WEEKLY TAX UPDATES [JUNE 25-29, 2018]

BIR CLARIFICATION ON IMPOSITION OF PENALTIES & INTEREST ON THE FILING OF AMENDED RETURN

The BIR has issued Revenue Memorandum Circular (RMC) 54-2018 dated May 29 [with released date on June 21, 2018] to clarify and reiterate the imposition of surcharge, interest, and compromise penalty for filing of amended return and the interest rate to be imposed in accordance with Section 249 (A) of the Tax Code of 1997, as amended by TRAIN Law. Accordingly, the deficiency interest rate shall be double the legal interest rate for loans or forbearance of money in the absence of an express stipulation as set by the Bangko Sentral ng Pilipinas from the date prescribed for payment until the amount is fully paid. Thus, in case of amendment which results to additional tax due, a 25% penalty and 12% interest shall be imposed based on the additional tax to be paid.

 

As regards the imposition of compromise penalties, the imposition is just a suggestion on the part of the BIR, the payment of which is consensual in nature, and may not therefore be imposed or exacted on the taxpayer. Thus, in the event that a taxpayer refuses to pay the suggested compromise penalty, the violation shall be referred to the appropriate office for criminal action.

 

COURT OF TAX APPEALS (CTA) DIGESTS FOR THIS WEEK

 

TIMING OF VAT RECOGNITION DIFFERENT ON SALE OF GOODS & SERVICES

The Petitioner Parity Packaging Corporation filed a Petition for Review seeking the partial cancellation of the Respondent Commissioner of Internal Revenue assessment on the ground of prescription. The Petitioner argued that the right of the Respondent to assess on some tax types has already set-in citing the 3-year prescriptive period. On the substantive aspects of the assessment, there were several issues raised but the main issue pertains to the issue on whether the Petitioner’s sales should be subject to VAT upon its sale or upon receipt of payment for its services. In resolving the Petition, the Court noted that the Petitioner is one engaged in printing services in reference to the primary purpose contained in the Articles of Incorporation. Accordingly, the recognition of VAT liabilities for sale of goods and sale of services are different. For sale of goods or properties, the 12% VAT is imposed upon sale regardless of the timing of receipt of consideration. On the other hand, for sale of services, the 12% VAT is computed based on gross receipts or upon receipt of payment irrespective of whether or not service has been rendered. The Petition for Review is PARTIALLY GRANTED resulting to a reduced tax assessment. [PARITY PACKAGING CORPORATION VS COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO 9318, JUNE 20, 2018]

 

ABSENCE OF EVIDENCE THAT A TAXPAYER IS A NON-BANK FINANCIAL INTERMEDIARY OR INVESTMENT COMPANY RENDERS IMPOSITION OF LOCAL BUSINESS TAX (LBT) ON DIVIDEND & INTEREST INCOME INVALID

The Petitioner First Meridian Development, Inc. a Holding Company, filed a Petition for Review seeking the reversal of the earlier decision of the Court in Division denying its claim for refund of erroneously paid Local Business Tax (LBT) on dividend income it received from San Miguel Corporation shares as well as interest income from its money market placements. In resolving the Petition, the Court ruled that it is erroneous on the part of the respondents to impose LBT on the Petitioner’s dividend and interest income considering that it violates the limit set by the 1991 Local Government Code. Likewise, there is no showing that the Petitioner is a non-bank financial intermediary or an investment company to be held liable for LBT on dividend and interest income. Further, it was noted that dividends received by the Petitioner were declared to be owned by the Government and therefore cannot be the subjected to taxes. On the claim of interest due on erroneously paid LBT, the Court ruled that it cannot award the legal interest it prayed for considering that there is no law authorizing the payment of interest on the refundable amount arising from erroneously and illegally collected taxes. Therefore, the Petition for Review is hereby GRANTED and the assailed decision and resolution is REVERSED and SET ASIDE. Accordingly, Respondents were ordered to refund or issue TCC in favour of the Petitioner [FIRST MERIDIAN DEVELOPMENT, INC. VS. CITY OF DAVAO & HON. RODRIGO S. RIOLA, IN HIS CAPACITY AS THE CITY TREASURER OF DAVAO CITY, CTA EB NO. 1607, JUNE 20, 2018]

