A few days ago, I was invited to discuss estate taxes. One of the questions proferred by viewers was whether the Philippines should repeal estate taxes. The viewer probably thought that imposing estate tax on top of the various taxes that we as taxpayers have to shoulder is a huge an imposition on our overstretched budgets.
Considering that we have already paid 32% personal income tax and most probably 12% value-added tax in purchasing the property, deducting a further 20% in estate tax would increase the government’s cut on our hard-earned money to an unconscionable level.
What is estate tax and why do some countries such as the Philippines impose estate tax? Why are we being taxed upon death as if our death is a voluntary mode of transferring property? Aren’t we supposed to conserve our property so that we can pass on our legacy and the fruits of our labor to our progeny without the government confiscating a portion thereof?
Estate tax is not a tax on property. Rather, it is a tax on the privilege of the deceased person to transmit his estate to his heirs and beneficiaries at the time of death. It is imposed on the right of transmitting property upon the death of the owner.
The Philippines is not the only country that levies estate tax. We do not even impose the highest rates on estate tax. The US, UK, Japan, South Korea and France also impose estate taxes ranging from 40% to 55%. By way of contrast, 15 of the 34 member countries of the Organization of Economic Cooperation and Development do not impose estate or inheritance tax at all.
At present, our estate tax ranges from 0% to 20%. The highest rate is imposed on the value of the net taxable estate exceeding P10 million. If we trace the history of our estate tax, the 20% rate is actually a huge improvement. From July 28, 1992 up to December 31, 1997, the top rate was at 35% on any value exceeding P10 million, while from January 1, 1973 to July 27, 1992 the top rate was a whopping 60% on any value exceeding P3 million.
Proponents of the abolition of estate tax argue that estate tax retards economic development as it depletes capital particularly those used in business. Imagine inheriting a business worth P20 million with most of the assets in real property and equipment. In order to pay for the estate tax, there might emerge a need to liquidate or sell a portion of the business. This will negatively impact on the development or growth of the business, perhaps leading to decreased production and retrenchment.
Another argument in support of repealing estate tax is that it has a narrow tax base and huge administrative cost. Simply put, the costs do not justify the expected tax revenue. For example, in 2007, there were only 29,198 estate tax returns filed, producing P649.9 million worth of estate tax collections.
The Bureau of Internal Revenue (BIR) did not provide the total number of recorded deaths for the same year but noted that the recorded deaths in the National Statistics Office are 415,271 for 2005 and 389,081 for 2006. Basing on the lower number of total deaths, less than 10% of all estates filed the corresponding tax return.
Also, total number of estate tax returns amounted to 29,863 in 2008 and 26,811 in 2009 with total estate tax collections of P854.9 million and P876.8 million, respectively.
Various other countries have acknowledged the need to remove estate taxes. From 2000 to the present, 12 countries have repealed their estate taxes. More are probably on their way to abolishing this tax.
The Philippines appears to be a long way from having an estate tax-free system. The BIR is even increasing its efforts to run after estates which did not file estate returns and pay the correct taxes.
Maybe with elections coming up in 2016, we will have a new set of leaders who will see the value of abolishing estate tax. Until then, we can only hope that our leaders become enlightened.
Eleanor L. Roque is a principal and head of the Tax Advisory and Compliance division of Punongbayan & Araullo. P&A is a leading audit, tax, advisory and outsourcing services firm and is the Philippine member of Grant Thornton International Ltd.
source: Businessworld
Tuesday, June 30, 2015
Wednesday, June 24, 2015
ITRs not required in CWT Refund
The burden of proof to establish entitlement to a refund lies with the claimant, who must positively show compliance with the statutory requirements provided under the Tax Code.
According to existing jurisprudence [Commissioner of Internal Revenue (CIR) vs. Mirant], GR No. 171742, in claiming a refund of excess and unutilized Creditable Withholding Tax (CWT), a taxpayer is required to: 1) File the claim with the Bureau of Internal Revenue (BIR) within the two-year period from the date of payment of the tax; 2) Show on his income tax return (ITR) that the income received was declared as part of the gross income; and 3) Establish the fact of withholding via a copy of the withholding tax certificate duly issued by the withholding agent to the taxpayer showing the amount paid and the amount of tax withheld.
However, in a 2013 decision, the Court of Tax Appeals (CTA) ruled that, in addition to the three conditions above, it is also essential for the taxpayer to present the quarterly ITRs of the succeeding year to prove that the excess CWT was not carried over to the succeeding taxable quarters. For failure to present the first, second and third quarterly ITRs for the succeeding year, the taxpayer’s claim for refund was denied by the CTA due to non-substantiation of the CWT. This is despite the taxpayer having offered and submitted the annual ITR/Final Adjustment Return (FAR) for the same year which indicates that the refund claimed was not carried over.
On appeal, the Supreme Court overturned the CTA decision and granted the refund based on the following reasons:
First, Section 76 of the Tax Code does not mandate the submission and presentation of the quarterly ITRs of the succeeding quarters of a taxable year in a claim for refund. The law merely requires the filing of the ITR/FAR for the preceding -- not the succeeding -- taxable year.
Second, Revenue Regulations (RR) No. 6-85 as amended by RR 12-94 merely provides that claims for refund of income taxes deducted and withheld from income payments shall be given due course only (1) when it is shown on the ITR that the income payment received is being declared part of the taxpayer’s gross income; and (2) when the fact of withholding is established by a copy of the withholding tax statement, duly issued by the payor to the payee, showing the amount paid and the income tax withheld from that amount. Even the BIR’s own regulations do not require the presentation of the quarterly ITRs to substantiate a claim for CWT refund.
Interestingly, the Supreme Court clarified that the case of Philam Asset Management, Inc. vs. CIR cannot be cited as a precedent to hold that the presentation of the quarterly ITR is not indispensable in a CWT refund claim. In that case, the quarterly ITRs for the succeeding year were presented when the taxpayer filed an administrative claim for the refund of its excess taxes withheld in 1997.
