revenue memorandum circular (rmc) 2012 · pdf file12/10/2012 3. 1. all bir rulings issued...

12/10/2012 1

REVENUE MEMORANDUM CIRCULAR (RMC) 2012

by

NELSON M. ASPEDeputy Commissioner

Operations Group

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Clarification on theimplementation of RevenueRegulations No. 5-2012

REVENUE MEMORANDUM CIRCULAR No. 22 - 2012

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1. All BIR Rulings issued prior to Jan. 1, 1998 are not to beused as precedent by any taxpayer as a basis to securerulings for themselves for current business transaction/s or insupport of their position against any assessment.

2. All BIR Rulings issued prior to Jan. 1, 1998 are not to beused by any BIR action lawyer in issuing new rulings forrequest for rulings involving current business transaction/s.

3. However, BIR Rulings issued prior to Jan. 1, 1998 remainsto be valid but only:

a. to the taxpayer who was issued the ruling; andb. covering the specific transaction/s which is the

subject of the same ruling

4. BIR Rulings issued prior to Jan. 1, 1998, shall remain valid asmentioned above, unless expressly notified of its revocation orunless the legal basis in law for such issuance has already beenrepealed / amended in the current Tax Code.

RMC No. 22-2012 (con’t.)

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Reiteration of the Responsibilitiesof the Officials and Employees ofGovernment Offices for theWithholding of Applicable Taxes onCertain Income Payments and theImposition of Penalties for Non-Compliance Thereof

REVENUE MEMORANDUM CIRCULAR No. 23-2012

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Reiteration of the Responsibilitiesof the Officials and Employees ofGovernment Offices for theWithholding of Applicable Taxes onCertain Income Payments and theImposition of Penalties for Non-Compliance Thereof


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A. ACCOUNTABLE GOVERNMENT OFFICIALS /EMPLOYEES

Item II(1) of Revenue Memorandum Order (RMO) No. 8-2003provides that the following government officials/employees arepersonally charged with the duty to correctly withhold taxes andtimely remit the same:

“a. Local Government Units (LGUs):

a.1 Provinces - Governor, Provincial Treasurer andProvincial Accountant

a.2 Cities - Mayor, City Treasurer and CityAccountant

a.3 Municipalities - Mayor, Municipal Treasurer andMunicipal Accountant

a.4 Barangays - Barangay Chairman and Brgy.Treasurer

RMC No. 23-2012 (con’t.)

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a. National Government Agencies (NGAs) - Heads ofOffices (officials holding the highest position) and Chief Accountant/s or other person/s holding similarpositions in departments, bureaus, agencies, instrumentalities officially designated as such by thehead office.

b. Government Owned or Controlled Corporations(GOCCs) – Heads of Offices (officials holding highestposition) and Chief Accountant/s or other person/s holding similar positions officially designated as suchby the head of office.

RMC No. 23-2012 (con’t.)

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c. Other Government Offices - Heads of Offices (officialsholding the highest position) and Chief Accountant/s or otherperson/s holding similar positions officially designated as suchby the head of office.

d. Government Offices with Decentralized AccountingSystem and/or Branches/Regional Offices/DistrictOffices Registered with their Respective Revenue DistrictOffices (RDOs) - Heads of such Offices/Regional or DistrictOffices/Other Offices (officials holding the highest position) andChief Accountant/s or other persons holding similar positionsofficially designated as such by the head of office. [Example :a) In case of BIR Regional Offices, it shall be the RegionalDirector and Chief, Finance Division and b) in the case of DepEd, it shall be the Regional Director and Chief, Budget andFinance Division]”.

RMC No. 23-2012 (con’t.)

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B. RESPONSIBILITIES OF THE GOVERNMENT OFFICIALS /EMPLOYEES AS WITHHOLDING AGENTS.

