BIR Law & Legislative Rulings Digest
BIR rulings serve taxpayers seeking quick information on certain selected topics. As conceived, the references aim to provide a topical approach to the latest tax rules pertaining to frequently encountered situations and to matters of current concern.
UNDER CREATE LAW, VAT ZERO-RATING IS LIMITED TO GOODS & SERVICES USED EXCLUSIVELY IN THE REGISTERED PROJECT OF THE EXPORT ENTERPRISE
BIR RULING NO. 014-2024, FEBRUARY 22, 2024
Batangas State University (BSU) is seeking confirmation on the application of VAT zero-rating on its transaction with C Co., a construction company. BSU is registered with the Philippine Economic Zone Authority (PEZA) as an Ecozone Developer or Operator for the "BatStateU Knowledge, Innovation, and Science Technology Park" (KIST). The university has entered into a Construction Agreement with C Co. for Phase 1 of the "Kist Park Site Development" at its Alangilan campus. It is asserted that Section 295(D) of the Corporate Recovery and Tax Incentives for Enterprises Act (CREATE) allows for VAT exemptions and zero-rating incentives on goods and services used exclusively for the registered project or activity by Registered Business Enterprises (RBEs) such as BSU. In ruling, the BIR made reference to Section 311 of the 1997 Tax Code, as amended by CREATE Law, as implemented by Rule 18 of the Amended Implementing Rules and Regulations (IRR) of CREATE Law, which provides that RBEs may continue to avail of the income tax incentives granted to them before the effectivity of the CREATE Law (i.e., Income Tax Holiday ("ITH"), and a 5% tax on gross income earned incentive after the ITH). However, these income tax incentives are available only during the transitory period. For the ITH, this means the remaining period as specified in the terms and conditions of their registration. For the 5% Gross Income Tax, the transitory period is ten (10) years from the effectivity of the CREATE Law or until April 11, 2031. Regarding the VAT zero-rating incentive, Section 5, Rule 18 of the amended IRR of the CREATE Law states that VAT zero-rating on local purchases applies only to goods and services directly attributable to and exclusively used in the registered project or activity of export enterprises until the expiration of the transitory period. Thus, a Registered Export Enterprise (REE) may still avail itself of the VAT zero rating, but only for goods and services directly attributable to and exclusively used in their registered project or activity. Consequently, since BSU is a non-export enterprise, its income payment to C Co. for the Project's construction is subject to 12% VAT.
WHILE PSALM IS AUTHORIZED UNDER THE EPIRA TO RECEIVE CHARGES, THE UNIVERSAL CHARGE IS NOT COMPENSATION FOR SERVICES PERFORMED BY THEM
UNIVERSAL CHARGE SHALL NOT BE DEEMED PART OF THE GROSS RECEIPTS OF PSALM FOR VAT PURPOSES
BIR RULING NO. 013-2024, FEBRUARY 22, 2024
National Power Corporation is seeking confirmation whether the Universal Charge for Missionary Electrification (UCME) subsidy remitted by the Power Assets and Liabilities Management Corporation (PSALM) to them is not subject to 12% Value-Added Tax (VAT). In ruling, the BIR referred to BIR Ruling No. 020-02 which held that the Universal Charges to be collected by the distribution utilities do not belong to PSALM and since they would not redound to its benefit, the same would not be considered in the nature of income. Additionally, the distribution utilities will collect the Universal Charges from all end-users. These charges will be remitted to PSALM and used exclusively for liquidating the stranded debts and stranded costs of NPC, as well as the qualified stranded contract costs of distribution utilities resulting from the restructuring of the industry. The Electric Power Industry Reform Act of 2001 (EPIRA) stipulates that the Universal Charge is non-bypassable. Furthermore, The Universal Charge received by PSALM will not be subject to income tax, as it does not constitute income under Section 32(A) of the Tax Code of 1997. This section defines income as gains, profits, and income derived from various sources, including salaries, wages, business transactions, and property dealings. Instead, the Universal Charge is directed to a Special Trust Fund as stipulated by the EPIRA, with PSALM acting merely as an administrator, ensuring the funds are disbursed to the respective beneficiaries. Additionally, the Universal Charge is not part of PSALM's gross receipts for VAT purposes, as it is not compensation for services but is earmarked for specific uses. Given this, since the UCME subsidy fund collected by the distribution utilities and/or electric cooperatives from consumers are eventually remitted in trust to PSALM for transfer to NPC, they are not considered a flow of wealth for PSALM and/or NPC and cannot be part of their gross receipts. Hence, these funds are not subject to VAT. For New Power Providers (NPPs) and Qualified Third Parties (QTPs) operating in remote off-grid areas, payments from the Universal Charge for Missionary Electrification fund are subject to zero-rated VAT under Section 6 of Republic Act No. 9136. However, if these NPPs or QTPs are registered with the Cooperative Development Authority and considered electric cooperatives, they are VAT-exempt under Republic Act No. 9520.
A CHANGE IN INVENTORY VALUATION METHOD IS PERMISSIBLE WITH THE APPROVAL OF BIR, AS SUCH CHANGE IS NEEDED FOR THE ADOPTION OF A NEW CAS
BIR RULING NO. 011-2024, FEBRUARY 22, 2024
N Co., a company engaged in the development of agricultural lands, production, and sale of farm and animal products, is requesting approval to change its accounting method of inventory costing from the First-In-First-Out (FIFO) method to the Moving Average method effective January 1, 2022. The company has adapted the FIFO method since its incorporation for its agriculture supplies, construction supplies, spare parts, fuel, oil and lubricants, office supplies, livestock supplies, manufacturing supplies, and other supplies. The reason for such a decision was to facilitate its cost accounting and optimize the use of its computerized system. In reply, the request was granted considering that the change in accounting method is needed due to the adoption of the new CAS, pursuant to the provision of Section 41 of the 1997 Tax Code, as amended, and Section 145 of Revenue Regulations (RR) No. 2-40. Consequently, such a change is subject to the BIR’s post-audit to check whether the new method indeed conforms to the best accounting practice, and accurately reflects the company’s income.
CASH DISTRIBUTION RECEIVED BY A NON-RESIDENT FOREIGN CORPORATION ARISING FROM PDRS ISSUED BY A HOLDING COMPANY OF A MASS MEDIA ENTITY IS NOT CONSIDERED DIVIDEND SUBJECT TO A LOWER TREATY TAX RATE OF 15% INSTEAD THE SAME IS IN THE NATURE OF INTEREST SUBJECT TO RCIT OF 25%
BIR RULING NO. 009-2024, FEBRUARY 21, 2024
S Law Center is seeking confirmation that cash distributions received by Mercury Media arising from Philippine Depository Receipts (PDRs) issued by ABS Holdings over shares of stock in ABS-CBN are cash dividends for Philippine income tax purposes and subject to the tax-sparing rate of 15%. Citing Section 28(B)(5)(b) of the 1997 Tax Code, as amended, S Law Center is of the position that dividends paid by a domestic corporation to a Non-Resident Foreign Corporation (NRFC) shall allow a tax credit against the tax due from the NFRC taxes deemed to have been paid in the Philippines equivalent to 15%. Furthermore, under Section 73(A) and 28(M) of the Tax Code, a PDR holder may be considered a shareholder and a recipient of dividends if he/she/it has the option to purchase the shares underlying the PDR. In reply, the Bureau opined that Mercury Media cannot be considered a shareholder entitled to receive dividends, considering that it is not a corporation wholly owned and managed by Filipino citizens and does not have the legal right or option under the PDR instrument to purchase the underlying ABS-CBN share. Moreover, the PDRs issued to Mercury Media are unsubordinated and unsecured obligations of ABS Holdings, and any amount received from Mercury Media upon the issuance of PDRs is considered by ABS Holdings as a deposit, secured by its shares in ABS-CBN. Consequently, the cash distributions made by ABS Holdings to Mercury Media are not cash dividends subject to a lower tax rate of 15%, instead, it is interest income subject to a regular tax of 30%. (now 25% under CREATE law).
PHILIPPINE DEPOSITARY RECEIPTS HOLDER MUST HAVE THE OPTION TO PURCHASE UNDERLYING SHARE TO BE CONSIDERED SHAREHOLDER
RESTRICTION ON THE OWNERSHIP & MANAGEMENT OF MASS MEDIA TO PHILIPPINE NATIONALS
BIR RULING NO. 006-2024, JANUARY 24, 2024
P Co. is requesting a ruling confirming that the cash distributions received by Mercury Media, a non-resident foreign corporation, arising from Philippine Depositary Receipts (PDR) issued by ABS-CBN Holdings over shares of stocks in ABS-CBN Corporation are cash dividends subject to 15% tax-sparing rate. In reply, it may be inferred based on the definitions in Section 73(A) and Section 22(M) of the 1997 Tax Code, as amended, that a PDR holder may be considered a shareholder and a recipient of dividends if there is an option to purchase the shares underlying the PDR. In addition, it must be emphasized that Section 11(1), Article XVI (General Provisions) of the 1987 Constitution restricts the ownership and management of mass media, like ABS-CBN, to Filipino citizens or juridical persons managed by such Filipino citizens. It also mentioned that if the PDR holder is not permitted under the law to own the said share, it cannot compel the delivery thereof but is obliged to accept instead the net proceeds of the sale of these shares in an open market. In this case, Mercury Media does not have a legal right or option under the PDR instrument to purchase the underlying shares since the ownership is reserved for Philippine Nationals. Furthermore, the issued PDRs are unsubordinated and unsecured obligations of ABS Holdings, and any amount received from Mercury Media upon issuance is considered as a deposit, secured by its shares in ABS-CBN. In view of this, the cash distributions are not cash dividends subject to 15% under Section 28(B)(5)(b) of the 1997 Tax Code, as amended, but are interest subject to 30% under Section 28(B) thereof.
DISTURBANCE COMPENSATION RECEIVED BY ASSIGNEE AS A RESULT OF EXTINGUISHMENT OF TENANCY RELATIONSHIP BECAUSE OF RECLASSIFICATION OF AGRICULTURAL LAND INTO NON-AGRICULTURAL LAND IS EXEMPT FROM CGT & DST
BIR RULING NO. 005-2024, JANUARY 18, 2024
Certain individuals are seeking requests for exemption from the payment of Capital Gains Tax (CGT) and Documentary Stamp Tax (DST) on the Deeds of Assignment executed by them over a portion of land conveyed as Disturbance Compensation under the Republic Act (R.A.) No. 3844, otherwise known as the “Agricultural Land Reform Code,” as amended. In reply, the transfer of real property by way of Disturbance Compensation is exempt from CGT and DST pursuant to R.A. No. 6657, otherwise known as the “Comprehensive Agrarian Reform Law of 1988.” Moreover, R.A. No. 3844 allows Disturbance Compensation to the tenant as a result of the extinguishment of the tenancy relationship by reason of the reclassification or conversion of the agricultural land into non-agricultural land. However, documents submitted failed to prove that the disturbance compensation received by the assignees was a result of the extinguishment of tenancy relationship because of the reclassification or conversion of the agricultural land into residential, commercial, industrial or some other urban purposes. Hence, the transfer of the subject parcel of land in favor of the assignees is subject to CGT and DST.
DELIVERY OF CARBON EMISSION CREDITS IS EXEMPT FROM TAX UNDER THE RENEWABLE ENERGY LAW
BIR RULING NO. 107-2023, DECEMBER 18, 2023
E Co. is requesting confirmation that its assignment to the Japanese Government of its carbon credits in the form of Joint Crediting Mechanism (JCM) Program credits in exchange for cash, constitute a sale of carbon emission credit, the proceeds of which are exempt from any and all taxes pursuant to the Republic Act (R.A.) No. 9513, otherwise known as the “Renewable Energy Act of 2008.” In reply, the fiscal incentives provided under R.A. No. 9513 are also stated in the Revenue Regulations (RR) No. 7-2022. A perusal of the Agreement shows that the elements of a Contract of Sale are present in the case at bar. Given that the delivery of carbon emission credits under the JCM Program to the Japanese Government, for tax purposes, partakes the nature of a sale, as contemplated under R.A. No. 9513 and RR No. 7-2022, the proceeds received by E Co. relating to such sale (or the funding received from the Japanese Government) is exempt from any and all taxes under the existing laws, rules and regulations.
THE AGENCY/ADMINISTRATIVE FEE RECEIVED FROM ITS CUSTOMERS/CLIENTS IS SUBJECT TO WITHHOLDING TAX
THE SALARIES OF GUARDS RECEIVED BY SECURITY AGENCY FROM ITS CUSTOMERS/CLIENTS ARE EARMARKED & SEGREGATED, HENCE, DO NOT FORM PART OF SECURITY AGENCY’S GROSS INCOME
BIR RULING NO. 093-2023, NOVEMBER 9, 2023
P Co. is seeking confirmation that only the income from the agency/administrative fee received from its customers/clients is subject to withholding tax. As represented, its customers are charging an administrative fee of 10% of the total contract costs in accordance with Section 11(b)(iii) of Department Order No. 174, Series of 2017. In reply, Section 2.57.2(C)(4)(g) of Revenue Regulations (RR) No. 3-98, as amended, states that a creditable income tax shall be withheld from the gross payments to contractors relating to the provision of messengerial, janitorial, and other manpower services. Furthermore, citing Section 1, Rule XIV of the 1994 Revised Rules and Regulations implementing Republic Act No. 5487, as amended, which governs the “Organization and Operation of Private Security Agencies and Company Security Forces throughout the Philippines,” provides that salaries of the guards received by a security agency from its customers/clients are earmarked and segregated for the said guards. However, nothing in its context would manifest or suggest the intention to have it applied to other manpower agencies such as janitorial or messengerial services. Hence, said RMC will only apply to janitorial services. Therefore, the income payments of customers/clients of P Co., which includes not only the agency or administrative fees but also the salaries, employer share of SSS, Philhealth and HDMF, and proportion of the 13th month, shall be subject to withholding tax.
EXTENT OF TAX EXEMPTION OF HOMEOWNERS’ ASSOCIATION
BIR RULING NO. 076-2023, JUNE 9, 2023
P Homeowners Association, a non-stock, and non-profit residential homeowners’ association, is requesting a tax exemption pursuant to the Republic Act (R.A.) No. 9904 or “Magna Carta for Homeowners and Homeowners’ Associations” in reference to Revenue Memorandum Circular (RMC) No. 9-2013 which clarifies the taxability of association dues, membership fees, and other assessments/charges collected by Homeowners’ Associations (HOAs). As represented, it is a duly registered HOA with the Housing and Land Use Regulatory Board (HLURB); that its financial statements show the delivery of basic community services under Section 3(d) of R.A. No. 9904; and the Local Government Unit (LGU) having jurisdiction of the HOA has issued a Certificate that it does not provide material or financial assistance to the Association in the maintenance of its subdivision since it is a private subdivision and the allocation of funds for private subdivisions is contrary to law. In ruling, income derived from association dues, membership fees, other assessments, and charges collected on a purely reimbursement basis and rentals of facilities is exempt from income tax, Value-Added Tax (VAT), or Percentage Tax, whichever is applicable; provided, that such income and dues shall be used for the cleanliness, safety, security, and other basic services needed by the members, including the maintenance of the facilities of their respective subdivisions or villages. However, it shall be subject to the applicable internal revenue taxes on its other income from trade, business, or other activities.
VAT-EXEMPT IMPORTATION OF CARGO VESSEL
BIR RULING NO. 075-2023, JUNE 9, 2023
RSL, a corporation engaged in the domestic shipping business duly accredited by the Maritime Industry Authority (MARINA), is requesting Value-Added Tax (VAT) Exemption on its importation of one unit deck cargo vessel pursuant to Section 109 (1)(T) of the 1997 Tax Code, as amended. In reply, Section 109 (1)(T) of the 1997 Tax Code, as amended, provides that the importation of cargo vessels destined for domestic transport operations shall be exempt from VAT. In relation, Section 4.109-1 (B)(1)(t) of the Revenue Regulations (RR) No. 16-2005, as amended by RR No. 15-2015, provides that for importation to be VAT-exempt, the importation of cargo vessel shall be subject to the requirements on restriction on vessel importation and mandatory vessel retirement program of MARINA. As noted, the imported deck cargo vessel has been issued by MARINA with the required. Hence, the importation of the said vessel is deemed compliant with the requirements on restriction on vessel importation and mandatory vessel retirement program of MARINA, thus, VAT exempt.
QUALIFICATION IN THE CERTIFICATION OF HOMEOWNERS’ ASSOCIATION TO BE TAX EXEMPT
BIR RULING NO. 074-2023, JUNE 7, 2023
S Homeowner’s Association, a non-stock, non-profit residential homeowners' association, is seeking confirmation whether it is entitled to exemption from all taxes under the Republic Act (R.A.) No. 9904, otherwise known as the “Magna Carta for Homeowners and Homeowner’s Associations,” as enunciated in Revenue Memorandum Circular (RMC) No. 9-2013 which clarifies the taxability of association dues, membership fees, and other assessments/charges collected by Homeowners’ Associations. As represented, it is a duly registered Homeowners' Association with the Housing and Land Use Regulatory Board (HLURB); its certification shows that it is rendering basic services for their subdivision such as security, maintenance of streets inside the subdivision, garbage collection, and disposal from their association dues. In reply, the Association does not fall within the purview of those homeowners’ associations which may be exempted under Section 18 of R.A. No. 9904. The requisite qualification that the local government unit (LGU) concerned lacks resources to provide basic services is absent from the Certification issued by the LGU. Thus, the request for confirmation cannot be granted for lack of factual and legal basis. Consequently, it shall be subject to the applicable internal revenue taxes on its income from association dues, rentals of their facilities, trade, business, and other activities.
NON-STOCK SAVINGS & LOANS ASSOCIATIONS ARE SUBJECT TO GROSS RECEIPTS TAX IF THEY ARE ENGAGED IN THE BUSINESS OF BEING NON-BANK FINANCIAL INTERMEDIARIES UNDER THE BSP MANUAL OF REGULATIONS
BIR RULING NO. 072-2023, JUNE 7, 2023
NPC Savings and Loan Association (NPCSLA) is requesting a confirmatory ruling on whether a Non-Stock Savings and Loan Association (NSSLA) organized and operated exclusively for the mutual benefit of its members is subject to Gross Receipts Tax (GRT) as clarified in Revenue Memorandum Circular (RMC) No. 9-2016. As represented, the Bangko Sentral ng Pilipinas (BSP) issued a Certificate of Authority to operate as an NSSLA pursuant to the Republic Act (R.A.) No. 3779, as amended by R.A. No. 8367, otherwise known as the “Revised Non-Stock Savings and Loan Association Act of 1997.” In reply, Sections 3 and 5 of R.A. No. 8367 define tax-exempt NSSLA as one engaged in the business of accumulating the savings of its members and using such accumulations for loans to service the needs of households by providing long-term financing for home building and development and for personal finance. As clarified in RMC No. 9-2016, it provides that NSSLAs are under the direct supervision and regulation of the BSP and, for regulatory purposes, they are classified as Non-Bank Financial Intermediaries (NBFIs) under the BSP Manual of Regulations. Revenue Regulations (RR) No. 9-2004 imposes GRT on NBFIs engaged in the lending of funds or purchasing of receivables or other obligations with funds obtained from the public. Based on the foregoing, NSSLAs are subject to GRT if they are engaged in the business of being a NBFI as defined under RR No. 9-2004, that is, if the NSSLAs are obtaining funds from the public. However, it may be exempt from GRT if they can prove that they do not engage in activities as NBFI as defined under RR No. 9-2004. Consequently, in the case of NPCSLA, the request for exemption from GRT based only on the representation that its members are all NSSLA organized pursuant to R.A. No. 8367 is denied.
SOFT COPY OR SCANNED COPY OF RECEIPTS IS NOT SUFFICIENT TO COMPLY WITH BIR RETENTION POLICY
BIR RULING NO. 070-2023, JUNE 6, 2023
B Co. is seeking an opinion on maintaining only the soft copy of documents evidencing staff claims for reimbursements. As represented, B Co. provides management consulting services and commonly that its staff will incur business expenditures when performing their duties wherein the staff is allowed to file claims for expenses electronically which are retained in the expenses management system. In reply, Section 34 (A)(1)(b) of the 1997 Tax Code, as amended, provides for the substantiation requirement of ordinary or business expenses with sufficient evidence, such as official receipts or other adequate records. In BIR Ruling No. 027-01 citing the cases of Zamora vs. Collector and Visayan Cebu Terminal Co., Inc. vs. Collector, provides that for an expense to be deductible, generally, the BIR only accepts the original copy of the receipt/s. A taxpayer may retain only an electronic copy of such accounting records in an electronic storage system for the remaining five (5) year period, provided that the taxpayer shall comply with Section 2-A of Revenue Regulations (RR) No. 17-2013, as amended. Furthermore, the absence of original receipts or records does not prevent a taxpayer from proving by other evidence that the claimed deduction was really paid or incurred. However, pursuant to Republic Act (RA) No. 8792, otherwise known as the “Electronic Commerce Act of the Philippines (E-Commerce Act)” scanned document alone cannot prove the integrity of the document. Thus, it is not considered an electronic document and, therefore, not an original document. In view of the foregoing, the scanned copies of the receipts/bills evidencing the business expenses incurred by the staff are not sufficient for record-keeping purposes under Sections 34 (A)(1)(b) and 237 of the 1997 Tax Code, as amended.
IT WOULD NOT BE FAIR TO ALLOW REAL ESTATE BUSINESSES TO PAY THE LOWER CAPITAL GAINS TAX RATE WHILE OTHER BUSINESSES ARE SUBJECT TO THE HIGHER INCOME TAX RATE
BIR RULING NO. 067-2023, JUNE 6, 2023
Development Bank of the Philippines (DBP) is requesting the amendment of Section 3(e) of the Revenue Regulations (RR) No. 7-2003 in connection with the treatment of abandoned and idle properties acquired by a taxpayer engaged in the real estate business. Section 3(e) of RR No. 7-2003 mandates that abandonment of real properties that formed part of the stock in trade of a taxpayer engaged in real estate business, will not convert the classification of the said properties from ordinary assets to capital assets. In ruling, the request for amendment cannot be granted for lack of legal basis. For real estate businesses, selling real properties is not just a one-time event, but a regular and integral part of their business operations. As such, it is appropriate for real estate businesses to be subjected to regular income tax on their profits, rather than capital gains tax, which is generally intended for individuals who may have only occasional capital gains.
A MERGER, TO BE CONSIDERED TAX-FREE, REQUIRES THE ISSUANCE OF NEW SHARES IN EXCHANGE FOR PROPERTY
BIR RULING NO. 064-2023, JUNE 6, 2023
M Co. is requesting a ruling that the merger between M Co. and P Co. qualifies as a tax-free merger in accordance with Revenue Regulations (RR) No. 18-2001 and Revenue Memorandum Order (RMO) No. 32-2001 pursuant to Section 40 (c) of the 1997 Tax Code, as amended. In reply, Section 40 (C) of the 1997 Tax Code, as amended, provides that to qualify as an exception to the recognition of the gain or loss upon the sale or exchange of property, a corporation that is a party to a merger exchanges its property for stock in another corporation which is also a party to the merger. Here, there was no exchange of property solely for stock in another corporation. P Co., as the absorbed corporation, transferred all the respective rights, businesses, assets, and other properties including, but not limited to, all real properties, contractual rights, licenses, privileges, property rights, claims, bank deposits, stocks, accounts receivable, credit lines, supplies, equipment, motor vehicles, and such other assets to M Co., as the surviving corporation, without any issuance of shares of stocks in favor of the stockholders of P Co. Although the merger is a valid reorganization, that alone is not sufficient to afford non-recognition of gain or loss obtained in the transactions. Therefore, the merger of P Co. into M Co. does not qualify as a tax-free merger under Section 40 (C) of the 1997 Tax Code, as amended.
MERGER WITHOUT ISSUANCE OF SHARES ARE NOT TAX-FREE
BIR RULING NO. 063-2023, JUNE 1, 2023
M Co. is requesting confirmation that the statutory merger of M Co. and W Co., with M Co. as the surviving corporation, qualifies as a tax-free merger under Section 40(C)(2)(a) in relation to Section 40(C)(6)(b) of the 1997 Tax Code, as amended. In reply, Section 40 (C)(1) & (2) of the 1997 Tax Code, as amended, provides that to qualify as an exception to the recognition of the gain or loss upon the sale or exchange of property, a corporation which is a party to a merger exchanges its property solely for stock in another corporation which is also a party to the merger. However, there was no exchange of property solely for stock in another corporation. W Co., as the absorbed corporation, transferred all its assets and liabilities to M Co., as the surviving corporation, without the issuance of shares to the absorbed corporation as stated in the Plan of Merger. Although the merger is a valid reorganization, that alone is not sufficient to afford the non-recognition of gain or loss obtained in the transactions. Therefore, the merger of W Co. into M Co. does not qualify as a tax-free merger under Section 40(C)(2) of the 1997 Tax Code, as amended.
VAT ZERO RATING ON SERVICES RENDERED BY FILIPINO ENTITY TO NON-RESIDENT FOREIGN CORPORATION NOT DOING BUSINESS IN THE PHILIPPINES
BIR RULING NO. 060-2023, MAY 29, 2023
The Defense Threat Reduction Agency (DTRA), a non-resident foreign corporation, not doing business in the Philippines, is requesting confirmation that any Filipino entity that renders service to the DTRA and pays the former in an acceptable foreign currency, is subject to a zero-rated Value-Added Tax (VAT) rate. In reply, Section 108 (B) (2) of the 1997 Tax Code, as amended, provides that services rendered by any Filipino VAT-registered entity towards DTRA or any of its foreign-based contractors, which are paid for in acceptable foreign currency, may qualify for VAT zero-rating, provided, that the same is remitted inwardly and accounted for in according with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP). Citing the Supreme Court (SC) case of Chevron Holdings, Inc. vs. Commissioner of Internal Revenue (CIR), the requirements for VAT zero-rating in Section 108 (B) (2) that must concur are: (1) services rendered should be other than processing, manufacturing or repacking of goods; (2) services are performed in the Philippines; (3) service recipient is a person engaged in business conducted outside the Philippines or a non-resident person not engaged in a business which is outside the Philippines when the services are performed; and (4) services are paid for in acceptable foreign currency inwardly remitted and accounted for in conformity with BSP rules and regulations. Thus, services rendered by any Filipino VAT-registered entity towards DTRA or any of its foreign-based contractors may qualify for a VAT zero rating.
DENIED INPUT VAT ARISING FROM FAILURE TO SUBSTANTIATE ZERO-RATED SALES CANNOT BE CLAIMED AS DEDUCTIONS
BIR RULING NO. 059-2023, MAY 19, 2023
L Co. is requesting confirmation that a denial of its application for input Value-Added Tax (VAT) refund due to non-substantiation of its zero-rated transactions, shall allow the company to utilize the denied amount of claim as a deduction for income tax purposes. As represented, L Co. filed its application for a VAT refund for excess input VAT related to zero-rated sales on its export sales operation. However, it was denied due to its failure to substantiate the existence of zero-rated sales. In reply, Section 112(A) of the 1997 Tax Code, as amended, provides that the excess input tax attributable to zero-rated or effectively zero-rated transactions can only be refunded or credited against the taxpayer’s other national internal revenue tax. Electing one of the options has the effect of excluding the other form being availed of. However, nothing in the Tax Code, as amended, authorizes the utilization of the denied claim for input VAT refund as deductions to its income tax. Consequently, the request for confirmation was denied for lack of legal basis.
PRESERVATION OF ELECTRONIC SCANNED COPIES OF INVOICES & RECEIPTS INSTEAD OF ORIGINAL MUST COMPLY WITH RULES ON RETENTION PERIOD
BIR RULING NO. 057-2023, MAY 19, 2023
AG Co. and AP Co. are requesting a confirmatory ruling that its preservation of the electronic scanned copies of the invoices and receipts of their domestic suppliers and vendors, instead of the original hard copies, is sufficient to comply with Section 237 of the 1997 Tax Code, as amended by Republic Act (R.A.) No. 10963, otherwise known as the “Tax Reform for Acceleration and Inclusion (TRAIN) Law.” As represented, both are classified as Large Taxpayers (LTs) and have been granted a Permit to Adopt/Use Computerized Books of Account and other Accounting Records (CBA/AR). In reply, Section 237 (A) of the 1997 Tax Code, as amended, provides the rule on the preservation and maintenance of the original of each receipt and invoice to the purchases, customers, or clients. As noted, the TRAIN Law now allows electronic receipts and commercial invoices in lieu of manual receipts and invoices, subject to the rules and regulations to be issued by the Secretary of Finance. However, the criteria for assessing the integrity cannot be satisfied by a scanned document if the original document from which the scanned document was based does not exist anymore pursuant to R.A. No. 8792, otherwise known as the “Electronic Commerce Act of the Philippines (E-Commerce Act).” Therefore, electronic receipts, sales, or commercial invoices entail documents generated electronically and without an existing print-out or hard copy, however, there is no paperless practice as the scanned copy came from an original document. Consequently, the preservation of hard copies of the invoices and receipts of its domestic suppliers and vendors must still observe the retention period provided in Section 2 of Revenue Regulations (RR) No. 17-2013, as amended by RR No. 05-2014.
INVOLUNTARY SEPARATION PAY IS EXEMPT FROM TAX
BIR RULING NO. 054-2023, MAY 19, 2023
The National Food Authority (NFA) is requesting a ruling that separation pay to its involuntarily separated employees as a result of the restructuring pursuant to the Republic Act (RA) No. 11203 or the “Rice Tariffication Act” under the NFA’s Separation Incentive Package (SIP) are tax exempt. In reply, Section 32 (B)(6)(b) of the 1997 Tax Code, as amended, provides that any amount received by an official or employee or by his heirs from the employer as a consequence of the separation of such official or employee from the service of the employer due to death, sickness or other physical disability or for any cause beyond the control of the said official or employee is exempt from taxes regardless of age or length of service. The separation from the service of the official or employee must not be of his own making. Thus, the separation of the officials and employees identified and recommended by the NFA to have met the criteria for SIP is involuntary and is a consequence of the restructuring of the NFA. Consequently, any and all amounts to be received by them as a consequence of their involuntary separation from the service are not subject to income tax and, consequently, to the withholding tax on wages.
TAX CLEARANCE IS NOT PROOF OF OWNERSHIP
BIR RULING NO. 053-2023, MAY 19, 2023
V is requesting a ruling for the cancellation of the electronic Certificate Authorizing Registration (eCAR) issued in favor of Ms. M. He questioned the propriety of the subject eCAR which was issued for the Deed of Absolute Sale. V stated that the transfer of ownership from Mrs. C to Ms. M of the subject lot can no longer prosper because of the stringent requirement imposed by the Registry of Deeds (RD), i.e., the confirmation of sale from Mrs. C in favor of Mr. J covered by eCAR. In opining, ruling on whether the subject eCAR should be invalidated would be of no practical value since the subject eCAR is not the deciding factor for the RD on whether to allow the transfer of the subject property in favor of Ms. M or not. eCAR is merely a certification that the appropriate taxes on a transaction have been duly paid.
THE TAX CODE DOES NOT DEFINE NOR QUALIFY THE PHRASE “OTHER DISPOSITION” FOR THE PURPOSE OF IMPOSITION OF CAPITAL GAINS TAX
BIR RULING NO. 050-2023, MAY 18, 2023
Heirs of F are requesting an exemption from Real Property Tax (RPT) and Capital Gains Tax (CGT) relative to the conveyance of a parcel of land taken by the government in 1981 for the subsequent lease to several locators of the government-run and managed Philippine Economic Zone Authority (PEZA) site. In 2019, the subject lot was offered for sale to PEZA. In turn, PEZA offered a price to which Heirs of F agreed. Subsequently, PEZA has ordered Heirs of F to submit all documents for the completion and consummation of the transaction. In the process, it was seen that a notation “Tax Exempt” is indicated in the Deed of Absolute Sale, hence, this request for ruling on whether proceeds of the said transaction shall be tax exempt. In reply, Section 24 (D)(1) of the 1997 Tax Code, as amended, provides that “other disposition” includes all kinds of disposition of real properties unless specifically excluded therefrom or subject to another tax treatment pursuant to the other provisions of the Tax Code. Citing the Supreme Court case of Salud vs. Commissioner of Internal Revenue (CIR), the Tax Code does not define nor qualify the phrase “other disposition” for the purpose of imposition of CGT. Consequently, the voluntary sale entered with PEZA falls within the meaning of Section 24 (D)(1) of the 1997 Tax Code, as amended, and profit from the transaction constitutes capital gain. As regards the imposition of RPT, the Bureau of Internal Revenue (BIR) is not in the position to either confirm or deny the exemption from RPT as it is not within its jurisdiction and mandate.
ABSENCE OF A DEED OF ASSIGNMENT MAY BE SUPPLANTED BY OTHER DOCUMENTS, SUCH AS A COURT DECISION ORDERING THE TRANSFER OF SHARES
BIR RULING NO. 049-2023, MAY 18, 2023
The Bureau of Treasury is seeking a ruling for an exemption from the requisite Certificate of Authorizing Registration (CAR), to enable the transfer of shares of stock from the Coconut Industry Investment Fund-Oil Mills Group (CIIF Companies) to the Republic of the Philippines. Alternatively, it requests a waiver of the requirement to submit a Deed of Reconveyance or Deed of Assignment in securing a CAR, which would subsequently enable the transfer of the shares. In reply, the requirement of CAR cannot be waived as it is an indispensable requirement for the proper and legal registration of the transfer of shares in the stock and transfer book of corporations. On the other hand, the submission of a Deed of Assignment may be waived in appropriate cases, particularly when the transfer of legal title of shares is merely a confirmation of its ownership, such as the situation in the present case where the Supreme Court already ruled that the subject shares actually belong to the Republic of the Philippines.
TAX EXEMPTION ON INVOLUNTARY SEPARATION PAY AS A RESULT OF NATIONAL FOOD AUTHORITY RESTRUCTURING DUE TO RICE TARIFFICATION LAW
BIR RULING NO. 046-2023, MAY 18, 2023
The National Food Authority (NFA) is requesting a ruling that the proceeds it has paid to its NFA Regional Office No. IV employees affected by the restructuring of the NFA pursuant to the Republic Act (R.A.) No. 11203 or the “Rice Tariffication Act” and its Implementing Rules and Regulations (IRR), who were involuntarily separated from government service under NFA’s Separation Incentive Package (SIP) are tax exempt. In reply, Section 32 (B) (6) (b) of the 1997 Tax Code, as amended, provides that any amount received by an official or employee or by his heirs from the employer as a consequence of the separation of such official or employee from the service of the employer due to death, sickness or other physical disability or for any cause beyond the control of the said official or employee is exempt from taxes regardless of age or length of service. The separation from the service of the official or employee must not be of his own making. Thus, the separation of the officials and employees identified and recommended by the NFA to have met the criteria for SIP is involuntary and is a consequence of the restructuring of the NFA. Therefore, any and all amounts to be received by them as a consequence of their involuntary separation from the service is not subject to the income tax imposed under Section 24 (A) of the 1997 Tax Code, as amended and, consequently, to the withholding tax on wages pursuant to Section 79 of the same Code.
DENIED APPLICATION OR UNACTED APPLICATION OF REFUND CANNOT BE REVERTED TO EXCESS INPUT TAX IN THE VAT RETURNS
BIR RULING NO. 045-2023, MAY 9, 2023
M Co. is requesting a legal opinion on whether it may be allowed to reverse/return the amount applied for tax credit to its Value-Added Tax (VAT) returns as excess input tax. In reply, Section 110 (B) of the 1997 Tax Code, as amended, provides that if the input tax exceeds the output tax, the excess shall be carried over to the succeeding quarter/s, provided, however, that any input tax attributable to zero-rated sales by a VAT-registered person may, at his option, be refunded or credited against other internal revenue taxes, subject to the provisions of Section 112 of the same Code. As noted, only the claim for tax credit and/or refund for the year 2010 was denied, and no action was made for the years 2005, 2006, and 2007. However, there is no specific provision expressly providing for another mode of recovering unapplied input taxes, more so a denied application or unacted application of tax credit and/or refund, through a reversal/return to VAT returns to be considered as excess input tax. Consequently, the request to allow the return of the amount previously applied for conversion for a tax credit or return as excess input tax on its VAT returns lacks legal basis.
CAPITAL GAINS TAX OF ACQUIRED PROPERTY OF THE DPWH IS BASED ON RATES PREVAILING DURING THE TIME OF TAKING THE PROPERTY
BIR RULING NO. 034-2023, MAY 5, 2023
The Department of Public Works and Highways (DPWH) is seeking confirmation on whether it is legally possible to pay the Capital Gains Tax (CGT) and Documentary Stamp Tax (DST) of an acquired property based on the rates prevailing during the time of taking of the subject property. In reply, Section 6 (6.11) of the Implementing Rules and Regulations (IRR) of the Republic Act (R.A.) No. 10752, or the “Right-of-Way Act” provides the extent of applicability of the said IRR in outstanding claims of Right-of-Way payments. Specifically, it governs the negotiated sales except in the consideration of outstanding claims that have already been concluded prior to the effectivity of R.A. No. 10752. Likewise, it does not apply to the amount to be offered on outstanding claims for Right-of-Way payments which is limited only to the price at the time of taking the property including legal interest until fully paid. In BIR Ruling No. 983-2018 and 389-2016, it was ruled that Section 5 (c) of R.A. No. 10752 must be read in relation to Section 24 (D) (1) of the 1997 Tax Code, as amended. Thus, the tax base of CGT, in case of negotiated transfer of Right-of-Way site shall be the Gross Selling Price (GSP) or Zonal Value of the real property as determined in accordance with Section 6 (E) of the same Code. The date of notarization of the Deed of Sale is the operative act that should be ascertained in computing the CGT as it serves as the reckoning point for the presumed gain or profit realized or received, actually or constructively. Thus, granting that a duly notarized Deed of Sale was executed in 2011, the GSP or the Zonal Value during the said year, whichever is higher, shall be the basis for computing the CGT in accordance with the formula provided under the new IRR. However, it is subject to penalties and surcharges incidental to the belated payment of the CGT. On the other hand, if the deed of sale was only notarized after the time of taking, the basis for computing the CGT shall be the GSP or the prevailing Zonal Value at the time of notarization, whichever is higher.
AVAILMENT OF ESTATE TAX AMNESTY DUE TO THE PANDEMIC, OLD AGE & DISTANCE OF THE PROPERTIES TO THE HEIRS
BIR RULING NO. 033-2023, APRIL 25, 2023
The heirs of AAA wish to avail themselves of the estate tax amnesty program and to allow them to file their estate tax returns and pay the estate tax due. As represented, the pandemic, old age, and the distance of the properties restrict the heirs’ movement. In reply, Sections 90 (D) and 91 (A) of the 1997 Tax Code, as amended, provide that in case the Commissioner otherwise permits, the return required shall be filed with authorized officers in which the decedent was domiciled at the time of his death. However, the estate tax imposed shall be paid at the time the executor, administrator, or heirs file the return. Given that the circumstances of the heirs of AAA are justifiable reasons to file the estate tax returns and pay the corresponding estate taxes due thereon, the request is granted. They have until June 14, 2023, to avail themselves of the estate tax amnesty program.
A TAXPAYER NOT ENGAGED IN THE REAL ESTATE BUSINESS & PROPERTY NOT FORMING PART OF HIS INVENTORY IS CONSIDERED A CAPITAL ASSET
BIR RULING NO. 032-2023, APRIL 20, 2023
J&M Corp. is requesting a confirmatory ruling that the sale of its parcel of land is subject only to 6% Capital Gains Tax (CGT) and Documentary Stamp Tax (DST) and not to Creditable Withholding Tax (CWT) and Value-Added Tax (VAT). As represented, J&M Corporation acquired a residential house and lot for investment purposes and not for lease in the ordinary course of business. The subject property is booked as “Non-Current Assets” under Investment. It has remained vacant and has never been leased out from the time of its acquisition, as evidenced by a Certificate of Non-Tenancy. In reply, Section 39 (A)(1) of the 1997 Tax Code, as amended, provides that if the property is not actually used in the trade of business of the taxpayer, whether connected with his trade or business or not held for lease or sale to customers, it will be classified as a capital asset. Further, if the property is merely held for capital appreciation and investment purposes and remains vacant and idle, it is deemed a capital asset. Considering that J&M is not engaged in the real estate business and has not been used in the ordinary course of trade or business, the asset is classified as a capital asset. Thus, the sale of the subject property, being a capital asset, is subject only to CGT under Section 27 (D)(5) of the 1997 Tax Code, as amended, and DST under Section 196 of the same Code, and shall not be subject to CWT and VAT.
GOVERNMENT AGENCY SELLING SMUGGLED AGRICULTURAL PRODUCTS IS EXEMPT FROM INCOME TAX & VAT
BIR RULING NO. 031-2023, APRIL 14, 2023
The Department of Agriculture (DA) is requesting an opinion if the sale to the general public of the donated seized smuggled agricultural products is subject to tax. In reply, Section 32 (B) (7) (b) of the 1997 Tax Code, as amended, excludes from the gross income and exempts from income tax, income derived from the discharge of any essential governmental functions accruing to the Government of the Philippines or any of its political subdivisions. The sale of the donated seized smuggled goods is intended to promote market price stability and to give the general public access to reasonable prices in accordance with Section 3, Title IV, Chapter 1 of the Administrative Code of 1987. Furthermore, Section 109 of the same Code provides that the sale of agricultural food products in their original state is not subject to Value-Added Tax (VAT). Moreover, the sale is not a regular or habitual activity considered in the course of trade or business and not aimed at generating profit, but an event conducted to stabilize market prices and provide affordable agricultural products to the public to fulfill the mandate of the government. Thus, any income by the DA from the sale of donated smuggled goods is considered derived from carrying out an essential governmental function and, therefore, is not considered as part of its gross income, thus, exempt from income tax and VAT.
EXTENT OF VAT EXEMPTION OF SOCIALIZED HOUSING PROJECTS
BIR RULING NO. 030-2023, APRIL 12, 2023
A Co. is requesting an exemption from payment of taxes in connection with the construction of the Mariano Marcos State University IP Student Dormitory Project. In reply, socialized housing is defined as housing projects and programs covering homes and lots or home lots only undertaken by the government or the private sector for the underprivileged and homeless citizens which shall include sites and services development, long-term financing, and other benefits pursuant to Section 20 of the Republic Act (R.A.) No. 7279, as amended by R.A. No. 10884 (Balanced Housing Development Program Amendments). Here, the construction of A Co. of the subject dormitory is outside the definition of “socialized housing” in relation to the tax incentives under Section 10 of the R.A. No. 7279 since the grant of exemption is limited and with the view to reduce the cost of housing units for the benefit of the underprivileged and homeless. Consequently, the request for tax exemption from project-related income tax and Value-Added Tax (VAT) is DENIED.
INCOME DERIVED BY NON-RESIDENT FOREIGN CORPORATION FROM SOURCES OUTSIDE THE PHILIPPINES IS NOT SUBJECT TO INCOME TAX & VAT
THE SITUS OF TAX FOR SERVICES IS THE PLACE WHERE THE SERVICE IS RENDERED
BIR RULING NO. 025-2023, APRIL 12, 2023
UPS Asia, a non-resident foreign corporation, is requesting confirmation that the income earned from its Regional Transportation Services Agreement (RTSA) with UPS SCS Philippines, Inc. is not subject to income tax, and consequently, to withholding tax and Value-Added Tax (VAT). UPS Asia is responsible for its worldwide network and makes all decisions regarding the pricing of any services to be provided to shippers and consignees (whether in or out of the Philippines) and transportation outside the Philippines. In ruling, the situs of income derived from services is determined not by the residence of the payor or of the place of payment, but solely by the place where the service is rendered. Thus, income earned by UPS Asia from the Local Services is subject to Philippine income tax and consequently, to withholding tax. However, income earned by UPS Asia relating to International Services that are performed abroad or outside the Philippines is not subject to Philippine income tax and consequently, to withholding tax. Moreover, all gross receipts derived by UPS Asia from its Local Services shall be subject to VAT and those that are derived from the International Services performed abroad or outside the Philippines are not subject to VAT.
PROPER TAX TREATMENT OF FOREIGN EXCHANGE GAIN OR LOSS OF A PEZA-REGISTERED ENTITY
BIR RULING NO. 009-2023, FEBRUARY 16, 2023
B Co., a Philippine Economic Zone Authority (PEZA)-registered Ecozone Export Enterprise, is requesting confirmation that the realized foreign exchange gain from transactions directly attributable to its registered activities should be covered by the same income tax incentives. As represented, B Co. transacts with suppliers and clients using foreign currencies resulting in foreign exchange gains or losses realized due to the fluctuations in values of foreign exchange on the date of recording and date of actual settlement. In reply, the tax treatment of foreign exchange gains shall depend on the activities from which they arise. Thus, the realized foreign exchange gains attributable to the registered activities of B Co. shall be covered by the same income tax incentives (i.e., Income Tax Holiday and/or 5% Gross Income Tax (GIT), whichever is applicable) as stated in the terms and conditions granted by PEZA. Meanwhile, if the foreign exchange gain is not attributed to its registered activities, such gain shall be subject to the regular income tax rate.
OUT-OF-TOWN PRE-CALCULATED PER DIEM ALLOWANCE TO FIELD ENGINEERS IS EXEMPT FROM WITHHOLDING TAX & SUBSTANTIATION
BIR RULING NO. 008-2023, FEBRUARY 16, 2023
M. Co is seeking confirmation that per diems provided to its Filipino field service engineers are exempt from withholding tax on compensation. As represented, per diems cover the latter’s cost of daily expenses incidental to the business and are pre-calculated based on the cost of living in a particular destination where they will be deployed. In reply, Section 2.78.1(A)(6)(b) of Revenue Regulations (RR) No. 2-98, as amended, provides that any advances received by rank and file or managerial employees, in addition to their compensation relating to the ordinary and necessary expenses incurred or reasonably expected to be incurred in the performance of their duties and responsibilities, which are pre-computed on a daily basis and are paid to its employee on its assignment or duty, are not subject to withholding and requirements of substantiation. Moreover, for managerial employees, Section 2.33 (C) of RR No. 3-98 provides that allowances received that are necessary to the trade or business or for the convenience of the employer are Fringe Benefits not subject to Fringe Benefits Tax (FBT). Thus, the per diems paid to the employees are exempt from withholding tax and substantiation requirements.
THE 15% BRANCH PROFIT REMITTANCE TAX (BPRT) IS IMPOSED ON PROFITS REMITTED ABROAD BY A BRANCH TO ITS HEAD OFFICE
MERE REIMBURSEMENTS OF ACTUAL EXPENSES/COSTS WITHOUT ANY MARK-UP OR PROFIT ELEMENT DO NOT CONSTITUTE INCOME PAYMENTS & THEREFORE, NOT SUBJECT TO PHILIPPINE INCOME TAXES
FOREIGN EXCHANGE REMITTANCE AS REIMBURSEMENTS FOR ADVANCED OPERATING FUNDS IS NOT SUBJECT TO BPRT
BIR RULING NO. 007-2023, FEBRUARY 15, 2023
T Phil. is requesting confirmation that its purchase of foreign exchange for remittance to its head office, T Japan, as reimbursements for advanced operating funds are not subject to Branch Profit Remittance Tax (BPRT) considering that the same are mere liquidation or return of temporary operating funds for the Japanese International Cooperation Agency (JICA) and Official Development Assistance (ODA) Project. In reply, the 1997 Tax Code, as amended, provides that any profit remitted by a branch to its head office is subject to the BPRT at the rate of 15%. However, the amounts to be remitted by T Phil. To T Japan, consisting of the amounts previously advanced by the head office as operating funds to pay for labor, local materials, and other operating costs and expenses needed in the implementation of the project, are not profits but capital contributions of the head office and, therefore, not subject to the BPRT. These are in the nature of a temporary fund of T Japan in order to finance the pending project of T Phil.
