Client Advisory Letter

November 2019

This is a publication about developments in Philippine taxation. The contents usually include latest Republic Acts, Bureau of Internal Revenue issuances, Customs regulations, Court decisions, BSP circulars, SEC circulars, Department of Justice opinions and Executive Orders relevant to Tax practice.

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Technology eases paying business taxes worldwide

Economies around the world have made it substantially easier for their businesses to pay taxes thanks to technology, according to Paying Taxes 2020, an annual study of tax administration around the globe produced by PwC and the World Bank Group.

The report, now in its 14th edition, highlights the significant advantages tax administrations provide their taxpayers if they embrace technological advances. In both Brazil and Vietnam, the time required to comply with tax obligations was 23% lower in 2018 than in 2017 and in Côte d’Ivoire, the Kyrgyz Republic and Israel, there were large reductions in the number of tax payments, as measured by the study.

Overall, the global average of the compliance burden for business taxation remained relatively stable across the four key measures used to evaluate ease of paying taxes for businesses: time to comply (234 hours); number of payments (23.1); total tax and contribution rate (40.5%) and a post-filing index (60.9 out of 100).

While the global average of the total tax and contribution rate remained almost flat, there have been significant policy shifts among individual economies. A value added tax (VAT) has been introduced in Saudi Arabia and the United Arab Emirates as both economies seek to broaden their tax bases and reduce reliance on natural resource revenues. Ghana has partially moved from a VAT to cascading sales taxes. There have been important reductions in taxes on profits in The Gambia, the United States, China and Morocco.

Paying Taxes 2020 draws upon a comparison of the taxation of business in 190 economies and it helps governments and businesses understand whether their tax systems are keeping pace with global change and helps learn from what others are doing. The report models business taxation in each economy using a medium-sized domestic company as a case study. Click here for the full report.

IFRS IC decision on presentation of uncertain tax liabilities

At a glance

The IFRS Interpretations Committee (IC) concluded that an entity is required to present uncertain tax balances as current or deferred tax assets or liabilities. Such balances are not presented as provisions. Entities that present uncertain tax liabilities (or assets) classified on lines other than current or deferred tax assets or liabilities should consider the impact of the agenda decision on this presentation.

What is the issue?

IFRIC 23 clarifies how the recognition and measurement requirements of IAS/PAS 12, ‘Income taxes’, are applied when there is uncertainty over income tax treatments. The Interpretation is effective for annual periods beginning on or after January 1, 2019. However, neither IAS/PAS 12 nor IFRIC 23 contains guidance on the presentation of uncertain tax liabilities or assets.

The IC was asked to clarify how uncertain tax positions should be presented on the balance sheet. It observed that IAS/PAS 1 requires disclosure of liabilities and assets for current tax and for deferred tax liabilities and assets, both as defined in IAS/PAS 12. The same standard also requires that dissimilar items should not be aggregated. The IC also observed that IFRIC 23 requires that current and deferred tax assets and liabilities should be recognised and measured, including the impact of tax uncertainties.

The IC therefore concluded that an entity is required to present liabilities for uncertain tax treatments as current tax liabilities or deferred tax liabilities; and assets for uncertain tax treatments should be presented as current tax assets or deferred tax assets. Tax uncertainties are not presented on other lines (for example, provisions or other liabilities).

What is the impact and for whom?

Entities that present uncertain tax liabilities (or assets) classified on lines other than current or deferred tax assets or liabilities should consider the impact of the agenda decision on this presentation. The impact on presentation could be material in some cases.

When does it apply?

The agenda decision has no formal effective date. The IC has noted that agenda decisions might often result in explanatory material that was not previously available, which might cause an entity to change an accounting policy. The IASB expects that an entity would be entitled to sufficient time to determine and implement any change. In this case, entities should consider carefully the presentation of tax uncertainties in financial statements for periods ended on December 31, 2019. Any change in policy should be applied retrospectively, and comparative amounts should be restated.

Tax updates
Regulatory landscape

Taxes, compliance matters, assessments, and refunds

With authority

Whether another LOA is required for purposes of re-investigation

A Letter of Authority (LOA) is required to authorize a Revenue Officer (RO) to conduct a tax investigation and recommend the assessment of deficiency taxes. However, an LOA is not required to authorize another RO to conduct a re-investigation and recommend a Final Decision on Disputed Assessment.

(CTA Case No. 9532, promulgated 25 October 2019)

State your reasons

When the denial of an application for abatement is void

A taxpayer applied for the abatement or cancellation of penalties and/or interest which was denied by the BIR through a Notice of Denial. However, the Notice of Denial was declared by the CTA as void and of no effect because it did not provide the reasons for the denial as required by Revenue Regulations No. 13-2001.

