BIR AMENDS GUIDELINES ON RELATED-PARTY DISCLOSURE FORM & TRANSFER PRICING + SEC EXTENDS DEADLINE TO SUBMIT CONTACT DETAILS + PROPERTY FIRMS GIVEN MORE TIME TO COMPLY WITH ACCOUNTING RULES
Other Relevant Tax Updates:
- Bureau of Internal Revenue (BIR) Amends Guidelines On Related-Party Transaction (RPT) Disclosure Form (BIR Form No. 1709) and Transfer Pricing Documentation (TPD)
- BIR Extends the Period To Avail Voluntary Assessment And Payment Program (VAPP)
- BIR Extends the Period To Avail Tax Amnesty On Delinquency
- BIR Amends the Criteria For Identifying Top Withholding Agent (TWA)
- Supreme Court (SC) Cases Digest
- Tax and Business-Related News [December 19-25]
I. BIR AMENDS GUIDELINES ON RPT DISCLOSURE FORM (BIR FORM NO. 1709) AND TPD
Revenue Regulations (RR) No. 34-2020, issued on December 21,2020, amends the guidelines and procedures on the submission of the new BIR Form No. 1709, TPD, and other supporting documents in relation to the previously-issued RR Nos. 19-2020, in order to streamline the requirements.
Highlights include:
A. The following are required to file and submit BIR Form No. 1709,together with the Annual Income Tax Return (AITR):
- Large Taxpayers
- Taxpayers enjoying tax incentives
- Taxpayers reporting net operating losses for the current taxable year and the immediately preceding two (2) consecutive taxable years
- Related Party
B. For related-party, Key Management Personnel (KMP) shall no longer be required to file and submitthe form, nor shall there be any requirement to report any transaction between KMP and the reporting entity/parent company of the latter in the form.
C. The form is also a required attachment for short-period returnsfiled in 2021 and subsequent years.
D. The preparation and submission of TPDs shall be mandatoryfor taxpayers enumerated above who meet the following materiality thresholds:
- Annual gross sales/revenue for the subject taxable period exceeding ₱150 Million,and the total amount of related party transactions with foreign and domestic related parties exceeds ₱90 Million
- Related party transactions meeting the following materiality threshold:
- If involving sale of tangible goods in the aggregate amount exceeding ₱60 Million within the taxable year;
- If involving service transaction, payment of interest, utilization of intangible goods or other related party transaction in the aggregate amount exceeding ₱15 Millionwithin the taxable year; or
- If TPD was required to be prepared during the immediately preceding taxable period for exceeding either (i) or (ii) above.
E. The TPDs and other supporting documents shall no longer be attached to the RPT Formbut shall be submitted upon request in relation to a regular tax audit.
F. Taxpayers who are not covered are required to disclose in the Notes to the Financial Statementsthat they are not covered by the requirements and procedures for related party transactions provided under this RR.
G. A simplified version of the formshall be issued.
E. The amendments were issued as part of the BIR’s compliance on Ease of Doing Business and Efficient Government Service Delivery Act of 2018.
II. BIR EXTENDS THE PERIOD TO AVAIL VAPP
RR No. 33-2020, issued on December 21, 2020, amends RR No. 21-2020 specifically on the deadline of availment of VAPP which is originally set until December 31, 2020. The regulation extends the period of availment until June 30, 2021, unless further extended by the Secretary of Finance. The regulations provide that no denial of application or invalidation of previously-issued Certificate of Availment shall be valid unless the taxpayer is formally notified. The taxpayer has a right to appeal in case of denial or invalidation of application within 30 days from the receipt of notice of denial.
III. BIR EXTENDS THE PERIOD TO AVAIL TAX AMNESTY ON DELINQUENCY
RR No. 32-2020, issued on December 21, 2020, amends RR No. 4-2019 pursuant to Section 4(tt) of Republic Act (R.A.) No. 11494, otherwise known as “Bayanihan to Recover As One Act”, allowing the moving of statutory deadlines for the filing and submission of documents, including the payment of taxes, as required by law in order to ease the burden on individuals under community quarantine. RR No. 32-2020 now provides the extension of availment of the Tax Amnesty on Delinquency until June 30, 2021 from the last extension deadline to last on December 31, 2020.
