Tax bulletin August 2017 - EY · PDF fileTax Bulletin August 2017. 2 | Ta Bulletin H i g h l i...

1Tax Bulletin |

Tax BulletinAugust 2017

2 | Tax Bulletin

H i g h l i g h t s

BIR Issuances

• Revenue Memorandum Order (RMO) No. 17-2017 prescribes policies for the close monitoring of the top taxpayers in Revenue Regions. ( P a g e 3 )

• RevenueMemorandumCircular(RMC)No.60-2017announcestheofficiallaunchoftheSealofHonestyCertificationPrograminpartnershipwiththeCenterforStrategicReformsofthePhilippinestopromoteacultureofhonestyandintegrityin paying taxes. ( P a g e 4 )

• RMCNo.68-2017clarifiesthevenuefortheprocessingofapplicationandissuanceofcorrespondingPermittoUseLoose-LeafBooksofAccounts/Invoices/ReceiptsandotherAccountingRecords.( P a g e 6 )

• RMCNo.69-2017clarifiestheregistrationandtaxcompliancerequirementsofindividualsunderaJobOrderorServiceContractAgreementwiththeDepartmentsandAgenciesoftheGovernment,Instrumentalities,LocalGovernmentUnits(LGUs),StateCollegesandUniversities,includingGovernmentOwnedand/orControlledCorporations(GOCCs)andGovernmentFinancialInstitutions(GFIs).( P a g e 6 )

BOC Issuance

• CAONo.5-2017coverstheestablishmentofanAuthorizedEconomicOperator(AEO)PrograminthePhilippinesbyproviding,amongothers,theinfrastructure,facility,mechanism,processandbenefitsnecessaryforitsfullimplementation.( P a g e 9 )

BSP Issuances

• CircularNo.967providesforReportorialRequirementsforTrustEntities.( P a g e 1 1 )

• CircularNo.968providesfortheExtensionoftheTransitoryProvisionof

Subsection4511N.16oftheManualofRegulationsforNon-BankFinancialInstitutions(MORNBFI).( P a g e 1 2 )

• CircularNo.969providesfortheEnhancedCorporateGovernanceGuidelinesforBSP-SupervisedFinancialInstitutions.( P a g e 1 3 )

• CircularNo.970providesfortheEnhancedCorporateGovernanceGuidelinesforBSP-SupervisedFinancialInstitutionsAmendingtheMORNBFI.( P a g e 1 4 )

• CircularNo.971providesfortheGuidelinesonRiskGovernance.( P a g e 1 5 )

• CircularNo.972providesfortheEnhancedGuidelinesinStrengtheningComplianceFrameworks.( P a g e 1 5 )

SEC Opinions and Issuance

• Acompanyintendingtoincreasetheparvalueofitsshareswithoutincreasingthenumberofsharesoritsauthorizedcapitalstock(ACS)mayundertakeareversestocksplitbyamendingitsArticlesofIncorporation.( P a g e 1 7 )

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• Acorporationengagedinprovidingadigitalplatformtoassistbusinessesandcompanies in disseminating information is engaged in the business of mass media,andthus,mustbewholly-ownedandmanagedbyFilipinocitizens.( P a g e 1 7 )

• SECMCNo.9providesfortherulesandregulationsontheimplementationoftheSECOversightAssuranceReview(SOAR)InspectionProgram.( P a g e 1 8 )

Court Decisions

• ThelocationofrealpropertystatedintheCertificateofTitle,untilcancelledoramendedthroughjudicialproceedings,determinesthesitusoflocaltaxation.

Thepersonconductingthebusinessisthepersonwhomthelocalgovernmentunit may pursue for payment of local business taxes. ( P a g e 1 8 )

• Thetransferofpropertiesinexchangeforsharesofstockandadditionalpaid-incapital(APIC)qualifiesasatax-freeexchangeunderSection40(C)(2)oftheTaxCode.

TheelementofpermanenceprescribedinRevenueMemorandumRuling(RMR)No. 1-2002 in a de facto merger pertains to the permanent transfer of assets from the transferee to the transferor such that the assets cannot be returned to the transferor corporation. ( P a g e 2 0 )

• AnyVATpassedontoataxpayerwhoisentitledto0%VATonitspurchasesof goods and services should be recovered from the seller and not from Government.( P a g e 2 1 )

BIR Issuances

RMO No. 17-2017 dated 17 July 2017

• Thetop500non-individualtaxpayersofthefollowingRevenueRegions,whosatisfythecriteriaforLargeTaxpayers,buthavenotbeennotifiedbytheCommissionerofInternalRevenue,shallbeconsideredforclosemonitoring:

1. RevenueRegion1–Calasiao,Pangasinan2. RevenueRegion4–SanFernando,Pampanga3. RevenueRegion5–CaloocanCity4. Revenue Region 6 – Manila5. RevenueRegion7–QuezonCity6. RevenueRegion8–MakatiCity7. RevenueRegion9A–Cavite,Batangas,MindoroandRomblon8. RevenueRegion9B–Laguna,QuezonandMarinduque9. RevenueRegion12–NegrosIslandRegion10. Revenue Region 13 – Cebu City11. Revenue Region 16 – Cagayan de Oro12. Revenue Region 19 – Davao City

• TheabovetaxpayerswillcomprisetheMediumTaxpayerssegmentoftheBIR,butshallexcludethefollowing:

1. NationalGovernmentAgencies2. LocalGovernmentUnits3. GovernmentOwnedandControlledCorporations4. StateCollegesandUniversities

RMO No. 17-2017 prescribes policies for the close monitoring of the top taxpayers in Revenue Regions.

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• ARegionalMonitoringTeam,whichshallbedirectlyunderthesupervisionoftheRegionalDirector,shallbecreatedandperformthefollowingfunctions:

1. Monitortheircomplianceandanalyzedrasticchangesinthemonthlytaxpayments of taxpayers;

2. Undertakeprofilingoftaxpayersforsectororindustrybenchmarking;

3. Actonpre-processeddata(RELIEF,TRSandBIR-BOC),ifavailable;

4. Analyzethetaxcompliancereportcard;

5. Provideinputstobeusedinformulatingstrategiestomaximizetaxpayercompliance;

6. Basedontheanalysisoftaxcompliance,recommendtheconductofauditand investigation of taxpayers by the concerned RDOs; and

7. SubmitmonthlystatusreportstotheNationalMonitoringTeam.

• ANationalMonitoringTeamshallbecreatedtooverseetheperformanceoftheRegionalMonitoringTeams,undertakeanationalanalysisoftaxpayercompliance,andprovidespecificguidelinesontheoperationsoftheregionalteams.

