Month: February 2024

DIGEST OF 2023 SUPREME COURT TAX DECISIONS

 

ASSOCIATION DUES, MEMBERSHIP FEES, AND OTHER ASSESSMENTS/CHARGES ARE NOT SUBJECT TO INCOME TAX, VALUE- ADDED TAX AND WITHHOLDING TAX. They only constitute contributions to and/or replenishment of the funds for the maintenance and operations of the facilities offered by recreational clubs to their exclusive members. They represent funds "held in trust" by these clubs to defray their operating and general costs and hence, only constitute infusion of capital. Neither do they arise from transactions involving the sale, barter, or exchange of goods or property. Nor are they generated by the performance of services. (Antel Sea View Towers Condominium Corporation v. BIR, G.R. No. 247770, January 11, 2023)

 

BIR REGULATIONS IMPOSING 5% FRANCHISE TAX ON POGO LICENSEES AND ON OFFSHORE-BASED POGO IS UNCONSTITUTIONAL. BIR regulations cannot be passed without statutory basis. Moreover, it cannot amend a law. Here, RMC 102-2017 imposed POGO licensees 5% franchise tax. Such regulations (issued prior to the enactment of a law), is invalid. Moreover, it is unconstitutional as it amended the PAGCOR Charger. Further, taxes cannot be imposed on offshore-based POGO licensees who do not derive income in the Philippines and who do not provide goods or services consumed in the Philippines. Here, RMC No. 102-2017 imposed income tax, VAT and other applicable taxes on offshore-based POGO licensees on their income derived from non-gaming operations or other related services. All the components of offshore gaming do not involve and are not performed within the Philippine territory. None of the components likewise deal with Filipino citizens. Again, the placing of bets occurs outside the Philippines; the players must not be Filipino citizens, or within the Philippines; and the payment of the prize also occurs outside of the Philippines. In other words, offshore-based POGO licensees derive no income from the sources within the Philippines because the "activity" which produces income occurs and is located outside the territory of the Philippines. The flow of wealth or the income-generating activity — the placing of bets less the amount of payout — transpires outside the Philippines. (Saint Wealth Ltd. et. al v. CIR, G.R. NO. 252965, January 10, 2023; Marco Polo Enterprise Limited et. al. v. CIR, G.R. No. 254102, January 10, 2023)

 

THE LAW DOES NOT REQUIRE DIRECT ATTRIBUTABILITY OF THE INPUT VAT FROM THE PURCHASE OF GOODS TO THE FINISHED PRODUCT WHOSE SALE IS ZERO-RATED IN ORDER FOR SUCH INPUT VAT TO BE REFUNDABLE. The Tax Code provides that a VAT- registered person, whose sales are zero-rated or effectively zero-rated, may apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales. It suffices that the purchase of goods, properties, or services upon which the input VAT is based, can be attributed to the zero-rated sales. The law does not limit itself to purchases of goods which are to be converted into or intended to form part of a finished product for sale, or to be used in the chain of production. (CIR v. Cargill Philippines, Inc., G.R. Nos. 255470-71. January 30, 2023; CIR v. Toledo Power Company, G.R. Nos. 255324 & 255353. April 12, 2023.)

 

INPUT VAT ON RENEWABLE ENERGY DEVELOPER’S PURCHASES MAY BE PASSED ON AND MAY BE CLAIMED AS REFUND IN THE ABSENCE OF COMPLIANCE WITH THE REQUIREMENTS OF THE GOVERNMENT AGENCY. Renewable Energy Developer’s  purchases of local supply of goods, properties, and services needed for the development, construction, and installation of plant facilities by RE developers is not subject to VAT.  However, the DOE lists the following certifications which must be obtained before an RE Developer can avail of the fiscal incentives under Republic Act No. 9153: DOE Certificate of Registration, DOE Certificate of Accreditation, Certificate of Endorsement by the DOE, Registration with the BOI, and Certificate of Income Tax Holiday Entitlement. Here, the taxpayer did not comply with the requirements (i.e. not registered with DOE). Therefore, its purchases are subject to input VAT. Moreover, Sale of power generated through hydropower to NPC is zero-rated. Thus, the input VAT is subject of refund. (CBK Power Company Limited v. CIR, G.R. No. 247918, February 1, 2023)

