KBP CHIEF: NOT END OF THE ROAD YET FOR ABS-CBN DESPITE DENIED FRANCHISE + PEZA FEARS SOME COMPANIES MIGHT LEAVE BECAUSE OF GLOBAL RECESSION
Other Relevant Tax Updates:
- Bureau Of Internal Revenue (BIR) Ruling Digests
- Court Of Tax Appeals (CTA) Case Digests
- Tax And Business-Related News [July 4-11]
I. BIR RULING DIGESTS
- Philippine Amusement Gaming Corporation (PAGCOR) Licensee’s Gaming Revenueis Subject to 5% Franchise Tax In Lieu of All Taxes
- DividendsReceived by Non-Resident Foreign Corporation From Domestic Company Are Subject to 15% Final Withholding Tax (FWT)
- Dividends to be paid to United States Company Subject to 15% FWT Pursuant To RP-Us Tax Treaty
- Extent of VAT Exemption of Regional Headquarter (RHQ)
- Transfer of Title From Sole Proprietorship to Owner Does Not Require Tax Clearance but only Administrative Correction of Title at the Register of Deeds
- Denied Tax Exemptionon the ground of Inurement of Benefits to its Members
- Payment of Per Diem is Considered As Private Inurement which the Law Prohibits in Operating a Non-Stock, Non-Profit Corporation
- Power to Abate Or Cancel Penaltiesis with the Commissioner of Internal Revenue (CIR)
- Services Fees Paid To Non-Resident Foreign Corporationfor Services Rendered outside the Philippines are exempt from Income Tax and VAT
- Homeowners Associationis Exempt From Income Tax And Business Tax
- VAT Exemption of Private Educational Institutiondoes not include its Purchase of Goods And Services
- BIR Ruling is Not Necessary in Availment of Philippine Economic Zone Authority (PEZA) Tax Incentives
PAGCOR LICENSEE’S GAMING REVENUE IS SUBJECT TO 5% FRANCHISE TAX IN LIEU OF ALL TAXES
T Co., a holder of gaming license issued by PAGCOR, is seeking confirmation on whether its gaming site shall be subject to 5% franchise tax, in lieu of all kinds of taxes. In reply, BIR cited Section 13 (2) of Presidential Decree (P.D.) No. 1869 which states that no tax of any kind or form, income or otherwise, as well as fees, charges, or levies of whatever nature, whether national or local, shall be assessed and collected under this franchise, except a franchise tax of 5% of the gross revenue or earnings derived by corporation from its operation under this franchise. Thus, the income derived by T Co. solely from its electronic games operation, during the validity period of its gaming licenses on the specified gaming site, is subject only to 5% franchise tax, and shall be exempted from corporate income tax and VAT. [BIR RULING NO. 127-20, FEBRUARY 4, 2020]
DIVIDENDS RECEIVED BY NON-RESIDENT FOREIGN CORPORATION FROM DOMESTIC COMPANY ARE SUBJECT TO 15% FWT
L Group, a non-resident foreign company organized and established in Barbados, is seeking a ruling if cash dividends to be received from C Energy Company, are subject to 15% FWT rate under Section 28 (B) (5) (b) of the 1997 Tax Code, as amended, otherwise known as “Tax Sparing Credit.” In ruling, the BIR opined that considering that L Group holds more than 10% of the capital of the non-resident company, the dividends received by it, as a company registered in Barbados, shall not be included in calculating the assessable income under the Income Tax Act of Barbados. Further, cash dividends to be received from C Energy Company are subject to the 15% preferential FWT. [BIR RULING NO. 24-20, JANUARY 24, 2020]
DIVIDENDS TO BE PAID TO UNITED STATES COMPANY SUBJECT TO 15% FWT PURSUANT TO RP-US TAX TREATY
F Motor Philippines is seeking a ruling if dividends to be paid to F Motor United States is subject to 15% FWT pursuant to Section 28 (B) (5) (b) of the 1997 Tax Code, as amended, otherwise known as “Tax Sparing Credit.” In ruling, the BIR opined that inter-corporate dividends received by a non-resident foreign corporation from a domestic corporation and collected and paid in accordance with Section 57 (A) of the 1997 Tax Code, as amended 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 the non-resident foreign corporation taxes deemed to have been paid in the Philippines equivalent to the rate of 15% of such dividend. Since F Motor United States is a corporation organized, existing and registered under the laws of the United States of America, a country which allows a credit against the tax due from the non-resident corporation taxes deemed to have been paid in the Philippines; dividends are subject to 15% FWT. [BIR RULING NO. 20-20, JANUARY 24, 2020]
EXTENT OF VAT EXEMPTION OF RHQ
N Co., an RHQ, is seeking a ruling on its VAT exemption claim pursuant to Section 109 (J) of the 1997 Tax Code and Chapter IV, Article 65, Book III of Executive Order No. 226, otherwise known as the Omnibus Investment Code of 1987. In ruling, the BIR opined that a Regional or Area Headquarters established in the Philippines by multinational companies which act as supervisory, communications and coordinating centers for its subsidiaries, branches or affiliates in the Asia-Pacific Region and other foreign markets, and which does not earn or derive income in the Philippines are exempt from VAT. Likewise, the sale or lease of goods or properties to them is subject to 0% VAT rate. Thus, considering that N Co. was established to act as supervisory, communication and coordinating center for its affiliates, subsidiaries or branches in the Philippines, it shall be exempt from VAT, provided, that it does not earn or derive income from the Philippines. Also, since Executive Order No. 226 is a special law, the sale or lease of goods and property and the rendition of services to N Co. shall be subject to 0% VAT. [BIR RULING NO. VAT-006-20, JANUARY 24, 2020]
