Tax Bulletin

February 2019

Tax Bulletin | 1
 Highlights

BIR Issuances

• Revenue Regulation (RR) No. 1-2019 further amends certain provisions of RR No.
2-98, as amended by RR No. 11-2018, by prescribing changes in the Creditable
Withholding Tax (CWT) rates on certain income payments pursuant to the TRAIN
Law. (Page 4)

• Revenue Memorandum Order (RMO) No. 8-2019 prescribes the policies and
guidelines in the certification of electronic tax return filing and/or payment
solutions. (Page 4)

• RMO No. 10-2019 clarifies the grant of value-added tax (VAT) privileges to resident
foreign missions, their qualified personnel and the latter’s dependents. (Page 5)

• Revenue Memorandum Circular (RMC) No. 30-2019 clarifies Section 100 of the
National Internal Revenue Code (NIRC) of 1997, as amended by the TRAIN Law,
in relation to the sale of shares of stock not traded or listed in the stock exchange.
(Page 7)

BOC Updates

• Customs Administrative Order (CAO) No. 02-2019 provides for the Marking of
Imported Goods and Containers. (Page 7)

• Customs Memorandum Order (CMO) No. 05-2019 provides for the Rules and
Regulations on Registration of Truckers. (Page 9)

• CMO No. 06-2019 provides for the Amendment to Section 3.1 (Issuance of Alert
Orders) of CMO No. 07-2018 on the “Revised Rules for the Electronic/Manual
Issuance and Lifting of Alert Orders at All Ports of Entry.” (Page 11)

• CMO No. 07-2019 provides for the Use of BOC Logos and Marks by Third Parties.
(Page 11)

• CMO No. 10-2019 provides for the Revised Procedure Governing Utilization of Tax
Credit Certificates (TCC). (Page 12)

• CMO No. 11-2019 provides for the Revised Procedure for the Verification of
Outstanding Balances of Value Added Tax (VAT) TCCs for the Issuance and
Processing of a Notice of Payment Schedule (NPS). (Page 12)

• CMO No. 12-2019 provides for the Provisional Safeguard Duty of Imported Cement
Classified under the ASEAN Harmonized Tariff Nomenclature (AHTN) Codes
2523.2990 and 2523.9000. (Page 13)

PEZA Update

• PEZA Memorandum Circular No. 2019-006 circularizes the Implementing Rules

and Regulations of the Occupational Safety and Health Act. (Page 13)

SEC Opinions and Issuances

• A sale or disposition of all assets of a single branch office does not constitute a sale
or disposition of all or substantially all of the assets of a corporation that would
require the approval of the stockholders. (Page 14)
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• The term ‘foreign national’ under RA 8556 or the Financing Company Act,
as amended by RA 10881, refers to both individuals and juridical entities.
(Page 14)

• SEC MC. No. 2 provides for the amendment of the implementing rules of the
Investment Company Act pertaining to the responsibilities of independent
accountants and auditors. (Page 15)

• SEC MC. No. 3 defers the application of the guidelines for the implementation
of PFRS No. 15 issued by the Philippine Interpretations Committee (PIC) for the
real estate industry. (Page 15)

• SEC MC. No. 4 provides for the adoption of the Sustainability Reporting
Guidelines for publicly-listed companies. (Page 15)

BSP Issuances

• Circular No. 1030 provides for the amendments to the foreign exchange
regulations. (Page 16)

• Circular No. 1031 provides for the Additional Guidelines on the Grant of
Licenses/Authorities and Types of Licenses of Permissible Activities. (Page 17)

• Circular No. 1032 provides for the amendments to the Guidelines on the Basic
Security Deposit Requirement. (Page 19)

• Circular No. 1033 provides for the amendments to the Regulations on

Electronic Banking Services and Other Electronic Operations. (Page 20)

Court Decisions

• The issuance of the Final Assessment Notice (FAN) via electronic mail is not
sanctioned by any law, rules or regulations. (Page 22)

• Income derived by foreign governments from investments in Philippine bonds is

exempt from income and final withholding tax (FWT).

Proof of actual remittance of a final withholding tax to the BIR is not a condition
before a taxpayer can refund erroneously or illegally collected FWT. (Page 23)

• Good faith and honest belief that one is not subject to tax on the basis of
previous interpretation of government agencies tasked to implement the tax
law, justify the non-imposition of surcharges and interest.

