Você está na página 1de 154

PHILIPPINE INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS

(PICPA)
TAX COMMITTEE

Seminar on Tax Updates


October 12, 2016
EDSA, Shangri-la Hotel
Mandaluyong City

UPDATES on NEW COURT DECISIONS


Atty. Luis Jose P. Ferrer, CPA
Partner, SGV & Co.
OUTLINE
I. Income Tax
II. Withholding Tax
III. Tax Treaty
IV. Value-Added Tax
V. Remedies

Page 2
Income Tax

Page 3
Income Tax –
Taxable Persons and Entities

Page 4
Income of PAGCOR’s contractees and licensees from
gaming operations is subject only to 5% franchise tax and
not to both 5% franchise tax and corporate income tax

Bloomberry Resorts and Hotels, Inc. vs CIR


G.R. No. 212530 promulgated on August 10, 2016

Facts:
► April 17, 2013 - BIR issued Revenue Memorandum Circular (RMC)
No. 33-2013, which clarifies the “Income Tax and Franchise Tax Due
from the Philippine Amusement and Gaming Corporation (PAGCOR),
its Contractees and Licensees.”

► RMC No. 33-2013 provides that contractees and licensees of


PAGCOR are subject to income tax.

► Bloomberry, a contractee of PAGCOR, filed a Petition for Certiorari


and Prohibition under Rule 65, seeking to annul RMC No. 33-2013

Page 5
Income of PAGCOR’s contractees and licensees from
gaming operations is subject only to 5% franchise tax and
not to both 5% franchise tax and corporate income tax

Bloomberry Resorts and Hotels, Inc. vs CIR


G.R. No. 212530 promulgated on August 10, 2016

Issue:
► Is the income of PAGCOR’s contractees and licensees from gaming
operations and from other related services subject to the corporate
income tax under the NIRC?

Ruling:
► Gaming income is exempt from RCIT.

► Income from other related services are subject to RCIT.

Page 6
Income of PAGCOR’s contractees and licensees from
gaming operations is subject only to 5% franchise tax and
not to both 5% franchise tax and corporate income tax
Bloomberry Resorts and Hotels, Inc. vs CIR
G.R. No. 212530 promulgated on August 10, 2016

Ruling:
► The PAGCOR Charter states that exemptions granted for earnings
derived from the operations conducted under the franchise specifically
from the payment of any tax, income or otherwise, as well as any form
of charges, fees or levies, shall inure to the benefit of and extend
to corporation(s), association(s), agency(ies), or individual(s) with
whom PAGCOR or operator has any contractual relationship in
connection with the operations of the casino(s) authorized to be
conducted under such Franchise, so it must be that all contractees
and licensees of PAGCOR, upon payment of the 5% franchise tax,
shall likewise be exempted from all other taxes, including corporate
income tax realized from the operation of casinos.

Page 7
Income of PAGCOR’s contractees and licensees from
gaming operations is subject only to 5% franchise tax and
not to both 5% franchise tax and corporate income tax
Bloomberry Resorts and Hotels, Inc. vs CIR
G.R. No. 212530 promulgated on August 10, 2016

Ruling:
► For the related services, the SC in Division held that since PAGCOR
is subjected to RCIT on its related services per its past decision in
G.R. No. 215427, December 10, the SC found that it is logical to
subject to RCIT PAGCOR’s contractees and licensees for "other
related services"

Page 8
Income Tax –
Exempt Transactions

Page 9
A BIR Ruling is not required to avail of Section 40(C)(2) of
the Tax Code

Lucio Co vs CIR
CTA Case [Third Division] No. 8831 June 2, 2016

Facts:
► On May 11, 2012, Lucio Co, Susan Co, Ferdinand Co and Pamela
Justice Co (Co Family) entered into a Deed of Exchange with
Puregold Price Club (Puregold)

► They agreed to transfer 1,703,125 shares in Kareila Management


Corporation (KMC) in exchange for 766,406,250 shares in Puregold.

► On June 26 and 28, 2012, the Co Family collectively paid CGT on the
share transfer including interest and penalties of P1,647,615,290.07.

► On May 21, 2014, the Co Family separately filed with the BIR claims
for refund of alleged erroneously paid CGT
Page 10
A BIR Ruling is not required to avail of Section 40(C)(2) of
the Tax Code

Lucio Co vs CIR
CTA Case [Third Division] No. 8831 June 2, 2016

Facts:
► Reason:
► the share transfer was exempt from CGT under Section 40 (C)(2)
of the Tax Code.

► BIR failed to act on the claims

► Co Family filed a Petition for Review with the CTA

► CIR sought the denial of the refund

Page 11
A BIR Ruling is not required to avail of Section 40(C)(2) of
the Tax Code

Facts:
► CIR Reason:
to qualify as a tax-free exchange, a prior application for certification or
ruling from the BIR must be secured pursuant to RR No. 18-2001 and
RMO Nos. 32-2001 and 17-2002

Issue:
► Is a BIR Ruling required to qualify for CGT exemption under Section
40(C)(2) of the Tax Code?

Page 12
A BIR Ruling is not required to avail of Section 40(C)(2) of
the Tax Code

Held:
► No. A BIR ruling is not a precondition to qualify for CGT exemption
under Section 40(C)(2) of the Tax Code.

► The requisites under Section 40(C)(2) of the Tax Code are:


1. The transferee is a corporation
2. The transferee exchanges shares of stock for property of the transferor;
3. The transfer is made by a person, acting alone or together with others not
exceeding 4 persons; and
4. As a result of the exchange, the transferor, alone or together with others not
exceeding 4, gains control of the transferee corporation.

► All requisites have been complied with. These are:

Page 13
A BIR Ruling is not required to avail of Section 40(C)(2) of
the Tax Code

Held (contd):
1.The transferee is a corporation Puregold Corporation, as transferee is a
corporation, duly registered with SEC

2.The transferee exchanges shares of stock for Puregold, as transferee, exchanged shares of
property of the transferor stock for shares in KMC

3.The transfer is made by a person, acting alone there were 4 persons as transferors, Lucio,
or together with others not exceeding 4 persons Susan, Ferdinand and Pamela, all surnamed Co.

4.As a result of the exchange, the transferor, Co Family, who prior to the exchange of shares
alone or together with others not exceeding 4, already collectively owned 66.55% of the
gains control of the transferee corporation outstanding capital stock of Puregold, increased
their stockholdings to 75.83% after the exchange
of shares, gained “further control”.

Page 14
Income Tax –
Deductions

Page 15
PEZA-registered enterprises may be allowed to deduct
expenses such as royalty payments

CIR vs Lear Automotive Services


CTA EB Case No. 1346 June 2, 2016

Facts:
 CIR assessed Lear Automotive Services (Netherlands) B.V. –
Philippine Branch (Lear Ph) for, among others, deficiency income tax
for taxable years 2007 and 2008

 CIR disallowed royalty expense from Lear Ph’s gross income subject
to the 5% GIT.

Issue:
 Are royalty fees paid by Lear PH to Lear BV deductible for purposes
of computing the 5% GIT?
Page 16
PEZA-registered enterprises may be allowed to deduct
expenses such as royalty payments

CIR vs Lear Automotive Services


CTA EB Case No. 1346 June 2, 2016

 Held:

Yes. Lear Ph’s royalty payments form part of its direct cost that
are deductible for purposes of computing the 5% GIT.

RR 11-05 is not meant to be an all-inclusive list but merely


enumerates the expenses that can be considered as direct
costs.

Page 17
Under the accrual method of accounting, expenses not claimed as
deductions in year incurred cannot be claimed as deduction from
income for the succeeding year

Acer Philippines, Inc. vs. CIR


CTA Case No. 8372 , 31 March 2016

Facts:
► Acer Philippines, Inc was assessed by BIR with deficiency income
tax, among others, for calendar year 2005.

► BIR's comparison of the salaries and wages reflected in Acer’s


Alphalist vs AFS disclosed a discrepancy in the amount of
P1,887,603.30, and treated the discrepancy as undeclared income.

► Acer’s reason that the said discrepancy is not subject to IT:


1. Difference is a permanent reconciling item in determining the income
per tax return against income per AFS, as a result accrual basis of
accounting.
Page 18
Under the accrual method of accounting, expenses not claimed as
deductions in year incurred cannot be claimed as deduction from
income for the succeeding year

Acer Philippines, Inc. vs. CIR


CTA Case No. 8372 , 31 March 2016
Facts:
► Acer’s reason
2. Annual ITR for 2005 shows that P1,890,604.00, accrued bonus, was
deducted from the net income per books for 2005, hence, an additional
expense, to arrive at the taxable income/loss for the year 2005.

Page 19
Under the accrual method of accounting, expenses not claimed as
deductions in year incurred cannot be claimed as deduction from
income for the succeeding year

Acer Philippines, Inc. vs. CIR


CTA Case No. 8372 , 31 March 2016

Issue:

► Is the discrepancy between the Alphalist and AFS subject to IT?

Held:

► No, the difference does not represent undeclared income.

► Reason:
1. Income, in a broad sense, means all wealth which flows into the
taxpayer other than as return of capital. The accrual of the
P1,890,604.00 bonus due to employees does not involve an inflow of
wealth.

Page 20
Under the accrual method of accounting, expenses not claimed as
deductions in year incurred cannot be claimed as deduction from
income for the succeeding year

Acer Philippines, Inc. vs. CIR


CTA Case No. 8372 , 31 March 2016

Held:
2. However, the accrued bonus of P1,890,604.00 was a proper deduction
in 2004, not in 2005.

3. Acer is liable for deficiency income tax on the over-claimed salaries and
allowances of P1,887,603.30 for taxable year 2005.

Page 21
Royalty income generated from the active pursuit and performance
of the corporation’s primary purpose is subject to regular corporate
income tax

Iconic Beverage Inc. vs. CIR


CTA Case No. 8607, January 6, 2016

Facts:

► Iconic Beverage, Inc. sought to cancel the assessment issued against


it by the BIR for alleged deficiency income tax.

► Iconic’s Reason:
it properly declared its royalties as passive income subject to FWT of 20%
on the gross amount because:
1. the mere fact that royalty income was the only income derived by
Iconic for taxable year 2009 does not and should not transform the
royalty income, which is by nature a passive income, to ordinary
income, and that

Page 22
Royalty income generated from the active pursuit and performance
of the corporation’s primary purpose is subject to regular corporate
income tax

Iconic Beverage Inc. vs. CIR


CTA Case No. 8607, January 6, 2016

Facts:

2. If it is liable to pay the 30% tax rate as prescribed under Section


27 (A), and not 20% FWT for passive income under Section 27
(D) (1), the Court should apply the provisions of Section 34 (L)
on optional standard deduction (OSD), as the said application
would show that Iconic is still not liable to any deficiency
income tax.
Issues:
1. Are the royalty payments received by Iconic subject to income tax?
2. Is taxpayer allowed to use the 40% OSD?

