important question is whether our tax administration is ready to implement it efficiently.
The draft RR indicates that the program shall be administered by an Advance Pricing Arrangement Division, meaning that the BIR will establish a separate team to handle APAs. I wonder, however, how feasible this would be, knowing fully well that establishing a transfer pricing team is already a difficult feat considering the scarcity of resources. Adding another team could mean reallocating the limited manpower currently available across different divisions.
Another consideration is the timeline. The draft RR states that the BIR will endeavor to conclude APAs, whether UAPAs or BAPAs, within 12 to 24 months. Even in mature tax jurisdictions, it generally takes an average of three years to finalize a single bilateral deal. The proposed timeline is optimistic and may be difficult to achieve given the resources and coordination required.
I also have reservations about the procedures. These arrangements require sophisticated transfer pricing practices, careful functional and economic analyses, and, particularly for bilateral APAs, coordination between tax authorities. Considering where we currently stand in the development of our transfer pricing practice, I am quite worried about how these challenges could impact taxpayers hoping to avail themselves of the program.
An APA that requires years of negotiation and creates additional compliance issues for taxpayers would only defeat one of the primary purposes for which it was established: tax certainty.
The government undoubtedly has a legitimate responsibility to protect the Philippine tax base. However, better tax administration should not simply mean imposing additional requirements on taxpayers already within the system. As our tax rules become increasingly sophisticated, equal attention should be given to improving collection efficiency, simplifying compliance, reducing unnecessary administrative friction, ensuring consistency in the application of tax rules, and broadening the tax base.
This should also be viewed from an investment perspective. Businesses consider not only tax rates and incentives, but also tax certainty, compliance costs, predictability, and the risk of prolonged disputes when deciding where to invest or expand. A sophisticated tax regime may lose some of its appeal if it comes with greater uncertainty and administrative burden.
A stronger tax system should not only be better at collecting taxes. It should also help create an environment where there is more economic activity from which taxes can sustainably be collected.
If implemented properly, an APA should not become another layer of compliance, but rather a mechanism that provides certainty, prevents lengthy disputes, allows the BIR to use its resources more efficiently, and strengthens investor confidence.
4. Final thoughts: The real ‘next big move’
APAs could represent an important milestone in Philippine transfer pricing. But simply introducing an APA mechanism does not automatically bring the Philippines to the level of more mature TP jurisdictions. The real measure of success will be how it works in practice.
Can it provide certainty? Can it prevent lengthy disputes? Can it be administered efficiently? And can it improve the investment environment rather than simply add another layer of compliance?
The Philippines does not have to choose between protecting its tax base and remaining attractive to investors. A mature tax system should be capable of doing both.
Perhaps the Philippines’ next big move in transfer pricing should not simply be adopting more sophisticated rules, but building a system that taxpayers can understand, tax authorities can administer efficiently, and investors can trust.
The author is a Senior Manager of the International Tax and Transfer Pricing Unit of Du-Baladad and Associates (BDB Law) (www.bdblaw.com.ph).
The article is for general information only and is not intended, nor should be construed as a substitute for tax, legal, or financial advice on any specific matter. Applicability of this article to any actual or particular tax or legal issue should be supported, therefore, by a professional study or advice. If you have any comments or questions concerning the article, you may e-mail the author at joannelesley.padilla@bdblaw.com.ph or call 8403-2001 local 310.