(CTA EB No. 1837, promulgated 8 November 2019)

Raising the minimum

Increasing the minimum wage rates in Western Visayas

On 28 February 2018, the Regional Tripartite Wages and Productivity Board of Region VI (Western Visayas) issued Wage Order No. RBVI-25 increasing the daily minimum wage rates in Western Visayas as follows:

Sector / Industry	Current Wage	New Minimum Wage
Non-Agriculture / Industrial / Commercial
Employing more than 10 workers	PHP365	PHP395
Employing 10 workers and below	PHP295	PHP310
Agriculture	PHP295	PHP315

The new daily minimum wage rates take effect fifteen (15) days after the publication of the Wage Order in a newspaper of general circulation in Region VI.

(Revenue Memorandum Circular No. 125-2019, issued 26 November 2019)

Moving the date

Extending the deadline for submission of Annual Information Returns

In light of the ongoing completion of the enhanced Alphalist Data Entry and Validation Module (Version 6.1), the deadline for submitting the Annual Information Return of Income Taxes Withheld on Compensation and Final Withholding Taxes (BIR Form Nos. 1604-C and 1604-F), including the Alphabetical List of Employees / Payees From Whom Taxes Were Withheld, has been extended from 31 January 2020 to 28 February 2020.

(Revenue Memorandum Circular No. 124-2019, issued 26 November 2019)

Old versions

Acceptability of the earlier versions of BIR Form Nos. 2306, 2307 and 2316

Pending the reconfiguration of their Computerized Accounting Systems (CAS) which shall not be beyond 31 December 2019, withholding agents, particularly those who generate BIR Form No. 2306 (Certificate of Final Tax Withheld at Source), BIR Form No. 2307 (Certificate of Creditable Tax Withheld at Source) and/or BIR Form No. 2316 (Certificate of Compensation Payment/Tax Withheld) through their CAS, are allowed to use and issue the following versions for all transactions covering the taxable year ending 31 December 2019:

BIR Form No.	Old Version
2306	September 2005 (ENCS)
2307	September 2005 (ENCS)
2316	July 2008 (ENCS)

(Revenue Memorandum Circular No. 126-2019, issued 26 November 2019)

Recognition of certificate

Use of computer-generated BIR Form Nos. 2306, 2307 and 2316

Withholding tax agents are allowed to use and distribute computer/system generated withholding tax certificates (i.e., BIR Form Nos. 2306, 2307 and 2316), provided, that:

The certificates must be in accordance with the latest versions officially approved by the BIR;[1]
The signatories must be duly authorized by the taxpayer;
To be valid and binding, the certificates must contain the signatures of both parties involved;
There should be no repudiation of facts in the certificates;
The signature of the individual withholding agent, or in case of a corporate withholding agent, should be the signature singly, and collectively, of both the authorized corporate officer/s that are required by the Tax Code or appropriate regulations to swear to the truth and correctness of such electronic certificate and who are named in the Board Resolution or equivalent document submitted by the corporate taxpayer to the BIR; and
The signature of the withholding agent was affixed with the intention of signing, approving and attesting to the truth and correctness of such certificate.

(Revenue Memorandum Circular No. 121-2019, issued 21 November 2019)

Discarded list

The submission of a Semestral List of Regular Suppliers is no longer required

Under Revenue Regulations (RR) No. 11-2018, withholding agents required to deduct the 1% and 2% creditable withholding taxes are now identified as Top Withholding Agents (TWAs), which include the top 20,000 private corporations, top 5,000 individual taxpayers, Taxpayer Account Management Program (TAMP) taxpayers and medium taxpayers. Since the submission of the Semestral List of Regular Suppliers (SRS) was no longer mentioned in RR No. 11-2018, it shall no longer be required by the BIR.

(Revenue Memorandum Circular No. 122-2019, issued 22 November 2019)

Temporary receipts

Use of Bureau of Internal Revenue Printed Receipts/Invoices

Revenue Memorandum Circular No. 28-2019 regarding the use of BIR Printed Receipt/Invoice (BPR/BPI) has been amended as follows:

New business registrants shall be allowed to secure (buy) BPRs/BPIs in lieu of securing an Authority to Print (ATP) principal receipts/invoices.
ATP principal receipts/invoices shall become optional for new business registrants in case they opted to buy BPRs/BPIs for their use.
New business registrants shall be allowed to use the BPRs/BPIs during the first year of business registration or until their full consumption, whichever comes first.
For taxpayers whose business transactions will require the use of not more than one booklet of fifty sets in one taxable period (not less than twelve months), they shall be allowed to secure (buy) BPRs/BPIs even beyond the one-year period from the date of business registration with the BIR.
Since the use of the BPR/BPI is in lieu of principal receipts/invoices, supplementary receipts/invoices require an ATP.

