PRESIDENT SIGNED REVISED CORPORATION CODE OF THE PHILIPPINES + PRESIDENT SIGNED EXPANDED MATERNITY LEAVE LAW + PRESIDENT SIGNED RICE TARRIFICATION LAW + TAX AMNESTY SET FOR IMPLEMENTATION
Other Relevant Tax Updates:
- COURT OF TAX APPEALS CASE DIGESTS
- SEC OFFICE OF THE GENERAL COUNSEL OPINION
- BIR ISSUANCES ON NEW CREDITABLE WITHHOLDING TAX RATES, NEW RULES ON BIR FORM 2316 & SUBSTITUTED FILING UNDER TRAIN LAW
- TAX & BUSINESS-RELATED NEWS [FEBRUARY 23-25]
- TAX & BUSINESS-RELATED NEWS [FEBRUARY 18-22]
I. COURT OF TAX APPEALS (CTA) CASE DIGESTS
- Requisites For A Valid Claim Of Input Vat Refund Arising From Zero-Rated Sales
- Proper Computation Of Documentary Stamp Tax (Dst) On Short Term Debt Instruments Must Be Proportionate To The Number Of Days Outstanding
- Exchange Of Property By Transferors In Exchange For Shares Of Stock In A Corporation May Qualify As Tax-Free Exchange; Transferor/S Should Maintain Or Gain Control Over The Transferee Corporation Upon Exchange To Not Recognize Any Gain Or Loss; Application For Tax-Free Exchange Ruling Is Not A Prerequisite For Entitlement Of Exemption
- Absence Of Sufficient Evidence To Support The Assessment Shall Not Result To Presumption Of Correctness Of Tax Assessment; Tax Assessments Must Be Supported By Sufficient & Competent Evidence & Findings
[REQUISITES FOR A VALID CLAIM OF INPUT VAT REFUND ARISING FROM ZERO-RATED SALES] Petitioner Deutsche Knowledge Services Pte. Ltd. filed a Petition for Review seeking refund or issuance of Tax Credit Certificate (TCC) on input VAT arising from zero-rated sales in the amount of Php 27,065,518.44 covering the year 2014. In the resolution, the Court cited that in order to be entitled to refund or TCC, it is important to prove that the taxpayer is VAT-registered; that the claim for refund should be filed within the prescriptive period; that there must be zero-rated or effectively zero-rated sales; that input taxes were incurred or paid; that such input taxes are attributable to zero-rated or effectively zero-rated sales; and that the input taxes were not applied against any output VAT liability. In the appreciation, the Court finds that the Petitioner is compliant except on some amounts which were disallowed due to the following reasons, namely: (1) failure to substantiate the claim; (2) overclaimed input VAT; (3) VAT amount was not separately indicated in Official Receipts (ORs); (3) input VAT supported by ORs dated outside the period of claim; (4) input VAT supported by documents other than VAT ORs. The Court PARTIALLY GRANTED the Petition for Review ordering the Respondent Commissioner of Internal Revenue to refund the Petitioner or issue TCC in the modified amount of Php 15,857,575.46. [DEUTSCHE KNOWLEDGE SERVICES PTE. LTD VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9496, FEBRUARY 12, 2019]
[PROPER COMPUTATION OF DST ON SHORT TERM DEBT INSTRUMENTS MUST BE PROPORTIONATE TO THE NUMBER OF DAYS OUTSTANDING]
Petitioner Asia United Leasing & Finance Corporation filed a Petition for Review seeking the cancellation of the DST assessment imposed by the Respondent Commissioner of Internal Revenue in the amount of Php 3,135,340.00. The Respondent argued that the Petitioner is liable to DST on Advances from Related Parties in the amount of Php 553,468,668.00 as well as Finance Lease Contract in the amount of Php 73,599,156.00, citing the Supreme Court case in Filinvest which ruled that instructional letters, as well as journal and cash vouchers evidencing advances extended to its affiliates, are qualified as loan agreement, hence, DST must be imposed. The Petitioner, on the other hand, countered that per analysis of the general ledger and related documents, it shows that out of the total Php 549,418,170.17 proceeds on Advances from Related Parties, only Php 466,418,170.17 of which were short-term in nature, ranging from zero to fifty-four (54) days outstanding, while the amount of Php 83,000,000.00 was classified as “on demand” which were sourced from the Petitioner’s stockholders as evidenced by Official Receipts. Therefore, the Court finds that the deficiency DST due from these transactions must be reduced to Php 591,738.21 pursuant to Section 179 of the Tax Code of 1997, as amended which states that the imposition of DST for debt instruments with terms of less than one (1) year shall be of a proportional amount in accordance with the ratio of its term in number of days to three hundred sixty-five (365) days. The Petition for Review is PARTIALLY GRANTED resulting to a modified DST assessment in the amount of Php 1,292,082.10 inclusive of 25% surcharge, 20% deficiency interest and 20% delinquency interest plus 12% delinquency interest from January 2018 until full payment thereof pursuant to TRAIN Law. [ASIA UNITED LEASING & FINANCE CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 8735, FEBRUARY 12, 2019]
