Competence. Integrity. Commitment.

GUIDANCE ON THE FILING OF REQUEST FOR CONFIRMATION, TAX TREATY RELIEF APPLICATIONS AND TAX SPARING APPLICATIONS (Revenue Memorandum Circular No. 20-2022, February 17, 2022)

• Taxpayers already issued with Certificate of Entitlement to Treaty Benefit (“COE”), with the tenor thereof allowing the ruling to be applied to subsequent or future income payments, shall no longer need to file a Request for Confirmation (“RFC”) or Tax Treaty Relief Application (“TTRA”) every time an income of a similar nature is paid to the same non-resident.
• In applying the confirmed treaty benefit to future income payments, the income payor or withholding agent shall always be guided by the requisites mentioned in the COE. Thus, if the COE mentions tax residency as a requisite for continuous enjoyment of the treaty benefit, the income payor must require the non-resident to submit first a Tax Residency Certificate (“TRC”) for such relevant year before making any payments.
• The same rule applies to the Certificate of Entitlement to the Reduced Dividend Rate for tax sparing applications.
• A new RFC, TTRA or tax sparing application shall only be filed if any of the requisites mentioned in the certificate is absent.
• During tax audits, the income payor shall submit or present a copy of the duly issued COE and proof of satisfaction of the requisites cited therein.
• Regular Filing of RFCs and TTRAs
  • For business profits, income from services, capital gains, income derived by teachers, and such other income from non-recurring transactions, the RFCs or TTRAs shall still be filed following the procedures and requirements under RMO No. 14-2021, as amended by RMC No. 77-2021
  • For the annual updating of long-term contract of services, taxpayer shall only submit the following:
    • TRC of the non-resident for the relevant year;
    • Sworn Certification stating services provided by the foreign enterprise, place of performance of such services, individuals who rendered the services on behalf of the foreign enterprise (positions, designations, and professional background), duration of stay in the Philippines.
    • Certified true copy of their passports or a certification duly issued by the Bureau of Immigration stating their dates of arrival and departure from the Philippines;
    • Certificate of Completion of the project duly signed by the income recipient and duly accepted by the domestic income payor, if applicable;
    • Invoice(s) duly issued by the income recipient in accordance with the invoicing requirements of the country of residence, if applicable; and

Bank documents/certificate of deposit/telegraphic transfer/telex/money transfer evidencing the payment/remittance of income, if applicable.

REVENUE MEMORANDUM CIRCULAR NO. 19-2022, FEBRUARY 4, 2022 (CLARIFICATION AND GUIDANCE ON SECTION 8 OF REVENUE REGULATIONS (RR) NO. 5-2021 ON THE TAX-FREE EXCHANGES OF PROPERTIES UNDER SECTION 40(C)(2) OF THE NATIONAL INTERNAL REVENUE CODE (TAX CODE) OF 1997, AS AMENDED BY REPUBLIC ACT (RA) NO. 11534 OR THE CREATE ACT (Revenue Memorandum Circular No. 19-2022, February 4, 2022.pdf)

• Section 40(C)(2) of the 1997 Tax Code, as amended by CREATE, merely defers the recognition of gain or loss on said exchange of properties or shares and shall only be recognized after the subsequent transfer as they will be taxed accordingly.
• The substituted basis of the transferred properties and received shares shall be properly established and monitored in case of subsequent sale or disposition.
• Reorganization – shall mean any of the following instances:
  • A  corporation, which is a party to a merger or consolidation, exchanges property solely for stock in corporation, which is party to the merger or consolidation; or
  • The acquisition by one (1) corporation, in exchange solely for all or for a part of its voting stock, or in exchange solely for all or part of the voting of a corporation which is in control of the acquiring corporation, of stocks of another corporation if, immediately after the acquisition, the acquiring corporation has control of such other corporation, whether or not such acquiring corporation had control immediately before the acquisition: or
  • The acquisition by one (1) corporation, in exchange solely for all or for a part of its voting stock, or in exchange solely for all or part of the voting of a corporation which is in control of the acquiring corporation, of substantially all of the properties of another corporation. In determining whether the exchange is solely for stocks, the assumption by the acquiring corporation of a liability of the others shall be disregarded; or
  • A recapitalization which shall mean an arrangement whereby the stock and bonds of a corporation are readjusted as to amount, income, or priority or an agreement of all stockholders and creditors to change and increase or decrease the capitalization or debts of the corporation or both; or
  • A reincorporation, which shall mean the formation of the same corporate business with the same assets and the same stockholders surviving under a new charter.
• Transfer to a Controlled Corporation - which means transfer of property to a corporation by a person, alone or together with others, not exceeding four (4) persons, in exchange for stock or unit of participation in such a corporation of which as a result of such exchange, the transferor or transferors, collectively, gains or maintains control of said corporation: Provided, that stocks issued for services shall not be considered as issued in return for property.
  • In tax free-exchange of properties, control means ownership of stocks in a corporation after the transfer of property possessing at least fifty-one percent (51%) of the total voting power of all classes of stocks entitled to vote.
• Determination of Substituted Basis:
  • Stocks/Securities
  • The original basis of the property, stock securities to be transferred;
  • Less:
    • Money received, if any
    • Fair market value of the other property received, if any;
  • Plus:
    • The amount treated as dividend of the shareholder, if any
    • The amount of any gain that was recognized on the exchange, if any
    • Property received as “boot” shall have as basis its fair market value
      • Boot refers to the money and property received in excess of the stock or securities received by the transferor on a tax- free exchange.
• Property in the Hands of the Transferee:
  • The original basis in the hands of the transferor;
  • Plus: the amount of the gain recognized to the transferor on the transfer
• Original Basis
  • The cost of the property, if acquired by purchase on or after March 1, 1913;
  • The fair market price or value as of the moment of the death of the decedent, if acquired by inheritance
  • The basis in the hands of the donor or the last preceding owner by whom the property was not acquired by gift, if the property as acquired by donation
  • If the basis is greater than the fair market value of the property at the time of donation, then for purposes of determining the loss, the basis shall be such fair market value.
  • The amount paid by the transferee for the property, if the property was acquired for less than adequate consideration in money or money’s worth
  • The adjusted basis of (a) to (d) above, if the acquisition cost of the property is increased by the amount of improvements that materially add to the value of the property or appreciably prolong its life less accumulated depreciation.
  • The substituted basis, if the property was acquired in a previous tax-free exchange under Section 40(C)(2) of the Tax Code of 1997
• Monitoring of the Substituted Basis of Properties
  • Each corporation, which is a party to the reorganization, shall file a complete statement of all facts pertinent to the non-recognition of gain and loss in connection with the reorganization.
  • Every taxpayer, other than a corporation, party to the reorganization, who received stocks or securities and other property or money in connection with the tax-free exchange shall incorporate in his income tax for the taxable year a complete statement of all facts pertinent to the non-recognition of gain or loss in such exchange.
  • They shall note in their audited financial statements the assets acquired in the tax-fee exchange until the subject properties are subsequently transferred to another transferee.
  • The parties shall cause to annotate, at the back of the Transfer Certificate of Title (TCC), Condominium Certificate of Title (CCT) and Certificates of Stock, the date the deed of exchange was executed, the original or historical cost of acquisition of the properties or shares of stock transferred, and the fact that no gain or loss was recognized as a result of such exchange.
  • A photocopy of the TCT/CCT/Certificate of Stock that bears the annotation of substituted bases of the real properties/shares of stock transferred/received in connection with the transaction, as duly certified by the RD/Corporate Secretary, should be submitted to the RDO which issued the CAR, within ninety (90) days from the date of the receipt of the CAR, by any of the parties to the exchange transaction. Otherwise, the RDO shall refer the docket of the case to the Legal Division for appropriate action.
  • The shareholders of the absorbed/transferor corporation and the surviving/ transferee corporation shall record in their respective books the mandatory accounting entries stated in Annexes "A" "A-1" and "A-2" hereof, as the case may be, pursuant to RMO No. 17-2016.
• Tax Treatment of Exchanges of Properties Made Pursuant to Section 40(C)(2) of the tax Code, as amended:
• Transfer of properties in exchange for shares of stocks pursuant to Section 40 (C)(2) shall be exempt from the following:
  • Capital Gains Tax (CGT)
  • Creditable Withholding Tax (CWT)
  • Income Tax (IT)
  • Donor’s Tax (DT)
  • Value-Added Tax (VAT)
  • Documentary Stamp Tax (DST) on conveyances of real properties and transfer of stocks
  • However, original issuance of shares in exchange for the properties transferred shall be subject to DST under Section 174 of the 1997 Tax Code

