BIR NOW ALLOWS E-SIGNATURE FOR CERTAIN BIR FORMS + GATCHALIAN: NO POINT CRAFTING BAYANIHAN 3 + ZONAL VALUATION ALONE NOT SOLE BASIS OF ACTUAL MARKET VALUE OF LAND FOR JUST COMPENSATION-SC
Other Relevant Tax Updates:
- Bureau of Internal Revenue (BIR) Allows e-Signature for Certain BIR Forms
- BIR Circularizes the Updated List of Accredited Microfinance Non-Governmental Organization (NGO)
- Court of Tax Appeals (CTA) Cases Digest
- Tax and Business-Related News [March 3-9]
I. BIR ALLOWS e-SIGNATURE FOR CERTAIN BIR FORMS
Revenue Memorandum Circular (RMC) No. 29-2021, issued on February 26, 2021, circularizes the policies and guidelines in allowing the use of electronic signature on BIR Forms 2304, 2306, 2307 and 2316. The e-signature serves as the functional equivalent of manual signature on said Forms. In case the withholding agent opts to use e-signature, approval of the BIR is no longer necessary. The withholding agent shall make sure that the forms with e-Signature shall only be issued once. In case of re-issuance or the payee requested for another copy of the forms after giving the original copy, the re-issued forms should contain a “RE-PRINT” watermark in Cambria font and font size of 144, to avoid double take up of tax credits.
II. BIR CIRCULARIZES THE UPDATED LIST OF ACCREDITED MICROFINANCE NGO
Revenue Memorandum Circular (RMC) No. 31-2021, issued on March 2, 2021, circularizes the updated list of Accredited Microfinance NGOs accredited by Microfinance NGO Regulatory Council.
III. CTA CASES DIGEST
- Income derived from services performed outside the Philippinesof a foreign corporation is not subject to income tax and Final Withholding Tax (FWT)
- Dismissal of the petition due to failure to appeal within the prescribed period
- There is no law requiring prior approval from the bir before the taxpayer will be allowed to transfer business address; to effect transfer of office, taxpayer is simply required to file the prescribed BIR Form no. 1905; taxpayer must be given the opportunity to respondand contest the assessment notice
- SEC certificate of non-registrationis crucial in proving that a non-resident foreign corporation is doing business outside the Philippines
- Memorandum of Assignment (MOA)is not recognized by the court as a substitute to Letter of Authority (LOA); assessment should be cancelled due to absence of LOA of re-assigned examiner; moa does not grant authority to re-assigned BIR examiners
- Disallowance of zero-rated sales due to unreadable airway bills; Import Entry and Internal Revenue Declarations (IEIRDS)should be machine-validated; enlarged airway bills and DHL certifications cannot be admitted for these documents were not marked, identified nor formally offered during trial
- Sale to entity doing business in the Philippines does not qualify for vat zero ratingunder section 108(b)(2) of the tax code; there must be no clear and convincing evidence proving that a corporation is doing business in the Philippines for purposes of vat zero rating under section 108(b)(2) of the tax code
- Before a generation companyoperates, it must first secure a certificate of compliance from Energy Regulatory Commission (ERC); Renewable Energy (RE) developer shall also secure certificate of endorsement from Department of Energy (DOE) to avail of the incentives
- Absence of LOA and failure to issue preliminary assessment (pan) prior to Formal Assessment Notice (FAN)results to void assessment; court has jurisdiction to review notice of denial on application for abatement; court may rule upon issues not raised by parties but necessary to achieve orderly disposition of case
- Taxpayers do not have the option to wait for an actual adverse decision before filing a judicial claim for refund if the 120-day waiting periodhas already lapsed; tax laws are applied prospectivelyunless otherwise expressly provided for
- The government’s power to enforce the collection through judicial actionis not conditioned upon a previous valid assessment; the law on secrecy of bank depositsdoes not apply to certifications showing income payments and corresponding withholding taxes
- Payment of fees to foreign corporations for services rendered outside the Philippinesare not subject to income tax and withholding vat; those who are entitled to the benefit of a treatycannot be totally deprived thereof for failure to comply with an administrative issuance requiring prior application for tax treaty relief; the imposition of compromise penalty without the conformity of the taxpayer is illegal and unauthorized
- No exception to the mandatory and jurisdictional 120+30 day rule on refund
- Commissioner of Internal Revenue (CIR) has 120 days to decide the claim for tax credit or refundat the administrative level; verbal request for the presentation of documentsis sufficient for the purpose of determining the reckoning point of 120+30 day rule on refund
