Clarification of taxation of cross-border services provided by nonresident entities

The Philippines BIR issued Revenue Memorandum Circular No. 5-2024 to clarify the assessment of final withholding tax (FWT) and final value-added tax (FVAT) on cross-border services by nonresident entities, in response to the Supreme Court ruling in the Aces Philippines Cellular Satellite Corp. v. Commissioner of Internal Revenue case. The circular highlights criteria for determining FWT and FVAT liability, provides examples of international service provision, and addresses the treatment of reimbursable expenses and source-based taxation principle. It also emphasizes FVAT considerations, stating that FWT and 12% FVAT apply to services rendered by foreign providers but utilized within the Philippines.

Source Deloitte

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