UMVA has learned that a significant development is underway in the Philippines, affecting foreign affiliates involved in cross-border cost-sharing arrangements.
According to information obtained by UMVA, these affiliates may now be treated as nonresident digital service providers (NRDSP), requiring them to register with the Bureau of Internal Revenue (BIR).
The BIR has issued a new revenue memorandum circular to clarify provisions related to the imposition of the value-added tax on digital services, a move that could have far-reaching implications for foreign digital service providers.
Under the new guidelines, foreign affiliates exerting control over key aspects of service delivery, such as setting price, payment terms, and delivery conditions, will be required to register with the BIR.
In such cases, the Philippine subsidiary will be liable for filing the required value-added tax (VAT) return and withholding and remitting the 12% VAT due on the cost of the digital service charged to it.
Meanwhile, NRDSPs providing services that qualify for VAT exemption must still file returns indicating the sales as “VAT-exempt,” a nuance that could significantly impact their tax obligations.
The circular also clarified that e-marketplaces can be liable for VAT even without receiving customer payments, a development that could change the way digital transactions are handled in the country.
E-marketplaces may still be considered digital service providers, even if they do not directly receive payments for the digital services sold through their platform, as long as they collect VAT payments in advance.
In such cases, the e-marketplace collecting VAT payments in advance shall be liable to file the relevant VAT return form and remit the 12% VAT on covered business-to-consumer transactions.
Furthermore, the BIR has clarified that tax treaty benefits do not exempt foreign digital service providers from VAT, a crucial point that could affect firms delivering services to consumers in the Philippines.
A firm delivering services to consumers in the Philippines is subject to VAT on digital services, even if they are from a country covered by a tax treaty, with tax benefits under a tax treaty covering only income tax.
