COURT SAID BIR MUST INITIALLY CONDUCT A SURVEILLANCE BEFORE ISSUING 48-HOUR NOTICE & 5-DAY VAT COMPLIANCE NOTICE + ISSUANCE OF SALES INVOICE & O.R. COVERING SAME TRANSACTION IS NOT EQUIVALENT TO IMPOSITION OF DOUBLE VAT
Other Relevant Tax Updates:
- Court of TaxAppeals (CTA) Cases Digest
- Bureau of Internal Revenue (BIR) amends the proper Revenue District Office (RDO) to process Authority to Release Imported Good (ATRIG) for VAT exemption of imported prescription drugs and medicines
- BIR clarifies what is meant by ECQ under Revenue Memorandum Circular (RMC) No. 74-2020
- BIR clarifies issues on the accomplishment of BIR form 1709 and required attachments
- BIR extends the deadline of registration of business engaged in digital transactions
- BIR clarifies the suspension of the running of the period of statute of limitations
- Securities and Exchange Commission (SEC) media release
- BIR media releases
- Taxand business-related news [august 1-7]
I. CTA CASES DIGEST
- BIR must initially conduct a surveillance against the taxpayer before issuing a 48-hour notice and 5-day vat compliance notice
- Input taxneed not be directly attributable to the zero-rated sales to be refundable or creditable; succeeding quarterly vat returns filed are sufficient to show that the subject claim for tax credit or refund remained unutilized and has not been applied against the output tax
- A VAT-registered person shall issue a sales invoice for every sale of goodswhile an Official Receipt (OR) is issued for every sale of service; issuance of sales invoice and OR covering same transaction is not equivalent to imposition of double VAT
- Administrative remedies available for a taxpayer in contesting Real Property Tax(RPT) assessments; question of law and question of fact distinguished in an RPT assessment
BIR MUST INITIALLY CONDUCT SURVEILLANCE AGAINST THE TAXPAYER BEFORE ISSUING A 48-HOUR NOTICE AND 5-DAY VAT COMPLIANCE NOTICE
Petitioner Paymentwall Inc. filed a Petition for Review seeking for the cancellation of the 48-Hour Notice and 5-day VAT Compliance Notice issued by the Respondent Commissioner of Internal Revenue (CIR). Petitioner argued that the Respondent did not comply with certain provisions of Revenue Memorandum Order (RMO) No. 3- 2009, which requires that surveillance should be conducted as part of the procedural due process requirement. In ruling, the Court held that under RMO No. 3-2009, before the issuance of the 48-Hour Notice, 5-day VAT compliance against the taxpayer, the BIR should conduct a surveillance or stocktaking against the taxpayer. Otherwise, said taxpayer may not be categorized as a non-compliant taxpayer, warranting the issuance of the same Notices. In this case, no surveillance was ever conducted against the Petitioner before the issuance of the said notice. Hence, Respondent violated Petitioner’s right to due process. Also, the Court noted that there was no issuance of PAN. Thus, Petition was GRANTED resulting in the CANCELLATION of the assessment. [PAYMENTWALL INC. VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9727, JULY 28, 2020]
[INPUT TAX NEED NOT BE DIRECTLY ATTRIBUTABLE TO THE ZERO-RATED SALES TO BE REFUNDABLE OR CREDITABLE] [SUCCEEDING QUARTERLY VAT RETURNS FILED ARE SUFFICIENT TO SHOW THAT THE SUBJECT CLAIM FOR TAX CREDIT OR REFUND REMAINED UNUTILIZED AND HAS NOT BEEN APPLIED AGAINST THE OUTPUT TAX]
Petitioner CIR filed a Petition for Review seeking to reverse the Court in Division’s earlier decision partially granting the refund or issuance of Tax Credit Certificate (TCC) in the amount of Php 15,857,575.46 representing the Respondent Deutsche Knowledge Services PTE LTD.’s unutilized excess input VAT attributable to its zero-rated sales for the second quarter of 2014. Petitioner averred that to be creditable, input tax must come from purchases of goods that form part of the finished product or is directly used in the production. Further, Petitioner claimed that the VAT returns for calendar year 2016 and documents for 2015 are not enough to prove that the amount claimed for refund was not utilized in the succeeding quarters. In ruling, the Court held that pursuant to Section 112(A) of the Tax Code, input tax need not be directly attributable to the zero-rated sales to be refundable or creditable. It only requires that the transaction was incurred or paid in