AUDITED FINANCIAL STATEMENTS OF COMPANIES WHOSE FISCAL YEAR ENDS ON DECEMBER 31, 2021

• All corporations, including branch offices, representative offices, regional headquarters and regional operating headquarters of foreign corporations, shall file their AFS depending on the last numerical digit of their SEC registration or license number in accordance with the following schedule through Efast:

*Corporations may still file on or before its respective filing dates through Efast:

• The above filing schedule shall not apply to the following corporations:
  • Those whose fiscal year ends on a date other than December 31, 2021. Such entities shall file their AFS within 120 calendar days from the end of their fiscal year
  • Those whose securities are listed on the Philippine Stock Exchange (“PSE”) and those which are covered under Section 17.2 of the SRC, except those companies which filed a Notification of Suspension to file reports. These entities are encouraged to observe the due date of filing of their AFS (within 105 days after the end of the fiscal year) as an attachment to their Annual Reports. However, subject entities are given an extension of until May 15, 2022 to file their Annual Reports.
  • Those whose AFS are being audited by the Commission on Audit (“COA “) provided the following are attached:
    • An affidavit signed by the President and Treasurer (or CFO) attesting to the fact that the company timely provided COA with the financial statements and supporting documents and that the audit of COA has just been concluded.
    • A letter from COA confirming the information provided.
• Late filings after respective due dates shall be accepted starting September 16, 2022, and shall be subject to the prescribed penalties which shall be computed from the date of the last day of the filing schedule as provided.
• The AFS, other than the consolidated financial statements, shall have the stamped “received by the Bureau of Internal Revenue (BIR)” or its authorized banks, unless the BIR allows an alternative proof of submission for its authorized banks (e.g. bank slips) and/or other facilities.
• The basic components of the AFS as prescribed under Revised SRC Rule 68, shall be submitted by the filers. Failure to comply with any of the formal requirements under the said Rule, including the prescribed qualifications for independent auditors and/or any material deficiency or misstatement that may be found upon evaluation of the specific contents thereof, shall be considered a sufficient ground for the imposition of penalties by SEC. The acceptance and receipt by the Commission of the financial statements shall be without prejudice to such penalties.
• Companies qualifying under the below thresholds are required to submit properly audited financial statements as stated under Rule 68 of the Revised SRC:
  • Stock corporations with total assets or liabilities of P600,000.00 or more as prescribed under the RCC and any of its subsequent revisions or such amounts as may be subsequently prescribed.
  • Branch offices/representative offices of stock foreign corporations with assigned capital in the equivalent amount of P1,000,000.00 or more.
  • Branch offices/representative offices of non-stock foreign corporations with assigned capital in the equivalent amount of P1,000,000.00 or more.
  • Regional operating headquarters of foreign corporations with total revenues in the equivalent amount of P1,000,000.00 or more.

Corporations which do not meet the above threshold may submit their annual financial statements accompanied by a duly notarized Treasurer’s Certification only.

