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.

While a waiver may have been deficient in formalities, the taxpayer's belated action in questioning its validity tilts the scales in favor of the tax authorities.

The crux of the present controversy lies in the validity of eight waivers of the defense of prescription executed successively over the course of four years (2004-2008) by the taxpayer, effectively extending the BIR's period of assessment until December 31, 2018 that was previously due to prescribe in the first quarter of 2006. By virtue of this waivers, the CIR issued and served upon the taxpayer a Formal Letter of Demand ("FLD") on July 15, 2008. When the CIR issued the FLD, the taxpayer did not question the waiver's validity. It raised this argument for the first time in its appeal to the CTA, after obtaining an unfavorable CIR decision on their administrative protest.

The Supreme Court ruled that a taxpayer's acquiescence to the BIR's extended investigation and failure to assail the waiver's validity at the earliest opportunity gives rise to estoppel. The Court held that the taxpayer's contributory fault or negligence coupled with estoppel will render effective an otherwise flawed waiver, regardless of the physical number of mistakes attributable to a party. In other words, while a waiver may have been deficient in formalities, the taxpayer's belated action in questioning its validity tilts the scales in favor of the tax authorities. (Air Transmission Corporation vs Commissioner of Internal Revenue, GR No. 230861, February 14, 2022)

The five (5)-year period to collect taxes applies only to assessments issued within the extraordinary period of 10 years in cases of false or fraudulent return or failure to file a return.

In the assailed resolutions, the CTA Division ruled that the BIR's Collection Letter was already barred by prescription and emphasized that when an assessment is timely issued, the CIR has five years to collect the assessed tax. Since the CIR sent out the FAN on December 12, 2014, he has until December 12, 2019 to collect the assessed tax. In an attempt to convince the Court that its right to collect the deficiency taxes has not yet prescribed, the CIR avers that the FDDA dated March 3, 2015 effectively operated as a collection letter.

The SC partially affirmed the CTA resolution. It held that indeed the CIR's right to collect has already prescribed, however, it ruled that the CTA Division erred in applying the 5 -year prescriptive period to collect taxes. It emphasized that the five (5)-year period to collect taxes applies only to assessments issued within the extraordinary period of 10 years in cases of false or fraudulent return or failure to file a return. It reiterated its ruling in CIR vs United Salvage and Towage, which provides that in cases of assessments issued within the 3-year ordinary period, the CIR has another 3 years within which to collect taxes. Furthermore, the Court reiterate that the CIR's collection efforts are initiated by distraint, levy, or court proceeding and not by the issuance of FDDA. In this case, no warrant of distraint or levy was served on the taxpayer and no judicial proceedings were initiated by the CIR within the prescriptive period to collect. (Commissioner of Internal Revenue vs. Court of Tax Appeals Second Division and QL Development, Inc, GR No. 258947, March 29, 2022)

The ICPA's findings and conclusions are not conclusive upon the Court.

In its motion for reconsideration of the CTA en Banc's Decision, taxpayer insists that it presented sufficient evidence to prove that its services were performed in the Philippines, citing the Independent Certified Public Accountant (ICPA) Report. It further stressed that ICPA Report should be considered and given probative value by the Court in support of its claim for refund.

In denying the Motion for Reconsideration, the CTA en banc held that the ICPA was commissioned as an officer of the Court for the purpose of performing audit functions, and not as an expert witness. Besides, even if the ICPA was presented and qualified as an expert witness, this does not mean that the Court is bound by the ICPA's testimony. The ICPA's findings and conclusions are not conclusive upon the Court. The ICPA's findings and conclusions are subject to the Court's verification, to determine their accuracy, veracity and merit. The Court may either adopt or reject the ICPA Report, wholly or partially, depending on the outcome of its own independent verification. (Procter & Gamble Asia Pte. Ltd. V. CIR, CTA EB No. 2301 (May 25, 2022)

RR No. 2-2006 merely imposes, among others, a penalty of fine for non-submission of the information or statement required therein, but not the outright denial of a claim for tax refund or credit.

