Existence of retained earnings as a requisite on redemption of preferred shares; redeemable preferred shares may still be reacquired without sufficient retained earnings; redemption should not result to insolvency of the company
Relevant Highlights:
- SECURITIES & EXCHANGE COMMISSION (SEC) OFFICE OF THE GENERAL COUNSEL OPINION DIGEST
- SEC PRESS RELEASES ON REGISTRATION OF ONE PERSON CORPORATION & UNFAIR DEBT COLLECTION PRACTICES
- BIR ISSUANCES ON IMPLEMENTING RULES & REGULATIONS (IRR) ON ESTATE TAX AMNESTY, BIR Q&A ON AVAILMENT OF TAX AMNESTY ON DELINQUENCIES, BUSINESS STYLE TO BE INDICATED IN THE OFFICIAL RECEIPT/INVOICE & TAX COMPLIANCE REQUIREMENTS FOR FOREIGN NATIONALS
- PEZA DIRECTS ECOZONE LOCATORS TO SUBMIT INFORMATION OF FOREIGN NATIONALS WORKING IN ECOZONE
- TAX & BUSINESS-RELATED NEWS [MAY 27-JUNE 9]
I. SECURITIES & EXCHANGE COMMISSION (SEC) OFFICE OF THE GENERAL COUNSEL OPINION DIGEST
- Existence of retained earnings as a requisite on redemption of preferred shares; redeemable preferred shares may still be reacquired without sufficient retained earnings; redemption should not result to insolvency of the company
- Director’s earned profits through matching purchase & sale of equity securities within six-month period will suffice as proof to hold him liable of using material non-public information for self-interest gain; neither intent nor actual use of inside information need to prove for officers to be held liable; officers’ short swing transactions need not be proved
- Condominium corporation to exist as long as the condominium project exists; term of condominium is co-terminus with the condominium project
- Amended by-laws should prevail at the time of election of the board of trustees; amended by-laws are prospective in application rather than retrospective
[EXISTENCE OF RETAINED EARNINGS AS A REQUISITE ON REDEMPTION OF PREFERRED SHARES] [REDEEMABLE PREFERRED SHARES MAY STILL BE REACQUIRED WITHOUT SUFFICIENT RETAINED EARNINGS] [REDEMPTION SHOULD NOT RESULT TO INSOLVENCY OF THE COMPANY]
The subject corporation is engaged in the business of building, operating and maintaining power plants which produce energy from coal, fossil, and other viable sources of power. It sought clarification from the SEC regarding the redemption of its preferred shares. Particularly, it wanted to clarify whether it can redeem such shares without sufficient retained earnings. Likewise, it sought clarification whether such redemption will not result in insolvency as well as reduction of its subscribed capital stock. In rendering an opinion, the SEC cited that, as a general rule, there must be unrestricted retained earnings before a corporation can redeem, repurchase or reacquire its own shares. However, an exception to the general rule is that when the shares to be redeemed are provided in the Articles of Incorporation be redeemable upon expiration of a fixed period regardless of the existence of unrestricted retained earnings. But to redeem such shares, there must still be sufficient assets to cover the debts and liabilities of the corporation. Relating this to the second query, the right to redeem preferred shares is subject to the condition that the redemption would not render the corporation insolvent since the corporation should have sufficient funds to satisfy its debt and liabilities. Lastly, since the nature of the shares are silent as to whether it is re-issuable or not, once such shares are redeemed, they are considered as retired and no longer issuable, thus, have the effect of decreasing the capital stock of the company. [SEC OFFICE OF THE GENERAL COUNSEL OPINION NO. 19-20, MAY 27, 2019]
[DIRECTOR’S EARNED PROFITS THROUGH MATCHING PURCHASE & SALE OF EQUITY SECURITIES WITHIN SIX-MONTH PERIOD WILL SUFFICE AS PROOF TO HOLD HIM LIABLE OF USING MATERIAL NON-PUBLIC INFORMATION FOR SELF-INTEREST GAIN] [NEITHER INTENT NOR ACTUAL USE OF INSIDE INFORMATION NEED TO PROVE FOR OFFICERS TO BE HELD LIABLE] [OFFICERS’ SHORT SWING TRANSACTIONS NEED NOT BE PROVED]
The subject is seeking an opinion from SEC on whether or not one of its director took advantage of or used material non-public information after buying and selling the shares of the company in a period of six months which is to be considered a short-swing transaction and in violation of Section 23.2 of the SRC. In rendering opinion, the SEC has opined that neither intent nor actual use of inside information is required. It is sufficient that profit was made from purchased and sale, or sale and purchase of equity securities within a period of less than six (6) months. [SEC OFFICE OF THE GENERAL COUNSEL OPINION NO. 19-19, MAY 23, 2019]
[CONDOMINIUM CORPORATION TO EXIST AS LONG AS THE CONDOMINIUM PROJECT EXISTS] [TERM OF CONDOMINIUM IS CO-TERMINUS WITH THE CONDOMINIUM PROJECT]
