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 © 2022 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 window period from December 10, 2003 to October 6, 2010 on the exception to the 120+30 day period on claiming VAT refund applies even if the taxpayer did not actually invoke BIR Ruling No. DA-489-03.

The 120+30-day period is generally mandatory and jurisdictional from the effectivity of the Tax Code on 1 January 1998, up to the present. By way of an exception, judicial claims filed during the window period from 10 December 2003 to 6 October 2010, need not wait for the exhaustion of the 120-day period. The exception in San Roque has been applied consistently in numerous decisions of the Supreme Court.

In San Roque, the claims filed by the taxpayer were well within the window period. The written application for tax refund/credit was filed with the CIR on March 23, 2010. When it was left unacted upon by the CIR, 98 days later or on June 29, 2010, the taxpayer filed a judicial claim with the CTA Second Division. Similar to the Taganito and the 2018 San Roque cases, even if Harte-Hanks Philippines (HHP) seemed to have prematurely filed its judicial claim under the general rule, the Court, pursuant to BIR Ruling No. DA-489-03, considers HHP to have filed its judicial claim on time.

Although HHP did not actually invoke BIR Ruling No. DA-489-03 in any of its pleadings to justify the timeliness of its judicial claim with the CTA, the BIR Ruling applies to all taxpayers who filed their judicial claims within the window period of December 10, 2003 to October 6, 2010. To limit the application of the BIR Ruling only to those who invoked it specifically would unduly strain the pronouncements in San Roque, Taganito and Philex. (Harte-Hanks Philippines, Inc. v. Commissioner of Internal Revenue, G.R. No. 205189, [March 7, 2022])

The CIR is authorized to distribute, apportion, or allocate gross income or deductions if they determine that such distribution, apportionment, or allocation: (a) is necessary in order to prevent evasion of taxes; or (b) clearly to reflect the income of organizations, trades, or businesses.

The DOF issued RR 4-2011 prescribing the rules on the proper allocation of costs and expenses amongst income earnings of banks and other financial institutions for income tax reporting purposes. The RR provides that a bank may deduct only those costs and expenses attributable to the operations of its Regular Banking Units (RBU) to arrive at the taxable income of the RBU subject to regular income tax. Any cost or expense related to or incurred for the operations of its Foreign Currency Deposit Units (FCDU)/Expanded Foreign Currency (EFCDU) or Offshore Banking Unit (OBU) are not allowed as a deduction from the RBU's taxable income. Under the RR, all costs and expenses should be allocated between the RBU and FCDU/EFCDU or OBU.

In declaring the RR void, the Court ruled that it unduly expands Section 50 and contravenes Section 43 of the NIRC. Under Section 50, the CIR is authorized to distribute, apportion, or allocate gross income or deductions if they determine that such distribution, apportionment, or allocation: (a) is necessary in order to prevent evasion of taxes; or (b) clearly to reflect the income of organizations, trades, or businesses. However, the allocation rules under RR 4-2011 are arbitrary and indiscriminate imposition of a uniform accounting method as it dictates the amount that banks may reflect as deductions and taxable income. Section 43 unequivocally states that taxpayers are allowed to self-determine the most applicable accounting method. The CIR may only prescribe an accounting method if any of the following conditions exist: (a) no accounting method has been employed by the taxpayer; or (b) while an·accounting method has been employed, it does not clearly reflect the income of the taxpayer. In this case, there is no showing that such conditions exist.

Indeed, Section 50 authorizes the CIR to distribute, apportion or allocate gross income or deductions between or among two or more organizations, trades or businesses owned or controlled directly or indirectly by the same interests, if he determines that such distribution, apportionment or allocation is necessary in order to clearly reflect the income of such organization, trade or business. Thus, the Commissioner is authorized to make transfer pricing adjustments. However, Section 50 is limited only to allocating expense deductions between two or more organizations, trades, or business. The subject regulation provides for an allocation method for different units or income streams within one bank or financial institution. The FCDU/EFCDU and RBU are part of a single bank or financial institution. It is hence evident that Section 50 cannot be invoked as a statutory basis for RR 4-2011 to require the allocation of costs and expenses among different units or income streams within a bank or single business unit thereof. Consequently, RR 4-2011 is declared null and void. (Department of Finance v. Asia United Bank, G.R. Nos. 240163 & 240168-69, December 1, 2021)

If the provider and recipient of the 'other services' are both doing business in the Philippines, the payment of foreign currency is irrelevant.

In its Motion for Reconsideration, the taxpayer insists that it is entitled to refund its unutilized input VAT attributable to its zero-rated sales of service because the main consideration is the legitimate use of foreign currency in the transaction.