The aforesaid government officials/employees have the following duties and obligations as withholding agents:

1. To register the government office as withholding agent. The government officials/employees should ensurethat the government office is registered as withholdingagent with the BIR through their respective RDOs inconformity with the requirements under Section236(A) of the Tax Code of 1997 and the pertinent provisions ofRevenue Regulations (RR) No. 11-2008.

RMC No. 23-2012 (con’t.)

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2. To require employees to submit the duly accomplishedApplication for Registration (BIR Form No. 1902) for newly-hired employees and the Certificate of Update ofExemption and of Employer’s and Employee’s Information(BIR Form No. 2305) for employees with change/s in theirexemption for the calendar year, within ten (1) days uponcommencement of employment or after the change inexemption pursuant to Section 2.79.1 of RR 2-98, asamended, and to submit the same within thirty (30) daysfrom receipt to the concerned RDO.

RMC No. 23-2012 (con’t.)

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3. To withhold the correct amount of tax. Based on theoffice’s registration and where applicable, the government withholding agent should withhold tax on compensation(WTC) [based on the exemption in the Application forRegistration (BIR Form No. 1902) or the Certificate ofUpdate of Exemption and of Employer’s and Employee’sInformation (BIR Form No. 2305) submitted by the employee], on income payments subject to expandedwithholding tax (EWT) and final withholding tax (FWT) and on government money payment to VAT registered taxpayer(GVAT) and Non-VAT registered taxpayers subject topercentage tax (GPT) pursuant to Sections 80(A), 57 and114, all of the Tax Code.

RMC No. 23-2012 (con’t.)

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4. To remit on time taxes withheld. The responsibleofficials and employees, as withholding agents, should seeto it that taxes withheld are accordingly remitted on orbefore their due dates using the prescribed monthly/quarterly withholding tax remittance returns, together withother attachments.

5. To issue the corresponding certificates of taxes withheld. Certificates corresponding to the taxes withheldfrom the income payments should be issued by the government withholding agents to employees/payees on orbefore their due dates of issuance, whether the taxeswithheld are creditable or not.

RMC No. 23-2012 (con’t.)

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6. To do the year-end adjustment. The government withholding agent shall compute for the year-end adjust-ment of all its employees, every December of each year,and every time an employee will be separated from theemployment for the particular separated employee, toensure that taxes withheld from each employee is equivalent to his tax due. Deficiency in taxes withheld asagainst the tax due for the calendar year shall be deductedfrom the December salary while excess of taxes withheldover the tax due for the calendar year shall be refunded tothe concerned employee not later than January 25 of thefollowing year. In case of separation from employmentbefore December, the refund shall be given to theseparated employee upon payment of the last compensation during the year. Taxes refunded by the

RMC No. 23-2012 (con’t.)

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employer-government agency can be deducted from theremittable amount of taxes withheld in the current monthin which the refund was made and in the succeedingmonths thereafter until the full amount refunded is fullyrecovered.

7. To timely file with the BIR, the annual information return and alphabetical lists of employees/payees,if applicable. The government officials/employees shouldensure that the Annual Information Return of IncomeTaxes Withheld on Compensation and Final WithholdingTaxes (BIR Form No. 1604-CF) and the required Alpha-betical Lists of Employees/Payees and Annual InformationReturn of Creditable Income taxes Withheld (Expanded)/Income Payments Exempt from Withholding Tax (BIR FormNo. 1604-E) and the required Alphabetical List of Payees are filed with their respective RDOs on or before January 31 and March 1 of the following year, respectively.

RMC No. 23-2012 (con’t.)

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C. Applicable Penalties for Specific Violations

1. The following penalties (additions to the tax) are applicable tothe following violations involving all types of withholding taxes:

RMC No. 23-2012 (con’t.)

VIOLATION APPLICABLE/PENALTY ADDITIONS TO THE TAX

BASIS

1. Non-withholding of tax

a. Collection of the amount the with-holding agent failed to withhold

b. 20% interest

Section 251, Tax Code


2. Under-withholding of tax

a. Collection of theunderwithheld tax

b. 20% interest



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RMC No. 23-2012 (con’t.)