(Revenue Memorandum Circular No. 117-2019, issued 6 November 2019)

Employee registration

Availability of the e-Registration (eREG) System

The eREG system is already available to Corporate or Non-Individual Taxpayers-Employers to facilitate the issuance of Taxpayer Identification Numbers (TINs) to their employees. Accordingly, registered corporate or non-individual employers shall enroll an authorized user who shall access the eREG System and apply for the TINs of new employees without existing TINs.

In case of self-employed individual employers, the TINs of their new employees shall be manually secured from the Revenue District Office having jurisdiction over the place of business where the head office or branch is physically located.

(Revenue Memorandum Circular No. 118-2019, issued 8 November 2019)

On secondment

Tax treatment of alien employees and seconded employees of certain entities

The BIR issued the following clarifications with respect to the taxation of alien employees of regional or area headquarters, regional operating headquarters of multinational companies, offshore banking units and petroleum service contractors and subcontractors:

The incomes of alien employees of the above entities are similarly taxed as incomes of regular employees of local entities.
Said alien employees are subject to the same administrative requirements such as substituted filing, issuance of BIR Form No. 2316, and inclusion in the monthly withholding tax remittance on compensation and in the prescribed alphabetical list of employees.
Alien employees of foreign principals who are assigned to render services exclusively to local entities, otherwise known as “seconded employees”, are likewise subject to the regular income tax rates.
Local entities to whom “seconded employees” render services shall comply with the same administrative requirements, except for substituted filing, imposed by the BIR for regular employees.
The following procedures must be complied with by all concerned:
- A separate employment status and description for “seconded employees” shall be provided in the “Current Employment Status” of the Alphabetical List of Employees/Payees from Whom Taxes Were Withheld under BIR Form No. 1604-C, as well as in the Alphalist Data Entry and Validation Module (Version 6.1).
- The “seconded employees” shall file their annual income tax returns and pay any income taxes due on or before 15 April of each year together with the BIR Form No. 2316 issued by the local entities.
- In all copies of the BIR Form No. 2316, the phrase “For Seconded Employee” shall be typed or printed in bold capital letters enclosed in open and close parenthesis immediately under the title “Certificate of Compensation Payment/Tax Withheld”.
- In case of termination of their services before year-end, the local entities shall ensure that the withholding tax on their last salaries shall be computed using the annualized withholding tax method.

(Revenue Memorandum Circular No. 116-2019, issued 6 November 2019)

Full exemption

Proper tax treatment of maternity leave benefits

Under the 105-Day Expanded Maternity Leave Law,[1] female employees availing the maternity leave period and benefits must receive their full pay. Accordingly, employers in the private sector are responsible for paying the salary differential between the average weekly or regular wages, and the actual cash benefits received from the Social Security System (SSS).

The BIR clarified that the salary differential is exempt from withholding tax on compensation because:

The maternity benefit has been expanded to cover the full pay which includes both the average daily salary credit and the salary differential; and
Section 2.78.1(B)(1)(e) of RR No. 2-1998 does not provide any qualification in granting exemption to payments of benefits under the SSS law.

(Revenue Memorandum Circular No. 105-2019, issued 9 October 2019)

[1] Republic Act No. 11210.

Employment certificate

Revised BIR Form No. 2316

The BIR issued the revised Certificate of Compensation Payment/Tax Withheld (BIR Form No. 2316). The revised BIR Form No. 2316 shall be accomplished by the employer and issued to each employee, indicating the total salaries, wages and other remuneration paid and the corresponding taxes withheld during the calendar year.

(Revenue Memorandum Circular No. 100-2019, issued 30 September 2019)

Erratum

Amendments to the policies, guidelines and procedures on employee registration

The BIR amended some clerical errors in Sections II.4.2.4 and II.10.2 of Revenue Memorandum Order No. 37-2019. In Section II.4.2.4, “Section III.3” was corrected to “Section II.3”. In Section II.10.2, “Section II(12.1)” was corrected to “Section II(10.1)”.

