Tax Updates: Threshing Out the Gray Areas Lawrence C. Biscocho 15 July 2015 .

Tax Updates: Threshing Out the Gray AreasLawrence C. Biscocho15 July 2015

www.pwc.com/ph

Tax Updates: Threshing Out the Gray Areas2Isla Lipana & Co., PwC member firm

AgendaRecent court decisions

Supreme Court

• CTA may decide on proper tax category in refund cases

• In CWT refund, presentation of succeeding quarterly ITR is not required

• Foreign equity: suspicion of “dummy” triggers grandfather rule

• Request for reinvestigation must be granted to toll prescription

• SC may rule on prescription even on appeal

• Government may be estopped from collecting taxes

• Withholding agent can refund an erroneously withheld and remitted tax

15 July 2015



Court of Tax Appeals

• Reporting the revenues related to the CWT refund is critical; Certificates of creditable tax are sufficient proof

• A BIR ruling cannot amend a Revenue Regulation

• Cockpit arena is not subject to amusement tax

• Issuance of FAN without considering taxpayer’s reply to PAN violates due process

• Remitting foreign currency on zero-rated sales is vital in input tax refund

• Consider net loss in deficiency income tax assessment

• Deficiency withholding tax on compensation may be computed using employees’ effective tax rate

15 July 2015




• Valid LOA a prerequisite for tax assessment

• Constructive service of PAN and FAN when proper; Letter of Authority for “unverified prior years” is void

• Services to international shipping company are zero-rated; no other proof required

• Intent to evade tax is not vital in falsity

• FWT paid on recalled interim dividends is refundable

• Deficiency withholding tax is not a penalty

• FDDA issued before the 60-day period to submit documents is void

15 July 2015




• An RDO letter is not a CIR decision appealable to CTA

• Oral testimony is not enough to support bad debts expense

• The 60-day period to submit documents is more appropriate in a request for reinvestigation

• Zero-rating status at the time of sales crucial in a refund claim

• Appeal to the CIR does not refresh the 180-day period

• Overpaid tax under treaty is refundable

• Refund claim with ITAD valid if due to tax treaty

15 July 2015


AgendaRecent BIR and SEC issuances

• CARs not included in BIR list are not official

• Dividends paid subject to the preferential rate of 10% of the gross amount

• Royalty payments subject to 10% preferential final withholding tax rate

• Petroleum subcontractor is not exempted from 15% branch profit remittance tax (BPRT)

• Verification of eCARs under LRA's PHILARIS

• Regular corporations or partnerships cannot use ‘investment’ as part of their names

15 July 2015


Supreme Court

115 July 2015


SMI-Ed Philippines v. CIR

G.R. No. 175410 dated 12 November 2014

CTA may decide on proper tax category in refund cases

15 July 2015



• In an action for refund of taxes allegedly erroneously paid, the CTA may determine whether there are other taxes that should have been paid in lieu of the taxes paid. Such is not an assessment but a determination of the proper category of tax to be paid which is merely incidental in determining the propriety of refund.

• If the taxpayer is found liable for taxes other than the ones alleged to be erroneously paid, the amount of taxpayer’s liability should be computed and deducted from the refundable amount.

• SC ruled that a PEZA-registered corporation that has never commenced operations may not avail of the tax incentives and preferential rates given to PEZA-registered enterprises.

15 July 2015



• The difference between individual and corporate capital gains tax on the sale of real properties:

o Individuals are taxed on capital gains from the sale of all real properties located in the Philippines and classified as capital assets.

o For domestic corporations, however, the capital gains tax is imposed only on the presumed gain realized from the sale of lands and/or buildings.

15 July 2015


Winebrenner & Inigo Insurance Brokers, Inc. v. CIR

G.R. No. 206526 dated 28 January 2015

In CWT refund, presentation of succeeding quarterly ITR is not required

15 July 2015


Winebrenner & Inigo Insurance Brokers, Inc. v. CIR

• 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/Final Adjustment Return (FAR) for the preceding – not the succeeding – taxable year.

• Likewise, RR No. 12-94 merely provides that claims for refund of income taxes deducted and withheld from income payments shall be given due course only when:

o it is shown on the ITR that the income payment received is being declared as part of the taxpayer’s gross income; and

o 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.

15 July 2015


Narra Nickel Mining and Development Corp., Tesoro Mining and Development, Inc. and McArthur Mining, Inc. v. Redmont Consolidated Mines Corp.