Page 23
Royalty income generated from the active pursuit and performance
of the corporation’s primary purpose is subject to regular corporate
income tax

Iconic Beverage Inc. vs. CIR


CTA Case No. 8607, January 6, 2016

Held:
1. Yes. The royalty payments are subject to income tax.

Ruling:
The royalty payments received by Iconic are generated from the main
purpose of its business, part of which is “owning, purchasing, licensing,
acquiring trademarks and other IP rights, necessary for its business.”

► The rates of tax provided under Section 27(D) of the Tax Code pertain to
certain passive income. If the income is generated in the active pursuit
and performance of the corporation’s primary purposes, the same is not
passive income.
Page 24
Royalty income generated from the active pursuit and performance
of the corporation’s primary purpose is subject to regular corporate
income tax

Iconic Beverage Inc. vs. CIR


CTA Case No. 8607, January 6, 2016

Ruling:
► In this case, the CTA found that Iconic has (1) no operating expenses
incurred for its alleged main trade or business; (2) no other sources of
income other than royalty and interest; and (3) cash flows from its
operating activities consist only of royalty and interest income.

► Hence, the royalties it received shall be considered earned from the


active pursuit of business and shall be subject to the normal corporate
income tax rate of 30%.

Page 25
Taxpayer should signify in its ITR the intention to elect the optional
standard deduction (OSD) to avail of the 40% standard deduction

Iconic Beverage Inc. vs. CIR


CTA Case No. 8607, January 6, 2016

Held:
2. No, Iconic is not allowed to use the 40% OSD.

Ruling:
► Section 34 (L) of the NIRC of 1997, as amended, dictates that the
taxpayer should signify in its return the intention to elect the optional
standard deduction. Otherwise, it shall be considered to have availed
of the other deductions allowed in Section 34 of the NIRC of 1997, as
amended.

Page 26
Taxpayer should signify in its ITR the intention to elect the optional
standard deduction (OSD) to avail of the 40% standard deduction

Iconic Beverage Inc. vs. CIR


CTA Case No. 8607 , January 6, 2016

► 2009 ITR of Iconic shows that it declared itemized deductions in the


total amount of 150,009,617.40 which resulted to a net loss in the
same amount. There was nothing in ITR which would show that it
opted to avail of the OSD. Thus, OSD should not be applied.

Page 27
Income Tax –
Others

Page 28
Computation of deficiency IAET is based on Section 29
of the Tax Code

Roca Security and Investigation Agency, Inc. vs CIR


CTA Case No. 8718 July 21, 2016

Facts:
► Roca Security and Investigation Agency, Inc. (Roca) was assessed by
the BIR for deficiency taxes, including improperly accumulated
earnings tax for taxable year 2009.

► CIR’s computation of IAET is as follows:


Taxable Income for the year Php 1,266,967.95
Less: Income tax paid 380,090.39
Net Income after tax 886,877.56
Add: Retained earnings from previous year 4,375,885.16
Accumulated earnings as of December 31, 2009 5,262,762.72
Less: Amount that may be retained - capital stock 50,000.00
Earnings in excess of capital stock 5,212,762.72
Less: Appropriated retained earnings -
Improperly accumulated earnings 5,212,762.72
Multiply by IAET rate 10%
Basic Deficiency IAET Php 521,276.27

Page 29
Computation of deficiency IAET is based on Section 29
of the Tax Code

Roca Security and Investigation Agency, Inc. vs CIR


CTA Case No. 8718 July 21, 2016

Facts:
► Roca’s reason why not liable to IAET:
1. Entitled to retain earnings for corporate expansion projects and/or
programs requiring considerable capital expenditure

2. As a security agency, it is required to keep substantial amount of


contingency funds

Issue:
► Is Roca liable to IAET?

Page 30
Computation of deficiency IAET is based on Section 29
of the Tax Code

Roca Security and Investigation Agency, Inc. vs CIR


CTA Case No. 8718 July 21, 2016

Held:
► Yes, Roca is liable to IAET.

Reasons:
1. Roca was not able to prove that its BOD reserved the earnings for
corporate expansion projects or programs.

2. Roca failed to prove that there is an immediate need for the accumulation
of the earnings and profits.

► CTA noted that the formula used by BIR in computing deficiency IAET
is not in accordance with Section 29 of the NIRC of 1997, as
amended.

Page 31
Computation of deficiency IAET is based on Section 29
of the Tax Code

Roca Security and Investigation Agency, Inc. vs CIR


CTA Case No. 8718 July 21, 2016

Held:
► CTA computed deficiency IAET as:
Taxable income for the year Php 1,266,967.95
Add:
Income exempt from tax -
Income excluded from gross income -
Income subject to final tax -
The amount of NOLCO deducted -
Less:
Dividends actually or constructively paid -
Income Tax paid for the taxable year 380,090.39
Improperly Accumulated Taxable Income 886,877.56
Multiply by IAET rate 10%
Basic Deficiency IAET Php 88,687.76

Page 32
Forex gains derived by a contact center from currency hedging
contracts, which are not part of its registered activity, are not
covered by ITH incentive

Aegis People Support, Inc. vs CIR


CTA EB Case No. 1231 May 17, 2016

Facts:
► Aegis People Support, Inc (Aegis) was registered with PEZA

► Aegis is enjoying ITH incentive as a contact center providing customer


care and business process outsourcing services

► Aegis filed with CIR a claim for refund or tax credits for alleged
erroneously paid income tax on foreign exchange gain realized from
its hedging contract with Citibank in 2008

► Aegis hedging activity involves the sale of specified amounts of


dollars to the bank on pre-determined dates and at pre-determined
exchange rates.
Page 33
Forex gains derived by a contact center from currency hedging
contracts, which are not part of its registered activity, are not
covered by ITH incentive

Aegis People Support, Inc. vs CIR


CTA EB Case No. 1231 May 17, 2016

Facts (contd):
► CIR failed to act on the claim

► Aegis filed a Petition for Review with the CTA

► Aegis Reason:
► foreign exchange gain is covered by its ITH incentive considering that the
income was realized from the sale of US dollars earned from its registered
activity
► the purchase of Philippine pesos was needed to pay operational expenses

Issue: Is the foreign exchange gain derived by Aegis from its


currency hedging contract covered by the ITH incentive?
Page 34
Forex gains derived by a contact center from currency hedging
contracts, which are not part of its registered activity, are not
covered by ITH incentive

Aegis People Support, Inc. vs CIR


CTA EB Case No. 1231 May 17, 2016

Held:

► No. The ITH incentive does not necessarily include all kinds of income
which Aegis may receive during the period of entitlement.

► CTA held that for the income to qualify under ITH, the income must be
effectively related with the conduct of its registered trade or business.

► While Aegis may have shown that it derived US dollar service fees
from its clients, and these were used to purchase pesos to pay for the
ordinary and necessary expenses of its customer-support business,
the foreign exchange gain derived from the hedging contracts is
not related to its registered activity as a contact center.
Page 35
Forex gains derived by a contact center from currency hedging
contracts, which are not part of its registered activity, are not
covered by ITH incentive

Aegis People Support, Inc. vs CIR


CTA EB Case No. 1231 May 17, 2016

Held (contd):

► Aegis hedging activity involves the sale of specified amounts of


dollars to the bank on pre-determined dates and at pre-determined
exchange rates. The hedging activity is outside of its business
registered with PEZA.

Page 36
Goodwill is a capital asset, sale of which is subject to CGT,
not RCIT

CIR vs The Hongkong and Shanghai Banking Corporation


Ltd –Phil Branch
CTA EB Case No. 1257 May 17, 2016

Facts:

► HSBC-Philippines sold its Merchant Acquiring Business at a premium


to GPAP-Singapore

► As per agreement, HSBC-Phils created GPAP-Philippines

► HSBC-Phils, transferred the Merchant Acquiring Business and


Transferred Asset (including the point of sale terminal valued at
P13,964,100.00) of HSBC-Phils in exchange of 139,641 shares of
GPAP-Phils valued at P13,964,100.00.

Page 37
Goodwill is a capital asset, sale of which is subject to CGT,
not RCIT

CIR vs The Hongkong and Shanghai Banking Corporation


Ltd –Phil Branch
CTA EB Case No. 1257 May 17, 2016

Facts:

 Thereafter, the shares of GPAP-Phils were assigned by HSBC-Phils


to GPAP-Singapore.

► The consideration of the Merchant Acquiring Business was


P899,342,921.00

► CIR assessed RCIT (35%) on the sale of goodwill valued at


P885,378,821 (P899,342,921 less P13,964,100)

Page 38
Goodwill is a capital asset, sale of which is subject to CGT,
not RCIT

CIR vs The Hongkong and Shanghai Banking Corporation


Ltd –Phil Branch
CTA EB Case No. 1257 May 17, 2016

Facts (contd):

► CIR Reason:
The sale involves a transfer of goodwill which is an ordinary asset
subject to 35% RCIT.

Issue:

► Is the sale of goodwill subject to CGT or RCIT?

Page 39
Goodwill is a capital asset, sale of which is subject to CGT,
not RCIT

CIR vs The Hongkong and Shanghai Banking Corporation


Ltd –Phil Branch
CTA EB Case No. 1257 May 17, 2016

Held:

► Sale of goodwill is a sale of capital asset, subject to CGT.

► CTA Reasons:
 Goodwill forms part of the capital with which it was established and once it
is valuated and used, becomes a part of the assets.

 Goodwill is not an ordinary asset as it is not among the exceptions under


the definition of capital assets.

Page 40
Goodwill is a capital asset, sale of which is subject to CGT,
not RCIT

CIR vs The Hongkong and Shanghai Banking Corporation


Ltd –Phil Branch
CTA EB Case No. 1257 May 17, 2016

Held (contd):

(1) it is not included in stock in trade which would properly be included in the
inventory at the close of the taxable year,

(2) it is not held primarily for sale to customers in the ordinary course of trade
or business,

(3) it is not a property used in the trade or business, of a character which is


subject to the allowance for depreciation provided in subsection (f) of
Section 34 of the NIRC, and

(4) it is not a real property used in the trade or business.

Page 41
Withholding Tax

Page 42
Withholding Tax –
Expanded Withholding Tax

Page 43
No EWT on condominium dues on payments made before
issuance of RMC 65-2012

CIR vs Officemetro Philippines, Inc.


CTA EB Case No. 1213 March 7, 2016

Facts:
► Officemetro Philippines, Inc. (Officemetro) was assessed by the CIR
with deficiency EWT, among others, on the payments for
condominium dues, for taxable year 2005.

