NO TO NEW TAXES SELL OFF STATE-OWNED ASSETS TO COVER REVENUE SHORTFALL: DOMINGUEZ + CAP ON CREDIT CARD INTEREST RATE FEES TAKES EFFECT NOV. 3: BSP
Other Relevant Tax Updates:
- Bureau of Internal Revenue (BIR) implements Bayanihan 2 Provisions on Additional Sources Of COVID-Relief Funds coming from Gaming Revenues
- Court of Tax Appeals (CTA) Cases Digest
- Tax and Business-Related News [November 1-6]
I. BIR IMPLEMENTS BAYANIHAN 2 PROVISIONS ON ADDITIONAL SOURCES OF COVID-RELIEF FUNDS COMING FROM GAMING REVENUES
Revenue Regulations (RR) No. 30-2020, issued on October 30, 2020, prescribes the rules and regulations to implement Section 11(f) and (g) of Republic Act (R.A.) No. 11494 otherwise known as “Bayanihan 2”. It reiterates the liability of offshore gaming licensees, gaming operators, gaming agent, service providers and gaming support on the following taxes derived from gaming and non-gaming operations, which are likewise additional sources of COVID-19 funding, to wit:
- 5% franchise tax imposed on the gross bets or turnovers, or the agreed pre-determined minimum monthly revenues from gaming operations earned, whichever is higher;
- Income tax, VAT, and other applicable taxes imposed on income from non-gaming operations earned.
PAGCOR and/or the company awarded or chosen as its third-party intermediary/audit platform are directed to furnish BIR with information related to gross bets or turnover earned, minimum guarantee fee or the minimum amount of regulatory fees paid, and other relevant data such as list of licensees and accredited service providers, number of foreign nationals employed, among others.
Non-payment, underpayment and/or payment of taxes computed not in accordance with the prevailing official exchange rate at the time of payment shall be considered fraudulent acts and subject to incremental penalties. Likewise, the BIR shall implement closure order against entities which fail to pay the taxes due and such erring entities shall cease to operate. After two years or upon determination that the threat of COVID-19 has been contained or abated, whichever comes first, the revenues derived from franchise taxes on gross bets or turnovers and income from non-gaming operation, shall continue to be collected and shall accrue to the General Fund of the Government.
II. CTA CASES DIGEST
- Whenever one party to the taxable transaction is exempt from Documentary Stamp Tax (DST),the other party who is not exempt shall be the one directly liable
- Since local franchise taxpartakes the nature of an excise tax, the situs of taxation is the place where the privilege is exercised; the proper levying authority of local franchise tax would be the locality where the taxpayer’s principal office is located; local franchise tax assessment is rendered void if the locality has no jurisdiction to impose
- Before a new generation companymay commence its commercial operation, it must first secure a certificate of compliance from Energy Regulatory Commission (ERC); a claimant for tax refund must not only prove entitlement to the claim but also compliance with all the documentary and evidentiary requirements
- Zero-rated purchases of renewable energy (RE) developers are only limited to those necessary for the development, construction and installation of its plant facilities
- Sales of PEZA-registered entity to another PEZA-registered entityare VAT-exempt; local purchases of PEZA registered entities destined to be consumed within the ecozone are subject to zero percent VAT; claim of inappropriately paid input VAT should be to suppliers who inappropriately imposed the input VAT
- Execution and acceptance of waivershould be prior to the prescriptive period, to make it valid
- Proof that clients are non-residents doing business outside the Philippinesis indispensable in claiming zero-rated sales; zero-rated sales of service must be supported by receipts compliant to invoicing requirements
