Month: February 2022

THE BIR PROVIDES TAX COMPLIANCE REMINDERS FOR THE MAY 9, 2022 NATIONAL AND LOCAL ELECTIONS (Revenue Memorandum Circular No. 22-2022, February 21, 2022)

PRESCRIBES THE GUIDELINES IN THE CLAIM OF INPUT VAT ON PURCHASES OR IMPORTATIONS OF CAPITAL GOODS PURSUANT TO SECTION 110 OF THE TAX CODE, AS AMENDED BY RA NO. 10963 (TRAIN LAW) (Revenue Memorandum Circular No. 21-2022, February 21, 2022)

• Claim of Input VAT on Purchases or Importations of Capital Goods pursuant to Section 110 of the National Internal Revenue Code of 1997 (“Tax Code”), as amended by Republic Act No. 10963, otherwise known as the “Tax Reform for Acceleration or Inclusion (“TRAIN”) Law (RMC No. 21-2022)
•  In line with Sec. 35 of the TRAIN Law, amending certain provisions of Section 110 of the Tax Code, and as implemented under Sec. 4-110-3(c) of Revenue Regulation (“RR”) No. 13-2018, which reads:

“SEC. 110. Tax Credits. –

“A. Creditable Input Tax –

“(1) xxx

“(2) xxx

“(a) xxx

“(b) xxx

“Provided, that the input tax on goods purchased or imported in a calendar month for use in trade or business for which deduction for depreciation is allowed under this Code shall be spread evenly over the month of acquisition and the fifty-nine (59) succeeding months if the aggregate acquisition cost for such goods, excluding the VAT component thereof, exceeds One million pesos (P1,000,000): Provided, however, that if the estimated useful life of the capital good is less than five (5) years, as used for depreciation purposes, then the input VAT shall be spread over such a shorter period: Provided, further, that the amortization of the input VAT shall only be allowed until December 31, 2021 after which taxpayers with unutilized input VAT on capital goods purchased or imported shall be allowed to apply the same as scheduled until fully utilized: Provided, finally, that in the case of purchases of services, lease or use of properties, the input tax shall be creditable to the purchaser, lessee, or licensee upon payment of the compensation, rental, royalty or fee.”

• Thus, the following work-around procedures and guidelines are prescribed while the BIR Form Nos. 2550Q and 2550M pertaining to Quarterly Value-Added Tax (“VAT”) Declaration and Monthly VAT Declaration, respectively, are undergoing revisions to effect the above-cited provisions:

• Under EFPS and eBIR Forms, the balance of input tax to be carried to the succeeding period is computed automatically by the system. Hence, for purposes of implementing the provisions in the Tax Code, effective January 1, 2022 all input tax on purchases of capital goods shall already be allowed upon purchase/payment, and shall no longer be deferred, the taxpayer shall indicate Roman numeral “1” as the estimated useful and recognized useful life and encode the total input taxes claimed from purchase/s of capital goods exceeding P1M under column “G” in order to show a nil amount of “Balance of Input Tax to be Carried to Next Period” under column “H” of the monthly and quarterly VAT returns.

Moreover, taxpayers with unutilized input VAT on capital goods purchased or imported prior to January 1, 2022 shall be allowed to amortize the same as scheduled until fully utilized. Hence, Schedule 3(B) shall still be filled out. However, if the depreciable capital good is sold/transferred within the period of five (5) years or prior to the exhaustion of the amortizable input tax thereon, the entire unamortized input tax on the capital goods sold/transferred can be claimed as input tax credit during the month/quarter when the sale or transfer was made.

