TECHNOLOGY AND TAXATION IN THE PHILIPPINES

TECHNOLOGY AND TAXATION IN THE PHILIPPINES

Te c h n o l o g i c a l D i s r u p t i o n s a n d R e s p o n s e

10 th ANNUAL ASEAN TAX CONFERENCE 2019Technology and Taxation in ASEAN Countries:

How to Address the Tax Challenges Amid Technological DisruptionBangkok, Thailand

August 21, 2019

HON. MA. BELEN M. RINGPIS-LIBAN

Associate Justice

HON. CATHERINE T. MANAHAN

Associate Justice

• Globalization, digitization, and prevalance of e-commerce have broughtspecial challenges to taxation

• As businesses embrace new technologies, taxing authorities must also stayabreast of each development to ensure that no tax revenues are lost

• As businesses grow borderless, issues inevitably arise with respect to howtaxing rights on income generated from cross-border activities should beallocated among countries

• However, even from a purely domestic standpoint, e-commerce, onlinebusiness, and other technology-driven developments present challengeswhich need to be addressed

Introduction

Online marketplaces are websites and/or mobile applications that give a platform for numerous sellers

to sell their wares and items, without the need for each seller to own and operate their own website or online

store

These are third-party buy-and-sell platforms such as Lazada.com.ph or Shopee.ph

Current Disruption - Online Marketplaces

• These online selling platforms make it easy to sell online

Current Disruption - Online Marketplaces

Corporate Sellers Individual (start up) sellers

BIR Certificate of Registration One (1) valid government ID

DTI/SEC Permit Bank account details

Collection Receipt and Sales Invoice

• Are these sellers reporting their actual sales?

• Are these sellers filing the required returns and paying thecorrect taxes?

• How should the Bureau of Internal Revenue (BIR) audit andinvestigate these sellers?

Current Disruption - Online MarketplacesTax Challenges – Corporate online sellers

• How to investigate and trace individual sellers whomay not be registered with the BIR or othergovernment agencies?

• The contract requires the seller to complete their BIRregistration once their sales reach Php3 million, however,there is no monitoring for this

• Same challenges faced as with corporate online sellers

Current Disruption - Online MarketplacesTax Challenges – Individual online sellers

Revenue Memorandum Circular (RMC) No. 55-2013Reiterating Taxpayers’ Obligations in Relation to

Online Business TransactionsAugust 5, 2013

Current Disruption - Online MarketplacesPhilippine response

Like any other business establishments, persons who conductbusiness through online transactions have the obligations to:

• Register the business and pay the registration fee• Secure the required authority to print invoices/receipts and register books of

accounts for use in the business• Issue registered invoice or receipt• Withhold the required creditable or expanded withholding tax, final tax, tax on

compensation of employees , and other withholding taxes• File applicable returns, pay correct taxes and submit information returns and other

tax compliance reports• Keep books of accounts and other accounting records within the time prescribed by

law

Current Disruption - Online MarketplacesPhilippine response – RMC No. 55-2013

• Study the possibility of requiring the operators of onlinemarketplaces to submit a list of vendors to the BIR

• Conduct fora and roundtable discussions with onlinebusiness representatives and sellers to encourage them toregister with the BIR and to develop mutually acceptablegeneral policies and transparent rules in e-commerce and itstaxation

Current Disruption - Online MarketplacesPhilippine response – other suggestions

In 2016, the Philippines started licensing Philippine Offshore Gaming Operators (POGOs)

A POGO refers to an entity that offers and participates in offshore gaming services by providing games to

players, taking bets, and paying the winning players.

The POGO framework also covers service providers that provide the various components of gaming operations, such as the gaming software

provider, business outsourcing provider, and content streaming provider.

Current Disruption – Offshore gaming

• How to implement a fair and equitable taxation of onlinegaming businesses?

• How to monitor the revenues and revenue-generatingactivities of POGOs?

• How to adapt existing taxes to POGOs to lessen lost potentialtax revenues?

Current Disruption – Offshore gamingTax Challenges – Taxing POGOs

Revenue Memorandum Circular (RMC) No. 102-2017Taxation of Taxpayers Engaged in Philippine Offshore

Gaming OperationsDecember 27, 2017

Current Disruption – Offshore gamingPhilippine response

• POGO income is classified and taxed according to existingPhilippine tax laws, rules and regulations

• A POGO is required to:1. Register the business and pay the registration fee2. File applicable tax returns, pay correct internal revenue taxes, and submit

information returns and other tax compliance reports in accordance withexisting rules and regulations; and

3. Keep books of accounts and other business/accounting records within the timeprescribed by law, and such shall be made available anytime for inspection andverification by duly authorized BIR revenue officers.