G.R. No. 195580 dated 28 January 2015

Foreign equity: suspicion of “dummy” triggers grandfather rule

15 July 2015


Narra Nickel Mining and Development Corp., Tesoro Mining and Development, Inc. and McArthur Mining, Inc. v. Redmont Consolidated Mines Corp.• To check compliance with the 60%-40% Filipino-foreign

nationality rule for exploration of natural resources, the citizenship of the individual stockholders of each layer of corporations investing in a mining joint venture must first be determined. This is the Control Test.

• However, in case of doubt despite having satisfied this requirement, the Grandfather Rule (which requires that the citizenship of individuals who ultimately own or control the shares of stock of the corporation must be considered) remains applicable to accurately determine actual foreign participation, whether direct or indirect.

15 July 2015


Narra Nickel Mining and Development Corp., Tesoro Mining and Development, Inc. and McArthur Mining, Inc. v. Redmont Consolidated Mines Corp.• Filipinos should be the principal beneficiaries in the

exploration of natural resources. Suspicious indications that true beneficial ownership and control of a corporation resides in foreign stakeholders and not in Filipinos are the following:

o the foreign investors provide practically all the funds,

o they provide practically all the technological support for the joint venture, and

o they manage the company and prepare all economic viability studies while being minority stockholders.

• In these instances, computation of equity composition would be based on common shareholdings, not on preferred or redeemable shares. 15 July 2015


China Banking Corporation v. CIR

G.R. No. 172509 dated 4 February 2015

Request for reinvestigation must be granted to toll prescription

SC may rule on prescription even on appeal

Government may be estopped from collecting taxes

15 July 2015



Request for reinvestigation must be granted to toll prescription

• Two things must concur to suspend the statute of limitations:

1) There must be a request for reinvestigation, and

2) The CIR must have granted it

• In this case, there was no showing from the records that the CIR ever granted the request for reinvestigation filed by the taxpayer.

• Hence, it cannot be said that the running of the prescriptive period was effectively suspended.

15 July 2015



SC may rule on prescription even on appeal

• As a rule, the defense of prescription cannot be raised for the first time on appeal.

Exception: when the pleadings or the evidence on record show that the claim is barred by prescription.

• Relying on the evidence, SC ruled that prescription had set in based on:

a) the date of receipt of the assessment notice which was not disputed, and

b) the date of the attempt to collect as determined by merely checking the records when the response of the CIR containing the demand to pay the tax was filed.

15 July 2015



Government may be estopped from collecting taxes

• Where it took more than 12 years for the BIR to take steps to collect the assessed tax and kept silent despite having the opportunity to question the defense of prescription on appeal, its claim for deficiency DST is now barred.

• The SC held that the BIR caused untold prejudice to the taxpayer, keeping the latter in the dark for so long as to whether it is liable for DST and, if so, for how much.

• While generally, the rule on estoppel or waiver does not apply to the government in a tax collection case, the SC made an exception.

15 July 2015


Philippine National Bank v. CIR

G.R. No. 206019 dated 18 March 2015

Withholding agent can refund an erroneously withheld and remitted tax

15 July 2015



• The claimant-bank mistakenly withheld and remitted to the BIR withholding taxes equivalent to 6% of the bid price of foreclosed real properties, instead of only 5% EWT on sales of ordinary assets.

• In support of its refund claim, the bank presented evidence to show that the developer had not utilized the withheld taxes, namely:

1. Developer corporation’s audited financial statement reflecting the mortgaged property as included in the asset account “Properties and Equipment”.

2. Developer corporation’s ITR showing that the excess CWT claimed for refund had never been utilized.

3. Testimony of the developer corporation’s accountant that the amount, subject of the bank’s claim for refund, was not included among the CWT stated in the developer corporation’s ITR.

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• The SC granted the refund of the excess 1% CWT because the developer corporation never utilized the CWT certificates as tax credit.

• Because the developer contested the validity of the foreclosure sale via litigation, then it also did not recognize the foreclosure sale and the CWT withheld from the sale price.

• The developer continues to recognize the land as its asset by reflecting the mortgaged property in its financial statements and it never included the CWT in its ITR.

15 July 2015



215 July 2015


Trans Pacific Air Service Corporation v. CIRCTA Case No. 8630 dated 30 January

2015

Reporting the revenues related to the CWT refund is critical; Certificates of creditable tax are sufficient proof

15 July 2015


Trans Pacific Air Service Corporation v. CIR

• Presenting individual cash receipts journals is not enough to prove that receipts of payments were issued.

• The taxpayer should have presented the detailed sales schedules and reconciliation schedules of its revenue with corresponding tax withheld as reported in its ITR and FS.