The Court of Tax Appeals denied the Motion for Reconsideration, ruling that to use foreign currency as the main consideration in determining whether a person engaged in business conducted outside the Philippines is a dangerous precedent as explained in the Burmeister case: if the provider and recipient of the 'other services' are both doing business in the Philippines, the payment of foreign currency is irrelevant. Otherwise, those subject to the regular VAT under Section 102(a) can avoid paying the VAT by simply stipulating payment in foreign currency inwardly remitted by the recipient of services. (Amadeus Marketing Philippines, Inc. v. Commissioner of Internal Revenue, CTA Case No. 10094, April 4, 2022)

Reciprocity in tax exemption means that the international air carrier's country of registry also exempts from similar taxes the gross revenue by Philippine carriers in their country.

The CIR alleges that there must be proof of actual enjoyment by Philippine carriers of income tax exemption in Bahrain based on Section 4.2 (B) of RR No. 15-2013, the implementing regulation of RA No. 10378, which states that reciprocity requires that the Philippine carriers operating in the Home Country of an international carrier are actually enjoying the income tax exemption.

A plain reading of RA No. 10378 shows that for purposes of availing the exemption from income tax under the rule on reciprocity, it is sufficient that the international carrier's home country grants an income tax exemption to Philippine carriers. The clear legislative intent is that, "for an international carrier to be excused from imposition of Philippine IT on its GPB, Section 28 (A) (3) (a) of the Tax Code, as amended by RA No. 10378 decrees that the IT law of the international carrier's home country exempts carriers of Philippine origin from such country's income taxes." This is the sole requirement. There are no other conditions.

In view of the foregoing, said provision in the regulation must be invalidated. In case of discrepancy between the basic law and a regulation issued to implement said law, the basic law prevails, because the said rule or regulation cannot go beyond the terms and provisions of the basic law. (Commissioner of Internal Revenue v. Gulf Air Company Philippine Branch, C.T.A. EB Case No. 2439 (C.T.A. Case No. 9334), [April 12, 2022])

If the Commissioner of Customs fails to render the decision within the 30-day, the action of the Collector is affirmed by the former. Thus, the aggrieved party has 30 days from the lapse of such period to file an appeal before this Court.

In a Motion for Reconsideration, taxpayer avers that the CTA has jurisdiction over its case because it pertains to illegal and unlawful assessment and collection of customs duties which is paid under protest.

The CTA resolved to dismiss the Motion. Citing the Customs Modernization and Tariff Act, Customs Administrative Order No. 02-2020, and Section 11 of RA No. 1125, as amended by RA No. 9282, it ruled that any question on the action of the Collector of the Bureau of Customs (BOC) as to the valuation or assessment and collection of custom duties, the aggrieved party may file a protest before the COC within fifteen (15) days from payment of such. Similarly, the COC has thirty (30) days from receipt of said protest to act or render a decision thereon. However, if the COC fails to render the decision within that period, the action of the Collector is affirmed by the former. Thus, the aggrieved party has 30 days from the lapse of such period to file an appeal before this Court. Here, the taxpayer filed its petition for review only beyond the prescriptive period rendering the Court without jurisdiction over the instant petition. (Goldmine Rice Marketing, represented by its Proprietor/General Manager, Mr. Rolando Manuntag vs. Hon. District Collector of Customs, et. al, CTA Case No. 10559, April 21, 2022)

RR No. 2-2022, April 4, 2022
This prescribes the Additional Guidelines for Implementing Provisions of the PERA Act of 2008 Amending Pertinent Provisions of RR No. 17-2011 and Revising the Provisions of RR 6-2021.

This issuance is promulgated to prescribe the additional guidelines for the tax provisions of Republic Act No. 9505, otherwise known as the “Personal Equity and Retirement Account (PERA) Act of 2008” effectively amending the pertinent provisions of RR No. 17-2011 and revising RR No. 6-2021.

Submission of reports by PERA Administrators through PERASys administered by the BSP and forwarded to the BIR, for approval of the PERA Processing Office, through ePERA system:

Application and Issuance of PERA TCC

The PERA-TCC refers to the documents evidencing the amount of tax credit equivalent of 5% of the total amount of qualified PERA contributions made in a year.

Application for PERA-TCC shall be filed online thru the PERASys by the PERA Administrator within 60 days from the close of the calendar year which shall be processed by the PERA-Processing Office and recommended for issuance of the corresponding PERA-TCC. Once approved, the PERA-TCC shall be generated through the facilities of the ePERA System.

Utilization of PERA-TCC

The PERA-TCC shall be used only for the payment of income tax liabilities of qualified employees and self-employed contributors, while for qualified overseas Filipino contributors, the PERA-TCC can be used in the payment of any internal revenue taxes.

RMO No. 24-2022, March 4, 2022
This provides for the Dropping of the Alphanumeric Tax Code (ATC) for Revenue Source under RA No. 9505, otherwise known as PERA Act of 2008.

