DOF ORDERS AUDIT OF 30K COOPERATIVES + PEZA NOW SUPPORTS CITIRA + LONGER MATERNITY LEAVE TAX EXEMPT ACCORDING TO BIR + PEZA NOW FINE TUNING CITIRA
Relevant Tax Updates:
- SEC OFFICE OF THE GENERAL COUNSEL OPINION DIGESTS
- SUPREME COURT (SC) CASE DIGEST ON SALE OF GENERATION ASSETS BY POWER SECTOR ASSETS & LIABILITIES MANAGEMENT CORPORATION (PSALM)
- COURT OF TAX APPEALS (CTA) CASE DIGESTS
- TAX & BUSINESS-RELATED NEWS [OCTOBER 9-16]
I. SEC OFFICE OF THE GENERAL COUNSEL OPINION DIGESTS
- General Information Sheet (GIS) filed is valid even without annual membership meeting; resignation of Board of Trustees (BOT) necessitates filing of amended GIS within seven (7) days from resignation; SEC has the power to order members to attend annual membership meeting
- Operation of public utilities requires only up to 40% foreign equity ownership; control test is used to determine the nationality of a corporation with an investor corporation which has corporate stockholders
- Prosthetics considered as a contract for a piece of work & not retail trade
- Paid-up capital is distinct from paid-in capital for purposes of Initial Public Offering (IPO)
- Non-stock, non-profit corporation may pursue commercial business activities provided such income generating activities are essential, incidental or reasonably necessary to its primary purpose; non-stock corporation may include a purpose provided that it would not change or contradict its nature; purpose clause can be reasonably “stretched” as to impliedly cover new and unexpected situations
- Corporate life of corporate sole & religious society is perpetual
- Representing dormant stockholders in a meeting to muster quorum is not acceptable; instances wherein stockholders may vote indirectly; solution on the “no quorum-no meeting” under RCC
- Written notices shall be sent through means of communication provided in the by-laws; each member shall be entitled to one vote, unless so limited, broadened or denied
- No need to amend Articles of Incorporation (AOI) to include e-commerce as one of purposes; use of e-commerce still falls under the definition of retail trade
- Sale & transfer of the remaining asset of dissolved or expired corporation are acts in line with the purpose of its liquidation; dissolution or expiration of the 3-year liquidation period is not a bar to the enforcement of its right as a corporation
- License to do business in the Philippines is co-terminus with the life of the foreign corporation
- Actual & living members with voting rights shall be counted in the determination of quorum; delinquent members in condominium corporation excluded in the determination of quorum in annual general membership meeting
- While a corporate unit-owner owning more than one (1) unit is not limited to a single membership, it is only entitled to such number of votes corresponding to percentage of his unit or floor area over the total saleable area in the condominium project; corporate unit-owners are granted the right to designate representatives & send them during membership meeting by filing a written notification with the corporate secretary
[GIS FILED IS VALID EVEN WITHOUT ANNUAL MEMBERSHIP MEETING] [RESIGNATION OF BOARD OF TRUSTEES NECESSITATES FILING OF AMENDED GIS WITHIN SEVEN (7) DAYS FROM RESIGNATION] [SEC HAS THE POWER TO ORDER MEMBERS TO ATTEND ANNUAL MEMBERSHIP MEETING]
A condominium corporation is seeking legal opinion on whether the GIS it submitted is valid notwithstanding the failure to conduct an Annual Membership Meeting. Likewise, it sought clarification on how to reflect in the GIS vacancy in the BOT due to resignation. Further, it sought clarification on the recourse to hold members accountable for failure to participate in the Annual Membership Meeting. In rendering the opinion, SEC has opined that GIS is valid but the subject corporation is liable for penalties due to non-filing. On the change in the composition of the BOT, the same must be reflected and highlighted in the amended GIS and be submitted within seven (7) days from the knowledge of the trustee’s resignation. In the absence of a replacement trustee, the same may be reflected as vacant in the amended GIS. Lastly, if the member’s non-attendance results to no quorum for at least two (2) attempts, Section 25 of the RCC will apply which states that: “The Commission shall have the power to issue such orders as may be appropriate, including orders directing the issuance of a notice stating the time and place of the election, designate presiding officer, and the record date or dates for the determination of stockholders or members entitled to vote.” [SEC OFFICE OF THE GENERAL COUNSEL OPINION NO. 19-43, SEPTEMBER 19, 2019]
[OPERATION OF PUBLIC UTILITIES REQUIRES ONLY UP TO 40% FOREIGN EQUITY OWNERSHIP] [CONTROL TEST IS USED TO DETERMINE THE NATIONALITY OF A CORPORATION WITH AN INVESTOR CORPORATION WHICH HAS CORPORATE STOCKHOLDERS]
