Competence. Integrity. Commitment.

A MEMORANDUM OF ASSIGNMENT (MOA) CANNOT REPLACE A LETTER OF AUTHORITY (LOA). The Deputy Commissioner and other BIR officials authorized by the CIR himself are permitted to issue an LOA. Among the BIR officials expressly authorized by the Commissioner of Internal Revenue (CIR) to issue the LOA are the Assistant Commissioners, and Head Revenue Executive Assistants. Thus, where the revenue officers who suggested the issuance of the Preliminary Assessment Notice (PAN), Final Assessment Notice (FAN) and Final Decision on Disputed Assessment (FDDA) do not appear on the LOA and the authority to examine and audit the taxpayer originated from a MOA issued by a chief, a person without authority to examine the taxpayers, the assessment should be void. (CIR V. Tann Philippines, Inc.; (Commissioner Internal Revenue v. Hard Rock Café (Makati City) Inc.; CTA EB No. 2690; April 12, 2024); an LOA not only applies in RDO but also in the Office of the Commissioner (CIR v. Diaego Philippines, CTA EB No. 2702, CTA Case No. 9522, April 25, 2024)

 

LOA AT THE REINVESTIGATION STAGE IS NOT REQUIRED; A MOA ISSUED AT THE REINVESTIGATION STAGE IS SUFFICIENT AND WILL NOT RENDER THE ASSESSMENT VOID.  The Tax Code requires authority from the CIR or authorized representative before an examination of a taxpayer in the form of LOA. While the law explicitly requires an LOA to be addressed to a revenue officer before an examination of a taxpayer and recommendation of an assessment may be had, the law does not specifically require the same for purposes of recommending a final decision on a disputed assessment. Moreover, even assuming that an LOA is required to conduct the reinvestigation, its absence would only invalidate the resulting decision, such as the FDDA, but not the assessment. Thus a MOA issued by the Revenue District Officer (RDO) to another revenue officers at the reinvestigation stage should not invalidate the FAN previously issued against the taxpayer. (Commissioner of Internal Revenue V. RCL Feeders Phils., Inc; CTA EB No. 2772; April 29, 2024)

 

LOA COVERING 2 YEARS IS VOID. Revenue Memorandum Order (RMO) Nos. 36-99 and 19-2015 require the issuance of one LOA per Taxable Year (TY) or a period to be audited. In CIR v. De La Salle University Case (G.R. No. 196596 November 9, 2016), the Supreme Court (SC) ruled that BIR must specify each taxable year or period on separate LOAs. Thus, a LOA covering portion of 2 taxable years is void. (CIR. Sofgen Holdings Limited- Philippine Branch, CTA EB No. 2695, CTA Case NO. 9691, April 12, 2024)

 

THIRD PARTY INFORMATION (TPI) MUST BE SUPPORTED BY AUTHENTICATED SWORN STATEMENT AND REGISTERED RETURN CARD [IF SOURCE IS IN ANOTHER RDO. In determining discrepancies via TPI, the BIR must obtain sworn statement from TPI sources to attest the veracity of the data provided. To obtain sworn statements, the BIR must send confirmation required to the third-party sources. If the TPI source is from other RDO, the BIR confirmation request must be supported by registered return cards. Here, the allegation of underdeclared purchase based on TPI had no registered return card and authenticated sworn statement. Thus, the findings based on TPI is considered unverified information and finds no basis. (Powernet Systems Corp v. Commissioner of Internal; CTA Case No. 10383; April 11, 2024)

 

FORMAL LETTER OF DEMAND’S (FLD) STATEMENT THAT “WITHIN THE TIME SHOWN IN THE ECLOSED ASSESSMENT NOTICE” WITHOUT DATE IN THE FAN RENDERS THE ASSESSMENT VOID; THE FDDA’S FAILURE TO PROVIDE REASONS FOR THE REJECTION OF THE EXPLANATIONS AND DEFENSES OF THE TAXPAYER RENDERS THE FDDA VOID. An assessment must contain a demand of payment within a prescriptive period. In Fitness by Design Inc. case, the SC ruled that BIR’s FAN is void if it fails to indicate a due date. Thus, were the FLD indicates “within the time shown in the enclosed assessment notice” by the spaces in the FAN which should contain the due dates in each noticer were left blank, the assessment is void. Moreover, In the case of CIR v. Avon Products Manufacturing, Inc. (Avon case), the SC clarified that the obligation to provide factual and legal bases in assessments also include the duty to state the reasons for the rejection of a taxpayer's defenses and explanations against issues raised during tax investigation. Where the FDDA failed to indicate explanations, contentions and evidence submitted by the taxpayer, the FDDA is void. (Major Shopping Management Corporation v. Commissioner of Internal Revenue; CTA Case No. 9300; April 25, 2024; see also(Marina Square Properties, Inc., v. Commissioner of Internal Revenue; CTA Case No.10349; April 11, 2024; (Travellers International Hotel Group, Inc. v. Commissioner of Internal Revenue; CTA Case No. 10445; April 18, 2024; Commissioner Of Internal, Revenue v. Capitol Steel Corporation; CTA EB No. 2585; April 25, 2024; (Commissioner of Internal Revenue V. RCL Feeders Phils., Inc; CTA EB No. 2772; April 29, 2024)

 

10-YEAR PRESCRIPTIVE PERIOD WILL NOT APPLY IF FAN/FDDA DID NOT STATE THAT THE APPLICABLE PRESCRIPTIVE PERIOD IS 10 YEARS. internal revenue taxes must be assessed within three (3) years from the last day prescribed by law for the filing of the tax return or the actual date of filing of such return, whichever comes later, except for an extraordinary period of 10 years to assess based on fraud. In invoking fraud, the factual basis must be stated and communicated to the taxpayer. The CIR should show that the fact are communicated to the taxpayer. It must clearly state the allegations of fraud. Thus, where the FAN or FDDA did not explicitly state that the applicable period is 10 years, the extraordinary period should not apply. (TYC Trading & Manufacturing Philippines, Inc. v. Commissioner of Internal Revenue; CTA Case No. 10247; April 18, 2024

 

WARRANT OF DISTRAINT AND/OR LEVY (WDL) ISSUED AFTER 14 YEARS FROM ISSUANCE OF FLD RENDERS THE COLLECTION EFFORT INVALID. The BIR as 3 years to collect taxes for assessment issued within the 3-year period. The 3-year period to collect begins when the assessment notice is released, mailed or sent to the taxpayer; or five (5) years applying the extraordinary period. The BIR’s collection efforts are initiated by distraint, levy, or court proceeding. The distraint and levy proceedings are validly begun or commenced by the issuance of a WDL and service thereof on the taxpayer. A judicial action for the collection of a tax is initiated: (a) by the filing of a complaint with the court of competent jurisdiction; or (b) where the assessment is appealed to the CTA by filing an answer to the taxpayer's petition for review wherein payment of the tax is prayed for. Where FLD was released on December 27, 2007, but the WDL was issued on June 8, 2022, the BIR has until December 27, 2012 to collect or December 27, 2012 applying the extraordinary period. Thus, the collection effort was barred by prescription (South Cotabato Electric Cooperative, Inc. v. Commissioner of Internal Revenue; CTA Case No. 10937; April 18, 2024)

 

PETITION FILED AFTER FOUR (4) YEARS FROM RECEIPT OF THE WDL IS DISMISSIBLE FOR LACK OF JURISDICTION. The WDL is a proof of finality of the assessment and is considered a denial of the protest. Its issuance is considered as “other matters” within the jurisdiction of the CTA. The taxpayer’s remedy is to appeal within 30 days from the date it was notified of the WDL. Where the taxpayer received the WDL on August 28, 2015, but it only filed the petition on November 17, 2020, the CTA has no jurisdiction to act on the case.  (Ronaldo Reyes Cruz v. Commissioner of Internal Revenue and Register Of Deeds For The Province Of Bulacan Meycauayan Branch; CTA CASE N0.10404; April 11, 2024)

 

PEZA-REGISTERED ENTERPRISE IS ENTITLED TO INCENTIVES AS SHOWIN IN THE LETTER ISSUED BY PEZA. Section 23 of RA No. 7916, as amended, gives the PEZA-registered enterprises the option to choose between two (2) sets of fiscal incentives: (a) the five percent (5%) preferential tax rate on its gross income and (b) ITH, exempting the enterprise from income tax bus subject to all other taxes Only income actually gained or received by the Ecozone Enterprise related to the conduct of its registered business activity are covered by fiscal incentives. Moreover, the incentives shall apply only to registered operations of the Ecozone Enterprise and only during its registration with PEZA. Where the taxpayer is registered with the PEZA as in ECOZONE IT enterprise covering the transaction, whereby a letter by PEZA Director General issued a letter approving the its PEZA application, including its extension, the taxpayer is entitled to ITH incentive (Wipro Philippines, Inc. v. Commissioner of Internal Revenue; CTA Case No. 10329; April 22, 2024)

 

NET-OPERATING LOSS CARRY-OVER (NOLCO) EXCESS CREDITS CREDITED FORWARD TO SUCCEEDING PERIOD AND EXCESS MINIMUM CORPORATE INCOME TAX (MCIT) OVER NORMAL CORPORATE INCOME TAX (NCIT) CARRIED FORWARD TO THE SUCCEEDING PERIOD WITHOUT FACTUAL AND LEGAL BASIS SHOULD BE CANCELLED. The taxpayer shall be informed in writing of the law and the facts on which the assessment is made; otherwise, the assessment is void. Thus, where the items of NOLCO, Excess MCIT over NCIT carried forward to succeeding period were found only in the computation of the deficiency income tax liability of the taxpayer but FLD and FDDA shows no discussion at all in the said findings, the item of assessment is considered void. (Powernet Systems Corp v. Commissioner of Internal; CTA Case No. 10383; April 11, 2024)

 

 

PAYMENTS TO GENERAL PROFESSIONAL PARTNERSHIP (GPP) IS EXEMPT FROM EXPANDED WITHHLDING TAX (EWT). Income payments made to a GPP, as a juridical person, are exempt from income tax, vis- a-vis the EWT. The partners of said GPP are the ones liable in their individual capacities for the payment of income tax, pursuant to the afore-quoted Section 26 of the 1997 Tax Code, as amended. Thus, where the taxpayer supported the professional fees with articles of partnership, the item of assessment should be cancelled. (TYC Trading & Manufacturing Philippines, Inc. v. Commissioner of Internal Revenue; CTA Case No. 10247; April 18, 2024

 

ITEM OF ASSESSMENT NOT PROTESTED BECOMES FINAL, EXECUTORY AND DEMANDABLE. When the assessment is comprised of several issues, only the particular issues validly protested are considered disputed; while the particular issues undisputed become final executory and demandable. Thus, where the taxpayer failed to dispute disallowed expenses due to non-withholding, salaries and wages not subjected to Withholding Tax on Compensation (WTC) and Value-Added Tax (VAT), the same becomes final. (Powernet Systems Corp v. Commissioner of Internal; CTA Case No. 10383; April 11, 2024)

 

 

NO DONOR’S TAX SHOULD BE IMPOSED IF SELLING PRICE IS HIGHER THAN THE FAIR MARKET VALUE (FMV) OF THE SOLD SHARES NOT LISTED AND TRADED THRU LOCAL STOCK EXCHANGE. Under the Tax Code, where the property is transferred for less than an adequate and full consideration, the amount by which the FMV exceed the value of the consideration shall be considered a gift subject to donor’s tax. In Revenue Regulations (RR) No. 6-2013, the FMV of the shares not listed and traded in local stock exchange shall be the higher of among others, the fair market value as determined by the independent appraiser, requiring application of adjusted net asset method for determining the value of the shares (subscription receivable should be a deduction from capital stock under the equity section). Thus, where the selling price is higher than the fair market value, no donor’s tax should be imposed. (Kepwealth, Inc v. Commissioner of Internal Revenue; CTA Case N0.10353; April 17, 2024)

 

REFUNDS

 

REFUND OF EXCESS INPUT VAT ON ZERO-RATED SALES

 

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

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

1. The claim is filed with the BIR within two (2) years after the close of the taxable quarter when the sales were made;
2. That in case of full or partial denial of the refund claim rendered within a period of ninety (90) days from the date of submission of the official receipts or invoices and other documents in support of the application, the judicial claim shall be filed with the CTA within thirty (30) days from receipt of the decision.
   • The 90-day period to appeal are both mandatory and jurisdictional. After the lapse of the 90-day period, petitioner had 30 days to elevate its claim to the CTA.  (Franklin Baker Company of the Philippines v. CIR, CTA Case No. 10407 April 23, 2024)
   • For regional cases, the power to decide was delegated to the Regional Director. RDO's participation is limited only to verification and processing. The appealable decision to the CTA is not the one issued by the RDO but that of Regional Director (Sankyu-Ats Consortium-B v. CIR, CTA Case No. 10313, April 18, 2024)

With reference to the taxpayer's registration with the BIR:

3. The taxpayer is a VAT-registered person;

In relation to the taxpayer's output VAT:

4. The taxpayer is engaged in zero-rated or effectively zero-rated sales;

5. For zero-rated sales under Section 106(A)(2)(a)(1), (2) and (b), and Section 108(8)(1) and (2), the acceptable foreign currency exchange proceeds have been duly accounted for in accordance with BSP rules and regulations;
   • sales of goods abroad, in order for an export sale to qualify as zero-rated, the following essential elements must be present:
     • the sale was made by a VAT registered person;
     • there was sale and actual shipment of goods from the Philippines to a foreign country, as evidenced by the following:
       • sales invoice as proof of sales of goods; the invoice must comply with the invoicing requirements
       • bill of lading or airway bill as proof of actual shipment of goods from the Philippines to a foreign country;
     • the sale was paid for in acceptable foreign currency accounted for in accordance with the rules and regulations of the BSP. Amounts shown in the summary of VAT zero-rated sales supported with sales invoices must be traced with certainty to the certificates of inward remittance (Halliburton Worldwide Limited – Philippine Branch v. CIR, CTA Case No. 9890, April 12, 2024; Pure Essence Int’l Inc., v. CIR, CTA Case No. 10411, April 8, 2024)
   • sales of goods to PEZA-registered entities – the following requisites must be present: (1) the sale must be made by a VAT registered person; and (2) the sale of goods must be to an entity entitled to the incentives under Executive Order No. 226 otherwise known as the Omnibus Investment Code of 1987, and other special laws as shown by PEZA Certificate of Registration (Pure Essence Int’l Inc., v. CIR, CTA Case No. 10411, April 8, 2024)
     • Proof of documents: (a) the sales invoice or official receipt as proof of sale of goods or services; and (b) any proof of the buyer's entitlement to tax incentives under other special laws (i.e., Certificates of Registration with the PEZA pursuant to RA No. 7916, as amended, for the pertinent period/taxable year) (Pure Essence Int’l Inc., v. CIR, CTA Case No. 10411, April 8, 2024)
     • Reasons for denial of zero-rated sales: Sale of services supported by VAT sales invoice and not by ORs; sale of services supported by billing statement and not by OR; Sale of goods with VAT sales invoice by the sales amount is labelled as VAT exempt; Sales without supporting documents (Lantro Phils. Inc., v. CIR, CTA Case No. 10130, April 29, 2024)
     • Sale of power generated through renewable sources of energy is zero-rated (Halliburton Worldwide Limited – Philippine Branch v. CIR, CTA Case No. 9890, April 12, 2024)
     • Renewable Energy Developers are entitled to VAT zero-rating on its purchases of local goods, properties and services needed for the development, construction and installation of its plant facilities.(Halliburton Worldwide Limited – Philippine Branch v. CIR, CTA Case No. 9890, April 12, 2024)
       • For a purchase transaction of an RE Developer to qualify for VAT zero-rating, the taxpayer must be able to present the following documents of the RE Developer:
         • Department of Energy (DOE) Certificate of Registration (Halliburton Worldwide Limited – Philippine Branch v. CIR, CTA Case No. 9890, April 12, 2024); otherwise, input VAT may be passed on and may be refunded where sale is zero-rated
         • Registration with the Board of investments (Halliburton Worldwide Limited – Philippine Branch v. CIR, CTA Case No. 9890, April 12, 2024); and,

Re. sales of services, certain essential elements must be present for a sale or supply of services to be subject to the VAT rate of zero percent (0%), to wit:

• The services fall under any of the categories under Section 108(6)(2), or simply, the services rendered should be other than ''processing, manufacturing or repacking of goods”- service related to any software is allowed (Citco International Support Services Limited-Philippine ROHQ v. CIR, CTA Case No. 10403, April 18, 2024)
• The service must be performed in the Philippines by a VAT-registered person.  The agreement must specify that the services shall be performed in the Philippines (Citco International Support Services Limited-Philippine ROHQ v. CIR, CTA Case No. 10403, April 18, 2024); If the service agreement does not bear any indication that the services were to be performed in the Philippines but the witness testified so, the element is complied with; however, nature of services must be indicated in the supporting ORs (Zuellig Pharma Asia Pacific Ltd. Phils. ROHQ, v. CIR CTA Case No. 9025, April 19, 2024)
• The payment for such services should be in acceptable foreign currency accounted for in accordance with BSP rules. Payment must be supported by Certificate of Inward Remittance. (Citco International Support Services Limited-Philippine ROHQ v. CIR, CTA Case No. 10403, April 18, 2024)
• The recipient of the services is a foreign corporation, and the said corporation is doing business outside the Philippines, or is a nonresident person not engaged in and business who is outside the Philippines when the  services were performed (Citco International Support Services Limited-Philippine ROHQ v. CIR, CTA Case No. 10403, April 18, 2024)

 

As regards the taxpayer's input VAT being refunded:

6. The input taxes are not transitional input taxes. Transitional input tax credit operates to benefit newly VAT- registered persons, whether or not they previously paid taxes in the acquisitions of their beginning inventory of goods, materials and supplies. During the period of transition from non-VAT to VAT status, the transitional input tax credit serves to alleviate the impact of the VAT on the taxpayer. (Lantro Phils. Inc., v. CIR, CTA Case No. 10130, April 29, 2024; Pure Essence Int’l Inc., v. CIR, CTA Case No. 10411, April 8, 2024)

 

7. The input taxes are due or paid;

Input tax must comply with invoicing requirements. Reasons for disallowance:

Domestic purchase of goods supported with billing statement; domestic purchase of services supported with billing statement; domestic purchase of services supported with VAT sales invoice; domestic purchase of goods with non-VAT sales invoice; unreadable date and description of goods, etc.; without business style; incomplete address; without description of services rendered (Lantro Phils. Inc., v. CIR, CTA Case No. 10130, April 29, 2024)

BOC’s certification of remittance to the Bureau of Treasury is required; IERD pertain merely to import declaration but not sufficient to prove payment of VAT on importation. (Lantro Phils. Inc., v. CIR, CTA Case No. 10130, April 29, 2024)

Nput VAT supported by SI/OR that are photocopy only; corrections not sountersiged by authorized personnel; VAT not separately indicate; overclaimed input VAT(Pure Essence Int’l Inc., v. CIR, CTA Case No. 10411, April 8, 2024)

 

8. 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
9. the input taxes have not been applied against output taxes during and in the succeeding quarters

Taxpayer must clearly establish that the amount was not applied against the output VAT liability during and in the succeeding quarters. CTA will not simply assume that the amount declared in Line 23D is the amount sought to be refunded.  (Lantro Phils. Inc., v. CIR, CTA Case No. 10130, April 29, 2024)

 

 

PAGCOR CONTRACTEES AND LICENEES ARE EXEMPTED FROM INCOME TAX. The exemption of PAGCOR and its licensees and contractees from payment of all kinds of taxes, except the five percent (5%) franchise tax, has been upheld by the Supreme Court in the Bloombery Case. Where the taxpayer is a holder of Casino License granted by PAGCOR, it is exempt from income tax but must comply with the requirements: (1) that it is a licensee of PAGCOR; (2) that it derives income from the casino operations as a licensee; (3) that it pays license fee, which must be inclusive of the five percent (5%) franchise tax; and, (4) that it paid income tax. Where the license fees received is net of shares in the gross gaming revenue of the casino of 5% franchise tax, the taxpayer is entitled to refund. Dissenting Opinion: it must be proven that PAGCOR remitted the 5% to the BIR. (Premiumleisure and Amusement, Inc. v. CIR, CTA EB No. 2712, CTA Case No. 10060, April 22, 2024)

 

WATER UTILITY SERVICES ARE SUBJECT TO FRANCHISE TAX. Section 108 of the 1997 NIRC, as amended, provides the general rule that the sale or exchange of services is subject to Value-Added Tax (VAT). Section 119 of the 1997 NIRC, as amended, on the other hand, enumerates the entities who are engaged in sale or exchange of services that are subject to franchise tax instead of VAT under the general rule laid down in Section 108. The term 'franchise' has been broadly construed as referring, not only to authorizations that Congress directly issues in the form of a special law, but also to those granted by administrative agencies to which the power to grant franchises has been delegated by Congress. Where a taxpayer is engaged in the sale of services as a water utility, it is subject to franchise tax. (Davao City Water District v. CIR; CTA EB 2725; April 2, 2024)

 

SALE OF SHARES APPLYING TAX TREATY IS EXEMPT FROM INCOME TAX SUBJECT TO CONDITIONS. Capital gains realized during the taxable year from the sale or other disposition of shares of stock in a domestic corporation made outside the stock exchange and any gain derived from such dealings in property derived by a foreign corporation are subject to income tax, exempt to the extent required by treaty obligation. Here, the RP-Germany Tax treaty requires the following: taxpayer is a resident of Germany; There is an alienation of shares of a domestic corporation; and the assets of the domestic corporation do not principally consist of immovable property in the Philippines. “Principally” means more than 50% of the entire assets in terms of value as may be proved by the financial statement. (Siemens Altiengesellschaft v. Commissioner of Internal Revenue; CTA Case No. 10797; April 24, 2024)

 

LOCAL GOVERNMENT CODE

 

BILLING STATEMENT ISSUED BY THE LGU IS NOT CONSIDERED AN ASSESSMENT. Local government Code provides two procedures in refund of local business tax. Section 195 applies when there is assessment, and Section 196 in case of recovery of an erroneously paid or illegally collected tax. Moreover, Assessment must state the nature of the tax, fee, or charge, the amount of deficiency , surcharge interest and penalties. Thus, where the LGU merely issued a billing statement without the foregoing elements required of an assessment, the taxpayer’s refund is governed by Section 196. Section 196 requires that the taxpayer should file its refund administratively and judicially within 2 years from date of payment. Where the taxpayer paid the tax on January 20, 2020, but the judicial claim is filed on February 3, 2022, the claim is prescribed. Bellagio One Condominium Association et. al.  v. City Treasurer of Taguig City et. al. (CTA AC No. 277, April 22, 2024)

 

LGU HAS 60 DAYS TO DECIDE TAXPAYER’S PROTEST ON LOCAL BUSINESS TAX; INACTION IS CONSIDERED DEEMED DENIAL APPEALABLE TO THE REGIONAL TRIAL COURT WITHIN 30 DAYS. Under Section 195 of the LGC, when the taxpayer protest the assessment, the LGU has 60 days to decide; inaction is considered deemed denial. The taxpayer has 30 days from the date of receipt of adverse decision, or deemed denial, whichever comes earlier, within which to appeal to the RTC. Here, the LGU issued First and Second Notice containing the LBT assessment. The taxpayer protested against First notice on March 1, 2012 but was not acted by the LGU or considered the assessment deemed denied on April 30, 2012. The taxpayer has until May 30, 2012 to appeal. But since TP filed on ly on July 10, 2012, the appeal prescribed. Assuming Second Notice is considered new LBT assessment, the taxpayer did not observe the 60-day period and thus the appeal is premature. (Service Resources, Inv. v. Pasig City et. al., CTA EB No. 2719, CTA AC 243), April 23, 2024

 

VIOLATIONS OF THE TAX CODE

 

CRIMINAL CASE FOR FAILURE TO PAY TAX, WHERE INFORMATION IN COURT IS FILED AFTER SEVEN (7) YEARS FROM FINALITY OF ASSESSMENT, WARRANTS THE DISMISSAL OF THE CASE FOR PRESCRIPTION. In case of willful refusal to pay deficiency tax, the five-year prescriptive to prosecute runs from the finality of the assessment (failure to pay within the period given in the FAN/FLD), and is interrupted by filing of information in court. Where the FLD/FAN was issued and served on December 15, 2010, the assessment becomes final and executory on January 15, 2011. The prosecution has until January 15, 2016 to file a case. Where the case was filed on January 10, 2023 or after seven years, the offense is prescribed. (People of the Philippines v. Julieta N. Ariete; CTA Crim. Case No. A-18; April 8, 2024; People of the Philippines v. Star Asset Management NPL Inc., et. al. CTA EB Crim No. 129, CTA Crim Case No. O-995); five-year period to run from filing of complaint if the date of the commission of the offense is not known. (People v. Bernardo, CTA EB Crim No. 123, CTA Crim Case No. O-931, April 16, 2024)

 

 

TAX ASSESSMENTS

A LETTER OF AUTHORITY (LOA) IS NOT INVALIDATED BY A BUREAU OF INTERNAL REVENUE (BIR) LETTER ADDING ADDITIONAL EXAMINERS. It is presumed that the BIR regularly performed its official duty. The taxpayer must present proof to the contrary. Here, the BIR issued a letter without LOA adding additional examiners, but without replacing or transferring the original examiners. Since the taxpayer failed to prove that the new examiners recommended the issuance of the Preliminary Assessment Notice (PAN), the LOA is valid. (Barrio Fiesta Manufacturing Corporation v. Commissioner of Internal Revenue (CIR); CTA CASE NO. 9871; March 1, 2024)

