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 © 2021 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.

Banks are the parties liable for the payment of DST under RR No. 9-2000. It has no legal personality to file a claim for refund for DST erroneously paid by the other party to the transaction.

Pursuant to RR No. 9-2000, the banking institution is the proper payor of the DST as regards to transactions entered into, such as loan agreements. In instances when DST was erroneously filed by the other party, the bank has no legal standing to claim for the refund on behalf of the other party, since it is not the real party in interest. (Bank of the Philippine Islands v. Commissioner of Internal Revenue, CTA EB No. 2126 dated December 2, 2020)

The due process requirement in the issuance of tax assessments is that the concerned taxpayer must be informed, in writing, of the law and of the facts on which the assessment is made.

In this case, the BIR merely reiterated the same findings as stated in the PAN, without giving any reason for rejecting the refutations and explanations made by the taxpayer in its reply to PAN. To stress, without addressing the said refutations and explanations, the BIR did not give the particular facts upon which the FLD/Assessment Notices are based. Consequently, the taxpayer was left unaware on how the BIR appreciated the explanations or defenses that were raised against the PAN.

A significant part of the due process requirement in the issuance of tax assessments is that the concerned taxpayer must be informed, in writing, of the law and of the facts on which the assessment is made. Such requirement must be embodied in the FLD/FAN. Specifically, the BIR must give the particular facts upon which his or her conclusion are based, and those facts must appear in the record. As a corollary, the concerned taxpayer must not be left unaware on how the BIR or his duly authorized representatives appreciated the explanations or defenses raised in connection with the assessment. (Chun Lang Chan v. Commissioner of Internal Revenue, CTA Case No. 9758 dated December 3, 2020)

The CTA possesses power to rule over petition for certiorari under Rule 65 of the Rules of Court.

This case involves real property tax assessment on EDSA MRT III real properties imposed by the Mandaluyong City Government.

In 2007, an RTC Order was received by the Republic, denying its application for issuance of a write of preliminary injunction. However, instead of filing a petition for certiorari with the CTA, the Republic filed the petition with the Court of Appeals. It was only on November 28, 2016 that the Republic filed the original petition for certiorari with the CTA.

The CTA ruled that the pronouncement in Grecia case is clear. The CTA has the power to rule over petition for certiorari under Rule 65. The Court allowed the petition despite being filed out of time since the lack of a clear pronouncement as to the jurisdiction of the CTA over petitions for certiorari under Rule 65 of the Rules of Court during the filing of the CA Petition is a peculiar legal and equitable circumstance warranting the relaxation of the 60-day reglementary period to file a petition for certiorari. To deny the Republic of petition for certiorari will cause grave injustice to them and, likewise, runs counter to the principles of substantial justice and equity. (Mandaluyong City Government v. Republic of the Philippines (Department of Transportation) and Metro Rail Transit Corporation, CTA EB no. 2078, December 04, 2020)

The CTA possesses certiorari jurisdiction under Rule 65 of the Rules of Court over interlocutory orders issued by the RTC over which it has appellate review. (Rappler Holdings Corporation v. Hon. Ana Teresa T. Cornejo-Tomascruz, CTA Case No. 10323 dated December 4, 2020; Commissioner of Internal Revenue v. the Court of Tax Appeals-Special Third Division and Kilusang Magkaibigan Multi-Purpose Cooperative, CTA EB no. 2060 dated December 7, 2020)

Forfeiture of imported goods shall only be done if it is proved that the misdeclaration in the shipment’s quantity was caused by the importer himself.

The requisites for the forfeiture of imported goods are: (1) the wrongful making by the owner, importer, exporter or consignee of any declaration or affidavit, or the wrongful making or delivery by the same person of any invoice, letter or paper – all touching on the importation or exportation of merchandise; and (2) that such declaration, affidavit, invoice, letter or paper is false.

In this case, the BOC did not allege that the importer caused the execution of the supposedly spurious document [invoice] but only the existence of irregularity. This alone justifies the setting aside of the BOC’s order of forfeiture. Moreover, the allegation of BOC failed to disclose that the importer willfully sought to defraud the government in declaring the FOB value. Equally, the BOC agents have also not supported their claim for higher valuation. However, despite the unfounded valuation, the importer was able to pay the custom duties corresponding thereto leaving no reason for BOC to deny the release of the importer’s shipment. (Garchitorena v. Hon. Isidro S. Lapeña, in his capacity as Commissioner of Customs, CTA Case No. 9972 dated December 9, 2020)

The sale of goods or properties between PEZA-registered entities are VAT-exempt.

