Month: November 2021

BIR RULINGS

• Donations made for the use of the National Government or any entity created by any of its agencies which is not conducted for profit or to any political subdivision of the said Government shall be exempt from the donor’s tax.
  • Furthermore, the Deed of Donation is not subject to documentary stamp tax, but only to the documentary stamp tax on the certification. (BIR Ruling No. DT-212-21, June 16, 2021).
• Donations to the Government, its agencies or political subdivisions are deductible in full from the cross income of the donor.
  • However, donations not in accordance with the National Priority Plan are subject to limited deductibility or deductions to an amount not exceeding 10% in the case of an individual and 5% in the case of a corporation of the taxpayer’s taxable net income as computed without the benefit  of this deduction.
  • Expenses incurred by the adopting entity for the “Adopting-a-School Program” shall be allowed an additional deduction from the gross income equivalent to fifty percent (50%) of such expenses.
  • Furthermore, donations made for the use of the National Government or any entity created by any of its agencies which is not conducted for profit or to any political subdivision of the said Government shall be exempt from the donor’s tax.
  • Thus, the amount incurred by the donor corporation for the proposed provision of educational supplies and educational incentives and the implementation of feeding programs in several schools of the Department of Education is fully deductible from gross income plus additional deduction equivalent to 50% thereof and is exempt from donor’s tax.(BIR Ruling No. DT-213-21, June 16, 2021).
• Retirement benefits received under the Labor Code shall not be included in the gross income and therefore not forming part of the taxable income.
  • Under the Labor Code, in absence of a retirement plan or agreement providing for retirement benefits of employees in the establishment, an employee upon reaching the age of 60 years or more, but not more than 65 years which is declared the compulsory retirement age, who has served at least 5 years in the service of the same employer may retire and shall be entitled to retirement pay equivalent to at least ½ month salary for every year of service, a fraction of at least 6 months, being considered as one whole year.
  • Furthermore, the terminal pays not exceeding ten (10) days during the year are not subject to income tax and to the withholding tax. However, it is not applicable to sick leave credits since and employee must actually go on sick leave to be avail of said leave credits
  • Exemption does not include the payment of the separated employees’ salaries and the payment of the 13^thmonth pay and other benefits in excess of the Php90,000.00. (BIR Ruling No. OT-214-21, June 21, 2021).
• A non-stock, non-profit corporation or association organized and operated exclusively for educational purposes shall be exempt from taxes and duties, if its revenues are actually, directly and exclusively used for educational purposes.
  • Non-stock means no part of its income is distributable as dividends to its members, trustees or officers and that nay profit obtained as an incident to its operation shall, whenever necessary or proper, may be used for the furtherance of the purpose or purposes for which the corporation was organized.
  • Non-profit means that no income or asset accrues to or benefits any member or specific person, with all the net income or asset devoted to the institutions’ purposes and all its activities conducted not for profit.
  • The giving of salaries or allowances to the members of the board of trustees is considered as distribution of equity (including the net income). This is a form of private inurement which the law prohibits in the organization and operation of a non-stock, non-profit corporation. This violates the requirement that no  part of the net income or assets of the corporation shall inure to the benefit of any individual or specific persons. (BIR Ruling No. SH30-215-21, June 21, 2021).
• The Commission on Elections (COMELEC) is exempt from 12% VAT on its  local purchases of goods and services as well as VAT on importation of goods that will be used in automated national and local elections. Thus, suppliers/sellers of goods and services to COMELEC cannot shift or pass on any VAT to COMELEC on the latter’s purchases of goods and services that were actually used for automated national and local elections until the completion of the post-election activities.
  • Furthermore, COMELEC shall no longer withhold and remit to BIR the five percent (5%) final withholding VAT. (BIR Ruling No. VAT-216-21, June 23, 2021).

