Competence. Integrity. Commitment.

COURT OF TAX APPEALS DECISIONS

January 2022

REFUND OF EXCESS INPUT VAT ON ZERO-RATED SALES

Certain requisites must be complied with by the taxpayer-applicant to successfully obtain a credit/refund of input VAT related to zero-rated sales. Said requisites are classified into certain categories, to wit:

As to the timeliness of the filing of the administrative and judicial claims:

• The claim is filed with the BIR within two (2) 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 rendered within a period of ninety (90) days from the date of submission of the official receipts or invoices and other documents in support of the application, the judicial claim shall be filed with the Court of Tax Appeals (CTA) within thirty (30) days from receipt of the decision.
  • The 120 (now 90) + 30-day periods to appeal are both mandatory and jurisdictional. After the lapse of the 120 (now 90)-day period, claimant has 30 days to elevate its claim to the CTA. The claimant need not wait for the decision of the BIR after the 120-(now 90) day waiting period. It should file a judicial claim for refund with the CTA. A waiting period of only 120 (now 90) days and respondent's inaction within the said period is deemed a denial of the claim. (Lepanto Consolidated Mining Company v. CIR, CTA EB No. 2329, CTA Case No. 10153, CTA Case No. 10153, January 5, 2022)

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;
• Re. Sales of Goods: For zero-rated sales under Section 106(A)(2)(a)(1), (2) and (b), and Section 108(8)(1) and (2), the acceptable foreign currency exchange proceeds have been duly accounted for in accordance with BSP rules and regulations;
  • Re. sales of goods abroad, in order for an export sale to qualify as zero-rated, the following essential elements must be present:
    • the sale was made by a VAT registered person;
    • there was sale and actual shipment of goods from the Philippines to a foreign country, as evidenced by the following:
      • sales invoice as proof of sales of goods; the invoice must comply with the invoicing requirements. (Ametron Incorporated v. CIR, CTA Case No. 9893, January 4, 2022)
      • bill of lading or airway bill as proof of actual shipment of goods from the Philippines to a foreign country
        • The sales invoice must indicate the related airway bill or details of items exported. Thus, there is a failure to ascertain whether goods covered by the invoice were actually shipped to the intended foreign customers. (Ametron Incorporated v. CIR, CTA Case No. 9893, January 4, 2022)
    • The sale was paid for in acceptable foreign currency accounted for in accordance with the rules and regulations of the BSP. Amounts shown in the summary of VAT zero-rated sales supported with sales invoices must be traced with certainty to the certificates of inward remittance (Ametron Incorporated v. CIR, CTA Case No. 9893, January 4, 2022)
• Re. zero-rated sales of goods to a BOI-registered entity whose products are 100% exported, the following must be complied with:
  • The supplier must be VAT-registered;
  • The BOI-registered buyer must likewise be VAT-registered
  • The buyer must be a BOI-registered manufacturer/producer whose products are 100% exported. For this purpose, a Certification to this effect muse be issued by the BOI and which certification shall be good for one year unless subsequently re-issued by the BOI
  • The BOI-registered buyer shall furnish each of its suppliers with a copy of the aforementioned BOI Certification which shall serve as authority for the supplier to avail of the benefits of zero-rating for its sales to said BOI-registered buyers; and
  • The VAT-registered supplier shall issue for each sale to BOI-registered VAT invoice with the words “zero-rated” (Rema Tip Top Philippines, Inc. v. CIR, CTA Case No. 9794, January 24, 2022)
•  Re. sales of services, certain essential elements must be present for a sale or supply of services to be subject to the VAT rate of zero percent (0%), to wit:
  •  The services fall under any of the categories under Section 108(6)(2), or simply, the services rendered should be other than ''processing, manufacturing or repacking of goods” i.e. corporate finance advisory services, training and personnel management, etc. (Procter & Gamble International Operations SA – ROHQ v. CIR, CTA Case No. 9897, January 19, 2022)
  •  The service must be performed in the Philippines by a VAT-registered person.  The agreement must specify that the services shall be performed in the Philippines (Procter & Gamble International Operations SA – ROHQ v. CIR, CTA Case No. 9897, January 19, 2022)
  •  The payment for such services should be in acceptable foreign currency accounted for in accordance with BSP rules. Payment must be supported by Certificate of Inward Remittance. (Procter & Gamble International Operations SA – ROHQ v. CIR, CTA Case No. 9897, January 19, 2022); New York Bay Philippines, Inc. v. CIR, CTA Case No. 9896, January 26, 2022)
  • The recipient of the services is a foreign corporation, and the said corporation is doing business outside the Philippines, or is a nonresident person not engaged in business who is outside the Philippines when the services were performed (Procter & Gamble International Operations SA – ROHQ v. CIR, CTA Case No. 9897, January 19, 2022); New York Bay Philippines, Inc. v. CIR, CTA Case No. 9896, January 26, 2022)
    • in order to be considered as a non-resident foreign corporation doing business outside the Philippines, each entity must be supported, at the very least, by both a Certification of Non-Registration of Corporation/Partnership issued by the Philippine Securities and Exchange Commission (SEC), and proof of incorporation/registration in a foreign country (e.g., Articles/Certificate of Incorporation/Registration).  Failure to provide the documents warrants the denial of the claim (Procter & Gamble International Operations SA – ROHQ v. CIR, CTA Case No. 9897, January 19, 2022; New York Bay Philippines, Inc. v. CIR, CTA Case No. 9896, January 26, 2022; (Rema Tip Top Philippines, Inc. v. CIR, CTA Case No. 9794, January 24, 2022)

