Being taxed in two different legal systems for the same activity or transaction is not something that companies want to have on their books! This is why countries have addressed this potential problem of “double taxation” by developing and enforcing tax treaties. A taxpayer residing in a country with which the Philippines has an effective tax treaty and has obtained income from sources within the Philippines can benefit from the facilities provided by this treaty to avoid double taxation. Tax relief for certain types of income may be granted either in the form of a tax exemption or a preferential tax rate. To date, the Philippines has entered into tax agreements with 43 countries. Secretary of State for Finance Antonette Tionko said the first round of discussions in Manila recently focused on preventing double taxation of income and capital income and preventing tax evasion and evasion. The Philippines is home to individuals and businesses that do business with other companies outside the country. As follows, Filipino residents earn income from foreign sources. Countries that are also called contracting states have entered into tax treaties to ensure that there is no double taxation or double non-taxation of income from foreign sources by its residents. It goes without saying that in the Philippines, tax agreements allowing certain income tax advantages are being implemented in the Philippines to promote foreign trade and investment. Benefits under tax treaties must be regulated to avoid abuse.

This is where the International Tax Affairs Division (Itad) of the Bureau of Internal Revenue (BIR) comes in. In the recently adopted Memorandum of Information (RMO) 51-2019, the IRB set out guidelines for the processing and issuance of tax residence certificates (CRTs). First, it is found that only residents of a contracting state who are taxed on their global income are entitled to contractual benefits, which implies the need to guarantee the CT for documentary purposes. In other words, “residents of a contracting state” for contractual purposes concern only established citizens and national enterprises. Although they are considered residents for national tax purposes, resident aliens and resident foreign businesses are not entitled to secure a CRT. With the issuance of the RMO, affected taxpayers would expect their application to be processed within 14 business days of filing the full file with Itad. The documentation requirements are in Schedule B and Schedule C of the RMO. The list includes a request for correspondence, proof of transaction, statutes, all income tax and VAT returns as well as audited accounts. The BIR has also designed its own TRC and will no longer sign TRC forms from foreign jurisdictions. The application is denied if the taxpayer is not entitled to tax benefits or if the policyholder has filed false documents. By issuing these guidelines, the BIR intends to create a database of Filipino residents with income from foreign sources and to monitor the reporting of these incomes.

Itad, which becomes the archive of documents proving the income of the foreigner, is responsible for the provision of documents provided by the applicants by the competent Financial District Office (RDO) or the Department of Large Taxpayers (Ltd). According to tax investigation procedures, the RDO or the LTD assesses, if necessary, the taxes on defects. Grant ThorntonCertified Public Accountants A tax agreement has been developed between some countries to prevent a company from having to pay taxes for the same business activity in more than one country.