 

TO BE ENTITLED TO REFUND OR TAX CREDIT CERTIFICATE (TCC) FOR ANY UNUTILIZED INPUT VAT, TAXPAYERS MUST COMPLY WITH THE INVOICING REQUIREMENTS

The Petitioner, Pilipinas Total Gas Inc. filed a Petition for Review seeking refund of unutilized input VAT arising from zero-rated transactions in the amount of  Php 7,898,433.98. In resolving the Petition, the Court ruled that since an ECOZONE is regarded as a foreign territory under the Cross Border Doctrine, the sales of goods and services by VAT registered enterprises (like the herein petitioner) to PEZA-registered enterprises are subject to VAT at zero percent rate. Consequently, the Petitioner is not liable to pay any output VAT thereon and the reported unutilized input VAT attributable thereto may be the proper subject of a claim for refund or the issuance of a TCC. However, in order to be entitled to a refund or TCC for the unutilized input VAT, requisites of Sections 112 and 113 of the Tax Code in relation to Section 4 of Revenue Regulations No. 7-95 must be complied with. Notably, the Petitioner has not fully complied with the requisites such as failure to indicate the amount of some zero-rated sales in the official receipt/sale invoice, no date was indicated, VAT was not separately indicated, among others. Consequently, the Petition for Review as PARTIALLY GRANTED ordering the Respondent to refund or issue TCC in favour of the Petitioner in the amount of Php 7,332,423.73.  [PILIPINAS TOTAL GAS, INC. VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 7863, JUNE 19, 2018]

 

ONCE A TAXPAYER RECEIVES A WARRANT OF DISTRAINT AND/OR LEVY (WDL) FROM THE BIR, HE MUST IMMEDIATELY FILE AN “APPEAL” WITHIN 30 DAYS BEFORE THE CTA

The Petitioner Commissioner of Internal Revenue filed a Petition for Review seeking the reversal of the earlier decision and resolution of the Court in Division cancelling the assessment against the Respondent Mannasoft Technology Corporation on the ground that the Court in Division did not acquire jurisdiction over the case. The Petitioner argued that the Court in Division did not acquire jurisdiction over the case since the appeal was filed beyond the 30-day period to appeal reckoned from the receipt of decision. Notably, the Respondent only filed an appeal before the Court on December 10, 2013 in reference to the Petitioner’s issued WDL on October 23, 2012, when the same should have been filed on or before November 28, 2012. The Petitioner pointed out that its letter denying the motion falls under the term “other matters” under Section 3(a)(1) of Rule 4 of Rules of CTA. In resolving the Petition, the Court ruled that reckoning of the 30-day period to appeal must be from the receipt of WDL. Hence, the collection of taxes against the Respondent is in order. Consequently, the Petition for Review is GRANTED. [COMMISSIONER OF INTERNAL REVENUE VS MANNASOFT TECHNOLOGY CORPORATION CTA EB NO. 1637, JUNE 19, 2018]

 

DOCTRINE OF IN PARI DELICTO IN THE EXECUTION OF WAIVER + SENIOR CITIZEN & PERSONS WITH DISABILITY (PWD) SALES AS VAT EXEMPT TRANSACTIONS

