GAIN FROM MANDATED FINANCIAL RESTRUCTURING IS NOT SUBJECT TO INCOME TAX. Section 19 of R.A. No. 10142 states that taxes and fees due to the national government imposed upon the issuance of the commencement order and until the approval of the rehabilitation plan or dismissal of the petition, whichever is earlier, shall be considered waived. In this case, there is a financial restructuring under a court-supervised bankruptcy proceeding which resulted in a mandatory exchange of PAL equity into PAL Holdings, Inc. equity. Thus, any gain resulting from a mandated restructuring plan is not taxable for income tax purposes (BIR Ruling No. OT. 001-2023)
NO VALID DONATION WHEN THERE WAS NO ACT OF LIBERALITY OR DONATIVE INTENT. To be a valid donation, it is essential that: (1) there is reduction of the patrimony of the donor; (2) there is increase in the patrimony of the done; (3) the intent on the part of the donor to do an act of liberality (animus donandi); and (4) the donee accepts the gift
- Here, the conversion of the impaired unsecured creditors’ debts were made pursuant to a court-approved plan. Thus, the mandated arrangements are not subject to donor’s tax as there was no act of liberality or donative intent (BIR Ruling No. OT. 001-2023)
- Here, the transaction is purely for a legitimate business purpose. Thus, the transfer will not be subject to donor’s tax since there is no intention to donate, and the transaction is a bona fide transaction effected solely for business reasons (BIR Ruling No. OT-002-2023, BIR Ruling No. 003-2023, BIR Ruling No. S40M-010-2023, BIR Ruling No. OT 014-2023, BIR Ruling No. OT-039-2023, BIR Ruling No. OT-066-2023, BIR Ruling No. OT-069-2023)
- Here, there is transfer of the MPC Shares from one nominee to another nominee. Thus, the transfer is not subject to donor’s tax under the Tax Code, as amended, since there is no intention on the part of the Company to donate the share in favor.
- Here, there is conveyance of the property to the new trustee brought about by the beneficial owner’s instruction. Thus, there is no donor’s tax imposable on the conveyance as there is no donative intent on the part of the trustee (BIR Ruling No. OT-038-2023)
DEED OF CONVEYANCE IN FAVOR OF A GOVERNMENT ENTITY AND RELIGIOUS INSTITUTION IS EXEMPTED FROM DONOR’S TAX. The Deed of Conveyance in favor of a government entity, religious institution is exempt from the payment of the donor’s tax. Moreover, the Deed of Donation is likewise not subject to the DST prescribed under Section 196 of the Tax Code, as amended, but only to the DST imposed under Section 188 of the Tax Code, as amended. Here, the donee is a government entity and a religious institution. Thus, it is exempt from the payment of the donor’s tax and is not subject to the DST prescribed under Section 196 of the Tax Code, as amended (Certificate of Tax Exemption No. DT-015-2023, Certificate of Tax Exemption No. DT-023-2023, Certificate of Tax Exemption No. DT-024-2023)
TO BE SUBJECT TO DST THERE MUST BE AN ACTUAL OR CONSTRUCTIVE TRANSFER OF BENEFICIAL OWNERSHIP OF THE SHARES OF STOCK. The assignment of shares of stock of a domestic corporation is subject to DST upon execution of the deed transferring ownership or rights thereto, or upon delivery, assignment or indorsement of such shares in favor of another. Further, RR No. 13-2004 qualified this rule by stating that for a sale or exchange to be taxable, there must an actual or constructive transfer of beneficial ownership of the shares of stock from one person to another
- Here, there is no transfer or conveyance to the new trustee of the beneficial ownership of any right, claim or interest over the share or over the asset of the Corporation. Thus, there is no exercise of a privilege upon which DST may be imposed as there is no new conveyance to speak of (BIR Ruling No. OT-002-2023, BIR Ruling No. OT-003-2023, BIR Ruling No. OT-013-2023, BIR Ruling No. OT-014-2023, BIR Ruling No. OT-039-2023, BIR Ruling No. OT-066-2023, BIR Ruling No. OT-069-2023)
- Here, only the legal title was transferred. Thus, DST may not be imposed as there was no actual or constructive transfer of the beneficial of the share (BIR Ruling No. OT-038-2023)
