Tax Updates 2013 PandA (Lea Roque)

2013 Punongbayan & Araullo. All rights reserved.
Tax Updates

Lea Roque
San Beda-Manila
30 October 2013

Latest BIR Issuances

Revenue Regulations
Revenue Memorandum Circulars
Revenue Memorandum Orders


Revenue Regulations

Taxation of Sale, Barter, Exchange or Other
Disposition of Shares of Stock Held as Capital
Assets
(Published in Manila Bulletin on April 24, 2013)

Revenue Regulations No. 6-2013
"FAIR MARKET VALUE" of the shares of stock
If not listed and traded - Adjusted Net Asset Method
Appraised value of real property at the time of sale shall be
the higher of
The fair market value as determined by the
Commissioner, or
The fair market value as shown in the schedule of
valued fixed by the Provincial and City Assessors, or
The fair market value as determined by Independent
Appraiser.

Withholding tax on payments to doctors


RR 14-2013
(I) Professional fees paid to medical practitioners- 10%-15%
Paid to doctors, vets and dentist
By hospitals and clinics or HMOs

Hospitals and clinics shall NOT allow their medical
practitioners to receive payment of professional fees
directly from patients who were admitted and confined to
such hospital or clinic
PRESERVATION OF BOOKS OF ACCOUNTS AND OTHER
ACCOUNTING RECORDS

Retention period
10 years from the day following the deadline in
filing a return or if filed after the deadline, from the
date of filing of the return, for the taxable year
when the last entry was made in the books of
accounts.
Covers taxpayers and ICPA
If with any pending protest or claim for tax
credit/refund of taxes - until the case is finally
resolved

Deductibility of depreciation and maintenance
expenses, and input taxes allowed on purchase
of vehicles

Revenue Regulations No.12-2012, RMC 02-2013
(Applies to motor vehicles purchased starting October 17,
2012)

Deductibility of depreciation expenses
Conditions in claiming deduction for depreciation and other
related expenses, and input taxes on purchase and
maintenance of motor vehicles:

a. The motor vehicle must be substantiated with sufficient
evidence, such as official receipts or other adequate
records which contain the following, among others,
specific motor vehicle number, price of vehicle, direct
connection or relation of the vehicle.



b. Only one vehicle for land transport with value of not
exceeding P2,400,000.00 is allowed for the use of an
official or employee;
c. No depreciation shall be allowed for yachts, helicopters,
airplanes and/or aircrafts and land vehicles which exceed
P2,400,000, unless the taxpayers main line of business is
transport operations or lease of transportation equipment
and the vehicles purchased are used in said operations;
d. All maintenance expenses and input taxes on non-
depreciable vehicles for taxation purposes are
disallowed in its entirety.

e. Any loss that will be incurred as a result of a sale of the
non-depreciable vehicles shall likewise be NOT allowed
as a deduction from gross income.
f. All expenses related to the non-depreciable vehicles
such as but not limited to repairs and maintenance, oil
and lubricants, gasoline, spare parts, tires and
accessories, premium paid for insurance and
registration fees shall not be allowed as a deduction in
its entirety.
g. Input taxes on all disallowed expenses above are
likewise not allowed to be claimed as input tax.


Processing of Authority to Print (ATP) ORs and
Invoices using the On-line ATP System

(Revenue Regulations No. 18-2012, Revenue Memorandum
Order No. 12-2013, Revenue Memorandum Circular No. 44-
2013)


Who are required to secure ATP?

All persons, whether private or government, who are
engaged in business shall secure/apply from the BIR an
Authority to Print principal and supplementary
receipts/invoices.
For newly-registered taxpayers, the ATP shall be
secured simultaneously with the Certificate of
Registration.

Processing of ATP using online ATP system

Coverage: Principal and supplementary receipts/invoices

Principal receipts/ invoices - a written account
evidencing the sale of goods and/or services issued to
customers in an ordinary course of business which
includes VAT and NON-VAT official receipts/sales
invoices.

Coverage: Principal and supplementary receipts/invoices
Supplementary receipts/invoices (commercial
invoices) - a written account evidencing that a transaction
has been made between the seller and the buyer of
goods and/or services, forming part of the books of
accounts of a business taxpayer for recording, monitoring
and control purposes.
Examples: delivery receipts, order slips, debit and/or
credit memo, purchase order, job order,
provisional/temporary receipt, acknowledgement receipt,
collection receipt, cash receipt, bill of lading, billing
statement, statement of account, etc.

Where to submit application?

The taxpayer-applicant shall apply for an ATP and submit the
required documents using the online ATP System.
In case of systems downtime, taxpayer shall manually apply
for ATP and submit the required documents at the Revenue
District Office (RDO) or concerned Large Taxpayers (LT)
office having jurisdiction over the taxpayers Head Office (HO).


Validity of ATP:

Upon full usage of the inclusive serial numbers of
principal and supplementary receipts/invoices reflected in
such ATP or five (5) years from issuance of the same,
whichever comes first.


Extension of validity of unused receipts/invoices
1. Principal and Supplementary Receipts/Invoices with Authority to
Print (ATP) dated prior to January 1, 2011- will not be
extended. These shall be valid until August 30, 2013.

2. Principal and Supplementary Receipts/Invoices with ATP dated
January 1, 2011 to January 17, 2013 - Valid until October 31,
2013 provided the new ATP was issued on or before August
30, 2013.

In case of principal and supplementary receipts/invoice which can
be used until October 31, 2013, the term valid until October 31,
2013 only shall be stamped prominently on the face of the receipts
or invoices (original and duplicate copies). RMC 52-2013

Extension of validity of old receipts and invoices
(Revenue Memorandum Circular No. 44-2013, June 11, 2013)

Issuance of old receipts starting August 31,
2013/November 1, 2013 shall be deemed as if no receipts
were issued.
Transactions supported by old receipts may not be allowed
as deduction to the buyer.
All old unused principal and supplementary invoices shall
be surrendered to the Revenue District Office (RDO) where
the taxpayer is registered on or before the 10th day after
the date of printing of the new principal and supplementary
receipts/invoices.

Sample Sales Invoice

Delivery receipt

Sample Non- VAT OR


Transfer pricing guidelines

Revenue Regulations No.2-2013

Transfer pricing regulations
Transfer Pricing (TP) regulations provides guidelines
in applying the arms length principle for cross-border and
domestic transactions between associated enterprises.
Who are related parties (associated enterprises)?
One has control over the other (ownership,
management) parent, subsidiary
There is common control between the companies
common shareholders, common management (affiliates)
whether in the Philippines or in another country

Arms length principle

Arms length principle - requires that the transaction
with a related party be made under comparable
conditions and circumstances as a transaction with an
independent party.
Steps in applying arms length principle:

1. Conduct of comparability analysis
2. Identification of tested party and the appropriate
transfer pricing method
3. Determination of the arms length results

Arms length pricing methodologies

Methods in determining the arms length price of a
transaction.

o Comparable uncontrolled price (CUP)
o Resale price method
o Cost plus method (CPM)
o Profit split method (PSM)
o Transaction net margin method (TNMM).

No single method that is applicable to all cases, and
choice of appropriate transfer pricing method must be
made depending on the evaluation of the transaction.

Advance pricing agreement (APA)

The advance pricing arrangement (APA)is a facility
available to taxpayers to enter into an agreement with
the BIR to determine in advance the criteria (e.g.,
method, comparables and appropriate adjustments) to
ascertain the transfer prices of controlled transactions
over a fixed period of time.

Transfer pricing documentation

Transfer pricing document is not required at the time
of the filing of the tax return. However, the taxpayer
has the obligation to ensure that TP documents are
available for submission when required or requested
by the BIR.

Prior payment of compromise offer required for
compromise settlement

(Revenue Regulations No. 09-2013, May 10, 2013)

Prior payment of compromise offer required for
compromise settlement
Taxpayers entering into a compromise settlement of their
unsettled tax obligations must pay the full amount of their
compromise offer upon filing with the BIR of their
application for compromise settlement. Otherwise, their
application for compromise settlement shall not be
processed by the BIR.

In case of disapproval of the application for compromise
settlement, the amount paid upon filing of the application
for compromise shall be deducted from the taxpayers
outstanding tax liabilities.


Classification of real estate service practitioners for
withholding tax purposes

Revenue Regulations No. No. 10-13


a. Income derived by a licensed real estate practitioner
(real estate consultant, real estate appraisers and
real estate brokers) in his/her practice of profession
shall be considered professional fee 10%/15%
creditable withholding tax

b. Income of real estate service practitioners (RESPs) who
failed or did not take up the licensure examination given
by and not registered with the Real Estate Service under
the Professional Regulations Commission (PRC) - 10%
creditable withholding tax under Section 2.57.2(G) of RR
2-98, as amended.

