SEC ADVISORY ON NOTICE TO RETAIN SPECIFIC CORPORATE TERM + 30 BUSINESS GROUPS TO PETITION FOR CREATE BILL PASSAGE + PH FIRST CROWDFUNDING PLATFORM GETS SEC APPROVAL TO SUPPORT MSMES
Other Relevant Tax Updates:
- Securities and Exchange Commission (SEC) Advisory on Online and Manual Submission of Notice to Retain Specific Corporate Term
- Bureau of Internal Revenue (BIR) International Tax Affairs Division (ITAD) Rulings
- Court of Tax Appeals (CTA) Cases Digest
- Tax and Business-Related News [January 8-15]
I. SEC ADVISORY ON ONLINE AND MANUAL SUBMISSION OF NOTICE TO RETAIN SPECIFIC CORPORATE TERM
In a reminder dated January 13, 2021, SEC reminds the public to file electronically their Notice to Retain Specific Corporate Term on or before February 23, 2021 through the designated e-mail mc22_s2020@sec.gov.ph. Hard copies must also be filed through the Company Registration and Monitoring Department (CRMD) for the issuance of Certificate of Filing Notice to Retain Specific Corporate Term. Corporations who fail to submit shall be deemed to have selected a perpetual term.
It may be recalled that existing corporations registered prior to the effectivity of the Revised Corporation Code on February 23, 2019, shall be deemed to have perpetual existence unless the corporation elects to retain its specific corporate term.
II. BIR ITAD RULINGS
- It is indispensible for the sending state that property subject for sale forms part of the premises of the missionand is used for the function of the mission at the time of sale to be exempt from taxes; Australian Government is liable to pay Capital Gains Tax (CGT) and documentary stamp tax (DST), but not liable to pay VAT on the sale of real property
- Extent of tax exemption of the subject entity organized pursuant to an international agreement
- Royalty payments to Non-Resident Foreign Corporation (NRFC)incorporated and domiciled in Hungary are subject to lower preferential rate; business profits earned by a NRFC incorporated and domiciled in Hungary are exempt from income tax in the absence of permanent establishment; payments to nrfc for the lease of property in the Philippines are subject to VAT
- Transfer of shares of stock in a domestic company by a Japanese NRFCis not subject to income tax pursuant to RP-Japan treaty for as long it meets the requirements under real property interest test; transfer of property for less than adequate and full considerationis not subject to donor’s tax in the absence of donative intent; transfer of shares of stock pursuant to a tax-free exchange is subject to DST in the absence of a BIR ruling
[IT IS INDISPENSIBLE FOR THE SENDING STATE THAT PROPERTY SUBJECT FOR SALE FORMS PART OF THE PREMISES OF THE MISSION AND IS USED FOR THE FUNCTION OF THE MISSION AT THE TIME OF SALE TO BE EXEMPT FROM TAXES] [AUSTRALIAN GOVERNMENT IS LIABLE TO PAY CGT AND DST, BUT NOT LIABLE TO PAY VAT ON THE SALE OF REAL PROPERTY]
Australian Government is requesting confirmation if the sale of its parcel of land with all the improvements thereon is exempt from CGT, DST and VAT. In ruling, the BIR made reference to Article 23 of the Vienna Convention on Diplomatic Relation, in relation to Article 1 (i), which states that the sending State and head of the mission shall be exempt from all the taxes in respect of the buildings or part of buildings and land ancillary thereto which are used for the official purposes of the foreign diplomatic mission. Hence, for tax exemption to attach to the sending state, it is indispensable that property subject of the sale forms part of the “premises of the mission” and is used for any of the functions of the mission at the time of sale. In this case, the subject property did not meet the requisite, because it was neither used in furtherance of the functions of the mission, nor was it used as the residence of the head of the mission at the time of the sale. The subject property ceased to be a premise of the mission after the Australian Government vacated or discontinued the use of such property for purposes of the mission or as a residence of the head of the mission. Thus, Australian Government is liable for the payment of taxes arising from the sale of the subject property. The subject property is not a real property used in trade or business of the taxpayer, hence, a capital asset subject to 6% CGT. Considering that the Australian Government is not exempt from national taxes with regard to the sale of the subject property, it may be held liable for the payment of the DST imposed herein. The liability for the DST may, however, be shifted to the buyer if so agreed upon by the parties. Finally, the sale was not made in the course of trade or business since it does not regularly sell properties; hence, the Australian Government is not liable to VAT. [BIR ITAD RULING NO. 061-2020, SEPTEMBER 23, 2020]
