Category: BIR rulings

COURT OF TAX APPEALS (CTA) DECISIONS

Different due dates renders the assessment void for lack of a clear, unequivocal payment deadline. A valid Final Assessment Notice/Formal Letter of Demand (FAN/FLD) must contain two essential elements: a definite demand for a specific amount of tax liability and a clear, unequivocal due date for payment. In the present case, the FAN/FLD is flawed because it contains two inconsistent due dates—one indicating payment is due within 15 days from receipt of the Preliminary Assessment Notice (PAN) or February 12, 2020, and another stating a later due date (the due date for the payment on the assessment notices was February 29, 2020) thereby creating confusion and failing to provide a single, clear deadline for payment. Thus, the assessment is void (Kingston Aluminum and Stainless Sales Corp., v. CIR, CTA Case No. 10326, February 24, 2025)

Failure of the Bureau of Internal Revenue (BIR) to prove willful falsity prevents application of the 10-year prescriptive period, rendering the assessment barred by prescription. Internal revenue taxes must be assessed within three years from the filing or due date of the tax return or the ten-years in case of false or fraudulent returns filed with intent to evade tax or failure to file a return. The Supreme Court, in McDonald’s Philippines Realty Corp. v. CIR, clarified that to apply the extended ten-year period, the BIR must prove with clear and convincing evidence that the taxpayer deliberately or willfully filed a false return containing material misstatements or omissions. Additionally, the taxpayer must be properly notified that the extended period is invoked, with the factual and legal basis clearly stated. In this case, although the BIR alleged false returns based on discrepancies in foreign exchange valuation and imposed a surcharge, the BIR failed to present clear and convincing evidence that the taxpayer acted with deliberate or willful intent to evade tax. Consequently, the period to assess has prescribed, rendering the deficiency Capital Gains Tax assessment invalid. (Holcim Philippines Manufacturing Corporation v. CIR, CTA Case No. 10414, February 14, 2025)

Value-Added Tax (VAT) cannot be imposed on presumed unaccounted expenses; it must be based on actual sales or service income. VAT is imposed on gross selling price or gross receipts from sales or services—not from disbursements or expenses. In this case, the BIR treated the discrepancy between the taxpayer’s AFS/ITR and 1604CF/1601-E as undeclared income and subjected it to VAT based solely on presumed unaccounted expenses. However, the Court found this assessment legally baseless, as VAT liability must be based on actual sales or service income, not inferred from expenditures. (Ebar Abstracting Company, Inc. v. CIR, CTA Case No. 10681, January 15, 2025)

In VAT zero-rating, Certificate or Articles of Foreign Incorporation and a SEC Certificate of Non-Registration of the NRFC must be provided; separate personality of the taxpayer and NRFC parties must be respected even if they are related parties; proof that services were performed in the Philippines is required. VAT zero-rating on the sale or supply of services applies only if certain requirements are met: (1) the recipient is a non-resident foreign corporation (NRFC) not engaged in business in the Philippines; (2) the services are not related to processing, manufacturing, or repacking; (3) the services are performed in the Philippines by a VAT-registered person; and (4) payment is made in acceptable foreign currency. To establish NRFC status, the taxpayer must present a Certificate or Articles of Foreign Incorporation and a SEC Certificate of Non-Registration. In this case, petitioner adequately proved that Innodata, Inc. is a foreign entity not doing business in the Philippines by submitting the required documents, and the Court emphasized that the separate corporate personality of Innodata, Inc. must be respected despite its relationship with petitioner. However, petitioner failed to meet the third requirement, as there was no clear indication in the service agreement or supporting evidence that the services were actually performed in the Philippines. Without proof of the place of service, one of the essential elements for VAT zero-rating remains unproven, rendering the claim for zero-rated VAT treatment incomplete. (Ebar Abstracting Company, Inc. v. CIR, CTA Case No. 10681, January 15, 2025)

Disallowing excess input ax carried forward to succeeding period without written legal and factual basis violates Section 228's due process, rendering the assessment void. A tax assessment must inform the taxpayer in writing of the legal and factual bases on which it is made; failure to do so renders the assessment void. In this case, respondent disallowed input tax carried forward to succeeding period without providing any explanation or legal justification for the disallowance. This lack of disclosure violates the due process requirement under Section 228, and as such, the disallowed input tax must be cancelled for being invalid. (Ebar Abstracting Company, Inc. v. CIR, CTA Case No. 10681, January 15, 2025)

