Competence. Integrity. Commitment.

The BIR partially granted the taxpayer’s refund of erroneously paid tax from P3.9M to P3.4M arising from overpaid percentage taxes.

The following are the requirements in order to prove a claim for refund of taxes erroneously paid or illegally collected.

• The taxpayer should file a written claim for refund with the BIR within 2 years from the date of payment of tax or penalty;
• If denied or not acted upon within the 2-year period, the petition for refund should be filed with the CTA within 30 days from receipt of the denial AND within said 2-year period from the date of payment of tax or penalty regardless of any supervening clause
• The claim for refund must be a categorical demand for reimbursement; and
• There must be proof of payment of erroneously or illegally collected taxes.

In this case, the taxpayer was able to prove the foregoing requirements.The taxpayer is a non-bank financial intermediary subject to 5% percentage tax on its gross receipts (Gross receipt tax or GRT). Under the rules, GRT shall only apply to income actually or constructively received during a taxable period, and the claim of refund is based on error of computation in computation of gross receipts.

• The Court confirmed that the tax base for GRT purposes should be the income actually or constructively received. Considering that the income subjected to GRT was on accrual basis, the taxpayer erroneously computed its GRT (Aeon Credit Service (Philippines), Inc.  v. CIR, CTA Case No. 9770, July 15, 2020).

Dear CLIENTS, COLLEAGUES and FRIENDS:

For your reference and file, we are pleased to send our regular corporate, tax and other legal digest.

In this Article:

SECURITIES AND EXCHANGE COMMISSION (“SEC”)

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

BUREAU OF INTERNAL REVENUE ("BIR") DEADLINES AND ISSUANCES:

• BIR DEADLINES from AUGUST 29 to September 5, 2020
• Individuals prevented from leaving the Philippines due to travel covid-19 travel restrictions are not considered present in the Philippines for tax residence purposes for the period after the scheduled departure as long the  individual leaves the Philippines as soon as travel restrictions and/or quarantine measures have been lifted.
• Appraisal of property is no longer mandatory in sale, barter, exchange or disposition of shares of stock held as capital asset; audited financial statements are sufficient.

COURT OF TAX APPEALS (“CTA”) DECISIONS

• PHP 46 MILLION EXCESS INPUT VAT REFUND PARTIALLY GRANTED; REQUISITES FOR REFUND OF EXCESS AND UNUTILIZED INPUT VAT ON PURCHASE OF GOODS AND SERVICES ATTRIBUTABLE TO ZERO-RATED SALES.
• PHP 3.7 BILLION TAX ASSESSMENT CANCELLED; A STATEMENT THAT THE INTEREST AND TOTAL AMOUNT DUE SHALL BE ADJUSTED RENDERS THE LIABILITY INDEFINITE AND THUS THE ASSESSMENT VOID.
• REFUND OF INPUT VAT FROM  DENIED; TIMELINE IN REFUND OF EXCESS INPUT VAT ARISING FROM ZERO-RATED SALES.
• PHP 95 MILLION TAX ASSESSMENT UPHELD: TAXPAYER MUST STATE THE FACTUAL AND LEGAL BASIS IN ITS PROTEST; PRELIMINARY COLLECTION LETTER IS CONSIDERED A FINAL DEMAND OF THE BIR FOR PURPOSES OF 30-DAY PERIOD TO APPEAL THE TAX ASSESSMENT.
• PHP 4 MILLION LOCAL BUSINESS TAX ASSESSMENT CANCELLED: LOCAL BUSINESS TAX ON CONTRACTORS IS BASED ON GROSS RECEIPTS AND NOT REVENUES; CTA HAS NO JURISDICTION TO RULE ON THE VALIDITY OF BUSINESS LICENSE.
• A MEMORANDUM OF AUTHORITY AUTHORIZING BIR EXAMINER TO CONDUCT AUDIT IS CONSIDERED A LETTER OF AUTHORITY BUT MUST BE SIGNED BY THE REGIONAL DIRECTOR OR ASSISTANT COMMISSIONER/HEAD REVENUE EXECUTIVE ASSISTANT.
• PHP 23 MILLION TAX ASSESSMENT CANCELLED: CERTIFICATION FROM THIRD PARTY IS REQUIRED TO VERIFY THE BIR’S FINDINGS OBTAINED FROM ITS COMPUTERIZED MATCHING; BIR HAS 3 YEARS TO ASSESS SANS FRAUD.
• PHP 29 MILLION TAX ASSESSMENT CANCELLED; IF TAXPAYER DENIES RECEIPT OF TAX ASSESSMENT, THE BURDEN TO PROVE SUCH FACT OF RECEIPT IS SHIFTED TO THE BIR.