GUIDANCE ON THE FILING OF REQUEST FOR CONFIRMATION, TAX TREATY RELIEF APPLICATIONS AND TAX SPARING APPLICATIONS (Revenue Memorandum Circular No. 20-2022, February 17, 2022)

• Taxpayers already issued with Certificate of Entitlement to Treaty Benefit (“COE”), with the tenor thereof allowing the ruling to be applied to subsequent or future income payments, shall no longer need to file a Request for Confirmation (“RFC”) or Tax Treaty Relief Application (“TTRA”) every time an income of a similar nature is paid to the same non-resident.
• In applying the confirmed treaty benefit to future income payments, the income payor or withholding agent shall always be guided by the requisites mentioned in the COE. Thus, if the COE mentions tax residency as a requisite for continuous enjoyment of the treaty benefit, the income payor must require the non-resident to submit first a Tax Residency Certificate (“TRC”) for such relevant year before making any payments.
• The same rule applies to the Certificate of Entitlement to the Reduced Dividend Rate for tax sparing applications.
• A new RFC, TTRA or tax sparing application shall only be filed if any of the requisites mentioned in the certificate is absent.
• During tax audits, the income payor shall submit or present a copy of the duly issued COE and proof of satisfaction of the requisites cited therein.
• Regular Filing of RFCs and TTRAs
  • For business profits, income from services, capital gains, income derived by teachers, and such other income from non-recurring transactions, the RFCs or TTRAs shall still be filed following the procedures and requirements under RMO No. 14-2021, as amended by RMC No. 77-2021
  • For the annual updating of long-term contract of services, taxpayer shall only submit the following:
    • TRC of the non-resident for the relevant year;
    • Sworn Certification stating services provided by the foreign enterprise, place of performance of such services, individuals who rendered the services on behalf of the foreign enterprise (positions, designations, and professional background), duration of stay in the Philippines.
    • Certified true copy of their passports or a certification duly issued by the Bureau of Immigration stating their dates of arrival and departure from the Philippines;
    • Certificate of Completion of the project duly signed by the income recipient and duly accepted by the domestic income payor, if applicable;
    • Invoice(s) duly issued by the income recipient in accordance with the invoicing requirements of the country of residence, if applicable; and

Bank documents/certificate of deposit/telegraphic transfer/telex/money transfer evidencing the payment/remittance of income, if applicable.

REVENUE MEMORANDUM CIRCULAR NO. 19-2022, FEBRUARY 4, 2022 (CLARIFICATION AND GUIDANCE ON SECTION 8 OF REVENUE REGULATIONS (RR) NO. 5-2021 ON THE TAX-FREE EXCHANGES OF PROPERTIES UNDER SECTION 40(C)(2) OF THE NATIONAL INTERNAL REVENUE CODE (TAX CODE) OF 1997, AS AMENDED BY REPUBLIC ACT (RA) NO. 11534 OR THE CREATE ACT (Revenue Memorandum Circular No. 19-2022, February 4, 2022.pdf)

