BIR RULINGS ON HOMEOWNERS’ ASSOCIATION & TAXABLE MERGER
Other Relevant Tax Updates:
TAX & BUSINESS-RELATED NEWS [JULY 12-17]
BIR RULINGS ON HOMEOWNERS’ ASSOCIATION & TAXABLE MERGER
BIR ITAD RULING ON TAX-EXEMPT PURCHASES PURSUANT TO THE RP-US VISITING FORCES AGREEMENT
CTA CASES ON THE LOCAL BUSINESS TAX LIABILITY OF EDUCATIONAL INSTITUTION & BIR JURISDICTION ON THE CAPITAL GAINS TAX IMPOSITION
FIRB ADVISORY ON THE STRICT COMPLIANCE WITH THE PROVISIONS OF CREATE LAW
1. TAX & BUSINESS-RELATED NEWS [JULY 12-17]
1. Megaworld taps AI to predict disasters in townships
2. CVC Capital set to take control of The Medical City
3. Lucio Co set to list P 30-B REIT; SM’s pushed back to 2024
4. AMLC freezes assets of 6 more individuals
5. ERC: Luzon DUs face penalties for non-submission of reports
6. Senate bars Maxim from operating as MC taxi
7. BOC seizes P240M worth of counterfeit goods in Subic port
8. NEA extends P560.7 million loans to ECs in H1
9. Hotel’s tax deficiency assessment reversed
10. Opposition to DOF-backed sugar tax hike mounts
11. SSS fails to collect P92.4 billion contributions from delinquent employers
12. AirAsia grows logistics arm with new cargo aircraft
13. BIR shuts down 2 cigarette manufacturers in Subic
14. COA tells UP to blacklist PLDT subsidiary over failure to complete million-peso IT project
15. Aboitiz InfraCapital touts sustainability in Batangas ecozone
16. Ayala Land logs record sales for new BGC project
17. Megawide forays into real estate, acquires property developer for P5.2B
18. CA junks ERC ruling denying Meralco, SMC rate hike
19. BIR exceeds 5-month collection target
20. P52.1-B deals keep Laguna-Pampanga rail project on track
21. Aboitiz Power taps UGEP for rooftop solar power
22. Goodbye, Greenbelt 1: Iconic mall to be torn down
23. Tighter Pogo rules finalized
24. Apex Mining tamps down gold project talk
25. ‘DOF tax hike bid on sugary drinks favors imported sweeteners’
2. BIR RULINGS ON HOMEOWNERS’ ASSOCIATION & TAXABLE MERGER
QUALIFICATION IN THE CERTIFICATION OF HOMEOWNERS’ ASSOCIATION TO BE TAX EXEMPT
S Homeowner’s Association, a non-stock, non-profit residential homeowners’ association, is seeking confirmation whether it is entitled to exemption from all taxes under the Republic Act (R.A.) No. 9904, otherwise known as the “Magna Carta for Homeowners and Homeowner’s Associations,” as enunciated in Revenue Memorandum Circular (RMC) No. 9-2013 which clarifies the taxability of association dues, membership fees, and other assessments/charges collected by Homeowners’ Associations. As represented, it is a duly registered Homeowners’ Association with the Housing and Land Use Regulatory Board (HLURB); its certification shows that it is rendering basic services for their subdivision such as security, maintenance of streets inside the subdivision, garbage collection, and disposal from their association dues. In reply, the Association does not fall within the purview of those homeowners’ associations which may be exempted under Section 18 of R.A. No. 9904. The requisite qualification that the local government unit (LGU) concerned lacks resources to provide for basic services being absent from the Certification issued by the LGU. Thus, the request for confirmation cannot be granted for lack of factual and legal basis. Consequently, it shall be subject to the applicable internal revenue taxes on its income from association dues, rentals of their facilities, trade, business, and other activities. [BIR RULING NO. 074-2023, JUNE 7, 2023]
MERGER WITHOUT ISSUANCE OF SHARES ARE NOT TAX-FREE
M Co. is requesting confirmation that the statutory merger of M Co. and W Co., with M Co. as the surviving corporation, qualifies as a tax-free merger under Section 40(C)(2)(a) in relation to Section 40(C)(6)(b) of the 1997 Tax Code, as amended. In reply, Section 40 (C)(1) & (2) of the 1997 Tax Code, as amended, provides that to qualify as an exception to the recognition of the gain or loss upon the sale or exchange of property, a corporation which is a party to a merger exchanges its property solely for stock in another corporation which is also a party to the merger. However, there was no exchange of property solely for stock in another corporation. W Co., as the absorbed corporation, transferred all its assets and liabilities to M Co., as the surviving corporation, without the issuance of shares to the absorbed corporation as stated in the Plan of Merger. Although the merger is a valid reorganization, that alone is not sufficient to afford the non-recognition of gain or loss obtained in the transactions. Therefore, the merger of W Co. into M Co. does not qualify as a tax-free merger under Section 40(C)(2) of the 1997 Tax Code, as amended. [BIR RULING NO. 063-2023, JUNE 1, 2023]
