SEC Issuances

• SEC MC No. 1 series of 2020, January 20, 2020 - This provides the revised implementing rules and regulations of Republic Act No. 9856, otherwise known as the Real Estate Investment Trust (REIT) act of 2009

• SEC MC No. 2 series of 2020, January 21, 2020 - This provides the guidelines for the 2020 filing of annual financial statements and general information sheet.

The significance of due date and demand for payment within a prescribed period in the Formal Letter of demand (FLD) and Formal Assessment Notice cannot be overemphasized. The issuance of a valid FAN is a substantive prerequisite for collection of taxes.

Taxpayer alleges that the FAN sent to it by the BIR is not a valid assessment. According to the taxpayer, it received on November 15, 2013, the FAN, all of which are undated and do not have a demand for payment, for alleged deficiency tax for the taxable year 2010.

The CTA ruled that to be liable for deficiency assessment, there must be a valid assessment. In this case, the FLD and FAN sent to the taxpayer are invalid assessments based on the absence of due date and demand for payment within a prescribed period. The significance of due date and demand for payment within a prescribed period in the FAN cannot be overemphasized. The issuance of a valid formal assessment is a substantive prerequisite for collection of taxes. A final assessment is a notice to the effect that the amount therein stated is due as tax and a demand for payment thereof. This demand for payment signals the time when penalties and interests begin to accrue against the taxpayer and enabling the latter to determine his remedies. Thus, it must be sent to and received by the taxpayer and must demand payment of the taxes described therein within a specific period.

Here, the FAN is undated and do not contain a demand for payment within a prescribed period. Therefore, the assessment is void. (Apo International Marketing Corporation vs. Commissioner of Internal Revenue, CTA CASE NO. 9071, January 7, 2020)

Note: A definite date of payment must be stated in the FAN. It cannot just be inferred from how the BIR computes interest. This is well settled in the Medicard case.

A taxpayer is given fifteen (15) days from receipt of the PAN to file a protest or response thereto with the BIR. It is only upon the lapse of the prescribed 15-day period, without such protest or response being filed by the taxpayer within such period, that the Commissioner may issue the corresponding FLD or FAN.

Taxpayer argues that the FAN was issued prematurely and is null and void because the Commissioner issued the same on March 28, 2014, or barely two (2) days from taxpayer’s receipt of the PAN, and before the lapse of the said 15-day period for it to protest or respond thereto.

The CTA ruled that a taxpayer has fifteen (15) days from receipt of PAN within which to file a protest or to respond to the said PAN. It is only upon the lapse of the prescribed 15-day period, without such protest or response being filed by the taxpayer within such period, that the Commissioner may issue the corresponding FAN.

Accordingly, the subject deficiency tax assessments are null and void because, based on doctrinal pronouncements, the Commissioner is mandated to perform its assessment functions in accordance with law, and strict adherence thereto, with their own rules of procedure, and always with regard to the basic tenets of due process. Moreover, part of the administrative due process requirement is the recognition by the BIR that the taxpayer has the right to present evidence, and thus, should be allowed to submit comments or arguments with supporting documents at each stage in the assessment process and in case the Commissioner or the BIR fails to observe due process, it shall have the effect of rendering the deficiency tax assessment void, and of no force and effect.

Here, the FAN was clearly issued prematurely thereby depriving the taxpayer of the opportunity to be heard on the PAN, in violation of the due process requirement in the issuance of tax assessments. (The Orchard Golf and Country Club, Inc. vs. Commissioner of Internal Revenue, CTA Case No. 8986, January 14, 2020)

Similar to when no due date is indicated in the Formal Assessment Notice (FAN), two (2) due dates indicated in the FAN negates the BIR’s demand for payment of the deficiency tax liabilities.

BIR assess the Taxpayer of Income tax, VAT and EWT for the taxable year 2011. However, CTA, in its Decision, partially granted the Petition for Review of the Taxpayer and ordered to pay the deficiency Income Tax but declared as void VAT and EWT for allegedly not containing a definite due date.

