HIGHLIGHTS OF PHILIPPINE ECONOMIC RECOVERY ACT + SENATE TO AMEND CITIRA BASED ON PH COVID-19 CRISIS NEEDS: PIA CAYETANO
Other Relevant Tax Updates:
- Highlights of Philippine Economic Recovery Act (PERA)
- Bureau of Internal Revenue (BIR) issuances on extension deadlines on various tax filing compliance requirements and validity of VAT certificates and VAT identification cards in consideration of extended Enhanced Community Quarantine (ECQ)
- BIR ruling digests
- Court of Tax Appeals (CTA) case digests
- Tax and business-related news [April 25-30]
I. HIGHLIGHTS OF PHILIPPINE ECONOMIC RECOVERY ACT (PERA)
A Technical Working Group of the House of Representatives’ Defeat COVID-19 Committee was tasked to draft a consolidated bill proposing to mitigate the impact of the COVID-19 pandemic on the country’s economy.
The proposed bill entitled “Philippine Economic Recovery Act” (PERA) is a consolidation of the proposed “Economy Moving Forward as One Act” as sponsored Marikina Representative Stella Luz Quimbo and “National Stimulus Strategy Act” as sponsored by Albay Representative Joey Sarte Salceda. Under the consolidated bill, the following economic interventions are proposed:
A. TRANSITIONAL INTERVENTIONS
Under this proposal, economic relief that shall be implemented to mitigate the permanent damage by the COVID-19 crisis to the economy and maintain employment levels of the corresponding sector or industry. Interventions shall be immediate, temporary and limited to a specific period. Proposals include:
- Wage subsidies for critically-impacted businesses, free-lancers, self-employed and repatriated employees;
- Assistance to COVID-19 victims;
- Regulatory relief for business entities such as, but no limited to, suspension, reduction or waiving of the imposition of fees and charges for a period of six (6) months by relevant regulatory agencies; and
- Regularization of Micro, Small and Medium Enterprises (MSMEs)
B. SECTORAL INTERVENTIONS
Under this proposal, economic relief is intended for specific sectors or industries, such as MSME’s, tourism, agriculture and any other critical businesses. Such interventions may or may not be limited to a specific period. Proposals include:
- Offering of grants by Department of Trade and Industry (DTI) for the education, training and counselling of MSMEs on improving business resiliency in the post COVID-19 era;
- Bridging loans for MSMEs;
- Loan program for Agri-Fishery enterprises;
- Assistance to the tourism industry;
- Assistance to export and import industries; and
- Review of trade policies that impede responses of businesses in coping with the economic effects of COVID-19
C. STRUCTURAL INTERVENTIONS
Under this proposal, measures will be designed to accommodate any sector or industry through an institutionalized mechanism or entity. A structural intervention aims to reinforce resilience of the economy as well as the business entities in the event of future crisis or recession. Structural interventions shall not be limited to any specific period, unless otherwise provided. Proposals include:
- Establishment of Credit Mediation and Restructuring Guarantee Fund (CMRGF) which allows the increase of maximum loan guarantee coverage per borrower, reduce eligibility requirements, guarantee fees and any other measure necessary to give business entities access to better terms of credit;
- Protecting Filipino jobs through interest-free loans;
- Establishment of the National Emergency Investment Corporation which shall have the power such as, but not limited to, consolidation of troubled businesses and decide how these would be resolved under a common procedure;
- Enhancement of the “Build, Build, Build” Program; and
- Coordination of monetary and fiscal policies
These economic interventions aim to reduce permanent damage to the economy, maintain employment levels and have a demonstrable capacity to support economic output and preserve the country’s productive capacity.
Since the proposed bills were consolidated under PERA Bill, revisions are expected since it will be subject for another round of deliberation. The House plenary is expected to deliberate and vote on the consolidated bill upon resumption of session on May 4.
II. BIR ISSUANCES ON EXTENSION DEADLINES ON VARIOUS TAX FILING COMPLIANCE REQUIREMENTS AND VALIDITY OF VAT CERTIFICATES AND VAT IDENTIFICATION CARDS IN CONSIDERATION OF EXTENDED ECQ
Revenue Regulations No. 11-2020, issued on April 30, 2020, amend certain provisions of RR 10-2020, particularly on the extension of deadlines to submit, file and/or pay necessary documents in consideration of the extension of the ECQ period until May 15, 2020. The regulations provide new deadlines on various tax filing compliance requirements.
