WEEKLY TAX UPDATES [MAY 28-JUNE 1, 2018]

BIR TAX ADVISORY IN RELATION TO TRAIN LAW IMPLEMENTATION

 

1.      BIR has advised that starting May 18, 2018, excise taxpayers who will be paying Excise Tax on Cosmetic Procedures shall use BIR Form 0605/Payment Form indicating ATC Code “XC010” and Tax Type “XC”. The previous form circulated (i.e. BIR Form 1620-XC-Final Withholding of Excise Tax on Invasive Cosmetic Procedures) together with the assigned Alphanumeric Tax Code (ATC) of “WI800” for individual and “WC800” for corporate as prescribed under RMO No. 9-2018, dated January 4, 2018 will be replaced with BIR Form No. 2200-C-Excise Tax on Invasive Cosmetic Procedures. Under the TRAIN Law, invasive cosmetic procedures will be taxed at 5% on the gross receipts, net of excise tax and VAT.

 

2.      Revenue Memorandum Circular (RMC) No. 39-2018 dated May 8, 2018 [with released date on May 24, 2018] reiterates the imposition of VAT on goods or properties originally intended for sale or use in business including capital goods disposed of or existing as of the date of change of status of a taxpayer from VAT to Non-VAT. Consequently, taxpayers are required to file the Quarterly VAT Return/BIR Form 2550Q covering the period when the change of status transpired and pay the corresponding VAT due thereon.

 

3.      RMC No. 42-2018 dated May 25, 2018 suspends the use of the Update of Exemption of Employees (UEE) Data Entry Module in filing of BIR Form No. 2305 (Certificate of Update of Exemption & of Employers & Employee’s Information) and 2305 Batch File Validation Module. The suspension is brought about by the repeal of the 1997 Tax Code provisions allowing personal and additional exemptions for individual taxpayers pursuant to the provisions of TRAIN Law.

 

COURT OF TAX APPEALS (CTA) DIGESTS FOR THIS WEEK

 

IT IS THE USE NOT THE OWNERSHIP THAT IS OF DECISIVE IMPORT TO BE EXEMPT FROM REAL PROPERTY TAX, QUALIFIED AS SPECIAL CLASSES OF PROPERTIES & SUBJECTED TO 10% ASSESSMENT LEVEL UNDER LOCAL GOVERNMENT CODE

 The Petitioner National Power Corporation (NPC) entered into a Build Operate Transfer (BOT) Agreement with Respondent Luzon Hydro Corporation (LHC) by executing a Power Purchase Agreement (PPA) for the construction, operation and maintenance of the Bakun AC Hydroelectric Plant which includes the delivery of all electricity generated by power plant. In addition, the agreement also provides that the Petitioner assumed responsibility for the payment of Real Property Taxes (RPT) levied on the power plant and its facilities. However, the Municipal Assessor of Bakun Benguet assessed the Respondent with RPT on machineries comprising the power plant. The Petitioner wrote the Municipal Assessor stating that they are willing to pay RPT at 10% Assessment Level as it was currently doing in Sual, Pangasinan pursuant to an agreement with the Pangasinan Local Government Unit to treat the generation facilities therein as Special Class. Subsequently, the Municipal Treasurer listed the Respondent as a delinquent taxpayer with the view to levying the subject properties. The Respondent paid under protest the amount and filed a Petition for Annulment of the Notice of Assessment, Injunction and Prohibition before the Regional Trial Court. The Petitioner insists that it is entitled to the tax exemptions and privileges claimed under Section 234(c) of the Local Government Code (LGC). In resolving the Petition, the Court says that the Petitioner could not successfully claim exemption under the said provision of the LGC because there must be actual, direct and exclusive use of machineries by the Petitioner as Government Owned & Controlled Corporation (GOCC) engaged in the generation and transmission of electric power which the Petitioner failed to satisfy. It is use, not ownership that is of decisive import.  As to whether the 10% Assessment Level is applicable to the subject properties, the Petitioner contends that the subject machineries and equipment are Special Classes of real properties and are to be assessed at the 10% Level under Sections 216 and 218(d) of the LGC respectively. The Court further says that, in order to qualify for the 10% Assessment Level, the properties must first qualify as part of the Special Classes under Section 216. For the properties of the Petitioner as a GOCC engaged in the generation and transmission of electric power to qualify for the special classification, the properties must be “owned and used’ by it. As already discussed, the Court has already concluded that it is the Respondent, not the Petitioner that is the actual user of the subject properties. This renders it impossible for the Petitioner to meet the paired standard of ownership and use laid down by Sec. 216. Wherefore, the Petition is DENIED for lack of merit. [NATIONAL POWER CORPORATION VS LUZON HYDRO CORPORATION CTA EB NO. 1020, MAY 22, 2018]