- Extrapolation as basis for disallowanceis not allowed as it is based on assumption rather than evidence
INCOME DERIVED FROM SERVICES PERFORMED OUTSIDE THE PHILIPPINES OF A FOREIGN CORPORATION IS NOT SUBJECT TO INCOME TAX AND FWT
Petitioner Snowy Owl Energy Inc. filed a Petition for Review seeking cancellation of the assessment issued by the Respondent CIR on Income Tax, FWT, and Compromise Penalty in relation to Petitioner’s payment for sub-consultant fees to Rolenergy in 2013. Petitioner argued that pursuant to its Agreement with Rolenergy, the fees it paid to the latter is neither subject to income tax nor to FWT since Rolenergy is a non-resident foreign corporation not engaged in trade or business in the Philippines. In ruling, perusal of documents showed that Rolenergy is a non-resident foreign corporation and that the service it rendered for the Petitioner was performed outside the Philippines. Citing Sections 23 (F) and 42 (A)(3) and (C)(3) of the 1997 Tax Code and the case of CIR vs Julian-Baier Nickel, income derived from services rendered outside the Philippines by a foreign corporation is not subject to Philippines income tax and, consequently, to FWT. Thus, the Court GRANTED the Petition resulting in the CANCELLATION of the assessment. [SNOWY OWL ENERGY INC. VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9618, MARCH 3, 2021]
DISMISSAL OF THE PETITION DUE TO FAILURE TO APPEAL WITHIN THE PRESCRIBED PERIOD
Petitioner CIR filed a Petition for Review seeking to reverse CTA 2nd Division’s earlier Decision and Resolution partially granting refund of excess and unutilized input VAT in favor of the Respondent Actuate Builders Inc. Petitioner argued that there was no valid claim for refund as the Respondent failed to present a Board Resolution which authorizes the persons who filed the claim for refund to do such action. In ruling, perusal of records revealed that the Petitioner received the Resolution dated December 16, 2019 on December 26, 2019. Accordingly, the Petitioner had until January 10, 2020 to file its Petition for Review or Motion for Extension; however, Petitioner only filed its Motion for Extension on January 14, 2020. Citing the case of Philippine National Bank vs. Deang Marketing Corporation and Berlita Deang as well as Rule 1, Section 6 of the 1997 Rules of Civil Procedure, the Court ruled that Petitioner’s Motion for Extension was filed one day late without any compelling reason to do so. Thus, the Court DISMISSED the Petition as the earlier Decision and Resolution of CTA 2nd Division had become final and executory. [COMMISSIONER OF INTERNAL REVENUE VS. ACTUATE BUILDERS, INC., CTA EN BANC CASE NO. 2211, MARCH 2, 2021]
[THERE IS NO LAW REQUIRING PRIOR APPROVAL FROM THE BIR BEFORE THE TAXPAYER WILL BE ALLOWED TO TRANSFER BUSINESS ADDRESS] [TO EFFECT TRANSFER OF OFFICE, TAXPAYER IS SIMPLY REQUIRED TO FILE THE PRESCRIBED BIR FORM NO. 1905] [TAXPAYER MUST BE GIVEN THE OPPORTUNITY TO RESPOND AND CONTEST THE ASSESSMENT NOTICE]
Petitioner EHS Lens Philippines, Inc. filed a Petition for Review seeking cancellation of the assessment issued by the Respondent CIR citing prescription as well as deprivation of its right to due process. Perusal of the evidence showed that the Petitioner informed the Respondent on the transfer to a new office address and subsequently, an assessment was issued with the Respondent sending the assessment notice to the old address. In ruling, the Court held that Petitioner was deprived of its right to due process. Contrary to the position of the Respondent, there is no law which requires a taxpayer to wait for the Respondent to issue an acknowledgement that said taxpayer’s address has been changed in its records in order to give effect to the transfer to a new office. What the law merely requires to effect the transfer of office or branches, is simply required to file the prescribed form with the BIR and other documentary requirements relative to the change of its address. Thus, the Court sees no valid reason for the Respondent to have used the former business address in issuing the subject assessment notices, since Respondent has been informed. Moreover, the Respondent failed to show that the subject assessment notices were released, mailed, sent or served to Petitioner prior to the issuance of the Preliminary Collection Letter. Considering that these due process requirements were not fulfilled by the Respondent, the subject assessment is null and void. With the foregoing disquisitions, it becomes unnecessary to address the remaining issues and arguments raised by the parties. Thus, the Petition was GRANTED and the assessment was CANCELLED. [EHS LENS PHILIPPINES, INC. (FORMERLY HOYA LENS MANUFACTURING PHILIPPINES, INC.) VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9924, FEBRUARY 23, 2021]
SEC CERTIFICATE OF NON-REGISTRATION IS CRUCIAL IN PROVING THAT A NON-RESIDENT FOREIGN CORPORATION IS DOING BUSINESS OUTSIDE THE PHILIPPINES
