Understanding Double Taxation in the Philippines

Double Taxation happens when the same taxes are imposed twice on the same object or income by the same taxing authority on the same taxable period and may occur in the following scenarios: 

• Both taxes imposed on the same property/subject matter  
• Both taxes imposed for the same reason  
• Both taxes imposed by the same state, government, or taxing authority  
• Both taxes imposed during the same taxing period  
• Both taxes were imposed with the same kind or character tax.  

Specific examples of double taxation that are allowed and are actually happening in the Philippines are: 

• Income tax on dividends: A company pays income tax on its profits, and then shareholders pay income tax again on the dividends they receive. 
• VAT (Value Added Tax) on VAT: Value-added tax (VAT) is applied at each stage of production and distribution, potentially leading to an inflated final tax burden. 
• Local and national taxes: Businesses may be subject to both local and national taxes on the same income or property. 

Double Taxation agreements in the Philippines 

Double Taxation Agreements (DTA) in the Philippines, also known as “Tax Treaties,” are made between two countries so they can deal with situations where said income becomes taxed by two or more jurisdictions. This becomes relevant when the subject matter of taxation involves incomes or properties that may be taxable under different jurisdictions depending on the interpretation as to the situs of taxation and presence of permanent establishment, among others. 

Currently, there are forty-three (43) double taxation agreements in the Philippines. These include:  

Resolving a Double Taxation agreement/Tax Treaties in the Philippines  

Double Taxation can have a great negative impact on taxpayers and businesses, especially when substantial amounts of income get taxed twice. So how does one deal with this situation in the Philippines? The Mutual Agreement Procedure (MAP) allows authorities of the contracting states to be able to resolve the disputes that may arise from the decisions of the affected contracting state/s that can result in the taxation becoming non-compliant with the provisions in the DTAs.  

Philippine law states that if either contracting state’s tax authority cannot resolve an issue alone, both countries should try to settle it together through agreement. Additionally, following the provisions provided in the Revenue Regulation (RR) 10-2022, it is clarified that the Philippine authority for resolving tax disputes with other countries is the Commissioner of Internal Revenue. The Commissioner can then delegate this role to other Bureau of Internal Revenue (BIR) officials through a Revenue Delegated Authority Order (RDAO); however, no RDAO has been issued yet as of date. 

The RR also highlighted certain scenarios that may require the assistance of a MAP:  

• The withholding tax rate imposed on an item of income earned by a domestic corporation is beyond the maximum rate fixed under the tax treaty. 
• A taxpayer deemed resident of the Philippines is also deemed a resident of another contracting country based on their domestic laws. 
• A resident citizen or domestic corporation is taxed in the other country on business profits or income from independent services despite not having a permanent establishment in that country under the tax treaty. 
• A resident citizen or domestic corporation has been or will be subject to taxation not in accordance with the provisions of the applicable tax treaty regarding the amount of profit attributable to the permanent establishment or fixed base. 
• A taxpayer is uncertain whether the convention covers a specific item of income or is unsure of the characterization or classification of the item related to a cross-border issue. 
• A taxpayer is subject to additional tax in one country because of a transfer pricing adjustment to the price of goods or services transferred to or from a related party in the other country. 

Requesting for a MAP to resolve a Double Taxation  

While MAPs can be used to resolve a Double Taxation agreement in the Philippines – the taxpayers must first make a formal request to acquire a MAP assistance. 

Pre-Filling a MAP  

To confirm if a MAP is necessary, the taxpayer may opt for a pre-filling consultation by following the guidelines below:  

• The request must be addressed to the Chief of Internal Tax Affairs Decision (ITAD). 
• Necessary supporting documents shall be attached to the request.  
• If requested, the taxpayer or their authorized representative must attend and present the issues that require competent authority assistance. 

The ITAD Chief would inform the taxpayer if the issue presented can be resolved with MAP, afterwards the Chief will advise the taxpayer to submit an official formal request for MAP.  

Making a formal request for a MAP  

The taxpayer needs to submit a formal request for a MAP in writing (manually or thru email) that must be signed by the taxpayer or their authorized representative. However, the formal request must include the following information and documentation and must be submitted through the following address:

Requirements for a MAP Request

For a formal MAP request to be valid under a DTA, the following information are needed:

1. Identity of Taxpayer
   • Full name
   • Address
   • Taxpayer Identification Number (TIN)
   • Contact details
   • Relationship with other concerned taxpayers (if applicable)
2. Tax Treaty information
   • Specify the exact article(s) of the relevant tax treaty that you believe are not being correctly applied.
   • You should explain how they perceive the tax authorities are misapplying the article(s).
   • Nature of the transaction or income in question
   • Taxation years or periods involved
   • Amounts involved (in both local currency and foreign currency)
   • Actions taken by the tax authorities (assessments, adjustments, etc.)
   • Name of the foreign tax administration involved and identification of the regional or local tax administration that has proposed the adjustment.
3.    Analysis of the Tax Treaty Issue 
   • Explain your interpretation of the application of the specific treaty provision(s).
   • State whether the MAP request has been submitted to the competent authority of the contracting party, along with date of submission, name, and designation of the person/office where the MAP request has submitted.
   • State if the issues were previously resolved
4. Other Information
   • Indicate if you have filed a notice of objection, notice of appeal, refund claim, or comparable document with relevant jurisdiction.
   • Note a schedule of the time limitations in each jurisdiction in respect of the years for which relief if sought
   • A statement that confirms that all the information and documentation provided in said MAP request is accurate, whilst stating that you will assist the competent authority resolve the issue presented in said MAP request.
   • Make sure to submit any other required information or documentation needed by the competent authority in a punctual manner.

Tax Services at Mazars

Keeping up to date with the constant changes and amendments to tax laws can become quite tedious to manage. At Mazars, we work closely with clients – offering solutions that simplify their compliance and help them navigate complex tax situations with confidence.

Our professionals have deep experience in multiple areas of tax, providing businesses at all stages of their life cycle with specialist advice. Our expertise ranges from corporate and employment tax, to transfer pricing and corporate structuring, to national and international transactions, to assessing tax implications when setting up new operations overseas, among others.

Our solutions include outsourced tax compliance, tax advisory and expert opinions, application for incentives, handling BIR tax assessments and audits, among others.

For more information on Mazars’ tax services in the Philippines, reach out to us for an initial call or follow the link below.