- The “120 +30”-day periodis mandatory and jurisdictional; section 112 (c) of the tax code does not provide alternative remedies to a taxpayer-claimant; the thirty (30)-day period given to a taxpayer to file a judicial claim for input tax refund/TCC shall start from whichever starting point comes first
- FILINVEST case on imposition of DST may be applied retroactively because judicial decisions’ effectivity retroacts to the date when the law it interprets was originally passed
WHENEVER ONE PARTY TO THE TAXABLE TRANSACTION IS EXEMPT FROM DST, THE OTHER PARTY WHO IS NOT EXEMPT SHALL BE THE ONE DIRECTLY LIABLE
Petitioner San Carlos Biopower, Inc. filed a Petition for Review seeking refund of alleged erroneously paid DST. Petitioner argued that its loan agreement with International Finance Corporation (IFC) is exempt from DST based on the IFC Articles of Agreement in which the Philippines is also a signatory. Likewise, IFC did not waive the tax exempt status of its transaction with Petitioner. On the other hand, Respondent CIR countered that the Petitioner must clearly prove that it is entitled to the immunities and privileges of the transaction entered into with the IFC. In ruling, the Court cited Section 173 of the Tax Code which provides that whenever one party is exempt from the DST, the other party who is not exempt shoulders the liability to pay the DST. Since the immunity of IFC is personal, and, therefore, cannot be transferred, Petitioner, not being exempt from DST, becomes the one directly liable therefor. Thus, the Petition was DENIED. [SAN CARLOS BIOPOWER, INC. VS COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9919, NOVEMBER 4, 2020]
[SINCE LOCAL FRANCHISE TAX PARTAKES THE NATURE OF AN EXCISE TAX, THE SITUS OF TAXATION IS THE PLACE WHERE THE PRIVILEGE IS EXERCISED] [THE PROPER LEVYING AUTHORITY OF LOCAL FRANCHISE TAX WOULD BE THE LOCALITY WHERE THE TAXPAYER’S PRINCIPAL OFFICE IS LOCATED] [LOCAL FRANCHISE TAX ASSESSMENT IS RENDERED VOID IF THE LOCALITY HAS NO JURISDICTION TO IMPOSE]
Petitioner National Transmission Corporation (TRANSCO) filed a Petition for Review seeking to reverse the Regional Trial Court (RTC’s) earlier decision upholding the local franchise tax assessment issued by Respondent City of Digos. Petitioner argued that it cannot be held liable to franchise tax since it operates outside the Respondent’s jurisdiction. Further, it cited the Supreme Court case of National Power Corporation vs. City of Cabanatuan, wherein it was held that two requisites must be satisfied before a franchise tax may be levied on a taxpayer: (1) the Petitioner has a franchise in the sense of a secondary or special franchise; and (2) that it is exercising its rights or privileges under this franchise within the territory of the Respondent city government. Despite Davao Del Sur Electric Cooperative (DASURECO) being its customer, it argued that it holds no facility within Respondent City. Thus, the proper levying authority would be the locality where the Petitioner’s principal office is located. In ruling, the Court cited the Supreme Court case of City of Iriga vs. CASURECO III, which provides that since franchise tax partakes the nature of an excise tax, the situs of taxation is the place where the privilege is exercised and where the principal office is located and its operations, regardless of the place where its services or products are delivered. Clearly, the Petitioner cannot be held liable for local franchises tax by Respondent City even if it caters its services within the latter’s territory. Thus, Petition was GRANTED and earlier decision was REVERSED and SET ASIDE. [NATIONAL TRANSMISSION CORPORATION (TRANSCO) VS. CITY OF DIGOS, CTA AC NO. 220, NOVEMBER 4, 2020]
[BEFORE A NEW GENERATION COMPANY MAY COMMENCE ITS COMMERCIAL OPERATION, IT MUST FIRST SECURE A CERTIFICATE OF COMPLIANCE FROM ERC] [A CLAIMAINT FOR TAX REFUND MUST NOT ONLY PROVE ENTITLEMENT TO THE CLAIM BUT ALSO COMPLIANCE WITH ALL THE DOCUMENTARY AND EVIDENTIARY REQUIREMENTS]