BIR RULINGS

• • To be classified as capital assets for taxation purposes the property must be not actually used in trade or business of the taxpayer, whether or not connected with his trade or business, or not held for lease or sale of customers. Also, if the property is merely held for capital appreciation and investment purposes and remains vacant and idle, it is deemed a capital asset.
    • Real properties owned by taxpayers not engaged in the real estate business or referring to those persons other than real estate dealers, real estate developers and/or real estate lessors, shall, upon showing of proof that the same have not been used in business for more than two (2) years prior to the consummation of the taxable transactions involving the said real properties, and though classified as ordinary assets, be automatically converted into capital asset. (BIR Ruling No. VAT-334-2021, September 23, 2021).
  • The transfer of the legal title of the shares from the former trustee-appointee to the new trustee-appointee, is not subject to capital gains tax (CGT) considering that the transfer involves neither monetary consideration nor change in beneficial ownership.
    • Furthermore, if there is no transfer or conveyance to the new trustee of the beneficial ownership of or any right, claim or interest over the share or over the assets, transfers cannot be subject to documentary stamp tax and shall not be subject to donor’s tax. (BIR Ruling No. OT-467-2021, December 14, 2021).
  • A foreign corporation, whether or not engaged in trade or business in the Philippines, is subject to income tax only with respect to income derived from sources in the Philippines. With respect to value-added tax (VAT), payments for the sale or exchange of services, including the use or lease of properties are subject to VAT only if the services are performed in the Philippines.
    • Thus, where if a foreign corporation enters a maintenance agreement with the Philippine entity where despite the computer system is located in Manila, the maintenance and repair of the system are to be performed abroad using internet-based remote computer repair technology and no services will be performed in the Philippines and no personnel will be sent herein, the service fees are exempt from income tax and VAT. (BIR Ruling No. OT-340-2021, September 28, 2021).
  • The value of the gross estate of the decedent shall be determined by including the value at the time of his death all properties to the extent of any interest therein.
    • If the decedent prior to his death relinquished his right over ownership over his inheritance, the property shall no longer be included in the gross estate.
  • In order to support the claim that the decedent died without an heir, an affidavit to this effect must also be submitted.
  • A Certificate Authorizing Registration is not a proof of ownership that only a proof that taxes have been paid. (BIR Ruling No. OT-034-2021, September 30, 2021)
  • A non-stock and non-profit residential homeowner association duly registered with the Housing and Land Use Regulatory Board and performs the delivery of basic community services, the income derived from association dues, membership fees, other assessments and charges collected in a purely reimbursement basis and rentals of facilities is exempt from income tax, VAT or percentage tax, whichever is applicable. Provided that such income and dues shall be used for the cleanliness, safety, security and other basic services needed by the members, including the maintenance of the facilities of their respective subdivisions or villages.
    • However, it shall be subject to the applicable internal revenue taxes on its other income from trade, business or other activities. (BIR Ruling No. OT-344-2021, October 04, 2021).
  •  The retirement benefits to be received by a qualified employee-member of the Plan shall continue to be exempt from income tax provided:
    • Employee has been in the service of the same employer for at least 10 years; and
    • 50 years old at the time of retirement.
    • Income of the Plan’s fund from its investments shall continue to be exempt from income tax and withholding tax, provided:
      • Contributions are made to the trust by such employer, or employees, or both, for the purpose of distributing to such employees the earnings and principal of the fund accumulated by the trust in accordance with such plan;
      • If under the trust instrument it is impossible, at any time prior to the satisfaction of all liabilities with respect to employees under the trust, for any part of the income to be (within the taxable year or thereafter) used for, or diverted to, purposes other than for the exclusive benefit of employees;
    • Provided further: any amount actually distributed to any employee or distributee shall be taxable to him in the year in which so distributed to the extent that exceeds the amount contributed by such employee.
    • The contributions of Participating Companies to the retirement fund are deductible from the Participating Companies’ gross income, and shall continue to qualify through all the years that it shall be in operation, provided that any modification or amendment in the Retirement Plan Rules and Regulations should be submitted to the BIR for certification that such modification or amendment does not affect the qualification of the Plan.
    • However, portions of the fund of the Plan in excess of the amount actuarially determined to cover the benefits of the covered employees may be reverted to the company without terminating the Plan but the same shall be declared as income and applicable taxes thereon shall be paid (BIR Ruling No. OT-450-2021, December 9, 2021; OT-480-2021, December 24, 2021).
  • A tax assumption mechanism expressed through an Exchange of Notes between the Republic of the Philippines and the Government of Japan, is binding through executive action without need of a vote by the Senate or Congress.
    • Marubeni Corporation, a non-resident foreign corporation that is licensed to do business in the Philippines entered into a Consortium Agreement (“UC”) with D.M. Consunji, Inc. (“DMCI”) for the limited purpose of submitting a tender to the Department of Transportation (“DOTr”), to perform the contract relating to the Exchange of Notes between the Philippines and Japan for the improvement of “Mass Transit Systems in Metro Manila”.
    • UC, after having been awarded the Project, sought confirmation from the BIR of its tax liabilities in view of the tax assumption mechanism expressed under the Exchange of Notes. Accordingly, the BIR ruled:
    • UC, having been formed solely for the purpose of bidding and implementing the Project, is subject to corporate income tax, through the UC members, provided that the lead partner is Marubeni and that its share of work is more than 50% of the contract amount. However, pursuant to the Exchange of Notes, the said income tax on the Japanese company shall be assumed by DOTr;
    • By reason of such tax assumption scheme, the UC, through its members, is still required to file quarterly and annual income tax returns with the BIR;