DOMESTIC CORPORATION ENTITLED TO APPLY FOR REFUND FOR VAT PAID ATTRIBUTABLE TO ITS ZERO-RATED SALE. The services rendered by the domestic corporation to a foreign corporation which are paid for in acceptable foreign currency will qualify for VAT zero-rating pursuant to the Tax Code of 1997, as amended; provided, that the same is remitted inwardly and accounted for in accordance with the rules and regulations of the BSP. Furthermore, considering that the services rendered by domestic corporation to a foreign corporation qualify for VAT zero-rating, a domestic corporation is likewise entitled to apply for the refund of any excess or unutilized input VAT due or paid attributable to its zero-rated sale of services to foreign corporation. Here, the Basic Ordering Agreement provides that in consideration of the various consultancy services to be rendered by the domestic corporation to a foreign corporation shall be paid in United States dollars. Thus, considering that the services rendered by the domestic company to foreign company qualify for VAT zero-rating, the former is entitled to apply for the refund of any excess or unutilized input VAT due or paid attributable to its zero-rated sale of services to the foreign company (VAT-003-2023; BIR Ruling No. OT-060-2023)
A TRANSFER IS NOT SUBJECT TO CAPITAL GAINS TAX WHEN THERE IS NO CHANGE IN BENEFICIAL OWNERSHIP. A declaration of trust has been defined as an act by which a person acknowledges that the property, title to which he holds, is held by him for the use of another. Here, the Company owns the proprietary shares of the Manila Polo Club and are recorded as assets in its books which was registered in the name of its former officer and was transferred to a new nominee/assignee of the Company. Thus, the transfer of the legal title of the MPC share from the former trustee-appointee to the new trustee-appointee, is not subject to CGT under Section 24(c) of the Tax Code of 1997, as amended, considering that the transfer involves neither monetary consideration nor change in beneficial ownership (BIR Ruling No. OT-004-2023, BIR Ruling No. OT-014-2023, BIR Ruling No. OT-039-2023, BIR Ruling No. OT-066-2023, BIR Ruling No. 069-2023)
SALE OF HOUSE AND LOT AND OTHER RESIDENTIAL DWELLING PURSUANT TO SOCIALIZED HOUSING IS EXEMPTED FROM PROJECT-RELATED INCOME TAXES AND CAPITAL GAINS TAX ON RAW LANDS USED FOR THE PROJECT. The sale of house and lot and other residential dwellings (socialized housing) with selling price of not more than P3,199,200 per house and lot package is exempted from VAT; provided further, that beginning January 01, 2021, the exemption from VAT shall only apply to sale of house and lot and other residential dwellings with selling price of not more than P3,199,200 (BIR Ruling VAT-005-2023, BIR Ruling No. DT-015-2023, Certificate of Tax Exemption No. BOI-011-2023, Certificate of Tax Exemption No. PSH-012-2023, Certificate of Tax Exemption No. NSH-019-2023, Certificate of Tax Exemption No. BOI-LEH-020-2023, Certificate of Tax Exemption BOI-LEH-021-2023, Certificate of Tax Exemption No. PSH-022-2023, Certificate of Tax Exemption PSH-022-2023, Certificate of Tax Exemption NSH-028-2023, Certificate of Tax Exemption No. BOI-LEH-035-2023, Certificate of Tax Exemption No. BOI-LEH-040-2023, Certificate of Tax Exemption No. PSH-041-2023, Certificate of Tax Exemption No. NSH-042-2023, Certificate of Tax Exemption No. BOI-LEH-051-2023, Certificate of Tax Exemption No. BOI-LEH-052-2023)
- The Deeds of Sales which were executed by the Company in favor of NHA for the delivery of completed house and lot units for NHA’s various socialized housing projects are exempted from project-related income taxes, creditable withholding tax and VAT (BIR Ruling VAT-005-2023)
- The sale by the Company of residential lot valued at P1,919,500 and below, or house and lot and other residential dwelling valued at P3,199,200 and below is exempt from VAT (Certificate of Tax Exemption No. NSH-019-2023, Certificate of Tax Exemption No. BOI-LEH-020-2023, Certificate of Tax Exemption No. BOI-LEH-021-2023, Certificate of Tax Exemption No. PSH-022-2023, Certificate of Tax Exemption No. BOI-LEH-035-2023, Certificate of Tax Exemption No. BOI-LEH-037-2023, Certificate of Tax Exemption No. PSH-041-2023, Certificate of Tax Exemption No. PSH-047-2023)
- Sections 19 and 20 of RA No. 7279, as amended by RA No. 10884 provides that no capital gains tax and documentary stamp tax shall be imposed upon for Deed of Absolute Sale executed in favor of NHA to be used for the development of a socialized housing project. Here, The Deeds of Absolute Sale (DOAS) was executed by the Landowners in favor of the National Housing Authority over the parcels of land which shall be used for the development of a socialized housing project intended for the informal settler families affected by calamities. Thus, they are not subject to capital gains tax and documentary stamp tax (Certificate of Tax Exemption No. NSH-027-2023)