Petitioner First Gen Hydro Power Corporation filed a Petition for Review seeking refund or issuance of Tax Credit Certificate (TCC) of unutilized input VAT attributable to its zero-rated sales of power generated through renewable energy sources for the four (4) quarters of 2016. In ruling, the Court discussed the criteria that a claimant-taxpayer must satisfy in order to be entitled to refund, to wit: (1) the claims should be filed within the prescribed period; (2) the taxpayer is a VAT-registered person; (3) there must be zero-rated sales; (4) the input VAT should be incurred or paid; (5) the input VAT should be attributable to zero-rated sales; and (6) that the input VAT should not be applied against any output VAT liability. In the appreciation of support, Petitioner shall be considered as a generation company only on March 1, 2016, the date its Certificates of Compliance were issued by ERC for its hydroelectric power plants. Thus, out of the reported zero-rated sales of Php 2,307,406,681.28, only the amount of Php 1,779,021,194.40 qualifies for VAT zero-rating. Likewise, only the amount of Php 5,572,356.19 were duly substantiated with proper documents and Petitioner was not able to present evidence to support its alleged input VAT directly attributable to its vatable sales in the amount of Php 17,910,468.35, as well as the input tax carried over from previous period as of the beginning of 2016 in the amount of Php 89,456,685.37. As such, Petitioner’s substantiated input VAT attributable to zero-rated sales in the amount of Php 5,572,356.19 shall be applied against its output VAT liability amounting to Pho 36,600,336.13. Consequently, Petitioner still has net output VAT still due of Php 31,027,979.94. Thus, the Petition was DENIED. [FIRST GEN HYDRO POWER CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9889, OCTOBER 29, 2020]
ZERO-RATED PURCHASES OF RE DEVELOPERS ARE ONLY LIMITED TO THOSE NECESSARY FOR THE DEVELOPMENT, CONSTRUCTION AND INSTALLATION OF ITS PLANT FACILITIES
Petitioner Philippine Geothermal Production Company, Inc. filed a Petition for Review seeking refund of alleged overpaid unutilized input taxes amounting to Php 24,548,041.82. Petitioner argued that as a Renewable Energy Developer, it is subject to zero-rated VAT on the local purchases under Republic Act (R.A.) No. 9513 or the Renewable Energy Law, thus, it is entitled to refund of the unutilized input taxes. On the other hand, the Respondent CIR countered that the Petitioner failed to substantiate that the input VAT claimed is directly attributable to its zero rated sales. In ruling, the Court held that the Petitioner’s zero-rated purchases are only limited to those necessary for the development, construction and installation of its plant facilities. Further, enjoyment of zero-rating on purchases is limited only to local purchases and does not extend to international purchases. Perusal of records showed that part of the unutilized input VAT sought to be refunded was shifted by Petitioner’s foreign suppliers. Moreover, upon verification and examination of the submitted documents, not its entire declared zero rated sales were fully substantiated with valid ORs. Thus, the Petition was PARTIALLY GRANTED ordering the Respondent to refund or issue a TCC in favor of the Petitioner at a reduced amount of Php 10,029,711.08. [PHILIPPINE GEOTHERMAL PRODUCTION COMPANY, INC. VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9663, OCTOBER 28, 2020]
[SALES OF PEZA-REGISTERED ENTITY TO ANOTHER PEZA-REGISTERED ENTITY ARE VAT-EXEMPT] [LOCAL PURCHASES OF PEZA-REGISTERED ENTITIES DESTINED TO BE CONSUMED WITHIN THE ECOZONE ARE SUBJECT TO ZERO PERCENT VAT] [CLAIM OF INAPPROPRIATELY PAID INPUT VAT SHOULD BE TO SUPPLIERS WHO INAPPROPRIATELY IMPOSED THE INPUT VAT]
