TOPSHOP & TOPMAN TO CLOSE DOWN ALL STORES IN THE PHILIPPINES + SAVINGS FROM CREATE TAX CUTS TO BE RE-INVESTED BACK TO THE ECONOMY: BUSINESS LEADERS
Other Relevant Tax Updates:
- Court of Tax Appeals (CTA) Cases Digest
- Securities and Exchange Commission (SEC) Issues Beneficial Ownership Transparency Guidelines
- Tax and Business-Related News [February 17-24]
I. CTA CASES DIGEST
- Importance of complying with the invoicing requirement on refund cases
- Assessment notice sent to the wrong addressand received by unauthorized representative is void; observance of due process is necessary for valid assessments
- Raw material importations require Import Entry Internal Revenue Declarations (IEIRDS), Single Administrative Documents (SADS), and Statements of Settlement of Duties and Taxes (SSDTS) in order to prove receipt of goods and payment of corresponding excise taxes; prorating method as an acceptable method in determining ratio of raw alcoholto finished goods
- Distinction between administrative refundcase appealed due to inaction and those dismissed due to failure to submit supporting documents
- Service of Preliminary Assessment Notice (PAN) to wrong taxpayernecessarily leads to denial of due process; absence of pan renders any assessment void
- Sale to entity doing business in the Philippines does not qualify for vat zero ratingunder section 108(b)(2) of the tax code
- Date of the post office stamp on the envelope/registry receipt is considered the date of filing of a pleading; failure to indicate a definite period for payment of the taxassessed negates the bir’s demand for payment; any reassignment/transfer of cases to another Revenue Officer (RO)/revalidation of an expired Letter of Authority (LOA) shall require the issuance of a new LOA
- Requirements on refund or issuance of Tax Credit Certificate (TCC)of unutilized input VAT of zero rated transactions
IMPORTANCE OF COMPLYING WITH THE INVOICING REQUIREMENT ON REFUND CASES
Petitioner CIR filed a Petition for Review seeking to reverse the Court’s earlier decision partially granting the input VAT refund in favor of the Respondent Kurimoto Philippines Corporation. Petitioner argued that Respondent failed to comply with the invoicing requirements under the Tax Code. In ruling, the Court held that under Revenue Memorandum Circular No. 42-03, failure to comply with the invoicing requirements on the documents supporting the sale of goods and services will result in the disallowance of the claim for input tax by the claimant. Clearly, it is vital for a taxpayer claiming VAT refund to prove that it had followed the invoicing requirements. Failure to comply with the same will cause the denial of the said claim. Lastly, tax refunds are in the nature of a claim for exemption and, therefore, the law is construed in strictissimi juris against the taxpayer. Accordingly, evidence presented entitling a taxpayer to an exemption must be scrutinized and must be duly proven. In this case, Respondent was able to prove with competent evidence its entitlement to the refund claimed. Thus, the Petition was DENIED. [COMMISSIONER OF INTERNAL REVENUE VS. KURIMOTO PHILIPPINES CORPORATION, CTA EN BANC CASE NO. 2108, FEBRUARY 3, 2021]
[ASSESSMENT NOTICE SENT TO THE WRONG ADDRESS AND RECEIVED BY UNAUTHORIZED REPRESENTATIVE IS VOID] [OBSERVANCE OF DUE PROCESS IS NECESSARY FOR VALID ASSESSMENTS]
Petitioner CIR filed a Petition for Review seeking to reverse the earlier decision of the Court cancelling the assessment issue against Respondent Vitalo Packaging International, Inc. Petitioner claimed that the Court erred in ruling that the assessment is null and void for having been issued in violation of the due process requirements. In ruling, the Court held that the assessments are void for lack of due process because the notices were sent to the wrong address and also, they were not proven by the Petitioner to have been received by the Respondent or its authorized representative. Consequently, since an invalid assessment bears no valid fruit, the subsequent issuances to enforce collection are likewise void. Thus, the Petition was DENIED. [COMMISSIONER OF INTERNAL REVENUE VS. VITALO PACKAGING INTERNATIONAL, INC., CTA EN BANC CASE NO. 2148, FEBRUARY 3, 2021]
[RAW MATERIAL IMPORTATIONS REQUIRE IMPORT ENTRY INTERNAL REVENUE DECLARATIONS (IEIRDS), SINGLE ADMINISTRATIVE DOCUMENTS (SADS), AND STATEMENTS OF SETTLEMENT OF DUTIES AND TAXES (SSDTS) IN ORDER TO PROVE RECEIPT OF GOODS AND PAYMENT OF CORRESPONDING EXCISE TAXES] [PRORATING METHOD AS AN ACCEPTABLE METHOD IN DETERMINING RATIO OF RAW ALCOHOL TO FINISHED GOODS]
