Weekly Tax Updates[July 08-12, 2019]

Aug 6, 2019 | Tax Updates

SEC NEW COMPLIANCE ON GENERAL INFORMATION SHEET TO INCLUDE BENEFICIAL INTEREST + LOREN’S SON SECURES SOLAR FRANCHISE + MORE ECOZONES IN MINDANAO PUSHED

Relevant Highlights:

  • COURT OF TAX APPEALS (CTA) CASES DIGESTS
  • SECURITIES & EXCHANGE COMMISSION (SEC) CLARIFIES INCLUSION OF BENEFICIAL INTEREST IN THE GENERAL INFORMATION SHEET
  • TAX & BUSINESS-RELATED NEWS [JULY 28-AUGUST 5]

A. CTA CASE DIGESTS

  1. Contractees & licensees of PAGCOR are subject to corporate income tax for income derived from such ‘related services’; like Philippine amusement & gaming corporation (PAGCOR), its contractees & licensees remain exempted from the payment of corporate income tax & other taxes; contractees & licensees of PAGCOR, upon payment of the 5% franchise tax, shall likewise be exempted from all other taxes, including corporate income tax realized from the operation of casinos
  2. Refund of input vat attributable to zero rated sales requires that payments of non-resident foreign corporation must be inwardly remitted in acceptable foreign currency & accounted for in accordance with the Bangko Sentral ng Pilipinas (BSP) rules & regulations
  3. 5% franchise tax on contractees & licensees of PAGCOR applies only to its gaming operations; PAGCOR’s income can be classified into two categories: from its own operations & licensing & from other related operations; income from other related operations of PAGCOR is subject to corporate income tax
  4. Taxpayer’s failure to file petition for review to CTA within 30 days after receipt of commissioner of internal revenue (CIR) final decision & instead resorted to regional trial court (RTC) resulting to lack of jurisdiction on the part of CTA
  5. VAT erroneously passed-on to zero-rated entities must seek reimbursement from the seller & not from the government; lack of diligence in claiming benefit from a law is tantamount to waiver of the said benefit

[CONTRACTEES & LICENSEES OF PAGCOR ARE SUBJECT TO CORPORATE INCOME TAX FOR INCOME DERIVED FROM SUCH ‘RELATED SERVICES’] [LIKE PAGCOR, ITS CONTRACTEES & LICENSEES REMAIN EXEMPTED FROM THE PAYMENT OF CORPORATE INCOME TAX & OTHER TAXES] [CONTRACTEES & LICENSEES OF PAGCOR, UPON PAYMENT OF THE 5% FRANCHISE TAX, SHALL LIKEWISE BE EXEMPTED FROM ALL OTHER TAXES, INCLUDING CORPORATE INCOME TAX REALIZED FROM THE OPERATION OF CASINOS]

Petitioner, Premium leisure and Amusement, Inc. filed a Petition for Review seeking refund or issuance of Tax Credit Certificate (TCC) on the alleged erroneous payment of corporate income tax. The Petitioner argued that, as a PAGCOR licensee, it is entitled to incentives which include the payment of 5% Franchise Tax instead of the 30% corporate income tax. In defense, the Respondent Commissioner of Internal Revenue counters that contractees and licensees of PAGCOR are subject to corporate income tax for income derived from such ‘related services’ in which the Petitioner failed to prove that the amount claimed for refund relates solely to its income realized from operation of casinos. In resolving the case, the Court ruled that exemptions granted for earnings derived from the operations conducted under the franchise specifically from the payment of any tax, income or otherwise, as well as any form of charges, fees or levies, shall inure to the benefit of and extend to corporations, associations, agencies, or individuals with whom the PAGCOR or operator has any contractual relationship in connection with the operations of the casino authorized to be conducted under the Franchise, so it must be that all contractees and licensees of PAGCOR, upon payment of the 5% Franchise Tax, shall likewise be exempted from all other taxes, including corporate income tax realized from the operation of casinos. Clearly, Petitioner’s income realized from gaming operations are not subject to income tax. Accordingly, Petitioner submitted documents such as official receipts, journal voucher, deposit slip, and acknowledgement receipts to prove that the amount of gaming revenue consists entirely of its revenue share from the operations of the casino. The Petition for Review is GRANTED and the Respondent is ordered to refund or issue TCC in favor of the Petitioner. [PREMIUMLEISURE & AMUSEMENT, INC. VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO 9572, JULY 16, 2019]