IV.BIR AMENDS THE CRITERIA FOR IDENTIFYING TWA
RR No. 31-2020, issued on December 18, 2020, further amends RR No. 11-2018 as previously amended by RR No. 7-2019, specifically on the criteria for identifying TWA.
TWA shall now refer to those taxpayers whose gross sales/receipts or gross purchases during the preceding taxable year fall under the minimum thresholds determined according to the existing group classifications of the Revenue District Offices (RDOs) where the taxpayers are duly registered, as follows:
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RDO GROUP CLASSIFICATION UNDER RMO NO. 13-2018 |
GROSS SALES/RECEIPTS OR GROSS PURCHASES OF AT LEAST |
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Groups A & B |
PHP 12 MILLION |
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Groups C, D & E |
PHP 5 MILLION |
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Prior to RR No. 31-2020, TWAs are those taxpayers whose sales/receipts or gross purchases or claimed deductible itemized expenses amounted to Php 12 Million during the preceding taxable year, without any further group classification of RDOs where taxpayers are duly registered.
V. SC CASES DIGEST
- Location indicated in the Transfer Certificate of Title (TCT)cannot be relied if the property is in dispute; Real Property Tax (RPT) is payable to local government unit (LGU) where the property is situated;
- Conflicting claims of Alilem Ilocos Sur, Bakun Benguet and Makati City over rightful local business tax (LBT) on sales of Luzon hydro; where both parties have a commonality of interests, the appeal of one is deemed to be the vicarious appealof the other;
- LBT assessment on dividends of holding companynot a non-bank financial intermediary is void; no imposition of LBT on dividends earned from government assets.
[LOCATION INDICATED IN THE TCT CANNOT BE RELIED IF THE PROPERTY IS IN DISPUTE] [RPT IS PAYABLE TO LGU WHERE THE PROPERTY IS SITUATED]
Petitioner Municipality of Cainta, Rizal filed a Petition for Review on Certiorari assailing the earlier decision of the Regional Trial Court (RTC) of Pasig ordering Spouses Branato pay RPT to the City of Pasig over their properties which are part of the territories disputed in a civil case filed with the RTC of Antipolo. Such decision was held on the basis that that the RTC of Pasig is bound by the locational entries appearing on the TCT of the subject real properties. The RTC held that unless corrected by competent authority, the locational entries in the TCTs is controlling. In ruling, the Supreme Court cited the Real Property Tax Code and the Local Government Code which provides that the LGU where the property is situated has the right to collect taxes. Therefore, it is necessary to determine the location of the properties. However, the Supreme Court cannot make any definitive ruling on the location of the properties due to the pending boundary dispute case between the City of Pasig and Municipality of Cainta which is still pending in the RTC of Antipolo. The Supreme Court held that the location indicated in the TCTs cannot be relied because the location of the properties is in dispute. Further, it would be more prudent for Spouses Branato deposit the succeeding payment of RPT due on the subject properties in escrow for the City of Pasig/Municipality of Cainta to avoid any further animosity between the two (2) LGUs. Thus, the Petition was PARTIALLY GRANTED and the assailed decision was REVERSED AND SET ASIDE. [MUNICIPALITY OF CAINTA, RIZAL VS. SPOUSES ERNESTO E. BRANA AND EDNA C. BRANA AND CITY OF PASIG, G.R. NO. 199290, FEBRUARY 3, 2020]
[CONFLICTING CLAIMS OF ALILEM ILOCOS SUR, BAKUN BENGUET AND MAKATI CITY OVER RIGHTFUL LBT ON SALES OF LUZON HYDRO] [WHERE BOTH PARTIES HAVE A COMMONALITY OF INTERESTS, THE APPEAL OF ONE IS DEEMED TO BE THE VICARIOUS APPEAL OF THE OTHER]
Petitioner City of Makati filed a Petition for Review on Certiorari seeking reversal of CTA En Banc’s Decision and Resolution denying its earlier plea for reconsideration. The case stemmed from a special civil action for Interpleader, with Prayer for Preliminary Injunction and/or Temporary Restraining Order, filed before the Regional Trial Court (RTC) of Makati City. Luzon Hydro Corporation (LHC) sought to compel the City of Makati (Makati), the Municipality of Alilem (Alilem), and the Municipality of Bakun (Bakun) to litigate among themselves their conflicting claims on LHC’s liability for LBT under Republic Act (R.A.) No. 7160. LHC pays Alilem the 30% portion of its LBT allocated for the site of the principal office given that Alilem is specified as the location of LHC’s principal office in its Articles of Incorporation. For