The logic in not requiring quarterly ITRs of the succeeding taxable years remains true to this day. What the Tax Code requires is proof that the claimant is entitled to the claim, including the fact of not having carried over the excess credits to the subsequent quarters or taxable year. The law, however, does not provide that to prove such a fact, succeeding quarterly ITRs are absolutely necessary.
The court did not make an absolute statement as to the indispensability of the quarterly ITRs in a claim for refund for no court can limit a party to the means of proving a fact for as long as they are consistent with the rules of evidence and fair play.
To reiterate, what the Tax Code merely requires is for the taxpayer to sufficiently prove that the excess CWT being claimed for refund was not carried over.
A refund is in the nature of an exemption and must be construed against the entity claiming the refund and in favor of the taxing authority. Be reminded, however, that once the requirements laid down by the law have been met, the claimant should be considered successful in discharging its burden of proving its right to the refund.
Thereafter, the burden of going forward with the evidence shifts to the opposing party (i.e., the BIR). It is then the turn of the opposing party to disprove the claim by presenting contrary evidence and not burden the claimant to present additional evidence..
Cherry Amor C. Venzon-Ongson is an assistant manager at the Tax Services Department of Isla Lipana & Co., the Philippine member firm of the PwC network.
cherry.amor.ongson@ph.pwc.com.
source: Businessworld
According to existing jurisprudence [Commissioner of Internal Revenue (CIR) vs. Mirant], GR No. 171742, in claiming a refund of excess and unutilized Creditable Withholding Tax (CWT), a taxpayer is required to: 1) File the claim with the Bureau of Internal Revenue (BIR) within the two-year period from the date of payment of the tax; 2) Show on his income tax return (ITR) that the income received was declared as part of the gross income; and 3) Establish the fact of withholding via a copy of the withholding tax certificate duly issued by the withholding agent to the taxpayer showing the amount paid and the amount of tax withheld.
However, in a 2013 decision, the Court of Tax Appeals (CTA) ruled that, in addition to the three conditions above, it is also essential for the taxpayer to present the quarterly ITRs of the succeeding year to prove that the excess CWT was not carried over to the succeeding taxable quarters. For failure to present the first, second and third quarterly ITRs for the succeeding year, the taxpayer’s claim for refund was denied by the CTA due to non-substantiation of the CWT. This is despite the taxpayer having offered and submitted the annual ITR/Final Adjustment Return (FAR) for the same year which indicates that the refund claimed was not carried over.
On appeal, the Supreme Court overturned the CTA decision and granted the refund based on the following reasons:
First, Section 76 of the Tax Code does not mandate the submission and presentation of the quarterly ITRs of the succeeding quarters of a taxable year in a claim for refund. The law merely requires the filing of the ITR/FAR for the preceding -- not the succeeding -- taxable year.
Second, Revenue Regulations (RR) No. 6-85 as amended by RR 12-94 merely provides that claims for refund of income taxes deducted and withheld from income payments shall be given due course only (1) when it is shown on the ITR that the income payment received is being declared part of the taxpayer’s gross income; and (2) when the fact of withholding is established by a copy of the withholding tax statement, duly issued by the payor to the payee, showing the amount paid and the income tax withheld from that amount. Even the BIR’s own regulations do not require the presentation of the quarterly ITRs to substantiate a claim for CWT refund.
Interestingly, the Supreme Court clarified that the case of Philam Asset Management, Inc. vs. CIR cannot be cited as a precedent to hold that the presentation of the quarterly ITR is not indispensable in a CWT refund claim. In that case, the quarterly ITRs for the succeeding year were presented when the taxpayer filed an administrative claim for the refund of its excess taxes withheld in 1997.
The logic in not requiring quarterly ITRs of the succeeding taxable years remains true to this day. What the Tax Code requires is proof that the claimant is entitled to the claim, including the fact of not having carried over the excess credits to the subsequent quarters or taxable year. The law, however, does not provide that to prove such a fact, succeeding quarterly ITRs are absolutely necessary.
The court did not make an absolute statement as to the indispensability of the quarterly ITRs in a claim for refund for no court can limit a party to the means of proving a fact for as long as they are consistent with the rules of evidence and fair play.
To reiterate, what the Tax Code merely requires is for the taxpayer to sufficiently prove that the excess CWT being claimed for refund was not carried over.
A refund is in the nature of an exemption and must be construed against the entity claiming the refund and in favor of the taxing authority. Be reminded, however, that once the requirements laid down by the law have been met, the claimant should be considered successful in discharging its burden of proving its right to the refund.
Thereafter, the burden of going forward with the evidence shifts to the opposing party (i.e., the BIR). It is then the turn of the opposing party to disprove the claim by presenting contrary evidence and not burden the claimant to present additional evidence..
Cherry Amor C. Venzon-Ongson is an assistant manager at the Tax Services Department of Isla Lipana & Co., the Philippine member firm of the PwC network.
cherry.amor.ongson@ph.pwc.com.
source: Businessworld
Thursday, June 18, 2015
13th month pay is not taxable
Dear PAO,
I am a fresh graduate and have landed on my first job. So far, I am enjoying my work as a private therapist. My co-workers tell me that I am lucky I was hired because our employer is very generous. For instance, we are granted company outings and a couple of bonuses if we perform well. I am just wondering if the bonuses will be taxed. Is the 13th month pay also taxed? I am a bit excited to receive these benefits and I am hoping these will not be taxed. Any advice will be highly appreciated. Thank you.
Jemmah
I am a fresh graduate and have landed on my first job. So far, I am enjoying my work as a private therapist. My co-workers tell me that I am lucky I was hired because our employer is very generous. For instance, we are granted company outings and a couple of bonuses if we perform well. I am just wondering if the bonuses will be taxed. Is the 13th month pay also taxed? I am a bit excited to receive these benefits and I am hoping these will not be taxed. Any advice will be highly appreciated. Thank you.
