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1 Tax bulletin | Tax Bulletin July 2016

Tax bulletin - July 2016 - Ernst & YoungFILE/EY-philippines-tax-bulletin-july-2016.pdf · Tax Bulletin July 2016. ... • DTI Memorandum dated 20 July ... RA 9505 or any of the grounds

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Page 1: Tax bulletin - July 2016 - Ernst & YoungFILE/EY-philippines-tax-bulletin-july-2016.pdf · Tax Bulletin July 2016. ... • DTI Memorandum dated 20 July ... RA 9505 or any of the grounds

1Tax bulletin |

Tax BulletinJuly 2016

Page 2: Tax bulletin - July 2016 - Ernst & YoungFILE/EY-philippines-tax-bulletin-july-2016.pdf · Tax Bulletin July 2016. ... • DTI Memorandum dated 20 July ... RA 9505 or any of the grounds

2 | Tax bulletin

HighlightsBIR Rulings

• ExceptforthefiveentitiesnamedinSection27(C)oftheTaxCode(i.e.,GSIS,SSS,PHIC,LWDsandPCSO),allothercorporations,agenciesorinstrumentalitiesownedorcontrolledbytheGovernmentaresubjecttoincometax. (Page 4)

• TheDocumentaryStampTax(DST)ondeedsofsaleandconveyancesofrealpropertyshallbecomputedbasedontheconsiderationcontractedtobepaidfortherealtyoronitsfairmarketvalue,whicheverishigher. (Page 4)

BIR Issuances

• RevenueMemorandumOrder(RMO)No.40-2016prescribesthattheBIRobservethe“NoGiftPolicy”. (Page 4)

• RMONo.41-2016reiteratestheprovisionsofRevenueMemorandumCircular(RMC)No.39-2015titled“UpdatedBIRCitizensCharterasConsolidated”andRMCNo.80-2012titled“StrictAdherencetotheAnti-RedTapeActProvisiononAccessingFrontlineServices”towarnBIRofficialsandemployeesagainsttheissuanceofCertificatesAuthorizingRegistration(CAR)beyondtheprescribedperiods. (Page 5)

• RMONo.42-2016prescribestheguidelinesandproceduresinimplementingRepublicAct(RA)No.9505orthe“PersonalEquityandRetirementAccount(PERA)Actof2008”. (Page 5)

• RMONo.43-2016amendstheguidelinesforissuingoftheInternationalCarrier’sSpecialCertificate(ICSC)andtheInternationalCarrier’sGeneralCertificate(ICGC). (Page 7)

• RMONo.44-2016excludesnon-stock,non-profiteducationalinstitutionsfromRMONo.20-2013andprescribesnewpoliciesandguidelinesinissuingtaxexemptionrulingstosucheducationalinstitutions. (Page 7)

• RevenueMemorandumCircular(RMC)No.70-2016suspendsalltaxauditseffective1June2016andrequiresallrevenueofficerstosubmitaninventoryofpendingLettersofAuthority(LA)/LetterNotices(LN)asof30June302016. (Page 8)

• RMCNo.71-2016recallsandrevokesallRevenueTravelAssignmentOrders(RTAOs)issuedwithintheperiod1Juneto30June2016. (Page 8)

• RMCNo.72-2016clarifiesRMCNo.71-2016concerningtransfersofpresidentialappointees. (Page 9)

• RMCNo.74-2016streamlinestherequirementsandtheprocessinissuingTaxClearancesunderExecutiveOrder(EO)No.398. (Page 9)

• RMCNo.75-2016clarifiescertainissuesrelativetothesuspensionofallBIRauditsasmandatedunderRMCNo.70-2016. (Page 9)

• RMCNo.80-2016liftsthesuspensionoftheeffectivityofcertainrevenueissuancesprovidedunderRMCNo.69-2016dated1July2016. (Page 11)

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3Tax bulletin |

BOC Issuance

• CMONo.17–2016providestheguidelinesandproceduresonimplementingtheelectroniccertificateoforiginsystem(eCOS). (Page 13)

BSP Issuances

• CircularNo.914providesfortheAmendmentstoPrudentialPolicyonLoans,OtherCreditAccommodations,andGuaranteesGrantedtoDirectors,Officers,Stockholders,andtheirRelatedlnterests(DOSRl),SubsidiariesandAffiliates. (Page 14)

• CircularNo.915providesfortheAmendmentontheAccountingGuidelinesforPrudentialReportingtotheBSP. (Page 17)

• CircularNo.916providesfortheRevisionoftheRediscountRatesonRediscountingWindow(RW)I. (Page 18)

• CircularNo.917providesfortheAmendmentstotheManualofRegulationsforBanksandManualofRegulationforNon-BankFinancialInstitutionsasof31December2015. (Page 18)

SEC Opinions and Issuances

• Treasurysharesarestillconsidered“issuedshares”sincetheydonotreverttotheunissuedsharesofacorporationbutareregardedaspropertyacquiredbythecorporation.Therequirementsthatatleast25%oftheamountoftheauthorizedcapitalstockshallbesubscribedandatleast25%ofthetotalsubscriptionshallbepaid,aremandatoryonlyduringthepre-incorporationperiodofacorporation. (Page 21)

• Thebusinessofleasingoutorsub-leasingofadvertisingspacesfallswithinthepurviewofmassmediawhichisanationalizedactivityandissubjecttotheforeignequitylimitationsimposedbythe1987Constitutionandotherrelevantlaws. (Page 22)

• SECMCNo.8providesfortheexemptionfromthe5%liquidityrequirementofmutualfundindextrackers. (Page 23)

PEZA Update

• DTIMemorandumdated20July2016designatesMr.JustoPorfirioLL.YusingcoastheOICofPEZA. (Page 23)

Court Decisions

• Satelliteairtimeservicefeespaidtoanon-residentforeigncorporationareconsideredincomefromsourceswithinthePhilippinesthataresubjecttofinalwithholdingtax. (Page 23)

• AnyalterationtotheVATinvoiceorofficialreceiptmustbecounter-signedbyanauthorizedsignatoryorthecountersignaturemustbeverifiedtocomplywiththeinvoicingrequirementsforVATrefundpurposes. (Page 24)

• MaintenanceservicefeespayabletoaUSresidentunderasoftwarelicenseagreementarenotconsideredroyaltiesbutbusinessprofits,whicharesubjecttofinalwithholdingtaxonlywhenthepayeeisdeemedtohaveapermanentestablishmentinthePhilippines. (Page 25)

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4 | Tax bulletin

BIR Rulings

BIR Ruling No. 335-2016 dated 29 June 2016

Facts:

XHospitalisagovernmenthospitalcreatedbyvirtueofRANo.1859,asamended.ItrequestedfortheissuanceofacertificateofexemptionfromincometaxclaimingthatitisaretainedhospitaloftheDepartmentofHealth(DOH),andtherefore,agovernmentagencyentitledtoincometaxexemption.

Issue:

IsXHospitalexemptfromincometax?

Ruling:

No.UnderSection27(C)oftheTaxCode,allcorporations,agenciesorinstrumentalitiesownedorcontrolledbytheGovernment,exceptfortheGovernmentServiceandInsuranceSystem(GSIS),theSocialSecuritySystem(SSS),thePhilippineHealthInsuranceCorporation(PHIC),thelocalwaterdistricts(LWDs)andthePhilippineCharitySweepstakesOffice(PCSO),shallbesubjecttotheregularcorporateincometax.Thesaidprovisionspecificallyexemptedonlyfiveentitiesfromincometax.Hence,allothercorporations,agenciesorinstrumentalitiesownedorcontrolledbytheGovernmentaresubjecttoincometax.

BIR Ruling No. 345-2016 dated 30 June 2016

Facts:

Ms.A,anindividualbuyerofacondominiumunitfromadeveloper,wasmadetopaytheDSTonthetransferofrealpropertycomputedbasedonthecontractprice,inclusiveofVAT.ShefiledaclaimforrefundofallegedoverpaidDSTonthebasisthatthetaxpayablecouldhavebeenlowerifcomputedbasedonthefairmarketvalueoftheproperty.

Issue:

IstherealegalbasistograntMs.A’sclaimforrefund?

Ruling:

No.UnderSection196oftheTaxCode,theDSTondeedsofsaleandconveyancesofrealpropertyshallbecomputedbasedontheconsiderationcontractedtobepaidfortherealtyoronitsfairmarketvalueasdeterminedinaccordancewithSection6(E)oftheTaxCode,whicheverishigher.

BIR Issuances

Revenue Memorandum Order No. 40-2016 dated 5 July 2016

• AllBIRofficialsandemployeesarenotallowedtoacceptorsolicitgiftsfromthepublicorprivatesectorsandareexpectedtoperformtheirdutiesandresponsibilitieswithoutexpectationofanyfavorormaterialreward.

• Thoseconcernedaredirectedtoimmediatelyreturnanygiftthattheyhavereceived.

