Current issues problems and solutions in taxation(4 16-14)

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Current Issues, Problems and Solutions in Taxation of Non Stock Non Profit Organizations and Non Stock Non Profit Educational Institution

By:Ruperto P. Somera Ph.D., DBA, DBE, CPATax Consultant, Professor/LecturerFormer Member of the Board of AccountancyFormer Director, Bureau of InternalRevenueFellow Tax ManagementFellow Tax ResearchFellow Business ManagementFellow Tax Accounting

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Issues

1. Tax Exemption of Non Stock Non Profit Organizations and Non Stock Non Profit Educational Institution

2. Taxation of churches

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Problems

1. Revenue Memorandum Order No. 18-2013 on Policies in the Issurance of tax Exemption.

2. Shame Campaign of the BIR.

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Solution

1. Maintain High level of Tax compliance

2. Know the Tax Laws

3. Know how the Tax Laws are applied

4. Get Professional Help

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KINDS OF TAX EXEMPTIONS

1) Constitutional income tax exemptions;

2) Statutory tax exemptions under the NIRC special laws such as the Investments Incentives Act;

3) Special income tax Exemption on Export Processing Zones, and Bases Conversion Act.

4) Tax treaties

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KINDS OF INCOME TAX EXEMPTION

• Express income tax exemptions,

• Intentional income tax exemptions

It could be express or implies immunity, to particular persons or corporations, or to persons or corporations of a particular class.

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EXPRESS INCOME TAX EXEMPTION

Income tax exemption which spells out clearly, and leaves no room for doubt, the extent of the immunity from a specific kind of tax on earnings which is to be enjoyed by a particular class of persons or corporations.

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EMPLIED INCOME TAX EXEMPTION

This exemption from income taxation which arises from implication, either because interpretation of the income tax law resulted to the exclusion from taxation or certain persons or corporations.

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Instances where tax exemptions may be granted other than by act of Congress

a. Where the President of the Philippines exercises his power under the flexible tariff clause to remove existing protective tariff rates without the participation of Congress.

b. A local government unit may grant exemptions from the payment of local government taxes, without congressional approval, consequent to its power to levy taxes, fees and other charges.

c. The President of the Philippines may enter into and ratify a tax treaty granting certain tax exemptions subject only to Senate concurrence.

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Statutory tax exemptions

a. Tax exemption provisions under Executive Order No. 226, The Omnibus Investments Code of 1987.

b. Tax exemption provisions under the three (3) basic tax codes and a general code.

1. The Tariff and Customs Code as amended;

2. The National Internal Revenue Code, as amended

3. The Local Government Code.

c. “Tax exemptions to pioneer and non-pioneer preferred enterprises under Executive Order No. 226, The Omnibus Investment Code of 1987”.

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One of the inherent limitations on the power of taxation is recognition of tax exemptions of the government.

Government is usually exempt from taxation in order to reduce the amount of money that the government is handling. (Maceda v. Macaraeg. Jr. 197 SCRA 771)

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Interpretation of Tax Exemption

Should be constured against the taxpayer while other tax laws should be liberally interpreted in favor of the tax payer.

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Our Constitution exempt from taxation properties devoted exclusively to religious purposes (Art. IV Sec. 28)

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In our constitution, Article III Section 5 does NOT prohibit imposing of a tax on the sale of religious materials by a religious organization.

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Charitable institutions, churches or convents, mosques, nonprofit cemeteries, and all lands, buildings, and improvements, actually, directly, and exclusively used for religious, charitable, or educational purposes shall be exempt from taxation.

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BIR Basic Requirements for Churches

1. Tax Identification Number (TIN)

2. Registration as withholding Agent if they have employee

3. Registration of Business ( If engage in selling Religious Items or property for lease)

4. Registration of Books of Accounts if engage in selling religious item

5. Registration of sales invoice if engaged in business

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Taxable Income of Church

1. Rental of Properties

2. Columbarium

3. Sovenier Shop

4. Parking Lot

5. Prize in Fund Raising exceeding P10,000

6. Sale of Real Property

7. Investment Income

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Priest – Practice of Vocation

Professional – Practice of profession

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Non-government Organization (NGO)” – refer to a non-stock, non-profit domestic corporation or organization organized and operated exclusively for scientific, research, educational, character-building and youth and sports development, health, social welfare, cultural or charitable purposes, or a combination thereof, no part of the net income of which inures to the benefit of any private individual.

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CONSTITUTIONAL INCOME TAX EXEMPTIONS

Article XIV of the 1987 Philippine Constitution “All revenues and assets of non-stock, non-profit educational institutions used actually, directly, and exclusively for educational purposes shall be exempt from taxes and duties.”

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Grants and donations used actually, directly, and exclusively for educational purposes are also exempt from tax subject to conditions prescribed by law.

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The Commissioner of Internal Revenue is not bound by the ruling of his

predecessors. Could reverse the same. To the contrary, the overruling

of decisions is inherent in the interpretation of laws. (Misamis Oriental

Association of Coco Traders, Inc. v. Secretary of Finance)

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EXEMPTION FROM INCOME TAX OF NONSTOCK CORPORATION OR ASSOCIATION

• It must be organized and operated exclusively for religious, charitable, scientific, athletic, or cultural purposes, or for the rehabilitation 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.

• The income must not have been derived from any of its properties, real or personal, or from any of its activities conducted for profit.

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Other Requirement for TAX Exemption

The level of administrative expense on an annual bases is no case to exceed thirty percent (30%) of the total contribution.

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All the members of the Board of Trustees of the non-stock, non-profit corporation, organization or NGO shall not receive compensation or remuneration for their service to the aforementioned organization.

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OTHER REQUIREMENTS

• Not organized for profit

• But operated exclusively for the promotion of social welfare


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The Income of whatever kind and character from any properties, real or personal or from any of their activities conducted for profit regardless of disposition shall be subject to TAX

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Statutory tax exemptions.

a.Tax exemption provisions under Executive Order No. 226, The Omnibus Investments Code of 1987.

b.Tax exemption provisions under the three (3) basic tax codes and a general code.