 

TAXPAYER MAY SUBMIT NEW AND ADDITIONAL EVIDENCE IN INPUT VAT REFUND. Sale of power or fuel generated through a renewable source of energy is VAT-zero rated; The 120 (now 90)-day period to decide on refund case should be counted from the application, not from submission of all requirements. The BIR can only inform taxpayer to submit additional documents; it cannot dictate what type of supporting documents should be submitted. Lastly, the CTA is not limited by the evidence presented in the administrative claim; the claimant may present new and additional evidence to the CTA to support its case for tax refund  (CIR v. CE Casecnan Water and Energy Company, Inc., G.R. No. 212727, February 1, 2023)

 

INTEREST ON LOAN TO AFFILIATES IS NOT SUBJECT TO VAT. Under the Tax Code, VAT is imposed if the transaction is in the course of trade or business. This includes incidental transactions. An isolated transaction may be considered incidental. It is imperative, however, in order for a transaction to be considered incidental to the main line of business, there must be shown some intimate connection between the transaction in question and the main business activity. Otherwise, it makes no sense to hold a transaction incidental to a primary business activity where no causal link or tie could even be traced.  Thus, where the taxpayer’s primary purpose is that of a management service company, extending of loan to affiliates by way of accommodation is not incidental to main business. Thus, the interest is not subject to VAT. Consequently, the granting of a loan to an affiliate as a form of financial assistance, and entered into but a few times, cannot by any stretch of the imagination be considered as akin to managing, controlling, or directing the affairs of, or advertising or publicizing, the business of another. The  financial assistance in this case could not normally be embraced in the activity of managing or administering the affairs of, or even promoting, a business.  (Lapanday Foods Corporation v. CIR, G.R. No. 186155, January 17, 2023)

 

INTERCOMPANY LOANS AND ADVANCES ARE SUBJECT TO DOCUMENTARY STAMP TAX (DST). In the Filinvest Case (decided in 2011), the Supreme Court ruled that instructional letters, as well as journal and cash vouchers evidencing advances made by Filinvest Development Corporation(FDC) to its affiliates, qualified as loan agreements upon which DST may be imposed. Retroactive application of Filinvest is not prejudicial to taxpayers, as the same was merely an interpretation of Section 179 of the NIRC, which has been in effect since December 23, 1993. Here, the taxpayer was assessed for taxable year 2009. The taxpayer argues that the prevailing rule in 2009 when the subject transactions were made was that intercompany advances covered by mere inter-office memos were not loan agreements subject to DST under the NIRC. Unless The Filinvest overturned a prior doctrine of the Court, its retroactive application would not be prejudicial to taxpayers. The Court’s interpretation of a statute merely establishes the contemporaneous legislative intent that the interpreted law carried into effect. In this case, SMC failed to establish the existence of a ruling, prior to Filinvest, which declared that intercompany loans and advances through memos and vouchers do not constitute debt instruments subject to DST under Section 179 of the NIRC. (San Miguel Corporation v. CIR, G.R. No. 257697, April 12, 2023; CIR v. San Miguel Corporation, G.R. No. 259446, April 12, 2023)

 

HOLDING COMPANY IS NOT SUBJECT TO LOCAL BUSINESS TAX. Banks and other financial institutions, including non-bank financial intermediaries (NBFI) are subject to local business tax on their dividends. Where the company is a mere holding company for shares of stock owned by the government, and it only managed the dividends for the benefit of the coconut farmers, and it does not fall under the requisites of bank and NBFI, whose principal function include lending and investing, and it receives funds from group of persons regularly and recurringly, the company is not subject to LBT. (City of Davao et. al v. Te Deum Resources, Inc., G.R. No. 243068, January 17, 2023)

 

NATIONAL POWER CORPORATION’S MACHINERY IS SUBJECT TO REAL PROPERTY TAX. The Local Government Code exempts from RPT all machineries and equipment that are actually, directly and exclusively used by local water districts and government-owned or controlled corporations engaged in the supply and distribution of water and/or generation and transmission of electric power. To successfully claim exemption, the claimant must prove that: "(a) the machineries and equipment are actually, directly, and exclusively used by local water districts and GOCCs; and (b) the local water districts and GOCCs claiming exemption must be engaged in the supply and distribution of water and/or the generation and transmission of electric power. Where NPC never alleged that the properties were actually, directly, and exclusively used for pollution control and environmental protection nor did it not introduce evidence on the direct, immediate, and actual use of the properties as would control pollution and protect the environment, the property is considered not exempt. (National Power Corporation V. Provincial Government of Bulacan, G.R. No. 207140, January 30, 2023)

