NOVEMBER • VOL. 11 • SERIES OF 2024
INSIGHTS is a monthly publication of BDB LAW to inform, update and provide perspectives to our clients and readers on significant tax-related court decisions and regulatory issuances (includes BIR, SEC, BSP, and various government agencies).
DISCLAIMER: The contents of this Insights are summaries of selected issuances from various government agencies, Court decisions, and articles written by our experts. They are intended for guidance only and as such should not be regarded as a substitute for professional advice.
Copyright © 2024 by Du-Baladad and Associates (BDB Law). All rights reserved. No part of this issue covered by this copyright may be produced and/or used in any form or by any means – graphic, electronic, and mechanical without the written permission of the publisher.
What's Inside ...
- HIGHLIGHTS FOR SEPTEMBER 2024
- SIGNIFICANT COURT DECISIONS
- Court of Tax Appeals
- SIGNIFICANT REGULATORY ISSUANCES
- Bureau of Internal Revenue
- Insurance Commission
- Securities and Exchange Commission
- Fiscal Incentives Review Board
- PUBLISHED ARTICLE
- The Capital Markets Efficiency Promotion Act
- OUR EXPERTS
- The Capital Markets Efficiency Promotion Act
- GLOSSARY
HIGHLIGHTS for OCTOBER 2024
COURT OF TAX APPEALS DECISIONS
- A taxpayer's judicial claim for a refund or tax credit can typically be withdrawn once the claim has been administratively resolved in its favor. (Petron Corporation v. Commissioner of Internal Revenue, CTA Case No. 11369, October 7, 2024)
-
A new LOA is not needed to authorize a new RO during the review of the taxpayer's request for reconsideration or reinvestigation. (Alberto Lim Tangso/A.L. Electrical Shop & Parts Supply v. Commissioner of Internal Revenue, CTA Case No. 10367, October 4, 2024)
- The service of NIC is a mandatory part of due process requirement in the issuance of a deficiency tax assessment. (Berong Nickel Corporation v. Commissioner of Internal Revenue, CTA Case No. 10319, October 3, 2024)
BIR ISSUANCES
- RMC No. 113-2024, October 15, 2024 – This announces the availability of certain functions in the Online Registration and Update System (ORUS).
- RMC No. 115-2024, October 18, 2024– This clarifies certain policies and procedures relative to the implementation of the risk-based approach in the verification and processing of VAT refund claims.
- RMC No. 116-2024, October 18, 2024 - This clarifies the provision of the “Ease of Paying Taxes Act” applicable to the power industry.
- RMC No. 119-2024, October 25, 2024 - The provides the extension of the deadlines for the filing of tax returns and payment of corresponding taxes due thereon, including submission of required documents for taxpayers within the jurisdiction of Revenue District Offices of the Bureau of Internal Revenue that were affected by Typhoon "Kristine."
IC ISSUANCES
- CL No. 2024-20, October 17, 2024 – HMOs are now mandated to adopt PFRS 17 on or before January 1, 2027.
SEC ISSUANCES
- SEC OGC Opinion No. 24-21, August 16, 2024 – A non-stock, non-profit organization may, as incident to its purpose(s), engage in business activities which are reasonably necessary to carry out the purpose(s) for which the corporation was organized.
- SEC OGC Opinion No. 24-22, October 9, 2024 – A representative office is allowed to deal directly with its parent company’s clients inside and outside the Philippines.
- SEC OGC Opinion No. 24-24, October 9, 2024 – The 19-lender rule pertains to non-institutional lenders and does not apply to primary institutional lenders.
Only the carry-over option in relation to the unutilized CWT is irrevocable.
The case involves a claim for a refund of excess CWT for TY 2005. In its 2005 Annual ITR, the taxpayer initially elected to refund or obtain a TCC for its unutilized CWT. However, in its Quarterly ITRs for the first to third quarters of 2006, the taxpayer carried over the tax overpayment instead. While the case was still pending before the CTA, the taxpayer filed for corporate dissolution with the SEC, by amending AOI to shorten its corporate term. The taxpayer argued that its original election to refund or obtain a TCC was irrevocable, while the CIR contended that, by carrying over the excess CWT in 2006, the taxpayer had effectively chosen the carry-over option.
The Supreme Court ruled against the taxpayer, clarifying that while a taxpayer may either carry over excess CWT to offset future tax liabilities or apply for a refund or issuance of TCC, only the carry-over option is irrevocable. If a taxpayer initially opts for a refund or TCC but later carries over the excess CWT, the carry-over election becomes irrevocable.
In this case, the taxpayer's original choice to refund or obtain a TCC was not irrevocable, and its subsequent carry-over of the unutilized CWT in 2006 became irrevocable. (Stablewood Philippines, Inc. vs. Commissioner of Internal Revenue, G.R. No. 206517, May 13, 2024, Uploaded on July 17, 2024)
Carrying over unutilized CWT while the corporation exists makes that option irrevocable, regardless of subsequent dissolution of the corporation.
(Refer to the facts stated in the immediately preceding case.)
The taxpayer argued that the irrevocability doctrine regarding unutilized CWT should no longer apply once a corporation ceases operations. It claimed that at the time it filed its judicial claim for a refund, it was already in the process of dissolution and had taken steps related to that dissolution.
The Supreme Court disagreed. It ruled that the taxpayer continued to exist because, in cases of voluntary dissolution by shortening the corporate term, a corporation is not considered dissolved until the SEC approves the amendment to its AOI and the amended term expires. In this case, there was no proof that the SEC had approved the amendment, meaning the taxpayer remained an existing corporation.
