BUSINESSES are seeking clearer and more consistent rules on how cross-border services are taxed, as a policy dialogue convened by Arangkada Philippines examined implementation issues arising from Bureau of Internal Revenue (BIR) Revenue Memorandum Circular (RMC) 5-2024.
The Joint Foreign Chambers of the Philippines (JFC), through its ‘Arangkada Philippines’ initiative, said greater tax certainty is needed because tax rules affect how companies structure transactions, plan operations and assess investments.
‘Arangkada serves as a vital bridge between government and business, creating a platform where practical policy concerns can be openly discussed and translated into clear, actionable implementation that supports both compliance and competitiveness,’ Arangkada Project Director Matthew Scalin said during the dialogue last Wednesday.
Issued in January 2024, RMC 5-2024 requires service fees paid to nonresident foreign corporations to be subject to Philippine final withholding tax and value-added tax when the services are used, applied or consumed in the country, even if the work is performed abroad.
The rule, which draws from the Supreme Court’s ruling in Aces Philippines Cellular Satellite Corp. v. Commissioner of Internal Revenue, broadens the basis for determining the tax situs of services from where the work is physically performed to where the resulting economic benefit or utility is realized.
For businesses, the change raises questions on how the rules should be applied to cross-border transactions, particularly where services involve operations spanning several jurisdictions.
The JFC comprises the American, Canadian, European, Japanese and Korean chambers of commerce and PAMURI, representing more than 3,000 companies operating across various sectors of the Philippine economy.
Arangkada will consolidate the issues and recommendations raised during the dialogue and pursue further discussions with concerned government agencies and stakeholders.
The initiative is part of Arangkada’s broader advocacy for policy reforms aimed at improving the investment environment and competitiveness of the country.