Filipino ADB employees tax-exempt, CA affirms

Filipino personnel of the Asian Development Bank (ADB) scored another victory against the taxman, as the Court of Appeals (CA) last week denied the move of the Bureau of Internal Revenue (BIR) to have the Manila-based employees taxed.

BIR Commissioner Kim S. Jacinto-Henares told the Inquirer on Wednesday that the country’s biggest tax-collection agency will appeal the latest CA ruling before the Supreme Court.

For former internal revenue chief Liwayway Vinzons-Chato, who now serves as legal counsel for the ADB employees, the high court will also likely dismiss BIR’s appeal. “We are praying it will be dismissed [by the Supreme Court] outright if the procedure is to be followed,” Vinzons-Chato said in a telephone interview.

In a resolution dated January 4, 2016, the CA’s former second division denied the BIR’s appeal, noting there was “no review of evidence required in resolving this issue.”

“There is nothing here for the courts to do but to interpret the provision of [Revenue Memorandum Circular] 20-86 and the Administrative Code in order to determine the validity of RMC 31-2013,” the decision penned by Associate Justice Agnes Reyes-Carpio read.

The case stemmed from a petition filed by two ADB employees before a Mandaluyong court after being slapped with tax evasion cases. They questioned Section 2(d)(1) of BIR’s RMC 31-2013 that said “only officers and staff of the ADB who are not Philippine nationals shall be exempt from Philippine income tax.”

The Mandaluyong court later ruled that the BIR ruling was “void in absence of legislation and/or regulation to the contrary.”

The BIR raised the issue before the appellate court, but subsequently received an unfavorable ruling in July last year.

The CA had said the BIR had “improperly elevated” the case before it by ordinary appeal when it should have been raised by petition for review on certiorari before the Supreme Court under Rule 45 of the Rules of Civil Procedure. Reyes-Carpio had explained the case filed by the BIR did not call for a review of the evidence, but involved a question of law.

Questions of law are usually raised before the SC.

“The main question now lies in the interpretation of the exemption provided by the ADB charter and its applicability to petitioners-appellees. Thus, there is no review of evidence required. Consequently, the issue of the instant case is one which is a question of law,” read Reyes-Carpio’s previous ruling, to which Associate Justices Remedios Salazar-Fernando and Romeo F. Barza concurred.

source:  Inquirer

Taxes on buying and selling goods online

For the first time, online sales surpassed in-store sales in the US during last year’s Black Friday, the busiest shopping day in that country following Thanksgiving Day.

One of the most disruptive changes in the field of commerce is online shopping, which has grown exponentially around the world over the past years, including in the Philippines. Gone are the days when you have to go from one store to another in search of the items you need to buy. Now, you can get everything on your shopping list by merely clicking away, a more convenient exercise for both buyers and sellers.

To cope with the proliferation of online businesses in the Philippines, the Bureau of Internal Revenue (BIR) issued Revenue Memorandum Circular (RMC) No. 55-2013 identifying the tax obligations of online sellers. Online sellers have the obligation to register with the BIR; secure an Authority to Print (ATP) invoices/official receipts; register books of account for use in the business; issue registered invoices or receipts; withhold required creditable/expanded withholding tax, final tax, withholding tax on compensation and other withholding taxes; and file the applicable tax returns on due dates and pay the corresponding taxes.

Tax-wise, the total amount of taxes that an online retailer would pay should be the same as a seller with a brick-and-mortar store. As a general rule, any person or entity who, in the course of trade or business, sells, exchanges, or leases goods or properties, or renders services, and any person who imports goods, shall be liable to value-added tax (VAT). Thus, for both an online seller and a store owner, the sale transaction shall generally be subject to 12 percent VAT.

For their part, buyers should expect to receive a VAT-registered invoice that conforms to the BIR’s invoicing requirements. They should also be aware of their tax obligations when transacting online.

