LIST: Where to donate to get tax deductions for 2013

There are 14 government projects and programs included in the National Priority Plan of 2013

MANILA, Philippines - Donating to good causes has its bonuses: it also carries tax breaks. The key is knowing which ones do.

For instance, there are 14 government projects and programs that are part of the 2013 National Priority Plan (NPP) list of the National Economic and Development Authority (Neda).

The NPP includes projects, programs, and activities (PPPAs) in education, health, youth and sports development, human settlements, science and culture, and economic development. Donating to these projects, says the Bureau of Internal Revenue, carries "full tax deductibility."

In a circular, the Neda said, "(The NPP) shall specify the activities as appropriate for each project to guide both the donee and the donor in making donations. It shall also specify the authorized donee institutions for each project. The authorized donee institution is a department, bureau, commission, agency, office, or instrumentality of the national government authorized by law or its charter to accept donations for a local government unit, which proposes the infusion of PPAs in the NPP," Neda said in a circular.

In the 2013 NPP, the Neda said the following PPAs are included:

Program/Project/Activity	Implementing Agency	Year of inclusion
Milk Feeding Program	National Dairy Authority	Aug 26, 2002 (Renewed annually from 2003 until 2013)
Sponsorship Program (formerly Medicare Para sa Masa)	PhilHealth	Aug 9, 2001 (Renewed annually from 2003 until 2013)
Adopt-A-School Program	Department of Education	Jan 31, 2012 (Renewed in January 28, 2013)
Camp Manuel Yan Eco-Military Park and Tribal Village	Department of Tourism/Compostela Valley Provincial Government	Jan 28, 2013
Lake Leonard Eco-Tourism Park Site Development	Department of Tourism/Compostela Valley Provincial Government	Jan 28, 2013
Tagbibinta Falls Site Developments	Department of Tourism/Compostela Valley Provincial Government	Jan 28, 2013
Mainit Waterfalls Hot Spring and Spa	Department of Tourism/Compostela Valley Provincial Government	Jan 28, 2013
Nabunturan Children's Eco Park	Department of Tourism/Compostela Valley Provincial Government	Jan 28, 2013
Passig Islet Aqua-Eco Park	Department of Tourism/Davao Del Sur Provincial Government	Jan 28, 2013
Punta Piape Mt Crocodile Park	Department of Tourism/Davao Del Sur Provincial Government	Jan 28, 2013
Kinuskusan Eco Park	Department of Tourism/Davao Del Sur Provincial Government	Jan 28, 2013
Health Facilities Program and its component program/activities (HFP)	Department of Health	Jan 28, 2013
Responsible Parenthood and Family Planning Program (RP-FP)	Department of Health	Jan 28, 2013
Expanded Program on Immunization for Infants in NHTS-PR Families (EPI)	Department of Health	Jan 28, 2013

Based on the Neda circular, apart from making donors and donations to the PPPAs eligible for full tax deduction, the following are also considerations in the National Priority Plan:

• The receipt of donations by the government from the private sector is one mode of mobilizing private sector participation in national development, and the financing of government expenditures. It increases the government's resources to the extent that donations received are used according to the government's expenditure thrusts, thereby freeing public resources for other developmental activities.
• The receipt of donations is not without cost to the government since donors are allowed to claim tax deductions on such donations. The nature and form of the donation could also delimit the government's use of the donated resources.

source:  Rappler

Tax treatment of deposits, cash advances

by: Jen Reyes

THE BUREAU of Internal Revenue’s (BIR) new issuance, Revenue Memorandum Circular No. 16-2013 (RMC 16-2013) clarified the tax treatment of deposits/advances given by clients/customers to their suppliers/providers. This new issuance is an offshoot of RMC 89-2012, which involves cash advances given to General Professional Partnerships (GPPs). Unlike RMC 89-2012, RMC 16-2013 covers all taxpayers, other than GPPs, doing business in the Philippines. The latter details all the tax implications to and obligations of the taxpayer and the client for purposes of recording and documentation of the deposits/cash advance made.
 