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
• Input tax must comply with invoicing requirements.
• Other matters:

• • A counterclaim in a VAT refund case violates right to due process. In an action for refund of taxes, as the claim for refund is not based on the theory of erroneous payment but is filed to recover excess and unutilized input VAT under Section 112(A) and (C) of the NIRC of 1997, as amended. Excess input tax or creditable input tax is not an erroneously, excessively, or illegally collected tax. If there is a finding of VAT liability on the part of the taxpayer-claimant, the proper recourse would be to subject said taxpayer-claimant to an audit/investigation. The same will start with the issuance of a Letter of Authority (LOA) and thereafter, the issuance of an assessment notice. (Procter & Gamble International Operations SA – ROHQ v. CIR, CTA Case No. 9897, January 19, 2022)
  • Failure to submit supporting documents in the administrative level is not fatal to the claimant’s claim. The taxpayer may present additional documents before the CTA to substantiate its claim for refund, albeit the same were not presented at the administrative level. (CIR v. Plipinas Kyohritsu, Inc., CTA EB No. 2334 (CTA Case No. 9557), January 20, 2022)

REFUND OF EXCESS OR ERRONEOUSLY PAID TAX.

The withholding agent is considered the proper party to file a claim for refund of the withheld taxes. Where excess or erroneously paid tax arose from income payment made by the local taxpayer to a Japanese corporation not doing business in the Philippines, the payor becomes the withholding agent allowed to claim refund of tax. (CIR v. Toledo Power Corporation, CTA EB No. 2359 (CTA Case No. 9465), January 5, 2022)

TAX ASSESSMENTS

• The rules impose a 30-day expiration period for the service of the Letter of Authority (LOA). Upon its expiration, the LOA becomes wholly unenforceable. Thus, where the taxpayer received the LOA 62 days after its issuance, the LOA is void and without effect. (Vanguard Logistics Services, Phils., Inc. CTA Case No. 10155, January 27, 2022)
• Any re-assignment/transfer of cases to another revenue officer requires a new LOA, absence of which renders the assessment void. Thus, where the only basis for the authority of the new examiner to conduct audit was a Memorandum of Assignment (MOA) without LOA, the new examiner is considered not duly authorized to conduct the audit. Even if MOA is considered as LOA, it must be issued by the Assistant Commissioner/Head Revenue Executive Assistants for large taxpayers. Thus, where the MOA was signed only by the chief of the regular LT Audit Division, and not by the Assistant Commissioner/HREA, the assessment is void. (Metro Manila Star Asia Corp v. CIR, CTA Case No. 9302, January 26, 2022)
• The taxpayer must appeal the assessment to the CTA or Commissioner within 30 days from demand. In the absence of the Final Decision on Disputed Assessment, Preliminary Collection Letter (PCL) serves as demand of the BIR. Thus, where the taxpayer based the appeal on the BIR letter-response on the constructive service of the FDDA after the BIR has issued collection letters, and not on the PCL, the appeal is considered filed out of time. (Ten-four Readymix Concrete, inc. v.  CIR, 2311, CTA Case No. 10081, January 25, 2022)
• In tax evasion cases committed through willful refusal to pay taxes, the five-year prescription to file case would begin to run from the taxpayer’s receipt of the notice and demand for payment of the assessed tax deficiency. Thus, where the FAN was served on September 13, 2013, and it attains finality after 30 days or October 14, 2013, to toll the running of five-year prescriptive period, the BIR should have filed a criminal complaint with the DOJ on October 14, 2018. Since the criminal complaint was filed on April 11, 2019, the offense charged had already been prescribed (People of the Philippines v. Angelo R. Balili, CTA Crim Case No. A-8; Case Nos. R-mKT-20-01449-CR and R-MKT-20-01450-CR, January 25, 2022)
• One of the elements of violation of Section 255 is that the accused is a person required to file return, pay tax and supply correct and accurate information. The obligation to pay tax arises either by self-assessment or by BIR’s notice or demand via assessment. If the charge is based on BIR’s assessment, due process must be observed. Thus, where the BIR failed to establish that Notice of Informal Conference was issued to and that PAN and FAN/FLD were received by the accused, the failure to do so renders the assessment void and warrants the acquittal of the accused. (People of the Philippines v. Grand East Empire Corporation and Solania G. Ong, CTA Crim Case Nos. O-779, O-780 & O-781, January 24, 2022)