(Revenue Memorandum Order No. 55-2019, issued 6 November 2019)

Latest on regulatory landscape

Reporting rules

Philippine Interpretations Committee Questions and Answers (PIC Q&As)

The SEC approved the adoption of the following as part of its rules and regulations on financial reporting:

PIC Q&A No. 2017-01 Conforming Changes to PIC Q&As-Cycle 2017	The effective date of the amendments is included in the Q&As affected.
PIC Q&A No. 2018-16 PFRS 13 – Level of fair value hierarchy of government securities using Bloomberg’s standard rule on fair value hierarchy	For annual period beginning on or after 1 January 2018.
PIC Q&A 2019-01 Accounting for service charges under PFRS 15, Revenue from Contracts with Customers	The effective date and transition provision of this Q&A follow that of PFRS 15, upon approval of the FRSC.
PIC Q&A No. 2019-02 Accounting for cryptographic assets	The consensus in this Q&A becomes effective upon approval by the FRSC.
PIC Q&A No. 2019-03 Revenue recognition guidance for sugar millers	The transition provision and effective date of this Q&A follow that of PFRS 15, upon approval by the FRSC.

(SEC Memorandum Circular No. 22-2019, dated 20 November 2019)

Corporate resurrection

Guidelines on the revival of expired corporations

Under Section 11 of the Revised Corporation Code, a corporation whose term has expired may apply for a revival of its corporate existence, together with all the rights and privileges under its certificate of incorporation and subject to all its duties, debts and liabilities existing prior to its revival.

In this light, the SEC has issued guidelines for the revival of expired corporations. The guidelines provide for the following:

The following are not allowed to file a Petition for Revival of Corporate Existence:
- An expired corporation which has completed the liquidation of its assets;
- A corporation whose Certificate of Registration has been revoked for reasons other than non-filing of reports;
- A corporation dissolved by virtue of Sections 6(c) and 6(d) of PD No. 902-A; and
- An expired corporation which already availed of re-registration in accordance with Memorandum Circular No. 13-2019.
For a stock corporation, the revival requires at least a majority vote of the board of directors and at least a majority vote of the outstanding capital stock. For a non-stock corporation, the revival requires at least a majority vote of the board of trustees and at least a majority vote of the members.
The Petition for Revival of Corporate Existence may be filed with the Company Registration and Monitoring Department, any SEC Satellite Office or any SEC Extension Office.
Petition and Filing Fees
Procedure of Revival
Documentary requirements
Appraisal right

(SEC Memorandum Circular No. 23-2019, dated 21 November 2019)

Stakeholder protection

Adopting certain rules for investment companies and fund managers

In order to enhance the regulatory compliance of Investment Companies and their Fund Managers, and to ensure adequate protection for shareholders and unitholders, the SEC adopted rules on the appointment of independent oversight entity, independent net asset value calculation, qualifications of key officers of fund managers, and liquidation of assets and winding up of investment companies.

(SEC Memorandum Circular No. 21-2019, dated 24 September 2019)

Setting the limit

Foreign ownership of condominium units

If the common areas in a condominium project are owned by the owners of separate units as co-owners thereof, only corporations where at least sixty percent (60%) of their capital stock is owned by Filipino citizens may own a unit in said condominium project.

However, if the common areas in a condominium project are owned by the condominium corporation, aliens or foreign corporations may own a unit in said condominium project if the total foreign interest in the condominium corporation does not exceed forty percent (40%) of its entire capital stock.

(SEC-OGC Opinion No. 19-53, dated 22 November 2019)

Unforgivable

Whether subscription receivables may be condoned

A corporation cannot condone its subscription receivables because it will violate the Trust Fund Doctrine. Upon acceptance of a stock subscription, the subscription becomes a binding contract from which the subscriber cannot withdraw. The corporation does not have the power to release an original subscriber from its subscription. Otherwise, the Trust Fund Doctrine would be violated since it does not fall under any of the allowable instances where a corporation may distribute assets to its creditors and stockholders.

(SEC-OGC Opinion No. 19-50, dated 11 October 2019)

Cloak of indivisibility

Whether stock certificates can be issued for partially paid subscriptions

A corporation cannot issue certificates of stock for the portion of the subscription that is paid because it violates the doctrine of indivisibility of subscription contracts. Under Section 63 of the Revised Corporation Code, no certificate of stock shall be issued to a subscriber until the full amount of the subscription, together with interest and expenses, if any is due, has been paid.

Accordingly, the subscription is one, entire and indivisible whole contract. Such indivisibility is absolute, and Section 63 does not provide for any exception.