(The 10% or 10%/15% withholding tax rates shall apply
to income payments paid or payable to real estate
practitioners starting June 1, 2013)

Submission of BIR Form 2316 to the BIR

Revenue Regulations No. No. 11-13


Issuer: Employer

When to issue: (a) On or before Jan. 31 of the
succeeding calendar year; or
(b) On the day of last payment of
compensation if terminated

Number of copies: Three (3) copies

Signed by: Both employer and employee
(under the penalty of perjury)

Issuance of BIR Form No. 2316

Submission of BIR Form 2316 to the BIR

o BIR Form No. 2316 furnished to the employees
qualified for substituted should be filed/submitted to
the BIR the duplicate copy not later than February 28
following the close of the calendar year.

Effectivity Calendar year 2013.

(RR 11-1013, June 6, 2013)
Penalty for non-submission of BIR Form 2316 to the
BIR
P1,000 for each failure but amount should not exceed
P25,000

Failure to comply with the filing/submission of BIR Form
2316 for two consecutive years compromise fee shall
be P1,000 for each BIR Form No. 2316 not filed without
any maximum threshold.

(RR 11-2013, June 6, 2013)

Disallowance of expense not subjected to
withholding tax

Revenue Regulations No. 12-2013 (July 13, 2013)

Disallowance of expenses not subjected to withholding
tax

No deduction shall be allowed for expenses
notwithstanding payment of withholding tax at the
time of audit investigation or reinvestigation

Revenue Memorandum Circulars (RMCs)


Deposits/advances for expenses received by
taxpayers

(Revenue Memorandum Circular No. 16-2013)


Deposits/advances for expenses received by taxpayers

Deposits/Advances as part of gross receipts

When cash deposits or advances are received by
taxpayers other than GPP from the client, a
corresponding official receipt shall be issued.
The amount received shall be booked as Income and
shall form part of the Gross Receipts and subject to VAT
or Percentage Tax, if applicable, and shall in turn be
deductible as expense by the client provided that it is
duly substantiated by O.R. pursuant to Section 34 (A) (1)
of the Tax Code.


Claim for deduction of expenses

Receipts incurred, paid for and issued in the name of the
taxpayer shall be recorded as its own expenses for
income tax purposes.
Expenses shall be claimed as deductions from gross
income provided these are duly substantiated by
O.R./invoices issued by third party establishments.


Cash advances/deposits subject to appropriate
withholding tax

All clients shall, upon payment of deposits/advances,
withhold tax at the rate prescribed in RR 2-98, as
amended, which shall be remitted/paid on or before the
10
th
day of the following month using BIR Form No.
1601E except for taxes withheld for the month of
December each year, which shall be filed on or before
January 15 of the following year pursuant to RR 2-98, as
amended.
eFPS regulations shall apply to those using the EFPS.

Penalty for filing of manual returns of eFPS
taxpayers

(Revenue Memorandum Circular No. 30-2013, April 08,
2013)


Penalty for manual filing of returns by eFPS taxpayers
Penalty for filing manual tax returns (except during
system availability as announced by the BIR):

1
st
and 2
nd
offense - P 1,000.00 for each failure to e-
file their tax return or e-pay tax their tax due.

3
rd
and subsequent offenses - No compromise.
Subject to penalty under Section 275 of the Tax Code
(fine or P1,000 or imprisonment of not more than six
months, or both)

Venue for filing protest to FAN and FDDA

(Revenue Memorandum Circular No. 39-2013)


Venue for filing of Letters of protest, requests for
reinvestigation/reconsideration and other correspondences

o Office of the Regional Director (RD)
o Assistant Commissioner Large Taxpayers Service
(ACIR-LTS)
o Assistant Commissioner-Enforcement Service (ACIR-
ES).
If the procedures are not followed, the letter of protest, and
similar correspondences shall be considered void and
without force and effect.


The revenue officials to whose office the letter of protest,
requests for reinvestigation/reconsideration and similar
correspondences were submitted shall prepare a complete
and accurate report on all protest filed in their respective
offices and submit the soft copy of the report via email to the
Commissioner of Internal Revenue every Monday of each
week in hard and soft copies.

o A database of all letters of protest, requests for
reinvestigation/reconsideration, and similar
correspondences received by the different BIR offices
shall be created.
o Any letter of protest, request for reinvestigation/
reconsideration, or other similar communication allegedly
filed by any taxpayer but are not included in the database
shall be deemed as not officially filed with the BIR .

(Note: This is effective on all letters of protest, requests for
reinvestigation/reconsideration or similar correspondences filed
with the BIR beginning April 29, 2013)

Implication of legal petition notices on audit
process

(Revenue Memorandum Circular No. 38-2013, May 3, 2013)


Implication of legal petition notices
BIR: Legal Petition Notices (LPNs)/Declarations and similar
documents filed by taxpayers and practitioners questioning
the validity of the electronic Letters of Authority (eLAs) will
not stop or defer the normal process or procedures in the
conduct of audit or investigation of taxpayers.

BIR shall no longer entertain any LPN questioning the
validity and enforceability of the eLA duly issued by the
concerned Regional Director for the audit of taxpayer within
the Region.

Filing of tentative tax returns

(Revenue Memorandum Circular No. 50-2013, July 18,
2013)


Filing of tentative tax returns

A Tentative Tax Return shall be considered as a final
return, unless a final amended return is filed by the
concerned taxpayer.
However, once an electronic Letter of Authority or any other
notice of audit is received, taxpayers are barred from
making amendments to the tentative tax returns filed. This
emphasizes that income tax returns marked as Tentative
may also be the subject of examination pursuant to Section
6(A) of the Tax Code, as amended.

RMC 53-2013 dated August 16, 2013

(Clarifying the Taxability of Donations given
to Homeowners Association of Subdivisions
and Villages)

Based on the RMC, subject to the compliance with
the requisites of valid donation, all donations to
Associations for tax purposes must be covered by
Donors Tax Return (BIR Form No. 1800). This return
shall be filed in triplicate by any person, natural or
juridical, resident or non-resident, who transfers or
causes to transfer property by gift. The return shall
be filed within thirty (30) days after the date the gift
(donation) was made.

Gratuitous Donations
Endowments or gifts received by such associations are
not exempt from donors tax considering that gifts to
Associations are not qualified for exemption under Section
101 (A) (3) of the Tax Code. .


Onerous Donation or Donation in Exchange for Goods,
Services or Use or Lease of Properties

Contributions are not given in the nature of an endowment or
donation. Rather, the amounts are in the concept of a fee or
price in exchange for the performance of a service,
use of properties or delivery of an object.

Hence, Onerous Donation is not subject to Donor's Tax.


(Circularization of BIR Ruling No. 123-2013
dated March 15, 2013 on the Recovery of
Unutilized Creditable Input Taxes Attributable to
VAT Zero-rated Sales)

BIR Ruling 123-2013 (Cekas Development Corp.)

Confirmation on whether any accumulated or unapplied input
VAT arising from purchase of goods and services after the
expiration of 2 years may be expensed outright.

- Confirmation DENIED - based on tax code the only option is
that any excess input tax attributable to zero-rated sales can
be recovered through the application for refund or tax credit.

Can only be recovered through the application of refund
or tax credit

No other mode of recovering unapplied input taxes

May not be treated outright as deductible expense for
income tax purposes after the expiration of 2-year
prescriptive period

Key messages of RMC 57-2013:


(Reiterating Taxpayers Obligation in
Relation to Online Business Transactions)

I. Background
What are the business transactions that you could do online?

1) Online shopping or online retailing
2) Online intermediary service
3) Online advertisement/classified ads
4) Online auction

Persons who enter into online business transactions have
obligations:

1. Register the business at the Revenue District Office
(RDO) having jurisdiction of the business
2. Secure the required Authority to Print (ATP)
invoices/receipts and register books of accounts for use in
business
3. Issue registered invoice or receipt, either manually or
electronically

II. Policies and Guidelines

4. Withhold required creditable/expanded withholding tax,
final tax, tax on compensation of employees, and other
withholding taxes
5. File applicable tax returns on or before the due dates,
pay correct internal revenue taxes, and submit information
returns and other tax compliance reports
6. Keep books of accounts and other business/accounting
records within the time prescribed by law


The existing tax laws and revenue issuances on the tax
treatment of purchases (local or imported) and sale (local or
international) of goods (tangible or intangible) or services shall
be equally applied with no distinction on whether or not the
marketing channel is the internet/digital media or the typical
and customary physical medium.


