Saying goodbye to the year that has passed and welcoming a new one often means taking a moment to look back and decide which habits, tasks, and priorities we should leave behind and which ones we must carry forward. For taxpayers, the close of a year and the start of another also signal the beginning of numerous statutory responsibilities, such as the submission of various information returns, the start of external audit season, the filing and payment of income tax returns, the renewal of business permits, and many more compliance activities.
With so many requirements occurring simultaneously, it is easy for some obligations to slip through the cracks. Transfer pricing (TP) compliance is frequently overlooked. To ensure a smooth start to the year, here are the essential TP compliance requirements that taxpayers must not leave behind.
RELATED PARTY TRANSACTIONS FORM (RPT FORM)
The RPT Form is an information return that discloses all domestic and foreign related‑party transactions during the taxable year. Under BIR RR 34‑2020, taxpayers must file the RPT Form if:
• The taxpayer is required to file an annual income tax return;
• The taxpayer has transactions with domestic and foreign related parties in the covered taxable year; and,
• The taxpayer is either (1) a large taxpayer, (2) enjoying tax incentives, (3) reporting net operating losses for the current and two immediately preceding taxable years, or (4) a related party that has transactions with a taxpayer classified in the aforementioned three sub-criteria.
As there are different transactions occurring in each taxable year, annual verification is necessary to determine whether a taxpayer qualifies to file an RPT form for the taxable year.
The RPT Form must be submitted as an attachment to the annual income tax return within 15 days from the deadline of filing or date of electronic filing of the return, whichever comes later. For the calendar year 2025, it should be submitted on or before April 30, 2026. A compromise penalty amounting to P1,000 will be imposed for late or non-submission of such an RPT Form.
On the other hand, taxpayers who do not meet any of the above criteria are required to disclose in the Notes to Financial Statements that they are not covered by the requirements and procedures for related party transactions.
TRANSFER PRICING DOCUMENTATION (TPD)
TPD is also required if the taxpayer is required to file the RPT Form, as discussed above, and meets any of the following thresholds:
• Annual gross sales/revenue for the taxable period exceeding P150 million, with total related party transactions exceeding P90 million but excluding key management personnel compensation, dividends, and branch profit remittances; or,
• Sale of goods to related parties exceeds P60 million, or sale of services, interest payments or utilization of intangible goods exceeds P15 million; or,
• TPD was required within the immediately preceding taxable period.
The Bureau of Internal Revenue (BIR) requires that TPD be prepared either prior to or at the time of undertaking related party transactions, or not later than the filing due date of the tax return for the taxable year in which the transactions took place. Hence, if you have related party transactions that meet the following threshold as discussed, whether foreign or domestic, for the taxable year 2025 and are required to submit an RPT Form, a TPD should be prepared not later than April 15, 2026.
While only taxpayers that exceed the prescribed thresholds are required to prepare TPD, many still choose to prepare one proactively to ensure readiness and avoid compliance gaps. This foresight becomes particularly valuable during a BIR audit, where TPD must be submitted within 30 calendar days from the BIR’s request, with a non‑extendible additional period of 30 days granted only on meritorious grounds.
LOCAL TPD AND BENCHMARKING ANALYSIS
Multinational groups often prepare a global or regional TPD, which Philippine subsidiaries and related parties rely on for support. While allowed, the BIR prefers a local TPD that reflects the Philippine market and economic conditions.
If preparing a fully local benchmarking analysis is not practical, the taxpayer must be able to justify why the foreign or regional comparables are more reliable than local ones and demonstrate appropriate adjustments to align the results with Philippine conditions (e.g., differences in market size, economic environment, and risk levels).
When these explanations and adjustments are properly documented, the BIR may still accept the benchmarking results, even if the comparable companies are not local, as long as the analysis shows that the related party transactions meet the arm’s length standard.
UPDATING THE TPD
One common misconception is that a TPD is a static, one‑time document. In reality, the Organisation for Economic Cooperation and Development (OECD) recommends that the TPD be reviewed and updated annually to ensure that the organization’s functional analysis, economic characterization, and TP methodology remain accurate and aligned with current business operations.
The OECD further advises that the search for comparable companies need not be performed every year. Instead, a full benchmarking analysis should be refreshed every three years, provided that the organization’s operating conditions remain substantially unchanged. However, the financial data of the comparables must be updated annually to ensure that the arm’s length analysis reflects the most recent available financial performance.
A good practice is to assess annually whether there have been significant changes in any of the following: (a) the business model or value creation structure; (b) the economic or market conditions; (c) the factors and assumptions considered in the previous TPD; (d) the nature, volume, or scope of related‑party transactions; and (e) the taxpayer’s status against the materiality thresholds that trigger mandatory TPD preparation.
If any of these changes are present, or if the taxpayer’s transactions exceed the prescribed thresholds, an update of the TPD becomes necessary. Regular updates not only support accurate reporting but also enhance audit readiness and strengthen the taxpayer’s defense in case of BIR scrutiny.
SUPPORTING DOCUMENTS
Though not required, in addition to the TPD, the following supporting documents may also be prepared in case of BIR audit:
• TP policy: A detailed policy outlining the taxpayer’s approach to transfer pricing.
• Relevant contracts and proof of transactions: Contracts and other documents that substantiate the transactions between related parties. Contracts must clearly specify the nature of the transactions, TP method, basis of pricing and expected remuneration (mark-up, fee, or margin).
• Proof of payment of foreign taxes: Documentation or rulings issued by the foreign tax authority where the other party is a resident.
• Withholding tax returns and proof of payment: Records of taxes withheld and remitted to the BIR.
• Advance Pricing Agreement (APA): If any, agreements that provide certainty on TP methods.
• Income tax return and audited financial statements: Including disclosures on whether the entity is required to file an RPT Form and prepare TPD.
• RAMO No. 1-2019 Annexes: Including related party transaction, segmented financial statements, supply chain management analysis, functions, assets, and risks analysis, characteristics of business, and comparability analysis.
YEAR-END TP ADJUSTMENTS
If it is your group’s practice to implement year-end TP adjustments to achieve the target arm’s-length margin or profit, the Philippine entity must ensure that these adjustments are properly recorded and fully supported. Yearend trueups should be accompanied by clear adjustment memos, including the basis for the adjustment, the computation used, and the relevant policies or agreements authorizing such adjustments.
It is equally important to confirm that the adjustments are consistent with the entity’s TP policy, benchmarking analysis, and functional profile. Any discrepancy between the booked adjustments and the documented TP methodology may trigger questions during a BIR audit. Ensuring alignment strengthens the defensibility of the TP position and minimizes potential TP risks.
A new year may feel overwhelming with the long list of tax and regulatory obligations that come with it, but for a well‑prepared and responsible taxpayer, these compliance tasks need not be daunting. With proper planning, timely preparation, and a clear understanding of TP requirements, navigating these obligations becomes less of a burden and more of an opportunity to strengthen compliance and enhance operational transparency. As the year begins, staying organized and proactive ensures that nothing essential is left behind, setting the tone for a smooth, compliant, and confident year ahead.
Let’s Talk TP is an offshoot of Let’s Talk Tax, a weekly newspaper column of P&A Grant Thornton that aims to keep the public informed of various developments in taxation. This article is not intended to be a substitute for competent professional advice.
Trisha Amor M. Gatdula is a manager from the Tax Advisory & Compliance division of P&A Grant Thornton, the Philippine member firm of Grant Thornton International Ltd.