DOLE TO ROLL OUT PHP 1.3 BILLION FINANCIAL ASSISTANCE PROGRAM FOR AFFECTED FILIPINO WORKERS TO BE GIVEN PHP 5K ONE-TIME FINANCIAL ASSISTANCE
Other Relevant Tax Updates:
- Department of Labor and Employment (DOLE) guidelines on one-time financial assistance equivalent to PhP 5,000 due to Luzon-wide Enhanced Community Quarantine (ECQ)
- Bureau of Internal Revenue (BIR) issuances on clarifications on the extended deadline in filing of returns, validity of out-of-district filing, extended deadline in the application of input vat refund and tax amnesty on delinquency
- Securities and Exchange Commission (SEC) issuances on guidelines in filing General Information Sheet (GIS), handling of sec records, teleconferencing and videoconferencing under the revised corporation code, filing of Audited Financial Statements (AFS)
- BIR International Tax Affairs division (ITAD) ruling digests
- Court of Tax Appeals (CTA) digests
- BIR ruling digests
I. DOLE GUIDELINES ON ONE-TIME FINANCIAL ASSISTANCE OF PHP 5,000 TO BE PROVIDED TO AFFECTED WORKERS DUE TO LUZON-WIDE ECQ
DOLE has issued Department Order No. 209, Series of 2020, dated March 17, 2020, which provides for the guidelines on the adjustment measures program for affected workers due to Coronavirus Disease 2019.
Highlights include the following:
- DOLE to roll out Php 1.3 Billion financial assistance program for affected Filipino workers in private establishments which have adopted Flexible Working Arrangements (FWAs) or temporary closure during the COVID-19 pandemic;
- To cover workers in private establishments affected by the pandemic from its onset in January 2020 until April 14, 2020, unless extended. Government employees are excluded.
- One-time financial assistance of Php 5,000 to be provided in lump sum, non-conditional, regardless of employment status.
- Submission of requirements to avail such as Establishment Report on the COVID-19 pursuant to Labor Advisory No. 9 Series of 2020, company payroll for the month prior to the implementation of FWA or temporary closure
- Detailed procedures of application as well as notification of approval and denial and procedures on release of funds.
II. BIR ISSUANCES
- Clarification on the extension deadline in filing of returns
- Bank bulletin allowing out-of-district filing of BIR returns
- Extension deadline for the application of input VAT refund
- Extension on the availment of tax amnesty on delinquency
- BIR delegation to assistant commissioner of legal service authority to approve Tax Treaty Ruling Application (TTRA)
CLARIFICATION ON EXTENSION DEADLINE IN FILING OF RETURNS IN THE LIGHT OF COVID-19
Revenue Memorandum Circular (RMC) No. 30-2020, dated March 23, 2020, addresses the confusion arising from previous issuance of RMC No. 28 and 29-2020 in relation to extension on deadlines for filing. In this circular, the BIR clarified that the filing and submission of other reportorial requirements such as the required Audited Financial Statements, which were omitted but which due dates fall within the ECQ shall also be extended by 30 calendar days. However, if the ECQ period will be extended, the filing and payment of tax returns and submission of reports and attachments falling within the extended period will also be extended by 30 calendar days.
BANK BULLETIN ALLOWING OUT-OF-DISTRICT FILING OF BIR RETURNS
The BIR has issued Bank Bulletin No. 2020-03, dated March 23, 2020, in relation to the previous circulars (i.e. RMC 28, 29, and 30-2020) allowing extended deadline for filing and payment of tax returns. The BIR has directed all Authorized Agent Banks (AABs) to:
- Accept payment of Annual Income Tax Return until May 15, 2020 without imposition of penalties;
- Accept payment of other BIR returns within 30 days from their respective due dates, without imposition of penalties;
- Accept tax payment even out-of-district BIR returns without imposition of penalties for wrong filing venue.
EXTENDED DEADLINE FOR THE APPLICATION OF INPUT VAT REFUND
RMC No. 27-2020, dated March 17, 2020, extends the deadline for the filing of application for VAT refund covering the quarter ending March 31, 2018 until April 30, 2020 from its original deadline of March 31, 2020. Likewise, the ninety (90) day processing period of VAT refund claims that are being evaluated is suspended. The counting of the number of processing days shall resume after the lifting of the “community quarantine” issued by the President.
EXTENSION FOR THE AVAILMENT OF TAX AMNESTY ON DELINQUENCY
Revenue Regulations (RR) No. 5-2020, dated March 23, 2020, amends the implementing rules of regulation of Tax Amnesty on Delinquency, specifically on the deadline of availment which is originally set until April 23, 2020. Accordingly, the same may be extended if the circumstances warrant an extension such as in the case of country-wide economic or health reasons. The regulation does not yet provide any definite period to avail.
BIR DELEGATION TO ASSISTANT COMMISSIONER OF LEGAL SERVICE AUTHORITY TO APPROVE TTRA
Revenue Delegation Authority Order (RDAO) No. 1-2020, dated February 7, 2020, delegates to the Assistant Commissioner of Legal Service the authority to approve and/or sign all compliance check report for tax treaty relief application on dividends, interest, and royalties under Revenue Memorandum Order (RMO) No. 8-2017 in line with the implementation of Republic Act (R.A.) No. 11032, otherwise known as the Ease of Doing Business and Efficient Government Service Delivery Act of 2018.
III. SEC ISSUANCES
- Guidelines in filing GIS under COVID-19
- Guidelines in handling sec records during COVID-19
- Guidelines on teleconferencing and videoconferencing as means of communication in meetings under the revised corporation code
- Extended deadline in filing annual reports and ÀFS
GUIDELINES IN FILING GIS UNDER COVID-19
SEC MC No. 9-2020, dated March 18, 2020, provides the guidelines for filing of GIS during the COVID-19 ECQ, with the intention of easing the burden on the business sector. Highlights include filing guidelines on the following occasions:
- If election of directors, trustees, and officers was held;
- If annual meeting and election of directors, or officers is not held due to health and safety reasons relating to the COVID 19 disease;
- Non-holding of annual meeting and election due to other causes;
- Report of election, non-holding of annual meeting, where no stockholder, member, director, or trustees applied for an order from the SEC than an election be held;
- Extension coverage.
GUIDELINES IN HANDLING SEC RECORDS DURING COVID-19
SEC MC No. 7-2020, dated March 16, 2020, provides the guidelines in handling SEC records during COVID-19 ECQ. Highlights include work-around procedure in handling request for plain/authenticated copy of SEC documents as well as filing and submission of reports and/or other documents to SEC.
GUIDELINES ON TELECONFERENCING AND VIDEOCONFERENCING AS MEANS OF COMMUNICATION IN MEETINGS
SEC MC No. 6-2020, dated March 12, 2020, provides the guidelines on the attendance and participation in meetings through teleconferencing and videoconferencing as means of communication, pursuant to the provisions of the Revised Corporation Code of the Philippines.
Highlights of the circular include the following:
- Guidelines shall apply to all corporations registered with SEC.
- Directors/trustees can participate and vote through remote communication, but cannot attend or vote by proxy at board meetings.
