1Tax Bulletin |

Tax BulletinSeptember 2018

2 | Tax Bulletin

Highlights

BIR Rulings

• Thegrossreceiptsofnon-bankfinancialintermediariesaresubjecttoGrossReceiptsTax(GRT)andnottoVAT.(Page 4)

• Thesale,importationorleaseofpassengerorcargovesselsandaircraft,includingengine,equipmentandsparepartsthereof,fordomesticorinternationaltransportoperationsisexemptfromVAT.(Page 4)

BIR Issuances

• RevenueRegulation(RR)No.21-2018implementstheamendmentsintroducedbytheTRAINLawontheimpositionofinterestunderSection249oftheTaxCode.(Page 4)

• RevenueMemorandumCircular(RMC)No.72-2018reiteratesandsupplementstheexistingpoliciesrelativetothevalidationofsalesgeneratedfromPointofSale(POS),CashRegisterMachine(CRM),SpecialPurposeMachine(SPM),OtherSalesReceiptingSystemSoftware,ReceiptingandInvoicingofComputerizedAccountingSystem(CAS),includingonlinesalestransactionsandfrommanualinvoices,receiptsandsupplementalcommercialdocuments.(Page 5)

• RMCNo.73-2018circularizestheavailabilityofthenewBIRFormNos.0619-E[MonthlyRemittanceFormofCreditableIncomeTaxesWithheld(Expanded)]and0619-F(MonthlyRemittanceFormofFinalIncomeTaxesWithheld),bothJanuary2018versions.(Page 6)

• RMCNo.75-2018circularizesthesalientpointsoftheSupremeCourtdecisioninthecaseofMedicardPhilippinesvs.CommissionerofInternalRevenue(G.R.No.222743dated5April2017)onthemandatorystatutoryrequirementofaLetterofAuthority(LOA)forthevalidityofataxassessment.(Page 7)

• RMCNo.78-2018providesguidelinesontheregistrationofPhilippineOffshoreGamingOperatorsandtheiraccreditedserviceproviders.(Page 8)

Customs Updates

• CustomsMemorandumCircular(CMC)No.176-2018providesfortheTemporaryLiftingoftheSpecialSafeguardDuty(SSD)onOnionscoveredbyTariffHeading0703.10.19.(Page 10)

• CMONo.13-2018providesfortheDecentralizationoftheManagementInformationSystemandTechnologyGroup(MISTG)Non-InformationTechnology(IT)Functions.(Page 10)

• CMONo.14-2018providesfortheGuidelinesontheImplementationoftheFreeTradeAgreement(FTA)betweentheEuropeanFreeTradeAssociation(EFTA)StatesandthePhilippines(PH).(Page 12)

SEC Issuances and Opinion

• SECMCNo.11providesfortherulesgoverningtheadministrationofthePhilippinePeso-DenominatedGovernmentSecurities(GS)Benchmarks.(Page 13)

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• SECMCNo.12providestheguidelinesontheissuanceofgreenbondsundertheASEANGreenBondsStandardsinthePhilippines.(Page 14)

• Thenationalityrequirementforaninvestmenthouserefersonlytothestocksentitledtovote.(Page 15)

BSP Issuances

• CircularNo.1012providesforRevisedRulesofProcedureonAdministrativeCasesinvolvingDirectorsandOfficersofBSP-SupervisedFinancialInstitutions.(Page 15)

• CircularNo.1013providesforAmendmentstotheRulesGoverningPrejudicialActs,Practices,orOmissionsofNon-StockSavingsandLoanAssociations(NSSLA).(Page 17)

• CircularNo.1014providesforaCurrencyRateRiskProtectionProgram(CRPPFacility).(Page 18)

Court Decisions

• Everyformofcompensationforservices,whetherpaidincashorinkind,isgenerallysubjecttoincometax,andconsequently,towithholdingtax.Thenamedesignatedtothecompensationincomeisimmaterial.

Thus,salaries,wages,emoluments,andhonoraria,allowances,commissions,fees(includingdirector’sfees,ifthedirectoris,atthesametime,anemployeeoftheemployerorthecorporation),bonuses,fringebenefits(exceptthosesubjecttothefringebenefitstaxundertheTaxCode),pensions,retirementpay,andotherincomeofasimilarnature,constitutecompensationincomethataretaxableandsubjecttowithholdingtax.(Page 19)

• Ataxevasioncasefiledbythegovernmentagainstanerringtaxpayerhas,foritspurpose,theimpositionofcriminalliability.Ontheotherhand,ataxpayer’sPetitionforReviewtoquestionadeficiencytaxassessmentisintendedtopreventitfrombecomingfinalandexecutory.AcquittalofthetaxpayerinthecriminalcasewillnotresultinthedismissalofthePetitionforReview,whichisnotdeemedinstitutedwiththecriminalcasefortaxevasion.

Whatisdeemedinstitutedwiththecriminalactionisonlytheactiontorecovercivilliabilityarisingfromthecrime.Civilliabilityarisingfromadifferentsourceofobligation,suchaswhentheobligationiscreatedbylaw,isnotdeemedinstitutedwiththecriminalaction.(Page 21)

• The3-yearprescriptiveperiodmaybeextended,ifawaiverwasdulyexecutedbeforeitsexpiration.(Page 23)

• FinancialorTechnicalAssistanceAgreement(FTAA)contractorsareliabletopayVATonimportedgoodsandservicesandcustomsdutiesandfeesonimportedproductsonlyaftertheirrecoveryperiod.(Page 24)

• A“Build-To-Own”or“Build-Your-Own”schemeisnotasaleofrealpropertythatissubjecttoExpandedWithholdingTax(EWT)andDocumentaryStampTax(DST).(Page 26)

4 | Tax Bulletin

BIR Rulings

BIR Ruling No. 1168-2018 dated 6 September 2018

Facts:

XCo.,adomesticcorporation,isaBSP-supervisednon-bankfinancialinstitution.Itisprimarilyengagedintheoperationofaninvestmenthousewhereitearnsincomefrominterests,commissionsanddiscounts.XCo.soughtaconfirmationfromtheBIRthatitsgrossreceiptsaresubjecttoGRTandnottoVAT.

Issue:

IsXCo.subjecttoGrossReceiptsTax(GRT)? Ruling:

Yes.XCo.,beinganon-bankfinancialintermediary,issubjecttoGRTunderSection122oftheTaxCode.ItisnotsubjecttoVATpursuanttoSection109(1)(V)oftheTaxCode,whichexemptsfromVATtheservicesofnon-bankfinancialintermediaries,amongothers,

BIR Ruling No. 1169-2018 dated 7 September 2018

Facts:

ABCCo.isadomesticcorporationandalicensedaircraftoperatorauthorizedtoperformcommercialairoperations.Itimported3aircraftforuseinitsDomesticNon-ScheduledandInternationalNon-ScheduledAirTransportationServices.

Issue:

IstheimportationoftheaircraftsubjecttoVAT?

Ruling:

No.Section109(1)(T)oftheTaxCodeandSection4.109(B)(1)(t)ofRRNo.16-2005,asamended,providesthatthesale,importationorleaseofpassengerorcargovesselsandaircraft,includingengine,equipmentandsparepartsthereof,fordomesticorinternationaltransportoperationsshallbeexemptfromVAT.

BIR Issuances

RR No. 21-2018 issued on 14 September 2018

• InterestatdoubletheeffectivelegalinterestrateforloansorforbearanceofmoneyintheabsenceofanexpressstipulationassetbytheBangkoSentralngPilipinas(BSP)shallbeassessedandcollectedonanyunpaidamountoftaxfromthedateprescribedforpaymentuntiltheamountisfullypaid.

1. PursuanttoBSPMemorandumNo.799,Seriesof2013,theinterestrateforloansorforbearanceofmoneyintheabsenceofanexpressstipulationis6%.

2. Thus,therateoflegalinterestimposableunderSection249shallbe12%.

Thegrossreceiptsofnon-bankfinancialintermediariesaresubjecttoGRTandnottoVAT.

Thesale,importationorleaseofpassengerorcargovesselsandaircraft,includingengine,equipmentandsparepartsthereof,fordomesticorinternationaltransportoperationsisexemptfromVAT.

RRNo.21-2018implementstheamendmentsintroducedbytheTRAINLawontheimpositionofinterestunderSection249oftheTaxCode.

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3. ACircularshallbeissuedbytheCommissionerincasetheBSPprescribesanewrateofinterest.

• UpontheeffectivityoftheTRAINLaw,deficiencyanddelinquencyinterestsshall,innocase,beimposedsimultaneously.

1. Deficiencyinterestshallbeimposedonanydeficiencytaxdue,fromthedateprescribedforitspaymentuntilfullpaymentoruponissuanceofanoticeanddemandbytheCommissionerorhisauthorizedrepresentative,whichevercomesfirst.

2. Delinquencyinterestshallbeimposedonthefailuretopay:

• Theamountofthetaxdueonanyreturntobefiled;

• Theamountofthetaxdueforwhichnoreturnisrequired;or

• Adeficiencytax,oranysurchargeorinterestthereonontheduedateappearinginthenoticeanddemandoftheCommissionerorhisauthorizedrepresentativeuntiltheamountisfullypaid,whichinterestshallformpartofthetax.