 

ALKYLATE IS NOT SUBJECT TO EXCISE TAX. Refund, in the nature of exemption, is construed against a taxpayer. However, if refund is based on taxpayer’s erroneous payment of the tax or government’s exaction in the absence of law, such rule does not apply. Here, alkylate is not among the articles subject to excise tax. In the absence of law expressly imposing excise tax on alkylate, statute must be construed against the government. In any case, alkylate does not fall under the category of “other similar products of distillation” subject to excise tax.(Petron Corporation v. CIR, G.R. No. 255961, March 20, 2023)

 

FRAUD MUST BE PROVED IN INVOKING 10-YEAR PRESCRIPTIVE PERIOD; NON-FILING OF DST DOES NOT JUSTIFY 10-YEAR PRESCRIPTION FOR ALL OTHER TAXES; WITHHOLDING TAXES ARE INTERNAL REVENUE TAXES. As a rule, the BIR must assess the internal revenue taxes within 3 years after the last day prescribed by law, except when taxpayer filed a false or fraudulent return, in which case, 10-year prescription applies. However, in invoking the extraordinary period of 10-years, fraud is never imputed.  The Court has refrained from sustaining findings of fraud upon circumstances which, at most, create only suspicion. The mere understatement of a tax is not itself proof of fraud for the purpose of tax evasion." Bare allegation of falsity or fraudulency, without proof, is insufficient to remove the present case outside the purview of the three-year prescriptive period under Section 203. Here, the BIR did not present any evidence to prove the falsity of the taxpayer’s tax return in order to justify the 10-year period. Moreover, non-filing of its DST returns should not trigger the ten-year assessment period for all of its deficiency tax liabilities. A plain reading of both Sections 203 and 222 would show that the prescriptive periods therein are reckoned from the last day of filing of each return for each type of tax. By no stretch of imagination can it be concluded that the period of one should apply to all. Lasty, withholding taxes are subject to prescription considering that it is an internal revenue tax. Withholding taxes do not cease to become income taxes just because it is collected and paid by the withholding agent. (CIR v. Parity Packaging Corporation, G.R. No. 249045, January 11, 2023) –

 

DATE OF BIR ACCEPTANCE OF WAIVER MUST BE INDICATED; OTHERWISE, WAIVER IS VOID. In cases of waiver, RMO 20-90, the BIR is mandated to sign the waiver indicating that the BIR accepted and agreed to the waiver. Here, the waiver bears no date of the acceptance by the BIR. Thus, the assessment is invalidated on the ground of prescription. (CIR v. Amparo Shipping Corporation, G.R. No. 259049, January 11, 2023)

 

WILLFULNESS IN CRIMINAL CASES MEANS THE ACT IS VOLUNTARY OR INTENTIONAL. To successfully prosecute a violation of Section 255, it must be shown that: (1) the taxpayer is required to pay any tax, make or file a return, keep any record, or supply correct and accurate information, or withhold or remit taxes withheld, or refund excess taxes withheld on compensation, at the time or times required by law or rules and regulations; (2) the taxpayer failed to do so; and (3) the act is willful. As regards the third requisite, the word willfully means voluntary, intentional violation of known legal duty. Here, Joel consciously and voluntarily refused to comply with his duty to make a return, as he is a doctor by profession and businessman, he is expected to know and understand the matters concerning his practice and business.  (People of the Philippines v. Mendez, G.R. Nos. 208310-11, March 28, 2023; Mendez v. People, G.R. No. 208662, March 28, 2023)

 

