Weekly Tax Updates[December 18, 2020]

GOOGLE DELAYS RETURN TO OFFICE & EYES FLEXIBLE WORK WEEK-NYT + BIR BREACHES COLLECTION GOAL FOR 2020 + SENATE RATIFIES BICAM REPORT ON FIST BILL

Other Relevant Tax Updates:

• Specific Highlights of Corporate Recovery And Tax Incentives For Enterprises Act  (Create) Bill
• Supreme Court (Sc) Cases Digest
• Court of Tax Appeals (Cta) Cases Digest
• BIR Allows Manual Tax Filing of National Government Agencies Affected by Typhoon Rolly In Bicol Region
• BIR Allows Manual Tax Filing Of Electronic Filing and Payment System (EFPs) Taxpayers affected by Typhoons Rolly And Ulysses
• Tax And Business-Related News [December 14-18]

 

I. SPECIFIC HIGHLIGHTS OF CREATE BILL

Last November 26, 2020, the Senate approved on third and final reading CREATE bill to boost government efforts to improve the country’s investment climate. The bill aims to encourage investments by bringing down the corporate income tax rate, ensure the fairness and transparency of fiscal incentives, and enhance the accountability of taxpayers through refinement of tax administration.

It is part of the administration’s fiscal reform package.

Specific highlights of the bill include:

