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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What ESG is and why it matters
by Paul Chester U. See
Taxes, compliance matters, assessments, and refunds
Inclusive list
Allowable deductions when computing the 5% GIT of PEZA-registered enterprises
For purposes of computing the 5% gross income tax (GIT) imposed by RA No. 7916 on PEZA-registered enterprises, RR No. 2-2005 provides an exclusive enumeration of deductible cost and expenses items considered as cost of sales or direct costs. By using the phrase “shall consist only of the following cost or expense items,” RR No. 2-2005 restricted the allowable deductions to said enumeration.
Subsequently, however, the BIR issued RR No. 11-2005 which removed the exclusivity of the enumeration. In this regard, the Supreme Court allowed the deduction of costs or expenses that were outside the enumeration. It reasoned that the enumeration in RR No. 11-2005 provided for mere examples or illustrations of the types of expenses that may be deducted from gross income to arrive at the 5% GIT.
Furthermore, the BIR would not have issued RR No.
11-2005 and deleted the phrase “shall consist only of the following cost or expense items” if it did not intend to remove the restriction on deductible costs. Lastly, the deletion of the restrictive phrase is consistent with Section 24 of RA No. 7916 which provides that costs and expenses directly related to the registered activity and are not administrative, marketing, selling and/or operating expenses or incidental losses shall be allowed as deductions.
In denial
Whether the CTA can deny a partial refund granted by the BIR
The BIR partially granted a taxpayer’s claim for refund of unutilized input VAT attributable to VAT zero-rated sales. Subsequently, the taxpayer appealed to the CTA the denied portion of the claim. In the same case, however, the BIR filed a counterclaim which effectively questioned its own decision (granting a partial refund) after finding that the company has in fact VAT deficiency
The CTA ruled that the BIR’s compulsory counterclaim cannot prosper and reasoned as follows:
Under Section 112(C) of the Tax Code, only a full or partial denial of an input VAT refund is appealable to the CTA. Therefore, the CTA has no jurisdiction over questions surrounding the validity of an input VAT refund claim granted by the BIR.
The immediate resort to a counterclaim to question the partial grant of refund violates the requirement to exhaust administrative remedies for deficiency tax assessments. Upon finding that its partial grant and payment of a VAT refund was improper, the BIR should have issued a deficiency VAT assessment instead of filing a compulsory counterclaim with the CTA.
By filing a counterclaim, the BIR is attempting to collect a tax liability without a prior assessment. This violates the taxpayer’s right to due process since it deprives the latter of the rights and remedies available at the administrative level.
(CTA EB No. 2151, promulgated 21 January 2021)
Royalty treatment
Whether deriving royalties from Philippine sources constitutes doing business
A taxpayer claiming a VAT refund or credit under Section 108(B)(2) of the Tax Code should prove not only that the recipient of the service is a foreign corporation but also that the latter is doing business outside the Philippines.
Based on a decision of the CTA, if the taxpayer’s client is a foreign corporation deriving royalty income from Philippine sources, the taxpayer-claimant must prove that notwithstanding that its client is earning royalties from the Philippines, it should still not be considered as doing business.
According to the CTA, unlike in the cases of Philippine citizens and resident aliens wherein the Tax Code categorizes royalties they earn as ''passive income,” the same is not true as regards royalties earned by foreign corporations. Hence, when a foreign corporation earns royalties from sources within the Philippines, it does not necessarily mean that such royalties should be treated as mere passive income so as to automatically classify such foreign corporation as not doing business in the Philippines.
(CTA Case No. 9904, promulgated 15 January 2021)
System requirements
Simplified guidelines on the use of CAS, CBA and/or its Components
The Commissioner of Internal Revenue issued new and simplified guidelines regarding taxpayers’ use of Computerized Accounting System (CAS), Computerized Books of Accounts (CBA) and/or its Components, including Electronic Storage System (ESS), Middleware and Other Similar Systems.
The guidelines cover the following:
All Large Taxpayers who are mandated to maintain or use CAS;
All non-Large Taxpayers who opted to use CAS, CBA or components of CAS or CBA; and
Taxpayers engaged in business who shall use an ESS, Middleware and Other Similar Systems.