TRANSFER OF TITLE FROM SOLE PROPRIETORSHIP TO OWNER DOES NOT REQUIRE TAX CLEARANCE BUT ONLY ADMINISTRATIVE CORRECTION OF TITLE AT REGISTER OF DEEDS
AAA has requested a ruling for exemption from the payment of Capital Gains Tax on the transfer of property registered in the name of M Enterprise to his name. In ruling, the BIR opined that ownership of the land in question, although registered in the name of M Enterprise, actually belongs to the sole proprietor thereof. As such, there is actually no transfer since the subject property belongs to one and the same person. As such, there is no relevance in securing a Certificate Authorizing Registration (CAR) for a mere administrative correction to change the name from M Enterprise to the individual’s name before the proper Register of Deeds suffices. [BIR RULING NO. 30-20, JANUARY 24, 2020]
DENIED TAX EXEMPTION ON THE GROUND OF INUREMENT OF BENEFITS TO ITS MEMBERS
A Co. is seeking reconsideration on its denied Certificate of Tax Exemption Ruling as a result of earlier findings of the BIR that A Co. is giving per diem to the members of the Board of Directors, a clear violation of the law. A Co. amended the By-Laws of the Corporation which provides per diem to its members in response to the aforesaid ruling to cure the defect. However, upon perusal of the Financial Statements, it revealed that the officers and directors of the Corporation have been receiving substantial allowances and discretionary expenses fees. Hence, this act violates the requirement that no part of the net income or assets of the corporation shall inure to the benefit of any individual or specific person. Thus, the request for the reconsideration of the denied ruling cannot be granted. [BIR RULING NO. 22-20, JANUARY 24, 2020]
PAYMENT OF PER DIEM IS CONSIDERED AS PRIVATE INUREMENT WHICH THE LAW PROHIBITS IN OPERATING A NON-STOCK, NON-PROFIT CORPORATION
M Co. is requesting issuance of a Certificate of Tax Exemption enjoyed by a non-stock, non-profit corporation or association pursuant to Section 30 (H) of the 1997 Tax Code. In reply, the BIR states that to avail of the tax exemption under Section 30 (H), which was further clarified by Revenue Memorandum Circular (RMC) No. 51-2014, the earnings or assets of the corporation shall not inure to the benefit of any of its trustees, organizers, officers, members or any specific person. After perusal of the submitted documents, it revealed that M Co. is giving per diem to the members of the Board of Directors. Hence, this is a form of private inurement which the law prohibits in the organization and operation of a non-stock, non-profit corporation. Thus, M Co. does not qualify for exemption under Section 30 (H) of the Tax Code, therefore, it is liable for income taxes imposed by the same law. [BIR RULING NO. 19-20, JANUARY 24, 2020]
POWER TO ABATE OR CANCEL PENALTIES IS WITH THE CIR
BBB has requested a ruling with prayer to waive or reduce the interest and penalties on capital gains tax due on transfer of property. As represented, BBB executed a Contract to Sell with G Real Estate Corporation (G Co.) involving a sale of condominium unit. Upon completion of payment, G Co. failed to process the transfer of the title in favour of BBB, including the payment of tax due on the aforesaid sale. In ruling, the BIR states that under Sections 248 (A) (1) and (3) and 249 of the 1997 Tax Code, as amended, the imposition of surcharge for failure to file return and pay the tax due thereon and interest on delinquency is mandatory. Moreover, under Section 204 (B) of the 1997 Tax Code, as amended, the Commissioner may abate or cancel tax liability only in two (2) cases: (a) the tax or any portion thereof appears to be unjustly or excessively assessed; or (b) the administration and collection costs involved do not justify the collection of the amount due. Voluntary relinquishment of a part of a tax lawfully assessed upon and due from a solvent person or corporation is not permitted by law. Thus, the request was denied. [BIR RULING NO. 8-20, JANUARY 21, 2020]
SERVICES FEES PAID TO NON-RESIDENT FOREIGN CORPORATION FOR SERVICES RENDERED OUTSIDE THE PHILIPPINES ARE EXEMPT FROM INCOME TAX AND VAT
Philippines is seeking a ruling if its service fee payments to S Singapore is exempt from Philippine income tax and VAT. As represented, S Philippines will pay service fees to S Singapore, a non-resident foreign corporation, equivalent to 3% of the former’s total sales every quarter in consideration of marketing support services to be done generally in Singapore. In ruling, the BIR opined that under Section 23 (F) of the 1997 Tax Code, as amended, a foreign corporation whether or not engaged in trade or business in the Philippines, is subject to income tax only with respect to income derived from sources in the Philippines. Since S Singapore performed the services required of it under the Agreement entirely in Singapore, service fees paid by S Philippines to S Singapore for these services shall be exempt from income tax, pursuant to Section 23 (F), in relation to Section 42 (A) (3), of the 1997 Tax Code. With respect to VAT, payments for the sale or exchange of services, including the use or lease of properties are subject to VAT only if the services are performed in the Philippines. Thus, service fees are likewise exempt from VAT. [BIR RULING NO. 6-20, JANUARY 20, 2020]
