The Bureau of Internal Revenue (BIR) implements guidelines and procedures in exchange for spontaneous taxpayer-specific rulings by releasing BIR Revenue Regulation (RR) 11-2022. Note that spontaneous exchanges of relevant information on taxpayer-specific rulings give tax administrators access to timely information on rulings that have already been granted. These exchanges also cover past and future rulings following pre-defined periods.
The legal basis for spontaneous exchanges is found in the Exchange of Information (EOI) provision of its Double Taxation Agreements (DTA), which obligates authorities of the contracting states to exchange information as needed to perform the provisions. These EOI provisions include both exchanges automatic and manual.
Guidelines and policies for spontaneous exchange of ruins
The RR then highlights the new guidelines affecting taxpayer rulings. It also explains that the International Tax Affairs Division (ITAD), along with its EOI section are the ones obligated to exchange the taxpayer-specific rulings with the foreign tax authority with the potential exchange jurisdictions, given that it’s done on or before the prescribed deadline.
1.) International Tax Affairs Division (ITAD) office
It’s stated that taxpayers need to visit the ITAD office through its EOI to exchange their specific rulings towards the foreign tax authority of the potential exchange jurisdictions on or before the written deadline.
2.) Rulings regarding the scope of the transparency framework
The various rulings within the scope of the transparency framework include the following:
- Rulings related to a preferential regime.
- Cross-border unilateral Advance Pricing Arrangements (APAs) and other cross-border unilateral tax rulings (such as an Advance Tax Ruling) covering transfer pricing or the application of transfer pricing principles.
- Cross-border rulings give a unilateral downward adjustment to the taxpayer’s taxable profits in the country issuing the ruling.
- PE rulings
- Related parts conduit rulings.
3.) Information Exchange Template
The RR explains that the Philippines will use a new template designed by the Forum on Harmful Tax Practices (FHTP) and the Inclusive Framework on Base Erosion and Profit Shifting (BEPS). It’s then explained that any revisions to the template will also be implemented by the country, given that it’s not overly difficult or cumbersome to the tax administration.
4.) Types of Ruling regarding potential exchange jurisdictions
The various rulings within the scope of the transparency framework include the following:
5.) Timeline of Exchanges
The RR then highlighted how the EOI section of the ITAD intends to transmit the information meant to be exchanged to the proper jurisdictions using the following timelines once the regulations have entered effectivity:
- Past rulings will be submitted soon after identifying the potential exchange jurisdictions.
- Future rulings must be submitted as soon as possible and no later than three months after issuance.
This portion of the RR ensures that subsequent requests by another jurisdiction for a copy of the taxpayer-specific ruling are responded to, or a status update is provided within 90 days upon receipt of such request.
6.) Ways of exchanging rulings
The BIR specified two ways in which rulings can be exchanged; these modes of exchange are:
- Registered email
- Encrypted electronic mail (e-mail)
The RR reminds taxpayers that the EOI section will always ensure that any rulings and information given in email are password protected. Furthermore, the EOI will always prioritise the policy of its treaty partners when choosing the mode of exchange.
Guidelines for past and future tax-specific rulings
The RR clarifies that the country’s past rulings, which are within the scope of the transparency framework, refer only to PE rulings or rulings concerning the existence or absence of a PE of a foreign entity operating inside the country that was given either of the following:
- On or after January 1, 2015, but before September 1, 2017.
- On or after 1 January 2012 but before 1 January 2015, provided they were still in effect as of 1 January 2015.
However, note that “Future rulings” are the rulings issued after such periods.
A.) Past rulings
It’s explained that if the past ruling does not have enough information to complete the identification of all the relevant countries with which the information needs to be exchanged, the Rulings and Mutual Agreement Procedure (MAP) Section must apply the "best efforts" approach to identify them. These include the following scenarios:
- The checking of information included in the file supporting the tax treaty relief application (the "ruling file"), BIR Form No. 1709, and any relevant transfer pricing documentation, if available.
- The process of obtaining information from the domestic withholding agent, foreign taxpayer or its representative in the Philippines, the Securities and Exchange Commission or other possible information holders.
- Any other manner leading to the determination of the needed information.
The BIR then states that all requests for information related to the exchange of past rulings shall be signed by the Assistant Commissioner for Legal Service (ACIR-LS).
B.) Future rulings
The RR explains that the offices handling the issuance of the taxpayer-specific rulings mentioned in this section of these regulars are mandated to take all measures to make sure that all potential exchange jurisdictions are identified swiftly for all future rulings. This will be done even if an amendment of the ruling process is needed.
However, note that the amendment of the BIR Forms that must be submitted by the taxpayer when requesting a confirmatory ruling, and the inclusion of transfer pricing documentation as part of the documentary requirements, among others.
Taxpayers are then reminded that the Bureau can request other relevant documents from the domestic and foreign taxpayers unchallenged, to obtain information on the potential exchange jurisdictions. Additionally, the usual documents must accompany every request for confirmatory ruling pursuant to existing revenue issuances. Lastly, any requests for information related to the exchange of future rulings shall be signed by the respective heads of offices.
Future rulings that originated from an ITAD
The classification of future rulings originating from the ITAD that are subject to the spontaneous exchange of rulings, and the identification of, and gathering of information on the potential exchange jurisdictions shall be the responsibility of the Rulings and MAP Section of ITAD.
After classifying the rulings to be exchanged and identifying the potential exchange jurisdictions, the Rulings and MAP Section shall immediately transmit the ruling file to the EOI Section.
The BIR clarifies that the office which issued taxpayer-specific rulings, other than those originating from ITAD, is responsible for ensuring that all potential exchange jurisdictions are quickly identified for all future rulings.
BIR encourages excellent cooperation between the office and ITAD for a smooth process of exchanging rulings. It also mandates the transmission of the ruling file, along with a summary of the potential exchange jurisdictions, towards the EOl Section of ITAD in a secure manner within thirty (30) days from its issuance.
Reviewers and final review of the framework
The first reviewer would be the Chief of ITAD, who’ll both review and supervise the implementation of the framework to ensure that all relevant information on the identification of rulings and potential exchange jurisdictions is captured adequately.
The final review will be completed by the ACIR-LS who’ll sign all documents related to the spontaneous exchange of rulings to the relevant foreign tax authority.
Spontaneous ruling exchange receipt
The government branch responsible for receiving rulings spontaneously exchanged by its treaty partners would be the EOI Section of ITAD. If it was determined that the ruling will aid the tax examiners in their tax investigation during the evaluation, the Revenue District Office (RDO) which has jurisdiction over the domestic taxpayer will get a copy forwarded to them.
For monitoring purposes, the RDO shall always provide the EOl Section feedback on the usefulness of the information provided by the foreign tax jurisdiction within thirty (30) days from the termination of the tax investigation.
Rules on Confidentiality
During the spontaneous exchange of tax rulings, the EOl Section shall be guided by the confidentiality rules contained in the EOl provision of the Double Taxation Agreements, Section 270 of the National Internal Revenue Code of 1997, as amended, Republic Act No. 10173 (Data Privacy Act of 2012), and of existing revenue issuances.
Additionally, all the regulations in this RR will take effect fifteen (15) days after its publication in a newspaper of general circulation.