EXTENT OF TAX EXEMPTION OF THE SUBJECT ENTITY ORGANIZED PURSUANT TO AN INTERNATIONAL AGREEMENT
The Department of Foreign Affairs, in favor of Asean Centre for Biodiversity (ACB), is seeking confirmation that the assets, property, income, operations and transactions of ACB are exempt from taxes pursuant to the PH-ACB Host Country Agreement. In ruling, the BIR made reference first to Section 32(B)(6) of the Tax Code which provides that income is excluded from gross income if it is exempt under any treaty obligation binding upon the Government of the Philippines. Also Sections 106(A)(2)(b) and 108(B)(3) of the Tax Code provide that sales of goods and services to persons or entities, who are exempt under special laws or international agreements to which the Philippines is a signatory, are subject to VAT at zero rate. In relation thereto, Sections 1 and 4, Article VIII (D) of the PH-ACB Host Country Agreement provide that ACB is exempt from direct taxes and from VAT on its purchases of goods, materials, equipment, vehicles, and services for its official use. Thus, ACB is exempt from direct taxes, and its purchases of goods and services for its official use from VAT-registered taxpayers are subject to zero percent VAT. [BIR ITAD RULING NO. 59-20, JULY 24, 2020]
[ROYALTY PAYMENTS TO NRFC INCORPORATED AND DOMICILED IN HUNGARY ARE SUBJECT TO LOWER PREFERENTIAL RATE] [BUSINESS PROFITS EARNED BY A NRFC INCORPORATED AND DOMICILED IN HUNGARY ARE EXEMPT FROM INCOME TAX IN THE ABSENCE OF PERMANENT ESTABLISHMENT] [PAYMENTS TO NRFC FOR THE LEASE OF PROPERTY IN THE PHILIPPINES ARE SUBJECT TO VAT]
V Co., a domestic corporation, is seeking confirmation if income payments to F Co., a resident of Hungary, are subject to relief under the Philippines-Hungary Tax Treaty. In ruling, the BIR held that income derived in the Philippines by a NRFC is subject to income tax rate of 30% under Section 28(B)(1) of the 1997 Tax Code. However, such income may be exempt to the extent required by any treaty obligation binding upon the Philippine Government. Under Article 11 of the Philippines-Hungary Tax Treaty, the channel net revenues being royalties for meeting the definition of royalties are subject to the lowest rate of Philippine income tax that may, under similar circumstances, be imposed on royalties by a resident of a third State (so-called most favored nation treatment). In this connection, Article 12 of the Philippines-Hungary Tax Treaty provides that royalties arising in the Philippines and paid to a resident of the United Arab Emirates are subject to income tax at the rate of 10%; hence, F Co.’s share in the channel net revenue is subject to a lower income tax rate of 10%. On the other hand, the share of F Co. from the local ad net revenue and regional ad net revenue are not considered royalties, but business profits since these are derived from providing commercial airtime to local and regional advertisers for the local commercials on the channel which is in the ordinary course of business of F Co. Article 7 of the Philippines-Hungary tax treaty provides that business profits earned by an enterprise of Hungary shall only be taxable in the Philippines if the said enterprise carries on business in the Philippines through a permanent establishment. Given that F Co. does not have permanent establishment in the Philippines, its share in the local ad net revenue and regional ad net revenue is exempt from income tax. Lastly, on the basis that F Co.’s share in the channel net revenue, local ad net revenue, and regional ad net revenue are payments for the lease of property in the Philippines, payments for such are subject to VAT under Section 108(A) of the 1997 Tax Code. [BIR ITAD RULING NO. 056-20, JULY 15, 2020]
[TRANSFER OF SHARES OF STOCK IN A DOMESTIC COMPANY BY A JAPANESE NRFC IS NOT SUBJECT TO INCOME TAX PURSUANT TO RP-JAPAN TREATY FOR AS LONG IT MEETS THE REQUIREMENTS UNDER REAL PROPERTY INTEREST TEST] [TRANSFER OF PROPERTY FOR LESS THAN ADEQUATE AND FULL CONSIDERATION IS NOT SUBJECT TO DONOR’S TAX IN THE ABSENCE OF DONATIVE INTENT] [TRANSFER OF SHARES OF STOCK PURSUANT TO A TAX-FREE EXCHANGE IS SUBJECT TO DST IN THE ABSENCE OF A BIR RULING]