REFUND OF INPUT VAT ATTRIBUTABLE TO ZERO RATED SALES REQUIRES THAT PAYMENTS OF NON-RESIDENT FOREIGN CORPORATION MUST BE INWARDLY REMITTED IN ACCEPTABLE FOREIGN CURRENCY & ACCOUNTED FOR IN ACCORDANCE WITH THE BSP RULES & REGULATIONS

Petitioner Kurimoto (Philippines) Corporation filed a Petition for Review seeking refund or issuance of Tax Credit Certificate (TCC) in the amount of Php 11,797,880.86, allegedly representing excess input VAT attributable to zero-rated sales. Petitioner argues that its sale of service pertains to a Philippine Economic Zone Authority (PEZA)-registered entity and to a non-resident foreign corporation not engaged in business within the Philippines is subject to 0% VAT. The Respondent Commissioner of Internal Revenue countered that the Petitioner should prove its entitlement to refund. In ruling, the court laid down the criteria in order to be entitled to refund. Accordingly, the services must be other than processing, manufacturing or repacking of goods; the recipient of such services is doing business outside the Philippines; the payment for such must be in acceptable foreign currency accounted for in accordance with the BSP Rules; and the claimant must properly comply with the invoicing requirement. To prove compliance, Petitioner presented the authenticated Articles of Incorporation, as well as the Philippine Securities and Exchange Commission (SEC) Certificate of Non-Registration that Kurimoto Ltd is a foreign entity. However, the court noted that the Petitioner failed to comply with other requisites, such as its failure to provide bank certification proving that payments were inwardly remitted in acceptable foreign currency and accounted for in accordance with the BSP rules and regulations. Likewise, the Petitioner failed to comply with the invoicing requirements. The Petition for Review is PARTIALLY GRANTED resulting to a reduced amount of input VAT qualified for refund or issuance of TCC in the amount of Php 8,996,232.52. [KURIMOTO (PHILIPPINES) CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 9417, JUNE 4, 2019]

[5% FRANCHISE TAX ON CONTRACTEES & LICENSEES OF PAGCOR APPLIES ONLY TO ITS GAMING OPERATIONS] [PAGCOR’S INCOME CAN BE CLASSIFIED INTO TWO CATEGORIES: FROM ITS OWN OPERATIONS & LICENSING & FROM OTHER RELATED OPERATIONS] [INCOME FROM OTHER RELATED OPERATIONS OF PAGCOR IS SUBJECT TO CORPORATE INCOME TAX]

Petitioner Prime Investment Korea, Inc. filed a Petition for Review seeking the refund or the issuance of Tax Credit Certificate (TCC) on alleged erroneous payment of corporate income tax on junket gaming revenues for taxable year 2014. Several issues were raised but the main issue is centered on whether the Petitioner is subject to 5% Franchise Tax and therefore entitled to refund or issuance of TCC for erroneous payment of corporate income tax on junket gaming revenues. The Petitioner argued that as a PAGCOR contractee, it is entitled to fiscal incentives which include the payment of 5% Franchise Tax rather than 30% corporate income tax on revenues relating to such operations. Further, it was disclosed that the Petitioner already paid the Franchise Tax on such revenues. In resolving the case, the Court initially clarified its previous ruling that (1) PAGCOR is excluded from the enumeration of government-owned and controlled corporations which are exempt from corporate income tax; (2) PAGCOR’s tax privilege of paying 5% Franchise Tax in lieu of all taxes relates only to its gaming operations; and (3) PAGCOR’s income from other related services is subject to corporate income tax only. It further emphasized that income from junket operations falls under “income from other related operations”. Thus, the Petitioner’s argument that it is exempt from corporate income tax, in so far as its income from junket operations, is without legal basis. Consequently, the Petition for Review was DENIED for lack of merit. [PRIME INVESTMENT KOREA, INC. VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO 9573, MAY 31, 2019]