An Indonesian-based Technology Company applying for accreditation as a Transport Network Company (TNC) and classified as a public utility company is requesting an opinion on whether it is compliant with the foreign equity limit under Section 11, Article XII of the 1987 Constitution. In rendering the opinion, SEC has opined that operation of public utilities requires only up to 40% foreign equity ownership; thus, the Company is deemed to be a Philippine National if it is organized under the laws of the Philippines, under Incorporation Test, of which at least 60% of the capital stock outstanding and entitled to vote is owned and held by citizens of the Philippines. Two-tiered test is used to determine the base of 60% required Filipino ownership, which shall be applied to both the total number of outstanding shares of stock entitled to vote in the election of directors and total number of outstanding shares of stock, whether or not entitled to vote in the election of directors. The Control Test, on the other hand, is used to determine Filipino ownership wherein shares with at least 60% of capital owned by Filipino citizens shall be considered as Philippine National. Control test is likewise used to determine the nationality of a corporation with an investor corporation, which has corporate stockholders. Applying the same to the instant case, the Company with 60% Filipino ownership is a Philippine National, thus, compliant with the foreign ownership limits. [SEC OFFICE OF THE GENERAL COUNSEL OPINION NO. 19-42, SEPTEMBER 19, 2019]
PROSTHETICS CONSIDERED AS A CONTRACT FOR A PIECE OF WORK & NOT RETAIL TRADE
The subject is requesting confirmation that the business of prosthetics, such as assembly of prosthetic implants or artificial limbs for persons with missing body parts, constitutes a service activity specifically a contract for piece of work and not a sale or retail trade activity, pursuant to Article 1467 of the Civil Code. In rendering the opinion, SEC has opined that the products sold in the business of prosthetics are not consumer goods since by their very nature they are not ready for consumption. It is confirmed to be a contract for a piece of work since the business of prosthetics entails tailor-fitting or artificial limbs based on a unique or customized design per request of a particular individual as a customer. In short, no prosthetic implant or artificial limb would be readily available for sale, thus, not considered a retail trade activity covered under the Retail Trade Liberalization Act. [SEC OFFICE OF THE GENERAL COUNSEL OPINION NO. 19-41, SEPTEMBER 19, 2019]
PAID-UP CAPITAL IS DISTINCT FROM PAID-IN CAPITAL FOR PURPOSES OF IPO
The subject corporation, which is contemplating on going public through IPO, is seeking opinion on whether Additional Paid-In Capital (APIC) can be considered as Paid-Up Capital for the purpose of complying with the Philippine Stock Exchange (PSE) minimum capital requirements for listing of shares. In rendering the opinion, SEC differentiates the concept of paid-up and paid-in capital. Paid-up capital is defined in reference to Section 13 RCC as the portion of authorized capital stock which has been both subscribed and paid. Meanwhile, Section 2 of SEC Memorandum Circular No. 11 defines paid-in capital as the excess or premium paid by the stockholders over the par value of the shares. Based on the foregoing, paid-up capital is technically different from additional paid-in capital under RCC. [SEC OFFICE OF THE GENERAL COUNSEL OPINION NO. 19-40, SEPTEMBER 16, 2019]
[NON-STOCK, NON-PROFIT CORPORATION MAY PURSUE COMMERCIAL BUSINESS ACTIVITIES PROVIDED SUCH INCOME GENERATING ACTIVITIES ARE ESSENTIAL, INCIDENTAL OR REASONABLY NECESSARY TO ITS PRIMARY PURPOSE] [NON-STOCK CORPORATION MAY INCLUDE A PURPOSE PROVIDED THAT IT WOULD NOT CHANGE OR CONTRADICT ITS NATURE] [PURPOSE CLAUSE CAN BE REASONABLY “STRETCHED” AS TO IMPLIEDLY COVER NEW AND UNEXPECTED SITUATIONS]
A non-stock corporation, whose primary purpose is preserving, enhancing, and encouraging Philippine Art and Culture, is seeking confirmation from SEC whether online selling is allowed under the corporation’s existing Amended AOI. It was represented that the BIR denied to include “Retail Sale via Internet” as an additional line of business of the corporation to engage in online selling under its Amended AOI. In rendering the opinion, the SEC cited provisions of RCC stating a general rule applicable to non-stock, non-profit corporations that such corporations are not authorized to pursue commercial business activities unless such income generating activities are essential, incidental, or reasonably necessary to enable the corporation to carry out powers expressly granted and for the furtherance of the purpose(s) for which the corporation was organized. Accordingly, the corporation’s online store will carry products that feature the Philippine culture and works of art of Filipino artists as part of its initiative to make the appreciation of Philippine art and culture more accessible to the community it serves. The SEC emphasized that the corporation’s online selling of products can be said to be reasonably necessary and incidental to its primary purpose. Hence, the non-stock corporation can engage in the same. Further, a non-stock corporation may include a purpose provided that it would not change or contradict its nature. In this regard, a corporation authorized to engage in selling in general may do online, because online selling is just a mode or means of selling. The purpose clause can be reasonably “stretched” as to impliedly cover new and unexpected situations. [SEC OFICE OF THE GENERAL COUNSEL OPINION NO. 19-39, SEPTEMBER 18, 2019]
