1Tax Bulletin |

Tax BulletinMay 2018

2 | Tax Bulletin

Highlights

BIR Rulings

• RetirementgratuitiesgrantedtoqualifiedemployeesunderSection13-AofRA8291(GSISLaw)areexemptfromincometaxandwithholdingtaxoncompensation.Ontheotherhand,retirementgratuitiesgrantedtoemployeeswhohavenotmetallthequalificationsshallbesubjecttoincometaxandwithholdingtaxoncompensation.(Page 4)

• Investmentearningsofaretirementfund,includingthosefromgovernmentsecuritiesissuedbytheBureauofTreasury,shallbeexemptfromincometaxes,providedalltheconditionsstatedunderSection60(E)oftheTaxCodearemet.(Page 5)

• Perdiemgrantedtothedirectorsofanon-stock,non-profitcorporationforeverymeetingattendedviolatestherequirementthatnopartofthenetincomeorassetsofthecorporationshallinuretothebenefitofanyindividualorspecificpersonanddisqualifiesthesaidcorporationfromtheissuanceofataxexemptioncertificate.Accordingly,itshouldbeconsideredasanordinarycorporationsubjecttotheregularincometaxrateof30%andotherinternalrevenuetaxesimposedundertheTaxCode,asamended.(Page 5)

• Emolumentforquarterlymeetingspaidtothetrusteesofanon-stock,non-profiteducationalinstitutionandhospitalisnotinaccordancewiththedefinitionof“non-stock”and“non-profit”anddisqualifiestheorganizationfortheissuanceofacertificateoftaxexemption.Accordingly,itshouldbeconsideredasaproprietaryeducationalinstitutionandhospitalsubjecttothepreferentialrateof10%.(Page 6)

• HonorariaandallowancesgiventopublicschoolteachersandotherqualifiedcitizenswhoserveduringtheBarangayandSangguniangKabataan(SK)Electionsshallnotbesubjecttoincometaxandwithholdingtaxoncompensation;provided,thattheannualtaxableincomeofsuchpersonsdonotexceedthePhp250,000thresholdundertheTRAINLaw.(Page 7)

• UsufructuarydoesnotneedtosecureaCertificateAuthorizingRegistration(CAR)beforecausingtheannotationoftheContractofUsufructonthetitleofthesubjectproperty.(Page 7)

BIR Issuances

• RevenueRegulation(RR)No.16-2018furtheramendsRRNo.10-2015inrelationtotheuseofnon-thermalpaperforallCashRegisterMachines(CRMs),Point-of-Sale(POS)machinesandotherinvoiceorreceiptgeneratingmachineorsoftware.(Page 8)

• RevenueMemorandumOrder(RMO)No.20-2018amendsthepoliciesandproceduresontheprocessingoftaxcreditcertificates(TCCs)forcashconversion.(Page 8)

• RMONo.23-2018prescribesthepolicies,guidelinesandproceduresinavailingthe8%incometaxrateoptionforindividualsearningfromself-employmentand/orpracticeofprofessions.(Page 9)

• RevenueMemorandumCircular(RMC)No.30-2018amendsthedocumentaryrequirementsfornewbusinessregistrants.(Page 12)

3Tax Bulletin |

• RMCNo.33-2018announcestheentryintoforce,effectivityandapplicabilityoftherenegotiatedPhilippines-ThailandTaxTreaty.(Page 13)

• RMCNo.34-2018announcestheentryintoforce,effectivityandapplicabilityofthePhilippines-SriLankaTaxTreaty.(Page 14)

• RMCNo.36-2018extendsthevalidityperiodoftheCertificateofAccreditationissuedtodevelopers/dealers/suppliers/vendors/pseudo-suppliersofCashRegisterMachines(CRM),Point-of-Sale(POS)machinesand/orothersalesmachines/receiptingsoftware.(Page 14)

• RMCNo.39-2018reiteratestheimpositionofVATongoodsdisposedoforexistingasofthedateofchangeinorcessationofaperson’sVATregistration,pursuanttoSec.4.106-8ofRRNo.16-2005,implementingSec.106(C)oftheTaxCode,asfurtheramendedbytheTRAINLaw.(Page 14)

• RMCNo.41-2018clarifiestheissuanceofaTaxIdentificationNumber(TIN)tocorporationsinrelationtotheircorporatetermundertheCorporationCodeofthePhilippines.(Page 15)

• RMCNo.43-2018announcesthecreationofafastlaneforallOne-TimeTransactions(ONETT)Involvingsimpletransactions.(Page 16)

BOC Updates

• CustomsMemorandumOrder(CMO)05-2018issupplementaltoCMONo.11-2014andprovidesfortheRevisedGuidelinesforRegistrationofImportersandCustomsBrokerswiththeBureauofCustoms(BOC).(Page 16)

• CMO06-2018providesfortheSubmissionofAdvanceCargoManifestsandOtherDocumentstotheBOC’sAdvancedManifestSystem.(Page 18)

PEZA Issuances

• PEZAMemorandumCircularNo.2018-009circularizesDENRMemorandumCircularNo.2017-011,whichclarifiestherequirementsforimportingrecyclablematerialscontaininghazardoussubstances.(Page 20)

• PEZAMemorandumCircularNo.2018-010requestsallPEZA-registeredenterprisestoobservetheExpandedBreastfeedingPromotionActof2009.(Page 20)

BSP Issuances

• CircularNo.1001providesfortheCreditLimitsforProjectFinanceExposures.(Page 21)

• CircularNo.1002providesforAmendmentstotheGuidelinesonProposedInvestmentsfromThirdPartyInvestors(TPIs)andtheRequirementsonTransactionsRequiringpriorMonetaryBoardapprovalinvolvingAdditionalSubscriptionofSharesofStock.(Page 22)

• CircularNo.1003providesfortheGuidelinesontheEstablishmentandOperationsofCreditCardIssuerstoImplementRepublicActNo.10870orthePhilippineCreditCardIndustryRegulationsLaw.(Page 23)

• CircularNo.1004providesfortheReductioninReserveRequirements.(Page 23)

4 | Tax Bulletin

Court Decisions

• ForsaleofservicestoqualifyforVATzero-rating,therecipientoftheservicesmustbeaforeigncorporationengagedinbusinessoutsidethePhilippinesandnotdoingbusinessinthePhilippines.AforeigncorporationthatappointedalocalagentisdeemedengagedinbusinessinthePhilippines.(Page 24)

• UndertheTRAINLaw,the12%deficiencyinterestiscomputedfromthedateprescribedforitspaymentuntilthefullpaymentthereoforuponissuanceofanoticeanddemandbytheCIR,whichevercomesearlier.(Page 25)

BIR Rulings

BIR Ruling No. 612-18 dated 5 April 2018

Facts:

XandY,employeesofABCCenter,agovernmenthospital,wantedtoavailoftheretirementbenefitsunderRA8291(GSISLaw).Section13-AoftheGSISlawgrantsaretirementgratuitytoretireeswhomeetthefollowingqualifications:(1)musthaverenderedatleast15yearsofservice;(2)mustbeatleast60yearsofageuponretirement;and(3)mustnotbepermanenttotaldisabilitypensioners.OnlyXmetallthequalifications.However,bothXandYhaveappliedforandweregrantedretirementgratuitiesundertheGSISlaw.

Issues:

1. IstheretirementgratuityreceivedbyXsubjecttowithholdingtaxoncompensation?

2. IstheretirementgratuityreceivedbyYsubjecttowithholdingtaxoncompensation?

Ruling:

1. No.PursuanttoSec.32(B)(6)(f)oftheTaxCode,benefitsfromtheGSISunderRA8291,includingretirementgratuitiesreceivedbygovernmentofficialsandemployees,shallnotbeincludedintheirgrossincomeandshallbeexemptfromincometax.Accordingly,thegratuitypayofretiringemployees,whoarequalifiedtoavailoftheretirementbenefitsunderRA8291,shallbeexcludedfromtheirgrossincomeandshallnotbesubjectedtowithholdingtaxoncompensation.

2. Yes.ForofficialsandemployeeswhoarenotqualifiedtoavailoftheretirementbenefitsunderSection13ofRA8291,thebenefitsthattheywillreceiveshallbeconsideredaspartoftheircompensationincome,whicharesubjecttoincometaxandwithholdingtaxonwagesunderSection79oftheTaxCode.Consequently,theretirementgratuityreceivedbyYshallbesubjecttowithholdingtaxoncompensation.

Retirement gratuities granted to qualifiedemployeesunderSection13-AofRA8291(GSISLaw)areexemptfromincometaxandwithholdingtaxoncompensation.Ontheotherhand,retirementgratuitiesgrantedtoemployeeswhohavenotmetallthequalificationsshallbesubjecttoincometaxandwithholdingtaxoncompensation.