TheDSTondeedsofsaleandconveyancesofrealpropertyshallbecomputedbasedontheconsiderationcontractedtobepaidfortherealtyoronitsfairmarketvalue,whicheverishigher.

RMONo.40-2016prescribesthattheBIRobservethe“NoGiftPolicy”.

ExceptforthefiveentitiesnamedinSection27(C)oftheTaxCode(i.e.,GSIS,SSS,PHIC,LWDsandPCSO),allothercorporations,agenciesorinstrumentalitiesownedorcontrolledbytheGovernmentaresubjecttoincometax.

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5Tax bulletin |

Revenue Memorandum Order No. 41-2016 dated 14 July 2016

• CARscoveringthefollowingtransactionsshallbeissuedwithinfivedaysfromthesubmissionofcompletedocumentaryrequirements:

1. Saleofrealproperty;2. Transferorassignmentofstocksnottradedinthestockexchange;and3. Transferssubjecttodonor’stax,estatetax,anddocumentarystamptax

relatedtothesaleortransferofproperties

• BIRofficialsandemployeesviolatingthisRMOshallbesubjecttoadministrativeandcriminalpenaltiesenumeratedundertheAnti-RedTapeActof2007.

Revenue Memorandum Order No. 42-2016 dated 21 July 2016

• ThePERAActof2008establishestheframeworkofretirementplansforpersons,comprisedofvoluntarypersonalsavingsandinvestmentswhileprovidingvarioustaxincentivesandprivileges.

• TheRMOsetstheguidelinesandproceduresfortheproperadministrativereportingofPERAtransactions,involvingcontributions,income,withdrawals,and/orterminations.

• TheBIR’sPERAProcessingOffice(i.e.theAuditInformation,TaxExemptionandIncentivesDivision(AITEID)undertheAssessmentService)shallonlyacceptApplicationsforAccreditationwhicharefiledbypre-qualifiedPERAAdministratorsbasedona“QualificationCertificate”issuedbyeithertheBangko Sentral ng Pilipinas(BSP),SEC,ortheInsuranceCommission(IC).

• ACertificateofAccreditationshallbeissuedbytheAIETEIDtothePERAAdministrator,whichwillbevaliduntilsuspendedorrevokedduetoviolationsofRA9505oranyofthegroundsenumeratedbylaw.

• AcopyoftheCertificateshallbetransmittedtotheconcernedRevenueDistrictOffice(RDO)toensurethatthePERAadministratormaintainsseparatebooksofaccountstorecordallPERAcontributionsandrelatedtransactions.

• ContributionstoPERAmustnotexceedthefollowingamountspercalendaryear:

1. Byemployeesand/oremployersorself-employedindividuals–P100,000.00

2. ByOverseasFilipinoWorkers–P200,000.00

• APERAContributormaydesignatethePERAAdministratorwhowillhandlethePERAestablishedbyitsemployees.

• Theemployees’PERAcontribution,togetherwiththecontributionmadebytheemployer,mustnotexceedtheemployee’squalifiedPERAcontribution.

• ThePERAAdministratormustvalidateinthePERAContributor’sdatabaseprovidedbytheBSPthatthecontributionsareunderhisexclusiveadministration.

• AContributormaycreateandmaintainamaximumoffivePERAsatanyonetime,andeachPERAmustbeconfinedtoonlyonecategoryofPERAInvestmentProduct.

RMONo.41-2016reiteratestheprovisionsofRMCNo.39-2015titled“UpdatedBIRCitizensCharterasConsolidated”andRMCNo.80-2012titled“StrictAdherencetotheAnti-RedTapeActProvisiononAccessingFrontlineServices”towarnBIRofficialsandemployeesagainsttheissuanceofCARsbeyondtheprescribedperiods.

RMONo.42-2016prescribestheguidelinesandproceduresinimplementingRANo.9505orthe“PERAActof2008”.

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6 | Tax bulletin

• Anemployeeorself-employedqualifiedContributorisentitledtoa5%taxcreditofhistotalPERAcontributionsinacalendaryear.

1. ThetaxcreditsarisingfromPERAcontributionsmaybeusedaspaymentfordelinquentaccounts,butarenon-refundable,non-transferrableandnon-convertibletocash.

2. IncaseofanOverseasFilipinoContributor,the5%taxcreditmaybeclaimedagainstanyinternalrevenuetaxliabilitiesexceptforwithholdingtaxliabilities.However,ifhedoesnothavetaxableincomeinthePhilippines,the5%taxcreditwilleventuallybeforfeitedinfavorofthegovernment.

• Aqualifiedemployershallnotbeentitledtothe5%taxcredit.However,theemployer’scontributiontotheemployee’sPERA:

1. isexemptfromwithholdingtaxoncompensationandfinalwithholdingtaxonfringebenefits;

2. maybeclaimedasadeductionfromgrossincometotheextentthatsuchcontributionwouldcompletethemaximumallowablePERAcontribution.

• Anyincomeearnedfromtheinvestmentandre-investmentofPERAassetsinPERAInvestmentProductsarenotincludedinthemaximumallowablecontributions.

• Inaddition,suchincomeshallbeexemptfromincometaxesbutwillbesubjecttoothertaxes,suchaspercentagetax,VAT,stocktransactiontax,anddocumentarystamptax.

• ThefollowingQualifiedPERADistributions(QPD)areexcludedfromthegrossincomeoftheContributorandshallnotbesubjecttoestatetaxinthehandsoftheheirsorbeneficiariesoftheContributor:

1. QPDreceivedbytheContributoraftermakingcontributionsforatleastfiveyearsanduponreachingtheageof55;

2. QPDreceivedbytheheirsorbeneficiariesoftheContributor,regardlessofageandnumberofcontributionsmadebytheContributor;

3. WhentheContributorishospitalizedformorethan30days,asevidencedbyanotarizeddoctor’scertificate;

4. WhentheContributorbecomespermanentlydisabledasevidencedbyacertificateissuedbytheconcernedgovernmentagency;or

5. ImmediatetransferofproceedstoanotherPERAInvestmentProductand/orAdministratorwithintwoworkingdaysfromthewithdrawalofthesame.

• TheRDOsorOfficesundertheLTSshallissuethefollowingasmaybenecessary:

1. CertificationofEntitlementtothe5%TaxCredit;or

2. PERA-TaxCreditCertificate(TCC)tobeissuedinthenameoftheOverseasFilipinoorself-employedContributorforreleasetothePERAAdministrator.

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7Tax bulletin |

Revenue Memorandum Order No. 43-2016 dated 21 July 2016

• TheOfficeoftheCommissionershallissuetheInternationalCarrier’sSpecialCertificate(ICSC)(BIRFormNo.ICC-3)andtheInternationalCarrier’sGeneralCertificate(ICGC)(BIRFormNo.ICC-4),afterverifyingthatpaymentofthe2½%grossPhilippinebillingstaxandthe3%carrier’staxhasbeenmadebytheinternationalcarrierpriortodeparture.

• TheCommissionerorhisdulyauthorizedrepresentativeshallsignthecertificateswhichshallbesubmittedbytheinternationalcarriertotheBureauofCustoms.

Revenue Memorandum Order No. 44-2016 dated 25 July 2016

• ThePhilippineConstitutiondirectlyconfersataxexemptiononnon-stock,non-profiteducationalinstitutionsforallrevenuesandassetsusedactually,directly,andexclusivelyforeducationalpurposes.

• Onlytworequisiteshavetobemetinordertoavailoftheconstitutionalexemption:1)theschoolmustbeanon-stockandnon-profitinstitution;and2)theincomeisactually,directly,andexclusivelyusedbytheschoolforeducationalpurposes.

• Therearenootherconditionsandlimitationsimposedinordertoavailoftheexemption.

• Non-stock,non-profiteducationalinstitutionsarenowdirectedtofiletheirapplicationsfortaxexemptionwiththeOfficeoftheAssistantCommissioner,LegalService,Attention:LawDivision,andshallsubmitthefollowingdocuments:

1. Originalcopyoftheapplicationletter;

2. CertifiedtruecopyoftheCertificateofGoodStandingissuedbytheSEC;

3. OriginalcopyoftheCertificationunderOathoftheTreasurerastotheamountoftheincome,compensation,salaries,oranyemolumentspaidtotrusteesandofficers;

4. CertifiedtruecopyofitsFinancialStatementsforthelast3years;

5. CertifiedtruecopyofthepermittooperateissuedbyeithertheCommissiononHigherEducation(CHED),DepartmentofEducation(DepEd),orTechnicalEducationandSkillsDevelopmentAuthority(TESDA)andifthepermittooperatewasissuedfiveyearsbeforetheapplicationfortaxexemption,aCertificateofOperation/GoodStandingissuedbytheCHED,DepEd,orTESDA;

6. OriginalcopyoftheCertificationofUtilizationofAnnualRevenuesandAssetsissuedbytheTreasurer.

• UnlessrecalledbytheBIRonvalidgrounds,taxexemptionrulingsissuedinfavorofnon-stock,non-profiteducationalinstitutionsshallremainvalidandeffective,andneednotberenewedorrevalidated.