1. The Tariff and Customs Code as amended;

2. The National Internal Revenue Code, as amended

3. The Local Government Code.

“Tax exemptions to pioneer and non-pioneer preferred

enterprises under Executive Order No. 226, The

Omnibus Investment Code of 1987”.

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Organization, Corporation Exempt from Income Tax

SEC 30 National Internal Revenue Code

A. Labor, Agricultural or horticultural organization not organized principally for profit;

B. Mutual savings bank not having a capital stock represented by shares, and cooperative bank without capital stock organized and operated for mutual purposes and without profit.

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Sec. 30 National Internal Revenue Code

C. A beneficiary society, order or associations, operating for the exclusive benefit of the members.

D. Cemetery company owned and operated exclusively for the benefit of its members.

E. Nonstock corporation or association organized and operated exclusively for religious, charitable, scientific, athletic or cultural purposes.

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TAX EXEMPTION OF A BENEFICIATY SOCIETY, ORDER OR ASSOCIATION

• It must operate for the exclusive benefit or the members

• It must operate under the lodge system


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EXEMPTION FROM INCOME TAX OF NONSTOCK CORPORATION OR

ASSOCIATION•It must be organized and operated exclusively for religious, charitable, scientific, athletic, or cultural purposes, or for the rehabilitation 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.

•The income must not have been derived from any of its properties, real or personal, or from any of its activities conducted for profit.

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Sec. 30 Internal Revenue Code

J. Farmers’ or other mutual typhoon of fire insurance company, mutual ditch or irrigation company, mutual or cooperative telephone company, or like organization for a purely local character, the income of which consists solely of assessments, dues, and fees collected from members for the sole purpose of meeting its expenses; and

K. Farmers’ and operated as a sales agent for the purpose of marketing the products of its members.

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Sec. 30 Internal Revenue Code

F. Business league, chamber of commerce, or board of trade, not organized for profit and no part of the net income of which inures to the benefit of any private stockholder or individual.

G. Civic league or organizations not organized or profit but operated exclusively for the promotion or social welfare.

H. A non stock and non profit educational institution.

I. Government educational institutions.

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NOT withstanding the above provisions the income of whatever kind and character of the foregoing organizations from any of their properties, real or personal, or from any of their activities conducted fee profit regardless of the disposition made of such income shall be subject tax.

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Article III Section 5 of our constitution does NOT prohibit imposing a tax on the sale of religious materials by a religious organization. Such Tax unlike a license fee does not restrain in advance the exercise of religious freedom.

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Exemption on Property Tax

The exemption covers only property taxes and NOT other taxes the test of the exemption is the use of the property and not owner ownership. The property leased by the owner to another who uses it actually, directly and exclusively for religious charitable or educational purposes is exempt fro property tax but the owner is income is used religious charitable or educational purposes.

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Article VI. Sec. 28 of our constitution.

No law granting any tax exemption shall be passed without the concurrence of a majority of all the members of the congress.

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Exemption of religious, charitable, and educational institutions

All revenues and assets of non-stock, non profit used actually, directly, and exclusively for educational purposes are exempt from property and income taxes and customs duties.

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Lands, buildings, and improvements of proprietary educational institutions actually, directly, and exclusively used for educational purposes are exempt from property tax.

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Article XIV – Section 4 (4) of our constitution

All grants, endowments, donations or contributions used actually, directly, and exclusively for educational purposes are also exempt from tax.

To be exempt from taxation, the profits or assets must be used to improve school facilities and academic standards. The importation, for example, of a luxury car for the President of a school is not covered by the duty exemption.

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CONDITIONS FOR TAX EXEMPTION OF INCOME GENERATED BY A SCHOOL OPERATED CANTEEN/BOOKSTORE

•Owner-operated must be a non-stock, non-profit private educational institution; and•Such canteen/bookstore must be located within the school premises;•Owned and operated by the private educational institution as an ancillary activity;•The income must be actually, directly and exclusively used for educational purposes.

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Income of Non Stock Non Profit Educational Institution

1. Rental Income

2. Investment Income

3. Sale of Real Property

4. Commission Income

5. Parking Fees

6. Sale of Books Store

7. Canteen Income from Concession

8. Catering Income

9. Hotel & Restaurant Income

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Taxes of Non Stock Non Profit Educational Institution

1. Income Tax on Unrelated Educational Income

2. Withholding Taxes1. Compensation

2. Creditable withholding taxes

3. Documentary Stamps

4. Fringes Benefits

5. Value Added if the Unrelated Educational Income exceed P1,950,000

6. Sales tax if the Unrelated Educational Income does not exceed P1,950,000

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Article XIV – Section 4(3) of our Constitution

All revenue and assets of non-stock, non profit educational Institutions used actually, directly and exclusively for educational purposes shall be exempt from taxes and duties. Upon the dissolution or cessation of the corporate existence of such institutions, their assets shall be disposed of in the manner provided by law.

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BIR Exemption Certificate

• Issued upon compliance with the checklists required for submission and after evaluation.