• Section 40(C)(2) of the 1997 Tax Code, as amended by CREATE, merely defers the recognition of gain or loss on said exchange of properties or shares and shall only be recognized after the subsequent transfer as they will be taxed accordingly.
• The substituted basis of the transferred properties and received shares shall be properly established and monitored in case of subsequent sale or disposition.
• Reorganization – shall mean any of the following instances:
  • A  corporation, which is a party to a merger or consolidation, exchanges property solely for stock in corporation, which is party to the merger or consolidation; or
  • The acquisition by one (1) corporation, in exchange solely for all or for a part of its voting stock, or in exchange solely for all or part of the voting of a corporation which is in control of the acquiring corporation, of stocks of another corporation if, immediately after the acquisition, the acquiring corporation has control of such other corporation, whether or not such acquiring corporation had control immediately before the acquisition: or
  • The acquisition by one (1) corporation, in exchange solely for all or for a part of its voting stock, or in exchange solely for all or part of the voting of a corporation which is in control of the acquiring corporation, of substantially all of the properties of another corporation. In determining whether the exchange is solely for stocks, the assumption by the acquiring corporation of a liability of the others shall be disregarded; or
  • A recapitalization which shall mean an arrangement whereby the stock and bonds of a corporation are readjusted as to amount, income, or priority or an agreement of all stockholders and creditors to change and increase or decrease the capitalization or debts of the corporation or both; or
  • A reincorporation, which shall mean the formation of the same corporate business with the same assets and the same stockholders surviving under a new charter.
• Transfer to a Controlled Corporation - which means transfer of property to a corporation by a person, alone or together with others, not exceeding four (4) persons, in exchange for stock or unit of participation in such a corporation of which as a result of such exchange, the transferor or transferors, collectively, gains or maintains control of said corporation: Provided, that stocks issued for services shall not be considered as issued in return for property.
  • In tax free-exchange of properties, control means ownership of stocks in a corporation after the transfer of property possessing at least fifty-one percent (51%) of the total voting power of all classes of stocks entitled to vote.
• Determination of Substituted Basis:
  • Stocks/Securities
  • The original basis of the property, stock securities to be transferred;
  • Less:
    • Money received, if any
    • Fair market value of the other property received, if any;
  • Plus:
    • The amount treated as dividend of the shareholder, if any
    • The amount of any gain that was recognized on the exchange, if any
    • Property received as “boot” shall have as basis its fair market value
      • Boot refers to the money and property received in excess of the stock or securities received by the transferor on a tax- free exchange.
• Property in the Hands of the Transferee:
  • The original basis in the hands of the transferor;
  • Plus: the amount of the gain recognized to the transferor on the transfer
• Original Basis
  • The cost of the property, if acquired by purchase on or after March 1, 1913;
  • The fair market price or value as of the moment of the death of the decedent, if acquired by inheritance
  • The basis in the hands of the donor or the last preceding owner by whom the property was not acquired by gift, if the property as acquired by donation
  • If the basis is greater than the fair market value of the property at the time of donation, then for purposes of determining the loss, the basis shall be such fair market value.
  • The amount paid by the transferee for the property, if the property was acquired for less than adequate consideration in money or money’s worth
  • The adjusted basis of (a) to (d) above, if the acquisition cost of the property is increased by the amount of improvements that materially add to the value of the property or appreciably prolong its life less accumulated depreciation.
  • The substituted basis, if the property was acquired in a previous tax-free exchange under Section 40(C)(2) of the Tax Code of 1997
• Monitoring of the Substituted Basis of Properties
  • Each corporation, which is a party to the reorganization, shall file a complete statement of all facts pertinent to the non-recognition of gain and loss in connection with the reorganization.
  • Every taxpayer, other than a corporation, party to the reorganization, who received stocks or securities and other property or money in connection with the tax-free exchange shall incorporate in his income tax for the taxable year a complete statement of all facts pertinent to the non-recognition of gain or loss in such exchange.
  • They shall note in their audited financial statements the assets acquired in the tax-fee exchange until the subject properties are subsequently transferred to another transferee.
  • The parties shall cause to annotate, at the back of the Transfer Certificate of Title (TCC), Condominium Certificate of Title (CCT) and Certificates of Stock, the date the deed of exchange was executed, the original or historical cost of acquisition of the properties or shares of stock transferred, and the fact that no gain or loss was recognized as a result of such exchange.
  • A photocopy of the TCT/CCT/Certificate of Stock that bears the annotation of substituted bases of the real properties/shares of stock transferred/received in connection with the transaction, as duly certified by the RD/Corporate Secretary, should be submitted to the RDO which issued the CAR, within ninety (90) days from the date of the receipt of the CAR, by any of the parties to the exchange transaction. Otherwise, the RDO shall refer the docket of the case to the Legal Division for appropriate action.
  • The shareholders of the absorbed/transferor corporation and the surviving/ transferee corporation shall record in their respective books the mandatory accounting entries stated in Annexes "A" "A-1" and "A-2" hereof, as the case may be, pursuant to RMO No. 17-2016.
• Tax Treatment of Exchanges of Properties Made Pursuant to Section 40(C)(2) of the tax Code, as amended:
• Transfer of properties in exchange for shares of stocks pursuant to Section 40 (C)(2) shall be exempt from the following:
  • Capital Gains Tax (CGT)
  • Creditable Withholding Tax (CWT)
  • Income Tax (IT)
  • Donor’s Tax (DT)
  • Value-Added Tax (VAT)
  • Documentary Stamp Tax (DST) on conveyances of real properties and transfer of stocks
  • However, original issuance of shares in exchange for the properties transferred shall be subject to DST under Section 174 of the 1997 Tax Code