HOMEOWNERS ASSOCIATION IS EXEMPT FROM INCOME TAX AND BUSINESS TAX
A Homeowners’ Inc., a non-stock and non-profit residential homeowners’ association, is seeking a ruling on the extent of its tax exemption. As represented, it is a duly registered Homeowners Association with the Housing and Land Use Regulatory Board; that its financial statements show the delivery of basic community services defined under Section 3 (d) of Republic Act (R.A.) 9904; and that the Local Government Unit covering the jurisdiction of the Homeowners Association has issued a Certificate that it lacks the resources to provide these services to the Association. In ruling, the BIR opined that the income derived from association dues, membership fees, other assessments and charges collected in a purely reimbursable and rentals of facilities of A Homeowners’ Inc. is exempt from income tax, VAT or percentage tax, whichever is applicable. Provided, that such income and dues shall be used for the cleanliness, safety, security and other basic services needed by the members, including the maintenance of the facilities of their respective subdivisions or villages. However, it shall be subject to the applicable internal revenue taxes on its other income from trade, business or other activities. [BIR RULING NO. 5-20, JANUARY 20, 2020]
VAT EXEMPTION OF PRIVATE EDUCATIONAL INSTITUTION DOES NOT INCLUDE ITS PURCHASE OF GOODS AND SERVICES
C Co. is seeking clarification on the extent of VAT exemption of private educational institution. In reply, the BIR ruled that the VAT exemption only pertains to the educational services rendered by a private educational institution and does not extend to purchase of goods and services. The exemption covers only taxes for which it is directly liable. Since VAT is an indirect tax, VAT-registered suppliers can pass on 12% VAT on private educational institutions on its purchases of goods and services, and once VAT is shifted, it will form part of the cost of the goods and/or services supplied to the school. [BIR RULING NO. 1-20, JANUARY 17, 2020]
BIR RULING IS NOT NECESSARY IN AVAILMENT OF PEZA TAX INCENTIVES
A PEZA entity does not need a BIR ruling on availment of tax incentives on its registered activity within the ecozone. It must only observe and comply with the terms and conditions provided for in its Registration Agreement with PEZA. [BIR RULING NO. OT 001-20, JANUARY 6, 2020]
II. CTA CASE DIGESTS
- Assessment cancelled due to defective waiver
- Amount received by an employee as a consequence of involuntary terminationis tax exempt regardless of age and length of service
- It is incumbent on the part of the BIR to submit proof of competent evidence on service of assessment notices; the fact of mailing can be proven by presenting the registry receipt issued by the bureau of posts/registry returncard which would have been signed by the taxpayer or his authorized representative
- Void assessment due to absence of authority on the part of examiner; void assessment since no definite date to settle; authority of the assistant commissionerto sign Letter of Authority (LOA)
- No valid LOA renders the assessment void; piece-meal set-in of prescription; absence of LOA on reassignmentrenders the assessment null and void; non-observance of the 15-day period to protest the Preliminary Assessment Notice (PAN) violates the taxpayer’s right to due process and renders the assessment void
- To be considered a non-resident foreign corporation doing business outside the Philippines for VAT zero-rating purposes and input VAT refund of a manning company,the claim must be supported by both SEC certification of non-registration of corporation and proof of incorporation/registration in a foreign country
- SEC Certificate of Non-registration and Articles of Foreign Incorporation must be provided to support claim for input vat refund;refund of input VAT must comply with invoicing compliance requirements
- Defects in Creditable Withholding Tax (CWT) certificatesas grounds for disallowance in refund cases
- Prior year’s excess creditsmust be proven in a claim of CWT refund; claimant has the burden of proof to establish the factual basis of his claims for tax credit or refund
- Court has no jurisdiction over a case if petitioner failed to file a petition on time
- No need for identification of input tax attributable to zero-rated salesfor refund to prosper
ASSESSMENT CANCELLED DUE TO DEFECTIVE WAIVER
Petitioner GMA Network Films, Inc. filed a Petition for Review seeking for the cancellation of the assessment issued by the Respondent CIR citing prescription as a ground. Petitioner argued that the Respondent’s right to assess has already prescribed and that the waiver executed was invalid and, therefore, did not extend the period to assess. Likewise, Petitioner argued that the subject waiver was invalid because: (1) it failed to state the kind and amount of taxes subject to audit; (2) the waiver was not duly notarized; (3) the following requirements were not satisfied: (a) the representative’s authority must be in writing and duly authorized, and (b) the concerned revenue official shall see to it that the representative’s authority to sign on behalf of the taxpayer is in writing and duly notarized. After consideration, the Court found the subject waiver invalid. Thus, the assessments had prescribed as there was no valid waiver. Consequently, the Petition was GRANTED. [GMA NETWORK FILMS, INC. VS COMMISSIONER ON INTERNAL REVENUE, CTA CASE NO. 9381, JUNE 30, 2020]