This issuance facilitates the proper identification and monitoring of remittances for Final Income Taxes withheld pursuant to the implementation of RA No. 9505 and due to the latest development on the proper classification of the nature of penalty on early withdrawal under ePERA, the following ATC is hereby dropped:

RMC No. 36-2022, April 6, 2022
This provides for the Uniform Template for VAT Zero Percent (0%) Certification to be Issued by the Investment Promotion Agencies (IPAs) in relation to Q&A No. 34 of RMC No. 24-2022.

This issuance prescribes the format of VAT 0% Certification issued by the IPAs to the duly registered export enterprises (REEs).

Q & A No. 34 of RMC No. 24-2022 provides that the concerned IPA shall issue annually a VAT 0% certification to REEs which shall indicate the following:

i. Registered export activity (i.e. manufacturing, IT BPO, etc.);
ii. Tax incentives entitlement under agreed terms and conditions with validity period; and
iii. The applicable goods and services (or category thereof), i.e. raw materials, supplies, equipment, goods, packaging materials, and services, including provision of basic infrastructure, utilities and maintenance, repair and overhaul of equipment, and other expenditures directly attributable to the registered project of activity without which the registered project or activity cannot be carried out.

The following formats are attached in RMC No. 36-2022:

All IPAs shall be required to provide the BIR with a master list of all REEs which have been issued VAT 0% Certification, for counterchecking purposes.

RMC No. 38-2022, April 6, 2022
This provides for Clarifications on the Transitory Provision for the Non-Income Related Tax Incentives Granted to Registered Export Enterprises under Investment Promotion Agencies (IPAs).

This issuance clarifies the transitory provision for the non-income related tax incentives pursuant to Section 5, Rule 18 of the amended IRR in relation to Section 311 of Title XIII of CREATE Act.

All existing registered export enterprises (REEs) prior to CREATE that will continue to avail of their existing income tax incentives, may continue to enjoy the VAT zero-rating on local purchases that are directly and exclusively used in the registered project or activity until the expiration of the transitory period, as follows:

If the income tax incentive of REE has already expired prior to CREATE then, the VAT zero-rating on local purchases could no longer be availed.

RMC No. 43-2022, April 12, 2022
This prescribes the non-imposition of surcharge on amended tax returns.

In RMC No. 54-2018 when an additional tax is due per amended tax return, the 25% surcharge shall be imposed based on the additional tax to be paid, while in RMC 46-99 it is stated that no 25% surcharge shall be imposed in computing for the deficiency tax assessment as a result of a tax audit.

For a better understanding and reconcile the above RMCs, a 25% surcharge shall not be imposed on an amendment of a tax return if the taxpayer was able to file the initial tax return on or before the prescribed due date for its filing. On the other hand, the 25% surcharge shall be imposed on a tax deficiency found during audit if the particular tax return being audited was found to have been filed beyond the prescribed period or due date.

SEC OGC Opinion No. 22-01
Dated February 22, 2022
This provides for the rules on the redemption of the preferred shares.

The general rule is that treasury shares shall be deducted from the unrestricted retained earnings to arrive at the “Retained Earnings Available for Dividend Declaration”. The exception to the general rule is provided in Section 3(1) of the 1982 Rules which states that redeemed redeemable shares, although part of the treasury shares, is not subtracted from the unrestricted retained earnings to arrive at the “Retained Earning Available for Dividend Declaration.”

The exception will apply once preferred shared are redeemed, such that the amount of the retained earnings equivalent to the cost of the redeemable shares will not be restricted (i.e. non- deductibility of the cost of the treasury shares arising from such redemption from the unrestricted retained earnings), provided there are sufficient assets in the books of the corporation to cover its debts and liabilities inclusive of capital stock.

BSP Circular No. 1143, April 12, 2022
Updated Manual of Regulations for Banks and Non-Bank Financial Institutions as of 31 December 2019.

The Monetary Board has issued a Resolution approving the following amendments to the Manual of Regulations for Banks (“MORB”) and Manual of Regulations for Non-Bank Financial Institutions (“MORNBFI”) that were updated as of 31 December 2020.

The amendments include the addition of Section 8 of Circular No. 1031 dated 7 February 2019 to Section 111-S of the MORNBFI. The said provision pertains to the Processing and Licensing Fees that are applicable to NBFIs, including the Non-Stock Savings and Loans Associations

In addition, Section 324-S of the MORNBFI has been amended as well with the aim to align the provisions of Section 15 (Limitations on lending authority) item b, paragraph 2 of Republic Act No. 8367 (Revised Non-Stock Savings and Loan Association Act of 1997).

IC Circular Letter
CL-2022-20,
April 11, 2022
This amends the transitory provisions under CL No. 2020-100.

