The OECD’s Forum on Harmful Tax Practices (FHTP) has granted the Philippines’ appeal to assess its ROHQ regime as “potentially harmful but not actually harmful” until December 3, 2021, and then have the country’s ROHQ regime status declared as “abolished” by January 1, 2022.
Philippine Department of Finance has said that the country shall be removed from an international list of harmful tax regimes by January 2022.
The provisions in the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act eliminating the preferential tax rates given to regional operating headquarters (ROHQs) of multinational enterprises (MNEs) has cleared the way to the removal, the Department said.
The OECD’s Forum on Harmful Tax Practices (FHTP) has granted the Philippines’ appeal to assess its ROHQ regime as “potentially harmful but not actually harmful” until December 3, 2021, and then have the country’s ROHQ regime status declared as “abolished” by January 1, 2022.
The FHTP considers as “harmful tax features” the special tax rates given to ROHQs because these gave undue tax advantages to foreign taxpayers and discriminates against local taxpayers; and recipients were not required to show “adequate substance for the activities carried out.”
From the previous preferential rate of 10 percent, ROHQs will be taxed the general corporate income tax rate as those imposed on other companies by January 1, 2022, under CREATE.
The Department pointed out before the FHTP that the abolition of the ROHQ regime does not allow grandfathering (a transition period in which the concerned taxpayers can continue benefiting for a specific number of years from a regime that may have harmful features). It also informed the FHTP that economic data from the Bureau of Internal Revenue (BIR) show that “there has been a decreasing number of availers of the ROHQ regime since 2018, with only one new entrant in 2019.”
The author is Alex Hunter, Editor, TP News. He oversees and updates the publication and also regularly writes news stories about transfer pricing and international tax law. Alex is reachable at editor@transferpricingnews.com