AN ASSESSMENT BASED ON LETTER NOTICE (LN) WITHOUT LOA IS VOID. An LN is entirely different and serves a different purpose than a LOA. After the LN has served its purpose, the RO should have properly secured an LOA before proceeding with the further examination and assessment of the petitioner. An LOA addressed to an RO is specifically required under the National Internal Revenue Code (NIRC) before an examination of a taxpayer may be had while an LN is not found in the NIRC and is only for the purpose of notifying the taxpayer that a discrepancy is found based on the BIR's RELIEF System. In the case at bar, the PAN and FAN were based on the LN, which was not converted to LOA. The Court has consistently held that, in cases where the BIR conducts an audit without a valid LOA, or in excess of the authority duly provided therefor, the resulting assessment shall be void. (Commissioner of Internal Revenue v. Port Barton Development Corporation; CTA EB No. 2703; March 14, 2024)

UNLESS UNDERTAKEN BY THE CIR HIMSELF OR HIS DULY AUTHORIZED REPRESENTATIVES, OTHER TAX AGENTS MAY NOT VALIDLY CONDUCT ANY AUDIT EXAMINATIONS WITHOUT PRIOR AUTHORITY. The CIR's duly authorized representatives are as follows: (1) Regional Directors; (2) Deputy Commissioners; (3) Assistant Commissioner/Head Revenue Executive Assistants (for Large Taxpayers); and, (4) other officials but only upon the CIR's prior authorization. In the instant case, the BIR mobilized its Revenue Officers (RO) to conduct such verification procedures through the issuance of a Mission Order. Absent a LOA, the assessment or examination is a nullity; and, a void assessment bears no fruit. (Commissioner of Internal Revenue v. Formula Sports; CTA EB No. 2674; March 6, 2024)

LACK OF FINAL DECISION ON DISPUTED ASSESSMENT (FDDA) DOES NOT VIOLATE TAXPAYER’S RIGHT TO DUE PROCESS; PENDING APPEAL, THE TAX LIABILITY IS NOT YET DELINQUENT AND THE WARRANT OF GARNISHMENT (WG) IS PREMATURE. Applying the CIR v. Liquigaz case where the BIR did not issue the FDDA, but it issued a Final Notice Before Seizure (FNBS), the assessment remains valid. The FNBS may be considered as the final decision of the Bureau of Internal Revenue (BIR). Moreover, the right to collect of the BIR requires that the tax liability is delinquent. While the NIRC did not define delinquent tax, regulations provided instances when tax is delinquent to include assessment notices that have become final and executory when no appeal to the CIR or CTA within the reglementary period. Further, The Supreme Court ruled in LRTA and Mannasoft Cases that the Warrant of Distraint and/or Levy (WDL) is void if the assessment is not yet demandable. Here, the taxpayer has a pending appeal with the CTA. Thus, the WG issued by the BIR is void. (Barrio Fiesta Manufacturing Corporation v. Commissioner of Internal Revenue; CTA CASE NO. 9871; March 1, 2024)

FINAL ASSESSMENT NOTICE/FORMAL LETTER OF DEMAND’s (FAN/FLD) FAILURE TO ADDRESS THE ARGUMENTS OF THE TAXPAYER IN THE PAN AND REITERATION IN VERBATIM THE PAN’S DETAILS OF DISCREPANCY RENDERS THE ASSESSMENT VOID. A taxpayer must be fully apprised of the factual and legal bases of the assessments, and must not be left unaware on how respondent or his authorized representatives appreciated the explanations or defenses raised by petitioner in connection with the assessments. Here, the subject FAN/FLD did not address any of the arguments posed by taxpayer in the protest letter in response to the PAN. The BIR only reiterated verbatim in the Details of Discrepancy of the said FLD, what it stated in the Details of Discrepancy of the undated PAN, save for the adjustments in one basic income tax due and basic deficiency VAT only. Thus, the inevitable conclusion is that petitioner's right to due process, under Section 228 of the 1997 NIRC, as amended, and Section 3.1.3 of RR No. 12-99, as amended, was violated. As a consequence, the said deficiency 1ncome tax and VAT assessments are rendered void. (Beta Electromechanical Corp., v. Commissioner of Internal Revenue; CTA Case No. 10040, March 5, 2024) The Supreme Court, in the Avon case, held that the CIR must give the particular facts upon which the CIR's conclusions are based, and those facts must appear in the record. Here, the BIR failed to address the arguments/explanations raised by TPI in its Reply to PAN when it rejected the same through the issuance of the FLD. Considering the violation of TPI's right to due process provided under Section 228 of the NIRC of 1997, as amended, and RR No. 12-1999, the Court finds that the FLD as well as the subsequent issuances of the CIR to TPI, including the FDDA dated September 22, 2014, are all considered void. (Transnational Plans, Inc., v. Commissioner of Internal Revenue; CTA EB NO. 2549; March 26, 2024)

A GOVERNMENT INSTRUMENTALITY IS EXEMPT FROM PAYING REAL PROPERTY TAX (RPT). Considering that Petitioner National Food Authority (NFA) is a government instrumentality and exempt from RPT, the act of the City Assessor in demanding payment of RPT from NFA has no basis. (National Food Authority v. City Government of Bogo; CTA AC No. 263; March 5, 2024)

IN APPEALING THE INACTION OF THE CIR ON THE APPEALED PROTEST, THE 180-DAY PERIOD SHALL BE COUNTED FROM THE DATE OF FILING OF THE PROTEST, NOT APPEAL TO THE CIR. In determining the timeliness of an appeal from the inaction of the CIR, there is only one "180-day period" of inaction to speak of which shall be counted from the date of filing of the protest (if the protest is a request for reconsideration) or from the submission of the relevant supporting documents (if the protest is a request for reinvestigation) and not from the date when the decision of the CIR's duly authorized representative was appealed to the CIR. Here, the taxpayer filed the Petition for Review on May 22, 2018 allegedly due to the inaction of the CIR. The taxpayer erroneously applied the 180-day period counting from appeal to the CIR; consequently, the instant Petition for Review was prematurely filed. Petitioner's only recourse would be to await respondent's final decision on its administrative appeal and appeal the same before the CTA within 30 days from receipt thereof. (Bayugan Farmers Multi-purpose cooperative v. Commissioner of Internal Revenue; Case No. 9928; March 7, 2024)

REGISTRY RECEIPT IS NOT IN ITSELF PROOF OF SERVICE OF PAN WITHOUT BEING ACCOMPANIED BY THE AUTHENTICATING AFFIDAVIT UNDER OATH) OF THE PERSON WHO ACTUALLY MAILED THE PAN. A PAN may be served via registered mail when personal service is not practicable. If taxpayer denies receipt of the PAN, the BIR should dispute the denial. In proving receipt, the registry receipt is not sufficient proof of service without an affidavit under oath of the mailer. Moreover, the registry receipt must contain sufficiently identifiable details of the transaction (i.e. date, place of service and name of the professional courier service company who received the same). Thus, PAN is not considered validly served and LOA is void if BIR merely alleged that it served the notice via registered mail. (Bohol JSL Enterprises Incorporated v. Commissioner of Internal Revenue; CTA Case No. 1057; March 21, 2024; Konica Minolta Marketing Services v. Commissioner of Internal Revenue; CTA CASE No. 10255; March 01, 2024)

THIRD PARTY INFORMATION (TPI) MUST BE SUPPORTED BY AUTHENTICATED SWORN STATEMENT AND REGISTERED RETURN CARD [IF SOURCE IS IN ANOTHER REVENUE DISTRICT OFFICE  (RDO)]. In determining discrepancies via TPI, the BIR must obtain sworn statements from TPI sources to attest the veracity of the data provided. To obtain sworn statements, the BIR must send confirmation required to the third-party sources. If the TPI source is from another RDO, the BIR confirmation request must be supported by registered return cards. Here, the allegation of underdeclared purchase based on TPI had no registered return card and authenticated sworn statement. Thus, the findings based on TPI is considered unverified information and finds no basis. (Bohol JSL Enterprises Incorporated v. Commissioner of Internal Revenue; CTA Case No. 1057; March 21, 2024 (Barrio Fiesta Manufacturing Corporation v. Commissioner of Internal Revenue; CTA CASE NO. 9871; March 1, 2024)

PRELIMINARY COLLECTION LETTER (PCL) ISSUED BY THE BIR PENDING ADMINISTRATIVE APPEAL WITH THE OFFICE OF THE CIR IS VOID. In Light Rail Transit Authority v. Bureau of Internal Revenue, the Supreme Court explained that to ground the collection measures on the premise of the existence of "delinquent taxes" is incorrect. A PCL, as well as a FNBS, WDL, or other means of summary administrative collection, remain tentative for as long as there is a pending administrative appeal before the Office of the CIR. The assessment is still non-demandable. As such, collection measures emanating from such assessment shall be void and of no force and effect. Here, the assessment against the taxpayer remained non-demandable as BIR Collection Division issued the assailed PCL prior to the CIR' s final resolution of petitioner's motion for reconsideration. (C.U.T. Commercial Corporation v. Bureau of Internal Revenue; CTA Case No. 9933; March 22, 2024)

WATERWORKS SYSTEM FEES EARNED BY MUNICIPALITY IS EXCLUDED FROM INCOME TAX, BUT IS NOT AUTOMATICALLY EXEMPT FROM VAT. For income to be excluded from gross income and be excused from income taxation under section 32(b)(7)(b) of the NIRC, as amended, the following conditions must concur: (1) the income must be derived by the government or political subdivision thereof; (2) such income emanated from a public utility or exercise of essential governmental function; and (3) said income accrued to the government or political subdivision. Here, the Municipality of Pulilan is one of the political subdivisions of the State and proceeds from the municipal water system accrues to the general fund. Further, having demonstrated that the water system fees were derived by petitioner as a public utility, i.e., supply of water to constituents, it need not establish that said fees were earned in the exercise of essential governmental function; however the taxpayer must prove that the fees earned are exempt from VAT.(Municipality of Pulilan v. Commissioner of Internal Revenue; CTA Case No. 10259; March 22, 2024)

THE SERVICE OF ASSESSMENT TO AN ADMINISTRATIVE ASSISTANT NOT AUTHORIZED BY THE TAXPAYER TO RECEIVE THE FAN/FLD RENDERS THE ASSESSMENT VOID. While the board of directors generally exercise corporate powers, conduct all business, and control all properties of the corporation, the corporation, through its board of directors may validly delegate some of its functions and powers to corporate officers, committees or agents. In the present case, the FAN was served on petitioner at its registered address through an administrative assistant, who is not duly authorized to receive the FAN. Thus, the assessment issued against petitioner is null and void for violating procedural due process. (Royal Palm Residences v. Commissioner of Internal Revenue; CTA Case No. 10222; March 27, 2024

TAX REFUNDS 

SINCE ALKYLATE DOES NOT BELONG TO THE SAME CATEGORY AS NAPHTHA AND REGULAR GASOLINE, THE SAME SHOULD NOT BE SUBJECTED TO EXCISE TAX. Alkylate is not among the excisable articles enumerated in Sec. 148(e) of the 1997 NIRC, as amended. Neither can it be categorized as "other similar products of distillation" precisely because it is not a direct product of distillation. Here, the pieces of evidence for the petitioner, including the testimonies of expert witnesses. which respondent failed or did not even attempt to rebut, clearly established that alkylate is produced through the process of alkylation and not distillation, and that alkylate does not belong to the same category as naphtha and regular gasoline: hence. not subject to excise tax. (Petron Corporation v. Commissioner of Internal Revenue CTA Case Nos. 10073,10120 and 1020; March 7, 2024)

IN CLAIMING TAX CREDIT FOR EXCISE TAXES ON PETROLEUM SOLD TO EXEMPT ENTITIES, THE CLAIMANT MUST PROVE THAT THE PETROLEUM SOLD MUST BE THE ONE IMPORTED. Under the NIRC, petroleum products sold to entities which are by law exempt from direct and indirect taxes are exempt from excise tax. To justify a grant of tax credit for excise taxes paid on importation, taxpayer claimant must establish the following: first, the entity to which the petitioner sold the petroleum products is an entity exempt by law from direct and indirect taxes; and, second, petitioner paid the excise taxes on its importation of bunker oil fuel and special oil fuel subsequently sold to the tax-exempt entities under Section 135(c) of the NIRC, as amended. Here, petitioner failed to submit the Official Registry Books that proves that the same petroleum products on which the petitioner paid excise taxes was the same petroleum products sold to an entity exempt by law from direct and indirect taxes. Thus, tax refund or credit shall be denied. (SL Harbor Bulk Terminal v. Commissioner of Internal Revenue; CTA Case No. 10320; March 13, 2024)

APPEAL TO THE CTA OF THE RDO’S DENIAL OF INPUT VAT REFUND IS DISMISSIBLE AS RDO’S DECISION IS MERELY RECOMMENDATORY. Only the CIR is empowered to decide refunds of internal revenue taxes. By exception, such authority vested in the CIR may be delegated "to any or such subordinate officials with the rank equivalent to a division chief or higher, subject to such limitations and restrictions as may be imposed. The RDO officials are not authorized to give the final decision. Thus, where the claimant filed its administrative claim before RDO No. 44; received a letter from RDO denying the administrative claim, such denial cannot be appealed to the CTA. The RDO’s denial is  at best merely recommendatory, subject to the approval of the CIR or Regional Director. Thus, the appeal is dismissed for lack of jurisdiction. (Firmenich Inc., v. Commissioner of Internal Revenue; CTA Case No.10209; March 13, 2024)