The CTA En Banc ruled that RR No. 2-2006 prescribes the mandatory attachments of the SAWT to tax returns with claimed tax credits due to Creditable Tax Withheld at Source and of the MAP whose income received have been subjected to withholding tax to the withholding tax remittance return filed by the withholding agent/payor of income payments. RR No. 2-2006 merely imposes, among others, a penalty of fine for non-submission of the information or statement required therein, but not the outright denial of a claim for tax refund or credit. Therefore, there is no legal basis for the CIR to insist that the alleged non-submission of SAWT and MAP should result in the denial of taxpayer's claim for tax refund or credit. (CIR v. Sonoma Services, Inc., CTA EB No. 2467, May 24, 2022)

Only those engaged in zero-rated or effectively zero-rated sales can apply for input VAT refund.

Taxpayer is exempt from VAT as a result of it being a PAGCOR licensee. The extension of the VAT exemption to PAGCOR's licensees is to ensure that no VAT can be passed on to PAGCOR.

The CTA ruled that VAT exemption of the taxpayer does not automatically mean that its sales are subject to VAT zero-rating. VAT zero-rating is different from VAT exemption. Being VAT exempt means that no VAT, either the twelve percent (12%) or the zero-percent (0%) rate, is imposed at all for the subject sales transaction. On the other hand, engaging in VAT zero-rated transactions means that a sale is subjected to the zero percent (0%) VAT rate.

In the instant case, the records are bereft of any showing that taxpayer is engaged in zero-rated or effectively zero-rated transactions, as provided under Sections 106 (A) (2) and 108 (B) of the NIRC. As taxpayer is simply VAT exempt and has not been shown to be engaged in any of the zero-rated or effectively zero-rated transactions, it cannot claim refund of its input VAT. (Melco Resorts Leisure v. CIR, CTA CASE NOS. 9582, 9667 & 9724, May 23, 2022)

The Amended Decision is an entirely new decision which supersedes the original decision, for which a new motion for reconsideration may be filed again.

Taxpayer and CIR filed their respective Motion for Partial Reconsideration which were partially granted by the CTA Division in an Amended Decision. Both parties then filed their respective Petitions for Review with the CTA En Banc. The issue is whether or not the parties were correct to file their Petitions for Review before the Court En Banc, without filing a prior motion for reconsideration of the Amended Decision.

The Court En Banc held that as long as an amended decision was issued by the court a quo, a litigant planning to file an appeal with the Court En Banc must necessarily file a motion for reconsideration or new trial first, even though one or both litigants already filed a motion for reconsideration to the original decision. Such amended decision is considered a new or different decision which therefore calls for the filing of another motion for reconsideration or new trial, before appeal to the CTA En Banc may be made.

In the recent case of Commissioner of Internal Revenue v. Commission on Election, the Supreme Court categorically defined an amended decision as a decision which is based on a reevaluation of the parties' allegations or reconsideration of new and/or existing evidence that were not considered and/ or previously rejected in the original decision. An amended decision is different from an amended decision which is a mere clarification, one that does not need a motion for reconsideration or new trial before filing a petition for review with the Court En Banc. Here, both parties should have filed their respective motions for reconsideration of the Assailed Amended Decision before they filed their respective Petitions for Review before the Court En Banc. (Ayala Corporation v. CIR, CTA EB Nos. 2417 & 2418 (CTA Case No. 9556), May 18, 2022)

An audit investigation of the taxpayer cannot ordinarily be undertaken without a valid LOA even if it is conducted by the OCIR.

The LOA in this case was issued by the OlC-Assistant Commissioner for Large Taxpayers Service. In the organizational chart of the BIR, the LTS is under the Office of the CIR (OCIR). According to the CIR, since the audit investigation was conducted by LTS under the OCIR, the issuance of the LOA is not a statutory requirement and that the LOA issued by the LTS is merely for administrative purposes to allow keeping track of ongoing assessments. Thus, it is irrelevant, with or without LOA, under OCIR, as Section 6(A) of the NIRC of 1997, as amended, provides for inherent function to CIR and his authorized representative to authorize the examination of all taxpayers. The CIR further argued that an LOA in Section 13 of the Tax Code, as amended applies to Revenue Officers in Revenue District Offices.

The Court En Banc upheld the ruling of the Court in Division. It ruled that Section 6(A) of the Tax Code is clear that unless authorized by the CIR himself or his duly authorized representative, through a LOA, an examination of the taxpayer cannot ordinarily be undertaken. The CIR’s claim that the issuance of an LOA issued by the OIC-Assistant Commissioner for Large Taxpayers Service under the OCIR is not a statutory requirement and merely for administrative purposes to allow keeping track of ongoing assessments, has no leg to stand on. (Commissioner of Internal Revenue vs. Watsons Personal Care Stores (Philippines), Inc., CTA CEB No. 2391 [CTA Case No. 9303], May 13, 2022)

The determination of the validity of a WDL issued by the CIR falls under the "other matters" jurisdiction of this Court.