However, it is observed that the tax exemptions are not applicable in the following instances:
- VAT is an indirect tax which can be passed on by the seller of the goods/services. Here, the purchases of goods/articles by the Company were to be used for the socialized housing project. Thus, the purchases shall be subject to VAT (BIR Ruling No. DT-015-2023, Certificate of Tax Exemption No. NSH-017-2023, Certificate of Tax Exemption No. NSH-018-2023, Certificate of Tax Exemption No. NSH-036-2023)
- The documents conveying the properties shall be subject to DST imposed under Section 196 of the Tax Code, as amended, based on the consideration contracted to be paid for such realties or on the fair market value determined in accordance with Section 6(E) of the Tax Code, whichever is higher. Here, there are lots/units classified as Economic Housing, not covered by RA No. 7279. Thus, it is subject to the payment of appropriate taxes (Certificate of Tax Exemption No. PSH-026-2023, Certificate of Tax Exemption No. NSH-028-2023, Certificate of Tax Exemption No. PSH-047-2023)
- Socialized housing is referred to as housing programs and projects covering houses and lots or home lots only undertaken by the Government or the private sector for the underprivileged and homeless citizen which shall include sites and services development, long-term financing, liberalized terms on interest payments, and such other benefits in accordance with the provisions of RA No. 7279. Here, there is a purely land survey and titling works. Thus, it is not exempted from income taxes and capital gains tax as purely land survey and titling works do not fall within the definition of a “socialized housing” (Certificate of Tax Exemption No. NSH-030-2023)
ZERO-PERCENT VAT IS LIMITED ONLY TO THE LOCAL PURCHASES OF GOODS AND SERVICES THAT WILL BE USED IN THE DEVELOPMENT, CONSTRUCTION AND INSTALLATION OF POWER PLANT FACILITIES OF RENEWABLE ENERGY (RE) DEVELOPERS. Under RA No. 9513, the local purchases of goods and services by RE Developers are subject to zero percent (0%) VAT provided that these are needed for the development, construction and installation of their power plant facilities as well as the whole process of exploring and developing renewable energy sources up to its conversion into power, including but not limited to the services performed by subcontractors and/or subcontractors. Here, the Company is a DOE-certified RE Developer. Thus, it should not pass on 12% VAT to the Company’s purchase of goods and services that will be used in the development, construction and installation of its power plant facilities and the whole process of exploring and developing renewable energy sources up to its conversion into power, including but not limited to the services performed by subcontractors and contractors (BIR Ruling No. OT-006-2023)
WITHHOLDING TAX NOT APPLICABLE TO INCOME PAYMENTS TO PERSONS ENJOYING EXEMPTION FROM INCOME TAX. Section 2.57.5 (B)(2) of RR No. 2-98, as amended, states that the withholding tax prescribed in the said Regulations shall not apply to income payments to persons enjoying exemption from the income tax provided by RA No. 7916 and the Omnibus Investments Code of 1987. Here, the Company is a registered RE Developer with the BOI, DOE and BOI, engaged in wind exploration, development, production, and utilization of Wind Energy Systems to convert Wind Energy to electrical power and the transmission of such electrical power and/or other non-electrical uses. Thus, the Company is exempt from income tax and CWT on revenue generated from the sale of electricity (BIR Ruling No. OT-006-2023)
BUSINESS PROFIT REMITTANCE TAX (BPRT) IS IMPOSED ON PROFIT NOT ON MERE CAPITAL. As a rule, the 15% BPRT is imposed on profits remitted abroad by a branch to its head office which tax based is imposed on profits actually remitted abroad by a branch to its head office. Further, the term “income” means all wealth which flows into the taxpayer other than as a mere return of capital. Here, the amounts to be remitted by Toyo Phil (branch) to Toyo Japan (head office), consisted of the amounts previously advanced by the head office as operating funds to pay for labor, local materials and other operating costs and expenses needed in the implementation of the project. Thus, it is not subject to BPRT as there were no profits but mere capital of the head office (BIR Ruling No. OT-007-2023)