[EXCHANGE OF PROPERTY BY TRANSFERORS IN EXCHANGE FOR SHARES OF STOCK IN A CORPORATION MAY QUALIFY AS TAX-FREE EXCHANGE] [TRANSFEROR/S SHOULD MAINTAIN OR GAIN CONTROL OVER THE TRANSFEREE CORPORATION UPON EXCHANGE TO NOT RECOGNIZE ANY GAIN OR LOSS] [APPLICATION FOR TAX-FREE EXCHANGE RULING IS NOT A PREREQUISITE FOR ENTITLEMENT OF EXEMPTION]
Petitioner Commissioner of Internal Revenue filed a Petition for Review seeking the reversal of the earlier decision of the Court in Division which ruled that the transfer of land in exchange for shares of stocks is a tax-free exchange transaction and that some of its assessments issues against the Respondent Northern Tobacco Redrying Company, Inc. have already lapsed, thereby reducing its tax liability. Several issues were raised but the main issue is centered on the tax-free exchange transaction. The Petitioner argued that the Respondent not having secured a tax-free exchange ruling should have initially treated the transaction as taxable and reported it to the BIR. In resolving the case, the Court examined the transaction involved whether there was indeed a gain or loss to be recognized in the exchange of property by the transferor for the common shares issued by the transferee corporation. The Court cited Section 40(C) of the Tax Code which tackles the determination of gain or loss in an exchange of property. It particularly emphasized that no gain or loss shall be recognized if property is transferred to a corporation by a person in exchange for stock or unit of participation in such corporation of which as a result of such exchange the transferor, alone or together with others, not exceeding four (4) persons, gains control of the said corporation. In addition, the Court cited several rulings in which it ruled that the law would apply even when the transferor has already control of the corporation at the time of exchange. Further, it is not required that each of the several transferors individually gains control or individually increases his/her interest. What is important is that each of the transferors, numbering not more than five (5), collectively increases their equity in the transferee corporation by 51% or more. On the basis of the foregoing, the Court ruled that the Respondent has satisfied the requisites for a valid tax-free exchange transaction. It further ruled that applying for a tax-free exchange ruling is not a prerequisite for the entitlement of exemption. It merely serves to monitor the tax-free properties. The Petition for Review is DENIED and the earlier decision is AFFIRMED WITH MODIFICATION as to the computation of deficiency and delinquency interests. [COMMISSIONER OF INTERNAL REVENUE VS. NORTHERN TOBACCO REDRYING COMPANY, INC., CTA EN BANC CASE NO. 1664, JANUARY 31, 2019]
[ABSENCE OF SUFFICIENT EVIDENCE TO SUPPORT THE ASSESSMENT SHALL NOT RESULT TO PRESUMPTION OF CORRECTNESS OF TAX ASSESSMENT] [TAX ASSESSMENTS MUST BE SUPPORTED BY SUFFICIENT & COMPETENT EVIDENCE & FINDINGS]
Petitioner ANAPI Multi-Purpose Cooperative (ANAPI) filed a Petition for Review seeking the cancellation of assessment issued by the Respondent Commissioner of Internal Revenue on VAT, EWT, Ad Valorem, and compromise penalty. Several issues were raised but the main issue is centered on the alleged liability of the Petitioner to pay Advance VAT upon withdrawal of refined sugar. The Respondent insists that their investigation revealed that the Petitioner did not own the raw sugar cane produce as shown by the quedans which are not in its name. Consequently, the VAT exemption as claimed by the Petitioner has no basis. In addition, the Respondent argued that the assessment should be given full weight and credit and in the absence of proof, all presumptions are in favour of the correctness of tax assessments. However, Petitioner countered that sales by agricultural cooperatives duly registered with the Cooperative Development Authority to their members, as well as the sale of their produce, whether in its original state or processed form, to non-members, are exempt from the payment of VAT. Accordingly, the Petitioner concludes based on the previous statement that they were indeed exempt from the payment of VAT for withdrawal of refined sugar and that the Respondent allegations were baseless and unsubstantiated, in addition to its inability to present proof on the assessment. In resolving the case, the Court cited the Supreme Court pronouncements that the general rule of presumption of correctness of the tax examiner’s assessment must not apply upon proof that an assessment is utterly without foundation, such is arbitrary and capricious. Since the Respondent failed to submit sufficient and competent evidence to support its allegation, the Court ruled out that the assessments should be cancelled for lack of legal and factual basis. Thus, the Petition for Review was GRANTED. Consequently, deficiency assessments are CANCELLED. [ANAPI MULTI-PURPOSE COOPERATIVE VS. COMMISSIONER OF INTERNAL REVENUE, BIR REGIONAL DIRECTOR, REGION 12, BACOLOD CITY, CTA CASE NO 9399, JANUARY 21, 2019]
