Weekly Tax Updates[August 27-31, 2018]

COA ASKS QC GOVERNMENT TO FILE CHARGES VS. DEVELOPERS FOR UNPAID BUSINESS TAXES + SUPREME COURT UPHELD BIR RMO TAXING ALLOWANCES & OTHER BENEFITS OF GOVERNMENT EMPLOYEES

Dear Clients & Friends,

We are sending the following relevant tax updates for this week, for your reference and information:

SEC LEGAL OPINION

SEC MEMORANDUM CIRCULAR (MC) NO. 16 SERIES OF 2002 ON QUALIFICATION OF INDEPENDENT DIRECTOR IS STILL VALID, IN FORCE AND EFFECTIVE; AN INDEPENDENT DIRECTOR WHO BECAME THE CHAIRMAN OF THE BOARD DURING HIS TENURE IS NOT A VIOLATION OF MC NO. 16

SEC has clarified that MC No. 16 on the qualification of independent directors, specifically on the
requirements that a corporation with a class of equity securities listed for trading on an exchange
or with assets in excess of Php 50M and having 200 or more holders must have at least two (2)
independent directors in its board, is still in force and effect since there are no other issuances by
the Commission declaring that the same is no longer valid and effective. An independent director
shall mean a person other than an officer or employee of the corporation, its parent or subsidiaries, or any other individual having a relationship with the corporation, which would interfere with the exercise of independent judgement in carrying out the responsibilities of a director. Further, SEC has opined that an Independent Director shall be disqualified during his tenure, if he becomes an officer or employee of the corporation where he is a member of the board. However, from a memorandum issued by the Corporate Governance and Finance Department, it stated that; “the general rule is that the CEO is an officer of the corporation while the Chairman of the Board is not. Hence, a Chairman who does not hold any executive position and is not involved in the day to day operations of the company is not considered an officer of the company”. Based on the above memorandum, since a chairman is generally not considered as an officer lest he holds an executive position and is involved in a day to day operation, then an independent director of the corporation who becomes the Chairman of the corporation is not a violation of MC No. 16. [SEC OFFICE OF THE GENERAL COUNSEL OPINION NO. 18-13, AUGUST 9, 2018]

BIR MEDIA RELEASES

• Kidnap-for-Ransom incident on 2 Revenue District Officers still unverified and unconfirmed.
• 6 Quezon City companies engaged in the business of construction, transportation, import and
  export and trading of goods charged with tax evasion.
• BIR Pasig City padlocks Essential Oils Company and its 29 branches nationwide for failure to
  display its Certificate of Registration and Notice to the Public/Ask for Receipt, failure to issue
  receipts or invoices, failure to maintain books of accounts in the place of business and failure to
  file its tax returns.

BIR ISSUANCES

FAILURE TO FORMALLY OFFER, AS EVIDENCE, THE WRITTEN ADMINISTRATIVE CLAIM FOR REFUND
WOULD RESULT TO THE DENIAL OF THE SAME

Revenue Regulations (RR) No. 18-2018 which further relaxes the rules and guidelines on issuance of
tax clearance for government bidding

RR No. 20-2018 or the Implementing Rules & Regulations on Excise Tax on Sweetened Beverage

BIR RELAXES THE RULES & GUIDELINES ON ISSUANCE OF TAX CLEARANCE FOR GOVERNMENT
BIDDING

The BIR has issued Revenue Regulations (RR) No. 18-2018 dated June 5, 2018 [with released date
on August 8, 2018] which amends and changes the rules and guidelines on the issuance of tax
clearance for government bidding projects. Accordingly, all applications for the issuance of Tax
Clearance shall be manually filed until on-line application has been made available for prospective
bidders. Manual filing shall be made with the Collection Division of the Revenue Regional Office
where the taxpayer is currently registered or with the concerned office under the Large Taxpayer
service if the taxpayer is classified as Large Taxpayer. Furthermore, for those with previously issued
Tax Clearance for bidding purposes, the requested tax clearance shall only be issued if they are
found to be regular eFPS users from the time of enrollment up to the time of filing of application.
However, the regular usage of eFPS shall not apply to new applicants. The submission of new
applicant’s latest income tax and business tax returns not filed and paid through the Bureau’s eFPS
shall suffice replacing the old requirement that the new bidder should be a regular eFPS user for at
least two (2) consecutive months prior to the application.

