This is a publication about developments in Philippine taxation. The contents usually include latest Republic Acts, Bureau of Internal Revenue issuances, Customs regulations, Court decisions, BSP circulars, SEC circulars, Department of Justice opinions and Executive Orders relevant to Tax practice.
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Taxes, compliance matters, assessments, and refunds
Ruling ruling not required
Upholding tax exemption despite the absence of a tax-free exchange ruling
Four individuals were majority shareholders in Company K and in Company P. These shareholders transferred all their Company K shares to Company P in exchange for more shares in Company P. As a result of the exchange, Company P became the majority owner of Company K and the four shareholders gained further control of Company P.
In light of their transfer of Company K shares, the four shareholders paid capital gains taxes (CGT). Subsequently, however, the CGT paid were claimed for refund with the BIR on the ground of erroneous payment considering that the transaction was a tax-free exchange under Section 40(C)(2) of the Tax Code, hence, exempt from CGT.
The claim was not acted upon and, when it reached the courts, the BIR argued that the transfer was not exempt because the shareholders failed to secure the requisite prior BIR certification or ruling confirming that the transaction qualifies as a tax-free exchange.
The Supreme Court granted the CGT refund claim, reasoning as follows:
If all the requirements for exemption under the law are complied with, the transaction is considered exempt, whether or not a prior BIR ruling was secured by the taxpayer. Tax rulings merely operate to “confirm” the existence of the conditions for exemption provided under the law.
In practice, a taxpayer often secures a BIR ruling, prior to entering into a transaction, to prepare for any tax liability. However, if the taxpayer already paid the tax and later on files a claim for refund on the basis of an exemption provided under the law, requiring a prior BIR ruling as a condition for the approval of the refund claim is clearly illogical. The underlying principle of prior application with the BIR becomes moot in refund cases where the very basis of the claim is erroneous or excessive payment.
There is nothing in Section 40(C)(2) of the Tax Code which requires the taxpayer to first secure a prior confirmatory ruling before the transaction may be considered as a tax-free exchange. The BIR should not impose additional requirements not provided by law, which would negate the availment of the tax exemption.
(G.R. No. 241424, promulgated 26 February 2020)
Means with end
Collecting taxes from offshore gaming licensees, operators and agents
The funding of subsidies and stimulus measures under the Bayanihan to Recover as One Act shall be sourced from, among others, the following:
5% franchise tax on the gross bets or turnovers or the agreed pre-determined minimum monthly revenues from gaming operations earned by offshore gaming licensees, including gaming operators, gaming agents, service providers and gaming support providers; and
Income tax, VAT and other applicable taxes on income from non-gaming operations earned by the same persons above.
In this light, the Commissioner of Internal Revenue issued the following implementing rules:
The above taxes shall be computed on the peso equivalent of the foreign currency used and based on the prevailing official exchange rate at the time of payment.
PAGCOR and/or the company awarded or chosen as its third-party intermediary/audit platform shall furnish the following information to the BIR:
Gross bets or turnovers earned;
Minimum Guarantee Fee or the minimum amount of regulatory fees paid; and
Other relevant data such as List of Licensees and accredited Service Providers and number of foreign nationals employed.
Non-payment, underpayment and/or payment of taxes computed not in accordance with the prevailing official exchange rate at the time of payment shall be considered as fraudulent acts which are subject to penalties under the Tax Code.
The BIR shall implement closure orders against those who fail to pay the above taxes and/or who commit any of the above fraudulent acts. Closure orders against operators, licensees or agents shall necessarily include the closure of all their accredited service providers.
After two years or upon a determination that the COVID-19 threat has been successfully contained or abated, whichever comes first, revenues derived from franchise taxes on gross bets or turnovers and income from non-gaming operations shall continue to-be collected and shall accrue to the General Fund of the Government.
