BIR DEADLINES from AUGUST 10 to AUGUST 16, 2020

A gentle reminder on the following deadlines, as may be applicable:

CEBU TAXPAYERS MAY FILE TAX RETURNS AND PAY THE TAXES DUE TO THE NEAREST AUTHORIZED AGENT BANKS OR USE BIR-PROVIDED E-PAYMENT FACILITIES DURING MECQ.

• The BIR circularizes the filing of various returns and payment of tax due thereon of taxpayers under the jurisdiction of Revenue Region No. 13 – Cebu City due to the declaration of Modified Enhanced Community Quarantine.
• AII concerned taxpayers duly registered under the jurisdiction of Revenue Region No. 13 – Cebu City are allowed to file their respective tax returns and pay the corresponding taxes due thereon to the nearest Authorized Agent Banks (AABs) viatheir over-the-counter payment facilities or to the nearest Revenue Collection Officers, duly authorized by the RDO to receive tax returns and accept payments of the taxes thereon.
• Concerned taxpayers are encouraged to electronically file returns through the eBIR Forms System and pay the corresponding taxes due thereon using e-paymentfacilities such as GCash/PayMaya. The list of the e-payment facilities may be accessed  (Revenue Memorandum Circular No. 78-2020, July 30, 2020)

TAXPAYERS REGISTERED IN National Capital Region, Bulacan, Cavite, Laguna and Rizal MAY FILE TAX RETURNS AND PAY THE TAXES DUE TO THE NEAREST AUTHORIZED AGENT BANKS OR USE BIR-PROVIDED E-PAYMENT FACILITIES DURING MECQ.

• The BIR circularizes the filing of various Returns and payment of tax due thereon of taxpayers under the Jurisdiction of National Capital Region, Bulacan, Cavite, Laguna and Rizal due to the declaration of Modified Enhanced Community Quarantine.
• The taxpayers may file the tax return and pay the internal revenue taxes at the nearest Authorized Agent Banks (AABs), notwithstanding RDO jurisdiction.
• File the tax return and pay the corresponding tax due thereon to the concerned Revenue Collection Officers (RCOs) of the nearest Revenue District Office (RD), even in areas where there are AABs.
  • Provided that payment of internal revenue taxes in cash should not exceed Twenty Thousand Pesos (P20,000.00), while those for check payment will have no limitation if the same is made with RCO in the district office.
  • All check payments from any taxpayer shall be made payable to Bureau of Internal Revenue (with or without “Name and TIN of the taxpayer” written on the check as previously required) and that the name and branch of the receiving AAB may no longer be indicated therein.
• Taxpayers who are enrolled in eFPS shall continue to settle the tax liabilities with the AAB where the taxpayer is enrolled, while for those who will file through the eBIR Forms Facility whether mandatedor not mandated, may use BIR-provided payment options, which may be accessed  (Revenue Memorandum Circular No. 79-2020, August 5, 2020)

GUIDELINES ON FILING OF BIR 1709 OR THE RELATED PARTY TRANSACTION FORM, AND ITS ATTACHMENT – DEADLINES, COVERAGE, PENALTIES

• The BIR clarifies certain issues on the filing of BIR Form No. 1709, or the Related Party Transaction (RPT) Form, and its Attachments.
  • The RPT Form is to be completed by Philippine taxpayers with related party transactions (RPTs) regardless of the amount and volume of transactions. Individuals who are considered related parties of a reporting company are also required to submit the RPT Form in their individual capacities.
  • Deadline:
    • For manual filers, the RPT Form and its required attachments must be submitted together with the Annual Income Tax Return (AITR) and other required attachments at the Large Taxpayers (LT) Division/Revenue District Office (RDO) where the taxpayer is registered, on or before the statutory due date.
    • For e-FPS filers, the hard copy of RPT Form and its required attachments must be submitted manually and stamped “Received’ at the LT Division/RDO where the taxpayer is registered, within fifteen (15) days from the statutory due date or actual date of electronic filing of the AITR, whichever comes later.
      • The RPT Form is downloadable from the BIR website as BIR Form No. 1709.
      • As a proof that it was duly received by the BIR, the Form must bear the stamp of the office with the date of actual receipt thereon and the signature of the receiving officer.
    • All taxpayers with related party transactions are required to attach a Transfer Pricing Documentation (TPD), local or otherwise, regardless of the amount and volume of related party transactions. The TPD should include the date of creation or preparation so as to ensure its applicability to the RPTs conducted in the taxable year concerned.
      • The TPD to be submitted must be the documentation upon which taxpayers relied to determine the transfer pricing prior to or at the time of undertaking the RPTs. Nevertheless, the BIR will also accept TPD prepared not later than the filing due date of the tax return for the taxable year in which the transactions took place.
      • Simply put, what the BIR requires is the TPD prepared prior to or at the time of the transaction, or after the transaction but not later than the date of filing of the tax return for the fiscal/calendar year in which the transaction takes place. Requiring the submission of contemporaneous documentation ensures the integrity of the taxpayers’ positions.
      • Whether or not the TPD has to be updated yearly, the following must be considered:
        • If there are significant changes in the business model, the factors or conditions considered in drafting the TPD, and the nature of the RPTs, then, the TPD has to be updated; and
        • If there are none, the old TP shall suffice.
      • The enumeration of RPTs in RR No. 19-2020 is not exclusive but from the definition of RPT alone, it can be deduced that the intention is to include within the term all transactions between related parties that result in the transfer of resources, services or obligations, irrespective of their arrangement (with cost-recovery/cost-sharing/recharging) and regardless of whether a price is charged. Dividends and redemption of shares between and among related parties (either paid or payable, received or receivable), though not usually covered by a TPD, should likewise be disclosed in the RPT Form.
        • Dividends must be supported by board resolution, secretary certificate, General Information Sheet, proof of payment of dividend and proof of payment of withholding tax
        • Cost-sharing arrangements must be supported by formal written agreement/contract to prove that these are legitimate expenses
        • All contracts are required to be attached. If the contracts are voluminous, they may be scanned and submitted in a Digital Versatile Disk-Recordable (DVD-R)

