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  • 1Tax bulletin |

    July 2014

    Tax bulletin

    A member firm of Ernst & Young Global Limited

  • 2 | Tax bulletin

    HighlightsBIR Rulings

    For a homeowners association to claim tax exemption on association dues, membership fees and other charges it collects, the certification issued by the local government unit (LGU) concerned should specifically state that the LGU lacks the resources to provide basic services. (Page 4)

    A cooperative is not considered a company the capital of which is divided into shares, as contemplated under the RP-Netherlands Tax Treaty, for purposes of the 10% preferential tax rate on dividends. (Page 4)

    BIR Issuances

    Revenue Regulations (RR) No. 5-2014 amends RR No. 17-2013 and prescribes additional rules on the 10-year retention period for books of accounts and other accounting records. (Page 4)

    Revenue Memorandum Circular (RMC) No. 57-2014 clarifies the provisions of RR No. 1-2013 on the use of Electronic Tax Remittance Advice (eTRA). (Page 6)

    RMC No. 58-2014 publishes the full text of the Supreme Court Resolution dated June 25, 2014 on withholding taxes on the Special Allowances for the Judiciary. (Page 7)

    RMC No. 59-2014 revokes the provisional accreditation issued to deemed-accredited printers pursuant to RR No. 15-2012 in relation to RMC No. 06-2014. (Page 7)

    RMC No. 60-2014 clarifies the applicability of RMC No. 8-2014 to General Professional Partnerships (GPPs) in relation to RMC No. 3-2012. (Page 8)

    Revenue Memorandum Order (RMO) No. 27-2014 amends certain provisions of RMO No. 10-2005 relative to the accreditation of Cash Register Machines (CRMs), Point of Sale (POS), and other sales machines. (Page 8)

    BIR Memorandum dated July 23, 2014 clarifies certain rules for the Issuance of the BIR Importer Clearance Certificate (ICC) and Broker Clearance Certificate (BCC). (Page 9)

    BOC Issuances

    This BOC Memorandum further clarifies the implementation of Department Order (DO) No. 12-2014 dated February 6, 2014, as amended by DO Nos. 18-2014 dated February 26, 2014 and 46-2014 dated June 26, 2014. (Page 10)

    The BOC AMO announces that all importers and customs brokers who have complied with the new accreditation rules but whose original accreditation expires beyond August 2014 will still be allowed to continue processing their shipments without further action against them by the BOC-AMO. (Page 10)

    BOI Issuance

    BOI Circular No. 2014-01 amends the grounds for cancellation of BOI registration. (Page 10)

  • 3Tax bulletin |

    PEZA Issuance

    PEZA Memorandum Circular (MC) No. 2014-017 advises all PEZA-registered enterprises, including those who were issued Certificates of Non-Coverage (CNCs) by the Department of Natural Resources-Environmental Management Bureau (DENR-EMB), of the requirements of DENR Administrative Order 2013-22, also known as Revised Procedures and Standards for the Management of Hazardous Wastes for small quantity generators of hazardous wastes. (Page 11)

    BSP Issuances

    Circular No. 839 amends Sections 1397 and 2397 of the Manual of Regulations for Banks (MORB) to include the adoption of a prudential real estate stress test (REST) limit for universal banks (UBs), commercial banks (KBs) and thrift banks (TBs), on a solo and consolidated basis, on their aggregate real estate exposures (REEs). (Page 12)

    Circular No. 840 amends the guidelines on the qualifications of a director of banks and non-bank financial institutions. (Page 12)

    Circular No. 841 amends Appendix 45 (Notes on Microfinance) of Section X361 of the MORB. (Page 13)

    SEC Issuances

    SEC MC No. 14 amends the Revised Code of Corporate Governance to exempt close financing companies from electing independent directors to their board. (Page 13)

    SEC MC No. 15 requires foundations to file a Sworn Statement and Certificate of Existence of Project (CEP) separately from financial statements. (Page 13)

    A corporation engaged in digital media, which includes marketing of the same to the public, is considered engaged in mass media activities and may not be owned by a foreigner. (Page 14)

    A corporation acquiring ash vaults is not required to register the certificates of ownership of said vaults where no profits are expected or derived by the corporation from such acquisition. (Page 14)

    A religious corporation may exist perpetually or for an indefinite period of time when its Articles of Incorporation do not specify a corporate term. (Page 15)