Petitioner MTI Advanced Test Development Corporation filed a Petition for Review seeking refund of unutilized input VAT attributable to its zero-rated sales for the 2nd quarter of fiscal year 2015 and 4th quarter of fiscal year 2016 in the amount of Php 6,318,261.32. Petitioner argued that its sales, to which the refund is attributable, are zero-rated pursuant to Section 108(B)(2) of the 1997 Tax Code. In ruling, the Court cited the case of Sitel Philippines Corporation vs. CIR to emphasize the requisites needed to qualify for the VAT zero rating sales. Accordingly, the third requisite requires that the recipient of services rendered by the Petitioner must be doing business outside the Philippines. Consequently, for a non-resident foreign corporation to be recognized as doing business outside the Philippines, the said entity must at least present its SEC Certificate of Non-Registration and proof of incorporation in a foreign country. Perusal of the records revealed that one of the Petitioner’s clients, Microchip Technology Ireland, failed to secure and present its SEC Certificate of Non-Registration; hence the sales made to the said company did not qualify for VAT zero-rating. Thus, the Court PARTIALLY GRANTED the Petition and ordered the Respondent CIR to refund the Petitioner at a reduced amount of Php 957,300.81. [MTI ADVANCED TEST DEVELOPMENT CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9690, FEBRUARY 23, 2021]
[MOA IS NOT RECOGNIZED BY THE COURT AS A SUBSTITUTE TO LOA] [ASSESSMENT SHOULD BE CANCELLED DUE TO ABSENCE OF LOA OF RE-ASSIGNED EXAMINER] [MOA DOES NOT GRANT AUTHORITY TO RE-ASSIGNED BIR EXAMINERS]
Petitioner Exclusive Networks-Philippines, Inc. filed a Petition for Review seeking cancellation of the assessment issued by the Respondent CIR. Perusal of the evidence presented showed that the Revenue Officer (RO) who was not specifically named in the subject LOA also participated in the audit of the Petitioner. Likewise, the assessment was based on the examination of the said RO. In ruling, the Court cited the Supreme Court case in Medicard Philippines Inc. vs. CIR where the Court declared the disputed assessment as void for lack of an LOA authorizing RO to examine the taxpayer’s books of account and other accounting records pursuant to Section 13 of the Tax Code. While it may be argued that the RO was equipped with MOA, the same cannot be considered a valid substitute for the required LOA. Thus, the Petition was GRANTED resulting in the CANCELLATION of the assessment. [EXCLUSIVE NETWORKS-PHILIPPINES, INC. VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9689, FEBRUARY 23, 2021]
[DISALLOWANCE OF ZERO-RATED SALES DUE TO UNREADABLE AIRWAY BILLS] [IMPORT ENTRY AND INTERNAL REVENUE DECLARATIONS (IEIRDS) SHOULD BE MACHINE-VALIDATED] [ENLARGED AIRWAY BILLS AND DHL CERTIFICATIONS CANNOT BE ADMITTED FOR THESE DOCUMENTS WERE NOT MARKED, IDENTIFIED NOR FORMALLY OFFERED DURING TRIAL]
Both Commissioner of Internal Revenue and Colt Commercial, Inc. filed consolidated Petitions for Review assailing the previous Decision and Resolution granting Colt partial refund of the unutilized input VAT attributable to its zero-rated sales. CIR asserted that Colt failed to prove that the alleged excess input VAT for the 4th quarter of Taxable Year (TY) 2013 was not carried over to the succeeding taxable periods. Likewise, VAT returns revealed that Colt applied the entire amount of input VAT, subject of the refund, to the 1st quarter of TY 2014. Further, Colt failed to present clear and “readable” copies of Airway Bills to support the zero-rated sales. On the other hand, Colt maintained that it sufficiently complied with all the requisites prescribed in Section 106 (2)(a)(1) of the 1997 Tax Code, and that all its export sales can be substantiated, hence, should be entitled to higher refund. In ruling, the Court found CIR’s claim without merit. No new evidence was proffered and the same arguments were reiterated. In Colt’s Petition, the Court held that some declared zero-rated sales are disallowed for lack of adequate substantiation. After assiduous analysis of the evidence presented, the Court could not ascertain whether or not some of the Airway Bills submitted by Colt actually supported the zero-rated sales as these were unreadable. Also, the documents submitted such as enlarged Airway Bills and DHL certifications cannot be admitted for these were not marked, identified nor formally offered by Colt during trial, hence were not properly compared to the originals thereof, leaving the question of whether or not these were faithful reproductions of the originals, largely unanswered. Moreover, the IEIRDs submitted had no machine validation. Further, aside from the lack of machine-validated IEIRDs, no other documents were provided by Colt to prove payment of the claimed input VAT. Thus, both Petitions were DENIED. [COMMISSIONER OF INTERNAL REVENUE VS. COLT COMMERCIAL INC., CTA EN BANC CASE NO. 2163 AND 2164, FEBRUARY 22, 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] [THERE MUST BE NO CLEAR AND CONVINCING EVIDENCE PROVING THAT A CORPORATION IS DOING BUSINESS IN THE PHILIPPINES FOR PURPOSES OF VAT ZERO RATING UNDER SECTION 108(B)(2) OF THE TAX CODE]
