Category: Bureau of Internal Revenue

ON VAT AND PERCENTAGE TAX PROVISIONS (RR No. 3-2024)

• The EOPT adopts the accrual basis of recognizing sales for both sales of goods and services, including transactions to government or any of its political subdivisions, instrumentalities or agencies, and government-owned or -controlled corporations (GOCCs).
  • All references to “gross selling price”, “gross value in money”, and “gross receipts” shall now be referred to as “Gross Sales”, regardless of whether the sale is for goods under Sec. 106 or for services under Sec. 108 of the Tax Code (Sec. 2(A), RR No. 3-2024).
• The EOPT Act mandates a single document for sales of both goods and services.
  • Sales/Commercial Invoices or Official Receipts shall now be referred to as “Invoice” (Sec. 2(B), RR No. 3-2024).
  • All references to receipts or payments which was previously the basis for recognition of sales of service under Title IV [Value-Added Tax (“VAT”)] and Title V (Percentage Tax) of the Tax Code, shall now be referred to as “Billing” or “Billed”, whichever is applicable (Sec. 2(C), RR No. 3-2024).
•  EOPT Act re-introduced the regular updating of the VAT-exempt threshold every three (3) years, all provisions mentioning the VAT-exempt threshold of Php 3,000,000.00 shall now read:
  • “The amount of VAT threshold herein stated shall be adjusted to its present value every three (3) years using the Consumer Price Index (CPI), as published by the Philippine Statistics Authority (PSA).” (Sec. 2(D), RR No. 3-2024).
• Filing and Payment
  • The filing of a tax return shall be done electronically in any of the available electronic platforms. In case of unavailability of electronic platforms, manual filing of tax returns shall be allowed.
  • The payment of taxes with corresponding due dates shall be made electronically in any of the available electronic platforms or manually to any Authorized Agent Banks or Revenue Collection Officers (Sec. 2(E), RR No. 3-2024).
  • For tax payment with corresponding due dates, the same shall be made:
    • Electronically in any of the available electronic platforms; or
    • Manually to any AABs and RCOs.

SPECIFIC AMENDMENTS ON RR NO. 16-2005

Transitory Provisions

• Billed but uncollected sales of services
  • These Regulations shall apply to sale of services that transpired upon its effectivity.
  • For outstanding receivables on services on account that are rendered prior to the effectivity of RR 3-2024, the corresponding output VAT shall be declared once it has been collected.
• The sales and corresponding output VAT in case of collection shall be declared in the quarterly VAT return when the collection was made and shall be supported with an Invoice following the transitory provisions contained in the RR intended for invoicing requirements to implement the EOPT Act or the new BIR-approved set of Invoices, whichever is applicable (Sec. 7(a), RR No. 3-2024).Uncollected receivables from sale of goods as of the effectivity of RR No. 3-2024
  • Claim of output tax credit on uncollected receivables shall only apply to transactions that transpired upon the effectivity of these Regulations.
  • No output tax credit shall be allowed for outstanding receivables from sale of goods on account prior to the effectivity of these Regulations (Sec. 7(b), RR No. 3-2024).

ON THE FILING OF TAX RETURNS AND PAYMENT OF TAXES AND OTHER MATTERS AFFECTING THE DECLARATION OF TAXABLE INCOME (RR No. 4-2024)

Mode of Filing of Tax Returns and Payment of Internal Revenue Taxes (Sec. 3, RR No. 4-2024)

• Filing of Tax Returns shall be done electronically in any of the available electronic platforms.
  • In case of unavailability of the electronic platforms, manual filing of tax returns may be allowed.
• Payment of Internal Revenue Taxes shall be made either:
  • Electronically in any of the available electronic platforms; or
  • Manually to any Authorized Agent Banks (AABs) or Revenue Collection Officers (RCOs).
• Filing of Income Tax Return (ITR) by married individuals (the husband and wife, whether citizens, resident or nonresident aliens, who are both self-employed, either engaged in business or practice of profession) - file their ITR for the taxable year jointly
  • If impracticable such as where the businesses of the spouses are registered under two different Revenue District Officers (RDOs), each spouse shall file separately their respective ITRs.
• AABs and RCOs shall only accept tax payments manually after the taxpayers have already electronically filed their tax returns, unless an advisory is issued allowing manual filing (Sec. 3, RR No. 4-2024).
• Because Sec. 248(A)(2) of the Tax Code has been repealed, the civil penalty of 25% of the amount due in case of filing a return with an internal revenue officer other than those with whom the return is required to be filed shall not be imposed. (Sec. 4, RR No. 4-2024).
• Sec. 9 of RR No. 8-2018 with regard to “Individuals Not Required to File ITR” has been amended with the following changes:
  • The Certified List of Employees Qualified for Substituted Filing of ITR, reflecting the amount of income payment, the tax due and tax withheld, if any, filed by the respective employers, duly stamped “Received” by the Bureau shall be tantamount to the substituted filing of ITR by said employees.
  • An individual citizen of the Philippines who is working and deriving income solely from abroad as an Overseas Contract Worker (OCW) or Overseas Filipino Worker (OFW) as defined under Section 3(G) of Republic Act No. 11641 (otherwise known as the “Department of Migrant Workers Act”) is not required to file ITR (Sec. 5, RR No. 4-2024).
• The EOPT repealed in its entirety Sec. 34(K) of the Tax Code. Hence, upon effectivity of the EOPT, Sec. 2.58.5 of RR No. 2-98, as amended, is likewise repealed.
  • However, please note that the obligation to withhold tax on certain income payments and remit the same remains (Sec. 6, RR No. 4-2024).
• Sec. 2.57.4 of RR No. 2-98 as regards “Time of Withholding” has been amended to read as follows:
  • “Sec. 2.57.4. Time of Withholding. The obligation of the payor to deduct and withhold the tax under Sec. 2.57 of these Regulations arises at the time an income has become payable. The term “payable” refers to the date the obligation becomes due, demandable or legally enforceable. The obligation of the payor to deduct and withhold the tax arises at the time an income payment is accrued or recorded as an expense or asset, whichever is applicable, in the payor’s books, or at the issuance by the seller of the sales invoice or other adequate document to support such payable, whichever comes first” (Sec. 7, RR No. 4-2024).
• Income upon which any creditable tax is required to be withheld at source under Sec. 57 of the Tax Code, as amended, shall be included in the return of its recipient, but the excess of the amount of tax so withheld over the tax due on his return shall be refunded subject to the provision of Sec. 204 of the same Code (Sec. 8, RR No. 4-2024).

ON TAX REFUNDS (RR No. 5-2024)

• The Regulations shall cover tax credit/refund claims that are filed starting July 1, 2024, onwards and implements the following:
  • (A) Section 112(C) of the Tax Code that introduced the risk-based approach to verification of VAT refund claims;
  • (B) Section 112(D) of the Tax Code which clarified the liability of the taxpayer-claimant and the BIR in case of disallowance by the Commission of Audit (COA);
  • (C) Section 76(C) of the Tax Code allowing the application for refund of unutilized excess income tax credit in case of dissolution of cessation of business. For purposes of the Regulations, the entire provision of 76(C) of the Tax Code shall be covered to include policies for the processing of income tax credit/refund of taxpayers who have chosen the option to apply for tax credit or refund the excess income tax in their Annual Income Tax Returns (AITR);
  • (D) Section 240(C) of the Tax Code that introduced the one hundred eighty (180)-day processing of claims for tax refund except for VAT Refunds under Section 112 of the Tax Code; and
  • (E) Section 229 of the Tax Code outlined the policies for judicial claims and repealed the supervening clause provision thereof.
    • The Regulations do not cover processing of tax refund/credit claims pursuant to the final and executory judgement by the courts.
• VAT refund claims filed pursuant to Section 112(A) of the Tax Code shall be classified into low, medium, and high-risk claims. Provided that, medium- and high-risk claims shall be subject to audit or other verification processes in accordance with the BIR’s national audit program for the relevant year or with the current policies and procedures applicable to the year of the application of VAT Refund (Section 3(A) RR No. 5-2024).
• The scope of verification in accordance with the identified risks as follows:

• Note: Based on initial checking of the documents submitted during check-listing procedures only. This does not include thorough verification of the supporting documents for sales and purchases.
• The following are the limitations to the above matrix:
  • Claims filed by 1^st time claimants shall be automatically considered as high-risk and shall remain as such for the succeeding three (3) VAT Refund claims.
  • In case of full denial of a claim, the succeeding claimed filed shall be classified as high-risk.
  • For medium-risk claims, verification shall be adjusted to 100% if the assigned Revenue Officer found at least 30% disallowance of the amount of VAT Refund claim.
  • Claims classified as low-risk for the three (3) consecutive filing of VAT refund claims shall be subject to mandatory full verification on the fourth (4^th) refund claim regardless of the risk classification.
  • VAT credit/refund claim for any unused input tax pursuant to Section 112(B) of the Tax Code field by a VAT-registered person whose registration has been cancelled due to retirement from business or due to changes in or cessation of status under Section 106(C) of the Tax Code shall be classified as high-risk and will require full verification thereof.
  • For taxpayer-claimants filing on a quarterly basis, the risk classification shall be made for every filing.
  • Other limitations that may be identified by the Commissioner of Internal Revenue through revenue issuances (Section 3(B), RR No. 5-2024).
• The verification and processing of VAT refund claims shall be separate from the regular audit, if any, of internal revenue taxes particularly VAT conducted by the appropriate BIR office that has jurisdiction over the taxpayer-claimant. Any findings during the verification of VAT refund claim that has no effect to the amount to be refund shall be: (1) Endorsed for further verification and/or consolidation with the existing audit if the processing is conducted by an Office other than the BIR office that has jurisdiction over the claimant; or (2) Incorporate to the existing audit for the taxable year covered by the claim if processed within the same BIR office that has jurisdiction over the claimant (Section 3(D), RR No. 5-2024).

ON IMPOSITION OF REDUCED INTEREST AND PENALTY RATES FOR MICRO AND SMALL TAXPAYERS  (RR No. 6-2024)

• In addition to the tax required to be paid, a penalty equivalent to 10% of the amount due in the following cases:
  • Failure to file any return and pay the tax due thereon as required under the provisions of the Tax Code or rules and regulations on the date prescribed;
    • No penalty shall be imposed to an amendment of a tax return if the covered taxpayer filed the initial tax return and paid the tax due thereon on or before the prescribed date for its filing.
    • In case of a deficiency tax assessment as a result of a tax audit, a penalty shall be imposed on the tax deficiency if the particular tax return being audited was found to have been filed beyond the prescribed period or due date
  • Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment; or
  • Failure to pay the full or part of the amount of tax shown on any return required to be filed under the provisions of the Tax Code or rules and regulations, or the full amount of tax due for which no return is required to be filed, on or before the date prescribed for its payment (Sec. 3, RR No. 6-2024).
• A penalty at the rate of 50% of the tax or of deficiency tax in case of payment made before the discovery of the falsity or fraud in the following cases:
  • Willful neglect to file a return within the period prescribed by the Tax Code or by rules and regulations
  • False or fraudulent filing of return (Sec. 3, RR No. 6-2024)
    • A substantial under-declaration of taxable sales or income, or a substantial overstatement of deductions shall constitute prima facie evidence of a false or fraudulent return.
      • Substantial under-declaration of taxable sales or income - failure to report sales or income in an amount exceeding 30% of the declared per return
      • Substantial overstatement of deductions - a claim of deductions in an amount exceeding 30% of actual deductions

• A penalty of Php 500.00 shall be paid for each failure by the covered taxpayer in the following cases:
  • Failure to file an information return, statement or list;
  • Failure to keep any record; and
  • Failure to supply any information,
    • as may be required on the date prescribed.
• The aggregate amount to be imposed for all such failures during a calendar year shall not exceed Php 12,500.00 (Sec. 5, RR No. 6-2024).
• A compromise penalty of 50% of the applicable rate or amount of compromise under Annex “A” of Revenue Memorandum Order No. 7-2015 and its subsequent amendments, if any, shall be applied in case of criminal violation by covered taxpayers of Sec. 113, 237, and 238 of the Tax Code, not involving fraud (Sec. 6, RR No. 6-2024).
  • Compromise penalty shall be collected in lieu of criminal prosecution for violation committed where payment is based on a compromise agreement validly entered into between the covered taxpayer and the Commissioner of Internal Revenue (CIR).
  • The compromise penalty shall in no case differ in amount from those specified in these Regulations, except when duly approved by the CIR or his duly authorized representatives.
  • The compromise penalty shall not prevent the CIR or his duly authorized representatives from accepting a compromise amount higher than what is provided hereof.
  • A compromise offer lower than the prescribed amount may be accepted after approval by the CIR or his duly authorized representatives.
• These Regulations shall apply prospectively in accordance with Sec. 51 of RA No. 11976 (Sec. 7, RR No. 6-2024).

ON REGISTRATION PROCEDURES AND INVOICING REQUIREMENTS  (RR No. 7-2024)

• A VAT-registered person shall issue a duly registered VAT Invoice, for every sale, barter, exchange or lease of goods or properties, and for every sale, barter, or exchange of services regardless of the amount of transaction (Section 3(A)(1), RR No. 7-2024).
• A VAT Invoice shall be issued as evidence of sale of goods and/or properties and sale of services and/or leasing of properties issued to customers in the ordinary course of trade or business, whether cash sales or on account (credit), which shall be the basis of the output tax liability and the input tax claim of the buyer (Section 3(A)(1), RR No. 7-2024).
• Consequences of issuing erroneous VAT Invoice (Section 3(D), RR No. 7-2024).

• All Books of Accounts, including the subsidiary books and other accounting records of corporations, partnerships, or persons, shall be preserved by the taxpayer for a period of five(5) years reckoned from the day following the deadline in filing a return, or if filed after the deadline, from the date of the filing of the return, for the taxable year when the last entry was made in the Books of Accounts (Section 4(A)(1), RR No. 7-2024).
  • Notwithstanding the foregoing, if the taxpayer has any pending protest or claim for tax credit/refund of taxes, and the books and records concerned are material to the case, the taxpayer is required to preserve the Books of Accounts and other accounting records until the case is finally resolved in support of their defenses and aid, even beyond the prescribed 5-year retention period (Section 4(A)(4), RR No. 7-2024).
• The Books of Accounts shall be subject to examination and inspection by internal revenue officers; Provided, that for income tax purposes, such examination and inspection shall be made only once in a taxable year, except for the following cases:
  • Fraud, irregularity or mistake, as determined by the Commissioner;
  • The taxpayer requests reinvestigation;
  •  Verification of compliance with withholding tax laws and regulations;
  •  Verification of capital gains tax liabilities; and
  •  In the exercise of the Commissioner’s power under Section 5(B) of the Tax Code, to obtain information from other persons, another or separate examination and inspection may be made (Section 6(a), RR No. 7-2024).

ON CLASSIFICATION OF TAXPAYERS (RR No. 8-2024)

 (Sec. 2, RR No. 8-2024)

• Gross Sales – total sales revenue, net of VAT, if applicable, during the taxable year, without any other deductions
  • Cover business income, excluding compensation income earned under employer-employee relationship, passive income under Sec. 24, 25, 27, and 28, and income excluded under Sec. 32(B), all of the Tax Code
• Business Income – income from the conduct of trade or business or the exercise of a profession
  • The taxpayers who will register to engage in business or practice of profession upon effectivity of these Regulations shall initially be classified based on its declaration in the Registration Forms starting from the year they registered¸ and shall remain as such unless reclassified (Sec. 3, RR No. 8-2024).
  • Taxpayers shall be classified based on the threshold values stated under Sec. 2 of these Regulations.
• Taxpayers shall be duly notified by the BIR of their classification or reclassification, as may be applicable, in a manner of procedure to be prescribed in a revenue issuance to be issued separately (Sec. 4, RR No. 8-2024).
• Taxpayers registered in 2022 and prior years shall be classified on the basis of their gross sales for taxable year 2022.
• For: (a) Taxpayers registered in 2022 and in prior years who did not submit information on their gross sales for taxable year 2022 and (b) taxpayers registered in 2023 or 2024 (before the effectivity of these Regulations) – are classified as MICRO except VAT-registered taxpayers who shall be classified as SMALL (Sec. 5, RR No. 8-2024)

THE BIR CLARIFIES THE TREATMENT OF FOREIGN CURRENCY TRANSACTIONS FOR FINANCIAL REPORTING AND INTERNAL REVENUE TAX PURPOSES. RMC No. 12-2024, January 22, 2024