Pursuant to Section 222(a) of the NIRC, as amended, and in relation to CIR vs. Fitness By Design, Inc, CTA has held that similar to when no due date is indicated in the FAN, two (2) due dates indicated in the FANs negates BIR’s demand for payment of the deficiency tax liabilities. To be valid, a FAN must contain a singular definite amount and period.

Here, the deficiency VAT and EWT was void because the FAN does not include a due date. (Benchmark Marketing Corporation vs. Commissioner of Internal Revenue, CTA Case No. 9296 dated 2 January 2020)

The Court of Tax Appeals, being a Court of special jurisdiction, has jurisdiction over decisions, orders, or resolutions of RTC in connection with local tax cases.

In 1998, pursuant to Comprehensive Agrarian Reform Program, certain individual were granted parcels of land located in the Province of Bataan. In 2008, Province of Bataan levied such properties for alleged non-payment of real property taxes, and subsequently sold such to the individual Taxpayers. In 2009, however, the individuals originally granted the parcels of land sold the same to individual Respondents. In September 22, 2009 or more than the one-year redemption period, the Respondent, in representing the individual Respondents, tendered payment for the subject parcels of land. Since the Province of Bataan already sold the parcels of land, they refused to accept the tender of payment. The Respondents filed and obtained favorable judgment of injunction before the RTC to restrain Taxpayers to effect the transfer of ownership, allow consignation, and for damages. Hence, the Taxpayers filed a Petition for Review before the CTA.

CTA Division settled the issue of whether or not it has jurisdiction over the subject matter. Pursuant to Section 7(a) (3) of RA No. 1125, as amended, and Sections 3 and 4 of the Revised Rules of Court of Tax Appeals, the Court ruled that it has exclusive appellate jurisdiction over decisions, orders, resolutions of the RTC in local cases originally decided or resolved by them in the exercise of their original or appellate jurisdiction. Stated otherwise, CTA has exclusive appellate jurisdiction over decisions, orders, or resolutions of the RTC operative when the latter has ruled on a local tax case.

Here, CTA has no jurisdiction over the subject matter because the issue to be decided was the ownership over the parcels of land, the allowance of consignation as payment, and for damages. Although existent, the issue on non-payment of real property tax is neither the main issue of the case nor material for the complete disposition of the case. (Office of the Provincial Treasurer of Bataan vs. Batarasa Consolidated, Inc., et. al., CTA AC No. 205 dated 14 January 2020)

The appellate jurisdiction of the Court of Tax Appeals is not limited to cases which involve decisions of Commissioner of Internal Revenue on matters relating to assessments or refunds. It also covers other cases that arise out of the NIRC or related laws administered by the BIR.

Taxpayer invokes that the CTA in Division is competent to review cases falling under “other matters” as provided in Section 7 (a)(1) of Republic Act No. 1125, as amended, and other laws administered by the BIR.

BIR argues that the Court is without jurisdiction to determine the case involving a denial of an Application for Compromise since a compromise agreement is in the nature of a contract requiring mutual consent of the contracting parties. By law, respondent CIR has the discretion to approve or disapprove the compromise agreement, thus neither taxpayer nor the Court can compel him to enter into such agreement absent any law or rule that authorizing the same.

The CTA it shall exercise exclusive appellate jurisdiction to review by appeal decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the NIRC or other laws administered by the BIR. (New Farmer’s Plaza, Inc. v. Commissioner of Internal Revenue, CTA Case No. 9475, January 14, 2020)

When an act is official, a presumption of regularity exists because of the assumption that the law tells the official what his duties are and that he discharged these duties accordingly. In the absence of more convincing evidence, the presumption of regularity in favour of the BOC Customs Examiner must be sustained.