Petitioner Wells Fargo Enterprise Global Services, LLC-Philippines filed a Petition for Review seeking refund or issuance of Tax Credit Certificate (TCC) on input tax allegedly attributable to its zero-rated sales. Petitioner argued that the following requisites are met: (1) it is VAT-registered; (2) it is engaged in zero-rated sales; (3) it incurred input VAT attributable to its zero-rated sales; and (4) it did not claim the input VAT which is subject of the claim for refund as credit against output VAT and that the input VAT being claimed was not carried over to succeeding quarters. In ruling, perusal of the documents showed that a portion of the input VAT being claimed arose from the Petitioner’s purchase from another PEZA-registered entity. Citing Revenue Memorandum Circular (RMC) No. 74-99, the Court ruled that the Petitioner cannot claim the input VAT arising from such transaction because the transaction is VAT-exempt, hence, no VAT should have been passed to the Petitioner. On the rest of the input VAT being claimed for refund, and citing the Coral Bay case, purchases of the Petitioner destined to be consumed within the ecozone from its local suppliers are subject to zero-percent VAT, hence, the suppliers cannot pass the input VAT to the Petitioner. For the Petitioner to recover the input VAT it paid, it must be claimed from the suppliers who erroneously imposed the same pursuant to the unjust enrichment principle provided in Article 22 of the New Civil Code of the Philippines. Thus, the Petition was DENIED. [WELLS FARGO ENTERPRISE GLOBAL SERVICES, LLC-PHILIPPINES VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9481, OCTOBER 26, 2020]
EXECUTION AND ACCEPTANCE OF WAIVER SHOULD BE PRIOR TO THE PRESCRIPTIVE PERIOD, TO MAKE IT VALID
Petitioner CIR filed a Petition for Review seeking to reverse the Court’s earlier decision cancelling the assessment issued against the Respondent RCBC Savings Bank Inc. on the ground of prescription. Petitioner argued that the date of acceptance of a waiver is of no moment and that the date of execution of the waiver is controlling. Further, it argued that a waiver is a unilateral act of one person that results in the surrender of a legal right. As such, it does not require acceptance by Petitioner in order to be binding. In ruling, the Court held that under Section 222 of the Tax Code, it provides that both the Petitioner and the taxpayer should agree in writing to extend the prescriptive period to assess deficiency taxes before the expiration date. Furthermore, Revenue Memorandum Order No. 20-90 provides that the date of execution and acceptance should be made before the expiration of the prescriptive period. Perusal of documents shows that the Petitioner signified his acceptance on April 21, 2010 which is already beyond the expiration of the prescriptive period on April 16, 2010. Consequently, the waiver did not extend the prescriptive period to assess. Thus, the Petition was DENIED and the earlier decision was AFFIRMED. [COMMISSIONER OF INTERNAL REVENUE VS. RCBC SAVINGS BANK INC, CTA EN BANC CASE NO. 2065, OCTOBER 13, 2020]
[PROOF THAT CLIENTS ARE NON-RESIDENTS DOING BUSINESS OUTSIDE THE PHILIPPINES IS INDISPENSABLE IN CLAIMING ZERO-RATED SALES] [ZERO-RATED SALES OF SERVICE MUST BE SUPPORTED BY RECEIPTS COMPLIANT TO INVOICING REQUIREMENTS]
Petitioner Chevron Holdings, Inc. filed a Petition for Review seeking refund or issuance of Tax Credit Certificate (TCC) on input VAT attributable to it zero-rated sales in the amount of Php 84,228,009.20. Petitioner argued that the following requisites are met: (1) it is VAT-registered; (2) it is engaged in zero-rated sale of services; (3) it incurred input VAT attributable to its zero-rated sales; (4) its input VAT attributable to zero-rated sales are unutilized and unapplied against output VAT; and (5) its claim for such input VAT has not yet prescribed. On the other hand, Respondent CIR countered that the claim should be denied for failure of the Petitioner to substantiate that it is engaged in zero-rated sale of services because of its failure to prove that its sales are made to non-residents who are doing business outside the Philippines. In ruling, the Court held that in order to prove that sales are made to non-residents doing business outside the