BIR RMC 024-2026 and Cross-Border Services Tax in the Philippines: What Businesses Need to Know After the ACES Case

Cross-border services are now a day-to-day reality for Philippine businesses. Think offshore consultants, IT outsourcing, foreign engineering teams, online training providers, international telecom services, and more. The challenge is that “the service is abroad” doesn’t automatically mean “no Philippine tax,” just as “the customer is in the Philippines” doesn’t automatically mean “taxable.” The rules depend on facts—what the service is, where key parts happen, and where the income-producing activity is considered to occur.

This article connects the dots between the Supreme Court’s En Banc ruling in Aces Philippines Cellular Satellite Corporation v. CIR (G.R. No. 226680, August 30, 2022)and the BIR’s evolving guidance through RMC No. 5-2024, RMC No. 38-2024, and the newly issued RMC No. 024-2026—including how these issuances affect final withholding tax (FWT) and withholding VAT on payments to non-resident service providers.

Why this matters now

BIR RMC No. 5-2024 (issued January 10, 2024) positioned the Aces Philippines decision as a key reference point and introduced a framework for evaluating the final withholding tax and final withholding VAT implications of services provided by non-resident foreign corporations (NRFCs) to Philippine payors.

Not long after, RMC No. 38-2024 (issued March 15, 2024) was released to address confusion and make an important point in plain terms: the outcome in Aces does not automatically apply to all cross-border service agreements. Each arrangement must be evaluated based on its own contract and facts.

Now, RMC No. 024-2026 (dated March 30, 2026) further clarifies how revenue officers and taxpayers should apply that framework—particularly in audit situations where “cross-border” began to be treated like a shortcut label for “taxable.” (As of publication time, the full searchable online copy of RMC 024-2026 was not yet retrievable via public indexing; the discussion below reflects the content of the March 30, 2026 copy referenced in the prompt, cross-checked where possible against the earlier published issuances and the Supreme Court decision.)

If your company pays abroad for services—especially recurring service fees, intra-group services, digital/remote support, or telecom/IT arrangements—this matters because withholding errors can turn into deficiency assessmentsagainst the Philippine payor as withholding agent, even if the foreign vendor is the one earning the income. This risk is why the BIR put heavy emphasis on a structured source-of-income analysis and treaty considerations in its cross-border services guidance.

The ACES Philippines case explained in plain English

The case that triggered all of this is Aces Philippines Cellular Satellite Corporation v. Commissioner of Internal Revenue (En Banc). The dispute centered on whether payments made by a Philippine company to a related Bermuda entity for satellite air time services were Philippine-sourced income subject to final withholding tax.

The Supreme Court’s two-step approach

In Aces, the Court described a two-tiered approach for this type of issue:

First, identify the source of income—the property, activity, or service that produced it (what actually generates the income). Second, determine the situs (location) of that source.

This is where the decision became especially influential for modern cross-border services. The Court said it is not enough to simply point to “a service” somewhere. The subject is treated as an income source only if the particular property/activity/service causes an increase in economic benefits—for example, inflows or enhancements of assets, decreases of liabilities, and related equity changes.

Why the “gateway in the Philippines” mattered

Aces argued that the key act—satellite transmission—happened outside the Philippines. But the Court focused on when the service is completed/delivered and when fees accrue.

The Court agreed with the CTA’s view that the income-generating activity did not occur at mere transmission. Instead, it occurred when the call was received by the gateway—and that gateway receipt happened in the Philippines. That gateway receipt marked (1) completion/delivery of the service, and (2) the inflow of economic benefits (because fees accrued only when the service was successfully delivered/used, not for incomplete calls).

Then the Court linked taxability to a benefits/protection rationale: when the inflow of wealth and/or economic benefits proceeds from and occurs within Philippine territory—where it enjoys protection—then that flow of wealth “should share the burden” of supporting the government and can be taxed.

The burden of proof point many taxpayers miss

One line in Aces is repeatedly echoed in later BIR guidance: the taxpayer bears the burden of proving that the income is foreign-sourced and outside Philippine income tax. In Aces, the Court held that Aces Philippines failed to establish that the satellite air time fees were foreign-sourced.

This doesn’t mean taxpayers always lose—it means you need a defensible factual record.

From RMC 5-2024 to RMC 38-2024: the BIR framework for cross-border services

Think of RMC 5-2024 as the “framework launch” and RMC 38-2024 as the “clarification and guardrails” issuance.

What RMC 5-2024 tried to do

RMC 5-2024 explicitly says it is issued to clarify the proper tax treatment of cross-border services in light of Aces, and it offers a framework for assessing both:

• Final withholding tax, and

• Final withholding VAT

  
  

  for activities of NRFCs in Philippine jurisdiction.

It also enumerates common “international service provision / cross-border services” examples such as consulting, IT outsourcing, financial services, telecommunications, engineering and construction, education and training, tourism and hospitality, and other similar services.