5Tax Bulletin |

BIR Ruling No. 613-18 dated 6 April 2018

Facts:

CProvidentPlan(thePlan)isanon-stock,non-profitcorporationestablishedbyCCorporation(theCorporation)asanemployees’retirementplanfortheexclusivebenefitofitsofficialsandemployees.ThePlanwasincorporatedwiththeprimarypurposeofestablishingandmaintainingaFund,thesourceofwhichshallbederivedfromtheindividualcontributionsofthemembersandcounterpartcontributionsoftheCorporation.AlltheearningsoftheFundaccumulatedbythePlanfrominvestments,includingthosefromgovernmentsecuritiesissuedbytheBureauofTreasury,shallbedistributedtothemembersintheformofbenefitsincasesofretirement,resignationorseparationfromservice.

Issue:

AretheearningsoftheFundaccumulatedbythePlanexemptfromincometax?

Ruling:

Yes.Section60(B)oftheTaxCodelaysdownthefollowingrequirementsinorderfortheearningsofaretirementfundtobeexemptfromincometax:(1)thecontributionsaremadetothetrustbytheemployer,oremployees,orboth;(2)suchcontributionsaremadeforthepurposeofdistributingtosuchemployeestheearningsandprincipalofthefundaccumulatedbythetrustinaccordancewithsuchplan;and(3)underthetrustinstrumentitisimpossible(inthetaxableyearandatanytimethereafterpriortothesatisfactionofallliabilitieswithrespecttoemployeesunderthetrust)foranypartofthecorpusorincometobeusedfor,ordivertedto,purposesotherthantheexclusivebenefitoftheemployees.

ThePlanhasmetalloftheaboveconditionsthatqualifiestheearningsoftheFundasexemptfromincometax:

a. ThePlansourcesitsfundsfromcontributionsmadebybothemployerandemployees;

b. Thecontributionsaremadeforthepurposeofdistributingtosuchmembersintheformofbenefitsincasesofretirement,resignationorseparationfromservice,alltheearningsoftheFundaccumulatedbythePlanfrominvestments,includingthosefromgovernmentsecuritiesissuedbytheBureauofTreasury.

c. ThePlanwasincorporatedfortheexclusivebenefitofthemember-employees/officialsortheirbeneficiaries.

BIR Ruling No. 718-18 dated 16 April 2018

Facts:

DInc.,anon-stock,non-profitcorporation,appliedwiththeBIRfortheissuanceofataxexemptioncertificatepursuanttoSection30(J)oftheTaxCode,whichexemptsnon-stock,non-profitcorporationsfromcorporateincometaxinrespecttoincomereceivedbythemassuch.Theby-lawsofDInc.providesthatthemembersoftheboardofdirectors(BOD)shallreceiveaperdiemforeveryboardmeetingattended,theamountofwhichshallbefixedbythemembers.

Investmentearningsofaretirementfund,includingthosefromgovernmentsecuritiesissuedbytheBureauofTreasury,shallbeexemptfromincometaxes,providedalltheconditionsstatedunderSection60(E)oftheTaxCodearemet.

Perdiemgrantedtothedirectorsofanon-stock,non-profitcorporationforeverymeetingattendedviolatestherequirementthatnopartofthenetincomeorassetsofthecorporationshallinuretothebenefitofanyindividualorspecificpersonanddisqualifiesthesaidcorporationfromtheissuanceofataxexemptioncertificate.Accordingly,itshouldbeconsideredasanordinarycorporationsubjecttotheregularincometaxrateof30%andotherinternalrevenuetaxesimposedundertheTaxCode,asamended.

6 | Tax Bulletin

Issue:

IsDInc.entitledtotheissuanceofataxexemptioncertificate?

Ruling:

No.RMCNo.51-2014hasclarifiedthat,inorderforanentitytoqualifyasanon-stockand/ornon-profitcorporation/association/organizationexemptfromincometaxunderSection30oftheTaxCode,itsearningsorassetsshallnotinuretothebenefitofanyofitstrustees,organizers,officers,membersoranyspecificperson.

GivingperdiemtothemembersoftheBODclearlyviolatestherequirementthatnopartofthenetincomeorassetsofthecorporationshallinuretothebenefitofanyindividualorspecificperson.Consequently,DInc.isnotentitledtotheissuanceofacertificateoftaxexemptionandshallbetreatedasanordinarycorporationsubjecttothe30%incometaxratepursuanttoSection27(A)andotherinternalrevenuetaxesimposedbytheTaxCode.

BIR Ruling No. 755-18 dated 30 April 2018

Facts:

XYZMedicalSchoolFoundationInc.(XYZ),anon-stock,non-profiteducationalinstitutionandhospital,appliedwiththeBIRfortheissuanceofataxexemptioncertificatepursuanttoSection30(E)and(H)oftheTaxCode,whichexemptsnon-stock,non-profitcorporationsorassociationsandnon-stock,non-profiteducationalinstitutions,respectively,fromcorporateincometax.ThetreasurerofXYZcertifiedunderoaththatthemembersoftheBoardofTrustees(BOT)arereceivingemolumentsofPhp2,000everyquarterlymeeting.

Issue: IsXYZentitledtotheissuanceofataxexemptioncertificate?

Ruling:

No.“Non-stock”meansnopartofthecorporation’sincomeisdistributableasdividendstoitsmembers,trustees,orofficersandthatanyprofitobtainedasanincidenttoitsoperationshall,whenevernecessaryorproper,beusedforthefurtheranceofthepurposeorpurposesforwhichthecorporationwasorganized.“Non-profit”meansthatnonetincomeorassetaccruestoorbenefitsanymemberorspecificperson,withallthenetincomeorassetdevotedtotheinstitution’spurposesandallitsactivitiesconductednotforprofit.

XYZ’spaymentofemolumentstotheBOTisnotinaccordancewiththedefinitionof“non-stock”becauseitisconsideredadistributionofequity(includingnetincome)ofXYZtoitstrustees.Thepaymentisalsonotinaccordancewiththedefinitionof“non-profit”becausethepaymentfromitsnetincomeaccruestothebenefitofitstrustees.Consequently,XYZisnotentitledtotheissuanceofacertificateoftaxexemptionandshallbetreatedasaproprietaryeducationalinstitutionandhospitalsubjecttothe10%preferentialratepursuanttoSection27(B)oftheTaxCode.

Emolumentforquarterlymeetingspaidtothetrusteesofanon-stock,non-profiteducationalinstitutionandhospitalisnotinaccordancewiththedefinitionof“non-stock”and“non-profit”anddisqualifiestheorganizationfortheissuanceofacertificateoftaxexemption.Accordingly,itshouldbeconsideredasaproprietaryeducationalinstitutionandhospitalsubjecttothepreferentialrateof10%.

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BIR Ruling No. 759-18 dated 8 May 2018

Facts:

TheCOMELECpayshonorariaandallowancestopublicschoolteachersandotherqualifiedcitizenswhoserveduringBarangayandSKElections.PursuanttoBIRRulingNo.494-18,honorariaandallowances,nomatterhownegligibletheamount,arewealththatflowintothehandsoftherecipient,hencesubjecttoincometaxandconsequently,withholdingtaxoncompensation.TheAllianceofConcernedTeachers(ACT)disagreeswithsuchruling,arguingthatthecompensationpackageofteacherswhowillserveintheupcomingBarangayandSKelectionwillnotexceedthePhp250,000thresholdundertheTRAINLaw,henceshouldnotbesubjecttoincometaxandwithholdingtaxoncompensation.

Issue:

ArethehonorariaandallowancesreceivedbythepublicschoolteachersandotherqualifiedcitizenswhoserveduringtheBarangayandSKelections,butwhoseincomedoesnotexceedthePHP250,000threshold,subjecttoincometaxandwithholdingtaxoncompensation?

Ruling:

No.Iftheannualtaxableincome,whichincludesthehonorariaandallowances,ofteacherswhowillserveintheElectoralBoarddoesnotexceedPhp250,000,suchhonorariaandallowancesshallnotbesubjecttoincometaxandwithholdingtaxundertheTRAINLaw.

BIR Ruling 810-18 dated 10 May 2018

Facts:

ACo.andBCo.enteredintoaContractofUsufructoveraparceloflandownedbyACo.ThecontractstipulatesthatACo.reservestherighttosell,transfer,disposeof,mortgage,charge,hypothecate,createliensoverorencumberthepropertyto,orinfavorofathirdparty.Thecontractalsostipulatesthattheusufructuary,BCo.,shallcausetheannotationofthecontractontheTCToftheland.PursuanttoSection58(E)oftheTaxCode,aCARmustbesecuredfromtheBIRstatingthatthetransferofrealpropertyhasbeenreportedandtheCGTorcreditablewithholdingtax,ifany,hasbeenpaidbeforetheRegisterofDeedsmayeffecttheregistrationofanydocumenttransferringrealpropertyonthetitlecoveringthesame.