connection with the taxpayer’s trade or business whether directly or indirectly, and that it is evidenced by a VAT invoice or official receipt. Moreover, contrary to Petitioner’s argument, the succeeding Quarterly VAT Returns filed is sufficient to show that the subject claim for tax credit or refund remained unutilized and has not been applied against the output tax. Perusal of VAT return shows that claimed input VAT is not carried over or utilized in the succeeding quarters. Consequently, Petition was DENIED and earlier court’s decision is AFFIRMED. [COMMISSIONER OF INTERNAL REVENUE VS. DEUTSCHE KNOWLEDGE SERVICES PTE LTD., CTA EN BANC CASE NO. 2082, JULY 22, 2020]
[A VAT-REGISTERED PERSON SHALL ISSUE A SALES INVOICE FOR EVERY SALE OF GOODS WHILE AN O.R. IS ISSUED FOR EVERY SALE OF SERVICE] [ISSUANCE OF SALES INVOICE AND O.R. COVERING SAME TRANSACTION IS NOT EQUIVALENT TO IMPOSITION OF DOUBLE VAT]
Petitioner CIR filed a Petition for Review seeking to reverse the Court’s earlier decision cancelling the VAT assessment issued to Respondent Process Machinery Company Inc. Petitioner argued that the Respondent erroneously issued O.R. for its sale of goods, and, therefore, must be held liable to deficiency VAT on top of the VAT declared per Sales Invoice issued. On the other hand, Respondent countered that it has been the Company’s practice to issue O.R. and Sales Invoices covering the same transaction, and everything is reported for VAT purposes. In ruling, the Court discussed that the proper document to prove the imposition of VAT in every sale of goods is a Sales Invoice while an O.R is appropriate for lease of goods and sale of service. By using Sales Invoice for its sales transactions, Respondent complied with the VAT invoicing requirements. As such, Petitioner should have based its VAT assessment on Respondent’s Sales Invoice instead of its O.R. Likewise, there is no provision in the Tax Code that allows the imposition of 12% VAT twice on the same transaction as a consequence of the taxpayer issuing both Sales Invoice and O.R. to cover the same transaction. Thus, the Petition was DENIED. [COMMISSIONER OF INTERNAL REVENUE VS. PROCESS MACHINERY COMPANY INC., CTA CASE EN BANC CASE NO. 1999, JULY 17, 2020]
[ADMINISTRATIVE REMEDIES AVAILABLE FOR A TAXPAYER IN CONTESTING RPT ASSESSMENTS] [QUESTION OF LAW AND QUESTION OF FACT DISTINGUISHED IN AN RPT ASSESSMENT]
Petitioner Jetti Petroleum, Inc. filed a Petition for Review seeking cancellation of the RPT assessment issued by the Respondent Provincial Treasurer, Provincial Assessor, and Provincial Legal Officer of the Province of Bataan, collectively named as “Province of Bataan”. Petitioner argued that it should not be assessed given the Board of Investments/Department of Trade and Industry grant of RPT exemption on production equipment or machinery in reference to the Certificate of Registration presented. In ruling, the Court made a distinction whether the assessment made by Respondent is a question of fact or of law. The manner by which an RPT assessment is contested depends on whether a question of fact exists. If the taxpayer assails the “reasonableness” of the amount involved, the proper recourse would be to first pay the assailed RPT assessment and protest the same with the local treasurer and/or assessor within 30 days from payment. The local treasurer and/or assessor shall have 60 days within which to decide the protest. Should the decision be unfavourable, the taxpayer may appeal within 60 days from receipt of notice to the Local Board of Assessment Appeals (LBAA). If decision remains unfavourable, taxpayer may appeal within 30 days from receipt of decision to Central Board of Assessment Appeals (CBAA). If decision remains unfavourable, taxpayer may file an appeal with the CTA En Banc. Under this method, administrative remedies are required to be exhausted prior to an appeal to CTA because the issue of reasonableness involves a question of fact which the local treasurer and/or assessor, LBAA, and CBAA are specifically competent to adjudicate on. On the other hand, another option for appealing is solely limited to illegal RPT assessments, where the legality and authority of the assessment is questioned. Under this option, a taxpayer may directly resort to the regular courts, and if unfavourable decision was rendered, taxpayer may latter