NEW BIR FORM 2307 & 1604C 1604E & 1604F RELEASED + BIR STRUGGLES TO COPE WITH SURGE IN TIN REQUIREMENTS FOR POGO WORKERS + BIR AMENDS POLICIES ON REGISTRATION OF EMPLOYEES
Relevant Tax Updates:
- COURT OF TAX APPEALS (CTA) DIGESTS
- SECURITIES & EXCHANGE COMMISSION (SEC) LEGAL OPINION DIGESTS
- BUREAU OF INTERNAL REVENUE (BIR) ISSUANCES ON VARIOUS BIR FORMS, NEW COLLECTION ENFORCEMENT, UPDATE ON EMPLOYEE REGISTRATION AND NEW GUIDELINES ON THE PROCESSING OF CERTIFICATE OF TAX EXEMPTION OF NON-STOCK-NON-PROFIT CORPORATIONS
- TAX & BUSINESS-RELATED NEWS [JULY 18-28]
A. CTA DIGESTS
- Sending Of Preliminary Assessment Notice (PAN) is part of the due process requirement in the issuance of assessment
- Revenue officer has no authority to conduct examination in the absence of Letter of Authority (LOA)
- Element of willfulness in non-filing tax return essential in the conviction of the accused
- Assessment cancelled due to Non-Issuance Of LOA
SENDING OF PAN IS PART OF THE DUE PROCESS REQUIREMENT IN THE ISSUANCE OF ASSESSMENT
Petitioner Trorev Realty Co. filed a Petition for Review seeking the cancellation of the assessment issued by the Respondent Commissioner of Internal Revenue on the ground that no PAN was issued and only a Formal Assessment Notice/Formal Letter of Demand (FAN/FLD) was received. The Respondent claimed that PAN was sent via registered mail but the same was returned to the sender unclaimed despite three (3) notices. Likewise, the Respondent presented a copy of FLD/FAN to support its claim and that the assessment became final, executory and demandable since the Petitioner failed to file a protest and submit documentary evidence. In defense, the Petitioner showed that only FAN/FLD was received and no PAN was sent. In the appreciation, the Court ruled under Section 228 of the Tax Code as implemented by Revenue Regulations No. 12-99 and citing the Supreme Court case of CIR vs. Metro Star Superama, Inc., the absence of PAN will render nugatory any assessment made by tax authorities. The law provides that the taxpayer must first be informed that he is liable for deficiency taxes through sending of PAN as this is part of due process requirement. The failure of the Respondent to strictly comply with the requirements laid down by the law and its own rules is a denial of right to due process rendering the assessment void. In the present case, it is quite obvious that such PAN cannot be deemed to have been received by the Petitioner in the due course of mail as it is returned to the sender and that the Respondent did not resort to any modes of service of PAN as attempt to serve it to the taxpayer holding the assessment void and no legal effect. The Petition for Review is GRANTED resulting in the CANCELLATION of the assessment. [TROREV REALTY COMPANY VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9251, JULY 18, 2019]
REVENUE OFFICER HAS NO AUTHORITY TO CONDUCT EXAMINATION IN THE ABSENCE OF LOA
Petitioner Del Monte Philippines Inc. filed a Petition for Review seeking the cancellation of the assessment issued by the Respondent Commissioner of Internal Revenue regarding the alleged late payment of Withholding Tax on Compensation (WTC) and the denial of application for abatement. The Petitioner erroneously paid the WTC for the month of December using the filing reference number of November return. In this connection, the Petitioner received an Audit Results/Assessment Notice for surcharge, interest, and compromise penalty for the late payment of WTC. In ruling, the Court noted that there was no LOA as well as Preliminary Assessment Notice (PAN), or any other document which preceded the issuance of the Audit Results/Assessment Notice, bestowing the Revenue Officers with any authority to examine the Petitioner’s records. Citing the Supreme Court case in Medicard Philippines Inc. vs. CIR, the Court declared as void the disputed assessment for lack of an LOA authorizing the revenue officers to examine the taxpayer’s books of account and other accounting records. Consequently, the Petition for Review is GRANTED and the assessment is CANCELLED. [DEL MONTE PHILIPPINES, INC. VS COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9766, JULY 15, 2019]
ELEMENT OF WILLFULNESS IN NON-FILING TAX RETURN ESSENTIAL IN THE CONVICTION OF THE ACCUSED