3D Auto-Japan, NRFC, is seeking confirmation whether the transfer of its shares of stock in 3D Auto-Philippines to ARKK Co. is exempt from tax pursuant to the Philippines-Japan Tax Treaty. It was represented that the transfer of shares of stock is pursuant to an absorption-type merger agreement with 3D Auto-Japan as the extinct company and ARKK Co. as the surviving company, with no consideration to compensate or increase in capital. Further, it was represented that 3D Auto Philippines’ real property interest is only 25.86% following the Real Property Interest (RPI) test stated in Revenue Regulations (RR) No. 4-86 that the RPI must not be more than 50% at the time of transfer. In ruling, the BIR held that capital gains from the disposition of shares of stock in a domestic corporation by NRFC is subject to tax under Section 28(B)(5)(c) of the 1997 Tax Code. However, such gains may be exempt pursuant to any treaty obligation binding upon the Philippine Government for as long as it meets the requirements provided in the RPI test. In the instant case, given that requirement (i.e. the property of the domestic company consists principally of immovable property) for exemption provided in the Philippines-Japan Treaty was met, the transfer of shares of stock to ARKK Co. is exempt from CGT as the RPI is less than 50% (i.e 25.86%). On donor’s tax, the BIR cited the case of Republic of the Philippines vs. David Rey Guzman and the Register of Deeds of Bulacan, Meycauayan Branch wherein the Supreme Court held that one of the requisites of a valid donation is that there should be donative intent. Even though there was no consideration received in the transfer of shares of stock, it is likewise not subject to donor’s tax as this was carried out for purely business reasons and not motivated by any donative intent (i.e Merger). On the DST, the BIR concludes that since it falls under a tax-free exchange transaction (i.e merger or consolidation) under Section 40(C)(2) of the Tax Code, it needs a BIR confirmation ruling to be exempted from DST. Given that this is absent in the instant case, the transfer of shares of stock to ARKK Co. is subject to DST. [BIR ITAD RULING NO. 55-20, JUNE 26, 2020]
III. CTA CASES DIGEST
- A Memorandum Of Authority may be treated as an equivalent of an Letter Of Authority (LOA)provided it is compliant with the elements of an loa and duly issued by proper authority
- Refund of input vatis only proper when the input vat attributable to zero-rated sales exceeds output
- If the option to carry over excess creditis exercised, the same shall be irrevocable for that taxable period
- Relief from judgmentcannot be granted on the ground of negligence in receiving judicial notices
A MEMORANDUM OF AUTHORITY MAY BE TREATED AS AN EQUIVALENT OF AN LOA PROVIDED IT IS COMPLIANT WITH THE ELEMENTS OF AN LOA AND DULY ISSUED BY PROPER AUTHORITY
Petitioner Red Ribbon Bakeshop, Inc. filed a Petition for Review seeking cancellation of the assessment issued by Respondent CIR. Upon perusal of documents, the Court noted that Revenue Officers (ROs) who conducted the audit investigation are not authorized through an LOA, and, thus, the resulting assessment is void. The Court clarified that a mere Memorandum of Authority may be treated as an equivalent of an LOA provided that it is compliant with the elements of an LOA and was issued by the CIR or his authorized representative, who is either the Revenue Regional Director or Large Taxpayer Division Assistant Commissioner/Head Revenue Executive Assistants. Further scrutiny of the documents showed that the Memorandum of Authority issued was signed by an official who was not among those considered authorized to issue an LOA. Clearly, there must be a grant of authority before any RO can conduct an examination or assessment. Equally important is that the RO so authorized must not go beyond the authority given. In the absence of such an authority, the assessment or examination is a nullity. Thus, Petition was GRANTED and the deficiency tax assessment was SET ASIDE and CANCELLED. [RED RIBBON BAKESHOP VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9121, JANUARY 7, 2021]
REFUND OF INPUT VAT IS ONLY PROPER WHEN THE INPUT VAT ATTRIBUTABLE TO ZERO-RATED SALES EXCEEDS OUTPUT
Petitioner Philex Mining Corporation filed a Petition for Review seeking refund on input VAT attributable to its zero-rated sales. In ruling, the Court relied on the report of the court-commissioned independent CPA, which indicates that a portion of the total amount of input VAT which is the subject of the claim of refund should be disallowed for not being properly substantiated by VAT Official Receipts (O.R.) or invoices as prescribed under the Tax Code and the Implementing Rules and Regulations. Specifically, the noted defects include: (1) computed-generated O.R. with manual alteration; (2) TIN and address is not indicated; (3) VAT amount is not separately indicated on the O.R; (4) purchase of services supported with document other than VAT O.R. Moreover, the Court held that refund of input VAT is only proper when the input VAT attributable to zero-rated sales exceeds output VAT. Record shows that the valid input VAT attributable to zero-rated sales is lower than the output VAT payable. Thus, Petition was DENIED. [PHILEX MINING CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 10037, JANUARY 5, 2021]