• Effective July 1, 2020, Corporate Income Tax (CIT)rate for both domestic and foreign corporations will be reduced to 25%. However, domestic corporations with net taxable income not exceeding Php 5 Million and with total assets not exceeding Php 100 Million (excluding land on which the business entity’s office, plant and equipment are situated), may end up paying 20%.
• Effective July 1, 2020 until June 30, 2023, Minimum Corporate Income Tax(MCIT) rate shall be 1%.
• Imposition of Improperly Accumulated Earnings Taxis repealed.
• Effective July 1, 2020 until June 30, 2023, Non-Profit Proprietary Educational Institutions and Hospitalsshall be taxed at 1%.
• Preferential tax rates/exemption for Offshore Banking Unitsis repealed.
• Effective December 31, 2021, Regional Operating Headquarters (ROHQ)shall be subject to regular CIT.
• Foreign-sourced dividendsreceived by domestic corporations may be exempt from income tax provided the following conditions are met:
  • Dividends are reinvested in the business operations of the domestic corporation in the Philippines within the next taxable year from date of receipt;
  • Dividends shall be used to fund the working capital requirements, capital expenditures, dividend payments, investment in domestic subsidiaries and infrastructure project; and
  • Domestic corporation holds directly at least 20% of the outstanding shares of the foreign corporation for a minimum of two (2) years at the time of dividends distribution.
• Interest income derived by a Resident Foreign Corporation(RFC) from a depository bank under the expanded foreign currency deposit system shall be subject to 15% final tax.
• Capital gains from sale of shares of stocks not traded in the stock exchangeearned by Resident Foreign Corporation and Non-Resident Foreign Corporation (NRFC) shall be subject to 15% final tax.
• An additional deductionequal to 1/2 of the value of labor training expenses incurred for skills development of enterprise-based trainees enrolled in public senior high schools, public higher education institutions or public technical and vocational institutions duly covered by an Apprenticeship Agreement and for which a proper certification must be secured from DepEd, TESDA or CHED shall be allowed, provided that such deduction shall not exceed 10% of direct labor wage.
• Allowed interest expense shall be reduced by 20% of the interest income subjected to final tax.
• The following reorganizations involving corporations will be covered by tax-free exchange:
  • Merger or consolidation
  • Acquisition by a corporation of stock of another corporation in exchange for shares, if, immediately after the acquisition, the acquiring corporation has control of the acquired corporation
  • Acquisition by a corporation in exchange for shares, of substantially all of the properties of another corporation
  • Recapitalization
  • Reincorporation
• Prior BIR confirmation or tax rulingshall not be required for purposes of availing the tax exemption of exchange of property.
• Effective July 1, 2020 until June 30, 2023, the rate of Percentage Taxshall be 1%.
• Adjustment of threshold for VAT exempt sale of residential real property:
  • Residential lot-Php 2.5 Million from Php 1.5 Million
  • House and lot and other residential dwellings-Php 4.2 Million from Php 2.5 Million
• VAT exemptionfor the following transactions:
  • Sale, importation of any books, newspaper or any educational reading material covered by the UNESCO agreement on the importation of educational, scientific and cultural materials, including the digital or electronic formatthereof (requirement to appear at regular intervals shall be removed)
  • Sale or importation of the following goods from January 1, 2021 to December 31, 2023:
    • capital equipment, its spare parts and raw materials, necessary to produce personal protective equipment component;
    • all drugs, vaccines and medical devices specifically prescribed and directly used for the treatment of COVID-19
    • drugs, including raw materials, for the treatment of COVID-19 approved by the FDA for use in clinical trials
• Instead of January 1, 2023, the VAT exemption of sale or importation of prescription drugs and medicinesfor cancer, mental illness, tuberculosis, and kidney diseases will start on January 1, 2021.
• The Fiscal Incentives Review Board (FIRB) or the Investment Promotion Agencies (IPA) under a delegated authority from the FIRB shall grant incentives pursuant to the Tax Code only to the extent of their approved registered project or activity under a Strategic Investment Priority Plan.
• Income tax incentives under CREATE are as follows:
  • Income Tax Holiday (ITH) for four (4) to seven (7) years followed by Special Corporate Income Tax (SCIT) of 5% based on gross income earned, in lieu of all taxes for ten (10) years; or
  • Regular Corporate Income Tax (RCIT) with enhanced deductions for 14 to 17 years. Enhanced deductions can in no case be granted simultaneously with the SCIT. Enhanced deductions include additional deductions for depreciation, labor, training, research and development, domestic input expense, power expense, investment allowance and claiming of Net Operating Loss Carry-Over (NOLCO) for next five (5) years.
• Fiscal incentives are also available to projects or activities that were registered prior to the effectivity of CREATE Bill. Firms enjoying ITH may continue to enjoy the same within the remaining ITH period. On the other hand, firms enjoying ITH and 5% GIT after the ITH, or enjoying 5% GIT only, may continue to enjoy these for ten (10) years. Qualified expansions or entirely new projects or activities may also qualify for a new set of incentives.
• Duration of income tax incentivesdepends on the category, which in turn is based on location and industry priorities.
  • Basic-14 years
  • Enhanced-15 years
  • Advanced-16 years
  • Superior-17 years
• Other fiscal incentives include:
  • Exemption from customs duties on imports of capital equipment, raw materials, spare parts or accessories directly and exclusively used in the registered project or activity, which are not produced or manufactured domestically in sufficient quantity at reasonable prices; and
  • VAT exemption on imports and VAT zero-rating on local purchases of goods and services directly and exclusively used in the registered project or activity by a registered enterprise located inside an Ecozone or Freeport.
• President may modifythe mix, the period or manner of availment of incentives for a highly desirable project subject to certain conditions and recommendation of the FIRB. The grant of ITH shall not exceed eight (8) years and thereafter, 5% Special CIT may be granted, provided that the total period of availment shall not exceed 40 years.

II.SC CASES DIGEST

• Final notice before seizureis considered a denial of protest; court has no jurisdiction on petitions belatedly filed;
• Fees collected by recreational clubsfor the maintenance, preservation, and upkeep  of operations and facilities are not subject to income tax and VAT

 [FINAL NOTICE BEFORE SEIZURE IS CONSIDERED A DENIAL OF PROTEST] [COURT HAS NO JURISDICTION ON PETITIONS BELATEDLY FILED]