A BIR letter not clearly stating it as a final decision on disputed assessment is not an appealable Final Decision on Disputed Assessment appealable to the CTA. The CTA has exclusive appellate jurisdiction over decisions of the Commissioner of Internal Revenue (CIR) involving disputed assessments, which must be based on an FDDA. An FDDA must clearly state the facts, applicable laws or jurisprudence, and must explicitly indicate that it constitutes the final decision of the Commissioner or his duly authorized representative. In this case, the taxpayer erroneously treated the letter issued by the Regional Director as an FDDA, due to the letter's failure to clearly and categorically state that it was the final decision on the disputed assessment. As such, the letter cannot be considered an appealable FDDA, and the CTA correctly dismissed the petition for lack of jurisdiction. (Bukidon II Electric Cooperative, Inc. v. CIR, CTA Case No. 10822, March 25, 2025)

Issuance of the FLD/FAN before the expiration of the 15-day period to respond to the PAN violates due process, rendering the tax assessment void. Taxpayers who received a PAN are given fifteen (15) days from receipt thereof to respond before FLD/FAN may be issued. This procedural safeguard ensures compliance with the taxpayer's right to due process. In this case, the taxpayer received the PAN on January 4, 2016 and had until January 19, 2016 to respond. However, the BIR issued the FLD/FAN prematurely on January 12, 2016—before the expiration of the 15-day period—thereby depriving the petitioner of the opportunity to be heard. The BIR’s failure to observe this mandatory period constitutes a violation of due process, rendering the subject tax assessments null and void and without legal effect. (Vibal Group, Inc. v. CIR, CTA Case No. 10291, January 20, 2025)

Delayed service of the assessment after its payment deadline violates due process, rendering the assessment invalid. Tax authorities must inform the taxpayer of the legal and factual bases of the assessment, including a clear amount due and a date to comply. In this case, although the FLD/FAN was dated October 29, 2018 and required payment by October 31, 2018, it was only served on DMCI Masbate Power on November 5, 2018—after the deadline had lapsed. This deprived the taxpayer of a fair opportunity to pay within the prescribed period, thereby violating its right to due process. (DMCI Masbate Power Corporation v. CIR, CTA Case No. 10424, March 13, 2025)

 

REVENUE REGULATIONS

 

Revenue Regulations No. 012-2025, November 29, 2024

 

Provision	Details
Warrant of Distraint/Levy (WDL)	Must be served personally to the taxpayer or their authorized representative
If Taxpayer is Absent/Refuses	WDL may be constructively served in presence of 2 credible witnesses (preferably barangay officials); Leave copy at premises
Additional Communication	Send a copy of the WDL via registered mail and/or email
Resurfaced Taxpayers	Applies to those previously tagged as "Cannot Be Located" (CBL) but have appeared at any BIR office had whereabouts legally determined
	Must be simultaneously served with other related documents directly to the taxpayer or authorized representative

 

Revenue Regulations No. 014- 2025, April 2, 2025

 

Category	Details
Issued	April 2, 2025
Who’s Affected	Non-Resident Digital Service Providers
Registration Deadline	June 1, 2025 via ORUS or VDS Portal
VAT Liability Starts	June 2, 2025, regardless of registration status
BIR Authority	Commissioner may extend the registration deadline as needed

 

 

Revenue Regulations No. 015-2025, April 29, 2025

 

Category	Details
Issuance Date	April 29, 2025
Purpose	Updates rules for tax-qualified private retirement plans (RA 4917, Tax Code)
Covered Plans	Pension, Gratuity, Provident, Profit-sharing, Stock Bonus
Tax Benefits	Retirement benefits & trust income: Tax-exempt Employer contributions: Tax-deductible
Employee Eligibility	Minimum 50 years old At least 10 years of service Must not have availed similar tax benefits before
Application	Submit documents (trust agreements, actuarial report, etc.) within 30 days of effectivity

 

