RMC 024-2026: Clarifying RMC 5-2024 and Tax Treatment of Cross Border Services

The Bureau of Internal Revenue (BIR) has issued Revenue Memorandum Circular (RMC) No. 024-2026 to clarify the implementation of RMC Nos. 5-2024 and 38-2024 regarding the tax treatment of cross-border services. This circular aims to address inconsistencies in tax assessments and ensure compliance with statutory and jurisprudential standards.

Key Highlights:

1. Cross-border services are not automatically taxable in the Philippines
   RMC 24-2026 clarifies that transactions involving “cross-border services” do not automatically result in Philippine-source income. Taxability depends on whether the income-producing activity occurred within the Philippines.
2. The BIR must establish four elements before assessing Philippine tax
   Revenue Officers cannot arbitrarily classify offshore services as taxable. They must prove all of the following:

• • A Philippine payor and a non-resident service provider exist.
  • The activity is integral to the service and resulted in economic benefit.
  • The income-producing activity occurred within the Philippines.
  • No exemption under law or treaty applies.
    This ensures a more precise application of the “benefit received” or “economic use” tests, preventing overreach.

3. Taxpayers may continue invoking treaty benefits
   The circular reaffirms that taxpayers can rely on tax treaties to exempt income in cross-border service cases. This includes Business Profits exemptions when no Permanent Establishment (PE) exists.
4. BIR must evaluate the entire service arrangement, not isolated activities
   To address misapplications of RMC 5-2024 and 38-2024, Revenue Officers are directed to assess the complete service agreement rather than focusing on isolated activities. This ensures a proper determination of the true source of income.
5. Taxpayers may submit supporting documents to prove foreign-sourced income
   RMC 24-2026 provides a list of acceptable documentation to demonstrate that services were performed outside the Philippines, including:

• • Sworn statements describing the transaction and services.
  • Service contracts, SOWs, invoices, and email correspondences.
  • Tax Residency Certificates (TRC) issued by foreign tax authorities.
  • SEC Certification of Non-Registration (for NRFCs not doing business in the Philippines).
  • Articles of Incorporation or equivalent proof of foreign registration.
  • Proof of outward remittance.
  • BIR rulings (if previously obtained).
  • Certificates of Entitlement (COE) for treaty benefits (if available).
  • Any other evidence showing income was earned outside the Philippines.

6. Clarifies misuse of the Aces Philippines decision
   RMC 24-2026 warns BIR examiners against misapplying the Aces case. The decision does not justify the automatic taxation of services consumed in the Philippines. Revenue Officers must adhere to proper sourcing and treaty rules.

This Circular takes effect immediately. All parties covered by this Revenue Regulation are required to strictly comply.