• Taxexemptionrulingsmayberevokediftherearematerialchangesinthecharacter,purpose,ormethodofoperationoftheeducationalinstitutionwhichareinconsistentwiththebasisofitsincometaxexemption.

RMONo.43-2016amendstheguidelinesforissuingtheICSCandtheICGC.

RMONo.44-2016excludesnon-stock,non-profiteducationalinstitutionsfromRMONo.20-2013andprescribesnewpoliciesandguidelinesinissuingtaxexemptionrulingstosucheducationalinstitutions.

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8 | Tax bulletin

• Non-stock,non-profiteducationalinstitutions,whichwereissuedtaxexemptionrulingspriortoJune30,2012,arerequiredtoapplyanewfortaxexemptionwiththeBIR.

Revenue Memorandum Circular No. 70-2016 dated 1 July 2016

• TheRMCsuspendsallBIRfieldauditandfieldoperationsinrelationtoexaminationsandverificationsoftaxpayers’booksofaccounts,recordsandothertransactions.

1. Assuch,allLAs/LNs,orMissionOrdersshallnotbeexecuted;

2. Nowrittenorderstoauditandinvestigatetaxpayersforinternalrevenuetaxesshallbeissuedorserved,exceptinthefollowingcases:

• InvestigationofcasesprescribingonorbeforeOctober31,2016;

• Processingandverificationofestatetax,donor’stax,capitalgainstaxandwithholdingtaxreturnsonthesaleofrealpropertiesorsharesofstocksandthecorrespondingdocumentarystamptaxreturns;

• Examinationorverificationofinternalrevenuetaxliabilitiesoftaxpayersretiringfrombusiness;

• AuditofNationalGovernmentAgencies(NGAs),LocalGovernmentUnits(LGUs)andGovernment-OwnedandControlledCorporations(GOCCs),includingitssubsidiariesandaffiliates;and

• Othermatters/concernswithimpendingdeadlines,ormattersupontheordersoftheCommissionerofInternalRevenue.

3. AssessmentNotices,WarrantsandSeizureNoticesshallstillbeserved.Taxpayersmayvoluntarilypaytheirdeficiencytaxeswithouttheneedtosecureauthorityfromrevenueofficers.

4. RevenueOfficersarerequiredtosubmittotheCommissioner’sOfficeonorbefore16July2016,aninventoryofalloutstandingLAsandLNsasof30June2016.

Revenue Memorandum Circular No. 71-2016 dated 5 July 2016

• TheRMCrecallsandrevokesallRTAOsissuedandpublishedinBIROutlook/InternalCommunicationsfrom1Juneto30June2016.

• Allaffectedrevenuepersonnelaredirectedtoreturntotheirpreviousofficesandpositions.

• RTAOscoveringthetransferanddesignationofRevenueCollectionOfficersandRevenueSpecialOrders(RSOs)onlocalandinternationaltrainingarenotcoveredbytherevocation.

RMCNo.71-2016recallsandrevokesallRTAOsissuedwithintheperiodfrom1Juneto30June2016.

RMCNo.70-2016suspendsalltaxauditseffective1June2016andrequiresallrevenueofficerstosubmitaninventoryofpendingLAs/LNsasof30June2016.

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9Tax bulletin |

Revenue Memorandum Circular No. 72-2016 dated 8 July 2016

►• On21October2010,theDepartmentofFinanceissuedaMemorandumrequiringaclearancefromtheSecretaryofFinanceontransfersinvolvingPresidentialAppointees.

• Inlinewiththis,RTAOsinvolvingPresidentialAppointeesissuedwithin1Juneto30June2016,havingbeenapprovedbytheSecretaryofFinance,areexcludedfromthegeneralrevocationofRTAOsasprescribedunderRMONo.71-2016.

Revenue Memorandum Circular No. 74-2016 dated 14 July 2016

• EONo.398requiresindividualsandcorporationsthatwishtoenterintocontractswiththeGovernment,tosubmitataxclearancefromtheBIRtoprovefullandtimelypaymentoftaxes.

• TheTaxClearanceshallbeprocessedandreleasedwithintwoworkingdaysfromthesubmissionofthefollowingdocumentaryrequirements:

1. Duly-accomplishedandnotarizedapplicationformwithtwopieceslooseDocumentaryStampTax;

2. Print-outofCertificationfeepaidthroughtheBIR’selectronicFilingandPaymentSystem(eFPS),withpaymentconfirmation;and

3. DelinquencyVerificationwithavalidityperiodofonemonthfromthedateofissue,whichshallbeissuedbytheconcernedBIROfficeswithin24hoursfromfilingoftheapplicationbythetaxpayer.

Revenue Memorandum Circular No. 75-2016 dated 18 July 2016

• Theinvestigationofthecasesprescribingonthefollowingdatesisnotcoveredbythesuspension:

TAXABLE PERIOD PRESCRIPTIVE PERIOD

Income Tax

CalendarYear2012 15April2016

FiscalYearEnding30June2013 15October2016

CalendarYear2013 15April2017

Value-Added Tax (VAT)

Calendar Year 2013

FirstQuarter(Q1) 25April2016

SecondQuarter(Q2) 25July2016

ThirdQuarter(Q3) 25October2016

FourthQuarter(Q4) 25January2017

Fiscal Year Ending 31 October 2013

1stQuarter(1Nov.2012to31Jan.2013) 25February2016

2ndQuarter(1Feb.2013to30April2013) 25May2016

3rdQuarter(1May2013to31July2013) 25August2016

4thQuarter(1August2013to31Oct.2013) 25November2016

RMCNo.72-2016clarifiesRMCNo.71-2016concerningtransfersofpresidentialappointees.

RMCNo.74-2016streamlinestherequirementsandtheprocessinissuingTaxClearancesunderEONo.398.

RMCNo.75-2016clarifiescertainissuesrelativetothesuspensionofallBIRauditsasmandatedunderRMCNo.70-2016

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10 | Tax bulletin

TAXABLE PERIOD PRESCRIPTIVE PERIOD

Withholding Taxes

January2013 10-15February2016

February2013 10-15March2016

March2013 10-15April2016

April2013 10-15May2016

May2013 10-15June2016

June2013 10-15July2016

July2013 10-15August2016

August2013 10-15September2016

September2013 10-15October2016

October2013 10-15November2016

November2013 10-15December2016

December2013 15January2017

• Inaddition,thefollowingcasesarenotcoveredbythesuspension:

1. AllcaseswithLettersofAuthority(LOAs)coveringtaxableyear2013andprioryears;

2. Processingofapplicationsfortaxrefundandtaxcreditcertificate(TCC)isnotcoveredbythesuspension.

• ThefollowingAssessmentNoticescanbeserveddespitethesuspension:

1. AssessmentNoticescoveringtaxableyear2013andprioryears,whichincludePreliminaryAssessmentNotices(PANs),FormalLetterofDemand/FinalAssessmentNotices(FANs)andFinalDecisiononDisputedAssessment(FDDA);and

2. AssessmentNoticesissuedandsignedbytheCommissionerofInternalRevenue(CIR)orhisauthorizedrepresentativeasof30June2016,coveringtaxableyear2014onwards,providedthattheauditfieldworkhasbeencompleted.

• Theprocessingoftaxpayers’complaintswillstillcontinuedespitethesuspension,butwillbelimitedtoapreliminaryevaluationwherethe“NoContactwithTaxpayer”policyisenforced.

• NoMissionOrdershallbeissuedduringtheperiodofsuspensionofauditorinvestigation.

• Duringthesuspensionperiod,theBIRmaystillsendreminderletterstotaxpayerswithopenstop-filercases,andfollow-uplettersforcomplianceinthesubmissionofrequiredschedules(e.g.,summarylistofsales,summarylistofpurchases)totheBIR.

• TheBIR,duringthesuspensionperiod,maystillissueandserveCollectionLetters,SeizureNotices,NoticesofLevyorTaxLien,andothersimilarcorrespondencesforenforcementofcollection.

• However,allactivitiesconnectedwiththeimplementationofMissionOrdersissuedpriorto1July2016,includingtheserviceofnoticesorcommunicationsrelatingtosaidMissionorders,aresuspended.

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11Tax bulletin |

Revenue Memorandum Circular No. 80-2016 issued on 22 July 2016

• Thesuspensionofthefollowingrevenueissuancesisliftedandshallbeeffectiveimmediately:

ISSUANCE NO. TITLE/DESCRIPTION OF ISSUANCE

REVENUE MEMORANDUM ORDERS (RMO)

RMONo.22-2016 PrescribingthePoliciesandProceduresfortheIssuanceofElectronicCertificateAuthorizingRegistration(eCAR).

