BIR’s Clarification on the Tax on Cross-Border Services

By: Atty. Jomel N. Manaig

"In my humble opinion, RMC No. 24-2026 is a mixed bag. It tried to adjust the legal basis of the tax on cross-border services to more closely reflect the theoretical foundation laid down by the Supreme Court. However, it failed to categorically abandon the erroneous principles that sprang from the initial application of the tax."

With the resumption of audit activities, the BIR now moves to solidify its audit activities by issuing RMC No. 24-2026. This specific RMC clarifies the application of RMC No. 5-2024 (as well as RMC No. 38-2024), otherwise known as the tax on cross-border services.

As a quick recap of the tax on cross-border services, this was precipitated by the promulgation of the Aces Philippines case. In this case, the Supreme Court upheld the taxability of services conducted by a non-resident foreign corporation on the basis that integral activities of its service were actually performed in the Philippines. Even though the infrastructure needed to perform the service is in the Philippines and is owned by a domestic corporation, it was found that the infrastructure was constructed primarily to serve the system of the non-resident foreign corporation.

The BIR capitalized on the Supreme Court case and issued RMC No. 5-2024. It expanded the application of the Aces Philippines case to include other cross-border services under the theory that taxation is proper if economic benefits are received by non-resident foreign corporations from activities in the Philippines. This is now more commonly referred to as the “benefits-received theory.”

Nonetheless, aspects of RMC No. 5-2024 pointed to the supposed benefits received by the domestic corporation (i.e. use, application, or utilization within the Philippines) from the services of the non-resident foreign corporation. This rapidly evolved into a criterion, if not the main criteria, to tax non-resident service providers engaged in cross-border services. Instead of applying the benefits-received theory to non-resident foreign corporations, the focus is shifted to its supposed application to domestic corporations. And this shift has been reflected and made apparent in actual audits being conducted by revenue officers.

After roughly two years and two months since the debut of RMC No. 5-2024, the BIR issued RMC No. 24-2026 to supposedly address the inconsistencies and defects in the application of the tax on cross-border services. However, were the issues really addressed?

In my humble opinion, RMC No. 24-2026 is a mixed bag. It tried to adjust the legal basis of the tax on cross-border services to more closely reflect the theoretical foundation laid down by the Supreme Court. However, it failed to categorically abandon the erroneous principles that sprang from the initial application of the tax.

The clarification issued by the BIR pointed heavily to the expansion of the situs of taxation of services to include the place where the benefit is received by the non-resident service provider. More specifically, it signifies the inflow of economic benefits to the non-resident service provider.

While this is a pleasant development, RMC No. 24-2026 still did not expressly abandon nor acknowledged the non-application of the erroneous criteria (i.e. receipt of benefit by the domestic client) for the imposition of the tax on cross-border services.

If the proper application of the tax on cross-border services is truly the goal, then why not erase all vestiges of its misapplication? If certainty is what is being sought, then why not remove all uncertainties? The lack of a categorical abandonment of flawed basis or acknowledgment of erroneous application leaves a sliver of possible resurgence or even continuation of the issues sought to be avoided.

Also, while RMC No. 24-2026 signaled for the use of specific audit tools or guidelines by revenue officers, the same tools or guidelines appear to also have similar inconsistencies. In line with the clarifications, the BIR is mandating its revenue officers to use a specific checklist to evaluate the taxability of cross-border services. The checklist contains Yes or No questions which will justify the imposition of the tax if all the answers are yes.

However, the checklist includes a question which states: “the economic benefit is enjoyed by the Philippine entity in the Philippines.” Again, if the application of the benefits-received theory pertains to non-resident service provider, then why is the BIR still insisting on looking at the economic benefit enjoyed by the domestic client? Are we looking at a future justification for the misapplication of the tax?

Despite the apparent issues in RMC No. 24-2026, I must give credit where credit is due. In the same mandatory checklist to be used by revenue officers, another question popped out for me: “activities in the Philippines are so integral that the service transaction cannot be accomplished/completed without such activities.” Simply put, the tax on cross-border services would only apply if there are activities in the Philippines. In other words, if there are no activities in the Philippines, then the tax on cross-border services is not applicable. If there is anything that we should be thankful for in all of this, then this crystal-clear principle should be it.

The article is for general information only and is not intended, nor should be construed as a substitute for tax, legal or financial advice on any specific matter. Applicability of this article to any actual or particular tax or legal issue should be supported therefore by a professional study or advice. If you have any comments or questions concerning the article, you may e-mail the author at This email address is being protected from spambots. You need JavaScript enabled to view it. or call 8403-2001 local 140.