GATCHALIAN WANTS ONLINE SHOPPING APPS PENALIZED FOR SALE OF FAKE ITEMS + BILL TO HELP BANKS HANDLE BAD LOANS PUSHED + HOUSE PANELS APPROVE CREATION OF ECOZONE WITHIN BULACAN INTERNATIONAL AIRPORT
Other Relevant Tax Updates:
- Bureau of Internal Revenue (BIR) Rulings Digest
- Tax and Business-Related News [August 29-September 4]
I. BIR RULINGS DIGEST
- Tax exemption does not apply if price ceiling for an open market is above php 4 million which is beyond the threshold for economic and low cost housing
- Issues subject of investigation, on-going audit and administrative protest are considered as no-ruling areas
- Donation made to Department of Education (DepEd)pursuant to the adopt-a-school program is deductible at 150% from gross income and exempt from donor’s tax
- Requisites for cooperative to be vat exempt on its sale to non-members
- Denied tax exemptiondue to giving of per diem
- Tricycle operators and drivers association denial of tax exemptionsince purpose does not fall under any of the enumerated purposes under section 30 of the tax code
- Foundation engaged in re-lending moneyis denied of tax exemption
- Foundation engaged into leasingis denied of tax exemption
- Water districtis denied of tax exemption
- Adjunct entity of churchis denied of tax exemption
- Board of trustees entitlement to salariesresulting in denial of tax exemption application
- An entity has to prove, by actual operation for at least three (3) years, to obtain Certificate Of Tax Exemption (CTE)
- Joint venture formed for the purpose of construction projectsare exempt from income tax for as long as it will meet the requirements under Revenue Regulations (RR) no.’s 10-2012 and 11-2018
- Foreign corporation is subject to income tax and vat only on its income derived within Philippines
- No ruling areasif the taxpayer is subject on an on-going audit
- Exemption from Capital Gains Tax (CGT), Documentary Stamp Tax (DST), and witholding taxes of the transfer of title from association registered with Housing And Land Use Regulation Board (HLURB) to its member-beneficiaries
- Extent of exemption of homeowners’ association
- Exemption of German goverment on taxationof earnings in the Philippines
- Entitlement to per diem/honorarium and endowmentis considered private inurement which disqualifies Non Stock Non Profit (NSNP)from availing tax exemption
- If purpose is not within section 30 of the tax code, BIR will simply deny the request for CTE
- An association must not be operated and organized principally for profitto avail of tax exemption
TAX EXEMPTION DOES NOT APPLY IF PRICE CEILING FOR AN OPEN MARKET IS ABOVE PHP 4 MILLION WHICH IS BEYOND THE THRESHOLD FOR ECONOMIC AND LOW COST HOUSING
L Realty and Development Corporation is seeking a Certificate of Tax Exemption (CTE) on its income received in connection with H Homes-T Subdivision, consisting of 28 housing units, a project duly registered as economic and low cost housing project (horizontal) with the Board of Investments (BOI). It is also registered with the Housing Land Use Regulatory Board (HLURB), albeit its indication of its classification as “Open Market”. In reply, the BIR denied the application for CTE citing HLURB Memorandum Circular No. 13-2017 which provides that the price ceiling for an Open Market is above Php 4 Million which is beyond the threshold for economic and low cost housing, as prescribed on its BOI Specific Terms and Condition. [BIR RULING NO. 343-2020, JUNE 25, 2020]
ISSUES SUBJECT OF INVESTIGATION, ON-GOING AUDIT AND ADMINISTRATIVE PROTEST ARE CONSIDERED AS NO-RULING AREAS
C Mines and Development Corporation is seeking a BIR ruling relative to its deficiency tax assessment. In reply, BIR held that it cannot issue a determinative ruling considering that the issue is still subject to an on-going audit/administrative protest, which is considered as a “No-Ruling Area” pursuant to Section 2 (r) of Revenue Bulletin 01-03. [BIR RULING NO. 340-2020, JUNE 19, 2020]
DONATION MADE TO DEPED PURSUANT TO THE ADOPT-A-SCHOOL PROGRAM IS DEDUCTIBLE AT 150% FROM GROSS INCOME AND EXEMPT FROM DONOR’S TAX