NRFC IS CONSIDERED DOING BUSINESS IN THE PHILIPPINES IF IT APPOINTS AGENT IN THE PHILIPPINES. One of the zero-rating requirements is that the NRFC is not engaged in trade or business in the Philippines. The SEC Certificate of Non-Registration does not conclusively demonstrate that the NRFC is not doing business in the Philippines. Moreover, agency agreement allowing the NRFC to transact or engage in local trade or business through the claimant, without establishing that the agent/claimant solicits orders on its own or independently without the instruction of the NRFC, the NRFC is considered doing business in the Philippines. (Firmenich Inc., v. Commissioner of Internal Revenue; CTA Case No.10209; March 13, 2024)

FOR A SALE OR SUPPLY OF SERVICES TO BE SUBJECT TO THE VAT RATE OF ZERO PERCENT (0%) UNDER SECTION 108(B)(2) OF THE NIRC, AS AMENDED, THE SERVICES MUST BE PERFORMED IN THE PHILIPPINES BY A VAT-REGISTERED PERSON. Here, The Services Agreement between petitioner and non-resident foreign corporation does not bear any indication that the subject services were to be performed by petitioner in the Philippines. A scrutiny of the articles/clauses of the Services Agreement reveals that it does not categorically state that the contracted services thereof shall be performed by the petitioner in the Philippines. Furthermore, no other evidence was offered to show that the subject services were indeed performed in the Philippines. Considering petitioner's failure to establish its zero-rated or effectively zero-rated sales for the subject period, the subject refund cannot be granted. (Williams-Sonoma Phil., v. Commissioner of Internal Revenue; CTA CASE N0.10325; March 14, 2024)

REIMBURSED CHARGES CANNOT BE A SOURCE OF INPUT VAT. Reimbursed charges could not be considered paid for the by the taxpayer. Moreover, the taxpayer does not recognize the reimbursement as income or receipt. Consequently, claimant cannot simultaneously receive reimbursement for the amount it advanced (on the premise that these were not really its expenses) and applied for refund of the related input VAT as if these were really incurred by the taxpayer. (Pilipinas Kyohritsu, inc. V. Commissioner of Internal Revenue, CTA Case No. 10463; March 22, 2024)

INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT (ICPA) CERTIFICATION, WITHOUT SUFFICIENT SUPPORTING DOCUMENTS, IS INSUFFICIENT TO REINFORCE REFUND CLAIMS. Mere listing of VAT invoices and receipts, even if certified to have been previously examined by an independent certified public accountant, would not suffice to establish the truthfulness and accuracy of the contents thereof unless offered and actually verified by the Court. In the case before us, only the following clients of petitioner shall be considered in the determination of its refund claim: (1) Marketing Convergence Inc.; and (2) Land Bank of the Philippines. The reason-only these two (2) clients have their corresponding invoices, official receipts, billing statements, and contracts, which would tend to show the terms/ periods covered of the license contract, along with the amounts, necessary for the Court to verify the accurate deferred subscription amount for CY 2017, which it paid. (SAS Institute Inc v. Commissioner of Internal Revenue; CTA Case No.10537, March 22, 2024)

THE COURT CANNOT ACCEPT MERE RECOMPUTATIONS WITHOUT ITS SUPPORTING SOURCE DOCUMENTS IN JUSTIFYING DISCREPANCIES. The correct amount of tax base or income payment is the determinative factor in computing the correct withholding tax. Here, Petitioner's explanation that the discrepancy was due to mere inadvertence in entering the amounts in the tax base section of the online returns for its remittances is self-serving, considering that it failed to present the source documents (i. e., approved disbursement voucher, collection list, invoices or official receipts, or other adequate records) showing the purported correct tax base. Thus, the Court cannot simply accept the recomputation made by the petitioner without its supporting source documents. (Provincial Government of Bohol v. Commissioner of Internal Revenue; CTA Case No. 10394, March 24, 2024)

VIOLATION OF THE TAX CODE

FOR CRIMINAL CASES HEARD BEFORE THE CTA, IT IS THE FILING OF AN INFORMATION THE CTA, NOT THE FILING OF A COMPLAINT BEFORE THE DOJ, THAT INTERRUPTS THE PRESCRIPTIVE PERIOD. Sec. 2, Rule 9 of the RRCTA provides that all criminal actions before the Court in Division in the exercise of its original jurisdiction shall be instituted by the filing of an information in the name of the People of the Philippines. The institution of the criminal action shall interrupt the running of the period of prescription. In the case at bar, the information was filed before the CTA in Division on 6 September 2022 for the alleged fraudulent income tax return filed in 2013. Considering that the prescription for a tax investigation based on fraud is ten years, the right of the State to prosecute had already been prescribed. (People of the Philippines v. Antonio Valeriano M. Bernardo; CTA EB CRIM. NO. 124; March 8, 2024)

EXPENDITURE METHOD AS BASIS TO ESTABLISH FAILURE TO PAY TAX IN CRIMINAL CASES REQUIRES PROOF OF LIKELY SOURCE OF INCOME. To establish failure to pay tax as one of the element of violation of Tax Code (Section 255 – willful failure to pay tax, make return or supply correct information and Section 254 - tax evasion), expenditure method may be resorted to, which is based on the theory that where the amount of money which a taxpayer spends during a given year exceeds his reported income, and the source of such money is otherwise unexplained, it may be inferred that such expenditures represent unreported income. In  a criminal case is filed against the taxpayer, the need for evidence of a likely source of income is a prerequisite (i.e. omissions of income in the return, nature of business is such that it has capacity to generate substantial income, proof of under declaration, keeping of separate set of books, use of false invoices or documents etc.). Here, the BIR only provided certifications, TCTs, GIS, Deeds of Absolute Sale, and LTO car registration which are hardly evidence of a likely source of income. Thus, the accused is acquitted. (People of the Philippines v. Janet Lim Napoles; CTA CRIM. CASE NOS. 0-485, 0-486, 0-487' 0-488, 0-490, 0- 491, 0-492, 0-493, 0-494, 0-495, 0-496 & 0-498; March 21, 2024)

FAILURE ON THE PART OF THE PROSECUTION TO PROVE THAT THE PAN AND THE FAN WERE DULY SERVED AND RECEIVED BY THE ACCUSED CORPORATION OR ANY OF ITS RESPONSIBLE OFFICERS CREATES REASONABLE DOUBT FOR A CONVICTION OF THE CRIME OF VIOLATION OF SECTION 255, IN RELATION TO SECTIONS 253 AND 256 OF THE NIRC OF 1997; CIVIL LIABILITY IS EXTINGUISHED WITHOUT CRIMINAL LIABILITY; CRIMINAL LIABILITY PRESCRIBES AFTER 5 YEARS FROM RECEIPT OF FAN UNTIL FILING OF INFORMATION WITH COURT. To sustain a conviction of the crime of violation of Section 255 (tax evasion), in relation to Sections 253 and 256 of the NIRC of 1997, it must be established that the failure to taxes is willful despite receipt of PAN, FAN, PCL and FNBS. In the present case, prosecution did not present evidence to prove that the PAN and the FAN were duly served and received by the accused corporation or any of its responsible officers. Therefore, a conviction for tax evasion could not be sustained. Moreover, civil action is deemed instituted in a criminal action. While civil aspect may survive an acquittal based on reasonable doubt, no civil liability should be imposed as the assessment notices were not duly served. Lastly, violations for Tax Code prescribe after five years, from the discovery thereof (after receipt of the final notice and demand with taxpayer’s refusal to pay) and shall be interrupted by filing of information in court. Assuming FAN was duly served and received, where FAN attains finality on January 9, 2012 but the information was filed on June 19, 2019, the criminal action is prescribed.  (People of the Philippines v. Robust Security Inc.; CTA EB Crim No. 098; March 26, 2024.) It is the filing of a complaint before the CTA, not DOJ, that interrupts the prescriptive period (People of the Philippines v.Bernardo, CTA EB Crim No. 124, CTA Crim )

FAN/FLD’S INCORRECT DATE OF PAYMENT, EXTENSION OF FOUR DAYS TO PAY THE INTEREST, AND STATEMENT THAT INTEREST WILL HAVE TO BE ADJUSTED RENDERS THE ASSESSMENT VOID. The FAN/FLD must include the computation of tax liability and must demand for payment within a period prescribed. Where the FAN’s due date of payment was erroneously stamped January 7, 2018, but the FAN was issued on December 7, 2018; interest was computed four days beyond the deadline, giving impression that taxpayer need not pay the interest within the prescribed deadline; and FAN contains a statement that “the interest and the total amount due will have to be adjusted if paid after the date specified therein”, the FAN is considered not to contain a definite and actual demand to pay and is considered void. (IBMS Technology Phils. Corporation v. Commissioner of Internal Revenue; CTA Case 10177; March 15, 2024), Failure to indicate the due date negates demand for payment (Commissioner of Internal Revenue v. Ritegroup Inc., CTA EB No. 2729; March 12, 2024)

ON VAT AND PERCENTAGE TAX PROVISIONS (RR No. 3-2024)

• The EOPT adopts the accrual basis of recognizing sales for both sales of goods and services, including transactions to government or any of its political subdivisions, instrumentalities or agencies, and government-owned or -controlled corporations (GOCCs).
  • All references to “gross selling price”, “gross value in money”, and “gross receipts” shall now be referred to as “Gross Sales”, regardless of whether the sale is for goods under Sec. 106 or for services under Sec. 108 of the Tax Code (Sec. 2(A), RR No. 3-2024).
• The EOPT Act mandates a single document for sales of both goods and services.
  • Sales/Commercial Invoices or Official Receipts shall now be referred to as “Invoice” (Sec. 2(B), RR No. 3-2024).
  • All references to receipts or payments which was previously the basis for recognition of sales of service under Title IV [Value-Added Tax (“VAT”)] and Title V (Percentage Tax) of the Tax Code, shall now be referred to as “Billing” or “Billed”, whichever is applicable (Sec. 2(C), RR No. 3-2024).
•  EOPT Act re-introduced the regular updating of the VAT-exempt threshold every three (3) years, all provisions mentioning the VAT-exempt threshold of Php 3,000,000.00 shall now read:
  • “The amount of VAT threshold herein stated shall be adjusted to its present value every three (3) years using the Consumer Price Index (CPI), as published by the Philippine Statistics Authority (PSA).” (Sec. 2(D), RR No. 3-2024).
• Filing and Payment
  • The filing of a tax return shall be done electronically in any of the available electronic platforms. In case of unavailability of electronic platforms, manual filing of tax returns shall be allowed.
  • The payment of taxes with corresponding due dates shall be made electronically in any of the available electronic platforms or manually to any Authorized Agent Banks or Revenue Collection Officers (Sec. 2(E), RR No. 3-2024).
  • For tax payment with corresponding due dates, the same shall be made:
    • Electronically in any of the available electronic platforms; or
    • Manually to any AABs and RCOs.

 

SPECIFIC AMENDMENTS ON RR NO. 16-2005

 