VIOLATION APPLICABLE/PENALTYADDITIONS TO THE TAX

BASIS

3. Non-remittance of tax withheld

a. Collection of the amount withheld but not remitted

b. 20% interest


Section 249, Tax Code4. Late remittance a. 25% surcharge

b. 20% interest


Section 275, Tax Code5. Failure to refund

excess taxes with-held (WTC only)

a. Collection of excesstax not refunded

b. Failure to do theyear-end adjustment



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D. Criminal Liabilities - Aside from the additions to the tax under Title X, Chapter I of the Tax Code as enumerated above, criminalliabilities shall likewise be imposed for the violations under thefollowing provisions of the Code, as follows:

1. Section 255. Failure to File Return, Supply Correct and AccurateInformation, Pay Tax, Withhold and Remit Tax and Refund Excess

Taxes Withheld on Compensation. - Any person required under thisCode or by rules and regulations promulgated thereunder to pay any tax,make a return, keep any record, or supply correct and accurate information, who willfully fails to pay such tax, make such return, keepkeep such record, or supply such correct and accurate information, orwithhold or remit taxes withheld or refund excess taxes withheld oncompensation, at the time or times required by law or rules and regulations shall, in addition to other penalties provided by law, upon conviction thereof, be punished by a fine of not less than Ten Thousandpesos (P10,000) and suffer imprisonment of not less than one (1) yearbut not more than ten (10) years.

RMC No. 23-2012 (con’t.)

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2. Section 256. Penal Liability ofCorporations - Any corporation, associationor general co-partnership liable for any of theacts or omissions penalized under this Code,in addition to the penalties imposed hereinupon the responsible corporate officers,partners, or employees, shall, upon convictionfor each act or omission, be punished by afine of not less than Fifty thousand pesos(P50,000) but not more than One hundredthousand pesos (P100,000).

RMC No. 23-2012 (con’t.)

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Waiver of the Defense of Prescription under the Statute of Limitations

A waiver of the statute of limitationsunder the Tax Code must conform strictly withthe provisions of Revenue MemorandumOrder No. 20-90 in order to be valid andbinding.

REVENUE MEMORANDUM CIRCULAR

No. 29-2012

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Requests for tax exemption ofprivate contractors for socializedhousing projects under Section 20of Republic Act (R.A.) No. 7279 orthe “Urban Development andHousing Act of 1992”

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RMC No. 32-2012 (con’t.)

Section 3(r) of R.A. 7279 defines“socialized housing” as follows:

“(r) “Socialized housing” refers to housing

programs and projects covering houses and

lots or homelots only undertaken by the

Government or the private sector for the

underprivileged and homeless citizens

which shall include sites and services

development, long-term financing, liberalized

terms on interest payments, and such other

benefits in accordance with the provisions of

this Act;” (Underscoring supplied)

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Clarifying the Tax Implicationsof Integrating the DomesticPassenger Service Charge at thePoint of Sale of Airline Tickets

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Clarifying the Taxability ofClubs Organized and OperatedExclusively for Pleasure,Recreation, and Other Non-ProfitPurposes

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Clarification on whether documentsmentioned in Section 199 of the TaxCode of 1997, as amended byRepublic Act (RA) No. 9243, aresubject to the documentary stamp taxof P15.00 as prescribed in Section 188of the said Code.

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Clarifying Section 11 of RevenueRegulations (RR) No. 06-08

This Circular is issued to clarify Section 11 of RR No. 06-08 or the “Consolidated Regulations Prescribing the Rules on the Taxation of Sale, Barter, Exchange or Other Disposition of Shares of Stock Held as Capital Assets.”

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RMC No. 37-2012 (con’t.)