• It is valid for a period of three(3) years from the date of issue

• After three years, request for renewal of exemption

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REVENUE MEMORANDUM ORDER NO. 20-2013

Prescribing the Policies and Guidelines in the Issuance of Tax Exemption

Rulings to Qualified Non-Stock, Non-Profit Corporations and Associations

Under Section 30 of the National Internal Revenue Code of 1997, As

Amended

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Applications for Tax Exemption and Revalidation.—Corporations and associations enumerated under Section 30 of the NIRC, as amended, including those which have been issued tax exemption rulings/certificates prior to June 30, 2012, shall file their respective Applications for Tax Exemption/Revalidation with the Revenue District Office (RDO) where they are registered. Only corporations or associations that are duly qualified under Section 30 of the NIRC, as amended, shall be issued Tax Exemption Rulings

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General Documentary Requirements. – A corporation or association shall submit the following documents:

a. Original copy of application letter for issuance of Tax Exemption Ruling. The letter shall cite the particularparagraph of Section 30 of the NIRC, as amended, under which the application for exemption/revalidation is being based;

b. Certified true copy of the latest Articles of Incorporation and By-Laws issued by the Securities and Exchange Commission;

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c. Original copy of Certification under Oath by an executive officer of the corporation or association as to:

1. all previous amendments/changes in the Articles of Incorporation and By-Laws,

2. manner of activities, and 3. the sources and disposition of income, if

any, of the subject corporation or association. If there are no amendments/changes, the Certification shall state this fact

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d. Certified true copy of the Certificate of Registration with the BIR;

e. Original copy of the Certification under Oath by the Treasurer of the corporation or association as to the amount of income, compensation, salaries or any emoluments paid by the corporation or association to its trustees, officers and other executive officers.

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f. Original copy of the Certification issued by the RDO where the corporation or association is registered that the corporation or association is not the subject of any pending investigation, on-going audit, pending tax assessment, administrative protest, claim for refund or issuance of tax credit certificate, collection proceedings, or a judicial appeal; or if thereby be any, the Original copy of the Certification issued by the RDO on the status thereof;

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g. Certified true copies of the Income Tax Returns or Annual Information Returns and Financial Statements of the corporation or association for the

last three (3) years

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h. Original copy of a statement under Oath by an executive officer of the corporation or association as to its modus operandi which shallinclude:

1. A full description of the past, present, and proposed activities of the corporation or association;

2. A narrative description of anticipated receipts and contemplated expenditures; and 3

3. A detailed description of all revenues which it seeks to be exempted from income tax. All other revenues which are not included in thestatement/application shall be subject to income tax.

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Additional Requirements for Educational Institutions. — A non-stock and non-profit educational institution under Section 30(H)

A. Certified true copy of government recognition/permit/accreditation to operate as an educational institution issued by the Commission on Higher Education (CHED), Department of Education (DepEd), or Technical Education and Skills Development Authority (TESDA)

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B. If the government recognition/permit/accreditationto operate as an education institution was issued more than five (5)years prior to the application for tax exemption/revalidation, an original copy of acurrent Certificate of Operation/Good Standing, or other equivalent document, issued by the appropriate government agency (i.e., CHED, DepEd, or TESDA) shall be submitted as proof that the non-stock and non-profit educational institution is currently operating as such;

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C. Original copy of Certificate of utilization of annual revenues and assets by the Treasurer or his equivalent.

1. Any amount in cash or in kind (including administrative expenses) paid or utilized to accomplish one or more purposes for which the educational institution was created or organized, including grant of scholarship to deserving students and professorial chairs for the enhancement of professional course.

2. Any amount paid to acquire an asset used (or held for use) directly in carrying out one or more purposes for which it was created

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3. Any amount in cash or in kind invested in an activity related to the educational purposes for which it was created or organized.

4. Any amount set aside for a specific project, which must be supported by a Board Resolution issued by the school administration

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General Guidelines in the Evaluation of the Applications for Tax Exemptions/Revalidation.— The Revenue District Officer(RDO)shall.

a. Ascertain whether or not the corporation or association falls under any of the organizations enumerated under Section 30 of the NIRC.The Articles of Incorporation must clearly state that.

1. It is a non-stock, non-profit corporation or association;

2. The purpose for which it was created is one of those enumerated under Section 30 of the NIRC, as amended;

3. No part of the corporation or association’s net income shall inure to the benefit of any private individual; and

4. The trustees of the non-profit corporation or association do not receive any compensation or remuneration

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The corporation or association’s constitutive documents shall:

1. Limit its purpose to those described in Section 30 of the NIRC, as amended;

2. Not expressly permit activities that do not further its tax-exempt purposes; and

3. Permanently dedicate its assets to its tax-exempt purposes.

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Determine whether or not the corporation or association is operating as an organization under Section 30 of the NIRC, as amended, by examining its modus operandi, financial statements and other relevant documents.The examination must show that:

1. Its earnings do not inure to the benefit of any private individual;

2. It does not operate for the benefit of private interest such as those of its founder or the founder’s family; and

3. It does not operate for the purpose of conducting a trade or business that is not related to its tax-exempt purpose.

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Verify the corporation or association’s sources of revenues and other transactions to determine which are taxable and non-taxable.

d. Verify whether or not the corporation or association has stop-filer cases,

e. Verify whether or not the corporation or association is the subject of any pending investigation, on-going audit, pending tax assessment, administrative protest, claim for refund or issuance of tax credit certificate

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Specific Guidelines in the Evaluation of the Application of Corporations or Associations under Section 30(E)of the NIRC, as amended.

a. It must be a non-stock corporation or association organized and operated exclusively for religious, charitable, scientific, athletic, or cultural purposes, or for the rehabilitation of veterans.

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b. It should meet the following tests:

1. Organizational Test -- requires that the corporation or association’s constitutive documents exclusively limit its purposes to one or more of those described in paragraph (E) of Section 30 of the NIRC,

2. Operational Test—mandates that the regular activities of the corporation or association be exclusively devoted to the accomplishment of the purposes specified in paragraph (E) of Section 30 of the NIRC

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c. All the net income or assets of the corporation or association must be devoted to its purpose/s and no part of its net income or asset accrues to or benefits any member or specific person.

d. It must not be a branch of a foreign non stock, non-profit corporation.

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Request for Additional Documents

a. Upon receipt of the complete documentary requirements (docket) for the application for tax exemption/revalidation, the RDO shall pre-evaluate the same and shall determine whether or not the applicant qualifies as an exempt corporation or association under Section 30

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The Law Division shall further review and evaluate the documents submitted by the applicant and the RDO’s recommendation. If the same is in order, it shall prepare the appropriate Tax Exemption Ruling for approval and signature of the Commissioner or his duly authorized representative. Otherwise, the docket shall be returned to the Regional Director for appropriate action.

