Competence. Integrity. Commitment.

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

 

DATE	FILING/SUBMISSION
August 1, 2020	· Submission of Engagement Letters and Renewals or  Subsequent Agreements for Financial Audit by Independent CPAs – Fiscal Year beginning October 1, 2020 · Submission of Consolidated Return of All Transactions based on Reconciled Data of Stockholders – July 16-30, 2020
August 5, 2020	· E-Filing/filing or e-Payment/payment of 2000 (DST) and 2000-OT (One Time Transactions) - Month of July 2020 · Submission of Summary Report of Certification issued by the President of the National Home Mortgage Finance Corporation – Month of July 2020
August 8, 2020	·  E-Submission of e-Sales Report of all Taxpayers using CRM/POS with TIN ending in even number – Month of July 2020 · Submission of All Transcript Sheets used by Dealers of Automobiles/Manufacturers/Toll Manufacturers/Assemblers/Importers of Alcohol Products, Tobacco Products, Petroleum Products, Non-essential Goods, Sweetened Beverage Products, Mineral Products and Automobiles – Month of July 20202

 

TAX ASSESSMENT’S PRESCRIPTIVE PERIOD IS SUSPENDED STARTING MARCH 16, 2020 UNTIL THE LIFTING OF THE ENHANCED COMMUNITY QUARANTINE AND 60 DAYS THEREAFTER.

• The BIR clarifies its earlier issuance (RMC No. 34-2020) relative to the suspension of the Statute of Limitations or prescriptive period to assess.
• The running of the Statute of Limitation or prescription is suspended for a period starting on March 16, 2020 until the lifting of the enhanced community quarantine period or ECQ and for 60 days thereafter. It also applies with respect to the issuance and service of assessment notices, warrants and enforcement and/or collection of deficiency taxes.
• The Circular shall apply nationwide on areas placed under ECQ.
• Note: In Metro Manila, ECQ ended on May 15, 2020.(RMC No. 74-2020, July 22, 2020). For your easy reference, the issuance  may be accessed HEREand 

 

BIR extends the deadline for business registration of those into digital transactions until August 31, 2020.

• In addition to the extension, those who shall voluntarily declare their past transactions subject to pertinent taxes and pay the taxes due thereon when declared and paid on or before the said date shall not be subject to the corresponding penalty for late filing or payment.
• All those who will be found later doing business without complying with the registration/update requirements and those who failed to declare past due taxes/unpaid taxes shall be imposed with the applicable penalties under the law, and existing revenue rules and regulations. (RMC No. 75-2020, July 29, 2020). For your easy reference, the issuance may be accessed 

 

REVENUE DISTRICT OFFICE HAVING JURISDICTION OVER THE PORT OF ENTRY WILL PROCESS THE ISSUANCE OF AUTHORITY TO RELEASE IMPORTED GOODS (“ATRIG”) FOR VAT EXEMPTION ON THE SALE AND IMPORTATION OF PRESCRIPTION DRUGS AND MEDICINES. It clarifies:

 

• The following drugs are exempted from VAT:
  • Diabetes, high cholesterol and hypertension – beginning January 27, 2020
  • Cancer, mental illness, tuberculosis and kidney diseases – beginning January 1, 2023
• For VAT purposes, the ATRIG shall be issued on all importations of articles exempt from VAT.
• RDO having jurisdiction over the port of entry shall process application for ATRIG by the manufacturers, distributors, wholesalers and retailers of drugs and medicines included in the "list of approved drugs and medicines" issued by the Department of Health (amending previous order where Revenue District Office No. 33 - Intramuros-Ermita-Malate will process the application)
• The policies, guidelines and procedures set forth in RMO No. 35-2002 shall be strictly followed and observed (RMO No. 25-2020 dated July 29, 2020). For your easy reference, the issuance may be accessed 

 

SUPREME COURT/Court of Tax Appeals Decisions

 

ACCUSED CONVICTED OF TAX EVASION: A TAXPAYER IS REQUIRED TO REGISTER WITH THE BIR ON OR BEFORE THE COMMENCEMENT OF THE BUSINESS; AN OFFICER MAY BE CONVICTED FOR HER PARTICIPATION IN THE BUSINESS.

