Sen. Win Gatchalian, | PHOTO: Joseph B. Vidal/Senate Social Media Unit
Sen. Sherwin Gatchalian wants the Senate to look into the Bureau of Internal Revenue’s (BIR) imposition of a 25 percent withholding tax and 12 percent value-added tax (VAT) on all cross-border services rendered by nonresident foreign corporations (NRFC), saying this could drive away foreign entities from doing business in the country.
Gatchalian, who filed Proposed Senate Resolution No. 955, said BIR Revenue Memorandum Circular (RMC) 5-2024 “could hike the cost of doing business in the Philippines, which will further erode the country’s competitiveness in attracting foreign investors.”
The memorandum circular provides that services to a Philippine entity that are performed by a foreign entity are now taxable.
Based on the 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.
“We need to carefully review the issuances of the BIR, which implements laws and Supreme Court decisions. We must ensure that these issuances do not go beyond the law and Supreme Court decision,” said the chair of the Senate committee on ways and means in a statement.
He noted that the RMC cites as a basis a Supreme Court decision on Aces Philippines Cellular Satellite Corp. vs Commissioner of the Bureau of Internal Revenue.
In that decision, the high court ruled that the satellite airtime free payments by Aces Philippines, a domestic corporation, to Aces Bermuda, an NRFC, are subject to final withholding tax.
The airtime-free payments are being given as a consideration for the use of satellite communication services, according to the Supreme Court ruling.
Various business groups, however, have maintained that the factors present in the Aces case cannot be applied to all cross-border services.
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They also 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.
Gatchalian said his committee would conduct an inquiry into the matter in aid of legislation “with an end view of crafting a policy recommendation as may be necessary.” INQ