AUDITED FINANCIAL STATEMENTS OF COMPANIES WHOSE FISCAL YEAR ENDS ON DECEMBER 31, 2021

• All corporations, including branch offices, representative offices, regional headquarters and regional operating headquarters of foreign corporations, shall file their AFS depending on the last numerical digit of their SEC registration or license number in accordance with the following schedule through Efast:

*Corporations may still file on or before its respective filing dates through Efast:

• The above filing schedule shall not apply to the following corporations:
  • Those whose fiscal year ends on a date other than December 31, 2021. Such entities shall file their AFS within 120 calendar days from the end of their fiscal year
  • Those whose securities are listed on the Philippine Stock Exchange (“PSE”) and those which are covered under Section 17.2 of the SRC, except those companies which filed a Notification of Suspension to file reports. These entities are encouraged to observe the due date of filing of their AFS (within 105 days after the end of the fiscal year) as an attachment to their Annual Reports. However, subject entities are given an extension of until May 15, 2022 to file their Annual Reports.
  • Those whose AFS are being audited by the Commission on Audit (“COA “) provided the following are attached:
    • An affidavit signed by the President and Treasurer (or CFO) attesting to the fact that the company timely provided COA with the financial statements and supporting documents and that the audit of COA has just been concluded.
    • A letter from COA confirming the information provided.
• Late filings after respective due dates shall be accepted starting September 16, 2022, and shall be subject to the prescribed penalties which shall be computed from the date of the last day of the filing schedule as provided.
• The AFS, other than the consolidated financial statements, shall have the stamped “received by the Bureau of Internal Revenue (BIR)” or its authorized banks, unless the BIR allows an alternative proof of submission for its authorized banks (e.g. bank slips) and/or other facilities.
• The basic components of the AFS as prescribed under Revised SRC Rule 68, shall be submitted by the filers. Failure to comply with any of the formal requirements under the said Rule, including the prescribed qualifications for independent auditors and/or any material deficiency or misstatement that may be found upon evaluation of the specific contents thereof, shall be considered a sufficient ground for the imposition of penalties by SEC. The acceptance and receipt by the Commission of the financial statements shall be without prejudice to such penalties.
• Companies qualifying under the below thresholds are required to submit properly audited financial statements as stated under Rule 68 of the Revised SRC:
  • Stock corporations with total assets or liabilities of P600,000.00 or more as prescribed under the RCC and any of its subsequent revisions or such amounts as may be subsequently prescribed.
  • Branch offices/representative offices of stock foreign corporations with assigned capital in the equivalent amount of P1,000,000.00 or more.
  • Branch offices/representative offices of non-stock foreign corporations with assigned capital in the equivalent amount of P1,000,000.00 or more.
  • Regional operating headquarters of foreign corporations with total revenues in the equivalent amount of P1,000,000.00 or more.

Corporations which do not meet the above threshold may submit their annual financial statements accompanied by a duly notarized Treasurer’s Certification only.