RR No. 10-2020, issued on April 14, 2020, amends certain provisions on recently issued circulars particularly on the extension of deadlines to submit, file and/or pay the necessary documents and/or taxes required under the Tax Code such as, but not limited to, VAT refunds, ONETT, and monthly/quarterly/annual filing of required returns. If the ECQ period will be further extended, the filing of the returns and payment of the corresponding taxes due thereon and submission of reports and attachments falling within the enhanced extended period shall be extended for 30 calendar days from the lifting of the ECQ.
Revenue Memorandum Circular (RMC) No. 42-2020, issued on April 17, 2020, circularizes the guidelines in the filing and payment of 2019 Income Tax Returns.
RMC No. 43-2020, issued on April 17, 2020, circularizes the guidelines on the acceptance of payment by the Bureau even during ECQ period. Taxpayers may pay at (1) the nearest Authorized Agent Banks (AAB) notwithstanding RDO jurisdiction; and (2) to the concerned Revenue Collection Officer of the nearest RDO. However, payment in cash should not exceed Php 20,000, while those for check payment will have no limitation provided all checks should be made payable to BIR and not the AAB.
RMC No. 44-2020, issued on April 17, 2020, circularizes the guidelines addressing the concerns of Resident Foreign Missions (RFMs) regarding the issuance of VAT Certificates (VCs) and VAT Identification Cards (VICs). As recommended by DFA-OP, the BIR shall temporarily issue electronic copies of VCs and VICs, which shall remain valid only until August 30, 2020. The issued electronic copies shall be renewed within 30 days from the lifting of the ECQ following the same requirements and procedures set forth in Revenue Memorandum Order No. 10-2019.
If you wish to get a copy of the complete text of BIR issuances, please e-mail us.
III. BIR RULING DIGESTS
- Inter-corporate dividends received by a non-resident foreign corporation can be subjected to lower tax rate of 15% Final Withholding Tax (FWT)
- Denatured alcohols which did not pass for human consumption can be sold without the imposition of excise tax under sin tax law
- Capital gains derived by foreign entity from sale or transfer of shares of stock in Philippine corporation to another corporation can be exempted from income tax for as long as there is an existing tax treaty between foreign country and the Philippines; sale or transfer of shares of stocks with less than adequate consideration or less than market value is subject to donor’s tax
- Capital gains derived from transfer of shares resulting from merger are exempted from tax pursuant to RP-Germany tax treaty
INTER-CORPORATE DIVIDENDS RECEIVED BY A NON-RESIDENT FOREIGN CORPORATION CAN BE SUBJECTED TO LOWER TAX RATE OF 15% FWT
A Co. is seeking confirmation that dividends to be paid to Ford Motor Company are subject to 15% FWT under tax sparing rule of the 1997 Tax Code. As represented, Ford Motor Company is a USA-based company and has no license to do business in the Philippines, hence considered a non-resident foreign corporation. In ruling, the BIR cited Section 28 of the Tax Code which provides that inter-corporate dividends received by a non-resident foreign corporation from a domestic corporation are subject to final tax rate of 15%, subject to the condition that the country in which the non-resident foreign corporation is domiciled allows a tax credit against the tax due from non-resident foreign corporation taxes deemed to have been paid in the Philippines. As further confirmed, it was noted that under the US Internal Revenue Code allows tax credit for as long as the conditions are met. Applying the said provisions, dividends to be received by Ford Motor Company is subject to preferential lower tax rate of 15%. [BIR RULING NO. 767-2019, DECEMBER 9, 2019]
DENATURED ALCOHOLS WHICH DID NOT PASS FOR HUMAN CONSUMPTION CAN BE SOLD WITHOUT THE IMPOSITION OF EXCISE TAX UNDER SIN TAX LAW
E Co. is requesting a ruling to the effect that all damaged or substandard ethyl alcohol which are rendered unfit for oral intake can be sold in the form of denatured alcohol, to buyers and manufacturers engaged in non-liquor business (i.e producers of rubbing alcohol, personal care products, etc.) without the imposition of excise tax. As represented, E Co. is a prime producer of liquor brands for local and international market. In line with this, its enhanced quality control on products is high wherein certain batches of alcohol may be rendered unfit for human consumption. All those alcohols which did not pass the quality control will be permanently idle and will be considered as unusable inventory, as to not compromise the integrity of its bottled liquor products. In ruling, the BIR cited the ruling of World Trade Organization (WTO) as provided in Republic Act No. 10351 or the SIN Tax Law, and as implemented by Revenue Memorandum Circular (RMC) No. 18-2013, which provides for the removal of excise tax on denatured alcohol. In this regard, the BIR allowed E Co. the denaturing of alcohol subject to strict compliance of the rules and regulations. [BIR RULING NO. 700-19, NOVEMBER 25, 2019]