CORPORATE LIFE OF CORPORATE SOLE & RELIGIOUS SOCIETY IS PERPETUAL
A religious organization which is organized as a corporation sole is seeking clarification on whether its corporate term is limited to fifty (50) years or perpetual. In rendering the opinion, the SEC referred to the previous opinion which states that the corporate term of a religious corporation is not required to be specified in its articles of incorporation under the old Corporation Law, the applicable law when the church was incorporated. While the present Corporation Code provides a term for corporations in general, this does not apply to religious corporations. The Corporation Code has specific provisions for religious corporations on Special Corporations, particularly Sections 110 & 116, both of which do not provide for a term of existence of religious corporations, whether classified as corporation sole or religious society. Since the rule is the same under RCC on Religious Corporation, it will have perpetual existence unless their Articles of Incorporation provide otherwise. [SEC OFFICE OF THE GENERAL COUNSEL OPINION NO. 19-38, SEPTEMBER 17, 2019]
[REPRESENTING DORMANT STOCKHOLDERS IN A MEETING TO MUSTER QUORUM IS NOT ACCEPTABLE] [INSTANCES WHEREIN STOCKHOLDERS MAY VOTE INDIRECTLY] [SOLUTION ON THE “NO QUORUM-NO MEETING” UNDER RCC]
A bank is seeking confirmation whether its practice of representing inactive and dormant stockholders in the stockholders’ meeting to muster the required quorum, is acceptable. As disclosed, despite written notices and publication, substantial number of stockholders have not been communicating with or attending the stockholders’ meeting of the bank. Personal notices to the stockholders have been returned unopened or they have not communicated with any veterans’ associations. No legal heir, claimant or transferee has likewise come over to advise his right to the shares. If these shares are not represented in the stockholders’ meeting, the bank would not be able to pass resolutions necessary for it to be financially viable or to comply with regulatory obligations. In the recent years, the bank, thru its Chairman of the Board, has been representing inactive and dormant stockholders in a stockholders’ meeting, as authorized by its Board of Directors. However, it was the stand of SEC to initially exhaust all available means to locate their stockholders. The right to vote is a stockholder’s most basic and fundamental right inherent and incidental to the ownership of corporate shares of stock. Only stockholders-of-record as of the date fixed in By-Laws shall enjoy the right to vote. Further, RCC provides only three (3) instances when a stockholder may vote indirectly, through a representative: (1) by means of written proxy, (2) by a trustee under a voting trust agreement, and (3) by executors, administrators, receivers and other legal representatives duly appointed by Court. It would be illegal for a corporation to adopt a rule wherein a stockholder who failed to attend or appoint a proxy is deemed to have appointed the Chairman of the meeting as his/her proxy. Section 57 of the RCC clearly provides that a proxy to be valid, it must be in writing and signed by the stockholder. In order to solve the recurring problem of “no quorum-no meeting” and in this case, avoid the standstill of bank operations, the RCC provides for an emergency quorum under Section 4 of RCC which provides that if no election is held consecutive times, or if the non-holding of election is unjustified, the SEC may, upon application of a stockholder or member, director or officer, and after verification of the unjustified non-holding of election, summarily order that an election be held. The shares or members represented at such meeting and entitled to vote shall constitute quorum for conducting an election. [SEC OFFICE OF THE GENERAL COUNSEL OPINION NO. 19-37, SEPTEMBER 13, 2019]
[WRITTEN NOTICES SHALL BE SENT THROUGH MEANS OF COMMUNICATION PROVIDED IN THE BY-LAWS] [EACH MEMBER SHALL BE ENTITLED TO ONE VOTE, UNLESS SO LIMITED, BROADENED OR DENIED]
A real estate company owns eight (8) condominium units in Condominium Corporation, the legal title of which has been transferred to an assignee by way of a Deed of Assignment. The project consists of 62 individually titled condominium units owned by 36 persons, natural and corporate. The Association held a membership and an election thru notices posted in the common areas of the project. The subject real estate company is now seeking clarification on the notice and quorum requirements as well as voting rights in membership meetings of the Association.