A condominium corporation based in Baguio is seeking an opinion from the SEC on whether it ceased to exist upon the destruction of the condominium project as well as its subsequent sale. Likewise, it is seeking confirmation on the applicability of Sections 133 to 138 of the Revised Corporation Code on dissolution and therefore it may now proceed to liquidate pursuant to the Revised Corporation Code. In rendering an opinion, the SEC duly noted the representation of the subject that the project is untenantable and not livable citing the destruction brought about by 1991 earthquake. Citing these antecedents, SEC opined that the law permits the condominium corporation to exist as long as the project exists despite the term limit set in the Corporation Code. While it appears that the condominium owners holding 30% interest in the common areas were opposed to repair the project, the decision to continue was terminated when the decision granting the Petition attained finality. Consequently, the subject was dissolved, pursuant to Section 8 (b), in relation to Section 11 of the Condominium Act. As for the applicability of the Revised Corporation Code, the SEC applied the doctrine of harmonious construction, wherein liquidation has already been effected from the moment the remaining lands of the condominium project were sold to a third person. Further, Section 139 of the Revised Corporation Code, being a general law, applies suppletory to the Condominium Act, which is a special law. [SEC OFFICE OF THE GENERAL COUNSEL OPINION NO. 19-18, MAY 8, 2019]
[AMENDED BY-LAWS SHOULD PREVAIL AT THE TIME OF ELECTION OF THE BOARD OF TRUSTEES] [AMENDED BY-LAWS ARE PROSPECTIVE IN APPLICATION RATHER THAN RETROSPECTIVE]
The subject is a non-stock and non-profit association registered with the SEC on February 18, 2015. It sought opinion on whether or not the eleven (11) members now acting as members of the Board of Trustees (BOT) are considered as the duly constituted officers of the corporation. In the appreciation of support, it revealed that prior to its registration, it was known under a different name (old name) which was likewise registered with the Commission. Further, the association amended its By-Laws last November 21, 2015 which extends the term of BOT from one (1) year to two (2) years. However, no election for BOT or officers was held under the new By-Laws. The last election conducted was on June 27, 2014 under the By-Laws of the association under its old name. Five (5) of the elected officers during the said election are the ones sitting now as members of the BOT of the new association. and another six (6) were appointed by the said five (5) members to sit with them and act as BOT. For purposes of information rather than rendering an opinion, the Commission initially clarified that both associations, old and new, are still registered and are distinct from each other which have separate By-Laws. Since the trustees indicated in the Articles of Incorporation of the new association are the five (5) trustees elected under the By-Laws of the old association and their six (6) appointees, these 11 persons are to act as trustees of the former until the election of the first regular trustees on the day stated in its By-Laws. Thus, after incorporation, the corporation should have conducted its meeting and election to elect its first regular trustees in accordance with its By-Laws. Should the new association conduct its first election since its incorporation, the provision of its By-Laws which are then prevailing at the time of election must be followed. [SEC OFFICE OF THE GENERAL COUNSEL OPINION NO. 19-17, MAY 7, 2019]
II. SEC PRESS RELEASES ON REGISTRATION OF ONE PERSON CORPORATION & UNFAIR DEBT COLLECTION PRACTICES
- SEC registers country’s first One Person Corporation
- SEC seeks to end unfair debt collection practices
III. BIR ISSUANCES ON IRR ON ESTATE TAX AMNESTY, BIR Q&A ON AVAILMENT OF TAX AMNESTY ON DELINQUENCIES, BUSINESS STYLE TO BE INDICATED IN THE OFFICIAL RECEIPT/INVOICE & TAX COMPLIANCE REQUIREMENTS FOR FOREIGN NATIONALS
- Revenue Regulations (RR) No. 6-2019 or the IRR on the availment of estate tax amnesty
- Revenue Memorandum Circular (RMC) No. 57-2019 clarifies frequently asked questions in the form of BIR’s Q&A on the availment of Tax Amnesty on Delinquencies
- RMC No. 56-2019 clarifies the reckoning period for the payment of Documentary Stamp Tax (DST) on original issue of shares
- RMC No. 55-2019, clarifies the meaning of “Business Style” to be indicated in the official receipts and invoices
- Revenue Memorandum Order (RMO) No. 28-2019 prescribes the policies and guidelines on the registration and tax compliance requirements of foreign nationals
RR No. 6-2019, dated May 29, 2019 with released date on May 30, 2019, implements the estate tax amnesty.
