July 2012 1 July 2012 Tax brief Contents 02 02 02 02 02 BIR Issuances BIR Issuances BIR Issuances BIR Issuances BIR Issuances • Criteria for tax-exempt joint venture • Non-redemption of properties sold during involuntary sales • BIR - Mines and Geosciences Bureau MOA 04 04 04 04 04 BIR Rulings BIR Rulings BIR Rulings BIR Rulings BIR Rulings • VAT on offshore business services • Representative office as permanent establishment 05 05 05 05 05 Implementing guidelines of V Implementing guidelines of V Implementing guidelines of V Implementing guidelines of V Implementing guidelines of VAT TCC monetization pr TCC monetization pr TCC monetization pr TCC monetization pr TCC monetization program ogram ogram ogram ogram 06 06 06 06 06 Cour Cour Cour Cour Court Decisions t Decisions t Decisions t Decisions t Decisions • Protesting a local tax assessment • Best evidence rule on tax assessments • Establishing intent to donate 08 08 08 08 08 Highlight on P&A services Highlight on P&A services Highlight on P&A services Highlight on P&A services Highlight on P&A services • Tax seminars and training
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July 2012 11111
July 2012
Tax brief
Contents
0202020202 BIR IssuancesBIR IssuancesBIR IssuancesBIR IssuancesBIR Issuances• Criteria for tax-exempt joint
venture• Non-redemption of properties
sold during involuntary sales• BIR - Mines and Geosciences
Bureau MOA
0404040404 BIR RulingsBIR RulingsBIR RulingsBIR RulingsBIR Rulings• VAT on offshore business
services• Representative office as
permanent establishment
0505050505 Implementing guidelines of VImplementing guidelines of VImplementing guidelines of VImplementing guidelines of VImplementing guidelines of VAAAAATTTTTTCC monetization prTCC monetization prTCC monetization prTCC monetization prTCC monetization programogramogramogramogram
0606060606 CourCourCourCourCourt Decisionst Decisionst Decisionst Decisionst Decisions• Protesting a local tax
assessment• Best evidence rule on tax
assessments• Establishing intent to donate
0808080808 Highlight on P&A servicesHighlight on P&A servicesHighlight on P&A servicesHighlight on P&A servicesHighlight on P&A services• Tax seminars and training
2 2 2 2 2 July 2012
BIR Issuances
Criteria for tax-exempt joint venturCriteria for tax-exempt joint venturCriteria for tax-exempt joint venturCriteria for tax-exempt joint venturCriteria for tax-exempt joint ventureeeeeTo qualify as a joint venture (JV) or
consortium formed for the purpose of
undertaking construction projects exempt
from tax as a corporation under Section
22 (B) of the Tax Code, the Bureau of
Internal Revenue (BIR) requires that the
JV satisfy the following conditions:
a. The JV should be for the
undertaking of construction
project.
b. The JV should involve joining or
pooling of resources by licensed
local contracts, i.e., licensed as
general contractor by the Philippine
Contractors Accreditation Board
(PCAB) of the Department of
Trade and Industry (DTI).
c. The local contractors are engaged in
construction business.
d. The JV itself must likewise be duly
licensed as such by the PCAB of
the DTI.
Joint ventures involving foreign
contractors may also be treated as
non-taxable corporations provided that
the member foreign contractor is covered
by a PCAB special license. Further, the
construction project must be certified by
the appropriate tendering agency as a
foreign-financed or internationally funded
project, and international bidding must be
allowed under the bilateral agreement
between the government and the foreign
financial institution.
In case of failure to satisfy any of the
above requirements, the JV or consortium
formed for the purpose of undertaking
construction projects shall be considered
a taxable corporation.
All licensed local contractors are required
to enroll with the Electronic Filing and
Payment System (eFPS) at the Revenue
District Office (RDO) where the local
contractors are registered as taxpayers.
(Revenue Regulations No. 10-2012, June 1, 2012)
Non-rNon-rNon-rNon-rNon-redemption of predemption of predemption of predemption of predemption of properoperoperoperoperties soldties soldties soldties soldties soldduring involuntary salesduring involuntary salesduring involuntary salesduring involuntary salesduring involuntary salesProperties sold during involuntary sales
which are not redeemed shall be
considered sold. All applicable taxes, such
as capital gains tax (CGT) if the property
is a capital asset, the creditable
withholding tax (CWT) if the property is
an ordinary asset, value-added tax (VAT),
and documentary stamp tax (DST) shall
become due.