AMOUNT RECEIVED BY AN EMPLOYEE AS A CONSEQUENCE OF INVOLUNTARY TERMINATION IS TAX EXEMPT REGARDLESS OF AGE AND LENGTH OF SERVICE
Petitioner Ma. Jethra B. Pascual filed a Petition for Review seeking for refund on erroneous/overpayment of withholding tax on compensation imposed on her retirement pay. Petitioner argued that her retirement pay is exempt from income tax as a consequence of her involuntary separation from Deutsche Bank. In ruling, the Court discussed that any amount received by an official or employee or by his heirs from the employer as a consequence of separation of such official or employee from the service of the employer because of death, sickness or other physical disability or for any cause beyond the control of the said official or employee, such as retrenchment, redundancy, or cessation of business shall not be included in gross income and shall be exempt from taxation. Thus, any amount paid by an employer to an employee as a consequence of the latter’s involuntary termination from service, is exempt from income tax and consequently from withholding tax, regardless of the employees’ age and length of service. Consequently, the Petition was GRANTED. [MA. JETHRA B. PASCUAL VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9566, JUNE 30, 2020]
[IT IS INCUMBENT ON THE PART OF THE BIR TO SUBMIT PROOF OF COMPETENT EVIDENCE ON SERVICE OF ASSESSMENT NOTICES] [THE FACT OF MAILING CAN BE PROVEN BY PRESENTING THE REGISTRY RECEIPT ISSUED BY THE BUREAU OF POSTS/REGISTRY RETURN CARD WHICH WOULD HAVE BEEN SIGNED BY THE TAXPAYER OR HIS AUTHORIZED REPRESENTATIVE]
Petitioner Square One Realty Corporation filed a Petition for Review seeking for the cancellation of the assessment issued by the Respondent CIR arguing that it has not received the assessment notice. On the other hand, Respondent countered that he duly issued and served the assessment notice by registered mail at the Petitioners business address. In ruling, the Court resolved if the taxpayer denies having received the assessment notices, it is incumbent upon the BIR to prove, by competent evidence, that the assessment notices were indeed received by the taxpayer. It is essential to prove the fact of mailing presenting the registry receipt issued by the Bureau of Posts or the Registry return card which would have been signed by the Petitioner or its authorized representative. In the absence of the said documents, a Certification issued by the Bureau of Posts and any other pertinent document executed with its intervention, must have been presented to establish the fact of mailing. In the course of the trial, Respondent presented the transmittal letters to prove that the assessment was forwarded to the Administrative Division and to the Post Office for mailing. However, the Court is not persuaded with the foregoing evidence and found that no competent evidence was presented by Respondent to prove the actual receipt of the assessment notice. Thus, the assessment was CANCELLED. [SQUARE ONE REALTY CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9484, JUNE 30, 2020]
[VOID ASSESSMENT DUE TO ABSENCE OF AUTHORITY ON THE PART OF EXAMINER] [VOID ASSESSMENT SINCE NO DEFINITE DATE TO SETTLE] [AUTHORITY OF THE ASSISTANT COMMISSIONER TO SIGN LOA]
Petitioner Sumitomo Corporation-Philippine Branch filed a Petition for Review seeking for the cancellation of the assessment issued by the Respondent CIR covering Taxable Year 2011. Petitioner argued that the assessment was made without authority. On the other hand, Respondent countered that the Petitioner failed to defend its stand and disprove the correctness of the assessment. In ruling, the Court resolved that unless authorized by the CIR himself or by his duly authorized representative through an LOA, examination of the taxpayer cannot ordinarily be undertaken. Perusal of the documents showed that Officer-In-Charge Assistant Commissioner for Large Taxpayer Service (LTS) issued the LOA authorizing the original Revenue Officers (ROs) and Group Supervisor (GS) to do the audit. Subsequently, Chief of Regular LT Audit Division 1 of the BIR issued a Memorandum of Assignment (MOA) referring to the new RO and GS to continue the audit, thereby, replacing the previously assigned ROs. The investigation eventually led to the issuance of assessment notices. Thereafter, another MOA was issued by the Chief of Regular LT Audit Division 1 addressed this time the new RO to continue the audit due to the transfer of the previous RO, leading to the issuance of Amended Final Decision on Disputed Assessment. Revenue Memorandum Order (RMO) No. 29-07 provides that the Assistant Commissioner/Head Revenue Executive Assistant is equivalent of a Regional Director in the LTS that is authorized to issue an LOA. Considering that the said ROs who conducted