WEEKLY TAX UPDATES [SEPTEMBER 10-14, 2018]

A.     BIR ISSUANCES

 

The BIR has issued the following:

 

1.       Revenue Memorandum Circular (RMC) No. 73-2018 dated August 31, 2018 circularizes the availability of new BIR Form No.’s 0619-E (Monthly Remittance Form of Creditable Income Taxes Withheld-Expanded and 0619-F (Monthly Remittance Form of Final Income Taxes Withheld) both January 2018 version.

 

2.       RMC No. 75-2018 dated September 5, 2018 which clarifies the mandatory requirement of issuance of Letter of Authority (LOA) citing the Supreme Court case of Medicard Philippines, Inc. vs. Commissioner of Internal Revenue. Accordingly, the absence of LOA violates the right of the taxpayer to due process and will render the assessment null and void.

 

3.       RMC No. 78-2018 dated September 6 (with released date on September 7)circularizes the registration requirements of Philippine Offshore Gaming Operators and its Accredited Service Providers

 

4.       RMC No. 79-2018 circularizes Republic Act No. 11055 or the Philippine Identification System

 

B.      SECURITIES & EXCHANGE COMMISSION (SEC) LEGAL OPINION

 

40% FOREIGN-60% FILIPINO COMPANY MAY INVEST IN A RESTAURANT BUSINESS SUBJECT TO THE INVESTMENT REQUIREMENT OF US$ 2.5 MILLION UNDER RETAIL TRADE LAW

Tokyo Consulting Firm-Philippine Branch is requesting for an opinion regarding a possible joint venture between a foreign corporation and a Filipino company investing a restaurant business in the Philippines. 40% interest of the Joint Venture will be owned by Ringer Hut Company Ltd., a corporation duly organized and existing under the laws of Japan, and is engaged in restaurant business in Japan, while 60% of the shares shall be owned by Filipinos. One of the questions raised was whether or not the Joint Venture will be required to comply with the minimum paid-up capital of a foreign retail company. The SEC opined that one element of a retail sale is that the products sold are consumer goods, of which, food is included based on Section 4 (q) of the RA No. 7294, otherwise known as The Consumer Act of the Philippines.  Thus, since eating of food by customer is the regular course of business of a restaurant food operation, it constitutes retail trade, except, however, if restaurant is incidental to the hotel business. Hence, a “40% foreign-60% Filipino” company may invest in a restaurant business if it has, equivalent in Philippine Peso, US$2,500,000.00 minimum paid-up capital in order to validly engage in retail business. On the issue raised on whether there is a need to comply with the US$ 830,000.00 investments per store in case the Ringer Hut decides to set up a foreign retail company and whether it can be reduced, the SEC has opined that being a foreign retailer, Ringer Hut will, by itself, establish a domestic store engaged in retailing, and will subsequently put up a branch/store. Consequently, it must comply with the required US$ 830,000.00 investments per store. As to the possible reduction of minimum investment per branch, the SEC has opined that there is no provision in the RTLA and its IRR which allows the same to be reduced. [SEC OFFICE OF THE GENERAL COUNSEL OPINION NO. 18-14, AUGUST 24, 2018]

 

ANTI-DUMMY LAW APPLIES TO ENTITY ENGAGED IN POWER TRANSMISSION WHICH OPERATES AS A PUBLIC UTILITY, A PARTLY-NATIONALIZED ACTIVITY

Cenertec is seeking legal opinion from SEC on whether it is allowed to elect foreign national as its President and whether its operations are covered under Anti-Dummy Law. In rendering opinion, SEC considers the following facts as represented: (a) engaged in the business of power generation, trading, supply, distribution and/or transmission; (b) current equity structure is 60% owned by Filipinos and 40% owned by foreigners; (c) incumbent President is a French National; (d) primary purpose involves power generation, power trading, power supply, power distribution and/or power transmission and to operate as a public utility in distributing, selling and supplying to the general public such power and electricity for their consumption. According to SEC, Cenertec is engaged in a public utility operation, a partly nationalized activity, subject to 40% foreign equity restriction. The Anti-Dummy law applies to corporations wholly or partly nationalized activity whereby foreigners can be elected as directors in proportion to their participation or share in the capital of corporations but are prohibited from being elected as officers of a corporation, such as the President, Vice President, Treasurer and Secretary. Hence, Anti-Dummy Law applies to Cenertec being engaged in partly nationalized activity. Consequently, the President who is a French national is barred from acting as President of Cenertec. [SEC OFFICE OF THE GENERAL COUNSEL OPINION NO. 18-16, AUGUST 24, 2018]

 

C.      COURT OF TAX APPEALS (CTA) DIGESTS

 

ISSUANCE OF A SECOND LETTER OF AUTHORITY (LOA) COVERING THE SAME TAX TYPE FOR THE SAME TAXABLE PERIOD DOES NOT REPEAL THE FIRST LOA

The Petitioner Southern Luzon Drug Corporation filed a Petition for Review seeking for the cancellation of the Respondent Commissioner of Internal Revenue VAT assessment for the 6-month period from January to June 2012. The Petitioner argued that he received two LOAs covering the same tax type and taxable period thus the second LOA repealed the first LOA since these cannot exist simultaneously. The Court believes otherwise since there is no provision or circular which provides that the issuance of a second LOA covering the same tax type(s) for the same taxable period repeals the first LOA. In addition, Revenue Memorandum Order (RMO) No. 020-12 provides that if an eLA has been issued under the VAT Audit Program and subsequently, the taxpayer becomes a candidate for regular audit, the request for eLA for regular audit should not include the VAT liability in which the examiner failed to comply. However, again, there is no provision that failure to comply with the provisions of the RMO renders the LOA invalid and will amount to disciplinary sanction to the concerned BIR employee.  On the substantive aspect of the assessment, the Respondent failed to provide the legal and factual basis for excluding said input tax credits in the assessment. This renders the disallowance null and void. In view of the foregoing, the Petitioner is not liable for deficiency VAT for the first and second quarters of taxable year 2012, considering that the Petitioner has sufficient input tax credit to cover its output VAT liability for the same period, thus the assessment is CANCELLED AND SET ASIDE. [SOUTHERN LUZON DRUG CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 8941, SEPTEMBER 07, 2018]

