2 FIRMS LEAVING PH AS SENATE DEBATES CREATE BILL + BSP MEMO DETAILS 60-DAY LOAN PAYMENT MORATORIUM UNDER BAYANIHAN 2 + DOLE MULLS ALLOWING SMALL FIRMS TO FOREGO 13TH MONTH PAY
Other Relevant Tax Updates:
- Bureau of Internal Revenue (BIR) Issues Implementing Rules and Regulations (IRR) on the 60-Day Moratorium under Bayanihan 2
- Repeal of other Percentage Tax (OPT) on Sale or Exchange of Stock through Initial Public Offering (IPO) Under Bayanihan 2
- Court of Tax Appeals (CTA) Cases Digest
- Tax and Business-Related News [October 3-9]
I. BIR ISSUES IRR ON THE 60-DAY MORATORIUM UNDER BAYANIHAN 2
Revenue Regulations (RR) No. 24-2020, issued on September 30, 2020, implements Section 4(uu) of Republic Act (R.A.) No. 11494, otherwise known as the “Bayanihan to Recover as One Act”. Section 44(uu) of the law mandates lenders under the supervision of the Bangko Sentral ng Pilipinas (BSP), Securities and Exchange Commission (SEC), and the Cooperative Development Authority (CDA), including the Government Service Insurance System (GSIS), the Social Security System (SSS), and the Home Development Mutual Fund (Pag-IBIG) to provide for a one-time 60-day grace period on loans falling due on or before December 31, 2020. Further, it provides for the exemption from additional DST on loan term extensions or restructuring.
II. REPEAL OF OPT ON SALE OR EXCHANGE OF STOCK THROUGH IPO UNDER BAYANIHAN 2
RR No. 23-2020, issued on September 30, 2020, implements Section 6 of R.A. No. 11494 which repeals Section 127(B) of the 1997 Tax Code imposing percentage tax on sale, exchange or other disposition, through IPO, of shares of stock in closely-held corporations. Under the law, sale, exchange or other disposition of shares of stock of closely-held corporations, through IPO, upon the effectivity of R.A. No. 11494, shall no longer be subject to Percentage Taxes imposed in Section 127(B) of the Tax Code.
III. CTA CASES DIGEST
- Absence of proof of participation in execution of false declaration does not constitute smuggling;conscious design to commit an offense is essential for conspiracy to exist; proof of guilt beyond reasonable doubt is necessary for conviction
- Claim for Net Operating Loss Carry-Over (NOLCO)is allowed after establishing proof on compliance to presentation requirements
- Local Government Unit (LGU) has only five (5) yearscounting from the date the tax become due to assess mayor’s permit
- Local Government Code (LGC) exempts government instrumentalities from paying local taxes including Real Property Tax (RPT), however, the same privilege is not available to Government-Owned And Controlled Corporations (GOCCS); the veterans centeris owned by the republic of the Philippines and, as such, is exempted from payment of RPT; veterans center is a government instrumentality, and as such, all properties registered under its name are considered owned by the republic of the Philippines; RPT is chargeable against the taxable person who has actual or beneficial use and possession of the property
- Cancellation of assessment due to sending of notice to taxpayer’s old address;BIR’s prior knowledge of the taxpayer’s new address requires no further notification from the latter
- Premature issuance of Formal Assessment Notice (FAN)leading to void assessment; due process applies to all stages, not only to fan
- Improperly Accumulated Earnings Tax (IAET)on excess earnings can be restricted by loan covenants; failure to pay dividends for the reasonable needs of the business would not generally make the accumulated earnings subject to tax; failure to submit documents in support of the taxpayer’s administrative claim is not fatal to the judicial claim
- Imposition of penaltiesshould be itemized in the assessment notice, if the compromise offer is higher, then all offers must be in writing