Here are the policies and guidelines:
Registration of the System
Submission of requirements to the Client Support Section of the Revenue District Office/Large Taxpayers Office (RDO/LTO)
Strict compliance with the Standard Functional and Technical Requirements
Manual or electronic mail submission
An Acknowledgment Certificate (in lieu of the Permit to Use) shall be issued by the RDO/LTO within three working days from submission of complete requirements.
Affiliated companies, sister companies, franchisees, closely held corporations, other similar companies shall register the System to be used, regardless of whether they are sharing servers and using the same System previously registered and used by the parent company or other related companies.
No system demonstration or pre-evaluation shall be conducted as a condition for the registration of System.
Taxpayers who will avail the services of Tax Service Providers (TSPs) or third-party software providers for the use of a system/software must register such with the BIR prior to the effectivity of their contract with the TSPs or third-party software provider.
The registration of the CRMs/POS Machines and Other Sales Receipting System/Software is different from the registration of System.
In case of minor system enhancements (e.g., user interface modification, bug fixes, performance improvements, etc.), the taxpayer must submit a written notification to the concerned RDO/LTO.
Use of Receipts/Invoices
Taxpayers with duly registered System but without system-generated principal and/or supplementary receipts/invoices should apply for Authority to Print such receipts/invoices based on existing revenue issuances.
In case of system downtime, taxpayers with duly registered System who are using computer-generated principal and/or supplementary receipts/invoices with system/software/application that has no redundancy or automatic switchover shall be allowed to issue manual principal and/or supplementary receipts/invoices.
Books of Accounts
Taxpayers (Large and Non-Large) shall use books of accounts depending on its business requirements.
The soft copy of the Computerized Books of Accounts and Other Accounting Records shall be registered with the RDO/LT Office where the Head Office/Branch is registered within thirty calendar days from the close of the taxable year.
(Revenue Memorandum Order No. 9-2021, issued 19 February 2021)
Compromising situations
Processing of applications for compromise settlement
Here are the new policies and procedures regarding the issuance by the Regional Offices of the Notice of Denial of applications for compromise settlement and the issuance by the National Evaluation Board (NEB) of the Authority to Cancel Assessment (ATCA) and Certificate of Approval of Applications:
All Notices of Denial resulting from deliberations by the Regional Evaluation Board shall be signed by the following:
Basic deficiency tax amount |
Signatory |
|
PHP500,000 or less |
Regional Director |
|
More than PHP500,000 |
Commissioner of Internal Revenue |
2. All Certificates of Availment (CA) approved by the NEB, including cases subject of Judicial Compromise Agreement, shall be signed by the Assistance Commissioner, Collection Service. However, those involving Large Taxpayers shall be signed by the Assistant Commissioner, Large Taxpayers Service.
The CA and the case docket shall be returned to the concerned BIR office having jurisdiction which shall prepare the Notice of Lifting regarding issued Warrants and Notices and shall update the records of the taxpayer’s liability in the General Control Ledger.
3. All ATCAs approved by the NEB shall be signed by the Regional Director or the Assistant Commissioner where the case originated.
(Revenue Memorandum Order No. 8-2021, issued 17 February 2021)
Excise tax returns
Availability of the newly revised BIR Form Nos. 2200-P and 2200-AN
The BIR issued the following newly revised tax returns:
BIR Form No. 2200-P (Excise Tax Return for Petroleum Products); and
BIR Form No. 2200-AN (Excise Tax Return for Automobiles and Non-Essential Goods)
The foregoing tax returns may be downloaded by manual filers from www.bir.gov.ph under the BIR Forms-Excise Tax Return Section.
However, they are not yet available in the Electronic Filing and Payment System (eFPS) and Electronic BIR Forms (eBIRForms) Package. Hence, eFPS and eBIRForms filers shall continue to use the versions in the eFPS and the offline eBIRForms Package v7.8.
(Revenue Memorandum Circular Nos. 28-2021 and 27-2021, issued 26 February 2021)
DST exemption
Requirements regarding DST-exempt qualified loans pursuant to RR No. 24-2020
Last year, RR No. 24-2020 was issued to implement Section 4(uu) of the Bayanihan to Recover as One Act which grants DST exemption for loan term extensions or restructuring.