SUBJECT	RR NO. 16-2005, as amended, prior to EOPT Act	RR NO. 3-2024
Sale or Exchange of Service under Sec. 108 of the Tax Code (Sec. 3, RR No. 3-2024)
Sec. 4.108-1 – VAT on the sale of Services and Use or Lease of Properties	VAT is based on gross receipts (excluding VAT).	Sale or exchange or services, as well as the use or lease of properties, as defined in Sec. 108(A) of the Tax Code shall be subject to VAT, equivalent to 12% of the gross sales (excluding VAT).
Sec. 4.108-4 – Definition of Gross Sales	Definition of Gross Receipts	Gross Sales – total amount of money or its equivalent representing the contract price, compensation, service fee, rental or royalty, including the amount charged for materials supplied with the services during the taxable period for the services performed for another person, which the purchaser pays or is obligated to pay to the seller in consideration of the sale, barter, or exchange of services that has already been rendered by the seller and the use or lease of properties that have already been supplied by the seller   excluding: VAT: and Amounts earmarked for payment to third party or received as reimbursement for payment on behalf of another which do not redound to the benefit of the seller as provided under relevant laws, rules or regulations   Provided, that for long-term contracts for a period of 1 year or more, the invoice shall be issued on the month in which the service, or use or lease of properties is rendered or supplied
Sec. 4.108-6 – Allowable Deductions from Gross Selling Price	In computing the taxable during the month or quarter, the following shall be allowed as deductions from gross selling prices: Discounts determined and granted at the time of sale, which are expressly indicated in the invoice, the amount thereof forming part of the gross sales within the same month/quarter it was given.   Sales discount indicated in the invoice at the time of sale, the grant of which is not dependent upon the happening of a future event, may be excluded from the gross sales within the same month/quarter it was given. Sales returns and allowances for which a proper credit or refund was made during the month or quarter to the buyer for sales previously recorded as taxable sales.	In computing the taxable base during the quarter¸ the following shall be allowed as deductions from gross sales: The value of services rendered for which allowances were granted by a VAT-registered person during the quarter in which a refund is made or a credit memorandum of refund is issued.   Sales discount granted and indicated in the invoice at the time of sale and the grant of which is not dependent upon the happening of a future event may be excluded from the gross sales within the same quarter it was given.
VAT-Exempt Transactions (Sec. 4, RR No. 3-2024)
Sec. 4.109 (B) (cc) – Exempt Transactions	Sale or lease of goods or properties or the performance of services other than the transactions mentioned in the preceding paragraphs, the gross annual sales and/or receipts do not exceed the amount of Php 3,000,000.00.   Self-employed individuals and professionals availing of the 8% tax on gross sales and/or receipts and other non-operating income, under Section 24(A)(2)(b) and 24(A)(2)(c)(2)(a) of this Code shall also be exempt from the payment of twelve (12%) VAT.	Sale or lease of goods or properties or the performance of services other than the transactions mentioned in the preceding paragraphs, the gross annual sales do not exceed the amount of Php 3,000,000.00; provided that the amount herein stated shall be adjusted to its present values using the consumer price index (CPI), as published by the Philippine Statistics Authority (PSA) every three (3) years.   Self-employed individuals and professionals availing of the 8% tax on gross sales and other non-operating income, under Sec. 24(A)(2)(b) and Sec. 24(A)(2)(c)(2)(a) of the Tax Code shall also be exempt from the payment of 12% VAT.  (Sec. 4)
Tax Credits
Sec. 4.110-9 – Output VAT Credit on Uncollected Receivables	No similar provision.	A seller of goods or services may deduct the output VAT pertaining to uncollected receivables from its output VAT on the next quarter, after the lapse of the agreed upon period to pay;   Provided that, the seller has fully paid the VAT on the transaction:   Provided further, that the VAT component of the uncollected receivables has not been claimed as allowable deduction under Sec. 34(E) of the Tax Code.   Uncollected Receivables – sales of goods and/or services on account that transpired upon the effectivity of these Regulations which remain uncollected by the buyer despite the lapse of the agreed period to pay.   Requisites on how to be entitled to VAT credit: The sale or exchange has taken place after the effectivity of these Regulations (RR No. 3-2024); The sale is on credit or on account; There is a written agreement on the period to pay the receivable, i.e. credit term is indicated in the invoice or any document showing the credit term; The VAT is separately shown on the invoice; The sale is specifically reported in the Summary List of Sales covering the period when the sale was made and not reported as part of “various” sales; The seller declared in the tax return the corresponding output VAT indicated in the invoice within the period prescribed under existing rules; The period agreed upon, whether extended or not, has elapsed; and The VAT component of the uncollected receivable was not claimed as a deduction from gross income (i.e. bad debt).   In case of recovery of uncollected receivables, the output VAT pertaining thereto shall be added to the output VAT of the taxpayer during the period of recovery.   These rules on VAT do not amend the conditions on the deductibility of bad debts expenses in the income tax returns as provided in RR No. 25-02.
Claims for Refund / Tax Credit Certificate of Input Tax
Sec. 4.112-1 – Claims for Refund/Tax Credit Certificate of Input Tax
(b) Cancellation of VAT registration	A VAT-registered person whose registration has been cancelled due to retirement from or cessation of business, or due to changes in or cessation of status under Sec. 106 (C) of the Tax Code may, within two (2) years from the date of cancellation, apply for the issuance of tax credit certificate for any unused input tax which he may use in payment of his other internal revenue taxes: Provided, however, that he shall be entitled to a refund if he has no internal revenue tax liabilities against which the tax credit certificate may be utilized: Provided, further, that the date of cancellation being referred hereto is the date of issuance of tax clearance by the BIR, after full settlement of all tax liabilities relative to cessation of business or change of status of the concerned taxpayer: Provided, finally, that the filing of the claim shall be made only after completion of the mandatory audit of all internal revenue tax liabilities covering the immediately preceding year and the short period return and the issuance of the applicable tax clearance/s by the appropriate BIR Office which has jurisdiction over the taxpayer. (RR No. 13-18)	A VAT-registered person whose registration has been cancelled due to retirement from or cessation of business, or due to changes in or cessation of status under Sec. 106 (C) of the Tax Code may, within two (2) years from the date of cancellation, apply for the issuance of tax credit certificate or cash refund for any unused input tax which he may use in payment of his other internal revenue taxes: Provided, however, that the taxpayer-claimant shall be entitled to a refund if he has no internal revenue tax liabilities against which the tax credit certificate may be utilized: Provided, further, for purposes of dissolution or cessation of business, the date of cancellation being referred hereto is the date of the issuance of the BIR Tax Clearance.
(c) Where to file the claim for refund/credit	Claims for refunds shall be filed with the appropriate Bureau of Internal Revenue (BIR) Office (Large Taxpayers Service (LTS), Revenue District Office (RDO) having jurisdiction over the principal place of business of the taxpayer. Claims for input tax refund of direct exporters shall be exclusively filed with the VAT Credit Audit Division (VCAD) (RR No. 13-18).	Claims for tax credits/refunds shall be filed with the appropriate BIR Office that will be designated by the Commissioner of Internal Revenue for this purpose.
(d) Period within which refund/credit of input taxes shall be made	In proper cases, the Commissioner of Internal Revenue shall grant refund for creditable input taxes within ninety (90) days from the date of submission of the official receipts or invoices and other documents in support of the application filed in accordance with subsections (A) and (B) hereof: Provided, That, should the Commissioner find that the grant of refund is not proper, the Commissioner must state in writing the legal and factual basis for the denial.   The 90-day period to process and decide, pending the establishment of the enhanced VAT Refund System shall only be up to the date of approval of the Recommendation Report on such application for VAT refund by the Commissioner or his duly authorized representative: Provided, That all claims for refund/tax credit certificate filed prior to January 1, 2018 will be governed by the one hundred twenty (120)-day processing period.   In case of full or partial denial of the claim for tax refund, the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim, appeal the decision with the Court of Tax Appeals: Provided, however, that failure on the part of any official, agent, or employee of the BIR to act on the application within the ninety (90)- day period shall be punishable under Section 269 of the Tax Code, as amended. (RR No. 13-18)	In proper cases, the Commissioner of Internal Revenue shall grant refund for creditable input taxes within ninety (90) days from the date of submission of invoices and other documents in support of the application filed in accordance with subsections (A) and (B) hereof: Provided, That, should the Commissioner find that the grant of refund is not proper, the Commissioner must state in writing the legal and factual basis for the denial.   The 90-day period to process and decide shall start from the filing of the claim up to the release of the payment of the VAT refund: Provided that, the claim/application is considered to have been filed only upon submission of the invoices and other documents in support of the application as prescribed under pertinent revenue issuances.   In case of full or partial denial of the claim for tax refund, the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim, appeal the decision with the Court of Tax Appeals; or in case the VAT is not acted upon by the Commissioner within the period prescribed above, the taxpayer affected may: Appeal to the CTA within the 30-day period after the expiration of the 90 days required by law to process the claim; or Forego the judicial remedy and await the final decision of the Commissioner on the application of VAT refund claim.   Provided, that failure on the part of any official, agent, or employee of the BIR to act on the application within the ninety (90)- day period shall be punishable under Section 269 (J) of the Tax Code.   Provided further that, in the event that the 90-day period has lapsed without having the refund released to the taxpayer-claimant, the VAT refund claim may still continue to be processed administratively.   However, the BIR official, agent or employee who has found have deliberately caused the delay in the processing of the VAT refund claim may be subjected to penalties imposed under said Section.
(e) Risk-based approach in the verification and processing of VAT refund claims	No similar provision.	VAT refund claims shall be classified into: Low-risk Medium-risk High-risk,   With the risk classification based on the amount of: VAT refund claim, tax compliance history frequency of filing VAT refund claims   Provided, that medium-risk and high-risk claims shall be subject to audit or other verification processes in accordance with the BIR’s national audit program for the relevant year.
(f) Manner of giving refund	Refund shall be made upon warrants drawn by the Commissioner of Internal Revenue or by his duly authorized representative without the necessity of being countersigned by the Chairman, Commission on Audit (COA), the provision of the Revised Administrative Code to the contrary notwithstanding: Provided, That refunds under this paragraph shall be subject to post audit by the COA (RR No. 13-18).	Refund shall be made upon warrants drawn by the Commissioner of Internal Revenue or by his duly authorized representative without the necessity of being countersigned by the Chairman, Commission on Audit (COA), the provision of the Revised Administrative Code to the contrary notwithstanding:   Provided, That refunds under this paragraph shall be subject to post audit by the COA following the risk-based classification in RR No. 3-2024;   Provided, further, that in case of disallowance by the COA, only the taxpayer shall be liable for the disallowed amount without prejudice to any administrative liability on the part of any employee of the BIR who may be found to be grossly negligent in the grant of refund.

 

 

Transitory Provisions

• Billed but uncollected sales of services
  • These Regulations shall apply to sale of services that transpired upon its effectivity.
  • For outstanding receivables on services on account that are rendered prior to the effectivity of RR 3-2024, the corresponding output VAT shall be declared once it has been collected.
• The sales and corresponding output VAT in case of collection shall be declared in the quarterly VAT return when the collection was made and shall be supported with an Invoice following the transitory provisions contained in the RR intended for invoicing requirements to implement the EOPT Act or the new BIR-approved set of Invoices, whichever is applicable (Sec. 7(a), RR No. 3-2024).Uncollected receivables from sale of goods as of the effectivity of RR No. 3-2024
  • Claim of output tax credit on uncollected receivables shall only apply to transactions that transpired upon the effectivity of these Regulations.
  • No output tax credit shall be allowed for outstanding receivables from sale of goods on account prior to the effectivity of these Regulations (Sec. 7(b), RR No. 3-2024).

 

ON THE FILING OF TAX RETURNS AND PAYMENT OF TAXES AND OTHER MATTERS AFFECTING THE DECLARATION OF TAXABLE INCOME (RR No. 4-2024)

Mode of Filing of Tax Returns and Payment of Internal Revenue Taxes (Sec. 3, RR No. 4-2024)

• Filing of Tax Returns shall be done electronically in any of the available electronic platforms.
  • In case of unavailability of the electronic platforms, manual filing of tax returns may be allowed.
• Payment of Internal Revenue Taxes shall be made either:
  • Electronically in any of the available electronic platforms; or
  • Manually to any Authorized Agent Banks (AABs) or Revenue Collection Officers (RCOs).
• Filing of Income Tax Return (ITR) by married individuals (the husband and wife, whether citizens, resident or nonresident aliens, who are both self-employed, either engaged in business or practice of profession) - file their ITR for the taxable year jointly
  • If impracticable such as where the businesses of the spouses are registered under two different Revenue District Officers (RDOs), each spouse shall file separately their respective ITRs.
• AABs and RCOs shall only accept tax payments manually after the taxpayers have already electronically filed their tax returns, unless an advisory is issued allowing manual filing (Sec. 3, RR No. 4-2024).
• Because Sec. 248(A)(2) of the Tax Code has been repealed, the civil penalty of 25% of the amount due in case of filing a return with an internal revenue officer other than those with whom the return is required to be filed shall not be imposed. (Sec. 4, RR No. 4-2024).
• Sec. 9 of RR No. 8-2018 with regard to “Individuals Not Required to File ITR” has been amended with the following changes:
  • The Certified List of Employees Qualified for Substituted Filing of ITR, reflecting the amount of income payment, the tax due and tax withheld, if any, filed by the respective employers, duly stamped “Received” by the Bureau shall be tantamount to the substituted filing of ITR by said employees.
  • An individual citizen of the Philippines who is working and deriving income solely from abroad as an Overseas Contract Worker (OCW) or Overseas Filipino Worker (OFW) as defined under Section 3(G) of Republic Act No. 11641 (otherwise known as the “Department of Migrant Workers Act”) is not required to file ITR (Sec. 5, RR No. 4-2024).
• The EOPT repealed in its entirety Sec. 34(K) of the Tax Code. Hence, upon effectivity of the EOPT, Sec. 2.58.5 of RR No. 2-98, as amended, is likewise repealed.
  • However, please note that the obligation to withhold tax on certain income payments and remit the same remains (Sec. 6, RR No. 4-2024).
• Sec. 2.57.4 of RR No. 2-98 as regards “Time of Withholding” has been amended to read as follows:
  • “Sec. 2.57.4. Time of Withholding. The obligation of the payor to deduct and withhold the tax under Sec. 2.57 of these Regulations arises at the time an income has become payable. The term “payable” refers to the date the obligation becomes due, demandable or legally enforceable. The obligation of the payor to deduct and withhold the tax arises at the time an income payment is accrued or recorded as an expense or asset, whichever is applicable, in the payor’s books, or at the issuance by the seller of the sales invoice or other adequate document to support such payable, whichever comes first” (Sec. 7, RR No. 4-2024).
• Income upon which any creditable tax is required to be withheld at source under Sec. 57 of the Tax Code, as amended, shall be included in the return of its recipient, but the excess of the amount of tax so withheld over the tax due on his return shall be refunded subject to the provision of Sec. 204 of the same Code (Sec. 8, RR No. 4-2024).

