2014 TAX UPDATES AND COMMON ERRORS TO AVOID

2014 INCOME TAX UPDATES AND COMMON ERRORS TO AVOIDAtty. Vic C. MamalateoAugust 30, 2014PICPA Cabanatuan CityTo get Taxpayer Identification Number (TIN) [Sec. 236(J), NIRC] and pay ARF.To register as a taxpayer Income tax, Withholding agent, VAT or Non-VAT, etc. and to update BIR Certificate of Registration [Form 2303] (Sec. 236(A), NIRC)To register books of accounts (whether computerized or manual) [Sec. 232, NIRC] and to keep books and records for 3 years from date of last entry (Sec. 235, NIRC)To secure Authority To Print (Sec. 238, NIRC) and to register and issue sales invoices, incl. delivery receipts, official receipts, incl. collection, provisional, or acknowledgement receipts, and other accounting records (whether computerized or manual) (Sec. 237, NIRC) To register cash register machines and POS machinesTo file tax returns (BIR Form 1701/1702; 1601/1604; 2550/2551; 2200) and pay taxes within the dates prescribed by law; otherwise, penalties will be imposedTo withhold and remit taxes required by law or regulations and to issue Certificates of Tax Withheld (BIR Forms 2307 & 2306)To submit reports and other information required by law or regulations (e.g., inventory, SLS, SLP, and SLI, SAWT and MAP, alpha list of employees and 2316, audited financial statements, etc.)To post certain receipts and certificates.General principles arising from lifeblood theory:Taxation is the rule; exemption, the exception.Exemptions are construed strictly against the taxpayer. In case of doubt, you tax income or disallow deductions and tax credits.Taxes are imposed by law (e.g., NIRC), while financial accounting are based on generally accepted accounting standards. In case of conflict between tax rules and accounting rules, the former shall prevail.

1. Cash/Property ReceivedIs it a return of capital or capital, or income, gain or profit?2. Capital or Return of CapitalIs it acquired gratuitously or for a valuable consideration?Gratuitous Transfer: May be subject to estate tax (Chapter I, Title III) or donors tax (Chapter II, Title III)For Valuable Consideration: May be subject to income tax (Title II)

3. If income, gain or profitExempt from income tax: Constitution, tax treaty, NIRC, or special lawExclusion from gross income [Sec. 32(B), NIRC]Sec. 30, NIRC: Exempt corporations and associationsSec. 22, NIRC: GPP or JV (construction or energy-related projects)4. If taxable, what income tax system applies?Schedular tax system (subject to FWT)Global tax system Mixed schedular and global tax systems

5. Who is the taxpayer?Individual (or estate or trust)Citizen or alienCorporation (or partnership)Domestic or foreign6. Where is the source of income?Within the PhilippinesWithout the Philippines7. Methods of reporting incomeCash, accrual, installment, POC, and crop yearOVERVIEW8. Nature of income?Compensation incomeBusiness or professional incomeCapital gainPassive investment incomeOther income9. Type of asset and gain?Capital assetOrdinary asset

INCOME TAXINCOME TAXTax on all yearly profits arising from property, professions, trades or offices, or as a tax on a persons income, emoluments, profits and the like (Fisher v. Trinidad).Income tax is a direct tax on taxable actual or presumed income (gross or net) of a taxpayer received, accrued or realized during the taxable year.WITHHOLDING TAXIt is not an internal revenue tax but a mode of collecting income tax in advance on income of the recipient of income thru the payor of income. [NOTE: Sec. 21, NIRC enumerates various internal revenue taxes.]There are 2 types of withholding taxes, namely: (1) final withholding tax; and (2) creditable withholding tax, including expanded withholding tax.LAWS THAT GRANT INCOME TAX EXEMPTION (FULL OR PARTIAL, OR SUBJECT TO CERTAIN CONDITIONS):Constitution (non-stock, non-profit private educational institutions)Tax treaties (no permanent establishment in the Phil)StatutesGeneral law (National Internal Revenue Code)Definition of terms (Sec. 22(B), NIRC)General principles (Sec. 23, NIRC)Exclusions from gross income (Sec. 32(B), NIRC)Exempt corporations and associations (Sec. 30, NIRC)Tax imposition provisions (Sec 24-28, NIRC)Interest on long-term deposits or investments of individualsInterest on foreign currency deposits with OBU/FCDU of NRsEstates and trusts (Secs. 60-66, NIRC)

Special lawsR.A. 7916 (PEZA Law) and other laws creating special economic zones, which grant ITH for a limited period and impose 5% final tax on gross income earned, in lieu of all national and local taxes, after ITHR.A. 7227 (BCDA Law) imposing 5% final tax on gross income earned, in lieu of all national and local taxesE.O. 226 (Omnibus Investments Act), which grants ITH on registered pioneer or non-pioneer activitiesR.A. 9856 (Real Estate Investment Trust Law), which allows dividends paid by the REIT corporation to be deducted from its gross income, and exempts dividends paid by it to OFWs, among other benefitsR.A. 10026 exempts Local Water Districts from income tax (RMC 28-2010, Mar 23, 2010)R.A. 9520 (Phil Cooperative Code of 2008) exempts from any taxes and fees on registered cooperatives which do not transact business with non-members, and coops with accumulated reserves and undivided net savings of not more than P10 million.R.A. 9505 (Personal Equity and Retirement Account Act of 2008) grants 5% tax credit of the aggregate PERA contributions made in one by a qualified contributor against his income tax liability or any national tax, if OFW.

RMC 35-2014, May 8, 2014

RMC 35-2014 circularizes portion of HUDCC Resolution No. 1-2013, which approves the adjustment of price ceiling for horizontal socialized housing from P400,000 to P450,000, beginning Dec 18, 2013RMC 36-2014, May 8, 2014 clarifies that the price ceiling of socialized homelot only, pursuant to RR 11-97, 17-01, and HUDCC Resolution No. 1-2013, shall not exceed 40% of the maximum limit prescribed for house and lot package, or P180,000 (40% x P450,000).

RMC 7-2014, Feb 5, 2014

RMC 7-2014 clarifies the issues on registration and compliance requirements of Marginal Income Earners pursuant to RR 7-2012Marginal Income Earner refers to individuals whose business do not realize gross sales or receipts exceeding P100,000 in any 12-month period.Said individual is one not deriving compensation under an E-E relationship but who is self-employed and deriving gross sales or receipts not over P100,000 in any 12-month period. His activities should be principally for subsistence or livelihood.MIE shall not include licensed professionals, consultants, artists, sales agents, brokers and others similarly situated, including those whose income have been subjected to withholding tax.MIE is exempt from ARF and from payment of business taxes (VAT or PT), but he must register, keep books, issues invoices or receipts, and file annual 1701 and pay income tax, if applicable.

INCOME FROM PROPERTY OF EXEMPT ASSOCIATIONThe phrase any of their activities conducted for profit does not qualify the word properties.-- The phrase any of their activities conducted for profit does not qualify the word properties. This makes income from the property of the organization taxable, regardless of how that income is used whether for profit or for lofty non-profit purposes. Thus, the income derived from rentals of real property owned by the Young Mens Christian Association of the Philippines, Inc. (YMCA), established as a welfare, education and charitable non-profit corporation, is subject to income tax. The rental income cannot be exempted on the solitary but unconvincing ground that said income is not collected for profit but is merely incidental to its operation. The law does not make a distinction. Where the law does not distinguish, neither should we distinguish. Because taxes are the lifeblood of the nation, the Court has always applied the doctrine of strict interpretation in construing tax exemptions. YMCA is exempt from the payment of property taxes only but not income taxes because it is not an educational institution devoting its income solely for educational purposes. The term educational institution has acquired a well-known technical meaning. Under the Education Act of 1982, such term refers to schools. The school system is synonymous with formal education which refers to the hierarchically structured and chronologically graded learnings organized and provided by the formal school system and for which certification is required in order for the learner to progress through the grades or move to higher levels (Commissioner vs. Court of Appeals and YMCA of the Phils., G.R. No. 124043, Oct. 14, 1998).To be exempt from income tax, Sec 30(e), NIRC requires that a charitable institution be organized and operated exclusively for charitable purposes. Due to huge amount received from paying patients, hospital is not operated exclusively for charitable purposes.The last paragraph of Sec 30, NIRC provides that if a tax-exempt charitable institution conducts any activity for profit, regardless of the disposition made of such income, such activity is not tax exempt (even as its not-for-profit activities remain exempt from income tax). Such taxable net income is taxed at 10% pursuant to Sec. 27(B), NIRC. However, in view of the BIR ruling in 1990 stating that St Lukes Hospital is exempt from income tax, no surcharge and interest shall be imposed on the deficiency tax (CIR v. St Lukes Med Center, Sept 2012).