Under RMC 16-2013, all deposits/cash advance received by a taxpayer shall be considered and recorded as income in his books of account and it shall form part of the taxpayer’s gross income for the taxable year. Similarly, Value-Added Tax (VAT) will be imposed on the deposits/cash advances received by each taxpayer. Moreover, the RMC makes it the obligation of the taxpayer to issue official receipts for the cash advances received from its clients. The RMC, in turn, directs the taxpayer to claim the expenses incurred for its client as deductions from its gross income provided there are official receipts in the name of the taxpayer claiming for deductions. On the part of the clients or customers, the deposits/advances given to suppliers/providers should be treated as expense which is deductible from their gross income provided official receipts support such expense. Furthermore, clients/customers are required to withhold the appropriate withholding tax on income on the deposits/cash advance made to their suppliers/providers at the applicable rate pursuant to the provisions of Revenue Regulation No. 02-98 (RR 2-98). Consequently, the client has the obligation to report and remit the tax withheld to the BIR. Rules on reporting and remittance of withholding tax for filers using electronic filing and payment system (eFPS) shall apply to their transaction.

Since the deposits/cash advance is subject to VAT, the client may claim it as input VAT while the recipient taxpayer must pay output VAT.

After a careful perusal of RMC 16-2013, it is not clear what type of cash advance or deposits will be covered by the new requirements. Depending on the nature of the business and the business arrangements agreed upon with the customers, advances or deposits may take several forms. A deposit may be required to commence performance of a contract which is therefore considered as advance payment for the services or goods. This forms part of the fee paid by the client for the services rendered. In certain industries, this is called acceptance fee. In the case of leasing arrangements, a deposit may be required to cover the cost of any damages that the lessee may cause on the property or equipment in the duration of the lease. Hence, this is usually refunded at the end of the lease term if no damages need to be settled.

Under certain arrangements, the service provider requires cash advances to pay on behalf of client, certain fee or charges which are receipted in the name of the client, such as notarial fees, government filing fees and other regulatory fees. Such funds are generally held in trust for the client utilized to defray client expenses and subject to liquidation. If the issuance covers these types of advances, there may be unforeseen repercussion on the part of the taxpayer which may expose it to possible higher tax payment.

The BIR issuance allows the service provider to claim deduction for the expense incurred using the cash advance. However, this is possible only if the supporting official receipts are in the name of the service provider claiming the expense. Otherwise, the supplier/service provider cannot claim for deductions for business expense. This situation exposes the taxpayer to the risk of having a higher taxable income resulting to higher tax due because of the recorded income sans any deduction of expense to offset. Besides, while the ai m of the issuance is to prevent double claim of deduction, the same may still happen when the client claims for deductions with receipts in its name to substantiate the claim for deductible business expense.

You will also note that the provisions of RMC 16-2013 seems inconsistent with the existing rules and regulations on what forms part of income to be subject to Creditable Withholding Tax (CWT) and VAT.

In Commissioner of Internal Revenue vs. Tours Specialists, Inc. (G.R. No. L-66416 March 21, 1990) the Supreme Court (SC) has the occasion to pronounce that gross receipts subject to tax under the Tax Code do not include monies or receipts entrusted to the taxpayer which do not belong to them and do not redound to the taxpayer’s benefit. This being so, said money received should not be treated as income.

In requiring the withholding of CWT, the RMC presupposes that there is income redounding to the benefit of the payee. As provided under RR 02-98, CWT is imposed on payment for services rendered by or goods bought from the payee. In this case, there is no sale of goods or services by the payee.