• Moreover, in its ITR, while revenue was reflected under Schedule 1 on the “Schedule of Sales/Revenues/Receipts/Fees”, there is no entry whatsoever in the “Creditable Tax Withheld” column.

• This is also the case for the other income, which were reflected in Schedule 4 or the “Schedule of Non-Operating and Taxable Other Income” of the same ITR.

15 July 2015


Trans Pacific Air Service Corporation v. CIR

• Thus, said declarations can be taken to mean that no part of the taxpayer’s revenue and other reported income were ever subjected to creditable withholding tax.

• While it is incumbent upon the taxpayer to prove that the proper tax was withheld on its income, said burden of evidence shifts to the CIR when the taxpayer presents a withholding tax certificate complete in its relevant details and with a written statement that it was made under the penalties of perjury.

• There is no need to show actual remittance of taxes withheld.

• Proof of actual remittance is not a condition to claim for a refund of unutilized tax credits.

15 July 2015


Nickel Asia Corporation v. CIR

CTA Case No. 8662 dated 2 February 2015

A BIR ruling cannot amend a Revenue Regulation

15 July 2015


Nickel Asia Corporation v. CIRFacts

• Petitioner rendered management services to mining companies which were VAT-registered with the BIR as well as registered with the BOI as 100% exporters pursuant to EO No. 226.

• Pursuant to RMO No. 9-2000, petitioner deemed its sale of services as subject to 0% VAT when it billed the said firms for services.

• Petitioner received from respondent a Letter Notice for income tax and VAT liabilities for calendar year 2010. Then respondent served on petitioner a PAN for alleged basic deficiency VAT plus penalties and interest, issued through OIC-Assistant Commissioner of the LTS.

• Petitioner disputed the PAN by filing a protest letter with the LTS, invoking RR No. 16-2005, after which it also contested a FAN.

• In 2013, petitioner received respondent’s Final Decision on Disputed Assessment (FDDA), which effectively denied the petitioner’s protest with finality. Hence, this petition for review.

15 July 2015



Ruling

• According to the CTA, an OIC-Assistant Commissioner has no authority to “correct” an alleged error committed by the CIR and to “change” by a mere letter to a taxpayer the import of RR No. 16-2005.

• He cannot give RR No. 16-2005 an interpretation that effectively held the inclusion of “services” in Section 4.106-5 of RR No. 16-2005 to be an inadvertent or typographical error.

• The OIC-Assistant Commissioner should have raised the matter to the CIR for issuance of a ruling and/or to recommend to the Secretary of Finance the issuance of the appropriate amendment or a new revenue regulation.

15 July 2015



Ruling

• It is the Secretary of Finance who possesses the mandate to issue rules and regulations implementing the amended VAT provisions.

• Not even the CIR can unilaterally declare erroneous and immediately amend any of the provisions of RR No. 16-2005 for want of authority; the CIR can only interpret, but not amend, RRs issued by the Secretary f Finance.

• Otherwise, the OIC-Assistant Commissioner (or other parties, including the CIR or aggrieved taxpayers) should have obtained from competent authorities, possibly from the courts, a ruling that an administrative issuance, such as Section 4.106-5 of RR No. 16-2005, is inconsistent with the Tax Code, as amended.

15 July 2015


Province of Camarines Sur v. Fulgentes Cockpit Arena

CTA AC No. 110 dated 17 February 2015

Cockpit arena is not subject to amusement tax

15 July 2015



• A cockpit arena does not fall under the catch-all phrase “other places of amusement” for purposes of collecting amusement tax under the LGC [Section 140 of the Local Government Code].

• In interpreting the catch all phrase, the SC [G.R. No. 183137 dated 10 April 2013] ruled that the enumeration of specific places of amusement in the LGC must be considered.

• The enumeration is bound by a characteristic in that they are all venues primarily for staging of spectacles or the holding of public shows, exhibitions, performances, and other events meant to be viewed by an audience.

15 July 2015



• For a cockpit to fall within the meaning of the phrase “other places of amusement”, it must be shown that it is a venue:

o where one seeks admission to entertain oneself by seeing or viewing the show or performances, or

o primarily used to stage spectacles or hold public shows, exhibitions, performances, and other events meant to be viewed by an audience for entertainment.

• Failing to satisfy these elements, a cockpit arena is not subject to amusement tax.

15 July 2015


CIR v. Hermano (San) Miguel Febres Cordero Medical Education Foundation (De La Salle – Health Science Institute), Inc.