(Revenue Regulations No. 30-2020, published 31 October 2020)
Cooperative sector
Clarifying tax matters and compliance requirements involving cooperatives
In light of the tax issues and concerns raised by cooperatives during Technical Working Group discussions and workshops, the Commissioner of Internal Revenue issued the following clarifications:
Cooperatives securing Certificates of Tax Exemption (CTEs) must submit the following:
New Applications |
Renewal |
|
Certified true copies (CTCs) of Articles of Cooperation and By-Laws, as certified by the Cooperative and Development Authority (CDA) |
CTCs of latest Articles of Cooperation and By-Laws, as certified by the CDA |
|
CTC of new Certificate of Registration issued by the CDA under the new Cooperative Code, as certified by the CDA |
||
CTC of the current Certificate of Good Standing issued by the CDA effective on the date of application |
||
CTC of the BIR Certificate of Registration of the cooperative |
N/A |
|
Original copy of Certification under oath of the List of Cooperative Members with respective TINs and capital contributions |
N/A |
|
N/A |
CTC of latest audited financial statements of the immediately preceding year |
|
All registered cooperatives with duly issued CTEs are required:
To immediately communicate and update their BIR registration regarding any amendment to the Articles of Cooperation or By-Laws; and
To annually submit the following to the concerned Revenue District Office (RDO) together with the Annual Income Tax Return:
CTC of the current and effective Certificate of Good Standing from the CDA;
Original copy of certificate under oath by the Chairperson/General Manger stating the type/category of the cooperative and principal activities; that the cooperative is transacting business with members only or with both members and non-members; amount of accumulated reserves; amount of net surplus; and that a least 25% of net surplus is returned to the members in the form of interest on share capital and/or patronage refund;
Original copy of yearly summary records of transactions; and
Original copy of certification under oath by the Chairperson/General Manager of the List of Active and Inactive Members, their TINs and share capital contributions.
If the TINs of members cannot be supplied yet, the CTE application will not be denied and the concerned office will process and issue/revalidate CTEs, provided, that the cooperative submits an original copy of a certification under oath of the list of cooperative members with their full names and capital contributions.
The TIN requirement of cooperative members is based on Section 236(I) of the Tax Code and Revenue Regulations No. 7-2012.
A cooperative may apply for TINs of its members if it is properly authorized by the latter and by collating the requirements and submitting the same to the concerned RDO.
The following are considered inactive members:
Members who are declared not in good standing;
Members whose whereabouts are not known for the last six months;
Members who did not have any transaction with or did not patronize the business of the cooperative for at least six months; and
Members who did not participate in the activities of the cooperative within six months.
The inactive status reverts into an active status as soon as the member transacts business with, patronizes and/or participates in the activities of the cooperative and his/her whereabouts are known.
Interest income earned from savings and time deposit accounts of members of a lending cooperative is tax-exempt.
Transactions between a cooperative and its members are not subject to documentary stamp tax.
The employer’s share of the cooperative in GSIS, SSS, Medicare and Pag-IBIG contributions are excluded from gross income and are considered allowable deductions.
A cooperative is exempt from withholding the 1% and 2% expanded withholding tax under Section 2.57.2(l) of Revenue Regulations No. 2-1998 only if it is not classified as a Top Withholding Agent.
Cooperatives which transact business with both members and non-members and whose accumulated reserves and undivided net savings exceed PHP10m shall be prioritized for audit by the BIR.
(Revenue Memorandum Circular No. 124-2020, issued 26 November 2020)
With a grain of salt
Clarification regarding the list of VAT-exempt drugs
In its letter dated 7 August 2020, the Food and Drugs Administration (FDA) clarified that the List of VAT-Exempt Diabetes, High-Cholesterol and Hypertension Drugs is based on the International Non-Proprietary Name (INN) or generic name which includes the salt form.
For example, the INN of Merformin is “Metformin” while its generic name and salt form is “Metformin hydrochloride.” As such, “Metformin” and “Metformin hydrochloride” is considered one and the same drug product.
To minimize confusion, the next List of VAT-Exempt Diabetes, High-Cholesterol and Hypertension Drugs will be including the corresponding salt forms, where applicable.
(Revenue Memorandum Circular No. 122-2020, issued 23 November 2020)
Online bidding clearance
Pilot implementation of the online application for tax clearance for bidding purposes
The Online Application for Tax Clearance for Bidding Purposes and Tax Compliance Verification Certificate (TCBP/TCVC) is already available for taxpayers registered with Revenue Region Nos. 4 – Pampanga,
7A – Quezon City and 7B – East NCR and the Large Taxpayers Service (except LTDO Cebu and Davao), and for non-resident foreign corporations and non-resident aliens not engaged in trade or business.