    • On the VAT aspect of the project, pursuant to the case of Mitsubishi Corporation – Manila Branch v. Commissioner of Internal Revenue, and Revenue Memorandum Circular No. 8-2017, the VAT-registered suppliers and sub-contractors of the UC shall bill and pass on 12% VAT to the UC, which in turn, will include in its billing and pass on to DOTr. The Japanese contractors shall file the prescribed VAT returns on gross receipts derived from the project, claim its input taxes from its purchases of goods, properties, and services, and shall pay the output tax thereon, after offsetting the creditable or allowable input taxes, considering that the amount intended for the payment of the VAT has already been collected and received by UC from DOTr.
    • As the importer, the DOTr shall be liable for the 12% VAT on the importation of materials and equipment under Section 107(A) of the Tax Code, as amended.
    • The Japanese personnel employed by the UC and its Japanese contractors performing work in the Philippines are required to file income tax returns but the DOTr shall assume payment of the taxes due thereunder. Accordingly, the said Japanese personnel are not subject to withholding tax on compensation under Section 57 of the Tax Code, as amended, pursuant to the tax assumption provisions under the Exchange of Notes and the Mitsubishi case.
    • In connection with the tax assumption scheme and pursuant to the Exchange of Notes, the Government of the Philippines or its executing agency (i.e. DOTr) shall be responsible for the liquidation or settlement of such fiscal levies, duties, taxes, and other similar charges. (BIR Ruling No. OT-471-2021, December 21, 2021)
  • Merger of Wawona Holdings, Inc. (“WHI”) as the absorbed corporation, and Abaya Investments Corporation (“AIC”) as the surviving corporation, qualifies as a tax-free merger under Section 40(C)(2) of the National Internal Revenue Code of 1997 (“NIRC”), as amended.
    • Because the acquisition and assumption by AIC of all the assets and liabilities of WHI will result in specific benefits to both corporations, such as but not limited to increased financial strength through pooling of resources, a more diversified and stable capital base, increased operating economies and efficiencies, and reduction of overall business expenses, the merger is being undertaken for a bona fide business purpose.
    • The transaction is also not subject to donor’s tax as there is no intention on the part of any of the parties to donate since the transaction is purely for a legitimate business purpose.
    • Also, the transfer of properties as a consequence of the merger shall not be subject to any output tax, pursuant to Section 4.106-8(b)(3) of Revenue Regulations (“RR”) No. 16-2005, as amended by RR No. 4-2007, and as further amended by RR No. 10-2011, since the conveyance of the property to effectuate the merger is not made in the course of business but by operation of law.
    • The excess and unexpired Minimum Corporate Income Tax (“MCIT”) of the absorbed corporation shall be carried forward and credited against the normal income tax due of the surviving corporation for the three (3) years immediately succeeding taxable years pursuant to Section 27(E)(2) of the NIRC, as amended. Also, any excess and unutilized creditable withholding taxes (“CWT”), if any, which form part of the assets to be transferred may be utilized by the surviving corporation against its income tax liabilities for the succeeding years or may be the subject of claim for refund or issuance of a tax credit certificate.
    • However, net operating loss carry-over (“NOLCO”) is not one of the assets that can be transferred and absorbed.
    • Lastly, in order for the above transaction to be considered as a merger under Section 40 (C)(2) and (6)(b) of the NIRC, as amended, the parties to the merger should, among others, comply with the requirements set forth under RR No. 18-2001 (BIR Ruling No. OT-474-2021, December 22, 2021)
  • Transfer or conveyance of real properties representing the common areas of the condominium corporation, without consideration, does not generate taxable income, and therefore, not subject to Capital Gains Tax or creditable withholding tax.
    • The purpose of the conveyance is for the management of the project for the common benefit of the unit owners.
    • It is also exempt from imposition of documentary stamp tax based on Sec. 185 of Regulation No. 26, otherwise known as the Revised Documentary Stamp Tax Regulations, which provides that “conveyances of realty not in connection with a sale, to trustees or other persons without consideration are not taxable.” (BIR Ruling No. OT-483-2021, December 23, 2021)
  • The transfer of subdivided lots in favor of the qualifies socialized housing member-beneficiaries is not subject to either the capital gains tax imposed under Section 27(D)(5) of the National Internal Revenue Code (Tax Code) of 1997, as amended, or the creditable withholding tax (“CWT”) imposed under Revenue Regulations (“RR”) No. 2-98, as amended, considering that the transfer is only a formality to finally effect the transfer of the subject property to its member-beneficiaries who actually bought the same from the form owner through the association. In other words, the association is merely transferring the ownership of the property to its member-beneficiaries who actually own the same.
    • Moreover, the said transfer is not subject to the donor’s tax imposed under Section 99 of the Tax Code of 1997, as amended, since there is no donative intent on the part of the association to donate the property to its member-beneficiaries, considering that it could not donate property the ownership of which already belongs to the members-beneficiaries themselves.
    • Also, the deeds or documents covering the transfer of the subdivided lots in favor of the beneficiaries is not subject to documentary stamp tax under Section 196 of the Tax Code of 1997, as amended. (BIR Ruling Nos. OT-381-2021 and OT-484-2021, December 24, 2021)
  • The tax exemption under Republic Act No. 7459, otherwise known as the “Inventors and Inventions Incentives Act of the Philippines” is only for the exclusive benefit of the inventor and not for any other entity that commercially produces and distributes the invented product.
    • Any income received by the company from such production/distribution/marketing is subject to the payment of appropriate taxes.
    • Moreover, the inventor is still subject to the following taxes:
    • 20% final withholding taxes on interest from currency bank deposit and yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements and 15% percent final withholding tax on interest from foreign currency deposit;
    • Capital gains tax on sale of shares of stock prescribed under Section 24(c) of the National Internal Revenue Code of 1997, as amended;
    • Capital gains tax on sale of property prescribed under Section 24(D) of the National Internal Revenue Code of 1997, as amended;
    • Income tax on income not arising from the inventor’s productive activity such as interest, royalties, prizes, winnings and dividends;
    • Value-Added Tax (“VAT”) on the gross receipts/revenues derived from the sale of the said invention products, and also VAT for which the inventor is not directly liable, e.g. VAT on his purchases of raw materials, supplies, and equipment/machinery, which may be shifted to him as part of the cost of goods sold or for services rendered; and
    • Other percentage taxes under Title V of the National Internal Revenue Code of 1997, as amended;
    • Excise taxes directly payable in connection with the sale of invention products; and
    • Documentary Stamp Tax on documents, instruments and papers. (BIR Ruling No. OT-485-2021, December 24, 2021, OT-486-2021, December 21, 2021)

