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.

A protest must state the nature thereof – whether it is a request for reconsideration or reinvestigation –to be valid..

A protest to a Final Assessment Notice must state the following: (1) the nature thereof (whether reconsideration or reinvestigation, and in case of the latter, it must specify the newly discovered or additional evidence the taxpayer intends to present); (2) date of the assessment notice; and (3) the applicable law, rules and regulations, or jurisprudence on which the protest is based; otherwise, it shall be considered void, and without force and effect.

Here, while the taxpayer indicated in its Protest letter the date of receipt of the subject FAN and a certain form of legal basis to support some of its arguments against the FAN, nowhere it is stated that the protest is a request for reconsideration or a request for reinvestigation. Nevertheless, even granting that the court is justified to ignore the said requirement, it cannot determine whether the same is a request for reconsideration or a request of reinvestigation, since there is no plea of re-evaluation either "on the basis of existing records without need of additional evidence" or "on the basis of newly discovered or additional evidence that the taxpayer intends to present.” As such, the said letter cannot be considered as a valid protest, and thus, without force and effect. (HR Mall, Inc. v. Commissioner of Internal Revenue, CTA Case No. 9981, November 12, 2021)

A taxpayer claiming for a VAT refund or credit has the burden to prove not only that the recipient of the service is a foreign corporation, but also that said corporation is doing business outside the Philippines.

The taxpayer contended, among others, that it is engaged in zero-rated and effectively zero-rated sales, that it complied with the qualifying conditions for zero-rating, and that the recipient of its services, its parent, Amadeus Spain, is doing business outside the Philippines. Conversely, the BIR countered that the taxpayer’s claim for refund or issuance of tax credit certificate must be denied because it failed to prove that it is engaged in zero-rated or effectively zero-rated sales of services and the recipient of the taxpayer’s services is actively doing business in the Philippines.

The Court held that when a judicial claim for refund or tax credit is appealed from an unsuccessful administrative claim, the taxpayer has to convince the Court that the BIR had no reason to deny its claim. It becomes imperative for the taxpayer to show the Court that not only is it entitled under substantive law to its claim, but also that it satisfied all the evidentiary requirements for its administrative claim. Thus, it is crucial for a taxpayer in a judicial claim for refund or tax credit to show that its administrative claim should have been granted in the first place. Further, a taxpayer claiming for a VAT refund or credit has the burden to prove not only that the recipient of the service is a foreign corporation, but also that said corporation is doing business outside the Philippines.

Here, the BIR denied the taxpayer’s administrative claim on the ground that the latter’s sale of services to its parent Amadeus Spain cannot be considered as zero-rated sales since Amadeus Spain is doing business in the Philippines. However, the taxpayer failed to show that the BIR was in error
in finding that Amadeus Spain is doing business in the Philippines. Thus, the taxpayer has failed to overcome the BIR’s finding and basis for denying its administrative claim. (Amadeus Marketing Philippines, Inc. v. Commissioner of Internal Revenue, CTA Case No. 10094, November 17, 2021)

The conviction of the corporation is necessary before the penalty therefor may be imposed upon its corporate officers.

This is a Petition for review filed by Petitioners Ong and Chua praying for the reversal of Decision of the CTA Division finding them guilty beyond reasonable doubt of violating Section 254, in relation to Sections 253 and 256, of the Tax Code. They contended that Enviroaire was not charged as an accused in the Amended Information. As such, they argued that the Court Division is bereft of jurisdiction over the person of the Company. In turn, they explained that since petitioners Ong and Chua's conviction is dependent on the guilt of Enviroaire, the findings of the Court Division against them are improper and invalid.

In finding for Petitioners, the Court held that there is no penal law that directly charges the corporate officers for willful attempt to evade and defeat corporate income tax. The imposition of the penalty upon a corporate officer without first convicting the corporation, itself, is void and must be struck down. This is so because without a convicted corporation, there is no erring responsible officer. The crime of willfully attempting to evade or defeat tax may only be committed by the person obligated under the law to declare and pay tax, which is the corporation. Therefore, to punish the officers without establishing the guilt of the juridical entity runs against the basic tenets of due process and the rule of "nullum crimen, nulla poena sine lege," or that there can exist no punishable act except those previously and specifically provided for by penal statute, regardless of how reprehensible the act is.

Here, Enviroaire was neither charged in the Amended Information nor the subject of an arraignment, through its responsible officers. As such, it cannot be considered an accused herein, much less convicted and ordered to pay the fine. Since only petitioners Ong and Chua were indicted/charged for willful attempt to evade or defeat taxes in the Amended Information, the charges against them must be struck down as their conviction has no leg to stand on. (Enviroaire, Inc., et. al. v. People of the Philippines, CTA EB Crim. No. 073, November 25, 2021)

Judicial claim for refund under Section 229 of the Tax Code must be filed within two (2) years from payment of the tax “regardless of any supervening cause that may arise after payment.”