For instance, a top 20,000 buyer-corporation is required to withhold 1 percent expanded withholding tax (EWT) for purchase of goods. If the payment for the purchase of a product online by a top 20,000 buyer-corporation is through credit card or through company-issued credit card to officers or employees for purposes of reimbursements, RMC No. 72-2004 clarifies that the buyer-corporation is not required to withhold the 1 percent EWT upon presentation of the credit card, but is required to withhold the 2 percent EWT corresponding to the interest payment and/or service fee and other charges imposed by the credit card company.

The credit card company, on the other hand, shall withhold 1 percent of 50 percent of the gross amount paid to the online seller, pursuant to Section 2.57.2 (L) of Revenue Regulations No. (RR) 2-98, as amended, and receive the agreed commission from the online seller, net of 10 percent EWT.

Furthermore, under RR 2-98, if the buyer is a registered withholding agent, it is likewise required to furnish the online seller, in triplicate, with a Certificate of Creditable Tax Withheld at Source (BIR Form No. 2307) showing the amount of payment and amount of taxes withheld. The said certificate shall serve as proof of withholding, which shall be used by the online seller to claim tax credit. This withholding tax requirement does not apply to individuals, who are not registered withholding agents, purchasing online.

Buying from an international website versus buying from a local website
Internet shopping knows no boundaries, which is another one of its undeniable appeals. If the product that you want to buy is not available locally, you can always look for it online and, using your credit card, make the purchase there.

Note, though, that purchase of goods through an international (non-resident) online seller is subject to 12 percent VAT on importation. VAT on importation is imposed on goods brought into the Philippines, whether for use in business or not.

The tax shall be based on the total value used by the Bureau of Customs (BOC) in determining tariff and customs duties, plus customs duties, excise tax, if any, and other charges, such as postage, commission, and similar charges, prior to the release of the goods from customs custody.

In case the valuation used by the BOC in computing customs duties is based on volume or quantity of the imported goods, the landed cost shall be the basis for computing VAT. Landed cost consists of the invoice amount, customs duties, freight, insurance and other charges.

If the goods imported are subject to excise tax, the excise tax shall form part of the tax base. So don’t be surprised if the amount of taxes you have to pay is significantly higher when you purchase from an international website, compared with purchasing the same product locally; customs duties figure in the computation.

Payment to a non-resident online seller for the purchase of goods is not subject to the 30 percent final tax. Under the Civil Code Article 1475, the perfection of the contract of sale happens when there is a meeting of minds upon the thing, which is the object of the contract and upon the price. Thus, it can be presumed that the perfection of the contract of sale between the international online seller and local buyer happened outside the Philippines when the seller acknowledged the order of the buyer and agreed on the price.

Let this serve as a reminder to sellers, whether small-scale or large-scale, and buyers engaged in online business of their tax obligations. Considering the pace at which online shopping continues to expand, it is already a significant growth driver in the retail industry.

The author is a Manager with the Tax & Corporate Services Division of Navarro Amper & Co., the local member firm of Deloitte Southeast Asia Ltd. – a UK private company limited by guarantee (DTTL). Deloitte provides audit, consulting, financial advisory, risk management, tax and related services to public and private clients spanning multiple industries. It has more than 210,000 professionals worldwide, including those in Deloitte Southeast Asia Ltd., which covers Brunei, Cambodia, Guam, Indonesia, Lao PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam.

Can a defective waiver be valid?

Does your company have an on-going tax assessment covering tax year 2012? If yes, then it is likely that you have already been asked to execute a waiver on the statute of limitations.

Following the general three-year period to assess, Final Assessment Notice for taxable year 2012 must be made not later than April 15, 2016. Thus, since this is merely three months away, the Bureau of Internal Revenue (BIR) will normally ask the taxpayer to execute a waiver.

Under the Tax Code, after the lapse of the applicable period, the BIR’s right to assess the taxpayer is deemed to have prescribed, unless the taxpayer executes a waiver of the statute of limitations prior to the prescriptive period.