RMC No. 74-99 provides that the sale of goods by a PEZA registered entity to another PEZA entity (or Intra Ecozone Sales of Goods), is exempt from VAT. There is no distinction made as to whether or not the goods are to be used for a PEZA-registered activity. Hence, a determination thereon becomes immaterial as the exemption is not dependent thereon. (Wells Fargo Enterprise Global Services, LLC-Philippines v. Commissioner of Internal Revenue, CTA EB No. 2087 dated December 14, 2020)

RR No. 31-2020, December 18, 2020.

This amends the criteria and amount of threshold set in RR No. 7-2019 in determining who the top withholding agents are.

The amount of claimed itemized expenses is no longer a criteria in RR No. 31-2020.

RR No. 33-2020, December 21, 2020

This extends the period of availment of Voluntary Assessment and Payment Program (VAPP) until June 30, 2021.

This further adds that those taxpayers who avail of the VAPP on withholding tuxes shall be allowed to claim deduction on the corresponding income payment pursuant to RR No. 6-2018.

The revenue regulation also further provided that no denial of application or invalidation of a previously issued Certificate of Availment shall be valid unless the taxpayer is formally notified by the Division Chief (LT Office) or the Revenue District Office where the taxpayer is registered, stating the factual reasons therefor. The taxpayer can appeal the said denial or invalidation to the Assistant Commissioner-Large Taxpayer Service (ACIT-LTS) or Regional Director (RD) within thirty (30) days from receipt of such notice.

RMC No. 130-2020, December 10, 2020

The following are the polices and guidelines on the conduct of online meetings/conferences with taxpayer/s and/or taxpayer/s' representatives on official matters with the BIR:

1. The conduct of all online meetings/conferences with taxpayer/s and/or taxpayer/s, representatives shall be hosted by the BIR.

2. In sending invitation, revenue officials and employees shall only use the prescribed BIR email address (This email address is being protected from spambots. You need JavaScript enabled to view it.). Personal email shall not be used for this purpose.

3. All meetings/conferences must be pre-approved in writing by the concerned Division Chief for National Office/Regional Director for Regional Offices/Revenue District Officer for Revenue District Offices.

4. All revenue officials and employees initiating the conduct of meeting/conference must file a memorandum request stating the following information:

a. Name of taxpayer and/or authorized taxpayer/s' representative;
b. Taxpayer Identification Number;
c. Name of persons who will attend the online meeting/conference, stating therein their official positions;
d. Date and time of the meeting;
e. Agenda; and
f. Details of Assessment: eLOA No., Date, Taxable year covered (if applicable).

5. In order to be allowed to represent the taxpayer/s, all representative/s shall have a duly notarized Special Power of Attorney (SPA) from the taxpayer including those with BIR Certificate of Accreditation pursuant to RR No. 11- 2006, as amended by RR No. 4-2010 and RR No. 14-2010.

6. Meetings/conferences shall only be conducted if taxpayer/s and/or taxpayer/s' representatives have requested the virtual meeting schedule through the BIR eAppointment System and clicked "Agree" to BIR eAPPOINTMENT USER AGREEMENT, or submitted a duly accomplished BIR VIRTUAL MEETING AGREEMENT for those BIR offices with no BIR eAppointment facility.

7. The proceedings shall be strictly confidential. To ensure that no untoward divulgence/disclosure may happen, recording of the meeting/conference in whatever form is strictly prohibited. Any unauthorized recording or disclosure shall be subject to appropriate criminal, civil and administrative liability.

8. In cases of power interruption and/or poor connectivity, the online meeting/conference may be rescheduled on a date and time agreed upon by both parties.

RMC No. 138-2020, December 23, 2020

This clarifies what falls under the definition of fiscal year for purposes of availing of the net operating loss carry-over (NOLCO) incurred for taxable years 2020 and 2021 under Bayanihan to Recover as One Act. Under the Act, NOLCO incurred for such taxable years may be carried over for the next five (5) consecutive taxable years immediately following the year of such loss.

In the RMC, the BIR clarified that a fiscal year will fall on a particular taxable year depending on the number of months it has on the two (2) years involved. Thus, a fiscal year ending on March 31, 2020 will fall on taxable year 2019 since it has nine (9) months in 2019 and only three (3) months in 2020. In the case of fiscal year ending on June 30, 2021, the beginning of which is July l, 2020, it is considered as taxable year 2020 since it has more days in 2020 (184 days) than in 2021(181 days).

