CONVERSION FROM ONE PERSON CORPORATION (OPC) TO ORDINARY STOCK CORPORATION (OSD) AND VICE VERSA; REQUIREMENTS

• The SEC issues guidelines for the conversion of corporations either to One Person Corporation (OPC) or to Ordinary Stock Corporation (OSC)
• OSC may apply for its conversion into an OPC.
  • If a single stockholder has acquired all the outstanding capital stock of an OSC with corresponding Certificate Authorizing Registration or tax clearance having been issued by the BIR
    • Single stockholder must be a natural person of legal age, a trust or an estate.
  • Upon  issuance  of the  Certificate  of  Filing  of Amended  Articles  of    Incorporation  by  the  SEC  reflecting  the  conversion  to  OPC,  the  Articles  of   Incorporation  and  By-laws  of the  OSC  shall  be deemed  superseded. The  date  of issuance of the Certificate of Filing of Amended Articles  of Incorporation  shall  be deemed  as the date  of approval  of the  conversion.
  • The OPC  converted  from  an  OSC shall succeed the latter and be legally responsible for all the  latter’s  outstanding  liabilities  as of the date  of  approval  of the  conversion.
• OPC may be converted to OSC.
  • When the shares in an OPC ceases to be held solely by a single stockholder.
  • Notice to SEC of the facts and circumstances leading to be conversion is required;
    • Following  the  transfer/s   of  shares   in  an  OPC  wherein   there   becomes  at  least  two  (2)  stockholders  in  the  OPC,  a  Notice  of  Conversion  of  OPC into an OSC shall  be filed  with   the  Commission  within  sixty  (60)  days  from  such  transfer/s  of  shares.  The  period for filing the Notice shall  be observed even though the conversion will  be  applied for,  or will take  place,  afterwards.
    • For  the   purpose  of  submitting  the   notice,   the  date  of transfer  of  shares  shall  be  deemed  to  be  the  date  that  the  corresponding  Certificate  Authorizing  Registration/  tax  clearance  is issued  by the  Bureau  of  Internal  Revenue.
    • If the  Notice  of  Conversion  is filed  with  the  Commission  beyond  sixty  (60)  days  from  the  transfer  of  shares,  the  OPC  may  still  be  approved  for  conversion  into  an  Ordinary  Stock  Corporation  subject  to  prior  payment  of  penalty
  • Upon  issuance  by the SEC  of the Certificate  of Filing of Amended Articles of  Incorporation  and of By-laws  reflecting the conversion to an OSC,  the  Articles  of  Incorporation  of the  OPC  shall  be deemed  superseded. The  date  of  issuance  of the Certificate  of  Filing of Amended  Articles  of  Incorporation and  of  Bylaws  shall  be deemed  as the date  of approval  of the  conversion.
  • The  OSC converted  from  an OPC shall succeed the latter and be legally responsible for all the  latter’s  outstanding  liabilities  as of the  date  of  conversion.
  • By reason  of the  nature  of these  corporations,  the conversion  from  an OSC to OPC shall  be deemed  as optional. On the other hand, the  conversion  from an OPC  to OSC  shall  be deemed  as  mandatory,  unless when  winding-up  and  dissolution  is  appropriate.
  • For your easy reference, the SEC guidelines and requirements may be accessed (SEC Memorandum Circular No. 27 s. 2020)

BUREAU OF INTERNAL REVENUE

BIR DEADLINES FROM OCTOBER 20 TO 25, 2020. A gentle reminder on the following deadlines, as may be applicable:

FILING AND PROCESSING OF CLAIMS OF INPUT VAT REFUND PRESCRIBING UNTIL DECEMBER 19, 2020 ARE SUSPENDED; NEW DEADLINES

• The Secretary of Finance suspends the filing and 90-day processing of Value-Added Tax (VAT) Refund claims anchored under Section 112 of the Tax Code of 1997, as amended, in relation to Section 4(tt) of RA No. 11494 (Bayanihan to Recover as One Act) (“Bayanihan Law”)
• The deadline of filing for VAT refund claims whose prescription falls during the effectivity of R,A. No. 11494, shall be suspended until December 19, 2020, which is the next adjournment of the Eighteenth Congress.
• However, to prevent claims, the following deadlines the expected influx of numerous filers of VAT refund shall be extended to the following dates:

• The 90-day processing of VAT refund claims is suspended during the effectivity of R.A. No. 11494 or until the next adjournment of the Eighteenth Congress on December 19, 2020.
• If the areas where ECQ or MECQ is in force after the affectivity of Bayanihan Law, the following shall be observed:
  • lf the deadline for the filing of the VAT refund claim falls within the ECQ or MECQ period, filing of the claim shall be extended for thirty (30) days after the lifting of the ECQ or MECQ. This applies to the affected areas of the processing offices or to the registered business address of the taxpayer claimant where the restrictions are strictly enforced.
  • The 90-day period of processing VAT refund claims is suspended during the declaration of ECQ or MECQ in the area and shall resume thirty (30) days after the same has been lifted.
  • ln cases where the processing office is required temporary closure, in view of COVID-19 cases, to prevent further spread at the affected office, following the interim guidelines on use of leave credits under Memorandum Circular No. 05, s. 2020 issued by the Civil Service Commission, the 90-day processing of VAT refund claims shall be suspended until the last day of the quarantine period for the affected processing office.
• For your reference, the regulation may be accessed (Revenue Regulations No. 27-2020, 06 October 2020)

ELECTRONIC LETTER OF AUTHORITY (E-LA) MAY BE SERVED VIA PERSONAL SERVICE, SUBSTITUTED SERVICE AND MAIL; REQUIREMENTS AND CONDITIONS.