The taxpayer argued that the special circumstance which warrants the suspension of the two (2)-year prescriptive period to file judicial claim for refund of overpayment of excise taxes is the Temporary Restraining Order (TRO) issued by the Supreme Court. Accordingly, in deference to the said TRO, it continuously paid under protest the excise taxes allegedly due to the government under the subject revenue issuances, pending the appeal filed by the Secretary of Finance.

The Court held that the suit or proceeding contemplated to be filed within the two (2)-year prescriptive period under Section 229 of the Tax Code covers any tax, penalty or sum, which has been paid “under protest or duress.” Thus, even when the taxpayer paid the pertinent excise taxes under protest, and notwithstanding the issuance of the said TRO by the Supreme Court, the refund thereof is still within the purview of Section 229, and it does not excuse the taxpayer from complying with the two (2)-year prescriptive period. Furthermore, there can be no merit in the taxpayer’s stance that there is futility of filing a claim for refund while the same TRO was in effect, and in the contention to the effect that the taxpayer was legally and practically prevented from filing a claim for refund or credit on its supposed overpaid excise tax.

In this case, the TRO issued by the Supreme Court is not directed against the herein taxpayer, but only to Philippine Tobacco Institute, Inc. (PTI), the RTC (Branch 253, Las Pinas City), and their representatives. Thus, since the taxpayer is not one to whom the TRO is directed, the same would have no binding effect on it. Moreover, the fact that the taxpayer is a member of PTI does not automatically mean that it is one of the latter's representatives. Even granting that the taxpayer may be deemed as one of the representatives of PTI, the said TRO does enjoin the taxpayer at all, and there is no law which proscribes the taxpayer from complying with the provisions of Section 229 of the Tax Code, particularly, on the successive filing of its administrative and judicial claims, within the two (2)-year prescriptive period thereunder. (PMFTC, Inc. v. Commissioner of Internal Revenue, CTA Case No. 10110, November 25, 2021)

RR No. 19-2021, November 9, 2021.

This provides the implementation of the Tax Incentive and Exemption Provisions of RA No. 11321 or the “Sagip Saka Act.”

• Income Tax Exemption – For cooperative and enterprise to avail income tax exemption under the Sagip Saka Act, the following criteria must be present:

1. The accredited business entity or enterprise must be among the intended beneficiaries enumerated under Section 5 of the IRR of RA No. 11321; and
2. They must have a total asset of not more than P3 million pesos (subject to revision of the appropriate government agency or council), inclusive of those arising from loans but exclusive of land on which the particular business entity’s office, plant and equipment is situated.

• Donor’s Tax Exemption – Donation of real and personal properties to accredited farmers and fisherfolks enterprise shall be exempt from donor’s tax subject to the following conditions:

1. The donee is an accredited farmers and fisherfolk enterprise as certified by the Department of Agriculture;
2. The done is among the proponent groups or beneficiaries of “The Farmers and Fisherfolk Enterprise Development Program” (“FFEDP”), as certified by the Department of Agriculture – Regional Sagip Saka-Program Management Committee (SS-PMC);
3. The donation is made for the accomplishment of the FFEDP, consistent with its objectives to develop enterprises for farmers and fisherfolk towards a sustainable modern agriculture and food security.
4. Request for ruling shall comply with the guidelines under RMO No. 9-2014 and shall be filed with the Law and Legislative Division, Room 709, 7th Floor of the BIR National Office, together with the original/CTC of the following requirements:

a. Certification from the Department of Agriculture that the donee is an accredited farmer and fisherfolk enterprise;
b. Certification from the Department of Agriculture SS-PMC that the donee is among the proponent groups or beneficiaries of FFEDP;
c. TIN;
d. Duly notarized Deed of Donation; and
e. Title and tax declaration if the donation consists of real property and/or proof of receipt of donation of personal property.

Donation made may be deductible from gross income of donor upon compliance of the ordinary rules of deductibility under Section 34 (H) of the Tax Code.

RMC No. 117-2021, November 24, 2021.

The provisions of RR No. 16-2021 did not discontinue the submission of BIR Form Nos. 2307 and 2316 in DVD-R but instead offered to all concerned taxpayers’ other modes or submission facilities of the BIR that are available currently, such as electronic AFS System. For BIR Form No. 2316, RMC No. 24-2019 has been issued to require the use of USB memory stick or other similar storage devices in the absence of DVD-Rs.

The USB memory or other similar storage devices may be used for submission of BIR Form No. 2307. These devices, modes and facilities may be availed of for the submission of Certificate of Income Payment Not Subject to Withholding Tax (Excluding Compensation Income) and Certificate of Final Tax Withheld at Source (BIR Form No. 2304 and 2306, respectively).

The file format, naming conventions and other requirements of revenue issuances governing the selected mode of facility shall be strictly complied with. Hence, if the DVD-R or the USB shall be used, the requirements of RR No. 2-2015 shall be complied with. In case of eAFS System, the provisions of RMC Nos. 49-2020, 82-2020 and 44-2021 shall be observed.