PER DIEMS GRANTED TO FILIPINO FIELD WORKERS IS NOT SUBJECT TO WITHHOLDING TAX ON COMPENSATION. RR No. 2-98, as amended, provides that advances received by employees of a company, whether rank and file or managerial employees, in addition to their compensation relating to the ordinary and necessary expenses incurred or reasonably expected to be incurred by such employees in the performance of their duties and responsibilities are not compensation subject to withholding tax: provided, however, that the qualifications stated in the law are fully complied with. Moreover, for managerial employees, RR No. 3-98 provides that allowances received by the same that are necessary to the trade or business or for the convenience of the employer are fringe benefits not subject to fringe benefit taxes. Here, MPSC provides per diems to its Filipino field service. Thus, the per diems granted to Filipino field engineers, whether rank and file or managerial employees, are advances made particularly for travel, meal and other ordinary and necessary expenses reasonably expected to be incurred in the performance of their duties is not subject to withholding tax on compensation (BIR Ruling No. OT-008-2023)
PEZA-REGISTERED FOREIGN EXCHANGE GAINS ARISING FROM REGISTERED ACTIVITY IS ENTITLED TO INCENTIVE . Under Revenue Regulations No. 20-2002 and Memorandum Circular No. 2005-032, the tax treatment of foreign exchange gains of the Company shall depend on the activities from which they arise. Here, the Company is a resident foreign corporation and an PEZA export enterprise primarily developing, manufacturing, selling, distributing and marketing aerospace related products and solutions. Thus, the realized foreign exchange attributable to the registered activities of the Company shall be covered by the same income tax incentive (i.e., income tax holiday and/or 5% gross income tax, whichever is applicable) as stated in the terms and conditions granted by PEZA. Meanwhile, if the foreign exchange gain is not attributed to the registered activities, such gain shall be subject to the regular income tax rate (BIR Ruling No. OT-009-2023)
NO GAIN OR LOSS SHALL BE RECOGNIZED PURSUANT TO THE DEED OF MERGER. The merger of a two non-resident foreign corporations is a merger within the contemplation of Section 40(C)(2), in relation to Section 40 (c) (6)(b) of the Tax Code. Here, Lenovo U.A. and Lenovo B.V. concluded a legal merger within the meaning of the Civil Code of Netherlands whereby U.A. Lenovo U.A. is the surviving company which acquired all assets and liabilities of Lenovo B.V. and the latter ceased to exist by operation of law. Thus, it qualifies for nonrecognition of gain or loss for income tax purposes and that no gain or loss shall be recognized to the Company as the transferor of all its assets and liabilities pursuant to the Deed of Merger (BIR Ruling No. S40M-010-2023)
THE TRANSFER OF THE SHARES AS A CONSEQUENCE OF THE MERGER IS NOT SUBJECT TO VAT. 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 VAT. Here, there is transfer of the Think Server shares as a consequence of the merger. Thus, it is not subject to VAT as the transfer of the shares is not made in the course of business but by operation of law pursuant to the merger (BIR Ruling No. S40M-010-2023)
DST CANNOT BE IMPOSED WHEN PHILIPPINE HAS NO JURISDICTION. The Tax Code only imposes DST on obligations or rights arising from the Philippines sources or properties situated in the Philippines. Here, Lenovo U.A. is a corporation organized and existing under the laws of the Netherlands. Thus, the shares of stock issued by Lenovo U.A. is not subject to DST on original issuances of shares as it is not within the Philippine taxing jurisdiction. (BIR Ruling No. S40M-010-2023)
NON-RESIDENT FOREIGN CORPORATION NOT SUBJECT TO PHILIPPINE INCOME TAX FROM SOURCES OUTSIDE THE PHILIPPINES. Section 23(F) of the Tax Code provides that a “foreign corporation, whether engaged or not in trade or business in the Philippines, is taxable only on income derived from sources within the Philippines.” Income derived by non-resident foreign corporations from sources outside the Philippines is not subject to income tax. Here, the Company is a non-resident foreign corporation organized under the laws of Singapore. Thus, non-resident foreign corporations deriving income for services performed abroad are not subject to Philippine income tax since such services are considered income from sources without the Philippines (BIR Ruling No. OT-025-2023).
