Private sector groups urged the Bureau of Internal Revenue (BIR) to revoke the implementation of Revenue Memorandum Circular (RMC) 5-2024, which subjects cross-border services to 25 percent withholding tax and 12% final withholding value-added tax (VAT).
In a joint statement, the 10 business groups asserted that RMC 05-2024 while other cross-border services do not also require government regulation, the new measure qualifies that services rendered by a Philippine-based company to a foreign entity is subject to final withholding tax.
The business groups, composed of the Philippine Chamber of Commerce and Industry (PCCI), Philippine Exporters Confederation (Philexport), Management Association of the Philippines (MAP), Tax Management Association of the Philippines (TMAP), Philippine Institute of
Certified Public Accountants (PICPA), Financial Executives of the Philippines (FINEX), Association of Certified Public Accountants in Commerce and Industry, Association of Certified Public Accountants in Public Practice, Joint Foreign Chambers of the Philippines (JFsC), IT
and Business Process Association of the Philippines, appealed to BIR to reconsider the implementation of such policy and consider its negative implications to foreign or local businesses.
The groups also noted that circular runs counter to the provisions of the Tax Code on the situs of the source of income. Under the Tax Code, a non-foreign resident corporation (NRFC) is only taxable on income from sources within the Philippines.
“When a foreign entity deals with Philippine clients, it does so with the understanding that the tax costs of the transaction are manageable from a whole entity perspective and that the transaction will still generate a profit for the foreign entity. Once the tax costs do not
justify doing business with Philippine clients, such when the tax rates are prohibitive, then foreign entities will more than likely look for other jurisdictions where the tax costs are lower. In this light, it is respectfully submitted that subjecting the income of NRFCs from services rendered abroad will lead to an increase in the tax cost of doing business, which, may drive away foreign entities from conducting business in the Philippines,” the groups said.
On Jan. 10, the BIR issued RMC 5-2024, which provides that services to a Philippine entity that are performed by a foreign entity are now taxable.
RMC 05-2024 maintains that for cross-border services, the jurisdiction providing the essential service for income generation is entitled to tax the income.
The groups also maintained that implementing RMC No 5-2024 will result in increased cost of doing business in the Philippines.