Petitioner Ginebra San Miguel, Inc. filed a Motion for Reconsideration (MR) on the earlier decision of the Court denying its claim for refund of erroneously assessed excise taxes in the total amount of Php 715,258,843.38. Petitioner asserted that it simply needs to show that the finished goods were produced exclusively from ethyl alcohol on which the excise taxes had already been paid. On the other hand, the Respondent argued that claims for refund partake the nature of exemptions and are strictly construed against the claimant and cannot be allowed. In ruling, the Court found the present Motion partially meritorious. Perusal of documents showed that not all imported raw materials were properly supported. Further, under the previous decision, Petitioner failed to determine the ratio of raw alcohol to finished goods, thus, a failure to prove the factual aspect of its claim. With this, Petitioner posited that prorating method utilized by Independent CPA is an acceptable method, which the Court concurred. Moreover, excise taxes on raw material in transit in 2012, though only reflected in the 2013 Official Registry Book were also disallowed. Therefore, in light of the foregoing, the Motion was PARTIALLY GRANTED, entitling refund in the reduced amount of Php 319,755,320.82. [GINEBRA SAN MIGUEL, INC. VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NOS. 8953 AND 8954 , FEBRUARY 1, 2021]
DISTINCTION BETWEEN ADMINISTRATIVE REFUND CASE APPEALED DUE TO INACTION AND THOSE DISMISSED DUE TO FAILURE TO SUBMIT SUPPORTING DOCUMENTS
Petitioner CIR filed a Petition for Review seeking to reverse the Court’s earlier decision on partial grant of input VAT refund in favour of Respondent CE Luzon Geothermal Power Company, Inc. Petitioner argued that the Court should not have allowed Respondent to present evidence which were not adduced in the administrative level. On the other hand, Respondent countered that non-submission of documents during the pendency of the administrative claim, does not bar it from availing of the judicial remedies. In ruling, the Court first distinguished an administrative VAT refund claim that was dismissed due to failure to submit complete documents despite notice or request and the administrative VAT refund claims that were either denied due to inaction or other than due to failure to submit complete documents. In the first instance, a claimant must show the Court not only his entitlement to refund, but also the fact that he has submitted complete documents as requested by Petitioner. In the second instance, a claimant may present all evidence to prove its entitlement to refund and the Court will consider all evidence offered even those not presented before the Petitioner at the administrative level. In the case at bar, Respondent VAT refund claims were deemed denied due to inaction by the Petitioner. Consequently, the Court may consider all of the evidence presented by Respondent to substantiate its claims for VAT refund even though these have not been presented before at the administrative level. Thus, Petition was DENIED and the earlier decision was AFFIRMED. [COMMISSIONER OF INTERNAL REVENUE VS. CE LUZON GEOTHERMAL POWER COMPANY INC., CTA EN BANC CASE NO. 2132, JANUARY 28, 2021]
[SERVICE OF PAN TO WRONG TAXPAYER NECESSARILY LEADS TO DENIAL OF DUE PROCESS] [ABSENCE OF PAN RENDERS ANY ASSESSMENT VOID]
Petitioner CIR filed a Petition for Review seeking to reverse CTA in Division’s earlier Decision cancelling the Formal Letter of Demand (FLD) issued to Respondent, Mindanao Sanitarium and Hospital College Inc. Petitioner insisted that the fact of mailing was supported by the corresponding Master List of Mail Matters and even a certification from the Post Office. In ruling, perusal of records revealed that the Preliminary Assessment Notice (PAN) was addressed and delivered to a certain “Mindanao Sanitarium and Hospital, Inc.” which is a different entity as compared to Respondent. Likewise, the Court noted that Petitioner failed to present the registry receipt showing that Respondent indeed received the PAN. Citing the landmark case of CIR vs. Metro Star Superama, Inc., the Court emphasized the importance of PAN to the due process rights of Respondent and the validity of the assessment made by Petitioner. Hence, the Court DENIED the Petition. [COMMISSIONER OF INTERNAL REVENUE VS. MINDANAO SANITARIUM AND HOSPITAL COLLEGE INC., CTA EN BANC CASE NO. 213, JANUARY 27, 2021]
SALE TO ENTITY DOING BUSINESS IN THE PHILIPPINES DOES NOT QUALIFY FOR VAT ZERO RATING UNDER SECTION 108(B)(2) OF THE TAX CODE