Issue:

IsBCo.requiredtosecureaCARbeforecausingtheannotationoftheContractofUsufructontheTCTofthesubjectproperty?

Ruling:

No.Usufructgivestheusufructuarytherighttoenjoythepropertyofanotherwiththeobligationofpreservingitsformandsubstance,unlessthetitleconstitutingitorthelawotherwiseprovides.Clearly,aContractofUsufructdoesnotinvolvetransfer,conveyanceordispositionofanyportionoftherealpropertyoritsownership.

HonorariaandallowancesgiventopublicschoolteachersandotherqualifiedcitizenswhoserveduringtheBarangayandSKElectionsshallnotbesubjecttoincometaxandwithholdingtaxoncompensation;provided,thattheannualtaxableincomeofsuchpersonsdonotexceedthePhp250,000thresholdundertheTRAINLaw.

UsufructuarydoesnotneedtosecureaCARbeforecausingtheannotationoftheContractofUsufructonthetitleofthesubjectproperty.

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Here,theContractofUsufructisnotasaleortransferofrealpropertybecausetheACo.retainsownershipthereofasitisexpresslystatedinthecontractthatACo.reservestherighttosell,transfer,disposeof,mortgage,charge,hypothecate,createliensoverorencumberthepropertyto,orinfavorofathirdparty.Consequently,therebeingnosale,conveyance,transferordispositionofthelandregisteredinthenameofACo.,BCo.isnotrequiredtosecureaCARbeforecausingtheannotationtheContractofUsufructontheTCTofthesubjectproperty.

BIR Issuances

RR No. 16-2018 dated 25 May 2018

►• AlltaxpayersusingCRM,POSmachinesorotherinvoiceorreceiptgeneratingmachineshavetheoptiontousethetypeofpaperdependingontheirbusinessrequirements,subjecttotheretentionandpreservationofaccountingrecordsfortheperiodwithinwhichtheCommissionerisauthorizedtomakeanassessmentandcollecttaxes.

• AlltapereceiptsissuedshallnowshowtheserialnumberoftheCRM/POSmachineasanadditionalinformationrequiredunderSection5ofRRNo.10-2015.

• Abuyerorcustomermayreturntheissuedtapereceipttothesellerandrequestfortheissuanceofamanualinvoiceorreceipt,ifitisrequiredasaproofofpaymenttoclaimtheamountasexpense(forincometaxpurposes)orinputtax(forVATpurposes).

1. ThecorrespondingsalesforthetapereceiptsthathavebeenreplacedbymanualinvoiceorreceiptshallbedeductedfromthesalestobereportedintheeSALESsystemoftheBlR.

2. SuchdeductionshallbereflectedasanadjustmentintheCRMSalesBook/Backendreport.

3. Thereturnedtapereceiptshallbeattachedtotheduplicatecopyofthemanuallyissuedinvoiceorreceiptandshallbethebasisinadjustingthesales.

4. However,thesalesshowninthemanualinvoice/receiptshallstillbeincluded,butseparatelyindicated,intheSummaryListofSales(SLS)requiredtobesubmittedbyVAT-registeredtaxpayers.

• Anypersonwhofailstocomplywiththeprovisionsoftheseregulationsshallbesubjecttopenaltiesimposedunderexistingrevenueissuances.

• Theseregulationsshalltakeeffect15daysaftertheirpublicationinanewspaperofgeneralcirculation.

(Editor’s Note: RR No. 16-2018 was published in the ManilaBulletin on 28 May 2017.)

RMO No. 20-2018 dated 3 May 2018 • Allrequestsforcashconversionshallbefiledwiththeofficethatoriginally

processedorinvestigatedtheclaimforissuanceoftheTCC,exceptinthefollowingcases:

RMONo.20-2018amendsthepoliciesandproceduresontheprocessingofTCCsforcashconversion.

RRNo.16-2018furtheramendsRRNo.10-2015inrelationtotheuseofnon-thermalpaperforallCRMs,POSmachinesandotherinvoiceorreceiptgeneratingmachineorsoftware.

9Tax Bulletin |

1. ClaimsoriginallyfiledwiththeRevenueDistrictOffices(RDO),butweresubjectedtofurtherreviewandapprovalbytheconcernedofficesintheNationalOffice,shallbefiledwiththeTaxAuditandReviewDivision(TARD)

2. RevalidatedTCCs,whichshallbefiledwiththeMiscellaneousOperationsMonitoringDivision(MOMD)oftheCollectionService(CS)forrevalidatedTCCs.

• TheoriginalcopyoftheTCCmustbesurrenderedtotheconcernedprocessingofficeaspartofthesupportingdocumentsforcashconversion.

• Ifthetaxpayer-claimantisfoundtohaveanOutstandingTaxLiability(OTL)uponverificationbytheMOMDduringtheprocessingoftherequestand/orbytheAccountingDivisionpriortothefinalapprovaloftherefund,thetaxpayer-claimantmayusetheTCCforpaymentoftheOTL,ifapplicable.

• AnyrequestforcashconversionoftheamountreflectedintheTCCoritsunutilizedportionmaybeallowed,providedthatTCCs,whichremainunutilizedafterfive(5)yearsfromdateofissue,shallnotbeallowedtobeconvertedintocash,unlessrevalidatedbeforetheendofthefifthyear.

• NocashconversionshallbeallowedforTCCsissuedunderthefollowingcases:

1. TCCissuedasaresultoftheavailmentofincentivesgrantedpursuanttospeciallawsforwhichnoactualpaymentwasmade.

2. PreviouslytransferredorassignedTCCspriortoRRNo.14-2011.

• ThefollowingarethedocumentsrequiredfortheprocessingandapprovalofrequestsforconversionofTCCintocashrefund:

1. Letterrequestoftaxpayer-claimantforconversionofTCCtocashrefund;

2. OriginalcopyoftheTCCforconversion;

3. OriginalcopyoftheSecretary’sCertificateorSpecialPowerofAttorney(SPA)executedbythetaxpayer-claimant,authorizinghis/itsrepresentativetoapplyforTCCcashconversiononhis/itsbehalf,whicheverisapplicable;

4. BoardResolutionapprovingtheissuanceofaSecretary’sCertificate/SPAtotheauthorizedrepresentative,whicheverisapplicable;and

5. Anygovernment-issuedidentificationcardofthetaxpayer-claimantorhis/itsauthorizedrepresentative.

RMO No. 23-2018 dated 21 May 2018

• Thefollowingcriteriamustbesatisfiedinordertoqualifyandavailthe8%incometaxrateoption:

1. Theindividualisearningfromself-employmentand/orpracticeofprofession;

2. Thegrosssales/receiptsandothernon-operatingincomedonotexceedtheP3,000,000.00VATthresholdduringthetaxableyear;

RMONo.23-2018prescribespolicies,guidelinesandproceduresinavailingthe8%incometaxrateoptionforindividualsearningfromself-employmentand/orpracticeofprofessions.

10 | Tax Bulletin

3. ThetaxpayerisregisteredandsubjectonlytopercentagetaxunderSection116oftheTaxCode,orisexemptfromVATorotherpercentagetaxes;and,

4. Thetaxpayermusthavesignifiedhisintentiontoelectthe8%incometaxratebyfilinganyofthefollowing:

• NewBusinessRegistrant

a. UponregistrationusingBIRFormNo.1901and/or1701Q;or

b. Ontheinitialquarterreturn(BIRFormNo.2551Qand/or1701Q)ofthetaxableyearafterthecommencementofanewbusiness/practiceofprofession.

• ExistingIndividualBusinessTaxpayers

a. FilingofBIRForm1905(ApplicationforRegistrationInformationUpdate)atthebeginningofthetaxableyeartoend-datetheformtypeofquarterlypercentagetax,provided,thattheoptiontoavailthe8%incometaxshallbeselectedinfilingtheinitialquarterlyincometaxreturn;

b. 1stQuarterlyPercentageTaxReturn,and/or;

c. 1stQuarterlyIncomeTaxReturn.

