Harmful Tax Practices – 2017 Peer Review Reports on the Exchange of Information on Tax Rulings

Philippines

The Philippines is taking steps to implement the legal basis for the transparency framework and to commence administrative preparations to ensure that information on rulings will be exchanged once the new legal basis is in place. The Philippines has met all of the terms of reference (ToR) for the calendar year 2017 (year in review) except for identifying all potential exchange jurisdictions for both past and future rulings (ToR I.4.2.1 and ToR I.4.2.2) and having in place a review and supervision mechanism (ToR I.4.3), having in place a domestic legal framework allowing spontaneous exchange of information on rulings by ensuring the timely exchange of information on rulings in the form required by the transparency framework (ToR II.5). The Philippines is recommended to apply the “best efforts approach” to identify potential exchange jurisdictions for all past rulings, to ensure that all potential exchange jurisdictions are identified swiftly for future rulings and to have in place a review and supervision mechanism to ensure that all relevant information is captured adequately, and to continue its efforts to put in place a domestic legal framework allowing spontaneous exchange of information on rulings and to ensure the timely exchange of information on rulings in the form required by the transparency framework.

The Philippines can legally issue one type of rulings within the scope of the transparency framework.

In practice, the Philippines has issued 78 past rulings; and for the period 1 September 2017 - 31 December 2017, the Philippines issued four future rulings within the scope of the transparency framework.

As the Philippines did not have the necessary domestic legal framework for spontaneous exchange of information for the year in review, no exchanges were permitted to occur.1 As such, no peer input was received in respect of the exchanges of information on rulings received from the Philippines.

1. The Action 5 Report notes that jurisdictions which do not currently have the necessary legal framework in place for spontaneous exchange of information on rulings will need to put in place such a framework in order to comply with the obligations under Action 5, but that in such cases the timelines are subject to a country's legal framework.

Introduction

1033.  This peer review covers the Philippines’s implementation of the BEPS Action 5 transparency framework for the year 2017. The report has four parts, each relating to a key part of the ToR. Each part is discussed in turn. A summary of recommendations is included at the end of this report.

A. The information gathering process

1034.  The Philippines can legally issue the following type of rulings within the scope of the transparency framework: permanent establishment rulings.1 Rulings are issued by the International Affairs Division (“ITAD”) of the Bureau of Internal Revenue (“BIR”). The Philippines published taxpayer specific rulings in redacted form until 2015.2

1035.  The Philippines has commenced the information gathering process in advance of the legal basis for spontaneously exchanging information on rulings being finalised.

Past rulings (ToR I.4.1.1, I.4.1.2, I.4.2.1, I.4.2.2)

1036.  For the Philippines, past rulings are any tax rulings within scope that are issued either: (i) on or after 1 January 2015 but before 1 September 2017; or (ii) on or after 1 January 2012 but before 1 January 2015, provided they were still in effect as at 1 January 2015.

1037.  All rulings issued by BIR had been recorded in a database. In order to determine the period of validity for past rulings, the BIR checked the date of issue of each ruling in the database. Once selected as a past ruling, each ruling was then read and checked against the category of rulings to determine whether it was within scope of the Action 5 Report.

1038.  In order to identify potential exchange jurisdictions, the BIR checked each ruling manually. With respect to PE rulings, the rulings contain information identifying the residence country of the head office or of the PE and the immediate parent company as this information has to be provided by the taxpayer in the form of audited financial statements and/or other corporate documents when applying for the ruling. It is noted however, that for the PE rulings (including tax treaty relief rulings), information on the ultimate parent company is not provided by the taxpayer. As such, the Philippines is recommended to apply the “best efforts approach” to identify potential exchange jurisdictions for all past rulings.

Future rulings (ToR I.4.1.1, I.4.1.2, I.4.2.1)

1039.  For the Philippines, future rulings are any tax rulings within scope that are issued on or after 1 September 2017.

1040.  The BIR checked the date of issue of each ruling in the database to determine whether it qualified as a future ruling. Once selected as a future ruling, it was then checked against the category of rulings to determine if it is within scope of Action 5.

1041.  The BIR also indicated that it is in the process of updating the rulings process with respect to future rulings in order to flag future rulings in the database that are in scope of Action 5 at the point at which they are issued.

1042.  In order to identify the potential exchange jurisdictions, the BIR would read the ruling itself, which, as is the case for past rulings, would contain information on all potential exchange jurisdictions, except the ultimate parent company. As such, the Philippines is recommended to ensure that all potential exchange jurisdictions are identified swiftly for future rulings.

Review and supervision mechanism (ToR I.4.3)

1043.  The Philippines has a review and supervision process governing the issuance and recording of rulings, which facilitates the identification of past and future rulings. However, it is not clear that the Philippines has a process for reviewing and supervising the implementation of the transparency framework to ensure that all relevant information on the identification of rulings and potential exchange jurisdictions is captured adequately. Therefore, the Philippines is recommended to have in place a review and supervision mechanism to ensure that all relevant information is captured adequately.

