THE BUREAU of Internal Revenue (BIR) will
cooperate with foreign governments, embassies, diplomatic missions, and
international organizations in the country to help their local employees
comply with the provisions of a recently issued circular noting that
they are not exempt from taxes.
"We can make arrangements to help your
employees register with the BIR and file their returns," Internal
Revenue Commissioner Kim S. Jacinto-Henares told a meeting of the
Consular Corps of the Philippines yesterday.
Ms. Jacinto-Henares was the keynote speaker at the event attended by
representatives of various foreign countries’ consulates in the
Philippines.
"In fact, we’re holding a briefing with the ADB (Asian Development Bank)
in July. We’re going to set up kiosks there so their employees can file
in one place. Some embassies have also asked us for our help. We’ll
arrange something for you if you get in touch with us about difficulties
with regard to compliance," she said.
The BIR chief was invited by the corps to speak on the bureau’s tax
policies, particularly the implementation of Revenue Memorandum Circular
(RMC) 31-2013, which the agency issued on April 12. During yesterday’s
forum, members of the corps raised their concerns on compliance with the
issuance.
The RMC clarified the liabilities of Filipino and alien employees
employed by foreign governments, embassies, diplomatic missions, and
other international organizations located in the Philippines and noted
that any exemption from income taxes must be granted under any duly
recognized international agreements or particular provisions of existing
laws.
The circular went on to specify the individuals granted tax exemptions
in various foreign organizations such as the United Nations and its
specialized agencies; aid agencies of other governments, like the US
Agency for International Development and the Japan International
Cooperation Agency; and organizations covered by international
agreements, such as the Asian Development Bank.
Affected individuals who were not granted such exemptions, such as
Filipino or alien employees of these foreign entities liable to
Philippine income tax under the provisions of the Tax Code, must file
their income tax returns (ITRs) and pay the taxes due on or before April
15 following the close of the taxable year, the RMC said.
Besieged with requests from embassies and organizations, the BIR
followed up the issuance with Revenue Regulations (RR) 7-2013, dated
April 29. This new issuance provided for the abatement of surcharges,
interests, and compromise penalties, which will be imposed on the taxes
due from the entities’ employees who have yet to file their 2012 tax
returns and those who ought to amend their tax returns to cover tax
deficiencies.
Under the law, late income tax return (ITR) filings are slapped with
penalties of 20% interest per annum and a 25% surcharge, as well as a
compromise penalty dependent on the amount of tax due.
The RR gave the concerned individuals until May 15 to file or amend
their 2012 ITRs and pay at least 50% of the taxes due. Following the Tax
Code, the remaining 50% of the taxes due must be paid on or before July
15.
Asked if the BIR will give the foreign entities more time to comply with
the regulations, Ms. Jacinto-Henares said, "The deadline stands. A
deadline is a deadline."
"Our stance is, we’re firm on whatever we’ve said. Our advice to all of
you is to tell your employees to file first. If they haven’t registered
and filed, how can we talk about compromises?" the BIR chief said.
Ms. Jacinto-Henares also said that any abatement of applicable penalties
for those who’ve missed the May 15 deadlines would be dealt with on "a
case-to-case basis."
"We can’t talk about reprieves if they don’t file," stressed the official.
source: Businessworld
Wednesday, June 26, 2013
Monday, June 24, 2013
BIR goes after dead persons
The Aquino administration will require banks to submit the bank
statements of deceased persons to the Bureau of Internal Revenue, in a
bid to improve the collection of estate taxes.
Bureau of Internal Revenue Commissioner Kim Henares said dead persons are not covered by the Bank Secrecy Act. “One of the exemptions from the bank secrecy law is if it’s regarding an estate. So when you die, there’s no more bank secrecy,” Henares said.
Henares said she will ask banks to submit to the BIR or if need be, subpoena the bank statements of persons who died in the last five years.
Banks require clients to report if a partner in a joint account has died.
Finance Secretary Cesar Purisima likewise said that estate tax collection is an area that can be improved in order to raise the tax effort to 16 percent by 2016, from the current level of 13 percent.
“Given the increase in asset values, we believe that the amount collected from estate taxes should be higher,” Purisima said.
In the past 10 years, the government said that estate tax collection only ranged from P850 million to P1 billion a year.
Purisima said that he has tasked the BIR to significantly boost estate tax collections to P50 billion by the end of the Aquino administration’s term.
“Commissioner Henares and I agreed that we’ll review the past five years of estate tax filing. The bank secrecy is lifted when someone dies,” the finance chief said.
“So we’ll be writing to the banks, so that they can provide us with the information that we need,” he added.
The BIR defines estate tax as the tax on the right of the deceased to transmit his or her estate to the lawful heirs or beneficiaries at the time of death.
It is not a tax on property, but a tax imposed on the privilege of transmitting property upon the death of the owner.
“We will assess the bank statements. For example, if a deceased person had P10 million in his account and it suddenly became zero, where did the money go? If it was withdrawn after his death, the bank has a criminal liability,” the BIR chief said.
“If it was withdrawn in the previous years, was it donated? Was donor’s tax paid?” Henares added.
Purisima said that this move will take a while since they will request the documents from banks nationwide.
According to the BIR website, the highest amount of estate tax that shall be paid, is P1.215 million plus 20 percent of the excess over P10 million if the net estate is P10 million or higher.
While the estate tax return must be filed six months after the decedent’s death, the BIR Commissioner may grant extension not exceeding 30 days.
Should the Commissioner find that the payment of estate tax would impose undue hardship on the estate or any of their heirs, the Commissioner may extend the time of payment of the tax by not more than five years. There could also be surcharges and interests if the estate taxes are left unsettled six months after the decedent’s death.
A few years back, Purisima said that the collection of estate taxes is low because bank managers allow the families of deceased clients to withdraw money from their accounts.
Banks and heirs of deceased clients will both be held liable should they be proven to transfer or withdraw properties of the deceased without paying estate tax.
source: Malaya
Bureau of Internal Revenue Commissioner Kim Henares said dead persons are not covered by the Bank Secrecy Act. “One of the exemptions from the bank secrecy law is if it’s regarding an estate. So when you die, there’s no more bank secrecy,” Henares said.
Henares said she will ask banks to submit to the BIR or if need be, subpoena the bank statements of persons who died in the last five years.
Banks require clients to report if a partner in a joint account has died.
Finance Secretary Cesar Purisima likewise said that estate tax collection is an area that can be improved in order to raise the tax effort to 16 percent by 2016, from the current level of 13 percent.
“Given the increase in asset values, we believe that the amount collected from estate taxes should be higher,” Purisima said.
In the past 10 years, the government said that estate tax collection only ranged from P850 million to P1 billion a year.
Purisima said that he has tasked the BIR to significantly boost estate tax collections to P50 billion by the end of the Aquino administration’s term.
“Commissioner Henares and I agreed that we’ll review the past five years of estate tax filing. The bank secrecy is lifted when someone dies,” the finance chief said.
“So we’ll be writing to the banks, so that they can provide us with the information that we need,” he added.
The BIR defines estate tax as the tax on the right of the deceased to transmit his or her estate to the lawful heirs or beneficiaries at the time of death.
It is not a tax on property, but a tax imposed on the privilege of transmitting property upon the death of the owner.
“We will assess the bank statements. For example, if a deceased person had P10 million in his account and it suddenly became zero, where did the money go? If it was withdrawn after his death, the bank has a criminal liability,” the BIR chief said.