[ABSENCE OF PROOF OF PARTICIPATION IN EXECUTION OF FALSE DECLARATION DOES NOT CONSTITUTE SMUGGLING] [CONSCIOUS DESIGN TO COMMIT AN OFFENSE IS ESSENTIAL FOR CONSPIRACY TO EXIST] [PROOF OF GUILT BEYOND REASONABLE DOUBT IS NECESSARY FOR CONVICTION]
Prosecution filed two (2) criminal cases against the Accused in the alleged violation of Tariff and Customs Code of the Philippines (TCCP) on the crime of smuggling. The Prosecution argued that the Accused are guilty of smuggling under Section 3601 in relation Section 1302 of the TCCP and of fraudulent practices under Section 3602 in relation to Section 2503 of the TCCP for being the consignees or receivers of packages falsely declared by consignor as not commercial in nature. Section 3601 of the TCCP provides the acts which constitute smuggling. Smuggling is committed by any person who: (1) fraudulently imports or brings into the Philippines any article contrary to law; (2) assists in so doing any article contrary to law; or, (3) receives, conceals, buys, sells or in any manner facilitate the transportation, concealment or sale of such goods after importation, knowing the same to have been imported contrary to law. In ruling, the Court held that false declaration in the consignor or sender’s export declaration and packing lists does not constitute smuggling since the Prosecution was not able to show proof that the accused participated in the execution of the false export declaration and packing lists. Further, the participation or conspiracy in an unlawful act should not be presumed and that conspiracy must be proven beyond reasonable doubt. Failure of the Prosecution to prove beyond reasonable doubt the conspiracy between the Accused and the sender, the Accused were ACQUITTED of the offenses charged. [PEOPLE OF THE PHILIPPINES VS. ZENAIDA N. VALENCIA, JENNIFER N. VALENCIA, EDWARD OCHAVE, GENEVIEVE V. OCHA VE, CLARISSE D. KARINGAL AND EDMUND DISCUTIDO, CTA CRIMINAL CASES NO. O-625 AND O-626, SEPTEMBER 30, 2020]
CLAIM FOR NOLCO IS ALLOWED AFTER ESTABLISHING PROOF ON COMPLIANCE TO PRESENTATION REQUIREMENTS
Petitioner First Philippine Utilities Corporation 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 disallowance of NOLCO. Petitioner argued that there is no provision or regulation which imposes income tax on the amount claimed as NOLCO. On the other hand, Respondent countered that the investigation showed taxable income instead of net operating loss, and, therefore no NOLCO should have been forwarded to succeeding periods. In ruling, the Court CANCELLED the assessment after establishing the fact of the Petitioner’s compliance in the disclosure requirements of NOLCO. [FIRST PHILIPPINE UTILITIES CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9431, SEPTEMBER 29, 2020]
LGU HAS ONLY FIVE (5) YEARS COUNTING FROM THE DATE THE TAX BECOME DUE TO ASSESS MAYOR’S PERMIT
Petitioner The City Government of Cagayan de Oro (CDO) filed a Petition for Review seeking reversal of the Regional Trial Court (RTC)’s earlier decision to declare the assessment for Weights and Measures invalid, to allow it to enforce Assessment for Pole Rental Taxes, and to order payment of the assessment it issued for Mayor’s Permit Fee, all against Respondent Cagayan Electric Power and Light Co., Inc. In ruling, the Court cited the provisions of Article EE of the CDO Revenue Code and noted that none of the five (5) types of weights and measures pertains to electric meters, thus, Petitioner has no legal basis to impose fees for scaling and licensing of weights and measures on Respondent’s electric meters. In addition, there is no legal basis to impose Pole Rental Tax on Respondent and the assessment is void due to incorrect tax base. Lastly, assessment for Mayor’s Permit Fee for the year 2014 is enforceable only for years 2009-2013 considering that there is no outstanding preliminary injunction issued against the enforcement of the Mayor’s Permit Fee and Petitioner only has five (5) years counting from the date the tax become due to assess Respondent. Thus, the Petition was PARTIALLY GRANTED cancelling the assessment for Pole Rental Tax, demanding payment for Mayor’s Permit Fee only for years 2019 to 2013, and affirming the rest of the RTC’s decision. [THE CITY GOVERNMENT OF CAGAYAN DE ORO VS. CAGAYAN ELECTRIC POWER AND LIGHT COMPANY, INC., CTA AC NO. 194, SEPTEMBER 25, 2020]
