Tax compliance in the digital age

By: Zhamen Marien Mendoza

AMID the rapid growth of online businesses and activities in the Philippines, the Bureau of Internal Revenue (BIR) has further reinforced and strengthened its regulations on business registration compliance with the issuance of Revenue Regulations (RR) 15-2024, ensuring stricter adherence to the country's tax laws.

In accordance with the said regulations, all persons, whether natural or juridical, engaged in business conducted through physical stores and/or online trade in the Philippines are mandated to register with the BIR pursuant to Section 236(A) of the Tax Code, as amended, and Republic Act 11967 or the Internet Transactions Act of 2023 (ITA). Once registered, the original copy of the Certificate of Registration (CoR) or Electronic Certificate of Registration (eCoR) shall be clearly displayed at the business establishment for those with physical stores, while it shall be kept in the possession of the holder or at the place of residence for persons without a fixed place of business. For online businesses, the eCoR shall be easily accessible and visible to buyers or customers, as displayed on the seller or lessor's webpage, account, page, platform, or application. Lessors and sub-lessors of commercial establishments and operators of digital platforms, including e-marketplaces, are responsible for ensuring that all their lessees and online sellers are properly registered and adhere to the applicable policies, laws, and regulations outlined by the BIR.

Consequently, any person engaged in trade or business in the Philippines who does not register as prescribed in RR 15-2024 will face administrative and criminal penalties, including fines. Moreover, businesses that fail to comply may be issued a closure/takedown order for suspension of operations, which shall not be less than five days and lifted only upon proper compliance with the registration requirements. Relatively, the failure of lessors and digital operators to restrict non-compliant lessees and sellers will be construed as willfully aiding in tax violations, subject to a P20,000 penalty for every business establishment and online seller.

Given the strict implications for nonconformity with the regulations, it is imperative that taxpayers receive clear and straightforward guidelines that ensure complete clarity and remove all ambiguity. One area that remains a subject of confusion for many taxpayers is the coverage of the regulations. While it was asserted that the regulations apply to persons engaged in trade or business in the Philippines, it did not specifically discuss whether non-resident foreign corporations (NRFC) or non-resident online sellers or even digital service providers are required to register.

In the absence of an explicit definition or mention of NRFCs and non-resident online sellers/digital service providers in RR 15-2024, taxpayers may refer to the intent and background for the issuance of the regulations pursuant to the ITA. It is important to note that according to the implementing rules and regulations (IRR) of the ITA, the rules shall apply when at least one of the parties is situated in the Philippines or when the digital platform, e-retailer, or online merchant is engaging with the Philippine market. Specifically, the rules exclude foreign entities that do not avail of the Philippine market through e-commerce under Section 4(c). The IRR also provides a definition of the availment of the Philippine market, which refers to any action/intention to transact with persons or businesses located in the Philippines.

Significantly, Section 32(c) of the same IRR outlines the registration requirements for all online merchants, whether foreign or Filipino, which includes registration compliance with the BIR.

Considering these provisions, although NRFCs or non-resident online sellers/digital service providers are not explicitly mentioned in RR 15-2024, these foreign entities are covered by the regulations if they are doing business in the Philippines by availing of the Philippine market through e-commerce. This interpretation is based on the premise that RR 15-2024 was promulgated to prescribe the BIR registration guidelines for online businesses in accordance with the ITA.

Ultimately, this perspective on the coverage of the regulations, particularly concerning online business activities, still requires confirmation from the BIR and future revenue issuances for further clarification. With the BIR's strong commitment to enforcing RR 15-2024, it is critical for taxpayers to receive clear and concise guidelines to ensure proper compliance with the new regulations.

As published in The Manila Times on 23 September 2024. The author is a Senior at the Tax & Legal practice of Deloitte Philippines.