CONSULTANCY SERVICES RENDERED IN THE PHILIPPINES BY DOMESTIC CORPORATION IN FAVOR OF FOREIGN CORPORATION IS SUBJECT TO VAT ZERO-RATING
BIR RULING NO. 003-2023, JANUARY 19, 2023
E Co., a domestic corporation, is requesting confirmation that (1) consultancy services rendered in the Philippines in favor of B Co., a foreign corporation, ARE subject to Value-Added Tax (VAT); and (2) E Co. is entitled to apply for the refund of any excess or unutilized input VAT due or paid attributable to its zero-rated sale of services to B Co. As represented, the Government of the Republic of the Philippines and the Government of the United States of America (USA) entered into an Agreement Concerning Cooperation in Countering the Proliferation of Weapons of Mass Destruction, Strengthening Maritime Security, and other purposes (CTRA). Further, the Defense Threat Reduction Agency (DTRA) is the implementing agency of the USA’s Department of Defense tasked to execute the Cooperative Threat Reduction Integrating Contract (CTRIC) under the CTRA. In the execution of the CTRA, B Co., as the prime contractor to implement the CTRIC in the Philippines, entered into a Basic Ordering Agreement with E Co. to perform consultancy services which shall be paid in foreign currency. In reply, Section 108 (B) (2) of the 1997 Tax Code, as implemented by Section 4.108-5 (b) (2) of Revenue Regulations (RR) No. 16-2005, as amended by RR No. 4-2007 provides that services rendered to a person engaged in business conducted outside the Philippines or to a non-resident person not engaged in business who is outside the Philippines when the services are performed and the consideration for which is paid for in acceptable foreign currency shall be subject to VAT zero-rating. Likewise, E Co. is entitled to apply for the refund of any excess or unutilized input VAT due or paid attributable to its zero-rated sale of services to B Co. pursuant to Section 1-12 (A) of the 1997 Tax Code, as implemented by Section 19 of RR No. 4-2007.
CONVERSION OF CLAIMS OF IMPAIRED UNSECURED CREDITORS PURSUANT TO RESTRUCTURING IS TAX EXEMPT
BIR RULING NO. 001-2023, JANUARY 6, 2023
PAL Co. is requesting confirmation that the mandatory exchange of PAL Co. equity into PHI Co. equity which resulted from a financial restructuring under a court-supervised bankruptcy proceeding does not give rise to any taxation event, specifically Capital Gains Tax (CGT) and Donor’s Tax. In reply, Section 19 of the Republic Act (R.A.) No. 10142, otherwise known as the “Financial Rehabilitation and Insolvency Act (FRIA) of 2010” states that taxes and fees due to the national government imposed upon the issuance of the commencement order and until the approval of the rehabilitation plan or dismissal of the Petition, whichever is earlier, shall be considered waived. Here, the BIR ruled that: (1) the conversion of claims of impaired unsecured creditors to PAL equity; and (2) the swapping of PAL shares to PHI shares; even if they are to be effected within one (1) year from the effective date of the Plan, which is after the approval of the Plan by the court, is not subject to Income Tax and/or CGT, considering that (a) these acts are in the nature of capital transactions; (b) being done as a result of the mutual agreement/s of PAL and its creditors, but of judicial action; (c) being made in furtherance of the objectives of the rehabilitation plan; and (d) being implemented in compliance with the Plan approved by the US Court and recognized by Regional Trial Court-Pasay pursuant to R.A. No. 10142. Given that there was no act of liberality or donative intent since the conversion of the impaired unsecured creditors’ debts into PAL shares and its subsequent mandatory exchange to PHI shares were made pursuant to the court-approved Plan, the mandated arrangements are likewise not subject to Donor’s Tax.
TRANSFER OF LEGAL TITLE OVER PROPRIETARY SHARE FROM THE CURRENT TRUSTEE TO THE NEW TRUSTEE IS NOT SUBJECT TO CGT & DST
BIR RULING NO. 445-2022, DECEMBER 29, 2022
A Co. is requesting a confirmatory ruling on whether the transfer of legal title over its proprietary share in Manila Polo Club (MPC) from its current trustee to its new trustee, is not subject to Capital Gains Tax (CGT) and Documentary Stamp Tax (DST). As represented, A Co. is the beneficial owner of a proprietary share in MPC. While a proprietary share in MPC may be owned by a corporate entity, A Co. assigned its proprietary share to its current President for the sole purpose of enjoyment of the facilities and amenities of MPC while employed by the company. However, the beneficial ownership over the MPC Share remains with the company. In reply, the transfer of the legal title of MPC Share from the former trustee to the new trustee is not subject to CGT considering that the transfer involves neither monetary consideration nor changes in beneficial ownership citing Section 24 (C) of the 1997 Tax Code, as amended.
ASSIGNMENT OF RIGHTS TO CONSTRUCT THE NAVOTAS PROJECT, WHICH IS PART OF BULACAN AIRPORT, STILL ENJOYS AN EXEMPTION
BIR RULING NO. 443-2022, DECEMBER 28, 2022
S Co. and A Co. are seeking confirmation that: (1) S Co. may validly sell, transfer, or assign its rights and privileges set forth in the Republic Act (R.A.) No. 11506, otherwise known as “San Miguel Aerocity Franchise” in favor of A Co. (S Co.’s affiliate) relative to the construction, acquisition, ownership, leasing, operation, development, or management of the Airport City, without the need for prior approval of Congress; and (2) A Co’s importation of vessel and other subsequent importations relative to the construction of the Airport City is exempt from applicable taxes under the 1997 Tax Code, as amended. In reply, Section 16 of RA No. 11506 provides that S Co., its successors, and assignees, during the 10-year construction period, shall be exempt from all direct and indirect taxes and fees of any kind relating to the construction, development, establishment, and operation of the Project, including customs duties and tariffs on its importations, if any. Moreover, S Co. has been granted the right to sell, transfer, or assign its rights and privileges under the Franchise, including the tax exemptions, in favor of its affiliate, without the need for prior approval of Congress. Considering that A Co. and S Co. are affiliates since they are both under the control of an ultimate parent company, S Co. may validly sell, transfer, or assign to A Co. all its rights and privileges relative to the land development components for the Airport City including the tax and duty exemptions without need for prior approval of the Congress. Hence, the importation by A Co. of the vessel that will be used for the Project is exempt from Philippine taxes, customs duties and tariffs, and other fees that may be levied by any city, municipal, provisional, or national authority.
RESORT CASINO PAGCOR LICENSEE IS SUBJECT TO THE 5% FRANCHISE TAX & 0% VAT ON LOCAL PURCHASES RELATED TO ITS DEVELOPMENT, CONSTRUCTION & OPERATION
BIR RULING NO. 442-2022, DECEMBER 27, 2022
D Co., a licensee of the Philippine Amusement and Gaming Corporation (PAGCOR), is seeking confirmation that all domestic purchases of goods and services and importations of equipment, paraphernalia, construction materials, and professional services for the sole and exclusive use for the casino operation shall not be subject to 12% VAT. In reply, since D Co. is a licensee of PAGCOR to undertake the development and construction of a casino resort and to establish and operate the Casino, the exemption from taxes, fees, and charges enjoyed by PAGCOR is extended to D Co. pursuant to Presidential Decree (P.D.) No. 1869, as amended. Therefore, the income derived by D Co. from its operation of D Resort and Casino is subject only to the 5% Franchise Tax and shall be exempted from the 25% corporate income tax and, consequently, to the withholding tax. However, any income that may be realized from related services or such services not falling under its gaming operations shall be subject to the 25% corporate income tax. Also, all domestic sales of goods and services by VAT-registered persons to D Co. directly related to its gaming operations shall be subject to a 0% VAT rate. Lastly, all importations made by D Co. directly related to its gaming operations shall not be subject to the 12% VAT on the ground of its exemption from all taxes pursuant to P.D. No. 1869. However, D Co.’s importation and sales of goods and services related to its non-gaming operations shall be subject to VAT and other applicable taxes
SALE OF ELECTRICITY & FEED-IN-TARIFF RATE ADJUSTMENTS OF A GENERATION COMPANY IS EXEMPT FROM INCOME TAX & WITHHOLDING TAX
BIR RULING NO. 441-2022, DECEMBER 14, 2022
E Co. is seeking confirmation on whether the income derived from its registered activity (sale of electricity) during its Income Tax Holiday (ITH) entitlement period and all Feed-in-Tariff (FIT) rate adjustment billings pertaining to said ITH Period (FIT Billings), which were received after the expiration of the ITH Period, are not subject to Income Tax and Expanded Withholding Tax (EWT). In reply, Revenue Regulations (RR) No. 2-98, as amended, provides that income payments made to corporations that are enjoying exemption from payment of income taxes pursuant to the provisions of any law, whether general or special, shall be exempt from withholding tax. Here, documents show that E Co. is registered with the Department of Energy and Board of Investments as a Renewable Energy (RE) Developer of the Burgos Wind Project and was granted an incentive of ITH for seven (7) years, or from November 11, 2014, to November 10, 2021. Hence, all income payments received or to be received by E Co. relating to transactions that occurred during the ITH Period in connection with the Burgos Wind Project are exempt from income tax, and consequently, from withholding tax. However, said exemption covers income directly attributable to the revenues generated from the sale of electricity. With regard to the FIT Billings, the same is considered income on the part of participating RE developers that is directly attributable to the revenues generated from the sale of electricity, considering the nature of FIT rate adjustments.
LOCAL PURCHASES OF GOODS & SERVICES BY RE DEVELOPERS NEEDED FOR RENEWABLE ENERGY (RE) PROJECTS ARE SUBJECT TO ZERO PERCENT VAT
BIR RULING NO. 438-2022, DECEMBER 1, 2022
S Co., a Renewable Energy (RE) Developer is requesting confirmation that being an RE Developer for Solar PV, Battery, Diesel, and Micro Grid (QTP), is entitled to zero percent (0%) Value-Added Tax (VAT) on its local purchase of a local supply of goods, properties, and services needed for the development, construction, and installation of its plant facilities. In reply, Section 15 (g) of the Republic Act (RA) No. 9513, otherwise known as the “Renewable Energy Act of 2008,” provides that all RE Developers shall be entitled to zero-rated VAT on their purchases of local supply of goods, properties, and services needed for the development, construction, and installation of its plant facilities, as well as the whole process of exploring and developing renewable energy sources up to its conversion into power, including but not limited to the services performed by subcontractors and/or contractors. Since S. Co is a Department of Energy (DOE)-certified RE Developer, its suppliers/sellers of goods and services should not pass on the 12% VAT on S Co.’s local purchases needed for its development, construction, and installation of power plant facilities. Likewise, the grant of VAT zero-rating shall be subject to the BIR’s post-audit whether the purchased goods and services were indeed utilized in the development, construction, and installation of its power plant facilities.
NON-EXPORT ENTERPRISES ARE NOT ENTITLED TO VAT ZERO-RATING ON LOCAL PURCHASES
BIR RULING NO. 436-2022, DECEMBER 1, 2022
Philippine Economic Zone Authority (PEZA) is requesting reconsideration on the disapproval of the application for Value-Added Tax (VAT) zero-rating on the local purchases of non-export enterprises registered with PEZA. In reply, Rule 18 of the Implementing Rules and Regulations (IRR) of CREATE Law and Section 311 of the 1997 Tax Code, as amended, provides that registered businesses or enterprises other than export enterprises may continue to avail the incentives granted to them before the effectivity of the CREATE Law. However, these incentives exclude the VAT zero-rating on local purchases of non-export enterprises. Furthermore, pursuant to Section 5, Rule 18 of the IRR of CREATE Law, the VAT zero-rating on local purchases incentive shall only apply to goods and services directly and exclusively used in the registered project or activity of the export enterprises during the period of registration of the said registered project or activity with the concerned investment promotion agencies. Consequently, the request for VAT zero-rating on the local purchases of non-export enterprises is DENIED.
VENDING MACHINE SALES TO PEZA-REGISTERED ENTITIES ARE NOT SUBJECT TO 0% VAT & ARE NOT REQUIRED TO SECURE POS
BIR RULING NO. 424-2022, NOVEMBER 11, 2022
P Co., a domestic corporation engaged in the business of providing vending machine solutions to customers such as coffee, beverages, and snacks is requesting clarification on whether its sales to J Co., a Philippine Economic Zone Authority (PEZA) registered entity, are subject to zero-rated Value-Added Tax (VAT) and whether it is required to secure a Point-of-Sale (POS) permit with the BIR. In reply, Section 5, Rule 18 of the amended IRR of the CREATE Law expressly states that the VAT zero-rating on local purchases incentive shall only apply to goods and services directly attributable to and exclusively used in the registered project or activity of the export enterprises as further clarified in Revenue Memorandum Circular (RMC) No. 24-2022. Considering J Co.’s registered activity, it is evident that even without P Co.’s vending products and services, its registered activity can continue and be carried out. Thus, P Co’s sales to J Co. are subject to 12% VAT. On the issue of the POS permit, it was represented that the customer’s payment will be accepted by P Co’s registered vending computer and eventually issues official receipts upon its regular visit for the refilling of machines. In this regard, the Bureau opined that it is substantially compliant with Section 113 (A) of the 1997 Tax Code, which requires all VAT-registered entities, regardless of the value, shall issue a VAT invoice or official receipt for every sale/lease of its goods and/or services. On whether there is a need to obtain a POS permit, Revenue Regulations (RR) No. 10-1999 provides that the BIR will only issue permits to use cash registers and POS machines in lieu of sales invoices or receipts to the proprietors, owners, or operators of the businesses listed therein. Therefore, since P. Co’s line of business is not included therein, it is not required to secure a POS permit in providing its services to J Co.
DONATION TO THE NATIONAL GOVERNMENT WHICH ARE NOT CONDUCTED FOR PROFIT IS EXEMPT FROM DONOR’S TAX
BIR RULING NO. 423-2022, NOVEMBER 4, 2022
The United Nations Office on Drugs and Crime (UNODC) is requesting an exemption from customs duties and taxes on the donation of a Fixed Passive Radar Sensor System to the Philippine National Coast Watch Center (NCWC). As represented, NCWC is an agency of the National Government created by virtue of Executive Order (EO) No. 57, Series of 2011. In reply, Section 101 (B) (1) of the 1997 Tax Code 1997, as amended, provides that donations made in favor of the National Government or any of its agencies which are not conducted for profit are exempt from the payment of the donor’s tax. Thus, the donation made is exempt from the donor’s tax.
TRANSFER OF ASSETS PURSUANT TO “COCO LEVY FUND LAW” IS EXEMPT FROM TRANSFER TAXES
BIR RULING NO. 422-2022, NOVEMBER 4, 2022
The Bureau of Treasury is seeking confirmation that the transfer of Coconut Levy Assets, specifically all the shares of stock in the Coconut Industry Investment Fund (CIIF) Oil Mills Group, to the Republic of the Philippines, are not subject to transfer taxes. In reply, the 15% Capital Gains Tax (CGT) is not applicable since the transfer of shares does not involve the sale, barter, or exchange of shares contemplated under the Tax Code. Moreover, the transfer of the subject shares of the CIIF Companies is made pursuant to the directive under Section 6 of the Republic Act (R.A.) No. 11524, or the “Coconut Farmers and Industry Trust Fund Act” and Supreme Court decisions. Accordingly, the transfer of the subject shares in favor of the government, without any monetary consideration is not subject to CGT. As to the Donor’s Tax, there is no intention to donate on the part of the CIIF Companies as the transfer was made in compliance with the law. The transfer of the legal title to the government is only a confirmation of its ownership over the said shares, and there is no donative intent or act of liberality involved on the part of the CIIF Companies. Thus, the transfer is likewise not subject to Donor’s Tax.
VAT EXEMPTION OF A RENEWABLE ENERGY DEVELOPER OF BIOMASS RESOURCES ON ITS LOCAL PURCHASES OF MATERIALS TO BE USED TO MANUFACTURE BIODIESEL CHEMICALS
BIR RULING NO. 421-2022, OCTOBER 27, 2022
A Co. is requesting a confirmatory ruling on whether its purchases of materials and all kinds of similar and derivative products to be used in the production and manufacture of biodiesel chemicals are exempt from Value-Added Tax (VAT). As represented, A Co. is duly registered with the Board of Investments (BOI) and the Department of Energy (DOE) as a Renewable Energy (RE) Developer of Biomass Energy Resources. In 2019, the BIR issued a ruling on the Company’s entitlement to zero-rated VAT on its local purchases needed for the development, construction, and installation of its plant facilities. During its operations, A Co. has purchases of raw materials from the Philippine Economic Zone Authority (PEZA) Registered Business Enterprises (RBE). In 2022, the BIR likewise confirmed that since the sale transaction is subject to 0% VAT, the VAT paid on the technical importation of raw materials can be refunded pursuant to Section 112 (A) of the 1997 Tax Code, as amended, hence, this request for a ruling to ensure that subsequent purchases will not be passed on with 12% VAT and that the refund mechanism will be put at bay. In reply, the Bureau confirmed its position that A Co.’s local purchases needed for its RE projects shall be subject to 0% VAT, citing Section 15 (g) of Republic Act (RA) No. 9513, otherwise known as the “Renewable Energy Act of 2008,” which provides that all RE Developers shall be entitled to zero-rated VAT on their purchases of local supply of goods, properties, and services needed for the development, construction, and installation of their plant facilities
TAXABILITY OF BACKWAGES & AWARDED INTEREST OF ILLEGALLY DISMISSED EMPLOYEE
BIR RULING NO. 411-2022, OCTOBER 7, 2022
P, a retired and illegally terminated employee of N Co., is requesting clarification on the tax rate applicable to the backwages and the amount representing unpaid salaries and interest income accumulated in relation to the award of backwages. In ruling, backwages and the amount representing unpaid salaries are remunerations for services that are subject to income tax, and consequently, to the withholding tax on wages. However, the illegally dismissed employee is accorded special treatment i.e., he is allowed to allocate or spread his backwages, allowances, and benefits through the years he was dismissed from service, having been denied payment of his wages when they were due because of circumstances not of his own making and, therefore, beyond his control. Thus, in computing the net income tax of P, the amount deducted and withheld for the taxable years P was illegally dismissed from service by N Co. shall be allowed as a credit against the tax imposed. Moreover, P is likewise entitled to deduct personal and additional exemptions during the years P was illegally dismissed. On interest income, while accumulated in relation to the award of backwages, the same cannot be considered compensation because the remuneration is not for services rendered. Nevertheless, the interest income in question shall still be subject to income tax.
SOCIAL HOUSING PROJECTS THAT PROVIDE HOMES FOR THE UNDERPRIVILEGED ARE EXEMPT FROM PAYING TAXES
BIR RULING NO. 404-2022, OCTOBER 5, 2022
J. Construction (J Co.) is requesting for exemption from payment of taxes in connection with the construction of the K Indigenous Peoples Student Dormitory (“K” indigenous Dorm). In reply, socialized housing is defined as housing projects and programs covering homes and lots or home lots only undertaken by the government or the private sector for the underprivileged and homeless citizens and shall include sites and service development, long-term financing, and other benefits pursuant to Section 20 of Republic Act (R.A.) No. 7279, otherwise known as the “Urban Development and Housing Act,” as amended by R.A. No. 10884 (Balanced Housing Development Program Amendments). In accordance with the tax incentives for the private sector under Section 20 of R.A. No. 7279, the construction by J. Co of “K” Indigenous Dorm does not meet the definition of socialized housing since the grant of exemption is limited and with the view to reduce the cost of housing units for the benefit of underprivileged and homeless. Likewise, the VAT exemption under Section 20 of R.A. 7279 was already repealed by Sections 86 (tt) and (uu) of R.A. 10963, otherwise known as the “Tax Reform for Acceleration and Inclusion” (TRAIN) Law. Consequently, the request for tax exemption from project-related income tax and Value-Added Tax (VAT) is DENIED.
DEED OF EXCHANGE UNDER OTHER DISPOSITION IS SUBJECT TO CGT
DEED OF EXCHANGE DUE TO ADMINISTRATIVE ERROR IN THE REGISTRATION OF TITLES CANNOT BE EXEMPT FROM CGT IN THE ABSENCE OF STATUTORY PROVISION EXEMPTING IT
BIR RULING NO. 399-2022, SEPTEMBER 23, 2022
Ms. L is requesting an exemption from the payment of Capital Gains Tax (CGT) on the Deed of Exchange covering residential properties which was executed to correct material discrepancies encoded in the respective titles. As represented, a Deed of Exchange was executed between Ms. L and Mr. F to rectify the error in the registration of the wrong portions in the parties’ respective names and the registration of the portions that correctly belong to each other. In reply, the Bureau cited Salud vs. CIR, wherein the Court of Tax Appeals had occasion to rule that the 1997 Tax Code, as amended does not define nor qualify the phrase “other disposition.” Section 24(D)(1) of the 1997 Tax Code, as amended, includes all kinds of dispositions of real property unless specifically excluded therefrom or subject to another tax treatment pursuant to other provisions of the Tax Code or other special tax laws. Further, an administrative error was committed in the process of registering the titles of the parties which clouded their proof and tight of ownership on their respective lots. However, the remedy resorted to by the parties cannot be construed as an exemption from the application of the prevailing tax laws. Consequently, the absence of an express statutory provision exempting the subject transaction from CGT prompts the inevitable application of Section 24(D)(1) of the 1997 Tax Code, as amended, thus, the Deed of Exchange is subject to CGT, and Documentary Stamp Tax (DST).
EXEMPTION FROM CAPITAL GAINS TAX ON SALE OF INVESTMENT SHARES
INCOME TAX EXEMPTION OF A REASONABLE PRIVATE RETIREMENT BENEFIT PLAN INCLUDES FINAL & WITHHOLDING TAXES
BIR RULING NO. 393-2022, SEPTEMBER 23, 2022
H Co., a domestic corporation engaged in the business of manufacturing all kinds of cement products, is requesting a confirmatory ruling on whether the income earned from the sale of its shares in C Co. to H B.V. is exempt from income tax, including Capital Gains Tax (CGT), pursuant to Section 60 (B) of the 1997 Tax Code, as amended. As represented, H Co. has a Retirement Fund, which is governed by the Retirement Plan Rules and Regulations, as amended by the 2000 and 2009 Amendments (“Plan Rules”). The Bureau confirmed that the amendments made remain qualified as a reasonable retirement plan, thus, eligible for tax exemptions as well as exempt from 20% final tax on interest income under Section 32 (B)(6)(a) of the 1997 Tax Code, as amended. Currently, A Co. acts as the trustee for H Co’s Retirement Fund, which includes shares in C Co. that were subsequently sold to H B.V., resulting in a capital gain. In reply, the Bureau confirmed its position that H Co.’s Plan Rules remain a reasonable retirement plan within the contemplation of Section 32 (B)(6)(a) of the 1997 Tax Code, as amended. Further, Section 60(B) of the same Code specifically exempted employees' trust from income tax and consequently from withholding tax. Thus, the income generated from the sale of its shares in C Co. to H Co. is exempt from CGT under Section 27 (D)(2) of the 1997 Tax Code, as amended. However, H Co. shall be subject to Stock Transaction Tax and Documentary Stamp Tax (DST) if the said shares of stock are listed on the local stock exchange.
EXTENT OF VAT EXEMPTION OF A RENEWABLE ENERGY DEVELOPER OF GEOTHERMAL PRODUCTION
BIR RULING NO. 392-2022, SEPTEMBER 22, 2022
P Co., a Renewable Energy (RE) Developer of Geothermal Energy Resources, is requesting a confirmatory ruling on whether its local purchases of goods, properties, and services are entitled to a 0% Value-Added Tax (VAT). Accordingly, P Co. is registered with the Board of Investments (BOI) and the Department of Energy (DOE). In reply, Section 15 (g) of Republic Act No. 9513, otherwise known as the “Renewable Energy Act of 2008,” provides that all RE Developers shall be entitled to zero-rated VAT on their purchases of local supply of goods, properties, and services needed for the development, construction, and installation of its plant facilities, as well as the whole process of exploring and developing renewable energy sources up to its conversion into power, including but not limited to the services performed by subcontractors and/or contractors. Simply, since P Co. is a DOE-certified RE Developer, its suppliers/sellers of goods and services should not pass on the 12% VAT on its local purchases needed for its RE projects.
DONATIONS MADE TO ANY GOVERNMENT AGENCIES & ITS PROGRAMS ARE EXEMPT FROM DONOR’S TAX
BIR RULING NO. 391-2022, SEPTEMBER 19, 2022
The Department of Science and Technology (DOST) is requesting a ruling that will govern the availment of tax incentives available to donors in connection with the official science broadcast program of the DOSTv. As represented, DOSTv is included in the National Economic and Development Authority’s (NEDA) National Priority Plan (NPP) for the years 2019-2022. In reply, Section 101 of the 1997 Tax Code, as amended, exempts from donor’s tax gifts or donations made to or for the use of the National Government or any entity created by any of its agencies that is not conducted for profit or any political subdivision of the government. Likewise, contributions or donations made to the national government or any of its agencies are fully deductible from the donor's gross income under Section 34(H) of the 1997 Tax Code, as amended. If gifts or donations are not included in the NEDA IPP, the deductions shall be limited to the limitations provided for by law (i.e., 10% for an individual or 5% for corporation based on the taxable income). In conclusion, donations are exempt from the donor’s tax and can be claimed as full deductible on the part of the donor.
RETIREMENT BENEFITS UNDER R.A. 7641 ARE SUBJECT TO INCOME & WITHHOLDING TAX FOR FAILURE TO MEET THE AGE REQUIREMENT
BIR RULING NO. 384-2022, SEPTEMBER 8, 2022
F Co. is requesting an income tax exemption for the retirement benefits of their retiring employee, who is 50 years old and has a combined years of service of 24.8 years. The retiring employee is a previous worker of S Co., a company that was taken over by F Co., and remained subject to the Retirement Plan of the former which is unregistered with the BIR. In reply, the Bureau cited Section 32 (B)(6)(a) of the 1997 Tax Code, as amended, which provides that the retirement benefits received under Republic Act (R.A.) No. 4917, or “An Act Providing that Retirement Benefits of Employees of Private Firms Shall Not Be Subject to Attachment, Levy, Execution ” in accordance with a reasonable private benefit plan, shall be excluded from the gross income subject to tax, provided that the retiring employee is 50 years old and above with at least 10 years of service. However, if the company does not provide any retirement plan or is disapproved by the BIR as reasonable, Section 1 of R.A. No. 7641, otherwise known as the “Retirement Pay Law” shall apply. It provides the exclusion of retirement benefits from gross income provided that the retiring employee has reached the age of 60 but not beyond 65 and has served the employer for at least five (5) years. Since the retiring employee of F Co. failed to meet the age requirement of 60, the retirement benefits received shall be subject to income and withholding tax.
EXERCISE OF THE OPTION TO CLAIM A REFUND OR ISSUANCE OF A TCC BARS THE OTHER OPTION TO CARRY-OVER THE EXCESS PAYMENT FOR APPLICATION IN THE SUBSEQUENT YEARS' TAX OBLIGATION
UNJUST ENRICHMENT IS NOT APPLICABLE TO TAXPAYER'S OWN FAULT
BIR RULING NO. 380-2022, AUGUST 31, 2022
U Co. is requesting a clarification on whether its unutilized creditable withholding taxes (CWT) for taxable year 2006, which was the subject of a claim for issuance of a Tax Credit Certificate (TCC) before the courts and which claim was denied with finality by the Supreme Court, may be carried-over and credited against the estimated quarterly income tax liabilities on the taxable quarters of the succeeding taxable years, until fully utilized, as long as the fact of withholding of CWT was clearly established. In ruling, Section 76 of the 1997 Tax Code, as amended, is clear and unequivocal in providing that the carry-over option, once actually or constructively chosen by a corporate taxpayer, becomes irrevocable. Hence, when U Co. filed a Petition for Review with the Court of Tax Appeals for the application of TCC covering its unutilized CWT, U Co., from then onwards, became precluded from carrying over its excess CWT. Regarding the issue on unjust enrichment, the BIR held that the same is untenable. In this case, the denial of U Co.'s claim for TCC was due to its failure to comply with all the requisites to be entitled to a claim for refund or issuance of a TCC. Thus, the government is not unjustly benefited at the expense of or with damages to another considering that it is U Co. who failed to establish that it is entitled to a claim for refund or issuance of a TCC.
REGIONAL AREA HEADQUARTERS IS EXEMPT FROM INCOME TAX & VAT IF IT IS ACTED EXCLUSIVELY AS A SUPERVISORY, COMMUNICATIONS & COORDINATING CENTER FOR ITS AFFILIATES IN THE REGION
BIR RULING NO. 379-2022, AUGUST 31, 2022
G Co., a Regional Area Headquarter of a multinational corporation organized and existing under the laws of the Commonwealth of Northern Mariana Islands, is requesting an Income Tax and Value-Added Tax (VAT) exemption. At present, it is acting as a supervisory, communications, and coordinating center for its affiliates, subsidiaries, or branches in the region. It does not derive any income from the Philippines, nor will it participate in any matter in the management of the company’s subsidiaries or branch offices operating in the country. In ruling, Section 28 (A)(5)(a) of the 1997 Tax Code, as amended, provides that a Regional or Area Headquarters shall not be subject to Income Tax, provided it is a branch established in the Philippines by a multinational company acting as a supervisory, communications, or coordinating center for its affiliates, subsidiaries, and branches in the Asia-Pacific Regional and other foreign markets, and it does not earn or derive income from the Philippines, under Section 22 (DD) of the 1997 Tax Code, as amended. Likewise, its services rendered, based on the foregoing qualifications, shall be exempt from VAT under Section 109 (1) (J) of the 1997 Tax Code, as amended.
THE EXTENT OF TAX EXEMPTION OF THE VETERAN'S FEDERATION OF THE PHILIPPINES
BIR RULING NO. 372-2022, AUGUST 23, 2022
The Veterans Federation of the Philippines (VFP) is seeking a Certificate of Tax Exemption (CTE) from all taxes. A perusal of documents showed that the VFP is created under Republic Act (R.A.) No. 2640, otherwise known as “An Act to Create a Public Corporation known as the Veterans Federation of the Philippines.” It is classified as a government instrumentality with corporate powers, which is not a government-owned and controlled corporation. VFP’s financial statements show that it derives revenue from lease and lot rentals, interest income, road users, service fees, lot rentals, stickers, and penalties. In reply, Section 11 of R.A. No. 2640 provides the exemption of VFP from all taxes. Citing the Supreme Court case of VFP vs. Reyes, funds of VFP are public funds and for public purposes, regardless of its source. This follows that the same shall be tax-exempt. However, they shall be subject to Value-Added Tax (VAT), as the tax privilege provided to VFP is repealed by Sec. 86 (e) of R.A. No. 10963, otherwise known as the “Tax Reform for Acceleration and Inclusion” or TRAIN Law. With this, the VFP is exempted from taxes, except for VAT, if it is used for the public.
MANUFACTURE, DISTRIBUTION & SALE OF FEEDS DEFINED UNDER THE “LIVESTOCK & POULTRY FEEDS ACT ARE VAT-EXEMPT
BIR RULING NO. 371-2022, AUGUST 22, 2022
S Feeds Corporation (S Co.) is requesting a Value-Added Tax (VAT) exemption in the manufacture and sale of fish meals. Its primary purpose is to engage in the business of milling, manufacturing, processing, and importing, among others, feeds and agricultural chemicals. The Bureau of Animal Industry (BAI) issued several Certificates of Registration with Licenses to Operate covering the sale of feed products. In reply, Section 109 (1)(B) of the 1997 Tax Code, as amended by Republic Act (R.A.) No. 10963, otherwise known as the “Tax Reform for Acceleration and Inclusion (TRAIN)” Law provides for the exemption from VAT on the sale or importation of feeds. The words “ingredients” and “feeds” are defined in Section 3 of R.A. 1556, otherwise known as the “Livestock and Poultry Feeds Act.” Thus, the distribution/sale of feeds by S Co. is considered exempt from VAT provided that the feeds are used exclusively to produce livestock and poultry feeds, and not for specialty feeds for other animals generally considered as pets.
INTEREST INCOME DERIVED FROM DEPOSITS OF NON-STOCK SAVINGS & LOANS ASSOCIATIONS ARE EXEMPT FROM FINAL WITHHOLDING TAX
BIR RULING NO. 364-2022, AUGUST 12, 2022
S Association is requesting a revalidation of its certificate of exemption from the 20% Final Withholding Tax (FWT) on its interest income derived from its deposits and deposit substitutes pursuant to the Republic Act (R.A.) No. 8367, otherwise known as the “Revised Non-Stock Savings and Loan Association Act of 1997.” In reply, Section 5 of the law provides that an association shall be exempt from payment of tax with respect to income it receives, including interest on its deposits with any bank and interest earnings on deposits of members with an association, as well as shares of its members from the net income of the association shall be exempt from income tax. However, income derived from any of its properties, real or personal, or any activity conducted for profit, regardless of the disposition thereof, is subject to the corresponding internal revenue taxes imposed under the 1997 Tax Code. In view of the foregoing, and as held in BIR Ruling No. 519-2011, S Association shall be exempt from income tax with respect to the income it receives. Likewise, interest income derived from deposit and deposit substitutes are exempt from 20% FWT.
CIR’S RIGHT TO OBTAIN INFORMATION IS NOT VIOLATIVE OF DPA
CIR IS AUTHORIZED BY THE TAX CODE TO OBTAIN INFORMATION FROM ANY PERSON IN ORDER TO EVALUATE TAX COMPLIANCE OF TAXPAYERS & TO DETERMINE ANY LIABILITY FOR INTERNAL REVENUE TAX
BIR RULING NO. 363-2022, AUGUST 12, 2022
S Co. is requesting clarification on whether S Co.’s disclosure of (1) the sales earned by T Co.; and (2) a list of all its partner merchants/sellers, in compliance with the request of the BIR will violate Republic Act No. 10173, otherwise known as the “Data Privacy Act of 2012” (DPA). In ruling, Section 4(e) of the DPA states that the provisions of the DPA do not apply to information necessary to carry out the functions of public authority. Hence, the BIR, being a public authority performing its state’s functions, has the right and/or authority to obtain information from any person in order to ascertain the correctness of any return, or to make a return when none has been made, or to determine the liability of any person for any internal revenue tax. Considering that the Requested Information relates to the performance of the BIR’s functions as a public authority, the disclosure of the same is not violative of the DPA as it is outside of its coverage. Thus, the BIR opined that the disclosure of the Requested Information by S Co. to the BIR is legal and not covered by the provisions of the DPA.
TAX-EXEMPT RETIREMENT BENEFITS UPON MEETING THE AGE & YEARS OF SERVICE REQUIREMENT UNDER RA 7641
BIR RULING NO. 362-2022, AUGUST 12, 2022
B Co. is requesting the income tax exemption of the retirement benefits of their retiring employee, who turned 60 years of age and has served them for 15 years. In reply, the Republic Act (RA) No. 7641, otherwise known as “The Retirement Pay Law,” provides that in the absence of any retirement plan, employees shall receive the equivalent of at least 1/2 month's salary for every year of their service, and a fraction of at least six (6) months is being considered as a whole year, upon reaching the age of 60 but not beyond 65 and has served the business for at least five (5) years. For meeting the qualifications, the retirement benefits provided by B Co. to its employee shall be exempt from income tax and consequently, on withholding tax, pursuant to Section 32 (B)(6)(a) of the 1997 Tax Code, as amended. For terminal pay, such as commutation and any monetized unused vacation leaves, not exceeding ten (10) days during the year, the same shall be exempted from income and withholding tax, under Section 2.78.2 (A)(7) of Revenue Regulations (RR) 2-98, as amended. However, this principle does not apply to sick leaves. Further, the Php 90,000 threshold of 13-month pay and other benefits shall still apply, in which, any excess shall be subject to income and withholding tax.
THE EXTENT OF TAXABILITY & EXEMPTION OF THE TRANSFER OF OWNERSHIP OF MIAA TO NHA
BIR RULING NO. 358-2022, AUGUST 4, 2022
The National House Authority (NHA) is requesting an exemption from any taxes that may incur on the transfer of certain land ownership from the Republic of the Philippines (RP) through the Manila International Airport Authority (MIAA), as well as the tax-exemption related to its Titling Works Project, pursuant to Republic Act (R.A.) No. 7279 or the Urban Development and Housing Act of 1992. The parcels of land, named after the ROP under the administration of MIAA, have been declared open for disposition to NHA, under Presidential Proclamation (P.P.) No. 144, as amended by P.P. No. 391, in which, the government executed three (3) Deeds of Conditional Assignment of Real Property, acknowledged by both parties. Likewise, the NHA hired various contractors for its titling works, following the notarization of such deeds. In reply, the conveyance of land ownership, supported by the deeds, is exempted from income tax, Capital Gains Tax (CGT), Expanded Withholding Tax (EWT), and Documentary Stamp Tax (DST), according to Sections 19 and 20 of R.A. No. 7279, as amended by R.A. No. 10884 or the “Balanced Housing Development Program Amendments,” and from VAT, under Sec. 109 (1)(P) of the 1997 Tax Code, as amended. On the contrary, as the land titling works do not fall under the definition of socialized housing as provided in Sec. 3(r) of R.A. No. 7279, as amended, the service fees paid to the contractors shall be subject to income and withholding tax. Moreover, their VAT exemption entitlement, under Sec. 20 (d)(3) of RA No. 7279, as amended, has been repealed by Sec. 86 (tt) and (uu) of R.A. No. 10963 or the “Tax Reform for Acceleration and Inclusion” (TRAIN) Law. Hence, the service fees shall be also subject to VAT, and before any payment, the NHA shall withhold a 5% creditable VAT, pursuant to Sec. 114(C) of the 1997 Tax Code, as amended. In this regard, only the transfer of land from MIAA to NHA is exempted from taxes, excluding the payments to the contractors.
LIFTING OF NOTICE OF TAX LIEN
BIR RULING NO. 354-2022, JULY 26, 2022
M is requesting the lifting of the Notice of Tax Lien, Notice of Levy, and Declaration of Forfeiture of Real Properties on Transfer Certificate of Title, which was annotated by the Bureau of Internal Revenue (BIR), purposely to secure the tax liability of the previous owner. In ruling, the Notice of Tax Lien, Notice of Levy, and the Declaration of Forfeiture of Real Property are encumbrances in favor of the government securing the tax liability of the registered owner. However, the encumbrances are effective only in cases wherein the right of ownership in a particular property conforms with the delinquent taxpayer. The tax lien/levy cannot be made applicable to cases when the delinquent taxpayer had sold the property and parted with his ownership thereof. Since the previous owner had sold the subject property to M prior to the inscription of the encumbrances, the annotations therefore in M’s title are void and without any legal effect. Consequently, the Registry of Deeds is given the authority to lift the said encumbrances in M’s favor.
THE LAW ALLOWS THE TAXPAYER TO LENGTHEN OR SHORTEN THE USEFUL LIFE OF THE PROPERTY IN THE LIGHT OF THE PREVAILING FACTUAL CONSIDERATIONS & SUBJECT TO THE APPROVAL OF THE BIR
BIR RULING NO. 353-2022, JULY 19, 2022
C Co. is seeking confirmation on the proposed change in accounting treatment for bottles and cases in claiming depreciation, both for tax and financial accounting purposes. Based on the old policy, bottles and cases were recorded as inventory (30%) and property, plant, and equipment (70%). However, with the change of ownership, C Co. needs to align with the accounting treatment such that 100% of bottles and cases shall now be treated as fixed assets. Consequently, C Co. proposes to change the accounting treatment, leading to the revision of the estimated useful life and resulting in a change in depreciation expense. To date, C Co. is still collecting the deposit value of the bottles for every sale of products in Returnable Glass Bottles (RGB). The deposit value forms part of Accounts Receivables from customers and Container Deposit Liability accounts, subject to a reversal once glass bottles are returned. For every unreturned bottle, customer shall pay the corresponding deposit value to C Co. the amount covered by the customer’s deposit shall be deducted from the depreciation expense recorded in C Co.’s books and amortized over the useful life. In reply, the Bureau cited Section 34(F) of the 1997 Tax Code, as amended, which confirmed the proposed change in accounting treatment for bottles and cases in claiming depreciation, both for tax and financial accounting purposes, effective January 1, 2017, provided, however, that any prior period adjustments shall be subject to deficiency income tax, interest, and penalties if warranted. Further, the amounts collected for unreturned bottles must be reported as income and must be deducted from the depreciation expense claimed by C Co.
TOWNHOUSE DUES COLLECTED FROM ITS MEMBER-LESSEES ARE NOT INCOME SUBJECT TO VAT
BIR RULING NO. 347-2022, JUNE 30, 2022
M P Club, Inc. (the Club) is requesting confirmation that the townhouse dues collected by the Club from its member-lessees are not subject to Value-Added Tax (VAT). In reply, Section 105 of the 1997 Tax Code, as amended, states that “any person who in the course of trade or business sells, barters, exchanges, leases goods or properties, renders services, and any person who imported goods shall be subject to the VAT.” Hence, before VAT is imposed, a sale, barter, or exchange of goods or properties, or sale of service is required. Since membership dues and assessment fees of similar nature do not pertain to the sale of services to the member-lessees by the Club, and conversely, the member-lessees are not buying services from the Club when the townhouse dues are paid, dues collected are not subject to VAT. There is no economic or commercial activity to speak of, as the townhouse dues are devoted to the operations and maintenance of the townhouses, which may warrant the imposition of VAT.
CONVEYANCE OF PROPERTY AS A RESULT OF TERMINATION OF TRUST IS NOT SUBJECT TO TAX
BIR RULING NO. 346-2022, JUNE 30, 2022
Spouses C are requesting a ruling on whether the conveyance of properties as a result of the termination of a Trust Agreement with B Co. is exempt from tax. In reply, the transfer of title of properties under the Trust Agreement in favor of the Trustors, Spouses Chua, who are the actual owners is not subject to Capital Gains Tax (CGT) nor to the Creditable Withholding Tax (CWT) considering that the transfer and reconveyance are not motivated by valuable consideration and merely acknowledges, confirms, and consolidates the legal title and actual ownership over the Trust Properties in the name of the Trustors. The conveyance is not to be treated as another transfer separate and distinct from the sale between the original owner and the Trustee, instead it is merely treated as a continuation and confirmation of title in favor of the ultimate and real beneficiaries of the Trust Properties. Also, the transfer is not subject to the 12% VAT because the aforesaid properties are not held primarily for sale to customers or for lease in the ordinary course of trade or business. Further, the transfer is not subject to Gift Tax since there is no intention to donate on the part of the Trustee.
MISSIONARY SUBSIDY OF NATIONAL POWER CORPORATION TO ELECTRIC COOPERATIVE IS NOT SUBJECT TO VAT
BIR RULING NO. 345-2022, JUNE 30, 2022
Palawan Power Generation, Inc. (PPGI) is requesting confirmation that the Missionary Electrification (ME) Subsidy being disbursed by the National Power Corporation (NPC) to PPGI from the Universal Charge for Missionary Electrification (UCME) Fund pursuant to the Subsidy Agreements between PPGI, Palawan Electric Cooperative, Inc. (PALECO), and NPC executing Republic Act No. 9136 or the Electric Power Industry Reform Act of 2017 (EPIRA Law), as a result of its sale of electricity in an area that is not connected to the transmission system to PALECO is not subject to the 12% Value-Added Tax (VAT) and, consequently, to the 5% Final Withholding VAT. In reply, the grant of ME Subsidy from the UCME Fund, being disbursed by NPC as the administrator of the disbursement of the fund, is not a taxable income being a mere grant or gift of money in favor of PALECO as an incentive from the government. Also, there must be a sale, barter, or exchange of goods or properties before any VAT may be levied. Here, the transaction between PPGI and NPC does not involve any sale of goods or services but merely a cash disbursement from the UCME Fund. Considering that the transaction between PPGI and NPC does not fall within the purview of the term gross income, and the disbursements of ME Subsidy by NPC to PPGI are not NPC’s purchase of goods or services because it is merely an administrator of the distribution of the ME Fund, it follows that the ME Subsidy should not be subject to the VAT and that NPC is not required to withhold the 5% VAT thereon. Thus, PPGI shall have to issue a VAT-exempt receipt to NPC with respect to the ME Subsidy. In addition, PPGI should maintain subjecting the Electricity Fee, which is part of the ME Subsidy, to the income tax and VAT.
TAX INCENTIVES FOR ADOPT-A-SCHOOL PROGRAM
BIR RULING NO. 344-2022, JUNE 30, 2022
A Co. is requesting a ruling on the tax incentives under Republic Act (R.A.) No. 8525, or the “Adopt-A-School Act of 1998” covering the donation of wage subsidy to a school in Davao City. In reply, Revenue Regulations (RR) No. 10-2003, which implements the tax incentives provisions of R.A. No. 8525, otherwise known as “An Act Establishing an ‘Adopt-A-School Program’ Providing Incentives Therefore and for Other Purposes,” provides that a pre-qualified adopting private entity, which enters into an agreement with a public school, shall be entitled to the following tax incentives: (1) deduction from the gross income of the amount of contribution/donation that were actually, directly and exclusively incurred for the program, plus an additional amount equivalent to 50% of such contribution/donation; and (2) exemption of the assistance made by the donor from payment of Donor’s Tax. Pursuant to RA No. 8525, to avail of the tax incentives, the following must be complied (a) National Secretariat shall endorse to the RDO of the BIR having jurisdiction over the place of business of the adopting private entity; and (b) adopting private entity shall submit an application for entitlement. For purposes of A Co’s. entitlement to the full deductibility of the donation from the gross income of the donor under Section 34 (H)(2)(a) of the Tax Code of 1997, as amended, A Co. must present a certification from the National Economic Development Authority (NEDA) that the donation to the school is in accordance with the priority programs, projects, and activities included in the current National Priority Plan. Otherwise, donations will be subject to limited deductibility or deductions to an amount not exceeding 10% in the case of an individual and 5% in the case of a corporation of the taxpayer’s taxable net income as computed without the benefit of this deduction.
A TAX-FREE MERGER DOES NOT QUALIFY WHETHER THE MERGER IS DOMESTIC OR OFFSHORE
BIR RULING NO. 338-2022, JUNE 30, 2022
I Co., a foreign company based in the US, is requesting a confirmation that the transfer of the shares of capital stock of C(PH) Co. from C(US) Co. to I Co., pursuant to an offshore merger between C(US) Co. and I Co., is not subject to the Capital Gains Tax (CGT). In reply, the application of Section 40(C)(2) of the 1997 Tax Code, as amended, to a nonresident foreign corporation is well-settled. It does not make any qualification or distinction as to its application to a corporation. It provides that no gain or loss shall be recognized if a property is transferred to a corporation by a person, alone or together with others, not exceeding four (4) persons, in exchange for stock or unit of participation in such a corporation of which as a result of such exchange the transferor/s, gains or maintains control of the said corporation. In a merger, the surviving/absorbing corporation succeeds in the rights and liabilities of the absorbed corporation and merely carries on the identity of the latter. The underlying assumption of the tax-free exchange provision generally is that the new property received is substantially a continuation of the old investment, still unliquidated. Hence, a merger does not involve a sale, exchange, or disposition of shares. Therefore, the transfer of the shares of capital stock of C(PH) Co. from C(US) Co. (absorbed corporation) to I Co. (surviving corporation) pursuant to a merger effected in accordance with US Laws, is not subject to the CGT.
ALL-EVENTS TEST AS CRITERIA IN CLAIMING REBATES AS TAX-DEDUCTIBLE
BIR RULING NO. 336-2022, JUNE 30, 2022
N Co. is requesting confirmation on the proper timing of recognition of the deductibility of sales rebates granted by N Co. to its customers/distributors for income tax purposes. In reply, Revenue Audit Memorandum Order No. 1-2000 provides that under the accrual method of accounting, expenses not claimed as deductions by a taxpayer in the current year when they are incurred cannot be claimed as deductions from income for the succeeding year. The US Rules has persuasive effect on Philippine Law, as specifically provided under MERTENS’ Law of Federal Income Taxation. Accordingly, for a taxpayer to adapt the accrual method, the question becomes important when do the facts present themselves in such a manner that the taxpayer must recognize income or expenses. The accrual of income or expenses is permitted when the all-events test has been met. The all-events test requires (1) fixing of a right to income or liability to pay; and (2) the availability of reasonably accurate determination of such income or liability. However, the all-events test does not demand that the amount of income or liability be known absolutely, only that a taxpayer has at his disposal the information necessary to compute the amount with reasonable accuracy. Accordingly, the sales rebates shall be reported only as a deduction by N Co. for tax purposes when the all-events test has been met. Otherwise, N Co. cannot claim the sales rebates as a deduction in the same period that they were incurred.
TAX DEDUCTIBLE LOSS OF USEFUL VALUE OF ASSET
BIR RULING NO. 335-2022, JUNE 30, 2022
S Co., a corporation engaged in telecommunications, is seeking confirmation on whether the loss in useful value is a deductible expense, for income tax purposes. In reply, Section 34 (D) (1) of the 1997 Tax Code, as amended, as implemented by Section 98 of Revenue Regulations (RR) No. 2, provides that for a loss to be deductible, the following requisites must be met: (1) the loss must be of the taxpayer; (2) the loss must be actually sustained and charged off within the taxable year; (3) the loss must have been incurred in trade, business, or profession; (4) the loss must be evidenced by a closed and completed transaction; and (5) the loss must not have been compensated for by insurance or other forms of indemnity. Given that such requisites are met, S Co.’s loss in useful value of decommissioned data network platform, hardware, and technology equipment in 2017 and in the first two quarters of 2018, is, therefore, deemed as deductible expenses, for income tax purposes.
