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 © 2023 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 CTA has jurisdiction to decide not only cases on disputed assessments and refunds of internal revenue taxes, but also "other matters" arising under the NIRC.

The CIR filed a Petition for Review on Certiorari under Rule 45 to assail the Decision of the Court of Tax Appeals (CTA). In the Petition, the Commissioner of Internal Revenue (CIR) maintains that the Final Decision on Disputed Assessment (FDDA) should be the adverse decision appealable to the CTA and not the Warrant of Distraint and/or Levy (WDL). The taxpayer counters that the WDL is the adverse decision appealable to the CTA and not the FDDA. The taxpayer further contends that there was no valid authority granted the one of the officers who conducted the audit, not being named in the LOA.

The Supreme Court found the Petition without merit. At the outset, the Court ruled that questions of fact are proscribed in Rule 45 petitions. The Rules of Court require that only questions of law should be raised in petitions filed under Rule 45 since factual questions are not the proper subject of an appeal by certiorari.

As to the merits of the case, the Supreme Court tilted the scales in favor of the taxpayer. The Court ruled that contrary to the CIR's argument, Section 7(a)(l) of Republic Act No. (RA) 1125, as amended by RA 9282, which confers upon the CTA the jurisdiction to decide not only cases on disputed assessments and refunds of internal revenue taxes but also "other matters" arising under the NIRC. (Commissioner of Internal Revenue vs. Manila Medical Services, Inc., G.R. No. 255473, February 13, 2023)

In the absence of a law expressly and unambiguously imposing excise tax on alkylate, the appropriate rule to be applied is the strict interpretation in the imposition of taxes such that the statute must be construed most strongly against the government and in favor of the taxpayer.

The taxpayer assailed the Decision of the CTA denying its request for refund of excise taxes it had paid in connection with its importation of alkylate.

On July 18, 2012, the Bureau of Customs (BOC) issued CMC No. 164-2012 implementing the Letter from the BIR stating that alkylate is subject to excise tax under Section 148 (e) of the Tax Code. The taxpayer then filed two administrative claims for refund of excise tax claiming that the foregoing excise taxes were erroneously and illegally imposed and collected by the Bureau of Internal Revenue (BIR).

The CIR assailed that while alkylate is not directly produced through distillation but by alkylation, its raw materials, light olefins and isobutane, are nonetheless products of distillation.

The Supreme Court found merit in the petition. It bears to point out that the taxpayer does not seek to be exempt from excise taxes on its alkylate importations. Instead, it anchors its claim for tax refund on the absence of a law that imposes excise tax on alkylate. Here, Petitioner’s claim for tax refund is not founded on any tax exemption law but on the government’s erroneous assessment and collection of excise taxes on its alkylate importations, without clear legal basis therefor. Thus, in the absence of a law expressly and unambiguously imposing excise tax on alkylate, the appropriate rule to be applied is the strict interpretation in the imposition of taxes such that the statute must be construed most strongly against the government and in favor of the taxpayer. Verily, since alkylate is not categorically covered by Sec. 148 (e) of the Tax Code, the doubt should be resolved in Petitioner’s favor. (Petron Corporation v. Commissioner of Internal Revenue, G.R. No. 255961, March 20, 2023)

The resulting DST assessment under an LOA covering all income tax except DST is null and void.

Under LOA No. 00033788, the Revenue Officers (ROs) are only authorized to audit and examine the taxpayer for the purpose of determining any deficiency tax liability except Documentary Stamp Tax (DST) for the period from 1 January 2008 to 31 December 2008. Clearly, the ROs are authorized to determine any deficiency tax except DST. However, their examination delved into an inquiry of the taxpayer’s possible DST liability which was clearly not covered by LOA No. 00033788. Accordingly, the resulting DST assessment is null and void. (Sun Life Grepa Financial, Inc. v. Commissioner of Internal Revenue, C.T.A. Case No. 10080, May 9, 2023)

The absolute tax exemption of an educational institution is available only to non-stock, non-profit educational institutions although it may be extended to proprietary educational institutions subject to further limitations and provisions of law.

The exemption from taxation of the real properties of any educational institution which are actually, directly, and exclusively used for the said purpose is absolute.

However, the absolute tax exemption of an educational institution is available only to non-stock, non-profit educational institutions although it may be extended to proprietary educational institutions subject to further limitations and provisions of law.

