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 © 2019 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.

The TRAIN Law introduced the following amendments: (1) the rate of interest for deficiency and/ or delinquency was reduced to 12%; (2) the running of the period for the computation of deficiency interest starts from the date prescribed for its payment until either full payment thereof or upon issuance of notice or demand by the CIR, whichever comes earlier; (3) the simultaneous imposition of deficiency and delinquency interests is effectively eliminated.

The taxpayer alleged that the court erred in its computation of the applicable interest and surcharge. The taxpayer posits that the 40% interest rate on the deficiency taxes partake of the nature of an imposition that is penal, rather than compensatory and is clearly excessive and unconscionable. The taxpayer further believes that the provisions of the TRAIN Law should be applied as to the interest rate since the TRAIN Law was already in effect when the decision was promulgated.

The CTA held that the interest rate used in the decision, i.e, (a) 20% deficiency interest rate from the date prescribed for its payment until December 31, 2017; (b) 20% delinquency interest from May 16, 2015 until December 31, 2017; and (c) 12% delinquency interest from January 1, 2018 until full payment thereof, was correct and is in consonance with the Tax Code, as amended by the TRAIN Law.

The CTA ruled that it is clear from the transitory provision of the TRAIN Law that, in cases where the deficiency taxes became due before the effectivity of the TRAIN Law on January 1, 2018 and the full payment thereof will only be accomplished after the said effectivity date, the interest rate of 20% shall be applied for the period up to December 31, 2017 while the interest rate of 12% shall be applied for the period January 1, 2018 until full payment thereof. The simultaneous imposition of deficiency and delinquency interest under Section 249 prior to its amendment will still apply in so far as the period between the date prescribed for payment until December 31, 2017. (Solid Video Corporation vs. Commissioner of Internal Revenue, CTA Case No. 9051, May 2, 2019)

Belated filing of a Petition for Review to question the implied denial of a claim for refund or issuance of TCC within the 120/30-day prescriptive period is fatal to a judicial claim for refund.

The BIR alleged that the taxpayer filed the administrative claim for refund on September 23, 2008. Counting 120 days after filling of the administrative claim with the respondent and 30 days after the respondent’s denial by inaction, the last day for filling of the judicial claim with the CTA, is on February 20, 2009. Respondent further argues that Petitioner filed the judicial claim only on September 28, 2018, thus, the CTA can no longer exercise jurisdiction on the Petition as this was allegedly filed out of time.

The taxpayer opposed the motion on the ground that it was entitled to a refund or tax credit of its excess input tax credit and the judicial claim was timely filed and has not prescribed. The taxpayer alleged that it filed the application for issuance of tax credit certificate on September 23, 2008 but it received a letter denying said application only on August 31, 2018. Hence the petition filed on September 28, 2018, according to the taxpayer, was timely filed.

The CTA ruled in favour of the BIR and held that the 120/30 day prescriptive periods are mandatory and are not mere technical requirements. Under the Tax Code, the failure on the part of the BIR to act on the application is deemed a denial and the taxpayer has 30 days to appeal therefrom. Thus, the filing of the Petition for Review more than 9 years after the prescribed period did not confer jurisdiction before the CTA. (Lapanday Foods Corporation vs. Commissioner of Internal Revenue, CTA Case No. 9938, May 2, 2019)

There is no obligation on the part of the buyer to withhold taxes in cases of sale of foreclosed property from the local government unit which foreclosed the same for non-payment of real property taxes.

In 2014, the taxpayer received a PAN which alleged that it was liable for deficiency CGT and DST in connection with the purchase of buildings, machineries, and equipment collectively known as the “Iligan Power Plants” from the City of Iligan which foreclosed said property for non-payment of real property taxes. Later, the taxpayer would receive an amended PAN which cancelled the assessment for deficiency CGT and DST but assessed the taxpayer with deficiency EWT.

The CTA Division ruled in favour of the taxpayer and the CTA En Banc affirmed the same. The CTA En Banc held that the City Government of Iligan was simply exercising its governmental functions when it sold the power plants to the taxpayer because it was for the purpose of recovering the real property taxes due to it and to increase the supply of electricity to the area, in addition to the obvious reason that the city was not habitually engaged in the business of operating power plants.

Section 2.57.5(A) of RR No. 2-98 clearly states that income payments made to the national government and its instrumentalities including provincial, city, or municipal governments and barangays are not subject to the withholding of creditable withholding tax. (Commissioner of Internal Revenue vs. Conal Holdings Corporation, CTA EB No. 1732 (CTA Case No. 9099) May 3, 2019)

Sending of PAN to a Taxpayer to inform it of the assessment made is part of the due process requirement in the issuance of a deficiency tax assessment, the absence of which renders nugatory any assessment by BIR.

Taxpayer was assessed by the BIR of all of its internal revenue taxes. However, the taxpayer contended that it did not receive a PAN from the BIR, hence, the assessment was void.

