EY - Tax bulletin, May 2015

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  • 1Tax bulletin |

    Tax bulletinMay 2015

  • 2 | Tax bulletin

    HighlightsBIR Rulings

    Abranchofficeofaforeignnon-stock,non-profitcorporationcannotqualifyasatax-exemptcorporationunderSection30oftheTaxCode. (Page 4)

    DividendspaidtoaresidentoftheNetherlandsaresubjecttothe10%preferentialfinalwithholdingtax(FWT)iftherecipientisacompanythecapitalofwhichiswhollyorpartlydividedintosharesandwhichholdsdirectlyatleast10%ofthecapitalofthePhilippinecompany. (Page 4)

    InterestarisinginthePhilippinesandpaidtoaresidentofFinlandisexemptfromPhilippineincometaxiftheinterestispaidinrespectofaloanmade,guaranteedorinsured,orcreditextended,guaranteedorinsuredbytheFinnishExportCreditLtd. (Page 5)

    InterestarisinginthePhilippinesandpaidtoaresidentofKoreaisexemptfromPhilippineincometax,iftheinterestispaidinrespectofaloanmade,guaranteedorinsured,orcreditextended,guaranteedorinsuredby,theExport-ImportBankofKorea.

    Loanagreementsaresubjecttodocumentarystamptax(DST)attherateofP1.00foreveryP200.00(or0.5%)oftheissueprice,orfractionalpartthereof. (Page 5)

    CapitalgainsderivedbyaUSresidentfromthesaleofsharesinadomesticcorporationshallbetaxableonlyintheUS,providedtheassetsofthePhilippinecompanydonotconsistprincipallyofrealpropertyinterestslocatedinthePhilippines.ThetermprincipallymeansthattheratiooftheimmovablepropertyoverthetotalassetsofthePhilippinecompanyintermsofvalueismorethan50%. (Page 6)

    AUSresidentwhoisinvitedtoteachinthePhilippinesbyaPhilippine

    universityorothereducationalinstitutionshallbeexemptfromPhilippinetaxonhisincomefrompersonalteachingservicesforaperiodnotexceedingtwoyearsfromthedateofhisarrival. (Page 6)

    Acontractwhichdoesnotcallforthesupplyofexistinginformationorreproductionofexistingmaterial,butfortheprovisionofactualservicesintheareasofaccounting,financeandinformationtechnologyischaracterizedasacontractfortheperformanceofservicesratherthanasupplyofknow-howorotherintangibleproperty(royalty).

    IncomederivedbyresidentofThailandfromservicesrenderedinthePhilippinesthroughitsemployeesforaperiodaggregatinglessthan183daysisnotsubjecttoPhilippineincometax.

    ServicesrenderedinthePhilippinesbyanon-residentinfavorofaPEZA-registeredentityareexemptfromVATunderSection109(K)oftheTaxCode. (Page 7)

    AninternationalaircarrierorganizedintheUS(withlicensetodobusinessinthePhilippinesasaproviderofinternationalairservicestoandfromthecountry)issubjecttotheGrossPhilippineBillings(GPB)taxatthepreferentialrateof1%,aswellasto3%taxoncarriageofcargo. (Page 7)

  • 3Tax bulletin |

    BIR Issuances

    RevenueRegulations(RR)No.8-2015amendsthedefinitionofrawcanesugarasprovidedinRRNo.6-2015inrelationtotheimpositionofadvancebusinesstax(VATorpercentagetax). (Page 8)

    RevenueMemorandumCircular(RMC)No.23-2015furtherclarifiestherulesontheissuanceofawithdrawalcertificate(WC)foreveryremovalofpetroleumproductsfromtherefinery,depot,oranystoragefacilityasprescribedunderRMCNo.50-2014. (Page 11)

    RMCNo.24-2015clarifiesRRNo.2-2015,particularlyonthesubmissionbyconcernedtaxpayersofscannedcopiesoftheCertificateofCreditableTaxWithheldatSource(BIRFormNo.2307)andCertificateofCompensationPayment/TaxWithheld(BIRFormNo.2316). (Page 14)