• PFRS Treatment:
  • Initial Measurement – rate of exchange at the date of transaction. Average rate is also permitted as long as they are reasonable approximation of the actual.
  • Subsequent Measurement. At each reporting date:
    • Monetary item – closing rate; unrealized gain/loss to be recognized in profit or loss
    • Non-monetary item
      • If carried at historical cost – historical exchange rate (no re-measured at reporting date);
      • If carried at fair value – exchange rate at the date the fair value is measured; unrealized gain or loss to be recognized in OCI.
  • Settlement: recognized in profit or loss (consideration received/paid less carrying amount of monetary asset or liability)
• Tax purposes:
  • Forex currency denominated transaction = to be converted into functional currency  using exchange rate at the time asset, liability, income and expense are recognized and measured/remeasured (i.e. date of transaction, reporting date, settlement date)
  • Spot rate to be used on the date of transaction – taxpayer has the prerogative to use either open, close, high, low, weighted average as long as used consistently. Taxpayers may adopt it at the beginning of the taxable year; for transactions on holiday, weekends etc., the latest closing spot rate available on the business date immediately preceding the date of transaction shall be used.
• Source of forex rates to be used in converting foreign currency denominated transaction for tax purposes:
  • Banker’s Association of the Philippines (BAP) published rate;
  • Other available sources (if BAP’s rate is impractical or not feasible), such as BSP, Bloomberg, Reuters etc.
    • Conditions: Submit notarized sworn statement stating the source, reason for using the rate, and statement allowing BIR to access rates used during BIR audit;
    • Election of forex are irrevocable for at least one taxable year; if forex rates used are subsequently changed, a new notice shall be submitted to the BIR.
• Number of decimal places  - actual number. Exception, maximum number as designated in the accounting system of the taxpayer; condition: notify the BIR of the system limitation.
• Forex transaction that is non-USD currency – taxpayers may directly convert the foreign currency, other than BAP published rates, following the conditions set forth.
• Treatment if the taxpayer initially used BAP rates but has non-USD transaction in the middle of the year – Taxpayer shall summarize the non-USD foreign transaction which must be available for presentation and submission during BIR audit.
• Effect of failure to notify the BIR for using rates other than BAP:
  • Taxpayer is still required to prove the reliability of the exchange rate; administrative penalties will be imposed too; BAP published rates will be used BSP rate will be used in case of non-USD foreign currency denominated transaction
• No need to convert non-USD forex transaction to USD forex.
• Use of monthly average exchange rates is not permitted in converting foreign currency transactions to Philippine peso
• Treatment of unrealized gains or losses on forex fluctuation during periodic re-measurement – not considered income/loss; considered temporary difference for which deferred tax accounting should be applied which must be disclosed in the Notes to the AFS.
• Only realized forex gains/losses, or those arising from closed and completed transactions are considered as taxable income or deductible expenses for income tax purposes
• Automatic reversal of unrealized forex differences to realized forex gains/losses in the succeeding year not arising from closed and completed transactions are strictly prohibited for income tax purposes.
• Examples of events giving raise to actual gain/loss reportable for tax purposes:
  • Exchange rate at the time of receipt of advance payment and time income is earned;
  • Exchange rate at the time of recording of receivable and receipt of payment;
  • Exchange rate at the time when advance payment is made to subcontractors and expenses are incurred;
  • Exchange rate at the time of recording of payable and payment; and
  • Exchange rate at the time of down payment of construction materials and full settlement of the balance of the purchase price.
• Rules in offsetting of forex gains and loss – prohibited. Gross amounts of gains and loss must be presented in the income tax return but for tax calculation purposes, forex loss is deductible.
• Presentation of forex gains and losses – Other taxable Income; included in the computation of “Total Taxable Income” or “Gross Taxable Income”
• Forex loss – “Ordinary Allowable Itemized Deductions”

THE BIR CLARIFIES ON THE TREATMENT OF RETIREMENT BENEFITS EXPENSE FOR FINANCIAL REPORTING AND TAX PURPOSES. RMC No.13-2024, January 22, 2024

Circular not applicable to entities classified as small and medium enterprises (SMEs) which are covered by PFRS for SMEs

• Classification  of Post-employment or retirement benefit:
  • Defined Contribution Plan
    • Fixed contribution is paid into a fund
    • No obligation to pay further contribution if fund does not hold sufficient assets to pay all employee benefits
    • Accounting treatment: contribution payable is recognized in exchange for that service as an expense
  • Defined Benefit Plan (Plan other than defined contribution plan)
    • Requires valuation by an actuary using projected unit credit method (attributing benefit to periods of service and making actuarial assumptions)
    • Requires booking employee benefit costs and accrue employee benefits
• Employee benefit cost –
  • Employee benefit expense (profit or loss)
  • Remeasurement gains and losses (other comprehensive income)
• Changes in assumption. Comprises of:
  • Actuarial gains and losses;
  • Difference between actual return or plan assets and the interest income; and
  • The effect of asset ceiling
• Employee benefit expense – composed of:
  • Service cost:
    • Current service cost – increase in PV of the obligation due to employee service for the current period;
    • Past service cost – change in the PV of the obligation due to plan amendment or curtailment; and
    • Settlement Gains/loss – transaction eliminating all further obligations for part or all of the benefits; differences between PV of the defined obligation and settlement price.
  •  Net interest cost – Increase in the liability/asset due to passage of time (asset x discounted rate)
• Condition for the amount of retirement benefits expenses claimable as deduction from gross income for income tax purposes
• The retirement benefit plan must be registered with the BIR (Tax Qualified Plan), evidenced by certificate of tax qualification, under RA No. 4917
• Deductible:
  • Normal Cost
  • Amount in excess of normal cost if amount is not allowed as deduction and apportioned over 10 years.
• Excess: not allowed as deduction; in case of amount reverted to employer, such amount is taxable income.
• Retirement benefit expenses deductible if there is no Tax Qualified Plan – RA 7641 applies or only the actual amount of retirement benefits paid to employees can be claimed as deduction from the gross income
• Tax exemption of the employee retirement benefit plan:
  • Certificate of Qualification as a Reasonable Private Benefit Plan  must be filed with Law and Legislative Division
  • Within 30 days from the date of effectivity of the retirement benefit plan.
• Tax treatment of income earned from investing the employee retirement fund under RA No. 4917 - Exempt from income tax provided:
  • The requirements for reasonable private benefit plan are met
  • Funds are actually used for the exclusive benefit of the employees or their beneficiaries
• Instances when income derived by Fund/Trust is taxable:
  • Lending of income or corpus without adequate security and a reasonable rate of interest
  • Excess/unreasonable payment of compensation
  • Making service available on a preferential basis
  • Substantial purchase of security/property for more than adequate consideration
  • Sale of substantial par of security or other property for less than adequate consideration
  • Transaction resulting in a substantial diversion of the income/corpus

‘to or from the employer or if the employer is an individual, to or from a member of the family of the employer, or to or from a corporation controlled by the employer  (50% of more)

• Employer cannot use the retirement fund to invest/deposit in any of the employer’s business venture.
• Retirement benefit received by employee pursuant to Tax Qualified Plan under RA 4917 is subject to withholding tax as a rule; exempt when employee must be at least 50 years old and served his/her employer for at least 10 years; and has not previously availed of the privilege under a benefit plan of the same or another employee.
• Retirement benefit under RA 7641 is exempt from withholding tax if the employee is at least 60 years of age to 65 and has served for at least 5 years. No certificate of tax exemption is required.
  • If 70 years old, retirement benefits are still exempt from income tax and withholding tax; but all income and other benefits received beyond 65 is considered compensation subject to income tax.
• Tax Treatment during interim period of filing and issuance of Certificate of Qualification:
• On the benefit received:
  • Exempt from income tax and withholding tax
  • If application is denied, the employer/trust will be directly and solely liable for the deficiency income taxes due on the retirement benefits
• On the investment income:
  • Exempt from income tax
  • If application is denied, the employer/trust will be directly and solely liable for the deficiency income taxes
• On deductibility of contributions:
  • Deductible from gross income.
  • If application is denied, the employer/trust will be directly and solely liable for the deficiency income taxes
• 10-year requirement to be computed only in 1 company, except for merger (aggregate of service to be considered)
• Amendment to be submitted to the BIR for certification.

This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity. If you have clarification or concern or no longer wish to receive updates, please feel free to reach out to us.

Best regards,

Ron Dumlao

SALE OR IMPORTATION OF COVID-19 EQUIPMENT AND DRUGS ARE SUBJECT TO VAT STARTING JANUARY 1, 2024. RMC No. 7-2024, January 11, 2024

• The BIR reverses the Value-Added Tax exemption of transactions specified under Section 109 (BB) of the National Internal Revenue Code (Tax Code) of 1997, as amended.
• Sale or importation of the following shall no longer be exempt from VAT effective January 1, 2024:
  • Capital equipment, its spare parts and raw materials, necessary for the production of personal protective equipment components such as coveralls, gown, surgical cap, surgical mask, N-95 mask, scrub suits, goggles and face shield, double or surgical gloves, dedicated shoes and shoe covers for COVID-19 prevention;
  • All drugs, vaccines, and medical devices specifically prescribed and directly used for the treatment of COVD-19; and
  • Drugs for the treatment of COVD-19 approved by the FDA for use in clinical trials, including raw materials directly necessary for the production of such drugs.