Jemmah
Dear Jemmah,
Taxes are the life-blood of the state. Hence, income is generally subjected to taxes. This includes income of individual persons. However, there are types of individual income which are not included in the imposition of taxes. As provided for under Section 32B, Chapter VI of Republic Act (R.A.) No. 8424, otherwise known as the National Internal Revenue Code of the Philippines, the following are exempt from taxation: (1) Life insurance; (2) Amount received by the insured as return of premiums; (3) Value of properties received as gifts, bequests and devises; (4) Compensation for injuries or sickness; (5) Incomes which are exempt under treaty; (6) Retirement benefits, pensions and gratuities; (7) Prizes and awards made primarily in recognition of religious, charitable, scientific, educational, artistic, literary, or civic achievement when the recipient was selected without any action on his part to enter such contest and he is not required to render substantial future services as a condition of receiving the prize or award; (8) Prizes and awards in sports competition sanctioned by the national sports association; (9) 13th month pay and other benefits; (10) GSIS, SSS, Medicare and other contributions; (11) Gains from sales of bonds, debentures or other certificate of indebtedness with maturity of more than five years; and (12) Gains from redemption of shares in mutual funds as defined under Section 22 (BB), Id.
Taxes are the life-blood of the state. Hence, income is generally subjected to taxes. This includes income of individual persons. However, there are types of individual income which are not included in the imposition of taxes. As provided for under Section 32B, Chapter VI of Republic Act (R.A.) No. 8424, otherwise known as the National Internal Revenue Code of the Philippines, the following are exempt from taxation: (1) Life insurance; (2) Amount received by the insured as return of premiums; (3) Value of properties received as gifts, bequests and devises; (4) Compensation for injuries or sickness; (5) Incomes which are exempt under treaty; (6) Retirement benefits, pensions and gratuities; (7) Prizes and awards made primarily in recognition of religious, charitable, scientific, educational, artistic, literary, or civic achievement when the recipient was selected without any action on his part to enter such contest and he is not required to render substantial future services as a condition of receiving the prize or award; (8) Prizes and awards in sports competition sanctioned by the national sports association; (9) 13th month pay and other benefits; (10) GSIS, SSS, Medicare and other contributions; (11) Gains from sales of bonds, debentures or other certificate of indebtedness with maturity of more than five years; and (12) Gains from redemption of shares in mutual funds as defined under Section 22 (BB), Id.
From the foregoing, it can be said that the 13th month pay of employees is not taxable. However, there is a limit as to the maximum amount of the 13th month pay which is exempt from tax. Under Section 32B, Chapter VI of R. A. No. 8424, the benefit must not exceed P30,000. Any amount in excess thereof may be subjected to tax. Nevertheless, the said provision of the law has already been amended by R. A. No. 10653, which now provides that 13th month pay along with other benefits such as productivity incentives and Christmas bonuses is exempt from the imposition of taxes so long as it does not exceed P82,000.
Accordingly, the 13th month pay as well as the bonuses which you may receive from your employment may be excluded from taxation as long as the total amount thereof does not exceed P82,000. If there is an excess amount, the same shall be subjected to the imposition of appropriate taxes.
We hope that we were able to answer your queries. Please be reminded that this advice is based solely on the facts you have narrated and our appreciation of the same. Our opinion may vary when other facts are changed or elaborated.
Editor’s note: Dear PAO is a daily column of the Public Attorney’s Office. Questions for Chief Acosta may be sent to dearpao@manilatimes.net
Your PEZA registration
To attract investors to our economic zones, the Philippine Economic Zone Authority (PEZA) recently launched the PEZA Electronic Application for Registration System (e-ARS). This system can be accessed thru the PEZA Web site (www.peza.gov.ph) by clicking the icon “e-ARS” or going directly to the URL http://ears.peza.gov.ph.
With the implementation of this new system, applications with PEZA may now be filed electronically. Completed application forms with the required attachments (including proof of payment of the application fee) can be scanned and sent via e-mail to eddapps@peza.gov.phfor Ecozone Developers and erdapps@peza.gov.ph for Ecozone Enterprises.
The following PEZA applications may be filed through this new system:
1. New and Existing Registered Ecozone Developers -- for all types of Ecozones, including applications for Existing Registered Ecozone Developers for inclusion of additional areas to an existing ecozone.
2. New and Existing Registered Ecozone Enterprises -- for Export; Information Technology; Agro-Industrial; Logistics Services; Tourism; and Medical Tourism Enterprises, including applications of such existing registered Ecozone Enterprises for “New Project”, “Expansion Project” and “Amendment of Registered Activity.”
Electronic filing of the PEZA application does not, however, guarantee its approval. Similar to the previous manual filing system, electronic applications will undergo preliminary screening by the concerned PEZA office, but feedback on the application will be communicated via e-mail. In case changes to the application/project brief are required, the applicant will have to re-file the application following the same procedure.
Upon approval of the application, applicants must submit the hard copies of the documents which were submitted via e-mail within thirty (30) days from the date of approval of the application by the PEZA Board for Ecozone Developers, and prior to the signing of the company’s Registration/Supplemental Agreement with PEZA for Ecozone Enterprises.
Whether the application is manual or electronic, however, a company’s PEZA registration does not end here. Neither should a company assume its initial four (4) year income tax holiday (ITH) on the basis of a signed Registration/Supplemental Agreement and a PEZA Certificate of Registration.
The Registration/Supplemental Agreement of a PEZA-registered company provides guidelines on the conditions to follow to maintain its registration and to ultimately avail of the incentives accorded to its registration with PEZA.
For purposes of availing ITH, the relevant date will be the start of commercial operations (SCO) which is the date that the applicant has committed in its project brief. The SCO date should not be assumed either. A validation or attestation process must be observed before a company can use its SCO date. SCO attestation is proven thru the issuance of the company’s first commercial invoice to a third party customer. The first commercial invoice will have to be accompanied by an Affidavit which is then attested to and validated by the PEZA-Enterprise Operations Division and PEZA-Incentives Department. The SCO attestation application should be submitted to PEZA at least seven (7) days after the committed SCO date.