The following are the obligations of
owner/mortgagor and buyer/mortgagee
on unredeemed properties sold during
involuntary sales:
1. The buyer of the property shall file
the CGT return and remit the tax to
the BIR within 30 days from the
expiration of the applicable
statutory redemption period. As
regards the CWT, the buyer shall
file the CWT return and remit the
tax within 10 days following the end
of the month after expiration of the
applicable statutory redemption
period. For taxes withheld in
December, the CWT returns shall
be filed and the taxes remitted on or
before January 15 of the following
year.
2. In case of property sold through
involuntary sale that is subject to
VAT, the VAT must be paid to the
BIR by the owner/mortgagor on or
before the 20th or 25th day,
whichever is applicable, of the
month following the month when
the right of redemption prescribes.
3. The DST return shall be filed and
the tax shall be remitted to the BIR
within five days from the close of
the month after the lapse of the
applicable statutory redemption
period.
The CGT, CWT, VAT and DST
shall be based on whichever is the
higher consideration (bid price of
the highest bidder) or fair market
value or zonal value as determined
in accordance with Section 6(E) of
the Tax Code.
(Revenue Regulations No. 9, June 1, 2012)
July 2012 33333
BIR Issuances
BIR - Mines and Geosciences BurBIR - Mines and Geosciences BurBIR - Mines and Geosciences BurBIR - Mines and Geosciences BurBIR - Mines and Geosciences BureaueaueaueaueauMOAMOAMOAMOAMOAThe BIR and the Mines and Geosciences
Bureau (MGB) entered into an agreement
that establishes the policies on the
exchange of information between the two
agencies. The following are some of the
highlights of the agreement:
1. The MGB shall require all mining
applicants, contractors, permittees
and operators to indicate their
respective BIR-validated taxpayer
identification number (TIN) in all
statistical report forms and mining
applications, including application
for area clearance required to be
submitted under existing rules and
regulations. The BIR shall validate
the TIN supplied by contractors,
permittees, and operators to the
MGB.
2. The MGB shall require mining
contractors, permittees and
operators to present the following:
(a) copy of proof of payment of
excise tax on minerals, mineral
products and quarry resources duly
authenticated by the BIR; (b)
income tax returns and business tax
returns (excise tax, VAT and
percentage tax for non-VAT
contractors) for the operating
year(s) immediately preceding
the application for permits;
(c) Certificate of BIR registration;
and (d) tax clearance certificate and
certificate of “No Delinquent
Accounts or Outstanding
Liabilities” duly issued by the BIR
or written request for such
certificates if not issued with 15
working days from actual receipt of
request.
The BIR shall process and issue
within 15 days upon request the tax
clearance certificate and certificate
of “No Delinquent Account or
Outstanding Tax Liabilities,” which
will serve as the MGB’s basis in
processing applications or renewals
of mining permits and contracts.
3. The MGB shall provide the BIR
with the annual list of large-scale
metallic mining contractors,
permittees and operators in each
project with the corresponding
volume and value of their gross
output within 90 days after the end
of each year to serve as basis in the
validation of payment for excise tax
on minerals. Upon request, the BIR
shall certify the proof of payment
of excise and other taxes for
submission to the MGB.
4. A directory of mines and quarries
containing list of mining contrac-
tors, permittees or operators of
mining projects in the Philippines as
of December 31 of the reporting
year shall be submitted by the MGB
not later than every end of
December immediately after the
preceding reporting year. The list
shall be used by the BIR as a guide
in identifying the taxpayers liable to
pay excise tax.
(Revenue Memorandum Circular No. 28-2012,
June 21, 2012)
4 4 4 4 4 July 2012
BIR Rulings
VVVVVAAAAAT on ofT on ofT on ofT on ofT on offshorfshorfshorfshorfshore business servicese business servicese business servicese business servicese business servicesA VAT-registered domestic company
engaged in providing managerial,
administrative, and consultancy services
to a non-resident foreign corporation may
qualify for VAT zero rating pursuant to
Section 108(B)(2) of the Tax Code, as
implemented by Section 4.108-5(b)(2) of
Revenue Regulations No. (RR) 16-05, as
amended.