Thus, the taxpayer must first prove that it is a non-stock, non-profit educational institution. However, in the Assailed Decision, it is an undisputed fact that the taxpayer is a stock and for-profit educational institution. Consequently, it is not entitled to the exemption provided by law. (Malayan Education System, Inc. v. City of Manila, C.T.A. AC No. 260 (Civil Case No. CV-14-131442), May 10, 2023)

Administrative due process also requires judicious consideration of the matters raised therein, independent evaluation of the case, and due notification to parties of the reasons for judgment.

On October 19, 2009, the BIR issued PAN finding the taxpayer liable for deficiency income tax, value-added tax, and expanded withholding tax. Consequently, the taxpayer filed a position letter for the cancellation and withdrawal of the assessments after it received the PAN. On November 18, 2010, the CIR issued FAN/FLD. The CIR, in the FAN/FLD, no longer discussed or resolved the arguments and issues raised in the taxpayer’s Position Letter nor provided reasons for denying the same.

Verily, the FAN/FLD were issued in violation of the taxpayer’s right to due process. It is clear from the pronouncements in Ang Tibay and Avon that the requirement of administrative due process is not met sufficiently by the mere formal act of receiving a taxpayer’s defenses submitted in writing. Administrative due process also requires judicious consideration of the matters raised therein, independent evaluation of the case, and due notification to parties of the reasons for judgment. A perusal of the records of the case would show that the identity in substance between the subject PAN and the subsequent FAN/FLD, as in Avon, shows that the CIR ignored completely the taxpayer’s position letter (to the PAN) and failed to give due consideration to the arguments therein. (Kabalikat Para sa Maunlad na Buhay, Inc., CTA Case No. 8336, May 23, 2023)

Section 13 of PD No. 1590 requires the following conditions to be exempt from taxes, duties, royalties, registrations, licenses, and other fees and charges: (1) payment of corporate income tax; (2) the said supplies are imported for the use of the franchisee in its transport/non-transport operations and other incidental activities; and (3) they are not locally available in a reasonable quantity, quality or price.

The taxpayer, argues that its importations of commissary and catering supplies are exempt from all taxes pursuant to its franchise to establish, operate and maintain air-transport services under PD 1590. The CIR argues that the tax exemption to the taxpayer has been abandoned pursuant to Section 13147 of the NIRC of 1997, as amended by RA No. 9334.

The Court emphasized that the taxpayer remains exempt from taxes, duties, royalties, registrations, licenses, and other fees and charges, provided the following conditions are fulfilled: (1) payment of corporate income tax; (2) the said supplies are imported for the use of the franchisee in its transport/non-transport operations and other incidental activities; and (3) they are not locally available in reasonable quantity, quality or price.

All of the foregoing conditions were met by the taxpayer except the last condition. With regard to the third condition, the Court found the evidence presented by the taxpayer insufficient. It failed to present sufficient and convincing evidence to prove that the imported tobacco and alcohol products were not locally available in reasonable quantity, quality, or price, at the time of importation. Such being the case, the taxpayer has not fulfilled all conditions to be entitled to the tax exemption granted under Section 13 of PD No. 1590. (Philippine Airlines, Inc. v. Commissioner of Internal Revenue, CTA Case No. 10311, May 30, 2023)

If revenue generation is the primary purpose and regulation is merely incidental, the imposition is a tax; but if regulation is the primary purpose, the fact that incidental revenue is also obtained does not make it an imposition of a tax.

A provision of the Watershed Code of the City of Davao provides for an annual Environmental Tax to be imposed on all agricultural and other economic undertakings in the Agro-forestry/Non-Tillage Areas and Prime Agricultural Areas of not less than 50 hectares at the rate of Twenty-Five Centavos (Php0.25) per square meter. Pursuant to this, the City Treasurer issued an assessment against a taxpayer. Not agreeing with the assessment, the taxpayer paid under protest the assessment. Thereafter, the taxpayer elevated the case to the Regional Trial Court of Davao City (RTC), CTA in Division and En Banc after receiving an unfavorable rulings/decisions.