THE SALE OF EDUCATIONAL MATERIALS OR PRODUCTS IS EXEMPT FROM VAT
BIR RULING NO. 322-2022, JUNE 29, 2022
M Co. is seeking confirmation that the sale of educational materials or products, both in printed and digital/electronic formats, is exempt from Value-Added Tax (VAT). In reply, the BIR cited Section 12 of Republic Act (RA) No. 8047, otherwise known as the “Book Publishing Industry Development Act,” which provides that books, magazines, periodicals, and newspapers, including book publishing and printing, as well as its distributions and circulation, shall be exempt from VAT. Moreover, Section 109(1)(R) of the 1997 Tax Code, as amended, and Section 4.109-1(B)(r) of Revenue Regulations (RR) No. 16-2005, as amended, provide that its sale, importation, printing or publication of books, and any newspaper, magazine, journal, review bulletin, or any such educational reading material covered by the UNESCO Agreement on the Importation of Educational, Scientific and Cultural Materials, including the digital or electronic format thereof, provided that the materials enumerated herein are not devoted principally to the publication of paid advertisements; and are compliant with the requirements set forth by the National Book Development Board (NBDB), shall be exempt from 12% VAT.
TAX-EXEMPTION OF JOINT VENTURE FORMED FOR CONSTRUCTION PROJECTS
BIR RULING NO. 317-2022, JUNE 28, 2022
TC-DM Joint Venture (TC-DM JV) is seeking an opinion on the taxation of the JV between TC and DM in constructing Package 01: Elevated Structures, 6 Stations, and a Depot for the North-South Commuter Railway Project (“JV Project”). As represented, TC-DM JV is an unincorporated JV formed to undertake the JV Project. It entered into a contract with the government through the Department of Transportation (DOTr) for the construction and completion of the aforementioned project. The Philippine Contractors Accreditation Board (PCAB) issued a Special Contractor’s License for the project and the two (2) contractors. TC-DM JV was registered with the BIR as a regular corporation liable for corporate income tax. In reply, the Bureau cited Section 22 (B) of the 1997 Tax Code, as amended, which excludes JV or consortium formed for construction projects as a taxable corporation. Likewise, Section 2.57.5 (5) of Revenue Regulations (RR) No. 2-98, as amended, and Section 3 of RR No. 10-2012 provide that income payments made to a JV or consortium formed for construction projects shall be exempt from the Creditable Withholding Tax (CWT) provided it meets the following conditions: (1) licensed local contractors pool resources; (2) local contractors are engaged in the construction business; and (3) the JV itself is duly licensed by the PCAB of the Department of Trade and Industry (DTI). Further TC-DM JV, being exempt from corporate income tax, is not required to file quarterly and final adjustment returns. However, co-venturers are taxable on their respective shares of the net income from the project and shall be subject to Creditable Withholding Tax (CWT). On the part of the government, DOTr, as the executing agency, shall assume fiscal levies and taxes imposed on the government on the Japanese companies operating as suppliers, contractors, consultants, and employees on their income concerning the implementation of the project.
IN A REVOCABLE TRUST, THE TRUSTOR RETAINS THE RIGHT TO CONTROL THE DISPOSITION OF THE PROPERTY, INCLUDING THE RIGHT TO CAUSE THE REVERSION OF THE LEGAL OWNERSHIP OF THE PROPERTY ITSELF
BIR RULING NO. 316-2022, JUNE 28, 2022
P Co. is requesting confirmation that the transfer of legal title of the Club Floors to the beneficial owners as a consequence of the termination of the trust relationships of P Co. with SSS and PP Co. shall not be subject to Income Tax, Documentary Stamp Tax (DST), Value-Added Tax (VAT) and Donor’s Tax. In reply, the return or transfer of legal ownership of the property to the trustor of a revocable trust is mere confirmation of the title of the trustor as the ultimate and real owner-beneficiary of the property and does not involve an actual transfer of the beneficial ownership of the property since the trustor remains the beneficial owner of the property held in trust before and after the return or transfer of legal ownership of the property. Consequently, the transfer or reversion of the Club Floors by P Co., as the Trustee, to SSS and PP Co., as the Trustors, is not subject to Income Tax. Moreover, the properties are not held primarily for sale to customers or lease in the ordinary course of the trustee’s business since the trustee merely holds or manages the said properties for the benefit of the trustor, thus, the transfer or return by the trustee to the trustor of the properties held in trust is not subject to the 12% VAT. Finally, the transfer or return of the properties, which founded solely on the termination of the trust agreement, thus, the absence of the element of donative intent, is not subject to Donor’s Tax.
CASH DIVIDENDS TO A RESIDENT ALIEN RECIPIENT ARE SUBJECT TO THE 10% FINAL TAX
BIR RULING NO. 315-2022, JUNE 28, 2022
O Co. is seeking confirmation whether cash dividends declared and to be declared to its majority stockholder, Mr. K, a resident alien, is subject to the 10% Final Withholding Tax (FWT). Mr. K is a Japanese Citizen and a majority shareholder of O Co. In reply, Section 24(B)(2) of the 1997 Tax Code, as amended, provides that cash and/or property dividends paid to individual citizens/resident aliens during the taxable year shall be subjected to a final tax of 10%. In a similar ruling in the past involving the very same subject (i.e., BIR Ruling No. DA-290-2005 dated June 27, 2005), the Bureau had the occasion to rule that Mr. K, an owner, and officer of B Co., is a resident alien subject to the 10% final tax as prescribed. Applying the above-cited laws, Mr. K is considered a resident alien for purposes of his income tax liability in the Philippines considering his residence in the Philippines and he is not a citizen of the Philippines.
SUBSEQUENT SALE OF PROPERTY, WITH THE INTENTION TO USE THE PROCEEDS FOR RESIDENTIAL PURPOSES, IS EXEMPT FROM CWT & VAT
BIR RULING NO. 311-2022, JUNE 24, 2022
Mr. A is requesting a ruling that the house and lot which he initially acquired with the intention to use such property for residential purposes is considered a capital asset and the subsequent sale of such property is exempt from the imposition of Income Tax, Creditable Withholding Tax (CWT), and Value-Added Tax (VAT). In reply, Section 39 (A) of the 1997 Tax Code, as amended, provides that the term 'capital asset' means property held by the taxpayer whether or not connected with his trade or business, but does not include stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year, or property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business, or property used in the trade or business, of a character which is subject to the allowance for depreciation provided in Subsection (F) of Section 34; or real property used in a trade or business of the taxpayer. In the instant case, the subject property previously intended for residence is classified as a capital asset since the said property is not for lease/rent or being offered for lease/rent, or otherwise for use or being used in trade or business. Hence, its subsequent sale is not subject to CWT and VAT.
VAT-EXEMPT PURCHASES OF GOODS & SERVICES DIRECTLY & EXCLUSIVELY USED FOR REGISTERED ACTIVITY OF EXPORT ENTERPRISES
BIR RULING NO. 306-2022, JUNE 23, 2022
F Co., a registered export enterprise, is seeking confirmation on whether its purchase of a parcel of land located within the Philippine Economic Zone Authority (PEZA) is exempt from Value-Added Tax (VAT). In reply, Section 5, Rule 2 of the Implementing Rules and Regulations (“IRR”) of the CREATE Law provides that registered export enterprises are granted a VAT zero-rating incentive on their local purchases of goods and services that are directly and exclusively used in its registered project or activity. Moreover, Revenue Memorandum Circular (RMC) No. 24-2022 provides that purchases of goods and services include the provision of basic infrastructure and other expenditures that is/will be directly and exclusively used in or attributable to the registered project or activity. Considering that F Co.’s office and warehouse building for the manufacture of optical lenses will be constructed on the Property, it can be concluded that the Property is/will be directly and exclusively used in the registered project or activity of F Co. Consequently, the sale of the Property by S Co. to F Co., a registered export enterprise, shall be exempt from VAT, provided that S. Co is a non-export enterprise registered prior to the passage of the CREATE Law and under the 5% SCIT regime or registered export enterprise under 5% SCIT regime. Likewise, it is subject to zero-rated VAT provided that S. Co is (1) a non-export enterprise registered prior to the passage of CREATE Law and under the ITH regime; (2) a non-export enterprise registered during the effectivity of CREATE Law and under the ITH regime; or (3) VAT-registered export enterprise under the ITH regime.
SALE OF ROASTED CHICKEN ON A TAKE-OUT BASIS, WHICH HAD UNDERGONE THE SIMPLE PROCESSES OF PREPARATION & PRESERVATION & IS STILL CONSIDERED FOOD PRODUCTS IN THEIR ORIGINAL STATE, ARE EXEMPT FROM VAT
BIR RULING NO. 292-2022, JUNE 13, 2022
C Co. is requesting a confirmation that the sale of roasted chicken qualifies as a Value-Added Tax (VAT)-exempt transaction under Section 109 of the 1997 Tax Code, as amended. In reply, Section 109(1)(A) of the 1997 Tax Code, as amended, provides that the sale or importation of agricultural and marine food products in their original state, livestock, and poultry of a kind generally used as, or yielding or producing foods for human consumption are exempted from VAT. Moreover, Section 4.109-1(B)(a) of Revenue Regulations (RR) No. 16-2005, as amended, states that meat, fruits, vegetables, and other agricultural and marine food products shall be considered in their original state even if they undergo the simple processes of preparing or preservation for the market, such as freezing, drying, salting, broiling, roasting, smoking or stripping those using advanced technological means, such as shrink packaging in plastics, vacuum packing, tetra packing, and other similar packaging methods are exempt from VAT. However, the exemption applies only if the roasted chicken is purchased on a take-out basis. Should C. Co. maintain a facility by which the chicken, which has undergone the simple process of roasting, will be offered as a menu item to customers who would dine in, then it will be subject to VAT on the sale of service, which is similarly imposed on restaurants and other eateries. Thus, the sale of roasted chicken on a take-out basis, which has undergone the simple processes of preparation and preservation and is still considered food product in its original state, is exempt from VAT.
RESCISSION OF A CONTRACT WOULD NOT GIVE RISE TO A TAXABLE EVENT
RECONVEYANCE AS A RESULT OF RESCISSION OF CONTRACT IS NOT SUBJECT TO CAPITAL GAINS TAX & DOCUMENTARY STAMP TAX
BIR RULING NO. 291-2022, JUNE 10, 2022
N Co. is requesting an exemption from the payment of Capital Gains Tax (CGT) and Documentary Stamp Tax (DST) on the reconveyance of lots covered by transfer certificates issued to P Co. by the Register of Deeds. To rectify the mistake caused by their inadvertence and oversight, a Deed of Reconveyance was executed between P Co. and N Co. wherein the parties mutually agreed to rescind the Deed of Transfer. In reply, the BIR first discussed that to rescind is to declare a contract void at its inception. Hence, the rescission of a contract would not give rise to a taxable event for two reasons: (a) the result of rescission is that it is as if there was no sale, transfer, or exchange, and hence, no income is realized; and (b) the return of the object rescinded contract is not for monetary consideration and is merely an acknowledgment or confirmation of the title and ownership of the original owner of the property. Such being the case, the reconveyance by P Co. of lots in favor of N Co., in accordance with the parties’ mutual agreement to rescind the Deed of Transfer, is not subject to CGT. Moreover, the said reconveyance is not subject to DST as there is no sale transaction or conveyance for consideration.
ESTATE SETTLEMENT CAN BE PAID IN INSTALLMENTS SUBJECT TO THE APPROVAL OF THE BIR
BIR RULING NO. 277-2022, JUNE 6, 2022
Mrs. O is requesting a reasonable extension to pay the estate tax due on October 8, 2021, through a cash installment. In reply, Section 91 (B) of the 1997 Tax Code, as amended, provides that when the Commissioner finds that the payment on the due date of the estate tax or any part thereof would impose an undue hardship upon the estate or any of the heirs, he may extend the time for payment not to exceed five (5) years in case the estate is settled through the courts, or two (2) years in case the estate is settled extrajudicially. However, the amount for which the extension is granted shall be paid on or before the date of the expiration of the period of the extension, and the running of the Statute of Limitations for assessment as provided in Section 203 of the 1997 Tax Code, as amended, shall be suspended for the period of any such extension. Further, Section 91 (C) of the same Code provides that in case the available cash of the estate is insufficient to pay the total estate tax due, payment by installment shall be allowed within two (2) years from the statutory date for its payment without civil penalty and interest. Hence, the extension to pay the estate tax is granted. Consequently, the executor/administrator or heirs shall pay the estate tax in four (4) installments, without civil penalty and interest.
TAXABILITY OF SAVINGS & LOANS ASSOCIATIONS
BIR RULING NO. 248-2022, MAY 24, 2022
S Association is seeking confirmation whether it is subject to Gross Receipts Tax (GRT) as a Non-Stock Savings and Loan Association (NSSLA) organized and operated exclusively for the mutual benefit of its members. In reply, the Bureau cited Section 3 of the Republic Act (R.A.) No. 8367, which provides that NSSLAs are subject to GRT if they are engaged in the business of a Non-Bank Financial Intermediary (NBFI) as defined under Revenue Regulations (RR) No. 9-2004 (i.e., if they are obtaining funds from the public). Conversely, NSSLAs may be exempt from GRT if they can prove that they do not engage in activities as NBFI as defined under RR No. 9-2004. In ruling, the Bureau cannot confirm the exemption of S Association from GRT based only on the representation that its members are all members of NSSLA organized pursuant to R.A. No. 8367. It is incumbent upon S Association to prove the following: (a) that it is a non-stock, non-profit savings and loan association organized pursuant to RA No. 8367; (b) that it is not engaged in the business of being an NBFI as defined under RR No. 9-2004; (c) it has to prove that it is not obtaining funds from any person other than its members; and (d) that its operations are exclusively for the benefit of its members. Otherwise, it will be considered NBFI and subject to GRT pursuant to Revenue Memorandum Circular (RMC) No. 9-2016.
NO CGT SHALL BE IMPOSED ON THE RETURN OF THE PROPERTY TO THE LEGAL OWNER PURSUANT TO A COURT ORDER
BIR RULING NO. 247-2022, MAY 24, 2022
Ms. R is requesting an exemption from the payment of Capital Gain Tax (CGT) on the reconveyance of a parcel of land pursuant to a Court Order. In reply, the Bureau opined that since the reconveyance of the subject property was in accordance with the order of the Regional Trial Court without any monetary consideration, and that reconveyance was to return a half portion of the property to the legal owner, the transfer of the same in favor of Ms. R is not subject to the 6% CGT imposed under Section 24(D)(1) of the 1997 Tax Code, as amended.
ELECTRONIC GIFT CERTIFICATES: TAXABILITY & EXEMPTION
BIR RULING NO. 208-2022, MAY 5, 2022
M Co. is seeking confirmation on the tax implications of its issuance of electronic gift certificates to its various customers and clients. In ruling, the value of the electronic gift certificates does not constitute income on the part of the M Co. but a fund held in trust of the vendor. Thus, said amounts shall not form part of its gross receipts subject to income tax. The BIR confirmed that the cost of points received by M Co. for the issuance of electronic gift certificates to the customers is not taxable as M Co. merely holds them in trust for the vendor whom the client will redeem. Likewise, the same is not subject to Expanded Withholding Tax (EWT). However, service fees paid to M Co. by its clients constitute gross income subject to income tax and, consequently, to EWT. The issuance of electronic gift certificates to clients is also not subject to Value-Added Tax (VAT), and as such, a non-VAT receipt is proper. However, M Co. shall be subject to VAT and required to issue VAT official receipts on the amount it receives from its customers/clients for the service fees where electronic gift certificates were utilized for facilitation/administrative fees and/or marketing efforts or commission.
TAXABILITY OF HONORARIA, TRAVEL ALLOWANCES & OTHER BENEFITS OF ELECTORAL BOARDS/POLL WORKERS FOR 2022 ELECTIONS
BIR RULING NO. 195-2022, MAY 2, 2022
COMELEC is seeking legal opinion on the exemption from withholding tax of honoraria, travel allowance, and other benefits granted to electoral boards/poll workers or persons rendering election service in the 2022 elections. In reply, the BIR held that honoraria and allowances are wealth that flow into the hands of the recipient, hence, subject to income tax and, consequently, to withholding tax on compensation. Therefore, the honoraria and allowances granted to the electoral boards/poll workers or persons who rendered election services in the elections are considered compensation income subject to withholding tax. Also, since the poll workers/electoral boards are not in the performance of their duties as public-school teachers, the honoraria and allowances are not professional fees. Hence, the exemption from withholding taxes for income payments of Php 10,000 and below is not applicable. The BIR agreed, however, with the COMELEC that the honoraria and allowance to be paid to the teachers shall not be subject to the Value-Added Tax (VAT) or Percentage tax because the performance of service of the electoral boards/poll workers will not be made in the course of trade or business.
CORRECT PERIOD TO WITHHOLD ON THE PAYMENT OF ACCRUED BONUSES & PROPER TIMING OF TAX-DEDUCTIBLE EXPENSES
BIR RULING NO. 133-2022, APRIL 18, 2022
P Co is requesting confirmation that no withholding tax was due on P Co’s bonus payments accrued in December 2017 and distributed to its employees only in 2018. In reply, the Bureau found that there is no actual payment of bonus made by P Co to its employees yet as of December 2017, which would have subjected said bonus payments to withholding tax. P Co already accrued the said bonus payments in 2017. The same was not made available to the employees to be claimed or withdrawn at any time they wish. As such, said payments could not be considered at that time in any way under the control and disposition of the employees. Hence, the accrual of the performance bonus cannot be considered as credited to or set apart for the benefit of the employees as contemplated under the applicable withholding tax provisions on constructive receipt. Therefore, the tax withheld by P Co for its accrued bonuses in December 2017 was erroneously made and remitted to the BIR in January 2018. Consequently, P Co should claim the bonus payments as part of its deductible expenses for the same period in the taxable year 2018 and not in 2017.
TAX EXEMPTION IS ATTACHED TO THE TECHNOLOGY OR INVENTION ITSELF REGARDLESS OF WHOEVER PRODUCES, MANUFACTURES, AND/OR MARKETS THE SAME
BIR RULING NO. 131-2022, APRIL 6, 2022
DOST is requesting clarification on the tax privilege of inventors pursuant to Republic Act (RA) No. 7459, also known as the “Inventors and Inventions Incentives Act of the Philippines.” The law intends to promote invention and extend assistance and support to Filipino inventors in the hope of maximizing their capability and productivity. Likewise, congressional records disclose that in the legislative intent of the said law, only the original inventor is entitled to the tax incentives. Furthermore, the government’s purpose in enacting the law is to provide incentives to investors and protect their exclusive right to the invention, limiting the tax exemption privilege only to the original inventor does not contradict the furtherance of this policy. Moreover, to say that tax exemption is attached to the technology or invention itself regardless of whoever produces, manufactures, and/or markets the same would create an absurd result wherein it would allow anyone to claim the tax exemption privilege by alleging that it acts as the producer, manufacturer, and/or marketer of the technology or product.
STOCKBROKER’S DIRECT COSTS & EXPENSES NECESSARILY INCURRED RELATIVE TO & DEPENDENT ON BUSINESS ACTIVITY OR INDUSTRY SHOULD BE INCLUDED IN THE COST OF SERVICES
BIR RULING NO. 130-2022, APRIL 6, 2022
C Financial Group, Inc. (C Financial) is requesting confirmation on the costs incurred by the company that will form part of its Cost of Sales/Services (COS). In reply, Revenue Regulations (RR) No. 16-2008 provides that COS must consist of direct costs and expenses necessarily incurred to provide the services, except with respect to banks and financial institutions, where interest expense is inherently necessary. The Company’s Stock Option Plan (SOP) covers senior executives who receive shares of stock in consideration for services rendered. Moreover, any income or gain derived by employees from the exercise of stock options is considered additional compensation subject to income tax and, consequently, to the withholding tax on compensation. However, if the said stock option is granted to supervisory and/or managerial employees, it should be subject to fringe benefits. Furthermore, C Financial also represents outside services and other office costs, which consist of consultancy fees of third-party independent consultants, postage, and transportation expenses. However, these costs are not part of COS under Section 34 of the 1997 Tax Code as amended, but consultancy fees of third-party independent consultants can be claimed as deductible expenses. Nonetheless, the Bureau stipulates that since C Financial is a service-oriented corporation, consultancy fees of third-party, postage, and transportation expenses are proper items that form part of its COS as these costs are directly utilized in providing the services of an entity engaged in the business of stock brokerage and dealership in securities. Therefore, the taxpayer's business activity or industry should be taken into consideration in accounting for C Financial’s costs of services and operating expenses.
A JOINT VENTURE NOT REGISTERED WITH PCAB & CO-VENTURERS THAT ARE NOT ENGAGED IN THE CONSTRUCTION BUSINESS IS A TAXABLE CORPORATION
BIR RULING NO. 128-2022, APRIL 5, 2022
E Co. is seeking confirmation on the tax implications of forming two (2) joint venture agreements to construct an industrial ecozone and a residential subdivision project. In reply, to be a tax-exempt Joint Venture engaged in a construction project, it must satisfy all the conditions set forth in Section 3 of Revenue Regulations (RR) No. 10-2012. After the evaluation, the JVA entered into by E Co. shall be considered a taxable corporation since E Co. and its co-venturers are not engaged in the construction business and have no Contractor's License issued by the Philippine Contractors Accreditation Board (PCAB) of the Department of Trade and Industry (DTI). Consequently, the Joint Venture shall be subject to corporate income tax and other applicable internal revenue taxes imposed by the 1997 Tax Code, as amended.
STOCKBROKER’S DIRECT COSTS & EXPENSES NECESSARILY INCURRED RELATIVE TO & DEPENDENT ON BUSINESS ACTIVITY OR INDUSTRY SHOULD BE INCLUDED IN THE COST OF SERVICES
BIR RULING NO. 130-2022, APRIL 6, 2022
C Financial Group, Inc. (C Financial) is requesting confirmation on the costs incurred by the company that will form part of its Cost of Sales/Services (COS). In reply, Revenue Regulations (RR) No. 16-2008 provides that COS must consist of direct costs and expenses necessarily incurred to provide the services, except with respect to banks and financial institutions, where interest expense is inherently necessary. The Company’s Stock Option Plan (SOP) covers senior executives who receive shares of stock in consideration for services rendered. Moreover, any income or gain derived by employees from the exercise of stock options is considered additional compensation subject to income tax and, consequently, to the withholding tax on compensation. However, if the said stock option is granted to supervisory and/or managerial employees, it should be subject to fringe benefits. Furthermore, C Financial also represents outside services and other office costs, which consist of consultancy fees of third-party independent consultants, postage, and transportation expenses. However, these costs are not part of COS under Section 34 of the 1997 Tax Code as amended, but consultancy fees of third-party independent consultants can be claimed as deductible expenses. Nonetheless, the Bureau stipulates that since C Financial is a service-oriented corporation, consultancy fees of third-party, postage, and transportation expenses are proper items that form part of its COS as these costs are directly utilized in providing the services of an entity engaged in the business of stock brokerage and dealership in securities. Therefore, the taxpayer's business activity or industry should be taken into consideration in accounting for C Financial’s costs of services and operating expenses.
FOREIGN GOVERNMENT INVESTMENTS IN PHILIPPINES LOANS, STOCKS, BONDS & OTHER DOMESTIC SECURITIES ARE EXEMPT FROM INCOME TAX & WITHHOLDING TAX
BIR RULING NO. 125-2022, APRIL 4, 2022
R Limited is seeking confirmation that income derived from its current and future investments in the Philippines in loans, stocks, bonds or other domestic securities, or from interest on its deposits in banks in the Philippines are exempt from Philippine income tax, and consequently, from withholding tax. As represented, R Limited is an investment arm of the Government of Singapore. In ruling, the Bureau confirmed the position of R Limited, citing Section 32 (B)(7)(a) of the 1997 Tax Code, as amended, and Section 2.57.5 (B) of the Revenue Regulations (RR) No. 2-98, as amended, which provides that any income derived from investment in the Philippines in loans, stocks, bonds, or other domestic securities, or from interest on its deposits in the bank in the Philippines by financing institutions owned, controlled, or enjoying refinancing from foreign governments are not subject to Philippine income tax and, consequently, to any withholding tax.
INHERITED PROPERTY IS CONSIDERED A CAPITAL ASSET IF THE SAME IS NOT SUBSEQUENTLY USED IN TRADE OR BUSINESS & THE TRANSFEROR IS NOT ENGAGED IN THE REAL ESTATE BUSINESS
BIR RULING NO. 114-2022, MARCH 31, 2022
The Heirs are requesting a confirmatory ruling on whether the subject real properties are ordinary or capital assets to determine the applicable taxes on the sale of the said properties to LBL Prime. In rendering an opinion, the Bureau opined that the lots subject to sale to LBL Prime are capital assets in the hands of the Heirs given the transfers that have occurred from Sea ‘N’ Sun Properties Corporation to Marisol and from Marisol to her Heirs. The Heirs conditioned the sale on the dismissal and/or withdrawal of all pending civil and criminal cases. It is represented that Marisol, Heir’s predecessor in interest, was never engaged in the real estate business. Also, the Heirs are not engaged in the real estate business. Under Section 3 (f) of Revenue Regulations (RR) No. 7-2003, the real property transferred through succession or donation to the heir or donee, who is not engaged in the real estate business concerning the real property inherited or donated and who does not subsequently use such property in trade or business, shall be considered as a capital asset in the hands of the heir or donee. Thus, the subject lots became capital assets in the hands of Marisol when she received the same as liquidating dividends since, as represented, she was never engaged in the real estate business.
REQUIREMENTS FOR FOREIGN-CURRENCY INWARD REMITTANCE TO QUALIFY FOR VAT ZERO-RATING
BIR RULING NO. 104-2022, MARCH 20, 2022
G ROHQ is seeking confirmation that services provided to its customers abroad are subject to zero-rated Value-Added Tax (VAT). In ruling, Section 108 (B) (1) and (2) of the 1997 Tax Code, as amended, as implemented by Section 4.108-5 (6) (1) and (2) of Revenue Regulations (RR) No. 16-2005, as amended, provides that payments received for services rendered to a non-resident person who is outside the Philippines when such service is performed, and the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP), shall be subject to zero percent (0%) VAT. Since the transactions of G Co. with the customers do not fully comply with the requisites set forth in Section 108 (1) and (2) of the 1997 Tax Code, as amended, the same will not qualify for zero-rated VAT.
REAL PROPERTIES OWNED BY TAXPAYERS NOT ENGAGED IN REAL ESTATE BUSINESS, NOT A REAL ESTATE DEALER, DEVELOPER, AND/OR LESSOR, HAVE NOT BEEN USED IN BUSINESS FOR MORE THAN TWO (2) YEARS & THOUGH CLASSIFIED AS ORDINARY ASSETS, WILL BE AUTOMATICALLY CONVERTED INTO CAPITAL ASSETS
BIR RULING NO. 102-2022, MARCH 25, 2022
PAL is seeking an opinion on whether the subject property is a capital or an ordinary asset. Under Section 2 of Revenue Regulations (RR) No. 7-2003, it is undisputed that the yardstick for determining whether the property is capital or ordinary asset is the actual use of the said property. Thus, if the property is not actually used in trade or business of the taxpayer, whether or not connected with his trade or business, or not held for lease or sale to customers, it will be classified as a capital asset. Also, if the property is merely held for capital appreciation and investment purposes and remains vacant and idle, it is deemed a capital asset. Furthermore, PAL, as one engaged in air transportation of passengers and cargoes, is not considered a company habitually engaged in the real estate business. Where the taxpayer is not engaged in the real estate business, a property not forming part of its inventory is considered a capital asset. Moreover, under Section 3 of RR No. 7-2003, real properties owned by taxpayers not engaged in the real estate business or referring to those persons other than real estate dealers, real estate developers, and/or real estate lessors shall, upon showing of proof that the same has not been used in business for more than two (2) years prior to the consummation of the taxable transactions involving the said real properties, and though classified as ordinary assets, be automatically converted into capital assets. Therefore, considering that PAL is a taxpayer not engaged in the real estate business, being not a real estate dealer, developer, or a lessor and organized as an airline company; the subject property has been idle and vacant (for more than two (2) years), has been treated in the books of accounts and is reflected in its Audited Financial Statements as investment properties, and has not been used in the ordinary course of trade or business, the subject property is classified as a capital asset.
ADDITIONAL FUNDS RECEIVED BY A CORPORATION FROM A SHAREHOLDER IN THE FORM OF APIC ARE NOT CONSIDERED PROFITS OR EARNINGS THEREFORE EXEMPT FROM CGT & INCOME TAX
BIR RULING NO. 101-2022, MARCH 25, 2022
OMI is seeking an opinion on whether the transfer of TRLEI shares from TRA to OMI in the form of APIC, without the issuance of additional shares of stock, is deemed a capital investment and, hence, not subject to capital gains tax or income tax. The transfer by TRA of TRLEI shares to OMI in exchange for OMI’s additional paid-in capital is made pursuant to a global restructuring plan of the T Resorts Group (TRG). In rendering the opinion, several rulings stipulate that a transfer is exempted from income and capital gains taxes when it is made by the true and beneficial owner without monetary compensation and involves no gain or profit. Furthermore, under Section 28 (B)(1) and (5)(c) of the 1997 Tax Code, as amended, states that the additional funds received by a corporation from a shareholder in the form of APIC are not considered profits or earnings derived from the normal operations of the business of the corporation, hence, the same cannot be considered a taxable income subject to income tax. Therefore, the transfer of TRLEI shares from TRA to OMI is not subject to capital gains tax and income tax.
RENEWABLE ENERGY DEVELOPER OF BIOMASS RESOURCES IS QUALIFIED FOR 0% VAT ON ITS LOCAL PURCHASES OF GOODS & SERVICES NEEDED FOR ITS RENEWABLE ENERGY PROJECTS
BIR RULING NO. 087-2022, MARCH 3, 2022
R Co., a Renewable Energy Developer of Biomass Resources in Polillo, Quezon Province, is requesting a confirmatory ruling that its local purchases of goods, properties, or services to Value-Added Tax (VAT) registered suppliers are qualified for zero percent (0%) VAT. As further represented, R Co. is registered with the Board of Investments (BOI) and the Department of Energy (DOE). In reply, the Bureau confirmed its position, citing Section 15 (g) of Republic Act No. 9513, otherwise known as the “Renewable Energy Act of 2008,” which provides for incentives for renewable energy projects and activities. One of the incentives provided by law is the zero percent (0%) VAT on all local purchases of goods, properties, and services of RE developers for the development, construction, and installation of its plant facilities, as well as the whole process of exploring and developing renewable energy sources up to its conversion into power, including but not limited to the services performed by subcontractors and/or contractors.
THE VALUE OF THE PROPERTY OF THE SOCIALIZED HOUSING COMPONENT SHALL BE EXEMPT FROM PROJECT-RELATED INCOME TAX & VAT PURSUANT TO R.A. NO. 7279
BIR RULING NO. 086-2022, MARCH 1, 2022
NHA is seeking clarification on the taxability of the conveyance of subject property, owned, and registered in the name of NHA, in favor of the project contractor. In reply, the Bureau opined that pursuant to Republic Act (R.A.) No. 7279, otherwise known as the “Urban Development Housing Act of 1992”, a project contractor whose services have been engaged by NHA to undertake the development for the benefit of the squatter families dwelling on the site shall be exempt from Income Tax and Value-Added Tax (VAT) on its income directly realized by the project contractor from the aforesaid Project, and in so far as the construction of the socialized housing component (house and lots) is concerned. Furthermore, since the conveyance of the subject property partakes the nature of payment of outstanding liabilities for the project cost, land development, housing construction, and reclamation of the Project, the value of the property corresponding to the payment for the construction of the socialized housing component is not subject to Capital Gains Tax (CGT)/Creditable Withholding Tax (CWT) and Documentary Stamp Tax (DST).
COMPANIES DOING LIFE INSURANCE BUSINESS IN THE PHILIPPINES ARE SUBJECT TO 5% PREMIUM TAX ON GROSS RECEIPTS FROM THEIR INSURANCE SERVICES & HEALTH INSURANCE, BUT GROSS RECEIPTS FROM THE SAME COMPANY’S INSURANCE SERVICES ARE NOT SUBJECT TO VAT
BIR RULING NO. 068-2022, JANUARY 28, 2022
L Co. is seeking confirmation that its gross receipts from its insurance services, including providing health insurance coverage, are not subject to value-added tax (VAT), but to premium tax under Section 123 of the 1997 Tax Code, as amended. In reply, the Bureau first delved into the taxability of the gross receipts from the insurance services of L Co. by discussing first whether the group medical insurance, which L Co. offers, specifically MedProtect and MedProtect Plus, are indeed health insurance products. Citing the elements of an insurance contract, the Bureau agreed that MedProtect and MedProtect Plus meet the elements of an insurance contract. In connection therewith, the Bureau cited Revenue Memorandum Circular (RMC) No. 30-2008, which confirmed that the service of life insurance companies also includes the sale of group insurance. MedProtect and MedProtect Plus are considered health insurance products because L Co. provides coverage to a certain number of people as a group and such coverage is embodied in master agreements or policies. Moreover, L Co. assumes a risk by undertaking to indemnify the insured for the medical expenses it incurred in consideration of the premium paid. Thus, the gross receipts from L Co.’s health insurance products are subject to 5% premium tax as provided under Section 124 of the Tax Code, as amended. RMC No. 30-2008, as amended by RMC No. 59-2008, further states that the taxability of life insurance companies shall be subject to the 5% premium tax. Thus, L Co. which is doing business as a life insurance corporation is subject to payment of 5% premium tax on the gross receipts from its insurance services, including health insurance, as provided in Section 123 of the Tax Code, as amended. Moreover, such gross receipts from L Co.’s insurance services are not subject to VAT.
TRANSFER OF TITLE FOR SOCIALIZED HOUSING IS EXEMPT FROM CGT/CWT, DONOR’S TAX & DST
BIR RULING NO. 037-2022, JANUARY 21, 2022
P Association is seeking tax exemption on the transfer of land titles in favor of its qualified member-beneficiaries under Republic Act (R.A.) No. 7279 or the Urban Development and Housing Act of 1992. In ruling, no capital gains tax (CGT) or creditable withholding tax (CWT), donor’s tax, and documentary stamp tax (DST) shall be imposed on the transfer of subdivided lots in favor of the qualified socialized housing member-beneficiaries. Considering that the association is merely transferring the ownership of the property to member-beneficiaries who actually bought and own the same, such transfer shall not be subject to either CGT or CWT. Further, since there is no donative intent on the part of the association, the transfer is not subject to the donor’s tax.
TRANSFER OF SAN MIGUEL CORPORATION’S (SMC) SHARES UNDER THE NAME OF “PCGG IN TRUST FOR CARP” TO THE REPUBLIC OF THE PHILIPPINES IS EXEMPT FROM CGT, DONOR’S TAX & DST
BIR RULING NO. 016-2022, JANUARY 17, 2022
Presidential Commission on Good Government (PCGG) is seeking confirmation whether transfer of SMC’s shares under the name of “PCGG In Trust for CARP”, currently under the custody of the Bureau of the Treasury (BTr), to the Republic of the Philippines, is exempt from Capital Gains Tax (CGT), Donor’s Tax, and Documentary Stamp Tax (DST) pursuant to the directives of Executive Order (E.O.) No. 179, Series of 2015, and Republic Act No. 11524. In reply, the Bureau referred to the similar pronouncement in BIR Ruling No. OT-0205-21 dated June 15, 2021, and opined that the cancellation of the CIF shares maintained by UCPB and its re-issuance thereof to the Republic of the Philippines pursuant to several Supreme Court decisions is exempt from CGT, Donor’s Tax, and DST. The provision under Section 27 (D) (2) of the 1997 Tax Code finds no application in this case since it does not involve the sale, barter, or exchange of shares contemplated under the said provision, thus, not subject to CGT. Likewise, the stock transfer tax provided under Section 127 of the Tax Code, is not applicable in the facts provided since the stock transfer tax applies only to the sale of shares listed on the stock exchange. Moreover, there is also no intention to donate on the part of PCGG as the transfer was made in compliance with the mentioned laws, thus, not subject to donor’s tax. Lastly, it is not subject to DST, considering that there is no sale, agreement to sell, memorandum of sale, or delivery or transfer contemplated under Section 175 of the Tax Code, as amended. This will, therefore, serve as the authority for the concerned Revenue District Officer to issue the corresponding CAR so that PCGG can transfer the subject shares of stock under the account name “PCGG In Trust for CARP” to the name of the Republic of the Philippines.
ONLY THE ORIGINAL INVENTOR IS ENTITLED TO THE TAX INCENTIVE
BIR RULING NO. 486-2021, DECEMBER 24, 2021
Mr. R is seeking tax exemption, as registered inventor of a patented product (i.e., Reformulated Fast Acting Herbal Preparations to Remove Warts, Moles and the Likes) under Republic Act (R.A.) No. 7459 or the Inventors and Inventions Incentives Act of the Philippines. In reply, Section 6 of R.A. No. 7459 provides that the said exemption can be availed of by the inventors during the first ten (10) years from January 13, 2018, which is the date of the first sale on commercial scale, provided that this exemption pertaining to the invention shall be extended to the inventor’s legal heir or assignee upon his death. It must be emphasized, however, that the tax exemption is for the inventor alone and not for any other entity that commercially produces and distributes the invented product. Hence, any income received by the company, R Co., from such production/distribution/marketing is subject to the payment of appropriate taxes. Likewise, the tax exemption granted under Section 6 of R.A. No. 7459 refers only to income tax arising from the inventor’s registered invention and does not extend to any other taxes.
SECTION 1 OF R.A. NO. 7641 OTHERWISE KNOWN AS “THE RETIREMENT PAY LAW” SHALL APPLY IN THE ABSENCE OF AN APPROVED REASONABLE PRIVATE BENEFIT PLAN
BIR RULING NO. 480-2021, DECEMBER 24, 2021
E Co. is seeking clarification on whether the retirement benefits to be received by Z, its retired employee, are exempt from withholding tax. As represented, Z retired at the age of sixty-one (61) years old after being in the service of E Co. for at least twenty-six (26) years, and E Co. does not maintain a company policy or qualified retirement benefit plan duly approved by the BIR. In reply, the Bureau opined that in cases where there is no “reasonable private benefit plan” duly approved by the BIR, the pertinent provisions of Republic Act (R.A.) No. 7641 shall apply. Under said provisions, the retirement benefits shall be exempt from income tax if the following conditions are met: (1) the employee had been in the service of the same private firm for at least five (5) years; and (2) he is at least sixty (60) years old at the time of the retirement. For meeting both conditions, Z’s retirement benefit is exempt from income tax, and consequently, from withholding tax pursuant to Section 32 (B)(6)(a) of the 1997 Tax Code, as amended.
A MERGER IS TAX-FREE ONCE REQUIREMENTS ARE COMPLIED WITH
BIR RULING NO. 474-2021, DECEMBER 22, 2021
A Co. is seeking confirmation whether its merger with W Co. qualifies as a tax-free merger under Section 40(C)(2) of the Tax Code, as amended. In reply, the Bureau opined that since the merger will result in specific benefits to both corporations, the merger of W Co. and A Co. is ascertained to be for business purposes and not to escape the burden of taxation. Hence, per Section 40(C)(2) of the Tax Code, the merger qualifies for non-recognition of gain or loss for income tax purposes. Likewise, since there is no intention for W Co. to donate to A Co. its assets, the merger shall not be subjected to gift tax. Additionally, no documentary stamp tax (DST) is due on the transfer of assets made pursuant to the Plan of Merger under Section 199 (m) of the Tax Code, as amended. However, as provided under Section 174 of the Tax Code, a DST at the rate of Php 1.00 on each Php 200 par value shall be imposed on the original issuance of shares by A Co. to the stockholders of W Co. as a consequence of the merger. Nonetheless, it has to be emphasized that this tax-free merger between W Co. and A Co. will not cover the net operating loss carry-over of the former. Finally, this reorganization shall only be considered a tax-free merger provided that all the requirements are complied with
SALE OR IMPORTATION OF PRODUCTS PRIMARILY USED FOR THE PRODUCTION OF LIVESTOCK & POULTRY FEEDS IS EXEMPT FROM VAT
BIR RULING NO. 470-2021, DECEMBER 21, 2021
S Co. is seeking confirmation whether its importation of Soybean Meal and its sale to B Coop. of the same to be used as raw material in making animal feeds, is exempt from value-added tax (VAT). As represented, S Co. is engaged in the business trading, importer of fruits and other agricultural products. It is likewise registered with the Bureau of Animal Industry (BAI). On November 24, 2021, S Co. and B Coop. executed an Agreement where the former agreed to import on behalf of the latter 5000MT of Soybean Meal. In reply, the Bureau has opined that the importation of Soybean Meal by S Co. as well as its sale to B Coop. are exempt from the 12% VAT pursuant to Section 109 (1) (B) of the Tax Code of 1997, as amended, and as implemented by Revenue Regulations (RR) No. 16-2005, as amended, provided that said product is classified as feed additive, feed ingredient, or feed supplement through the issuance by the BAI of Certificate of Product Registration, and provided further that the said product shall be primarily used for the production of livestock and poultry feeds.
BENEFICIAL TRANSFER OF OWNERSHIP OF SHARES IS VITAL TO THE RECOGNITION OF CGT, DONOR’S TAX & DST
BIR RULING NO. 467-2021, DECEMBER 14, 2021
H Co. is seeking confirmation on whether the transfer of M Inc. membership share from one trustee to another trustee is not subject to capital gains tax (CGT), donor’s tax, and documentary stamp tax (DST). In reply, BIR ruled that such transfer is not subject to CGT, donor’s tax, and DST. As stated in the Declaration of Trust, the transfer only gives the trustee-appointee the legal ownership of the membership share in which said trustee will be given access to the use and enjoyment of the facilities of M Inc. Consequently, the beneficial ownership of the M Inc. share remains with H Co. Section 24(C) of the 1997 Tax Code, as amended, provided that CGT is imposed on the net gain from the sale, barter, exchange of capital assets. Since the beneficial ownership over the share remains with H Co., there is no actual transfer of ownership and no monetary consideration involved; therefore, the trustee-appointee shall not recognize any gain or profit from the said transfer. As it was merely a transfer by virtue of assignment, the Bureau confirmed that the same is not subject to CGT. The transfer is likewise not subject to DST pursuant to Section 4 of Revenue Regulations (RR) No. 13-2004 which provides that the transfer of stock from a resigned assignee to a newly appointed trustee shall not be taxable when the beneficial ownership of the stock remains with the cestui que trust or resigned assignee. Furthermore, the absence of subscription agreement or any kind of consideration is proof of the real intention of the transfer, therefore, there is no transfer or new conveyance to speak upon which DST may be imposed. Lastly, since there is no donative intent, and considering that there is no transfer or new conveyance of the M Inc. share from the transferor to the transferee, it will not be subjected to donor’s tax as provided in Section 98 of the 1997 Tax Code, as amended.
TAX-EXEMPT MULTI-EMPLOYER EMPLOYEES’ RETIREMENT PLAN AND CONDITIONS AFTER
BIR RULING NO. 450-2021, DECEMBER 9, 2021
PTC and PIC are seeking confirmation on several items regarding multi-employer employees’ retirement benefit plan (the Plan). In reply, the adoption and participation of affiliated and subsidiary companies of PTC and PIC to the Plan, and the termination of the participation of a Participating Company in the Plan when it ceases operations will not affect the qualification of the Plan as a reasonable retirement benefit plan under Section 32(B)(6)(a) of the Tax Code, provided that the conditions set forth by the law are complied with. Moreover, the transfer of Plan assets and actuarially determined liabilities from the Plan of a Participating Company to the Plan of another Participating company does not contravene Section 32(B)(6)(a) of the Tax Code since the Plan fund would still be for the exclusive benefit of the covered employees. Thus, the retirement benefits to be received by a qualified employee-member of the Plan shall continue to be exempt from income tax provided the conditions are satisfied. Further, the income of the Plan’s fund from its investments may also continue to be exempted from income tax and accordingly to withholding tax provided that: (1) the contributions are made to the trust by such employer, or employees, or both for the purpose of distribution to such employees the earnings and principal of the fund accumulated by the trust in accordance with such plan, and (2) if under the trust instrument it is impossible, at any time prior to the satisfaction of all liabilities with respect to employees under trust, for any part of the corpus or income to be used for, or diverted to, purposes other than for the exclusive benefit of his employees. The contributions of the Participating Companies to the retirement fund are deductible from the gross income. The plan shall continue to qualify through all the years that it shall be in operation, provided that any modification or amendment in the retirement plan rules and regulations should be submitted to the BIR for certification that such modification or amendment does not affect the qualification of the plan. Finally, portions of the fund of the Plan in excess of the amount actuarially determined to cover benefits of the covered employees may be reverted to PTC and PIC without terminating the Plan, provided, that the same shall be declared as income and applicable taxes thereon shall be paid by PTC and PIC.
IDLE PROPERTY OF HOLDING COMPANY IS CAPITAL ASSET
BIR RULING NO. 437-2021, DECEMBER 6, 2021
B Co., a holding company, is seeking confirmation that the sale of real property held for investment purposes is subject to the 6% capital gains tax (CGT) and documentary stamp tax (DST) but is not subject to value-added tax (VAT). As a holding company, B Co. did not engage in real estate business nor advertise or hold itself out in public as engaged in buying and selling of real estate properties. B Co. acquired a residential house and lot for investment purposes and not for sale or lease in the ordinary course of business. In reply, the term “capital asset” as defined in Section 39(A)(1) of the 1997 Tax Code, as amended, means property held by the taxpayer (whether or not connected with his trade or business), but does not include stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year, or property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business, or property used in the trade or business, of a character which is subject to the allowance for depreciation provided in Section 34, or real property used in trade or business of the taxpayer. An idle property may be classified as capital or ordinary asset. An idle property classified as ordinary asset is automatically converted into capital asset upon showing of proof that the same has not been used in business for more than two (2) years prior to the consummation of the taxable transaction involving said property. Considering that B Co. is a taxpayer not engaged in the real estate business, being not a real estate dealer, developer or lessor and was organized as a holding company; that the said property has been idle since the time of its acquisition that the concerned Barangay Chairman where the property is located issued a Certification that the property has no reported operation or commercial activity; and that the property has been treated in the books of accounts and reflected in the audited financial statement as investment property. Since it has not been used in the ordinary course of trade or business, the BIR opined that the subject real property is classified as capital asset, and the conveyance of which is subject to CGT and DST but not subject to VAT and creditable withholding tax.
INCOME TAX IS THE ONLY EXEMPTION UNDER INVENTORS & INVENTIONS INCENTIVES ACT OF THE PHILIPPINES
BIR RULING NO. 436-2021, DECEMBER 2, 2021
Mr. L is seeking clarification on the tax privilege of the inventors pursuant to the Republic Act (R.A.) No. 7459, otherwise referred to as the “Inventors and Inventions Incentives Act of the Philippines”. In ruling, Section 6 of R.A. 7459 provides that any income from the inventions shall be exempted from all kinds of taxes during the first ten (10) years from the date of the first sale, subject to the rules and regulations of the Department of Finance (DOF). Pursuant to the R.A. 7459, the DOF, through the BIR, issued Revenue Regulations No. 19-1993 which provides for the tax exemption of an inventor. Relative to the said regulations, the Office of the President made a pronouncement enunciated in OP Case No. 03-G-422 wherein it clarified that the tax exemption granted by Section 6 of R.A. No. 7459 only pertains to income tax. Hence, the tax incentive of the inventors pursuant to R.A. No. 7459 is limited only to income tax exemption on the sale of invention products. The other taxes and obligations applicable thereto are not covered by the exemption.
