RMC No. 24-2026 — Clarifying the Application of Revenue Memorandum Circular Nos. 5- 2024 and 38-2024 on the Tax Treatment of Cross-Border Services

BUREAU OF INTERNAL REVENUE REPUBLIC OF THE PHILIPPINES DEPARTMENT OF FINANCE

Bringing In Revenues for Nation-Building MAR 3 0 2026 PILIPINAS BAGONG

REVENUE MEMORANDUM CIRCULAR NC 024-2026

SUBJECT : Clarifying the Application of Revenue Memorandum Circular Nos. 5- 2024 and 38-2024 on the Tax Treatment of Cross-Border Services

TO All Internal Revenue Officers and Others Concerned

I.BACKGROUND

Revenue, G.R. No. 226680, promulgated on August 30, 2022 (Aces Philippines case). (En Banc) Decision in Aces Philippines Cellular Satellite Corporation v. Commissioner of Internal On January 10, 2024, the Bureau of Internal Revenue (BIR) issued Revenue Memorandum Circular (RMC) No. 5-2024 on the proper tax treatment of cross-border services in light of the Supreme Court

from the implementation of RMC No. 5-2024. Thereafter, on March 15, 2024, the BIR issued RMC No. 38-2024 to address and clarify issues arising

or entity in the Philippines or cross-border services, to enable the Bureau to make informed and consistent determinations of the tax liabilities arising from such transactions. RMC No. 5-2024, as clarified by RMC No. 38-2024, provides a framework for evaluating the tax implications of services supplied, delivered, or rendered by a non-resident service provider to a person

Notwithstanding the foregoing, concerns have been raised that, in certain instances, tax evaluations and assessments of cross-border services are being undertaken beyond the contemplation of, and in a manner inconsistent with, the framework set forth under the aforesaid jurisprudence.

ensure alignment with statutory and jurisprudential standards, and provide certainty to both revenue officers and taxpayers. This Circular is therefore issued to clarify the proper application of RMC Nos. 5-2024 and 38-2024

JI.CLARIFICATION

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services, such as consulting services, IT outsourcing, financial services, telecommunications, RMC No. 5-2024 enumerates examples of international service provisions or cross-border tax) merely because they are classified as cross-border services, similar to the satellite engineering and construction, education and training, and tourism and hospitality. Are these cross-border services automatically subject to Philippine income tax (final withholding

airtime services involved in the Aces Philippines case?

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No. The cross-border services listed in RMC No. 5-2024 are not automatically subject to Philippine income tax solely by reason of their classification as cross-border services.

is performed. The Aces Philippines case expands the situs rule for taxation of services by determining taxability in the Philippines. including the place where the benefit is received or where the service is completed in The general rule for the taxation situs of services is that the income is taxed where the service

assessment must establish that the source of income from such cross-border services is within the Philippines, as follows: A Revenue Officer invoking the rule under the Aces Philippines case as a basis for their

wealth originated. It is insufficient to identif just any property: activity, or service. The subject muy' only be regarded as an income source if the activity, or service that produced the income. or where the inflow of benefits. w'hich muy be in the form of an inflow or enhancement of assets or a decrease in liabilities with a corresponding increase in equity other than that attributable to a capital contribution. " (Emphasis supplied) particular propertv, uctivity. or service causes an increase in economic "[l]n ascertaining the income source, we must inquire into the property,

Q2.

taxability of the cross-border service in the Philippines? Applying the foregoing rule, how should a Revenue Officer factually establish the

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services performed and must not isolate or compartmentalize a single activity as the sole income-producing act. This approach is consistent with Article 1233 of the Civii Code, which has been completely delivered or rendered. As in Aces Philippines, determining the source of income requires an examination of the cross-border service agreement as a whole. The evaluation must consider the entirety of the provides that an obligation is deemed performed when the service constituting the obligation

As enunciated in Section 228 of the National Internal Revenue Code, as amended (Tax Code)

Thus, the Revenue Officer must clearly explain the existence of the following essential elements: tax assessments shall specify the applicable law and facts on which the assessment is made