• The RPT Form is required to be attached only to the AITR.
  • Since the law took effect on 25 July 2020, the RPT Form is now required to be submitted as an attachment to the AITR for fiscal year ending March 31,2020, tentative or otherwise, irrespective of the date of tiling of the said AITR, and to all AITRs to be submitted after such date.
  • In other words, taxpayers who manually tiled their AITR and submitted the attachments for fiscal year ending March 31,2020 prior to the effectivity of RR No. 19-2020 are still required to file and submit the RPT Form and its attachments. Take note that attachments to AITR for fiscal year ending March 37,2020 are required by law to be submitted on or before July 30, 2020.
• Consequence for non-filing of RPT Form and required attachments:
  • P1,000 to P25,000 for failure to file the RPT Form and its attachments due to reasonable cause and not to willful neglect
  • P25,000 – in case of repetition of such offense
  • P5,000 – P10,000 and imprisonment of not less than 1 year but not more than 2 years – after receiving valid summons to produce the said attachment and the taxpayer still fails or neglects to produce the same.
• The rule also applies to non-stock and non-profit corporations/organizations as they are allowed to engage in activities conducted for profit without losing its tax-exempt status. (RMC No. 76-2020, July 29, 2020). For your easy reference, the issuance  may be accessed 

Court of Tax Appeals Decisions

IN LOCAL BUSINESS TAX ASSESSMENT, TAXPAYER MUST BE SERVED WITH ASSESSMENT NOTICE; EMPLOYEE WHO RECEIVES THE SAME MUST BE AUTHORIZED; DOCTRINE OF APPARENT AUTHORITY.

• The CTA En Bancruled that due process must be observed in the issuance and service of notices by the City Treasurer. Denial of due process exists when the party is deprived of notice and the opportunity to be heard.
• In this case, the City Treasurer failed to validly serve the assessment notices effectively depriving the taxpayer of its right to be informed of the questioned assessment and contest the same. This justifies the cancellation and withdrawal of the assessment for local business taxes and increment thereto issued against it.
  • The Court also ruled that the employee who received the assessment notices had no authority to receive the assessment notices for and on behalfof the taxpayer.
  • As a rule, a person cannot bind the corporation in the absence of authority from the board of directors, unless the corporation has knowledge of the act of that person, third person relief on the authority of that person (doctrine of apparent authority).
    • The employee did not commit any act that induceD belief that he is the authorized agent nor create any event that would promote suspicion that he was bestowed authority to receive the assessment notice on behalf of the company (Makati City v. Destiny Cable, Inc., CTA EB No. 1890,  CTA AC No. 182, Civil Case No. 14-612, July 1, 2020).

PHP 21 MILLION PERMIT FEE UPHELD: PERMIT FEE TO SLAUGHTER AND ANTE-MORTEM AND POST-MORTEM FEES ASSESSED BY LOCAL GOVERNMENT UNIT ARE NOT CONSIDERED TAXES, BUT CONSIDERED AS REGULATORY FEES.

• The CTA denied the Company’s petition to cancel the permit fee to slaughter and ante-mortem and post-mortem fees assessed by the City of Davao.
• The CTA ruled that it has exclusive appellate jurisdiction over decisions of the regional trial courts in local tax cases. Permit fee to slaughter is not considered a local tax but a regulatory fee. Therefore, the Court has no jurisdiction to entertain the case.
  • The purpose and effect of the imposition determine whether the imposition is considered a tax or a fee.
  • If the main purpose of an ordinance is to regulate activities, and not primarily revenue-raising, the fees imposed are not taxes even though the fees may contribute to the revenue.
    • The power to “regulate” means the power to protect, foster, promote, preserve, and control with due regard for the interest of the public.
  • The permit fees to slaughter as well as the ante-mortem and post mortem fees are for the purpose of regulating the slaughter of animals in city-operated slaughterhouses or those authorized by the city government. They are imposed in the exercise of state’s police power in the form of a fee, even though revenue is incidentally generated. (San Miguel Foods, Inc., v. Office of the City Treasurer, City of Davao, CTA AC No. 210, July 3, 2020)

PHP 6 MILLION DEFICIENCY TAX IN CRIMINAL CASE DENIED; CIVIL LIABILITY IN CRIMINAL CASE MUST BE DETERMINED WITH FINALITY BY THE BIR.

