BIR FILES TAX EVASION RAPS VS. WIFE OF KAPA FOUNDER + UPDATES ON THE REMAINING TAX REFORM PROPOSALS + WHAT IS NEW UNDER CITIRA BILL

Relevant Highlights:

  • SEC PROHIBITS UNFAIR DEBT COLLECTION PRACTICES OF FINANCING & LENDING COMPANIES
  • COURT OF TAX APPEALS (CTA) DIGESTS
  • TAX & BUSINESS-RELATED NEWS [AUGUST 27-SEPTEMBER 2]

I. SEC PROHIBITS UNFAIR DEBT COLLECTION PRACTICES OF FINANCING & LENDING COMPANIES

SEC Memorandum Circular No. 18-2019, dated August 20, 2019, and published on August 23, 2019, provides the unfair collection practices that may be subjected to penalties.

Highlights of the circular include the following:

1. Prohibits the following unfair collection practices.

  • Use of threat, violence, or other criminal or illegal means against a person
  • Use of insults or profane language which may abuse the borrower
  • Publication of the names and other personal information of borrowers who refuse to pay debts
  • Publication or communication to any person of false loan information of borrowers
  • Use of false representation to obtain information concerning a borrower
  • Contacting the borrower before 6:00 a.m. or after 10:00 p.m. unless for past due accounts or with the consent of the borrower
  • Contacting any person other than those who were named as guarantor or co-maker

2. Prohibits the disclosure of the borrowers information, except in the following instances:

  • With borrowers written or recorded consent
  • Exchange of information with other financial institutions
  • Upon order of a court or government agency
  • Disclosure to agents or other service providers of financing and lending companies to enforce its rights against the borrower

3. Penalties with an amount of not less than Php 25,000 but not more than Php 1 Million or suspension of the lending and financing activities.

II. CTA DIGESTS

1. BIR has no valid authority to issue another assessment after 3-year prescription if BIR had already made an initial assessment for deficiency taxes in a taxable year & taxpayer paid the same; evidence should be sufficient to prove fraud or intentional falsity on the part of the taxpayer to merit the application of the 10-year prescriptive period

2. Merger shall have the effect of transferring all rights, properties & obligations of the absorbed corporation to the surviving corporation; prior filing of application for notice of merger and/or notification for closure is not a precondition in utilization of surviving corporation of the tax credits of the absorbed corporation

3. Taxpayer must present at least three (3) types of documents to claim vat zero-rating on direct export sales

4. Due process requires that the assessment must be served & received by the taxpayer

5. Filing of timely complaint before RTC & CTA on local business tax (LBT) assessment is jurisdictional

6. Both Subic bay metropolitan authority (SBMA) & Bureau of Customs (BOC) have the power to seize & forfeit goods or articles entering the Subic Bay Freeport (SBF), except that SBMA’s authority has been limited only to cases involving violations of tariff & customs code of the Philippines; taxes & duties may not be imposed while they are inside the SBMA; mere intent to import rice, per se, is not a taxable transaction that is subject to tax & customs laws, as well as the requirement to secure national food authority (NFA) import permit

 [BIR HAS NO VALID AUTHORITY TO ISSUE ANOTHER ASSESSMENT AFTER 3-YEAR PRESCRIPTION IF BIR HAD ALREADY MADE AN INITIAL ASSESSMENT FOR DEFICIENCY TAXES IN A TAXABLE YEAR & TAXPAYER PAID THE SAME] [EVIDENCE SHOULD BE SUFFICIENT TO PROVE FRAUD OR INTENTIONAL FALSITY ON THE PART OF THE TAXPAYER TO MERIT THE APPLICATION OF THE 10-YEAR PRESCRIPTIVE PERIOD]