3. BIR ITAD RULING ON TAX-EXEMPT PURCHASES PURSUANT TO THE RP-US VISITING FORCES AGREEMENT
PETROLEUM PRODUCTS ACQUIRED LOCALLY FOR US ARMED FORCES RELATED TO PH-US VISITING FORCES AGREEMENT ARE EXEMPT FROM TAX & DUTIES
S Co., a foreign corporation, is requesting confirmation that the petroleum products it acquired from local manufacturers, producers, and suppliers on behalf of the United States Armed Forces (USAF) and in connection with the USAF’s activities in its military locations in the Philippines are exempt from all taxes pursuant to the Agreement between the Government of the United States of America and the Government of the Republic of the Philippines regarding the Treatment of United States Armed Forces Visiting the Philippines (PH-US Visiting Forces Agreement). In ruling, the following conditions must be satisfied when claiming exemption from the payment of taxes usually imposed on equipment, materials and supplies, and other property acquired in the Philippines: (1) the equipment, material, supplies, including but not limited to, petroleum products, and other property must be acquired from local manufacturers, producers or suppliers; (2) the acquisition must be made by or on behalf of the US Armed Forces; and (3) these equipment, materials and supplies, and other property must be used in connection with the activities covered by the Visiting Forces Agreement. Considering that the subject purchases meet the above conditions, the purchases of jet fuels, diesel, and gasoline by S Co. from local purchases for the use of the USA Armed Forces, in connection with their activities in installations/bases, are exempt from Philippine taxes pursuant to the PH-US Visiting Forces Agreement. [BIR ITAD RULING NO. 007-2023, APRIL 12, 2023]
4. CTA CASES ON THE LOCAL BUSINESS TAX LIABILITY OF EDUCATIONAL INSTITUTION & BIR JURISDICTION ON THE CAPITAL GAINS TAX IMPOSITION
[TO BE EXEMPT FROM TAXATION OF REAL PROPERTIES, EDUCATIONAL INSTITUTION MUST FIRST PROVE THAT IT IS A NON-STOCK, NON-PROFIT] [ASSESSMENT MUST SHOW THE PARTICULAR PROVISION OF LAW VIOLATED]
Petitioner Malayan Education System, Inc. filed a Petition for Review seeking the reversal of the Court’s earlier Decision and Order declaring valid the Local Business Tax (LBT) assessment issued by the Respondents City of Manila, its City Mayor, and its City Treasurer. The Petitioner argued that the lower court erred in ruling that Respondents have the authority to impose LBT on it since it is an educational institution. In ruling, the Court held that the Petitioner’s income is subject to LBT. The absolute tax exemption of an educational institution is available only to non-stock, non-profit educational institutions although it may be extended to proprietary educational institutions subject to further limitations and provisions of law. Thus, the Petitioner must first prove that it is a non-stock, non-profit educational institution. However, in the earlier Decision, it is an undisputed fact that the Petitioner is a stock and for-profit educational institution. Thus, it may be subject to LBT. However, the Petitioner’s right to due process was violated by the Respondents by not indicating in the letter of assessment the particular provision of law which the former supposedly violated. In the Yamane case, the Supreme Court ruled that the assessment issued by the LGU should be sufficiently informative to apprise the taxpayer of the legal basis of the tax. Consequently, the Petition was PARTIALLY GRANTED. [MALAYAN EDUCATION SYSTEM, INC. (FORMERLY KNOWN AS MALAYAN COLLEGES, INC. & PRESENTLY OPERATING UNDER THE NAME OF MAPUA UNIVERSITY) VS. CITY OF MANILA, CITY MAYOR & CITY TREASURER, CTA AC NO. 260, MAY 10, 2023]
