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BIR studying formation of transfer pricing office

THE Bureau of Internal Revenue (BIR) is studying the establishment of an international tax division specializing in deterring transfer pricing abuses.

“We are trying to establish an international tax law division separate from the International Tax Affairs Division (ITAD) because they’re not focused on audit issues; what we want is a division or entire service devoted to this,” BIR Commissioner Romeo D. Lumagui, Jr. told reporters on Wednesday.

“We have a lot of international transactions, that’s why we need to keep up… we need to establish a strong international tax practice that will look into transfer pricing, base erosion and profit shifting,” he added.

Transfer pricing and base erosion refer to tax avoidance practices by multinationals, in which the companies seek to recognize profits as much as possible in low-tax jurisdictions, depriving many developing countries of tax revenue. Transfer pricing rules require intra-group transactions to be conducted at an arms-length basis — equivalent to the commercial rate that would have been charged if the parties were not related.

“(It depends) on the suggestions and recommendations and the final approach we will be taking, because we might have limitations. This needs to be brought up to the Department of Budget and Management for approval,” he said.

“Coming up with the plan (will likely be) this year, but actual implementation… that I cannot say,” he added.

Mr. Lumagui noted that the foregone revenue in international transactions is “significant.”

“Yes, there is much leakage in transfer pricing. We need to look into those… we need to have that specialized division or service,” he said, estimating the leakage to be “most probably” in the billions of pesos.

Last year, the agency collected P2.34 trillion, surpassing its P2.1-trillion target. This year, it is aiming to collect P2.6 trillion in revenue. — Luisa Maria Jacinta C. Jocson 

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