[LGC EXEMPTS GOVERNMENT INSTRUMENTALITIES FROM PAYING LOCAL TAXES INCLUDING RPT, HOWEVER, THE SAME PRIVILEGE IS NOT AVAILABLE TO GOCCs] [VETERANS CENTER IS OWNED BY THE REPUBLIC OF THE PHILIPPINES AND, AS SUCH, IS EXEMPTED FROM PAYMENT OF RPT] [VETERANS CENTER IS A GOVERNMENT INSTRUMENTALITY, AND AS SUCH, ALL PROPERTIES REGISTERED UNDER ITS NAME ARE CONSIDERED OWNED BY THE REPUBLIC OF THE PHILIPPINES] [RPT IS CHARGEABLE AGAINST THE TAXABLE PERSON WHO HAS ACTUAL OR BENEFICIAL USE AND POSSESSION OF THE PROPERTY]
Petitioner City Government of Taguig filed a Petition for Review seeking reversal of the RTC’s earlier decision declaring the Warrant of Levy, Notice of Publication, and Auction Sale issued against the Respondent Veterans Federation of the Philippines null and void. Petitioner argued that, contrary to the findings of RTC, Respondent is not a government instrumentality, but a non-stock, non-profit corporation, and, therefore, liable to local taxes and RPT. In ruling, the Court found no cogent reason to reverse the RTC’s earlier decision. An entity can only be considered a GOCC if it satisfies the following requisites: (1) it is organized as a stock or non-stock corporation; (2) it is established for the common good; and (3) it meets the test of economic viability. Since Respondent failed to satisfy the first and third requisites, it is not a GOCC but a government instrumentality. Thus, it is exempt from paying RPT; and the ownership of the Veteran Center remains with the Republic of the Philippines. The tax declaration presented by Petitioners under the name of Respondent is not enough to prove that the latter is the owner of the Veterans Center since tax declarations are not conclusive proof of ownership, but only an indicia of possession in the concept of owner. Also, Republic Act (R.A.) No. 2640 expressly exempts Respondent from the payment of taxes. Lastly, the party liable to pay the RPT would be the entities which have the actual or beneficial use and possession of the leased out portions of the Veterans Center. Consequently, the Petition was DENIED. [MUNICIPAL (NOW CITY) GOVERNMENT OF TAGUIG, MUNICIPAL (NOW CITY) TREASURER OF TAGUIG, AND THEIR DULY AUTHORIZED REPRESENTATIVES VS. VETERANS FEDERATION OF THE PHILIPPINES, CTA AC NO. 212, SEPTEMBER 25, 2020]
[CANCELLATION OF ASSESSMENT DUE TO SENDING OF NOTICE TO TAXPAYER’S OLD ADDRESS] [BIR’S PRIOR KNOWLEDGE OF THE TAXPAYER’S NEW ADDRESS REQUIRES NO FURTHER NOTIFICATION FROM THE LATTER]
Petitioner CIR filed a Petition for Review seeking reversal of the Court in Division’s earlier decision cancelling the assessment issued to Respondent Unisphere International, Inc. Petitioner argued that the Respondent was validly served with the assessment notice as the latter failed to notify the former of its change of address. In ruling and citing the Supreme Court landmark case of CIR vs. BASF Coating Ink Philippines Inc., it was held that prior knowledge of the taxpayer’s new address requires no further notification from the latter. Upon verification of the records, it revealed that the Petitioner was already aware of Respondent’s new address and yet said notice was still mailed at the old address of the Respondent. Hence, there is no valid service of the Final Assessment Notice. Thus, the Petition was DENIED and the earlier decision was AFFIRMED. [COMMISSIONER OF INTERNAL REVENUE VS. UNISPHERE INTERNATIONAL INC, CTA EN BANC CASE NO. 2121, SEPTEMBER 23, 2020]