“SECTION 11. Effect of Non-Payment of Tax. - No sale,exchange, transfer or similar transaction intended to conveyownership of, or title to any share of stock shall beregistered in the books of the corporation unless thereceipts of payment of the tax herein imposed is filedwith and recorded by the stock transfer agent orsecretary of the corporation. It shall be the duty of theaforesaid persons to inform the BIR in case of non-paymentof tax. Any stock transfer agent or secretary of thecorporation or the stockbroker, who caused the registrationof transfer of ownership or title on any share of stock inviolation of the aforementioned requirements shall bepunished in accordance with the provisions of Title X,Chapters I and II of the Tax Code, as amended.” (Emphasissupplied)

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Questions and Answers FurtherClarifying the Provisions of RR No. 7-2010, as amended by RR No. 8-2010,Implementing the Tax PrivilegesProvisions of RA No. 9994, OtherwiseKnown as the “Expanded SeniorCitizens Act of 2010”

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RMC No. 38-2012 (con’t.)

A. ON THE TWENTY PERCENT (20%) SENIOR

CITIZEN DISCOUNT ON THE SALE OF GOODS

AND SERVICES

The 20% discount granted to Senior Citizens on the saleof goods and services provided under the Rules andRegulations implementing RA No. 9994 or the ExpandedSenior Citizens Act of 2010 are discount privileges subjectto the guidelines established by the Department of SocialWelfare and Development (DSWD). However, this Officedeemed it necessary to include in this Circular commonlyasked questions on the 20% Senior Citizen discount toclarify issues which are interrelated to the implementationof exemption from the payment of 12% VAT.

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Withholding of Income Tax onBackwages, Allowances, andBenefits Received by Employeesthrough Garnishments of Debts orCredits Pursuant to a LaborDispute Award


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Prescribing a Period ofPrescription for Rulings underSection 40(C)(2) of the NationalInternal Revenue Code of 1997,as amended


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Publishing the Full Text of JointCircular No. 2-2012 dated May 31, 2012 ofthe Department of Finance (DOF),Department of Budget and Management(DBM) and BIR Entitled Providing for theEstablishment of the VAT Tax CreditCertificate (TCC) Monetization Program inRelation to the Special Provisions ofRepublic Act No. 10155 or the GeneralAppropriations Act of 2012


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Prescribes the Issuance of Certificateof Tax Clearance to Public TransportOperators as a Pre-requisite forAcceptance by the Land TransportationFranchising and Regulatory Board (LTFRB)of an Application for Approval of Sale andTransfer of a Certificate of PublicConvenience


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Amending Revenue MemorandumCircular No. 47-2012 on theDeadline for the Filing ofApplications for VAT Tax CreditCertificates (TCCs) Monetization


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RMC No. 52-2012 (con’t.)

Type of TCC Filing PeriodFor revalidated and unexpiredTCCs originally issued in2002 and 2003

July 17, 2012 up toSeptember 15, 2012 or theexpiration of the TCC,whichever comes first

For unexpired and/orrevalidated TCCs originallyissued in 2004 until April 11,2012

July 17, 2012 up to October17, 2012

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REVENUE MEMORANDUM CIRCULAR NO. 61-2012

Authorizing the Use of Electronic BIRForms (eBIRForms) Package in thePreparation and Filing of Tax Returns

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RMC No. 61-2012 (con’t.)

Form No.

Latest Revision Date Form Name

1 0605 July 1999 (ENCS) Payment Form2 1600 September 2005 (ENCS) Monthly Remittance Return of VAT

and Other Percentage Taxes Withheld

3 1600WP January 2010 (ENCS) Remittance Return of Percentage Tax on Winnings and Prizes Withheld by Race Track Operators

4 1601-C July 2008 (ENCS) Monthly Remittance Return of Income Taxes Withheld on Compensation

5 1601-E August 2008 (ENCS) Monthly Remittance Return of Final Income Taxes Withheld

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RMC No. 61-2012 (con’t.)