- Notification in advance to the Presiding Officer and the Corporate Secretary is necessary and the Corporate Secretary shall note in the Minutes of meeting.
- Directors/trustees, who participate through remote communication, shall be deemed present for the purpose of attaining
- Notice of meetings may be sent to all directors/trustees through electronic mail, messaging service or such other manner as may be provided in the By-Laws or Board Resolution.
- Directors/trustees participating via remote communication may cast his vote through electronic mail, messaging service or such other manner as may be provided in the internal procedures.
- Vote shall be sent to the Presiding Officer and the Corporate Secretary for notation.
- Should an interruption or stoppage occur, the recording shall restart from the point where it was stopped or interrupted with proper statement of points in time.
- Those who attended the meeting through remote communication, required to sign the minutes of the meeting whenever the act of signing is practicable.
- The right to vote of stockholders/members may be exercised in person, through a proxy, or when so authorized in the By-Laws, through remote communication or in absentia.
EXTENDED DEADLINE IN FILING ANNUAL REPORTS AND AFS
SEC MC No. 5-2020, dated March 12, 2020, extends the filing period for Annual Reports and AFS for the year ended December 31, 2019, as follows:
- For companies doing domestic operations only: an extension of time until June 30, 2020; and
- For companies with domestic and foreign operations: an extension of time until June 30, 2020 or 60 days from the date of lifting of travel restrictions/ban by the concerned government authorities, whichever comes later.
SEC also resolved to dispense the submission of the following for publicly and non-publicly listed companies:
- Sworn certification of the requesting company signed by its President and Treasurer confirming that all of the following conditions are met:
- Its financial year-end is December 31, 2019;
- It has significant business operations or significant subsidiaries in areas, countries, territories affected by COVID-19; and
- The preparation of financial statements and timely completion of statutory audit of the company’s financial statements as of December 31, 2019 has been affected by the travel restriction/ban temporary suspension of business operations, and/or measures imposed by the authorities or companies in response to COVID-19.
- The request shall be accompanied by a sworn certification by the company’s external auditor confirming items (ii) and (iii) of paragraph 1(b) above.
Finally, SEC resolved to grant the extension in the filing of Annual Reports and/or AFS to companies with fiscal years ending November 30, 2019.
IV. BIR ITAD RULINGS
- Guarantee fee paid to Non-resident Foreign Corporation (NRFC) with no permanent establishment in the Philippine is exempt from income tax
- VAT exemption privileges of Netherland Embassy are through reimbursement/refund, and not through Point-of-Sale (POS) basis
- VAT Exemption Certificate (VEC) of diplomatic personnel on local purchases for personal use was not renewed; principle of reciprocity on VAT privileges accorded to embassies
- Expired VEC of diplomatic personnel cannot be renewed; diplomatic and non-diplomatic personnel may proceed to secure necessary VAT reimbursement/refund upon the expiration of its vat certificate; Embassy of Argentine Republic is still holder of valid exemption from VAT
- Limitations on VAT exemption pursuant to RP-Indonesia tax treaty
- VAT exemption privileges to dependent children of Taipei diplomats in the Philippines; VAT exemption privileges on local purchases can be extended to family members
- Embassy of India and its diplomatic personnel enjoys VAT privileges through reimbursement/refund subject to limitations
- Extent of VAT exempt purchases pursuant to RP-Spain tax treaty; VEC shall not be renewed anymore, but may proceed to secure VAT reimbursement/refund
- Expired VEC of Belgium Embassy shall not be renewed; vat exemption through reimbursement/refund and not through POS basis
- Expired VEC of Austrian Embassy shall not be renewed; vat exemption through reimbursement/refund and not through POS basis
- Holders of valid VECs enjoy point-of-purchase VAT exemption until its expiration date
- Extent of VAT exemption on local purchases of Embassy of Canada; reciprocity rules
- Zero percent vat treatment on the direct supplies of domestic goods and services from Australia and VAT exemption on direct importation of goods related to projects carried out in the Philippines pursuant to RP-Australia general agreement on development cooperation
- Principle of reciprocity justifies vat exemption on purchase of ford vehicle by Embassy of Brazil
- Income payments for onshore services performed by NRFC in the Philippines are income tax exempt, but subject to 12% VAT
- Income payment to NRFC is exempt from income tax but may be subject to 12% final withholding vat pursuant to RP-Malaysia tax treaty; income of NRFC is taxable if it has permanent establishment in the Philippines
- Extent of vat exemption on local purchases of Embassy of Germany; VAT exemption privileges through reimbursement/refund for the embassy of Germany
- Rental income of NRFC is exempt from income tax pursuant to RP-US tax treaty, but subject to 12% final withholding VAT; foreign enterprise is deemed to have permanent establishment if personnel-in-charge have wider responsibilities
- Dividends paid to British Virgin Island (BVI) company subject to 15% final tax; application of tax sparing rule
- Lease and residential accommodations as local purchases of the Australian Embassy treated as VAT-zero rated transaction pursuant to the principle of reciprocity
- Conversion of profits to assigned capital is construed as branch profit remittance subject to 10% preferential tax rate
- Extent of tax exemption of world bank; income earned by world bank to DBM is income tax exempt; sales by VAT-registered suppliers to world bank are effectively zero-rated
- Contract repairs pursuant to RP-Singapore exempt from 30% income tax but subject to 12% withholding VAT
- Capital gains derived from transfer of shares resulting from merger are exempted from tax pursuant to RP-Germany tax treaty
GUARANTEE FEE PAID TO NRFC WITH NO PERMANENT ESTABLISHMENT IN THE PHILIPPINE IS EXEMPT FROM INCOME TAX
The subject is seeking opinion on whether the guarantee fee paid to NRFC is exempt from income tax pursuant to RP-Japan Tax Treaty. It was represented that the guarantor NYK and the borrowers, NETI, NTPC, NYK-FIL and NTL entered into a Guarantee Fee Agreement with each other to obtain joint venture loan from a foreign bank. Accordingly, the borrowers agreed to pay NYK a guarantee fee in the amount of 0.2% of the total outstanding liabilities as a consideration for the guarantee issued by the latter for the joint venture loan. In reply, the BIR cited the provision of RP-Japan Tax Treaty which states that income of a resident of Japan whenever arising, except from income from immovable property, shall be taxable only in Japan unless the enterprise carries on business in the Philippine through permanent establishment situated therein. Considering that NYK has no permanent establishment in the Philippines, the BIR opines that the guarantee fee paid by NTPC and NETI under the Agreement shall be exempt from income tax. [BIR ITAD RULING NO. 039-19, DECEMBER 9, 2019]