[PREMATURE ISSUANCE OF FAN LEADING TO VOID ASSESSMENT] [DUE PROCESS APPLIES TO ALL STAGES, NOT ONLY TO FAN]
Petitioner CIR filed a Petition for Review seeking reversal of the Court in Division’s earlier ruling cancelling the assessment issued against the Respondent Monza SPV-AMC (“Asset of Management Co.”). Petitioner argued that the issuance of FAN prior to the lapse of the 15-day period given to reply or protest against the PAN was not a denial of the right to due process. On the other hand, Respondent countered that PAN is an integral part of procedure designed to observe. Thus, the premature issuance of FAN prior to the lapse of the 15-day period given to it to reply to PAN violated its right to due process. In ruling, assessments issued by the BIR that fails to comply with due process requirements are void. The Court disagreed with the Menguito Case cited by the CIR stating that stringent due process requirements must be construed to refer to the FAN only. This case has been expanded in the Avon Products Case to include the PAN, among others, for being an integral part of the process to ensure the observance of due process. Thus, by disregarding the 15-day period provided by law, Petitioner utterly deprived Respondent of the opportunity to contest and present evidence in support thereto. Thus, the Petition was DENIED. [COMMISSIONER OF INTERNAL REVENUE VS. MONZA SPV-AMC (“ASSET OF MANAGEMENT CO.”), INC., CTA EN BANC CASE NO. 2125, SEPTEMBER 22, 2020]
[IAET ON EXCESS EARNINGS CAN BE RESTRICTED BY LOAN COVENANTS] [FAILURE TO PAY DIVIDENDS FOR THE REASONABLE NEEDS OF THE BUSINESS WOULD NOT GENERALLY MAKE THE ACCUMULATED EARNINGS SUBJECT TO TAX] [FAILURE TO SUBMIT DOCUMENTS IN SUPPORT OF THE TAXPAYER’S ADMINISTRATIVE CLAIM IS NOT FATAL TO THE JUDICIAL CLAIM]
Petitioner CIR filed a Petition for Review seeking reversal of the CTA Division’s earlier decision cancelling the IAET assessment issued against the Respondent Fortune Tobacco Corporation. Petitioner argued that the existence and any matters pertaining to the alleged syndicated loan agreement should not have been considered by the CTA Division in ruling on the liability of the Respondent for IAET. On the other hand, Respondent countered that the Court is a trial de novo, thus, it is allowed to raise matters and issues that were not introduced at the previous level. In ruling, the Court resolved that failure to submit documents in support of the taxpayer’s administrative claim is not fatal to the judicial claim. Hence, the syndicated loan agreement presented by Respondent was admitted by the Court. Further, pursuant to Revenue Regulations (RR) No. 02-01, it explicitly states that earnings reserved for compliance with any loan covenant or pre-existing obligation established under a legitimate business agreement constitutes an accumulation of earnings for the reasonable needs of the business. The touchstone of the liability is the purpose behind the accumulation of the income and not the consequences of the accumulation. Thus, if the failure to pay dividends is due to some other causes, such as the use of undistributed earnings and profits for the reasonable needs of the business, particularly compliance with the covenants of the syndicated loan agreement in this case, such purpose would not generally make the accumulated or undistributed earnings subject to the tax. Thus, the Petition was DENIED. [COMMISSIONER OF INTERNAL REVENUE VS. FORTUNE TOBACCO CORPORATION, CTA EN BANC CASE NO. 1971, SEPTEMBER 22, 2020]
IMPOSITION OF PENALTIES SHOULD BE ITEMIZED IN THE ASSESSMENT NOTICE, IF THE COMPROMISE OFFER IS HIGHER, THEN ALL OFFERS MUST BE IN WRITING