The conduct by the revenue officers of a tax examination on years which were
not covered by the Letter of Authority (LOA) justifies the cancellation of the
assessment. (Page 23)

• A change in the corporate name does not make a new corporation and has
no effect on the identity of the corporation, or on its property, including
entitlement to a tax refund, rights or liabilities. (Page 24)

• Gain or loss will not be recognized in case the exchange of property for stocks
results in the control of the transferee by the transferor, alone or with other
transferors not exceeding four persons. (Page 25)

Tax Bulletin | 3
 BIR Issuances

RR No. 1-2019 further amends certain RR No. 1-2019 issued on 8 February 2019
provisions of RR No. 2-98, as amended
by RR No. 11-2018, by prescribing • Section 2.57.2 of RR No. 2-98, as amended, is further amended to implement
changes in the CWT rates on certain the following changes in the Creditable Withholding Tax (CWT) rates pursuant to
income payments pursuant to the TRAIN the TRAIN Law:
Law.
1. MERALCO refund given to customers arising from the Supreme Court
decision in the case of Republic of the Philippines vs. MERALCO, G. R. No.
141314, as approved by the Energy Regulatory Board (ERC) - 15%

2. Interest income on the refund of meter deposits as determined and

computed by the ERC:

• 10% - residential and general service customers whose monthly

electricity exceeds 200 kwh as classified by MERALCO; and

• 15% - non-residential customers.

3. Interest income on the refund paid through direct payment or applied

against the customers’ billings by other electric Distribution Utilities (DU):

• 10% - residential and general service customers whose monthly

electricity exceeds 200 kwh as classified by the concerned DU; and

• 15% – non-residential customers.

4. Interest income derived from any other debt instruments not within the
coverage of “deposit substitutes” and RR No. 14-2002, unless otherwise
provided by law or regulations - 15%

• These regulations took effect on 1 January 2019.

(Editor’s Note: RR No. 1-2019 was published in the Manila Bulletin on 11 February
2019)

RMO No. 8-2019 prescribes the policies RMO No. 8-2019 issued on 8 February 2019
and guidelines in the certification
of electronic tax return filing and/or • The Bureau shall certify the Tax Filing and/or Payment Solution (TFPS) of the
payment solutions. Tax Software Provider (TSP) provided it has passed the prescribed evaluation
and testing procedures.

• An individual or non-individual TSP, which is registered with the BIR, may apply
for evaluation, testing and certification of its TFPS through the Electronic Tax
Software Provider Certification System (eTSPCert System).

• TSPs, who shall apply for certification of their TFPS, shall partner with any of
the Authorized Agent Banks (AABs) and shall abide by the Terms of Service
Agreement (TOSA) prescribed by the Bureau.

• AABs shall, likewise, apply for certification of their ePayment System in the
eTSPCert System.

• Certification for e-filing shall be issued for every BIR form applied for while the
certification for e-payments shall be issued only once and covers all tax forms
and types.

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 • TSPSs applying for e-filing integrated with e-payments should complete the
certification for e-filing before proceeding to the testing and certification of
e-payments.

• Non-AAB TSPs applying for ePayment or eFIling and ePayment solution shall
partner with AABs, which have certified ePayment facility.

• If the nominated partner AABs do not have a certified BIR ePayment facility,
they shall apply for an ePayment solution certification through the eTSPCert
System.

• TSPs with certified TFPS shall ensure compliance with the provisions of
Republic Act No. 10173, otherwise known as “Data Privacy Act of 2012,” in
handling taxpayer information.

• TSPs shall be held responsible for any breach in their system, or any violations
committed by their users, whether authorized or unauthorized.

• AABs shall remain the BIR collection agent. Thus, TSPs with a certified tax filing
solution can enter into agreements for technical integration with the internet
banking collection or internet payment gateways of AABs.

• TSPs are required to submit a list of their taxpayer clients.

• VAT-registered TSPs shall follow the existing issuance on the submission of the
summary list of sales (SLS) as prescribed by RR No. 8-2002 and amended by
RR No. 1-2013.

RMO No. 10-2019 clarifies the grant RMO No. 10-2019 issued on 12 February 2019
of VAT privileges to resident foreign
missions, their qualified personnel and • Subject to the principle of reciprocity, a resident foreign mission, its qualified
the latter’s dependents. personnel and the latter’s dependents may be granted VAT exemption on
their purchase of goods and services either at point-of-sale or on refund/
reimbursement basis.

• The method of granting the VAT exemption depends on the VAT privilege
granted to Philippine Foreign Service Posts (PFSP) by the different tax
jurisdictions abroad.

• The Office of Protocol of the Department of Foreign Affairs (DFA-OP) will

provide the list of countries/jurisdictions that grant PFSPs and their members
the VAT privilege on the purchase of goods and services.

• A resident foreign mission and its members, who have been granted VAT
exemption at point-of-sale, will be issued a VAT Certificate (VC).

• A VAT Identification Card (VIC) may be issued to qualified personnel and

their qualified dependents, in lieu of a VC, subject to compliance with certain
additional procedures.

• When a resident foreign mission or its qualified personnel is issued a VC, the
sellers cannot pass on any VAT to them on their official (for the foreign mission)
or personal (for personnel) purchase of goods and services in the Philippines
because such purchases qualify for VAT zero-rating.

Tax Bulletin | 5
 • The BIR will issue a ruling to confirm that the foreign mission, its qualified
personnel and the latter’s dependents, are entitled to reimbursement or refund
of VAT paid on purchase of goods and services in the Philippines.

• The BIR ruling shall be the basis for the VAT reimbursement/ refund
applications, which shall be processed by the appropriate Revenue District
Office (RDO) having jurisdiction over the foreign mission.