• FortaxliabilitiesthatbecameduebeforetheeffectivityoftheTRAINLawon1January2018,butwerefullypaidafterthesaideffectivitydate,theinterestratesshallbeappliedasfollows:

Period Applicable Interest Type and Rate

Fortheperiodupto31December2017

Deficiencyand/ordelinquencyinterestat20%

Fortheperiod1January2018untilfullpaymentofthetaxliability

Deficiencyand/ordelinquencyinterestat12%

1. Betweenthedateprescribedforpaymentuntil31December2017,thedoubleimpositionofbothdeficiencyanddelinquencyinterestunderSection249oftheTaxCodepriortoitsamendmentwillstillbeallowed.

• Theseregulationsareeffectivebeginning1January2018,theeffectivitydateoftheTRAINLaw.

(Editor’s Note: RR No. 21-2018 was published in the ManilaBulletin on 17 September 2018)

RMC No. 72-2018 issued on 30 August 2018

• ThePostEvaluationofPointofSale(POS),CashRegisterMachine(CRM),SpecialPurposeMachine(SPM),othersalesreceiptingsystemsoftware,includingreceiptingorinvoicingofComputerizedAccountingSystem(CAS),maybeconductedsimultaneouslywithotherenforcementactivities,suchasTaxComplianceVerificationDrive(TCVD),surveillance,inventorystocktakingandauditorinvestigation.

• TheinventoryofallPOS,CRM,SPMandotherreceiptingmachineorsoftware,whetherusedforissuanceofinvoicesorforinternalcontrolpurposes,shallbetaken,matchedandreconciledwiththelistfromtheBIRdatabase.

RMCNo.72-2018reiteratesandsupplementstheexistingpoliciesrelativetothevalidationofsalesgeneratedfromPOS,CRM,SPM,OtherSalesReceiptingSystemSoftware,ReceiptingandInvoicingofCAS,includingonlinesalestransactionsandfrommanualinvoices,receiptsandsupplementalcommercialdocuments.

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• Within5daysfromreceiptofaLetterNoticeonanyunmatchedorunaccountedmachine,thetaxpayershallreconcileandexplaininwritingthediscrepancyandaccountfortheunmatchedPOS/CRM/SPMandotherreceiptingmachineorsoftware.

• TheServiceProvider/Supplier/Contractor/Developerofmachine,softwareorsystemssubjectedtoPostEvaluationshallassistintheextractionofsalesdataand/orZ-readingasrequiredbytheBIRorthetaxpayer.

• Salesdatashallbevalidatedandextractedfromallsources,suchasbutnot

limitedto,thefollowing:

1. CRM/POS/othersalesreceiptingsoftwareandCAS,consistingofZ-reading,e-Journal,back-endreportsfromthestand-alonesystem,server,middlewareorconsolidatordependingonthesystemorsoftwareset-up.

2. Salesfromonlinetransactions,unmannedbill,coinortokenoperatedmachines,unregisteredmachinesusedtorecordsalestransactionsanddefectiveordamagedmachines,whichwerenotreportedorwithpendingapplicationforcancellationwiththeconcernedLTS-Office,Division,LTDOorRDO.

3. Salesbook,accountingrecordsandmanualinvoicesorreceipts,includingunregisteredorexpiredreceipts,invoicesorrecords,ifany.

4. AllSPMsusedforsupplementaryinvoicingorreceipting,suchascollectionandacknowledgementreceiptorbillspayment,withoutcorrespondingprincipalinvoiceorreceipt.

• ASubpoena Duces Tecum(SDT)shallbeissuedtocompelsubmissionandpresentationofdocumentsandmachinesnotyetavailableaftertherequiredcompliancedate.

• FailuretocomplywiththeSDTshallwarranttheuseof“BestEvidenceObtainableRule”forunregistered,unaccounted,missing,lostsalesmachinesormanualreceiptsorinvoicesandsimultaneously,thereferraloftheSDTtotheProsecutionorLegalDivisionforfilingofacriminalcaseonfailuretoobeysubpoena.

RMC No. 73-2018 issued on 31 August 2018

• ThefollowingnewBIRformsshallbeusedbythewithholdingagentinremittingthewithholdingtaxofthefirst2monthsofeverycalendarquarter:

1. BIRFormNo.0619-E-MonthlyRemittanceFormforCreditableIncomeTaxesWithheld(Expanded)

2. BIRFormNo.0619-F–MonthlyRemittanceFormofFinalIncomeTaxesWithheld

• Taxpayersshallfiletheirrespectiveremittanceformsonthefollowingduedates:

1. Non-eFPStaxpayers–within10thdayofthefollowingmonthinwhichwithholdingwasmade

2. eFPStaxpayers–withinthe15thdayofthefollowingmonth,dependingontheindustrygroupingasprescribedunderRevenueRegulation(RR)No.26-2002

RMCNo.73-2018circularizestheavailabilityofthenewBIRFormNos.0619-E[MonthlyRemittanceFormofCreditableIncomeTaxesWithheld(Expanded)]and0619-F(MonthlyRemittanceFormofFinalIncomeTaxesWithheld),bothJanuary2018version.

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• Thetaxpayershallfileand/orpaythroughthefollowingmodes:

1. ManualReturn

2. ElectronicBureauofInternalRevenueForms(eBIRForms)

3. ElectronicFilingandPaymentSystem(eFPS)

• ThenewBIRFormNos.0619-Eand0619-Farealreadyavailableunder:

1. BIRForms–Payment/RemittanceFormssectionoftheBIRwebsite(manualfilers)

2. OfflineeBIRFormsPackagev7.1(eBIRFormsfilers)

3. eFPSsystem(eFPSfilers)

• ManualfilersandeBIRFormsfilerscanchoosebetweenmanualoronlinepayment/remittanceofthewithholdingtaxdue.

1. ManualPayment/Remittance:

• Over-the-counteroftheAuthorizedAgentBank(AAB)locatedwithintheterritorialjurisdictionoftheRevenueDistrictOffice(RDO)wherethetaxpayerisregistered.

• InplaceswheretherearenoAABs,thereturnshallbefiledandthetaxdueshallbepaidwiththeconcernedRevenueCollectionOfficer(RCO),throughthemobilerevenuecollectionofficerssystem(MRCOS)facility,underthejurisdictionoftheRDO.

2. OnlinePayment/Remittance:

• ThroughGCashMobilePayment

• LandbankofthePhilippines(LBP)LinkbizPortal,fortaxpayerswhohaveATMaccountswithLBPand/orholdersofBancnetATM/DebitCard

• DevelopmentBankofthePhilippines(DBP)TaxOnline,forholdersofVISA/MasterCreditCardand/orBancnetATM/Debit

• Ifthemanualfilerhasnowithholdingtaxdueforthemonth,thetaxpayerisstillrequiredtofileandfollowtheexistingprocedurefor“NoPayment”,whichistofilethroughtheuseofeBIRForms.

RMC No. 75-2018 issued on 5 September 2018

InthecaseofMedicard Philippines, Inc. vs. Commissioner of Internal Revenue (G.R. No. 222743, 5 April 2017),theSupremeCourtheldasfollows:

• NotaxassessmentscanbeissuedornoassessmentfunctionsorproceedingscanbedonewithoutpriorapprovalandauthorizationoftheCommissionerofInternalRevenue(CIR)orhisdulyauthorizedrepresentativethroughaLetterofAuthority(LOA).

RMCNo.75-2018circularizesthesalientpointsoftheSupremeCourtdecisioninthecaseofMedicardPhilippinesvs.CommissionerofInternalRevenue(G.R.No.222743dated5April2017)onthemandatorystatutoryrequirementofaLOAforthevalidityofataxassessment.

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• Assuch,anytaxassessmentwithoutanLOAviolatesthetaxpayer’srighttodueprocessandis,therefore,“inescapablyvoid.”

• ThecircumstancesprovidedunderSection6oftheTaxCodewherethetaxpayermaybeassessedthroughbestevidenceobtainable,inventory-taking,orsurveillance,amongothers,havenothingtodowithanLOAsincetheseareonlymethodsofexaminingthetaxpayertoarriveatthecorrectamountoftaxes.

• ALetterNotice(LN)isdifferentfromanLOA.AnLNisissuedtonotifythetaxpayerofanauditwhileanLOAistheauthoritytoconductanauditorexaminationofthetaxpayerleadingtotheissuanceofdeficiencyassessments.Thus,aftertheLNhasbeenserved,therevenueofficershouldsecureanLOAbeforeproceedingwithfurtherexaminationandassessmentofthetaxpayer.

RMC No. 78-2018 issued on 7 September 2018

• Alloperators,whetherPhilippine-basedorforeign-based,includingthosewhopossessanOffshoreGamingLicenseissuedbyPAGCOR,arerequiredtoregisterwiththeBIRupontheoccurrenceofanyofthefollowingevents,whichevercomesfirst:

1. Commencementofbusiness;

2. Paymentofanytaxdue;or

3. Filingofanyapplicabletaxreturn,statementordeclarationasrequiredbytheTaxCode.

• Commencementofbusinessshallbereckonedfromthedaywhenthefirstsaletransactionoccurredorwithin30calendardaysfromtheissuanceofMayor’sPermit/ProfessionalTaxReceipt(PTR)bythelocalgovernmentunit(LGU),orCertificateofRegistrationissuedbytheSEC,whichevercomesearlier.