Current Disruption – Offshore gamingPhilippine response – RMC No. 102-2017

• Reiterates that there is “accepted recognition that onlineactivity is sufficient to constitute doing business in thePhilippines”

• Subsequently, RMC 78-2018 (September 6, 2018) clarifiedthat a foreign corporation engaged in POGO is considered aResident Foreign Corporation

Current Disruption – Offshore gamingPhilippine response – RMC No. 102-2017 / RMC No. 78-2018

Estimated lost revenues from unreported or unregistered foreign POGO workers, whose amounts of personal income are

not subjected to withholding tax on compensation, are aboutPhp2 billion a month

Current Disruption – Offshore gamingTax Challenges – Taxing POGO workers

Joint Guidelines from the BIR, Bureau of Immigration, Department of Justice, and Department

of Labor and EmploymentMandating aliens to secure a tax identification number (TIN)

before issuance of the working permit

Current Disruption – Offshore gamingPhilippine response

Blockchain, the technology behind Bitcoin and other cryptocurrency, is not yet very entrenched in the

Philippines.

However, certain industries have started implementing blockchain in their processes

Emerging Disruption and Possible SolutionBlockchain Technology

In banking, Union Bank of the Philippines, launched thefollowing blockchain internal procedures and products:

• A blockchain-based platform for communicating policy,procedural guidelines and regulatory requirements

• i2i - A blockchain platform for cross-border remittanceservices for local rural banks

• PHX – Union Bank’s own stable coin to provide rural bankseasier access to remittances and payments in the i2iplatform


In real estate, a blockchain-powered listing platform was launched seeking to simplify and streamline cross-border

property transactions.

It will have the capability to list units from different developers worldwide, process payments through different conventional

channels, and give out different analytical data to help potential buyers with their decisions


While blockchain technology may provide challenges to the tax collection effort as more and more industries adopt it for

various processes, the Philippines is also aware that blockchaintechnology is being considered to promote tax

administration, compliance, and collection efforts

Thailand’s Revenue Department is already testing/implementing the use of blockchain for tracking VAT

payments


• The developments in technology and how business isconducted have contributed to difficulties in taxation:

• Directly – as illustrated by online marketplaces and POGOs• Indirectly – as illustrated by the situation of POGO workers

• The Philippines still relies heavily on conventional methodsto ensure tax compliance and to drive tax collection,including brick and mortar surveillance and paper audits

Other Challenges

• The BIR is faced with limitations in its available technologyinfrastructure

• Re-training of BIR personnel to match the requiredcomputerized auditing skills in an e-commerce regime isboth time- and budget-consuming

Other Challenges

• The Philippines recognizes the developments in technology–driven businesses and has addressed these with variousissuances

• Recently, the Tax Code was amended, requiring furtherdigitization on the BIR’s part, as follows:

Other developments in Philippine law

National Internal Revenue CodeAs amended by RA 10963, January 1, 2018

Section 237. Issuance of Receipts or Sales or Commercial Invoices. –xxxWithin five (5) years from theeffectivity of this Act and upon theestablishment of a system capable of storing and processing the requireddata, the Bureau of Internal Revenue shall require taxpayers engaged inthe export of goods and services, taxpayers engaged in e-commerce, andtaxpayers under the jurisdiction of the Large Taxpayers service to issueelectronic receipts or sales or commercial invoices in lieu of manualreceipts or sales or commercial invoices xxx

National Internal Revenue CodeAs amended by RA 10963, January 1, 2018

Section 237-A. Electronic Sales Reporting System. –Within five (5) years from the effectivity of this Act and upon theestablishment of a system capable of storing and processing the requireddata, the Bureau shall require taxpayers engaged in the export of goodsand services and taxpayers under the jurisdiction of the Large TaxpayersService to electronically report their sales data to the Bureau through theuse of electronic point of sales systems xxx

• It is unclear why “taxpayers engaged in e-commerce” was deleted from Section 237-A

As the business sector embrace the new technologies beingmade available, so too must the government, especially in taxcollection efforts. In the meantime, business should not stop justbecause of the absence of taxation rules. It should be borne inmind that tax authorities abide by the tenet that a tax cannot beimposed unless the clear and express language of a statutesupports it. After all, if the technological advances serve aseffective tools in the development and growth of the nationaleconomy, then not only the government benefits but the entirecitizenry as well.

Conclusion

Thank you!

Documents

TECHNOLOGY AND TAXATION IN THE PHILIPPINES