(1) The parties involved are (a) a payor who is a Philippine resident individual or service provider; domestic corporation doing business, and (b) a payee who is a non-resident

(2) The specific activity or service: a. is integral to the completion or delivery of the non-resident service provider's service; and

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. resulted in actual payment or accrual thereof, constituting economic benefit to the non-resident service provider;

In Aces Philippines, it is only when the call is actually routed to its gateway that Aces Philippines is able to connect its local subscriber to the intended recipient of the call. In this sense, the gateway's receipt of the call, the activity occurring in the Philippines, signifies completion/delivery of Aces Bermuda's service.

satellite air time to Aces Philippines and the utilization thereof by the Philippine economic benefits to the non-resident service provider. The payment or accrual of satellite air time fees is contingent upon the delivery of subscriber for a voice or data call, with such accrual signifying the inflow of

For this purpose, the income herein stated do not, however, include (a) passive another non-resident for services rendered outside the Philippines. income; (b) income from sale of goods; and (c) pass-through payment in favor of

(3) The situs of the income-producing activity is within the Philippines; and

(4) There is no applicable income tax exemption under tax treaties or domestic law.

Q3.

Philippines and should, therefore, not be subjected to income tax? What documents should the taxpayer present during an audit to prove that the income payment made to the non-resident service provider was NOT from sources within the

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taxpayer to establish that the income was derived from sources outside the Philippines and is In Aces Philippines, the Supreme Court emphasized that the burden of proof lies with the therefore not subject to Philippine income tax. For this purpose, the taxpayer may present the following documents, as applicable:

(l) A sworn statement executed by the individual payor or the duly authorized circumstances, and the nature and description of the services rendered; representative of the company, detailing the parties to the transaction, their relevant

(2) Copies of relevant service contracts, master service agreements, statements of work. relevant email correspondences; or similar documents, such as purchase orders, billing statements, invoices, or

(3) Tax Residency Certificate issued by the tax authority of the non-resident service provider's residence jurisdiction;

(4) SEC Certification of Non-Registration of the non-resident foreign corporation (NRFC) in the Philippines;

(5) Proof of organization or registration of the non-resident service provider's residence jurisdiction (e.g., Articles of Incorporation or Association, business registration, etc.);

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(6) Proof of outward remittance of payment:

(7) If the subject income has been confirmed to be from sources outside the Philippines through a BIR Ruling, a copy of such BIR Ruling;

(8) If the non-resident service provider is a resident of a jurisdiction with which the been confirmed to be entitled to a treaty benefit, a copy of the BIR Certificate of Entitlement to Treaty Benefit; or Philippines has a valid and effective double taxation agreement or tax treaty and has

(9) Other relevant documents to prove that the subject income is not from sources within the Philippines.

Pursuant to Revenue Memorandum Order No. 1-2026, where records are physically taxpayer or its authorized representative as true and faithful reproductions of the original apostilled, as applicable). The Bureau may require the presentation of original documents for documents (if issued in a foreign country, authenticated by the Philippine Embassy or audit. submitted to the Bureau, photocopies may be accepted provided that they are certified by the verification purposes, which shall be confined strictly within the authorized scope of the

Q4:

Is it mandatory for a taxpayer to obtain a ruling from BIR confirming the taxability or non-taxability of a cross-border transaction?

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A prior confirmatory BIR ruling shall not be considered a condition precedent for the application of the applicable tax treatment, nor the lack thereof shall, by itself, prejudice the taxpayer's entitlement to the treatment, provided that the legal and factual bases for the same are duly established by competent evidence during the assessment process.

Nevertheless, the taxpayer may request a ruling confirming the non-taxability of the income pursuant to the Tax Code or the relevant tax treaty, following existing rules and procedures.

comply and to give this Circular the widest dissemination possible. All internal revenue officers, employees, and others concerned are hereby enjoined to strictly

This Circular shall take effect immediately.

CHARLITO MARTIN R, MENDQ

Commissioner of Internal Revenue

N ReCoRDs MANAgeMENt DivISIOn BUREAU QF INTERNAL REV T

MAR 3 0 2026

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