Philippine Transfer Pricing and Related Party Transactions (Domestic and/or Foreign)



The following is a discussion on Related Party Transactions or “RPT” (Domestic and/or Foreign) and in relation to the submission of BIR Form No. 1709 (hereinafter, the “RPT Form”) and its supporting documents. This is based the Revenue Regulation No. 19-2020 as amended (hereinafter, the “Regulation”) of the Bureau of Internal Revenue (hereinafter, the “BIR”) of the Republic of the Philippines and related issuances.

Before delving into the discussion part, this general write up seeks to let the reader have a quick and easy understanding of the general requirements and procedure on Related Party Transactions and for the submission of the BIR Form No 1709.


A. Legal Basis and Framework

Throughout the years, transactions around the world have become more complex and have been subject to abuse by taxpayers with intent to evade taxes by concluding transactions between them at unreasonable prices, thus eroding the tax base. Undeniably, this usually happens between related parties. While majority of related party transactions or RPTs are not detrimental, there is a pressing worldwide concern that they can be easily abused in the absence of a relevant framework and effective enforcement. Significant risks arise when RPTs are not conducted at arm’s length and are used as a conduit to channel funds out company into another related party, such as the risk of material misstatement in the financial statements as a result of inappropriate accounting, and non-identification or non-disclosure.

The arm’s length principle requires the transaction with a related party to be made under comparable conditions and circumstances as a transaction with an independent party. It is founded on the premise that where market forces drive the terms and conditions agreed in an independent party transaction (meaning they are not associated enterprises), the pricing of the transaction would reflect the true economic value of the contributions made by each entity in that transaction. Essentially, this means that if two associated enterprises derive profits at levels above or below the comparable market level solely by reason of the special relationship between them, the profits will be deemed as non-arm’s length.

Therefore, in order to ensure that the proper disclosures of related party transactions are made and that these transactions have been conducted at arm’s length so as to protect the tax base, there should be an effective implementation of Philippine Accounting Standards (PAS) 24, Related Party Disclosures, for tax purposes. Under this PAS, an entity’s financial statements shall contain the disclosures necessary to draw attention to the possibility that its financial position and profit or loss may have been affected by the existence of related parties and by transactions and outstanding balances, including commitments, with such parties.

Tax examiners will examine the related party transactions and see to it that revenues are not understated and expenses are not overstated in the financial statements as a result of these transactions.


B. Objective

The RPT Form, or Information Return on Related Party Transactions (domestic and/or Foreign), is prescribed by the BIR pursuant to the National Internal Revenue Code of 1997 (“NIRC”), as amended, in relation to Section 50[1] thereof.


C. Related Parties and Related Party Transactions

Related Parties

The Regulation provides for the following rules to be considered in determining whether a person or entity is a related party:

(a) A person or close member of that person’s family is related to a reporting entity if that person:

i. Has control or joint control of the reporting entity;

ii. Has significant influence over the reporting entity; or

iii. Is a member of the key management personnel of the reporting entity or of a parent reporting entity.

The list of family members provided in the definition of terms is not exclusive and does not preclude other family members from being considered as close members of the family of a person. For example, parents or grandparents could qualify as close members of the family depending on the assessment of specific facts and circumstances.

(b) An entity is related to a reporting entity if any of the following conditions applies:

i. The entity and the reporting entity are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others).

ii. One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member).

iii. Both entities are joint ventures of the same third party.

iv. One entity is a joint venture if a third entity and the other entity is an associate of the third entity.

Sec. 50. Allocation of Income and Deductions – In the case of two or more organizations, trades or business (whether or not incorporated and whether or not organized in the Philippines) owned or controlled directly or indirectly by the same interests, the Commissioner is authorized to distribute, apportion or allocate gross Income or deductions between or among such organization, trade or business, if he determines that such distribution, apportionment or allocation is necessary in order to prevent evasion or clearly to reflect the income of any such organization, trade or business.

v. The entity is a post-employment benefit plan for the benefit of employees of

either the reporting entity or an entity related to the reporting entity. If the

reporting entity is itself such a plan, the sponsoring employers are also related

to the reporting entity

vi. The entity is controlled or jointly controlled by a person identified in (a).

vii. A person identified in (a)(i) has significant influence over the entity or is a members of the key management personnel of the entity (or of a parent of the entity).

viii. The entity, or any member of a group of which it is a part provides key

management personnel services to the reporting entity or to the parent of the reporting entity.

In all cases, the substance of relationships between entities shall be taken into account and not merely the legal form.


Related Party Transactions


Related Party Transactions refer to the transfer of resources, services or obligations between a reporting entity and a related party, regardless of whether a price is charged.[2] The Regulation provides for a non-exclusive list of related party transactions:

(a) purchases or sales of goods (finished or unfinished);

(b) purchases or sales of property and other assets;

(c) rendering or receiving of services;

(d) leases;

(e) transfers of research and development;

(f) transfers under license agreements;

(g) transfers under finance arrangements (including loans and equity contributions in cash or in kind);

(h) provision of guarantees or collateral;

(i) commitments to do something if a particular event occurs or does not occur in the

future, including executory contracts, i.e., contracts under which neither party has

performed any of its obligations or both parties have partially performed their obligations to an equal extent (recognized and unrecognized); and

(j)  settlement of liabilities on behalf of the entity or by the entity on behalf of that related party.


If a taxpayer has any RPT Transaction, the Regulations spell out the following:

  1. Who are required to file BIR Form No. 1709
  2. What Transfer Pricing Documentation are required to be prepared (and together with its supporting documents)
  3. What are the Related Party disclosures required
  4. What are the procedures and guidelines to follow

Section 3, Revenue Regulation No. 19-2020, dated 08 July 2020

Should you be interested to know more and have the full version of this write up, which includes the topics mentioned above and a “Frequently Asked Questions” portion, please send us a message at for more information.


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