Additionally, even if the taxpayer had already been dissolved, the Court held that dissolution alone does not automatically entitle it to a refund. A refund may only be granted if a corporation permanently ceases operations before utilizing its carried-over tax credits, making it impossible to apply them. However, if the taxpayer had already carried over its unutilized CWT before dissolution, the irrevocability rule still applies. Since the taxpayer had already carried over its unutilized CWT for 2005 in its Quarterly ITRs for the first to third quarters of 2006, which was before its dissolution, the irrevocability doctrine remains applicable to the taxpayer. (Stablewood Philippines, Inc. vs. Commissioner of Internal Revenue, G.R. No. 206517, May 13, 2024, Uploaded on July 17, 2024)
The sales threshold requirement of an IPA-registered company applies to the income tax incentive, not the excise tax incentive
Unleaded gasoline and fuel oil (collectively, “petroleum products”) were sold to a company registered with SBMA and designated as a tax-exempt entity. The CIR argued that the taxpayer was not entitled to a refund, claiming that the taxpayer’s customer failed to meet conditions specified in its SBMA-issued CRTE, particularly that its customer’s sales within the customs territory exceeded the allowable 30% threshold.
The CTA partially granted the taxpayer’s refund claim. It held that the failure of the taxpayer’s customer to meet the 30% threshold did not negate the latter’s excise tax exemption. The CRTE provision only subjects the SBMA-registered entity to income tax based on its total income within the customs territory, not to other taxes like excise tax, which are distinct from income tax obligations. Simply put, the sales threshold requirement under the CRTE applies to the income tax incentive, not the excise tax incentive. (Petron Corporation vs. Commissioner of Internal Revenue, CTA Case Nos. 10232, 10266 & 10267, August 15, 2024)
A valid LOA is not required for reinvestigating deficiency tax assessments.
The taxpayer was assessed for alleged deficiency taxes for taxable year 2012. The taxpayer argued that the CIR violated its due process rights in conducting the audit and issuing the assessment. Specifically, the taxpayer claimed that (1) the RO and GS assigned to review its Request for Reinvestigation were not authorized by a valid LOA, and (2) the FLD and FDDA did not contain a specific demand for payment, leaving the taxpayer’s liability uncertain.
The CTA ruled that an LOA is not required to authorize the RO and GS to reinvestigate deficiency tax assessments. Although the law mandates an LOA for an initial examination of a taxpayer’s books to recommend an assessment, it does not explicitly require an LOA for issuing recommendations regarding the FDDA. Furthermore, even if an LOA were necessary for the reinvestigation, its absence would affect only the resulting decision, such as the FDDA, rather than the entire assessment. (Fort Bonifacio Development Corporation vs. Commissioner of Internal Revenue, CTA Case No. 10343, August 22, 2024)
A clear demand for payment and a specified deadline in the assessment are sufficient to uphold its validity.
(Refer to the facts stated in the immediately preceding case.)
The CTA found that the FLD, along with the assessment notices, contained a sufficient demand for payment of a definite tax amount. The key to a valid assessment is a clear indication of the amount due and a deadline for payment. Since the FLD specified both, it could not be deemed void for lacking material details. The phrase “you are requested to pay your aforesaid deficiency” does not invalidate the FLD/FAN, and the “30 days from receipt” language provides a clear payment deadline, making the interest due calculable.
The CTA further explained that is proscribed is an indefinite amount of total tax due or liability, not the amount of interest. Nevertheless, even assuming that the amount of interest should also be definite and computed as of the due date, the same is still determinable. The FLD/FAN in the instant case clearly indicates the dates when the interest commences to run and end on the face of the FAN and the attached Details of Discrepancies. (Fort Bonifacio Development Corporation vs. Commissioner of Internal Revenue, CTA Case No. 10343, August 22, 2024)
A Transmittal Form, which is not an audit report, listing an allegedly unauthorized officer would not invalidate the assessment process.
The taxpayer was assessed for alleged deficiency taxes for taxable year 2015. During the audit, memorandums and audit reports recommending the issuance of assessment notices were prepared by an RO and GS, both of whom were authorized under a LOA signed by the regional director. However, the records showed that the name of another RO, who was not listed in the LOA, appeared in the transmittal form for the written report on personal or substituted service and assessment notices received by the taxpayer, which were duly stamped and signed by the Revenue District Offices and transmitted to the Assessment Division. Based on this, the taxpayer argued that the unauthorized RO had participated in the audit process, thereby invalidating the assessment.
The CTA found that the revenue officials responsible for auditing the taxpayer’s books were properly authorized through a valid LOA. The CTA rejected the taxpayer's claim, noting that the unauthorized RO did not actually participate in the audit itself, and the assessment remained valid.
The CTA clarified that the document listing the name of the purportedly unauthorized officer was simply a transmittal gorm. This form related only to the written report on personal or substituted service and the assessment notices that the taxpayer had duly received, stamped, and signed. It was not an audit report nor a recommendation for issuing an assessment notice, and thus did not invalidate the assessment process. (Adelantado Corporation vs. Commissioner of Internal Revenue, CTA Case No. 10406, August 15, 2024)
Letters issued by a Revenue District Officer are not appealable to the CTA.
The taxpayer filed a claim for a VAT refund with the CTA, where the appeal was based on a letter issued by a Revenue District Officer, stating that the application was rejected due to incomplete documentation. The taxpayer argued that the CIR's refusal to accept the claim should be treated as a full denial. In contrast, the CIR argued that the CTA has no jurisdiction over the judicial claim for refund, asserting that the application was not accepted due to the taxpayer’s failure to submit complete supporting documents, which did not qualify as a formal submission.
The CTA dismissed the case, ruling that it lacked jurisdiction over the refund claim. It clarified that only a decision, ruling, or inaction by the CIR—or by specific delegated BIR officials—is appealable to the CTA. The authority to decide refund claims has been delegated to certain officials, including the Deputy Commissioner of the Operations Group, the Assistant Commissioner, and the Regional Director, depending on the case. For regional cases, the Regional Director is responsible for making a decision. However, in this case, the taxpayer appealed a letter from the Revenue District Officer, which is not subject to appeal before the CTA. (Sankyu-ATS Consortium-B vs. Commissioner of Internal Revenue, CTA Case No. 10495, August 6, 2024)
An appeal filed within 30 days of the FDDA issuance is considered timely, even if the 180- day period following the taxpayer's protest has expired.