NO SURCHARGE WILL BE IMPOSED IN CASE OF AMENDED TAX RETURNS. RMC No. 9-2024, January 15, 2024

• The BIR clarifies surcharge computed in the filing of an amended return in the electronic Filing and Payment System (eFPS)
• RMC No. 42, 2022 states the non-imposition of surcharge on amended tax returns, provided, that the taxpayer was able to file the initial tax return on or before the prescribed due date for its filing.
• Taxpayers may disregard the surcharge computed by the system when filing an amended tax return.
• If there is an additional tax to be paid as a result of such amended, pay only the basic tax, computed interest and compromise, provided that the original tax return was filed on or before the set deadline.

BRANCH ACCOUNT REGISTRATION AND UPDATE IS AVAILABLE IN ORUS BEGINNING JANUARY 15, 2024 RMC No. 10-2024, January 22, 2024

• The BIR announces the availability of Branch Account Registration in Online Registration and Update System.
• Effective date: January 15, 2024
• Taxpayer branches can do the following transactions in ORUS:
  • Apply for ATP;
  • Register Books of Accounts;
  • Update information;
  • Enroll employer services link for the issuance of Employees’ TIN; and
  • Register a facility;
• ORUS Branch Account is separate from the Head Office’s ORUS account.

DEPRECIATION OF RIGHT-OF-USE ASSET AND INTEREST EXPENSE ON LEASE LIABILITY UNDER PHILIPPINE FINANCIAL REPORTING STANDARD (PFRS) 16 ARE NOT DEDUCTIBLE FOR TAX PURPOSES; ONLY ACTUAL RENT PAID OR INCURRED AND OTHER PAYMENTS TO THE LESSOR BASED ON THE LEASE AGREEMENTS ARE DEDUCTIBLE FOR TAX PURPOSES.. RMC No. 11-2024, January 22, 2024

• The BIR clarifies the tax treatment of lease accounting by lessees under Philippine Financial Reporting Standard 16 in relation to Sections 34(A), 34(K), 106, 108, 179, 194 of the Tax-code, as amended, RR No. 19-86, as amended, and RR No. 02-98, as amended
• Commencement date/Initial Recognition: Lessee to recognize Right of Use Asset (ROUA) and a lease liability.
  • Applicable to all leases, unless lessee elects the short-term lease and/or lease of low-value asset recognition exemptions available in PFRS 16
• Initial Measurement:
• Lease Liability: present value of the future lease payments discounted using the interest rate implicit in the lease, if that rate can be readily determined. If the rate cannot be readily determined, the lessee uses its incremental borrowing rate.
• ROUA – amount of lease liability adjusted for:
  • Payments to lessor at or before the start date of lease less any lease incentives received;
  • Any initial direct costs incurred by the lessee; and/or
  • An estimate of any decommissioning costs.
• Subsequent Measurement:
  • Lease liability – Carrying amount to be increased by interest on the lease liability and to be reduced by lease payment. Lessee to recognize profit or loss any interest incurred on lease liability.
  • ROUA – cost less accumulated depreciation and accumulated impairment losses.
  • Depreciation of the right-of-use asset is also recognized in profit or loss, unless depreciation is permitted to be capitalized (e.g. to inventory) under other PFRS
• Lease Modification
  • Means change in the scope of a lease or the consideration of the lease that was not part of the original terms and conditions of the lease.
  • Examples: adding or terminating the right of use; or extending or shortening the contractual lease term
  • Treatment:
    • If it does not decrease the scope of lease – lease liability will be recalculated with corresponding adjustment to the ROUA; will not normally result in gain or loss in the income statement.
    • If it decreases the scope of lease – partial derecognition of the ROUA and lease liability will be required.; difference between the amount of reduction is recognized immediately in profit or loss.
• Lease Exemptions
  • Applies for short-term leases and leases of low-value items.
  • Short term lease – lease term of 12 months or less, but takes into consideration lease renewal options.
  • Lease of low-value items – lease for which the underlying asset is of low vale (per the standard, with value of USD5,000.00 or the equivalent for new similar asset)
  • Effect: Lessees do not have to recognize ROUA and the related lease liability in the statement of financial position; instead, lease payments are recognized as expense, on a straight-line basis, or another systematic basis, if the basis is more representative of the pattern of the lessee’s benefit
• Operating Lease v. Finance Lease
  • Operating Lease
    • Asset is not wholly amortized during the primary period of the lease.
    • Lessor does not rely solely on the rental during the primary period but looks for recovery of the balance of his costs and for the rest of his profits from the sale or re-lease of the returned asset of the primary lease period.
    • Lessee may deduct the amount of rent paid or accrued, including all expenses which, under the terms of the agreement, the lessee is required to pay to or for the account of the lessor. Advance rentals shall be duly apportioned or applied over the lease terms.
  • Finance Lease or full payout lease
    • Involves payment over an obligatory/primary/basic period (not less than 730 days of specified rental amounts for the use of a lessor’s property, sufficient in total to amortize the capital outlay of the lessor and provide for the lessor’s borrowing costs and profits
    • Lessee exercises the choice of the asset and is normally responsible for maintenance, insurance and such other expenses pertinent to the use, preservation and operation of the asset
    • May be extended after the expiration of the primary period, by non-cancellable secondary or subsequent periods with the rentals significantly reduced.
    • Residual value shall in no instance be less than 5% of the lessor’s acquisition cost of the leased asset
    • Same tax treatment as with the operating lease except that lessor may be allowed a depreciation during the primary lease period, but such period shall not be less than 60% of the depreciable life of the property; interest expenses computed based on the amortization are not accounted for separately from principal payments.
• Finance Lease v. Conditional Sale
  • If the contract is a lease in form but a conditional sale in substance, such contract will be considered as conditional sale.
  • Lease is considered conditional sale if one or more of the following compelling persuasive facts are present:
    • Option to purchase;
    • Automatic ownership;
    • Portions of the rent are credited to the purchase price;
    • Receipts indicate partial or full payment of asset
    • Other factors:
      • Portions of period payments are made specifically applicable to equity;
      • When there’s option to purchase but price is nominal or relatively small in relation to the total payments
• Treatment of ROUA depreciation and interest expense on lease liability for tax purposes – not deductible
• Deductible: only actual rent paid or incurred and other payments to the lessor based on the lease agreements shall be allowed as deduction
• Taxpayer is required to disclose information on the lease in the Notes to the Financial Statements.
• Treatment of Initial Direct Costs – Deductible as outright expense
• Treatment of expenses paid or incurred by the lessee for the account of the lessor (i.e. realty tax, association dues, etc.) – deductible as expense but lessor should issue invoice/receipts in the name of the lessee
• Treatment of short-term leases and lease of low-value assets – operating lease; only actual rents paid or incurred shall be recognized as deductible expense
• Treatment of gains and losses from lease modifications – not included in the determination of taxable income
• Security Deposit
  • Asset; or expense when the conditions occur, which is deductible based on the amount of applied deposit
• Treatment of estimated restoration cost – deductible expense in the year the same has been actually paid or incurred
• VAT Treatment
  • GR: upon payment of rent, evidenced by VAT OR
  • XPN: Conditional Sale
• Initial payment during the year exceeds 25% of the selling price – Entire selling price taxable; Less than 25% - VAT be recognized on installment payment
• Withholding Tax: 5%; if conditional sale – 1% for TWA and 15% on interest (but for real properties, rules on withholding applicable to the sale of real property applies)
• DST – DST on lease agreement; if finance lease, DST applicable to the debt instruments.

