SEC HAS NO JURISDICTION TO DETERMINE FRAUD: MEDICAL CITY’S GONZALES FACTION + BSP SAYS WORKING ON 60-DAY LOAN REPRIEVE IRR UNDER BAYANIHAN 2 + BANKERS BUSINESS GROUPS SUPPORT PROPOSED CAP ON CREDIT CARD INTEREST RATES

Other Relevant Tax Updates:

  • Securities and Exchange Commission (SEC) Issues Guidelines on the Change of Corporate Term Pursuant to Revised Corporation Code (RCC)
  • Bureau of Internal Revenue (Bir) Rolls Out 10-Year Digital Transformation Roadmap
  • BIR Prescribes the Use of the Revised Exchange of Information (EOI) Working Manual
  • BIR Clarifies Taxability of Earnings of Alien Individuals Trapped in the Philippines as A Result of Covid-19 Restrictions
  • BIR Clarifies that Electronic Audited Financial Statements (EAFS) also Applies to Fiscal Year Accounting Period Taxpayers
  • BIR Amends Fair Value Computation of Taxation Of Ordinary Shares of Stocks
  • Court of Tax Appeals (CTA) Cases Digest
  • Tax and Business-Related News [August 22-28]
 
 

I. SEC ISSUES GUIDELINES ON THE CHANGE OF CORPORATE TERM PURSUANT TO RCC

SEC Memorandum Circular No. 22, Series of 2020, issued on August 18, 2020, provides for the guidelines on the change of corporate term pursuant to Section 11 of RCC.

Highlights include:

  1. Corporations incorporated under the RCC shall have perpetual existence unless its Articles of Incorporation (AOI) provide a specific corporate term.
  2. Corporations whose certificate of incorporation were issued prior to effectivity of the RCC and which continue to exist, shall be deemed perpetual upon effectivity of the RCC, without any action on the part of the corporation.
  3. If the corporation incorporated prior to effectivity of the RCC elects to retain its current corporate term, it should notify the Commission by filing a notice with attached directors’ certificate certifying that the decision was approved in a meeting held for the purpose by majority vote of the Board of Directors/Trustees and by the vote of stockholders representing a majority of the outstanding capital stock, including non-voting shares, or a majority of the members, in case of non-stock corporations. The notice, which is attested by the Corporate Secretary, should be submitted to SEC within a period of two (2) years or until February 23, 2021, otherwise, failure to comply shall deem the corporation of having perpetual existence.
  4. Corporations incorporated under the RCC whose AOI provide for specific term and existing corporations that opted to retain its current corporate term may file an amendment (i.e. extend or shorten corporate term, change specific corporate term to perpetual corporate term and vice versa) which must be approved by vote or written assent of majority of the Board of Directors/Trustees and vote of stockholders representing at least 2/3 of the outstanding capital stock of the corporation. Any change in the corporate term shall be without prejudice to the appraisal right of dissenting stockholders in accordance with the provisions of the RCC

II. BIR ROLLS OUT 10-YEAR DIGITAL TRANSFORMATION ROADMAP

Revenue Memorandum Order (RMO) No. 27-2020, issued on August 13, 2020, rolls out BIR Digital Transformation (DX) Roadmap to adapt to the fast-evolving digital economy and improve the efficiency on revenue collection. The roadmap is anchored on three (3) principles, namely: (1) adopting a people first approach; (2) instituting a process perspective; (3) embracing digital technology

Considerations in the setting of roadmap include:

  1. Elevate taxpayers experience and innovate the BIR processes
  2. Enhance efficiency on BIR internal processes
  3. Reformulating BIR policies and the Tax Code to enable DX in BIR
  4. Adopt digital technology in BIR

Roadmap is set to be implemented in two (2) phases:

Phase 1 (2020-2023) aims to enhance the taxpayers’ knowledge in digital transactions, ease taxpayer’s access to the latest tax information, and use the taxpayer data to understand the taxpayer’s behavior. It also aims to fasten registration, filing, and payment for all taxpayers, as well as giving them 24/7 access to the BIR.

Phase 2 (2024-2030) aims to create a solid platform digital economy transactions, continue to improve through adapting the latest digital technology, offer customized services to the taxpayer, and collection, audit, and enforcement using the data gathered.