Under Section 108(B)(2) of the Tax
Code, as amended by Section 4.108-
5(b)(2) of RR 16-2005, as amended,
services performed in the Philippines by a
VAT-registered enterprise to persons
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 are subject to 0% VAT.
But this only applies if the consideration
is paid for in foreign currency and
accounted for in accordance with the
rules and regulations of the Bangko
Sentral ng Pilipinas (BSP).
Considering that the administrative and
accounting services to be rendered by the
company to the non-resident foreign
corporation shall be paid in foreign
currency and directly inwardly remitted to
the company’s bank account in the
Philippines, such services qualify for VAT
zero rating under Section 108(B)(2) of
the Tax Code, as amended.
(BIR Ruling No. 413-2012, June 15, 2012)
ReprReprReprReprRepresentative ofesentative ofesentative ofesentative ofesentative office as permanentfice as permanentfice as permanentfice as permanentfice as permanentestablishmentestablishmentestablishmentestablishmentestablishmentUnder the Republic of the Philippines
(RP)-Switzerland Tax Treaty, a permanent
establishment means a fixed place of
business through which the business of
an enterprise is wholly or partly carried,
and includes especially a place of
management, a branch, an office, a
factory, a workshop, and so forth. Thus,
by definition, a representative office,
being an office, generally constitutes a
permanent establishment.
However, under Paragraph 3 of Article 5
of the RP-Switzerland Tax Treaty, a bank
representative office does not constitute a
permanent establishment if the activities
carried out therein are merely preparatory
or auxiliary in character. In this regard,
the bank representative office that was
established in the Philippines performs
the following activities: (a) liaison services
between the head office and branch
offices and their clients; (b) dissemination
and exchange of information among the
head office and branch offices and their
clients; (c) conduct of market research,
surveys and studies; (d) promotion of
services and products in the Philippines;
and (e) implementation of quality control
on services and products.
The bank representative office does not
derive any income and is fully subsidized
by its head office, a Swiss bank. However,
according to the BIR, the fact that the
bank representative office does not or
will not derive income in the Philippines
and is fully subsidized by its head office
does not necessarily mean that it is not a
permanent establishment. Whether a
fixed place of business constitutes a
permanent establishment is determined
by the nature or character of activities
undertaken by the bank representative
office.
July 2012 55555
BIR Rulings Implementing guidelines of VAT TCC monetization
programThe Department of Finance (DOF), Department of Budget and
Management (DBM), BIR and Bureau of Customs (BoC) issued the
following guidelines implementing the monetization program for VAT
Tax Credit Certificates (TCCs) under Executive Order No. (EO) 68,
series of 2012.
Application procedures
VAT TCC holders must enroll in the monetization program and
surrender their original TCCs with the TCC-issuing office [BIR, BoC,
or the DOF-One-Stop-Shop Center (OSS)] within three months from
the effectivity of the Circular. After verification and validation, the BIR
shall issue the Notice of Payment Schedule (NPS), detailing the
taxpayer’s information, refundable amount, and the TCC maturity
date.
Monetization scheme
Holders of the NPS shall have the following options:
a. Sell the outstanding amounts at a discount to government
financial institutions (GFIs) for monetization.
b. Hold on to the NPS until its maturity and be paid by the BIR the
full cash value of the TCC.
Schedule of refund
NPS holders will be paid in full upon maturity of their TCCs in
accordance with the following schedule.
The NPS must be presented for payment with the issuing agency
within 30 calendar days before maturity date.
Rights of TCC holders
TCC holders who opt not to enroll in the monetization program shall
retain the right to credit the TCCs against tax liabilities in accordance
with existing rules on TCC utilization, or apply for TCC revalidation in
accordance with the existing provisions of the Tax Code.
Treatment of pending claims
All applications for drawbacks pending before the DOF-OSS and the
BoC prior to the effectivity of the Joint Circular shall be given the
option to select the preferred scheme for recovery of the creditable
input VAT under Section 106 of the TCCP, as amended. On the other
hand, requests for VAT TCC encashment that are already in the
possession of the BIR as of the effectivity of EO 68 may still be
processed pursuant to RR 5-2000 regardless of the maturity dates,
subject to availability of funds.