The taxpayer was assessed for deficiency taxes and filed a protest. However, the CIR did not issue an FDDA within the 180-day period and later issued a WDL instead. In response to the WDL, the taxpayer filed a request for lifting of WDL. Thereafter, due to the taxpayer’s claim of non-receipt of the FDDA, the CIR reissued an undated FDDA, which the taxpayer then acknowledged. Within 30 days of receiving the FDDA, the taxpayer filed a Petition for Review with the CTA. The CIR argued that the Petition was filed too late, asserting that the taxpayer should have appealed within 30 days of receiving the WDL. According to the CIR, the issuance of the WDL indicated that the protest was denied and the assessments had become final, executory, and demandable.
The CTA ruled in favor of the taxpayer, citing a recent Supreme Court decision. It found that the taxpayer had timely filed both its protest and request for reconsideration, triggering the 180-day period for the CIR to decide. Since the CIR failed to serve the FDDA to the taxpayer within this timeframe, the taxpayer was justified in believing that no final decision had been made. The CTA also noted that the taxpayer’s request to lift the WDL indicated it was still awaiting a formal resolution of its protest. The later issuance of an undated FDDA constituted the CIR’s final decision, making it appealable. Thus, the taxpayer had 30 days from receipt of the FDDA to file its Petition for Review, which it did within the allowable period. (Alphaland Southgate Tower, Inc. vs. Commissioner of Internal Revenue, CTA Case No. 10669, August 13, 2024)
Proper service of the PAN must be made to the board of directors or authorized officers
The taxpayer challenged the validity of a tax assessment, claiming the PAN was improperly served since it was left with an unauthorized person after the taxpayer refused to receive it. In contrast, the CIR argued that the PAN was delivered to an individual at the taxpayer’s office who was authorized to receive assessment notices and had even filed the Request for Reinvestigation. Thus, the CIR maintained that the service qualified as personal service.
The CTA ruled in favor of the taxpayer, finding no evidence that the PAN was properly served. The court outlined the acceptable methods of serving a PAN: (1) personal delivery to the concerned party; (2) substituted service in specific situations; or (3) service by mail.
For personal service, the PAN must be delivered to the taxpayer's registered address or directly to the taxpayer, while substituted service is allowed only if (1) the taxpayer is absent from the registered address, (2) no one is available to receive the notice, or (3) the taxpayer refuses to accept it. As a corporation, the taxpayer should always be reachable at its address, and proper service of the PAN must be made to the board of directors or authorized officers.
In this case, the CIR failed to prove that the PAN was served through any of these valid methods. There was no evidence that the individual who received the PAN was authorized to do so, making the CIR’s claim of proper personal service unfounded. Hence, the taxpayer should have been considered as having refused service. Considering this, without following proper procedures for substituted service—the CTA held that the taxpayer’s right to due process was violated. As a result, both the PAN and the subsequent FLD were declared void. (Xytrix Systems Corporation vs. Commissioner of Internal Revenue, CTA Case No. 10629, August 6, 2024)
Even in the context of a refund claim, the corporate veil may only be pierced if it can be demonstrated that the corporate structure was misused to the extent that it resulted in injustice, fraud, or a crime committed against another party, thereby disregarding their rights.
This is a claim for a refund of unutilized input VAT. The CIR argues that the taxpayer failed to prove that the services were rendered in the Philippines. The CIR also contends that the entity involved in the transaction cannot be considered as “another person doing business in the Philippines” because it is related to the taxpayer, with both entities being managed by the same corporate officers and sharing the same address in the United States. As a result, the CIR suggests that the corporate veil should be pierced.
In denying the CIR’s claim, the CTA En Banc emphasized that the corporation is an artificial being which has a separate and distinct personality from its officials. The CTA specifies instances where the corporate veil may be pierced which includes the corporation fiction was misused to such extent that injustice, fraud, or crime as committed against another, in disregard of rights.
Here, the circumstances cited by the CIR were not among those envisioned by the law that will allow the piercing of the corporate veil of the corporation. Thus, in the absence of proof as to any of such circumstances, there is no basis to disregard such corporate fiction. (Commissioner of Internal Revenue vs. Asurion Hong Kong Limited – ROHQ, CTA EB No. 2752 (CTA Case No. 10121), August 6, 2024)
Cases before the CTA are litigated de novo.
The CIR argued that the taxpayer is not entitled to a partial refund of its unutilized input VAT tied to zero-rated sales, asserting that he had denied the taxpayer’s administrative refund claim. He contended that the CTA Division’s review should be limited to assessing the legality of his decision based on evidence submitted during the administrative stage, given the CTA’s appellate role.
The CTA En Banc disagreed, ruling that cases are litigated anew before the CTA, allowing the taxpayer to submit additional evidence not presented at the administrative level. The CTA explained that in VAT refund cases, two scenarios are possible: (1) denial due to the taxpayer’s failure to submit complete documents, which requires the taxpayer to substantiate its refund claim with full documentation at both levels; or (2) denial by inaction or for reasons unrelated to document submission, allowing the taxpayer to present all relevant evidence before the CTA.
In this case, the CIR’s denial fell under the second scenario, as it was not based on incomplete documentation following a specific request. Consequently, the CTA is permitted to consider all evidence presented by the taxpayer in support of its refund claim, even if it was not submitted to the CIR during the administrative process. (Commissioner of Internal Revenue vs. Oceanagold (Philippines), Inc., CTA EB No. 2780 (CTA Case No. 10382), August 30, 2024)
RR No. 14-2024, August 14, 2024 - This provides guidelines on modes of disposition of seized and forfeited articles.