Petitioner Philippine Dream Company, Inc. filed a Petition for Review seeking reversal of the earlier decision of CTA dismissing the Petition for lack of jurisdiction. Petitioner argued that the Final Notice Before Seizure is not a final decision of Respondent Commissioner of Internal Revenue (CIR) on its protest, therefore, cannot be the basis of appeal to the CTA. On the other hand, Respondent countered that the Final Notice Before Seizure is already a final decision denying the Petitioner’s protest, and, as such, Petitioner had 30 days to appeal from receipt thereof.  In ruling, Section 228 of the 1997 Tax Code, as discussed in the case Lascona Land Co., Inc. vs. CIR, provides that a taxpayer has two (2) options in case of the inaction of the CIR on the protested assessment. First, the taxpayer has the option to file a Petition for Review with the CTA within 30 days after the expiration of the 180-day period. Second, the taxpayer may await the final decision of the CIR on the disputed assessment and appeal such final decision to the CTA within 30 days after the receipt of a copy of such decision. As ruled in CIR vs. Isabela Cultural Corporation, the Final Notice Before Seizure was considered as CIR’s denial of a protest. As such, Petitioner should have disputed the final decision on the assessment with the Court within 30 days upon its receipt of the Final Notice Before Seizure. In the instant case, the Petition was filed after the lapse of the said 30-day period. As held in the case RCBC vs. CIR, the 30-day period within which to file an appeal is jurisdictional and failure to comply therewith would bar the appeal and deprive the CTA of its jurisdiction to entertain and determine the correctness of the assessments. Thus, the Petition was DENIED and the earlier decisions of the CTA were AFFIRMED. [PHILIPPINE DREAM COMPANY, INC. VS. COMMISSIONER OF INTERNAL REVENUE, G.R. NO. 216044, AUGUST 27, 2020]

 FEES COLLECTED BY RECREATIONAL CLUBS FOR THE MAINTENANCE, PRESERVATION, AND UPKEEP  OF OPERATIONS AND FACILITIES ARE NOT SUBJECT TO INCOME TAX AND VAT

Petitioner CIR filed a Petition for Review on Certiorari assailing the earlier decision of the Regional Trial Court (RTC) of Makati City which declared Revenue Memorandum Circular (RMC) No. 35-2012 as null and void and granted declaratory relief to Respondent Federation of Golf Clubs of the Philippines, Inc. Petitioner insisted on the validity of RMC No. 35-2012 as it stemmed from the Petitioner’s exercise of delegated rule-making power. In ruling, following the Principle of Stare Decisis Et Non Quieta Movera which denies the examination and relitigation of issues where the same had already been decided upon, the Court has applied the ruling in the case of Association of Non-Profit Clubs, Inc. (ANPC) vs. CIR which resolved that membership fees, assessment dues, and the like are neither income nor part of the gross receipts of recreational clubs; hence, they are not subject to income tax and VAT. As such RMC No. 35-2012 is invalid insofar as it subjected membership fees, assessment fees, and those of similar nature collected by clubs which are organized and operated exclusively for non-profit purposes to income tax and VAT. Thus, the Petition was PARTLY GRANTED as the RTC, in declaring the invalidity of RMC No. 35-2012 in its entirety, is improper. [COMMISSIONER OF INTERNAL REVENUE VS. FEDERATION OF GOLF CLUBS OF THE PHILIPPINES, INC., G.R. NO. 226449, JULY 28, 2020]

 III. CTA CASES DIGEST

Claim for input tax refundmust be supported by compliance to the requisites of zero-rated sales and invoicing requirements

 Input VAT refund as a result of erroneous take on input vat on government salesshould be denied for failure to present proof of input VAT; invoices and VAT official receipts suffice as proof of actual input VAT

 Extent of taxability and exemption of junket operations revenue of Philippine Amusement and Gaming Corporation (PAGCOR)-licensed entity;PAGCOR is not tax-exempt on its income from junket operations

 Tax refund is construed strictissimi juris against the  taxpayerand liberally in favor of the government; burden of proof in claiming of tax refund is on petitioner

Court is empowered to rule on related issues necessaryto achieve an orderly disposition of the case; unless undertaken by the Commissioner of Internal Revenue (CIR) himself or his duly authorized representatives, other tax agents may not validly conduct any of these kinds of examinations without prior authority; amount stated in the formal letter of demand (FLD) remains indefinite, thus, assessment is void for failing to set and fix the tax due

 CLAIM FOR INPUT TAX REFUND MUST BE SUPPORTED BY COMPLIANCE TO THE REQUISITES OF ZERO-RATED SALES AND INVOICING REQUIREMENTS