RMC 51-2014, June 11, 2014

RMC 51-2014 clarifies the inurement prohibition under Sec 30, NIRCSec 30 enumerates the non-stock, non-profit corporations or associations exempt from income tax on income received by them as such.Non-stock means no part of its income is distributable as dividends to its members, trustees, or officers and that any profit obtained as an incident to its operations shall, whenever necessary or proper, be used for the furtherance of the purpose(s) for which the corporation was organized.Non-profit means that no income or asset accrues to or benefits any member or specific person, with all the net income or asset devoted to the institutions purposes and all its activities conducted not for profit.

RMC 51-2014, June 11, 2014

To qualify as a tax-exempt entity, its earnings or assets shall not inure to the benefit of any of its trustees, organizers, officers, members or specific person. The following are considered inurements of such nature:Payment of compensation, salaries or honorarium to its trustees or organizers;Payment of exorbitant or unreasonable compensation to its employees;Provision of welfare aid and financial assistance to its members. An organization is not exempt if its principal activity is to receive and manage funds associated with savings or investment programs, including pension or retirement programs. This does not cover a society, order, association or non-stock corporation under Sec 30, NIRC providing for payment of life, sickness, accident and other benefits exclusively for its members or their dependents.

RMC 51-2014, June 11, 2014

Donation to any person or entity (except donations made to other entities formed for the purpose(s) similar to its own);Purchase of goods or services for amounts in excess of FMV of such goods or services from an entity in which one or more of its trustees, officers or fiduciaries has an interest; andWhen upon dissolution and satisfaction of all liabilities, its remaining assets are distributed to its trustees, organizers, officers or members. Its assets must be dedicated to its exempt purpose(s). Its constitutive document must expressly provide that in the event of dissolution, its assets shall be distributed to one or more entities formed for the purposes similar to its own or to the Phil government for public purpose.RMC 8-2014, Feb 6, 2014RMC 8-2014 requires the presentation of Tax Exemption Certificate or Ruling by exempt individuals and entitiesSecs 57-59 and 78-83, NIRC require certain items of income to be subject to withholding taxes. However, certain persons are exempt from income tax and consequently, withholding taxes.Withholding agents shall require all taxpayers claiming such exemption to provide a copy of a valid, current and subsisting tax exemption certificate (TEC) or ruling before payment of the related income. Such TEC or ruling must explicitly recognize the grant of tax exemption as well as the corresponding exemption from imposition of withholding tax. Failure of taxpayer to present such TEC or ruling shall subject him to the payment of appropriate WT due on the transaction, and failure of withholding agent to withhold shall cause the imposition of penalties.

CIR v. Insular Life Assurance Co. Ltd, G.R. 197192, June 4, 2014

The 1997 Tax Code does not require registration with the CDA. No tax provision requires a mutual life insurance company to register with that agency in order to enjoy exemption from both the percentage tax and DST. Although RMC 48-91 requires the submission of the Cert of Registration with the CDA before issuance of the tax exemption certificate, that provision cannot prevail over the clear absence of an equivalent requirement under the Tax Code.The provisions of the Cooperative Code of the Phil do not apply to mutual life insurance companies.

CIR v. Insular Life Assurance Co. Ltd, G.R. 197192, June 4, 2014

Gratia argumenti that registration is mandatory, it cannot deprive respondent of its tax exemption privilege merely because it failed to register.The Insurance Code does not require registration of mutual life insurance companies with the CDA.While administrative agencies like the BIR may issue regulations to implement statutes, they are without authority to limit the scope of the statutes to less than what it provides, or to extend or expand the statute beyond its terms, or in any other way modify explicit provisions of the law. Indeed, a judicial body or an administrative agency for that matter cannot amend an Act of Congress. In case of discrepancy between the basic law and an interpretative or administrative ruling the basic law prevails.EXCLUSIONSLife insurance proceedsAmount received by insured as return of premiumGifts, bequests and devises (on the part of the donee)Compensation for injuries or sicknessIncome exempt under treatyRetirement benefits, pensions, gratuitiesR.A. 7641 (5 yrs & 60 yrs) and R.A. 4917 (10 yrs & 50 yrs)Interest income of employee trust fund or accredited retirement plan is exempt from FWT (CIR v. GCL Retirement Plan, 207 SCRA 487)Amount received as a consequence of separation because of death, sickness or other physical disability or for any cause beyond the control of employeeMiscellaneous itemsIncome of foreign governmentIncome of government or its political subdivisions from any public utility or exercise of governmental functionEXCLUSIONSMiscellaneous itemsPrizes and awardsIn recognition of religious, charitable, artistic, literary achievement, etc. (He did not enter contest and is not required to render substantial future services)Granted to athletes in local and international sports competitions, sanctioned by their national sports associations13th month pay and other benefits (up to P30,000)Gains from sale of long-term (5 years and 1 day) bonds, debentures and other certificates of indebtednessGains from redemption of shares in mutual fund

RMC 39-2014, May 12, 2014

RMC 39-2014 clarifies the tax treatment of payouts by employee pension plansSec 60(A), NIRC subjects income of any kind of property held in trust to income tax.Sec 60(B), NIRC exempts from income tax an employees trust which forms part of a pension, stock bonus or profit-sharing plan of an employer for the benefit of some or all of the employees. However, any amount actually distributed to employee to the extent it exceeds the amount contributed by such employee shall be subject to income tax. Payments of retirement benefits under Sec 32(B)(6)(a), NIRC are exempt from income tax.

RMC 39-2014, May 12, 2014

Non-contributory pension planIf employees who do not contribute to the provident fund receive dividends from en employee pension fund, the same is subject to income tax.If employee resigns from an employer, and he receives benefits from the provident fund maintained by it that does not qualify as tax-exempt, the entire amount received by him is subject to income tax.Contributory pension planDividend distributed to employees is subject to income tax in the year so distributed.Benefits received by a resigning employee is exempt only to the extent of his contribution to the pension fund.GLOBAL TAX SYSTEMCompensation income not subject to final withholding tax (FWT)Business and/or professional incomeCapital gains not subject to FWTPassive investment income not subject to FWTOther income not subject to FWTSCHEDULAR TAX SYSTEMCompensation income subject to FWTCapital gains subject to FWTPassive investment income subject to FWTOther income subject to FWTThe Philippines adopted the semi-global or semi-schedular tax system. Either the global or schedular system, or both systems, may apply on income of a taxpayer.You apply the schedular tax system only when the income, gain or profit is subject to FWT.GLOBAL SYSTEMGross salesLess: Cost of salesGross incomeLess: Deductions PAE (for individual)Net taxable incomeMultiplied by applicable rate (graduated or flat)Income tax dueLess: Creditable WTBalance

SCHEDULAR SYSTEMFirst Type: Gross selling price or fair market value, whichever is higher times applicable tax rate = Tax due (real property)Second Type: Gross selling price less cost or adjusted basis = Capital gain times applicable tax rate = Tax due (shares of domestic corp)Third Type: Gross income times applicable rate = Tax due (passive inv income; income paid to non-resident person)Income payment is listed in Sec 57(A), NIRC, as subject to FWT.FWT withheld by the payor of income (e.g., 20% FWT on interest income on bank deposits) represents FULL payment of income tax due on such income of the recipient. Income payee (or recipient of income) does not report income subjected to FWT in his income tax return, although income is reflected in his audited financial statements for the year. However, he is not allowed to claim any tax credit on income subjected to FWT.Withholding agent (payor of income) files the withholding tax return, which includes the FWT deducted from the income of payee, and pays the tax to the BIR. There is no Certificate of Tax Withheld issued to income payee.No Certificate of Tax Withheld (BIR Form 2307) is attached to the income tax return of recipient of income because he does not claim any tax credit in his tax return.Income tax is imposed or prescribed by:Sec. 24(B)(1) Interests, royalties, prizes & other winningsSec. 24(B)(2) Cash and/or property dividendsSec. 24(C) CGs from sale of shares not traded in PSESec. 24(D)(1) CGs from sale of real propertySec. 25(A)(2) Cash and/or property dividends from DC; interests, royalties, prizes and other winningsSec. 25(A)(3) CGs from sale of shares not traded in PSE and real propertySec. 25(B) NRA not engaged in trade or business in the PhilSec. 25(C) Alien employed by RHQ and ROHQSec. 25(D) Alien employed by OBUSec. 25(E) Alien employed by petroleum service contractor and sub-contractorTYPES OF INCOME TAX1. Graduated income tax on individuals; 2. Normal corporate income tax on corporations (RCIT); 3. Minimum corporate income tax on corporations (MCIT); 4. Special income tax on certain corporations (e.g., private educational institutions; foreign currency deposit units; international carriers)5. Capital gains tax on sale or exchange of unlisted shares of stock of a domestic corporation classified as a capital asset; 6. Capital gains tax on sale or exchange of real property located in the Philippines classified as a capital asset; 7. Final withholding tax on certain passive investment incomes (e.g., interest, dividend, and royalty); 8. Final withholding tax on income payments made to non-residents (individual or corporation); 9. Fringe benefit tax (FBT); 10. Branch profit remittance tax (BPRT); and 11. Tax on improperly accumulated earnings (IAET). SALE OF GOODSGross SalesLess: Cost of Sales: Beg. Inventory + Purchases Total available for sale - Ending inventory Cost of SalesGross incomeTimes 2% MCIT SALE OF SERVICESGross RevenueLess: Cost of Service consisting of all direct costs and expenses