VAT EXEMPTION PRIVILEGES OF NETHERLAND EMBASSY ARE THROUGH REIMBURSEMENT/REFUND, AND NOT THROUGH POS BASIS
Embassy of the Kingdom of the Netherlands is requesting a BIR ruling to confirm VAT exemption on its local purchase of goods and services. In reply, under the Principle of Reciprocity, the BIR may grant tax privileges, provided that they can submit proof that the foreign government of the concerned embassy allows similar tax privileges to the Philippine Embassy or its personnel in their country. Thus, as per the endorsement of DFA-OP, and the DFA Matrix of VAT Privileges Enjoyed by the Philippine Foreign Service Posts, the Philippine Embassy enjoys VAT exemption privileges through reimbursement/refund, subject to limitations. Therefore, Embassy of the Netherlands, its diplomatic and non-diplomatic personnel are entitled to the same VAT exemption privileges through reimbursement/refund, and not through POS basis, subject only to the aforementioned limitations, and guidelines set forth in RMO No. 10-2019. [ITAD BIR RULING NO. 038-19, OCTOBER 18, 2019]
[VEC OF DIPLOMATIC PERSONNEL ON LOCAL PURCHASES FOR PERSONAL USE WAS NOT RENEWED] [PRINCIPLE OF RECIPROCITY ON VAT PRIVILEGES ACCORDED TO EMBASSIES]
The Embassy of the People’s Republic of China is requesting the renewal of VEC relative to the availment of VAT exempt local purchases of goods and services of its diplomatic personnel. In reply, notwithstanding the Vienna Convention on Diplomatic Relations of 1961 which states that embassies, consulates, and their diplomatic agents are exempt from all dues and taxes, personal or real, they are nevertheless subject to indirect taxes (i.e. VAT) which are normally incorporated in the price of goods and services. However, applying the principle of reciprocity, the BIR may grant tax privileges to embassies provided the latter allows similar tax privileges to the Philippine Embassy on their country. Upon checking, the Philippine Embassy, its diplomatic and non-diplomatic personnel enjoy VAT exemption privileges in Beijing, China through reimbursement/refund subject to limitations. With this, the BIR ruled that the Embassy of the People’s Republic of China, its diplomatic and non-diplomatic personnel in the Philippines are entitled to VAT exemption privileges through reimbursement/refund, and not through POS basis. Thus, the expired VEC were not renewed anymore. [ITAD BIR RULING NO. 035-19, OCTOBER 17, 2019]
[EXPIRED VEC OF DIPLOMATIC PERSONNEL CANNOT BE RENEWED] [DIPLOMATIC AND NON- DIPLOMATIC PERSONNEL MAY PROCEED TO SECURE NECESSARY VAT REIMBURSEMENT/REFUND UPON THE EXPIRATION OF ITS VAT CERTIFICATE] [EMBASSY OF ARGENTINE REPUBLIC IS STILL HOLDER OF VALID EXEMPTION FROM VAT]
Embassy of Argentine Republic is requesting the renewal of VEC of its diplomatic personnel on local purchase of goods and services. In reply, the BIR ruled that, applying the Principle of Reciprocity, and pursuant to RMO No. 10-2019, all holders of a valid and current VEC may continue to use the same until the end of the validity period of their respective VECs. Hence, the expired VEC of diplomatic personnel shall not be renewed anymore. Accordingly, the Embassy, its diplomatic and non-diplomatic personnel, upon the expiration of its VEC, may proceed to secure the necessary VAT reimbursement/refund on purchases of local goods and services. However, tax exemption does not cover medicines, legal and notarial services, property rental, passenger transport, books, and municipal fee. [ITAD BIR RULING NO. 037-19, OCTOBER 17, 2019]
LIMITATIONS ON VAT EXEMPTION PURSUANT TO RP-INDONESIA TAX TREATY
Embassy of the Republic of Indonesia is requesting a BIR ruling on the VAT exemption on the local purchase of goods and services. In reply, this BIR noted that, to date, the Embassy of the Republic of Indonesia still holds a valid VEC. Hence, the embassy may still enjoy point-of-purchase VAT exemption until the expiration date of the VEC. Applying the principle of reciprocity, and pursuant to RMO No. 10-2019, the Embassy of the Republic of Indonesia, its diplomatic and non-diplomatic personnel, upon the expiration of their respective VEC, may proceed to secure the necessary VAT reimbursement/refund with a minimum purchase of 2,500,00 Rp (around Php 9,220). [ITAD BIR RULING NO. 036-19, OCTOBER 17, 2019]
[VAT EXEMPTION PRIVILEGES TO DEPENDENT CHILDREN OF TAIPEI DIPLOMATS IN THE PHILIPPINES] [VAT EXEMPTION PRIVILEGES ON LOCAL PURCHASES CAN BE EXTENDED TO FAMILY MEMBERS]
Taipei Economic and Cultural Office (TECO) in the Philippines is requesting the issuance of VEC in favour of the dependent children of diplomats. In reply, the BIR granted the VAT exemption privileges to qualified resident foreign missions and their qualified personnel based on the confirmation by the DFA of the VAT exemption privileges being accorded to Philippine Foreign Service Posts and their personnel stationed in Taiwan. The VAT exemption privileges accorded to qualified personnel of the resident foreign missions in the Philippines may be extended to their dependent spouses and children if the same treatment is being accorded to dependents of Filipino diplomats abroad. Similarly, the grant of VAT exemption privileges to TECO and its personnel in the Philippines will depend on how Manila Economic and Cultural Office (MECO), the Philippine counterpart of TECO in Taipei, is being treated for VAT exemption purposes in Taipei. Based on the information received by the DFA from MECO, business tax exemption cards (the equivalent of VEC in the Philippines) are only issued to MECO personnel and their dependent spouses in Taipei, and the dependent children enjoys tax exemption privilege through their principal. In view thereof, the BIR is of the opinion and ruled the grant of VAT exemption privileges to dependent children of TECO personnel in the Philippines. They may enjoy VAT exemption at POS when accompanied by their parents who are principal holders of VC. [ITAD BIR RULING NO. 034-19, OCTOBER 17, 2019]
EMBASSY OF INDIA AND ITS DIPLOMATIC PERSONNEL ENJOYS VAT PRIVILEGES THROUGH REIMBURSEMENT/REFUND SUBJECT TO LIMITATIONS
The Embassy of India is requesting the renewal of VEC relative to the availment of VAT exempt local purchases of goods and services of its diplomatic personnel. In reply, generally, diplomatic agents are exempt from all dues and taxes; however, they are still subject to indirect taxes (i.e. VAT) which are normally incorporated in the prices of goods and services. Nevertheless, under the principle of reciprocity, the BIR may grant tax privileges to embassies provided the latter allows similar tax privileges to the Philippine Embassy on their country. Upon checking, the Philippine Embassy and its diplomatic personnel (not extended to dependents) enjoy VAT exemption privileges in New Delhi, India through reimbursement/refund subject to limitations. With this, the BIR ruled that the Embassy of India and its diplomatic personnel in the Philippines are entitled to VAT exemption privileges through reimbursement/refund and not through point-of sale-basis. Thus, the expired VEC of diplomatic personnel was not renewed anymore. [ITAD BIR RULING NO. 032-19, OCTOBER 14, 2019]
[EXTENT OF VAT EXEMPT PURCHASES PURSUANT TO RP-SPAIN TAX TREATY] [VEC SHALL NOT BE RENEWED ANYMORE, BUT MAY PROCEED TO SECURE VAT REIMBURSEMENT/REFUND]