• AnOffshoreGamingLicenseisanauthoritygrantedbyPAGCORtoPhilippineOffshoreGamingOperators(POGO)fortheestablishment,maintenanceandtheconductofoffshoregamingoperationsinaspecificsitewithinthejurisdictionofPAGCOR.

• AllPhilippine-basedandforeign-basedoperators,includingserviceproviders,shallregisterintheRevenueDistrictOffice(RDO)havingjurisdictionovertheplacewheretheHeadOfficeand/orbranchorPOGOHubislocated.Thefollowingarethedocumentaryrequirementsforregistrationofnon-individuals:

1. BIRFormNo.1903

2. SECCertificateofIncorporationorSECCertificateofRecording(incaseofpartnership)orSECLicensetoDoBusinessinthePhilippines(inthecaseofforeigncorporations):

• InlieuoftheSECLicensetoDoBusinessregistration,thefollowingmaybesubmittedbyaforeign-basedoperatorwhoisnotrequiredtoberegisteredwiththeSEC:

RMCNo.78-2018providesguidelinesontheregistrationofPhilippineOffshoreGamingOperatorsandtheiraccreditedserviceproviders.

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a. ConsularizedCertificateofIncorporationissuedbytheproperauthorityinanyforeigncountryand/orconsularizedArticlesofIncorporation(AOI)oritsequivalentfactofestablishment,creationororganization,showingitsaddressandthatgamingisoneofitsbusinesspurposes.

b. CertificationfromthePhilippineSECthattheforeigncorporationisornotregisteredtoengageinbusinessinthePhilippines.

• AOIorArticlesofPartnership(AOP)

• Mayor’sBusinessPermitordulyreceivedapplicationforMayor’sBusinessPermit,iftheformerisstillinprocesswiththeLGU

• ProofofpaymentofRegistrationFee(RF)

• BIRFormNo.1906

• Finalandclearsampleofprincipalreceipts/invoices

3. Inaddition,thefollowingdocumentaryrequirementsmustbesubmitted,ifapplicable:

• AppointmentletteroftheLocalGamingAgent

• SpecialPowerofAttorney(SPA)andID

• TheLocalGamingAgentshallregisterintheRDOhavingjurisdictionovertheplacewheretheheadofficeand/orbranchissituated.

1. Belowisthelistofdocumentaryrequirementsforregistration:

Individual Non-Individual

• BIRFormNo.1901and1906 • BIRFormNo.1903and1906

• AnyIDissuedbyanauthorizedgovernmentbody(e.g.,BirthCertificate,Passport,Driver’sLicense,CommunityTaxCertificate)thatshowsthename,addressandbirthdateoftheapplicant

• PhotocopyofSECCertificateofIncorporationorSECCertificateofRecording(incaseofpartnership)orSECLicensetoDoBusinessinthePhilippines(incaseofforeigncorporation)

• PhotocopyofMayor’sBusinessPermitordulyreceivedapplicationforMayor’sBusinessPermitiftheformerisstillinprocesswiththeLGUand/orProfessionalTaxReceipt/OccupationalTaxReceiptissuedbytheLGU

• PhotocopyofMayor’sBusinessPermitordulyreceivedapplicationforMayor’sBusinessPermitifformerisstillinprocesswiththeLGU

• ProofofPaymentofRFifwithexistingTINorifapplicableafterTINissuance

• ProofofpaymentofRF

• Finalandclearsampleofprincipalreceipts/invoices

► • AOIorAOP

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2. Inaddition,theBoardResolutionindicatingthenameoftheauthorizedrepresentativeandtheSecretary’sCertificateorSPAandIDoftheauthorizedperson,inthecaseoftheauthorizedrepresentativewhowilltransactwiththeBIR,mustbesubmitted,ifapplicable.

• TheBooksofAccountsofOperators,ServiceProvidersandLocalGamingAgentsmustberegisteredwithin30daysfromthedateofitsregistration.

• AllexistingPOGOLicenseespriortotheissuanceofthisCircularshallregisterwiththeRDOhavingjurisdictionovertheplacewheretheHeadOfficeand/orbranchorPOGOHubislocatedandsubmitthefollowingdocumentaryrequirements:

1. BIRFormNo.1903;

2. CopyofAOI/AOPorCertificateofIncorporationissuedbytheproperauthorityinanyforeigncountry;

3. ProofofPaymentofRF;

4. BIRFormNo.1906;

5. Finalandclearsampleofprincipalreceipts/invoices;and

6. SPAandIDofauthorizedperson,inthecaseofanauthorizedrepresentativewhowilltransactwiththeBIR.

• Incaseofthetransferoftheregisteredaddresstoanewlocation,thePOGOLicenseeoritsLocalGamingAgentmustinformtheRDOwhereitisregisteredofsuchfactbyflingtheprescribedBIRFormspecifyingthecompleteaddresswhereitintendstotransfer.

Customs Updates

Customs Memorandum Circular (CMC) No. 176-2018 dated 31 August 2018

• Withreferencetotheletterrequestdated23August2018fromSecretaryEmmanuelF.Piñol,DepartmentofAgriculture,theCommissionerofCustomstemporarilyliftedtheimpositionoftheSpecialSafeguardDuty(SSD)ononionstocushiontheimpactofrisingpricesandmitigatetheimpactofsoaringinflation.

(Editor’s Note: CMC No. 176-2018 was signed by the Commissioner of Customs on 3 September 2018)

Customs Memorandum Order (CMO) No. 13-2018 dated 4 September 2018

• TheobjectiveofthisCMOistopromoteefficiencyintheaccreditationandClientProfileRegistrationSystem(CPRS)activationprocessandstrengthenaccountabilitybyallowingManagementInformationSystemandTechnologyGroup(MISTG)toconcentrateonitsITroleintheBureauofCustoms(BOC)bytransferringnon-ITfunctionscurrentlybeingperformedbyMISTGtootherauthorizedgroups/agencieswhoseprimaryrolesaremorealignedwithsuchfunctions.

CMCNo.176-2018providesfortheTemporaryLiftingoftheSSDonOnionscoveredbyTariffHeading0703.10.19.

CMONo.13-2018providesfortheDecentralizationoftheMISTGNon-ITFunctions.

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• Theresponsibilityforactivationintheelectronictomobile(E2M)–CPRSshallbedonebytherespectiveauthorizedgroupasoutlinedbelow:

STAKEHOLDERS ACCREDITING AGENCY

CPRS ACTIVATION

Importers/Brokers BOC AccountManagementOffice(AMO)

SuperGreenLane(SGL)Importers

BOC AssessmentandOperationsCoordinating

Group(AOCG)SGLCommittee

OnceayearImporters/Exporters

BOC DistrictCollectorsOffice

ValueAddedServiceProvider

BOC AOCG

Airlines CivilAeronauticsBoard

AMO

ArrastreOperators PhilippinePortsAuthority

AOCG

CustomsBondedWarehouses

BOC AOCG

CustomsFacilitiesandWarehouses

BOC AOCG

ShippingLines MaritimeIndustryAuthority

AMO

ExportersRegisteredwithInvestmentPromotions

Agencies

BoardofInvestments

PhilippineEconomicZoneAuthority

ClarkDevelopmentCorporation

SubicBayMetropolitanAuthority

CagayanSpecialEconomicZoneAuthority

ZamboangaCitySpecialEconomicZoneAuthority

TourismInfrastructureandEnterpriseZoneAuthority

AMO

OtherExporters PhilippineExportersConfederation,Inc.

AMO

SuretyCompanies BOC RevenueCollectionMonitoringGroup

(RCMG)-CollectionService

AuthorizedAgentBanks BankersAssociationofthePhilippines

AOCG

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• TheactivationofAuthoritytoReleaseImportedGoods(ATRIG)tospecificTariffCodesshallbetheAOCG’sresponsibility.

• ThisCMOshalltakeeffect15daysafteritscompletepublicationintheOfficialGazetteoranewspaperofgeneralcirculation.

(Editor’s Note: CMO No. 13-2018 was published in the ManilaTimes on 6 September 2018)

CMO No. 14-2018 dated 17 September 2018

• ExecutiveOrder(EO)No.61dated2August2018wasissuedbythePresidentofthePhilippinesandbecameeffectiveimmediatelyafteritscompletepublicationon10August2018inordertomodifyimportduties,includingnecessarychangesinclassificationandotherimportrestrictionsasarerequiredorappropriatetocarryoutandpromotethePhilippines-EuropeanFreeTradeAssociationFreeTradeAgreement(PH-EFTAFTA).

• ThisCMOwasissuedtofacilitatetheprocessingofimportationsandexportationsofgoodscomingtoandfromthePartyunderPH-EFTAFTA,toprovidetheprocedureforgrantingpreferentialtreatmentongoodscoveredbyanOriginDeclaration,andtoestablishappropriatemechanismsinaccreditingexporters/producers/manufacturersasan“ApprovedExporter.”

• GeneralProvisions

1. “OriginDeclaration(OD)”referstotheproofoforiginrequiredunderthePH-EFTAFTAintheformofadeclarationsufficienttoascertaintheoriginatingstatusofthegoods.Thedeclarationmustbecompletedonaninvoice,packinglist,deliverynoteoranyotherrelevantcommercialdocumentthatidentifiestheexporterandtheoriginatinggoods.