• Public  companies  (PCs)  and  registered  issuers  (RIs)  are  mandated  to  submit  a  new  Manual  on Corporate  Governance  (MCG) within  six  (6) months  from  the  effectivity  date  thereof,  or  until 12  July 2020, but extended up to 30 September 2020.
  • Signatories  of  the  MCG  shall be the company’s Chairman  of the  Board  and  Compliance  Officer.
• MCGs  submitted  with  incomplete  and/or  incorrect  signatories  shall be  deemed  as not  filed.
  • The  imposable  penalties  for non- or late  submission of the  MCG  shall be P10,000 (basic penalty) and P1,000 (monthly penalty). The  monthly penalty  shall accrue  until the  MCG is submitted  to  the  SEC.
  • PCs and  RIs  which  are  publicly listed  in  the  Philippine  Stock  Exchange shall  not  be  covered  by  this Memorandum  Circular  and  shall  continue  to  be  governed  by  SEC  Memorandum  Circular  No.  19,  Series  of 2016,  or  the  Code  of Corporate  Governance  for Publicly -Listed  Companies,  and  related  issuances. The Circular may be accessed HERE(SEC Memorandum Circular No. 19)

REGULATED FINANCIAL INTERMEDIARIES' ONBOARDING PROCEDURES FOR LOW RISK ACCOUNTS.

• The SEC provides rules on simplified onboarding procedures for low risk accounts. It applies to regulated entities authorized by the SEC  to  intermediate and  effect securities  transactions for  and on  behalf  of customers and  are  required  to  conduct  customer  due  diligence.  It includes financial intermediaries  such  as Broker Dealers in Securities, Government  Securities Eligible Dealers,  Investment Houses, Underwriters of  Securities, Investment Company Advisers and Mutual Fund Distributors(“Regulated FIs”).
• The purpose of the memorandum is to have simplified onboarding procedures for Low Risk customers of Financial Intermediaries.
• An account opened and maintained by an individual investor with an initial and subsequent deposit, investment or re-investment amounting to a total of not more than P50,000 shall be considered a “low risk account”
  • The investor shall be allowed to invest in excess of the prescribed limit only for the purpose of exercising his right as a holder of securities (e.g. participation in a stock rights offering, exercise of pre-emptive right, and other similar acts, the non-exercise of which shall result in the dilution or diminution of his holdings)
• Only  individual Filipino investors  shall  be  allowed  to  open  low  risk  accounts. These investors shall be presumed to beneficially own the said accounts. The process for the opening of an account by any legal person such as a corporation or a trust  shall  follow  the  regular  requisites  and  procedures required by the  concerned regulated  FI in  accordance  with  the  relevant  rules  and  regulations  and its internal procedures. Nothing  herein  prevents  a  Regulated  FI  from  adopting a  different  risk-based  approach following  the  said  regular  requisites  and  procedures  in  determining  other  accounts as being low-risk accounts
• Minimum information and documents required in account opening: Complete name of customer, birthdate, e-mail address, address, mobile number, source of income, identification card, signature card
• FI shall implement measures to establish true identity of the customer, during or after the opening of account but not later than 15 days from the date the account is opened
• FI shall review the low risk account in random fashion or otherwise.
  • If an account ceases to be low-risk, normal/regular or enhanced due diligence, should be conducted immediately in accordance with the prescribed rules within 1 month.
  • Low risk accounts showing more than average activities trading activities shall be automatically subject to review of its low risk status.
• The Memorandum is issued in accordance with the SEC’s rules which prescribe a definite customer due diligence (Know Your Customer) requirements for broker dealers in securities, with focus on establishing the customer’s real identity and credit worthiness and elicit information necessary to comply with the suitability requirements.
• The Circular may be accessed (SEC Memorandum Circular No. 31, August 13, 2020)

EXCHANGES AND OTHER ORGANIZED MARKETS ARE MANDATED TO HAVE INDEPENDENT DIRECTORS THAT CONSTITUTE 1/3 OF THE MEMBERS OF THE BOARD OF DIRECTORS; AND 4 SECTORAL REPRESENTATIVES.

• SEC promulgates the rules on the number of independent directors and sectoral representatives of exchanges and other organized markets
• Independent Directors shall constitute at least 1/3 of the members of the board of directors of exchanges and other organized markets
  • The independent director of an exchange and organized market shall have relevant experience for at least 3 years prior to his election
• There shall be at least 4 Sectoral Representatives.
  • Sectoral Representatives refer to persons who represent the interests of issuers, investors and other market participants. He is affiliated with an entity that has issued securities traded in the organized market or engaged in the business of investing or investment management, or engaged individually in trading or investing in securities which are traded in an exchange or in an organized market; or engaged in the promotion, development and operation of capital or financial market-related activities other than being an issuer or investor
  • He must have at least 3 years of experience in or working knowledge of the related sector and the capital or financial markets
  • Directors representing the sectors may be elected for a maximum period of 10 years with mandatory cooling off period of at least 1 year after the first 5 years.
• A copy of the Memorandum Circular may be accessed HERE(SEC Memorandum Circular No. 20, 13 August 2020)

Bureau of Internal Revenue

BIR DEADLINES from AUGUST 16 to AUGUST 23, 2020. A gentle reminder on the following deadlines, as may be applicable:

BIR makes available the use of e-AUDITED FINANCIAL STATEMENT (“E-AFS”) System for the submission of attachments to the Income Tax Returns of Taxpayers with Fiscal-Year Accounting Period and in the Submission of Attachments to the Quarterly Income Tax Returns.