INCOME FROM THE SALE OF DONATED SMUGGLED GOODS IS EXEMPT FROM INCOME TAX. Any income by the Department of Agriculture (DA) from the sale of donated smuggled goods is considered derived from carrying out an essential governmental function. Here, DA sold to the general public the donated seized smuggled agricultural products. The sale of the donated agricultural products is for the purpose of fulfilling a government policy and objectives, which is to stabilize prices in the market and to provide the consuming public access to reasonably priced agricultural commodities and thus, falls under the purview of a governmental function. Thus, it is exempt from income tax as it is not considered as part of its gross income (BIR Ruling No. VAT-031-2023)
SALE OF DONATE GOODS DOES NOT FALL WITHIN THE SCOPE OF VAT BECAUSE IT IS NOT A REGULAR OR HABITUAL ACTIVITY. Any person who, in the course of trade, sells, barters, exchanges, leases goods or properties, renders services, and any person who imports goods shall be subject to VAT. The phrase “in the course of trade or business” refers to any activity conducted by a person engaged in a trade or business, which is carried out on a regular or habitual basis. Here, there is sale by the DA of donated seized smuggled agricultural products. Thus, the sale of donated goods does not fall within the scope of the VAT because it is not a regular or habitual activity rather it is an event conducted to stabilize market prices and provide affordable agricultural products to the public (VAT-031-2023).
YARDSTICK FOR DETERMINING THE PROPERTY AS CAPITAL ASSET OR ORDINARY ASSET IS THE ACTUAL USE OF THE SAID PROPERTY. The yardstick for determining the property is capital asset or ordinary asset is the actual use of the said property. A real property may only be considered as a capital asset if it does not fall within the properties considered as ordinary assets.
- The rule requires that the property not be used in business for more than 2 years prior to the consummation of the taxable transaction for it to be considered a capital asset. Here, the boarding house was in operation in the said property and was only demolished in the year 2018. Thus, a parcel of land is an ordinary asset and subject to EWT and not CGT as the properties were only sold in 2018 (BIR Ruling No. OT-058-2023)
- If the property is 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 to customers, it will be classified as a capital asset. Also, if the property is merely held for capital appreciation and investment purposes and remains vacant and idle, it is deemed a capital asset. Here, J&M is not engaged in the real estate business and the subject property has been idle and vacant since its acquisition. Thus, the sale of the subject property is subject only to CGT as the property is a capital asset (BIR Ruling No. OT-032-2023)
- For real estate businesses, the sale of real properties is not just a one-time event but rather a regular and integral part of their business. As such, it is appropriate for real estate businesses to be subjected to regular income tax on their profits, rather than capital gains tax, which is generally intended for individuals who may have only occasional or sporadic capital gains. Here, the taxpayer is engaged in the real estate business. Thus, it is subject to regular income tax on their profits as it would not be fair to allow real estate businesses to pay the lower capital gains tax rate while other businesses are subject to the higher income tax rate (BIR Ruling No. OT-067-2023)
- A final tax of six percent (6%) based on the gross selling price, fair market value or zonal value, whichever is higher, shall be imposed upon capital gains presumed to have been realized from the sale, exchange, or other disposition of real property. However, RMO No. 41-1991 provides an exception based on the six percent (6%) CGT in case of an expropriated sale.
