Digital enterprises obliged to pay taxes, reminds BIR exec

The Bureau of Internal Revenue (BIR) is reminding digital enterprises that, like traditional businesses, they are covered by the Tax Code and have tax compliance obligations they need to comply with.

Marissa Cabreros, deputy commissioner of the BIR’s legal group, issued the reminder at a recent workshop on trade facilitation as she expressed the hope that ongoing international and domestic initiatives including proposed legislation will help overcome the challenges and issues in taxing persons engaged in digital trade.

Cabreros in her March 30 presentation stressed the need for taxation in the digital economy, saying it will level the playing field between traditional enterprises and digital businesses as the economy shifts from the brick-and-mortar to the virtual.

She also observed that “there is an increased urgency to find new sources of revenue to fund the Philippines’ efforts to recover from the adverse impact of the COVID-19, and in anticipation of the increasing digitalization of the country’s economy.”

She said international initiatives such as the OECD Inclusive Framework focus mostly on closing tax loopholes to ensure multinational enterprises pay their fair share of taxes wherever they operate and generate profits.

In the Philippines, Cabreros said initiatives include House Bill (HB) No. 372, which seeks to impose value added tax (VAT) on digital transactions. The proposed legislation is currently pending before the Senate Committee on Ways and Means, she said.

The bill proposes to impose VAT on the online sale, barter, and exchange of goods and services, including sale or lease of properties in the Philippines. It also covers digital advertising, subscription-based services, and other online services that can be delivered through the internet.

In addition, the bill obliges non-resident digital service providers (DSPs) to assess, collect, and remit the VAT on the transactions that go through their online platforms.

DSPs will also be liable to register for VAT if their gross sales or receipts for the past 12 months exceed P3 million or if their gross sales or receipts for the next 12 months are expected to exceed this threshold.

Cabreros said that under the current Tax Code, persons engaged in the digital economy remain, in general, subject to the following taxes: income tax; business tax, either VAT or percentage tax; and other appropriate national internal revenue taxes.

Moreover, they have the following tax compliance obligations:

  • Registration and updates
  • Keeping of books of accounts
  • Filing of tax returns
  • Payment of taxes
  • Obligation to withhold tax (if applicable)

“Having shifted your business in a digital economy does not mean you are free from taxation. We still have taxing rights over those transactions; it’s just that the House bill hopefully will fix those in the gap [with] the shifting of the traditional brick and mortar way of doing business,” Cabreros said.

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