• All concerned taxpayers, availing the facilities of the eAFS System, whether or not registered under the Large Taxpayers Service, shall scan the required documents and comply with the BIR-prescribed procedures
  • Taxpayers shall keep the original copies of the digitally submitted documents in accordance. The same shall be presented, upon request, to the BIR. For your reference, the procedure may be accessed (Revenue Memorandum Circular No. 82-2020, August 11, 2020)

Court of Tax Appeals Decisions

EXCESS TAX CREDIT IN THE CURRENT YEAR CANNOT BE DISALLOWED BY THE BIR AS TAX BENEFIT ACCRUES IN THE SUBSEQUENT YEAR; BIR FORM 2307 MUST BE USED AS CREDIT IN THE SAME QUARTER OF THE TAXABLE YEAR IN WHICH THE INCOME IS EARNED OR RECEIVED, OTHERWISE DISALLOWED.

• The CTA En Bancpartially reversed the decision of the CTA Division with respect to the cancellation of the assessment. Among others, it ruled:
• The examination of books must be limited only to the period indicated in the LOA.
  • The assessment on excess tax credit is void because the coverage of tax assessment is 2009, but the tax benefit from the excess tax credits will be in the succeeding year (2010).
• Tax credits relating to income recognized in the prior year were properly disallowed.
  • In this case, the taxpayer used the BIR Form 2307 in the current year (2009) for the income recognized in the previous year (2008).
  • The Court held that the amount of creditable taxes withheld must be claimed as credit against the income tax liability of the payee in the same quarter of the taxable year in which it was earned or received. The declaration of income earned or received must be made in the same period with the claiming of the related tax credit. The taxpayer, as a payee, should ask for a copy of the BIR Form 2307 within 20 days from the close of the taxable quarter or simultaneous with the income payment.
  • The taxpayer has the duty to prove that the income was recognized in the same period that the related credit was claimed, otherwise, the credit will be disallowed (CIR v. Ayala Property Management Corporation, CTA EB No. 2053, CTA Case No. 9298, July 7, 2020).

PHP 13 MILLION DOCUMENTARY STAMP TAX (DST) REFUND DENIED: EXEMPTION FROM DOCUMENTARY STAMP TAX MUST BE CLEARLY ESTABLISHED; A LENDER’S EXEMPTION FROM DST SHIFTS THE LIABILITY TO A NON-EXEMPT BORROWER.

• The CTA denied the taxpayer’s DST refund. In this case, the taxpayer borrowed a loan from a lender, who is granted tax exemption.
• The law provides that a loan agreement is subject to DST. It is paid by the person making, signing, issuing, accepting or transferring the instrument. In other words, Any of the parties to the transaction shall be liable for the DST. When one of the parties to a loan agreement is exempt from tax, the other party not exempt from tax shall be directly liable for the DST.
  • In this case, the loan agreement is subject to DST. While the lender is granted tax exemption, being a specialized agency of the United Nations and member of the World Bank Group, its exemption is limited to authorized transactions, and loan is not one of them.
  • Even if the transaction is exempt from tax, the borrower-taxpayer in this case is liable as when one of the parties is exempt from tax, the other party not exempt shall be directly liable (South Negros Biopower, Inc. v. CIR, CTA Case no. 9921, July 8, 2020)

PHP 10 MILLION TAX ASSESSMENT PARTIALLY REDUCED; BUSINESS LEAGUE, CHAMBER OF COMMERCE OR BOARD OF TRADE’S EXEMPTION FROM INCOME TAX AND VAT, REQUISITES; REIMBURSEMENT OF EXPENSES IS NOT SUBJECT TO EXPANDED WITHHOLDING TAX (“EWT”); ANNUAL MEMBERSHIP IS NOT SUBJECT TO VAT; REGISTRATION FEES AND SPONSORSHIPS ARE SUBJECT TO VAT.