By executing the waiver, the taxpayer is, in effect, allowing the BIR to continue with its investigation and to issue an assessment even after the original three-year period. The taxpayer thereby waives his right to invoke the defense of prescription for the assessments issued after the prescribed period to assess.

In several cases, the Court has consistently ruled that for a waiver to be valid and binding, the same must faithfully comply with the provisions of Revenue Memorandum Order (RMO) No. 20-90 and Revenue Delegation Authority Order (RDAO) No. 05-01.

Thus, in several cases, waivers which failed to comply with the requirements listed below of RMO No. 20-90 and RDAO No. 05-01 were considered defective and extension of the period to assess invalid.

• The waiver must be in the form as provided under RDAO No. 05-01.

• The phrase “but not after ________ 20__” should be filled up.

• The waiver shall be signed by the taxpayer himself or his duly authorized representative.

In the case of a corporation, the waiver must be signed by any of its responsible officials.

• The same must be accepted by the Revenue District Office (RDO) or the Regional Director, as applicable.

* The date of acceptance by the Bureau, which must be before the expiration of the period of prescription or before the lapse of the period agreed upon in case a subsequent agreement is executed, should be clearly indicated.

However, on Dec. 7, 2015, the Third Division of the Supreme Court promulgated a decision on the case of Next Mobile, Inc. (formerly Nextel Communications Phils., Inc.) vs. CIR, which departed from the general rule on the compliance with the above requirements for a waiver to be valid and effective.

Under the general rule, a defective waiver cannot extend the prescriptive period. However, due to the peculiar circumstances of the case, the Court held that though the waivers have some defects, they shall still be considered valid.

So what would make a defective waiver valid?

In its decision, the Court agreed with the flaws in the waiver found by Court of Tax Appeals, i.e. (1) they were executed without a notarized board authority; (2) the dates of acceptance by the BIR were not indicated therein; and (3) the fact of receipt by the Company of its second of the five waivers was not indicated on the face of the original Second Waiver.

With the flaws stated above, the Court found both parties to be at fault.

On the first defect, the party questioning the authority of the signatory is the same party which caused the unauthorized person to sign the five waivers. Thus, the Company failed to comply with the requirement that it must be signed by the responsible official of the Company duly authorized to sign. Likewise, the BIR failed for five times to ensure through a written delegation that the signatory to the waiver was duly authorized by the company.

The Court also pointed out that both parties, despite the defects in the waiver, continued with the assessment relying on the waiver. The company did not even question the validity of the waiver in its protest letter. Yet, after being able to submit additional documents due to its execution of the waiver, the company questioned in court the validity of the same waiver. On the other hand, the BIR should have been prudent enough to ensure compliance on the waiver requirements.

Thus, both parties have been pointed out to be in pari delicto or “in equal fault”. They should have no action against each other. However, relying on the basic principle of taxation that taxes are the lifeblood of the government, the Court ruled that it would be more equitable to consider the waiver valid in order to support said basic principle. Also, following this principle, the company is estopped from questioning validity of its own waivers.

In addition, the company should have come to court with clean hands. Thus, it cannot benefit from successfully insisting on the invalidity of the waiver to evade paying deficiency taxes. By not raising any objection against the validity of the five waivers executed until the BIR assessed them deficiency taxes, the company is estopped from questioning the same. Again, the court ruled that application of the doctrine of estoppel in this case would cause undue harm to the government.

Finally, the court ruled that this highly suspicious situation cannot be tolerated. Taxpayers who intend to escape the responsibility of paying taxes may do so by merely hiding behind technicalities. On other hand, BIR’s failure to exercise diligence, as provided in RMO No. 20-90, must be addressed by imposing administrative penalties upon the responsible officers.

With this new development, the general rule that the waiver of the statute of limitations is a derogation of the taxpayer’s rights to security against prolonged and unscrupulous investigations, and therefore must be carefully and strictly construed, may no longer suffice. Taxpayers questioning the validity of the same must also be prudent enough to ensure compliance on their part.

Ma. Lourdes Politado-Aclan is a senior manager 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