• The8%incometaxrateoptionisnotavailabletothefollowingindividuals,whoshallbetaxedbasedonthegraduatedincometaxrates:

1. Purelycompensationincomeearners;

2. VAT-registeredtaxpayers,regardlessoftheamountofgrosssales/receiptsandothernon-operatingincome;

3. TaxpayersexemptfromVATorotherpercentagetaxeswhosegrosssales/receiptsandothernon-operatingincomeexceededtheP3,000,000.00VATthresholdduringthetaxableyear;

4. TaxpayerswhoaresubjecttootherpercentagetaxesunderTitleVoftheTaxCode,exceptthosesubjectunderSection116oftheTaxCode;

5. PartnersofaGeneralProfessionalPartnership(GPP);

6. Individualsenjoyingincometaxexemption.

• Anindividualwhoisexemptfromincometax,suchasregisteredBarangayMicroBusinessEnterprises(BMBEs),isboundtoitsavailmentoftheprivilegeunderRepublicAct(RA)No.9178fortheentireperiodofitsBIRregistrationandisnotallowedtoavailofthe8%incometaxrateoption.

• Theoptiontoavailofthe8%incometaxratebyself-employedindividualsiseffectiveonlyforthecoveredtaxableyearwhentheelectionwasmade;otherwise,allindividualsshallbesubjecttothegraduatedincometaxratesatthebeginningofeachtaxableyear:

1. Theavailmentofthe8%incometaxrateoptionisrequiredtobesignifiedandselectedeverytaxableyearifthetaxpayerwishestobecoveredbysuchrate.

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2. Oncethe8%incometaxrateoptioniselected,thesameshallbeirrevocable,andnoamendmentofoptionshallbemadeforthetaxableyearitwasmade.

• Aself-employedindividual,whoisqualifiedandavailedthe8%incometaxrateoption,shallnotberequiredtofilethequarterlypercentagetaxreturn,butshallberequiredtofilethefollowing:

1. QuarterlyIncomeTaxReturn,unlessexemptedbyanyrevenueissuances;

2. AnnualIncomeTaxReturn(FinancialStatementisnotrequiredtobeattached).

• TheP250,000.00reductionfromtaxablegrosssales/receiptsandothernon-operatingincomeisnotapplicabletomixedincomeearnerssinceitisalreadyincorporatedinthefirsttierofthegraduatedincometaxratesapplicabletocompensationincome.

• Thetaxableincomeforindividualsearningincomefromself-employment/practiceofprofessionshallbebasedonthefollowing:

Scenario Tax Base

Ifthetaxpayeroptedtobetaxedatgraduatedratesorhasfailedtosignifythe8%incometaxrateoption

NetTaxableIncome

Ifthe8%incometaxrateisavailedbyself-employedindividualsearningincomefrompurelyself-employmentand/orpracticeofprofession

Grosssales/receiptsandothernon-operatingincomeinexcessofP250,000.00

Mixedincomeearner,whoavailedthe8%incometaxrate

Grosssales/receiptsandothernon-operatingincome,withouttheP250,000.00reduction

• Theself–employedindividualavailingthe8%incometaxrateshallstillberegisteredwith“PercentageTax–Quarterly”taxtype,andtheBIRFormNo.2551Qformtypeshallbeend-dated.

• The2551QformtypeshallbeautomaticallyregisteredintheBIRregistrationsystematthebeginningofeachfollowingyeartoconfirmthatthetaxpayerissubjecttograduatedincometaxratesatthebeginningoftheyearandrequiredtofilethequarterlypercentagetaxreturnunless:

1. Anapplicationforregistrationinformationupdatetoavailthe8%incometaxrateforthesaidtaxableyearhasbeensubmittedtotheconcernedRDO,or;

2. The8%incometaxrateoptionwasselectedinthefilingofthe1stquarterlypercentageorincometaxreturn.

• ANon-VATindividualtaxpayerwhoavailedthe8%incometaxrateandwhosegrossannualsalesand/orreceiptssubsequentlyexceedtheamountofP3,000,000.00anytimeduringthecurrenttaxableyearwhentheoptionwasmade,shallautomaticallybesubjectedtograduatedincometaxratesandbeheldliableforVAT,prospectively,startingthefirstdayofthemonthfollowingthemonthwhenthethresholdwasbreached,subjecttothefollowingrules:

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1. ThetaxpayershallattachanauditedFinancialStatement(FS)infilingtheannualincometaxreturn.

2. Ataxcreditforthepreviousquarter/sincometaxpaymentsunderthe8%incometaxrateoptionshallbeallowed.

3. ThetaxpayershallimmediatelyupdatehisregistrationwithinthemonthfollowingthemonthheexceededtheVATthresholdtoreflectthechangeintaxprofilefromnon-VATtoaVATtaxpayer.

4. Percentagetaxshallbeimposedfromthebeginningofthetaxableyearorcommencementofbusiness/practiceofprofessionuntilthetaxpayerisliabletoVAT.

• AVAT-registeredpersonwhosegrosssalesand/orreceiptsfor3consecutiveyearsdidnotexceedtheVATthresholdamountofP3,000,000.00,mayupdatehisorherregistrationfromVATtonon-VATinordertoqualifyandavailthe8%incometaxrateoption,onorbeforethefirstquarterofataxableyear,followingtherulesandregulationsonregistrations,updates,verification,andtheinventoryandcancellationofVATinvoices/receipts.

RMC No. 30-2018 dated 3 May 2018

• InlinewiththeDataPrivacyActof2012andtopromoteeaseofdoingbusiness,thefollowingchangeshavebeenmadetoAnnexesA1toA3ofRMCNo.93-2016,prescribingdocumentaryrequirementsfornewbusinessregistrants:

1. RemovalofBooksofAccountsinsecuringaCertificateofRegistration(COR)andAuthoritytoPrint(ATP).

• BooksofAccountsfornewbusinessregistrantsshallberegisteredbythetaxpayerwithin30calendardaysfromthedateofbusinessregistration.

• Failuretoregisterwithintheprescribedperiodshallbesubjecttopenaltiespursuanttoexistingrevenueissuances.

2. IncaseanauthorizedrepresentativewilltransactwiththeBIRonbehalfofthetaxpayer,thefollowingshallberequired:

• ForIndividual

a. SpecialPowerofAttorney(SPA);and

b. IdentificationCard(ID)oftheauthorizedperson.

• ForNon-Individual

a. BoardResolutionindicatingthenameoftheauthorizedrepresentative;

b. Secretary’sCertificate;and

c. IDoftheauthorizedperson.

RMCNo.30-2018amendsthedocumentaryrequirementsfornewbusinessregistrants.

13Tax Bulletin |

RMC No. 33-2018 dated 17 May 2018

• TherenegotiatedPhilippines-ThailandTaxTreatyshallapplytoincomethatarisesinthePhilippinesbeginning1January2019.

• BelowarethemajoramendmentsundertherenegotiatedPhilippines-ThailandTaxTreaty:

1. Article4,Resident:

• Incaseanon-individualisaresidentofbothcontractingstates,itsstatusshallbedeterminedbasedonthefollowingorderofcriteria:

a. Placeofincorporation;

b. Placewhereitseffectivemanagementissituated;and

c. Bymutualagreement,ifplaceofeffectivemanagementcannotbedetermined.

2. Article5,PermanentEstablishment(PE):

• PreparatoryorauxiliaryactivitiesshallnotgiverisetoPEstatus.

• AninsuranceenterpriseofaContractingStateshall,exceptinregardtoreinsurance,bedeemedtohaveaPEintheotherContractingStateifitcollectspremiumsintheterritoryofthatotherStateorinsuresriskssituatedthereinthroughanemployeeorthrougharepresentative,whoisnotanagentofanindependentstatus.

3. Article7,BusinessProfits:

• Anenterprise,whichhasaPEintheotherstate,maybetaxedinthesaidstateforitsincomeattributableto:

a. ThatPE;or

b. SalesintheotherStateofgoodsormerchandiseofthesameorsimilarkindasthosesoldthroughthePE;or

c. OtherbusinessactivitiescarriedonintheotherStateofthesameorsimilarkindasthoseeffectedthroughthePE.

4. Article10,Dividends:

• Dividendsarenowsubjecttoa10%preferentialwithholdingtax(WHT)rateifthebeneficialownerisacompany(excludingpartnerships),whichholdsdirectlyatleast25%ofthecapitalofthepayingcompany.

• Inallothercases,the15%WHTratewillapply.

5. Article11,Interest:

• Interestissubjecttoa10%preferentialWHTrateifitisreceivedbyanyfinancialinstitution(includinginsurancecompany).

• Inallothercases,the15%WHTratewillapply.

RMCNo.33-2018announcestheentryintoforce,effectivityandapplicabilityoftherenegotiatedPhilippines-ThailandTaxTreaty.

14 | Tax Bulletin

6. Article12,Royalties:

• Astandard15%preferentialWHTrateisimposedonroyaltiespaidtoaresidentofeitherthePhilippinesorThailand.