Petitioner Amadeus Marketing Philippines, Inc. filed a Petition for Review seeking refund or issuance of Tax Credit Certificate (TCC) on the alleged excess and unutilized input VAT attributable to zero-rated sales covering the taxable year 2015. In ruling, the Court cited the landmark Supreme Court case in Commissioner of Internal Revenue (CIR) vs. Burmeister and Wain Scandinavian Contractor Mindanao, Inc. which provides the requirements for qualifying as VAT zero-rated sales under Section 108(B)(2) of the Tax Code. One of the said requirements is that the recipient of the services must be a foreign corporation not doing business in the Philippines. Normally, the presentation of both Foreign Articles/Certificate of Incorporation and SEC Certificate of Non-Registration will prove that an entity is a foreign corporation not doing business in the Philippines. However, as held in CTA En Banc Case No. 1838 also involving the Petitioner, an exception to this rule is when there is clear and convincing evidence that would prove otherwise. To prove that its major client, Amadeus SA, is a foreign corporation not doing business in the Philippines, Petitioner submitted the printout screenshot of the website Comision Nacional del Mercado de Valores (“CNMV”), or Spain’s National Securities Market Commission, SEC Certificate of Non-Registration, and the Amadeus Commercial Organization (ACO) Agreement. The ACO Agreement, however, disproves Petitioner’s claim that Amadeus SA is a non-resident foreign corporation doing business outside the Philippines as the said agreement is replete with provisions which signify that Petitioner is merely Amadeus SA’s conduit in conducting its business in the Philippines. Consequently, sales of services rendered by Petitioner to Amadeus SA are not VAT zero-rated. As to its sales to its other clients, the Court likewise disallowed the same for Petitioner’s failure to prove that these transactions qualify for VAT zero-rating as Petitioner did not present any evidence. Given that Petitioner failed to prove that it is engaged in zero-rated sales of services under Section 108(B)(2) of the Tax Code, the Court DENIED the Petition. [AMADEUS MARKETING PHILIPPINES, INC. VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9664, FEBRUARY 22, 2021]
[BEFORE A GENERATION COMPANY OPERATES, IT MUST FIRST SECURE A CERTIFICATE OF COMPLIANCE FROM ERC] [RE DEVELOPER SHALL ALSO SECURE CERTIFICATE OF ENDORSEMENT FROM DOE TO AVAIL OF THE INCENTIVES]
Petitioner North Luzon Renewable Energy Corporation filed a Petition for Review seeking refund of accumulated input VAT attributable to zero-rated sales for the year 2016. In ruling, the Court discussed the essential elements for the grant of VAT zero-rating under Section 15 (g) of the Renewable Energy (RE) Act of 2008 or Republic Act (R.A.) No. 9513, to wit: (1) the seller is an RE Developer of renewable energy facilities; (2) it sells fuel or power generated from renewable sources of energy; (3) the said seller is a generation company (i.e.) a person or entity authorized by the Energy Regulatory Commission (ERC); and (4) such authority is embodied in a Certificate of Compliance (COC) issued by the ERC which must be secured before the actual commercial operations of the generation facility. Perusal of the documents showed that the Petitioner has fulfilled the foregoing requirements except on its failure to present its COC issued by the ERC. Hence, Petitioner’s sales cannot be considered zero-rated under Section 108(B(7) of the 1997 Tax Code. Moreover, in order to qualify for VAT zero-rating as contemplated under R.A. No. 9513, RE Developers must have secured the following: (1) DOE Certificate of Registration; (2) Registration with the BOI; and (3) Certificate of Endorsement by the Department Of Energy (DOE). The foregoing documents must all be shown. Otherwise, the transaction cannot be treated as subject to VAT zero-rating under the law. In this case, there is no showing that Petitioner has been issued a Certificate of Endorsement by the DOE. Thus, Petitioner’s sales could not qualify for VAT zero-rating. Consequently, the Petition was DENIED for lack of merit. [NORTH LUZON RENEWABLE ENERGY CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9886, FEBRUARY 19, 2021]
[ABSENCE OF LOA AND FAILURE TO ISSUE PAN PRIOR TO FAN RESULTS TO VOID ASSESSMENT] [COURT HAS JURISDICTION TO REVIEW NOTICE OF DENIAL ON APPLICATION FOR ABATEMENT] [COURT MAY RULE UPON ISSUES NOT RAISED BY PARTIES BUT NECESSARY TO ACHIEVE ORDERLY DISPOSITION OF CASE]
