WEEKLY TAX UPDATES [JULY 9-13, 2018]

A.     BIR ISSUANCE ON THE NEW INVOICING REQUIREMENTS

The BIR has issued Revenue Regulations (RR) No. 16-2018 dated April 30 [with released date on May 25, 2018] to amend RR 10-2015 on the use of non-thermal paper for all Cash Register Machines (CRM)/Point of Sale (POS) Machines and other invoice/receipt generating machine/software. Accordingly, the BIR has finally allowed businesses to have the option to use the type of paper depending on their business requirements, subject to the retention and preservation of accounting records.

 

Also, in addition to the usual required information to be indicated in the Official Receipt (OR)/ Sales lnvoice (SI), the regulation requires the serial number of the CRM/POS machine to be shown as well. 

 

As regards to the buyers who are in need of a manual invoice or receipt, to be able to claim for an expense (for income tax purposes) or input tax (for VAT purposes), they may need to return the issued tape receipt and request for a manual invoice or receipt from the seller. The returned tape receipt shall be attached to the duplicate copy of the manually-issued invoice or receipt and shall be the basis in adjusting the seller’s amount of sales in the CRM sales book report. The amount of the sale for which a manual invoice or receipt was issued shall be separately indicated in the Summary List of Sales (SLS) required to be submitted by VAT- registered taxpayers to the BIR.

 

B.      BIR ISSUANCE ON THE NEW GUIDELINES ON INCLUSION & DELETION OF TOP WITHHOLDING AGENTS (TWA)

The BIR has issued Revenue Memorandum Order (RMO) No. 26-2018 dated May 24, 2018 which prescribes the new guidelines in the inclusion and deletion of TWA for purposes of withholding on local purchases of goods and services at 1% and 2%, respectively.

 

TAX HIGHLIGHTS

  1. TWA shall now include duly-notified Medium Taxpayers (MT) and taxpayers with issued Taxpayer Account Management Program (TAMP).
  2. Existing Large Taxpayers (LT), Top 20,000 Private Corporations, and Top 5,000 Individual Taxpayers shall still be included in the initial publication of TWA.
  3. District and LT offices shall submit a list of taxpayers recommended for inclusion and deletion on a semestral basis, not later than every April 30 and October 31. Further evaluation shall be conducted not later than every May 31 and November 31, for approval of the Commissioner. Failure to submit on or before June 30, 2018 gives rise to the presumption that the existing lists are still valid.
  4. The approved list shall be publicized not later than every June 15 and December 15. Publication is already considered sufficient notice to the TWA.
  5. After publication, withholding shall commence on July 1 and January 1 of each calendar year.

 

C.      BIR MEDIA RELEASES

  1. Albay meat shop operator charged with tax evasion for willful under declaration of its sales, not filing of tax returns and paying the corresponding taxes.
  2. Pasig construction material supplier & its branches were shut down after failing to comply with the requirements specified in the 48-Hour Notice and 5-Day VAT Compliance Notice.
  3. Camarines Sur Emission Testing Center Operator indicted with tax evasion for under declaration of sales but 50% of its unsubstantiated expenses were allowed as deduction anchored on the Cohan Principle that no business may operate without incurring costs.
  4. San Mateo Rizal construction supplier charged with unlawful pursuit of business for its failure to register with the BIR though engaged in the business of selling construction supplies.
  5. Tabaco City Cockpit Operator charged with tax evasion due to intentional non-filing and nonpayment of income and other taxes for more than five (5) years.