RMC 5-2024 emphasizes a core message: the source of income is not determined by where payment is disbursed or physically received, but where the underlying business activities that produced the income actually took place.

When transactions span multiple jurisdictions, RMC 5-2024 states it becomes “imperative” to determine whether stages occurring in the Philippines are so integral that the overall business activity would not have been accomplished without them—an application of the benefits-received theory.

What RMC 38-2024 clarified (and why it’s crucial)

RMC 38-2024 directly addressed a common misreading: people saw RMC 5-2024’s list of cross-border services and assumed all of them are automatically treated like Aces.

RMC 38-2024 said no. It explains that the list in RMC 5-2024 was meant to highlight that these services can also be provided by NRFCs to Philippine entities, but it does not say Aces automatically applies to all of them. Instead, RMC 38-2024 points readers back to the actual guideline: the source of income is in the Philippines if the property, activity, or service that produces the income is in the Philippines—and this requires examining the cross-border service agreement as a whole, not isolating one activity as the sole income-producing act.

RMC 38-2024 also lists practical “clues” that may point toward Philippine-sourced income, such as whether:

• Income accrues depending on successful use/consumption/utilization by the Philippine purchaser,

• Performance depends on facilities located in the Philippines, or

• Stages occurring in the Philippines are integral to the overall transaction.

The tax rate and what “FWT” means here

For NRFCs not engaged in trade or business in the Philippines, the Tax Code—after amendments—imposes 25% tax on gross income from Philippine sourceseffective January 1, 2021.

RMC 38-2024 reinforces that the 25% final withholding on gross income of non-residents from Philippine sources and the 12% final withholding VAT mechanism on certain transactions are not “new impositions,” but are grounded in Tax Code provisions and implementing rules.

What RMC 024-2026 clarifies in plain English

RMC 024-2026 is best read as a “how to apply the framework correctly during audits and assessments” guidance—especially when people start treating “cross-border services” as a shortcut conclusion instead of a starting point for analysis.

Below are the practical clarifications of RMC 024-2026 (based on the March 30, 2026 copy referenced in the prompt), alongside confirming principles already found in Aces, RMC 5-2024, RMC 38-2024, and related rules.

Cross-border does not automatically mean taxable

The central clarification is consistent with RMC 38-2024: services are not automatically subject to Philippine income tax just because they are called “cross-border services.” The label is not the tax conclusion.

The “where the service is performed” rule still matters, but ACES expands the analysis

Philippine source rules have long treated income from services as sourced where the services are performed (e.g., Section 42’s services rule, often quoted in jurisprudence).

But Aces shows that where a service is performed can’t always be reduced to a single physical location—especially for multi-stage, tech-enabled service delivery. The Court’s focus on completion/delivery of service and the inflow of economic benefits provides additional structure when contracts span jurisdictions.

RMC 38-2024 reflects the same point when it says that after Aces, the situs analysis is not just “location” in a narrow sense, but more importantly the location of the service that produces the income or where the inflow of wealth originates.

Revenue officers must establish facts, not conclusions

A key operational point in RMC 024-2026 is that if a revenue officer invokes Aces as basis for assessment, they must establish that the income source is within the Philippines using the proper standard (property/activity/service that produced income and created the economic benefit). That standard is straight from the Supreme Court’s language in Aces.

In practice, this dovetails with the due process rule in Section 228: tax assessments must inform the taxpayer in writing of the facts and law on which the assessment is made, or the assessment is void. The Supreme Court has repeatedly reiterated this requirement in assessment cases.

Not mandatory to secure a BIR ruling first, but it can help in gray areas

RMC 024-2026 clarifies that a prior confirmatory BIR ruling is not a condition precedent to applying the correct tax treatment (and absence of such ruling should not, by itself, prejudice the taxpayer), so long as the legal and factual bases are established by competent evidence. This aligns with the larger due process and evidence-driven theme across the framework.

At the same time, it remains an option for taxpayers to seek a ruling—particularly when the transaction is complex, high value, or likely to be audited.

Practical compliance guide: how to assess withholding tax and build an audit-ready file

This section is written for operators: finance teams, controllers, tax managers, procurement teams, founders, and anyone who regularly pays foreign service providers.

Start with a simple “source of income” map

Before debating rates or treaties, do a grounded map of what the vendor actually does and how the service gets completed.

A good working method—based on Aces and echoed through RMC 5-2024 and RMC 38-2024—is:

1. Identify the income-producing activity (what act/service creates the right to payment and triggers accrual).

2. Determine where that activity is completed/delivered, and where the economic benefit inflow arises.

3. Check whether Philippine-based stages are integral to the overall transaction (so integral that without them, the service transaction would not be accomplished).

