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VAT; Sale of Housing Units Valued at P1,000,000.00 - The sale of housing units by
Laguna Properties Holdings, Inc.(LPHI) valued at P1,000,000.00 and below and
which falls under the term "other residential dwellings" shall be exempt from VAT.
Moreover, considering that LPHI is engaged in the real estate business and the selling
of built-up housing units of a particular model constitutes the sale of real property,
such activity is in the nature of real estate business and not as service contractor. (BIR
Ruling No. 005-99 dated January 18, 1999)
VAT; Importation of Passenger or Cargo Vessel - Under Sec. 109(g) of the Tax
Code, the importation of a vessel shall be exempt from VAT if it is a passenger or
cargo vessel of more than five thousand tonnage whether coastwise or oceangoing.
Since the imported ship is intended to be used for cleaning the Pasig River, the same
cannot be considered as passenger or cargo vessel, hence shall be subject to 10% VAT
imposed under Sec. 107(A) of the Tax Code. (BIR Ruling No. 006-99 dated January
18, 1999)
ESTATE TAX; Allowable Deductions - All items enumerated in Sec. 86(A) of the
Tax Code are allowable deductions from the value of the gross estate of a resident
decedent in computing the net estate. The enumerated items are authorized by law to
be deducted as independent, separate and distinct items of deduction which may
properly be deducted from the gross estate of a resident subject to limitations provided
under each item. (BIR Ruling No. 009-99 dated January 22, 1999)
The term "downpayment" is not equal to the gross selling price or the total amount of
consideration or its equivalent paid tot he seller/owner since it is actually a portion of
the whole (i.e., of the gross selling price or the total amount of the consideration or its
equivalent). The alternative use of the terms "gross selling price" or "total
consideration or its equivalent paid to the seller/owner' is necessary to comprehend the
payment other than money made by the buyer which, in all intents, from part of the
consideration or selling price and for which the equivalent value therefor shall be
considered in computing the creditable withholding tax.
Thus, in all instances, whether the basis is denominated as gross selling price or total
amount of consideration or its equivalent, if initial payment thereof is equivalent to
25% or more, the transaction is considered as cash sale for which the corresponding
rate of the creditable withholding tax prescribed shall be withheld based not on the
amount initially paid (downpayment) but on the gross selling price or total
consideration or its equivalent paid to the seller/buyer. (BIR Ruling No. 011-99 dated
January 22, 1999)
VAT; Local Purchases of Goods and Properties by PNRC - PNRC is exempt from
the payment of the 10% VAT on its importation of goods under Section 107 of the
Tax Code of 1997. Local purchases by PNRC of goods or properties, services and use
or lease of properties are exempt from VAT pursuant to Section 109(q) of the Tax
Code of 1997; and interest income derived by PNRC from currency bank deposits and
yield or any other monetary benefit from deposit substitutes and from trust funds and
similar arrangements are exempt from the 20% final tax imposed under Section
27(D)(1) of the Tax Code of 1997. This revokes BIR Rulings Nos. 026-96 and 064-
98. (BIR Ruling No. 014-99 dated February 1, 1999)
However, if Fujitsu Asia Pte Ltd. has a permanent establishment in this country as the
term is defined in Article 5 of the aforesaid tax treaty, the profits of Fujitsu Asia Pte
Ltd. may be taxed in this country but only so much of it as is attributable to the
permanent establishment. However, it shall be understood that the delivery of the
hardware and software comprised under the Smart Integrated Business System is
subject to 10% VAT. (BIR Ruling No. 020-99 dated February 24, 1999)
CAPITAL GAINS TAX; Sale of Capital Assets - Under Section 27(D)(5) of the
Tax Code of 1997, a final tax of six percent (6%) is imposed on the gains presumed to
have been realized in the sale, exchange or disposition of lands and/or buildings which
are not actively used in the business of a corporation and which are treated as capital
assets based on the gross selling price or fair market value as determined in
accordance with Section 6(E) of the Tax Code of 1997, whichever is higher.
Accordingly, the real properties located at Pioneer Street, Mandaluyong City,
consisting of land with an aggregate area of 42, 223 square meters and the buildings
and other improvements therein, may qualify as capital assets, and the sale thereof
may be subject to the final tax of six percent (6%). (BIR Ruling No. 021-99 dated
February 25, 1999)
Moreover, since the salaries of the diplomatic officials and agents are not among the
enumerated exceptions of exemption from taxes, the same are deemed exempt from
income tax and consequently from the withholding tax on the host country, i.e., the
Philippines. (BIR Ruling No. 026-99 dated March 9, 1999)
DOCUMENTARY STAMP TAX; Original issue of Shares of Stock by Ecozone
Enterprise - Mitsui Transnet (Phils.) Corporation, an Ecozone Facilities Enterprises,
is liable to pay documentary stamp tax on the original issue of its shares of stock to
the Corporation's stockholders since the liability for DST on the original issuance of
shares by a corporation attaches from the moment such as corporation accepts
subscription from its stockholders which occurs during the incorporation stage of the
corporation and naturally prior to its registration with PEZA under RA 7916. Hence,
Mitsui Transnet cannot be said to be already a business enterprise operating within the
ECOZONE and thus exempt from DST by virtue of the 5% preferential tax rate and
the "in lieu" provisions of RA 7916. (BIR Ruling No. 027-99 dated March 9, 1999)
VAT; Aboitiz Air and Transport Corp. No Longer Subject to 5% Franchise Tax
but to 10% VAT - Under Sec. 11 of R.A. No. 7583, Aboitiz Air & Transport
Corporation (AATC), a domestic corporation engaged in the business of carriage of
goods, mail, cargoes & other property by air, is liable to pay 5% franchise tax on its
gross revenues. However, the 5% franchise tax was replaced by 10% VAT hence,
AATC is no longer subject to the 5% franchise tax but to the 10% VAT. Moreover,
since VAT is an indirect tax AATC can pass on to its customers or shippers the said
10% VAT. (BIR Ruling No. 028-99 dated March 10, 1999)
INCOME TAX; Tax-Free Merger - The merger of Roche (Phils.) Inc. with
Boehringer Mannhelm (Philippines), Inc. qualifies as tax-free merger within the
contemplation of Sec. 40(C)(2) and (6)(b) of the Tax Code of 1997 because Roche
acquired all the assets and liabilities of BMPI, the transaction undertaken being for a
bona fide business purpose and not for the purpose of engaging the burden of taxation.
Since no Roche shares of stock will be issued, no DST are due from such transaction
but the transfer by BMPI of its certificates of stock and real properties to Roche shall
be subject to DST imposed under Secs. 176 and 196 of the Tax Code of 1997.
Moreover, the reorganization is not subject to gift tax as there is no intention to donate
on the part of any of parties. Finally, the transactions are not subject to VAT (output
tax) under Sec. 4.100-5(b)(1) of Rev. Regs. No. 7-95. (BIR Ruling No. 030-99 dated
March 12, 1999)
Moreover, the said Deeds are not subject to the documentary stamp tax imposed under
Section 176 of the Tax Code of 1997, but only to the documentary stamp tax on
certificates under Section 188 of the same Code. (BIR Ruling No. 031-99 dated
March 19, 1999)
VAT; Income Tax; Lease of Office Space Located Outside PEZA -From the
provision of R.A. No. 7916, it is clear that the sale of services to PEZA-registered
enterprises, for income and VAT purposes, should be rendered within the PEZA
boundaries to be entitled to the benefits of Section 24 of R.A. No. 7916. Since the
Liaison office space and Exacts house are located outside PEZA boundaries, the lease
thereof is therefore subject to the 10% VAT imposed under Section 108(a) and to the
corporate income tax prescribed under Section 27(A) both of the Tax Code of
1997. (BIR Ruling No. 033-99 dated March 23, 1999)
EXCISE TAX; Sale of Petroluem Products to NPC - Section 135 of the Tax Code
of 1997 provides that the sale of petroleum products shall be exempt from excise tax if
sold to an entity that enjoys exemption from indirect taxes. Hence, the sale of
petroleum products by Petron Corporation to the National Power Corporation (NPC)
to be used by Edison Bataan Cogeneration Corporation (EBCC) in generating
electricity for the Bataan EPZA is exempt from excise tax. (BIR Ruling No. 036-99
dated March 29, 1999)
VAT; Gross Receipts of MWSS from Connection Fees - The P3,000.00 fees
charged for connections or reconnections to a water main or a public sewer which are
located less than 25 meters from the connection point under Article 9.5(1) of the
Concession Agreement of MWSS privatization is subject to the 10% value added tax
based on the gross receipts from such "connection fees" which shall be exclusive of
the value-added tax, pursuant to Sec. 108(A) of the Tax Code of 1997. (BIR Ruling
No. 037-99 dated March 29, 1999)
CAPITAL GAINS TAX; Sale of Principal Residence - Granting the request of Ms.
Eufemia Lazaro for exemption from the payment of 6% capital gains tax on the sale of
her principal residence in favor of the Republic of the Philippines through the
Department of Public Works and Highways since she has manifested her intention to
fully utilize the proceeds of the sale to buy another parcel of land where she will
construct her new principal residence within the time required by law and has notified
the Commissioner of Internal Revenue of the same within 30 days from the sale or
deposition of the property. (BIR Ruling No. 040-99 dated March 30, 1999)
DST; Income Tax; Lease Purchase Agreement Subject to DST, Ordinary Asset
Sold Subject to CWT - The Lease Purchase Agreement executed by and between
Total Persons Care Foundation (TOPEC) and Mariano Gabor sometime in December,
1985, is subject to the documentary stamp tax imposed under Section 194 of the Tax
Code, while on the other hand, the subsequent Deed of Sale executed in July, 1998, is
likewise subject to the documentary stamp tax prescribed under Section 196 of the
Tax Code of 1997. In other words, both Lease Purchase Agreement and deed of
Absolute Sale are subject to the corresponding documentary stamp tax prescribed
under the aforecited provisions of the Tax Code. Moreover, the tax base of
documentary stamp tax due on the Deed of Absolute Sale, shall, under Section 196 of
the Tax Code of 1997, be based on the consideration or value received or contracted to
be paid for such realty after making proper allowance of any encumbrance or on its
fair market value determined in accordance with Section 6(E) of the Tax Code of 1997
(zonal valuation), whichever is higher. Finally, since the property sold in favor of Mr.