BIR RULINGS

• • To be classified as capital assets for taxation purposes the property must be not actually used in trade or business of the taxpayer, whether or not connected with his trade or business, or not held for lease or sale of customers. Also, if the property is merely held for capital appreciation and investment purposes and remains vacant and idle, it is deemed a capital asset.
    • Real properties owned by taxpayers not engaged in the real estate business or referring to those persons other than real estate dealers, real estate developers and/or real estate lessors, shall, upon showing of proof that the same have not been used in business for more than two (2) years prior to the consummation of the taxable transactions involving the said real properties, and though classified as ordinary assets, be automatically converted into capital asset. (BIR Ruling No. VAT-334-2021, September 23, 2021).
  • The transfer of the legal title of the shares from the former trustee-appointee to the new trustee-appointee, is not subject to capital gains tax (CGT) considering that the transfer involves neither monetary consideration nor change in beneficial ownership.
    • Furthermore, if there is no transfer or conveyance to the new trustee of the beneficial ownership of or any right, claim or interest over the share or over the assets, transfers cannot be subject to documentary stamp tax and shall not be subject to donor’s tax. (BIR Ruling No. OT-467-2021, December 14, 2021).
  • A foreign corporation, whether or not engaged in trade or business in the Philippines, is subject to income tax only with respect to income derived from sources in the Philippines. With respect to value-added tax (VAT), payments for the sale or exchange of services, including the use or lease of properties are subject to VAT only if the services are performed in the Philippines.
    • Thus, where if a foreign corporation enters a maintenance agreement with the Philippine entity where despite the computer system is located in Manila, the maintenance and repair of the system are to be performed abroad using internet-based remote computer repair technology and no services will be performed in the Philippines and no personnel will be sent herein, the service fees are exempt from income tax and VAT. (BIR Ruling No. OT-340-2021, September 28, 2021).
  • The value of the gross estate of the decedent shall be determined by including the value at the time of his death all properties to the extent of any interest therein.
    • If the decedent prior to his death relinquished his right over ownership over his inheritance, the property shall no longer be included in the gross estate.
  • In order to support the claim that the decedent died without an heir, an affidavit to this effect must also be submitted.
  • A Certificate Authorizing Registration is not a proof of ownership that only a proof that taxes have been paid. (BIR Ruling No. OT-034-2021, September 30, 2021)
  • A non-stock and non-profit residential homeowner association duly registered with the Housing and Land Use Regulatory Board and performs the delivery of basic community services, the income derived from association dues, membership fees, other assessments and charges collected in a purely reimbursement basis and rentals of facilities is exempt from income tax, VAT 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.
    • However, it shall be subject to the applicable internal revenue taxes on its other income from trade, business or other activities. (BIR Ruling No. OT-344-2021, October 04, 2021).
  •  The retirement benefits to be received by a qualified employee-member of the Plan shall continue to be exempt from income tax provided:
    • Employee has been in the service of the same employer for at least 10 years; and
    • 50 years old at the time of retirement.
    • Income of the Plan’s fund from its investments shall continue to be exempt from income tax and withholding tax, provided:
      • Contributions are made to the trust by such employer, or employees, or both, for the purpose of distributing to such employees the earnings and principal of the fund accumulated by the trust in accordance with such plan;
      • If under the trust instrument it is impossible, at any time prior to the satisfaction of all liabilities with respect to employees under the trust, for any part of the income to be (within the taxable year or thereafter) used for, or diverted to, purposes other than for the exclusive benefit of employees;
    • Provided further: any amount actually distributed to any employee or distributee shall be taxable to him in the year in which so distributed to the extent that exceeds the amount contributed by such employee.