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II. SEC OFFICE OF THE GENERAL COUNSEL OPINION
- Approval Of Stockholders Need Not Be Obtained In Case Of Assignment Of All Or Substantially All Of The Assets Of A Corporation
- Foreign Company May Own 100% Of A Financing Company; Financing Company Act Of 1998 Covers Individual & Non-Individual Entities; No Nationality Restriction On Financing Companies
[APPROVAL OF STOCKHOLDERS NEED NOT BE OBTAINED IN CASE OF ASSIGNMENT OF ALL OR SUBSTANTIALLY ALL OF THE ASSETS OF A CORPORATION]
A domestic entity, with five (5) branches and engaged in providing cable TV services, has proposed to assign all assets of one of its branches to another entity-a single proprietorship. The SEC has opined that Section 40 of the Corporation Code of the Philippines provides that the term “sale or disposition of all or substantially all the assets’ is one which will render the corporation incapable of continuing the business or accomplishing the purposes for which it was incorporated. Any disposition short of this will not need the stockholders’ action. Thus, the litmus test to determine the applicability of Section 40 would be the capacity of the corporation to continue its business after the sale of all or substantially all its assets. If the property to be sold constitutes merely a part of the assets and the sale thereof will not render the corporation incapable of continuing its business or of deviate from its normal operations then the Board of Directors, as it may deem expedient and in good faith, may dispose the same without the approval of the stockholders provided that there is no self-imposed condition in any agreement or in the by-laws or other documents prohibiting the same without the approval of the stockholders. [SEC OFFICE OF THE GENERAL COUNSEL OPINION NO. 19-01, JANUARY 31, 2019]
[FOREIGN COMPANY MAY OWN 100% OF A FINANCING COMPANY] [FINANCING COMPANY ACT OF 1998 COVERS INDIVIDUAL & NON-INDIVIDUAL ENTITIES] [NO NATIONALITY RESTRICTION ON FINANCING COMPANIES]
A representative of financing company in the Philippines engaged solely in granting car and/or vehicle loans, is seeking legal opinion on whether a foreign company incorporated under the laws of a foreign country may hold and/or own majority shares of stocks of a financing company. In rendering opinion, the Commission clarified that the definition of non-Philippine national encompasses individual foreigners; corporations and partnerships with less than 60% Filipino equity ownership. As to RA 10881, the nationality restrictions on financing companies were removed in the Foreign Investment Negative List. Hence, a foreign company may hold and/or own 100% shares of stocks of a financing company. [SEC OFFICE OF THE GENERAL COUNSEL OPINION NO. 19-02, JANUARY 28, 2019]
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III. BIR ISSUANCES ON NEW CREDITABLE WITHHOLDING TAX RATES, NEW RULES ON BIR FORM 2316 & SUBSTITUTED FILING UNDER TRAIN LAW
A. Revenue Regulations (RR) No. 1-2019, dated December 27, 2018 with released date on February 8, 2019, amends some creditable withholding tax rates on certain income payments. Accordingly, the following rates shall apply on the following income payments:
- MERALCO refund pursuant to a 2003 Supreme Court case-15%
- Interest income on the refund of meter deposits paid by MERALCO and other electric Distribution Utilities-10% [for residential and general service customers with monthly consumption exceeding 200 kwh] and 15% for non-residential customers
- Interest income derived from all other debt instruments not within the coverage of deposit substitutes-
B. Revenue Memorandum Circular (RMC) No. 24-2019, dated February 4, 2019 with released date on February 14, 2019, clarifies the submission of BIR Form 2316 and Certified List of Employees Qualified for Substituted Filing of Income Tax Return (ITR) or Annex F of RR 11-2018. Accordingly, there is no amendment introduced by RR 11-2018 as regards the submission of BIR Form 2316. Thus, the manner of submission of duplicate copy of BIR Form 2316 to the BIR, through CD, DVD-R, USB, scanned or hard copy submission, is still the same. On the Certified List of Employees Qualified for Substituted Filing/Annex F of RR 11-2018, it was clarified that there should be reference statement to the additional pages or attachments since as noted the one-page Annex F is only good for employers with 18 or less employees.