Mariano Gabor is an ordinary asset, the sale thereof is subject to the creditable
withholding tax imposed under Section 4 of Revenue Regulations No. 8-98
implementing Section 57(B) of the Tax Code of 1997 based on the gross selling
price/total amount of consideration or fair market value (zonal valuation) of the real
property sold, whichever is higher. (BIR Ruling No. 045-99 dated April 7, 1999)
VAT; Tax Exemption of ICLARM does not Extend to Indirect Taxes - The tax
exemption of ICLARM covers only taxes for which it is directly liable and does not
extend to indirect taxes, like VAT. Pursuant to Section 105 of the Tax Code of 1997,
VAT is an indirect tax and the amount of tax may be shifted or passed on to the buyer,
transferee of goods, properties or services. The VAT on the sale of car is the direct tax
liability of Nissan Southwood. However, when passed on to ICLARM, it is no longer
a tax but an additional cost which becomes a part of the amount of the contract price
to be paid by ICLARM. (BIR Ruling No. 047-99 dated April 13, 1999)
R.A. No. 7916; Businesses Operating within the ECOZONE - The request of
Mayor Ernest H. Weigel, Jr. to amend Section 2(i) of RR No. 12-97 by excluding
therefrom "real estate taxes" was denied. Although the heading of Section 24 of RA
No. 7916 states "Exemption from taxes under the National Internal Revenue Code",
the body of the provisions in question also mentions "local taxes". Obviously, the
local taxes referred to therein pertain not only to the business taxes, fees and charges
imposed by LGUs by means of local ordinances but also to local taxes authorized to
be levied by them pursuant to R.A. No. 7160, otherwise known as the "Local
Government Code of 1991". In short, businesses operating within the ECOZONE are
no longer subject to the internal revenue taxes imposed under the Local Government
Code but only to the preferential tax rate of 5% based on the gross income earned. The
5% in lieu of all taxes is a commutation tax which effectively accords the grantee
exemption from all other taxes. (BIR Ruling No. 049-99 dated April 13, 1999)
INCOME TAX; Tax-free Exchange for Shares of Stock -No gain or loss shall be
recognized both on the part of Sun Life Assurance Company of Canada (SLAC), the
transferor, and Philco, the transferee, on the transfer by SLAC of its Philippine branch
business in exchange for shares of stock in Philco, considering that after the exchange
and as a result thereof, SLAC will gain control of Philco, the transferee, in accordance
with Section 40(C)(2) of the Tax Code; SLAC shall not be considered to have
withdrawn the remittable profits of its Philippine Branch when the same are
transferred to Philco and therefore the 15% Branch Profits Remittance Tax (BPRT) on
remittable profits of SLAC as of the date of transfer of its Philippine branch business
to Philco shall not be imposed; The transfer of assets of the Philippine branch to
Philco shall not be subject to the 10% Value Added Tax pursuant to Section 4.100-
5(b) of Revenue Regulations No. 7-95, as amended; The transfer of Philco shares by
SLAC to BVCo is exempt from Philippine income tax pursuant to Article 13(3) and
(4) of the RP-Canada Tax Treaty Considering that the transfer of Philco shares will be
made to BVCo, a wholly owned subsidiary of SLAC, there is no transfer of Philco
shares to an unrelated third party. Therefore, the transfer of Philco shares to BVCo
should not result in the 15% BPRT; The transfer of its investments in shares of stock
in domestic corporations by SLAC to Philco shall be subject to documentary stamp
tax (DST) pursuant to Section 176 of the Tax Code. The transfer of any real property
by SLAC to Philco shall be subject to DST pursuant to Section 196 of the Tax Code.
The issuance of shares of stock by Philo to SLAC shall be subject to DST under
Section 175 of the Tax Code; and finally, the transfer by SLAC of Philco shares to
BVCo shall be subject to DST under Section 176 of the Tax Code. (BIR Ruling No.
053-99 dated April 19, 1999)
INCOME TAX; Meaning of Fringe Benefits - Fringe benefits means any goods,
service or other benefit furnished or granted by an employer in cash or in kind, in
addition to basic salaries, to an employee (except rank and file employee) such as
housing. Section 33(a) of the Tax Code of 1997 stipulates that fringe benefits which
are "required by the nature of, or necessary to the trade, business or profession of the
employer, or when the fringe benefits is for the convenience or advantage of the
employer" are not subject to the fringe benefit tax. If the living quarters are furnished
to an employee for the convenience of the employer, the value thereof need not be
included as part of compensation income subject to withholding. It appearing that the
3 kilometer distance was for purposes of complying with the state policies on the
promotion of the health and welfare of workers (Articles 11, Sections 15 and 18 of the
1987 Constitution) and the constitutional mandate guaranteeing full protection to labor
(Art. 13, Sections 3 and 14, ibid.), this situation falls within the purview of Section 33
of the Tax Code of 1997. Such being the case, the costs and related expenses
associated with the lease of the condominium unit and residential house for the benefit
of the employees are expenses directly attributable to the development, management,
operation and/or conduct of the business pursuant to Section 34(A)(1) of the Tax
Code, the same shall be deducted from the gross income of ABB Power, Inc. As such,
and considering that it is a fringe benefit for the convenience and advantage of the
employer, it shall not be included as part of compensation income of the employee
subject to withholding neither will it be subject to the fringe benefit under Sec. 33 of
the Tax Code of 1997 implemented by Revenue Regulations No. 3-98. (BIR Ruling
No. 055-99 dated April 23, 1999)
CWT; Meaning of the term "Habitually Engaged in the Real Estate Business" -
For purposes of RR No. 2-98, the term habitually engaged in the real estate business is
not limited or restricted only to persons duly registered with the Housing and Land
Use Regulatory Board (HLURB) or Housing & Urban Development Coordinating
Council (HUDCC). This proviso simply means that any person duly accredited by the
said government agencies shall be deemed habitually engaged in the real estate
business. However, even in the absence of registration therewith, a person may also be
treated habitually engaged in the real estate business upon a showing that he is in fact
actually engaged in the said business. For example, a lessor of real properties may not
be registered with the HLURB or the HUDCC. Nevertheless, such person is engaged
in business as a lessor of real properties, hence, embraced by the provision "habitually
engaged in the real estate business." There is no doubt that ACL Development
Corporation is habitually engaged in the real estate business for purposes of Section
2.57.2(J) of Revenue Regulations No. 2-98. (BIR Ruling No. 059-99 dated April 30,
1999)
Moreover, the said overtime meal allowances granted to rank and file employees and
to supervisory, professional and technical employees are not subject to the fringe
benefits tax pursuant to Section 33 (C) of the Tax Code of 1997 as implemented by
Section 2.33 (C) of Revenue Regulations No. 3-98.
In fine, the overtime meal allowances granted to the rank and file employees are not
subject to the fringe benefits tax as these are specifically exempted from the
application thereof. Likewise, the overtime meal allowances granted to the
supervisory, professional and technical employees are not subject to the fringe
benefits tax since the same are granted to the employees as required by the nature of,
or necessary to your trade, or business and for your convenience. (BIR Ruling No.
061-99 dated May 5, 1999)
INCOME TAX; Interest income from foreign currency deposits - The interest
income to be earned by various investors from foreign currency denominated deposits
shall not be applicable to foreign currency bonds. A bond is a security as provided for
by Section 22 (T) of the Tax Code of 1997. Moreover, the interest income to be
receive by said investors shall be governed by tax treaties entered into by the
Philippines with their respective countries. (BIR Ruling No. 064-99 dated May 7,
1999)
Since the GTEB is an agency under the Office of the President and performing only
purely governmental function, its revenue as such is exempt from income tax,
pursuant to the provisions of Section 32(B)(7)(b) of the NIRC of the 1997. (BIR
Ruling No. 067-99 dated May 13, 1999)
CAPITAL GAINS TAX - Revenue Regulations No. 8-98 dated August 25, 1998
already repealed, amended or modified any revenue regulations, memorandum order,
circular or any other issuance of the Bureau of Internal Revenue regarding the date
and venue for the filing of capital gains tax returns and payment of taxes on
transactions involving real properties classified as capital assets and likewise the date
and venue for the filing and payment of creditable withholding tax on transaction
involving real properties classified as ordinary assets. In the case of sale or disposition
of a capital asset, the Capital Gains Tax Return shall be filed by the seller and
payment made to an Authorized Agent Bank (AAB) located within the Revenue
District Office having jurisdiction over the place where the property being transferred
is located (Sec. 3, Rev. Regs. No. 6-98). On the other hand, the creditable withholding
taxes deducted and withheld by the withholding agent/buyer on the sale, transfer or
exchange of real property classified as ordinary asset shall be paid upon filing of the
return with the Authorized Agent Bank located within the Revenue District Office
having jurisdiction over the place where the property being transferred is located
within ten (10) days following the end of the month in which the transaction occurred
(Sec. 5, Revenue Regulations No. 80-98). Accordingly, Resolution No. 98-24 of the
Cordillera Regional Assembly calling for the non-implementation of Revenue
Memorandum order No. 17-97 has been rendered moot and academic by Revenue
Regulations No. 8-98. (BIR Ruling No. 068-99 dated May 18, 1999)
INCOME TAX; Documentary Stamp Tax; Exemption of Rural Banks - Pursuant
to Section 15 of R.A. No.7353, the Rural Bank of Alabang (Muntinlupa), Inc. is
subject to the payment of corporate income tax and local taxes, fees and charges, but
is exempt from the payment of all other taxes including documentary stamp tax
imposed under Section 196 of the Tax Code of 1997 on the sale, exchange or
disposition of real property through mortgage foreclosure sale but only for a period of
5 years from the date of commencement of its operations, which is from January 15,
1997. However, Section 173 of the same Code provides that, "whenever one party to
the taxable document enjoys exemption from the tax herein imposed, the other party
thereto, who is not exempt shall be the one directly liable for the tax." Accordingly,
since Rural bank of Alabang (Muntinlupa), Inc. is exempt from the documentary
stamp tax, the owner-mortgagor is the one liable for the payment of the documentary
stamp tax due on said foreclosure sale. (BIR Ruling No. 069-99 dated May 18, 1999)
Since there is no taxable gain, the redemption by FEHI of the shares of BVPL and
OIL will not be subject to capital gains tax. (BIR Ruling No. 070-99 dated May 19,
1999)
INCOME TAX; Sale of Condominium Units - Hooven Philippines, Inc. has been
holding the real estate properties (condominium units) conveyed to it by way of
dacion en pago as part of its inventory, not intended for capital investment but carried
as part of inventory available for sale or immediate liquidation. Accordingly, since the
aforementioned condominium units are ordinary assets in the hands of HOOVEN
pursuant to Sec. 39(A) of the Tax Code of 1997, the sale of these condominium units
is not subject to the final capital gains tax imposed under Section 27(D)(5) of the said
Code. Rather, the income from the sale of these real properties shall be subject to the
normal corporate income tax imposed under Section 27(A) of the said Code. (BIR
Ruling No. 071-99 dated May 25, 1999)
EXCISE TAX; INCOME TAX; Sale of Topped Crude Oil, Wax, Asphalt - As a
purchaser of topped crude oil, Engr. Benjamin 'Santos is not liable to pay any tax on
said purchases. Furthermore, the sale of crude oil not being among those enumerated
under Section 148 of the Tax Code of 1997 as excisable petroleum product, is not
subject to excise tax. However, Shell, as seller of the said crude oil, shall be subject to
income tax on whatever gain it may derive on the transaction. By buying and paying
for the topped crude oil, Engr. Santos is technically the owner of the material . Hence,
if instead of removing it, the same is further processed by Shell and out of which
process base stocks become the yield, the removal of the latter is not subject to excise
tax imposed under Section 148 of the Code because an inventor is exempt from excise
taxes pursuant to Section 3 (c) of Revenue Regulations No. 1998 implementing R.A.
No. 7459. As regards other yield not used for the commercialization such as, wax and
asphalt, the sale shall be subject to the corresponding excise tax imposed under section
148 of the Tax Code of 1997, and the gains derived therefrom shall likewise be
subject to the income tax imposed under Section 24(A)(c) of the Tax Code of
1997. (BIR Ruling No. 073-99 dated May 27, 1999)
Such being the case, since the sale of locally assembled motor vehicle to Daeduck
Philippines, Inc. is not directly related to its registered activity as PEZA enterprise the
same could not be covered within the classification of goods or merchandise entitled
to the benefit of tax exemption. Moreover, since value-added tax is an indirect tax, the
amount of tax may be shifted or passed on to the buyer of the goods, properties or
services. Accordingly, the sale of one (1) unit of motor vehicle to Daeduck
Philippines, Inc. is subject to 10% value-added tax. (BIR Ruling No. 074-99 dated
June 4, 1999)
Additionally, the company is further liable to fringe benefits tax under Section
2.33(B)(5)(a) on interest free loan to the employee computed at the benchmark
interest rate of twelve percent per annum. Thus, the annual fringe benefit tax on
interest-free loan for the 40% of the acquisition cost of the car should likewise be
computed, as follows:
However, the documentary stamp tax is not one of the taxes covered by the tax
exemption clause in Section 20 of R.A. No. 7279. Such being the case, HIGC shall be
liable to pay the documentary stamp tax on the documents conveying the
aforementioned properties imposed under Section 196 of the Tax Code of 1997, based
on the actual consideration thereof. (BIR Ruling No. 077-99 dated June 16, 1999)
Accordingly, upon the death of the late Emigdio N. Najera, Sr. on December 1, 1986
only one-half of the property described therein shall form part of his gross estate for
purposes of determining his net estate subject to estate tax which is governed by the
statute in force at the time of his death and based on the value of the property at the
time of his death. Under Art. 996 of the Civil Code, the share of the surviving spouse
should always be computed as one child in the division of the testate estate.