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Validity of the Tax Exemption Ruling.— A Tax Exemption Ruling issued under this Order shall be valid for a period of three(3) years from the date of effectivity specified in the Ruling, unless sooner revoked or cancelled.

The Tax Exemption Ruling shall be deemed revoked if there are material changes in the character, purpose, or method of operation of the corporation or 7 association which are inconsistent with the basis for its income tax exemption. The revocation takes effect as of the date of the material change.

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Renewal of Tax Exemption Rulings.— Tax Exemption Rulings may be renewed upon filing of a subseguent. Application for Tax Exemption/Revalidation, under same requirements and procedures provided herein.

Effect of Failure to File Annual Information Return.— If a corporation or association which has been issued a Tax Exemption Ruling fails to file its annual information return, it shall automatically lose its income tax-exempt status beginning the taxable year for which it failed to file an annual information return, in addition to the sanctions imposed under Section 250 of the NIRC, as amended.

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Transitory Provisions.— Tax exemption rulings or certificates issued to corporations or associations listed under Section 30 of the NIRC, as amended, prior to June 30, 2012 shall be valid until December 31, 2013. Tax exemption rulings or certificates issued after June 30, 2012 shall continue to be valid for a period of three(3) years form date of issuance, unless sooner revoked or cancelled.

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Revenue Memorandum Circular No. 4-2013

Non-Stock, Non-Profit Hospital

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RequirementAll hospitals and non-stock,, non-profit organizations

operating hospitals which were issued tax-exempt rulings by the BIR shall submit a request for revalidation of their tax-exempt status by submitting the following documents to the Revenue District Office where the organization is registered:

A.Letter application which must state the specific paragraph of Section 30 of the NIRC under which it seeks exemption.

B.Copies of the corporation’s latest Articles of Incorporation and By Laws duly certified by the Securities and Exchange Commission.

C.Certified of Registration with the BIR.

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D. Tax Clearance issued by the Revenue District Office where the corporation is registered.

E. Copies of the Income Tax Returns or Annual Information Returns and Financial Statements for the last three years.

F. A statement of its modus operandi stating

therein its sources of revenues.

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A. Upon receipt of the application together with the supporting documents, the Revue District Office shall evaluate the same and shall determine whether it qualifies as an exempt corporation under Section 30 of the NIRC.

B. If the application is found to be insufficient, the corporation shall be notified of such findings and the application with the supporting documents should be returned to him.

C. If the application is found to be a valid, a report shall be prepared by the Revue District Office stating therein why in its opinion the organization is qualified to be tax-exempt under Section 30.

Procedure

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All rulings issued prior to November 1, 2012 which grant tax exemption to proprietary non-profit hospitals or to non-stock non-profit entities operating hospitals under Section 30 of the NIRC shall no longer be valid.

D. the docket of the case shall be forwarded to the Office of the Regional Director for review. If the Regional Director agrees with the recommendation of the Revenue District Office, the same shall be forwarded to the Office of the Assistant Commissioner, Legal service. The Law Division shall review and evaluate the documents submitted, and if in order, prepare the appropriate Certificate of Tax Exemption for signature of the Commissioner or her duly authorized representative.

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REVENUE REGULATION NO. 2-2011

Filing of Income Tax Return and/or Annual Information Return by Individuals, including

Estates and Trusts

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BOOKEEPING RULESAND

REGULATIONS OF EDUCATIONAL INSTITUTION

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REGISTRATION REQUIREMENTS

Every person subject to any internal revenue tax shall register once with the appropriate Revenue District Officer:

- Within ten (10) days from date of employment or- On or before the commencement of business or- Before payment of any tax due or- Upon filing of a return statement or declaration.

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DATA NEEDED FOR THE REGISTATION

The registration shall contain 1) the taxpayer’s name and TIN 2) style of Business

3) place of business

A person maintaining a head office branch or facility shall register with the Revenue District Officers having jurisdiction over the head office, branch or facility.

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ANNUAL REGISTRATION FEE

Five hundred pesos (P500) for every separate or distinct establishment or place of business, including facility types where sales transaction occur, shall be paid upon registration and every year thereafter on or before the last day of January:

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KEEPING OF BOOKS OF ACCOUNTS

1. Corporation, companies, partnership or persons are required to keep books of accounts.

2. Quarterly sales, earnings receipts do not exceed P50,000 use SIMPLIFIED Set of Bookkeeping Records

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KEEPING OF BOOKS OF ACCOUNTS

3. Quarterly sales, earning receipts exceed P50,000 Journals and Ledger.

4. Corporations, partnerships or persons whose gross quarterly sales, earnings, receipts exceed P150,000 shall have their Books of Accounts audited by independents Certified Public Accountants.

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PRESERVATION OF BOOKS OFACCOUNTS AND OTHER ACCOUNTING

RECORDS

All the books of accounts, including the subsidiary books and other accounting records of corporations, partnerships or persons, shall be preserved for a period of three (3) years beginning from the last entry in each book.

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Revenue Regulation No. 17-2013

Preservation of Books of Accounts and other Accounting Records

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In general, all books, registers, records, voucher and other supporting papers and documents prescribed by the Bureau of Internal Revenue (BIR), and other records kept by taxpayers shall be preserved intact, and unmutilated. The same shall be kept at all times in the place of business of the taxpayer, who shall produce them for examination or deliver them or any of them for inspection outside of his/its place of business upon demand of any internal revenue officer.

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Period of Limitation Upon assessment and Collection

– within three (3) years after the last day prescribed by law for the filling of return

- the three (3) year period shall be counted from the day the return was filed

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Exceptions as to Period of Limitation of Assessment and Collection of Taxes

In the case of a false or fraudulent return with intent to evade tax or failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be filed without assessment at any time within ten (10) years after the discovery of the falsity, fraud or omission.