Philippines, Petitioner must be able to present both the SEC Certificate of Non-Registration of Corporation or Partnership and proof of foreign incorporation or registration papers. Perusal of the documents showed that the Petitioner failed to substantiate some of its zero-rated sales. Likewise, some of the invoices and receipts failed to comply with the strict invoicing requirements. Consequently, the Court PARTIALLY GRANTED the Petition ordering the Respondent CIR to refund or issue TCC at a reduced amount of Php 6,444,989.88. [CHEVRON HOLDINGS, INC. VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9266, OCTOBER 7, 2020]
[THE “120 +30”-DAY PERIOD IS MANDATORY AND JURISDICTIONAL] [SECTION 112 (C) OF THE TAX CODE DOES NOT PROVIDE ALTERNATIVE REMEDIES TO A TAXPAYER-CLAIMANT] [THE THIRTY (30)-DAY PERIOD GIVEN TO A TAXPAYER TO FILE A JUDICIAL CLAIM FOR INPUT TAX REFUND/TCC SHALL START FROM WHICHEVER STARTING POINT COMES FIRST]
Petitioner Philippine Airport Ground Support Solutions, Inc. (formerly Philippine Airport and Ground Services Globeground, Inc.) filed a Petition for Review seeking to reverse CTA 3rd Division’s Resolution granting Respondent CIR’s Motion to Dismiss. Petitioner argued that the claim for refund or issuance of Tax Credit Certificate (TCC) was timely filed considering that it had thirty (30) days from denial of its administrative claim within which to file a Petition. In ruling, the Court discussed that a judicial claim must be made within thirty (30) days from receipt of a denial made by CIR or expiration of the 120-day period to act on said administrative claim, whichever comes first and the same are not alternative in nature. Following this, the 120-day period given to Respondent to act started when Petitioner filed its administrative claim on 30 March 2010. Thus, on 28 July 2010, Petitioner’s administrative claim for refund/issuance of TCC was deemed denied since no Decision was received from Respondent up to said date. From said date, Petitioner had thirty (30) days or until 27 August 2010 within which to file a judicial claim. Thus, the filing of the Petition for Review on 25 June 2018 was out of time. Due to Petitioner’s failure to timely file a judicial claim, the Court in Division has no jurisdiction. It cannot be stressed enough that the 120+ 30-day period is mandatory and jurisdictional. Failing to comply with this rule results in the outright dismissal of a VAT refund case even if meritorious. To rule otherwise would write off the importance of mandatory and jurisdictional requirements. Consequently, the Petition was DENIED. [PHILIPPINE AIRPORT GROUND SUPPORT SOLUTIONS, INC. (FORMERLY PHILIPPINE AIRPORT AND GROUND SERVICES GLOBEGROUND, INC.) VS. COMMISSIONER OF INTERNAL REVENUE, CTA EN BANC CASE NO. 2107, OCTOBER 7, 2020]
FILINVEST CASE ON IMPOSITION OF DST MAY BE APPLIED RETROACTIVELY BECAUSE JUDICIAL DECISIONS’ EFFECTIVITY RETROACTS TO THE DATE WHEN THE LAW IT INTERPRETS WAS ORIGINALLY PASSED
San Miguel Paper Packaging Corporation (SMPPC) and the CIR both filed a Petition for Review seeking to modify the CTA Division’s earlier decision partially granting the claim of refund of SMPPC relative to the DST assessment of CIR on advances from related parties disclosed in its 2009 Audited Financial Statements. SMPPC argued that the Court in Division erred in its decision because judicial decisions like the Filinvest case can only be applied prospectively. Likewise, circulars cannot be applied retroactively without impairing the rights of the taxpayer. On the other hand, CIR claimed that the Court in Division erred in cancelling the penalties imposed in the DST assessment on the ground that SMPPC relied in good faith on previous court decisions and BIR rulings. Citing the Filinvest case, the Supreme Court upheld the penalties even if the taxpayer relied on previous rulings in good faith. In ruling, judicial decision becomes a part of the law it interprets, therefore, its effectivity retroacts to the date the law was originally passed. Further, citing the landmark case of Tambunting Pawnshop, Inc. vs. CIR, good faith and honest belief in complying to previous decisions and issuances is sufficient to justify the cancellation of imposed penalties. Thus, both Petitions were DENIED. [SAN MIGUEL PAPER PACKAGING CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE, CTA EN BANC CASE NO’S. 2099 AND 2102, OCTOBER 7, 2020]