The CTA has held that the issuance of PAN must be made in order for the taxpayer to be informed that it is liable for deficiency taxes. It is a substantive, not merely a formal, requirement because the taxpayer should be able to present its case and adduce supporting documents observing its right to due process. Hence, failure to send the PAN stating the facts and the law on which the assessment was made renders the assessment made by BIR void.

In this case, instead of sending the PAN to the taxpayer, BIR sent the PAN to a different entity. Taxpayer was not able to present its case and adduce sufficient evidence to rebut the assessment against it. Hence, the taxpayer was not afforded its right to due process. (Mindanao Sanitarium & Hospital College Inc. vs. Commissioner of Internal Revenue, CTA Case No. 8673, May 6, 2019)

In order that a shipment be held liable to forfeiture, it must be proven that fraud has been committed by the importer/consignee to evade payment of the duties due.

The District Collector (DC) issued a warrant of seizure and detention regarding the shipment of the Importer-Consignee due to the fact that the shipment contained shipping labels and documents with a different named consignee. During the ocular and physical inspection, the shipping labels attached to the shipment appeared to have been tampered as they contained an additional label which was not existing before when the said shipment arrived at the Customhouse apparently to make it appear that the same belongs to the Importer-Consignee. Subsequently, the Commissioner of Customs (COC) forfeited the shipment due to fraud. Hence, the Importer-Consignee contends before the CTA that the difference in consignee in the shipment was only an inadvertent error in labelling the subject shipments and not an intentional wrongful declaration by the shipper for purposes of evading payment of any tax due.

The CTA has held that in order that a shipment be held liable to forfeiture, it must be proven that fraud has been committed by the importer/consignee to evade payment of the duties due. The burden of proof is on the part of COC who ordered the forfeiture of the subject shipments.

Here, COC has proven that there were circumstantial evidence that concludes that the shipments were not really consigned to the Importer-Consignee, to wit: First, the contract between the supplier and the Importer-Consignee was executed and signed subsequent to the shipment date; and second, the Importer-Consignee intended to use its tax and duty exempt privilege endorsement made exclusively in its favor to another entity that would only lead to the conclusion that it intended to use such privilege over the shipment.

In effect, the supplier would clearly benefit from such tax-exempt privilege which is exclusive to the Importer-Consignee over articles that are not really consigned to, nor really intended in its favor, thereby evading the taxes and duties legally due to the government. Therefore, the shipment should be forfeited. (National Grid Corporation of the Philippines vs. Commissioner of Customs and the District Collector, NAIA Customs Collection District, CTA EB No. 1574 (CTA Case No. 8663), May 7, 2019)

All violations of any provision of the Tax Code shall prescribe after five (5) years counted from the day of the commission of the violation of the law, and if the same is not known at the time, from the discovery thereof and the institution of judicial proceedings for investigation and punishment.

The taxpayer was criminally charged for willful failure to file a quarterly VAT return for the second quarter of taxable year 2008. The discovery of the offense together with the institution of judicial proceedings for preliminary investigation was on January 30, 2014. On March 18, 2019, the Information against the taxpayer was filed with the CTA.

The CTA dismissed the criminal action on the ground of prescription. In arriving at its decision, the CTA made reference to Section 281 of the Tax Code, as amended, which provides that all violations of any provision of the Tax Code shall prescribe after five (5) years counted from the day of the commission of the violation of the law, and if the same is not known at the time, from the discovery thereof and the institution of judicial proceedings for investigation and punishment.

Since the period from the institution of judicial proceedings for investigation, which was on January 30, 2014 in this case, up to the filing of the information in court, which was on March 18, 2019 in this case, exceeds five (5) years, then the Government’s right to file an action has prescribed. (People of the Philippines vs. Ulysses Palconet Consebido CTA Crim. Cases Nos. O-699 and O-701, May 7, 2019)

The filing of the taxpayer’s administrative claim for refund with the CIR after the COC failed to act on the protests is procedurally appropriate considering that it is within the CIR's power to refund internal revenue taxes.

The taxpayer filed a claim for refund for the excise tax it paid on its importations of Jet A-1 fuel used for its domestic operations. The COC submits, among others, that the case is not within the Court’s jurisdiction and that the taxpayer is guilty of forum shopping when it filed a claim for refund with the BIR after COC’s inaction on its protests.

The CTA En Banc held that the filing of the taxpayer’s administrative claim for refund with the CIR after the COC failed to act on the protests is procedurally appropriate considering that it is within the CIR's power to refund internal revenue taxes. Moreover, the taxpayer is correct in invoking the jurisdiction of the Court in Division since it is vested with authority to review on appeal inaction of the CIR on claims for refund, as provided in the Tax Code, as amended.