Amadeus Marketing Philippines, Inc. (AMPI) and CIR filed their respective Petitions for Review seeking the reversal of the earlier decision of the Court in Division partially granting AMPI’s request for refund or issuance of a Tax Credit Certificate in the reduced amount of Php 2,616,481.61. CIR argued that sales to Amadeus IT Goup SA must be disallowed since the entity is found to be doing business in the Philippines based on an earlier decided case also involving AMPI. On the other hand, AMPI argued that the issue that Amadeus IT Group SA is an entity doing business in the Philippines has already been settled by the Court in Division finding the evidence AMPI had presented to be sufficient in proving that Amadeus IT Group SA is a non-resident foreign corporation doing business outside the Philippines. In ruling, the Court held that although it would seem that under Section 108(B)(2) of the Tax Code Amadeus IT Group SA is a foreign entity doing business outside the Philippines, a thorough review of the agreement submitted by AMPI revealed that Amadeus IT Group SA is doing business in the Philippines. Hence, the Court disallowed all of the alleged zero-rated sales to which refund is attributed since it all resulted in services rendered by AMPI to Amadeus IT Group SA. Consequently, the Court REVERSED and SET ASIDE the decision made by CTA Special Second Division and DENIED the original Petition of AMPI. [AMADEUS MARKETING PHILIPPINES, INC. VS. COMMISSIONER OF INTERNAL REVENUE, CTA EN BANC NOS. 2137 AND 2153, JANUARY 26, 2021]
[DATE OF THE POST OFFICE STAMP ON THE ENVELOPE/REGISTRY RECEIPT IS CONSIDERED THE DATE OF FILING OF A PLEADING] [FAILURE TO INDICATE A DEFINITE PERIOD FOR PAYMENT OF THE TAX ASSESSED NEGATES THE BIR’S DEMAND FOR PAYMENT] [ANY REASSIGNMENT/TRANSFER OF CASES TO ANOTHER RO/REVALIDATION OF AN EXPIRED LOA SHALL REQUIRE THE ISSUANCE OF A NEW LOA]
Petitioner CIR filed a Petition for Review seeking to reverse the CTA 3rd Division’s earlier decision cancelling the assessment issued against the Respondent Lorenzo Shipping Corporation. Petitioner argued that the Respondent failed to file the protest on time, thus, the assessment has become final, executory and demandable. Likewise, assessment is valid as it states the fact, the law, the rules and regulations or jurisprudence on which it was based. In ruling, perusal of records showed that the protest was filed through registered mail on time, notwithstanding its dispatch by the Post Office which was only on a later date. Section 3, Rule 13 of the Revised Rules of Court provides that the date of the post office stamp on the envelope or the registry receipt is considered the date of filing of a pleading sent by registered mail. Likewise, the Court noted the absence of definite due to settle. Following the Supreme Court pronouncement in CIR v. Fitness by Design, Inc., failure to indicate a definite period for payment of the tax assessed negates the BIR’s demand for payment. Hence, the assessments must be cancelled. Further, no new LOA was issued to authorize the RO who continued the examination and assessment. Based on the foregoing discussions, there is no compelling reason to deviate from the previous ruling. Thus, the Petition was DENIED. [COMMISSIONER OF INTERNAL REVENUE VS. LORENZO SHIPPING CORPORATION, CTA EN BANC CASE NO. 1964, JANUARY 26, 2021]
REQUIREMENTS ON REFUND OR ISSUANCE OF TCC OF UNUTILIZED INPUT VAT OF ZERO RATED TRANSACTIONS
Petitioner Penn Philippines, Inc. filed a Petition for Review seeking refund or issuance of TCC amounting to Php 4,758,453.00 on alleged unutilized input VAT for the four (4) quarters of calendar year (CY) 2004. In ruling, the Court held that the Petitioner has complied with all the requirements on refund of input VAT attributable to zero-rated sales except that portion of input VAT is not properly substantiated and not compliant with the invoicing requirements pursuant to Sections 113 and 237 of 1997 Tax Code; and some valid input VAT are not entirely attributable to zero-rated sales since Petitioner also had sales subject to VAT. Consequently, the Petition was PARTIALLY GRANTED ordering the Respondent CIR to refund or issue TCC in favor of the Petitioner in the amount of Php 2,706,140.00. [PENN PHILIPPINES, INC., VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 7457, JANUARY 19, 2021]
II. SEC ISSUES BENEFICIAL OWNERSHIP TRANSPARENCY GUIDELINES
SEC Memorandum Circular No. 1, Series of 2021, issued on January 29, 2021, circularizes guidelines in preventing the misuse of corporations for illicit activities through the measures designed to promote transparency of beneficial ownership.
