VARIOUS GROUPS CALL FOR REFINEMENTS ON CITIRA + DOF FIRM ON CITIRA TRANSITION PERIOD DESPITE REQUESTS FROM PEZA + DTI 10 YEARS MAX FOR CITIRA TRANSITION
Relevant Tax Updates:
- COURT OF TAX APPEALS (CTA) CASE DIGESTS
- SEC UPDATES GUIDELINES ON POSTING OF SECURITIES FOR RESIDENT FOREIGN CORPORATIONS PURSUANT TO REVISED CORPORATION CODE (RCC)
- TAX & BUSINESS-RELATED NEWS [OCTOBER 17-28]
I. CTA CASE DIGESTS
- Memorandum of Agreement (MOA) does not grant authority to reassigned Revenue Officer (RO); moa is not equivalent to Letter of Authority (LOA) making assessment void; donors tax exposure if property is sold at less than Fair Market Value (FMV)
- Taxpayers are accorded 15 days to respond upon receipt of preliminary assessment notice (pan); issuance of Formal Assessment Notice (FAN) before lapse of 15 days upon receipt of pan renders the assessment null & void
- Invoicing requirements is fatal in claim for input VAT refund; SEC certificate of non-registration & proof of incorporation, association or registration in a foreign country among the required documentations to prove offshore presence
- Letter Notice (LN) is not equivalent to LOA; in the absence of LOA, assessment is a nullity
- Scrap sales of freeport zone entity regardless of registered activity must be subjected to 30% regular corporate income tax (RCIT); sale of freeport zone entities to another economic zone entities is not a sale within customs territory
[MOA DOES NOT GRANT AUTHORITY TO REASSIGNED RO] [MOA IS NOT EQUIVALENT TO LOA MAKING ASSESSMENT VOID] [DONORS TAX EXPOSURE IF PROPERTY IS SOLD AT LESS THAN FMV]
Petitioner Toledo Holdings Corporation filed a Petition for Review seeking for the cancellation of donor’s tax assessment as a result of findings of sale of real property at less than the FMV of the property. The Petitioner argued that the assessment is void for lack of authority of the RO to conduct the examination and that the transfer of the property is a bona fide sale and does not amount to donation. In ruling, the Court noted that the Respondent issued MOA transferring the case to another RO and replacing the previously assigned ROs for the continuation of the audit/investigation. Further, upon scrutiny of documents, it was shown that there is no issuance of a new LOA giving authority to the new RO to continue the investigation of Petitioner’s books of account and accounting records. The Court cited RMC No 43-90 which states that any reassignment/transfer of cases to another RO shall require the issuance of a new LOA. Clearly, there must be a grant of authority before any RO can conduct audit. In the absence of such, the assessment is a nullity. Consequently, the assessment is void, and the Petitioner cannot be held liable for donor’s tax assessment. [TOLEDO HOLDINGS CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9375, OCTOBER 15, 2019]
[TAXPAYERS ARE ACCORDED 15 DAYS TO RESPOND UPON RECEIPT OF PAN] [ISSUANCE OF FAN BEFORE LAPSE OF 15 DAYS UPON RECEIPT OF PAN RENDERS THE ASSESSMENT NULL & VOID]
Petitioner Lanao Del Norte Electric Cooperative filed a Petition for Review seeking the reversal of the previous resolution issued by the Court rendering the assessment issued by the Respondent Commissioner of Internal Revenue final and executory for failure of the Petitioner to file a timely protest. It was the stand of the Petitioner that it was denied due process for the Respondent’s failure to observe the 15-day period to respond before sending FAN. In ruling, the Court noted that the Petitioner received a copy of PAN on February 20, 2012 dated February 8, 2012. While the FAN was received on March 9, 2012 dated February 29, 2012. Upon receipt of PAN, taxpayer is accorded 15 days within which to respond. However, in this case, the Petitioner received the PAN on February 20, 2012 but the FAN was issued on February 29, 2012. Clearly, the Respondent prematurely issued FAN resulting in the denial of due process of the Petitioner. The Petition for Review was GRANTED resulting in the CANCELLATION of the assessment. [LANAO DEL NORTE ELECTRIC COOPERATIVE VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO 8769, OCTOBER 11, 2019]
[INVOICING REQUIREMENTS IS FATAL IN CLAIM FOR INPUT VAT REFUND] [SEC CERTIFICATE OF NON-REGISTRATION & PROOF OF INCORPORATION, ASSOCIATION OR REGISTRATION IN A FOREIGN COUNTRY AMONG THE REQUIRED DOCUMENTATIONS TO PROVE OFFSHORE PRESENCE]
Petitioner Asurion Hong Kong Limited-ROHQ filed a Petition for Review seeking for refund or issuance of Tax Credit Certificate (TCC) on the alleged excess and unutilized input VAT attributable to zero-rated sales in the amount of Php 13,552,292.00. Respondent Commissioner of Internal Revenue denied the claim claiming that the Petitioner failed to substantiate its claim. In ruling, the Court states that in order to claim VAT zero-rating, it must be established that the recipient is a non-resident foreign corporation. Likewise, there must be no indication that the recipient of the services is doing business in the Philippines. Hence, to be considered as non-resident foreign corporation doing business outside the Philippines, each entity must be supported, at the very least, by both SEC Certificate of Non-Registration and proof of incorporation, association or registration in a foreign country. Upon scrutiny of documents, Petitioner was able to provide said documents. However, the Court noted that the Petitioner failed to comply with the invoicing requirements such as absence of support, no TIN indicated in the invoice, incorrect business style, invoice not in the name of the Petitioner, purchases supported with invoice and receipt without authority to print, and unamortized input VAT on purchases of capital goods exceeding Php1M. The Petition for review is PARTIALLY GRANTED resulting in a reduced amount qualified for refund or issuance of TCC in the amount of Php 4,065,163.03. [ASURION HONG KONG LIMITED-ROHQ VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9518, OCTOBER 2, 2019]