Finally, the Court also ruled that the taxpayer is entitled a refund or issuance of a tax credit certificate representing its payment of excise taxes. The law provides the following requisites to be exempt from excise tax on importations of Jet A-1 fuel: (i) the taxpayer paid its corporate income tax and VAT liabilities for the subject period of importation; (ii) the imported Jet A-1 fuel was actually used for its transport operations; and (iii) the imported Jet A-1 fuel was not locally available in reasonable quantity and price at the time of the
importations. The Court held that the taxpayer sufficiently proved that it used the imported Jet A-1 fuel in its transport and non-transport operations with its presentation of ATRIGs, pieces of evidence, and testimonies of witnesses. As to the other requisites, the Court reiterated a prior ruling when it affirmed that ATRIGs and the testimonies of witnesses are sufficient in granting the refund sans specific EVIDENCE on the actual use of imported fuel in the taxpayer’s domestic operations when the matter was not raised as an issue in the pleadings, as in this case when the issue was raised only in the Motion for Reconsideration. (Commissioner of Internal Revenue vs. Philippine Airlines, Inc., CTA EB Case No. 1752 (CTA Case No. 8143) and Commissioner of Customs vs. Philippine Airlines, Inc., CTA EB Case No. 1756 (CTA Case No. 8143), May 10, 2019)

Lack of jurisdiction of the court over an action or the subject matter of an action cannot be cured by the silence, acquiescence, or even by express consent of the parties. If the court has no jurisdiction over the nature of an action, its only jurisdiction is to dismiss the case.

The Department of Energy is being held liable for deficiency taxes on exported crude oil by the BIR. Eventually, the case matter was elevated to the CTA. The Court in its decision resolved whether or not it has jurisdiction to take cognizance of the case.

The CTA held that considering that the subject disputed assessment is between the Department of Energy and the Bureau of Internal Revenue, both government entities, the provisions of PD No. 242 shall apply. Under the said decree, all disputes, claims and controversies solely between or among the departments, bureaus, offices, agencies and instrumentalities of the National Government shall be submitted to and settled by the Solicitor General, the Government Corporate Counsel, or the Secretary of Justice, as the case may be. Thus, the CTA has no jurisdiction over the present case. (Department of Energy vs. Commissioner of Internal Revenue, CTA Case No. 9596, May 16, 2019)

The recourse of a taxpayer who paid input VAT, notwithstanding that it is subject to VAT at zero percent rate, is against the seller who shifted to it the output VAT and not against the government.

The taxpayer is a BOI-registered export entity, located within the customs territory of the Philippines. It filed a claim for refund of excess input VAT which was partially granted by the Court in Division. It elevated the matter to the CTA En Banc.

The CTA held that one of the requirements for the zero-rating of sales by a VAT taxpayer to a BOI registered exporter is that the BOI-registered buyer must furnish each of its suppliers with a copy of its BOI Certification which shall serve as authority for the supplier to avail of the benefits of zero-rating for its sales to said BOI-registered buyers. The taxpayer, being a BOI-registered export entity located within the customs territory, incurred expenses with a VAT component from its suppliers. It failed to claim the benefits accorded to it as
several suppliers were not furnished with the requisite BOI Certification. Consequently, the suppliers shifted the output tax to the taxpayer. Thus, the Court considered it as a waiver of the said benefit but reiterated that the taxpayer may seek reimbursement from the suppliers but not from the government. (Taganito Mining Corporation vs. Commissioner of Internal Revenue, CTA EB Case No. 1711 (CTA Case No. 8680) and Commissioner of Internal Revenue vs. Taganito Mining Corporation, CTA EB Case No. 1719 (CTA Case No. 8680), May 20, 2019)

Good faith and honest belief that one is not subject to tax on the basis of previous interpretation of government agencies tasked to implement the tax laws are sufficient justification to delete the imposition of surcharges and interest.

The taxpayer sought reconsideration of a decision rendered by the CTA En Banc denying its Petition for Review. The taxpayer maintained that it was entitled to rely in good faith on the prevailing judicial interpretation in 2008 which provides that intercompany advances not evidence by loan agreements are not subject to DST.

The CTA En Banc partially granted the taxpayer’s motion for reconsideration and deleted the imposition of surcharge and interests. It ruled that while there was no prevailing judicial interpretation to speak of because only the decisions of the Supreme Court constitute binding precedents, nevertheless, the reliance on the decisions of the Court of Appeals and the CTA may be used as basis of good faith sufficient to negate petitioner’s liability for surcharge and interests. The Court ruled that a mistake upon a doubtful or difficult question of law may properly be the basis of good faith. (E.E. Black Ltd. – Philippine Branch vs. Commissioner of Internal Revenue, CTA EB Case No. 1611 (CTA Case No. 8719), May 20, 2019)

The CTA is not bound by the issues specifically raised by the parties but may also rule upon related issues necessary to achieve an orderly disposition of the case.

The BIR sought reconsideration on the decision of the CTA in Division cancelling and setting aside the final decision of the Commissioner of Internal Revenue affirming the tax assessment notices. The BIR alleged that the court passed upon issues that were not raised by the taxpayer in its original petition but were only raised for the first time in its memorandum.

