CORPORATIONS SHALL HAVE PERPETUAL EXISTENCE UNLESS ARTICLES OF INCORPORATION PROVIDES OTHERWISE; REQUIREMENTS ON SEC SUBMISSION.

• The SEC prescribes guidelines on corporate term. It provides that a corporation shall have perpetual existence unless its articles of incorporation provides otherwise.
• A corporation with certificate of incorporation issued prior to the effectivity of the Revised Corporation Code the Philippines (RRC), and which continue to exist shall have perpetual existence, unless the corporation notifies the SEC that it elects to retain its specific corporate term.
  • The corporation may amend its articles to reflect the perpetual corporate term by majority vote of the board and vote of stockholders representing a majority of its outstanding capital stock including the non-voting shares, or a majority of the members, in case of non-stock corporation.
  • If the corporation elects to retain the corporate term, it shall  notify the SEC by filing a notice with attached Director’s Certificate approved by majority vote of the board and vote of stockholders representing a majority of its outstanding capital stock including the non-voting shares, or a majority of the members, in case of non-stock corporation.
    • Nonetheless, the corporation may later on amend to change the specific corporate term to perpetual corporate term by amendment of its articles duly approved by majority board of directors and stockholders at least 2/3 of the outstanding capital stock of the corporation
  • A corporation may also elect to shorten or extend its specific corporate term by a vote of majority of the board of directors and stockholders representing 2/3 of the outstanding capital stock. The extension shall not be made earlier than 3 years prior to the expiration of the corporate term, unless there are justifiable reasons for extension as may be determined by the SEC. Extension shall take effect on the day following the original or subsequent expiry date.
  • Any change in the corporate terms shall be without prejudice to the appraisal right of the dissenting stockholder.
  • For your easy reference, the Circular may be accessed HERE(SEC Memorandum Circular No. 22, August 18, 2020)

Bureau of Internal Revenue

BIR DEADLINES from AUGUST 29 to September 5, 2020. A gentle reminder on the following deadlines, as may be applicable:

individuals prevented from leaving the philippines due to travel covid-19 travel restrictions are not considered present in the philippines for tax residence purposes for the period after the scheduled departure as long the  individual leaves the philippines as soon as travel restrictions and/or quarantine measures have been lifted.

• The BIR circularizes the tax implications of measures being implemented to prevent the spread of COVID-19 disease on cross-border matters
• It provides that due to continuing implementation of measures to prevent COVID-19, treaty provisions will not be strictly applied to mitigate potential tax burdens related to compliance with certain reporting and filing obligations, and the satisfaction of tax-related conditions.
• If an individual is prevented from leaving the Philippines on his or her scheduled day of departure as a result of the travel restrictions, the individual is not considered to be present in the Philippines for tax residence purposes for the period after the scheduled departure, provided that the individual leaves the Philippines as soon as the circumstances would permit, such as when the travel restrictions and/or quarantine measures have been lifted.
• Working from home will not create a permanent establishment of the foreign enterprise because the conduct of business thereat lacks a certain degree of permanency and the home office is not at disposal of the foreign enterprise. However, if the home office is used on a continuous basis for carrying on the business activities of the foreign enterprise even after the COVID-19 crises, and it is clear from the facts and circumstances that the enterprise has required the individual to use that location to carry on its business, the home office may be considered to be at the disposal of the enterprise
• In order to prove that the extended presence in the Philippines was due to COVID-19 related travel restrictions, the concerned individual or company shall submit, among others, sworn certification stating the facts and circumstances of the presence of the employee in the Philippines, contracts, booking or flight itinerary, cancellation of flight.
• For your reference, a copy of the issuance may be accessed (Revenue Memorandum Circular No. 83-2020, August 17, 2020)

APPRAISAL OF property is no longer mandatory in sale, barter, exchange or disposition of shares of stock held as capital asset; audited financial statement IS sufficient.