In rendering the opinion, SEC cited Section 50 of the RCC which provides that written notice of the meetings shall be sent through means of communication provided in the By-Laws. Upon perusal of the subject corporation’s By-Laws, the same provides that notices of meetings shall be either by ordinary mail or personal delivery. Since the notice was simply posted in the common areas of the project, the membership meeting and election were improperly called or held. However, such meeting shall be valid provided that the members of the corporation are present or duly represented and not one of them expressly states their objection. Regarding the voting rights, SEC opined that in a non-stock corporation, the general rule is that each member shall be entitled to one (1) vote, regardless of the amount of contribution. The exception is when the right of members of any class to vote is limited, broadened, or denied to the extent specified in the AOI or By-Laws. Upon checking the Master Deed, which prevails over the By-laws, it provides a formula in computing the appurtenant interest of each unit in the common areas, thus, the SEC has opined that it is not appropriate to cast eight (8) votes on the basis of its ownership of the eight (8) condominium units. Instead, the Real Estate Company should be entitled to vote up to the extent of its appurtenant interest of its eight (8) units, using the formula in the Master Deed. As to the quorum requirements, SEC cited Sec 52 of the RCC, which provides that the majority of the members representing the actual number of voting rights, not the number or numerical constant that may originally be specified in the AOI, constitutes the quorum. Thus, the voting rights of the 36 members of the Association attached to the ownership of 62 units should be considered in determining the quorum. Since the voting rights of the members are determined by the percentage which the floor areas of the units bear to the total floor area of all the units, as provided for in the Master Deed, the quorum shall be such number of members representing a simple majority of the total floor area covered by the 62 units. Likewise, the quorum required is fixed by law or the provision of the By-Laws and cannot be changed by the assignment of the condominium unit or its concomitant rights. Hence, the quorum requirement will not change with the execution of the Deed of Assignment. [SEC OFFICE OF THE GENERAL COUNSEL OPINION NO. 19-36, SEPTEMBER 13, 2019]
[NO NEED TO AMEND AOI TO INCLUDE E-COMMERCE AS ONE OF PURPOSES] [USE OF E-COMMERCE STILL FALLS UNDER THE DEFINITION OF RETAIL TRADE]
A supermarket company is seeking clarification on whether it needs to further amend its AOI to include Electronic Commerce (E-Commerce) as part of its purposes as a retail business. Based on the Amended AOI, it is engaged in retail trade. Section 3 of the Retail Trade Liberalization Act (RTLA) defines retail trade as any act, occupation or calling of habitually selling direct to the general public merchandise, commodities or goods for consumption. Based on this definition, the law does not distinguish between retail trade carried on through physical stores and through online channels. Thus, as long as the corporation is authorized to engage in retail trade, it may do so by any means or mode available. At most, the supermarket’s act of selling online through the use of E-Commerce is just a new mode of delivering its retail services, and could be more appropriately considered as necessary or incidental to the power of the corporation to engage in retail trade. Thus, there is no need to further amend its Amended AOI to include E-Commerce as part of its purposes as a retail business. [SEC OFFICE OF THE GENERAL COUNSEL OPINION NO. 19-35, SEPTEMBER 9, 2019]
[SALE & TRANSFER OF THE REMAINING ASSET OF DISSOLVED OR EXPIRED CORPORATION ARE ACTS IN LINE WITH THE PURPOSE OF ITS LIQUIDATION] [DISSOLUTION OR EXPIRATION OF THE 3-YEAR LIQUIDATION PERIOD IS NOT A BAR TO THE ENFORCEMENT OF ITS RIGHT AS A CORPORATION]
The subject is requesting for opinion on whether the company with expired corporate term is allowed to continue selling and transferring the ownership of its remaining assets. In addition, it is demanding payment form the Land Bank of the Philippines for land acquired by the Department of Agrarian Reform (DAR) in 1998 considering that the company’s term had long expired. SEC opined that dissolution or expiration of the 3-year liquidation period is not a bar to the enforcement of its right as a corporation. Thus, company may still demand payment from LBP despite its dissolution. Further, the sale and transfer of ARCA are acts in line with the purpose of its liquidation and may validly do so within three (3) years after the expiration of its corporate term. Within such period, it may convey all of its property to trustees for the purpose of completing the liquidation. There is no time limit within which the trustees must complete the liquidation. [SEC OFFICE OF THE GENERAL COUNSEL OPINION NO. 19-34, SEPTEMBER 9, 2019]