2. ExportersandtheirrepresentativesshallbeallowedtomakeanODasProofofOrigin.

3. ImporterssourcingfromEFTAStatesshallbeallowedtoclaimpreferentialtarifftreatmenttooriginatinggoodsonthebasisoftheOD.

4. An“ApprovedExporter(AE)”referstoaproducer,manufacturer,ortraderauthorizedbytherespectivecustomsauthorityoftheParties(thePhilippines,Iceland,NorwayorthecustomsterritoryofSwitzerland)tocompletetheODwithoutsignatureaftercomplyingwiththerequirementsoftheCMO.

5. AnAEisnotrequiredtosigntheODbutmustindicateitsCustomsAuthorizationNumber(CAN).Anon-AEmustaffixthesignatureabovetheprintednameofitsauthorizedsignatoryandleavethefieldonCANblank.

• OperationalProvisions

1. Producers,manufacturers,ortradersmaysubmit,inwritingorelectronically,totheDeputyCommissionerofAOCG,throughtheExportCoordinationDivision(ECD),itsintentiontobeaccreditedasanAE,togetherwiththeotherrequireddocuments.

CMONo.14-2018providesfortheGuidelinesontheImplementationoftheFTAbetweentheEFTAStatesandthePhilippines.

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2. ExportersmayoptnottoapplywiththeBOCasanAE.However,theODmustindicatethecompletenameandbeartheoriginalsignaturesofitssignatory.Anon-AEmayhaveahigherriskofretro-verificationcomparedtoanAE.

3. ForshipmentsavailingofthepreferentialtarifftreatmentunderthePH-EFTAFTA,theexistingcustomsimportproceduresshallstillapply,exceptthattheimportdocumentsmustbeaccompaniedbyanODwhichmustbepresentedpriortothereleaseofthegoods.

4. IfanimporterisnotinpossessionofanODatthetimeofimportation,theimportermaypresentitatalaterstagesubjecttotherulesontentativereleaseofgoods.AnODmustbesubmittedtotheBOCwithin12monthsfromitscompletion.

5. Forimportationbyinstallments,onlyoneODisrequiredwhichmustbesubmittedupontheimportationofthefirstinstallment.

6. TheBOCshallcarryouttheverificationsofODsupontherequestofcustomsauthoritiesofimportingEFTAparties.Inrelationtothis,importersandexportersbenefittingfromthePH-EFTAFTAmustcooperatewiththeBOC,inaccordancewiththeirobligationsenumeratedintheCMO.

7. TheECDshallconductanauditandevaluationoftheexporter’spremisesandshallmakethenecessarycommunicationtotheEFTASecretariatabouttheresultsofitsoriginverificationwithin6monthsfromthedateoftheverificationrequest.

8. Penalties:IfproventohavecommittedfraudincompliancewiththeCMO:

• Importersshallnotbeallowedtoavailofthepreferentialtariffrates.

• ExportersshallbesuspendedasanAE.

ImpositionoftheabovepenaltiesshallbewithoutprejudicetopossiblefilingofcriminalcasesundertheapplicableprovisionsoftheCustomsModernizationandTariffAct(CMTA)andtheRevisedPenalCode.

• ThisCMOshalltakeeffectimmediately.

(Editor’s Note: CMO No. 14-2018 was received by the UP Law Center on 21 September 2018)

SEC Issuances and Opinion

SEC Memorandum Circular No. 11 series of 2018 dated 31 August 2018

InlinewiththepolicyoftheStatetopromotethedevelopmentofthecapitalmarketandprotectionoftheinvestors,theSECissuesrulestogovernPhilippine-PesoGovernmentSecurities(GS)withthefollowingkeyfeatures:

• RulesapplytoalegalpersonwhointendstogenerateanindexinrelationtogovernmentsecuritiesandwhichwillobtainlicensetoperformGSBenchmarkAdministration.

SECMCNo.11providesfortherulesgoverningtheadministrationofthePhilippinePeso-DenominatedGSBenchmarks.

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• AlegalpersonshouldapplyforanAdministratorlicensetoadministertheGSBenchmark;

• ContinuingReportingRequirements:AdministratorsarerequiredtoreporttotheSECanydisruption,businesscontinuityactivation,oranyothereventthatcouldaffecttheintegrityofthebenchmarkdeterminationprocess;

• NotificationRequirement:Administratorsarerequiredtoreportsuspectedmarketmanipulationofthebenchmark;

• Administratorsareprimarilyresponsibleforallaspectsofthebenchmarkdeterminationprocessandarerequiredtodiscloseanyexistingorpotentialconflictsofinterest;

• Thedataonwhichthebenchmarkisconstructedshouldhavebeenbasedonsufficientandreliablyrepresentativeinterestmeasuredbythebenchmark;

• Themethodologyshouldbedocumentedandpublished;itshouldprovidesufficientdetailtoallowstakeholderstounderstandhowthebenchmarkisderived;

• Thereshouldbeappropriateinternalcontrolsoverdatacollectedfromexternalsources;and

• TheAdministratorisrequiredtoestablishacomplaintsprocedure,appointanauditandcompliancereviewerandmaintainanaudittrail.

(Editor’s Note: Published in the ManilaBulletin & the ManilaTimes on 31 August 2018)

SEC Memorandum Circular No. 12 series of 2018 dated 22 August 2018

Inrecognitionoftheimportanceofgreenfinanceandtheincreasingdemandforgreeninvestments,thePhilippinesadoptstheASEANGreenBondsStandardssummarizedasfollows:

• ASEANGreenBondscanonlybeissuedbyacorporationincorporatedintheASEANorthegreenprojectisinanASEANcountry.

• ASEANGreenBondsissuancemustoriginatefromanASEANmembercountry.

• TheproceedsofASEANGreenBondsmustbeexclusivelyappliedtofinanceorrefinanceexistingeligibleGreenProjects.

• Tobeeligible,adesignatedgreenprojectmusthaveclearenvironmentalbenefitsthathavebeenassessedandquantified.

(Editor’s Note: Published in the ManilaBulletin and the ManilaStandard on 11 September 2018)

SECMCNo.12providestheguidelinesontheissuanceofgreenbondsundertheASEANGreenBondsStandardsinthePhilippines.

15Tax Bulletin |

SEC-OGC Opinion No. 18-17 dated 5 September 2018

Facts:

On22May2013,theSECreleasedMemorandumCircularNo.08-13ortheGuidelinesonCompliancewiththeFilipino-ForeignOwnershipRequirementsintheConstitutionand/orCorporationsEngagedinNationalizedand/orPartlyNationalizedActivities.

UCo.,aninvestmenthouse,hasthefollowingownershipstructure:

100%ofthepreferrednon-votingsharesofUBSPhilippines-heldbyUBSAG,aSwissnational.40%ofcommonvotingshares-Filipino60%ofcommonvotingshares-Foreign

Issues:

WhetheraninvestmenthouseiscoveredunderMCNo.08-13andwhetherthereisaneedtoreviseoramendthecurrentownershipstructureofUBSPhilippinespursuanttoMCNo.08-13.

Ruling:

No,UCo.neednotreviseoramenditscurrentownershipstructurepursuanttoMCNo.08-13.

Sec.2ofMCNo.08-13excludesfromitscoveragecorporationscoveredbyspeciallaws.MCNo.08-13specificallyidentifiedtheLendingCompanyRegulationActof2000andtheFinancingCompanyActof1998,andtheInvestmentHousesLaw.

UndertheInvestmentHousesLaw,atleast40%ofthevotingstockofaninvestmenthouseshallbeownedbycitizensofthePhilippines.Indeterminingcompliancewiththenationalityrequirement,thebasisisonlythevotingstockandnotthetwo-tieredtestmentionedinMCNo.08-13(i.e.thetotalnumberofoutstandingsharesofstockentitledtovoteintheelectionofdirectorsandthetotalnumberofoutstandingsharesofstock,whetherornotentitledtovote).

BSP Issuances

BSP Circular No. 1012 dated 12 September 2018

• ThefollowingRevisedRulesofProcedureonAdministrativeCasesInvolvingDirectorsandOfficersofBSP-SupervisedFinancialInstitutions(theRules)wereapprovedbytheMonetaryBoardpursuanttoSection37ofRepublicActNo.7653(The New Central Bank Act),andSections16and66ofRepublicActNo.8791(The General Banking Law of 2000).

• Section1ofRuleIontitleprovidesthattheRulesshallbeknownastheBangkoSentralngPilipinas(BSP)RevisedRulesofProcedureonAdministrativeCasesInvolvingDirectorsandOfficersofBSP–SupervisedFinancialInstitutions.

CircularNo.1012providesforRevisedRulesofProcedureonAdministrativeCasesinvolvingDirectorsandOfficersofBSP-SupervisedFinancialInstitutions.

Thenationalityrequirementforaninvestmenthouserefersonlytothestocksentitledtovote.

16 | Tax Bulletin

• Section2ofRuleIonapplicabilityprovidesthattheRulesshallapplytoadministrativecasesfiledwiththeOfficeofSpecialInvestigation(OSI),BSP,involvingdirectorsandofficersofBSP-supervisedfinancialinstitutions,andadministrativecasesarisingoutofthefact-findinginvestigationsconductedbytheOSI.TheRulesshallnotapplytocomplaintsagainstBSP-supervisedfinancialinstitutions(asajuridicalentity),andsupervisoryandenforcementactions.