Petitioner AIG Shared Services Corporation (Philippines) filed a Petition for Review seeking refund or issuance of Tax Credit Certificate (TCC) representing the input VAT attributable to its zero-rated sale transactions amounting to Php 9,908,662.44 covering the period December 1 to 31, 2013. In ruling, the Court laid down the essential elements for a supply of services to be subject to VAT rate of zero percent under Section 108(B)(2) of the 1997 Tax Code. Among others, Section 108(B)(2) of the 1997 Tax Code provides that the recipient of the services is a foreign corporation doing business outside the Philippines or is a no-resident person not engaged in business who is outside the Philippines when the services were performed and that the services must be performed in the Philippines. As held by the Supreme Court in the case Commissioner of Internal Revenue (CIR) vs. Deutsche Knowledge Services Pte. Ltd., to sufficiently establish that foreign clients are foreign corporations doing business outside the Philippines, an SEC Certification of Non-Registration and Articles of Association or Certificates of incorporation of the foreign clients must be presented. Perusal of the pieces of evidence showed that Petitioner has sufficiently established only five (5) out of its 48 clients which are non-resident foreign corporations doing business outside the Philippines. As to the services being performed in the Philippines, only one of the service agreements presented contain a provision that the services are to be performed by Petitioner in the Philippines. Lastly, some of the invoices and receipts supporting the input VAT contain defects in invoicing leading to the partial disallowance of the input VAT claimed. Thus, the Petition was PARTIALLY GRANTED resulting in a reduced amount of qualified input VAT of Php 33,998.77. [AIG SHARED SERVICES CORPORATION (PHILIPPINES) VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9351, DECEMBER 2, 2020]

 [INPUT VAT REFUND AS A RESULT OF ERRONEOUS TAKE ON INPUT VAT ON GOVERNMENT SALES SHOULD BE DENIED FOR FAILURE TO PRESENT PROOF OF INPUT VAT] [INVOICES AND VAT OFFICIAL RECEIPTS SUFFICE AS PROOF OF ACTUAL INPUT VAT]

Petitioner National Development Company filed a Petition for Review seeking refund on the erroneously paid VAT pertaining to the mistake committed in utilizing the actual input VAT attributable to its sales to the government.  In ruling, the Court denied the refund due to Petitioner’s failure to present proof of actual input VAT. Perusal of evidence showed that the Petitioner failed to adduce sufficient proof of the actual input VAT-invoices and/or VAT official receipts emanating from purchase of goods, properties, and services. Hence, without proof on the actual input VAT incurred by Petitioner, the Court cannot determine the actual overpayment subject of refund. Consequently, the Petition was DENIED. [NATIONAL DEVELOPMENT COMPANY VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9633, NOVEMBER 26, 2020]

 [EXTENT OF TAXABILITY AND EXEMPTION OF JUNKET OPERATIONS REVENUE OF PAGCOR-LICENSED ENTITY] [PAGCOR IS NOT TAX-EXEMPT ON ITS INCOME FROM JUNKET OPERATIONS]

Petitioner Prime Investment Korea Inc. filed a Petition for Review seeking refund or issuance of Tax Credit Certificate on erroneously paid income tax on its junket gaming operations. Petitioner argued that the tax exemption provided in Section 13 (2) of Presidential Decree (P.D.) No. 1869 extends to persons with whom PAGCOR has a contractual relationship in connection with gaming operations and furnishing of essential services and/or technical services, thus, the tax exemption should inure to its junket gaming operations. Further, it has complied with both substantive and procedural requirements for a claim of refund or issuance of TCC, and has established the fact of its erroneous payment of corporate income tax and the legal basis therefor. In ruling, the Court held that PAGCOR is not exempt from corporate income tax on income derived from junket operations. Citing the 2014 PAGCOR case, the Court adapted the SC pronouncement that PAGCOR is subject only to 5% franchising tax under P.D. 1869 and its income from junket operations as income from other related operations is subject to income tax. Thus, Petition was DENIED.  [PRIME INVESTMENT KOREA INC. VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9814, NOVEMBER 19, 2020]

 [TAX REFUND IS CONSTRUED STRICTISSIMI JURIS AGAINST THE  TAXPAYER AND LIBERALLY IN FAVOR OF THE GOVERNMENT] [BURDEN OF PROOF IN CLAIMING OF TAX REFUND IS ON PETITIONER]