RMONo.28-2016 Prescribesthepolicies,guidelinesandproceduresinimplementingtheMemorandumofUnderstandingbetweentheHomeDevelopmentMutualFundandtheBIRinelectronicfilingoftaxreturnsthrougheBIRFormsandIssuanceofeCAR.

RMONo.29-2016 RevisedUniformGuidelinesandProceduresintheDesignation,AssignmentofRCOCodesandIssuanceofFidelityBondsforRCOsAuthorizedtoAcceptTaxReturnsandCollectTaxPayments.

RMONo.30-2016 PrescribingGuidelines,PoliciesandProceduresforreplacementofspoiled/badorderandfactorydefectedInternalRevenueStampsundertheInternalRevenueStampsIntegratedSystem(IRSIS).

RMONo.31-2016 AmendsthePertinentProvisionsofRMONo.13-2014,moreparticularlyonthePublicAuctionSaleofAbsolutelyForfeitedandSeizedProperties.

RMONo.32-2016 FurtherClarifyingandAmendingCertainPolicies,GuidelinesandProceduresintheIssuanceofImporter/BrokerClearanceCertificatesRelativetotheAccreditationasImporter/CustomsBrokersPrescribedundertheRMONo.10-2014,asamendedbyRMONos.33-2014and1-2015.

RMONo.33-2016 PrescribinguniformproceduresfortheimplementationofInternalRevenueStampsIntegratedSystem(IRSIS).

RMONo.34-2016 AmendingthePrescribedFormatfortheNoticeofDenialthatShallbePreparedbyConcernedRegionalOfficesRelativetoApplicationsforCompromiseSettlementand/orAbatement.

RMONo.35-2016 RevisedConsolidatedWarrantofDistraintand/orLevy(WDL)StatusReportwithMonthlyConsolidatedListofSeizedPropertiesasanAdditionalAnnexReport.

RMONo.36-2016 PrescribingPoliciesandProceduresintheDecentralizationofRecordingandReportingofInternalRevenueTaxestoAllRegionalFinanceandCollectionDivisions.

RMCNo.80-2016liftsthesuspensionoftheeffectivityofcertainrevenueissuancesprovidedunderRMCNo.69-2016dated1July2016.

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12 | Tax bulletin

ISSUANCE NO. TITLE/DESCRIPTION OF ISSUANCE

REVENUE MEMORANDUM CIRCULARS (RMC)

RMCNo.59-2016 PublishingtheDailyMinimumWageRatesinARMMPursuanttoWageOrderNo.ARMM-16.

RMCNo.60-2016 Non-AcceptanceofChecks/DrawnCheckfromSUMITOMOMITSUIBANKINGCORPORATION-ManilaRepresentativeOffice(SMBC-ManilaRepresentativeOffice)byRCO.

RMCNo.63-2016 ConsolidatedPriceofSugaratMillsitefortheMonthofMay2016

RMCNo.66-2016 ClarificationsontheProvisionsofRMCNo.60-2016

RMCNo.67-2016 Non-AcceptanceofChecks/DrawnChecksfromCOMSAVINGSBANKwithtradenameGSISFAMILYBANK(ATHRIFTBANK),(AClosedBank)byRCO.

OPERATIONS MEMORANDA (OM)

OMNo.2016-06-01 PriceofSugaratMIllsitefortheweekending22May2016bytheLicensingandMonitoringDivision,RegulationDepartment,SugarRegulatoryAdministration.

OMNo.2016-06-03 PriceofSugaratMillsitefortheweekending29May2016bytheLicensingandMonitoringDivision,RegulationDepartment,SugarRegulatoryAdministration.

OMNo.2016-06-04 PriceofSugaratMillsitefortheweekending5June2016bytheLicensingandMonitoringDivision,RegulationDepartment,SugarRegulatoryAdministration.

OMNo.2016-06-05 PriceofSugaratMIllsitefortheweekending12June2016bytheLicensingandMonitoringDivision,RegulationDepartment,SugarRegulatoryAdministration.

OMNo.2016-06-07 PriceofSugaratMIllsitefortheweekending19June2016bytheLicensingandMonitoringDivision,RegulationDepartment,SugarRegulatoryAdministration.

BANK BULLETINS

BankBulletinNo.2016-19 COMSAVINGSBANKwithtradenameGSISFAMILYBANK(ATHRIFTBANK)

BankBulletinNo.2016-20 ElectronicSubmissionoftheDishonoredCheckDetailsinCommaSeparatedValueFormatandtheEncodingofPaymentsDetailsintheLimitedBankDataEntrySystem(LBDES)

REVENUE SPECIAL ORDERS (RSO)

RSONo.328-2016 CreationofTechnicalWorkingGroup(TWG)undertheArrearsManagementProject

RSONo.329-2016 TaskForceforthePreparationoftheTermsofReference(TOR)oftheForfeitedAssetsManagementProject

RSONo.366-2016 GlennB.Alde

RSONo.375-2016 KimCharlieN.Orpiada

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BOC Issuance

Customs Memorandum Order No. 17-2016 dated 10 June 2016

• ThisCMOisissuedtofacilitateexportsbyimplementinganelectronicsystemforsubmittingandissuinganelectronicCertificateofOrigin(“eCO”),aswellastoprovideinputsinformulatingpoliciesandprocedurestotheASEANTradeinGoodsAgreement(“ATIGA”)exchangeoftheeCO,andothereCOexchangepursuanttothevariousFreeTradeAgreements(“FTAs”)asmayapply.

• ValueAddedServiceProviders(“VASPs”)accreditedtoprovideE2MCustomsservicesshallsubmittheirrespectiveeCOSystems(“eCOS”)foraccreditationtotheDeputyCommissioner,MISTG.Accreditationshallbegivenonthebasisofcapabilitytosupporttheelectronicprocess.TheuseoftheeCOSisprescribedinlieuofmanualandpaper-basedapplications.

• Detailedproceduresforthesubmission,approvalandissuanceoftheRequestsforOriginRuling(“RFOR”)areprovided,whichinclude:

1. Verificationofthesupportingdocuments2. Completenessandcorrectnessofinformationanddocuments3. FactoryvisitandexaminationofbooksofrecordsoftheCompanyas

recorded4. Determinationoforigincomplianceoftheproduct(s)5. PreparationofReportincludingproposedOriginRuling

• Onceapproved,theChiefECD/EDissuesthewrittenRFORrulingand,atthesametime,updatesthestatusoftheapplicationineCOSasapproved,andsendsanemailnotificationoftheapprovaltotheexporterorhisagentwithaninvitationtopickupahardcopyofthesame.

• ProceduresforsubmissionandapprovaloftheeCO

1. OncetheVASPeCOShasbeenapproved,anexportercanthenapplyforaneCOthroughthissystem.

2. PrintingoftheapprovedeCOmaybemadeonlyuponpaymentoftheDocumentaryStampTax(DST)throughthepre-paymentfacility.However,exportersdulyregisteredwithPEZAandBOIareexemptfromprepaymentofDST.

3. TheexportercanthenprinttheeCO,whichheshallsignandsubmittotheECD/EDforthesignatureoftheauthorizedcustomsofficer.

4. Customsofficerscanperformpost–verificationoftheeCOintheeCOS,asmaybenecessary.Afterverification,theeCOFormshallbesignedandstampedwiththeapprovedBOCseal.

• AllotherrulesandregulationsinconsistentwiththisCMOareherebyconsideredrepealed,supersededormodifiedaccordingly.

• ExistingCOformsmaybeuseduntilsuchtimethattheinventoryoftheBOCisexhausted.

• CMONo.17-2016shalltakeeffectonJune27,2016forpreferentialtreatmentgivenundertheATIGA.Thedateofimplementationforotherpreferentialtreatmentshallbeindicatedinaseparateorder.

CMONo.17–2016providestheguidelinesandproceduresonimplementingtheeCOS.

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• TheBOCshalladvisetherespectivecustomsauthoritiesoftheFTAswherethePhilippinesisaContractingPartyontheimplementationoftheeCOSandsubmitand/orupdatethespecimensignaturesoftheauthorizedcustomsofficersattheECD.

BSP Issuances

BSP Circular No. 914 dated 23 June 2016

• TheMonetaryBoard,initsResolutionNo.974dated2June2O16,approvedtherevisionstoprudentialpolicyonloans,othercreditaccommodations,andguaranteesgrantedtoDOSRI,subsidiariesandaffiliates,amendingtherelevantprovisionsoftheManualofRegulationsforBanks/ManualofRegulationsforNon-BankFinancialInstitutions(MORB/MORNBFI).

• ChapterEofPartThreeoftheMORBonLoans/OtherCreditAccommodationstoDOSRIisamendedbytheCircular.