CIR asserts that the Court in Division erred in declaring the nullity of the assessment and setting aside the WDL given that both the FLD and the WDL have already became final and executory due to respondent's failure to seasonably file a protest against the FLD or an appeal against the WDL before this Court. Petitioner also emphasizes that what was appealed before this Court in the present case is the Notice of Denial of respondent's Offer of Compromise.

The CTA, citing Philippine Journalists, Inc. v. Commissioner of lnternal Revenue, ruled for the CIR. In the said case, the Supreme Court clarified that the determination of the validity of a WDL issued by the CIR falls under the "other matters" jurisdiction of this Court. In the present case, however, respondent failed to file an appeal to question the validity of the WDL dated October 22, 2013 which it received the same on even date. Instead of filing a Petition for Review before this Court, respondent merely filed an Offer of Compromise on May 2, 2014 before the BIR, more than six (6) months after it received the WDL. As a consequence, the WDL attained finality and this Court was divested of any authority to review the validity thereof. (Commissioner of Internal Revenue vs. New Farmers Plaza, Inc., CTA EB No. 2290, May 6, 2022)

RMC No. 71-2022,
May 18, 2022
This circularizes the Guidelines on the Provision of the Mandatory Statutory Benefits and Privileges of the Senior Citizens and Persons with Disabilities on their Purchases through Online (e-Commerce) and Phone Call/SMS."

E-Commerce Purchases through the internet or online platform:

• The Senior Citizen (“SC”) or Person with Disability (“PWD”) must, prior to placement of order, declare to the online platform/merchant that he/she is a Senior Citizen or a Person with Disability.
• Upon confirmation of order/s, the SC or PWD must provide/attach a scanned copy/screenshot or image of his/her lD.
• Upon delivery of the goods/orders or performance of the service purchased through the online platform the SC or the PWD, or his/her duly authorized representative, shall present the original copy of the SC or the PWD proof of entitlement together with the authorization letter, if applicable.

Purchases through the telephone or mobile phone call:

• The SC or PWD must upon placement of order provide his/her name, date of birth, and the lD number as proof of discount entitlement.
• The business establishment shall exert effort and ask the customer if he/she is a SC and/or PWD.
• After completing the order, the business establishment shall apply the appropriate discount to the price of the goods or services for the consumption of the SC or PWD.
• Upon delivery of the goods/orders or performance of the service, the SC or PWD must present his/her SC or PWD proof of entitlement together with the authorization letter, if applicable, to the business establishment representative or its third-party service provider.

Pick-up of goods purchased through e-commerce or phone/mobile:

• ln cases where the business establishment or third-party service provider offers a "pick-up" option on purchased goods, the business establishment and the thirdparty service provider shall charge the SC and PWD the discounted price. Provided that, these goods were purchased through the means covered in the JMC, Provided finally, that in case the payment of the goods will be done physically and directly to the business establishment, the amount charged must be discounted in accordance with the existing BIR rules.

DOF Opinion No. 006-2022
The application of Section 100 of the NIRC is obtaining only in the situation where a tax is sought to be avoided by the parties to a sale.

Mitsubishi Heavy Industries, Ltd. (“MHI”) and Mitsubishi Hitachi Power Systems, Ltd. (“MHPS”) are both foreign corporations organized and existing under the laws of Japan. MHI Technical Services Corporation (“MTSC”) is a domestic corporation that is 100%-owned by MHI. MHI transferred its share in MTSC to MHPS. In exchange, MHPS issued 682 common shares to MHI for a 65% ownership in the former. The BIR issued the ITAD Ruling No. 041-21, ruling that the gains realized by MHI are not subject to income tax under the Philippines-Japan Tax Treaty (“RP-Japan Treaty”). However, MHI is liable for a 30% donor’s tax under Section 100 in relation to Section 99(B) of the NIRC since the FMV of MTSC’s shares is higher than the FMV of the 682 MHPS common shares received by MHI.

