Tax Bulletin October 2017 - EYFILE/EY-philippines-tax-bulletin-october-2017.pdfTax Bulletin October 2017. ... • The exemption from income and other taxes granted to PAGCOR under

1Tax Bulletin |

Tax BulletinOctober 2017

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Highlights

BIR Rulings

• ThedispositionbythePrivatizationandManagementOffice(PMO)ofitslistedsharesofstocksbywayof“blocksale”throughthePhilippineStockExchange(PSE)isexemptfromthepaymentofstocktransactiontax.(Page 4)

• Thesaleofarealproperty,whichisnotheldprimarilyforsaletocustomersorheldforleaseintheordinarycourseoftradeorbusiness,orusedinthetradeorbusinessoftheseller,shallnotbesubjecttoVAT.(Page 5)

• PersonneloftheBIRcannotdivulgeinformationgainedfromtaxpayersconcerningthelatter’sbusiness,incomeorestate,andsuchotherinformationasmayberelevanttothebusinessofanytaxpayer.(Page 5)

• Realpropertiesownedbytaxpayersnotengagedintherealestatebusiness,uponshowingofproofthatthesamehavenotbeenusedinbusinessformorethantwoyearspriortotheconsummationofthetaxabletransactionsinvolvingthesaidrealproperties,andthoughclassifiedasordinaryassets,shallbeautomaticallyconvertedintocapitalassets.(Page 6)

• TheBIRcannotissuedefinitiverulingsoropinionsonissuesortransactionsbasedonhypotheticalsituations.(Page 6)

BIR Issuances

• RevenueRegulations(RR)No.6-2017furtheramendscertainprovisionsofRRNo.7-2014,prescribingtheaffixtureofinternalrevenuestampsonimportedandlocallymanufacturedcigarettesandtheuseoftheInternalRevenueStampIntegratedSystem(IRSIS)fortheordering,distributionandmonitoringofsuchstamps.(Page 7)

• RevenueMemorandumOrder(RMO)No.25-2017prescribestheprocedures,guidelinesandrulesonthetransferofLargeTaxpayers(LT)fromLTD-Makati/CebutootherLTSAuditDivisionsandLTD-Davao,aswellastheadministrativeandreportorialrequirementsapplicabletonewly-enlistedLTs.(Page 7)

• RMONo.28-2017amendscertainprovisionsofRMONo.42-2016,prescribingthereportorialrequirementsintheimplementationofthePersonalEquityandRetirementAccount(PERA)Actof2008.(Page 9)

• RevenueMemorandumCircular(RMC)No.89-2017amendsRMCNo.51-2007,prescribingtherulesontheprocessingofclaimsfortheissuanceofataxrefund/taxcreditcertificate(TCC).(Page 10)

BOC Issuances

• CustomsMemorandumOrder(CMO)No.19-2017providesfortheamendmentofCMONo.53-2010dated8December2010entitledSupplementalGuidelinesintheImplementationofCMO27-2009Re:PostEntryModificationofsingleadministrativedocuments(PMS)andSADcancellation(SC)dated22September2017.(Page 11)

• CMO20-2017providesfortheamendmentstoCMO35-2015dated23September2015entitled“RevisedRulesfortheElectronic/ManualIssuanceandLiftingofAlertOrdersatallPortsofEntry.”(Page 12)

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• CMO23-2017providesfortherevocationofalldelegatedauthoritytosignonbehalfoftheAgency(i.e.,BOC).(Page 12)

• CMO24-2017providestheMandatoryResponseTimetoActonOfficialCommunication.(Page 13)

• ExecutiveOrder(EO)No.46dated20October2017revivesthepostclearanceauditfunction[formerlyknownas“post-entryaudit”]oftheBOCthroughthePostClearanceAuditGroup(PCAG)andinstitutionalizesthefunctionsofthefinancialanalyticsandintelligenceunitoftheDepartmentofFinance(DOF).(Page 13)

BSP Issuances

• CircularNo.974providesfortheAmendmentstotheManualofRegulationsforBanks(MORB)andNon-BankFinancialInstitutions(MORNBFI)asof31March2017.(Page 15)

• CircularNo.975providesfortheIssuanceofBondsandCommercialPapers.(Page 15)

• CircularNo.976providesfortheAmendmentstotheExpandedReportonRealEstateExposures(ERREE)andtheSubmissionoftheReportonProjectFinanceExposures(RPFE).(Page 16)

SEC Opinion and Issuances

• Acorporationengagedinprovidingticketingservicesisnotengagedinretailtrade,hence,notsubjecttoforeignequityrestrictionsundertheRetailTradeLiberalizationActof2000.(Page 17)

• SECMCNo.10adoptsthenewandrevisedaccountingstandardsandinterpretationsaspartofitsrulesandregulationsonfinancialreporting.(Page 18)

• SECMCNo.11adoptstheuseofSECForm12-1SimplifiedRegistrationStatement(SRS)forHospitals.(Page 19)

• SECMCNo.12providesfortheGuidelinesontheOnlineSubmissionofRisk-BasedCapitalAdequacyReportsofBrokerDealersinSecurities.(Page 19)

BLGF Opinions

• TheuseofPresumptiveIncomeLevelAssessmentApproach(PILAA)incomputingtheLocalBusinessTax(LBT)isrestrictedtosituationswherethetaxpayerisunabletoprovideproofofitsincome.(Page 19)

• Theconcernedlocalgovernmentmayimposeataxonthe70%ofthegrossreceiptsorcostofcontractofaprojectifthecontractormaintainsaprojectofficeintheprojectsite.TheLGUwherethesatelliteofficeofafinancingcompanyofmotorcycledealerislocatedmayonlycollectMayor’spermitfeeandotherregulatoryfeesifnotransactionsaremadeinthesatelliteoffice.(Page 20)

• Theabsenceofanybranchoffice,salesoutletorwarehouserepudiatestherequirementofsecuringabusinesspermitasthereisnofixedbusinessestablishmenttoregulateandinspect,andtowhichalicensemaybeissued.(Page 21)

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PEZA Update

• PEZAMemorandumOrderNo.2017-012implementstheissuanceofPEZACertificationsonAvailableIncentivesandonEntitlementto5%GrossIncomeTaxviaemail.(Page 21)

Court Decisions

• Ataxdisputesolelybetweengovernmentagenciesandoffices,includingGOCCs,involvingpurelyquestionsoflawshallbeadministrativelysettledoradjudicatedbytheSecretaryofJustice.

ThesalebyPowerSectorAssetsandLiabilitiesManagementCorporation(PSALM)ofpowerplantspreviouslyownedbytheNationalPowerCorporation(NPC)isnotsubjecttoVATbecauseitwasnotundertakeninthecourseoftradeorbusinessbutwasmadepursuanttoagovernmentalfunctionmandatedbytheElectricPowerIndustryReformActof2001(EPIRA)toprivatizeNPCgenerationassets.(Page 22)

• Whileataxassessmentisnotnecessarybeforeacriminalprosecution,acivilactionforcollectionofthetaxrequiresthattheassessmentprocedurebecompliedwith.Thus,foracriminalcasetoincludeajudgmentofcivilliability,theremustbeaformalassessmentissuedagainstthetaxpayer.(Page 24)

• TheexemptionfromincomeandothertaxesgrantedtoPAGCORunderitschartershallinuretothebenefitofitslicenseesandfranchisees,suchasbingooperators.Accordingly,servicesrenderedtoPAGCORandPAGCOR-authorizedbingooperatorsaresubjectto0%VAT,pursuanttoSection108(B)(3)oftheTaxCode.(Page 25)

• ThesaleofservicesbyaVAT-registeredsupplierfromthecustomsterritorytoaPEZA-registeredenterpriseissubjectto0%VAT.

ToqualifyforVATzero-rating,itisnotrequiredthattheserviceshouldberenderedwithintheECOZONEorthattheservicebedirectlyconnectedtotheregisteredactivitiesofthePEZAenterprise.(Page 26)

• UnderSection252oftheLocalGovernmentCode(LGC),paymentunderprotestismandatoryifthetaxpayerquestionsthereasonablenessorcorrectnessoftherealpropertytaxassessment.(Page 28)

BIR Rulings

BIR Ruling No. 474-2017 dated 04 October 2017

Facts:

ThePrivatizationManagementOffice(PMO),agovernmentagencyorganizedundertheDepartmentofFinancebyvirtueofExecutiveOrderNo.323,iscurrentlyholdinglistedsharesofstocksasoneofitstransferredassetsforprivatizationanddisposition.ThePMOintendstoundertakethedispositionofsaidlistedsharesofstocksbywayofablocksalethroughthePSEunderthePSE’sRevisedTradingRules.

Issue: IsthePMOexemptfromthestocktransactiontaxincidenttotheproposedblocksale?

ThedispositionbythePMOofitslistedsharesofstocksbywayof“blocksale”throughthePSEisexemptfromthepaymentofstocktransactiontax.

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Ruling:

Yes.PursuanttoSection34ofProclamationNo.50,seriesof1986,thePMOaswellascorporationsandassetsheldbyit,shallbeexemptfromalltaxes,fees,charges,impostsandassessmentsarisingfromoroccasionedbythepassingoftitleoversuchcorporationsorassetsfromthegovernmentinstitutionstotheTrustand/orfromtheTrusttoaprivateacquisitororbuyer.

Note:Blocksale,asdefinedintheRevisedTradingRulesofthePSE,isapre-arrangedtransactionwhichisexecutedthroughthefacilitiesoftheExchange.


Facts:

XRetirementPlansoldits16.72%undividedshareinaparceloflandinfavoroftheSSS.

Issue: IsthesalesubjecttoVAT?

Ruling:

No.PursuanttoSection109(P)oftheTaxCode,andSection4.109-1ofRRNo.16-05,thesaleofrealproperty,whichisnotheldprimarilyforsaletocustomersorheldforleaseintheordinarycourseoftradeorbusiness,orusedinthetradeorbusinessoftheseller,shallnotbesubjecttoVAT.WhileitistruethataretirementfundorpensiontrustisonlyentitledtoexemptionfromincometaxunderSection60(B)oftheTaxCode,andthatitmaystillbesubjecttootherapplicabletaxesimposedunderotherprovisionsofthesameCode,thesalebyXRetirementPlanofthesubjectlotinfavoroftheSSSisnotsubjecttoVAT.ThisisbecauseXRetirementPlanisnotengagedintherealestatebusinessandsaidpropertywasnotheldprimarilyforsaletocustomersorheldforleaseintheordinarycourseoftradeorbusiness,orusedinthetradeorbusinessoftheseller.


Facts:

ABCrequestedforanyandallincometaxstatementsofXYZfromthetimeXYZregisteredwiththeBIRuptopresent,aswellasinformationordocumentsonthenatureofXYZ’sTINregistration.ABCrepresentedthattherequestforinformationanddocumentsisindispensabletothepursuitofjusticeinapendingcivilcasefiledagainstXYZ.

Issue: IstheBIRallowedtodivulgetheinformationofXYZ?

Ruling:

No.UnderSection270oftheTaxCode,theBIRcannotdivulgeinformationgainedfromtaxpayersconcerningthelatter’sbusiness,incomeorestateaswellasthesecrets,operation,styleorwork,orapparatusofanymanufacturerorproducer,or

PersonneloftheBIRcannotdivulgeinformationgainedfromtaxpayersconcerningthelatter’sbusiness,incomeorestate,andsuchotherinformationasmayberelevanttothebusinessofanytaxpayer.

Thesaleofarealproperty,whichisnotheldprimarilyforsaletocustomersorheldforleaseintheordinarycourseoftradeorbusiness,orusedinthetradeorbusinessoftheseller,shallnotbesubjecttoVAT.

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confidentialinformationregardingthebusinessofanytaxpayer.TheintentofSection270oftheTaxCodeistoprotecttaxpayersfromhavingtheirotherwisesensitiveandprivateinformationunnecessarilyrevealedtootherparties.

Notethatthereareexceptionstothe“unlawfuldivulgence”rule,whichare:(1)dispositionofincometaxreturnsunderSection71oftheTaxCode;(2)disclosureofincometaxreturnsunderSection26ofRANo.6388incaseofanindividualwhofilesacertificateofcandidacyandexecutesawaiverfortheexaminationofhisreturns;and(3)informationgivenbytheBIRpursuanttoarequestbyaforeigntaxauthorityunderanexistingtaxtreaty.Thesubjectrequestdoesnotfallunderanyoftheaboveexceptions.


Facts:

ACo.,adomesticcorporationprimarilyengagedinallkindsofprinting,publishing,bindingandengravingworksanddesigns,ownsrealpropertieswhichwereneverusedinbusinessandhadremainedidlesincetheiracquisition.NoimprovementwaseverintroducedtothesepropertiesandreflectedinACo.’sAuditedFinancialStatementsasinvestmentproperties.

Issue: Aretherealpropertiesconsideredcapitalassets?

Ruling:

Yes.ACo.isataxpayernotengagedintherealestatebusiness,notbeingarealestatedealer,developerorlessorandwhoseprimarypurposeistocarryonthebusinessinvolvingprintingactivities.Theparcelsoflandhadbeenidleandvacantsince2011,andhadnotbeenusedintheordinarycourseoftradeorbusiness.Hence,inaccordancewithRRNo.7-2003,theyareclassifiedascapitalassets.


Facts:

XYZCo.,adomesticcorporationprimarilyengagedintherealestatepropertydevelopment,requestedforarulingonthetaxabilityofanintendedsaleofrealpropertytoatax-exemptschool.

Issue: CantheBIRissueadefinitiverulingoropinionbasedonahypotheticalsituation?

Ruling:

No.UnderRevenueBulletinNo.01-03,therulingfunctionoftheBIRislimitedtothedeterminationofpurelylegalissues,asopposedtoquestionsoffact.TheRevenueBulletindeclaredthatcertainissuesorsubjectmatteras“NoRulingAreas,”suchasrequestforrulingsonissue/sortransactionsbasedonhypotheticalsituations,onwhichtheappropriateofficeoftheBIRisinstructednottoacceptanysuchrequestforrulings.

Consideringthatthetransactionisneitherexistingnorpartiallyexecuted,theBIRcannotasyetissueadefinitiverulingoropinionontheabovematter.

Realpropertiesownedbytaxpayersnotengagedintherealestatebusiness,uponshowingofproofthatthesamehavenotbeenusedinbusinessformorethantwoyearspriortotheconsummationofthetaxabletransactionsinvolvingthesaidrealproperties,andthoughclassifiedasordinaryassets,shallbeautomaticallyconvertedintocapitalassets.

TheBIRcannotissuedefinitiverulingsoropinionsonissuesortransactionsbasedonhypotheticalsituations.

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BIR Issuances

RR No. 6-2017 dated 25 September 2017

TheprovisionsofSections2,6,9and13ofRRNo.7-2014,asamendedbyRRNo.9-2015,areherebyfurtheramendedasfollows:

• Thedefinitionof“InternalRevenueStamp”hasbeenamendedtotakeintoaccountthefollowingchanges:

1. Therearenowfivedifferentcolordesignsofthestamps,accordingtowhetherthecigarettesarepackedbyhandorbymachine(bearingaunitarytaxrate)forlocallymanufacturedorimportedcigarettes,orforexport.

2. Thestampsmaynowbeorderedinbanderolsorpre-cut/stackorinsheetsaccordingtothemachinerequirementsoftheimporterorthelocalmanufacturers.

• Thepriceperpieceoftheinternalrevenuestampisnowfifteencentavos(P0.15),whichshallbepaidtoAPOProductionUnit,Inc.(APO),aftertheapprovaloftheorderforthestampsandpriortotheirreleasefromtheAPO-designatedplant.

• Theinternalrevenuestampshallbeaffixedattheupperportionoftheimmediatecontainerofthecigarettes,whichmaybeinhardpacks,softpacks,tincansandnowinpackagesof5sticksand/or10sticks.

• Cigarettespackedin5sticksand/or10sticksbundledinpacksof20andotherpackagingcombinationsofnotmorethan20shallbetaxedasone,but,theinternalrevenuestampsaffixedtothesecigarettesshallbeequivalenttothenumberofpacksbundledtogether.

• Alllocallymanufacturedpacksofcigarettestoberemovedfromtheplaceofproductionshallbeaffixedwiththenewinternalrevenuestampsnotlaterthan1January2018.

• Noimportationandsubsequentreleaseofcigarettesfromthecustomshouseshallbeallowedunlessthenewinternalrevenuestampsshallhavebeenaffixedtoallimportedcigaretteseffective1June2018.

• Effective1September2018,alllocallymanufacturedand/orimportedcigarettesfoundinthePhilippinemarketshallhavebeenaffixedwiththenewstamps.

• ThisRegulationshalltakeeffect15daysafterpublicationinanyleadingnewspaperofgeneralcirculation.

[Editor’s Note: RR No. 5-2017 was published in the ManilaBulletin on 14 October 2017]

RMO No. 25-2017 dated 04 October 2017

• Newly-enlisted/transferredLargeTaxpayers(LTs)arerequiredtoaccomplishandsubmitBIRFormNo.1905(ApplicationforRegistrationInformationUpdate)fore-TISpurposes.

RMONo.25-2017prescribestheprocedures,guidelinesandrulesonthetransferofLTfromLTD-Makati/CebutootherLTSAuditDivisionsandLTD-Davao,aswellastheadministrativeandreportorialrequirementsapplicabletonewly-enlistedLTs.

RRNo.6-2017furtheramendscertainprovisionsofRRNo.7-2014,prescribingtheaffixtureofinternalrevenuestampsonimportedandlocallymanufacturedcigarettesandtheuseoftheIRSISfortheordering,distributionandmonitoringofsuchstamps.

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• Oncethetransferhasbeeneffected,theLargeTaxpayersAssistanceDivision(LTAD)/ExciseLargeTaxpayersRegulatoryDivision(ELTRD)/LargeTaxpayerDivision(LTDs)CebuandDavao(collectivelyreferredtoas“new”LTSoffice/LTD)shallgeneratenewCertificatesofRegistration(COR)andensurereceiptofthesamebytaxpayersuponpresentationofthepreviously-issuedCORs.

• Uponeffectivedateoftransfer,allbooksofaccountsandotheraccountingrecords,reports,schedules,documentsorinformationrequiredtoberegistered/submittedshallberegistered/submittedtothe“new”LTSoffice/LTD.

• Iftheconcernedtaxpayershavealreadyregistered/submittedtheaboverecords/reportstothe“old”RevenueDistrictOffice(RDO)/LargeTaxpayersService(LTS)Office,suchregistration/submissionshallbeconsideredsubstantialcompliance,butthesubmittedrecordsshallbetransmittedtothe“new”LTSoffice/LTDwithin60daysfromtheeffectivedateofthetransfer.

• Allapplications/lettersoftaxpayer[e.g.AuthoritytoPrint,PermittoUse/AdoptComputerizedAccountingSystems(CAS)andComponentsthereof,witnessingofinventorydestruction,cancellationofpermittouseCRM/POSmachines,accreditationofCRM/POSmachines]thatarependingwiththe“old”RDO/LTSOffice/LTDasoftheeffectivedateofthetransfershallbeprocessedbythe“new”LTSOffice/LTDconcerned.

• Allnewly-enlistedlargetaxpayersshallenrollwiththeElectronicFilingandPaymentSystem(eFPS)within30daysfromreceiptofthenotificationasLT.

• Alltaxreturnsofthenewly-enlistedLTsshallbefiledwiththe“new”LTSOffice/LTDhavingjurisdictionoverthem,usingtheeFPSfacility.

• ThosewhoarenotenrolledwiththeeFPSshallsubmittheirapplicationattheLTSOfficehavingjurisdictionoverthesaidtaxpayer.

• Duringthetransitionperiod,thosewhoarenotenrolledwitheFPSshallbeallowedtomanuallyfiletheirtaxreturnsandpaytaxesattheAuthorizedAgentBanks(AABs)neartheLT’sheadoffice.

• IfthelocationoftheLThasnoAABs,theLTmaypaythetaxduethrutheRevenueCollectionOfficer(RCO)assignedatthemunicipality.

• Ongoingtaxinvestigations,includingrefundclaims,pursuanttoLettersofAuthority(LAs)/LetterNotices(LNs)issuedpriortotheeffectivedateofthetransfershallbecontinuedbytheissuingoffice.

• Thereafter,allLAs/LNs,regardlessoftaxableyear,shallbeissuedbythe“new”LTSOffice/LTD.

• Alldeficiencytaxassessmentsissuedagainsttransferred/newly-enlistedtaxpayers,e.g.PreliminaryAssessmentNotice(PAN),FormalLetterofDemand,(FLD,FinalAssessmentNotice(FAN),FinalDecisiononDisputedAssessment(FDDA),shallbehandledbythe“old”RDO/LTSOfficethatissuedsuchassessmentuntilsettlement/terminationofthecase.

• Inrelationtostop-filercases[ReturnsComplianceSystem(RCS)cases],theopenRCScasesshallbetransferredtothe“new”LTSOfficefromthe“old”RDO/LTSOffice/LTD.

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• Allapplicationsanddocumentaryrequirementsfortaxcreditcertificate(TCC)utilization,includingTCCswithoutstandingbalances,asoftheeffectivedateofthetransfer,shallbefiledwiththe“new”LTSofficehavingjurisdictionoversuchtaxpayer.

• Newly-enlistedlargetaxpayersmustadoptandsecurethepermittouseCASwithin6monthsafterhavingbeenofficiallynotifiedinwritingoftheirstatusasLTs,andthosewhocannotcomplymaysubmitaletter-requestforextension.

• AllapplicationsforATP,permittoadopt/useCASandothersecondaryregistrationreceivedbythe“old“RDO/LTSOffice/LTDshallbeprocessedbythe“new”LTSOffice/LTD.

• Forapplicationsforpermittouse/adoptCASandaccreditationofCRM/POSsystemswhereacompletesystemswalkthroughhasalreadybeenundertakenbythe“old”RDO/LTSOfficeconcerned,thepermit/certificateforaccreditationshallbeissuedbythe“old”RDO/LTSOfficeconcerned.

RMO No. 28-2017 dated 13 October 2017

• ThefollowingreportssummarizedinAnnex“B”ofRMONo.42-2016shallbediscontinueduponeffectivityoftheOrder:

No. Name of Report per RMO No. 42-2016 Annex No. per RMO

No.42-2016

1 Employer-EmployeePERAContribution B.A-1(R)

2 Self-EmployedPERAContribution B.A-2(R)

3 OverseasFilipinoPERAContribution B.A-3(R)

4 Employer-EmployeePERAContribution B.B-1(R)

5 Self-EmployedPERAContributionOverseas B.B-2(R)

6 FilipinoPERAContribution B.B-3(R)

7 AlphaListperEmployerofEmployeesMakingQualifiedPERAContributionsandtheActualTotalAmountofQualifiedPERAContribution

B.C-1(R)

8 AlphaListofQualifiedSelf-EmployedContributorsandtheActualAmountofQualifiedPERAContributions

B.C-2(R)

9 AlphaListofQualifiedOverseasFilipinoPERAContributorsandtheActualAmountofQualifiedPERAContributions

B.C-3(R)

10 Employer-EmployeePERAContributor B.D-1(R)

11 Self-EmployedPERAContributor B.D-2(R)

12 OverseasFilipinoPERAContributor B.D-3(R)

13 Employer-EmployeePERAContributor B.E-1(R)

14 Self-EmployedPERAContributor B.E-2(R)

15 OverseasFilipinoPERAContributor B.E-3(R)

RMONo.28-2017amendscertainprovisionsofRMONo.42-2016,prescribingthereportorialrequirementsintheimplementationofthePersonalEquityandRetirementAccount(PERA)Actof2008.

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• TherevisedreportsofAnnex“B”ofRMONo.42-2016tobesubmittedbythePERAAdministratorarelistedbelow:

No. Name of Report per RMO No. 42-2016

Name of Report as per RMO No. 28-2017

Annex No.

1 QuarterlyReportonPERATransaction

QuarterlyReportonPERAContributions

B.1(R)

2 AlphaListPerEmployeesMakingQualifiedPERAContributionsandtheActualTotalAmountofQualifiedPERAContribution

AlphaListofPERAContributions

B.2(R)

3 QuarterlyReportonPERADistributionsandEarlyWithdrawals

QuarterlyReportonPERADistributionsandEarlyWithdrawals

B.3(R)

RMC No. 89-2017 issued on 19 October 2017

• ClaimsforVATrefund/TCCbydirectexporters:

1. AllclaimsbydirectexportersshallbefiledandprocessedbytheVATCreditAuditDivision(VCAD),exceptthoseunderthejurisdictionoftheLTS,whomayopttofilewiththeconcernedLTDivisionwheretheyareregistered.

2. TheelectronicLAs(eLAs)involvingclaimsfiledwiththeVCADshallbeapprovedandsignedbytheAssistantCommissioner–AssessmentService(ACIR-AS).

3. Thefollowingaretheauthorizedapprovingrevenueofficials:

Amount Claimed And/Or

Amount Granted Approving Revenue Official

NotmorethanP75million

BelowP50million ACIR-AS

MorethanP75millionuptoP150million

P50millionuptoP100million

DeputyCommissioner–OperationsGroup(DCIR-OG)

MorethanP150million MorethanP100million

Commissioner of InternalRevenue(CIR)

• ClaimsforVATrefund/TCCofindirectexportersandtaxrefund/TCConincomeandothertaxesfiledbytaxpayersregisteredwiththeRDOs:

1. AllclaimsprocessedbytheRDOshallbereviewedbytheconcernedAssessmentDivisionpriortotransmittaltotheRegionalDirector.

2. TheRegionalDirectorshallbetheauthorizedapprovingofficialforclaimsamountingtoP10millionandbelow.

3. ForclaimsexceedingP10million,thereportsonsaidclaimsshallbesignedbytheRegionalDirector,whoshallrecommendtheapproval/issuanceofthetaxrefund/TCC.

RMCNo.89-2017amendsRMCNo.51-2007,prescribingtherulesontheprocessingofclaimsfortheissuanceofataxrefund/TCC.

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4. ThedocketoftheclaimshallbetransmittedtotheTaxAuditReviewDivision(TARD)forfurtherreviewpriortoapprovaloftherevenueofficialsinaccordancewiththethresholdssetabove.

5. AllmemorandumreportsrecommendingclaimswithintheapplicablethresholdssetaboveshallbesignedbytheACIR–ASpriortofinalapprovalbytheDCIR–OG/CIR.

• ExistingclaimsoriginatingfromtheRegionalOfficesexceedingP1millioninthepossessionoftheNationalOfficeatthetimeoftheapprovalofthisCircularshallbeacteduponinaccordancewiththethresholdssetabove.

• TimeframetoprocessclaimsforVATrefund/TCCunderSection112(A)oftheTaxCode,asamended:

1. The120-dayperiodshallstartfromtheactualdateoffilingoftheapplication.

2. ForclaimsprocessedbytheRDOsamountingtomorethanP10millionandallclaimsprocessedbytheVCAD,thedocketoftheclaimshallbeindorsed/forwardedtotheTARDforreviewwithin80calendardaysfromthedateofthefilingoftheapplicationforVATrefund/TCC.

3. TheRDOs,RegionalOfficesandVCADshallensurecompliancewiththerequired80-dayperiodtoprocesstheclaimsandsubmitthedocketswiththereports.

4. NoVATrefund/TCCdocketshallbeacceptedbytheNationalOfficebeyondthe80-dayperiod,regardlessofthedatewhentheeLAwasissued,exceptforjustifiablereasons,e.g.fortuitousevents,unexpectedsuspensionofwork,etc.

5. TheTARDshallensurethatthedocketoftheclaimshallbetransmittedtotheapprovingofficialnotlaterthan100daysfromthefilingoftheapplicationforVATrefund/TCC.

6. TheapprovingofficialsshallactontherecommendedclaimsforVATrefund/TCCnotlaterthan120thdayfromreceiptofapplicationbytheprocessingoffices.

7. IntheabsenceofadulyappointedDCIR–OG,claimsfortaxrefund/TCCforapprovalofsaidofficialshallbeapprovedbytheCIR.

BOC Issuances

CMO No. 19-2017 dated 03 October 2017

• NoSADCancellationshallbeallowedunlessapprovedbytheOfficeoftheCommissioner(OCOM).

►• TheDistrictCollectorshallforwardallrequestsforSADcancellationtotheOCOMwhichshallissuethecorrespondingclearanceandshallreturntheapprovedrequesttotheDistrictCollectorconcerned.

• ThisOrdershalltakeeffectimmediately.

[Editor’s Note: CMO 19-2017 was received by the UP Law Center on 11 October 2017]

CMONo.19-2017providesfortheamendmentofCMONo.53-2010dated8December2010entitledSupplementalGuidelinesintheImplementationofCMO27-2009Re:PMSandSCdated22September2017.

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• Theassignedcustomsexaminershallberequired:

1. Within48hoursfromthereceiptoftheAlertOrder,toconductanon-intrusiveinspectionorphysicalexaminationofthealertedshipment/sinlieuoftheconductofa100%examinationofshipment/swithinsevendays;

2. TosubmitdulyaccomplishedAlertOrderReportForm(Annex“B’)totheDistrictCollector,AlertingOfficeandOCOM,within24hoursfromcompletionoftheexamination.

• ItshallbethedutyandtheresponsibilityoftheconcernedDistrictCollectortosubjectthealertedshipmentstonon-intrusiveinspectionortocoordinatewiththeterminaloperatorfortheconductofthephysicalexamination.

• Alertedshipmentsfoundtohavenodiscrepancyafternon-intrusiveinspectionorphysicalexaminationmustbereleasedwithin48hoursfromthereturnoffindingsfromtheexaminer.

• TheAlertingOfficershallberequiredtodesignateatleasttworepresentatives(previouslyonlyone),whoshallwitnesstheconductofthenon-intrusiveinspectionorphysicalexaminationofthealertedshipment.

1. Ifdespiteduenotice,norepresentativefromthealertingofficeappears,theDistrictCollectorshallassignanothercustomsofficertowitnesstheconductoftheinspectionorexamination.Inallcases,representativestotheconductofinspectionorphysicalexaminationmustbecareerpersonnel.

• Automatic Review by OCOM prior to Disposition of Alerted Shipments.TheapprovaloftheDistrictCollectoroftherecommendationwhichresultsinthereleaseoftheshipmentshallbeforwardedthroughthefastestmeansavailabletotheOCOMforautomaticreviewwithin24hours.AftertheconfirmationoftheOCOM,thegoodsshallbeimmediatelyreleased.

• AllreferencetophysicalexaminationasusedunderCMO35-2015shallmeantoincludetheoptiontoconductthenon-intrusiveinspection.

• TheCMOisforimmediatecompliancependingfullimplementationoftheCMTAprovisionsonissuanceandliftingofAlertOrders.



• CitingSection102ofPresidentialDecree1445(GovernmentAuditingCodeofthePhilippines),whichprovidesthat“Theheadofanyagencyofthegovernmentisimmediatelyandprimarilyresponsibleforallgovernmentfundsandpropertypertainingtohisagency.Personsentrustedwiththepossessionorcustodyofthefundsorpropertyundertheagencyheadshallbeimmediatelyresponsibletohim,withoutprejudicetotheliabilityofeitherpartytothegovernment.”

CMO20-2017providesfortheamendmentstoCMO35-2015dated23September2015entitled“RevisedRulesfortheElectronic/ManualIssuanceandLiftingofAlertOrdersatallPortsofEntry.”

CMO23-2017providesfortherevocationofalldelegatedauthoritytosignonbehalfoftheAgency(i.e.,BOC).

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• AlldelegatedauthoritytosignonbehalfoftheHeadofAgencyareherebyrevoked.

• Thisordershalltakeeffectimmediatelyandshalllastuntilsoonerrevoked.



• Scope and Coverage.TheCMOshallapplytoallGroups,DistrictsorOfficesandpersonneloftheBOC(organic,detailed,contractual,joborderandundercontractofservice)whohandleoractoncommunication/memorandumincludingbutnotlimitedtowrittenorverbalcommunication,correspondencetoandfromotheragencies,inter-officememosandallotherformsnotspecificallycoveredbyRepublicActNos.6713and9485.

• Statement of Policy.TheBOCasanagencyorthroughitsGroups,DistrictOfficessetsa5-daymandatorytimeframetorespondtoallclients,beitexternalorinternal,efficientlyandeffectively.

1. Effect of Non-Compliance.FailuretocomplywiththeprovisionsofthisCMOmaybegroundsforadministrativeanddisciplinarysanctionsagainstanyerringpublicofficeroremployeeasprovidedunderexistinglawsandregulations.

2. TheCMOshalltakeeffectuponsigning.

Editor’s Note: CMO 23-2017 was received by the UP Law Center on October 25, 2017.

Executive Order (EO) No. 46 dated 20 October 2017

• Reversion of the Post Clearance Audit (PCA) function to the BOC.ThePCAfunctionshallbetransferredfromtheDOF-FiscalIntelligenceUnit(FIU)totheBOC.Forthispurpose,theoperationsoftheBOC-PEAGareherebyrevivedandsuchgroupisrenamedasthePCAGunderthesupervisionoftheCommissionerofCustoms.

• Composition and functions of the PCAG.

1. ThePCAGshallbeheadedbytheAssistantCommissioneroftheBOC,dulyappointedbythePresidentofthePhilippines,upontherecommendationoftheCommissionerofCustomsthroughtheSecretaryofFinance.

2. TheAssistantCommissionershallexercisedirectsupervisionandcontrolinthemanagementofthefollowingoperatingunitseachheadedbyaDirectorIIwiththefollowingfunctions:

• TradeInformationandRiskAnalysisoffice(TIRAO):

a. Reviewavailabletradedatatodeterminecompliancemarkersofindustryandsetbenchmarkstodevelopanauditprogram;

EONo.46dated20October2017revivesthepostclearanceauditfunction(formerlyknownas“post-entryaudit”)oftheBOCthroughthePCAGandinstitutionalizesthefunctionsofthefinancialanalyticsandintelligenceunitoftheDOF.

CMO24-2017providestheMandatoryResponseTimetoActonOfficialCommunication.

14 | Tax Bulletin

b. IncoordinationwiththeManagementInformationSystemandTechnologyGroup(MISTG)developacomputer-aidedrisk-basedmanagementsystem;

c. Recommendpotentialpriorityauditcandidates;and

d. Developpoliciesandguidelinesinconnectionwiththeauditprocess.

• ComplianceAssessmentOffice(CAO):

a. Preparetheauditworkplan,scopeandapproachfortheapprovedpriorityauditcandidates;

b. Conducttheauditexamination,inspection,verificationandinvestigationprocess;

c. PrepareandsubmittherequiredauditreportsonauditfindingsandrecommendationstotheCommissionerofCustomsforapproval;and

d. Establishandmaintainacustomscomplianceprogram.

3. ThePCAGismandatedtoconduct,withinthreeyearsfromthedateoffinalpaymentofdutiesandtaxesorcustomsclearance,anauditexamination,inspection,verification,andinvestigationofrecordspertainingtoanygoodsdeclaration,whichshallincludestatements,declarations,documents,andelectronicallygeneratedormachinereadabledata,forthepurposeofascertainingthecorrectnessofthegoodsdeclarationanddeterminingtheliabilityoftheimporterforduties,taxes,andothercharges,includinganyfineorpenalty.

• Renaming the DOF-FIU and defining its functions.TheDOF-FIUshallbeinstituted

andrenamedastheFinancialAnalyticsandIntelligence(FAI)Unit,anditsfunctionsareasfollows:

1. ActasthedataanalyticunitoftheDOFforpurposesofrevenuemanagement;

2. Require,asitmaydeemnecessary,agencies,bureausandofficesattachedtoDOFtosubmitallrelevanttradeandindustrydatarelatedtorevenuegeneration,subjecttoexistinglaws,rulesandregulations;

3. Reviewmattersthatmaybedeemedfiscallyadversetothegovernment,includingthoseelevatedbyagencies,bureausandofficesattachedtoDOFfortheapprovalandconformityoftheSecretaryofFinance;

4. ProviderecommendationstotheSecretaryofFinanceonpoliciesandactionstobetakenonthebasisofitsanalysisoftheavailabledata;and

5. PerformsuchotherfunctionsasmaybenecessaryorincidentalincarryingintoeffecttheprovisionsofthisOrder,andasmaybeprovidedbylaw.

• Turn-over of PCAs.TheDOF-FAI,asmaybepracticable,transmittotheBOC-PCAGallfilesanddocumentsofanypendingpostclearanceauditsfollowingtheeffectivityofthisEO.

15Tax Bulletin |

• ThisOrdershalltakeeffectfifteendaysfollowingitspublicationinanewspaperofgeneralcirculation.

[Editor’s Note: Published in the ManilaBulletin on 25 October 2017 and takes effect on 9 November 2017.]

BSP Issuances

BSP Circular No. 974 dated 29 September 2017

• ThisCircularprovidesfortheamendmentstotheManualofRegulationsforBanks(MORB)andManualofRegulationsforNon-BankFinancialInstitutions(MORNBFI)asof31March2017.

• ThefollowingstatementisaddedasafootnotetoSectionX206ClearingOperations:

“Thenewcheckclearingprocessshallbeimplementedon20January2O17.ForparticipantbankswhichwillnotbecompliantwiththeCICSstandardon20January2017,theyshallexecuteaLetterofCommitmentstating,amongothers,theactionsthattheywillbetakingtobecompliantwiththeCICSstandarduntil21April2O17.”

• AnnexAofAppendix89(RegulatoryReliefforBanksaffectedbyCalamities)oftheMORBandAnnexAofAppendixQ-67[RegulatoryReliefforNon-BankFinancialInstitutionswithQuasi-BankingFunctions(NBQBs)affectedbyCalamities]oftheMORNBFIareamendedtoaddthegrantofregulatoryrelieftocoveredareasaffectedbytyphoon“Niña”pursuanttoMemorandumNo.M-2017-002dated18January2O17,depictedinAnnexesAandA-1ofthisCircular.

• TheComputationSheetforCapitalRepatriationillustratedinAnnexBofthisCircular,referredtounderCircularNo.942dated20January2017shallbeincorporatedasAttachment1ofAppendixN-8-c.

• TheprovisionsunderMemorandumNo.M-2017-003arecodifiedintheMORNBFIP-RegulationsasshowninAnnexCofthisCircular.

[Editor’s Note: BSP Circular No. 974, s. 2017 was published in ManilaStandard on 5 October 2017]

BSP Circular No. 975 dated 10 October 2017

• ThisCircularprovidesfortheamendmentstopertinentprovisionsoftheMORBandMORNBFIontheissuanceofbondsandcommercialpapersbybankswithquasi-bankingauthorityandquasi-banks.

• SectionX239oftheMORBandSection4239QoftheMORNBFI,areherebyamendedtoreadasfollows:

“Section X239/Section 4239Q (2008 - 4217Q) Issuance of Bonds and Commercial Papers.Allbankswithquasi-bankingauthority/quasi-banks(QBs)issuingbondsorcommercialpapersshallcomplywithRepublicActNo.8799ortheSecuritiesRegulationCodeanditsImplementingRulesandRegulation,and

CircularNo.975providesfortheIssuanceofBondsandCommercialPapers

CircularNo.974providesfortheAmendmentstotheManualofRegulationsforBanksandNon-BankFinancialInstitutionsasof31March2017.

16 | Tax Bulletin

otherapplicablerulesandregulationsissuedbytheSecuritiesandExchangeCommission(SEC).Banks/QBsthatwillissuebondsand/orcommercialpapersshallensurethattheyhaveadequatecontrolsystemandeffectiveliquidityriskmanagementinplaceinaccordancewithSectionX176/4176QoftheMORB/MORNBFI.”

• SubsectionX239.3oftheMORBandSubsection4239Q.3oftheMORNBFIonthenotificationoftheissuanceofbondstotheBSP,areherebyamendedtoreadasfollows:

“Subsection X239.3/4239Q.3 (2008 - 4217Q.4) Notice to Bangko Sentral ng Pilipinas.Withinfive(5)bankingdaysfromapprovalbythebank’s/QB’s(Quasi-Banks)boardofdirectorsofthebondissue,thebank/QBshallnotifytheappropriatedepartmentoftheSESoftheapprovalofthebondissue,inaccordancewithAppendix6/AppendixQ-3.”

• SectionX348oftheMORBisherebyamendedtoreadasfollows:

“Section X348 Committed Credit Line for Commercial Paper Issues.Thefollowingguidelinesshallgoverncommittedcreditlineagreementsofbankswithcorporationsproposingtoissuecommercialpapers,pursuanttopertinentrulesandregulationsoftheSEC.