The Embassy of Spain is requesting the renewal of VEC relative to the availment of VAT exempt local purchases of goods and services of its diplomatic personnel. In reply, under the principle of reciprocity, the BIR may grant tax privileges to a foreign embassy and to its members on their local purchase of goods and services, provided that they can submit proof that the foreign government of the concerned embassy allows similar tax privileges to the Philippine Foreign Service Post and its personnel on purchase of goods or services in their country. Given that the Philippine Embassy and its diplomatic personnel enjoy VAT exemption privileges on purchase of goods and services through reimbursement/refund subject to limitations, and applying the principle of reciprocity, the Embassy of Spain and its diplomatic personnel in the Philippines are entitled to the same privileges. Hence, the expiring VEC shall not be renewed anymore but may be used until its expiration. Accordingly, the Embassy of Spain, and its diplomatic personnel, may proceed to secure the necessary VAT reimbursement/refund on purchases of local goods and services in the Philippines following the guidelines in RMO No. 10-2019. [ITAD BIR RULING NO. 031-19, OCTOBER 14, 2019]
[EXPIRED VEC OF BELGIUM EMBASSY SHALL NOT BE RENEWED] [VAT EXEMPTION THROUGH REIMBURSEMENT/REFUND AND NOT THROUGH POS BASIS]
The Embassy of the Kingdom of Belgium is seeking renewal of VEC to exempt its local purchase of goods and services from VAT. In reply, the BIR noted that to date, the Embassy still holds a valid VEC. In this regard, the Embassy may still enjoy point-of-purchase VAT exemption until the expiration date of the said VEC. Thus, VEC need not be renewed once it expires. Applying the Principle of Reciprocity and pursuant to RMO No. 10-2019, the Embassy, its diplomatic and non-diplomatic personnel, upon the expiration of their respective VEC, may proceed to secure the necessary VAT exemption privileges through reimbursement/refund and not through POS basis, with a minimum purchase of €125.00 for the Embassy and €50.00 for its diplomatic and non-diplomatic personnel. [ITAD BIR RULING NO. 029-19, OCTOBER 14, 2019]
[EXPIRED VEC OF AUSTRIAN EMBASSY SHALL NOT BE RENEWED] [VAT EXEMPTION THROUGH REIMBURSEMENT/REFUND AND NOT THROUGH POS BASIS]
The Austrian Embassy is seeking renewal of VEC to exempt its local purchase of goods and services from VAT. In reply, the BIR noted that to date, the Embassy still holds a valid VEC. Hence, the embassy may still enjoy point-of-purchase VAT exemption until the expiration date of the said VEC. Therefore, expired VEC shall not be renewed anymore. Applying the principle of reciprocity and pursuant to RMO No. 10-2019, the Austrian Embassy, its diplomatic and non-diplomatic personnel, upon the expiration of their respective VEC, may proceed to secure the necessary VAT exemption privileges through reimbursement/refund and not through POS basis, with a minimum purchase of €73.00. [ITAD BIR RULING NO. 028-19, OCTOBER 14, 2019]
HOLDERS OF VALID VECS ENJOY POINT-OF-PURCHASE VAT EXEMPTION UNTIL ITS EXPIRATION DATE
The Embassy of Czech Republic is seeking confirmation on the VAT exemption treatment of purchase of goods and services for the Embassy and its personnel. Upon checking, the Philippine Embassy, its diplomatic and non-diplomatic personnel including their legal dependents in Prague, Czech Republic enjoy VAT exemption privileges on purchase of goods and services through reimbursement/refund. With this, the same tax privileges are accorded to Embassy of Czech Republic. However, since the Embassy currently holds a valid VEC, it may continue to use the same until the end of its validity. Thus, the Embassy may still enjoy point-of-purchase VAT exemption until the expiration date of the said VEC. Upon expiration, the Embassy and its personnel may proceed to secure the necessary VAT reimbursement on purchases following the guidelines set forth in RMO No. 10-2019. [ITAD BIR RULING NO. 025-19, SEPTEMBER 6, 2019]
[EXTENT OF VAT EXEMPTION ON LOCAL PURCHASES OF EMBASSY OF CANADA] [RECIPROCITY RULES]
Embassy of Canada is requesting the renewal of VEC relative to the availment of VAT exempt local purchases of goods and services of its diplomatic personnel. In reply, under the Principle of Reciprocity, the BIR may grant tax privileges to a foreign embassy and to its members on their local purchase of goods and services, provided that they can submit proof that Canada allows similar tax privileges to the Philippine Embassy on its purchase of goods or services in their country. Given that the Philippine Embassy, its diplomatic and non-diplomatic personnel including the qualified dependents, enjoy VAT exemption through reimbursement and applying the principle of reciprocity, the Embassy of Canada, its diplomatic and non-diplomatic personnel in the Philippines are entitled to the same privilege. Hence, the expiring VEC shall not be renewed anymore. Accordingly, the Embassy of Canada, its diplomatic and non-diplomatic personnel including their legal dependents, may proceed to secure the necessary VAT reimbursement/refund on purchases of local goods and services in the Philippines following the guidelines in Revenue Memorandum Order (RMO) No. 10-2019. [ITAD BIR RULING NO. 023-19, SEPTEMBER 6, 2019]
ZERO PERCENT VAT TREATMENT ON THE DIRECT SUPPLIES OF DOMESTIC GOODS AND SERVICES FROM AUSTRALIA AND VAT EXEMPTION ON DIRECT IMPORTATION OF GOODS RELATED TO PROJECTS CARRIED OUT IN THE PHILIPPINES PURSUANT TO RP-AUSTRALIA GENERAL AGREEMENT ON DEVELOPMENT COOPERATION
P Co. is seeking confirmation on the 0% and VAT exemption on its purchases of program supplies, vehicles, professional and technical materials and services for the implementation of Best Education Sector Transformation (BEST) Program. Accordingly, the BEST Program intends to improve quality of learning outcomes, to have more equitable access of boys and girls to education, and to improve service delivery through better governance. It is also represented that the Government of Australia (GOA) will provide project vehicles, office equipment and commodities to support the functioning of BEST in the DepEd Central Office and in the target regions, that all motor vehicles provided by GOA for the program’s use will be registered and insured in the name of the Australian Embassy and BEST. At the end of the program, all motor vehicles and office equipment will be returned to GOA who will reassign the same to the Philippines. In rendering the opinion, the BIR emphasized the provisions of Section 106 (2) (c) of the Tax Code which states that certain transactions involving the sale of goods or properties are subject to 0% VAT if they are treated as such under special laws or international agreements to which the Philippines is a signatory. Also, Section 109 (1) (K) of the same code exempts from VAT certain transactions which are exempt under international agreements to which the Philippines is a signatory. In relation to the foregoing, the BIR agreed with the provisions under Article 7 of the RP-Australia General Agreement on Development Cooperation (GADC) which states that the Philippine Government shall subject to 0% VAT the direct supplies of domestic goods and services, Article 3 which exempts direct importation of goods from VAT with respect to projects carried out in the Philippines pursuant to the GADC and Article 5 on the direct importation of professional and technical materials which will be exempted from VAT only when it is imported by an Australian institution, firm, organization or an Australian personnel. [ITAD BIR RULING NO. 027-19, SEPTEMBER 6, 2019]