Form No.


6 1601-F September 2005 (ENCS) Monthly Remittance Return of Final Income Taxes Withheld

7 1602 August 2001 (ENCS) Monthly Remittance Return of Final Income Taxes Withheld on Interest Paid on Deposits and Yield on Deposits substitutes / Trusts / Etc.

8 1603 November 2004 (ENCS) Quarterly Remittance Return of FinalIncome Taxes Withheld on Fringe Benefits Paid to Employees Other than Rank and File

9 1604-CF July 2008 (ENCS) Annual Information Return of Income Taxes Withheld on Compensation and Final Withholding Taxes

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RMC No. 61-2012 (con’t.)

Form No.


10 1604-E July 1999 (ENCS) Annual Information Return of Creditable Income Taxes Withheld (Expanded) / Income Payments Exempt from Withholding Tax

11 1606 July 1999 (ENCS) Withholding Tax Remittance Return for Onerous Transfer of Real Property Other than Capital Asset (Including Taxable and Exempt)

12 1701Q July 2008 (ENCS) Quarterly Income Tax Return For Self-employed Individuals, Estates and Trusts (Including those with both Business and Compensation Income)

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RMC No. 61-2012 (con’t.)

Form No.


13 1702Q July 2008 (ENCS) Quarterly Income Tax Return for Corporations, Partnerships and Other Non-Individual Taxpayers

14 1704 May 2001 Improperly Accumulated Earnings Tax Return

15 1706 July 1999 (ENCS) Capital Gains Tax Return for Onerous Transfer of Real Property Classified as Capital Asset 9both Taxable and Exempt)

16 1707 July 1999 (ENCS) Capital Gains Tax Return for Onerous Transfer of Shares of Stock Not Traded Through the Local Stock Exchange

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RMC No. 61-2012 (con’t.)

Form No.


17 1800 July 1999 (ENCS) Donor’s Tax Return18 1801 July 2003 (ENCS) Estate Tax Return19 2000 June 2006 (ENCS) Documentary Stamp Tax Declaration /

Return20 2000-OT June 2006 (ENCS) Documentary Stamp Tax Declaration /

Return (One-Time Transactions)21 2200A May 2006 (ENCS) Excise Tax Return for Alcohol

Products22 2200AN August 2003 (ENCS) Excise Tax Return for Automobiles &

Non-Essential goods23 2200M September 2005 (ENCS) Excise Tax Return for Mineral

Products

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RMC No. 61-2012 (con’t.)

Form No.


24 2200P September 2005 (ENCS) Excise Tax Return for Petroleum Products

25 2200T May 2006 (ENCS) Excise Tax Return for TobaccoProducts

26 2550M February 2007 (ENCS) Monthly Value-Added Tax Return27 2550Q February 2007 (ENCS) Quarterly Value-Added Tax Return28 2551M September 2005 (ENCS) Monthly Percentage Tax Return29 2551Q February 2002 (ENCS) Quarterly Percentage Tax Return

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RMC No. 61-2012 (con’t.)

Form No.


30 2552 July 1999 (ENCS) Percentage Tax Return for Transactions Involving Shares of Stock Listed and Traded Through the Local Stock Exchange or Through Initial and/or Secondary Public Offering

31 2553 July 1999 (ENCS) Return of Percentage Tax Payable Under Special Laws

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REVENUE MEMORANDUM CIRCULARNO. 63-2012

Clarifying the issues affecting invoicingand recording of income payments formedia advertising placements

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RMC No. 63-2012 (con’t.)

Advertising agencies, media suppliers and advertiserscompromise the tripartite institutional structure of theadvertising industry. Depending on their industry practice,advertising agencies have different procedures in billingtheir clients/ advertisers. Clients / advertisers makeincome payments for media advertisement contractsdirectly to the advertising agency or directly to the mediaservices, advertising commission or service fees and VAT.Issues thus arise from the invoicing of income paymentsand recording of gross receipts such that the reportingthereof does not accurately reflect the income recipientsand which may affect the computation of taxes due on thetransaction.