RMC No. 60-2017 dated 28 July 2017

• TheBIR,togetherwiththeDepartmentofTradeandIndustry(DTI),hassignedaMemorandumofUnderstanding(MOU)withtheCenterforStrategicReformsofthePhilippines(CSRPhilippines),anon-stock,non-profit,non-governmentorganization,toimprovetheeaseofdoingbusinessandbroadenthetaxpayer’sbase.

• TheCSRPhilippinesaimstoassistMicro,SmallandMediumEnterprises(MSMEs)infindingsolutionstoconcerns,suchas,butnotlimitedto,financialsupport,lowproductivityandcompetitiveness,limitedmanagementandfinancialcapabilities,aswellasthelackofaccesstonewtechnologythroughpublic-privatecollaborationstopromoteMSMEdevelopmentandgenuinetaxreformtowardinclusivegrowth.

• UndertheMOU,taxpayersaregiventheoptiontosubscribetotheSOHCertificationProgram.

• SOHisacertificationprogramspearheadedbyCSRPhilippinesinpartnershipwiththeBIRandDTItopromoteacultureofhonestyandintegrityinpayingtaxes.

• AlltaxpayersmayapplytogetSOHCertification,especially:

1. Self-employed and professionals;

2. Estate/Trust/Co-Ownershipregardlessofsizeandindustry;and

3. TaxpayersregularlymonitoredbytheBIRfortaxationandadministrationcompliance.

RMC No. 60-2017 announces the officiallaunchoftheSealofHonestyCertificationPrograminpartnershipwiththeCenterforStrategicReformsofthePhilippinestopromoteacultureofhonesty and integrity in paying taxes.

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• TheapplicationsforSOHCertificationshallbesubmittedtotheEvaluationCommitteeundertheOfficeoftheCommissionerofInternalRevenue(CIR).

• ThefollowingarethecriteriatoqualifyfortheSOHCertification:

1. Settle all open cases and pending undisputed assessments as per CertificationoftheRevenueDistrictOffice(RDO);

2. ObservefullandhonestcompliancewithallBIRregulationsandrequirementsatalltimes;

3. SigntheIntegrityPledgetopromoteandupholdhonestyandintegrityinpayingtaxesandindealingwillallgovernmentagencies,customersandsupplierswithoutcompromises;

4. NotbribeanyBIRpersonnel/official;and

5. Increasetheirvoluntarycompliancebyatleast20%intotaltaxpaymentsforthosewhoareregularlyauditedbytheBIR,basedontheleveloftheircompliance.

• ThefollowingistheprocessforsecuringtheSOHCertification:

1. SigntheIntegrityPledgeandcommitmenttopromoteacultureofhonestyand integrity in paying taxes;

2. Attendaroundtablediscussiononpayingtherighttaxesorganizedbyanyofthebusinessorganization,chamberorassociationinpartnershipwithCSRPhilippines;

3. ApplyfortheCertificationProgram;

4. Haveapreliminaryevaluationtodeterminetheriskassessmentandlevelof compliance;

5. Undergotaxplanningandcompliancereview;

6. SubmitcompliancereporttotheEvaluationCommitteeforreviewandrecommendation;

7. ApprovalbyOfficeoftheCIR;

8. AwardingoftheSOHCertification;

9. Revalidation after one year; and

10. Renewaleveryyear.

• TheSOHCertificationisvalidforoneyearandrenewableeveryyear,subjecttorevalidationofCSRPhilippinesandapprovalbytheEvaluationCommitteeundertheOfficeoftheCIR.

• Adulycertified/awardedSOHTaxpayershallbeentitledtothefollowingbenefits:

1. Issuanceofannualtaxclearance,withoutprejudicetoinformationnotavailable at the time of issuance;

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2. Lastpriorityinaudit;and

3. Otherprivileges,whichDTIandothergovernmentagenciesmayalsoextendtocertifiedhonesttaxpayers.

• TheawardofSOHCertificationdoesnotgrantfullimmunitytothetaxpayer.AnySOHtaxpayer,whoisfoundtohaveviolatedthePhilippinetaxlawsandregulations,willbesubjecttoauditandinvestigation.

RMC No. 68-2017 dated 15 August 2017

• PermitstoUse(PTU)Loose-LeafBooksofAccounts/Invoices/ReceiptsandotherAccountingRecordsshallnowbeprocessedandissuedbytheconcernedRevenueDistrictOffice(RDO)wheretheprincipalofficeofthetaxpayerisregistered.

• ThefollowingarethedocumentaryrequirementsforthePTUapplication:

1. Duly-accomplishedBIRFormNo.1900(ApplicationforAuthoritytoUseComputerizedAccountingSystemforComponentsThereof/Loose-LeafBooksofAccounts);

2. Sample format and print-out to be used;

3. InlieuoftheinvestigationprescribedunderRMCNo.13-82,aSwornStatement,whichshallspecifythefollowing:

• Thebookstobeused,invoices/receiptsandotheraccountingrecords,togetherwiththeserialnumbersofprincipalandsupplementaryinvoices/receiptstobeprinted;and

• Commitmenttopermanentlybindtheloose-leafformswithin15daysafter the end of each taxable year or upon the termination of its use;

• ThePTULoose-Leafissuedtothetaxpayer’sHeadOfficeshallcoverallidentifiedregisteredbranchesandshallbevalidinanyRDOwherethetaxpayerhas registered branches at the time of issuance;

• UpdatingofPTUshallberequiredforsubsequentadditionalbranches;and

• EachbranchauthorizedtousetheapprovedLoose-LeafshallbefurnishedwithacertifiedtruecopyofthePTUissuedbytheRDOoftheHeadOffice.

RMC No. 69-2017 dated 17 August 2017

• AprofessionalhavingaJobOrderorServiceContractAgreementwiththeGovernmentiseitheralicensedprofessionalornon-licensedprofessional.

1. LicensedProfessionalsrefertoindividualsengagedinthepracticeofprofessionsorcallingsorwhorenderservicesforafee,suchasthoseenumeratedunderSection2.57.2(A)(1)ofRevenueRegulations(RR)No.2-1998,asamended,

RMCNo.68-2017clarifiesthevenuefor the processing of application and issuanceofcorrespondingPermittoUseLoose-LeafBooksofAccounts/Invoices/ReceiptsandotherAccountingRecords.

RMCNo.69-2017clarifiestheregistration and tax compliance requirementsofindividualsunderaJobOrderorServiceContractAgreementwiththeDepartmentsandAgenciesoftheGovernment,Instrumentalities,LGUs,StateCollegesandUniversities,includingGOCCsandGFIs.

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2. Non-LicensedProfessionalsorNon-ProfessionalsrefertothoseindividualswhoarenotidentifiedunderSection2.57.2(A)(1)ofRRNo.2-1998,asamended,andwhoarenotregisteredwithandregulatedbythePRC,SC,IntegratedBarofthePhilippines(IBP),etc.andrenderservicesorlabor-only for a fee or under a contract of service.