PRIOR ASSESSMENT IS NOT REQUIRED IN CRIMINAL ACTION. When a criminal action for violation of the tax laws is filed, a prior assessment is not required. Neither a final assessment is a precondition to collection of delinquent taxes in the criminal tax case. The criminal action is deemed a collection case. Therefore, the government must prove two things: one, the guilt of the accused by proof beyond reasonable doubt, and two, the accused's civil liability for taxes by competent evidence (other than an assessment). If before the institution of the criminal action, the government filed (1) a civil suit for collection, or (2) an answer to the taxpayer's petition for review before the CTA, the civil action or the resolution of the taxpayer's petition for review shall be suspended before judgment on the merits until final judgment is rendered in the criminal action. However, before judgment on the merits is rendered in the civil action, it may be consolidated with the criminal action. In such a case, the judgment in the criminal action shall include a finding of the accused's civil liability for unpaid taxes relative to the criminal case. (People of the Philippines v. Mendez, G.R. Nos. 208310-11, March 28, 2023; Mendez v. People, G.R. No. 208662, March 28, 2023)

 

10-YEAR PRESCRIPTION REQUIRES BIR TO DISCLOSE BASIS OF THE MISSTATEMENT; FALSE RETURN MUST BE COUPLED WITH INTENT TO EVADE TAX. The BIR has 3 years to assess the taxpayer, unless the 10-year extraordinary period applies in case of fraud, false return or failure to file tax. Presumption of fraud or falsity arises if there is under declaration of sales or overstatement of expenses exceeding the 30% threshold (amount declared). Before presumption arises, the BIR must observe due process by providing computation by which it ascertained the misstatement. Moreover, the BIR cannot adopt a position inconsistent with the invocation of the 10-year period (i.e. extension of waivers and issuance of assessment a day prior to the lapse of 3-year period). On the other hand, the presumption may be overcome by good faith, mistake, carelessness or ignorance. Not all types of error or falsehood in a return will make available the 10-year exception. Thus, where the assessment did not provide computation giving rise to the presumption and the alleged undeclared receipts was not actually collected by the taxpayer as it relates to VAT assessment, the 10-year period shall not apply (McDonald’s Philippines Realty Corporation v. CIR, G.R. No. 247737, August 8, 2023)

 

AMENDED RETURN IS THE RECKONING POINT FOR PRESCRIPTION IF THE AMENDED IS NOT SUBSTANTIAL SUCH AS AMENDMENT OF FORMS. The reckoning of the three-year prescriptive period for the making of assessment is the (1) last day prescribed by the law for the filing of return, or (2) the date of actual filing of the return, whichever comes later. The running of the three-year prescriptive period for issuing an assessment for deficiency VAT commences at the last day of the 25-day period from the close of the taxable quarter within which to file the quarterly VAT return, or the date of actual filing of the quarterly VAT return, whichever comes later. In Phoenix Assurance Case, the Supreme Court ruled in case of amended returns, the running of the prescriptive period should commence from the date of the filing of the original return or amended return. Ultimately, the answer hinged on whether the amendment was substantial or not. Where the monthly VAT return was amended to quarterly VAT return to correct the form, but the amount is the same, thus, the reckoning point is the amended VAT returns. (Lapanday Foods Corporation v. CIR, G.R. No. 186155, January 17, 2023)

 

FINAL DECISION ON DISPUTED ASSESSMENT (FDDA) WITHOUT STATING THE FACTUAL AND LEGAL BASIS IS VOID. Revenue Regulations 12-99 states that FDDA must (a) state the facts, the applicable law, rules and regulations, or jurisprudence on which such decision is based; otherwise, the decision shall be void, in which case, the same shall not be considered a decision on a disputed assessment and (b) that the same is his final decision. Where the FDDA merely informs the taxpayer of its supposed tax liabilities without basis, the FDDA is void. (CIR V. Manila Medical Services, Inc. (Manila Doctors Hospital) G.R. No. 255473, February 13, 2023)

 

CONVERSION OF LETTER NOTICE REQUIRES LETTER OF AUTHORITY; OTHERWISE, ASSESSMENT IS VOID. Pursuant to RMO No. 32-2005, in case of unresolved Letter Notice (LN), the revenue officer (RO) assigned to handle the LN shall recommend the issuance of LOA to replace the LN. Since the law specifically requires an LOA and RMO No. 32-2005 requires the conversion of the previously issued LN to an LOA, the absence thereof cannot be simply swept under the rug. The Court cannot convert the LN into the LOA required under the law even if the same was issued by the CIR himself . Any tax assessment issued without an LOA is a violation of the taxpayer's right to due process and is therefore "inescapably void (CIR v. Ermilo Tan Ng Hua, G.R No. 259264, January 23, 2023) –