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PRINTING RECEIPTS OFCOMMERCIAL OR SALES INVOICES

All persons who are engaged in business shall secure from the Bureau of Internal Revenue an authority to print receipts or sales or commercial invoices before a printer can print the same.

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PRINTING OF RECEIPTS OR COMMERCIAL OR SALES INVOICES

No authority to print receipts or sales or commercial invoices shall be granted unless the receipts or invoices to be printed are serially numbered and shall show, among other things, the name, business style, Taxpayer Identification Number (TIN) and business address of the person or entity.

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Revenue Regulations No. 15-2012

Regulations on the Accreditation of Printers as prerequisite to their Printing

Services of Official Receipts, Sales Invoices and Other Commercial Receipts

and/or Invoices

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Revenue Memorandum Circular No. 44-2013

Extending the Validity of Unused/Unissued Principal and

Supplementary Receipts/Invoices Printed Prior to January 18, 2013

and other Matters.

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REVENUE MEMORANDUM CIRCULAR NO. 52-2013

Clarifying the Validity of Unused/Unissued Principal and

Supplementary Receipts/Invoices Printed Prior to January 18, 2013 and

other matters

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Extending the Validity of provisional Accreditation

Granted to Printers of Principal and/Supplementary

Receipts/lnvoices, Pursuant to Revenue Memorandum

Order (RMO) 13-201

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Accredited printers posted in the BIR website from February14,20L3 to June 30, 2013 is extended until December 31, 2013. Such extension shall give sufficient time to the N/RAB to conduct proper post-evaluation/ocular inspection following

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Withholding Taxesof Non Stock Non Profit

Organizations

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Types of Withholding Taxes• Withholding Tax on Gross Compensation• Expanded or Creditable Withholding Tax

– Service Income– Purchases of goods

• Final Withholding Tax (Passive Investment Income)– Interest, Dividends, Royalties, Prizes, Winnings and Capital Gain

• Withholding Tax on Government Money Payment– Income Tax– VAT– Percentage Tax

• Quarterly Withholding Tax– Individual Engage in Business or Profession– Corporation

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Duties & Obligations of a Withholding Agent

• To register

• To deduct and withhold

• To remit the tax withheld

• To file withholding tax returns

• To issue withholding tax certificate

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Time of Withholding (final and creditable / expanded withholding taxes)

A. Ordinarily, the obligation of the payor to deduct and withhold arises:

– at the time an income payment is paid or payable.– income payment is accrued or recorded as an

expense or asset, whichever is applicable in the payor’s books, whichever is comes first.

The Term “payable” refers to the date the obligation becomes due, demandable or legally enforceable

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Time of Withholding (final and creditable / expanded

withholding taxes)

B. When income is not yet paid or payable but has been recorded as an expense or asset, whichever is applicable, in the payor’s books:

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Time of Withholding

withholding tax on compensation • compensation actually or • constructively paid.

Constructively paid when it is credited to the account of or set apart for an employee so that it may be drawn upon by him at any time although not then actually reduced to possession.

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Gross Compensation Income

• Salaries & Wages

• Overtime Pay

• Emergency Pay

• Loyalty Pay

• Director’s Pay

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• Allowances– Representation & Transportation– Cost of Living– Clothing– Housing– Medical– Meal– Laundry– Others

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• Vacation Leave• Bonus/Incentives

– Christmas Bonus– Incentive Pay– Productivity Bonus– Anniversary Bonus

• Commission• Profit Sharing• Retirement Benefit

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DE MINIMIS

The term “DE MINIMIS” benefits which are exempt from the fringe benefit tax, small in value and are offered or furnished by the employer merely as a means of promoting the health, goodwill, contentment, or efficiency of his employees such as the following:

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1. Monetized unused vacation leave credits of employees not exceeding ten (10) days during the year;

2. Medical cash allowance to dependents of employees not exceeding P750 per or P125 per month;

3. Rice subsidy of P350 per month granted by an employer to his employees;

4. Uniforms given to employees by the employer;

5. Medical benefits given to the employees by the employer.

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6. Laundry allowance of P150 per month;

7. Employees achievement awards, e.g., for length of service or safety achievement, which must be in the form of a tangible personal property other than cash or gift certificate, with an annual monetary value not exceeding P10,000.00 received by the employee under an established written plan which does not discriminate in favor of highly paid employees;

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8. Christmas and major anniversary celebration for employees and their guest;

9. Company picnics and sports tournaments in the Philippines and are participated exclusively by employees and;

10. Flowers, fruits, books or similar items given to employees under special circumstances, e.g. on account of illness, marriage, birth of a baby, etc.

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Tax Due = Tax Withheld

Tax Payer A B C

Income Tax

(Jan. to Dec.) 30,000 30,000 30,000

Less Tax

Withheld (Jan. to Nov.) 28,000 33,000 30,000

Withholding Tax for December

Refund Jan. 202,000

None

None

3,000

None

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Example:

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Substituted Filing of theINCOME TAX RETURN

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Requisites of Substituted Filing

• The employee receives purely compensation income (regardless of amount during the taxable year)

• The employee receives income only from one employer during the taxable year

• The amount of tax due from the employee at the end of the year equals the amount of tax withheld by the employer

• The employee’s spouse also complies with all three conditions stated above

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Persons Not Qualified for Substituted Filing

• Individuals deriving compensation income from two or more employers concurrently or successively at any time during the taxable year

• Employees deriving compensation income regardless of the amount, whether from a single or several employees during the calendar year, the income of which has not been withheld correctly

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• Employees whose monthly gross compensation income does not exceed Five Thousand Pesos (P5,000.00) or the statutory minimum wage whichever is higher, and opted for non-withholding of tax on said income

• Individuals deriving other non-business, non-profession, related in addition to compensation income not otherwise subject to a final tax

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• Individuals receiving purely compensation income from a single employer, although the income tax of which has been correctly withheld, but whose spouse is not entitled to substituted filing