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Business Taxes on Professionals

Professional, classified as self-employed, refersto an individual or a group, practicing his o theirprofession or calling, with or without license undera regulatory board or body. Apart from applicableincome taxes and withholding taxes, he or they aresubject to the following business taxes :

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RMC No. 64-2012 (con’t.)

Value-Added Tax (VAT) - A professional isliable to VAT at the rate of twelve percent (12%)if his gross receipts / professional fees for thepast twelve (12) months is more thanP1,919,500.

Percentage Tax – A professional is liable topercentage tax at the rate of three percent(33%) if his gross receipts / professional fees forthe past twelve 912) months is equal to or isbelow P1,919,500 and he is not a VAT-registeredperson.

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Clarifying the Taxability of Association Dues,Membership Fees, and Other Assessments /Charges Collected by CondominiumCorporations

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RMC No. 65-2012 (con’t.)

Income Tax -- The amounts paid in as dues or fees bymembers and tenants of a condominium corporation formpart of the gross income of the latter subject to incometax. This is because a condominium corporation furnishesits members and tenants with benefits, advantages, andprivileges in return for such payments. For tax purposes,the association dues, membership fees, and otherassessments / charges collected by a condominiumcorporation constitute income payments or compensationfor beneficial services it provides to its members andtenants. The previous interpretation that the assessmentdues are funds which are merely held in trust by acondominium corporation lacks legal basis and is herebyabandoned.

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RMC No. 65-2012 (con’t.)

Moreover, since a condominium corporation is subject toincome tax, income payments made to it are subject toapplicable withholding taxes under existing regulations.

VALUE-ADDED TAX (VAT) -- Association dues,membership fees, and other assessments / chargescollected by a condominium corporation are subject to VATsince they constitute income payment or compensation forthe beneficial services it provides to its members andtenants.

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RMC No. 65-2012 (con’t.)

Section 105 of the National Internal Revenue Code of1997, as amended, provides :

“Section 105. Persons Liable. -- Any person who, in thecourse of trade or business, sells, barters, exchanges,leases goods or properties, renders services, and anyperson who imports goods shall be subject to the value-added tax (VAT) imposed in Sections 106 to 108 of thisCode.

xxx

The phrase ‘in the course of trade or business’ means theregular conduct or pursuit of a commercial or an economicactivity, including transactions incidental thereto, by anyperson regardless of whether or not the personengaged therein is a nonstock, nonprofit privateorganization (irrespective of the disposition of its netincome and whether or not it sells exclusively tomembers or their guests), or government entity.

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RMC No. 65-2012 (con’t.)

The above provision is clear – even a non-stock, non-profitorganization or government entity is liable to ay VAT on thesale of goods or services. This conclusion was affirmed by theSupreme Court in Commissioner of Internal Revenue v. Court ofAppeals and Commonwealth Management and ServicesCorporation, G.R. No. 125355, March 30, 2000. In this case,the Supreme Court held:

“Even a non-stock, non-profit organization or governmententity, is liable to pay VAT on the sale of goods or services. VAT isa tax on transactions, imposed at every stage of the distributionprocess on the sale, barter, exchange of goods or property, and onthe performance of services, even in the absence of profitattributable thereto. The term “in the course of trade or business”requires the regular conduct or pursuit of a commercial or aneconomic activity, regardless of whether or not the entity is profit-oriented.

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Circularization of the pertinent portions of the SupremeCourt Decision in G.R. Nos. 195909 and 195960 dated26 September 2012, entitled “Commissioner of InternalRevenue vs. St. Luke’s Medical Center, Inc.,” on theincome tax treatment of proprietary non-profit hospitalsunder Section 27(B) vis-à-vis Sections 30[E] and [G] ofthe National Internal Revenue Code (NIRC), asamended, and on the 1998 deficiency income taxliability of St. Luke’s Medical Center Inc., on therevenues it derived from services to paying patientspursuant to Section 27[B] of the NIRC, as amended, andtheir tax implications and the implementation thereof

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RMC No. 67-2012 (con’t.)