The following are the modes of disposition of seized/forfeited articles:
|
Modes of Disposition |
Definition |
Article Subject of Disposition |
Requirements |
|
Public Auction |
Mode of sale in which seized articles are being sold to multiple buyers thru competitive bidding |
Seized articles prejudicial to the enforcement of the law and other regulated articles |
None |
|
Negotiated or Private Sale |
Mode of sale in which seized articles that remain unsold after the conduct of two (2) failed public auctions are being sold |
Seized articles not suitable for official use or donation |
(a) Conduct of two (2) failed public auctions; and (b) Prior approval of Secretary of Finance; Exception: In the case of personal properties, the abovementioned two (2) requirements may be dispensed with. |
|
Official Use of the BIR |
Utilization of seized articles that are suitable for official use |
Seized articles suitable for official use |
(a) Conduct of two (2) failed public auctions; (b) Declaration of CIR that article is for official use; and (c) Prior approval of Secretary of Finance |
|
Donation |
Disposition to another government agency of seized articles that remain unsold after the conduct of two (2) failed public auctions |
Seized articles not suitable for official use |
(a) Conduct of two (2) failed public auctions; (b)Recommendation of CIR; and (c) Prior approval of Secretary of Finance |
|
Destruction |
Removal, disposal, and any other processes in an appropriate and most practicable manner that render seized articles unusable |
Seized articles injurious to public health or prejudicial to the enforcement of the law |
Order of the CIR or his/her duly authorized representative |
RR No. 15-2024, August 15, 2024 - This prescribes policies and guidelines in the mandatory registration of persons engaged in business and administrative sanctions and criminal liabilities for non-registration.
The following are the covered transactions:
- Sale and/or lease of goods and services through brick-and-mortar stores;
- E-commerce or online businesses;
- Operation of digital platforms, including e-marketplace platforms;
- Sale and/or lease of goods and services through digital platforms;
- Digital content creation and streaming;
- E-retailing of goods and services;
- Sale of creative or professional services, on-demand or freelance services or digital services supplied over the internet;
- Other forms of businesses other than those mentioned above which are conducted online.
The following are the forms of business operation with their corresponding required place of registration:
|
Form of Business Operation |
Place of Registration |
|
Brick-and-mortar stores |
In case of its Head Office, at the BIR district office having jurisdiction over the place of business address. In case of its Branch and/or Facility, at the BIR district office having jurisdiction over the place of business address or location of the branch and/or facility. |
|
Operating, Maintaining, or setting up an online presence or an online store for its Brick-and mortar store |
It shall register its online store name with the BIR as an additional “business name” attached to the head office or branch managing or operating the said online store and shall not be registered as its branch. |
| Online business (thru website, webpage, page, platform, or application) |
In case of sole proprietors, at the BIR district office having jurisdiction over the place of residence. In case of corporations and other juridical entities, at the BIR district office having jurisdiction over the principal place of business registered with Securities and Exchange Commission. |
RMC No. 113-2024, October 15, 2024 -This announces the availability of certain functions in the ORUS
Availability of Functions in the BIR ORUS
|
Functions |
Availability |
|
Application for update of taxpayer classification thru the “Update Information” |
Starting October 1, 2024 |
|
Resumption of business registration and other registration-related transactions |
Starting October 10, 2024 |
Application for update of taxpayer classification in ORUS
|
Update Type |
Mandatory Documentary Support |
Action |
|
Downgrade (except Small to Micro) |
Income Tax Return or Income Statement showing gross sales for the last 2 years |
Manual approval of the RDO within 7 working days from submission of application |
|
Downgrade (Small to Micro) |
None |
Automatic approval |
|
Upgrade |
None |
Automatic approval |
Resumption of business registration and other registration-related transaction functionalities/features in ORUS
The following functionalities/features are now available in ORUS:
- Registration of business and issuance of Electronic Certificate of Registration (eCOR) and Authority to Print (ATP) with Electronic Payment (e-Payment) of Loose Documentary Stamp Tax (DST)
- Registration of New Branch
- Application for Authority to Print (Subsequent)
RMC No. 115-2024, October 18, 2024 - This clarifies certain policies and procedures relative to the implementation of the risk-based approach in the verification and processing of VAT refund claims
General Policies
The following are the clarifications on the risk-based approach verification and processing of VAT refund claims pursuant to Section 112(A) of the Tax Code, as amended by the EOPT Act.
The Taxpayer shall submit all documentary requirements mandated by the BIR for purposes of VAT refund regardless of the identified risk level.
The submission of complete documentary requirements shall be based on the Checklist of Mandatory Requirement (Annex A.1).
Noncompliance with the completeness of mandatory requirements shall result in the non-acceptance of the VAT refund application.
The 90-day period to process and decide shall start from the time of acceptance of the processing office of the claim/application for VAT refund with complete documentary requirements.
VAT Refund Procedures
The sequence in the processing of VAT refund claims shall be as follows:
1. Checklisting [1] based on the Checklist of Mandatory Requirements;
a. Check completeness and propriety in the accomplishment of the application form;
b. Check if the schedules comply with the prescribed format and that the required supporting documents are present (but without confirmation if the transactions are individually supported);
2. Cursory checking of completeness of supporting documents submitted for sales and purchases of goods and services after the application has been accepted;
3. Determination of the risk level of the claim;
4. Processing and verification [2] for medium and high-risk claims. Low-risk claims are automatically recommended for refund, net of transactions with no supporting documents.
[1] Checklisting refers to the initial state in the processing of the VAT refund claims and is limited only to ensuring the completeness of the submitted documentary requirements.
[2] Verification refers to the process that ensures correctness and accuracy of the documents involving thorough examination, evaluations, and a deeper level of analysis and investigation.