• Non-resident aliens engaged in trade or business in the Philippines deriving purely compensation income or compensation income and other business or profession related income

114

REVENUE REGULATIONS NO. 1-2014

Specifically on the Submission of Alphabetical List of Employees/Payees

of Income Payments

115

Requirement for list of payees

All withholding agents shall, regardless of the number of employees and payees, whether the employees/payees are exempt or not, submit an alphabetical list of employees and list of payees on income payments subject to creditable and final withholding taxes which are required to be attached as integral part of the Annual Information Returns (BIR Form No. 1604CF/1604E) and Monthly Remittance Returns (BIR Form No. 1601C, etc.), under the following modes:

116

1. As attachment in the Electronic Filing and Payment System (eFPS);

2. Through Electronic Submission using the BIR’s website address at [email protected]; and

3. Through Electronic Mail (email) at dedicated BIR addresses using the prescribed CSV data file format, the details of which shall be issued in a separate revenue issuance.”

117

“In cases where any withholding agent does not have its own internet facility or unavailability of commercial establishments with internet connection within the location of the withholding agent, the alphalist prescribed herein may be electronically mailed (e-mail) thru the e-lounge facility of the nearest revenue district office or revenue region of the BIR.”

118

“The submission of the herein prescribed alphalist where the income payments and taxes withheld are lumped into one single amount (e.g. “Various employees”, “Various payees”, “PCD nominees”, “Others”, etc.) shall not be allowed. The submission thereof, including any alphalist that that does not conform with the prescribed format thereby resulting to the unsuccessful uploading into the BIR system shall be deemed not as received and shall not qualify as a deductible expense for income tax purposes.”

119

“Accordingly, the manual submission of the alphabetical lists containing less than ten (10) employees/payees by withholding agents under Annual Information Returns BIR Form No. 1604CF and BIR No. 1604E shall be immediately discontinued beginning January 31, 2014 and March 1, 2014, respectively, and every year thereafter.”

120

Final Withholding Tax

• Interest

• Dividend

• Prizes

• Winning

• Royalty

• Capital Gain

121

Interest

• Interest on any currency bank deposit yield from deposit substitutes, trust funds and similar arrangements – 20%

• Income from depository bank under FCDU system- 7-1/2% (non-residents are exempt)

122

Interest

• Interest from long term deposit or investment – EXEMPT from income tax. But is preterminated before 5th year, entire interest income will be subject to final tax based on remaining maturity:– 4 years to less than 5 years - 5%– 3 years to less than 4 years - 12%– 2 years to less than 3 years - 20%

123

Dividends

• Ten percent (10%) beginning January 1, 2000

PrizesExceeding P10,000 – 10%

124

Capital Gain Tax (CGT) on sale of Shares of Stock

OLD TAX CODE CTRP

• Capital gains from sale etc. of UNLISTED shares –

Not over P100,000 10%

Over P100,000 20%5%

10%

• Capital gains from sale etc. of LISTED & TRADE shares –

½ of 1% of gross selling price

125

A. Final Tax (capital assets)

• Definition of Capital Assets• Tax rate – 6%• Valuation – GSP/FMV/ZONAL• Option of individual transferring Real Properties

to government, political subdivisions, agencies or government owned or controlled corporations– Normal income tax (Sec 24 A)– CGT of 6% [Sec 24(D)(I)]

• Time of Payment – 30 days• Place of Payment – Location of property

126

B. Professional Fees, Talents Fees, Etc. for Services of Taxable Juridical Persons

10%

• Income Payments to Certain Contractors:

1. Gen. Engineering Contractors

2. Gen. Bldg. Contractors

3. Specialty Contractors

4. Other Contractors

2%

INCOME SUBJECT TO CWT

127

INCOME SUBJECT TO CWT

D. Income Payments to Customs, Insurance, Real Estate and Commercial Brokers and Agents of Professional Entertainers

10%

128

Withholding Tax on Lease of Properties

1. Real properties. - Five percent (5%)2. Personal properties. - On gross rental or lease in

excess of Ten Thousand Pesos (P10,000.00) per payment for the continued use or possession of personal property used in business: land transport equipment, water transport equipment, air transport equipment, industrial equipment, commercial equipment, scientific equipment, agricultural machinery and equipment, construction / civil engineering machinery and equipment, telecommunication equipment, office furniture/machines/equipment, main frame computer and all other computer machines/equipment, material handling equipment and auxiliary equipment - Five percent (5%);

129

Withholding TaxesIncome payments to certain

contractors. - Two percent (2%)

Computer services, computer programmers, software/program developer / designer- internet service providers, web page designing, computer data processing, conversion or base services and other computer related activities;

130

Annual Information Return (BIR Form 1604CF / 1604-E) Including the Alphabetical List of

Employees and Income Recipient

• 10 or less number of employees or payees

Manual submission only – 3 copies of 1604CF / 1604E + alphalist of employees and income payees.

• 10 or more number of employees or payees

131



• Manual submission – 3 copies of 1604CF / 1604E + alphalist of employees and income payees.

and

• Diskette Submission – ten (10) or more number of employees or payees who are recipient of income payments subject to creditable and final withholding tax, are required to submit 3.5 inch floppy disk using any of the following options:

132



1. Excel Format Provided under Revenue Regulation No. 7 – 2000 with technical specification with validation module prescribed by BIR.

2. Own extract program that shall meet the requirements specified in RR 7 – 2000 with validation module prescribed by BIR.

3. Data Entry Module using Visual Fox Pro.

133

PERSON REQUIRED TO DEDUCT & WITHHOLD

• payments made by persons who are SHARING PORTION OF THE BILL which is in the name of another person as long as :

– he is a duly constituted withholding agent, and

– shall only withhold on the portion of the expense being shouldered by him

134

• Hence, UNJUSTIFIABLE REFUSAL OF SELLER-INCOME EARNER TO BE SUBJECTED TO WITHHOLDING TAX shall be a GROUND FOR MANDATORY AUDIT of his income tax liabilities

( including withholding tax)

upon verified complaint of the BUYER-PAYOR

135

Requirements for Deductibility

Any income payment which is otherwise deductible under the Code shall be allowed as a deduction from the payor’s gross income only if it is shown that the income tax required to be withheld has been paid to the Bureau.