• ChapterEofPartThreeoftheMORNBFIonLoans/CreditAccommodationstoDOSRIisalsoamendedbytheCircular,toreadasfollows:

• SectionsX311/4311Qto4311NoftheMORB/MORNBFIonsecuredloansandothercreditaccommodationsareamendedtoreadasfollows:

“Sec. X311/4311Q/4311N Secured Loans and Other Credit Accommodations.Aloanmaybeconsideredsecuredbycollateraltotheextenttheestimatedvalueofnetproceedsatdispositionofsuchcollateralcanbeusedwithoutlegalimpedimenttosettletheprincipalandaccruedinterestofsuchloan:xxx

Aloanmayalsobeconsideredassecuredtotheextentcoveredbyathirdpartyfinancialguaranteeorsuretyarrangementwherethecreditenhancementproviderisitselfconsideredtobeofhighcreditquality(creditratingofatleastAAorequivalent)orisrecognizedbytheBangkoSentralaseligibleguarantorunderexistingregulations.

xxx”

• SubsectionX192.12oftheMORBonreportsrequiredofforeignsubsidiaries/affiliates/bankingofficesornon-bankentitiesofdomesticbanksisamendedtoreadasfollows:

“xxx

f. ForpurposesofthisSubsection,affiliateshallrefertoanentitylinkeddirectlyorindirectlytoabankbymeansof:

(1) Ownership,controlasdefinedunderSubsec.XI46.L,orpowertovoteofatleasttwentypercent(12%)oftheoutstandingvotingstockoftheborrowingentity,orvice-versa;

(2) lnterlockingdirectorshiporofficership,wheretheconcerneddirectororofficerowns;controls,asdefinedunderSubsec.X146.L;orhasthepowertovoteofatleasttwentypercent(20%)oftheoutstandingvotingstockoftheborrowingentity;

CircularNo.914providesfortheAmendmentstoPrudentialPolicyonLoans,OtherCreditAccommodations,andGuaranteesGrantedtoDOSRl,SubsidiariesandAffiliates

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15Tax bulletin |

(3) Commonstockholdersowningatleasttenpercent(10%)oftheoutstandingvotingstockofthebankandatleasttwentypercent(20%)oftheoutstandingvotingstockoftheborrowingentity;

(4) Managementcontractoranyarrangementgrantingpowertothebanktodirectorcausethedirectionofmanagementandpoliciesoftheborrowingentity;or

(5) Permanentproxyorvotingtrustsinfavorofthebankconstitutingatleasttwentypercent(20%)oftheoutstandingvotingstockoftheborrowingentity,orviceversa.

ForpurposesofthisManual,theabovedefinitionofaffiliateshallbeadoptedexceptwheretheprovisionoftheregulationexpresslystatesotherwise.”

• Section4002QoftheMORNBFIondefinitionsoftermsisamendedwithrespecttothedefinitionofanaffiliate.

• SubsectionX146.1oftheMORBondefinitionoftermsisamendedwithrespecttothedefinitionofrelatedparties.

• SubsectionX146.5oftheMORBonsupervisoryenforcementactionsisamendedtoreadasfollows:

“Subsec. X146.5. Supervisory Enforcement Actions.TheBangkoSentralreservestherighttodeployitsrangeofsupervisorytoolstopromoteadherencetotherequirementssetforthintheguidelinesunderthisSectionandbringabouttimelycorrectiveactionsandcompliancewithBangkoSentraldirectives.TheBangkoSentralconsidersabusesincredittorelatedpartiesasseriousoffensesandshallbedealtwithseverely.Inthisregard,abuseshallbeinterpretedtoincludeextendingcredittorelatedpartieswithoutadoptingappropriateinternalpolicies.Forthispurpose,theBangkoSentralmay,amongothers,issuedirectivesorsanctionsontheBankandresponsiblepersons,whichmayincluderestrictionsorprohibitionsoflendingtorelatedpartiesorfromcertainauthorities/activities,restrictionsorprohibitionsondividenddeclarations;andwarning,reprimand,suspension,removalanddisqualificationofbankdirectors,officersand/oremployeesconcerned.”

• SectionX111/4111QoftheMORB/MORNBFIonminimumrequiredcapitalisherebyamendedtoreadasfollows:

“Sec. X111 (2008 - X1O6) Minimum Required Capital.Thefollowingprovisionsshallgovernthecapitalrequirementsforbanks.

Thetermcapitalshallbesynonymoustounimpairedcapitalandsurplus,combinedcapitalaccountsandnetworth,andshallrefertothetotaloftheunimpairedpaid-incapital,surplusandundividedprofits,less:

xxx

b. Totaloutstandingunsecuredcreditaccommodations,bothdirectandindirect,todirectors,officers,stockholders,andtheirrelatedinterests(DOSRI)grantedbythebankproper;

c. Totaloutstandingunsecuredloans,othercreditaccommodationsandguaranteesgrantedtosubsidiaries;

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16 | Tax bulletin

d. Totaloutstandingloans,othercreditaccommodationsandguaranteesgrantedtorelatedpartiesthatarenotatarm’slengthtermsasdeterminedbytheappropriatesupervisingdepartmentoftheBangkoSentral;

e. Deferredincometax;

f. Appraisalincrementreserve(revaluationreserve)asaresultofappreciationoranincreaseinthebookvalueofbankassets;

g. Equityinvestmentofabankinanotherbankorenterprise,whetherforeignordomestic,iftheotherbankorenterprisehasareciprocalequityinvestmentintheinvestingbank,inwhichcase,theinvestmentofthebankorthereciprocalinvestmentoftheotherbankorenterprises,whicheverislower;and

h. InthecaseofRBs/CoopBanks,thegovernmentcounterpartequity,exceptthosearisingfromconversionofarrearagesundertheBangkoSentralrehabilitationprogram.

xxx”

“Sec. 4111Q (2008 - 4106Q) Minimum Required Capitalization.AQBshallhaveaminimumcombinedcapitalaccountsofP300.0million.

Combinedcapitalaccountsshallmeanthetotalcapitalstock,retainedearningsandprofitandlosssummary,netof(a)suchunbookedvaluationreservesandothercapitaladjustmentsasmayberequiredbytheBangkoSentral,(b)totaloutstandingunsecuredcreditaccommodations,bothdirectandindirect,todirectors,officers,allstockholdersandtheirrelatedinterests(DOSRI),(c)totaloutstandingunsecuredloans,othercreditaccommodationsandguaranteesgrantedtosubsidiaries,and(d)totaloutstandingloans,othercreditaccommodationsandguaranteesgrantedtorelatedpartiesthatarenotatarm’slengthtermsasdeterminedbytheappropriatesupervisingdepartmentoftheBangkoSentral.xxx

xxx”

• Paragraph4ofPartllofAppendix63b/Q-46oftheMORB/MORNBFIonQualifyingCapitalunderBasellllRisk-BasedCapital(sectionX115/4115QoftheMORB/MORNBFI)isamendedbytheCircular.

• PartsllandlllofAppendix63coftheMORBonQualifyingCapitalandCreditRisk-WeightedAssets,respectively,undertheRevisedRisk-BasedCapitalAdequacyFrameworkforStand-AloneThriftBanks,RuralBanks,andCooperativeBanks(SectionX118oftheMORB)isamendedbytheCircular.

• Subsections4116Q.2and4115Q.3oftheMORNBFIonqualifyingcapitalandrisk-weightedassetsarealsoamendedbytheCircular.

• ThisCircularshalltakeeffect15calendardaysfollowingitspublicationeitherintheOfficialGazetteorinanewspaperofgeneralcirculation.

[Editor’s Note: Circular No. 914 was published in Malaya on 29 June 2016.]

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BSP Circular No. 915 dated 5 July 2016

• TheMonetaryBoard,initsResolutionNo.1107dated16June2O16,approvedthefollowingamendmentstotheMORBandMORNBFIontheguidelinesforprudentialreportingbyBSPsupervisedfinancialinstitutions.

• SubsectionX191.3oftheMORBandSubsection4191Q.3oftheMORNBFIareherebyamended,wheretheBSPnowadoptsthePhilippineFinancialReportingStandards(PFRS)andthePhilippineAccountingStandards(PAS)issuedbytheFinancialReportingStandardsCouncil(FRSC)(previouslyAccountingStandardsCouncil[ASC]),andtheprovisiononthepreparationofseparatefinancialstatementsisamendedasfollows:

“Guidelines on the preparation of solo/separate financial statements.

Forpurposesofpreparingsolo/separatefinancialstatements,financialallied,non-financialalliedandnon-alliedsubsidiaries/associates/jointventures,includinginsurancesubsidiaries/associates,shallbeaccountedforusingtheequitymethod,inaccordancewithPAS27,asamended.

TherulesonthepreparationofsolofinancialstatementsarealsoprovidedunderAppendix77ontheFinancialReportingpackage.”

