Private sector groups yesterday urged the Bureau of Internal Revenue (BIR) to revoke Revenue Memorandum Circular (RMC) 5-2024, which subjects cross-border services to 25 percent withholding tax and 12 percent final withholding value-added tax (VAT).
In a joint statement, business groups said RMC 05-2024 will result in increased cost of doing business in the Philippines. RMC 5-2024 provides services to a Philippine entity that are performed by a foreign entity are now taxable.
The groups said subjecting the income of non-resident foreign corporation (NRFC) from services rendered abroad will lead to an increase in the tax cost of doing business, which, may drive away foreign entities from conducting business in the Philippines.
In issuing RMC 5-2024, BIR citied the Supreme Court’s decision on Aces Philippines Cellular Satellite Corp. versus the Commissioner of the BIR where the High Court ruled t the satellite air time fee payments by Aces Philippines, a domestic corporation, to Aces Bermuda, an NRFC, is subject to final witholding tax.
RMC 05-2024 maintains that for cross-border services, the jurisdiction providing the essential service for income generation is entitled to tax.
Services covered are consulting , IT outsourcing, financial, telecommunications, engineering and construction, education and training, tourism and hospitality, and other similar services.
The groups said RMC 5-2024 run counter to the provisions of the Tax Code which said an NRFC is only taxable on income from sources within the Philippines.
The groups added RMC 5-2024 may violate existing income tax treaties which generally provide that business profits of a treaty resident shall not be taxed in the Philippines if the foreign treaty resident does not have a permanent establishment in the Philippines.
The business groups are Philippine Chamber of Commerce and Industry, Philippine Exporters Confederation , Management Association of the Philippines, Tax Management Association of the Philippines, Philippine Institute of Certified Public Accountants , Financial Executives of the Philippines , Association of Certified Public Accountants in Commerce and Industry, Association of Certified Public Accountants in Public Practice, Joint Foreign Chambers of the Philippines , IT and Business Process Association of the Philippines.