Petitioner The Professional Service Inc. filed a Petition for Review praying for the cancellation of the assessment issued by the Respondent Commissioner of Internal Revenue centered on the alleged misclassification of the land into capital asset when it should have been considered as ordinary one thereby resulting to deficiency income tax and VAT assessment as a result of sale. Several issues have been raised; however, the court focused more on the propriety of application of set-in of 10 year prescription and the validity of reissuance of LOA for the same period due to receipt of memorandum. The Respondent claims that there was a deliberate intent to defraud the government since the land is an ordinary asset being leased and rented out as a parking lot within two (2) years prior to its sale. Likewise, it argued that the assertion of the Petitioner that the leasing activity is only incidental to its medical services activity is of no moment, since what is controlling is the activity itself regardless of the registration of the taxpayer. Consequently, the application of 10-year prescriptive period from the date of discovery should be applied because of fraud. In defense, the Petitioner countered that they submitted all the documents for examination pursuant to first LOA and paid the deficiency tax,  and that they did not conceal the sale and lease of the property since the same was reported in the financial statements. In ruling, the Court ruled that when the BIR had already made an initial assessment for deficiency taxes in a taxable year and taxpayer paid the same, the BIR has no valid authority to issue, after the 3-year prescriptive period had expired, a second or third assessment for the same taxable year. In addition, if there was really intent to evade the payment of tax, the Petitioner would not have reported the lease and sale of the subject property in its records forwarded to the BIR. The Petition for Review is GRANTED and the assessment is CANCELLED. [THE PROFESSIONAL SERVICES INC. VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9502, AUGUST 13, 2019]

[MERGER SHALL HAVE THE EFFECT OF TRANSFERRING ALL RIGHTS, PROPERTIES & OBLIGATIONS OF THE ABSORBED CORPORATION TO THE SURVIVING CORPORATION] [PRIOR FILING OF APPLICATION FOR NOTICE OF MERGER AND/OR NOTIFICATION FOR CLOSURE IS NOT A PRECONDITION IN UTILIZATION OF SURVIVING CORPORATION OF THE TAX CREDITS OF THE ABSORBED CORPORATION]

Petitioner Commissioner of Internal Revenue filed a Petition for Review seeking the reversal of the decision of the Court in Division cancelling the assessment on disallowance of input VAT issued against the Respondent My Solid Technologies & Devices Corporation. It is the stand of the Petitioner that the assessment is proper and the disallowed input taxes should have been upheld on the ground that a Notice of Merger and/or Notice of Cancellation of Registration has not been filed with the BIR prior to the utilization of surviving corporation, herein Respondent, of the unused input tax of absorbed corporation. To simplify, the main issue raised is whether or not a prior filing of an application for Notice of Merger and/or Notification of Closure with the BIR is a precondition for the utilization of the unused input tax credits of the absorbed corporation. In resolving the case, the Court initially cited the effects of merger as stated in the Corporation Code, which states that such shall have the effect of transferring all the rights, properties and obligations of the absorbed corporation to the surviving corporation. Complementing this with the issuances of the BIR, it was explicitly stated that unused input taxes of dissolved corporation as of date of merger/consolidation shall be absorbed by the surviving corporation. The Court also clarified that the claim of the Petitioner refers to the closure or dissolution of registered entities, which would require filing an application for Cancellation of Registration with the BIR, which is different as in the case of merger. The effects of closure of a company from a tax perspective should be distinguished from the effects of statutory merger resulting to dissolution of the absorbed company. Furthermore, the conditions before the registration of a closing entity is cancelled under the 1997 Tax Code are not the same conditions before legal effects of statutory merger may take place. The Petition for Review is DENIED for lack of merit. [COMMISSIONER OF INTERNAL REVENUE VS. MY SOLID TECHNOLOGIES & DEVICES CORPORATION, CTA EN BANC CASE NO. 1767, AUGUST 9, 2019]

TAXPAYER MUST PRESENT AT LEAST THREE (3) TYPES OF DOCUMENTS TO CLAIM VAT ZERO-RATING ON DIRECT EXPORT SALES

Petitioner Carmen Copper Corporation filed a Petition for Review seeking for the refund or issuance of Tax Credit Certificate (TCC) on alleged unapplied input VAT attributable to its zero-rated sales for the first quarter of taxable year 2014. The Respondent Commissioner of Internal Revenue denied the claim arguing that the Petitioner failed to substantiate various amounts of customer charges actually deducted from total amount due per sales invoice and other zero-rated sales which cannot be traced to the supporting VAT sales invoice. In ruling and appreciation of support, the Court ruled that the reconciliation of zero-rated sales and the corresponding sales invoices is a requisite when claiming for a refund or issuance of TCC. Likewise, in order to claim VAT zero-rating on direct export sales, the taxpayer must present at least three (3) types of documents; (1) zero-rated sales invoice, (2) proof of actual shipment from Philippines to foreign country; and (3) payment in acceptable foreign currency. Scrutiny of documents, however, revealed that there were no valid zero-rated sales for failure to present supporting documents, thus, the Court disallowed the claim for refund. Consequently, the Petition for Review is DENIED for lack of merit. [CARMEN COPPER CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9457, JULY 23, 2019]

