Client Advisory Letter

Firewall

Taxation of income from unregistered activities of a PEZA-registered enterprise

A taxpayer was registered with the PEZA to engage in the establishment of a contact center to provide outsourced customer care services and business process outsourcing services. The Supreme Court ruled that this activity excludes the leasing out of physical plant space, infrastructure, and transmission facilities.

Thus, lease income derived by the PEZA-registered taxpayer is not entitled to the ITH, but instead subject to the regular corporate income tax. Consequently, the lessee is required to subject its lease payments to the PEZA-registered taxpayer to creditable withholding tax.

(G.R. No. 210528, promulgated 28 November 2018)

Lowered expectation

Resolving differences between CWT per certificates and CWT per ITR

In a claim for refund or issuance of TCC for excess and unutilized CWT, the CTA ruled that if the amount of CWT per CWT certificates (BIR Form No. 2307) differs from the amount of CWT per ITR breakdown, the lesser amount will be considered.

(CTA Case No. 9320, promulgated 12 April 2019)

Bright as the sun

Additional requirements for NOLCO deduction

In order for a taxpayer to validly deduct NOLCO, the following should be clearly established:

1. The NOLCO must have been shown as a separate item in the Profit and Loss Statement/Income Statement; and
2. The NOLCO must be fully explained in the Notes to the Financial Statements.

(CTA Case No. 9395, promulgated 10 April 2019)

Burn remedy

RE developers cannot claim a refund of or issuance of TCC for input VAT

Since RE developers are entitled to the VAT zero rate on their local purchases, their suppliers should not shift or pass on VAT to them. In other words, RE developers should not pay input VAT because their local purchases are already subject to the VAT zero rate.

Accordingly, RE developers, who paid input VAT on their local purchases, are not entitled to a refund of or issuance of TCC for such input VAT. Their proper recourse is to claim a reimbursement thereof from the local suppliers who shifted or passed on the VAT.

(CTA EB No. 1761, promulgated 8 April 2019)

Summer discovery

How to compute the ten-year prescriptive period to collect

In the case of failure to file a return, the BIR has the right to collect the tax within ten (10) years after the discovery of the omission or failure. In a tax assessment case, it was ruled that the date of issuance of the PAN shall be considered as the date of discovery of the omission or failure.

(CTA Case No. 9396, promulgated 8 April 2019)

Follow the light

When tax should follow accounting

In the AFS of a taxpayer, operating expenses were allocated to taxable and exempt activities based on the percentage-of-completion method. In the ITR, however, a different allocation method was used resulting in a higher amount of operating expenses attributable to taxable activities.

The CTA ruled that the method used in the AFS should have been the same method used in computing operating expenses in the ITR. Since there are no specific tax rules or regulations which provide for the method of allocating expenses between exempt and taxable sales, the taxpayer should adopt the accounting method regularly employed in keeping its books.

(CTA Case No. 9396, promulgated 8 April 2019)

Waterproof

How to prove inclusion of income in the VAT returns

According to the CTA, the best evidence to verify the breakdown of sales reported in the VAT returns is the Summary List of Sales, which is a prescribed attachment to a VAT return. An extract of the GL accounts is insufficient as it merely provides a summary of transactions but does not translate to a declaration in the VAT returns.

(CTA Case No. 9396, promulgated 8 April 2019)

Crazy weather

Failure to make or file a return due to insanity

There is no willful failure to make or file a return when such failure was due to negligence caused by mental illness which was, in turn, caused by the destruction and devastation of the taxpayer’s business by a typhoon. In exonerating the taxpayer from criminal liability, the CTA applied the exempting circumstance of insanity under the Revised Penal Code.

(CTA Crim. Case Nos. 0-627 and O-628, promulgated 3 April 2019)

Hot start

When the prescriptive period for collection commences

The five-year period to collect deficiency taxes assessed starts to run from the date when the BIR mails, releases or sends the assessment notice to the taxpayer.

(CTA Case No. 9550, promulgated 25 March 2019)

Fraud finding

Application of the ten-year prescriptive period to assess

The application of the ten-year period to assess deficiency taxes is justified when:

1. the taxpayer failed to overcome the prima facie presumption of filing a false or fraudulent return, and
2. he BIR imposed a 50% surcharge in the PAN and FAN, which proves that the allegation of fraud was not a mere afterthought.

(CTA EB No. 1672 and 1675, promulgated 13 March 2019)

Laying to rest

Draft implementing rules and regulations of the estate tax amnesty

The draft Revenue Regulations implementing the estate tax amnesty under the Tax Amnesty Act[1] may be accessed at www.bir.gov.ph. Interested parties may send their comments to taxamnesty@bir.gov.ph.

(BIR Advisory)

Green light

Implementing regulations of the Philippine Green Jobs Act of 2016

The BIR promulgated regulations to implement the Philippine Green Jobs Act of 2016.[1] The regulations provide for, among others, qualified business enterprises, tax incentives, procedures for the availment of tax incentives, and date and place of filing returns.

The regulations took effect on 1 May 2019.

(Revenue Regulations No. 5-2019, published 16 April 2019)

Here comes the sun

Implementing rules and regulations for the tax amnesty on delinquencies

The BIR issued the IRR for the processing of applications for tax amnesty on delinquencies under the Tax Amnesty Act.[1] The salient features of the IRR include the following:

• Delinquent accounts include delinquent withholding tax liabilities arising from non-withholding of tax.
• Delinquent accounts with applications for compromise settlement that either were denied by or are still pending with the National or Regional Evaluation Board are covered by the amnesty.
• A delinquent account/assessment consisting of only unpaid penalties due to late filing or payment and no basic taxes assessed are covered by the amnesty without any payment due.
• The tax amnesty rate of one hundred percent (100%) applies to all cases of non-remittance of withholding taxes.
• Documentary requirements, place of filing and step-by-step procedures
• Issuance of Authority to Cancel Assessment and lifting of the validity of issued notices and warrants

The tax amnesty on tax delinquencies may be availed within one (1) year from 24 April 2019, the date of effectivity of the IRR.