three (3) years since 2004, the 70% portion of the LBT was equally apportioned among Alilem, Bakun, and Makati, such that each LGU received 23.33%-Alilem and Bakun as power plant sites and Makati as a “project office” site. Via Resolution, Bakun questioned the sharing scheme and invoking the Bureau of Local Government and Finance (BLGF) opined that only Bakun and Alilem should share in the 70% portion of LHC’s LBT because LHC’s Makati office was a mere “administrative office”. According to the BLGF opinion, Makati can only collect the mayor’s permit fee and other regulatory fees under its existing local tax ordinances. Makati moved for reconsideration of the CTA En Banc’s Decision, which was denied for lack of merit. In resolving the case, the CTA took into account where LHC’s sales, transactions and operations were undertaken. Having noted that these did not take place at the Makati office, CTA concluded that it was a mere administrative office. Moreover, even if no sales were recorded or undertaken at LHC’s Makati office, Makati would have been entitled to share with LHC’s power plant sites in the 70% portion of the business tax if it could be shown that the Makati office was a project office of LHC akin to a factory. Finally, the Supreme Court agreed that Bakun and Alilem share a commonality of interest in the case. The fact that only Bakun appealed from the RTC’s decision in the interpleader case does not preclude Alilem from benefiting in a judgment favoring Bakun. Finding no reversible error in the Decision and Resolution of the CTA En Banc, the Petition was DENIED. [THE CITY OF MAKATI VS. THE MUNICIPALITY OF BAKUN AND LUZON HYDRO CORPORATION, G.R. NO. 225226, JULY 7, 2020]
[LBT ASSESSMENT ON DIVIDENDS OF HOLDING COMPANY NOT A NON-BANK FINANCIAL INTERMEDIARY IS VOID] [NO IMPOSITION OF LBT ON DIVIDENDS EARNED FROM GOVERNMENT ASSETS]
Petitioner City of Davao, as represented by its City Treasurer Erwin Alparaque, filed a Petition for Review on Certiorari seeking reversal of the decision of CTA granting refund of erroneously paid LBT on dividends earned by Respondent AP Holdings, Inc. from San Miguel Corporation (SMC) preferred shares and interests from money market placements. Petitioner argued that the refund should not be granted and asserted that Respondent is a non-bank financial intermediary or an investment company for it owned a substantial number of shares and received millions of peso dividends from its investments, thus, its earnings should be subject to LBT. Likewise, it has no other business except its stock investment and money market placements with SMC. On the other hand, Respondent countered that it is not a bank or non-bank financial intermediary considering that it is not engaged in lending money, investing, reinvesting or trading securities on a regular and recurring basis. Also, it is a holding company and expressly prohibited to act as a financial intermediary under its Articles of Incorporation. In ruling, the Supreme Court held that Respondent cannot be considered as a non-bank financial intermediary since its investment and placement of funds are not done in a regular or recurring manner for the purpose of earning profit. Rather, its management of dividends from the SMC shares is only in furtherance of its purpose as a CIIF holding company for the benefit of the Republic. Under Section 133(o) of the Local Government Code, LGUs cannot tax the National Government. Respondent’s holding of the entire CIIF block of SMC shares are public assets owned by the Republic of the Philippines. Consequently, dividends and any income from these shares are exempt from LBT. Thus, the Petition was DENIED. [CITY OF DAVAO AND MR. ERWIN ALPARAQUE VS. AP HOLDINGS, INC., G.R. NO. 245887, JANUARY 22, 2020]
VI. TAX AND BUSINESS-RELATED NEWS [DECEMBER 19-25]
- PEZA investment pledges fell 19% as of November
- BSP increases service fees for transactions
- BOI concedes investment pledges below P1 T in 2020
- SSS to hike monthly income contribution rates to 13 pct starting Jan. 2021
- NGCP seeks tax-free importation of COVID vaccine for employees
- Jan-Nov budget deficit exceeds P1T on weak revenue collection, spending uptick
- Labor dept seeks hike in cash aid for work-related illness, injury
- SSS says fee hike in January to prolong pension fund life, raise future benefits
- Property firms given more time to comply with accounting rules
PEZA investment pledges fell 19% as of November [Manila Bulletin, December 25, 2020]
Investment pledges approved by the Philippine Economic Zone Authority (PEZA) fell 19 percent as of November this year as the pandemic discouraged investors to expand and commit for new projects.