the examination of Petitioner’s books of accounts did not have valid authority to do so in the first place renders the tax assessment issued inescapably void. Furthermore, to be valid, a tax assessment must not only contain a computation of tax liabilities, it must also include a demand upon the taxpayer for the settlement of a tax liability that is definitely set and fixed. Upon careful scrutiny of the subject Formal Letter of Demands, it revealed that although it provides for the computation of Petitioner’s tax liabilities, the amount thereof remains indefinite, since the tax due is still subject to modification and no due dates was specifically set therein. Such being the case, the subject tax assessment cannot be enforced against Petitioner. It then becomes unnecessary to address the other issues or arguments raised by the parties. Thus, the Petition was GRANTED and the assessment was CANCELLED and WITHDRAWN. [SUMITOMO CORPORATION-PHILIPPINE BRANCH VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9422, JUNE 30, 2020]
[NO VALID LOA RENDERS THE ASSESSMENT VOID] [PIECE-MEAL SET-IN OF PRESCRIPTION] [ABSENCE OF LOA ON REASSIGNMENT RENDERS THE ASSESSMENT NULL AND VOID] [NON-OBSERVANCE OF THE 15-DAY PERIOD TO PROTEST THE PAN VIOLATES THE TAXPAYER’S RIGHT TO DUE PROCESS AND RENDERS THE ASSESSMENT VOID]
Petitioner Global Fresh Products, Inc. filed a Petition for Review seeking for the cancellation of the assessment issued by the Respondent CIR covering Taxable Year 2013. Petitioner argued that the non-observance of the 15-day period to protest the Preliminary Assessment Notice (PAN) violates Petitioner’s right to due process which renders the assessment void. Likewise, Petitioner insisted that the assessment is barred by prescription. On the other hand, Respondent countered that the assessment issued is prima facie presumed correct and made in good faith. In ruling, the Court resolved that Respondent has three (3) years to assess Petitioner for deficiency taxes. However, upon perusal of documents, only the deficiency tax assessment on 4th quarter VAT, December 2013 Withholding Tax on Compensation and Expanded Withholding Tax, Annual Income Tax and Documentary Stamp Tax are within the three-year prescriptive period. The Court further ruled that all audits/investigations should be conducted under an LOA, and requires the issuance of a new LOA in case of any reassignment or transfer of cases to another RO. In this case the LOA dated December 8, 2015 revealed that the new RO was directed to continue the audit and investigation, however, he was merely authorized through a Memorandum of Assignment issued just by the Revenue District Officer. Considering that the RO who examined Petitioner’s tax case was not properly clothed with authority through the requisite LOA, the subject tax assessment is void. Lastly, the CIR is mandated to strictly comply with the requirements laid down by law and its own rules. In this case, records showed that Petitioner received the PAN on January 17, 2017 and had fifteen (15) days or until February 1, 2017 to file its protest thereto. However, Petitioner already received the Formal Assessment Notice (FAN) on January 27, 2017. This essentially deprived the taxpayer of the opportunity to file its protest to the PAN, thus, violates taxpayer’s right to due process. Consequently, the subject FAN is void, and bears no valid fruit. Thus, the Petition was GRANTED and the assessment was CANCELLED and SET ASIDE. [GLOBAL FRESH PRODUCTS, INC. VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9718, JUNE 30, 2020]
TO BE CONSIDERED A NON-RESIDENT FOREIGN CORPORATION DOING BUSINESS OUTSIDE THE PHILIPPINES FOR VAT ZERO-RATING PURPOSES AND INPUT VAT REFUND OF A MANNING COMPANY, THE CLAIM MUST BE SUPPORTED BY BOTH SEC CERTIFICATION OF NON-REGISTRATION OF CORPORATION AND PROOF OF INCORPORATION/REGISTRATION IN A FOREIGN COUNTRY
Petitioner Knutsen Philippines Inc. filed a Petition for Review seeking for the refund of unutilized input VAT for taxable year 2015. Respondent CIR countered that the refund should be denied for failure of the Petitioner to substantiate its claim. In ruling, the Court resolved that the Petitioner failed to show that its reported sales qualify for VAT zero-rating. Perusal of the documents showed that the Manning Agreements together with the Summary of Terms of Manning Agreements and Addendum to the Manning Agreements were executed appointing the Petitioner as the Philippine Crewing Manager, who shall be responsible in supplying its foreign clients with Filipino seafarers as per the client’s crew requirements. Manning Agreements only show the names and addresses/incorporation of Petitioner’s clients to whom it renders services, but the same do not establish that such clients are non-resident foreign corporations doing business outside the Philippines. Thus, to be considered as a non-resident foreign corporation doing business outside the Philippines, each entity must be supported, at the very least, by both SEC Certification of Non-Registration of Corporation/Partnership and proof of incorporation/registration in a foreign country (e.g., Articles/ Certificate of Incorporation/ Registration and/ or Tax Residence Certificate), and that there is no other indication which would disqualify said entity in being classified as a non-resident foreign corporation. Thus, the Petition was DENIED. [KNUTSEN PHILIPPINES INC. VS COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9564, JUNE 30, 2020]