RMC No. 34-2018 dated 17 May 2018

• ThePhilippines-SriLankaTaxTreatyshallapplytoincomethatarisesinthePhilippinesbeginning1January2019.

• ThehighlightsofthePhilippines-SriLankaTaxTreatyareasfollows:

1. Article10,Dividends:

• Dividendsaresubjecttoa15%WHTrateifthebeneficialownerisacompany(excludingpartnership).

• Inallothercases,the25%WHTrateshallapply.

2. Article11,Interest:

• Interestissubjecttoa15%WHTrate.

3. Article12,Royalties:

• Royaltiesaresubjecttoa15%preferentialWHTrateifpaidbyanenterpriseregisteredwith,andengagedinpreferredareasofactivities.

• Inallothercases,the25%WHTrateshallapply.

RMC No. 36-2018 dated 21 May 2018

• ThefollowingrulesshallgoverntheextensionofthevaliditydatesofCertificatesofAccreditationofdevelopers/dealers/suppliers/vendors/pseudo-suppliersofCRM,POSmachinesand/orothersalesmachines/receiptingsoftware:

1. CertificatesofAccreditationissuedonorbefore31July2015shallbevaliduntil31July2020.

2. Certificatesissuedon1August2015onwardsshallfollowthefive-yearvalidityperiodbasedonactualdateofissuance.

• Bothprimaryandsupplementaryinvoices/receiptsmustreflectthecorrespondingDateofIssuanceandValidityPeriodofAccreditation.

RMC No. 39-2018 issued on 24 May 2018

• Thiscircularemphasizesthatgoodsorpropertiesoriginallyintendedforsaleoruseinbusiness,includingcapitalgoods,disposedoforexistingasofthedateofchangeofstatusofataxpayerfromVATtoNon-VAToruponcessationofoperationsaresubjecttoVATimposedunderSec.106(C),asimplementedbySec.4.106-8ofRRNo.16-2005.

RMCNo.36-2018extendsthevalidityperiodoftheCertificateofAccreditationissuedtodevelopers/dealers/suppliers/vendors/pseudo-suppliersofCRM,POSmachinesand/orothersalesmachines/receiptingsoftware.

RMCNo.39-2018reiteratestheimpositionofVATongoodsdisposedoforexistingasofthedateofchangeinorcessationofaperson’sVATregistrationpursuanttoSec.4.106-8ofRRNo.16-2005,implementingSec.106(C)oftheTaxCode,asfurtheramendedbytheTRAINLaw.

RMCNo.34-2018announcestheentryintoforce,effectivityandapplicabilityofthePhilippines-SriLankaTaxTreaty.

15Tax Bulletin |

• Thus,taxpayerswhochangedtheirstatusfromVATtoNon-VAT,duetotheincreaseintheVATthresholdofP3,000,000.00asprovidedundertheTRAINLaw,shallfilequarterlyVATreturnsandpaythetaxdueontheinventoriesexistingasofthedateofchangeofstatus.

RMC No. 41-2018 dated 24 May 2018

• AcorporationwhosecorporatelifehasbeenextendedbytheSECpriortotheexpiryofitscorporatelife,shallnotbeissuedanewTIN.However,thetaxpayershallupdateitsregistrationrecordbysubmittingBIRForm1905,attachingthenewlyissuedSECCertificateofRegistrationandamendedArticlesofIncorporationbearingthesamenameasaproofofitscorporatelifeextension.

• AcorporationorpartnershipthathasbeenissuedasecondornewSECCORtocorrecttypographicalerrors(CorporateNameerrors,andsoon)shallnotbeissuedanewTIN.However,itshallupdateitsregistrationwiththeRDOwheresuchcorporation/partnershipisregistered.

• AcorporationorpartnershipwhoseSECregistrationhasbeenrevokedorexpiredshallceasetoexistasanentitytodobusiness.

• Expiredcorporationsarethosewithcorporatetermsthathavelapsedwithoutbeingrenewedorextended.

1. WhileSECallowsthere-registrationofanexpiredcorporationusingthesamecorporatenameasreflectedintheSECCOR,suchcorporationisanewcorporationbearinganewSECRegistrationNumberandanewpre-generatedTINasconfirmationthatthesameisaseparateanddistinctentityfromtheexpiredcorporation.

2. Thepre-generatedTINissuedthroughtheSECtothenewlyregisteredcorporation,usingthenameoftheexpiredcorporationshallbeconfirmedbytheBIRusingBIRFormNo.1903fortheissuanceofBIRCertificateofRegistrationandapplicationforAuthoritytoPrintprincipal/supplementaryinvoices/receipts,simultaneouswiththeapplicationforcancellationoftheoldTINoftheexpiredcorporation.

3. ThenewTINshallbeusedinallfuturetransactionswiththeBIR.

4. TheTINoftheexpiredcorporationorpartnershipshallbeusedbythesaidcorporationintheprocessofliquidation/winding-upofthebusinessandshallbecancelleduponissuanceofclearancebytheBIR.

5. TheregistrationasaLargeTaxpayer(LT)shallbecarriedoverbythenewlyregisteredcorporationthatassumedthebusinessnameandoperationsoftheexpiredcorporation.

6. RegistrationwillhavetobemadewiththeLTDivisionwheretheoldcorporationwasregistered.

• Inthemergerofcorporations,theTINofthesurvivingcorporationshallberetainedwhiletheTINofthemergedcorporationshallbecancelled.Intheconsolidationofcorporations,anewTINshallbeissuedtothenewcorporationandtheTINsoftheconsolidatedcorporationsshallbecancelled.

RMCNo.41-2018clarifiestheissuanceofaTINtocorporationsinrelationtotheircorporatetermundertheCorporationCodeofthePhilippines.

16 | Tax Bulletin

RMC No. 43-2018 dated 28 May 2018

• AllOne-TimeTransaction(ONETT)TeamsaredirectedtocreateafastlanetocatertoindividualsorcorporationsfilingCapitalGainsTaxorDonor’sTaxReturnswithonlyone(1)DeedofSale/Exchange/Donationinvolving1to3properties.

• Incompliancewiththeprovisionsofthe“AntiRedTapeActof2007”(ARTA),thesetransactionsshallbeprocessedandthecorrespondingeCARsreleasedwithin3workingdaysuponsubmissionofcompletedocumentaryrequirements.

BOC Updates

CMO No. 05-2018 dated 24 April 2018

• DepartmentofFinance(DOF)DepartmentOrder(DO)No.11-2018dated9February2018previouslyprovidedforthereversionoftheauthoritytoaccreditandregisterimportersandcustomsbrokerssolelytotheBOC.

• ThesameDOremovedfromthelistofrequirementsforaccreditationandregistrationofimportersandcustomsbrokersthesubmissionofBureauofInternalRevenue(BIR)ImporterClearanceCertificate(BIR-ICC)orBIRBrokersClearanceCertificate(BIR-BCC).

• Thefollowingarethedocumentaryrequirementsforaccreditationofimportersandcustomsbrokers:

1. Fornewimporter,thefollowingpertinentdocumentsaretobesubmitted:

a. ApplicationForm(notarizedandcompletelyfilledout);

b. BureauofCustomsOfficialReceipt(BCOR)evidencingpaymentofProcessingFee(Php1,000);

c. CorporateSecretaryCertificate(Corporation)/Affidavit(SoleProprietorship)/PartnershipResolution(Partnership)/BODResolution(Coop)designatingitsauthorizedsignatoriesintheimportentries;

d. Two(2)validgovernmentissuedIDs(withpicture)ofApplicantandResponsibleOfficers;

e. NBIClearanceofapplicant(issuedwithinthree(3)monthspriortotheapplication);

f. LatestGeneralInformationSheet(Corporation)/DTI(SoleProprietorship)/ArticlesofPartnership/CooperativeDevelopmentAuthority(Cooperatives);

g. PersonalProfileofApplicant,PresidentandResponsibleOfficers(with2x2IDpicture);

h. CompanyProfilewithpicturesofofficew/properandpermanentsignage;

i. Addressofwarehouseownedorleasedbytheimporterwheretheimportedgoodsareintendedtobestored;

RMCNo.43-2018announcesthecreationoffastlaneforallONETTInvolvingsimpletransactions.

CMO05-2018issupplementaltoCMONo.11-2014andprovidesfortheRevisedGuidelinesforRegistrationofimportersandCustomsBrokerswiththeBOC.

17Tax Bulletin |

j. ProofofLawfulOccupancyofOfficeAddressandWarehouse;

k. ListofImportables;

l. PrintedCPRSRecordandupdated“STORED’CPRSnotification;

m. Indorsementfromthecollector,ifapplicable;

n. BIRRegistration(2303);

o. LatestIncomeTaxReturn(ITR)dulyreceivedbytheBIR;and

p. ValidMayor’sPermit.