BIR RULINGS

Unutilized input VAT from zero-rated sales cannot be deducted as an expense. Under Revenue Memorandum Circular No. 57-2013, unutilized input VAT attributable to zero-rated sales may only be recovered through a refund or tax credit claim. The Tax Code provides no legal basis for treating such amounts as deductible expenses. Furthermore, per the Supreme Court ruling in United Coconut Planters Bank v. Spouses Uy, only decisions of the Supreme Court establish binding precedent, rendering rulings of lower courts like the Court of Tax Appeals merely persuasive. Applying these principles, the BIR denied Norteam Shipping Service, Inc.’s request to record its denied VAT refund claim as a miscellaneous expense for income tax purposes. Despite NSSI citing the CTA decision in Maersk Global Service Center, the absence of a supporting Supreme Court ruling and the clear guidance of RMC No. 57-2013 preclude the deductibility of unutilized input VAT as an income tax expense. (BIR Ruling No. OT-016-2024, February 28, 2024)

Sales of herb-roasted chicken for take-out are VAT-exempt as simple-processed agricultural products. The sale of agricultural and poultry products that have undergone simple processes such as roasting remains VAT-exempt, including those prepared for market using methods like roasting or broiling. Applying this to Agros Trofi Corporation, which sells herb-roasted chicken solely on a take-out basis without dine-in facilities, the BIR confirmed that such sales fall within the scope of VAT-exempt transactions, consistent with the legislative intent to exclude common food items like roasted chicken from VAT, as reflected in the Bicameral Conference Committee records. (BIR Ruling No. VAT-017-2024, February 28, 2024)

Proceeds from electronic gift certificates are not taxable income or VATable sales, but related service fees and unspent balances are subject to VAT and taxes under the NIRC and RA 10962. Amounts received as proceeds from electronic gift certificates (eGCs) represent value held in trust by the issuer on behalf of the beneficiary and thus do not constitute taxable income or VATable sales. Thus, the face value proceeds from eGCs issued to clients are not subject to income tax, expanded withholding tax, or VAT, making the issuance of acknowledgment receipts proper. However, service fees for facilitation, administration, or marketing are subject to 12% VAT and EWT, requiring issuance of official receipts, while revenue from unspent eGCs and commissions paid to merchants are taxable accordingly. (BIR Ruling No. OT-018-2024, March 8, 2024)

Importation of a MARINA-approved passenger vessel for domestic transport qualifies for VAT exemption, subject to regulatory compliance. The Tax Code exempts from VAT the sale, importation, or lease of passenger vessels for domestic transport operations, subject to compliance with MARINA’s importation restrictions and vessel retirement program. Applying this, Montenegro Shipping Lines, Inc.’s importation of the 2023-built RORO passenger vessel MV "Binibining Coron," duly authorized by MARINA and necessary for its operations, qualifies for VAT exemption, provided it adheres to MARINA’s conditions. (BIR Ruling No. VAT-019-2024, March 14, 2024)

Income payments to persons enjoying income tax exemptions under the Omnibus Investment Code of 1987 is exempted from withholding tax. Thus, a domestic corporation registered with the Board of Investment as a Domestic Market Enterprise is exempt from CWT on revenues generated exclusively from its registered production of bean sprouts and alfalfa sprouts This exemption is granted under the terms of Executive Order No. 226 and subject to compliance with the specific terms and conditions set forth in the taxpayer BOI Registration Agreement. (BIR Ruling No. 020-2024, March 14, 2024)

Property dividends are subject to VAT despite non-VAT registration status; exemption claim is denied due to lack of proof and documentary compliance. Property dividends constituting stocks in trade or properties primarily held for sale or lease, when distributed by a corporation, are subject to VAT based on their fair market value or zonal valuation, whichever is higher. In the case of M.C. Holdings Corporation, despite its claim of being a non-VAT registered entity, the denial of its request for exemption is based on the principle that VAT liability is determined by the Tax Code regardless of registration status. The corporation’s failure to meet the burden of proof to establish exemption, along with noncompliance with documentary requirements under Revenue Memorandum Order No. 9-2014, justified the denial. Thus, M.C. Holdings Corporation remains subject to VAT on the distribution of property dividends as ruled, and the claim for exemption was properly denied. (BIR Ruling No. 023-2024, April 11, 2024)