• The BIR amends its rules on the taxation of sale, barter, exchange or other disposition of shares of stock held as capital asset.
• For common shares, the book value is based on the latest available financial statements duly certified by an independent public accountant prior to the date of sale, but not earlier than the immediately preceding taxable year
• For preferred shares, the fair market value shall be the liquidation value, which is equal to the redemption price of the preferred shares as of balance sheet date nearest to the transaction date, including any premium and cumulative preferred dividends in arrears.
• In case there are both common and preferred shares, the book value per common share is computed by deducting the liquidation value of the preferred shares from the total equity of the corporation and dividing the result by the number of outstanding common shares as of the balance sheet date nearest to the transaction date.
• Appraisal surplus from the property of the corporation is no longer required. The audited financial statement shall be sufficient in determining the fair market value of the shares of stock subject to sale.
• For your reference, a copy of the issuance may be accessed (Revenue Regulations No. 20-2020, August 17, 2020)

Court of Tax Appeals Decisions

PHP 46 MILLION EXCESS INPUT VAT REFUND PARTIALLY GRANTED; REQUISITES FOR REFUND OF EXCESS AND UNUTILIED INPUT VAT ON PURCHASE OF GOODS AND SERVICES ATTRIBUTABLE TO ZERO-RATED SALES.

• The BIR partially granted the taxpayer’s refund of input VAT from Php 46 Million to Php 9 Million.
• The following are the elements of claiming a refund/tax credit certificate of excess and unutilized input VAT on its purchases of goods and services attributable to zero-rated sales.
• As to the timeliness of the filing of the administrative and judicial claims:
  • the claim is filed with the BIR within two years after the close of the taxable quarter when the sales were made;
  • that in case of full or partial denial of the refund claim, or the failure on the part of the Commissioner to act on the said claim within a period of 120 days [now 90 days], the judicial claim has been filed with this Court, within 30 days from receipt of the decision or after the expiration of the said 120-day period;
• With reference to the taxpayer’s registration with the BIR:
  • the taxpayer is a VAT-registered person
• In relation to the taxpayer’s output VAT:
  • The taxpayer is engaged in zero-rated or effectively zero-rated sales;
    • The services must be other than processing, manufacturing or repacking of goods;
      • In this case, the Court partially denied the sales for the reason that the taxpayer failed to prove the foregoing requirement.
    • The recipient of such services is doing business outside the Philippines.
      • each entity must be supported, at the very least, by both a Certificate of Non-Registration of Corporation/Partnership issued by the SEC and proof of Incorporation/ Association/Business Registration in a foreign country and that there is no other indication that the recipient of the services is doing business in the Philippines.
    • for zero-rated sales the acceptable foreign currency exchange proceeds have been duly accounted for in accordance with BSP rules and regulations;
  • As regards the taxpayer’s input VAT being refunded:
    • the input taxes are not transitional input taxes;
    • the input taxes are due or paid;
    • 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 sales volume; and
    • the input taxes have not been applied against output taxes during and in the succeeding quarters(New York Bay Philippines, Inc. v. CIR, CTA Case No. 9669, July 9, 2020 )

PHP 3.7 BILLION TAX ASSESSMENT CANCELLED; A STATEMENT THAT THE INTEREST AND TOTAL AMOUNT DUE SHALL BE ADJUSTED RENDERS THE LIABILITY INDEFINITE AND THUS THE ASSESSMENT VOID.

• The CTA cancelled P3.7B tax assessment due to the indefinite amount of assessed tax liability.
• An assessment is a “written notice and demand made by respondent on the taxpayer for the settlement of a due tax liability that is there definitely set and fixed.”
• A valid formal assessment contains not only a computation of tax liabilities but also a demand for payment within a prescribed period, thereby signaling the time when penalties and interests begin to accrue against the taxpayer and enabling the latter to determine his remedies therefor.

o   The FLD also states – “Please note that the interest and the total amount due will have to be adjusted if paid beyond July 9, 2014”

o   The FLD does not also show the exact amount of tax liability that petitioner is obligated to pay. While the FLD provides for the computations of petitioner’s tax liability, the amount remains indefinite, since the said tax assessment is still subject to modification or adjustment, depending on the date of payment by petitioner.

o   Thus, the assessment is not legal and should be cancelled (Robinsons Land Corporation v. CIR, CTA Case No. 9163, July 9, 2020)

REFUND OF INPUT VAT FROM  DENIED; TIMELINE IN REFUND OF EXCESS INPUT VAT ARISING FROM ZERO-RATED SALES

• The following timeline in the refund of excess input VAT arising from zero-rated sales shall be complied with:
• Two-Year Prescriptive period:

o   It is only the administrative claim that must be filed within the two-year prescriptive period.

o   The proper reckoning date for the two-year prescriptive period is the close of the taxable quarter when the relevant sales were made.