DUE PROCESS REQUIRES THAT THE ASSESSMENT MUST BE SERVED & RECEIVED BY THE TAXPAYER

Petitioner Clark Water Corporation filed a Petition for Review praying for the cancellation of the assessment issued by the Respondent Commissioner of Internal Revenue. In defense, the Respondent cited that no error or illegality can be ascribed as due process in undertaking is observed and the Honorable Court has no jurisdiction over the case.  Under Section 228 of the Tax Code of 1997, when the Commissioner or his duly authorized representative finds that proper taxes should be assessed, he shall first notify the taxpayer of his findings through sending of Preliminary Assessment Notice (PAN). The taxpayers shall be informed in writing of the law and the facts on which the assessment is made; otherwise, the assessment is void. Failure of the taxpayer to respond, the Commissioner shall issue an assessment based on his findings. The Petitioner, proving the non-receipt of assessment notice, presented a certification to the effect that the registered letter addressed to them, which was sent by the BIR at San Fernando, Pampanga was verified to be accidentally missing/misplaced by the postman in charge. Thus, failure of the Respondent to send the PAN and violating the Petitioner’s right to due process renders the assessment void. Consequently, the Petition for Review is GRANTED resulting in the CANCELLATION of the assessment. [CLARK WATER CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 8648, JULY 19, 2018]

FILING OF TIMELY COMPLAINT BEFORE RTC & CTA ON LBT ASSESSMENT IS JURISDICTIONAL

Petitioner Kuahne + Nagel Inc. filed a Petition for Review seeking the reversal of the decision of the Regional Trial Court (RTC) of Paranaque City holding it liable to deficiency LBT assessment of Paranaque City Hall. On September 2, 2014, the Petitioner received a Notice of Assessment to pay deficiency LBT assessment covering calendar years 2009 to 2013. On November 3, 2014, Petitioner filed its protest. On March 30, 2015, the Petitioner filed a supplemental protest which was dismissed in a letter of denial from Paranaque City Hall on May 15, 2015. On June 15, 2015, the Petitioner filed a complaint before RTC of Paranaque City, which was dismissed because it was filed beyond the prescribed period under the Local Government Code (LGC). On appeal, the Petitioner argued that the Respondent gravely erred in dismissing its complaint considering that it filed the same on June 15, 2015 through registered mailed.  In defense, the City Treasurer argued that the Petition should be dismissed since it was filed beyond the prescriptive period, hence, subject assessment become final and unappealable on February 2, 2015, thus, complaint on June 15, 2015 was immaterial.  Under Section 195 of the LGC, the taxpayer shall have 30 days from the receipt of the denial of the protest or from the lapse of the sixty (60) day period prescribed herein within which to appeal with the RTC, otherwise the assessment becomes conclusive and unappealable. The Petitioner should be aware that it only filed the protest on November 3, 2014. Hence, the Respondent has 60 days from said date or until January 2, 2015 to decide on said protest, hence, such failure shall be considered a “denial due inaction”. As such, Petitioner then had 30 days or until February 1, 2015 to file a complaint in RTC. Thus, the Petitioner’s supplemental protest is of no moment. Consequently, the Petition for Review is DENIED for lack of merit and the earlier decision of RTC is AFFIRMED[KUEHNE+NAGEL, INC., VS. CITY OF PARANAQUE & ANTHONY I. PULMANO, CTA AC NO. 206, JULY 18, 2019]

[BOTH SBMA & BOC HAVE THE POWER TO SEIZE & FORFEIT GOODS OR ARTICLES ENTERING THE SBF, EXCEPT THAT SBMA’S AUTHORITY HAS BEEN LIMITED ONLY TO CASES INVOLVING VIOLATIONS OF TARIFF & CUSTOMS CODE OF THE PHILIPPINES] [TAXES & DUTIES MAY NOT BE IMPOSED WHILE THEY ARE INSIDE THE SBMA] [MERE INTENT TO IMPORT RICE, PER SE, IS NOT A TAXABLE TRANSACTION THAT IS SUBJECT TO TAX & CUSTOMS LAWS, AS WELL AS THE REQUIREMENT TO SECURE NFA IMPORT PERMIT]

