Escolar Documentos
Profissional Documentos
Cultura Documentos
(PICPA)
TAX COMMITTEE
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
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.”
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
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.
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)
► 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.
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.
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
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
Held:
Yes. Lear Ph’s royalty payments form part of its direct cost that
are deductible for purposes of computing the 5% GIT.
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
Facts:
► Acer Philippines, Inc was assessed by BIR with deficiency income
tax, among others, for calendar 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
Issue:
Held:
► 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
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
Facts:
► 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
Facts:
Page 23
Royalty income generated from the active pursuit and performance
of the corporation’s primary purpose is subject to regular corporate
income tax
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
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.
Page 25
Taxpayer should signify in its ITR the intention to elect the optional
standard deduction (OSD) to avail of the 40% standard deduction
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
Page 27
Income Tax –
Others
Page 28
Computation of deficiency IAET is based on Section 29
of the Tax Code
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.
Page 29
Computation of deficiency IAET is based on Section 29
of the Tax Code
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
Issue:
► Is Roca liable to IAET?
Page 30
Computation of deficiency IAET is based on Section 29
of the Tax Code
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
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
Facts:
► Aegis People Support, Inc (Aegis) was registered with PEZA
► 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
Facts (contd):
► CIR failed to act on the claim
► 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
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
Held (contd):
Page 36
Goodwill is a capital asset, sale of which is subject to CGT,
not RCIT
Facts:
Page 37
Goodwill is a capital asset, sale of which is subject to CGT,
not RCIT
Facts:
Page 38
Goodwill is a capital asset, sale of which is subject to CGT,
not RCIT
Facts (contd):
► CIR Reason:
The sale involves a transfer of goodwill which is an ordinary asset
subject to 35% RCIT.
Issue:
Page 39
Goodwill is a capital asset, sale of which is subject to CGT,
not RCIT
Held:
► 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.
Page 40
Goodwill is a capital asset, sale of which is subject to CGT,
not RCIT
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,
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
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
Held:
Page 45
No EWT on condominium dues on payments made before
issuance of RMC 65-2012
Held:
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
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
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’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.
Page 49
Income payments to agricultural supplier of goods is not
subject to 1% EWT
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
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.
Page 51
Either BIR Form 2307 or BIR Form 1606 may be used to
prove the fact of withholding
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
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.
Page 53
Either BIR Form 2307 or BIR Form 1606 may be used to prove the
fact of withholding
Page 54
Either BIR Form 2307 or BIR Form 1606 may be used to prove the
fact of withholding
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
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.
► 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
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.
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.
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
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
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
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.
Page 64
Timing of payment of FWT on cash dividends
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’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
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.
Page 66
Timing of payment of FWT on cash dividends
Issue:
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
Ruling (contd)
Page 68
Tax Treaty
Page 69
Royalties and business profits
Page 71
Royalties and business profits
Issue:
► Are the software maintenance fees paid by FDIP to FII
considered royalties subject to FWT?
Page 72
Royalties and business profits
► 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
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:
Page 75
Tax Treaty Relief - Capital Gains
Keppel Philippines Properties, Inc. - contd
► 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.
► 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.
► 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
Page 83
Tax treatment of gain from redemption of 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
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
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
Issue:
► Is Tulay exempt from VAT?
Ruling:
► No.
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.
• 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
Issue:
► What evidence shall prove that a nonresident foreign corporation is doing
business outside the Philippines, for purposes of VAT zero-rating?
Ruling:
Page 95
Required documents to prove that a nonresident foreign
corporation is not doing business in the Philippines
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.
Ruling:
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
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
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
Page 102
VAT is not covered by the exemption under Article 7
(Business Profits) of RP-Singapore Tax Treaty
“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
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
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.
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
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.
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?
• 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
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.
Page 118
CIR cannot be held liable for actual damages as he is
immune from suit under the doctrine of sovereign immunity.
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
• 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.
Page 120
Effect of a void FDDA on the tax assessment
Assessment vs. Decision
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
Page 122
The nullity of an FDDA does not result in the nullification
of the entire assessment
► 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
* 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
• 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
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..
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.)
► 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
► 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.
Page 133
Remedies –
Deficiency interest and
delinquency interest
Page 134
Deficiency interest may be imposed on all types of taxes
• 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
► 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
Page 137
Deficiency and delinquency interest may be imposed
simultaneously
CIR vs. Philippine Tobacco (Cont.)
► 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
Page 139
Computation of imposable Interests in case of deficiency
assessments
Liquigaz Philippines Corporation vs. CIR (Cont.)
Page 140
Is deficiency interest applicable also on deficiency VAT,
EWT and WTC?
Liquigaz Philippines Corporation vs. CIR (Cont.)
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.)
Page 142
Reckoning period for the imposition of deficiency
interest and delinquency interest
Liquigaz Philippines Corporation vs. CIR (Cont.)
► 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.
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.
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
• 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).
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.)
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.
Page 147
Excess of fair market value over the consideration
received for the stocks sold is subject to donor’s tax
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
► 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.
• 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
Issues:
1.Does the CTA have jurisdiction over the CIR’s inaction on Landbank’s
protest based on the ONETT Computation Sheet?
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?