PRINCIPLE OF RECIPROCITY JUSTIFIES VAT EXEMPTION ON PURCHASE OF FORD VEHICLE BY EMBASSY OF BRAZIL
Embassy of the Federal Republic of Brazil is requesting exemption from the payment of VAT and ad valorem tax on the local purchase of a motor vehicle for its official use. In reply, the BIR opined that the tax exemption privilege of an Embassy and its diplomatic agents does not include exemption from VAT and ad valorem tax, which are indirect taxes, on their local purchase of goods and services pursuant to Article 34 of the Vienna Convention on Diplomatic Relations. Purchases by that Embassy or its agents of goods and/or services shall, in general, are subject to VAT and ad valorem tax under Sections 106 and 149 of the Tax Code. However, applying the principle of reciprocity, the BIR confirmed the exemption of Embassy from VAT and ad valorem on its local purchase of motor vehicles, since it appears from the list submitted by the Department of Foreign Affairs (DFA) that Brazil allows similar exemption to the Philippine Embassy and/or its personnel on their purchase of motor vehicles in Brazil. Thus, the sale of the motor vehicle shall be subject to VAT at 0% rate pursuant to Section 106 (A) (2) (b) of the Tax Code and exempt from ad valorem tax pursuant to Section 9 of Revenue Regulations (RR) No. 25-2003. [ITAD BIR RULING NO. 026-19, SEPTEMBER 5, 2019]
INCOME PAYMENTS FOR ONSHORE SERVICES PERFORMED BY NRFC IN THE PHILIPPINES ARE INCOME TAX EXEMPT, BUT SUBJECT TO 12% VAT
D Co. is requesting confirmation that commission and service fee paid to O Co. a NRFC organized and existing under the laws of Malaysia is tax exempt. Under the agreement, O Co. will provide onshore and offshore services to D Co. In consideration of such services, commission and service fee will be paid every month. In reply, the BIR confirmed that the income payment is not subject to income tax pursuant to RP-Malaysia Tax Treaty. While it is noted that O Co. has no permanent establishment in the Philippines which justifies the income tax exemption, the services rendered by the personnel of the NRFC in the Philippines necessitates withholding of 12% Final Withholding VAT in accordance with RR No. 16-2005. [ITAD BIR RULING NO. 022-19, AUGUST 29, 2019]
[INCOME PAYMENT TO NRFC IS EXEMPT FROM INCOME TAX BUT MAY BE SUBJECT TO 12% FINAL WITHHOLDING VAT PURSUANT TO RP-MALAYSIA TAX TREATY] [INCOME OF NRFC IS TAXABLE IF IT HAS PERMANENT ESTABLISHMENT IN THE PHILIPPINES]
A Co., a domestic corporation, is seeking confirmation if commission and service fees paid to B Co., a NRFC organized under the laws of Malaysia, are exempt from tax. In reply, BIR ruled that generally, NRFC is subject to 30% income tax rate on income earned in the Philippines. However, such income may be exempt to the extent required by any treaty obligation binding upon the Philippine government. Following Articles 5 and 7 of the Philippines-Malaysia Tax Treaty, profits earned in another contracting state are only taxable if such has a permanent establishment in the said contracting state. Applying this to the current issue, perusal of the documents showed that B Co. is not deemed to have permanent establishment in the Philippines. Thus, commission and service fees earned by B Co. are exempt from income tax. However, A Co. is still obliged to withhold 12% VAT on payment made. The VAT withheld shall be filed thru BIR Form 1600 which shall serve as documentary substantiation for its claim of input tax on the commission and service fee paid. If A Co. is not VAT-registered, it may treat passed-on VAT as part of the cost of services. VAT withheld shall be remitted within ten (10) days following the end of the month the withholding was made. [ITAD BIR RULING NO. 021-19, AUGUST 29, 2019]
[EXTENT OF VAT EXEMPTION ON LOCAL PURCHASES OF EMBASSY OF GERMANY] [VAT EXEMPTION PRIVILEGES THROUGH REIMBURSEMENT/REFUND FOR THE EMBASSY OF GERMANY]
Embassy of the Federal Republic of Germany is requesting VEC to qualify its local purchase of goods and services from VAT exemption. In reply, the BIR opined that by applying the principle of reciprocity, and pursuant to RMO No. 10-2019, the Embassy of the Federal Republic of Germany, its diplomatic and non-diplomatic personnel in the Philippines are entitled to the same VAT exemption privileges through reimbursement/refund, and not through point of-sale basis subject to certain limitations. [ITAD BIR RULING NO. 020-19, JULY 24, 2019]
[RENTAL INCOME OF NRFC IS EXEMPT FROM INCOME TAX PURSUANT TO RP-US TAX TREATY, BUT SUBJECT TO 12% FINAL WITHHOLDING VAT] [FOREIGN ENTERPRISE IS DEEMED TO HAVE PERMANENT ESTABLISHMENT IF PERSONNEL-IN-CHARGE HAVE WIDER RESPONSIBILITIES]
AD-SG Philippine Branch is requesting confirmation on the tax exemption of rental payments to AD-US Company, a NRFC. In reply, the BIR opined that, in general, NRFC is subject to 7.5% final tax on rental income earned in the Philippines. However, such income may be exempt to the extent required by any treaty or obligation binding upon the Philippine government. Following Articles 5 and 8 of Philippines-United States Tax Treaty, profits earned in another contracting state are only taxable if a foreign enterprise has permanent establishment in the contracting state. A foreign enterprise, which leases equipment, is deemed to have permanent establishment in that state if it supplies personnel and those personnel have wider responsibilities in relation to the leased equipment/s, such as but not limited to participation in decision regarding the work for which the equipment is used. Perusal of the documents showed that AD-US is not deemed to have permanent establishment in the Philippines, since (1) it does not have branch, office or other fixed place of business in the Philippines and (2) it did not send any personnel to the Philippines during the term of the agreement. Thus, the rentals paid by AD-SG-Philippine Branch to AD-US Company for the leased equipment are exempt from income tax in the Philippines. However, rental payments are subject to 12% Final Withholding VAT pursuant to Section 4.112-2 of Revenue Regulations No. 16-2005. The VAT withheld shall be filed thru BIR Form 1600 which shall serve as documentary substantiation for its claim of input tax on rental payment made. If AD-SG Philippine Branch is not VAT-registered, it may treat the VAT as an asset or expense, whichever is applicable. [ITAD BIR RULING NO. 009-19, JUNE 3, 2019]
[DIVIDENDS PAID TO BVI COMPANY SUBJECT TO 15% FINAL TAX] [APPLICATION OF TAX SPARING RULE]