• The CTA partially reduced the taxpayer’s assessment.
• For business league, chamber of commerce, or board of trade to be exempt from income tax, the following should be established:
  • The entity is not organized for profit. The Certificate of Incorporation must establish the nature of the organization.
  • No part of the net income inures to the benefit of any private stockholder or individual; and
  • The income must not be from any of the properties, real or personal, or from any of their activities conducted for profit.
    • The source of income is a factor in determining whether the income is exempt from tax.
    • The entity must establish that the income is not subject to income tax. If the taxpayer fails to prove exemption, the assessment is valid.
  • Absence of tax exemption certificate does not operate to divest a taxpayer of the exemption that is specifically granted by the law. A Memorandum Circular by the BIR cannot add a registration requirement where there is none to begin with. The Tax Exemption Certificate should merely operate to confirm taxpayer’s entitlement to income exemption.
  • On Expanded Withholding Tax (EWT)
    • Income payments made by top withholding agents to their local/resident suppliers of goods other than those covered by other rates of withholding tax is subject to EWT. If the BIR fails to submit evidence that the taxpayer is a top withholding agent, the taxpayer is not required to withhold tax.
    • Reimbursement of expenses is not subject to withholding. Mere reimbursement of actual expenses/costs without any mark-up or profit element does not constitute income payments, and are, therefore, not subject to income tax and consequently, to withholding tax. Further, reimbursement of expenses, by its very nature, is not income but a mere return of capital.
    • Honorarium is subject to withholding tax.
    • Gift certificates are not subject to withholding tax.
    • Payments for hotel accommodation is not among those items of income payments subject to withholding tax.
  • On Value-Added tax
    • VAT is imposed on sale, barters, exchanges, among others, in the course of trade or business. The phrase in the course of trade or business means the regular conduct or pursuit of a commercial or economic activity, including transactions incidental thereto, by any person regardless of whether or not the person engaged therein is a nonstock nonprofit private organization.
    • Even though the taxpayer proved that it is a business league, chamber of commerce or board state that is exempt from income tax, it must prove that the receipts were derived solely from the mandatory contributions of the members for its operating expenses, and not from rendering services in the course of trade or business.
      • Annual membership fees are not subject to VAT because they are treated as capital and not income. They are held in trust and used for the furtherance of the primary purpose for which the association is incorporated.
      • Registration fees collected from non-members in relation to the conduct of taxpayer’s event is subject to VAT because it is considered as performance of service for a fee as the non-member is permitted to join and participate in the event.
      • Sponsorship fee is also subject to VAT because it is paid in exchange for some benefits relative to the sponsor’s participation in the events of the taxpayer (CTA Case No. 9666, July 8, 2020).

COMPROMISE PENALTY REQUIRES CONFORMITY OF THE TAXPAYER.

• CTA En Bancupheld the CTA amended decision removing the compromise penalty.
• The compromise penalty can only be collected or imposed by agreement between the taxpayer and the BIR. It cannot be imposed without the agreement or conformity of the taxpayer. Otherwise, the imposition is illegal and unauthorized.The fact that the BIR uses the term "compromise penalty'' connotes that there should have been prior conformity by the taxpayer. Compromise implies agreement (CIR v. Batangas Electric I Cooperative 1, CTA EB No. 1939, CTA Case No. 8423, July 8, 2020).

5-YEAR PRESCRIPTIVE PERIOD IN CRIMINAL CASES RELATED TO TAX RUNS FROM THE DATE OF TAX VIOLATION, OR IF UNKNOWN, FROM THE DATE OF DISCOVERY THEREOF UP TO THE DATE WHEN CASE IS FILED WITH THE DEPARTMENT OF JUSTICE.

• The CTA En Bancaffirmed the decision of the CTA Division dismissing the criminal case on the ground of prescription.
• Section 281 of the NIRC provides that all violations of any provision of the Tax Code shall prescribe after 5 years. The commencement of the prescriptive period shall run from the a) day of commission of the violation of the law; and (2) if the same is unknown at that time, from the discovery thereof and the institution of judicial proceedings for its investigation and punishment.
  • In the second mode, both the date of discovery and the institution of judicial proceedings for investigation and punishment are significant events in the prosecution of any infraction of the Tax Code. As long as the period from the discovery and institution of judicial proceedings for its investigation and punishment up to the filing of the Information in Court does not exceed 5 years, the government's right to file a criminal action does not prescribe. Conversely, if the period from the institution of judicial proceedings for its investigation up to the filing of the information in court exceeds 5 years, then the government's right to file an action has been prescribed.
  • In this case, the accused received the FAN in February 2007, and it became final when it failed to file its protest in March 2007. The date when FAN attained finality is the date of discovery of the violation.
  • The complaint affidavit against the accused was filed with the DOJ for preliminary investigation in 2011.
  • The 5-year prescriptive period begins to run in 2011 until 2016. However, the information was filed with the Court in 2018. Therefore, the 5-year prescriptive period had already lapsed (People of the Philippines v. Virgilio Castillo, CTA EB Crim No. 053, CTA Crim Case No. O-663, July 8, 2020).

PHP 94 MILLION TAX ASSESSMENT CANCELLED; RE-ASSIGNMENT OF TAX AUDIT REQUIRES ISSUANCE OF NEW LETTER OF AUTHORITY (LOA)

• The Court cancelled the tax assessment for lack of LOA.
• The law requires that any re-assignment/transfer of cases to another revenue officer shall require the issuance of a new Letter of Authority.
• In this case, the BIR re-assigned the taxpayer’s audit to other examiners without a LOA and in the form of  Memorandum of Assignment (MOA).
• The Court ruled that the MOA cannot be treated as an LOA as any re-assignment requires a new LOA. The said MOA’s fatal infirmity is further highlighted by the fact that it was signed and issued by a Revenue District Officer only and not by a Revenue Regional Director (Jed Marketing Corporation v. CIR, CTA Case No. 9709, July 9, 2020)

PHP 332 MILLION  EXCESS AND UNUTILIZED CWT GRANTED; REFUND MUST BE FILED WITHIN THE 2-YEAR PRESCRIPTIVE PERIOD; FACT OF WITHHOLDING MUST BE ESTABLISHED BY BIR FROM 2307; INCOME MUST BE INCLUDED IN THE TAX RETURN.