BIR ISSUANCES MAY BE PUBLISHED IN THE BIR OFFICIAL WEBSITE, OFFICIAL GAZETTE OR NEWSPAPER OF GENERAL CIRCULATION. RR No. 2-2024, February 28, 2024

• The BIR prescribes the policies and guidelines for the publication of revenue issuances and other information materials of the BIR pursuant to Section 245(i) of the Tax Code, as amended by RA No. 11976.
• The BIR may publish (electronically or otherwise) the BIR Issuances to implement and/or clarify relevant tax laws, rules and regulations, through the following means:
  • BIR Official Website;
  • Official Gazette; or
  • Newspaper of general circulation
• Revenue issuance and other information refer to:
  • Revenue Regulations
  • Revenue Memorandum Circulars
  • Revenue Memorandum Orders
  • Other revenue issuances;
  • Classification of taxpayers including, but not limited to, top withholding agents;
  • Cannot be located taxpayers
  • Revised Schedules of Zonal Values;
  • List of seized, foreclosed and acquired properties for sale
  • Notice of sale seized, foreclosed and acquired properties;
  • Information materials such as, but not limited to, press releases, announcements/advisories and flyers; and
  • Other similar documents or materials that require publication

NEWLY-HIRED EMPLOYEES ARE NOT REQUIRED TO VERIFY THEIR TIN AND GET A TIN VERIFICATION SLIP FROM THE RDO. RMC No. 31-2024, February 27, 2024

• The BIR clarifies TIN Verification being required by employers from newly-hired employees.
• The BIR does not require newly-hired employees to verify their TIN and get a TIN Verification Slip from the RDO.
• The RDOs shall not accept requests for manual TIN verification or issue TIN Verification Slip for employment purposes, except for the following cases:
  • The online TIN verification facility is not available or there is a prompt message that the user needs to visit the RDO; or
  • There is a need for the BIR personnel to further verify the correctness of taxpayer registration information; or
  • The taxpayer has an existing TIN or record; or
  • Possession of multiple or identical TIN.
• All employers are advised to use BIR’s ORUS or BIR Catbot to verify the validity and correct ownership of the TIN of their newly-hired employees.
• The verification result being displayed by ORUS or Revie is considered sufficient for verification purposes.
• Employers do not have to require their newly-hired employees to go to the RDO to get a TIN Verification Slip

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.

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.

ESTATE TAX AMNESTY: COVERAGE – MAY 31, 2022; DEADLINE – JUNE 14, 2025 Revenue Regulations No. 10-2023, September 8, 2023

• The BIR amends certain provisions of RR No. 6-2019, as amended, to implement the extension on the period of availment of the Estate Tax Amnesty pursuant to RA No. 11956, further amending RA No. 11213 (Tax Amnesty Act), as amended by RA No. 11569
• Coverage – death on or before May 31, 2022, with or without assessments, whose estate taxes have remained unpaid or have accrued as of May 31, 2022.
• Deadline June 14, 2025
• Estate Tax Amnesty Return shall be filed and paid, either electronically or manually; may also be paid via authorized tax software provider
• ETAR with Acceptance payment form and complete documents to be submitted to the BIR. List of requirements may be accessed HERE.
• In the absence of documents, the BIR may request for alternative documents, as may be deemed appropriate
• Installment payment shall be allowed within 2 years from the date of payment without civil penalty and interest

WARRANT OF GARNISHMENT MAY BE SERVED VIA EMAIL; GUIDELINES. Revenue Regulations No. 11-2023, September 14, 2023

• The BIR prescribes the use of electronic mail (e-mail) and electronic signature as additional mode of service of the Warrant of Garnishment pursuant to Section 208 in relation to Section 244 of the National Internal Revenue Code of 1997, as amended
• BIR officers who shall issue and electronically sign the WGs against the deposits of the delinquent taxpayer:
  • Regional Director
  • Assistant Commissioner-Collection Service (CS)
  • Assistant Commissioner-Large Taxpayers Service (LTS)
  • Large Taxpayers District Offices (LTDOs)
• BIR officers to transmit and serve signed WG (to use BIR’s official email):
  • Collection Division concerned
  • Accounts Receivable Monitoring Division (ARMD),
  • LT-Collection Enforcement Division (LTCED), and the
  • LTDO
• Bank Head Offices and Bank Branches are required to provide their official email addresses, if not yet available, to the concerned BIR office where they are registered.
• Completion of service: at the time the email is made, or, when available, at the time the email notification of the service is sent. The concerned offices may request to acknowledgement receipt
• BIR official or employee who sent the email shall execute Affidavit of Services, with a printed proof of transmittal; to be attached to the records with the signed WG.
• BIR to request the bank for a reply. Thereafter, a copy of WG with acknowledgement receipt, will be sent to taxpayer via email, if applicable, and thru registered mail in the registered address
• BIR to send a claim letter via email to the bank and issue authorization letter to the BIR officer to collect the garnishable amount and claim the manager’s check; revenue officer to remit the check in payment of the tax liability of the taxpayer to the AAB where the taxpayer’s business is located.

AMENDMENT TO CREATE LAW ON REGISTERED BUSINESS EXPORT ENTERPRISE AND DOMESTIC MARKET ENTERPRISE. Revenue Memorandum Circular No. 91-2023, September 11, 2023

• The BIR circularizes the amendment to Rule 18, Section 5 of the Implementing Rules and Regulations (IRR) of RA No. 11534 (Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act)
• All registered export and domestic enterprises that will continue to avail of their existing tax incentives, may continue to enjoy the duty exemption, VAT exemption on importation, and VAT zero-rating on local purchases provided in their IPA registrations, provided that Registered Export Enterprises (RBE) under Section 293(e)whose income tax-based incentives have expired, may continue to enjoy VAT zero-rating on local purchases until the electronic sales reporting system of the BIR is fully operational or until the expiration of the transitory period referred to in Section 311 (c), whichever comes earlier;
• provided further, that an RBE classified as Domestic Market Enterprise (DME), which is located inside the Economic or Freeport Zone during the transitory period, shall be allowed to register as a VAT Taxpayer.

BIR RULINGS

• A non-stock and non-profit corporation with primary purpose of being an educational institution is exempted from income tax and VAT only on revenues or receipts generated from:
  • Tuition fee and other school fees;
  • Scholarship grants;
  • Donations; and
  • Income derived from the operation of cafeterias/canteen, dormitories, and bookstores located within its premises, owned and operated by the corporation to be actually, directly and exclusively used for educational purposes.
• However, the corporation is liable to all other including those below:
  • Income derived from any of its properties, real or personal, or any activity conducted for profit, which income should be returned for taxation unless they are actually, directly and exclusively used for educational purposes;
  • If engaged in the sale of goods or services in the course of a business pursuit, including transactions incidental thereto, its revenues derived therefrom shall be subject to the 12% VAT, in case the gross receipts from such sales exceed Three Million Pesos (Php3,000.000.00), or the 3% percentage tax, if the gross receipts do not exceed Php3,000.000.00; Acts as an employer and its employees receive compensation income subject to the withholding tax; (BIR Ruling No: Certificate of Tax Exemption No: S30H-405-2022)

• The Indemnification cannot be regarded as an actual sale of goods, the insurance proceeds derived/ will be derived by the Company due to the destruction of its insured assets shall not form its gross sales for VAT and shall not be subject to the 12% VAT.  BIR Ruling No: OT-406-2022)

• In the absence of reasonable private benefit plan, the Retirement Benefits that will be received by the employees shall be exempt from income tax, provided that the two (2) conditions are met:
  • The employee had been in the service for at least five (5) years; and
  • he is at least sixty (60) years old but not beyond sixty-five (65) years old at that time of retirement. BIR Ruling No: OT-407-2022)

• A non-stock and non-profit corporation with primary purpose of being an educational institution is exempted from income tax and VAT only on revenues or receipts generated from:
  • Tuition fee and matriculation fees;
  • Student activities and laboratory fees; and
  • Income derived from the operation of cafeterias/canteen, dormitories, and bookstores located within its premises, owned and operated by the corporation to be actually, directly and exclusively used for educational purposes.
• However, the corporation is liable to all other including those below:
  • Income derived from any of its properties, real or personal, or any activity conducted for profit, which income should be returned for taxation unless they are actually, directly and exclusively used for educational purposes;
  • If engaged in the sale of goods or services in the course of a business pursuit, including transactions incidental thereto, its revenues derived therefrom shall be subject to the 12% VAT, in case the gross receipts from such sales exceed Three Million Pesos (Php3,000.000.00), or the 3% percentage tax, if the gross receipts do not exceed Php3,000.000.00;
  • Acts as an employer and its employees receive compensation income subject to the withholding tax; (BIR Ruling No: Certificate of Tax Exemption No: S30H-408-2022)