• 120 [now 90] + 30 day period:

o   The taxpayer can file an appeal in one of two ways: (1) file the judicial claim within thirty days after the Commissioner denies the claim within the 120 [now 90]-day period, or (2) file the judicial claim within thirty days from the expiration of the 120 [now 90]-day period if the Commissioner does not act within the 120-day period.

o   The 30-day period always applies, whether there is a denial or inaction on the part of the CIR.

o   As a general rule, the 30-day period to appeal is both mandatory and jurisdictional. As an exception to the general rule, premature filing is allowed only if filed between 10 December 2003 and 5 October 2010, when BIR Ruling No. DA-489- 03 was still in force.

• In this case, the claim was denied because the taxpayer waited for the decision of the BIR even though the 120 [now 90]-day period has lapsed. (Lapanday Foords Corporation v. CIR, CTA EB No. 2117, CTA Case No. 9938, July 9, 2020)

PHP 95 MILLION TAX ASSESSMENT UPHELD: TAXPAYER MUST STATE THE FACTUAL AND LEGAL BASIS IN ITS PROTEST; PRELIMINARY COLLECTION LETTER IS CONSIDERED A FINAL DEMAND OF THE BIR FOR PURPOSES OF 30-DAY PERIOD TO APPEAL THE TAX ASSESSMENT.

• In the filing of protests, the foregoing rules explicitly require that the protest shall state the facts, the applicable law, rules and regulations, or jurisprudence on which it is based. Failing in the regard, the taxpayer’s protest shall be considered void and without force and effect.
  • In this case, the taxpayer filed to state the facts, the applicable law, rules, and regulations or jurisprudence on which it is based. The taxpayer merely requested for reinvestigation without stating the factual or legal basis thereof. It also filed to specify which documents are newly discovered evidence r additional evidence.
• The Court also ruled that the petition was also filed out of time. In case of decision of denial by the BIR, the taxpayer has 30 days within which to appeal the final decision. The 30-day period should run from the receipt of the Preliminary Collection Letter as its tenor and language strongly suggests a character of finality. It states that the collection shall be enforced “without further notice”.
  • The demand letter subsequently sent by the BIR, which was the basis of the taxpayer in filing the petition, is not considered a final decision. (JTKC Land, Inc. v. CIR, CTA Case No. 9597, July 13, 2020)

PHP 4 MILLION LOCAL BUSINESS TAX ASSESSMENT CANCELLED: LOCAL BUSINESS TAX ON CONTRACTORS IS BASED ON GROSS RECEIPTS AND NOT REVENEUES; CTA HAS NO JURISDICTION TO RULE ON THE VALIDITY OF BUSINESS LICENSE.

• The CTA reversed the ruling of the regional trial court and cancelled the local business tax assessment.
• Local business tax  may be imposed on business maintaining or operating a branch. The branch shall record  the sale, and tax shall be paid in the municipality where the branch is located. Under the rules, a branch is defined as a fixed place in a locality which conducts operations as an extension of the principal office.
  • In this case, the taxpayer is considered maintaining a branch within the locality.
  • It provides operation and maintenance services to the clients, which include planning, organizing, collection of toll etc.
  • Therefore, the taxpayer is rightfully subject to LBT.
• Under the rules, a local business tax imposed on contractors should be based on gross receipts and not gross revenues.
  • In this case, the municipal treasurer assessed the local business tax based on the revenue.
  • Therefore, the imposition is not valid.
• Under the rules, mayor’s permit, business license and miscellaneous fees are primarily regulatory in nature, and not primarily revenue-raising. The CTA’s jurisdiction is only appellate in nature, which means it can only review by appeal the decision of the lower court in local tax cases.
  • Therefore, the CTA has no jurisdiction to rule on the validity of the imposition of the regulatory fees.
• Considering the foregoing, the LBT tax assessment is cancelled. (NLEX Corporation v. Municipality of Guiguinto, Bulacan,  CTA AC No. 217, July 13, 2020)

A MEMORANDUM OF AUTHORITY AUTHORIZING BIR EXAMINER TO CONDUCT AUDIT IS CONSIDERED A LETTER OF AUTHORITY BUT MUST BE SIGNED BY THE REGIONAL DIRECTOR OR ASSISTANT COMMISSIONER/HEAD REVENUE EXECUTIVE ASSISTANT.