The accused Analiza San Miguel David was indicted for criminal cases for violation of Sections 254 and 255 of the Tax Code of 1997 for wilful failure and neglect to pay her assessment. The accused argues that the prosecution failed to prove that there was wilfulness or deliberate intent to evade or defeat the payment of income taxes; that she under-declared her income; and that she intentionally failed to file her tax returns for 2011 and 2012. However, in the course of the presentation of evidence, the Court noted that the accused was consistent in filing her monthly and quarterly VAT returns for the taxable year 2011 until she stopped in 2012 due to closure of business and her brother took over the business under a different company name. Based on the foregoing, the Court finds that the prosecution was not able to prove beyond reasonable doubt that the accused wilfully failed to file her tax returns. Consequently, lacking the element of “wilfulness”, the Court ACQUITTED the accused of the crime. As to the civil aspect, no assessment notices were presented to prove the assessment of deficiency tax against the accused, therefore, there is no basis for the Court to rule upon the civil liability. [PEOPLE OF THE PHILIPPINES VS. ANALIZA SAN MIGUEL DAVID, CTA CRIMINAL CASE NO’S. 0-656 & 0-657, MAY 29, 2019]
ASSESSMENT CANCELLED DUE TO NON-ISSUANCE OF LOA
Petitioner Commissioner of Internal Revenue filed a Petition for Review seeking the reversal of the earlier decision of the Court in Division cancelling the assessment issued against the Respondent Capitol Steel Corporation. The Petitioner argued that the assailed decision has attained finality, by operation of law. He also added that the Respondent has the option either to elevate its protest to the Petitioner or appeal to the Court but instead of doing so, the Respondent addressed its protest to the Assistant Commissioner of the Large Taxpayers Service which is not in accordance with the existing pertinent rules and regulations. In resolving the case, the Court noted that there is no Letter of Authority issued, thereby, the Revenue Officer who conducted the audit has no authority to examine or audit the Respondent. The Court reiterated the Supreme Court pronouncement in the landmark case of Medicard wherein it states that the LOA is the authority given to the appropriate revenue officer assigned to perform assessment functions, in the absence of such, the assessment or examination is a nullity. Consequently, it becomes unnecessary to address the other issues raised by the Petitioner. The Petition for Review was DENIED. [COMMISSIONER OF INTERNAL REVENUE VS. CAPITOL STEEL CORPORATION, CTA EN BANC CASE NO. 1796, MAY 23, 2019]
B. SEC OFFICE OF THE GENERAL COUNSEL LEGAL OPINION DIGEST
- Two-tiered test in determining compliance with the required percentage of Filipino ownership; compliance of the renewal energy company with the ownership requirement under the constitution
- It is not mandatory to seek sec approval or prior advice before declaration of dividends
[TWO-TIERED TEST IN DETERMINING COMPLIANCE WITH THE REQUIRED PERCENTAGE OF FILIPINO OWNERSHIP] [COMPLIANCE OF THE RENEWAL ENERGY COMPANY WITH THE OWNERSHIP REQUIREMENT UNDER THE CONSTITUTION]
A renewable energy company is seeking legal opinion on whether it complied with the ownership requirement under Section 2, Article XII of the 1987 Constitution which provides that the exploration, development, and utilization of natural resources shall be under the full control and supervision of the State, and allows the State to enter into co-production, joint venture, or production-sharing agreements with Filipino citizens, or corporations at least 60% of whose capital is owned by Filipino. In rendering the opinion, the SEC cited the Supreme Court case of Gamboa vs Teresa, which ruled that the term “capital” in the Constitution refers only to shares of stock entitled to vote in the election of directors. Thus, in the present case, capital only refers to common shares, and not to the total outstanding capital stock. Under the two-tiered test of SEC Memorandum Circular No. 8, the 60% required Filipino ownership shall be applied to both the total number of outstanding shares of stock entitled to vote in the election of directors; and the total number of outstanding shares of stock, whether or not entitled to vote in the election of directors. The SEC explained the Control Test and Grandfather Rule, in determining the nationality of a corporation which has corporate stockholders. Under the Control Test, there is no need to further trace the ownership of the 60% (or more) Filipino stockholdings of an investing corporation since a corporation with at least 60% Filipino-owned is already considered as Filipino. Grandfather Rule, on the other hand, is only applicable when the 60%-40% Filipino-foreign equity ownership is in doubt. Based on the facts provided, since all shares of the company are common shares, which comprise the totality of the outstanding capital stock, it is sufficient to base the 60%-40% requirement on the same to determine the nationality in compliance with the SEC circular. 60% of the Corporation is held by Filipinos, hence, it complied with the ownership requirement under the Constitution. [SEC OFFICE OF THE GENERAL COUNSEL OPINION NO. 19-24, JUNE 24, 2019]