• Subsection4161S.2andSection4161NoftheMORNBFIarealsoamendedtochangeASCtoFRCSandtheprovisiononthepreparationofseparatefinancialstatementsisamendedfollows:

“Forpurposesofpreparingsolo/separatefinancialstatements,financialallied,non-financialalliedandnon-alliedsubsidiaries/associates/jointventures,includinginsurancesubsidiaries/associates,shallbeaccountedforusingtheequitymethod,inaccordancewithPAS27,asamended.

Non-stocksavingsandloanassociations/NBFlsshalladoptthefullprovisionsofPFRS9FinancialInstrumentsonlyuponitsmandatoryeffectivitydateof01January2018.Priortosaidmandatoryeffectivitydate,financialinstrumentsofnon-stocksavingsandloanassociations/NBFlsshallcontinuetobeaccountedforinaccordancewiththeprovisionsofPAS39.”

• Subsection4161P.2oftheMORNBFIisalsoamendedtochangeASCtoFRCSandtheprovisiononthepreparationofseparatefinancialstatementsisamendedfollows

“Forpurposesofpreparingsolo/separatefinancialstatements,financialallied,non-financialalliedandnon-alliedsubsidiaries/associates/jointventures,includinginsurancesubsidiaries/associates,shallbeaccountedforusingtheequitymethod,inaccordancewithPAS27,asamended.

PawnshopsshalladoptthefullprovisionsofPFRS9Financiallnstrumentsonlyuponitsmandatoryeffectivitydateof01January2018.Priortosaidmandatoryeffectivitydate,financialinstrumentsofpawnshopsshallcontinuetobeaccountedforinaccordancewiththeprovisionsofPAS39.”

• ThisCircularshalltakeeffect15calendardaysfollowingitspublicationeitherintheOfficialGazetteorinanewspaperofgeneralcirculation.

[Editor’s Note: Circular No. 915 was published in TheStandard on 9 July 2016.]

CircularNo.915providesfortheAmendmentontheAccountingGuidelinesforPrudentialReportingtotheBSP.

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BSP Circular No. 916 dated 8 July 2016

• PursuanttoMonetaryBoardResolutionNo.1067dated15June2016,thefollowingprovisionsofSubsectionX269.6oftheMORB,coveringtheguidelinesoftheBangkoSentralngPilipinasRediscountingFacility,areherebyamendedasfollows:

Subsection X269.6 Rediscount/Lending Rates and Liquidated Damages.Therediscountratesforpeso,dollarandyenloansshallbeasfollows:

a. PesoRediscounts

RW I RW II

Interest Rate BSPovernight(O/Nlendingrateplustermpremium:

BSPovernightreverserepurchase(O/NRRP)rateplustermpremium:

90days BSPO/Nlendingrate+0.0625

BSPO/NRRPrate

180days BSPO/Nlendingrate+0.1250

BSPO/NRRPrate+0.0625

360days n/a BSPO/NRRPrate+o.1250

xxx

• ThisCircularshalltakeeffecton25July2016.

[Editor’s Note: Circular No. 916 was published in TheManilaTimes on 13 and 14 July 2016.]

BSP Circular No. 917 dated 8 July 2016

• TheMonetaryBoard,initsResolutionNo.1043dated9June201.6,approvedthefollowingadditions/revisionstotheMORBandMORNBFIasof31December2015.

• SubsectionX108.4[SPRBPlusandStrengtheningProgramforCooperativeBank(SPCB)Plus]isamendedtoreflecttherevivaloftheexpiredSPCBPlus.

• NewappendicesshallbeaddedtotheMORBandMORNBFItoincorporatethefollowingguidelines:

1. Appendix113a(ConsolidatedProgramforRuralBanks)oftheMORBtoincludethelmplementingGuidelinesfortheConsolidatedProgramforRuralBanksprovidedunderMemorandumNo.M-2015-043dated11December2015;and

2. AppendixQ-67(RegulatoryReliefforNon-BankFinancialInstitutionswithQuasi-BankingFunctions[NBQBs]AffectedbyCalamities1)oftheMORNBFItosummarizetheRegulatoryReliefforQuasi-Banksaffectedbytyphoons2 (AnnexA).

CircularNo.917providestheAmendmentstotheMORBandMORNBFIasof31December2015

CircularNo.916providestheRevisionoftheRediscountRatesonRWI.

____________________________________________________________

1 ToalignwiththesummaryofregulatoryreliefsofbankswhichwasincorporatedintheManuals.

2 TyphoonLandoM-2015-039dated4November2015;TyphoonsLuisandMario-M-2014-039dated1October2014;TyphoonRuby-M-2015-005dated20January2015;TyphoonSeniang-M-2015-009dated28January2015.

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____________________________________________________________

3 GuidelinesonRelatedPartyTransactions4 GuidelinesontheSubmissionofBankQuarterlyReportonResidentialRealEstate

Loans(RRELs)fortheGenerationoftheResidentialRealEstatePriceIndex(RREPI)

• Appendix89(RegulatoryReliefforBanksaffectedbyCalamities)oftheMORBisamendedtoaddthegrantofregulatoryrelieftocoveredregionsaffectedbytyphoon“Lando”pursuanttoMemorandumNo.M-2015-039dated4November2015(AnnexB).

• ThefollowingSections/AppendicesoftheMORB/MORNBFIareamendedtochange“CentralizedApplicationsandLicensingGroup(CALG)”to“appropriatedepartmentoftheSES”:

1. ItemcofSec.2404/3404(GrantofAuthoritytoEngageinLimitedTrustBusinesstoThrift/RuralBanks)

2. Item(3)ofSec.X611/Sec4611Q(Derivatives)3. Section3.ltem2ofApp.38(RulesandRegulationsforCooperativeBanks)4. LastparagraphofApp.93(ProcessingGuidelinesforMicrofinanceOther

BankingOfficesorMicrobankingOffices)

• Appendix6(ReportsRequiredofBanks)oftheMORBisamendedtochangecertaintitlesofreportandaddrelevante-mailaddressinlinewiththeprovisionsofCircularNo.895dated14December20153andMemorandumNo.M-20L5-042dated2December20154.TheaffectedreportsarelistedinAnnexC.

• SectionsX661/4661QandX146oftheMORB/MORNBFIareherebyamendedtoreflectasfootnotestheTransitoryProvisionsofCircularNos.891dated9November2015and895dated14December2015,respectively.

a. “Section X661/4661Q Sales and Marketing Guidelines for Financial Products1.

GeneralPrinciples.xxx

xxx” _______________

1 BSFIsshallbegiventhreemonthsfrom28November2015tomakeappropriatechangesintheirsalesandmarketingpolicies,processesandmaterialsinordertocomplywiththerequirementsofSec.X661/4661QaswellasSubsecs.X661.1/4661Q.1toX661.8/4661Q.8.

b. “Sec. X1461 (2014 - Profit Sharing Program) Policy Statement.

xxx”_______________1 BanksincludingtheirFlsubsidiariesandaffiliateshallbegivensix(6)months

from06January2016tocomplywiththeRelatedpartytransaction(RPT)requirementsprescribedinSec.X146aswellasSubsecs.X146.1toX146.5.

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____________________________________________________________

5 ItemH1.(b)AppendixQ-30providesthatexternalauditorsoftrustentitiesmustreporttoBSP,amongothers,anypotentiallossestheaggregateofwhichamountstoatleastonepercent(1%)ofthecapitaltoenabletheBSPtotaketimelyandappropriateremedialaction.

6 InsuranceCommission(IC)issuedCircularLetterNo.2015-54dated16October2015requiringtheadoptionandImplementationoftheEnhancedMicroinsuranceRegulatoryFramework

xxx

• Subsec.X156.1oftheMORBandAppendixT-2aoftheMORNBFIareamendedtocorrectthecross-referencestoreflectappropriateSubsection/AppendixoftheMORB:

a. “Subsection X156.1 Banking hours beyond the minimum; banking services during holidays.Banksmay,attheirdiscretion,remainopenbeyondtheminimumsixhoursand,foraslongastheyfinditnecessary,evenbefore8:00AMorafter8:00PM,subjecttothesubmissionofpriorwrittennoticerequiredunderSubsec.X156.2onreportof,andchangesin,bankingdaysandhours,andcompliancewiththeprovisionsofSubsecs.X156.3onpostingofscheduleofbankingdaysandhours,andX181.5onminimumsecuritymeasures.

xxx”

b. App. T-2a of the MORNBFI

“Aggravating and Mitigating Factors to be Consideredin the lmposition of Penalty

1. AggravatingFactors:

xxx

(1) Substantialactualloss–xxx

(2) Minimalactuallossorsubstantialriskofloss-xxx.Whilealosswasincurred,thetrustcorporationcouldabsorbthelossinthenormalcourseofbusiness.Substantialriskoflossincludesanypotentiallossestheaggregateofwhichamountstoatleastonepercent(1%)ofthecapitalofthetrustcorporation5.