Taxpayer claims that the respondent COC erred in ruling that the seized pieces of jewelry should be forfeited in favor of the government on mere presumption of fraud on her part. There being no fraud on her part, respondent COC committed a reversible error when it affirmed the District Collector’s denial of her offer to settle the tax obligation to redeem the undeclared taxable items.

The COC on the other hand, argues that taxpayer committed fraud when she did not declare the subject pieces of jewelry found in her possession for the purpose of frustrating the collection of duties and taxes.

The CTA held that taxpayer committed fraud to frustrate collection of proper duties and taxes for the undeclared pieces of jewelry, as shown in the continuous events and circumstances that occurred in the arrival area of NAIA Terminal 3 indicating deceit and dishonesty on the part of the taxpayer, who utterly failed to declare via an accomplished document for the purpose, or mention that she was carrying dutiable items. While fraud cannot be presumed, it need not be proved by direct evidence and it can well be inferred from attendant circumstances, which is abundant in the present case. (Rosemarie G. Clemente v. Republic of the Philippines, CTA Case No. 9545, January 15, 2020)

Issuance of Preliminary Collection Letter (PCL) and Final Notice Before Seizure (FNBS) is tantamount to denial of protest.

The BIR avers that taxpayer failed to submit its relevant supporting documents within the prescribed period after filing its protest on May 18, 2018. Thus, said failure rendered the deficiency assessment final, executory and demandable after the lapse of the 60-day period after the date of filing said protest.

On the other hand, Taxpayer contends that it submitted additional relevant document in support of its protest. However, on December 21, 2018, taxpayer was surprised to receive PCL and FNBS, despite its non-receipt of the BIR’s decision on its protest.

The CTA held that taxpayer should be aware that the issuance of Preliminary Collection Letter (PCL) and Final Notice Before Seizure (FNBS) is tantamount to denial of protest. The protest was deemed denied by the issuance of said PCL and FNBS. Hence, taxpayer should have appealed before the CTA within 30 days from December 21, 2018 or until January 20, 2019 by filing a Petition for Review. However, taxpayer only filed its Petition on May 20, 2019. Thus, prescription on the filing of the said Petition has already set in. (Ten-Four Readymix Concrete, Inc. v. Commissioner of Internal Revenue, CTA Case No. 10081, January 16, 2020).

Note: The BIR will no longer be issuing PCL and FNBS. It will immediately issue a Warrant of Distraint and Levy (RMO 35-2019 on July 18, 2019). After receipt of a Warrant of Distraint and Levy, a taxpayer must expect that notice of garnishment of his bank accounts will follow.

The taxpayer has the burden of proving its claim for refund of excess input VAT in accordance with the requirements of the provision of law it invoked when it filed its judicial claim for refund.

The taxpayer filed a judicial claim for refund of excess input VAT based on Section 112 of the NIRC, as amended, before the CTA in Division. The CTA in Division denied the claim on the ground that no valid proof subsists on record to convincingly show that all the requisites for input VAT refund pursuant to Section 112 were complied with because all documents formally offered were denied admission for being mere photocopies.

The CTA in Division likewise observed that the argument of the taxpayer was anchored on the payment of VAT on the interest it paid to an entity not engaged in the lending business which spelled out a case for erroneous VAT payment, which must be pursued under Section 229 of the NIRC. The taxpayer therefore filed a Petition for Review before the CTA en Banc, now asking that it be refunded the input VAT under Section 229 of the NIRC, as amended.

The CTA en Banc held that a party cannot be permitted to change its theory on appeal. In this case, the taxpayer in its Motion for Reconsideration confessed having in its possession the original of the documents in support of its claim for refund. But for reasons only known to it, the taxpayer formally offered mere photocopies of said documents. The CTA en Banc likewise observed that if the taxpayer was keen on having its denied documentary exhibits be evaluated, it could have easily made a tender of excluded evidence, which it likewise failed to do. (Batino Corporation v. Commisisoner of Internal Revenue, CTA EB No. 1885 (CTA Case No. 9542), January 3, 2020)

The invalidity of the assessment casts substantial doubt as to the requirement that offender fails to supply correct and accurate information.