In brushing aside the contentions of the BIR, the Court held that the issues and arguments raised in the motion for reconsideration had already been sufficiently addressed in the assailed decision. Likewise, the Court held that the legal authority of the revenue officer to conduct a valid tax audit for the issuance of a valid assessment is a related issue for determination in achieving an orderly disposition of the case. (Builders Steel Corporation CTA Case No. 9050, May 27, 2019)

Submission of Confirmation Letter issued by PEZA itself is sufficient to prove the entitlement of taxpayer's clients to VAT zero-rating.

The BIR alleges that the taxpayer failed to provide the Court with the originals or certified true copies of the Philippine Economic Zone Authority (PEZA) and Subic Bay Metropolitan Authority (SBMA) certificate of registration of taxpayer's clients/customers. It further contends that absent this PEZA Certification, the taxpayer should not be allowed zero-rating sales for the said enterprise.

The CTA held that the taxpayer's submission of Confirmation Letter issued by PEZA itself is sufficient to prove the entitlement of taxpayer's clients to VAT zero-rating. It found that the Certification dated February 16, 2016 issued by PEZA, confirming that the latter issued VAT zero-rating certifications to the PEZA-registered enterprises enumerated therein, has sufficiently evidenced the entitlement of petitioner's buyer to tax incentives. (Colt Commercial Inc. v. Commissioner of Internal Revenue, CTA Case No. 9539, May 28, 2019)

Tax assessments, which came about as a result of the examination of the taxpayer’s books of accounts and accounting records by a revenue officer who is not authorized through a Letter of Authority, are void.

The BIR filed a Petition for Review, claiming that taxpayer’s subsequent recourse to elevate its protest/request for reconsideration to the ACIR is not sanctioned the pertinent rules and regulations by the BIR, and that the proper remedy is to elevate its protest to the CIR or appeal to the CTA.

The CTA denied the Petition for Review for lack of merit and found it unnecessary to address the issues raised by the BIR since the records did not show that the revenue officer who made the recommendation for the issuance of a PAN and FAN against the taxpayer was named in the Letters of Authority. The revenue officer’s authority can only be traced from a Memorandum Referral issued by the OIC-Chief for the LT Regular Audit Division I.

The Court ruled that since no Letter of Authority was issued in favor of the revenue officer, he cannot be considered as legally authorized to conduct an examination of the taxpayer’s books of accounts and other accounting records. Correspondingly, the subject tax assessments, which came about as a result of the examination of the taxpayer’s books of accounts and accounting records by a revenue officer who is not authorized through a Letter of Authority, are void. For being void, the same bears no valid fruit. (Commissioner of Internal Revenue v. Capitol Steel Corporation CTA EB Case No. 1796 (CTA Case No. 9240), May 28, 2019)

All disputes, claims and controversies, solely between or among the departments, bureaus, offices, agencies and instrumentalities of the National Government, including government-owned or controlled corporations, such as those arising from the interpretation and application of statutes, shall be administratively settled or adjudicated, by the Secretary of Justice or the Solicitor General, depending on the question involved therein, and whether the latter officer is the principal law officer or general counsel of the government offices involved, as the case may be.

The taxpayer argues that RA No. 10351 (TRAIN Law) did not repeal its exemption from paying "duties and taxes, including excise and VAT, relative to the importation of merchandise for sale" under Section 95 of RA No. 9593. It further argues that Section 7 of RA No. 10351 did not authorize the BIR to impose VAT on alcohol and tobacco products.

The BIR counter-argues that the exemption of petitioner under R.A. 9593 has already been repealed by the enactment of Republic Act No. 10351 or An Act Restructuring The Excise Tax On Alcohol and Tobacco Products By Amending Sections 141, 142, 143, 144, 145, 8, 131 And 288 Of Republic Act No. 8424.

The Court did not rule on the merits of the case because it lacks jurisdiction to entertain the same. It explained that all disputes, claims and controversies, solely between or among the departments, bureaus, offices, agencies and instrumentalities of the National Government, including government-owned or controlled corporations, such as those arising from the interpretation and application of statutes, shall be administratively settled or adjudicated, by the Secretary of Justice or the Solicitor General, depending on the question involved therein, and whether the latter officer is the principal law officer or general counsel of the government offices involved, as the case may be. An agency refers to any of the various units of the Government. Relative thereto, the taxpayer is attached to the Department of Tourism. Correspondingly, the taxpayer is considered as a unit of the Government, and thus, an agency thereof. On the other hand, BIR is a bureau, which is defined as "any principal subdivision or unit of any department. "

Thus, the parties herein are both public entities under the Executive Branch of the Republic of the Philippines, albeit there is no showing that their principal law officer or general counsel is the Solicitor General. Correspondingly, the subject dispute or claim is one falling under jurisdiction of the Secretary of Justice. (Duty Free Philippines Corp. v. BIR, CTA Case No. 9548, May 30, 2019)

A certificate of compliance is not a mere procedural requirement under Epira Law. It is determinative whether the taxpayer is entitled to its claim for tax refund.