Similarly, under Section 105 of the National Internal Revenue Code (NIRC), VAT is imposed on the sale, barter, exchange or lease of goods or properties and services in the Philippines and on importation of goods into the Philippines. Thus, the imposition of VAT presupposes an exchange between the payee and payor, i.e. goods or services in exchange for the payment. This element is clearly not present for the payment of cash advance especially if the cash advance is used to pay to third party establishment since the money is utilized for client expenses and is separate and distinct from the fee paid for the services of the recipient taxpayer. Thus, relating to the above-mentioned SC decision that monies held in trust should not be treated as income, the cash advance received by taxpayer from client should not be subject to CWT and VAT as it is inconsistent with the purpose for which the two taxes are imposed because the cash advance are paid not for the services or goods received from the taxpayer.

In sum, while the intention of the new BIR issuance to prevent double claiming for deduction of certain expense is reasonable, it will be accomplished at the expense of other taxpayers. Hence, it may be prudent to reconsider the requirement of RMC 16-2013 or provide clarifications on the types of advances that will be covered.

Nonetheless, taxpayers must be ready to comply and be prepared for the possible consequences of the new BIR issuance.

Prescriptive period for tax refunds

by: Jean Ross Abenasa-Miso

LAST MONTH, the Supreme Court (SC) en banc promulgated a consolidated decision (G.R. Nos. 187485, 196113 and 197156) that disposed of the appeals on the cases filed separately with the Court of Tax Appeals (CTA) by three taxpayers for the refund or credit of unutilized input value-added tax (VAT) incurred by them. In plain and unambiguous terms, the SC decision clarifies the existing rules on the proper period for the filing of a judicial claim for refund or credit of taxes.
 
The basic rules on the prescriptive period for the refund or credit of taxes are found in the provisions of Sections 112 and 229 of the 1997 National Internal Revenue Code (NIRC), as amended.

Section 112 prescribes that a VAT-registered person, whose sales are zero-rated or effectively zero-rated may, within two years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales, except transitional input tax, to the extent that such input tax has not been applied against output tax. The Commissioner of Internal Revenue (CIR) shall grant a refund or issue the tax credit certificate for creditable input taxes within 120 days from the date of submission of complete documents in support of the tax refund/credit application. In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the CIR to act on the application within 120 days, the taxpayer affected may, within 30 days from the receipt of the decision denying the claim or after the expiration of the 120 day-period, appeal with the CTA the decision or the unacted claim.

On the other hand, Section 229 bars the filing of a suit or proceeding for the recovery of any national internal revenue tax alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessively or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the CIR. In any case, no suit of proceeding shall be allowed after the expiration of two years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment.

What happens if the taxpayer, without waiting for the 120-day period in his previously filed administrative claim, files a petition for review with the CTA for tax refund or credit?

In the aforementioned recent decision, the SC dismissed the first taxpayer’s judicial claim, holding that the filing of the CTA case 13 days after it filed its administrative claim for refund violated the doctrine of exhaustion of administrative remedies, and renders the petition premature. According to the SC, the 120-day waiting period given by law to the CIR to decide whether to grant or deny the refund or credit is mandatory and jurisdictional.

The SC rejected the taxpayer’s reliance on Atlas Consolidated Mining and Development Corporation vs. Commissioner of Internal Revenue (G.R. Nos. 141104 and 148763) which held that if the two-year prescriptive period for filing a claim for tax refund is about to expire without the BIR acting on the application, the taxpayer can file a petition for review with the CTA within the two-year period. Since the taxpayer filed its judicial claim on April 10, 2003 or more than four years before the promulgation of the Atlas case on June 8, 2007, the SC held that the Atlas doctrine was inapplicable. Moreover, the doctrine merely stated that the two-year prescriptive period should be counted from the date of payment of the output VAT, not from the close of the taxable quarter when the sales involving the input VAT were made. It does not interpret, expressly or impliedly, the 120+30 day periods under Section 112 of the 1997 NIRC.