Consequently, upon the death of the late Emigdio N. Najera, Sr. his wife, Rosalina N.
Najera was entitled to a share equal to the share of his children from his estate. In so
long, the heirs of the late Rosalina N. Najera should include from the gross estate, her
one-half part of the property, being a pro-indiviso owner of the property covered by
the Deed of Extra-Judicial Settlement as well as her share in the estate of the late
Emigdio N. Najera, Sr. Hence, the Estates of Emigdio N. Najera, Sr. and Rosalina N.
Najera should be computed separately for estate tax purposes in accordance with the
statute in force at that time. (BIR Ruling No. 078-99 dated June 17, 1999)
INCOME TAX; Ordinary and Necessary Expences - All ordinary and necessary
expenses paid or incurred during the taxable year in carrying on or which are directly
attributable to the development, management, operation and/or conduct of the trade,
business or exercise of a profession are deductible from gross income pursuant to
Section 34(A)(1)(a) of the Tax Code of 1997. Considering that the Regional
Management Fees paid by Kuehne & Nagel (Philippines), Inc. to the central
headquarters is directly connected with and the proximately resulting from carrying on
the business of Kuehne & Nagel (Philippines), Inc. and are appropriate and helpful in
the development of its business, the said Regional Management Fees falls within the
contemplation of ordinary and necessary expenses under Section 34(A)(1)(a) of the
Tax Code of 1997 and is a deductible item in computing the taxable income subject to
income tax, pursuant to Section 34(A)(1) of the Tax code of 1997. (BIR Ruling No.
079-99 dated June 22, 1999)
INCOME TAX; Single and Isolated Sale of Property - The proceeds of the sale of
a portion of property along Aurora Boulevard by the Good Shepherd Convent , Inc. a
non-stock, non-profit religious corporation, to the Light Rail Transit authority
(LRTA), which sale is not voluntary but compelled by public authority, is exempt
from capital gains tax. Having been derived from a single and isolated transaction in
furtherance of the purposes for which the Good Shepherd Convent, Inc. is organized,
the proceeds from the sale of a portion of its property in Aurora Blvd., cannot be
considered income from the productive use of its property. Moreover, on the basis of
the same arguments, the use of the proceeds of the sale to redevelop its remaining
property for the general improvement thereof, is in effect, use of the proceeds of the
sale of real property for the furtherance of the purpose for which Good Shepherd
Convent, Inc. was organized. Thus, the same shall be treated as a transaction of
incidental character which does not constitute engaging in business and not subject to
capital gains tax. However, the said transaction is subject to documentary stamp tax
imposed under Section 196 of the Tax Code of 1997. (BIR Ruling No. 080-99 dated
June 22, 1999)
VAT; Input Taxes - Section 4.104-5 of Revenue Regulations No. 7-95 provides that
input taxes shall be allowed only if the domestic purchase of goods, properties or
services is made in the course of trade or business. However, the input tax should be
duly supported by an invoice or receipt showing the information required under
Sections 113-(A) and 237 of the Tax Code of 1997. Since the invoices or receipts
issued by the individual contractors who undertook the renovation of the building are
admittedly in the name of the condominium corporation, the unit owners although
VAT-registered companies cannot apply their payments for the renovation of the
condominium as input VAT to be credited against their output VAT. Moreover, there
is no law, rule or regulations prohibiting the condominium corporation from issuing a
certification certifying the share of the individual unit owner in every official receipt
issued by the contractor and attaching the photo copy of the said official receipt.
However, the said certification cannot be used for the purpose of claiming input VAT
by the unit owners although they can use the same as substantiation for deductibility
of business expenses for income tax purposes. (BIR Ruling No. 081-99 dated June
22, 1999)
CAPITAL GAINS TAX; Sale of Rights over Realty - The provision of Section
24(D)(1) of the Tax Code of 1997 is clear that the sale of rights over realty although
classified as real property under the Civil Code, is not the realty contemplated in the
said Section considering that to be subject to the capital gains tax imposed therein, the
realty in question must be located in the Philippines while right over real property may
or may not be located in the Philippines since such kind of realty follows the owner
thereof who may or may not be located in the Philippines. Such being the case, this
Office holds that transfer of rights over realty, is not subject to the capital gains tax. In
this case, what is actually being sold is the right which the seller has over the said
realty, so much so that whomsoever buys the said rights merely steps into the shoes of
the seller and acquire whatever right he may have over the realty concerned, but title
thereto, remains with the seller (realty company). (BIR Ruling No. 083-99 dated
June 22, 1999)
VAT; Definition of Gross Receipts - Section 108(A) of the Tax Code of 1997
provides that there shall be levied, assessed and collected, a value-added tax
equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of
services, including the use or lease of properties. On the hand, Section 108(A)(8) of
the a same Code defines "gross receipts" as "the total amount of money or its
equivalent representing the contract price, compensation, service fee, rental or royalty,
including the amount charged for materials supplied with the services and deposits
and advanced payments actually or constructively received during the taxable quarter
for the services performed or to be performed for another person, excluding value-
added tax. WG&A, being the domestic corporation engaged in the transport of
cargoes, is well within the coverage of Section 108(A)(8) of the Tax Code of 1997.
Accordingly, WG& A is required by the Tax Code of 1997 to pay its VAT output
liability based on its gross receipts pursuant to the aforecited provision. Furthermore,
WG&A can book the said output VAT as deferred output VAT, apply the same upon
payment of the output VAT on services actually collected from the customers, amend
all VAT returns which incorrectly recognized the transaction on an accrual basis so as
to reflect the deferred output VAT as advance payment; and file the same in the RDO
of Cebu where the principal place of business of WG&A is situated. (BIR Ruling No.
085-99 dated June 29, 1999)
EXCISE TAX - Confirming BIR Ruling No. 072-99 dated May 24, 1999 to the effect
that Sodium Chloride/Pure Vacuum Dried (PVI) Iodized Salt is not a mineral product
under Section 157(B)(3) of the Tax Code of 1997, hence not subject to the excise tax
imposed therein (BIR Ruling No. 088-99 dated July 6, 1999)
Such being the case, the reconveyance of the foreclosed properties to the original
owner pursuant to the mandate of RA 7202, is not subject to the capital gains tax
imposed under Sec. 27(D)(5) of the Tax Code of 1997 nor to the documentary stamp
tax imposed under Section 196 also of the Tax Code of 1997) (BIR Ruling No. 090-
99 dated July 7, 1999)
CAPITAL GAINS TAX; Pacto de retro - The terms of the agreement between CB-
BOL and TMBC calling for the transfer of its assets, although denominated as Deed
of Assignment with Right to Repurchase, is in reality an equitable mortgage created
over the said properties. Instruments covering a sale with right to repurchase may be
captioned or labeled as such. However, when any or more of the circumstances
enumerated under Article 1602, Civil Code, obtain in the agreement, the contract shall
be presumed as an equitable mortgage. (BIR Ruling No. 217-81 dated November 6,
1981). This is relevant in determining whether or not the transaction had is subject to
the corresponding taxes, i.e. capital gains tax documentary stamp tax.
Insofar as corporations are concerned, its liability to the capital gains tax imposed on
the presumed gains realized from the sale, exchange or disposition of lands and/or
buildings is governed by Section 27(D)(5) of the Tax Code of 1997. Thus, for a
corporation to be liable to the tax, a true sale, exchange or disposition of capital assets
must have transpired. Unlike in transactions made by individuals under Section
24(D)(1) of the Code, where all sales of real property classified as capital assets,
including pacto de retro or other forms of conditional sales are subject to the capital
gains tax, no similar qualifications exist for capital asset transaction of a corporation.
Hence, the latter is subject to such tax only upon a close and completed transaction in
which income is realized.
Accordingly, this Office holds that only upon the executing of the final or absolute
deed of sale covering the properties of the bank subject of the pacto de retro, will the
payment of the 6% capital gains tax apply. By the same token, since no actual
conveyance of real property is to be made, the stamp tax on deeds of sale and
conveyances of real property imposed under Section 196 shall not apply. However,
since the transaction is in the nature of an equitable mortgage and made primarily as a
security for the payment of a pre-existing loan, the same is subject instead to the rate
of documentary stamp tax imposed under Section 195. (BIR Ruling No. 091-99
dated July 8, 1999)
RP-US Tax Treaty; Income Tax - Pursuant to Section 180 of the Tax Code of 1997
(also then Section 180 of the Tax Code, as amended) there shall be collected a
documentary stamp tax on loan agreements, including those signed abroad, of Thirty
Centavos (P0.30) on each Two Hundred Pesos (P200.00), or fractional part thereof, of
the principal amount of the loan. Hence, the US Dollar loan agreement between
Morgan Guarantee Trust Company of New York (MGT) with a Philippine Domestic
Corporation under the terms and conditions stated therein, whether it shall be signed
in the Philippines or abroad, is subject to documentary stamp tax at rate prescribed
above.
Under Section 12(2) of the RP-US Tax Treaty, the Lender shall be subject to income
tax of 15% on its interest income on the loan which shall be withheld by the Borrower
upon payment of the interest, i.e., either semi-annually or at the drawdown date in
case of prepayment, pursuant to Section 57(A) of the Tax Code of 1997 and should be
remitted to the BIR through its Collecting Agents or authorized Agent Banks subject
to the conditions provided for in Section 58(A) of the same Code.
Pursuant to Section 34(B)(1) and (2) of the Tax Code of 1997, the interest paid by the
Borrower is an allowance deduction from the gross income subject to the conditions
thus imposed therein. In relation to this, Section 45 of the 1997 Tax Code provides for
the periods for which tax deduction and credits are to be taken. Accordingly, for
income tax purposes, the Borrower shall deduct the interest expense in the year such
payments are made. However, if he prepays the interest at loan drawdown date, the
prepaid interest may be amortized over the required period. To fully reflect the
revenues generated and expenses incurred, the expired portion is deducted from the
prepaid interest as the expense for the taxable year within the required period. (BIR
Ruling 093-99 dated July 8, 1999)
VAT; Documentary Stamp Tax; Excess Baggage - The additional amount collected
by Times Transportation Co., Inc. for the excess baggage of passengers by issuing
ordinary bus tickets is subject to the 10% VAT pursuant to Section 108 of the Tax
Code of 1997. However, freight tickets covering goods, merchandise or effects carried
as accompanied baggage of passengers on land and water carriers primarily engaged
in the transportation of passengers are not subject to the documentary stamp tax
pursuant to Section 191 of the Tax Code of 1997. (BIR Ruling No. 094 dated July 8,
1999)
DONOR'S TAX - Under Section 34(H)(2)(a) of the National Internal Revenue Code
of 1997, the donor may deduct in full from his gross income, for income tax purposes,
any donation to the government, subject to the conditions stated therein. Since
TESDA is a government entity and the competition under its auspices is deemed
embraced by the proviso "exclusively to finance, to provide for, or to be used in
undertaking priority activities in education," this Office hold that donations to TESDA
for the above mentioned purpose may be fully claimed by the donor as deduction from
his gross income for income tax purposes, pursuant to Section 32(H)(2)(a) of the
National Internal Revenue Code of 1997. (BIR Ruling No. 095-99 dated July 8,
1999).