EXTENSION OF THE BUREAU OF INTERNAL REVENUE DEADLINES FOR TAXPAYERS WITHIN THE JURISDICTION OF REVENUE REGIONAL AND DISTRICT OFFICES OF THE BUREAU OF INTERNAL REVENUE CLASSIFIED UNDER ALERT LEVEL 3 OR HIGHER (Revenue Regulation No. 1-2022, January 27, 2021)

• Statutory deadlines for the following activities fall during the period declared as Alert Level 3 or higher by the IATF this month of January 20022 will be extended for thirty (30) calendar days from their due dates:
  • Submission and/or filing of the documents and/or returns, as well as the corresponding taxes due thereon
  • Filing of position papers, replies, protests, documents and other similar letters and correspondences in relation to the on-going BIR audit investigation
  • Filing of application for tax refunds, including VAT refund, and processing of VAT refund claims: and

Issuance and service of Assess Notice, Warrants of Distraint and/or Levy, as well as Warrants of Garnishment, to enforce collection of deficiency taxes.

BIR RULINGS

• Money transfer remittances released to recipients in the Philippines on behalf of the various offshore money companies are exempt from documentary stamp taxes
  • There shall be collected a documentary stamp tax of sixty centavos (Php 0.60) on each two hundred pesos (Php 200) on the following:
    • Bills of exchange – unconditional order in writing addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay or demand or a fixed or determinable future time a sum certain in money to order or to bearer.
    • Letter of credit – are those issued by one merchant to another or for the purpose of attending a commercial transaction.
    • Telegraphic transfer – a local bank cables to a certain bank in foreign currency with which the local bank has a credit and directs that foreign bank to pay to another bank or person in the same locality a certain sum of money.
  • Money transfer remittances cannot be considered as one of the above-mentioned transactions as the principal amount is not drawn from the credit of the sender but it is withdrawn in cash by a specific recipient in the Philippines and the order is not made through telegraphic transfer. (BIR Ruling No. OT-326-2021, August 31, 2021).
• Hospital services, including laboratory services, are considered transactions exempt from VAT.
  • A service provider shall not pass on VAT to its clients on its hospital and laboratory services because said transactions are not subject to VAT.
  • However, in relation to the conduct of diagnostic services, whether such is also exempt from VAT shall depend on how they are provided. Diagnostic services provided by the employee of the hospital are VAT-exempt. On the other hand, diagnostic services, when rendered by an independent professional (consultant), shall appropriately be subject to VAT in the hands of the professional who performs it. Lastly, a pharmacy or drug store, the sale of drugs and medicines is subject to VAT. (BIR Ruling No. VAT-329-2021, September 11, 2021).

• Merger between corporations where the constituents corporation shall transfer their assets and liabilities to the surviving corporation and cancel their shares and surviving corporation shall issue shares is considered tax free.(BIR Ruling No. 330-2021, September 14, 2021)

• There shall be stock transaction tax on every sale, barter, exchange or other disposition of shares of stock listed and traded though local stock exchange other than the sale by a dealer in securities.
  • The tax rate is six-tenths of one percent (6/10 of 1%) of the gross selling price or gross value in money of shares of stock in every sale, barter, exchange or otherwise disposed which shall be paid by the seller or transferor.
  • Where the PSE shares are sold to brokers of Singapore stocks exchange (SGX), and the same shares are traded through Singapore stocks exchange (SGX) via secondary listing, the shares sold via SGX is subject to percentage tax because it still involves disposition of the shares regardless where shares are sold (BIR Ruling No. OT-331-2021, September 20, 2021)

• Non-stock savings and loan associations (NSSLAs) as a non-stock, non-profit corporation, is engaged in the business of accumulating the savings of its members and using such accumulations for loans to members to service the needs of households by providing long term financing for home building and development and for personal finance shall confine it membership to a well-defined group of person and shall not transact business with the general public.
  • NSSLA is under the direct supervision and regulation of the Bangko Sentral ng Pilipinas (BSP) and, for regulatory purposes, they are classified as Non-Bank Financial Intermediaries (NBFIs) under the BSP Manual of Regulations.
  • NBFI is generally subject to Gross Receipts Tax (GRT) on income derived from its operations, unless otherwise exempted under special rules.
  • If here the NSSLA, even considered an NBFI, only accepts deposit and grants loan only to its members and does not transact with the general public and is organized and operated exclusively for the mutual benefits of its members, and all funds received from the a members are accumulated and utilized for the common benefit of the members, the said NSSLA is exempt from income tax (BIR Ruling No. OT333-21, September 21, 2021).

• Capital asset shall refer to the real properties held by a taxpayer, whether or not connected with trade or business, and which are not included among the real properties considered as ordinary assets.
  • Ordinary asset shall refer to the following:
    • Stock in trade of taxpayer or other real property of a kind which should be properly included in the inventory
    • Real property primarily held for the sale to customers in the ordinary course of business
    • Real property used in trade or business of a character which is subject to allowance for depreciation.
    • Real property used in trade or business of the taxpayer.
  • The determining factor in distinguishing an asset if it is a capital asset or ordinary asset is the actual use of the said property.
  • Where the taxpayer is not engaged in the real estate business and upon showing that the asset has not been used in the business for more than two (2) years prior to consummation of taxable transaction, and though classified as ordinary asset, shall be automatically converted to capital asset;
  • Leased property is considered an ordinary asset. (BIR Ruling No. VAT-334-2021, September 23, 2021)

• CGT on the transfer/disposition of shares of stock is imposed on the gain or profit. DST is imposed upon execution of the deed transferring ownership or rights on the shares in favor of another.
  • Thus, the transfer of membership shares between a previous trustee and successor trustee is not subject to capital gains tax and DST considering that that the transfer involves neither monetary consideration nor change in beneficial ownership.
  • There is no actual transfer of ownership, sale, exchange, barter or disposition of property. (BIR Ruling No. OT-338-2021 September 27, 2021; OT-246-2021, October 4, 2021)

