Gov’t dilly-dallying puts PH at risk of joining OECD sanctions list

While the Philippines will finally do away with a “harmful” tax perk starting next year, it may have missed an opportunity that could prevent it from joining a “gray list” of sanctioned countries under the Organization for Economic Cooperation and Development (OECD).

“The [OECD’s Forum on Harmful Tax Practices or FHTP] will consider at its meeting [this] week whether the delayed abolition of the regime may have given rise to a harmful conclusion pending its definitive abolition, which is planned to take full effect at the end of the year,” Paul Hondius, head of the harmful tax practices unit at the OECD’s Center for Tax Policy and Administration, told the Inquirer.

Hondius is referring to the special corporate income tax rate enjoyed by regional operating headquarters (ROHQs), currently at 10 percent.

In October 2018, the FHTP concluded that the regime had two harmful features: it gave tax advantages to foreign taxpayers thus discriminating locals; recipients were not required to show “adequate substance for the activities carried out.”

ROHQ regime

The Philippines committed to abolish its ROHQ regime by end-2019, while also ensuring that existing taxpayers could not benefit from it anymore beginning June 30, 2021.

That promise finally appeared in the Corporate Recovery and Tax Incentives for Enterprises Act signed by President Duterte in March. The law will impose a regular corporate income tax rate on all firms, including ROHQs, beginning January 1 next year.

“While it is good news that the Philippines enacted the Create bill into law last month, the changes are late compared to the end of 2019 date committed to, also bearing in mind that existing taxpayers can benefit from the regime until the end of 2021,” Hondius said.

The results of the FHTP’s review are expected to be made public in June. INQ