[LN IS NOT EQUIVALENT TO LOA] [IN THE ABSENCE OF LOA, ASSESSMENT IS A NULLITY]
Petitioner Compania De Garay, Inc. filed a Petition for Review seeking for the cancellation of the assessment issued by the Respondent Commissioner of Internal Revenue on the ground of absence of LOA. In ruling, the Court cited the Supreme Court Case Medicard Philippines, Inc., stating that, an LOA is the authority given to the appropriate RO assigned to perform assessment functions. LN shall serve as a discrepancy notice to taxpayer and is entirely different and serves a different purpose than LOA. Thus, the Court cannot convert the LN into LOA required under the law even if the same was issued by the Respondent himself. As declared by the Supreme Court, lack of authority to examine, such as absence of LOA, renders the assessment issued by Respondent inescapably void. The Petition for Review is GRANTED and the assessment is CANCELLED. [COMPANIA DE GARAY, INC. VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9540, SEPTEMBER 24, 2019]
[SCRAP SALES OF FREEPORT ZONE ENTITY REGARDLESS OF REGISTERED ACTIVITY MUST BE SUBJECTED TO 30% RCIT] [SALE OF FREEPORT ZONE ENTITIES TO ANOTHER ECONOMIC ZONE ENTITIES IS NOT A SALE WITHIN CUSTOMS TERRITORY]
Petitioner Subic Water & Sewerage Co. Inc. filed a Petition for Review praying for the cancellation of the assessment issued by the Respondent Commissioner of Internal Revenue (CIR) in the amount of Php 238,407,520.17. Several issues were raised such as the taxability of scrap sales, unreported construction revenue, disallowance of expense in excess of what Revenue Regulations (RR) 13-2005 provide and vatability of income generated outside the Freeport Zone. In ruling on the taxability of scrap sales, the Court ruled that sale from scrap materials from the water treatment facilities of the Petitioner should be subjected to 30% RCIT following the case of CIR vs. Nidec Copal Philippines wherein the Court states that even when the sale of scrap materials is incidental to the taxpayer’s registered activity, such sales shall be subject to RCIT. On findings of undeclared construction revenue, the Court is not swayed with the arguments of the Petitioner that the account “Construction Revenue” does not constitute actual income but was just reclassification entry in compliance with International Financial Reporting Interpretations Committee (IFRIC) 12, which provides that the portion of construction revenue must be accrued and the corresponding construction cost in relation to the percentage of completion. Citing the Supreme Court case in Commissioner of Internal Revenue vs. Isabela Cultural Corporation, the Court held that the accrual of income and expense is permitted when the all-events test is met. This test requires: (1) fixing of a right to income or liability to pay; and (2) the availability of the reasonable accurate determination of such income or liability. The Court failed to establish sufficient evidence to prove compliance with all-events test doctrine. On findings of disallowance of expense, the Court sustained the findings of the Respondent that portion of direct cost claimed as deduction for income tax purposes should be disallowed as this is not included as part of deductible items enumerated under RR 13-2005. Lastly, on the vatability of revenues generated from Subic Special Economic Zone Entities, the Court cited the provisions of R.A. No. 7227, otherwise known as the Bases Conversion Development Act wherein customs territory is defined as “national territory of the Philippines outside of the boundaries of the Ecozones or Freeport Zones”, The law mandates that no VAT shall be imposed to form part of the cost of the goods destined for consumption outside the territorial border of the taxing authority. In light of the foregoing, the Petition is PARTIALLY GRANTED resulting to a modified assessment in the amount of Php 43,225,887.00. [SUBIC WATER & SEWERAGE COMPANY, INC. VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9074, AUGUST 14, 2019]
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II. SEC UPDATES GUIDELINES ON POSTING OF SECURITIES FOR RESIDENT FOREIGN CORPORATIONS PURSUANT TO RCC
Memorandum Circular No. 17, Series of 2019 [July 31, 2019] supersedes SEC Memorandum Circular No. 2, Series of 2012, which provides for the revised guidelines on posting of securities deposit of branch office of a foreign company. Under the revised guideline, it now includes Philippine government debt instruments or equity instruments as types of acceptable securities. It also enumerates excluded to post securities such as ROHQ, RHQ, and representative office among others. As regards the value of securities to be posted, it is now required under RCC that securities with an actual market value of Php 500,000 be posted with the SEC within 60 days after the issuance of SEC license. While the securities are deposited with the SEC, the branch office is entitled to collect the interest or dividends on the said securities.
