An overview
Classed in the bracket of developing countries, World Bank data shows growth in the Philippines to have been on average 5% per year in the past decade, putting the region behind only China and Vietnam.
Transfer pricing regulations (Revenue Regulation (RR) 2-2013) were only introduced in the Philippines in 2013 and require companies to use the general principle of the OECD. Still in its infancy, the transfer pricing programme at the Bureau of Inland Revenue (BIR) is yet to develop various administrative regulations including advance pricing agreements (APAs), however the BIR is in the process of finalising this.
Need for reform
Like many countries worldwide, the international discussion on tax, at both the political level and the civil society level, is forcing the need for tax reform as a higher priority in the Philippines.
“We have so many problems with innovation in taxation that the reforms have to be comprehensive,” said Filomeno Sta. Ana III of Bantay Kita, or Revenue Watch, in the Philippines. “But among the requirements that are necessary, the first would be more transparency.”
Reform is dependent however on political will. Presidential elections took place May 9, with the results to be released at the end of the month. Whatever the OECD pressures, taxation changes remain a sovereign issue, said Sta Ana, and politicians will listen to their constituents.
One area where the Philippines is taking a leading stance on transparency is under the Extractives Industry Transparency Initiative. Through the EITI, companies working in the extractives industry have been compelled to publish information about their economic activity and the taxes they have paid in different jurisdictions. This standard, alongside public reporting for banks in the EU, has been a forerunner to the push in Europe for all MNEs to publish their country-by-country reports (CbCR).
“Some corporations are still not being compliant with EITI, but generally with the first year and second year, we have moved forward in terms of pushing the limits of the EITI,” said Sta. Ana, who leads NGO engagement with the EITI.
Profile: Kim Jacinto-Henares
Tax in the Philippines has been dominated over the past few years by Kim Jacinto Henares, the commissioner of the BIR. She has worked at the international level as a member of the UN Committee of Tax Experts as well as one of the vice-chairpersons of OECD Working Party 15, the group negotiating the multilateral instrument.
Presidential candidates in the Philippines were divided over whether they would have kept Jacinto-Henares on in her role, however she has set June 30 as her retirement date from the BIR. Her leaving is likely to have a big impact on taxation in the Philippines.
“Kim Henares may be able to generate the revenues enough to reach her own targets,” said Sta. Ana, “But if she leaves, and she is going to leave soon, there is a possibility of a return to the old practices.”
In an interview with TP Week, Jacinto Henares explains how important the international tax work is for the Philippines.
TP Week: Is the work of the OECD beneficial to the Philippines?
Jacinto-Henares: Yes, the work of the OECD is beneficial in the sense that at least for the first time the developed countries have come to recognise the problem that has been besetting the developing countries. However, the discussion, the standard and the approach are set and decided by the OECD through the Global Forum, where the developing countries are not part of the consensus and the areas discussed and the solutions agreed upon are not the ones that really concern - and do not necessarily fit - that of the developing countries.
TP Week: Will it be more difficult for developing countries to manage in the post-BEPS world?
Jacinto-Henares: It is no more difficult than it was before. In the first place, the OECD has not gone far enough to address the BEPs issues facing the developing countries for years. The issues addressed by the OECD are those issues that concern primarily the developed countries. As far as a developing country is concerned, there is more to BEPs than those issues tackled by the OECD. But at least the elephant in the room, base erosion and profit shifting, is now being discussed.
TP Week: What are the biggest challenges you face as a revenue authority?
Jacinto-Henares: The biggest challenges we face as a revenue authority are that while we need to work hard to meet our revenue collection targets - as this are needed to fund the operations of the government - we are at the same time required to: (1) actively support various tax policy reforms and actively participate in tax policy discussions; (2) continuously re-engineer our processes to ensure tax compliance; (3) undertake the computerisation of our tax information system as we need to replace our legacy tax information system; and (4) meet various international commitments, such as increase our tax treaty network and comply with exchange of information standards, to name a few.