• The accused was registered with the SEC in 1998 but registered with the BIR only in 2005. It was charged with 7 counts of violations of NIRC for failure to file tax returns from 1998 to 2004, together with the owner.
• The Court ruled that all the elements of crime of violation of Section 255 was proven to convict the accused:
  • Accused is a person required under the law to file a return, to pay the tax and supply correct and accurate information.
    • As the entity is registered with the SEC, it is required to file its tax return. It shall register with the BIR on or before the commencement of the business.
    • The Court rejected the accused's contention that there was no operation for the subject period as the evidence from government agencies (e.LTFRB application for franchise and LTO apprehension reports/history) shows that the accused had operation.
  • Accused failed to file a return or pay the tax and supply correct and accurate information at the time required by law.
    • Certifications from BIR RDOs show that the accused had no record of returns on file.
  • Such failure is willful.
    • In this case, there were entries made in the BIR database from 1998 to 2003. It was found out via BIR certifications that they were only created to show compliance but in truth and in fact, they are not complied with as the accused registered only in 2005. Moreover, the accused's insistence that  they did not have operation during the subject period belies the entries.
    • The accused also imputes that the liability should be ultimately shouldered by the smaller bus operators who actually operated and used its franchise. The CTA ruled that this system is commonly known as “colorum”or “kabit system” which is  illegal and void for being contrary to public policy. Thus, accused cannot pass on the liability to the smaller bus operators including the duty to make and file the ITR and pay the tax due.
  • The officer was also convicted as she had participation in the business. She dealt with LTFRB and the public and had the power to know and take into custody, spend, and disburse payment. She had the managerial reins of a corporation(People of the Philippines v. Philippine Corinthian Liner Corporation, Claire De La Fuente, CTA Crim Case Nos. O-172, O-173, O-174, O-175, O-176, O-177 & O-178, June 30, 2020).

 

PHP 10 MILLION EXCESS AND UNUTILIZED INPUT VAT ARISING FROM ZERO-RATED SALES DENIED: VAT ON PURCHASES BY RENEWABLE ENERGY DEVELOPERS NEEDED FOR THE DEVELOPMENT, CONSTRUCTION AND INSTALLATION OF THEIR PLANT FACILITIES CANNOT BE SUBJECT OF REFUND BUT SUBJECT OF REIMBURSEMENT FROM SUPPLIERS.

• The taxpayer, a Renewable Energy (“RE”) Developer, claims refund and/or issuance of a tax credit certificate representing unutilized input VAT paid or incurred from its domestic purchases of goods and/or services attributable to its zero-rated sales of electricity generated through hydropower.
• In denying the refund, the CTA En Banc ruled that the law provides that All RE Developers are entitled to zero-rated VAT on its purchase of local supply of goods, properties and services needed for the development, construction and installation of its plant facilities.
  • No VAT shall be shifted to or passed on to RE developers in connection with the purchases of goods and services needed for the development, construction and installation of their plant facilities. If no input VAT will be paid by the RE developers, they are not entitled to refund or issuance of TCC from the purchase.
  • The taxpayer’s recourse for its purchase of goods and services where it paid VAT is not a claim for refund against the BIR but to seek reimbursement of the alleged input VAT paid from its suppliers of goods and services since its purchase are subject to zero-rated VAT (Hedcor, Inc. v. CIR, CTA EB No. 1913, CTA Case No. 8875, June 29, 2020).

 

PHP 330 MILLION REFUND OF CREDITABLE WITHHOLDING TAX PARTIALLY GRANTED: CLAIM FOR REFUND MUST BE FILED WITHIN THE 2-YEAR PRESCRIPTIVE PERIOD; THE FACT OF WITHHOLDING MUST BE ESTABLISHED (BIR FORM 2307); THE INCOME MUST FORM PART OF GROSS INCOME.

