Question & AnswerQ&A (BIR REVENUE MEMORANDUM ORDER NO. 10-92)
The main purpose is to establish revised procedures for the application and processing of tax treaty relief to ensure efficiency, uniformity, and proper interpretation of tax treaty provisions to avoid erroneous tax payments or claims.
The International Tax Affairs Division (ITAD) is mandated to process and verify all tax treaty relief applications.
The income types covered include dividends, interests, royalties, business profits, gains from sale of shares of stocks, salaries and compensation, income from services (such as entertainment and profession), profits from operation of ships and aircrafts, and all other income covered by tax treaties.
Applications must be filed not later than fifteen (15) days before the transactions covered by tax treaties are effected.
Claims must be filed within two years from the date prescribed by Section 230 of the National Internal Revenue Code and must be accompanied by supporting documents as prescribed in Annex A of the order.
BIR Form No. TC-001 or TC-002 must be used depending on the nature of the income transaction.
The ITAD determines if relief is granted, and if so, a written approval is issued by the Commissioner or authorized revenue official. For refund or credit claims, a written memorandum decision is prepared as the basis for processing the refund or credit.
Taxpayers must always attach proof of application or approval, either the duly accomplished BIR Form TC-001 or TC-002 or the written approval from the Commissioner or authorized revenue official.
The bank ensures taxes required have been paid and require presentation of proof of application/approval before processing outward remittance of income payments to non-residents.
They must notify the ITAD by forwarding a report of tax treaty availment and pertinent documents within fifteen (15) days of discovery.
The order took effect immediately upon adoption on February 1, 1992.
Documents include a letter explaining the transaction and legal basis, BIR Form TC-001, proof of residence of income recipient, SEC certification, Central Bank approvals for remittance, bank drafts, payment receipts for withholding tax, withholding tax returns, corporate secretary certificates, board resolutions, BOI registration, and a special power of attorney if applicable.
They grant written approval for exemptions or beneficial treaty rates and approve memoranda decisions for tax refund or credit claims.
The approval pertains only to specific transactions and is valid for a limited and specified time period depending on circumstances.
The taxpayer may risk erroneous tax payments, deficiencies, or disputes as the tax treaty benefits would not be recognized without prior application and approval.