► BIR’s argument:
 condominium dues are subject to EWT because the previous BIR
Rulings exempting it from EWT was already repealed by Revenue
Memorandum Circular No. 65-2012 (RMC 65-2012).

Page 44
No EWT on condominium dues on payments made before
issuance of RMC 65-2012

CIR vs Officemetro Philippines, Inc.


CTA EB Case No. 1213 March 7, 2016
Issue:
► Whether or not the condominium dues should be excluded from
Officemetro's rentals subject to EWT.

Held:

► Officemetro's condominium dues are not subject to EWT.


Reasons:
1. The covered period is taxable year 2005, and the basis of the
BIR’s assessment is RMC No. 65-2012 which was still inexistent
at the time the assessment was issued.

2. The prevailing ruling at that time is the issued BIR Rulings

Page 45
No EWT on condominium dues on payments made before
issuance of RMC 65-2012

CIR vs Officemetro Philippines, Inc.


CTA EB Case No. 1213 March 7, 2016

Held:

that condo dues are exempt from EWT

3. RMC No. 65-2012 was still inexistent at the time when the FAN
and FDDA was issued on September 23, 2009 and on October 24,
2011, respectively

4. The power of the CIR to issue rulings of first impression or to


reverse, revoke or modify any existing ruling of the Bureau should
be read with Section 246 8(9) of NIRC, where it provides that any
revocation, modification or reversal of any of the rules and
regulations promulgated by the CIR shall not be given retroactive
application if such will cause prejudice to taxpayers
Page 46
No EWT on condominium dues on payments made before
issuance of RMC 65-2012

CIR vs Officemetro Philippines, Inc.


CTA EB Case No. 1213 March 7, 2016

Held (contd):

► Thus, the reversal of the CIR's previous and consistent position that
condominium dues are not subject to income tax and to withholding
tax in RMC No. 65-2012, will cause undue prejudice to Officemetro for
its taxable year 2005.

Page 47
Income payments to agricultural supplier of goods is not
subject to 1% EWT

Kerry Food Ingredients Cebu, Inc. vs CIR


CTA Case No. 8593 February 9, 2016

Facts:
► Kerry Food Ingredients Cebu, Inc. (Kerry) was assessed by the CIR
with deficiency EWT, among others, on the income payments made to
agricultural supplier of goods, for taxable year 2007.

► Kerry’s argument:
1. the 1% withholding tax on income payments by taxpayers to
suppliers of agricultural products under Section 2.57.2 (S) of
RR No. 2-98, as amended, was indefinitely suspended
pursuant to Section 3 of RR No. 3-2004.

Page 48
Income payments to agricultural supplier of goods is not
subject to 1% EWT

Kerry Food Ingredients Cebu, Inc. vs CIR


CTA Case No. 8593 February 9, 2016

► Kerry’s argument:
2. Kerry was not informed of the clarifications made in Revenue
Memorandum Circular (RMC) No. 44-2007 issued in July
2007, with respect to payments to agricultural suppliers as it
was addressed and directed only to all internal revenue
officers for compliance.

3. Kerry was not liable for the 1% WT on income payments made


by a Top 10,000 corporation to its regular supplier of goods
under Section 2.57.2 (M) of RR No. 2-98, as amended, as said
Section clearly states that it applies to a supplier of goods
"other than those covered by other rates of withholding tax".

Page 49
Income payments to agricultural supplier of goods is not
subject to 1% EWT

Kerry Food Ingredients Cebu, Inc. vs CIR


CTA Case No. 8593 February 9, 2016

Issue:
 Whether or not income payments made to suppliers of agricultural
goods are subject to the 1% WT applicable to a top 10,000
corporation for purchases of goods in taxable year 2007

Held:
 No.
 Reasons:
 RMC No.44-2007 is not interpretative in nature. It was incumbent
upon the taxing power to duly inform taxpayers directly affected by it
and accord them the opportunity to be heard.

Page 50
Income payments to agricultural supplier of goods is not
subject to 1% EWT

Kerry Food Ingredients Cebu, Inc. vs CIR


[CTA Case No. 8593 February 9, 2016

Held (contd):
► There is no indication in the record or in any of the documentary and
testimonial evidence presented by any of the parties that the BIR
complied with such basic requirement insofar as RMC No. 44-2007
was concerned.

► Thus, the assessment of EWT on income payments made by Kerry to


its suppliers of agricultural products should be cancelled.

Page 51
Either BIR Form 2307 or BIR Form 1606 may be used to
prove the fact of withholding

Philippine Bank of Communications vs CIR


[CTA EB Case No. 1194 and 1199 March 21, 2016]

Facts:
► On April 15, 2010, PBCom filed its ITR for CY 2009 which shows:
1. net loss of P592,038,205.25
2. an overpayment of income tax of P85,374,026.88, comprising of:
a) Prior Year's Excess Credits - P40,811,031.83
b) Creditable Tax Withheld per BIR Form 2307 -4th Qtr - P44,562,995.05

► On March 15, 2012, PBCom filed a claim for issuance of TCC with the
BIR
Reason: Excess/unutilized CWT for taxable year 2009 of P44,562,995.05

Page 52
Either BIR Form 2307 or BIR Form 1606 may be used to prove the
fact of withholding

Philippine Bank of Communications vs CIR


[CTA EB Case No. 1194 and 1199 March 21, 2016]

Facts:
► Subsequently, PBCom filed a Petition for Review with the CTA on April
12, 2012, to toll the running of the prescriptive period to file a judicial
claim.

► CTA Second Division granted the claim but only up to P14,387,759.96

► PBCom filed an MR to CTA EB.


Reason:
1. BIR Form No. 1706 was erroneously used by PBCom's
representatives in filing the withholding taxes, as the forms were
provided by the BIR agents who computed the taxes to be withheld

Page 53
Either BIR Form 2307 or BIR Form 1606 may be used to prove the
fact of withholding

Philippine Bank of Communications vs CIR


[CTA EB Case No. 1194 and 1199 March 21, 2016]

2. there is nothing in Revenue Regulations No. 2-98 that would prejudice


PBCom from claiming a refund/issuance of TCC despite the erroneous
use of other BIR Forms

3. RR No. 2-98 does not specifically prohibit a taxpayer from introducing


evidence other than the said prescribed form to support its claim for
refund
► BIR’s reason, among others:
PBCom failed to submit complete documents in support of its
administrative claim for refund.

Page 54
Either BIR Form 2307 or BIR Form 1606 may be used to prove the
fact of withholding

Philippine Bank of Communications vs CIR


[CTA EB Case No. 1194 and 1199 March 21, 2016]

Issue:
► Is BIR Form 1606 considered as a proper support to establish the fact
of withholding?
Held:
► Yes.

► Either BIR Form 2307 or BIR Form 1606 may be used to prove the
fact of withholding.

► BIR Form No. 1606 contains the key information that could be
gathered from BIR Form No. 2307.

Page 55
Either BIR Form 2307 or BIR Form 1606 may be used to prove the
fact of withholding

Philippine Bank of Communications vs CIR


[CTA EB Case No. 1194 and 1199 March 21, 2016

Held (contd):
► BIR Form No. 1606 is a withholding tax remittance return required by
law to be filed by the buyer in triplicate copies as a requirement for the
transfer of title to the buyer.

► BIR Form No. 1606 supports the certification (BIR Form No. 2307)
attesting to the fact of withholding.

Page 56
COMELEC is liable to withhold EWT on its payments to
Smartmatic and Avante under the lease contracts

COMELEC vs CIR
[CTA Case No. 8929, August 2, 2016]

Facts:
► COMELEC is a constitutional commission mandated to enforce and
administer all laws and regulations relative to conduct of elections,
among others.

► Republic Act No. 8436, as amended by RA 9369, authorized the


COMELEC to use an Automated Election System in the May 11, 1998
Elections and local elections.

► BIR assessed COMELEC with deficiency EWT for TY2008 for its
failure to withhold on the lease contracts with Smartmatic and Avante.

Page 57
COMELEC is liable to withhold EWT on its payments to
Smartmatic and Avante under the lease contracts

COMELEC vs CIR
[CTA Case No. 8929, August 2, 2016]

Facts:
► COMELEC’s reason for non-withholding:
1. COMELEC is granted tax-exempt status on all taxes abd import duties in
relation to procurement of an automated election system pursuant to RA
8436

Section 12 of RA 8436 provides that the Commission is authorized to


procure, in accordance with existing laws, by purchase, lease, rent, or
other forms of acquisition, supplies, equipment, materials, software,
facilities and other services, from local or foreign sources free from taxes
and import duties, subject to accounting and auditing rules and
regulations.

Page 58
COMELEC is liable to withhold EWT on its payments to
Smartmatic and Avante under the lease contracts

COMELEC vs CIR
[CTA Case No. 8929, August 2, 2016]

Issue:
► Is COMELEC required to withhold EWT on its lease payments for
optical mark readers to Smartmatic and Avante?

Held:
► Yes.

► COMELEC’s exemption refers only to the direct taxes imposed


uponthe purchase, lease, rent or other forms of acquisition, supplies,
equipment, etc, from local and foreign sources, absent any showing
that indirect taxes are included therein.

Page 59
COMELEC is liable to withhold EWT on its payments to
Smartmatic and Avante under the lease contracts

COMELEC vs CIR
[CTA Case No. 8929, August 2, 2016]

Held:
► Also, even though indirect taxes are included in RA 8436, deficiency
EWT is not an indirect tax that has been passed on to COMELEC by
its suppliers, as withholding tax is a method of collecting income tax in
advance.

► Exemption granted to COMELEC does not include an exemption from


its duty to withhold taxes fro its income payments to its suppliers.

Page 60
Withholding Tax -
Final Withholding Tax

Page 61
Self-withholding by the payee does not relieve the
withholding agent/payor of its duty to withhold

Kerry Food Ingredients Cebu, Inc. vs CIR


[CTA Case No. 8593 February 9, 2016]

Facts:
► Kerry Food Ingredients Cebu, Inc. (Kerry) was assessed by the CIR
with deficiency FWT (10%), among others, on the interest paid by
Kerry from bank borrowings on foreign currency denominated loans to
Citibank, for taxable year 2007.

► Kerry’s Reason:
• per loan agreement with Citibank, the obligation for the payment of
withholding tax rested either with Kerry or its transacting bank. The
transacting bank remitted and paid the required withholding tax on the
loan transaction as evidenced by the Certification it issued, hence,
Kerry is relieved of the obligation to withhold.