• Sections2172and3172oftheMORBareupdatedtoreflectthelnsuranceCommissionCircular-LetterNo.2OL5-54requiringtheadoptionandimplementationoftheEnhancedMicroinsuranceRegulatoryFramework.

a. “Sec.2172Marketing,SaleandServicingofMicroinsuranceProductsbyThriftBanks6.xxx

xxx”

b. “Sec.3172Marketing,SaleandServicingofMicroinsuranceProductsbyRuralandCooperativeBanks1.xxx

xxx”

[Editor’s Note: Circular No. 917 was published in BusinessMirror on 14 July 2016.]

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SEC Opinions and Issuances

SEC – OGC Opinion No. 16-16 dated 17 June 2016

Facts:

CompanyAhasanauthorizedcapitalstockofP2,750,000.00dividedinto27,500sharesofstockwithparvalueofP100.00pershare,ofwhichP7,810,764shares(or28.4028%)aresubscribed.

CompanyAboughtbackthesharesofstockheldbythreeofitsshareholders.Ineffect,thesesharesofstockwereconvertedintotreasuryshares.Further,thisbuy-backeffectivelyreducedthesubscribedcapitalstockofCompanyAto15.8127%,whichislessthanthe25%minimumcapitalstockthatisrequiredtobesubscribedpursuanttoSection13oftheCorporationCode.

Issues:

1. Underthecircumstances,mayCompanyAtreatthetreasurysharesaspartoftheissuedshares?

2. Becauseofitsbuy-backprogram,didCompanyAviolateSection13oftheCorporationCodeonminimumstocksubscription?

Held:

1. Yes.CompanyAmaytreatthetreasurysharesaspartoftheissuedsharesaslongastheyarenotcancelledorretired.TreasurysharesdonotreverttotheunissuedsharesofacorporationbutareregardedaspropertyacquiredbythecorporationwhichmaybereissuedorresoldbythecorporationatapricetobefixedbytheBoardofDirectors.Thus,sincetreasurysharesdonotrevertbacktounissuedshares,theydonotlosetheirstatusas“issuedshares.”Thesearestillpartoftheissuedcapitalstockalthoughnolongeroutstanding.Thisissobecausetheamountpaidfortheacquisitionoftreasurysharesdoesnotrepresentreturnofcapitaltothestockholdersbutaninvestmentoutofretainedearningsonasalablepropertyknownastreasuryshares.

2. No.Section13oftheCorporationCodemandatesthatatthetimeofincorporation,atleast25%oftheamountoftheauthorizedcapitalstockshallbesubscribedandatleast25%ofthetotalsubscriptionmustbepaid(exceptwherethecapitalstockconsistsofnoparvalueshares,inwhichcase,thesubscriptionmustbefullypaid).This“25%and25%”requirementismandatoryonlyduringthe:(1)preincorporationperiodand(2)whenthecorporationundertakestoincreaseitsauthorizedcapitalstock.

Theacquisitionoftreasurysharesdoesnotreducethenumberofissuedsharesortheamountofstatedcapital,andtheir“sale”doesnotincreasethenumberofissuedsharesortheamountofthestatedcapital.Thus,theredeemedshares(treasuryshares)arestillpartofthetotalsharesofstocksissuedtosubscribersorstockholderswhetherornotfullypaidorpartiallypaidbutnolongeroutstanding.

Treasurysharesarestillconsideredas“issuedshares”sincetheydonotreverttotheunissuedsharesofacorporationbutareregardedaspropertyacquiredbythecorporation.

Therequirementsthatatleast25%oftheamountoftheauthorizedcapitalstockshallbesubscribedandatleast25%ofthetotalsubscriptionshallbepaid,aremandatoryonlyduringthepre-incorporationperiodofacorporation.

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22 | Tax bulletin

SEC – OGC Opinion No. 16-17 dated 11 July 2016

Facts:

HCo.isengagedinthebusinessofleasingoutorsubleasingadvertisingspaces,suchaswaitingsheds,billboardstructures,electronicLEDdisplaysandotherfixedormovablestructureswhereadvertisementscanbedisplayed.

Inthisregard,HCo.soughtforanopiniononwhetheritsbusinessactivitiesmaybeclassifiedunderadvertisingormassmediawhicharenationalizedactivitiessubjecttoforeignequityrequirementunderthe1987Constitution,theForeignInvestmentsAct,andotherrelevantlaws.

Issue:

IsHCo.’sbusinessofleasingoutorsubleasingofadvertisingspacessubjecttotheforeignequitylimitationunderthe1987Constitution,theForeignInvestmentsAct,andotherrelevantlaws?

Held:

Yes.TheSECruledthatHCo.isamassmediaentitysubjecttotherequirementofparagraph1,Section11,ArticleXVIofthe1987Constitution.

MassmediaintheConstitutionreferstoanymediumofcommunicationdesignedtoreachthemassesandthattendstosetthestandards,idealsandaimsofthemasses,thedistinctivefeatureofwhichisthedisseminationofinformationandideastothepublic,oraportionthereof.Massmediaisdividedintotwogroups:PrintMediaandBroadcastMedia.“PrintMedia”includesallnewspapers,periodicals,magazines,journals,andpublicationsandalladvertisingtherein,andbillboards,neonsignsandthelike.“BroadcastMedia”includesradioandtelevisionbroadcastinginallaspects,includingallformsofaudio,visual,oraudio-visualcommunicationssuchasvideotapes,citizensbands,andotherelectronicdevices,andcinematography,totheextentthattheseformsareutilizedasmassmediathroughradioortelevisionbroadcastingtransmission.

Ontheotherhand,advertisingisthe“businessofconceptualizing,presentingormakingavailabletothepublic,throughanyformofmassmedia,fact,dataorinformationabouttheattributes,features,qualityoravailabilityofconsumerproducts,servicesorcredit.”Assuch,advertisingagenciesdonotactuallydisseminatethematerialstheyprepareastheyhavetoutilizeoravailofthefacilitiesofmassmedia,andthus,donotfallwithintheconceptofmassmedia.However,whereadvertisingagenciesactuallydisseminateinformation,oroperates,controlsorotherwiseengagesinthebusinessofmassmedia,aspecificexampleofwhichisanoutdooradvertisingfirmwhichsellsbillboardspacetoadvertisers,thensuchadvertisingagencieswouldfallwithinthepurviewoftheconstitutionallimitation.

Byleasingoutorsubleasingadvertisingspaces,suchaswaitingsheds,billboardstructures,electronicLEDdisplaysandotherfixedormovablestructureswhereadvertisementscanbedisplayed,HCo.actuallyprovidesamediumtodisseminateorconveyadvertisingmessagestothepublic.Thus,beingamassmediaentity,itisengagedinanationalizedactivitysubjecttotheforeignequitylimitationsimposedbythe1987Constitutionandotherpertinentlaws.

Thebusinessofleasingoutorsubleasingofadvertisingspacesfallswithinthepurviewofmassmediawhichisanationalizedactivityandissubjecttotheforeignequitylimitationsimposedbythe1987Constitutionandotherrelevantlaws.

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SEC Memorandum Circular No. 8 dated 28 June 2016

Thisreferstothe5%minimumliquidityrequirementimposedonanopen-endcompanyfund.

TheSECapprovedtheamendmentsofInvestmentsCompanyAct(ICA)Rule35-1(d)(4),asamended,whichnowprovides:

• AMutualFundIndexTrackermaybeexemptedfromcomplyingwiththe5%liquidityrequirementprovidedthatitsubmitsanotarizedcontingencyplansignedbythePresidentoftheFundanditsFundManager.

• Thesaidcontingencyplanmustincludethisstatement:“Inmakinganyredemptiontomeetaclientobligation,thefundmanagerwillexercisetherequisiteprudenceanddiligencenecessaryunderthecircumstancesandtakingintoaccountallrelevantfactorsthatwillensuremarketstability.”

[Published in TheManilaTimes on 9 July 2016, page B3 and the PhilippineStar on 9 July 2016, page B-8]

PEZA Update

DTI Memorandum dated 20 July 2016

EffectiveupontheretirementofDirectorGeneralLiliaB.deLimaon30June2016,DeputyDirectorGeneralJustoPorfirioLL.YusingcoisdesignatedasOfficer-in-ChargeofPEZA.Heshallbeauthorizedtoassumethepowers,duties,andresponsibilitiesoftheDirectorGeneraluntilaDirectorGeneralhasbeenappointedbythePresident.

Court Decisions

Aces Philippines Cellular Satellite Corporation vs. Commissioner of Internal RevenueCTA(En Banc)CaseNo.1242promulgated8June2016

Facts:

RespondentCIRassessedPetitionerAcesPhilippinesCellularSatelliteCorporation(Aces)for,amongothers,deficiencyfinalwithholdingtax(FWT)fortaxableyear2006.TheCIRallegedthatAcesisliablefor35%FWTonthesatelliteairtimefeespaidtoAcesInternationalLimited(AIL),anon-residentforeigncorporation.