III. Duties and Obligations of Parties to Online
Transactions
1. Proper documentation (e.g. BIR-registered
receipts, invoices, acknowledgement documents
and other relevant documents, whether
electronically of manually)
2. Withholding and remittance of applicable
withholding taxes


IV. Penalty
Imposition of penalties provided for under the
existing laws, rules, and regulations, in addition to
the imposition of penalties pursuant to the applicable
Section/s under Chapters II and IV, Title X of the
National Internal Revenue Code of 1997, as
amended.


(Clarifying the Validity of Unused/Unissued
Principal and Supplementary Receipts/Invoices
Printed Prior to January 18, 2013 and other
matters)

All Principal and Supplementary Receipts/Invoices with
Authority to Print (ATP) dated:

I. Prior to January 1, 2011 - no longer valid as of August 31,
2013 (RR 018-2012 and RMC 44-2013)

II. January 1, 2011 to January 17, 2013 - may be used until
October 31, 2013 provided that new ATP was issued on or
before August 30, 2013 and the term valid until October
31, 2013 shall be stamped prominently on the face of the
receipts or invoices (original and duplicate copies).


However, application for new ATP filed after April 30, 2013 is
deemed to have been filed out of time and subject to a
penalty of One Thousand pesos (Php1000) pursuant to
Section 264 of the Tax Code, as amended.

Effect to tax clearance issuance

A certified true copy of the ATP shall be included as
attachment in any application for tax clearance. Non-
submission of ATP shall be a ground for non-issuance of
tax clearance for whatever purposes.


Makati RTC declares invalid RMC 65-2012
dated September 5, 2013 subjecting
condominium corporation to VAT and
income tax.

Revenue Memorandum Order


Revised guidelines on issuance and enforcement
of Subpoena Duces Tecum (SDT)

(Revenue Memorandum Order No. 10-2013, April 22,
2013)


Issuance of SDT
In case the information or pertinent books of accounts,
accounting records and documents requested by the
appropriate BIR office are not furnished within the period
prescribed in the written notice, or when the information
or records are incomplete - the concerned revenue
officers conducting the verification or investigation of the
taxpayer shall request for the issuance of the SDT
through a memorandum report, stating the relevant facts,
and specifying the particular documents or records not
made available and the taxpayer liable or third
party/office concerned.

Issuance of SDT
The Prosecution Division at the National Office, the Legal
Divisions at the Regional Offices, or officer duly
delegated by the Commissioner of Internal Revenue shall
evaluate within two working days from receipt the request
for issuance of SDT.
In case the request for issuance of SDT is found to be
meritorious, the SDT using BIR Form 0713 shall be
issued to the person liable for tax or required to file a
return, or should the information or records be in the
possession of a third party or office, then in the partys
name.

Issuance of SDT

The service of the SDT shall be effected by the revenue
officers assigned to investigate the case. However, such
service may be made by any other internal revenue
officer for the purpose.


SDT issuing office
(a) Assistant Commissioner, Enforcement and Advocacy
Service for National Office
(b) Associate Commissioner, Large Taxpayers Service,
through Prosecution Division for taxpayers under
Large Taxpayers Service, including Large Taxpayers
District Offices
(c) Revenue Regional Directors, through Legal Divisions
for regional offices
(d) Any other officer duly delegated by the Commissioner of
Internal Revenue.


Serving of SDT
SDT should be served within three working days from
receipt.

Mode of service -

a) Personal Service - Delivery of SDT to the party at his
registered or known address or wherever he may be
found.
b) Substituted service- Resorted to when the party is
not present at the registered or known address

Substituted service

1. The SDT may be left at the partys registered address,
with his clerk or with a person having charge thereof.
2. If the known address is a place where business
activities of the party are conducted, the SDT may be
left with his clerk or with a person having charge
thereof.
3. If the known address is the place of residence,
substituted service can be made by leaving the copy
with a person of legal age residing therein.

Substituted service

4. If no person is found in the partys registered or known
address, the revenue officers concerned shall bring a
barangay official and two (2) disinterested witnesses
(persons of legal age other than BIR employees) to the
address so that they may personally observe and attest to
such absence. The SDT shall then be given to said
barangay official. Such facts shall be contained in the
bottom portion of the SDT, as well as the names, official
position and signatures of the witnesses.

Substituted service
5. Should the party be found at his registered or known
address or any other place but refuse to receive the SDT,
the revenue officers concerned shall bring a barangay
official and two (2) disinterested witnesses in the presence
of the party so that they may personally observe and attest
to such act of refusal. The SDT shall then be given to said
barangay official. Such facts shall be contained in the
bottom portion of the SDT, as well as the names, official
position and signatures of the witnesses.

Service by mail
c) Service by mail. This shall be done by sending a copy
of the SDT by registered mail to the registered or
known address of the party with instruction to the
Postmaster to return the mail to the sender after ten
(10) days, if undelivered.

A copy of the SDT may also be sent through reputable
professional courier service. If no registry or reputable
professional courier service is available in the locality
of the addressee, service may be done by ordinary
mail.

Enforcement of SDT
The compliance date for the submission of books of
accounts and other accounting records shall be the 14th
day from the date of the issuance of the SDT. The date
of the issuance shall be the date when the SDT was
officially signed.
The concerned revenue officers should be present on the
appointed time, date and place for the presentation of the
taxpayers books of accounts and other accounting
records to check the completeness of the submitted
records pursuant to the SDT.


Enforcement of SDT
If, upon verification, the records presented are substantially
complete, the documents shall be consolidated with the
records of the case and referred back to the appropriate
office for the continuation of the investigation.
In case of non-submission or incomplete presentation of the
required records, the assigned action lawyer shall request
the concerned revenue officer for a conference for the
purpose of documenting/gathering evidences for the
criminal prosecution of the individual who disobeyed the
SDT. The meeting shall be scheduled on the fifth working
day from the date set for compliance with the SDT.

Enforcement of SDT

The payment of administrative penalty shall not excuse
the taxpayer/person summoned from complying with
the SDT.

Filing of criminal action

Within seven working days from the conference,
the action lawyer shall prepare a letter-complaint to
the officer of the prosecutor recommending the
criminal prosecution of the individual taxpayer or
third party, responsible officer or partner (in case of
a corporation, partnership, association or office)
who disobeyed the SDT.


The revenue officers, as the persons who have personal
knowledge of the non-compliance with SDT, shall be the
complainants while the Regional Director (for SDTs
issued by the Revenue Regions) and Deputy
Commissioner for Legal and Inspection (for SDTs issued
by the Enforcement and Advocacy Service and Large
Taxpayers Service) shall be the signatories of the letter-
complaint.


Once the complaint-affidavit has been filed, the
prosecuting officer may not withdraw or ask for the
dismissal of the case, notwithstanding the subsequent
submission of documents indicated in the SDT.

Renewal of tax exemption rulings/certificates of
non-stock, non-profit organizations (NSNPs)

(Revenue Memorandum Order 20-2013, July 22, 2013)


Issuance of tax exemption ruling to NSNP

Corporations and associations under Section 30 of the
Tax Code including those which have been issued tax
exemption rulings/certificates prior to June 30, 2012*
shall file an application for tax exemption/revalidation
with the RDO where they are registered.

* Tax exemption issued prior to June 30, 2012 shall be valid until
December 31, 2013.
Section 30 organizations

Labor, agricultural or horticultural organization; mutual
savings bank; beneficiary society; cemetery company;
non-stock non-profit organization operated exclusively
for religious, charitable, scientific, or cultural purposes;
business league or chamber of commerce; civic league;
non-stock, non-profit educational institutions; mutual
typhoon or insurance company; and farmer's fruit
growers.

The tax exemption ruling/certificate shall be valid for a
period of 3 years from the date of effectivity of ruling,
unless sooner revoked or cancelled.

Ground for revocation:

Material changes in character, purpose, or method of
operation inconsistent with the basis for its income tax
exemption. Revocation effective on date of material
change.


Effect of non-filing of annual information return

The NSNSP shall automatically lose its income tax-
exempt status of beginning the taxable year for which it
failed to file the return, in addition to the sanctions
under Section 250

Others


Semestral list validation module

Semestral List of Regular Suppliers (SRS) Validation
Module

To download the Semestral List of Regular Suppliers
(SRS) Validation Module, go to BIR website:
www.bir.gov.ph
Court Decisions


Reckoning of the 2-year prescriptive period for
claiming refund of excess unutilized input VAT on
zero-rated sales

(CIR v San Roque Power Corporation, Taganito Mining
Corporation and Philex Mining Corporation, GR 187485,
February 12, 2013)


Reckoning of the 2-year prescriptive period for claiming
refund of excess unutilized input VAT on zero-rated sales
Recall:

Under Section 112 (A) of the Tax Code, an application for
refund of unutilized input VAT attributable to zero-rated sales
may be made within two years after the close of the taxable
quarter when the sales were made.

