Senate sets probe on cross-border tax

The Senate will subject to a probe the Bureau of Internal Revenue’s imposition of a 25 percent withholding tax and 12 percent value-added tax (VAT) on all cross-border services that will impact on prices of goods being sold on shopping platforms and the cost of fund transfers, among others.

Under the BIR directive, an equivalent of 37 centavos will be added for every P1 worth of goods sold by non-resident foreign corporations (NRFC) in the country. 

Senate Resolution 955 urged the Ways and Means panel to conduct an inquiry on the taxability or income payments to non-resident foreign corporations for cross-border services rendered to residents.  

BIR’s move could also drive away foreign entities planning to launch their business in the country, according to the

“This could hike the cost of doing business in the Philippines, which will further erode the country’s competitiveness in attracting foreign investors,” he stressed. 

BIR Revenue Memorandum Circular (RMC) 5-2024 provides that services to a Philippine entity being performed by a foreign entity are “now taxable.” 

With this, there’s a need to “carefully review the issuances of the BIR” which implements laws and Supreme Court decisions. 

As per the memorandum circular, taxable cross-border services include consulting services, IT outsourcing, financial services, telecommunications, engineering and construction, education and training, tourism and hospitality, and other similar services.

Within bounds of law

“We must ensure that these issuances do not go beyond the law and SC decision,” according to senators who are proponents of the resolution. 

BIR’s RMC Airtime free payments by Aces Philippines, a domestic corporation, to Aces Bermuda, an NRFC, is subject to a final withholding tax. 

In the SC ruling, airtime-free payments are being given as a consideration for the use of satellite communication services.  

Various business groups, however, have maintained that the factors present in the Aces case cannot be applied to all cross-border services. 

These groups claimed that foreign entities providing cross-border services may end up passing on their withholding and VAT payments to their local clients to the detriment of local taxpayers.