Petitioner Amira C Foods International DMCC filed a Petition for Review seeking reversal of the decision of the Commissioner of Customs on the forfeiture of the shipment of 420,000 bags of Indian White Rice consigned to Metro Eastern Trading Corporation. The Petitioner argued that the subject rice shipped by the Petitioner and stored in the Subic Special Economic Zone (SSEZ) should not be the subject of forfeiture due to incident of transshipment and therefore beyond the jurisdiction of the Philippine Customs Authority. Petitioner believes that the seizure, forfeiture and auction were invalid and violative of the Petitioner’s right to due process. Respondent counters that it was intended for importation and goods were validly seized due to failure to pay the appropriate customs and duties. The Court ruled that provision of PEZA establishes that an ECOZONE is a foreign territory separate and distinct from the customs territory, while Freeport was designed to ensure free flow of capital within Philippine territory with the least governmental intervention. However, the right to import in SSEZ is subject to the limitation prohibited by law. Subjected rice is not prohibited and not be considered as imported into Philippine customs territory, thus, it is also not required to secure import permit from National Food Authority. The Petition for Review is GRANTED and the previous decision is REVERSED. [AMIRA C FOODS INTERNATIONAL DMCC VS. REPUBLIC OF THE PHILIPPINES, CTA CASE NO. 8557, JUNE 11, 2019]

 III. TAX & BUSINESS-RELATED NEWS [AUGUST 27-SEPTEMBER 2]

  • Alcohol makers call for level playing field on tax hike proposal
  • ‘Lopez nod insignificant in PEZA charter change’
  • Proposed tax reforms will fund PH economic modernization, DOF says
  • BIR files tax evasion raps vs wife of Kapa founder
  • Tax revenues to hit P187B in 2020
  • Winemakers decry ‘excessive’ proposed tax hike
  • DOF tells Congress: Rest of tax reform package for modern PH economy
  • Pagcor to target casino loan sharks in bid to end kidnappings
  • Double taxation treaty with Ireland eyed
  • ‘DTI not concerned with Citira issues’
  • PH adding Ireland to list of countries to have pacts with to avoid double taxation
  • BSP taps AMLC to study POGOs
  • ‘Pass Citira bill, ease restrictions to boost FDI’
  • House panel OKs 4th package of tax reform program

Alcohol makers call for level playing field on tax hike proposal [Manila Times, September 2, 2019]

A GROUP representing the country’s top distilleries expressed support for the government’s proposal to raise alcohol taxes, but stressed that the tax measure should promote a level playing field among industry players.

Source: https://www.manilatimes.net/2019/09/02/business/business-top/alcohol-makers-call-for-level-playing-field-on-tax-hike-proposal/610031/

‘Lopez nod insignificant in PEZA charter change’ [Manila Times, September 2, 2019]

The Philippine Economic Zone Authority (PEZA) has defended its move to push for amendments to the agency’s 24-year old charter despite the lack of endorsement from Trade Secretary Ramon Lopez, who leads the PEZA board.

Source: https://www.manilatimes.net/2019/09/02/business/business-top/lopez-nod-insignificant-in-peza-charter-change/609737/

Proposed tax reforms will fund PH economic modernization, DOF says [Philippine Daily Inquirer, August 30, 2019]

Congress needs to pass the remaining packages of the Duterte administration’s comprehensive tax reform program (CTRP) to ensure a reliable revenue base that will support the modernization of the Philippine economy, the Department of Finance (DOF) said on Thursday.
Source: https://business.inquirer.net/277850/proposed-tax-reforms-will-fund-ph-economic-modernization-dof-says#ixzz5yNQkp1ye

BIR files tax evasion raps vs wife of Kapa founder [Philippine Daily Inquirer, August 30, 2019]

The Bureau of Internal Revenue (BIR) has filed tax evasion charges against the wife of the founder of a religious group accused by no less than President Duterte of running an investment scam.
Source: https://business.inquirer.net/277848/bir-files-tax-evasion-raps-vs-wife-of-kapa-founder#ixzz5yNTQQuHX

Tax revenues to hit P187B in 2020 [Manila Times, August 30, 2019]

STATE REVENUES from the government’s tax reform measures are projected to reach P187.1 billion next year, a senior official of the Department of Finance (DoF) said on Thursday.