IT IS NOT MANDATORY TO SEEK SEC APPROVAL OR PRIOR ADVICE BEFORE DECLARATION OF DIVIDENDS
A car dealer company is seeking legal opinion on whether it is necessary to wait for the written approval/advice of the SEC before it can validly issue cash and stock dividends to its stockholders. In rendering the opinion, the SEC referred to Paragraph 1, Section 42 of the Revised Corporation Code, which states that the board of directors of a stock corporation may declare dividends out of the unrestricted retained earnings which shall be payable in cash, property, or in stock to all stockholders on the basis of outstanding stock held by them. Provided, further, that no stock dividend shall be issued without the prior approval of stockholders representing at least two-thirds (2/3) of the outstanding capital stock at a regular or special meeting duly called for the purpose. Under the provision, it is not mandatory for the Corporation to seek prior approval/advice from the SEC to declare cash and stock dividend with certain conditions to conform as well as instances which require SEC approval as in the case of increase in authorized capital stock as a result of increase in stock dividends. [SEC OFFICE OF THE GENERAL COUNSEL OPINION NO. 19-23, JUNE 17, 2019]
C. BIR ISSUANCES ON VARIOUS BIR FORMS, NEW COLLECTION ENFORCEMENT, UPDATE ON EMPLOYEE REGISTRATION AND UPDATE AND NEW GUIDELINES ON THE PROCESSING OF CERTIFICATE OF TAX EXEMPTION OF NON-STOCK-NON-PROFIT CORPORATIONS
- Revenue Memorandum Circular (RMC) No. 73-2019, dated July 23, 2019 with released date on July 24, 2019, circularizes the availability of the revised BIR Forms as a result of the implementation of TRAIN Law.
The BIR introduced the following revised manual BIR returns which can be accessed in the BIR website under the BIR Forms-Payment/Remittance section, but are not yet available in the eFPS and eBIRForms:
1604-C: Annual Information Return of Income Taxes Withheld on Compensation
1604-E: Annual Information Return of Creditable Income Taxes Withheld
(Expanded)/Income Payments Exempt from Withholding Tax
1604-F: Annual Information Return of Income Payments Subjected to Final Withholding Taxes
- RMC No. 74-2019, dated July 23, 2019 with released date on July 24, 2019, circularizes the availability of the Enhanced BIR Form 2306/Certificate of Final Tax Withheld at Source and BIR Form 2307/Certificate of Creditable Tax Withheld at Source.
- RMC No. 75-2019, dated July 26, 2019 with released date on July 29, 2019, circularizes the availability of the Revised BIR Form 1914 or the Application for Tax Credits/Refunds as a result of the implementation of TRAIN Law.
- Revenue Memorandum Order (RMO) No. 35-2019, dated July 8, 2019 with released date on July 18, 2019, revises certain policies on the collection enforcement of the BIR pertaining to Accounts Receivable/Delinquent Accounts (AR/DAs). Given the absence of substantial impact in the present collection enforcement approach of the BIR for AR/DAs civil remedies under the Tax Code will be strictly enforced. With the foregoing, no more Preliminary Collection Letter and Final Notice Before Seizure will be sent to the delinquent taxpayers and instead a Warrant of Distraint and/or Levy (WDL) will be issued immediately.
- RMO No. 37-2019, dated May 20, 2019 with released date on July 24, 2019, amends the policies, guidelines and procedures on the registration and updates of employees earning purely compensation income, simplification of the transfer of employee’s registration, and issuance of TIN card to employees. This undertaking on the changes on policies and guidelines is a result of the BIR’s study that the processing time of the application for transfer of employee’s registration takes a longer time due to pending enhancement of the Integrated Tax System (ITS).
- RMO No. 38-2019, with released date on July 24, 2019, clarifies the nature, character and tax treatment of non-stock, non-profit corporations under Section 30 of the Tax Code of 1997, as amended, to the exclusion of non-stock, non-profit educational institutions for purposes of processing of Certificate of Tax Exemption (CTE). Accordingly, non-stock, non-profit educational institutions are not covered under this RMO and still to be governed by the provisions of RMO No. 44-2016 on the processing of CTE.