COURT OF TAX APPEALS DECISIONS

December 2021

REFUND OF UNUTILIZED CREDITABLE WITHHOLDING TAX

• In filing a claim for refund or credit of creditable withholding tax, compliance with the following must be met:
  1. The claim for refund must be filed within the two-year prescriptive period.
     • The administrative and judicial remedy of filing a claim for refund of erroneously or excessively paid tax must be done within two (2) years from the date of payment of the tax both in the administrative and judicial levels. For actions for refund of excess corporate income tax, the Supreme Court ruled that the two-year prescriptive period should be counted from the filing of the Final Adjustment Return, because it is only during that date that the exact tax liability or refundability of the tax can be determined.
       • The 2-year period is counted from the filing of original Final Adjusted Return, not on the amended. (Bethlehem Holdings, Inc. v. Commissioner of Internal Revenue, CTA Case No. 9789, December 3, 2021; Sony Philippines, Inc. v. CIR, CTA Case No. 10115, December 16, 2021)
       • Taxpayer need not wait for the resolution on the administrative claim for refund before filing the judicial claim. (Bethlehem Holdings, Inc. v. Commissioner of Internal Revenue, CTA Case No. 9789, December 3, 2021)
       • Although both the administrative claim and the judicial claim were filed within the two (2) year prescriptive period, the claimant must give BIR full opportunity to decide the administrative claim. If taxpayer files the judicial claim for refund a day after it filed administrative claim, with just one (1) day given to BIR to resolve a claim for refund that involves voluminous supporting documents, the BIR is said   to not "afforded a complete chance to pass upon the matter" nor "given an opportunity to act and correct the errors committed in the administrative forum."  Thus, petition should be dismissed. (Aecom Philippines Consultants Corporation v. CIR, CTA Case No. 10008, December 7, 2021)
     • a corporation that is entitled to a tax refund or a tax credit for excess payment of quarterly income taxes may carry over and credit the excess income taxes paid in a given taxable year against the estimated income tax liabilities of the succeeding quarters. Once chosen, the carry-over option shall be considered irrevocable for that taxable period, and no application for a tax refund or issuance of a tax credit certificate shall then be allowed. (Bethlehem Holdings, Inc. v. Commissioner of Internal Revenue, CTA Case No. 9789, December 3, 2021; Sony Philippines, Inc. v. CIR, CTA Case No. 10115, December 16, 2021)
       • Taxpayer may originally opt for refund and shift to carry-over but can no longer revert to original choice due irrevocability rule. (Bethlehem Holdings, Inc. v. Commissioner of Internal Revenue, CTA Case No. 9789, December 3, 2021)
       • Once the carry-over option has been chosen, such shall be irrevocable and the unutilized excess tax credits will remain in the taxpayer's account and may be carried over and applied to succeeding taxable years until fully utilized. (Sony Philippines, Inc. v. CIR, CTA Case No. 10115, December 16, 2021)
       • Taxpayer may have in a taxable year excess CWT for current year subject of refund and non-refundable CWT carried over from previous year that is not utilized. (Bethlehem Holdings, Inc. v. Commissioner of Internal Revenue, CTA Case No. 9789, December 3, 2021)

• 1. The fact of withholding must be 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.
     • The Court disallows supporting BIR Form no. 2307s, with incorrect TIN of the taxpayer indicated in the certificate (Bethlehem Holdings, Inc. v. Commissioner of Internal Revenue, CTA Case No. 9789, December 3, 2021)
     • The Court disallowed supporting BIR Form No. 2307s with incorrect/no TIN; incorrect address, among others. The CTA ruled though that even without TIN, as long as the name and address may be cross-referenced to the BIR Certificate of Registration (COR; moreover, CWT bearing the incorrect address may be allowed as long as the TIN is correct and may be cross-referenced to the ITR (if no COR is adduced as evidence) (Sony Philippines, Inc. v. CIR, CTA Case No. 10115, December 16, 2021)
     • Proof of actual remittance of taxes withheld to the BIR is not required in a claim for refund of excess CWT. The claimant-taxpayer is only required to prove that the income payment formed part of the gross income and the fact of withholding. The proof of remittance of the withheld taxes remains the responsibility of the withholding agent. (Tullet Prebon (Philippines), Inc. v. CIR, CTA EB No. 2373, CTA Case No. 9804, Decemebr 16, 2021)
  2. The income upon which the taxes were withheld must be included in the return of the recipient. (Bethlehem Holdings, Inc. v. Commissioner of Internal Revenue, CTA Case No. 9789, December 3, 2021)
     • The Court disallows CWT, which was not traced in the General Ledger (Sony Philippines, Inc. v. CIR, CTA Case No. 10115, December 16, 2021)
     • Presentation of CWT Certificates is not indispensable in proving the existence of prior year’s excess credits since the credits are not the actual subject of the claim for refund. BIR never refuted the truthfulness and existence of the taxpayer’s prior year’s excess credits. (Sony Philippines, Inc. v. CIR, CTA Case No. 10115, December 16, 2021)