SECTION 32 OF THE TAX CODE SETS CONDITIONS FOR EXEMPTION OF RETIREMENT BENEFITS MAINTAINED BY THE EMPLOYER
BIR RULING NO. 430-2021, NOVEMBER 17, 2021
Rizal Commercial Banking Corporation Trust & Investment Group (RCBC for “brevity”) is requesting for clarification on the earlier BIR ruling which provides the applicability of Republic Act (R.A.) No. 7641 otherwise known as “Retirement Pay Law” in the absence of retirement plan for managerial employees. R.A. No. 7641 provides for a retirement pay equivalent to at least ½ month salary for every year of service if an employee has reached the age of 60, but not beyond 65 years, and rendered at least five (5) years of service in the company. As represented, RCBC and P Co. entered into a Trust Agreement in 2000 to administer the retirement fund contributions of P Co. for the benefit of its officers and employees. The BIR issued a favorable ruling in 1991, 2013, and 2021. P Co. has confirmed that its officers including Mr. V. may receive the retirement benefits upon qualification. Part of the eligibility is the provision in the BIR- approved Retirement Plan that the Normal Retirement Date shall mean the date on which a member attains the age of 60 years. In ruling, the BIR elucidated that it is not precluded from extricating its previous findings when grounded under reasonable facts. Rules earlier applied on the retirement pay which rendered it exempt shall, in fact, be applicable only in the absence of a retirement plan from the employer. It is well-established that P Co. maintains reasonable retirement benefits for its employees. Under Section 32(B)(6)(a) of the Tax Code, as amended, viz: retirement benefits, pensions, gratuities, etc. received under R.A. No. 7641 and in accordance with a reasonable private benefit plan maintained by the employer, shall be exempt when the retiring employee has been in service for at least ten (10) years and is not less than fifty (50) years of age at the time of retirement. Mr. V retired when he was sixty (60) after nine (9) years and four (4) months of service. Applying the terms of BIR-approved Retirement Plan, and as confirmed by P Co. the provisions of R.A. 7641 shall not apply to Mr. V, thus, the retirement benefits shall be subjected to income tax and withholding tax.
TAX-EXEMPT MERGER
BIR RULING NO. 426-2021, NOVEMBER 15, 2021
SMYP Co., as the surviving corporation, is seeking confirmation whether its merger with SMYA Co. is a tax-free merger in accordance with Section 40(C)(2) and (C)(6)(b) of the 1997 Tax Code, as amended.
In ruling, the BIR confirmed the following:
1. Given that SMYP Co. shall acquire all the assets and liabilities of SMYA Co. and the same will yield advantageous results for the merging corporations, such is deemed undertaken for a bona fide business purpose and not to escape the burden of taxation; hence, the non-recognition of gain or loss for income tax purposes in accordance with Section 40(C)(2) of the 1997 Tax Code qualifies the merger as tax-free within the contemplation of Section 40(C)(2) and (C)(6)(b) of the same Code;
2. Transfer of assets is not subject to VAT. As such, transfer is not made in the ordinary course of business;
3. Merger is not subject to donor’s tax since there is no intention to donate, and the transaction is a bona fide merger effected solely for business reasons;
4. No Documentary Stamp Tax (DST) is due on the transfer of assets; however, DST shall be imposed on the original issuance of shares by the surviving corporation in favor of the stockholders of the absorbed corporation as a result of the merger;
5. Excess and unutilized Creditable Withholding Tax (CWT), if any, of SMYA Co. may be used by SMYP Co. as a tax credit against its income tax due;
6. Net Operating Loss Carry-Over (NOLCO), if any, of SMYA Co. shall not be transferred to SMYP Co.;
7. Excess and unexpired Minimum Corporate Income Tax (MCIT), if any, of SMYA Co. may be used by SMYP Co. as a tax credit against its income tax due for the three (3) immediately succeeding taxable years; and
8. 10% Final Withholding Tax shall be imposed on dividends constructively received by the individual shareholders of the absorbed corporation.
IF THERE IS NO ACTUAL TRANSFER OF OWNERSHIP OF THE SHARES, NO GAIN OR PROFIT SHALL BE RECOGNIZED
BIR RULING NO. 421-2021, NOVEMBER 8, 2021
SL Co. is requesting exemption from the payment of Capital Gains Tax (CGT) and Donor’s Tax on its M Polo Club shares from the former Company playing representatives to the new Company playing representatives. In reply, transfer of M Polo Club shares from a transferor to transferee is not subject to CGT, Donor’s Tax, and Documentary Stamp Tax (DST). In the Declaration of Trust executed, the transfer did not give them any kind of right, claim, or interest in the M Polo Club share and that they are holding only the legal ownership of the same with the beneficial ownership pertaining to the Company. The transfer of legal title is not subject to CGT considering that the transfer involves neither monetary consideration nor changes in beneficial ownership. Section 24(C) of the 1997 Tax Code provides that CGT is imposed on the gain or profit from the sale of capital assets. Since the beneficial ownership remains with the Company, no gain or profit shall be recognized. Further, the transfer will not be subject to Donor’s Tax since there is no intention to donate, and the transaction is a bona fide transaction effected solely for business reasons. On DST, a mere transfer of a share without change in the beneficial ownership is not the taxable transaction being contemplated in the Tax Code provisions. Since the transfer is without a Subscription Agreement, thus, no new conveyance. Consequently, there is no new exercise of privilege upon which DST may be imposed.
ALL INCOME EARNED FROM INVESTMENT AND REINVESTMENT OF PERA ASSETS DULY APPROVED BY THE BSP ARE EXEMPT FROM TAXES
BIR RULING NO. 405-2021, NOVEMBER 3, 2021
The subject Bank is requesting a confirmatory ruling that its Personal Equity and Retirement Account (PERA) products are exempt from tax. In reply, the Bureau opined that the investment products must belong to the list of qualified or eligible PERA products under Section 2(q) of Revenue Regulations (RR) No. 17-11 and must be approved by the concerned regulatory authority to qualify for the tax incentives and privileges provided for under Section 9 of the same regulation. Since the PERA investment products of the Bank belonged to the list of products duly approved/accredited by the Bangko Sentral ng Pilipinas (BSP), which is the concerned regulatory authority over banks, trust entities, and other BSP-supervised financial institutions, then, all income earned from investments and reinvestments of said PERA assets are confirmed to be exempt from the following taxes, as applicable: (a) final withholding tax (FWT) on interest; (b) capital gains tax (CGT) on the sale, exchange, retirement or maturity of bonds, debentures, or other certificates of indebtedness; (c) FWT on dividends actually or constructively received from a domestic corporation; (d) CGT on the sale, exchange, or other disposition of shares in a domestic corporation; and (e) regular income tax.
RAW & UNCOOKED MEAT PRODUCTS, WHICH HAD UNDERGONE THE SIMPLE PROCESSES OF PREPARATION AND PRESERVATION & ARE STILL CONSIDERED FOOD PRODUCTS IN THEIR ORIGINAL STATE, ARE EXEMPT FROM VAT
BIR RULING NO. 386-2021, OCTOBER 13, 2021
S Foods, Inc. is seeking confirmation that the sale of the meat products, as well as other products similarly prepared and preserved, are exempt from value-added tax (VAT). In ruling, the BIR cited Section 109(1)(A) of the Tax Code, as amended, and Revenue Regulations (RR) No. 16-2005, as amended, which provides that sale or importation of agricultural and marine food products in their original state, livestock and poultry of a kind generally used as, or yielding or producing foods for human consumption are exempted from VAT. Thus, the sale by S Foods, Inc. of its Raw and Uncooked Meat Products, which have undergone the simple processes of preparation and preservation, and are still considered food products in their original state, are exempt from VAT.
SALE OF LAND PURSUANT TO CARP LAW IS EXEMPT FROM CGT & DST
BIR RULING NO. 381-2021, OCTOBER 11, 2021
LBP is requesting a ruling exempting its sale of a parcel land to a farmer-beneficiary from payment of Capital Gains Tax (CGT) and Documentary Stamp Tax (DST) pursuant to Republic Act (R.A.) No. 6657 or the “Comprehensive Agrarian Reform Law of 1988”. In ruling, Section 66 of R.A. No. 6657 states that transactions under the said Act involving a transfer of ownership shall be exempted from taxes arising from capital gains. These transactions shall also be exempted from the payment of registration fees, and all other taxes and fees for the conveyance or transfer thereof. Taking into consideration the Certification from the Provincial Agrarian Reform Office, the Bureau opined that the transfer of the subject property is indeed covered by Section 66 of R.A. No. 6657. Consequently, the same is exempt from the payment of CGT and DST.
VAT-EXEMPT IMPORTATION OF AIRCRAFT
BIR RULING NO. 372-2021, OCTOBER 6, 2021
P Co. is seeking a ruling on the exemption from value-added tax (VAT) and customs duties on the importation of aircraft, engines, equipment machinery, spare parts, accessories, commissary, and catering supplies or materials that will be used to operate and maintain domestic and international air transport services pursuant to its franchise. In ruling, Section 109(1)(T) of the 1997 Tax Code, as implemented by Section 4.109-1(B)(1)(T) of Revenue Regulations (RR) No. 16-2005, provides that sale, importation, or lease of passenger or cargo vessels and aircraft, including engine, equipment, and spare parts thereof for domestic or international transport operations shall be exempt from VAT, subject to the requirements of Civil Aeronautics Board (CAB) and Civil Aviation Authority of the Philippines (CAAP). Likewise, fiscal incentives such as VAT exemption are granted pursuant to its franchise. However, the request for exemption from customs duties should be addressed to the Bureau of Customs, as it is not within the jurisdiction of the BIR.
DOWNLOAD BIR RULING NO. 372-2021
TAX-FREE EXCHANGE DOES NOT DISCRIMINATE, EVEN TO NRFC APPLIES
BIR RULING NO. 370-2021, OCTOBER 6, 2021
LBP is requesting a ruling exempting its sale of a parcel land to a farmer-beneficiary from payment of Capital Gains Tax (CGT) and Documentary Stamp Tax (DST) pursuant to Republic Act (R.A.) No. 6657 or the “Comprehensive Agrarian Reform Law of 1988”. In ruling, Section 66 of R.A. No. 6657 states that transactions under the said Act involving a transfer of ownership shall be exempted from taxes arising from capital gains. These transactions shall also be exempted from the payment of registration fees, and all other taxes and fees for the conveyance or transfer thereof. Taking into consideration the Certification from the Provincial Agrarian Reform Office, the Bureau opined that the transfer of the subject property is indeed covered by Section 66 of R.A. No. 6657. Consequently, the same is exempt from the payment of CGT and DST.
SALE OF PROPERTY BY NHA IS SUBJECT TO TAX IF THE TRANSACTION IS NOT INTENDED FOR SOCIALIZED HOUSING
BIR RULING NO. 369-2021, OCTOBER 4, 2021
The Roman Catholic Bishop of Antipolo Inc. is requesting a ruling on the taxability and exemption of sale of a parcel of land by the National Housing Authority (NHA). In ruling, the Bureau cited BIR Ruling No. 301-18, which provides that only the sale of socialized housing as defined under Section 3(r) of Republic Act (R.A.) No. 7279, otherwise known as the “Urban Development and Housing Act of 1992,” comes within the purview of tax-exempt transactions of the NHA. The provision defines socialized housing as programs and projects covering houses and lots or home lots for underprivileged and homeless citizens. Thus, the sale of the subject property by NHA to the Roman Catholic Bishop of Antipolo Inc. is subject to 6% creditable withholding tax to be paid by the latter being the buyer. Moreover, since the above sale is not intended for socialized housing, the same is subject to Documentary Stamp Tax imposed under Section 196 of the Tax Code.
INVESTMENT INCOME DERIVED IN THE PHILIPPINES BY FOREIGN GOVERNMENTS IS EXEMPT FROM INCOME TAX & WITHHOLDING TAX
BIR RULING NO. 362-2021, OCTOBER 4, 2021
K Investment Corp (KIC) is seeking confirmation whether all income derived from its investments in the Philippines in loans, stocks, bonds, and other domestic securities, made on behalf of the Ministry of Economy and Finance of the Republic of Korea (MOEF), and any future investment income, are exempt from Philippine income tax, and consequently, to withholding tax. In reply, the BIR cited Section 32(B)(7)(a) of the 1997 Tax Code, which provides that income derived from investments in the Philippines in loans, stocks, bonds, or other domestic securities, or from interest on deposits in banks in the Philippines by (i) foreign government, (ii) financing institutions owned, controlled, or enjoying refinancing from foreign governments, and (iii) international or regional financial institutions established by foreign governments, shall not be included in gross income, and shall be exempt from taxation. Since MOEF is an executive ministry that is part of the government of the Republic of Korea, investment income derived by KIC in the Philippines shall be exempt from Philippine income tax and withholding tax.
EXTENT OF VAT EXEMPTION OF IMPORTATION & MANUFACTURE OF COVID-RELATED SUPPLIES
BIR RULING NO. 353-2021, OCTOBER 4, 2021
M Co. is requesting confirmation that its sale of personal protective equipment (PPEs) to W Co., a donor, is exempt from VAT. The importation was made by M Co. on behalf of W Co. to facilitate and accommodate the speedy procurement and importation since M Co. is an accredited importer. In reply, Section 4 of Republic Act (R.A.) No. 11469 or the “Bayanihan to Heal as One Act” provides that only those related to or engaged in the manufacture or importation of critical or needed equipment or supplies to combat COVID-19 public health emergency are to be granted incentives, such as exemption from import duties, VAT, excise tax, and other fees. Thus, any transaction or activity not involving the importation or manufacture of PPEs is not covered by the grant of incentives, such as the sale of PPEs made by M Co. to W Co., although the amount invoiced by the former to the latter is the exact amount as appearing in the landed cost of the imported PPEs. Hence, the sale of PPEs made by M Co. in favor of W Co. does not qualify for exemption under R.A. No. 11469, and shall be subject to VAT.
TAKE OUT BANGUS IS EXEMPT FROM VAT BUT NOT WHEN EATEN IN FACILITY
BIR RULING NO. 352-2021, OCTOBER 4, 2021
LBP is requesting a ruling exempting its sale of a parcel land to a farmer-beneficiary from payment of Capital Gains Tax (CGT) and Documentary Stamp Tax (DST) pursuant to Republic Act (R.A.) No. 6657 or the “Comprehensive Agrarian Reform Law of 1988”. In ruling, Section 66 of R.A. No. 6657 states that transactions under the said Act involving a transfer of ownership shall be exempted from taxes arising from capital gains. These transactions shall also be exempted from the payment of registration fees, and all other taxes and fees for the conveyance or transfer thereof. Taking into consideration the Certification from the Provincial Agrarian Reform Office, the Bureau opined that the transfer of the subject property is indeed covered by Section 66 of R.A. No. 6657. Consequently, the same is exempt from the payment of CGT and DST.
CHANGE OF TRUSTEE WHERE THERE IS NO ACTUAL TRANSFER OF OWNERSHIP IS NOT SUBJECT TO CGT & DST
BIR RULING NO. 346-2021, OCTOBER 4, 2021
N Co. is requesting confirmation on whether the transfer of the shares from its employees’ retirement trust to a new trustee is subject to capital gains tax (CGT) and documentary stamp tax (DST). In reply, the Bureau has opined that since there is no actual transfer of ownership over the aforementioned property as a result of the change of trustee from B Co. to M Co., it is not subject to CGT under Section 24(D) of the 1997 Tax Code, as amended. Likewise, since there is no sale, exchange, or disposition of property, it is not subject to DST under Section 196 of the same Code; however, notarial acknowledgment of the Deed of Assignment is subject to DST under Section 188. This ruling shall be presented to the Revenue District Office (RDO) concerned to facilitate the issuance of Certificate Authorizing Registration (CAR) which is necessary to effect the change of trustee.
HOMEOWNERS' ASSOCIATION IS EXEMPT FROM INCOME TAX & BUSINESS TAX
BIR RULING NO. 345-2021, OCTOBER 4, 2021
E Homeowners' Association, a non-stock and non-profit residential homeowners' association, is seeking a ruling on the extent of its tax exemption. As represented, it is a duly registered Homeowners' Association with the Housing and Land Use Regulatory Board; that its financial statements show the delivery of basic community services; and that the Local Government Unit covering the jurisdiction of the Homeowners' Association has issued a Certificate that it lacks the resources to provide these services to the Association. In ruling, income derived from association dues, membership fees, other assessments, and charges collected in a purely reimbursable nature, as well as rentals of facilities are exempt from income tax, VAT, or percentage tax, whichever is applicable. Provided that such income and dues shall be used for the cleanliness, safety, security, and other basic services needed by the members, including the maintenance of the facilities of their respective subdivisions or villages. However, it shall be subject to the applicable internal revenue taxes on its other income from trade, business, or other activities.
EXTENT OF EXEMPTION OF HOMEOWNERS’ ASSOCIATION
BIR RULING NO. 344-2021, OCTOBER 4, 2021
L Homeowners’ Association, Inc., a non-stock and non-profit residential homeowners' association, is seeking a ruling on the extent of its tax exemption. As represented, it is a duly registered Homeowners Association with the Housing and Land Use Regulatory Board; that its financial statements show the delivery of basic community services defined under Section 3(d) of Republic Act (R.A.) No. 9904 or Magna Carta for Homeowners’ Association; and that the Local Government Unit (LGU) covering the jurisdiction of the Homeowners’ Association has issued a Certificate that it lacks resources to provide these services to the Association. In ruling, income derived from association dues, membership fees, other assessments and charges collected on a purely reimbursement basis, and rentals of facilities are exempt from income tax, value-added tax (VAT), or percentage tax, whichever is applicable; provided that such income and dues shall be used for the cleanliness, safety, security, and other basic services needed by the members, including the maintenance of the facilities of their respective subdivisions or villages. However, it shall be subject to the applicable internal revenue taxes on its other income from trade, business, or other activities.
ONLY STEVIA AND COCO SUGAR ARE EXEMPT FROM EXCISE TAX UNDER TRAIN LAW
BIR RULING NO. 343-2021, SEPTEMBER 30, 2021
A Co. is requesting a legal opinion on whether MONK FRUIT and ERYTHRITOL, which they claim are natural sweeteners, are exempt from excise tax. Accordingly, Section 150-B (A)(B)(C) of the 1997 Tax Code, as amended by Tax Reform for Acceleration and Inclusion (TRAIN) Law, states that only sweetened beverages using purely coconut sap sugar and purely steviol glycosides are exempt from excise tax. Moreover, the processing of MONK FRUIT and ERYTHRITOL is neither artificial nor includes chemicals, and they should, therefore, not be considered “non-caloric sweeteners'', by definition, they can still fall under “caloric sweetener” which refers to a substance of sweet. Furthermore, neither MONK FRUIT nor ERYTHRITOL is included under Section 150-B (C) of the 1997 Tax Code, as amended, which pertains to the exclusions of sweetened beverages. In reply, the BIR opined that MONK FRUIT and ERYTHRITOL may arguably be in the same classification as stevia and coco sugar, in the sense that they are “natural” sweeteners; unfortunately, the law is clear - only stevia and coco sugar were singled out as exempt. Thus, MONK FRUIT and ERYTHRITOL are not exempt from excise tax, and, therefore, taxable.
SERVICES PERFORMED OUTSIDE THE PHILIPPINES ARE NOT SUBJECT TO PHILIPPINE TAXES
BIR RULING NO. 340-2021, SEPTEMBER 28, 2021
B Co. is seeking confirmation that payments made to S Co. are not subject to Philippine income tax since the services are not to be rendered in the Philippines. In their Maintenance Agreement, S Co.’s services will be performed in Barbados using internet-based Remote Computer Repair Technology. Part of the agreement is that no services will be performed in the Philippines, and no S Co. personnel will be sent to the Philippines. In reply, Section 23(F) of the Tax Code of 1997, as amended, provides that a foreign corporation, whether engaged in trade or business in the Philippines, is subject to income tax only with respect to income derived from sources in the Philippines. Moreover, Sections 42(A)(3) and (C)(3) of the 1997 Tax Code, as amended, states that the income is considered derived in the Philippines only if the services are performed in the Philippines. As cited in a Supreme Court case of Commissioner of Internal Revenue vs. Marubeni Corporation, G.R. No. 137377, December 18, 2001, services rendered outside the taxing jurisdiction of the Philippines are, therefore, not subject to contractor’s tax. Hence, the service fees paid by B Co. to S Co. are exempt from income tax and, consequently, from withholding tax. Likewise, it is Value-Added Tax (VAT) exempt since the services are performed outside the Philippines pursuant to Section 108(A) of the 1997 Tax Code, as amended.
TRANSFER OF LEGAL TITLE IS NOT SUBJECT TO CGT WHEN INVOLVED NEITHER MONETARY CONSIDERATION NOR CHANGE IN BENEFICIAL OWNERSHIP
TRANSFER OF LEGAL TITLE DOES NOT MEAN TRANSFER OF BENEFICIAL OWNERSHIP
BIR RULING NO. 338-2021, SEPTEMBER 27, 2021
C Co. is seeking clarification on whether the transfer of its membership shares in M Polo Club from a former trustee to a new trustee is exempt from the payment of Capital Gains Tax (CGT) and Documentary Stamp Tax (DST). In reply, the transfer of M Polo Club shares from a transferor to a transferee is not subject to CGT and DST. In the Declaration of Trust executed, the transfer did not give them any kind of right, claim, or interest in the M Polo Club share, and that they are holding only the legal ownership of the same with the beneficial ownership pertaining to the Company. The transfer of legal title is not subject to CGT considering that the transfer involves neither monetary consideration nor changes in beneficial ownership. Section 24(C) of the 1997 Tax Code provides that CGT is imposed on the gain or profit from the sale of capital assets. Since the beneficial ownership remains with the Company, no gain or profit shall be recognized. On DST, the BIR held that a mere transfer of a share without change in the beneficial ownership is not the taxable transaction being contemplated in the Tax Code provisions on DST. It was also noted that the transfer is without a Subscription Agreement. There being no new conveyance, there is no new exercise of privilege upon which the DST may be imposed.
TAX LIABILITY OF A NON-STOCK SAVINGS & LOAN ASSOCIATION
BIR RULING NO. 333-2021, SEPTEMBER 21, 2021
M Co., a Non-Stock Savings and Loan Association (NSSLA) organized and operated exclusively for the mutual benefit of its members, is seeking confirmation on whether it is subject to Gross Receipts Tax (GRT). In reply, BIR Revenue Memorandum Circular (RMC) No. 9-2016 provides that NSSLAs are under the direct supervision and regulation of the Bangko Sentral ng Pilipinas (BSP) and, for regulatory purposes, they are classified as Non-Bank Financial Intermediaries (NBFIs) under the BSP Manual of Regulations. Hence, NSSLA is generally subject to GRT on income derived from its operations, unless otherwise exempted under special rules. The GRT imposed is under Section 122 of the Tax Code, as amended, i.e., tax on other NBFIs. The imposition of GRT is on NBFIs engaged in the lending of funds or purchasing of receivables or obligations with funds obtained from the public. On the other hand, Republic Act No. 8367 and the BSP Manual of Regulations for NSSLA mandate that an NSSLA shall accept deposits from, and grant loans to its members only, and shall not transact business with the public. In addition, NSSLAs must be organized and operated exclusively for the mutual benefit of its members. Since M Co. showed that it is a non-profit organization which obtains funds exclusively from its members and does not transact business with the public, the GRT imposed under RMC No. 9-2016 on its lending activities is not warranted for as long as such transactions do not fall under the contemplated activities of NBFI, as defined by law and its rules and regulations.
TAX-EXEMPT MERGER
BIR RULING NO. 330-2021, SEPTEMBER 14, 2021
CEI, as the surviving corporation, is seeking confirmation whether its merger with CEIPI is a tax-free merger in accordance with Sections 76 to 80 of the Corporation Code and Section 40(C)(2) and (C)(6)(b) of the 1997 Tax Code.
In ruling, the BIR confirmed the following:
a. Given that CEI shall acquire all the assets and liabilities of CEIPI and the same is necessary and advisable, and to the advantage of the merging corporations and their respective shareholders, it is evident that such is being undertaken for bona fide business purpose and not for escaping the burden of taxation; hence, the non-recognition of gain or loss for income tax purposes in accordance with Section 40(C)(2) of the 1997 Tax Code qualifies the merger as tax-free within the contemplation of Section 40(C)(2) and (C)(6)(b) of the 1997 Tax Code, as amended.
b. The merger is not subject to Donor’s Tax since there is no intention to donate, and the transaction is a bona fide merger effected solely for business reasons.
c. The transfer of assets is not subject to Value-Added Tax (VAT) as the transfer is not made in the ordinary course of business.
d. No Documentary Stamp Tax (DST) is due on the transfer of assets.
e. DST shall be imposed on the original issuance of shares of I Co. as a result of the merger.
f. The excess and unutilized Creditable Withholding Tax (CWT), if any, of CEIPI may be used by CEI as tax credit against its income tax due.
g. The excess and unexpired Minimum Corporate Income Tax (MCIT), if any, of CEIPI may be used by CEI as tax credit against its income tax due.
h. Net Operating Loss Carry Over (NOLCO), if any, of CEIPI is not transferred to CEI.
i. 10% Final Withholding Tax shall be imposed on dividends constructively received by the individual shareholders of the absorbed corporation.
OFFSHORE MONEY TRANSFERS NOT MADE BY WAY OF TELEGRAPHIC TRANSFER ARE NOT SUBJECT TO DST UNDER SECTION 182 OF THE TAX CODE
BIR RULING NO. 326-2021, AUGUST 31, 2021
V Co., a financial service corporation offering financial services through its branches and sub-agents, is seeking a confirmatory ruling whether its money transfer remittances released to Philippine recipients on behalf of various offshore money transfer companies are exempt from Documentary Stamp Tax (DST) under Sections 180, 181, and 182 of the 1997 Tax Code, as amended. In reply, the Bureau defined the instruments under each section: (1) Sections 180 and 181 – Bills of exchange are an unconditional order in writing – checks, drafts, and all other kinds of order for payment of money, payable at sight or on demand, and (2) Section 182 – Foreign bills of exchange are drawn outside the Philippines, payable outside the Philippines, or both. The Section likewise covers letters of credit, and orders, by telegraph, or otherwise, for the payment of money. Further, Revenue Regulations (RR) No. 26 explains “orders, by telegraph, or otherwise, for the payment of money”; whereas, in a telegraphic transfer, a local bank cables to a certain bank in a foreign country with which it has a local credit and directs the foreign bank to pay another bank or person in the same locality a certain sum of money. Money transfers of V Co. are not drawn from the credit of senders, but are paid, and later withdrawn in cash by a specified recipient. They are likewise not made by way of telegraphic transfer; hence, not considered as foreign bills of exchange, letters of credit, nor telegraphic transfers. For the following reasons, money transfers of V Co. are not subject to DST under Section 182 of the Tax Code.
EXTENT OF TAXABILITY & EXEMPTION PURSUANT TO THE GRANT OF FRANCHISE TO OPERATE AN AIRPORT
BIR RULING NO. 324-2021, AUGUST 21, 2021
S Co. is seeking clarifications on the implementation of the tax exemptions of Republic Act (R.A.) No. 11506 (Aerocity Franchise or Bulacan Airport City), which became effective on January 15, 2021. In ruling, Section 16 of the Aerocity Franchise provides that during the Ten-Year Construction Period, S Co. shall be exempt from any and all direct and indirect taxes and fees of any kind, nature, or description, which emanate exclusively from the construction, development, establishment, and operation of the Airport and Airport City, including income tax, value-added tax, percentage tax, excise tax, documentary stamp tax, customs duties and tariffs, taxes on real estate, building and personal property, business taxes, franchise taxes, supervision fees, and permit fees levied, established or collected, or may be levied, established or collected, by any city, municipal, provincial, or national authority. The internal revenue taxes shall be implemented in two (2) phases such as (I) the Ten-Year Construction Period; and (II) after the Ten-Year Construction Period and during the remaining term of the Aerocity Franchise. The second phase, however, shall have two (2) sub-phases, such as (a) period of recovery; and (b) period after S Co. has fully recovered its investment cost on the Airport and on the Airport City.
(A) Period of recovery
⮚ S Co. shall continue to enjoy the exemption from income tax
(B) Period after full recovery of Investment cost
⮚ All the tax exemptions of S Co. shall expire
In the event of sale/transfer/assignment of rights and privileges including the tax exemptions, S Co. is required to officially notify the BIR in writing of the same within 60 days from the execution thereof and attaching copies of the Deeds of Sale/Transfer/Assignment, as the case may be. An updated Certificate of Registration and General Information Sheet shall also be submitted showing the relationship of the successor/transferee/assignee to S Co. and reflecting the rights, privileges, and tax exemptions subject of the sale/transfer/assignment and granted under the Aerocity Franchise.
EXTENT OF TAX EXEMPTION OF PATENTED PRODUCTS
BIR RULING NO. 292-2021, AUGUST 12, 2021
APC, COE, FVE, MJE, and RV, as the inventors, and FAS Inc., as their assignee, are seeking tax exemption of their patented product. Relying on Republic Act (R.A.) No. 7459, otherwise known as the Inventors and Inventions Incentives Act of the Philippines, the Technology Application and Promotion Institute (TAPI) Screening Committee has evaluated and recommended that the patented invention is eligible for the tax incentives, which includes exemption from all kinds of taxes during the first ten (10) years from the date of the first sale, subject to the rules and regulations of the Department of Finance (DoF). However, in the evaluation, the BIR considered the Final Resolution of the Office of the President (OP) under OP Case No. 03-G-422, in which the Department of Finance denied the appeal of an inventor relative to his tax exemption privileges, clarifying that the tax exemption granted by the law refers to income tax only. In effect, the inventors are still subject to the following taxes:
1. Final withholding tax
2. Capital gains tax
3. Income tax on revenues not arising from the inventor’s registered invention, such as interest, royalties, prizes, winnings, and dividends
4. Value-added tax on gross receipts/revenues derived from the sale of the said invention products
5. Other percentage tax
6. Excise tax directly payable in connection with the sale of invention products
7. Documentary stamp tax.
LAND SWAPPING IS DEEMED WITHIN THE PURVIEW OF DISPOSITION OF REAL PROPERTY UNDER SECTION 24(D)(1) OF THE TAX CODE, HENCE, SUBJECT TO CAPITAL GAINS TAX & CONSEQUENTLY, TO DOCUMENTARY STAMP TAX
BIR RULING NO. 291-2021, AUGUST 3, 2021
Ms. A and Ms. C who entered into a Lot Swapping Agreement are requesting confirmation if the transaction is exempt from tax since there was no consideration involved and the parties did not gain from such exchange, hence, there can be no basis for which taxes may be imposed. In reply, the BIR referenced Section 24(D)(1) of the 1997 Tax Code, as amended, on capital gains from sale of real property and cited a prevailing Court case which ruled that the phrase “other disposition” in the aforementioned provision shall be construed in its plain and simple meaning. “Disposition” means an act of disposing; transferring to the care or possession of another; the parting with, alienation of, or giving up property. As established in the previous ruling of the Court, the phrase “other disposition” includes within its purview all kinds of dispositions of real property under Section 24(D)(1) of the Tax Code of 1997, as amended, unless specifically excluded therefrom or subject to another tax treatment. In the absence of a law excluding the Lot Swapping Agreement from the coverage of the foregoing provision of the Tax Code, the, it is deemed within the purview of exchange or disposition, and thus, subject to Capital Gains Tax imposed therein. The transaction shall likewise be subject to Documentary Stamp Taxes imposed under Sections 188 and 196 of the 1997 Tax Code, as amended.
VAT EXEMPTION & INVOICING REQUIREMENTS FOR PCSO SMALL TOWN LOTTERY
BIR RULING NO. 283-2021, AUGUST 2, 2021
Philippine Charity Sweepstakes Office (PCSO) is requesting a ruling on the VAT exemption and invoicing requirements for PCSO Small Town Lottery (STL) operations.
In ruling, the BIR confirmed the following:
a. PCSO may mandate the use of the Official Retail Receipts (ORRs) in its STL operations even for transactions involving less than Php 100.
b. PCSO may issue the ORR and the STL ticket in the same document for as long as there is a valid Authority To Print (ATP) for such ORR and ticket in one, and for as long as all the invoicing requirements are complied.
c. PCSO will be liable to Value-Added Tax (VAT) even if an ORR is not issued for as long as the transaction is found subject to VAT.
d. PCSO is not authorized to print a newly designed ORR without a valid ATP from the BIR. A new application for ATP should be submitted to the BIR together with the new design, among others. If the new design meets the allowed format, then, a new ATP will be issued. Only then can PCSO print using the new design.
e. PCSO may not use the previously printed ORRs, as these are invalid.
EXEMPTION FROM INCOME TAX OF REASONABLE PRIVATE RETIREMENT BENEFIT PLAN DOES NOT INCLUDE DST & STT ON THE SUBSEQUENT SALE OF INVESTMENT SHARES
BIR RULING NO. 282-2021, AUGUST 2, 2021
A Co. is requesting a confirmatory ruling that the sale of shares of stock owned by the Company is not subject to Capital Gains Tax (CGT) pursuant to Section 60(B) of the 1997 Tax Code, as amended. A Co., a non-stock, non-profit corporation, was incorporated to provide and manage a retirement fund for AA Co. employees. In reply, Section 60(B) of the 1997 Tax Code, as amended provides for the two (2) conditions in order that the earnings of a retirement fund may be exempt from income tax, to wit: (1) contributions are made for the distribution to such employees in accordance with such plan; and (2) at any time prior the satisfaction of all liabilities with respect to the employees, no part of the income shall be used for purposes other than for the exclusive benefit of the employees. In reference to the previous favorable ruling dated August 4, 2003, the Bureau opined that the Company’s retirement fund is considered a reasonable retirement benefit plan. Thus, the sale of shares of stocks is exempt from income tax and CGT. However, it is subject to other applicable taxes such as Documentary Stamp Tax (DST) pursuant to Section 175 of the 1997 Tax Code, as amended, and Stock Transaction Tax (STT) for listed and traded shares of stock in the local stock exchange imposed under Section 127(A) of the same Code.
GROSS RECEIPTS TAX IS NOT WARRANTED FOR NON-STOCK SAVINGS & LOANS ASSOCIATIONS AS LONG AS TRANSACTIONS DO NOT FALL UNDER CONTEMPLATED ACTIVITIES OF A NON-BANK FINANCIAL INTERMEDIARY
BIR RULING NO. 274-2021, JULY 27, 2021
P Co. is seeking a confirmatory ruling on whether a non-stock savings and loan association (NSSLA) is subject to Gross Receipts Tax (GRT) under Revenue Memorandum Circular (RMC) No. 9-2016. The primary purpose of P. Co. is to engage in the operations of a non-stock and non-profit savings and loan association to encourage industry, frugality, and accumulation of savings among its members. RMC No. 9-2016 was issued to clarify the taxability of NSSLAs. Accordingly, they are classified as non-bank financial intermediaries (NBFIs), and are generally subject to GRT, unless otherwise exempted by special rules. On the contrary, it was established in Republic Act (R.A.) No. 8367 that NSSLA shall be exempt from the payment of tax in respect to income it receives; except income generated from its properties and from any activity conducted for profit. In ruling, the Bureau cited Revenue Regulations (RR) No. 9-2004, which implemented the provisions of R.A. No. 9238 reimposing GRT on banks and non-bank financial intermediaries (NBFI): NBFI is an entity regularly engaged in the lending of funds or purchasing or receivables or other obligations with the funds obtained from the public. It is to be recalled that P Co. exclusively transacts with and obtains funds from members and not from the public. Hence, based on the aforementioned facts, P Co., an NSSLA, is not subject to GRT imposed under RMC No. 9-2016 on its lending activities.
VAT-EXEMPT PRINTING PURCHASES OF COMELEC
PROPER TREATMENT OF INPUT VAT ON VAT-EXEMPT SALE IS OUTRIGHT COST OR EXPENSE
BIR RULING NO. 268-2021, JULY 26, 2021
H Co. is requesting confirmation that it is exempt from business tax on printing services to be rendered to Commission on Elections (COMELEC) pursuant to Republic Act (R.A.) No. 8436, otherwise known as “An Act Authorizing COMELEC to use an Automated Election System in the May 11, 1998, National or Local Elections and in Subsequent National and Local Electoral Exercises”, as amended by R.A. No. 9369. In reply, Section 12 of R.A. No. 8436, as amended, provides that COMELEC is authorized to procure by purchase, lease, rent, or other forms of acquisition, supplies, equipment, materials, software, facilities, and other services, from local or foreign sources free from taxes and import duties concerning the automated elections. Section 12 of R.A. No. 8436 intended to exempt COMELEC from the 12% VAT or the 3% Percentage Tax on its local purchases of goods and services as well as the importation of goods that will be used relative to the conduct of the May 10, 2010 elections and succeeding electoral exercises. Hence, the suppliers/sellers of goods and services to COMELEC cannot shift or pass on any VAT or percentage tax to COMELEC on its purchases of goods and services that will be used in the elections. While the BIR confirms that COMELEC is exempt from VAT, such exemption may only be invoked by COMELEC, and it does not extend to suppliers’ purchases and other contractual arrangements. Thus, H Co. is not entitled to the said tax exemption but shall be considered as the end-user who will bear or assume the tax burden (VAT or Percentage Tax). Consequently, input tax attributable to VAT-exempt sales to COMELEC shall not be allowed as a credit against the output tax on the supplier’s part but should be treated as part of their cost or expense.
REQUIREMENTS IN ORDER THAT EARNINGS OF A RETIREMENT FUND MAY BE EXEMPT FROM INCOME TAX
BIR RULING NO. 245-2021, JULY 12, 2021
NPC Provident Fund Company is seeking issuance of a current, valid, and subsisting Certificate of Tax exemption on its income derived from its investment’s activities. In 2008, the BIR issued a ruling exempting the NPC Provident Fund from the payment of the 20% final tax on interest and/or yield on deposit substitute instruments and on interest on its Philippine currency bank deposits. In reply, the BIR opined that Section 60(B) of the Tax Code laid down the requirements in order that earnings of a retirement fund may be exempt from income tax, to wit: (1) if contributions are made to the trust by such employer, or employees, or both; (2) such contributions are made for the purpose of distributing to employees the earnings and principal of the fund accumulated; and (3) if under the trust instrument it is impossible, at any time prior to the satisfaction of all liabilities with respect to employees under the trust, for any part of the corpus or income to be (within the taxable year or thereafter) used for, or diverted to, purposes other than for the exclusive benefit of his employees. It is noted that the foregoing conditions are present in the NPC Provident Fund; hence, it is exempt from income tax. Likewise, the trust is exempt from the coverage of withholding tax regulations.
INVESTMENTS UNDER TAX-EXEMPT RETIREMENT PLAN REMAIN EXEMPT FROM INCOME TAX & WITHHOLDING TAX
BIR RULING NO. 244-2021, JULY 12, 2021
P Co. seeks clarification regarding the taxability of its retirement plan’s income arising from the rent of real properties; and in case of exemption, which document shall be presented to suffice the claim. In ruling, the Bureau held that the investments remain exempt from income tax and consequently, from withholding tax pursuant to Section 60(B) of the 1997 Tax Code, as amended. This includes the rental income derived by the retirement plan from the lease of its real properties. However, it is to be emphasized that no part of the income shall be used for purposes other than the exclusive benefit of the employees or their beneficiaries. As regards the Value-Added Tax (VAT), the Bureau reiterated that the exemption covers only income tax; thus, the rental income is subject to VAT. To serve as proof of exemption, this ruling may be presented to the lessee. Accordingly, official receipts or checks for the payment of rent shall be released under the name of the retirement plan; otherwise, it will be subjected to the 5% creditable withholding tax and 5% VAT, if applicable.
TAX EXEMPT RETIREMENT BENEFITS MAY BE GRANTED EVEN IN THE ABSENCE OF AN APPROVED REASONABLE RETIREMENT PLAN PURSUANT TO SECTION 1 OF REPUBLIC ACT (R.A.) NO. 7641
BIR RULING NO. 243-2021, JULY 12, 2021
AM, Inc. is requesting exemption from payment of taxes on the retirement benefits of workers to be received based on the Collective Bargaining Agreement (CBA) entered into by AM, Inc. and FFW-AM Chapter. AM, Inc. is a corporation duly organized and existing under the laws of the Philippines, while FFW-AM, Inc. Chapter is a legitimate labor union duly registered with the DOLE. AM, Inc. and FFW-AM, Inc. Chapter entered into a CBA, Article XIII of which grants termination and retirement benefits. Accordingly, if the company maintains a private retirement plan which have been determined by the BIR as a "reasonable retirement benefit plan," the retirement benefits that will be received by the employees shall be exempt from income tax, provided that the two (2) conditions are met: (1) the employee had been in the service of the same private firm for at least ten (10) years; and (2) he is at least fifty (50) years old at the time of retirement. However, even if the company maintains a retirement plan but was not approved by the BIR as a "reasonable retirement benefit plan", the provisions of Section 1 of R.A. No. 7641 otherwise known as “Retirement Pay Law” shall apply. In the instant case, considering that Article XIII of the CBA, which provides for termination and retirement benefits, was not determined or approved by the BIR as a "reasonable retirement benefit plan," the requirements under Section 1 of R.A. No. 7641 shall apply. Consequently, in order that the employee benefits received may be granted tax exemption, the following must be present: (1) the employee had been in the service for at least five (5) years; and (2) he is at least sixty (60) years old but not beyond sixty-five (65) years old at the time of retirement.
TAXABILITY OF NON-STOCK SAVINGS & LOANS ASSOCIATIONS
BIR RULING NO. 239-2021, JULY 12, 2021
B Co. is seeking confirmation whether a Non-Stock Savings and Loan Association (NSSLA), organized and operated exclusively for the mutual benefit of its members, is subject to Gross Receipts Tax (GRT). In reply, the BIR cited Section 5 of the Republic Act (R.A.) No. 8367, otherwise known as “An Act Providing for the Regulation of the Organization and Operation of Non-Stock Savings and Loan Associations.” It states that an NSSLA shall be exempt from the payment of tax in respect to income it receives, including interest on its deposits with any bank. However, income derived from any of its properties, real or personal, or any activity conducted for profit, regardless of the disposition thereof, is subject to the corresponding internal revenue taxes imposed under the 1997 Tax Code, as amended. Hence, interest earnings on deposits of members with these associations and the shares of their members from the net income shall be exempt from income tax. In addition, NSSLAs shall confine their membership to a well-defined group of persons and shall not transact business with the general public. Revenue Memorandum Circular (RMC) No. 9-2016 clarified the taxability of NSSLAs for purposes of Income Tax, Gross Receipts tax (GRT), and Documentary Stamp Tax (DST), which provides that an NSSLA is generally subject to GRT on income derived from its operations, unless otherwise exempted under special rules. Upon scrutiny of records, B Co. showed the characteristics of an NSSLA where they obtain their funds exclusively from its members, and do not transact business with the public. Thus, B Co. is not subject to GRT for as long as the transactions made by the association do not represent the classifications of activity of a Non-Bank Financial Institutions (NBFI) as defined by the law and its rules and regulations.
VAT-EXEMPT SALE & PURCHASES OF AIRCRAFT
BIR RULING NO. 204-2021, JUNE 23, 2021
S Co., a licensed aircraft operator, is seeking tax exemption on the sale of aircrafts and acquisition of aircraft/s other than those described pursuant to Section 109(1)(T) of the 1997 Tax Code, as amended. In ruling, Section 109 (1)(T) of the 1997 Tax Code, as amended, provides that the sale, importation, or lease of an aircraft destined for domestic transport or international transport operations shall be exempt from VAT. Thus, the acquisition of five (5) aircraft by S Co. for its domestic non-scheduled (air taxi) air transportation services is exempt from the payment of Value-Added Tax (VAT). Anent to the acquisition by S Co. of any aircraft/s, BIR may not issue a ruling on queries involving assumed transactions pursuant to Revenue Memorandum Circular (RMC) No. 9-2014.
CERTIFICATE OF COMPLIANCE FROM ERC IS REQUIRED FOR RE DEVELOPER TO QUALIFY FOR ZERO-RATED VAT & REFUND UNDER EPIRA LAW
BIR RULING NO. 217-2021, JUNE 23, 2021
S Co. is seeking confirmation whether a Renewable Energy Developer (RE Developer) is required to obtain a Certificate of Compliance from the Energy Regulatory Commission (ERC) for its sales to be subject to Zero-Rated Value-Added Tax (VAT), and whether the sales of the RE Developer during its commissioning and testing phase can be considered a VAT zero-rated sale for the purpose of VAT refund. In reply, the BIR opined that in a VAT refund, a Certificate of Compliance is only required when the claim is anchored on Electric Power Industry Reform Act (EPIRA). Moreover, the Certificate is not mentioned under Revenue Memorandum Order (RMO) No. 47-2020, which provides the documentary requirements to be submitted by taxpayers engaged in renewable energy on claims for VAT credit/refund. On the second issue, whether the sales during the commissioning and testing phase can be considered a VAT zero-rated sale, the BIR clarified that as long as the power or fuel is generated through renewable sources of energy, the sale is subject to zero-rated VAT regardless of the stage of operation.
VAT EXEMPTION OF SERVICES RENDERED TO COMELEC FOR 2019 NATIONAL & LOCAL ELECTIONS
BIR RULING NO. 216-2021, JUNE 23, 2021
L Co. is requesting a confirmatory ruling that its services rendered to the Commission on Elections (COMELEC) during the May 2019 elections are not subject to Value-Added Tax (VAT). In reply, Section 12 of Republic Act (R.A.) No. 8436, otherwise known as “An Act Authorizing COMELEC to use an Automated Election System in the May 11, 1998 National or Local Elections and in Subsequent National and Local Electoral Exercises,” as amended by R.A. No. 9369, provides that COMELEC is authorized to procure by purchase, lease, rent, or other forms of acquisition, supplies, equipment, materials, software, facilities, and other services, from local or foreign sources free from taxes and import duties concerning the automated elections. COMELEC is exempt from 12% VAT on its local purchases of goods and services as well as VAT and on its importation of goods and services that will be used in the automated national and local elections. Thus, the suppliers/sellers of goods and services to COMELEC cannot shift or pass on any VAT to COMELEC. However, the exemption of COMELEC from VAT on its purchase of goods as well as its procured services are limited only to its purchases and/or importation of goods and services during the period beginning July 2018 until completion of the post-election activities and that the purchases and/or importation will be used in, or directly related to, the conduct of the May 2019 automated elections.
PUBLICLY HELD CORPORATIONS ARE EXEMPT FROM IMPROPERLY ACCUMULATED EARNINGS TAX (IAET)
BIR RULING NO. 202-2021, JUNE 8, 2021
M Co. is seeking confirmation that it is exempt from Improperly Accumulated Earnings Tax (IAET) because it is a publicly held corporation. It is represented that M Co. is a wholly owned subsidiary of M Co.-US. On the other hand, M Co.-US has 140,000 shareholders, more than 20 of said shareholders own at least 50% of the corporation’s shares of stock. In ruling, Section 29(B)(2) of the 1997 Tax Code, as amended, provides that IAET does not apply to, among others, publicly held corporations. In relation, closely held corporations are defined in Revenue Regulations No. 2-2001 as those corporations at least fifty percent (50%) in value of the outstanding capital stock or at least fifty percent (50%) of the total combined voting power of all classes of stock entitled to vote is owned directly or indirectly by or for not more than twenty (20) individuals. Corporations not falling under said definition are, therefore, publicly held corporations. To determine whether a corporation is publicly or closely held, there is a need to determine the identities of the ultimate owners and their extent of ownership. Given that in the instant case, M Co. is a wholly owned subsidiary of M Co.-US and at least 50% of the outstanding capital of M Co.-US is owned by more than 20 individuals, M Co. is considered a publicly held corporation. Thus, it is exempt from IAET.
EXTENT OF VAT EXEMPTION ON PRINTING & DELIVERY OF BOOKS FOR DEPED
BIR RULING NO. 200-2021, JUNE 8, 2021
S Co. is seeking confirmation whether the printing and delivery of books for the Department of Education (DepEd) are exempt from Value-Added Tax (VAT). As represented, the Department of Budget and Management-Procurement Service (DBM-PS) withheld 5% on their payments. In reply, the BIR cited Section 12 of Republic Act (R.A.) No. 8047, otherwise known as the “Book Publishing Industry Act” and Section 109(1)(R) of the 1997 Tax Code, as amended, which provides the tax incentives to persons or entities engaged in the book industry wherein books, magazines, periodicals, newspapers, including book publishing and printing, as well as distribution and circulation shall be exempt from the coverage of the expanded VAT Law. Hence, S Co. is exempt from 12% VAT on its book printing and distribution of textbooks for the DepEd. Consequently, DBM-PS shall no longer withhold and remit the 5% final withholding VAT to the BIR.
INCOME PAYMENTS TO CERTAIN CONTRACTORS ARE SUBJECT TO 2% CWT
BIR RULING NO. 191-2021, MAY 25, 2021
B Co., a Construction Service Operator, is seeking confirmation that the engineering services it provides are subject to 2% Creditable Withholding Tax (CWT) pursuant to Sec. 57(B) of the 1997 Tax Code, as amended. In reply, Sec. 2.57.2(C)(3) of Revenue Regulations (RR) No. 2-98, as amended by RR No. 11-2018, states that gross payments to (1) general engineering contractors; (2) general building contractors; and (3) specialty contractors are subject to 2% CWT. In the said ruling, B Co. renders soil testing, laboratory and analysis, preparation and submission of final geotechnical report, highway and bridge detailed engineering design, topographic survey, bridge site survey, surface soil exploration works, and geotechnical investigation, all of which require special skills; thus, falling under the specialty contractor category. Consequently, income payments from B Co.’s clients are subject to 2% CWT.
TAX-EXEMPT MERGER
BIR RULING NO. 190-2021, MAY 24, 2021
I Co., as the surviving corporation, is seeking confirmation whether its merger with A Co. is a tax-free merger in accordance with Sections 76 to 80 of the Corporation Code and Section 40(C)(2) and (C)(6)(b) of the 1997 Tax Code, as amended.
In ruling, the BIR confirmed the following:
1. Given that I Co. shall acquire all the assets and liabilities of A Co., and the same is necessary and advisable and to the advantage of the merging corporations and their respective shareholders, it is evident that such is being undertaken for bona fide business purposes and not for escaping the burden of taxation; hence, the non-recognition of gain or loss for income tax purposes, in accordance with Section 40(C)(2) of the 1997 Tax Code, as amended, qualifies the merger as tax-free within the contemplation of Section 40(C)(2) and (C)(6)(b) of the 1997 Tax Code, as amended;
2. The merger is not subject to Donor’s Tax since there is no intention to donate, and the transaction is a bona fide merger effected solely for business reasons;
3. The transfer of assets is not subject to Value-Added Tax (VAT) as the transfer is not made in the ordinary course of business;
4. No Documentary Stamp Tax (DST) is due on the transfer of assets;
5. DST shall be imposed on the original issuance of shares of I Co., as a result of the merger;
6. The excess and unutilized Creditable Withholding Tax (CWT) of A Co., if any, may be used by I Co. as a tax credit against its income tax due;
7. The excess and unexpired Minimum Corporate Income Tax (MCIT) of A Co., if any, may be used by I Co. as a tax credit against its income tax due;
8. The Net Operating Loss Carry Over (NOLCO) of A Co., if any, is not transferred to I Co.; and
9. 10% Final Withholding Tax shall be imposed on dividends constructively received by the individual shareholders of the absorbed corporation.
CORPORATE OFFICERS, WHO ARE AT THE SAME TIME DIRECTORS OR TRUSTEES OF THE CORPORATION, ARE ENTITLED TO ADDITIONAL COMPENSATION OTHER THAN REASONABLE PER DIEMS
BIR RULING NO. 182-2021, MAY 19, 2021
D Academy is seeking reconsideration on its denied renewal of tax exemption. D Academy argued that in the Alpha List, it shows that its trustees received compensation income as officers of the company, and not by the reason of their being members of the Board of Trustees. In reply, there are only two (2) ways which members of the Board can be granted compensation apart from per diems: (1) when there is a provision in the By-Laws fixing their compensation; and (2) when the stockholders, representing a majority of the outstanding capital stock at a regular or special stockholders’ meeting, agree to give it to them. It was held in the Supreme Court case of Western Institute of Technology Inc., et al vs. Ricardo T. Salas, et al., GR No. 113032, August 21, 1997, that corporate officers, who are at the same time directors or trustees of the corporation, are entitled to additional compensation other than reasonable per diems. Since the officers received compensation not in their capacity as members of the Board, but rather as officers of the corporation, as authorized by the corporation’s By-laws, the request for reconsideration is hereby GRANTED.
A COMPANY CAN CHANGE THE INVENTORY VALUATION METHOD IF IT CONFORMS TO ITS ACCOUNTING PRACTICE & IF IT REFLECTS THE COMPANY’S TRUE INCOME
BIR RULING NO. 179-2021, MAY 19, 2021
D Co. is seeking approval to change its accounting method of valuing inventories from the First-In-First-Out (FIFO) method to the Weighted Average Method effective January 1, 2019. As represented, D Co.’s decision to change its inventory method was to facilitate its cost accounting and optimize the use of its computerized system. Moreover, by using the weighted average method, it would conform to the best accounting practice of D Co.’s trade and business. Considering that it would clearly reflect the true income of the Company, the BIR granted the authority to change D Co.’s inventory valuation from the FIFO method to the Weighted Average method effective January 1, 2019.
CHANGE IN INVENTORY VALUATION METHOD MUST BE DULY APPROVED BY THE COMMISSIONER & MUST CONFORM TO TESTS
BIR RULING NO. 178-2021, MAY 19, 2021
D Co., a company engaged in agricultural, industrial, and commercial activities, is requesting approval to change its accounting method of inventory costing from the First-In-First-Out (FIFO) to the Moving Average Method for its materials and supplies inventory. The Board of Directors has already approved and authorized the Computerized Accounting System (CAS) to be adapted in the Systems Application and Products (SAP) Enterprise Resource Planning (ERP) Software, which recognizes Moving Average Method for spare parts and supplies. Moving Average Method conforms best to D Co.’s accounting practice as said valuation will clearly reflect its income. In reply, Sec. 41 of the 1997 Tax Code, as amended, provides that a taxpayer who has used a particular method of valuation for any taxable year shall continue to use such for the next ones, unless (1) the change is approved by the Commissioner; and (2) it is necessary to modify the valuation method for purposes of ascertaining the income, profits, or loss in a more realistic manner. Further, the law provides two (2) tests each inventory must conform; (1) must conform as nearly as possible to the best accounting practice of the business; and (2) must clearly reflect the income. Based on the facts, the Company has conformed to the conditions required by the law; therefore, the request is granted.
RECIPIENT OF SERVICES MUST BE DOING BUSINESS OUTSIDE THE PHILIPPINES TO QUALIFY FOR VAT ZERO-RATING
BIR RULING NO. 169-2021, MAY 18, 2021
T. Co, a Philippine branch office, is requesting a confirmatory ruling that its sale of services to its Head Office, T. International Corp., a Japan-based corporation, is subject to 0% Value-Added Tax (VAT) pursuant to Section 108 (B) (2) of the 1997 Tax Code, as amended. In ruling, the BIR cited that under Section 102(b)(2) of the 1997 Tax Code, as amended, to be qualified for zero-rating, the recipient of services must be doing business outside the Philippines. Also, the Implementing Rules and Regulation of Republic Act No. 7042, otherwise known as “Foreign Investments Act of 1991” provides that when a branch office of a foreign company carries out the business activities of the head office and derives income from the host country, mere existence of a branch office of a foreign corporation negates the application of Section 108 (B) (2) of the 1997 Tax Code, as amended, hence, the transaction with T. International Co. cannot be treated as subject to 0% VAT.
TAX-EXEMPT MERGER
BIR RULING NO. 141-2021, APRIL 27, 2021
RC Co., as the surviving corporation, is seeking confirmation whether its merger with RS Co. is a tax-free merger in accordance with Section 40(C)(2) and (C)(6)(b) of the 1997 Tax Code, as amended.
In ruling, BIR confirmed the following:
1. Given that RC Co. shall acquire all the assets and liabilities of RS Co. and the same is necessary and advisable and is to the advantage of the merging corporations and their respective shareholders since the corporation own, hold, and manage various assets for the same beneficial owner, the merger is a tax-free merger within the contemplation of Section 40(C)(2) and (C)(6)(b) of the same code.
2. The merger is not subject to Donor’s Tax since there is no intention to donate and the transaction is a bona fide merger effected solely for business reasons.
3. The transfer of assets of RS Co. to RC Co. is not subject to Value-Added Tax (VAT) as the transfer is not made in the ordinary course of business.
4. No Documentary Stamp Tax (DST) is due on the transfer of assets.
5. DST shall be imposed on the original issuance of shares of RC Co. as a result of the merger.
6. The excess and unutilized Creditable Withholding Tax (CWT), if any, of RS Co. may be used by RC Co. as tax credit against its income tax due.
7. The excess and unexpired Minimum Corporate Income Tax (MCIT), if any, of RS Co. may be used by RC Co. as a tax credit against its income tax due.
8. The Net Operating Loss Carry-Over (NOLCO), if any, of RS Co. is not transferred to RC Co.
9. 10% Final Withholding Tax (FWT) shall be imposed on dividends constructively received by the individual shareholders of the absorbed corporation.
VAT EXEMPT SALE OF AIRCRAFT HELICOPTER
BIR RULING NO. 138-2021, APRIL 26, 2021
S Co., a licensed aircraft operator, is requesting a tax exemption on the sale of aircraft. In reply, Section 109 (1)(T) of the 1997 Tax Code, as amended, provides that the sale, importation, or lease of an aircraft destined for domestic transport or international transport operations shall be exempt from Value-Added Tax (VAT). Thus, the acquisition of five (5) aircraft by S Co. for its domestic non-scheduled (air taxi) air transportation services is exempt from the payment of VAT.
PUBLICLY HELD CORPORATIONS ARE EXEMPT FROM THE IMPROPERLY ACCUMULATED EARNINGS TAX
OUTSTANDING STOCKS OF A FOREIGN CORPORATION OWNING DOMESTIC CORPORATIONS SHOULD BE OWNED BY MORE THAN TWENTY (20) INDIVIDUALS TO BE CONSIDERED AS PUBLICLY HELD
BIR RULING NO. 112-2021, APRIL 19, 2021
S. Co, a domestic corporation and a 100% owned by P. Co, a publicly held corporation listed in the Tokyo Stock Exchange, is seeking a confirmatory ruling on its exemption from the Improperly Accumulated Earnings Tax. In ruling, Section 29 (A) and (B) (2) (a) of the 1997 Tax Code, as amended, provides that publicly held corporations are exempted from the Improperly Accumulated Earnings Tax. Since S Co is 100% owned by P. Co., a corporation where at least 50% of the outstanding capitals stock is owned directly or indirectly by more than twenty (20) individuals, is considered a publicly held corporation, thus, exempt from Improperly Accumulated Earnings Tax.
DENIAL OF RECONSIDERATION OF EARLIER REQUEST FOR TAX EXEMPTION
BIR RULING NO. 69-2021, APRIL 14, 2021
F Co. is seeking reconsideration of the denial of its application as a qualified donee institution. The earlier application was denied on the ground that it is not a non-profit entity but one which profits itself through the services offered to paying patients. In ruling, Section 30(G) of the Tax Code requires that an institution must operate exclusively for social welfare to be exempt from income tax. Based on their brochure, F Co. caters different kinds of health services. Most if not all of the services are being performed for a fee. Thus, it manifests that F Co. is an institution not operated exclusively for social welfare purposes as their revenues come from paying patients which clearly posits a private rather than a public purpose. Moreover, its Audited Financial Statements reveal that F Co. reserves commissions from their revenues aside from the allocation for personnel cost. These commissions are given to certain individuals other than their employees who are entitled to salaries and other benefits. This is clearly a violation of the requirement that no net income or asset shall accrue to or benefit any member or specific person and that all net income or asset must be devoted to the foundation purposes. Consequently, the request for reconsideration was denied for lack of factual and legal basis.
PUBLICLY HELD CORPORATIONS ARE EXEMPT FROM THE IMPOSITION OF THE IMPROPERLY ACCUMULATED EARNINGS TAX
OWNERSHIP OF A DOMESTIC CORPORATION FOR PURPOSES OF DETERMINING WHETHER IT IS PUBLICLY HELD OR NOT IS ULTIMATELY TRACED TO THE INDIVIDUAL SHAREHOLDERS OF THE PARENT COMPANY
BIR RULING NO. 96-2021, APRIL 12, 2021
A Co. is seeking confirmation that it is a publicly held corporation and, therefore, exempt from the imposition of Improperly Accumulated Earnings Tax (IAET) pursuant to Section 29 of the 1997 Tax Code, as amended. As represented, A Co. is 100% owned by A Co-AB. On the other hand, at least 50% of A Co-AB’s outstanding stock is owned by more than 20 shareholders. In reply, the BIR, citing Section 29(A) and (B)(2)(a) of the 1997 Tax Code, as amended, elucidated that IAET shall not apply to publicly held corporations. In BIR Ruling No’s. 025-2002 and 094-2013, the Bureau opined that the ownership of a domestic corporation for purposes of determining whether a domestic corporation is publicly held or not is ultimately traced to the individual shareholders of the parent company. Given that A Co. is 100% owned by A Co-AB, it shall be considered as being owned by A Co-AB’s shareholders. Since at least 50% of A Co-AB’s outstanding stock is owned by more than 20 shareholders, A Co. is a publicly held corporation, thus, exempt from the imposition of IAET.
JOINT VENTURE IS NOT A TAXABLE CORPORATION IF COMPLIANT WITH THE CONDITIONS PROVIDED IN RR NO. 10-2012
JOINT VENTURE IS EXEMPT FROM RCIT & 2% CWT
CO-VENTURERS ARE SEPARATELY SUBJECT TO RCIT & CWT ON THEIR TAXABLE INCOME DERIVED FROM CONSTRUCTION PROJECT
BIR RULING NO. 92-2021, APRIL 12, 2021
Qingdao Municipal Construction/ESR Construction-Joint Venture, an unincorporated Joint Venture licensed by Philippine Contractors Accreditation Board (PCAB) and formed for the purpose of undertaking the Joint Venture (JV) Project under the contract with the Department of Public Works and Highways, is requesting a ruling that the JV project is exempt from the 2% Creditable Withholding Tax (CWT). In reply, the BIR opined that the JV is not a taxable corporation for complying with the conditions provided in RR No. 10-2012, as follows: (1) the JV is for undertaking a construction project; (2) the JV involves joining or pooling of resources by licensed local contractors; (3) the local contractors are engaged in construction business; and (4) the JV itself is duly licensed by PCAB. It is also not subject to Regular Corporate Income Tax (RCIT). Likewise, the gross payments for JV on the JV Project are not subject to 2% CWT. Further, it is not required to file quarterly and final adjustment returns. However, the co-venturers are separately subject to RCIT on their taxable income during each taxably year derived by them from the aforesaid construction project and subject to CWT before it distributes net income to the co-venturers, pursuant to their agreed income sharing.
BIR MAY GRANT AN EXTENSION TO FILE THE ESTATE TAX RETURN UNDER VALID CIRCUMSTANCES
BIR RULING NO. 090-2021, APRIL 12, 2021
Mr. A is requesting an extension of time within which to file the estate tax return of his daughter and pay the estate tax due. It was represented that Mr. A used to live in Makati with his daughter until her death last January 12, 2020. Mr. A. is now staying in IloIlo City. Because of the pandemic, Mr. A is having difficulty processing the requirements in Makati. In reply, BIR granted Mr. A’s request for thirty (30) days counted from January 12, 2021. Thus, the filing is extended up to February 11, 2021, pursuant to the provisions of Section 90 (C) and 91 (B) of the 1997 Tax Code, as amended. Furthermore, since Mr. A is having difficulty gathering the necessary documents, an extension to pay the estate tax is granted. Thus, the estate tax shall be paid within two (2) years from the actual filing of the estate tax return on or before February 11, 2021, whichever comes first.
VAT REGULATIONS PREVAILING AT THE TIME OF THE PERFECTION OF THE CONTRACT SHOULD BE APPLIED TO THE VAT EXEMPTION OR VATABILITY OF THE TRANSACTION
BIR RULING NO. 088-2021, APRIL 8, 2021
S Co. sought clarification regarding the application of BIR Ruling No. 815-2018 with regard to the sale to Spouses BBB of one of its residential condominiums located in Makati City with a net selling price of Php 2,755,000. The said ruling exempts the transaction from the Value-Added Tax (VAT) pursuant to the Revenue Regulations (RR) No. 16-2011 which took effect on January 1, 2012; and increased the threshold of VAT-exempt sale of residential dwellings to Php 3,199,200 from Php 2,500,000 under RR No. 16-2005. In connection with the sale, a Contract of Sale was executed on April 2, 2012. However, S Co. and Spouses BBB entered into a Reservation Agreement on June 30, 2011, and the latter started paying VAT-subjected monthly installments on the same date. In response, BIR cited Article 1475 of the New Civil Code, which provides that the perfection of contract of sale takes place when there is a meeting of minds upon the thing and the price. In addition, Article 1403 (2) (e) of the New Civil Code dictates that contracts covered by Statute of Frauds, such as the sale of real property or an interest therein, are unenforceable unless the same, or some Note or Memorandum be in writing, and subscribed by the party charged, or by his agent. The Supreme Court elaborated in Swedish Match vs. Court of Appeals that a Note or Memorandum must be complete in itself – it cannot rest partly in writing and partly in parole. It should contain the names of the contracting parties, terms and conditions, a description of the property that renders it identifiable, and the essential elements of a contract expressed with certainty. To further clarify, RR No. 16-2011, as amended by RR No. 03-2012 – the basis of BIR Ruling No. 815-2018, which was in question, should only apply to cases where there is no other proof to contest the prima facie evidence which is the Contract to Sell/Deed of Absolute Sale. In this case, the Reservation Agreement entered on June 30, 2011, already serves as a Note or Memorandum within the scope of Article 1403 of the New Civil Code. Furthermore, partial payments made by Spouses BBB constituted the initial payment; and, therefore, indicate the acquisition and acknowledgment of the said sale. Based on the additional facts presented above, the BIR opined that the sale of a residential condominium unit is subject to VAT as it was deemed perfected on June 30, 2011, or at the time a Reservation Agreement was executed; therefore, the prevailing regulations during that time apply.
ESTATE TAX RETURN FILING CAN BE EXTENDED FOR UP TO 30 DAYS IN MERITORIOUS CASES
BIR RULING NO. 083-2021, MARCH 18, 2021
The heirs of BBB are requesting for an extension within which to file the estate tax return. As represented, the imposed community quarantine made it difficult for the heirs of BBB to secure and process the needed signatures and documents covering the properties that form part of the estate. In reply, the BIR, citing Section 90 of the 1997 Tax Code, as amended, elucidated that in meritorious cases, a reasonable extension of not exceeding 30 days for filing the return may be granted by the Commissioner of Internal Revenue. Given that the circumstance of the heirs of BBB is a justifiable reason to grant an extension, the Commissioner granted a 30-day extension within which to file the estate tax return counted from the original deadline.
WHENEVER ONE PARTY TO THE TAXABLE DOCUMENT ENJOYS EXEMPTION, THE OTHER PARTY WHO IS NOT EXEMPT SHALL BE THE ONE DIRECTLY LIABLE FOR THE TAX
BIR RULING NO. 081-2021, MARCH 18, 2021
City of Makati is requesting a tax exemption from the payment of Capital Gains Tax (CGT) on the sale of land between the National Government, through the Privatization and Management Office (PMO), and City of Makati. In ruling, Section 34 of Proclamation No. 50 provides that Asset Privatization Trust (now PMO), as well as the corporations and assets held by it, shall be exempt from all taxes, fees, charges, imposts, and assessments arising from or occasioned by the passing of title over such corporations or assets from the government institutions to the Trust to a private buyer imposed by the National Government or any subdivision thereof. Thus, PMO is exempt from the payment of CGT and Documentary Stamp Tax (DST) on the Deed of Absolute Sale. However, City of Makati, which does not enjoy the same tax exemption privilege, shall be the one liable for the payment of the DST due on the said transactions.
ESTATE TAX RETURN FILING CAN BE EXTENDED FOR UP TO 30 DAYS IN MERITORIOUS CASES
BIR RULING NO. 083-2021, MARCH 18, 2021
The heirs of BBB are requesting for an extension within which to file the estate tax return. As represented, the imposed community quarantine made it difficult for the heirs of BBB to secure and process the needed signatures and documents covering the properties that form part of the estate. In reply, the BIR, citing Section 90 of the 1997 Tax Code, as amended, elucidated that in meritorious cases, a reasonable extension of not exceeding 30 days for filing the return may be granted by the Commissioner of Internal Revenue. Given that the circumstance of the heirs of BBB is a justifiable reason to grant an extension, the Commissioner granted a 30-day extension within which to file the estate tax return counted from the original deadline.
NO TRANSFER OF REAL PROPERTY CAN BE EFFECTED UNLESS THE APPLICABLE TAX HAS BEEN PAID
BIR RULING NO. 080-2021, MARCH 18, 2021
The Bureau of Treasury is requesting an exemption from paying taxes, fees, and other charges relative to the application for Certificate Authorizing Registration for properties assigned to it. As represented, properties are still titled under Ekson Realty Development & Construction, Inc. (EKSON). Such properties were assigned to Central Bank-Board of Liquidators (CB-BOL) and subsequently assigned to the Bureau of Treasury when CB-BOL ceased its operation. In reply, the BIR elucidated that to exempt such transaction from the Capital Gains Tax or Creditable Withholding Tax, the taxpayer must show that he is clearly exempt by law to pay such taxes. Given that there is no showing that the transfer of real property from EKSON to CB-BOL and the transfer from CB-BOL to the Bureau of Treasury are exempt from taxes, the BIR denied the request for exemption from taxes for lack of legal basis. Consequently, as provided under Section 58(E) of the 1997 Tax Code, as amended, such transfers of real property cannot be effected by the Registry of Deeds unless the Commissioner of Internal Revenue or his duly authorized representative has certified that the transfer has been reported and the applicable tax, if any, has been paid.
NO RULING AREAS IF THE TAXPAYER IS SUBJECT OF ONGOING COLLECTION PROCEEDINGS
BIR RULING NO. 079-2021, MARCH 18, 2021
A Law Firm is seeking cancellation of the Final Notice Before Seizure and cancellation and withdrawal of Deficiency Income Tax Liabilities for the taxable years 2003 and 2004. In reply, a request for rulings on issues covered by the ongoing collection proceedings is a “No Ruling Area” under Section 2 (r) of Revenue Bulletin No. 01-03. Since it has pending collection proceedings, the BIR has declined to issue a ruling on the issue raised.
THE VALUATION OF INVENTORY MUST CONFORM TO THE BEST ACCOUNTING PRACTICE OF TRADE OR BUSINESS & MUST CLEARLY REFLECT THE INCOME OF THE COMPANY
BIR RULING NO. 078-2021, MARCH 18, 2021
A Co., a company engaged in general engineering construction and other allied business, is requesting approval to change its accounting method of inventory costing from First-In-First-Out (FIFO) to the Weighted Average Method for inventory costing starting January 1, 2019. It has adapted the FIFO method since its incorporation. However, in 2019, companies under A Group of Companies adapted the Weighted Average Method due to change of the Group’s Accounting System to align with the inventory valuation of the Group. Also, the Weighted Average Method will not result in a substantial change in the total cost of sales and gross profit and will still clearly reflect the income of the Company. In reply, the BIR granted the request provided that such method conforms to the best accounting practice in its trade or business and will clearly reflect the income of the Company pursuant to the provision of Section 41 of the 1997 Tax Code, as amended.
BIR RULING OR APPROVAL IS NEEDED IN THE CHANGE OF THE METHOD OF INVENTORY
COMPANIES MAY ADAPT A METHOD OF INVENTORY RETROACTIVELY BUT WITHIN THE SAME YEAR IF AUTHORIZED BY THE COMMISSIONER
BEST ACCOUNTING PRACTICE & CLEAR REFLECTION OF INCOME ARE NEEDED AS BASES FOR THE APPROVAL OF THE METHOD OF INVENTORY
BIR RULING NO. 077-2021, MARCH 18, 2021
S. Co., a security services entity, is requesting a confirmatory ruling or approval to change its accounting method. To align its method of valuation with other companies under its group of companies, it is requesting the adaption of the Weighted Average Method from the First-In First-Out Method of inventory beginning January 1, 2019. In ruling, the BIR referred to Section 41 of the 1997 Tax Code, as amended, which requires the approval or authorization from the Commissioner to change the inventory method to a different method. The request is granted for as long as the same is aligned with the best accounting practice and to reflect the income of the Company.
BIR APPROVAL IS NEEDED FOR THE CHANGE IN INVENTORY COSTING METHOD
BIR RULING NO. 076-2021, MARCH 18, 2021
T Co. is seeking an approval to change its inventory costing from First-In, First-Out (FIFO) Method to the Moving Average Method for materials and supplies. The change from the previous costing method under Microsoft GP Enterprise Resource Planning (ERP) Software to their new costing method under the SAP ERP Software recognizes the Moving Average Method for materials and supplies a more effective costing method for the valuation of inventories and will best conform to the company’s accounting practice, as said valuation will clearly reflect its income. In reply, the BIR cited Section 41 of the 1997 Tax Code, as amended, which allows such change if: (1) approved by the Commissioner; and (2) the Commissioner finds it necessary to modify the valuation method for purposes of ascertaining the income, profits, or loss in a more realistic manner. In relation, Section 145 of Revenue Regulations (RR) No. 2 provides two (2) tests to which each inventory must conform: (1) it must conform as nearly as possible to the best accounting practice; and (2) it must clearly reflect the income. Given that the change from FIFO to the Moving Average Method conforms to Section 145 of RR No. 2, the Commissioner, therefore, approved the change in the inventory costing method.
SERVICES RENDERED BY AN ROHQ TO AN AFFILIATE NOT DOING BUSINESS IN THE PHILIPPINES IS SUBJECT TO ZERO-RATED VAT IF PAID IN ACCEPTABLE FOREIGN CURRENCY
VAT ZERO-RATING UNDER SECTION 108(B)(2) NEED NO PRIOR APPROVAL
BIR RULING NO. 075-2021, MARCH 18, 2021
D Co., an ROHQ, is seeking confirmatory ruling if sale of services to its affiliate is subject to zero-rated Value-Added Tax (VAT) pursuant to Section 108(B)(2) of the 1997 Tax Code, as amended. D Co.’s affiliate is a foreign company not doing business in the Philippines, as evidenced by the Certification of Non-Registration of Company issued by the Securities and Exchange Commission (SEC). It is paid by its affiliate in United States Dollars for its services. In ruling, the BIR cited BIR Ruling No. 455-2011, where it opined that in order to qualify for VAT zero-rating under Section 108(B)(2) of the 1997 Tax Code, as amended, the following requisites must be met: (1) the services must be rendered to persons engaged in business outside the Philippines or to a non-resident foreign client not engaged in business who is outside the Philippines when the services are performed; and (2) the fees must be paid to the domestic corporation in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP). Given that such requisites are met, D Co. sales of services to its affiliate is subject to zero percent (0%) VAT. Lastly, the BIR elucidated that the application of prior approval is not necessary for VAT zero-rating under Section 108(B)(2) of 1997, Tax Code, as amended, pursuant to Revenue Memorandum Order (RMO) No. 7-2006.
PHYSICAL THERAPY & REHABILITATION SERVICES ARE VAT EXEMPT
BIR RULING NO. 074-2021, MARCH 18, 2021
A physical therapy and rehabilitation facility is seeking a Value-Added Tax (VAT) exemption on its services. In reply, pursuant to Section 109 (1) (G) of the 1997 Tax Code, as amended and Revenue Regulations No. 16-2005, medical, dental, hospital, and veterinary services are considered transactions exempt from VAT. Thus, the Bureau opined that the medical and laboratory services, including facilities and medical supplies used in rendering such services except those rendered by independent professionals, are exempt from VAT.
A BIRTHING HOME CLINIC RENDERING MATERNITY SERVICES IS A VAT-EXEMPT TAXPAYER
BIR RULING NO. 073-2021, MARCH 18, 2021
A birthing home clinic that offers maternity packages from pre-natal check-ups to birthing is seeking a Value-Added Tax (VAT) exemption on its services. In reply, pursuant to Section 109 (1) (G) of the 1997 Tax Code, as amended and Revenue Regulations No. 16-2005, medical, dental, hospital, and veterinary services are considered transactions exempt from VAT. Thus, the Bureau opined that the medical and laboratory services, including facilities and medical supplies used in rendering such services, except those rendered by independent professionals, are exempt from VAT.
A JOINT VENTURE FORMED FOR THE PURPOSE OF UNDERTAKING CONSTRUCTION PROJECTS MUST MEET ALL THE NECESSARY REQUIREMENTS TO BE EXEMPT FROM INCOME TAX
PAYMENTS TO AN INCOME TAX EXEMPT JOINT VENTURE ARE NOT SUBJECT TO CWT
CO-VENTURERS ARE SEPARATELY SUBJECT TO RCIT ON THEIR TAXABLE INCOME DERIVED FROM THE JOINT VENTURE
INCOME OF THE CO-VENTURERS DERIVED FROM THE JOINT VENTURE IS SUBJECT TO CWT
BIR RULING NO. 066-2021, MARCH 16, 2021
CSCEC and CGEC Joint Venture (JV) is seeking a ruling that it is exempt from the 2% Creditable Withholding Tax (CWT) under Revenue Regulations (RR) No. 11-2018. As represented, CSCEC and CGEC Joint Venture entered a contract with the Government of the Philippines for the construction and completion of the Ambal-Simuay River and Rio Grande De Mindanao Flood Control Projects. Documents submitted also disclosed the following: (1) the co-venturers, CSCEC and CGEC, are both licensed by the Philippine Contractors Accreditation Board (PCAB); (2) the co-venturers are both engaged in the construction of building; and (3) CSCEC and CGEC Joint Venture has a special contractor’s license issued by PCAB. In reply, the BIR, citing Section 3 of RR No. 10-2012, opined that CSCEC and CGEC JV is an income tax exempt JV as it meets all the requirements for a tax-exempt JV. Section 3 of RR No. 10-2012, which implements Section 22(B) of the 1997 Tax Code, as amended, provides the following requirements for a JV formed for the purpose of undertaking construction projects to be income tax exempt: (1) the JV should be for the undertaking of a construction project; (2) the co-venturers should be licensed as general contractors by the PCAB; (3) the co-venturers are engaged in construction business; and (4) the JV itself must likewise be duly licensed by PCAB. Being an income tax exempt JV, payments to CSCEC and CGEC JV are not subject to CWT pursuant to RR No. 2-1998, as amended. However, the co-venturers shall be responsible in reporting and paying appropriate taxes on their respective share to the JV profits. Lastly, the respective income of the co-venturers derived from the construction project is subject to CWT imposed under Section 57 of the 1997 Tax Code, as amended.
SALE OF REAL PROPERTY CLASSIFIED AS A CAPITAL ASSET IS SUBJECT TO CGT & DST BUT NOT TO VAT
BIR RULING NO. 065-2021, MARCH 10, 2021
Atty. SAP is requesting a confirmatory ruling that the properties he sold to BGRCDC are considered capital assets subject to Capital Gains Tax (CGT) and Documentary Stamp Tax (DST) but not to the Value-Added Tax (VAT). In reply, Revenue Regulations (RR) No. 7-2003 provides the classification of a particular real property as a capital or ordinary asset without regard to its actual use or the purpose for its acquisition, but on the nature of the business of its registered owner. Given that (1) Atty. SAP is not engaged in real estate business, as supported by the certification issued by the Office of the City Mayor of Bacolod and the certification issued by the Department of Trade and Industry, and that (2) Atty. SAP is not habitually engaged in the real estate business as he did not engage in real estate sale transaction in the year preceding the year of sale to BGRCDC, the BIR opined that the real properties sold by Atty. SAP to BGRCDC are classified as capital assets. The conveyance of which is subject to CGT and DST but not subject to VAT and Creditable Withholding Tax (CWT).
WITH THE APPROVAL OF THE COMMISSIONER, A CHANGE TO A DIFFERENT ACCOUNTING METHOD IS AUTHORIZED
BIR RULING NO. 064-2021, MARCH 3, 2021
A Co. is seeking approval to change its accounting method of valuing inventories from the First-in-First out (FIFO) method to the Moving Average Method. As represented, A Co.’s decision to change its inventory method is to clearly reflect the income of the said corporation in line with its adaption of the Systems Applications and Products (SAP) Enterprise Resource Planning (ERP) software, which uses the Moving Average Method rather than the FIFO method. Considering that it would clearly reflect the true income of the Company, the BIR granted the authority to A Co. to change its inventory valuation from FIFO Method to the Moving Average Method.
NOTHING IN BAYANIHAN ACT GRANTS A VAT EXEMPTION TO TRANSACTIONS INVOLVING ICT SERVICES
BIR RULING NO. 063-2021, MARCH 3, 2021
V Co. is seeking a Value-Added Tax (VAT) exemption on the Innovative Artificial Intelligence and Information and Communication Technology (ICT) services procured by the Quezon City government to help mitigate the spread of the pandemic in the said city. In reply, nothing in the Bayanihan Act grants a VAT exemption to Local Government Units or domestic corporations relative to transactions involving ICT services during the pandemic. On the contrary, the agreement between V Co. and the Quezon City government falls under Section 108 (A) of the 1997 Tax Code, as amended, which is considered a sale of services and use or lease of properties in the ordinary course of business. Thus, ICT services provided by V Co. are within the purview of the aforementioned provision, hence, subject to VAT.
A JOINT VENTURE (JV) FORMED TO UNDERTAKE CONSTRUCTION PROJECTS MUST MEET ALL THE NECESSARY REQUIREMENTS FOR IT TO BE EXEMPT FROM INCOME TAX
PAYMENTS TO AN INCOME TAX EXEMPT JV ARE NOT SUBJECT TO CWT
CO-VENTURERS ARE SEPARATELY SUBJECT TO REGULAR CORPORATE INCOME TAX ON THEIR TAXABLE INCOME DERIVED FROM THE JV
INCOME OF THE CO-VENTURERS DERIVED FROM THE JV IS SUBJECT TO CWT
BIR RULING NO. 056-2021, MARCH 2, 2021
FB-M Joint Venture (JV) is seeking a ruling to be exempt from the 2% Creditable Withholding Tax (CWT) pursuant to Revenue Regulations (RR) No. 14-2002, as amended by RR No. 11-2018. As represented, FB-M JV is a JV formed to undertake the rehabilitation of LRT Line 1 Rectifier Substations. Documents submitted also disclosed the following: (1) the co-venturers are both licensed as general contractors by the Philippine Contractors Accreditation Board (PCAB); (2) the co-venturers are both engaged in the construction business; and (3) FB-M JV has a special contractor’s license issued by PCAB. In reply, the BIR, citing RR No. 10-2012, has opined that FB-M JV is an income tax-exempt JV as it meets all the above-mentioned requirements. Section 3 of RR No. 10-2012, which implements Section 22(B) of the 1997 Tax Code, as amended, provides the following requirements for a JV formed to undertake construction projects to be income tax exempt: (1) the JV should be for the undertaking of a construction project; (2) the co-venturers should be licensed as general contractors by the PCAB; (3) the co-venturers are engaged in the construction business; and (4) the JV itself must likewise be duly licensed by PCAB. Being an income tax-exempt JV, payments to FB-M JV are not subject to CWT pursuant to RR No. 2-1998, as amended. However, the co-venturers of FB-M JV shall be responsible for reporting and paying the appropriate taxes on their respective share of the JV's profits. Lastly, the respective income of the co-venturers of FB-M JV derived from the construction project is subject to the CWT imposed under Section 57 of the 1997 Tax Code, as amended.
EXEMPTION FROM VAT ON THE IMPORTATION OF CARGO VESSEL
BIR RULING NO. 041-2021, FEBRUARY 26, 2021
T Co, a domestic corporation duly accredited by the Maritime Industry Authority (MARINA) is seeking confirmation on whether its importation of cargo vessels is exempt from Value-Added Tax (VAT) pursuant to Section 109(1)(T) of the 1997 Tax Code, as amended. In reply, the Bureau confirms the VAT exemption, citing Section 109 of the 1997 Tax Code, as amended, which provides that the sale, importation, or lease of passenger or cargo vessels and aircraft, including engine, equipment, and spare parts thereof, for domestic or international transport operations are exempt from VAT. Likewise, Revenue Regulations (RR) No. 16-2004, as amended, provides that the VAT exemption shall be subject to the requirements on restriction on vessel importation and the mandatory vessel retirement program by MARINA.
RETIREMENT PAY RECEIVED AT THE AGE OF 60 YEARS OLD HAVING SERVED FOR FIVE (5) YEARS IS EXEMPT FROM TAX
RETIREMENT PAY IS DIFFERENT FROM SEPARATION PAY
NO DOUBLE AVAILMENT OF TAX EXEMPTION ON TAX-EXEMPT SEPARATION PAY & TAX-EXEMPT RETIREMENT PAY
BIR RULING NO. 038-2021, FEBRUARY 26, 2021
A, a retired employee of P Co., is seeking clarification on whether his retirement pay is exempt from income tax and, consequently, from withholding tax. As represented, A is a managerial employee who retired at the age of 60 years old after having served in P Co. for nine (9) years and four (4) months. Further, P Co. does not maintain a retirement plan for managerial employees. In reply, the BIR opined that since there is no retirement benefit plan for managerial employees, retirement benefits set forth under Republic Act (R.A.) No. 7641 shall apply. Hence, 1/2-month salary for every year of service of an employee who reached the age of 60 or more, but not beyond 65 years, and rendered at least five (5) years of service in the Company shall be given as retirement benefits. Retirement benefits received under R.A. No 7641 are not subject to income tax pursuant to Section 32(B)(6)(a) of the 1997 Tax Code, as amended. Consequently, such retirement benefits shall not also be subject to withholding tax. However, it was noted that A has previously availed of tax exemption pursuant to retrenchment or separation. Although R.A. No. 7641 requires that an employee must not have previously received retirement benefits, there is no double availment in the case of separation benefit and retirement benefit considering that they are covered by separate provisions of the Tax Code.
NON-STOCK SAVINGS & LOAN ASSOCIATIONS ARE NOT SUBJECT TO GROSS RECEIPTS TAX WITH CONDITIONS
BIR RULING NO. 037-2021, FEBRUARY 26, 2021
A Co., a Non-Stock Savings and Loan Association (NSSLA) organized and operated exclusively for the mutual benefit of its members, is seeking confirmation on whether it is subject to Gross Receipts Tax (GRT). In reply, BIR Revenue Memorandum Circular (RMC) No. 9-2016 provides that NSSLAs are under the direct supervision and regulation of the Bangko Sentral ng Pilipinas (BSP) and, for regulatory purposes, they are classified as Non-Bank Financial Intermediaries (NBFIs) under the BSP Manual of Regulations. Hence, NSSLA is generally subject to GRT on income derived from its operations, unless otherwise exempted under special rules. The GRT imposed is under Section 122 of the 1997 Tax Code, as amended (i.e., tax on other NBFIs). The imposition of GRT is on the NBFIs engaged in the lending of funds or purchasing of receivables or obligations with funds obtained from the public. On the other hand, Republic Act No. 8367 and the BSP Manual of Regulations for NSSLA mandate that an NSSLA shall accept deposits from and grant loans to its members only and shall not transact business with the public. Not only that, NSSLAs must be organized and operated exclusively for the mutual benefit of their members. Based thereon, since A Co. showed that it is an NSSLA, a non-profit organization that obtains funds exclusively from its members and does not transact business with the general public, the GRT imposed under RMC No. 9-2016 on its lending activities is not warranted for as long as such transactions do not fall under the contemplated activities of NBFI, as defined by law and its rules and regulations.
TAX EXEMPTION ON DIVIDENDS DERIVED BY A NON-RESIDENT CORPORATION MAY BE SUBJECT TO A LOWER PREFERENTIAL RATE IN THE PHILIPPINES
RECIPROCITY RULE APPLIES TO QUALIFY FOR PREFERENTIAL TAX RATE
BIR RULING NO. 027-2021, FEBRUARY 18, 2021
P Co., a taxpayer engaged in the business of developing business parks, is seeking a confirmation ruling that the dividends paid to a non-resident foreign corporation are subject to 15% Final Withholding tax under Section 28 (B) (5) (b) of the Tax Code of 1997, as amended. As represented, P Co. will pay its non-resident foreign corporation stockholder based in the Island of Nevis, West Indies. In reply, the BIR cited the Supreme Court case of Commissioner of Internal Revenue vs. Wander Philippines Inc. (160 SCRA 573) where it was ruled that the exemption from taxes by the country of domicile of the non-resident corporate stockholder on the dividends received is a sufficient basis for the application of the 15% tax rate. Thus, cash dividends are subject to the 15% Final Withholding Tax.
STOCKBROKER CERTIFICATION ON OWNERSHIP OF SCRIPLESS SHARES IS SUFFICIENT COMPLIANCE AS AN ALTERNATIVE TO THE CERTIFICATE OF STOCK TO PROCESS ISSUANCE OF ECAR/TCL
BIR RULING NO. 017-2021, FEBRUARY 4, 2021
DD, on behalf of the estate of BBB, is requesting a ruling that the certifications issued by the stockbrokers of BBB, showing ownership of scripless shares or those shares which are electronically traded and thus, with no stock certificates, are sufficient as an alternative to the requirement of copies of certificates of stock for the issuance of eCertificate Authorizing Registration/Tax Clearance Certificate (eCAR/TCL). In reply, the BIR cited Revenue Memorandum Circular (RMC) No. 39-2015, which requires that for every transfer of shares of stock, a photocopy of the certificate of stock, among others, must be submitted. However, given that in the instant case, scripless shares are traded electronically and thus, with no stock certificates, the certifications issued by BBB’s stockbrokers, showing ownership to subject scripless shares, are sufficient compliance with the requirement provided in RMC No. 39-2015 to process the issuance of eCAR/TCL.
THE SALE & DISTRIBUTION OF ROASTED WHOLE BEANS & GROUND COFFEE IN ORIGINAL STATE IS CONSIDERED VAT-EXEMPT TRANSACTION
BIR RULING NO. 016-2021, FEBRUARY 4, 2021
S Co. is seeking a Value-Added Tax (VAT) exemption on its sale and distribution of roasted whole beans and ground coffee. In reply, Section 109 (1)(A) of the 1997 Tax Code, as amended, provides that the sale, importation, and distribution of agricultural products in its original state for human consumption, are considered exempt from 12% VAT. Agricultural products are considered in its original state even if they have undergone the simple process of preparation or preservation for the market, such as freezing, drying, salting, broiling, roasting, or stripping. The type of processing is limited to the aforementioned simple process. Otherwise, it may no longer be considered agricultural products in its original state. Moreover, the VAT exemption is limited only to food products that are intended for human consumption. Since roasted coffee beans and ground coffee are considered products in its original state, the sale, importation, and distribution thereof are exempt from 12% VAT.
SERVICES RENDERED TO A NON-RESIDENT CORPORATION, WHICH ARE PAID IN ACCEPTABLE FOREIGN CURRENCY, ARE SUBJECT TO ZERO-RATED VAT
BIR RULING NO. 014-2021, FEBRUARY 3, 2021
TSQ, a taxpayer engaged in the business of providing drafting services, is requesting a confirmatory ruling that its services rendered to MT, LLC are subject to zero-rated Value-Added Tax (VAT) pursuant to Section 108(B)(2) of the 1997 Tax Code, as amended. As represented, MT, LLC is a non-resident foreign corporation based in the United States of America (USA), and the services are paid in US dollars. In reply, the BIR cited BIR Ruling No. 455-2011, which enumerates the requisites to qualify for VAT zero rating under Section 108(B)(2) of the 1997 Tax Code, as amended, as follows: (1) services must be rendered to persons engaged in business outside the Philippines or to non-resident foreign clients not engaged in business who are outside the Philippines when the services are performed; and (2) that the fees must be paid in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP). Given that TSQ has proven compliance with said requisites by presenting a Certificate of Non-Registration of Company issued by the Securities and Exchange Commission (SEC) and the Bank of the Philippine Islands’ Certificate of Inward Remittance, the BIR opined that the services rendered by TSQ to MT, LLC are subject to zero percent (0%) VAT.
AN ISSUE, WHICH IS STILL SUBJECT TO AN ONGOING AUDIT, IS CONSIDERED A NO-RULING AREA
BIR RULING NO. 010-2021, FEBRUARY 1, 2021
P Co., a regular importer, and distributor of chemical solvents in the Philippines, is requesting a confirmatory ruling on whether the importation of chemical solvents is subject to excise tax. A memorandum from the Office of the Large Taxpayers Service, however, disclosed that P Co. has a pending case with the Large Taxpayers Audit Division 2, which covers the issue that P Co. seeks to confirm. Given that the issue is still subject to an ongoing audit or administrative protest, the BIR did not issue a determinative ruling since the issue, which is subject to an ongoing audit or administrative protest, is considered a no-ruling area pursuant to Section 2(r) of Revenue Bulletin No. 01-2003.
LOSSES RELATED TO DISCARDED ASSETS DUE TO OBSOLESCENCE MAY BE CLAIMED AS DEDUCTIONS
BIR RULING NO. 008-2021, JANUARY 21, 2021
D Co., a corporation engaged in power distribution, is seeking confirmation on whether it is allowed to claim the remaining book value of its obsolete backup power plant as a deduction for income tax purposes. As represented, the said backup power plant facility is unfit for continued use and its rehabilitation would require a capital outlay that exceeds any projected revenue from such a project. Hence, D Co. decided to dismantle the said facility, whose carrying value would amount to the loss to be incurred. In reply, the BIR cited Section 34(D)(1) of the 1997 Tax Code, as amended, as implemented by Section 98 of Revenue Regulations (RR) No. 2, which provides that the remaining book value of the subject power plant facility may be claimed as a deduction for income tax purposes when the said facility is demolished. However, there are certain conditions to determine that an asset is obsolete under Section 110 of RR No. 2 and that the determination of compliance to such conditions is beyond the jurisdiction of a ruling to confirm.
BACKWAGES & ATTORNEY’S LIEN ARE SUBJECT TO INCOME TAX & WITHHOLDING TAX
BIR RULING NO. 005-2021, JANUARY 14, 2021
N Co. is requesting a legal opinion on the applicable tax rates on the back wages awarded to its former employees and on the 10% attorney’s lien that was awarded in a case. As represented, the Supreme Court declared as null and without effect the National Power Board Resolutions thereby giving N Co. employees, who were illegally terminated on January 31, 2003, the right to reinstatement or separation pays, in lieu of reinstatement, plus back wages, wage adjustments, and other benefits accruing from January 31, 2003, to the date of reinstatement. In ruling, the BIR opined that back wages and the amount representing the unpaid salaries are remunerations for services that are subject to income tax and, consequently, to withholding tax on wages pursuant to the 1997 Tax Code, as amended. N Co. shall apply the withholding tax rate as provided for the years 2003 to 2007. The amount of 13th-month pay received for the years 2003 to 2007, on the other hand, is exempt from income tax, the same being treated as an exclusion from the gross income. As regards the 10% attorney’s lien, the same shall also be subject to income tax and, consequently, to the applicable creditable withholding tax, based on the prevailing rates at the time when the lien was paid to them.
VAT EXEMPTION OF LOCAL PURCHASES & IMPORTATION OF COMELEC FOR 2022 NATIONAL ELECTIONS
BIR RULING NO. 002-2021, JANUARY 6, 2021
COMELEC is seeking confirmation that its local procurement of goods and services, as well as the importation of goods, are subject to zero percent (0%) Value-Added Tax (VAT). In reply, Section 12 of the Republic Act (R.A.) No. 8436, as amended by R.A. No. 9369, provides that COMELEC is authorized to procure by purchase, lease, rent, or other forms of acquisition, supplies, equipment, materials, software, facilities, and other services, from local or foreign sources free from taxes and import duties in relation to the automated elections. In view of the foregoing, and as held in BIR Ruling No. 1242, the BIR opined that COMELEC is exempt from 12% VAT on its local purchases of goods and services as well as VAT on its importation of goods and services that will be used in the automated national and local elections. Thus, the suppliers/sellers of goods and services to the COMELEC cannot shift or pass on any VAT to the COMELEC. However, the exemption of the COMELEC from VAT on its purchase of goods as well as its procured services are limited only to its purchases and/or importation of goods and services during the period beginning September 2020 until the completion of the post-election activities and the purchases and/or importation will be used in, or directly related to the conduct of the 2022 automated national elections. However, purchases of goods and services that are not related to the said election shall be subject to the 5% final VAT.
VAT EXEMPTION OF IMPORTATION OF CARGO VESSELS
BIR RULING NO. 001-2021, JANUARY 6, 2021
CSC, a corporation engaged in the domestic shipping business, is requesting a Certificate of VAT Exemption on its importation of a Unit Auxiliary Working Barge with 50 Tons Crane pursuant to Section 109 (1)(T) of the 1997 Tax Code, as amended. A perusal of documents showed that the importation of the subject barge has been accredited by the Maritime Industry Authority (MARINA). In reply, the BIR clarified that an Auxiliary Working Barge with 50 Tons Crane is classified as a cargo vessel. On this note, Section 109 (1) (T) of the 1997 Tax Code, as amended, as implemented by Section 4.109-1 (B)(1)(t) Revenue Regulations (RR) No. 16-2005, as amended by RR No. 15-2015 provides that the importation of a subject cargo vessel is exempted from VAT, provided, however, that CSC shall strictly comply with the conditions set by MARINA in its letter of approval for importation.
DEDUCTIBILITY OF ROYALTIES IN COMPUTING THE GROSS INCOME SUBJECT TO A 5% PREFERENTIAL TAX RATE
BIR RULING NO. 701-2020, DECEMBER 29, 2020
S Co. is seeking a ruling on its entitlement to the deductibility of royalties paid in computing the gross income subject to the 5% preferential tax rate under the Republic Act (R.A.) No. 9400, otherwise known as “The Bases Conversion and Development Act of 1992, as amended.” This is in connection with the Intangibles Licensing Agreement entered into by S Co. and SWS, whereby the former shall use the intangible property of the latter. As a consideration, S Co. shall pay royalties to SWS. As represented, royalty expense is only incurred as the service is rendered, thus, it is recorded as part of the Company’s cost of services. In reply, Revenue Regulations (RR) No. 16-99, as amended, allows enterprises registered in the Subic Special Economic and Freeport Zone to deduct royalty payments when calculating gross income subject to the 5% provided that the agreement that gave rise to the royalty payment is actually and fully substantiated and the corresponding withholding taxes are duly paid.
TREATMENT OF IDLE PROPERTIES UNDER RR NO. 7-2003
AUTOMATIC CONVERSION OF PROPERTY INTO CAPITAL ASSET IS NOT NECESSARY WHEN THE IDLE REAL PROPERTY IS CONSIDERED AS CAPITAL ASSET FROM THE MOMENT IT WAS ACQUIRED
SALE OF INVESTMENT PROPERTY NOT ENGAGED IN REAL ESTATE BUSINESS IS NOT SUBJECT TO VAT
BIR RULING NO. 698-2020, DECEMBER 29, 2020
Philippine Airlines Inc. is seeking confirmation on whether the sale of real properties held for investment purposes is subject to Capital Gains Tax (CGT) and Documentary Stamp Tax (DST) but not to Value-Added Tax (VAT). In reply, an idle property may be classified as capital or ordinary asset. Under RR No. 7-2003, an idle property classified as an ordinary asset is automatically converted into a capital asset upon showing proof that the same has not been used in business for more than two (2) years prior to the consummation of the taxable transaction involving said property. The automatic conversion of the property into a capital asset is not necessary when idle real property is considered a capital asset from the moment it was acquired. Since PAL is not engaged in the real estate business and is organized as an airline company; the subject properties have been idle for more than two (2) years as shown by the Certifications of the Provincial Assessor’s office of the Province of Aklan; and the subject properties have been treated in the books of accounts, reflected in the Audited Financial Statements as investment properties, and have not been used in the ordinary course of business, the subject properties are classified as capital assets and shall be subject only to CGT and DST and not to VAT.
DISTRIBUTION OR SALE OF AGRICULTURAL PRODUCTS IN THEIR ORIGINAL STATE FOR HUMAN CONSUMPTION IS EXEMPT FROM VAT
BIR RULING NO. 673-2020, DECEMBER 22, 2020
H Distribution Co. is requesting a VAT exemption ruling on its importation and distribution of frozen fruits and vegetables. In reply, the importation, and distribution/sale of agricultural products in their original state for human consumption are considered exempt from 12% Value-Added Tax (VAT) pursuant to Section 109 (1)(A) of the 1997 Tax Code, as amended. Agricultural products are considered in their original state even if these have undergone the simple process of preparation or preservation for the market. Moreover, the VAT exemption is limited only to such products that are intended as food for human consumption.
LGU IS TAXABLE ON INCOME FROM ITS PROPRIETARY FUNCTIONS
INCOME TAX EXEMPTION OF GOVERNMENT IN THE PERFORMANCE OF PROPRIETARY FUNCTION IS WITHDRAWN BY P.D. NO. 1931
BIR RULING NO. 659-2020, DECEMBER 9, 2020
The Department of Finance-Bureau of Local Government Finance (DOF-BLGF) is requesting clarification on the imposition of income tax on Local Government Units (LGUs) engaged in the operation of local economic enterprises, pursuant to Section 22(d) of Republic Act (R.A.) No. 7160 or the Local Government Code of 1991. The request is in relation to the letter of the Municipal Mayor of the Municipality of Baao, Camarines Sur, addressed to the DOF-BLGF, which informs that the BIR requested the payment of income taxes from the market rental fees be paid to the LGU. In reply, Section 27(C) of the 1997 Tax Code, as amended, provides that government-owned and controlled corporations, agencies, or instrumentalities of the government are no longer exempt from taxation and shall be liable to pay tax on their taxable income as are imposed upon corporations or associations engaged in similar business, industry, or activity, except the Government Service Insurance System (GSIS), Social Security System (SSS), Philippine Health Insurance Corporation (PHIC), and Local Water Districts. However, Section 32(B)(7)(b) of the same code excludes from the gross income and exempts from income tax the income derived from the discharge of any essential governmental functions accruing to the Government of the Philippines or any of its political subdivisions. As established in BIR Ruling No. 369-11, provincial, city, and municipal governments are liable to income tax in the performance of their corporate or proprietary functions since the exemption privilege, including the preferential tax treatment of all government units, was withdrawn by Presidential Decree (P.D.) No. 1931 Directing the Rationalization of Duty and Tax Exemption Privileges Granted to Government-Owned or Controlled-Corporations and All Other Units of Government. Thus, market rental fees received by the Municipality of Baao, Camarines Sur, being proprietary or private in character, are subject to income tax.
IMPORTATION OF DAIRY ANIMALS IS EXEMPT FROM VAT
BIR RULING NO. 654-2020, DECEMBER 2, 2020
National Dairy Authority is requesting a VAT exemption ruling on its importation of dairy animals. In reply, Section 109(1)(A) of the 1997 Tax Code, as amended, provides that the sale or importation of agricultural and marine food products in their original state, livestock and poultry of a kind generally used as yielding or producing foods for human consumption, and breeding stock and genetic materials shall be exempt from Value-Added Tax (VAT). Thus, importation is exempt from VAT, subject to the conditions enshrined in Section 18 of the National Dairy Development Act of 1995.
TRANSFER OF MEMBERSHIP IN CLUB SHARE FROM ONE OFFICER TO ANOTHER IS EXEMPT FROM CGT, DONOR’S TAX & DST
BIR RULING NO. 653-2020, DECEMBER 2, 2020
S Co., a beneficial owner of membership shares from M Co., is seeking confirmation that the transfer of membership shares from one of its officers to another shall not be subject to Capital Gains Tax (CGT), Donor’s Tax, and Documentary Stamp Tax (DST). In reply, Section 24(C) of the 1997 Tax Code, as amended, provides that CGT is imposed on the net capital gains realized during the taxable year from the sale, barter, exchange, or other disposition of shares of stock in a domestic corporation, except shares sold or disposed of through the Stock Exchange. In other words, CGT is imposed on the gain or profit from the sale of capital assets. Since the current trustee/officer only possessed legal title over the membership share, the transfer of the subject share in favor of the new trustee-appointee will be limited only to the transfer of the legal title. Also, since the beneficial ownership over the membership share remains with S Co., there is no actual transfer of ownership of the membership share between S Co. and its trustees and/or from such trustees to the next trustees. Therefore, no gain or profit shall be recognized. Thus, the transfer of the legal title of the membership shares is not subject to CGT, considering that the transfer involves neither monetary consideration nor changes in beneficial ownership. Likewise, the transfer is not subject to DST since there is no transfer or conveyance of the beneficial ownership of any right, claim, or interest over the membership share or the assets of M Co. Corollary, since there will be no transfer or conveyance of the membership share, the same shall not be subject to Donor’s Tax under Section 98 of the 1997 Tax Code, as amended.
NO REGISTRATION OF ANY DOCUMENT TRANSFERRING REAL PROPERTY SHALL BE EFFECTED BY THE REGISTER OF DEEDS UNLESS THE CGT OR CWT, IF ANY, HAS BEEN PAID
BIR RULING NO. 646-2020, DECEMBER 1, 2020
Optical Media Board (OMB) is requesting the issuance of a Certificate Authorizing Registration (CAR) pending payment of the transfer tax liability. In reply, Section 58 (E) of the 1997 Tax Code, as amended, provides that no registration of any document transferring real property shall be effected by the Register of Deeds unless the Commissioner or his duly authorized representative has certified that such transfer has been reported, and the Capital Gains Tax (CGT) or Creditable Withholding Tax (CWT), if any, has been paid. It must be noted that the burden of paying the 6% CGT rests upon the seller. Since the buyer is a government agency, the seller may opt to be taxed under Section 24 (A) of the 1997 Tax Code, as amended. Until the seller pays the CGT, no registration of the Deed of Sale transferring the subject property to the OMB can take effect notwithstanding the fact that the OMB is an agency of the government.
TAX-FREE MERGER
BIR RULING NO. 635-2020, NOVEMBER 17, 2020
G Properties, Inc., as the surviving corporation, is seeking confirmation on whether its statutory merger with LAI, Inc. is a tax-free transfer/exchange pursuant to Section 40(C) of the 1997 Tax Code, as amended.
In ruling, BIR confirmed the following:
1. Qualification for non-recognition of gain or loss for income tax purposes pursuant to the Plan of Merger.
2. VAT exemption and any unused input tax can be transferred to the surviving corporation.
3. Donor’s tax exemption given the compliance of the following essential requisites: (a) reduction of the patrimony of the donor; (b) increase in the patrimony of the donee; and (c) intent to do an act of liberality. Upon evaluation, there was no intention to donate the assets and the transaction is purely for a legitimate business purpose.
4. Documentary Stamp Tax (DST) exemption on the transfer of assets. However, DST shall be imposed on the original issuance of shares by the surviving corporation in favor of the stockholders of the absorbed corporation.
5. Entitlement to carry forward and apply the excess Creditable Withholding Tax (CWT) of the absorbed corporations as credits against its Minimum Corporate Income Tax (MCIT) or Regular Corporate Income Tax (RCIT).
6. Entitlement to carry forward and credit the excess and unexpired MCIT of the absorbed corporation against its RCIT for the three (3) immediately succeeding taxable years.
7. Exclusion of the accumulated unutilized Net Operating Loss Carry-over (NOLCO) of the absorbed corporations as a deduction from its gross income. NOLCO is not an asset that can be transferred, as this privilege/deduction can be availed of merely by the absorbed corporations.
8. Imposition of 10% Final Withholding Tax (FWT) on dividends constructively received by the individual shareholders of the absorbed corporation.
RECONVEYANCE OF PROPERTY TO REAL OWNER IS NOT SUBJECT TO INCOME TAX, VAT & DONOR’S TAX
BIR RULING NO. 627-2020, NOVEMBER 3, 2020
C Missionary is seeking tax exemption on the reconveyance of real property from the Roman Catholic Archbishop of Manila to the Regional Director of C Missionary. As represented, the real property subject of the reconveyance was purchased by C Missionary, however, due to uncertainty if it can own real property in the Philippines, the subject's real property was placed under the name of the Roman Catholic Archbishop of Manila. Subsequently, the subject's real property was conveyed to the Regional Director of C Missionary. In reply, given that the reconveyance is a mere continuation and confirmation of title in favor of the ultimate and real beneficiary and not a sale, exchange, or disposition within the ambit Section 27(D)(5) of the 1997 Tax Code, as amended, such is not subject to income tax. Moreover, the reconveyance is also not subject to Donor’s Tax since the transaction does not establish donative intent which is an essential element of a valid donation. The reconveyance is also not subject to Value-Added Tax (VAT) as the subject real property is not held primarily for sale to customers or for lease in the ordinary course of business. However, such is subject to Documentary Stamp Tax (DST) as imposed under Section 188 of the 1997 Tax Code, as amended.
DISTURBANCE COMPENSATION RECEIVED BY A TENANT DUE TO THE EXTINGUISHMENT OF THE LEASE AS A RESULT OF THE CONVERSION OF AGRICULTURAL LAND INTO NON-AGRICULTURAL PURPOSES IS NOT SUBJECT TO CGT
BIR RULING NO. 614-2020, OCTOBER 28, 2020
Mrs. E is seeking exemption from the payment of Capital Gains Tax (CGT) relative to the disturbance compensation received by the agricultural tenant, Mr. M. As represented, the disturbance compensation received by Mr. M, as an agricultural lessee, is a result of the extinguishment of tenancy relationship by reason of the reclassification or conversion of the agricultural land into residential, commercial, or industrial purposes. In reply, Section 66 of the Republic Act (R.A.) No. 6657, otherwise known as the “Comprehensive Agrarian Reform Law of 1988,” provides for the tax exemption of transfer of land to a tenant as disturbance compensation as a result of the extinguishment of tenancy relationship by reason of reclassification or conversion of agricultural land into residential, commercial, or industrial purposes. However, there is no document showing proof that the land was declared by proper authorities as suited for residential, commercial, industrial, or some other urban purposes pursuant to Section 36 of R.A. No. 3844. In the absence of such proof, the disturbance compensation received by Mr. M cannot qualify for tax exemption provided for by Section 66 of R.A. No. 6657. Thus, the claim for exemption from the payment of CGT was denied.
REQUISITES OF THE SALE OF REAL PROPERTIES TO BE EXEMPT FROM VAT & CWT
BIR RULING NO. 611-2020, OCTOBER 27, 2020
G Co., a holding company not engaged in the real estate business, is seeking confirmation on whether the sale of real properties for investment purposes is subject to 6% Capital Gains Tax (CGT) and Documentary Stamp Tax (DST) but not to Value-Added Tax (VAT). In reply, the BIR opined that it is considered as a capital asset based on the following: (a) Certification of the Barangay Chairman where the property is located as to the non-use of the subject property for business purposes; (b) the property has been treated in the books of accounts and reflected in the Audited Financial Statements (AFS) as an investment property; and (c) has not been used in the ordinary course of business. Consequently, the conveyance subject to CGT and DST but not to VAT and CWT.
GIVING OF PER DIEM IS NOT IN ACCORDANCE WITH THE DEFINITION OF “NON-PROFIT”
BIR RULING NO. 585-2020, OCTOBER 6, 2020
M Co. is seeking a Certificate of Tax Exemption enjoyed by a non-stock, non-profit corporation or association under Section 30 (H) of the 1997 Tax Code, as amended. In reply, to avail of the tax exemption, Revenue Memorandum Order (RMO) No. 44-2016 provides that the entity must be a non-stock, non-profit educational institution and its revenues are actually, directly and exclusively used for educational purposes. A perusal of the documents shows that its Board of Trustees (BOT) is entitled to per diem. Since the payment of per diem is not in accordance with the definition of “non-profit,” M Co. does not qualify for exemption under Section 30(H) of the 1997 Tax Code, as amended, and, therefore, liable for income taxes imposed by the same law.
NON-STOCK & NON-PROFIT SEC REGISTRATIONS ARE TWIN REQUIREMENTS TO AVAIL OF THE TAX EXEMPTION UNDER SECTION 30 (H) OF THE TAX CODE
BIR RULING NO. 584-2020, OCTOBER 6, 2020
O Co. is seeking a Certificate of Tax Exemption enjoyed by a non-stock, non-profit corporation or association under Section 30 (H) of the 1997 Tax Code, as amended. In reply, to avail of the tax exemption, Revenue Memorandum Order (RMO) No. 44-2016 provides that the entity must be a non-stock, non-profit educational institution and its revenues are actually, directly, and exclusively used for educational purposes. A perusal of the Articles of Incorporation of O Co. shows that its registration with the Securities and Exchange Commission (SEC) is only as a non-stock corporation. Consequently, it cannot be qualified as a non-profit educational institution. Thus, O Co. shall be treated as an ordinary corporation and, therefore, liable for income taxes and other revenue taxes imposed by the Tax Code.
GIVING OF PER DIEM IS CONSIDERED DISTRIBUTION OF EQUITY, HENCE, A DISQUALIFICATION ON CLAIM FOR TAX EXEMPTION
BIR RULING NO. 583-2020, OCTOBER 6, 2020
J Co. is seeking a Certificate of Tax Exemption enjoyed by a non-stock, non-profit corporation or association under Section 30 (H) of the 1997 Tax Code, as amended. In reply, to avail of the tax exemption, Revenue Memorandum Order (RMO) No. 44-2016 provides that the entity must be a non-stock, non-profit educational institution and its revenues are actually, directly, and exclusively used for educational purposes. A perusal of the submitted documents shows that the Board of Trustees (BOT) of J Co. may receive reasonable per diems. Since the giving of per diems to the BOT is considered a distribution of equity, J Co. does not qualify for exemption under Section 30 (H) of the Tax Code, and, therefore, liable for income taxes imposed by the same law.
PEZA VAT ZERO-RATING CERTIFICATE IS ONLY LIMITED TO TRANSACTION WITH ITS LOCAL SUPPLIERS
BIR RULING NO. 581-2020, OCTOBER 6, 2020
S Co., a Philippine Economic Zone Authority (PEZA)-registered Ecozone Export Enterprise and Ecozone Logistics Service Enterprise, is seeking a Value-Added Tax (VAT) exemption on its importation of petroleum products. In reply, a perusal of the PEZA certification presented shows that S Co. is engaged in the manufacture for subsequent exportation of coating materials for automotive safety airbag fabrics; and is a registered PEZA entity engaged in export and warehousing/logistic activities. Also, it shows that it is qualified only for a VAT zero-rating on transactions with its local supplier of goods, properties, and services in connection with its PEZA-registered activities. Section 4.106-6 of the Revenue Regulations (RR) No. 16-2005 states that the term “effectively zero-rated” sale of goods and properties shall refer to the local sale of goods and properties by a VAT-registered person to a person or entity who was granted indirect tax exemption under special laws. Thus, the importation of S Co. is subject to VAT pursuant to Section 107 (A) of the Tax Code.
REQUISITES FOR HOMEOWNERS’ ASSOCIATION TO BE TAX EXEMPT
BIR RULING NO. 576-2020, OCTOBER 6, 2020
A Co., a non-stock non-profit association, is seeking a Certificate of Tax Exemption enjoyed by a non-stock, non-profit corporation under Section 30 of the 1997 Tax Code, as amended. In reply, a perusal of records shows that A Co. is a residential homeowner association and is not among those tax-exempt entities contemplated under Section 30 of the 1997 Tax Code, as amended, hence, it may not avail of the tax exemption imposed under the said section. However, Revenue Memorandum Circular (RMC) No. 9-2013 provides that the association dues and income derived by A Co. from rentals of its properties may be exempted if the following conditions are met: (1) the homeowners association must be a duly constituted “Association”; (2) the Local Government Unit (LGU) having jurisdiction over the association must issue a certification identifying the basic services being rendered by the homeowners’ association, stating in the certification that it lacks resources to render such services; and (3) the association must present proof that the income and dues are used for cleanliness, safety, and other basic services needed by the members. Since there was no showing that A Co. met the conditions, the request for issuance of a Certificate of Tax Exemption was denied.
THE CITY OR MUNICIPALITY CONCERNED MUST BE LACKING IN RESOURCES TO PROVIDE FOR BASIC SERVICES IS A REQUISITE IN CLAIMING TAX EXEMPTION UNDER THE MAGNA CARTA FOR HOMEOWNERS
BIR RULING NO. 575-2020, OCTOBER 6, 2020
V Co. is requesting a ruling confirming its exemption from Income Tax and Value-Added Tax (VAT) or Percentage Tax pursuant to Section 18 of the Republic Act (R.A.) No. 9904, otherwise known as the “Magna Carta for Homeowners and Homeowners’ Associations.” As represented, V Co. is a non-stock and non-profit residential homeowners’ association duly registered with the Housing and Land Use Regulatory Board (HLURB). In reply, V Co. does not fall within the purview of homeowners’ associations which may be exempt from tax pursuant to Section 18 of the R.A. No. 9904. Section 18 of the said law provides a qualification that the city or municipality concerned must be lacking in resources to provide basic services. Such requisite qualification is absent in the certification issued by the Local Government Unit (LGU) presented by V Co. Thus, V Co. is subject to all applicable internal revenue taxes.
SALE OF LAND BY A TRUSTEE OF A RETIREMENT FUND IS INCOME-TAX EXEMPT
BIR RULING NO. 573-2020, OCTOBER 6, 2020
E Retirement Fund Co., a trustee, is seeking confirmation that the sale of a parcel of land registered under its name in trust for the E Corporation Retirement Fund is exempt from income tax. In reply, Section 60(B) of the 1997 Tax Code, as amended, provides for two (2) conditions in order that the earnings of a retirement fund may be exempt from income tax: (1) the contributions are made to the trust by the employer, or employees, or both for the purpose of distributing to such employees the earnings and principal of the fund accumulated by the trust in accordance with such plan; and (2) under the trust instrument, it is impossible, at any time prior to the satisfaction of all liabilities with respect to employees under the trust, for any part of the corpus or income to be used for, or diverted to, purposes other than for the exclusive benefit of the employees. These two (2) conditions are sufficiently met by E Corporation Retirement Plan and approved as a reasonable retirement benefit plan. In the case of Commissioner of Internal Revenue vs. Court of Appeals, G.R. No. 95022, the tax exemption of the income derived by a retirement fund from its investments had already been settled. The Supreme Court held that tax exemption is likewise to be enjoyed by the income of the pension trust. Otherwise, taxation of those earnings would result in a diminution of accumulated income and reduce whatever the trust beneficiaries would receive out of the trust fund. Thus, E Corporation Retirement Plan, being a reasonable benefit plan, is exempt from income tax, and, consequently, from Creditable Withholding Tax (CWT) on its sale of a parcel of land.
STOCK DIVIDENDS ISSUED AFTER THE DEATH OF THE SHAREHOLDER ARE NO LONGER PART OF THE INVENTORY OF THE DECEASED
BIR RULING NO. 572-2020, OCTOBER 6, 2020
Mrs. ZS, the wife of the deceased Mr. ES, is seeking confirmation whether BIR Ruling No. 156-98 (DA-336-08) is still effective. In the said ruling, the BIR opined that stock dividends issued after the death of a shareholder no longer form part of the inventory of assets of the deceased stockholder as these already belong to his heirs, and that said stock dividends can be transferred to his heirs, without the necessity of having the Certificate Authorizing Registration and Tax Clearance Certificate amended. In reply, dividends are recognized as revenues on the date of declaration. Article 777 of the Civil Code provides that the rights to succession are transmitted from the moment of the death of the decedent. Thus, Mr. ES’s properties, including the shares, are transmitted to his heirs through his death by virtue of intestate succession. From that time on, Mr. ES ceased to be its owner, and any gain or benefit, such as stock dividend, realized from the shares shall then be accounted for or credited to the heirs as the owners thereof. Since the stock dividends were declared when the ownership of the original shares has long been transmitted to Mr. ES’s heirs, the shares issued as stock dividends can be transferred to the heirs without amending the Certificate Authorizing Registration and Tax Clearance Certificate.
TAX EXEMPTION OF NON-STOCK SAVINGS & LOAN ASSOCIATIONS IS ONLY LIMITED TO INCOME TAX
BIR RULING NO. 569-2020, OCTOBER 1, 2020
S Co. is seeking revalidation of its tax exemption pursuant to the Republic Act (R.A.) No. 8367 entitled “An Act Providing for the Regulation of the Organization and Operation of Non-Stock Savings and Loan Associations.” As represented, S Co. is authorized by the Bangko Sentral ng Pilipinas (BSP) to operate as a non-stock savings and loan association as evidenced by its Certificate of Authority. In reply, Section 5 of the R.A. No. 8367 provides for the exemption of a non-stock savings and loan association from income tax. However, such exemption does not cover income from properties, real or personal, or any activity conducted for profit, regardless of the manner of disposition. Given that Section 5 of R.A. No. 8367 only provides an exemption from income tax, S Co. is liable to Gross Receipts Tax (GRT) on income derived from its operations. Likewise, S Co. shall also be subject to Documentary Stamp Tax (DST) on its transactions such as loan agreements, mortgages, pledges, foreclosures, and sales.
SALE OF LAND CLASSIFIED AS A CAPITAL ASSET IS NOT SUBJECT TO VAT & CWT
BIR RULING NO. 556-2020, SEPTEMBER 24, 2020
B Construction, a general construction business, is seeking confirmation that its sale of land held for investment purposes is subject to 6% Capital Gains Tax (CGT) and Documentary Stamp Tax (DST) but not to Value-Added Tax (VAT) and Creditable Withholding Tax (CWT). As represented, it is not engaged in real estate business, and it owns parcel of land for investment purposes and not for sale or lease in the ordinary course of business. Likewise, since its acquisition, the parcel of land was not developed or utilized in its operations. Further, to prove that the parcel of land is idle, B Construction presented a Barangay Certification stating that the land is idle, as well as a Certification of Land with No Improvement issued by the Office of the City Assessor. In ruling, Revenue Regulations (RR) No. 7-2003 provides the guidelines in determining whether a particular real property is a capital or ordinary asset. Considering the representations and documents presented, the parcel of land is classified as a capital asset and the sale of which is subject to CGT and DST, but not to VAT and CWT.
EXTENT OF TAX EXEMPTION OF NON-STOCK SAVINGS & LOANS ASSOCIATIONS
BIR RULING NO. 535-2020, SEPTEMBER 23, 2020
A Co. is seeking a ruling that a Non-Stock Savings and Loan Association (NSSLA) organized and operated exclusively for the mutual benefit of its members is exempt from Gross Receipts Tax (GRT). In reply, NSSLA may be exempt from GRT if it can prove that it does not engage in activities as a Non-Bank Financial Intermediary (NBFI) as defined under Revenue Regulations (RR) No. 9-2004, that is, if the NSSLA is obtaining funds from the public. However, the BIR cannot confirm the exemption from GRT based only on the representation that its members are all NSSLA organized pursuant to Republic Act (R.A.) No. 8367 or the “Revised Non-Stock Savings and Loan Association Act of 1997." Thus, it is incumbent upon A Co. to prove that it is NSSLA organized pursuant to R.A. No. 8367, and it is not engaged in the business of being an NBFI, otherwise, it will be considered as an NBFI subject to GRT.
A NO RULING AREA INCLUDES NO SPECIFIC OR PARTICULAR COMPLETED TRANSACTION
BIR RULING NO. 534-2020, SEPTEMBER 23, 2020
Mr. P is seeking a ruling whether his condominium building consisting of all units is classified as a capital asset. In ruling, the BIR did not issue a determinative ruling since the request of Mr. P has no specific or particular completed transaction, which is considered a “No-Ruling Area” pursuant to Section 2(t) of Revenue Bulletin No. 1-03. Further, he was not able to meet the guidelines in the processing of a request for ruling under Revenue Memorandum Order (RMO) No. 9-2014, which provides that the letter request for a ruling must be sworn and executed under oath, must contain a list of submitted documents, and must contain the following affirmations:
1. A similar inquiry has not been filed and is not pending in another office of the Bureau.
2. There is no pending case in litigation involving the same issues and the same taxpayer or related taxpayer.
3. The issue subject of the request is not pending investigation, on-going audit, administrative protest, claim for refund or issuance of tax credit certificate, collection proceeding, or judicial appeal.
4. The documents are complete and that no other documents will be submitted in connection with the request.
Likewise, Mr. P failed to comply with the requirements that documents to be submitted must be certified as true copy of the original document by the person having custody of the original document.
DIVIDEND PAYMENTS TO NRFC REGISTERED IN THE USA IS SUBJECT TO A LOWER RATE OF 15% FWT
BIR RULING NO. 532-2020, SEPTEMBER 23, 2020
A Company, a domestic holding corporation, is seeking confirmation that dividends to be paid to Ford Motor Company, a Non-Resident Foreign Corporation (NRFC) registered in the USA, is subject to the preferential rate of 15% Final Withholding Tax (FWT) under Section 28(B)(5)(b) of 1997 Tax Code, as amended. In ruling, Section 28(B)(5)(b) of 1997 Tax Code, as amended, requires that the application of 15% preferential final tax rate is subject to the condition that the country in which the NRFC is domiciled allows a credit against the tax due from the non-resident corporation taxes deemed to have been paid in the Philippines. Since USA, the country in which Ford Motor Company is domiciled, meets the conditions provided in the Tax Code, payment of dividends to Ford Motor Company by A Company is subject to the 15% FWT.
SALE MADE BY RETIREMENT FUND OF SHARES OF STOCK IS EXEMPT FROM CGT
BIR RULING NO. 527-2020, SEPTEMBER 15, 2020
C Retirement Plan Fund B (CRPFB) is seeking confirmation that its sale of shares of stock in P Holdings, Inc. (P Holdings) to C Overseas Investment Corporation (C Co.) is not subject to the Capital Gains Tax (CGT). As represented, CRPFB is a BIR-approved reasonable employee retirement benefit plan and a beneficial owner of the shares of stock in P Holdings, a domestic corporation. In ruling, Section 60(B) of the 1997 Tax Code, as amended, provides that for the earning of a retirement fund to be exempt from income tax, two (2) conditions must be met: (1) the contributions are made to the trust by the employer or employees, or both, for the purpose of distributing to such employees the earnings and principal of the fund accumulated by the trust in accordance with such plan: (2) under the trust instrument, it is impossible at any time prior to the satisfaction of all liabilities with respect to employees under the trust, for any part of the corpus or income to be used for, or diverted to, purposes other than for the exclusive benefit of the employees. Given that CRPFB has met the conditions for income tax exemption, its sale of shares of stock is not subject to CGT and, consequently from Creditable Withholding Tax (CWT). Likewise, since the exemption is only for income tax, the sale is still subject to the Documentary Stamp Tax (DST) and Stock Transaction Tax.
REMITTANCE TRANSACTIONS OF MONEY TRANSFER BETWEEN THE SENDER/MEDIATOR & THE BENEFICIARIES IS NOT LIABLE TO DST
MONEY REMITTANCES FROM FOREIGN COUNTRIES & ITS PAYOUT PARTNER BANKS & NON-BANK MONEY TRANSFER AGENTS IS SUBJECT TO DST
REMITTANCES FROM OCW’S OR OFW’S ARE NOT SUBJECT TO DST PROVIDED THE PAYOUT PARTNER BANKS & NON-BANK MONEY TRANSFER AGENTS COMPLIED WITH REQUIREMENTS UNDER RR NO. 1-2011
BIR RULING NO. 513-2020, SEPTEMBER 14, 2020
L Philippines, a domestic company and mediator between its parent company, L International, and the payout partner banks, and non-bank money transfer agents is seeking confirmation on the proper treatment of the Documentary Stamp Tax (DST) under Section 181 of the 1997 Tax Code, as amended. Being a mediator, it is not a party to the remittance transaction. In reply, L Philippines is not privy in the actual remittance transactions of money transfer between the sender and the beneficiaries and does not in any manner, accept or pay any bill of exchange or order of payment of money purporting to be drawn in a foreign country payable in the Philippines. Hence, not being a party to the transaction, L Philippines is not liable for the payment of DST. However, the transaction between L International and its payout partner banks, and non-bank money transfer agents is considered a money remittance from foreign countries subject to DST. Moreover, transactions involving remittances from OCW’s or OFW’s will not be subject to DST provided the payout partner banks and non-bank money transfer agents complied with the requirements under Revenue Regulations (RR) No. 1-2011.
TAX-FREE MERGER
NOLCO IS NOT AN ASSET THAT CAN BE TRANSFERRED
BIR RULING NO. 512-2020, SEPTEMBER 9, 2020
B Capital and Investment Corporation, as the surviving corporation, is seeking confirmation on whether its statutory merger with B Elite Savings Bank, Inc. and B Savings Bank, Inc. is a tax-free transfer/exchange pursuant to the 1997 Tax Code, as amended.
In ruling, the BIR confirmed the following:
1. Qualification for non-recognition of gain or loss for income tax purposes pursuant to the Articles and Plan of Merger.
2. Exempt from the Documentary Stamp Tax (DST) on the cancellation of the surrendered shares by the absorbed corporations. However, DST shall be imposed on the original issuance of shares by the surviving corporation in favor of the shareholders of the absorbed corporations.
3. Exempt from Donor’s Tax on the transfer of assets to the surviving corporation since essential elements of a valid donation are met, to wit: (a) reduction of the patrimony of the donor; (b) increase in the patrimony of the donee; and (c) intent to do an act of liberality. Upon evaluation, there was no intention to donate the assets, and the transaction is purely for a legitimate business purpose.
4. Exempt from Value-Added Tax (VAT) on the transfer of assets to the surviving corporation. The assets/properties transferred were mainly financial assets. These were neither goods/properties that are used in business, held for sale or lease by the transferors, nor intended for sale or for use in the course of business.
5. Entitlement to carry forward and apply the excess Creditable Withholding Tax (CWT) of the absorbed corporations as credits against its Minimum Corporate Income Tax (MCIT) or Regular Corporate Income Tax (RCIT) or may be subject of a claim for refund or issuance of Tax Credit Certificate (TCC).
6. Entitlement to carry forward and credit the excess Minimum Corporate Income Tax (MCIT) of the absorbed corporations against its Regular Corporate Income Tax (RCIT) for the three (3) immediately succeeding taxable years reckoned from the date of payment of the MCIT.
7. Tax-free merger does not cover the accumulated unutilized NOLCO of the absorbed corporations as a deduction from its gross income. NOLCO is not an asset that can be transferred, as this privilege/deduction can be availed of merely by the absorbed corporations.
TAX-RELATED CONSEQUENCES OF MERGER
BIR RULING NO. 512-2020, SEPTEMBER 9, 2020
D Properties Co., as the surviving corporation, is seeking confirmation on whether its merger with G.A. Holdings Co. and G.F Holdings Co. is a tax-free merger pursuant to Section 40 (C) of the 1997 Tax Code, as amended.
In reply, BIR confirmed the following:
1. Qualification for non-recognition of gain or loss for income tax purposes pursuant to the Articles and Plan of Merger.
2. Exemption from the Documentary Stamp Tax (DST), Donor’s Tax, and Value-Added Tax (VAT) on the transfer of assets.
3. Exemption from DST on the cancellation of the surrendered shares by the absorbed corporations. However, DST shall be imposed on the (a) original issuance of shares by the surviving corporation in favor of the shareholders of the absorbed corporations; and (b) issuance of surviving corporation’s shares that were previously owned by the absorbed corporations and were reacquired.
4. Entitlement to carry forward and apply the excess Creditable Withholding Tax (CWT) of the absorbed corporations as a credit against its income tax due or may be subject to a claim for refund or issuance of a Tax Credit Certificate.
5. Exclusion of Net-Operating Loss Carry-Over (NOLCO) of the absorbed corporations as a deduction from its gross income. NOLCO is not an asset that can be transferred, as this privilege/deduction can be availed of by the absorbed corporations only.
In order that the reorganization can be considered a merger under Section 40 (C) of the 1997 Tax Code, as amended, the parties to the merger should comply with the requirements set forth under Revenue Regulations (RR) No. 18-2001.
IF THE USEFUL LIFE ORIGINALLY ESTIMATED UNDER PREVIOUS CONDITIONS IS NO LONGER REASONABLE, THE TAXPAYER MAY LENGTHEN OR SHORTEN IT BASED ON THE PREVAILING CONSIDERATIONS
THE BIR CAN CONFIRM THE PROPOSED CHANGE OF USEFUL LIFE IN CLAIMING DEPRECIATION PROVIDED THAT ANY PRIOR ADJUSTMENTS SHALL BE SUBJECT TO INCOME TAX & PENALTIES, IF WARRANTED
BIR RULING NO. 507-2020, SEPTEMBER 8, 2020
S Co. is seeking confirmation and approval on the proposed change in useful life of certain assets, for tax and financial accounting purposes, beginning January 1, 2020, pursuant to Section 34(F)(3) of 1997 Tax Code, as amended. The proposed reduction in the useful life of fixed assets was predicated on several factors and was approved by the Company’s Board of Directors. In reply, the rate and the estimated useful life agreed upon by the taxpayer and the BIR shall be binding to both. However, if the useful life originally estimated under previous conditions is no longer reasonable, the taxpayer may lengthen or shorten the useful life in the light of prevailing considerations. The estimates of the remaining life for each item of property had been based upon the observed condition of maintenance and the consideration of normal rates of depreciation for the type of property. Thus, the proposed change in the useful life of subject assets in claiming deductible depreciation was confirmed provided that any prior adjustments shall be subject to deficiency income tax, interest, and penalties, if warranted.
IMPORTATION, DISTRIBUTION & SALE OF FERTILIZERS FOR USE IN VEGETABLES ARE VAT- EXEMPT
BIR RULING NO. 491-2020, SEPTEMBER 8, 2020
B Co. is seeking a Value-Added Tax (VAT) Exemption Certificate on its sale or importation of fertilizer. Along with the request is the Certificate of Product Registration License to Distribute issued by the Fertilizer and Pesticide Authority (FPA). In reply, importation, distribution, and sale of fertilizers for use in vegetables (Pechay) is considered VAT-exempt pursuant to Section 109 (1)(B) of 1997 Tax Code, as amended. Since the FPA has already issued a Certificate of Product Registration for Nano Amino Table Inorganic Fertilizer, the importation, distribution, and sale thereof are exempt from the 12% VAT.
15% LOWER DIVIDENDS TAX IS ALLOWED FOR AS LONG AS THE FOREIGN COUNTRY DOES NOT IMPOSE ANY TAX ON DIVIDENDS RECEIVED BY CORPORATIONS DOMICILED THEREIN
BIR RULING NO. 490-2020, SEPTEMBER 8, 2020
A Co., a Singaporean company with Philippine shareholdings from which it receives dividends from its investments, is seeking confirmation whether dividends from Jollibee are subject to 15% lower dividends tax rate. As represented, A Co. has approved tax exemption scheme for Resident Funds pursuant to Sec. 13(R) of the Singaporean Income Tax Act (“SITA”). In reply, dividends declared by Jollibee shall be subject to the preferential withholding tax rate of 15% on the part of A Co. pursuant to Sec. 28(B)(5)(b) of 1997 Tax Code, as amended, considering that under the SITA, dividends derived by A Co. from sources outside Singapore, are exempt for Singapore income tax.
SALE OF INVESTMENT PROPERTY NOT HELD FOR SALE OR LEASE IN THE ORDINARY COURSE OF BUSINESS, IS SUBJECT TO CGT BUT NOT TO VAT & CWT
BIR RULING NO. 489-2020, SEPTEMBER 7, 2020
E Co., a financial holding company, is seeking confirmation on whether the sale of real properties for investment purposes is subject to Capital Gains Tax (CGT) and Documentary Stamp Tax (DST) but not to Value-Added Tax (VAT). As represented, it owns parcels of land only for investment purposes and not for sale or lease in the ordinary course of business. In ruling, capital assets are properties that are not for sale in the ordinary course of business and are not held by the taxpayer as part of their inventory. A perusal of documents showed that E Co.’s properties have been idle and vacant since the time of its acquisition. Moreover, there are neither improvements erected on the land nor reported operation or commercial activity, and the properties have been treated as investment properties and have not been used in the ordinary course of business. Thus, the subject properties are classified as capital assets which are subject to CGT and DST but not to VAT and CWT.
TRANSFER OF LAND TITLE BY HOMEOWNERS TO ITS MEMBERS IS NOT SUBJECT TO CGT & DONOR’S TAX
BIR RULING NO. 460-2020, AUGUST 18, 2020
S Association is requesting an exemption from Capital Gains Tax (CGT) on the transfer of title of land in favor of its member. In ruling, transfer by S Association to its members who have made full payment of the purchased subdivided lot is not subject to either CGT or Creditable Withholding Tax (CWT) considering that the said transfer of property is made only as a formality to finally effect the transfer to its members. Likewise, the said transfer is not subject to Donor’s Tax since there is no donative intent on the part of the association to donate the said property to its members.
ISSUANCES OF AN EDUCATIONAL INSTITUTION OF VARIOUS SCHOOL RECORDS ARE SUBJECT TO DST
BIR RULING NO. 455-2020, AUGUST 18, 2020
The Department of Education (DepEd) is seeking exemption from Documentary Stamp Tax (DST) on various school credentials issued and, if not granted, that the imposition of the same be deferred until the Enhanced Community Quarantine (ECQ) period is lifted. In ruling, Revenue Memorandum Circular (RMC) No. 25-2008 provides the obligation of educational institutions to remit the DST in respect of issuance of taxable certificates such as diploma, transcript of records, and other taxable certificates. In BIR Ruling No. 143-2010 it was ruled that notwithstanding the tax exemption of educational institutions, they are “collecting agents” for the BIR for the purpose of remitting the DST on various school records issued by them in favor of non-exempt person or entities. On the request for the deferment, Revenue Regulations (RR) No. 30-2020 provides for the extension of statutory deadlines and timelines for the filing and submission of any documents and the payment of taxes during the ECQ period.
CHANGE OF INVENTORY VALUATION METHOD IS ACCEPTABLE IF IT CONFORMS WITH THE COMPANY’S ACCOUNTING PRACTICE & REFLECTS THE COMPANY’S TRUE INCOME
BIR RULING NO. 447-2020, AUGUST 9, 2020
D Co. is seeking approval to change its accounting method of valuation of inventories from Weighted Average Method to First-In-First-Out (FIFO) Method. As represented, D Co.’s decision to change its inventory method was brought about to align its method of inventory with its parent company and provide a valuation of inventory which is more reflective of the current market values. Moreover, by using the FIFO method, it would establish a more effective and orderly inventory management system, thus, minimizing losses caused by obsolete and perishable stocks. Considering that it would clearly reflect the true income of the Company, the BIR granted authority to D Co. to change its inventory valuation from Weighted Average Method to FIFO Method.
SALE OF FACTORY BUILDING, SUBJECT OF SUPPLEMENTAL AGREEMENT WITH PEZA, IS COVERED BY 5% SPECIAL TAX INCENTIVE & EXEMPT FROM VAT, DST & CWT
INCOME PAYMENTS TO PERSONS ENJOYING INCOME TAX EXEMPTION WILL NOT BE SUBJECT TO CWT
BIR RULING NO. 443-2020, AUGUST 17, 2020
P Co., a Philippine Economic Zone Authority (PEZA)-registered Ecozone Facilities Enterprise, is seeking confirmation that its sale of a factory building to N Co, another PEZA-registered Export Enterprise, is (i) subject to 5% special tax incentive; (ii) not subject to the Value-Added Tax (VAT) and Documentary Stamp Tax (DST); and (iii) exempt from the Creditable Withholding Tax (CWT). In reply, the BIR referred to Sec. 25 of Republic Act (R.A.) No. 7916 or the PEZA Law. Applying the foregoing, since the factory unit is one of the three (3) factory buildings subject of the P Co.’s Fourth Supplemental Agreement with the PEZA and the subsequent Restatement of Supplemental Agreement, the sale thereof is covered by 5% special tax on gross income. Thus, the sale is no longer subject to VAT and DST. As to the CWT, since P Co. is enjoying exemption from the payment of income tax pursuant to R.A. No. 7916, its revenues derived directly from its registered activity shall not be subject to CWT.
ONLY INCOME DIRECTLY ATTRIBUTABLE TO REVENUES GENERATED FROM PEZA-REGISTERED ACTIVITIES ARE EXEMPT FROM INCOME TAX & CWT
PAYMENTS RECEIVED IN CONNECTION WITH PEZA-REGISTERED ACTIVITY ARE EXEMPT FROM CWT DURING THE PERIOD OF ITS ITH & GIT REGIME
ENTITLEMENT TO ITH IS NOT AUTOMATIC GIVEN THE NEED TO COMPLY WITH PEZA REGISTRATION AGREEMENT
BIR RULING NO. 438-2020, AUGUST 7, 2020
D Coconut Oil Mill, Inc., a Philippine Economic Zone Authority (PEZA)-registered entity with registered activity limited to oil milling of crude oil and copra cake, is seeking an exemption from income tax and Creditable Withholding Tax (CWT) on payments received from the conduct of its PEZA-registered activity. In reply, the withholding tax prescribed in Sec. 2.57.5(B)(2) of Revenue Regulations (RR) No. 2-98, as amended by RR No. 6-2001 shall not apply to income payment to persons enjoying income tax exemption provided by Republic Act (R.A.) No. 7916 or the PEZA Law. Since oil milling of crude oil and copra cake income activities is registered with the PEZA, payment received in connection with these are exempt from the CWT during the period of its Income Tax Holiday (ITH) and Gross Income Tax (GIT) regime. Hence, only income directly attributable to revenues generated from PEZA-registered activities are exempt from income tax and CWT. Moreover, entitlement to ITH for its registered activities is not automatic since it must still comply with the provisions of its PEZA Registration Agreement.
TAX-EXEMPT STATUTORY MERGER
NOLCO CAN ONLY BE AVAILED AS A PRIVILEGE/DEDUCTION BY THE ABSORBED CORPORATION
BIR RULING NO. 427-2020, JULY 30, 2020
N Asia, Inc., as the surviving corporation, is seeking confirmation whether its statutory merger with S Asia Food, Inc. is a tax-free merger in accordance with Section 40(C)(2) and 6(b) of the 1997 Tax Code, as amended.
In ruling, BIR confirmed the following:
1. Qualification for non-recognition of gain or loss for income tax purposes pursuant to the Plan of Merger.
2. Exempt from Value-Added Tax (VAT), and any unused input tax can be transferred to the surviving corporation.
3. Not subject to Donor’s Tax given the presence of the following essential requisites: (a) reduction of the patrimony of the donor; (b) increase in the patrimony of the donee; and (c) intent to do an act of liberality. Upon evaluation, there was no intention to donate the assets and the transaction is purely for a legitimate business purpose.
4. Exempt from Documentary Stamp Tax (DST) on all the integral parts of the merger, such as absorption of real properties and surrender of shares in exchange for shares. However, DST shall be imposed on the original issuance of shares by the surviving corporation in favor of the stockholders of the absorbed corporation.
5. Entitlement to carry forward and apply the excess Creditable Withholding Tax (CWT) of the absorbed corporations as credit against its Minimum Corporate Income Tax (MCIT) or Regular Corporate Income Tax (RCIT).
6. Entitlement to carry forward and credit the excess MCIT of the absorbed corporations against its RCIT for the three (3) immediately succeeding taxable years reckoned from the date of payment of MCIT.
7. Tax-free merger does not cover the accumulated unutilized Net Operating Loss Carry-Over (NOLCO) of the absorbed corporations as a deduction from its gross income. NOLCO is not an asset that can be transferred, as this privilege/deduction can be availed of merely by the absorbed corporations.
8. Imposition of 10% Final Withholding Tax on dividends constructively received by the individual shareholders of the absorbed corporation.
TAX EXEMPTION OF PAGCOR SHALL INURE TO THE BENEFIT OF ITS LICENSEES
BIR RULING NO. 426-2020, JULY 28, 2020
S Gaming Co., a licensee of Philippine Amusement and Gaming Corporation (PAGCOR), is seeking confirmation on whether its income derived from electronic gaming operations shall be subject to a 5% Franchise Tax, in lieu of all kinds of taxes. In ruling, Section 13 (2) of Presidential Decree (P.D.) No. 1869 provides that no tax of any kind or form, income or otherwise, as well as fees, charges, or levies of whatever nature, shall be assessed from the corporation, except a Franchise Tax of 5% of the gross revenue derived by the corporation from its operation. In the case of Bloomberry Resorts and Hotels, Inc. vs. Commissioner of Internal Revenue, the Supreme Court affirmed the applicability of the tax exemption provisions of P.D. No. 1869 to PAGCOR licensees. Since S Gaming Co. is a holder of gaming licenses issued by PAGCOR, the exemption from taxes, fees, and charges enjoyed by PAGCOR is extended to it. Thus, the income derived by S Gaming Co solely from its electronic gaming operation, is subject only to 5% Franchise Tax. However, any other related services not falling under gaming operations, shall be subject to corporate income tax and Value-Added Tax (VAT).
CONDITIONS FOR THE RETIREMENT BENEFITS TO BE TAX-EXEMPT
BIR RULING NO. 416-2020, JULY 24, 2020
O Co. is seeking confirmation that the retirement benefits to be received by one of its employees is tax-exempt. In ruling, retirement benefits shall only be exempt if the two (2) conditions provided under Section 32 (B)(6)(a) of the 1997 Tax Code, as amended, are both present to wit: (1) the employee had been in the service of O Co. for at least ten (10) years; and (2) the employee is at least fifty (50) years old at the time of retirement. Since the employee has rendered twenty-one (21) years of service in the company and is fifty-one (51) years old at the time of his retirement, the subject conditions were met. Thus, the retirement benefits shall be exempt from income tax and, consequently, from withholding tax.
