Department of Finance (DOF) Secretary Ralph G. Recto announced that the double tax agreement (DTA) between the Philippines and Cambodia is expected to be finalized in February of next year.
In a statemen, Recto noted that while the Philippines and Cambodia are preparing to sign the agreement, negotiations with the Lao People's Democratic Republic are still ongoing. There are also plans to revise existing agreements with Indonesia, Malaysia, and Singapore.
Initially, both countries aimed to sign the DTA in October, after six years of negotiations. However, the finalization was postponed even though the draft of the agreement was completed six months ago.
“There was a request from Cambodia to move signing to February,” Recto said.
According to DOF, this move aims to enhance the country’s network of DTAs “to support local businesses in their international ventures.”
“These agreements protect our tax rights while facilitating cross-border trade and investment,” DOF Undersecretary Charlito Martin R. Mendoza said during the 6th Financial Executives Institute of the Philippines (FINEX) Cebu Summit on Nov. 15.
Medoza added that “expanding our DTA network, particularly within ASEAN, allows Filipino businesses to diversify their markets with fewer tax burdens, boosting their competitiveness abroad.”
Under the agreement, both countries “agree to mitigate the burden of double taxation on individuals and businesses operating across borders, which may contribute to the elimination of barriers to trade and investment and encouragement of cross-border economic activities.”
In particular, the DTA covers income taxation for citizens and residents of the Philippines and Cambodia, with specific details on tax imposition and credits between the two countries.
Basically, a DTA will enable workers in each country to pay taxes only in their home country.
Previously, the Bureau of Internal Revenue (BIR) explained that “if a nonresident has an income source in the Philippines and is a resident in another country, he may be liable to pay tax in both countries under their tax laws.”
“To avoid ‘double taxation’ in this situation, the Philippines has negotiated double taxation treaties with (other) countries. A nonresident in another country with which the Philippines has a double taxation treaty may be able to claim exemption or partial relief from the Philippines’ tax on certain types of income from Philippine sources,” the BIR further explained.
Meanwhile, DOF Director and Spokesperson Nina Asuncion cited taxation changes as negotiations with Lao PDR carries on and the government has plans on revising its agreements with other countries.
“DTAs need to be updated or renegotiated because most of our DTAs have been entered into a long time ago. They no longer reflect the taxation of the present,” Asuncion said.
This is especially so because capital is now more mobile and cross border transactions are easier to do today. There are DTA models and these have undergone a lot of changes.
Asuncion noted that DTA models have evolved significantly given the more mobile capital and easier cross-border transactions.
Thus, “we need to keep within standards and ensure fair and just taxation with all our treaty partners,” she asserted.
Furthermore, Asuncion said that the country’s commitment as a member of the ASEAN is to complete the region’s DTA network.