The Petitioner Davao City Food Industries Inc. filed a Petition for Review seeking the cancellation of the Respondent Commissioner of Internal Revenue assessment in the amount of Php 17,236,148.10. The Petitioner argued that the right of the Respondent to assess the taxable year 2011 has lapsed considering that the waiver it executed was defective for it was not signed by the Petitioner’s authorized personnel and no date of acceptance was indicated on its face in violation of Revenue Memorandum Order No. 20-90. In resolving the Petition, the Court noted that the Petitioner is estopped in assailing its objection applying the “Doctrine of In Pari Delicto” since both parties are in equal fault. On the substantive aspect of the assessment, the Court resolved to partially grant the defense of the Petitioner on the noted discrepancy on sales attributable to miscaptured transactions on sales to Senior Citizens and PWD which should be treated as VAT exempt and partial disallowance of input VAT credits for violation of the invoicing requirement. In sum, the Petitioner is ordered to pay at a lower assessment of Php 3,900,482.60. [DAVAO CITY FOOD INDUSTRIES INC. VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9013, JUNE 14, 2018]

 

ROYALTY FEE & MANAGEMENT FEE WHEN PASSIVE INCOME OR ACTIVE INCOME FOR WITHHOLDING TAX PURPOSES

Petitioner Trinity Franchising and Management Corporation filed a Petition for Review seeking the cancellation of the Respondent Commissioner of Internal Revenue assessments. Several issues have been raised such as the issue of prescription, disallowance of expenses and credits due to failure to substantiate, and fringe benefits tax exposure on transportation and travelling expenses, but the highlight and material issue of the assessment is centered on the findings of the Respondent that the Petitioner paid royalties to its Parent Company and therefore subject to final tax on royalties. Notably, the Court cancels the assessment on deficiency final tax as it was verified that the Petitioner’s Parent Company provides the services of its managers, on a consultancy basis, to guide Petitioner in its operations; and in return, Petitioner pays its Parent Company a fixed monthly Management Fee. Hence, contrary to Respondent’s contention, these are management fees and not royalty fees and therefore considered as income earned in the active pursuit of business and not passive income. As a result, the Court PARTIALLY GRANTED the Petition for Review withdrawing and cancelling the assessment findings except the modified assessment on Value Added Tax, Expanded Withholding Tax, and Withholding Tax on Compensation. [TRINITY FRANCHISING & MANAGEMENT CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9177, JUNE 13, 2018]

 

NON-RETROACTIVITY OF FILINVEST RULING ON DOCUMENTARY STAMP TAX (DST) ON ADVANCES TO AFFILIATES

The Petitioner San Miguel Holdings Corporation filed a Petition for Review seeking refund of DST it paid under protest in the amount of Php 109,943,523.84.  The claim stemmed from the DST imposition of the Respondent Commissioner of Internal Revenue on Advances to Affiliates as reflected in the 2011 Notes to Financial Statements which according to the Petitioner is not supposed to be paid because there was no document executed and that it relied on prevailing court decisions and rulings of the BIR that Board Resolutions, Inter-Office Memos, etc. evidencing intercompany advances cannot be categorized as Debt Instruments subject to DST. Likewise, it was claimed by the Petitioner that the decision of the Supreme Court in the case of Commissioner of Internal Revenue vs. Filinvest Development Corporation promulgated on July 19, 2011 which effectively reversed previous court decisions and rulings of the BIR should not be applied to transactions or documents issued prior to its promulgation. The Respondent, on the other hand, countered that refund should be denied because there is no provision under the Tax Code of 1997 which provides for payment under protest and therefore the only recourse is to protest the said assessment within the guidelines and parameters set by the Tax Code of 1997 as amended as well as the related implementing rules and regulations, which the Petitioner failed to do so. Likewise, the taxes paid are not erroneously or illegally collected, which is the proper subject of an action for refund, because the court finds that the respondent’s right to assess has not yet prescribed. On one hand, the Court in resolving the Petition ruled that the Filinvest case and the subsequent circular issued may be applied retroactively because prospective effect applies only to decisions issued by the Supreme Court enunciating doctrines. At the time that advances to affiliates were reflected in the 2011 Notes to Financial Statements, there was already a provision under the Tax Code and Revenue Regulations (i.e. Section 179, RR 9-94) which imposes DST even in the absence of debt instrument, as long as the transactions are clearly established. Nevertheless, the Court relied on the Petitioner’s good faith resulting to the cancellation of surcharges, interests, and penalty. Consequently, the Petition for Review was PARTIALLY GRANTED ordering the Respondent to refund the Petitioner in the amount of Php 50,618,995.10 which represents erroneously paid surcharge, interest, and penalties. [SAN MIGUEL HOLDINGS CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9401, JUNE 5, 2018]