    • The contributions of Participating Companies to the retirement fund are deductible from the Participating Companies’ gross income, and shall continue to qualify through all the years that it shall be in operation, provided that any modification or amendment in the Retirement Plan Rules and Regulations should be submitted to the BIR for certification that such modification or amendment does not affect the qualification of the Plan.
    • However, portions of the fund of the Plan in excess of the amount actuarially determined to cover the benefits of the covered employees may be reverted to the company without terminating the Plan but the same shall be declared as income and applicable taxes thereon shall be paid (BIR Ruling No. OT-450-2021, December 9, 2021; OT-480-2021, December 24, 2021).
  • A tax assumption mechanism expressed through an Exchange of Notes between the Republic of the Philippines and the Government of Japan, is binding through executive action without need of a vote by the Senate or Congress.
    • Marubeni Corporation, a non-resident foreign corporation that is licensed to do business in the Philippines entered into a Consortium Agreement (“UC”) with D.M. Consunji, Inc. (“DMCI”) for the limited purpose of submitting a tender to the Department of Transportation (“DOTr”), to perform the contract relating to the Exchange of Notes between the Philippines and Japan for the improvement of “Mass Transit Systems in Metro Manila”.
    • UC, after having been awarded the Project, sought confirmation from the BIR of its tax liabilities in view of the tax assumption mechanism expressed under the Exchange of Notes. Accordingly, the BIR ruled:
    • UC, having been formed solely for the purpose of bidding and implementing the Project, is subject to corporate income tax, through the UC members, provided that the lead partner is Marubeni and that its share of work is more than 50% of the contract amount. However, pursuant to the Exchange of Notes, the said income tax on the Japanese company shall be assumed by DOTr;
    • By reason of such tax assumption scheme, the UC, through its members, is still required to file quarterly and annual income tax returns with the BIR;
    • On the VAT aspect of the project, pursuant to the case of Mitsubishi Corporation – Manila Branch v. Commissioner of Internal Revenue, and Revenue Memorandum Circular No. 8-2017, the VAT-registered suppliers and sub-contractors of the UC shall bill and pass on 12% VAT to the UC, which in turn, will include in its billing and pass on to DOTr. The Japanese contractors shall file the prescribed VAT returns on gross receipts derived from the project, claim its input taxes from its purchases of goods, properties, and services, and shall pay the output tax thereon, after offsetting the creditable or allowable input taxes, considering that the amount intended for the payment of the VAT has already been collected and received by UC from DOTr.
    • As the importer, the DOTr shall be liable for the 12% VAT on the importation of materials and equipment under Section 107(A) of the Tax Code, as amended.
    • The Japanese personnel employed by the UC and its Japanese contractors performing work in the Philippines are required to file income tax returns but the DOTr shall assume payment of the taxes due thereunder. Accordingly, the said Japanese personnel are not subject to withholding tax on compensation under Section 57 of the Tax Code, as amended, pursuant to the tax assumption provisions under the Exchange of Notes and the Mitsubishi case.
    • In connection with the tax assumption scheme and pursuant to the Exchange of Notes, the Government of the Philippines or its executing agency (i.e. DOTr) shall be responsible for the liquidation or settlement of such fiscal levies, duties, taxes, and other similar charges. (BIR Ruling No. OT-471-2021, December 21, 2021)
  • Merger of Wawona Holdings, Inc. (“WHI”) as the absorbed corporation, and Abaya Investments Corporation (“AIC”) as the surviving corporation, qualifies as a tax-free merger under Section 40(C)(2) of the National Internal Revenue Code of 1997 (“NIRC”), as amended.
    • Because the acquisition and assumption by AIC of all the assets and liabilities of WHI will result in specific benefits to both corporations, such as but not limited to increased financial strength through pooling of resources, a more diversified and stable capital base, increased operating economies and efficiencies, and reduction of overall business expenses, the merger is being undertaken for a bona fide business purpose.
    • The transaction is also not subject to donor’s tax as there is no intention on the part of any of the parties to donate since the transaction is purely for a legitimate business purpose.
    • Also, the transfer of properties as a consequence of the merger shall not be subject to any output tax, pursuant to Section 4.106-8(b)(3) of Revenue Regulations (“RR”) No. 16-2005, as amended by RR No. 4-2007, and as further amended by RR No. 10-2011, since the conveyance of the property to effectuate the merger is not made in the course of business but by operation of law.