In case of application for VAT refund filed in accordance with
Section 112(A) of the Tax Code, Section 112(C) of the Tax
Code provides that the Commissioner of Internal Revenue
must decide within the 120-day period from the date of
submission of complete documents.

Atlas (GR 141104) v. Mirant (GR172129)
Period Covered Date of filing of
quarterly return (Atlas
Case)
Close of taxable quarter
(Mirant Case)
1
st
quarter April 25, 2012 March 31, 2012
2
nd
quarter July 25, 2012 June 30, 2012
3
rd
quarter October 25, 2012 September 30, 2012
4
th
quarter January 25, 2012 December 30, 2012

Aichi Forging (G.R. No. 184823, October 6, 2010)
Period
Covered
Close of taxable
quarter (Mirant
Case)
Administrative
refund (BIR) date
of filing
Judicial Claim for
refund
1
st
quarter March 31, 2012 Within two years from
close of taxable
quarter when the
sales were made
(March 31, 2014)
30 days from receipt
of denial (if denial is
made within 120 days)

120 days + 30 days
(in case of inaction
within 120 days)
May the judicial claim be filed beyond the 2-year prescriptive
period as long as the administrative claim is filed within 2 years and
120/30 day period is observed?

Taganito/San Roque (GR 187485 & 196113)
Period
Covered
Close of taxable
quarter (Mirant
Case)
Administrative refund
(BIR) date of filing
Judicial Claim for refund
1
st
quarter March 31, 2012 Within two years from
close of taxable quarter
when the sales were made
(March 31, 2014)
30 days from receipt of
denial (if denial is made
within 120 days)

120 days + 30 days (in
case of inaction within 120
days)
Two year prescriptive period does not apply to judicial claim for refund,
as long as the administrative claim is filed within the 2-year
prescriptive period.

Ruling:

The 30-day period for filing judicial claim for refund under Sec
112(C) need not fall within the two-year prescriptive period, as
long as the administrative claim is filed within the two-year
prescriptive period due to the following:

1. Under Sec 112(A) of the Tax Code, a taxpayer with
unutilized input VAT incurred from zero-rated sales may
apply with the Commissioner for refund or credit within two
years after the close of the taxable quarter when the sales
were made;


2. Section 112(C) of the Tax Code which provides that the
Commissioner shall decide within one hundred twenty (120)
days from the date of submission of complete documents in
support of the application filed in accordance with
Subsection A means that the application in Section 112(A)
is the administrative claim that the Commissioner of Internal
Revenue must decide within the 120-day period.

San Roque case:

On 10 April 2003, a mere 13 days after it filed its amended
administrative claim with the Commissioner on 28 March 2003,
San Roque filed a Petition for Review with the CTA docketed
as CTA Case No. 6647.

Taganito - petition for review with the CTA without waiting for
the 120-day period to lapse same as San Roque.

However, Taganito can invoke BIR Ruling No. DA-489-03 57
which expressly ruled that the "taxpayer-claimant need not
wait for the lapse of the 120-day period before it could seek
judicial relief with the CTA by way of Petition for Review.

All taxpayers can rely on BIR Ruling No. DA-489-03 from the
time of its issuance on 10 December 2003 up to its reversal
in Aichi on 6 October 2010, where this Court held that the
120+30 day periods are mandatory and jurisdictional.

Philex - (1) filed on 21 October 2005 its original VAT Return
for the third quarter of taxable year 2005; (2) filed on 20
March 2006 its administrative claim for refund or credit; (3)
filed on 17 October 2007 its Petition for Review with the
CTA.
Philex timely filed its administrative claim.
Since the Commissioner did not act on Philex's claim on or
before 17 July 2006, Philex had until 17 August 2006, the
last day of the 30-day period, to file its judicial claim.
However, Philex filed its Petition for Review with the CTA
only on 17 October 2007.

Reckoning of the 2-year prescriptive period for
claiming refund of excess unutilized input VAT on
zero-rated sales

(CIR v San Roque Power Corporation, Taganito Mining
Corporation and Philex Mining Corporation, GR 187485,
En Banc October 8, 2013 )

Prospective effect of the new doctrine?
Denied.
General rule - void law or administrative act cannot
be the source of legal rights or duties.
Exception under Doctrine of operative fact -a
judicial declaration of invalidity may not necessarily
obliterate all the effects and consequences of a
void act prior to such declaration
For doctrine to apply, there must be a legislative
or executive measure, that is invalidated by the
court.


Incidental transaction for VAT purposes

Facts: In the course of its business, a power generating
company bought a motor vehicle which formed part of its
assets used in its business operations. When the motor
vehicle was already fully depreciated, the company sold
the motor vehicle.

Issue: Whether the sale of motor vehicle is subject to VAT.


Ruling:

Section 105 of the Tax Code provides that a transaction in
the course of trade or business includes transactions
incidental thereto. Hence, it does not follow that an
isolated transaction cannot be an incidental transaction for
VAT purposes.


Ruling: While the sale of the motor vehicle is an isolated
transaction, it may be deemed an incidental transaction
subject to 12% VAT.

The sale of motor vehicle is considered an incidental
transaction made in the course of trade or business which
should be subject to the 12% VAT.

(Mindanao II Geothermal Partnership v CIR, GR 193301, March
11, 2013)


Presentation of quarterly ITR in claims for CWT
refunds

(Jardine Lloyd Thompson Insurance Brokers Inc., v CIR, CTA EB 861
June 5, 2013)


Presentation of quarterly ITR in claims for CWT refunds

Facts: Taxpayer-refund claimant sought refund of its
alleged unutilized creditable withholding tax. To prove that it
neither carried over, nor elected to utilize and carry over its
excess withholding tax against the succeeding taxable
years, it presented its succeeding ITR, without its quarterly
ITRs.

Issue: Whether non-presentation of succeeding quarterly
ITRs is necessary to entitle the taxpayer for refund of its
unutilized CWT.


Ruling: The option to carry-over under Section 76 is
exercised against the quarterly income taxes to the
taxable quarters of the succeeding taxable years. The
exercise of the option to carry over is realized upon the
quarterly ITR. It is against the quarterly ITRs that the
option to carry-over is exercised, hence, the need to
present the quarterly ITRs.


Ruling: The best evidence to prove that the excess CWT
was not carried forward to the succeeding taxable quarters
is the presentation of the succeeding quarterly and annual
income tax return.

The quarterly ITR includes the itemization and
summary of additions to and deductions from the income
tax due, which are needed to establish that there was no
carry-over against the tax liabilities of the succeeding
taxable quarters.


Refund of input VAT prior to VAT registration

(Crescent Park 14-678 Property Holdings, Inc. v CIR, CTA Case
8326, June 13, 2013)


Facts: The input VAT that was the subject of refund refers
to the VAT paid by the taxpayer on its purchase of land,
while its alleged zero-rated sale of service occurred with its
affiliate PEZA-registered IT enterprise. The taxpayer
incurred the VAT and the alleged zero-rated transaction
took place when the taxpayer was not yet VAT-registered.

Issue: Whether the taxpayer-refund claimant is entitled to
refund its unused input VAT on its alleged zero-rated sale of
service.


Recall: Requisites for claiming refund/tax credit of unutilized
input VAT [Section 112(A), Tax Code]:

1. TP must be VAT registered;
2. TP must be engaged in sales which are zero-rated or
effectively zero-rated;
3. Claim must be filed within 2 years after the close of the
taxable quarter when such sales were made; and
4. The creditable input tax due or paid must be attributable to
such sales, except the transitional input tax, to the extent
that such input tax has not been applied against the output
tax.


Ruling: Company is not entitled to refund or issuance of tax
credit certificate.

1. At the time the transactions were made, the Company was
not yet a VAT registered entity. Being a non-VAT taxpayer,
it cannot claim input taxes.
2. There is no zero-rated sale since it is not yet a VAT-
registered taxpayer at the time of execution of the land
lease contract with its affiliate-PEZA company.



Refund of undeclared input VAT

(Coca-Cola Bottlers Philippines, Inc. v. CIR CTA Case No. 8136, May 15,
2013)


Facts: A VAT-registered taxpayer engaged in the
manufacture and sale of beverages claimed a refund of its
input VAT paid which was recorded in its books of account
but was not declared in its quarterly VAT returns. Since it
has been issued a tax assessment, it can no longer
amend its VAT return, and instead, it filed a claim for
refund on ground of erroneous payment under Sec.
204(C) of the Tax Code.

