BIR Transfer Pricing Guidelines 2013

Derives authority from Sections 244 and 50 of the Philippine Tax Code.
Enables the Commissioner to review and adjust controlled transactions to ascertain accurate taxable income.
Prescribes transfer pricing methods consistent with the arm's length principle.
Mandates documentation retention supporting taxpayer’s determination of arm's length prices.
Applies to cross-border and domestic controlled transactions among associated enterprises.

Provides guidelines to apply the internationally accepted arm's length principle to related-party transactions.
Uses methodologies aligned with the OECD Transfer Pricing Guidelines.

Under Tax Code Section 50, the Commissioner can distribute or allocate income and deductions among related enterprises to properly reflect income.
Empowered to make transfer pricing adjustments to prevent tax avoidance and ensure fair tax collections.

Comparable Transaction: Similar transactions considering property/service nature, functional analysis, contracts, and economic conditions.
Comparable Uncontrolled Transaction: Transactions between independent enterprises comparable to controlled transactions.
Associated Enterprises (Related Parties): Enterprises linked by control in management, ownership, or capital.
Controlled Transaction: Transaction between associated enterprises.
Independent Enterprises: Enterprises not related or controlled.
Advance Pricing Arrangement (APA): Pre-agreed transfer pricing method and criteria over a fixed term.
Mutual Agreement Procedure (MAP): Consultation mechanism between tax authorities to resolve double taxation issues.

Adopted as the standard for evaluating transfer pricing between related entities.
Based on OECD Model Tax Convention Articles 7 and 9.
Requires related party transactions to mirror conditions between independent parties.
Profits deviating due to special relationships are adjusted to reflect market conditions.
Application involves comparability analysis, tested party identification, method selection, and determination of arm's length results.

Essential for valid price or margin comparisons between related and independent party transactions.
Factors considered:
- Characteristics of goods/services/intangible assets (quality, features, scope).
- Functional analysis comparing economically significant functions, risks, and assets.
- Commercial and economic circumstances (market conditions, regulations, business strategies).
Adjustments for differences should be material and reasonable.

Tested party: The entity with the most reliable data for applying transfer pricing methods.
Transfer Pricing Methods selected based on strongest reliability considering nature of transaction and data availability.
No inherent preference for any method; combined or extended approaches allowed if necessary.
Profit Level Indicators (PLI) are chosen to accurately measure profitability relative to costs, sales, or assets.

Applying the selected method on comparable data to establish a single price or range.
If controlled transaction prices fall inside the arm's length range, no adjustments are necessary.
If outside, taxpayer bears the burden of proof to justify or the Bureau will propose adjustments.
Central tendency measures may be applied to minimize errors.

Adjustments eliminate material differences impacting price or margin between tested and comparable transactions.
Should improve accuracy and not be routine if immaterial.
Avoid questionable, excessive, immaterial, or highly subjective adjustments.

Comparable Uncontrolled Price (CUP): Direct comparison with prices in similar uncontrolled transactions.
Resale Price Method (RPM): Starts with resale price to independent parties less appropriate gross margins; suitable when reseller adds little value.
Cost Plus Method (CPM): Adds appropriate markup on supplier's costs; useful for production or service provision between related parties.
Profit Split Method (PSM): Allocates combined profits among associated enterprises based on contributions; suitable where no comparables exist, especially with unique intangibles.
Transactional Net Margin Method (TNMM): Compares net profit relative to costs, sales, or assets to independent benchmarks; used when gross profit methods are impractical.

APA allows taxpayers to pre-define transfer pricing criteria with the BIR to reduce dispute and double taxation risks.
Unilateral APA involves only the taxpayer and BIR.
Bilateral/Multilateral APA involves treaty partners through MAP, per international tax treaties.
Utilizing APA is voluntary. MAP is a recourse to resolve transfer pricing disputes.
Separate procedural guidelines are issued for APA and MAP.

Taxpayers must maintain contemporaneous documentation demonstrating arm’s length compliance.
Documentation supports defense during audits, prevents adjustments, and assists MAP applications.
Required documents include organizational structure, transaction descriptions, assumptions, analyses (functional, risk, comparability), method selection, and application.
Documents are retained for periods prescribed by law and submitted upon request.

Tax Code penalties and sanctions apply to failures or violations of these transfer pricing regulations.

Transactions before the effective date are governed by prior prevailing laws and issuances.

Invalidity or unconstitutionality of any regulation part does not affect the rest of the regulations.

The regulations take effect 15 days after publication in a newspaper of general circulation.

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