“If it was withdrawn in the previous years, was it donated? Was donor’s tax paid?” Henares added.
Purisima said that this move will take a while since they will request the documents from banks nationwide.
According to the BIR website, the highest amount of estate tax that shall be paid, is P1.215 million plus 20 percent of the excess over P10 million if the net estate is P10 million or higher.
While the estate tax return must be filed six months after the decedent’s death, the BIR Commissioner may grant extension not exceeding 30 days.
Should the Commissioner find that the payment of estate tax would impose undue hardship on the estate or any of their heirs, the Commissioner may extend the time of payment of the tax by not more than five years. There could also be surcharges and interests if the estate taxes are left unsettled six months after the decedent’s death.
A few years back, Purisima said that the collection of estate taxes is low because bank managers allow the families of deceased clients to withdraw money from their accounts.
Banks and heirs of deceased clients will both be held liable should they be proven to transfer or withdraw properties of the deceased without paying estate tax.
source: Malaya
Sunday, June 23, 2013
Bank secrecy laws don’t apply to the dead -- BIR chief
THE BUREAU of Internal Revenue (BIR) wants
banks to provide the government with information on deceased clients’
assets as part of a drive to improve estate tax collections.
"One of the exemptions from bank secrecy laws is if it’s regarding an estate. So when you die, there’s no more bank secrecy," BIR Commissioner Kim S. Jacinto-Henares told reporters last week.
"So we’re asking them (the banks) to give us the bank statements of those persons who died for the past years. Maybe five years," she added.
The BIR chief said the agency wanted to see if estate tax payments corresponded with the actual assets of people who had passed away.
"For example, if someone who has died had P10 million in the bank and this suddenly disappeared, where did it go? When was the money withdrawn? If the depositor had already died when the money was taken out of the bank, then there’s a liability there," Ms. Jacinto-Henares noted.
She said the BIR would "require" banks to submit the statements, adding: "If they don’t, we will subpoena it." The agency wants to do this "within the year," Ms. Jacinto-Henares added.
Estate taxes -- levied on inherited assets -- have been tagged as a target area that could be tapped by the BIR for additional revenues.
Asset price hikes over the years should have led to higher estate tax collections, Finance Secretary Cesar V. Purisima has said. Annual estate tax takes, however, have always ranged between P850 million and P1 billion.
source: Businessworld
"One of the exemptions from bank secrecy laws is if it’s regarding an estate. So when you die, there’s no more bank secrecy," BIR Commissioner Kim S. Jacinto-Henares told reporters last week.
"So we’re asking them (the banks) to give us the bank statements of those persons who died for the past years. Maybe five years," she added.
The BIR chief said the agency wanted to see if estate tax payments corresponded with the actual assets of people who had passed away.
"For example, if someone who has died had P10 million in the bank and this suddenly disappeared, where did it go? When was the money withdrawn? If the depositor had already died when the money was taken out of the bank, then there’s a liability there," Ms. Jacinto-Henares noted.
She said the BIR would "require" banks to submit the statements, adding: "If they don’t, we will subpoena it." The agency wants to do this "within the year," Ms. Jacinto-Henares added.
Estate taxes -- levied on inherited assets -- have been tagged as a target area that could be tapped by the BIR for additional revenues.
Asset price hikes over the years should have led to higher estate tax collections, Finance Secretary Cesar V. Purisima has said. Annual estate tax takes, however, have always ranged between P850 million and P1 billion.
source: Businessworld
Wednesday, June 19, 2013
The Foster Care Act: Galvanizing support through tax incentives
BY ORDINARY human standards, loss,
rejection or abuse is a lamentable experience. From a child’s
perspective, however, loss, denial, or neglect of parental care is a
magnified tragedy -- an incomprehensible reality that leaves such tender
souls scarred for life.
Recognizing the inequities of life, Republic Act (RA) No. 10165, otherwise known as the Foster Care Act of 2012, was penned into law to promote and institutionalize foster care in the Philippines. The resonating wisdom behind the policy is to encourage the care and rearing of abandoned, neglected or abused children by substitute families as an alternative to traditional social welfare institutions. While state agencies have been established to provide sanctuary for orphaned or neglected children, developmental rubrics in child care point to the exigencies of a healthy family environment. More compelling than material support is the need to engage in meaningful human interactions throughout the child’s developmental stages of growth.
Foster care refers to substituted parental care given to a child by a foster parent or a foster family. Unlike adoption, foster care seeks to provide temporary parental care to a child without necessarily establishing any legal ties or binding relations to a person or entity. With the end in view of returning the child to his/her biological family or ultimately finding him/her an adoptive family, foster care offers an immediate resolution to addressing imperative needs of the child sans the drawn-out processes of adoption.
As a planned social intervention, its policy implementation is governed by a collaborative interagency linkage between Department of Social Welfare and Development (DSWD) agencies, Local Government Units (LGUs) and the Local Council for the Protection of Children (LCPC).
To qualify as foster parent or foster family, interested persons or entities must be eligible to adopt under the Domestic or Inter-Country Adoption laws (RA 8552 and RA 8043).
In furtherance of its objectives, the Foster Care Act extends tax incentives to persons and entities who would participate in foster care programs. Encouraging alternative families to take in neglected or abused children, the BIR issued implementing guidelines and procedures (Revenue Memorandum Circular 41-2013, dated April 17, 2013) for availing the incentives, subject to submission of the following prerequisites:
• Legal documents pertaining to the capacity of applicants to act as foster parent and family;
• Documents pertaining to background checks of applicants;
• Case study on the foster family/applicant; and
• Documentary proof showing the foster family/applicant to have attended trainings and seminars to enhance and build their skills as foster parents.
Once the requirements are completed, and thereafter with the issuance of a Foster Family Care License, the foster parents or family is entitled to the following tax incentives:
1. Additional Exemptions for Dependents (Section 23.2, Rule 23)
Under Section 35(B) of the National Internal Revenue Code of 1997 (NIRC), the definition of the term "dependent" has been expanded and amended to include a foster child." By implication, a foster parent shall be allowed an additional exemption of P25,000 for each qualified dependent, including a foster child, so long as the total number of dependents shall not exceed four. However, the additional exemption shall only be allowed if the period of foster care is at least a continuous period of one taxable year. Further, in availing the exemption, only one foster parent can treat the foster child as a dependent for a particular taxable year.
2. Incentives to Agencies Licensed and Accredited under the Foster Care Program (Rule 24)
In promoting social welfare, income derived by licensed and accredited agencies shall be exempt from income tax (under Section 30 of the NIRC, as implemented by Revenue Regulation No. 13-98). Said agencies can also apply for qualification as donee institutions.
3. Incentives to Donors (Rule 25)
Any contributions, donations or gifts actually paid to the licensed and accredited agencies under the Foster Care Program shall be considered allowable deductions from their gross income, to the extent of the amount donated to the agencies (Section 34[H] of the NIRC). As the gifts or donation are made in favor of a social welfare institution, the Donors shall also be exempt from Donor’s Tax (under Section 101 of the NIRC), for so long as not more than 30% of the amount of donations shall be spent for administrative expenses.
Looking beyond tax incentives and privileges, the Foster Care Program is a humanization of the law. It is more than just a welfare package in government’s agenda or a tax shelter for the scheming payer. Essentially, it is an invitation for committed action against a perverse reality -- the degradation of children. To those who truly embrace its bidding, the rewards are far beyond immeasurable.