[Note: The SC abandoned the Atlas doctrine with the promulgation of its decision in Commissioner of Internal Revenue vs. Mirant Pagbilao Corporation (G.R. No. 172129) on September 12, 2008. The Mirant doctrine counts the two-year prescriptive period from the close of the taxable quarter when the sales were made, following the rule that law should be applied exactly as worded since it is clear, plain and unequivocal.]

The SC allowed the CTA case filed by the second taxpayer for tax refund or credit. Interestingly, the second taxpayer filed the CTA case without waiting for the 120-day period to lapse and four months before the SC promulgated the Atlas doctrine. The SC granted the tax refund or credit because, unlike the first taxpayer, the CTA claim failed by the second taxpayer was filed after the issuance of BIR Ruling No. DA-489-03 on December 10, 2003, which allowed the taxpayer to seek judicial relief with the CTA on its claim for refund or credit, without waiting for the lapse of the 120-day period. The SC considered BIR Ruling No. DA-489-03 as a general interpretative rule which can be relied upon by all taxpayers. Boy, the second taxpayer got lucky!

[Note: The rule in BIR Ruling No. DA-489-03 was abandoned when the SC promulgated its decision in Commissioner of Internal Revenue vs. Aichi Forging Company of Asia, Inc. (G.R. No. 184823) on October 6, 2010. In the Aichi case, the SC held that the 2-year prescriptive period to file a refund for input VAT arising from zero-rated sales should be reckoned from the close of the taxable quarter when the sales were made. Moreover, the failure to wait the decision of the CIR or the lapse of the 120-day period prescribed in Section 112(D) of the 1997 NIRC amounts to premature filing.]

Finally, the SC denied the judicial claim filed by the third taxpayer, for being filed out of time. The third taxpayer filed its claim with the BIR within the two-year prescriptive period. The CIR failed to act on the taxpayer’s administrative claim within the 120-day period. Unfortunately, the taxpayer failed to elevate the inaction of the CIR before the CTA within the 30-day period prescribed by law. Unlike the claims filed by the first two taxpayers, the third case involves late filing, and had to be dismissed.

The lengthy discussion on the applicable laws and doctrines notwithstanding, the rules for filing a claim for tax refund or credit are simple:

1. The 30-day period to file the judicial claim need not fall within the two-year prescriptive period-as long as the administrative claim is filed within the two-year prescriptive period. The two-year period under Section 112 of the 1997 NIRC, as amended, does not refer to the filing of the judicial claim with the CTA but to the filing of the administrative claim with the CIR. The taxpayer can file his administrative claim for refund or credit anytime within the two-year prescriptive period. If he files his claim on the last day of the two-year prescriptive period, his claim is still filed on time.

2. Whether or not the CIR acts on the administrative claim, the taxpayer is required to observe the 120+30 day waiting period before lodging a petition for review with the CTA, otherwise, his claim can be dismissed due to premature filing.

3. A judicial claim for tax refund or credit filed beyond 30 days after the lapse of the 120-day waiting period will not be allowed, as this amounts to late filing.

Stock transaction tax or capital gains tax?

STOCK trading in the local stock exchange has been one of the most popular and busiest ventures in the Philippines since way back 1920’s.

Analysts say that venturing into stock trading would yield a reasonable return on an idle fund. As popular as stock trading is, it cannot go away with the coverage of the tax rules in the Philippines.

Under the present National Internal Revenue Code of the Philippines, as amended, if there is a sale (other than by a dealer in securities) of shares of stock which is both listed and traded through the local stock exchange, such sale is subject to stock transaction tax. Stock transaction tax is imposed at the rate of one half 1% of the gross selling price or gross value in money of the shares of stocks.

However, in a recent revenue regulation (RR No. 16-2012) issued by the Department of Finance (DoF), it seems that the above tax rate could not be readily applied. Under the new regulation, beginning Jan. 1, 2013, it is necessary to determine whether a publicly-listed company that issued the shares is meeting the minimum percentage of public float (minimum public ownership of shares or MPO).