The taxpayer argues that the Certificate of Compliance (COC) is a mere procedural requirement under RA 9136 or the "Epira Law" and that it is not a factor in determining whether it is entitled to its claim for refund based on Section 108 (B) (7) of the 1997 NIRC.

On the other hand, the BIR reiterates that the taxpayer failed to prove, by sufficient evidence, that it is engaged in the sale of power or fuel generated through renewable sources of energy. It further explains that to be considered a generation company, it should be authorized by the Energy Regulatory Commission (ERC) to operate the generation facility and this requires a COC issued by the latter agency.

The Court ruled that the date of issuance of the required COC in favor of taxpayer, is crucial in determining whether it had zero-rated sales for the taxable year being raised. Records show that the taxpayer was able to secure a COC from the ERC only on a latter date, hence during the second quarter of taxable year in question, the taxpayer was not yet authorized by the ERC to operate its generation facility, hence petitioner is not entitled to VAT zero-rating on its sales for the aforesaid period. (Hector Sabangan Inc. v. Commissioner of Internal Revenue, CTA Case No. 9276, May 30, 2019)

Income from PAGCOR’s related services, which include junket operations, is not subject to the provisions of Section 13(2)(b) of PD 1869 but Section 14(5) of the same law, hence subject to corporate income tax.

The taxpayer, a junket operator, filed a claim for refund of income taxes, alleging that by virtue of the Section 13(2)(b) of PD 1869, it is liable only to the payment of 5% franchise tax, rather than the regular income tax.

The CTA rejected the claim for refund and ruled that income from operation of other related services, including income from junket operations, is subject to corporate income tax not only pursuant to PD No. 1869, as amended, as well as RA No. 9337.

The CTA held that under the express provisions of Section 14(5) of PD 1869, any income that may be realized from related services shall not be included as part of the income of the PAGCOR for the purpose of applying the franchise tax but shall be considered as a separate income subject to income tax. The enactment of RA No. 9337, which withdrew the income tax exemption of PAGCOR under RA No. 8424, reinforced PAGCOR's tax liability on income from other related services. (Prime Investments Korea, Inc. v. Commissioner of Internal Revenue, CTA Case No. 9573, May 31, 2019) 

Revenue Regulation No. 6-2019, May 29, 2019 - This revenue regulation laid down the implementing rules and regulations for the provisions of the Estate Tax Amnesty under the Tax Amnesty Act (RA No. 11218).

The Estate Tax Amnesty cover the estate of decedents who died on or before December 31, 2017, with or without assessments duly issued, whose estate taxes remained unpaid or have accrued as of December 31, 2017. This does not extend to the following cases:

1. Delinquent estate tax liabilities that are already final and executory and those covered by Tax Amnesty on delinquencies;
2. Properties involved in cases pending in appropriate courts, namely:
a. Under the jurisdiction of the PCGG;
b. Involving unexplained or unlawfully acquired wealth under the Anti-Graft and Corrupt Practices Act or an Act Defining and Penalizing the Crime of Plunder;
c. Involving violations of AMLA;
d. Involving Tax Evasion and other criminal offenses under Chapter II, Title X of the NIRC, as amended; and
e. Involving felonies or frauds, illegal exactions and transactions and malversation of public funds and property under Chapters III and IV of Title VII of the Revised Penal Code.

The estate tax amnesty rate imposable is six percent (6%) to be imposed on each decedent’s total net taxable estate at the time of death without penalties at every stage of transfer of property; Provided that the minimum estate amnesty tax for the transfer of the estate of each decedent shall be Five Thousand Pesos (Php5,000.00). The Estate Tax Amnesty Return or the “ETAR” (BIR Form No. 2118-EA) shall be filed within two (2) years from the effectivity of these Regulations by the executor or administrator, legal heirs, transferees or beneficiaries to the concerned RDO. Failure to submit the documents within the same two (2) year period is tantamount to non-availment of the Estate Tax Amnesty and any payment made shall be applied against the regular estate tax due inclusive of penalties.

In case the estate has properties left undeclared in the filed return, the legal heirs/executors/administrators can file an ETAR or Amended ETAR and pay the estate amnesty tax without penalties based on the Net Undeclared Estate defined in the Regulation. Undeclared properties after the lapse of the said period shall be subject to applicable tax rate prevailing at the time of death of the decedent including interests and penalties.

The RR likewise provides for the Immunities and Privileges of Availing the Tax Amnesty giving the taxpayer immunities from the payment of all estate taxes and any increments and additions arising from the failure to pay any and all estate taxes for taxable year 2017 and prior years and from civil, criminal administrative cases and penalties under the NIRC. Availing of the said tax amnesty does not imply admission of any civil, criminal and administrative liability on the part of the taxpayer.

