SUPREME COURT RULES ON THE TAX EXEMPTION ON MEMBERSHIP FEES & ASSESSMENT DUES OF NON-STOCK NON-PROFIT RECREATIONAL CLUBS + SSS READY TO ACCEPT UNEMPLOYMENT BENEFIT CLAIMS + PEZA CONTRIBUTION TO ECONOMY BLOATED
Relevant Highlights:
- Supreme Court case digest on tax exemption of membership fees & assessment dues imposed by non-stock non-profit recreational clubs;
- Securities & Exchange Commission (SEC) Office of the General Counsel legal opinion on perpetual life of existing corporations upon the enactment of the Revised Corporation Code (RCC)
- Tax & business-related news [August 13-20]
A. SUPREME COURT RULES THAT MEMBERSHIP FEES, ASSESSMENT DUES & THE LIKE IMPOSED BYRECREATIONAL CLUBS FOR UPKEEP & MAINTENANCE OF FACILITIES NOT SUBJECT TO INCOME TAX & VAT
Petitioner Association of Non-Profit Clubs, Inc. (ANPC) filed a Petition for Review seeking reversal of the Makati Regional Trial Court (RTC) decision on the validity of the Respondent’s BIR Revenue Memorandum Circular (RMC) No. 35-2012 which was supposed to clarify the taxability of clubs organized and operated exclusively for pleasure, recreation, and other non-profit purposes. The Respondent argued that the 1997 Tax Code omitted recreational clubs from the list of exempt organizations under the 1977 Tax Code which also evinces the deliberate intent of Congress to remove the tax income exemption previously accorded to these clubs. As such, the income that recreational clubs derive “from whatever source” is now subject to income tax under the provisions of the 1997 Tax Code. The Supreme Court ruled that membership fees, assessment dues, and the like are treated as collections by recreational clubs from their members as an inherent consequence of their membership, and are, by nature, intended for the maintenance, preservation, and upkeep of the clubs’ general operations and facilities. Consequently, these fees cannot be classified as “the income of recreational clubs from whatever source” that are “subject to income tax.” Instead, they only form part of capital from which no income tax may’ be collected or imposed. Hence, not subject to income tax. Also, these are not subject to VAT, because in collecting such fees, the club is not selling its service to the members. Members are not buying services from the club when dues are paid; hence, there is no economic or commercial activity to speak of as these dues are devoted for the operations/maintenance of the facilities of the organization. The Supreme Court declares the BIR’s interpretation of RMC No. 35-2012 as invalid. The Petition is GRANTED and the decision of Makati RTC is SET ASIDE. The Supreme Court DECLARES that membership fees, assessment dues, and fees of similar nature collected by clubs which are organized and operated exclusively for pleasure, recreation, and other nonprofit purposes do not constitute (1) the income of recreational clubs from whatever source that are subject to income tax; and (2) part of the gross receipts of recreational clubs that are subject to VAT. RMC 35-2012 should be interpreted in accordance with this decision. [ASSOCIATION OF NON-PROFIT CLUBS, INC. (ANPC) VS. BUREAU OF INTERNAL REVENUE, G.R. NO. 228539, JUNE 26, 2019]
B. SEC OFFICE OF THE GENERAL COUNSEL LEGAL OPINION ON PERPETUAL LIFE OF EXISTING CORPORATIONS UPON THE ENACTMENT OF THE RCC
[CORPORATE LIFE UNDER THE NEW LAW IS PERPETUAL] [CORPORATION SHALL HAVE PERPETUAL EXISTENCE UNLESS ITS ARTICLES OF INCORPORATION (AOI) PROVIDE OTHERWISE]
A real estate company is seeking confirmation whether its corporate term will have a perpetual existence and need not amend by two-third (2/3) vote of outstanding shares pursuant to the Revised Corporation Code. In rendering the opinion, SEC referred to Paragraph 2, Section 11 of RCC, which states that corporations with certificates of incorporation issued prior to the effectivity of this Code, and which continue to exist shall have perpetual existence, unless the corporation, upon a vote of its stockholders representing a majority of its outstanding capital stock, notifies the Commission that it elects to retain its specific corporate term pursuant to its AOI. Under the provision of RCC, corporation existing prior to, and which continues to exist upon the effectivity of the RCC, shall be automatically deemed perpetual without any further action on the part of the corporation. And since the automatic conversion of the corporate term to perpetual existence does not require an amendment of the AOI, the 2/3 affirmative vote of the outstanding shares to amend the AOI would not be required. [SEC OFFICE OF THE GENERAL COUNSEL OPINION NO. 19-28, JULY 22, 2019]
