TAXPAYERS and practitioners alike were recently bombarded by numerous
and controversial rules and regulations from the Bureau of Internal
Revenue (BIR). These issuances cover a wide variety of subjects and
affect various types of taxpayers.
Most of these issuances did
not even go through public hearing. It is more often the rule, not the
exception, that taxpayers are caught unaware of the new requirements
imposed upon them.
Not surprisingly, most taxpayers are now
confused or ambivalent about how to implement the changes brought about
by the new issuances.
On top of implementation and operational
issues, taxpayers are also not clear as to when the issuances take
effect and the periods covered by the issuances.
For instance,
Revenue Regulations No. (RR) 14-2012 provided that the regulations shall
take effect 15 days following complete publication in a newspaper of
general circulation in the Philippines.
The effectivity clause,
however, of RR No. 12-2012, Revenue Memorandum Circular (RMC) Nos.
77-2012, 75-2012, 73-2012 and 65-2012 provided that the same shall take
effect immediately.
On the other hand, RMC Nos. 76-2012, 74-2012
and 63-2012 merely enjoined all internal revenue officers and other
concerned entities or individuals to give such circulars as wide a
publicity as possible and did not provide for the date of effectivity.
With
these various issuances, the seemingly onerous compliance effort has
become even more stringent, taking also into consideration the confusion
of the public with regard to the effectivity of BIR issuances.
Before we can ascertain the effectivity of such issuances, determination as to the nature of the issuance is necessary.
Discussions
of collateral issues are also important, particularly on whether or not
publication is mandatory for an issuance to be valid and enforceable.
In addition, if and when the issuances become effective, are these
applicable prospectively or retroactively?
FORCE AND EFFECT OF LAW
The
so-called RR, RMC, BIR Ruling, Revenue Memorandum Order (RMO) and
Revenue Audit Memorandum Order (RAMO) are the most common issuances of
the BIR. These issuances, being administrative in nature, generally have
the force and effect of law.
PUBLICATION
Laws shall take
effect 15 days following the completion of their publication either in
the Official Gazette or in a newspaper of general circulation in the
Philippines, unless it is otherwise provided, pursuant to the New Civil
Code (NCC).
In a long line of decisions, the Supreme Court (SC)
has enunciated in the landmark case Tanada v Tuvera that publication is
necessary in those cases where the legislation itself does not provide
for its effectivity date -- for then the date of publication is material
for determining its date of effectivity, which is the 15th day
following its publication -- but not when the law itself provides for
the date when it goes into effect.
The clear object of the law is
to give the general public adequate notice of the various laws which
are meant to regulate their actions and conduct as citizens. It is a
requirement of due process embodied in our Constitution. It is a rule of
law that before a person may be bound by law, he must first be
officially and specifically informed of its contents.
Without
such notice and publication, there would be no basis for the application
of the legal maxim ignorantia legis non excusat (ignorance of the law
excuses no one from compliance therewith) laid down under Article 3 of
the NCC. It would be the height of injustice to punish or otherwise
burden a citizen for the transgression of a law of which he had no
notice whatsoever, not even a constructive one.
It is worthy to
note, however, that administrative issuances, such as those issued by
the BIR, may be distinguished according to their nature and substance:
legislative and interpretative. The difference is crucial in determining
whether or not p
ublication is mandatory prior to effectivity.
A legislative rule
is in the matter of subordinate legislation, designed to implement
primary legislation by providing the details thereof.
An
interpretative rule, meanwhile, is designed to provide guidelines to the
law which the administrative agency is in charge of enforcing. (BPI
Leasing Corp. v. CA, GR No. 127624, Nov. 18, 2003)
In the same
way that laws must have the benefit of public hearing, it is generally
required that before a legislative rule is adopted there must be notice,
hearing and publication.
"There are, however, several exceptions
to the requirement of publication. First, an interpretative regulation
does not require publication in order to be effective. The applicability
of an interpretative regulation needs nothing further than its bare
issuance for it gives no real consequence more than what the law itself
has already prescribed. It adds nothing to the law and does not affect
the substantial rights of any person. Second, a regulation that is
merely internal in nature does not require publication for its
effectivity. It seeks to regulate only the personnel of the
administrative agency and not the general public. Third, a letter of
instruction issued by an administrative agency concerning rules or
guidelines to be followed by subordinates in the performance of their
duties does not require publication in order to be effective." (ASTEC v
ERC, GR No. 192117, Sept. 18, 2012; CIR v Michel J. Lhuillier Pawnshop,
Inc.,).
PUBLIC HEARING
In the case of Commissioner of
Internal Revenue (CIR) v. Fortune Tobacco, et al., (21 SCRA 236), the SC
nullified an RMC which reclassified certain cigarettes and subjected
them to a higher tax rate, holding it invalid for lack of notice,
publication and public hearing.
"(T)he doctrine enunciated in
Fortune Tobacco, and reiterated in CIR v. Michel J. Lhuillier Pawnshop,
Inc., (GR 150497) is that when an administrative rule goes beyond merely
providing for the means that can facilitate or render less cumbersome
the implementation of the law and substantially increases the burden of
those governed, it behooves the agency to accord at least to those
directly affected a chance to be heard and, thereafter, to be duly
informed, before the issuance is given the force and effect of law. In
Lhuillier and Fortune Tobacco, the Court invalidated the revenue
memoranda concerned because the same increased the tax liabilities of
the affected taxpayers without affording them due process." (BPI Leasing
v. CA)
PROSPECTIVE APPLICATION
The principle is well
entrenched that statutes, including administrative rules and
regulations, operate prospectively, unless the legislative intent to the
contrary is manifest by express terms or by necessary implication.
They may, however, be applied retroactively in cases of procedural and interpretative laws, among others.
Any
revocation, modification or reversal of any of the rules and
regulations promulgated by the BIR or any of the rulings or circulars
promulgated by the CIR shall not be given retroactive application if the
revocation, modification or reversal will be prejudicial to the
taxpayers except in the following cases: (a) where the taxpayer
deliberately misstates or omits material facts from his return or in any
document required of him by the BIR; (b) where the facts subsequently
gathered by the BIR are materially different from the facts on which the
ruling is based; or (c) where the taxpayer acted in bad faith (Section
246 of the 1997 Tax Code, as amended).
Hence, in the light of the
foregoing, circulars, rulings or other issuances promulgated by the CIR
have no retroactive application if such would tantamount to prejudice
to the taxpayers.
Conversely, if the same is beneficial to taxpayers, it must be given retroactive application to lighten the taxpayer’s burden.
The
power of taxation should be exercised with caution to m
inimize injury to the rights of a taxpayer. This has been reiterated and
re-emphasized in our laws and vast array of Supreme Court decisions.
TAXPAYERS’ REMEDIES
To
summarize: despite the harshness of implementation, BIR issuances
mandating all taxpayers to strictly comply with its provisions still
have the force and effect of law.