 

HOLDING COMPANY NOT SUBJECT TO LOCAL BUSINESS TAX ON DIVIDENDS & INTEREST RECEIVED

The Petitioner ASC Investors, Inc. filed a Petition for Review seeking the cancellation of the Local Business Tax (LBT) assessment of the Respondent City of Davao on its dividends and interest. The Respondent argued that LBT was properly assessed based on the assumption that the Petitioner’s primary sources of income are dividends and interest making it a Non-Bank Financial Intermediary. On the other hand, the Petitioner claimed that there was no proof that they were authorized by the Bangko Sentral ng Pilipinas to perform quasi-banking activities and its Articles of Incorporation shows that it is established as a Holding Company. Likewise, it was never established to perform on a regular or recurring and not even on an isolated basis, the functions and activities of a Non-Bank Financial Intermediary. In resolving the Petition, the Court declares that the Petitioner is a Holding Company and not a Non-Bank Financial Intermediary nor an Investment Company. Hence, the dividends and interest it received may not be subject to the LBT. In addition, the dividends and interest income received by the Petitioner partakes the nature of public funds. Hence, business tax cannot be imposed on the same. Since the shares were acquired using coconut levy funds, which have been established to be public in character, these shall be treated as government assets, and is exempt from taxes. Based on the foregoing, the Court cancelled the LBT assessment against the Petitioner. [ASC INVESTORS INC. VS CITY OF DAVAO & HON. RODRIGO S. RIOLA, CTA EB NO. 1568, MAY 17, 2018]

 

REQUISITES FOR VALID INPUT VAT REFUND ARISING FROM ZERO-RATED SALES

The Petitioner, Vestas Services Philippines, Inc. filed a Petition for Review seeking refund of unutilized and accumulated input VAT arising from zero-rated sales in the amount of Php 14,565,140.54. In resolving the Petition, the Court discussed the criteria that a claimant-taxpayer must satisfy in order to be entitled to refund of unutilized input VAT attributable to zero-rated sales. Accordingly, the claims should be filed within the prescribed period, there must be zero-rated sales, the input VAT should be incurred or paid, the input VAT should be attributable to zero-rated sales, and that the input VAT should not be applied against any output VAT liability. In the appreciation of support, it was noted that the Petitioner is compliant with all of the foregoing requisites except that some documents did not fully substantiate the claims of the Petitioner. Substantiated input VAT only amounted to Php 7,176,818.36 and is not ipso facto refundable to the Petitioner since only a portion thereof based on the validly supported sales of Php 196,394,398.52 divided by total sales of Php 1,107,422,089.20 or a percentage of 17.73% of the substantiated input VAT are allowed by the Court to be claimed by the Petitioner. The Court partially granted the Petition for Review, ordering the Respondent Commissioner of Internal Revenue to refund or to issue a Tax Credit Certificate in favor of the Petitioner in the amount of Php 1,272,449.90. [VESTAS SERVICE PHILIPPINE INC. VS COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 89382, MAY 9, 2018]

 

TAX NEWS

 

DOF: TRAIN not solely to blame for inflation [Manila Bulletin, May 25, 2018]

The spike in rice prices because of alleged lack of supply, a weak peso, rising oil prices abroad, better tax compliance of local cigarettes, and growing consumer demand accounted for the bulk of the inflation in April, the Department of Finance (DOF) said.

Source: https://business.mb.com.ph/2018/05/25/dof-train-not-solely-to-blame-for-inflation/

 

SSS awaits PRRD’s nod for pension hike [Manila Bulletin, May 24, 2018]

The Department of Finance (DOF) is planning to implement the long-delayed anti-oil smuggling scheme in the third quarter this year following its “intensive research” to properly address the country’s problem on illicit fuel trade.

Source: https://business.mb.com.ph/2018/05/24/dof-to-implement-fuel-markings-in-third-quarter/

 

Investors seek DOF’s reconsideration on scrapping of petroleum tax perks [Manila Bulletin, May 23, 2018]

Investors in the upstream petroleum industry are seeking an audience with the Department of Finance (DOF) so they can formally raise their concerns and seek reconsideration on matters relating to the planned modifications as well as scrapping of major tax incentives for the sector.