Petitioner CIR filed a Petition for Review seeking reversal of Court in Division’s earlier decision cancelling the assessment issued against the Respondent Del Monte Philippines, Inc. as a result of late payment of Withholding Tax on Compensation Return for the month of December 2013. Petitioner argued that the Court erred in assuming jurisdiction over the present Petition and for granting a relief not prayed for by the Respondent. In ruling, the Court held that the Petitioner is mistaken that the Court cannot assume jurisdiction over an appeal on the denial of abatement application. Likewise, the Court may also rule upon issues not raised by the parties but necessary to achieve an orderly disposition of the case. Perusal of records showed that the assessment is devoid of merit for failure of the Petitioner to issue LOA. Likewise, evidence showed that the Petitioner failed to issue PAN prior to the issuance of FAN resulting in the CANCELLATION of the assessment. Consequently, Petition was DENIED and the earlier Resolution was AFFIRMED. [COMMISSIONER OF INTERNAL REVENUE VS. DEL MONTE PHILIPPINES, INC., CTA EN BANC CASE NO. 2162, FEBRUARY 19, 2021]
[TAXPAYERS DO NOT HAVE THE OPTION TO WAIT FOR AN ACTUAL ADVERSE DECISION BEFORE FILING A JUDICIAL CLAIM FOR REFUND IF THE 120-DAY WAITING PERIOD HAS ALREADY LAPSED] [TAX LAWS ARE APPLIED PROSPECTIVELY UNLESS OTHERWISE EXPRESSLY PROVIDED FOR]
Petitioner Lapanday Corporation filed a Petition for Review seeking to reverse the Court in Division’s Resolution denying its claim for refund due to lack of jurisdiction. Petitioner argued that it is entitled to refund pertaining to unutilized input taxes attributable to its zero-rated export sales. Likewise, the pre-TRAIN law version of the Tax Code allowed the taxpayer the alternative remedies of filing the judicial claim and that it availed of the first remedy which is to wait for Respondent’s decision before it validly filed its judicial claim. Further, even the current TRAIN Law reinforces the intention that the 30-day period is for the benefit of the taxpayer, and now is clearly reckoned from receipt of Respondent’s decision. In ruling, the Court held that while the provision provides for two (2) points within which the 30-day period to file a judicial claim may start, namely: (a) upon expiration of the 120-day period given to Respondent to act on a request for input tax refund; and (b) upon receipt of Respondent’s adverse decision, the same are not alternative in nature. The 30-day period given to a taxpayer to file a judicial claim for input tax refund shall start from whichever of the two starting points comes first. Considering that the Petitioner failed to comply with the mandatory and jurisdictional 120+30-day period, the Court in Division indeed had no jurisdiction. Also, the TRAIN law is inapplicable considering that it took effect only on January 1, 2018 while the Petition involved claims for input taxes incurred during taxable year 2006. Consequently, the Petition was DENIED. [LAPANDAY FOODS CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE, CTA EN BANC CASE NO. 2176, FEBRUARY 16, 2021]
[THE GOVERNMENT’S POWER TO ENFORCE THE COLLECTION THROUGH JUDICIAL ACTION IS NOT CONDITIONED UPON A PREVIOUS VALID ASSESSMENT] [THE LAW ON SECRECY OF BANK DEPOSITS DOES NOT APPLY TO CERTIFICATIONS SHOWING INCOME PAYMENTS AND CORRESPONDING WITHHOLDING TAXES]
The Department of Justice filed three (3) criminal cases accusing Alexander R. Garcia of the offense of willful failure to supply correct and accurate information in his Income Tax Return (ITR) for the Taxable Years (TY) 2011, 2012, and 2013, in violation of Section 255 of the 1997 Tax Code. The Prosecution argued that the declared income of the Accused in his ITR for those years are way lower than the amounts of gross income received by the Accused as reflected in the Certification issued by BDO and Citibank. The Prosecution insisted that the failure on the part of the Accused to declare in the subject ITRs the entire amount of gross income that he actually received during those years is tantamount to willful failure to supply correct and accurate information provided under Section 255 of the 1997 Tax Code. On the other hand, the Accused claimed that the cases should be dismissed as they were filed prior to the issuance of the assessment notice, which for him is a violation of his right to substantial and procedural right to due process. Also, the BIR violated Republic Act (R.A.) No. 1405 otherwise known as “The Law on Secrecy of Bank Deposits” by illegally obtaining information related to his bank deposits in filing the criminal cases. In ruling, the Court cited Section 222 of the 1997 Tax Code which provides that in the case of a false and fraudulent return with intent to evade tax or of failure to file a return, a proceeding in court for the collection of such tax may be filed without assessment. The Supreme Court also had the occasion to explain in the case CIR vs. Pilipinas Shell Petroleum that unlike summary administrative