• In granting the refund, the CTA ruled that the following elements were complied with:
  • That the claim for refund was filed within the two-year prescriptive period.
    • The judicial claim must be made within 2 years from the date of payment of tax or penalty, regardless of any supervening cause.
    • The taxpayer need not wait for the action of the BIR.
  • That the fact of withholding is established by a copy of a statement duly issued by the payor (withholding agent) to the payee, showing the amount paid and the amount of tax withheld therefrom.
    • In this case, some BIR Forms 2307 were disallowed because the forms have different company TIN indicated therein, lack payor’s signature, and there are erasures on the Company TIN but without countersignature.
  • That the income upon which the taxes were withheld was included in the return of the recipient (e.declared as part of the gross income).
    • In this case, a portion of the income was disallowed because it was not declared as part of gross income, or the court could not trace them.
  • Proof of actual remittance is not required (SM Investments Corporation v. CIR, CTA Case No. 9569, June 29, 2020).

 

PHP 50 MILLION TAX ASSESSMENT PARTIALLY CANCELLED: UNDECLARED PURCHASE IS NOT CONSIDERED PROFIT; TAXPAYER MUST PROVIDE DOCUMENTARY SUPPORT TO REFUTE ASSESSMENT; SALARIES OF MINIMUM WAGE EARNERS, EMPLOYER'S SHARE IN SSS, PHILHEALTH AND HDMF, DE MINIMIS BENEFITS, ACCRUAL OF PENSION EXPENSE, PENSION PAY-OUT AN FRINGE BENEFITS ARE NOT SUBJECT TO WITHHOLDING TAX ON COMPENSATION.

• In reducing the tax assessment, the CTA ruled:
  • Undeclared purchase is not considered profit. There three elements on the imposition of income tax are (1) there must be a gain or profit (2) the profit is realized or received, actually or constructively and (3) the profit is not exempted by law. In the imposition or assessment of income tax, it must be clear that there was an income.
    • The taxpayer is free to deduct from its gross income a lesser amount, or not claim any deduction at all. What is prohibited by the income tax law is to claim a deduction beyond the amount authorized. Therefore, the income and VAT assessment should be cancelled.
  • The CTA treated as income the reversal of the accrued commitment fee relating to a bank loan due to lack of support
  • The CTA upheld the VAT assessment based on the difference between the Audited Financial Statement and taxpayer’s accruals for lack of documentary proof to refute the assessment.
  • The CTA cancelled assessment on unremitted withholding tax on compensation (WTC).
    • The BIR should not include as items of WTC the nontaxable salaries of minimum wage earners, employer’s share in SSS, PhilHealth and HDMF, de minimis benefits, accrual of pension expense, actual pension pay-out and fringe benefits (Western Mindanao Power Corporation v. CIR, CTA Case No. 9248, June 29, 2020).

 

PHP 79 MILLION INPUT VAT FROM ZERO-RATED PARTIALLY GRANTED: TO PROVE THAT SERVICE RECIPIENT IS A NON-RESIDENT FOREIGN CORPORATION, SEC NEGATIVE CERTIFICATION AND ARTICLES OF FOREIGN INCORPORATION MUST BE SUBMITTED; SERVICE AGREEMENT MUST SHOW LOCATION OF THE SERVICE; INPUT VAT MUST NOT FORM PART OF THE SUCCEEDING TAXABLE QUARTERS.

• To prove non-resident foreign corporation status of the service recipient, both certificate of non-registration of corporation and certificate/articles of foreign incorporation/association must be submitted.
  • Screenshots of foreign government websites databases cannot be accepted considering that these can be easily manipulated and none from the foreign governments attest to the authenticity of the website.
  • Documents without English translation were also rejected.
  • The foreign client name must be the same name indicated in the Philippine SEC Negative Certification.
  • Request or application for a taxpayer's TIN is not a valid proof.
• Service Agreements and attachments must show location of the services.
• Input VAT claim must comply with substantiation requirements.
• It must be shown that the claim no longer forms part of the excess input VAT as of the succeeding quarter (AIG Shares Services Corporation (Philippines) v. CIR, CTA Case No. 8850, June 29, 2020).

