July 2012 11111

July 2012

Tax brief

Contents

0202020202 BIR IssuancesBIR IssuancesBIR IssuancesBIR IssuancesBIR Issuances• Criteria for tax-exempt joint

venture• Non-redemption of properties

sold during involuntary sales• BIR - Mines and Geosciences

Bureau MOA

0404040404 BIR RulingsBIR RulingsBIR RulingsBIR RulingsBIR Rulings• VAT on offshore business

services• Representative office as

permanent establishment

0505050505 Implementing guidelines of VImplementing guidelines of VImplementing guidelines of VImplementing guidelines of VImplementing guidelines of VAAAAATTTTTTCC monetization prTCC monetization prTCC monetization prTCC monetization prTCC monetization programogramogramogramogram

0606060606 CourCourCourCourCourt Decisionst Decisionst Decisionst Decisionst Decisions• Protesting a local tax

assessment• Best evidence rule on tax

assessments• Establishing intent to donate

0808080808 Highlight on P&A servicesHighlight on P&A servicesHighlight on P&A servicesHighlight on P&A servicesHighlight on P&A services• Tax seminars and training

2 2 2 2 2 July 2012

BIR Issuances

Criteria for tax-exempt joint venturCriteria for tax-exempt joint venturCriteria for tax-exempt joint venturCriteria for tax-exempt joint venturCriteria for tax-exempt joint ventureeeeeTo qualify as a joint venture (JV) or

consortium formed for the purpose of

undertaking construction projects exempt

from tax as a corporation under Section

22 (B) of the Tax Code, the Bureau of

Internal Revenue (BIR) requires that the

JV satisfy the following conditions:

a. The JV should be for the

undertaking of construction

project.

b. The JV should involve joining or

pooling of resources by licensed

local contracts, i.e., licensed as

general contractor by the Philippine

Contractors Accreditation Board

(PCAB) of the Department of

Trade and Industry (DTI).

c. The local contractors are engaged in

construction business.

d. The JV itself must likewise be duly

licensed as such by the PCAB of

the DTI.

Joint ventures involving foreign

contractors may also be treated as

non-taxable corporations provided that

the member foreign contractor is covered

by a PCAB special license. Further, the

construction project must be certified by

the appropriate tendering agency as a

foreign-financed or internationally funded

project, and international bidding must be

allowed under the bilateral agreement

between the government and the foreign

financial institution.

In case of failure to satisfy any of the

above requirements, the JV or consortium

formed for the purpose of undertaking

construction projects shall be considered

a taxable corporation.

All licensed local contractors are required

to enroll with the Electronic Filing and

Payment System (eFPS) at the Revenue

District Office (RDO) where the local

contractors are registered as taxpayers.

(Revenue Regulations No. 10-2012, June 1, 2012)

Non-rNon-rNon-rNon-rNon-redemption of predemption of predemption of predemption of predemption of properoperoperoperoperties soldties soldties soldties soldties soldduring involuntary salesduring involuntary salesduring involuntary salesduring involuntary salesduring involuntary salesProperties sold during involuntary sales

which are not redeemed shall be

considered sold. All applicable taxes, such

as capital gains tax (CGT) if the property

is a capital asset, the creditable

withholding tax (CWT) if the property is

an ordinary asset, value-added tax (VAT),

and documentary stamp tax (DST) shall

become due.

The following are the obligations of

owner/mortgagor and buyer/mortgagee

on unredeemed properties sold during

involuntary sales:

1. The buyer of the property shall file

the CGT return and remit the tax to

the BIR within 30 days from the

expiration of the applicable

statutory redemption period. As

regards the CWT, the buyer shall

file the CWT return and remit the

tax within 10 days following the end

of the month after expiration of the

applicable statutory redemption

period. For taxes withheld in

December, the CWT returns shall

be filed and the taxes remitted on or

before January 15 of the following

year.