[SEC CERTIFICATE OF NON-REGISTRATION AND ARTICLES OF FOREIGN INCORPORATION MUST BE PROVIDED TO SUPPORT CLAIM FOR INPUT VAT REFUND] [REFUND OF INPUT VAT MUST COMPLY WITH INVOICING COMPLIANCE REQUIREMENTS]
Petitioner AIG Shared Services Corporation (Philippines) filed a Petition for Review seeking for refund or issuance of Tax Credit Certificate (TCC) on the alleged excess and unutilized input VAT attributable to zero-rated sales in the amount of Php 79,682,086.49. Respondent CIR argued that the Petitioner failed to substantiate its claim. In ruling, the Court states that in order to claim VAT zero-rating, it must be established that the recipient is a non-resident foreign corporation. Likewise, there must be no indication that the recipient of the services is doing business in the Philippines. Hence, to be considered as non-resident foreign corporation doing business outside the Philippines, each entity must be supported, at the very least, by both SEC Certificate of Non-Registration and proof of incorporation, association or registration in a foreign country. Upon scrutiny of documents, Petitioner was able to provide said documents on some of its service-recipients. However, the Court noted that the Petitioner failed to comply with the invoicing requirements such as invoice without signature, not dated, not readable, Official Receipts (O.R.) with erasures without counter signature, and handwritten details in a computerized OR. Thus, the Petition was PARTIALLY GRANTED resulting in a reduced amount of Php 1,993,863.90 as valid claims. [AIG SHARED SERVICES CORPORATION (PHILIPPINES) VS. COMMISSIONER ON INTERNAL REVENUE, CTA CASE NO. 8850, JUNE 29, 2020]
DEFECTS IN CWT CERTIFICATES AS GROUNDS FOR DISALLOWANCE IN REFUND CASES
Petitioner SM Investments Corporation filed a Petition for Review seeking for the refund or issuance of Tax Credit Certificate (TCC) of excess and unutilized CWT in the amount of Php 330,559,574.00. Petitioner argued that it was able to prove compliance with the requisites by attesting the timeliness of its claim, the inclusion of the income in its Income Tax Return (ITR), and the proof that withholding taxes occurred. On the other hand, Respondent countered that the Petitioner failed to exhaust administrative remedies before elevating the case to the Court, and further claimed that the Petitioner did not provide supporting documents to show that income from which CWT was declared in the AITR pursuant to Revenue Memorandum Order (RMO) No. 53-98 and Revenue Regulations (RR) No. 2-2006. In ruling, the Court resolved that non-submission of complete documents enumerated under the said issuances at the administrative level is not fatal to the claim for refund at the judicial level. The regulation merely imposes a penalty of fine for non-submission, but not the outright denial of the claim for tax refund or credit. The Court further ruled that in order to be entitled to a refund or issuance of TCC for excess/unutilized CWT, Petitioner must satisfy the following requirements: (1) claim must be filed within the two-year prescriptive period; (2) withholding is established by a copy of a statement duly issued by the payer to the payee; and (3) income upon which the taxes were withheld was included in the return of the recipient. Upon perusal of documents, Court-commissioned ICPA disallowed some amounts due to various defects on CWTs comprising the following: (1) CWTs with different Company TIN indicated; (2) CWTs without payer’s signature; (3) CWTs with erasure in the Company’s TIN but without countersignature; and (4) CWTs that are not readable. Thus, Petitioner was able to satisfy the 2nd condition but only to the extent of Php 303,655,464.95. Anent the 3rd condition, Petitioner must prove that the substantiated CWTs were withheld and declared as part of its gross income. In the course of the presentation of evidence, the Court noted that the gross income declared in the 2014 AITR is lower than the total income payments per CWT certificates. Per ICPA report, the assessed discrepancies are due to untraceable and unsubstantiated income payments. Consequently, the Court PARTIALLY GRANTED the Petition and ordered the Respondent to REFUND or ISSUE TCC in the reduced amount of Php 289,755,163.16. [SM INVESTMENTS CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9569, JUNE 29, 2020]
[PRIOR YEAR’S EXCESS CREDITS MUST BE PROVEN IN A CLAIM OF CWT REFUND] [CLAIMANT HAS THE BURDEN OF PROOF TO ESTABLISH THE FACTUAL BASIS OF HIS CLAIMS FOR TAX CREDIT OR REFUND]