[CAPITAL GAINS TAX SHOULD BE ASSESSED BY REGION WHERE PROPERTY IS TRANSFERRED OR LOCATED] [TAXPAYER CAN RELY ON BIR RULING ISSUES IN ITS FAVOR]
Petitioner JTKC Land, Inc. filed a Petition for Review seeking the nullification of the Final Decision on Disputed Assessment (FDDA) issued by the Respondent Commissioner of Internal Revenue (CIR). The Petitioner argued that Revenue Region No. 008-Makati City did not have the authority to issue a Letter of Authority (LOA) for the assessment of the Capital Gains Tax (CGT) since the same was already covered by an LOA issued by Revenue Region No. 007-Quezon City (which authorized the audit of the Petitioner’s books for all internal revenue taxes). Likewise, assuming that the LOA is valid, its reliance on BIR Ruling No. 178-08 issued in its favor is not incorrect since it was not specifically revoked by any subsequent issuances. Further, Revenue Memorandum Circular (RMC) No. 55-2010 was issued to specifically revoke certain BIR Rulings. RMC No. 55-2010, however, did not mention Ruling 178-08 that was issued to the Petitioner nor did it include a clause for the automatic revocation of other BIR rulings not identified therein. On the other hand, the Respondent CIR argued that Revenue Region No. 008-Makati City is authorized to issue an LOA since it has jurisdiction over the location of the condominium project in Makati City. Thus, the FDDA is valid. As for the substantive issues, BIR Ruling No. 178-08 was only anchored on the validity of the BIR Ruling No. DA-455-2007. However, with the revocation of the latter ruling due to the issuance of RMC No. 55-2010, BIR Ruling No. 178-08 was nullified automatically. Consequently, at the time of the assessment in 2015, the Petitioner was no longer exempted from taxes arising from transactions covered by the Joint Venture Agreement and the Project Investment Agreements. Further, contracts entered between the Petitioner and its investors are considered as Contracts of Sale that ought to be subjected to withholding taxes. In ruling, the Court held that Revenue Region No. 008-Makati City has the authority to assess the Petitioner since the Petitioner’s condominium project (the subject of the assessment) is undoubtedly located within the territorial jurisdiction of Revenue Region No. 008-Makati City. Moreover, the Project Investment Agreements appear to carry Contracts to Sell, thus, subject to the withholding tax. The Court finds that Respondent erred when he decreed in BIR Ruling No. 178-08 that the Project Investment Agreements are just investment contracts, and the subsequent allocation or delivery of the residential condominium units to the supposed investors was a mere return of capital and is not a taxable event. Notwithstanding the Court’s findings that the assessments are valid and that the Project Investment Agreements, being akin to Contracts to Sell should be subject to withholding tax, the Court still cannot allow the assessment and subsequent collection of the deficiency taxes because it is barred by the exemption granted under BIR Ruling No. 178-08 issued in the Petitioner’s favor. The Court ruled that Petitioner can rely on BIR Ruling No. 178-08 of the BIR for being a specific interpretative ruling. Hence, the Petition was GRANTED, and the assessment was CANCELLED and SET ASIDE. [JTKC LAND, INC. VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 10059, APRIL 26, 2023]
5. FIRB ADVISORY ON THE STRICT COMPLIANCE WITH THE PROVISIONS OF CREATE LAW
Fiscal Incentives Review Board (FIRB) Advisory 008-2023, dated May 5, 2023, reminded all parties concerned to strictly adhere to all pertinent provisions of CREATE Act. To reiterate, only the FIRB has the exclusive power to grant incentives to qualified projects or activities with investment capital of more than Php 1 Billion. Investment Promotion Agencies (IPAs) are only authorized to approve tax incentives to qualified projects or activities with investment capital of Php 1 Billion and below. In several cases, the Supreme Court has declared that ultra vires acts, or those done contrary to law and beyond the scope of one’s authority, are null and void and cannot be given any effect.