    When a condominium corporation is engaged in the acquisition and ownership of land, the condominium corporation may not elect or appoint foreigners to management positions but it may allow foreigners to occupy up to 40% of the seats available in the board of directors. (Page 15)

    Court Decisions

    For VAT purposes, acting as a director of a corporation is not considered rendering a service in the course of trade or business. (Page 16)

    A non-stock, non-profit organization or government entity is liable to pay VAT on its sale of goods or services, even if there is no profit. (Page 17)

  • 4 | Tax bulletin

    BIR Rulings

    BIR Ruling No. 274-14 dated July 2, 2014

    Facts:

    A Co., a registered homeowners association in Quezon City, renders basic services to its members for which it collects association dues. A Co. requested for a confirmatory ruling for tax exemption under Republic Act (RA) No. 9904, otherwise known as the Magna Carta for Homeowners and Homeowners Associations, as required in RMC No. 9-2013. To support its claim, A Co. secured a certification from the Office of the Mayor of Quezon City stating that basic community services are exclusively provided by A Co. to its members.

    Issue:

    Is A Co. exempt from taxes on the association dues it collects from the homeowners?

    Ruling:

    No, because the certification issued by the Office of the Mayor of Quezon City did not indicate that the Quezon City government lacks the resources to provide basic community services.

    BIR Ruling No. ITAD 126-14 dated July 22, 2014

    Facts:

    N Co. is a cooperative which is a resident of the Netherlands, owning 18% of the shares in P Co., a domestic corporation. N Co. filed a request for confirmation that the dividends received from P Co. are subject to the preferential tax rate of 10% under the RP-Netherlands tax treaty.

    Issue:

    Are the dividends subject to the 10% preferential tax rate?

    Ruling:

    No. Under the RP-Netherlands Tax Treaty, dividends paid by a domestic corporation to a resident of the Netherlands are subject to the preferential tax rate of 10% on dividends, if the recipient in the Netherlands is a company the capital of which is divided into shares and holds directly at least 10% of the capital of the domestic corporation. However, since N Co. is a cooperative the capital of which is not divided into shares, the dividends from P Co. are not subject to the 10% tax rate, and are instead subject to the 15% tax rate.

    BIR Issuances

    Revenue Regulations No. 5-2014 dated July 30, 2014

    Within the first five years of the 10-year retention period, the taxpayer shall retain the hard copies of the books of accounts, including subsidiary books and other accounting records.

    For a homeowners association to claim tax exemption on association dues, membership fees and other charges it collects, the certification issued by the LGU concerned should specifically state that the LGU lacks the resources to provide basic services.

    A cooperative is not considered a company the capital of which is divided into shares, as contemplated under the RP-Netherlands Tax Treaty, for purposes of the 10% preferential tax rate on dividends.

    RR No. 5-2014 amends RR No. 17-2013 and prescribes additional rules on the 10-year retention period for books of accounts and other accounting records.

  • 5Tax bulletin |

    After the five-year period to retain hard copies, the taxpayer may retain only an electronic copy of the hard copy in an electronic storage system, which complies with the requirements of these regulations.

    The independent Certified Public Accountant (CPA) who audited the records and certified the financial statements of the taxpayer shall also maintain and preserve electronic copies of the audited and certified financial statements, including the audit working papers, for a period of 10 years from the due date of filing the annual income tax return or the actual date of filing thereof, whichever comes later.

    An electronic storage system to be used by the taxpayer or independent CPA for preserving books of accounts and other accounting records shall:

    1. Ensure an accurate and complete transfer of the images of the hard copy of the books of accounts, including subsidiary books and other accounting records to an electronic storage media; and

    2. Index, store, preserve, retrieve, and reproduce the electronically stored images of the hard copy of the books of accounts, subsidiary books and other accounting records.

    The electronic storage system must include:

    1. Reasonable controls to ensure the integrity, accuracy, and reliability of the electronic storage system;

    2. Reasonable controls to prevent and detect any unauthorized creation of, addition to, alteration of, deletion of, or deterioration of electronically stored books of accounts, subsidiary books and other accounting records;

    3. An inspection and quality assurance program evidenced by regular evaluations of the electronic storage system, including periodic checks of electronically stored books of accounts, subsidiary books and other accounting records;

    4. A retrieval system that includes an indexing system; and

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