The verification procedures to be observed based on the risk level of the claim:
|
Risk Level |
Verification Procedures |
|
Low-risk claims |
- Limited only to the checklisting and completeness of documentary requirements. - Verification procedures for sales of goods and services as well as purchases and input tax shall no longer be performed. |
|
Medium-risk and High-risk claims |
- The verification procedures outlined in RMO No. 23-2023 shall still apply, except for sales and purchases transactions not included in the required percentage of documents to be verified for medium-risk claims. |
Impact of Specific Findings on the Verification Procedures
|
Findings |
Impact |
|
“No Supporting Documents (NSD)” |
- Shall NOT be considered as incomplete submission but will result in the disallowance of the unsubstantiated portion regardless of the risk classification. - If the NSD for sales and purchases exceed at least 1% of the total amount of sales (for sale transactions) or total amount of claim (for purchase transactions), the application shall be automatically classified as high-risk and shall require 100% verification. |
|
Missing/Incomplete information in the schedules of sales and purchases submitted |
- Shall be automatically classified as high-risk and shall require 100% verification. |
|
Cannot Be Located (CBL) taxpayers |
- Local Suppliers with Input VAT claimed that are not selected for verification but are identified as CBL taxpayers shall not be allowed and shall form part of the disallowance of the claim. |
|
Run After Fake Transactions (RAFT Program) for medium-risk claims |
- Input VAT claimed that are not selected for verification but are included in the RAFT program shall not be allowed, leading to outright disallowance. |
RMC No. 116-2024, October 18, 2024 - This clarifies the provision of the “Ease of Paying Taxes Act” applicable to the power industry
Tax Treatment of Pass-Through Charges
|
Entity/ies Passing-On the Charge |
Pass-Through Charges |
Tax Treatment |
|
Distribution Utility (DU) Companies and Electric Cooperatives (EC) |
Sale and transmission of electricity and ancillary services (including VAT) of the Generation Companies (GC) and Transmission Companies (TC) |
- GCs and TCs shall issue an invoice to the DU and EC for the whole generation fees and transmission fees, respectively, including the VAT. - All payments by DUs and ECs pertaining to generation, transmission, and other VATable charges shall be subject to VAT. - DUs and ECs shall issue an invoice to customers which shall include the pass-through charges. - DUs and ECs shall not claim input tax from the pass-through charges. The proper claimants are the customers of the DUs and ECs. |
|
Retail Electricity Supplier (RES) |
Transmission and distribution charges |
- GCs and TCs shall issue an invoice to the RES for the whole generation fees and transmission fees, respectively, including the VAT. - All payments by RESs pertaining to generation, transmission and other VATable charges shall be subject to VAT. - RESs shall not claim input tax from the pass-through charges. |
VAT Declaration and Reporting by GCs and TCs
Considering the various types of customers/end-users (i.e. VATable, zero-rated, exempt), the following shall be observed:
- Once the GCs and TCs have issued the invoice, the DUs, ECs, and RESs shall provide a certification of zero-rated/exempt transactions on or before the 5th day of the month following the invoice period.
- GCs and TCs will issue adjustment documents (i.e. Debit/Credit Memo/Note, Journal Voucher, Negative Invoice) to adjust output tax liability charged on zero-rated/exempt transactions
Tax Treatment of Specific Charges
|
Charges |
Tax Treatment |
|
Mandated Government Charges [3] |
Not subject to Output Tax and Creditable Withholding Tax on VAT and Income |
|
5% Creditable VAT withheld by government customers |
Claimed as Creditable VAT as evidenced by BIR Form No. 2307 in the VAT Returns of the DUs and ECs who issued the invoice on the sale of electricity |
|
2% Income Tax withheld by customers engaged in business |
Claimed as creditable withholding tax as evidenced by BIR Form No. 2307 in the ITR of the DUs, ECs, and RESs who issued the invoice on the sale of electricity |
[3] Includes: (i) Energy Tax; (ii) Universal Charges; (iii) Benefits to Host Communities; (iv) Feed-in Tariff Allowance; (v) National and Local Franchise Taxes; (vi) Real Property Tax
Transitory Provisions
GCs and TCs shall not be liable to the remittance of all outstanding deferred VAT from the effectivity of RR No. 3-2024 on April 27, 2024. However, the following transitory provisions shall be observed:
- Submission by GCs and TCs, in hard and soft copies, of an inventory of outstanding deferred VAT prior to April 27, 2024, from DUs, ECs, and others. The submission shall be made to the concerned RDO/LT office on or before September 30, 2024.
- DUs and ECs shall remit the deferred VAT on behalf of the GCs and TCs using BIR Form No. 0605. The TIN of the GCs and TCs shall be clearly indicated and that the payment shall be specified as for “DEFERRED VAT – RMC No. ________”
- Submission by DUs and ECs, in hard and soft copies, of the summary of the remittance of deferred VAT. The submission shall be made to the concerned RDO/LT office on or before the 10th day from the date of remittance of BIR Form No. 0605.
- DUs and ECs shall provide the BIR Form No. 0605 and the proof of payment to the GCs and TCs within 3 days from the remittance to the BIR. This shall be the basis of the GCs and TCs for the issuance of the invoice (pursuant to the transitory provision of RR No. 7-2024) and to record the payment of the deferred VAT. The unremitted portion of the deferred VAT prior to April 27, 2024, if any, shall remain outstanding until fully collected or closed in a tax audit.
Notes:
1. RMC No. 116-2024 includes the following annexes:
- Annex A – Certification of zero-rated/exempt transactions
- Annex B – Inventory of outstanding deferred VAT
- Annex C – Summary of the remittance of deferred VAT
2. Deadline of submission of the inventory of outstanding deferred VAT is September 30, 2024, despite RMC No. 116-2024 being published on October 18, 2024. This may be due to the fact that RMC itself was dated August 21, 2024, but published only on October 18, 2024
RMC No. 119-2024, October 25, 2024 - This provides the extension of the deadlines for the filing of tax returns and payment of corresponding taxes due thereon, including submission of required documents for taxpayers within the jurisdiction of Revenue District Offices of the Bureau of Internal Revenue that were affected by Typhoon "Kristine."