• The law grants two (2) options to a taxable corporation whose total quarterly income tax payments in a given taxable year exceed its total income tax due. The taxpayer may either:
  • file a tax refund (either in the form of cash or tax credit certificate) or
  • carry over the excess credit.
    • However, once the carry-over option is chosen actually or constructively it becomes irrevocable for that taxable period.
    • The phrase "for that taxable period" refers to the taxable year when the excess income tax, subject of the option, was acquired by the taxpayer
    • In exercising its option, the corporation must signify in its annual corporate adjustment return (by marking the option box provided in the BIR form) its intention, either to carry over the excess credit or to claim a refund. To facilitate tax collection, these remedies are in the alternative and the choice of one precludes the other.
  • Jurisprudence on claims of refund has dictated the following additional requirements:
    • The claim for refund must be filed within the two- year prescriptive period;
    • The fact of withholding must be established BIR Form 2307, showing the amount paid and the amount of tax withheld therefrom; and
    • The income upon which the taxes were withheld must be included in the return of the recipient (Procter & Gamble Distributing (Philippines), Inc. v. CIR, CTA No. 9634, July 9, 2020).

CRIMINAL CASE DISMISSED: THE BIR MUST ATTACH THE RELEVANT PLEADINGS AND DOCUMENTS IN ITS PETITION; AN APPEAL TO THE DEPARTMENT OF JUSTICE (DOJ) OUTSIDE THE 15-DAY PERIOD SHOULD BE DISMISSED.

• The CTA has jurisdiction over the Petition for Certiorari assailing DOJ’s resolution which affirms the dismissal of a criminal case against a taxpayer.
• The rules require that relevant pleadings and documents be attached and failure to comply with any of the documentary requirements, will be a sufficient ground for the dismissal of the petition. In the case, the BIR failed to attach the Motion for Extension of Time is an omission and a fatal infirmity.
• The DOJ correctly dismissed the criminal case for being filed out of time. Appeal should be taken within 15 days from receipt of the resolution. The period to file an appeal is non-extendible. The BIR filed its appeal beyond the 15-day period. (CIR v. Secretary of Justice, CTA Case No. 10101)

PHP 33 MILLION TAX ASSESSMENT CANCELLED; 180-DAY PERIOD WITHIN WHICH TO ACT ON THE PROTEST MAY BE RESET IF THE BIR SENDS ANOTHER NOTICE GIVING THE TAXPAYER TO SUBMIT ADDITIONAL DOCUMENTS SANS TAXPAYER’S REQUEST; THE BIR MUST AWAIT THE LAPSE OF 15-DAY PERIOD GIVEN TO THE TAXPAYER TO RESPOND TO THE PRELIMINARY ASSESSMENT NOTICE (PAN) BEFORE IT ISSUES THE FORMAL ASSESSMENT NOTICE, OTHERWISE ASSESSMENT IS VOID.

• In cases where the BIR failed to act on taxpayer’s protest with request for reinvestigation, the taxpayer has 30 days to appeal to the CTA from the lapse of 180-day period counted the date of submission of additional documents, which shall be made within 60 days from the filing of the protest.
• In this case, the taxpayer submitted supporting documents on April 11, 2014 and the BIR did not act on the protest within 180 days or until October 8, 2014. Supposedly, the taxpayer has 30 days or until November 7, 2014 to appeal to the CTA. Yet, the taxpayer filed the appeal only on January 21, 2015.
• Nevertheless, the court ruled that the appeal was filed within the reglementary period. It based its ruling on the fact that the BIR sent a letter to the taxpayer on June 11, 2014 giving the taxpayer 15 days to submit additional documents. The taxpayer submitted documents on June 25, 2014. Therefore, the BIR had 180 days or until December 22, 2014 to act on the protest. Considering that the BIR failed to act on it, the taxpayer has 30 days or until January 21, 2015 to elevate the case to the court.
  • The Court ruled that it cannot close its eyes to the glaring injustice should it allow the BIR to benefit from his mischievous scheme. Parenthetically, the BIR should not, on its own, have extended the period to submit relevant supporting documents in support of the protest but - having done so - it cannot thereafter escape from its consequence and righteously argue that taxpayer’s appeal was filed out of time.
  • The FAN was issued in violation of the taxpayer’s right to due process; therefore, the assessment is void.
    • The taxpayer has 15 days within which to reply to the PAN. However, it received the PAN 6 days after the PAN was issued or within the 15-day period. PAN is an important part of the due process.
    • The fatal infirmity that attended the issuance of the FLDs and Assessment Notices prior to the lapse of the fifteen (15)-day period to respond to the PAN was not cured by petitioner's filing of a protest to the FAN (Solutions Using Renewable Energy, Inc. v. CIR, CTA Case No. 8974, July 9, 2020).