Gross incomeTimex 2%MCITMCITMCIT is imposed on domestic corporations, beginning on the fourth taxable year immediately following the year in which such corporation commenced its business operations.2% MCIT is imposed whenever such corporation has zero or negative taxable income, or whenever the amount of MCIT is greater than the 30% RCIT based on its net income.MCIT shall apply to operations of a domestic corporation subject to RCIT. Operations covered by special income tax systems are not covered by MCIT (e.g.: BOI-registered firm that has registered and unregistered activities).Computation and payment of MCIT shall be made at the time of filing the quarterly corporate income tax.Secretary of Finance may suspend imposition of MCIT upon submission of proof by applicant, verified by CIR, that it sustained substantial losses on account of prolonged labor dispute, force majeure, or legitimate business reverses (RR 9-98, as amended by RR 12-07, Oct 10, 2007).RR 10-08, July 8, 2008 provides guidelines in determining gross receipts and cost of services of taxpayers engaged in sales of services.MCITCASE A: Quarterly MCIT is higher than quarterly RCIT If the quarterly MCIT is higher than the quarterly RCIT, the income tax due shall be the MCIT. In payment of MCIT, excess MCIT from previous taxable years shall not be allowed to be credited. The EWT, quarterly RCIT payments, and MCIT paid in previous taxable quarters are allowed to be applied against the quarterly MCIT due.CASE B: Annual RCIT is higher than annual MCIT Quarterly MCIT paid on quarterly ITR shall be credited against the RCIT at year end, if it appears that RCIT is higher than the computed annual MCIT.In addition to quarterly MCIT paid and quarterly RCIT of same year, excess MCIT in prior years (not exceeding 3 years), EWT in current year, and excess EWT in prior years shall be allowed to be credited against the RCIT.

MCITCASE C: Annual MCIT is higher than annual RCITWhat is creditable is only the quarterly MCIT payments of the current year, the quarterly RCIT of the current year, the EWT in the current year, and the excess EWT in prior years.Excess MCIT in previous years shall not be allowed to be credited therefrom as the same can only be applied against RCIT.

CRITERIA IN IMPOSING INCOME TAX

Citizenship principleFor Filipino citizens and domestic corporations, who are entitled to Philippine government protection wherever they are situated.Residence principleFor alien individuals and foreign corporationsSource principleFor alien individuals and foreign corporationsINDIVIDUAL, including estate and trustCITIZENResident (RC) Taxable on worldwide incomeNon-resident immigrant, permanent worker, OFW (seamen); 183-day ruleALIENResidentNon-residentEngaged in trade or business (more than 180 days in the Phil)Not engaged in trade or business (180 days or less stay in Phil) tax on GICORPORATION, including partnershipDOMESTIC (DC) Taxable on worldwide incomeFOREIGNResident (e.g., Phil branch of foreign corporation)Non-resident tax on gross incomeTEST FOR TAX PURPOSES: Law of incorporation RULE: All taxpayers are taxed only on income from sources within the Phil, except RC and DC. Non-residents are taxed generally on GROSS INC.

PARTNERSHIPSEXEMPTGeneral professional partnership (GPP)Joint venture undertaking construction activity or energy-related activities with operating contract with the governmentTAXABLEPartnerships, no matter how created or organized

RULES: If taxable, partnership is taxed like a corporation.If taxable partnership derives net income during the year, the entire net income is deemed received by the partners in the year it was earned by the partnership.If GPP adopts itemized deductions during the year, partners must use itemized deductions during the same year.

RESIDENT FOREIGN CORPSTAXABLE: RCIT & BPRTOrdinary branch of a foreign corporation in the Phil: 30% x net income from sources within the PhilPEZA- & SBMA-registered branch of foreign corporation is exempt from 15% BPRTRegional operating headquarters (ROHQ): 10% x net income from sources within the PhilOffshore banking unit (OBU) and foreign currency deposit unit (FCDU) [ING Bank Manila v. CIR]: 10% x gross interest income on forex loan to residentsForeign international carriers by air or water: 2.5% x GPBForeign contractor or sub-contractor engaged in petroleum operations in the Phil: 8% x gross income from sources within the Phil

EXEMPT: Not engaged in trade or business in the PhilRepresentative office Regional headquarters (RHQ)

Interest Interest from sources within Phil and interest on bonds and obligations of residents, corporate or otherwise; situs is residence of the borrowerDividend From domestic corporation and from foreign corporation, unless less than 50% of gross income of foreign corporation for 3 years prior to declaration of dividends was derived from sources within the Phil, in which case, apply only ratio of Phil-source income to gross income from all sourcesServices Place where services are performed, except in case of international air carrier and shipping lines which are taxed at 2.5% on their Gross Phil Billings. Revenues from outbound trips (originating from the Phil) are considered as income from sources within the Philippines, while revenues from inbound trips are treated as income from sources outside the Philippines.Rentals and royalties Location or use of property or property right in PhilSale of real property Located in the PhilippinesSale of personal property Located in the PhilippinesGain from sale of shares of stocks of a domestic corporation is ALWAYS treated as income from sources within the Philippines.Other intangible property Mobilia sequuntur personam (e.g., gain from sale of shares of stocks of a foreign corporation)COMPENSATION INCOMEExistence of employer-employee relationshipNo deduction from gross compensation income allowedBUSINESS AND/OR PROFESSIONAL INCOMENO employer-employee relationshipCAPITAL GAINReal property in the Phil and shares of stock of domestic corporationOther sources of capital gainPASSIVE INVESTMENT INCOMEInterest, dividend, and royalty incomeOTHER INCOMEPrizes and winningsAll other income, gain or profit not covered by the above classesCOMPENSATION INCOMEEmployees compensation income (regardless of rank) is subject to income tax on his partGraduated rates of 5% - 32%No deduction from gross incomeReimbursements or advances duly liquidated are exempt from taxPer diems (transportation expenses) may be treated as exempt income, provided covered by BIR rulingDe minimis benefits within the authorized ceilings are exemptFRINGE BENEFITSManagerial or supervisory employees income is subject to tax, but employer pays the fringe benefit tax; FB paid to rank-and-file employees are subject to income tax on their partEmployer deducts value of fringe benefit plus FBT paid from gross incomeEmployee does not report FB in his ITREducation assistance (P18,000) granted to rank and file employees per CBA is exempt from FBTStaff housing and car benefits to sales persons are exempt from FBT