Based on the above, the following fiscal year ending on the stated months are counted as:

Those companies with fiscal years ending before July 31, 2020 and fiscal years ending after June 30, 2022 which incurred net operating loss are only allowed to carry over the loss as a deduction from its gross income for the next three (3) consecutive taxable years under Sec. 34 (D)(3) of the Tax Code, as amended. They cannot avail of the extended period to carry over the loss for another two (2) years.

RMO No. 46-2020, December 23, 2020

Non-resident foreign corporations (NRFC) applying for a reduced rate of 15% on dividends under the tax-sparing provision of the Tax Code must be guided by the following:

1. The reduced rate of l5% may be applied to the cash and/or property dividends declared by all corporations.
2. The domestic corporation paying the dividends may remit outright dividends to the NRFC and apply thereon the reduced rate of 15% without securing first a ruling from the BIR. It must determine, however, whether the existing law of the “country of domicile” allows the NRFC a “deemed paid” tax credit in the amount equivalent to the 15% waived by the Philippines or exempts from tax the dividends received.
3. The existence of a foreign law is a question of fact which must be proven before the Philippine courts.
4. Within 90 days from the remittance of dividends or from the determination by the foreign tax authority of the deemed paid tax credit/non-imposition of tax because of the exemption, whichever is later, the NRFC or its authorized representative, shall file with the BIR, through ITAD, a request for confirmation of the applicability of the reduced dividend rate of 15%.
5. Holders of Philippine Depositary Receipts (PDRs) may also be entitled to the reduced rate, provided that (a) the PDR is coupled with a right to purchase the underlying shares; and (b) the said right can be legally exercised.
6. The BIR shall issue a certification duly signed by the Assistant Commissioner for Legal Service in lieu of the usual BIR ruling. In case of denial, a BIR ruling signed by the Commissioner or his authorized representative, which shall contain the factual and legal bases that led to the conclusion, shall be issued. Said denial may result in the imposition of a deficiency assessment for the 15% differential, plus penalties.
7. All unfavorable rulings are appealable to the Department of Finance within 30 days from receipt thereof pursuant to existing rules and regulations.
8. The reduced rate of 15% applies even if a tax treaty exists between the Philippines and the NRFC’s country of residence.

The following documents shall accompany the first application for the reduced dividend rate of l5% in a given taxable year:

A. General Requirements

1. Letter-request which shall provide a background of the transaction, the relief sought and the legal basis;
2. Duly-accomplished BIR Form No.0901-TS;
3. Original apostilled/duly authenticated TRC;
4. Apostilled/duly authenticated copy of the NRFC’s Articles of Incorporation or proof of establishment in its country of residence;
5. Original apostilled/duly authenticated SPA issued by the NRFC to its authorized representative;
6. Certified true copy of the Board of Directors' resolution of the domestic corporation approving the issuance of dividends, which shall include the amount of dividends, and dates of declaration, record and payment, among others;
7. Original sworn statement executed by the corporate secretary of the domestic corporation/custodian banks/depository account holders/broker dealers stating the legal and beneficial owners, if applicable, of all issued and outstanding shares as of record date, their corresponding subscriptions, date/s of acquisition, percentage of ownership and the allocation of dividend;
8. Certified true copy of the General Information Sheet (GIS) of the domestic corporation for the year or period immediately preceding the date of declaration, whichever is more applicable;
9. Certified true copy of Audited Financial Statements of the domestic corporation stamped "received" by the BIR and Securities and Exchange Commission, which was used as basis of such dividend declaration;
10. Proof of remittance of the dividend payments.

B. Special Requirements

i. If the dividend is taxable in the country of domicile

1. Duly authenticated or apostilled copy of the law of the country of domicile allowing a tax credit for taxes actually paid in the Philippines and for taxes deemed paid in the Philippines equivalent to at least 15% of the dividends; and

2. Duly authenticated or apostilled copy of any document issued by, or filed with, the foreign tax authority, showing the amount of deemed paid tax credit actually granted by the foreign tax authority.

ii. If the dividend is exempt from tax in the country of domicile

1. A duly authenticated or apostilled copy of the law of the country of domicile; and

2. A duly authenticated or apostilled copy of any document issued by the foreign tax authority, confirming that the NRFC is exempt from income tax on dividends received from the Philippine corporation.

