Philippines removed from OECD list of harmful tax regimes

The provisions in the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act eliminating the preferential tax rates given to regional operating headquarters (ROHQs) of multinational corporations (MNCs) has cleared the way to the Philippines’ removal by January 2022 from an international list of “harmful” tax regimes, the Philippine Department of Finance (DOF) has said.

Through the initiative of the DOF led by Undersecretary Antonette Tionko, the OECD’s Forum on Harmful Tax Practices (FHTP) granted the Philippines’ appeal to assess its ROHQ regime as “potentially harmful but not actually harmful” until December 3, 2021, and then have the country’s ROHQ regime status declared as “abolished” by January 1, 2022.

The FHTP considers as “harmful tax features” the special tax rates given to ROHQs because these gave undue tax advantages to foreign taxpayers and discriminates against local taxpayers; and recipients were not required to show “adequate substance for the activities carried out.”

Tionko said in her report to Finance Secretary Carlos Dominguez III that the FHTP had initially recommended that the Philippines’ ROHQ regime be assessed as “harmful” until December 31 this year, but the DOF’s Revenue Operations Group successfully appealed that this be changed to “potentially harmful but not actually harmful” owing to the enactment of an existing law—CREATE—which removes the tax perks given to ROHQs beginning January 1, 2022.

From the previous preferential rate of 10 percent, ROHQs will be taxed the general corporate income tax rate as those imposed on other companies by January 1, 2022 under CREATE.

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