[CAPITAL GAINS DERIVED BY FOREIGN ENTITY FROM SALE OR TRANSFER OF SHARES OF STOCK IN PHILIPPINE CORPORATION TO ANOTHER CORPORATION CAN BE EXEMPTED FROM INCOME TAX FOR AS LONG AS THERE IS AN EXISTING TAX TREATY BETWEEN FOREIGN COUNTRY AND THE PHILIPPINES] [SALE OR TRANSFER OF SHARES OF STOCKS WITH LESS THAN ADEQUATE CONSIDERATION OR LESS THAN MARKET VALUE IS SUBJECT TO DONOR’S TAX]
N Co., a non-resident Singaporean entity, is seeking confirmation that capital gains derived from its sale of shares of stock in SteelAsia Manufacturing Corporation (STeelAsia) to PlaridelSteel (PlaridelSteel) is exempt from income tax pursuant to existing tax treaty agreement between the Philippines and Singapore. As represented, SteelAsia is 60% owned by Filipinos and 40% by NatSteel. NatSteel and PlaridelSteel entered into a Deed of Assignment of Shares in favor of the latter. In ruling, the BIR cited the provisions of Revenue Regulations (RR) No. 4-86, which provides that capital gains derived by residents of other contracting states from the disposition of share are taxable in the Philippines only if the assets of the corporation consist principally of 50% real property interest or more of the entire assets. Since SteelAsia’s real property interest consist of less than 50% (i.e 13.49%), capital gains derived by NatSteel from the sales of shares of stock in SteelAsia to PlaridelSteel are exempt from income tax. However, since the transfer is less than adequate and full consideration of the fair market value of the shares, the said transaction is subject to donor’s tax. Moreover, the said transfer of shares is subject to Documentary Stamp Tax pursuant to Section 175 of the Tax Code, as amended. [ITAD BIR RULING NO. 010-19, JUNE 3, 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. DB Co. entered into Merger Agreement with DBN, with transfer of assets as one of the stipulations, resulting in transfer of shares of DB Co. to DBN, and DBN as the surviving entity. In ruling, the capital gains derived by DB. Co from the transfer of shares as a result of merger are exempt from income tax pursuant to RP-Germany Tax Treaty, since real property interest is only at 1.16%, following the requisite stated in Revenue Regulation (RR) No. 4-86. Likewise, 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]
IV. CTA CASE DIGESTS
- In Input VAT Refund cases, taxpayer-claimant must prove that non-resident foreign corporation is a foreign corporation and it must not be engaged in trade or business within the Philippines
- Claim for refund must be initiated within the two (2)-year prescriptive period; principle of Solutio Indebiti is not applicable on claim for excise tax refund
IN INPUT VAT REFUND CASES, TAXPAYER-CLAIMANT MUST PROVE THAT NONRESIDENT FOREIGN CORPORATION IS A FOREIGN CORPORATION AND IT MUST NOT BE ENGAGED IN TRADE OR BUSINESS WITHIN THE PHILIPPINES
Chevron Holdings, Inc. (Chevron) and Commissioner of Internal Revenue (CIR) filed a consolidated Petition for Review seeking reversal of the earlier decision of CTA 1st Division regarding the refund or issuance of Tax Credit Certificate (TCC) representing excess and unutilized input VAT attributable to its zero-rates sales for the 1st and 2nd quarters of 2012. In ruling, the Court resolved that Chevron sufficiently proved its entitlement to refund of Php 3,806,549.14 representing excess and unutilized input VAT attributable to its zero-rates sales for the 2nd quarter of 2012. On the remaining claim for refund of input taxes for the same quarter, scrutiny of documents revealed that Chevron failed to prove that its other clients are nonresident foreign corporations doing business outside the Philippines leading to disallowance of corresponding claim. While Chevron sufficiently proved that other clients are foreign corporations, it failed to adduce any evidence that they are doing business outside the Philippines. Since the claim for refund partake the nature of tax exemptions, it shall be strictly construed against the taxpayer. Failure of the taxpayer to provide evidences for its entitlement shall lead to denial of such claim. On the other hand, the claim for refund for the 1st quarter of 2012 was likewise denied for records showed that Chevron failed to company with the 120-day period given to afford CIR ample time to evaluate and review submitted application for refund. The haste in elevating the instant case to the CTA is a blatant violation of the doctrine of exhaustion of administrative remedies. Considering the foregoing, both Petitions for Review are DISMISSED for lack of merit. [CHEVRON HOLDINGS, INC. VS COMMISSIONER OF INTERNAL REVENUE, CTA EN BANC CASE NOS. 1895, 1896, MARCH 9, 2020]