The DOF ruled that there is no donor’s tax in the transfer of MHI of its MTSC shares of stock to MHPS, as under the TRAIN Law, Section 100 was amended to reflect the intention of recognizing transactions, which are bona fide at arm’s length and free from any donative intent. The application of Section 100 is obtaining only in the situation where a tax is sought to be avoided by the parties to a sale. In this case, the DOF found that because the BIR ruled the capital gains derived by MHI is exempt from income tax under the RP-Japan Treaty, MHI could not have intended to avoid the income tax due on the transfer as any gain derived from the transfer is covered by the exemption.

DOF Opinion No. 009-2022, May 16, 2022
The shareholders of the absorbed corporation keep the capital gains tax or losses on the transfer as unrealized upon receipt of the new shares from the surviving corporation. Only upon subsequent transfer of subject shares shall income tax be imposed on capital gains, if any.

The BIR issued Ruling No. S40M-017-2022 confirming the statutory merger between Toyota Cubao Incorporated (“TCI”), as the absorbed corporation, and Toyota Manila Bay Corporation (“TMBC”), as the surviving corporation, is a tax free transfer/exchange pursuant to Section 40(C)(2) off the NIRC, but found that the unrestricted retained earnings of TCI are subject to the final withholding tax on dividends constructively received by its shareholders.

The DOF found that the BIR made a reversible error when it declared that the unrestricted retained earnings of the absorbed corporation in a tax-free merger is subject to final withholding tax on dividends. When all the assets and liabilities of the absorbed corporation TCI are transferred to the surviving corporation TMBC, solely in exchange for shares of stocks, this necessarily includes all the accumulated earnings outstanding in the books of the absorbed corporation as of the time of the merger. The retained earnings of TCI are considered in determining the number of shares to be issued by TMBC. The shareholder of TCI will then receive the shares of TMBC in exchange for their shares in TCI which ceased to exist by operation of law. The shareholders of the absorbed corporation keep the capital gains tax or losses on the transfer as unrealized upon receipt of the new shares from the surviving corporation. Only upon subsequent transfer of subject shares shall income tax be imposed on capital gains, if any.

BSP Memoranda
No. M-22-026 dated May 24, 2022
This provides for the Suspension of Electronic Sabong (eSabong).

Pursuant to the Memorandum of the Executive Secretary dated 03 May 2022, all BSFIs are hereby directed to refrain from facilitating eSabong transactions by implementing the following:

a. Delist eSabong entity/operators in the list of merchants accessible in the BSFIs application (i.e. mobile, internet, etc.)
b. Given the possibility of accountholders with remaining funds in its eSabong accounts sourced from their e-wallet accounts, the BSFI should advise affected clients to cash out funds from their eSabong accounts to their e-wallet accounts within thirty (30) calendar days from the issuance of this memorandum. The BSFI should issue a notification to their customers and the merchant/eSabong operator regarding this transitory requirement.
c. After the lapse of the 30-day transitory period, the linkage of e-money wallet to eSabong account should be disabled in the system including the merchant/eSabong operator account.

BSFIs shall deal only with gambling and/or online gaming business that are authorized/icensed or registered with the appropriate government agency duly empowered by law or its charter to license/authorize entities or business to engage in such activities. Hence, it must be further clarified that, this excludes eSabong operators - the operations of which have been suspended upon order by the President.

BSFIs shall strictly observe the requirements under Part 9 of the Manual of Regulations (MOR) for Banks and MOR for Non-Bank Financial Institutions, particularly on customer due diligence, ongoing monitoring of accounts and transactions, reporting of suspicious transactions, and ensure that appropriate control measures are in place to restrict to restrict access of mjnors, government employees and other prohibited players on these online gambling facilities.

FIRB Advisory dated May 13, 1996
This Advisory provide for the Frequently Asked Questions on the Fiscal Incentives Registration and Monitoring System (FIRMS), Annual Tax Incentives Report (ATIR) and Annual Benefits Reports (ABR)