Petitioner CIR filed a Petition for Review seeking reversal of the Court 1st Division’s earlier ruling granting refund or issuance of Tax Credit Certificate (TCC) in favor of the Respondent Joyfoods Corporation representing compromise penalties imposed as a result of tax compliance violations. Petitioner argued that there was no erroneous assessment and collection of compromise penalties. Further, Revenue Memorandum Order (RMO) No. 19-2007 allows the collection of compromise penalty higher than that indicated in the schedule of compromise penalty. On the other hand, Respondent countered that the Court 1st Division did not err in granting the refund for failure of the Petitioner to show proof that Respondent offered to pay penalties for the violation. In addition, its right to due process was violated and the penalties imposed were excessive and arbitrary. In ruling, records showed that the Petitioner failed to prove its compliance to the mandate of RMO No.19-2007 that all amounts of penalties incident to violations shall be itemized in an assessment notice and/or demand letter, and if the compromise offer is higher, then all offers must be in writing. Thus, the Court DENIED the Petition and AFFIRMED the earlier decision. [COMMISSIONER OF INTERNAL REVENUE VS. JOYFOODS CORPORATION, CTA EN BANC CASE NO. 2061, SEPTEMBER 22, 2020]
IV. TAX AND BUSINESS-RELATED NEWS [OCTOBER 3-9]
- BIR: Gadgets donated to schools tax deductible
- 2 firms leaving PH as Senate debates CREATE bill
- Tax perks await donors of gadgets, computers to public schools for new normal in learning
- BSP memo details 60-day loan payment moratorium under Bayanihan 2
- DOLE mulls allowing small firms to forego 13th month pay
- Bad loans slow in August even without Bayanihan grace period
- 30,000 BPO jobs available to repatriated OFWs: DOLE
- Dominguez bats for revival of mining industry to generate jobs
- IC orders insurers to implement Bayanihan 2’s 60-day grace period for insurance payments
- Dominguez: Gov’t not interested to take over skidding airlines
- Antitrust watchdog issues guidelines on merger reviews under Bayanihan 2
- Can’t ‘impose’ on banks to waive online transfer fees as BSP tells consumers it’s cost of ‘convenience’
- GSIS grants 60-day moratorium on loan payments
- Lawmaker wants excess rice tax as cash aid
BIR: Gadgets donated to schools tax deductible [Philippine Daily Inquirer, October 9, 2020]
With blended learning and online classes in full swing, donors of computers and other gadgets to public schools will be extended tax deductions under the Bayanihan to Recover as One law, or Bayanihan 2, the Bureau of Internal Revenue (BIR) said on Thursday.
Source: https://business.inquirer.net/309119/bir-gadgets-donated-to-schools-tax-deductible#ixzz6aLxuHjYe
2 firms leaving PH as Senate debates CREATE bill [Manila Bulletin, October 9, 2020]
As Senate continues to debate on the Corporate Recovery and Tax Incentives for Enterprises (CREATE) bill emotionally, two big electronics companies are shutting down operations because of uncompetitive business environment, according to the Semiconductor and Electronics Industries in the Philippines Foundation Inc. (SEIPI).
Source: https://mb.com.ph/2020/10/09/2-firms-leaving-ph-as-senate-debates-create-bill/
Tax perks await donors of gadgets, computers to public schools for new normal in learning [Philippine Daily Inquirer, October 8, 2020]
With blended learning and online classes in full swing, donors of computers and other gadgets to public schools will be rewarded with tax deductions under the Bayanihan to Recover as One Act, the Bureau of Internal Revenue (BIR) said on Thursday (Oct. 8).
BSP memo details 60-day loan payment moratorium under Bayanihan 2 [Philippine Daily Inquirer, October 8, 2020]
The head of the Bangko Sentral ng Pilipinas (BSP) said on Thursday (Oct. 8) that the regulator was committed to ensuring that consumers and businesses are able to take full advantage of the temporary loan payment relief under the government’s latest stimulus package.