Revenue Memorandum Circular No. 55-2019, May 21, 2019- This circular clarifies the meaning of “Business Style” being required in the Official Receipts and Invoices

This Memorandum Circular clarifies the meaning of “Business Style” that must be indicated in the OR and Invoices. Business Style refers to the business name registered with the concerned regulatory body used by the taxpayer other than its registered name or company name.

Revenue Memorandum Circular No. 57-2019, May 31, 2019- This circular clarifies certain issues on tax amnesty on delinquencies under RR No. 4-2019 which implemented Title IV of RA No. 11213 or the Tax Amnesty Act

This circular addresses the frequently-asked questions regarding the Tax Amnesty on Delinquencies. Some questions that were addressed are as follows:

1. Q: If the assessment notices pertain to penalties only (i.e. without basic tax assessed), can the taxpayer avail of the tax amnesty?

A: Yes. The taxpayer shall follow the prescribed manner of availment under Section 5 of RR No. 4-2019. However, since the required tax amnesty amount is based on the basic tax assessed, there shall be no amount due for payment.

2. Q: Can tax amnesty on delinquencies be availed of even if there is no Final Assessment Notice/Formal Letter of Demand/Final Decision on Disputed Assessment that has become final and executory on or before April 24, 2019?

A: Yes but only under the following instances:
i. Tax liabilities that are related to the pending criminal cases with the DOJ/Prosecutor’s Office or the courts for tax evasion and other criminal offenses under Chapter II Title X and Section 275 of the Tax Code, as amended; and
ii. Tax liabilities pertaining to unremitted tax withheld by withholding agents.

3. Q: What would be the basis of the tax amnesty payment if the pending criminal charges of the taxpayer as of April 24, 2019 pertain to “failure to obey summon” but the legal complaint does not have assessment of unpaid basic tax?

A: If an assessment has already been issued as of April 24, 2019, whether final or not, the basis of the tax assessment would be the basic tax per such document. Otherwise, the taxpayer could not avail of the tax amnesty on delinquency.

4. Q: What are the implications of the Tax Amnesty to the current audit being conducted pursuant to a LOA? Will it be suspended?

A: The current audit will proceed and will not be suspended.

5. Q: Are open stop-filer cases included in the amnesty?

A: No. These are not covered under RR No. 4-2019

6. Q: Should tax amnesty for different taxable years be availed at once or can it be availed per taxable year or per tax type?

A: It is advisable for one (1) Tax Amnesty Return to be filed for all tax types and taxable years covered. However, depending on the taxpayer’s financial capacity and priorities, the taxpayer may choose to settle the tax liabilities on a per tax type and per taxable year within the one (1) year availment period.

7. Can the tax amnesty amount be paid on installment basis?

A: No. One-time payment of the tax amnesty indicated in the Tax Amnesty Return and Acceptance Payment Form must be made.

8. Q: Will the tax liabilities covered by a FAN which was timely protested yet withdrawn on or before April 24, 2019 be considered delinquent account qualified for tax amnesty?

A: The taxpayer shall be qualified to avail of the tax amnesty on delinquencies. If the protest was withdrawn on or before Aril 24, 2019, the tax liabilities shall be considered delinquent from the lapse of the period to protest, as if there is no protest filed.

9. Q: Can a taxpayer be considered to have fully complied with the requirements of RR No. 4-2019 if the tax amnesty amount was paid on the last day of the one-year availment period but failed to file the TAR on the same date?

A: No. Section 5(C) of RR No. 4-2019 provides that availment of tax amnesty on delinquencies shall be considered fully complied with upon the completion of the enumerated steps which includes the filing/submission of the Tax Amnesty Return with complete documentary requirements to the concerned office within the one-year availment period.

Revenue Memorandum Order No. 23-2019, May 8, 2019- This Memorandum Order provides for the policies, guidelines and procedures in the processing of applications for Tax Amnesty on Delinquencies Pursuant to Republic Act (RA) No. 11213 Otherwise Known as the “Tax Amnesty Act”

This Memorandum Order laid down the policies and guidelines in processing the applications for tax amnesty on delinquencies, the authorized banks that tax amnesty payments may be made, the Tax Amnesty Return that must be filed and its accompanying documents, the procedures that each appropriate BIR Division and Revenue District Office must undertake, and the administrative sanctions imposable upon the concerned personnel who are found remiss of their responsibility.

SEC Memorandum Circular No. 7 series of 2019, April 25, 2019 - This memorandum circular provides the guidelines on the establishment of the One Person Corporation (OPC).