The author is a manager at the tax services department of Isla Lipana & Co., the Philippine member firm of the PricewaterhouseCoopers global network. Readers may call 845-2728 or e-mail the author at theresa.redencion.s.san.digeo@ph.pwc.com for questions or feedback.
Views or opinions presented in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The firm will not accept any liability arising from such article; the author will be personally liable for any consequent damages or other liabilities.
source: Businessworld
Recognizing the inequities of life, Republic Act (RA) No. 10165, otherwise known as the Foster Care Act of 2012, was penned into law to promote and institutionalize foster care in the Philippines. The resonating wisdom behind the policy is to encourage the care and rearing of abandoned, neglected or abused children by substitute families as an alternative to traditional social welfare institutions. While state agencies have been established to provide sanctuary for orphaned or neglected children, developmental rubrics in child care point to the exigencies of a healthy family environment. More compelling than material support is the need to engage in meaningful human interactions throughout the child’s developmental stages of growth.
Foster care refers to substituted parental care given to a child by a foster parent or a foster family. Unlike adoption, foster care seeks to provide temporary parental care to a child without necessarily establishing any legal ties or binding relations to a person or entity. With the end in view of returning the child to his/her biological family or ultimately finding him/her an adoptive family, foster care offers an immediate resolution to addressing imperative needs of the child sans the drawn-out processes of adoption.
As a planned social intervention, its policy implementation is governed by a collaborative interagency linkage between Department of Social Welfare and Development (DSWD) agencies, Local Government Units (LGUs) and the Local Council for the Protection of Children (LCPC).
To qualify as foster parent or foster family, interested persons or entities must be eligible to adopt under the Domestic or Inter-Country Adoption laws (RA 8552 and RA 8043).
In furtherance of its objectives, the Foster Care Act extends tax incentives to persons and entities who would participate in foster care programs. Encouraging alternative families to take in neglected or abused children, the BIR issued implementing guidelines and procedures (Revenue Memorandum Circular 41-2013, dated April 17, 2013) for availing the incentives, subject to submission of the following prerequisites:
• Legal documents pertaining to the capacity of applicants to act as foster parent and family;
• Documents pertaining to background checks of applicants;
• Case study on the foster family/applicant; and
• Documentary proof showing the foster family/applicant to have attended trainings and seminars to enhance and build their skills as foster parents.
Once the requirements are completed, and thereafter with the issuance of a Foster Family Care License, the foster parents or family is entitled to the following tax incentives:
1. Additional Exemptions for Dependents (Section 23.2, Rule 23)
Under Section 35(B) of the National Internal Revenue Code of 1997 (NIRC), the definition of the term "dependent" has been expanded and amended to include a foster child." By implication, a foster parent shall be allowed an additional exemption of P25,000 for each qualified dependent, including a foster child, so long as the total number of dependents shall not exceed four. However, the additional exemption shall only be allowed if the period of foster care is at least a continuous period of one taxable year. Further, in availing the exemption, only one foster parent can treat the foster child as a dependent for a particular taxable year.
2. Incentives to Agencies Licensed and Accredited under the Foster Care Program (Rule 24)
In promoting social welfare, income derived by licensed and accredited agencies shall be exempt from income tax (under Section 30 of the NIRC, as implemented by Revenue Regulation No. 13-98). Said agencies can also apply for qualification as donee institutions.
3. Incentives to Donors (Rule 25)
Any contributions, donations or gifts actually paid to the licensed and accredited agencies under the Foster Care Program shall be considered allowable deductions from their gross income, to the extent of the amount donated to the agencies (Section 34[H] of the NIRC). As the gifts or donation are made in favor of a social welfare institution, the Donors shall also be exempt from Donor’s Tax (under Section 101 of the NIRC), for so long as not more than 30% of the amount of donations shall be spent for administrative expenses.
Looking beyond tax incentives and privileges, the Foster Care Program is a humanization of the law. It is more than just a welfare package in government’s agenda or a tax shelter for the scheming payer. Essentially, it is an invitation for committed action against a perverse reality -- the degradation of children. To those who truly embrace its bidding, the rewards are far beyond immeasurable.
The author is a manager at the tax services department of Isla Lipana & Co., the Philippine member firm of the PricewaterhouseCoopers global network. Readers may call 845-2728 or e-mail the author at theresa.redencion.s.san.digeo@ph.pwc.com for questions or feedback.
Views or opinions presented in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The firm will not accept any liability arising from such article; the author will be personally liable for any consequent damages or other liabilities.
source: Businessworld
Tuesday, June 18, 2013
Fair market value redefined
The Bureau of Internal Revenue (BIR) has issued Revenue Regulations
No. 6-2013 (RR 6-2013), amending certain provisions of Revenue
Regulations No. 6-2008 (RR 6-2008) entitled “Consolidated Regulations
Prescribing the Rules on the Taxation of Sale, Barter, Exchange or Other
Disposition of Shares of Stock Held as Capital Assets.”
Specifically, the new regulation, published last April 22, 2013, amended the definition of fair market value (FMV) of the shares of stock being sold where the shares are not traded through a local stock exchange. The definition is critical in view of the possible imposition of the donor’s tax on top of the capital gains tax (CGT). Under the Tax Code, in case of sale of shares of stock not traded in the local stock exchange, the net capital gains will be subject to a CGT of five percent on the first P100,000 and 10 percent on the amounts in excess of P100,000. However, in the event the selling price is less than the FMV of the shares of stock, the seller is deemed to have received a gift. The excess of the FMV over the selling price will be considered as taxable gift subject to donor’s tax. Hence, it is common for taxpayers selling shares of stock not traded through the local stock exchange to use the FMV as the selling price to avoid the donor’s tax.
However, with RR 6-2013, the question now is how to determine FMV. Under the old regulations (RR 6-2008), the FMV of shares of stock not traded in the local stock exchange would be the book value of the shares as shown in the audited financial statements (AFS) nearest to the date of sale. On the other hand, according to RR 6-2013, the value of the shares of stock at the time of the sale would be the FMV. In determining the value of the shares, RR 6-2013 prescribes a valuation procedure that changes the stated values of a company’s assets and liabilities to reflect its current fair market values. RR 6-2013 states that the Adjusted Net Asset should be used whereby all assets and liabilities are adjusted to FMV. The difference between the total FMV of the adjusted assets and the total FMV of the adjusted liabilities is the indicative value of the equity (what the business is considered to be worth).
In the event the assets of the corporation consist of real property, the appraised value at the time of sale should be the higher of – FMV as determined by the commissioner of Internal Revenue, or FMV as shown in the schedule of values fixed by the provincial and city assessors, or FMV as determined by an independent appraiser.
With the new definition of FMV in place, it is expected that higher taxes would be collected on the sale of shares of stock not traded in the local stock exchange.
But this situation is not that simple because the determination of FMV under RR 6-2013 raises a lot of questions with respect to sufficiency and timing of documents to establish FMV. When a taxpayer sells shares of stock not traded in the local stock exchange, he needs to get a Certificate Authorizing Registration (CAR) from the proper BIR office. The CAR is required to have the sale recorded in the company’s Stock and Transfer Book.