Source: https://business.inquirer.net/309090/bsp-memo-details-60-day-loan-payment-moratorium-under-bayanihan-2#ixzz6aLyF60EA
DOLE mulls allowing small firms to forego 13th month pay [Philippine Star, October 8, 2020]
Bad news for employees looking forward for their 13th month pay in December: the labor department is considering allowing businesses under a cash crunch to forego giving the much-awaited holiday benefit.
Bad loans slow in August even without Bayanihan grace period [Philippine Star, October 8, 2020]
Banks slowed their accumulation of unpaid loans in August even without lengthy grace periods earlier provided by law, but the reprieve is likely to be brief as payment extensions from a new measure lapses in the coming months and finally reveal the extent of soured debts.
30,000 BPO jobs available to repatriated OFWs: DOLE [ABS-CBN News, October 7, 2020]
Some 30,000 job opportunities in the business process outsourcing (BPO) industry are available to migrant workers who were repatriated due to the COVID-19 pandemic, the Department of Labor and Employment (DOLE) said Wednesday.
Source: https://news.abs-cbn.com/business/10/07/20/30000-bpo-jobs-available-to-repatriated-ofws-dole
Dominguez bats for revival of mining industry to generate jobs [ABS-CBN News, October 7, 2020]
Finance Secretary Carlos Dominguez III said Wednesday the mining industry in the country must be revived to generate jobs especially in rural areas.
IC orders insurers to implement Bayanihan 2’s 60-day grace period for insurance payments [Philippine Daily Inquirer, October 7, 2020]
The Insurance Commission (IC) has ordered insurers and pre-need firms to implement the mandatory 60-day grace period for payments under the Bayanihan to Recover as One Law.
Source: https://business.inquirer.net/309017/ic-orders-insurers-to-implement-bayanihan-2s-60-day-grace-period-for-insurance-payments#ixzz6aLyOhe4u
Dominguez: Gov’t not interested to take over skidding airlines [Philippine Daily Inquirer, October 7, 2020]
The government will not take over the operations of domestic airlines skidding due to the global tourism slump amid the COVID-19 pandemic, Finance Secretary Carlos G. Dominguez III said Wednesday.
Source: https://business.inquirer.net/309007/dominguez-govt-not-interested-to-take-over-skidding-airlines
Antitrust watchdog issues guidelines on merger reviews under Bayanihan 2 [ABS-CBN News, October 5, 2020]
The Philippine Competition Commission (PCC) on Monday said it has issued guidelines on mergers and acquisitions in compliance with the provisions under the Bayanihan to Recover as One law.
Can’t ‘impose’ on banks to waive online transfer fees as BSP tells consumers it’s cost of ‘convenience’ [ABS-CBN News, October 5, 2020]
Bangko Sentral ng Pilipinas Gov. Benjamin Diokno said Monday they could ask but not order or impose on banks to waive fees for online money transfers as this forms “part of their business.”
GSIS grants 60-day moratorium on loan payments [Philippine Daily Inquirer, October 4, 2020]
Members and pensioners with outstanding loans from the Government Service Insurance System (GSIS) will enjoy a two-month payment moratorium starting November, the state-run pension fund said.
Source: https://business.inquirer.net/308820/gsis-grants-60-day-moratorium-on-loan-payments#ixzz6aLytlRy1
Lawmaker wants excess rice tax as cash aid [Philippine Star, October 4, 2020]
Sen. Francis Pangilinan is calling on the government to release as cash aid the excess in revenues from the Rice Tariffication Law as prices of palay (unhusked rice) continue to slide.
Source: https://www.philstar.com/business/2020/10/04/2046943/lawmaker-wants-excess-rice-tax-cash-aid
If you wish to get a copy of the complete texts of the above issuances, send us an email thru taxseminars@dmdcpa.com.ph.
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