[CLAIM FOR REFUND MUST BE INITIATED WITHIN THE TWO (2)-YEAR PRESCRIPTIVE PERIOD] [PRINCIPLE OF SOLUTIO INDEBITI IS NOT APPLICABLE ON CLAIM FOR EXCISE TAX REFUND]
Petitioner Philip Morris Philippines Manufacturing Inc. filed a Petition for Review seeking reversal of the earlier decision of the Court in Division denying its claim for refund or issuance of TCC, allegedly representing the excise tax advanced on exported cigarette products. Petitioner claimed that it is entitled to claim a refund pursuant to Section 130 (D) of the Tax Code, and that the amounts paid pursuant to Revenue Regulations No. 03-08 are in the nature of advance or deposited taxes which should be returned to Petitioner under the Principle of Solutio Indebiti. In ruling, the Court agreed with the lower court that Petitioner failed to timely file its administrative and judicial claim for refund as the two (2)-year prescriptive period has already lapsed. The Court also ruled that the elements of solutio indebiti are not present, because Petitioner is obligated to pay excise taxes on its locally manufactured products, and the advance payment of said excise taxes was not made through mistake. Thus, the Petition was DENIED for lack of merit. [PHILIP MORRIS PHILIPPINES MANUFACTURING INC. VS. COMMISSIONER OF INTERNAL REVENUE, CTA EN BANC CASE NO. 1929, MARCH 9, 2020]
TAX AND BUSINESS-RELATED NEWS [APRIL 25-30]
- Businesses comply with rental relief for MSMEs, says DTI
- ‘Build Build Build’ a priority as Philippines resets from pandemic: NEDA chief
- Railways ready to resume operations but at reduced capacity, construction continues: PNR
- Grab offers staff no-pay leave as coronavirus saps demand
- Dominguez on post-pandemic stimulus: Citira is it
- DOF orders LGU treasurers to monitor use of COVID-19 grants
- GSIS: Pension out starting May 5
- Tax holiday pushed for medical frontliners in virus fight
- Pag-IBIG Fund grants grace period to almost 4.8 million borrowers amid quarantine
- DOF, WB ink $100-M loan for COVID-19 fight
- PH needs to ‘reduce taxes’, ‘settle policy’ to benefit from investor exodus from China: Angara, Marcos
- Small firms need liquidity rescue to weather pandemic: tax expert
- SEC oks new rules empowering minority shareholders
- SSS to provide financial aid to small business owners, employees starting May 1
- BIR 2020 tax goal slashed to P2.26T as COVID-19 took toll on businesses
- Senate to amend CITIRA based on PH COVID-19 crisis needs: Pia Cayetano
- DOF to seek Congress OK of prolonged tax relief for small businesses
- COVID-19 crisis slows BIR, BOC collections from Jan. to mid-April
- Small business wage subsidy application deadline extended
- AirAsia cancels all flights until May 15 due to extended lockdown in Metro Manila, other areas
Businesses comply with rental relief for MSMEs, says DTI [ABS-CBN News, April 30, 2020]
Some businesses waived rentals for their tenants to help their smaller counterparts ride out the COVID-19 lockdown, a trade official said Thursday.
‘Build Build Build’ a priority as Philippines resets from pandemic: NEDA chief [ABS-CBN News, April 30, 2020]
President Rodrigo Duterte’s P8 trillion infrastructure program remains a priority despite the the coronavirus pandemic, acting Socioeconomic Planning Secretary Karl Chua said Thursday.
Railways ready to resume operations but at reduced capacity, construction continues: PNR [ABS-CBN News, April 30, 2020]
Railway operators are ready to resume service at reduced capacity once the enhanced community quarantine over Luzon is lifted, the head of the Philippine National Railways said Thursday.
Grab offers staff no-pay leave as coronavirus saps demand [ABS-CBN News, April 30, 2020]
Southeast Asian ride-hailing firm Grab said on Thursday it was offering some staff unpaid leave and senior executives are taking salary cuts as it moves to conserve cash amid falling demand because of the novel coronavirus outbreak.