2. Forrenewalofimporter’sapplication,theimportershallsubmitthefollowingpertinentdocuments:

a. UpdatedGeneralInformationSheet(Corporations)/DTI(SoleProprietorship)/ArticlesofPartnership/CertificateofCompliance(Cooperatives);

b. CompanyProfilewithpicturesofofficewithproperandpermanentsignage;

c. Addressofwarehouseownedorleasedbytheimporterwheretheimportedgoodsareintendedtobestored;

d. ProofofLawfulOccupancyofOfficeAddressandWarehouse;

e. UpdatedListofImportables;

f. PrintedCPRSRecordandupdated“STORED”CPRSnotification;

g. ITRforthepastthree(3)years;and

h. ValidMayor’sPermit.

3. CustomsBroker(NewApplicants)

a. ApplicationForm(notarizedandcompletelyfilledout);

b. BOCOfficialReceipt(BCOR)evidencingpaymentofProcessingFee(Php1,000);

c. ValidProfessionalRegulationsCommission(PRC)card;

d. Listofclientswithcompleteaddressandcontactdetails;

e. Listofrepresentativeswithpersonaldetails,photosandspecimensignature;

f. PrintedCPRSprofilewithstorednotification;

g. BIRRegistration(2303);

h. LatestITRdulyreceivedbytheBIR;

18 | Tax Bulletin

i. NBIClearance;and

j. CertificateofGoodStandingissuedbyaPRCaccreditednationalorganizationofCustomsBrokers.

4. CustomsBroker(RenewalRequirements)

a. UpdatedProfessionalProfile;

b. ValidPRCcard;

c. Updatedlistofclientswithcompleteaddressandcontactdetails;

d. Updatedlistofrepresentativeswithpersonaldetails,photosandspecimensignature;

e. PrintedCPRSprofilewithstorednotification;

f. PrintedCPRSprofilewithstorednotification;

g. ITRforthepastthree(3)years;

h. NBIClearance;and

i. CertificateofGoodStandingissuedbyaPRCaccreditednationalorganizationofCustomsBrokers.

5. ThisCMOshalltakeeffect15calendardaysafteritspublicationattheOfficialGazetteoranewspaperofnationalcirculation.

(Editor’s Note: CMO 05-2018 was received by the UP Law Center and published in TheManilaTimes on 2 May 2018.)

CMO No. 06-2018 dated 7 May 2018

• ThisOrdercoversseafreightandairfreightinallofthePhilippinePortsofEntryonthesubmissionofadvancemanifestandotherrequireddocumentsfromtheforeigncarriers,shipper,consignee,accreditedcargosurveyingcompany(ACSC),andtheirauthorizedagenttotheBureau’sAdvancedManifestSystem.

• OperationalProvisions:

1. AtrueandcompletecopyofthecargomanifestandConsolidatedCargoManifest(CCM)shallbeelectronicallysentinadvancebytheshippingcompany,Non-vesseloperatingcommoncarrier(NVOCC),freightforwarder,cargoconsolidator,ortheirauthorizedagentswithinthecut-offperiodof24or12hourspriortothearrivalofthecarryingvesselattheportofentrydependingwhethertransittimefromtheportoforigintotheportofentryisatleastorlessthan72hours.

2. AtrueandcompletecopyofthecargomanifestandCCMshallbeelectronicallysentinadvancebytheairline,airexpressoperator,airfreightforwarderandde-consolidatorbeforethecut-offperiodofone(1)hourfromthearrivaloftheaircraftattheportofentryiftheportofloadingisinAsia,orfour(4)hoursifportofloadingisoutsideofAsia.

CMO06-2018providesfortheSubmissionofAdvanceCargoManifestsandOtherDocumentstotheBOC’sAdvancedManifestSystem.

19Tax Bulletin |

3. TheelectronicsubmissionoftheCargoManifestandCCMshallbeinasearchablePortableDocumentFormat(PDF)throughtheaccreditedValue-AddedServiceProvider(VASP)/AccreditedInformationProcessor(AIP)oftheBOC’sAdvancedManifestSystemandtotheCargoTargetingSystem(“CTS”).

4. ThecargodescriptionintheCargoManifestandtheCCMshallbepreciseenoughtoenabletheBOCtoidentifythegoodsintendedtobedischargedintheportandtakepre-emptiveactionifwarranted.Otherrequiredinformationincludeinformationastothevalueofthegoodsandfreightcharges.

5. FailuretosubmittherequiredinformationwithintheprescribedperiodshallbesubjecttoimpositionoffinesprescribedunderSection1412oftheCustomsModernizationandTariffAct(CMTA)whichprovidesforafinenolessthanP100,000butnotmorethanP300,000.However,latesubmissionmaybeexcusedifduetoforcemajeure,technicalproblemsoftheBOCandotheranalogouscircumstances.

6. OtherdocumentsforsubmissioninsearchablePDFthroughtheVASP/AIPtotheBOCAdvancedManifestSystem:

Document Type Submitting Party Prescribed Period

MasterBillofLading/AirwayBillandHouseBillofLading/AirwayBill,asthecasemaybe

Theshippingcompany,NVOCC,freightforwarder,cargoconsolidator,ortheirauthorizedagents

Atleast24hourspriortothearrivalofthevesseloraircraft

CommercialInvoiceandPackingList

Thecarrieroritsauthorizedagentshallobtainthedocumentsfromtheshipper

Atleast24hourspriortothearrivalofthevesseloraircraft

StowagePlanandContainersDischargingList

Theshippingline,NVOCC,ortheirauthorizedagent

Atleast24hourspriortothearrivalofthevesseloraircraftifthetransittimeisatleast72hoursor12hourspriorifless

LoadPortSurveyReport

BOC’saccreditedcargosurveyingcompany

Atleast24hourspriortothearrivalofthevessel

SupplementalCargoManifestcoveringcargoes/containersnotlistedintheinwardforeignmanifest(IFM)and/orStowagePlan

Theshippingcompany,Non-vesseloperatingcommoncarrier(NVOCC),freightforwarder,cargoconsolidator,ortheirauthorizedagents

Notlaterthan48hours(ifcargocontainerislistedintheIFMbutnotintheStowagePlanor24hours,ifnotlistedinboth,fromthedateofdischargeofthelastpackagefromthevessel

• ThisCMOshalltakeeffectimmediately.

(Editor’s Note: The BOC issued a Memorandum dated 29 May 2018 suspending the implementation of CMO No. 06-18 until further notice.)

20 | Tax Bulletin

PEZA Issuances

PEZA Memorandum Circular No. 2018-009 dated 30 April 2018

• DENRMemorandumCircular(MC)No.11Seriesof2017highlightsthefollowing:

1. AllimportersofrecyclablematerialscontaininghazardoussubstancesshallberequiredtosecureanEnvironmentalComplianceCertificate(ECC)basedonprojecttype;

2. TherequirementtosecureanECCshallbeconsistenttothelimiterssetundertheprojecttype“3.6.4.Storagefacilitiesfortoxicorhazardousmaterialssubstancesorproducts(includingforthoseinPCL)”ofDENRMCNo.2014-005:RevisedGuidelinesfortheCoverageScreeningandStandardizedRequirementsunderPEIS.

• Allecozonelocatorswithimportationsofrecyclablematerialscontaining

hazardoussubstancesthathavebeenpreviouslyissuedaCertificateofNon-Coverage(CNC)shallcoordinatewiththeirrespectivePEZAEnvironmentalSafetyGroup(ESG)/EnvironmentalHealthandSafetyDivision(EHSD)fortheirECCapplicationfollowingDENRMCNo.2017-011.

• OnlineprocessingoftheTreatment,StorageandDisposalFacility(TSD)/TransporterRegistrationCertificate(TRC)fornew/renewal/amendmentiscurrentlydeferredindefinitely.Manualapplicationofpermitsshalltakeeffect.

PEZA Memorandum Circular No. 2018-010 dated May 4, 2018

• AllPEZA-registeredenterprisesarerequestedtoobservetheExpandedBreastfeedingPromotionActof2009,whichrequirescompaniesto:

1. Createawrittenbreastfeedingpolicytosupportbreastfeedingintheworkplace.

2. Establishlactationstations–Existinghealthclinicswithintheestablishmentmaybeutilizedasbreastfeeding/lactationstations.

3. Allowlactationbreaks–Breaksshouldnotbelessthan40minutesforevery8-hourworkingperiod.

4. Makeinformationonbreastfeedingavailableintheworkplace.

• Othersalientpoints:

1. Availableincentives–EstablishmentsmaysecurefromDOHa“WorkingMother-Baby-FriendlyCertificate”toavailoftaxincentivesfortheprovisionofsuitablefacilitiesorserviceswithinthelactationstation.

2. Exemption–EnterpriseswhohavenonursingorlactatingorpregnantemployeesandnofemaleclientsmaysecureanexemptionfromDOLEsubjecttoDOLEDepartmentOrderNo.2015-143.

PEZAMemorandumCircularNo.2018-010requestsallPEZA-registeredenterprisestoobservetheExpandedBreastfeedingPromotionActof2009.

PEZAMemorandumCircularNo.2018-009circularizesDENRMemorandumCircularNo.2017-011,whichclarifiestherequirementsforimportingrecyclablematerialscontaininghazardoussubstances.

21Tax Bulletin |

3. Sanctionsfornon-compliance–AdministrativesanctionforunjustifiablerefusalorfailuretocomplywiththeneedofanursingemployeetotakelactationbreaksortheestablishmentoflactationareaincludesafineofnotlessthanPHP50,000.

BSP Issuances

BSP Circular No. 1001 dated 30 April 2018

• ThefollowingprovisionsoftheManualofRegulationsforBanks(MORB)/ManualofRegulationsforNon-bankFinancialInstitutions(MORNBFI)wereamendedtoprovidethecreditlimitsthatshallbeappliedtoprojectfinanceexposuresofbanks/quasi-banks(QBs).

• ItemeofSectionX303oftheMORBoncreditexposurelimitstoasingleborrowerwasamendedtoprovide,amongothers,thatloans,creditaccommodations,andguaranteesgrantedbyabanktoanentity(oftenaspecialpurposeentityorSPE)forthepurposeofprojectfinanceasdefinedunderSubsecX330.2shallbesubjecttoaseparateindividuallimitof25%ofthenetworthofthelendingbank.

• Section4303QoftheMORNBFIonloanlimittoasingleborrowerwasamendedtoprovide,amongothers,thetotalliabilitiesofanentity(oftenaspecialpurposeentityorSPE)forthepurposeofprojectfinanceasdefinedunderSubsec.4330q.1shallbesubjecttoaseparateindividuallimitof25%ofthecombinedcapitalaccountsofaquasi-bank(QB).

• SubsectionX328.5/4328Q.5oftheMORB/MORNBFIwasamendedtoimposeadditionalcertainconditionsonloans,othercreditaccommodationsandguaranteesgrantedbyabank/QBanentity(oftenaspecialpurposeentityorSPE)thatisasubsidiaryoraffiliateofthebank/QBforthepurposeofprojectfinance.

• SubsectionX303.4oftheMORBonexclusionsfromloanlimitwasamendedto:(1)insertasitem“a”creditexposuresconsideredasnon-risk,whichwaspreviouslypresentedasitem“e”ofSectionX303oftheMORB;(2)renumbertheexistingenumerationsfromitems“atog”to“btoh”,and(3)transferexistingitem“h”toitem“a.(6)”

• Subsection4303Q.1oftheMORNBFIonexclusionsfromloanlimitwasamendedto:(1)insertasitem“a”creditexposuresconsideredasnon-risk,whichwaspreviouslypresentedinthefirstparagraphofSection4303QoftheMORNBFI;and(2)renumbertheexistingenumerationsfromitems“atod”to“btoe”.

• ThisCircularshalltakeeffect15calendardaysfollowingitspublicationeitherintheOfficialGazetteorinanewspaperofgeneralcirculation.

(Editor’s Note: Published in ThePhilippineStar on 8 May 2018; p.B4.)

CircularNo.1001providesfortheCreditLimitsforProjectFinanceExposures.

22 | Tax Bulletin

CircularNo.1002providesforAmendmentstotheGuidelinesonProposedInvestmentsfromTPIsandtheRequirementsonTransactionsRequiringpriorMonetaryBoardapprovalinvolvingAdditionalSubscriptionofSharesofStock.

____________________________________________________________

1 Referstoathirdpartybank. 2 Examplesarethefollowing:

• ThebankanditseligibleTPI-bankcommunicatedtheTPI’sintenttoacquire/merge/consolidatewiththebankbutneedsmoretimeforthecompletionoftheduediligenceauditandfinalizetheagreementbetweentheparties;

• SubmissionofdocumentsshowingtheeligibilityandseriousnessofthecommitmentoftheTPIsuchascertificateofescrowdepositsinanindependentbankandotherdocumentssuchasauditedfinancialstatementsandincometaxreturnsoftheTPIwhichshowitsfinancialcapacitytoacquirethebank.

BSP Circular No. 1002 dated 10 May 2018

• ThefollowingprovisionsoftheMORBontheproposedinvestmentsfromthirdpartyinvestors(TPI)andontherequirementsontransactionsrequiringpriorMBapprovalinvolvingadditionalsubscriptionofsharesofstockwereamended.

• Itemb(2)ofSectionX111.4oftheMORBonguidelinesonproposedinvestmentsfromTPIsforpurposesofcomplyingwiththeminimumcapitalrequirementswasamendedtorequiresubmissionbybanksofthefollowingdocumentaryrequirementsfortransactionwhichrequirespriorBangkoSentralapprovalunderSubsecX126.2b:CertifiedcopiesofdocumentsshowingthattheamountofproposedinvestmentoftheTPIisdeposited/placedinanindependentbank1,suchas,certificateofescrowdepositorcertificateofdepositswithhold-outagreementshowingtheavailability/holdoutoffundsforthesaidpurpose,togetherwiththecorrespondingwaiverofsecrecyofdeposits/investments.

• ItemdofSectionX111.4oftheMORBonguidelinesonproposedinvestmentsfromTPIsforpurposesofcomplyingwiththeminimumcapitalrequirementswasamendedtoprovide,amongothers,thattheinvestmentoftheTPIwouldnotbeconsideredforpurposesofaddressingcapitaldeficiencyiftherequirementsmentionedunderthisSectionarenotcompliedwith,exceptincaseswhentheTPIexhibitsstrongfinancialcapacityandfirmcommitment2 toaddressthecapitaldeficiencyofabankbasedonassessment,takingintoconsiderationthesubmitteddocumentsandotheravailablepertinentinformation.

• Itemb(3)ofSubsectionX126.2oftheMORBontransactionsrequiringpriorMonetaryBoardapprovalwasamendedtorequirethatpendingapprovalbytheMonetaryBoard,thefundinfusedbythesubscribershallbeplacedinanindependentbank,suchas,intheformofanescrowdepositordepositwithhold-outagreementshowingavailability/hold-outoffundsforthesaidpurpose.

• ThisCircularshalltakeeffect15calendardaysfollowingitspublicationeitherintheOfficialGazetteorinanewspaperofgeneralcirculation.

(Editor’s Note: Published in the PhilippineStaron 19 May 2018.)

23Tax Bulletin |

BSP Circular No. 1003 dated 16 May 2018

• ThefollowingprovisionsoftheMORNBFIandtheMORBwereamendedtoprovideguidelinesontheestablishmentandoperationsofbankandnon-bankcreditcardissuerstoimplementRepublicAct(RA)No.10870orthePhilippineCreditCardIndustryRegulationsLaw.

• Section4301NandAppendixN-10;andSection4320QandAppendixQ-61oftheMORNBFIoncreditcardoperationsweredeletedandsupersededbytheGuidelinesontheEstablishmentandOperationsofNon-BankCreditCardIssuers(AnnexAanditsAppendices)whichshallbeincorporatedasCRegulationsoftheMORNBFI.

• TheprovisionsofSectionX320,anditsSubsections,oftheMORBgoverningtheestablishmentandoperationsofBankCreditCardIssuerswereamended.

• ThisCircularshalltakeeffect15daysfollowingitspublicationeitherintheOfficialGazetteorinanynewspaperofgeneralcirculationinthePhilippines.

(Editor’s Note: Published in the PhilippineStaron 22 May 2018.)

BSP Circular No. 1004 dated 24 May 2018

• ThefollowingprovisionsoftheMORBandtheMORNBFIwereamendedconsistentwiththe100-basis-pointreductioninthereserverequirementratiosofselectedreservableliabilitiesofuniversal/commercialbanks(UBs/KBs).

• SubsectionX253.1oftheMORBonrequiredreservesagainstdepositanddepositsubstituteliabilitieswasamendedtodecreasetheratesofrequiredreservesagainstdepositanddepositsubstituteliabilitiesinlocalcurrencyofUBs/KBsstartingreserveweek1June2018.