Issue: Is the taxpayer entitled to claim for refund of its
VAT paid on its purchases attributable to zero-rated sales.


Recall:

Under Section 204(C), the Commissioner may credit or
refund taxes erroneously or illegally received provided that
the taxpayer files in writing with the Commissioner a claim
for credit or refund within two (2) years after the payment of
the tax. Provided, however, that a return filed showing an
overpayment shall be considered as a written claim or refund


Ruling: While the input taxes were recorded in the
taxpayers books of accounts, its alleged input VAT was
not reported in its VAT return.

Under Section 4.110-8 of RR 16-05, in order for input
taxes to be available as tax credits, they must be
substantiated and reported in the VAT returns of a
taxpayer. However, since the amount being claimed by
the taxpayer for refund represents its undeclared input
taxes, it is not considered an erroneously paid VAT.


Ruling: Under Section 112 of the Tax Code, there are two
instances when excess input taxes may be claimed for
refund: (a) when they are attributable to zero-rated or
effectively zero-rated sales; and (b) upon cancellation of
VAT registration due to retirement from or cessation of
business.

The taxpayers claim for refund or credit of its undeclared
input taxes does not fall under any of the instances provided
by law.


Proof of export sales

(Phil. Gold Processing & Refining Corp. v CIR, CTA Case 8270, June 11,
2013)



Facts:

A VAT-registered export company sought refund of its
unutilized input VAT arising from its export sales of mineral
products. To prove that its export sales qualify as VAT zero-
rated sales, it submitted the official receipts, bank
certification, and consolidated cash statements of foreign
currency remittances.

Recall:

Under Section 106(A)(2)(a) of the Tax Code, for an export to
qualify as zero-rated, the following conditions must be
present:

1. There was a sale and actual shipment of goods from the
Philippines to a foreign country;
2. The sale was made by a VAT-registered person;
3. The sale was paid for in acceptable foreign currency or
its equivalent in goods or services; and
4. The payment was accounted for in accordance with the
rules and regulations of the BSP.

Ruling: Any VAT-registered person claiming VAT zero-rated
direct export sales must present at least 3 types of documents,
to wit:

1. The sales invoice as proof of sale of goods;
2. The export declaration and bill of lading or airway bill as
proof of actual shipment of goods from the Philippines to a
foreign country, and
3. The bank credit advice, certificate of bank remittance or any
other document proving payment for the goods in
acceptable foreign currency or its equivalent in goods and
services.

Ruling: The documents proffered by the Company, i.e., official
receipts, bank certification, and consolidated cash statements
of foreign currency remittances cannot be possibly linked to its
alleged export sales. To prove its export sales qualify as VAT-
zero rated sale, it should have submitted invoices and export
documents. Hence, for failure to submit VAT zero-rated sales
invoices and export documents such as export declarations and
bills of lading or airway bills, its sales cannot qualify as zero-
rated sale..


Refund of excess CWT upon dissolution

(Sankyu Construction Philippines, Inc. v. CIR CTA Case No. 8079, May
31, 2013)



Facts: The taxpayer applied for refund of its excess
creditable withholding tax which it has carried forward and
remained unutilized up to the cessation of its commercial
operations.

Issue: Whether the taxpayer is entitled to refund its
accumulated excess CWTs carried forward from previous
years on ground of cessation of business.

Recall: Under Section 76 of the Tax Code, a corporate
taxpayer whose total excess quarterly income tax payments in
a given taxable year exceeds its total income tax due is given
two options:
(a) to carry over such excess credits;
(b) to claim for a refund of the same or issuance of a tax
credit in the amount of the excess credit.
Once the option to carry over and apply the excess tax credit
against income tax due for the succeeding taxable years has
been made, such option shall be considered irrevocable for
that taxable period and no application for cash refund or
issuance of tax credit certificate (TCC) shall be allowed.


Recall: As an exception to the irrevocability rule, a
corporation that permanently ceases its operations may opt
to claim for refund its remaining tax credits even if it
previously chose the irrevocable option to carry over its
excess credits.

However, in order be excluded from the irrevocability rule,
the taxpayer must prove that it has been legally dissolved
by complying with the provisions of Sections 52(C) and
235(e) of the Tax Code.



Recall:

Under Sections 52(C) and 235 of the Tax Code, a
corporation contemplating dissolution must first secure a tax
clearance certificate from the CIR. The certificate shall then
be submitted to the Securities and Exchange Commission
(SEC) for the issuance of the Certificate of Dissolution.



Ruling: While the taxpayer was able to file with the BIR its
application for cancellation of its business registration due
to cessation or commercial operations, there is no indication
that it has already been cleared of, and/or settled, any of its
tax liability as it failed to present or offer a certificate of tax
clearance. Hence, for failure to present the tax clearance
certificate from the BIR and SEC certificate of dissolution,
the claim for refund of the taxpayer was denied.

Assessment based on Letter Notices

(CIR v Fax N Parcel, Inc., CTA EB 883 re CTA Case 7415,
February 14, 2013)

Facts: A company engaged in transmission of information
was assessed for undeclared sales. The assessment of the
BIR arose from the matching of computer records using the
summary list of purchases submitted by the taxpayers
customers.

Issue: Whether the assessment is valid

Assessment based on Letter Notice

Ruling:

The BIR based its assessment merely on an unverified
quarterly list. The summary list of purchases should have been
verified with other externally sourced data in order to check the
integrity of the information gathered.

Even the BIR, in its RMO 04-03, recognizes the need to verify
the amounts reflected in the quarterly summary list of
purchases with other externally sourced data in ascertaining
the taxpayers underdeclaration of revenues or overstatement
of costs and expenses


Ruling:

While tax assessments are presumed correct and made in
good faith, the assessments should not, however, be based
on presumptions no matter how reasonable or logical the
presumption might be. In order to withstand the test of
judicial scrutiny, the assessment must be based on actual
facts.


Facts: Respondent received a Formal Notice of Demand
dated April 16, 2007 for alleged deficiency taxes for 2004
comprising Income Tax, VAT and EWT.
Included in the EWT assessment was the alleged
deficiency EWT on respondents payments of maintenance
service fees for software maintenance to Flour
International, Inc (FII), a non-resident foreign corporation.
The BIR claimed that since there was no documentary
evidence to show the nature of the contract between
respondent and FII, the software maintenance fees should
be treated as income from services and thus, subject to
32%.
Commissioner of Internal Revenue vs. Flour Daniel
Philippines, Inc.
CTA EB No. 921

Respondent filed an administrative protest claiming that the
assessment for EWT lacks legal basis considering that they
were paid to FII, a resident of the US which is not engaged
in trade or business and has no permanent establishment
in the Philippines. Thus, FII cannot be subjected to tax on
the fees received pursuant to Article 8 (1) of the Tax Treaty
between the Philippines and US.
Philippines, Inc.
CTA EB No. 921

In response to respondents protest, BIR issued an FDDA
cancelling the income tax and partially cancelled the VAT
assessment, but issues an assessment for FWT on
respondents payments of software maintenance service
fees in lieu of the previous EWT assessment. The BIR
claimed that the maintenance fees should be considered as
license generating royalty income and maintains that the
service fees should have been subjected to the preferred
rate of 15% under Article 13 of the RP-US Tax Treaty.
On the basis of FDDA, which constitutes a denial of
respondents protest, respondent filed a Petition for Review
before the CTA.
Philippines, Inc.
CTA EB No. 921

In the CTA, the BIR claimed that respondent is liable to pay
the FWT on the service fees because it failed to avail of the
benefits of the RP-US tax treaty because they did not file a
TTRA before ITAD. For its failure to secure a confirmatory
ruling that the benefits of the treaty can be applied to FII,
respondent must, therefore withhold the tax due to the
service fee which falls within the definition of royalties which
is subject to FWT as provided under RMC 44-2005 entitled
Taxation of Payments Software.

Philippines, Inc.
CTA EB No. 921

For their part, respondent alleged that they were deprived
on due process with the change of assessment from EWT
to FWT and the service fees shall not be considered as
royalties but after-sales services. They also alleged that
RMC 44-2005 shall not apply to them since the service fee
was paid in 2004.
Issue:Whether or not RMC 44-05 constitute legal basis to
assess respondent for royalties for maintenance service
fees it paid to FII.