AcesprotestedtheassessmentandarguedthatitisnotliablefordeficiencyFWTbecausethepaymentstoAILarisefromsatelliteairtimeservicesrenderedoutsidethePhilippines.AcesfurtherarguedthatevenassumingthatservicesarerenderedwithinthePhilippines,itshouldonlybesubjectto7.5%FWTfortheuseofAIL’sequipment.TheCIRdeniedtheprotest.AcesfiledaPetitionforReviewwiththeCTA.

TheCTA2ndDivisionruledthatsatelliteairtimeservicefeespaidbyAcestoAILareconsideredincomefromsourceswithinthePhilippinesthataresubjectto35%(now30%).UpondenialofitsMotionforReconsideration,AceselevatedthecasetotheCTAEn Banc.AcesinsistedthatpaymentsforsatelliteairtransmissionarederivedfromsourcesoutsideofthePhilippines,hencenotsubjecttoFWT.

SECMCNo.8providesfortheexemptionfromthe5%liquidityrequirementofmutualfundindextrackers.

DTIMemorandumdated20July2016designatesMr.JustoPorfirioLL.YusingcoastheOICofPEZA.

Satelliteairtimeservicefeespaidtoanon-residentforeigncorporationareconsideredincomefromsourceswithinthePhilippinesthataresubjecttofinalwithholdingtax.

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Issue:

ArethesatelliteairtimeservicefeespaidbyAcestoAILconsideredincomefromsourceswithinthePhilippinesthataresubjectto35%(now30%)FWT?

Ruling:

Yes.Thesourceofincomerelatestotheproperty,activityorservicethatproducedtheincome.UnderPhilippinetaxlaw,itissufficientthattheincomederivedfromanactivityiswithinthePhilippines.Theplaceofactivity,notplaceofbusiness,iscontrolling.

Section28(B)(1)oftheTaxCodeprovidesthatincomeofanon-residentforeigncorporationfrom all sources within the Philippinesissubjectto35%(now30%)incometax.

TheservicesforsatelliteairtimefeesdonotonlycovertheuseoftheGarudasatellite(locatedinouterspace)andtheNetworkControlCenter(locatedinIndonesia),butalsorequirethatsatellitecommunicationtimebeavailableanddeliveredinthePhilippines.ThereiscontinuousandveryrealconnectionstartingfromthePhilippines(i.e.agreementtosellsatellitecommunicationstimefortheACESSysteminthePhilippines),GarudaSatellite,NetworkControlCenter,andagainthePhilippines,throughAces’gatewayfacilities.AIL’scontractwithAcesextendeditsactivitieswithinthePhilippineboundaries,whicharisesfromtheactivityandservicesthatproducetheincomewithinthePhilippines.

Coral Bay Nickel Corporation vs. Commissioner of Internal Revenue CTA(En Banc)CaseNo.1269promulgated29June2016

Facts:

PetitionerCoralBayNickelCorporation(CBNC)filedaclaimforrefundofunutilizedinputVATattributabletoVATzero-ratedsalesfor2007.CBNCsimultaneouslyfiledaPetitionforReviewwiththeCTAcoveringtherefundclaim.TheBIRarguedthattherefundclaimmustbedeniedfor,amongothers,failureofCBNCtocomplywiththeVATrefundrequirementsunderRevenueMemorandumOrderNo.53-98.

Aftertrial,theCTAThirdDivisionpartiallygrantedtheclaim.ItdisallowedinputVATcoveredbyofficialreceiptsandinvoicesthatwerealteredwithoutpropercounter-signatures.

UpondenialofitsMotionforReconsideration,CBNCappealedtotheCTAEn Banc.ItarguedthattheinputVATdisallowancesarenotproperastheTaxCodeandregulationsdonotrequirecounter-signaturesforanyalterationoradditiontotheVATinvoiceorofficialreceipt.

Issue:

Isacounter-signaturerequiredforanyalterationtotheVATinvoiceorofficialreceiptinordertocomplywiththeVATinvoicingrequirements?

AnyalterationtotheVATinvoiceorofficialreceiptmustbecounter-signedbyanauthorizedsignatoryorthecountersignaturemustbeverifiedtocomplywiththeinvoicingrequirementsforVATrefundpurposes.

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Ruling:

Yes.ForfailuretohavethealterationsinthesupportingVATinvoicesorofficialreceiptscountersignedortohavethecounter-signatureverified,CBNCdidnotcomplywiththeinvoicingrequirementsundertheTaxCodeandrelatedBIRissuances.

CBNCwasawareoftheinsertions/alterationsontheVATofficialreceiptsissuedbyitssupplier.WhileCBNChadtherighttorequestitssuppliertoissueacompliantreceipt/invoice,ithadthecorrespondingobligationtocheckwhethertheinsertions/alterationswereproperlyvalidatedorcountersignedbytheauthorizedsignatory.

Byfailingtohavetheinsertions/alterationsontheofficialreceiptscountersignedbytheauthorizedsignatory,CBNCdidnotactwithordinaryprudenceinconnectionwithitsclaimforrefund.

Well-settledistherulethattaxrefunds,whenbasedonstatutesgrantingtaxexemptionortaxrefund,partakethenatureoftaxexemptions.Theruleofstrictinterpretationagainstthetaxpayer-claimantapplies.CBNChastheburdenofprooftoestablishthefactualbasisofitsclaimfortaxrefund.

Fluor Daniel, Inc. - Philippines vs. Commissioner of Internal Revenue CTA(ThirdDivision)CaseNo.8444,promulgated11July2016

Facts:

RespondentCIRassessedPetitionerFluorDaniel,Inc.–Philippines(FDIP)for,amongothers,allegeddeficiencyfinalwithholdingtaxonsoftwaremaintenanceservicefeespaidtoFluorIntercontinental,Inc.(FII).TheCIRclaimsthatthepaymentsconstituteroyaltieswithinthedefinitionofRevenueMemorandumCircular(RMC)No.77-2003,asamendedbyRMC44-2005.

FDIPprotestedtheassessment.UponreceiptoftheFinalDecisiononDisputedAssessmentdenyingitsprotest,FDIPfiledaPetitionforReviewwiththeCTA.

FDIParguedthatitisnotliablefordeficiencyFWTasitspaymentstoFIIconstitutebusinessincome.Undertheiragreement,FDIPwasgrantedfreeauthoritytoaccessanduseasuiteofsoftwarehelpfulandnecessarytoitsoperationsandactivities.FDIP,however,isrequiredtopayitsshareinthesoftwaremaintenance(atcost,withnomarkup)computedbasedonprojecthoursfortroubleshooting,periodicsystemcheckingandrelatedservicestoensureproperoperationofthesoftware.

FDIPfurtherarguedthatthecontractisinthenatureofcompensationforservicesrenderedabroad,hencebeyondthejurisdictionofthePhilippinetaxingauthority.AssumingthatthefeesarePhilippinesourced,FDIPinsistedthatthepaymentsarenottaxablepursuanttothePhilippines-USTaxTreatyasFIIhasnopermanentestablishmentinthePhilippines.

MaintenanceservicefeespayabletoaUSresidentunderasoftwarelicenseagreementarenotconsideredroyaltiesbutbusinessprofits,whicharesubjecttoFWTonlywhenthepayeeisdeemedtohaveapermanentestablishmentinthePhilippines.

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© 2016 SyCip Gorres Velayo & Co.All Rights Reserved.APAC No. 10000169Expiry date: no expiry

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This publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Neither SGV & Co. nor any other member of the global Ernst & Young organization can accept any responsi-bility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. On any specific matter, reference should be made to the appropriate advisor.

Issue:

ArethesoftwaremaintenancefeespaidbyFDIPtoFIIconsideredroyaltiessubjecttoFWT?

Ruling:

No.ThenatureofthepaymentsbyFDIPtoFIIisfor“businesssupportservices.”AplainreadingoftheLicensingContractshowsthattheuseofthesoftwareisfreeandthatFDIPwillonlypayFIIafeetoshoulderitsshareinthemaintenanceofthesoftware.ThecontractalsoshowsthatFIIdoesnottransferallitssubstantialrightsinthesoftware.

Thecontractdealswithboth“know-how”fortheuseofthesuiteofsoftware,forwhichFIIdidnotreceiveincomepayment,andservicesformaintenanceofthesoftware.

Astotheservicecontract,thebusinessprofitsofFIIshallbetaxableonlyintheUSunlessithasaPEinthePhilippines.SinceFIIhasnoPEinthePhilippinespursuanttoArticle5ofthePhilippines-USTaxTreaty,themaintenanceservicefeeisexemptfromFWT.

TheCTAfurtherheldthatsincetheserviceswererenderedintheUSoroutsidethePhilippines,themaintenanceservicefeespaidbyFDIPtoFIIarebeyondthetaxingjurisdictionoftheBIRandexemptfromFWT.