For the information and guidance of all internal revenueofficials and employees concerned, quoted hereunder are therelevant portions of the Supreme Court Decision in G.R. Nos.195909 and 195960 dated 26 September 2012, entitled“Commissioner of Internal Revenue vs. St. Luke’s medicalCenter, Inc.” involving the following:

a. Private non-profit hospitals and educational institutionswhose gross income from unrelated trade, business orother activity exceeds fifty percent (50%) of their totalgross income derived from all sources, or

b. Hospitals and educational institutions claiming to bewithin the coverage of Section 27[B] of the NIRC thatfails to meet the above definition of “proprietary” and“non-profit.”

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RMC No. 67-2012 (con’t.)

In all cases, whether their income tax rates fall under Section27[A] or 27[B] of the NIRC, the aforesaid institutions are likewisesubject to other applicable taxes, if warranted.

2. On the definition of “charitable” institutions for purposesof enjoying income tax exemption under Section 30[E] of the NIRC,as amended:

In other words, charitable institutions provide forfree goods and services to the public which wouldotherwise fall on the shoulders of government. Thus, asa matter of efficiency, the government forgoes taxes whichshould have been spent to address public needs, becausecertain private entities already assume a part of the burden.This is the rationale for the tax exemption of charitableinstitutions. The loss of taxes by the government iscompensated by its relief from doing public works which wouldhave been funded by appropriations from the Treasury.

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RMC No. 67-2012 (con’t.)

“Section 30(E) of the NIRC provides that a charitable institution must be:

(1)A non-stock corporation or association;(2)Organized exclusively for charitable purposes;(3)Operated exclusively for charitable purposes; and(4)No part of its net income or asset shall belong to or inure to the

benefit of any member, organizer, officer or any specific person.

Thus, both the organization and operations of the charitableinstitution must be devoted “exclusively” for charitable purposes.

Even if St. Luke’s meets the test of charity, a charitable institutionis not ipso facto tax exempt. To be exempt from income taxes, Section30(E) of the NIRC requires that a charitable institution must be“organized and operated exclusively” for charitable purposes.Likewise, to be exempt from income taxes, Section 30(G) of the NIRCrequires that the institution be “operated exclusively” for socialwelfare.”

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RMC No. 67-2012 (con’t.)

Henceforth, non-stock, non-profit corporations or associationswhich claim to be charitable or social welfare but do not organizedand operated “exclusively” for charitable or social welfare purposesas above-defined are not entitled to the income tax-exemption underSections 30[E] and [G] of the NIRC, as amended, and their taxableincome shall be subject to ordinary 30% corporate rate underSection 27(A) of the NIRC, as amended. They are likewise subjectto other applicable taxes, if warranted.

4. On the taxability pursuant to Section 27[B] of the NIRC, asamended, of revenues derived by proprietary non-profit hospitalsfrom services to paying patients and by proprietary non-profiteducational institutions from the same or similar services:

Clearly, revenues from paying patients are income receivedfrom “activities conducted for profit.” …

xxx xxx xxx

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RMC No. 67-2012 (con’t.)

Services to paying patients are activities conducted for profit. They cannot be considered any other way. There is a “purpose to make profit over and above the cost” of services.

….. Activities for profit should not escape the reach oftaxation. Being a non-stock and non-profit corporationdoes not, by this reason alone, completely exempt aninstitution from tax. An institution cannot use its corporateform to prevent its profitable activities from being taxed.

The Court finds that St. Luke’s is a corporationthat is not “operated exclusively” for charitable orsocial welfare purposes insofar as its revenues frompaying patients are concerned.