The taxpayer is being charged for violations of Section 255 of the 1997 NIRC or failure to supply correct and accurate information in his annual income tax return and quarterly VAT returns. During trial it was proven that the assessment made by the BIR was based on a presumption and not on actual audit investigation by assuming that the variance arising from the purchases of the taxpayer as income thereof without any empirical and valid evidence to support its computation on said assessment.

The CTA ruled that an element of the offenses under Section 255 is that the taxpayer fails to supply correct and accurate information at the time or times required by law or rules and regulations. Here, the invalidity of the assessment casts substantial doubt as the requirement that offender fails to supply correct and accurate information. Thus, there is reasonable doubt if indeed the accused willfully failed to supply correct and accurate information in his ITR and VAT Returns. (People of the Philippines vs. Barriga, CTA Case No. O-266 to O-269, January 21, 2020)

A refund of input taxes shall be granted only if the goods and services are directly attributable to the zero-rated sales.

The taxpayer and the CIR seeks for reconsideration of the CTA En Banc’s decision affirming the decision of the CTA Division. The CIR alleges that the input VAT sought to be refunded are not attributable to Coral Bay's zero-rated sales and this requisite of attribution is essential for a claim for refund to prosper. On the other hand, taxpayer alleges that if it has no other sales but zero-rated sales, there is no need for allocation because all taxpayer's input VAT is attributable to its zero-rated sales.

The Court ruled that a closer look at the provisions of the afore-quoted Section 112 (A) reveals that the word "attributable" read in the first portion is consistent with and in harmony with the last portion pertaining to the proper allocation of input VAT in case taxpayer is engaged in "mixed transactions", when "the amount of creditable input tax due or paid cannot be attributed to any one of the transactions." The second portion then proffers a solution in cases where the input VAT is sourced from various sales transactions, hence, allocation should apply in order to reserve the refund incentive only to those which are attributable to the taxpayer's zero-rated or effectively zero-rated sales. This allocation emphasizes the purpose and incentives provided under the law and the corresponding conditions before a taxpayer may avail of said incentive. Thus, a refund of input taxes shall be granted only if the goods and services are directly attributable to the zero-rated sales which in this case is the export sale of nickel/ cobalt mixed sulfide to its client abroad. (Commissioner of Internal Revenue vs. Coral Bay Nickel, CTA EB No. 1735 & 1737 (CTA Case No. 8905), January 9, 2020)

Note: The CTA espouses a new doctrine that only input taxes directly attributable to zero-rated sales may be claimed for refund. In other words, even if a taxpayer has purely zero-rated sales, if the input VAT cannot be classified as a direct cost, it is not refundable. For example, if a taxpayer incurred input VAT on its purchase of a pen and a paper, the said input VAT is not refundable since it is not directly attributable to the taxpayer’s main line of business of exporting coal.

Letter of Authority is different from a Letter Notice, and their differences are crucial. Due process demands that after a Letter Notice has served its purpose, the revenue officer should secure a Letter of Authority before.

LOA is different from a LN, and their differences are crucial. LN is entirely different and serves a different purpose than a LOA. Due process demands that after an LN has serve its purpose, the revenue officer should secure a LOA before proceeding with the further examination and assessment of the taxpayer.

Since the subject VAT assessment was issued without a prior LOA, the same is void. As such, the said assessment bears no valid fruit, and could not have attained finality. (WPP Marketing Communications, Inc. vs. CIR, and National Evaluation Board, CTA Case No. 9704, January 29, 2020)

SEC Memorandum Circular No. 2 series of 2020, January 21, 2020 - This memorandum circular provides the guidelines for the 2020 filing of annual financial statements and general information sheet.