• ThefollowingaretheregistrationandtaxcompliancerequirementsofprofessionalsunderaContractofServiceofJobOrderwiththeDepartmentsandAgenciesoftheGovernment,Instrumentalities,LGUs,StateCollegesandUniversities,GOCCsandGFIs:

1. ProfessionalsderivingannualgrossreceiptsofP100,000and/oramountequivalenttostatutoryminimumwageratesfromlonepayorwithnoothersourceofincome:

• Registration Requirements:

a. RegistrationwiththeBIRusingBIRFormNo.1901forTaxpayerIdentificationNumber(TIN)issuance,withtaxpayertypeof“Professional”or“Professional–InGeneral”withthefollowingdocuments:

►• Copyofservicecontractshowingtheamountofincomepayment

• Anyidentificationissuedbyanauthorizedgovernmentbody(e.g.birthcertificate,passport,driver’slicense,CommunityTaxCertificate)thatshowsthename,addressandbirthdateof the applicant

b. ExemptionfrompaymentofAnnualRegistrationFee(ARF)

c. TaxType:IncomeTax

d. ExemptionfromissuanceofCertificateofRegistration(COR)

• Bookkeeping and Invoicing Requirements:

a. Exemptionfromcompliancewiththeissuanceofregisteredreceipts/invoices

b. ExemptionfromtherequirementofmaintenanceofBooksofAccounts

• Tax Compliance Requirements:

a. FilingofAnnualIncomeTaxReturn(ITR)(BIRFormNo.1701)andpayment,ifapplicable

b. ExemptionfromfilingofQuarterlyIncomeTaxReturn(BIRFormNo.1701Q)

c. Notsubjecttocreditablewithholdingtaxes

d. Exemptionfrompaymentofbusinesstaxes(i.e.VATorPercentageTax)

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2. ProfessionalsderivingannualgrossreceiptsaboveP100,000.00and/orstatutoryminimumwageratesfromlonepayorwithnoothersourceofincome:


a. RegistrationwiththeBIRusingBIRFormNo.1901forTINissuance,togetherwiththefollowingdocuments:

• Copyofservicecontractshowingtheamountofincomepayment

• Anyidentificationissuedbyanauthorizedgovernmentbodythatshowsthename,addressandbirthdateoftheapplicant

b. PaymentofARF

c. TaxTypes:ARF,IncomeTax(IT-1701),VATorPercentageTax(end-datediftaxpayerwillavailofsubstitutedpercentagetax/VATreturn)

d. ExemptionfromissuanceofCOR


a. ApprovalofAuthoritytoPrint(ATP)fortheissuanceofregisteredprincipalreceipts/invoices(exceptifqualifiedunderthesubstituted receipts)

b. RegistrationandmaintenanceofBooksofAccounts(exceptifqualifiedunderthesubstitutedreceipts)


a. FilingandpaymentofAnnualITR(BIRFormNo.1701)

b. ExemptionfromfilingofQuarterlyIncomeTaxReturn

c. ExemptionfromattachingfinancialstatementsoraccountinformationformtothefiledITR

d. Subjecttocreditablewithholdingtaxratesof10%/15%forlicensedprofessionals,whicheverisapplicable,or2%expandedwithholdingtax(EWT)fornon-licensedprofessionalsunderRRNo.2-1998 as amended

e. SubjecttowithholdingofpercentagetaxorVAT,withthegovernmentagency-payorbeingrequiredtowithhold3%percentagetaxor5%finalwithholdingVATor12%VAT,ifthepayeewillavailofthesubstitutedfilingofVATreturnunderRRNo. 14-2003

f. FilingandpaymentofmonthlyandquarterlyVATormonthlypercentage tax returns

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3. Professionalswithmultiplepayorsand/orothersourcesofincome:


a. RegistrationwiththeBIRusingBIRFormNo.1901,togetherwiththefollowingdocuments:

• ChecklistofrequirementsunderAnnexA-1ofRMCNo.137-2016

• Copyofservicecontractshowingtheamountofincomepayment

b. PaymentofARF

c. TaxTypes:RF,IncomeTax(IT–1701/1701Q),VATorPercentageTax


a. RegistrationandmaintenanceofBooksofAccounts

b. ApprovalofATP

c. Issuanceofregisteredprincipalreceipts/invoices


a. FilingandpaymentofQuarterlyITR(BIRFormNo.1701Q)andAnnualITR(BIRFormNo.1701)

b. Subjecttocreditablewithholdingtaxratesof10%or15%forlicensedprofessionals,whicheverisapplicable;or2%EWTfornon-licensed professionals

c. SubjecttocreditablewithholdingofpercentagetaxorVAT,withthegovernmentagency-payorbeingrequiredtowithhold3%percentagetaxor5%finalwithholdingVAT

d. FilingandpaymentofthemonthlyandquarterlyVATormonthlypercentage tax returns

e. QuarterlysubmissionoftheSummaryListofSalesandSummaryListofDomesticPurchasesforVATtaxpayers

BOC Issuance

Customs Administrative Order No. 5-2017 dated 18 August 2017

• TheobjectivesoftheAuthorizedEconomicOperator(AEO)Programare:

1. TocomplywiththecommitmentofthePhilippinestoimplementinternationaltradeagreementssuchas(a)WorldCustomsOrganization(WCO)FrameworkofStandardstoSecureandFacilitateGlobalTrade(SAFEFramework);(b)WCOIntegratedSupplyChainManagement(ISCMGuidelines);(c)theConventionontheSimplificationandHarmonizationofCustomsProcedures(RevisedKyotoConvention);and(d)theWTOAgreementonTradeFacilitation;

CAONo.5-2017coverstheestablishmentofanAEOPrograminthePhilippinesbyproviding,amongothers,theinfrastructure,facility,mechanism,processandbenefitsnecessaryforitsfull implementation.

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2. TodevelopanAEOProgramtoattainamutualrecognitionstatusinrelationtotheAEOorsimilarprogramsofothercountries;

3. ToprovidebenefitstoaccreditedmembersoftheAEOProgrambywayofincentivestocustomsstakeholderswithhighlevelofcomplianceswithcustoms rules and regulations on import and export clearance and cargo security; and

4. Toestablishaspecialcustomscargoclearancelanetofurtherfacilitateandsecure international trade at the same time to increase the level of customs compliances through the optimum use of information and communication technologyandriskassessmentprinciples.

• AEODefinition-AnAEOshallrefertotheimporter,exporter,customsbroker,forwarder,freightforwarder,transportprovider,andanyotherentitydulyaccreditedbytheBureauofCustoms(BOC)basedontheWCOSAFEFramework,RKC,theWCOISCMGuidelines,andthevariousnationalbestpracticestopromote trade facilitation and to provide seamless movement of goods across bordersthroughsecureinternationaltradesupplychainswiththeuseofriskmanagement and modern technology.