Within forty five (45) days after its first year of commercial operations, the company has to prove or validate the equipment investment it committed for its project. Validation of the investment is done through the submission of a PEZA prescribed form (PEZA Form: ERD.2.F.003) where the company will have to enumerate all the equipment it has purchased during its first year of operations. This includes pre-operating investments or equipment purchased before the SCO date. For contact centers, there is an additional requirement of proving an investment of at least $5,000 per seat based on the Investment Priorities Plan issued in December 2013. However, contact centers registered prior to December 2013 need only to prove an investment per seat of $2,500. This investment amount covers the cost of equipment (hardware and software), office furniture and fixture, building improvements and renovation, and other assets such as land, buildings and working capital.
For most PEZA companies, this is where the challenge kicks in. Not only is the investment validation complied with belatedly, more often than not, the supporting documentation, such as the invoices and PEZA form 8105 of the equipment purchased, can no longer be located. As such, companies who wish to avail of bonus years in their ITH face delays with their ITH applications.
Recently, the PEZA started withholding the issuance of the annual Certificates of Available Incentives and VAT Zero Rating to registrants that are unable to show compliance with the investment validation. This is apart from proving the compliance and proper completion of the data required in the monthly performance reports, PEZA annual reports and tax returns (Audited Financial Statements, Annual Income Tax Returns and Quarterly Income Tax Returns).
Apart from the initial registration, the investment validation process is the most crucial application that a registrant has with PEZA. This determines the company’s entitlement to a 4-year ITH or to the 5% gross income tax. Applicants should thus give more attention to this application than an application for bonus ITH years.
While there are efforts to streamline the registration process by introducing the e-ARS, the challenge remains for PEZA to rationalize its operational processes for availing incentives. Whether the delay in the ITH applications may be attributable to the applicants or to PEZA, efforts must make headway to address the problem if we expect more investors to catch on. An economic climate that provides hassle-free applications is always an investment attraction. The bottom line is that functionality far outweighs formalities.
Larissa C. Dalistan-Levosada is a manager at the Tax Services Department of Isla Lipana & Co., the Philippine member firm of the PwC network. Readers may send inquiries or feedback to larissa.c.dalistan@ph.pwc.com.
source: Businessworld
With the implementation of this new system, applications with PEZA may now be filed electronically. Completed application forms with the required attachments (including proof of payment of the application fee) can be scanned and sent via e-mail to eddapps@peza.gov.phfor Ecozone Developers and erdapps@peza.gov.ph for Ecozone Enterprises.
The following PEZA applications may be filed through this new system:
1. New and Existing Registered Ecozone Developers -- for all types of Ecozones, including applications for Existing Registered Ecozone Developers for inclusion of additional areas to an existing ecozone.
2. New and Existing Registered Ecozone Enterprises -- for Export; Information Technology; Agro-Industrial; Logistics Services; Tourism; and Medical Tourism Enterprises, including applications of such existing registered Ecozone Enterprises for “New Project”, “Expansion Project” and “Amendment of Registered Activity.”
Electronic filing of the PEZA application does not, however, guarantee its approval. Similar to the previous manual filing system, electronic applications will undergo preliminary screening by the concerned PEZA office, but feedback on the application will be communicated via e-mail. In case changes to the application/project brief are required, the applicant will have to re-file the application following the same procedure.
Upon approval of the application, applicants must submit the hard copies of the documents which were submitted via e-mail within thirty (30) days from the date of approval of the application by the PEZA Board for Ecozone Developers, and prior to the signing of the company’s Registration/Supplemental Agreement with PEZA for Ecozone Enterprises.
Whether the application is manual or electronic, however, a company’s PEZA registration does not end here. Neither should a company assume its initial four (4) year income tax holiday (ITH) on the basis of a signed Registration/Supplemental Agreement and a PEZA Certificate of Registration.
The Registration/Supplemental Agreement of a PEZA-registered company provides guidelines on the conditions to follow to maintain its registration and to ultimately avail of the incentives accorded to its registration with PEZA.
For purposes of availing ITH, the relevant date will be the start of commercial operations (SCO) which is the date that the applicant has committed in its project brief. The SCO date should not be assumed either. A validation or attestation process must be observed before a company can use its SCO date. SCO attestation is proven thru the issuance of the company’s first commercial invoice to a third party customer. The first commercial invoice will have to be accompanied by an Affidavit which is then attested to and validated by the PEZA-Enterprise Operations Division and PEZA-Incentives Department. The SCO attestation application should be submitted to PEZA at least seven (7) days after the committed SCO date.
Within forty five (45) days after its first year of commercial operations, the company has to prove or validate the equipment investment it committed for its project. Validation of the investment is done through the submission of a PEZA prescribed form (PEZA Form: ERD.2.F.003) where the company will have to enumerate all the equipment it has purchased during its first year of operations. This includes pre-operating investments or equipment purchased before the SCO date. For contact centers, there is an additional requirement of proving an investment of at least $5,000 per seat based on the Investment Priorities Plan issued in December 2013. However, contact centers registered prior to December 2013 need only to prove an investment per seat of $2,500. This investment amount covers the cost of equipment (hardware and software), office furniture and fixture, building improvements and renovation, and other assets such as land, buildings and working capital.
For most PEZA companies, this is where the challenge kicks in. Not only is the investment validation complied with belatedly, more often than not, the supporting documentation, such as the invoices and PEZA form 8105 of the equipment purchased, can no longer be located. As such, companies who wish to avail of bonus years in their ITH face delays with their ITH applications.
Recently, the PEZA started withholding the issuance of the annual Certificates of Available Incentives and VAT Zero Rating to registrants that are unable to show compliance with the investment validation. This is apart from proving the compliance and proper completion of the data required in the monthly performance reports, PEZA annual reports and tax returns (Audited Financial Statements, Annual Income Tax Returns and Quarterly Income Tax Returns).
Apart from the initial registration, the investment validation process is the most crucial application that a registrant has with PEZA. This determines the company’s entitlement to a 4-year ITH or to the 5% gross income tax. Applicants should thus give more attention to this application than an application for bonus ITH years.