• The CTA En Banc affirmed the decision of the CTA Division cancelling the tax assessment for lack of letter of authority.
• Under the rules, a Memorandum of Authority (MOA) authorizing a BIR officer to conduct the audit may be construed as LOA if it is signed by a Revenue Regional Director or Assistant Commissioner/Head Revenue Executive Assistant.
  • In the instant case, the MOA was signed by OIC-Chief of LTS-RLTAD.
  • He has no authority to issue the MOA.
• Therefore, the resulting assessment issued against the taxpayer is void. (CIR v. Trinity Franchising and Management Corporation, CTA EB No. 2010, CTA Case No. 9190, July 14, 2020; see also United Coconut Planters Bank, CTA EB No. 1790, CTA Case No. 8963, July 14, 2020)

PHP 23 MILLION TAX ASSESSMENT CANCELLED: CERTIFICATION FROM THIRD PARTY IS REQUIRED TO VERIFY THE BIR’S FINDINGS OBTAINED FROM ITS COMPUTERIZED MATCHING; BIR HAS 3 YEARS TO ASSESS SANS FRAUD.

• The CTA En Banc affirmed the decision of the CTA Division cancelling the tax assessment
• Under the rules, the BIR is required to verify the amounts it obtained from its computerized/third-party matching by securing confirmation or certification from the third-party information source or from externally sourced data. Without the confirmation/certification, the data gathered are left unverified and the resulting assessment is void.
  • In this case, the BIR significantly failed to verify the sales transaction. Out of the alleged undeclared sales/receipts of Php83 Million, the BIR only verified Php86,000.
• Under the rules, the BIR 3-year period to assess the taxpayer unless there is fraud/falsity of return (10-year period to apply) as when the sales is understated by more than 30%.
  • In this case, the verified under-declared sales/receipt only amounted to 1.21% of the total declared sales. Thus, the BIR failed to prove substantial under-declaration and/or fraud, and the 3-year prescriptive period shall apply.
  • Given that the tax returns were filed in 2009 and 2010, the BIR has until 2012 and 2013 2013 to assess. However, the FAN was received only in 2014. Therefore the assessment has prescribed
• Therefore, the resulting assessment issued against the taxpayer is cancelled. (CIR v. MCC Transport Singapore Pte Ltd., CTA EB No. 1961, CTA Case No. 9045, July 14, 2020)

PHP 29 MILLION TAX ASSESSMENT CANCELLED; IF TAXPAYER DENIES RECEIPT OF TAX ASSESSMENT, THE BURDEN TO PROVE SUCH FACT OF RECEIPT IS SHIFTED TO THE BIR.

• The CTA En Banc affirmed the decision of the CTA Division cancelling the tax assessment for failure to prove that the PAN was received by the taxpayer.
• Under the rules, when the taxpayer denies receipt of the mail containing the assessment, it shifts the burden on the BIR to prove that the mail was actually received.
  • In this case, the registry return receipt shows a signature as proof that a person received the letter, a certain “SG Barrientos”. The BIR however failed to show that the said person was authorized to receive the BIR notices on behalf of the taxpayer. The BIR should have presented his relation of confidence or connection with the taxpayer to say that he is an authorized representative of the taxpayer
  • The BIR also admitted in her testimony that she did not personally cause or even coordinated the mailing of the PAN. She just  sent the envelope to the BIR’s Administrative Division, which mailed the PAN.

Therefore, the resulting assessment issued against the taxpayer is cancelled (CIR v. Far East Seafood, Inc., CTA EB No. 2033, CTA Case No. 8909, July 14, 2020)