2. In case of property sold through

involuntary sale that is subject to

VAT, the VAT must be paid to the

BIR by the owner/mortgagor on or

before the 20th or 25th day,

whichever is applicable, of the

month following the month when

the right of redemption prescribes.  

 

3. The DST return shall be filed and

the tax shall be remitted to the BIR

within five days from the close of

the month after the lapse of the

applicable statutory redemption

period.

The CGT, CWT, VAT and DST

shall be based on whichever is the

higher consideration (bid price of

the highest bidder) or fair market

value or zonal value as determined

in accordance with Section 6(E) of

the Tax Code.

(Revenue Regulations No. 9, June 1, 2012)

July 2012 33333

BIR Issuances

BIR - Mines and Geosciences BurBIR - Mines and Geosciences BurBIR - Mines and Geosciences BurBIR - Mines and Geosciences BurBIR - Mines and Geosciences BureaueaueaueaueauMOAMOAMOAMOAMOAThe BIR and the Mines and Geosciences

Bureau (MGB) entered into an agreement

that establishes the policies on the

exchange of information between the two

agencies. The following are some of the

highlights of the agreement:

1. The MGB shall require all mining

applicants, contractors, permittees

and operators to indicate their

respective BIR-validated taxpayer

identification number (TIN) in all

statistical report forms and mining

applications, including application

for area clearance required to be

submitted under existing rules and

regulations. The BIR shall validate

the TIN supplied by contractors,

permittees, and operators to the

MGB.

2. The MGB shall require mining

contractors, permittees and

operators to present the following:

(a) copy of proof of payment of

excise tax on minerals, mineral

products and quarry resources duly

authenticated by the BIR; (b)

income tax returns and business tax

returns (excise tax, VAT and

percentage tax for non-VAT

contractors) for the operating

year(s) immediately preceding

the application for permits;

(c) Certificate of BIR registration;

and (d) tax clearance certificate and

certificate of “No Delinquent

Accounts or Outstanding

Liabilities” duly issued by the BIR

or written request for such

certificates if not issued with 15

working days from actual receipt of

request.

The BIR shall process and issue

within 15 days upon request the tax

clearance certificate and certificate

of “No Delinquent Account or

Outstanding Tax Liabilities,” which

will serve as the MGB’s basis in

processing applications or renewals

of mining permits and contracts.

3. The MGB shall provide the BIR

with the annual list of large-scale

metallic mining contractors,

permittees and operators in each

project with the corresponding

volume and value of their gross

output within 90 days after the end

of each year to serve as basis in the

validation of payment for excise tax

on minerals. Upon request, the BIR

shall certify the proof of payment

of excise and other taxes for

submission to the MGB.

4. A directory of mines and quarries

containing list of mining contrac-

tors, permittees or operators of

mining projects in the Philippines as

of December 31 of the reporting

year shall be submitted by the MGB

not later than every end of

December immediately after the

preceding reporting year. The list

shall be used by the BIR as a guide

in identifying the taxpayers liable to

pay excise tax.

(Revenue Memorandum Circular No. 28-2012,

June 21, 2012)

4 4 4 4 4 July 2012

BIR Rulings

VVVVVAAAAAT on ofT on ofT on ofT on ofT on offshorfshorfshorfshorfshore business servicese business servicese business servicese business servicese business servicesA VAT-registered domestic company

engaged in providing managerial,

administrative, and consultancy services

to a non-resident foreign corporation may

qualify for VAT zero rating pursuant to

Section 108(B)(2) of the Tax Code, as

implemented by Section 4.108-5(b)(2) of

Revenue Regulations No. (RR) 16-05, as

amended.

Under Section 108(B)(2) of the Tax

Code, as amended by Section 4.108-

5(b)(2) of RR 16-2005, as amended,

services performed in the Philippines by a

VAT-registered enterprise to persons

engaged in business conducted outside

the Philippines or to a non-resident

person not engaged in business who is

outside the Philippines when the services

are performed are subject to 0% VAT.