If you wish to get a copy of the complete text of the BIR issuances, please e-mail us
D. TAX & BUSINESS-RELATED NEWS [JULY 18-28]
- SSS to fast-track digitalization
- Finance team checking impact of PCSO ban on health care funds
- More taxes on cigarettes seen to have 0.1 percent impact on inflation
- BIR struggles to cope with surge in TIN requirements for Pogo workers
- DoF: 10K TINs given to alien workers
- Chinese online casino worker invasion overwhelms BIR’s TIN process
- Tax reforms to boost foreign investments
- 836 lending firms revoked of SEC registration
- DOF optimistic on passage of Duterte’s tax reform packages this 2019
- PEZA says 61% of uncollected fees already remitted
- DUTERTE TO LAWMAKERS: ‘Pass Trabaho bill, other tax measures’
- BSP lifts ban on ATM fee hikes
- SEC gets favorable RTC ruling on Kapa issue
- Ecozone firms seek incentives status quo
SSS to fast-track digitalization [Philippine Star, July 28, 2019]
State-run Social Security System (SSS) has committed to expedite the digitization of its core and business processes to improve the delivery of services to members and pensioners.
Finance team checking impact of PCSO ban on health care funds [Philippine Daily Inquirer, July 27, 2019]
Finance officials are taking a close look at what could be the impact on government revenue of President Rodrigo Duterte’s sudden decision to shut down all betting formats of the Philippine Charity Sweepstakes Office especially on funding for the Universal Health Care Act next year
More taxes on cigarettes seen to have 0.1 percent impact on inflation [Philippine Daily Inquirer, July 26, 2019]
The further increase in cigarette taxes next year will have little impact on inflation, Finance Undersecretary Karl Kendrick T. Chua said on Friday (July 26).
BIR struggles to cope with surge in TIN requirements for Pogo workers [Philippine Daily Inquirer, July 26, 2019]
Philippine offshore gaming operators (Pogos) must withhold personal income taxes from all their foreign—mostly Chinese—workers even as the Bureau of Internal Revenue (BIR) has been having difficulties in issuing tax identification numbers faster and in volumes bigger than usual, the Department of Finance said.
DoF: 10K TINs given to alien workers [Manila Times, July 26, 2019]
THE Bureau of Internal Revenue (BIR) already issued about 10,000 tax identification numbers (TINs) to foreign workers of offshore gaming operators, according to the Department of Finance (DoF).
Chinese online casino worker invasion overwhelms BIR’s TIN process [Philippine Daily Inquirer, July 25, 2019]
The sheer number of foreign, mostly Chinese, workers at online casinos or Philippine offshore gaming operators (Pogo) acquiring tax identification numbers (TINs) en masse is overwhelming the Bureau of Internal Revenue’s capacity to issue TINs, prompting the Department of Finance (DOF) to ask the Pogo firms to withhold taxes from their workers’ incomes even without the TINs yet.
Tax reforms to boost foreign investments [Manila Times, July 25, 2019]
The high corporate tax rate in the Philippines is turning off foreign investors, but a study by Fitch Solutions revealed tax reforms can give a lift, particularly on medical devices investments.
836 lending firms revoked of SEC registration [Manila Times, July 25, 2019]
THE Securities and Exchange Commission (SEC) has revoked the registration of some 836 companies involved in unauthorized lending.
DOF optimistic on passage of Duterte’s tax reform packages this 2019 [Philippine Daily Inquirer, July 24, 2019]
The Department of Finance (DOF) is optimistic that the entire comprehensive tax reform program of the government would be passed this year.
PEZA says 61% of uncollected fees already remitted [Philippine Daily Inquirer, July 23, 2019]
The Philippine Economic Zone Authority (PEZA) said on Tuesday that 61% of P23.75 million in uncollected funds mentioned in a Commission on Audit (COA) report had been collected as of June 2019.
DUTERTE TO LAWMAKERS:
‘Pass Trabaho bill, other tax measures’ [Manila Times, July 23, 2019]
PRESIDENT Rodrigo Duterte on Monday urged the 18th Congress to pass the remaining packages of his administration’s tax reform program, which he said would help finance its efforts to reduce poverty in the country.
BSP lifts ban on ATM fee hikes [Manila Times, July 21, 2019]
Banks are now allowed to adjust the fees they charge for automated teller machine (ATM) services after the Monetary Board approved the lifting of a 2013 moratorium order suspending ATM fee hikes.
SEC gets favorable RTC ruling on Kapa issue [Philippine Daily Inquirer, July 19, 2019]
General Santos Regional Trial Court has junked a petition for injunction filed by the controversial Kapa-Community Ministry International Inc. against the Securities and Exchange Commission (SEC), allowing the corporate watchdog to continue its crackdown on this group’s illegal investment solicitation.
Ecozone firms seek incentives status quo [Manila Times, July 18, 2019]
As the new Congress opens next week, economic zone industry groups, which employ 7.7 million direct and indirect workers, banded together to ask the new set of legislators to look for alternative fiscal strategies as they painted grim picture the current TRABAHO Bill may bring on jobs, foreign direct investments, and attractiveness of ease of doing business in the country.
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