Highlights of the implementing rules and regulations are summarized below.
| REVENUE REGULATIONS (RR) NO. 6-2019 |
| Date: May 30, 2019 |
| A.K.A. IRR ON ESTATE TAX AMNESTY |
|
Coverage All estate of decedent who died on or before December 31, 2017, with or without assessments duly issued, whose estate tax has remained unpaid or have accrued as of December 31, 2017 |
|
Basis for Amnesty Tax 6% shall be imposed on each decedent’s total net taxable estate at the time of death at every stage of transfer of property, with a minimum estate amnesty tax of Php 5,000 at every stage of transfer |
|
Who Should File Executor or administrator, legal heirs, transferees or beneficiaries |
|
When to File June 15, 2019 to June 14, 2021 |
|
Where to File Revenue District Office (RDO) having jurisdiction over the last residence of the decedent |
|
What to File 1. Duly accomplished Sworn Estate Tax Amnesty Return (ETAR) (BIR Form No. 2118-EA) 2. Acceptance Payment Form (APF) (BIR Form No.0621-EA) 3. Complete documents supporting ETAR (i.e copy of Tax Declaration, Original Certificate of Title, Transfer of Certificate Title, etc.) |
|
When to Pay At the same time the return is filed |
|
Not Covered by Tax Amnesty 1. Delinquent estate tax liabilities which have become final and executory and those covered by Tax Amnesty on Delinquencies 2. Properties involved in cases pending in courts |
|
Immunities and Privileges 1. Immune from payment of all estate taxes as well as any increments and additions thereto 2. Immune from all appurtenant civil, criminal and administrative cases, and penalties under the Tax Code |
|
What to Expect Issuance of Certificate of Availment of the Estate Tax Amnesty within 15 calendar days from the receipt of the application for Estate Tax Amnesty |
|
Other Important Tax Highlights 1. File an ETAR or an amended ETAR for properties which were not declared in the previously filed return. 2. Undeclared properties after June 15, 2019 shall be subject to estate tax rate prevailing at the time of death including interest and penalties due thereon. 3. Properties included in the Estate Tax Amnesty availment which are subject to taxable donation/sale shall be assessed of the corresponding donor’s/ capital gains/ or other applicable taxes at the time of donation/sale including penalties, if applicable. 4. One (1) Electronic Certificate Authorizing Registration (eCAR) shall be issued per real property. |
RMC No. 57-2019, dated May 22, 2019, clarifies certain issues on Tax Amnesty on Delinquencies in the form of frequently-asked questions in relation to RR 4-2019 or the implementing rules and regulations of the Tax Amnesty Act/Republic Act No. 11213.
RMC No. 56-2019, dated May 29, 2019 clarifies the reckoning period for the payment of DST on original issue of shares in order to unify the BIR offices in the imposition of late penalties on the payment of DST. For new corporations, the reckoning period for filing of DST is within five (5) days after the close of the month of the date of registration with the SEC, as shown in the Certificate of Incorporation/Certificate of Recording/License To Do Business in the Philippines. A penalty of 12%, 25% surcharge, and compromise penalty shall be imposed for late payment of DST on original issue of shares.
RMC No. 55-2019, dated May 21, 2019 with released date on May 22, 2019, clarifies the meaning of “Business Style” to be indicated in the official receipts and invoices. Accordingly, it pertains to the taxpayer’s business name/trade name registered with the Department of Trade and Industry and/or Securities and Exchange Commission, other than its registered name or company name.
Under the existing rules and regulations, business style should be indicated in the official receipts and invoices, along with the customer’s name, address, Taxpayer’s Identification Number (TIN), as part of the requirement for the valid claim of input VAT and substantiation of expenses. Failure to indicate may result to the imposition of fines and penalties and possible disallowance of expenses claimed as well as input VAT.
