How to Prepare BIR Transfer Pricing Documentation Under RR No. 2-2013
Revenue Regulations (RR) No. 2-2013 requires that transactions between related parties in the Philippines — whether both parties are domestic or one is a foreign affiliate — be priced under the arm’s length principle, and that the taxpayer keep contemporaneous documentation proving it. Many businesses treat BIR Form 1709 as the whole compliance obligation; it isn’t. Form 1709 discloses that related-party transactions happened. The transfer pricing documentation (TPD) required under RR No. 2-2013 is the separate analytical file that shows the pricing was fair.
Keep Your Related-Party Withholding Certificates Audit-Ready FREE →The arm’s length principle, in practice #
RR No. 2-2013, issued January 23, 2013, requires that a transaction between related parties be priced as if it had occurred between independent parties dealing under comparable conditions — the arm’s length principle. A secondary summary of the regulation’s scope states:
“Revenue Regulations No. 2-2013… prescribes the transfer pricing guidelines, particularly the guidelines in applying the arm’s length principle for cross-border and domestic transactions between associated enterprises, which are largely based on the arm’s length methodologies set out under the Organisation for Economic Cooperation and Development Transfer Pricing Guidelines.”
This site relied on secondary summaries of RR No. 2-2013 for this passage, as the BIR’s own PDF of the regulation could not be reached directly to re-verify the exact wording — confirm the precise text before relying on it for a formal filing position. In practice, this means a Philippine subsidiary charging (or being charged) a management fee, royalty, interest rate, or intercompany price by a related foreign or domestic entity needs to be able to show that price is comparable to what an unrelated party would have paid or charged in the same circumstances.
Documentation vs. disclosure: two separate requirements #
BIR Form 1709 is a disclosure form filed with the Annual Income Tax Return; transfer pricing documentation is the analytical support behind what gets disclosed on it — they are not the same requirement, and having one does not satisfy the other. Form 1709, required under RR No. 34-2020, lists the related-party transactions themselves — counterparties, amounts, nature of the dealing. The TPD required under RR No. 2-2013 is the comparability analysis: the functional analysis of what each party actually does, the pricing method chosen, and the comparable data used to justify the price charged. A taxpayer can file a complete, accurate Form 1709 and still have no TPD to back it up if the underlying analysis was never prepared — see Who Must File BIR Form 1709? for the disclosure side of this pairing.
Why “contemporaneous” matters #
TPD is meant to be prepared at or before the time of the transaction, or at the latest by the return’s filing deadline — not reconstructed after the BIR has already opened an examination. Documentation assembled defensively, after an audit notice arrives, carries far less weight than an analysis prepared before the pricing decision was made, because contemporaneous documentation demonstrates the taxpayer actually used arm’s-length reasoning to set the price rather than working backward to justify a number already chosen. The purpose, per secondary guidance on the regulation, is threefold: let the taxpayer defend its pricing, prevent adjustments from arising in the first place, and support any treaty-based mutual agreement procedure (MAP) claim if double taxation results.
What a TPD file typically covers #
| Component | What it establishes |
|---|---|
| Organizational structure | Who the related parties are and how they’re connected |
| Functional analysis | What each party actually does — functions performed, assets used, risks assumed |
| Industry and economic analysis | The business and market context the pricing sits in |
| Transfer pricing method selected | Which OECD-aligned method (e.g., comparable uncontrolled price, cost-plus, resale price) justifies the chosen approach |
| Comparability/benchmarking data | Independent, comparable transactions or companies supporting that the price is arm’s length |
| Conclusion | How the analysis ties back to the actual price charged on the related-party transaction |
Worked example: a management fee to a foreign parent #
A Philippine subsidiary pays its foreign parent company an annual management fee of ₱15,000,000 for shared services (finance, HR, IT support).
- Without TPD: if a BIR transfer pricing examination questions the fee, the subsidiary has no contemporaneous analysis showing the ₱15,000,000 reflects what an unrelated service provider would charge for comparable services — the examiner may disallow part of the deduction or impute a lower arm’s-length figure, increasing the subsidiary’s taxable income.
- With TPD: the subsidiary can point to a benchmarking study showing comparable management fee arrangements between unrelated parties fall in a similar range, supporting the deduction as filed and shortening the examination.
The fee amount itself doesn’t change based on whether TPD exists — what changes is the subsidiary’s ability to defend that amount when asked.
Related reading #
For the disclosure form this documentation supports, see Who Must File BIR Form 1709? Related Party Transactions and Transfer Pricing Documentation. For the broader corporate income tax context these related-party charges sit within, see Corporate Income Tax Rate in the Philippines Under the CREATE Act.
Frequently Asked Questions #
What does BIR Revenue Regulations No. 2-2013 require? #
RR No. 2-2013, issued January 23, 2013, prescribes transfer pricing guidelines requiring that transactions between related parties — domestic or cross-border — be priced under the arm’s length principle, meaning on terms comparable to what independent parties would have agreed to in a comparable transaction, and largely follows the methodologies in the OECD Transfer Pricing Guidelines.
Is BIR Form 1709 the same thing as transfer pricing documentation? #
No. BIR Form 1709, the Related Party Transactions form required under RR No. 34-2020, is a disclosure schedule filed with the Annual Income Tax Return that lists related-party transactions. The transfer pricing documentation (TPD) required under RR No. 2-2013 is the underlying analysis — the comparability study and pricing support — that demonstrates those disclosed transactions were priced at arm’s length. The disclosure form and the supporting documentation are two separate requirements.
When does a taxpayer need to have transfer pricing documentation ready? #
TPD is meant to be contemporaneous — prepared at or before the time the related-party transaction takes place, or at the latest by the time the related tax return is filed — rather than assembled after the fact once the BIR asks for it. It does not need to be attached to the tax return automatically, but is produced within the period the BIR sets when it requests it, typically as part of an examination.
What is the purpose of keeping transfer pricing documentation? #
According to secondary summaries of RR No. 2-2013, the main purposes of maintaining adequate documentation are to let the taxpayer defend its transfer pricing analysis, prevent transfer pricing adjustments arising from a tax examination, and support any application for mutual agreement procedure (MAP) relief under an applicable tax treaty.
What happens if a related-party transaction isn’t supported by documentation when the BIR asks for it? #
Without contemporaneous documentation showing the pricing was arm’s length, the BIR’s transfer pricing examiners can adjust the related-party pricing to what they consider an arm’s length figure, which can increase the taxpayer’s taxable income and produce a deficiency assessment — the absence of documentation shifts the practical burden onto the taxpayer to justify pricing after the fact, under much less favorable conditions.
Summary #
RR No. 2-2013 requires related-party transactions to be priced at arm’s length and backed by contemporaneous documentation — a separate obligation from the BIR Form 1709 disclosure most taxpayers already know about. Filing an accurate Form 1709 without a TPD file behind it leaves the actual pricing undefended if the BIR ever asks the question RR No. 2-2013 is designed to answer.