Taxpayers, however, are not
deprived of remedies. The validity and enforceability of BIR issuances
may be assailed if proven to be suffering from legal infirmities and are
in violation of the clear and categorical provisions of the
Constitution and statutes intended to protect the rights vested on the
taxpayers.
Source: Punongbayan and Araullo
Monday, December 3, 2012
Monday, November 26, 2012
CA restores trust in banks
Businessworld - ‘This is the ruling that sends a message to every one that there is hope in the justice system although there are very few Tejams in the bench.’
In the pen of Justice Noel Tejam, the Court of Appeals reversed itself in the case of Banco Filipino vs Bangko Sentral ng Pilipinas. The CA overturned a decision penned by Associate Justice Agnes Reyes Carpio that ordered the reopening of the bank and the grant of a P25 billion advance from the Philippine Deposit Insurance Corp.
The case arose from alleged arbitrary closure of BF by the Monetary Board for documented insolvency. The late Carlota Valenzuela, then head of CB’s department of supervision, documented the allegation that the value of BF’s assets at the time of closure was way below the extent of its liabilities.
Only one word describes that situation. BF was insolvent.
However, since the bank’s main offices and branches were padlocked with the help of CB’s security force, the Supreme Court concluded that the closure was arbitrary although the obligation of BF was to disprove the CB’s findings of insolvency.
BF, at some point, claimed the bank was merely illiquid, not insolvent.
Illiquidity and insolvency are worlds apart. To us the case was that simple. But BF made the claim that the assets of the bank had grown big enough to make it sound as no longer insolvent.
I followed this case from the very beginning. I cannot understand why the lawyers of the CB failed to convince the Supreme Court that the documented insolvency was discovered after a thorough examination and at the time of closure.
The bigger “anomaly” is why the Supreme Court chose to skip the main issue of insolvency and instead saw, based its ruling. the “arbitrariness” that attended the closure.
The Supreme Court ordered the reopening of Banco Filipino.
BF got the Court of Appeals to order the reopening and grant of a P25 billion loan which (if memory serves) was a claim for damages but became a loan application.
BSP Governor Armando Tetangco got the authority of the Monetary Board to hire the services of new counsel, CVC Law, headed by Pancho Villazara. Banco Filipino has been having troubles with the Monetary Board and its lawyers since then.
The savings bank was ordered closed and taken over by monetary authorities after discovering violations, not exactly related to insolvency.
CA Associate Justice Agnes Reyes Carpio ruled that the bank be reopened and that its loan application of P25 billion be granted.
This was the ruling reversed by Associate Justice Noel Tejam of the same Court of Appeals.
We do not know how much further BF is willing to fight its case. It may have what it feels are available legal remedies to leave meaningless the ruling of Justice Tejam.
This space has maintained that in many cases, the courts are to blame in the failure of the law to punish bankers and other people responsible for the collapse of banks that in turn meant huge losses to the PDIC which pays the insurance claims of depositors.
Up to this time, the court has not resolved the alleged liability of Jose Go in the failure and collapse of Orient Bank. The courts have neither sent an erring banker to jail nor stripped him of his assets to pay for his crime.
The Supreme Court maimed the efforts of the Anti-Money Laundering Council when it ruled illegal or unconstitutional the filing of ex parte complaint against suspected money launderers without informing the respondents.
The Supreme Court never understood the simple sense that informed ahead of a search case, the respondents would transfer their deposits or withdraw them.
The Supreme Court also ruled that the claimants of just compensation – Philippine International Air Transport Corp. (PIATCO) in this specific case - need not substantiate their claims with documentary evidence.
Tomas Aguirre , founded Banco Filipino to make it the largest among savings and thrift banks in the Philippines in its time. It would have easily qualified for a commercial banking license.
Aguirre, apart from being a good banker, was basically a promotions man. His public relations project, “customer relations models” picked pretty women manning teller windows and campaigning for deposits.
The bank grew to new heights. What many did not know was there was a brewing trouble in the Aguirre family and with one of its big stockholders, Nancy Tee.
Pedrito Aguirre once told me that his brother Tomas had always wanted to consolidate the holdings of his family. He said he sold his holdings to Tomas.
Tomas bought out a few more stockholders until he acquired effective control.
According to Pedrito, his brother Tomas forgot to buy out their sister, Remedios Dupasquiere and Nancy Tee, probably the single biggest stockholder.
After Tomas died, the business of running the bank fell into the hands of his son, Bobby.
His other son, a Harvard graduate of a degree in history, had enough sense in banking. As fate would have it, he too died.
The rest is history. The Bangko Sentral eventually discovered violations by the new management, violations serious enough to justify a second order of closure.
CA Associate Justice Reyes Carpio agreed to a reopening. This is the ruling that Justice Tejam reversed.
This is the ruling that sends a message to every one that there is hope in the justice system although there are very few Tejams in the bench.
***
email:
amadomacasaet@yahoo.com
Wednesday, August 8, 2012
Security deposit -- clarifying the enigma
Businessworld - FOREIGN COMPANIES desiring to engage in business in the Philippines may establish either a wholly owned subsidiary or a branch office in the Philippines. A subsidiary is a locally incorporated entity while a branch requires the issuance by the Securities and Exchange (SEC)of a license to do business in the Philippines.
The procedure for registration of a subsidiary and a branch are generally the same, although documentation is different.
Moreover, in the case of a branch, Section 126 of the Corporation Code imposes an additional requirement in the form of a security deposit, which is often treated with less importance, or even overlooked. This may partly be attributed to the ambiguous provisions of Section 126 and its implementing guidelines, i.e., SEC 1982 Security Deposit Guidelines. Under Section 126, foreign corporations who have been granted a license to do business in the Philippines are required to make an initial deposit with the SEC of acceptable securities in an amount not less than P100,000 within 60 days from the date of the issuance of their SEC license. Thereafter, additional securities shall be deposited within six months from the end of each fiscal year if the branch’s gross income exceeds PHP5 million in an amount equivalent to 2% by which said gross income exceeds P5 million.
The security deposit requirement under Section 126 is equally important as the other registration requirements mainly because this is mandatory and non-compliance therewith is a ground for cancellation of the SEC license to do business.
In addition, the amount of security deposit is an additional investment of the foreign company which may affect its operations in the country.
The security deposit requirement embodied under Section 126 of the Corporation Code is intended to protect present and future creditors of the branch with the securities constituting as a trust fund in case the foreign branches become unable to settle its debts.
Most branches normally comply with the initial P100,000 security deposit as this is straightforward and not costly. However, compliance with the additional securities in the succeeding years has posed certain problems, mainly because of ambiguity in its proper computation, which sometimes may be burdensome especially for companies with annual gross earnings already running into millions of pesos. It may be noted that such securities although earning interest, would still entail additional expenses on the part of the branch as a substantial amount will still be shelled out for its purchase.
