Tax Brief - February 2012

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February 2012 11111

February 2012

Tax brief

ContentsContentsContentsContentsContents

02BIR RulingsBIR RulingsBIR RulingsBIR RulingsBIR Rulings Royalties non-deductible for

PEZA enterprises FBT on cash housing

allowance

03BIR IssuancesBIR IssuancesBIR IssuancesBIR IssuancesBIR Issuances Clarification on taxability of

GPPs Rule on acceptance of tax

payments by RCOs

04 CourCourCourCourCourt Decisionst Decisionst Decisionst Decisionst Decisions Statutory taxpayer is the

proper party to claim excisetax refund

Due process in taxassessments

Proof of receipt ofassessment

Proof of remittance notrequired for FWT refunds

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22222 February 2012

BIR Rulings

Royalties non-deductible for PEZAenterprisesRoyalty payments made by an exportenterprise registered with the PhilippineEconomic Zone Authority (PEZA) to anonresident foreign corporation under atrademark license agreement are notallowed as deduction for purposes ofcomputing the taxable gross income ofthe PEZA-registered enterprise under the5% preferential tax rate.

The Bureau of Internal Revenue (BIR)held that the list of allowable deductionsfor ecozone export enterprises underSection 2, Rule XX of the PEZAimplementing rules and regulations (IRR)is exclusive. Since royalties are notincluded in the allowable deductions, itmay not be deducted from the grossincome subject to the 5% preferential taxrate under the maxim expressio unius estexclusion alterius, i.e., the mention of onething implies the exclusion of anotherthing not mentioned.

All other rulings that treat royalties asallowable deductions are consideredrevoked by this BIR ruling.

(BIR Ruling No. 014-2012, January 4, 2012)

FBT on cash housing allowanceHousing privilege granted to expatriateemployees holding managerial/supervisory posts in the form of afixed monthly allowance is treated asfringe benefit subject to fringe benefittax (FBT) imposed under Section 33 ofthe Tax Code of 1997, as implementedby Revenue Regulations No. (RR) 3-98.

In determining whether the housing

privilege is subject to FBT or not, it isimmaterial whether the lease contract wasentered under the name of the employeror under the name of the employee. Aslong as the grant of the housing allowance

was given in addition to the basic salaryof the employee, such benefit shall beconsidered fringe benefit subject to FBT.

However, where the actual amount ofhousing allowance exceeds the actualamount of rent, the excess shall be treatedas part of the employees income subjectto income tax and consequently to the

withholding tax on compensationprescribed under Section 79 of the Tax

Code.

(BIR Ruling No. 512-2011, December 20,

2011)


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February 2012 33333

BIR Issuances

Clarification on taxability of GPPsThe BIR issued the followingclarifications on the tax liability of generalprofessional partnerships (GPPs) andtheir partners.

1. Income tax liability of GPPs and

partners - A GPP is not subject toincome tax. It is the partners whoare liable to income tax on theirseparate and individual capacities.

For income tax purposes, eachpartner shall report as gross incomehis distributive share, actually orconstructively received, in the netincome of the partnership.

2. Creditable withholding tax on

GPPs and partners - Since a GPPis not subject to income tax, it isexempt from withholding taxprescribed in RR 2-98 on incomepayments it receives in considerationfor its professional services.

However, income payments madeperiodically or at the end of thetaxable year by a GPP to itspartners, such as drawings, advances,sharings, allowances, stipends andthe like, are subject to the 15%creditable withholding tax (CWT) ifpayments to the partner exceedP720,000, and 10% if otherwise.

(Revenue Memorandum Circular No. 03-2012,

January 12, 2012)

Rule on acceptance of taxpayments by RCOs

The BIR reiterated the rules to beobserved in the acceptance of taxpayments and issuance of RevenueOfficial Receipts (RORs) by RevenueCollection Officers (RCOs).

Pursuant to Section III.2 of RevenueMemorandum Order No. (RMO) 04-2007, as amended by RMO 02-2010, the

BIR clarified that the authority of RCOsto issue RORs shall apply only on thefollowing deadlines:

a. On January 31 - for the payment ofAnnual Registration Fee

b. On the 10th day of the month - forthe remittance of withholding taxes

c. On the 20th day of the month - forthe filing and payment of quarterly

VATd. For the annual income tax payment

of individual taxpayers as well ascalendar-period corporate taxpayers,

the issuance of RORs shall start fiveworking days prior to and until April15.

The BIR further clarified that pursuant toRMO 04-2007 as amended, RORs byRCOs shall be limited to cash notexceeding P20,000. However, there shallbe no limit to the amount if payment ismade through checks.

Non-compliance with the rules, policiesand guidelines on the acceptance of taxpayments by RCOs assigned in areas

where there are authorized agent banks(AABs) will subject the concernedrevenue officials and employees toadministrative disciplinary action underthe Revised Code of Conduct for BIRofficials and employees.

(Revenue Memorandum Circular No. 02-2012,

January 3, 2012)


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Court Decisions

Statutory taxpayer is the properparty to claim excise tax refund

The proper party to question or seek arefund of erroneously paid excise taxeson petroleum products is the statutorytaxpayer. The statutory taxpayer is theperson on whom the tax is imposed bylaw and who paid the same even when theburden is shifted to the buyer.

Excise taxes, which apply to articles

manufactured or produced in thePhilippines for domestic sale orconsumption or for any other dispositionand to things imported into thePhilippines, is basically an indirect tax.