A deduction will also be allowed in the following cases where no withholding of tax was made:

a) The payee reported the income and pays the tax due thereon. The withholding agent pays the interest incident to the failure to withhold the tax, and surcharges, if applicable, at the time of the audit investigation or reinvestigation/ reconsideration.

136

Requirements for Deductibility

b) The recipient/payee failed to report the income on the due date thereof, but the withholding agent/taxpayer pays the tax, including the interest incident to the failure to withhold the tax, and surcharges, if applicable, at the time of the audit/ investigation or reinvestigation/ reconsideration.

c) The withholding agent erroneously underwithheld the tax but pays the difference between the correct amount and the amount of tax withheld, including the interest, incident to such error, and surcharges, if applicable, at the time of the audit/ investigation or reinvestigation/ reconsideration. “

137

REVENUE REGULATIONS No. 2-2014

138

3. BIR Form No. 1702-RT version June 2013 (Annual Income Tax

Return for Corporations, Partnerships and Other Non-Individual Taxpayers Subject Only to the REGULAR Income Tax Rate); 4. BIR Form No. 1702-EX

version June 2013 (Annual Income Tax Return for Use Only by Corporations, Partnerships and Other Non-Individual Taxpayers EXEMPT Under the Tax Codeand Other Special Laws, with NO Other Taxable Income); and

139

5. BIR Form No. 1702-MX version June 2013 (Annual Income Tax

Return for Corporations, Partnerships and Other Non-Individuals with Mixed Income Subject to Multiple Income Tax Rates or with Income Subject to Special/Preferential Rate)

140

Rounding Off to the Nearest Peso in the ITR.

P 100.49 = P 100.00). If the amount is 50 centavos or more, round up to the next peso (e.g., P 100.50 = P101.00).

141

Mandatory Itemized Deductions.

A. Corporations, partnerships and other non-individuals are mandated to use the itemized deductions in the following cases:

1. Those exempt under the Tax Code, as amended [Section 30 and those exempted under Section 27(C)] and other special laws, with no other taxable income;

2. Those with income subject to special/preferential tax rates; and

3. Those with income subject to income tax rate under Section 27(A) and 28(A)(1) of the Tax Code, as amended, and also with income subject to special/preferential tax rates

142

Juridical entities whose taxable base is the gross revenue or receipts (e.g., non-resident foreign international carriers) are not entitled to the itemized deductions nor to the optional standard deduction (OSD) under Section 34(L) of the Tax Code, as amended.

143

B. Individual taxpayers who are not entitled to avail of the OSD and thus use only the itemized deduction method are as follows:

1. Those exempt under the Tax Code, as amended, and other special laws with no other taxable income [e.g. Barangay Micro Business Enterprise (BMBE)];

2. Those with income subject to special/preferential tax rates; and

3. Those with income subject to income tax rate under Section 24 of the Tax Code, as amended, and also with income subject to special/preferential tax rates.

144

FRINGEBENEFIT TAX

145

Rank and File Employees – means all employees who are holding neither managerial or supervisory position.

Managerial Employees – is one who is vested with powers or prerogatives to lay down and execute management policies and/or to hire, transfer, suspend, lay-off, recall, discharge, assign or discipline employees.

146

Special Treatment of Fringe Benefit

• Imposition of a final tax of– 32% effective Jan. 1, 2000 and thereafter

• Basis of Computation– Grossed-up monetary value of fringe benefit

furnished or granted to the employee by the employer, whether an individual or a corporation.

147

Computation of Grossed-up Monetary Value

Formula:

Monthly rental 100,000.00

paid to an executive

of a co.

100,00

= ------------------ x 32 =P47,058.88

68

148

Fringe Benefit, Defined

Fringe benefit means any good, service or other benefit granted in cash or in kind by an employer to an individual employee (except rank and file employees) such as, but not limited to the ff:

1.Housing2.Expense Account3.Vehicle of any kind4.Household personnel5. Interest in loan at less than market rate

149

Fringe Benefit, Defined

6. Membership fees, dues and other expenses born by the employer for the employee in social and athletic clubs

7. Expenses for foreign travel

8. Holiday and vacation expenses

9. Educational assistance employee or his dependent

10.Life or health insurance and other non-life insurance premiums

150

• If the employer leases a residential property for the use of his employee and the said property is the usual place of residence of the employee, the value of the benefit shall be the amount of rental paid thereon by the employer. The monetary value of the fringe benefit shall be fifty per cent (50%) of the value f benefit.

151

• Housing privilege of military officials of the Armed Forces of the Philippines (AFP) consisting of officials of the Philippine Army, Philippine Navy, and Philippine Air Force shall not be treated as taxable fringe benefit.

152

• A housing unit is situated, inside or adjacent to the premises of a business or factory shall not be considered as a taxable fringe benefit. A housing unit adjacent to the premises of the business located within the maximum of fifty (50) meters from the perimeter of the business premises.

• Temporary housing for a employee who stays in a housing for three (3) months or less shall not be considered as taxable fringe-benefit.

153

Expense Account

1. In general, expense incurred by the employee but which are paid by his employer shall be treated as taxable fringe benefits.

2. Expenses paid for by the employee- but reimbursed by his employer shall be treated as taxable benefits.

154

Expense Account

3. Personal expenses of the employee (like purchases of groceries for the personal consumption of the employee and his family members) paid for or reimbursed by the employer to the employee shall be treated as taxable fringe benefits.

4. Representation and transportation allowances which are fixed in amounts and are regularly received by the employees as part of their monthly compensation income shall not be treated as taxable fringe benefits.