Petitioner Sycamore Global Shipping Corporation filed a Petition for Review seeking refund on erroneously paid income tax on cash dividends from Banyan Towage Services, Inc. (BTSI). Petitioner argued that its claim for refund should be granted because all elements necessary for the grant of refund of erroneously paid income tax are present. In ruling, perusal of documents showed that Petitioner failed to prove its entitlement to claim for refund. For a claim for refund to be granted, the manner in proving qualifications must be in accordance with the prescribed rules of evidence. For failing to meet the requirements, the Petition was DENIED. [SYCAMORE GLOBAL SHIPPING CORPORATION vs. COMMISIONER OF INTERNAL REVENUE, CTA CASE NO. 10070, NOVEMBER 19, 2020]

 [COURT IS EMPOWERED TO RULE ON RELATED ISSUES NECESSARY TO ACHIEVE AN ORDERLY DISPOSITION OF THE CASE] [UNLESS UNDERTAKEN BY THE CIR HIMSELF OR HIS DULY AUTHORIZED REPRESENTATIVES, OTHER TAX AGENTS MAY NOT VALIDLY CONDUCT ANY OF THESE KINDS OF EXAMINATIONS WITHOUT PRIOR AUTHORITY] [AMOUNT STATED IN THE FLD REMAINS INDEFINITE, THUS, ASSESSMENT IS VOID FOR FAILING TO SET AND FIX THE TAX DUE]

Petitioner Robbie Stylographic and Development Corporation filed a Petition for Review seeking cancellation of the assessment issued by the Respondent CIR. In ruling, the Court held that Court is empowered to rule on related issues necessary to achieve an orderly disposition of the case. Since the issue on the appropriate authority of the Revenue Officer (RO) who conducted and continued the audit and investigation of Petitioner was not raised, nevertheless, it is necessary to make a determination thereon because of its significant effect on the validity of the subject tax assessment. Perusal of records showed that RO Susan S. Ferrer, the RO who continued the audit and reinvestigation of Petitioner, was not validly authorized to examine the latter’s books of accounts, thereby, making the subject tax assessment void. Hence, unless undertaken by the CIR himself or his duly authorized representatives, other tax agents may not validly conduct any of these kinds of examinations without prior authority. Moreover, as the amount stated in the FLD remains indefinite, the subject tax assessment is void for failing to set and fix the tax due, as required by law. Thus, the Petition for Review was GRANTED and assessment was CANCELLED. [ROBBIE STYLOGRAPHIC AND DEVELOPMENT CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9774, NOVEMBER 17, 2020]

 IV.BIR ALLOWS MANUAL TAX FILING OF NATIONAL GOVERNMENT AGENCIES AFFECTED BY TYPHOON ROLLY IN BICOL REGION

Revenue Memorandum Circular No. 134-2020, issued on December 11, 2020, allows the manual filing and payment of tax returns, without penalties and sanctions, of National Government Agencies (NGAs) in areas affected by Typhoon Rolly in Bicol Region that are mandated users of eFPS and Electronic Tax Remittance Advice (eTRA) as a mode of payment. However, NGAs should re-file the manually-filed tax returns through eFPS within 24 hours immediately after restoration of the power supply and TELCO internet connectivity.

 V.BIR ALLOWS MANUAL TAX FILING OF EFPS TAXPAYERS AFFECTED BY TYPHOONS ROLLY AND ULYSSES

Revenue Memorandum Circular No. 133-2020, issued on December 11, 2020, allows the manual filing and payment of tax returns during the unavailability of eFPS due to typhoons Rolly and Ulysses. Concerned taxpayers are given an extension of 15 days on deadlines falling between November 15 and 30, 2020 to file returns and pay the corresponding taxes due thereon without imposition of corresponding penalties.