The ambiguity lies specifically in the definition of what constitutes "gross income" as basis of the 2% additional security deposit. Gross income for purposes of the additional security deposit is not defined under the law or the implementing guidelines of the SEC. Thus, several foreign branches individually have asked SEC for clarification on the definition of gross income.
Various rulings have been issued by the SEC which defined "gross income" as synonymous to the term "gross revenue" which covers gain, income, profits and returns of a branch without any deductions made on the entire amount. Disallowance of any kind of deduction from gross income made it difficult for some foreign branches to comply with the additional security deposit since a significant portion of their earnings had to be placed in investments, which may impact their present and future business plans.
Other foreign branches have likewise asked SEC for a reduction in the 2% additional security deposit by excluding certain items of income from the definition of gross income. The SEC granted such requests on a case to case basis. Others even went as far as requesting for a waiver of the additional security deposit which were disapproved by the commission.
To address ambiguities in the implementation of Section 126 of the Corporation Code, the SEC recently issued SEC Memorandum Circular No. 2 (SEC Memo 2) which took effect on May 30, 2012, superseding the original 1982 Security Deposit Guidelines. A significant amendment introduced in SEC Memo 2 is the definition of gross income for purposes calculating the 2% additional security deposit. SEC Memo 2 adopted the same definition of gross income pronounced in the various rulings of the SEC, i.e., gross income is synonymous to gross revenue which covers gain, income, profits and returns of a branch, but allowed certain deductions consisting of: cost of sales incurred with foreign suppliers; direct costs attributable to related party transactions located outside of the Philippines; direct costs incurred which are attributable to foreign non-related suppliers; and amount of merchandise returned by a customer and/or allowances granted to a customer in the event of defective or improperly shipped merchandise.
These deductions may be deducted from gross income provided the branch submits to the SEC an audited special or annual income statement showing distinctly the amounts of direct costs and expenses actually incurred with foreign entities and foreign related parties.
It will be noted that most of the deductions exclude debts incurred from foreign sources on the premise that only local creditors are protected by the security deposit requirement.
SEC Memo 2 also includes the following features:
• Types of acceptable securities -- Some of the outdated acceptable securities enumerated in the 1982 Securities Deposit Guidelines were replaced by a wide array of choices which include government bonds or any evidence of indebtedness of the Government of the Philippines, including government-owned and -controlled corporations; shares of stock in registered enterprises defined under the Omnibus Investments Code; shares of stock in domestic corporations registered in the stock exchange; shares of stock in domestic corporations under the supervision and regulation of the Insurance Commission and shares of stock in banks licensed by the Bangko Sentral Ng Pilipinas.
• Return of securities -- The release of securities shall follow the same procedures and requirements provided under the original 1982 Securities Deposit Guidelines, i.e., securities shall be released at the time of closure of the branch upon submission of a written application supported by a Board Resolution authorizing the closure. In addition SEC Memo 2 also allows the release of securities if the branch’s gross income for a given year decreases by 10%.
• Monitoring fee -- A monitoring fee shall be paid to the SEC upon filing of the application of compliance. The fixed SEC monitoring fee of P1,000 has been increased to one-tenth of one percent of the amount of securities to be deposited, which will not be less than P5,000 but not more than P50,000 in a given year.
SEC Memo 2 is indeed welcome news to foreign branches. It aims to achieve a healthy compromise between protecting local creditors of foreign branches, at the same time making it less burdensome on the part of the foreign branches to comply with their obligation.
Nevertheless, for companies earning billions of revenue annually, the 2% additional security deposit may still be quite onerous.
I believe certain flexibility may still be applied in respect to the allowable deductions from gross income.
I hope the SEC would take a second look at direct costs attributable to locally-based affiliates which may not strictly be classified among the local creditors intended to be protected by the law, in view of their relationship with the debtor.
The author is a Senior Manager at the Tax Services Department of Isla Lipana & Co., the Philippine member firm of PricewaterhouseCoopers global network. Readers may send inquiries or feedback to her via e-mail at susan.m.aquino@ph.pwc.com.
For bar questions and law subjects reviewers, visit www.onlinereview.com.ph
The procedure for registration of a subsidiary and a branch are generally the same, although documentation is different.
Moreover, in the case of a branch, Section 126 of the Corporation Code imposes an additional requirement in the form of a security deposit, which is often treated with less importance, or even overlooked. This may partly be attributed to the ambiguous provisions of Section 126 and its implementing guidelines, i.e., SEC 1982 Security Deposit Guidelines. Under Section 126, foreign corporations who have been granted a license to do business in the Philippines are required to make an initial deposit with the SEC of acceptable securities in an amount not less than P100,000 within 60 days from the date of the issuance of their SEC license. Thereafter, additional securities shall be deposited within six months from the end of each fiscal year if the branch’s gross income exceeds PHP5 million in an amount equivalent to 2% by which said gross income exceeds P5 million.
The security deposit requirement under Section 126 is equally important as the other registration requirements mainly because this is mandatory and non-compliance therewith is a ground for cancellation of the SEC license to do business.
In addition, the amount of security deposit is an additional investment of the foreign company which may affect its operations in the country.
The security deposit requirement embodied under Section 126 of the Corporation Code is intended to protect present and future creditors of the branch with the securities constituting as a trust fund in case the foreign branches become unable to settle its debts.
Most branches normally comply with the initial P100,000 security deposit as this is straightforward and not costly. However, compliance with the additional securities in the succeeding years has posed certain problems, mainly because of ambiguity in its proper computation, which sometimes may be burdensome especially for companies with annual gross earnings already running into millions of pesos. It may be noted that such securities although earning interest, would still entail additional expenses on the part of the branch as a substantial amount will still be shelled out for its purchase.
The ambiguity lies specifically in the definition of what constitutes "gross income" as basis of the 2% additional security deposit. Gross income for purposes of the additional security deposit is not defined under the law or the implementing guidelines of the SEC. Thus, several foreign branches individually have asked SEC for clarification on the definition of gross income.
Various rulings have been issued by the SEC which defined "gross income" as synonymous to the term "gross revenue" which covers gain, income, profits and returns of a branch without any deductions made on the entire amount. Disallowance of any kind of deduction from gross income made it difficult for some foreign branches to comply with the additional security deposit since a significant portion of their earnings had to be placed in investments, which may impact their present and future business plans.
Other foreign branches have likewise asked SEC for a reduction in the 2% additional security deposit by excluding certain items of income from the definition of gross income. The SEC granted such requests on a case to case basis. Others even went as far as requesting for a waiver of the additional security deposit which were disapproved by the commission.
