Transfer Pricing Solution

Transfer pricing refers to the pricing of goods, services, or intangible assets transferred between entities within a business group, operating in a multinational jurisdiction. It’s a critical aspect of international taxation and involves determining the appropriate prices for transactions between related entities to ensure that profits are allocated fairly among different tax jurisdictions.

Machica Group Transfer Pricing Track Record and Key Officers

Transfer Pricing Rules and Policies in the Philippines

The legal basis on Transfer Pricing (TP) is found in Section 50 of the National Internal Revenue Code (NIRC).  The rule has essentially remained unchanged since 1939, when it was patterned after the TP rule in the US Revenue Act of 1934 .
The source legislation known as Republic Act (R.A.) 8424  has placed the authority to implement the provisions of the NIRC with the Department of Finance (DoF) through its attached agency, the Bureau of Internal Revenue (BIR). Accordingly, as early as 1998, the BIR issued Revenue Audit Memorandum Order (“RAMO”) No. 1-98 which prescribes the audit guidelines and procedures in the examination of interrelated group of companies. Under RAMO 1-98, BIR examiners are required to determine the arm’s length price for each controlled transaction between or among related parties. In addition, the head of the tax office or the Commissioner is authorized to allocate income and deductions or expenses between or among interrelated companies if it is ascertained that the true taxable income has not been reported.
With the rise in investments of foreign companies operating in the Philippines, the BIR attempted to prepare a comprehensive regulation. In 2006, it released a draft transfer pricing regulation to govern intercompany transactions. The draft regulations drew heavily on the Organization for Economic Cooperation and Development (OECD) guidelines on the methods for determining arm’s length prices. Pending approval of the draft, the BIR made a pronouncement under Revenue Memorandum Circular No. 26-08 that it shall subscribe to the Transfer Pricing Guidelines of the OECD in resolving transfer pricing concerns.
Finally, the Department of Finance issued the Revenue Regulations 2-2013 on January 23, 2013 which govern the Philippines transfer pricing. The RR is based on the arm’s length methodologies set out under the OECD Guidelines.
Most recently, the BIR issued its newest guidance through RR No. 19-2020, which reinforces the TP rules by prescribing the use of the new BIR Form No. 1709 or Information Return on Related Party Transactions (Domestic and/or Foreign). This new form replaces the old BIR Form 1702-H or the Information Return on Transactions with Related Foreign Persons (series of 1992). Thereafter, the said agency has issued RR No. 34-2020 which prescribes the guidelines and procedures on the submission of BIR Form No. 1709, Transfer Pricing Documentation and other supporting documents, amending pertinent provisions of Revenue Regulations (RR) Nos. 19-2020 and 21-2002



Transfer Pricing Methods

It is a critical issue for tax authorities and multinational companies to ensure that transactions between related entities are conducted at arm’s length, meaning the prices are similar to what would be charged between unrelated parties. Several common transfer pricing methods are used to determine these arm’s length prices. Here are some of the most widely recognized methods:

Comparable Uncontrolled Price (CUP)

Resale Price Method (RPM)

Cost Plus Method (CPM)

Transactional Net Margin Method (TNMM)

Profit Split Method (PSM)

Comparable Profit Method (CPM)

Advanced Pricing Agreements (APAs)

Importance of Transfer Pricing Documentation

Transfer pricing documentation is crucial for multinational enterprises (MNEs) as it serves several important purposes, both from a compliance and strategic perspective. Here are some key reasons why transfer pricing documentation is important:

Compliance with Tax Regulation

Risk Mitigation

Avoidance of Penalties and Adjustments

Advance Pricing Agreements (APAs)

Efficient Communication with Tax Authorities

Global Tax Strategy

Financial Reporting and Corporate Governance

Support for Business Restructuring

Types of Transfer Pricing Planning

Transfer pricing planning involves the strategic design and implementation of transfer pricing policies to achieve specific tax and business objectives within the framework of relevant tax regulations. Companies engage in transfer pricing planning to optimize their global tax positions, manage risks, and enhance overall efficiency. Here are some common types of transfer pricing planning:

Tax Efficiency Planning

Risk Management Planning

Profit Shifting Planning

Business Restructuring Planning

Advance Pricing Agreements (APAs)

Intangible Property Planning

Centralized vs. Decentralized Planning

Documentation Planning

Compliance Planning

Global Perspective

Managing transfer pricing on a global scale presents both challenges and opportunities for multinational enterprises. These challenges and opportunities stem from complexity of coordinating transactions among related entities in different jurisdictions, each with its own tax laws and regulations. Here’s a closer look at the key challenges and opportunities:


Complexity and Compliance Burden

Risk of Tax Audits and Disputes

Data and Information Challenges

Changing Regulatory Landscape

Coordination Across Jurisdictions

Intangible Property Valuation


Tax Optimization and Efficiency

Advance Pricing Agreements (APAs)

Business Restructuring for Efficiency

Innovation and Intangible Asset Management

Global Tax Planning

Operational Synergies

Knowledge Transfer and Collaboration

Corporate Social Responsibility (CSR) Considerations