LICENSE TO DO BUSINESS IN THE PHILIPPINES IS CO-TERMINUS WITH THE LIFE OF THE FOREIGN CORPORATION
A Japanese-based company granted with SEC License to Do Business in the Philippines is seeking confirmation on its legal life with the enactment of the RCC. In rendering the opinion, the SEC has opined that the life is co-terminus with the life of the foreign corporation. Section 143 of the RCC provides that as long as the foreign corporation still exists legally in its place of incorporation, SEC License to Do Business in the Philippines remains valid, unless sooner surrendered, revoked, suspended, or annulled in accordance with the RCC or other special laws. [SEC OFFICE OF THE GENERAL COUNSEL OPINION NO. 19-33, SEPTEMBER 9, 2019]
[ACTUAL & LIVING MEMBERS WITH VOTING RIGHTS SHALL BE COUNTED IN THE DETERMINATION OF QUORUM] [DELINQUENT MEMBERS IN CONDOMINIUM CORPORATION EXCLUDED IN THE DETERMINATION OF QUORUM IN ANNUAL GENERAL MEMBERSHIP MEETING]
A non-stock, non-profit corporation is seeking confirmation whether delinquent members are excluded in the determination of quorum. In rendering the opinion, SEC referred to Section 51 in relation to Section 46 (c) of the RCC, which states that unless otherwise provided for in this Code or in the By-Laws, a quorum shall consist of the stockholders representing a majority of the outstanding capital stock or a majority of the members in the case of non-stock corporation. Also in Lim vs. Moldex Land, Inc., the basis in determining the presence of quorum in non-stock corporations is the numerical equivalent of all members who are entitled to vote, unless some other basis is provided by the By-laws of the corporation. SEC opined that to constitute a quorum during the annual general meeting, there should be present a majority (50% plus 1) of the total interest of all members who are entitled to vote and not delinquent. [SEC OFFICE OF THE GENERAL COUNSEL OPINION NO. 19-31, SEPTEMBER 9, 2019]
[WHILE A CORPORATE UNIT-OWNER OWNING MORE THAN ONE (1) UNIT IS NOT LIMITED TO A SINGLE MEMBERSHIP, IT IS ONLY ENTITLED TO SUCH NUMBER OF VOTES CORRESPONDING TO PERCENTAGE OF HIS UNIT OR FLOOR AREA OVER THE TOTAL SALEABLE AREA IN THE CONDOMINIUM PROJECT] [CORPORATE UNIT-OWNERS ARE GRANTED THE RIGHT TO DESIGNATE REPRESENTATIVES & SEND THEM DURING MEMBERSHIP MEETING BY FILING A WRITTEN NOTIFICATION WITH THE CORPORATE SECRETARY]
The subject condominium corporation, which was incorporated in 1981, is seeking legal opinion on whether a corporate unit-owner having multiple units may appoint representatives based on the number of units owned, and consequently, nominate those representatives as members of the Board of Directors. SEC opined that corporate unit-owners are granted the right to designate their representatives and send them during membership meeting, as attributes of ownership, by filing a written notification with the Corporate Secretary. In addition, a corporation owning more than one (1) unit in a condominium project is not limited to a single membership in the condominium corporation unless limited by Articles of Incorporation, By-Laws, Master Deed and Declaration of Restrictions. Each member is entitled to a participation based on the total floor area of units owned. Thus, while a corporate unit-owner owning more than one unit is not limited to a single membership, it is only entitled to such number of votes corresponding to the percentage which the floor area of his unit bears to the total saleable area in the condominium project. Lastly, separate ruling applies in the case of corporate unit-owner/member of a condominium corporation qualifying a person who holds legal title to a stock although the beneficial ownership thereof may be in another. The same is also stated in the By-Laws. Hence, designated representatives of the corporate unit-owners may be nominated as members of the Board. [SEC OFFICE OF THE GENERAL COUNSEL OPINION NO. 19-30, SEPTEMBER 19, 2019]
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II. SUPREME COURT CASE DIGEST ON SALE OF GENERATION ASSETS BY PSALM
[SALE OF GENERATION ASSETS BY PSALM IS NOT SUBJECT TO 12% VAT] [PRIVATIZATION AS A RESULT OF MANDATE BY LAW ARE NOT CONSIDERED “IN THE ORDINARY COURSE OF BUSINESS”]
Petitioner Power Sector Assets and Liabilities Management Corporation (PSALM) filed a Petition for Review seeking the reversal of the earlier decision of CTA holding it liable to VAT assessment of the Respondent Commissioner of Internal Revenue on proceeds from sale of generation assets, lease of Naga Complex, and collection of receivables. It was the stand of the Respondent that such proceeds be subject to VAT on the ground that the ruling issued to Petitioner, exempting its transactions from VAT, was superseded by Republic Act No. 9337 which provides that sale of electricity by generation companies, transmission and distribution companies are subject to 12% VAT. In resolving the case, the Court ruled that PSALM was created under the Electric Power Industry Reform Act of 2001 (EPIRA Law) to manage the orderly sale and privatization of National Power Corporation (NAPOCOR) assets