ESTATE TAX; Extension of Time to File Return - The request of the heirs of
Soledad Carino dela Paz for extension of time to file the estate tax return was denied
since the request was filed beyond the time prescribed for filing, i.e. within six (6)
months from the decedent's death. However, the request for extension to pay the estate
tax was granted subject to the condition that the administrator, executor or beneficiary
shall file a bond not to exceed twice the amount of the estate tax due. (BIR Ruling
No. 097-99 dated July 9, 1999)
ESTATE TAX; Extension of Time to File Return - The request of the heirs of the
late Bobby C. Coyukiat, who dies on January 9, 1999, for an extension of thirty (30)
days within which to file the Estate Tax Return was granted pursuant to Section 90(C)
of the Tax Code of 1997 based on the justifiable reasons. (BIR Ruling No. 104-99
dated July 13, 1999)
ESTATE TAX; Waiver by Heirs of their Respective Shares - The gross estate of
the late Antigono A. Rosil which consists merely of bank accounts in the total amount
of P153,478.01 which is even lower than the P200,000.00 tax exempt portion of the
net estate bracket as imposed under Section 84 of the same Code is indeed exempt
from estate tax. However, the executor, administrator or any of the legal heirs of the
late Antigono A. Rosil shall be required to file the corresponding estate tax return
within six (6) months from the decedent's death with the Revenue District Officer
(RDO) of the revenue district where the decedent was previously registered.
On the other hand, the waiver by the three (3) legitimate children of their respective
share in the above-mentioned estate in favor of their mother is not subject to donor's
tax as prescribed under Section 98 of the Tax Code of 1997 because in legal
succession, accretion takes place in case of repudiation among heirs of the same
degree. In other words, when the three (3) legitimate children renounced their share in
the inheritance, they did not donate the property/share to their mother, since the said
property/share has never become their own. (BIR Ruling No. 105-99 dated July 13,
1999)
VAT; ZERO-RATING - Section 108(B)(5) of the Tax Code of 1997 provides that
services performed by subcontractors and/or contractors in processing, converting, or
manufacturing goods for an enterprise whose export sales exceed seventy percent
(70%) of total annual production shall be subject to value-added tax at zero percent
(0%) rate. Accordingly, the services contracted by SVI, a BOI registered enterprise as
an export producer of computer software and whose export sales exceed 70% of its
total production, shall be subject to zero percent (0%) provided that SVI has an
approved application for zero-rating and that at least 70% of its finished products are
exported. (citation omitted) (BIR Ruling No. 106-99 dated July 15, 1999)
CAPITAL GAINS TAX; Waiver of Penalties - Granting the request of Mr. Antonio
Te Jong Tian and Ms. Julie Grace E. Te to pay the 6% capital gains tax and waiver of
the penalties/surcharges for late payment of he capital gains tax on the sale of their
principal residence situated at Binondo Terrace Condominium II, Alvaro Street,
Binondo, Manila on the ground that the delay in the payment of the said tax was not
intentional but was due to an honest belief that the regulation implementing Section
24(D)(2) of the Tax Code of 1997 exempt them from the payment thereof is
enforceable. (BIR Ruling No. 107-99 dated July 15, 1999)
ESTATE TAX; Extension of Time to File Return - Granting the request of the wife
of the late Salvador M. Lazo for an extension of time to file its estate tax return
pursuant to Section 90(C) of the Tax Code of 1997 on the ground that it is represented
that the late Salvador M. Lazo died on January 2, 1999; and that the wife still in the
process of making an inventory of the estate of the decedent. (BIR Ruling No. 109-99
dated July 20, 1999)
INCOME TAX; Accounting Period - Section 43 of the Tax Code of 1997 prescribes
that the taxpayer's taxable income "shall be computed upon the basis of the
taxpayer's annual accounting period (fiscal year or calendar year, as the case may
be) in accordance with the method of accounting regularly employed in keeping the
books of such taxpayer xxx."Section 49 of the same Tax Code further provides that
income from installment sales, "may" be reported for income tax purposes in the
manner provided for under the said Section. This law was lifted from the old Federal
Income Tax law of the United States. Being of American origin, the doctrine is that
the interpretation that it received in the United States is persuasive in the Philippines.
According to U.S. jurisprudence, the said law on installment reporting of income from
deferred payment sale is a mere option or privilege granted by law to the seller
(MERTENS § 15.05). Thus, if the taxpayer-seller does not opt to report his income
from deferred payment sale transaction on installment basis as provided under Section
49 of the Code, then, he may report the same in accordance with the accounting
method regularly employed in keeping his books of accounts, pursuant to Section 43
of the said Code. This rule is apparent and patent in Section 49 of the Code which
used the word "may" vis-a-vis reporting of income from deferred or installment
payment sales, regardless of whether or not the buyer's initial payments in the year of
sale exceed or do not exceed 25% of the selling price.
However, the implementing regulations governing sales of real property on
installment basis are now provided under Section 2.57.2 (J) of Rev. Regs. No. 2-98,
effective January 1, 1998. Since Revenue Regulations are only prospective in
application, the said rule does not apply to this case which pertains to the prior years
1991 to 1996.
This ruling modifies and further clarifies BIR Ruling No. 11-99 dated January 22,
1999. (BIR Ruling No. 112-99 dated July 29, 1999)
On the other hand, Luzon Hydro is not liable to pay income tax as a result of the grant
to it of tax credit since VAT which is the source of such tax credit is not eligible as a
deduction from gross income under Section 34(C) of the Tax Code of 1997 and it has
not been actually utilized as a deduction since it partakes the nature of an excess input.
In like manner, the assigned who are the present holders of the tax credit certificates
are not liable for income tax upon the issuance to them of the tax credit certificates
since they have only accommodated their affiliate or sister company by advancing he
value of the tax credit assigned to each of them. (BIR Ruling No. 113-99 dated July
29, 1999)
CAPITAL GAINS TAX; Dacion en pago - Since the consideration of P750 million,
equivalent to the dacion price agreed upon between the Consortium and Metrobank, is
still higher than that determined under current zonal valuation pursuant to Department
Order No. 10-97 of the Department of Finance and considering that this is not
disadvantageous to the government, this Office hereby holds that the same can serve
as the basis in computing the capital gains tax and documentary stamp tax relative to
the said dacion en pago transaction. Moreover, due to strong clamor from the
government and private sectors in view of the depressed condition of the real estate
market, this Office is currently undergoing a review of the existing zonal valuation to
align the same within a realistic market range. (BIR Ruling No. 114-99 dated July
29, 1999)
DONOR'S TAX - Pursuant to Section 98 of the Tax Code of 1997, a donor's tax shall
be levied, assessed, collected and paid upon the transfer by any person, resident or
non-resident, of the property by gift. The said tax shall apply whether the transfer is in
trust or otherwise, whether the gift is direct or indirect and whether the property is real
or personal, tangible or intangible. However, where the donor is a non-resident foreign
corporation, its real or personal property so transferred which are situated outside the
Philippines shall not be included as part of its gross gift pursuant to Section 104 of the
same Code. The donor's tax is an excise tax on the transfer of property. it is not a tax
on property which is the subject of the gift, although it is measured by the value of
that property. It is a tax on the donor's privilege to give.
Considering that the donor is a non-resident foreign corporation, and therefore beyond
the jurisdiction of the Philippine government to tax, this office holds that the proposed
cash donation to a domestic corporation to be held in trust for the benefit of two
resident minor who are Philippine citizens shall not be subject to any Philippine tax.
Moreover, the subsequent transfer of the trust assets from the trustee to the
beneficiaries is likewise not subject to tax. (BIR Ruling No. 115-99 dated August 6,
1999)
ESTATE TAX; Extension of Time to File Return - Granting the request of the heirs
of the late Uy An Teng, for an extension of thirty (30) days within which to file the
estate tax return pursuant to Section 90(C) of the Tax Code of 1997 but the estate shall
be liable to the corresponding interest that have accrued thereon up to the time of
filing of the return and payment of the estate tax due on the transmission of the said
estate to the heirs pursuant to Section 249 of the Tax Code of 1997. (BIR Ruling No.
116-99 dated August 10, 1999)
ESTATE TAX; Extension of Time to File Return - Granting the request of the heirs
of the Estate of the late Exaltacion Ocampo for an extension of thirty (30) days within
which to file the estate tax return pursuant to Section 90(C) of the Tax Code of 1997
as they are still gathering the pertinent documents regarding the estate of the deceased.
However, the estate shall be liable to the corresponding interest that have accrued
thereon up to the time of filing of the return and payment of the estate tax due on the
transmission of the said estate to the heirs pursuant to Section 249 of the Tax Code of
1997. (BIR Ruling No. 118-99 dated August 10, 1999)
PERCENTAGE TAX - Modifying BIR Ruling No, 110-98 dated July 7, 1998 insofar
as it subjects the taxpayer's gross sales or receipts from the sale of condominium units
valued at less than P1,000,000.00 each to the 3% gross receipts tax imposed under
Section 116 of the Tax Code of 1997. Under Section 109(w) of the Tax Code of 1997,
the taxpayer is exempt not only from VAT but also from the 3% gross receipts
tax. (BIR Ruling No. 120-99 dated August 11, 1999)
ESTATE TAX; Extension of Time to File Return - Granting the request on behalf
of the Estate of the late Juan K. Cabrieto for an extension of thirty (30) days within
which to file the estate tax return pursuant to Section 90(C) of the Tax Code of 1997
but the estate shall be liable to the corresponding interest that have accrued thereon up
to the time of filing of the return and payment of the estate tax on the transmission of
the said estate to the heirs pursuant to Section 249 of the Tax Code of 1997. (BIR
Ruling No. 123-99 dated August 16, 1999)
ESTATE TAX; Extension of Time to File Return - Granting the request on behalf
of Ms. Flora Rayos Lopez, for an extension of thirty (30) days within which to file the
estate tax return of her father, Manuel B. Rayos, Sr. pursuant to Section 90(C) of the
Tax Code of 1997. However, that the estate shall be liable to the corresponding
interest that have accrued thereon up to the time of filing of the return and the
payment of the estate tax due on the transmission of the said estate to the heirs
pursuant to Section 249 of the Tax Code of 1997. (BIR Ruling No. 125-99 dated
August 17, 1999)
TRANSFER OF ASSETS - It is a general rule that the State can levy a tax only upon
persons, property, income or acts of business that are within its territorial limits and
bans it from collecting a tax on subject or objects outside those limits (Manila Gas
Corporation vs. Comm. of Int. Rev., 62 Phil 895). There being no physical transfer of
assets to the Philippines were made during the acquisition of the Netherlands
corporation by SPI Technologies, Inc. but only a recording in the books of the latter
was made to reflect such acquisition, the subsequent transfer of such assets in the
books of its subsidiary does not involve any Philippine tax liability or
consequence. (BIR Ruling No. 126-99 dated August 17, 1999)
TAX AMNESTY - Presidential Decree No. 1740 dated September 17, 1980 and as
amended by Executive Order No. 695 dated May 27, 1981, allowed a taxpayer who
failed to file a return for taxable years 1974 to 1979, to file a return and accurately
declare therein the true and correct income, deductions and exemptions and pay the
income tax due per return. The same law likewise allowed a taxpayer who filed a false
or fraudulent return for any taxable year in the period mentioned to amend his return
and pay the correct amount of tax due after deducting the taxes already paid, if any, in
the original declaration. Upon voluntary disclosure of undeclared income, the taxpayer
is granted immunity from the penalties, civil or criminal, imposed under the National
Internal Revenue Code of 1977. Having availed of the Government's tax amnesty
pursuant to P.D. 1740 as amended by E.O. 695, subject-taxpayer is immune from civil
or criminal penalties, hence, rendering the Warrant of Distraint of personal property
dated December 16, 1983 pertaining to his income tax deficiency for taxable year
1976 without effect. (BIR Ruling No. 127-99 dated August 17, 1999)
INCOME TAX - Section 2.79 of Revenue Regulations No. 2-98, provides that every
employer must withhold from compensation paid, an amount computed in accordance
with these regulations. Provided, that no withholding of tax shall be required where
the total compensation income of an individual does not exceed the statutory
minimum wage of five thousand pesos (P5,000.00) monthly or sixty thousand pesos
(P60,000.00) a year, whichever is higher. The term "employer" is defined as any
person paying compensation on behalf of a non-resident alien individual, foreign
partnership, or foreign corporation, who is not engaged in trade or business within the
Philippines pursuant to Section 2.78.4(B) of the said Revenue Regulations.