BIR FINALLY ISSUES THE IMPLEMENTING RULES & REGULATIONS ON THE IMPOSITION OF EXCISE
TAX ON SWEETENED BEVERAGES

The BIR has issued Revenue Regulations (RR) No. 20-2018 dated July 25 [with released date on
August 22, 2018] prescribing the implementing rules and guidelines on the imposition of Excise Tax
on Sweetened Beverages.

The regulation discusses the following:

• Computation of excise tax
• Persons liable
• Time, place, and manner of filing of Excise Tax Returns
• Exclusions from the imposition
• Administrative requirements on transfer of raw materials, semi-processed goods, sweetened
  beverages produced and consumed within the premises of the manufacturer, exportation,
  engaging in the business as manufacturer and importer of sweetened beverages, tolling,
  bottling and other sub-contracting agreements,
• Penalties

SUPREME COURT DIGEST

SUPREME COURT PARTILLY UPHELD CONSTITUTIONALITY OF RMO 23-2014 ON TAXABILITY OF
ALLOWANCES & OTHER BENEFITS OF GOVERNMENT EMPLOYEES

The Petitioners filed a Petition for Prohibition and Mandamus, imputing grave abuse of discretion
on the part of the Respondent Commissioner of Internal Revenue in issuing Revenue Memorandum Order (RMO) 23-2014. They argued that RMO 23-14 classified the Petitioner’s allowances and bonuses as taxable compensations, which are considered by law as non-taxable fringe benefits and de minimis. Also, they argued that the imposition of withholding taxes on theses allowances and bonuses violates the prohibition on non-diminution of benefits under Article 100 of the Labor Code. Likewise, they argued that the issuance of RMO constitutes abuse of legislative power and diminishes the delegated power of local government units as it defines new offenses and prescribes penalty particularly upon local government officials. Further, it violates their right to due process of law and the equal protection clause of the Constitution as it discriminates against government officials and employees by imposing fringe benefit tax upon their allowances and benefits as opposed to the allowances and benefits of employees of the private sector. Aside from the relief sought, the Petitioners also pray for the issuance of a writ of mandamus ordering Respondent to upgrade the ceiling of the 13th month pay and other benefits. On the other hand, Respondent countered that the Petitions are barred by the doctrine of hierarchy of courts since the Petitioners failed to present any special and important reasons or compelling circumstances to justify direct recourse to the Supreme Court. Further, RMO 23-14 is a mere reiteration of the Tax Code and this does not require the approval and signature of the Secretary of Finance as this merely provides for instructions in the implementation of stated policies of the Bureau. In resolving the Petition, the Supreme Court partially ruled in favor of the Respondent noting the Petitioners’ non-exhaustion of administrative remedies and violation of the rule on hierarchy of courts. Non-exhaustion of administrative remedies pertains to the filing of appeal granted to the taxpayer within thirty (30) days from receipt of adverse ruling to file with the Office of the Secretary of Finance a request for review in writing and under oath which the Petitioners failed to do. Moreover, Petitioners violated the rule on hierarchy of courts as the Petition should have been initially filed with the Court of Tax Appeals (CTA) which has exclusive jurisdiction to determine the constitutionality or validity of tax laws, rules and regulations, and other administrative issuances of the Respondent. The Court went further in saying that the assailed sections particularly Sections III, IV and VII of RMO 23-14 are consistent with the Tax Code and does not charge any new or additional tax. Furthermore, the Court stated that the equal protection clause, fiscal autonomy and the rule on non-diminution of benefits are not violated since the RMO was issued to simply reinforce existing taxes applicable to both private and public sector. However, with Section VI of RMO 23-14, the Court finds that the Respondent overstepped the boundaries of its authority to interpret existing provisions of the Tax Code in so far as it designated persons required to withhold and remit taxes which are not among those under the Tax Code. As regards the prayer for the issuance to compel the Respondent to increase the ceiling of 13th month pay and other benefits, the same has already been considered moot and academic, meaning, it ceases to present justiciable controversy by virtue of supervening events wherein the declaration on the issue would be of no practical value or use given the enactment of TRAIN Law increasing the tax exempt threshold to Php 90,000.00. Consequently, the Petitions are PARTIALLY GRANTED. Section VI of Revenue Memorandum Order 23-2014 is declared NULL AND VOID insofar as the additional designated persons that are not included in the Tax Code. Sections III, IV and VII declared VALID. Finally, Petition for increase of ceiling of 13th month pay and other benefits is hereby DENIED on the ground of mootness. [COURAGE ET. AL VS. COMMISSIONER OF INTERNAL REVENUE & SECRETARY OF FINANCE, G.R. 213446 & G.R. 213658, JULY 03, 2018]

COURT OF TAX APPEALS (CTA) DIGEST

There is no basis for double VAT imposition on issuance of official receipt and sales invoice covering
the same transaction.