The CTA in Division rendered a Decision denying the Petition for Review on jurisdictional grounds. In arriving at its decision, the Court in Division agrees with the RTC's conclusion that the twenty-five (Php0.25) centavos Environmental Fee is not a tax but a regulation fee. Hence, considering that the imposition is a regulatory fee and not a local tax, the Court in Division ruled that it has no jurisdiction over the case. On appeal to the CTA En Banc, the taxpayer contends that the original petition primarily involves a local tax issue as it emanates from an assessment coupled with Tax Orders of Payment issued by the City Treasurer.

The CTA En Banc is not persuaded. The latter elucidated the difference between the imposition of a regulatory fee vis-à-vis a local tax, to wit: if revenue generation is the primary purpose and regulation is merely incidental, the imposition is a tax; but if regulation is the primary purpose, the fact that incidentally revenue is also obtained does not make the imposition a tax.

Considering that the Environmental Tax under the Watershed Code of Davao City is not in the nature of local taxes, the Court in Division correctly dismissed the petition for lack of jurisdiction. (Dole Philippines Inc. – Stanfilco Division vs. The Sangguniang Panlusod of the City of Davao et al., CTA EB No. 2461 (CTA AC No. 25, May 12, 2023)

RR No. 4-2023, May 4, 2023
This expands the coverage of taxpayers mandated to file tax returns through Electronic Bureau of Internal Revenue Forms (eBlRForms).

This amends Section 2 of RR No. 9-2016 which further expand the coverage of taxpayers mandated to file tax returns through Electronic Bureau of Internal Revenue Forms (eBlRForms), to wit:

1. Accredited Tax Agents/Practitioners and all its client-taxpayers;
2. Accredited Printers of Principal and Supplementary Receipts/Invoices;
3. One-Time Transaction (ONETT) taxpayers who are classified as real estate dealers/developers; those who are considered as habitually engaged in the sale of real property and regular taxpayers already covered by eBIRForms. Thus, taxpayers who are filing BIR Form No. 1706, 1707, 1800, 1801 and 2000-0T (for BIR Form No. 1706 only) are excluded in the mandatory coverage from using the eBIRForms;
4. Those who shall file a "No Payment Return";
5. Government-Owned-or-Controlled Corporations (GOCCs);
6. Local Government Units (LGUs), including Barangays; and
7. Cooperatives registered with National Electrification Administration (NEA) and Local Water Utilities Administration (LWUA).

RMC No. 47-2023, May 3, 2023
This reiterates the proper time of remittance of Withholding Taxes by National Government Agencies (NGAs) and instrumentalities, Local Government Units (LGUs), and Government Owned and Controlled Corporations (GOCCs).

Per Section 2.57.4 of Revenue Regulations No. 2-98, the obligation of the payor to deduct and withhold the tax under Section 2.57 of said Regulations arises at the time an income payment is paid or payable, or the income payment is accrued or recorded as an expense or asset, whichever is applicable, in the payor’s books, whichever comes first. Provided, however, that where income is not yet paid or payable but the same has been recorded as an expense or asset, whichever is applicable, in the payor's books, the obligation to withhold shall arise in the last month of the return period in which the same is claimed as an expense or amortized for tax purposes.

On the other hand, the accrual basis of accounting was already prescribed by the Commission on Audit in the Government Accounting Manuals for NGAs and LGUs since 2002, pursuant to the Philippine Public Sector Accounting Standards that are harmonized with the International Public Sector Accounting Standards. Hence, a long period of departure from the cash basis of accounting which is, apparently, still being adopted by these concerned government entities where their duty to deduct and withhold the tax is erroneously grounded.

RMC No. 53-2023, May 11, 2023
This clarifies the entitlement of economic zone developers and operators to the VAT zero-rating on local purchases of goods and services directly and exclusively used in the registered project or activity.

The BOI Memorandum Circular (MC) No. 2022-003 which amended the Specific Guidelines of Activities in Support of Exporters under the 2020 Investment Priorities Plan (IPP), also known as the transitional Strategic Investment Priority Plan (SIPP), included the development and operation of economic zones; and industrial parks and buildings for exporters, as "Activities in Support of Exporters."

At least seventy percent (70%) of the leasable/saleable areas shall be dedicated to exporters. Revenues arising from clients/tenants engaged in activities that are not allowed pursuant to the definition of a registered business enterprise under Section 293(M) of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act will not be entitled to the Income Tax Holiday incentive.