Termination fee as compensation for breach of contract and services rendered related to its business operations is subject to both VAT and income tax. A VAT is imposed on any person engaged in the course of trade or business on the sale, barter, exchange, lease of goods or properties, and the rendering of services in the Philippines. In this case, the termination fee received by Air Liquide Philippines, Inc. from Pilipinas Shell Petroleum Corporation under the Termination Agreement is subject to VAT because it constitutes compensation not only for breach of contract but also for services rendered and related costs incurred in the construction and installation of specialized plants, which are directly connected to Air Liquide’s business operations. Additionally, the termination fee is subject to income tax under Section 27(A) of the Tax Code as it represents income “from whatever source derived,” including compensation for loss of anticipated profits. Thus, both VAT and income tax apply to the termination fee received by Air Liquide. (BIR Ruling No. OT-022-2024, April 11, 2024)

Amounts received by Easytrip for loads/reloads are not income and exempt from EWT, but its service fees and income from holding these funds are taxable and subject to EWT and VAT. Withholding tax is imposed on income payments where there is a flow of wealth to the recipient, and taxes withheld serve as advance payments of the recipient’s income tax. In the case of Easytrip Services Corporation, amounts received from banks, credit card companies, authorized merchants, and corporate clients for loads and reloads are considered cash advances or liabilities held in trust for remittance to toll operators and therefore do not constitute income, making them exempt from EWT. However, the service fees charged by Easytrip for its electronic toll collection services, as well as any income earned from holding the cash advances or refunds on unused loads, do constitute income and are subject to income tax, creditable withholding tax, and VAT. (BIR Ruling No. OT-024-2024, April 25, 2024)

Maxicare’s sale of prepaid HMO services is subject to 12% VAT, as no law exempts such transactions from VAT. The Tax Code imposes VAT on gross receipts from the sale of services rendered “in the course of trade or business,” including health maintenance organization (HMO) services, unless specifically exempted by law. Revenue Memorandum Circular No. 56-2002 clarifies that HMO providers like Maxicare are subject to VAT because they provide prepaid membership services rather than direct medical services. (BIR Ruling No. VAT-025-2024, April 29, 2024)

COURT OF TAX APPEALS DECISIONS

Receipt of Preliminary Assessment Notice (PAN) by a person who is not an employee renders the assessment void. According to Revenue Regulations No. 12-99, Section 3.1.6, as amended,, tax notices such as the PAN and Formal Letter of Demand (FLD) must be served personally. If personal service is not possible, substituted service is allowed under certain conditions—such as delivering the notice to a clerk, a person in charge at the business, or to a barangay official with witnesses if no one is present at the registered address. Here, the PAN was received by Richard Alarcon, an employee of Prime Pacific Grill. However, he was not employed by the taxpayer (James Fausto Cor.) Since he was neither a person in charge nor a qualified recipient under the rules, the service of the PAN was invalid, rendering the assessment void. (James Fausto Corp., v. CIR, CTA Case No. 10775, January 16, 2025)

The BIR must consider the taxpayer's explanations before issuing a Final Assessment Notice (FAN); if the basic tax amount remains unchanged and the BIR fails to justify rejecting the taxpayer’s response, the assessment is invalid. The BIR is required to rule on the PAN and must take into account the taxpayer’s explanations or arguments before issuing a FAN. Failure to do so renders the assessment invalid. If a comparison of the PAN and FAN shows that the basic tax amount remains the same, and the BIR merely reiterates the findings in the PAN without providing any justification for rejecting the taxpayer’s response, the assessment is considered void. (James Fausto Corp., v. CIR, CTA Case No. 10775, January 16, 2025)

Unverified third-party information (TPI) cannot form the basis of a tax assessment, and if the BIR fails to provide TPI sworn statement or requests, the assessment is void. Unverified TPI cannot constitute a valid factual basis for a tax assessment. If the assessment originates solely from the BIR’s data-matching with such third-party information—without any supporting sworn statement or verification from the source—and the BIR fails to formally offers in evidence the letter requests, the assessment is rendered void. (James Fausto Corp., v. CIR, CTA Case No. 10775, January 16, 2025)