To address ambiguities in the implementation of Section 126 of the Corporation Code, the SEC recently issued SEC Memorandum Circular No. 2 (SEC Memo 2) which took effect on May 30, 2012, superseding the original 1982 Security Deposit Guidelines. A significant amendment introduced in SEC Memo 2 is the definition of gross income for purposes calculating the 2% additional security deposit. SEC Memo 2 adopted the same definition of gross income pronounced in the various rulings of the SEC, i.e., gross income is synonymous to gross revenue which covers gain, income, profits and returns of a branch, but allowed certain deductions consisting of: cost of sales incurred with foreign suppliers; direct costs attributable to related party transactions located outside of the Philippines; direct costs incurred which are attributable to foreign non-related suppliers; and amount of merchandise returned by a customer and/or allowances granted to a customer in the event of defective or improperly shipped merchandise.
These deductions may be deducted from gross income provided the branch submits to the SEC an audited special or annual income statement showing distinctly the amounts of direct costs and expenses actually incurred with foreign entities and foreign related parties.
It will be noted that most of the deductions exclude debts incurred from foreign sources on the premise that only local creditors are protected by the security deposit requirement.
SEC Memo 2 also includes the following features:
• Types of acceptable securities -- Some of the outdated acceptable securities enumerated in the 1982 Securities Deposit Guidelines were replaced by a wide array of choices which include government bonds or any evidence of indebtedness of the Government of the Philippines, including government-owned and -controlled corporations; shares of stock in registered enterprises defined under the Omnibus Investments Code; shares of stock in domestic corporations registered in the stock exchange; shares of stock in domestic corporations under the supervision and regulation of the Insurance Commission and shares of stock in banks licensed by the Bangko Sentral Ng Pilipinas.
• Return of securities -- The release of securities shall follow the same procedures and requirements provided under the original 1982 Securities Deposit Guidelines, i.e., securities shall be released at the time of closure of the branch upon submission of a written application supported by a Board Resolution authorizing the closure. In addition SEC Memo 2 also allows the release of securities if the branch’s gross income for a given year decreases by 10%.
• Monitoring fee -- A monitoring fee shall be paid to the SEC upon filing of the application of compliance. The fixed SEC monitoring fee of P1,000 has been increased to one-tenth of one percent of the amount of securities to be deposited, which will not be less than P5,000 but not more than P50,000 in a given year.
SEC Memo 2 is indeed welcome news to foreign branches. It aims to achieve a healthy compromise between protecting local creditors of foreign branches, at the same time making it less burdensome on the part of the foreign branches to comply with their obligation.
Nevertheless, for companies earning billions of revenue annually, the 2% additional security deposit may still be quite onerous.
I believe certain flexibility may still be applied in respect to the allowable deductions from gross income.
I hope the SEC would take a second look at direct costs attributable to locally-based affiliates which may not strictly be classified among the local creditors intended to be protected by the law, in view of their relationship with the debtor.
The author is a Senior Manager at the Tax Services Department of Isla Lipana & Co., the Philippine member firm of PricewaterhouseCoopers global network. Readers may send inquiries or feedback to her via e-mail at susan.m.aquino@ph.pwc.com.
Monday, August 6, 2012
Simplifying the VAT invoicing system
IS THERE ROOM for further simplification of the value-added tax (VAT) invoicing system?
The VAT system has been acclaimed as a superior tax because of, among others, the audit trail that it generates.
The tax credit method for computing the VAT due under the
Philippine VAT system compels VAT taxpayers to demand the sellers to
issue correct VAT receipts and invoices so that they can rightfully
claim the corresponding input VAT from their purchases.
Under this system, VAT-registered sellers are therefore forced
to correctly declare their sales, at least those made to buyers who
demanded official receipts and invoices.
At the same time, the audit trail allows the Bureau of Internal Revenue
(BIR) to cross-check the purchases declared by the buyers against the
sales declared by the sellers. Any difference will trigger further audit
or examination.
Since VAT receipts and invoices are the core documents in the audit trail, the government has exerted efforts to ensure that these documents would be most effective in supporting that trail.
The regulations require a long list of information that should be inputted in the VAT receipt and invoice, both about the seller and the buyer, as follows:
• name of the seller;
• business style of the seller;
• business address of the seller;
• statement that the seller is a VAT-registered person, followed by his tax identification number (TIN);
• name of the buyer;
• business style of the buyer;
• address of the buyer;
• TIN of the buyer, if VAT-registered and amount exceeds P1,000;
• date of transaction;
• quantity;
• unit cost;
• description of the goods or properties or nature of the service;
• purchase price plus the VAT shown as a separate item in the invoice or receipt;
• breakdown of the sale as to VAT-exempt, zero-rated sales, or subject to VAT at 12% and the calculation of the VAT on each portion of the sale;
• authority to print receipt number at the lower left corner of the invoice or receipt.
On the other hand, receipts for reimbursement of expenses advanced by the seller are not allowed to be included in VAT receipts and invoices but are instead required to be covered by non-VAT acknowledgement receipts.
There should be little problem regarding the required information about the seller because these are generally pre-printed in the case of manual invoices and receipts, or are automatically generated in the case of invoices and receipts generated from a computerized accounting system.
The buyer information is, however, inputted by the seller only when issuing the invoice or receipt and because of that, absolute compliance is not always achieved. While VAT taxpayers are always reminded to ensure that the invoices and receipts that are issued to them are correct, many factors contribute to their failure to demand for correct and complete documents. Hence, during examination, many VAT assessments arise because of alleged defects in the supporting receipts and invoices.
Common situations involve incomplete name of a company, and failure to indicate the address and the TIN. In such cases, the invoice or receipt may run the risk of being disallowed as a support for input VAT credit.
Note that these information are intended to ensure that the correct taxpayer is claiming the input VAT. Hence, only the name or the unique TIN should be critical and should be required.
Oftentimes, too, the VAT is not separately indicated in invoices and receipts. Though the seller may be penalized for failure to indicate the VAT, the buyer on the other end unfairly suffers the loss of the input VAT.
Could BIR issue a circular specifically allowing other supporting documents such as service invoice, a billing statement or a contract to isolate the VAT component?
In certain industries where the seller/service provider is obligated to make payments to third parties on behalf of their clients, such as advertising companies, travel agents, brokers and forwarders, the sellers normally commit the mistake of including such receipts for reimbursements in their VAT receipts.
Complying with the issuance of a non-VAT acknowledgement receipt involves additional processes that add up to compliance cost and time, which businesses generally want to avoid.
Unfortunately, huge assessments usually result from such mistakes, though, oftentimes, there is really no revenue loss on the part of government.
It would be simpler if inclusion of non-VAT reimbursements in the VAT official receipt would not be considered a punishable offense provided it is properly indicated as non-VAT receipts.
Or could the BIR prescribe alternative documents if the original invoices and receipts get lost or destroyed? If the alternative documents are specified in the regulations, the taxpayer need not beg while the examiner need not make hard decisions.
Could the VAT invoicing system therefore be further simplified so that technicalities leading to VAT assessments can be avoided?