The income earned by the project staff of the De La Salle are compensation income
wherein the University has the responsibility of withholding the tax as an employer
paying compensation on behalf of a non-resident alien individual, foreign partnership,
or foreign corporation, who is not engaged in trade or business within the Philippines.
The incentive given to faculty members of De La Salle University who are doing
research projects for the University can be equated to a productivity incentive and a
productivity incentive is a fringe benefit. For supervisory and managerial employees,
one of the fringe benefits that is not subject to the fringe benefits tax are "de minimis
benefits."
The productivity incentive given is no longer subject to the P12,000.00 threshold but
the same, plus the 13th month pay not exceeding P30,000.00 are excluded from gross
income and therefore exempt from taxation pursuant to Section 32 (B)(7)(e) of the
Tax Code of 1997. In excess thereof there shall be imposed a final tax of 34%
beginning January 1, 1998, 33% beginning January 1, 1999 and 32% beginning
January 1, 2000 and thereafter, on the grossed-up monetary value of fringe benefits
pursuant to Section 33 of the Tax Code of 1997 and its implementing regulations.
In general, the relationship of the employer and employee exists when the person for
whom services were performed has the right to control and direct the individual who
performs the services, not only as to the result to be accomplished by the work but
also as to the details and means by which the result is accomplished. An employee is
subject to the will and control of the employer not only as to what shall be done, but
how it shall be done. In this connection, it is not necessary that the employer actually
directs or controls the manner in which the services are performed. It is sufficient that
he has the right to do so.
The fact however that the Coaches and ROTC Commandant do not enjoy the benefits
of a bona-fide employee of De La Salle University does not at all affect DLSU being
the withholding agent of the Bureau of Internal Revenue because it is in fact the
income payor of the said coaches and commandant and is fully responsible for the
services performed by them on its behalf. Therefore, if the qualified faculty member is
an overseas contract worker which work contract passes thru the Philippine Overseas
Employment Agency (POEA), the income that will be received by the said qualified
faculty members are considered income not within the Philippines, not subject to tax,
hence, the University is not under obligation to withhold income tax.
Nonetheless, being the agent, fiduciary or other person who has the control, receipt,
custody or disposal of, or pays the compensation payable by another employer to such
employee, the amount of tax required to be withheld on each compensation payment
made through an agent, fiduciary, or person shall, whether the compensation is paid
separately on behalf of all such employers, be determined based on the aggregate
amount of such compensation payment or payments in the same manner as if such
aggregate amount had been paid by one employer. Since the University has the
control, receipt, custody or disposal of or is the one who pays the compensation
payable by another employer, the University is under obligation to withhold the
corresponding income tax and remit the same to the Bureau of Internal Revenue on
behalf of the said employers. (BIR Ruling No. 128-99 dated August 18, 1999)
However, the tax liability of a taxpayer who availed of the VAP under RMO No. 59-
97, as amended, can still be investigated upon approval and authorization of the
Commissioner if there is an evidence or finding of misdeclaration of any information
on the return filed by the taxpayer under the VAP. (BIR Ruling No. 130-99 dated
August 20, 1999)
CAPITAL GAINS TAX ; Sales of Shares of Stock Not Traded in Local Stock
Exchange - Since the capital gains tax on capital gains derived from sale of shares of
stock not listed and traded in the Local Stock Exchange is computed based on the
seller's capital gain, hence, a determination of the seller's deductible cost basis and
expenses of sale is necessary in order to compute for his taxable amount of capital
gain, and considering that such information is only known to the seller, to the
exclusion of the buyer, it follows that the buyer has no means of determining the
amount of capital gains tax due from the seller. For this reason, the buyer cannot be in
a position to withhold the tax from the seller.
Accordingly, the applicable law on payment of capital gains tax in respect of sales of
such share of stock not listed and traded in the Local Stock Exchange can only be
governed by Section 52(D) of the Code, in which case, the Seller shall file his capital
gains tax return and pay the tax in the manner as provided thereunder. The
withholding tax provision under Section 57(A) of the Code is not applicable
thereto. (BIR Ruling No. 131-99 dated August 20, 1999)
INCOME TAX; Cash and/or Property Dividends - Pursuant to the Tax Code of
1997, cash and/or property dividends paid to certain taxpayers during the taxable year
shall be subject to the income rates prescribed under Secs. 24(B)(2), 25(A)(2), 25(B),
28(B)(1) and 28(B)(5)(b) thereof.
In addition to this, Sec. 57(A) of the Tax Code of 1997, as implemented by Rev. Regs.
No. 2-98, as amended provides, among others, that the tax imposed or prescribed by
Sec. 24(B)(2), 25(A)(2), 25(B), 28(B)(l) and 28(B)(5)(b) on specified items of income
shall be withheld by the payor-corporation and/or person and paid in the same manner
and subject to the same conditions as provided in Sec. 58 of the Tax Code.
Accordingly, the withholding tax rates applicable to the cash dividends declared for
the taxable year 1998 but payable to or actually or constructively received in 1999 are
the rates prescribed in 1999 notwithstanding the fact that such cash dividends declared
form part of the income or retained earnings in 1998. (BIR Ruling No. 134-99 dated
August 25, 1999)
Hence, EAUC which is registered with PEZA as an Ecozone Utilities Enterprise, and
not a service establishment, is exempt from national and local taxes, which include,
among others, excise tax. Likewise, SBFC, a SBF enterprise, is also exempt from
national and local taxes, including excise tax. Hence, no excise tax attaches to the
petroleum products imported or manufactured and sold by SBFC to EAUC for the
latter's use and consumption within the Ecozone.
The excise tax exemption equally applies to the petroleum products used and
consumed by EAUC to produce electricity sold to VECO. However, EAUC shall be
subject to the 33% corporate income tax, 2% franchise tax but exempt from VAT on
its sale of electricity to VECO. Since there is no provision in the Tax Code which
subjects the sale of electricity to excise tax, then no excise tax can be imposed on the
sale of electricity by EAUC to VECO. (BIR Ruling No. 135-99 dated August 30,
1999)
PERCENTAGE TAX - Under Section 22(I) of the Tax Code of 1997, the term
"shares of stock" includes warrant and/or options to purchase shares of stock. A
Philippine Depository Receipt (PDR) partakes the nature of a share of stock since
PDR evidences a right on the part of the holder to purchase one share of ABS CBN
from the Special Purpose Corporation (SPC) for a specified exercise price. The
specified exercise price represents the consideration. The transaction applies also to
other shareholders of ABS CBN, other than Benpres and Lopez, who are willing to
sell their ABS CBN shares and who in return will be issued their corresponding PDRs.
Furthermore, a PDR is indeed a warrant and/or option to purchase shares of stock
since as represented, after the compliance with the requirements to be imposed by the
SEC, particularly under the Revised Securities Act, and by the PSE, these PDRs will
be listed and traded in the PSE like in the case of a share of stock.
Such being the case, a PDR is subject to the tax rate of ½ of 1% of the gross selling
price or gross value in money of the shares of stock sold, bartered, exchanged or
otherwise disposed which shall be paid by the seller or transferor pursuant to Section
127(A) of the Tax Code of 1997. (BIR Ruling No. 136-99 dated August 30, 1999)
Pursuant to Section 34(D)(3) of the Tax Code and considering that the merger will be
undertaken for a bonafide business purpose and not for the purpose of escaping the
burden of taxation and there is no effective change in ownership, the surviving
corporation can claim as NOLCO deduction the NOLCO balance of the absorbed
corporation/s, which shall be transferred and vested in the surviving corporation by
operation of law pursuant to statutory merger.
Likewise, since the excess MCIT will form part of the assets transferred to and vested
in SWI on the effective date of the merger, SWI may carry forward and credit the
excess MCIT of Sanofi-Philippines and Synthelabo-Philippines against its normal
income tax liability for three immediately succeeding taxable years pursuant to
Section 27(E)(2) of the 1997 Tax Code.
INCOME TAX; VAT - Executive Order No. 72, s. of 1986 effectively amended the
"payment of franchise tax of two percent (2%) in lieu of all taxes" provision of
Republic Act No. 4147 (Filipinas Orient Airways Franchise) thereby subjecting
Filipinas Orient Airways to the corporate income tax imposed under then Section
24(a) of the Tax Code of 1986, [now Section 27(A), Tax Code of 1997] starting
February 10, 1987, the date of effectivity of Executive Order No. 72. Similarly, said
R.A. 4147 was further amended by then Section 102 of the NIRC, as amended by
R.A. No. 7716, otherwise known as the Expanded Vat Law (EVAT [now Section 108
of the, NIRC, as renumbered by R.A. 8424]), in respect to its domestic carriage of
goods
The franchise grantees referred to under the Section 119 of the NIRC only refers to
the legislative franchise grantees pertaining to "radio and/or television broadcasting,
electric, gas and water utilities". Since the franchise of Filipinas Orient Airways is not
embraced by Section 119 of the Code, then its domestic operations, to the extent of its
carriage of goods and cargoes, became subject to the 10% VAT pursuant to the above-
quoted Section 108 of the 1997 Tax Code. Moreover, since its domestic operations in
respect to carriage of passengers was not amended by R.A. 7716, the revenues derived
therefrom shall remain subject to the aforesaid two percent (2%) franchise tax.
Finally, since only its domestic operations had been amended by R.A. 7716, the
revenue from international operations shall remain subject to the said franchise
tax. (BIR Ruling No. 140-99 dated September 9, 1999)
VAT; DETERMINATION OF THE TAX - Section 108 (C) of the Tax Code of
1997 which provides that the tax shall be computed by multiplying the total amount in
the invoice indicated in the official receipt by 1/11 renders the presentation or non-
presentation of the VAT as separate item in the Official Receipt or Sales Invoice
without any effect in the determination of the VAT-registered seller's tax liability.
This simplifies the manner of extracting the VAT liability on a particular transaction,
and effectively eradicates any issue related thereto in the event a different value added
tax is presented in the O.R.
Thus, to the VAT registered purchaser, the tax burden passed on does not constitute
cost, but input tax which is creditable against his output tax liabilities. This voids the
cascading effect which is characteristic of the sales tax system of old, where the sales
tax is necessarily cost to the buyer, and as such becomes a factor of cost which is a
basis of the marked up seller price in turn to his customers, and so on and so forth
down the distribution chain. In the VAT system, however, it is only in the case of a
Non-VAT purchaser that VAT forms part of cost of the purchase.
Accordingly, the non-presentation of the VAT in the O.R. or Invoice would, negate
any possible confusion in the appreciation of the input tax which the VAT purchaser
may apply against his output tax liabilities, through the uniform rate of 1/11 of the
O.R. or invoice. (BIR Ruling No. 141-99 dated September 13, 1999)
For purposes of the above regulations, the term habitually engaged in the real estate
business is not limited or restricted only to persons duly registered with the HLURB
or HUDCC. The proviso simply means that any person duly accredited by the said
government agencies shall be deemed habitually engaged in the real estate business.
However, even in the absence of registration therewith, a person may also be treated
habitually engaged in the real estate business upon showing that he is in fact actually
engaged in the said business. (Citation Omitted)
Accordingly, this Office hereby holds that the Bank's inventory of foreclosed
properties which are mandated by law to be disposed of within a period not longer
than five (5) years are ordinary assets the gain or loss from the sale of which to be
included in computing the Bank's net taxable income during the year pursuant to
Section 28 (A) of the 1997 Tax Code. Moreover, and considering that the disposition
of said foreclosed properties qualifies the Bank to be habitually engaged in the real
estate business, income from sale or disposition of the same is subject to a creditable
withholding income tax at the rate provided for in Section 2.57.2(J) of Rev. Regs. No.