 

PHP 91 MILLION TAX ASSESSMENT CANCELLED: BIR HAS 3 YEARS TO ASSESS TAXPAYER; BIR EXAMINER MUST BE AUTHORIZED BY A LETTER OF AUTHORITY; TAXPAYER HAS 15 DAYS WITHIN WHICH TO REPLY TO THE PRELIMINARY ASSESSMENT NOTICE.

• In cancelling the tax assessment. The CTA ruled that the BIR has 3-years to assess the taxpayer counted from the last day prescribed by law for the filing of the tax return or the actual date of filing of return, whichever comes later. In this case, the BIR issues the Formal Assessment Notice beyond the 3-year period provided by the law.
• The CTA also declared the assessment void as the examiner is not authorized by a letter of authority. In this case, the examiner merely continued the audit and investigation of the taxpayer. Her authority merely was derived from a Memorandum of Assignment issued by the Revenue District Officer. The Court ruled that a new LOA is a must.
• Lastly, the CTA ruled that the taxpayer’s right to due process was violated. The taxpayer is given 15 days to respond to a Preliminary Assessment Notice. In this case, it received the PAN on January 17, 2017. It should have until February 1, 2017 within which to reply but it received the subject assessment notice on January 27, 2017 (Global Fresh Products, Inv. V. CIR, CTA Case No. 9718, June 30, 2020; see also Robinsons Convenience Stores, Inc. v. CIR, CTA Case No. 9178, June 30, 2020).

 

PHP 1 MILLION INPUT VAT REFUND DENIED: “ZERO-RATED SALE” MUST BE WRITTEN IN THE RECEIPT; THE AMOUNTS IN THE CERTIFICATE OF INWARD REMITTANCE MUST TALLY WITH THE RECEIPT; SERVICES MUST BE PERFORMED WITHIN THE PHILIPPINES.

• The CTA denied the taxpayer’s claim for input VAT arising from zero-rated sales. In denying the claim, it ruled:
  • The recipient of the service must be a nonresident foreign corporation doing business outside the Philippines. The taxpayer must submit at the very least both SEC Negative Certification and proof of incorporation in a foreign country. In this case, the taxpayer failed to submit the 2 documentation for some of its foreign clients.
  • The term “zero-rated sale” must be written or printed in the receipt. In this case, some of the taxpayer’s official receipts are not compliant with the said requirement.
  • The consideration is paid for in an acceptable foreign currency and accounted for in accordance with the BSP rules. The payment must be supported by the Certificate of Inward Remittance. However, while the taxpayer provided the same, the inward remittance must tally with the official receipt. It must be shown that the amount in the inward remittance corresponds to the sales.
  • The services must be performed in the Philippines. The taxpayer failed to submit proof that the services were performed in the Philippines (Knutsen Philippines, Inc. v. CIR, CTA Case No. 9564, January 30, 2020).

 

PHP 7.8 MILLION TAX REFUND GRANTED; SEPARATION PAY ON ACCOUNT OF RETRENCHMENT IS EXEMPT FROM INCOME TAX. 

• The Court granted Deutsche Bank’s employee request to refund tax arising from separation pay in the amount of PHP 24 Million due to her retrenchment. In granting the refund, it ruled:
  • Any amount received by an employee as a consequence of separation for any cause beyond the control of the employee is excluded from the computation of the gross income (Ma. Jethra B. Pascual v CIR, CTA Case No. 9566, June 30, 2020).

 

CITY TREASURER AND ASSESSOR MUST HAVE AUTHORITY TO FILE A CASE FROM THE CITY'S CHARTER, ORDINANCE OR RESOLUTION; REGULAR COURTS MAY HEAR CASES SANS ADMINISTRATIVE REMEDIES OVER A REAL PROPERTY TAX ILLEGAL ASSESSMENT.

• The local government unit issued several Notices of Tax Delinquency demanding the company payment of real property tax and Warrant of Levy against the Company. The company filed a complaint with the regular court for a temporary restraining order and writ of preliminary injunction, which was granted by the court. Thus, the City elevated the matter to the CTA. In denying the City’s Petition, the CTA ruled:
  • The City Treasurer and Assessor are not authorized to file the petition. Their power emanates from Local Government Code, particularly from the Sanggunian which determines the powers and duties of the officials of the city. In the absence of the charter, ordinance or resolution, the said officials have no power.
  • The regular court has jurisdiction over the case despite the lack of exhaustion of administrative remedies in case of illegal assessment where the assessment was issued without authority. (City of Kidapawan et. al. v. Energy Development Corporation, CTA AC No. 201, June 30, 2020).   