• Provident Plans are exempted from income tax provided that the following conditions are met:
  • Contributions are made to the trust of the employer, or employees or both;
  • Such conditions are made for the purpose of distributing to such employees the earnings and principal of the fund accumulated; and
  • Under the trust instrument, it is impossible for any part of the corpus or income to be used for, or diverted to, purposes other than for the exclusive benefit of the employees. (BIR Ruling No. OT-363-2021 October 4, 2021; OT-364-2021 October 4, 2021)
• The BIR Commissioner has the power to grant in meritorious cases a 30-day extension to file Estate Tax Return.
  • Circumstances such as the heirs are still in the process of completing the documentary requirements for the filing of the estate tax return due to considerable grief brought about the by the passing of the deceased such that the surviving spouse has custody of the documents, and one of the heirs resides in Davao City, are considered meritorious  (BIR Ruling No. OT-366-2021, October 4, 2021)
• Electric Cooperatives (EC) registered with the National Electrification Administration (“NEA”) are subject to the following:
  • 20% final income tax on interest from any currency bank deposit and yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements and royalties derived from sources within the Philippines;
  • 15% final income tax on interest income derived from a depository bank under the expanded foreign currency deposit system;
  • Capital Gains Tax on sales or exchanges of real property classified as capita assets and on sale, exchange and other disposition of shares of stock except shares sold or disposed of through the stock exchange;
  • Documentary Stamp Taxes on transactions of cooperatives dealing with non-members, except transactions with banks and insurance companies, Provided, that whenever one party to the taxable document enjoys the exemption from DST, the other party who is not exempt shall be the one directly liable for the tax;
  • VAT billed on purchase of goods and services;
  • All other taxes for which the ECs are not otherwise expressly exempted by any law.
  • VAT on gross receipts; zero-rated if sale of power is generated through renewable sources of energy (BIR Ruling No. OT-367-2021, October 4, 2021)
• DOF Department Order No. 017-04, which implements R.A. No. 9178, otherwise known as the Barangay Micro Business Enterprises (“BMBE’s”) Act of 2002, provides that it is the Revenue District Office that has jurisdiction over the principal office or place of business of the BMBE-registered taxpayer, and not the Revenue Region that processes and approves applications for tax exemptions.
  • Income taxes of registered BMBE’s are exempt from income tax on income arising purely from its operations as such BMBE except: interest, royalties, prizes and other winnings, cash and/or property dividends, capital gains from the sale of shares of stock not traded through the stock exchange, capital gains from the sale or other disposition of real property, the share of an individual in the net income after tax of an association, a joint account, or a joint venture or consortium, the share of an individual in the distributable net income after tax of a taxable partnership of which he is a partner, income from the practice of profession received directly from the clients or from the professional partnership of which the individual is a partner, compensation, and all other forms of passive income and income from revenues not effectively connected with or arising from operations of the BMBEs as such.
  • However, availment of income tax exemption by BMBE-registered taxpayers must comply with the provisions of Sections 1, 2, and 3 of Rule 3 of DOF Order No. 17-04. In addition, BMBEs are mandated to file income tax return pursuant to Section 52 of the Tax Code, as amended.
  • Finally, if a BMBE is also entitled to exemption from income tax under any law other than R.A. 9178, the same must be stated in its registration form. No BMBE is allowed double or multiple availment of income tax exemption privileges. (BIR Ruling No. OT-368-2021, October 4, 2021)
• The sale of a parcel of land by the National Housing Authority (“NHA”) to the Roman Catholic Bishop of Antipolo, Inc. is not exempt from taxes.
  • Although the Roman Catholic Bishop of Antipolo, Inc. is a religious organization duly registered with the SEC, and NHA is a government corporation duly organized by virtue of P.D. No. 757, the sale of a parcel of land by NHA to the Roman Catholic Bishop of Antipolo, Inc. is subject to 6% creditable withholding tax.
  • Citing BIR Ruling No. 301-18 dated March 2, 2018 where the BIR ruled that only the sale of socialized housing as defined under Section 3(r) of R.A. 7279 comes within the purview of tax exempt transactions of the NHA, the BIR reiterated the same and found that the transaction is subject to 6% creditable withholding tax considering that the sale by NHA to the Roman Catholic Bishop of Antipolo, Inc. is not in connection with NHA’s mandate of providing socialized housing for the underprivileged and homeless.
  • Moreover, under Section 3 of Revenue Regulation No. 6-2001, it is the buyer/withholding agent, Roman Catholic Bishop of Antipolo, Inc., who shoulders payment of the creditable withholding tax. Documentary Stamp Taxes is as well due since the sale is not intended for socialized housing. (BIR Ruling No. OT-369-2021, October 4, 2021)
• The transfer of shares owned by a corporation to its 100%-owned subsidiary is considered a tax-free exchange and is exempt from income tax and documentary stamp tax.
  • Section 40(C)(2) of the Tax Code provides that “no gain or loss shall be recognized on a corporation or on its stock or securities if such corporation is a party to a reorganization and exchanges property in pursuance of a plan of reorganization solely for stock or securities in another corporation that is a party to the reorganization.” According to the BIR, the underlying assumption for this tax-free exchange provision is that the new property received is substantially a continuation of the old investment still unliquidated.
  • However, it must be noted that the said tax-free provision merely defers recognition of the gain or loss from such transaction for in determining the gain or loss from a subsequent transaction of the properties or stocks involved in the exchange, the original or historical cost of the properties or stocks is considered. Thus, if the transferor later sells or exchanges the shares of stock it acquired in the exchange, it shall be subject to income tax on gains derived from such sale or exchange, taking into consideration that the cost basis of the shares shall be the same as the original acquisition cost or adjusted cost basis to the transferor of the property exchanged. (BIR Ruling No. OT-370-2021, October 6, 2021)