Page 62
Self-withholding by the payee does not relieve the
withholding agent/payor of its duty to withhold

Kerry Food Ingredients Cebu, Inc. vs CIR


[CTA Case No. 8593 February 9, 2016]

Issue:
► Whether or not Kerry should be held liable for 10% FWT on interest
payments made on its foreign currency denominated loan for taxable
year 2007

Page 63
Self-withholding by the payee does not relieve the
withholding agent/payor of its duty to withhold

Kerry Food Ingredients Cebu, Inc. vs CIR


[CTA Case No. 8593 February 9, 2016]

Held:
► Yes, Kerry is liable for deficiency FWT on interest payments.

► Kerry was under legal obligation to withhold the corresponding tax for
the loan transaction.

► Kerry had the burden of proving that proper taxes had actually been
withheld and subsequently remitted to BIR.

► The Certification presented, standing alone, was not sufficient to


establish compliance with such requirements.

Page 64
Timing of payment of FWT on cash dividends

Hoya Glass Disk Philippines, Inc. vs CIR


CTA (First Division) Case No.8703 April 25, 2016

Facts:
► Hoya was assessed by CIR for penalties (interest and 50%
surcharge) arising from the alleged late payment of the final
withholding tax (FWT) on cash dividends paid to stockholders.

► Hoya protested the assessment, and filed a PFR with CTA.

► Hoya’s Reason:
1. Not late in filing the FWT return and payment of the
corresponding final tax due because -

Page 65
Timing of payment of FWT on cash dividends

Hoya Glass Disk Philippines, Inc. vs CIR


CTA (First Division) Case No.8703 April 25, 2016

Facts:
Timeline:
December 22, 2006 - cash dividends were declared by the BOD to
stockholders of record as of March 31, 2006, and payable on or before
January 31, 2007.

February 2, 2007 - actual payment of dividends

March 10, 2007 – payment of FWT on dividends

Page 66
Timing of payment of FWT on cash dividends

Hoya Glass Disk Philippines, Inc. vs CIR


CTA (First Division) Case No.8703 April 25, 2016

Issue:

► Is Hoya liable for penalties for the late payment of FWT?

Ruling:
► Yes.

Hoya should have withheld the final tax on the cash dividends on
January 31, 2007, the date when the cash dividends became
payable, and not on February 2, 2007 when the cash dividends were
paid to its stockholders.

Page 67
Timing of payment of FWT on cash dividends

Hoya Glass Disk Philippines, Inc. vs CIR


CTA (First Division) Case No.8703 April 25, 2016

Ruling (contd)

► Section 2.57.4 of RR No. 2-98, as amended by RR No. 12-01,


provides that the obligation of the payor to deduct and withhold the tax
arises at the time an income is paid or payable, or the income
payment is accrued or recorded as an expense or asset, whichever is
applicable, in the payor’s books, whichever comes first. The term
“payable” refers to the date the obligation becomes due, demandable
or legally enforceable.

Page 68
Tax Treaty

Page 69
Royalties and business profits

Fluor Daniel, Inc. - Philippines vs. CIR


CTA (Third Division) Case No. 8444, July 11, 2016
Facts:

► CIR assessed Fluor Daniel, Inc. – Philippines (FDIP) for,


deficiency FWT on software maintenance service fees
paid to Fluor Intercontinental, Inc. (FII). The CIR claims
that the payments constitute royalties within the definition
of RMC No. 77-2003, as amended by RMC 44-2005.

► FDIP protested the assessment. Upon receipt of the


FDDA denying its protest, FDIP filed a Petition for Review
with the CTA.
Page 70
Royalties and business profits

Fluor Daniel, Inc. - Philippines vs. CIR (cont.)

► FDIP argued that it is not liable for deficiency FWT as its


payments to FII constitute business income.
► Under their agreement, FDIP was granted free authority to
access and use a suite of software helpful and necessary
to its operations and activities. FDIP, however, is required
to pay its share in the software maintenance (at cost,
with no markup) computed based on project hours for
trouble shooting, periodic system checking and related
services to ensure proper operation of the software.

Page 71
Royalties and business profits

Fluor Daniel, Inc. - Philippines vs. CIR (cont.)

► FDIP further argued that the contract is in the nature of


compensation for services rendered abroad, hence
beyond the jurisdiction of the Philippine taxing authority.
Assuming that the fees are Philippine sourced, FDIP
insisted that the payments are not taxable pursuant to the
RP-US Tax Treaty as FII has no PE in the Philippines.

Issue:
► Are the software maintenance fees paid by FDIP to FII
considered royalties subject to FWT?

Page 72
Royalties and business profits

Fluor Daniel, Inc. - Philippines vs. CIR (cont.)


Ruling:

► No. The nature of the payments by FDIP to FII is for


“business support services.” A plain reading of the
Licensing Contract shows that the use of the software is
free and that FDIP will only pay FII a fee to shoulder its
share in the maintenance of the software. The contract
also shows that FII does not transfer all its substantial
rights in the software.

► The contract deals with both “know-how” for the use of the
suite of software, which FII did not receive income
payment, and services for maintenance of the software.
Page 73
Royalties and business profits

Fluor Daniel, Inc. - Philippines vs. CIR (cont.)

► As to the service contract, the business profits of FII shall


be taxable only in the US unless it has a PE in the
Philippines. Since FII has no PE in the Philippines
pursuant to Article 5 of the RP-US Tax Treaty, the
maintenance service fee is exempt from FWT.

► The CTA further held that since the services were


rendered in the US or outside the Philippines, the
maintenance service fees paid by FDIP to FII are beyond
the taxing jurisdiction of the BIR and exempt from FWT.

Page 74
Tax Treaty Relief - Capital Gains
► Keppel Philippines Properties, Inc. (for itself and on
behalf of Keppel Land Limited) vs. Commissioner of
Internal Revenue, CTA (Third Division) Case 8908
promulgated July 19, 2016
Facts:

► Petitioner Keppel Philippines Properties, Inc. (KPPI) for


itself and on behalf of Keppel Land Limited (KLL) filed a
claim for refund of P21,420,000 representing erroneously
paid Final Withholding Tax on the redemption of 13.6
Million preferred KPPI shares held by KLL pursuant to the
Philippines-Singapore Tax Treaty.

Page 75
Tax Treaty Relief - Capital Gains
Keppel Philippines Properties, Inc. - contd

► Due to the inaction of the BIR and to toll the 2-year


prescriptive period, KPPI filed a Petition for Review at the
CTA.

► KPPI argued that the redemption of 13.6 Million preferred


shares resulted in capital gains and not dividends. The
capital gain realized from redemption of preferred shares
is exempt from income tax pursuant to Article 13 of the
Treaty. It filed a tax treaty relief application (TTRA) with
the International Tax Affairs Division (ITAD) of the BIR and
at the time of the filing of the Petition for Review, the ITAD
has yet to act on the TTRA.
Page 76
Tax Treaty Relief - Capital Gains
Keppel Philippines Properties, Inc. - contd

► The BIR, on the other hand, argued that it is incumbent


upon KPPI to prove its entitlement to the refund sought
because a claim for refund is not automatically grated
upon filing of the claim. It insisted that KPPI failed to prove
that FWT paid was erroneously or illegally collected.

► Issues:
► 1. Is the net capital gain from redemption of preferred
shares a dividend under Article 10 (4) of the Philippines-
Singapore Tax Treaty?

Page 77
Tax Treaty Relief - Capital Gains
Keppel Philippines Properties, Inc. - contd

► Issues:
► 2. Is the net capital gain realized from the redemption of
preferred shares exempt from income tax under the
Philippines-Singapore Tax Treaty?

► Ruling:
► 1. No. A net capital gain cannot be treated as dividend
subject to the 15% FWT, since an ordinary dividend is a
distribution in the nature of a recurring return of stock,
made in the ordinary course of business and with intent to
maintain the corporation as a going concern.

Page 78
Tax Treaty Relief - Capital Gains
Keppel Philippines Properties, Inc. - contd

► Ruling:
► The only instance where the gain derived from redemption
may be treated as dividend is the case of redemption of
stock dividends, whether pursuant to partial or complete
liquidation. If a corporation cancels or redeems stock
issued as dividend at such time and in such manner as to
make the distribution and cancellation or redemption, in
whole or in part, essentially equivalent to the distribution
of a taxable dividend, the amount so distributed in
redemption or cancellation of stock shall be considered as
taxable income to the extent of earnings or profits.
(CIR vs. Goodyear Philippines, Inc. promulgated on January 5, 2015)
Page 79
Tax Treaty Relief - Capital Gains
Keppel Philippines Properties, Inc. - contd

► Ruling:
► In the instant case, KLL’s net capital gain could not be
classified as dividends since it did not represent a
recurring return on the shares redeemed. Furthermore, it
is clear that the preferred shares redeemed by KPPI from
KLL are not stock dividends but were subscribed and paid
by way of conversion of shares by KLL.

► Moreover, the mere fact that the redemption price came


from KPPI’s retained earnings is incidental. Without
KPPI’s redemption of its preferred shares, KLL would not
have derived the capital gain.
Page 80
Tax Treaty Relief - Capital Gains
Keppel Philippines Properties, Inc. - contd

► Ruling:
► 2. Yes. Under Article 13 of the Treaty, if KPPI’s assets are
principally immovable property located in the Philippines,
the gain may be taxed in the Philippines.

► Considering the redemption took place in 2012, the CTA


computed the real property components based on KPPI’s
2011 and 2012 audited financial statements

► CTA sustained KPPI and noted that the entire values of


the property and equipment for 2011 and 2012 comprised
less than 50% of its total assets for said years.
Page 81
Tax Treaty Relief - Capital Gains
Keppel Philippines Properties, Inc. - contd

► Ruling:
► Considering KPPI’s assets do not consist primarily of
immovable property, the net capital gain derived by KLL in
the redemption of 136,000 preferred shares is beyond the
taxing jurisdiction of the Philippines pursuant to Article
13(4) of the Treaty.

Page 82
Tax treatment of gain from redemption of shares

Commissioner of Internal Revenue vs. Goodyear Philippines, Inc.


Supreme Court G.R. No. 216130 promulgated August 3, 2016

► Goodyear Philippines, Inc. (Goodyear PH) authorized the redemption


of its 3,729,216 preferred shares held by Goodyear Tire and Rubber
Company (GTRC), a company organized and existing under the laws
of the State of Ohio, United States of America.

► Of the total redemption price of P470,653,914, the amount of


P372,921,600 represented the total par value of the preferred shares,
while P97,732,314 pertained to accrued and unpaid dividends.

► Goodyear PH filed a tax treaty relief application with the BIR to


confirm that the redemption of the preferred shares is not subject to
tax under the Philippines – United States (PH-US) Tax Treaty.

Page 83
Tax treatment of gain from redemption of shares

CIR vs. Goodyear Philippines, Inc. (Cont.)

► Notwithstanding, Goodyear withheld 15% final withholding tax (FWT)


for dividends prescribed under the Tax Code, on the difference
between the redemption price and the aggregate par value of the
shares.