(Revenue Regulations No. 4-2019, published 9 April 2019)

All fired up

Mandating the Land Registration Authority to use the eCAR System

The BIR issued regulations to mandate the Land Registration Authority (LRA) to use the eCAR System with barcode developed and owned by the BIR. In this relation, the systems of the BIR and LRA are already linked to make use of the LRA-BIR eCAR Verification System.

Here are the salient features of the regulations:

• One eCAR shall be issued per title or per tax declaration
• A separate eCAR shall be issued for all personal properties
• Validity period of five (5) years counted from the date of issuance
• Expiration and replacement of manually issued CARs
• Procedures of the Registry of Deeds, Provincial, City or Municipal Assessors in the registration of new ownership of real properties

The Provincial, City or Municipal Assessors, banks and other issuers of stock certificates, bonds and other similar paper securities are required to accept only the eCAR issued by the BIR before applying any change in ownership.

The regulations took effect on 16 April 2019.

(Revenue Regulations No. 3-2019, published 1 April 2019)

Climate change

Revised guidelines and requirements for VAT refund claims

The BIR issued an RMC for revised guidelines and documentary requirements in the processing and grant of VAT refund claims under Section 112 of the Tax Code, except claims processed under the Legal Service.  This amends RMC Nos. 5-2011 and 17-2018.

The general policies include the following:

• The 90-day period to process and grant refund claims starts from the date of submission of official receipts or invoices and other supporting documents up to the release of payment for the approved refund amount.
• The applications should be received by the following BIR offices:

Extra service

BIR service delivery channels and initiatives

The BIR presented its service delivery channel strategies together with the following service delivery channels and initiatives:

• Self-service facilities (e.g., BIR Website, eFPS, eBIRForms, etc.)
• Tax seminars, briefings, dialogues and consultations
• Customer Assistance Division (formerly, BIR Contact Center)
• Social media accounts in Facebook, Twitter, YouTube and Google+
• Printed tax information materials
• Freedom of Information Manual
• Taxpayer Service Counters and eLounges
• Single Window Approach and New Business Registrants Counter
• Fast Lane for One-Time Transactions
• BIR Citizen’s Charter
• ISO Certification for Business Registration Process
  
  

(Revenue Memorandum Circular No. 44-2019, issued 11 April 2019)

Take two

Re-application for registration of sales machines

In light of technical problems in the eAccReg System which affected transactions from 3 January to 31 January, the BIR is requiring the re-application for registration of all CRMs, POS machines, SPMs and other sales machines with PTUs issued for the month of January 2019. The following are covered:

1. All taxpayers with applications filed from 3 January to 31 January
2. Taxpayer-applicants with issued PTUs within 3 January to 31 January, whether manually or electronically. These PTUs must be surrendered to the relevant RDO within fifteen (15) days from receipt/printing.
3. Taxpayers with PTUs issued prior to 10 April 2019 that reflect an effective date between 3 January to 31 January

Concerned accredited suppliers, pseudo-suppliers and taxpayer-users should re-submit their applications via the eAccReg System on or before 31 May 2019. Failure to comply will be tantamount to non-registration subject to penalties.

All covered CRMs, POS machines, SPMs and other sales machines shall not be reset or adjusted to zero. The details recorded on the machines as reflected in the Z-reading Report as of the day immediately preceding the re-application date shall be declared during the PTU application.

(Revenue Memorandum Circular Nos. 49-2019, issued 29 April 2019 and 42-2019, issued 10 April 2019)

Changing form

Prescribing the new BIR Form No. 1701-MX

There is a new BIR Form No. 1702-MX which required to be used by non-individuals with mixed income subject to multiple income tax treatments in paying their income tax for 2018 due on or before 15 April 2019.

It may be downloaded from www.bir.gov.ph. However, it is not yet available in the eBIRForms and eFPS. Thus, eBIRForms and eFPS filers should use the old version available in the eBIRForms and eFPS, respectively. Non-individual taxpayers, including GPPs who elected the OSD, should use the manual returns.

(Revenue Memorandum Circular No. 41-2019, issued 2 April 2019)

Trained professionals

Amending the IRR of the Continuing Professional Development Act of 2016

PRC Resolution No. 2019-1146 introduced amendments on provisions of the IRR of the Continuing Professional Development Act of 2016[1] concerning the following:

• Professional Identification Card
• Accreditation of CPD Programs
• CPD as a Mandatory Requirement in the Renewal of Professional License and Accreditation System
• Recognition of Credit Units
• Presumptive Approval
• Supplementary Provisions

(Revenue Memorandum Circular No. 40-2019, issued 1 April 2019)

Stretching the mile

Further extending the deadline for processing VAT refund/credit claims

The deadline for all concerned BIR offices to act on all VAT refund/credit claims that were filed before the effectivity of RMC No. 54-2014 has been extended from 29 March 2019 to 31 July 2019.

BIR officers and officials who fail to comply with this extended deadline shall be issued a “Show-Cause Order” and may be subjected to appropriate sanctions.

(Revenue Memorandum Circular No. 38-2019, issued 27 March 2019)

New digits

Modification of certain ATCs

The following ATCs were modified: