TAX COURT UPHELD LOCAL BUSINESS TAX ASSESSMENT ON TUITION & MISCELLANEOUS FEES AGAINST SCHOOL BASED IN MANILA + GOVERNMENT TO CONSIDER FUNDING 13TH MONTH PAY OF SMALL FIRMS WORKERS

Other Relevant Tax Updates:

  • Court of Tax Appeals (CTA) Cases Digest
  • Bureau of Internal Revenue (BIR) Clarifies Work-Around Procedures on Enlisting and Delisting of Large Taxpayer (LT)
  • BIR Issues Clarifications on Availment of Voluntary Assessment and Payment Program (VAPP)
  • BIR Clarifies the Proper Mode of Service of Letter of Authority (LOA)
  • BIR Circularizes the Availability of VAPP Application and Payment Forms
  • BIR Issues Alphanumeric Tax Code (ATC) for VAPP
  • BIR Instructs Banks to Allow the Filing and Payment of Penalties of Digital Taxpayers
  • Tax and Business-Related News [October 10-16]
 
 

I. CTA CASES DIGEST

  • City of Manila is authorized to impose Local Business Tax (LBT) on tuition and educational fees collected by stock and proprietary educational institution;collection period is within five (5) years from the date of assessment under Local Government Code (LGC); filing of written claim for refund/credit is a requirement to be entitled to a refund/credit of local taxes;
  • Taxpayer should notify BIR of its change of business address; even if vested with special jurisdiction, CTA can only take cognizance of such matters as are clearly within its statutory authority;
  • Management fees, which are considered business profits under RP-Japan tax treaty, paid to Japanese Non-Resident Foreign Corporation (NRFC) are not subject to withholding
  • Philippine mining act defers only the payment of tax and not the exemption;  excise tax on mineral productsaccrues after the recovery of pre-operating expenses under Financial And Technical Assistance Agreement (FTAA)
  • Transfer of case to another revenue (RO) requires issuance of new Letter Of Authority (LOA)
  • Requisites for a sale of service to be VAT zero rated; to be considered as nrfc, each entity must be supported, at the very least, by both sec certificate of non-registration of corporation/partnership and proof of incorporation, association or registration in a foreign country
  • VAT assessment against multi-purpose cooperativewas cancelled due to “naked assessment”

 [CITY OF MANILA IS AUTHORIZED TO IMPOSE LBT ON TUITION AND EDUCATIONAL FEES  COLLECTED BY STOCK AND PROPRIETARY EDUCATIONAL INSTITUTION] [COLLECTION PERIOD IS WITHIN FIVE (5) YEARS FROM THE DATE OF ASSESSMENT UNDER LGC] [FILING OF WRITTEN CLAIM FOR REFUND/CREDIT IS A REQUIREMENT TO BE ENTITLED TO A REFUND/CREDIT OF LOCAL TAXES]

Petitioner Far Eastern University filed a Petition for Review seeking to reverse the Regional Trial Court of Manila’s earlier decision seeking refund of LBT paid on tuition and educational fees to Respondent City of Manila. Petitioner argued that as an educational institution, it is not subject to LBT. In ruling, the Court ruled that the Respondent is authorized to impose business taxes on tuition and educational fees collected by Petitioner since records show that Petitioner is a stock and proprietary educational institution as provided in its Articles of Incorporation, and its tuition fees, as source of income, is not within the prohibited subjects of the LBT and does not fall under any of the common limitations as provided in Section 113  of the LGC. There is also no tax exemption that exists in favor of the Petitioner, since the latter failed to prove and present the basis of its exemption from LBT under Section 143 (h) of the LGC and Section 29 of the Manila Revenue Code. However, the Respondent’s right to assess Petitioner for the years 2009 and 2010 has prescribed. The period of local tax assessments is five (5) years from the due date unless there is fraud or intent to evade the payment of taxes, in which case, the period to assess is ten (10) years from discovery thereof. Consequently, the collection period is within five (5) years from the date of assessment. Respondents failed to show the existence of fraud or intention to evade payment against Petitioner. Consequently, considering that the assessment was issued on June 18, 2015, only the assessment for the years 2011, 2012, and 2013 would remain. On the entitlement of refund, Petitioner is not entitled to the refund of taxes paid pertaining to the prescribed periods of 2009 and 2010 since records show that Petitioner failed to file written claim for refund, which is one of the procedural requirements, to be entitled to a refund/credit of local taxes under Section 196 of the LGC. Thus, the Petition was DENIED for lack of merit. [FAR EASTERN UNIVERSITY VS. CITY OF MANILA, CITY MAYOR AND CITY TREASURER, CTA AC CASE NO. 223, OCTOBER 14, 2020]

[TAXPAYER SHOULD NOTIFY BIR OF ITS CHANGE OF BUSINESS ADDRESS] [EVEN IF VESTED WITH SPECIAL JURISDICTION, CTA CAN ONLY TAKE COGNIZANCE OF SUCH MATTERS AS ARE CLEARLY WITHIN ITS STATUTORY AUTHORITY]

Petitioner Citiaire Industrial Services Corporation filed a Petition for Review seeking for the cancellation of Warrant of Garnishment issued by the Respondent CIR claiming that it is void and improper due to absence of prior assessment. In ruling, perusal of the documents showed that a Formal Assessment Notice (FAN)/Formal Letter of Demand (FLD) was issued but the same was sent to Petitioner’s former address. Likewise, the Court found that Petitioner failed to notify Respondent of its change of business address; hence, the service of the FLD/FAN to its registered address with the BIR was valid. And since both parties have stipulated that the same were indeed mailed to the registered address, then Respondent has no duty to prove that he actually sent them to the said address. In addition, the Court assumed jurisdiction over the case and proceeded to cancel the assessment since there was no due date to pay the assessed amount. On Motion for Reconsideration (MR) filed by the Respondent, he argued that the enclosed assessment notices that the Court relied on were photocopies and may not have reflected the true and actual content of the originally issued assessment notices. Upon a second hard look at the pieces of evidence, the Court was constrained to reconsider. Consequently, the MR was GRANTED and the earlier Decision was AMENDED. Thus, the Petition was DENIED for lack of jurisdiction. [CITIAIRE INDUSTRIAL SERVICES CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9713, OCTOBER 14, 2020]

MANAGEMENT FEES, WHICH ARE CONSIDERED BUSINESS PROFITS UNDER RP-JAPAN TAX TREATY, PAID TO JAPANESE NRFC ARE NOT SUBJECT TO WITHHOLDING

Petitioner Ishida Philippines Tube Co., Inc. filed a Petition for Review seeking cancellation of the assessment issued by the Respondent Commissioner of Internal Revenue (CIR) in the amount of Php 8,879,629.89. Several assessment issues were raised but a big portion of the assessments comes from the disallowed management fees paid by Petitioner to its parent company, Ishida Ironworks Company, Ltd. (IICL), a Japanese NRFC. Respondent argued that the amount should be disallowed since the Service Agreement from which the payment arose is outdated. Further, the amount was not subjected to Final Withholding Tax (FWT) in accordance with the RP-Japan Tax Treaty and pursuant to Section 57(A) of the 1997 Tax Code. On the other hand, Petitioner countered that the Service Agreement contains an automatic renewal clause and that the payment is not subject to FWT pursuant to RP-Japan Tax Treaty and Revenue Regulations (RR) No. 2-98. In ruling, perusal of the agreement showed that it contains an automatic renewal clause. On the issue of non-withholding, perusal of the Service Agreement and pertinent documents presented showed that services for which the payment was made by Petitioner are considered business profits which are not subject to FWT pursuant to the RP-Japan Treaty. Thus, the Petition was PARTIALLY GRANTED resulting in a reduced assessment of Php 3,008,759.75. [ISHIDA PHILIPPINES TUBE COMPANY, INC. VS COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9729, OCTOBER 8, 2020]

 [PHILIPPINE MINING ACT DEFERS ONLY THE PAYMENT OF TAX AND NOT THE EXEMPTION] [EXCISE TAX ON MINERAL PRODUCTS ACCRUES AFTER THE RECOVERY OF PRE-OPERATING EXPENSES UNDER FTAA]

Petitioner Oceanagold (Philippines), Inc. filed a Petition for Review seeking refund or issuance of Tax Credit Certificate (TCC) of erroneously paid excise tax. Petitioner argued that it is exempt from excise tax until the end of the recovery period pursuant to Financial and Technical Assistance Agreement (FTAA) dated June 20, 1994, Section 81 of the Philippine Mining Act, and Section 236 of DENR Administrative Order (DAO) 95-23. In ruling, perusal of the documents and reference to the issuances cited showed that the real intention of the law is to impose excise tax on mineral products and merely defers the payment of such tax until the Petitioner has fully recovered its pre-operating expenses, exploration, and development expenditures. Petitioner, as assignee and the contractor to the said FTAA, is entitled to recover its Pre-operating and Property Expenses for five (5) years, which begins from the date of commencement of commercial production, before the right of the government to share in the Net Revenue (which includes the collection excise taxes) accrues. Such being the case, there can be no merit on the Petitioner’s plea for refund. Thus, the Petition was DENIED. [OCEANAGOLD (PHILIPPINES), INC. VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9289, OCTOBER 7, 2020]