For subsequent applications during the year involving the same NRFC

1. Letter-request which shall provide a background of the transaction, the relief sought and the legal basis;

2. Duly-accomplished BIR Form No.0901-TS;

3. Original apostilled/duly authenticated SPA issued by the NRFC to its authorized representative, if there is a change in the previous SPA;

4. Certified true copy of the Board of Directors' resolution of the domestic corporation approving the issuance of dividends, which shall include the amount of dividends, and dates of declaration, record and payment, among others;

5. Certification under oath by the corporate secretary of the domestic corporation/custodian banks/depository account holders/broker dealers stating the legal and beneficial owners, if applicable, of all issued and outstanding shares as of record date, their corresponding subscriptions, date/s of acquisition, percentage of ownership and the allocation of dividend;

6. GIS for the year or period immediately preceding the date of declaration, if different from a previously submitted GIS;

7. Original apostilled/authenticated certification issued by the NRFC, or its authorized representative, confirming that there is no substantial change in the domestic law of the country of domicile of the NRFC;

8. Apostilled or duly authenticated copy of any document issued by, or filed with, the foreign tax authority, showing the amount of deemed paid tax credit actually granted by the foreign tax authority; and

9. Proof of remittance of the dividend payments.

iii. For the dividends accruing to PDRs:

1. Duly authenticated and executed PDR Agreement; and

2. Proof of remittance of dividend payments to the PDR holder.

Any violation of this RMO shall be subject to penalties provided in Section 250 (for failure to file certain information returns) and other pertinent provisions of the Tax Code.

Note: Does failure to comply with the 90-day period to apply for request for confirmation of the reduced 15% dividend rate result to imposition of the deficiency balance rate of 15% or to imposition only of administrative penalty under Section 250 of the Tax Code? In case of tax audit, what if a tax treaty also applies, can the taxpayer still invoke the rate under the tax treaty, even if the taxpayer previously availed of the tax-sparing provision but failed to comply with the 90-day period or even if the taxpayer complied with the 90-day period, the request for confirmation was denied?

SEC Memorandum Circular No. 34, Series of 2020, December 15, 2020

The SEC, in providing relief to the real estate industry, defers the application of (s) PIC Q&A No. 2018-12, with respect to the accounting for significant financing component and the exclusion of land in the calculation of percentage of completion and (b) IFRIC Agenda Decision on Over Time Transfers of Constructed Goods under PAS 23 Borrowing Cost, for another period of three (3) years or until 2023.

A real estate company may opt not to avail of any of the relief provided above and therefore will comply in full with the requirements in respect of the relief not availed of.

BSP Circular No. 1105, December 2, 2020

A digital bank offers financial products and services that are processed end-to-end through a digital platform and/or electronic channels with no physical branch/sub-branch or branch-lite unit offering financial products and services. The minimum capitalization of digital banks shall be Php 1.0 billion.

A digital bank may perform any or all of the following services:

a. grant loans, whether secured or unsecured;
b. accept savings and time deposits, including basic deposit accounts;
c. accept foreign currency deposits, as defined under R.A. No. 6426, as amended;
d. invest in readily marketable bonds and other debt securities, commercial papers and accounts receivable, drafts, bills of exchange, acceptances or notes arising out of commercial transactions;
e. act as correspondent for other financial institutions;
f. act as collection agent for non-government entities;
g. issue electronic money products;
h. issue credit cards;
i. buy and sell foreign exchange; and
j. present, market, sell and service microinsurance products.

With prior BSP approval and subject to such guidelines as may be established by it, digital banks may perform other activities not covered by the foregoing enumeration.

The application and documentary requirements for the establishment of digital banks are further provided under Appendix 33 of the Circular.

BSP M-2020-089, December 11, 2020

The following guidelines are being issued to facilitate the processing of reports pursuant to Section 101 of the Manual of Regulations on Foreign Exchange Transactions and to minimize the need to submit in hardcopy during this time of ongoing Covid-19 pandemic:

1. Covered banks shall electronically submit to the Department of Supervisory Analytics beginning cut-off December 15, 2020 (due for submission on December 18, 2020), the Portable Document Format (PDF) of the following Annexes in one PDF file and the corresponding Excel File using the template which can be downloaded from http://www.bsp.gov.ph/ses/reporting_templates:

a. Details of Accounts Excluded in the Computation of Net Open Foreign Exchange Position (Annex O);
b. Consolidated Foreign Exchange Position Report (CFXPR) (Annex Q);
c. Summary of Delta-Weighted Positions of Foreign Currency Options per Currency (Annex R);
d. Foreign Currency Options Purchased/Sold Outstanding (Annex R.1);
e. Summary of Notional Amounts of Foreign Currency Options per Currency (Annex S); and
f. Foreign Currency Options Purchased Outstanding (Annex S.1).