► Goodyear filed a refund claim for the 15% FWT remitted to the BIR,
on the ground that the gain from the redemption of the shares is
exempt from tax under the PH-US Tax Treaty.

Page 84
Gains from redemption of shares not subject to FWT for
dividends

CIR vs. Goodyear Philippines, Inc. (Cont.)

Is the gain derived by GTRC from the redemption of preferred


shares subject to 15% FWT?

Ruling:

► No, the gain from the redemption is not subject to 15% FWT.
► Under the PH-US Tax Treaty, the term “dividends” should be
understood according to the laws of the State where the corporation
distributing the dividends is a resident.
► The Tax Code defines “dividends” as any distribution made by a
corporation to its shareholders out of its earnings or profits and
payable to its shareholders, whether in money or in other property.

Page 85
Gain from redemption of shares cannot be considered
as accumulated dividends

CIR vs. Goodyear Philippines, Inc. (Cont.)

► The redemption price received by GTRC cannot be considered as


accumulated dividends that can be subjected to 15% FWT.

► Goodyear PH’s audited financial statements from 2003 to 2009


showed that it did not have unrestricted retained earnings. Absent the
availability of unrestricted retained earnings, Goodyear PH cannot
distribute dividends.

► In addition, the primary feature of an ordinary dividend is that the


distribution should be made in the nature of a recurring return on
stock. This cannot be applied in this case since the payment received
by GTRC represented a payment for the redemption of shares.

Page 86
Value-Added Tax

Page 87
Value-Added Tax –
Exempt Transactions

Page 88
Microfinance NGOs under Sec. 20 of RA 10693 are exempt
from VAT effective November 3, 2015

Tulay sa Pag-unlad vs. CIR, CTA (First Division) Case No. 8480
(Amended Decision) promulgated June 20, 2016

Facts:
► Tulay sa Pag-unlad (Tulay), a microfinance NGO, was assessed by BIR
for VAT deficiency for its alleged lending activities for taxable year 2008.
► Tulay argues that the “Social Lending Activity” it performs is beyond that
of a commercial ‘lending investor’, as defined under Section 4.108-3(g)
of RR 16-2005.
► It further argued that with the passage of RA 10693, a microfinance NGO
is sui generis, that it’s a class of its own, separate and distinct from the
definition of “lending investor”.

Page 89
Microfinance NGOs under Sec. 20 of RA 10693 are exempt
from VAT effective November 3, 2015

Tulay sa Pag-unlad vs. CIR, CTA Case No. 8480 (Amended


Decision), (cont’d.)

Issue:
► Is Tulay exempt from VAT?

Ruling:
► No.

► Undeniably, microfinance NGOs under Sec. 20 of RA 10693 enjoy a


preferential tax of 2% based on gross receipts in lieu of all national taxes.
However, the law was passed only on November 3, 2015 while the
disputed assessment covers taxable year 2008. The law has no
indication that beneficial tax treatment may be given retroactive effect.

Page 90
Value-Added Tax –
Zero-rated Transactions

Page 91
A foreign corporation who sells services to a domestic
corporation is deemed engaged in trade or business in the
Philippines
Amadeus Marketing Philippines, Inc. (AMPI) vs. CIR, CTA (First
Division) Case No. 8628 promulgated January 22, 2016

Facts:
► AMPI filed a claim for refund for unutilized input VAT attributable to zero-
rated sales of services to Amadeus IT Group S.A. (AIGS), a corporation
organized in Spain.
► BIR argued that AMPI’s sales to AIGS are not considered VAT zero-rated
as it failed to prove that AIGS is a foreign corporation doing business
outside the Philippines.
► AMPI’s quarterly VAT returns show that it reported input VAT on services
rendered by AIGS. AIGS is therefore an entity that both provided services
to AMPI and to whom AMPI claims to have its zero-rated sales.

Page 92
A foreign corporation who sells services to a domestic
corporation is deemed engaged in trade or business in the
Philippines
Amadeus Marketing Philippines, Inc. (AMPI) vs. CIR, (cont’d.)

Issue:
► Is AMPI sale to AIGS zero-rated?

Ruling:
► No. AIGS is engaged in business in the Philippines, AMPI’s sales to
AIGS cannot be considered VAT zero-rated hence, the claim for refund
has no legal basis.
► While the Articles of Association of AIGS and the Certificate of Non-
registration issued by the SEC established that AIGS is a foreign entity
incorporated in Spain, the CTA ruled that AIGS conducts business in the
Philippines.

Page 93
Required documents to prove that a nonresident foreign
corporation is not doing business in the Philippines

Nokia (Philippines), Inc. (Nokia) vs. CIR, CTA En Banc No. 1313
(CTA Case No. 8405), September 22, 2016
• Nokia filed an administrative claim for refund or issuance of TCC for its
unutilized input VAT attributable to zero-rated sales for the 3rd and 4th quarters
of 2009. For a refund of input VAT attributable to zero-rated sales, an
essential condition is that the recipient of the services must be doing
business outside the Philippines.

• Nokia presented the Certificate of Nonregistration issued by the Securities


and Exchange Commission (SEC), Extract from the Trade Register of
Finland and Certificate of Fiscal Residence issued by the Tax Authority of
Finland to prove that Nokia Corporation (Finland) (“Nokia Finland”), a
recipient of Nokia’s services, is a nonresident foreign corporation (NRFC)
doing business outside the Philippines.

• The CTA denied Nokia’s claim for lack of merit declaring that Nokia Finland is
doing business in the Philippines based on Note 1 in its Financial Statements
for the years ended 2009 and 2008 and concluded that part of the business
of Nokia (Philippines) is to handle any specific matter that may arise with
respect to Nokia Finland’s business in the Philippines.

Page 94
Required documents to prove that a nonresident foreign
corporation is not doing business in the Philippines

Nokia vs. CIR (cont’d)

Issue:
► What evidence shall prove that a nonresident foreign corporation is doing
business outside the Philippines, for purposes of VAT zero-rating?

Ruling:

► Whether or not Nokia Finland is doing business in the Philippines may


not be inferred from Note 1 of the FS. The notes to FS were based on
documents submitted for the purpose of conducting an audit and may not
fairly determine whether or not Nokia Finland is doing business in the
Philippines.

Page 95
Required documents to prove that a nonresident foreign
corporation is not doing business in the Philippines

Nokia vs. CIR (cont’d)


Ruling:
For easy reference, the pertinent portions of Note 1 of the Notes to Financial Statements as of
and for the years ended December 31, 2009 and 2008 of petitioner, are reproduced, viz.:
"1.1 General information
xxx xxx xxx

The Company's parent company is Nokia Corporation (Nokia), incorporated in Finland and
which shares of stock are listed in the Stock Exchanges of Helsinki, Frankfurt and New York.

1.2 Change of business structure


xxx xxx xxx
With the change of business structure, the Company's business operations are now focused
in providing support services to Nokia and other affiliates. The Company has an existing
agreement with Nokia which states that Company shall provide services to Nokia in handling
any specific or general business matter that may arise with respect to Nokia's business in the
Philippines and other territories defined in the agreement. These services include marketing
support service related to Nokia products and solutions, market research in the Philippines
and other support services as defined in the service agreement.
xxx xxx xxx."
Page 96
Required documents to prove that a nonresident foreign
corporation is not doing business in the Philippines

Nokia vs. CIR (cont’d)

Ruling:

► The CTA En Banc reiterated that it has consistently held in numerous


cases that to prove that a NRFC is doing business outside the
Philippines, the said entity must be supported at the very least by:

1) The Certificate of Nonregistration of the Corporation/Partnership


duly issued by the SEC; and

2) Proof of incorporation or registration in a foreign country (e.g.,


Certificate of Incorporation, Memorandum and Articles of Association,
and Certificate of Registration) or any other equivalent document.

Page 97
Value-Added Tax –
Transactions subject to 12% VAT

Page 98
Arrastre and wharfage duties are considered “other
charges” included in the tax base for VAT on importation

Colgate-Palmolive Philippines, Inc. (CPPI) vs. Commissioner of


Customs, CTA (First Division) Case No. 7806, January 26, 2016

• CPPI was assessed for unpaid VAT on arrastre


and wharfage fees pursuant to NIRC

Issue:
► Are arrastre and wharfage duties subject to VAT on importation?

Page 99
Arrastre and wharfage duties are considered “other
charges” included in the tax base for VAT on importation

Colgate-Palmolive Philippines, Inc. (CPPI) vs. Commissioner of


Customs, (cont’d.)

Ruling:
► Yes. Arrastre and wharfage fees are considered “other charges” included
in the tax base for VAT on importation.
► Sec. 107 of the NIRC imposes the 12% VAT on every importation of
goods “based on the total value used by the BOC in determining tariff
and customs duties, plus customs duties, excise taxes, if any, and other
charges.”
► There is no double taxation as the VAT on “other charges” under Sec.
108 of the NIRC is imposed on the sale of service based on gross
receipts derived from such sale of service. The VAT on “other charges”
under Sec. 107 of the NIRC for the importation of goods.

Page 100
Value-Added Tax –
Withholding VAT

Page 101
VAT is not covered by the exemption under Article 7
(Business Profits) of RP-Singapore Tax Treaty
Willore Pharma Corporation (WPC) vs. CIR, CTA (First
Division) Case No. 8602, June 22, 2016

• WPC was assessed for deficiency Final


Withholding VAT, representing advertising
expense paid to a NRFC.

• WPC argued that its supplier of service, CMP, is a NRFC


registered in Singapore and does not have a PE in the
Philippines pursuant to Article 7 (1) of the RP-Singapore Tax
Treaty. Thus, WPC argues that any income derived by CMP
in the Philippines is not taxable in this jurisdiction.

Page 102
VAT is not covered by the exemption under Article 7
(Business Profits) of RP-Singapore Tax Treaty

Willore Pharma Corporation (WPC) vs. CIR, (cont’d.)

This allegedly applies even to VAT since in Article 2(4) provides:

“4. The Convention shall apply also to any identical or substantially similar
taxes on income which are imposed after the date of signature of this
Convention in addition to, or in place of, the existing taxes. The Competent
Authorities of the Contracting States shall notify each other of the changes which
have been made to their respective taxation laws.”

Page 103
VAT is not covered by the exemption under Article 7
(Business Profits) of RP-Singapore Tax Treaty

Willore Pharma Corporation (WPC) vs. CIR, (cont’d.)

Issue:
► Is WPC liable for deficiency Final Withholding VAT?

Ruling:
► Yes. The phrase "identical or substantially similar taxes on income”
under Article 2(4) of the Philippines-Singapore Tax Treaty does not
contemplate the inclusion of VAT for the simple reason that VAT is not
a tax on income.