 

ASSISTANT REGIONAL DIRECTOR HAS NO POWER TO ISSUE LOA. Pursuant to  Section 6 of the NIRC, the CIR or his duly authorized representative may authorize the examination of the taxpayer. The Regional Director is the authorized representative contemplated by the NIRC. An LOA issue by the officer-in-charge Assistant Regional Director, a mere ARD, is void is not among the authorized officers that possess the power to issue LOA. Therefore, the assessment is void. (CIR v. Amparo Shipping Corporation, G.R. No. 259049, January 11, 2023)

 

FDDA, ISSUED PRIOR TO THE LAPSE OF 60-DAY PERIOD TO SUBMIT DOCUMENTS IN CASE OF REQUEST FOR REINVESTIGATION, IS VOID. Assessment may be protested administratively by filing a request for reconsideration or reinvestigation within 30 days from the receipt of the assessment. Within sixty (60) days from filing of the protest, all relevant supporting documents shall have been submitted; otherwise, the assessment shall become final. In case of reinvestigation, the 60-day period commence from the filing of the protest to the FAN and not PAN. Therefore, where the BIR failed to give the taxpayer the opportunity to submit relevant documents within 60-days, wherein the FDDA was issued prior to the lapse of the 60-day period, the FDDA was issued prematurely in violation of the taxpayer’s right to due process. (CIR v. Maxicare Healthcare Corporation, G.R No. 261065, July 10, 2023)

 

WARRANT OF DISTRAINT AND/OR LEVY (WDL) IS NOT THE FINAL DECISION ON THE ASSESSMENT. The taxpayer may appeal to the CTA either after the lapse of the 180-day period or receipt of the final decision of the BIR. Where the BIR issued the WDL after the lapse of the 180-day period, and the taxpayer protested the WDL, the taxpayer was awaiting the  decision of the BIR. The WDL is not the final decision on the protest appealable to the CTA. Issuance of WDL is premised that the taxes are delinquent, which is not present in case of valid request of reinvestigation pending for resolution by the BIR. (Mannasoft Technology Corporation v. CIR, G.R. No. 244202, July 10, 2023)

 

RECEIPT BY THE CLIENT SERVICE ASSISTANT AND SECURITY GUARD OF THE NOTICE OF INFORMAL CONFERENCE AND FAN, RESPECTIVELY, WITHOUT INDICATION OF AUTHORITY RENDERS THE ASSESSMENT VOID; DEFECT IS NOT CURED BY FILING OF PROTEST. Taxpayer must be properly notified of its findings. Moreover, personal delivery must be acknowledged by the taxpayer or his duly authorized representative. Here, the NIC, the PAN, and the FAN bear indications that they were personally served. However, those who received them were not authorized representatives of the taxpayer as they have been served upon one "Ms. Gladys Badocdoc," whose indicated position was "Client Service Assistant." The FAN, on the other hand, was personally served upon a certain "Angelo Pineda," who was a reliever security guard at that time, and who was not even an employee of petitioner.  No indication of authority to act on behalf of the taxpayer was provided. Hence, the assessment is void.  The defect in complying with the requirements of due process was not cured by the fact that the taxpayer was able to file a protest to the FAN. (Mannasoft Technology Corporation v. CIR, G.R. No. 244202, July 10, 2023)

 

AMENDED DECISIONS ARE PROPER SUBJECTS OF MOTIONS FOR RECONSIDERATION WHEN THEY ARE BASED ON ADDITIONAL EVIDENCE OR THE RE-EVALUATION OF PREVIOUSLY SUBMITTED EVIDENCE. Where the Amended Decision was rendered based on the additional evidence presented by party to bolster its claim, the "new" decision requires the parties adversely affected thereby to seek reconsideration with the CTA Division before they would be allowed to appeal to the CTA En Banc. Their failure to do so is fatal to their cause. (CIR v. Coral Bay Nickel Corporation, G.R. Nos. 243523-24, February 15, 2023)

 

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)