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RMC No. 67-2012 (con’t.)

St. Luke’s fails to meet the requirements under Section30(E) and (G) of the NIRC to be completely tax exempt fromall its income. However, it remains a proprietary non-profithospital under Section 27(B) of the NIRC as long as it does notdistribute any of its profits to its members and such profits arereinvested pursuant to its corporate purposes. St. Luke’s, as aproprietary non-profit hospital, is entitled to the preferentialtax rate of 10% on its net income from its for-profit activities.

All concerned revenue officials and employees are herebydirected to fully implement the decision of the Supreme Court inG.R. Nos. 195909 and 195960 dated 26 September 2012, entitled“Commissioner of Internal Revenue vs. St. Luke’s Medical Center,Inc.” by ensuring that the proper taxes are collected from privatenon-profit hospitals and educational institutions starting fromJanuary 1, 1998.

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Condonation of Tax Liabilities of Local Water Districts

Republic Act (R.A.) No. 10026 allows the condonation of taxliabilities of local water districts subject to certain conditions. Thelaw added a new Section in the National Internal Revenue Code of1997 (NIRC) which reads:

“Sec. 289-A. Support for Local Water Districts. -- The amountthat would have been paid as income tax and saved by thelocal water district by virtue of its exemption to the incometaxes shall be used by the local water district concerned forcapital equipment expenditure in order to expand waterservices coverage and improve water quality in order to providesafe and clean water in the provinces, cities, andmunicipalities:

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RMC No. 68-2012 (con’t.)

Provide, That, the water district shall adopt internal control reformsthat would bring about their economic and financial viability:Provided, further, That the water district shall not increase by morethan twenty percent (20%) a year its appropriation for personalservices, as well as for travel, transportation or representationexpenses and purchase of motor vehicles.

All unpaid taxes or any portion thereof due from a local waterdistrict for the period starting August 13, 1996 until theeffectivity of this Act are hereby condoned by the Governmentsubject to the following conditions: (1) that the Bureau of InternalRevenue, after careful review of the financial statements of a waterdistrict applying for condonation of taxes due, establishes its financialincapacity, after providing for its maintenance and operatingexpenses, debt servicing and reserved fund, to meet such obligationsfor the period stated herein; and (2) that the water district availingof such condonation shall submit to Congress of the Philippines aprogram of internal reforms, duly certified by the local water utilitiesadministration, that would bring about its economic and financialviability.

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RMC No. 68-2012 (con’t.)

Local water districts that intend to avail of condonation of tax liabilitiesmust file with the Technical Working Committee on Abatement through theAsst. Commission – Collection Service as Chairman a letter applicationstating:

i. That it is a duly organized local water district;ii. That it intends to apply for condonation of unpaid tax liabilities;iii. A detailed statement of the unpaid tax liabilities which it seeks to

be condoned including the amount/s of basic taxes, penalties andsurcharges, taxable year/s involved, and other relevant data;

The following documents must be submitted together with theapplication:

i. Conditional Certificate of Conformance issued by the Local WaterUtilities Administration;

ii. Proof of its financial incapacity; andiii. Proof that it has submitted to Congress of the Phils. a program of

internal reforms, duly certified by the local water utilitiesadministration, that would bring about its economic and financialviability.

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RMC No. 68-2012 (con’t.)

All applications for condonation must be filed on orbefore April 30, 2013. No application for condonationmay be processed after the said date.

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Clarification on the Implementation of RMCNo. 62-2012 dated October 25, 2012

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Atty. Nelson M. AspeDeputy Commissioner

Operations Group

Tel Nos. (02) 926-5425;(02)024-3242Fax No.: 928-3562

Cel. No: 0917-557-2304Email: [email protected]

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THANK YOUand

GOD Bless !!!

revenue memorandum circular (rmc) 2012 · pdf file12/10/2012 3. 1. all bir rulings issued...

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