Page 104
Value-Added Tax –
Refund

Page 105
Non-observance of the 120-day waiting period will
render judicial claim premature
CIR vs. Mirant Pagbilao Corporation (now TeaM Energy
Corporation), G.R. No. 180434, January 20, 2016

• In March 2002, MPC filed a claim for administrative


refund for excess input VAT attributable to zero-rated
sales for taxable year 2000.

• 15 days from filing its administrative claim, MPC


instituted its judicial claim for refund before the CTA
without waiting for CIR’s decision.

Issue:
► Is the CTA petition premature?

Page 106
VAT Updates
Non-observance of the 120-day waiting period will
render judicial claim premature
CIR vs. Mirant Pagbilao Corporation (now TeaM Energy
Corporation), (cont’d.)

Ruling:
► Yes. Citing CIR vs. Aichi Forging Company of Asia, Inc. and CIR vs.
San Roque Power Corporation, the court reiterated that the 120+30-
day period (Sec. 112(D), NIRC) is mandatory and jurisdictional.
► Non-observance of the 120-day waiting period will render its petition
before the CTA premature.
► Also, MPC’s claim for refund or credit was filed in March 2002. Hence,
it does not fall within the exception to the 120+30-day period rule, i.e.,
from the date of issuance of BIR Ruling No. DA-489-03 on December
10, 2003 until the promulgation of the Aichi case on October 6, 2010.

Page 107
Value-Added Tax –
Other Issues

Page 108
Any alteration to the VAT invoice or OR must be counter-signed or
counter-signature verified to comply with invoicing requirements

Coral Bay Nickel Corporation (CBNC) vs. CIR, CTA (En Banc)
Case No. 1269, June 29, 2016
• CBNC filed with the CTA a claim for refund of unutilized input VAT
attributable to zero-rated sales. CTA disallowed input VAT covered
by ORs and invoices that were altered without proper counter-
signatures.

• CBNC argued that the NIRC and regulations do not require


counter-signatures for any alteration or addition to the VAT invoice
or OR.

Issue:
► Is a counter-signature required for any alteration to the VAT invoice or
OR in order to comply with the VAT invoicing requirements?

Page 109
VAT Updates
Any alteration to the VAT invoice or OR must be counter-signed or
counter-signature verified to comply with invoicing requirements

Coral Bay Nickel Corporation (CBNC) vs. CIR, (cont’d.)

Ruling:
► Yes. While CBNC has the right to request its supplier to issue compliant
receipt/invoice, it has the corresponding obligation to check whether the
insertions/alterations were properly validated or countersigned by the
authorized signatory.
► Well-settled is the rule that tax refunds, when based on statutes granting
tax exemption/refund, partake of the nature of exemptions. The rule of
strict interpretation against taxpayer-claimant applies to refund cases.
CBNC has the burden of proof to establish factual basis of its claim for
tax refund.

Page 110
Remedies

Page 111
Remedies –
Tax Assessment/Investigation

Page 112
May the BIR disallow 50% of expenses if there is unjustified
refusal by taxpayer to produce books of accounts?
Village Green Hog Farm, Inc. vs. Commissioner of Internal Revenue
CTA (En Banc) Case No. 1252 promulgated 17 May 2016
• BIR assessed Village Green Hog Farm, Inc. (VGHFI) for
deficiency income tax for taxable year 2007. VGHFI protested
1
the assessments.
• Per the Final Decision on Disputed Assessment (FDDA), 50%
of VGHFI’s business expenses were disallowed due to its
2 alleged “unjustified refusal” to produce the books of accounts
and other accounting records.

• The BIR based its application of the 50% rule of approximation


3 on disallowed expenses on the Best Evidence Obtainable
Rule under Revenue Memorandum Circular (RMC) 23-2000.

• VGHFI challenged the use of the Best Evidence Obtainable


Rule in determining its deficiency tax liabilities, insisting that it
4 submitted and made available to the BIR the documentary
requirements.
Page 113
Best evidence obtainable rule
When may BIR properly apply the rule
Village Green Hog Farm, Inc. vs. CIR (Cont.)

Issue: Did the BIR correctly disallow 50% of VGHFI’s claimed


deductions from gross income?

Ruling: Yes, under the Best Evidence Obtainable Rule pursuant to


Section 6(B) of the Tax Code, as implemented by Sections 2.3 and 2.4(c)
of RMC 23-2000.

► The Best Evidence Obtainable Rule applies when a tax report


required by law for the purpose of assessment is not available or
when the tax report is incomplete or fraudulent.

Page 114
Best evidence obtainable rule
When may BIR properly apply the rule
Village Green Hog Farm, Inc. vs. CIR (Cont.)

► The BIR sent, and VGHFI received, three requests for submission of
certain documents/schedules, and the presentation of books of
accounts for examination.
► There was clear refusal to present accounting records, especially in
relation to its expenses and purchases.
► Thus, the BIR was justified in disallowing 50% of VGHFI’s expense
based on the Best Evidence Obtainable Rule prescribed under RMC
23-2000.
► See also the case of Farcon Marketing Corporation vs.
Bureau of Internal Revenue
CTA (2nd Division) Case 8367 promulgated February 3, 2015

Page 115
Will the receipt of warrants of garnishment prior to
issuance of FAN invalidate assessment?

Esper R. Vargas, Jr. vs. Commissioner of Internal Revenue


CTA (Third Division) Case No. 8750 promulgated 8 March 2016
• The BIR assessed Petitioner Vargas for alleged deficiency income tax and
VAT for 2007 based on a computerized matching of information from third
party sources as against the taxpayer’s declarations per VAT returns. The BIR
1 alleged that Vargas under declared his purchases in 2007, resulting in
undeclared income, which should be subject to income tax and VAT.

• The BIR issued a Final Assessment Notice (FAN) but prior to Vargas’ receipt
of the FAN, it enforced at least one of the several Warrants of Garnishment
issued against Vargas’ bank accounts. Vargas learned of the garnishment on
the same day it secured a copy of the FAN. Vargas filed a Petition for Review
2 at the CTA with an application for a Temporary Restraining Order and Writ of
Preliminary Injunction.

• At the CTA, Vargas argued that the BIR failed to comply with the due process
requirements, as he was not notified in writing of his liability for deficiency
taxes. As such, the assessments were null and void and could not become
3 final, executory and demandable. He also prayed for actual damages against
the BIR in the form of filing fees and attorney’s fees for its oppressive
assessment and the illegal garnishment of his bank account, where he
incurred costs to protect his interest.
Page 116
Can CIR be held liable for actual damages arising from
assessment case?
Esper R. Vargas, Jr. vs. Commissioner of Internal Revenue
CTA (Third Division) Case No. 8750 promulgated 8 March 2016

• The BIR countered that Vargas should have filed a protest to the
FAN instead of a Petition for Review and having failed to do so,
4 the CTA did not acquire jurisdiction over the case.

Issues:
1. Are the deficiency tax assessments valid?

2. Can the CIR be held liable for actual damages resulting from the
assessment?

Page 117
Assessments that are void for failure to comply with due
process cannot become final, executory & demandable

Esper R. Vargas, Jr. vs. Commissioner of Internal Revenue (Cont.)

Ruling:
► 1. No. The assessments were void for failure to comply with due
process and cannot become final, executory and demandable. To be
valid, an assessment must actually be received by the taxpayer.

► The assessments and the subsequent collection violated the right to


due process of Vargas, who had no opportunity to assail the
assessment as he was not even aware that assessments were issued
against him. There was no valid notice of assessment sent to the
taxpayer.

Page 118
CIR cannot be held liable for actual damages as he is
immune from suit under the doctrine of sovereign immunity.

Esper R. Vargas, Jr. vs. Commissioner of Internal Revenue

Ruling:

► 2. No. The CTA has consistently disallowed the award of actual damages in
tax cases. In the case of Farolan, Jr. v. CTA, GR 42204 dated 21 January
1993, the Supreme Court ruled that the CIR cannot be held liable for actual
damages as he is immune from suit following the doctrine of sovereign
immunity.

► It is the BIR’s prime duty to perform tax assessments and tax collections. In
issuing the subject assessment and enforcing its collection, the CIR was
merely exercising the authority accorded to her under the Tax Code.
Attorney’s fees and expenses of litigation cannot be recovered unless the
claimant is compelled to litigate or incur expenses to protest his interest.
However, Vargas did not offer a compelling reason for the award of filing fees
and attorney’s fees.

Page 119
Effect of a void FDDA on the tax assessment

Commissioner or Internal Revenue (CIR) vs. Liquigaz Philippines


Corporation / Liquigaz Philippines Corporation vs. CIR
G.R. No. 215534/G.R. No. 215557, April 18, 2016
• Liquigaz was assessed for EWT, FBT and WTC for taxable year
2005. Liquigaz accordingly received a copy of the LOA in 2006 and
1 the corresponding PAN and FLD/FAN in 2008.

• Liquigaz filed its protest against the FLD/FAN and subsequently filed
a Petition for Review with the CTA after receiving the FDDA denying
2 its protest on July 1, 2010.

• In 2012, the CTA Division, while maintaining the WTC assessment,


cancelled the EWT and FBT assessments noting that unlike the PAN
and the FLD/FAN, the FDDA issued did not provide the details
3 thereof, hence, Liquigaz had no way of knowing what items were
considered by the CIR in arriving at the deficiency assessments.

Page 120
Effect of a void FDDA on the tax assessment
Assessment vs. Decision

Commissioner of Internal Revenue (CIR) vs. Liquigaz (Cont.)

• The CTA En Banc affirmed the decision of the CTA Division.


4

Is the CTA correct in cancelling the EWT and FBT assessments due to a
void FDDA?

 No. The CTA erred in cancelling the EWT and FBT assessments. In
resolving the issue on the effects of a void FDDA, the SC noted that it is
necessary to differentiate an “assessment” from a “decision.” Citing a 1958
case, the SC explained that:

Page 121
The nullity of an FDDA does not result in the nullification
of the entire assessment

Commissioner or Internal Revenue (CIR) vs. Liquigaz (Cont.)

 Assessment vs. Decision

“An assessment becomes a disputed assessment after a taxpayer has


filed its protest to the assessment in the administrative level.
Thereafter, the CIR either issues a decision on the disputed
assessment or fails to act on it and, is, therefor, considered denied.
The taxpayer may then appeal the decision on the disputed
assessment or the inaction of the CIR. As such, the FDDA is not the
only means that the final tax liability of a taxpayer is fixed, which may
then be appealed by the taxpayer. xxx”

 Clearly, a decision of the CIR on a disputed assessment differs from


the assessment itself. Hence, the invalidity of one does not
necessarily result in the invalidity of the other – unless the law or
regulations otherwise provide.