Variance between the date of verification and Petition is not fatal when the variance is satisfactorily explained and petitioner substantially complied with the objective of the verification requirement. If Petition is dated 2 days later than the Verification for the reason that petition was revised subsequent to the signing of the verification, petitioner substantially complied with the objective of the verification requirement. (Sony Philippines, Inc. v. CIR, CTA Case No. 10115, December 16, 2021)

REFUND OF EXCESS INPUT VAT ON ZERO-RATED SALES

1. • • The recipient of the services is a foreign corporation, and the said corporation is doing business outside the Philippines, or is a nonresident person not engaged in business who is outside the Philippines when the services were performed.
       • In order to be considered as a non- resident foreign corporation doing business outside the Philippines, each service-recipient must be supported, at the very least, by both a Certification of Non-Registration of Corporation/Partnership issued by the Philippine Securities and Exchange Commission (SEC), and certificate/articles of foreign incorporation/association. (Deutsche Knowledge Services Pte., Ltd. v. CIR, CTA EB No. 2249, CTA Case No. 9154, December 14, 2021)
       • The CTA cannot give credence or probative value to the business registration documents derived by the database provided by the group of companies to which the claimant belongs as they are self-serving, lack credibility, and which can be easily manipulated to favor the claimant in view of its affinity with the entity that maintains or keels the database. (Deutsche Knowledge Services Pte., Ltd. v. CIR, CTA EB No. 2249, CTA Case No. 9154, December 14, 2021)
       • If the claimant is neither a branch nor a subsidiary of the non-resident foreign corporation who is the service recipient, the service recipient is not considered an entity engaged in busines in the Philippines (CIR v. MSCI Hongkong Limited, CTA EB No. 2258, CTA Case No. 9661, December 15, 2021)
     • The services rendered should be other than ''processing, manufacturing or repacking goods.” This may be supported by a professional service agreement (Teleworks Philippines, Incorporated v. CIR, CTA Case No. 9380, December 11, 2020)
       • Testimony is not sufficient, if there is no indication that the services are rendered to the client-recipient. Dissenting Opinion: The testimony is sufficient if the services are supported by Certificate of Registration and License issued by the SEC, which enumerates the qualifying services that it may render as ROHQ. Deutsche Knowledge Services Pte., Ltd. v. CIR, CTA EB No. 2249, CTA Case No. 9154, December 14, 2021)
     • The services must be performed in the Philippines by a VAT-registered person. The claimant must show that the services were performed in the Philippines. Dissenting Opinion: the testimony is supported by the fact that petitioner purchased goods and services in the Philippines for purposes of performing its services in the Philippines. Deutsche Knowledge Services Pte., Ltd. v. CIR, CTA EB No. 2249, CTA Case No. 9154, December 14, 2021)

1. • For zero-rated sales of goods to non-resident foreign corporation:
     • Certificate of Inward Remittance is required in support of sale to attest the fact that fact of payment in acceptable foreign currency accounted for with the BSP, regulation, regardless when the date was remitted.  (Carmen Copper Corporation v. CIR, CTA Case No. 9954, December 16, 2021)
     • Bank certification of inward remittance is not abolished but merely relaxed. It may be dispensed with in case of offsetting arrangements for the payment of export sales. (Carmen Copper Corporation v. CIR, CTA Case No. 9954, December 16, 2021)
     • Invoice must be within the date of period of claim. (Carmen Copper Corporation v. CIR, CTA Case No. 9954, December 16, 2021)
   • Invoicing requirements must be complied with.
     • Sale of goods, properties or services made by a VAT-registered supplier to a BOI-registered entity whose products are 100% exported shall be VAT zero-rated, subject to requirements. In case where the taxpayer paid the input VAT, its recourse is not against the government but against the suppliers who shifted to it the output VAT. (Carmen Copper Corporation v. CIR, CTA Case No. 9954, December 16, 2021)

TAX ASSESSMENTS

Taxpayer has thirty (30) days from the receipt of the decision or ruling or after the expiration of the period fixed by law for action of the BIR within which to file an appeal to the CTA. Otherwise, the Court has no jurisdiction to review the appeal.