C. Revenue Memorandum Order (RMO) No. 8-2019, dated December 11, 2018, provides for the policies and guidelines in the Certification of Electronic Tax Return Filing and/or Payment Solutions as part of the BIR’s effort to automate the tax return preparation and filing. Third party commercial providers can now participate in providing solutions in the automation of tax return preparation, filing, and payment.
D. RMO No. 10-2019, dated January 28, 2019, addresses the concern regarding the grant of VAT exemption to foreign embassies and consulates as well as their qualified personnel and dependents on local purchases of goods and services. In the said issuance, it was emphasized that they should be accorded with VAT exemption on their local purchases of goods and services including purchase of motor vehicle, either at point-of-sale or refund/reimbursement basis, and subject to the documentary requirements, processes, and guidelines as discussed in the said RMO.
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TAX & BUSINESS-RELATED NEWS [FEBRUARY 23-25]
- SEC stops religious firm KAPA’s illegal investment offering
- Moody’s: Rice tariffication, new BSP charter ‘credit positive’
- DOF sees faster economic growth in coming years
- SSS to restructure loans next month
- BSP prepares for capital build-up, reserve fund
- BSP gains more power to collect unpaid loans, advances from banks
- Meralco readies rate cut plan on P4.3-B ‘unclaimed’ refund
- BSP eases rules on e-banking services
- BSP can now issue debt papers
- DTI, BIR partner to reduce red tape
- Sugar import liberalization opposed
- Revised Corporation Code signed into law
SEC stops religious firm KAPA’s illegal investment offering [Philippine Daily Inquirer, February 25, 2019]
The Securities and Exchange Commission (SEC) has issued a cease-and-desist order to Kapa-Community Ministry International Inc. (KAPA), a religious corporation that was found to be soliciting investments from the public in a manner resembling a Ponzi scheme.
Moody’s: Rice tariffication, new BSP charter ‘credit positive’ [Philippine Daily Inquirer, February 25, 2019]
Two landmark measures signed into law by President Rodrigo Duterte this month — one expanding the mandate of the Bangko Sentral ng Pilipinas (BSP) and another liberalizing the rice trade — are expected to enhance the country’s financial and macroeconomic stability, according to debt watcher Moody’s Investors Service.
DOF sees faster economic growth in coming years [Philippine Star, February 25, 2019]
The Department of Finance (DOF) expects the economy to grow at a faster pace this year and the subsequent years due to higher investments, government spending on infrastructure and human capital, as well as the implementation of legislative measures to boost enterprises.
SSS to restructure loans next month [Philippine Star, February 25, 2019]
State-run Social Security System (SSS) is planning to implement starting March a loan condonation program, which will allow delinquent members and employers to pay their unpaid contributions without penalties, according to a top official.
BSP prepares for capital build-up, reserve fund [Manila Bulletin, February 25, 2019]
Without interference from the Commission on Audit (COA), the Bangko Sentral ng Pilipinas (BSP) is now free to build up a reserve fund as additional buffer against threats of external volatilities as mandated under its amended charter.
BSP gains more power to collect unpaid loans, advances from banks [Manila Bulletin, February 25, 2019]
With over P200 billion worth of loans and advances to banks, the Bangko Sentral ng Pilipinas (BSP) now has more teeth to go after erring banks with unpaid loans from the central bank based on its amended charter.
Meralco readies rate cut plan on P4.3-B ‘unclaimed’ refund [Manila Bulletin, February 24, 2019]
Power utility giant Manila Electric Company (Meralco) will be submitting to the Energy Regulation Commission (ERC) its rate reduction plan relative to the P4.3 billion worth of “unclaimed” refund.