TAXPAYER’S FAILURE TO FILE PETITION FOR REVIEW TO CTA WITHIN 30 DAYS AFTER RECEIPT OF CIR FINAL DECISION & INSTEAD RESORTED TO RTC RESULTING TO LACK OF JURISDICTION ON THE PART OF CTA

Petitioner Roberto O. Yangco filed a Petition for Review praying to enjoin the collection enforcement of the Respondent Commissioner of Internal Revenue relative to the tax assessment. In defense, the Respondent filed a Motion to Dismiss for lack of jurisdiction of the Court considering that the Petition was filed out of time. Likewise, the resort of the Petitioner in filing an appeal before the RTC is improper for it failed to conform to the rules regarding the proper appeal. Under Revenue Regulations (RR) No. 12-99, a taxpayer has 30 days from receipt of Formal Assessment Notice/Formal Letter of Demand (FAN/FLD) (i.e. July 31, 2013) within which to protest the assessment by filing a request for reconsideration and/or re-investigation.  However, it revealed that it was only on September 30, 2013 that the Petitioner filed a protest letter rendering the assessment final and executory. The court had the occasion to rule that in case of inaction by the CIR on the protested assessment, the taxpayer has two options, either to file a Petition for Review with CTA within 30 days after the expiration of the 180-day period or to await the final decision of the Commissioner on the disputed assessment and appeal such final decision to the CTA within (30) days after the receipt of a copy of such decision. Had the Petitioner really intended to await the decision of the CIR, he should have prompted to act by appealing after given notice by CIR’s intention to collect. The act of filing a Petition with the RTC contradicts his claim of awaiting the final decision of the CIR. Thus, the Petitioner availed a wrong mode of appeal which is fatal to its cause. Consequently, the Petition for Review is DENIED for lack of jurisdiction.  [ROBERTO O. YANGCO VS. COMMISSIONER OF INTERNAL REVENUE, CTA EN BANC CASE NO. 9388, MAY 23, 2019]

[VAT ERRONEOUSLY PASSED-ON TO ZERO-RATED ENTITIES MUST SEEK REIMBURSEMENT FROM THE SELLER & NOT FROM THE GOVERNMENT] [LACK OF DILIGENCE IN CLAIMING BENEFIT FROM A LAW IS TANTAMOUNT TO WAIVER OF THE SAID BENEFIT]

Both Petitioner Taganito Mining Corporation and Respondent Commissioner of Internal Revenue filed a Petition for Review seeking for the reversal of the amended decisions rendering the partial claim for refund or issuance of Tax Credit Certificate (TCC) in the amount of Php 18,203,404.63 allowed out of Php 21,818,041.36 which represents the excess and unutilized input VAT on amortized portion of the capital goods in excess of Php 1 Million for the years 2011 and 2012 and input VAT from zero-rated sales. The Petitioner argued that applying the Coral Bay Doctrine which provides that reimbursement from the seller of erroneously-passed input VAT and not from the government was erroneous, and it effectively negated its right to refund its excess and creditable input taxes from domestic purchases. The Petitioner added that it is bound to incur expenses with a VAT component from its irregular suppliers since they are not be able to furnish a copy of the BOI certification stating that they are zero-rated entity.  In the resolution, the Court En Banc ruled that lack of diligence in claiming the benefit from a law shall consider its apathy a waiver of the said benefit. It also cited the Coral Bay Doctrine that the Petitioner must seek reimbursement of the VAT paid from its seller, and not from the Government, which is also pursuant to the provisions of Revenue Memorandum Circular 42-2003. Further, the Petitioner failed to present valid bank inward remittances to support its claim of zero-rated sales which are paid for acceptable foreign currency. Thus, the Court finds no reason to disturb the findings and conclusions reached by the Second Division in its Amended Decisions. Accordingly, the Petitions for Review are DENIED for lack of merit. [TAGANITO MINING CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE, CTA EN BANC CASE NO.’S 1719 & 1711, MAY 20, 2019]

If you wish to get a copy of the complete text of the CTA cases, please e-mail us.