remedies, the government’s power to enforce the collection through judicial action is not conditioned upon a previous valid assessment. The Court was not likewise convinced that the BIR violated “The Law on Secrecy of Bank Deposits”. As already settled by the 2nd and 3rd Division of CTA, there is no violation of the said law since the Certifications offered by the Prosecution merely reflect the income payments made to Accused and the corresponding withholding taxes. Given that in the instant cases, all of the elements of the crime under Section 255 of the 1997 Tax Code, namely: (1) the Accused is a person required to supply correct and accurate information; (2) the Accused failed to supply correct and accurate information at the time or times required by law or rules and regulations; and, (3) such failure to supply correct and accurate information is willful, were met and that none of the Accused’s rights were violated, the Court found the Accused GUILTY BEYOND REASONABLE DOUBT on three (3) counts of violation of Section 255 of the 1997 Tax Code. [PEOPLE OF THE PHILIPPINES VS. ALEXANDER R. GARCIA, CTA CRIMINAL CASE NOS. O-572, O-573, AND O-610, FEBRUARY 15, 2021]
[PAYMENT OF FEES TO FOREIGN CORPORATIONS FOR SERVICES RENDERED OUTSIDE THE PHILIPPINES ARE NOT SUBJECT TO INCOME TAX AND WITHHOLDING VAT] [THOSE WHO ARE ENTITLED TO THE BENEFIT OF A TREATY CANNOT BE TOTALLY DEPRIVED THEREOF FOR FAILURE TO COMPLY WITH AN ADMINISTRATIVE ISSUANCE REQUIRING PRIOR APPLICATION FOR TAX TREATY RELIEF] [THE IMPOSITION OF COMPROMISE PENALTY WITHOUT THE CONFIRMITY OF THE TAXPAYER IS ILLEGAL AND UNAUTHORIZED]
Petitioner CIR filed a Petition for Review assailing the Special 3RD Division’s earlier Decision and Resolution partially granting Respondent NCR Cebu Development, Inc.’s Petition. Petitioner argued that the Special 3rd Division erred in ruling that Respondent is not liable for FWT and Final Withholding VAT as Respondent failed to obtain a tax treaty relief in order for its payments of service fees to foreign corporations to be exempt from withholding tax, in accordance with Revenue Memorandum Order (RMO) No. 1-2000. Petitioner also argued that the imposition of compromise penalty is proper and with basis since Respondent failed to register as a VAT taxpayer. In defense, Respondent argued that it is not obliged to withhold taxes arising from payments of service fees to its affiliates for services rendered outside the Philippines, on the basis of the 1997 Tax Code, and not of a Tax Treaty. Likewise, compromise penalty may not be imposed without the consent of the taxpayer. In ruling, Section 23(F) of the 1997 Tax Code provides that a foreign corporation is taxable only on its income from sources within the Philippines. Section 42(A)(3) and (C)(3) of the same code likewise provides that compensation for services performed in the Philippines is treated as an income from sources within the Philippines, while those performed outside of it are considered income from sources outside the Philippines. Given that Respondent has sufficiently proven that the recipients of its payment of service fees are foreign corporations whose services were performed outside the Philippines, payment of service fees is not subject to income tax and, consequently, to withholding tax. The imposition of FWT on Respondent’s payments to one of its affiliates is, however, proper given that the Respondent was not able to present a Certificate of Non-Registration for said affiliate. The imposition of withholding VAT is also improper given that Section 108 of the 1997 Tax Code and Section 4.114-2 of Revenue Regulations (RR) No. 16-2005 are clear that withholding VAT may only be imposed upon payments to non-residents for the services rendered in the Philippines. On Petitioner’s insistence of the need to priorly apply for a tax treaty relief, the Court cited the Deutsche Bank AG Manila Branch vs. Commissioner of Internal Revenue case wherein the Supreme Court held that the State cannot deprive those who are entitled to the benefit of a treaty for failure to strictly comply with an administrative issuance requiring prior application for tax treaty relief. Lastly, on the issue of imposition of compromise penalty, the Court cited the Commissioner of Internal Revenue v. Lianga Bay Logging Co., Inc. and the Court of Tax Appeals case wherein the Supreme Court held that the imposition of compromise penalty without the conformity of the taxpayer is illegal and unauthorized. The Court held that the Filinvest case is not a binding precedent insofar as the question on the propriety of the imposition of a compromise penalty even without the consent of the taxpayer is concerned, inasmuch as the same was not squarely put in issue in the said case. As provided in Procter and Gamble Asia Pte Ltd. vs. Commissioner of Internal Revenue, the Supreme Court held that before the basic rule that past decision of the Supreme Court be followed in the adjudication of cases, the Supreme Court must have categorically ruled on an issue expressly raised by the parties. Thus, the Petition was PARTIALLY GRANTED. [COMMISSIONER OF INTERNAL REVENUE VS. NCR CEBU DEVELOPMENT, INC., CTA EN BANC CASE NO. 2150, FEBRUARY 10, 2021]