Simplifications could also facilitate the audit process if the number of requirements that an examiner should audit can be reduced.
Life would be easier for both the taxpayer collecting the tax on behalf of government and overworked BIR examiners.
There are many other ways -- other taxpayers could have other ideas.
The VAT that taxpayers contribute to the tax revenues make up a major chunk. Compliance requirements instituted to ensure that transactions are captured in the VAT net and the correct taxes are paid are burdensome enough. And there are penalties for every non-compliance and erroneous compliance.
I’m sure many taxpayers would appreciate it if government can make room for further simplification of, at least, the VAT invoicing system.
The author is a tax principal with Punongbayan&Araullo’s Tax Advisory & Compliance Division. P&A is a leading audit, tax and advisory services firm and is the Philippine member of Grant Thornton International Ltd.
Readers may send comments and inquiries via e-mail to Lina.Figueroa@ph.gt.com or call 886-5511.
Since VAT receipts and invoices are the core documents in the audit trail, the government has exerted efforts to ensure that these documents would be most effective in supporting that trail.
The regulations require a long list of information that should be inputted in the VAT receipt and invoice, both about the seller and the buyer, as follows:
• name of the seller;
• business style of the seller;
• business address of the seller;
• statement that the seller is a VAT-registered person, followed by his tax identification number (TIN);
• name of the buyer;
• business style of the buyer;
• address of the buyer;
• TIN of the buyer, if VAT-registered and amount exceeds P1,000;
• date of transaction;
• quantity;
• unit cost;
• description of the goods or properties or nature of the service;
• purchase price plus the VAT shown as a separate item in the invoice or receipt;
• breakdown of the sale as to VAT-exempt, zero-rated sales, or subject to VAT at 12% and the calculation of the VAT on each portion of the sale;
• authority to print receipt number at the lower left corner of the invoice or receipt.
On the other hand, receipts for reimbursement of expenses advanced by the seller are not allowed to be included in VAT receipts and invoices but are instead required to be covered by non-VAT acknowledgement receipts.
There should be little problem regarding the required information about the seller because these are generally pre-printed in the case of manual invoices and receipts, or are automatically generated in the case of invoices and receipts generated from a computerized accounting system.
The buyer information is, however, inputted by the seller only when issuing the invoice or receipt and because of that, absolute compliance is not always achieved. While VAT taxpayers are always reminded to ensure that the invoices and receipts that are issued to them are correct, many factors contribute to their failure to demand for correct and complete documents. Hence, during examination, many VAT assessments arise because of alleged defects in the supporting receipts and invoices.
Common situations involve incomplete name of a company, and failure to indicate the address and the TIN. In such cases, the invoice or receipt may run the risk of being disallowed as a support for input VAT credit.
Note that these information are intended to ensure that the correct taxpayer is claiming the input VAT. Hence, only the name or the unique TIN should be critical and should be required.
Oftentimes, too, the VAT is not separately indicated in invoices and receipts. Though the seller may be penalized for failure to indicate the VAT, the buyer on the other end unfairly suffers the loss of the input VAT.
Could BIR issue a circular specifically allowing other supporting documents such as service invoice, a billing statement or a contract to isolate the VAT component?
In certain industries where the seller/service provider is obligated to make payments to third parties on behalf of their clients, such as advertising companies, travel agents, brokers and forwarders, the sellers normally commit the mistake of including such receipts for reimbursements in their VAT receipts.
Complying with the issuance of a non-VAT acknowledgement receipt involves additional processes that add up to compliance cost and time, which businesses generally want to avoid.
Unfortunately, huge assessments usually result from such mistakes, though, oftentimes, there is really no revenue loss on the part of government.
It would be simpler if inclusion of non-VAT reimbursements in the VAT official receipt would not be considered a punishable offense provided it is properly indicated as non-VAT receipts.
Or could the BIR prescribe alternative documents if the original invoices and receipts get lost or destroyed? If the alternative documents are specified in the regulations, the taxpayer need not beg while the examiner need not make hard decisions.
Could the VAT invoicing system therefore be further simplified so that technicalities leading to VAT assessments can be avoided?
Simplifications could also facilitate the audit process if the number of requirements that an examiner should audit can be reduced.
Life would be easier for both the taxpayer collecting the tax on behalf of government and overworked BIR examiners.
There are many other ways -- other taxpayers could have other ideas.
The VAT that taxpayers contribute to the tax revenues make up a major chunk. Compliance requirements instituted to ensure that transactions are captured in the VAT net and the correct taxes are paid are burdensome enough. And there are penalties for every non-compliance and erroneous compliance.
I’m sure many taxpayers would appreciate it if government can make room for further simplification of, at least, the VAT invoicing system.
The author is a tax principal with Punongbayan&Araullo’s Tax Advisory & Compliance Division. P&A is a leading audit, tax and advisory services firm and is the Philippine member of Grant Thornton International Ltd.
Readers may send comments and inquiries via e-mail to Lina.Figueroa@ph.gt.com or call 886-5511.
Tuesday, July 10, 2012
RA 9335: SC Upholds Attrition Act of 2005 Anew
sc.judiciary.gov.ph
The Supreme Court, voting unanimously, upheld the constitutionality of RA 9335, the Attrition Act of 2005, enacted to optimize the revenue-generation capability and collection of the Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC).
RA 9335 also intends to encourage BIR and BOC officials and employees to exceed their revenue targets by providing a system of rewards and sanctions through the creation of a Rewards and Incentives Fund and a Revenue Performance Evaluation Board and covers all BIR and BOC officials with at least six months of service, regardless of employment status.
In a 24-page decision penned by Justice Martin S. Villarama, Jr., the Court dismissed for lack of merit the petition for certiorari and prohibition of the Bureau of Customs Employees Association (BOCEA).
“It must be noted that this is not the first time the constitutionality of R.A. No. 9335 and its IRR are being challenged. The Court already settled the majority of the same issued raised by BOCEA in our decision in Abakada, which attained finality on September 17, 2008. As such, our ruling therein is worthy of reiteration in this case,” the Court held.
The Court ruled that RA 9335 “read and appreciated in its entirety, is complete in all its essential terms and conditions, and that it contains sufficient standards as to negate BOCEA’s supposition of undue delegation of legislative power to the Board.”
On the argument that RA 9335 violates the equal protection clause, the Court reiterated its jurisprudence in Abakada where it held: “With respect to RA 9335, its expressed public policy is the optimization of the revenue-generation capability and collection of the BIR and the BOC. Since the subject of the law is the revenue-generation capability and collection of the BIR and the BOC, the incentives and/or sanctions provided in the law should logically pertain to the said agencies….Both the BIR and the BOC are bureaus under the [Department of Finance] DOF. They principally perform the special function of being the instrumentalities through which the State exercises one of its great inherent functions – taxation. Indubitably, such substantial distinction is germane and intimately related to the purpose of the law. Hence, the classification and treatment accorded to the BIR and the BOC under RA 9335 fully satisfy the demands of equal protection.”