To get the CAR, the taxpayer would have to submit to the BIR documentary requirements such as the Deed of Absolute Sale, latest AFS, and the CGT and Documentary Stamp Tax Returns. Based on RR 6-2013, it appears that he would also need to present the Tax Declaration, Zonal Valuation and independent appraiser’s report covering the real property owned by the company to establish FMV. In this respect, in the absence of the independent appraiser’s report, would the Tax Declaration and the Zonal Valuation of the real property be sufficient to establish FMV? If the independent appraiser’s report is a requirement, who would shoulder the costs which are most likely not cheap? It could be that this requirement imposes additional burden to the selling stockholder to pay for the report. With respect to personal property, RR 6-2013is not clear if the AFS of the company is sufficient to establish its FMV.
As to the timing of the document, would the documents needed to establish the FMV be as of the time of sale?
What could add to the confusion is that there seems to be a view within the BIR that the valuation under RR 6-2013 applies only to certain properties.
To answer these questions, the BIR may have to issue clarifications; otherwise, RR 6-2013 may impede sales transactions that could impact on the financial viability of the company. When fresh capital is required by the company, and the solution is for an existing shareholder to sell to a new investor, a problem could arise if the BIR cannot agree on the valuation of the company’s shares in view of the valuation issues caused by the implementation of RR 6-2013. One could say then that redefining matters is creating gray areas.
Glenn Raymond O. Paradela is a supervisor from the tax group of Manabat Sanagustin & Co. (MS&Co.), the Philippine member firm of KPMG International.
This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity.
The view and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG International or MS&Co. For comments or inquiries, please email manila@kpmg.com or rgmanabat@kpmg.com
Specifically, the new regulation, published last April 22, 2013, amended the definition of fair market value (FMV) of the shares of stock being sold where the shares are not traded through a local stock exchange. The definition is critical in view of the possible imposition of the donor’s tax on top of the capital gains tax (CGT). Under the Tax Code, in case of sale of shares of stock not traded in the local stock exchange, the net capital gains will be subject to a CGT of five percent on the first P100,000 and 10 percent on the amounts in excess of P100,000. However, in the event the selling price is less than the FMV of the shares of stock, the seller is deemed to have received a gift. The excess of the FMV over the selling price will be considered as taxable gift subject to donor’s tax. Hence, it is common for taxpayers selling shares of stock not traded through the local stock exchange to use the FMV as the selling price to avoid the donor’s tax.
However, with RR 6-2013, the question now is how to determine FMV. Under the old regulations (RR 6-2008), the FMV of shares of stock not traded in the local stock exchange would be the book value of the shares as shown in the audited financial statements (AFS) nearest to the date of sale. On the other hand, according to RR 6-2013, the value of the shares of stock at the time of the sale would be the FMV. In determining the value of the shares, RR 6-2013 prescribes a valuation procedure that changes the stated values of a company’s assets and liabilities to reflect its current fair market values. RR 6-2013 states that the Adjusted Net Asset should be used whereby all assets and liabilities are adjusted to FMV. The difference between the total FMV of the adjusted assets and the total FMV of the adjusted liabilities is the indicative value of the equity (what the business is considered to be worth).
In the event the assets of the corporation consist of real property, the appraised value at the time of sale should be the higher of – FMV as determined by the commissioner of Internal Revenue, or FMV as shown in the schedule of values fixed by the provincial and city assessors, or FMV as determined by an independent appraiser.
With the new definition of FMV in place, it is expected that higher taxes would be collected on the sale of shares of stock not traded in the local stock exchange.
But this situation is not that simple because the determination of FMV under RR 6-2013 raises a lot of questions with respect to sufficiency and timing of documents to establish FMV. When a taxpayer sells shares of stock not traded in the local stock exchange, he needs to get a Certificate Authorizing Registration (CAR) from the proper BIR office. The CAR is required to have the sale recorded in the company’s Stock and Transfer Book.
To get the CAR, the taxpayer would have to submit to the BIR documentary requirements such as the Deed of Absolute Sale, latest AFS, and the CGT and Documentary Stamp Tax Returns. Based on RR 6-2013, it appears that he would also need to present the Tax Declaration, Zonal Valuation and independent appraiser’s report covering the real property owned by the company to establish FMV. In this respect, in the absence of the independent appraiser’s report, would the Tax Declaration and the Zonal Valuation of the real property be sufficient to establish FMV? If the independent appraiser’s report is a requirement, who would shoulder the costs which are most likely not cheap? It could be that this requirement imposes additional burden to the selling stockholder to pay for the report. With respect to personal property, RR 6-2013is not clear if the AFS of the company is sufficient to establish its FMV.
As to the timing of the document, would the documents needed to establish the FMV be as of the time of sale?
What could add to the confusion is that there seems to be a view within the BIR that the valuation under RR 6-2013 applies only to certain properties.
To answer these questions, the BIR may have to issue clarifications; otherwise, RR 6-2013 may impede sales transactions that could impact on the financial viability of the company. When fresh capital is required by the company, and the solution is for an existing shareholder to sell to a new investor, a problem could arise if the BIR cannot agree on the valuation of the company’s shares in view of the valuation issues caused by the implementation of RR 6-2013. One could say then that redefining matters is creating gray areas.
Glenn Raymond O. Paradela is a supervisor from the tax group of Manabat Sanagustin & Co. (MS&Co.), the Philippine member firm of KPMG International.
This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity.
The view and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG International or MS&Co. For comments or inquiries, please email manila@kpmg.com or rgmanabat@kpmg.com
Monday, June 17, 2013
Compliance as noxious as administration
THE RAISON d’être for substituted filing is
clear: hassle-free collection method for the BIR and vigilant
compliance for the employers. Following the benefits-protection theory,
the state naturally demands and receives taxes from its subjects to be
able to carry out its mandate and perform the functions of the
government. The citizen, in turn, pays from his property the portion
demanded in order that he may, by means thereof, be secure in the
enjoyment of the benefits of organized society.
Just recently, the Bureau of Internal Revenue (BIR) issued Revenue Regulations No. 11-2013, which take effect beginning with the calendar year 2013. The new regulations mandate the submission of a hard copy of the Certificate of Compensation Payment / Tax Withheld (BIR Form 2316) covering employees who are qualified for substituted filing to the BIR. The employer shall furnish each employee with the original copy of BIR Form 2316 not later than Jan. 31 and submit to the BIR the duplicate copy not later than Feb. 28 following the close of the calendar year.
The new regulations also reinforce the applicable penalty in case an employer or withholding agent, including the government or any of its political subdivisions and GOCCs, fails to submit the certificate to the BIR on time. For failure to file an information return, statement or list, or keep any record, or supply any information as may be required by the Tax Code or the Commissioner, and unless it is shown that failure is due to reasonable and not to willful neglect, there shall be imposed, upon notice and demand by the Commissioner, the penalty of a fine ranging from P1,000 to P25,000.
Furthermore, in case the employer or withholding agent is remiss on his duty, for two consecutive years, to make any return, to supply correct and accurate information, and wilfully fails to pay such taxes and file and submit the duplicate copy of BIR Form 2316 at the time required under the new regulations, the said employer or withholding agent may, in addition to other penalties provided by law, upon conviction, be punished with a fine that is not less than P10,000 and suffer imprisonment of not less than one year but not more than ten years. To settle any violation, the regulations provide for a compromise fee of P1,000 for each BIR Form 2316 not filed without any maximum threshold. Note that failure to furnish BIR Form 2316 shall be a ground for the mandatory audit of the employer’s income tax liabilities upon verified complaint of the BIR. Under the pain of perjury, BIR Form 2316 shall be signed by both the employee and employer, attesting to the fact that the information stated therein has been verified and is true and correct to the best of their knowledge.