 

D.     COURT OF TAX APPEALS (CTA) DIGESTS FOR THIS WEEK

 

TAXPAYER MUST STRICTLY OBSERVE THE 30-DAY PERIOD TO FILE ITS PROTEST AGAINST FORMAL LETTER OF DEMAND; OTHERWISE ASSESSMENT SHALL BECOME FINAL, EXECUTORY & DEMANDABLE & NO LONGER APPEALABLE TO THE CTA

The Petitioner Grand Plaza Hotel Corporation filed a Petition for Review praying for the cancellation of the Respondent Commissioner of Internal Revenue assessment covering 2008. Several issues were raised but the main issue on whether or not the Court has jurisdiction over the Petition. Records show that the Petitioner received the Formal Letter of Demand (FLD) on September 19, 2013. Counting thirty (30) days from receipt of FLD, the Petitioner had until October 19, 2013 within which to file a protest, but failed to do so instead it submitted a partial concession of payment With this, the Respondent argued that the Court has no jurisdiction to entertain the Petition for failure of the Petitioner to submit its protest on a timely manner making the assessment final, executory and demandable.  In the resolution, the Court ruled that in order for them to acquire jurisdiction, an assessment must be first disputed by the taxpayer within the reglementary period, which is 30 days from receipt of FLD or Formal Assessment Notice, and be ruled upon by the Commissioner to warrant a decision from which a Petition for Review may be taken before them. Consequently, if the Court has no jurisdiction over the nature of an action, its only course of action is to dismiss the case. Consequently, the Petition for Review was DISMISSED due to lack of jurisdiction. [GRAND PLAZA HOTEL CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO 8992, JULY 04, 2018]

 

DIVIDEND INCOME NOT SUBJECT TO LOCAL BUSINESS TAX EXCEPT WHEN LEVIED TO BANKS & OTHER FINANCIAL INSTITUTIONS

The Petitioner Metro Pacific Assets Holdings, Inc., filed a Petition for Review seeking for the reversal of the decision rendered by the Regional Trial Court (RTC) denying its claim for refund of LBT.  The issue at hand is whether or not the Petitioner should be taxed similar to Banks and Other Financial Institutions Under Section 3A.02 (h) of the Revised Makati Revenue Code (RMRC), and whether dividends and interest income should be imposed with LBT. In the course of the presentation of evidence, the Respondent, City Treasurer of City of Makati pointed out that a holding company need not be a service contractor nor an owner or operator of banks and other financial institutions for purposes of applying Section 3A.02 (h) of the RMRC in the imposition of LBT. In contrast, the Petitioner contends that it is a holding company, in reference to its Articles of Incorporation, and should not to be taxed as similar to Banks and Other Financial Institutions. Furthermore, the Petitioner added that since it is not within the provisions of Section 3A.02 (h) of the RMRC, its dividend and interest income should not be subject to LBT. In the resolution, the Court cited the Michigan Holdings Case that dividend income is not subject to LBT except when levied to banks and other financial institutions, which is not applicable to the Petitioner being a Holding Company. Finally, the Court ruled that since the records of the case do not show that Petitioner is an investment company, a bank or other financial intermediary as defined by the regulations, the Petitioner cannot be subject to the rate of tax imposed in Section 3A.02 (h) of the RMRC. The Petition for Review is GRANTED and the assailed Decision and Order rendered by the RTC are REVERSED and SER ASIDE. [METRO PACIFIC ASSETS HOLDINGS, INC. VS. MAKATI CITY & THE INCUMBENT CITY TREASURER OF MAKATI CITY, CTA CASE NO. 184, JULY 02, 2018]

 

ROHQ INPUT VAT REFUND PARTIALLY GRANTED DUE TO DEFECTS OF INVOICING

The Petitioner, Citco International Support Services Limited- Philippine ROHQ, filed a Petition for Review praying for refund or issuance of Tax Credit Certificate (TCC) of its unutilized input VAT from zero-rated sales amounting to Php 7,895,079.66. Petitioner averred that it is entitled to the benefit of VAT zero-rating as it rendered qualifying services of an ROHQ to its affiliates outside the Philippines which are billed in foreign currency. In resolving the Petition, the Court partially allowed the claim citing the following: no date and signature was indicated in the zero-rated VAT Official Receipts (ORs) resulting to disallowance of zero-rated sales, input VAT disallowance due to handwritten VAT in a computerized invoice without counter signature, VAT was not separately indicated, OR date not readable, VAT not separately indicated and OR with pre-printed “TIN” only without the word “VAT”. Consequently, out of the total claim of Php 7,895,079.66, only Php 5,857,193.91 was granted. [CITCO INTERNATIONAL SUPPORT SERVICES LIMITED-PHILIPPINE REGIONAL OPERATING HEADQUARTERS (ROHQ) VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9102, JULY 2, 2018]