III, TAX AND BUSINESS-RELATED NEWS [NOVEMBER 1-6]
- BSP creating database to help SMEs with good track records obtain less costlier bank loans
- IT-BPM sector to miss revenue growth target
- EU commits additional funding worth 150-M euros to PH mostly for Mindanao projects: DOF
- Import duties, taxes up in October
- SSS stretches July-Dec checks’ validity
- Cap on credit card interest rate, fees takes effect Nov. 3: BSP
- Philippines gets $100-M loan from South Korea for COVID-19 response
- No to new taxes, sell off state-owned assets to cover revenue shortfall: Dominguez
- Tax perks dangled to pull more ‘green’ energy investments to PH
BSP creating database to help SMEs with good track records obtain less costlier bank loans [Philippine Daily Inquirer, November 6, 2020]
The central bank will create an information storehouse that will help small and medium enterprises with good prospects and reliable credit track records obtain cheaper loans from participating banks, according to the country’s chief financial regulator.
IT-BPM sector to miss revenue growth target [Philippine Star, November 6, 2020]
The country’s information technology business process management (IT-BPM) industry is unlikely to hit its projected revenue growth goal due to the pandemic. It is set to release results of the review of its targets later this month.
EU commits additional funding worth 150-M euros to PH mostly for Mindanao projects: DOF [ABS-CBN News, November 5, 2020]
The European Union will grant another 150 million euros (around P8.5 billion) to the Philippines, the Department of Finance said Thursday.
Import duties, taxes up in October [Philippine Daily Inquirer, November 4, 2020]
The Bureau of Customs (BOC) collected P50.9 billion in import duties and other taxes in October, exceeding its downscaled revenue goal for the fifth straight month.
SSS stretches July-Dec checks’ validity [Manila Times, November 4, 2020]
Social Security System (SSS) members have given more time to encash their benefit and loan checks issued from July to December 2020.
Cap on credit card interest rate, fees takes effect Nov. 3: BSP [ABS-CBN News, November 3, 2020]
Starting on this date, interest or finance charges on unpaid outstanding credit card balance should not exceed 24 percent annually or two percent per month; the monthly add-on rate for credit card installment loans should not exceed 1 percent per month; and the processing fee on the availment of credit card cash advances should not exceed P200 per transaction.
Philippines gets $100-M loan from South Korea for COVID-19 response [ABS-CBN News, November 2, 2020]
The South Korean government has extended a $100-million loan to the Philippines for its coronavirus emergency response efforts — the first and largest COVID19-related bilateral assistance offered by the Republic of Korea to a partner country, the Korea Eximbank said in a statement.
No to new taxes, sell off state-owned assets to cover revenue shortfall: Dominguez [ABS-CBN News, November 2, 2020]
The government will not impose new taxes nor will it sell off state-owned real estate assets to cover the revenue shortfall resulting from the coronavirus-induced lockdowns.
Tax perks dangled to pull more ‘green’ energy investments to PH [Philippine Daily Inquirer, November 2, 2020]
As the Philippines bears the brunt of typhoons getting stronger because of climate change, the government hoped to bring in more renewable energy sources through generous tax perks, according to President Rodrigo Duterte’s chief economic manager on Monday (Nov. 2).
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