• SubsectionsX239.1,X239.2,X239.4,X239.5andAppendices13and14oftheMORBandSubsections4239Q.1,4239Q.2,4239Q.4,4235Q.10,AppendicesQ-7andQ-8oftheMORNBFIareherebydeleted.

• Appendix6oftheMORBshallbeamendedbyincludingthereporton“Notice to Bangko Sentral on BOD’s approval of the bond issue”asrequiredinSubsectionX239.3oftheMORB.

• AppendixQ-3oftheMORNBFIshallbeamendedby:(a)renamingtherequiredreportinSubsection4239Q.3from“Notice to Bangko Sentral on SEC’s approval of bond issue together with the documents required by the SEC for the creation and registration of the bond issue” to “Notice to Bangko Sentral on BOD’s approval of the bond issue;”and(b)changingthesubmissiondeadlinefrom“3rdbusinessdayfromSECapproval”to“fivebankingdaysfromapprovalbytheQB’sboardofdirectors.”

• ThisCircularshalltakeeffect15calendardaysfollowingitspublicationintheOfficialGazetteorinanynewspaperofgeneralcirculation.

[Editor’s Note: BSP Circular No. 975, s. 2017 was published in TheManilaTimes on 14 October 2017]

BSP Circular No. 976 dated 10 October 2017

• ThisCircularprovidesfortheamendmentsto(1)theERREEofBanks,and(2)thesubmissionoftheRPFEtogathermoregranularinformationregardingtheseexposureswhichareusefulinputsinarrivingatacomprehensiveassessmentofthequalityofbankloansandvulnerabilityofbanksonrisksarisingfromtheseexposures.

CircularNo.976providesfortheAmendmentstotheERREEandtheSubmissionoftheRPFE.

17Tax Bulletin |

• Limits on Real Estate Exposures.Section1397oftheMORB,asamended,onthelimitsonrealestateexposuresandotherrealestatepropertyisherebyfurtheramendedto(1)clarifythedefinitionofloanstofinanceinfrastructureprojectsforpublicusethatarecurrentlyexemptfromthetwentypercent(20%)limitonrealestateloans,theexpandeddefinitionofrealestateexposuresandtheRealEstateStressTest(REST)limits,and(2)updatethedefinitionofsocializedandlow-costhousingunitsinaccordancewiththelatestdefinitionoftheHousingandUrbanDevelopmentCoordinatingCouncil(HUDCC).

• Report on Real Estate Exposures of Banks.SubsectionX397.5oftheMORBisherebyaddedtosetforthguidelinesonthesubmissionoftheExpandedReportonRealEstateExposures.TherevisedreportorialtemplatescoveringtheamendmentstotherelevantSchedulesundertheExpandedReportonRealEstateExposuresareshownunderAnnexesA-1a(BankReport)toA-1b(BankingGroupReport)ofthisCircular.SpecificguidelinesonthemodeandmannerofelectronicsubmissionoftherevisedreportorialtemplateoftheExpandedReportonRealEstateExposuresshallbecoveredbyaseparateissuance.

• Report on Project Finance Exposures.Subsection1192.19oftheMORBisherebyaddedtosetforththeguidelinesonthesubmissionoftheReportonProjectFinanceExposures.ThereportorialtemplatesfortheReportonProjectFinanceExposuresareshownunderAnnexesB-1a(BankReport)toB-1b(BankingGroupReport)ofthisCircular.SpecificguidelinesonthemodeandmannerofelectronicsubmissionofthereportorialtemplateoftheReportonProjectFinanceExposuresshallbecoveredbyaseparateissuance.

• Appendix6“ReportsRequiredofBanks”oftheMORBisamendedbythisCircular.

• Amendments to the Financial Reporting Package (FRP) for Banks.ThelineiteminstructionsandtemplateoftheFinancialReportingPackageforBanksisrevisedtoalignwiththeguidelinessetforthinthisCircular.

• ThisCircularshalltakeeffect15calendardaysfollowingitspublicationintheOfficialGazetteorinanynewspaperofgeneralcirculation.

[Editor’s Note: BSP Circular No. 976, s. 2017 was published in the BusinessMirroron 20 October 2017]

SEC Opinion and Issuances

SEC-OGC Opinion No. 17-12 dated 19 September 2017

Facts:

PCo.isengagedinprovidingticketingservicesthroughvarioussaleschannelsthatincludevenueboxoffices,physicaloutletsinshoppingmallsandonline.Itsellsticketsonbehalfofeventproducers,venueownersandtothegeneralpublictoeventssuchasmusicalperformances,concerts,theaters,sportingeventsandthelike.Italsosellsticketprintersandpaperticketstocksandprovidessupportservicestootherticketingcompanies.

Acorporationengagedinprovidingticketingservicesisnotengagedinretailtrade,hence,notsubjecttoforeignequityrestrictionsundertheRetailTradeLiberalizationActof2000.

18 | Tax Bulletin

Issue:

AretheticketingactivitiesofPCo.andthesellingofticketprintersandpaperticketstockstootherticketingcompaniesconsideredas“retailtrade”and,thus,coveredbytheRetailTradeLiberalizationAct(RTLA)?

Held:

No.Sec.3oftheRTLAdefines“retailtrade”asanyact,occupationorcallingofhabituallysellingdirecttothegeneralpublicmerchandise,commoditiesorgoodsforconsumption.ThecaseofBalmaceda v. Union Carbide (G.R. No. L-30442) definedthephrase“goodsforconsumption”asthefinalandenduse/sofaproductwhichdirectlysatisfyhumanwantsanddesiresandareneededforhomeanddailylife.Aticketisnotamerchandiseorgoodthatcanonitsownbeconsumedforpersonalgratificationorsatisfactionoftheholder.Rather,aticketisadocumentoranevidenceofcontractensuringtheholdertherightofaccessoraseatreservationtothevenueortheatricalperformance.Itsutilityisnotthedirectsourceofhumansatisfactionsincewhatitonlyconferstotheholderisafuturerightorprivilegetoenteraplaceorparticipateinanevent.

Ontheotherhand,thesellingofticketprintersandpaperticketstockstootherticketingcompaniesdoesnotalsoconstituteretailtrade.UndertheImplementingRulesandRegulationsoftheRTLA,salestoindustrialandcommercialusersorconsumerswhousetheproductsboughtbythemtorenderservicetothegeneralpublicand/orproduceormanufactureofgoodswhichareinturnsoldbythemisnotconsideredretail.

Accordingly,sincetheforegoingactivitiesofPCo.donotconstituteretailtrade,itisnotcoveredbytheforeignownershiprestrictionimposedundertheRTLA.

SEC Memorandum Circular No. 10 series of 2017 dated 29 August 2017

TheSECapprovedtheadoptionofthefollowingamendmentstothePhilippineFinancialReportingStandardsandshallbeappliedforannualreportingperiodsbeginningonorafter1January2018:

►• AmendmentstoPFRS4,ApplyingPFRS9,FinancialInstrumentswithPFRS4,InsuranceContracts;

►• PFRS15,RevenuefromContractswithCustomers

• ClarificationstoPFRS15,RevenuefromContractswithCustomer

• PICQuestionsandAnswers(Q&A)No.2016-01:ConfirmingChangestoPICQ&As-Cycle2016(theeffectivedateoftheamendmentsisincludedintheQ&Asaffected);and

• PICQ&ANo.2016-04:ApplicationofPFRS15“RevenuefromContractswithCustomers”onSaleofResidentialPropertiesunderPre-CompletionContracts

[Editor’s Note: Published in the ManilaStandard and PhilippineDailyInquirer on 15 September 2017]

SECMCNo.10adoptsthenewandrevisedaccountingstandardsandinterpretationsaspartofitsrulesandregulationsonfinancialreporting.

19Tax Bulletin |

SEC Memorandum Circular No. 11 series of 2017 dated 29 September 2017

TheSEC,pursuanttotheSecuritiesRegulationsCodeanditsImplementingRulesandRegulations,adoptsthefollowingguidelinesforregistrationofsecuritiesofhospitals:

►• SECForm12-1SRSreplacesSECForm12-1;

►• TheSEChas28days,fromthedateoffiling,toeitherapproveorrejectaregistrationofsecurities;and

►• GroupBSECaccreditedExternalAuditorsorAuditingFirmsmaybeengagedbyhospitalsseekingregistrationofsecurities.

[Editor’s Note: Published in the ManilaBulletin on 6 October 2017]

SEC Memorandum Circular No. 12 series of 2017 dated 09 October 2017

Inlinewiththecontinuingprogramtofosterefficientbusinessoperations,particularlyintheperformanceofitsmonitoringandenforcementfunction,BrokerDealersinSecuritiesarenowallowedtosubmittheirRiskBasedCapitalAdequacy(RBCA)Reportsonlineunderthefollowingguidelines:

►• TheonlinesubmissionoftheRBCAReportsshallbethroughtheuseofaPublicKeyInfrastructure(PKI)technologyprovidedbytheDepartmentofInformationandCommunicationTechnology(DICT);

►• TheRBCAReportsshallbesubmittedbefore12a.m.ofthedayfollowingtheduedateofsubmissionornextbusinessdayifthedeadlinefallsonaholidayoraweekend;

►• TheBrokerDealershallsurrenderthePKICertificateissuedinfavortheAssociatedPerson/representativeterminatedorreplaced.ThenewAssociatedPerson/representativeshallapplyforanewPKICertificatewiththeDICT;

►• The“TermsofUsefortheOnlineSubmissionofRBCAReport”shallbephysicallydeliveredtotheSECbeforeavailingoftheon-linesubmissionofRBCAReport;

►• TheRBCAReportsmaybesubmittedonlineusingthePKICertificatebeginning5December2017.However,BrokerDealerswillstillhavetheoptiontomanuallysubmittheRBCAReportstotheSECHeadOfficefromDecember2017toMay2018.

[Editor’s Note: Published in ThePhilippineStar on 13 October 2017]

BLGF Opinions

BLGF Opinion dated 04 September 2017 Facts:

TCo.appliedforrenewalofitsbusinesspermitfortheyear2016intheCityofTagbilarananddeclareditsgrossreceiptsfromtheprecedingyearamountingtoPhp27,627,642.75.However,theCityTreasurerofTagbilaranappliedthePresumptiveIncomeLevelAssessmentApproach(“PILAA”)andtheincomeusedforpurposesofcomputingthelocalbusinesstax(“LBT”)ofTCo.amountedtoPhp42,735,648.00.