ON TAX REFUNDS (RR No. 5-2024)

• The Regulations shall cover tax credit/refund claims that are filed starting July 1, 2024, onwards and implements the following:
  • (A) Section 112(C) of the Tax Code that introduced the risk-based approach to verification of VAT refund claims;
  • (B) Section 112(D) of the Tax Code which clarified the liability of the taxpayer-claimant and the BIR in case of disallowance by the Commission of Audit (COA);
  • (C) Section 76(C) of the Tax Code allowing the application for refund of unutilized excess income tax credit in case of dissolution of cessation of business. For purposes of the Regulations, the entire provision of 76(C) of the Tax Code shall be covered to include policies for the processing of income tax credit/refund of taxpayers who have chosen the option to apply for tax credit or refund the excess income tax in their Annual Income Tax Returns (AITR);
  • (D) Section 240(C) of the Tax Code that introduced the one hundred eighty (180)-day processing of claims for tax refund except for VAT Refunds under Section 112 of the Tax Code; and
  • (E) Section 229 of the Tax Code outlined the policies for judicial claims and repealed the supervening clause provision thereof.
    • The Regulations do not cover processing of tax refund/credit claims pursuant to the final and executory judgement by the courts.
• VAT refund claims filed pursuant to Section 112(A) of the Tax Code shall be classified into low, medium, and high-risk claims. Provided that, medium- and high-risk claims shall be subject to audit or other verification processes in accordance with the BIR’s national audit program for the relevant year or with the current policies and procedures applicable to the year of the application of VAT Refund (Section 3(A) RR No. 5-2024).
• The scope of verification in accordance with the identified risks as follows:

 

Risk Level	Submission of Complete Documentary Requirements Prescribed by the BIR*	Scope of Verification of Sales	Scope of Verification of Purchases
Low	Yes	No verification	No verification
Medium	Yes	At least 50% of the amount of sales and 50% of the total invoices/receipts issued including inward remittance and proof of VAT zero-rating	At least 50% of the total amount of purchases with input tax claimed and 50% of suppliers with priority on ‘Big Ticket” Purchases.
High	Yes	100%	100%

• Note: Based on initial checking of the documents submitted during check-listing procedures only. This does not include thorough verification of the supporting documents for sales and purchases.
• The following are the limitations to the above matrix:
  • Claims filed by 1^st time claimants shall be automatically considered as high-risk and shall remain as such for the succeeding three (3) VAT Refund claims.
  • In case of full denial of a claim, the succeeding claimed filed shall be classified as high-risk.
  • For medium-risk claims, verification shall be adjusted to 100% if the assigned Revenue Officer found at least 30% disallowance of the amount of VAT Refund claim.
  • Claims classified as low-risk for the three (3) consecutive filing of VAT refund claims shall be subject to mandatory full verification on the fourth (4^th) refund claim regardless of the risk classification.
  • VAT credit/refund claim for any unused input tax pursuant to Section 112(B) of the Tax Code field by a VAT-registered person whose registration has been cancelled due to retirement from business or due to changes in or cessation of status under Section 106(C) of the Tax Code shall be classified as high-risk and will require full verification thereof.
  • For taxpayer-claimants filing on a quarterly basis, the risk classification shall be made for every filing.
  • Other limitations that may be identified by the Commissioner of Internal Revenue through revenue issuances (Section 3(B), RR No. 5-2024).
• The verification and processing of VAT refund claims shall be separate from the regular audit, if any, of internal revenue taxes particularly VAT conducted by the appropriate BIR office that has jurisdiction over the taxpayer-claimant. Any findings during the verification of VAT refund claim that has no effect to the amount to be refund shall be: (1) Endorsed for further verification and/or consolidation with the existing audit if the processing is conducted by an Office other than the BIR office that has jurisdiction over the claimant; or (2) Incorporate to the existing audit for the taxable year covered by the claim if processed within the same BIR office that has jurisdiction over the claimant (Section 3(D), RR No. 5-2024).

ON IMPOSITION OF REDUCED INTEREST AND PENALTY RATES FOR MICRO AND SMALL TAXPAYERS  (RR No. 6-2024)

Taxpayer	Gross Sales
Micro	Less than Php 3,000,000.00
Small	Php 3,000,000.00 to less than Php 20,000,000.00

• In addition to the tax required to be paid, a penalty equivalent to 10% of the amount due in the following cases:
  • Failure to file any return and pay the tax due thereon as required under the provisions of the Tax Code or rules and regulations on the date prescribed;
    • No penalty shall be imposed to an amendment of a tax return if the covered taxpayer filed the initial tax return and paid the tax due thereon on or before the prescribed date for its filing.
    • In case of a deficiency tax assessment as a result of a tax audit, a penalty shall be imposed on the tax deficiency if the particular tax return being audited was found to have been filed beyond the prescribed period or due date
  • Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment; or
  • Failure to pay the full or part of the amount of tax shown on any return required to be filed under the provisions of the Tax Code or rules and regulations, or the full amount of tax due for which no return is required to be filed, on or before the date prescribed for its payment (Sec. 3, RR No. 6-2024).
• A penalty at the rate of 50% of the tax or of deficiency tax in case of payment made before the discovery of the falsity or fraud in the following cases:
  • Willful neglect to file a return within the period prescribed by the Tax Code or by rules and regulations
  • False or fraudulent filing of return (Sec. 3, RR No. 6-2024)
    • A substantial under-declaration of taxable sales or income, or a substantial overstatement of deductions shall constitute prima facie evidence of a false or fraudulent return.
      • Substantial under-declaration of taxable sales or income - failure to report sales or income in an amount exceeding 30% of the declared per return
      • Substantial overstatement of deductions - a claim of deductions in an amount exceeding 30% of actual deductions

 

Interest Rate
50% of the interest rate mandated in Section 249 of the Tax Code.	Any unpaid amount of tax by the covered taxpayers
6%	Legal interest imposable on covered taxpayers

• A penalty of Php 500.00 shall be paid for each failure by the covered taxpayer in the following cases:
  • Failure to file an information return, statement or list;
  • Failure to keep any record; and
  • Failure to supply any information,
    • as may be required on the date prescribed.
• The aggregate amount to be imposed for all such failures during a calendar year shall not exceed Php 12,500.00 (Sec. 5, RR No. 6-2024).
• A compromise penalty of 50% of the applicable rate or amount of compromise under Annex “A” of Revenue Memorandum Order No. 7-2015 and its subsequent amendments, if any, shall be applied in case of criminal violation by covered taxpayers of Sec. 113, 237, and 238 of the Tax Code, not involving fraud (Sec. 6, RR No. 6-2024).
  • Compromise penalty shall be collected in lieu of criminal prosecution for violation committed where payment is based on a compromise agreement validly entered into between the covered taxpayer and the Commissioner of Internal Revenue (CIR).
  • The compromise penalty shall in no case differ in amount from those specified in these Regulations, except when duly approved by the CIR or his duly authorized representatives.
  • The compromise penalty shall not prevent the CIR or his duly authorized representatives from accepting a compromise amount higher than what is provided hereof.
  • A compromise offer lower than the prescribed amount may be accepted after approval by the CIR or his duly authorized representatives.
• These Regulations shall apply prospectively in accordance with Sec. 51 of RA No. 11976 (Sec. 7, RR No. 6-2024).

ON REGISTRATION PROCEDURES AND INVOICING REQUIREMENTS  (RR No. 7-2024)

• A VAT-registered person shall issue a duly registered VAT Invoice, for every sale, barter, exchange or lease of goods or properties, and for every sale, barter, or exchange of services regardless of the amount of transaction (Section 3(A)(1), RR No. 7-2024).
• A VAT Invoice shall be issued as evidence of sale of goods and/or properties and sale of services and/or leasing of properties issued to customers in the ordinary course of trade or business, whether cash sales or on account (credit), which shall be the basis of the output tax liability and the input tax claim of the buyer (Section 3(A)(1), RR No. 7-2024).
• Consequences of issuing erroneous VAT Invoice (Section 3(D), RR No. 7-2024).

 

Specific Act	Consequence
A non-VAT registered person issuing a VAT invoice.	In addition to other percentage taxes, he/she shall be liable to: (1) VAT under Section 106 or 108 of the Tax Code, without benefit of any input tax credit, and (2) a 50% surcharge under Section 248(B) of the Tax Code.
A VAT-registered person issuing a VAT Invoice for a VAT-Exempt transaction but fails to display the term VAT-Exempt Sale, or clearly provide a breakdown thereof on the invoice.	Liable for VAT under Section 106 or 108 as if Section 109 of the Tax Code did not apply.
Lack of information required under Section 3(B) RR 7-2024	The seller shall be liable for non-compliance with the invoicing requirements. However, the VAT amount shall still be allowed as an input tax credit under Section 110 of the Tax Code, on the part of the purchaser or buyer, except if the lacking information pertains to any of the following: a.     Amount of sales; b.     VAT amount; c.     Registered name and TIN as shown in the BIR Certificate of Registration of both purchaser or buyer and issuer or seller; d.     Description of goods or nature of services; and e.     Date of transaction.

• All Books of Accounts, including the subsidiary books and other accounting records of corporations, partnerships, or persons, shall be preserved by the taxpayer for a period of five(5) years reckoned from the day following the deadline in filing a return, or if filed after the deadline, from the date of the filing of the return, for the taxable year when the last entry was made in the Books of Accounts (Section 4(A)(1), RR No. 7-2024).
  • Notwithstanding the foregoing, if the taxpayer has any pending protest or claim for tax credit/refund of taxes, and the books and records concerned are material to the case, the taxpayer is required to preserve the Books of Accounts and other accounting records until the case is finally resolved in support of their defenses and aid, even beyond the prescribed 5-year retention period (Section 4(A)(4), RR No. 7-2024).
• The Books of Accounts shall be subject to examination and inspection by internal revenue officers; Provided, that for income tax purposes, such examination and inspection shall be made only once in a taxable year, except for the following cases:
  • Fraud, irregularity or mistake, as determined by the Commissioner;
  • The taxpayer requests reinvestigation;
  •  Verification of compliance with withholding tax laws and regulations;
  •  Verification of capital gains tax liabilities; and
  •  In the exercise of the Commissioner’s power under Section 5(B) of the Tax Code, to obtain information from other persons, another or separate examination and inspection may be made (Section 6(a), RR No. 7-2024).

 

ON CLASSIFICATION OF TAXPAYERS (RR No. 8-2024)

 

TAXPAYER GROUP	GROSS SALES
Micro	less than Php 3,000,000.00
Small	Php 3,000,000.00 to less than Php 20,000,000.00
Medium	Php 20,000,000.00 to less than Php 1,000,000,000.00
Large	Php 1,000,000,000.00 and above

 (Sec. 2, RR No. 8-2024)

• Gross Sales – total sales revenue, net of VAT, if applicable, during the taxable year, without any other deductions
  • Cover business income, excluding compensation income earned under employer-employee relationship, passive income under Sec. 24, 25, 27, and 28, and income excluded under Sec. 32(B), all of the Tax Code
• Business Income – income from the conduct of trade or business or the exercise of a profession
  • The taxpayers who will register to engage in business or practice of profession upon effectivity of these Regulations shall initially be classified based on its declaration in the Registration Forms starting from the year they registered¸ and shall remain as such unless reclassified (Sec. 3, RR No. 8-2024).
  • Taxpayers shall be classified based on the threshold values stated under Sec. 2 of these Regulations.
• Taxpayers shall be duly notified by the BIR of their classification or reclassification, as may be applicable, in a manner of procedure to be prescribed in a revenue issuance to be issued separately (Sec. 4, RR No. 8-2024).
• Taxpayers registered in 2022 and prior years shall be classified on the basis of their gross sales for taxable year 2022.
• For: (a) Taxpayers registered in 2022 and in prior years who did not submit information on their gross sales for taxable year 2022 and (b) taxpayers registered in 2023 or 2024 (before the effectivity of these Regulations) – are classified as MICRO except VAT-registered taxpayers who shall be classified as SMALL (Sec. 5, RR No. 8-2024)

 

 

THE BIR CLARIFIES THE TREATMENT OF FOREIGN CURRENCY TRANSACTIONS FOR FINANCIAL REPORTING AND INTERNAL REVENUE TAX PURPOSES. RMC No. 12-2024, January 22, 2024

 

Particulars	PFRS	Current Tax Treatment
Initial measurement of foreign currency transactions	Recorded in functional currency using spot rate of exchange at transaction date   Philippine Peso = functional currency; other currencies = foreign currency	Translated into Philippine Peso using the prevailing interbank reference rate (exchange rate that banks pay when they engage in currency trades with other banks) on the date of transaction.   Prevailing spot rate to be used for reportable transactions for taxes other than income tax (e.g. VAT, GRT OPT Excise, DST, etc.)
Unrealized gain or loss on remeasurement of monetary assets and liabilities denominated in foreign currency	Recognized in profit or loss	Results to a temporary difference for which deferred tax accounting should be applied to reconcile accounting net income to taxable net income
Unrealized gain or loss on remeasurement of non-monetary items carried at fair value currency transaction   Remeasurement – re-establishing the value to provide more accurate financial record of its value in the company’s financial statements	Recognized in profit or loss or Other Comprehensive Income (OCI) depending on the treatment of the changes in the fair value of the item itself   OCI – these are yet to be realized for accounting purposes and are excluded from net income	Not considered in the determination of the taxable income
Realized gain or loss on settlement of a foreign currency transaction	Recognized in profit of loss	Forex gain/loss arising from closed and completed transactions are considered as taxable income or deductible expense for income tax purposes

