Tax Articles

A Decade of BDB Law

By Atty. Irwin C. Nidea, Jr.

I joined BDB Law, a few months after its inception. It seems like yesterday when a firm of one lawyer, one secretary and one liaison officer, grew to around forty (40) personnel in the last ten (10) years – a boutique firm specializing in tax and corporate law.

To show its gratitude to clients and friends, and as part of the celebration of its 10th anniversary, BDB Law sponsored a Mid-Year Tax Forum that tackled three (3) important topics:

1. Boarding the Tax Train: After the first stage of TRAIN Law implementation, there is now sufficient period to assess its effect and the challenges in making it work. The speakers from the Bureau of Internal Revenue (BIR) and the Department of Finance (DOF) asserted that the TRAIN is working. There was an increase in tax collection which helped realize the infrastructure programs of the government. As regards the general tax amnesty, it seems that the DOF will not initiate the refiling of the same in Congress. If we want the general tax amnesty to pass, our Congressmen must be willing to include a provision of waiver of the bank secrecy law. The BIR is also firm in its stand that the definition of “delinquencies” is limited to assessments that have become final and executory. Thus, “delinquencies” arising from non-payment of the tax liability declared in the tax returns, are not covered by the tax amnesty law.

2. Taxing the Digital: This panel discussion was very interesting since the speakers are experts from Singapore and Malaysia who have wide experience in the realm of digital economy. The panel discussion revolved around the rise of Fin-Techs and the much urgent need to plug the Digital Leaks. There is also an increase use of e-commerce, cryptocurrencies and blockchain technology. They present tax compliance challenges for both the businesses and governments.

Because of digital technology, the definition of ‘Permanent Establishment” is evolving. With the rise of e-commerce and the digital economy, determining the source of the income is more vague. Income has no intrinsic geographical location attached to it. The assets and activities involved in generating the income can be located in more than one State, thus rendering the source unclear – A single firm’s activities can potentially stretch across multiple boundaries – E.g. business profits derived from the manufacture of goods in State A, the sale of the goods through an online platform based in State B, and the delivery of the goods to the consumer in State C. Thus, Source Taxation is becoming more challenging as a meaningful starting point for international taxation allocation.

There was also a discussion on transfer pricing. It is a rich revenue source that the BIR continuously disregard. There are Philippine conglomerates and multinational corporations which do not buy and sell to each other, at arm’s length. Tax leakages are rampant because the BIR may not have the capability and facility to implement transfer pricing rules. It was eye opening to learn in 2011, Starbucks had a £398Million revenue but paid zero (0) tax in the UK? Google on the other hand, had a £2.6 Billion revenue in 2011 in the UK, but only paid £6 Million in tax.

3. The last panel discussion is entitled: Tilting the Balance towards Transparent, Sustainable and Inclusive Taxation. Enforcement of greater transparency in reporting and ensuring that the tax revenues will go towards improving the quality of life of the citizens are issues that are driving tax policies. Companies need to brace themselves for these developments and start re-assessing business and tax strategies in the light of the future demand for public disclosures of tax information.

After an afternoon of intense discussions, BDB Law celebrated with clients and friends in a night of cocktail and broadway. A new book of the Tax Code, which includes a complete annotation of recent Revenue Regulations and Revenue Memorandum Circulars, including TRAIN 1 and the latest amendments to RR 2-98, have also been launched. Copies of the new Tax Code have been given to clients and friends.

July 8 was a day of thanksgiving and celebration. BDB Law hopes to continue on its quest to contribute in tax education as it writes in this space for the next decades to come.