155

Motor Vehicle

• If the employer owns and maintain a fleet of motor vehicles for the use of the business and the employees, the value of the benefit shall be the acquisition cost of all the motor vehicles monetary value of the fringe benefits shall be fifty per cent (50%) of the value of the benefit.

156

Household Expenses – Expenses of the employees which are borne by the employer for household personnel, such as salaries of household help, personal driver of the employee, or other similar personal expenses shall be treated as taxable fringe benefits.

157

Interest on Loan at Less than Market Rate

1. If the employer lends money to his employee free of interest or at a rate lower than twelve per cent (12%) such interest foregone by the employer of the difference of the interest assumed by the employee and the rate of twelve per cent (12%) shall be treated as taxable fringe benefit.

2. The benchmark interest rate of twelve per cent (12%) shall remain in effect until revised by a subsequent regulation.

158

Membership Fees

• Membership fees, dues, and other expenses borne by the employer for his employee, in social and athletic clubs or other similar organizations

159

Expense for Foreign Travel

1. Reasonable business expenses which are paid for by the employer for the foreign travel of his employee for the purpose of attending business meetings or conventions shall not be treated as taxable fringe benefits. In this instance, inland travel expenses except lodging cost in a hotel, amounting to an average of US$300.00 or less per day, not be subject to a fringe benefits tax.

160

2. Travelling expenses which are paid by the employer for the travel of the family members of the employee shall be treated as taxable fringe benefits of the employee,

3. Holiday and vacation expenses – Holiday and vacation expenses of the employee borne by his employer shall be treated as taxable fringe benefits.

161

Expenses for Foreign Travel

The cost of economy and business class airplane ticket shall not be subject fringe benefit tax. However 30 per cent of the cost of first class airplane ticket shall be subject to a fringe benefits tax.

162

Educational Assistance to theEmployee or His Dependents

1. The cost of the educational assistance to the employee which are borne by the employer shall, in general be treated as taxable fringe benefit.

2. The cost of educational assistance extended by an employer to the dependents of an employee shall be treated as taxable fringe benefits of the employee unless the assistance was provided through a competitive scheme under the scholarship program of the company

3. Life or health insurance and other non-life insurance premiums or similar amounts in excess of what the law allows.

163

Tax Accounting for the Fringe Benefits Furnished to the Employee and the Fringe Benefits Tax thereon

• As a general rule, the amount of taxable fringe benefits tax shall constitute allowable deduction from gross income of employer.

164


Mandatory Enrollment to and Availment of the Electronic Filing

Payment System (eFPS) Facility for Selected Taxpayers

165

1. Large taxpayers pursuant to Revenue Regulations (RR) No. 2-2002;

2. All Government bidders pursuant to RR No. 3-2005

3. Corporations with paid-up capital stock of Ten Million Pesos (P10,000,000.00) pursuant to RR No. 10-2007

4. Corporations with complete computerized system pursuant to RR No. 10-2007

5. Taxpayers belonging to the list of the Top 20,000 Private Corporations under Section 2.57.2(M) of RR No. 2-98, as last amended by RR No. 14-2008, in relation to RR No. 5-2004; and

6. Taxpayers belonging to the Top 5,000 Individual

166

Revenue Regulations No. 12-2012

Deductibility of Depreciation Expenses as it Relates to Purchase of Vehicles and Other Expenses Related Thereto, and Input taxes

Allowed

167

REVENUE MEMORANDUM ORDER NO. 9-2014

Request for Rulings with the Law and Legislative Division

168

Letter Request for Ruling

A letter request is a sworn statement executed under oath by the individual taxpayer or by the authorized official/representative of the corporation, partnership or entity containing the following:

169

1.Factual background of the request for ruling, including

a.names, address, and taxpayers identification numbers of all interested parties;

b.A complete statement of the business reasons for the transaction; and

c. A detailed description of the transaction or circumstances involved.

170

REVENUE REGULATIONS NO. 12-2011

Reportorial Requirement for Establishments Leasing or

Renting Out Spaces for Commercial Activities

171

Lessess Information Statement (For Initial Filing)

Name of Owner/Lessor: __________________ TIN: _________Address: ___________________________________________________

Tenant’s ProfileAs of June 30, _____) or (Dec. 31, _____)Location of Building/Space for Commercial Lease: ________________________

Location

Floor / UnitNo.

Name of Tenant

Total Leased

Area

Monthly Rental

Start of lease

(mm/dd/yyyy

Duration / Period of

Lease

Tax Identificati

on No. (TIN)

Authority to Print # for OR’s / Invoices

POS CRM

Permit#

172

Lessess Information Statement: For Subsequent FilingName of Owner/Lessor: ___________________ TIN: ________Address: ___________________________________________

Tenant’s ProfileFor the period (January 1, ___ to June 30, ___) or (July 1, ___ to Dec. 31, ___)Location of Building/Space for Commercial Lease: ________________________

Location

Floor / UnitNo.

Name of Tenant

Total Leased

Area

Monthly Rental

Start of lease

(mm/dd/yyyy

Duration / Period of

Lease

Tax Identificati

on No. (TIN)

Authority to Print # for OR’s / Invoices

POS CRM

Permit#

Location

Floor / UnitNo.

Name of Tenant TaxIdentificationNumber (TIN)

Total LeasedArea

Monthly Rental

Date leaseEnded

(mm/dd/yyyy)

173

Failure to File Return, Supply Correct and Accurate Information, Pay Tax Withhold and Remit Tax and Refund Excess Taxes Withheld on Compensation

Be punished by a fine of not less than Ten thousand pesos (P10,000) and suffer imprisonment of not less than one (1) year but not more than ten (10) years.

174

Thank You and

May GOD Bless You

in all the days of your life.

Current issues problems and solutions in taxation(4 16-14)

Services

tax laws

tax treaty

tax treaties

statutory tax exemptions

kinds of tax exemptions

tax exemption provisions

recognition of tax exemptions

issurance of tax exemption