Source: https://mb.com.ph/2020/12/26/peza-investment-pledges-fell-19-as-of-november/
BSP increases service fees for transactions [Manila Bulletin, December 25, 2020]
The Bangko Sentral ng Pilipinas (BSP) is increasing the fees it charge on banks’ deposits and reinstating fees for withdrawals of cash transactions as part of its Clean Note and Coin Policy (CNCP) and to improve the circulation of fit bank notes.
Source: https://mb.com.ph/2020/12/26/bsp-increases-service-fees-for-transactions/
BOI concedes investment pledges below P1 T in 2020 [Manila Bulletin, December 24, 2020]
Board of Investments Managing Head Ceferino S. Rodolfo has conceded that approved investment commitments in 2020 would fall short of its goal for another P1 trillion mark for the – year.
Source: https://mb.com.ph/2020/12/24/boi-concedes-investment-pledges-below-p1-t-in-2020/
SSS to hike monthly income contribution rates to 13 pct starting Jan. 2021 [ABS-CBN News, December 23, 2020]
Monthly contributions to the Social Security System (SSS) will rise to 13 percent of members’ incomes starting January 2021.
NGCP seeks tax-free importation of COVID vaccine for employees [Manila Bulletin, December 23, 2020]
Transmission firm National Grid Corporation of the Philippines (NGCP) is seeking lawmakers’ imprimatur for it to be allowed to import Covid-19 vaccine tax-free as these doses will be used for its employees.
Source: https://mb.com.ph/2020/12/23/ngcp-seeks-tax-free-importation-of-covid-vaccine-for-employees/
Jan-Nov budget deficit exceeds P1T on weak revenue collection, spending uptick [ABS-CBN News, December 23, 2020]
The Philippine budget gap from January to November breached the P1-trillion mark as tax and non-tax revenue collections remained weak amid slight improvement in government spending, the Bureau of the Treasury (BTr) said Wednesday.
Labor dept seeks hike in cash aid for work-related illness, injury [ABS-CBN News, December 23, 2020]
Labor Secretary Silvestre Bello III on Tuesday urged the Employees’ Compensation Commission (ECC) to increase compensation for employees who suffer from work-related illness or injury.
SSS says fee hike in January to prolong pension fund life, raise future benefits [Philippine Daily Inquirer, December 23, 2020]
The top management of the state-run Social Security System (SSS) on Wednesday (Dec. 23) said pushing through with the scheduled increase in private sector employees’ fees to 13 percent next year would not only prolong pension funds but also raise future benefits for members and pensioners.
Source: https://business.inquirer.net/314619/sss-says-fee-hike-in-january-to-prolong-pension-fund-life-raise-future-benefits#ixzz6hqjZAjsV
Property firms given more time to comply with accounting rules [Manila Bulletin, December 22, 2020]
The Securities and Exchange Commission (SEC) is giving real estate companies more time to assess implementation issues amid the COVID-19 pandemic by further deferring the application of certain accounting rules until 2023.
Source: https://mb.com.ph/2020/12/22/property-firms-given-more-time-to-comply-with-accounting-rules/
If you wish to get a copy of the complete texts of the above issuances, send us an email thru taxseminars@dmdcpa.com.ph.
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