NO EXCEPTION TO THE MANDATORY AND JURISDICTIONAL 120+30-DAY PERIOD ON REFUND
Petitioner Lapanday Diversified Products Corporation filed a Petition for Review seeking reversal of the earlier decision denying its claim for refund of unutilized input VAT attributable to zero-rated sales. Petitioner argued that it is entitled to claim for refund arguing that Section 112 (C) of the Tax Code provides for two (2) remedies available to a taxpayer seeking to appeal an unfavorable action on its administrative claim for input tax refund, namely, file a judicial claim within 30 days from: (a) receipt of Respondent’s adverse decision; or (b) upon expiration of the 120-day period given to Respondent to act upon said administrative claim for input tax refund. It was Petitioner’s position that these remedies are alternative in nature. In ruling, the Court held otherwise. The rationale for the mandatory and jurisdictional 120+30-day period is that inaction by Respondent within the 120-day period given him to decide a claim for input tax refund is already treated a denial in itself. Hence, there is no more need for a taxpayer to wait for an actual denial as its request for input tax refund has been deemed denied, by express provision of law. Revenue Regulations (RR) No. 1-17 did not provide an exception to the mandatory and jurisdictional 120+30-day period. Likewise, TRAIN law is inapplicable considering that it took effect only on January 1, 2018 while the Petition involved claims for input taxes incurred during taxable year 2012. Consequently, the Petition was DENIED. [LAPANDAY DIVERSIFIED PRODUCTS CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE, CTA EN BANC CASE NO. 2199, FEBRUARY 10, 2021]
[CIR HAS 120 DAYS TO DECIDE THE CLAIM FOR TAX CREDIT OR REFUND AT THE ADMINISTRATIVE LEVEL] [VERBAL REQUEST FOR THE PRESENTATION OF DOCUMENTS IS SUFFICIENT FOR THE PURPOSE OF DETERMINING THE RECKONING POINT OF 120+30 DAY RULE ON REFUND]
Petitioner Zuellig Pharma Asia Pacific LTD. Philippines ROHQ, filed a Motion for Reconsideration seeking to reverse the earlier decision denying its claim for refund or issuance of tax credit certificate on excess and unutilized input VAT attributable to zero-rated sales. Petitioner argued that notice for additional documents is not required to be in writing. Thus, Petitioner insists that verbal requests for the presentation of additional documents are valid requests, and are sufficient for the purpose of determining the reckoning point of the 120-day period for the Respondent CIR to act on administrative claim. In ruling, the Court held that verbal requests for additional documents are not prohibited provided they are duly made by authorized BIR officials. Thus, both verbal and written requests for additional documents may be used as basis in determining the date of submission of complete documents in support of administrative claim for refund or tax credit. Moreover, perusal of the transmittal letters revealed that these were duly received by BIR officers. In the instant case, the 120-day period for the Respondent to act on Petitioner’s administrative claim should be reckoned from the November 11, 2014 Letter, or the last letter indicating that it had already submitted the complete documents in support of its refund claim. Therefore, in light of the foregoing considerations, Petitioner’s Motion was PARTIALLY GRANTED and the case was REMANDED to the CTA 2nd Division for the proper determination of the refundable or creditable amount due to Petitioner, if any. [ZUELLIG PHARMA ASIA PACIFIC LTD. PHILIPPINES ROHQ, VS. COMMISSIONER OF INTERNAL REVENUE, CTA EN BANC CASE NO. 1915, FEBRUARY 10, 2021]
EXTRAPOLATION AS BASIS FOR DISALLOWANCE IS NOT ALLOWED AS IT IS BASED ON ASSUMPTION RATHER THAN EVIDENCE
Surplus Marketing Corporation (SMC) and Commissioner of Internal Revenue (CIR), both filed their Motion for Partial Reconsideration assailing the earlier Decision of the Court partially granting SMC’s Petition for Review by cancelling the Improperly Accumulated Earnings Tax assessment and affirming the validity of other deficiency tax assessments. Several issues were raised including the disallowance of input VAT which SMC argued that the additional amount of input VAT disallowed has no legal basis since extrapolation was premised only on mere assumption. In previous findings of the Court and ICPA, input VAT amount of Php 1,371,642.67 were disallowed as a result of extrapolation of the total Input VAT that has no supporting supplier’s invoice based on the actual disallowed input VAT and total receipts and invoices verified. The Court found merit in SMC’s argument and disregarded the further estimated assessment of Php 1,371,642.67. The Court, however, disallowed the total amount of Php 14,344,050.81 input VAT, instead of the estimated amount based on extrapolation, as they are found to have neither supporting sales invoice nor official receipts. Hence, the Court adjusted the total disallowed estimated input VAT from Php 6,624,930.67 to Php 19,597,339.02. Consequently, all other decisions were affirmed resulting in a modified and increased assessment against SMC. [SURPLUS MARKETING CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9290, FEBRUARY 3, 2021]