IF THE OPTION TO CARRY OVER EXCESS CREDIT IS EXERCISED, THE SAME SHALL BE IRREVOCABLE FOR THAT TAXABLE PERIOD
Petitioner Service Resources, Inc. filed a Petition for Review seeking refund on the alleged excess and unutilized Creditable Withholding Tax (CWT) in the amount of Php 16,683,795.71 for Taxable Year TY 2016. Petitioner anchored its claim for refund of its excess and unutilized CWT on Section 76 of the Tax Code, which provides that every corporation liable to tax shall file a final adjustment return covering the total taxable income for the preceding calendar or fiscal year. If the sum of the quarterly tax payments made during the said taxable year is not equal to the total tax due on the entire taxable income of that year, the corporation shall either: (a) pay the balance of tax still due; or (b) carry-over the excess credit; or (c) be credited or refunded with the excess amount paid. In ruling, the Court held that a corporation entitled to a tax credit or refund of the excess estimated quarterly income taxes paid has two options: (1) to carry over the excess credit, or (2) to apply for the issuance of TCC or claim a cash refund. If the option to carry over excess credit is exercised, the same shall be irrevocable for that taxable period. The corporation must signify in its annual corporate adjustment return by marking the option box provided in the BIR form. In this case, Petitioner opted to refund the unutilized CWT by marking the option “To be refunded”. Upon perusal and verification of the CWT certificates, the Court noted some defects such as Petitioner’s address is not indicated therein and with incorrect TIN. Thus, the Petition was PARTIALLY GRANTED and Respondent was ORDERED TO REFUND the Petitioner in the reduced amount of Php 16,115,719.39. [SERVICE RESOURCES INC. VS COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9978, JANUARY 4, 2021]
RELIEF FROM JUDGMENT CANNOT BE GRANTED ON THE GROUND OF NEGLIGENCE IN RECEIVING JUDICIAL NOTICES
Petitioner CIR filed a Petition for Certiorari seeking the reversal of the Resolutions of the Court in Division. Petitioner contended that the Court in Division acted with grave abuse of discretion amounting to lack or excess of jurisdiction when it ruled that the excusable negligence of the former handling counsel does not warrant the grant of the Petition for Relief from Judgment, since there was seemingly disordered environment within the Litigation Division of the BIR which caused the failure to file a timely appeal on the Court’s Resolution denying his Motion for Reconsideration. In ruling, the Court held that it is incumbent upon counsels to observe due diligence in handling their assigned cases, including assiduously keeping track of their latest developments and status. The Court in Division, in dismissing the reasons provided by Petitioner as inexcusable, cited the case of Rizal Banking Corporation vs. CIR, where the Supreme Court held that relief from judgment cannot be granted on the ground of negligence in receiving judicial notices as lawyers are required to adapt a system for the prompt receipt of said judicial notices. Negligence to be excusable must be one which ordinary diligence and prudence could not have guarded against and by reason of which the rights of an aggrieved party have probably been impaired. Thus, the Petition was DENIED. [COMMISSIONER OF INTERNAL REVENUE VS. THE COURT OF TAX APPEALS-SPECIAL THIRD DIVISION AND KILUSANG MAGKAIBIGAN MULTI-PURPOSE COOPERATIVE, CTA EN BANC CASE NO. 2060, DECEMBER 7, 2020]
IV. TAX AND BUSINESS-RELATED NEWS [JANUARY 8-15]
- In a year of doubts, Peza gets P95B worth of investment promises
- BSP seen cutting rates, RRR anew as economy shrinks again in 4th quarter
- BOC says it resolved 370 cases involving anomalies in 2020
- Court order worries BIR about its case vs suspected trader of fake cigarettes
- Third year of decline pulls down PEZA investments to 14-year low
- 30 business groups to petition for CREATE Bill passage
- Petron to continue with refinery business after AFAB accreditation
- ‘Creative’ ways to tax wealth pushed
- Philippines’ first crowdfunding platform gets SEC approval, to support MSMEs
- BIR chief vows to heed Duterte order to shuffle officers, get rid of ‘bad eggs’
In a year of doubts, Peza gets P95B worth of investment promises [Philippine Daily Inquirer, January 15, 2021]
The Philippine Economic Zone Authority (Peza) received around P95.03 billion worth of investment pledges last year, attracting investments in the manufacturing and business process outsourcing (BPO) sectors despite its pandemic woes.