Based on the framework of the regulation, it would seem that such issuance was meant to ensure that the employer is compliant with his duty of withholding, filing and paying the correct amount of tax. Taking into consideration the ultimate goal of the BIR to provide an efficient and convenient service to its taxpayers through the implementation of a "hassle-free" method of filing Individual Income Tax Returns (BIR Form 1700), this system recognizes that BIR form 2316 serves the same purpose as if BIR Form 1700 has been filed.
Recall that under the tax regulations, substituted filing system of income tax return is the method allowed by law for the declaration of income of a person receiving purely compensation income. Under this system, the requirement to file an annual income tax return has been waived for individuals deriving purely compensation income if they only have one employer for the year and provided that all their income was fully and correctly subjected to withholding tax by their employer.
This begs the question, to whom does substituted filing apply? RMC 1-03 provides that substituted filing applies only to individuals who meet certain conditions: (a) the employee receives purely compensation income regardless of amount, during the taxable year; (b) the employee receives the income from one employer in the Philippines during the taxable year; (c) the amount of tax due from the employee at the end of the year equals the amount of tax withheld by the employer; (d) the employer files the annual information return or BIR Form No. 1604-CF; and (d) that the employer issues BIR Form 2316 to each employee. In case an individual satisfies all of the said conditions, then substituted filing applies to him or her.
Unfortunately, individuals deriving compensation income from two or more employers, concurrently or successively at any time during the taxable year, are not qualified for substituted filing. Substituted filing of income tax do not also apply to (a) employees deriving compensation income, regardless of amount, the income tax of which has not been withheld resulting to a collectible or refundable return; (b) employees whose monthly gross compensation income does not exceed P5,000 or the statutory minimum wage, whichever is higher, and who have opted for non-withholding of tax on said income; (c) individuals deriving other non-business, non-profession-related income in addition to compensation not otherwise subject to final tax; (d) individuals deriving purely compensation income from a single employer, although the income of which has been correctly subjected to withholding tax, but whose spouse is not entitled to substituted filing; and (e) non-resident aliens engaged in trade or business in the Philippines deriving purely compensation income and other business or profession related income.
One must wonder why the BIR keeps on introducing regulations requiring additional submission of returns or information. Evidently, efforts in collection have been improved and strengthened as the BIR projects higher collection target each year. In fact, it has been an issue in our jurisdiction that once the taxpayer is registered, the next challenge to tax administration is the strict enforcement of taxpayer compliance. Thus, the question remains whether, with these new regulations, BIR can track all the employees subject to substituted filing and draw out those who are mixed-income earners.
While the wisdom behind the new regulation is unclear and seems to serve no other purpose but additional means of information-gathering and data collection for the respective revenue district offices, one cannot deny the fact that tax administration for BIR will be even more tedious and tax compliance insofar as employers are concerned will definitely be as noxious.
The author is a tax associate with Punongbayan & Araullo’s (P&A) tax advisory and compliance division. P&A is the Philippine member firm of Grant Thornton International Ltd. For comments and inquiries, please e-mail Robert.DeGuzman@ph.gt.com or call 886-5511.
Just recently, the Bureau of Internal Revenue (BIR) issued Revenue Regulations No. 11-2013, which take effect beginning with the calendar year 2013. The new regulations mandate the submission of a hard copy of the Certificate of Compensation Payment / Tax Withheld (BIR Form 2316) covering employees who are qualified for substituted filing to the BIR. The employer shall furnish each employee with the original copy of BIR Form 2316 not later than Jan. 31 and submit to the BIR the duplicate copy not later than Feb. 28 following the close of the calendar year.
The new regulations also reinforce the applicable penalty in case an employer or withholding agent, including the government or any of its political subdivisions and GOCCs, fails to submit the certificate to the BIR on time. For failure to file an information return, statement or list, or keep any record, or supply any information as may be required by the Tax Code or the Commissioner, and unless it is shown that failure is due to reasonable and not to willful neglect, there shall be imposed, upon notice and demand by the Commissioner, the penalty of a fine ranging from P1,000 to P25,000.
Furthermore, in case the employer or withholding agent is remiss on his duty, for two consecutive years, to make any return, to supply correct and accurate information, and wilfully fails to pay such taxes and file and submit the duplicate copy of BIR Form 2316 at the time required under the new regulations, the said employer or withholding agent may, in addition to other penalties provided by law, upon conviction, be punished with a fine that is not less than P10,000 and suffer imprisonment of not less than one year but not more than ten years. To settle any violation, the regulations provide for a compromise fee of P1,000 for each BIR Form 2316 not filed without any maximum threshold. Note that failure to furnish BIR Form 2316 shall be a ground for the mandatory audit of the employer’s income tax liabilities upon verified complaint of the BIR. Under the pain of perjury, BIR Form 2316 shall be signed by both the employee and employer, attesting to the fact that the information stated therein has been verified and is true and correct to the best of their knowledge.
Based on the framework of the regulation, it would seem that such issuance was meant to ensure that the employer is compliant with his duty of withholding, filing and paying the correct amount of tax. Taking into consideration the ultimate goal of the BIR to provide an efficient and convenient service to its taxpayers through the implementation of a "hassle-free" method of filing Individual Income Tax Returns (BIR Form 1700), this system recognizes that BIR form 2316 serves the same purpose as if BIR Form 1700 has been filed.
Recall that under the tax regulations, substituted filing system of income tax return is the method allowed by law for the declaration of income of a person receiving purely compensation income. Under this system, the requirement to file an annual income tax return has been waived for individuals deriving purely compensation income if they only have one employer for the year and provided that all their income was fully and correctly subjected to withholding tax by their employer.
This begs the question, to whom does substituted filing apply? RMC 1-03 provides that substituted filing applies only to individuals who meet certain conditions: (a) the employee receives purely compensation income regardless of amount, during the taxable year; (b) the employee receives the income from one employer in the Philippines during the taxable year; (c) the amount of tax due from the employee at the end of the year equals the amount of tax withheld by the employer; (d) the employer files the annual information return or BIR Form No. 1604-CF; and (d) that the employer issues BIR Form 2316 to each employee. In case an individual satisfies all of the said conditions, then substituted filing applies to him or her.
Unfortunately, individuals deriving compensation income from two or more employers, concurrently or successively at any time during the taxable year, are not qualified for substituted filing. Substituted filing of income tax do not also apply to (a) employees deriving compensation income, regardless of amount, the income tax of which has not been withheld resulting to a collectible or refundable return; (b) employees whose monthly gross compensation income does not exceed P5,000 or the statutory minimum wage, whichever is higher, and who have opted for non-withholding of tax on said income; (c) individuals deriving other non-business, non-profession-related income in addition to compensation not otherwise subject to final tax; (d) individuals deriving purely compensation income from a single employer, although the income of which has been correctly subjected to withholding tax, but whose spouse is not entitled to substituted filing; and (e) non-resident aliens engaged in trade or business in the Philippines deriving purely compensation income and other business or profession related income.