Highlights of the circular include the following:
- Prohibitionagainst the issuance/sale/public offering of bearer shares/bearer share warrants;
- Disclosure and recording of the alienation, sale, or transfer of sharesin the stock and transfer book of the issuing corporation;
- Mandatory non-payment of dividendsto any person or entity unless his/her/its name appears in the records of the corporation as the owner of the shares of stock for which dividends are being paid;
- Mandatory disclosure of the personon whose behalf the corporation is registered and the nominators/principals of nominee incorporators/first directors/trustees and shareholders of corporations applying for registration;
- Mandatory disclosure of nominators/principals/personson whose behalf one acts as director/trustee/shareholder of existing corporations;
- Periodto submit disclosure statement under Section 7 of this Circular;
- Exemptionfrom Disclosure Requirements;
- Submission to the Commission of the required information under Sections 6 and 7of this Circular which shall be done online in such form and manner as the Commission deems practicable;
- Data Handling and Management of Information and Communication Technology (ICT) of the Commission wherein the latter shall electronically acknowledge receipt of the disclosuresrequired to be submitted online under these Guidelines; and
- Beneficial Ownership as part of corporate records.
III. TAX AND BUSINESS-RELATED NEWS [FEBRUARY 17-24]
- SEC releases draft rules of FIST law
- BIR tax collection drops in 2020 amid COVID-19 pandemic
- FIST Act draft implementing rules now up for public scrutiny
- BPI, DTI team up to help SMEs recover
- DOF to study CREATE ‘insertions’ amid calls for veto
- Savings from CREATE tax cuts to be re-invested back to the economy: business leaders
- Duterte signs FIST bill into law to cushion banks from bad loans
- DOF chief sees BIR take in 2021 exceeding target, again
- BSP says FIST law ‘great news’ that would reduce banks’ bad loans
- Topshop and Topman to close down all stores in the Philippines
SEC releases draft rules of FIST law [ABS-CBN News, February 23, 2021]
The Securities and Exchange Commission (SEC) has released to the public on Friday the draft implementing rules and regulations (IRR) of a newly passed law that will help banks and financial institutions manage risk from piling bad loans amid the COVID-19 crisis.
BIR tax collection drops in 2020 amid COVID-19 pandemic [Manila Bulletin, February 22, 2021]
The Bureau of Internal Revenue’s tax collection has dropped by more than 10 percent in 2020 amid the country’s battle against the COVID-19 pandemic.
BPI, DTI team up to help SMEs recover [Philippine Daily Inquirer, February 18, 2021]
Based on the memorandum of understanding (MOU) signed with the DTI, BPI Business Banking has committed to support DTI programs such as SME Roving Academy, Kapatid Mentor Me, Youth Entrepreneurship Program, and regional trade fairs.
DOF to study CREATE ‘insertions’ amid calls for veto [Philippine Daily Inquirer, February 18, 2021]
The Department of Finance (DOF) will look into the items in the Congress-approved version of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act that advocate group Action for Economic Reforms (AER) wants vetoed by President Duterte.
Savings from CREATE tax cuts to be re-invested back to the economy: business leaders [ABS-CBN News, February 17, 2021]
The country’s top businessmen said the passage of a bill that will cut corporate taxes from 30 percent to 25 percent will attract not just foreign investors, but also re-investments from big local firms.
Duterte signs FIST bill into law to cushion banks from bad loans [ABS-CBN News, February 17, 2021]
President Rodrigo Duterte has signed into law the Financial Institutions Strategic Transfer (FIST) Act which would cushion banks and credit-granting institutions from the build up of bad loans due to the COVID-19 crisis, the Bangko Sentral ng Pilipinas said on Tuesday.
DOF chief sees BIR take in 2021 exceeding target, again [Philippine Daily Inquirer, February 17, 2021]
Rosier economic prospects, declining tax evasion and big business support for digital payment schemes were likely to help the Bureau of Internal Revenue (BIR) surpass its collection target of P2.08 trillion in 2021.
BSP says FIST law ‘great news’ that would reduce banks’ bad loans [Philippine Daily Inquirer, February 17, 2021]
The Philippine banking system will enjoy better insulation against shocks after President Rodrigo Duterte signed into law a measure that will allow financial institutions to unload their bad assets that have risen due to pandemic-induced business slowdown.
Topshop and Topman to close down all stores in the Philippines [Manila Bulletin, February 17, 2021]
Following the announcement of its US stores closing down and looming bankruptcy reports, Arcadia Group (parent company of Topshop, Topman, Burton, Dorothy Perkins, and other brands under its umbrella) will close down physical stores in other countries as well, the Philippines included.
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