Petitioner Tullett Prebon (Philippines), Inc. filed a Petition for Review seeking for refund or issuance of TCC on the alleged excess and unutilized CWT in the amount of Php 12,481,971.00 for Calendar Year (CY) 2015. In ruling, the Court cited that in order to claim for refund or TCC, the following requisites should be met: (1) the claim for refund must be filed within the two-year prescriptive period; (2) the fact of withholding must be established by a copy of a statement duly issued by the payer to the payee, showing the amount paid and the amount of tax withheld therefrom; and (3) that the income upon which the taxes were withheld must be included in the return of the recipient. Perusal of the documents showed that since the Petitioner failed to prove that it had prior year’s excess credits; Petitioner’s properly substantiated CWT for CY 2015 in the amount of Php 10,987,193.77 should be applied to cover its income tax due for CY 2015 in the amount of Php 2,415,255.00. Consequently, the Petition was PARTIALLY GRANTED and Respondent was ORDERED TO REFUND, or TO ISSUE TCC in the reduced amount of Php 8,571,938.77. [TULLETT PREBON (PHILIPPINES), INC. VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9804, JUNE 15, 2020]
COURT HAS NO JURISDICTION OVER A CASE IF PETITIONER FAILED TO FILE A PETITION ON TIME
Petitioner Getz Pharma (Phils.) Inc. filed a Petition for Review seeking cancellation of the assessment issued by the Respondent CIR. Petitioner argued that the Respondent violated its right to due process and that the assessment for certain tax types has already prescribed. On the other hand, Respondent countered that the Court has no jurisdiction to entertain the Petition due to failure of the Petitioner to file it on time. In ruling, the Court cited Revenue Regulations (RR) No. 18-2013 which states that the CIR has 180 days to act on the protest counting from the date of submission of protest letter. If during the lapse of 180 days and CIR still has no action, the taxpayer may file a case before CTA within 30 days before the lapse of the 180 days. Since the Petitioner has requested for reconsideration, and counting from February 25, 2015, the 180-day period for the CIR to act on the protest has ended on August 24, 2015. Consequently, the Petition should have been filed within thirty (30) from August 24, 2015 or not later than September 23, 2015. Considering that the Petition was only filed on January 20, 2016, the Court is clearly without jurisdiction to entertain the same. Thus, the Petition was DENIED for lack of jurisdiction. [GETZ PHARMA (PHILS) INC. VS. HONORABLE COMMISSIONER OF INTERNAL REVENUE KIM HENARES, REGIONAL DIRECTOR ALFREDO MISAJON AND REVENUE DISTRICT OFFICER JOSEPHINE VIRTUCIO, CTA CASE NO. 9245, JUNE 9, 2020]
NO NEED FOR IDENTIFICATION OF INPUT TAX ATTRIBUTABLE TO ZERO-RATED SALES FOR REFUND TO PROSPER
Both CIR and Chevron Holdings, Inc. (Chevron) filed a Petition for Review seeking reversal of the CTA 1st Division’s earlier decision reducing the amount of refund filed by Chevron. Chevron argued that the refund should be higher than what was adjudged. On the other hand, CIR countered that Chevron was not able to prove that it’s declared zero-rated sales pertain to non-resident foreign corporations doing business outside the Philippines. Also, there should be a determination on whether the input VAT paid is directly attributable to Chevron’s zero-rated sales. In ruling, the Court held that in order to be considered a non-resident foreign corporation doing business outside the Philippines, an entity must be supported by both SEC Certificate of Non-Registration of Corporation/Partnership and proof of foreign incorporation/ association/business registration. In the appreciation of support, it was shown that not all zero-rated sales are supported with such documents. On the contention of the CIR, the Court emphasized that the law does not require that the input tax be directly attributable to zero-rated sales. Further, it stressed out that an input tax that bears a direct or indirect connection with a taxpayer’s zero-rated sales satisfies the requirement of the law. Thus, both Petitions were DENIED for lack of merit. The earlier decision was AFFIRMED. [COMMISSIONER OF INTERNAL REVENUE VS. CHEVRON HOLDINGS, INC., CTA EN BANC NO. 1950, JUNE 3, 2020]
III. TAX AND BUSINESS-RELATED NEWS [JULY 4-11]
- SEC approves first ever listing of a REIT company
- Banks extend fee waivers for digital transactions
- KBP chief: Not end of the road yet for ABS-CBN despite denied franchise
- BIR moves to plug tax leaks from related-party transactions
- Supreme Court rules Trump cannot block release of financial records
- BIR to refund VAT on imported meds for diabetes, cholesterol, hypertension
- Cebu Pacific to lay off over 800 workers as virus impact ‘worsened’
- ‘Study now, pay later’: Landbank offers new loan for education support
- Where’s Trump’s financial disclosure? White House blames pandemic
- Facebook decisions ‘setbacks for civil rights,’ audit finds
- Brooks Brothers, founded in 1818, files for bankruptcy
- ‘Super consortium’ reassesses viability of NAIA rehabilitation project amid pandemic
- DOF assures: PH borrowings ‘manageable’ and ‘affordable’
- COVID-19 pandemic highlights ‘increasing importance’ of digital transactions: BSP
- PEZA fears some companies might leave because of global recession
- Meralco CEO says sorry for bill shock, cites ‘failure’ to ‘clarify’ COVID-19 lockdown billing
- Meralco waives P47 online payment fee for consumers in GCQ areas
SEC approves first ever listing of a REIT company [Philippine Daily Inquirer, July 11, 2020]
Property giant Ayala Land Inc. has obtained approval from the Securities and Exchange Commission (SEC) to bring to public hands the country’s very first real estate investment trust (REIT) that will rise as much as P15.1 billion in fresh capital for more local real estate ventures.