CTA EB Case No. 1151 dated 17 February 2015 (Case No. 8095)

Issuance of FAN without considering taxpayer’s reply to PAN violates due process

15 July 2015


CIR v. Hermano (San) Miguel Febres Cordero Medical Education Foundation (De La Salle – Health Science Institute), Inc.• The 15-day period for the taxpayer to respond to the PAN is

important to the due process requirement of issuing deficiency tax assessments.

• The CTA cited an SC case where the high court held categorically that the failure of the CIR to strictly comply with the requirements laid down by law and its own rules (i.e., issuance of the PAN and giving the taxpayer 15 days to respond) is a denial of due process.

• Providing the taxpayer with a copy of the PAN is meaningless if his right to respond to it within the prescribed period would be ignored.

• Even if the taxpayer was able to respond to the PAN, such does not cure the fact that the FAN was prematurely prepared before the lapse of the 15-day period to respond.

15 July 2015


CIR v. Hermano (San) Miguel Febres Cordero Medical Education Foundation (De La Salle – Health Science Institute), Inc.

• In this case, the taxpayer received on 5 January 2009 a PAN dated 12 December 2008.

• It filed a protest letter on time (i.e., 20 January 2009); however, it received the FAN and FLD both dated 9 January 2009, on 21 January 2009 — a day right after the filing of the protest.

• Evidently, the FAN and FLD were already prepared as early as 9 January 2009 or way before 20 January 2009 which was the lapse of the 15-day period within which the taxpayer could file a reply or protest to the PAN.

• This makes the assessment against the taxpayer void for violation of procedural due process.

15 July 2015


Deutsche Knowledge Services Pte. Ltd. v. CIRCTA EB Case No. 1145 dated 18

February 2015 (CTA Case No. 8012)

Remitting foreign currency on zero-rated sales is vital in input tax refund

15 July 2015


Deutsche Knowledge Services Pte. Ltd. v. CIR

• A claim for refund of excess input tax must show that the remittances of foreign currency payments correspond to its zero-rated sales.

• Where the inward remittances cannot be ascertained from the company’s zero-rated sales for the period and how much of the purported zero-rated sales were duly receipted, the claim for refund must be denied.

15 July 2015


Transnational Plans, Inc. v. CIR

CTA Case No. 8291 dated 20 February 2015

Consider net loss in deficiency income tax assessment

Deficiency withholding tax on compensation may be computed using employees’ effective tax rate

15 July 2015



Consider net loss in deficiency income tax assessment

• In this case, a review of the mathematical computation of the alleged deficiency tax revealed that the net loss was not considered in the assessment.

• Had the net loss been considered, it will offset the disallowed items.

• Consequently, the deficiency income tax assessment was cancelled because the taxpayer, after offsetting the disallowed items, still suffered a net loss.

15 July 2015



Deficiency withholding tax on compensation may be computed using employees’ effective tax rate

• The CTA also allowed the use of effective tax rate for purposes of the deficiency withholding tax on compensation, which is based on the total withholding tax on compensation divided by the total net taxable compensation during the taxable year.

• Thus, the CTA determined after computation that the effective tax rate should be 24% (not 32%).

15 July 2015


University of Santo Tomas Hospital, Inc. v. CIR

CTA Case No. 8292 dated 2 March 2015

Valid LOA a prerequisite for tax assessment

15 July 2015



• Section 13 of the Tax Code provides that an LOA grants authority to the appropriate revenue officer assigned to perform assessment functions.

• Accordingly, an LOA issued by the Revenue Regional Director shall extend only to taxpayers within the jurisdiction of the district.

• In this case, the records show that the taxpayer was informed that it was transferred from the jurisdiction of the Regional Director to the Large Taxpayers Service.

• Despite this, the Regional Director proceeded with its assessment and issued the PAN.

15 July 2015



• The CTA ruled that the assessment conducted by the Regional Director was unauthorized because the LOA it issued did not have any force and effect on a taxpayer who was already transferred to the jurisdiction of the LTS.

• And even granting that the taxpayer was re-enlisted under the jurisdiction of the Regional Director during the audit period, the Region should have issued a new LOA before it can proceed with the audit investigation.

• Any re-assignment/ transfer of cases to another Regional Director, and revalidation of LOAs that have already expired, shall require the issuance of a new LOA.

• Thus, the assessment against the taxpayer is void.

15 July 2015


People of the Philippines v. Edwin T. So, Raymond R. Lee, Techpoint Computer CorporationCTA EB Crim Case No. 028 dated 6 March 2015

Constructive service of PAN and FAN when proper; Letter of Authority for “unverified prior years” is void

15 July 2015


People of the Philippines v. Edwin T. So, Raymond R. Lee, Techpoint Computer Corporation• Constructive service must be attested to, witnessed and

signed by at least two ROs other than the revenue officer who constructively served the notice for delivery to be valid pursuant to RR No. 12-99.