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

CEBU TAXPAYERS MAY FILE TAX RETURNS AND PAY THE TAXES DUE TO THE NEAREST AUTHORIZED AGENT BANKS OR USE BIR-PROVIDED E-PAYMENT FACILITIES DURING MECQ.

• The BIR circularizes the filing of various returns and payment of tax due thereon of taxpayers under the jurisdiction of Revenue Region No. 13 – Cebu City due to the declaration of Modified Enhanced Community Quarantine.
• AII concerned taxpayers duly registered under the jurisdiction of Revenue Region No. 13 - Cebu City are allowed to file their respective tax returns and pay the corresponding taxes due thereon to the nearest Authorized Agent Banks (AABs) viatheir over-the-counter payment facilities or to the nearest Revenue Collection Officers, duly authorized by the RDO to receive tax returns and accept payments of the taxes thereon.
• Concerned taxpayers are encouraged to electronically file returns through the eBIR Forms System and pay the corresponding taxes due thereon using e-paymentfacilities such as GCash/PayMaya. The list of the e-payment facilities may be accessed  (Revenue Memorandum Circular No. 78-2020, July 30, 2020)

TAXPAYERS REGISTERED IN National Capital Region, Bulacan, Cavite, Laguna and Rizal MAY FILE TAX RETURNS AND PAY THE TAXES DUE TO THE NEAREST AUTHORIZED AGENT BANKS OR USE BIR-PROVIDED E-PAYMENT FACILITIES DURING MECQ.

• The BIR circularizes the filing of various Returns and payment of tax due thereon of taxpayers under the Jurisdiction of National Capital Region, Bulacan, Cavite, Laguna and Rizal due to the declaration of Modified Enhanced Community Quarantine.
• The taxpayers may file the tax return and pay the internal revenue taxes at the nearest Authorized Agent Banks (AABs), notwithstanding RDO jurisdiction.
• File the tax return and pay the corresponding tax due thereon to the concerned Revenue Collection Officers (RCOs) of the nearest Revenue District Office (RD), even in areas where there are AABs.
  • Provided that payment of internal revenue taxes in cash should not exceed Twenty Thousand Pesos (P20,000.00), while those for check payment will have no limitation if the same is made with RCO in the district office.
  • All check payments from any taxpayer shall be made payable to Bureau of Internal Revenue (with or without "Name and TIN of the taxpayer" written on the check as previously required) and that the name and branch of the receiving AAB may no longer be indicated therein.
• Taxpayers who are enrolled in eFPS shall continue to settle the tax liabilities with the AAB where the taxpayer is enrolled, while for those who will file through the eBIR Forms Facility whether mandatedor not mandated, may use BIR-provided payment options, which may be accessed  (Revenue Memorandum Circular No. 79-2020, August 5, 2020)

GUIDELINES ON FILING OF BIR 1709 OR THE RELATED PARTY TRANSACTION FORM, AND ITS ATTACHMENT – DEADLINES, COVERAGE, PENALTIES

• The BIR clarifies certain issues on the filing of BIR Form No. 1709, or the Related Party Transaction (RPT) Form, and its Attachments.
  • The RPT Form is to be completed by Philippine taxpayers with related party transactions (RPTs) regardless of the amount and volume of transactions. Individuals who are considered related parties of a reporting company are also required to submit the RPT Form in their individual capacities.
  • Deadline:
    • For manual filers, the RPT Form and its required attachments must be submitted together with the Annual Income Tax Return (AITR) and other required attachments at the Large Taxpayers (LT) Division/Revenue District Office (RDO) where the taxpayer is registered, on or before the statutory due date.
    • For e-FPS filers, the hard copy of RPT Form and its required attachments must be submitted manually and stamped "Received' at the LT Division/RDO where the taxpayer is registered, within fifteen (15) days from the statutory due date or actual date of electronic filing of the AITR, whichever comes later.
      • The RPT Form is downloadable from the BIR website as BIR Form No. 1709.
      • As a proof that it was duly received by the BIR, the Form must bear the stamp of the office with the date of actual receipt thereon and the signature of the receiving officer.
    • All taxpayers with related party transactions are required to attach a Transfer Pricing Documentation (TPD), local or otherwise, regardless of the amount and volume of related party transactions. The TPD should include the date of creation or preparation so as to ensure its applicability to the RPTs conducted in the taxable year concerned.
      • The TPD to be submitted must be the documentation upon which taxpayers relied to determine the transfer pricing prior to or at the time of undertaking the RPTs. Nevertheless, the BIR will also accept TPD prepared not later than the filing due date of the tax return for the taxable year in which the transactions took place.
      • Simply put, what the BIR requires is the TPD prepared prior to or at the time of the transaction, or after the transaction but not later than the date of filing of the tax return for the fiscal/calendar year in which the transaction takes place. Requiring the submission of contemporaneous documentation ensures the integrity of the taxpayers' positions.
      • Whether or not the TPD has to be updated yearly, the following must be considered:
        • If there are significant changes in the business model, the factors or conditions considered in drafting the TPD, and the nature of the RPTs, then, the TPD has to be updated; and
        • If there are none, the old TP shall suffice.
      • The enumeration of RPTs in RR No. 19-2020 is not exclusive but from the definition of RPT alone, it can be deduced that the intention is to include within the term all transactions between related parties that result in the transfer of resources, services or obligations, irrespective of their arrangement (with cost-recovery/cost-sharing/recharging) and regardless of whether a price is charged. Dividends and redemption of shares between and among related parties (either paid or payable, received or receivable), though not usually covered by a TPD, should likewise be disclosed in the RPT Form.
        • Dividends must be supported by board resolution, secretary certificate, General Information Sheet, proof of payment of dividend and proof of payment of withholding tax
        • Cost-sharing arrangements must be supported by formal written agreement/contract to prove that these are legitimate expenses
        • All contracts are required to be attached. If the contracts are voluminous, they may be scanned and submitted in a Digital Versatile Disk-Recordable (DVD-R)