• The CTA En Banc affirmed the decision of the CTA in division pertaining to the dismissal of the civil action for the collection of deficiency income tax as part of the criminal case, where the accused was also acquitted.
• The Tax Code provides that the judgment in the criminal case shall not only impose the penalty but shall order payment of the taxes subject of thecriminal case as finally decided by the Commissioner. This means that in order for a civil liability to be included in the judgement, it must be the final decision of the BIR – which refers to a formal assessment.
  • In this case, the only Letter of Authority was submitted as evidence. No other evidence was ever presented that assessment notices were duly served and received by the accused.
  • There being no assessment issued against the accused, there could be no demand against the accused to pay the exact amount of tax liability (People of the Philippines v. Leonila T. Arceo, CTA EB Crim No. 060, CTA Crim Case No. O-271, July 1, 2020)

TAX ASSESSMENT CANCELLED; ASSESSMENT NOTICES MUST BE ENCLOSED IN THE FORMAL LETTER OF DEMAND.

• The CTA En Bancupheld the validity of the decision of the CTA Division cancelling and setting aside the assessment for violation of due process.
• The Court ruled that Assessment Notices were not issued and/or enclosed together with the Formal Letter of Demand. The absence of the same is fatal to the claim and violates the taxpayer’sdue process.
  • To satisfy due process requirement, the assessment must contain both the Formal Letter of Demand and Assessment Notices
• The issuance of a valid formal assessment is a substantive pre-requisite to tax collection for it contains not only a computation of tax liabilities but also a demand for payment within the prescribed period (CIR v. GS MTE Grains Corporation, CTA EB No. 1958, CTA Case No. 8837, July 6, 2020).

P3.5M TAX ASSESSMENT PARTIALLY UPHELD; REASSIGNMENT NOTICE SIGNED BY THE REGIONAL DIRECTOR IS CONSIDERED LETTER OF AUTHORITY; UNDERSTATING THE EXPENSES IS NOT CONSIDERED FRAUDULENT; IN PRESCRIPTION OF ASSESSMENT, THE TAXPAYER MUST SHOW THAT THE PORTION OF DEFICIENCY TAX THAT PRESCRIBED; SSS, PAG-IBIG, AND PHILHEALTH CONTRIBUTIONS ARE NOT SUBJECT TO TAX; EMPLOYEE RETIREMENT BENEFITS ARE EXEMPT FROM INCOME TAX IF SUPPORTED BY REASONABLE PRIVATE BENEFIT PLAN; REQUIREMENTS FOR VAT-EXEMPT REIMBURSABLE COST.

• The CTA ruled that the revenue officer was duly authorized to conduct the audit. The Reassignment Notice  which revalidated the earlier issued letter of authority and replacing the BIR examiners are similar to the LOA as it is signed by the regional director who is duly authorized to issue LOA under the NIRC. It is sufficient authorization given to the examiners to examine the books of account and other accounting records of the taxpayer.
• Even reassignment to anotherexaminers requires the issuance of a new LOA, the assessment remains valid because the FAN was already issued when the case was re-assigned and the taxpayer already filed its protest.
• Prima facie evidence of false or fraudulent return is either substantial under-declaration of sales or overstatement of deduction. There is no prima facie evidence of fraud if the expense is understated.
• In prescription, the taxpayer must establish clearly the portion of the alleged deficiency taxes that pertain to the periods that prescribed.
• The BIR has 3-years to collect, counted from the issuance of the assessment.
  • The period to collect is tolled when the taxpayer requests for reinvestigation and the BIR grants the same and shall continue to run upon the issuance of the FDDA
  • BIR’s Answer in the petition is considered a judicial action for the collection of a tax.
• Taxpayer’s contributions for SSS, Pag-Ibig, and PhilHealth premiums of its employees are excluded from gross income and are not considered income payments to the emaployees. As such, they shall not form part of the taxable salaries and wages of the employee in computing the WTC.
• Employee retirement benefits are not taxable as long as the taxpayer submitsevidence that such retirement benefits were provided under a reasonable private benefit plan and the recipient is qualified in terms of age and minimum years of service.
• Reimbursable expenses are not subject to VAT if the following are complied with:
  • Broker will issue a non-VAT acknowledgment receipt;
  • The third-party service provider shall issue receipt in the name of the customer;
  • The broker shall record the expense as receivable for cash advances on behalf of the customer;

The broker shall attach the original copy of the official receipt to the non-VAT acknowledgement receipt (Ithiel Corporation v. CIR, CTA Case No. 9591, July 6, 2020).