appeal with CTA Division. In this option, direct resort to courts was allowed since only a question of law is involved which does not require presentation of evidence to support claims. In the case at bar, the Court ruled that RPT exemption arising from availment of incentives provided under a law is a question of fact which requires the Petitioner to still adduce evidence that it is covered by the exemption so claimed. Furthermore, the Supreme Court, in various cases, likewise ruled that claiming exemption from RPT raises a question as to the correctness of an assessment, thus, involves a question of fact which requires exhaustion of administrative remedies. As a question of facts exists, Petitioner should have initially exhausted its administrative remedies prior to appealing to regular courts and CTA En Banc. Considering the foregoing, the Petition was DENIED for lack of merit. [JETTI PETROLEUM, INC. VS MS. EMERLINDA S. TALENTO, ENGR. RICARDO C. HERRERA, ATTY. EFREN C. LIZARDO IN THEIR CAPACITIES AS PROVINCIAL TREASURER, PROVINCIAL ASSESSOR AND PROVINCIAL LEGAL OFFICER OF THE PROVINVE OF BATAAN, CTA EN BANC CASE NO. 2093, JULY 14, 2020]
II. BIR AMENDS THE PROPER RDO TO PROCESS ATRIG FOR VAT EXEMPTION OF IMPORTED PRESCRIPTION DRUGS AND MEDICINES
Revenue Memorandum Order (RMO) No. 25-2020, issued on July 29, 2020, amends certain provisions of RMO No. 23-2020 relative to the offices that will process and issue ATRIG for VAT Exemption on the importation of prescription drugs and medicines. For VAT purposes, the ATRIG shall be issued on all importations of articles exempt from VAT at the RDO having jurisdiction over the port of entry. For consistency in the issuance of ATRIG for VAT-exempt transactions, the RDO having jurisdiction over the port of entry shall process application for ATRIG by the manufacturers, distributors, wholesalers and retailers of drugs and medicines included in the “list of approved drugs and medicines” issued by the Department of Health.
III. BIR CLARIFIES WHAT IS MEANT BY ECQ UNDER RMC NO. 74-2020
RMC No. 77-2020, issued on July 30, 2020, clarifies that the ECQ referred to under RMC No. 74-2020 means Enhanced Community Quarantine and not Extreme Community Quarantine.
IV. BIR CLARIFIES ISSUES ON THE ACCOMPLISHMENT OF BIR FORM 1709 AND REQUIRED ATTACHMENTS
RMC 76-2020, issued on July 29, 2020, clarifies certain issues regarding the submission of Information Return on Transactions with Related Party (BIR Form 1709) and required attachments to the Annual Income Tax Return (ITR) pursuant to Revenue Regulations (RR) No. 19-2020.
- Purpose is to aid the BIR in the evaluation of transfer pricing risk assessment in preparation for thorough audit and BIR compliance on inter-country exchange of information;
- Covered taxpayers include taxpayers with Related-Party Transactions (RPT), regardless of amount and volume of transactions. Non-stock, non-profit entities engaged in business and with RPT are also covered. Compliance starts with taxpayers with fiscal year ending March 31, 2020 and onward citing the effectivity of the regulations last July 25, 2020. Taxpayers with fiscal year ending March 31, 2020, regardless whether they have already submitted the Annual ITR on or before July 15, 2020, are given until September 30, 2020 to submit.
- Deadline and manner of filing;
- Transactions to be disclosed including pending Tax Treaty Ruling Application (TTRA) filed;
- Required attachments such as Transfer Pricing Documentation used by taxpayer as basis of setting arm’s length pricing, whether prepared by parent company or the other transacting related party, contracts and agreements, proof of taxes paid in a foreign country, should there be any;
- Penalties for non-compliance.
V. BIR EXTENDS THE DEADLINE OF REGISTRATION OF BUSINESS ENGAGED IN DIGITAL TRANSACTIONS
RMC No. 75-2020, issued on July 29, 2020, circularizes the extension of deadline for business registration of those into digital business identified under RMC No. 60-2020, with no penalty imposition, from July 31, 2020 to August 31, 2020. It may be recalled that under RMC No. 60-2020, the BIR encouraged all taxpayers to register with the Bureau. This RMC also clarified that those identified taxpayers in the RMC, who are not complying with registration requirements and failed to declare correct tax due, shall be penalized.