• If a notice is served personally, but the taxpayer refused to acknowledge receipt of the notice, the same shall be constructively served by leaving it in the premises of the taxpayer as attested by two ROs along with a written report of the matter, which shall form part of the record of the case.

• The CTA clarified that failure to comply with the aforesaid requirements is a violation of due process on the ground of improper service of the notice.

15 July 2015


People of the Philippines v. Edwin T. So, Raymond R. Lee, Techpoint Computer Corporation• Where the BIR issued a Letter of Authority to examine a

taxpayer’s accounting records for "the period 1997 and unverified prior years", a tax assessment based on records from January to March 1998 is invalid.

• Under Section C of RMO No. 43-90, the practice of issuing LOAs covering audit of "unverified prior years" is prohibited.

• If the audit of a taxpayer shall include more than one taxable period, the other periods or years must be specifically indicated in the LOA.

• Thus, an LOA that goes beyond the authority given to it is invalid and consequently renders the corresponding assessments void.

15 July 2015


Maersk Global Services Centers (Philippines), Inc. v. CIR

CTA EB Case No. 8549 dated 13 March 2015

Services to international shipping company are zero-rated; no other proof required

15 July 2015



• In this case, the CTA initially ruled that the taxpayer’s services to an international shipping company cannot qualify as zero-rated because the latter is actually doing business in the Philippines.

• The following documents were presented by the VAT taxpayer in its claim for refund to prove that the recipient of its services was doing business outside the Philippines:

1. Certificate of non–registration issued by the Philippine SEC

2. Certificate of residency of the appropriate tax authority where the company is doing business

3. Articles of association/incorporation

4. Compiled summary15 July 2015



• The CTA found these documents insufficient to prove that the taxpayer’s foreign client was actually doing business outside the Philippines, with portion of its total sales attributable to Philippine operations.

• Nonetheless, after re-examination, the CTA granted the refund to the input tax since the taxpayer’s services were rendered to a client engaged in international shipping which is subject to zero percent (0%) VAT under Section 108(B)(4) of the Tax Code.

• This provision does not require proof that the international shipping company is doing business outside the Philippines.

15 July 2015


Next Mobile, Inc. v. CIR

CTA EB Case No. 1059 dated 16 March 2015 (CTA Case No. 7970)

Intent to evade tax is not vital in falsity

15 July 2015


Next Mobile, Inc. v. CIR

• The taxpayer was assessed in 2009 for deficiency VAT for the taxable year 2005 due to underdeclaration of gross receipts.

• To refute the charge of falsity and application of the 10-year prescriptive period, the taxpayer argued that in the absence of proof of intention to evade payment of tax, mere underdeclaration of gross receipts did not render its VAT returns false.

• Citing an SC case, the CTA held that as long as there is a deviation from the truth, whether intentional or not, the return filed is to be considered a false one, and the ten-year prescriptive period under Section 222(a) of the Tax Code applies.

• Consequently, an understatement in the taxpayer’s return makes the said return false, subject to the ten-year period to assess VAT deficiency from date of discovery of the falsity.

15 July 2015


Carrier Air Conditioning Philippines, Inc. v. CIR


FWT paid on recalled interim dividends is refundable

15 July 2015


Carrier Air Conditioning Philippines, Inc. v. CIR• A domestic company paid interim cash dividends to its

foreign parent company and consequently paid the corresponding FWT to the BIR.

• However, after the financial audit of its books, it was determined that the unrestricted retained earnings available for dividend declaration were insufficient to cover the dividends paid.

• Given that the dividends were already declared and remitted, the company reversed the excess dividends and recorded the overpayment as receivable from its parent in compliance with the Corporation Code of the Philippines.

• Considering that there was proper reversal and disclosure of the overpayment of dividends in the audited FS of the company, and that the application of the 10% preferential tax rate was confirmed by the BIR in a ruling, the CTA granted the request for refund/issuance of TCC for the FWT paid on the excess cash dividends declared by the company.

15 July 2015


CIR v. Systems Technology Institute, Inc.

CTA EB Case No. 1050 dated 24 March 2015 (CTA Case No. 7984)

Deficiency withholding tax is not a penalty

15 July 2015


CIR v. Systems Technology Institute, Inc.

• CTA En Banc held that an assessment of withholding tax is not an imposition of penalty; thus the principle of prescription applies.