2. The PDF of the Annexes O and Q, which should be duly signed by the authorized official of the bank, and together with the other PDF of the other annexes and their corresponding Excel file, shall be electronically transmitted within three (3) banking days from reference date, to the prescribed e-mail address, This email address is being protected from spambots. You need JavaScript enabled to view it., using the required format for the subject provided in the memorandum.

IC CL-2020-112, December 9, 2020

This covers all pre-need companies currently or prospectively under liquidation.

The company or liquidator or both jointly may apply for final formal closure if the following conditions are met:

1. Directive for liquidation has become final;
2. Funds for distribution have been separately earmarked exclusively for the planholders;
3. Distribution should have already been completed except that there are a number of checks still remaining unclaimed or distribution has been ongoing for at least five (5) years solely because of the remaining unclaimed, unreleased, suspended, or abandoned benefits, or at least 50% of the distribution checks have already been claimed/released;
4. Contingent fund has been earmarked for contingent liabilities or suspended benefits, if any;
5. Distribution plan for unclaimed, unreleased, or suspended benefits, if any, or abandoned benefits or net abandoned benefits if any and, if the circumstances in case of redistribution of abandoned benefits are present, has been submitted and approved; and
6. The appropriate mode for final business closure or dissolution has been determined and approved.

The following are the allowed modes of final formal closure:

1. If the remaining corporate assets are not sufficient to satisfy the company's corporate liabilities and the company has no intention to continue its corporate life – Liquidation proceedings under Section 52 (a) and (b) of the Pre-Need Code and the provisions of the Financial Rehabilitation and lnsolvency Act (FRIA) of 2010.

2. If the remaining corporate assets are sufficient to satisfy the company's corporate liabilities or if there are no remaining corporate liabilities and the company has no intention to continue its corporate life:

a. Shortening of corporation term; and
b. Dissolution proceedings under the Revised Corporation Code.

3. lf the remaining corporate assets are sufficient to satisfy the company's corporate liabilities or if there are no remaining corporate liabilities and the company has an intention to continue its corporate life under a different purpose and name - Amendment of corporate primary purpose and name under the Revised Corporation Code.

Under this mode, the company shall formally cease to operate as a pre-need company but shall continue its corporate life operating a business other than pre-need or insurance-related endeavors.

4. Other special modes approved by the Commission taking into consideration the special circumstances of the company.

Liquidation proceedings shall be declared officially closed after completing the following steps:

1. Filing of a Sworn Application specifying the presence of the conditions under Section 3 hereof.
2. Evaluation of the Application and supporting documents.
3. Issuance of Formal Statement of Completion of Liquidation Proceedings.

The Formal Statement of Completion of Liquidation Proceedings shall be published in a newspaper of general circulation once a week for two consecutive weeks together with an announcement of the continuation of distribution if applicable.

The Circular also provides for procedures for declaration of abandonment of benefits:

1. Determination by the liquidator of the amount and schedule of abandoned assets.
2. Sending of letter notices to the last known address of each planholder.
3. Publication of Notice to the Public to finally claim the benefit check within 90 days.
4. Payment of the benefit liquidation value to those who came forward.
5. Publication of Formal declaration of presumed error or presumed waiver of right and the list of abandoned benefits.
6. Re-computation of liquidation value.
7. Redistribution of additional liquidation value as a result of publication of formal declaration of the list of abandoned benefits.

Application for Declaration of Abandonment of Benefits may be filed before or after the formal closure is approved. However, submission of Distribution plan for unclaimed, unreleased, suspended, or abandoned benefits is an indispensable requirement for the application for formal closure.

Abandoned benefits shall be redistributed as follows:

1. If the liquidation value as computed is less than the maturity value for matured plans or the contract price for fully paid but not yet matured plans or the amount paid for plans not yet fully paid the abandoned benefits shall be applied to fill the difference fully or proportionately, as the case may be.
2. The excess or net abandoned benefits, if any, shall be held in trust by the Insurance Commission and shall be disposed of in accordance with law or regulation.

In the event the distribution has not yet been completed at the time of formal closure, the Insurance Commission shall continue the distribution.