1. Fringe benefits paid to managerial or supervisory employees. Managerial employee is one who is vested with powers or prerogatives to lay down and execute management policies and/or hire, transfer, suspend, lay-off, recall, discharge, assign or discipline employees.Supervisory employee is one who, in the interest of the employer, effectively recommend such managerial actions if the exercise of such authority is not merely routinary or clerical in nature but requires the use of independent judgment.2. Tax base is grossed-up monetary value of the fringe benefit, which is arrived at by dividing the monetary value of the fringe benefit by the applicable rate of tax.3. Fringe benefits received by managerial or supervisory employees in special economic zones or freeport zones are covered by RR 3-98.1. Housing privilege: MV = [5%(FMV or ZV) x 50%2. Expense account, unless receipted in name of employee and does not partake the nature of personal expense of the employee3. Vehicle of any kind: MV = [(Acq Cost/5] x 50%4. Household personnel (maid, driver, etc) borne by employer5. Interest on loan at less than market rate6. Membership fees, dues and other expenses in social and athletic clubs or similar organizations borne by the employer7. Expense for foreign travel 30% of first class airplane ticket; inland travel expenses not exceeding US$300 per day is not subject to FBT8. Holiday and vacation expenses of employees borne by employer9. Educational assistance to employees, unless it is directly connected with employers trade or business and employee is under obligation to remain with the employer for the agreed period, and to dependents, unless assistance is provided thru a competitive scheme under scholarship program of the company10. Life or health insurance or other non-life insurance premiums or similar amounts in excess of what the law allows, except SSS/GSIS contributions and premiums borne by employer for group insurance of his employees.1. Fringe benefits exempted under the Tax Code or special law2. Contributions of employer for the benefit of the employee to retirement, insurance and hospitalization benefit plans3. Benefits given to rank and file, whether granted under a CBA or not. However, exemption from FBT does not mean that it is exempt from income tax, unless expressly exempt from tax under the Tax Code.4. De minimis benefits, which are exempt from FBT and IT5. If the grant of FB to employee is granted by the nature or, or necessary to the trade, business or profession of the employer6. If the grant of FB is for the convenience of the employerDE MINIMIS BENEFITSEXEMPT DE MINIMIS BENEFITS, REGARDLESS OF RECIPIENT (RANK AND FILE, OR MANAGERIAL OR SUPERVISORY) a. Monetized unused vacation leave credits of private employees not exceeding ten (10) days during the year and the monetized value of leave credits paid to government officials and employees; b. Medical cash allowance to dependents of employees not exceeding P750.00 per employee per semester or P125 per month; c. Rice subsidy of P1,500.00 or one (1) sack of 50-kg rice per month amounting to not more than P1,500.00; d. Uniforms and clothing allowance not exceeding P4,000.00 per annum; e. Actual yearly medical benefits not exceeding P10,000.00 per annum; f. Laundry allowance not exceeding P300.00 per month;

DE MINIMIS BENEFITS g. Employees achievement awards (e.g., for length of service or safety achievement, which must be in the form of a tangible personal property other than cash or gift certificate, with an annual monetary value not exceeding P10,000.00 received by the employee under an established written plan which does not discriminate in favor of highly paid employees; h. Gifts given during Christmas and major anniversary celebrations not exceeding P5,000.00 per employee per annum; i. Daily meal allowance for overtime work not exceeding twenty-five percent (25%) of the basic minimum wage. The amount of de minimis benefits conforming to the ceiling herein prescribed shall not be considered in determining the P30,000.00 ceiling of other benefits provided under Sec. 32(b)(7)(e) of the Tax Code. However, if the employer pays more than the ceiling prescribed by these regulations, the excess shall be taxable to the employee receiving the benefits only if such excess is beyond the P30,000.00 ceiling. Any amount given by the employer as benefits to its employees, whether classified as de minimis benefits or fringe benefits, shall constitute as deductible expense upon such employer.KINDS OF DEDUCTIONSItemized DeductionsOptional Standard DeductionsSpecial DeductionsITEMIZED DEDUCTIONSBusiness expenses, incl. research and developmentInterestsTaxesLossesBad debtsDepreciationDepletionCharitable contributionsContributions to pension trustHealth or hospitalization premiumBUSINESS EXPENSES1. The expense must be ordinary and necessary;2. Paid or incurred during the taxable year;3. In carrying on or which are directly attributable to the develop- ment, management, operation and/or conduct of the trade, business or exercise of profession;4. Supported by adequate invoices or receipts;5. Not contrary to law, public policy or morals. Operating expenses of an illegal or questionable business are deductible, but expenses of an inherently illegal nature, such as bribery and protection payments, are not.6. The tax required to be withheld on the amount paid or payable is shown to have been paid to the BIR.

Sec. 2.58.5, RR 2-98, as amended by RR 12-2013:Any income payment which is otherwise deductible under the Tax Code shall be allowed as a deduction from the payors gross income only if it is shown that the income tax required to be withheld has been paid to the Bureau in acc with Secs. 57 and 58 of the Code.No deduction will also be allowed notwithstanding payments of withholding tax at the time of the audit investigation or reinvestigation/reconsideration, in cases where no withholding of tax was made in accordance with Secs 57 and 58 of the Code.RMC 63-2013, Sept 26, 2013, clarified that RR 12-2013 shall apply to tax audits for 2013 onwards.Entertainment, amusement and recreation expenses are subject to limitation% of net sales for sellers of goods1% of net sales for sellers of servicesClub dues for membership in social or athletic clubs to promote business of corporation paid by the corporation are deductible from gross income. However, they will be treated as fringe benefits subject to FBT on the part of the employer. FBT paid by employer is deductible as business expense of the corporation.Rental expenses include leasehold acquired for business purposes and cost of improvements introduced by lessee to be allocated over the term of the lease. Realty taxes paid by lessee for business property is part of rental expenses.INTEREST EXPENSESLoans between related parties (Sec. 36, NIRC)Interest income is subject to income tax, but interest expense is not deductible from gross incomeDeduction from gross income or capitalized as part of cost of asset. Taxpayer cannot deduct interest and treat said interest as part of cost of the capital asset.Tax arbitrage (not deductible interest expense, where the taxpayer has interest income on bank deposits).Deficiency interest is not deductible as tax but as interest.

Sec. 34(D)(3), NIRC.-- Net operating loss for any taxable year immediately preceding the current taxable year which had not been previously offset as deduction from gross income shall be carried over as a deduction from gross income for the next three (3) consecutive taxable years immediately following the year of such loss.NOLCO shall be allowed only if there has been no substantial change in the ownership of the business or enterprise in that a. Not less than 75% in nominal value of outstanding issued shares is held by or on behalf of the same persons; orb. Not less than 75% of the paid up capital of the corporation is held by or on behalf of the same persons.Substantial change in the ownership of the business or enterprise shall refer to a change in the ownership of the business or enterprise as a result of or arising from its merger or consolida-tion or combination with another person. A change in ownership as a result of or arising thereunder shall NOT be treated as a substantial change for as long as the stockholders of the party thereto, to whom the net operating loss is attributable, gains or retains 75% or more interest after such merger or consolidation or combination.By or on behalf of the same persons shall refer to the maintenance of ownership despite change, as when:1. No actual change in ownership is involved, in case the transfer involves change from direct ownership to indirect ownership, or vice-versa.2. No actual change in ownership is involved, as in case of merger of the subsidiary into the parent company.The NOLCO of a BOI-registered firm that incurred NOLCO (absorbed corporation) which subsequently merged with another corporation (as the surviving corporation) cannot be used by the latter. To allow this scheme is to shelter the otherwise taxable income of the surviving corporation, using NOLCO of the absorbed corporation.NOLCO (Net Operating Loss Carry Over) NOLCO is an asset with limited life.It may be used as a deduction from gross income of the next three (3) succeeding years.NOLCO of the year should not be added back to net income of same year during the tax audit, if taxpayer continuously incurred losses in succeeding years and did not use NOLCO on those years.Taxpayer that sustained the loss shall claim NOLCO, unless the regulations (RR 14-01) allowed the same (e.g., PNB).The three-year period to claim NOLCO shall continue to run despite the corporation paid MCIT. NOLCO cannot be availed of if taxpayer is subject to MCIT.

If taxpayer enjoys ITH, it is not allowed to avail of NOLCO, unless it also has unregistered activities that incur losses.If taxpayer is an individual that claims the OSD, NOLCO is not available to him.Failure to present NOLCO in the ITR and the unused NOLCO in the Income Statement will disqualify him/it from claiming NOLCO.Substantial change shall be determined in the year the NOLCO is to be claimed as a deduction.BAD DEBTS

1. There must be an existing indebtedness due to the taxpayer which must be valid and legally demandable;2. The same must be connected with the taxpayer's trade, business or practice of profession;3. The same must not be sustained in a transaction entered into between related parties enumerated under Sec. 36(B) of the Tax Code of 1997;4. The same must be actually charged off the books of accounts of the taxpayer as of the end of the taxable year; and5. The same must be actually ascertained to be worthless and uncollectible as of the end of the taxable year.In the case of banks, the BSP thru the Monetary Board shall ascertain the worthlessness and uncollectibility of the bad debts and approve in writing the writing off of bad debts from the books, without prejudice to the CIRs determi-nation of the worthless and uncollectibility of debts.In no case shall a receivable from an insurance or surety company be written off from taxpayers books and claimed as bad debt deduction, unless such company has been declared closed due to insolvency or for any similar reason by the Insurance Commission.TAX BENEFIT RULEThe taxpayer is obliged to declare as taxable income any subsequent recovery of bad debts in the year they were collected to the extent of the tax benefit enjoyed by the taxpayer when the bad debts were written off and claimed as deduction from gross income.It also applies to taxes previously deducted from gross income but which were subsequently refunded or credited by the BIR. He has to report income to the extent of the tax benefit derived in the year of deduction.DEPRECIATION

1. The allowance for depreciation must be reasonable;2. It must be for property arising out of its use in the trade or business, or out of its not being used temporarily during the year; 3. It must be charged off during the taxable year from the taxpayers books of accounts;4. Depreciation shall be computed on the basis of historical cost or adjusted basis. While financial accounting allows computation based on appraised value, recovery of investment for tax purposes shall be limited to historical cost.