Megaworld taps AI to predict disasters in townships [Inquirer Mobile, July 17, 2023]
Property giant Megaworld Corp. is opening a data science lab that will use artificial intelligence (AI) to help the company rapidly respond to disasters and accidents across its 30 townships in the country.
CVC Capital set to take control of The Medical City [Inquirer Mobile, July 17, 2023]
Luxembourg-based private equity and investment firm CVC Capital Partners will acquire a majority stake in The Medical City (TMC), thus ending a five-year dispute among the top stakeholders of one of the country’s premier private health-care institutions.
Lucio Co set to list P 30-B REIT; SM’s pushed back to 2024 [Inquirer Mobile, July 17, 2023]
Retail and banking tycoon Lucio Co is planning to list a P30-billion real estate investment trust (REIT) this year as billionaires Enrique Razon Jr. and the Sy family, which was planning to launch the country’s largest-ever initial public offering (IPO), defer plans amid volatile conditions.
AMLC freezes assets of 6 more individuals [The Philippine Star, July 16, 2023]
Under Republic Act 10168 or the Terrorism Financing Prevention and Suppression Act of 2012 (TFPSA), relevant government agencies including the Land Transportation Office (LTO), Land Registration Authority (LRA), Registry of Deeds, Maritime Industry Authority, and the Civil Aviation Authority of the Philippines (CAAP) are mandated to implement a freeze order against individuals or groups designated as terrorists by the ATC.
ERC: Luzon DUs face penalties for non-submission of reports [The Philippine Star, July 16, 2023]
According to the ERC, 18 Luzon distribution utilties have yet to submit their grid compliance monitoring reports (GCMR) for 2022.
Senate bars Maxim from operating as MC taxi [The Manila Times, July 15, 2023]
THE Senate Committee on Public Services has ordered Maxim Taxi Philippines Inc., a Russian-owned transport network service, to stop its operation as a passenger motorcycle taxi pending the approval of its application with the government transport regulating agency.
BOC seizes P240M worth of counterfeit goods in Subic port [GMA News Online, July 15, 2023]
The shipments were initially reported to contain t-shirts but were later found to contain assorted brand new apparel with logos and designs of branded goods, with an estimated value of P240,000,000.00, said the BOC.
NEA extends P560.7 million loans to ECs in H1 [The Philippine Star, July 15, 2023]
The program consists of regular, calamity and concessional loans, stand-by and short-term credit loans, single-digit system loss, renewable energy and modular generator set loans.
Hotel’s tax deficiency assessment reversed [The Manila Times, July 15, 2023]
THE Supreme Court has voided the tax deficiency assessment issued by the Commissioner of Internal Revenue (CIR) against Grand Plaza Hotel Corp., the company said on Friday.
Opposition to DOF-backed sugar tax hike mounts [Inquirer Mobile, July 15, 2023]
The Food Caterers Association of the Philippines (FCAP), an umbrella organization of small, medium and large catering companies in the country, on Friday told the Inquirer that this tax increase will cause price hikes in the beverage products that they offer, costs that will then be passed on to consumers.
SSS fails to collect P92.4 billion contributions from delinquent employers [The Philippine Star, July 15, 2023]
“Under Section 22 of the Social Security Act of 2018, the right of a covered employee to the benefits of the SSS coverage is not prejudiced by the failure or refusal of the employer to pay or remit the contributions prescribed therein. Hence, the SSS is still bound to pay members benefits corresponding to the uncollected premium contributions, which may negatively affect the Reserves of the SSS,” it added.
AirAsia grows logistics arm with new cargo aircraft [Inquirer Mobile, July 14, 2023]
Teleport, the logistics arm of Capital A Berhad, formerly the AirAsia Group, on Wednesday night officially launched its first-ever freighter-dedicated aircraft, upgrading the company’s operational capacity amid its bid to dominate the logistics scene in Asia.
BIR shuts down 2 cigarette manufacturers in Subic [GMA Network News, July 14, 2023]
Upon inspection, the operatives found that machines used by the firms were also not registered. The brand of cigarette manufactured was also not listed with the BIR.