Defective waivers cannot extend the right of the BIR to assess; execution of Waiver of Statute of
Limitation by the taxpayer and the acceptance by the BIR must be made before the expiration of the
period of prescription.

THERE IS NO BASIS FOR DOUBLE VAT IMPOSITION ON ISSUANCE OF OFFICIAL RECEIPT & SALES
INVOICE COVERING THE SAME TRANSACTION

The Petitioner Process Machinery Company, Inc. filed a Petition for Review seeking the
cancellation of the 6-month VAT audit assessment issued by the Respondent Commissioner of
Internal Revenue. The main issue is centered on findings of undeclared sales and disallowance of
input VAT carry-over to the succeeding period. On findings of undeclared sales, the Respondent
posits that the Petitioner erroneously issued official receipts for its sale of goods and therefore
must be held liable to deficiency VAT on top of the VAT declared per sales invoices issued.
However, the Petitioner countered that it has been the Company’s practice to issue official
receipts and sales invoices covering the same transaction and everything is reported for VAT
purposes. In resolving the Petition, the Court declared that no provision in the Tax Code allows the
imposition of 12% VAT twice on the same transaction as a consequence of the taxpayer issuing
both sales invoice and official receipt to cover the same transaction. On findings of disallowance of
input VAT, the Court states that there is no basis for the disallowance of input VAT carry-over since
the benefit will only redound to the succeeding quarter which is beyond the scope of the
assessment. The Petition for Review is DENIED and the assessment CANCELLED. [PROCESS
MACHINERY COMPANY INC VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9217,
AUGSUT 17, 2018]

THERE IS NO BASIS FOR DOUBLE VAT IMPOSITION ON ISSUANCE OF OFFICIAL RECEIPT & SALES
INVOICE COVERING THE SAME TRANSACTION

The Petitioner Megabucks Merchandising Corporation filed a Petition for Review seeking the cancellation of the assessment issued by the Respondent Commissioner of Internal Revenue covering the year 2010 on the ground of prescription. The Respondent argued that the assessment has not yet prescribed since valid waivers have been executed by the Petitioner. In resolving the Petition, the Court referred to the five (5) waivers executed and noted the defects in the execution and acceptance. As noted, the date of execution by the taxpayer and date of acceptance by the BIR for the first waiver was not made before the expiration of the period of prescription. For the second waiver, it was executed after the lapse of the extension period. For the third waiver, the fact of receipt by the taxpayer of the copy of the acceptance of the BIR of the waiver was not indicated and therefore violates the rule prescribed in Revenue Memorandum Order No. 20-90. Finally, for the fourth and fifth waivers, they are invalid due to invalidity of the third waiver. In view of the defective waivers, the period to assess was not extended, hence, the assessment which was issued beyond the three year prescriptive period, are void and of no legal effect; and a void assessment bears no valid fruit. The Petition is GRANTED and the assessment is CANCELLED. [MEGABUCKS MERCHANDISE CORPORATION VS COMMISSIONER OF INTERNAL REVENUE CTA CASE NO. 9345, AUGUST 17, 2018]

TAX NEWS

• BIR to levy P6 tax per liter on caloric sweeteners, P12 on high-fructose drinks
• Tax reform to add P268B to state coffers yearly
• Decentralization of applications for tax clearance for bidding purposes
• COA asks QC government to file charges vs developers for unpaid business taxes
• Foreigners invest here due to positive growth prospects – DOF
• Prices seen rising further if gov’t won’t suspend TRAIN
• COA chides Caloocan gov’t on tax collection shortfall
• No job loss expected under TRAIN 2 but contingency plan in place – DOF
• DOF wants taxes on alcohol raised by 2020
• Pinoy ADB employees lose P51-M tax refund
• DOF says PH becoming investment-led economy
• Pag-IBIG cuts non-life insurance premiums

Thanks and best regards.

WILLIE B. SANTIAGO
Lawyer and Certified Public Accountant
Tax & Corporate Services Division