On 23 January 2013, the Philippines Secretary of Finance issued transfer pricing regulations (Revenue Regulation (RR) No. 02-2013). The regulations provide guidance for applying the arm’s length principle for pricing in related-party transactions and are largely based on the OECD arm’s length methodologies as set out in the OECD Transfer Pricing Guidelines.
RR No. 02-2013 is applicable to cross-border and domestic related-party transactions.
According to the guidelines, in determining the arm’s length result the most appropriate transfer pricing methods will have to be used. The applicable methods are as follows:
- Comparable uncontrolled price method;
- Resale price method;
- Cost plus method;
- Profit split method; and
- Transactional net margin method.
According to RR No. 02-2013, there will be no hierarchy of methods. The method which will produce the most reliable results with the available data and the degree of accuracy of adjustments will have to be used.
According to RR No. 02-2013, transfer pricing documentation is to be contemporaneous and provide information on transfer pricing analysis, adjustments arising from tax examinations and the mutual agreement procedure. Transfer pricing documentation is not required to be submitted with the filing of tax returns.