H Co. is seeking confirmation on whether dividends paid to K Co, a NRFC and a BVI-registered entity is subject to income tax rate of 15%. It was represented that under the laws of BVI, K Co. is exempt from all provisions of the income tax ordinance therein. In reply, the BIR cited the provision of Section 28 (B)(5)(b) of the Tax Code, which states that dividends paid by a domestic corporation to NRFC are subject to income tax rate of 15%. To be qualified, Section 28 (B) (5) (b) of the Tax Code requires that the country of residence of the NRFC shall allow a credit against the tax due from NRFC taxes deemed to have been paid in the Philippines equivalent to 15%, also known as tax sparing credit. The tax sparing credit is the difference between the regular tax of 30% on income of a NRFC and the lower tax of 15% on dividends. Accordingly, the dividends paid by H Co. to K Co. are subject to income tax rate of 15% on the premise that the latter is exempt from income tax imposed in its country including tax on dividends and that the former is subject to regular corporate income tax of 30%, which thereby warrants the reduction of tax on dividends. [ITAD BIR RULING NO. 011-19, JUNE 3, 2019]
LEASE AND RESIDENTIAL ACCOMMODATIONS AS LOCAL PURCHASES OF THE AUSTRALIAN EMBASSY TREATED AS VAT-ZERO RATED TRANSACTION PURSUANT TO THE PRINCIPLE OF RECIPROCITY
The Australian Embassy is requesting issuance of a ruling exempting from VAT the lease of premises used exclusively by the mission pursuant to the Vienna Convention on Diplomatic Relations (VCDR) as well as the lease of residential accommodations occupied by accredited diplomatic and consular staff of the embassy. Based on the Australian Embassy’s consultation with the Australian Taxation Office, and supported with information received by the Department of Foreign Affairs (DFA) from the Philippine Embassy in Canberra, residential leases in Australia are not subject to Goods and Services Tax (GST) which is equivalent to VAT and the long-term accommodations in full-serviced apartments and hotel-managed buildings are not exempt from GST. Further, DFA recommends that the same tax exemption privileges be accorded to the Australian Embassy in Manila and its qualified personnel based on the Principle of Reciprocity. In rendering the opinion, the BIR emphasized the provisions under Section 108 of the Tax Code which states that services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to 0% VAT. In view of the foregoing, the BIR is of the opinion that the lease of premises by the Australian Embassy for the exclusive use of the mission is subject to 0% VAT pursuant to Section 108 of the Tax Code, in relation to the provisions under VCDR. Moreover, the lease by the Australian Embassy’s diplomatic and consular staff of houses, condominiums and apartments to be used as their residences during their period of assignment in the Philippines shall be subject to 0% VAT pursuant to the Principle of Reciprocity. However, the VAT zero-rated privilege accorded to diplomatic and consular staff of the embassy does not include accommodation in hotels, hotel-managed buildings and serviced apartments. Moreover, local purchases by the diplomatic agents of goods and services are subject to VAT under Sections 106 and 108 of the Tax Code. [ITAD BIR RULING NO. 007-19, MAY 9, 2019]
CONVERSION OF PROFITS TO ASSIGNED CAPITAL IS CONSTRUED AS BRANCH PROFIT REMITTANCE SUBJECT TO 10% PREFERENTIAL TAX RATE
T Bank is seeking clarification on whether the conversion of portion of the profits to permanently assigned capital is subject to Branch Profit Remittance Tax (BPR) rate of 10%. In reply, the BIR opined that the earnings or profit remitted by the branch to its home office in Japan are subject to a reduced BPRT of 10% pursuant to the provision of RP-Japan Tax Treaty. The transfer constitutes an indirect remittance to the head office because it requires the approval of the head office prior to the transfer and crediting of the profits to another account. Although, there is no actual remittance of the profit, the transaction is construed as physically transferring those profits from the branch office in the Philippines to the head office in Japan, and subsequently returning those profits to the Philippines. In this regard, the BIR confirms that the BPRT of 10% will apply to those unremitted profits transferred to the permanently assigned capital account of the branch office. [ITAD BIR RULING NO. 005-19, APRIL 4, 2019]
[EXTENT OF TAX EXEMPTION OF WORLD BANK] [INCOME EARNED BY WORLD BANK TO DBM IS INCOME TAX EXEMPT] [SALES BY VAT-REGISTERED SUPPLIERS TO WORLD BANK ARE EFFECTIVELY ZERO-RATED]
Department of Budget and Management (DBM) is requesting guidance on the applicable withholding taxes on the income payments to International Bank for Reconstruction and Development (IBRD) pursuant to the Reimbursable Advisory Services Agreement entered into by the parties. In reply, the BIR confirms that the World Bank/IBRD, its assets, property, income, operations and transactions, shall be exempt from all taxes pursuant to Sections 109 (1) (K) and 32 (B) of the Tax Code in relation to Article VII, Section 9 (a) of the IBRD Articles of Agreement which expressly provides for the tax exemption of World Bank/IBRD from all forms. Thus, the income earned by the latter from the rendition of services to the DBM is exempt from income tax, and consequently, from withholding tax. Moreover, sales of goods and services by VAT-registered suppliers to the World Bank/IBRD are effectively zero-rated under Sections 106 (A) (2) (b) and 108 (B) (3) of the Tax Code, as amended by Republic Act No. 10963 (TRAIN Law). It is not the person/entity accorded with exemption under the law or international agreement, who is zero-rating privilege and who benefits from the privilege of zero-rating, but the sales by VAT-registered suppliers to such person/entity, as inferred in the Tax Code. [ITAD BIR RULING NO. 004-19, JANUARY 25, 2019]
CONTRACT REPAIRS PURSUANT TO RP-SINGAPORE EXEMPT FROM 30% INCOME TAX BUT SUBJECT TO 12% WITHHOLDING VAT
R Singapore is seeking confirmation if income derived from Philippine Ports Authority (“PPA”) is exempt from income tax pursuant to RP-Singapore tax treaty. In ruling, the BIR opined that since R Singapore is not engaged in trade or business in the Philippines, and it did not furnish services in the Philippines for more than 183 days, but for a total of 42 days only throughout the duration of the project on the repair of PPA’s baggage X-ray machine and walkthrough metal detector in different port management offices in the Philippines, R Singapore is not deemed to have a permanent establishment in the Philippines under paragraphs 1 and 2, Article 5 of RP-Singapore tax treaty. Thus, the contract price for the project paid by PPA to R Singapore is exempt from income tax pursuant to paragraph 1, Article 7 of the treaty. However, although exempt from income tax, payments made to R Singapore for services performed in the Philippines are subject to 12% Final Withholding VAT under Sections 108 (A) and 105 of the Tax Code. [ITAD BIR RULING NO. 003-19, DATED: JANUARY 15, 2019]
CAPITAL GAINS DERIVED FROM TRANSFER OF SHARES RESULTING FROM MERGER ARE EXEMPTED FROM TAX PURSUANT TO RP-GERMANY TAX TREATY