 BIR RULINGS

• Sale, importation, printing or publication of books and any newspaper, magazine, review, or bulletin which appears at regular intervals with fixed prices for subscription and sale and which is not devoted principally to the publication of paid advertisements shall be exempt from value-added tax.
  • Furthermore, other than non-exempt activities such as the printing of brochures, bookbinding, engraving, stereotyping, electrotyping, lithographing of various reference books, trade books, journals and other literary works, said transactions are subject to VAT; further, sale of books, newspapers, magazines, reviews and bulletin in digital or electronic format or computerized versions, e-books, e-journals, electronic copies, online library services, CDs and software shall be subject to VAT. (BIR Ruling No. VAT-200-21, June 08, 2021).
• Basis in computing capital gains tax in the subsequent sale of shares is the net capital gains or loss realized on the sale, barter, exchange or disposition of shares stock, the identifiable amount of the vendor/transferor’s basis for the property sold or disposed plus expenses of sale/disposition, if any, shall be deducted from the consideration contracted to be paid. In case, however, that the fair market value of the shares of stock sold is greater than the amount of money received, the excess of the fair market value of the shares of stock sold over the amount of money received as consideration shall be deemed as gift subject to the donor’s tax, unless shown to have been made at arm’s length and free from donative intent. (BIR Ruling No. OT-201-21, June 08, 2021).
• The transfer of title of the property by the trustee in favor of the beneficiaries, who are the beneficial owners is not subject to capital gains tax and VAT. There is no sale, exchange or disposition of real property involved, since it is ostensibly just for return of the property to the legal owner and merely acknowledges, confirms and consolidates the legal title and beneficial ownership over the property. (BIR Ruling No. OT-203-21, June 08, 2021).
• Sale, importation or lease of passenger or cargo vessels and aircraft, including engine, equipment and spare parts thereof for domestic or international transport operations shall be exempt from the value-added tax. However, that the exemption from VAT on the importation and local purchase of passenger and/or cargo vessels shall be subject to the requirements on restrictions on vessel importation and mandatory vessel retirement program of Maritime Industry Authority (MARINA). (BIR Ruling No. VAT-204-21, June 2021).
• If the LGU lacks resources to provide for basic services to the homeowners' association, the latter shall endeavor to provide the same. In recognition of the associations’ efforts to assist the LGUs in providing these basic services, association dues and income derived from rentals of their facilities shall be tax-exempt, provided, that such income and dues shall be used for the cleanliness, safety, security and other basic services needed by the members, including the maintenance of the facilities of their respective subdivisions or villages.  However, if the LGU does not support the association not because it lacks resources but because it does not want to provide financial support to the program involving private properties, Therefore, it shall  be subject to applicable internal revenue taxes on its income from association dues, rentals of their facilities, trade business and other activities (BIR RULING NO. OT-206-21, June 15, 2021).
• Homeowner’s associations shall   complement, support and strengthen local government unit in providing vital services to their members and help implement local government policies, programs, ordinances, and rules.
• Furthermore, income derived from association dues, membership fees, other assessment and charges collected in a purely reimbursement basis and rentals of facilities is exempt from income tax, value-added tax or percentage tax, whichever is applicable, provided, that such income and dues shall be used for the cleanliness, safety, security and other basic services needed by the members, including the maintenance of the facilities of their respective subdivisions or villages. (BIR RULING NO. OT-207-21, June 16, 2021).
• A non-stock and non-profit corporation with primary purpose of being an educational institution is exempted from income tax and VAT only on revenues or receipts generated from:
  • Tuition fee and other school fees: and
  • Income derived from the operation of cafeterias/canteen, dormitories, and bookstores located within its premises, owned and operated by the corporation to be actually, directly and exclusively used for educational purposes.
• However, the corporation is liable to all other including those below:
  • Income derived from any of its properties, real or personal, or any activity conducted for profit, which income should be returned for taxation unless they are actually, directly and exclusively used for educational purposes;
  • If engaged in the sale of goods or services in the course of a business pursuit, including transactions incidental thereto, its revenues derived therefrom shall be subject to the 12% VAT, in case the gross receipts from such sales exceed Three Million Pesos (Php3,000.000.00), or the 3% percentage tax, if the gross receipts do not exceed Php3,000.000.00;
• Acts as an employer and its employees receive compensation income subject to the withholding tax. (BIR RULING NO. SH30-208-21 & SH30-209-21, June 16, 2021).
• Merger between two (2) non-profit civic associations/organizations and consequent transfer of the property is not qualified as a tax-free merger. There must be an exchange of property solely for stock in another corporation. It is clear that in order to qualify as an exception to the recognition of the gain or loss upon the sale or exchange of property, a corporation which is a party to a merger exchanges its property solely for stock in another corporation which is also a party to the merger. (BIR RULING NO. S40M-210-21, June 16, 2021).
• Joint ventures involving foreign contractors may also be treated as a non-taxable corporation only if a member foreign contractor is covered by a special license as contractor by the Philippine Contractors Accreditation Board (PCAB) of the Department of Trade and Industry (DTI).(BIR RULING NO. JV-211-21, June 16, 2021).