 

TAX NEWS  

 

Amended agri tariff law to include P10-billion subsidy for farmers [Manila Bulletin, June 21, 2018]

Senator Cynthia Villar has been delaying the passage of the amended Agricultural Tariffication Act and finally, she has a concrete reason for it.
Source: https://business.mb.com.ph/2018/06/21/amended-agri-tariff-law-to-include-p10-billion-subsidy-for-farmers/

 

10 flagship infra projects now under construction — DOF [Manila Bulletin, June 21, 2018]

The Department of Finance (DOF) said that more than a tenth of the Duterte administration’s infrastructure projects are now under the construction stage, which are partially funded by the recently enacted tax reform law.

Source: https://business.mb.com.ph/2018/06/21/10-flagship-infra-projects-now-under-construction-dof/

 

Bill amending BSP charter, hiking capitalization approved [Manila Bulletin, June 20, 2018]
The House of Representatives has approved on second reading a bill proposing to further strengthen the supervisory and regulatory powers of the Bangko Sentral ng Pilipinas (BSP), while increasing its capitalization to 400 percent of its current principal.
Source: https://business.mb.com.ph/2018/06/20/bill-amending-bsp-charter-hiking-capitalization-approved/


DOF: Remove exemptions before reducing VAT [Manila Bulletin, June 17, 2018]
The Department of Finance (DOF) has called for the removal of VAT exemptions before any reduction of this 12 percent consumption tax rate is implemented to avoid adverse impact on revenue stream and jeopardize the government’s fiscal position.

Source: https://business.mb.com.ph/2018/06/17/dof-remove-exemptions-before-reducing-vat/

 

Only indigent seniors entitled to TRAIN subsidy [The Philippine Star, June 20, 2018]
MANILA, Philippines — Not all senior citizens in the country will receive the P2,400 subsidy for those who will be affected by the Tax Reform for Acceleration and Inclusion (TRAIN) Law.

Source: https://www.philstar.com/business/2018/06/20/1826067/only-indigent-seniors-entitled-train-subsidy

 

BOI approvals rise 28%, PEZA down in 4 months [The Philippine Star, June 22, 2018]
MANILA, Philippines — New projects registered with the Board of Investments (BOI) grew by over a quarter in the first four months, while investment pledges approved by the Philippine Economic Zone Authority (PEZA) contracted by more than half on lingering concerns over the government’s second tax reform package.
Source: https://www.philstar.com/business/2018/06/22/1826689/boi-approvals-rise-28-peza-down-4-months

 

DTI chief appeases worries re TRAIN2 [The Philippine Star, June 21, 2018]
CEBU, Philippines — Department of Trade and Industry (DTI) secretary Ramon Lopez has appeased the Cebu business community assuring that the second tranche of tax reform will not be taking out the tax incentives of investors.
Source: https://www.philstar.com/the-freeman/cebu-business/2018/06/21/1826489/dti-chief-appeases-worries-re-train2

 

State think tank backs higher taxes on alcohol, cigarettes [The Philippine Star, June 17, 2018]
MANILA, Philippines — A state think tank is recommending further increases in the excise tax rates of both alcoholic and cigarette products to effectively reduce consumption and protect the health of the public.
Source: https://www.philstar.com/business/2018/06/17/1825209/state-think-tank-backs-higher-taxes-alcohol-cigarettes