C. TAX & BUSINESS-RELATED NEWS [AUGUST 13-20]
- ‘PEZA contribution to economy bloated’
- Property companies limiting exposure to POGOs
- SSS ready to accept unemployment benefit claims
- SEC warns of more Ponzi schemes, investment scams
- E-cigarette groups: No higher tax
- DOF dangles tax perks to drive businesses outside Metro Manila
- Pagcor orders moratorium on new POGOs
- Taxpayers can file tax returns via PESONet
- PEZA rejects renamed TRABAHO bill
- DOF still wants higher ‘sin’ tax rates in original version
- Duterte orders reduction, condonation of real property taxes of IPPs
- Tariff body pushes tax on cement imports
- House approves on 2nd reading new sin taxes
- POGO hubs give 24/7 protection to workers
- DOF to still push alcohol taxes higher than rates OKd by House panel
- POGO hubs secure Finance dept’s support
- DoF highlights H1 accomplishments
- DOF: Tax monitoring of POGOs easier if they are in hubs
‘PEZA contribution to economy bloated’ [Manila Times, August 20, 2019]
The Department of Finance (DoF) has debunked the Philippine Economic Zone Authority’s (PEZA) claim that it has contributed P10 trillion to the local economy from 2015 to 2017.
Source: https://www.manilatimes.net/peza-contribution-to-economy-bloated/603052/
Property companies limiting exposure to POGOs [Philippine Star, August 19, 2019]
Some of the country’s property giants are taking extra measures in relation to their exposure to the offshore gaming industry amid China’s crackdown on this fast growing but controversial sector.
Source: https://www.philstar.com/business/2019/08/19/1944580/property-companies-limiting-exposure-pogos#iHyMZf2Wv654RmWy.99
SSS ready to accept unemployment benefit claims [Philippine Star, August 19, 2019]
Members of the Social Security System (SSS) are now entitled to unemployment benefits should they get involuntarily separated from their workplace, the state pension fund announced over the weekend.
Source: https://www.philstar.com/business/2019/08/19/1944542/sss-ready-accept-unemployment-benefit-claims#gIFLdYKeAsgpKVQR.99
SEC warns of more Ponzi schemes, investment scams [Philippine Star, August 19, 2019]
Ponzi schemes and other similar investment scams are growing, the Securities and Exchange Commission (SEC) said over the weekend, as it warned the public against putting their money in such schemes with unusually high returns.
Source: https://www.philstar.com/business/2019/08/19/1944586/sec-warns-more-ponzi-schemes-investment-scams#iQbXSGovFZjvLAoe.99
E-cigarette groups: No higher tax [Manila Times, August 19, 2019]
GROUPS representing the electronic cigarette (e-cigarette) industry oppose the approval, on second reading, of a bill seeking higher excise taxes on heated tobacco and vape products.
Source: https://www.manilatimes.net/e-cigarette-groups-no-higher-tax/602434/
DOF dangles tax perks to drive businesses outside Metro Manila [Manila Bulletin, August 19, 2019]
Business located in some of Manila’s offices, hotels and casinos could lose their investment incentives over the next five years as the Philippines looks to overhaul its corporate taxation.
Pagcor orders moratorium on new POGOs [Manila Bulletin, August 19, 2019]
The Philippine Amusement and Gaming Corp. (Pagcor) will temporarily stop accepting applications for new offshore casinos in the country while exploring other markets that may potentially match the revenues coming from chinese players.
Source: https://business.mb.com.ph/2019/08/19/pagcor-orders-moratorium-on-new-pogos/
Taxpayers can file tax returns via PESONet [Manila Times, August 17, 2019]
TAXPAYERS can now file their tax returns online using PESONet, one of the automated clearing houses under the central bank’s National Retail Payments System (NRPS), the Bureau of Internal Revenue (BIR) said on Friday.