TRANSFER OF CASE TO ANOTHER RO REQUIRES ISSUANCE OF NEW LOA

Petitioner Bicyclepoker, Inc. filed a Petition for Review seeking cancellation of the assessment issued by the Respondent CIR. Several issues were raised but the main issue centered on the absence of a valid LOA at the time of the investigation. Perusal of the documents showed that the Respondent initially issued a Memorandum of Assignment as a result of transfer of the original examiner. Subsequently and during re-investigation, Respondent issued a new LOA. In ruling, the Court held that an LOA is an authority given to the appropriate RO assigned to perform assessment functions, in the absence of such, the assessment is a nullity. In case of reassignment or transfer of cases to another RO, a new LOA must be issued with the corresponding notation therein to continue the investigation or audit. The authority of the new RO cannot emanate from the mere issuance of an endorsement letter or Memorandum of Reassignment sign by the Revenue District Officer. Since the new LOA cannot cure the defect, the Court GRANTED the Petition resulting in the CANCELLATION of the assessment. [BICYCLE POKER, INC. VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9868, OCTOBER 7, 2020]

 [REQUISITES FOR A SALE OF SERVICE TO BE VAT ZERO RATED] [TO BE CONSIDERED AS NRFC, EACH ENTITY MUST BE SUPPORTED, AT THE VERY LEAST, BY BOTH SEC CERTIFICATE OF NON-REGISTRATION OF CORPORATION/PARTNERSHIP AND PROOF OF INCORPORATION, ASSOCIATION OR REGISTRATION IN A FOREIGN COUNTRY]

Petitioner BW Shipping Philippines, Inc. filed a Petition for Review seeking refund or issuance of TCC representing unutilized input taxes attributable to its zero-rated sales for the taxable year 2015 in the amount of Php 4,953,983.07. Petitioner argued that it has sufficiently proven its entitlement of claims. On the other hand, Respondent CIR countered that the alleged claim is still subject to administrative and routinary investigation. It further argued that the claims were not fully substantiated by proper documents. In ruling, the Court held that in order that supply of services may be VAT zero-rated, claimant must meet the following requisites: (1) services must be other than processing, manufacturing or repacking of goods; (2) recipient of such services is doing business outside the Philippines; and (3) payment must be in acceptable foreign currency accounted for in accordance with the Bangko Sentral ng Pilipinas rules and regulations. In the appreciation of support, the Court disagreed with the Respondent’s claim that the Petitioner’s clients are entities doing business in the Philippines due to the appointment of the Petitioner as agent of its clients, and acting as principal for purposes of recruitment. On the basis of the true test principle, the service agreements show no indication that as an agent, Petitioner was continuing the body or substance of its clients’ shipping activities. Thus, Petitioner’s clients cannot be considered as doing business in the Philippines. Moreover, upon review, the Court determined that not all zero-rated sales were fully substantiated and did not meet the necessary invoicing and other legal requirements. Thus, the Petition was PARTIALLY GRANTED resulting in a reduced amount qualified for refund at Php 3,181,354.01. [BW SHIPPING PHILIPIPNES, INC. VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9660, OCTOBER 7, 2020]

VAT ASSESSMENT AGAINST MULTI-PURPOSE COOPERATIVE WAS CANCELLED DUE TO “NAKED ASSESSMENT”

Petitioner CIR filed a Petition for Review seeking to reverse the Court’s earlier decision cancelling the VAT assessment issued against the Respondent ANAPI Multi-Purpose Cooperative. Petitioner argued that the Respondent is liable for VAT as it is neither the producer nor the owner of the raw sugar cane in violation of the provisions of Tax Code and implementing rules and regulations. Respondent countered that the assessment does not have any factual or legal bases. In ruling, the Court noted that there are no supporting documents to validate any of the allegations of the Petition stating that the Respondent is not the owner or producer of the sugar. In the landmark case of CIR vs. Hantex Trading Company, Inc., it was held that in order to stand judicial scrutiny, the assessment must be based on facts. The presumption of the correctness of an assessment, being a mere presumption, cannot be made to rest on another presumption. Without sufficient evidence and basis to support the subject assessment, the presumption of correctness cannot be sustained, and the VAT assessment should be cancelled. Thus, the Petition was DENIED and the earlier decision was AFFIRMED. [COMMISSIONER OF INTERNAL REVENUE VS. ANAPI MULTI-PURPOSE COOPERATIVE, CTA EN BANC CASE NO. 2063, OCTOBER 6, 2020]