This memorandum circular is the implementing rules and regulations of Republic Act 11232 or the Revised Corporation Code of the Philippines for the establishment of OPC. The process and requirements for the Application for Registration of OPC, are as follows:

A. Requirements for Registration:
1. Cover Sheet;
2. Articles of Incorporation for One Person Corporation (Natural Person, Trust or Estate);
3. Written Consent from the Nominee and Alternate Nominee;
4. Other Requirements, if applicable:
i. Proof of Authority to Act on Behalf of the Trust or Estate (for trusts and estates incorporating as OPC);
ii. Foreign Investments Act (FIA) Application Form (for foreign natural person) ;
iii. Affidavit of Undertaking to Change Company Name, in case not incorporated in the Articles of Incorporation;
iv. Tax Identification Number (TIN) for Filipino single stockholder;
v. Tax Identification Number (TIN) or Passport Number for Foreign single stockholder
5. Filing Fees

B. Application for Registration
1. Initially, all name reservation requests shall be submitted manually at the SEC Head Office. CRMD personnel verifies the proposed company name; trade/business names by the applicant. If denied, the applicant needs to submit letter of appeal for rejected names subject to the approval of the CRMD appeal officer.
2. Submit Articles of Incorporation with attached written consent of the nominee and alternate nominee and other requirements required for registration, for preprocessing.
3. Pay the Filing Fees (Registration Fee, LRF and Name Reservation Fee)
4. Submit hard copies of signed and notarized documents together with the proof of payment of filing fees at CRMD Receiving Unit
5. Receive the Approved Certification of Registration as One Person Corporation

This memorandum circular also provided for the templates/sample forms of the following documents:
a. Articles of Incorporation of OPC with a single stockholder who is a natural person;
b. Articles of Incorporation of OPC under the name of an estate or trustee;
c. Acceptance letter of the Nominee and Alternative Nominee of the OPC; and
d. Notice to Change Nominee/Alternate Nominee of the OPC;

Insurance Commission (IC) Circular Letter (CL) No. 2019-19, May 7, 2019 – This letter amends the guidelines of investments in infrastructure projects under the Philippine Development Plan (PDP).

This circular amends CL No. 2018-74, dated December 28, 2018. More particularly,
“SECTION 6. PRE.APPROVAL REQUIREMENTS
6.1. No investment in infrastructure projects under the PDP shall be allowed and/or admitted as an asset of the insurance or professional reinsurance company unless approved by this Commission.”

“SECTION 7. NET WORTH AND RISK-BASED CAPITAL CONSIDERATIONS
7.2. ln calculating the capital charge relating to investments in infrastructure projects under the PDP, risk factors shall be taken into account and the corresponding risk charges shall be applied, to wit:
7.2.1. Debt lnstruments - The risk charge on a debt instrument relating to the investment in an infrastructure project under the PDP shall be six percent (6%) 1. However, the Commission may, at its discretion, impose a lower risk charge considering a high credit rating on the instrument given by an external credit rating agency.
7.2.2. Equity lnstrument - The risk charge on an equity instrument relating to the investment in an infrastructure project under the PDP shall be nine percent (9%).”

The amended term of office cannot be applied to the incumbent members of the Board who are elected under the old By-Law provision.

This Opinion is issued pursuant to a request to determine whether or not the eleven (11) members, now acting as members of the Board of Trustees (BOT) of a non-stock, non-profit association, are considered as the duly constituted officers of the corporation.

The non-stock, non-profit association is registered with the SEC. The By-Laws of the association was amended to change the term of office of the members of the BOT from one (1) year to two (2) years. However, no election of officers was held under the new by-laws or the amended one.

The SEC ruled that the Articles of Incorporation of every corporation is required to state the names and nationalities of the persons who shall act as directors or trustees upon incorporation until the first regular directors and trustees are duly elected. The trustees indicated in the Articles of Incorporation of the association are the five (5) trustees elected under the old by-laws and their 6 appointees. These 11 persons are to act as trustees of the association until the election of the first regular trustees on the Election Day stated in its by-laws.

Section 48 of the Corporation Code provides that the amended term of office cannot be applied to the incumbent members of the Board who are elected under the old By-Law provision. (SEC-OGC Opinion No. 19-17, May 7, 2019, RE: Board of Trustees)

For “short-swing transactions,” it is not required that there be “insider trading” as contemplated by the Securities Regulation Code. It is sufficient that there be a purchase and sale, or sale and purchase, of an equity security within a period of less than six months.

This Opinion is issued pursuant to a requesting on the interpretation and application of Section 23.2 of the Securities Regulation Code (SRC).

A director, by himself or through a company or companies beneficially owned by him, buys and sells shares of stock of the issuer during a six-month period. The director earned profits from the purchase and sale transactions. It appears that the director committed a short-swing transaction in violation of Section 23.2 of the SRC.

The SEC held that “short-swing profit” rule which provides that any profit made by a director, an officer, or a 10% beneficial owner of a reporting company, in the purchase and sale, or sale and purchase, of an equity security of such company, within any period of less than six months, belongs to such company, as the issuer.

