Clarifications on filing of Request for Confirmation, Tax Treaty Relief Applications and tax sparing applications
(Revenue Memorandum Circular No. 20-2022, February 17, 2022)
This Tax Alert is issued to inform all concerned on the clarifications and guidance in filing of Requests for Confirmation (RFC), Tax Treaty Relief Applications (TTRA) and Tax Sparing Applications.
Background
There are two types of COEs issued by the ITAD-BIR:
- For recurring transactions, the COE issued by the BIR contains a proviso stating that the same ruling shall apply to future or subsequent income payments to the same nonresident-income payee/recipient provided that the conditions set forth therein are present. This type of COE is intended for dividends, branch profit remittances, interest, royalties, income from air and shipping transport and other income such as guarantee or substitution fees.
- The other type of COE limits the applicability of the ruling to a particular transaction or period of engagement and is usually issued for business profits, capital gains, income of teachers, and income from services (dependent or independent).
Filing of RFC, TTRA and Tax Sparing Applications for recurring transactions
- Taxpayers who were already issued with Certificate of Entitlement (COE), the tenor thereof allows the ruling to be applied to subsequent future income payments, shall no longer file a new application every time an income of similar nature is paid to the same nonresident.
- In applying the confirmed treaty benefit to future income payments, the income payor or withholding agent shall always be guided by the requisites mentioned in the COE. Thus, if the COE mentions tax residency as a requisite for continuous enjoyment of treaty benefit, the income payor must require the nonresident to submit first a Tax Residency Certificate (TRC) for such relevant year before making any payment.
- A new RFC, TTRA or tax sparing application shall only be filed if any of the requisites mentioned in the COE is absent.
Filing of RFC and TTRA for certain types of income (non-recurring transactions)
- For business profits, income from services (dependent or independent), capital gains, income derived by teachers, and such other income from non-recurring transactions, the RFCs or TTRAs shall still be filed following the procedures and requirements prescribed in Revenue Memorandum Order No. 14-2021, as amended by Revenue Memorandum Circular No. 77- 2021.
- In case annual updating is required for long-term contract of services, the taxpayer shall only submit the following:
a. TRC of the nonresident for the relevant year;
b. Sworn Certification stating the following:
i. services provided by the foreign enterprise
ii. place of performance of such services
iii. individuals who rendered the services on behalf of the foreign enterprise, their positions/designations and professional background
iv. duration of stay in the Philippines of said individuals;
c. Certified true copy of their passports or a Certification duly issued by the Bureau of Immigration stating their dates of arrival in, and departure from, the Philippines;
d. Certificate of Completion of the project duly signed by the income recipient and duly accepted by the domestic income payor, if applicable;
e. Invoice/s duly issued by the income recipient in accordance with the invoicing requirements of the country of residence, if applicable; and
f. Bank documents/certificate of deposit/telegraphic transfer/telex/money transfer evidencing the payment/remittance of income, if applicable.
Documents to be submitted during audit
- During a tax audit, the income payor shall submit or present a copy of the duly issued COE and proof of satisfaction of the requisites cited therein. The tax auditor, on the other hand, shall ensure the authenticity of the submitted documents.