• The Transfer of title over the property by the Trustee, in favor of the Trustors, who are the actual owners thereof is not subject to CGT. Considering that the transfer and re-conveyance is not motivated by a valuable consideration and merely acknowledges, and confirms and consolidates the legal title and actual ownership over the Property in the name of the Trustor.
  • The Conveyance by the Trustee in favor of the Trustors of the Property which the former acquired by virtue of the Trust Agreement is not to be treated as another transfer separate and distinct from the sale between the original owners and the Trustee.
  • The conveyance is merely to be treated as a continuation and confirmation of title in favor of the ultimate and real beneficiaries of the property.
  • The Transfer of the property to the Trustors is not subject to the 12% VAT because the property is not held primarily for sale to customers or for lease in the ordinary course of trade or business.
  • The Transfer of re-conveyance of the property to the Trustors without monetary consideration is not subject to gift tax. Since there is no donative intent on the part of the Trustee.
  • The Deed of Conveyance executed to terminate the trust relationship between the Trustors and the Trustee, and the consolidation of the legal title and actual ownership over the property is a transfer and re-conveyance without monetary consideration, and as such not subject to DST. However, the notarial acknowledgment to such deed is subject to the DST of P30.00. (BIR Ruling No: OT-409-2022)

• The Transfer of the Subject Shares as a result of the change of trustee from the former trustee, to the newly designated trustee bank, by virtue of the Retirement Plan Trust Agreement is not a taxable event subject to their income tax or CGT considering that:
  • the shares are actually owned by the Retirement Plan and the successor trustee is merely a trustee of the Retirement Fund;
  • there is no actual transfer of ownership and beneficial title; and
  • no monetary consideration is involved and no gain or profit resulted in the transfer of the Subject Shares which is by virtue of an assignment as evidenced by the Deed of Assignment of Shares.
• The Transfer of Subject Shares is not subject to donor’s tax as there is no intention to donate since the change of trustee of the Company’s Retirement Plan is merely for the purpose of consolidating the administration of the Retirement Fund to the newly designated trustee bank.
• The Transfer of Subject Shares is not subject to VAT since there is no sale, exchange or disposition of goods or properties involved in the transaction.
• 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. (BIR Ruling No: OT-410-2022)

MANDATORY REQUIREMENTS AND GUIDELINES, POLICIES AND PROCEDURES IN THE PROCESSING OF CLAIMS FOR VALUE-ADDED TAX (VAT) CREDIT/REFUND. Revenue Memorandum Order No. 23-2023, June 23, 2023

The BIR prescribes the mandatory requirements and guidelines, policies and procedures in the processing of claims for Value-Added Tax (VAT) Credit/Refund except those under the authority and jurisdiction of the Legal Group.

• Outright denial – claims filed beyond the 2-year prescriptive period
• In case of outstanding tax liabilities (as evidenced by Delinquency Verification Certificate)
  • Processing Office will notify of the approved VAT refund to be used to collect for the outstanding delinquent tax liability
• In case of tax delinquency with pending request for abatement, compromise settlement or other legal remedies and no decision was arrived by NOD yet
  •  Processing of the approved VAT refund/credit may still continue
• Revenue Officials to issue the Tax Verification Notices pursuant to RMO 28-2023 (see table)
• 90-day period to grant/deny refund
  • From submission of official receipts or invoices and other documents in support of the application.
  • Taxpayers have 30 days from receipt of the decision to appeal to the CTA; BIR's failure to act within the 90-day period is punishable.
• Refund process is not construed as an audit/investigation
  • Claimant may be issued subsequently an electronic Letter of Authority (eLA).
  • Findings that may result in deficiency internal revenue tax other than VAT or possible VAT assessment
    • Findings to be referred to the RDO or LT for further investigation
  • Existing eLA covering the same period – investigating office shall evaluate the findings and report of the processing office for issuance of NOD.
• Entire docket to be forwarded to Commission on Audit – if claim is approved for refund
  • In case a copy is needed – requesting party to request certified copy with COA at no cost.
  • In case of denial in full – original copies will be returned with stamped “VAT Credit/Refund Processed”
• Cancellation of VAT registration (either cessation or change of status)
  • 2 years to refund from date of cancellation
  • Date of cancellation: Date of issuance of tax clearance by the BIR
  • Claim to be made after audit is completed
• Processing and Issuance of TCC/Refund Check
  • Approving official shall transmit the docket of the claim for the processing of TCC/Disbursement Voucher (DV)
  • For TCC – processing office subject to threshold
    • For VAT refund – reviewing/processing office
    • For Denial Letter – Processing office
  • Approving office to sign the TCC/DV and Budget Utilization Request and Status (BURS)
  • TCC where there is tax liability
    • 2 TCCs will be prepared – TCC with notation that it will be sued to pay VAT liability and TCC for the balance
  • DV and BURS preparer – TARD, LTVAU and Regional Assessment Division, as applicable
  • DV and BURS processing and approval for the payment of the claim – Accounting Division and Finance Service/Finance Division or Office of Assistant Regional Director
  • Preparation and issuance of refund check – Administrative Service in the National Office/Administrative and Human Resource Division in the Regional Office

THE BIR AND SEC ENTERED INTO A DATA SHARING AGREEMENT (DSA). Revenue Memorandum Order No. 26-2023, July 19, 2023

• The BIR prescribes the policies, guidelines and procedures in the processing of requests for corporate information, including beneficial ownership information, with the Securities and Exchange Commission.
• The BIR and SEC entered into a Data Sharing Agreement (DSA).
• Under the DSA, the BIR may obtain information on corporations and other registered/licensed entities, including beneficial ownership information
  • Beneficial owner – a natural person who ultimately owns or controls the corporation or exercise ultimate effective control over the corporation
• Information may be requested from the SEC
  • Complete name of the incorporators, stockholders, directors, trustees, member, officers and their residential address, date of birth, nationality, TIN and percentage of ownership
  • Beneficial owners
  • Partners in the partnership
  • Information on other persons licensed by the SEC

REVISED POLICIES AND PROCEDURES RELATIVE TO THE ACCREDITATION OF CASH REGISTER MACHINES (CRMS), POINT-OF-SALE (POS) AND OTHER SIMILAR SALES MACHINES/SOFTWARE GENERATING INVOICES/RECEIPTS INCLUDING ELECTRONIC INVOICING OR ELECTRONIC RECEIPTING SYSTEM/SOFTWARE USED UNDER A SUBSCRIPTION-BASED AGREEMENT. Revenue Memorandum Order No. 24-2023, June 26, 2023

• Collectively covers “Sales Machine/Software”, which includes:
  • CRM
  • POS System- Bundled POS (both hardware and software) and POS software
  • E-invoicing or e-receipting system/software used under a Subscription-Based Agreement
  • All other similar sales machine/software that will generate printed invoices/receipts, such as but not limited to:
  • Taximeters
  • Handheld or mobile devices linked to a server
  • Unmanned bill, coin, or token-operated machines issuing invoice upon sale; and
  • Other sales machine/software issuing invoices/receipts; except Computerized Accounting system
• Sales Machine/Software must be accredited with the BIR via aAccReg System facility
• Special Purpose Machines (SPM) used solely for internal purposes or generates supplementary invoices/receipts
  • NOT subject to accreditation but required to register for the issuance of Permit to Use using eAccReg System
  • SPM includes:
    • ATM
    • Cash Depository machines/ATMs with cash depository
    • Foreign Exchange Machines
    • Ordering Machines
    • Bills Payment Machines
    • Price Checking Machines
    • Inventory Checking and Maintenance Machines
    • Lottery/Terminal/Ticketing Machine
    • Other special Purpose Machines that does not generate sales invoice/OR, but may include machine/software functioning as ordering machine of online platforms
    • E-invoicing or e-receipting system/software used under a Subscription-Based Agreement not covered by eAccReg System registration
• All suppliers/vendors/developers/providers/taxpayer-users who intend to distribute/sell/use “Sales Machine/Software” shall enroll by submitting Sworn Declaration where taxpayer is registered
  • Upon receipt of email: they will submit online Application for Accreditation; and manually submit documents per checklist
• Required Features of Sales Machine/Software
  • Accumulated Grand Total Sales
  • Tamper-free
  • Activity Log or Transaction Log
  • Non-volatile memory
  • E-journal or Audit Journal
  • Sales Reading (X and Z)
  • Backend Reports
  • Sequential series of accountable forms/documents
  • Reprint Functionality
  • Push Functionality
  • Verification or Validation Seal
  • Data Retention
  • Sales Data Transmission for e-invoice/e-receipt (in JSON File Format)
• There will be a system demonstration
  • Functional and Technical Evaluation Checklist will be the Guide
• TWG will prepare the Minutes of the Meeting
• Certificate of Accreditation
  • To be issued by the RDO
  • Otherwise, Notice/Letter of Denial will be issued
  • Timeline: 20 working days from compliance of taxpayer with complete documentary requirements
• Revocation of Accreditation
  • Grounds:
    • Tampering of Certificate of Accreditation
    • Any misrepresentation on the Sown Statement submitted by the supplier
    • Tampering of sales data to avoid the recording of the sales transactions
    • Use of sales suppression software or mechanisms and
    • Violation of supplier on the policies and procedures for the accreditation.