III. BIR PRESCRIBES THE USE OF THE REVISED EOI WORKING MANUAL

RMO No. 26-2020, issued on August 11, 2020 prescribes the use of the Revised EOI Working Manual by the International Tax Affairs Division (ITAD) and by concerned BIR officers in relation to assessment and collection enforcement of taxes involved under EOI tax treaty provision. The streamline processes are now aligned with the recommendation of the Global Forum on Transparency and Exchange of Information for Tax Purposes (the Global Forum) and consistent with the Ease of Doing Business and Efficient Government Service Delivery Act of 2018.

IV. BIR CLARIFIES TAXABILITY OF EARNINGS OF ALIEN INDIVIDUALS TRAPPED IN THE PHILIPPINES AS A RESULT OF COVID-19 RESTRICTIONS

Revenue Memorandum Circular (RMC) No. 83-2020, dated August 17, 2020, clarifies the taxability of earnings of alien individuals trapped in the Philippines and the unintended creation of Permanent Establishment (PE) during the pandemic.

Highlights include:

  • Employment income will not be subject to tax in the Philippines if the following conditions concur:
  1. The employee has not been present in the Philippines for more than 183 days in aggregate in the year of income;
  2. His remuneration is paid to him by, or on behalf of an employer that is not a resident of the Philippines; and
  3. His remuneration is not deductible against the profits of a permanent establishment which the foreign employer has in the Philippines.
  • Conversely, the Philippines may tax the employment income of a non-resident alien only if any of the following three tests is met:
  1. The employee is present for more than 183 days in the Philippines;
  2. The employer is a resident of the Philippines; or
  3. A non-resident employer has a permanent establishment in the Philippines which bears the remuneration.
  • When an individual is prevented from leaving the Philippines as a result of travel restriction imposed by the government due to the pandemic, the individual will not be regarded as being present in the Philippines for tax residence purposes.
  • For PE to exist, there must be a place of business with some degree of permanency, and where business are carried on at a particular location that is at the disposal of the enterprise for that purpose. Thus, working from home would not create PE of the foreign enterprise in the Philippines because the conduct of business activities lacks a certain degree of permanency and the home office is not at the disposal of the foreign enterprise. However, if the home office is used on a continuous basis for carrying on the business activities of the foreign enterprise even after the pandemic, the home office may be considered to be at the disposal of the enterprise.

V. BIR CLARIFIES THAT EAFS ALSO APPLIES TO FISCAL YEAR ACCOUNTING PERIOD TAXPAYERS

RMC No. 82-2020, issued on August 11, 2020, prescribes the guidelines on the use of eAFS system for the submission of attachments to Annual and Quarterly Income Tax Returns for taxpayers with fiscal year accounting period. All concerned taxpayers availing the facilities of eAFS shall scan the required documents and comply with the prescribed procedures discussed in the circular.

VI. BIR AMENDS FAIR VALUE COMPUTATION OF TAXATION OF ORDINARY SHARES OF STOCKS

Revenue Regulations (RR) No. 20-2020, issued on August 17, 2020, amends the taxation rules on sale, barter, exchange or other disposition of ordinary shares of stocks or stocks which are not listed and traded in the Local Stock Exchange. The book value of the common shares of stock or the liquidation value of the preferred shares of stock need not be adjusted to include any appraisal surplus from any property of the corporation not reflected or included in the latest Audited Financial Statements (AFS), in order to determine the Fair Market Value (FMV) of the shares of stock. The latest AFS shall be sufficient in determining the FMV of the shares of stock.

It may be recalled that that in the previous RR 6-2008, BIR required the appraisal value of the property contained in the AFS for the purpose of sale or disposition of shares of stocks.

VII. CTA CASES DIGEST

  • Dismissal of civil case in acquittal due to absence of Letter Of Authority (LOA) on (LN) and failure to prove the fact of receipt;LN is entirely different and serves a different purpose than an LOA
  • Burden of proof that all conditions are met for tax refund or creditlies on the taxpayer
  • Failure to indicate due date in the Final Decision on Disputed Assessment (FDDA) will not invalidate the assessment
  • Failure to revalidate LOA before the expiration of 120-day ruledoes not affect the assessment

[DISMISSAL OF CIVIL CASE IN ACQUITTAL DUE TO ABSENCE OF LOA ON LN AND FAILURE TO PROVE THE FACT OF RECEIPT] [LN IS ENTIRELY DIFFERENT AND SERVES A DIFFERENT PURPOSE THAN AN LOA]