with the objective of liquidating NAPOCORs entire financial obligation in an optimal manner. Further, it was ruled that the sale of power plants is not in pursuit of commercial or economic activity but a governmental function mandated by law to privatize NAPOCOR. Thus, in selling the power plants, Petitioner was merely exercising a governmental function for which it was created. Likewise, assessments on proceeds from lease and receivables should not be subject to 12% VAT since these are within the Petitioner’s powers necessary to discharge its mandate under the law. The Petition for Review was GRANTED. Consequently, the decision of the CTA was REVERSED and SET ASIDE resulting to the CANCELLATION of the assessment. [POWER SECTOR ASSETS & LIABILITIES MANAGEMENT CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE, G.R. NO. 226556, JULY 3, 2019]
III. COURT OF TAX APPEALS CASE DIGESTS
- Elements to prove beyond reasonable doubt the crime charge for attempt to evade or defeat tax; civil & criminal aspects of the case may be pursued simultaneously
- Assessment pursuant to Third-Party Information (TPI) if not further verified with externally-sourced documents to check veracity should be cancelled; formal assessment notice (FAN) without a definite due date for payment is not valid
- Failure to file protest shall render the assessment conclusive & non-appealable; Regional Trial Court (RTC) has no jurisdiction when an appeal was filed beyond the period prescribed by law
- Memorandum of Assignment (MOA) issued as a result of re-assignment of audit to new Revenue Officer (RO) not equivalent to Letter of Authority (LOA) resulting to cancellation of assessment
- LOA must be served within 30 days from its date of issuance; otherwise, it becomes null & void, unless revalidated
[ELEMENTS TO PROVE BEYOND REASONABLE DOUBT THE CRIME CHARGE FOR ATTEMPT TO EVADE OR DEFEAT TAX] [CIVIL & CRIMINAL ASPECTS OF THE CASE MAY BE PURSUED SIMULTANEOUSLY]
Accused Tyrone N. Ong and Arlene Chua, Enviroaire Inc.’s President and Treasurer, respectively, were charged of a crime of willful, unlawful and felonious attempt to evade or defeat tax due to the alleged under-declaration of more than 30% of gross sales and income for the Taxable Year (TY) 2007 of the company. The audit investigation stemmed from a Commission on Audit post audit report and validation of purchase of spare parts and repair and maintenance of Light Armored Vehicles (LAVs) by the Philippine National Police (PNP) from the Accused. RDO 41 of Mandaluyong City issued a certification, as requested by COA, as to whether the amounts per Official Receipts (ORs) dated January 17, 2008, with invoices and appeared to be issued in 2007, were included in the total gross sales of Enviroaire Income Tax Return (ITR) for Calendar Years (CYs) 2007 and 2008. The certification states that Enviroaire declared gross sales amounting to Php 12,611,752.93 for TY 2008 per ITR submitted and that the aggregate amount of Php 225,711,203.23 stated in the ORs was not included in Enviroaire’s declared gross income, both in 2007 and 2008. The sole issue therefore is whether the Accused are guilty beyond reasonable doubt for the crime of Attempt to Evade or Defeat Tax due to findings of under-declaration of sales. The Accused claimed that there is nothing on record that would show that the alleged income was gained during TY 2007. The Accused testified that the ORs were both issued on January 17, 2008 and the checks were not received in 2007. The Accused pointed out that the sales invoice clearly states that “this sales invoice is not recognized as paid unless covered by an OR”. Therefore, there was no obligation to declare the same in the ITR for 2007. In ruling, the Court ruled that the civil and criminal aspects of the case may be pursued simultaneously. On elements to convict the accused, the Court proved that the following elements are present: (1) there is a tax is imposed on the corporation under the Tax Code; (2) an attempt in any manner to evade or defeat any tax imposed under the Tax Code or the payment thereof; (3) such attempt to evade or defeat tax or the payment thereof is willful due to omission to report transaction in 2007 and 2008 which demonstrates a conduct to conceal income and mislead third parties; and (4) in the case of corporations, the penalty shall be imposed on the president, general manager, branch manager, treasurer, officer-in-charge, and the employees responsible for the violation. On the second element, the Court was not swayed with the arguments of the Accused that they are not obliged to report income in 2007 under the accrual method of accounting, given the proper timing recognition of income (i.e. only when they received). Following the same line of argument and upon further verification of the subsequent ITR submitted covering TY 2008, the Accused even failed to report the income due. The Court is therefore convinced that the Accused are GUILTY BEYOND REASONABLE DOUBT of the crime charged. However, the prosecution failed to prove receipt of assessment notice leading to the declaration of VOID assessment. [PEOPLE OF THE PHILIPPINES VS. ENVIROAIRE, INC., REPRESENTED BY TYRONE N. ONG & ARLENE CHUA, CTA CRIMINAL CASE NO.0-408, SEPTEMBER 4, 2019]