Philippines, Inc.
CTA EB No. 921

Ruling:The FWT assessment issued against respondent
as contained in FDDS is void for lack of legal basis. Since
RMC 44-05 was issued only is September 1, 2005 and
respondents payment to FII was made in 2004, RMC 44-05
cannot be applied for purposes of assessing respondent
because the RMC itself provides that it will apply only to
income payments made upon its effectivity. In short, the
RMC cannot be given a retroactive effect as stated in the
RMC.
Since the FDDA was held as null and void, the resolution of
the remaining stipulated issues is no longer necessary for
the disposition of the case.
Petition for review by the BIR was denied.

Philippines, Inc.
CTA EB No. 921

Facts:On April 8, 2009, petitioner filed an administrative
claim for tax refund for excess/unutilized creditable taxes
withheld for 2006. Six days later, petitioner filed a Petition
for Review before the CTA division to preserve its right to
claim for refund.
BIR Claimed that petitioners claim is still subject to
investigation and that it is incumbent upon petitioner to
prove by substantial and credible evidence its entitlement to
subject claim.
CTA Division denied the Petition for Review and the
subsequent Motion for Reconsideration for lack of merit.
PhilAm Properties Corporation vs. CIR
CTA EB No. 921

Issues: Whether or not the petitioner was entitled to refund
for excess/unutilized creditable taxes withheld for 2006.
Ruling: In Banco Filipino Savings and Mortgage Bank vs.
Court of Appeals [G.R. No. 155682, March 27, 2007], the
Supreme Court ruled that there are three conditions for the
grant of claim for refund of creditable withholding income
tax: i) the claim is filed with the CIR within the two-year
period from the date of payment of the tax; ii) it is shown on
the return of the recipient that the income payment received
was declared as part of the gross income; and iii) the fact of
withholding is established by a copy of a statement duly
issued by the payor to the payee showing the amount paid
and the amount of the tax withheld therefrom.
CTA EB No. 921

Here, while petitioner was able to establish the first
condition, it failed to prove its compliance with the second.
In relation to the third condition, even when petitioner was
able to demonstrate the fact of withholding though
submission of Certificates of Creditable Taxed Withheld as
Source, there are discrepancies between the income
payment shown per said Certificate and the amount of
income per 2006 Annual ITR.
Petitioner also failed to establish the existence of its prior
years excess credits from which the amount of MCIT due
for 2006 was applied or credited.
CTA EB No. 921

Considering that the condition stated above is to the effect
that there must be a showing ON THE RETURN of
petitioner that the income payment subjected to withholding
tax was declared as part of the gross income, it is logical
that the first and foremost document to be closely examined
and scrutinized is the Annual ITR. Such examination and
scrutiny must not only be confined to a particular entry or
item in the said return, but must be made in its entirety.

CTA EB No. 921

For failure to prove its entitlement to tax refund, petitioners
claim must be denies. Since tax refunds partake of the
nature of tax exemptions, which are construed strictly
against the taxpayer, evidence in support of a claim must
likewise be strictly scrutinized and proven.
Petition for Review was denied for lack of merit.

CTA EB No. 921

Facts: December 16, 2009 Petitioner received the PAN
dated December 11, 2009
December 22, 2009 petitioner filed its protest which the
BIR received on December 23, 2009
May 26, 2010 petitioner received the FAN
June 1, 2010 Protest to FAN received by respondent on
June 23, 2010
October 10, 2011 petitioner received FDDA sent by the
BIR through registered mail.
October 19, 2011 Petitioner received another FDDA
through personal delivery
November 10, 2011 petitioner filed its Petition for Review
One Hundred Services, Inc. vs. CIR
CTA EB No. 941

Issue: Whether or not the Petition for Review was filed on
time.

Ruling: Sec. 228 of the NIRC is clear, plain and
unequivocal in providing that the taxpayer adversely
affected by the decision, relative to a protest against an
assessment, may file an appeal before the CTA within 30
days from receipt of the decision; otherwise the decision
shall become final and executory.
CTA EB No. 941

Here, it is undisputed that petitioner receive on October 10,
2011 a copy of the final decision on disputed assessment,
which was sent by the BIR through registered mail.
Petitioner filed its petition for review before the CTA
Division only on November 10, 2011, or 31 days later.
Hence, it was filed out of time. At the time petitioner
elevated its case before the CTA Division, the BIRs final
decision on disputed assessment had already become final,
executory and demandable pursuant to Section 228 of the
NIRC.
Petition for Review was denied for lack of merit.

CTA EB No. 941

Facts: Petitioner received PAN from BIR with attached
Details of Discrepancies covering taxable year ending
December 31, 2002 for deficiency income tax, VAT, WT on
compensation and EWT. Petitioner filed its protest letter to
the PAN.

Thereafter, a FAN was issued against petitioner for
deficiency income tax, VAT, WT on compensation and
EWT. Petitioner also filed its protest.
Takenaka Corporation Philippine Branch vs. CIR
CTA EB No. 853

BIR did not act with finality on the protest, hence, petitioner
filed its Petition for Review. During trial, petitioner files a
Motion to Withdraw Petition stating that it has availed of the
remedy under R.A. 9480 or the Tax Amnesty Law of 2007.

Thereafter, CTA Division promulgated a Decision denying
petitioners Petition for Review finding petitioner liable to
pay deficiency taxes. Petitioner filed a Motion for
Reconsideration with Motion to Re-open the case which the
CTA Division likewise denied.
CTA EB No. 853

Issue: Whether or not the CTA was correct in affirming the
FAN issued by the BIR.
Ruling: Reopening of the case is not merely rooted on the
interest of justice but rest within the sound discretion of the
Court. The Court cannot simply relax the rules without
justifiable grounds. Some of the justifiable grounds are: (i)
newly discovered evidence; (ii) where it has been omitted
through inadvertence or mistake; and (iii) where the
purpose is to correct evidence previously offered. Here,
petitioner anchored its case on number 2. However, no
proof was presented by petitioner to bolster its allegation.
Without proof, the Court cannot subscribe to petitioners
allegation.
CTA EB No. 853

Petitioner also failed to present supporting document that
will substantiate its claim that it remitted its contributions to
SSS, PhilHealth, PagIbig and payment for Other
Employee/Fringe Benefit and Bonuses and 13
th
Month
Pay were non-taxable.
The Court was also precluded in seeking further evidence
in order to verify petitioners AFS as the documents
submitted by a CPA are still subject to verification and
comparison with the original documents. Further, the
finding of the CPA is not conclusive upon the Courts.

CTA EB No. 853

The Court cannot agree on petitioners view that the burden
of proof shifted to the BIR, as tax assessment by tax
examiners are presumed correct and made in good faith,
and all presumptions are in favour of the correctness of a
tax assessment unless proven otherwise. Hence, the duty
to disprove that the assessment was irregularly made rest
on petitioner.
The law is clear. The imposition of deficiency and
delinquency interests can simultaneous pursuant to Section
249(A)(B)(C) of the NIRC. There is a difference in the basis
of imposition and when these interests accrue.

CTA EB No. 853

CTA EB No. 853

Deficiency Interest Delinquency Interest
As to its
imposition
Imposes on the unpaid
tax until the deficiency is
fully paid
Imposed on the failure to pay (i) the
amount of tax due on any return
required to be filed; (ii) the amount of
tax due for which no return is required;
and (iii) deficiency tax, or any
surcharge or interest thereon on the
due date appearing in the notice and
demand of the Commissioner
As to when
the interest
generally
accrue
On any deficiency tax
assessed "from the date
prescribed for its
payment until the full
payment thereof
Imposed upon failure to pay a
deficiency tax, or any surcharge or
interest thereon reckoned from "the
due date appearing in the notice and
demand of the Commissioner until the
amount is fully paid.

BIR rulings


VAT on sale of printed and digital educational products

Under Section 109(1)(R) of the Tax Code, the sale,
importation, printing or publication of books and
newspapers, review or bulletin which appears at regular
intervals with fixed prices for subscription and sale, and
which is not devoted principally to the publication of paid
advertisements is exempt from VAT.


In Revenue Memorandum Circular No. 75-2012, the BIR
clarified that the terms book, newspaper, magazine,
review or bulletin for purposes of Section 109(1)(R) of
the Tax Code refer to printed materials in hard copies.
Thus, it does not include those in digital or electronic
format or computerized versions, including but not limited
to e-books, e-journals, electronic copies, online library
sources, CDs and software.


While the sale educational products in printed form is
exempt from VAT, the BIR held that based on RMC
75-2012, the sale of digital and online educational
products, being outside the purview of the term books
or any similar publication for purposes of Section
109(1)(R) of the Tax Code are subject to 12% VAT.