(DOF-DBM-BIR-BOC Joint Circular Nos. 2-2012 and 3-2012, May 31,
2012)
Year of TCC issuance Maturity date
2003 and prior years (for refund of VAT zero-
rated sales); 2004-2007 (for import VAT refund)
2008 and prior years (for refund of VAT
zero-rated sales); 2008 (for import VAT refund)
2009
2010
2011 and 2012
2012
2013
2014
2015
2016
The BIR held that the liaison services,
relay and dissemination of information,
conduct of research, surveys and studies,
and promotion of services and products
performed by the bank representative
office are similar to the collection of
information, supply of information,
advertising and scientific research
contemplated in Paragraph 3 of Article 5
of the RP-Switzerland Tax Treaty, which
are considered preparatory and auxiliary
in character.
On the implementation of quality of
control on the services and products,
which involves merely preparation and
submission of compliance checklist, this
activity is considered by the BIR as
remotely identical and not directly
essential and significant to the business
activities of the foreign bank in the
Philippines as a bank of accepting
monies, granting loans, credits and
advances, etc. Hence, the BIR deemed the
implementation of quality control on
services and products as preparatory or
auxiliary as well.
Considering that the bank representative
office performs merely preparatory or
auxiliary activities in the Philippines, it
does not constitute a permanent
establishment of its Swiss bank head
office. Hence, income derived by the
Swiss bank head office in the form of
gains derived from the sale of its movable
properties, which are held by the bank
representative and situated at the
representative’s leased premises in the
Philippines, is exempt from income tax
under the RP-Switzerland Tax Treaty.
(BIR Ruling No. ITAD No. 195-12, May
21, 2012)
July 2012 55555
6 6 6 6 6 July 2012
Court Decisions
PrPrPrPrProtesting a local tax assessmentotesting a local tax assessmentotesting a local tax assessmentotesting a local tax assessmentotesting a local tax assessmentUnder Section 195 of the Local
Government Code (LGC), a taxpayer
who disagrees with the tax assessment
issued by a local treasurer or his duly
authorized representative may file a
written protest within 60 days from
receipt of the notice of assessment. In
the event the protest is denied, in whole
or in part, by the local treasurer, or after
the lapse of the 60-day prescriptive
period for the local treasurer to resolve
the protest, the taxpayer has 30 days
within which to file an appeal with the
court of competent jurisdiction;
otherwise the assessment becomes
conclusive and may no longer be
appealed.
In response to its local business tax
(LBT) assessment, the taxpayer filed its
written protest questioning its LBT
assessment. Acting on its petition, the
local treasurer denied the taxpayer’s
protest. However, even before the
taxpayer could exercise its right to
appeal the denial of its protest before a
court of competent jurisdiction, the
local treasurer filed a collection case
with the Regional Trial Court (RTC).
Instead of separately pursuing two cases
(i.e., one for “appeal” over denial of its
protest to the assessment, and another
one for defending against the collection
of the local business tax), the taxpayer
deemed it wise to file an “answer” with
the RTC incorporating, by way of
counterclaim, its “appeal” over the
denial of its protest.
The Court of Tax Appeals (CTA) held
that while it is ideal that a separate
original action before the appropriate
RTC to assail the denial of its protest by
the local treasurer should have been
filed within the prescribed period,
instead of incorporating the same in its
“answer” (as a compulsory counter-
claim) to the complaint for the collec-
tion of taxes, the Supreme Court in
Yamane v. BA Lepanto Condominium
Corporation (G.R. No. 154993, October 25,
2005) gives the courts the discretion to
take cognizance of petitions raised on
erroneous mode of appeal and instead
treat the petitions in the manner as they
should have appropriately been filed.
Unfortunately, in the instant case, the
RTC opted to treat the taxpayer’s
“answer” to the counterclaim as different
from the “appeal” contemplated under
Section 195 of the LGC. Hence, for
failure to appeal with the court of
competent jurisdiction the denial by the
local treasurer of its protest, the assess-
ment has become conclusive and
unappealable.
(National Transmission Corporation v.