• The merger between Northern Cement Corporation (“NCC”), the surviving corporation, and San Miguel Northern Cement, Inc. (SMNCI”), the absorbed corporation, qualifies as a tax-free exchange pursuant to Section 40(C)(2) in relation to Section 40(C)(6)(b) of the National Internal Revenue Code (“Tax Code”) of 1997, as amended.
  • the merger between NCC and SMNCI is a merger within the contemplation of to Section 40(C)(2) in relation to Section 40(C)(6)(b) of the National Internal Revenue Code (“Tax Code”) of 1997, as amended, because NCC acquired/assumed all the assets and liabilities of SMNCI, and the same was undertaken in order to simplify the operations, improve administrative efficiency, increase financial strength, eliminate duplication of functions and maintenance costs, and attain greater efficiency and economy in the management of the businesses for the mutual advantage of NCC and SMNCI. Hence, the merger between NCC and SMNCI was undertaken for a bona fide business purpose and not for the purpose of escaping the burden of taxation.
  • In addition, the transfer of assets/properties of SMNCI to NCC as a consequence of the merger is exempt from value-added tax (“VAT”) pursuant to Section 109(X) of the Tax Code of 1997, as amended. The transfer of assets/properties to effectuate a merger is not made in the course of business but by operation of law pursuant to the merger.
  • Also, no documentary stamp tax (“DST”) is due on the transfer of assets made pursuant to the merger under Section 199(m) of the Tax Code of 1997, as amended, in relation to Section 40(C)(2) of the Tax Code of 1997, as amended. Consequently, no DST is due on the surrender by SMNCI shareholders of their SMNCI shares for cancellation. Nevertheless, DST at the rate of P2.00 on each P200 par value, or fractional part thereof, shall be imposed on the original issuance of shares by NCC in favor of the shareholders of SMNCI as a consequence of the merger pursuant to Section 174 of the Tax Code of 1997, as amended.
  • Moreover, the excess and unutilized creditable withholding tax (“CWT”) of SMNCI, as of the effective date of the merger, which forms part of the assets to be transferred by the absorbed corporation to NCC as a consequence of the merger, may be applied as a tax credit by NCC against income tax due or may be the subject of a claim for refund or issuance of a tax credit certificate (“TCC”).
  • Finally, the excess and unexpired minimum corporate income tax (“MCIT”) of SMNCI, as one of the rights, privileges, property and/or interest of SMNCI, shall be transferred to and vested in NCC on the effective date of the merger and shall be carried forward and credited against its regular corporate income tax due for the three (3) immediately succeeding taxable years pursuant to Section 27(E)(2) of the Tax Code of 1997, as amended. . (BIR Ruling No. OT-371-2021, October 6, 2021)
• The importation of aircraft, engines, equipment, machinery, spare parts, accessories, commissary and catering supplies or materials by Pilipinas Asian Pearl Airways, Inc. (Pilipinas Air) is exempt from VAT, subject to the requirements as may be provided under the existing rules and regulations of the Civil Aeronautics Board (“CAB”) and the Civil Aviation Authority of the Philippines (“CAAP”).
  • Pilipinas Air, as a grantee of congressional franchise to establish, operate, and maintain domestic and international air transport services under Republic Act No. 10901, is exempt from the payment of VAT for the sale, importation or lease of passenger cargo vessels and aircraft, including engine, equipment, and spare parts thereof for domestic or international transport operations pursuant to Section 109(l)(T) of the National Internal Revenue Code, as amended. (BIR Ruling No. OT-372-2021, October 6, 2021)
• The sale of a parcel of land by the Land Bank of the Philippines (“LBP”) to farmer-beneficiaries pursuant to R.A. No. 6657, otherwise known as the “Comprehensive Agrarian Reform Law of 1988”, is exempt from payment of Capital Gains Tax and Documentary Stamp Tax. (BIR Ruling Nos. OT-381-2021 and OT-382-2021, October 11, 2021)
  • Reconveyance of real property pursuant to a Deed of Reconveyance is l subject to payment of Capital Gains Tax and Documentary Stamp Tax.
  • Facts disclosed show that sometime in 2010, Anthony Subido De Sales (“Anthony”) transferred title over a parcel of land in favor of Margarita De Jesus Ortega (“Margarita”) based on a promise by the latter to pay the contract price of the land. However, after transfer of title was made, Margarita failed to make payment, and thus the execution of a Deed of Reconveyance in order to transfer title back to Anthony. In reply, the BIR ruled that the transfer based on the Deed of Reconveyance is still subject to Capital Gains Tax and Documentary Stamp Tax since the same still falls under “other disposition of real property” under Section 24(D)(1) of the National Internal Revenue Code (Tax Code) of 1997, as amended. (BIR Ruling Nos. OT-384-2021, October 13, 2021)
• The sale of chicken, pork, beef and other meat products (“meat products”), which have undergone the simple process of preparation and preservation for the market, is considered a sale of such products in their original state, and thus, VAT exempt.
  • San Miguel Foods, Inc. (“SMFI”) is a domestic corporation that sells raw or uncooked meat products. Given the same, the BIR ruled that under Section 109(1)(A) of the Tax Code, as amended, read with Revenue Regulation No. 16-2005, as amended, as long as the meat products of SMFI are sold raw and uncooked, the same shall be considered agricultural food products in their original state, and therefore exempt from VAT. This necessarily includes raw meat products which have undergone simple processes of “preparation”, i.e. cutting, slicing, deboning, stuffing, formed into shapes such as patties, or balls, wrapped in flour, shredding, grounding, skewering, chilling or blast frozen and “preservation” through “salting” or “curing”, even as the meats are packed using “advanced technological means”. (BIR Ruling Nos. OT-386-2021, October 13, 2021)
• All income earned from investments and reinvestments of the maximum amount allowed under R.A. 9505, otherwise known as the “Personal Equity and Retirement Account of 2008 (“PERA Act”) is exempt from payment of 1) final withholding tax on interest from any currency bank deposit, yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements including expanded foreign currency deposits; 2) capital gains tax on sale, exchange, retirement or maturity of bonds, debentures or other certificates of indebtedness; 3) 10% tax on cash and/or property dividends actually or constructively received from a domestic corporation, including a mutual fund company; 4) capital gains tax on the sale, barter, exchange or other disposition of shares of stock in a domestic corporation; and 5) regular income tax.
  • To qualify under the incentives of PERA Act, each investment product must, among others, be approved by the concerned Regulatory Authority in accordance with the provisions of the Act.