BSP eases rules on e-banking services [Philippine Daily Inquirer, February 23, 2019]
Financial institutions wanting to launch electronic payment services will no longer have to jump through hoops to obtain regulatory approval but will, instead, be able to offer these features to clients after complying only with basic central bank requirements.
BSP can now issue debt papers [Manila Times, February 23, 2019]
The Bangko Sentral ng Pilipinas (BSP) is now allowed to issue debt papers under its newly amended charter.
DTI, BIR partner to reduce red tape [Manila Times, February 23, 2019]
The Department of Trade and Industry (DTI) and the Bureau of Internal Revenue (BIR) are joining hands to streamline the processes of starting a business and paying taxes.
Sugar import liberalization opposed [Philippine Daily Inquirer, February 23, 2019]
Former militants who are now beneficiaries of the government’s agrarian reform program are appealing to economic managers to rethink the planned liberalization of sugar importation, noting its negative social impact.
Revised Corporation Code signed into law [Philippine Star, February 22, 2019]
President Duterte has signed into law the Revised Corporation Code of the Philippines, a move which the Securities and Exchange Commission (SEC) said would lead to a stronger and more competitive corporate sector.
V. TAX & BUSINESS-RELATED NEWS [FEBRUARY 18-22]
- SEC lauds signing of Revised Corporation Code
- Additional hike in SSS contributions to cover expanded maternity leave?
- Land conversion memo out next month
- Less than 1% of tax evasion cases won by gov’t
- Tax amnesty set for implementation in H2
- Duterte signs Revised Corporation Code into law
- ERC to Meralco: Use tax refund to bring down electricity cost
- Rice tariffs to start March 3
- Tax bureau calls for checks of gaming firm registrations
- SSS contribution collections grow by P22.19B in 2018
- Lopez: Higher tariffs to protect sugar industry
SEC lauds signing of Revised Corporation Code [Manila Bulletin, February 21, 2019]
The Securities and Exchange Commission (SEC) lauded the enactment of The Revised Corporation Code of the Philippines which it has been pushing for years with the aim of improving ease of doing business in the country.
Additional hike in SSS contributions to cover expanded maternity leave? [Philippine Daily Inquirer, February 21, 2019]
The Social Security System (SSS) may have to increase members’ monthly contribution rate to 12.6 percent this year to cover the Expanded Maternity Leave Act recently signed into law by President Rodrigo Duterte.
Land conversion memo out next month – DAR [Manila Times, February 21, 2019]
Government agencies involved in land conversion decisions will soon submit a proposed joint order that seeks to expedite the process, the Department of Agrarian Reform (DAR) said on Wednesday.
Less than 1% of tax evasion cases won by gov’t [Philippine Daily Inquirer, February 20, 2019]
Less than 1 percent of the more than 1,000 alleged tax evaders slapped with cases by the Bureau of Internal Revenue (BIR) were convicted in the past 13 years.
Tax amnesty set for implementation in H2 [Philippine Daily Inquirer, February 20, 2019]
Even as general tax amnesty will be a no-go in April, taxpayers may avail themselves of reprieve from estate tax and delinquencies by the second half of 2019, according to the Department of Finance (DOF).
Duterte signs Revised Corporation Code into law [Philippine Daily Inquirer, February 20, 2019]
President Rodrigo Duterte on Wednesday signed into law the Revised Corporation Code, which amends the Corporation Code.
ERC to Meralco: Use tax refund to bring down electricity cost [Philippine Star, February 20, 2019]
The Energy Regulatory Commission (ERC) has ordered Manila Electric Co. (Meralco) to use unclaimed tax refund to reduce power rates.
Rice tariffs to start March 3 [Manila Bulletin, February 18, 2019]
The National Food Authority (NFA) Council approved yesterday the implementation of tariffs on imported rice starting March 3 this year on efforts to further slash rice prices and bring down living costs.
Tax bureau calls for checks of gaming firm registrations [Manila Times, February 18, 2019]
The tax bureau wants regulators to strictly enforce registration rules for offshore gaming operators amid concerns that the industry has become a conduit for undocumented workers from China.
SSS contribution collections grow by P22.19B in 2018 [Philippine Daily Inquirer, February 18, 2019]
Contribution collections by the Social Security System (SSS) increased by over P22.19 billion in 2018, the state-run agency said over the weekend.
Lopez: Higher tariffs to protect sugar industry [Manila Times, February 18, 2019]
The imposition of import duties will protect the domestic sugar industry amid plans to liberalize the entry of the sweetener, a Cabinet official said last week.