(BIR Ruling No. 170-2013, May 6, 2013)


15% tax sparing credit rate for dividends
Facts: A domestic corporation paid dividends to a non-
resident foreign corporation domiciled in Bermuda. In
Bermuda, taxes on profits or income (including dividends)
received by its tax residents are not subject to tax.

Issue: Whether the dividends paid to the corporation
domiciled in Bermuda qualifies for 15% preferential or tax
sparing rate under Section 28(B)(5)(b) of the Tax Code.

Recall: Under Section 28(B)(5)(b) of the Tax Code, a
nonresident foreign corporation may avail of the 15% preferential
tax rate on dividends received by it from a domestic corporation
without need for applying for a tax relief from the International
Tax Affairs Division (ITAD) if it meets the tax sparing credit
requirement, i.e., the country of domicile of the nonresident
foreign corporation allows a credit against the tax imposable by it
at an amount equivalent to 20% (now 15%) of the dividends
remitted from the Philippine domestic corporation to corporations
domiciled therein.


BIR: The exemption from taxes of the dividends received by
the country of domicile of non-resident corporate stockholder
is sufficient for the applicability of the 15% tax rate under
Section 25(b)(5)(B) of the Tax Code.

Dividends received by a non-resident foreign corporation
domiciled in a country that imposes no tax on dividends from
foreign sources are subject to the 15% preferential
withholding tax rate under said tax sparing credit provision of
the Tax Code.

(BIR Ruling No. 012-2013, January 3, 2013)


Expensing of input VAT: A review of past rule
Instances when expensing of input VAT from zero-rated
sales is allowed by the BIR

a) When input taxes are not recorded as input tax in its
books, reflected/reported in its VAT returns; and not
claimed as tax refund or tax credit.
b) When the two-year prescriptive period has lapsed
without any claim for refund or credit;


Expensing of input VAT: A review of past rule

c) When the claim for refund or credit was denied or
rejected by the BIR for having been filed beyond the 2-
year prescriptive period or for non-compliance with
invoicing/substantiation requirements; and
d) When the claim for refund is still pending with the BIR
but voluntarily withdrawn by the taxpayer.

[BIR Ruling Nos. DA-(VAT-086) 539-09; DA-(VAT-021) 121-10,
DA-636-06]

Expensing of input VAT disallowed

BIR: Accumulated and unapplied input VAT attributable
to zero-rated sales of a VAT taxpayer may not be
expensed outright or treated as deductible expense after
the expiration of the two-year period to claim for refund or
credit.

The unutilized creditable input taxes related to zero-rated
sales can only be recovered through the application of
refund or tax credit.


Expensing of input VAT disallowed
BIR: There is no provision in the Tax Code which allows
other mode of recovering unapplied input taxes particularly
the expensing of excess unutilized input VAT arising from
purchase of goods and services in case the two year
prescriptive period had already lapsed without any claim
for refund or credit having been filed by the VAT-
registered taxpayers.

Revokes all other rulings inconsistent therewith.

(BIR Ruling No. 123-2013 (March 25, 2013) and 133-2013
(April 04, 2013)

Determining a "publicly-held" corporation for IAET
purposes
A domestic airline company is 66.5% owned by ABC holding
Company. On the other hand, ABC holding is wholly-owned by
XYZ Company which, in turn, is owned by below individuals:

1. GK Brothers Foundation - 29.38%
(JG, Jr., EG, LG, RG, PHG
PG, JRG, JLG)
2. JG - 12.75%
3. LG &/or EG - 3.46%
4. JG - 2.19%
5. JG &/or LG - 2.07%
6. RG &/or EG - 1.06%

50.91%
purposes

Issue: Is the company considered a "publicly-held
company" exempt from IAET?

purposes

Recall: Under Section 4 of RR 2-2001, for a domestic
corporation to be considered publicly-held, at least 50% in
value of the outstanding capital stock or of the total combined
voting power of all classes of stock entitled to vote in a
corporation is owned directly or indirectly by more than 20
individuals.

Section 4 of RR 2-2001 further provides that for purposes of
determining whether the corporation is a closely held
corporation, insofar as such determination is based on stock
ownership, stock owned directly or indirectly by or for a
corporation, partnership, estate or trust shall be considered as
being owned proportionately by its shareholders, partners or
beneficiaries.

purposes
BIR: While the ultimate owners of a domestic company may be
more than 20 individual shareholders, it may not still be
considered a publicly held corporation that is exempt from
improperly accumulated earnings tax (IAET).

To be considered a publicly held corporation exempt from IAET,
the actual number of majority individual stockholders (who own
at least 50% in value of outstanding capital stock or of the total
combined voting power of all classes of stock entitled to vote)
should be more than 20 individual shareholders.

(BIR Ruling No. 094-2013, March 18, 2013)

purposes

Tax treatment of separation pay due to retrenchment
Separation benefits received by employees due to
termination from the service as part of the companys
retrenchment are considered separation that is beyond the
control of the separated official or employee.

Pursuant to Section 32 (B) (6) (b) of the Tax Code, as
amended, any amount received by such officials or
employees as a consequence of their separation shall not
be included in gross income and shall be exempt from
taxation pursuant

Taxation of separation benefits due to retrenchment
The tax exemption does not include the payment of the
separated employees salaries and the payment of 13th
month pay and other benefits in excess of the P30,000
threshold.

As regards monetization of sick and vacation leave credits,
the cash equivalent of vacation leave not exceeding 10 days
shall be exempt from tax while the monetized value of all
sick leave credits of separated employees shall be subject to
income tax.

(BIR Ruling No. 227-2013, June 20, 2013)


BIR rulings on PEZA transactions


DST exemption: CTA and BIR

o DST is covered by the "in lieu of all taxes" privilege under
the 5% tax regime. PEZA company is exempt from DST on
loan agreement and lease contract. (CS Garments Inc,
CTA 6520, Jan 4, 2007 and CTA EB 287, January 14,
2008)
o PEZA enterprises under 5% tax are liable to DST on
transactions which are not part of their registered activities
(BIR Ruling No. 050-2011, February 02, 2011)


Allowable deductions exclusive
BEFORE: Allowable deductions from gross income
enumerated in the PEZA IRR are not exclusive. As long as
the costs can be attributed in producing the products, they are
allowed as deductions under the 5% final tax.

BIR Ruling No. 014-2012. Enumeration under Section 2,
Rule XX of the PEZA IRR is Exclusive.

BIR ruling on sale of fixed assets
Sale of tangible fixed assets (i.e., buildings,
machinery and installations and production
and commercial inventories used in projects
registered under 5% and ITH enjoyed by a
PEZA-company is subject to Regular
Corporate Income Tax.

* Sale of assets not part of registered activity

- BIR Ruling No. 291-2012

VAT treatment of sale of service by a non-resident to
PEZA enterprise

o Services fees paid by a PEZA-registered enterprise to a
non-resident foreign corporation VAT exempt

Sale of goods and services to persons or entities exempt from
VAT, by reason of PD 66 and RA 7916, is effectively zero-
rated. However, VAT zero-rating is not available to
nonresident suppliers. Instead, the provision of Section 109
(K) of the Tax Code which provides VAT exemption for
transactions that are exempt under special laws, e.g.,
Republic Act No. 7916 (PEZA Law) is applicable (BIR No.
372-12, June 01, 2012 and ITAD Ruling 069-2011, March 01,
2011)

PEZA tax incentives cover related activities

Facts: A PEZA-registered IT enterprise under income
tax holiday (ITH) entered into a master service provider
agreement with a call center company for the lease of
transmission facilities, and establishment of contact
center including provision of outsourced customer care
services.

The call center company withheld tax on its income
payments to the PEZA-registered IT enterprise.



Subsequently, however, it realized that it erroneously
withheld taxes on its income payments and reimbursed
the same to the PEZA IT enterprise. To recover its
erroneously withheld and remitted tax, the call center
company filed a claim for refund.


BIR: Lease of transmission facilities is not among the
registered activities of the PEZA IT enterprise. It
further contended that since the lease of transmission
is not amount the listed activities in the IT enterprise
registration agreement with PEZA, it should be
considered a new or additional product line requiring
separate approval from PEZA to avail of the tax
incentives.


BIR: In the absence of PEZA approval, the BIR argued
that the rental income should be subject to regular
corporate income tax and creditable withholding tax.


CTA en banc: Upheld the decision of the court in division
which declared that the lease of transmission facilities is
an activity necessarily related to the registered activities of
the PEZA IT enterprise.
The CTA en banc cited the rulings issued by the BIR
where it held that the grant of incentives to PEZA-
registered entities covers not only the activities explicitly
listed under the entitys certificate of registration, but
extends to activities necessarily related to the registered
activities.