One must wonder why the BIR keeps on introducing regulations requiring additional submission of returns or information. Evidently, efforts in collection have been improved and strengthened as the BIR projects higher collection target each year. In fact, it has been an issue in our jurisdiction that once the taxpayer is registered, the next challenge to tax administration is the strict enforcement of taxpayer compliance. Thus, the question remains whether, with these new regulations, BIR can track all the employees subject to substituted filing and draw out those who are mixed-income earners.
While the wisdom behind the new regulation is unclear and seems to serve no other purpose but additional means of information-gathering and data collection for the respective revenue district offices, one cannot deny the fact that tax administration for BIR will be even more tedious and tax compliance insofar as employers are concerned will definitely be as noxious.
The author is a tax associate with Punongbayan & Araullo’s (P&A) tax advisory and compliance division. P&A is the Philippine member firm of Grant Thornton International Ltd. For comments and inquiries, please e-mail Robert.DeGuzman@ph.gt.com or call 886-5511.
Saturday, June 15, 2013
Why did Kim Henares blink?
Internal Revenue Commissioner Kim Henares was the first to blink in
the confrontation with the Philippine Chamber of Commerce and Industry
(PCCI) over Revenue Regulation (RR) No. 18-2012. Under this RR, issued
on Oct. 22, 2012, and published on Jan. 3, 2013, all unused
receipts/invoices printed prior to the RR’s effectivity will no longer
be valid after June 30 of this year—whether these be official receipts,
or sales/commercial invoices—and should be turned over to the Bureau of
Internal Revenue. Starting July 1, they will have to issue receipts
printed under new authorities to print, which they had until April 30 to
apply for.
And what was the reason for this RR? In essence, to tighten up the authorization and printing process (including the accreditation of printers and limited periods of validity) of those receipts/invoices, in order to reduce, if not eliminate entirely, the proliferation of fake receipts that reduce the government’s tax take. Moreover, printing businesses set up solely to print the receipts/invoices, and owned by BIR employees or their relatives, were barred from accreditation, thus eliminating the pernicious practice whereby businessmen asking for the authority to print were given a hard time unless they gave the printing job to the BIR employee/relative.
In other words, the RR was issued as part of the government’s war on inefficiency/waste/corruption. So one would have thought that the business sector, which regularly complains both loudly and bitterly about inefficiency and corruption in the BIR, would jump at the chance to help close the loopholes, as it were.
Unfortunately, one would have thought wrong. The businessmen were in an “uproar,” to quote a newspaper report. The six-month transition period provided in the RR was too short, apparently, and would result in small businesses incurring losses. If Sergio Ortiz-Luis, an officer of the PCCI and president of the Exporters Confederation, has been quoted accurately, businessmen needed “at least” one year for that transition, presumably to avoid those losses.
So that’s what the controversy was all about: Kim Henares maintaining that six months was actually more than sufficient time to prepare for the reforms, and the business community saying that it needed “at least” one year.
Who is correct? Look at it this way, Reader. For Ortiz-Luis’ claim to hold any water, his assumption must be that businesses, at the start of the year, have on hand one year’s worth of receipt booklets, rather than at most six months’ worth of those booklets (which is what the BIR and Kim Henares are obviously assuming).
For big businesses, whether they hold six months’ or one year’s worth of receipts is immaterial, because the cost of six months’ worth of receipt booklets has to be minuscule in their scheme of things. So they are out of the picture, and we are left with the small businesses, the hand-to-mouth businesses, as it were.
But if they were small, hand-to-mouth operations, why would they be putting their scarce cash into one year’s worth of receipt booklets at the beginning of the year, when there are so many competing demands on that cash? It wouldn’t make sense, right?
In other words, Kim Henares’ assumption has to be the correct one.
And yet, she blinked. And postponed the July 1 start of the system of new receipts by another 60 days.
Frankly, if Kim Henares is left to her own devices, I don’t think she would have given in to pressure from the PCCI. She calls the shots as she sees them. She must have given in, therefore, to pressure from her administrative superior, Finance Secretary Cesar Purisima, who was the one who signed RR 18-2012 in the first place, with Kim Henares’ signature over the words “Recommending Approval.” That she gave in to a two-month extension of the deadline rather than a six-month extension indicates that she can be pushed only so far.
But the real loser in this controversy isn’t Kim Henares. The real loser is the Filipino people. In our war against corruption and inefficiency, Kim Henares has been one of our most committed and persevering warriors. I have heard complaints about her stubbornness, but not one single complaint about her integrity and competence. She’s not doing it for herself, she’s doing it for us.
Obviously, she has not endeared herself to a lot of people in the process. There are the 160 cases that the BIR has filed in the Department of Justice against alleged tax evaders (only 22 of which seem to be in the courts at this moment, but that’s not her fault), who certainly are not pleased. There are some BIR employees whose little businesses and “rackets” she is trying to close down, with RR 18-2012 as well as with other reforms. So they’re not going to take that sitting down. And then there are the big businesses whose backs she will not scratch, because she doesn’t need for them to scratch hers in the first place. They are certainly not pleased.
Many knives are out for Kim Henares, and this confrontation with the business community, unfortunately, may be one of their manifestations, with arguments, however asinine, being raised against her. The most asinine is the complaint that the imposition of a P50,000 fine for not issuing the new receipts by July 1 (now moved to Sept. 1) is excessive, and will hurt (again) small businesses.
Reminders: One, it will hurt them only if they do not comply with the law; and two, it is about time people were punished, instead of coddled and protected, when they do not comply with the law.
Kim Henares deserves bouquets, not brickbats.
source: Inquirer's Get Real by Solita Collas-Monsod
And what was the reason for this RR? In essence, to tighten up the authorization and printing process (including the accreditation of printers and limited periods of validity) of those receipts/invoices, in order to reduce, if not eliminate entirely, the proliferation of fake receipts that reduce the government’s tax take. Moreover, printing businesses set up solely to print the receipts/invoices, and owned by BIR employees or their relatives, were barred from accreditation, thus eliminating the pernicious practice whereby businessmen asking for the authority to print were given a hard time unless they gave the printing job to the BIR employee/relative.
In other words, the RR was issued as part of the government’s war on inefficiency/waste/corruption. So one would have thought that the business sector, which regularly complains both loudly and bitterly about inefficiency and corruption in the BIR, would jump at the chance to help close the loopholes, as it were.
Unfortunately, one would have thought wrong. The businessmen were in an “uproar,” to quote a newspaper report. The six-month transition period provided in the RR was too short, apparently, and would result in small businesses incurring losses. If Sergio Ortiz-Luis, an officer of the PCCI and president of the Exporters Confederation, has been quoted accurately, businessmen needed “at least” one year for that transition, presumably to avoid those losses.
So that’s what the controversy was all about: Kim Henares maintaining that six months was actually more than sufficient time to prepare for the reforms, and the business community saying that it needed “at least” one year.
Who is correct? Look at it this way, Reader. For Ortiz-Luis’ claim to hold any water, his assumption must be that businesses, at the start of the year, have on hand one year’s worth of receipt booklets, rather than at most six months’ worth of those booklets (which is what the BIR and Kim Henares are obviously assuming).
For big businesses, whether they hold six months’ or one year’s worth of receipts is immaterial, because the cost of six months’ worth of receipt booklets has to be minuscule in their scheme of things. So they are out of the picture, and we are left with the small businesses, the hand-to-mouth businesses, as it were.
But if they were small, hand-to-mouth operations, why would they be putting their scarce cash into one year’s worth of receipt booklets at the beginning of the year, when there are so many competing demands on that cash? It wouldn’t make sense, right?