Banks extend fee waivers for digital transactions [Philippine Daily Inquirer, July 11, 2020]
Clients of some of the country’s biggest banks will be able to use the services of two major digital payments channels for free until the end of the third quarter, while some financial institutions have decided to suspend these fees for the rest of the year.
KBP chief: Not end of the road yet for ABS-CBN despite denied franchise [ABS-CBN News, July 11, 2020]
The head of the Kapisanan ng mga Brodkaster ng Pilipinas (KBP) on Friday said he believes that the denial of ABS-CBN’s new franchise application by House members does not mean the country’s biggest media network has met its demise.
BIR moves to plug tax leaks from related-party transactions [Philippine Daily Inquirer, July 10, 2020]
To plug hefty tax leakages from local and foreign deals involving related parties, the Bureau of Internal Revenue (BIR) on Friday mandated reporting of these types of transactions.
Supreme Court rules Trump cannot block release of financial records [ABS-CBN News, July 10, 2020]
The Supreme Court cleared the way Thursday for prosecutors in New York to seek President Donald Trump’s financial records in a stunning defeat for Trump and a major statement on the scope and limits of presidential power.
BIR to refund VAT on imported meds for diabetes, cholesterol, hypertension [Philippine Daily Inquirer, July 9, 2020]
Medicines for diabetes, high cholesterol and hypertension are exempt from value-added tax (VAT), so importations slapped with the 12-percent levy at the start of the year will be refunded, the Bureau of Internal Revenue (BIR) said on Thursday (July 9).
Cebu Pacific to lay off over 800 workers as virus impact ‘worsened’ [ABS-CBN News, July 9, 2020]
Cebu Pacific said Thursday it would lay off more than 800 employees by August as the COVID-19 pandemic continues to “negatively impact” the airline industry.
‘Study now, pay later’: Landbank offers new loan for education support [ABS-CBN News, July 9, 2020]
State lender Land Bank of the Philippines said Thursday it is offering loans of up to P300,000 under its “study-now-pay-later” program meant to cover students’ tuition and assist parents reeling from the pandemic.
Where’s Trump’s financial disclosure? White House blames pandemic [ABS-CBN News, July 9, 2020]
President Donald Trump’s annual financial disclosure report was due to be released more than a week ago. But the filing, the only official public document detailing his personal finances, was not published, and neither the White House nor federal ethics officials offered a public explanation.
Facebook decisions ‘setbacks for civil rights,’ audit finds [ABS-CBN News, July 9, 2020]
Auditors hand-picked by Facebook to examine its policies said that the company had not done enough to protect people on the platform from discriminatory posts and ads and that its decisions to leave up President Donald Trump’s inflammatory posts were “significant setbacks for civil rights.”
Brooks Brothers, founded in 1818, files for bankruptcy [ABS-CBN News, July 9, 2020]
Brooks Brothers, the retailer known for dressing the great and good of the United States since 1818, filed for bankruptcy Wednesday, buckling under the pressure from the coronavirus pandemic after years of faltering sales as customers embraced more casual apparel and sales shifted online.
‘Super consortium’ reassesses viability of NAIA rehabilitation project amid pandemic [ABS-CBN News, July 9, 2020]
The Philippine government’s economic managers dispel fears the “Build, Build, Build” program will fail due to a lack of private participants. This, despite the so-called NAIA super consortium expressing concerns on the viability of the rehabilitation of the country’s main gateway.
DOF assures: PH borrowings ‘manageable’ and ‘affordable’ [Philippine Daily Inquirer, July 8, 2020]
Even as the government has been borrowing more than usual this year due to the COVID-19 pandemic, the Philippines’ debt remains “manageable” and “affordable,” the Department of Finance (DOF) said Wednesday.
COVID-19 pandemic highlights ‘increasing importance’ of digital transactions: BSP [ABS-CBN News, July 8, 2020]
The lockdowns imposed to curb the spread of COVID-19 have given electronic payments a boost, Bangko Sentral ng Pilipinas Gov. Benjamin Diokno said Wednesday.
PEZA fears some companies might leave because of global recession [Philippine Daily Inquirer, July 7, 2020]
The Philippine Economic Zone Authority (PEZA) fears the global recession might prompt companies to cut down on costs, forcing them to pull out of the Philippines and focus operations on more investor-friendly countries instead.
Meralco CEO says sorry for bill shock, cites ‘failure’ to ‘clarify’ COVID-19 lockdown billing [ABS-CBN News, July 6, 2020]
The Manila Electric Co (Meralco) on Monday apologized to the public for the “continuing inconvenience” over the confusing electricity bills covering months during the enhanced community quarantine.
Meralco waives P47 online payment fee for consumers in GCQ areas [ABS-CBN News, July 6, 2020]
The Manila Electric Co (Meralco) on Monday has agreed to waive the P47 convenience fee for consumers who pay their bills online while the general community quarantine (GCQ) is still in place in Metro Manila and surrounding provinces.
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