Conclusion on section A

1044.  The Philippines has met all of the ToR for the information gathering process, except for applying the “best efforts approach” for past rulings (ToR I.4.2.2), identifying all potential exchange jurisdictions for future rulings (ToR I.4.2.1) and having in place a review and supervision mechanism (ToR I.4.3). The Philippines is recommended to apply the “best efforts approach” for past rulings with respect to identifying the ultimate parent company, to ensure that all potential exchange jurisdictions are identified swiftly for future rulings and to have in place a review and supervision mechanism to ensure that all relevant information is captured adequately.

B. The exchange of information

Legal basis for spontaneous exchange of information (ToR II.5.1, II.5.2)

1045.  The Philippines does not have the necessary domestic legal basis to exchange information on rulings spontaneously. This is because the Philippines is legally prohibited from sharing information on, or copies of, rulings other than to the applicant taxpayer. The Philippines is currently in the process of amending the Tax Code to allow spontaneous exchange of ruling information through a comprehensive tax reform programme currently underway.

1046.  The Philippines is a party to international agreements permitting spontaneous exchange of information, including double tax agreements with 43 jurisdictions.3 The Philippines has signed the Multilateral Convention on Mutual Administrative Assistance in Tax Matters: Amended by the 2010 Protocol (OECD/Council of Europe, 2011) (“the Convention”) which is currently with the Philippines Senate for concurrence. Once the Convention enters into force, the spontaneous exchange of information could also be done with all jurisdictions that are covered by the Convention.

Completion and exchange of templates (ToR II.5.3, II.5.4, II.5.5, II.5.6, II.5.7)

1047.  As the Philippines does not yet have the legal basis for exchanges, the process for the completion and exchange of templates has not been put in place.

1048.  For the year in review, as there is no domestic legal basis for exchange, no data on the timeliness of exchanges can be reported.

Conclusion on section B

1049.  The Philippines is recommended to continue its efforts to put in place a domestic legal framework allowing spontaneous exchange of information on rulings and to ensure the timely exchange of information on rulings in the form required by the transparency framework (ToR II.5).

C. Statistics (ToR IV)

1050.  As there was no legal basis for exchange in the year of review, no statistical data can be reported.

D. Matters related to intellectual property regimes (ToR I.4.1.3)

1051.  The Philippines does not offer an intellectual property regime for which transparency requirements under the Action 5 Report (OECD, 2015) were imposed.

Summary of recommendations on implementation of the transparency framework

 

Aspect of implementation of the transparency framework that should be improved	Recommendation for improvement
The Philippines does not currently collect information on all potential exchange jurisdictions, particularly the ultimate parent company for past rulings.	The Philippines is recommended to apply the “best efforts approach” to identify potential exchange jurisdictions for all past rulings.
The Philippines does not currently collect information on all potential exchange jurisdictions, particularly the ultimate parent company for future rulings.	The Philippines is recommended to ensure that all potential exchange jurisdictions are identified swiftly for future rulings.
The Philippines does not have a review and supervision mechanism in place to ensure that all relevant information on the identification of rulings and potential exchange jurisdictions is captured adequately.	The Philippines is recommended to have in place a review and supervision mechanism to ensure that all relevant information is captured adequately.
The Philippines does not yet have the necessary domestic legal framework in place for exchanging information on rulings and a process in place to ensure the timely exchange of information on rulings in the form required by the transparency framework.	The Philippines is recommended to continue to put in place a domestic legal framework allowing spontaneous exchange of information on rulings and to ensure the timely exchange of information on rulings in the form required by the transparency framework.

References

OECD (2017), BEPS Action 5 on Harmful Tax Practices – Terms of Reference and Methodology for the Conduct of the Peer Reviews of the Action 5 Transparency Framework, OECD/G20 Base Erosion and Profit Shifting Project, OECD, Paris. www.oecd.org/tax/beps/beps-action-5-harmful-tax-practices-peer-review-transparencyframework.pdf.

OECD (2015), Countering Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance, Action 5 - 2015 Final Report, OECD/G20 Base Erosion and Profit Shifting Project, OECD Publishing, Paris. https://doi.org/10.1787/9789264241190-en.

OECD/Council of Europe (2011), The Multilateral Convention on Mutual Administrative Assistance in Tax Matters: Amended by the 2010 Protocol, OECD Publishing, Paris. http://dx.doi.org/10.1787/9789264115606-en.

Notes

← 1.  The Philippines is currently in the process of implementing international standards on transfer pricing and therefore not yet able to issue rulings which involve transfer pricing.

← 2.  Available at: www.bir.gov.ph/index.php/rulings-and-legal-matters/rulings.html (accessed 20 November 2018).

← 3.  The Philippines has bilateral agreements in force with Australia, Austria, Bahrain, Bangladesh, Belgium, Brazil, Canada, China (People’s Republic), Czech Republic, Denmark, Finland, France, Germany, Hungary, India, Indonesia, Israel, Italy, Japan, Korea, Kuwait, Malaysia, Mexico, Netherlands, New Zealand, Nigeria, Norway, Pakistan, Poland, Qatar, Romania, Russia, Singapore, Spain, Sri Lanka, Sweden, Switzerland, Thailand, Turkey, United Arab Emirates, United Kingdom, United States and Viet Nam.