Imagine you're a Philippine company that hires a Singaporean consultant. She works from her office in Singapore, never sets foot in the Philippines, and invoices you in USD. Simple enough, right? The service happened abroad, so no Philippine tax. Right?

Enter RMC No. 5-2024, the BIR's opening shot in what is arguably 2024's spiciest tax controversy. Issued quietly on January 10, this circular has since unleashed chaos across boardrooms, accounting firms, and IT departments faster than you can say "withholding agent."

It all starts with a satellite company called Aces Bermuda. Aces Philippines was paying satellite airtime fees to its parent in Bermuda. The Supreme Court ruled in 2022 that those fees were Philippine-sourced income, because the signal was ultimately received and used by Philippine subscribers at Philippine gateways. Makes sense for satellites orbiting the earth and beaming signals down, right?

The BIR, apparently reading this ruling with great enthusiasm, decided to apply the same logic far, far beyond satellite communications. They looked at the SC's "two-tiered test", identify the source of income, then determine its situs, and thought: this applies to everything.

The BIR then helpfully drew up a list of cross-border services it considered "akin" to satellite transmissions:

That last one, "other similar services", is doing an enormous amount of work. Essentially, it's a catch-all so wide you could park a satellite through it.

The core of RMC 5-2024 rests on what's called the benefits-received theory: if the Philippine company is the one getting value from the service, then the income that generates that value is Philippine-sourced, regardless of where the actual work happened.

This is philosophically interesting, legally controversial, and practically alarming. Our Tax Code (specifically Section 42) has always been rather clear: compensation for services performed outside the Philippines is income from sources outside the Philippines. Full stop. RMC 5-2024 essentially says: "Yes, but what if we just... didn't do that?"

The reaction was swift and unified, a rare sight in Philippine business circles. Virtually every major trade and professional organization signed a joint position paper demanding the BIR reconsider: the Philippine Chamber of Commerce, the Management Association of the Philippines, the Joint Foreign Chambers, PICPA, FINEX, the IT-BPM Association, and more. That's basically every acronym that matters showing up to the same meeting.

Their core arguments? The RMC overreaches the Aces ruling, contradicts the Tax Code, creates retroactive risk, and threatens to make doing business with foreign service providers significantly more expensive. That last point, an estimated additional 37% cost increase, tends to get attention.

A few months later, the BIR issued RMC No. 38-2024 to "clarify" things. Some wins: the Aces ruling doesn't automatically apply to every cross-border service on the list, and companies in tax treaty countries may still claim treaty relief. Tax professionals breathed... half a sigh of relief.

However, RMC 38-2024 maintained the position that the withholding taxes and VAT were not new impositions, implying they could apply retroactively. That's the part that's still giving CFOs sleepless nights and tax lawyers billable hours.