Source: https://business.mb.com.ph/2018/05/23/investors-seek-dofs-reconsideration-on-scrapping-of-petroleum-tax-perks/

Lopez claims: P1 tax incentive brings P2.3 in additional revenues
[Manila Bulletin, May 22, 2018]
Trade and Industry Secretary Ramon M. Lopez yesterday said that for every P1 tax incentive granted to investor, the government generates P2.3 in additional tax paid to the government as he took the cudgels of the Board of Investments (BOI), the government’s premier investment generating agency, to which he serves as chairman.
Source:
https://business.mb.com.ph/2018/05/22/lopez-claims-p1-tax-incentive-brings-p2-3-in-additional-revenues/


Dominguez bats for incentive rationalization, lower corporate taxes
[Manila Bulletin, May 22, 2018]
Hoping to get Congress’ approval for tax reform’s Package 2, the Department of Finance (DOF) has faced House Committee on ways and means yesterday to defend TRAIN 2 (House Bill [HB] No. 7458) — which seeks graduated cuts in the corporate income tax (CIT) rate and the modernization of investment incentives.
Source: https://business.mb.com.ph/2018/05/22/dominguez-bats-for-incentive-rationalization-lower-corporate-taxes/

Passage of tax amnesty bill seen in H2
[Manila Bulletin, May 21, 2018]
The Department of Finance (DOF) is hoping that the law that will give individuals and corporations a chance to settle their unpaid taxes without fear of being slapped with criminal charges will be finally passed and implemented this year.
Source: https://business.mb.com.ph/2018/05/21/passage-of-tax-amnesty-bill-seen-in-h2/

Ex-DOF chiefs back tax reform Package-2 [Manila Bulletin, May 20, 2018]
Former finance ministers and ranking officials threw their support behind the Duterte administration’s second proposed tax reform package that aims to lower the corporate income tax (CIT) and “modernize” or capped  investment incentives.
Source: https://business.mb.com.ph/2018/05/20/ex-dof-chiefs-back-tax-reform-package-2/


GSIS files eviction case vs Sofitel operator
[Manila Bulletin, May 19, 2018]
State-run Government Service Insurance System (GSIS) filed  Friday an eviction suit against the Philippine Plaza Holdings, Inc. (PPHI), operator of Sofitel, at the Pasay City Regional Trial Court.
Source: https://business.mb.com.ph/2018/05/19/gsis-files-eviction-case-vs-sofitel-operator/

New DOF Asec sworn in [Manila Bulletin, May 19, 2018]
Finance Secretary Carlos G. Dominguez III has sworn into office Antonio Joselito Lambino II as the new assistant secretary of the Strategy, Economics, and Results Group (SERG) of the fiscal authorities.
Source: https://business.mb.com.ph/2018/05/19/new-dof-asec-sworn-in/

Bam says excise tax suspension needed now
[Manila Bulletin, May 23, 2018]
It will be too little, too late. This was how opposition Senator Paolo “Bam” Aquino IV responded to Malacañang’s openness to suspend the additional excise tax on fuel in 2019 or next year, saying the Duterte government should be stopping its implementation immediately.
Source: https://news.mb.com.ph/2018/05/23/bam-says-excise-tax-suspension-needed-now/

DOJ expected to conclude prelim probe over Rappler tax raps
[Manila Bulletin, May 22, 2018]
The Department of Justice (DOJ) is expected to conclude next month its preliminary investigation over the P133-million tax evasion complaint against the popular online news site Rappler.
Source: https://news.mb.com.ph/2018/05/22/doj-expected-to-conclude-prelim-probe-over-rappler-tax-raps/

Gov’t may suspend tax on fuel
[Manila Bulletin, May 23, 2018]

The government is prepared to suspend the excise on fuel under the new tax reform law to cushion the impact of soaring prices of oil products on the public.

Source: https://news.mb.com.ph/2018/05/22/govt-may-suspend-tax-on-fuel-2/

 

Tax practitioners, BIR officers ask Congress to scrap certain guidelines of tax amnesty law [Manila Bulletin, 22, 2018]

Tax practitioners as well as field officials of the Bureau of Internal Revenue (BIR) are asking the House of Representatives (HOR) to scrap certain guidelines in the proposed tax amnesty law to make it more acceptable to individual and business taxpayers contemplating to avail of the privilege.

Source: https://news.mb.com.ph/2018/05/22/tax-practitioners-bir-officers-ask-congress-to-scrap-certain-guidelines-of-tax-amnesty-law/