DB Co. is seeking confirmation on whether gains derived from the transfer of shares of stock in DBS to DBN as a result of merger are exempt from income tax. It was represented that DB Co. is a foreign corporation organized and existing under the laws of Germany. It entered into Merger Agreement with DBN, with transfer of assets as one of the stipulations, resulting in transfer of shares from DB Co. to DBN. Consequently, it resulted in 100% ownership of DBS. Further, it was represented that DBS’s real property interest is only 1.16% following the real property interest test stated in Revenue Regulations No. 4-86. In ruling, any capital gains derived by a foreign corporation from the transfer of shares are exempt from income tax pursuant to RP-Germany Tax Treaty. Moreover, the BIR also ruled that it is exempt from Donor’s Tax following the case of Republic of the Philippines vs. David Rey Guzman and the Register of Deeds of Bulacan, Meycauayan Branch, G.R. No. 132964, February 18, 2000 in which the Supreme Court held that for a donation to be valid, the following three requisites are necessary: (1) reduction in the property of the donor, (2) increase in the property of the done; and (3) intent on the part of the donor to do an act of liberality (donative intent). In the case of the subject merger, the transfer by DB Co. of its assets to DBN was carried out for purely business reasons and not motivated by any donative, hence, it is also exempt from Donor’s Tax. However, such transfer of shares is subject to Documentary Stamp Tax in accordance with Section 52 of TRAIN law. [ITAD BIR RULING NO. 002-19, JANUARY 11, 2019]
V. CTA CASE DIGESTS
[DETERMINATION OF PROBABLE CAUSE ON ISSUANCE OF WARRANT IS SOLELY WITH THE PROSECUTOR] [BARE ALLEGATIONS ARE NOT EQUIVALENT TO PROOF IF UNSUBSTANTIATED BY EVIDENCE] [A JUDGE CANNOT BE FORCED TO ISSUE ARREST WARRANT IF HE FINDS NO PROBABLE CAUSE]
The Prosecution sought to impugn the twin Resolutions issued by the Court in Division which denied the issuance of warrants of arrest against the Accused Marina C. Babasa and Pedro C. Carandang for lack of probable cause. The Accused, in their capacity as President and Treasurer of Portland Chemicals Corporation (PCC), was charged for failure to pay their 2010 deficiency internal revenue tax liabilities due on January 25, 2014. The Prosecution argued that since the Accused appeared as President and Treasurer in PCC’s 2011 General Information Sheet (GIS), a copy of which was secured by the BIR on May 2, 2015, the Accused should be deemed the responsible officers of PCC in 2014, or at the time the alleged non-payment of deficiency internal revenue taxes due occurred. In ruling, the Court ruled that the determination of existence of probable cause depends upon the judgment and discretion of the judge issuing the warrant, through his personal examination and evaluation of the resolution of the investigating prosecutor as well as the documents in support thereof. Evidently, the documents submitted by the Prosecution failed to establish a prima facie case against the Accused, justifying the non-issuance of warrants of arrest against them. The submitted GIS relates to 2011 and not to 2014. Basic is the rule that bare allegations, unsubstantiated by evidence, are not equivalent to proof. A mere assumption may not be the basis in deciding a case, or in granting a relief. The Petition is DENIED for lack of merit. [PEOPLE OF THE PHILIPPINES VS. MARINA C. BABASA AND PEDRO C. CARANDANG, CTA EN BANC CRIMINAL CASE NO. 051, MARCH 2, 2020]
[LACK JURISDICTION DUE TO INSUFFICIENT ALLEGATIONS AS TO KIND AND AMOUNT OF TAX] [ASSESSMENT IS VOID ABSENT SPECIFIC DATE WITHIN WHICH ALLEGED TAX LIABILITIES MUST BE SETTLED OR PAID] [FAILURE TO ESTABLISH WILLFULNESS RESULTING IN DISMISSAL OF CRIMINAL OFFENCE BY PROSECUTION BEYOND REASONABLE DOUBT]
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. On the resolution dated September 4, 2019, the Court was convinced that the Accused are guilty beyond reasonable doubt of the crime charged. The Accused assertion that they are not obliged to report income in 2007 under the accrual method of accounting is contrary to the subsequent ITR submitted covering TY 2008 wherein the Accused even failed to report the income due. In the present case, the issue to be resolved is whether the Accused are guilty of the offense charge for alleged failure to supply correct and accurate information in the Annual ITR for TY 2007. In ruling, the Court reversed its earlier ruling and DISMISSED the case for lack of jurisdiction due to insufficient allegations in the Second Amended Information as to the kind and amount of basic tax, specifically the principal amount of income tax liability for 2007 which should be at least Php 1 Million to acquire jurisdiction. Moreover, evidence presented failed to prove the crime charge due to absence of willfulness on the part of the accused considering that there is reasonable doubt on accused involvement in the preparation and filing of Annual ITR. Even assuming that the Accused are guilty, however, they should not be held civilly liable since no assessment can be regarded as valid absent a specific date or period within which the alleged tax liabilities must be settled or paid. Consequently, the present case is DISMISSED for lack of jurisdiction and accused are ACQUITTED of the criminal offense charge without any civil liability. [PEOPLE OF THE PHILIPPINES VS. ENVIROAIRE, INC., REPRESENTED BY TYRONE N. ONG & ARLENE CHUA, CTA CRIMINAL CASE NO. 0-407, FEBRUARY 26, 2020]
VI. BIR RULING DIGESTS
- Laboratory services are exempted from VAT subject to limitations
- Transfer of conveyed property pursuant to judgment by compromise is not subject to Donor’s Tax, but to Capital Gains Tax (CGT) and Documentary Stamp Tax (DST); owner of the conveyed property has no donative intent if transfer is necessary consequence of requirement of the court-approved compromise agreement
- E-fuel cards not subject to Expanded Withholding Tax (EWT)
- Transfer of property title to the Trustor from the trustee is exempt from taxes; conveyance of property by trustee in favour of Trustor is a mere continuation and confirmation of title in favour of real beneficiary of the subject properties
- Tax exemption enjoyed by charitable institution denied due to failure to meet requirements pursuant to section 30 (e) of the tax code
- Back wages, salaries, and benefits of illegally dismissed employees subject to withholding tax
- Granting of authority to change inventory valuation method depends if it conforms to the company’s accounting practice and if it reflects the company’s true income
LABORATORY SERVICES ARE EXEMPTED FROM VAT SUBJECT TO LIMITATIONS
M Laboratory Co. is seeking confirmation on whether revenues earned from laboratory services are VAT exempt. As represented, it is engaged purely to laboratory services and does not sell any form of pharmaceutical and/or medical products. In ruling, the BIR cited Section 109 of the Tax Code which provides that medical, dental, hospital, veterinary and laboratory services are exempted from VAT, however, those rendered by professionals are not included in the exemption. [BIR RULING NO. 784-19, DECEMBER 13, 2019]
[TRANSFER OF CONVEYED PROPERTY PURSUANT TO JUDGMENT BY COMPROMISE IS NOT SUBJECT TO DONOR’S TAX, BUT TO CGT AND DST] [OWNER OF THE CONVEYED PROPERTY HAS NO DONATIVE INTENT IF TRANSFER IS NECESSARY CONSEQUENCE OF REQUIREMENT OF THE COURT-APPROVED COMPROMISE AGREEMENT]