IV. TAX AND BUSINESS-RELATED NEWS [MARCH 3-9]
- Gatchalian: ‘no point crafting Bayanihan 3’
- Indian ambassador links up with PEZA, bares high hopes for PH economy
- House committee endorses bill authorizing PDIC to increase deposit insurance coverage
- Zonal valuation alone not sole basis of actual market value of land for just compensation – SC
- Tax incentives, smuggling make ecozones the country’s ‘trillion peso blackhole’ – Salceda
- Duterte reduces, condones real property taxes of independent power producers
- BSP seen keeping interest rates steady amid expectations of lower inflation in second half
- DOLE, employers’ group reject ‘no vaccination, no work’ policy
- BSP seeks Congress OK of new law to protect financial consumers
- US to impose anti-dumping tax on 18 countries
- SSS to expand digital services amid surge in online transactions
Gatchalian: ‘no point crafting Bayanihan 3’ [Manila Bulletin, March 8, 2021]
Congress has no reason to pass another big-time COVID-19 economic stimulus package to revive the country’s economy, Senator Sherwin Gatchalian said on Monday.
Indian ambassador links up with PEZA, bares high hopes for PH economy [Manila Bulletin, March 8, 2021]
The Philippine Economic Zone Authority (PEZA) has strengthened its partnership with India in attracting more investors to the Philippines as part of its efforts to revive the country’s economy.
House committee endorses bill authorizing PDIC to increase deposit insurance coverage [Manila Bulletin, March 8, 2021]
The House Committee on Banks and Financial Intermediaries has recommended passage of a measure granting the Philippine Deposit Insurance Corporation the power to increase the maximum deposit insurance coverage (MDIC) that currently stands at P500,000.
Zonal valuation alone not sole basis of actual market value of land for just compensation – SC [Manila Bulletin, March 7, 2021]
Zonal valuation of a piece of land set by the Bureau of Internal Revenue (BIR) “cannot be the sole basis of just compensation” in the government’s expropriation of privately-owned landholdings.
Tax incentives, smuggling make ecozones the country’s ‘trillion peso blackhole’ – Salceda [Manila Bulletin, March 6, 2021]
Believed to be haven for smuggling activities notwithstanding the hundred of billions in tax incentives granted to them by government, the country’s economic zones have been described in the House of Representatives as the country’s “trillion-peso blackhole” of unrealized revenues.
Duterte reduces, condones real property taxes of independent power producers [ABS-CBN News, March 5, 2021]
President Rodrigo Duterte signed on Thursday an executive order reducing and condoning real property taxes and penalties assessed on power-generation facilities of independent power producers (IPPs) under Build-Operate-Transfer contracts with government-owned or controlled operations.
BSP seen keeping interest rates steady amid expectations of lower inflation in second half [Philippine Daily Inquirer, March 5, 2021]
The central bank will likely keep its key interest rates unchanged when the policy-making Monetary Board convenes later this month to tackle the recent spike in the country’s consumer prices.
DOLE, employers’ group reject ‘no vaccination, no work’ policy [ABS-CBN News, March 4, 2021]
The supposed “no vaccination, no work” policy of some companies is impractical, the labor department and an employers’ group said Thursday.
BSP seeks Congress OK of new law to protect financial consumers [Philippine Daily Inquirer, March 4, 2021]
Government regulatory agencies will have to unify efforts to protect Filipino consumer rights under a proposed law meant to pave the way for dispute resolution between retail financial companies and their clients.
US to impose anti-dumping tax on 18 countries [ABS-CBN News, March 3, 2021]
The US Department of Commerce is preparing to tax aluminum sheet exporters from 18 countries after determining Tuesday they had benefited from subsidies and dumping.
SSS to expand digital services amid surge in online transactions [ABS-CBN News, March 3, 2021]
The Social Security System (SSS) is poised to expand its digital services to keep up with a surge in online transactions as well as adapt to the new normal brought about by the COVID-19 pandemic.
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