BIR RULINGS

• Sale of house and lot under economic and low-cost housing project of a company duly registered with the Board of Investments under Executive Order (EO) No. 226 is exempt from income tax and creditable withholding tax on its income received directly in connection with the mentioned project.
  • The exemption is limited in duration and number of units sold.
  •  Sale of units used for commercial purposes such as leasing, retail stores, offices etc. shall be subject to payment of appropriate taxes.
  • Sale of house and lot and other residential dwellings with selling price of not more than P1,919,500 (for residential lot) and not more than Php 3,199,200 (for house and lot and other residential dwellings) is VAT exempted. (BIR Ruling No: Certificate of Tax Exemption No:  BOI-LEH-385-2022)
• A sale of parcel of land by private individuals in favor of homeowners association under a Community Mortgage Program (CMP), is not subject to capital gains tax pursuant to Section 32 (b) of Republic Act (RA) No. 7279, as amended by RA No. 10884.
  • The transaction is, however, subject to documentary stamp tax under Section 196 of the National Internal Revenue Code (Tax Code) of 1997, as amended.
  • Registry of Deeds shall transfer the title only if Certificate Authorizing Registration is used by the BIR.(BIR Ruling No: Certificate of Tax Exemption No: CMP-386-2022, CMP-387-2022, CMP-388-2022)
• Merger between two (2) non-profit civic associations/organizations and consequent transfer of the property is not qualified for tax-free merger. There must be an exchange of property solely for stock in another corporation. It is clear that 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 (BIR Ruling No: S40M-389-2022)
• A non-stock and non-profit corporation with primary purpose of being an educational institution is exempted from income tax and VAT only on revenues or receipts generated from:
  • Tuition fee and other school fees: and
  • Income derived from the operation of cafeterias/canteen, dormitories, and bookstores located within its premises, owned and operated by the corporation to be actually, directly and exclusively used for educational purposes.
  • However, the corporation is liable to all other including those below:
  • Income derived from any of its properties, real or personal, or any activity conducted for profit, which income should be returned for taxation unless they are actually, directly and exclusively used for educational purposes;
  • If engaged in the sale of goods or services in the course of a business pursuit, including transactions incidental thereto, its revenues derived therefrom shall be subject to the 12% VAT, in case the gross receipts from such sales exceed Three Million Pesos (Php3,000.000.00), or the 3% percentage tax, if the gross receipts do not exceed Php3,000.000.00;
  • Acts as an employer and its employees receive compensation income subject to the withholding tax; (BIR Ruling No: Certificate of Tax Exemption No: SH30-390-2022)
• Gifts or donations made to or for the use of the National Government or any entity created by any of its agencies which is not conducted for profit, or to any political subdivision of the said Government is exempt from donor’s tax.
  • However, if the gifts or donations made to the Government or its agencies is not included in NEDA’s NPP, the deduction shall be limited to ten percent (10%) in case of an individual or five percent (5%) for corporations, of the taxpayer’s taxable income derived from trade, business or profession. BIR Ruling No: OT-391-2022)
• The local purchases of goods and services by Renewable Energy 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 the subcontractors and/or contractors. (BIR Ruling No: OT-392-2022)
  • The Income generated from the sale of its shares in corporation to domestic corporation is exempt to CGT. However, the domestic corporation shall be subject to Stock Transaction Tax and Documentary Stamp Tax (DST) if the said shares of stock are listed on the local stock storage. (BIR Ruling No: OT-393-2022)

BIR RULINGS

• The corporation’s entitlement to the full deductibility of the contribution/donation from gross income of the donor requires the said corporation to present certification from the NEDA that the contributions/ donations to Schools are in accordance with priority programs, projects and activities included in the current National Priority Plan.
  • Otherwise, a donation not in accordance with the National Priority Plan is subject to limited deductibility or deduction to an amount not exceeding 10% in the case of an individual and 5% in the case of a corporation of taxpayer’s taxable net income as computed without the benefits of deduction. (BIR Ruling No: OT-348-2022)

• A non-stock and non-profit foundation is exempted from income tax and VAT only on revenues or receipts generated from donations.
• However, the corporation is liable to all other including those below:
  • Income derived from any of its properties, real or personal, or any activity conducted for profit, which income should be returned for taxation unless they are actually, directly and exclusively used for educational purposes;
  • If engaged in the sale of goods or services in the course of a business pursuit, including transactions incidental thereto, its revenues derived therefrom shall be subject to the 12% VAT, in case the gross receipts from such sales exceed Three Million Pesos (Php3,000.000.00), or the 3% percentage tax, if the gross receipts do not exceed Php3,000.000.00;
  • Acts as an employer and its employees receive compensation income subject to the withholding tax; (BIR Ruling No: Certificate of Tax Exemption No: SH30-349-2022)

• The purchases of goods/articles under the construction/development of NHA’s Socialized Housing Program is exempt from project-related income tax, creditable withholding tax and value-added tax on its income received directly in connection with the mentioned project. However, the purchases of goods/articles of the said company shall be subject to VAT, even if the said purchases are to be used for social housing projects and must issue VAT exempt official receipts on its gross receipts from the said socialized housing project. (BIR Ruling Nos: Certificate of Tax Exemption No:NSH-350-2022, NSH-351-2022)

• The Taxpayer and the Commissioner may agree on the estimated useful life and rate of depreciation of any property. The rate so agreed upon shall be binding on both the taxpayer and the BIR.
  • However, if it develops that the useful life of the property originally estimated under previous factual conditions is no longer reasonable, the law allows the taxpayer to lengthen or shorten the useful life of the property in the light of prevailing factual considerations. (BIR Ruling No: OT-353-2022)

• Notice of Tax Lien, Notice of Levy and Declaration of Forfeiture of Real Property are encumbrances in favor of the government securing the tax liability of the registered owner. However, encumbrances are effective only to cases wherein the delinquent taxpayer is the owner. If the property was sold by the owner, the subsequent tax lien or levy is no longer applicable.
  • Moreover, RMO 41-2019 provides that encumbrance is extinguished when delinquent taxpayer no longer owns the seized property prior to the lien.
  • Thus, where the property was sold to the taxpayer prior the encumbrance, the annotations are void and without legal effect. The Registry of Deeds may lift the said incumbrance to the transferee. (BIR Ruling No: OT-354-2022)

LOCAL SUPPLIERS OF GOODS/SERVICES IS NO LONGER REQUIRED TO APPLY FOR APPROVAL OF VAT ZERO-RATING WITH THE BIR FOR TRANSACTIONS WITH THE REGISTERED EXPORT ENTERPRISES OF THE LOCAL PURCHASES OF GOODS AND SERVICES DIRECTLY AND EXCLUSIVELY USED IN THE REGISTERED PROJECT OR ACTIVITY. Revenue Regulations No. 2-2023, April 27, 2023

• The BIR amends certain provisions of RR No. 16-2005, as amended by RR No. 21-2021, to implement Sections 294 (E) and 295 (D), Title Xlll of the NIRC of 1997, as amended by RA No. 11534 (CREATE Act), and Section 5, Rule 2 and Section 5, Rule 18 of the CREATE Act IRR, as amended.

PAYMENTS BY NATIONAL GOVERNMENT AGENCIES AND INSTRUMENTALITIES, LOCAL GOVERNMENT UNITS, AND GOVERNMENT OWNED AND CONTROLLED CORPORATIONS SHALL BE SUBJECT TO WITHHOLDING USING ACCRUAL AND NOT CASH BASIS OF ACCOUNTING. RMCNo. 47-2023, May 3, 2023 

The BIR reiterates the proper time of remittance of Withholding Taxes by National Government Agencies and Instrumentalities, Local Government Units, and Government Owned and Controlled Corporations.