Petitioner People of the Philippines filed a Petition for Review seeking for the nullification of the Court in Division’s earlier decision acquitting the Respondent Corazon C. Gernale, alleged Treasurer of Gernale Electrical Contractor Corporation (GECC), for failure to prove her guilt beyond reasonable doubt. Petitioner insisted that Respondent is guilty of violation of Section 255 of the 1997 Tax Code for her alleged willful and unlawful failure to pay deficiency tax liabilities. On the other hand, Respondent countered that both the Preliminary Assessment Notice (PAN) and Formal Assessment Notice (FAN) were sent to her residential address and not on GECC’s principal place of business, thus, rendering the service thereof invalid. Likewise, Petitioner failed to prove that GECC received a copy of the LOA since records disclosed that only the assessment notices were issued pursuant to the LN, and there is no evidence which would show that the LN was converted into LOA. In ruling, the Court held that an LOA is indispensable for a BIR officer to subject a taxpayer to audit, thus, the FAN issued against GECC is void. Evidence is, thus, wanting of the fact upon which the civil liability arising from the criminal violation may occur. Consequently, the Petition was DENIED for lack of merit and the earlier decision was AFFIRMED[PEOPLE OF THE PHILIPPINES VS. CORAZON C. GERNALE, CTA EN BANC CRIMINAL CASE NO. 063, JULY 30, 2020]

BURDEN OF PROOF THAT ALL CONDITIONS ARE MET FOR TAX REFUND OR CREDIT LIES ON THE TAXPAYER

Petitioner I-Remit, Inc. 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 for the year 2015. Respondent Commissioner of Internal Revenue (CIR) argued that the Petitioner failed to substantiate its claim. In ruling, the Court held that in order to be qualified for refund or TCC, the claim must filed within two (2) years after the close of quarter when the sales are made, the taxpayer is engaged in zero rated or effectively zero rated sales and such sales is on acceptable foreign currency exchange duly accounted for in accordance with the Bangko Sentral ng Pilipinas rules and regulations, the taxpayer is VAT-registered person, the input taxes are not transitional input taxes, the input taxes are attributable to zero rated sales, and the input taxes must not be applied against output taxes. Upon verification, it revealed that the Petitioner belatedly filed its administrative claim for the first two (2) quarters. Considering that the Petitioner’s claim covers four (4) quarters of taxable year 2015, the claim should have been filed on or before March 25, 2017. Upon further verification, the claim was only filed in July 2017. Likewise, Petitioner failed to establish its zero-rated or effectively zero rated sales for the subject periods. Thus, the Petition was DENIED. [I-REMIT, INC. VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9733, JULY 24, 2020]

FAILURE TO INDICATE DUE DATE IN THE FDDA WILL NOT INVALIDATE THE ASSESSMENT

Petitioner Western Guaranty Corporation filed a Petition for Review seeking to cancel the assessment issued by the Respondent CIR. Petitioner argued that the FAN is defective for failure to state the legal and factual bases, which are required by Tax Code. Likewise, Respondent failed to indicate in the FDDA the due date for the payment, thus, the reckoning date to which the interest and penalties will be accrued is not established. In ruling, the Court held that the factual and legal bases are stated in the FAN. Further, even though the FDDA has no fixed date for payment, the Respondent fully explained the deficiency taxes in the details of discrepancies in the FAN as the Respondent was able to reconsider and remove the imposition of deficiency income tax and percentage tax from FAN to FDDA. Citing  Commissioner Internal Revenue vs. Liquigaz Philippines Corporation, the invalidity of one does not necessarily result to the invalidity of the other, unless the law or regulations otherwise provide. Thus, the Petition was PARTIALLY GRANTED[WESTERN GUARANTY CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE  NO. 9338, JULY 24, 2020]

FAILURE TO REVALIDATE LOA BEFORE THE EXPIRATION OF 120-DAY RULE DOES NOT AFFECT THE ASSESSMENT

Petitioner Tektite Insurance Brokers, Inc. filed a Petition for Review seeking to reverse the CTA 1st Division’s earlier decision upholding the assessment issued by the Respondent CIR. Petitioner argued that the assessment notices are void for having been issued pursuant to an expired LOA. Further, Petitioner insisted that it is not estopped from questioning the validity of the Waiver, and that it cannot be in pari delicto with the BIR. In ruling, the Court cited the case of GS MTE Grains Corporation, which provides that failure on the part of the BIR to revalidate Petitioner’s LOA does not nullify the LOA nor will it affect or modify rules on the reglementary period within which an assessment may be validly issued. At most, the consequence of violating the revalidation rule is to expose the Revenue Officer to disciplinary action. On the validity of the Waiver, the Court ruled that a notarized Board Resolution is neither required nor necessary to give authority to a responsible officer to execute the Waiver. Thus, the signature of the Petitioner’s President is valid even without Board Resolution. Moreover, since the defects noted by the Court are attributable to the fault of both parties-the Petitioner since it was the Petitioner’s President who presented the invalid proof of identity to the notary public, and who filled out the Waiver without indicating the tax type; and the Respondent since he allowed the Petitioner to submit, and for duly receiving a defective Waiver-the parties in this case are in pari delicto or in equal fault. Likewise, Petitioner is in estoppel as it allowed Respondent to rely on the said Waiver. Hence, the prescriptive period to assess the Petitioner is validly extended. Consequently, the Petition was DENIED for lack of merit. [TEKTITE INSURANCE BROKERS, INC. VS. COMMISSIONER OF INTERNAL REVENUE, CTA EN BANC CASE NO. 1923, JULY 23, 2020]