But this only applies if the consideration

is paid for in foreign currency and

accounted for in accordance with the

rules and regulations of the Bangko

Sentral ng Pilipinas (BSP).

Considering that the administrative and

accounting services to be rendered by the

company to the non-resident foreign

corporation shall be paid in foreign

currency and directly inwardly remitted to

the company’s bank account in the

Philippines, such services qualify for VAT

zero rating under Section 108(B)(2) of

the Tax Code, as amended.

(BIR Ruling No. 413-2012, June 15, 2012)

ReprReprReprReprRepresentative ofesentative ofesentative ofesentative ofesentative office as permanentfice as permanentfice as permanentfice as permanentfice as permanentestablishmentestablishmentestablishmentestablishmentestablishmentUnder the Republic of the Philippines

(RP)-Switzerland Tax Treaty, a permanent

establishment means a fixed place of

business through which the business of

an enterprise is wholly or partly carried,

and includes especially a place of

management, a branch, an office, a

factory, a workshop, and so forth. Thus,

by definition, a representative office,

being an office, generally constitutes a

permanent establishment.

However, under Paragraph 3 of Article 5

of the RP-Switzerland Tax Treaty, a bank

representative office does not constitute a

permanent establishment if the activities

carried out therein are merely preparatory

or auxiliary in character. In this regard,

the bank representative office that was

established in the Philippines performs

the following activities: (a) liaison services

between the head office and branch

offices and their clients; (b) dissemination

and exchange of information among the

head office and branch offices and their

clients; (c) conduct of market research,

surveys and studies; (d) promotion of

services and products in the Philippines;

and (e) implementation of quality control

on services and products.

The bank representative office does not

derive any income and is fully subsidized

by its head office, a Swiss bank. However,

according to the BIR, the fact that the

bank representative office does not or

will not derive income in the Philippines

and is fully subsidized by its head office

does not necessarily mean that it is not a

permanent establishment. Whether a

fixed place of business constitutes a

permanent establishment is determined

by the nature or character of activities

undertaken by the bank representative

office.

July 2012 55555

BIR Rulings Implementing guidelines of VAT TCC monetization

programThe Department of Finance (DOF), Department of Budget and

Management (DBM), BIR and Bureau of Customs (BoC) issued the

following guidelines implementing the monetization program for VAT

Tax Credit Certificates (TCCs) under Executive Order No. (EO) 68,

series of 2012.

Application procedures

VAT TCC holders must enroll in the monetization program and

surrender their original TCCs with the TCC-issuing office [BIR, BoC,

or the DOF-One-Stop-Shop Center (OSS)] within three months from

the effectivity of the Circular. After verification and validation, the BIR

shall issue the Notice of Payment Schedule (NPS), detailing the

taxpayer’s information, refundable amount, and the TCC maturity

date.

Monetization scheme

Holders of the NPS shall have the following options:

a. Sell the outstanding amounts at a discount to government

financial institutions (GFIs) for monetization.

b. Hold on to the NPS until its maturity and be paid by the BIR the

full cash value of the TCC.

Schedule of refund

NPS holders will be paid in full upon maturity of their TCCs in

accordance with the following schedule.

The NPS must be presented for payment with the issuing agency

within 30 calendar days before maturity date.

Rights of TCC holders

TCC holders who opt not to enroll in the monetization program shall

retain the right to credit the TCCs against tax liabilities in accordance

with existing rules on TCC utilization, or apply for TCC revalidation in

accordance with the existing provisions of the Tax Code.

Treatment of pending claims

All applications for drawbacks pending before the DOF-OSS and the

BoC prior to the effectivity of the Joint Circular shall be given the

option to select the preferred scheme for recovery of the creditable

input VAT under Section 106 of the TCCP, as amended. On the other

hand, requests for VAT TCC encashment that are already in the

possession of the BIR as of the effectivity of EO 68 may still be

processed pursuant to RR 5-2000 regardless of the maturity dates,

subject to availability of funds.