NEW FEATURES OF ONLINE REGISTRATION AND UPDATE SYSTEM (ORUS) RMC No. 48-2023, May 5, 2023

• The BIR announces the availability of additional features and functionalities of online application for registration information updates and other online facilities for registration-related transactions through Online Registration and Update System (ORUS)
• Additional features of ORUS effective April 28, 2023

BIR RULINGS

• Donation not in accordance with the National Priority Plan (as certified by NEDA) is subject to limited deductibility or deduction to an amount not exceeding 10% in the case of an individual and 5% in the case of corporation of the taxpayer’s taxable net income as computed without the benefit of this deduction,   (BIR Ruling No:OT-344-2022) 

• The disbursement of Missionary Electrification (ME) subsidy from UCME Fund by National Power Corporation (NPC) to Palawan Power Generation (PPGI) is not considered NPC’s purchase of goods or services and does not fall within the definition of gross income, the ME subsidy should not be subject to VAT, and NPC is not required to withhold the 5% VAT. It is a mere grant or gift of money as an incentive from the government.
  • Moreover, there is no sale of goods by a mere cash disbursement from the UCME Fund. PPGI did not render any form of service in favor of NPC nor did it sell goods in favor of the latter.
  • NPC is a mere administrator of the disbursement of funds from the UCME. As such, it does not make any payment to PPGI. The receipt of subsidy is not a purchase of goods subject to VAT.
  • NPC is not required to withhold 5% VAT
  • PPGI shall issue a VAT-exempt receipt to NPC with respect to the ME Subsidy
  • However, it is important to note that the Electricity Fee, which is part of the ME Subsidy, should still be subject to income tax and VAT. PPGI should also issue a VAT-exempt receipt to NPC with respect to the ME subsidy. (BIR Ruling No: VAT-345-2022)

• The Deed of Conveyance to terminate the trust relationship between the Trustors and Trustee and the consolidation of the legal title and actual ownership over the Subject Properties is a transfer and reconveyance without money reconsideration, and as such not subject to the DST. However, the notarial acknowledgment to such deed is subject to the DST of P30.00. (BIR Ruling No: OT-346-2022)
• Membership fees, assessment dues, and the like are not subject to VAT because in collecting such fees, the club is not selling its service to the members. Conversely, the members are not buying services from the club when dues are paid  (BIR Ruling No: VAT-347-2022)

TAXABLE BASES IN APPLYING EXCISE TAX FOR AUTOMOBILES

• The BIR clarifies the provision of Section 5 of RMC No. 063-22 pertaining to the application of the three (3) primary taxable bases in applying the excise tax rates for automobiles RMC No. 32-2023
• Taxable basis in applying the excise tax rates for automobiles:
  • Declared manufacturer’s or importer’s selling price, net of excise and VAT;
  • Based on the 80% actual dealer’s price, net of excise and VAT;
  • Based on the total cost of importation and expenses divided by 90% - applies in cases where the net importer’s selling price is lower than the cost of importation and expenses

BIR RULINGS

DIVIDEND INCOME RECEIVED BY RESIDENT ALIEN IS SUBJECT TO 10% FINAL TAX.

• The Dividend income of the considered resident alien is subject to the 10% final tax, for the purposes of his income tax liability in the Philippines considering his residence is within the Philippines and he is not a citizen of the Philippines. (BIR Ruling No: OT-315-2022)

REVERSION OF PROPERTY FROM TRUSTEE TO TRUSTOR IS NOT SUBJECT TO INCOME TAX, VAT AND DOCUMENTARY STAMP TAX.

• The transfer or reversion of the Club floors, subject matter of the trust arrangement by the trustee to the trustors, is not subject to income tax and consequently to withholding tax and the corresponding documentary stamp tax.
• The properties subject matter of the trust arrangement between the trustee and the trustors are not held primarily for sale to customers or for lease in the ordinary course of trustee’s business, since the trustee merely holds or manages the said properties for the benefit of the trustor-beneficiary. Consequently, the transfer or return by the trustee to the trustor-beneficiary of the properties held in trust is not subject to 12% VAT.
• The transfer or return by the trustee to the trustor-beneficiary of the properties which are founded solely on the termination of the trust agreement is not subject to donor’s tax. (BIR Ruling No: OT-316-2022)

JOINT VENTURE FORMED FOR THE PURPOSE OF UNDERTAKING CONSTRUCTION PROJECTS IS NOT SUBJECT TO INCOME TAX.

• Joint ventures or consortium formed for the purpose of undertaking construction projects or engaging in petroleum, coal, geothermal and other energy operations pursuant to an operating or consortium agreement under a service contract with the government is not taxable as a corporation for complying with the conditions:
  • The Joint Venture is for the undertaking of construction project;
  • The Joint Venture involves joining or pooling of resources by licensed local contractors (licensed as general contractor by the PCAB);
  • The local contractors are engaged in construction business;
• The Joint Venture itself is duly licensed by the PCAB; and therefore not subject to the corporate income tax.
• Moreover, the gross payments are likewise not subject to the two percent (2%) creditable withholding tax, and being exempt from corporate income tax, is not required to file quarterly and final adjustment returns.
  • However, the co-ventures are separately subject to the regular corporate income tax imposed on their taxable income during each taxable year derived by the constructions project and the net income of the co-ventures derived from is subject to the creditable withholding tax imposed.
  • Finally, the co-ventures are required to enroll themselves to the Bureau of Internal Revenue’s Electronic Filing and Payment System (eFPS). The enrollment should be done at the Revenue District Office (RDO) where they are registered as taxpayers. (BIR Ruling No: JV-317-2022)

BIR ANNOUNCES THE AVAILABILITY OF ONLINE APPLICATION FOR REGISTRATION INFORMATION UPDATES AND OTHER ONLINE FACILITIES FOR REGISTRATION –RELATED TRANSACTIONS THROUGH ONLINE REGISTRATION AND UPDATE SYSTEM (ORUS) RMC No. 12-2023

• The implementation of online application for registration information update and other online facilities for registration-related transactions through Online Registration and Update System (ORUS) starts on January 23, 2023.
• The updating of the following registration is available online through ORUS:

• Taxpayers who already have an existing ORUS account may access and avail the online registration updates and other functionalities by logging-in to the system.
• Taxpayers who do not have an ORUS account opted to use the said online registration-related facilities are required to enroll or create an account in ORUS following the guidelines prescribed under RMC No. 122-2022.

APPLICATION FOR ELECTRONIC CERTIFICATE AUTHORIZING REGISTRATION (E-CAR) MAY BE THRU ELECTRONIC ONE-TIME TRANSACTION (E-ONETT) RMC 10-2023

• The BIR encourages the use of the Electronic One-Time Transaction (eONETT) System by sellers habitually engaged in the sale of real properties.
• eONETT system is a web-based system where taxpayers will be able to transact their ONETT online. It
  • Aims to reduce manual filing of returns and payment of taxes; and
  • Aims to provide a mere convenient way to file applications in securing ONETT Computation Sheet (OCS) and/or eCAR.
• Sellers habitually engaged in the sale of real estate properties like real estate developers with voluminous ONETT transactions are hereby urged to use the eONETT System in securing OCS/eCAR.
• They are also encouraged to pay electronically thru the available ePayment channels of the BIR

BIR PRESCRIBES NEW FORMS FOR BIR FORMS 1606 AND 1706.

The BIR circularizes the availability of revised BIR Form Nos. 1606 and 1706 version January 2018  (RMC No. 9-2023)

• Forms are not yet available in eBIR.
• Taxpayer shall download the PDF version of the forms, print and fill-out completely all applicable fields.
• Payment can either be manual or online.
• No Payment Return – Taxpayer shall file the return to the RDO having jurisdiction over the place where the property being transferred is located.

BIR RULINGS

• Sale of house and lot under economic and low-cost housing project of a company duly registered with the Board of Investments under Executive Order (EO) No. 226 is exempt from income tax and creditable withholding tax on its income received directly in connection with the mentioned project.
  • The exemption is limited in duration and number of units sold.
  •  Sale of units used for commercial purposes such as leasing, retail stores, offices etc. shall be subject to payment of appropriate taxes.
  • Sale of house and lot and other residential dwellings with selling price of not more than P1,919,500 (for residential lot) and not more than Php 3,199,200 (for house and lot and other residential dwellings) is VAT exempted. (BIR Ruling No: Certificate of Tax Exemption No: BOI-LEH-308-2022, BOI-LEH-309-2022)

• Sale of house and lot duly registered with the Department of Human Settlements and Urban Development (DHSUD) is exempt from income tax and creditable withholding tax on its income received directly in connection with the mentioned project. Moreover, sale of house and lot and other residential dwellings with selling price of not more than Php 3,199,200 is VAT exempted. (BIR Ruling Nos: Certificate of Tax Exemption No: PSH-310-2022)

• To be classified as capital assets the property must be not actually used in trade or business of the taxpayer, whether or not connected with his trade or business, or not held for lease or sale of customers.
  • Real properties owned by taxpayers not engaged in the real estate business or referring to those persons other than real estate dealers, real estate developers and/or real estate lessors, shall, upon showing of proof that the same have not been used in business for more than two (2) years prior to the consummation of the taxable transactions involving the said real properties, and though classified as ordinary assets, be automatically converted into capital asset. (BIR Ruling No: OT-311-2022)