While there are efforts to streamline the registration process by introducing the e-ARS, the challenge remains for PEZA to rationalize its operational processes for availing incentives. Whether the delay in the ITH applications may be attributable to the applicants or to PEZA, efforts must make headway to address the problem if we expect more investors to catch on. An economic climate that provides hassle-free applications is always an investment attraction. The bottom line is that functionality far outweighs formalities.
Larissa C. Dalistan-Levosada is a manager at the Tax Services Department of Isla Lipana & Co., the Philippine member firm of the PwC network. Readers may send inquiries or feedback to larissa.c.dalistan@ph.pwc.com.
source: Businessworld
CTA affirms realtor non-VAT status
The Court of Tax Appeals (CTA) has affirmed an earlier ruling that the transfer of real property by a real-estate dealer to gain control of another real-estate corporation is not subject to value-added tax (VAT).
In the case of Commissioner of Internal Revenue v. Dakudao & Sons Inc., the CTA en banc affirmed a ruling of the Second Division granting a tax refund to the respondent in the amount of P112 million.
The VAT payment was made in 2011 when Dakudao & Sons transferred two parcels of land to Metro South Davao Property Corp. in exchange for 75 percent of the capital stock of the corporation.
The transfer was levied a P112-million output VAT liability on the part of Dakudao & Sons by the
Bureau of Internal Revenue (BIR), which considered the transaction a sales transaction.
Bureau of Internal Revenue (BIR), which considered the transaction a sales transaction.
But the CTA upheld the argument of the respondent that under Revenue Regulations (RR) 16-2005, transfers of real property made by a real-estate corporation to gain control of another real-estate corporation are not subject to VAT.
RR 16-2005 provides that: “The VAT shall not apply to goods or properties existing as of the occurrence of the following: 1. Change of control of a corporation by the acquisition of the controlling interest of such corporation by another stockholder or group of stockholders.
The goods or properties used in business or those comprising the stock-in-trade of the corporation, having a change in corporate control, will not be considered sold, bartered or exchanged despite the change in the ownership interest in the said corporation.”
“If the transferee of the transferred real property by a real-estate dealer is another real-estate dealer, in an exchange where the transferor gains control of the transferee-corporation, no output VAT is imposable on the said transfer,” the regulation said.
The CTA rejected the argument of the BIR that the transfer transaction was not one of those enumerated in Section 109 of the Tax Code as VAT-exempt transactions.
The CTA said the claim for refund by the respondent is under another provision of the law, specifically RR 16-2005, which provides that the subject transaction is not liable for output VAT.
source: Business Mirror
Monday, June 8, 2015
Four things a tax officer needs to know
How much do you make as a corporate tax officer? In my conversations with tax officers or finance officers performing tax-related work, it is becoming a common view that handling tax matters is difficult, to the point where some are beginning to believe their compensation is inadequate, considering the pressures of the job.
Serving as a company’s tax officer is no joke. A single “yes” or “no” call on the tax treatment of certain transactions can mean millions, or even billions.
Are there things which a tax officer or a finance officer doing tax work should know? Or are there things which they already know, except that they need some reassurance that others are also experiencing the same? Here’s a bird’s eye view:
1. Expect notices of audit for open tax years.
The collection target of the Bureau of Internal Revenue (BIR) for taxable year 2015 is about P1.67 trillion. By way of comparison, the BIR’s actual collection last year was around P1.33 trillion (lower than the target of P1.46 trillion). On this information alone, we know that the BIR will be hard pressed to achieve its target for this year. And what does this mean? As a tax officer, you might want to already expect notices of audit for open years (i.e., years which the BIR’s right to assess has not yet prescribed).
No one wants to receive such notices, since attending to the requirements of a BIR audit is disruptive to the other core functions of a tax officer. Perhaps it bears mentioning that receiving audit notices is normal and expected, if that is any consolation. In order to allay the stress and anxiety that comes with receiving one, let us just say that many others are currently receiving such notices. As long as you are confident in your tax records, then, there is no need to worry.
2. BIR examiners are just like us, and want to get their work done with minimal fuss. Most of them, at least.
In BIR audits, we are not merely dealing with the BIR as an institution. We are talking to actual people -- BIR examiners. The danger of thinking of the BIR as an impersonal institution during an audit is that, sometimes, the process becomes too hostile, adding an unnecessary layer of conflict to even routine events like the initial phase of document submission.
Don’t get me wrong. If the process becomes harassment rather than the usual reasonable BIR audit, then that’s a different matter. Fight it out. It’s self-defense. Whatever might be considered a reasonable BIR audit is a matter for individual officers to judge. All I’m saying is that you may not want to start the war.
3. The BIR’s approach on tax assessment has evolved.
Many observe that the BIR is now placing more reliance on third party information (TPI). The information is sourced from your suppliers and customers, and for imports, data from the Bureau of Customs. Taxpayers have been clamoring for the BIR to reconsider this approach, because the matching procedures are flawed. In the TPI approach, the BIR is acting on the mere presumption that the counterparty’s records are 100% correct, and that the taxpayer being audited has the burden of explaining the variances that emerge.
If you receive a list of “insidious” findings based on TPI matching, don’t panic, but don’t seek the help of a spirit warrior either. All you need to know is that some legal thinking supports the idea that TPI findings cannot prevail. Several court decisions have declared that TPI findings are unlawful and void. In Collector of Internal Revenue vs. Benipayo, no less than the Supreme Court explained that, in order to stand judicial scrutiny, the BIR assessment must be based on facts. The presumption of the correctness of an assessment, being a mere presumption, cannot be made to rest on another presumption. In addition, you have your records and documents with you to back you up.
4. We have a lot of tax rules in the Philippines, plus the various shifts in the way they are interpreted
This should not be news to you. The Philippine tax system is not just about the Tax Code. We have special laws, revenue regulations, revenue memorandum circulars, revenue memorandum orders, and court decisions, among others.