The policies provide the following:
All applications for TCBP are encouraged to electronically file and submit the requirements to etcbp@bir.gov.ph using the prescribed template.
The criteria in Revenue Regulations No. 8-2016 should be observed.
Documents submitted online are warranted by the taxpayer to be faithful and true copies of the original.
Documentary requirements and procedures for TCVC and TCBP applications
(Revenue Memorandum Circular No. 121-2020, issued 17 November 2020)
Retirement with benefits
Tax exemption of retirement benefits under the Bayanihan to Recover as One Act
The Commissioner of Internal Revenue further clarified the implementation of the tax exemption of retirement benefits received from 5 June 2020 to 31 December 2020 as follows:
Retirement benefits received by an employee who was not able to satisfy all the conditions under a retirement benefit plan (e.g., tenure) tenure requirement may be considered exempt.
If the employee retired in August 2020 but was re-hired in October 2021 by a subsidiary of the employer, the retirement benefits will remain exempt because the re-employment occurred after twelve months from the retirement date.
Retirement benefits received within the period
5 June 2020 to 31 December 2020 by an employee who retired before 5 June 2020 are subject to income tax.Retirement benefits received by a 45-year old employee with a 15-year tenure are subject to income tax if the employer has no BIR-registered retirement plan.
A retirement plan is considered duly registered with the BIR if it has been issued a Certificate of Qualification as Reasonable Employees’ Retirement Benefit Plan.
The portion of retirement benefits received in excess of what was provided in the BIR-registered retirement plan is subject to income tax.
Retirement benefits received by an employee pursuant to Republic Act No. 7641 are exempt from income tax. These benefits will remain exempt in case the employee is re-employed either by the same employer or its affiliate, or by an unrelated person.
Employees included in the required list of recipients of retirement benefits under Revenue Regulations No. 29-2020 shall also be included in the Annual Alphabetical List of Employees required to be submitted on or before 31 January 2021.
(Revenue Memorandum Circular No. 120-2020, issued 9 November 2020)
New edition
Availability of the Offline eBIRForms Package Version 7.7
The Offline eBIRForms Package Version 7.7 is already available for download from www.bir.gov.ph and www.knowyourtaxes.ph. This updated package now includes the January 2018 versions of the following tax returns:
BIR Form No. 1604-C;
BIR Form No. 1604-F; and
BIR Form No. 1604-E.
(Revenue Memorandum Circular No. 118-2020, issued 6 November 2020)
Split decision
Bank advisory regarding the division of Revenue Region Nos. 7 and 8
Authorized agent banks (AABs) are advised of the following:
Splitting of Revenue Region (RR) No. 7 – Quezon City into RR Nos. 7A – Quezon City and 7B – East NCR
RR No. 7A – Quezon City |
RR No. 7B – East NCR |
|
RDO No. 28 – Novaliches |
RDO No. 41 – Mandaluyong |
|
RDO No. 38 – North Quezon City |
RDO No. 42 – San Juan |
|
RDO No. 39 – South Quezon City |
RDO No. 43 – Pasig |
|
RDO No. 40 - Cubao |
RDO No. 45 – Marikina |
|
RDO No. 46 – Cainta/Taytay |
2. Splitting of RR No. 8 – Makati City into RR Nos. 7A – Makati City and 7B – South NCR
RR No. 8A – Makati City |
RR No. 8B – South NCR |
|
RDO No. 47 – East Makati |
RDO No. 44 – Taguig/Pateros |
|
RDO No. 48 – West Makati |
RDO No. 51 – Pasay City |
|
RDO No. 49 – North Makati |
RDO No. 52 – Paranaque |
|
RDO No. 50 – South Makati |
RDO No. 53A – Las Pinas City |
|
RDO No. 53B – Muntinlupa City |
The list of AABs affected by the splitting is attached to Bank Bulletin No. 16-2020. The following procedures should be undertaken:
Affected AABs shall update the new RDO number to be serviced in the Limited Bank Data Entry System/over-the-counter or online facility being used.
Outstanding reportorial obligations should be submitted to the former RDO.
AABs should coordinate with the new RDO regarding the transmittal of daily collection reports.
(Bank Bulletin No. 16-2020, dated 29 September 2020)
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