A new Letter of Authority (LOA) is required when an examination is reassigned to a different revenue officer, and if an unauthorized officer conducts the examination, the assessment is void. A new LOA is required in cases where the examination is reassigned or transferred to a different revenue officer (RO). If the original LOA designates RO Cajuday and GS Pre, but the taxpayer’s logbook records show that RO Mandigma and GS Carim conducted the examination, with a visitor’s pass issued to Mandigma or Carim, and GS Carim received the submitted documents and was named in the PAN and FLD/FAN, despite not being authorized under the LOA, then the assessment is void. (Fabtech Kitchens Unlimited, Inc. v. CIR, CTA Case No. 10798, February 12, 2025)

A Memorandum of Assignment (MOA) cannot replace a LOA, and if unauthorized officers conduct the audit, the assessment is invalid. A MOA cannot replace a LOA as it does not grant the authority to conduct an examination or assessment. While the LOA authorized RO Bacorro and GS Arce to inspect the taxpayer’s books of accounts, RO Bacorro was transferred to a different district. Consequently, RO Sengco and GS Qunto carried out the audit, but since they were not named in the LOA—only in the MOA prepared by the Revenue District Officer—their authority is deemed invalid. (Delsan Transport Lines, Inc. v. CIR, CTA Case No. 10798, March 12, 2025)

If the BIR issues a FLD/FAN before the 15-day response period from the receipt of the PAN expires, the assessment is void. The taxpayer has 15 days from the receipt of the PAN to respond before the BIR can issue the FLD/FAN. Failure to observe this 15-day period renders the assessment void. In this case, assuming the PAN was received on December 19, 2016, the taxpayer had until January 3, 2017, to reply. However, since the BIR issued the FLD/FAN on December 29, 2016, before the 15-day period had expired, the FLD/FAN is considered void. (Delsan Transport Lines, Inc. v. CIR, CTA Case No. 10798, March 12, 2025)

Assessment notices can be personally served or mailed, but if delivery is disputed, the BIR must prove receipt; failure to do so, along with returned mail, violates the taxpayer's right to due process. Assessment notices may be served personally to the party. If personal service is not feasible, the assessment notices can be delivered by mail. In cases where the taxpayer denies receiving the assessment, the BIR bears the burden of proving that the notice was actually received. In this instance, the BIR failed to explain the taxpayer's claim of not receiving the PAN and the FLD/FAN, which were sent via registered mail. Furthermore, the FAN/FLD was marked "Return to Sender," and the examiner testified that the PAN was returned because the taxpayer could not be located at the registered address. As a result, the taxpayer's right to due process was violated. (Delsan Transport Lines, Inc. v. CIR, CTA Case No. 10798, March 12, 2025)

REVENUE REGULATIONS

Revenue Regulations No. 004-2025 increases the tax-exempt limits for clothing allowance to ₱7,000 and achievement awards to ₱10,000 under the “De Minimis” benefits, exempting them from income and fringe benefit taxes.

1. Clothing Allowance Increase: The tax-exempt limit for uniform and clothing allowance is raised from a lower amount to ₱7,000 per annum.
2. Achievement Awards: Tax-exempt employee achievement awards (e.g., for length of service or safety) are allowed up to ₱10,000 per year, whether given in cash, gift certificates, or tangible property, provided under a nondiscriminatory written plan.
3. Tax Exemption: These benefits are exempt from both income tax on compensation and fringe benefit tax.

Revenue Regulations No. 005-2025 imposes a 0.5% withholding tax on payments by credit card companies and digital platforms to merchants, amending RR No. 2-98 in accordance with RA No. 12066.

1. Credit Card Transactions: A 1/2% withholding tax is imposed on gross payments made by credit card companies to businesses for goods/services sold to cardholders.
2. Digital Platforms: A 1/2% withholding tax is also applied to gross remittances by electronic marketplace operators and digital financial services providers to merchants.

Revenue Regulations No. 006-2025 implements Sections 135 and 135-A of the Tax Code, as amended by Republic Act No. 12066, focusing on excise tax exemptions and refunds for petroleum products.

1. Excise Tax Exemption: Petroleum products sold to:
   • International carriers (Philippine or foreign) for consumption outside the Philippines.
   • Exempt entities/agencies under international agreements, provided reciprocity exists.
   • Entities legally exempt from direct and indirect taxes.
2. Refund of Excise Tax:
   • Suppliers must file a written refund claim within 2 years of payment.
   • BIR must act on complete claims within 90 days.
   • Denials can be reconsidered within 15 days (limited to legal issues).
   • Taxpayers can appeal to the Court of Tax Appeals within 30 days of denial or inaction.