SALE OF REAL PROPERTY FOR INVESTMENT PURPOSES IS SUBJECT TO FINAL CGT
BIR RULING NO. 404-2020, JULY 23, 2020
C Holdings Corporation is seeking confirmation whether sale of its real properties for investment purposes is subject to the 6% Capital Gains Tax (CGT) and Documentary Stamp Tax (DST). In ruling, the applicable taxes would be imposed depending on the classification of assets whether they are capital or ordinary. In the case of the subject taxpayer, a perusal of the documents showed that the subject real properties were acquired for investment purposes and initially recorded as capital assets. Moreover, these were never used in the course of trade or business for more than two (2) years, no improvements were introduced, and the taxpayer is not engaged in the real estate business, thus, no income was generated from the time it was incorporated. Thus, the conveyance of which is subject to CGT and DST.
EXTENSION OF FILING OF ESTATE TAX RETURNS DUE TO OLD AGE & COMMUNITY QUARANTINE
BIR RULING NO. 383-2020, JULY 10, 2020
A senior citizen is seeking an extension of time to file the estate tax returns of the estate of her husband who died on May 26, 2019. In reply, Section 90 (C) of the 1997 Tax Code, as amended, provides that the Commissioner shall have the authority to grant, in meritorious cases, a reasonable extension not exceeding thirty (30) days for filing the returns. Given that the senior citizen has limited movement outside her house during the pandemic, there is established justifiable reason to grant the request for an extension. Thus, the filing of the estate tax returns was extended for another thirty (30) days counted from the end of the thirty (30) days extension provided under Revenue Regulations (RR) No. 11-2020, that is, thirty (30) days counted from the date of the lifting of the Modified Community Quarantine on May 31, 2020. Thus, she was given until July 30, 2020, within which to file the estate tax returns.
A CITY OR MUNICIPALITY CERTIFICATION THAT HOMEOWNERS’ ASSOCIATION LACKS RESOURCES IS ESSENTIAL IN THE CLAIM OF TAX EXEMPTION
BIR RULING NO. 382-2020, JULY 3, 2020
P Homeowners’ Association, Inc., a non-stock, and non-profit residential homeowners’ association duly registered with the Housing and Land Use Regulatory Board (HLURB) is requesting a tax exemption pursuant to the Republic Act (R.A.) No. 9904 or “Magna Carta for Homeowners and Homeowners’ Associations” and in reference to Revenue Memorandum Circular (RMC) No. 9-2013 which clarifies the taxability of association dues, membership fees, and other charges collected by Homeowners’ Association. In reply, P Homeowners’ Association does not fall within the purview of those homeowners’ associations which may be exempted under R.A. No. 9904 because of the absence of the required certification from the city that it lacks resources to provide for basic services of its members. Consequently, it is liable to the applicable internal revenue taxes on its income from association dues, rentals of its facilities, trade business, and other activities.
INCOME RECEIVED BY SAVINGS LOAN & ASSOCIATION ARE EXEMPT FROM TAX, HOWEVER, INCOME DERIVED FROM ITS PROPERTIES OR ANY ACTIVITY CONDUCTED FOR PROFIT SHALL BE SUBJECT TO THE CORRESPONDING TAXES
BIR RULING NO. 377-2020, JULY 3, 2020
R Association, a domestic corporation engaged in the operations of a non-stock savings and loan association, is seeking tax exemption from 20% Final Withholding Tax (FWT) the interest income derived from its bank deposits and deposits substitute pursuant to Section 5 of Republic Act (R.A.) No. 8367 or the “Revised Non-Stock Savings and Loan Association Act of 1997." In reply, Section 5 of R.A. No. 8367 provides that an association shall be exempt from the payment of tax in respect to income it receives including interest on its deposit with any bank. Thus, R Association shall be exempt from income tax with respect to income it receives. Also, interest income derived from its deposit and deposit substitutes are exempt from 20% FWT. However, any income derived from any of its properties, real or personal, or any activity conducted for profit regardless of disposition, is subject to the applicable income tax and other internal revenue taxes.
INTEREST INCOME FROM RETIREMENT FUND IS EXEMPT FROM INCOME TAX & FWT
BIR RULING NO. 376-2020, JULY 3, 2020
M Co. is seeking tax exemption on its Retirement Fund’s interest income derived from the Multi-Purpose Loan Assistance Program (MLAP) for the benefit of its employee-members. As represented, the Company’s Retirement Fund was previously approved as a “Reasonable Retirement Benefit Plan” and, consequently, revalidated. In reply, it was noted that the conditions are present in the Retirement Fund to warrant the income tax exemption of employees’ trust. Thus, interest income derived by the Company’s Retirement Fund from the MLAP for the benefit of its employee-members is exempt from income tax and, consequently, from Final Withholding Tax (FWT), provided, however, that in its investment activities, no part of the corpus or income of the Fund shall be used for or diverted to purposes other than for the exclusive benefit of the member-employees or their beneficiaries.
ADOPT-A-SCHOOL PROGRAM TAX BENEFITS
BIR RULING NO. 375-2020, JULY 3, 2020
H Co. is seeking donor’s tax exemption and deductibility of donation made to public schools under the Department of Education (DepEd) pursuant to the Republic Act (R.A.) No. 8525 or the “Adopt-A-School Act of 1998." In reply, donations to the Government, its agencies, or political subdivisions are deductible in full. Likewise, R.A. No. 8525 provides an additional 50% deductions from the gross income of the adopting entity. However, donations not in accordance with the National Priority Plan are subject to the limited deductibility or deductions to an amount not exceeding 10% in the case of an individual and 5% in the case of a corporation based on the taxable net income as computed without the benefit of this deduction. Moreover, donations to the Government or any entity created by any of its agencies, which is not conducted for profit, is exempt from tax. A perusal of the documents showed that H Co. is compliant with the requirements set forth under Section 3 of Revenue Regulations (RR) No. 10-2003, and the Adopt-A-School Program is considered a Priority Project in the National Priority Plan of the Government on that year. Thus, H Co. qualifies for donor’s tax exemption and availment of 150% deductions of the donation from its gross income.
EXTENT OF TAX EXEMPTION OF SALE OF BOOKS
BIR RULING NO. 374-2020, JULY 3, 2020
A Co., a Commercial Book Importer and Book/E-Book Seller, is requesting a Value-Added Tax (VAT) Exemption Certificate. In reply, Section 109 (1) (R) of the 1997 Tax Code, as amended, provides that sale, importation, printing, or publication of books and any newspapers, magazines, reviews, or bulletins which appear at regular intervals, with fixed prices for subscription and sale, and which is not devoted principally to the publication of paid advertisements shall be exempt from VAT. In view thereof, the importation and sale of books, any newspapers, magazines, reviews, or bulletins of A Co. on a wholesale/retail basis are exempt from the payment of VAT and from the 3% Percentage Tax. However, if A Co. is engaged in other non-exempt activities, such as the printing of brochures, bookbinding, engraving, stereotyping, electrotyping, lithographing, the same are subject to VAT, and shall be required to register its business as VAT and issue a separate VAT invoice/receipt. Also, the sale of books, newspapers, magazines, reviews, and bulletins in digital or electronic format or computerized versions, including but not limited to e-books, e-journals, electronic copies, online library services, CDs, and software shall be subject to VAT. Moreover, VAT is an indirect tax payable by the seller and not the purchaser of goods. Thus, the shifting of VAT to A Co. does not make it the person directly liable and, therefore, it cannot invoke its tax exemption privilege to avoid the passing on or shifting of VAT. Hence, its purchase of goods, properties, or services from its suppliers shall nevertheless be subject to the 12% VAT.
EXTENT OF TAX EXEMPTION OF A PUBLISHING COMPANY
BIR RULING NO. 373-2020, JULY 3, 2020
K Publishing Co., as one engaged in publishing activity, is seeking confirmation whether it is exempt from Value-Added Tax (VAT) and 3% Percentage Tax. In reply, sale, importation, printing, and publication of books, newspapers, magazines, reviews, and bulletins are VAT exempt pursuant to Section 109 (1) (R) of the 1997 Tax Code, as amended. As clarified in the Revenue Memorandum Circular (RMC) No. 75-2012, these materials, to be VAT-exempt, must be: (1) printed or published at regular intervals; (2) available for subscription and sale at fixed prices; and (3) are not principally devoted to the publication of paid advertisements. Likewise, the exemption only refers to materials in hard copies and not those in digital/electronic format or computerized versions. If K Publishing Co. will have other transactions that do not qualify to be VAT-exempt, it is, therefore, required to register as a VAT business entity and is required to issue a separate VAT invoice/receipt to record such transactions. Further, VAT, being an indirect tax, can be shifted to buyers. Thus, notwithstanding that it is VAT exempt on its sales, its purchases of goods, properties, or services from its suppliers shall nevertheless be subject to the 12% VAT.
RECONVEYANCE OF REAL PROPERTY FROM A REAL ESTATE DEVELOPER TO A CONDOMINIUM CORPORATIONS IS EXEMPT FROM CWT
BIR RULING NO. 372-2020, JULY 3, 2020
R Co., a real estate developer, is requesting a ruling exempting the conveyance of land and common areas in favor of condominium corporations from the payment of Creditable Withholding Tax (CWT) and Documentary Stamp Tax (DST). In reply, the request has been sufficiently addressed with the issuance of Revenue Memorandum Order (RMO) No. 18-2009 dated April 26, 2009. Inasmuch as the query falls within the ambit of RMO 18-2009, R Co. was advised to just comply with the requirements prescribed under the said RMO.
RECONVEYANCE OF A PARCEL OF LAND PURSUANT TO THE RTC DECISION IS NOT SUBJECT TO CGT
BIR RULING NO. 371-2020, JULY 3, 2020
Ms. L is seeking a ruling that the reconveyance of a parcel of land pursuant to the decision of the Regional Trial Court (RTC) is exempt from the payment of tax. As represented, Ms. L obtained the land by way of purchase from Spouses Mr. and Mrs. B. However, the same land was erroneously the subject of an Application for Free Patent filed by Mrs. A. Noticing that the land was different from the land intended to the subject of the Application for Free Patent, Ms. A requested for the withdrawal of her application. However, such request came in late as the application was already approved resulting in the issuance of a land title in the name of Mr. and Mrs. A. Ms L then filed for a case of reconveyance in which she won. In reply, reconveyance of the parcel of land to Ms. L is without consideration, and that the transfer is in order to return the parcel of land to the legal owner, therefore, it is not subject to Capital Gains Tax (CGT) imposed under Section 24(D)(1) of the 1997 Tax Code, as amended. Such transfer is, however, subject to the Documentary Stamp Tax (DST) imposed under Section 188 of the 1997 Tax Code, as amended.
EXTENT OF TAX EXEMPTION & REGISTRATION OF BMBE
BIR RULING NO. 370-2020, JULY 3, 2020
E Trading Co., a Barangay Micro Business Enterprise (BMBE)-registered entity, is seeking a Certificate of Exemption from the payment of income tax pursuant to the provisions of Republic Act (R.A.) No. 9178 or the “BMBE Act of 2002.” In reply, since the Company was awarded a Department of Trade and Industry (DTI) BMBE Certificate of Authority, it is, therefore, exempt from income tax arising purely from the BMBE operations for a period of two (2) years. However, the availment of the foregoing tax exemptions shall not apply to income subject to final tax, such as but not limited to interests from bank deposits, royalties, prizes and winnings, dividends, capital gains, etc. For purposes of exemption from Creditable Withholding Tax (CWT), it shall furnish its customers with a certified true copy of its amended BIR Registration Certificate.
BANKS & NON-BANK FINANCIAL INTERMEDIARIES HAVE DIRECT LIABILITY TO PAY GRT
BIR RULING NO. 363-2020, JUNE 29, 2020
The Bangko Sentral ng Pilipinas (BSP) is seeking confirmation if it is obliged to withhold percentage taxes on interest income payments to banks and non-bank financial intermediaries. In reply, Revenue Regulations (RR) No. 9-2004 provides for the imposition of Gross Receipts Tax (GRT) on banks and non-bank financial intermediaries including the time, venue of filing, and payment of GRT. Based on the foregoing, BSP is not required to withhold percentage taxes since the banks and non-bank financial intermediaries are directly obliged to pay the monthly GRT imposed under Section 121 of the 1997 Tax Code, as amended.
EXCHANGE OF LAND, BEING IN THE PURVIEW OF OTHER DISPOSITION AS STATED UNDER SECTION 24(D)(1) OF THE 1997 TAX CODE, IS SUBJECT TO CGT & DST
BIR RULING NO. 362-2020, JUNE 25, 2020
Mr. L and Ms. G is requesting for tax exemption from the payment of Capital Gains Tax (CGT) and Documentary Stamp Tax (DST) relative to an executed Deed of Exchange. As represented, both Mr. L and Ms. G purchased land from YCF Neighborhood Corporation. However, due to clerical error, there was an exchange made. The land purchased by Mr. L was occupied and developed by Ms. G. On the other hand, the land purchased by Ms. G was occupied and developed by Mr. L. Upon discovery of such error, both Mr. L and Ms. G executed a Deed of Exchange which conveys the lots to the appropriate owner. In reply, citing the case of Salud vs. Commissioner of Internal Revenue, the transaction is within the purview of other disposition stated in Section 24(D)(1) of the 1997 Tax Code, as amended. As such, the exchange made between Mr. L and Ms. G is subject to CGT as imposed under Section 24(D)(1) of the 1997 Tax Code, as amended, and DST imposed under Sections 188 and 196 of the same Code.
TAX EXEMPTION DOES NOT APPLY IF PRICE CEILING FOR AN OPEN MARKET IS ABOVE PHP 4 MILLION WHICH IS BEYOND THE THRESHOLD FOR ECONOMIC & LOW-COST HOUSING
BIR RULING NO. 343-2020, JUNE 25, 2020
L Realty and Development Corporation is seeking a Certificate of Tax Exemption (CTE) on its income received in connection with H Homes-T Subdivision consisting of 28 housing units, a project duly registered as economic and low-cost housing project (horizontal) with the Board of Investments (BOI). It is also registered with the Housing Land Use Regulatory Board (HLURB), albeit its indication of its classification as “Open Market.” In reply, the BIR denied the application for CTE citing HLURB Memorandum Circular No. 13-2017 which provides that the price ceiling for an Open Market is above Php 4 Million which is beyond the threshold for economic and low-cost housing, as prescribed on its BOI Specific Terms and Condition.
ISSUES SUBJECT OF AN INVESTIGATION, ON-GOING AUDIT & ADMINISTRATIVE PROTEST ARE CONSIDERED AS NO-RULING AREAS
BIR RULING NO. 340-2020, JUNE 19, 2020
C Mines and Development Corporation is seeking a BIR ruling relative to its deficiency tax assessment. In reply, the BIR held that it cannot issue a determinative ruling considering that the issue is still subject to an on-going audit/administrative protest, which is considered a “No-Ruling Area” pursuant to Section 2 (r) of Revenue Bulletin No. 01-03.
WITHDRAWAL OF TAX EXEMPTION OF CHARITABLE HOSPITAL IN CEBU
BIR RULING NO. 257-2020, MAY 22, 2020
H Hospital is seeking tax exemption pursuant to Section 5 of Act No. 3239 passed on November 25, 1925, which provides that all real property of the home and the revenues shall be exempt from the payment of the land tax, income tax, and any other tax established by law. In reply, Executive Order No. 93 issued on December 17, 1986, effectively withdraws the tax and duty incentives granted to government and private entities, with enumerated exceptions. It appears that H Hospital is not one of those whose tax exemptions has been retained. Tax exemptions must be construed strictly against the taxpayer and liberally in favor of the taxing authority. The burden of proof rests upon the party claiming exemption to prove that it is in fact covered by the exemption so claimed. In case of doubt, non-exemption must be favored. Taxes being lifeblood of the government that should be collected without necessary hindrance, every precaution must be taken not to unduly suppress it.
TAX BENEFITS OF ADOPT-A-SCHOOL PROGRAM
BIR RULING NO. 256-2020, MAY 22, 2020
P Co. is seeking a Donor’s Tax exemption and deductibility of the donation made to a public school pursuant to Republic Act (R.A.) No. 8525 or the “Adopt-A-School Act of 1998." In reply, donations to the Government, its agencies or political subdivisions are deductible in full. Likewise, the said law provides an additional 50% deduction from gross income of the adopting entity. However, donations not in accordance with the National Priority Plan are subject to limited deductibility or deductions to an amount not exceeding 10% in the case of an individual and 5% in the case of a corporation, based on the taxpayer’s taxable net income as computed without the benefit of this deduction. Moreover, donations to the Government, or any entity created by any of its agencies, which is not conducted for profit, is exempt from tax. A perusal of the documents showed that P Co. is compliant with the requirements set forth under Section 3 of Revenue Regulations (RR) No. 10-2003 and the Adopt-A-School Program is considered a Priority Project in the National Priority Plan of the Government on that year. Thus, P Co. qualifies for donor’s tax exemption and availment of 150% deduction of the donation from its gross income.
DONATION MADE TO THE DEPED PURSUANT TO THE ADOPT-A-SCHOOL PROGRAM IS DEDUCTIBLE AT 150% FROM GROSS INCOME AND EXEMPT FROM DONOR’S TAX
BIR RULING NO. 254-2020, MAY 22, 2020
T Co. is seeking an exemption from donor’s tax and deductibility of the donation of Php 21 Million to the Department of Education (DepEd) in accordance with the Republic Act (R.A.) No. 8525, otherwise known as the “Adopt-A-School Act of 1998.” As represented, it entered into a Memorandum of Agreement (MOA) with the DepEd whereby the former agreed to provide part of the project cost for the relocation and construction of the chosen school to a better location for the general welfare of the students and to achieve the standard quality of education. In reply, T Co. is compliant with the requirements set forth under Section 3 of Revenue Regulations (RR) No. 10-2003, thus, the amount actually, directly, and exclusively incurred for the education program amounting to Php 21 Million is fully deductible from its gross income, plus an additional deduction equivalent to 50% thereof in the amount of Php 10.5 Million, or a total deductible amount of Php 31.5 Million. Furthermore, the donation is not subject to donor’s tax since one of the exemptions provided for the imposition of such tax is the donation made to or for the use of the National Government or any entity created by any of its agencies which is not conducted for profit, or to any political subdivision of the said Government.
REQUISITES FOR COOPERATIVE TO BE VAT EXEMPT ON ITS SALE TO NON-MEMBERS
BIR RULING NO. 253-2020, MAY 22, 2020
U Coop is seeking confirmation on whether its sale of sugar produce to non-members is exempt from the Value-Added Tax (VAT). In reply, Revenue Memorandum Circular (RMC) No. 40-2015 clarifies that the sale by agricultural cooperatives of their agricultural products to their members and non-members is exempt from VAT. However, sale of their products to non-members will only be exempt from VAT if (i) the agricultural cooperative itself is of good standing and duly accredited and registered with the Cooperative Development Authority (CDA); (ii) the agricultural cooperative must be a holder of valid, current and subsisting Certificate of Tax Exemption; and (iii) the seller-agricultural cooperative is the producer of sugar (i.e., it is the tiller, thru its members, of the land it owns, or lease and it incurs cost of agricultural production of the sugar cane to be refined). Since U Coop meets all the requisites, U Coop’s sale of sugar produce to its members as well as to non-members is exempt from the payment of VAT and/or percentage tax.
DENIED TAX EXEMPTION RULING OF IRRIGATION COMPANY DUE TO PAYMENT OF HONORARIUM TO ITS BOARD OF TRUSTEES
BIR RULING NO. 251-2020, MAY 22, 2020
E Inc. is seeking a Certificate of Tax Exemption (CTE) enjoyed by a non-stock, non-profit corporation, or association under Section 30 (J) of the 1997 Tax Code, as amended. In reply, to avail of the tax exemption under the said Section, the entity’s earnings or assets shall not inure to the benefit of its trustees, organizers, members, or any specific person. A perusal of the Association’s By-Laws showed that its Board of Trustees is entitled to honorarium. Thus, E Co. does not qualify for exemption under Section 30 (J) and, therefore, it is treated as an ordinary corporation subject to 30% income tax rate.
DENIED TAX EXEMPTION DUE TO THE PAYMENT OF PER DIEM
BIR RULING NO. 250-2020, MAY 22, 2020
S Irrigators Co. is seeking a Certificate of Tax Exemption enjoyed by a non-stock, non-profit corporation or association under Section 30(J) of the 1997 Tax Code, as amended. In reply, to avail of the tax exemption under Section 30(J), which was further clarified under Revenue Memorandum Circular (RMC) No. 51-2014, the entity’s earnings or assets shall not inure to the benefit of its trustees, organizers, members, or any specific person. A perusal of the submitted documents showed that its Board of Trustees is entitled to per diem. Thus, S Irrigators Co. does not qualify for an exemption and, therefore, liable for regular income tax.
TRICYCLE OPERATORS & DRIVERS’ ASSOCIATION DENIAL OF TAX EXEMPTION SINCE THE PURPOSE DOES NOT FALL UNDER ANY OF THE ENUMERATED PURPOSES UNDER SECTION 30 OF THE TAX CODE
BIR RULING NO. 249-2020, MAY 22, 2020
P Tricycle Drivers’ Association is seeking a Certificate of Tax Exemption enjoyed by a non-stock, non-profit corporation, association or organization under Section 30 of the 1997 Tax Code, as amended. In reply, a perusal of its Articles of Incorporation showed that its purposes do not fall within the scope of the exempt corporation under Section 30 of the same Code. Thus, it does not qualify for an exemption and, therefore, it is liable to regular income taxes.
FOUNDATION ENGAGED IN RE-LENDING MONEY IS DENIED OF TAX EXEMPTION
BIR RULING NO. 247-2020, MAY 22, 2020
B Foundation is seeking a Certificate of Tax Exemption enjoyed by a non-stock, non-profit corporation, association or organization under Section 30 of the 1997 Tax Code, as amended. Upon perusal of the Articles of Incorporation, the BIR noted that one of the programs of the foundation is Microfinance Program, which provides credit assistance and other micro financial services to micro and small entrepreneurs, farmers, women, enterprising out of school youth and accessing loan from external creditors to be re-lent to its clients and beneficiaries. In reply, the BIR denied the application because it appears that the foundation is not operated exclusively for charitable or social welfare purposes. Thus, it does not qualify for an exemption under Section 30 of the same Code and, therefore, liable to regular income taxes.
FOUNDATION ENGAGED INTO LEASING IS DENIED OF TAX EXEMPTION
BIR RULING NO. 246-2020, MAY 22, 2020
O Co. is seeking a Certificate of Tax Exemption enjoyed by a non-stock, non-profit corporation, association or organization under Section 30 of the 1997 Tax Code, as amended. Upon perusal of its Audited Financial Statements, the BIR noted that the primary sources of its revenues are from the resident’s contributions, post graduate and related learnings, facility rental, and miscellaneous fees. Hence, it is organized and operated principally for profit. Thus, O Co. does not qualify for an exemption under Section 30 of the same Code and, therefore, liable to the regular income tax.
WATER DISTRICT IS DENIED OF TAX EXEMPTION
BIR RULING NO. 243-2020, MAY 21, 2020
I Co. is seeking a Certificate of Tax Exemption enjoyed by a non-stock, non-profit corporation or association under Section 30 (E) of the 1997 Tax Code, as amended. I Co. was incorporated as an association to own and operate, provide members with adequate supply of water for domestic use. In reply, to avail the tax exemption under Section 30 (E) of the same Code, the entity must be organized and operated exclusively for religious, charitable, scientific, athletic, or cultural purpose, or for the rehabilitant of veterans, no part of its net income or asset shall belong to or inure to the benefit of any member, organizer, officer, or any specific person. Likewise, the provision requires that the association must not be organized and operated principally for profit. After perusal of the Financial Statements, it was noted that the bulk of its revenues comes from metered and unmetered sales of water, membership and meter connection fees, and interest income. Hence, services to its paying members/individual or revenues from sales are activities conducted for profits. Thus, I Co. does not qualify for an exemption under Section 30 (E) of 1997 Tax Code, as amended, and, therefore, it is liable to regular income tax.
A CHARITABLE INSTITUTION IS DENIED OF TAX EXEMPTION DUE TO ITS DISPOSITION OF FUNDS
BIR RULING NO. 242-2020, MAY 21, 2020
R Co. is requesting a Certificate of Tax Exemption (CTE) enjoyed by a non-stock, non-profit corporation, association, or organization under Section 30 (E) of the 1997 Tax Code, as amended. In ruling, a perusal of submitted documents showed that the primary purpose of the corporation is to fund and make contributions to other institution. Also, most of its income comes from fund-raising and used to fund tournaments and concerts, in return for profits. Thus, R Co. does not qualify for exemption under Section 30 (E) and, therefore, it is liable for income taxes imposable to a regular corporation.
DENIAL OF RULING DUE TO THE PAYMENT OF SALARY
BIR RULING NO. 241-2020, MAY 21, 2020
B Co. is seeking a Certificate of Tax Exemption (CTE) enjoyed by a non-stock, non-profit corporation or association under Section 30 (E) of the 1997 Tax Code, as amended. In reply, to avail of the tax exemption under Section 30 (E) of the 1997 Tax Code, Revenue Memorandum Circular (RMC) No. 51-2014 clarifies that the entity’s earnings or assets shall not inure to the benefit of its trustees, organizers, members, or any specific person. A perusal of the documents showed that the Board of Trustees is entitled to compensation/salaries. Thus, B Co. does not qualify for an exemption under Section 30 (E) and, therefore, it is treated as an ordinary corporation subject to regular income tax.
A CHARITABLE INSTITUTION IS DENIED OF TAX EXEMPTION DUE TO ITS DISPOSITION OF FUNDS
BIR RULING NO. 242-2020, MAY 21, 2020
R Co. is requesting a Certificate of Tax Exemption (CTE) enjoyed by a non-stock, non-profit corporation, association, or organization under Section 30 (E) of the 1997 Tax Code, as amended. In ruling, a perusal of submitted documents showed that the primary purpose of the corporation is to fund and make contributions to other institution. Also, most of its income comes from fund-raising and used to fund tournaments and concerts, in return for profits. Thus, R Co. does not qualify for exemption under Section 30 (E) and, therefore, it is liable for income taxes imposable to a regular corporation.
BREACH OF 30% THRESHOLD OF THE ADMINISTRATIVE EXPENSES & PAYMENT OF HONORARIUM MAY RESULT IN THE DENIAL OF TAX EXEMPTION APPLICATION
BIR RULING NO. 240-2020, MAY 21, 2020
N Co. is seeking a Certificate of Tax Exemption (CTE) enjoyed by a non-stock, non-profit corporation, or association under Section 30 (E) of the 1997 Tax Code, as amended. In reply, to avail of the tax exemption under the said Section, Revenue Memorandum Circular (RMC) No. 51-2014 clarifies that the entity’s earnings or assets shall not inure to the benefit of its trustees, organizers, members, or any specific person. A perusal of the submitted documents showed that N Co. pays honorarium to its Board of Trustees. Moreover, more than 50% of the operating income of the corporation was used for administrative expenses. Thus, N Co. does not qualify for exemption under the Section 30 (E) and, therefore, it is treated as an ordinary corporation subject to 30% income tax rate.
3-YEARS TO OPERATE BEFORE ACTING ON AN APPLICATION FOR ISSUANCE OF A CERTIFICATE OF TAX EXEMPTION
BIR RULING NO. 239-2020, MAY 21, 2020
J Co. is seeking a Certificate of Tax Exemption (CTE) enjoyed by a non-stock, non-profit corporation, or association under Section 30 (E) of the 1997 Tax Code, as amended. In reply, before the BIR issue a CTE, J Co. must prove its entitlement to income tax exemption after three (3) years of operations.
ADJUNCT ENTITY OF THE CHURCH IS DENIED OF TAX EXEMPTION
BIR RULING NO. 238-2020, MAY 21, 2020
S Church is seeking a Certificate of Tax Exemption enjoyed by a non-stock, non-profit corporation or association under Section 30 (H) of the 1997 Tax Code, as amended. In reply, to avail of the tax exemption under Section 30 (H) of the same Code, Revenue Memorandum Circular (RMC) No. 51-2014 clarifies that the entity’s earnings or assets shall not inure to the benefit of its trustees, organizers, members, or any specific person. After perusal of the submitted documents, it shows that the Board of Trustees is entitled to per diem. Thus, S Church does not qualify for exemption under Section 30 (H) of the same Code and, therefore liable to regular income tax.
QUALIFICATION OF A SCIENTIFIC ENTITY TO BE TAX-EXEMPT
BIR RULING NO. 236-2020, MAY 21, 2020
U Co. is seeking a Certificate of Tax Exemption (CTE) enjoyed by a non-stock, non-profit corporation, or association under Section 30 (E) and (G) of the 1997 Tax Code, as amended. In reply, to avail of the tax exemption under the said Section, the organization and operation of the scientific institution must be devoted “exclusively” for scientific purposes. A perusal of the submitted documents showed that its revenues are being utilized for salaries, meals and lodging, travel and transportation, and survey contracting expense, and are not devoted or used altogether for the scientific purposes and promotion of general welfare. Thus, U Co. does not qualify for exemption under Section 30 (E) and (G) of the same Code and, therefore, it is treated as an ordinary corporation subject to regular corporate income tax.
DENIAL OF TAX EXEMPTION RULING DUE TO THE PAYMENT OF HONORARIUM
BIR RULING NO. 234-2020, MAY 19, 2020
C Co. is seeking a Certificate of Tax Exemption (CTE) enjoyed by a non-stock, non-profit corporation or association under Section 30 (H) of the 1997 Tax Code, as amended. In reply, to avail of the tax exemption under the said law, Revenue Memorandum Circular (RMC) No. 51-2014 clarifies that the entity’s earnings or assets shall not inure to the benefit of its trustees, organizers, members, or any specific person. A perusal of the submitted documents showed that its Board of Trustees is entitled to the honorarium. Thus, C Co. does not qualify for exemption and, therefore, it is treated as an ordinary corporation subject to regular income tax rate.
INDICATION OF MINIMAL ALLOWANCES DISQUALIFIES A SCHOOL FROM THE CLAIM OF THE CERTIFICATE OF TAX EXEMPTION
BIR RULING NO. 233-2020, MAY 19, 2020
T Co. is seeking a Certificate of Tax Exemption (CTE) enjoyed by a non-stock, non-profit corporation or association under Section 30 (H) of the 1997 Tax Code, as amended. In reply, to avail of the tax exemption under the said law, the entity’s earnings or assets shall not inure to the benefit of its trustees, organizers, members, or any specific person. A perusal of the submitted documents showed that the trustees, officers, and faculty members serving in missionary capacity are entitled to minimal allowances to defray their transportation and necessities as the circumstances call. Thus, T Co. does not qualify for an exemption and, therefore, it is treated as a proprietary educational institution subject to the 10% preferential rate.
DENIAL OF TAX EXEMPTION DUE TO THE PAYMENT OF SALARY
BIR RULING NO. 232-2020, MAY 19, 2020
M Co. is seeking a Certificate of Tax Exemption (CTE) enjoyed by a non-stock, non-profit corporation or association under Section 30 (H) of the 1997 Tax Code, as amended. In reply, to avail of the tax exemption under Section 30 (H), Revenue Memorandum Circular (RMC) No. 51-2014 clarifies that the entity’s earnings or assets shall not inure to the benefit of its trustees, organizers, members, or any specific person. A perusal of the submitted documents showed that its Board of Trustees is entitled to compensation or fixed salary for their services. Thus, M Co. does not qualify for exemption under Section 30 (H) and, therefore, it is treated as an ordinary corporation liable for income taxes.
BOARD OF TRUSTEES ENTITLEMENT TO SALARIES RESULTING IN THE DENIAL OF TAX EXEMPTION APPLICATION
BIR RULING NO. 231-2020, MAY 19, 2020
A Co. is seeking a Certificate of Tax Exemption enjoyed by a non-stock, non-profit corporation or association under Section 30 (H) of the 1997 Tax Code, as amended. In reply, to avail of the tax exemption under Section 30 (H) of the same Code, Revenue Memorandum Circular (RMC) No. 51-2014 clarifies that the entity’s earnings or assets shall not inure to the benefit of its trustees, organizers, members, or any specific person. After perusal of the submitted documents, it shows that its Board of Trustees is entitled to per diem. Thus, A. Co does not qualify for an exemption and, therefore, liable to the regular income tax.
AN ENTITY HAS TO PROVE, BY ACTUAL OPERATION FOR AT LEAST THREE (3) YEARS, TO OBTAIN A CERTIFICATE OF TAX EXEMPTION
BIR RULING NO. 227-2020, MAY 19, 2020
O Co. is seeking a Certificate of Tax Exemption enjoyed by a non-stock, non-profit corporation or association under Section 30 (H) of the 1997 Tax Code, as amended. In reply, the BIR cannot issue yet a Certificate of Tax Exemption to O Co. for it must first prove its entitlement to income tax exemption after three (3) years of operations.
JOINT VENTURE FORMED FOR THE PURPOSE OF CONSTRUCTION PROJECTS ARE EXEMPT FROM INCOME TAX FOR AS LONG AS IT WILL MEET THE REQUIREMENTS UNDER RR NO. 10-2012 & 11-2018
BIR RULING NO. 225-2020, MAY 19, 2020
C and E entered into a Joint Venture and now seeking confirmation that the project subject under the said Joint Venture Agreement is exempt from the 2% Creditable Withholding Tax (CWT). In reply, Section 22(B) of the 1997 Tax Code, as amended, provides that a Joint Venture which is formed for the purpose of construction projects or engage in petroleum, coal, geothermal, and other energy operations pursuant to an Operating or Consortium Agreement under a Service Contract with the Government shall not be taxed as a corporation. Also, Revenue Regulations (RR) No. 11-2018 provides that the CWT shall not apply to income payments made to Joint Venture under Section 22 of the 1997 Tax Code, as amended, for as it is compliant with the requirements of RR No. 10-2012. However, even if the Joint Venture of C and E is exempt from corporate income tax, the co-venturers will be subjected to regular corporate income tax on their respective proportionate share of income on the said project.
SPECIALTY CONTRACTORS ARE SUBJECT TO 2% CWT & NOT TO 15%
BIR RULING NO. 224-2020, MARCH 13, 2020
C Co., a construction project specialist, and a Philippine Branch of a Denmark-based company, is seeking confirmation on whether the professional fees received from its clients are subject to Creditable Withholding Tax (CWT) at the rate of 2%, as payment to specialty contractor. In reply, Section 3 of Revenue Regulations (RR) No. 6-2001 defines the term “Specialty Contractor” as “Those whose operations pertain to the performance of construction work requiring special skills and whose contracting business involves the use of specialized building trades or crafts.” Gross payments to such persons are subject to a 2% CWT. In BIR Ruling No. 006-03, the BIR confirmed that an independent firm of quantity surveyors, cost engineers, and construction cost specialists, is considered a specialty contractor notwithstanding the fact that it does not perform actual construction work. The independent firm renders quantity surveying services in building and other civil works projects including, but not limited to, initial design, tendering procedures and contract analysis and report, construction progress financial statement preparation, advisory contract administration, valuation of construction work in progress, and cost and material supervision in each and every work phase of construction, which services pertain to the performance of construction work requiring special skills. Since C Co. is engaged in the construction management, consultancy, and general contracting services and carrying any activities in conjunction with and related to any of the services above-mentioned, it is considered a specialty contractor, thus, income payments thereon are subject to CWT at the rate of 2%.
FOREIGN CORPORATION IS SUBJECT TO INCOME TAX & VAT ONLY ON ITS INCOME DERIVED WITHIN THE PHILIPPINES
BIR RULING NO. 223-2020, MARCH 12, 2020
N Group, a company incorporated in Spain, is seeking confirmation on whether service fees to be paid by a domestic corporation for consultancy services to be rendered outside the Philippines is not subject to income tax and, consequently, to withholding tax as well as 12% VAT. In reply, Section 23 (F) of the 1997 Tax Code, as amended, provides that a foreign corporation, whether engaged in trade or business in the Philippines, is subject to income tax only with respect to income derived from sources in the Philippines. Since the services are performed by N Group outside the Philippines, the services fees to be paid by a domestic corporation are exempt from income tax and, consequently, from withholding tax and VAT.
NO RULING AREAS IF THE TAXPAYER IS SUBJECT OF AN ON-GOING AUDIT
BIR RULING NO. 222-2020, MARCH 12, 2020
D Co., a licensee of the Philippine Amusement and Gaming Corporation, is seeking a ruling on the preferential tax rate which includes Income Tax, Documentary Stamp Tax, and Value-Added Tax (VAT) pursuant to the Presidential Decree (P.D.) No. 1869, as amended by Republic Act (R.A.) No. 9487. In reply, a request for rulings on issues covered by an on-going audit is a “No Ruling Area” under Section 2 (r) of Revenue Bulletin No. 01-03. Since D Co. has a pending assessment with the Large Taxpayers Services, the BIR declines to issue a ruling on the issue raised.
EXEMPTION FROM CGT, DST & WITHOLDING TAXES OF THE TRANSFER OF TITLE FROM THE ASSOCIATION REGISTERED WITH THE HLURB TO ITS MEMBER-BENEFICIARIES
BIR RULING NO. 221-2020, MARCH 12, 2020
J Association, Inc., a non-stock non-profit organization duly registered with the Housing and Land Use Regulatory Board (HLURB), is seeking Capital Gains Tax (CGT) exemption relative to the transfer of title of land from the Association in favor of its qualified member-beneficiaries pursuant to the Republic Act (R.A.) No. 7972, or the Urban Development and Housing Act of 1992. As represented, the Association is the assignee of a parcel of land which is covered by TCT issued by the Registry of Deeds of Pasig. In reply, the transfer is not subject to CGT and withholding tax considering the said transfer of property is made without consideration and effected only as a formality to finally effect the transfer of said property to its member-beneficiaries, who actually bought the same from the former owner through the Association. Furthermore, the transfer is also not subject to Donor’s Tax since there is no donative intent on the part of the Association. The latter cannot donate any property the ownership of which belongs to the member-beneficiaries. Likewise, the transfer of title in favor of the beneficiaries is not subject to the Documentary Stamp Tax (DST) but the notarial acknowledgement to the Deed of Conveyance is subject to DST.
EXTENT OF EXEMPTION OF HOMEOWNERS’ ASSOCIATION
BIR RULING NO. 220-2020, MARCH 12, 2020
S Homeowners’ Inc., a non-stock and non-profit residential homeowners' association, is seeking a ruling on the extent of its tax exemption. As represented, it is a duly registered Homeowners Association with the Housing and Land Use Regulatory Board; that its financial statements show the delivery of basic community services defined under Section 3 (d) of Republic Act (R.A.) No. 9904; and that the Local Government Unit covering the jurisdiction of the Homeowners Association has issued a Certificate that it lacks the resources to provide these services to the Association. In ruling, income derived from association dues, membership fees, reimbursable charges, and rentals of facilities is exempt from Income Tax, Value-Added Tax (VAT), or Percentage Tax, whichever is applicable; provided, that such income and dues shall be used for the cleanliness, safety, security, and other basic services needed by the members, including the maintenance of the facilities of their respective subdivisions or villages. However, it shall be subject to the applicable internal revenue taxes on its other income from trade, business, or other activities.
EXTENT OF EXEMPTION OF HOMEOWNERS’ ASSOCIATION
BIR RULING NO. 219-2020, MARCH 12, 2020
M Homeowners’ Inc., a non-stock and non-profit residential homeowners' association, is seeking a ruling on the extent of its tax exemption. As represented, it is a duly registered Homeowners Association with the Housing and Land Use Regulatory Board (HLURB); that its financial statements show the delivery of basic community services defined under Section 3 (d) of the Republic Act (R.A.) 9904, or the Magna Carta for Homeowners and Homeowners’ Association; and that the Local Government Unit covering the jurisdiction of the Homeowners Association has issued a Certificate that it lacks the resources to provide these services to the Association. In ruling, income derived from association dues, membership fees, reimbursable charges, and rentals of facilities of M Homeowners’ Inc. is exempt from Income Tax, Value-Added Tax (VAT), or Percentage Tax, whichever is applicable. Provided, that such income and dues shall be used for the cleanliness, safety, security, and other basic services needed by members, including the maintenance of the facilities of their respective subdivisions or villages. However, it shall be subject to the applicable internal revenue taxes on its other income from trade, business, or other activities.
RE DEVELOPER IS SUBJECT TO VAT ZERO-RATING ON LOCAL PURCHASES NEEDED FOR THE DEVELOPMENT, CONSTRUCTION & INSTALLATION OF PLANT FACILITIES & THE WHOLE PROCESS OF EXPLORING & DEVELOPING RESOURCES UP TO ITS CONVERSION INTO POWER
BIR RULING NO. 218-2020, MARCH 12, 2020
E Co., primarily engaged in the exploration, development, generation, and sale of energy from renewable sources such as geothermal energy, is seeking confirmation whether it is entitled to VAT zero-rating on its purchases of local supply of goods, properties, and services needed for the development, construction, and installation of its various plant facilities and the whole process of exploring and developing renewable energy sources up to its conversion into power, including but not limited to the services performed by subcontractors and/or contractors. In ruling, the BIR noted that E Co. is a Department of Energy (DOE)-registered Renewable Energy (RE) Developer and a Board of Investment-registered entity. Thus, its suppliers of goods and services should not pass on 12% VAT to the Company’s purchases of goods and services that will be used in the development, construction, and installation of its various plant facilities and the whole process of exploring and developing renewable energy sources up to its conversion into power, including but not limited to the services performed by subcontractors and/or contractors pursuant to Sec. 15 of Republic Act (R.A.) No. 9513, otherwise known as the “Renewable Energy Act of 2008.” Likewise, the grant of VAT zero-rating shall be subject to post audit verification by the BIR whether the purchases goods/services were indeed utilized in the development, construction, and installation of power plant facilities.
LAND DEVELOPMENT OF THE PROPOSED MARKET SITE IS NOT A SOCIALIZED HOUSING, THUS, SUBJECT TO VAT
TAX EXEMPTION IS LIMITED TO PROJECT CONTRACTORS WITH A VIEW TO REDUCE THE COST OF HOUSING UNITS FOR THE BENEFIT OF THE UNDERPRIVILEGED & HOMELESS
BIR RULING NO. 212-2020, MARCH 11, 2020
C Co., a project contractor engaged by the National Housing Authority (NHA) to undertake Land Development of the Proposed Market Site pursuant to Republic Act (R.A.) No. 7279, is requesting an exemption from the payment of Value-Added Tax (VAT). In reply, although it is NHA-certified as a socialized housing project and considered one of the basic needs for the socialized housing project, the Land Development of the Proposed Market Site is, nevertheless, outside the definition of a “socialized housing” in relation to the tax incentives for the private sector under Section 20 of R.A. No. 7279. Thus, the BIR denied the exemption from payment of VAT.
SEC REGISTRATION SHOWING THAT AN ENTITY IS A NON-STOCK NON-PROFIT CORPORATION DOES NOT COMPLETELY EXEMPT AN INSTITUTION FROM TAXES
BIR RULING NO. 209-2020, MARCH 10, 2020
I Co., a non-stock, non-profit corporation or association organized and operated exclusively for charitable purposes, is seeking a Certificate of Tax Exemption. In ruling, both the organization and operations of a charitable institution must be devoted exclusively for charitable purposes. Any profits obtained as an incident to its operations must be devoted for charitable object which it is intended to achieve. Being registered as a non-stock and non-profit corporation does not, for this reason alone, completely exempt an institution from tax. Given the foregoing, I Co. does not qualify as a charitable corporation within the contemplation of Section 30 of the 1997 Tax Code, and that its request for exemption is denied for lack of factual and legal basis.
EXEMPTION OF GERMAN GOVERMENT ON TAXATION OF EARNINGS IN THE PHILIPPINES
BIR RULING NO. 208-2020, MARCH 10, 2020
N Bank, a financial institution organized pursuant to a State Treaty executed among the states of Lower Saxony, Saxony-Anhalt, and Mecklenburg-Western Pomerania of the Federal Republic of Germany, is seeking confirmation whether the interest income derived from loans extended to E Corporation, a domestic corporation engaged in generating energy from wind power, is exempt from income tax and creditable withholding tax. In reply, Section 32(B)(7)(a) of 1997 Tax Code, as amended, provides that income derived from investments in the Philippines in loans, stocks, bonds, or other domestic securities, or from interest on deposits in banks in the Philippines by (i) foreign governments, (ii) financial institutions owned, controlled, or enjoying refinancing from foreign governments, and (iii) international or regional financial institutions established by foreign governments, shall not be included in gross income and shall be exempt from taxation. Since N Bank is a financing institution owned and controlled by the Federal Republic of Germany, any interest income received from the loans it extended to E Corporation is exempt from Philippine income tax and, consequently, from withholding tax.
ENTITLEMENT TO PER DIEM/HONORARIUM & ENDOWMENT IS CONSIDERED PRIVATE INUREMENT WHICH DISQUALIFIES NSNP FROM AVAILING TAX EXEMPTION
BIR RULING NO. 207-2020, MARCH 10, 2020
C Co. is seeking a Certificate of Tax Exemption enjoyed by a non-stock, non-profit corporation or association under Section 30 (H) of the 1997 Tax Code, as amended. In reply, to avail of the tax exemption, Revenue Memorandum Circular (RMC) No. 51-2014 clarifies that the entity’s earnings or assets shall not inure to the benefit of its trustees, organizers, members, or any specific person. After perusal of the submitted documents, it shows that its Board of Trustees is entitled to per diem/honorarium and endowment. Thus, it is considered as private inurement and, therefore, does not qualify for exemption under Section 30 (H) of the 1997 Tax Code, as amended. Consequently, C Co. shall be treated as an ordinary corporation liable to regular income tax.
IF PURPOSE IS NOT WITHIN SECTION 30 OF THE TAX CODE, BIR WILL SIMPLY DENY THE REQUEST FOR CERTIFICATE OF TAX EXEMPTION
BIR RULING NO. 206-2020, MARCH 10, 2020
C Group is seeking a Certificate of Tax Exemption enjoyed by a non-stock, non-profit corporation, association, or organization under Section 30 of the 1997 Tax Code, as amended. Upon perusal of its Articles of Incorporation, the BIR noted that its purposes do not fall within the scope of the exempt corporation under Section 30 of the same Code. Thus, C Group does not qualify for an exemption and, therefore, liable to regular corporate income tax.
AN ASSOCIATION MUST NOT BE OPERATED & ORGANIZED PRINCIPALLY FOR PROFIT TO AVAIL OF TAX EXEMPTION
RPOSE IS NOT WITHIN SECTION 30 OF THE TAX CODE, BIR WILL SIMPLY DENY THE REQUEST FOR CERTIFICATE OF TAX EXEMPTION
BIR RULING NO. 205-2020, MARCH 10, 2020
C Co. is seeking a Certificate of Tax Exemption enjoyed by a non-stock, non-profit corporation or association under Section 30 (E) of the 1997 Tax Code, as amended. As represented, it was incorporated to publish, produce, promote, and market Christian materials in any format deemed appropriate to strengthen churches in the Philippines and around the world. In reply, to avail of the tax exemption under Section 30 (E) of the same Code, the entity must be organized and operated exclusively for religious, charitable, scientific, athletic, or cultural purpose, or for the rehabilitant of veterans, no part of its net income or asset shall belong to or inure to the benefit of any member, organizer, officer, or any specific person. Likewise, the provision requires that the association must not be organized and operated principally for profit. After perusal of the Financial Statements, the bulk of its revenues comes from selling religious books and materials. Hence, it appears that it is organized and operated principally for profit. Thus, C Co. does not qualify for an exemption under Section 30 (E) and, therefore, it is liable to the regular corporate income tax.