 

FAN MUST CONTAIN AN SPECIFIC DATE OR PERIOD WITHIN WHICH THE TAX LIABILITY MUST BE SETTLED OR PAID BY THE TAXPAYER; OTHERWISE, THE SAME IS NULL AND VOID

The Petitioner Lorenzo Shipping Corporation filed a Petition for Review seeking for the cancellation of the Respondent Commissioner of Internal Revenue assessment. Several issues were raised but the main issue is centered on the allegations of the Petitioner that the assessment is null and void for the Respondent failed to state in a clear and unequivocal manner the demand for payment within a prescribed period. In resolving the Petition, the Court ruled that an assessment should contain not only a computation of tax liabilities, but also a demand for payment within a prescribed period. In other words, an assessment is a notice to the effect that the amount therein stated is due as a tax and demandable for payment. It fixes and determines the tax liability of a taxpayer. However, in the course of presentation of evidence, the Court noted that the subject Formal Assessment Notice cannot be deemed as a valid assessment in the absence of a specific date or period within which the alleged tax liabilities must be settled or paid by the Petitioner. It must be emphasized that the date certain for the payment of tax liabilities is indispensable in an assessment as it dictates the time when the penalties, surcharges and interest begin to accrue. Consequently, the Petition for Review is GRANTED and the undated FAN is CANCELLED AND SET ASIDE. [LORENZO SHIPPING CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 8694, JUNE 28, 2018]

 

TAX TREATY RULING APPLICATION SHOULD NOT OPERATE TO DIVEST ENTITLEMENT TO TREATY RELIEF

The Petitioner DGA Ilijan B.V filed a Petition for Review seeking for tax refund of erroneously paid Final Withholding Tax on dividend income payments. The Respondent Commissioner of Internal Revenue argued that the same should be denied citing the late filing of Tax Treaty Ruling Application (TTRA) which is a violation of Revenue Memorandum Order 09-2010. However, the Petitioner countered that pursuant to the Supreme Court case in Deutsche Bank, the court ruled that failure to file a TTRA on time does not operate to divest entitlement to treaty relief. In the resolution, the Court pointed out that our constitution provides adherence to the general principles of international law as part of the law of the land as pursuant to pacta sunt servanda, and emphasized that tax treaties are entered into “to reconcile the national fiscal legislations of the contracting parties and, in turn, help the taxpayer avoid simultaneous taxation in two different jurisdictions. Accordingly, the TTRA should not operate to divest entitlement to treaty relief and not a condition precedent to avail of the relief. The Petition for Review is GRANTED ordering the Respondent to refund or issue Tax Credit Certificate in favour of the Petitioner. [DGA ILIJAN B.V. VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASSE No. 8911, JUNE 28, 2018]

 

FOR TAXATION PURPOSES, THE CONTROLLING FACTOR IS THE PLACE OF SERVICE OR PLACE OF PERFORMANCE & NOT THE CAPACITY OF THE INCOME RECIPIENT AS A NON-RESIDENT FOREIGN CORPORATION (NRFC)