Page 122
The nullity of an FDDA does not result in the nullification
of the entire assessment

Commissioner of Internal Revenue (CIR) vs. Liquigaz (Cont.)

► Section 228 of the NIRC provides that an assessment shall be void if


the taxpayer is not informed in writing of the law and the facts on
which it is based. It is, however, silent with regard to a decision on a
disputed assessment by the CIR which fails to state the law and the
facts on which it is based.

► This void is filled by RR 12-99 where it is stated that the failure of the
FDDA to reflect the facts and the law on which it is based will make
the decision void. It, however, does not extend to the nullification of
the entire assessment.

Page 123
Void FDDA is tantamount to a denial by inaction by the
CIR

Commissioner or Internal Revenue (CIR) vs. Liquigaz (Cont.)

► Interestingly, the SC went on to state that:

“xxx it is as if there was no decision rendered by the CIR. It is


tantamount to a denial by inaction by the CIR, which may still be
appealed before the CTA and the assessment evaluated on the basis
of the available evidence and documents.”

* Note, however, that the FDDA is void only insofar as the EWT and FBT
assessments are concerned. The WTC assessment was upheld.

Page 124
Can taxpayer validly assail results of Oplan Kandado
with the CTA?
Commissioner of Internal Revenue vs. Elric Auxiliary Services
Corporation/Sacred Heart Services Gas Station
CTA (En Banc) Case No. 1174 promulgated March 3, 2016

• The BIR assessed Respondent Elric Auxiliary Services Corporation (EASC) for
1 deficiency VAT after a surveillance was conducted on EASC’s gasoline station
for 10 days under the BIR’s Oplan Kandado Program. The BIR issued a 48-hour
notice for EASC to explain why the business establishment should not be closed
• . After submission of its explanation, EASC received VAT Compliance Notice
requiring the payment of alleged deficiency VAT within 5 days. EASC filed a
letter-explanation under oath disputing the assessment. Upon receipt of the
2 BIR’s denial of its explanation, EASC filed a Petition for Review with the Court of
Tax Appeals (CTA) within 30 days.
• EASC questioned the basis and the method of computation of its sales during
the period of surveillance for being arbitrary, and sought the cancellation of the
3 VAT assessment. The CIR argued, among others, that the CTA has no
jurisdiction to review its administrative enforcement of the provisions of the Tax
Code, such as Oplan Kandado, which imposes administrative sanctions on
taxpayers for non- compliance with essential VAT requirements.
4 • The CTA Second Division ruled in favor of EASC, prompting the CIR to elevate
to case to the CTA En Banc.

Page 125
Validity of Oplan Kandado program may be appealed to
CTA under "other matters arising under the NIRC"
Commissioner of Internal Revenue vs. Elric Auxiliary Services

Issues:
1. Does the CTA have jurisdiction over cases arising from BIR’s Oplan Kandado
Program?
2. Are the 48-hour Notice and 5-day VAT Compliance Notice valid?

Ruling:
1. Yes. The CTA’s jurisdiction is not limited to a decision, ruling or inaction of the
CIR on disputed assessments.

The CTA can determine the validity of the 48-hour Notice and 5-day VAT
Compliance Notice issued by the BIR under its Oplan Kandado Program. Oplan
Kandado is based on Section 115 of the Tax Code, which empowers the CIR to
suspend the business operations of a taxpayer. As such it falls within the
meaning of “other matters arising under the NIRC” under Section 7 RA No. 1125,
which is covered by the jurisdiction of the CTA.
Page 126
BIR should explain surveillance methods used in arriving at
sales estimates; otherwise deemed arrived without basis
Commissioner of Internal Revenue vs. Elric Auxiliary Services

2. No. In the absence of any explanation on the factual basis of the results of the
surveillance, the taxpayer cannot be deemed to be sufficiently informed on the
basis of the assessment of the VAT liability. Without such basis, the taxpayer
cannot adequately respond or specifically refute the deficiency VAT assessment.

Other than a statement that the result of the surveillance resulted in a VAT
liability, the basis and the method of computation of the liability must likewise be
disclosed. The BIR neither described how the surveillance was conducted nor
explained the methods used in arriving at the sales estimates. There was no way
for the Court to determine whether the factual basis gives rise to a reasonable
estimate. Without such information, the sales amounts used by the BIR cannot
be considered prima facie valid as they appear to have been arrived at without
any basis.

Page 127
On what bases may the CTA dispense with the cash
bond requirement in appealed tax cases?
Spouses Emmanuel D. Pacquiao and Jinkee J. Pacquiao vs. The Court of
Tax Appeals and the Commissioner of Internal Revenue
Supreme Court (Second Division) G.R. No. 213394 promulgated 06 April 2016

• BIR Revenue District Office No. 43 issued a Letter of Authority (LA)


for the audit of Manny Pacquiao’s books for 2008 and 2009.
1 Pacquiao failed to include in his 2009 ITR, income from his
winnings in the US.
• During pendency of RDO No. 43 audit, the Commissioner of
Internal Revenue (CIR) issued another LA authorizing the BIR’s
2 National Investigation Division (NID) to examine the books of both
Pacquiao and his wife, Jinkee Pacquiao (or Jinkee), from 1995 to
2009.

• The BIR alleged that fraud had been established. The CIR also
justified the reinvestigation of the years prior to 2007 pursuant to a
3 fraud investigation under the Run After Tax Evaders (RATE)
program of the BIR.

Page 128
On what bases may the CTA dispense with the cash
bond requirement in appealed tax cases?
Spouses Pacquiao vs. CTA and CIR

• The BIR assessed Manny and Jinkee Pacquiao for deficiency


income tax and VAT for 2008 and 2009, based on the best
4 evidence obtainable, totaling Php2.26 billion inclusive of interests
and charges. The Spouses Pacquiao requested that they be
allowed to pay their deficiency VAT liabilities in installments, which
they eventually did. They appealed the deficiency income tax
assessments to the CTA

• Pending resolution of their appeal, they sought the suspension of


the issuance of warrants of distraint and/or levy and warrants of
garnishment. The BIR denied the request to defer the collection
5 enforcement for lack of legal basis and proceeded to issue the
warrants.
• The Spouses asked the CTA to lift the warrants and to dispense
with the requirement for a cash deposit or the filing of a bond
6 arguing that the CIR’s assessment of their liabilities was highly
questionable. They manifested that they were willing to file a bond
for such reasonable amount to be fixed by the Court.

Page 129
On what bases may the CTA dispense with the cash
bond requirement in appealed tax cases?
Spouses Pacquiao vs. CTA and CIR

• The CTA ordered the CIR to desist from collecting the deficiency
tax assessments and noted that the amount sought to be collected
was way beyond the Spouses’ net worth of P1.18 billion, based on
7
Pacquiao’s Statement of Assets, Liabilities and Net Worth.

• However, the CTA ruled that there was no justification for the
Spouses to deposit less than the amount of P3.3 billion or post a
8 bond of less than the amount of P4.9 billion..

• The Spouses Pacquiao appealed to the Supreme Court.


9

Page 130
On what bases may the CTA dispense with the cash
bond requirement in appealed tax cases?
Spouses Pacquiao vs. CTA and CIR (Cont.)
Issues:
► 1. Is there an exception to the cash deposit or bond requirement under
Section 11 of RA 1125?
► 2. If so, does the exception apply in this case?

Ruling:
► Yes, there is an exception to the requirement for a cash deposit or bond.

► Pursuant to the case of Collector of Internal Revenue vs. Jose Avelino, the
courts may dispense with the requirement “if the method employed by the
Collector of Internal Revenue in the collection of tax is not sanctioned by law.”
In the Avelino case, the demand of then CIR was made without authority of
law because it was made five years and 35 days after the last two returns of
Jose Avelino were filed, which is clearly beyond the three-year prescriptive
period to assess.

Page 131
Cash bond may not be required when method employed
by BIR in the collection of tax is not sanctioned by law
Spouses Pacquiao vs. CTA and CIR (Cont.)

► In Collector of Internal Revenue vs. Aurelio Reyes, the Supreme


Court ruled that the cash deposit or bond requirement applies only
where the collection is carried out in consonance with law. It should
not be required “when the said processes are obviously in violation of
the law to the extreme that they have to be SUSPENDED for
jeopardizing the interests of the taxpayer.”

► The authority of the courts to dispense with the deposit of the amount
claimed or filing of the required bond is not confined to cases where
prescription has set in. Instead, whenever it is determined that the
method employed by the CIR in the collection of tax is not sanctioned
by law, the bond requirement should be dispensed with.

Page 132
Case is remanded to the CTA for determination of whether
the dispensation or the reduction of cash bond is proper

Spouses Pacquiao vs. CTA and CIR (Cont.)

► It would be absurd for the CTA to declare that the collection was made
in violation of law and, in the same breath, require the taxpayer to
make the deposit or to file the bond as a prerequisite to stop the said
illegal collection.

► It cannot be determined, however, if the exception applies in this case


as there is no sufficient factual basis in the records to determine
whether the cash deposit or bond requirement should be dispensed
with.

► Hence, the case is remanded to the CTA for a preliminary


determination of whether the dispensation or the reduction of the
required cash deposit or bond is proper.

Page 133
Remedies –
Deficiency interest and
delinquency interest

Page 134
Deficiency interest may be imposed on all types of taxes

CIR vs. Philippine Tobacco Flue-Curing and Redrying Corporation


CTA (En Banc) Case No. 1218 and 1220 promulgated April 11, 2016

• The CIR assessed Philippine Tobacco Flue-Curing and


Redrying Corporation (PTFC) for deficiency income tax, VAT,
withholding tax on compensation (WTC), expanded withholding
tax (EWT), final withholding tax (FWT), documentary stamp tax
1 (DST), and inspection fees. PTFRC protested the assessments
and after reinvestigation, the BIR issued a Final Decision on
Disputed Assessment (FDDA) reducing the tax deficiency.

• PTFC filed a Petition for Review with the CTA. The CTA First
Division reduced the BIR’s deficiency tax assessment and
imposed penalties including 25% surcharge, 20% deficiency
interest, and 20% delinquency interest. Aggrieved, PTFC
2 elevated the case to the CTA En Banc.

Page 135
Deficiency interest may be imposed on all types of taxes

CIR vs. Philippine Tobacco (Cont.)

Can the 20% deficiency interest be imposed on all types of taxes?

► Yes, the Tax Code authorizes the imposition of deficiency interest on


all tax types.

► Section 247 (a) of the Tax Code provides that the imposition of
additions to the tax applies to all taxes. The authority to impose
additions [such as surcharges under Section 248, deficiency interest
under Section 249 (B), delinquency interest under Section 249 (C) and
interest on extended payment under Section 249 (D)] extends to all
taxes regardless of the title under which they are classified. The law
does not limit these additions only to income tax, estate tax and
donor’s tax.
Page 136
Deficiency interest may be imposed on all types of taxes

CIR vs. Philippine Tobacco (Cont.)

