BIR 2012: The year in review

The year in review by: Charity P. Mandap

As we look back at the significant events of the past year—natural calamities, economic challenges, political conflicts, controversies in the lives of prominent people and the deaths of celebrities and leaders—we should be aware of the events that would have considerable impact this year.  This is true in the matter of tax rules and regulations.
If we review the past year, what would appear on the list of major Bureau of Internal Revenue (BIR) issuances?

The amendment on the rule on de minimis benefits is one such issuance.   Revenue Regulations No. (RR) 5-2011 limited the scope of non-taxable de minimis benefits by excluding benefits that were not mentioned in the regulation.  Hence, other benefits that were not specifically enumerated shall be subject to income tax as well as withholding tax on compensation.  The BIR further clarified in Revenue Memorandum Circular No. (RMC) 20-2011 that the term “income tax and withholding tax on compensation income” in that paragraph refers to the fringe benefits tax (FBT) for managerial and supervisory employees and should be included in BIR Form 1603 (Quarterly Remittance Return of Final Income Taxes Withheld on Fringe Benefits Paid), instead of BIR Form 1601-C.

On July 7, 2011, the BIR issued RR 10-2011 which amended the consolidated Value-Added Tax (VAT) regulations of 2005.   This regulation removed the exemption given to transfers of property between real estate dealers for stock which results in corporate control and subjected to VAT all exchanges of goods or properties for shares of stocks, regardless of the nature of the business of transferee or transferor, and regardless of whether the transfer will result in corporate control or not.  This revoked previous rulings issued by the BIR exempting real estate dealer to dealer transfer from VAT.

Another amendment to the consolidated VAT Regulations of 2005 is RR 16-2011 issued on October 27, 2011.  The regulation increased the threshold amounts on VAT-exempt transactions for sale of residential lot, sale of house and lot, lease of residential unit and sale or lease of goods or properties or performance of services covered by Section 109 (P), (Q) and (V) of the Tax Code of 1997.

The adjusted threshold amounts are as follows:

 Section     Amount in Pesos (2005)     Adjusted threshold amounts

Section 109 (P)     1,500,000     1,919,500.00
Section 109 (P)     2,500,000     3,199,200.00
Section 109 (Q)     10,000                12,800.00
Section 109 (V)     1,500,000     1,919,500.00

Similarly in 2011, the BIR issued the implementing rules and regulations of the Real Estate Investment Trust (REIT) Law (Republic Act No. 9856) embodied under Revenue Regulation No. 13-2011 issued on July 25, 2011.  Under the law, a REIT is subject to 30 percent income tax and 12 percent VAT. On the other hand, a REIT can enjoy certain tax privileges— the 50 percent reduction in applicable documentary stamp taxes on the sale or transfer of real property to REITs; a lower creditable withholding tax of 1 percent; exemption from the minimum corporate income tax; and additional deduction from gross income equivalent to the dividends distributed by a REIT for purposes of computing the 30 percent corporate income tax.  Note however, that there are several conditions to be able to avail of the tax privileges, such as maintaining the status as public company and the escrow deposits requirements. The BIR likewise placed emphasis on the imposition of VAT on initial transfer of assets to REIT.

In the same year, the P22.per day Cost of Living Allowance (COLA) given to all private sector minimum wage eagers (MWEs) in the National Capital Region was granted exemptio n from income tax.  

Another recent issuance is RR 17-2011 issued on October 27, 2011, implementing the tax provisions of Republic Act No. (RA) 9505, otherwise known as the “Personal Equity and Retirement Account (PERA) Act of 2008,”  which sets the framework for the establishment of personal accounts to save funds for retirement, death, sickness or disability while providing various tax incentives.  Under the regulation, a qualified contributor shall be entitled to a tax credit equivalent to 5 percent of the aggregate qualified PERA contribution during the calendar year.   This may be credited against the contributor’s income tax liability.  A qualified employer is allowed to contribute to its employees’ PERA, which they may claim as deduction from gross income.

Equally important is RR 14-2011 issued on July 29, 2011, which prohibits the transfer or assignment of Tax Credit Certificates (TCCs) to any person.  Holders of TCCs can only use the TCCs to pay for their direct internal revenue tax liabilities (e.g. income tax, VAT, DST, percentage taxes).  TCCs cannot be applied for the following:  payment of withholding taxes; tax amnesties; deposits on withdrawal of exciseable articles; taxes not administered or collected by the BIR; compromise penalties.

Another significant BIR regulation is that which now require lessors to monitor and report to the BIR the registration profile of their lessees to ensure that owners or sub-lessors of commercial buildings or spaces deal only with BIR-registered taxpayers.  Lessors who fail to submit the reportorial requirements, or who willfully provide false information or knowingly transact with taxpayers who are not registered with the BIR shall be subject to penalties.
Also in 2011, the BIR issued BIR Ruling No. 199-2011 dated July 29, 2011, which subjected to income tax the commutation and payment of all monetized unused sick leave credits and vacation leave credits in excess of 10 days, as a result of involuntary separation of employees from the service. This revoked previous rulings that terminal pay, which is part of the tax-exempt separation pay, is not subject to income tax, regardless of the number of monetized sick and vacation leaves [BIR Ruling No. SB-(004) 024-09].

In the same year, the BIR likewise revoked BIR Ruling Nos. 002-99, DA-184-04 and DA-569-04 which exclude from gross income and hence, exempt from tax, contributions to Pag-Ibig 2, GSIS, SSS, in excess of the mandatory monthly contribution. The BIR explained that the exclusion referred to under Section 32(B)(7)(f) of the Tax Code only applied to mandatory/compulsory contributions.  Voluntary contributions in excess of what the law allowed are not excludible from gross income of taxpayers, and hence subject to income tax.

To cap the year, the BIR issued RMC 40-2011 which sets forth the release of the June 2011 versions of the annual income tax returns for individuals, corporations and partnerships.

The enhanced BIR Forms for individuals incorporate a new Part IV, requiring disclosure of details on income subjected to final tax and income exempt from income tax.    Note, however, that the disclosure of other income is optional in 2011 but shall be mandatory for the year 2012. The new returns shall be used for the annual income tax filing covering calendar year 2011, which is due on or before April 15, 2012. The new versions shall also be required for juridical entities following fiscal year of reporting starting with fiscal year ending January 31, 2012.

These are only some of the numerous BIR rules and regulations issued in the past year.   Taxpayers are advised to take note of the specific issuances that may be applicable to their circumstances to be able to comply with the new requirements and to avoid the corresponding penalties.  Awareness of the new rules may also prove to be valuable in tax planning for the com ing 2012.

source:  Punongbayan and Araullo