RMO No. 28-2019, dated May 30, 2019 with released date on May 31, 2019, prescribes the policies and guidelines on the registration requirements of foreign individuals not engaged/engaged in trade or business or gainful employment in the Philippines. This is pursuant to the Joint Guidelines signed by the Department of Labor and Employment (DOLE), Department of Justice (DOJ), Bureau of Immigration (BI), and the Bureau of Internal Revenue (BIR), which clarifies and harmonizes the existing regulations on the issuance of appropriate permits to all foreign nationals who intend to work and/or render services in the country. Likewise, this order disseminates the requirement on the application of Tax Identification Numbers (TIN) of foreign nationals and other statutory compliance requirements.
| Type of Permit | Special Working Permit (SWP) | Special Temporary Permit (STP) | Alien Employment Permit (AEP) |
| Nature of work | Outside of an employment arrangement | Outside of an employment arrangement and involves practice of regulated profession | Engage in gainful employment |
| Secure at | Bureau of Immigration (BI) | Professional Regulatory Commission (PRC) | Department of Labor and Employment (DOLE) |
| Applicable visa | Tourist Visa (9A) provided validity of contract is for only up to three (3) months which may be extended for another three (3) months | Tourist visa (9A) provided validity of contract is for only up to three (3) months which may be extended for another three (3) months | 9G work visa |
| Other requirements |
None
|
None | Secure Provisional Work Permit (PWP) prior to issuance of 9G work visa with BI |
| Exemption | None | None | Foreign nationals exempt from securing AEP are required to secure Certificate of Exclusion with DOLE |
| Tax Identification Number (TIN) registration | RDO No. 39- South Quezon City | RDO No. 39- South Quezon City | RDO having jurisdiction over the physical address of the employer or local residence in case of practice of regulated profession |
| Tax Treaty | Registered foreign nationals can avail of preferential tax rates under effective Philippine Tax Treaties. They may opt to file a Tax Treaty Relief Application (TTRA) with International Tax Affairs Division (ITAD) following the requirements under RMO 72-2010. However, entitlement to tax treaty relief is on a case-to-case basis depending on facts presented by the applicant. | ||
IV. PEZA DIRECTS ECOZONE LOCATORS TO SUBMIT INFORMATION OF FOREIGN NATIONALS WORKING IN ECOZONE
PEZA Memorandum Circular 2019-16 requires all economic zone (ecozone) locators to submit the following information to PEZA’s Foreign National Unit (PNU):
- Taxpayer’s Identification Number (TIN) of all foreign nationals employed by the ecozone locator enterprises; and
- ITRs of all foreign nationals employed by the said locators for the calendar year 2018.
The directive is pursuant to the Joint Guidelines signed by DOLE, DOJ, Bureau of Immigration (BI), and the BIR, which clarifies and harmonizes the existing regulations on the issuance of appropriate permits to all foreign nationals who intend to work and/or render services in the country.
If you wish to get a copy of the complete text of PEZA issuance, please e-mail us.
V. TAX & BUSINESS-RELATED NEWS [MAY 27-JUNE 9]
- SSS to increase coverage of digital self-service kiosks
- BIR retains original P2.33 T collection goal
- Dominguez upbeat on tax reforms’ OK
- DOF wants full PH transition to e-invoicing by end-2022
- BIR requires TIN of foreign workers
- PEZA: Investments fall 24% in Jan-April
- Overhaul of property tax scheme to boost real estate market, says Dominguez
- Estate tax amnesty filing starts June 17
- Trabaho bill threatens PH electronics industry’s existence
- SEC approves ACE Malolos Doctor’s P1B IPO plan
- Gordon: Excise tax hike may displace tobacco farmers
- Recto seeks tax imposition on e-cigarettes, vapes
- Lacson urges better collection, not more taxes
SSS to increase coverage of digital self-service kiosks [Philippine Star, June 9, 2019]
The state-run Social Security System (SSS) plans to broaden the coverage of services that can be accessed by its members through its digital platforms, according to a top official.
Source: https://www.philstar.com/business/2019/06/09/1924779/sss-increase-coverage-digital-self-service-kiosks#cbJAPjw0MRRv4kga.99
BIR retains original P2.33 T collection goal [Philippine Star, June 8, 2019]
The Bureau of Internal Revenue (BIR) has reverted back to its P2.33 trillion collection target for 2019 after adjusting it downwards last April, in line with the implementation of the Lateral Attrition Law.
Source: https://www.philstar.com/business/2019/06/08/1924518/bir-retains-original-p233-t-collection-goal#j6GK6dMBztwkk3jS.99
Dominguez upbeat on tax reforms’ OK [Manila Times, June 8, 2019]
THE Department of Finance (DoF) remains hopeful on the passage of the remaining tax-reform proposals of the government, especially with a new set of lawmakers at the soon-to-open 18th Congress.