Extended Deadlines
The deadlines for submission/filing of the following, as well as the payment of the
corresponding taxes shall be extended to October 31, 2024:
- BIR Form 2550Q (Quarterly VAT Return)-eFPS and Non-eFPS filers – For the quarter ending September 30, 2024
- BIR Form 2551Q (Quarterly Percentage Tax Return)-eFPS and Non-eFPS filers – For the quarter ending September 30, 2024
- Quarterly Summary List of Sales/Purchases/Importations by a VAT taxpayer-Non-eFPS filers – For the quarter ending September 30, 2024
- Sworn Statement of Manufacturer’s or Importer’s Volume of Sales of each Particular Brand of Alcohol, Tobacco, and Sweetened Beverage Products – For the quarter ending September 30, 2024
Affected Revenue District Offices (including affected Authorized Agent Banks)
| Geographical Location | Revenue District Office |
| Region I Ilocos Norte Ilocos Sur La Union Pangasinan |
RDO No. 1-Laoag, Ilocos Norte |
| RDO No. 2-Vigan City, Ilocos Sur | |
| RDO No. 3-San Fernando, La Union | |
| RDO No. 4-Calasiao, Central Pangasinan | |
| RDO No. 5-Alaminos City, West Pangasinan | |
| RDO No. 6-Urdaneta City, East Pangasinan | |
| Cordillera Administrative Region Abra Apayao Benguet Ifugao Kalinga Mt. Province |
RDO No. 7-Bangued, Abra |
| RDO No. 8, Baguio City | |
| RDO No. 9-La Trinidad, Benguet | |
| RDO No. 10-Bontoc, Mt. Province | |
| RDO No. 11-Tabuk City, Kalinga | |
| RDO No. 12-Lagawe, Ifugao | |
| Region II Batanes Cagayan Isabela Nueva Vizcaya Quirino |
RDO No. 13-Tuguegarao, Cagayan |
| RDO No. 14-Bayombong, Nueva Vizcaya | |
| RDO No. 15-Naguilian, Isabela | |
| RDO No. 16-Cabarroguis, Quirino | |
| Region III Aurora Bataan Bulacan Nueva Ecija Pampanga Tarlac Zambales |
RDO No. 17A-Tarlac City, Tarlac |
| RDO No. 17B-Paniqui, Tarlac | |
| RDO No. 18-Olongapo City, Zambales | |
| RDO No. 19-Subic Bay Freeport Zone | |
| RDO No. 20-Balanga City, Bataan | |
| RDO No. 21A-Angeles City, North Pampanga | |
| RDO No. 21B-City of San Fernando, South Pampanga | |
| RDO No. 21C-Clark Freeport and Special Economic Zone (CFEZ) | |
| RDO No. 22-Baler, Aurora | |
| RDO No. 23A-Talavera, North Nueva Ecija | |
| RDO No. 23B-Cabanatuan City, South Nueva Ecija | |
| RDO No. 25A-West Bulacan | |
| RDO No. 25B-East Bulacan | |
| Region IV-A Cavite Laguna Batangas Rizal Quezon |
RDO No. 46-Cainta-Taytay |
| RDO No. 54A-Trece Martires City, East Cavite | |
| RDO No. 54B-Kawit, West Cavite | |
| RDO No. 55-San Pablo City, East Laguna | |
| RDO No. 56-Calamba City, Central Laguna | |
| RDO No. 57-Biñan City, West Laguna | |
| RDO No. 58-Batangas City, West Batangas | |
| RDO No. 59-Lipa City, East Batangas | |
| RDO No. 60-Lucena City, North Quezon | |
| RDO No. 61-Gumaca, South Quezon | |
| Region IV-B Mindoro Occidental Mindoro Oriental Marinduque Romblon Palawan |
RDO No. 35-Odiongan, Romblon |
| RDO No. 36-Puerto Princesa, Palawan | |
| RDO No. 37-San Jose, Occidental Mindoro | |
| RDO No. 62-Boac, Marinduque | |
| RDO No. 63-Calapan City, Oriental Mindoro | |
| National Capital Region | RDO No. 24 - Valenzuela City |
| RDO No. 26 - Malabon City/Navotas City | |
| RDO No. 27 - Caloocan City | |
| RDO No. 28 - Novaliches | |
| RDO No. 29 - Tondo-San Nicolas | |
| RDO No . 30 - Binondo | |
| RDO No. 31 - Sta. Cruz | |
| RDO No. 32 - Quiapo-Sampaloc-San Miguel-Sta. Mesa | |
| RDO No. 33 - Ermita-Intramuros-Malate | |
| RDO No. 34 - Paco-Pandacan-Sta.Ana-San Andres | |
| RDO No. 38 - North Quezon City | |
| RDO No. 39-South Quezon City | |
| RDO No. 40-Cubao | |
| RDO No. 41-Mandaluyong City | |
| RDO No. 42-San Juan City | |
| RDO No. 43-Pasig City | |
| RDO No. 44-Taguig City-Pateros | |
| RDO No. 45-SMART (San Mateo-Marikina-Antipolo-Rodriguez-Teresa) | |
| RDO No. 47-East Makati City | |
| RDO No. 48-West Makati City | |
| RDO No. 49-North Makati City | |
| RDO No. 50-South Makati City | |
| RDO No. 51-Pasay City | |
| RDO No. 52-Parañaque City | |
| RDO No. 53A-Las Piñas City | |
| RDO No. 53B-Muntinlupa City | |
| RDO No. 116-Regular LT Audit Division I | |
| RDO No. 125-Regular LT Audit Division II | |
| RDO No. 126-Regular LT Audit Division III | |
| RDO No. 121-Excise LT Audit Division I | |
| RDO No. 124-Excise LT Audit Division II |
CL No. 2024-20. October 17, 2024 - HMOs are now mandated to adopt PFRS 17 on or before January 1, 2027.
The International Accounting Standards Board (IASB) issued International Financial Reporting Standards (IFRS) 17, which covers the recognition, measurement, presentation, and disclosure of insurance contracts.
Pursuant to this, the SEC adopted IFRS 17 as the Philippine Financial Reporting Standard 17 (PFRS 17). All Health Maintenance Organizations (HMOs) doing business in the Philippines are now mandated to adopt PFRS 17 on or before January 1, 2027.
In addition, HMOs shall submit the PFRS Preparedness Assessment Reports along with their Interim Financial Statements starting January 15 and thereafter on or before the 15th of the month following the end of each Quarter. (IC CL 2024-20)
SEC OGC Opinion No. 24-21, August 16, 2024 - A non-stock, non-profit organization may, as incident to its purpose(s), engage in business activities which are reasonably necessary to carry out the purpose(s) for which the corporation was organized.
The corporation inquired whether a non-stock, non-profit organization can establish a business process outsourcing service or contact/call center that will serve its affiliates in other countries without amending its Articles of Incorporation.