In this regard, the BIR is requiring covered entities to submit, in hard and soft copies, a “Summary Listing of Pre-Existing Loans, Pledges and Other Instruments with Granted Extension of Payment and/or Maturity Periods as of September 15, 2020” to the concerned Revenue District Office/Large Taxpayers Office on or before
31 March 2021. The template of said Summary Listing is attached to RMC No. 22-2021.
Non-submission or late submission shall result in the imposition of the additional DST that would have been otherwise exempt under the Bayanihan to Recover as One Act.
(Revenue Memorandum Circular Nos. 26-2021 and 22-2021, issued 24 and 18 February 2021)
Online activities
Nationwide implementation of the online application for TCBP and TCVC
The Online Application for Tax Clearance for Bidding Purposes (TCBP) and Tax Compliance Verification Certificate (TCVC) is now available nationwide. Under this option, TCBP and TCVC applications shall be electronically submitted to etcbp@bir.gov.ph and etcvc@bir.gov.ph using the prescribed template for subject of email attached to RMC No. 24-2021.
(Revenue Memorandum Circular No. 24-2021, issued 24 February 2021)
Random test
Field testing guidelines under the Fuel Marking Program
The Commissioner of Internal Revenue disseminated Joint Circular No. 1-2021 issued by the BIR and the BOC which prescribes the implementing guidelines for field testing under the Fuel Marking Program pursuant to the TRAIN Law.
The guidelines pertain to Random Field and Confirmatory Testing on gasoline, diesel and kerosene found in warehouses, storage tanks, gas stations and other retail outlets, and in such other properties or equipment, including mechanisms of transportation, of persons engaged in the sale, delivery, trading, transportation, distribution, or importation of fuel for domestic market. Among others, the guidelines provide for the following:
Creation of the Field Inspection Unit, a joint special task force composed of BIR and BOC personnel tasked to perform Field Testing activities
Participants in the Field-Testing process and their respective responsibilities
Field Testing procedure
Confirmatory Test process
Treatment of unmarked fuel, diluted marked fuel or containing counterfeit fuel marker
Corrective measures for unmarked or diluted fuel
Fines, penalties and offenses
(Revenue Memorandum Circular No. 21-2021, issued 16 February 2021)
Latest on regulatory landscape
Call of duties
Imposition of provisional safeguard duties on imported vehicles
Pursuant to the Secretary of Finance letter dated
27 January 2021 and Department of Trade and Industry Order dated 29 December 2020, the Bureau of Customs imposed provisional safeguard duties on imported vehicles in the form of a cash bond in the following amounts:
PHP70,000 per four-wheeled passenger car designed to transport less than ten persons and not primarily to transport goods classified under ASEAN Harmonized Tariff Nomenclature (AHTN) Code 8703.
The following are excluded from the provisional duty:
Imported passenger cars that are completely knocked-down, semi knocked-down, used, with electric motors and those designed for a special purpose such as ambulances and hearses; and
Luxury passenger cars that have a Free On Board value of US$25,000 or higher.
PHP100,000 per imported light commercial vehicle (LCV) designed to carry both passenger and cargo that are classified under AHTN Codes 8704.21.19 and 8704.21.29.
The following are excluded from the provisional duty:
Imported LCVs that are completely knocked-down, semi knocked-down, used, with electric motors and those designed for a special purpose such as ambulances and hearses; and
LCVs that have a Free On Board value of US$28,000 or higher.
The following should be noted with respect to the provisional safeguard duty:
Its imposition shall be reckoned from the issuance of CMO No. 6-2021.
It shall not form part of the landed cost used as basis for the value-added tax on the importation.
It shall be deducted from the net importer’s selling price and suggested retail price, for purposes of computing excise tax.
Its imposition shall last for two hundred days from the issuance of CMO No. 6-2021.
(Customs Memorandum Order No. 6-2021, dated 1 February 2021)
Tender offers
Amended PSE Guidelines for Fairness Opinions and Valuation Reports
The SEC has approved the amendments to the PSE Guidelines for Fairness Opinions and Valuation Reports regarding the express inclusion of tender offers undertaken pursuant to delisting proceedings in the list of transactions where a fairness opinion and valuation report prepared by a duly registered and licensed independent valuation firm is required.