► Accordingly, the additions to the deficiency tax such as, surcharge,


deficiency interest, and delinquency interest, are applicable to the
deficiency income tax, VAT, WTC, EWT, DST and inspection fees of
PTFC.

Page 137
Deficiency and delinquency interest may be imposed
simultaneously
CIR vs. Philippine Tobacco (Cont.)

Can deficiency interest and delinquency interest be imposed


simultaneously?

► Yes, the Tax Code authorizes the simultaneous imposition of deficiency


interest and delinquency interest.

► The CTA En Banc held that a plain reading of Section 249 of the Tax
Code justifies the simultaneous imposition of deficiency interest and
delinquency interest. Section 249 (B) and (C) are clear that both
deficiency interest and delinquency interest are to be reckoned from
the date prescribed for their payment and until the full payment
thereof.

Page 138
Computation of imposable interests in case of
deficiency assessments

Liquigaz Philippines Corporation vs. Commissioner of Internal


Revenue/Commissioner of Internal Revenue vs. Liquigaz
Philippines Corporation
CTA EB Case Nos. 1117, Amended Decision, promulgated June 03, 2016
• Through a Formal Letter of Demand dated October 16, 2009 and
assessment notices dated on the same date, the BIR assessed
Liquigaz Corporation, Inc. for deficiency income tax, VAT,
expanded withholding tax (EWT), and withholding tax on
1 compensation (WTC) for taxable year 2006, and demanded that
the deficiency taxes be paid on or before October 31, 2009.

• Liquigaz protested such assessment on November 19, 2009 and


on January 18, 2010, it submitted to the BIR the documents in
2 support of the protest letter.

Page 139
Computation of imposable Interests in case of deficiency
assessments
Liquigaz Philippines Corporation vs. CIR (Cont.)

• Since the BIR failed to act on Liquigaz’s protest, Liquigaz filed a


Petition for Review with the CTA. The CTA Special Third Division
3 affirmed the assessment on Liquigaz, as follows:

Tax Type Basic Deficiency 25% Surcharge Total


Income Tax 55,939,514.83 13,984,878.71 69,924,393.54
Value-Added Tax 5,774,369.52 1,443,592.38 7,217,961.90
Expanded Withholding Tax 2,642,579.68 660,644.92 3,303,224.60
Withholding Tax on
Compensation 1,088,401.32 272,100.33 1,360,501.65
Total P65,444,865.35 P16,361,216.34 P81,806,081.69

Page 140
Is deficiency interest applicable also on deficiency VAT,
EWT and WTC?
Liquigaz Philippines Corporation vs. CIR (Cont.)

• The CTA Special Third Division also ordered Liquigaz to pay


deficiency interest on all items of assessment computed from
the time of filing of return until fully payment, as well as
4 delinquency interest computed from October 31, 2009 until full
payment.

• Pending appeal, Liquigaz made a partial payment to the BIR in


the amount of P54,806,640.74, representing a portion of the
5 adjudged award by the CTA Special Third Division

Page 141
Deficiency interest must be imposed not just on deficiency
income tax but also on deficiency VAT, EWT and WTC
Liquigaz Philippines Corporation vs. CIR (Cont.)

Is Liquigaz liable for deficiency interests on the foregoing assessments?

► Yes, Liquigaz is liable for deficiency interest, citing the case of


Takenaka Corporation Philippine Branch vs. CIR (CTA EB Case No.
745, Sep. 4, 2012), stating that the issue is not novel and has been
sufficiently discussed by the Supreme Court in a 1995 case where it
declared that deficiency interest embraces failure to pay all taxes
imposed in the Tax Code, without regard to the Title of the Code
where the provisions imposing particular taxes are textually located.

► Thus, deficiency interest must be imposed not just on deficiency


income tax but also on deficiency VAT, EWT and WTC.

Page 142
Reckoning period for the imposition of deficiency
interest and delinquency interest
Liquigaz Philippines Corporation vs. CIR (Cont.)

When is the reckoning period for the imposition of deficiency interests


and delinquency interests?

► Again, citing the Takenaka case, the CTA En Banc affirmed the
simultaneous imposition of the deficiency and delinquency interests,
which shall be reckoned from the date prescribed for their payment
until full payment thereof.

• Deficiency interest – from the date prescribed for its payment


until full payment thereof

• Delinquency interest – from the due date appearing in the notice


and demand of the Commissioner until the amount is fully paid

Page 143
Imposition of deficiency interest and delinquency
interest on tax assessments
Liquigaz Philippines Corporation vs. CIR (Cont.)

► In this case, the CTA En Banc, in its amended decision, held that
the imposition of the 20% deficiency interest on the deficiency
income tax in the reduced amount of P81,806,081.69 including the
25% surcharge, shall accrue from April 15, 2007 until full payment
thereof.

► The delinquency interest of 20% shall be applied to the total


amount of: (1) P81,806,081.69, plus (2) the deficiency interest
computed beginning November 1, 2009 until full payment.

Page 144
Remedies –
Prescription

Page 145
The prescriptive period for deficiency donor’s tax on the
sale of shares is reckoned from filing of CGT return
Urbano L. Velasco vs. Bureau of Internal Revenue
CTA (First Division) Case No. 8497 promulgated May 17, 2016

• Bureau of Internal Revenue assessed Petitioner Urbano Velasco


(Velasco) for deficiency donor’s tax on the sale of his shares of
stock in Gervel, Inc. (Gervel) and Metropolitan Management
1 Corporation (MMC) in 2008.

• The BIR demanded payment of the donor’s tax due based on the
difference between the book value and the selling price of the
2 shares (selling price is lower than book value).

• BIR issued a Preliminary Assessment Notice (PAN) assessing


3 donor’s tax. Velasco protested the assessment.

Page 146
The prescriptive period for deficiency donor’s tax on the
sale of shares is reckoned from filing of CGT return
Urbano L. Velasco vs. Bureau of Internal Revenue (cont’d.)

• On October 14, 2011, BIR issued a Final Assessment Notice.


4 Velasco raised prescription and argued that since he filed the
corresponding Capital Gains Tax (CGT) Returns on September 24,
2008, the BIR only had until September 24, 2011 to assess.

5 • The BIR countered that since Velasco failed to file a donor’s tax
return, it has 10 years to assess the deficiency donor’s tax.

Issue: Is Velasco subject to deficiency donor’s tax?

Page 147
Excess of fair market value over the consideration
received for the stocks sold is subject to donor’s tax

Urbano L. Velasco vs. Bureau of Internal Revenue (cont’d)

Ruling: No. The right of the BIR to assess Velasco for the deficiency
donor’s tax has prescribed.

Donor’s tax is imposed upon the transfer by any person of the property
by gift as provided under Section 98 of the Tax Code. The excess in the
fair market value over the consideration received for the stocks sold is
deemed gift subject to donor’s tax.

Page 148
Even if TP fails to file donor’s tax return, prescriptive period
to assess donor’s tax is 3 years from filing of CGT return

Urbano L. Velasco vs. Bureau of Internal Revenue (cont’d)

► However, the CTA ruled that the donor’s tax assessment against
Velasco should be cancelled due to prescription.

► Although the assessment was for donor’s tax, Velasco’s filing of the
CGT Returns constitutes sufficient compliance with the requirement of
filing a tax return under Section 103 of the Tax Code, as amended, for
the purpose of computing prescription covering the transaction. The
FAN was dated October 13, 2011 or more than 3 years after the filing
of the CGT Returns on September 24, 2008.

Page 149
What BIR notices may be protested to constitute
disputed assessment; appealable to the CTA?
Landbank of the Philippines vs. Commissioner of Internal Revenue
CTA (Second Division) Case 8684 promulgated 21 January 2016
• The BIR assessed the Landbank of the Philippines (Landbank) for
deficiency expanded withholding tax (EWT) and documentary
stamp tax (DST) on the consolidation of a land title in its name as
1 the winning bidder. The BIR also imposed a 25% surcharge of the
basic tax, interest of 20% per annum, and compromise penalties for
alleged late payment of the taxes due.

• Landbank paid the taxes and penalties as computed in the One-


Time Transaction (ONETT) Computation Sheet. Landbank then
2 filed a protest with the BIR against the imposition of the surcharge,
interest and compromise penalties. In the same protest letter,
Landbank sought the refund of the penalties paid.

• Upon denial of its protest, Landbank filed a Petition for Review with
3 the CTA.

Page 150
Can a claim for refund prosper if it was raised in
taxpayer's protest letter to an assessment?
Landbank of the Philippines vs. CIR

• Records show that the redemption period expired on September


29, 2012, a Saturday, and both Landbank and the CIR agreed that
the right to redeem could still be legally exercised until October 1,
4 2012. As such, Landbank argued that its deadline to pay the EWT
and DST was extended to 10th and 5th day, respectively, of the
month following the sale or on November 10 and 5, respectively.
On the other hand, the CIR asserted that the extension of the right
to redeem does not apply to the remittance of the EWT and DST,
which were nonetheless due on October 10 and October 5,
respectively.

Issues:
1.Does the CTA have jurisdiction over the CIR’s inaction on Landbank’s
protest based on the ONETT Computation Sheet?

2. Is Landbank entitled to a refund of the penalties paid?

Page 151
ONETT computation sheet is not an assessment
contemplated under Section 228; CTA has no jurisdiction
Landbank of the Philippines vs. CIR
Rulings:

► No. The CTA has jurisdiction only on the inaction of the CIR over Landbank’s
disputed assessment pursuant to Section 228 of the Tax Code, as amended.
The ONETT Computation Sheet is not the assessment contemplated under
Section 228 that would require a protest. It does not formally inform a
taxpayer of its tax liabilities and there is no formal demand to pay the same.
Without the formal demand for payment, Landbank has no way to determine
the period within which to protest the tax liabilities computed by the CIR.

► Thus, the CTA did not acquire jurisdiction over the Petition. In CIR vs.
PASCO Realty and Development Corp., GR No. 128315 promulgated on
June 29, 1999, the Supreme Court explained that not all documents coming
from the BIR containing a computation of the tax liability can be deemed
assessments. An assessment contains not only a computation of tax
liabilities, but also a demand for payment within a prescribed period.

Page 152
Claim for refund should have been filed instead of protest
to recover penalties paid
Landbank of the Philippines vs. CIR

Rulings:

► 2. No. To be able to claim a refund under Section 229 of the Tax Code,
Landbank must have filed an administrative claim before the BIR. No such
administrative claim for refund or issuance of a tax credit certificate was filed
by Landbank with the BIR.

Page 153
Questions?

Você também pode gostar