In other words, Kim Henares’ assumption has to be the correct one.
And yet, she blinked. And postponed the July 1 start of the system of new receipts by another 60 days.
Frankly, if Kim Henares is left to her own devices, I don’t think she would have given in to pressure from the PCCI. She calls the shots as she sees them. She must have given in, therefore, to pressure from her administrative superior, Finance Secretary Cesar Purisima, who was the one who signed RR 18-2012 in the first place, with Kim Henares’ signature over the words “Recommending Approval.” That she gave in to a two-month extension of the deadline rather than a six-month extension indicates that she can be pushed only so far.
But the real loser in this controversy isn’t Kim Henares. The real loser is the Filipino people. In our war against corruption and inefficiency, Kim Henares has been one of our most committed and persevering warriors. I have heard complaints about her stubbornness, but not one single complaint about her integrity and competence. She’s not doing it for herself, she’s doing it for us.
Obviously, she has not endeared herself to a lot of people in the process. There are the 160 cases that the BIR has filed in the Department of Justice against alleged tax evaders (only 22 of which seem to be in the courts at this moment, but that’s not her fault), who certainly are not pleased. There are some BIR employees whose little businesses and “rackets” she is trying to close down, with RR 18-2012 as well as with other reforms. So they’re not going to take that sitting down. And then there are the big businesses whose backs she will not scratch, because she doesn’t need for them to scratch hers in the first place. They are certainly not pleased.
Many knives are out for Kim Henares, and this confrontation with the business community, unfortunately, may be one of their manifestations, with arguments, however asinine, being raised against her. The most asinine is the complaint that the imposition of a P50,000 fine for not issuing the new receipts by July 1 (now moved to Sept. 1) is excessive, and will hurt (again) small businesses.
Reminders: One, it will hurt them only if they do not comply with the law; and two, it is about time people were punished, instead of coddled and protected, when they do not comply with the law.
Kim Henares deserves bouquets, not brickbats.
source: Inquirer's Get Real by Solita Collas-Monsod
Wednesday, June 12, 2013
Guidelines on protest letters
IN LINE with its mandate to collect taxes
due to the government, the Bureau of Internal Revenue (BIR) is given the
authority to conduct regular tax examinations of taxpayers’ books of
accounts and other accounting records. These examinations would normally
result in deficiency tax findings, which, in most cases, would lead to
issuance of tax assessments against the concerned taxpayer.
The rules governing the assessment of national internal revenue taxes are provided in Section 228 (formerly Section 244) of the 1997 Tax Code, as amended, and in the various implementing rules and regulations, principally, Revenue Regulations (RR) No. 12-99, which I have briefly summarized below.
The investigation commences with the issuance of a Letter of Authority (LoA) by the BIR authorizing the examination of the taxpayer’s books and records for a particular year by the revenue officers named therein. If the audit results in deficiency tax findings, the BIR issues a Notice of Informal Conference (NIC), to which the taxpayer may respond either in writing or through a preliminary conference with the revenue examiners, normally within 15 days from receipt of the NIC. If the issues are not resolved, the BIR will proceed with the issuance of a Preliminary Assessment Notice (PAN) proposing to assess deficiency taxes. The taxpayer may protest the PAN in writing, normally also within 15 days. If no protest against the PAN is received, or if the BIR does not agree with the protest filed, the BIR shall issue a Final Assessment Notice (FAN) containing the facts as well as the laws, rules, regulations, or jurisprudence on which the assessment is based. Within a period of 30 days from the date of the taxpayer’s receipt of the FAN, he must file his written protest or request for reinvestigation/reconsideration with the BIR stating the facts, the applicable law, rules and regulations, or jurisprudence on which the protest is based. Failure to make a proper and timely protest will render the FAN final and executory. After the filing of the protest, the taxpayer still has another 60 days within which to submit the relevant supporting documents.
Clearly based on these rules, the filing of an administrative protest against the FAN is of utmost importance since a default would leave the taxpayer with no other recourse but to pay the deficiency tax assessed, regardless of whether the same is valid or not. Being a critical part of the assessment process, the filing of the administrative protest must be done in the proper form and within the time prescribed by the law. However, it has been observed by the BIR that in numerous cases, protest letters, although proper in form and filed within the prescribed deadline, were not filed with the proper offices of the BIR. This has led to the conduct of unwarranted reinvestigation of cases, and consequently to the undue accumulation of delinquent accounts and the premature enforcement of summary remedies against the concerned taxpayers.
To put order in the filing procedures of protest letters, the BIR has issued Revenue Memorandum Circular (RMC) No. 39-2013, dated April 4, 2013, which provides the guidelines in the receipt of protest letters, requests for reinvestigation/reconsideration, and other similar correspondences from taxpayers. RMC No. 39-2013 basically supplements RR No. 12-99 and outlines the following procedures:
1. All letters of protests, requests for reinvestigation/ reconsideration and other similar correspondences shall only be filed by the taxpayer or his duly authorized representatives, in person or through registered mail with return card. Filing shall be made with the Office of the concerned Regional Director (RD), Assistant Commissioner-Large Taxpayers Service (ACIR-LTS), and Assistant Commissioner-Enforcement Service (ACIR-ES), who signed the PAN, FAN and Formal Letters of Demand, for proper recording of the protests, and evaluation if the protests are in accordance with Section 228 of the Tax Code, as implemented by RR No. 12-99.
This procedure must be strictly followed by taxpayers since failure to do so would render the letter of protest, request for reinvestigation/reconsideration and other similar correspondences void and without force and effect.
2. After filing is made, the revenue officers above-mentioned are primarily mandated to ensure that complete/accurate reports on all protests filed with their respective offices are properly prepared in the prescribed form and that said reports are promptly submitted to the Commissioner of Internal Revenue (CIR) every Monday of each week in hard and soft copies. The soft copy of the report shall be e-mailed to the personal e-mail addresses of the CIR and her duly authorized representative (kim.jacinto-henares@bir.gov.ph and flor.mercado@bir.gov.ph).
3. Based on the weekly report submitted, the Office of the CIR shall create a database of all letters of protest, requests for reinvestigation/reconsideration and other similar correspondences received by the different offices of the BIR. The said database shall be regularly updated for purposes of providing accurate information on the matter to all concerned officials and employees.
4. Any letter of protest, request for reinvestigation/ reconsideration or other similar correspondences allegedly filed by any taxpayer but not included in the aforementioned database shall be deemed not officially filed with the BIR and shall not be used as basis for granting any request for reinvestigation/ reconsideration of any FAN or Final Decision on Disputed Assessment (FDDA) issued against the taxpayer.
While the issuance of RMC No. 39-2013 will certainly aid the BIR in monitoring all letters of protest, requests for reinvestigation/reconsideration and other similar correspondences, it raises some concerns on the part of the taxpayers, specifically with respect to provision number 4 above, which effectively considers invalid or as not having been officially filed any letter of protest or a request for reinvestigation/reconsideration which is not included in the CIR database. Since the creation of the CIR database is largely dependent on human effort, it cannot be absolutely free of human mistakes, inadvertence, or negligence. If this rule is strictly implemented, taxpayers who have faithfully filed their protest letters in accordance with the prescribed procedures may stand to lose in an assessment case simply because of possible procedural lapses on the part of the concerned officers of the BIR. RMC No. 39-2013 apparently does not contain any provision protecting the rights of the taxpayers in case of inadvertence or negligence by revenue officers, much less imperfections in the internal system of the BIR.