In this light, the following shall apply to tender offers for delisting purposes:
Requirements in the PSE Guidelines for Fairness Opinions and Valuation Reports on contents of the fairness opinion and valuation report; and
Criteria for determining the independence of the valuation provider.
(PSE Memorandum CN No. 2021-09, dated 19 February 2021)
Filing option
Online submission of the Beneficial Ownership Declaration Form
The Beneficial Ownership Transparency Declaration Form (BOTD Form) pursuant to Sections 6 and 7 of SEC Memorandum Circular No. 1-2021 can already be submitted online. The following steps should be observed:
Download the applicable BOTD Form from https://www.sec.gov.ph/2021form_botd_sec6/ and https://www.sec.gov.ph/2021form_botd_sec7/
Download the Consent Agreement Form from https://www.sec.gov.ph/2021botdf_consent-agreement-form/
Fill up the BOTD Forms and save as Portable Document Format (PDF)
Upload the accomplished forms and a valid government-issued identification card
The deadline for submitting the BOTD Form is 31 March 2021.
(SEC Notice, posted 23 February 2021)
Tour guides
Financial assistance for displaced workers in the tourism sector
The DOLE and DOT amended the 2020 Implementing Guidelines on Providing Financial Assistance and Cash-for-Work Program for Displaced Workers in the Tourism Sector pursuant to the Bayanihan to Recover as One Act. The amendments include the following:
Additional beneficiaries of the Financial Assistance or Cash-for-Work Program:
Displaced Tourism Workers in LGU-Licensed Secondary Tourism Enterprises
Employees of affected establishments under the tourism sector that implemented Flexible Work Arrangements or Alternative Work Schemes
Displaced Tourism Support Service (TSS) Providers in Focused Tourism Destinations
Displaced Workers of TSS Enterprises in Focused Tourism Destinations
Displaced Members of TSS Associations in Focused Tourism Destinations
Focused Tourism Destinations refer to identified destinations or LGUs that are heavily dependent in tourism such as island destinations, or top tourism sites.
Displaced Tourism Workers refer to those who became temporarily or permanently unemployed or have lost their livelihood due to the COVID-19 pandemic.
Displaced Tourism Workers are entitled to Financial Assistance notwithstanding any benefits they may have previously availed of under the following programs:
DSWD Social Amelioration Program
DOLE COVID-19 Adjustment Measures Program (CAMP) under the Bayanihan to Heal as One Act
SSS Unemployment Benefits
DOF Small Business Wage Subsidy (SBWS)
(DOLE-DOT Joint Memorandum Circular No. 2121-01, dated 3 February 2021)
Facilitation fees
Treatment of prepaid facilitation fees under bancassurance arrangements
Facilitation fees are payments for the promotional and marketing activities paid by an insurance company to a bank under a bancassurance arrangement. These fees are sometimes paid in advance.
According to the IC, facilitation fees paid in advance and booked as prepaid expenses by insurance companies shall not be treated as admitted assets of the latter in the determination of its financial condition, regardless of any stipulation of a claw back provision in a bancassurance arrangement.
This is pursuant to Section 203 of the Amended lnsurance Code which provides that prepaid or deferred charges, among others, are not allowed as admitted assets of an insurance company.
(IC Circular Letter No. 2021-07, dated 28 January 2021)
Online transactions
Electronic submission of requests and reportorial requirements
All entities regulated by the IC and other Financial Institutions shall submit the following through the Online Submission Portal using the URL: https://onlinesubmission.insurance.gov.ph/isd/login:
Report on Investments Made and Sold or Disposed of
Report on Derivative Transactions
Statement of Capital, Reserves, and Surplus Investments
Report on Material Related Party Transactions
Statement of Rental Income
Report on Investments held under IMA
Request for Approval of Investments
Compliance with Security Deposit Requirements
These general requirements should be observed:
The cover letter should be in Portable Document Format with the electronic signature of the company’s authorized officer.