Phased development of an economic zone or industrial park may be allowed, provided the whole project is completed within five (5) years unless otherwise approved by the Board of the concerned IPA. These amendments shall apply to all projects qualified under the CREATE Act. Based on the foregoing, the ecozone developer and operator may be classified as export enterprise if it meets the qualifications stated above, in which case, it shall also be entitled to the VAT incentives under the CREATE Act.

In case an enterprise is not qualified based on the amended guidelines, the ecozone developer or operator will be classified as a domestic market enterprise under Item D(I)(8)(j) of the General Policies and Specific Guidelines to Implement the 2020 IPP which covers the development of domestic industrial zones, as circularized by the BOI thru MC No. 2021-001. Consequently, it shall not be entitled to the VAT incentives under the CREATE Act.

RMC No. 58-2023 dated May 19, 2023
Clarifies the policies and guidelines on the issuance and validity of TIN Card and Certificate of Registration.

The Certificate of Registration (COR) printed in old template/yellow-orange color is still valid and does not expire, as long as the information and details printed therein are still up to date.

Replacement of COR shall only be made if there are updates or changes in the information printed on the face of COR.

The electronic COR generated by the Philippine Business Hub (PBH) and Online Registration and Update System (ORUS) printed by taxpayers is valid and does not require a signature. The electronic COR bears a QR Code that can be validated online when scanned. The COR or electronic COR issued by the ORUS or PBH is required to be posted conspicuously in the place of business.

RMC No. 61-2023, May 24, 2023
This clarifies procedures in the processing of taxpayer's request for stamping of Income Tax Returns/Annual Income Tax Returns (ITRs/AITRs) electronically filed through eBIRForms.

Pursuant to Revenue Memorandum Circular No. 32-2023, “No Payment AITRs” shall be filed electronically through the eBIRForms. Thus, taxpayers no longer need to file "No Payment AITRs" manually. Revenue District Offices (RDOs) may still manually stamp printed electronically filed AITRs for requesting taxpayers who can provide a letter request, with attached supporting documents, stating the need for their respective returns to be manually stamped "Received" by the BIR, as a requirement or proof of filing and payment of their taxes here in the Philippines (e.g. expatriates of multinational companies), or for whatever legal purpose it may serve.

RMO No. 16-2023, May 17, 2023
This provides supplemental guidelines and procedures for the implementation of RMO No. 40-2022.

This provides supplemental guidelines and procedures on the implementation of Revenue Memorandum Order (RMO) No. 40-2022 to ensure effective conduct of apprehension/seizure and detention of unlicensed/unregistered articles. The BIR personnel coming from the concerned team of the BIR STRIKE Group shall be authorized to conduct covert surveillance activities on identified business establishments for possible violations of the provision of the National Internal Revenue Code (NIRC) of 1997, as amended, based on a validly issued Mission Order (MO) signed by the Deputy Commissioner – Operations Group (DCIR-OG), Assistant Commissioner – Large Taxpayers Service (ACIR-LTS) or the concerned Regional Director (RD).

The subject, as part of due process, should be served with the MO, Checklist of Documentary Requirements at the start of the enforcement activity and whenever applicable, Apprehension Slip/s and Inventory Sheets on the last day of the enforcement action and Demand to Comply. The apprehended items, which are in violation of the provision of the NIRC of 1997, as amended, shall be considered evidence against the subject. It is the duty of the Apprehending Team to check the proper turnover of evidence to the Storage of Facility.

If the subject fails to comply and/or disagrees with the initial findings stated in the Demand to Comply, the BIR Strike Team shall issue a Collection Letter within five (5) days, for the collection of deficiency Excise Taxes arising from the enforcement operation. No PAN shall be issued when the excise due on excisable articles has not been paid pursuant to Section 228 of the NIRC of 1997, as amended. If the Excise Tax discrepancies remained unsettled/unpaid, the corresponding FAN and FLD shall be issued and served upon the subject.

In any case, the subject offers to pay the deficiency excise taxes and corresponding penalties, the offer of payment must originate from the subject. The imposition of the compromise penalties shall be in accordance with revised schedule of compromise penalties prescribed under existing revenue issuances and regulations. However, imposition of/acceptance of compromise penalties are amounts suggested for the settlement of criminal offense, thus, proper evaluation of the case must be made to determine if the offer to pay the compromise penalty by the subject should be accepted by the BIR Strike Team.. The result of the investigation and/or operation pursuant to this Order shall be forwarded to the Prosecution Division for Large Taxpayers Service or the Legal Division of the concerned Revenue Region, as the case may be, for evaluation and filing of appropriate legal action in accordance with existing laws, rules and regulations. A Demand Before Suit shall be issued for criminal complaints involving the collection of tax liabilities.