B. SEC CLARIFIESINCLUSION OF BENEFICIAL INTEREST IN THE GENERAL INFORMATION SHEET

SEC Memorandum Circular (MC) No. 15-2019 dated July 26, 2019 amends SEC MC No. 17-2018 revising the GIS to include beneficial ownership information, pursuant to the provisions of the Revised Corporation Code of the Philippines as well as the implementation of the Anti-Money Laundering Law and the Terrorist Financing Prevention and Suppression Act.

Highlights of the circular include the following:

  1. Defines “beneficial owner” as any natural person who ultimately owns, controls, or exercises ultimate effective control over the corporation, whether directly or indirectly, or through a chain of ownership, or other determining factors such as abilities to elect majority of the board, exert dominant influence over management policies, direct instructions in conducting the affairs of the corporation, stewards of properties, own or control nominee stockholder/director, and other factors of dominating influence.
  2. Inclusion of the complete name, specific residential address, date of birth, nationality, TIN and percentage of ownership of the beneficial owner, subject to access restrictions of the public.
  3. Manner of identification of beneficial owner from controlling ownership, controlling voting rights, controlling through other means, and exercising ultimate effective control. The entity must ensure in exhausting all other means of identifying the beneficial owners. In exceptional cases where no natural person is identifiable who ultimately owns or exerts controls over the corporation and that the corporation has already exhausted all other means, the board and/or senior managing official shall be considered beneficial owner.
  4. Determination of natural person who ultimately owns the corporation through indirect ownership following the “Grandfather Rule” methodology.
  5. Timeline on the compliance of update of beneficial ownership information which shall be seven (7) working days after change occurred or became effective.
  6. Imposition of penalties against the corporation as well as the liabilities attached to the directors/trustees/officers for failure to disclose
  7. Submission of GIS in electronic format is suspended until further notice.
  8. Corporations with GIS due for submission beginning July 31, 2019 are required to submit the Revised GIS containing the beneficial ownership Information. [SEC MEMORANDUM CIRCULAR NO. 15- 2019, JULY 27, 2019]

C.    TAX & BUSINESS-RELATED NEWS [JULY 28-AUGUST 5]

  • First 18 months crucial for tax reforms — Dominguez
  • Pag-IBIG Fund taps PayMaya for payments
  • Pag-IBIG collects P30B in home loan payments
  • BIR’s H1 tax take falls short of goal
  • DOF: ‘Huge inequity’ in P441 B tax perks in 2017
  • Gov’t revenues to breach P4T by 2022
  • Loren’s son secures solar franchise
  • Combined collections to top P3-trillion
  • SEC gets whiff of scam in fresh investment scheme involving perfume
  • SEC warns against perfume investment scam
  • ARTA urges Finance dept.: Sign PPSA rules now
  • DTI vows to help implement Innovative Startup Act
  • DOF invites comments on IRR for PPSA
  • Business firms reminded to remit employees SSS contributions
  • More ecozones in Mindanao pushed
  • SSS disburses P62 B pension benefits in 5 months
  • DoF hopeful for more ‘sin’ taxes
  • Congress can overturn vetoed SOT – Dominguez
  • Universal health care won’t get sick without PCSO funds—DOF
  • Philippine Tax Academy launching online portal

First 18 months crucial for tax reforms — Dominguez [Manila Bulletin, August 4, 2019]

The Department of Finance (DOF) is hopeful that the remaining tax reform packages will be enacted into laws before 2021 as the government’s chief economic manager believes the political landscape could be different in the final year of the Duterte administration.