• The RPT Form is required to be attached only to the AITR.
  • Since the law took effect on 25 July 2020, the RPT Form is now required to be submitted as an attachment to the AITR for fiscal year ending March 31,2020, tentative or otherwise, irrespective of the date of tiling of the said AITR, and to all AITRs to be submitted after such date.
  • In other words, taxpayers who manually tiled their AITR and submitted the attachments for fiscal year ending March 31,2020 prior to the effectivity of RR No. 19-2020 are still required to file and submit the RPT Form and its attachments. Take note that attachments to AITR for fiscal year ending March 37,2020 are required by law to be submitted on or before July 30, 2020.
• Consequence for non-filing of RPT Form and required attachments:
  • P1,000 to P25,000 for failure to file the RPT Form and its attachments due to reasonable cause and not to willful neglect
  • P25,000 – in case of repetition of such offense
  • P5,000 – P10,000 and imprisonment of not less than 1 year but not more than 2 years - after receiving valid summons to produce the said attachment and the taxpayer still fails or neglects to produce the same.
• The rule also applies to non-stock and non-profit corporations/organizations as they are allowed to engage in activities conducted for profit without losing its tax-exempt status. (RMC No. 76-2020, July 29, 2020). For your easy reference, the issuance  may be accessed 

Court of Tax Appeals Decisions

IN LOCAL BUSINESS TAX ASSESSMENT, TAXPAYER MUST BE SERVED WITH ASSESSMENT NOTICE; EMPLOYEE WHO RECEIVES THE SAME MUST BE AUTHORIZED; DOCTRINE OF APPARENT AUTHORITY.

• The CTA En Bancruled that due process must be observed in the issuance and service of notices by the City Treasurer. Denial of due process exists when the party is deprived of notice and the opportunity to be heard.
• In this case, the City Treasurer failed to validly serve the assessment notices effectively depriving the taxpayer of its right to be informed of the questioned assessment and contest the same. This justifies the cancellation and withdrawal of the assessment for local business taxes and increment thereto issued against it.
  • The Court also ruled that the employee who received the assessment notices had no authority to receive the assessment notices for and on behalfof the taxpayer.
  • As a rule, a person cannot bind the corporation in the absence of authority from the board of directors, unless the corporation has knowledge of the act of that person, third person relief on the authority of that person (doctrine of apparent authority).
    • The employee did not commit any act that induceD belief that he is the authorized agent nor create any event that would promote suspicion that he was bestowed authority to receive the assessment notice on behalf of the company (Makati City v. Destiny Cable, Inc., CTA EB No. 1890,  CTA AC No. 182, Civil Case No. 14-612, July 1, 2020).

PHP 21 MILLION PERMIT FEE UPHELD: PERMIT FEE TO SLAUGHTER AND ANTE-MORTEM AND POST-MORTEM FEES ASSESSED BY LOCAL GOVERNMENT UNIT ARE NOT CONSIDERED TAXES, BUT CONSIDERED AS REGULATORY FEES.

• The CTA denied the Company’s petition to cancel the permit fee to slaughter and ante-mortem and post-mortem fees assessed by the City of Davao.
• The CTA ruled that it has exclusive appellate jurisdiction over decisions of the regional trial courts in local tax cases. Permit fee to slaughter is not considered a local tax but a regulatory fee. Therefore, the Court has no jurisdiction to entertain the case.
  • The purpose and effect of the imposition determine whether the imposition is considered a tax or a fee.
  • If the main purpose of an ordinance is to regulate activities, and not primarily revenue-raising, the fees imposed are not taxes even though the fees may contribute to the revenue.
    • The power to “regulate” means the power to protect, foster, promote, preserve, and control with due regard for the interest of the public.
  • The permit fees to slaughter as well as the ante-mortem and post mortem fees are for the purpose of regulating the slaughter of animals in city-operated slaughterhouses or those authorized by the city government. They are imposed in the exercise of state’s police power in the form of a fee, even though revenue is incidentally generated. (San Miguel Foods, Inc., v. Office of the City Treasurer, City of Davao, CTA AC No. 210, July 3, 2020)

PHP 6 MILLION DEFICIENCY TAX IN CRIMINAL CASE DENIED; CIVIL LIABILITY IN CRIMINAL CASE MUST BE DETERMINED WITH FINALITY BY THE BIR.