II. BIR CLARIFIES WORK-AROUND PROCEDURES ON ENLISTING AND DELISTING OF LT

Revenue Memorandum Circular (RMC) No. 112-2020, issued on October 16, 2020, clarifies the suspension of enlisting/delisting of LT to January 1, 2021, to wit:

  1. All transactions of affected taxpayers, both Head Office/s and all branches, shall be handled by the Revenue District Offices (RDOs) or LT Service (LTS) where they are registered prior to July 1, 2020;
  2. All Certificates of Registration issued on or after July 1, 2020 to the affected LTs shall be valid and may be posted at the principal place of business;
  3. Principal and supplementary receipts/invoices based on duly approved Authority to Print (ATP) issued on or after July 1, 2020 shall remain valid.

III. BIR ISSUES CLARIFICATIONS ON AVAILMENT OF VAPP

RMC No. 111-2020, issued on October 15, 2020, clarifies certain issues relative to the availment of VAPP.

IV. BIR CLARIFIES THE PROPER MODE OF SERVICE OF LOA

RMC No. 110-2020, issued on October 6, 2020, clarifies the proper modes of service of LOA in the light of many instances in which the taxpayer or his duly authorized representative cannot be found in the registered address. It clarifies the detailed procedures and guidelines on how the personal, substituted, and mail services shall be undertaken.  

V. BIR CIRCULARIZES THE AVAILABILITY OF VAPP APPLICATION AND PAYMENT FORMS

Revenue Memorandum Circular (RMC) No. 108-2020, issued on October 6, 2020, circularizes the availability of the BIR Form Nos. 2119-VAPP Application Form and BIR Form No. 0622-VAPP Payment Form. These forms can now be accessed in the BIR website under the BIR Forms Section. However, these forms are not yet available under eFPS and eBIRForms. Payment through BIR electronic payment channels such as G-Cash and PayMaya is not yet allowed.

VI. BIR ISSUES ATC FOR VAPP

Revenue Memorandum Order (RMO) No. 34-2020, issued on October 6, 2020, provides for the creation of ATC for VAPP availment.  

VII. BIR INSTRUCTS BANKS TO ALLOW THE FILING AND PAYMENT OF PENALTIES OF DIGITAL TAXPAYERS

Bank Bulletin No. 2020-15 dated September 25, 2020, instructs all Authorized Agent Bank (AAB) to allow the filing and payment of tax of taxpayers engaged in digital transactions (digital taxpayers) without the imposition of penalties. Upon filing and payment, the digital taxpayers are required to attach their Certificate of Registration (COR).

VIII. TAX AND BUSINESS-RELATED NEWS [OCTOBER 10-16]

  • Dominguez: No new taxes under consideration yet
  • Mall operators, property firms urged to extend rent relief to small businesses
  • Regulations allowing ‘e-sabong’ to protect bettors, help gov’t collect proper taxes: PAGCOR
  • SEIPI backs PEZA stand on perks
  • Government to consider funding 13th month pay of small firm workers
  • DOLE: Companies should give 13th month pay, except if they are ‘distressed’
  • Law on 13th month pay ‘clear’, says labor dept ahead of policy deliberation
  • Imee Marcos seeks to ‘defer’ removal of tax incentives under CREATE bill
  • Gov’t awaits airlines financing proposal—DOF
  • NEDA cites PEZA contribution to economy
  • BSP extends RRR compliance period
  • DOF sees enough room for low interest rate

Dominguez: No new taxes under consideration yet [Philippine Star, October 16, 2020]

The government is not yet seriously considering impo-sing new taxes or selling its assets to shore up revenues, which suffered due to the impact of the pandemic, according to Finance Secretary Carlos Dominguez.

Source: https://www.philstar.com/business/2020/10/16/2049855/dominguez-no-new-taxes-under-consideration-yet

Mall operators, property firms urged to extend rent relief to small businesses [ABS-CBN News, October 15, 2020]

The country’s largest business group on Thursday appealed to property firms to grant rent relief to small, medium and micro enterprises (MSMEs) due to the continuing impact of the COVID-19 pandemic on the economy. 