Likewise, the Court reiterated that RA 9335 does not violate the security of tenure of officials and employees of the BIR and the BOC. The Court ruled that a BIR or BOC official or employee in this case cannot be arbitrarily removed from the service without according him his constitutional right to due process as no less than RA 9355 in accordance with the 1986 Constitution guarantees this.
Furthermore, the Court ruled that RA 9335 is not a bill of attainder. A bill of attainder, the Court explained, is a legislative act which inflicts punishment on individuals or members of a particular group without a judicial trial. The Court held that RA 9335 does not possess the elements of a bill of attainder nor seek to inflict punishment without a judicial trial but merely lays down the grounds for the termination of a BIR or BOC official or employee and provides for the consequences thereof. The democratic processes are followed and the constitutional rights of the concerned employee are amply protected.
Lastly, the Court held that BOCEA’s petition was “replete with allegations of defects and anomalies in allocation, distribution and receipt of rewards. While BOCEA intimates that it intends to curb graft and corruption in the BOC in particular and in the government in general which is nothing but noble, these intentions do not actually pertain to the constitutionality of R.A. No. 9335 and its IRR, but rather in the faithful implementation thereof. R.A. No. 9335 itself does not tolerate these pernicious acts of graft and corruption.” (GR No. 181704, Bureau of Customs Employees Association v. Sec. Teves, December 6, 2011)
The Supreme Court, voting unanimously, upheld the constitutionality of RA 9335, the Attrition Act of 2005, enacted to optimize the revenue-generation capability and collection of the Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC).
RA 9335 also intends to encourage BIR and BOC officials and employees to exceed their revenue targets by providing a system of rewards and sanctions through the creation of a Rewards and Incentives Fund and a Revenue Performance Evaluation Board and covers all BIR and BOC officials with at least six months of service, regardless of employment status.
In a 24-page decision penned by Justice Martin S. Villarama, Jr., the Court dismissed for lack of merit the petition for certiorari and prohibition of the Bureau of Customs Employees Association (BOCEA).
“It must be noted that this is not the first time the constitutionality of R.A. No. 9335 and its IRR are being challenged. The Court already settled the majority of the same issued raised by BOCEA in our decision in Abakada, which attained finality on September 17, 2008. As such, our ruling therein is worthy of reiteration in this case,” the Court held.
The Court ruled that RA 9335 “read and appreciated in its entirety, is complete in all its essential terms and conditions, and that it contains sufficient standards as to negate BOCEA’s supposition of undue delegation of legislative power to the Board.”
On the argument that RA 9335 violates the equal protection clause, the Court reiterated its jurisprudence in Abakada where it held: “With respect to RA 9335, its expressed public policy is the optimization of the revenue-generation capability and collection of the BIR and the BOC. Since the subject of the law is the revenue-generation capability and collection of the BIR and the BOC, the incentives and/or sanctions provided in the law should logically pertain to the said agencies….Both the BIR and the BOC are bureaus under the [Department of Finance] DOF. They principally perform the special function of being the instrumentalities through which the State exercises one of its great inherent functions – taxation. Indubitably, such substantial distinction is germane and intimately related to the purpose of the law. Hence, the classification and treatment accorded to the BIR and the BOC under RA 9335 fully satisfy the demands of equal protection.”
Likewise, the Court reiterated that RA 9335 does not violate the security of tenure of officials and employees of the BIR and the BOC. The Court ruled that a BIR or BOC official or employee in this case cannot be arbitrarily removed from the service without according him his constitutional right to due process as no less than RA 9355 in accordance with the 1986 Constitution guarantees this.
Furthermore, the Court ruled that RA 9335 is not a bill of attainder. A bill of attainder, the Court explained, is a legislative act which inflicts punishment on individuals or members of a particular group without a judicial trial. The Court held that RA 9335 does not possess the elements of a bill of attainder nor seek to inflict punishment without a judicial trial but merely lays down the grounds for the termination of a BIR or BOC official or employee and provides for the consequences thereof. The democratic processes are followed and the constitutional rights of the concerned employee are amply protected.
Lastly, the Court held that BOCEA’s petition was “replete with allegations of defects and anomalies in allocation, distribution and receipt of rewards. While BOCEA intimates that it intends to curb graft and corruption in the BOC in particular and in the government in general which is nothing but noble, these intentions do not actually pertain to the constitutionality of R.A. No. 9335 and its IRR, but rather in the faithful implementation thereof. R.A. No. 9335 itself does not tolerate these pernicious acts of graft and corruption.” (GR No. 181704, Bureau of Customs Employees Association v. Sec. Teves, December 6, 2011)
Emphasis and links provided
by Broker Rem Ramirez 0922.883.9308 broker.ramirez@yahoo.com.ph
Taxation: Coco Levy Funds are Taxes, Investment of Public Funds
SC: Government Owns SMC Shares Bought from Coco Levy Funds
sc.judiciary.gov.ph
In a 106-page decision penned by Justice Presbitero J. Velasco, Jr., the Court denied the consolidated petitions of the Philippine Coconut Producers Federation Inc. (COCOFED), et al. and Danilo S. Ursua, former COCOFED officer, assailing certain issuances by the anti-graft court that, among others, declared the coco levy fund-bought SMC shares as public funds.
“Since the CIIF companies and the CIIF block of SMC shares were acquired using coconut levy funds – funds, which have been established to be public in character – it goes without saying that these acquired corporations and assets ought to be regarded and treated as government assets. Being government properties, they are accordingly owned by the Government, for the coconut industry pursuant to currently existing laws,” the Court ruled.
It held: “We sustain the ruling of the Sandiganbayan…that the CIIF companies and the CIIF block of SMC shares are public funds necessary owned by the Government. We, however, modify the same in the following wise: These shares shall belong to the Government, which shall be used only for the benefit of the coconut farmers and for the development of the coconut industry.”
The six CIIF Oil Mills were acquired by United Coconut Planters Bank (UCPB) using coconut levy funds. On the other hand, the 14 CIIF holding companies are wholly owned subsidiaries of the CIIF Oil Mills. These 14 CIIF holding companies used borrowed funds from the UCPB to acquire the SMC shares in the aggregate amount of P1.656 billion.
The High Court also upheld the Sandiganbayan’s jurisdiction over the case at bar which was in the nature of a recovery of ill-gotten wealth case. It held that since these cases deal with the recovery of sequestered shares, property, or business enterprises claimed, as alleged in the corresponding basic complaints, to be ill-gotten assets of President of President Marcos, his cronies, and nominees, recovery of these assets “falls within the unquestionable jurisdiction of the Sandiganbayan.”