• WhomayparticipateintheAEOprogram?

1. Importers;2. Exporters;3. CustomsBondedWarehouses(CBW)andCustomsFacilitiesWarehouses

(CFW);4. CustomsBrokers;5. Non-VesselOperationCommonCarriers(NVOCC),FreightForwarders,

andInternationalFreightForwarderswithofficesinthePhilippines;6. ShippingLinesorAirlinesandtheiragents;7. AuthorizedAgentBanks(AABs);8. LocalTransportOperatorsandtheirfacilitiesandequipment;and9. Foreignsuppliers,manufacturers,andotherentitiesinthelogisticsand

InternationalSupplyChainaccreditedasAEObyanothercountrywithwhichthePhilippineshasaMutualRecognitionArrangement.

• AEOMembershipAccreditationCriteria–theapplicantmustmeetthestandardofreliabilityandtrustworthinesswhichshallbemeasuredbythelevelofrisk,natureofbusinessandtheconductofimportationagainstcustomsrevenue,complianceandcargosecurity:

1. GeneralCriteria• Businessownership,structure,andorganization;• Corporate or business profile and projected business activity; • End-to-endimportorexportprocess(goods,documentation,and

paymentflow)andlocaldistributionsystem,ifany;• Entitiesinvolvedinforeignsupplyand/orlocaldistributionchain;• Listofgoodsimportedorexportedincludingthenature,specific

descriptionintariffterms,customsvalue,preferentialratestobeavailedof,andvolume(overtime);

• Internalcustomscompliancecontrol;• Customs compliance history; • Businessprocesscontinuitymechanism;and• OthersimilarfactorstobedeterminedbytheBOC

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2. SecurityInfrastructure• Cargohandlingandsafekeeping;• RecordkeepingandITSystem;• Supply and trading partner; • Physicalpremisesandaccesscontrol,• Personnelcomplement;• Securitytraining,threatawareness,andoutreach;and• OthersimilarfactorstobedeterminedbytheBureau

3. Theapplicantentitymusthavebeeninoperationforatleastoneyearpriorto the date of application.

4. Theapplicantshallensurethatithasobtainedthenecessarypermits,licenses,and/orconcessionifregulatedbyanothergovernmentagency.

5. Thatnoneoftheexecutiveofficersanddirectorsdirectlyengagedincustomsproceduresandshareholders,asapplicable,havebeenfoundcriminallyliableforviolationsofcustomslawsandprocedures.

6. Theapplicantmusthaveadedicatedofficeorunitandresponsibleofficerwhosemainfunctionistoensuretheapplicant’scompliancewithitsdutiesandresponsibilitiesundertheAEOProgramasanaccreditedmember.

• AEOApplicationProcessingandApproval–theBOCismandatedtoestablishasimplifiedsystemofprocessing,evaluationandactionontheapplications.TheprocessingofAEOapplicationsshallconsistofthe3Levels,providingcriteriaandcorrespondingbenefitstomemberswhodemonstrateasustainedcommitment to maintaining security measures and supply chain security practicesthatcomplieswithorexceedtheguidelinesestablished.

• GroundsforDenialofApplication

1. FailuretomeetanyoftherequirementsundertheAEOMembershipAccreditationCriteriasuchasanAEOmember’ssecuritymeasuresandsupply chain security practices.

2. Falseormisleadinginformationduringthevalidationprocess.

• SuspensionandRevocationofAccreditation-Oncegranted,AEOaccreditationshalllastuntilsuspendedorrevokeddependingondegreeofculpabilityandresulting injury to the government after due notice and hearing.

• Effectivity:15daysfrompublicationintheOfficialGazetteoranewspaperofgeneral circulation.

[Editor’s Note: CAO 5-2017 was received by the UPLawCenter on 18 August 2017.]

BSP Issuances

BSP Circular No. 967 dated 21 July 2017

• ThisCircularprovidesfortheissuanceoftheFinancialReportingPackage(FRP)forTrustCorporation(TC),amendmentstoAppendicesT-1andT-3(TRegulations)oftheMORNBFI,andrevisionsonselectedsectionsandschedulesoftheFinancialReportingPackageforTrustInstitutions(FRPTI).

Circular No. 967 provides for ReportorialRequirementsforTrustEntities.

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• TrustCorporations

1. TheManualofAccounts(MoA)forTCsshallbeusedinthepreparationoftheFinancialReportingPackagereflectingtheproprietaryactivitiesofTCs.ThesubmissionoftheFRPforTCsshallstartforthereportingperiodended30 September 2017.

Similarly,thecorrespondingBSPreportingtemplatesareherebyissuedwhichshallbesubmittedbyTCsinthemodesandmannerasprescribedunderAppendixT-3oftheMORNBFI-TRegulations.

2. AppendixT-1ListofApplicableAppendicesundertheMORNBFI-TRegulationsisherebyamendedbydeletingreferencetoAppendixQ-10toBasicGuidelinesinSettingUpAllowanceforCreditLosses(Attachment3).

3. AppendixT-3ListofReportsRequiredfromTrustCorporationsunderSection4192ToftheMORNBFI-TRegulationsisherebyamendedtoalignwiththerecentregulatoryissuancesonreportorialrequirementswhichareapplicabletoTCs(Attachment4).

• TrustEntities

1. TheFRPTIissuedunderCircularNo.609dated26May2008asamended,whichisapplicabletoalltrustentities,shallberevised.Thisrevisionreflectsthe changes in the presentation of assets net of securities custodianship underItem10–BreakdownofTrustandAgencyAssetsfortheQuarterofthesaidreportandOvernightDepositandTermDepositAccounts.

• ThisCircularshalltakeeffect15daysfollowingitspublicationintheOfficialGazetteorinanynewspaperofgeneralcirculationinthePhilippines.

[Editor’s Note: BSP Circular No. 967, s. 2017 was published in TheManilaTimes on 1 August 2017]

BSP Circular No. 968 dated 10 August 2017

• ThisCircularprovidesfortheamendmentinSubsection4511N.16oftheMORNBFIextendingthetransitoryperiodontheeffectivityofpreviouslyissuedCertificatesofRegistrationtoRemittanceandTransferCompanies(RTCs)/MoneyChangers(MCs)/ForeignExchangeDealers(FXDs),toprovidethemmoretimetogathercompleteandupdateddocumentaryrequirements.