[ASSESSMENT PURSUANT TO TPI IF NOT FURTHER VERIFIED WITH EXTERNALLY-SOURCED DOCUMENTS TO CHECK VERACITY SHOULD BE CANCELLED] [FAN WITHOUT A DEFINITE DUE DATE FOR PAYMENT IS NOT VALID]
Petitioner Benchmark Marketing Corporation filed a Petition for Review seeking for the cancellation of the assessment issued by the Respondent Commissioner of Internal Revenue in the amount of Php 127,130,709.77. Several assessment issues were raised but the plea for cancellation of the assessment, as raised by the Petitioner, was anchored on the set-in of prescription, failure to indicate a definite date to settle the VAT and EWT assessment, and unverified TPI results. In ruling, the Court ruled that assessment is fatally infirmed if the date of payment is not indicated in the assessment. On findings of undeclared sales arising from TPI, the same should be cancelled if not further verified through third-party sources. On the issue of prescription, it was noted that the Petitioner signed Waiver. The Petition for Review is PARTIALLY GRANTED resulting to a reduced assessment of Php 109,827,085.82. [BENCHMARK MARKETING CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9296, SEPTEMBER 4, 2019]
[FAILURE TO FILE PROTEST SHALL RENDER THE ASSESSMENT CONCLUSIVE & UNAPPEALABLE] [RTC HAS NO JURISDICTION WHEN AN APPEAL WAS FILED BEYOND THE PERIOD PRESCRIBED BY LAW]
Petitioner Public Safety Mutual Benefit Fund, Inc. filed a Petition for Review assailing the decision issued by RTC of Pasig, which dismissed the Petitioner’s request to set aside and cancel the Tax Order of Payment (TOP) 1 for the Taxable Years (TYs) 2009 to 2015, and TOP 2 for TYs 2009 to 2017 issued by Respondent City Treasurer of San Juan City. Petitioner duly filed its protest to TOP 1. However, it failed to file for TOP 2 and proceeded to contest the same before the RTC; hence, the right to challenge the said assessment has already prescribed, as insisted by the Respondent. Before resolving the issues raised on the validity of the assessment, the Court deemed it proper to determine whether or not the Petitioner’s right to appeal has indeed prescribed. The Local Treasurer has sixty (60) days to decide on the protest. Should the Local Treasurer find the protest wholly or partly correct, he shall deny the protest wholly or partly with notice to the taxpayer. The Court cited the provisions of “The Local Government Code (LGC) of 1991”, which states that taxpayers shall have thirty (30) days from (1) the receipt of the denial of the protest, or (2) from the lapse of the sixty-day period, prescribed for the Local Treasurer to decide on the protest, to file an appeal with the court of competent jurisdiction; otherwise, the assessment becomes conclusive and unappealable. Accordingly, the Petitioner filed its protest to the assessment on December 29, 2016. Counting 60 days from the filing of the protest, the Respondent has 60 days or until February 28, 2016 to decide on the protest. As no decision was issued on February 28, 2016, the Petitioner has 30 days or until March 26, 2016 to file an appeal with the RTC. However, the Petitioner only filed its Petition for Review on February 20, 2018 resulting to the DISMISSAL of the Petition filed due to lack of jurisdiction. Consequently, the Decision previously rendered by the RTC of Pasig is CANCELLED and the assessments covering the TYs 2009 to 2017 are AFFIRMED. [PUBLIC SAFETY MUTUAL BENEFIT FUND, INC. VS. CITY TREASURER OF SAN JUAN CITY, CTA AC NO. 214, AUGUST 27, 2019]
MOA ISSUED AS A RESULT OF RE-ASSIGNMENT OF AUDIT TO NEW RO NOT EQUIVALENT TO LOA RESULTING TO CANCELLATION OF ASSESSMENT
Petitioner Commission of Internal Revenue (CIR) filed a Petition for Review seeking the reversal of the earlier decision of the Court in Division cancelling the assessment issued against the Respondent Orient Overseas Container Line Ltd. on the sole ground that OIC-Chief of Large Taxpayers Service-Regular Large Taxpayers Audit Division (LTS-RLTAD) II was allegedly not authorized by the CIR to sign or issue MOA, which referred to the continuation of the audit to the new RO. The Petitioner reiterates that the Court should not have dealt with an issue not raised before it, as it was a violation of due process. Likewise, he argued that since the authority to reassign comes from the original LOA, the MOA need not be signed only by the CIR or his authorized representatives. Lastly, he invoked Revenue Memorandum Order (RMO) No. 8-2006 and argued that the head of investigating office, who is OIC-Chief of LTS-RLTAD II in this case, is duly authorized to issue and sign MOAs. In ruling, the Court may not limit itself to the issues stipulated by the parties, but may also rule upon related issues necessary to achieve an orderly disposition of the case. On the propriety of MOA issued, the Court ruled that the Petitioner failed to comply with its own rules on the issuance of a new LOA as result of re-assignment of the investigation to new RO resulting to DENIAL of the Petition. [COMMISSIONER OF INTERNAL REVENUE VS. ORIENT OVERSEAS CONTAINER LINE, LTD., CTA EN BANC CASE NO. 1956, AUGUST 22, 2019]