• Where no documentary evidence was presented by the taxpayer to show the date of receipt of the decision, and taxpayer admitted that he could no longer find the files showing the date of receipt of the decision, thereby taxpayer failing to prove the date of decision, the 30-day period to file an appeal is counted from the date of issuance of the decision. (Ermilo Tan Ng Hua v. CIR, CTA Case No. 9912, December 7, 2021)
• A new Letter of Authority (LOA) must be issued in case of reassignment of the audit investigation to other Revenue Officers (ROs).
  • Even if the CTA considers Memorandum of Assignment (MOA) as new LOA, it must be signed by the CIR or authorized representative, identified as Regional Director. The position equivalent to a Revenue Regional Director for the large taxpayer is the Assistant Commissioner/Head Revenue Executive Assistants. In this case, the MOA was signed and issued by Chief of Large Taxpayer Service (LTS). She is neither the CIR, Regional Director, nor an Assistant Commissioner/Head Revenue Executive Assistant of the LTS. She had no authority to issue the MOA, thus, the assessments resulting therefrom are void. Therefore, the RO and Group Supervisor (GS) who continued the audit of Star Songs, Inc. were not authorized by a valid LOA; hence, the assessments issued pursuant to said audit are void ab initio (ABS-CBN Film Productions, Inc. v. CIR, CTA Case No. 9982, December 3, 2021; Tann Philippines, Inc. v. CIR, December 16, 2021)
  • A mere MOA signed by Revenue District Officer (RDO) does not and cannot confer authority to RO and GS to continue the audit or investigation of taxpayer’s books of accounts. As both are not authorized through an LOA, their investigation and subsequent assessment of could not be sanctioned. (Hard Rock Café (Makati City) Inc., v CIR, CTA Case No. 9945, December 10, 2021; Republic of the Philippines v. Robiegie Corporation, CTA EB No. 2339, CTA oC No. 023, December 2, 2021)

• In case of change of address, the taxpayer is required to give a written notice thereof to the Revenue District Officer or the district having jurisdiction over his former legal residence and/or place of business. Where taxpayer filed a letter with the RDO informing the BIR of the change of address; submitted another letter submitting the memorandum of the RO recommending the approval of transfer of registration from Palawan to Bulacan; where taxpayer sent another letter requesting all letters to taxpayer be addressed and delivered to Bulacan, taxpayer’s transfer f has been validly made, insofar as the subject income tax assessment is concerned.
  • While a mailed letter is deemed received by the addressee in the course of the mail, this is merely a disputable presumption subject to rebuttal. Consequently, the direct denial thereof shifts the burden to the sender to prove that the said letter was actually received by the addressee. Where the taxpayer directly denies having received the subject PAN and FLD/FAN. the burden of proving the actual receipt of the same lies with the BIR. Registry Receipts only proves fact of mailing and not service to the taxpayer or to its authorized representative. Even so, the registry receipts shows no indication of the signature appearing thereon refer to taxpayer or tis authorized representative. Respondent's failure to prove that the subject PAN and FLD/FAN were received by petitioner renders the subject income tax assessment void, for violation of petitioner's right to due process.
  • Section 203 of the NIRC mandates the government to assess internal revenue taxes within three years from the last day prescribed by law for the filing of the tax return or the actual date of filing of such return, whichever comes later. Hence, an assessment notice issued after the three-year prescriptive period is no longer valid and effective. Where taxpayer filed its ITR for taxable year 2014 on April 6, 2015, the period to assess the subject income tax assessment is until April 15, 2018. Thus, mailing of FLD/FAN on April 16, 2018 or a day after the lapse of 3-year prescriptive period, the assessment is void.
  • A compromise penalty may not be validly imposed if the assessment is void. Nevertheless, even granting that the said tax assessment may be considered as valid, the imposition of compromise penalty cannot be sustained. It must be stressed that a compromise is, by its nature, mutual in essence. It implies agreement. One party cannot impose it upon the other. Compromise penalties are only amounts suggested in settlement of criminal liability and may not be imposed or exacted on the taxpayer in the event of refusal to pay the suggested amount. that there is no indication that petitioner consented to the subject compromise penalty, the same may not be validly imposed. (Megaconstruct Group, Inc. v CIR, CTA Case No. 9992, December 2, 2021)

• To question the Warrant of Distraint and Levy (WDL) necessitates looking into the validity of the assessment. This is so since the validity of petitioner's collection efforts through the WDL is chiefly dependent on the propriety of the assessment issued against the taxpayer. This is consistent with the long-standing principle that a void assessment bears no valid proof. In short, the determination of the assessment’s validity is directly necessary and related to the determination of the correctness of the issuance of the WDL.
  • Receipt of the Formal Letter of Demand without the Formal Assessment Notice renders the assessment void
  • Presentation of a registry receipt, without properly identifying and authenticating the signatures appearing thereon, is insufficient in proving the taxpayer's receipt of an assessment.
  • Although the subject registry return receipt indicates a name and a signature, the BIR was unable to prove that the name appearing on the said document is an authorized representative of respondent. (CIR v. Nationwide Health Systems Baguio, Inc. CTA EB No. 2264, CTA Case No. 9507, December 9, 2021)

Where the FLD does not state a due date for the payment of the assessed taxes as the space in the Assessment Notice where the due date is to be indicated remained unaccomplished, the assessment is considered void. (CIR v. Universal Robina Corporation, CTA EB No. 2280, CTA Case No. 9530, December 7, 2021)