The Petitioner One World Connections, Inc. filed a Petition for Review seeking for the cancellation of the Respondent Commissioner of Internal Revenue assessment. Several issues were raised but the highlight and material issue is centered on the findings of the Respondent on the failure of the Petitioner to subject to Final Withholding Tax (FWT) and Final Withholding VAT (FWVAT) its income payments for services rendered by a NRFC. The Petitioner argued that the services were rendered outside the Philippines and should not be subject to FWT and FWVAT. In resolving the Petition, the Court applied the ‘source of income’ doctrine citing the case several cases already decided by the Supreme Court. Accordingly, ‘source of income’ relates to the property, activity or service that produces the income. With respect to labor or personal service, it is the place where the labor or service was performed that determines the source of income. However, it was emphasized that the decisive factor is not the capacity in which the NRFC received the income, but the sufficiency of evidence to prove that the services rendered were, indeed, performed outside of the Philippines. Thus, in the absence of the contrary evidence, the services shall be considered and presumed to be performed within the Philippines and therefore, taxable. As a result, the Court PARTIALLY UPHELD the assessments issued by Respondent covering other tax type liabilities and FWT and FWVAT. [ONE WORLD CONNECTIONS, INC. VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 8820, JUNE 21, 2018]

 

NON-RECEIPT OF THE NOTICE(S) INVALIDATES THE BIR ASSESSMENT

The Petitioner, Commissioner of Internal Revenue, filed a Petition for Review seeking for the nullification of the earlier decision and resolution of the Court of Tax Appeals Second Division which cancelled its assessment and declared null and void for having been issued in violation of the due process requirements under the law. The Respondent, AA Commercial, argued that it did not receive the assessment notices as these notices were returned to the Petitioner. In the course of the presentation of evidence, the Court noted that the subject notices were sent, through registered mail, to the address of the Respondent in Quezon City but the security guard on duty refused to receive the same and simply informed the carrier that the Respondent-Recipient already transferred to its main office located in Makati. The Post Office then sent the notices back to the BIR with a note “Return to Sender.” Despite this, no efforts were made by the Petitioner for Respondent to actually receive the said notices. Considering that the Respondent did not receive the assessment notices and the three-year prescriptive period has long ended, the Petitioner’s right to assess the Respondent for the taxable year 2006 has already prescribed. Consequently, the Petition is DENIED.  [COMMISSIONER OF INTERNAL REVENUE VS. AA COMMERCIAL ; CTA EB NO. 1476, JUNE 11, 2018]

 

E.      DIGEST OF EASE OF DOING BUSINESS & EFFICIENT GOVERNMENT SERVICE DELIVERY ACT OF 2018

 

The BIR has issued Revenue Memorandum Circular No. 56-2018 dated June 26, 2018, which circularized Republic Act (RA) No. 11032 otherwise known as the “Ease of Doing Business and Efficient Government Service Delivery Act of 2018”.

 

Following are the highlights of the law:

 

  1. Law applies to all government offices including Local Government Units, Government-Owned & Controlled Corporations, and government instrumentalities, whether located in the Philippines or abroad.

 

  1. All offices are required to:

 

2.1  Perform re-engineering of systems and procedures to reduce bureaucratic red tape and processing time. Feedback mechanism shall also be incorporated which shall the basis of awards and recognition for excellent delivery of services

 

2.2  Come up with Citizen’s Charter which shall be made known to the public

 

2.3  Observe zero-contact policy once web-based software is formulated by the Department of Information & Communications Technology (DICT) which shall also be responsible in operating and maintaining Central Business Portal and serve as the central system capable of linking online registration and application systems established by National Government Agencies.  DICT shall also devise Philippine Business Databank (PBD) which shall serve as repository of records already processed, for ready access of government agencies and future reference.

 

2.4  Be accountable through its respective heads, with presumption that all transactions and processes are released with their approval

 

2.5  Act within the prescribed processing time stated in the Citizen’s Charter, with the corresponding penalties and liabilities for non-compliance. Formal notification should be sent in case of approval, justified inaction, disapproval or denial. Otherwise, automatic approval or automatic extension shall be accorded for every application.

 

2.6  Streamline procedures for the issuance of local business permits and licenses by establishing a single or unified business application through one-stop business facilitation service