Source: https://www.manilatimes.net/2019/08/30/business/business-top/tax-revenues-to-hit-p187b-in-2020/608348/

Winemakers decry ‘excessive’ proposed tax hike [Philippine Daily Inquirer, August 29, 2019]

Wine companies expressed opposition to the proposed tax hike on alcohol products, saying it was “excessive” that it would eventually kill the local industry.
Source: https://business.inquirer.net/277815/winemakers-decry-excessive-proposed-tax-hike#ixzz5yNTmdJby

DOF tells Congress: Rest of tax reform package for modern PH economy [Philippine Daily Inquirer, August 29, 2019]

Congress would have to pass the remaining packages of the Duterte administration’s comprehensive tax reform program (CTRP) to ensure there’s a steady source of funds that would help modernize the Philippine economy, the Department of Finance (DOF) said on Thursday (Aug 29).
Source: https://business.inquirer.net/277807/dof-tells-congress-rest-of-tax-reform-package-for-modern-ph-economy#ixzz5yNTt4KHF

Pagcor to target casino loan sharks in bid to end kidnappings [Philippine Daily Inquirer, August 29, 2019]

The country’s gaming regulator has announced a plan to regulate casino financiers believed to be behind a spate of kidnappings of gamblers unable to pay the loan sharks on time.
Source: https://business.inquirer.net/277803/pagcor-to-target-casino-loan-sharks-in-bid-to-end-kidnappings#ixzz5yNU4bpW8

Double taxation treaty with Ireland eyed [Philippine Daily Inquirer, August 29, 2019]

The governments of the Philippines and Ireland recently held the first round of negotiations on a proposed bilateral agreement that aimed to avoid double taxation on individuals and companies in both countries.
Source: https://business.inquirer.net/277772/double-taxation-treaty-with-ireland-eyed#ixzz5yNUiisn8

‘DTI not concerned with Citira issues’ [Manila Times, August 29, 2019]

THE Philippine Economic Zone Authority (PEZA) and the Department of Trade and Industry (DTI) on Wednesday traded accusations and offered differing views on the proposed rationalization of fiscal incentives.

Source: https://www.manilatimes.net/2019/08/29/business/business-top/dti-not-concerned-with-citira-issues/607914/

PH adding Ireland to list of countries to have pacts with to avoid double taxation [Philippine Daily Inquirer, August 28, 2019]

The governments of the Philippines and Ireland recently held the first round of negotiations on a pact to avoid double taxation on individuals and companies from both countries.

Source: https://business.inquirer.net/277723/ph-adding-ireland-to-list-of-countries-to-have-pacts-with-to-avoid-double-taxation

BSP taps AMLC to study POGOs [Manila Times, August 28, 2019]

THE Bangko Sentral ng Pilipinas (BSP) has tapped the Anti-Money Laundering Council (AMLC) to study the impact of Philippine offshore gaming operators (POGOs) on the country’s economy.

Source: https://www.manilatimes.net/2019/08/28/business/business-top/bsp-taps-amlc-to-study-pogos/607056/

‘Pass Citira bill, ease restrictions to boost FDI’ [Manila Times, August 28, 2019]

LOOSENING economic restrictions and passing the second package of the government’s tax reform program would help increase foreign direct investments (FDI) in the country, economic managers said on Tuesday.

Source: https://www.manilatimes.net/2019/08/28/business/business-top/pass-citira-bill-ease-restrictions-to-boost-fdi/607050/

House panel OKs 4th package of tax reform program [Philippine Daily Inquirer, August 27, 2019]

The House ways and means committee unanimously approved Tuesday the fourth package of the Duterte administration’s tax reform program that seeks to revamp taxes imposed on capital income and financial services.
Source: https://business.inquirer.net/277647/house-panel-oks-4th-package-of-tax-reform-program#ixzz5yNWV0CXT

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