VI. BIR CLARIFIES THE SUSPENSION OF THE RUNNING OF THE PERIOD OF STATUTE OF LIMITATIONS
RMC No. 74-2020, issued on July 22, 2020, clarifies that the running of Statute of Limitations on the assessment and collection enforcement shall be suspended starting March 16, 2020 until the lifting of the Enhanced Community Quarantine (ECQ) and for 60 days thereafter. This means that all prescribing assessments, issuances and service of assessments notices are suspended for the mean time, on areas under ECQ.
The definition of ECQ is further clarified in reference to RMC No. 77-2020.
Under the previous RMC No. 34-2020, the running of the Statute of Limitations is until 60 days after lifting of the state of national emergency and applies nationwide.
VI. SEC MEDIA RELEASE
SEC, in an advisory dated July 27, 2020, informs the public on the disqualification of external auditor of R&L Investments from securing accreditation for gross negligence over a scheme that resulted in the collapse of brokerage R&L Investments, Inc. Aside from disqualification, the auditor was ordered to pay Php 314,570.65 as penalty for material disclosure deficiencies and misstatements, as well as for violation of independence rules. Subsequently, the Commission ordered Capital Markets Integrity Corporation (CMIC) to take over the operations of R&L Investments to protect affected customer accounts.
The failure to flag the misappropriation of securities through conduct of appropriate procedures not only contributed to the continuation of illegal acts which resulted in the massive loss of securities belonging to a number of investors but also created a negative impact on investor’s confidence to the Philippine stock market. The auditor admitted that he relied on the BP Portfolio Report furnished by R&L Investments, which turned out to be altered, and accepted the same as audit evidence to validate the information in the brokerage’s Inventory Report. According to SEC, the auditor should have rejected the documents as audit evidence and initiated additional audit procedures considering it has identified weaknesses in R&L Investments’ control environment. Lastly, it was also found that the auditor himself prepared the audited financial statements of R&L Investments, in violation of the independence requirement for external auditors.
VII. BIR MEDIA RELEASES
- Bus operator and its responsible officer convicted
- Taxpayer registration system now operational
- Iris CRR and RFPmodule rolled out
- BIR to grant step increment to top 5% performers
BUS OPERATOR AND ITS RESPONSIBLE OFFICER CONVICTED
After more than ten (10) years, Court of Tax Appeals (CTA) found a bus operator and its responsible officer guilty beyond reasonable doubt for violation of the 1997 Tax Code covering taxable years 1998 to 2004. CTA held that all the pieces of evidence presented by the Prosecution from different government agencies such as BIR, SEC, LTFRB, and LTO show that the taxpayer conducted business contrary to the claim of its officer that the operations began only in 2005. Further, CTA held that the taxpayer had knowledge of the obligation to file the returns but failed to comply. Both the bus operator and its responsible officer were convicted and ordered to pay fine of Php 100,000 and Php 50,000 respectively. In addition, the officer will likewise suffer straight penalty of imprisonment for one (1) year.
TAXPAYER REGISTRATION SYSTEM NOW OPERATIONAL
BIR informs the public on the availability of the Taxpayer Registration System (TRS). It will now be easier for the taxpayers to register with the BIR and get their Taxpayer Identification Number (TIN). Likewise, the TRS can generate the Certificate of Registration and Authority to Print (ATP) simultaneously for new business registrants.
IRIS CRR AND RFP MODULE ROLLED OUT
Two (2) modules of the BIR’s Integrated System (IRIS) have been rolled out, namely:
- Collection, Remittance and Reconciliation (CRR) which will provide information on the taxespaid by the taxpayers through various channels and mode of payments as well as the tax remittances made by Authorized Agent Banks.
- Returns Filing and Processing (RFP) will facilitate the implementation of functions related to taxreturns processing, such as the validation, adjustment, cancellation and reversal of tax returns, as well as the resolution of errors in suspended returns.
BIR TO GRANT STEP INCREMENT TO TOP 5% PERFORMERS
An increase in salary thru step increment awaits BIR officials and employees who are included in their office’s Top 5% performers.