T Corporation is seeking exemption from donor’s tax and deductibility of the donation of Php 21 Million to DepEd in accordance with Republic Act (R.A.) No. 8525, otherwise known as the Adopt-A-School Act of 1998. As represented, it entered into a Memorandum of Agreement (MOA) with DepEd in which the former agreed to provide part of the project cost for the relocation and construction of the chosen school to a better location for the general welfare of the students and to achieve the standard quality of education. In reply, T Corporation is compliant with the requirements set forth under Section 3 of Revenue Regulations (RR) No. 10-2003, thus, the amount actually, directly, and exclusively incurred for the education program amounting to Php 21 Million is fully deductible from its gross income, plus an additional deduction equivalent to 50% thereof in the amount of Php 10.5 Million or a total deductible amount of Php 31.5 Million. Furthermore, the donation made to DepEd is not subject to donor’s tax since one of the exemptions provided for the imposition of such tax is the donation made to or for the use of the National Government or any entity created by any of its agencies which is not conducted for profit, or to any political subdivision of the said Government. [BIR RULING NO. 254-2020, MAY 22, 2020]
REQUISITES FOR COOPERATIVE TO BE VAT EXEMPT ON ITS SALE TO NON-MEMBERS
U Coop is seeking confirmation on whether its sale of sugar produce to non-members is exempt from VAT. In reply, BIR referred to Revenue Memorandum Circular (RMC) No. 40-2015 which clarifies that the sale by agricultural cooperatives of their agricultural products to their members and non-members is exempt from VAT. However, sale of their products to non-members will only be exempt from VAT if (i) the agricultural cooperative itself is of good standing and duly accredited and registered with the Cooperative Development Authority (CDA); (ii) the agricultural cooperative must be a holder of valid, current and subsisting Certificate of Tax Exemption; and (iii) the seller-agricultural cooperative is the producer of sugar, i.e., it is the tiller, thru its members, of the land it owns, or lease and it incurs cost of agricultural production of the sugar cane to be refined. Since U Coop meets all the requisites, BIR opined that U Coop’s sale of sugar produce to its members as well as to non-members is exempt from the payment of VAT and/or percentage tax. [BIR RULING NO. 253-2020, MAY 22, 2020]
DENIED TAX EXEMPTION DUE TO GIVING OF PER DIEM
S Co. is seeking a CTE enjoyed by non-stock, non-profit corporation or association under Section 30(J) of the Tax Code. In reply, to avail of the tax exemption under Section 30(J), which was further clarified by RMC No. 51-2014, the entity’s earnings or assets shall not inure to the benefit of its trustees, organizers, members or any specific person. After perusal of the submitted documents, it shows that its Board of Trustees is entitled to per diem. Thus, BIR opined that it does not qualify for exemption under Section 30(J), and, therefore, liable for income taxes imposed by the same law. [BIR RULING NO. 250-2020, MAY 22, 2020]
TRICYCLE OPERATORS AND DRIVERS ASSOCIATION DENIAL OF TAX EXEMPTION SINCE PURPOSE DOES NOT FALL UNDER ANY OF THE ENUMERATED PURPOSES UNDER SECTION 30 OF THE TAX CODE
P Association is seeking a CTE enjoyed by non-stock, non-profit corporation, association or organization under Section 30 of the Tax Code. Upon perusal of its Articles of Incorporation, BIR noted that its purposes do not fall within the scope of the exempt corporation under Section 30 of the Tax Code. Thus, P Association does not qualify for exemption under Section 30, and, therefore, liable for income taxes imposed by the same law. [BIR RULING NO. 249-2020, MAY 22, 2020]
FOUNDATION ENGAGED IN RE-LENDING MONEY IS DENIED OF TAX EXEMPTION
B Foundation is seeking a CTE enjoyed by non-stock, non-profit corporation, association or organization under Section 30 of the Tax Code. Upon perusal of Articles of Incorporation, BIR noted that one of the programs of the foundation is Microfinance Program, which provides credit assistance and other micro financial services to micro and small entrepreneurs, farmers, women, enterprising out of school youth and also accessing loan from external creditors to be re-lent to its clients and beneficiaries. In reply, BIR denied the application because it appears that the foundation is not operated exclusively for charitable or social welfare purposes. Thus, it does not qualify for exemption under Section 30, and, therefore, liable for income taxes imposed by the same law. [BIR RULING NO. 247-2020, MAY 22, 2020]
FOUNDATION ENGAGED INTO LEASING IS DENIED OF TAX EXEMPTION
O Co. is seeking a CTE enjoyed by non-stock, non-profit corporation, association or organization under Section 30 of the Tax Code. Upon perusal of its Audited Financial Statements, BIR noted that the primary source of its revenues are resident’s contributions, post graduate and related learnings, facility rental, and miscellaneous fees. Hence, it appears that it is organized and operated principally for profit. Thus, BIR opined that O Co. does not qualify for exemption under Section 30, and, therefore, liable for income taxes imposed by the same law. [BIR RULING NO. 246-2020, MAY 22, 2020]