Source: https://www.manilatimes.net/dominguez-upbeat-on-tax-reforms-ok/566253/
DOF wants full PH transition to e-invoicing by end-2022 [Philippine Daily Inquirer, June 6, 2019]
The Department of Finance aims to complete the full shift to an electronic invoicing system by the end of 2022 as part of the digital transformation in tax administration that the Duterte administration wants to embark on so the government could provide better and faster services to taxpayers.
Source: https://business.inquirer.net/272032/dof-wants-full-ph-transition-to-e-invoicing-by-end-2022#ixzz5qKY3RpkU
BIR requires TIN of foreign workers [Manila Times, June 3, 2019]
The Bureau of Internal Revenue (BIR) over the weekend reiterated that foreigners and nonresident aliens planning to work in the Philippines must secure their Taxpayer Identification Number (TIN) after estimates indicated the government is losing billions in income taxes from unregistered foreign workers.
Source: https://www.manilatimes.net/bir-requires-tin-of-foreign-workers/563649/
PEZA: Investments fall 24% in Jan-April [Manila Times, June 3, 2019]
THE Philippine Economic Zone Authority (PEZA) saw its investment pledges plunge by 24.54 percent in the first four months of 2019 as potential investors worry over uncertainties surrounding the second of the government’s proposed tax-reform packages.
Source: https://www.manilatimes.net/peza-investments-fall-24-in-jan-april/563666/
Overhaul of property tax scheme to boost real estate market, says Dominguez [Philippine Daily Inquirer, June 3, 2019]
Provinces and cities are losing an estimated P30.5 billion in revenues annually as a result of outdated real property values, underscoring the need for valuation reforms in the real property sector, according to a unit of the Department of Finance (DOF).
Source: https://business.inquirer.net/271920/overhaul-of-property-tax-scheme-to-boost-real-estate-market-says-dominguez#ixzz5qKYqr4gE
Estate tax amnesty filing starts June 17 [Manila Times, June 1, 2019]
The Bureau of Internal Revenue (BIR) on Friday said it would start accepting applications for the estate tax amnesty program on June 17, following the publication of its implementing rules and regulations.
Source: https://www.manilatimes.net/estate-tax-amnesty-filing-starts-june-17/562961/
Trabaho bill threatens PH electronics industry’s existence [Philippine Daily Inquirer, May 31, 2019]
Electronics manufacturers, the country’s largest exporters, fear that the industry “might dwindle and eventually disappear” in the long term if the Trabaho bill gets passed in its current form.
Source: https://business.inquirer.net/271664/trabaho-bill-threatens-ph-electronics-industrys-existence#ixzz5qKWlVpdE
SEC approves ACE Malolos Doctor’s P1B IPO plan [Philippine Daily Inquirer, May 29, 2019]
The Securities and Exchange Commission (SEC) has approved an initial public offering worth up to P1 billion planned by hospital operator Allied Care Experts (ACE) Malolos Doctors Inc.
Source: https://business.inquirer.net/271547/sec-approves-ace-malolos-doctors-p1b-ipo-plan#ixzz5qKU0WWwo
Gordon: Excise tax hike may displace tobacco farmers [Philippine Daily Inquirer, May 29, 2019]
Sen. Richard Gordon on Tuesday raised his concern over the possible effects of increasing the excise tax on cigarettes to tobacco farmers.
Source: https://business.inquirer.net/271530/gordon-excise-tax-hike-may-displace-tobacco-farmers#ixzz5qKUYoQbK
Recto seeks tax imposition on e-cigarettes, vapes [Philippine Daily Inquirer, May 29, 2019]
Senate President Pro Tempore Ralph Recto said on Tuesday that he would push for the imposition of tax on alternative products to cigarette smoking such as vapes and e-cigarettes.
Source: https://business.inquirer.net/271527/recto-seeks-tax-imposition-on-e-cigarettes-vapes#ixzz5qKVBLG8g
Lacson urges better collection, not more taxes [Philippine Daily Inquirer, May 29, 2019]
Sen. Panfilo Lacson on Wednesday said the government should improve its tax collection measures instead of relying on raising taxes.
Source: https://business.inquirer.net/271596/lacson-urges-better-collection-not-more-taxes#ixzz5qKWWFdtt
If you wish to get a copy of the complete text of SEC and BIR issuances, please send us an email thru taxseminars@dmdcpa.com.ph.
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