• Section3ofRuleIprovidesthattheproceedingsundertheRulesshallbesummaryinnatureandthatthepertinentprovisionsoftheRulesofCourtmaybeappliedsuppletorily.

• Section4ofRuleIonappearanceofcounselprovidesthatpartiesmaybeassistedorrepresentedbycounsel.

• Section5ofRuleIonconfidentialityofproceedingsprovidesthattheproceedingsundertheRulesshallbeconfidential,excepttotheextentasmaybeprovidedunderexistinglaws.

• Section6ofRuleIIprovidesthatthetermsintheManualofRegulationsareadoptedintheRules.

• Section7ofRuleIIIoncomplaintprovidesthatthesamemustbeinwriting,andsubscribedandsworntobythecomplainant.Noanonymouscomplaintshallbeentertained.

• Section8ofRuleIIIprovidesthatthecomplaintshallbefiledwithOSI.

• Section9ofRuleIIIoncontentsofthecomplaintprovidesthatthecomplaintshallcontaintheultimatefactsofthecase,andshallincludetheitemsenumeratedinthisSection.

• Section10ofRuleIIIonactiononthecomplaintprovidesthatwhenacomplaintissufficientinformandsubstance,OSIshallissueanoticerequiringtherespondenttofileaswornanswertothecomplaint.Ifotherwise,theOSIshalldismissthecomplaint,withoutprejudice,ortakesuchappropriateactionasmaybewarranted.

• Section11onanswerprovidesthatwithin10daysfromthereceiptofthenoticetofileananswerandacopyofthecomplaint,respondentshallsubmitaswornanswer,copyofwhichshallbefurnishedtothecomplainant.Thefailureoftherespondenttofileananswerwithintheprescribedperiodshallbeconsideredasawaiveroftherespondent’srighttofilethesame,andthecaseshallberesolvedbasedsolelyontheevidencepresentedbythecomplainant.

• Section12ofRuleIIIonprohibitedpleadingsandmotionsenumeratesthefollowingprohibitedpleadingsandmotions,namely,Motiontodismiss(exceptonthegroundoflackofjurisdiction),Motionforbillofparticulars,Motionfortheissuanceofsubpoenaduces tecumand/orad testificandum,provisionalremedies,modesofdiscovery,andsimilarreliefs,Dilatorymotions,andOtherpleadingsormotionsofasimilarnature.

• Section13ofRuleIVonmodesofserviceprovidesthatpleadings,motions,orders,orprocessesmaybemadebypersonaldelivery,registeredmail,courier,orothermodesofservice.

17Tax Bulletin |

• Section14ofRuleIVonothermodesofserviceprovidesthatservicemayalsobemadebyelectronicmailorotherelectronicformthatprovidesarecordofdelivery.

• Section15ofRuleVprovidesforcompletenessofservice.

• Section16ofRuleVontheacquisitionofjurisdictionovertherespondentprovidesthatitisacquiredonceserviceofthenoticetofileanswerandacopyofthecomplaintiscompleted.

• RuleVIoftheRulesonproceedingsbeforethehearingofficercoversthesubmissionofpositionpapers,andcomments,andtheissuanceofclarificatoryorders.

• RuleVIIoftheRulesonresolutionofthecasecoversthesubmissionofreport,issuanceandfinalityofresolution,motionforreconsideration,andenforcement.

• RuleVIIIoftheRulesonappealprovidesthatanappealfromtheresolutionoftheMonetaryBoardmaybefiledbeforetheCourtofAppealswithintheperiodandinthemannerprovidedunderRule43oftheRulesofCourt.Theappealshallnotstaytheenforcementoftheresolutionsoughttobereviewed,unlesstheCourtofAppealsshalldirectotherwiseuponsuchtermsasitmaydeemjust.

• RuleIXonmiscellaneousprovisioncoverstherepeal,separabilityclause,effectivity,andtransitoryprovision.

(Editor’s Note: BSP Circular No. 1012, s. 2018 was published in ThePhilippineStar on 18 September 2018)

BSP Circular No. 1013 dated 17 September 2018

• ThefollowingaretheamendmentstotheprovisionsoftheManualofRegulationsforNon-BankFinancialInstitutions(MORNBFI)ontherulesgoverningprejudicialacts,practicesoromissionsofNon-StockSavingsandLoanAssociations(NSSLA).

• Itemb(1)ofSubsection4184S.1oftheMORNBFIwasamendedtoaddaprovisionthataservicefeeisconsideredunreasonablyhighiftheservicefeerateexceeds50%oftheannualnominalinterestratechargedonaloan.

• Itemb(3)ofSubsection4184S.1oftheMORNBFIwasamendedtoprovidethatnon-disclosuretoborrowersofborrowingcostsshallbeconsideredacts,practices,oromissionsprejudicialtotheinterestofmembers.

• Itemb(4)ofSubsection4184S.1oftheMORNBFIwasamendedtoprovidethatadoptingandimplementingpoliciesthatarediscriminatory(e.g.limitingcapitalcontributionsofmembersthathastheeffectofconcentratingcontroltoaparticularfamily)shallbeconsideredacts,practices,oromissionsprejudicialtotheinterestofmembers.Forthispurpose,afamilyreferstotheemployee-memberand/orretiree-memberandtheirrelativesuptoseconddegreeofconsanguinityoraffinity.

CircularNo.1013providesforAmendmentstotheRulesGoverningPrejudicialActs,Practices,orOmissionsofNSSLA.

18 | Tax Bulletin

• Itemb(5)ofSubsection4184S.1oftheMORNBFIwasamendedtoprovidethatgrantingofunauthorizedcompensationtotrusteesand/orofficersshallbeconsideredacts,practices,oromissionsprejudicialtotheinterestofmembers.Forthispurpose,compensationshallbeconsideredunauthorizedwhennotallowedintheBy-LawsornotapprovedbyauthorizedbodiessuchasthemembersinageneralassemblyortheBoardofTrustees.

• Itemb(6)ofSubsection4184S.1oftheMORNBFIwasamendedtoprovidethatgrantingneworadditionalloanstoborrowerswhohaveinsufficientpayingcapacityorpoorcredithistoryshallbeconsideredacts,practices,oromissionsprejudicialtotheinterestofmembers

• Itemb(7)ofSubsection4184S.1oftheMORNBFIwasamendedtoprovidethatcollectingpaymentsfrommembersevenafterfullpaymentoftheirloans,includingfailuretorefundover-collectionstomembersshallbeconsideredacts,practices,oromissionsprejudicialtotheinterestofmembers.

• Itemb(8)ofSubsection4184S.1oftheMORNBFIwasamendedtoprovidethatchargingand/orpayingmaterialunauthorizeddisbursements,includingexpenses,orengaginginthepracticeofchargingand/orpayingunauthorizeddisbursementsevenifnotmaterialbutwhenaggregated,resultinmaterialfinanciallosstotheNSSLAshallbeconsideredacts,practices,oromissionsprejudicialtotheinterestofmembers.

• Itemb(9)ofSubsection4184S.1oftheMORNBFIwasamendedtoprovidethatallowingtheuseofNSSLA’spropertiesorprivilegeswithoutduecompensationshallbeconsideredacts,practices,oromissionsprejudicialtotheinterestofmembers.

• Subsection4184S.2oftheMORNBFIonenforcementactionswasamendedtoprovide,amongothers,thattheMonetaryBoardmayorderthesuspensionorrevocationofanNSSLA’slicensetooperateassuchiftheprejudicialacts,practices,oromissionsamounttowillfulviolations.Forthispurpose,theact,practice,oromissionisdeemedwillfulif,despiteaBSPdirectivetostopthesaidact,practice,oromission,theNSSLAand/oritstrusteesand/orofficerscontinuetocommitthesameorrelatedacts.Theterm“relatedacts”refertospecificactswhichresultinthesameprejudicialact,practiceoromission.

• ThisCircularshalltakeeffect15daysafteritspublicationeitherintheOfficialGazetteorinanewspaperofgeneralcirculation.

(Editor’s Note: BSP Circular No. 1013, s. 2018 was published in ThePhilippineStar on 24 September 2018)

BSP Circular No. 1014 dated 24 September 2018

• ThefollowingprovisionswerecreatedintheManualofRegulationsforBanks(MORB)toprovidefortherevisedguidelinesfortheCurrencyRateRiskProtectionProgram(CRPP)Facility.

• Section1603oftheMORBwasaddedtoprovidefortheCRPPFacilitywhichisanon-deliverableUSD/PHPforwardcontract(NDF)betweentheBangkoSentralngPilipinasandauniversal/commercialbank(the“Bank”)inresponsetotherequestofbankclientsdesiringtohedgetheireligibleforeigncurrencyobligations.TransactionsundertheCRPPfacilityareconsideredpartofbanks’GenerallyAuthorizedDerivativesActivities(GADA).Moreover,banks’exposuresarisingfromNDFtransactionsundertheCRPPfacilityshallnotbeincludedin

CircularNo.1014providesfortheCRPPFacility.

