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BIR Guidelines for Tax Residency Certificates (TRC)

BIR

issued Revenue Memorandum Order (RMO) No. 51-2019 dated July 8, 2019, prescribing Guidelines and Procedures for Processing and Issuance of Tax Residency Certificates (TRCs).


The TRC is secured by Philippine residents who derive income from sources within the jurisdiction of a Contracting State and intends to avail of preferential tax treatment under Philippine tax treaties.


Apart from eliminating or avoiding the effects of double taxation, thereby encouraging foreign trade and investment, Contracting States conclude a tax treaty to avoid the risks of double non-taxation. This is done by allocating taxing rights between the Contracting States and ensuring that an income is not left untaxed through schemes resorted to by taxpayers. In granting treaty benefits, only residents of a Contracting State who are subject to tax on the basis of their worldwide income are entitled to claim treaty benefits.


Issues arise as a result of the different tax structures of the Contracting States. In

some States, taxpayers are considered residents for treaty purposes by reason of length of stay

and place of effective management, irrespective of citizenship and place of

incorporation. On the other hand, only resident citizens and domestic corporations are

considered residents for treaty purposes in the Philippines. Resident aliens and resident foreign corporations are regarded as residents for domestic tax purposes but not for treaty purposes as they are only taxed on their income from Philippine sources.


Despite this delimitation, International Tax Division (ITAD) of the BIR observed that there are numerous taxpayers who seek to obtain unintended treaty benefits. ITAD has been receiving various applications for TRC from resident aliens and resident foreign corporations claiming to be Philippine residents for treaty purposes. This is so they will not to be taxed on their income derived from another State.


Thus, BIR issued this RMO because it needed to clarify, who are considered “residents of a Contracting State.”


The ITAD is charged with receiving and processing applications for TRCs.


RMO No. 51-2019 was issued to:


1. Prescribe the requirements and procedures for processing and issuance of TRCs;

2. Establish the creation of a database of Philippine residents with foreign-sourced income; and

3. Monitor the reporting or declaration of such income in the Income Tax and Value-Added Tax or Percentage Tax Returns, as the case may be, of the concerned income earners.