 VI.TAX AND BUSINESS-RELATED NEWS [DECEMBER 14-18]

1. • BIR breaches collection goal for 2020
   • PEZA gives FPIP green/sustainability award
   • BSP streamlines loan applications for MSMEs
   • All workers entitled to 13th month pay: labor dept
   • Bangko Sentral keeps rates steady as expected
   • Senate ratifies bicam report on FIST bill
   • DOT to subsidize half of cost of COVID-19 test at PGH for tourists
   • BIR raises additional revenues from padlocked businesses
   • BOC prepares for possible port congestion amid truck ban
   • Google delays return to office and eyes ‘flexible work week’- NYT

BIR breaches collection goal for 2020 [Philippine Daily Inquirer, December 18, 2020]

The Bureau of Internal Revenue (BIR) exceeded its downscaled full-year collection target as early as November and is bracing for a bigger goal next year amid expectations of an economic rebound from the pandemic-induced recession.

Source: https://business.inquirer.net/314324/bir-breaches-collection-goal-for-2020#ixzz6hBVQpgWk

PEZA gives FPIP green/sustainability award [Manila Bulletin, December 18, 2020]

The Philippine Economic Zone Authority (PEZA) has given the Green, Healthy, Smart, and Sustainable Ecozone Award to Lopez-led First Philippine Industrial Park (FPIP) for its “notable commitment to promoting healthy industrialization and sustainably-designed, smart, and green economic zone.”

Source: https://mb.com.ph/2020/12/19/peza-gives-fpip-green-sustainability-award/

BSP streamlines loan applications for MSMEs [Philippine Star, December 18, 2020]

The Bangko Sentral ng Pilipinas (BSP) plans to streamline business loan applications to boost the access of micro, small and medium enterprises (MSMEs) amid the coronavirus disease 2019 or COVID-19 pandemic.

Source: https://www.philstar.com/business/2020/12/20/2065009/bsp-streamlines-loan-applications-msmes

All workers entitled to 13th month pay: labor dept [ABS-CBN News, December 18, 2020]

All Filipino workers are entitled to 13th month pay ahead of its deadline on Christmas Eve, the labor department said.

Source: https://news.abs-cbn.com/video/business/12/20/20/all-workers-entitled-to-13th-month-pay-labor-dept

Bangko Sentral keeps rates steady as expected [ABS-CBN News, December 17, 2020]

The Bangko Sentral ng Pilipinas kept interest rates steady, in line with analysts forecasts given what it sees as a “benign inflation environment”.

Source: https://news.abs-cbn.com/business/12/17/20/bangko-sentral-keeps-rates-steady-as-expected

Senate ratifies bicam report on FIST bill [ABS-CBN News, December 15, 2020]

The Senate on Tuesday ratified the bicameral conference committee report on the proposed Financial Institutions Strategic Transfer (FIST) Act, which would allow “banks and other financial institutions to dispose and transfer non-performing assets and loans.”

Source: https://news.abs-cbn.com/business/12/15/20/senate-ratifies-bicam-report-on-fist-bill

DOT to subsidize half of cost of COVID-19 test at PGH for tourists [ABS-CBN News, December 15, 2020]

The Department of Tourism has signed a deal with the Philippine General Hospital to subsidize the COVID-19 swab tests of qualified tourists, the agency said on Tuesday. 

Source: https://news.abs-cbn.com/business/12/15/20/dot-to-subsidize-half-of-cost-of-covid-19-test-at-pgh-for-tourists

BIR raises additional revenues from padlocked businesses [Manila Bulletin, December 15, 2020]

The Bureau of Internal Revenue (BIR) has collected additional taxes from commercial establishments that were padlocked earlier for failing to either register or pay the correct amount of tax.

Source: https://mb.com.ph/2020/12/15/bir-raises-additional-revenues-from-padlocked-businesses/

BOC prepares for possible port congestion amid truck ban [ABS-CBN News, December 15, 2020]

The Bureau of Customs (BOC) said Monday is preparing for possible congestion at Manila International Container Port (MICP) after authorities reimposed the truck ban in the capital region.

Source: https://news.abs-cbn.com/business/12/15/20/boc-prepares-for-possible-port-congestion-amid-truck-ban

Google delays return to office and eyes ‘flexible work week’- NYT [ABS-CBN News, December 14, 2020]

Alphabet Inc’s Google will allow its employees to work from home until September next year, extending the return to the office by a few months, the New York Times reported on Monday.

Source: https://news.abs-cbn.com/business/12/14/20/google-delays-return-to-office-and-eyes-flexible-work-week-nyt

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