Source: https://business.mb.com.ph/2019/08/04/first-18-months-crucial-for-tax-reforms-dominguez/

Pag-IBIG Fund taps PayMaya for payments [Manila Bulletin, August 4, 2019]

Pag-IBIG Fund has partnered with PayMaya to make it more convenient for its members nationwide to pay for their savings and loan repayments anytime, anywhere.

Source: https://business.mb.com.ph/2019/08/04/pag-ibig-fund-taps-paymaya-for-payments/

Pag-IBIG collects P30B in home loan payments [Manila Times, August 3, 2019]

THE Home Development Mutual Fund (Pag-IBIG Fund) reported on Friday that its collection of housing loan payments rose by double digits in the first half of the year.

Source: https://www.manilatimes.net/pag-ibig-collects-p30b-in-home-loan-payments/594286/

BIR’s H1 tax take falls short of goal [Philippine Daily Inquirer, August 3, 2019]

Despite below-target collections in the first half, the Bureau of Internal Revenue (BIR) is optimistic it will achieve its collection targets this year and in 2020 on the back of the agency’s efforts toward digitalization.
Source: https://business.inquirer.net/276097/birs-h1-tax-take-falls-short-of-goal#ixzz5ve17u7ME

DOF: ‘Huge inequity’ in P441 B tax perks in 2017 [Philippine Star, August 2, 2019]

The government had missed out on P441 billion worth of tax incentives that could have been rationalized in 2017, the Department of Finance (DOF) said.
Source: https://www.philstar.com/business/2019/08/02/1939812/dof-huge-inequity-p441-b-tax-perks-2017#XJ6QsYXHkbQfyqs1.99

Gov’t revenues to breach P4T by 2022 [Philippine Daily Inquirer, August 2, 2019]

The national government’s tax and nontax revenues will breach the P4-trillion mark by 2022, thanks to a boost from the additional revenues to be generated from the Duterte administration’s comprehensive tax reform program.
Source: https://business.inquirer.net/275931/govt-revenues-to-breach-p4t-by-2022#ixzz5vQ6mZquS

Loren’s son secures solar franchise [Philippine Daily Inquirer, August 2, 2019]

President Duterte has signed a law granting a 25-year renewable energy distribution franchise to a solar energy firm owned by the son of former senator and Antique Rep. Loren Legarda.

Source: https://business.inquirer.net/275935/lorens-son-secures-solar-franchise          

Combined collections to top P3-trillion [Manila Bulletin, August 1, 2019]

The Duterte administration’s economic managers expect the government’s two main tax agencies to breach the P3 trillion mark next year as the new revenue enhancing measures continue to deliver some of the needed funds for the ambitious infrastructure projects.

Source: https://business.mb.com.ph/2019/08/01/combined-collections-to-top-p3-trillion/

SEC gets whiff of scam in fresh investment scheme involving perfume [Philippine Daily Inquirer, August 1, 2019]

The Securities and Exchange Commission (SEC) has warned the public against an allegedly illegal investment scheme propagated by Scentko World Corp. and its parent firm, Brendahl Cruz Holdings Inc.
Source: https://business.inquirer.net/275847/sec-gets-whiff-of-scam-in-fresh-investment-scheme-involving-perfume#ixzz5vJNpRk1B

SEC warns against perfume investment scam [Philippine Daily Inquirer, July 31, 2019]

The Securities and Exchange Commission (SEC) has warned the public against an illegal perfume investment scheme propagated by Scentko World Corp. and its parent firm, Brendahl Cruz Holdings Inc.
Source: https://business.inquirer.net/275838/sec-warns-against-perfume-investment-scam#ixzz5vFf549ZO

ARTA urges Finance dept: Sign PPSA rules now [Manila Times, July 31, 2019]

The Anti-Red Tape Authority (ARTA) on Tuesday urged the Department of Finance (DoF) to hasten the signing of the implementing rules and regulations (IRR) of Republic Act 11057, or the Personal Property Security Act (PPSA) of 2018, in a bid to make doing business in the country easier.