TAX CONSEQUENCES OF A STATUTORY MERGER
ABSORBED CORPORATION EXCHANGES PROPERTY FOR STOCK OF THE SURVIVING CORPORATION
BIR RULING NO. 197-2020, FEBRUARY 24, 2020
A Co. is seeking confirmation on whether the transfer of properties by AZ Corporation, pursuant to a statutory merger wherein the former would be the surviving corporation, would qualify for non-recognition of gain or loss for income tax purposes. In ruling, Section 40(C)(2) of the 1997 Tax Code, as amended, discusses the tax-related consequences of merger. No gain or loss shall be recognized both by the transferor and transferee. The transaction is not subject to 12% Value-Added Tax (VAT). Any unused input VAT by the absorbed corporation will be transferred to the surviving corporation as of the effective date of merger. No Documentary Stamp Tax (DST) is due on the transfer of assets made pursuant to the Plan of Merger. However, the DST shall be due on the original issuance of shares by A Corporation to the stockholders of AZ Corporation. The transaction is not subject to Donor’s Tax since there is no intention on the part of any of the parties to donate. The transaction is a bona fide merger effected solely for business reasons. However, it is to be emphasized that the Net Operating Loss Carry-Over (NOLCO) of the absorbed corporation cannot be transferred to the surviving corporation as the privilege or deduction can only be claimed by the former. Lastly, any dividends received by the shareholders of AZ Corporation shall be subject to 10% Final Withholding Tax.
ABSORBED CORPORATION EXCHANGES STOCK FOR THE SHARES OF THE SURVIVING CORPORATION
THE EXCESS & UNEXPIRED MCIT OF ABSORBED CORPORATION CAN BE USED BY THE SURVIVING CORPORATION
BIR RULING NO. 132-2020, FEBRUARY 5, 2020
C Co. is requesting a confirmation on whether its statutory merger with CP Corporation, the absorbed corporation, is a tax-free merger. In ruling, the BIR confirmed that the merger falls under the exceptions provided in Section 40(C) of the 1997 Tax Code, as amended, since such was undertaken for a bona fide business purpose and not for the purpose of escaping the burden of taxation. No gain or loss shall be recognized by both parties. It follows that the transaction is not subject to income tax and Value-Added Tax (VAT). Likewise, no Donor’s Tax shall be imposed since there was no clear intention on the part of any parties to donate. No Documentary Stamp Tax (DST) shall be collected on the transfer made pursuant to the Plan of Merger. However, DST shall be due on the original issuance of shares by the surviving corporation. For the excess and unutilized input taxes and tax credits of the absorbed corporation, these may be used by the surviving corporation as of the effective date of merger. The same applies for the excess and unexpired Minimum Corporate Income Tax (MCIT) of the absorbed corporation. However, the absorbed MCIT shall still be subject to the 3-year carry-forward period reckoned from the date of payment by the absorbed corporation of the MCIT. NOLCO cannot be transferred to the surviving corporation since the privilege or deduction can only be availed by the absorbed corporation. Lastly, any dividends received by the shareholders of CP Corporation shall be subject to 10% Final Withholding Tax.
PURCHASES MADE BY RE DEVELOPERS ARE SUBJECT TO 0% VAT EVEN IN THE ABSENCE OF PRIOR APPROVAL FOR VAT ZERO-RATING
BIR RULING NO. 128-2020, FEBRUARY 4, 2020
E Co., a Renewable Energy (RE) Developer, is seeking further clarification on the previous ruling issued by the BIR, particularly the requirement on the processing of application for Value-Added Tax (VAT) zero-rated pursuant to Revenue Memorandum Order (RMO) No. 7-2006 in relation to Revenue Regulations (RR) No. 16-2005. In ruling, purchases of RE developer in relation to the development, construction, and installation of plant facilities should not be subject to 12% Value-Added Tax (VAT). Local purchases of goods and services are subject to 0% VAT even without applying for and securing prior approval for VAT zero-rating. However, for the purpose of processing an application for VAT refund of VAT-registered suppliers for VAT zero-rated transactions, an application for VAT zero-rated transactions pursuant to RMO No. 7-2006 is required in relation to Revenue Memorandum Circular (RMC) No. 54-2014 as supplemented by RMC No. 17-2018.
PAGCOR LICENSEE’S GAMING REVENUE IS SUBJECT TO A 5% FRANCHISE TAX IN LIEU OF ALL TAXES
BIR RULING NO. 127-2020, FEBRUARY 4, 2020
T Co., a holder of gaming license issued by the Philippine Amusement and Gaming Corporation (PAGCOR), is seeking confirmation on whether its gaming site shall be subject to a 5% Franchise Tax, in lieu of all kinds of taxes. In reply, Section 13 (2) of the Presidential Decree (P.D.) No. 1869 states that no tax of any kind or form, income or otherwise, as well as fees, charges, or levies of whatever nature, whether national or local, shall be assessed and collected under this franchise, except a Franchise Tax of 5% of the gross revenue or earnings derived by corporation from its operation under this franchise. Thus, the income derived by T Co. solely from its electronic gaming operations during the validity period of its gaming licenses on the specified gaming site is subject only to a 5% Franchise Tax and shall be exempted from Corporate Income Tax and Value-Added Tax (VAT).
DENIED TAX EXEMPTION ON THE GROUND OF INUREMENT OF BENEFITS TO ITS MEMBERS
BIR RULING NO. 122-2020, JANUARY 24, 2020
A Co. is seeking reconsideration on its denied Certificate of Tax Exemption Ruling because of the earlier findings of the BIR that A Co. is giving per diem to the members of the Board of Directors, a clear violation of the law. A Co. amended the By-Laws of the Corporation which provides per diem to its members in response to the aforesaid ruling to cure the defect. However, upon perusal of the Financial Statements, it revealed that the officers and directors of the Corporation have been receiving substantial allowances and discretionary expenses fees. Hence, this act violates the requirement that no part of the net income or assets of the corporation shall inure to the benefit of any individual or specific person. Thus, the request for the reconsideration of the denied ruling cannot be granted.
PAYMENT OF PER DIEM IS CONSIDERED AS PRIVATE INUREMENT WHICH THE LAW PROHIBITS IN OPERATING A NON-STOCK, NON-PROFIT CORPORATION
BIR RULING NO. 087-2020, JANUARY 24, 2020
M Co. is requesting a Certificate of Tax Exemption enjoyed by a non-stock, non-profit corporation or association pursuant to Section 30 (H) of the 1997 Tax Code, as amended. In reply, to avail of the tax exemption under Section 30 (H) of the same code, Revenue Memorandum Circular (RMC) No. 51-2014 clarifies that the earnings or assets of the corporation shall not inure to the benefit of any of its trustees, organizers, officers, members, or any specific person. After perusal of the submitted documents, it revealed that M Co. is giving per diem to the members of the Board of Directors. Hence, this is a form of private inurement which the law prohibits in the organization and operation of a non-stock, non-profit corporation. Thus, M Co. does not qualify for an exemption under Section 30 (H) of the Tax Code, therefore, it is liable for regular income taxes.
TRANSFER OF TITLE FROM SOLE PROPRIETORSHIP TO THE OWNER DOES NOT REQUIRE TAX CLEARANCE BUT ONLY AN ADMINISTRATIVE CORRECTION OF TITLE AT THE REGISTER OF DEEDS
BIR RULING NO. 030-2020, JANUARY 24, 2020
AAA has requested a ruling for an exemption from the payment of Capital Gains Tax on the transfer of property registered in the name of M Enterprise to his name. In ruling, ownership of the land in question, although registered in the name of M Enterprise, actually belongs to the sole proprietor thereof. As such, there is no transfer since the subject property belongs to one and the same person. As such, there is no relevance in securing a Certificate Authorizing Registration (CAR) for a mere administrative correction to change the name from M Enterprise to the individual’s name before the proper Register of Deeds suffices.
DIVIDENDS RECEIVED BY A NON-RESIDENT FOREIGN CORPORATION FROM A DOMESTIC COMPANY ARE SUBJECT TO A 15% FWT
BIR RULING NO. 024-2020, JANUARY 24, 2020
L Group, a non-resident foreign company organized and established in Barbados, is seeking a ruling if cash dividends to be received from C Energy Company, are subject to 15% Final Withholding Tax (FWT) rate under Section 28 (B) (5) (b) of the 1997 Tax Code, as amended, otherwise known as the "Tax Sparing Credit." In ruling, considering that L Group holds more than 10% of the capital of the non-resident company, the dividends it received, as a company registered in Barbados, shall not be included in calculating the assessable income under the Income Tax Act of Barbados. Further, cash dividends to be received from C Energy Company are subject to the 15% preferential FWT.
DIVIDENDS TO BE PAID TO A UNITED STATES COMPANY SUBJECT TO 15% FWT PURSUANT TO RP-US TAX TREATY
BIR RULING NO. 020-2020, JANUARY 24, 2020
F Motor Philippines is seeking a ruling if dividends to be paid to F Motor United States is subject to 15% Final Withholding Tax (FWT) pursuant to Section 28 (B) (5) (b) of the 1997 Tax Code, as amended, otherwise known as "Tax Sparing Credit." In ruling, inter-corporate dividends received by a non-resident foreign corporation from a domestic corporation and collected and paid in accordance with Section 57 (A) of the 1997 Tax Code, as amended, are subject to a final tax rate of 15%, subject to the condition that the country in which the non-resident foreign corporation is domiciled allows a tax credit against the tax due from the non-resident foreign corporation taxes deemed to have been paid in the Philippines equivalent to the rate of 15% of such dividend. Since F Motor United States is a corporation organized, existing, and registered under the laws of the United States of America, a country which allows a credit against the tax due from the non-resident corporation taxes deemed to have been paid in the Philippines, dividends are subject to 15% FWT.
EXTENT OF VAT EXEMPTION OF RHQ
BIR RULING NO. 006-2020, JANUARY 24, 2020
N Co., a Regional Headquarter (RHQ), is seeking a ruling on its Value-Added Tax (VAT) exemption claim pursuant to Section 109 (J) of the 1997 Tax Code, as amended, and Chapter IV, Article 65, Book III of Executive Order No. 226, otherwise known as the Omnibus Investments Code of 1987. In ruling, a Regional or Area Headquarters established in the Philippines by multinational companies which act as a supervisory, communications, and coordinating centers for its subsidiaries, branches, or affiliates in the Asia-Pacific Region and other foreign markets, and which does not earn or derive income in the Philippines are exempt from VAT. Likewise, the sale or lease of goods or properties to them is subject to 0% VAT rate. Thus, considering that N Co. was established to act as a supervisory, communication, and coordinating center for its affiliates, subsidiaries, or branches in the Philippines, it shall be exempt from VAT, provided, that it does not earn or derive income from the Philippines. Also, since Executive Order No. 226 is a special law, the sale or lease of goods and property and the rendition of services to N Co. shall be subject to 0% VAT.
POWER TO ABATE OR CANCEL PENALTIES IS WITH THE CIR
BIR RULING NO. 008-2020, JANUARY 21, 2020
BBB has requested a ruling with prayer to waive or reduce the interest and penalties on capital gains tax due on transfer of property. As represented, BBB executed a Contract to Sell with G Real Estate Corporation (G Co.) involving a sale of condominium unit. Upon completion of payment, G Co. failed to process the transfer of the title in favor of BBB, including the payment of tax due on the aforesaid sale. In ruling, Sections 248 (A) (1) and (3) and 249 of the 1997 Tax Code, as amended, provides that the imposition of surcharge for failure to file return and pay the tax due thereon and interest on delinquency is mandatory. Moreover, under Section 204 (B) of the 1997 Tax Code, as amended, the Commissioner may abate or cancel tax liability only in two (2) cases: (a) the tax or any portion thereof appears to be unjustly or excessively assessed; or (b) the administration and collection costs involved do not justify the collection of the amount due. Voluntary relinquishment of a part of a tax lawfully assessed upon and due from a solvent person or corporation is not permitted by law. Thus, the request was denied.
SERVICES FEES PAID TO NON-RESIDENT FOREIGN CORPORATION FOR SERVICES RENDERED OUTSIDE THE PHILIPPINES ARE EXEMPT FROM INCOME TAX & VAT
BIR RULING NO. 006-2020, JANUARY 20, 2020
S Philippines is seeking a ruling if its service fee payments to S Singapore is exempt from Philippine Income Tax and Value-Added Tax (VAT). As represented, S Philippines will pay service fees to S Singapore, a non-resident foreign corporation, equivalent to 3% of the former's total sales every quarter in consideration of marketing support services to be done generally in Singapore. In ruling, Section 23 (F) of the 1997 Tax Code, as amended, provides that a foreign corporation, whether or not engaged in trade or business in the Philippines, is subject to income tax only with respect to income derived from sources in the Philippines. Since S Singapore performed the services required of it under the Agreement entirely in Singapore, service fees paid by S Philippines to S Singapore for these services shall be exempt from income tax, pursuant to Section 23 (F), in relation to Section 42 (A) (3), of the 1997 Tax Code, as amended. With respect to VAT, payments for the sale or exchange of services, including the use or lease of properties are subject to VAT only if the services are performed in the Philippines. Thus, service fees are likewise exempt from VAT.
HOMEOWNERS ASSOCIATION IS EXEMPT FROM INCOME TAX & BUSINESS TAX
BIR RULING NO. 005-2020, JANUARY 20, 2020
A Homeowners’ Inc., a non-stock and non-profit residential homeowners' association, is seeking a ruling on the extent of its tax exemption. As represented, it is a duly registered Homeowners Association with the Housing and Land Use Regulatory Board; that its financial statements show the delivery of basic community services defined under Section 3 (d) of Republic Act (R.A.) 9904, or the “Magna Carta for Homeowners and Homeowners Association”; and that the Local Government Unit covering the jurisdiction of the Homeowners Association has issued a Certificate that it lacks the resources to provide these services to the Association. In ruling, income derived from association dues, membership fees, other assessments, and reimbursable charges collected, and rentals of facilities of A Homeowners’ Inc. is exempt from Income Tax, Value-Added Tax (VAT), or Percentage Tax, whichever is applicable; provided, that such income and dues shall be used for the cleanliness, safety, security, and other basic services needed by the members, including the maintenance of the facilities of their respective subdivisions or villages. However, it shall be subject to the applicable internal revenue taxes on its other income from trade, business, or other activities.
VAT EXEMPTION OF PRIVATE EDUCATIONAL INSTITUTION DOES NOT INCLUDE ITS PURCHASE OF GOODS & SERVICES
BIR RULING NO. 095-2020, JANUARY 17, 2020
C Co. is seeking clarification on the extent of Value-Added Tax (VAT) exemption of private educational institution. In reply, the VAT exemption only pertains to the educational services rendered by a private educational institution and does not extend to purchase of goods and services. The exemption covers only taxes for which it is directly liable. Since VAT is an indirect tax, VAT-registered suppliers can pass on the 12% VAT to private educational institutions on its purchases of goods and services, and once VAT is shifted, it will form part of the cost of the goods and/or services supplied to the school.
BIR RULING IS NOT NECESSARY IN AVAILMENT OF PEZA TAX INCENTIVES
BIR RULING NO. 001-2020, JANUARY 6, 2020
A Philippine Economic Zone Authority (PEZA) entity does not need a BIR ruling on availment of tax incentives on its registered activity within the ecozone. It must only observe and comply with the terms and conditions provided for in its Registration Agreement with PEZA.
ZERO-RATED VAT ON PURCHASE OF GOODS & SERVICES BY RE DEVELOPERS USED FOR THE DEVELOPMENT, CONSTRUCTION & INSTALLATION OF PLANT FACILITIES
BIR RULING NO. 805-2019, DECEMBER 20, 2019
E Co., a Renewable Energy (RE) Developer, is seeking clarification on its entitlement to Value-Added Tax (VAT) zero-rating on purchase of goods and services. Section 15(g) of Republic Act (R.A.) No. 9513, or the Renewable Energy Act of 2008, provides that all RE Developers shall be entitled to zero-rated VAT on its purchases of local supply of goods, properties, and services needed for the development, construction, and installation of its plant facilities. In ruling, the law intended to exclude RE Developers from the coverage of the 12% VAT. However, such purchases should be used for the development, construction, and installation of its plant facilities. Thus, the suppliers/sellers of goods and services of E Co. should not pass the 12% VAT to the latter’s purchases that will be used in the development, construction, and installation of its power plant facilities. This is one of the fiscal incentives given by the government to encourage RE Developers including contractors and subcontractors to develop and utilize the renewable energy sources in the country.
LABORATORY SERVICES ARE EXEMPT FROM VAT SUBJECT TO LIMITATIONS
BIR RULING NO. 784-2019, DECEMBER 13, 2019
M Laboratory Co. is seeking confirmation on whether revenues earned from laboratory services are Value-Added Tax (VAT) exempt. As represented, it is engaged purely in laboratory services and does not sell any form of pharmaceutical and/or medical products. In ruling, Section 109 of the 1997 Tax Code, as amended, provides that medical, dental, hospital, veterinary, and laboratory services are exempt from VAT. However, those rendered by professionals are not included in the exemption.
INCOME PAYMENTS MADE TO JOINT VENTURE (JV) IS NOT SUBJECT TO CWT
CO-VENTURERS’ INCOME DERIVED FROM JV IS SUBJECT TO CWT
BIR RULING NO. 783-2019, DECEMBER 11, 2019
A Joint Venture (JV) is not subject to income tax if the conditions provided under Revenue Regulations (RR) No. 10-12 are met: (1) JV is for the undertaking of construction project; (2) JV involves joining or pooling of resources by licensed local contractors (licensed as general contractors by the Philippine Contractors Association Board (PCAB); (3) local contractors are engaged in the construction business; and (4) JV itself is duly licensed by PCAB. Thus, income payment to JV on the JV project is likewise not subject to a 2% Creditable Withholding Tax (CWT). However, the JV should subject to income tax the respective income of the co-venturers derived from the JV before the distribution.
VAT TREATMENT OF SALES & PURCHASES MADE BY RENEWABLE ENERGY DEVELOPERS
BIR RULING NO. 780-2019, DECEMBER 10, 2019
A Co., a Renewable Energy (RE) Developer of Biomass Resources, is seeking confirmation on 0% value-added tax (VAT) treatment on its sale of energy generated from renewable sources and purchases of local supply of goods, properties, and services needed for the development, construction, and installation of plant facilities. In reply, Section 4.108-5 of Revenue Regulations (RR) No. 16-05 provides that sale of power generated through renewable sources of energy is entitled to VAT zero-rating on sales. Moreover, Section 15 of Republic Act (R.A.) No. 9513, otherwise known as the “Renewable Energy Law” provides that all RE Developers are entitled to 0% VAT on its purchases provided that such are needed for the development, construction, and installation of their power plant facilities. Thus, suppliers should not subject the purchases of RE Developers to 12% VAT. Nonetheless, the grant of VAT zero-rating shall be subject to the BIR’s post audit verification.
INTER-CORPORATE DIVIDENDS RECEIVED BY A NON-RESIDENT FOREIGN CORPORATION CAN BE SUBJECTED TO A LOWER TAX RATE OF 15% FWT
BIR RULING NO. 767-2019, DECEMBER 9, 2019
A Co. is seeking confirmation if dividend to be paid to Ford Motor Company (FORD-US) is subject to 15% Final Withholding Tax (FWT) under the Tax Sparing Rule pursuant to the 1997 Tax Code, as amended. As represented, FORD-US is a USA-based company and has no License to Do Business in the Philippines, hence, it is considered a non-resident foreign corporation. In ruling, Section 28 of the Tax Code, as amended provides that inter-corporate dividend received by a non-resident foreign corporation from a domestic corporation is subject to a final tax rate of 15%, subject to the condition that the country in which the non-resident foreign corporation is domiciled allows a tax credit against the tax due from non-resident foreign corporation taxes deemed to have been paid in the Philippines. As noted, under the US Internal Revenue Code, it allows tax credit for as long as the conditions are met. Applying the said provisions, dividend to be received by FORD-US is subject to preferential lower tax rate of 15%.
DENIED RULING DUE TO THE PAYMENT OF SALARY
ADMINISTRATIVE EXPENSES SHOULD NOT EXCEED 30% OF THE OPERATING INCOME
BIR RULING NO. 762-2019, DECEMBER 9, 2019
N Foundation, a non-stock, non-profit association, is seeking issuance of a Certificate of Tax Exemption. In reply, Section 30 of the 1997 Tax Code, as amended, states that non-stock means no part of its income is distributable as dividends to its members, trustees, or officers. However, the submitted Financial Statements of the association show that it pays allowances and honorarium. It also shows that more than 30% of the operating income is used for administrative expenses. Thus, the association cannot be qualified for the tax exemption. Consequently, the BIR denied the request and, therefore, N Foundation shall be treated as a regular corporation subject to regular tax.
TRANSFER OF CONVEYED PROPERTY PURSUANT TO A JUDGMENT BY COMPROMISE IS NOT SUBJECT TO DONOR’S TAX, BUT TO CGT & DST
OWNER OF THE CONVEYED PROPERTY HAS NO DONATIVE INTENT IF TRANSFER IS NECESSARY CONSEQUENCE OF REQUIREMENT OF THE COURT-APPROVED COMPROMISE AGREEMENT
BIR RULING NO. 760-2019, DECEMBER 9, 2019
S Co., a non-stock corporation, is requesting a ruling on whether the transfer to S-QC of 50% of the property covered by reconstituted Transfer Certificate of Title by way of Judgment on Compromise is subject to Donor's Tax. In reply, transfer of the conveyed property by way of Judgment on Compromise is a necessary consequence of the requirement imposed under the court-approved Compromise Agreement; hence, there is no donative intent on the part of The Superintendent of N Missionary (“The Superintendent”), the absolute and sole owner of the subject property. Moreover, the conveyance is a mere recognition by S-QC of The Superintendent's absolute ownership of the conveyed property; thus, the transfer is not subject to Donor's Tax imposed under Section 98 of the 1997 Tax Code, as amended. However, the reconveyance of the property in favor of The Superintendent is covered by the clause "dispositions of land and/or buildings" under Section 27 (D) (5) of the 1997 Tax Code, as amended; therefore, it is subject to Capital Gains Tax (CGT). Likewise, the conveyance, per court-approved Compromise Agreement, in the nature of disposition of real property in the same preceding, is subject to the Documentary Stamp Tax (DST) imposed in Sections 188 and 196 of the Tax Code, as amended.
TAX INCENTIVES UNDER ADOPT-A-SCHOOL ACT OF 1998
BIR RULING NO. 731-2019, DECEMBER 9, 2019
A Co. entered into a Memorandum of Agreement (MOA) with public schools under the Department of Education (DepEd). In the MOA, A Co. will provide allowances to subsidize the wages of non-DepEd teaching plantilla. It is now seeking a ruling on its entitlement to Donor’s Tax exemption as well as the deductibility of the donation in accordance with Republic Act (R.A.) No. 8525, otherwise known as the "Adopt-A-School Act of 1998.” In reply, A Co. shall be entitled to full deductibility of the amount of contributions/donations that were actually, directly, and exclusively incurred for the Program, subject to limitations, conditions, and rules in Section 34(H) of 1997 Tax Code, as amended. Likewise, it is entitled to an additional amount of deductions equivalent to 50% of contributions/donations pursuant to compliance requirements under Section 3 of Revenue Regulations (RR) No. 10-2003. Moreover, the donation made by A Co. to DepEd which is not conducted for profit, or to any political subdivision is exempt from Donor's Tax.
DENIAL OF TAX EXEMPTION DUE TO COMPENSATION RECEIVED BY TRUSTEES
BIR RULING NO. 727-2019, DECEMBER 5, 2019
D Academy, a non-stock, non-profit educational institution, is seeking issuance of a Certificate of Tax Exemption. In reply, Revenue Memorandum Order (RMO) No. 44-2016 provides that there are two (2) requisites for a non-stock, non-profit educational institution to be exempt from tax: (a) it is a non-stock, non-profit educational institution; and (b) its revenues are actually, directly and exclusively used for educational purposes. Non-stock means no part of its income is distributable as dividends to its members, trustees, or officers. However, a perusal of documents showed that the alphalist contains the names of trustees who received compensation income. Thus, the institution cannot be qualified as a non-profit educational institution. Consequently, the BIR denied the request and, therefore, D Academy shall be treated as a regular corporation subject to regular tax.
CHANGE IN ACCOUNTING METHOD REQUIRES BIR APPROVAL
BIR RULING NO. 723-2019, DECEMBER 2, 2019
F Co., a power-generating company, is seeking approval on the change of depreciation method from Straight Line to Units of Production Method for both financial accounting and tax purposes. During the initial year of operation, F Co. used Straight Line Method because the management estimated that the power plant will operate at full capacity and generate maximum output from the initial year of operation up to the end of the assets' useful life. However, due to unforeseen changes in market conditions, F Co. was not able to attain its full capacity. This leads to the recognition of depreciation that does not match the current and expected usage of the power plant assets in terms of unit volume of output. In reply, Section 34 (F) of the 1997 Tax Code, as amended, provides that depreciation is a cost allocation process that systematically and rationally allocates acquisition costs of operational assets to periods benefited by their use. Thus, F’s request to change the depreciation method is GRANTED, as justified by attendant circumstances cited.
DENATURED ALCOHOLS WHICH DID NOT PASS FOR HUMAN CONSUMPTION CAN BE SOLD WITHOUT THE IMPOSITION OF EXCISE TAX UNDER THE SIN TAX LAW
BIR RULING NO. 700-2019, NOVEMBER 25, 2019
E Co. is requesting a ruling to the effect that all damaged or substandard ethyl alcohol which are rendered unfit for oral intake can be sold in the form of denatured alcohol, to buyers and manufacturers engaged in non-liquor business (i.e., producers of rubbing alcohol, personal care products, etc.) without the imposition of excise tax. As represented, E Co. is a prime producer of liquor brands for local and international market. In line with this, its enhanced quality control on products is high wherein certain batches of alcohol may be rendered unfit for human consumption. All those alcohols which did not pass the quality control will be permanently idle and will be considered as unusable inventory, so as not to compromise the integrity of its bottled liquor products. In ruling, the BIR cited the ruling of World Trade Organization (WTO) as provided in Republic Act (R.A.) No. 10351 or the SIN Tax Law, and as implemented by Revenue Memorandum Circular (RMC) No. 18-2013, which removes the excise tax on denatured alcohol. In this regard, the BIR allowed E Co. the denaturing of alcohol subject to strict compliance of the rules and regulations.
LOCAL WATER DISTRICT IS EXEMPT FROM INCOME TAX & CONSEQUENTLY, TO EXPANDED WITHHOLDING TAX, BUT THE SAME IS SUBJECT TO 2% FRANCHISE TAX
BIR RULING NO. 694-2019, NOVEMBER 21, 2019
P Co., a VAT registered entity, entered a Joint Venture (JV) with Tarlac City Water District (TCWD), a government owned and controlled corporation and a franchise grantee to provide water supply service in Tarlac City. P Co. is now seeking clarification on the taxability of revenue share from the JV with TCWD. In reply, a local water district is not liable to pay the same rate of tax as imposed to other domestic corporations engaged in a similar business, industry, or activity. TCWD, being a duly organized local water district per Conditional Certificate of Conformance No. 14 issued by the Local Water Utilities Administration, is not subject to income tax, and consequently, to Expanded Withholding Tax (EWT) on its revenue share from the JV citing Section 27 of the 1997 Tax Code, as amended. However, the same is subject to 2% Franchise Tax as imposed under Section 119 of the 1997 Tax Code, as amended. P Co.’s revenue share, on the other hand, is subject to 30% Corporate Income Tax and 12% Value-Added Tax (VAT) as a domestic corporation.
VAT EXEMPTION OF IMPORTED CARGO SHIP
BIR RULING NO. 679-2019, NOVEMBER 13, 2019
M Co., a shipping company duly accredited by the Maritime Industry Authority (MARINA), is requesting a Value-Added Tax (VAT) exemption ruling on its importation of cargo ship from Korea. In ruling, importation of a cargo vessel destined for domestic transport operations shall be exempt from VAT, provided that the importation shall be subject to the requirements of restriction on vessel importation and mandatory vessel retirement program of MARINA. As noted, the imported cargo vessel has been issued by MARINA with the required authority to be imported. Hence, the importation of the said vessel is deemed compliant with the requirements on restriction on vessel importation and mandatory vessel retirement program of MARINA. Therefore, the importation of the cargo vessel shall be exempt from VAT.
VAT EXEMPTION OF IMPORTED GENERAL-PURPOSE SHIP
BIR RULING NO. 673-2019, OCTOBER 30, 2019
P Co., a shipping company duly accredited by Maritime Industry Authority (MARINA), is requesting a Value-Added Tax (VAT) exemption ruling on its importation of a general-purpose ship from Malaysia. In ruling, a general-purpose vessel falls under the classification of a cargo vessel and that importation of a cargo vessel destined for domestic transport operations shall be exempt from VAT, provided that it will be subject to the requirements on restriction on vessel importation and mandatory vessel retirement program of MARINA. As noted, the imported cargo vessel has been issued by MARINA with the required authority to be imported. Hence, the importation of the said vessel is deemed compliant with the requirements of restriction on vessel importation and mandatory vessel retirement program of MARINA. Therefore, the importation of the cargo vessel shall be exempt from VAT.
INCOME PAYMENTS TO NON-RESIDENT FOREIGN CORPORATION ON SOFTWARE DISTRIBUTION ARE TAXABLE AT 30% & 12% VAT IF THERE IS A PROVISION FOR SERVICE
BIR RULING NO. 672-2019, OCTOBER 30, 2019
E Co., a Singapore Company, is seeking confirmation that income payments related to services performed outside the Philippines shall not be subject to income tax and, consequently, to Withholding Tax and Value-Added Tax (VAT) in the Philippines. The income payment is in connection to the Software Distribution Agreement executed with V Co., a domestic entity engaged in the business of trading and importing of goods, such as computer hardware, software, and office equipment, on wholesale and retail basis, and allied services. As represented, E Co. is organized under the laws of the Republic of Singapore and not registered as a corporation or partnership in the Philippines as evidenced by a Certification of Non-Registration of Company issued by the Securities and Exchange Commission (SEC). In reply, a non-resident foreign corporation is subject to Philippine income tax of 30% only in respect of the gross income received from all sources within the Philippines. The tax situs rule provides that the source of income is the property, activity, or service that produced the income; the test of taxability is the "source,” and the source of income is that activity which produced the income. A perusal of documents showed that the source of income (i.e., distribution of software) takes place in the Philippines. Likewise, V Co., a domestic company located in the Philippines and a distributor shall distribute the software in the Philippines pursuant to the Agreement; hence, the service, being performed in the Philippines, is taxable in the Philippines. On business tax, Section 108 (A) of the 1997 Tax Code, as amended, provides that VAT shall be imposed on gross receipts derived from the sale or exchange of services, and the use or lease of properties. The same provision of the Tax Code provides that the phrase "exchange of services" means the performance of all kinds of services in the Philippines for others for a fee, remuneration, or consideration. In this case, services to be rendered by E Co. to V Co. will be done in the Philippines. Consequently, payments of service fees by V Co. shall likewise be subject to VAT. In summary, payments to be made by V Co. to E Co. for services rendered in the Philippines are subject to Philippine income tax, withholding tax, and VAT.
VAT ZERO-RATING ON PURCHASES OF RENEWABLE ENERGY DEVELOPERS RELATES ONLY TO THE DEVELOPMENT, CONSTRUCTION & INSTALLATION OF POWER PLANT FACILITIES
BIR RULING NO. 668-2019, OCTOBER 21, 2019
P Co., a Renewable Energy (RE) Developer, is seeking confirmation on its entitlement to Value-Added Tax (VAT) zero-rating on purchases made including its lease payments. In reply, Section 15 of Republic Act (R.A.) No. 9513, otherwise known as the “Renewable Energy Law,” provides that purchases of goods and services of RE Developers are subject to 0% VAT provided that they are needed for the development, construction, and installation of their power plant facilities. However, it is to be emphasized that such incentive is limited to previously mentioned activities for its power plant. This is one of the fiscal incentives given by the government to encourage RE Developers including contractors and subcontractors to develop and utilize the renewable energy sources in the country.
VAT EXEMPTION OF IMPORTED FAST CRAFT PASSENGER SHIP
BIR RULING NO. 659-2019, OCTOBER 18, 2019
E Co., a duly accredited shipping company by Maritime Industry Authority (MARINA), is requesting a Value-Added Tax (VAT) exemption ruling on its importation of fast craft passenger ship. In ruling, importation of a cargo vessel destined for domestic transport operations shall be exempt from VAT, provided that the importation shall be subject to the requirements of restriction on vessel importation and mandatory vessel retirement program of MARINA. As noted, the imported cargo vessel has been issued by MARINA with the required authority to be imported. Hence, the importation of the said vessel is deemed compliant with the requirements of restriction on vessel importation and mandatory vessel retirement program of MARINA. Therefore, the importation of the cargo vessel shall be exempt from VAT.
TAX EXEMPTION OF SCHOOL CAN ONLY BE ACTED AFTER THREE (3) YEARS OF OPERATIONS
BIR RULING NO. 655-2019, OCTOBER 17, 2019
A Methodist Christian School based in Cagayan, which is a non-stock, non-profit association, is requesting a Certificate of Tax Exemption pursuant to Section 30 of the 1997 Tax Code, as amended. In reply, a Certificate of Tax Exemption can only be issued after proving that the school has already attained at least three (3) years of actual operation, and that it is really an association exempt from income tax. In the meantime, the school is subject to the corresponding internal revenue taxes imposed under the Tax Code. It is likewise subject to final and business taxes and must act as withholding agent of the government for the compensation received by its employees.
EXEMPTION OF FOREIGN GOVERNMENT FROM INCOME TAX & WITHHOLDING TAX ON LOANS, STOCKS, BONDS & EQUITY INVESTMENTS IN THE PHILIPPINES
BIR RULING NO. 621-2019, OCTOBER 16, 2019
G Co., a wholly owned corporation by the Government of Singapore and incorporated in 1981 under the Companies Act, Cap. 185 of the Republic of Singapore, is seeking confirmation that the income derived from its current and future investments in the Philippines in loans, stocks, bonds or other domestic securities, or from interest on its deposits in banks in the Philippines, is exempt from Philippine income tax and, consequently, from withholding tax. As represented, it has several investments in the Philippines such as government treasury bills and bonds, bank deposits, as well as equity investments in various Philippine corporations. In ruling, Section 32 of the 1997 Tax Code, as amended, provides that income derived from investments in the Philippines in loans, stocks, bonds, or other domestic securities, or from interest on deposits in banks in the Philippines by foreign governments and financing institutions wholly owned, controlled, or enjoying refinancing from foreign governments shall be exempt from income tax, and, consequently, from withholding tax. Thus, G Co.’s investments should be exempted from income tax.
E-FUEL CARD IS NOT SUBJECT TO EWT
BIR RULING NO. 585-2019, OCTOBER 10, 2019
P Co. is seeking clarification on whether the sale of e-Fuel cards is not subject to withholding tax. As represented, payments received by P Co. from e-fuel cards purchaser will be booked or recognized as part of “liability,” and the same will be used by the card holder (customer) to purchase fuels at participating Petron station. In ruling, sale of e-Fuel cards is not yet considered as revenue or income and such payments are not subject to withholding tax citing Section 57 of the 1997 Tax Code, as amended, and Revenue Regulations (RR) No. 11-2018. However, in the event of non-use of the cards within its validity period or in case of breakage or loss, P Co. shall recognize outright income earned from the sale of e-Fuel cards, thus, subject to income tax.
TRANSFER OF PROPERTY TITLE TO THE TRUSTOR FROM THE TRUSTEE IS EXEMPT FROM TAXES
CONVEYANCE OF PROPERTY BY TRUSTEE IN FAVOR OF TRUSTOR IS A MERE CONTINUATION & CONFIRMATION OF TITLE IN FAVOR OF REAL BENEFICIARY OF THE SUBJECT PROPERTIES
BIR RULING NO. 584-2019, OCTOBER 9, 2019
B, a Filipino-U.S. citizen, temporarily working in the Philippines, bought from Fuente One a condominium unit through his brother C and his wife D (trustor) by executing a Deed of Recognition of Trust Relationship and Waiver of Apparent Rights to confirm the trust relationship. To prove that B is the beneficial owner, Fuente issued acknowledgment receipts for the Documentary Stamp Tax (DST) and Real Property Tax (RPT) and official receipts for condominium dues in her name. B is now seeking a ruling that the transfer and reconveyance of the title of the properties to the trustor from the trustee is exempt from taxes. In reply, the transfer is not subject to Capital Gains Tax and DST considering that there is no sale, exchange, or disposition of real property involved, since B is the real owner while C and D acted merely as trustees. Moreover, the transfer is not motivated by a valuable consideration and merely acknowledges, confirms, and consolidates the legal title and actual ownership over the properties in the name of B. Likewise, it is not subject to Donor’s Tax since there is no donative intent on the part of the trustee. Moreover, it is not subject to 12% Value-Added Tax (VAT) because the said property is not held primarily for sale to customers or for lease in the ordinary course of trade or business. However, the notarial acknowledgment to such deed is subject to DST of Php 15.
SALE OF AGRICULTURAL & MARINE FOOD PRODUCTS, WHICH ARE NOT SERVED IN A DINE-IN SET-UP, ARE EXEMPT FROM VAT
ALL SALE OF AGRICULTURAL & MARINE FOOD PRODUCTS SERVED IN A DINE-IN SETUP WILL BE TAXED THE SAME AS RESTAURANT AS IT CONSTITUTES SALE OF SERVICE
BIR RULING NO. 557-2019, OCTOBER 3, 2019
B Co., operating under ready-to-eat roasted chicken with nationwide presence, is primarily engaged in manufacturing, marketing, and distribution of poultry and meat products. It is seeking confirmation if sale of roasted chicken is exempt from Value-Added Tax (VAT). As represented, its process starts from specification of dressed chicken up to the roasting of its meats. It does not add any other preservatives, additives, or coloring. Likewise, all store outlets sell roasted chickens, in either whole or chopped to customers. In reply, Section 109 of the 1997 Tax Code, as amended, provides that sale or importation of agricultural and marine food products in their original state, livestock, and poultry of a kind, generally used as, or yielding or producing foods for human consumption are exempt from VAT. However, if sales outlet maintains a facility where chicken, which has undergone the simple process of roasting will be offered as a menu to customers who would dine-in, then, it will be subject to VAT on sale of service, which is similarly imposed on restaurants and other eateries.
TRANSFER OF PROPERTY TITLE TO THE TRUSTOR FROM THE TRUSTEE IS NOT SUBJECT TO CGT, CWT, VAT, GIFT TAX & DST
CONVEYANCE OF PROPERTY BY THE TRUSTEE IN FAVOR OF THE TRUSTOR BY VIRTUE OF A TRUST AGREEMENT IS NOT A TRANSFER SEPARATE & DISTINCT FROM SALE BETWEEN THE ORIGINAL OWNER & THE TRUSTEE
BIR RULING NO. 546-2019, OCTOBER 1, 2019
J Corporation, the actual owner of the condominium unit and known as “trustee” entered a Deed of Trust with Spouses B & C or “trustors.” The Deed expressly undertakes not to sell, encumber, transfer, or convey the unit without a Board Resolution from J Corporation authorizing as such. On June 23, 2017, J Corporation issued a Board Resolution that the condominium unit be transferred and conveyed to it. J Corporation is now seeking a ruling that the transfer and reconveyance of the title of the properties to the trustor from the trustee is not subject to Capital Gains Tax (CGT), Creditable Withholding Tax (CWT), Value-Added Tax (VAT), Gift Tax, and Documentary Stamp tax (DST). In reply, the transfer is not subject to CGT, CWT, and DST considering that the transfer is not motivated by a valuable consideration and merely acknowledges, confirms, and consolidates the legal title and actual ownership over the properties in the name of J Corporation. Likewise, it is not subject to 12% VAT because the said property is not held primarily for sale to customer or for lease in the ordinary course of trade or business. Moreover, it is not subject to Gift Tax since there is no donative intent on the part of the trustee. However, the notarial acknowledgment to such deed is subject to DST of Php 15.
TAX EXEMPTION OF RETIREMENT PAY UPON MEETING THE AGE & LENGTH OF SERVICE REQUIREMENT
BIR RULING NO. 545-2019, OCTOBER 1, 2019
Mr. M, an employee of National Grid Corporation of the Philippines (NGCP) since June 30, 2009, is requesting exemption from payment of tax on his retirement benefits. As represented, June 25, 2019 will be his compulsory retirement age upon reaching the age of 65. However, NGCP has no retirement plan or policy for its employees. In reply, Republic Act (R.A.) No. 7641, otherwise known as “The Retirement Law” provides that in the absence of a retirement plan or agreement for the retirement benefits of employees, an employee upon reaching the age of 60 or more, but not beyond 65, who has served at least five (5) years in the said establishment is entitled to a tax-exempt retirement pay equivalent to at least a half month salary for every year of service, a fraction of at least six (6) months being considered as one whole year. Thus, the retirement pay is exempt from income tax and, consequently, from withholding tax pursuant to Section 32 (B) (6) (a) of the 1997 Tax Code, as amended.
DISQUALIFICATION OF A BENEFICIARY ASSOCIATION FROM TAX EXEMPTION DUE TO FAILURE TO MEET REQUIREMENTS PURSUANT TO SECTION 30 (C) OF THE TAX CODE
BIR RULING NO. 540-2019, SEPTEMBER 27, 2019
A Co. is requesting a Certificate of Tax Exemption enjoyed by non-stock, non-profit corporation or association pursuant to Section 30 of the 1997 Tax Code, as amended. A Co., an association, was incorporated to organize conferences and other similar events for information and communications industry in Asia, to provide venue for international telecommunication professionals to debate on current issues, and to organize and establish corporate social responsibility projects to benefit selected beneficiaries. In reply, to avail of the tax exemption under Section 30(C) of the 1997 Tax Code, as amended, as clarified by Revenue Memorandum Circular (RMC) No. 64-2016, the entity must be organized as (i) a beneficiary society, order, or association, operating for the exclusive benefit of the members such as fraternal organization operating under lodge system; (ii) a mutual aid association; (iii) a non-stock corporation organized by employees providing for the payment of life, sickness, accident, or other benefits exclusively to the members of such society, order, or association, or non-stock corporation or their dependents, and must provide for the payment of life, sick, accident, or other benefits to the members of such society, order or association or their dependents. Likewise, to exempt from income taxes, the institution must be "organized and operated exclusively for the benefit of its members or dependents.” After perusal of the submitted documents, there was no proof that A Co. met the criteria, hence, it cannot be qualified as a non-stock, non-profit corporation. Consequently, A Co. does not qualify for an exemption under Section 30 (C) of the 1997 Tax Code, as amended; therefore, it is liable to income taxes imposed by the same law.
TAX EXEMPTION ENJOYED BY CHARITABLE INSTITUTION SHOULD BE DENIED DUE TO FAILURE TO MEET THE REQUIREMENTS PURSUANT TO SECTION 30 (E) OF THE 1997 TAX CODE
BIR RULING NO. 539-2019, SEPTEMBER 27, 2019
M Foundation, Inc. is requesting a Certificate of Tax Exemption enjoyed by a non-stock, non-profit corporation or association pursuant to Section 30 (E) of the 1997 Tax Code, as amended. In reply, to avail of the tax exemption, a charitable corporation or association must meet the following conditions: (1) claimant must be a non-stock corporation or association; (2) organized exclusively for charitable purposes; (3) operated exclusively for charitable purposes; and (4) no part of its net income or asset shall belong to or inure to the benefit of any member, organizer, officer, or any specific person. A perusal of the documents revealed that the Audited Financial Statements of the Foundation show revenues coming from dividends, interests, and gains which arise from changes in the fair values of financial assets. Further, millions of its assets and funds are being utilized as accommodation for its officers and employees, as well as the officers and employees of its affiliates. Moreover, its expenses/disbursements are not devoted or used altogether to the charitable object which it intended to achieve pursuant to its Articles of Incorporation. Thus, the request for tax exemption was denied, and the Foundation shall be treated as an ordinary corporation subject to regular corporate income tax and other applicable internal revenue taxes imposed by the Tax Code.
FOUNDATION MUST BE ORGANIZED & OPERATED EXCLUSIVELY FOR CHARITABLE PURPOSES TO BE ENTITLED TO CLAIM FOR TAX EXEMPTION
TAX EXEMPTIONS FOR CHARITABLE INSTITUTIONS SHOULD BE LIMITED TO INSTITUTIONS WHOSE ACTIVITIES ARE BENEFICIAL TO THE PUBLIC & WHICH IMPROVE SOCIAL WELFARE
BIR RULING NO. 508-2019, SEPTEMBER 11, 2019
L Foundation, a non-stock non-profit foundation organized for charitable purposes, is seeking issuance of a Certificate of Tax Exemption pursuant to Section 30 of the 1997 Tax Code, as amended. In reply, L Foundation is not qualified because it is not organized and operated exclusively for charitable purposes. A perusal of documents showed that the secondary purpose includes a provision that part of its net income or asset shall belong to or inure to the benefit of any member, organizer, officer, or any specific person. Likewise, financial statements prove that foundation's transactions call for payment of regular tax. Tax exemptions for charitable institutions should, therefore, be limited to institutions beneficial to the public and those which improve social welfare. A profit-making entity should not be allowed to exploit this subsidy to the detriment of the government and other taxpayers.
NON-STOCK, NON-PROFIT HAS TO PROVE, BY ACTUAL OPERATION FOR AT LEAST THREE (3) YEARS, TO OBTAIN CERTIFICATE OF TAX EXEMPTION
BIR RULING NO. 507-2019, SEPTEMBER 10, 2019
A company, under inception of operations, cannot yet be issued with a Certificate of Tax Exemption for it has to prove its entitlement to income tax exemption after three (3) years of operations.
BACKWAGES, SALARIES & BENEFITS OF ILLEGALLY DISMISSED EMPLOYEES ARE SUBJECT TO WITHHOLDING TAX
BIR RULING NO. 501-2019, SEPTEMBER 6, 2019
T Co. is seeking clarification on the tax implications of unremitted tax on back salaries, allowances, and other benefits of former employees who were dismissed from the government service in March 2013 and reinstated in April 2018, as ordered by the Court of Appeals. Likewise, it is seeking confirmation if penalties and surcharges can be condoned. In ruling, the employer is required to withhold income tax corresponding to the income received as salaries of the dismissed employees, from the time they were dismissed up to the time of their reinstatement, pursuant to Revenue Regulations (RR) No. 2-98, as amended by RR No. 11-2018. Thus, the dismissed employees are required to report such income for the years, by allocating or spreading such through the years from the time of dismissal up to the actual reinstatement. However, penalty, surcharge, and interest for late payment of taxes shall not be imposed since T Co.’s failure to remit is due to a pending case in court. Nonetheless, the waiver of penalty, surcharge, and interest will be effective only up to the time this ruling is received.
TRANSFER OF LAND PURCHASED BY HOMEOWNERS’ ASSOCIATION ON BEHALF OF ITS MEMBERS IS NOT SUBJECT TO CGT, DST & WITHHOLDING TAXES
BIR RULING NO. 088-2019, JANUARY 10, 2019
S, a Homeowners Association Inc. (SHOA), is seeking confirmation on its exemption from Capital Gains Tax (CGT) relative to the transfer of title of land in favor of qualified member beneficiary. As represented, SHOA is the registered owner of the land which was acquired through payment made involving 178 beneficiaries. One of the beneficiaries is now in the process of transferring the purchased property in her name. In reply, Section 27(D) of the 1997 Tax Code, as amended, provides that the purchased lot is not subject to CGT or to Creditable Withholding Tax (CWT) imposed under Revenue Regulations (RR) No. 2-98 considering that the said transfer of property is without any consideration and is effected only as a formality to finally effect the transfer of said property who actually bought the same from the former owner through the Association. Said transfer is not likewise subject to Donor’s Tax since there is no donative intent on the part of the Association; it could not donate property of which the ownership belongs to the member-beneficiary. Lastly, the transaction is not subject to Documentary Stamp Tax (DST) considering that the purchaser is actually the owner thereof. However, notarial acknowledgement to the Deed of Conveyance is subject to DST.
GRANTING OF AUTHORITY TO CHANGE INVENTORY VALUATION METHOD DEPENDS ON WHETHER IT CONFORMS TO THE COMPANY’S ACCOUNTING PRACTICE & IF IT REFLECTS THE COMPANY’S TRUE INCOME
BIR RULING NO. 081-2019, JANUARY 10, 2019
T Co. is seeking approval to change its accounting method of valuing inventories from First-In-First-Out (FIFO) method to Weighted Average Method effective January 1, 2015. As represented, the decision to change its inventory method was brought by the intention of the management to align its method of inventory with its parent company and new unit cost is determined after every purchase. Further, weighted average method levels out the effects of market fluctuations in inventory prices and produces inventory valuation that approximates current value. Moreover, by using the weighted average method, it would conform to the best accounting practice of T Co.’s trade and business as a distributor and wholesaler of food, beverage, pharmaceutical, and personal care products. Considering that it would clearly reflect the true income of the Company, the BIR granted authority to T Co. to change its inventory valuation from FIFO to Weighted Average method effective January 1, 2015.