Further, the following non-income taxes, if applicable, relating to the investment income of the PERA Account, shall remain imposable: 1) Percentage taxes on persons exempt from value-added tax, domestic carriers and keepers of garages, international carriers, franchise holders, overseas dispatch, message or conversion originating from the Philippines, banks and non-bank financial intermediaries performing quasi-banking functions, other non-bank finance intermediaries, life insurance premiums, agents of foreign insurance companies, amusement and winnings; 2) Value-added tax; 3) Stock transaction tax on the sale, barter, or exchange of shares of stock listed and traded through the local stock exchange or through initial public offering; and 4) Documentary stamp tax. (BIR Ruling Nos. OT-405-2021, November 3, 2021)

COMPROMISE PENALTY SHOULD NOT FORM PART OF ASSESSMENT NOTICE FOR DEFICIENCY BASIC TAX, SURCHARGE, AND INTEREST BUT SHOULD APPEAR IN A SEPARATE ASSESSMENT NOTICE/DEMAND (Revenue Memorandum Circular No. 3-2022, January 14, 2022)

• Compromise penalties are amounts collected in lieu of criminal prosecution for violation committed by the taxpayer, where payment is based on a compromise agreement validly entered into between the taxpayer and the Commissioner of Internal Revenue.
• Compromise penalties should not form part of assessment notice for deficiency basic tax, surcharge and interest but should appear in a separate assessment notice/demand as the amount suggested is in lieu of criminal prosecution.
• Preliminary Assessment Notice (PAN) and Formal Letter of Demand shall now be composed of Part I and Part II, as follows:
  • Part I shall pertain to deficiency basic tax(es) and civil penalties
  • Part II shall pertain to the assessed compromise penalty(ies) relative to the violations uncovered during the conduct of audit.

DOCUMENTARY STAMP TAX IS IMPOSED ON THE TRANSFER OF SHARES (A) BY WAY OF DONATION; (B) BY WILL; AND (C) WHEN THERE IS RENUNCIATION/WAIVER OF SHARE OF INHERITANCE (Revenue Memorandum Circular No. 6-2022, January 18, 2022)

 Documentary stamp tax is imposed on all sales, agreements to sell,  memoranda of sales, deliveries, or transfer of shores or certificates of stock

• There shall be collected a documentary stamp tax of one peso and fifty centavos (P1.50) on each Two hundred pesos (P200), or fractional port thereof, of the per value of such stock.
• DST is levied on the exercise by a person of certain privileges conferred by law for the creation, revision or termination of specific legal relationship through execution of specific instruments.
• The following transfer of stock shall also be subject to DST:
  • Transfer pursuant to Deed of Donation
  • Transfer pursuant to a Will of the Decedent as approved by the probate court in a Judicial Settlement of the estate
  • Generally, transfer of shares stock from the decedent’s estate to the heirs through intestate succession (without a Will) is not subject to DST. However, in case of Judicial or Extra-Judicial Settlement of Estate (both without a Will), renunciation of an heir of his/her share over the inheritance in favor of another heir shall also be subject to DST.

CREATION OF ALPHANUMERIC TAX CODE (ATC) FOR REVENUE SOURCE UNDER REPUBLIC ACT (RA) NO. 9505, OTHERWISE KNOWN AS PERSONAL EQUITY AND RETIREMENT ACCOUNT (PERA) ACT OF 2008 (Revenue Memorandum Order No. 3-2022, January 14, 2022)

MODIFICATION OF ALPHANUMERIC TAX CODE (ATC) OF SELECTED REVENUE SOURCE UNDER REPUBLIC ACT (RA) NO. 11534, OTHERWISE KNOWN AS CORPORATE RECOVERY AND TAX INCENTIVES FOR ENTERPRISE (CREATE) ACT (RevenueMemorandum Order No. 4-2022, January 14, 2022)

BIR RULINGS

• Income received directly in connection with its sale of approved number of socialized house and lot units for residential and dwelling purposes registered with the Board of Investment for a given period (whichever is later between actual start of commercial operations/selling or January 2021 but in no case earlier than the date of registration of the project) is exempt from income tax and creditable withholding tax (CWT), provided that the selling price of house and lot units does not exceed P2,000,000.00 per house and lot.
  • 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 exempt from value-added tax (VAT), provided, however, that beginning January 01, 2021, the exemption from VAT shall only apply to sale of house and lot and other residential dwellings valued at P3,199,200.00.
  • Sale of house and lot units in excess of the approved number of house and lot units, including those used for commercial purposes, such as leasing, retail stores, offices, etc. shall be subject to the payment of appropriate taxes.(Certificate of Tax Exemption No. BOI-LEH-320-21; BOI-LEH-321-2021; BOI-LEH-322-2021).

• Income received directly in connection with its sale of socialized house and lot units for residential and dwelling purposes to qualified beneficiaries, is exempt from income tax and creditable withholding tax (CWT), provided that the selling price of said house and lot units does not exceed P580,000.00 per house and lot packages. 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 exempt from value-added tax (VAT), provided, however, that beginning January 01, 2021, the exemption from VAT 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, that documentary stamp tax (DST) is not of the taxes covered by the tax exemption, the documents conveying the properties shall be subject to DST. (Certificate of Tax Exemption No. PSH-325-2021, August 31, 2021).