• ThisCircularalsoamendsSubsectionX405.5/4405Q.5oftheMORB/MORNBFIonreservesagainsttrustandotherfiduciaryaccounts(TOFA)—Others

• Section4253QoftheMORNBFIonreservesagainstdepositsubstituteswasamendedtoprovidethatNon-BankFinancialInstitutionsPerformingQuasi-BankingFunctions(NBQBs)shallmaintainrequiredreservesequivalenttoeighteenpercent(18%)ofdepositsubstituteliabilitiesasdefinedinSection95ofR.A.No.7653startingreserveweek1June2018.

• ThisCircularshalltakeeffecton1June2018afteritspublicationeitherintheOfficialGazetteorinanewspaperofgeneralcirculation.

(Editor’s Note: Published in ThePhilippineStar on 25 May 2018; p.B6.)

CircularNo.1003providesfortheGuidelinesontheEstablishmentandOperationsofCreditCardIssuerstoImplementRepublicActNo.10870orthePhilippineCreditCardIndustryRegulationsLaw.

CircularNo.1004providesfortheReductioninReserveRequirements.

24 | Tax Bulletin

Court Decisions

Amadeus Marketing Philippines, Inc. vs. Commissioner of Internal Revenue CTA(En Banc)CaseNo.1532promulgated5April2018

Facts:

PetitionerAmadeusMarketingPhilippines,Inc.(AMPI)filedwithRespondentCommissionerofInternalRevenue(CIR)aclaimforrefundforunutilizedinputVATattributabletozero-ratedsalesofservicesforthesecondtofourthquartersof2010toAmadeusITGroupS.A.(AIGS),acorporationorganizedunderthelawsofSpain.AstheCIRfailedtoactontheclaimwithinthe2-yearprescriptiveperiod,AMPIfiledaPetitionforReviewwiththeCourtofTaxAppeals(CTA).TheBIRargued,amongothers,thatAMPI’ssalesarenotconsideredVATzero-ratedasitfailedtoprovethatAIGSisaforeigncorporationdoingbusinessoutsidethePhilippines.

TheCTADivisionruledthatAMPIisnotentitledtotheclaimforrefundsinceAIGSisconsideredengagedinbusinessinthePhilippines.Aggrieved,AMPIfiledaPetitionforReviewwiththeCTAEn BancarguingthatAIGSisnotdoingbusinessinthePhilippinesbecauseitismerelycollectingroyaltiespursuanttoaDistributionAgreement.AMPIaddedthatAIGSperformedonlyasingularact,whichistograntAMPIthepermissiontouseitsintellectualproperty.

Issue:

IsAMPIentitledtotheclaimforrefund?

Ruling:

No.AMPIisnotentitledtotherefundbecauseAIGSisconsideredaforeigncorporationdoingbusinessinthePhilippines.

ForservicestobeconsideredVATzero-ratedunderSection108(B)(2)oftheTaxCode,theforeigncorporationwhoistherecipientoftheservicesmustbeengagedinbusinessoutsidethePhilippinesandnotdoingbusinessinthePhilippines.WhentheproviderandrecipientofservicesarebothdoingbusinessinthePhilippines,theirtransactionfallssquarelyunderSection108(A)governingdomesticsaleorexchangeofservices.

WhiletheArticlesofAssociationofAIGSandtheCertificateofNon-RegistrationissuedbytheSecuritiesandExchangeCommission(SEC)establishedthatAIGSisaforeignentityincorporatedinSpain,thecourtruledthatAIGSconductsbusinessinthePhilippines.ThecontinuityofAIGS’scommercialdealingsisexemplifiedbytheappointmentofalocalagent,AMPI,whoisits“soledistributor”inthePhilippines.

(Editor’s Note: Justice Manahan dissents with the majority opinion arguing that the mere appointment of a local agent or distributor does not necessarily constitute doing business in the Philippines as the foreign counterpart does not play an active role in the pursuit of business. AMPI may be categorized as an agent of independent status, thus, not deemed doing business in the Philippines.)

ForsaleofservicestoqualifyforVATzero-rating,therecipientoftheservicesmustbeaforeigncorporationengagedinbusinessoutsidethePhilippinesandnotdoingbusinessinthePhilippines.AforeigncorporationthatappointedalocalagentisdeemedengagedinbusinessinthePhilippines.

25Tax Bulletin |

Tektite Insurance Brokers, Inc. vs. Commissioner of Internal RevenueCTA(FistDivision)CaseNo.8903promulgated12April2018

Facts:

RespondentCIRassessedPetitionerTektiteInsuranceBrokers,Inc.(TIBI)fordeficiencytaxescoveringtaxableyear2010.TIBIprotestedtheassessments,whichwasdeniedbytheBIRonthegroundthatTIBI’sprotestwasnotvalidforfailuretostatethefacts,theapplicablelaws,rulesandregulationsindisputingtheassessments,asprescribedinRevenueRegulations(RR)12-99,asamendedbyRR18-2013.TheBIRclaimedthattheFinalAssessmentNotice(FAN)andFinalLetterofDemand(FLD),whichwasreceivedbyTIBIon18June2014,havebecomefinal,executoryanddemandable.

TIBIfiledaPetitionforReviewattheCTA,arguingthattheassessmentwasissuedbeyondthe3-yearprescriptiveperiodastherewasnovalidwaiverwhichextendedtheBIR’speriodtoassess.On3November2017,theCTAFirstDivisionruledinfavoroftheBIRandsustainedtheassessment.Inadditiontothebasicdeficiencytax,thecourtimposed20%deficiencyanddelinquencyinterest.

Aggrieved,TIBIfileaMotionforReconsideration.

Issues:

1. Isthewaivervalid?

2. HowarethedeficiencyinterestanddelinquencyinterestimposedundertheTRAINLaw?

Rulings:

1. Yes.TheCTAFirstDivisionruledthataslongasbothpartiesvoluntarilyagreedtoexecuteawaiverandthewaivercompliedwiththerequirementsunderRevenueMemorandumOrder20-90andRevenueDelegationAuthorityOrder5-01orwhenbothpartiesareatfault,thewaiver’svaliditywouldbeupheld.QuotingtheSupremeCourt’sdecisioninCIR vs. Next Mobile, G.R. 212825 promulgated on 7 December 2015,thecourtheldthatbywayofexception,thevalidityofadefectivewaivermaybeupheldifthereisafindingthatboththeBIRandthetaxpayerareinpari delicto in causingthedeficienciesofthewaiver.

SinceTIBIandtheBIRcontinuedtodealwitheachotherdespitehavingknowledgeoftheinfirmitiesattendanttothewaiver,thewaivertheyexecutedisvalidandsufficienttoextendtheprescriptiveperiodtoassess.

UndertheTRAINLaw,the12%deficiencyinterestiscomputedfromthedateprescribedforitspaymentuntilthefullpaymentthereoforuponissuanceofanoticeanddemandbytheCIR,whichevercomesearlier.

26 | Tax Bulletin

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2. AfterthepromulgationoftheassaileddecisionandthefilingofTIBI’sMotionforReconsideration,theTRAINLaw,whichamendsSection249oftheNIRC,tookeffecton1January2018.Thus,theTRAINLawappliesinthiscase.

Section249,asamendedbytheTRAINLaw,categoricallyincorporates3provisosthatcannotbeappliedwithoutsettingasidetheoriginalprovisions:

a. TheTRAINLawproscribesthesimultaneousimpositionofdeficiencyinterestanddelinquencyinterest,whichtheoldversionallows;

b. TheTRAINLawprescribesarateofdoublethelegalinterestrateforloansorforbearanceofanymoneyintheabsenceofexpressstipulationassetbytheBSP(currentlyat6%perannum),whichislowerthanthe20%undertheoldversion;and,

c. Deficiencyinterestisallowedtobecomputedfromthedateprescribedforitsfullpaymentuntil the full payment thereof or upon issuance of a notice and demand by the CIR,whichevercomesearlier,whiletheoldversionconfineditscomputationstrictlyfromthedateprescribedforitspaymentuntilthefullpaymentthereof.

Accordingly,deficiencyinterestisimposedat12%perannumcomputedfrom11April2011,thedateprescribedforpaymentuntil18June2014,thedateofTIBI’sreceiptofFANandtheFLD.Ontheotherhand,12%delinquencyinterestisimposedcomputedfrom18July2014,theduedateappearingintheFAN/FLDuntilfullpayment.

(Editor’s Note: In Moog Controls Corporation – Philippine Branch vs. CIR, CTA Case No. 9077 promulgated on 22 February 2018, the CTA Second Division prescribed a clear delineation on the effectivity of TRAIN Law. Moog was ordered to pay (a) 20% deficiency interest from 15 February 2010 until 31 December 2017, (b) 20 % delinquency interest from 8 June 2015 until 31 December 2017. The 12% delinquency interest was only applied from 1 January 2018 until the amount is fully paid.)