WEEKLY TAX UPDATES [OCTOBER 23-27]

BIR ISSUANCE

 

Revenue Memorandum Order (RMO) No. 28-2017 dated April 25, 2017 amends certain provisions of RMO No. 42-2016 further streamlining the requirements of Personal Equity & Retirement Account (PERA) in line with the BIRs initiative to reduce the number of requirements from 15 to 3 with regard to the submission of reports by the PEZA administrator to Audit Information Tax Exemption & Incentives Division (AITEID), which is the BIRs PERA Processing Office.

 

SEC LEGAL OPINION FOR THIS WEEK ON TICKETING SERVICES NOT CONSIDERED RETAIL TRADE

 

Phil Co., a domestic corporation engaged in providing ticketing services to venues across Manila, is seeking legal opinion, for confirmation, that its activities of selling tickets on behalf of event producers and venue owners, then remits its revenues collected from ticket sales less its corresponding commission, do not constitute retail trade, thus, not covered by any foreign equity ownership limitation. In reply, the Commission refers to Section 3 of the Retail Trade Liberalization Act of 2000 (RTLA) which defines retail trade as any act, occupation or calling of habitually selling direct to the general public merchandise, commodities or good for consumption. Accordingly, a ticket is a document or an evidence of a contract. Therefore, since the ticket being sold is not merchandise or a good for consumption, the Commission opines that the ticketing activity of Phil Co. should not be considered as retail trade under the RTLA. [SEC OFFICE OF THE GENERAL COUNSEL OPINION NO. 17-12, SEPTEMBER 19, 2017]

 

COURT OF TAX APPEALS (CTA) CASE DIGESTS FOR THIS WEEK

 

IMPROPER CHANNEL OF EXHAUSTION OF ADMINISTRATIVE REMEDIES RESULTING TO DISMISSAL OF PETITION FOR REVIEW DUE TO CTAS LACK OF JURISDICTION

Petitioner Philippine Electric Corporation filed a Petition for Review seeking to reverse and set aside the Final Decision on Disputed Assessment (FDDA) issued by the Respondent Commissioner of Internal Revenue (CIR). It was the claim of the Petitioner that the case docket was prematurely forwarded for collection, as it was not informed that the Letter of Re-Investigation/Reconsideration was not forwarded to the Office of the Assistant Commissioner but instead the case docket was forwarded to the Large Taxpayers Division-Collection and Enforcement Division for collection. It was also claimed that the Petitioners appeal of the FDDA to the OIC-Assistant Commissioner is not within the realm of Section 228 of the 1997 Tax Code as implemented by RR No.12-99. The Respondent CIR believes otherwise claiming that the proper remedy is to appeal the FDDA to the Office of the CIR, which course of action the Petitioner clearly did not take, hence, its period to appeal to the CIR had lapsed. Nonetheless, the court noted that pursuant to Revenue Memorandum Circular No. 39-2013, all protest letters and similar correspondence shall only be filed with the issuing BIR offices who signed the assessment notices for proper recording of the protests and that no provision of the RMC states that an appeal of the FDDA should be made to the CIRs authorized representative. Consequently, the 30-day period within which to appeal with CTA is jurisdictional and failure to comply therewith bars the appeal and deprives the CTA of its jurisdiction to entertain and determine the correctness of the assessments. Such period is not merely directory but mandatory. Petition for Review was DISMISSED for lack of jurisdiction. [PHILIPPINE ELECTRIC CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 8793 OCTOBER 10, 2017]

 

FAILURE TO PROVE VAT REGISTRATION FATAL IN INPUT VAT REFUND

Nokia (Philippines), Inc. filed a Petition for Review praying for the refund or issuance of a Tax Credit Certificate (TCC) allegedly representing its unutilized input VAT paid and allocated to its zero-rate sales for the four quarters of the taxable year 2012.Petitioners administrative claim for refund/TCC was seasonably filed on March 27, 2014 and it timely sought judicial intervention on its claim upon failure of the Respondent to act within the prescribed 120 day-period.  The issue was heavily directed on the failure of the Petitioner to have the BIR Certificate of Registration be admitted as part of its evidence and have it identified with a competent witness. Based on Sec 112(A) and (C) of the Tax Code of 1997 as amended, concomitantly with Section 4.112-1(d) of Revenue Regulations No. 16-2005, and prevailing jurisprudence, such document is a requisite when claiming for a refund /TCC of excess input VAT attributable to zero-rated sales. The Court therefore finds that Petitioner failed to establish that it is a VAT-registered entity. Case law dictates that in a claim for tax refund or tax credit, the applicant must prove not only entitlement to the claim but also compliance with all the documentary and evidentiary requirements therefor. Wherefore, the Petition for Review is DENIED, for insufficiency of evidence. [NOKIA PHILIPPINES INC. VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 8876, OCTOBER 10, 2017]