• The BIR clarifies the proper modes of service of an electronic Letter of Authority (eLA)

• When service is complete:
  • Personal service shall be complete upon actual delivery of the eLA to the taxpayer or his representative.
  • Service by registered mail is complete upon actual receipt by the taxpayer or after five (5) days from the date of receipt of the first notice of the postmaster, whichever date is earlier.
  • Service by ordinary mail is complete upon the expiration of ten (10) days after mailing.
  • Service to the tax agent/practitioner, who is appointed or authorized by the taxpayer in accordance with existing revenue issuances, shall be deemed service to the taxpayer.
• For your reference, the regulation may be accessed (Revenue Memorandum Circular No. 110-2020, October 6, 2020)

COURT OF TAX APPEALS DECISIONS

REQUISITES OF CONVICTION FOR VIOLATION OF SECTION 255 OF THE NATIONAL INTERNAL REVENUE CODE; LAW PENALIZES RESPONSIBLE OFFICERS.

• The following elements must be established by the prosecution to secure the conviction of accused, to wit:
  • That a corporate taxpayer is required to pay any tax, make a return, keep any record, or supply correct and accurate information;
  • That the corporate taxpayer failed to pay the required tax, make a return or keep the required record, or supply the correct and accurate information, or withhold or remit taxes withheld, or refund excess taxes withheld on compensation, at the time or times required by law or rules and regulations; and
  • That accused, as the employee responsible for the violation, willfully failed to pay such tax, make such return, keep such record, or supply such correct and accurate information, or withhold or remit taxes withheld, or refund excess taxes withheld on compensation, at the time or times required by law or rules and regulations.
• The law penalizes not only the partner, president, general manager, branch manager and treasurer but also the officers-in-charge and employees responsible for the violation.
  • In this case, the accused is a Vice-President of the Company. She also sent a letter to the BIR acknowledging that the company’s tax assessment case has become a delinquent account and also requested considerable time to put its accounting records in order to be able to settle the corporation’s tax liabilities by way of compromise. This establishes that the accused is a responsible officer of the company and thus must be held criminally liable. (Suarez v. People of the Philippines, CTA EB Crim. No. 066, CTA Crim Case No. A-4, September 1, 2020)

PHP 286 MILLION TAX ASSESSMENT CANCELLED: TAX ASSESSMENT ISSUED WITHOUT A LETTER OF AUTHORITY IS VOID; STATEMENT IN THE ASSESSMENT THAT “INTEREST AND AMOUNT DUE WILL HAVE TO BE ADJUSTED” IF PAID BEYOND A CERTAIN PERIOD AND LACK OF DUE DATE RENDER THE ASSESSMENT IS VOID.

• The CTA cancelled the tax assessment for violation of due process.
• Under the rules, a revenue officer must be authorized through a LOA,  in order that the said officer may validly examine the books of accounts and other accounting records of the taxpayer. Any tax assessment issued without an LOA is in violation of the taxpayer’s right to due process and is therefore void.
  • In 2010, the BIR issued a Memorandum Order stating that all LOA’s issued from March 1, 2010 covering cases for 2009 shall be retrieved and replaced by electronic LOA. In this case, the BIR did not retrieve and replace the existing LOA. Therefore, the assessment was declared void.
• Under the rules, tax assessment must not only contain a computation of tax liabilities, but it also must include a demand on the taxpayer to settle the tax liability that is there definitely and fixed.
  • In this case, the assessment notice states “Please note that the interest and the total amount due will have to be adjusted if paid beyond….” Moreover, the assessment notices and final decision on disputed assessment do not contain any due date for the payment of the assessed deficiency tax. Therefore, the  liability is considered not definitely set and fixed, hence, the assessment is void. (Robinsons Toys, Inc. v. CIR, CTA Case No. 9161, September 2, 2020)

PHP 23 MILLION VAT ASSESSMENT UPHELD: “PRICE ADJUSTMENT” MUST BE REFLECTED IN THE INVOICE AS SALES DISCOUNT; IN ZERO-RATED VAT ON CONSTRUCTIVE EXPORT, THE GOODS MUST ENTER THE ECOZONE; FOR VAT PURPOSES, GOODS MUST BE SUPPORTED BY INVOICE, SERVICES MUST BE SUPPORTED BY OFFICIAL RECEIPT; IF THE DOCUMENT STATES “THIS DOCUMENT IS NOT VALID FOR CLAIM OF INPUT TAX” THE INPUT VAT CANNOT BE CLAIMED AS A CREDIT.