BSP seen cutting rates, RRR anew as economy shrinks again in 4th quarter [ABS-CBN News, January 14, 2021]
The Bangko Sentral ng Pilipinas may cut its policy rate again or further reduce banks’ required reserve ratio as the Philippine economy again shrinks in the fourth quarter, an economist said on Thursday.
BOC says it resolved 370 cases involving anomalies in 2020 [Philippine Daily Inquirer, January 14, 2021]
The Bureau of Customs (BOC), through its Legal Service, resolved 370 cases filed in 2020 and up to Jan. 8, 2021, against erring importers, brokers, and employees, according to a statement it issued on Wednesday.
Court order worries BIR about its case vs suspected trader of fake cigarettes [Philippine Daily Inquirer, January 14, 2021]
The Bureau of Internal Revenue (BIR) is worried that it may find it hard to prove the guilt of a suspected illicit trader because of an order issued by the Court of Tax Appeals (CTA) for it to return fake cigarettes it had seized in a raid, according to a statement issued on Wednesday.
Source: https://business.inquirer.net/315685/court-order-worries-bir-about-its-case-vs-suspected-trader-of-fake-cigarettes#ixzz6japaOraq
Third year of decline pulls down PEZA investments to 14-year low [Philippine Star, January 14, 2021]
Risk aversion last year reached even the country’s largest economic zone operator where tax perks are offered in exchange for placements, a direct consequence of coronavirus uncertainties.
30 business groups to petition for CREATE Bill passage [Manila Bulletin, January 12, 2021]
At least 30 business organizations are signing a Joint Statement of Support calling for the immediate passage of the long delayed Corporate Recovery and Tax Incentives for Enterprises (CREATE) Bill with all the critical features to boost businesses and attract more investors into the country.
Source: https://mb.com.ph/2021/01/12/30-business-groups-to-petition-for-create-bill-passage/
Petron to continue with refinery business after AFAB accreditation [Manila Bulletin, January 12, 2021]
Leading oil firm Petron Corporation rescued the country’s only petroleum refining facility from near-shutdown after securing approval on its application as registered enterprise of the Authority of the Freeport Area of Bataan (AFAB).
Source: https://mb.com.ph/2021/01/12/petron-to-continue-with-refinery-business-after-afab-accreditation/
‘Creative’ ways to tax wealth pushed [Philippine Daily Inquirer, January 9, 2021]
As experts push to slap taxes on wealth-creation to recover massive pandemic-induced revenue losses, legislators crafting tax laws in the Philippines have resorted to “creative” ways of squeezing additional money from taxpayers without further burdening them amid a recession.
Source: https://business.inquirer.net/315410/creative-ways-to-tax-wealth-pushed#ixzz6japq54WK
Philippines’ first crowdfunding platform gets SEC approval, to support MSMEs [ABS-CBN News, January 8, 2021]
The Securities and Exchange Commission (SEC) has approved the operation of the first crowdfunding platform in the Philippines.
BIR chief vows to heed Duterte order to shuffle officers, get rid of ‘bad eggs’ [Philippine Daily Inquirer, January 8, 2021]
The country’s chief tax collector on Friday (Jan. 8) said he will comply with President Rodrigo Duterte’s order to reshuffle Bureau of Internal Revenue (BIR) officers in a bid to stem long-standing corruption at the government’s biggest moneymaker.
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