WEEKLY TAX UPDATES [SEPTEMBER 25-29]

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

 

CORPORATE TERM OF CONDOMINIUM CORPORATION IS CO-TERMINUS WITH THE DURATION OF THE CONDOMINIUM PROJECT

Urdaneta Apartments Condominium Corporation (“UACC”), a condominium corporation that was incorporated on May 14, 1971 under Condominium Act of 1966, is seeking an opinion with regard to the extension of the corporate term of a condominium corporation. Specifically, it is seeking clarification if the enactment of the Corporation Code on May 1, 1980 of which a corporation shall exist for a period not exceeding 50 years from the date of incorporation unless sooner dissolved or said period is extended will repeal the Condominium Act of 1966 which is the governing law at the time UACC was incorporated. Under the said Act and the Old Corporation Law of 1906, a condominium corporation shall be co-terminus with the condominium project. The SEC clarified that in cases where in a general law and a special law arises on the same subject, the special law shall prevail since it relates to a more particular class, which is a condominium. Therefore, the enactment of the Corporation Code of 1980 will not repeal the Condominium Act of 1966 which does not limit the term of existence of a condominium corporation to only 50 years, as it provides a corporate term of a condominium corporation that is coexistent with the duration of the condominium project. [SEC OFFICE OF THE GENERAL COUNSEL OPINION NO. 17-09, SEPTEMBER 5, 2017]

 

LEGAL CONSEQUENCES OF REVOKED CORPORATION WITH SUBSEQUENT RE-REGISTRATION STATUS

Prestige Native Arts Inc. (PNA), a family stock corporation, is seeking for a legal opinion on the related legal consequences with regard to a revoked corporation and its subsequent re-registration status. It was noted that the Corporation failed to comply with the reportorial requirements; as a result, it’s SEC Certificate of Registration was revoked on September 03, 2003. On September 27, 2010, PNA re-registered with a new Company Registration Number but retaining its name, primary purpose and principal office address. One of the questions raised was whether or not the revocation of the PNA’s Certificate of Registration extinguishes its Right of Dominion on the Corporate Assets. The SEC opined that it does not immediately extinguish and the dissolution of a juridical entity does not itself cause the extinction or diminution of the rights and liability of such entity, since it is allowed to continue as a juridical entity for three (3) years for the purpose of prosecution and defending suits by or against it and enabling it to settle and close its affairs, to dispose of and convey its property, and to distribute its assets, in accordance with the Supreme Court Decision in Republic vs. Tancinco. Though the period of three (3) years had expired, the SEC stressed that it would result to unjust and absurd results if the period of three (3) years was strictly construed and the finality of the liquidation was not met citing the Supreme Court decision in Northern Luzon Transportation Inc. Isabela Cultural Corporation. PNA further asked if the revoked corporation and the newly registered PNA are one and the same in which the SEC submitted that it is separate and distinct, and that the latter shall be considered as a new corporation such that once a corporate franchise was revoked it is also dissolved, in accordance with Memorandum Circular No. 21, Series of 2013. [SEC OFFICE OF THE GENERAL COUNSEL OPINION NO. 17-08, SEPTEMBER 05, 2017]

 

SEC LEGAL OPINION ON VARIOUS LEGAL CONCERNS OF HOMEOWNERS ASSOCIATION

The Selected Homeowners/Residents of URCI Las Pinas Town Homes (ULTH) is seeking SEC Legal Opinion regarding their numerous concerns. Several queries were asked but only some are answered due to the lack of jurisdiction and the litigious nature of matters asked. On one query asked regarding the government agency to govern the community, the Commission directed the Homeowners Association that it is under the jurisdiction of the Housing and Land Use Regulatory Board (HLURB) in accordance with RA No. 9904. Another query was raised on the validity and duration of proxy voting documents in relation to election of the members of the Board, the Commission submitted that proxies are only valid for the meeting intended and that no proxy shall be valid for a period of more than five (5) years based on Section 59 of the Corporation Code, provided further that no provision is stated in the By-Laws or Articles of Incorporation concerning the form required for the validity of proxies in relation to Section 47 of the Corporation Code. The ULTH further asked the validity and limitation of compensation of their Directors and Officers, the Commission opine that Section 30 of the Corporation Code limits the compensation of directors and officers which in no case exceed 10% of the net income before income tax, provided that there is a provision on the by-laws fixing the compensation with the appropriate votes for it to be valid. On hold-over capacity of incumbent directors, the Commission opine that it cannot be indefinite such that there must be annual election of directors and officers, wherein, the incumbent Board of Directors may hold their office until the successors are duly elected and qualified. SEC may compel the officers to call meetings under its supervision, to have its election. On the last query regarding documents to be regularly submitted, the Commission directed that General Information Sheet and Audited Financial Statements should be regularly submitted to them. [SELECTED HOMEOWNERS/RESIDENTS OF URCI LAS PIÑAS TOWN HOMES, SEC-OFFICE OF THE GENERAL COUNSEL OPINION NO. 17-10, AUGUST 31, 2017]