Depreciation for the year = Cost less salvage value divided by the estimated useful life (number of years) of the assetBook value of the asset = Cost or adjusted basis less accumulated depreciation.REV REGS NO. 12-2012No depreciation shall be allowed for yachts, helicopters, airplanes and/or aircrafts, and land vehicles which exceed the threshold amount of P2.4 million, unless the taxpayers main line of business is transport operations or lease of transport equipment and the vehicles are used in said operations;

All maintenance expenses on account of non-depreciable vehicles for taxation purposes are disallowed in its entirety.

The input taxes on the purchase of non-depreciable Vehicles and all input taxes on maintenance expenses incurred thereon are likewise disallowed for taxation purposes.

Effective Oct 17, 2012

ORDINARY ASSET(Taxed under global system)

CAPITAL ASSET(Taxed under schedular or global tax system)Inventory if on hand at end of taxable year (mfr or dealer)Stock-in-trade primarily held for sale or for lease in the course of trade or business (real estate dealer, developer, or lessor)Asset used in trade or business, subject to depreciationReal property used in trade or business

All other assets, whether or not used in trade or business, other than the above-stated ordinary assets (Sec. 39, NIRC)Taxable income shall be computed upon the basis of the taxpayers annual accounting period in accordance with the method of accounting regularly employed in keeping the books of such taxpayer, but if the method employed does not clearly reflect the income, the computation shall be made in accordance with the method used by CIR (Sec. 43, NIRC).Gross income shall be reported in the year in which received by the taxpayer, unless it is properly accounted for as of a different period under methods of accounting permitted under Sec. 43, NIRC (Sec. 44, NIRC).Deductions and credits shall be taken for the year in which paid or accrued or paid or incurred, dependent upon the method of accounting used, unless deductions should be taken as of a different period in order to clearly reflect the income (Sec. 45, NIRC).For taxpayers using the accrual method Accrue correct amount of income and expenses at the end of the taxable year, pursuant to the all events test;Record the adjusting entries in the books of accounts (whether made by the corporate or external auditor);Withhold appropriate tax and remit the same to BIR within the prescribed period; andIssue BIR Form 2307 (Certificate of Tax Withheld) to the payee of income, or secure BIR Form 2307 from your payor of income, and attach the same to ITR

For taxpayers using the accrual methodMake a physical inventory of goods (raw materials, goods in process, and finished goods) and supplies, in coordination with the external auditor;Compare the figures arrived at with the amounts shown in the books, taking into account the method of valuation adopted and authorized under the law and the bookkeeping regulations;File the inventory list with the BIR not later than January 30 of the following year;File amended inventory list soon after filing the audited financial statement, where the quantity or amount of inventory shown in the inventory list filed with BIR does not jibe with the quantity or amount shown in the audited financial statement prepared by the external auditor.

ALLOCATION OF INCOME AND DEDUCTIONSIn case of two (2) or more organizations, trades or businesses (incorporated or not, organized in the Phil or not) owned or controlled directly or indirectly by the same interests, the CIR is authorized to distribute, apportion, or allocate gross income or deductions between or among such organization, trade or business, if he determines that such distribution, apportionment, or allocation is necessary in order to prevent evasion of taxes or clearly to reflect the income of any such organizations, trades, or businesses (Sec. 50, NIRC).Related parties are generally not prohibited from transacting with each other, provided they are at arms length.TRANSFER OF PROPERTY FOR SHARES OF STOCK OF A CORPORATIONA person, alone or together with others, not exceeding four,Transfers property (real property, shares of stocks, receivables, etc),For shares of stock in a corporation, whether domestic or foreign corporationAs a result of which, he/they gain control or further control of said corporationEXCHANGE OF PROPERTY FOR SHARES OF STOCKSCollective control (51% or more)Substituted basisGain from subsequent sale or disposition of assetBona-fide purposeNo further transaction within six months from date of tax-free exchange

TAX IMPLICATIONS:INCOME TAXNo gain or loss is recognized at the time of the exchange; hence, there is no income tax and withholding tax on the exchange of propertyThere is flexibility in assigning value to the property; the property transferred which has higher value may be transferred for lower value of shares receivedBut the basis upon the subsequent sale of the property or shares shall be the historical cost or basis of the property transferred (substituted basis)DOCUMENTARY STAMP TAXNo DST is due on the property transferredDST is due only on the original issue of shares of stockVALUE ADDED TAXTransaction is exempt from VAT, provided that the transferor and transferee are both real estate dealers (RR 4-2007, Feb. 7, 2007). But exchange of goods or properties, whether resulting in corporate control or not, is subject to VAT (RR 10-2011, July 1, 2011).

REV REGS NO. 4-2014, March 20, 2014

RR 4-2014, Mar 20, 2014 -- Prescribes the policies and guidelines in the monitoring of service fees of professionalsSelf-employed professionals shall register and pay the ARF with the RDO/LTDO having jurisdiction. In addition, they shall submit an affidavit indicating the rates, manner of billings and the factors they consider in determining their service fees upon registration and every year thereafter on or before Jan 31.Self-employed professionals are obligated to register their books of accounts and official appointment books of their practice of profession before using the same. The OAB shall contain only the names of client and date/time of meeting. They shall likewise register their invoices and receipts (VAT or NV) before using them.In cases when no professional fees are charged by professionals, a BIR receipt, duly acknowledged by the client, shall be issued showing a discount of 100% as substantiation of the pro-bono service.RMC 32-2014, May 5, 2014 Extends the period to submit the required affidavit and official appointment books under RR 4-2014 from April 6, 2014 to May 6, 2014, to give ample time for all parties.

RMC 2-2014, Jan 14, 2014RMC 2-2014 clarifies the issuance of official receipt being required by government auditors as evidence of receipt of payment for disbursements, where the payee/recipient is a dealer, supplier or business establishment required by BIR to issue the same in the sale/lease of goods or properties, and/or sale of services. Thus:RR 18-2012 and RMO 12-2013, in relation to Secs 106, 108, and 113, NIRC mandates that:Sales invoice is the principal evidence in sale of goods/properties;Official receipt is the principal evidence in the sale of services and/or lease of propertiesCommercial receipts/invoices, such DR, PO, PR, AC, CR, CR/DR Memo, etc. shall serve as supplementary evidence only.Buyer of goods on account or credit evidenced by a Charge Sales Invoice shall be entitled to claim input taxes. Upon collection by the seller, a Collection Receipt shall be issued to the buyer to evidence receipt thereof. In view thereof, the sales invoice shall serve in lieu of official receipt in the sale of goods or properties for evidentiary purposes in terms of audit.

RMC 11-2014, Feb 19, 2014

RMC 11-2014, Feb 19, 2014 clarifies certain issues relative to due process requirement in the issuance of deficiency tax assessment pursuant to RR 12-99, as amended by RR 18-2013RR 12-99, as amended by RR 18-2013, provides that CIR or his authorized representative shall issue the PAN, FLD/FAN, and FDDA. Auth representative refers to Regional Directors, ACIR-LTS, and ACIR-EAS. Thus, pursuant to RMC 39-13, TP shall submit their responses to PAN and protests to FLD/FAN with the authorized representatives who signed the PAN and FLD/FAN. Protests (request for reconsideration) arising from inactions or adverse decisions of the authorized representatives shall be filed with the Office of the CIR.Prior to the issuance of the PAN, TP may be allowed to make voluntary payments of probable deficiency taxes and penalties.

RMC 11-2014, Feb 19, 2014

An FLD/FAN issued, reiterating the immediate payment of deficiency taxes and penalties made in the PAN, is a denial of the response to PAN. A final demand letter for payment of delinquent taxes may be considered a decision on a disputed assessment (CIR v. Isabela Cultural Corp, 2001). This includes a disputed PAN. So long as the parties are given the opportunity to explain their side, the requirements of due process are satisfactorily complied with (Calma v. CA, 1999).An FLD/FAN issued beyond 15 days from submission of taxpayers response to PAN shall be valid, provided that it is issued within the period of limitation to assess taxes. Non-observance by the revenue officer of the 15-day period shall constitute an administrative infraction and shall be subject to administrative sanctions.