19Tax Bulletin |

thecomputationoftotalgrossNDFexposuresforthepurposeofdeterminingcompliancewiththelimitprescribedinAppendix101.Inaddition,themarketriskcapitalchargeforthenetopenpositionforNDFsunderthisfacilityshallbecalculatedbyapplyingthestandard125percentmultiplicationfactorinsteadofthe187.5percentfactorprescribedforotherNDFsunderAppendix46.

• Subsection1603.1oftheMORBwasaddedtoprovideforthecoveragethateligibleobligationsundertheCRPPFacilityaretheunhedgedforeigncurrencyobligationsinamountsofnotlessthanUS$50,000.00thatarecurrentandoutstandingasofthedateofapplication.Pastdueforeigncurrencyobligationsarenoteligible.ThemaximumtenoroftheCRPPcontractis90days.Forthispurpose,unhedged obligationsshallrefertothosewithoutoutstandinghedgeeitherthroughforwardcontracts,optionsormatchedforeigncurrencyassets.Partiallyhedgedforeignexchangeobligationsshallbeevaluatedonacase-to-casebasis.

• Subsection1603.2–1603.4oftheMORBwasreserved

• Subsection1603.5oftheMORBwasaddedtoprovidefortheBSP’ssupervisoryenforcementactions.ItstatesthattheBSPreservestherighttodeployitsrangeofsupervisorytoolstopromoteadherencetotherequirementssetforthintheguidelinesandbringabouttimelycorrectiveactionsandcompliance.

• Theterms,conditions,andthereportingrequirementsoftheCRPPFacilitywillbecoveredbyaseparateissuanceontheimplementingguidelinesoftheCRPPFacility.

• TheCircularrepealsCircularNo.470,aswellaspartsofothercircularsinconsistentherewith.

• ThisCircularshalltakeeffect15calendardaysfollowingitspublicationeitherintheOfficialGazetteorinanewspaperofgeneralcirculationinthePhilippines.

(Editor’s Note: No publication yet as of date)

Court Decisions

Consolidated Cases of Confederation for Unity, Recognition and Advancement of Government Employees et al. vs. Commissioner, Bureau of Internal Revenue, et al. and Judge Armando A. Yanga, in his personal capacity and in his capacity as President of the RTC Judges Association of Manila, et al. vs. Hon. Commissioner Kim S. Jacinto-Henares, in her capacity as Commissioner of the Bureau of Internal Revenue SupremeCourt(En Banc)G.R.Nos.213446and213658,promulgated3July2018

Facts:

On20June2014,RespondentCommissionerofInternalRevenue(CIR)issuedRevenueMemorandumOrder(RMO)No.23-2014toclarifytheresponsibilitiesofthepublicsectortowithholdtaxesonitstransactionsascustomer(onitspurchasesofgoodsandservices)andasemployer(oncompensationpaidtoitsofficialsandemployees)undertheTaxCodeandspeciallaws.

Everyformofcompensationforservices,whetherpaidincashorinkind,isgenerallysubjecttoincometaxandconsequentlytowithholdingtax.Thenamedesignatedtothecompensationincomeisimmaterial.

Thus,salaries,wages,emoluments,andhonoraria,allowances,commissions,fees(includingdirector’sfees,ifthedirectoris,atthesametime,anemployeeoftheemployerorthecorporation),bonuses,fringebenefits(exceptthosesubjecttothefringebenefitstaxundertheTaxCode),pensions,retirementpay,andotherincomeofasimilarnature,constitutecompensationincomethataretaxableandsubjecttowithholdingtax.

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Petitioner-organizationsandunionsofemployeesfromvariousgovernmentagenciesquestionedtheconstitutionalityoftheRMOandaskedthatparagraphsA,BCandDofSectionIII(enumerationofvariousbenefitsandallowancesofgovernmentemployeeswhichareconsideredcompensationsubjecttoincometax),SectionsIV(enumerationofnon-taxablecompensationincomeofpublicsector),VI(personsresponsibleforwithholding)andVII(penaltyfornon-compliancebythenamedgovernmentofficialsoftheirobligationaswithholdingagents)bedeclarednull,voidandunconstitutional.

PetitionersallegedthattheRMOclassifiedastaxablecompensationvariousallowances,bonuses,andcompensationforservicesgrantedtogovernmentemployeessuchasthoseinthelegislativebranchandjudiciary,whichareconsideredbylawasnon-taxablefringeandde minimisbenefits. Petitionersalsoallegethattheimpositionofwithholdingtaxontheseallowances,bonusesandbenefits,whichhavebeenallottedbytheGovernmenttoitsemployeesfreeoftaxforalongtime,violatestheprohibitiononnon-diminutionofbenefitsunderArticle100oftheLaborCode.

Issue:

ArethequestionedprovisionsofRMONo.23-2014valid?

Ruling:

SectionIII(enumerationofvariousbenefitsandallowancesofgovernmentemployeeswhichareconsideredcompensationsubjecttoincometax)andSectionIV(enumerationofnon-taxablecompensationincomeofpublicsector)ofRMONo.23-2014arevalidanddonotchargeanyneworadditionaltax.

Theprovisionssimplyreinforcetherulethateveryformofcompensationforpersonalservicesreceivedbyallemployeesisdeemedsubjecttoincometaxand,consequently,towithholdingtax,unlessspecificallyexemptedorexcludedbytheTaxCode,andalsothedutyoftheGovernment,asanemployer,towithholdandremitthecorrectamountofwithholdingtaxesdue.

UndertheTaxCode,everyformofcompensationforservices,whetherpaidincashorinkind,isgenerallysubjecttoincometaxandconsequentlytowithholdingtax.Thenamedesignatedtothecompensationincomeisimmaterial.Thus,salaries,wages,emoluments,andhonoraria,allowances,commissions,fees(includingdirector’sfees,ifthedirectoris,atthesametime,anemployeeoftheemployerorthecorporation),bonuses,fringebenefits(exceptthosesubjecttothefringebenefitstaxunderSection33oftheTaxCode),pensions,retirementpay,andotherincomeofasimilarnature,constitutecompensationincomethataretaxableandsubjecttowithholding.

Thetermemployee“coversallemployees,includingofficersandemployees,whetherelectedorappointed,oftheGovernmentofthePhilippines,oranypoliticalsubdivisionthereoforanyagencyorinstrumentality”whileanemployer“embracesnotonlyanindividualandanorganizationengagedintradeorbusiness,butalsoincludesanorganizationexemptfromincometax,suchascharitableandreligiousorganizations,clubs,socialorganizationsandsocieties,aswellastheGovernmentofthePhilippines,includingitsagencies,instrumentalities,andpoliticalsubdivisions.”

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WhileSectionIIIenumeratescertainallowanceswhichmaybesubjecttowithholdingtax,itdoesnotexcludethepossibilitythattheseallowancemayfallundertheexemptionsinSectionIV.SectionsIIIandIVarticulateingeneralandbroadlanguagetheTaxCodeprovisionsontheformsofcompensationincomedeemedsubjecttowithholdingtaxandthoseexemptedfromincometax.

SectionVII(onpenaltiesfornon-compliancebythenamedgovernmentofficialsoftheirobligationtowithhold)ofRMONo.23-2014isvalidwhileSectionVI(personsresponsibleforwithholding)contravenes,inpart,theTaxCodeprovisionsanditsimplementingrules.

SectionVIIdoesnotdefineacrimeandprescribeapenalty,butsimplymirrorstherelevantprovisionsoftheTaxCodeonpenaltiesforfailureofthewithholdingagenttowithholdandremitcorrectamountoftaxes.

However,withrespecttoSectionVI,theCIRoversteppedtheboundariesofhisauthoritytointerpretprovisionsoftheTaxCode.

TheGovernment,oranyofitspoliticalsubdivisionsoragencies,oranygovernment-ownedor–controlledcorporation(GOCC),asanemployer,isconstitutedbylawasthewithholdingagent,mandatedtodeduct,withholdandremitthecorrectamountoftaxesonthecompensationincomereceivedbyitsemployees.

ThewithholdingtaxregulationsidentifytheProvincialTreasurerinprovinces,theCityTreasurerincities,theMunicipalTreasurerinmunicipalities,BarangayTreasurerinbarangays,TreasurersofGOCCs,andtheChiefAccountantoranypersonholdingsimilarpositionandperformingsimilarfunctioninnationalgovernmentofficesaspersonsrequiredtodeductandwithholdtheappropriatetaxesontheincomepaymentsmadebythegovernment.

NowhereintheTaxCodeorintheregulationswouldonefindtheProvincialGovernor,Mayor,BarangayCaptainandtheHeadofGovernmentOfficeorthe“Officialholdingthehighestposition”inanAgencyorGOCCasoneoftheofficialsrequiredtodeduct,withholdandremitthecorrectamountofwithholdingtaxes.SectionVIofRMONo.23-2014isdeclarednullandvoidinsofarasitnamestheseofficersaspersonsrequiredtowithholdandremittaxes.

Macario Lim Gaw, Jr. vs. Commissioner of Internal Revenue (CIR)SupremeCourt(FirstDivision)G.R.No.222837,promulgated23July2018

Facts:

MacarioLimGaw,Jr.sold10parcelsoflandforwhichhepaidCapitalGainsTax(CGT)andDocumentaryStampTax(DST).TheBIRissuedthecorrespondingCertificatesAuthorizingRegistrationandTaxClearanceCertificates.