 

PROSECUTION NEEDS TO PROVE BEYOND REASONABLE DOUBT TO CONVICT THE ACCUSED ON CRIMINAL CASE OF TAX EVASION DUE TO NON-FILING OF TAX RETURNS

The Accused Felonia Z. Caluag was charged with criminal and civil cases for non-filing of Income Tax Returns from 2006 to 2009 as the BIR found out that the accused did not register and failed to declare her business of gold trading to the Bangko Sentral ng Pilipinas (BSP). In the course of investigation, the BIR found out that the accused is only registered as a One Time Transaction Taxpayer in reference to the BIRs Integrated Tax System. The Accused admitted that she did not file any return because she relied in good faith on the BSP’s representation that she is no longer required to file and pay tax if she sells or trades goods to BSP. Likewise, she added that even if she receives hundreds of millions of pesos from 2006 to 2009, most of the amount is used to cover the cost incurred for processing fee, transportation, security, salaries, and other administrative and operating expenses leaving an estimated minimal amount of only PHP 1,000.00 net profit per 2 kilos of gold being traded to the BSP or sometimes no profit at all. She just continued selling to the BSP for she believes that she is helping increase the country’s gold reserves, which, in turn would strengthen the local economy. In the resolution, the Court ruled that the prosecution failed to prove beyond reasonable doubt that the Accused wilfully ignored to file the required returns. Consequently, the Accused is acquitted for her criminal liability. However, she is not exonerated on the civil liability for the Court ruled that the Accused is still civilly liable since the extinction of the penal action does not carry with it the extinction of the civil liability where the acquittal is based on reasonable doubt, as only preponderance of evidence is required in civil cases. Furthermore, the Accused failed to prove her expenses with any valid substantiation as it was represented that all documents were lost due to a flood years ago. The accused is ACQUITTED. However she is ORDERED TO PAY a total amount of Php 411,702,500.63 for taxable years 2006 to 2009 inclusive of penalty plus interest. [PEOPLE OF THE PHILIPPINES VS. FELONIA Z. CALUAG, CTA CRIMINAL CASE NOS. 0-345, 0-346, 0-347 & 0348, SEPTEMBER 5, 2018]

 

NO LEGAL BASIS FOR THE GRANT OF INTEREST ON REFUND OF THE GARNISHED AMOUNT; LETTER NOTICE (LN) IS NOT EQUIVALENT TO LETTER OF AUTHORITY (LOA)

The Petitioner Y & R Philippines, Inc. filed an Amended Petition for Review praying for the refund of garnished amount with the corresponding legal interest of 6% per annum. The Petitioner initially sought for the suspension of collection and the cancellation of deficiency assessment basing its claim that the assessment notices issued were not properly sent and addressed to the Petitioner; hence the same was not received. Likewise, the Petitioner contended that there was no LOA issued. In the resolution, the Court resolved that the assessment is void since it was issued pursuant only to an LN and without LOA. It further states that LN is only for the purpose of notifying the taxpayer on the discrepancy found based on the BIR relief’s system and subsequent issuance of LOA is necessary to give an authority to the officers to conduct tax audit. Consequent to the cancellation of assessment, the Court rendered the Warrant of Distraint/or levy void and the Petitioner is entitled to refund the amount garnished. However, the Court denied the eligibility of the Petitioner to 6% legal interest quoting a Supreme Court decision saying that the government cannot be compelled to pay interest unless the law authorized or the collection of the tax was attended by arbitrariness. The Amended Petition for Review is PARTIALLY GRANTED. [Y & R PHILIPPINES, INC. VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9437, AUGUST 31, 2018]

 

VAT  ZERO-RATED OR’s SHOULD BE ACCOMPANIED WITH BANK CERTIFICATION FOR FOREIGN CURRENCY DENOMINATED TRANSACTIONS FOR CLAIMING VAT ZERO-RATING

The Petitioner Vestas Services Philippines, Inc. filed a Motion for Reconsideration with regard to the Courts dismissal of its claim for refund or issuance of Tax credit certificate (TCC) in the aggregate amount of Php 41,659,221.63 allegedly representing its excess and unutilized input VAT credits for the 4th quarter of taxable year 2013. In resolving the case, 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 are not readable or not supported by any document which shall be appropriately denied of VAT zero-rating claim. In addition, the Petitioner was not compliant with the second requisite of Section 108(B)(2)of the NIRC of 1997, as amended which states that  for the sale of services to be VAT zero-rated the services must be other than processing, manufacturing or repacking of goods; payment for such services must be in acceptable foreign currency accounted for in accordance with the BSP rules and regulations; and the recipient of such services is doing business outside the Philippines. As the Petitioner failed to provide, such as but not limited to, bank certification proving that the payments were inwardly remitted in acceptable foreign currency and accounted for in accordance with the BSP rules and regulations other than the VAT zero-rated Official Receipt, thus, the claim shall be denied. Accordingly, Respondent is ORDERED TO REFUND or TO ISSUE A TAX CREDIT CERTIFICATE to the Petitioner in the amount of Php 4,390,198.45 representing its unutilized input VAT for the 4th quarter of CY 2013, attributable to its zero-rated receipts for the same period. [VESTAS SERVICE PHILIPPINE INC. VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 8888, AUGUST 31, 2018]