COA tells UP to blacklist PLDT subsidiary over failure to complete million-peso IT project [The Philippine Star, July 14, 2023]
In its 2022 audit report on the UP system, government auditors noted that the state university has failed to sanction ePLDT for the five years and 11 months delay in the full implementation of the eUP project.
P52.1-B deals keep Laguna-Pampanga rail project on track [Philippine Daily Inquirer, July 14, 2023]
The 147-kilometer railway system that will link Pampanga and Laguna provinces—the longest in the country—came closer to reality with the signing by the Department of Transportation (DOTr) of three contract packages (CPs) worth a combined P52.1 billion.
Aboitiz InfraCapital touts sustainability in Batangas ecozone [ABS-CBN News, July 14, 2023]
The 800-hectare Philippine Economic Zone Authority (PEZA)-registered ecozone in the towns of Lipa and Malvar in Batangas is the flagship project of Aboitiz InfraCapital Economic Estates.
Ayala Land logs record sales for new BGC project [Inquirer Mobile, July 13, 2023]
About 28 percent of the tower’s total inventory of 523 units was sold over two days. Park East Place, Alveo’s 20th project in BGC, is expected to bring in total sales of P20 billion and will be turned over to buyers in 2030. Jugo said projects such as Park East Place successfully lured buyers due to its location at the corner of the busy 32nd Street and 9th Avenue in BGC, one of the prime business districts in Metro Manila.
Megawide forays into real estate, acquires property developer for P5.2B [GMA Network News, July 13, 2023]
In a disclosure to the Philippine Stock Exchange on Thursday, Megawide announced its shareholders approved the acquisition of 100% of PH1 World Developers Inc. (PH1) from Citicore Holdings Investment Inc. (CHII) during its annual stockholders’ meeting held on July 12.
CA junks ERC ruling denying Meralco, SMC rate hike [Inquirer Mobile, July 13, 2023]
In a statement, Power for People Coalition convenor Gerry Arances slammed the CA decision that “releases SMC from any consequences of breaking a contract simply because it is not earning enough from a commitment it has made voluntarily.”
BIR exceeds 5-month collection target [The Philippine Star, July 13, 2023]
According to a statement released, the BIR collected a total of P1.056 trillion during the first five months of the year, exceeding the set collection goal for the period by P1.331 billion.
Aboitiz Power taps UGEP for rooftop solar power [Inquirer Mobile, July 13, 2023]
Aboitiz Power Corp. has tapped renewable energy firm Upgrade Energy Philippines Inc. (UGEP) to develop solar rooftop projects across the country and accelerate energy transition in commercial and industrial markets.In a statement, AboitizPower said its subsidiary, AboitizPower Distributed Renewables Inc. (APX), entered into a joint venture with UGEP to expand the company’s portfolio and meet the needs of businesses under its retail group.
Goodbye, Greenbelt 1: Iconic mall to be torn down [GMA Lifestyle, July 13, 2023]
The Philippine Daily Inquirer reports that Greenbelt 1, one of Ayala Land’s flagship malls as well as its oldest, will be torn down by the first half of next year so that it can be replaced with a new development.
Tighter Pogo rules finalized [Inquirer Mobile, July 13, 2023]
Amid tough scrutiny from lawmakers, the Philippine Amusement and Gaming Corp. (Pagcor) board recently approved a new playbook that will tighten the screening and make it a lot costlier for Philippine offshore gaming operators (Pogos) to exist in this jurisdiction.
Apex Mining tamps down gold project talk [Inquirer Mobile, July 13, 2023]
Apex Mining Co. Inc. of billionaire Enrique Razon Jr. clarified the recent visit of the company’s top executive and geologists in Mongolia has nothing to do with the potential divestment of the gold project in the East Asian country.
‘DOF tax hike bid on sugary drinks favors imported sweeteners’ [Inquirer Mobile, July 12, 2023]
The Philippine Sugar Millers Association (PSMA) escalated to President Marcos its appeal to reconsider the Department of Finance’s (DOF) proposal to double excise taxes on sweetened drinks as this would severely affect the local sugar industry.