SENATOR Win Gatchalian has filed a resolution seeking an inquiry into the Bureau of Internal Revenue’s imposition of a 25% withholding tax and 12% VAT on all cross-border services rendered by non-resident foreign corporations (NRFC), saying this could drive away foreign entities from doing business in the country.
“This could hike the cost of doing business in the Philippines, which will further erode the country’s competitiveness in attracting foreign investors,” said Gatchalian, referring to BIR Revenue Memorandum Circular (RMC) 5-2024, which provides that services to a Philippine entity that are performed by a foreign entity are now taxable.
“We need to carefully review the issuances of the BIR which implements laws and Supreme Court decisions. We must ensure that these issuances do not go beyond the law and SC decision,” Gatchalian said, as he filed Proposed Senate Resolution No. 955.
The chairperson of the Committee on Ways and Means noted that the said RMC cites as a basis a Supreme Court decision on Aces Philippines Cellular Satellite Corp. vs. Commissioner of Bureau of Internal Revenue, where the high court ruled that the satellite airtime free payments by Aces Philippines, a domestic corporation, to Aces Bermuda, a NRFC, is subject to final withholding tax. In the SC ruling, the airtime free payments are being given as a consideration for the use of satellite communication services.
Various business groups, however, have maintained that the factors present in the Aces case cannot be applied to all cross-border services. They also claimed that foreign entities providing cross-border services may end up passing on their withholding and VAT payments to their local clients to the detriment of local taxpayers.
As per RMC 5-2024, taxable cross-border services include consulting services, IT outsourcing, financial services, telecommunications, engineering and construction, education and training, tourism and hospitality, and other similar services.