Payment of fees and charges, if applicable
Submission of specific documentary requirements in Section 5 of IC Circular Letter No. 6-2021
(IC Circular Letter No. 2021-06, dated 26 January 2021)
FIST Act
Enactment of the Financial Institutions Strategic Transfer (FIST) Act
The President approved Republic Act No. 11523 or the FIST Act which aims to ensure the resiliency of the Philippine financial industry against the COVID-19 pandemic.
The FIST Act allows the establishment of a Financial Institutions Strategic Transfer Corporation (FISTC) which should be organized as a stock corporation with a minimum authorized capital stock of PHP500m, a minimum subscribed capital stock of PHP125m and a minimum paid-up capital of PHP31.25m. However, a FISTC cannot be incorporated as a one-person corporation and must be at least 60% owned by Philippine nationals if it will acquire land.
A FISTC shall have the power to invest in or acquire non-performing assets (NPAs) of financial institutions (FIs); in case of non-performing loans (NPLs), to restructure debt, condone debt and undertake other restructuring related activities; and to issue equity or participation certificates or other forms of investment unit instruments for purposes of acquiring, managing, improving and disposing of NPAs acquired from an FI.
The transfer of NPAs from an FI to the FISTC and from a FISTC to a third party or dation in payment by the borrower or by a third party in favor of an FI or FISTC shall be exempt from the following taxes:
documentary stamp taxes (DST) on transfer of NPAs and dation in payment;
capital gains taxes on the transfer of lands and/or other assets classified as capital assets;
creditable withholding taxes on the transfer of land and/or buildings classified as ordinary assets; and
value-added tax on the transfer of NPAs or gross receipts tax, whichever is applicable.
A FISTC is exempt from income tax on net interest income, DST and mortgage registration fees on new loans in excess of existing loans extended to borrowers with NPLs acquired by the FISTC. It is also be exempt from DST in case of capital infusion to the borrower with NPLs.
With respect to FIs, any loss incurred as a result of the transfer of an NPA within two years from the effectivity of the FIST Act shall be treated as an ordinary loss which may be carried over for five years. However, tax savings arising from the net operating loss carry-over shall not be made available for dividend declaration but shall be retained as a form of capital build-up.
Applications for the registration of a FISTC shall be filed with the Securities and Exchange Commission within thirty-six (36) months from the effectivity of the FIST Act.
(Republic Act No. 11523, approved 16 February 2021)
AMLA updates
Amendments to the Anti-Money Laundering Act of 2001
Republic Act (RA) No. 9160, otherwise known as the Anti-Money Laundering Act of 2001, has been amended by RA No. 11521. The amendments include the following:
The policy of the law includes cooperation in implementing targeted financial sanctions related to the financing of the proliferation of weapons of mass destruction, terrorism and financing terrorism.
Targeted financial sanctions refer to asset freezing and prohibition pursuant to relevant UN Security Council resolutions and its designation processes.
Covered persons include real estate developer and brokers, and offshore gaming operators including their service providers supervised, accredited or regulated by the PAGCOR.
The following are included as covered transactions:
A transaction in cash or other equivalent monetary instrument exceeding PHP5m within one banking day;
A single casino cash transaction exceeding PHP5m or its equivalent in other currency; and
A cash transaction with or involving real estate developers or brokers exceeding PHP7.5m or its equivalent in any other currency.
Unlawful activity now includes:
Violations under the Securities and Regulations Code of 2000
Violations of the Strategic Trade Management Act
Violations of Section 254 of the Tax Code where the basic deficiency tax due is more than PHP25m per taxable year per tax type and there has been a finding of probable cause by a competent authority
Additional functions of the AMLC
Investigate suspicious transactions and covered transactions deemed suspicious
Apply for the issuance of search and seizure order and subpoenas
Implement targeted financial sanctions
Preserve, manage or dispose assets pursuant to freeze orders, asset preservations orders and forfeiture judgments
Freeze Order
The Court of Appeals may issue a freeze order upon ex parte petition by the AMLC and after determination of probable cause that a monetary instrument or property is related to an unlawful activity, as defined under the law. Only the Supreme Court may issue a temporary restraining order against a freeze order.
To implement the targeted financial sanctions in relation to the proliferation of weapons of mass destruction, the AMLC has the power to issued, ex parte, an order to freeze without delay.
(Republic Act No. 11521, approved 29 January 2021)
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