• In this case, the BIR invoked an old SC decision which held that the imposition of deficiency withholding tax is a penalty for failure to withhold the required taxes. Hence, the three-year prescriptive period does not apply.

• The CTA En Banc clarified that the cited SC ruling is not controlling as it is merely an obiter (opinion of the Court) and the same was decided under the old Tax Code.

• The CTA cited SC cases discussing the personal liability of the withholding agent for the tax he should withhold.

• Citing another SC case, the CTA En Banc discussed that the validity of waivers may not be questioned once the taxpayer embraced the BIR findings through payment of reduced assessment.

15 July 2015


Ayala Hotels, Inc. v. CIR


FDDA issued before the 60-day period to submit documents is void

15 July 2015



• The CTA, citing G.R. No. 172045-46, reiterated the prerogative of the taxpayer to determine the sufficiency of its relevant documents supporting its protest against tax assessments.

• In this case, the CTA held that the issuance of the FDDA was premature considering that the 60-day period for submission of relevant supporting documents had not expired.

• The taxpayer could have utilized the remaining 25- day period to gather documents deemed to be relevant to support its claim and thereafter, submit the same to the BIR.

15 July 2015



• Despite the taxpayer’s failure to submit any documents for the BIR examiner’s scrutiny, it is the BIR’s duty to remain passive until the lapse of the 60-day period as provided under Section 228 of the Tax Code and RR No. 12-99.

• Failure to observe the timetable means that the BIR had violated the taxpayer’s rights to due process.

• The premature issuance of the FDDA rendered the deficiency assessment invalid.

15 July 2015


Brixton Investment Corporation v. CIR

CTA EB Case No. 1099 dated 6 April 2015

An RDO letter is not a CIR decision appealable to CTA

15 July 2015


Brixton Investment Corporation v. CIR

• In this case, the taxpayer duly protested a FLD and later received a letter from the RDO containing merely a computation for the taxpayer’s guidance rather than a formal assessment.

• Treating the RDO letter as a final decision, the taxpayer filed a petition for review with the CTA.

• According to the CTA, in order to acquire jurisdiction, an assessment must first be disputed by the taxpayer and ruled upon by the CIR to warrant a decision in the form of a “final decision on disputed assessment” from which a petition for review may be taken to the CTA. The RDO letter had not ripened into an appealable decision.

• Hence, the Court ruled that without such decision or inaction, a disputed assessment cannot be brought to the CTA under Section 228 of the Tax Code.

15 July 2015


ANSI Agricultural Products, Inc. v. CIRCTA Case No. 8541 dated 20 April 2015

Oral testimony is not enough to support bad debts expense

The 60-day period to submit documents is more appropriate in a request for reinvestigation

15 July 2015


ANSI Agricultural Products, Inc. v. CIROral testimony is not enough to support bad debts expense

• Under existing policies and Section 3 of RR No. 5-99 in relation to Sec. 34(e) of the Tax Code, bad debts expense may be validly deducted from gross income if the following requisites are established:

• (1) existence of indebtedness due to the taxpayer which must be valid and legally demandable;

• (2) the same must be connected with the taxpayer's trade, business or practice of profession;

• (3) the same must not be sustained in a transaction entered into between related parties as enumerated under Section 36(B) of the Tax Code;

• (4) the same must be actually charged off the books of accounts of the taxpayer as of the end of the taxable year; and

• (5) the same must be actually ascertained to be worthless and uncollectible as of the end of the taxable year.

15 July 2015


ANSI Agricultural Products, Inc. v. CIROral testimony is not enough to support bad debts expense

• Citing an SC case, the CTA reiterated the following steps to prove that a taxpayer exerted diligent efforts to collect the debts:

• (1) sending of statement of accounts; • (2) sending of collection letters; • (3) giving the account to a lawyer for collection; and• (4) filing a collection case in court.

• Hence, in the absence of supporting documentary evidence, the related bad debt expenses will be disallowed for purposes of deduction from gross income.

• Mere testimony of the accountant explaining the worthlessness and the efforts taken to collect the accounts, without documentary proof, is simply self-serving and lacks probative value.

15 July 2015


ANSI Agricultural Products, Inc. v. CIRThe 60-day period to submit documents is more appropriate in a request for reinvestigation

• The CTA reiterated the ruling of the SC that if a protest letter does not specify whether the taxpayer is requesting for "reinvestigation" (based on newly-discovered evidence) or "reconsideration" (based on existing records), the same is to be treated as both letter of reinvestigation and reconsideration.

• The alleged non-submission of supporting documents should not be considered a fatal error since the protest is also in the nature of a request for reconsideration which requires only the re-evaluation of existing records.