LOA MUST BE SERVED WITHIN 30 DAYS FROM ITS DATE OF ISSUANCE; OTHERWISE, IT BECOMES NULL & VOID, UNLESS REVALIDATED
Petitioner Edmund U. Bermejo, Jr. filed a Petition for Review seeking for the cancellation of the assessment issued by the Respondent Commissioner of Internal Revenue on the ground of prescription and defective LOA. The Petitioner argued that Respondent could no longer assess citing set-in of prescription. Likewise, assessment should be cancelled because the same was a result of invalid and void tax audit for failure serve the LOA within 30 days from the date of its issuance. The Respondent countered that the right to assess has not yet lapsed due to the Petitioner’s voluntary execution of the Waiver of the Statute of Limitations and his failure to timely file a protest to the assessment. In ruling, the Court found that the issues are interrelated, thus, to determine whether prescription has set in against the assailed assessment it is necessary that the LOA be lawful and valid. Therefore, an LOA must be served or presented to the concerned taxpayer within thirty (30) days from its date of issuance; otherwise, it becomes null and void, unless revalidated. Such being the case, the said ROs are deemed to have no authority at all to carry out the examination of the books of accounts of the Petitioner for failure to revalidate the LOA. Consequently, Petition for Review is GRANTED and the assessment is CANCELLED. [EDMUND U. BERMEJO, JR. VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9310, AUGUST 5, 2019]
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IV. TAX & BUSINESS-RELATED NEWS [OCTOBER 9-16]
- PEZA, groups form TWG to fine-tune Citira
- TRAIN pulls off pleasant surprise: Collection exceeds target
- SEC cracks down on 12 more illegal lenders
- Dominguez orders BIR audit of cooperatives
- DOF: Private sector won’t have the upper hand in deals with gov’t
- BIR: Pay from longer maternity leave is tax exempt
- Crackdown on illegal Pogos stepped up
- Peza gives up, supports revamp of tax incentives
- DOF wants bank secrecy lifted by Congress
PEZA, groups form TWG to fine-tune Citira [Manila Times, October 16, 2019]
THE Philippine Economic Zone Authority (PEZA) and its registered industry associations and foreign chambers have created a technical working group (TWG) to finalize their position paper for the fine-tuning and enhancement of House Bill 4157, or the “Corporate Income Tax and Incentive Rationalization Act” (Citira).
TRAIN pulls off pleasant surprise: Collection exceeds target [Philippine Daily Inquirer, October 14, 2019]
Collection from new or higher excise on oil, sugary drinks and cigarettes exceeded expectations and made up for disappointing numbers from motor vehicle and value added taxes.
SEC cracks down on 12 more illegal lenders [Philippine Daily Inquirer, October 14, 2019]
The Securities and Exchange Commission (SEC) has ordered a dozen more illegal online lenders to stop their operations
Dominguez orders BIR audit of cooperatives [Manila Bulletin, October 14, 2019]
Finance Secretary Carlos G. Dominguez III has ordered the Bureau of Internal Revenue (BIR) to step up its ongoing audit of the country’s close to 30,000 registered cooperatives to weed out those that have abused the tax incentives granted to them under the law.
DOF: Private sector won’t have the upper hand in deals with gov’t [Philippine Daily Inquirer, October 11, 2019]
While the Duterte government is open to fresh public-private partnership (PPP) proposals to build more infrastructure, it will avoid “detrimental” provisions in contracts that previous administrations had entered into.
BIR: Pay from longer maternity leave is tax exempt [Philippine Daily Inquirer, October 10, 2019]
The salary differential from longer maternity leave for workers in the private sector is tax-exempt because it is considered as a benefit, the Bureau of Internal Revenue (BIR) said.
Crackdown on illegal Pogos stepped up [Philippine Daily Inquirer, October 10, 2019]
The crackdown against illegal online gaming firms is going full swing with authorities conducting raids to shut down unlicensed operators “several times a week” as well as those who dodge taxes, according to the country’s chief gaming regulator.
Peza gives up, supports revamp of tax incentives [Philippine Daily Inquirer, October 10, 2019]
The Philippine Economic Zone Authority (Peza) has given up on its fight to exempt thousands of companies in economic zones from a controversial tax package that will rationalize tax incentives.
DOF wants bank secrecy lifted by Congress [Manila Bulletin, October 10. 2019]
The Department of Finance (DOF) is determined to pass the measure seeking to ease the country’s restrictive deposit secrecy laws within the current Congress to arm the Bureau of Internal Revenue (BIR) against tax evaders.
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