The MPO is set to be whichever the higher is between: (a) 10% of issued and outstanding shares exclusive of any treasury shares; or (b) the minimum public ownership required by the Securities and Exchange Commission or Philippine Stock Exchange (PSE).

Further, under the above regulation, publicly-listed companies which are non-compliant with the MPO as of Dec. 31, 2011 and those whose public ownership levels subsequently fall below the MPO level at any time prior to Dec. 31, 2012 may be allowed to comply with the MPO up to Dec. 31, 2012.

Hence, beginning Jan. 1, 2013, following RR No. 16-2012, if there is a sale of listed shares through the stock exchange and if the listed company meets the MPO, then the applicable tax on such sale is the stock transaction tax of one half of 1%. On the other hand, if in the said sale, the listed company does not meet the MPO, then the applicable tax on sale is the final tax at the rate of 5% and 10% on the net capital gains (capital gains tax). The rate of 5% applies to the first P100,000 net capital gain, while the 10% applies to the amount in excess of P100,000 net capital gain.

Thus, it will be either stock transaction tax or capital gains tax on sale of listed shares, other than the sale by a dealer in securities, depending on whether the listed company meets the MPO.

Note that in the two tax treatments above, there is a difference on the tax base. For stock transaction tax, the tax base is the gross selling price or gross value in money of the shares of stocks; while for capital gains tax, the tax base is the gain on sale (selling price minus cost).

So, for capital gains tax, if there is a loss on sale of shares of stocks, then there is no tax, but if there is a huge gain, the investor-seller will be hit at a rate of 5%/10% on the gain. Meanwhile, for stock transaction tax, regardless of how much the gain is or regardless of whether there is a gain or loss, the tax still applies, as the applicable tax base is the gross selling price or gross value in money of the shares of stocks.

As an additional note, under RR 16-2012, if the MPO requirement is not met, the sale will no longer be exempt from documentary stamp tax (DST). Instead, a DST at the rate of P0.75 on each P200, or fractional part thereof, of the par value of the stock sold, will be imposed.

Interestingly, the above MPO requirement for taxation purposes is not cited in the NIRC. Thus, on whether RR No. 16-2012, by prescribing an MPO requirement, goes beyond the interpretation of the provisions of the NIRC, it remains to be seen if a challenge will be posed in the future. At any rate, RR No. 16-2012 was already issued, and its effect will be felt more beginning 2013.

Another interesting development is that, subsequent to the above revenue regulation issued by the DoF, the board of the Philippine Stock Exchange (PSE), this time, approved a resolution to suspend listed companies with insufficient public ownership on the first trading day of 2013. Thus, it could happen that, although the shares are listed, it cannot be traded through the local stock exchange. Consequently, the sale of listed shares outside the PSE trading system will be subject to capital gains tax and documentary stamp tax.

It is unfortunate that there were recent reports that more than 20 listed firms are still below the minimum public float prescribed by the PSE.

Hence, from the perspective of an investor or prospective investor who is planning to trade listed shares, it will be a prudent course of action to factor in the impact of the above MPO requirement on tax consequences, in evaluating the amount of actual yield on stock trading ventures.


Punongbayan & Araullo

Corporate veil not an absolute shield

ALTHOUGH a corporation is not a person, the legal fiction of treating it as an artificial person was created to determine the legality of business proceedings.

As a rule, a corporation has a juridical personality distinct and separate from the persons owning or composing it. Thus, the owner or stockholders of a corporation may not generally be made to answer for the liabilities of a corporation and vice versa.

The veil of corporate fiction, however, may sometimes be abused to avoid liability for taxes.

As a result, tax authorities have in several occasions pierced the veil of corporate fiction in order to hold directors, officers, and employees personally liable.

In taxation, piercing the veil of corporate fiction means that stockholders or officers of a corporation can be held directly liable for corporate tax liabilities and vice versa when the corporation is formed or used for illegitimate purposes, particularly, as a shield to perpetuate fraud, defeat public convenience, justify wrong, evade a just and valid obligation or defend a crime.