VIII. TAX AND BUSINESS-RELATED NEWS [AUGUST 1-7]
- Tiger economy in ‘coma’: Economist explains recession impact on Filipinos
- PH faces ‘life vs. livelihood’ dilemma in COVID-19 fight, economy ‘collateral damage’: DOF
- Canada says will hit back at US aluminium tariffs with ‘countermeasures’
- Singapore company director charged over Wirecard scandal
- DTI says no need for workers without symptoms to be tested for coronavirus
- Hontiveros seeks creation of ‘anti-overpricing body’ to police PhilHealth spending
- 1 in 4 MSMEs closed due to COVID-19 pandemic: trade chief
- Japan to promote trade document digitalization platform to ASEAN
- Sotto wants PhilHealth officials reshuffled with ‘good’ businessman at helm
- SSS approves P15.6-B in virus calamity assistance loans
- PH remittances seen to drop 20 percent as ADB study assumes ‘worst-case scenario’
- 7B: Taxesfrom marked fuel since September 2019
Tiger economy in ‘coma’: Economist explains recession impact on Filipinos [ABS-CBN News, August 7, 2020]
The “tiger” that is the Philippine economy has fallen into a coma. An economics professor said this Thursday, explaining how the economic contraction in the country was rooted in reduced business activity because of lockdowns imposed to stem the spread of COVID-19.
PH faces ‘life vs. livelihood’ dilemma in COVID-19 fight, economy ‘collateral damage’: DOF [ABS-CBN News, August 7, 2020]
The country’s COVID-19 fight has brought collateral damage on the economy, the Department of Finance said Friday, as the country plunged into recession in the second quarter.
Canada says will hit back at US aluminium tariffs with ‘countermeasures’ [ABS-CBN News, August 7, 2020]
Ottawa on Thursday said it would hit back at US tariffs reimposed on imports of Canadian aluminium with “dollar-for-dollar countermeasures.”
Singapore company director charged over Wirecard scandal [ABS-CBN News, August 7, 2020]
A company director has been charged in Singapore with falsifying letters linked to scandal-hit German payments giant Wirecard, according to court documents, as the fallout from the firm’s collapse spreads further around the world.
DTI says no need for workers without symptoms to be tested for coronavirus [ABS-CBN News, August 7, 2020]
The Department of Trade and Industry said Friday there would be “no need” to test workers who show no symptoms of novel coronavirus infection as authorities seek to boost the Philippine economy after falling into recession due to the pandemic.
Hontiveros seeks creation of ‘anti-overpricing body’ to police PhilHealth spending [ABS-CBN News, August 7, 2020]
Sen. Risa Hontiveros on Thursday urged the executive branch to create an “anti-overpricing body” to curb alleged corruption in the Philippine Health Insurance Corp (PhilHealth), whose officials supposedly took public funds for themselves from procuring equipment up to 10 times the actual price.
1 in 4 MSMEs closed due to COVID-19 pandemic: trade chief [ABS-CBN News, August 7, 2020]
The COVID-19 pandemic has shuttered about a quarter of the country’s micro, small, and medium enterprises (MSMEs), the trade department said Friday, as authorities lined up measures to lift the economy from recession.
Japan to promote trade document digitalization platform to ASEAN [ABS-CBN News, August 5, 2020]
The Japanese government plans to promote a platform to member countries of the Association of Southeast Asian Nations for digitalizing all trade-related documents, sources close to the matter said Wednesday.
Sotto wants PhilHealth officials reshuffled with ‘good’ businessman at helm [ABS-CBN News, August 5, 2020]
Senate President Vicente Sotto III on Wednesday said the officials in the Philippine Health Insurance Corp (PhilHealth) had to be reshuffled with a “good” businessman leading the agency to eliminate corruption in the state-run insurance firm.
SSS approves P15.6-B in virus calamity assistance loans [ABS-CBN News, August 4, 2020]
The Department of Finance said Tuesday the Social Security System has so far approved P15.63 billion in COVID-19 calamity assistance loans as of July 28.
PH remittances seen to drop 20 percent as ADB study assumes ‘worst-case scenario’ [ABS- CBN News, August 4, 2020]
The Philippines may see remittances from overseas Filipinos drop 20.2 percent this year compared to 2018 levels because of the disruptions caused by the COVID-19 pandemic, according to a study by economists at the Asian Development Bank.
P91.7B: Taxes from marked fuel since September 2019 [Philippine Daily Inquirer, August 3, 2020]
The government generated P91.7 billion in import duties and excise from oil products since September 2019, thanks to the fuel marking program which ensured collection of correct levies.
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