Citing COCOFED v. PCGG, the Court stressed that it has “already decided that the sequestered shares are prima facie ill-gotten wealth rendering the issue of the validity of their sequestration and of the jurisdiction of the Sandiganbayan over the case beyond doubt.”
The High Court further held that Sandiganbayan did not err when it struck down the constitutionality of Sections 1 and 2 of PD 755, Art. III, Sec. 5 of PD 961 and Art. III, Sec. 5 of PD 1468. Section 2 of PD 755 effectively authorized the Philippine Coconut Administration (PCA) to utilize portions of the Coconut Consumers Stabilization Fund (CCSF) to pay the financial commitment of the farmers to acquire UCPB and to deposit portions of the CCSF levies with UCPB interest free. A similar provision can be found in the other assailed sections. The Court held that the Sandiganbayan may pass upon the constitutionality of the above sections stressing “the present controversy cannot be peremptorily resolved without going into the constitutionality of these in particular.”
The High Court reiterated that the coconut levy funds are in the nature of taxes and can only be used for public purpose. Consequently, they cannot be used to purchase shares of stocks to be given for free to private individuals.
“We have ruled time and again that taxes are imposed only for a public purpose. They cannot be used for purely private purposes or for the exclusive benefit of private persons. The coconut levy funds were sourced from forced exactions decreed under PD 232, 276, and 582, among others, with the end-goal of developing the entire coconut industry,” the Court held. It added: “Clearly, to hold therefore, even by law, that the revenues received from the imposition of the coconut levies to be used purely for private purposes to be owned by private individuals in their private capacity and for their benefit, would contravene the rationale behind the imposition of taxes or levies.”
Citing Republic v. COCOFED, the Court also reiterated that the coconut levy funds are not only affected with public interest but are prima facie public funds.
“In sum, not only were the challenged presidential issuances unconstitutional for decreeing the distribution of the shares of stock for free to the coconut farmers and, therefore, negating the public purpose declared by PD 276, i.e., to stabilize the price of edible oil and to protect the coconut industry. They likewise reclassified, nay treated, the coconut levy fund as private fund to be disbursed and/or invested for the benefit of private individuals in their private capacities, contrary to the original purpose for which the fund was created,” the Court held.
The assailed purchase of UCPB shares of stocks using the coconut levy funds presents a classic example of an investment of public funds. The conversion of these special public funds into private funds by allowing private individuals to own them in their private capacities is something else, it noted.
The High Court likewise ruled that the COCOFED, et al. and Ursua were not deprived of their right to be heard nor their right to speedy trial violated contrary to their claims. (GR Nos. 177857-58, COCOFED v. Republic; GR No. 178193, Ursua v. Republic, January 24, 2012)
Emphasis and links provided
by Broker Rem Ramirez 0922.883.9308 broker.ramirez@yahoo.com.ph
Monday, July 9, 2012
SC: Angeles University Foundation Not Entitled to a Refund for Payment of Building Permit and Real Property Taxes
06 July 2012 - The Supreme Court affirmed the ruling of the Court of Appeals
(CA) that Angeles University Foundation is not entitled to a refund for
the payment of its building permit and locational clearance fees as
well as real property taxes amounting to P 826,662.99, which it had paid
under protest.
Earlier, the CA had reversed the decision of the Regional Trial Court of Angeles City, Branch 57 declaring Angeles University Foundation exempt from payment of building permit and other fees and ordering the City of Angeles to refund the same with interest at the legal rate. Angeles University Foundation sought for a refund on the ground that the building permit and other fees are really taxes considering they are used to generate revenue; and Sec. 193 of the Local Government Code of 1991 which provides that non-stock and non-profit educational institutions, such as itself, are exempt from payment of these types of taxes.
In the 16-page decision penned by Justice Martin S. Villarama, Jr., the Court's First Division unanimously held that CA committed no reversible error in finding Angeles University Foundation liable to pay the protested permit and fees since the exemption from payment of regulatory fees was not among the incentives granted it under RA 6055 (An Act To Provide For The Conversion Of Educational Institutions From Stock Corporations To Non-Profit Foundations, Directing The Government Service Insurance System, The Social Security System And The Development Bank Of The Philippines To Assist In Such Conversion, And For Other Purposes) when it was promulgated in August 4, 1969 and the Local Government Code of 1991.
The Court stressed that exemption of “other charges” to include the payment of building permits and locational clearance fees as claimed by the Angeles University Foundation is improper because Sec. 8 of RA 6055 is qualified by the words “imposed by the Government on all property used exclusively for the educational activities of the foundation.” In effect, building fees are not impositions on property but instead are regulatory impositions on the activity the government regulates. A charge of a fixed sum is an exercise of police power if the purpose is primarily to regulate, even though revenue is generated incidentally.
The Court also ruled that for exemption from real property tax under Sec. 234(b) of the Local Government Code of 1991 to apply, the real property must “actually, directly, and exclusively used for... educational purposes”.
As clarified in Lung Center of the Philippines v. Quezon City, what is meant by actual, direct, and exclusive use of the property is direct and immediate and actual application of the property itself to the purpose of which the charitable institution is organized. The use of the income from the real property is not determinative for tax exempt purposes. The Court found Angeles University Foundation was not entitled to a refund for its payment of real property tax because it was not able to prove that its real property is actually, directly, and exclusively used for educational purposes. It held that the land of Angeles University Foundation was correctly assessed for real property taxes for the taxable period during which the land is not being devoted soly for the latter's educational activities.
source: sc.judiciary.gov.ph
reference case: Angeles University v. City of Angeles, et. al., GR No. 189999 (June 27, 2012)
Earlier, the CA had reversed the decision of the Regional Trial Court of Angeles City, Branch 57 declaring Angeles University Foundation exempt from payment of building permit and other fees and ordering the City of Angeles to refund the same with interest at the legal rate. Angeles University Foundation sought for a refund on the ground that the building permit and other fees are really taxes considering they are used to generate revenue; and Sec. 193 of the Local Government Code of 1991 which provides that non-stock and non-profit educational institutions, such as itself, are exempt from payment of these types of taxes.
In the 16-page decision penned by Justice Martin S. Villarama, Jr., the Court's First Division unanimously held that CA committed no reversible error in finding Angeles University Foundation liable to pay the protested permit and fees since the exemption from payment of regulatory fees was not among the incentives granted it under RA 6055 (An Act To Provide For The Conversion Of Educational Institutions From Stock Corporations To Non-Profit Foundations, Directing The Government Service Insurance System, The Social Security System And The Development Bank Of The Philippines To Assist In Such Conversion, And For Other Purposes) when it was promulgated in August 4, 1969 and the Local Government Code of 1991.
The Court stressed that exemption of “other charges” to include the payment of building permits and locational clearance fees as claimed by the Angeles University Foundation is improper because Sec. 8 of RA 6055 is qualified by the words “imposed by the Government on all property used exclusively for the educational activities of the foundation.” In effect, building fees are not impositions on property but instead are regulatory impositions on the activity the government regulates. A charge of a fixed sum is an exercise of police power if the purpose is primarily to regulate, even though revenue is generated incidentally.