    • The excess and unexpired Minimum Corporate Income Tax (“MCIT”) of the absorbed corporation shall be carried forward and credited against the normal income tax due of the surviving corporation for the three (3) years immediately succeeding taxable years pursuant to Section 27(E)(2) of the NIRC, as amended. Also, any excess and unutilized creditable withholding taxes (“CWT”), if any, which form part of the assets to be transferred may be utilized by the surviving corporation against its income tax liabilities for the succeeding years or may be the subject of claim for refund or issuance of a tax credit certificate.
    • However, net operating loss carry-over (“NOLCO”) is not one of the assets that can be transferred and absorbed.
    • Lastly, in order for the above transaction to be considered as a merger under Section 40 (C)(2) and (6)(b) of the NIRC, as amended, the parties to the merger should, among others, comply with the requirements set forth under RR No. 18-2001 (BIR Ruling No. OT-474-2021, December 22, 2021)
  • Transfer or conveyance of real properties representing the common areas of the condominium corporation, without consideration, does not generate taxable income, and therefore, not subject to Capital Gains Tax or creditable withholding tax.
    • The purpose of the conveyance is for the management of the project for the common benefit of the unit owners.
    • It is also exempt from imposition of documentary stamp tax based on Sec. 185 of Regulation No. 26, otherwise known as the Revised Documentary Stamp Tax Regulations, which provides that “conveyances of realty not in connection with a sale, to trustees or other persons without consideration are not taxable.” (BIR Ruling No. OT-483-2021, December 23, 2021)
  • The transfer of subdivided lots in favor of the qualifies socialized housing member-beneficiaries is not subject to either the capital gains tax imposed under Section 27(D)(5) of the National Internal Revenue Code (Tax Code) of 1997, as amended, or the creditable withholding tax (“CWT”) imposed under Revenue Regulations (“RR”) No. 2-98, as amended, considering that the transfer is only a formality to finally effect the transfer of the subject property to its member-beneficiaries who actually bought the same from the form owner through the association. In other words, the association is merely transferring the ownership of the property to its member-beneficiaries who actually own the same.
    • Moreover, the said transfer is not subject to the donor’s tax imposed under Section 99 of the Tax Code of 1997, as amended, since there is no donative intent on the part of the association to donate the property to its member-beneficiaries, considering that it could not donate property the ownership of which already belongs to the members-beneficiaries themselves.
    • Also, the deeds or documents covering the transfer of the subdivided lots in favor of the beneficiaries is not subject to documentary stamp tax under Section 196 of the Tax Code of 1997, as amended. (BIR Ruling Nos. OT-381-2021 and OT-484-2021, December 24, 2021)
  • The tax exemption under Republic Act No. 7459, otherwise known as the “Inventors and Inventions Incentives Act of the Philippines” is only for the exclusive benefit of the inventor and not for any other entity that commercially produces and distributes the invented product.
    • Any income received by the company from such production/distribution/marketing is subject to the payment of appropriate taxes.
    • Moreover, the inventor is still subject to the following taxes:
    • 20% final withholding taxes on interest from currency bank deposit and yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements and 15% percent final withholding tax on interest from foreign currency deposit;
    • Capital gains tax on sale of shares of stock prescribed under Section 24(c) of the National Internal Revenue Code of 1997, as amended;
    • Capital gains tax on sale of property prescribed under Section 24(D) of the National Internal Revenue Code of 1997, as amended;
    • Income tax on income not arising from the inventor’s productive activity such as interest, royalties, prizes, winnings and dividends;
    • Value-Added Tax (“VAT”) on the gross receipts/revenues derived from the sale of the said invention products, and also VAT for which the inventor is not directly liable, e.g. VAT on his purchases of raw materials, supplies, and equipment/machinery, which may be shifted to him as part of the cost of goods sold or for services rendered; and
    • Other percentage taxes under Title V of the National Internal Revenue Code of 1997, as amended;
    • Excise taxes directly payable in connection with the sale of invention products; and
    • Documentary Stamp Tax on documents, instruments and papers. (BIR Ruling No. OT-485-2021, December 24, 2021, OT-486-2021, December 21, 2021)