TheuseofPILAAincomputingtheLBTisrestrictedtosituationswherethetaxpayerisunabletoprovideproofofitsincome.

SECMCNo.11adoptstheuseofSECForm12-1SRSforHospitals.

SECMCNo.12providesfortheGuidelinesontheOnlineSubmissionofRisk-BasedCapitalAdequacyReportsofBrokerDealersinSecurities.

20 | Tax Bulletin

Issue:

IstheuseofthePILAAvalidincomputingtheLBTduefromTCo.?

Ruling:

No.BasedonSection143oftheLocalGovernmentCode,thelocalgovernmentunitmayimposetaxesonbusinessesbasedontheirgrosssalesorreceiptsoftheprecedingcalendaryear.Asclearlyprovidedbylaw,ifataxpayerhassubmittedordeclareditsgrosssalesorreceipts,thelocaltreasurershallcomputetheLBTbasedonitsgrossreceipts.TheuseofthePILAAisrestrictedtosituationswherethetaxpayerisunabletoprovideproofofitsincome.

Thus,theCityofTagbilaranhasnoauthoritytoimposeLBTonTCo.basedonPILAA,providedthatTCo.shalldulysubmitorpresentitsincometaxreturnorauditedfinancialstatementfor2016,whichshouldbeusedasbasisforcomputingitsLBT.

BLGF Opinion dated 04 September 2017

Facts:

TheMunicipalityofOdiongan,Romblonsoughtanopiniononthefollowinglocalbusinesstax(“LBT”)issuesinitsmunicipality.

Issues:

1. Whetherornotthemunicipalityhastherighttoobligecontractorstopaytaxwhoseofficeislocatedelsewherebutwithprojectsinthemunicipality’sjurisdiction;and

2. Whetherornotafinancingcompanyofmotorcycledealermaintainingasatelliteofficeisrequiredtoapplyforabusinesslicenseinthemunicipalitywheresuchofficeislocated.

Ruling:

1. UnderSection5(b)(2)(i)and(ii)ofLocalFinanceCircularNo.03-95datedMay22,1995,theconcernedlocalgovernmentmayimposeataxonthe70%ofthegrossreceiptsorcostofcontractofaprojectifthecontractormaintainsaprojectofficeintheprojectsite.Theterm“projectoffice,”asappliedtocontractors,shallmeanthe office or headquarters used in administering the project or construction being undertaken in the pursuit of business. However, it may not be a fixed place where administrative work is conducted as the term “office” usually connotes, but one that may be transferred from one project site to another.

2. AnLGUwherethesatelliteofficeofafinancingcompanyofmotorcycledealerislocated,butwherenotransactionsaremade,mayonlycollectMayor’spermitfeeandotherregulatoryfees,asmaybeprovidedforunderadulyenactedlocaltaxordinance.

Theconcernedlocalgovernmentmayimposeataxonthe70%ofthegrossreceiptsorcostofcontractofaprojectifthecontractormaintainsaprojectofficeintheprojectsite.TheLGUwherethesatelliteofficeofafinancingcompanyofmotorcycledealerislocatedmayonlycollectMayor’spermitfeeandotherregulatoryfeesifnotransactionsaremadeinthesatelliteoffice.

21Tax Bulletin |

BLGF Opinion dated 03 October 2017

Facts:

PCo.isengagedinjobcontractingandoutsourcingofservicestovariousclientsfordifferentindustries.ItsprincipalofficeisinValenzuelaCity,whereitsecuresitsbusinesspermit.PCo.rendersservices,whichlastforapproximatelyonetotwodays,inthefactoryofitsclientlocatedinTanauan,Batangas.PCo.doesnotmaintainanofficeinBatangas.

Issues:

IsPCo.requiredtosecureabusinesspermitinTanauan,Batangaswhereitrendersproject-basedservices?

Ruling:

No.Sec.147oftheLocalGovernmentCode(LGC)of1991providesfortheimpositionandcollectionofreasonablefeesandchargesonbusinesswhichshallbecommensuratewiththecostofregulation,inspectionandlicensingbeforeanypersonmayengageinsuchbusiness.

Theabsenceofanybranchoffice,salesoutletorwarehouserepudiatestherequirementofsecuringbusinesspermitasthereisnofixedbusinessestablishmenttoregulateandinspect,andtowhichalicensemaybeissued.

ThepresenceofPCo.’spersonnelinTanuanismerelytofulfillitscontractualobligationtoitsclientandisonlytemporaryinnature.

PCo.shallhoweverpayanoccupationalfeeforanyofitsworkersemployedinotherjurisdictionspursuantwithSec.147and151oftheLGC.

PEZA Update

PEZA Memorandum Order No. 2017-012 dated 27 September 2017

• IssuanceofPEZACertificationonAvailableIncentives(ERDFormNo.03-01)andPEZACertificationonEntitlementto5%GrossIncomeTax(ERDFormNo.00-01)shallbeviaemaileffective15October2017

• Coverage:PEZAEnterprises(PEZA-registeredExport,I.T.,Tourism,MedicalTourism,Agri-Export,Facilities,ELSE’s,UtilitiesEnterprises)andPEZADevelopers/Operators(Ecozone/ITPark/ITCenterDeveloper-Operators)entitledtoPEZAincentives

• Guidelines/procedure:

1. AllrequestsforCertificationshallbemadeonthe“RequestforCertificationForm”(PEZAFormNo.ERD.2.F.006).

• TheRequestFormshouldbesignedbytheresponsibleofficialofthePEZAenterprise(CEO,President,VicePresident,GeneralManager,FinanceManager,LogisticsManager,orequivalent),whoseemailaddressshallbeindicatedontheform.

PEZAMemorandumOrderNo.2017-012implementstheissuanceofPEZACertificationsonAvailableIncentivesandonEntitlementto5%GrossIncomeTaxviaemail.

Theabsenceofanybranchoffice,salesoutletorwarehouserepudiatestherequirementofsecuringabusinesspermitasthereisnofixedbusinessestablishmenttoregulateandinspect,andtowhichalicensemaybeissued.

22 | Tax Bulletin

2. TheaccomplishedRequestFormshallbescannedandemailedtotheOfficeoftheDirectorGeneral(ODG)[email protected].

3. ODGwillforwardtheRequestFormtotheEnterpriseServicesDivision(ESD),whichshall(i)verifytheenterprise’scompliancewithPEZAreportorialrequirements,and(ii)validatethatthesigneeoftheRequestFormisanofficerofthePEZAenterpriseindicatedintheEcozoneMonthlyPerformanceReport(EZMPR)submittedtoPEZA.

• OnlyPEZAenterpriseswithcompletereportsshallbeendorsedbyESDtotheIncentivesManagementDivision(IMD).

4. IMDshallevaluatetherequestandemailthesystem-generatedCertification(pdfcopy)tothecorrespondingZoneAdministrator/ZoneManager/Officer-in-Charge(ZA/ZM/OIC).ZA/ZM/OICshallinformtheconcernedPEZAEnterpriseorPEZADeveloper/OperatorthattheCertificationisavailableforrelease.

• UponpaymentoffilingfeeofPHP120.00,ZA/ZM/OICshallemailtheCertification/stotheenterprise’sofficialwhosignedtheRequestForm

5. EachCertificationshallbearaQuickResponse(QR)Codewhichcontainsthenameoftheenterprise,certificatecontrolnumber,anddateofissuance.TheQRCodecanbescannedthroughwww.peza.gov.ph/vatscan.

6. ThePEZAenterprisemayprintmultiplecopiesoftheCertifications.► ThePEZAenterpriseshallbesolelyaccountableandliableforthe

disseminationoftheCertificationsissuedinitsname,andanymisuse,abuse,andillegalusethereof.

Court Decisions

Power Sector Assets and Liabilities Management Corporation vs. CIR SupremeCourtEn Banc,G.R.No.198146,promulgated08August2017

Facts:

PetitionerPowerSectorAssetsandLiabilitiesManagementCorporation(PSALM)isagovernment-ownedandcontrolledcorporation(GOCC)createdundertheElectricPowerIndustryReformActof2001(EPIRA).PSALM’sprimarypurposeistomanagetheorderlysale,disposition,andprivatizationoftheNationalPowerCorporation(NPC)generationassets,realestatesandotherdisposableassets,andIndependentPowerProducercontractswiththeobjectiveofliquidatingallNPCfinancialobligationsandstrandedcontractcostsinanoptimalmanner.

In2006,PSALMconductedpublicbiddingfortheprivatizationofthePantabangan-MasiwayHydroelectricPowerPlantandtheMagatHydroelectricPowerPlant.TheBIRsubsequentlyissuedalettertotheNPCdemandingimmediatepaymentofdeficiencyvalueaddedtax(VAT)forthesaleofthepowerplants.NPCindorsedthelettertoPSALM.

TheBIR,NPCandPSALMexecutedaMemorandumofAgreement(MOA)wheretheyagreedthatNPC/PSALMshallremitthebasicdeficiencyVATunderprotest,withoutprejudicetotheoutcomeoftheresolutionoftheissuesbeforethe

Ataxdisputesolelybetweengovernmentagenciesandoffices,includingGOCCs,involvingpurelyquestionsoflawshallbeadministrativelysettledoradjudicatedbytheSecretaryofJustice.

ThesalebyPSALMofpowerplantspreviouslyownedbytheNPCisnotsubjecttoVATbecauseitwasnotundertakeninthecourseoftradeorbusinessbutwasmadepursuanttoagovernmentalfunctionmandatedbytheEPIRAtoprivatizeNPCgenerationassets.

23Tax Bulletin |

appropriatecourtsorbody.ThepartiesalsoagreedthatanyresolutioninfavorofNPC/PSALMshallbeimmediatelyexecutorywithoutneedofnoticeordemand,andthatarulingfromtheDepartmentofJustice(DOJ)favorabletoNPC/PSALMshallbetantamounttoanapplicationforrefund,whichtheBIRwillimmediatelyprocessandapprove. PSALMremittedthebasicdeficiencyVATunderprotest,andfiledwiththeDOJapetitionofadjudicationofthedisputewiththeBIRtoresolvetheissueofwhetherthesaleofthepowerplantsshouldbesubjecttoVAT.RulinginfavorofPSALM,theDOJdeclaredthattosubjectthesaletoVATwouldruncountertothepurposeofobtainingoptimalproceedsforthesale.