The Court also ruled that for exemption from real property tax under Sec. 234(b) of the Local Government Code of 1991 to apply, the real property must “actually, directly, and exclusively used for... educational purposes”.
As clarified in Lung Center of the Philippines v. Quezon City, what is meant by actual, direct, and exclusive use of the property is direct and immediate and actual application of the property itself to the purpose of which the charitable institution is organized. The use of the income from the real property is not determinative for tax exempt purposes. The Court found Angeles University Foundation was not entitled to a refund for its payment of real property tax because it was not able to prove that its real property is actually, directly, and exclusively used for educational purposes. It held that the land of Angeles University Foundation was correctly assessed for real property taxes for the taxable period during which the land is not being devoted soly for the latter's educational activities.
source: sc.judiciary.gov.ph
reference case: Angeles University v. City of Angeles, et. al., GR No. 189999 (June 27, 2012)
Monday, April 2, 2012
“Bracing for new filing requirements” by Saha P. Adlawan-Bulagsak (April 2, 2012)
irst Published in Business World 4/2/2012
With barely two weeks to go before the April 16 tax filing deadline (April 15 being a Sunday), taxpayers and tax practitioners alike are busy finalizing financial statements and preparing annual income tax returns (ITRs) for calendar year 2011. However, this year’s income tax filing season may turn out to be busier than anticipated, with the issuance of Revenue Regulations (RR) No. 19-2011 in December 2011 that prescribes the new format of the annual ITRs for both individual and corporate taxpayers.
RR No. 19-2011 requires the November 2011 ENCS or enhanced version of annual ITRs to be used for income tax filing, covering and starting with calendar year 2011. Taxpayers following fiscal year reporting are likewise required to use the new annual ITR form starting with those covered under fiscal year ending Jan. 31, 2012.
The annual ITR now sports an entirely new “look” and is optical scanner-ready. Furthermore, it also requires information and disclosures that were not needed in the previous annual ITR form.
The annual ITR now sports an entirely new “look” and is optical scanner-ready. Furthermore, it also requires information and disclosures that were not needed in the previous annual ITR form.
Beyond this seemingly more time-consuming ITR form, the new requirements will impact taxpayers availing of tax relief under the Tax Code and/or any prevailing special laws — especially those that have multiple registered activities with the Philippine Economic Zone Authority or Board of Investments.
Under the new BIR Form 1702, the following are now specifically required to be disclosed in the line Item “Are you availing of Tax Relief under Special or International Tax Treaty?”:
• investment promotion agency;
• legal basis;
• registered activity/program (registration number);
• special tax rate;
• effectivity date of tax relief (with inclusive dates).
• legal basis;
• registered activity/program (registration number);
• special tax rate;
• effectivity date of tax relief (with inclusive dates).
There is also a new line item for the Special Allowable Itemized Deductions from gross income in computing taxable income. This is in addition to the regular allowable itemized deduction, as provided under existing regular and special laws, rules and issuances (e.g., Adopt-a-School Program under Republic Act (RA) No. 8525 and Senior Citizen Discount under RA No. 9257).
Moreover, a new section for the Computation of Tax Relief Availment must also be filled out, when applicable. This section particularly shows computation for the amount of the income tax foregone by the government as a result of granting preferential tax rates or tax exemptions and/or special deductions to a particular taxpayer for income tax purposes under special laws.
The old BIR Form 1702 only required three columns to be filled out: the Exempt, Special Rate, and Regular Rate. The “expanded” version now requires taxpayers with multiple activities per income tax regime to accomplish the Supplemental Form. Hence, a taxpayer availing of any tax relief under the Tax Code and/or any prevailing special laws must completely fill out this section, with each column listing the details for each and every registered activity and/or program. For example, in the case of a PEZA-registered company with three registered activities under Income Tax Holiday and another three under 5% Gross Income Tax, six columns need to be filled out in the Supplemental Form — from Taxpayer’s Activity Profile section, Computation of Tax per Activity, and down to Tax Relief Availment section.
Lastly, a significant change is the manner of disclosing the details or the breakdown of revenues, other taxable income, direct costs, and itemized deductions. These will now be presented as part of the taxpayer’s Notes to the Audited Financial Statements (AFS) to be attached to BIR Form 1702. This is not actually mentioned in the RR itself, but in the guidelines and instructions attached to the BIR Form 1702. Accordingly, on top of the audited income statement and breakdown of the audited balances of revenues, costs and expenses disclosed in the AFS of the taxpayers, the Notes to the AFS should disclose another set of schedules and information where the respective total amounts should tie up with the amounts reported in BIR Form 1702, namely:
• sales/receipts/fees;
• cost of sales/services;
• non-operating and taxable other income;
• itemized deductions (if taxpayer did not avail of Optional Standard Deduction);
• taxes and licenses.
• cost of sales/services;
• non-operating and taxable other income;
• itemized deductions (if taxpayer did not avail of Optional Standard Deduction);
• taxes and licenses.
Since the new BIR Form 1702 requires the taxpayer to fill up under each column the details of every registered activity and/or program, then the above schedules to be shown in the Notes to AFS should also show columns for every registered activity and/or program.
In anticipation of the unavailability of the new forms in the Electronic Filing and Payment System (eFPS) in time for the filing deadline on April 16, the BIR recently issued Revenue Memorandum Circular No. 10-2012 to provide transition procedures for all eFPS filers. Pending the availability of the enhanced forms in the eFPS, all eFPS filers are required to use and manually file the revised income tax form with the corresponding income payment to any Authorized Agent Bank within the jurisdiction of the Revenue District Office/Large Taxpayer District Office where they are registered. Once the enhanced forms are available in eFPS, the contents of the return filed manually should be encoded in the eFPS on or before April 16, 2012 (if the enhanced forms are available on or before the deadline) or within 10 days from the date of announcement of the eFPS availability (if the enhanced forms are available after April 16, 2012). As of this writing, the BIR said the eFPS version will not be accessible by April 16.
The new format of BIR Form 1702 aims to increase transparency on details of a taxpayer tax status, tax relief availments, and tax position. This will make it much easier for BIR examiners to conduct their tax audits/investigations. Taxpayers should be prepared to provide basis for their position of subjecting certain revenue/income item to exemption or preferential rate or claiming certain deductions for income tax purposes. Also, in the case of taxpayers with multiple registered activities, allocation or distribution of costs and expenses among the registered activities are now clearly visible. Hence, taxpayers should ensure that these are reasonably allocated and be prepared to prove the same with adequate evidence/supporting documents to justify their allocation method before the BIR examiners.
Saha P. Adlawan-Bulagsak is a senior tax director of SGV & Co.
Subscribe to:
Posts (Atom)