2-98. (BIR Ruling No. 143-99 dated September 14, 1999)
BIR Ruling No. 144-99 dated September 14, 1999 was never implemented and was
immediately revoked.
Since Clarion is liable to the preferential tax rate of 5% on its gross income earned
which shall be in lieu of local and national taxes pursuant to Section 24 of R.A. No.
7916, it is exempt from the payment of documentary stamp tax on the original issue of
stocks certificates to its respective stockholders as well as on the certificates of
deposits. However, Section 173 of the Tax Code of 1997, provides that "whether one
party to the taxable document enjoys exemption from the tax herein imposed, the
other party thereto who is not exempt shall be the one directly liable for the tax."
Since Clarion is exempt from the payment of documentary stamp tax, it is respective
stockholders and/or the banks, as the case may be, who are the ones liable for the tax.
Moreover, the interest income earned by Clarion from its bank deposits within the
zone, whether in peso or foreign currency deposit is subject to the preferential tax rate
of 5%. (BIR Ruling No. 146-99 dated September 14, 1999)
Furthermore, Section 223 of the Tax Code of 1997 which provides that the running of
the statute of limitation maybe suspended when the taxpayer cannot be located in the
address given by him in the return filed upon which a tax is being assessed is not
applicable in the instant case since the taxpayer had duly notified the BIR on its
transfer of office address.
Such being the case, the assessment notices issued by the Assessment Division of
Revenue Region No. 7, Quezon City are null and void for the same were not duly and
timely served and received by the taxpayer, and that since the said assessment notices
were served and known only after the lapse of the three (3) year period counted from
the last day prescribed by law for filing of the returns required under Section 203 of
the Tax Code of 1997, the right of the BIR to assess already prescribed. (BIR Ruling
No. 147-99 dated September 16, 1999)
Since the above transactions are not "export sales" as contemplated by law, the sale of
the petroleum products, including lubricants, to a foreign international marine vessels
for their own consumption while plying the international waters, is subject to excise
tax on petroleum products under Section 148, Chapter V, of the Tax Code of 1997.
However, under the principle of reciprocity, the Philippine Government through the
Bureau of Internal Revenue may consider granting excise tax exemption to these
foreign flag-registered marine vessels on their purchase of petroleum products for
their own personal consumption while plying the international waters, from domestic
oil companies, if they can subject to the Commissioner of Internal Revenue or his duly
authorized representative a copy of a special legislation or international agreement
showing that their Government allows similar tax exemption to Philippine-flag
registered marine vessels purchasing similar petroleum products in their county. [BIR
Ruling No. 026-99 dated March 9, 1999] (BIR Ruling No. 148-99 dated September
17, 1999)
R.A. No. 7227 - Section 291 of the Tax Code of 1997 provides that all laws, decrees,
executive orders, rules and regulations or parts thereof which are contrary to or
inconsistent with the said Code are hereby repealed, amended or modified
accordingly. While E.O. 80 and R.A. No. 7227, as implemented by Revenue
Regulations No. 1-95, and as further implemented by Revenue Regulations No. 12-97,
were approved and made effective prior to January 1, 1998, the date of effectivity of
R.A. No. 8424, otherwise known as the Tax Code of 1997, the same are not covered
by the above-cited repealing provision of the said Code. Such being the case, the
special income tax regime or tax incentives granted to enterprises registered within the
secured area of Subic and Clark Special Economic Zones have not been repealed by
the provisions of R.A. 8424.
Sec. 6(f) of Revenue Regulations No. 1-95 provides that interest from any Philippine
currency bank deposits and yield or any other monetary benefit from deposit
substitutes, and from trust fund and similar arrangements received by a registered
enterprise engaged in business within the Secured Area shall be subject to the
preferential tax rate. All other interests, yield of monetary benefit from deposit
substitutes, trust funds and similar arrangements and royalties derived from sources
within the Philippines by a person other than a registered enterprise operating within
the Secured Area in the zone shall be subject to the appropriate tax law rates of the
Customs Territory. Accordingly, enterprises registered within the secured area of
Subic and Clark Special Economic Zones are liable to the preferential tax treatment of
5% of the gross income earned which shall be in lieu of local and national taxes
pursuant to Section 12 (c) of R.A. 7227. They are therefore exempt from the final tax
of 20% and 7.5% respectively imposed on the amount of interest from currency bank
deposit and yield or any other monetary benefit from deposit substitutes and from trust
funds and similar arrangements and royalties from sources within the Philippines and
the interest income they will derive from a depository bank under the expanded
foreign currency deposit system as prescribed under Section 27 (D)(1) of the Tax
Code of 1997. (BIR Ruling No. 149-99 dated September 17, 1999)
ESTATE TAX; Extension of Period to File Return - Granting the request on behalf
of the Estate of the late Clementina Posadas for an extension of thirty (30) days within
which to file the estate tax return pursuant to Section 90 ( C) of the Tax Code of 1997
for reasons stated therein which appear to be justifiable.
However, that the estate shall be liable to the corresponding interest that have accrued
thereon up to the time of filing of the return and payment of the estate tax due on the
transmission of the said estate to the heirs pursuant to Section 249 of the Tax Code of
1997. (BIR Ruling No. 150-99 dated September 23, 1999)
VAT; Dressing of Chicken for a Fee - The process of dressing chicken for others for
a fee, remuneration or consideration is subject to the 10% VAT pursuant to Section
108 of the Tax Code of 1997. Such being the case, 3J Food Corporation, which is
engaged in the business of dressing chicken for a fee for Vitarich Corporation, is
liable to the payment of 10% VAT on its gross receipts. (BIR Ruling No. 151-99
dated October 5, 1999)
CAPITAL GAINS TAX - The assignment of FFC share representing HTL's 20%
share transferring title of the land directly to HTL is exempt from the capital gains tax
imposed under Section 24(D)(1) and Section 27(D)(5) both of the Tax Code of 19977
and to the creditable withholding tax prescribed under Revenue Regulations No. 2-98
implementing among others, Section 57(B) of same Code, considering that the
assignment in this case, is merely an act of partitioning the commonly owned
property. It is nothing more than an act of terminating the co-ownership by making
each co-owner, owner of specific identifiable developed lot or unit. No taxable income
has not yet been realized by the co-owners since the process constitutes a single act of
retaining their contributed capital.
Moreover, Sta. Lucia Realty and Development, Inc. could assign portion of the input
tax it has accumulated in connection with the development of the Project to its Joint
Venture Partners in proportion to their contribution to the Join Venture Project since
the landowners share in the developed subdivision includes the cost of development
(gross area is reduced by 50%). Hence, could be apportioned among the Join Venture
Partners considering that each co-venturer was charged with the cost of development
on their respective share of the developed subdivision lots which necessarily includes
any input VAT that was accumulated in connection with the development of the
Project. (BIR Ruling No. 153-99 dated October 6, 1999)
Now comes, Revenue Regulation No. 3-99 which took effect on March 5, 1999,
amending Revenue Regulations No. 12-98 which requires the physician to remit the
10% of the fee received to the accounting office of the hospital or clinic. Since it is
Health Solution Corporation (HSC) which pays the professional fee of the accredited
physician who rendered the medical service and withholds the 10% creditable
withholding tax on the professional fee paid to the doctor pursuant to Revenue
Regulations No. 2-98, the HSC patients should no longer be required by the hospital
or clinic to pay the professional fee of the attending physician through the hospital or
clinic. Moreover, despite the clarification in Revenue Regulations Nos. 12-98 and 3-
99, the fact remains that said regulations do not apply to HSC patient, since it is HSC
which pays the professional fees of the accredited physicians and is obligated to
withhold the tax on the professional fee and remit the same to the Bureau in
accordance with Revenue Regulations No. 2-98. (BIR Ruling No. 156-99 dated
October 7. 1999)
AD VALOREM TAX - Since the transfer of the motor vehicle which Mr. Ashok
Ramnani purchased from David Greeberg of the U.S. Embassy was executed on June
26, 1996, Section 149 in relation to Section 128, both of the Tax Code, as amended
shall apply in the determination of the excise tax due to be imposed thereon.
Such being the case, Mr. Ramnani is subject to ad valorem tax on automobiles based
on the manufacturer's or importer's selling price, net of excise and value-added taxes
pursuant to Section 149 of the Tax Code, as amended by Executive Order No. 273 and
not to compensating tax. (BIR Ruling No. 75-89 dated April 14, 1989) Said ad
valorem tax is in addition to the 10% value-added tax in accordance with Section 126
of the same Code. (BIR Ruling No. 157-99 dated October 7, 1999)
EXCISE TAX; Dual Purpose Kerosene (DPK) being used as aviation fuel -
Pursuant to Section 148(g) and (h) of the 1997 Tax Code,, an excise tax at the rate of
P0.60 per liter shall be imposed on kerosene. However, if it is being used as aviation
fuel, it shall be subject to the same tax rate of P3.67 per liter of volume capacity
imposed on aviation turbo jet fuel provided under item (h) of the same Section 148. In
such case, the tax shall be assessed on the user of such kerosene product used as
aviation jet fuel.
PETRON manufactures and sells both kerosene and aviation jet fuel and for which it
maintains storage tanks designated for the products thus mentioned. Likewise, it
produces dual purpose kerosene which is being stored in PETRON's storage tanks for
kerosene. In all its sale of aviation jet fuel to airline or aircraft customers, it pays the
specific tax of P3.67/liter on aviation fuel.
On the matter of who shall be liable for the specific tax on aviation fuel for the
kerosene (DPK) sold as such by PETRON but thereafter is found out to be ultimately
used as jet fuel by the airline/aircraft companies, this Office hold that it shall be the
user of the kerosene (DPK) who shall pay the specific tax of P3.67/liter corresponding
to aviation jet fuel whenever the product is used by aviation fuel. Moreover, the
above-cited proviso of Sec. 148(h) of the 1997 Tax Code will not apply in the case of
sale of DPK by PETRON eventhough the ultimate usuage of the product is for
aviation fuel since PETRON is the manufacturer/seller of the product and not the user
thereof. (BIR Ruling No. 160-99 dated October 14, 1999)
BIR Ruling No. 162-99 dated October 15, 1999 which denied the request of World
Bank for exemption from the payment of VAT and ad valorem tax on the purchase by
Mr. Ramesh Bhatia of one (1) unit motor vehicle for his personal use, was expressly
revoked by BIR Ruling No. 187-99.
RP-US TAX TREATY; Most Favored Nation Clause - Under Article 8 of the Civil
Code of the Philippines, judicial decisions, though not laws, are evidence however, of
what the laws mean, and this is the reason why they are part of the legal system of the
Philippines. It becomes a part of the law as of the date that was originally passed since
the court's application or interpretation merely establishes the contemporaneous
legislative intent that the construed law purports to carry into effect. However, a
reversal of the interpretation cannot be given retroactive effect to the prejudice of
parties who had relied on the first interpretation. On this basis, this Office holds that
the doctrine laid down by the Supreme Court in the case of Commissioner of Internal
Revenue vs. S.C. Johnson & Son, Inc. and Court of Appeals, G.R. No. 127105
promulgated on June 25, 1999, anent the most favored nation clause, under Article
13(2)(b)(iii) of the RP-US Tax Treaty would not entitle U.S. recipients of royalty
income to the lower rate of tax enjoyed by German recipients under the RP-West
Germany Tax Treaty, should be applied prospectively. (BIR Ruling No. 163-99
dated October 20, 1999)
RP-US TAX TREATY; Business Profits; VAT - Section 42(C)(3) of the Tax Code
of 1997 provides that compensation for labor or personal services performed without
the Philippines shall be treated as income from sources without the Philippines. For
the source of income to be considered as coming from the Philippines, it is sufficient
that the income is derived from an activity within the Philippines (Commissioner vs.