Dominguez on post-pandemic stimulus: Citira is it [Philippine Daily Inquirer, April 30, 2020]
The Corporate Income Tax and Incentives Reform Act (Citira) can serve as stimulus for a post-pandemic economy as it would attract more investments and create jobs, Finance Secretary Carlos G. Dominguez III said.
DOF orders LGU treasurers to monitor use of COVID-19 grants [Philippine Daily Inquirer, April 30, 2020]
The Department of Finance (DOF) has ordered local treasurers to monitor the use of grants that their local government units (LGUs) had received for COVID-19 response.
GSIS: Pension out starting May 5 [Philippine Daily Inquirer, April 30, 2020]
A total of 511,000 retirees and pensioners of the Government Service Insurance System (GSIS) are scheduled to receive their cash benefit starting on Tuesday, May 5, three days earlier than the usual release date, the state-run pension fund’s president and general manager Rolando Macasaet said at a Laging Handa briefing on Wednesday.
Tax holiday pushed for medical frontliners in virus fight [Philippine Daily Inquirer, April 30, 2020]
Health care workers on the front line of the fight against the coronavirus pandemic should be exempt from paying taxes for two months as a reward for their contributions, a lawmaker said on Wednesday.
Pag-IBIG Fund grants grace period to almost 4.8 million borrowers amid quarantine [Manila Bulletin, April 30, 2020]
Pag-IBIG has granted a grace period on loan payments of all its borrowers during the enhanced community quarantine, in compliance with the Bayanihan to Heal as One Act, top officials of the agency announced on Monday (April 27).
DOF, WB ink $100-M loan for COVID-19 fight [Manila Bulletin, April 30, 2020]
The Duterte administration signed a loan agreement with the World Bank (WB) that aims to strengthen the country’s capacity to prevent, detect and respond to the threat posed by the coronavirus disease (COVID-19) pandemic.
PH needs to ‘reduce taxes’, ‘settle policy’ to benefit from investor exodus from China: Angara, Marcos [ABS-CBN News, April 30, 2020]
The Philippines must “settle” its policies on businesses to tame uncertainties and attract coronavirus-worried investors who are exiting China to relocate to the Philippines, at least 2 senators said Thursday as the global pandemic continued to take a toll on the world economy.
Small firms need liquidity rescue to weather pandemic: tax expert [ABS-CBN News, April 30, 2020]
Small businesses that are losing money due to the COVID-19 lockdown need government intervention and other measures to address cash flow concerns, a tax expert said Thursday.
SEC oks new rules empowering minority shareholders [Philippine Daily Inquirer, April 29, 2020]
The Securities and Exchange Commission (SEC) has approved new rules allowing minority shareholders of publicly listed companies to put items on the agenda during any regular or special meeting.
SSS to provide financial aid to small business owners, employees starting May 1 [ABS-CBN News, April 29, 2020]
The Social Security System (SSS) on Wednesday announced that the government has approved its small business wage subsidy (SBWS) program to provide aid for small business owners who are not capable of paying the salaries of their employees due to the COVID-19 pandemic.
BIR 2020 tax goal slashed to P2.26T as COVID-19 took toll on businesses [Philippine Daily Inquirer, April 28, 2020]
The Bureau of Internal Revenue’s (BIR) 2020 tax-collection target has been downscaled to P2.26 trillion in consideration of the COVID-19 pandemic’s impact on the economy.
Senate to amend CITIRA based on PH COVID-19 crisis needs: Pia Cayetano [ABS-CBN News, April 28, 2020]
Sen. Pia Cayetano on Tuesday said the Senate would “amend” the Corporate Income Tax and Incentives Rationalization Act (CITIRA) to ensure that incentives would be given to industries the Philippines needs in its fight against the coronavirus pandemic.
DOF to seek Congress OK of prolonged tax relief for small businesses [Philippine Daily Inquirer, April 27, 2020]
The Department of Finance (DOF) is seeking legislation, which could take years to finish, to allow the government to absorb losses of small businesses as a result of COVID-19 lockdowns through tax relief for a longer five-year period.
COVID-19 crisis slows BIR, BOC collections from Jan. to mid-April [ABS-CBN News, April 26, 2020]
Collections of the Philippines’ Internal Revenue and Customs bureaus shrank by 26.3 percent from January until mid-April this year compared to the same period last year, owing to the public health crisis caused by the coronavirus disease 2019 (COVID-19) pandemic, the Department of Finance said in a statement Sunday.
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