WATER DISTRICT IS DENIED OF TAX EXEMPTION
I Co. is seeking a CTE enjoyed by non-stock, non-profit corporation or association under Section 30 (E) of the Tax Code. I Co. was incorporated as an association to own and operate, provide members with adequate supply of water for domestic use. In reply, to avail the tax exemption under Section 30 (E), the entity must be organized operated exclusively for religious, charitable, scientific, athletic, or cultural purpose, or for the rehabilitant of veterans, no part of its net income or asset shall belong to or inure to the benefit of any member, organizer, officer or any specific person. Likewise, the provision requires that the association must not be organized and operated principally for profit. After perusal of the Financial Statements, bulk of its revenues comes from metered and unmetered sales of water, membership and meter connection fees, and interest income. Hence, it appears that services to its paying members/individual or revenues from sales are activities conducted for profits. Thus, BIR opined that I Co. does not qualify for exemption under Section 30 (E), and, therefore liable for income taxes imposed by the same law. [BIR RULING NO. 243-2020, MAY 21, 2020]
ADJUNCT ENTITY OF CHURCH IS DENIED OF TAX EXEMPTION
S Church is seeking CTE enjoyed by non-stock, non-profit corporation or association under Section 30 (H) of the Tax Code. In reply, to avail of the tax exemption under Section 30 (H), which was further clarified by RMC No. 51-2014, the entity’s earnings or assets shall not inure to the benefit of its trustees, organizers, members or any specific person. After perusal of the submitted documents, it shows that its Board of Trustees is entitled to per diem. Thus, BIR opined that it does not qualify for exemption under Section 30 (H), and, therefore liable for income taxes imposed by the same law. [BIR RULING NO-238-2020, MAY 21, 2020]
BOARD OF TRUSTEES ENTITLEMENT TO SALARIES RESULTING IN DENIAL OF TAX EXEMPTION APPLICATION
A Co. is seeking a CTE enjoyed by non-stock, non-profit corporation or association under Section 30 (H) of the Tax Code. In reply, the BIR states that to avail of the tax exemption under Section 30 (H), which was further clarified by RMC No. 51-2014, the entity’s earnings or assets shall not inure to the benefit of its trustees, organizers, members or any specific person. After perusal of the submitted documents, it shows that its Board of Trustees is entitled to per diem. Thus, BIR opined that A. Co does not qualify for exemption under Section 30 (H), and, therefore, liable for income taxes imposed by the same law. [BIR RULING NO. 231-2020, MAY 19, 2020]
AN ENTITY HAS TO PROVE, BY ACTUAL OPERATION FOR AT LEAST THREE (3) YEARS, TO OBTAIN CTE
O Co. is seeking a CTE enjoyed by non-stock, non-profit corporation or association under Section 30 (H) of the Tax Code. In reply, BIR cannot issue yet a CTE to the company for it has to prove its entitlement to income tax exemption after three (3) years of operations. [BIR RULING 227-2020, MAY 19, 2020]
JOINT VENTURE FORMED FOR THE PURPOSE OF CONSTRUCTION PROJECTS ARE EXEMPT FROM INCOME TAX FOR AS LONG AS IT WILL MEET THE REQUIREMENTS UNDER RR NO.’S 10-2012 AND 11-2018
C and E entered into a joint venture and now seeking confirmation that the project subject under the said joint venture agreement is exempt from 2% Creditable Withholding Tax (CWT). In reply, Section 22(B) of the 1997 Tax Code provides that a joint venture which is formed for the purpose of construction projects or engage in petroleum, coal, geothermal and other energy operations pursuant to an operating or consortium agreement under a service contract with the Government shall not be taxed as a corporation. Likewise, RR No. 11-2018 provides that CWT shall not apply to income payments made to joint venture under Section 22 of the Tax Code, for as long as it will comply with the requirements of RR No. 10-2012. However, even if the joint venture of C and E is exempt from corporate income tax, the co-venturers will be subjected to regular corporate income tax on their respective proportionate share of income on the said project. [BIR RULING NO. 225-2020, MAY 19, 2020]
FOREIGN CORPORATION IS SUBJECT TO INCOME TAX AND VAT ONLY ON ITS INCOME DERIVED WITHIN PHILIPPINES