As a tax officer, you might want to free up time on your schedule for reading. What you thought you knew might not be applicable today. Keep abreast of developments in the tax rules.
These four points are just a few of the things that a tax officer should know.
Without question, a tax officer is in a critical position -- a position to prevent the unnecessary loss of company funds due to tax exposures. For such an officer, what is the takeaway? Stay informed; be prudent with tax records; pay attention to the BIR assessment approach; and keep in touch with the company’s outside tax consultant, if any. And -- do I even have to mention it -- ask for a salary increase?
Olivier D. Aznar is a Partner with the Tax Advisory and Compliance division of Punongbayan & Araullo. P&A is a leading audit, tax, advisory and outsourcing services firm and is the Philippine member of Grant Thornton International Ltd.
SOURCE: Businessworld
Serving as a company’s tax officer is no joke. A single “yes” or “no” call on the tax treatment of certain transactions can mean millions, or even billions.
Are there things which a tax officer or a finance officer doing tax work should know? Or are there things which they already know, except that they need some reassurance that others are also experiencing the same? Here’s a bird’s eye view:
1. Expect notices of audit for open tax years.
The collection target of the Bureau of Internal Revenue (BIR) for taxable year 2015 is about P1.67 trillion. By way of comparison, the BIR’s actual collection last year was around P1.33 trillion (lower than the target of P1.46 trillion). On this information alone, we know that the BIR will be hard pressed to achieve its target for this year. And what does this mean? As a tax officer, you might want to already expect notices of audit for open years (i.e., years which the BIR’s right to assess has not yet prescribed).
No one wants to receive such notices, since attending to the requirements of a BIR audit is disruptive to the other core functions of a tax officer. Perhaps it bears mentioning that receiving audit notices is normal and expected, if that is any consolation. In order to allay the stress and anxiety that comes with receiving one, let us just say that many others are currently receiving such notices. As long as you are confident in your tax records, then, there is no need to worry.
2. BIR examiners are just like us, and want to get their work done with minimal fuss. Most of them, at least.
In BIR audits, we are not merely dealing with the BIR as an institution. We are talking to actual people -- BIR examiners. The danger of thinking of the BIR as an impersonal institution during an audit is that, sometimes, the process becomes too hostile, adding an unnecessary layer of conflict to even routine events like the initial phase of document submission.
Don’t get me wrong. If the process becomes harassment rather than the usual reasonable BIR audit, then that’s a different matter. Fight it out. It’s self-defense. Whatever might be considered a reasonable BIR audit is a matter for individual officers to judge. All I’m saying is that you may not want to start the war.
3. The BIR’s approach on tax assessment has evolved.
Many observe that the BIR is now placing more reliance on third party information (TPI). The information is sourced from your suppliers and customers, and for imports, data from the Bureau of Customs. Taxpayers have been clamoring for the BIR to reconsider this approach, because the matching procedures are flawed. In the TPI approach, the BIR is acting on the mere presumption that the counterparty’s records are 100% correct, and that the taxpayer being audited has the burden of explaining the variances that emerge.
If you receive a list of “insidious” findings based on TPI matching, don’t panic, but don’t seek the help of a spirit warrior either. All you need to know is that some legal thinking supports the idea that TPI findings cannot prevail. Several court decisions have declared that TPI findings are unlawful and void. In Collector of Internal Revenue vs. Benipayo, no less than the Supreme Court explained that, in order to stand judicial scrutiny, the BIR assessment must be based on facts. The presumption of the correctness of an assessment, being a mere presumption, cannot be made to rest on another presumption. In addition, you have your records and documents with you to back you up.
4. We have a lot of tax rules in the Philippines, plus the various shifts in the way they are interpreted
This should not be news to you. The Philippine tax system is not just about the Tax Code. We have special laws, revenue regulations, revenue memorandum circulars, revenue memorandum orders, and court decisions, among others.
As a tax officer, you might want to free up time on your schedule for reading. What you thought you knew might not be applicable today. Keep abreast of developments in the tax rules.
These four points are just a few of the things that a tax officer should know.
Without question, a tax officer is in a critical position -- a position to prevent the unnecessary loss of company funds due to tax exposures. For such an officer, what is the takeaway? Stay informed; be prudent with tax records; pay attention to the BIR assessment approach; and keep in touch with the company’s outside tax consultant, if any. And -- do I even have to mention it -- ask for a salary increase?
Olivier D. Aznar is a Partner with the Tax Advisory and Compliance division of Punongbayan & Araullo. P&A is a leading audit, tax, advisory and outsourcing services firm and is the Philippine member of Grant Thornton International Ltd.
SOURCE: Businessworld
Friday, June 5, 2015
BIR tightens rule on transfer tax
INTERNAL Revenue Commissioner Kim Jacinto-Henares has ordered all revenue district officers (RDOs) to provide each week the Register of Deeds of the places where they have jurisdiction an updated list of subsisting certificates authorizing registration (CARs/eCARs).
Henares issued Revenue Memorandum Order (RMO) 10-2015 mandating RDOs to send a weekly update on subsisting CARs/eCARs to the Register of Deeds concerned to prevent the transfer of ownership of real property without the proper and accurate payment of transfer tax and to stop the use of spurious CARs/eCARs.
Earlier, the Bureau of Internal Revenue (BIR) and the Land Registration Authority (LRA) entered into an agreement on the use of a common digital database and system of verifying the eCARs issued by the BIR before any transfer of title over real estate can be effected either through sale, donation or succession.
Under RMO 10-2015, an updated list of manually issued CARs and computerized eCARs shall be provided to the concerned Register of Deeds on a weekly basis.
RMO 10-2015 provides that any CARs that are not included in the list of manually issued CARs/eCARs are deemed spurious, and may, therefore, not be used in applications with the Register of Deeds for transfer of title over real property.
The giving of the list of manually issued CARs/eCARs is a provisional measure to ensure that the BIR and the respective Registers of Deeds use the same database of subsisting CARs in places wherein the digital database shared and synchronized between the BIR and the LRA to keep track of eCARs issued is not yet in place.