    RMCNo.25-2015clarifiestheimpositionofadvancebusinesstax(VATorpercentagetax)onrawsugarandrefinedsugarunderRRNo.6-2015datedMarch31,2015. (Page 15)

    RMCNo.26-2015providesalternativemodesinthefilingofBIRFormNos.1601-C,1601-E,1601-F,1600,1602,1603,2551M,2551Q,2550M,2550Q,1700,1701,1702EX,1702MX,1702RT,1701Q,and1702QusingtheelectronicplatformsoftheBIR. (Page 15)

    BOC Issuance

    CustomsMemorandumOrder(CMO)No.14-2015revokesCMONo.3-2015andprescribestherevisedrulesforBOCaccreditationofPEZAlocators. (Page 17)

    PEZA Issuance

    MemorandumCircularNo.2015-015implementsPhase1ofthePEZAElectronicApplicationRegistrationSystem(e-ARS). (Page 17)

    BSP Issuances

    CircularNo.877amendstheprovisionsoftheManualofRegulationsforBanks(MORB)ontheissuanceofLong-TermNegotiableCertificatesofTimeDeposits(LTNCTD). (Page 18)

    CircularNo.878amendstheMORBandtheManualofRegulationsforNon-BankFinancialInstitutions(MORNBFI)ontheimplementationofthePersonalEquityandRetirementAccount(PERA)Actof2008anditsimplementingrulesandregulations(IRR). (Page 18)

    CircularNo.879introducesAppendix34aofSubsectionX405.1oftheMORBandAppendixQ-21-atoSubsection4405Q.1oftheMORNBFI,ontheimplementationofthePERAActof2008andthePERAIRR. (Page 19)

    CircularNo.880amendsSection4192Q/4162NoftheMORNBFI;SubsectionX191.2oftheMORB;andSubsectionX425.2/4425Q.2andAppendix6/Q-3andN-1oftheMORBandMORNBFI,respectively,ontheimplementationofthePERAActof2008andthePERAIRR. (Page 19)

  • 4 | Tax bulletin

    BLGF Opinion

    ProfessionalswhohavepaidthecorrespondingprofessionaltaxareentitledtopracticetheirprofessioninanypartofthePhilippineswithoutbeingsubjectedtoanyothernationalorlocaltax,licenseorfee,includingmayorspermits.

    Dentalclinics,whichareestablishedasadirectconsequenceofthepracticeofthedentalprofession,areexemptfromlocalbusinesstaxes. (Page 24)

    Court Decision

    ABIRcertification/rulingisnotapreconditiontoavailofataxexemptioninanexchangeofpropertyforsharesofstockunderSection40(C)(2)oftheTaxCode.

    ThetransferoflandbyarealestatecompanytoanotherinexchangeforsharesofstockwherethetransferorgainscontrolofthetransfereeisnotsubjecttoVAT.*

    Thenon-submissionofdocumentstosupportitsrefundclaimwiththeBIRisnotfataltoataxpayersclaimforrefundfiledwiththeCTA. (Page 25)

    [*Editors Note: The property for share swap involved in this case occurred on April 30, 2011, before the effectivity of RR No. 10-2011, dated July 1, 2011. Under the amendment introduced by RR No. 10-2011, the exchange of goods or properties used in business or held for sale or for lease by the transferee is subject to VAT, whether resulting in corporate control or not.]

    BIR Rulings

    BIR Ruling No. 159-15 dated May 6, 2015

    Facts:

    ACo.,aUScorporation,wasdulylicensedtoestablishabranchinthePhilippinesforthepurposeofprovidingspiritualandphysicalaidtovictimsofwar,nationaldisasters,povertyandfamine.ThebranchrequestedforacertificateoftaxexemptionunderSection30oftheTaxCodeonnon-stock,non-profitcorporations.

    Issue:

    Canabranchofaforeignnon-stock,non-profitcorporationqualifyasatax-exemptcorporation?

    Ruling:

    No.Section5ofRevenueMemorandumOrder(RMO)No.20-2013specificallystatesthatabranchofficeofaforeignnon-stock,non-profitcorporationcannotqualifyasatax-exemptcorporationunderSection30oftheNIRC,asamended.