N Group, a company incorporated in Spain, is seeking confirmation on whether service fees to be paid by a domestic corporation for consultancy services to be rendered outside the Philippines is not subject to income tax and consequently to withholding tax as well as 12% VAT. In reply, Section 23 (F) of the Tax Code provides that a foreign corporation, whether or not engaged in trade or business in the Philippines, is subject to income tax only with respect to income derived from sources in the Philippines. Since the services are performed by N Group outside the Philippines, the services fees to be paid by a domestic corporation are exempt from income tax and consequently from withholding tax and VAT. [BIR RULING NO. 223-2020, MARCH 12, 2020]
NO RULING AREAS IF THE TAXPAYER IS SUBJECT ON AN ON-GOING AUDIT
D Co., a licensee of the Philippine Amusement and Gaming Corporation, is seeking a ruling on the preferential tax rate which includes Income Tax, Documentary Stamp tax and VAT pursuant to Presidential Decree No, 1869, as amended by Republic Act No. 9487. In reply, request for rulings on issues covered by an on-going audit is a “No Ruling Area” under Section 2 (r) of Revenue Bulletin No. 01-03. Since D Co. has a pending assessment with the Large Taxpayers Services, BIR declines to issue a ruling on the issue raised. [BIR RULING 222-2020, MARCH 12, 2020]
EXEMPTION FROM CGT, DST, AND WITHOLDING TAXES OF THE TRANSFER OF TITLE FROM ASSOCIATION REGISTERED WITH HLURB TO ITS MEMBER-BENEFICIARIES
J Association, Inc., a non-stock non-profit organization duly registered with Housing and Land Use Regulatory Board (HLURB), is seeking CGT exemption relative to the transfer of title of land from the Association in favor of its qualified member-beneficiaries pursuant to Republic Act (R.A.) No. 7972, the Urban Development and Housing Act of 1992. It is represented that the Association is the assignee of the parcel of land which is covered by the TCT issued by Registry of Deeds of Pasig. In reply, the transfer is not subject to CGT and withholding tax considering the said transfer of property is made without consideration and effected only as a formality to finally effect the transfer of said property to its member-beneficiaries, who actually bought the same from the former owner through the Association. Furthermore, the transfer is also not subject to donor’s tax since there is no donative intent on the part of the Association. The latter cannot donate any property the ownership of which belongs to the member-beneficiaries. Likewise, the transfer of title in favor of the beneficiaries is not subject to DST but the notarial acknowledgement to the deed of conveyance is subject to DST. [BIR RULING NO. 221-2020, MARCH 12, 2020]
EXTENT OF EXEMPTION OF HOMEOWNERS’ ASSOCIATION
M Homeowners’ Inc., a non-stock and non-profit residential homeowners’ association, is seeking a ruling on the extent of its tax exemption. As represented, it is a duly registered Homeowners Association with the Housing and Land Use Regulatory Board; that its financial statements show the delivery of basic community services defined under Section 3 (d) of Republic Act (R.A.) 9904; and that the Local Government Unit covering the jurisdiction of the Homeowners Association has issued a Certificate that it lacks the resources to provide these services to the Association. In ruling, income derived from association dues, membership fees, and charges collected in a purely reimbursable and rentals of facilities of M Homeowners’ Inc. is exempt from income tax, VAT or percentage tax, whichever is applicable. Provided, that such income and dues shall be used for the cleanliness, safety, security and other basic services needed by the members, including the maintenance of the facilities of their respective subdivisions or villages. However, it shall be subject to the applicable internal revenue taxes on its other income from trade, business or other activities. [BIR RULING NO. 219-2020, MARCH 12, 2020]
EXEMPTION OF GERMAN GOVERMENT ON TAXATION OF EARNINGS IN THE PHILIPPINES
N Bank, a financial institution organized pursuant to a State Treaty executed among the states of Lower Saxony, Saxony-Anhalt, and Mecklenburg-Western Pomerania of the Federal Republic of Germany, is seeking confirmation whether the interest income derived from loans extended to E Corporation, a domestic corporation engaged in generating energy from wind power, is exempt from income tax and creditable withholding tax. In reply, Section 32(B)(7)(a) of Tax Code provides that income derived from investments in the Philippines in loans, stocks, bonds or other domestic securities, or from interest on deposits in banks in the Philippines by (i) foreign governments, (ii) financial institutions owned, controlled, or enjoying refinancing from foreign governments, and (iii) international or regional financial institutions established by foreign governments, shall not be included in gross income and shall be exempt from taxation. Since N Bank is a financing institution owned and controlled by the Federal Republic of Germany, any interest income received from the loans it extended to E Corporation is exempt from Philippine income tax and consequently from withholding tax. [BIR RULING NO. 208-2020, MARCH 10, 2020]