Municipal Treasurer of Labrador, Pangasinan,
CTA AC No. 67, June 25, 2012)
Best evidence rule on taxBest evidence rule on taxBest evidence rule on taxBest evidence rule on taxBest evidence rule on taxassessmentsassessmentsassessmentsassessmentsassessmentsWhen a report required by law as a basis
for assessment of any internal revenue
tax is not submitted within the time fixed
by pertinent laws or rules and regulation,
or when there is reason to believe that
any such report is false, incomplete or
erroneous, Section 6 of the Tax Code
empowers the Commissioner of Internal
Revenue (CIR) to make an assessment
based on the best evidence obtainable.
The best evidence obtainable may consist
of hearsay evidence, such as the testi-
mony of third parties, accounts or other
records of other taxpayers similarly
circumstanced as the taxpayer subject to
the investigation. However, it does not
include mere photocopies of records/
documents.
Pursuant to Section 34, Rule 132 of the
Revised Rules of Evidence, there must be
a formal offer of evidence before the
CTA can give evidentiary value to any
piece of evidence. An exception to this
rule is recognized in Vda. De Onate v.
Court of Appeals (250 SCRA 287) when
the following requisites are present: (a)
the document must have been duly
identified by testimony duly recorded;
and (b) the document must have been
incorporated in the records of the case.
To support its assessment based on
alleged third party information, the BIR
presented photocopies of its assessment
and other BIR records. The CTA noted
that although the BIR was able to pre-
mark its evidences, present and offer the
same, the provisionally marked evidence
was considered insufficient as the same
consists of mere photocopies of the
assessments. Moreover, the CTA held that
the records submitted by the BIR may
not be considered evidence due to its
failure to formally offer them as evidence.
The CTA considered the BIR to have
waived its right to present evidences for
its repeated failure to appear during the
scheduled presentation of evidence.
Moreover, the BIR also failed to prove
compliance with the exception to the
general rule. Hence, for failure to present
evidence to support its assessment, the
deficiency assessment was cancelled.
(Wintelcom, Inc. v. CIR, CTA Case No.
7056, June 7, 2012)
July 2012 77777
Court Decisions
Establishing intent to donateEstablishing intent to donateEstablishing intent to donateEstablishing intent to donateEstablishing intent to donateIn determining whether a transaction
involves gratuitous transfer that is subject
to donor’s tax under Section 98 of the
Tax Code, not only the legal documents,
but also other external factors
surrounding the transactions are
considered. Thus, in case where a request
to include or affix the names of minor
children as transferees, in addition to the
parents who are the original buyers, in the
Certificate Authorizing Registration
(CAR), the BIR shall look into the true
intent of the parties to the transaction to
determine its liability to donor’s tax.
In the instant case, it was alleged that
there was no transfer of property from
the parent to their children since they do
not own the subject property, hence, the
inclusion of their names in the CAR is
not subject to donor’s tax. Moreover, it
was claimed that the minor children used
their allowance, which came from their
parents, to purchase the properties.
In its decision, the CTA held that there is
a clear “animus donandi” or intent to give
when the names of minor children who
are not earning any income are included
in the CAR and certificate of titles of the
property. It held that while it is true that
minor children can save money from their
allowances and buy properties from their
savings, considering the children’s age and
the price of property, the children will
not be able to save a substantial amount,
even if they receive enormous allowances
from the parents. Moreover, it is highly
unlikely for an individual to own real
property at such an early age and without
a source of income; thus the CTA
deemed the transaction to be a donation.
(Hordon H. Evono and Maribel C. Evono v.
Department of Finance, CIR and the Republic
of the Philippines, CTA EB No. 705 re CTA
Case No. 7573, June 4, 2012)
8 8 8 8 8 July 2012
TTTTTax seminars and trainingax seminars and trainingax seminars and trainingax seminars and trainingax seminars and trainingWe offer seminars and training on tax-related
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Highlight on P&A services
Tax Brief is a regular publication of Punongbayan & Araullo (P&A) that aims to keep its clientele, as well
as the general public, informed of various developments in taxation and other related matters.
This publication is not intended to be a substitute for competent professional advice. Even though
careful effort has been exercised to ensure the accuracy of the contents of this publication, it should
not be used as the basis for formulating business decisions. Government pronouncements, laws,
especially on taxation, and official interpretations are all subject to change. Matters relating to taxation,
law and business regulation require professional counsel.
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