• The 60-day requirement is more appropriately confined to protests by way of a request for reinvestigation, rather than for reconsideration.

15 July 2015


Total (Philippines) Corporation v. CIR

CTA EB Case No. 1154 dated 21 April 2015 (CTA Case Nos. 7898, 7980 and 8008)

Zero-rating status at the time of sales crucial in a refund claim

15 July 2015



• The claim for refund was denied by the court for failure on the part of the company to prove the existence of excess or unutilized input tax attributable to zero-rated sales (i.e., sales to PEZA/CDC/BOI-registered entities).

• To establish the fact that the sales were made to PEZA-registered entities, and thus are VAT zero-rated, the taxpayer must submit Certificates of Registration, indicating that its customers are duly registered with PEZA/CDC/BOI during the period covered by the claim.

• For purposes of determining the zero-rated sales, the court cannot assume that the registrations cover the taxable year involved or are still valid at the time the sales were made.

15 July 2015



• Furthermore, the court emphasized that the input taxes must not only be duly substantiated but must also exceed the output tax.

• Under Section 112 of the Tax Code, it is only when the input tax attributable to zero-rated sales exceeds the output tax that a refund or credit is proper.

15 July 2015


CIR v. Sarangani Resources Corporation

CTA EB Case No. 1098 dated 28 April 2015 (CTA Case No. 8105)

Appeal to the CIR does not refresh the 180-day period

15 July 2015



• Under RR No. 12-99, if the Commissioner or his duly authorized representative fails to act on the taxpayer‘s protest within 180 days from date of submission of documents in support of the protest, the taxpayer may appeal to the CTA within thirty (30) days from the lapse of the 180-day period.

• In this case, the taxpayer received a decision from the BIR Regional Office partially granting its protest based on the document submitted.

• The taxpayer opted to file a request for reconsideration to the office of the CIR.

• When the taxpayer elevated the case to the CIR, the 180-day period from the original protest was about to end (barely 18 days left).

15 July 2015



• Instead of filing an appeal to the CTA, the taxpayer submitted additional documents with the CIR and erroneously counted another 180-day period for the CIR to render her decision.

• Only after the lapse of the new 180-day period did the taxpayer elevate the case to the CTA on appeal.

• The CTA ruled against the taxpayer since the period to appeal to the CTA had already expired.

• The CTA clarified that the law provides only one “180-day period” from submission of documents for the CIR to decide on the protest.

• Therefore, the CTA’s decision is a reminder that an appeal to the CIR does not refresh the 180-day period and the period should still be counted from the date when the taxpayer submitted the relevant documents in support of its protest.

15 July 2015


CIR v. Lawl Pte. Ltd.

CTA EB Case No. 1118 dated 12 May 2015 (CTA Case No. 8307)

Overpaid tax under treaty is refundable

Refund claim with ITAD valid if due to tax treaty

15 July 2015




• The SC defined an ‘erroneous or illegal tax’ within the scope of Sec. 229 of the NIRC as “one levied without statutory

authority, or upon property not subject to taxation or by some officer having no authority to levy the tax, or one which in some other similar respect is illegal.”

• There is wrongful payment when what is paid, or at least part of it, is not legally due.

• Tax payment under a mistake of fact is just an example of an ‘erroneous payment’.

• This does not imply that a claim for refund may be sustained only when the tax payment was made under a mistake of

fact. 15 July 2015




• Erroneous or wrongful payment includes excessive payment because it refers to payment of taxes not legally due.

• Thus, the taxpayer’s claim for tax credit/refund on erroneously collected internal revenue taxes arising from the application of tax treaty provisions was valid.

15 July 2015



Refund claim with ITAD valid if due to tax treaty

• The CTA pointed out that although Section 204 in relation to Section 229 of the Tax Code states that the written claim for refund must be “filed with the Commissioner”, it does not necessarily follow that all of such claims must be filed with the said office, in order for the same to be considered as filed “with the proper authority”.

• Par. III (E) (2.3) of RAO No. 11-00 specifically states that the ITAD is the office of the BIR tasked to process claims for tax refund arising from the application of tax treaty provisions.

• Thus, the taxpayer sufficiently complied with Sections 204(C) and 229 of the Tax Code, insofar as the filing of refund claim with the proper office is concerned.

15 July 2015


BIR Issuances

315 July 2015


Revenue Memorandum Order No. 10-2015 dated 24 March 2015

CARs not included in BIR list are not official

15 July 2015


Revenue Memorandum Order No. 10-2015

• To prevent the transfer of ownership of real properties without the proper payment of transfer taxes, and to stop the usage of spurious Certificates Authorizing Registration (CARs/eCARs), the BIR requires all Revenue District Officers to furnish the concerned Register of Deeds with a list of manually and electronically issued CARs that are still valid for transfer as of 20 March 2015.