As a general rule, non-stock, non-profit corporations are not empowered to venture on profitable business activities. By way of exception, the corporation may, as incident to its purpose(s), engage in business activities which are reasonably necessary to carry out the purpose(s) for which the corporation was organized, provided that any profit that may be derived therefrom are not distributable to the members but are used for the furtherance of corporate purposes.
Thus, the answer is affirmative, on the condition that the following restrictions and parameters still obtain, to wit:
1. The rendering of contact or call center services is reasonable and not primarily profit-making and is limited to its affiliates; and
2. That any profit may be derived therefrom are not distributable to the members but are used for the furtherance of corporate purposes.
SEC OGC Opinion No. 24-22, dated September 10, 2024, posted October 9, 2024 - A representative office is allowed to deal directly with its parent company’s clients inside and outside the Philippines.
The corporation inquired whether a representative office in the Philippines is allowed to deal directly with its parent company’s clients outside the Philippines.
The Implementing Rules and Regulations of Republic Act No. 7042 or the Foreign Investment Act, as amended, defines a representative or liaison office as one that deals directly with the clients of the parent company but does not derive income from the host country and is fully subsidized by its head office. It undertakes activities such as but not limited to information dissemination and promotion of the company’s products as well as quality control of products.
Thus, a representative office is allowed to deal directly with its parent company’s clients inside and outside the Philippines, provided its activities relate to information dissemination, promotion, and quality control of its parent company’s products and does not derive income in the Philippines and is fully subsidized by its head office.
SEC OGC Opinion No. 24-23, September 11, 2024 - The term limit of the Board of Directors of a Country Club, deemed a stock corporation, is only one (1) year under Section 22 of the RCC.
The corporation, a country club, inquired whether it can continue to elect its directors for three (3)-year terms in accordance with its By-laws until such time it secures the necessary corporate approvals for such amendment and the Commission approves the same.
It was clarified that golf, country, and sports clubs are classified as stock corporations. As such, they should comply with the provisions on stock corporations under the RCC.
Further, it was emphasized that By-laws may be necessary for the government of the corporation, but they are nevertheless subordinate to the Articles of Incorporation as well as to the RCC and related statutes.
Thus, for a stock corporation, a 3-year term for the Board of Directors is a void By-law provision as it contradicts or fails to comply with the 1-year term under Section 22 of the RCC. Accordingly, a stock corporation is obliged to follow the 1-year term for Board of Directors under the RCC even if the corporation ultimately fails to correct and amend an invalid By-Law provision, because the same is deemed written into the said By-laws.
SEC OGC Opinion No. 24-24, September 11, 2024 - The 19-lender rule pertains to non-institutional lenders and does not apply to primary institutional lenders.
The corporation inquired on the interpretation of Rule 9.1.2.4 [now Rule 9.1.2.5] of the IRR of the Republic Act No. 8799 or the SRC, also known as the nineteen (19)-lender rule, particularly on the following:
- Whether a financial institution without a banking or quasi-banking license can issue evidence of indebtedness to more than 19 primary institutional lenders without violating the 19-lender rule; and
- Whether the 19-lender rule and the registration requirement will apply to off-shore borrowings or issuance of evidence of indebtedness to an off-shore entity.
As to the first query, the answer is affirmative. The 19-lender rule pertains to non-institutional lenders and does not apply to primary institutional lenders because the latter is covered by Rule 10.4.1 of the SRC-IRR.
As to the second question, the place where the securities would be sold or offered for sale or distribution is material such that if the securities would be sold or offered for sale or distribution outside of the Philippines, then the registration requirement would not apply.
SEC OGC Opinion No. 24-25, September 19, 2024 - The creation of the position of “Assistant Secretary” in a representative office is permitted under the Revised Corporation Code.
The foreign corporation inquired on the following:
- Whether it may modify the organizational structure of its representative office by creating additional subordinate offices and appointing subordinate officers as permitted by its By-Laws;
- Whether the creation of the position of “Assistant Secretary” in its representative office is permitted under the RCC; and
- In the affirmative, whether there are nationality or residency requirements that should be imposed on the Assistant Secretary of the representative office.
As to the first query, the parent company has the authority to create and consequently appoint officers and/or personnel of its representative office, as may be permitted by its By-laws.
As to the second query, the RCC and jurisprudence state that a corporation may have other officers as may be provided for in the corporation’s By-laws. Further, in the case of a foreign corporation, there is no prohibition in the RCC barring the creation of officer positions for its representative office, in addition to that of a resident agent.
As to the third query, the answer is in the negative considering the absence of any nationality or residency requirements for subordinate officers in the corporation’s By-laws.
SEC OGC Opinion No. 24-26, September 25, 2024 - A financing company can extend a credit for any kind of transaction of the borrower, subject to the 30% limit.
The corporation inquired on the total amount of credit a financing company may extend to third parties for real estate transactions.
Section 9(d) of the Implementing Rules and Regulations of Republic Act No. 8556 or the Financing Act provides the rule on allowable total credit that a financing company may extend, i.e., the total credit that a financing company may extend to any person, company, corporation, or firm shall not exceed thirty (30%) percent of its net worth.
Thus, applying the basic principle in statutory construction that where the law does not distinguish, neither should we, a financing company can extend a credit for any kind of transaction of the borrower, subject to the 30% limit aforementioned.
FIRB Advisory No. 006-2024, October 7, 2024 - This provides for the Interim guidelines on the submission of the employment and compensation data in the Annual Benefits Report (ABR)
RBEs with tax incentives must submit their ATIR and ABR to their respective IPAs within 30 days after the tax return filing deadline.
Reporting Period:
Employment and compensation data in the ABR should be reported on a calendar year basis. RBEs operating on a fiscal year basis can use the most recent available data, either:
- From the start to the end of their fiscal year (e.g., April 2023 to March 2024), or
- For the calendar year (January 2023 to December 2023).
Submission Mode:
The ABR submission must follow the guidelines in FIRB Memorandum Circular No. 001-2024, dated March 27, 2024.