 

DENIED INPUT VAT MAY BE CLAIMED AS DEDUCTIBLE EXPENSE; BRANCH PROFIT REMITTANCE TAX VALID IF THERE IS ACTUAL REMITTANCE

Maersk Global Service Centers Philippines Ltd. (Maersk) filed a Petition for Review seeking the cancellation of BIR assessment on income tax and final withholding tax. Assessment issues are centered on the disallowance of claimed bad debts attributable to denied input VAT refund attributable to zero-rated sales due to non-compliance on invoicing requirements as well as final withholding tax assessment on the alleged branch profit constructively received by Petitioners Head Office. It is the claim of the Petitioner that denied input VAT may be claimed as deductible expense and that final withholding tax assessment has no basis since there is no actual remittance of branch profit. The Court agrees citing that the Petitioner sustained loss arising from the denial of the CIR of its input VAT claim. Likewise the assessment on final withholding tax on branch profit remittance was cancelled as there was no actual remittance. Petition for Review is GRANTED[MAERSK GLOBAL SERVICE CENTERS PHILIPPINES LTD VS COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 8934, OCTOBER 11, 2017]

 

A CTA DECISION ON TAX-FREE EXCHANGE; RULING NOT REQUIRED FOR ASSET SWAP IN CONSIDERATION OF SHARES OF STOCKS

Petitioner Parity Packaging Corporation filed an Amended Petition for Review assailing the validity of the deficiency assessment issued by Respondent Commissioner of Internal Revenue (CIR) in the aggregate amount of Php 326,675,902.19. Several assessment issues have been raised but the bulk of the assessment is centered on the Petitioners disposal of land and land improvements in favor of Fortune Landequities Resources, Inc. (FLRI) in exchange for shares of stocks of the latter. Simultaneous to the said transfer, Petitioner again swapped/exchanged the shares of stocks in FLRI for shares of stocks in PMFTC, Inc. It is the position of Respondent CIR that since the properties disposed were used in the business, the same are considered ordinary assets Consequently, the disposal of properties is subject to the ordinary income tax in accordance with Section 4.a (ii) of Revenue Regulations 7-2003 and the net taxable income realized from the disposal of real properties was assessed pursuant to Section 32(A) of the Tax Code of 1997. However, Petitioner contends that the transfer of real properties to FLRI in exchange of the latters shares of stocks, as well as the subsequent transfer of such shares of stocks to PMFTC, Inc. as payment for the subscribed shares, constitute tax-free exchange as contemplated under Section 40(C)(2) of the Tax Code of 1997. The Court agrees with Petitioner. Moreover, Petitioner entered into an exchange transaction with FLRI, whose shares of stocks were, thereafter, assigned to PMFTC, Inc. Thus, there was no sale since Petitioners assets were only transformed into another form of asset. The assets merely changed from land, building, etc. to one of intangible asset-shares of stock. Since the subject transactions do not constitute sales, it necessarily follows that the same are not subject to income tax. The gain on exchange of assets is merely a theoretical gain considering that Petitioner did not, actually or constructively, receive said gain. Though reflected in Petitioners books as gain, it is an unrealized gain for purposes of computing the income tax. Clearly, Petitioners transfer of assets, in exchange for shares in FLRI and PMFTC, Inc. qualifies as tax-free exchange and need not require prior BIR ruling in order that the same may be exempted from income tax. Accordingly, the income tax assessment referring to the gain on exchange of assets in the amount of Php 279,737,876.77 must be cancelled. WHEREFORE, the Amended Petition for Review is PARTIALLY GRANTED. Accordingly, the subject deficiency income tax assessment is hereby CANCELLED and SET ASIDE and the assessment was substantially reduced to Php 911,410.50. [PARITY PACKAGING CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 8825, SEPTEMBER 19, 2017]