This Circular amends Section 2 of CL No. 2020-100 and includes a provision which states that for 2021, companies shall be allowed to use a discount rate not exceeding the lower of:

a. yield rate or series of yield rates that are expected to be earned from the assets of the funds that back-up the corresponding actuarial reserves over the remaining term of the contracts involved, or

b. six percent (6%) per annum in calculating the reserve liabilities for HMO products not in accordance with the products defined under CL No. 2017-19 for which the HMOs have outstanding liabilities.

All HMOs that have issued products that are not in accordance with the products defined under lC Circular Letter No. 2017-19 for which the HMOs have outstanding liabilities shall submit a quantitative impact assessment report consisting of the comparative balance sheet (statement of financial position) / income statement of the HMO, with and without regulatory relief, as of end of the applicable year, which shall be duly certified and signed by the accountant and lC-accredited HMO actuary together with CFO and shall form part of the Audited Financial Statements.

L-2022-12,
April 19, 2022
This confirms the application of Circular Letter No. 2017-58.

Section 290(b), Title 20 (Holding Companies) of the lnsurance Code, as amended by Republic Act No. 10607, provides that Control, including the terms controlling, controlled by and under common control with, means the possession directly or indirectly of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities by a contract other than a commercial contract for goods or non-management services or otherwise. Control shall be presumed to exist if any person directly or indirectly owns, controls or holds with the power to vote forty percent (40%) or more of the voting securities of any other person.

Commission is of the opinion that the proposed transaction will not result in the acquisition of control over an HMO that would require prior approval from this Commission pursuant to the subject Circular Letter considering that the acquirer, through the Philippine holding company, will effectively own only thirty percent (30%) to thirty-six percent (36%) of the domestic HMOs.

DOF Opinion No. 04.2022 - BIR ITAD No. 013-21,
April 4, 2022
The concept of an assumption is different from an exemption, the latter being the “freedom from a duty, liability or other requirement” or a “privilege given to a judgment debtor by law, allowing the debtor to retain a certain property without liability.”

The DOF ruled that Deutsche Gesellschaft für Internationale Zusammenarbeit (“GIZ”), a German government agency, is not exempt from VAT on its purchase of motor vehicles because the 2019 Exchange of Notes (“E/Ns”) between the Philippines and Germany does not provide for a tax exemption similar to the one contemplated in May 2022 E/N. The provisions in the 2019 E/Ns clearly intended a tax assumption scheme.

The DOF cited the decision of the Supreme Court (SC) in Mitsubishi Corporation – Manila Branch v. CIR, where the SC discussed the concept of tax assumption in comparison to tax exemption. In tax assumption, the obligation or liability remains, although the same is merely passed on to a different person. In this light, the concept of an assumption is different from an exemption, the latter being the “freedom from a duty, liability or other requirement” or a “privilege given to a judgment debtor by law, allowing the debtor to retain a certain property without liability.”

Moreover, the DOF ruled that GIZ cannot rely on the previous BIR ruling exempting it from payment of taxes considering that they were decided using the May 2002 E/N which was modified by subsequent E/Ns.

FIRB Advisory dated April 28, 2022
This provides advisory on the availability of updated Annual Tax Incentives Report (ATIR), Annual Benefits Report (ABR), Consolidated AITR, Consolidated ABR, and Master List templates in the Fiscal Incentives Review Board (FIRB) Website.
property without liability.”

This provides advisory on the availability of updated Annual Tax Incentives Report (ATIR), Annual Benefits Report (ABR), Consolidated AITR, Consolidated ABR, and Master List templates in the Fiscal Incentives Review Board (FIRB) Website.

Pursuant to CREAT ACT’s IRR, all Registered Business Enterprises (RBEs) and Other Registered Entities (OREs) availing of tax incentives shall, within 30 calendar days from the statutory deadline of filing tax returns and payment of taxes, submit to the Investment Promotion Agencies (IPAs) or Other Registered Entities (OGAs) administering tax incentives the ATIR and ABR, copy furnishing the FIRB.

CMC No. 55-2022,
April 21, 2022
This provides the extension of transitory period and provision of interim guidelines for product registration, including labeling requirements, for household urban/hazardous substances (HUHS).

This provides the extension of transitory period and provision of interim guidelines for product registration, including labeling requirements, for household urban/hazardous substances (HUHS).

A. The 2-year transitory period extension shall start on January 1, 2022 and end on December 31, 2023.

B. After the 2-year transitory period extension:

1. CPR shall be mandatory for all HUHS products distributed in the market.
2. Sales and Promo Permit shall be mandatory for all companies conducting promotional activities with participating HUHS products.
3. Labels of HUS products shall be fully compliant with Annex J of FDA Circular No. 2020-025, including GHS Label Elements.
4. Any requests for exhaustion of remaining stocks of non-compliant labels or HUHS products with non-compliant labels shall no longer be granted.