TheCommissionerofInternalRevenue(CIR),ontheotherhand,arguedthattheDOJhadnojurisdictionasthedisputeinvolvedtaxlawsadministeredbytheBIRwhichiswithinthejurisdictionoftheCourtofTaxAppeals(CTA).TheCIRaddedthatthesaleissubjecttoVATunderSection105oftheNationalInternalRevenueCode(NIRC),whichcoversincidentaltransactionsassubjecttoVAT.

Onappeal,theCourtofAppeals(CA)annulledtheDOJdecisionandruledthatPSALM’spetitionwasaprotestagainstadeficiencyVATassessment,whichiswithintheauthorityoftheCIRtoresolve.

PSALMappealedthecasetotheSupremeCourt.

Issues:

1. DoestheDOJhavejurisdictionoverthecase?

2. IsthesalebyPSALMofthepowerplantssubjecttoVAT?

Rulings:

1. Yes.TheDOJhasjurisdictionoverthecase.

TheoriginaljurisdictioniswiththeCIR,whoissuesthepreliminaryandfinaltaxassessments.However,ifthegovernmententitydisputesthetaxassessment,thedisputebecomesonebetweentheBIR(representedbytheCIR)andanothergovernmententity,PSALMinthiscase.

ThedisputeisbetweenPSALMandNPC,whicharebothwhollygovernment-ownedcorporations,andtheBIR,agovernmentoffice,overtheimpositionofVATonthesaleofthepowerplants.UnderPresidentialDecree(PD)No.242(nowembodiedinthe1987AdministrativeCode),alldisputesandclaimssolelybetweengovernmentagenciesandoffices,includingGOCCs,shallbeadministrativelysettledoradjudicatedbytheSecretaryofJusticeortheSolicitorGeneral,dependingontheissuesandgovernmentagenciesinvolved.

PDNo.242providesthatforcasesinvolvingonlyquestionsoflaw,suchasinthepresentcase,itistheSecretaryofJusticewhohasjurisdiction.ThedecisionoftheSecretaryofJusticemaybeappealedtotheOfficeofthePresidentwheretheamountinvolvedexceedsonemillionpesos.Iffurtherdenied,theaggrievedpartycanappealtotheCA.

FortaxdisputesinvolvingprivateentitiesandtheBIR,exclusiveappellatejurisdictionisvestedwiththeCTA.

24 | Tax Bulletin

Whileataxassessmentisnotnecessarybeforeacriminalprosecution,acivilactionforcollectionofthetaxrequiresthattheassessmentprocedurebecompliedwith.Thus,foracriminalcasetoincludeajudgmentofcivilliability,theremustbeaformalassessmentissuedagainstthetaxpayer.

2. No.ThesaleofthepowerplantsisnotsubjecttoVATsinceitisnotmade“inthecourseoftradeorbusiness”ascontemplatedunderSection105oftheNIRC.Thephrase“inthecourseoftradeorbusiness”meanstheregularconductorpursuitofacommercialactivityincludingtransactionsincidentalthereto.

ThesaleofpowerplantsbyPSALMisnotinpursuitofacommercialoreconomicactivitybutagovernmentalfunctionmandatedbytheEPIRAtoprivatizeNPCgenerationassets.

UndertheEPIRA,thepowerplants,whichwerepreviouslyownedbyNPC,weretransferredtoPSALMforthespecificpurposeofprivatizingsuchassets.ThesepowerplantswerenotpreviouslyusedinPSALM’sbusiness.ThesaleofthepowerplantscannotbeconsideredasanincidentaltransactionmadeinthecourseofNPC’sorPSALM’sbusiness.

People of the Philippines vs. Joel C. MendezCTA(En Banc)CriminalCaseNo.038,promulgated08September2017

Facts:

AccusedJoelC.MendezwascriminallychargedwithviolationofSection255oftheTaxCodeforfailuretofilehisincometaxreturn(ITR)for2001.Uponarraignment,Mendezpleaded“notguilty.”TheBIRinvestigatedMendezbasedonananonymouscomplaintfornon-issuanceofofficialreceipts.TheBIRobtainedthirdpartyinformationfromvarioussourcesincludingtheLandTransportationOfficetoprovethathepurchasedavehiclein2001;theBureauofImmigrationtoprovethathetravelledoverseastwicein2001;andprintmediatoshowthatMendezadvertisedhisclinics,whichwereoperationalin2001.TheBIRusedtheExpenditureMethodtodeterminetheincometaxliabilityofMendez.Themethodisbasedonthetheorythatifthetaxpayer’sexpenditureduringthegivenyearexceedshisreportedincomeorwhentherewasnoincomereportedatall,andthesourceofsuchexpenditureisunexplained,itmaybeinferredthatsuchexpendituresrepresentunreportedincome.

Mendezcounteredthatsomeofhisclinicswereestablishedbeginning2003.Healsoclaimedthatthenewspaperadvertisementsmadein2001wereonlyforpromotionpurposes,althoughhisclinicswerenotyetinoperation.Whileheadmittedrenderingservicestosomecelebrity-clients,heinsistedtheseserviceswererenderedinexchangeforfreecommercialplugs.Astherewasnoincome,MendezarguedthattherewasnoneedtoregisterandfileareturnwiththeBIRin2001.

TheCTASpecialFirstDivisionheldthatMendezisguiltybeyondreasonabledoubtwithviolationofSection255oftheTaxCodeforfailuretofileareturnin2001.However,thecourtfoundthatMendezcannotbeheldcivillyliableasnoformalassessmentwasissuedbytheBIR.

BothpartiesfiledaMotionforReconsideration,whichwasdenied,promptingtheelevationofthecasetotheCTAEn Banc.

Issues:

1. IsMendezcriminallyliableforfailurefilehisITRfor2001?

2. IsMendezcivillyliableforunpaidtaxesandpenalties?

25Tax Bulletin |

TheexemptionfromincomeandothertaxesgrantedtoPAGCORunderitschartershallinuretothebenefitofitslicenseesandfranchisees,suchasbingooperators.Accordingly,servicesrenderedtoPAGCORandPAGCOR-authorizedbingooperatorsaresubjectto0%VAT,pursuanttoSection108(B)(3)oftheTaxCode.

Rulings:

1. Yes.TheCTAEn BancruledthatMendezisrequiredtofileanITRandallincomehederivedshouldformpartofhisgrossincomesubjecttotax.Itheldthat(a)Mendez,asapracticingdoctorandrenderingmedicalservicesunderanactiveandoperatingbusinessentity,isrequiredtomakeorfileareturn;(b)hefailedtofilethereturnatthetimerequiredbylaw;and(c)suchfailurewaswillful,inviolationofSection255oftheTaxCode.

Asamedicaldoctor,heispresumedcognizantofhisobligationtoregisterwiththeBIRandpaytaxesonhisbusinesses.TheBIRwasalsoabletoestablishthattherewasnorecordoftaxfilingintheBIRsystem.Mendez’failuretosubmithisaccountingrecordsandotherbusinessdocumentsdespitenoticeandopportunitiesgivenisproofofwillfulanddeliberateintentonhisparttosuppressevidencethatwouldhavebeenadversetohim.

2. No.Foracriminalcasetoincludeajudgmentofcivilliability,theremustbeaformalassessmentonthetaxpayer.

QuotingtheSupremeCourt’sdecisioninAdamson vs. Court of Appeals, G.R. Nos. 120935 and 124557 promulgated on May 21, 2009,aformalassessmentshould(1)beaddressedtothetaxpayer;(2)containademandonthetaxpayertopaythetaxliabilityandmustsetaperiodforpayment;and(3)bemailedorsenttothetaxpayerbytheCommissioner.Inthiscase,thepurportedassessmenthadnoneoftherequisites.ItisnotaformalassessmentbutamereestimateorscheduleofdeficiencytaxwhichdidnotevenbearthesignatureoftheCIR.

Whileataxassessmentisnotnecessarybeforetherecanbeacriminalprosecution,acivilactionforcollectionofthetaxrequiresthattheassessmentprocedurebecompliedwith.

CIR vs. Perception Gaming, Inc.CTA(En Banc)CaseNo.1431,promulgated28September2017

Facts:

RespondentPerceptionGaming,Inc.(PGI)filedwiththeBIRaclaimforrefundoferroneouslypaidVATandunutilizedinputVATattributabletoitszero-ratedsalesofserviceforthefirstquarterof2010.PGIinitiallysubjectedto12%VATitsgrossreceiptsfromthesaleandleaseofgamingmachinestoentitiesauthorizedbythePAGCORtooperategamingcentersor“bingooperators.”

AstheCIRfailedtoactontheclaim,PGIfiledaPetitionforReviewwiththeCTA.PGIarguedthatsincePAGCORandPAGCOR-authorizedbingooperatorsareexemptfromVATunderRANo.9487(orthePAGCORCharter),itsgrossreceiptsfromtheleaseofgamingequipmentandperformanceoftechnicalservicesinconnectionwiththebingooperationsofPAGCORanditsoperatorsaresubjectto0%VAT.TheBIR,ontheotherhand,insistedthattheleaseofgamingequipmenttoPAGCOR’soperatorsissubjectto12%VATbecause,whiletheoperatorsareexemptfromtaxes,itsexemptiononlycoverstaxesforwhichitisdirectlyliableandnottheVATpassed-ontothembyPGI.Moreover,sincePGIdoesnotdealdirectlywithPAGCORbutonlywithitsoperators,PAGCOR’sexemptioncannotbeextendedinitsfavor.

TheCTAFirstDivisiongrantedtherefundclaim.TheCIRfiledaMotionforReconsideration,whichwasdeniedforlackofmerit.Thereafter,itfiledaPetitionforReviewwiththeCTAEn Banc.

26 | Tax Bulletin

ThesaleofservicesbyaVAT-registeredsupplierfromthecustomsterritorytoaPEZA-registeredenterpriseissubjectto0%VAT.

ToqualifyforVATzero-rating,itisnotrequiredthattheserviceshouldberenderedwithintheECOZONEorthattheservicebedirectlyconnectedtotheregisteredactivitiesofthePEZAenterprise.

Issue:

IsPGI’ssaleofservicestoPAGCORoperatorssubjectto0%VAT?

Ruling:

Yes.TheCTAEn BancupheldthedecisionoftheFirstDivisionandruledthatPGI’ssaleofservicestoPAGCORoperatorsaresubjectto0%VAT.