• Subsection4511N.16oftheMORNBFIshallbeamendedtoreadasfollows:

“Transitoryprovisions.AllBangkoSentralCertificateofRegistration(CORs)previouslyissuedCertificatesofRegistrationtoRemittanceandTransferCompanies(RTCs)/MoneyChangers(MCs)/ForeignExchangeDealers(FXDs)shallremaineffectiveuntil31January2018.Upontheexpirationofthetransitoryperiod,allpreviously-issuedBangkoSentralCORsshallbeconsideredautomaticallycancelled,unlessotherwiseextendedbytheBangkoSentral.”

• ThisCircularshallbeeffectiveimmediately.

[Editor’s Note: Circular 968 was published in BusinessWorld on 14 August 2017.]

Circular No. 968 provides for the ExtensionoftheTransitoryProvisionofSubsection4511N.16ofMORNBFI.

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• ThisCircularprovidesfortherevisionstotheguidelinesinstrengtheningcorporategovernanceinBSPSupervisedFinancialInstitutionsamendingrelevantprovisionsoftheManualofRegulationsforBanks(MORB).

• ChapterHofPartOneoftheMORBonDirectors,OfficersandEmployeesisherebyretitledas“CorporateGovernanceGuidelines.”

• SectionX141(PolicyStatement)andSubsectionsX141.1(DefinitionofTerms)areamended.SubsectionsX141.2toX141.5andSubsectionsX141.9toX141.10aredeleted.

• SectionX142(BoardofDirectors),Subsec.X142.1(Powers/Corporatepowersoftheboardofdirectors),Subsec.X142.2(Compositionoftheboardofdirectors),Subsec.X142.3(Qualificationsofa director),Subsec.X142.4(Chairpersonoftheboardofdirectors),SubsecX142.5(Boardofdirectorsmeetings) are amended.

• SectionX143(DutiesandResponsibilitiesoftheBoardofDirectors/Directors),Subsec.X143.1(Specificdutiesandresponsibilitiesoftheboardofdirectors),Subsec.X143.2(Specificdutiesandresponsibilitiesofadirector)areamended.

• SectionX144(Board-levelcommittees),Subsec.X144.1(AuditCommittee),Subsec.X144.2(Riskoversightcommittee),Subsec.X144.3(Corporategovernancecommittee),Subsec.X144.4(Relatedpartytransactionscommittee) are amended.

• SectionX145(Officers)andSubsec.X145.1(Qualificationsofanofficer)areamended.TheprovisionsofSubsec.X142.3aretransferredtoSubsec.X145.2,andanewSubsectionX145.3isadded,whichprovidesfortheChiefExecutiveOfficer.

• SectionX146(Remunerationandotherincentives)andSubsectionX146.2(Loans,advancesandothercreditaccommodationstoofficers)areamended.TheentireprovisionsofSubsectionsX147.1andX147.2aretransferredtoSubsectionsX146.1andX146.3,respectively,andprovisionsofSubsectionsX338.2andX338.3aretransferredasItems“a”and“b”ofSubsectionX146.2,respectively.

• SectionX146.2isamendedandrenumberedtoSubsectionX147.1andprovidesforRPTpolicies/rolesofseniormanagementandself-assessmentfunctions.

• Sections/SubsectionsX141.4,X144,X145,X145.1andX150areamendedandtransferredtoSection148(ConfirmationoftheElection/AppointmentofDirectors/Officers;Bio-dataofDirectorsandOfficers;InterlockingDirectorshipsand/orOfficerships;RulesofProceduresonAdministrativeCasesInvolvingDirectorsandOfficersofBSFIs),andtoitsSubsectionsX148.1toX148.4.

• SectionX186oftheMORBoninternalauditfunctionisamendedandreadsasfollows:

“Aneffectiveandefficientinternalauditfunctionconstitutesthethirdlineofdefense in the system of internal control.

Circular No. 969 provides for the EnhancedCorporateGovernanceGuidelinesforBSP-SupervisedFinancialInstitutions.

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Internalauditisanindependent,objectiveassuranceandconsultingfunctionxxx”

• SubsectionX406.10oftheMORBonconfirmationoftheappointment/designationoftrustofficerandindependentprofessionalofChapterAofpartFouroftheTrust,OtherFiduciaryBusinessandInvestmentActivitiesisamended.

• TheSections/SubsectionsoftheMORBarerenumbered/deletedandreferencestotherenumberedprovisionsarecorrespondinglyamended/deleted.

• ThisCircularshalltakeeffect15calendardaysfollowingitspublicationeitherintheOfficialGazetteorinanewspaperofgeneralcirculation.

[Editor’s Note: Circular 969 was published in ThePhilippineStar on 30 August 2017]


• ThisCircularprovidesfortherevisionstoguidelinesinstrengtheningcorporategovernanceinBSPSupervisedFinancialInstitutionsamendingrelevantprovisionsoftheMORNBFI.

• Section4002Q(DefinitionofTerms)isamended.

• ChapterHofQRegulationsoftheMORNBFIisretitledas“CorporateGovernanceGuidelines”.

• Section4141Q(PolicyStatement)isamended,andSubsections4141Q.1to4141Q.4andSubsections4141Q.9to4141Q.10aredeleted.

►• Subsections4141Q.3Item“a”,4141Q.2Item“a”and4141Q.1Items”b”to“e”areamendedandtransferredtoSection4142Q(BoardofDirectors)andSubsections4142Q.1to4142Q.5.

• Subsection4141Q.3isamendedandtransferredtoSection4143QandSubsections4143Q.1to4143Q.2.

• Subsection4141Q.3Item“d”isamendedandtransferredtoSection4144Q(Board-levelcommittees)andSubsections4144Q.1to4144Q.3.

• Section4142QisamendedandtransferredtoSubsection4145Q.1,theprovisionsofSubsection4142Q.3istransferredtoSubsection4145Q.2,andnewSubsection4145Q.3isadded.

• TheentireprovisionsofSections4146Qand4147QaretransferredtoSubsections4146Q.1and4146Q.3,respectively,andnewSection4146Q(RemunerationandOtherIncentives)andSubsection4146Q.2areadded.

• Sections/Subsections4141Q.4,4144Q,and4145QareamendedandtransferredtoSubsections4148Q.1to4148Q.4,andSubsection4145Q.1istransferredto4148Q.3.

• Section4186QoftheMORNBFIoninternalauditfunctionisamended.

• Section4406Q.10oftheMORNBFIonconfirmationoftheappointment/designationoftrustofficerandindependentprofessionalofChapterAofPartFouroftheTrust,OtherFiduciaryBusinessandInvestmentActivitiesisamended.

Circular No. 970 provides for the EnhancedCorporateGovernanceGuidelinesforBSP-SupervisedFinancialInstitutionsAmendingtheMORNFBI.

1 5Tax Bulletin |

• TheSections/SubsectionsoftheMORBarerenumbered/deletedandreferencestotherenumberedprovisionsarecorrespondinglyamended/deleted.


[Editor’s Note: Circular 970 was published in Malaya on 30 August 2017]


• ThisCircularprovidesforthefollowingguidelinesonriskgovernanceforBSPSupervisedFinancialInstitutionsamendingrelevantprovisionsoftheMORB/MORNBFI.

• SectionX174/4174QoftheMORB/MORNBFIonRiskManagementFunctionisamendedandrenamedasRiskGovernanceFramework.

• SubsectionX174.1oftheMORBwhichprovidesfortheRiskManagementFunctionisamended.

• Subsection4174Q.1oftheMORNBFIonRiskmanagementfunctionisaddedandprovidesthattheriskmanagementfunctionshallberesponsibleforidentifying,measuring,monitoringandreportingriskonanenterprise-widebasis as part of the second line of defense.

• SubsectionX174.2oftheMORBonChiefRiskOfficer(CRO)isaddedandprovidesthatUBs/KBsshallappointaCROtoheadtheriskmanagementfunction.Otherbanks,mayattheirowndiscretion,orasdirectedbytheappropriatesupervisingdepartmentoftheBangkoSentral,appointaCRO,oranyequivalentpositiontocarryouttheresponsibilitiesoftheposition.Theappointment,dismissalandotherchangestotheCROoritsequivalentpositionshall have prior approval of the board of directors.

• Subsection4174Q.2oftheMORNBFIonChiefRiskOfficerisalsoadded.

►• ThisCircularshalltakeeffect15calendardaysfollowingitspublicationeitherintheOfficialGazetteorinanewspaperofgeneralcirculation.

[Editor’s Note: Circular 971 was published in the Manila Standard on 30 August 2017.]


►• ThisCircularprovidesfortherevisionsinthecomplianceframeworksinBSPSupervisedFinancialInstitutionsamendingrelevantprovisionsoftheMORB/MORNBFI.

►• SectionX180anditsSubsectionsX180.1toX180.3oftheMORBonComplianceSystem/ComplianceOfficerareherebyamended,andprovisionsofSubsectionsX180.6andX180.7aretransferredtoSubsectionsX180.5andX180.6.

Circular No. 971 provides for the GuidelinesonRiskGovernance

Circular No. 972 provides for the EnhancedGuidelinesinStrengtheningComplianceFrameworks

1 6 | Tax Bulletin

►• Section4180QanditsSubsections4180Q.1to4180Q.3oftheMORNBFIonComplianceSystem/ComplianceOfficerareamended,andprovisionsofSubsections4180Q.6and4180Q.7aretransferredtoSubsections4180Q.5and4180Q.5.

►• ConsideringtherenumberingoftheprovisionsintheaboveSections/Subsections,referencestotherenumberedprovisionsarecorrespondinglyamended/deleted,asshownbelow:

S e c t i o n / S u b s e c t i o n s

W i t h c r o s s -r e f e r e n c e t o :

O n t h e : N e w S e c t i o n / S u b s e c t i o n

Appendix83a X180 RiskManagementGuidelinesForTrustAndOtherFiduciaryBusinessandInvestmentManagementActivities

X180.2;X180.3

X141.4X180

X180.4 ConfirmationofChiefComplianceOfficer

X148.1

X661.6X602.1

X180.2 Role of control functions - Responsibility in monitoring andassessingcompliancewithlaws,rulesandregulations

X180;X180.1

Appendix98a X180.2 Listofdocumentaryrequirements-ApprovaloftheAppointmentofTrustandComplianceOfficersofBanks

X180.1

Appendix98 X180.4 DocumentaryRequirementstobesubmittedtoBangkoSentralfortheElection/AppointmentofDirectors/OfficersofBanks

X180.3

41001Q.1AppendixQ-48a4401S.24701N.24180T

4180Q ComplianceProgram 4180Q.2

4180Q.3 4180Q.1 BusinessRisks 4180Q

4602Q.1 4180Q.1 Role of Control function - responsibility of compliance function

4180Q;4180Q.1

4141Q.44180Q

4180Q.24180Q.4

ConfirmationofChiefComplianceOfficer

4148Q.1

4661Q.6 4180Q.5 Compliance function - Responsibility in monitoring andassessingcompliancewithlaws,rulesandregulations

4180Q;4180Q.1

AppQ-57AppQ-57a

4180Q.2 ListofDocumentaryRequirements-ApprovaloftheAppointmentofTrustandComplianceOfficers

4148Q.1


1 7Tax Bulletin |

SEC Opinions and Issuance

SEC-OGC Opinion No. 17-06 dated 24 July 2017

Facts:

NCo.submittedarequestforlegalopiniontotheSECregardingitsequityrestructuringplanwhereinitintendstoincreasetheparvalueofitssharesfromP10.00toP50.00eachwithoutincreasingitsnumberofshares.

Issue:

Whatis/aretheprocedure/sthatmaybeundertakenbyNCo.toimplementitsplan?

Held:

AcompanythatintendstoincreasetheparvalueofitsshareswithoutincreasingeitherthenumberofsharesoritsauthorizedcapitalstockmayundertakeareversestocksplitbyamendingitsArticlesofIncorporation(AOI).Ifthecompanyintendstomaintainthecurrentnumberofshares,itmustalsoapplyfortheincreaseofitsauthorizedcapitalstockafterpriorapprovalofthemajorityoftheboardofdirectorsandthestockholdersrepresentingatleast2/3oftheoutstandingcapitalstockpursuanttoSec.38oftheCorporationCode.Ontheotherhand,ifthecompanyintendstomaintainitsauthorizedcapitalstock,itshouldundertakeareversestocksplitonlybutitsnumberofshareswill,ineffect,bereduced.

SEC-OGC Opinion No. 17-07 dated 24 July 2017

Facts:

ACo.isadomesticcorporationthatofferstechnologysolutionsthathelpitsclientspromotetheirbrands,productsandservices.Itprovidesadigitalplatformthatenablesitsclientstoreachouttotheirtargetmarketandconveytothemcustomizedmessagesandpoint-of-saleadvertisingthroughdigitalmediasignagesandaudioplayback.Themessagesandadvertisingcontentare,however,notcreatedbyACo.itself.

Issue:

WhetherornotACo.isengagedinthebusinessofmassmediaandadvertising,thus,mustbe100%Filipino-owned.

Held:

ACo.isengagedinthebusinessofmassmedia.Inapreviousopinion,theSECheldthat a corporation that provides an online platform for purposes of disseminating informationtothegeneralpublicisconsideredamassmediaentity,thus,subjecttotheConstitutionalrequirementthatthesamemustbewholly-ownedandmanagedbyFilipinocitizens.

Ontheotherhand,ACo.isnotengagedinadvertisingsince,asrepresented,itdoesnotconceptualize,design,prepareandproduceforitsclientsthecommercialmessagesoradvertisementbutmerelyallowsthepostingofthesameintheonlineplatform.

AcompanyintendingtoincreasetheparvalueofitsshareswithoutincreasingthenumberofsharesoritsACSmayundertakeareversestocksplitbyamendingitsArticlesofIncorporation.

Acorporationengagedinprovidingadigital platform to assist businesses and companies in disseminating information is engaged in the business of mass media,andthus,mustbewholly-ownedandmanagedbyFilipinocitizens.

1 8 | Tax Bulletin

ThelocationofrealpropertystatedintheCertificateofTitle,untilcancelledoramendedthroughjudicialproceedings,determines the situs of local taxation.

Thepersonconductingthebusinessisthepersonwhomthelocalgovernmentunit may pursue for payment of local business taxes.

SEC Memorandum Circular No. 9 dated 18 August 2017

Inordertoenhancethequalityofauditsofthefinancialstatementsofpubliclylistedcompaniesand,inturn,protecttheinterestsofinvestorsandotherusersofauditedfinancialstatements,theSECimplementstheSECOversightAssuranceReview(SOAR)InspectionProgramwiththefollowingkeyfeatures:

►• TheSOARInspectionProgramisconductedbytheOfficeoftheGeneralAccountant(OGA);

►• OnlyaccreditedauditingfirmsandauditengagementpartnersengagedbycompanieswithequityordebtsecuritieslistedinanExchangeandportionsofthesefirms’auditworkforthelistedcompaniesshallbereviewedandcoveredundertheSOARInspectionProgram;

►• TheOGAwillfollowarisk-basedapproachintheselectionofengagementsandfirmstobesubjectedtoSOARinspection;

►• Theinspectionofallcoveredfirmsshallbeconductedonceeverythreeyearswhereinatleastoneengagementwillbeselected.However,theSECisnotprecludedfromsubjectingfirmstoanannualinspectionifcircumstanceswouldwarrant;

►• TheadministrativesanctionsthatcanbeimposedbytheOGAonauditingfirmsor its employees or personnel found to be violating professional standards orthefirm’sownqualitycontrolproceduresincludecensure,requiringofadditionalprofessionaleducationandtraining,requiringtheengagementofanotherconsultanttodesignnewpoliciesforthefirm,monetaryfines,andsuspension or revocation of accreditation for egregious or repeat violations; and

►• SanctionsimposedbytheOGAareappealabletotheSECEn Banc in accordance withtheexistingRulesofProceduresoftheCommission.

[Editor’s Note: MC No. 9 was published in ThePhilippineStar and TheManilaTimes on 26 August 2017.]

Court Decisions

Consolidated Cases of Municipality of Cainta vs. City of Pasig and Uniwide Sales Warehouse Club, Inc. and Uniwide Sales Warehouse Club, Inc., vs. City of Pasig and Municipality of CaintaSupremeCourtSecondDivision,GRNos.176703&176721,promulgated28June2017

Facts:

UniwideSalesWarehouseClub,Inc.(Uniwide)conductedandoperatedbusinessin buildings and establishments constructed on parcels of land covered by three TransferCertificateofTitles(TCTs)issuedbytheRegisterofDeedsofPasigCity.TheTCTsindicatePasigCityasthelocationoftheparcelsofland.Uniwidepaidlocalbusinesstaxes(LBT)andrealtytaxes,feesandotherchargestoPasigCityfrom 1989 to 1996.

In1994,theMunicipalityofCaintafiledapetitionforsettlementofboundarydisputewithPasigCitybeforetheRegionalTrialCourt(RTC)ofAntipolo,whichdisputecoveredUniwide’ssubjectproperties.

SECMCNo.9providesfortherulesandregulations on the implementation of theSOARInspectionProgram.

1 9Tax Bulletin |

In1997,UniwidestartedtopaylocaltaxestoCaintaafterthelattergavenoticethatthesubjectpropertieswerewithinCainta’sterritorialjurisdiction.Consequently,PasigCityfiledacaseforcollectionofLBT,feesandotherlegalchargesdueforfiscalyear1997againstUniwidewiththeRTCofPasig.

Uniwide,inturn,filedathirdpartycomplaintagainstCaintaforreimbursementintheeventthatitwasadjudgedliableforpaymentoftaxestoPasig.

ThePasigRTCruledinfavorofPasig,whichupheldtheindefeasibilityoftheTorrenstitleheldbyUniwide.ThecourtorderedUniwidetopaylocaltaxesandfeesandrealestatetaxesbeginning1997uptothepresenttoPasigCity.Inthethirdpartycomplaint,theRTC,havingfoundthatUniwidepaidtaxes,feesandotherchargestoCaintabeginning1997,orderedthesaidMunicipalitytoreturntheamountstoUniwidepursuanttotheprincipleagainstunjustenrichment.

Aggrieved,UniwideandCaintaseparatelyappealedtotheCourtofAppeals,whichaffirmedtheRTCdecisions.Thus,UniwideandCaintaappealedtotheSupremeCourt.

Issues:

1. DoestheCityofPasighavetherighttolevyandcollectrealtytaxesandLBTfromUniwide?

2. CantheCityofPasigdirectlyrecoverfromtheMunicipalityofCaintatheLBTpaidbyUniwide?

Rulings:

1. Yes,PasighastherighttolevyandcollectrealtytaxesandLBT.

TheLocalGovernmentCode(LGC)providesthatLBTshallbepaidtotheLGUwherethebusinessisconducted,andrealtytaxesshallbepaidtotheLGUwheretherealpropertyislocated.ToidentifytheLGUentitledtocollecttaxes,thelocationstatedinthecertificateoftitleshouldbefolloweduntilamendedthrough proper judicial proceedings.

ItisundisputedthatthesubjectpropertiesarecoveredbyTCTswhichclearlyindicatethattheyaresituatedinPasig;thatUniwide’sbusinessestablishmentisconductedwithinthesubjectproperties;thatthelocationstatedintheTCTsremained unchanged since their issuance; that prior payments of the subject taxes,fees,andchargeshavebeenmadebyUniwidetoPasig;andthatthereisnocourtorderdirectingtheamendmentofthesubjectTCTswithregardtothelocationstated.Therefore,PasighastherighttolevyandcollectrealtytaxesonthesubjectpropertiesandLBTonthebusinessesconductedinsaidproperties.

WithouttheadjudicationofRTCAntipolofinallydeterminingthepreciseterritorialjurisdictionoftheseLGUs,thetaxpayerisentitledtorelyonthelocationclearlyreflectedintheTCTcoveringtheproperties.