RMC 11-2014, Feb 19, 2014

RR 12-99, as amended by RR 18-13, provides that for requests for reinvestigation, the taxpayer shall submit all relevant supporting documents in support of his protest within 60 days from date of filing of his protest; otherwise, the assessment shall become final. The term the assessment shall become final means that the failure of the taxpayer to submit all relevant supporting documents within the 60-day period shall render the FLD/FAN final by operation of law. The TP shall be barred from disputing the correctness of the FLD/FAN by the introduction of newly discovered or additional evidence because he is deemed to have lost his chance to present these evidence. The BIR shall then deny the request for reinvestigation thru the issuance of FDDA.The PAN/FLD/FAN/FDDA shall first be served to the taxpayers registered address before the same may be served to the taxpayers known address, or it could be served simultaneously.RMC 15-, 16- & 37-2014RMC 15-2014, Mar 5, 2014Reminds the non-acceptance of out-of-district filing of ITRs of certain government officials and employees, such as members of AFP, PNP, and public school teachers, professors or instructors, shall no longer be allowed (RMC 29-2013).RMC 16-2014, Mar 14, 2014Notifies the entry into force, effectivity and applicability of the Philippines-Nigeria Double Taxation Agreement and shall be applicable to income derived or accrued beginning Jan 1, 2014RMC 37-2014, May 9, 2014 Notifies the entry into force, effectivity and applicability of the Philippines-Kuwait Double Taxation Agreement and shall be applicable to income derived or accrued beginning Jan 1, 2014

RMC 34-2014, May 8, 2014RMC 34-2014 clarifies the rule regarding doubtful validity of assessment (i.e., jeopardy or arbitrary assessment, or assessment based on best evidence obtainable rule) relative to its application to provisions of RR 30-2002 Assessment based on best evidence obtainable rule should not be automatically considered as a doubtful assessment. Taxpayers failure to present the required documents necessary makes it incumbent upon the BIR to resort to apply the best evidence obtainable rule. Thus, these assessments are presumed prima facie correct and sufficient for all legal purposes.The surrounding circumstances that led to the issuance of the assessment (based on RMC 23-2000 or 99-2010) should be thoroughly evaluated.

RMC 40-2014, May 15, 2014

RMC 40-2014, May 15, 2014 prescribes the use of eCARs (BIR Form 2313-R and 2313-P) printed in a security paper upon its rollout, and use of CARs shall be discontinued. The same information appearing on manually issued CARs shall be reflected in eCARs. One eCAR shall be issued for each real property, but one eCAR shall be issued for transfers of more than one personal property. Register of Deeds shall not accept manually issued CARs upon rollout of eCARs system, but manually issued CARs within one year before the rollout date are still valid for presentation by taxpayers to Registers of Deeds. Initially, eCAR system shall be rolledout on May 19, 2014 in RDOs under Revenue Region No. 1, Calasiao, Pangasinan.

RMC 42-2014, May 21, 2014RMO 19-2014, May 15, 2014 Amends RMO 18-2013 on issuance of CAR for transfers of properties under RDO 6, Urdaneta, East Pangasinan, by reverting to the RDO or ARDO, in the absence of RDO, the signing of eCARs, effective May 19, 2014.

RMC 42-2014, May 21, 2014 Issues clarification on eCAR formsBIR Forms 2313-R (for transactions involving transfer of real properties) and 2313-P (for transactions involving transfer of personal properties) in RMC 40-2014 are sample eCAR forms for transactions subject to capital gains tax, documentary stamp tax, and donors tax. The body/contents of the electronically generated CAR may vary depending on the nature and circumstances surrounding the transactions and the applicable taxes.

RMC 44-2014, May 23, 2014

RMC 44-2014 declares BIR Form 2332 (Certificate of Accreditation) in relation to the implementation of RMO 13-2013 (prescribing work-around procedures in the accreditation of printers) as accountable form BIR Form 2332 shall be accomplished in 3 copies, to be distributed as follows:Original: Accredited printerDuplicate: National/Regional Accreditation BoardTriplicate: Issuing District OfficeThe requisition and distribution of BIR Form 2332 shall be the responsibility of the ACIR-LTS/LTDO and Regional Directors for RDOs.

RMC 45-2014, May 28, 2014

RMC 45-2014 prescribes the use of the enhanced and integrated Electronic Accreditation and Registration (eAccReg) and Electronic Sales Reporting (eSales) SystemseAccReg System is an enhanced electronic accreditation and registration for the issuance of permits to use CRM, POS and other business machines generating receipts or invoices. The printing of Certificate of Accreditation and Final Permit to Use is now available via the enhanced eAccReg.eSales System automates the monitoring and reporting of the gross monthly sales per registered CRM/POS or other business machines generating receipts or invoices. Submission of monthly sales reports by taxpayers shall be available via email, we and SMS.All authorized users and/or authorized representatives shall be required to submit notarized letter to enroll in the Account Enrollment Facility, which shall be submitted to the RDO/LTDO/LTAD/ELTRD. Account enrollment application shall be on a one (1) authorized user per TIN basis, one authorized user in behalf of multiple branches, whichever is applicable/convenient to the taxpayer.

RMC 48-2014, June 9, 2014All taxpayers using CRM/POS machines are required to report their monthly sales every 8th (for TP whose last digit of the 9-digit TIN is even number) or 10th (for TP whose last digit of the 9-digit TIN is odd number) day of the month following the month of sales.RMC 48-2014, June 9, 2014 extends the deadline for submission of eSales for May 2014 to June 30, 2014To give ample time to comply with the requirements due to the change in the technical specifications from simply reporting the gross monthly sales to reporting the breakdown of VATable sales, zero-rated sales, exempt sales and sales subject to OPT in the rolled-out Systems, the deadline for submission of monthly sales report for May, 2014 are extended until June 30, 2014 (for both taxpayers). No penalties shall be imposed.TPs with CRM/POS machines with manually issued MIN are hereby required to use and re-enroll in the eAccReg and eSales Systems on or before July 1, 2014.

RMC 56-2014, July 1, 2014RMC 56-2014, July 1, 2014 extends the deadline for submission of reports for May and June, 2014Only a number of RDOs were able to access the eAccReg and eSales systems to process all applications.In view thereof, deadline for sales for May and June, 2014 is extended to July 31, 2014. No penalties shall be imposed.Sales for July shall be reported on or before the 8th or 10th day of August 2014.

RMC 46-2014, May 30, 2014

RMC 46-2014 clarifies the taxability of financial lease for purposes of DSTRR 9-2004 defines financial lease as a mode of extending credit thru a non-cancellable lease contract under which the lessor purchases or acquires, at the instance of the lessee, machinery and other property in consideration for the period payment by the lessee of a fixed amount of money sufficient to amortize at least 70% of the purchase price, incidental expenses and margin over an obligatory period of not less than 2 years. A finance lease transfers substantially all the risks and rewards incident to ownership of an asset.RA 5980, as amended by RA 8556 (Financing Company Act of 1998) defines credit to mean any loan, mortgage, financial lease, deed of trust, advance or discount, conditional sales contract, contract to sell or contract of sale of property or service, either for present or future delivery, etc.Sec 179, NIRC imposes DST on all debt instruments, which represent borrowing and lending operations, including but not limited to debentures, certificates of indebtedness, etc, whether negotiable or non-negotiable, except bank notes issued for circulation.Accordingly, financial lease is not only akin to an obligation by definition but also by treatment. IAS 17 (Leases) is in agreement with how finance lease should be treated and recognized.Since DST is imposed on all debt instruments, and finance lease being in the nature of an obligation, it is subject to DST.

RMC 49-2014, June 10, 2014

RMC 49-2014 publishes the new minimum wage and provides advisory guidelines on productivity based pay for private establishments in Region IVA (Calabarzon).Upon effectivity of the Wage Order, MWE in private establishments shall receive a daily increase in the form of basic pay (BP) or socio-economic allowance (SEA), whichever is applicable.For those receiving minimum wage of less than P267 per day, a P12 basic pay increase per day shall be effected in staggered basis until Dec 1, 2016. The increase shall be implemented in 2 tranches.For those receiving minimum wage rate of more than P267 to P349.50 per day, the conditional temporary productivity allowance of P12.50 shall receive a P13 per day SEA in full amount upon the effectivity of the Wage Order.

RMC 50-2014, June 9, 2014

RMC 50-2014 reiterates and clarifies the requirement in the issuance of Withdrawal Certificate for every removal of petroleum products from the refinery, depot or any storage facilityIn RR 13-77, manufacturers of petroleum products are required to prepare an official WC for every removal, indicating therein the name and address of the consignee, date, quantity and description of every product removed. Such requirement has been expanded to also cover importers of finished petroleum products.The WC shall accompany every transfer/shipment of petroleum products, regardless of the mode of conveyance. It shall be attached to the bill of lading, if products are shipped thru conveyance not owned or operated by the consignor or manufacturer.One WC shall be prepared and issued for products removed and transported thru the use of tankers or marine vessels. Taxpayer must indicate whether product is bonded, exempt or tax-paid under the remarks column. If product is imported, the OR No., amount and date of payment must be indicated. If tax is paid thru Product Replenishment Debit Memo (PRDM), pursuant to RR 3-2008, PRDM number, date and amount must be indicated. If removed from storage facility, indicate tank number in WC.