The manual list of existing CARs is also required to be submitted by the RDOs, even in places where the digital database is already existing because there may be some CARs that are still effective and may still be presented to the Registers of Deeds for purposes of transferring title.
source: Business Mirror
Tuesday, June 2, 2015
Stepping-in for uncertainty – Court halts implementation of Revenue Regulations No. 04-2011
Most banks, if not all, welcomed the issuance of a temporary restraining order (TRO) on April 8, 2015 and a writ of preliminary injunction on April 27, 2015 issued by the Makati Regional Trial Court (RTC) Branch 57 on the Bureau of Internal Revenue (BIR) enjoining the implementation of Revenue Regulations (RR) No. 04-2011.
According to the Makati RTC, the revenue regulation appeared to have violated fundamental principles of taxation and express provisions in the 1997 Tax Code, as amended, and that the banks’ interests or rights would be irreversibly damaged or prejudiced if the injunctive relief is not issued.
Under the Rules of Court, the RTC upon application may issue a TRO to be effective only for a period of 20 days from service on the party or person sought to be enjoined, except as may otherwise be provided. Within this period, the court must order the party enjoined (the BIR) to show cause why the injunction should not be granted. Also, the court must determine within the same period whether or not the preliminary injunction shall be granted, and accordingly issue the corresponding order. In the instant case, the RTC issued the preliminary injunction on April 27, 2015 before the lapse of the 20-day period of effectivity of the TRO.
A preliminary injunction is an order granted at any stage of an action or proceeding prior to the judgment or final order, requiring a party or a court, agency or a person to refrain from a particular act or acts issued to preserve and protect certain rights and interest during the pendency of an action. By virtue of the injunction, the BIR is thus precluded in the meantime from enforcing the provisions of RR No. 04-2011 on banks and other financial institutions until the RTC issues a decision withdrawing the injunction.
RR No. 04-2011 was issued by the BIR on March 15, 2011. It deals with the proper allocation of costs and expenses amongst income earnings of banks and other financial institutions for income tax reporting purposes.
In general, an RBU of a bank pertains to its unit dealing in the local currency whereas the FCDU (or EFCDU) are separate units within the same bank dealing with and operating in foreign currencies. Each of these units earn income from various sources, which may be classified as tax-paid income (income already subjected to final tax), tax-exempt income, or taxable income. These units are components of the same bank, but have separate computation and reporting for income tax purposes.
RR No. 04-2011 prescribes the rules on the allocation of costs and expenses between the RBU and the FCDU: by specific identification; and by allocation. Specific identification, by its name, prohibits claiming of expenses which are not directly attributable to a unit. Under the allocation method, common expenses or expenses that cannot be specifically identified to a particular unit shall be allocated based on percentage share of gross income earnings of a unit to the total gross income earnings subject to regular income tax and final tax, including those exempt from income tax.
Prior to the issuance of the injunction, the BIR had issued letter notices and assessments to various banks pursuant to RR 04-2011. In sum, the assessments resulted from the disallowance of expenses which, according to the BIR, should have been allocated by the banks to its exempt or tax-paid income. According to the BIR, the banks should have allocated part of its common costs and expenses to tax-paid or tax-exempt income, pursuant to RR No. 04-2011.
In response, the banks challenged the validity of RR 04-2011 and filed an action for declaratory relief with application for TRO/preliminary injunction before the RTC-Makati.
It must be emphasized that the issuance of the TRO and preliminary injunction does not mean that RR No. 04-2011 has been struck down by the judiciary as null and void. Until final resolution of Civil Case No. 15-287, the issue is still in limbo. At this point, the banks and the BIR must stand at status quo until the decision of the court is laid down.
To date, the BIR has filed a Motion for Reconsideration before the Makati RTC Branch 57 challenging the grounds relied upon by the court in issuing the preliminary injunction. In an interview, BIR commissioner Kim Jacinto-Henares said the policy of the Bureau is to bring the case all the way to the higher courts. The banks are also expected to protect their interest as some banks have received final assessment notices pursuant to RR 04-2011. Thus, we can expect an appeal from either party as to any decision stemming from this dispute until the Supreme Court stamps it with finality. This precipitates there will be a fight to the end. For now, the banks may have to wait longer until this issue gets legally resolved.
Philip Marion A. Ortal is a supervisor from the tax group of R.G. Manabat & Co. (RGM&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 views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG International or RGM&Co. For comments or inquiries, please email ph-inquiry@kpmg.com or rgmanabat@kpmg.com.
For more information on KPMG in the Philippines, you may visit www.kpmg.com.ph.
source: PH Star
Monday, June 1, 2015
Avoiding penalties for day-late tax payments
Recently, I personally received several calls from taxpayers seeking clarification as to the consequence of a one-day late payment of tax.
There are also indications that the Bureau of Internal Revenue (BIR) is sending notices to some taxpayers making late payments, as a precursor to a full-blown tax audit.
Late payments were caused by inadvertent oversights in the bank payment process or glitches in the online filing system. The typical problem encountered by a taxpayer under the electronic filing and payment system (eFPS) is that the payment approval failed to materialize after the filing of the tax return.
For late payment of taxes, the Tax Code provides specific penalties for failure to file and pay the return on the prescribed date, as follows:
Section 248. Civil Penalties
(A) There shall be imposed, in addition to the tax required to be paid, a penalty equivalent to twenty-five percent (25%) of the amount due, in the following cases:
(1) Failure to file any return and pay the tax due thereon as required under the provision of this Code or rules and regulations on the date prescribed;
In the above provision, it will be noted that both the filing and the payment of the tax return must be made within the prescribed date. Otherwise, there is the risk of 25% surcharge.
In addition to the 25% surcharge, there will be interest as per Section 249 of the Tax Code, which prescribes that, in general, there shall be assessed and collected on the any unpaid amount of tax, interest at the rate of 20% per annum, or such higher rates as may be prescribed by rules and regulations, from the date prescribed for payment until the amount is fully paid.