Source: https://www.manilatimes.net/arta-urges-finance-dept-sign-ppsa-rules-now/592559/

DTI vows to help implement Innovative Startup Act [Manila Times, July 31, 2019]

THE Department of Trade and Industry has vowed to help enforce the policies covered in Republic Act 11337, or the Innovative Startup Act, to encourage more entrepreneurs in setting up their businesses.

Source: https://www.manilatimes.net/dti-vows-to-help-implement-innovative-startup-act/592546/

DOF invites comments on IRR for PPSA [Manila Bulletin, July 30, 2019]

The Department of Finance (DOF) is set to release the implementing rules and regulations (IRR) on the Personal Property Security Act (PPSA) sometime in August and stakeholders are given until today to submit comments on the same.

Source: https://business.mb.com.ph/2019/07/30/dof-invites-comments-on-irr-for-ppsa/

Business firms reminded to remit employees SSS contributions [Philippine Daily Inquirer, July 30, 2019]

The Social Security System (SSS) launched its third nationwide Run After Contribution Evaders (RACE) campaign on Tuesday to remind business establishments to comply with their obligations.
Source: https://business.inquirer.net/275745/business-firms-reminded-to-remit-employees-sss-contributions#ixzz5vFfOEd00

More ecozones in Mindanao pushed [Philippine Star, July 30, 2019]

The Philippine Economic Zone Authority (PEZA) and the Mindanao Development Authority (MinDA) are pushing for the creation of economic zones in Mindanao in line with President Duterte’s directive to promote economic activity in the countryside.
Source: https://www.philstar.com/business/2019/07/30/1938956/more-ecozones-mindanao-pushed#FDrPgrwWduOmVjK5.99

SSS disburses P62 B pension benefits in 5 months [Philippine Star, July 30, 2019]

State-run Social Security System (SSS) said its pension benefit releases in the first five months of the year rose to P62.19 billion year-on-year amid an increase in the number of pensioners.
Source: https://www.philstar.com/business/2019/07/30/1938950/sss-disburses-p62-b-pension-benefits-5-months#pG0zFBDxh8uEw6pr.99

DoF hopeful for more ‘sin’ taxes [Manila Times, July, 29, 2019]

THE Department of Finance (DoF) is hopeful that the 18th Congress would continue to approve additional “sin” taxes after the signing into law of Republic Act 11346 that imposes higher taxes on cigarettes and a new tax on electronic cigarettes (e-cigarettes) and other alternative devices for smoking.

Source: https://www.manilatimes.net/dof-hopeful-for-more-sin-taxes/591593/

Congress can overturn vetoed SOT – Dominguez [Manila Times, July 29, 2019]

Lawmakers can overturn President Rodrigo R. Duterte’s decision to thumb-down the security of tenure (SOT) bill, but that is if Congress is willing to challenge the chief executive’s high trust ratings, the government’s economic manager said.

Source: https://business.mb.com.ph/2019/07/28/congress-can-overturn-vetoed-sot-dominguez/

Universal health care won’t get sick without PCSO funds—DOF [Philippine Daily Inquirer, July 29, 2019]

The revenue loss resulting from President Rodrigo Duterte’s sudden order to stop all betting formats of the Philippine Charity Sweepstakes Office (PCSO) would have a small impact on funding for the Universal Health Care (UHC) law which would start implementation next year, the Department of Finance (DOF) said on Monday (July 29).
Source: https://business.inquirer.net/275699/universal-health-care-wont-get-sick-without-pcso-funds-dof#ixzz5v7O20GVK

Philippine Tax Academy launching online portal [Philippine Star, July 28, 2019]

The Philippine Tax Academy (PTA) is set to launch next week its online portal where the government’s revenue personnel can access its courses, according to the Department of Finance.
Source https://www.philstar.com/business/2019/07/28/1938374/philippine-tax-academy-launching-online-portal#eq9VF0kclXgOz1Ib.99

If you wish to get a copy of the complete texts of the above issuances, please send us an email thru taxseminars@dmdcpa.com.ph.