While the tax is directly levied upon themanufacturer/importer upon removal ofthe taxable goods from its place ofproduction or from the customs custody,the tax, in reality, is actually passed on tothe end consumer as part of the transfer

value or selling price of the goods sold,bartered or exchanged.

Thus, while a foreign airline company isnot liable to excise tax on the petroleumproducts it purchased and consumed in itsinternational flight under Section 135(b)of the Tax Code, it cannot claim forrefund of the erroneously paid excisetaxes because it is not the proper party toclaim such excise tax refund. Rather, it isthe supplier i.e., the petroleum company

that is the proper party to claim the taxrefund and accordingly refund to the

foreign airline company the excise taxerroneously passed on to the latter.

[Silkair (Singapore) Pte. Ltd. v. Commissioner

of Internal Revenue, GR 166482, January 25,

2012]

Due process in tax assessmentsUnder Section 228 of the Tax Code andSection 3.1.4 of RR 12-99, a taxpayermust be informed of the facts and thelaws upon which an assessment is made.Failure to do so shall void the assessment.

In the appeal of its tax assessment, thetaxpayer argued that the final assessmentnotice (FAN) and assessment notice(BIR Form No. 1708) issued by the

BIR are void since they merely showedmathematical computation of thealleged deficiency income tax and VATdiscovered from the BIRs Reconciliationof Listing for Enforcement (RELIEF)and Third Party MatchingBOC DataProgram. The notices did not state thefactual and legal bases of the assessmentin violation of Section 228 of the TaxCode. The taxpayer further argued thatthe details of discrepancy attached tothe FAN failed to explain how theunderdeclaration was determined exceptthat there is a discrepancy. It merelyprovides a statement that the assessment

was made in accordance with Sections 31,32, 106 and 108 of the Tax Code, andRMO 32-2007.

In its ruling, the Court of Tax Appeals(CTA) held that the FAN, assessmentnotice, and details of discrepancies

attached to the FAN sufficiently compliedwith Section 228 of the Tax Code sincethey contained the factual basis for theassessment; that is, the assessment wasbased on discrepancy from RELIEF and

Third-Party Matching. The details ofdiscrepancy likewise provided the legalbasis for assessing the taxpayer by citingSections 31, 32, 106 and 108 of the TaxCode, as amended and RMO 32-2007.

According to the CTA, the requirementof the law to inform the taxpayer ofthe basis of the assessment does notnecessarily mean that a full narrationof the facts and laws on which theassessment is based is needed. As longas the parties are notified and given theopportunity to explain their side, therequirements of due process aresatisfactorily complied with. In the instantcase, the taxpayer was able to intelligentlymake its protest by stating that its saletransactions are exempt from VAT. Thiscircumstance proves that the taxpayer wassufficiently informed of the facts and thelaw as to why the assessment has beenissued against it.

(Hermano Miguel Febres Cordero Medical

Education Foundation v. Commissioner of

Internal Revenue, CTA Case No. 8194,

January 9, 2012)


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Court Decisions

Proof of receipt of assessmentSending a preliminary assessment notice(PAN) to a taxpayer is part of the dueprocess requirement in the issuance ofdeficiency tax assessment. Its absence

would render nugatory any assessmentmade by the tax authorities. Thus, in caseof denial of receipt of PAN, it isincumbent upon the BIR to prove bycompetent evidence that the PAN wasindeed received by the addressee in the

due course of mail.

To prove receipt of PAN, the BIR shouldpresent the copy of registry return receiptor other evidence that the taxpayerpersonally received the assessment. Forfailure to establish that the PAN wasactually received by the taxpayer, eitherpersonally or by registered mail theassessment was deemed void.

(Laurence Lee V. Luang v. Commissioner of In-

ternal Revenue, CTA Case No. 7967, January 5,

2012)

Proof of remittance not required forFWT refunds

A final withholding tax (FWT) is of thesame genre as CWT. This is clear underRR 2-98 where both provisions of FWTand CWT appear under the subject/heading Withholding of tax at source.Considering that FWT and CWT are ofthe same nature, the CTA held that theconditions for entitlement to refund ofCWT should likewise apply in a case of

refund of FWT.

To be entitled to refund of unutilizedCWT, the Supreme Court held in the caseof Banco Filipino Savings and MortgageBank v. Court of Appeals, CTA andCommissioner of Internal Revenue (CIR),that there are three conditions that mustbe established by the taxpayer-refundclaimant, to wit:

a. the claim is filed with the CIRwithin the two-year period from thedate of payment of tax;

b. it is shown on the return of therecipient that the income paymentreceived was declared as part of thegross income; and

c. the fact of withholding isestablished by a copy of a statementduly issued by the payor to the payeeshowing the amount paid and theamount of tax withheld therefrom.

To establish the fact of withholding, thedocument that may be accepted asevidence must emanate from the payorand not from the payee, and must indicatethe name of the payor, the incomepayment basis of the tax withheld, theamount of tax withheld, and the nature ofthe tax paid. In a number of cases, theSupreme Court and CTA held that proofof actual remittances of the taxes

withheld is not required to prove

entitlement to refund of CWT. Hence, thesame rule should apply to claims forrefund of FWT. The taxpayer-refundclaimant is likewise not required topresent supporting documents to provethat the corresponding FWT on itsinterest on currency bank deposits hasbeen remitted to the BIR in order to beentitled to tax refund. The certificates offinal tax withheld at source (BIR Form2306) should suffice.

(Philippine Airlines, Inc. v. Commissioner of

Internal Revenue, CTA En Banc Case No. 665

re CTA Case No. 7224, January 5, 2012)


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Tax Brief - February 2012