Subsequently,theCommissionerofInternalRevenue(CIR)opinedthatGawwasnotliableforthe6%CGTbutforthe32%regularincometaxand12%ValueAddedTax(VAT)becausethepropertiessoldwereordinary,andnotcapitalassets.TheCIRfoundthatGawmisdeclaredhisincome,misclassifiedtheproperties,andusedmultipletaxidentificationnumberstoavoidbeingassessedthecorrecttaxes.

TheCIRissuedaLetterofAuthoritytoauditGaw’staxaccountandalsofiledaJointComplaintaffidavitfortaxevasionbeforetheDepartmentofJustice(DOJ).

Ataxevasioncasefiledbythegovernmentagainstanerringtaxpayerhas,foritspurpose,theimpositionofcriminalliability.Ontheotherhand,ataxpayer’sPetitionforReviewtoquestionadeficiencytaxassessmentisintendedtopreventitfrombecomingfinalandexecutory.AcquittalofthetaxpayerinthecriminalcasewillnotresultinthedismissalofthePetitionforReview,whichisnotdeemedinstitutedwiththecriminalcasefortaxevasion.

Whatisdeemedinstitutedwiththecriminalactionisonlytheactiontorecovercivilliabilityarisingfromthecrime.Civilliabilityarisingfromadifferentsourceofobligation,suchaswhentheobligationiscreatedbylaw,isnotdeemedinstitutedwiththecriminalaction.

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TheDOJfiledtwocriminalinformationsfortaxevasionagainstGaw.Halfwaythroughtrial,theCIRissuedherFinalDecisiononDisputedAssessment(FDDA),assessingGawdeficiencyincometaxandVATfortaxableyears2007and2008.

GawfiledaPetitionforReviewwiththeCourtofTaxAppeals(CTA)forthe2007deficiencytaxassessment.

Forthe2008deficiencytaxassessment,whichinvolvedthesametaxliabilitiessoughttoberecoveredinthependingcriminalcase,GawfiledamotionwiththeCTAtoclarifywhetherhehastofileaseparatepetitiontoquestionthedeficiencyassessment.

TheCTAheldthattherecoveryofthecivilliabilitieswasdeemedinstitutedwiththeconsolidatedcriminalcases,withoutprejudicetotherightofGawtoavailofwhateveradditionallegalremedyhemayhavetopreventthe2008FDDAfrombecomingfinalandexecutory.GawfiledaPetitionforReviewAd Cautelam(withaMotionforConsolidationwiththeCTAcriminalcases)docketedasCTACaseNo.8503,uponwhichtheclerkofcourtassessedzerofilingfee.

TheCTAacquittedGawinthecriminalcasesanddirectedthelitigationofthecivilaspectinthetaxevasioncase.TheCIRaskedforthedismissalofthepetitioninCTACaseNo.8503becausetheCTAFirstDivisionlackedjurisdictionduetoGaw’snon-paymentoffilingfees,whichtheCTAgranted.Hence,GawappealedtotheSupremeCourt. Issues:

1. Isthecivilactiontoquestionthe2008FDDAdeemedinstitutedwiththecriminalcasefortaxevasion?

2. IstheCTAcorrectindismissingthecaseforfailureofGawtopaydocketfees?

Rulings:

1. No,thecivilactionfiledbyGawtoquestionthe2008FDDAisnotdeemedinstitutedwiththecriminalcasefortaxevasion.

Whatisdeemedinstitutedwiththecriminalactionisonlytheactiontorecovercivilliabilityarisingfromthecrime.Civilliabilityarisingfromadifferentsourceofobligation,suchaswhentheobligationiscreatedbylaw,isnotdeemedinstitutedwiththecriminalaction.

Thetaxpayer’sobligationtopaythetaxisanobligationcreatedbylawanddoesnotarisefromtheoffenseoftaxevasionandassuch,thesameisnotdeemedinstitutedinthecriminalcase.

Anacquittalinacriminalcasecannotoperatetodischargethetaxpayerfromthedutyofpayingthetaxwhichthelawrequirestobepaidsincethatdutyisimposedbystatutepriorto,andindependentlyofanyattemptbythetaxpayertoevadepayment.

Whilethetaxevasioncaseispending,theBIRisnotprecludedfromissuinganFDDA,suchasinthepresentcase.Topreventtheassessmentfrombecomingfinal,executoryanddemandable,thelawallowsthetaxpayertofileaPetitionforReviewwiththeCTAwithin30daysfromreceiptofthedecisionortheinactionoftheCIR.

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Thetaxevasioncasefiledbythegovernmentagainsttheerringtaxpayerhas,foritspurpose,theimpositionofcriminalliability.Ontheotherhand,thePetitionforReviewfiledbyGawwasaimedtoquestionthe2008FDDAandtopreventitfrombecomingfinal.Hence,thePetitionforReviewAd Cautelam is notdeemedinstitutedwiththecriminalcasefortaxevasion.

2. No.ThecaseshouldnothavebeendismissedbytheCTA.

Whilethecourtacquiresjurisdictionoveracaseonlyuponthepaymentoftheprescribeddocketfees,itsnon-paymentatthetimeoffilingtheinitiatorypleading,thePetitionforReviewinthiscase,doesnotautomaticallycauseitsdismissalsolongasthedocketfeesarepaidwithinareasonableperiod,andthatthepartyhadnointentiontodefraud.

GawreliedingoodfaithontheCTA’sadvicethatheisnolongerrequiredtopaythedocketfees.TheCTAshouldhavedirectedtheclerktoassessthecorrectdocketfeesandorderedGawtopaytheamountwithinareasonableperiod.

TheissueonwhetherthetransactionisoneinvolvingcapitalorordinaryassetsshouldbeproperlyresolvedbytheCTAsincetheSupremeCourtisnotatrieroffacts.ThecaseisreturnedtotheCTAforfurtherproceedings.

Commissioner of Internal Revenue vs. Coral Bay Nickel CorporationCTA(En Banc)CaseNo.1652promulgated14August2018

Facts:

PetitionerCIRassessedRespondentCoralBayNickelCorporation(CBNC)for,amongothers,allegeddeficiencyfinalwithholdingtax(FWT)for2007.CBNCprotestedtheassessment.UpontheCIR’sdenialofitsprotest,CBNCfiledPetitionforReviewwiththeCTA.

AttheCTA,CBNCarguedthatthewaiverisnotvalid.CBNCexecutedawaiveron20April2010extendingtheperiodtoassessuntil31December2010,whichwasacceptedbytheBIRon30April2010.Itexecutedasecondwaiveron12November2010andthereafter,3morewaiversextendingtheperiodtoassessuntil31December2011,31October2012and30June2013.AllwaiverswereexecutedbyCBNC’sPresident.

CNBCarguedthattheCIR’srighttoassessthedeficiencyFWTforJanuarytoMarch2007hadprescribedasithadonlyuntil15February2010,10March2010,and16April2010toassessfordeficiencyEWTforJanuarytoMarch2007.ItalsoinsistedthatapriorTaxTreatyReliefApplicationisnotrequiredtoavailofthepreferentialratesundertheapplicabletaxtreaty,pursuanttotheSupremeCourt’srulinginDeutsche Bank AG Manila Branch vs. CIR, GR 188550 promulgated on 19 August 2013.

TheBIRcounteredthatitsrighttoassesshasnotprescribed,allegingthatCBNCfiledafalseorfraudulentFWTreturns,justifyingtheapplicationofthe10-yearprescriptiveperiod.ItalsoarguedthatCBNCisestoppedfromquestioningthevalidityofthewaiveritvoluntarilyexecuted,citingtheSupremeCourt’sdecisioninCIR vs. Next Mobile, Inc., GR 212825 promulgated on 7 December 2015.ItlikewisetookthepositionthattheperiodoflimitationtoassessandcollectdeficiencytaxesunderSection203oftheNIRConlyextendstoassessmentofallinternalrevenuetaxesandnotfromassessmentofpenaltiesonawithholdingagentforfailuretoremittheproperamountoftaxeswithheld.

The3-yearprescriptiveperiodmaybeextended,ifawaiverwasdulyexecutedbeforeitsexpiration.

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TheCTAThirdDivisioncancelledandsetasidetheFDDAfordeficiencyFWT,promptingtheCIRtoelevatethecasetotheCTAEn Banc.

Issues:

1. HastherightoftheBIRtoassessprescribed?

2. Doestheperiodoflimitationapplytowithholdingtaxes?

3. IsCBNCliabletoFWT?

Ruling:

1. Yes,theBIR’srighttoassessfordeficiencyFWTforJanuarytoMarch2007hasprescribed.The3-yearprescriptiveperiodmaybeextendedifawaiverwasdulyexecutedbeforeitsexpiration.Thefirstwaiverbecameeffectiveonlyon30April2010whenthewaiverwasacceptedbytheBIR.ThelastdaytoassessthedeficiencyFWTforMarch2007wason16April2010.

The“in pari delicto”principleintheNext Mobilecase,whereitwasheldthatifboththeBIRandthetaxpayerareequallyatfaultinexecutingandacceptingdefectivewaiversthenthetaxpayerwillbeartheconsequenceofsuchdeliberateact,isnotapplicableinthiscase.CBNCisnotestoppedfromquestioningthevalidityofthewaiverasitwasnotremissinassertingitsright.