 

• PFRS Treatment:
  • Initial Measurement – rate of exchange at the date of transaction. Average rate is also permitted as long as they are reasonable approximation of the actual.
  • Subsequent Measurement. At each reporting date:
    • Monetary item – closing rate; unrealized gain/loss to be recognized in profit or loss
    • Non-monetary item
      • If carried at historical cost – historical exchange rate (no re-measured at reporting date);
      • If carried at fair value – exchange rate at the date the fair value is measured; unrealized gain or loss to be recognized in OCI.
  • Settlement: recognized in profit or loss (consideration received/paid less carrying amount of monetary asset or liability)
• Tax purposes:
  • Forex currency denominated transaction = to be converted into functional currency  using exchange rate at the time asset, liability, income and expense are recognized and measured/remeasured (i.e. date of transaction, reporting date, settlement date)
  • Spot rate to be used on the date of transaction – taxpayer has the prerogative to use either open, close, high, low, weighted average as long as used consistently. Taxpayers may adopt it at the beginning of the taxable year; for transactions on holiday, weekends etc., the latest closing spot rate available on the business date immediately preceding the date of transaction shall be used.
• Source of forex rates to be used in converting foreign currency denominated transaction for tax purposes:
  • Banker’s Association of the Philippines (BAP) published rate;
  • Other available sources (if BAP’s rate is impractical or not feasible), such as BSP, Bloomberg, Reuters etc.
    • Conditions: Submit notarized sworn statement stating the source, reason for using the rate, and statement allowing BIR to access rates used during BIR audit;
    • Election of forex are irrevocable for at least one taxable year; if forex rates used are subsequently changed, a new notice shall be submitted to the BIR.
• Number of decimal places  - actual number. Exception, maximum number as designated in the accounting system of the taxpayer; condition: notify the BIR of the system limitation.
• Forex transaction that is non-USD currency – taxpayers may directly convert the foreign currency, other than BAP published rates, following the conditions set forth.
• Treatment if the taxpayer initially used BAP rates but has non-USD transaction in the middle of the year – Taxpayer shall summarize the non-USD foreign transaction which must be available for presentation and submission during BIR audit.
• Effect of failure to notify the BIR for using rates other than BAP:
  • Taxpayer is still required to prove the reliability of the exchange rate; administrative penalties will be imposed too; BAP published rates will be used BSP rate will be used in case of non-USD foreign currency denominated transaction
• No need to convert non-USD forex transaction to USD forex.
• Use of monthly average exchange rates is not permitted in converting foreign currency transactions to Philippine peso
• Treatment of unrealized gains or losses on forex fluctuation during periodic re-measurement – not considered income/loss; considered temporary difference for which deferred tax accounting should be applied which must be disclosed in the Notes to the AFS.
• Only realized forex gains/losses, or those arising from closed and completed transactions are considered as taxable income or deductible expenses for income tax purposes
• Automatic reversal of unrealized forex differences to realized forex gains/losses in the succeeding year not arising from closed and completed transactions are strictly prohibited for income tax purposes.
• Examples of events giving raise to actual gain/loss reportable for tax purposes:
  • Exchange rate at the time of receipt of advance payment and time income is earned;
  • Exchange rate at the time of recording of receivable and receipt of payment;
  • Exchange rate at the time when advance payment is made to subcontractors and expenses are incurred;
  • Exchange rate at the time of recording of payable and payment; and
  • Exchange rate at the time of down payment of construction materials and full settlement of the balance of the purchase price.
• Rules in offsetting of forex gains and loss – prohibited. Gross amounts of gains and loss must be presented in the income tax return but for tax calculation purposes, forex loss is deductible.
• Presentation of forex gains and losses – Other taxable Income; included in the computation of “Total Taxable Income” or “Gross Taxable Income”
• Forex loss – “Ordinary Allowable Itemized Deductions”

 

THE BIR CLARIFIES ON THE TREATMENT OF RETIREMENT BENEFITS EXPENSE FOR FINANCIAL REPORTING AND TAX PURPOSES. RMC No.13-2024, January 22, 2024

 

Circular not applicable to entities classified as small and medium enterprises (SMEs) which are covered by PFRS for SMEs

 

Particulars	PFRS	Taxation
		RA 4917	RA 7641 (Retirement in the absence of retirement plan)
Employee benefit expense	Consists of: Service costs Net interest costs	Contribution to a tax qualified plan is deductible expense	Actual retirement benefits paid is a deductible expense
Current service cost	Profit or loss as part of employee benefit expense	Contribution for normal cost is deductible in full	Not applicable
Past service costs	Profit or loss as part of employee benefit expense	Contribution for past service liability is recognized as deductible expense over 10 years	Not applicable
Gains on loss on settlement	Profit or loss as part of employee benefit expense	Not applicable
Return on plan assets	Included in the employee benefit costs	Exempt from income tax	Not Applicable
Remeasurement gains and losses	Remeasurement gains and losses are recognized in other comprehensive income	Not Applicable
Actuarial Valuation Method	Actuarial valuation for accounting	Actuarial valuation for funding	Not Applicable

 

• Classification  of Post-employment or retirement benefit:
  • Defined Contribution Plan
    • Fixed contribution is paid into a fund
    • No obligation to pay further contribution if fund does not hold sufficient assets to pay all employee benefits
    • Accounting treatment: contribution payable is recognized in exchange for that service as an expense
  • Defined Benefit Plan (Plan other than defined contribution plan)
    • Requires valuation by an actuary using projected unit credit method (attributing benefit to periods of service and making actuarial assumptions)
    • Requires booking employee benefit costs and accrue employee benefits
• Employee benefit cost –
  • Employee benefit expense (profit or loss)
  • Remeasurement gains and losses (other comprehensive income)
• Changes in assumption. Comprises of:
  • Actuarial gains and losses;
  • Difference between actual return or plan assets and the interest income; and
  • The effect of asset ceiling
• Employee benefit expense – composed of:
  • Service cost:
    • Current service cost – increase in PV of the obligation due to employee service for the current period;
    • Past service cost – change in the PV of the obligation due to plan amendment or curtailment; and
    • Settlement Gains/loss – transaction eliminating all further obligations for part or all of the benefits; differences between PV of the defined obligation and settlement price.
  •  Net interest cost – Increase in the liability/asset due to passage of time (asset x discounted rate)
• Condition for the amount of retirement benefits expenses claimable as deduction from gross income for income tax purposes
• The retirement benefit plan must be registered with the BIR (Tax Qualified Plan), evidenced by certificate of tax qualification, under RA No. 4917
• Deductible:
  • Normal Cost
  • Amount in excess of normal cost if amount is not allowed as deduction and apportioned over 10 years.
• Excess: not allowed as deduction; in case of amount reverted to employer, such amount is taxable income.
• Retirement benefit expenses deductible if there is no Tax Qualified Plan – RA 7641 applies or only the actual amount of retirement benefits paid to employees can be claimed as deduction from the gross income
• Tax exemption of the employee retirement benefit plan:
  • Certificate of Qualification as a Reasonable Private Benefit Plan  must be filed with Law and Legislative Division
  • Within 30 days from the date of effectivity of the retirement benefit plan.
• Tax treatment of income earned from investing the employee retirement fund under RA No. 4917 - Exempt from income tax provided:
  • The requirements for reasonable private benefit plan are met
  • Funds are actually used for the exclusive benefit of the employees or their beneficiaries
• Instances when income derived by Fund/Trust is taxable:
  • Lending of income or corpus without adequate security and a reasonable rate of interest
  • Excess/unreasonable payment of compensation
  • Making service available on a preferential basis
  • Substantial purchase of security/property for more than adequate consideration
  • Sale of substantial par of security or other property for less than adequate consideration
  • Transaction resulting in a substantial diversion of the income/corpus

‘to or from the employer or if the employer is an individual, to or from a member of the family of the employer, or to or from a corporation controlled by the employer  (50% of more)

• Employer cannot use the retirement fund to invest/deposit in any of the employer’s business venture.
• Retirement benefit received by employee pursuant to Tax Qualified Plan under RA 4917 is subject to withholding tax as a rule; exempt when employee must be at least 50 years old and served his/her employer for at least 10 years; and has not previously availed of the privilege under a benefit plan of the same or another employee.
• Retirement benefit under RA 7641 is exempt from withholding tax if the employee is at least 60 years of age to 65 and has served for at least 5 years. No certificate of tax exemption is required.
  • If 70 years old, retirement benefits are still exempt from income tax and withholding tax; but all income and other benefits received beyond 65 is considered compensation subject to income tax.
• Tax Treatment during interim period of filing and issuance of Certificate of Qualification:
• On the benefit received:
  • Exempt from income tax and withholding tax
  • If application is denied, the employer/trust will be directly and solely liable for the deficiency income taxes due on the retirement benefits
• On the investment income:
  • Exempt from income tax
  • If application is denied, the employer/trust will be directly and solely liable for the deficiency income taxes
• On deductibility of contributions:
  • Deductible from gross income.
  • If application is denied, the employer/trust will be directly and solely liable for the deficiency income taxes
• 10-year requirement to be computed only in 1 company, except for merger (aggregate of service to be considered)
• Amendment to be submitted to the BIR for certification.

 

This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity. If you have clarification or concern or no longer wish to receive updates, please feel free to reach out to us.

 

Best regards,

Ron Dumlao

 

SALE OR IMPORTATION OF COVID-19 EQUIPMENT AND DRUGS ARE SUBJECT TO VAT STARTING JANUARY 1, 2024. RMC No. 7-2024, January 11, 2024

• The BIR reverses the Value-Added Tax exemption of transactions specified under Section 109 (BB) of the National Internal Revenue Code (Tax Code) of 1997, as amended.
• Sale or importation of the following shall no longer be exempt from VAT effective January 1, 2024:
  • Capital equipment, its spare parts and raw materials, necessary for the production of personal protective equipment components such as coveralls, gown, surgical cap, surgical mask, N-95 mask, scrub suits, goggles and face shield, double or surgical gloves, dedicated shoes and shoe covers for COVID-19 prevention;
  • All drugs, vaccines, and medical devices specifically prescribed and directly used for the treatment of COVD-19; and
  • Drugs for the treatment of COVD-19 approved by the FDA for use in clinical trials, including raw materials directly necessary for the production of such drugs.

NO SURCHARGE WILL BE IMPOSED IN CASE OF AMENDED TAX RETURNS. RMC No. 9-2024, January 15, 2024

• The BIR clarifies surcharge computed in the filing of an amended return in the electronic Filing and Payment System (eFPS)
• RMC No. 42, 2022 states the non-imposition of surcharge on amended tax returns, provided, that the taxpayer was able to file the initial tax return on or before the prescribed due date for its filing.
• Taxpayers may disregard the surcharge computed by the system when filing an amended tax return.
• If there is an additional tax to be paid as a result of such amended, pay only the basic tax, computed interest and compromise, provided that the original tax return was filed on or before the set deadline.

BRANCH ACCOUNT REGISTRATION AND UPDATE IS AVAILABLE IN ORUS BEGINNING JANUARY 15, 2024 RMC No. 10-2024, January 22, 2024

• The BIR announces the availability of Branch Account Registration in Online Registration and Update System.
• Effective date: January 15, 2024
• Taxpayer branches can do the following transactions in ORUS:
  • Apply for ATP;
  • Register Books of Accounts;
  • Update information;
  • Enroll employer services link for the issuance of Employees’ TIN; and
  • Register a facility;
• ORUS Branch Account is separate from the Head Office’s ORUS account.