• The list of valid CARs shall be furnished weekly starting 23 March 2015 until the implementation of the BIR and Land Registration Administration CAR Verification System.

• Any CARs not included in the list are deemed unauthentic and not issued by the BIR.

15 July 2015


ITAD Ruling No. 58-15 dated 25 March 2015

Dividends paid subject to the preferential rate of 10% of the gross amount

15 July 2015



• Citing the Supreme Court ruling [G.R. No. 188550 dated 19 August 2013] which voided the BIR’s prior filing of TTRA requirement, a taxpayer requested the BIR to review the denial of its TTRA that was not filed before the transaction.

• The BIR revised its previous ruling and allowed the taxpayer to apply the 10% preferential tax treaty rate on dividends under the PH-Netherlands Tax Treaty.

15 July 2015



Royalty payments subject to 10% preferential final withholding tax rate

15 July 2015



• Generally, VAT is imposed on the royalties paid to a non resident licensor and the Philippine payor is required to withhold the VAT.

• However, the use of or lease of properties to person or entities exempt from VAT under special law, e.g., P.D. No. 66 and R.A. No. 7916 (PEZA Law) are effectively zero-rated [as defined under Section 108 of the Tax Code, the phrase “sale or exchange of services” means the performance of all kinds of services in the Philippines for others for a fee, including the supply of scientific, technical or commercial knowledge information].

• Given that zero-rating is not available to nonresident suppliers, the VAT exemption under Section 109(K) of the Tax Code becomes applicable.

• Thus, payment of royalty by a PEZA-registered entity to a non resident is exempt from VAT.

15 July 2015


BIR Ruling No. 122-2015 dated 17 April 2015

Petroleum subcontractor is not exempted from 15% branch profit remittance tax (BPRT)

15 July 2015


BIR Ruling No. 122-2015

• According to the BIR, while a foreign subcontractor providing maintenance and engineering services to a service contractor engaged in petroleum operation is entitled to the 8% preferential final withholding tax (instead of the 30% regular tax) in lieu of any and all taxes, it is not exempt from the 15% branch profit remittance tax (BPRT).

• The 8% final tax in lieu of any and all taxes as provided under Presidential Decree No. 1354 applies only to a subcontractor’s gross income derived from contracts with a service contractor engaged in petroleum operations in the Philippines.

• On the other hand, the BPRT is a tax on profit realized for remittance abroad.

15 July 2015


Revenue Memorandum Circular No. 28-2015 dated 17 April 2015

Verification of eCARs under LRA's PHILARIS

15 July 2015


Revenue Memorandum Circular No. 28-2015

• The CIR has issued a Circular publishing the full text of the Joint Memorandum Circular between the BIR and LRA on the implementation and use of the Philippine Land Registration and Information System (PHILARIS) for the automated verification of eCARs.

• The JMC covers all transactions involving transfers of real properties before the Registry of Deeds, and discusses the operating procedures and guidelines of the BIR and LRA with respect to the issuance and usage of eCARs.

15 July 2015


Revenue Memorandum Circular No. 28-2015

• Among the salient portions of the JMC are as follows:

• There should be one eCAR per title in case of registered land and/or improvements and one eCAR per tax declaration for unregistered land/improvements.

• For estate and donor’s taxes on transfers of real properties, eCARs shall be issued by the RDO having jurisdiction over the domicile/residence of the decedent/donor.

• Any subsequent modification by the BIR of an eCAR that has been entered in and verified by the RD shall not affect any transaction already approved by the RD.

15 July 2015


SEC Memorandum Circular No. 5 dated 29 May 2015

Regular corporations or partnerships cannot use ‘investment’ as part of their names

15 July 2015


SEC Memorandum Circular No. 5

• In a Circular amending paragraph 11(a) of SEC Memorandum Circular No. 21 (Series of 2013) , the SEC clarified that entities organized as holding companies cannot use the term ‘investments’ as part of their corporate or partnership name, but may use the term ‘capital’ instead.

• The word ‘investment’ refers only to entities organized as an investment house or investment company.

15 July 2015

Thank you.

This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, Isla Lipana & Co., its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

© 2015 Isla Lipana & Co. All rights reserved. In this document, “PwC” refers to Isla Lipana & Co. which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity.

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Tax Updates: Threshing Out the Gray Areas Lawrence C. Biscocho 15 July 2015 .

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