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III. TAX & BUSINESS-RELATED NEWS [OCTOBER 17-28]
- POGO expansion driving demand for budget hotels
- BCDA, Widus sign deal for P12-B resort in New Clark City
- DoF backs proposed POGO tax
- Neda chief, BSP exec: No to added tax on rice imports
- Pogo tech firm reopens after partial payment of tax debt
- SEC’s ‘stern warning’: Kapa leaders indicted by DOJ
- Various groups call for refinements on Citira
- Sovereign wealth tax on mining pushed
- New mining tax regime not happening this year
- Ecozone developers want ‘ahead’ tax perks
- DTI wants aircraft parts exempt from taxes
- DFNN Inc. bags US POGO deal
- DTI backs tax-free MRO spare parts
- DTI: 10 years max for Citira transition
- DoF firm on Citira transition period
POGO expansion driving demand for budget hotels [Philippine Star, October 27, 2019]
The continued expansion of Philippine offshore gaming operators(POGOs) is also driving accommodation demand for the hospitality market, a property services firm said.
BCDA, Widus sign deal for P12-B resort in New Clark City [Philippine Daily Inquirer, October 25, 2019]
The Bases Conversion and Development Authority (BCDA) and the Widus Group on Friday, Oct. 25, signed a lease agreement for a P12-billion luxury resort at the New Clark City (NCC) in Capas, Tarlac.
DoF backs proposed POGO tax [Manila Times, October 23, 2019]
THE Department of Finance (DoF) on Tuesday expressed support for a plan to impose a franchise tax on Philippines online gaming operators (POGOs).
Neda chief, BSP exec: No to added tax on rice imports [Philippine Daily Inquirer, October 22, 2019]
Ahead of economic managers’ meeting on relief for farmers hurt by the lifting of volume limits on rice importation, the country’s chief economist and a Monetary Board official on Tuesday, Oct. 22, expressed opposition to adding taxes on foreign rice to protect the local industry from a surge in imports.
Pogo tech firm reopens after partial payment of tax debt [Philippine Daily Inquirer, October 22, 2019]
After its temporary closure last week, Philippine offshore gaming operator (Pogo) service provider Altech Innovations Business Outsourcing is back in business.
SEC’s ‘stern warning’: Kapa leaders indicted by DOJ [Philippine Daily Inquirer, October 22, 2019]
The Department of Justice (DOJ) has recommended the filing of criminal charges against Kapa-Community Ministry International and its key officials for perpetrating a Ponzi scam.
Various groups call for refinements on Citira [Manila Times, October 22, 2019]
Various groups have expressed their support to the second package of the government’s Comprehensive Tax Reform Program, but said refinements to the proposed measure are needed.
Sovereign wealth tax on mining pushed [Manila Times, October 21, 2019]
The proposed creation of a sovereign wealth fund for the country by imposing additional taxes on the mining industry has gained the support of the Department of Finance (DoF).
New mining tax regime not happening this year [Manila Bulletin, October 21, 2019]
The government’s desire to get higher share from mining operations will not yet happen within this year, but House of Representatives is already planning to resume next month the discussion regarding the passage of a new mining tax.
Ecozone developers want ‘ahead’ tax perks [Manila Bulletin, October 21, 2019]
Economic zone developers would seek for “ahead” kind of tax incentives that would enable them to avail of tax breaks during project implementation and not years after they have developed a factory site for export-oriented locators.
DTI wants aircraft parts exempt from taxes [Philippine Daily Inquirer, October 19, 2019]
The Department of Trade and Industry (DTI) supports the appeal of Lufthansa Technik Philippines (LTP) to keep the tax exemption of aircraft spare parts in the proposed Corporate Income Tax and Incentives Rationalization Act (Citira).
DFNN Inc. bags US POGO deal [Philippine Daily Inquirer, October 18, 2019]
A unit of gaming technology firm DFNN Inc. has bagged a Philippine Offshore Gaming Operations (POGO) service deal with AutoLotto Inc., a pioneering US mobile lottery service provider.
DTI backs tax-free MRO spare parts [Manila Times, October 18, 2019]
THE Department of Trade and Industry (DTI) is backing Lufthansa Technik Philippines’ call to retain duty exemptions on spare parts for the aircraft maintenance, repair and overhaul (MRO) industry.
DTI: 10 years max for Citira transition [Manila Times, October 18, 2019]
THE Department of Trade and Industry (DTI) will continue to push for an extended transition period for the rationalization of fiscal incentives under House Bill 4157, or the “Corporate Income Tax and Incentives Rationalization Act” (Citira).
DoF firm on Citira transition period [Manila Times, October 17, 2019]
THE Department of Finance (DoF) is firm on keeping the maximum five-year transition period for the rationalization of fiscal incentives under House Bill 4157, or the “Corporate Income Tax and Incentives Rationalization Act” (Citira).
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