In the recent case of People of the Philippines vs. Wong Yan Tak, Geralyn Bobier, and Pic N’ Pac Mart, Inc., CTA Criminal Case No. 0-909, Jan. 8, 2013, the Court of Tax Appeals (CTA) ordered the company’s president as its responsible officer to pay for the civil liability of the company arising from its tax assessment.

Upon appeal, however, the CTA reversed its decision considering that no allegation was made that the corporation was used to perpetrate fraud.

Thus, only in circumstances when the corporation was used merely as an adjunct, business conduit or alter ego of another corporation or by its officers or stockholders, or the corporation was used to perpetrate fraud in violation of the tax laws can the doctrine of "piercing the corporate veil" be applied and the fiction of the corporation’s separate and distinct personality is disregarded.

The same rule applies in case of penal liability. In People of the Philippines vs. Katherine M. Lim, and Edelyn Coronacion, CTA Criminal Case No. 0-113, Dec. 12, 2011, the Court discussed the element of willfulness to make the responsible officers accountable.

If a taxpayer is a corporation, Section 256 of the Tax Code imposes the penal liability upon the corporate taxpayer’s responsible officers enumerated in Section 253 (d). The crime of failure to pay tax under Section 255 is defined by the element of "willfulness" of not paying the tax. The offender is aware or knows the existence of obligation to pay a tax liability voluntarily and intentionally failed to pay it. The court further explained that a corporate taxpayer incurs no criminal liability for the same is personal upon its officers taking into consideration that a crime cannot be imputed to a corporation, being a mere artificial being without a mind, therefore the criminal intent as an essential ingredient of a crime would be missing.

However, as clarified in the case of Ching vs. Secretary of Justice, GR No. 164317 dated Feb. 6, 2006, a corporation cannot be arrested and imprisoned, hence, cannot be penalized for a crime punishable by imprisonment. Nevertheless, a corporation may be charged and prosecuted for a crime if the penalty is a fine. Even if the statute prescribes both fine and imprisonment as penalty, a corporation may be prosecuted and, if found guilty may be fined. When a criminal statute designates an act of a corporation a crime and prescribes punishment, it creates a criminal offense which, otherwise, would not exist and such can be committed only by the corporation. But when a penal statute does not expressly apply to corporations, it does not create an offense for which a corporation may be punished. On the other hand, if the State, by statute, defines a crime that may be committed by a corporation but prescribes the penalty to be suffered by the officers, directors, or employees of such corporation or other persons responsible for the offense, only such individuals will suffer such penalty.

The principle applies to those corporate agents who themselves commit the crime and to those, who, by virtue of their managerial positions could be deemed responsible for its commission, if by virtue of their relationship to the corporation, they had the power to prevent the act. Whether such officers or employees are benefited by their delictual acts is not a touchstone of their criminal liability.

It has been held in a number of cases that personal liability of a corporate director, trustee, or officer may validly attach when:

1. He assents to the (a) patently unlawful acts of the corporation, (b) bad faith or gross negligence in directing its affairs, or (c) conflict of interest, resulting in damages to the corporation, its stockholders, or other persons;

2. He consents to the issuance of watered down stocks or, having knowledge thereof, does not forthwith file with the corporate secretary his written objection thereto;

3. He agrees to hold himself personally liable and solidarily liable with the corporation; or

4. He is made, by specific provision of law, to personally answer for his corporate action.

The foregoing tax cases should serve as a caveat to stockholders, directors, officers, employees of corporations that although the corporation has distinct and separate juridical personality, the court may pierce the corporate veil and hold them liable together with the corporation for any tax deficiency.

Businessworld - March 11, 2013

(The author is a senior associate with Punongbayan & Araullo’s (P&A) Tax Advisory and Compliance Division. P&A is the Philippine member of Grant Thornton International Ltd. For comments please e-mail Cha.Mandap@ph.gt.com.)