This memorandum circular provides the measures in the filing of annual reports for 2020. The following should be noted upon:
• “Audited Financial Statements (AFS) of companies whose fiscal year ends on December 31, 2009.
- All corporations, including branch offices, representative offices, regional headquarters and regional operating headquarters of foreign corporations, shall file their AFS depending on the last numerical digit of their SEC registration or license number in accordance with the following schedule:
April 20, 21, 22, 23, 24 : 1 and 2
April 27, 28, 29, 30 : 3 and 4
May 4, 5, 6, 7, 8 : 5 and 6
May 11, 12, 13, 14, 15 : 7 and 8
May 18, 19, 20, 21, 22 : 9 and 10”

• “General Information Sheet (GS)
- All corporations shall file their GIS within 30 calendar days from:
a. Stock Corporations – date of actual annual stockholder’s meeting
b. Non-stock Corporation – date of actual annual members meeting
Foreign Corporations – anniversary date of the issuance of the SEC License.”

A company that has voluntarily delisted from the PSE is no longer covered by the Code of Corporate Governance.

– this seeks to determine whether Energy Development Corporation (EDC) is still a publicly – listed company after its delisting from the Philippine Stock Exchange (PSE)

The Corporation seeks clarification to determine whether a corporation remains as a publicly – listed company after the delisting of shares in the PSE and whether the CG Code for PLCs applies to companies with delisted shares in the PSE.

The Commission opined that EDC having voluntarily delisted its shares in the PSE, is therefore excluded from the coverage of the Code of Corporate Governance for Publicly – Listed Companies (CG Code for PLCs) it remains as a Registered Issuer. Accordingly, it is now covered by the recently issued SEC Memorandum Circular No. 24, Series of 2019 or the Code of Corporate Governance for Public Companies and Registered Issuer, which was issued by the Commission on 19 December 2019 (Securities and Exchange Commission -Office of the General Counsel (SEC-OGC) Opinion No. 20 – 01 dated January 31 2020)

BSP Circular Letter No. CL 2020-002, January 8 2020.

This is a call made to all Banks for the publication/posting of its Balance Sheet (Head Office, branches and other offices) together with its Consolidated Balance Sheet (banks and its subsidiaries and affiliates), if applicable, as of 31 December 2019.

BSP Circular Letter No. CL 2020-004, January 8 2020.

This is a call to all trust corporation for the publication of its Balance Sheet, as of December 2019

BSP Circular Letter No. CL 2020-006, January 10 2020.

This provides the BSP’s approval on the conversion of Advantage Bank Corp. (A Microfinance-Oriented Rural Bank) into a Regular Rural Bank to be known as Advance Credit Bank (A Rural Bank) Corp. (Formerly Advantage Bank Corp. – A Microfinance Oriented Rural Bank)

Bangko Sentral ng Pilipinas Circular No. 1071, Series of 2020, dated January 8 2020.

This provides for the revised rediscount/lending rates for Peso and Dollar/Yen, amending Section 282 of the MoRB
The salient amendments are as follows:

a. Peso Discount rates – shall be the Bangko Sentral overnight (O/N) lending rate plus a spread depending on the term of the loan as may be determined by the Bangko Sentral. The spread between these two may change periodically to complement changes in the Bangko Sentral's monetary policy goals. Banks eligible to apply in the Bangko Sentral's peso rediscounting window may avail of a 1-90 days and/or 91-i.80 days term facility, subject to applicable rediscount rates.

Dollar/Yen Rediscount Rates - shall be the 90-day London Inter-bank Offered Rate (LIBOR) or in the absence of LIBOR, an applicable benchmark rate, plus an appropriate spread depending on the term of the loan as may be determined by the Bangko Sentral. The spread between these two rates may also vary to reflect movements in the market interest rates and to achieve monetary policy objectives. Banks eligibleto apply idthe Bangko sentral's foreign currency rediscounting window may avail of the 1-90 days, 91-180 days, and/or 181-360 days term facility, subject to applicable rediscount rates.

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.