British Overseas Airway Corporation and Court of Tax Appeals, G.R. Nos. 65773-74
dated April 30, 1987). Considering that the cost-sharing reimbursement to be made by
the branch to its US affiliate is for actual services rendered in the United States by US
residents, payments thereof should not be considered as income from within the
Philippines and therefore not subject to Philippine income tax.
Article 8(1) of the RP-US Tax Treaty provides that business profits of a resident of
one of the Contracting States shall be taxable only in that State unless the resident has
a permanent establishment in the other Contracting State. If the resident has a
permanent establishment in that other Contracting State, tax may be imposed by that
other Contracting State on the business profits of the resident but only on so much of
them as are attributable to the permanent establishment.. Since APCC does not have a
permanent establishment in the Philippines to which its business profits/income is
attributable, the cost-sharing reimbursements made by the branch to US residents for
actual services rendered in the United States are not subject to Philippine income tax
and consequently to withholding tax.
Section 105 of the Tax Code of 1997 provides that "any person who, in the course of
trade or business, sells, barters, exchanges, leases goods or properties, renders
services, and any person who imports goods shall be subject to the value-added tax
(VAT) imposed in Section 106 to 108 of the said Code. The intended transfer of assets
of the subsidiary, other than inventories of taxable goods, to the proposed branch is
not in the course of trade or business neither is it incidental thereto since the same
does not necessarily follow its primary function of manufacturing, processing,
importing, exporting, buying, selling and/or dealing in electronic equipment, power
goods of similar nature and their accessories. Since the intended transfer of assets of
the subsidiary to the proposed branch is just an isolated transaction, said transfer is not
subject to value-added tax. (Citations omitted)
The transfer of inventories of taxable goods of the subsidiary to the branch shall be
subject to 10% value-added tax imposed under Section 106(B)(1) of the Tax Code of
1997, if the Philippine subsidiary at the time of its liquidation is still enjoying an
income tax holiday (ITH). However, if the subsidiary is no longer enjoying the ITH at
the time of its liquidation, and is in fact already being taxed at the rate of 5% on gross
income, then it may claim exemption from the 10% value-added tax since the 5%
income tax on gross income applicable to PEZA registered enterprises is in lieu of all
national and local taxes including the 10% VAT. For VAT purposes, the branch may
utilized the accumulated input VAT of the subsidiary, since the conversion of the
subsidiary to a branch is akin to a merger. Where there is a transfer of all the assets
and the assumption of debts and liabilities of the absorbed corporation by the
absorbing corporation and the legal personality of the absorbed corporation is
extinguished but its interest subsists inasmuch as the transfer is in consideration for
the shares of stock to be issued by the absorbing corporation. (BIR Ruling No. 165-99
dated October 21, 1999)
As a general rule, the interest income on currency bank deposit and yield or other
monetary benefit from these "deposit substitutes" and similar arrangement derived by
banks and non-bank financial intermediaries are being taxed at the final rate of 20%
under Section 27(D)(1) of the 1997 Tax Code. However, Section 32 (B)(7)(g) of the
same Code, provides an exception, thus, interest income or yields or gain from the
sale of bonds, debentures and certificates of indebtedness with maturities of more than
five (5) are excluded from gross income and therefore exempt from the 20% final
withholding tax on deposit substitutes. (BIR Ruling No. 166-99 dated October 25,
1999)
ESTATE TAX; Extension of Time to File Return - Granting the request on behalf
of the heirs of the late Elisa V. Romero for an extension of thirty (30) days within
which to file the estate tax return pursuant to Section 90 (C) of the Tax Code of 1997
based on justifiable reason. However, the estate shall be liable to the corresponding
interest that have accrued thereon up to the time of filing of the return and payment of
the estate tax due on the transmission of the said estate to the heirs pursuant to Section
249 of the Tax Code of 1997. (BIR Ruling No. 167-99 dated October 26, 1999)
EXCISE TAX; Polyethylene (P.E.) Wax - The result of the laboratory analysis
forwarded to this Office September 3, 1999, by the BIR Tax Fraud Division
effectively classifies Polyethylene (P.E.) Wax article as a synthetic wax produced by
high pressure polymerization of ethylene (gas), and which is, therefore, not a
petroleum based wax. This Office is of the opinion as it hereby holds that
POLYETHYLENE (P.E.) WAX, not being a petroleum based wax, is not subject to
excise tax imposed under Section 148(c) of the 1997 Tax Code. (BIR Ruling No.
168-99 dated October 26, 1999)
ESTATE TAX; Extension of Time to File Return - Granting the request on behalf
of the heirs of the late Florencia Jaranilla for an extension of thirty (30) days within
which to file the estate tax return pursuant to Section 90(C) of the Tax Code of 1997
based on justifiable reason. However, the estate shall be liable to the corresponding
interest that have accrued thereon up to the time of the filing of the return and
payment of the estate tax due on the transmission of the said estate to the heirs
pursuant to Section 249 of the Tax Code of 1997. (BIR Ruling No. 169-99 dated
October 26, 1999)
Assuming that the extent of the mineral oil content is only at 86% based on the SGS
finding, that by itself would put Efficascent Premix as a petroleum based product. The
taxability of petroleum product, effective August 16, 1996, is based on the percentage
of petroleum content. If the Resultant product contains not less than fifty percent
(50%) by weight of such petroleum product, the same is considered a petroleum
product, hence, subject to excise tax. (Citation omitted) Accordingly, the importation
of the Premix, effective August 16, 1996, is subject to excise tax of P3.50 per
kilogram pursuant to Section 148(c) of the Tax Code of 1997 (then Section 145,
NIRC) and to the 10% value-added tax under Section 107 of the same Code. (BIR
Ruling No. 171-99 dated October 27, 1999)
With respect to foreign suppliers participating under the JIT program, such as IBM,
we hold that they are still subject to the jurisdiction of SBMA since their transaction
would be restricted to the introduction of materials or merchandise within the confines
of the Subic Bay Freeport, there to be disposed of in the manner outlined under the
JIT program.
Since SBMA exercises authority and jurisdiction over all economic activity within the
SBF, IBM and other foreign suppliers concerned exporting their materials under the
said JIT program of Acer, as approved by the SBMA, do not come within the meaning
of non-resident foreign corporations deriving taxable income within the Philippines.
Therefore, its subsequent deliveries of products from the third-party warehouse and/or
its receipts of payment therefor remain not subject to tax imposed under the Tax Code
of 1997. (BIR Ruling No. 172-99 dated November 5, 1999)
Accordingly, the request of the Sociedad Espanola de Beneficencia for the exemption
from the payment of VAT of the donated religious statues/articles from Italy cannot
be granted for lack of legal basis. (BIR Ruling No. 175-99 dated November 12,
1999)
ESTATE TAX; Extension of Time to File Return - Granting the request on behalf
of the Estate of the late Virginia Y. Yaptinchay, for an extension of thirty (30) days
within which to file the estate tax return pursuant to Section 90(C) of the Tax Code of
1997 based on justifiable reasons. However, that the estate shall be liable to the
corresponding interest that have accrued thereon up to the time of filing of the return
and the payment of the estate tax due on the transmission of the said estate to the heirs
pursuant to Section 249 of the Tax Code of 1997. (BIR Ruling No. 176-99 dated
November 17, 1999)
Applying the pronouncement of the Civil Service Commission, Ms. Presto and Mr.
Antoy are entitled to the resumption of the payment of their salaries during the period
covering the actual services rendered while their Motions for Reconsideration have
not yet been resolved, i.e., period covering August, 1998 up to June 02, 1999 for Ms.
Presto and period covering July 10, 1998 up to June 9, 1999 for Mr. Antoy. (BIR
Ruling No. 178-99 dated November 17, 1999)
This ruling is being issued in lieu of BIR Ruling No. 144-99 dated September 14,
1999, which is hereinafter considered revoked. (BIR Ruling No. 179-99 dated
November 22, 1999)
Since the Deeds of Absolute Sale executed by QCDFC and its buyers involving the
above-mentioned lots are in itself perfected contracts, the reckoning date of the sale
for purposes of taxation is the date of the execution of the aforementioned Deeds of
Absolute Sale. Accordingly, the said deeds are governed by the laws, rules and
regulations prevailing at the time of its execution. (BIR Ruling No. 180-99 dated
November 24, 1999)
If the buyer is an individual who is not engaged in trade or business, he shall not
withhold any CWT on his down payment and amortization made during the year of
sale, since he is only required to withhold the tax based on his last installment
payment. (RMC No. 7-90) Therefore, such individual is only a withholding tax agent
vis-a-vis sale of real property, the income from which may be reported by the Seller
on installment basis, because the Buyer's initial payments in the year of sale did not
exceed 25% of the selling price. The term "initial payments" means "at least one other
payment in addition to the initial payment." In case the real property sold is under
mortgage and the Buyer, under the contract, shall assume payment of the unpaid
mortgage, the excess of the unpaid mortgage over the Seller's cost basis for the
property (if any) shall form part of the "initial payments". (See Sec. 175, Revenue
Regulations No. 2) Conversely, the said individual was not constituted as a
withholding agent vis-a-vis deferred payment sale transactions since his payment of
the last installment did not constitute an income payment but, on the contrary, a mere
return of capital of the Seller (supra).
The aforementioned Buyers of condominium units sold in the year 1995 under a
deferred payment sale not on installment plan, hence, treated as the equivalent of cash
sale transaction, are deemed to have fully withheld and remitted the corresponding
CWT, the same having been deducted, withheld and remitted to the BIR, based on the
"initial or down payment" pursuant to BIR Ruling No. 078-94, the applicable ruling
during the year 1995. (BIR Ruling No. 182-99 dated November 24, 1999)
VAT; Exemption of World Bank on Local Purchase of Goods - Under Section VII,
Article XIII(h) of the Agreement between the Republic of the Philippines and
International Bank for Reconstruction and Development (The World Bank)
concerning Establishment of a Resident Mission in the Republic of the Philippines,
the Officers, Exports and Consultant of World Bank is entitled to exemption not only
from direct taxes but also from indirect taxes, e.g., VAT and ad valorem tax on his
local purchase of goods. The evident intention of the aforequoted provisions of the
Establishment Agreement is to place the officers of World Bank at par with the
officers of other international organizations in so far as exemption from indirect taxes
is concerned. This revokes BIR Ruling No. 162- 99. (BIR Ruling No. 187-99 dated
November 29, 1999)
INCOME TAX; Fringe Benefits - Section 2.33(A)(9)(b) provides that the cost of
educational assistance extended by an employer to the dependents of an employee
shall be treated as taxable fringe benefits of the employee unless the assistance was
provided through a competitive scheme under the scholarship program of the
company. Since the educational benefit is granted through a competitive scheme, i.e.
qualifying exam, such educational assistance shall not be subject to the fringe benefit
tax prescribed under Section 33 of the Tax Code of 1997.
However, the exemption of any fringe benefit from the fringe benefit tax imposed
under Section 33 of the Tax Code of 1997 and implemented by Revenue Regulations
No. 3-98, shall not be interpreted to mean exemption from any other income tax
imposed under the Code or under any other existing law. Thus, if the fringe benefit is
exempted from the fringe benefit tax, the same may, however, still form part of the
employees' gross compensation income which is subject to income tax, hence,
likewise subject to withholding tax on compensation income.
Such being the case, the amount of the tuition waiver benefit granted to the children of
full time faculty members who were in the active service before May 1987 shall be
considered as part of compensation income of said faculty members which shall be
subject to withholding tax prescribed under Section 79 of the Tax Code of 1997. (BIR
Ruling No. 189-99 dated November 29, 1999)
Since the distributable cash and/or property dividend by Antelope, MPI, LLP and GDI
will not solely come from the 1997 retained earnings, the amount that will be declared
to the extent of the accumulated profits earned in 1998 shall first be subject to the six
percent (6%) final withholding tax imposed under Section 24(B)(2) of the Tax Code.