DEPRECIATION OF RIGHT-OF-USE ASSET AND INTEREST EXPENSE ON LEASE LIABILITY UNDER PHILIPPINE FINANCIAL REPORTING STANDARD (PFRS) 16 ARE NOT DEDUCTIBLE FOR TAX PURPOSES; ONLY ACTUAL RENT PAID OR INCURRED AND OTHER PAYMENTS TO THE LESSOR BASED ON THE LEASE AGREEMENTS ARE DEDUCTIBLE FOR TAX PURPOSES.. RMC No. 11-2024, January 22, 2024

• The BIR clarifies the tax treatment of lease accounting by lessees under Philippine Financial Reporting Standard 16 in relation to Sections 34(A), 34(K), 106, 108, 179, 194 of the Tax-code, as amended, RR No. 19-86, as amended, and RR No. 02-98, as amended
• Commencement date/Initial Recognition: Lessee to recognize Right of Use Asset (ROUA) and a lease liability.
  • Applicable to all leases, unless lessee elects the short-term lease and/or lease of low-value asset recognition exemptions available in PFRS 16
• Initial Measurement:
• Lease Liability: present value of the future lease payments discounted using the interest rate implicit in the lease, if that rate can be readily determined. If the rate cannot be readily determined, the lessee uses its incremental borrowing rate.
• ROUA – amount of lease liability adjusted for:
  • Payments to lessor at or before the start date of lease less any lease incentives received;
  • Any initial direct costs incurred by the lessee; and/or
  • An estimate of any decommissioning costs.
• Subsequent Measurement:
  • Lease liability – Carrying amount to be increased by interest on the lease liability and to be reduced by lease payment. Lessee to recognize profit or loss any interest incurred on lease liability.
  • ROUA – cost less accumulated depreciation and accumulated impairment losses.
  • Depreciation of the right-of-use asset is also recognized in profit or loss, unless depreciation is permitted to be capitalized (e.g. to inventory) under other PFRS
• Lease Modification
  • Means change in the scope of a lease or the consideration of the lease that was not part of the original terms and conditions of the lease.
  • Examples: adding or terminating the right of use; or extending or shortening the contractual lease term
  • Treatment:
    • If it does not decrease the scope of lease – lease liability will be recalculated with corresponding adjustment to the ROUA; will not normally result in gain or loss in the income statement.
    • If it decreases the scope of lease – partial derecognition of the ROUA and lease liability will be required.; difference between the amount of reduction is recognized immediately in profit or loss.
• Lease Exemptions
  • Applies for short-term leases and leases of low-value items.
  • Short term lease – lease term of 12 months or less, but takes into consideration lease renewal options.
  • Lease of low-value items – lease for which the underlying asset is of low vale (per the standard, with value of USD5,000.00 or the equivalent for new similar asset)
  • Effect: Lessees do not have to recognize ROUA and the related lease liability in the statement of financial position; instead, lease payments are recognized as expense, on a straight-line basis, or another systematic basis, if the basis is more representative of the pattern of the lessee’s benefit
• Operating Lease v. Finance Lease
  • Operating Lease
    • Asset is not wholly amortized during the primary period of the lease.
    • Lessor does not rely solely on the rental during the primary period but looks for recovery of the balance of his costs and for the rest of his profits from the sale or re-lease of the returned asset of the primary lease period.
    • Lessee may deduct the amount of rent paid or accrued, including all expenses which, under the terms of the agreement, the lessee is required to pay to or for the account of the lessor. Advance rentals shall be duly apportioned or applied over the lease terms.
  • Finance Lease or full payout lease
    • Involves payment over an obligatory/primary/basic period (not less than 730 days of specified rental amounts for the use of a lessor’s property, sufficient in total to amortize the capital outlay of the lessor and provide for the lessor’s borrowing costs and profits
    • Lessee exercises the choice of the asset and is normally responsible for maintenance, insurance and such other expenses pertinent to the use, preservation and operation of the asset
    • May be extended after the expiration of the primary period, by non-cancellable secondary or subsequent periods with the rentals significantly reduced.
    • Residual value shall in no instance be less than 5% of the lessor’s acquisition cost of the leased asset
    • Same tax treatment as with the operating lease except that lessor may be allowed a depreciation during the primary lease period, but such period shall not be less than 60% of the depreciable life of the property; interest expenses computed based on the amortization are not accounted for separately from principal payments.
• Finance Lease v. Conditional Sale
  • If the contract is a lease in form but a conditional sale in substance, such contract will be considered as conditional sale.
  • Lease is considered conditional sale if one or more of the following compelling persuasive facts are present:
    • Option to purchase;
    • Automatic ownership;
    • Portions of the rent are credited to the purchase price;
    • Receipts indicate partial or full payment of asset
    • Other factors:
      • Portions of period payments are made specifically applicable to equity;
      • When there’s option to purchase but price is nominal or relatively small in relation to the total payments
• Treatment of ROUA depreciation and interest expense on lease liability for tax purposes – not deductible
• Deductible: only actual rent paid or incurred and other payments to the lessor based on the lease agreements shall be allowed as deduction
• Taxpayer is required to disclose information on the lease in the Notes to the Financial Statements.
• Treatment of Initial Direct Costs – Deductible as outright expense
• Treatment of expenses paid or incurred by the lessee for the account of the lessor (i.e. realty tax, association dues, etc.) – deductible as expense but lessor should issue invoice/receipts in the name of the lessee
• Treatment of short-term leases and lease of low-value assets – operating lease; only actual rents paid or incurred shall be recognized as deductible expense
• Treatment of gains and losses from lease modifications – not included in the determination of taxable income
• Security Deposit
  • Asset; or expense when the conditions occur, which is deductible based on the amount of applied deposit
• Treatment of estimated restoration cost – deductible expense in the year the same has been actually paid or incurred
• VAT Treatment
  • GR: upon payment of rent, evidenced by VAT OR
  • XPN: Conditional Sale
• Initial payment during the year exceeds 25% of the selling price – Entire selling price taxable; Less than 25% - VAT be recognized on installment payment
• Withholding Tax: 5%; if conditional sale – 1% for TWA and 15% on interest (but for real properties, rules on withholding applicable to the sale of real property applies)
• DST – DST on lease agreement; if finance lease, DST applicable to the debt instruments.

BIR ISSUANCES MAY BE PUBLISHED IN THE BIR OFFICIAL WEBSITE, OFFICIAL GAZETTE OR NEWSPAPER OF GENERAL CIRCULATION. RR No. 2-2024, February 28, 2024

• The BIR prescribes the policies and guidelines for the publication of revenue issuances and other information materials of the BIR pursuant to Section 245(i) of the Tax Code, as amended by RA No. 11976.
• The BIR may publish (electronically or otherwise) the BIR Issuances to implement and/or clarify relevant tax laws, rules and regulations, through the following means:
  • BIR Official Website;
  • Official Gazette; or
  • Newspaper of general circulation
• Revenue issuance and other information refer to:
  • Revenue Regulations
  • Revenue Memorandum Circulars
  • Revenue Memorandum Orders
  • Other revenue issuances;
  • Classification of taxpayers including, but not limited to, top withholding agents;
  • Cannot be located taxpayers
  • Revised Schedules of Zonal Values;
  • List of seized, foreclosed and acquired properties for sale
  • Notice of sale seized, foreclosed and acquired properties;
  • Information materials such as, but not limited to, press releases, announcements/advisories and flyers; and
  • Other similar documents or materials that require publication

NEWLY-HIRED EMPLOYEES ARE NOT REQUIRED TO VERIFY THEIR TIN AND GET A TIN VERIFICATION SLIP FROM THE RDO. RMC No. 31-2024, February 27, 2024

• The BIR clarifies TIN Verification being required by employers from newly-hired employees.
• The BIR does not require newly-hired employees to verify their TIN and get a TIN Verification Slip from the RDO.
• The RDOs shall not accept requests for manual TIN verification or issue TIN Verification Slip for employment purposes, except for the following cases:
  • The online TIN verification facility is not available or there is a prompt message that the user needs to visit the RDO; or
  • There is a need for the BIR personnel to further verify the correctness of taxpayer registration information; or
  • The taxpayer has an existing TIN or record; or
  • Possession of multiple or identical TIN.
• All employers are advised to use BIR’s ORUS or BIR Catbot to verify the validity and correct ownership of the TIN of their newly-hired employees.
• The verification result being displayed by ORUS or Revie is considered sufficient for verification purposes.
• Employers do not have to require their newly-hired employees to go to the RDO to get a TIN Verification Slip

NEW PRICE THRESHOLD FOR THE SALE OF HOUSE AND LOT AND OTHER RESIDENTIAL DWELLINGS FOR VAT-EXEMPT PURPOSES IS P3,600,000  RR NO. 1-2024, JANUARY15, 2024 

 

 

INCOME PAYMENTS MADE BY JV TO SUPPLIERS ARE SUBJECT TO WITHHOLDING TAX (1%/2%); SHARE OF CO-VENTURE FROM JV NOT TAXABLE AS CORPORATION IS SUBJECT TO 15% WITHHOLDING TAX RR No. 14-2023, November10, 2023

 

 

The BIR further amends the pertinent provisions of RR No. 2-98, as amended, to impose creditable withholding tax on certain income payments by joint ventures/consortiums.

 

Income payments made by JV, whether incorporated or not, taxable or non-taxable, to their local/resident supplier of goods and services	Supplier of goods – 1% Supplier of services – 2%
Distributive share of co-venturers/members from the net income of the joint venture/consortium not taxable as a corporation	On the share of each co-venturer/member from the net income from the joint venture/consortium not taxable as corporation prior to actual or constructive distribution thereof – 15%

 

THE BIR IMPOSES 1% WITHHOLDING TAX ON ½ GROSS REMITTANCE BY E-MARKETPLACE OPERATORS AND DIGITAL FINANCIAL SERVICE PROVIDERS TO ONLINE SELLERS/MERCHANTS FOR ANNUAL GROSS REMITTANCES EXCEEDING P500,000.00. RR No. 16-2023, December21, 2023

• The BIR further amends the provisions of Revenue Regulations No. 2-98, as amended, to impose withholding tax on gross remittances made by electronic marketplace operators and digital financial services providers to sellers/merchants.
• The BIR imposes withholding tax on gross remittances by e-marketplace operators and digital financial services providers to online sellers/merchants for goods and services sold/paid through the former’s platform/facility.
  • ½ of the gross remittance – 1%
• Not applicable when:
  • Annual total gross remittances to online seller/merchant for the past taxable year has not exceeded P500,000.00; or
  • If the cumulative gross remittances to an online seller/merchant in a taxable year has not exceeded P500,000.00; or
  • If the seller/merchant is duly exempt from or subject to a lower income tax rate pursuant to an existing law or treaty (certification/clearance/ruling required)
• Gross remittance refers to the total amount received by the operator/financial services provider. Excludes:
  • Sales returns and discounts;
  • Consideration for the use of the platform.
• Electronic marketplace covers:
  • Marketplace for online shopping;
  • Food delivery platform;
  • Platform for booking of resort, hotel, motel etc. located in the Philippines;
  • Other similar online service or product marketplaces.
• E-market operators and digital services providers shall also withhold taxes on payment to transportation contractors for the carriage of goods and merchandise and commission on the goods and services.
• Effective date – January 11, 2024
• Transitory period – 90 days for e-marketplace operators and DFSP to comply.
• P500,000 – consists of the total amount of remittances received from ALL e-marketplace operators and DFSPs; if gross remittances exceeded P500,000 anytime during the year, withholding tax shall be automatically deducted from the particular remittance exceeding the threshold and the same shall be imposed on subsequent remittances.
• Obligations of seller/merchants:
  • Register with the BIR and submit COR to the e-market operator prior to the use of e-market facility;
  • Submit sworn declaration (SD) duly received by the BIR if gross remittance is expected not to exceed P500,000 threshold (to be submitted on or before  20^th day of the first month of each taxable year; if exceeded, SD in a prescribed form shall be immediately submitted.
    • Failure to submit prescribed SD: withholding tax shall be automatically deducted.
• If seller/merchant is exempt from income tax or subject to a lower income tax rate, submit a certification as proof of exemption or entitlement to a lower tax rate.
• All existing unregistered sellers/merchants are required to register; otherwise, they shall not be allowed to sell goods and services in the platform/facility.
• Sellers/merchants are not allowed to receive payments through their personal/individual accounts instead of business account; account must be under BIR-registered tradename.

 

THE PRESIDENT VETOED EXEMPTION OF MICRO-ENTERPRISE FROM OBLIGATION TO WITHHOLD TAXES.

RMC No. 3-2024, January 10, 2024 The BIR circularizes RA No. 11976 (Ease of Paying Taxes Act) and the Veto Message of President Ferdinand R. Marcos Jr

 

INCOME OF NON-RESIDENT FOREIGN CORPORATION IS SUBJECT TO FINAL WITHHOLDING TAX. RMC No. 5-2024, January10, 2024

• The BIR further clarifies the proper tax treatment of cross-border services in light of the Supreme Court En Banc Decision in Aces Philippines Cellular Satellite Corp. v. Commissioner of Internal Revenue, GR. No. 22668 (Aces).
• In Aces case, the Supreme Court subjected to final withholding tax the satellite airtime fee payments made by Aces Philippines (payor/withholding agent) to Aces Bermuda (payee/income earner), a non-resident foreign corporation (NRFC)
• The following are existing cross-border services akin to that of Aces case:
  • International Service Provision (or cross-border services, including: consulting services, IT sourcing, financial services, telecommunications, engineering and construction, education and training, tourism and hospitality, and other similar services)
    • Re. consulting services – the payment to the foreign consulting firm is considered an inflow of economic benefits to the foreign company. The income is sourced within the Philippines.
•  Situs of taxation for the cross-border services: within the Philippines.
• Treatment of reimbursable or allocable expenses, especially for cross-border services between or among related parties:
  • The reduction of expenses for a foreign corporation can be considered as income because it represents a financial gain or savings for the company. Thus foreign corporation’s net come or profit increased. Reduction in expenses is viewed as a form of income for foreign corporations.
•  Effect if no benefits was derived from the cross-border transactions:
  • If a Philippine company did not benefit, the payment is considered unnecessary for regular commercial activity and instead, it becomes a means of shifting profits to a foreign company. IT is an attempt to evade taxes or manipulate profits by funneling them to a foreign entity.
• Revenues generated from service fees paid to foreign companies or individuals, which are considered sources within the Philippines is subject to VAT.
• Our comments on RMC No. 5-2024: Invalid for being an unauthorized administrative legislation; for running counter to the rules of income under Section 42 of the Tax Code; for disregarding tax treaties; for being inconsistent with Section 108 (A), where payment for services rendered outside the Philippines are not subject to VAT.