RMC 50-2014, June 9, 2014

All WC shall be supported by sales invoice, delivery invoice and/or internal transfer document, if removal is destined to the depot or storage facility owned or operated by the manufacturer/consignor. In case of transfer from one depot to another, a WC must be issued for each and every removal.Any petroleum product found to be unaccompanied by an official WC shall be considered illegally removed and subject to confiscation or forfeiture, regardless whether the same is tax-paid or not.All WCs must be certified by the Revenue Officers on Premise (ROOP) as to the correctness of the entries in said WC.

RMC 51-2014, June 11, 2014

RMC 51-2014 clarifies the inurement prohibition under Sec 30, NIRCSec 30 enumerates the non-stock, non-profit corporations or associations exempt from income tax on income received by them as such.Non-stock means no part of its income is distributable as dividends to its members, trustees, or officers and that any profit obtained as an incident to its operations shall, whenever necessary or proper, be used for the furtherance of the purpose(s) for which the corporation was organized.Non-profit means that no income or asset accrues to or benefits any member or specific person, with all the net income or asset devoted to the institutions purposes and all its activities conducted not for profit.

RMC 51-2014, June 11, 2014

To qualify as a tax-exempt entity, its earnings or assets shall not inure to the benefit of any of its trustees, organizers, officers, members or specific person. The following are considered inurements of such nature:Payment of compensation, salaries or honorarium to its trustees or organizers;Payment of exorbitant or unreasonable compensation to its employees;Provision of welfare aid and financial assistance to its members. An organization is not exempt if its principal activity is to receive and manage funds associated with savings or investment programs, including pension or retirement programs. This does not cover a society, order, association or non-stock corporation under Sec 30, NIRC providing for payment of life, sickness, accident and other benefits exclusively for its members or their dependents.

RMC 51-2014, June 11, 2014

Donation to any person or entity (except donations made to other entities formed for the purpose(s) similar to its own);Purchase of goods or services for amounts in excess of FMV of such goods or services from an entity in which one or more of its trustees, officers or fiduciaries has an interest; andWhen upon dissolution and satisfaction of all liabilities, its remaining assets are distributed to its trustees, organizers, officers or members. Its assets must be dedicated to its exempt purpose(s). Its constitutive document must expressly provide that in the event of dissolution, its assets shall be distributed to one or more entities formed for the purposes similar to its own or to the Phil government for public purpose.

RMC 54-2014, June 17, 2014

RMC 54-2014 clarifies the issues relative to the application for VAT refund/credit under Sec 112, NIRCThe claim for refund or credit of input taxes shall be filed with the BIR Within two (2) years after the close of the taxable quarter when the sales were made.The written claim must be accompanied by complete supporting documents listed in Annex A. Taxpayer shall attach a statement under oath attesting to the completeness of the submitted documents, and such affidavit shall state that said documents are the only documents which taxpayer will present in support of the claim. If taxpayer is a juridical person, there should be a sworn statement that the officer signing the affidavit has been authorized by the Board of Directors of the company.Upon submission of administrative claim and supporting documents, claim shall be processed and no other documents shall be accepted/required from taxpayer in the course of the evaluation. A decision shall be made on the basis only on the submitted documents by the taxpayer.CIR shall have 120 days from date of submission of complete documents to decide, and if CIR does not act on the same, the inaction shall be deemed a denial of the claim for refund or credit.

RMC 54-2014, June 17, 2014

In case of full or partial denial, or failure of CIR to act on the application, taxpayer may, within 30 days from receipt of decision denying the claim or after expiration of 120 days, appeal it with the CTA.As an exception to the mandatory and jurisdictional 120 + 30 day period, taxpayer need not wait for the lapse of the 120-day period before it could seek judicial relief with the CTA from the time of issuance of BIR Ruling No. DA-489-03 on Dec 10, 2003 up to its reversal by the Supreme Court in the Aichi case on Oct 6, 2010.In cases where taxpayer has pending petition for review with the CTA, CIR loses jurisdiction over the administrative claim. However, the processing office of the administrative agency (BIR or DOF-OSC) shall still evaluate internally the administrative claim for purposes of opposing the taxpayers judicial claim. Failure to file judicial claim with the CTA within 30 days from expiration of the 120-day period rendered the CIRs decision or inaction deemed denied final and unappealable. This applies to all currently pending administrative claim for refund or credit.CIR v. MINDANAO II GEOTHERMAL PARTNERSHIP, GR 191498, Jan 2014A. TWO-YEAR PRESCRIPTIVE PERIOD1. It is only the administrative claim that must be filed within the two-year period.2. The proper reckoning date for the two-year period is the close of the taxable quarter when the relevant sales were made.3. The only other rule is the Atlas ruling, which applied only from June 8, 2007 to September 12, 2008. Atlas states that the two-year period for filing of a claim for refund should be counted from the date of filing of the VAT return and payment of the tax.CIR v. MINDANAO II GEOTHERMAL PARTNERSHIP, GR 191498, Jan 2014B. 120+30 PRESCRIPTIVE PERIOD1. The taxpayer can appeal in one of two ways: (a) file a judicial appeal within 30 days after CIR denies the claim within the 120-day period, or (b) file judicial claim within 30 days from the expiration of the 120-day period, if CIR does not act within the 120-day period.2. The 30-day period always applies, whether there is denial or inaction on the part of the CIR.3. As a general rule, the 30-day period is both mandatory and jurisdiction. [NOTE: Chief Justice dissented on retroactive application of mandatory and jurisdictional nature of the 120+30-period].CIR v. MINDANAO II GEOTHERMAL PARTNERSHIP, GR 191498, Jan 20144. As an exception to the general rule, premature filing is allowed only if filed between Dec 10, 2003 and Oct 5, 2010, when BIR Ruling DA 489-03 was still in force.5. Late filing is absolutely prohibited, even during the time when BIR Ruling DA 489-03 was in force.

RMO 9-2014, Feb 7, 2014

RMO 9-2014 prescribes guidelines in the processing of requests for rulings with the Law and Legislative DivisionTax rulings are official positions of BIR on inquiries of taxpayers. Rulings are based on particular facts and circumstances presented and are interpretations of the law at a specific point of time.Aside from the No ruling areas in Revenue Bulletin No. 1-2003, as amended by RB 2-2003, non-compliance with any of the requirements under this Circular may prevent the BIR from issuing an opinion on the request for ruling. BIR does not give tax planning advice and does not approve tax planning arrangements. Also, BIR does not resolve an issuance thru a ruling, if the matter can be determined thru another process (like appeal).

RMO 9-2014, Feb 7, 2014

BIR will not issue ruling on the following instances:TP has directed a similar query to another office of BIR;Same issue involving the same taxpayer or a related taxpayer is pending in a case in litigation;Same issue involving the same taxpayer, is subject of a pending investigation, on-going audit, administrative protest, claim for refund or credit, or collection proceeding.Hypothetical questions are queries involving theoretical, speculative, conjectured, conjectural, notional, suppositional, supposed or assumed entities or transactions. A ruling will not be issued on alternative plans of proposed transactions or on supposed situations.Letter request for ruling is a sworn statement executed under oath by the person containing the following:

RMO 9-2014, Feb 7, 2014

Factual background of the request for ruling, including interested parties, business reasons for the transaction, and detailed description of the transaction;Issues/questions raised or conclusions sought to be confirmed by taxpayer;Legal grounds and authorities supporting the position of taxpayer;List of documents submitted; andAffirmations stating that a similar query has not been filed and is not pending in another office of BIR, or there is no pending case in litigation involving the same issue and the same taxpayer or related taxpayer; the issue is not pending investigation, on-going audit, administrative protest, claim for refund or credit, collection proceeding or judicial appeal; and documents submitted are complete and that no other documents will be submitted in connection thereto.

RMO 9-2014, Feb 7, 2014

If the request for ruling is complete, the Law Div shall evaluate the request, and a ruling affirming or denying the request shall be issued. In all instances, the CIR shall approve and sign any action on the request, be it denial or approval, unless delegated to another officer of the BIR. If the documents are insufficient or incomplete, same shall be denied and communicated in writing to taxpayer.Tax rulings cannot be cited as precedent by other taxpayers, but they can provide useful information on how the BIR may treat a similar transaction.Rulings shall be used for internal revenue tax purposes only. No ruling shall be issued involving local taxes, customs duties, fees and charges.A ruling may be revoked or modified for any number of reasons, such as when the facts as represented are discovered to be different from what is represented or not in accord with the current views of the CIR.