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 tax treatment will be applied to socialized house and lot units sold to qualified beneficiaries.
  • In addition, sale of house and lot and other residential dwellings with selling price of not more than Php 3,199,200 is VAT exempted.
  • Units used for commercial purposes such as leasing, retail stores, offices and etc. shall be subject to the payment of appropriate taxes. (Certificate of Tax Exemption No.: BOI-LEH-100-2022, PSH-105-2022, PSH-106-2022, PSH-107-2022, PSH-108-2022, BOI-LEH-109-2022, BOI-LEH-110-2022, BOI-LEH-111-2022, BOI-LEH-112-2022)
• Transfer of shares under a global restructuring plan from one company to another in the form of additional paid-in capital, without the issuance of additional shares of stock is deemed as capital investment and not subject to capital gains tax, income tax and donor’s tax.
  • It is excluded in the computation of taxable income as they are not considered profits or earnings derived from normal business operations.
  • The transfer is not considered to be a sale, barter or exchange as the transfer was made pursuant to global restructuring plan.
  • Also, it is not subject to donor’s tax as there is no intention to donate. (BIR Ruling No: BOT-101-2022, March 25, 2022)
• Dacion en pago of real properties held for investment purposes will be:
  • Subject to 6% capital gains tax (CGT) – actual use of the property will determine whether it is an ordinary asset or capital asset.
  • Subject to documentary stamp tax (DST) for the conveyance of real property
  • Exempted from creditable withholding tax (CWT) and value-added tax (VAT) (BIR Ruling No: OT-102-2022, March 25, 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 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 (Certificate of Tax Exemption NO: SH30-103-2022, March 25, 2022)
• Declaration or distribution of property dividends to shareholders are exempt from income tax.
  • The company does not realize any gain on the declaration of shares and thus are not subject to capital gains tax.
  • Also, the declaration or distribution of shares of stocks as dividends is not a sale, barter or exchange and does not have a donative intent is likewise not subject to VAT or donor’s tax
  • Intercorporate dividends – dividends received by a resident foreign corporation from a domestic corporation shall not be also subject to income tax and consequently to withholding tax. (BIR Ruling No. OT-092-2022, March 10, 2022)

BIR RULINGS

• Taxpayer is exempt from income tax and creditable withholding tax on its income received directly in connection with its economic and low-cost housing project, consisting of house and lot units solely for family home or dwelling purposes, a project duly registered with the Board of Investments (BOI).
  • Moreover, the sale by the Company of residential lot valued at P1,919,500.00 and below, or house and lot and other residential dwellings valued at P3,199,200.00 and below, is VAT-exempt under Section 109 (1)(P) of the Tax Code. Provided, however, that beginning January 01, 2021, the VAT exemption shall only apply to sale of house and lot and other residential dwellings with selling price of not more than P3,199,200.00.
  • However, the sale of house and lot units in excess of the house and lot units registered with the BOI, if any, including those units used for commercial purposes such as leasing, retails stores, offices, etc. shall be subject to the payment of appropriate taxes under the Tax Code. (BIR Ruling No. 011-2022, BIR Ruling No. 012-2022, BIR Ruling No. 018-2022, BIR Ruling No. 020-2022, BIR Ruling No. 023-2022, BIR Ruling No. 026-2022, BIR Ruling No. 027-2022, BIR Ruling No. 028-2022, BIR Ruling No. 029-2022, BIR Ruling No. 030-2022, BIR Ruling No. 037-2022)

• A non-stock corporation or association organized and operated exclusively for religious purposes, no part of its net income or asset shall belong to or inure to the benefit of any member, organizer, officer or any specific person is exempt from income taxation. However, income of whatever kind and character of religious institutions from any of their properties, real or personal, regardless of the disposition made of such income, shall be subject to tax.
  • Hence, any income derived from the sale of real property, regardless of how income is used, whether for profit or non-profit purposes, is subject to the corresponding internal revenue taxes imposed under the Tax Code.
  • Therefore, the sale of the property by a religious institution is subject to capital gains tax based on the gross selling price or current fair market value, whichever is higher, of such land. Moreover, the Deed of Absolute Sale of said real property shall be subject to DST. (BIR Ruling No. 013-2022)

• Cancellation of shares and re-issuance thereof to the Republic of the Philippines pursuant to several Supreme Court decisions, is exempt from capital gains tax, donor’s tax and documentary stamp tax.
  • Capital Gains Tax - The transfer of shares in favor of the Republic of the Philippines without any monetary consideration, and made in order to give effect to the mentioned laws, is not subject to capital gains tax.
  • Donor’s Tax - There is no intention to donate as the transfer was made in compliance with the above-mentioned laws. The transfer of the legal title to the Republic of the Philippines is only a confirmation of its ownership over the said shares, and there is no donative intent or act of liberality involved.
  • Documentary Stamp Tax - There is no sale, agreement to sell, or memorandum of sale, or deliver or transfer contemplated under Sec. 175 of the Tax Code. However, the notarial acknowledgment on the Deed of Compliance is subject to the documentary stamp tax. (BIR Ruling No. 016-2022; (BIR Ruling No. 039-2022)