Moreover,therulesimplementingtheLGCprovidethatincaseofaboundarydispute,thestatusoftheaffectedareapriortothedisputeshallbemaintainedand continued for all purposes.

2 0 | Tax Bulletin

2. No,PasigcannotdirectlyrecoverfromCainta.

TheLGCexpresslyprovidesthattheLBTmustbepaidbythepersonconductingthesame,whichisUniwide,inthepresentcase.EvenifUniwidepaidtaxestoCaintabeginning1997,PasigcannotdirectlyrecoverfromCainta.UniwideisthepersonagainstwhomPasigmayproperlypursueforthepaymentofLBT.

CaintaisobligatedtoreturnthetaxeserroneouslypaidtoitbyUniwide.

Premium Tobacco Redrying and Fluecuring Corporation vs. CIRCTA(FirstDivision)CaseNo.8897,promulgated18July2017

Facts:

On29October2009,PetitionerPremiumTobaccoRedryingandFluecuringCorporation(Premium)enteredintoPlanofDefactoMergerwithFortuneTobaccoCorporation(FTC),wherebyPremiumtransferredtoFTCmorethan80%ofitstotalassetsandsomeofitsliabilitiesinexchangeforsharesofstockandadditionalpaid-incapital(APIC)recordedinthebooksofFTC.

PremiumfiledarequestforrulingwiththeBIRLawDivisiontoconfirmthatthetransactionwithFTCisatax-freeexchangepursuanttoSection40(C)(2)oftheTaxCode.TheBIRdidnotactontherequestforconfirmatoryruling.Instead,theBIRassessedPremiumforallegeddeficiencyincometax,value-addedtax(VAT),anddocumentarystamptax(DST)onthetransferofitsassetsandliabilitiestoFTC.

TheBIRalleged,amongothers,thatthetransactionwasnotundertakenforabona fidebusinesspurpose.TheBIRassertedthatthetransactionwasintendedasapreliminaryactofPremiumtoescapetheburdenoftaxationconsideringthatfourmonthsafter,theassetssubjectofthede factomergerwereimmediatelytransferredtoanewlyformedcorporation,PMFTC,Inc.TheBIRarguedthattheelementofpermanenceandnotmeremomentaryholding,asprescribedbyRevenueMemorandumRuling(RMR)No.1-2002,wasnotmet.

Issue:

DoesPremium’stransferofassetsandliabilitiestoFTCinexchangeforsharesofstockandAPICqualifyasade factomergerunderSection40(C)(2)oftheTaxCode?

Ruling:

Yes,Premium’stransferofpropertieswasade factomerger,atax-freeexchangeunderSection40(C)(2)oftheTaxCode.

Thelawrequiresonlytwoconditionstoconstituteatax-freede factomerger:

1. Theremustbeatransferofallorsubstantiallyallofthepropertiesofthetransferorcorporationforstock;and,

2. Itmustbeundertakenforabona fide business purpose and not solely for the purpose of escaping the burden of taxation.

Thetransferofpropertiesinexchangeforsharesofstockandadditionalpaid-incapital(APIC)qualifiesasatax-freeexchange under Section 40 (C) (2) of theTaxCode.

Theelementofpermanenceprescribedin Revenue Memorandum Ruling (RMR) No. 1-2002 in a de facto merger pertains to the permanent transfer of assets from the transferee to the transferor such that the assets cannot be returned to the transferor corporation.

2 1Tax Bulletin |

AnyVATpassedontoataxpayerwhoisentitledto0%VATonitspurchasesof goods and services should be recovered from the seller and not from Government.

Premiumcompliedwiththeforegoingrequisites.IttransferredassetsandliabilitiesinexchangeforFTCsharesandAPIC.Therequirementofbona fide business purposewasalsometsincethepurposeofthede factomergerunderthePlanofDeFactoMergerwasmainlytostreamlineprocessesandmaximizeresources.

Thephrase“elementofpermanenceandnotmerelymomentaryholding”underRMR 1-2002 pertains to the permanent transfer of the assets to the transferee corporationandnotmerelytemporaryholding,suchthatthetransferredassetscannot be returned to the transferor corporation.

Moreover,contrarytotheassertionoftheBIR,ataxrulingisnotaconditionprecedentforatax-freeexchangeunderSection40(C)(2)oftheTaxCode.RevenueRegulations(RR)No.18-01,whichisrelieduponbytheBIR,doesnotrequireapartytofirstsecureaBIRconfirmatorycertificationortaxrulingbeforeitcanavailitself of the tax exemption.

Maibarara Geothermal, Inc. vs. CIRCTA(ThirdDivision)CaseNos.8871,8937,8999&9042promulgated2August2017

Facts:

PetitionerMaibararaGeothermal,Inc.(MGI)isadomesticcorporationengagedinthepowergenerationbusinessusinggeothermalresources.MGIfiledarefundclaimwiththeBIRforitsunutilizedinputVATallegedlyattributabletoitszero-ratedsalesfor taxable year 2012.

SincetheBIRfailedtoactonitsrefundclaim,MaibararaelevatedtherefundclaimtotheCTA.TheBIRarguesthattaxrefundsarestrictlyconstruedagainstthetaxpayer and Mairbarara to prove its entitlement for refund.

Issue:

IsMaibararaentitledtorefundonitsunutilizedinputVATfortaxableyear2012?

Ruling:

No,Maibararaisnotentitledtorefund.TheCTAruledthatMaibarara’slocalpurchasesofgoods,properties,andservicesforthedevelopment,construction,andinstallationofitsplantfacilitiesaresubjecttoVAT0%undertheRenewableEnergyAct.

Thus,noinputVATshouldhavebeenpassedontoMaibararafromsaidpurchases.IfMaibarapaidinputVATonthosepurchases,itsrecourseisnotagainstGovernmentthrougharefundclaim,butagainstthesellerwhoshiftedtoittheoutputVAT.

2 2 | Tax Bulletin

About SGV & Co.SGV is the largest professional services firm in the Philippines that provides assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. SGV & Co. is a member firm of Ernst & Young Global Limited.

EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legalentity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.

For more information about our organization, please visit www.ey.com/PH.

© 2017 SyCip Gorres Velayo & Co.All Rights Reserved.APAC No. 10000268Expiry date: no expiry

S G V |Assurance|Tax|Transactions|Advisory

SGV & Co. maintains offices in Makati, Cebu, Davao, Bacolod, Cagayan de Oro, Baguio, General Santos and Cavite.

For an electronic copy of the Tax Bulletin or for further information about Tax Services, please visit our websitewww.ey.com/ph

We welcome your comments, ideas and questions. Please contact Victor C. De Dios via e-mail at [email protected] or at telephone number 8910307 loc. 7929 andReynante M. Marcelo via e-mail at [email protected] or at telephone number 894-8335 loc. 8335.

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.

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