RMO No. 20-2023, May 30, 2023
This amends further RMO No. 21-84, as amended.

The issuance of ATCA relative to protested tax assessments has been identified as redundant. Hence, this Order is issued to remove Item III.1 (a) from among the instances requiring the issuance of ATCA as mentioned in RMO No. 33-2018. This particular item pertains to the issuance of ATCA for protested assessment which is not yet final and delinquent. All other items listed thereof shall remain to be in effect as these all pertain to tax assessments that were reported and determined as “delinquent account” but later approved for a compromise settlement, amnesty or abatement of penalties, or declared prescribed, including tax assessments determined to be invalid or worthless.

Said Committee shall discharge certain functions such as (1) appraise and conduct an inventory of all obsolete, damaged, or cancelled accountable forms for disposal; (2) prepare and sign inventory report and submit the same to the Regional Director; (3) dispose the obsolete, damaged, or cancelled accountable forms in accordance with existing COA rules and regulations; (4) after every destruction, transmit a Report on the Disposal of Accountable Forms (BIR Form 2623) and Certificate of Destruction to the CIR, Attention: Chief, Accountable Forms Division, among others.

BSP Memorandum No. M-2023-019,
May 29, 2023
This prescribes for Customer Due Diligence (CDD) on Designated Non-Financial Business and Profession (DNFBP) Customers.

This prescribes that all BSFIs strictly perform CDD on their DNFBP customers. CDD covers, among others:

1. Identifying and verifying the true identity of DNFBP customers and beneficial owner/s based on official documents or other reliable, independent source documents, data or information. Covered persons dealing with customers who are DNBFPs (e.g. jewelry dealers, dealers in precious metals, and dealers in precious stones, company service providers, lawyers and accountants and real estate developers and brokers) should require the presentation of the Provisional Certificate of Registration (PCOR) and /or the Certificate of Registration (COR) with the AMLC as part of the CDD.

2. Understanding and, as appropriate, obtaining information on the purpose and intended nature of the business relationships; and

3. Conducting ongoing due diligence on the business relationship and scrutiny of transactions undertaken throughout the course of the relationship.

Under existing regulations, where a covered person is unable to comply with the relevant CDD measures, considering a risk-based approach, it shall (a) not open the account, commence business relations, or perform the transaction; or (b) terminate the business relationship; but in both cases, it shall consider filing a Suspicious Transaction Report (STR) in relation to the customer.

IC Legal Opinion
No. 2023-14
This provides for an opinion on Electronic Sale of Insurance Products by Intermediaries..

This is a request for the Commission’s opinion regarding the electronic sale of insurance products by intermediaries through the use of a mobile application (App) where licensed insurance companies could sell non-life insurance policies, among others. In return, the intermediary shall receive either a referral fee or a revenue share.

The Commission opined that the intermediary company, in offering insurance products in the App, is considered an insurance provider. However, the intermediary company should be licensed to consider its electronic commerce activity legal. Under CL No. 2014-47, any commercial activity that involves buying, selling, or providing insurance products and services online or via internet is considered electronic commerce. Nevertheless, the same issuance mandates a person engaged in electronic commerce to have a license.

It must first secure a Certificate of Authority from the Commission for a specific license it seeks to apply. With respect to the use of the App, the intermediary company should ask for prior approval from the commission. The mobile application should be registered with major digital platforms like Apple, Inc App Store and Google, Inc. Google Play and Microsoft Windows Marketplace. The mobile application insurance shall only be accessible and used within the Philippine territory and only approved insurance products shall be distributed in the mobile application. Payment of the insurance product availed through the use of the mobile insurance application may be through automatic deduction to the existing load of the user to the network carrier, billed through the postpaid plan, deducted to existing electronic wallet, use of credit or debit card, and use of any accredited online payment system.

The filing for the application for the use of mobile application shall be before the Commission, through the Regulation Enforcement and Prosecution Division.