 

PEZA VAT ZERO-RATING ON LOCAL PURCHASES OF SERVICES STILL QUALIFIED REGARDLESS OF PLACE OF SERVICE

Petitioner ZMG Ward Howell, Inc. filed a Petition for Review seeking for the cancellation of BIR’s 6-month VAT assessment for the period January 1, 2012 to June 30, 2012. The assessment is centered on the failure of the Petitioner to subject its sales of services to enterprise registered with the Philippine Economic Zone Authority (PEZA) to 12% VAT. It was the position of the BIR that the services rendered by the Petitioner to PEZA-registered clients are not directly connected to the registered activities of its clients and that the services were rendered outside the Economic Zone (ECOZONE) therefore not qualified as zero-rated sales. However, the Petitioner posits that the law does not make any qualification as to the place where the services should be rendered and the condition for such services. For Petitioner, all sales of goods and services by a VAT-registered supplier from the Customs Territory to any PEZA-registered enterprise should be treated as zero-rated sales pursuant to Section 108(B)(3) of the 1997 NIRC and the Cross Border Doctrine. Likewise, Petitioner contends that it is not necessary that the services are rendered entirely within the ECOZONE so long as the service will benefit the PEZA-registered enterprise located within the ECOZONE. Further, Petitioner avers that it is sufficient that the services should be ultimately and finally consumed by the PEZA-registered enterprise within the ECOZONE. The Court ruled that Respondent’s BIR position is untenable. Accordingly, such position is not only contrary to the plain wording of the law but also to established jurisprudence, and even to Respondent’s own revenue issuance. With regard to the Petitioner’s liability for deficiency VAT, a close scrutiny of the documentary evidence presented by Petitioner shows that it failed to present its BIR Certificate of Registration to prove its VAT registration. By failing to prove that it is a VAT-registered entity, Petitioner failed to discharge its burden of proving that its sales of services subject of the assessment clearly qualify for VAT zero-rating under Section 108(B)(3) of the 1997 NIRC. In the light of the foregoing, the Court finds that the Petitioner failed to establish that it is a VAT-registered entity. Absent this requisite, discussion on the other requirements is unnecessary. WHEREFORE, the present Petition for Review is DENIED. [ZMG WARD HOWELL, INC. VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9004, SEPTEMBER 18, 2017]

 

A CTA DECISION ON IMPROPERLY ACCUMULATED EARNINGS TAX IMPOSITION

Petitioner, Opulent Landowners, Inc. filed a Petition for Review seeking for cancellation of BIR assessment on Income Tax, Value Added Tax, Documentary Stamp Tax, and Improperly Accumulated Earnings Tax (IAET) in the total amount of Php 34,635,662.19. Several factual issues have been raised but the bulk of the assessment is centered on the imposition of IAET. Petitioner argued that IAET should not be imposed in the light of the Board of Director’s appropriation of retained earnings for the reasonable needs of the business. However, the BIR argued that such appropriation fails the Immediacy Test and that the management has no concrete plan on how to dispose its excess earnings. Petitioner countered that the reasonable needs of a business can be best determined by looking into the intent, purpose, and financial stability of the business and not on the immediate disposition of its excess profits. To further corroborate, the Court-Commissioned ICPA testified that there was an existing development plan to rehabilitate the Petitioners building and upgrade its facilities to conform to the Building Code of the Philippines. The ICPA added that the Petitioner presented various Secretary Certificates substantiating the approval of the appropriation as standby funds for the implementation of its contemplated projects. The Court ruled that in order for the accumulated profits to be categorized under reasonable needs of the business, the controlling intention of the taxpayer, coupled with action taken towards its consummation, must manifest at the time of accumulation, and not subsequently, which are mere afterthoughts. Further, the accumulated profits must be used within a reasonable time after the close of the taxable year. Consequently, it was ruled that since the Petitioner failed to prove that the management has undertaken any action to prove that the contemplated project has taken place and therefore such Secretary Certificates reveals no clear information regarding the alleged plan for a specific project. Furthermore, the Court finds that the Petitioner’s appropriations were merely speculations since appropriations for expansion projects were made as early as 2006 and did not materialize. As such, the Court finds that the Petitioner failed to pass the “Immediacy Test”. Consequently, the Court sustained the BIR findings on IAET but cancelled partially the other deficiency tax type liabilities resulting to a reduced deficiency tax assessment of Php 15,372,714.26. [OPULENT LANDOWNERS, INC. VS COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 8956, SEPTEMBER 19, 2017]