The Capital Markets Efficiency Promotion Act
By Atty. Mabel L. Buted
Our tax laws are significantly evolving. Our government is trying and continuing to develop and improve our system in taxation as the tax system and tax administration play a key role in the attainment of the objectives of easing the doing of business in the country, attracting more foreign investments, increasing revenues, and reducing poverty. In this year alone, three crucial laws were enacted – RA No. 11976 (the Ease of Paying Taxes Act or EOPT), RA No. 12001 (the Real Property Valuation and Assessment Reform Act or RPVARA), and RA No. 12023 (the law on VAT on Digital Services).
The Comprehensive Tax Reform Package Program of the government started in 2018. The CTRP Program was created to make the tax system more equitable and efficient. It consisted of four packages, three of which had already been passed.
The first package (Package 1) is the Tax Reform for Acceleration and Inclusion Law (TRAIN or RA No. 10963) that took effect on January 1, 2018. TRAIN sought to provide tax relief to individual taxpayers who are earning less by reducing the personal income tax rates applicable on their income. Package 2 is the CREATE Law (Corporate Recovery and Tax Incentives for Enterprises or RA No. 11534). It was signed into law in early 2021, a time when the country was in the middle of recovery from the challenges brought by the COVID-19 pandemic. The law focused on the rationalization of income tax and fiscal incentives of corporate entities to make the Philippines a more competitive and attractive venue for foreign investments. Package 3 is, as mentioned, the RPVARA, which was recently enacted this year. The Act
harmonizes the country’s system in the valuation of real properties. The last package (Package 4) is still pending enactment. This is the Passive Income and Financial Intermediary Taxation Act or PIFITA. PIFITA seeks to simplify taxation of capital income and financial services. The bill was approved by the House of Representatives on final reading in November 2022. To date, it is awaiting passage by the Senate.
Pending the enactment of PIFITA, an “alternative” bill was introduced through the Capital Markets Efficiency Promotion Act (CMEPA). CMEPA is a “smaller bill” that is easier to pass according to Senator Gatchalian (https://www.bworldonline.com/economy/2024/10/07/626343/govt-revenue-seen-taking-hit-from-house-capital-reform-bill/). Similar to PIFITA, CMEPA aims to improve the country’s competitiveness in the capital markets.
One of the significant changes that we are expecting from CMEPA is the reduction of the stock transaction tax from 0.60% to 0.10% on sale of shares of stock listed and traded through the local stock exchange. Also, under CMEPA, cash and property dividends received by nonresident alien individuals, whether or not engaged in trade or business in the Philippines, from domestic corporations and regional operating headquarters of multinational companies will be subjected to the same tax rate of 10% applicable to dividends received by Filipino citizens and resident aliens. At present, dividends of nonresident aliens are subject to higher tax rates – nonresident aliens engaged in trade or business are subject to tax at 20% while those not engaged in trade or business are taxed at 25%.
Documentary stamp tax (DST) on property and fidelity insurance will be imposed in the same manner as DST is imposed on life insurance policies. Currently, life insurance policies are exempt or subject to one-time DST ranging from P20.00 to P200.00, depending on the amount of the insurance. On the other hand, insurance upon property and on fidelity bonds are subject to DST at P0.50 for each P4.00 of the premium charged. If CMEPA is passed into law, similar with life insurance, property insurance, and fidelity policies worth less than P100,000.00 would be exempted from DST while those worth than P1 million will enjoy maximum rate of P200.00.
Further, in CMEPA, winnings from Philippine Charity Sweepstakes Office (PCSO) and lotto above P10,000.00 will be taxed at lower 10% rate from the present 20%. PCSO and lotto winnings not exceeding P10,000.00 would continue to be exempt from income tax. DST on horse race tickets or PCSO lottery tickets will be reduced from 20% to 10%.
There are other pending tax legislations. One of them is the CREATE MORE bill which I discussed in my previous article. Others are the Taxpayer’s Bill of Rights and Obligations Act (SB No. 1806) and Single-Use Plastic Bags Tax Act (SB No. 1844).
With all these significant developments, it is critical for taxpayers to be informed so they can timely adjust and assess the implications to their businesses and obligations. Stay tuned for more updates.
----------------------------------------------
For inquiries on the article, you may call or email
ATTY. MABEL L. BUTED
Partner
T: +63 2 8403 2001 loc. 160
This email address is being protected from spambots. You need JavaScript enabled to view it.
DISCLAIMER: The contents of this Insights are summaries of selected issuances from various government agencies, Court decisions and articles written by our experts. They are intended for guidance only and as such should not be regarded as a substitute for professional advice.
Copyright © 2024 by Du-Baladad and Associates (BDB Law). All rights reserved. No part of this issue covered by this copyright may be produced and/or used in any form or by any means – graphic, electronic and mechanical without the written permission of the publisher.
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ABR |
- |
Annual Benefits Report |
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ATIR |
- |
Annual Tax Incentives Report |
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BIR |
- |
Bureau of Internal Revenue |
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CIR |
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Commissioner of Internal Revenue |
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CTA |
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Court of Tax Appeals |
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EOPT |
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Ease of Paying Taxes |
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IPAs |
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Investment Promotion Agencies |
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IRR |
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Implementing Rules and Regulations |
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FAN |
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Final Assessment Notice |
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FNBS |
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Final Notice Before Seizure |
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FLD |
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Formal Letter of Demand |
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GS |
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Group Supervisor |
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LOA |
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Letter of Authority |
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NIC |
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Notice of Informal Conference |
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ORUS |
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Online Registration and Update System |
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PCL |
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Preliminary Collection Letter |
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RA |
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Republic Act |
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RBEs |
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Registered Business Enterprises |
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RCC |
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Revised Corporation Code |
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RMC |
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Revenue Memorandum Circular |
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RMO |
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Revenue Memorandum Order |
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RO |
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Revenue Officer |
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RR |
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Revenue Regulations |
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SEC |
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Securities and Exchange Commission |
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SRC |
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Securities Regulation Code |
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TCC |
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Tax Clearance Certificate |
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VAT |
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Value Added Tax |