Tax Compliance in the Digital Age

IN THE face of the rapid growth of online businesses and activities in the Philippines, the Bureau of Internal Revenue (BIR) has further strengthened and tightened regulations on business registration under Revenue Regulations (RR) 15-2024, thereby ensuring stricter compliance with the country’s tax laws.

Under these regulations, all persons, both individuals and legal entities, conducting business through brick-and-mortar stores and/or e-commerce in the Philippines are required to register with the BIR pursuant to Section 236(A) of the Internal Revenue Code, as amended, and Republic Act 11967 or the Internet Transactions Act of 2023 (ITA). Once registered, the original Certificate of Registration (CoR) or Electronic Certificate of Registration (eCoR) must be clearly displayed at the place of business for those with brick-and-mortar stores, while it must be kept in the possession of the holder or at the place of residence for those without a permanent place of business. In the case of online businesses, the eCoR must be easily accessible and visible to buyers or customers, as indicated on the website, account, page, platform or application of the seller or lessor. Landlords and sub-tenants of commercial premises and operators of digital platforms, including e-markets, are required to ensure that all their tenants and online sellers are properly registered and comply with the relevant rules, regulations and laws set out by the BIR.

Accordingly, any person engaged in trade or business in the Philippines who fails to register in accordance with the provisions of RR 15-2024 will be subject to administrative and criminal penalties, including fines. In addition, businesses that fail to comply with these provisions may be subject to a closure/removal order to suspend operations, which may not be less than five days and may be lifted only upon proper compliance with the registration requirements. In relative terms, failure by landlords and digital operators to curtail non-compliant tenants and sellers will be construed as willful aiding and abetting of tax violations, subject to a penalty of P20,000 for each business establishment and online seller.

Given the severe consequences of non-compliance, it is imperative that taxpayers are provided with clear and simple guidelines that provide complete clarity and remove any ambiguity. One area that remains a subject of confusion for many taxpayers is the scope of the regulations. While it has been stated that the regulations apply to persons conducting a trade or business in the Philippines, there has been no specific discussion of whether non-resident foreign corporations (NRFCs) or non-resident online sellers or even digital service providers are required to register.

In the absence of an explicit definition or mention of NRFCs and non-resident online sellers/digital service providers in RR 15-2024, taxpayers may refer to the intent and background of the issuance of the regulations under the ITA. It is important to note that under the Implementing Rules and Regulations (IRR) of the ITA, the regulations apply when at least one of the parties is located in the Philippines or when the digital platform, retailer or online seller engages in the Philippine market. Specifically, the regulations exclude foreign entities that do not engage in the Philippine market through e-commerce under Section 4(c). The IRR also includes a definition of engaging in the Philippine market, which refers to any act/intention to engage in transactions with persons or businesses located in the Philippines.

Importantly, Section 32(c) of the same IRR sets out the registration requirements for all online sellers, both foreign and Filipino, which includes registration compliance with the BIR.

Given these provisions, although NRFCs or non-resident online sellers/digital service providers are not specifically mentioned in RR 15-2024, these foreign entities are covered if they operate in the Philippines by accessing the Philippine market through e-commerce. This interpretation is based on the premise that RR 15-2024 was promulgated to prescribe BIR registration guidelines for online businesses under the ITA.

Ultimately, this perspective on the scope of the regulations, particularly regarding online business activities, still requires confirmation from the BIR and future revenue issuances for further clarification. Given the BIR’s strong commitment to enforcing RR 15-2024, taxpayers must be provided with clear and concise guidance to ensure proper compliance with the new regulations.

The author is a senior tax and legal associate at Deloitte Philippines, a member of the Deloitte Asia Pacific Network. For comments or questions, please contact us at (email protected).