Saying goodbye to the past year and welcoming a new one often requires us to take a moment to look back and decide which habits, activities, and important things to leave behind and which to move forward. For taxpayers, the end of the year and the beginning of another also marks the beginning of many legal obligations, such as the submission of various information reports, the start of the external audit season, fiand payment of tax returns, renewal of business permits, and many other compliance activities.
With so many demands happening at once, it’s easy for other commitments to slip through the cracks. Transfer pricing (TP) compliance is often overlooked. To ensure the year gets off to a good start, here are the key TP compliance requirements that taxpayers should not leave behind.
FORM FOR THE TRANSFER OF QUESTIONNAIRE ORGANIZATIONS (RPT FORM)
The RPT form is an information return that discloses all internal and external activities related to the corporation during the taxable year. Under BIR RR 34‑2020, taxpayers must fiuse the RPT Form if:
• The taxpayer is required to fiand annual tax return;
• The taxpayer has transactions with domestic and foreign entities related to the taxable year; and,
• The taxpayer is either (1) a large taxpayer, (2) enjoying tax benefits, (3) reporting a net operating loss for the two preceding tax years, or (4) a related entity having activities with the taxpayer’s category.fied in the three sub-conditions mentioned above.
As there is difftransactions that occur in each taxable year, annual verification is required to determine whether the taxpayer is eligiblefies of fiand the RPT form for the taxable year.
The RPT form must be submitted as an attachment to the annual income tax return within 15 days from the filing deadline or the date of electronic filing of the return, whichever is later. For calendar year 2025, it must be submitted on or before April 30, 2026. A penalty of up to P1,000 will be imposed for late or non-submission of said RPT form.
On the other hand, taxpayers who do not meet any of the above criteria are required to disclose in the Notes to the Financial Statements that they are not covered by the requirements and procedures for related party activities.
TRANSFER PRICE DOCUMENT (TPD)
A TPD is also required if the taxpayer is required to do so fiof the RPT Form, as discussed above, and meets any of the following criteria:
• Gross sales/annual income for the taxable period of more than P150 million, and total group-related income of more than P90 million but excluding compensation of key employees, dividends, and branch professionals.fit remittances; or,
• The sale of goods to related parties exceeds P60 million, or the sale of services, interest payments or the use of intangible assets exceeds P15 million; or,
• TPD was required during the preceding tax period.
The Bureau of Internal Revenue (BIR) requires that the TPD be prepared before or during the performance of activities related to the group, or no later than fithe due date of the tax return for the taxable year in which the transaction takes place. Therefore, if you have related group activities that meet the following threshold as discussed, whether foreign or domestic, in the taxable year 2025 and you are required to submit an RPT Form, the TPD must be prepared before April 15, 2026.
Although only taxpayers exceed the prescribed thresholds required to prepare the TPD, many still choose to prepare it further to ensure readiness and avoid compliance gaps. This foresight is especially useful during BIR inspections, where the TPD must be submitted within 30 calendar days from the BIR’s request, with a non-extendable 30-day extension granted only for valid reasons.
LOCAL TPD AND BENCHMAK ANALYSIS
Multinational groups often prepare a global or regional TPD, which Philippine subsidiaries and related organizations rely on for support. Although allowed, the BIR chooses a local TPD that reflects the Philippine market and economic conditions.
If adjusting the local valuation analysis entirely is not possible, the taxpayer must be able to justify why the foreign or regional comparison is more reliable than the local one and demonstrate the appropriate adjustments to align the results to Philippine conditions (eg, differences in market size, economic environment, and risk levels).
If these explanations and corrections are properly documented, the BIR may still accept the marking results, even if the comparable companies are not local, as long as the analysis shows that the activities related to the organization meet the arm’s length standard.
REVIEWING TPD
A common misunderstanding is that the TPD is a static, one-time document. In fact, the Organization for Economic Cooperation and Development (OECD) recommends that the TPD be reviewed and updated annually to ensure that the analysis of the organization’s performance, economic factors, and the TP method remain accurate and relevant to current business operations.
The OECD also advises that the search for comparable companies should not be conducted every year. Instead, a full valuation analysis must be renewed every three years, as long as the organization’s operating conditions remain unchanged. However, the ficomparative financial data should be reviewed annually to ensure that the arm’s length analysis reflects the latest available. fifinancial performance.
It is good practice to assess annually whether there have been significant changes in any of the following: (a) business model or value creation structure; (b) economic or market conditions; (c) factors and assumptions considered in previous TPD; (d) the nature, volume, or scope of the related transactions; and (e) the taxpayer’s position against the material restrictions that trigger the mandatory TPD adjustment.
If any of these changes exist, or if the taxpayer’s activities exceed the prescribed limits, a TPD update is required. Regular updates not only support accurate reporting but also improve audit readiness and strengthen the taxpayer’s defense in the event of BIR scrutiny.
SUPPORTING DOCUMENTS
Although not required, in addition to the TPD, the following supporting documents may be prepared in the event of a BIR audit:
• TP Policy: A detailed policy that describes the taxpayer’s method of transfer rates.
• Relevant contracts and evidence of transactions: Contracts and other documents that evidence transactions between related parties. Contracts should clearly specify the nature of the activities, the method of TP, the basis of the price and the expected payment (mark-up, fee, or limit).
• Proof of payment of foreign taxes: Documents or decisions issued by a foreign tax authority where the other person is a resident.
• Withholding tax returns and proof of payment: Records of taxes withheld and submitted to the BIR.
• Advance Price Agreement (APA): If any, agreements that provide certainty in TP methods.
• Income tax returns and audits fiFinancial statements: Includes disclosures that the business needs to make fiuse the RPT Form and prepare the TPD.
• Addendums to RAMO No. 1-2019: Includes related activity, segmented financial statements, supply chain management analysis, operations, assets, and risk analysis, business characteristics, and comparative analysis.
YEAR-END TP CHANGES
If it is your group’s practice to make year-end TP adjustments to achieve a target arm’s length margin or specialistfit, a Philippine business must ensure that these changes are properly recorded and fully supported. Year-end facts should be accompanied by clear adjustment memos, including the basis for the adjustment, the accounting used, and the relevant policies or agreements authorizing the adjustment.
It is equally important to ensure that the configuration is consistent with the enterprise’s TP policy, benchmark analysis, and performance profile. Any discrepancy between the booked maintenance and the written TP procedure may cause questions during the BIR examination. Ensuring alignment strengthens the security of the TP situation and reduces the potential risks of the TP.
The new year may feel overwhelming with the long list of tax and regulatory obligations that come with it, but for the well-prepared and responsible taxpayer, these compliance tasks don’t have to be difficult. With proper planning, timely preparation, and a clear understanding of TP requirements, navigating these obligations becomes less of a burden and more of an opportunity to strengthen compliance and improve transparency. As the year begins, staying organized and proactive ensures that nothing important gets left behind, setting the tone for smoothness, compliance, and fairness.finext year.
Let’s talk TP is offLet’s Talk Tax, P&A Grant Thornton’s weekly newspaper column that aims to inform the public about various tax developments. This article is not intended to replace the advice of qualified professionals.
Trisha Amor M. Gatdula is a manager in the Tax Advisory & Compliance department of P&A Grant Thornton, Philippine member. fiSales revenue of Grant Thornton International Ltd.
at grantthornton@ph.gt.com