(DOF-DBM-BIR-BOC Joint Circular Nos. 2-2012 and 3-2012, May 31,

2012)

Year of TCC issuance Maturity date

2003 and prior years (for refund of VAT zero-

rated sales); 2004-2007 (for import VAT refund)

2008 and prior years (for refund of VAT

zero-rated sales); 2008 (for import VAT refund)

2009

2010

2011 and 2012

2012

2013

2014

2015

2016

The BIR held that the liaison services,

relay and dissemination of information,

conduct of research, surveys and studies,

and promotion of services and products

performed by the bank representative

office are similar to the collection of

information, supply of information,

advertising and scientific research

contemplated in Paragraph 3 of Article 5

of the RP-Switzerland Tax Treaty, which

are considered preparatory and auxiliary

in character.

On the implementation of quality of

control on the services and products,

which involves merely preparation and

submission of compliance checklist, this

activity is considered by the BIR as

remotely identical and not directly

essential and significant to the business

activities of the foreign bank in the

Philippines as a bank of accepting

monies, granting loans, credits and

advances, etc. Hence, the BIR deemed the

implementation of quality control on

services and products as preparatory or

auxiliary as well.

Considering that the bank representative

office performs merely preparatory or

auxiliary activities in the Philippines, it

does not constitute a permanent

establishment of its Swiss bank head

office. Hence, income derived by the

Swiss bank head office in the form of

gains derived from the sale of its movable

properties, which are held by the bank

representative and situated at the

representative’s leased premises in the

Philippines, is exempt from income tax

under the RP-Switzerland Tax Treaty.

(BIR Ruling No. ITAD No. 195-12, May

21, 2012)

July 2012 55555

6 6 6 6 6 July 2012

Court Decisions

PrPrPrPrProtesting a local tax assessmentotesting a local tax assessmentotesting a local tax assessmentotesting a local tax assessmentotesting a local tax assessmentUnder Section 195 of the Local

Government Code (LGC), a taxpayer

who disagrees with the tax assessment

issued by a local treasurer or his duly

authorized representative may file a

written protest within 60 days from

receipt of the notice of assessment. In

the event the protest is denied, in whole

or in part, by the local treasurer, or after

the lapse of the 60-day prescriptive

period for the local treasurer to resolve

the protest, the taxpayer has 30 days

within which to file an appeal with the

court of competent jurisdiction;

otherwise the assessment becomes

conclusive and may no longer be

appealed.

In response to its local business tax

(LBT) assessment, the taxpayer filed its

written protest questioning its LBT

assessment. Acting on its petition, the

local treasurer denied the taxpayer’s

protest. However, even before the

taxpayer could exercise its right to

appeal the denial of its protest before a

court of competent jurisdiction, the

local treasurer filed a collection case

with the Regional Trial Court (RTC).

Instead of separately pursuing two cases

(i.e., one for “appeal” over denial of its

protest to the assessment, and another

one for defending against the collection

of the local business tax), the taxpayer

deemed it wise to file an “answer” with

the RTC incorporating, by way of

counterclaim, its “appeal” over the

denial of its protest.

The Court of Tax Appeals (CTA) held

that while it is ideal that a separate

original action before the appropriate

RTC to assail the denial of its protest by

the local treasurer should have been

filed within the prescribed period,

instead of incorporating the same in its

“answer” (as a compulsory counter-

claim) to the complaint for the collec-

tion of taxes, the Supreme Court in

Yamane v. BA Lepanto Condominium

Corporation (G.R. No. 154993, October 25,

2005) gives the courts the discretion to

take cognizance of petitions raised on

erroneous mode of appeal and instead

treat the petitions in the manner as they

should have appropriately been filed.

Unfortunately, in the instant case, the

RTC opted to treat the taxpayer’s

“answer” to the counterclaim as different

from the “appeal” contemplated under

Section 195 of the LGC. Hence, for

failure to appeal with the court of

competent jurisdiction the denial by the

local treasurer of its protest, the assess-

ment has become conclusive and

unappealable.