S Co., a non-stock corporation, is requesting a ruling on whether the transfer to S-QC of 50% of the property covered by reconstituted Transfer Certificate of Title by way of Judgment on Compromise is subject to donor’s tax. In reply, the BIR ruled that the transfer of the conveyed property by way of Judgment on Compromise is a necessary consequence of the requirement imposed under the court-approved Compromise Agreement; hence, there is no donative intent on the part of The Superintendent of N Missionary (“The Superintendent”), the absolute and sole owner of the subject property. Moreover, the conveyance is a mere recognition by S-QC of The Superintendent’s absolute ownership of the conveyed property; thus, the transfer is not subject to donor’s tax imposed under Section 98 of the 1997 Tax Code. The reconveyance of the property in favour of The Superintendent, however, is covered by the clause “dispositions of land and/or buildings” under Section 27 (D) (5) of the 1997 Tax Code; therefore, it is subject to CGT. Likewise, the conveyance, per court-approved Compromise Agreement in the nature of disposition of real property under the same preceding Tax Code, is subject to the DST imposed in Sections 188 and 196 of the Tax Code. [BIR RULING NO. 760-19, DECEMBER 9, 2019]
E-FUEL CARDS NOT SUBJECT TO EWT
P Co. is seeking clarification on whether sale of e-Fuel cards is not subject to withholding tax. As presented, payments P Co. received from e-fuel cards purchaser will be booked or recognized as part of “liability”, and the same will be used by the card holder (customer) to purchase fuels at participating Petron station. In ruling, the BIR confirmed that sale of e-Fuel cards is not yet considered as revenue or income, and such payments are not subject to withholding tax citing Section 57 of the 1997 Tax Code, and Revenue Regulations (RR) No. 11-2018. However, the BIR clarified that in the event of non-use of the cards within its validity period, or in case of breakage or loss, P Co. shall recognize outright income earned from the sale of e-Fuel cards subject to income tax. [BIR RULING NO. 585-19, OCTOBER 10, 2019]
[TRANSFER OF PROPERTY TITLE TO THE TRUSTOR FROM THE TRUSTEE IS EXEMPT FROM TAXES] [CONVEYANCE OF PROPERTY BY TRUSTEE IN FAVOR OF TRUSTOR IS A MERE CONTINUATION AND CONFIRMATION OF TITLE IN FAVOR OF REAL BENEFICIARY OF THE SUBJECT PROPERTIES]
B, a Filipino-U.S. citizen, temporarily working in the Philippines, brought from Fuente One a condominium unit through her brother C and his wife D (trustor) by executing a Deed of Recognition of Trust Relationship and Waiver of Apparent Rights to confirm the trust relationship. To prove that B is the beneficial owner, Fuente issued acknowledgment receipts for the DST and Real Property Tax (RPT) and has been issuing official receipts for condominium dues in her name. B is now seeking a ruling that the transfer and reconveyance of the title of the properties to the trustor from the trustee is exempt from taxes. In reply, the BIR ruled that the transfer is not subject to CGT and DST considering that there is no sale, exchange or disposition of real property involved, since B is the real owner while C and D acted merely as trustees. Moreover, the transfer is not motivated by a valuable consideration and merely acknowledges, confirms and consolidates the legal title and actual ownership over the properties in the name of B. Likewise, it is not subject to Donor’s Tax since there is no donative intent on the part of the trustee. Moreover, it is not subject to 12% VAT because the said property is not held primarily for sale to customer or for lease in the ordinary course of trade or business. However, the notarial acknowledgment to such deed is subject to DST of Php 15. [BIR RULING NO. 584-19, OCTOBER 9, 2019]
TAX EXEMPTION ENJOYED BY CHARITABLE INSTITUTION DENIED DUE TO FAILURE TO MEET REQUIREMENTS PURSUANT TO SECTION 30 (E) OF THE TAX CODE
M Foundation, Inc. is requesting a Certificate of Tax Exemption enjoyed by a non-stock, non-profit corporation or association pursuant to Section 30(E) of the 1997 Tax Code. In reply, the BIR states that to avail of the tax exemption, a charitable corporation or association must meet the following conditions: 1) a non-stock corporation or association; 2.) organized exclusively for charitable purposes; 3) operated exclusively for charitable purposes; and 4) no part of its net income or asset shall belong to or inure to the benefit of any member, organizer, officer or any specific person. Perusal of the documents revealed that the audited financial statements of the Foundation shows revenues coming from dividends, interests, and gains which arise from changes in fair values of financial asset at fair value. Further, millions of its assets and funds are being utilized as an accommodation for its officers and employees, as well as the officers and employees of its affiliates. Moreover, its expenses/disbursements are not devoted or used altogether to the charitable object which it is intended to achieve as represented in its Articles of Incorporation. In this regard, the request for tax exemption was denied and the Foundation shall be treated as an ordinary corporation subject to regular corporate income tax and other applicable internal revenue taxes imposed by the Tax Code. [BIR RULING NO. 539-2019, SEPTEMBER 27, 2019]
BACKWAGES, SALARIES, AND BENEFITS OF ILLEGALLY DISMISSED EMPLOYEES SUBJECT TO WITHHOLDING TAX
T Co. is seeking clarification on the tax implications of unremitted tax on back salaries, allowances and other benefits of former employees who were dismissed from the government service in March 2013 and reinstated in April 2018, as ordered by the Court of Appeals. Likewise, it is seeking confirmation if penalties and surcharges can be condoned. In ruling, employer is required to withhold the income tax corresponding to the income received as salaries of the dismissed employees, from the time they were dismissed up to the time of their reinstatement, pursuant to Revenue Regulations (RR) 2-98, as amended by RR No. 11-2018. Thus, the dismissed employees are required to report such income for the years, by allocating or spreading such through the years from the time of dismissal up to actual reinstatement. However, penalty, surcharges, and interests for late payment of taxes shall not be imposed since T Co.’s failure to remit is due to pending case in court. Nonetheless, the waiver of penalty, surcharge and interest will be effective only up to the time this ruling is received. [BIR RULING NO. 501-2019, SEPTEMBER 6, 2019]
GRANTING OF AUTHORITY TO CHANGE INVENTORY VALUATION METHOD DEPENDS IF IT CONFORMS TO THE COMPANY’S ACCOUNTING PRACTICE AND IF IT REFLECTS THE COMPANY’S TRUE INCOME
T Co. is seeking for the Commissioner’s approval to change its accounting method of valuing inventories from First-In-First-Out (FIFO) method to Weighted Average Method effective January 1, 2015. It was represented that T Co.’s decision to change its inventory method was brought about to align its method of inventory with its parent company and new unit cost is determined after every purchase. Further, weighted average method levels out the effects of market fluctuations in inventory prices and produces inventory valuation that approximates current value. Moreover, by using weighted average method, it would conform to the best accounting practice of T Co.’s trade and business as a distributor and wholesaler of food, beverage, pharmaceutical and personal care products. Considering that it would clearly reflect the true income of the Company, the BIR granted authority to T Co. to change its inventory valuation from FIFO method to Weighted Average method effective January 1, 2015. [BIR RULING NO.081-2019, JANUARY 10, 2019]
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