ENTITLEMENT TO PER DIEM/HONORARIUM AND ENDOWMENT IS CONSIDERED PRIVATE INUREMENT WHICH DISQUALIFIES NSNP FROM AVAILING TAX EXEMPTION
C Co. is seeking a CTE enjoyed by non-stock, non-profit corporation or association under Section 30 (H) of the Tax Code. In reply, to avail of the tax exemption under Section 30 (H), which was further clarified by RMC No. 51-2014, the entity’s earnings or assets shall not inure to the benefit of its trustees, organizers, members or any specific person. After perusal of the submitted documents, it shows that its Board of Trustees is entitled to per diem/honorarium and endowment. Thus, it is considered as private inurement, and, therefore does not qualify for exemption under Section 30 (H) and shall be treated as an ordinary corporation liable for income tax. [BIR RULING NO. 207-2020, MARCH 10, 2020]
IF PURPOSE IS NOT WITHIN SECTION 30 OF THE TAX CODE, BIR WILL SIMPLY DENY THE REQUEST FOR CTE
C Group is seeking a CTE enjoyed by non-stock, non-profit corporation, association or organization under Section 30 of the Tax Code. Upon perusal of its Articles of Incorporation, BIR noted that its purposes do not fall within the scope of the exempt corporation under Section 30 of the Tax Code. Thus, C Group does not qualify for exemption under Section 30, and, therefore, liable for income taxes imposed by the same law. [BIR RULING NO. 206-2020, MARCH 10, 2020]
AN ASSOCIATION MUST NOT BE OPERATED AND ORGANIZED PRINCIPALLY FOR PROFIT TO AVAIL OF TAX EXEMPTION
C Co. is seeking a CTE enjoyed by non-stock, non-profit corporation or association under Section 30 (E) of the Tax Code. As represented, it was incorporated to publish, produce, promote and market Christian materials in any format deemed appropriate in order to strengthen churches in the Philippines and around the world. In reply, to avail the tax exemption under Section 30 (E), the entity must be organized operated exclusively for religious, charitable, scientific, athletic, or cultural purpose, or for the rehabilitant of veterans, no part of its net income or asset shall belong to or inure to the benefit of any member, organizer, officer or any specific person. Likewise, the provision requires that the association must not be organized and operated principally for profit. After perusal of the Financial Statements, bulk of its revenues comes from selling religious books and materials. Hence, it appears that it is organized and operated principally for profit. Thus, C Co. does not qualify for exemption under Section 30 (E), and, therefore, liable for income taxes imposed by the same law. [BIR RULING NO. 205-2020, MARCH 10, 2020]
II TAX AND BUSINESS-RELATED NEWS [AUGUST 29-SEPTEMBER 4]
- Regulating content on Netflix, other streaming services to ’empower’ viewers: MTRCB
- DTI sees 4K percent rise in online businesses during virus lockdown
- Coronavirus: Singapore, South Korea to start fast lane for essential business, official travel on Friday
- Bill to help banks handle bad loans pushed
- BIR readies online taxpayer registration system
- DTI backs bill meant to boost local e-commerce industry
- Finance Dept, AMLC ink deal to strengthen fight vs money laundering, terrorism financing
- Gatchalian wants online shopping apps penalized for sale of fake items
- Foreign direct investment inflows rebound in May after 3 straight months of decline
- BPOs, government top recruiters despite virus impact on economy, businesses: Jobstreet
- House panels approve creation of ecozone within Bulacan international airport
- BIR extends anew deadline for online trade registration to Sept. 30
- DBM to release P140B as soon as Duterte signs Bayanihan 2
- Senate tackles bill seeking to extend lifeline rate in electric bills
- SEC gets ISO certification for core services
- DOF withholds tax credit refunds of Bulacan-based textile firms due to alleged ‘irregularities’
- Tax perks for Bulacan airport project backed
Disburse Bayanihan 2 funds based on ‘objective criteria’, ensure easy credit access: MAP [ABS-CBN News, August 21, 2020]
The Management Association of the Philippines (MAP) on Friday urged government to disburse funds under the second coronavirus response package based on certain “objective criteria,” as it hailed Congress in enacting the measure.