Taxpayers are prohibited to use multiple modes/facilities in one given period of submission. Only one mode or facility shall be used in the submission of both Certificates.

SEC Memorandum Circular No. 11,
Series of 2021, November 11, 2021.

To align with the extended deadline of the AFS, the deadline for the posting of additional securities deposit and substitution of securities deposit of branch offices with fiscal period ending on December 31, 2020 is extended. Posting of additional securities deposit for branch offices falling due in 2021 is extended until December 23, 2021. The extension is automatically applied without the need for a request from the affected branch offices.

BSP Circular No. 1129, Series of 2021, November 12, 2021.

This amended the Corporate Governance Guidelines for BSP-Supervised Financial Institutions (BSFIs).

The following provisions of the Manual of Regulations for Banks (MORB) and Manual of Regulations for Non-Bank Financial Institutions (MORNBFI) are amended:

1. Section 131 – Policy Statement and Definition of Terms – included definitions of:

• NBFIs;
• Quasi-banks (QBs); and
• Substantial stockholder.

2. Sections 132 and 132-Q – Board of Directors

• Composition of the Board of Director – include provision that:

• • • • Non-Filipino citizens may become members of the Board of Directors of a BSFI to the extent of the foreign participation in the equity of said BSFI.

• Qualifications of the Chairperson and Board of Directors – includes provision on the following:

• • • • Minimum qualifications of a director and persons exempted from complying with the said requirement; and
      • Term of office of an independent director.

3. Sections 134 and 135-Q – Officers

• Provides for the qualifications of officers.

4. Sections 137 and 136-Q – Confirmation of the Election/Appointment of Directors/Officers

• Interlocking Directorship and/or Officerships.

5. Sections 161 and 161-Q – Compliance Framework

• The responsibilities of the Board of Directors and senior management.

6. Sections 346 of MORB – Procedural and Reportorial Requirements

• Deleted periodic submission of regulatory reports on financial assistance to officers and employees.

7. Sections 135 of MORB – Remuneration and Other Incentives

• Included timeline for the submission of board-approved purpose on financial assistance to officers and employees.

8. Sections 374 of MORB and Appendix Q-58 of the MORNBFI– Required Certifications and Examples of Supporting Documents for the Confirmation and Election/Appointment of Directors/Officers of BSFIs

9. Appendix 7 of the MORB– Reports Required of Banks

• Deleted the following reports:

BSP Memorandum No. M-2021-065, November 23, 2021.

This provides the following temporary regulatory relief for banks that offer basic deposit accounts (BDAs):

1. Non-presentation of identification cards for BDA for the year 2022 subject to certain conditions;
2. Waiver of the BSP fees to the application of Advanced EFPS for the year 2022 for banks which intend to use the said service to support the offering of BDA; and
3. Reduction in the annual supervisory fees of banks for the years 2022 and 2023 by reducing the bank’s average assessable assets by the average amount of BDA maintained by the bank in the preceding years.

IC Circular Letter No. 2021-65, November 5, 2021.

This provides the revised on-site examination/off-site verification rules and procedures.

1. All insurance and/or reinsurance brokers with valid Certificate of Authority from the IC shall, at all times, comply with the following:
a. Net Worth Requirement;
b. Surety Bond and Errors and Omissions policy;
c. Keeping separate Clients’ Money;
d. Fiduciary Ratio Requirement; and
e. Keeping proper books of accounts.

2. At a minimum, all licensed insurance and/or reinsurance brokers shall submit the following on or before May 31 after the close of the calendar year:
a. AFS;
b. Schedule of Clients' Money Accounts;
c. Schedule of Premium-related Accounts and its reconciliation;
d. Schedule of Fiduciary Computation; and
e. Other requirements deemed necessary by the IC.

3. The lC shall conduct regular off-site verification or monitoring. On-site examination, on the other hand, shall be conducted at least once every five (5) years, and as deemed necessary, based on the previous risk ranking of the company. On-site examination and off-site verification include supervisory reporting, review, and analysis of conduct of business (such as but not limited to complaints, arrangements with (re)insurance companies and brokers and disclosure of information).

4. The IC will use a system of ranking or classification codes to identify the status and perceived riskiness of all insurance and/or reinsurance brokers, as follows:

IC Circular Letter No. 2021-68,
November 24, 2021.

This provides the following guidelines on offering of discounts on membership fees of HMO products:

HMOs shall be prohibited from conducting any of the following activities when distributing or offering their HMO products:

1. Giving or offering any type of discount of preferential rate, except:
a. volume discount for HMO products intended for group or corporate accounts; and
b. employee discount, as part of employee benefits, exclusively for employees and their dependents of companies in which the HMO has equity or ownership.
2. Directly or indirectly giving or offering to give any valuable consideration which is not specified in the HMO agreement;
3. Discriminating against any Filipino because of their race.