Only the amount in excess thereof shall be considered to have been distributed out of
the relevant corporation's retained earnings as of December 31, 1997, and shall not be
subject to income tax or any withholding tax even if such dividends are so declared or
distributed after January 1, 1998.
Accordingly, this Office holds, that a TCC validly issued pursuant to the Tax Code of
1997 can be transferred or assigned by the owner provided, of course, that the TCC
sought to be transferred must not have expired and remains valid in the hands of the
original holder pursuant to the provisions of Section 230 of the Tax Code. (BIR
Ruling No. 192-99 dated December 6, 1999)
ESTATE TAX; Extension of Time to File Return - Granting the request on behalf
of the Estate of the late wife Concepcion Claudio Gatmaitan, for an extension of thirty
(30) days within which to file the estate tax return pursuant to Section 90(C) of the
Tax Code of 1997 based on justifiable reasons. However, the estate shall be liable to
the corresponding interest that have accrued thereon up to the time of filing of the
return and the payment of the estate tax due on the transmission of the said estate to
the heirs pursuant to Section 249 of the Tax Code of 1997. (Citations omitted) (BIR
Ruling No. 193-99 dated December 6, 1999)
ESTATE TAX; Extension of Time to File Return - Granting the request on behalf
of the Estate of the late Francisca V. Cabrieto, for an extension of thirty (30) days
within which to file the estate tax return pursuant to Section 90(C) of the Tax Code of
1997 based on justifiable reasons. However, the estate shall be liable to the
corresponding interest that have accrued thereon up to the time of filing of the return
and the payment of the estate tax due on the transmission of the said estate to the heirs
pursuant to Section 249 of the Tax Code of 1997. (Citations omitted) (BIR Ruling
No. 195-99 dated December 9, 1999)
Mrs. Gutierrez' application for optional retirement under P.D. 1146, as amended, is
without legal basis and therefore, cannot be given due course. However, Mrs.
Gutierrez shall be entitled to the return of her GSIS personal contributions pertaining
to her retirement only and the corresponding share of the government with interest
earned pursuant to existing rules and regulations of GSIS in accordance with Section 4
of RA 6683. She shall likewise be entitled to the commutation of her unused vacation
and sick leaves pursuant to the same provision. This shall include cash payment
equivalent to eighteen (18) times her basic monthly pension and old-age pension
benefit in accordance with Section 11, RA 8291 amending PD 1146, dividends as
provided for in Section 25 of RA 8291; and premiums paid and interest earned on
automatic life insurance and/or optional insurance under Section 24 and 26 of RA
8291. This is because where the benefits provided by RA 6683 for the same
contingencies are less than the benefits provided under PD 1146, as amended by RA
8291, the GSIS shall pay only the difference (Section 55 of RA 8291). Moreover, the
benefits paid by the GSIS shall be exempt from all taxes as provided by Section 39 of
RA 8291. (BIR Ruling No. 199-99 dated December 10, 1999)
VAT; Intended Transfer of Assets - Considering that the intended transfer of assets
under the Bayantel Corporate Restructuring Plan is not intended for profit or
livelihood, such transfer may not be said to be in the ordinary course of business of
RCPI. Moreover, the intended transfer of RCPI's assets to Bayantel is not in the
course of RCPI's regular trade or business of selling telecommunication services to the
public.
Neither is the transfer incidental thereto since the same is not necessary to carry out
RCPI's primary function of providing telecommunication services to the general
public. The intended act of transferring the assets does not follow the act of providing
telecommunications services to the public (Magsaysay Lines, Inc. et al. v.
Commissioner of Internal Revenue, CTA Case No. 4353, April 27, 1992)
Consequently, such transfer shall not be subject to VAT. (BIR Ruling Nos. 006-97
dated January 17, 1997; 033-97 dated April 1, 1997; 054-96 dated May 14, 1996; 113-
98 dated July 23, 1998) Moreover, the intended transfer arrangement shall not result
in any input tax credit to Bayantel. (BIR Ruling No. 200-99 dated December 13,
1999)
By the very nature of the "off gas" said product appears to be a waste by-product of
the refinery process. It is disposed of by means of destruction by burning to prevent
pollution of the environment. In view hereof, this Office holds, that "off-gas" is not
subject to excise tax under Section 148(b) of the Tax Code of 1997 and that the said
product is not covered by the definition of "processed gas" under Revenue
Regulations No. 8-96. Finally, even if assuming arguendo, that "off-gas" is indeed
embraced within the category of "processed gas", still we see no application of the tax,
there being no removal of such product for domestic sale or consumption as
contemplated by the law. (BIR Ruling No. 201-99 dated December 16, 1999)
Since as a result of the assignment by SLAC of its investments in T-Bills to the MFCs
and the AMC, it will gain control of the said companies, the transaction falls within
the ambit of Section (40)(C)(2) and (6)(C) of the Tax Code, and consequently, is not
subject to VAT under Sec. 4.100-5 of Revenue Regulations No. 7-95.
Finally, pursuant to Section 49(C)(5) of the Tax Code, the cost basis of the MFC and
AMC shares acquired by SLAC shall be the same as the original acquisition cost or
adjusted cost basis to SLAC of the T-Bills exchanged therefor. On the other hand, the
cost basis to the MFCs and AMC of the T-Bills exchanged for stock shall be the same
as it would be in the hands of SLAC. (BIR Ruling No. 202 dated December 16,
1999)
Hence, to reconcile the old and existing law on source of the dividend distribution
with that of the proviso of Section 24 (B)(2) of the Tax Code of 1997, this Office is of
the opinion that if a corporation had accumulated profits as of December 31, 1997, its
distribution of dividends beginning 1998 and thereafter must come from the
accumulated profits as of December 31, 1997. After full distribution thereof, Sec. 73
(C) of the Tax Code of 1997 will apply. Hence, for the prior years' accumulated
profits, the rule shall be the "first in-first out" system. It follows that Sec. 73 (C) shall
not yet apply. Thereafter, the "last in-first out" system shall be used.
However, under the basic laws which govern registered enterprises, i.e., R.A. Nos.
7916 and 7227, explicit is the provision that said enterprises are exempt from paying
all taxes, whether national or local and in lieu thereof, they shall pay a 5% tax based
on gross income. The Overseas Communications Tax (OCT) is without doubt a
national internal revenue tax and is included in the term "all taxes, whether national or
local" to which PEZA-registered and SBF Enterprises are exempted from.
Such being the case, the following enterprises, i.e. SBF, CSEZ, JHSEZ, PPSEZ and
other SEZ registered under the PEZA, shall be exempt from the 10% overseas
communication tax since these enterprises are liable only to the payment of the
preferential tax rate of 5% in lieu of the payment of local and national taxes. (BIR
Ruling Nos. 15-97 dated February 4, 1997; 70-97 dated June 9, 1997; 85-98 dated
June 2, 1998)
VAT; Definition of Gross Income - Section 2(nn) of the Rules and Regulations To
Implement Republic Act No. 7916, Otherwise known as "The Special Economic Zone
Act of 1995 provides that "Gross Income" refers to gross sales or revenues derived
from business activity within the ECOZONE, net of sales discounts, sales returns and
allowances and minus costs of sales or direct costs but before any deduction is made
for administrative expenses or incidental losses during a given taxable period. Thus,
upon the expiration of the income tax holiday and for the proper determination of the
income tax due, DKP's gross income must refer to gross sales or revenues derived
from business activity within the ECOZONE, net of sales discounts, sales returns and
allowances and minus costs of sales or direct costs but before any deduction is made
for administrative expenses or incidental losses during a given taxable period
following the month of the expiration of the income tax holiday.
As regards the lease of DKP's building B to some companies , the same is exempt
from VAT or any other percentage tax pursuant to Sec. 5(4)(a) of RMC No. 74-
99. (BIR Ruling No. 207-99 dated December 28, 1999)
INCOME TAX; Fringe Benefits Tax - The term "fringe benefit" is defined under
Section 33(B) of the Tax Code of 1997 as any good, service or other benefit furnished
or granted in cash or in kind by an employer to an individual employee (except rank
and file employees). It includes, among others, housing benefit granted to the
managerial and supervisory employees of the company. The Directors of TAP who
are at same time receiving fixed salaries as TAP officers, are considered as employees
holding positions other than rank and file positions i.e. managerial and/or supervisory
positions.
Accordingly, the housing assistance granted by TAP to the expatriates who are
directors and at the same time holding managerial and supervisory positions, is
considered as fringe benefit subject to the Fringe Benefit Tax under Section 33 (B) of
the Tax Code of 1997 and implemented by Revenue Regulations No. 3-98. The source
of the fringe benefit granted to the employees does not affect the taxability of the said
fringe benefit. Thus, the housing allowance of the director/officer of TAP which is
paid out of its Retained Earnings, is still considered as a fringe benefit subject to the
fringe benefit tax imposed under Section 33 of the Tax Code of 1997 as implemented
by Revenue Regulations No. 3-98.
Section 33 of the Tax Code of 1997 on fringe benefit applies to managerial and
supervisory employees. Thus, where the officer/director of TAP is considered as an
employee regardless of whether a fixed monthly income is given or their remuneration
is determined by the Board of Directors based on the Retained Earnings of the
corporation, the housing assistance granted to the said officers/directors are still
subject to the Fringe Benefit Tax. On the other hand, where a director is being paid on
a retainer basis, no employer-employee relationships exist between the company and
the director. Thus, the housing assistance granted to him shall not be considered as
fringe benefit subject to the Fringe Benefit Tax but is considered as part of his gross
income which is subject to the applicable tax rates under Section 24(A)(1)(c)of the
Tax Code of 1997. (BIR Ruling No. 208-99 dated December 28, 1999)
VAT; Merchant Service Fee - The merchant service fees paid by the Shell dealers to
PSPC for brokering the sale, helping generate higher sale, and for assuming the risk of
collecting from the Fleet Cardholders and the attendant administrative burden, and the
charges collected by PSPC from the Fleet Cardholders which represent various fees
such as annual fees, joining fees, late payment penalties and others, shall be
considered as payments for services rendered in the Philippines. Thus, the same shall
be subject to the 10% VAT prescribed under Section 108 of the Tax Code of 1997.
Moreover, since the merchant service fees and charges are payments for services
rendered in the Philippines and PSPC is not a financing company, the 5% gross
receipts tax prescribed under Section 122 of the Tax Code of 1997 shall not be
imposed. (BIR Ruling No. 209-99 dated December 28, 1999)
ESTATE TAX; Extension of Time To File Return - Granting the request for (1) an
extension of time to file the estate tax return of the estate of Fernanda S. Balboa and
(2) an extension of 24 months within which to pay the tax on the ground that the
payment of estate tax or any part thereof on the due date would impose undue
hardship upon the estate or any of the heirs, your request for an extension of twenty-
four (24) months counted from the time of the filing of the return (December 24,
1999) is hereby granted.
However, it shall be understood that the said estate shall be liable to the corresponding
interest that have accrued thereon up to the time of filing of the return and payment of
the estate tax due on the transmission of the said estate to the heirs. [Citation
omitted] (BIR Ruling No. 210-99 dated December 20, 1999)
ESTATE TAX; Extension of Time To File Return - Granting the request on behalf
of the heirs and the Estate of the late Antonio Pereyra Baltazar for an extension of
thirty (30) days within which to file the estate tax return pursuant to Section 90 (C) of
the Tax Code of 1997 based on justifiable reasons. However, that the estate shall be
liable to the corresponding interest that have accrued thereon up to the time of the
filing of the return and the payment of the estate tax due on the transmission of the
said estate to the heirs pursuant to Section 249 of the Tax Code of 1997. [Citation
omitted] (BIR Ruling No. 211-99 dated December 28, 1999)