RMO 9-2014, Feb 7, 2014

If the request for ruling is complete, the Law Div shall evaluate the request, and a ruling affirming or denying the request shall be issued. In all instances, the CIR shall approve and sign any action on the request, be it denial or approval, unless delegated to another officer of the BIR. If the documents are insufficient or incomplete, same shall be denied and communicated in writing to taxpayer.Tax rulings cannot be cited as precedent by other taxpayers, but they can provide useful information on how the BIR may treat a similar transaction.Rulings shall be used for internal revenue tax purposes only. No ruling shall be issued involving local taxes, customs duties, fees and charges.A ruling may be revoked or modified for any number of reasons, such as when the facts as represented are discovered to be different from what is represented or not in accord with the current views of the CIR.EFFECTIVE TAX MANAGEMENTMake sure that the transaction/course of action or failure of action is not unlawful (or it does not amount to tax evasion); the opinion or advice of Legal Division of the corporation should be helpful;Avail of the services of professional tax expert. Caveat: Reliance on little or inadequate knowledge of law is sometimes dangerous! Hire competent, independent external auditor duly accredited by relevant government agencies; review findings and recommendations made in management report;Employ trained tax compliance officers and/or maintain internal audit department or outsource internal audit services;Equip yourself with good knowledge of tax laws, treaties, regulations and rules self-study or attendance of tax seminars/workshops is helpful;Avail of tax privileges granted under existing laws (e.g., REIT, BOI, PEZA, SBMA, Cooperative, UDHA, NIRC, etc, but comply with conditions.)Secure necessary BIR ruling or tax treaty relief, tax exemption certificate or clearance, or CAR required for the transaction(s);

Be aware of new laws (e.g., RA 10026, 10021, 9505), the latest jurisprudence (e.g., Aichi Forging Corp v. CIR) and regulations (e.g., RR 10-2010 on exchange of information under tax treaty and RR 2-2011, Mar 2, 2011, on submission of AIR) that directly or indirectly affects or impacts on the operations of your company.Learn the differences between tax accounting rules and financial accounting rules (e.g., IFRIC 15), for purposes of computing the tax liabilities and for purposes of preparing audited financial statements, respectively. However, remember that in case of conflict between tax rules as provided for in the Tax Code and the accounting rules as provided for in PAS/PFRS, the former shall prevail.Avoid transactions being considered as fraudulent by the BIR, by the simple fact that the variance between the amount per investigation and the amount declared by the taxpayer per tax return or other documents filed with BIR is more than 30%. Do the reconciliation or analysis long before the tax audit by BIR.

Compare the BIR Certificate of Registration (Form 2303) with the tax returns filed and tax payments made by the taxpayer. Make sure that all tax returns are filed on time to prevent having open cases.If taxpayer is a Top 20,000 Corporation or Top 5,000 Individual, deduct and remit appropriate EWT due on income payments not listed in existing regulations but subject to withholding tax. Imported purchases are exempt from EWT, but interest on bank loan is subject to EWT.Make certain that the books of accounts and other accounting records are duly registered with the BIR before use. Possession of unregistered books and invoices and receipts is subject to criminal action. If computerized accounting system is used, ensure that the same is registered with the BIR. Pasting excel printouts on manual books registered with BIR is not compliant under existing rules.Avoid having more than one TIN for the taxpayer, except when it is a bank that has an FCDU operations.

Hire the services of a tax expertTax planning or identification of tax issues starts during negotiation stage, or before the transaction is had, the contract is signed, or the finalization of audited financial statements and the filing of tax returns;Hiring of tax professionals within 30 days from date of receipt of FAN by taxpayer is still okay, but not ideal. Take note that the help of tax professionals are limited by the applicable law and the facts of the case.Tax professionals are not magicians that can resolve or settle the tax case by wagging a wand. Taxpayers must be ready to support its positions by appropriate evidence or records.Actions after filing annual tax returnMake reconciliation of accounts after the filing of original tax returns but before service of letter of authority by BIR to conduct tax audit on the books and records;File amended tax return, if necessary, soon after discovery of the error by the taxpayer or its external auditor, but before service of letter of authority by BIR;

Filing of claims for refund or tax credit should be made at the proper time at the administrative and/or judicial levels; otherwise, the claim may be denied by the BIR or the courts, for being filed prematurely or out of time prescribed by law.Tax amnesty law or Voluntary Assessment Programs of the BIR have provisions that exclude certain taxpayers from availing of the privileges. This should be complied with by taxpayers.

EXPANDED WITHHOLDING TAXES

EXPANDED WITHHOLDING TAXAn item of income is subject to the expanded withholding tax, if the following conditions concur:a. A deduction or cost is paid or accrued by the taxpayer, which is income to the recipient thereof subject to income tax;b. The item of income is one of the income payments listed in the regulations that is subject to withholding tax, unless the corporation is designated as Top 20,000 Corporation or a Top 5,000 Individual;c. The income recipient is a resident of the Philippines liable to income tax on the item of income; andd. The payor-withholding agent is also a resident of the Philippines.WITHHOLDING TAXEXEMPT FROM EWT1. National government and its instrumentalities, including provincial, city or municipal governments and barangays, except government-owned or controlled corporations;2. Persons enjoying exemption from payment of income taxes pursuant to the provisions of any law, general or special, such as but not limited to the following:a. Sales of real property by a corporation which is registered with and certified by HLURB or HUDCC as engaged in socialized housing project where the selling price of the house and lot or only the lot does not exceed P180,000 in Metro Manila and other highly urbanized areas and P150,000 in other areas;b. Corporations registered with the BOI, PEZA, and SBMA, enjoying exemption from income tax under E.O. 226, R.A. 7916, and R.A. 7227;c. Corporations which are exempt from income tax under Section 30 of the Tax Code, such as GSIS, SSS, PHIC, and PCSO;d. General professional partnerships; ande. Joint ventures or consortium formed for the purpose of undertaking construction projects or engaging in petroleum, coal, geothermal and other energy operations f. International carriers (by air or water) subject to 2.5% Gross Phil BillingsWITHHOLDING TAX1. Professional fees for services rendered by individuals, incl. real estate service practitioners; and professional entertainers and athletes, and directors:If gross income for current year exceeds P720,000- 15%If gross income for current year does not P720,000- 10%2. If recipient of professional fees, talent fees, etc. is a juridical person:If gross income for current year exceeds P720,000- 15%If gross income for current year does not P720,000- 10%3. Rental incomeReal properties- 5%Personal properties of P10,000 per payment; P10,000 shall not apply when accumulated rental to same lessor exceeds or is reasonably expected to exceed P10,000 within a year- 5%Poles, satellites and transmission facilities- 5%Billboards- 5%

WITHHOLDING TAX4. Gross payments to resident individuals and corporate cine- matographic film owners, lessors, or distributors- 5%5. Gross payments to contractors- 2%6. Income distribution to beneficiaries- 15%7. Income payments to certain brokers and agents- 10%8. Income payments to partners of general professional partnerships:If gross income for current year exceeds P720,000- 15%If otherwise- 10%9. Professional fees paid to medical practitionersIf gross income for current year exceeds P720,000- 15%If otherwise- 10%10. Gross additional payments to government personnel from importers, shipping and airline companies, or their agents- 15%11. One-half of gross amounts paid by any credit card company in the Philippines- 1%WITHHOLDING TAX12. Income payments made by any Top 20,000 CorpSupplier of goods- 1%Supplier of services- 2%13. Income payments made by government to its local/resident supplier of goods and services other than those covered by other rates of withholding taxesSupplier of goods- 1%Supplier of services- 2%14. Commissions of independent and exclusive distributors, and marketing agents of companies- 10%15. Tolling fees paid to refineries- 5%16. Payments made by pre-need companies to funeral parlor- 1%17. Payments made to embalmers- 1%18. Income payments made to suppliers of agricultural products- 1%19. Income payments on purchases of minerals, mineral pro- ducts and quarry resources- 10%20. MERALCO refund to customersWith active contracts- 25%With terminated contracts- 32%

END OF PRESENTATION

Atty. Vic C. MamalateoMobile No.: 0939-9209175; 0917-5280445E-mail: vic.mamalateo@vcmlaw.com.ph vicmamalateo@yahoo.comTel. No.: 3729224 Fax No.: 3729267