Gatchalian seeks inquiry on BIR imposition of 25% withholding tax, 12% VAT on cross-border services

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.

Gatchalian nais paimbestigahan ang 25% withholding tax, 12% VAT na ipinataw ng BIR sa cross-border services

Naghain ng resolusyon Si Senador Win Gatchalian upang imbestigahan ang pagpapataw ng Bureau of Internal Revenue (BIR) ng 25% withholding tax at 12% VAT sa lahat ng cross-border services na ibinibigay ng mga non-resident foreign corporations (NRFC). Aniya, maaari nitong itaboy ang mga dayuhang mamumuhunan na magsagawa ng kanilang negosyo sa bansa.

"Maaari nitong itaas ang halaga ng pagnenegosyo sa bansa, na lalong magpapahina sa pakikipagkumpetensya ng bansa sa buong mundo pagdating sa pag-akit ng mga dayuhang mamumuhunan," sabi ni Gatchalian. Partikular na tinukoy ng senador ang BIR Revenue Memorandum Circular (RMC) 5-2024, na nagsasaad na ang mga serbisyong ibinibigay ng isang dayuhan sa isang Philippine entity ay binubuwisan na.

"Kailangan nating suriing mabuti ang lahat ng mga ini-isyu ng BIR na nagpapatupad ng mga batas at desisyon ng Korte Suprema. Dapat nating tiyakin na ang mga ito ay saklaw ng batas at desisyon ng kataas-taasang hukuman," sabi ni Gatchalian. Ito ang nakapaloob sa inihain niyang Proposed Senate Resolution No. 955.

Bilang chairperson ng Committee on Ways and Means, sinabi ni Gatchalian na ang ang batayan ng nasabing memorandum circular ay ang desisyon ng Korte Suprema sa kaso ng Aces Philippines Cellular Satellite Corp. vs. Commissioner ng Bureau of Internal Revenue, kung saan nagpasya ang Korte Suprema na ang satellite airtime free payments ng Aces Philippines, isang lokal na korporasyon, sa Aces Bermuda, isang non-resident foreign corporation, ay papatawan na ng final withholding tax. Sa desisyon ng SC, ang airtime free payments ay ibinibigay bilang konsiderasyon sa paggamit ng mga serbisyo ng satellite communication.

Gayunpaman, may ibang business groups na nanindigan na hindi lahat ng nakasaad sa kaso ng Aces ay maaaring gamitin sa lahat ng cross-border services. Sinabi rin nila na may posibilidad na ipasa ng dayuhang mamumuhunan na mayroong cross-border services ang ibabayad nitong withholding tax at VAT sa kanilang mga kostumer.

Alinsunod sa RMC 5-2024, ang mga binubuwisang cross-border services ay kinabibilangan ng consulting services, IT outsourcing, financial services, telekomunikasyon, engineering at konstruksiyon, edukasyon at pagsasanay, turismo, at iba pang katulad na mga serbisyo.