Tax Alert No. 10 [Revenue Memorandum Circular (RMC) No. 24-2026 dated 30 March 2026]

Clarifying the Application of Revenue Memorandum Circular Nos. 5-2024 and 38-2024 on the Tax Treatment of Cross-Border Services

The Bureau of Internal Revenue (BIR) has issued Revenue Memorandum Circular No. (RMC) No. 24-2026, to clarify the application of RMC Nos. 5-2024 and 38-2024 on the taxation of cross-border services, ensuring alignment with the Supreme Court ruling in Aces Philippines and providing certainty to both revenue officers and taxpayers.

The salient points of this RMC are discussed below.

1. Cross-border services are NOT automatically taxable

• Services classified as cross-border services (e.g., consulting, IT outsourcing, telecom, financial services, engineering, education, tourism) are NOT automatically subject to Philippine income tax solely by reason of their classification as cross-border services.
• The general rule for the taxation situs of services is that the income is taxed where the service is performed. The Aces Philippines case expands the situs rule for taxation of services by including the place where the benefit is received or where the service is completed in determining taxability in the Philippines.
• A Revenue Officer invoking the rule under the Aces Philippines case as a basis for their assessment must establish that the source of income from such cross-border services is within the Philippines.

2. Revenue Officers should establish four (4) essential elements before assessing income tax on cross-border services

A Revenue Officer must factually establish that the income source is within the Philippines based on a holistic evaluation of the entire service agreement and not on isolated activities. The assessment must clearly show all the following four (4) essential elements:

• The parties include a Philippine payor and a non-resident service provider.
• The specific activity or service is:
• integral to the completion or delivery of the non-resident’s service; and resulted in a payment or accrual that created economic benefit for the non-resident.
• The situs of the income-producing activity is within the Philippines; and
• There is no applicable exemption under law or treaty.

3. Taxpayers must present proof that the income is earned from sources outside the Philippines.

In Aces Philippines, the Supreme Court emphasized that the burden of proof lies with the taxpayer to establish that the income was derived from sources outside the Philippines and is therefore not subject to Philippine income tax. To prove that payments to a non-resident are NOT from sources within the Philippines, taxpayers may submit the following (as applicable):

• Sworn statement 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 email correspondences
• Tax Residency Certificate of the non-resident service provider
• SEC Certification of Non-Registration (for non-resident foreign corporations)
• Proof of organization or registration of the non-resident service provider’s residence jurisdiction
• Proof of outward remittance of payment
• Relevant BIR Ruling, if available
• Certificate of Entitlement to Treaty Benefit if treaty applies
• Other supporting documents

Photocopies are acceptable if certified as true and faithful reproduction, but BIR may still request originals within the authorized scope of audit for verification purposes.

4. BIR ruling is NOT mandatory

A prior BIR ruling confirming taxability or non-taxability is NOT a condition precedent for the application of the applicable tax treatment. Conversely, the absence of a ruling does not prejudice the taxpayer if evidence supports the tax treatment provided that the legal and factual bases for the same are duly established with competent evidence during the assessment process.

Notwithstanding, taxpayers may still request a confirmatory ruling following the existing rules and procedures, if desired.

You may access the full version of the RMC through the BIR website. 

For any inquiry or request for assistance, please feel free to contact anyone from our Tax Services group. You may also reach us through this link