What BIR’s new cross-border tax rule means

The Bureau of Internal Revenue said income from cross-border services is not automatically subject to Philippine income tax, as it issued a new revenue memorandum circular clarifying how such transactions should be assessed for income tax purposes.

The agency said Revenue Memorandum Circular No. 024-2026 provides guidance on the proper application of earlier issuances following the Supreme Court ruling in Aces Philippines Cellular Satellite Corporation v. Commissioner of Internal Revenue.

According to the BIR, the clarification came amid concerns that existing rules were being applied beyond their intended scope.

The circular states that, as a general rule, income from services is taxed where the service is performed.

The BIR said that while the Supreme Court ruling allows consideration of where the benefit of the service is enjoyed, or where the economic activity occurs, taxability must still be determined based on the specific facts of each case.

Under the circular, revenue officers are directed to assess service agreements as a whole rather than isolate a single activity as the sole basis for taxation.

The issuance also says any tax assessment must clearly state its legal and factual basis, in line with Section 228 of the Tax Code.

To support compliance, the BIR outlined documents that taxpayers may present during audits to show that services were performed outside the Philippines.

These documents include service contracts, proof of foreign performance and tax residency certificates.

The circular also clarifies that taxpayers are not required to secure a prior BIR ruling to claim the proper tax treatment of cross-border transactions, provided they can substantiate their position during assessment.

The guidance is expected to give companies and service providers clearer parameters in handling cross-border transactions, particularly as businesses increasingly rely on offshore support, digital services and regional business arrangements.

By stressing case-by-case evaluation, the BIR appears to be signaling a narrower and more fact-based approach to assessing foreign-sourced service income, which could help reduce uncertainty during audits.

BIR Commissioner Charlito Martin R. Mendoza said the circular was meant to promote consistency and fairness in tax administration.

“The circular ensures that both revenue officers and taxpayers apply the rules on cross-border services in line with law and jurisprudence. It reinforces our commitment to fair enforcement while providing clear guidance to taxpayers,” Mendoza said.