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