UnderSection13(2)(a)and(b)ofthePAGCORCharter,PAGCORisnottheonlyentityexemptedfromtaxes.Thetax-exemptstatusislikewiseexpresslyconferredonotherentitiesthatPAGCORanditsoperatorscontractwithinconnectionwithcasinooperations.TheseentitiesincludethePAGCOR-authorizedbingooperatorssincePAGCORisauthorizedunderRANo.9487tolicensethirdpartiestooperategamblingcasinos,gamingclubsandothersimilarrecreationoramusementplaces,gamingpools,i.e.basketball,football,bingo,etc.exceptjai-alai.

SincePAGCORandPAGCOR-authorizedbingooperatorsareexemptfromVATunderthePAGCORCharter,theservicesrenderedtothemareeffectivelysubjectto0%VATpursuanttoSection108(B)(3)oftheTaxCode.

[Editor’s Note: The Supreme Court, in Bloomberry Resorts and Hotels, Inc. vs. Bureau of Internal Revenue, G.R. No. 212530 promulgated 10 August 2016, previously affirmed that the preferential tax treatment of PAGCOR under its Charter inures to the benefit of and extends to its contractees and licensees.]

ZMG Ward Howell, Inc. vs. Commissioner of Internal Revenue CTA(SecondDivision)CaseNo.9004,promulgated18September2017

Facts:

RespondentCIRassessedZMGWardHowell(ZMG)forallegeddeficiencyVATonitssaleofservicetoPEZA-registeredentitiesoperatingwithinECOZONEs.ZMG,anexecutivesearchfirm,placedcandidatesforseniorandmid-levelexecutivepositionstoclients,aservicewhichtheBIRarguedisnotdirectlyrelatedtotheregisteredactivitiesofthePEZAenterprises.Moreover,theBIRpositedthatsinceZMG’sservicewasrenderedoutsidetheECOZONE,itssaleofserviceissubjectto12%VAT.

ZMGprotestedtheassessmentandargueditssaleofservicestoPEZAentitiesshouldbeconsideredeffectivelyzero-ratedunderSection108(B)(3)oftheTaxCode.Itarguedthatthelawdoesnotqualifyastotheplacewheretheserviceshouldberenderedandtheconditionforsuchservice.

UponreceiptoftheFinalDecisiononDisputedAssessmentdenyingitsprotest,ZMGfiledaPetitionforReviewwiththeCTA.

Issues:

1. AreservicesrenderedwithinthecustomsterritorybyaVAT-registeredsuppliertoaPEZA-registeredenterprisesubjectto0%VAT?

2. IsZMGliablefordeficiencyVAT?

27Tax Bulletin |

Ruling:

1. Yes.ThesalebyaVAT-registeredpersonofservicesperformedwithinthecustomsterritorytoPEZA-registeredentitiesissubjectto0%VAT.

Section108(B)(3)oftheTaxCodeisclearwhenitprovidesthattoqualifyforVATzero-rating,asaleofservicemustsatisfythefollowing:

a. SaleofserviceisperformedinthePhilippines;b. ServiceisperformedbyaVAT-registeredperson;andc. Serviceisrenderedtopersonsorentitiesexemptedunderspeciallawsor

internationalagreementstowhichthePhilippinesisasignatory.

RevenueRegulations16-05,asamended,echoesthewordingoftheaboveprovisionoftheTaxCodewhenitprovidesforeffectivelyzero-ratedsaleofservicesbylocalsupplierstopersonsorentitiesgrantedindirecttaxexemptionunderspeciallawsorinternationalagreements.

ThePhilippineVATsystemadherestotwointerrelatedprinciples:CrossBorderDoctrineandDestinationPrinciple.UndertheDestinationPrinciple,goodsandservicesaretaxedonlyinthecountrywheretheyareconsumed.Thus,exportsarezero-ratedwhileimportsaretaxed.TheCrossBorderDoctrinemandatesthatnoVATshallbeimposedtoformpartofthecostofthegoodsdestinedforconsumptionoutsidetheterritorialborderofthetaxingauthority.

TheCTAcitedtheSupremeCourtrulinginCIR vs. Toshiba Information Equipment (Phils.), Inc., G.R. No. 150154, promulgated on August 9, 2005,whichaffirmedthatPEZAenterprisesareVAT-exemptentitieshence,theirpurchaseofgoodsorservicesfromsuppliersinthecustomsterritoryareVATzero-ratedinaccordancewithRevenueMemorandumCircularNo.74-99.

TheCIR’sargumentthattheserviceshouldberenderedwithintheECOZONEandshouldbedirectlyconnectedtothePEZA-registeredactivitiestoqualifyforVATzero-ratingisuntenable.Suchpositioniscontrarytotheplainwordingofthelaw,establishedjurisprudence,andeventheBIR’sownrevenueissuance.

TheCTAacknowledgedtherulingoftheSupremeCourtinCIR vs. American Express International, Inc. (Philippine Branch), G.R. No. 152609 promulgated on June 29, 2005,whichheldthatthetaxsitusofazero-ratedserviceistheplacewheretheserviceisrendered.TheCTAclarified,however,thatthesaidrulingsimplymeansthattheservicemustbeperformedinthePhilippinesinorderforthecountrytoacquirejurisdictiontosubjectthesaletransactiontoVAT.ItdoesnotmeanthatthelocationoftheservicewilldeterminewhethertoimposeVATonthesaleofserviceat0%orattheregularrateof12%.ItisforthepurposeofacquiringjurisdictiontoimposeVATthatSection108(B)oftheTaxCoderequirestheperformanceoftheservicebyVAT-registeredpersonsbedoneinthePhilippinebeforesuchtransactionmayqualifyforVATzero-rating.

2. Yes.AlthoughitssaleofservicecouldqualifyforVATzero-rating,ZMGfailedtopresentitsBIRCertificateofRegistrationtoprovethatitisaVAT-registeredsupplier.ByfailingtoprovethatitisaVAT-registeredentity,ZMGfailedtodischargetheburdenofprovingthatitssaleofservicessubjectofthedeficiencyassessmentqualifiesforVATzero-rating.

28 | Tax Bulletin

UnderSection252oftheLGC,paymentunderprotestismandatoryifthetaxpayerquestionsthereasonablenessorcorrectnessoftherealpropertytaxassessment.

National Grid Corporation of the Philippines vs. Central Board of Assessment AppealsCTA(En Banc)CaseNo.1392,promulgated05September2017

Facts:

TheMunicipalAssessorofSanFrancisco,AgusandelSurassessedPetitionerNationalGridCorporationofthePhilippines(NGCP)forallegeddeficiencyrealpropertytax(RPT)for2011-2012onpropertiesdeclaredinthenameofTRANSCOasownerandNGCPasbeneficialuser.NGCPfiledapetitionwiththeLocalBoardofAssessmentAppeals(LBAA)assailingtheRPTassessment,arguingthatitisexemptfrompaymentofRPTonthesubjectpropertiesunderSection9ofRA9511,thelawgrantingafranchisetoNGCPandSection234(c)oftheLocalGovernmentCode.TheMunicipalAssessorfiledamotiontodismisscitinglackofjurisdictiononthepartofLBAAduetoNGCP’sfailuretopaythetaxunderprotestpursuanttoSection252oftheLocalGovernmentCode(LGC).

TheLBAAdismissedthepetition.NGCPappealedtotheCentralBoardofAssessmentAppeals(CBAA),whichsetasidetheLBAA’sdecision.TheCBAApartiallydeniedNGCP’sRPTexemptiononsomerealpropertiesbutclassifiedtheotherpropertiesasunderthespecialclassesofrealpropertysubjecttotheassessmentlevelof10%.

UpondenialbytheCBAAoftheMotionforPartialReconsideration,NGCPfiledaPetitionforReviewwiththeCTAEn Banc.

Issue:

DidtheLBAAacquirejurisdictionoverNGCP’spetitionagainsttheRPTassessment?

Ruling:

No.TheLBAAdidnotacquirejurisdictionasNGCPfailedtopayunderprotestpursuanttoSection252oftheLGC.

TheprotestcontemplatedunderSection252oftheLGCisrequiredwherereasonablenessorcorrectnessoftheamountassessedisbeingimpugned.Ifthetaxpayerdisputesthereasonablenessoftherealpropertyassessment,itisrequiredto‘firstpaythetax’underprotest.Ontheotherhand,ifthetaxpayerquestionstheveryauthorityandpoweroftheassessortoissuetheassessment,orquestionstheauthorityandpowerofthetreasurertocollectthetax,thematterbecomesalegalquestion,whichisproperlycognizablebythepropertrialcourt.

Inotherwords,therecanbetwosituationswhenataxpayermayquestiontherealpropertytaxassessment:(1)questionthereasonablenessorcorrectnessoftheassessment,or(2)questionthelegalityorvalidityoftheassessment.

29Tax Bulletin |

Inthefirstscenariowherethetaxpayerquestionsthereasonableness,correctness,orexcessivenessoftheassessment,thetaxpayermustfirstpaythetaxunderprotestasmandatedbySection252oftheLGC.Iftheprotestisdenied,thetaxpayermayfileanappealwiththeLBAAwithin60daysfromreceiptofthedecision.AnadversedecisionoftheLBAAisappealabletotheCBAAwithin30daysfromreceiptofthedecision.IfthetaxpayerisnotsatisfiedwiththerulingoftheCBAA,itmayappealwiththeCTAEn Banc.

Inthesecondscenario,thequestiondealswiththelegalityorvalidityoftheassessment,i.e.authorityandpoweroftheassessortoimposetheassessmentandofthetreasurertocollectrealpropertytax.Insuchcase,thetaxpayermayappealdirectlytotheregionaltrialcourt.ThedecisionoftheRTCisappealabletotheCTA.

Inthiscase,NGCPquestionedbeforetheLBAAofAgusandelSurthecorrectnessoftheassessment.AscorrectlyobservedbytheLBAA,NGCPfailedtopayunderprotestthequestionedassessmentasrequiredunderSection252oftheLGC.ThepaymentofthetaxismandatorytovestLBAAwithjurisdictiontoentertainthepetition.

30 | Tax Bulletin

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Documents

Tax Bulletin October 2017 - EYFILE/EY-philippines-tax-bulletin-october-2017.pdfTax Bulletin October 2017. ... • The exemption from income and other taxes granted to PAGCOR under