VIII. TAX AND BUSINESS-RELATED NEWS [AUGUST 22-28]

  1. Duterte eyes to create over 200,000 jobs with proposed P1 trillion infra budget
  2. Salceda seeks ‘fairer’ tax provisions in San Miguel’s new Bulacan airport
  3. Some private schools facing ‘survival issues’ due to pandemic
  4. Duterte guidance sought on airport deal with US-banned Chinese firm
  5. San Miguel says all its tollways will be ‘100 percent’ cashless on Nov. 2
  6. Give jeepney drivers fixed salaries, scrap ‘boundary’ system: MAP
  7. Germany runs public deficit on virus spending, revenue fall
  8. Bankers, business groups support proposed cap on credit card interest rates
  9. Google shifts business to another Philippines-based BPO
  10. NEDA vows to manage recovery ‘as best’ as it can with Bayanihan 2, infra programs
  11. House approves third telco DITO Telecommunity’s 25-year franchise
  12. Streamlining permits under Bayanihan 2 to help ‘dramatically’ increase telco towers: Globe
  13. Bangko Sentral says working on 60-day loan reprieve IRR under Bayanihan 2
  14. Businessmen urge govt, public to uphold constitutional rights as they hail SC ruling on the issue
  15. SEC has ‘no jurisdiction’ to determine fraud: Medical City’s Gonzales faction

 

 

Duterte eyes to create over 200,000 jobs with proposed P1 trillion infra budget [ABS-CBN News, August 28, 2020]

President Rodrigo Duterte’s administration is planning to create hundreds of thousands of jobs in construction with a proposed P1 trillion funding for the government’s ‘Build, Build, Build’ infrastructure push as the COVID-19 pandemic threatens more livelihoods.

Source: https://news.abs-cbn.com/business/08/28/20/duterte-eyes-to-create-over-200000-jobs-with-proposed-p1-trillion-infra-budget

Salceda seeks ‘fairer’ tax provisions in San Miguel’s new Bulacan airport [ABS-CBN News, August 28, 2020]

House Committee on Ways and Means chair Albay Rep. Joey Salceda said Friday some tax provisions should be revised on the bill granting a franchise to San Miguel Corp’s “blue whale” Bulacan airport project.

Source: https://news.abs-cbn.com/business/08/28/20/salceda-seeks-fairer-tax-provisions-in-san-miguels-new-bulacan-airport

Some private schools facing ‘survival issues’ due to pandemic [ABS-CBN News, August 28, 2020]

Some private schools are having “survival issues” due to the economic impact of the COVID-19 pandemic with parents losing jobs and overseas workers returning home, the Catholic Educational Association of the Philippines (CEAP) said Friday. 

Source: https://news.abs-cbn.com/business/08/28/20/some-private-schools-facing-survival-issues-due-to-pandemic

Duterte guidance sought on airport deal with US-banned Chinese firm [ABS-CBN News, August 28, 2020]

The Cavite government said Friday it would seek President Rodrigo Duterte’s guidance on whether or not to go ahead with building an airport with the help of a Chinese firm that the US recently blacklisted for building artificial islands in the South China Sea. 

Source: https://news.abs-cbn.com/business/08/28/20/duterte-guidance-sought-in-airport-deal-with-us-banned-chinese-firm

San Miguel says all its tollways will be ‘100 percent’ cashless on Nov. 2 [ABS-CBN News, August 27, 2020]

San Miguel Corp said Thursday it would implement 100 percent cashless toll collection in expressways it operates starting Nov. 2 in compliance with the order of the Transportation department to reduce spread of COVID-19. 