One practical way to think about it is: if you removed the Philippine component (Philippine gateway, Philippine facility, Philippine-required licensed activity, Philippine on-site stage, Philippine-dependent usage), would the service still be completed in the way the contract measures completion and bills the customer? That type of reasoning is exactly what the Court used in Aces when it looked at successful call routing to the Philippine gateway as the completion point.

If Philippine source is established, move to withholding tax and treaty review

If your analysis points to Philippine-sourced income, then the next question is usually not “tax or no tax,” but:

• What withholding tax applies by default under domestic law?

• Is there a treaty benefit that reduces the rate or exempts the income (e.g., business profits with no permanent establishment)?

RMC 38-2024 explicitly frames treaties this way: once source is established in the Philippines, the taxpayer can invoke the relevant treaty to claim exemption or preferential rates, depending on the income characterization (business profits, royalties, etc.).

For domestic law, the CREATE amendments provide that an NRFC not engaged in trade or business pays 25% tax on gross income from Philippine sources (effective January 1, 2021). In many service payment cases, the Philippine payor becomes the withholding agent.

Don’t ignore VAT: the BIR’s “withholding VAT” position

RMC 5-2024 devotes attention to VAT and emphasizes that VAT rules for “sale or exchange of services” (and use/lease of properties) matter in determining whether VAT applies on cross-border service payments.

RMC 38-2024 states that once the source of income for cross-border services is established within the Philippines, the transaction “will also be subject to VAT,” referencing Sections 105 and 108 and the collection-through-withholding mechanism under Section 114(C) and RR No. 16-2005.

If you are dealing with foreign vendors, the real operational takeaway is this: your income tax and VAT conclusions must be consistent with the service delivery facts you document—and you should be ready to explain the logic and show your basis during audit.

Documentation: build your file like you might need to defend it

Aces is blunt about burden of proof: the taxpayer bears the burden of proving foreign sourcing when claiming the income is outside Philippine income tax.

What does that mean in practice? It means don’t treat documentation as an afterthought.

A clean audit-ready file typically includes: (a) the service contract and scope documents; (b) evidence of where work was performed and where the deliverables were produced; (c) evidence of how the service is completed or accepted under the contract; (d) payment and remittance records; and if treaty benefits are claimed, (e) residency and treaty entitlement documentation consistent with BIR practice.

RMC 024-2026 adds a practical audit-centric list of documents that taxpayers may present to prove an income payment to a non-resident service provider is not from sources within the Philippines (for example: sworn statements describing the services, service contracts/MSAs/SOWs, invoices and correspondence, tax residency certificates, proof of outward remittance, and treaty entitlement documentation where applicable). While this list is specific to RMC 024-2026’s Q&A format (per the March 30, 2026 copy referenced in the prompt), it is directionally consistent with the Supreme Court’s burden-of-proof framing in Aces and the “entire agreement and factual record” emphasis in RMC 38-2024.

The “previous RMO” you should know: photocopies are allowed (with conditions)

RMC 024-2026 references documentation handling during audit, and this connects directly to Revenue Memorandum Order No. 001-2026.

RMO 001-2026 provides that when records are physically submitted to the BIR, the taxpayer may submit photocopies if certified by the taxpayer or authorized representative as true and faithful reproductions of the original documents. It also states that the BIR may require originals for verification in certain situations.

This is operationally important for cross-border matters because supporting documents often originate abroad (foreign vendor incorporations, tax residency certificates, contracts signed outside the Philippines, apostilled/authenticated documents, and so on). RMO 001-2026 gives a clearer “front door” rule for handling those submissions—while still preserving the BIR’s verification authority.

References and source documents

Primary and official sources used in this article:

• Supreme Court (En Banc): Aces Philippines Cellular Satellite Corporation v. CIR, G.R. No. 226680 (August 30, 2022) — Supreme Court E-Library copy.

• BIR RMC No. 5-2024 (January 10, 2024) — “Further Clarifying the Proper Tax Treatment of Cross-Border Services…”

• BIR RMC No. 38-2024 (March 15, 2024) — “Clarifying the Issues Raised on RMC No. 5-2024”

• BIR RMO No. 001-2026 (January 27, 2026) — revised audit procedures; includes rules on acceptance of certified photocopies.

• CREATE Act legal basis for NRFC 25% gross income tax (effective Jan 1, 2021) — Supreme Court E-Library publication of RA 11534 amendments to NIRC Section 28.

• Section 42 service sourcing rule (quoted in Supreme Court jurisprudence) — example quotation of Section 42 service rule in CIR v. Baier-Nickel line of cases via Lawphil.

• Section 228 due process requirement for valid assessments (facts + law) — Supreme Court discussion in assessment jurisprudence (e.g., Avon-related summary).

Non-primary but useful practitioner context (used sparingly for interpretation and business impact framing):

• PwC and Grant Thornton Philippine tax commentaries explaining RMC 5-2024 / RMC 38-2024 issues and implementation concerns.