 

PHP 179 MILLION TAX ASSESSMENT CANCELLED; MEMORANDUM OF ASSIGNMENT MAY TAKE THE PLACE OF LETTER OF AUTHORITY BUT MUST BE SIGNED BY THE REGIONAL DIRECTOR, ASSISTANT COMMISSIONER OR HEAD REVENUE EXECUTIVE ASSISTANT;  THE PHRASE "INTEREST WILL HAVE TO BE ADJUSTED IF PAID BEYOND THE SPECIFIED DATE" RENDERS THE ASSESSMENT VOID.

• In cancelling the tax assessment, the CTA ruled that:

The memorandum of assignment (MOA) must be signed by the Regional Director (for non-large taxpayers) or Assistant Commissioner/Head Revenue Executive Assistant of the Large Taxpayer’s Service (for large taxpayers).  The assessment was void because the MOA was signed by the Chief of the Regular LT Audit Division 1.

• The VAT assessment is void for as the amount is not definite The phrase “interest will have to be adjusted if paid beyond the date specified therein” means that the assessed amount is not definite.  Moreover, the amended final decision on disputed assessment does not contain any due date for the payment of the deficiency tax (Sumitomo Corporation v. CIR, CTA Case No. 9422, June 20, 2020)

 

PHP 3 BILLION TAX ASSESSMENT CANCELLED: TAX ASSESSMENT IS VOID WITHOUT A LETTER OF AUTHORITY.

• In cancelling the tax assessment, the CTA ruled among others that the taxpayer is required to be specifically authorized by a valid LOA. Without the LOA, the tax assessment is void. The examiners who conducted the audit are different from those who recommended the assessment (Robinsons Convenience Stores, Inc. v. CIR, CTA Case No. 9178, June 30, 2020).

 

PHP 511 MILLION TAX ASSESSMENT CANCELLED: FINAL NOTICE BEFORE SEIZURE MAY BE APPEALED TO THE CTA UNDER "UNDER MATTERS"; THE BIR MUST PROVE THAT THE ASSESSMENT IS RECEIVED BY THE TAXPAYER, IF THE TAXPAYER DENIES RECEIPT THEREOF.

• In cancelling the tax assessment, the CTA ruled:
  • The court  has jurisdiction over  assessment, refund and other matters arising under the tax law.  "Other matters" is defined as those directly related to disputed assessment and refund. A Final Notice Before Seizure is considered falling under the “other matters” category which is also under the CTA’s jurisdiction.
  • Taxpayer must be informed in writing of the assessment either personally or by mail. Due process requires that the taxpayer must actually receive the assessment. When the taxpayer denies receipt of the assessment, the BIR must prove the fact of receipt in the form of registry receipt issued by the Bureau of Post or registry return card signed by the taxpayer’s authorized representative. In this case, the BIR failed to establish the fact of receipt (Square One Realty Corporation v. CIR, CTA Case No. 9484, June 30, 2020).

 

PHP 11 MILLION TAX ASSESSMENT CANCELLED: A WAIVER TO EXTEND THE 3-YEAR PERIOD TO ASSESS MUST STATE THE KIND AND THE AMOUNT OF TAXES TO BE COLLECTED.

• In cancelling the tax assessment, the CTA ruled:
  • The 3-year period to assess taxpayers may be extended by a waiver.
  • The waiver must indicate the nature and the amount of tax. I
  • In this case, the BIR failed to indicate the kind and exact amount of the taxes to be assessed or collected.

Thus, the waiver is invalid and did not effectively extend the 3-year prescriptive period. Since the assessment was issued outside the said period, the same should be declared void (GMA Network Films, Inc. v. CIR, CTA Case No. 9381 June 30, 2020).