Revenue Regulations No. 007-2025 reduces corporate income tax to 20% for qualified small corporations and RBEs under EDR, allows VAT input deductibility, and permits carryforward of excess tax payments.

1. Reduced Corporate Income Tax Rates:
   • 20% for domestic corporations with net taxable income not exceeding ₱5M and total assets not exceeding ₱100M (excluding land).
   • 20% for Registered Business Enterprises (RBEs) under the Enhanced Deductions Regime (EDR), effective November 28, 2024.
   • 25% for all other domestic and resident foreign corporations (effective July 1, 2020).
2. Scope of Reduced Rates: The 20% rate for RBEs only applies to income from registered projects; non-registered income is taxed at standard rates.
3. Deductibility of Input VAT: Input VAT on local purchases related to VAT-exempt sales is deductible from gross income under Section 34(C)(8).
4. Transitory Provision: RBEs that overpaid tax prior to these regulations may carry forward excess payments to the next period.

 

 

Revenue Regulations No. 008-2025 implements Sections 112(C) and 135-A of the Tax Code (as amended by R.A. No. 12066), specifically addressing procedures for requests for reconsideration on denied VAT and excise tax refund claims.

1. Scope: Covers reconsideration of denied refund claims for:
   • Creditable input VAT (Sections 112 A & B)
   • Excise tax on petroleum products (Section 135-A)
   • Applies to claims filed from April 1, 2025 onward.
2. Reconsideration Limits:
   • Only questions of law may be raised—not factual issues.
   • No new evidence allowed; only previously submitted documents are accepted.
   • Filing must occur within 15 days of receipt of the denial.
3. Procedural Rules:
   • Filed with appropriate BIR offices depending on the signatory of the denial.
   • Strict formatting and documentation requirements must be met.
   • Decision must be issued within 15 days from receipt of request.
   • If granted, refund must be processed within 20 days.
4. Appeals:
   • If denied or not acted upon within the prescribed period, taxpayers may appeal to the Court of Tax Appeals (CTA) within 30 days.

BIR RULINGS

Retirement pay is subject to tax if company has retirement plan registered with the BIR but employee completed only 6 years of service. Under the Tax Code, a retirement benefit plan that is duly registered with the BIR and classified as a reasonable private benefit plan is exempt from withholding tax, provided the employee has rendered at least 10 years of service with the same private employer and is at least 50 years old at the time of retirement. In the absence of a registered retirement plan, collective bargaining agreement, or any applicable employment contract, the Labor Code allows retirement benefits to be exempt from income tax if the employee has served for at least 5 years and is between 60 and 65 years old at retirement. However, if a taxpayer has a BIR-registered retirement plan but the employee has completed only 6 years of service, the retirement benefit will be subject to withholding tax. In such cases, the Tax Code takes precedence, even though the Labor Code allows tax exemption after 5 years of service (BIR Ruling No. OT-001-2024, January 9, 2024).

The transfer of property to a condominium corporation without consideration for the common benefit of unit owners is not subject to income tax, capital gains tax, VAT, or DST—except for DST on the notarial acknowledgment. The transfer of property to a condominium corporation without consideration, and solely for the purpose of project management for the common benefit of unit owners, does not result in taxable income and is not subject to capital gains tax. Additionally, documentary stamp tax (DST) is not applicable to conveyances of real property without consideration and not made in connection with a sale. VAT is also not imposed on property transfers where no payment is made and the beneficial ownership remains with the original party. In the case of Manila Jockey Club Inc., the landowner, and Alveo Land, the developer of Celadon Park Manila under a Joint Development Agreement, a condominium corporation (Celadon Park Manila Condominium Corporation) was established to hold title to the land and common areas of the project. The transfer of the land, facilities, utilities, and common areas to the Condominium Corporation without consideration is not subject to income tax, creditable withholding tax, VAT, or DST—except for the DST due on the notarial acknowledgment of the conveyance (BIR Ruling No. OT-002-2024, January 18, 2024).