- Here, the Republic of the Philippines, through the DPWH expropriated a parcel of land. Thus, a final tax of six percent (6%) or CGT shall be based on the just compensation as determined by proper authorities (BIR Ruling No. OT-068-2023)
THE GROSS SELLING PRICE OR THE ZONAL VALUE DURING THE GRANTING OF THE DULY NOTARIZED DEED OF SALE SHALL BE THE BASIS FOR COMPUTING THE CGT. The tax base of CGT, in case of negotiated transfer of right-of-way site or location for National Government Infrastructure Projects, shall be gross selling price or zonal value of the real property, whichever is higher. Here, the property was acquired by DPWH as it was affected by the construction of the Arterial Road Bypass Project. Thus, the gross selling price or the zonal value during the granting of the duly notarized deed of sale executed, whichever is higher, shall be the basis for computing the CGT (BIR Ruling No. OT-034-2023)
THE TAXPAYER HAS 30 DAYS FROM THE RECEIPT OF THE DECISION DENYING THE CLAIM OR AFTER THE EXPIRATION OF THE PERIOD TO APPEAL THE DECISION OR THE UNACTED CLAIM. In such circumstance that the Commissioner failed to act upon the request within the prescribed period, the taxpayer may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one hundred twenty day-period, appeal the decision or the unacted claim with the Court of Tax Appeal. Here, the claim for tax credit and/or refund for the year 2010 was denied, and for the years 2005, 2006 and 2007 no action was made. Thus, there is no more remedy of recovering unapplied input taxes for the denied application or unacted application of tax credit and/or refund (BIR Ruling No. VAT-045-2023)
THE SUBMISSION OF A DEED OF ASSIGNMENT MAY BE WAIVED WHEN THE LEGAL TITLE IS CONFIRMED BY THE COURT. The submission of a Deed of Assignment may be waived in appropriate cases, particularly when the transfer of legal title of shares is merely a confirmation of its ownership. In the absence of a Deed of Assignment, it may be supplanted by other documents such as a court decision ordering the transfer of the shares. Here, the Supreme Court, in its ruling, provides that the subject shares belong to the Republic of the Philippines. Thus, the mandatory submission of a Deed of Reconveyance/Deed of Assignment and the concerned Revenue District Officer may already issue the CAR upon compliance with other requirements (BIR Ruling No. OT-049-2023)
TRANSFER OF THE PROPERTY WITHOUT CONSIDERATION IS SUBJECT TO CAPITAL GAINS TAX. The phrase “other disposition” under Section 24(D)(1) of the Tax Code, as amended, includes all kinds of dispositions of real property unless specifically excluded therefrom or subject to another tax treatment pursuant to other provisions of the Tax Code, as amended, or other special tax laws. “Disposition” means an act of transferring to the care or possession of another or the parting with, alienation of, or giving up a property. Here, an untitled land was wrongfully and erroneously registered in the name of Mr. Alvarez and to rectify the error, he voluntarily gave, ceded and transferred the Transferred Property to Mr. Hernandez and the latter accepted the same without any consideration. Thus, while it is true that the reconveyance of the Transferred Property through the Deed is without any monetary consideration, and that the same was made by the parties to rectify an error, nevertheless, considering that there is no specific law excluding the Deed from the coverage of Section 24(D)(1) of the Tax Code, the same is subject to the capital gains tax imposed therein (BIR Ruling No. OT-050-2023, BIR Ruling No. OT-073-2023)
AN E-CAR IS MERELY A CERTIFICATION THAT THE APPROPRIATE TAXES ON A TRANSACTION HAVE BEEN DULY PAID. It cannot be the sole basis for the transfer of title as there may be other issues that need to be resolved by the RD. Here, e-CAR was issued by RDO Tandag City for a Deed of Absolute Sale despite the issue on the revoked special power of attorney. Thus, whether the subject e-CAR should be invalidated would be of no practical value since the subject e-CAR is not the deciding factor for the RD on whether or not to allow the transfer of the subject property (BIR Ruling No. OT-053-2023)
SEPARATION FROM SERVICE AS A CONSEQUENCE OF CAUSE BEYOND THE CONTROL OF THE SAID OFFICIAL OR EMPLOYEE IS EXEMPT FROM TAXES. The separation from the service of the official or employee must not be of his own making. Any amount received by an official or employer or by his heirs from the employer as a consequence of separation of such official or employee from the service of the employer due to death, sickness or other physical disability or for any cause beyond the control of the said official or employee is exempt from taxes regardless of age or length of service. Here, NFA paid the separation benefits of the affected employees due to the Restructuring Plan of the NFA. Thus, any and all amounts to be received by them as a consequence of their involuntary separation from the service of NFA is not subject to income tax (BIR Ruling No. OT-054-2023, BIR Ruling No. OT-055-2023, BIR Ruling No. OT-056-2023)