Source: https://news.abs-cbn.com/business/08/27/20/san-miguel-says-all-its-tollways-will-be-100-percent-cashless-on-nov-2

 Give jeepney drivers fixed salaries, scrap ‘boundary’ system: MAP [ABS-CBN News, August 27, 2020]

Jeepney drivers should get fixed salaries, while operators should be “encouraged” to organize themselves into cooperatives, a group of management professionals said on Thursday. 

Source: https://news.abs-cbn.com/business/08/27/20/give-jeepney-drivers-fixed-salaries-scrap-boundary-system-map

 Germany runs public deficit on virus spending, revenue fall [ABS-CBN News, August 25, 2020]

Germany, long adverse to being in the red, on Tuesday posted a public deficit of 51.6 billion euros for the first half of 2020, with coronavirus lockdowns undercutting government revenue as it increased spending.

Source: https://news.abs-cbn.com/business/08/25/20/germany-runs-public-deficit-on-virus-spending-revenue-fall

 Bankers, business groups support proposed cap on credit card interest rates [ABS-CBN News, August 25, 2020]

Business and industry groups said Tuesday they were “supportive” of the Bangko Sentral ng Pilipinas’ proposal to put a cap on credit card interest rates.

Source: https://news.abs-cbn.com/business/08/25/20/bankers-business-groups-support-proposed-cap-on-credit-card-interest-rates

 Google shifts business to another Philippines-based BPO [ABS-CBN News, August 25, 2020]

Google Philippines said Tuesday it has decided to “shift” to another vendor in the Philippines following a news report that some employees of its business process outsourcing (BPO) partner were alleged involved in fraudulent activities. 

Source: https://news.abs-cbn.com/business/08/25/20/google-shifts-business-to-another-philippines-based-bpo

 NEDA vows to manage recovery ‘as best’ as it can with Bayanihan 2, infra programs [ABS-CBN News, August 25, 2020]

The National Economic Development Authority said Tuesday it hopes to manage recovery from COVID-19 “as best” as it can by working on programs to alleviate impact on severely affected sectors. 

Source: https://news.abs-cbn.com/business/08/25/20/neda-vows-to-manage-recovery-as-best-as-it-can-with-bayanihan-2-infra-programs

 House approves third telco DITO Telecommunity’s 25-year franchise [ABS-CBN News, August 25, 2020]

The House of Representatives on Monday approved a bill granting a fresh 25-year franchise to third telco player DITO Telecommunity formerly known as Mislatel.

Source: https://news.abs-cbn.com/business/08/25/20/house-approves-third-telco-dito-telecommunitys-25-year-franchise

Streamlining permits under Bayanihan 2 to help ‘dramatically’ increase telco towers: Globe [ABS-CBN News, August 24, 2020]

A provision under the Bayanihan 2 that streamlines the permitting process in building telco towers will help “dramatically” increase cell sites in the country, Globe Telecom said Monday. 

Source: https://news.abs-cbn.com/business/08/24/20/streamlining-permits-under-bayanihan-2-to-help-dramatically-increase-telco-towers-globe

Bangko Sentral says working on 60-day loan reprieve IRR under Bayanihan 2 [ABS-CBN News, August 24, 2020]

The Bangko Sentral ng Pilipinas (BSP) said Monday it has drafted the implementing rules of the 60-day moratorium on loans as President Rodrigo Duterte is expected to sign the Bayanihan to Recover as One Act (Bayanihan 2) on Monday.

Source: https://news.abs-cbn.com/business/08/24/20/bangko-sentral-says-working-on-60-day-loan-reprieve-irr-under-bayanihan-2

 Businessmen urge govt, public to uphold constitutional rights as they hail SC ruling on the issue [ABS-CBN News, August 23, 2020]

Businessmen on Sunday urged government and the public to uphold constitutional rights following the Supreme Court’s landmark decision against warrantless arrests and seizures based on anonymous tips.

Source: https://news.abs-cbn.com/business/08/23/20/businessmen-urge-govt-public-to-uphold-constitutional-rights-as-they-hail-sc-ruling-on-the-issue

 SEC has ‘no jurisdiction’ to determine fraud: Medical City’s Gonzales faction [ABS-CBN News, August 23, 2020]

The Securities and Exchange Commission has no jurisdiction to determine fraud, a faction of the Medical City said Saturday after the regulatory agency nullified its majority acquisition of shares due to “fraud.” 

Source: https://news.abs-cbn.com/business/08/23/20/sec-has-no-jurisdiction-to-determine-fraud-medical-citys-gonzales-faction

If you wish to get a copy of the complete texts of the above issuances, send us an email thru taxseminars@dmdcpa.com.ph.