The issue actually presented is whether it is necessary to prove that the director took advantage of or used material non-public information in buying and selling the shares during the six-month period before the director can be held liable under Section 23.2 of the SRC. It is not required that there be “insider trading” as contemplated by SRC Section 27. It is sufficient that there be a purchase and sale, or sale and purchase, of an equity security within a period of less than six months. It is immaterial that there be an intention to hold the security purchased for more than six months, or not to repurchase the security sold for a period exceeding six months. (SEC-OGC Opinion No. 19-19, May 23, 2019, RE: Section 23.2 of the Securities and Regulation Code)

IC Legal Opinion (LO) No. 2019-03, March 14, 2019 – This opinion deals with clarifications on certain issues regarding the Compulsory OFW Insurance

The insurer is seeking the IC’s interpretation and opinion on the following items:
1. Period of effectivity of the Compulsory OFW lnsurance relative to Accidental Death/Natural Death Claims;
2. Filing of a claim for Permanent Total Disablement;
3. Circumstances when Repatriation Claims may be granted; and
4. Filing and Coverage of Money Claims.

For the first item, the Commissioner opined that an insurance policy remains valid only for the duration of the employment contract of an OFW as long as this stipulation is clearly stated in the insurance policy. Notably, if there are controversies on the terms and conditions of a policy issued in favor of an OFW, the same should be resolved in favor of the OFW and all ambiguities in an insurance contract are construed against the insurer and are resolved in favor of coverage.

For the second item, based on Section 1, Guideline VII on Minimum Benefits, the Commissioner opined that the OFW may validly claim for personal total disablement if such disability is due to any accident, sickness or ailment suffered during the duration of his/her employment, irrespective of whether the same is work-related and irrespective whether such condition appeared only when such OFW is already in the Philippines.

For the third item, the insurer inquired on what is included in the term “just cause” for the purpose of determining payment of repatriation cost. Based on Section 23 of RA 10022 and Section 1 of Guidelines VII of the Insurance Guidelines, the Commissioner is of the opinion that, in order to determine whether or not the termination of employment is for "just cause" for purposes of determining payment of repatriation cost, reference should be made to the employment contract between the OFW and his/her employer. However, if an employment contract fails to define the just cause for the termination of the same, the term "just cause" as defined under Article 282 of the Labor Code of Philippines should be used.

Finally, the insurer is of the position that the payment of money claims shall be limited only to those awarded and/or settled before the NLRC, to the exclusion of POEA, OWWA and DOLE. Based on Section 7 and 23 of RA 10022, the Commissioner opined that NLRC has the exclusive and original jurisdiction to hear and decide money claims, whether by judgment award or settlement. Thus, only the amount awarded by NLRC upon judgment and the amount of settlement based on employer’s liability properly detailed in the same are subject of insurance coverage.

IC LO No. 2019-05, March 25, 2019 – This is an opinion in relation to the application/enrollment form of microinsurance.

The insurer raised the following inquiries:
1. Whether or not it is allowable for an applicant, instead of signing the approved application form by this Commission, to simply attach or bundle a photocopy of his/her valid proof of identification/lD to the Microinsurance form as sign of proof of insurability; and
2. Whether or not the Microinsurance purchasers can be considered as an "open" group, particularly, if there is no employer-employee relationship between the purchasers.
For the first query, the Commissioner is of the opinion that the signature of the applicant to the form is an indispensable requirement that cannot be disregarded nor substituted by submitting a photocopy of a valid identification/ID. This is because the application form itself indicates that it is a document which requires that an applicant sign to affirm and give his/her consent.

Finally, the Commissioner is of the opinion that microinsurance purchasers may be considered as an “open” group outside of the employee group and can be insured under a group policy, provided that the following matters are complied with:
1. Such group, other than the employee group, has a commonality of purpose, interest or circumstances or engaging in a common economic and/or social activity;
2. The insured members are not its employees;
3. Such group was formed not for the main purpose of availing insurance; and
4. Such group policy should not be issued to an insurance agent or broker as a policyholder, except if the covered members are its employees.

Bangko Sentral ng Pilipinas (BSP) Circular No. 1039, May 3, 2019 – This circular amends the manual of regulations for non-bank financial institutions.

The Monetary Board approved the amendments to the N and P Regulations of the Manual of Regulations for Non-Bank Financial Institutions, particularly on the requirements for registration of Pawnshops and Money Service Businesses.

It should be noted that under “Subsection 4103P.2 (2016 - 4101P.5) Mandatory training requirement.” the proprietors, partners, directors, president or officer of equivalent rank and function, and over-all head of the pawnshop operation and the head of the compliance unit shall attend, before the start of operations, a seminar on AML/combating the financing of terrorism (CFT) laws, rules and regulations, conducted by the Bangko Sentral, AMLC, or any reputable training provider.

BSP Circular No. 1040, May 20, 2019 – This circular provides for the reduction in the reserve requirements for banks and non-bank financial institutions with quasi-banking functions.

The Monetary Board approved the reduction in the reserve requirement ratios of selected reservable liabilities of banks and non-bank financial institutions with quasi-banking functions (NBQBS). The rates of required reserves against deposit and deposit substitute liabilities in local currency of banks effective reserve week May 31, 2019 is herein provided.