• The CTA En Banc affirmed the decision of the CTA in division pertaining to the dismissal of the civil action for the collection of deficiency income tax as part of the criminal case, where the accused was also acquitted.
• The Tax Code provides that the judgment in the criminal case shall not only impose the penalty but shall order payment of the taxes subject of thecriminal case as finally decided by the Commissioner. This means that in order for a civil liability to be included in the judgement, it must be the final decision of the BIR – which refers to a formal assessment.
  • In this case, the only Letter of Authority was submitted as evidence. No other evidence was ever presented that assessment notices were duly served and received by the accused.
  • There being no assessment issued against the accused, there could be no demand against the accused to pay the exact amount of tax liability (People of the Philippines v. Leonila T. Arceo, CTA EB Crim No. 060, CTA Crim Case No. O-271, July 1, 2020)

TAX ASSESSMENT CANCELLED; ASSESSMENT NOTICES MUST BE ENCLOSED IN THE FORMAL LETTER OF DEMAND.

• The CTA En Bancupheld the validity of the decision of the CTA Division cancelling and setting aside the assessment for violation of due process.
• The Court ruled that Assessment Notices were not issued and/or enclosed together with the Formal Letter of Demand. The absence of the same is fatal to the claim and violates the taxpayer'sdue process.
  • To satisfy due process requirement, the assessment must contain both the Formal Letter of Demand and Assessment Notices
• The issuance of a valid formal assessment is a substantive pre-requisite to tax collection for it contains not only a computation of tax liabilities but also a demand for payment within the prescribed period (CIR v. GS MTE Grains Corporation, CTA EB No. 1958, CTA Case No. 8837, July 6, 2020).

P3.5M TAX ASSESSMENT PARTIALLY UPHELD; REASSIGNMENT NOTICE SIGNED BY THE REGIONAL DIRECTOR IS CONSIDERED LETTER OF AUTHORITY; UNDERSTATING THE EXPENSES IS NOT CONSIDERED FRAUDULENT; IN PRESCRIPTION OF ASSESSMENT, THE TAXPAYER MUST SHOW THAT THE PORTION OF DEFICIENCY TAX THAT PRESCRIBED; SSS, PAG-IBIG, AND PHILHEALTH CONTRIBUTIONS ARE NOT SUBJECT TO TAX; EMPLOYEE RETIREMENT BENEFITS ARE EXEMPT FROM INCOME TAX IF SUPPORTED BY REASONABLE PRIVATE BENEFIT PLAN; REQUIREMENTS FOR VAT-EXEMPT REIMBURSABLE COST.

• The CTA ruled that the revenue officer was duly authorized to conduct the audit. The Reassignment Notice  which revalidated the earlier issued letter of authority and replacing the BIR examiners are similar to the LOA as it is signed by the regional director who is duly authorized to issue LOA under the NIRC. It is sufficient authorization given to the examiners to examine the books of account and other accounting records of the taxpayer.
• Even reassignment to anotherexaminers requires the issuance of a new LOA, the assessment remains valid because the FAN was already issued when the case was re-assigned and the taxpayer already filed its protest.
• Prima facie evidence of false or fraudulent return is either substantial under-declaration of sales or overstatement of deduction. There is no prima facie evidence of fraud if the expense is understated.
• In prescription, the taxpayer must establish clearly the portion of the alleged deficiency taxes that pertain to the periods that prescribed.
• The BIR has 3-years to collect, counted from the issuance of the assessment.
  • The period to collect is tolled when the taxpayer requests for reinvestigation and the BIR grants the same and shall continue to run upon the issuance of the FDDA
  • BIR’s Answer in the petition is considered a judicial action for the collection of a tax.
• Taxpayer’s contributions for SSS, Pag-Ibig, and PhilHealth premiums of its employees are excluded from gross income and are not considered income payments to the emaployees. As such, they shall not form part of the taxable salaries and wages of the employee in computing the WTC.
• Employee retirement benefits are not taxable as long as the taxpayer submitsevidence that such retirement benefits were provided under a reasonable private benefit plan and the recipient is qualified in terms of age and minimum years of service.
• Reimbursable expenses are not subject to VAT if the following are complied with:
  • Broker will issue a non-VAT acknowledgment receipt;
  • The third-party service provider shall issue receipt in the name of the customer;
  • The broker shall record the expense as receivable for cash advances on behalf of the customer;

The broker shall attach the original copy of the official receipt to the non-VAT acknowledgement receipt (Ithiel Corporation v. CIR, CTA Case No. 9591, July 6, 2020).

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

Bureau of Internal Revenue

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

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

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

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

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

Court of Tax Appeals Decisions

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

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

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

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

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

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

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

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

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

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

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

• 120 [now 90] + 30 day period:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

SUPREME COURT/Court of Tax Appeals Decisions

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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