    BIR Ruling No. ITAD 058-15 dated March 25, 2015

    Facts:

    ACo.,aDutchcompany,thecapitalofwhichisdividedintoshares,owns40%ofthetotalsharesinBCo.,adomesticcorporation.BCo.declaredcashdividendsinfavorofACo.onMarch2,2012andsubsequentlypaidsuchdividendsonMay9,2012.

    Abranchofficeofaforeignnon-stock,non-profitcorporationcannotqualifyasatax-exemptcorporationunderSection30oftheTaxCode.

    DividendspaidtoaresidentoftheNetherlandsaresubjecttothe10%preferentialFWTiftherecipientisacompanythecapitalofwhichiswhollyorpartlydividedintosharesandwhichholdsdirectlyatleast10%ofthecapitalofthePhilippinecompany.

  • 5Tax bulletin |

    ATaxTreatyReliefApplication(TTRA)foravailingofthepreferential10%FWTondividendsundertheRP-NetherlandsTaxTreatywasfiledwiththeBIRsInternationalTaxAffairsDivision(ITAD)onMay9,2012,thesamedayasthedividendpayment. Issue:

    Arethedividendsqualifiedforthepreferential10%FWTrate?

    Ruling:

    Yes.UndertheRP-NetherlandsTaxTreaty,dividendsarisinginthePhilippinesandpaidtoaresidentoftheNetherlandsaresubjecttothepreferential10%FWTonthegrossamountofdividends,iftherecipientofthedividendsisacompanythecapitalofwhichiswhollyorpartlydividedintosharesandwhichholdsdirectlyatleast10%ofthecapitalofthePhilippinecompanypayingthedividends.

    [Editors Note: The ITAD initially denied the TTRA on the basis of RMO No. 72-2010, which requires filing the TTRA prior to the dividend payment. The matter was elevated to the Department of Finance (DOF) for review; the DOF subsequently endorsed the matter back to the ITAD for appropriate action, inviting attention to the Supreme Courts decision in Deutsche Bank AG Manila Branch vs. CIR (G.R. No. 188550 dated August 1, 2013). The ITAD then reversed its initial denial without citing the Deutsche Bank case as basis for the reversal.]

    BIR Ruling No. ITAD 116-15 dated April 30, 2015

    Facts:

    TheFinnishExportCreditLtd.,astate-ownedfinancingcompanyunderFinlandsMinistryofEmploymentandtheEconomy,enteredintoaloanfacilityagreementwithBCo.,adomesticcorporation.Undertheagreement,BCo.mayrequestforadvancesduringa6-monthavailabilityperiod,withsuchadvancesbeingrepayableinsuccessivehalf-yearlyinstallments,subjecttothepaymentofinterest.

    Issue:

    AretheinterestpaymentsexemptfromPhilippineincometax?

    Ruling:

    Yes.UndertheRP-FinlandTaxTreaty,interestarisinginthePhilippinesandpaidtoaresidentofFinlandisexemptfromPhilippineincometaxiftheinterestispaidinrespectofaloanmade,guaranteedorinsured,orcreditextended,guaranteedorinsuredbytheFinnishExportCreditLtd.

    BIR Ruling No. ITAD 119-15 dated April 30, 2015

    Facts:

    TheExport-ImportBankofKorea,astatutoryjuridicalfinancinginstitutioninKorea,enteredintoaloanfacilityagreementwithBCo.,adomesticcorporation.Undertheagreement,BCo.mayrequestfordrawdownsrepayablewithinterest.

    Issues:

    1. AretheinterestpaymentsexemptfromPhilippineincometax?2. IstheloanfacilityagreementsubjecttoDST?

    InterestarisinginthePhilippinesandpaidtoaresidentofFinlandisexemptfromPhilippineincometaxiftheinterestispaidinrespectofaloanmade,guaranteedorinsured,orcreditextended,guaranteedorinsuredbytheFinnishExportCreditLtd.

    InterestarisinginthePhilippinesandpaidtoaresidentofKoreaisexemptfromPhilippineincometaxiftheinterestispaidinrespectofaloanmade,guaranteedorinsured,orcredit