Source: https://news.abs-cbn.com/business/10/15/20/mall-operators-property-firms-urged-to-extend-rent-relief-to-small-businesses

Regulations allowing ‘e-sabong’ to protect bettors, help gov’t collect proper taxes: PAGCOR [ABS-CBN News, October 15, 2020]

The country’s gaming regulator on Wednesday said it can issue appropriate regulations to license and legitimize e-sabong activities or cockfights streamed online, as part of efforts to shore up much needed funds for the government.

Source: https://news.abs-cbn.com/business/10/14/20/regulations-allowing-e-sabong-to-protect-bettors-help-govt-collect-proper-taxes-pagcor

SEIPI backs PEZA stand on perks [Philippine Star, October 15, 2020]

Electronics exporters are supporting the Philippine Economic Zone Authority (PEZA) in its stand to have separate incentives for export industries and domestic enterprises and to keep the tax perks of existing investors.

Source: https://www.philstar.com/business/2020/10/15/2049576/seipi-backs-peza-stand-perks

Government to consider funding 13th month pay of small firm workers [Philippine Star, October 15, 2020]

The Duterte administration is studying the likelihood of financing the 13th month pay of workers in small and medium sized enterprises this holiday season, Finance Secretary Carlos Dominguez III said on Thursday.

Source: https://www.philstar.com/business/2020/10/15/2049791/government-consider-funding-13th-month-pay-small-firm-workers

DOLE: Companies should give 13th month pay, except if they are ‘distressed’ [ABS-CBN News, October 13, 2020]

Employers are required to give the 13th month pay of workers—unless they are “distressed” due to the coronavirus pandemic, the Department of Labor and Employment (DOLE) said Tuesday. 

Source: https://news.abs-cbn.com/business/10/13/20/dole-companies-should-give-13th-month-pay-except-if-they-are-distressed

Law on 13th month pay ‘clear’, says labor dept ahead of policy deliberation [ABS-CBN News, October 13, 2020]

The 13th month pay is mandatory by law, the labor department said Tuesday ahead of its deliberations on allowing its deferment.

Source: https://news.abs-cbn.com/video/business/10/13/20/law-on-13th-month-pay-clear-says-labor-dept-ahead-of-policy-deliberation

Imee Marcos seeks to ‘defer’ removal of tax incentives under CREATE bill [ABS-CBN News, October 12, 2020]

Senate Committee on Economic Affairs chair Imee Marcos on Monday sought for the “outright deferment” of some provisions of a bill that would reduce incentives given to several businesses, saying the government needs to protect investors who have been creating jobs and generating revenue for the Philippines for several decades.

Source: https://news.abs-cbn.com/business/10/12/20/imee-marcos-seeks-to-defer-removal-of-tax-incentives-under-create-bill

Gov’t awaits airlines financing proposal-DOF [Manila Bulletin, October 12, 2020]

The Department of Finance (DOF) said that local airlines have yet to submit the final loan plan to activate their P700 million financial support earmarked under the government’s economic stimulus programs.

Source: https://mb.com.ph/2020/10/12/govt-awaits-airlines-financing-proposal-dof/https://mb.com.ph/2020/10/12/govt-awaits-airlines-financing-proposal-dof/

NEDA cites PEZA contribution to economy [Manila Bulletin, October 12, 2020]

The National Economic and Development Authority (NEDA) said registered business enterprises (RBEs) located in the economic zones of various investment promotion agencies (IPAs) led by the Philippine Economic Zone Authority (PEZA) have strong contributions to the domestic economy in terms of investments, exports and jobs, among others.

Source: https://mb.com.ph/2020/10/12/neda-cites-peza-contribution-to-economy/

BSP extends RRR compliance period [Manila Bulletin, October 12, 2020]

The central bank will continue to count loans to micro, small, and medium enterprises (MSMEs) as well as qualified large enterprises as part of compliance with the reserve requirements until end-2022 to extend relief measures to banks and non-banks and to provide funding to businesses hit by the pandemic. The previous cut-off period was end-December 2021. 

Source: https://mb.com.ph/2020/10/12/bsp-extends-rrr-compliance-period/

DOF sees enough room for low interest rate [Manila Bulletin, October 12, 2020]

 The country’s low inflation environment provides the Bangko Sentral ng Pilipinas (BSP) the adequate legroom to keep its interest rates steady to support economic recovery, the Department of Finance (DOF) said.

Source: https://mb.com.ph/2020/10/12/dof-sees-enough-room-for-low-interest-rate/

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