(SEC-OGC Opinion No. 19-50, dated 11 October 2019)

Moving targets

Implementing the cargo targeting system

The CoC issued operational guidelines for the submission of advance cargo declaration, inward foreign manifest (IFM) and consolidated cargo manifest (CCM) by foreign carriers and their authorized agents to the Cargo Targeting System (CTS). They also apply to airlines, shipping lines/ship agents, non-vessel operating common carriers, freight forwarders/cargo consolidators/co-loaders whose cargoes are destined to the Philippines, including transshipment cargoes.

The operational guidelines provide for:

The advance electronic submission of cargo manifest and CCM to the CTS within:

Sea freight carrier
At least twenty-four (24) hours before arrival of the carrier
Air freight carrier
Port of origin is in Asia	At least one (1) hour before arrival of the aircraft
Port of origin is other than Asia	At least four (4) hours before arrival of the aircraft

Mandatory information in the IFM and CCM
Submission of updates

(Customs Memorandum Order No. 48-2019, filed 28 October 2019)

Prudence in banking

Requirements and guidelines on the public offering and listing of bank shares

The Monetary Board approved the amendments to the prudential requirements on the public offering and listing of bank shares for universal banks. The amendments aim to supplement the enhanced corporate governance framework of the BSP by encouraging dispersed shareholdings in banks. Specifically, Section 102 and Section III of Appendix 1 of the Manual of Regulations for Banks were amended.

(BSP Circular No. 1060-2019, dated 15 November 2019)

Right-of-use asset

Insurance and reinsurance companies acting as lessees in a leasing contract

The IC issued guidelines for insurance and professional reinsurance companies acting as lessees in a leasing contract which allows for the recognition of right-of-use asset and corresponding lease liability per PFRS 16. The guidelines provide for the following:

The “Right of Use Asset” (ROU Asset) and the corresponding “Lease Liability” shall be presented separately as new line items in the Statement of Financial Position.
The ROU Asset shall be subject to twenty-five percent (25%) risk charge.
The ROU Asset shall be admitted up to the extent of the corresponding Lease Liability. Any ROU Asset, in excess of Lease Liability, shall be treated as non-admitted in the computation of the net worth requirement.

(IC Circular Letter No. 2019-70, dated 2 December 2019)

Sanctioned changes

Changes to previously approved forms which do not require prior approval

The Insurance Commission enumerated the changes to the previously approved policy form, endorsement and ancillary forms which can be implemented by life insurance companies without need of prior approval. However, said changes are subject to certain conditions.

(IC Circular Letter No. 2019-69, dated 22 November 2019)

Ethical treatment

Adopting the Code of Ethics for Professional Accountants in the Philippines

All accredited External Auditors and Auditing firms shall observe and comply with the requirements of the Code of Ethics for Professional Accountants in the Philippines as adopted by the Board of Accountancy (BOA).

Hence, Insurance Commission (IC) accredited External Auditors of the IC’s regulated entities, including the engagement and quality control partners of the accredited Auditing Firm, shall be rotated in accordance with the Code of Ethics for Professional Accountants in the Philippines and implementing rules and regulations as adopted and issued by the BOA.

(IC Circular Letter No. 2019-68, dated 22 November 2019)

IFRS 17 implications

Additional disclosures and submission of status reports relative to IFRS 17

All insurance and professional reinsurance companies are required to:

Submit, on or before 30 April 2020 and the following years thereafter, a report of specific actions already taken in preparation for the IFRS 17 implementation on 1 January 2023;
Submit, on or before 30 April 2020, a report of specific actions to be taken in preparation for the IFRS 17 implementation on 1 January 2023;
Disclose, on an entity-specific mode, the effect of IFRS 17; and
Disclose, at the minimum, the following:
- The fact that although IFRS 17 shall be applied annually to commence on 1 January 2022, the reporting entity is required by the IC to apply IFRS 17 one year thereafter.
- Information about the structure and status of the entity’s implementation project.
- Contracts that meet the definition of an insurance contract but the entity chose to apply IFRS 15 instead of IFRS 17 based on the conditions set by paragraph 8 under Scope of IFRS 17.
A description of the transition approach that will take place and whether any practical expedients will be applied.
A description of the key judgments and estimates made.
Quantification of the expected impact on the implementation of IFRS 17.

(IC Circular Letter No. 2019-66, dated 22 November 2019)

PhilHealth contributions

Premium Contribution Schedule in the National Health Insurance Program

The monthly premium contribution contributions shall be in accordance with the premium rates and monthly income/basic salary floor and ceiling prescribed by the Universal Health Care Act (Republic Act No. 11223).

(PhilHealth Circular No. 2019-9, dated 25 October 2019)