•  Merger of two companies, whereby the assets and liabilities are transferred in exchange of shares of stock is considered as tax-free merger, where no gain or loss shall be recognized from the transfer all assets and liabilities.
  • Moreover, no gain or loss shall be recognized by the transferee on its receipt of assets and liabilities of the transferor.
  • One of the requisites of a valid donation is the intent to do an act of liberality. Where the purpose of donation is purely for legitimate business purposes – there is no intention to donate and the transaction is bona fide effected solely for business reasons -  the merger will not be subject to gift tax. (BIR Ruling No. 017-2022; (BIR Ruling No. 019-2022)

• An entity engaged by National Housing Authority is exempt from project-related income taxes and creditable withholding taxes on it income received directly in connection with the construction/development of socialized housing units.
  • Moreover, the delivery of socialized housing units are exempt from VAT provided that selling price does not exceed the VAT threshold.
  • However, the purchases of goods/articles shall be subject to VAT, even if the said purchases are to be used for the socialized housing project, since VAT is an indirect tax which can be passed on by the seller of the goods/services. The seller must issue VAT exempt official receipts on its gross receipts from the said socialized housing project. (BIR Ruling No. 023-2022)

• Retirement benefits received by officials and employees of private firms, whether individual or corporate, in accordance with a reasonable private benefit plan maintained by the employer are exempt from income tax, provided, that the retiring official or employee has been in the service of the same employer for at least ten (10) years and is not less than fifty (50) years of age at the time of his retirement  shall not be included in gross income and shall be exempt from taxation.
  • Where the Company has an approved reasonable retirement benefit plan, the retirement benefits that will be received by its retiring employee shall be exempt from income tax, provided that the employees meet two (2) conditions: (1) the employee had been in the service of the same private firm for at least ten (10) years; and (2) he is at least fifty (50) years old at the time of retirement.
  • Hence, if the retiring employee is at least sixty (60) years old but has not been in the service of the for at least ten (10) years at the time of his retirement, the retirement benefits that he will receive shall not be exempt from income tax.
  • Moreover, pursuant to Section 2.78.1 of Revenue Regulations (R) No. 2-98, as amended, the terminal pay, i.e., commutation and payment of monetized unused vacation leave credits not exceeding ten (10) days during the year are not subject to income tax and consequently to the withholding tax. Conversely, the cash equivalent of vacation leave exceeding ten (10) days is subject to tax. However, this same principle cannot apply to sick leave credits since an employee must actually go on sick leave to be able to avail of said leave credits.
  • It is, however, understood that this exemption does not include the payment of the retiring employees' salaries, except if minimum wage earners, and the payment of the 13th month pay and other benefits in excess of the Php90,000.002 threshold which shall be subject to income tax, and consequently to withholding tax, under Section 2.78.1 (A)(3)(a) and (A)(7) of RR No. 2-98, as amended. (BIR Ruling No. 024-2022)

• An invention is exempt from all kinds of taxes for the first 10 years from the date of first sale provided that tax exemption privilege pertaining to invention shall be extended to the legal heirs or assignee upon the death of the investor. The technologies, their manufacture or sale, shall also be exempt from payment of license, permit fees, customs duties and charges on imports.
  • The invention must be new and original and the technology is newly developed by local researchers or adopted locally from foreign sources.
  • In other words, the tax exemption for the inventor only and not for any other entity that commercially produces and distributes the invented product.BIR Ruling No. 025-2022)

• A non-stock, no-profit educational institution is  exempt from income tax only on the following revenues or receipts:
  • Tuition and Miscellaneous Fees; and
  • Income derived from the operations of cafeterias/canteens, dormitories and bookstores located within its premises, owned and operated by institutions to be actually, directly and exclusively used for educational purposes.
• It is also exempt from VAT on educational services (BIR Ruling No. 031-2022, BIR Ruling No. 034-2022)

• The Deed of Absolute Donation being a gift in favor of a political subdivision of the Government, is exempt from the payment of the donor’s tax pursuant to Section 101 (A) (1) of the Tax Code.
  • The Deed of Donation is likewise not subject to the Documentary Stamp Tax (DST) under Sec. 196 but only to the DST of P15.00 imposed under Sec. 188.  (BIR Ruling No. 035-2022)

• That the Deed of Absolute Donation being a gift in favor of a religious corporation is exempt from the payment of the donor’s tax pursuant to Section 101 (A) (1) of the Tax Code, subject to the condition that not more than thirty percent (30%) of said gift shall be used by the done for administration purposes.
  • The Deed of Donation is likewise not subject to the Documentary Stamp Tax (DST) under Sec. 196 but only to the DST of P15.00 imposed under Sec. 188.  (BIR Ruling No. 036-2022, BIR Ruling No. 038-2022)

• The transfer of the legal title of the company shares from its former trustees to new sets of officers over the company shares, is exempt from the following taxes:
  • Capital gains tax  considering that the transfer involves neither monetary consideration nor change in beneficial ownership as the transfer for the new set of officers will be limited only to the transfer of the legal title.
  • Donors tax considering that there is no intention on the part of any of the parties to donate the shares since the transaction is purely for a legitimate business purpose
  • Documentary stamp tax as the transfer is without change in beneficial ownership (BIR Ruling No. 042-2022)

CLARIFICATION ON THE INCOME TAX TREATMENT OF DIFFERENT CLASSIFICATIONS OF EDUCATIONAL INSTITUTIONS (Revenue Memorandum Circular No. 78-2022, June 8, 2022)

• Proprietary Educational Institution refers to any private school maintained and administered by private individuals or groups with an issued permit to operate from the Department of Education (DepEd), or the Commission on Higher Education (CHED), or the Technical Education and Skills Development Authority (TESDA), as the case may be, in accordance with existing laws and regulations.
• Income from proprietary educational institutions which are domestic corporations is subject to ten percent (10%) preferential income tax. Provided that beginning July 1, 2020 until June 30, 2023, the tax rate shall be one percent (1%)
• Moreover, the same tax rate shall be applicable to a domestic educational institution which is also a non-stock, non-profit (NSNP) whose net income or assets accrue/inure to or benefit any member or specific person.
• If the revenue or income not used actually, directly and exclusively for education purposes exceeds fifty percent (50%) of the total gross income derived from all sources, the regular corporate income tax shall be imposed on the entire taxable income of the institution.
• Applicable tax on other proprietary educational institutions:
  • Individual - income of an individual, trust, or estate that owns the proprietary educational institution as a sole proprietor, is taxable under Sections 24 and 25 of the Tax Code, and the applicable tax rates shall depend on the citizenship and residence of such individual, trust, or estate.
  • Other Corporations - The income of a corporation, as defined under Section 22(B) of the Tax Code, that is not organized as domestic corporation but is classified as resident foreign corporation, is taxable under Section 28(A) of the Tax Code.
• Contributions or Gifts/Donations to Educational Institutions
  • Individuals – an amount not in excess of 5% of their taxable income.
  • Corporation – an amount not in excess of 10% of their taxable income
  • Contributions or gifts actually paid or made within the taxable year to domestic corporations organized and operated exclusively for educational purposes may be allowed as deduction from the gross income in an amount provided that no part of the net income or asset of the done corporations inures to the benefit of any individual or private stockholder.
  • The amount may be deductible in full if the conditions under Section 34(H)(2)(c) of the Tax Code are complied with.
  • Certain gifts or donations in favor of an NSNP educational institution may be exempt from donor's tax, subject to the condition that not more than thirty percent (30%) of said gifts shall be used by the donee institution for administration purposes
• Withholding Tax:
  • An educational institution shall be constituted as withholding agent if he acts as an employer or makes payments to individual or corporations subject to withholding tax pursuant to Section 57 of the Tax Code.
  •  NSNP educational institutions are not subject to creditable final withholding taxes on their revenues and assets used actually, directly and exclusively for educational purposes.
  • Income payments to proprietary educational institutions, including NSNP education institutions, which are subject to preferential income tax are subject to creditable and final withholding tax.
  • Educational institutions organized as sole proprietorships under Sec. 24 (A)(2) (a or b) are also subject to creditable and final withholding taxes.
• NSNP educational institutions are required to secure a one-time certificate of income tax exemption or exemption ruling from the BIR. Otherwise, the income of the NSNP educational institution shall be subject to applicable taxes under the Tax Code.

ALL FIELD AUDITS ARE SUSPENDED UNTIL FURTHER NOTICE; NO NEW LETTER OF AUTHORITY/MISSION ORDER WILL BE ISSUED (Revenue Memorandum Circular No. 77-2022, May 30, 2022)

• All field audits and other field operations of the Bureau of Internal Revenue covered by Letters of Authority/Mission Orders relative to examinations and verifications of taxpayers’ books of accounts, records, and other transactions are suspended until further notice.
• No new Letters of Authority/Mission Orders will be further issued.
• No written orders to audit and/or investigate taxpayers’ internal revenue tax liabilities shall be issued and/or served, except in the following cases:
  • Investigation of cases prescribing on or before October 31,2022;
  • Processing and verification of estate tax returns, donor's tax returns, capital gains tax returns and withholding tax returns on the sale of real properties or shares of stocks together with the documentary stamp tax returns related thereto;
  • Examination and/or verification of internal revenue tax liabilities of taxpayers retiring from business; or Audit of National Government Agencies (NGAs), Local Government Units (LGUs) and Government Owned and Controlled Corporations (GOCCs) including subsidiaries and affiliates; and
  • Other matters/concerns where deadlines have been imposed or under the orders of the Commissioner of Internal Revenue.
• Service of Assessment Notices, Warrants, and Seizures Notices should still be effected.
• Taxpayers may voluntarily pay their known deficiency taxes without the need to secure authority  from concerned Revenue Officials.