(National Transmission Corporation v.

Municipal Treasurer of Labrador, Pangasinan,

CTA AC No. 67, June 25, 2012)

Best evidence rule on taxBest evidence rule on taxBest evidence rule on taxBest evidence rule on taxBest evidence rule on taxassessmentsassessmentsassessmentsassessmentsassessmentsWhen a report required by law as a basis

for assessment of any internal revenue

tax is not submitted within the time fixed

by pertinent laws or rules and regulation,

or when there is reason to believe that

any such report is false, incomplete or

erroneous, Section 6 of the Tax Code

empowers the Commissioner of Internal

Revenue (CIR) to make an assessment

based on the best evidence obtainable.

The best evidence obtainable may consist

of hearsay evidence, such as the testi-

mony of third parties, accounts or other

records of other taxpayers similarly

circumstanced as the taxpayer subject to

the investigation. However, it does not

include mere photocopies of records/

documents.

Pursuant to Section 34, Rule 132 of the

Revised Rules of Evidence, there must be

a formal offer of evidence before the

CTA can give evidentiary value to any

piece of evidence. An exception to this

rule is recognized in Vda. De Onate v.

Court of Appeals (250 SCRA 287) when

the following requisites are present: (a)

the document must have been duly

identified by testimony duly recorded;

and (b) the document must have been

incorporated in the records of the case.

To support its assessment based on

alleged third party information, the BIR

presented photocopies of its assessment

and other BIR records. The CTA noted

that although the BIR was able to pre-

mark its evidences, present and offer the

same, the provisionally marked evidence

was considered insufficient as the same

consists of mere photocopies of the

assessments. Moreover, the CTA held that

the records submitted by the BIR may

not be considered evidence due to its

failure to formally offer them as evidence.

The CTA considered the BIR to have

waived its right to present evidences for

its repeated failure to appear during the

scheduled presentation of evidence.

Moreover, the BIR also failed to prove

compliance with the exception to the

general rule. Hence, for failure to present

evidence to support its assessment, the

deficiency assessment was cancelled.

(Wintelcom, Inc. v. CIR, CTA Case No.

7056, June 7, 2012)

July 2012 77777

Court Decisions

Establishing intent to donateEstablishing intent to donateEstablishing intent to donateEstablishing intent to donateEstablishing intent to donateIn determining whether a transaction

involves gratuitous transfer that is subject

to donor’s tax under Section 98 of the

Tax Code, not only the legal documents,

but also other external factors

surrounding the transactions are

considered. Thus, in case where a request

to include or affix the names of minor

children as transferees, in addition to the

parents who are the original buyers, in the

Certificate Authorizing Registration

(CAR), the BIR shall look into the true

intent of the parties to the transaction to

determine its liability to donor’s tax.

In the instant case, it was alleged that

there was no transfer of property from

the parent to their children since they do

not own the subject property, hence, the

inclusion of their names in the CAR is

not subject to donor’s tax. Moreover, it

was claimed that the minor children used

their allowance, which came from their

parents, to purchase the properties.

In its decision, the CTA held that there is

a clear “animus donandi” or intent to give

when the names of minor children who

are not earning any income are included

in the CAR and certificate of titles of the

property. It held that while it is true that

minor children can save money from their

allowances and buy properties from their

savings, considering the children’s age and

the price of property, the children will

not be able to save a substantial amount,

even if they receive enormous allowances

from the parents. Moreover, it is highly

unlikely for an individual to own real

property at such an early age and without

a source of income; thus the CTA

deemed the transaction to be a donation.

(Hordon H. Evono and Maribel C. Evono v.

Department of Finance, CIR and the Republic

of the Philippines, CTA EB No. 705 re CTA

Case No. 7573, June 4, 2012)

8 8 8 8 8 July 2012

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