• A single/individual user can have multiple accounts, provided that there are unique email addresses provided per account per legal entity/Tax Identification Number (TIN).
• FIRMS observes a one-to-one relationship between a user account and the corresponding TIN. This means that a FIRMS account is uniquely identified to a single TIN (regardless of branch code). However, we emphasize that one account can register multiple projects housed under one legal entity/one TIN.
• For the purpose of filling-out Form B in FIRMS, the start date of tax incentives for projects/activities shall refer to the date when the RBE first availed of the specific tax incentive based on its initial and original registration with the IPA. However, the reckoning period of the transitory provision under Section 311 of the Tax Code is the effectivity date of the CREATE Act, which is April 11, 2021.
• Locators entitled to and will be availing of tax incentives for the year are required to apply for the CETI from the IPA. For this year’s tax filing (covering the taxable year 2021), the existing Certificate of Registration (COR) or Certificate of Registration and Tax Exemption (CRTE) or other similar registration documents shall be allowed.
• For the taxable year 2021, the Bureau of Internal Revenue (BIR) accepts the official issuances of the IPAs (such as the CRTE or COR) as proof of the RBEs’ entitlements. Moving forward, the BIR will be requiring the Certifcate of Entitlement to Tax Incentives (CETI).
• CREATE incentives can be availed by new and existing enterprises, as long as the project or activity to be registered is listed in the Strategic Investment Priority Plan (SIPP). However, for existing enterprises, incentives may be granted only to qualified expansions or entirely new projects.
• A BOI-registered company only entitled to local tax exemption is still required to register under FIRMS. FIRMS will serve as a centralized portal for approving and monitoring tax incentives and will be used to enroll existing and prospective RBEs.
• Under the CREATE Act, the FIRB will decide on applications for tax incentives for projects or activities with investment capital of more than PHP 1 billion. Approval of projects or activities with investment capital of PHP 1 billion and below are delegated to the IPAs.

CAO No. 02-2022 dated March 28, 2022
This Customs Administrative Order (CAO) implements the ATA Carnet System in the Philippines in accordance with the 1990 World Customs Organization (WCO) Convention on Temporary Admission (Istanbul Convention).

This CAO covers the importation or exportation of conditionally duty and tax-free goods which are included in the Annexes to the Istanbul Convention and acceded to by the Philippines using ATA Carnets.

The ATA Carnet refers to the Temporary Admission Papers used for the Temporary Admission of goods, excluding means of transport. The ATA System allows the free movement of goods across frontiers and their temporary admission into a customs territory with relief from duties and taxes.

Importation of goods shall be granted Temporary Admission subject to the following conditions: (1) the goods, including means of transport) must be imported for a specific purpose; (2) the goods must be intended for re-exportation within the minimum period specified under the Istanbul Convention; and (3) the goods shall not undergo any change except normal depreciation due to the use made of them.

The Bureau shall accept, in lieu of the regular SAD or Informal Declaration and Entry (BOC Form no. 177), a validly issued ATA Carnet as a Goods Declaration for goods temporarily imported into the country and covered under the CAO.

CMC No. 58-2022 dated May 2, 2022
This is a PEZA Resolution regarding the return to the Work-From-Home (WFH) policy adopted by PEZA.

The following guidelines shall be observed:

1. From 01 April 2022 to 12 September 2022, the WFH arrangement may be granted to all kinds of RBEs, whether registered before or after the effectivity of the CREATE Act, as a BCP measure due to the Covid-19 Pandemic.
   
   From 13 September 2022 and onwards, the WFH arrangement shall then be granted to all kinds of RBEs registered prior to the effectivity of the CREATE Act only, in recognition of the sunset provision of the said law. On the other hand, RBEs registered after the effectivity of the CREATE Act shall be fully covered by the terms and conditions for the availment of the incentives under the said law. Nevertheless, the same WFH policy may be extended to the RBEs registered under the CREATE Act subject to the confirmation by the Board of Investments (BOI) through inclusion in the Strategic Investment Priority Plan (SIPP) or any enabling laws and regulations.
   
   
2. Pursuant to the sunset provision of the CREATE Act, an RBE shall continue to be entitled to its granted fiscal and non-fiscal incentives prior to the effectivity of the said law. Further, the terms and conditions for the availment of the incentives shall continue to be covered by the Registration Agreement of the RBE with PEZA for the said project. Furthermore, the corresponding PEZA policies for the availment of the incentives shall be the ones in force during the execution of the Registration Agreement for the said project.
   
   
3. Management shall issue a WFH Letter of Authority (LOA) on a case-to-case basis.
   
   
4. The percentage threshold of the workforce to undergo WFH arrangement should not exceed 30% of the total workforce of an RBE on all its registered sites.
   
   
5. If an RBE exceeds the 30% WFH workforce threshold, its entitlement to incentives may be revoked pursuant to the applicable provisions of the CREATE Act.