As we emerge from Holy Week — a period often associated with reflection and renewal — we encounter a parallel in the tax landscape with the recent issuance of Revenue Memorandum Circular (RMC) No. 24‑2026. The RMC, which follows earlier RMC Nos. 5-2024 and 38-2024 on cross-border services, reflects a refinement of the Bureau of Internal Revenue’s (BIR) audit framework for such arrangements.

RMC Nos. 5-2024 and 38-2024 have been controversial, to say the least, as their implementation gave rise to differing views between the BIR and taxpayers, particularly on how the expanded situs rules should be applied. In practice, this resulted in cross‑border service payments being almost automatically treated as subject to final withholding tax and final withholding value-added tax (VAT) during tax assessments, often with limited inquiry into the factual circumstances.

Against this backdrop, RMC No. 24‑2026 may be viewed as the BIR’s effort to clarify how the Aces principles are expected to be applied by providing more specific and fact-based rules. Below are the key points of the RMC.

NOT EVERY CROSS-BORDER SERVICE IS AUTOMATICALLY TAXABLE
A notable clarification under RMC No. 24-2026 is that the cross-border services outlined in RMC No. 5-2024, including consulting, IT outsourcing, telecommunications, financial services, engineering, education, and tourism, are not automatically taxable simply because they are cross-border in nature.

That said, service income remains taxable if the services are performed within the Philippines. The RMC emphasizes that the revenue officers invoking the Aces ruling must establish that the services in question were indeed rendered within Philippine territory.

This clarification offers relief to the taxpayers as it introduces a crucial constraint on tax assessments involving cross-border arrangements, as revenue officers must now factually link the performance of services in the Philippines. The fact that the transactions are cross-border in character is no longer sufficient to trigger FWT and FWVAT.

ESTABLISHING TAXABILITY OF CROSS-BORDER SERVICES
In determining the income source of cross-border services, the RMC reinforces the approach outlined in the Aces ruling, which requires the examination of the agreement in its entirety rather than in parts.

The RMC identifies four essential elements that must be satisfied before a revenue officer can factually assess income tax on cross-border services, enumerated as follows:

• The parties involved must be a Philippine payor and a payee who is a non-resident service provider;

• The specific activity or service must be integral to the completion or delivery of the non-resident’s service and must have resulted in a payment or accrual that created economic benefit for the non-resident.

• The situs of the income-producing activity must be within the Philippines.

• There must be no applicable exemption under domestic laws or treaties.

Notably, the RMC has clarified certain exclusions such as passive income, income from sale of goods, and pass-through payments to another non-resident for services rendered outside the Philippines.

While these elements provide structure to the BIR’s review process, they also underscore the continuing broad application of the Aces case for cross-border arrangements, notwithstanding the factual context of the case.

BURDEN OF PROOF LIES WITH THE TAXPAYERS
Despite the clarification that cross-border services are not automatically taxable, the RMC continues to assert that the burden of proof rests with the taxpayer.

To substantiate their position, taxpayers must provide relevant documentation, such as:

• A sworn statement executed by the payor or its duly authorized representative describing the transaction and services;

• Service contracts, master service agreements, statements of work or similar documents such as purchase orders, billing statements, invoices, or relevant e-mail correspondences;

• A tax residency certificate of the non-resident service provider;

• An SEC certification of non-registration for non-resident foreign corporations;

• Proof of organization or registration in the non-resident provider’s jurisdiction such as Articles of Incorporation/Association and business registration;

• Proof of outward remittance of payment;

• A BIR Ruling, if available; or

• Copies of the certificates of entitlement to treaty benefits, if applicable.

Consistent with the guidance from Revenue Memorandum Order No. 1-2026, the RMC allows photocopies of these documents, provided they are certified as true and faithful reproductions of the original. However, the BIR may still request presentation of originals for verification purposes.

BIR RULING IS NOT MANDATORY
The RMC further reiterates the jurisprudence that obtaining a prior BIR confirmatory ruling is not a prerequisite for applying tax treaty benefits. The absence of such a ruling should not prejudice taxpayers’ entitlement to treaty benefit, provided there is competent evidence presented during the assessment process. Although not mandatory, from a practical standpoint, taxpayers may still opt to request for confirmation of tax treaty relief entitlement to strengthen their position particularly for complex arrangements. A confirmation would still meaningfully manage the audit risk and uncertainty on the part of taxpayers.

It is reassuring that the BIR has emphasized the importance of establishing both the applicable laws and the factual basis for any tax assessment, honoring the longstanding doctrine of due process. At the same time, the RMC should be viewed as a recalibration, instead of a full reversal, of the BIR’s broadened interpretation of the Aces decision.

JUDICIAL DEVELOPMENTS
Notably, at the judicial level, the Court of Tax Appeals (CTA) likewise granted last week a preliminary injunction against the implementation of RMC No. 5-2024. While this development does not fully resolve the current issues arising from the Aces decision, it shows the uncertainty that surrounds the earlier issuances. More broadly, it raises the question of whether tax assessments for cross‑border services will, at least for now, revert to the framework that prevailed prior to RMC 5‑2024. That said, notwithstanding the injunction, the Aces ruling remains as jurisprudence. Hence, from a practical standpoint, the latest RMC may still be viewed as a useful guide, particularly on the types of documents that may support the position that cross‑border services are not taxable.

I am optimistic that RMC No. 24‑2026 will provide guidance on what has felt like a contentious tug-of-war into a collaborative process grounded on facts and proper documentation. I hope that this adjustment will lead to assessment outcomes that are more closely aligned with our Philippine tax laws and help restore investor confidence in our tax system.

The views or opinions expressed in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The content is for general information purposes only, and should not be used as a substitute for specific advice.

Frenz Angelie B. Hechanova is a manager at the Tax Services department of Isla Lipana & Co., the Philippine member firm of PricewaterhouseCoopers global network.

frenz.angelie.hechanova@pwc.com