Source: https://www.manilatimes.net/taxpayers-can-file-tax-returns-via-pesonet/601400/
PEZA rejects renamed TRABAHO bill [Manila Bulletin, August 17, 2019]
The Philippine Economic Zone Authority (PEZA), the government agency that administers tax incentives for export-oriented enterprises, said the tax perks being proposed under House Bill (HB) 313 or the Corporate Income Tax and Incentive Rationalization Act (CITIRA) Bill, which replaced the controversial TRABAHO Bill, is ideal for domestic enterprises and not for export enterprises.
Source: https://business.mb.com.ph/2019/08/17/peza-rejects-renamed-trabaho-bill/
DOF still wants higher ‘sin’ tax rates in original version [Manila Bulletin, August 17, 2019]
The Department of Finance (DOF) remains hopeful that the final version of the tax reform measure covering the so-called “sin” products would mirror the original version submitted by the Duterte administration to Congress.
Source: https://business.mb.com.ph/2019/08/17/dof-still-wants-higher-sin-tax-rates-in-original-version/
Duterte orders reduction, condonation of real property taxes of IPPs [Philippine Daily Inquirer, August 16, 2019]
President Rodrigo Duterte has ordered the reduction and condonation of real property taxes and penalties imposed on power generation facilities of independent power producers (IPPs) under Build-Operate-Transfer (BOT) contracts with government-owned and controlled corporations (GOCCs).
Source: https://business.inquirer.net/276969/duterte-orders-reduction-condonation-of-real-property-taxes-of-ipps#ixzz5wvdykqw0
Tariff body pushes tax on cement imports [Philippine Daily Inquirer, August 15, 2019]
The Tariff Commission has recommended to further tax imported cement in defense of multinational cement producers who reportedly were harmed by the surge in imports in recent years.
Source: https://business.inquirer.net/276828/tariff-body-pushes-tax-on-cement-imports#ixzz5wvfkglQe
House approves on 2nd reading new sin taxes [Philippine Daily Inquirer, August 15, 2019]
The House plenary on Wednesday night approved on second reading a bill increasing the excise tax rates on liquor and heated tobacco and vapor products just a day after it was approved by the Committee on Ways and Means.
Source: https://business.inquirer.net/276832/house-approves-on-2nd-reading-new-sin-taxes#ixzz5wvfvGe98
POGO hubs give 24/7 protection to workers [Manila Bulletin, August 15, 2019]
The Philippine Amusement and Gaming Corp. (Pagcor) assured on Thursday that foreign nationals working in IT parks that host call centers and other service providers of offshore gaming operators will be protected 24/7 under the hub concept.
Source: https://business.mb.com.ph/2019/08/15/pogo-hubs-give-247-protection-to-workers/
DOF to still push alcohol taxes higher than rates OKd by House panel [Philippine Daily Inquirer, August 14, 2019]
The Department of Finance (DOF) will still push for rates higher than the excise taxes on alcohol products approved by the House committee on ways and means.
Source: https://business.inquirer.net/276783/dof-to-still-push-alcohol-taxes-higher-than-rates-okd-by-house-panel#ixzz5wvgFducr
POGO hubs secure Finance dept’s support [Manila Times, August 14, 2019]
THE country’s offshore gaming industry has secured the support of the Department of Finance (DoF) for the creation of information technology (IT) hubs that would act as one-stop shops for workers and regulators in the sector.
Source: https://www.manilatimes.net/pogo-hubs-secure-finance-depts-support/599949/
DoF highlights H1 accomplishments [Manila Times, August 13, 2019]
Revenue, policy gains made in less-than-ideal conditions, but challenges remain
Source: https://www.manilatimes.net/dof-highlights-h1-accomplishments/599503/
DOF: Tax monitoring of POGOs easier if they are in hubs [Manila Bulletin, August 13, 2019]
The Department of Finance (DOF) supports the creation of online gaming hubs or IT parks that host call centers and other service providers of Philippine Offshore Gaming Operators (POGOs) for easier monitoring and tax collection.
Source: https://business.mb.com.ph/2019/08/13/dof-tax-monitoring-of-pogos-easier-if-they-are-in-hubs/
If you wish to get a copy of the complete texts of the above issuance’s, please send us an email thru taxseminars@dmdcpa.com.ph.
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