INPUT VAT SUBJECT OF REFUND DENIED BY THE BIR CANNOT BE CLAIMED AS DEDUCTION FROM INCOME TAX. Nothing in the Tax Code, as amended, authorizes the utilization of the denied claim for input VAT refund as deductions to the Company’s income tax. Moreover, the decision of the CTA is not binding. Here, the Company filed its application for VAT refund for excess input VAT related to zero-rated sales for the third quarter of fiscal year ended September 30, 2020 related to the Company’s export sales operation. The said application, however, was denied by the VAT Credit Audit Division due to the Company’s failure to substantiate the existence of zero-rated sales during the period of claim. Thus, the input VAT denied by the BIR for refund cannot be claimed as deductible expense. (BIR Ruling No. VAT-059-2023)
SEPARATION BENEFITS RECEIVED BY THE DIRECTORS WITH COTERMINOUS EXISTENCE WITH THE APPOINTING AUTHORITY ARE SUBJECT TO INCOME TAX. The presence of two (2) conditions in order that the employee benefits may be granted tax exemption, namely: (1) the official or employee is separated from the service of the employer due to death, sickness or other physical disability, or for any cause beyond the control of the said official or employees; and (2) the official or employee or his heirs receives any amount from the employer on account of such separation. Here, Mr. Lo and Mr. Roxas were appointed as Directors. Being co-terminous with their appointing authority, Mr. Lo has served a total of eight (8) years, while Mr. Roxas has served for nine (9) years, three (3) months and twenty-one (21) days when their appointments ceased. Thus, the separation benefits received by the former directors are subject to income tax as the same does not fall within the ambit of Section 32(B)(6)(b) of the Tax Code, as amended, for they hold the office with the knowledge that anytime, with or without cause, they can be required to relinquish their office (BIR Ruling No. OT-061-2023)
IT IS NOT A TAX-FREE MERGER WHEN THERE WAS NO EXCHANGE OF PROPERTY SOLELY FOR STOCK IN ANOTHER CORPORATION. Under Section 40(C)(2) of the Tax Code, as amended, 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. Here, MCC Labels (Manila) Philippines, Inc. agreed that its operations shall be merged with the operations of Pemara Labels, Inc. with the former being the surviving and the latter being the absorbed. Pursuant to the plan of merger, no shares shall be issued by MCC Labels Philippines, Inc. to the stockholders of Pemara Labels, Inc. Thus, since there was no exchange of property solely for stock in another corporation, it does not qualify as a tax-free merger under Section 40(C)(2) of the Tax Code, as amended, and corresponding taxes should be imposed for dissolution and liquidation (BIR Ruling No. S40M-064-2023)
NON-BANK FINANCIAL INTERMEDIARIES (NBFI) ARE GENERALLY SUBJECT TO GROSS RECEIPTS TAX (GRT) ON INCOME DERIVED FROM ITS OPERATIONS. RR No. 9-2004, NBFIs are generally subject to GRT on income derived from its operation, unless otherwise exempted under special rules. Consequently, Non-stock savings and loan associations (NSSLA) must be organized and operated exclusively for the mutual benefit of its members. Here, AMWSLAI is organized for the primary purposes of encouraging the habit of thrift and savings among its members; to accept/receive capital contributions, time and savings deposits from its members, as well as pay dividends or interests, as the case may be, on said contributions and deposits; and to grant such kinds of loans to the members of the Board of Trustees may allow subject to limitations and restrictions under the law and regulations, and to impose such interests and other charges on said loans as the Board of Trustees may prescribe. Thus, NSSLA is generally subject to GRT on income derived from its operations, unless otherwise exempted under existing laws and/or regulations (BIR Ruling No. OT-065-2023, BIR Ruling No. OT-072-2023)
HOMEOWNER’S ASSOCIATION IS SUBJECT TO TAX UNLESS LGU CERTIFIES LACKS RESOURCES TO PROVIDE BASIC SERVICES. Republic Act No. 9904 exempts homeowners’ association from all taxes, provided that the LGU lacks resources to provide for basic services. Where the certification of the LGU simply provides that the association is rendering basic services for the subdivision, without stating that the LGU lacks resources, the association is subject to income tax and VAT or percentage, as applicable (BIR Ruling No. OT-074-2023, BIR Ruling No. OT-076-2023)
IMPORTATION OF A CARGO VESSEL DESTINED FOR DOMESTIC TRANSPORT OPERATIONS SHALL BE EXEMPT FROM VAT. Here, RLS Shipping Lines is a company registered with the DTI and duly accredited by MARINA to engage in domestic shipping business. Due to the non-availability of a vessel in the local market which cannot be built/manufactured by shipbuilder in the country due to its uniqueness and technical characteristics, it imported the cargo vessel. Thus, the importation by RLS Shipping Lines, with authority by MARINA with authority to import, shall be exempt from VAT pursuant to Section 109(1)(T) of the Tax Code of 1997, as amended (BIR Ruling No. OT-074-2023, BIR Ruling No. OT-077-2023)