• The CTA upholds VAT assessment for failure to comply with technical requirements under the law.
• For sales discount to be allowable as deduction from the gross selling price, it must be indicated in the sales invoice at the time of sale
  • In this case, the company’s “price adjustment” cannot be considered a sales discount since the amount is not indicated  as sales discount at the time of sale
• For sales of goods to economic zones to be considered zero-rated (constructive export), the goods sold by VAT-registered persons in the customs territory must enter an ecozone. The seller must not just rely on the mere fact of registration of the buyer within the ecozone. The place of delivery of goods in the case is material.
  • In this case, while the taxpayer has satisfactorily proven that the customers are SBFZ-registered entities, it was not established that the goods actually entered the ecozone.
• Under the rules, a VAT-registered person shall issue (1) VAT invoice for every sale, barter or exchange of goods or properties; and (b) VAT official receipt for every lease of goods or properties and for every sale, barter or exchange of services.
• If an official receipt/invoice states “This Document is not valid for claim of input tax,” the taxpayer-purchaser is not entitled to claim input VAT credits. (Pag-Asa Steel Works, Inc. v. BIR, CTA Case No. 9506, September 2, 2020

PHP 115 TAX REFUND GRANTED; PAGCOR CONTRACTEES AND LICENSEES ARE EXEMPT FROM INCOME TAX; REFUND OF ERRONEOUSLY OR ILLEGALLY PAID INCOME TAX SHALL BE FILED WITHIN 2 YEARS COUNTED FROM THE FILING OF THE ANNUAL INCOME TAX RETURNS.

• The CTA granted the taxpayer’s claim for refund of erroneously or illegally paid tax due to its exemption as PAGCOR’s licensee.
• Under the law and Bloomberry Resorts Case, PAGCOR is exempted from income tax in lieu of the 5% franchise tax. PAGCOR’s exemption extends to its contractees and licensees.
  • In this case, the taxpayer was able to show that it is an entity duly authorized and licensed by PAGCOR.
  • The taxpayer was also able to demonstrate that the Consortium to which it belongs remitted license fees to PAGCOR in relation to its gaming revenues.
  • Lastly, with the documentary and testimonial evidence, the taxpayer was able to substantiate its claim for refund
• Further, under the rules, claims for refund of erroneously or illegally paid taxes should be filed within 2 years from the date of payment of tax or penalty. Specifically, in case of income taxes, the period shall run from the time of the filing of the Final Adjustment Return or Annual ITR.
  • The BIR erroneously argued that the prescriptive period shall run from the filing of the Quarterly ITR as the quarterly tax payments are mere advance payment of the annual corporate income tax. (Premiumleisure and Amusement, Inc. (PLAI) v. CIR, CTA Case No. 9798, September 2, 2020)

P10 MILLION REFUND OF INPUT VAT ARISING FROM ZERO-RATED SALES GRANTED; REQUISITES OF REFUND.

• CTA granted the taxpayer’s claim for refund of input taxes from its zero-rated sales.
• The following are the requisites for the claim of refund of input VAT
  • The administrative claim with the BIR should be filed within 2 years from the close of the taxable quarter when the pertinent zero-rated sales were made.
    • In case of full or partial denial of the refund claim, or the failure on the part of the BIR to act on the said claim within a period of 120 days [now 90 days], the judicial claim should be filed with the court, within 30 days from receipt of the decision or after the expiration of the said 120 [now 90] days.
    • If the BIR decides after the lapse of the period, the BIR’s decision is inconsequential in the determination of the timeliness of the claim.
  • Taxpayer is a VAT-registered person
    • The taxpayer is engaged in zero-rated or effectively zero-rated sales
      • Sale of goods or services to person whose exemption under the special laws effectively subjects the supply of goods or services to zero-rated VAT.
      • Under the law, all Renewable Energy Developers shall be entitled to  zero-rated VAT on its purchases of goods and services needed for the development, construction, and installation of its plant facilities.
      • RE Developers must have secured a DOE Certificate of Registration, Registration with the Board of Investment, and Certificate of Endorsement by the DOE
    • for zero-rated sales the acceptable foreign currency exchange proceeds have been duly accounted for in accordance with BSP rules and regulations;
  • On input taxes:
    • the input taxes are not transitional input taxes;
    • the input taxes are due or paid;
    • the input taxes have not been applied against output taxes during and in the succeeding quarters; and

the input taxes claimed are attributable to zero-rated or effectively zero-rated sales. However, where there are both zero-rated or effectively zero-rated sales and taxable or exempt sales and the input taxes cannot be directly and entirely attributable to any of these sales, the input taxes shall be proportionately allocated on the basis of the sales volume. Gamesa Eolica SL-Unipersonal Philippine Branch v. CIR, CTA Case No. 9668, September 2, 2020)