Earnings of an employee trust fund are exempt from income and withholding tax if contributions are made for the exclusive benefit of employees and used solely for distributing earnings and principal. Earnings of employee trust fund are exempt from withholding tax if the following conditions are met: (1) Contributions to the trust are made by the employer, the employee, or both; (2) the contributions are intended for the distribution of both earnings and principal to employees; and (3) No part of the fund’s principal or income is used for purposes other than the exclusive benefit of the employees. Accordingly, when the University of the Philippines established a non-profit corporation to serve as a retirement fund for the benefit of its employees—intended to support retirement, resignation, or separation from employment—and where employees contribute to the fund for the purpose of receiving distributions, the earnings from bank deposits, interest, or other income derived from deposit substitutes, trust funds, and similar arrangements are exempt from income tax and withholding tax (BIR Ruling No. OT-003-2024, January 18, 2024).

A transfer of non-traded shares for a consideration, between spouses by an agreement in annulment proceedings, is treated as a sale and is subject to both capital gains tax and DST. A 15% capital gains tax is imposed on the transfer of shares of stock not traded on the stock exchange, whether through sale, barter, exchange, or other forms of disposition involving domestic shares. Accordingly, in a case involving annulment proceedings, where the spouses voluntarily executed a Memorandum of Agreement in which the husband agreed to transfer his shares in the Manila Polo Club to the wife for a consideration, the transaction is treated as a sale. As such, it is subject to both capital gains tax and DST (BIR Ruling No. OT-004-2024, January 18, 2024).

Transfers of real property as disturbance compensation are exempt from CGT and DST only if proven to result from the termination of tenancy due to land reclassification or conversion. Transfers of real property made as disturbance compensation are exempt from capital gains tax (CGT) and documentary stamp tax (DST). Disturbance compensation refers to payments made due to the termination of a tenancy relationship resulting from the reclassification or conversion of agricultural land into non-agricultural uses, such as residential, commercial, industrial, or other urban purposes. However, if land is transferred to assignees purportedly as disturbance compensation but there is no proof that the compensation arose from the extinguishment of a tenancy relationship due to land reclassification or conversion, the transaction will be subject to both CGT and DST (BIR Ruling No. OT-005-2024, January 18, 2024).

 

NEW PRICE THRESHOLD FOR THE SALE OF HOUSE AND LOT AND OTHER RESIDENTIAL DWELLINGS FOR VAT-EXEMPT PURPOSES IS P3,600,000  RR NO. 1-2024, JANUARY15, 2024 

 

 

INCOME PAYMENTS MADE BY JV TO SUPPLIERS ARE SUBJECT TO WITHHOLDING TAX (1%/2%); SHARE OF CO-VENTURE FROM JV NOT TAXABLE AS CORPORATION IS SUBJECT TO 15% WITHHOLDING TAX RR No. 14-2023, November10, 2023

 

 

The BIR further amends the pertinent provisions of RR No. 2-98, as amended, to impose creditable withholding tax on certain income payments by joint ventures/consortiums.

 

Income payments made by JV, whether incorporated or not, taxable or non-taxable, to their local/resident supplier of goods and services	Supplier of goods – 1% Supplier of services – 2%
Distributive share of co-venturers/members from the net income of the joint venture/consortium not taxable as a corporation	On the share of each co-venturer/member from the net income from the joint venture/consortium not taxable as corporation prior to actual or constructive distribution thereof – 15%

 

THE BIR IMPOSES 1% WITHHOLDING TAX ON ½ GROSS REMITTANCE BY E-MARKETPLACE OPERATORS AND DIGITAL FINANCIAL SERVICE PROVIDERS TO ONLINE SELLERS/MERCHANTS FOR ANNUAL GROSS REMITTANCES EXCEEDING P500,000.00. RR No. 16-2023, December21, 2023

