A comparison of tax laws: Philippines

    By Karen Ocampo, Abigael Demdam and Flourence Katherine S Enriquez, Ocampo and Suralvo


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    Governments worldwide continue to explore ways to capture revenue from the digital economy. Tax regulators are in agreement that tax policy must change to address the challenges of levying and collecting taxes on a largely inscrutable, borderless digital economy. However, countries differ on the most effective way forward – some turning to direct taxes, others to indirect taxes.

    Karen Ocampo
    Karen Ocampo
    Ocampo and Suralvo in Metro Manila
    Tel: +632 7625 0765
    Email: kocampo@ocamposuralvo.com

    Even as governments move to exercise their policy choices, the answer remains up in the air as to whether digital services taxes, expanded consumption taxes, or other more novel approaches, would prove most effective in taxing the digital economy.

    The Philippine congress is engaged in lively debate on the mode of capturing tax revenue from the digital economy. Leading the charge is Congressman Joey Salceda, who noted: “The digital economy is growing rapidly, but digital economy taxation is falling flat.” In 2019, digital economy tax collection of the Bureau of Internal Revenue was around PHP45 billion (USD764,220), and remained the same in 2020. “That’s hardly believable given the increase in digital transactions,” he said.

    Initial draft legislation attempted to impose income taxes on the revenue of foreign digital economy corporates. But this was eventually abandoned, with more recent proposals focused on amending expanded value-added tax (VAT) rules to make sure that digital goods and services are properly covered by the VAT system.


    In August, the Philippines’ House of Representatives Ways and Means Committee approved on first reading House Bill No. 4122 that would impose a 12% VAT on digital transactions. This bill consolidates three bills filed in this 19th congress, all based on a measure previously approved on third and final reading.

    Abigael Demdam
    Abigael Demdam
    Senior associate
    Ocampo and Suralvo in Metro Manila
    Tel:+632 7625 0765
    Email: ademdam@ocamposuralvo.com

    The proposed measure seeks to amend section 105 of the National Internal Revenue Code to include goods that are digital or electronic in nature, and services rendered electronically, within the purview of VAT. The bill adds a new section that would require non-resident digital service providers to assess, collect and remit VAT on transactions through their platforms.

    A digital service provider, or DSP, is defined under the bill to be “a service provider of a digital service or good to a buyer, through operating an online platform for purposes of buying and selling of goods or services or by making transactions for the provision of digital services on behalf of any person”.

    Under the bill, a digital service provider may be:

    • A third party, such as a seller of goods and services who, through information-based technology or the internet, sells multiple products for its own account, or one who acts as an intermediary between a supplier and buyer of goods and services, such as a merchandiser or retailer, who collects or receives payment for such goods or services from a buyer on behalf of the supplier and receives a commission;
    • A platform provider for the promotion that uses the internet to deliver marketing messages to attract buyers;
    • A host of online auctions conducted through the internet, where the seller sells the product or service to the person who offers the highest price for it;
    • A supplier of digital services to a buyer in exchange for a regular subscription fee over the usage of the said product or service; or
    • A supplier of goods or electronic and online services that can be delivered through an information technology infrastructure, such as the internet.

    The bill also defines the following terms:

    • Buyer is any person who resides or consumes taxable digital services in the Philippines from a digital service provider, either for personal consumption or for trade or business purposes.
    • Digital service is any service delivered or subscribed over the internet or other electronic network which cannot be obtained without the use of information technology, and where the delivery of the service may be automated.

    This general definition of digital service is enhanced by the enumeration of what it includes, namely: Online licensing of software, updates, add-ons, website filters and firewalls; mobile applications, video games and online games; webcasts and webinars; provision of digital content such as music, files, images, text and information; advertisement platforms such as the provision of online advertising space on intangible media platform; online platforms such as electronic marketplaces or networks for the sale, display and comparison of prices of trade products or services; search engine services; social networks; database and hosting such as website hosting, online data warehousing, file sharing and cloud storage services; internet-based telecommunication; online training such as the provision of distance teaching, e-learning, online courses and webinars; online newspapers and journal subscription; and payment processing services.

    The proposed measure requires a non-resident digital service provider to register for VAT if:

    • Its gross sales or receipts for the past 12 months before the date of filing the VAT return (excluding those exempt from VAT) have exceeded the threshold of PHP3 million; or
    • There are reasonable grounds to believe that gross sales or receipts of the digital service business for the next 12 months from the date of filing the VAT return, will exceed the threshold.

    It also requires non-resident digital service providers to designate a representative office or agent (a resident corporation registered under Philippine law) to assist in compliance with the provisions of the tax code.

    Note that the bill requires the tax authority to “establish a simplified automated registration system” for non-resident digital service providers, and allows such providers to “issue an electronic invoice or receipt”, subject to rules and regulations that may be issued by the Secretary of Finance upon recommendation of the Commissioner of Internal Revenue.


    Similar to legislation in jurisdictions that have been guided by the Organisation for Economic Co-operation and Development’s international VAT guidelines, the current measure bears design features aimed at encouraging compliance. This is evident in provisions on simplified registration and clarification of the tax scope through the definition of terms.

    Flourence Katherine S Enriquez
    Flourence Katherine S Enriquez
    Senior associate
    Ocampo and Suralvo in Metro Manila
    Tel:+632 7625 0765
    Email: fenriquez@ocamposuralvo.com

    Nonetheless, there remain important questions that would require refinements to the law and/or further details to be included in the rules and regulations implementing the law.

    For instance, in applying VAT to a particular transaction, the buyer’s residence or place of consumption would need to be determined. What critical evidence must the supplier obtain to establish the buyer’s residence or place of consumption?

    As for the compliance regime, the expectation is that this should be sufficiently simplified to reduce costs for non-resident digital service providers and in turn encourage compliance. It would be crucial for affected entities to understand what this regime looks like in terms of the frequency of filing returns, the information needing inclusion in tax returns, tax payment methods, invoicing details that must be completed, and types of books that must be kept.

    It would also be worthwhile not only for purposes of taxpayer compliance, but also for tax administration, to clarify the effect of non-compliance – whether it is failure to register, to timely file returns, or to pay the tax. Doing so would reduce uneven implementation of the tax measure.

    Lastly, but perhaps most importantly, any uncertainties as to the effect of registration under the proposed measure must be resolved. If the intention is that registration is solely for VAT purposes, this must be definitively provided for in legislation; to give greater assurance to would-be registrants that doing so would not create a permanent establishment for them in the Philippines. The impact of such registration on rules of doing business under Philippine corporate law must also be addressed.

    If registration and compliance by non-resident businesses are to be encouraged, there must be increased certainty in the application of the rules.


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