Eurozone business growth slows as virus rise crimps demand [ABS-CBN News, August 21, 2020]
Eurozone economic activity slowed in August as a new rise in cases of the coronavirus in parts of Europe blunted a recovery, IHS Markit said Friday.
Weekly US jobless claims rise more than expected to 1.1 million [ABS-CBN News, August 20, 2020]
Just over 1.1 million people filed new claims for jobless benefits in the week ended August 15, the US Labor Department said Thursday, defying expectations for a more moderate rise.
BSP pauses, keeps key rates unchanged after 4 cuts in a row [ABS-CBN News, August 20, 2020]
The Bangko Sentral ng Pilipinas on Thursday kept the benchmark overnight borrowing rate steady at 2.25 percent after 4 interest rate cuts this year as the newly downgraded COVID-19 restrictions stepped up the gas for economic recovery.
Source: https://news.abs-cbn.com/business/08/20/20/bsp-keeps-key-rate-steady
SEC nullifies Gonzales faction’s majority acquisition in The Medical City [ABS-CBN News, August 20, 2020]
The Securities and Exchange Commission said Thursday it nullified the majority acquisition of shares in The Medical City (TMC) by a group led by Jose “Eckie” Gonzales after finding it to have “employed fraud” and violated regulations.
Lawmakers, bankers agree on 60-day loan reprieve under Bayanihan 2: Angara [ABS-CBN News, August 20, 2020]
A 60-day moratorium on loans is part of the Senate and House of Representatives bicameral committee-approved version of the Bayanihan to Recover As One bill, which is a step closer to becoming a law.
DTI courts British firms to link up with Philippine tech startups, MSMEs [ABS-CBN News, August 20, 2020]
The Department of Trade and Industry again called on British firms to invest in the Philippines and link up with startups in the country especially in key sectors such as aerospace, automotive, electronics, and pharmaceuticals.
Bangko Sentral raises banks’ real estate loan limit [ABS-CBN News, August 20, 2020]
The Bangko Sentral ng Pilipinas said Thursday it raised the real estate loan limit of universal and commercial banks to infuse more liquidity in real estate lending.
Source: https://news.abs-cbn.com/business/08/20/20/bangko-sentral-raises-banks-real-estate-loan-limit
Airbnb files for initial public offering [ABS-CBN News, August 20, 2020]
Home-sharing startup Airbnb on Wednesday said it has confidentially filed with US regulators for an initial public offering.
Source: https://news.abs-cbn.com/business/08/20/20/airbnb-files-for-initial-public-offering
PH bans Australian poultry imports due to bird flu [ABS-CBN News, August 19, 2020]
The Philippines issued a temporary ban on poultry imports from Australia due to concerns over possible bird flu contamination.
Source: https://news.abs-cbn.com/business/08/19/20/ph-bans-australian-poultry-imports-due-to-bird-flu
Insurance Commission backs 60-day reprieve on life insurance, premium payments [ABS-CBN News, August 17, 2020]
The Insurance Commission on Monday backed a 60-day moratorium on loan payments under the proposed Bayanihan to Recover as One (Bayanihan 2) Act.
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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