2. Yes.Inaplethoraofcases,theSupremeCourthasconsistentlyanduniformlyappliedthe3-yearprescriptiveperiodontheassessmentofwithholdingtaxes,withoutqualificationordistinction.

SinceSection203oftheNIRCappliestoallinternalrevenuetaxesandthatnorestrictionorqualificationisindicatedastoitsapplicationoncertaintaxes,thereisnobasisnottoapplytheruleonprescriptiontowithholdingtaxes.

3. No.CBNCcorrectlyappliedthepreferentialtaxratesonitsincomepaymentstoJapanesenon-residentforeigncorporationspursuanttothePhilippines-JapanTaxTreaty.ApriorapplicationfortaxtreatyreliefisnotrequiredbeforeataxpayercanavailofthepreferentialratesfollowingtheDeutscheBankcase.

FCF Minerals Corporation vs. Commissioner of CustomsCTA(En Banc)CaseNo.1620promulgated14August2018

Facts:

PetitionerFCFMineralsCorporation(FMC)filedwithRespondentCommissionerofCustomsanapplicationforrefundofallegederroneouslypaidValue-AddedTax(VAT)andcustomsdutiesandfeesonitsimportationofcapitalequipment.FMCenteredintoaFinancialorTechnicalAssistanceAgreement(FTAA)withthegovernmentinSeptember2009forthegold-molybdenumprojectinNuevaVizcayapursuanttoRepublicAct7942orthePhilippineMiningAct.

FMCarguedthatitisnotliabletopayVATandcustomsdutiesandfeesonimportedcapitalequipment,citingRA7942whichprovidesthatthe“governmentshare”intheFTAAsofminingcompanies,whichincludesVATandcustomsdutieson

FTAAcontractorsareliabletopayVATonimportedgoodsandservicesandcustomsdutiesandfeesonimportedproductsonlyaftertheirrecoveryperiod.

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importationofcapitalgoods,shallbecollectedonlyaftertheFTAAcontractorhasfullyrecovereditspre-operatingexpensesandexplorationanddevelopmentexpenditures.

ItalsocontendedthatRevenueMemorandumCircular17-2013whichrequiresFTAAcontractorstopaynationaltaxesduringandaftertheirrecoveryperiodviolatesRA7942.

DuetotheCOC’sinactionontherefundapplication,FMCfiledaPetitionforReviewattheCTA.

TheCTAThirdDivisionruledthatVATonimportedgoodsandservicesandcustomsdutiesandfeesonimportedproductsmustbepaidonlyaftertherecoveryperiod.However,theThirdDivisionheldthatFMCfailedtoestablishthatthetaxesforrefundwerepaidduringitsrecoveryperiodorthatithasnotyetrecovereditspre-operatingexpenses.

UponthedenialofitsMotionforReconsideration,FMCfiledaPetitionforReviewattheCTAEn Banc.

Issue:

IsFMCentitledtorefundtheVATandcustomsdutiesandfeespaidduringitsrecoveryperiod?

Ruling:

Yes.Thetaxesanddutiescollectedduringtherecoveryperiodareeligibleforrefund.VATonimportedgoodsandservicesandcustomsdutiesandfeesonimportedproductsmustbepaidonlyaftertherecoveryperiod,asprovidedunderDepartmentofEnvironmentandNaturalResources(DENR)AdministrationOrder(DAO)2007-12.

Therecoveryperiodisforamaximumof5yearsoratadatewhentheaggregateofthenetcashflowsfromtheminingoperationsisequaltotheaggregateofitspre-operatingexpenses,reckonedfromthedateofcommencementofcommercialproduction,whichevercomesfirst.

AlthoughtheFTAAwassignedin2009,theDeclarationofMiningProjectFeasibility(DMPF)wasapprovedonlyon18October2011.TheshipmentsthatwereerroneouslysubjectedtoVATweremadein2013.Itwasonlyon9September2016or5yearsaftertheDMPFand3yearsaftertheshipments,thattheDeclarationofCommencementofCommercialOperations(DCCO)wasfiledbyFMC.TheCTAEn Bancruledthat9September2016isnoteventhestartoftherecoveryperiodasthiswasonlythefilingoftheDCCOandnotyetapprovedbytheRegionalOffice.

TheCTAEn BancheldthatwiththesubmissionoftheDCCO,itwasestablishedthattheperiodtocollecttaxeshasnotyetbegunascommercialoperationshavenotevenstarted.ThecasewasremandedtotheCTAThirdDivisionforfurtherproceedingstodetermineandruleonthemeritsoftherefundclaim.

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Commissioner of Internal Revenue vs. G & W Architects, Engineers & Project Development Consultants Co.CTA(En Banc)CaseNo.1449promulgated29August2018

Facts:

PetitionerCIRassessedRespondentG&WArchitects,EngineersandProjectConsultants,Co.(G&W)forallegeddeficiencyEWTandDSTfor2004coveringthetransferof340unitsinfourcondominiumprojects.G&WprotestedtheassessmentbasedonfourBIRrulingsissuedbetween2003and2007,wheretheBIRconfirmedthatits“Build-To-Own”or“Build-Your-Own”schemeisnotataxabletransactionasitdoesnotconstituteasaleordispositionofrealproperty.Underthearrangement,unitownerspooltheirfundsfortheconstructionofcondominiumunitsandexecutethefollowingagreements:

a. ContracttoManageandExecutetheConstructionbetweenG&Wandtheunitowners;

b. TrustAgreementestablishedbytheunitownersnamingatrusteetoholdintrustthepooledfundsoftheunitownersandthelandwheretheprojectwillbelocated;and,

c. DepositoryandDisbursingAgreementsbetweenthetrusteeandtheunitowners.

AstheCIRfailedtoactontheprotest,G&WfiledPetitionsforReviewwiththeCTA.

AttheCTA,theCIRallegedthatundertheso-calledco-development/building-to-own/build-your-ownandsimilarschemes,thedevelopersimplymadeitappearthatitmerelymanagedtheconstructionofthecondominiumprojectsandthatthefundsascontributedbytheindividualinvestorsweremanagementfeesonly.Theassignmentanddeliveryofthedevelopedunitstoindividualinvestorsweresupposedlynottaxablebeingmerelyatransferofpropertyheldintrustbythetrusteefortheindividualtrustors.TheCIRclaimsthatthebuild-to-ownconceptisconsideredpre-sellingthatshouldhavebeensubjectedtoEWTandDST.TheCIRalsonotedthatitissuedRMC55-2010statingthatG&Wmisrepresentedfactsintherequestforruling,declaredtherulingsasvoid,andorderedataxinvestigation.

TheCTAFirstDivisionruledthatthetransactionbetweenG&Wandtheunitownerswasforasaleofservices,notasaleofproperty.AsexplainedbytheDivision,G&Wonlyearnedfeesforthemanagementandconstructionoftheunits.AsG&Whadnocompletecontroloverthefunds,nopartofsuchfundscanbeconsideredaspaymentforthetransferofthecondominiumunitsfromwhichtheassessedEWTcanbededucted.

A“Build-To-Own”or“Build-Your-Own”schemeisnotasaleofrealpropertythatissubjecttoEWTandDST.

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TheCTAEn BancsubsequentlyheldthatG&Wisnotmerelytheprojectmanagerofthecondominiumprojectsbuttheownerthereof,whoisliableforEWTandDST.G&W’sclaimthatitismerelyaprojectmanagerisbeliedbyitsownevidence,particularlytheContracttoManageandExecutetheConstruction,whichprovidesthatG&Whastheauthoritytoterminatethecontractinanyoftheeventsofdefaultandidentifyasubstituteclientorbuyerwhowillassumethecorrespondingremainingobligation.

G&WfiledaMotionforReconsiderationofthedecisionoftheCTAEn Banc.

Issue:

Isthe“Build-To-Own”or“Build-Your-Own”schemeconsideredasaleofrealpropertythatissubjecttoEWTandDST?

Ruling:

No.Thetransactionwasforasaleofservicestoclients,notasaleofproperty.G&Wmerelyearnedprofessionalfeesequivalentto4%oftheconstructionfunding.IntheAmendedDecision,theCTAEn BancheldthatthetrueintentofthepartiesisclearlyexpressedinthecontractsandthereisnothingtoshowthatG&Wwouldbethelawfulownerofthecondominiumprojectsandthelandonwhichthesewerebuilt.G&Wmerelyactsforandonbehalfofitsclientswheneveritexercisesitsobligationsasprojectmanager,trusteeandattorney-in-factofitsclients.

AccordingtotheCTAEn Banc,itcanbegatheredthatwhileallnecessarycontractsand/ordocumentsarisingoutoforasaconsequenceoftheconstructionoftheprojectmayhavebeenexecutedbyandinthenameofG&W,theexecutionshallbeunderstoodtobeforandonbehalfoftheclients.

UnderSection57oftheNIRCandRevenueRegulations2-98,thewithholdingagentisresponsibletofilethereturn,withholdthetaxandremitthesametotheBIR.SinceG&Wisnotawithholdingagent,itcannotbeheldliableforthenon-filingofthewithholdingtaxes.Further,noevidencewaspresentedtoprovethattheentirecontractpricewaspaidtoG&W,ifitisindeedtheseller.

(Editor’s Note: The CTA En Banc voted 4-4 with Presiding Justice Roman G. Del Rosario dissenting on the amended decision)

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