CTA en banc: The establishment of contact center is one
of the registered activities of the PEZA IT enterprise which
necessarily entails the lease of physical facilities which
shall be used in rendering of outsourced customer care
and BPO services.


CTA en banc: Considering that the lease of transmission
facilities is necessarily related to the registered activities
of the PEZA IT enterprise, the CTA en banc held that it is
covered by the IT enterprise registered activities thus a
separate PEZA approval was not necessary to avail of the
tax incentive. Hence, rental income of PEZA IT enterprise
from the lease of transmission facilities is not subject to
withholding tax.

(Commissioner of Internal Revenue v. JP Morgan Chase
Bank, N.A. Philippine Customer Care Center, CTA EB No.
876 re CTA Case No. 7962, July 15, 2013)


Tax treatment of sale of services by a PEZA JV

Sale of service by an unincorporated JV of two PEZA
IT-registered enterprises (both under the 5% tax
regime) for the exclusive purpose of providing
engineering and IT-enabled services to a PEZA-
registered enterprise is not considered a local sale of
service.


BIR:

PEZA economic zone is by fiction of law is considered
a separate customs territory.

The services rendered by the JV within the PEZA
special economic zone shall be deemed as being
performed or rendered in foreign territory or foreign
soil, and therefore, not within the customs territory.


Since the IT-enabled services to be rendered by the JV
are all within the scope of the PEZA-registered
activities of its members that is subject to 5% tax, the
transaction shall be exempt from VAT.


Being an unincorporated JV between PEZA-registered
companies under the 5% preferential tax, the sale of
services, goods or properties by VAT-registered local
suppliers and/or subcontractors which form part of the
registered activity of the PEZA-registered entities as
members of the unincorporated JV shall be subject to
zero percent (0%) VAT if the seller is VAT, or VAT-
exempt if the supplier is non-VAT registered.


The income payments to the local suppliers and/or
sub-contractors by the unincorporated JV shall be
subject to the regular income tax at 30% and
consequently, to the creditable withholding tax. Being
the party making the payments, and in control of the
payments, the JV shall act as the withholding agent.

(BIR Ruling No. 199-2013, May 21, 2013)


ITAD BIR RULING NO. 013-13
ITAD BIR RULING NO. 097-13

Procter and Gamble International
Operations SA ("Procter and Gamble")


Requesting confirmation that P&G does not have a
permanent establishment in the Philippines, as such,
profits derived by it from sale of the products in the
Philippines shall be exempt from income tax. (RP-
Switzerland tax treaty)


Facts:

P&G is a Swiss corporation and has established a Branch in
Singapore that serves as the regional operating entity of P&G or
the "Regional Enterpreneur" all over "Asia-Pacific Region".

The Singapore Branch as the Regional Enterpreneur is
responsible for the business in the Asia Pacific Region and carries
out strategic functions which are all performed in Singapore.

The operations of the Singapore Branch are undertaken by the
employees in its office in Singapore and it neither owns or lease
any office premises in the Philippines.


Contracts between P&G Singapore Branch and various
manufacturers and distributors

P&G Singapore and P&G Philippines, Inc.

- Manufacturing and related services agreement
- Toll Processing and other services agreement


Contracts between P&G Singapore Branch and various
manufacturers and distributors

P&G Singapore and P&G Distributing Philippines, Inc.

- contracted to be the exclusive distributor of P&G products
in the Philippines


1) Issue: Confirmation on whether P&G Philippines and
P&G Distributing Phils., as domestic corporations shall be
subject to income tax and VAT.

Ruling: P&G Philippines and P&G Distributing Phils. shall
be subject to income tax at a rate of 30% and to withholding
tax in accordance with the Tax Code.


2) Issue: On whether P&G Singapore Branch will have a
permanent establishment in the Philippines.

Ruling: Under Article 7 (Business Profits) of the RP-
Switzerland tax treaty, income derived by P&G from the sale of
its products in the Philippines may be taxed in the Philippines
if such income is attributable to a permanent establishment
which P&G has in the Philippines.

Moreover, Article 5 (Permanent establishment) of RP-
Switzerland tax treaty considers P&G to have a PE if it has in
the Philippines a person (a) who has, and habitually exercises,


an authority to conclude contracts on its behalf or, (b) who has
no such authority, but habitually maintains in the Philippines a
stock of goods and merchandise on behalf of P&G. (Dependent
agents)

Hence, since P&G Phils. and P&G Distributing Phils., habitually
maintain P&G products in their premises for P&G, and regulary
deliver such products to third parties on behalf of P&G, both
P&G Phils. and P&G Distributing Phils. are deemed as PE of
P&G under Article 5 of RP-Switzerland tax treaty.


3) Issue: On whether P&G Phils. and P&G Distributing Phils.
are merely agents of an independent status so as to cancel
the earlier pronouncement that they have PE.

Ruling: Under Article 5 of RP-Switzerland tax treaty, an
enterprise is not deemed to have a PE merely because
through a broker, general commission agent, or any other
agent of an independent status, provided such person is
acting in the ordinary course of business.


What was referred to in the tax treaty are those in the same
category as commission agent or broker. The agent shall not
be considered independent if the activities of such agent are
devoted wholly or almost wholly on behalf of that resident.

(CTA Case No. 4461 dated May 14, 1994).

Moreover, the view that an agent of an independent status as
referred to in tax treaties must be involved in the negotiation of
sales contracts with third parties (whether or not the agent binds
his principal) is supported by the very concept of a broker or a
general commission agent.

Accordingly, with respect to P&G Philippines, the agreement
with P&G merely allows the former to manufacture the products
but not authorize to negotiate or conclude sales contract with
third parties, the activities cannot be assimilated to those of a
broker or commission agent.


Accordingly, with respect to P&G Distributing Phils., based on
the Distribution Agreement, the latter, as exclusive distributor of
the products in the Philippines, can conclude contracts with
wholesalers and retailers for the sale of P&G products.

In any case, these contracts will bind only P&G Distributing
Philippines but not Procter and Gamble. Also, all orders placed
by P&G Distributing Philippines will be subject to acceptance by
P&G. This arrangement puts P&G Distributing Phils. as a
commission agent where it has an authority to conclude
contracts with another person in its own name but ultimately on
behalf of P&G since the products subject of these contracts
clearly belong at all times to P&G.

Ruling in summary:
Income derived by P&G from the sale of products in the
Philippines shall be subject to income tax in the Philippines
pursuant to Paragraph, Art. 1 of the RP-Switzerland tax
treaty.

P&G, as a foreign corporation, shall be taxed as a resident
foreign corporation.


Sale of services by P&G Phils to P&G Singapore VATable
Sale of products by P&G Singapore to P&G Distributing
VATable
Sale by P&G Distributing to third party customers
VATable
All can claim input VAT

4) Issue: VAT Consequences of the
transactions


Must secure TIN and register for VAT

Use business address of PE

PE is VAT agent and responsible for tax
compliance- preparation and filing of return

5) Issue: Registration of P&G Singapore


BIR Ruling 316-2013

Requesting for ruling on the issue whether or
not cash awards/prizes to be given to the
regional and national winners of the
National/Regional Invention is Tax Exempt.

Conditions for the awards & prizes to be exempt/
excluded from gross income
1. The recipient was selected without action on his
part to enter the contest or proceeding; and

2. The recipient is not required to render substantial
future services as a condition to receiving the prize
or award.

Prizes amounting to P10,000 or less

- shall not be subject to 20% final withholding tax

- but the income recipient is required to file an income tax
return and declare the amount of winnings and prizes in his
ITR.

BIR Ruling 319-2013

Requesting for ruling on when to start the
counting of the one (1) year period of
redemption in case of foreclosure of real
estate mortgage.


For purposes of reckoning the one-year redemption period on the
foreclosed asset of natural persons and the period within which to
pay the capital gains tax or creditable withholding tax and
documentary stamp tax on the foreclosure of real estate
mortgage, the same shall be reckoned from the date of
registration of the sale in the office of the Register of Deeds.

Reckoning of one (1) year redemption period of
individuals

As regards the right of redemption of juridical persons in an
extrajudicial foreclosure, the right to redeem should be made
before the registration of the Certificate of Foreclosure Sale
with the applicable Register of Deeds or within three (3)
months after foreclosure, whichever is earlier.

Right of redemption of juridical persons

Reckoning of the 3-month period

The three-month period shall be reckoned from the date of the
approval by the executive judge of the certificate of sale
because it is only then that there is a sale to speak of which
could be taxed.


Thank you.

Contact- lea.roque@ph.gt.com

Tax Updates 2013 PandA (Lea Roque)

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