Thus, assuming that a taxpayer has a tax payable of P10 million and failed to accomplish a bank payment, and that the payment was only made after the due date (even though the return was filed on time, as in the case of eFPS filers), the tax penalties would include the 25% surcharge based on the P10 million and the 20% interest per annum computed proportionately from the supposed due date up to the actual payment of the deficiency tax.
Given the above-mentioned tax provisions, the penalties rise accordingly to the point where entities owing hundreds of millions of pesos will definitely be liable for hefty amounts.
In reviewing the issued BIR rules and regulations as to the possible cancelation of penalties being imputed on late payment of taxes, there was a previous regulation that provided for relief to the taxpayers [i.e., Revenue Regulation No. (RR) 13-2001].
The regulation allowed a taxpayer to apply for the abatement or cancellation of the 25% surcharge, but the payment of the 20% interest (pro-rated) would still need to be paid. The grounds for abatement were: a) the late payment being beyond the control of the taxpayer (i.e. Internet glitches); or b) meritorious circumstances which included paying a day late as a result of failure to beat bank cut-off time.
The issuance of RR 4-2012 amended the above regulation to remove the one-day late filing and remittance of payment provision for cancellation.
The amendment of regulations has had the effect of giving taxpayers a sever warning to file and pay taxes on time. Given the risk involved, it is prudent for taxpayers to ensure they have an efficient control and monitoring system for the filing and payment of tax returns.
As part of normal corporate internal control procedures, the functions and duties of the preparer of the return and the approver of tax payment are segregated. In particular, there is a person or department responsible for filing the return while a different person or department authorizes the tax payment to bank.
In this respect, it is critical that both sides of the transaction act in close coordination. The proper advice on the successful execution of the bank payment must be included on the checklist for tax return filing and payment.
Further, the taxpayer provide a buffer of at least one or two days to allow for unforeseen circumstances like system downtime or error. Note that during the last day of return filing under the eFPS, it was not uncommon for the BIR system to slow down as a result of the traffic, with many taxpayers rushing to file simultaneously.
Some would consider the rules on filing and payment of taxes to be very basic and irrelevant. However, given the recent spate of BIR assessment findings, it would be prudent to remind the taxpayers of these rules, as these can easily catch the taxpayer off-guard.
Richard R. IBarra is a tax manager with the Tax Advisory and Compliance division of Punongbayan & Araullo. P&A is a leading audit, tax, advisory and outsourcing services firm and is the Philippine member of Grant Thornton International Ltd.
Late payments were caused by inadvertent oversights in the bank payment process or glitches in the online filing system. The typical problem encountered by a taxpayer under the electronic filing and payment system (eFPS) is that the payment approval failed to materialize after the filing of the tax return.
For late payment of taxes, the Tax Code provides specific penalties for failure to file and pay the return on the prescribed date, as follows:
Section 248. Civil Penalties
(A) There shall be imposed, in addition to the tax required to be paid, a penalty equivalent to twenty-five percent (25%) of the amount due, in the following cases:
(1) Failure to file any return and pay the tax due thereon as required under the provision of this Code or rules and regulations on the date prescribed;
In the above provision, it will be noted that both the filing and the payment of the tax return must be made within the prescribed date. Otherwise, there is the risk of 25% surcharge.
In addition to the 25% surcharge, there will be interest as per Section 249 of the Tax Code, which prescribes that, in general, there shall be assessed and collected on the any unpaid amount of tax, interest at the rate of 20% per annum, or such higher rates as may be prescribed by rules and regulations, from the date prescribed for payment until the amount is fully paid.
Thus, assuming that a taxpayer has a tax payable of P10 million and failed to accomplish a bank payment, and that the payment was only made after the due date (even though the return was filed on time, as in the case of eFPS filers), the tax penalties would include the 25% surcharge based on the P10 million and the 20% interest per annum computed proportionately from the supposed due date up to the actual payment of the deficiency tax.
Given the above-mentioned tax provisions, the penalties rise accordingly to the point where entities owing hundreds of millions of pesos will definitely be liable for hefty amounts.
In reviewing the issued BIR rules and regulations as to the possible cancelation of penalties being imputed on late payment of taxes, there was a previous regulation that provided for relief to the taxpayers [i.e., Revenue Regulation No. (RR) 13-2001].
The regulation allowed a taxpayer to apply for the abatement or cancellation of the 25% surcharge, but the payment of the 20% interest (pro-rated) would still need to be paid. The grounds for abatement were: a) the late payment being beyond the control of the taxpayer (i.e. Internet glitches); or b) meritorious circumstances which included paying a day late as a result of failure to beat bank cut-off time.
The issuance of RR 4-2012 amended the above regulation to remove the one-day late filing and remittance of payment provision for cancellation.
The amendment of regulations has had the effect of giving taxpayers a sever warning to file and pay taxes on time. Given the risk involved, it is prudent for taxpayers to ensure they have an efficient control and monitoring system for the filing and payment of tax returns.
As part of normal corporate internal control procedures, the functions and duties of the preparer of the return and the approver of tax payment are segregated. In particular, there is a person or department responsible for filing the return while a different person or department authorizes the tax payment to bank.
In this respect, it is critical that both sides of the transaction act in close coordination. The proper advice on the successful execution of the bank payment must be included on the checklist for tax return filing and payment.
Further, the taxpayer provide a buffer of at least one or two days to allow for unforeseen circumstances like system downtime or error. Note that during the last day of return filing under the eFPS, it was not uncommon for the BIR system to slow down as a result of the traffic, with many taxpayers rushing to file simultaneously.
Some would consider the rules on filing and payment of taxes to be very basic and irrelevant. However, given the recent spate of BIR assessment findings, it would be prudent to remind the taxpayers of these rules, as these can easily catch the taxpayer off-guard.
Richard R. IBarra is a tax manager with the Tax Advisory and Compliance division of Punongbayan & Araullo. P&A is a leading audit, tax, advisory and outsourcing services firm and is the Philippine member of Grant Thornton International Ltd.
source: Businessworld
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