Accordingly, if only to protect their rights, taxpayers would be faced with the burden of further monitoring the BIR’s compliance with the procedures stated in RMC No. 39-2013, literally starting from the preparation of the complete/accurate report, then to the submission of the hard copy of the report to the CIR and the e-mailing of the soft copy to the CIR e-mail address, and up to the actual uploading of their respective protest letters to the CIR database. If necessary, taxpayers may need to secure a certification from the CIR that their protest letter is already included in the CIR database.
Generally, RMC No. 39-2013 is useful in establishing an effective assessment process. However, on a practical level, I believe that this should be revisited to ensure that implementation of the guidelines on receipt of protest letters, requests for reinvestigation/reconsideration, and similar correspondences will equally provide the taxpayers adequate protection of their right to due process.
The author is a senior consultant at the Tax Services Department of Isla Lipana & Co., the Philippine member firm of the PricewaterhouseCoopers global network. Send inquiries or feedback to laverne.a.bacaser@ph.pwc.com.
The views or opinions presented in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co.. The firm will not accept any liability arising from such article.
source: Businessworld
The rules governing the assessment of national internal revenue taxes are provided in Section 228 (formerly Section 244) of the 1997 Tax Code, as amended, and in the various implementing rules and regulations, principally, Revenue Regulations (RR) No. 12-99, which I have briefly summarized below.
The investigation commences with the issuance of a Letter of Authority (LoA) by the BIR authorizing the examination of the taxpayer’s books and records for a particular year by the revenue officers named therein. If the audit results in deficiency tax findings, the BIR issues a Notice of Informal Conference (NIC), to which the taxpayer may respond either in writing or through a preliminary conference with the revenue examiners, normally within 15 days from receipt of the NIC. If the issues are not resolved, the BIR will proceed with the issuance of a Preliminary Assessment Notice (PAN) proposing to assess deficiency taxes. The taxpayer may protest the PAN in writing, normally also within 15 days. If no protest against the PAN is received, or if the BIR does not agree with the protest filed, the BIR shall issue a Final Assessment Notice (FAN) containing the facts as well as the laws, rules, regulations, or jurisprudence on which the assessment is based. Within a period of 30 days from the date of the taxpayer’s receipt of the FAN, he must file his written protest or request for reinvestigation/reconsideration with the BIR stating the facts, the applicable law, rules and regulations, or jurisprudence on which the protest is based. Failure to make a proper and timely protest will render the FAN final and executory. After the filing of the protest, the taxpayer still has another 60 days within which to submit the relevant supporting documents.
Clearly based on these rules, the filing of an administrative protest against the FAN is of utmost importance since a default would leave the taxpayer with no other recourse but to pay the deficiency tax assessed, regardless of whether the same is valid or not. Being a critical part of the assessment process, the filing of the administrative protest must be done in the proper form and within the time prescribed by the law. However, it has been observed by the BIR that in numerous cases, protest letters, although proper in form and filed within the prescribed deadline, were not filed with the proper offices of the BIR. This has led to the conduct of unwarranted reinvestigation of cases, and consequently to the undue accumulation of delinquent accounts and the premature enforcement of summary remedies against the concerned taxpayers.
To put order in the filing procedures of protest letters, the BIR has issued Revenue Memorandum Circular (RMC) No. 39-2013, dated April 4, 2013, which provides the guidelines in the receipt of protest letters, requests for reinvestigation/reconsideration, and other similar correspondences from taxpayers. RMC No. 39-2013 basically supplements RR No. 12-99 and outlines the following procedures:
1. All letters of protests, requests for reinvestigation/ reconsideration and other similar correspondences shall only be filed by the taxpayer or his duly authorized representatives, in person or through registered mail with return card. Filing shall be made with the Office of the concerned Regional Director (RD), Assistant Commissioner-Large Taxpayers Service (ACIR-LTS), and Assistant Commissioner-Enforcement Service (ACIR-ES), who signed the PAN, FAN and Formal Letters of Demand, for proper recording of the protests, and evaluation if the protests are in accordance with Section 228 of the Tax Code, as implemented by RR No. 12-99.
This procedure must be strictly followed by taxpayers since failure to do so would render the letter of protest, request for reinvestigation/reconsideration and other similar correspondences void and without force and effect.
2. After filing is made, the revenue officers above-mentioned are primarily mandated to ensure that complete/accurate reports on all protests filed with their respective offices are properly prepared in the prescribed form and that said reports are promptly submitted to the Commissioner of Internal Revenue (CIR) every Monday of each week in hard and soft copies. The soft copy of the report shall be e-mailed to the personal e-mail addresses of the CIR and her duly authorized representative (kim.jacinto-henares@bir.gov.ph and flor.mercado@bir.gov.ph).
3. Based on the weekly report submitted, the Office of the CIR shall create a database of all letters of protest, requests for reinvestigation/reconsideration and other similar correspondences received by the different offices of the BIR. The said database shall be regularly updated for purposes of providing accurate information on the matter to all concerned officials and employees.
4. Any letter of protest, request for reinvestigation/ reconsideration or other similar correspondences allegedly filed by any taxpayer but not included in the aforementioned database shall be deemed not officially filed with the BIR and shall not be used as basis for granting any request for reinvestigation/ reconsideration of any FAN or Final Decision on Disputed Assessment (FDDA) issued against the taxpayer.
While the issuance of RMC No. 39-2013 will certainly aid the BIR in monitoring all letters of protest, requests for reinvestigation/reconsideration and other similar correspondences, it raises some concerns on the part of the taxpayers, specifically with respect to provision number 4 above, which effectively considers invalid or as not having been officially filed any letter of protest or a request for reinvestigation/reconsideration which is not included in the CIR database. Since the creation of the CIR database is largely dependent on human effort, it cannot be absolutely free of human mistakes, inadvertence, or negligence. If this rule is strictly implemented, taxpayers who have faithfully filed their protest letters in accordance with the prescribed procedures may stand to lose in an assessment case simply because of possible procedural lapses on the part of the concerned officers of the BIR. RMC No. 39-2013 apparently does not contain any provision protecting the rights of the taxpayers in case of inadvertence or negligence by revenue officers, much less imperfections in the internal system of the BIR.
Accordingly, if only to protect their rights, taxpayers would be faced with the burden of further monitoring the BIR’s compliance with the procedures stated in RMC No. 39-2013, literally starting from the preparation of the complete/accurate report, then to the submission of the hard copy of the report to the CIR and the e-mailing of the soft copy to the CIR e-mail address, and up to the actual uploading of their respective protest letters to the CIR database. If necessary, taxpayers may need to secure a certification from the CIR that their protest letter is already included in the CIR database.
Generally, RMC No. 39-2013 is useful in establishing an effective assessment process. However, on a practical level, I believe that this should be revisited to ensure that implementation of the guidelines on receipt of protest letters, requests for reinvestigation/reconsideration, and similar correspondences will equally provide the taxpayers adequate protection of their right to due process.
The author is a senior consultant at the Tax Services Department of Isla Lipana & Co., the Philippine member firm of the PricewaterhouseCoopers global network. Send inquiries or feedback to laverne.a.bacaser@ph.pwc.com.
The views or opinions presented in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co.. The firm will not accept any liability arising from such article.
source: Businessworld
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