• The BIR further amends the provisions of Revenue Regulations No. 2-98, as amended, to impose withholding tax on gross remittances made by electronic marketplace operators and digital financial services providers to sellers/merchants.
• The BIR imposes withholding tax on gross remittances by e-marketplace operators and digital financial services providers to online sellers/merchants for goods and services sold/paid through the former’s platform/facility.
  • ½ of the gross remittance – 1%
• Not applicable when:
  • Annual total gross remittances to online seller/merchant for the past taxable year has not exceeded P500,000.00; or
  • If the cumulative gross remittances to an online seller/merchant in a taxable year has not exceeded P500,000.00; or
  • If the seller/merchant is duly exempt from or subject to a lower income tax rate pursuant to an existing law or treaty (certification/clearance/ruling required)
• Gross remittance refers to the total amount received by the operator/financial services provider. Excludes:
  • Sales returns and discounts;
  • Consideration for the use of the platform.
• Electronic marketplace covers:
  • Marketplace for online shopping;
  • Food delivery platform;
  • Platform for booking of resort, hotel, motel etc. located in the Philippines;
  • Other similar online service or product marketplaces.
• E-market operators and digital services providers shall also withhold taxes on payment to transportation contractors for the carriage of goods and merchandise and commission on the goods and services.
• Effective date – January 11, 2024
• Transitory period – 90 days for e-marketplace operators and DFSP to comply.
• P500,000 – consists of the total amount of remittances received from ALL e-marketplace operators and DFSPs; if gross remittances exceeded P500,000 anytime during the year, withholding tax shall be automatically deducted from the particular remittance exceeding the threshold and the same shall be imposed on subsequent remittances.
• Obligations of seller/merchants:
  • Register with the BIR and submit COR to the e-market operator prior to the use of e-market facility;
  • Submit sworn declaration (SD) duly received by the BIR if gross remittance is expected not to exceed P500,000 threshold (to be submitted on or before  20^th day of the first month of each taxable year; if exceeded, SD in a prescribed form shall be immediately submitted.
    • Failure to submit prescribed SD: withholding tax shall be automatically deducted.
• If seller/merchant is exempt from income tax or subject to a lower income tax rate, submit a certification as proof of exemption or entitlement to a lower tax rate.
• All existing unregistered sellers/merchants are required to register; otherwise, they shall not be allowed to sell goods and services in the platform/facility.
• Sellers/merchants are not allowed to receive payments through their personal/individual accounts instead of business account; account must be under BIR-registered tradename.

 

THE PRESIDENT VETOED EXEMPTION OF MICRO-ENTERPRISE FROM OBLIGATION TO WITHHOLD TAXES.

RMC No. 3-2024, January 10, 2024 The BIR circularizes RA No. 11976 (Ease of Paying Taxes Act) and the Veto Message of President Ferdinand R. Marcos Jr

 

INCOME OF NON-RESIDENT FOREIGN CORPORATION IS SUBJECT TO FINAL WITHHOLDING TAX. RMC No. 5-2024, January10, 2024

• The BIR further clarifies the proper tax treatment of cross-border services in light of the Supreme Court En Banc Decision in Aces Philippines Cellular Satellite Corp. v. Commissioner of Internal Revenue, GR. No. 22668 (Aces).
• In Aces case, the Supreme Court subjected to final withholding tax the satellite airtime fee payments made by Aces Philippines (payor/withholding agent) to Aces Bermuda (payee/income earner), a non-resident foreign corporation (NRFC)
• The following are existing cross-border services akin to that of Aces case:
  • International Service Provision (or cross-border services, including: consulting services, IT sourcing, financial services, telecommunications, engineering and construction, education and training, tourism and hospitality, and other similar services)
    • Re. consulting services – the payment to the foreign consulting firm is considered an inflow of economic benefits to the foreign company. The income is sourced within the Philippines.
•  Situs of taxation for the cross-border services: within the Philippines.
• Treatment of reimbursable or allocable expenses, especially for cross-border services between or among related parties:
  • The reduction of expenses for a foreign corporation can be considered as income because it represents a financial gain or savings for the company. Thus foreign corporation’s net come or profit increased. Reduction in expenses is viewed as a form of income for foreign corporations.
•  Effect if no benefits was derived from the cross-border transactions:
  • If a Philippine company did not benefit, the payment is considered unnecessary for regular commercial activity and instead, it becomes a means of shifting profits to a foreign company. IT is an attempt to evade taxes or manipulate profits by funneling them to a foreign entity.
• Revenues generated from service fees paid to foreign companies or individuals, which are considered sources within the Philippines is subject to VAT.
• Our comments on RMC No. 5-2024: Invalid for being an unauthorized administrative legislation; for running counter to the rules of income under Section 42 of the Tax Code; for disregarding tax treaties; for being inconsistent with Section 108 (A), where payment for services rendered outside the Philippines are not subject to VAT.

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)