• The following may apply for the grant of the VAT exemption privilege:

1. Resident foreign missions;

2. Qualified personnel;

3. Dependents of qualified personnel; and

4. Entities that are similarly categorized as missions, its personnel and the
latter’s dependents.

• A qualified foreign mission shall be issued one VC while qualified personnel

of a foreign mission and the qualified dependents of the latter shall be issued
separate VCs/VICs.

►• The VC/VIC shall, in general, be effective for 2 years, renewable for another 2
years, or until the expiration of the term of office of the qualified personnel of
a foreign mission, unless sooner cancelled, revoked or suspended for a valid
cause.

• The duly authorized representative of the resident foreign mission shall present
the original VC/VIC and his Special Power of Attorney or authorization letter
upon each official purchase of goods and services.

• The qualified personnel of the foreign mission and their dependents, shall
present the DFA ID, together with the original VC/VIC, upon each purchase of
goods and services.

• All VAT-registered business establishments in the Philippines shall require the

presentation of the following: a) VC and authorization of the foreign mission
for foreign mission official purchase; or b) VC/VIC and DFA ID from qualified
personnel of the foreign mission personnel or his dependents for personal
purchase of goods and services.

1. Such establishments shall subject the sale of goods or services to VAT at

zero percent, even without prior application for effective zero-rating.

2. These establishments shall also refuse to subject the sale of goods or

services to zero percent VAT for failure to present the VC/VIC or if the
holder of the VC/VIC is different from the person named in the VC/VIC.

►• A resident foreign mission, its qualified personnel or the latter’s dependents,

who have been issued a BIR ruling confirming VAT exemption, may secure
reimbursement or refund of VAT paid within 2 years after the close of the
taxable quarter when the sales were made.

• A BIR ruling shall be issued for indirect tax exemption for the local purchase of
motor vehicles of resident foreign missions.

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 • Upon the effectivity of this RMO, all holders of a valid and current VC/VIC may
continue to use the same until the end of the validity period.

• This RMO shall take effect immediately.

RMC No. 30-2019 clarifies Section 100 RMC No. 30-2019 issued on 28 February 2019
of the NIRC of 1997, as amended by
the TRAIN Law, in relation to the sale of • Prior to the amendment by the TRAIN Law of Section 100 of the Tax Code,
shares of stock not traded or listed in the where the fair market value (FMV) of the shares of stock not traded or listed in
stock exchange. the stock exchange is higher than the selling price, the excess shall be treated
as gift subject to donor’s tax.

• However, the TRAIN Law amended Section 100 so as to exempt the excess
amount from donor’s tax when it is sold at arm’s length, free from any donative
intent, and in the ordinary course of business.

• In such cases, determining whether the shares of stock not traded or listed is
at arm’s length is a question of fact, and this must be established by the party
seeking to apply the exception.

• The party must provide reasonable evidence sufficient to convince that the sale
of the shares of stock for less than its FMV is without intent to evade tax and
defraud the government.

BOC Updates

CAO No. 02-2019 provides for the CAO No. 02-2019 dated 29 January 2019
Marking of Imported Goods and
Containers. • This CAO applies to all goods or their containers of foreign origin imported into
the Philippines for consumption into the domestic territory unless otherwise
exempted by other laws, rules and regulations.

• General Provisions

1. All goods of foreign origin imported into the Philippines or their containers,
shall be conspicuously marked in any official language of the Philippines as
legibly, indelibly and permanently as the nature of the goods or container
will permit and in such manner as to indicate to an ultimate purchaser or
end-user or consumer in the Philippines the name of the country of origin
of the goods.

Country of Origin of Goods - refers to the country in which the goods have
been produced or manufactured, according to the criteria laid down for the
purposes of application of the Customs tariff, of quantitative restrictions or
of any other measure related to trade; provided that when goods require
further work or a material is added in a country other than the country of
origin, the latter is determined by the country in which the last substantial
manufacturing or processing, deemed sufficient to give the commodity its
essential character, has been carried out.

2. The character of words and phrases or abbreviation to be used in

the marking of imported goods shall be based on the United Nations
Terminology Database (UNTERM) which shall be acceptable as indicating
the country of origin.

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 3. All goods of foreign origin imported into the Philippines shall be marked
by any reasonable method of marking, whether by printing, stenciling,
stamping, branding. When goods cannot be marked under any of the
foregoing methods, any method of legible and conspicuous marking
which will remain on the article until it reaches the ultimate purchaser is
acceptable.

• Operational Provisions

1. Fine for Failure to Mark. 5% of the Dutiable Value which shall be deemed to
have accrued at the Time of Importation.

2. Release Withheld Until Marked. No imported goods of foreign origin held

in customs custody shall be released until such goods or their containers
have been marked in accordance with the requirements of this Order and
until the amount of the assessed marking duty has been deposited. For this
purpose, the conduct of marking may be done at consignee’s warehouse,
upon request, and subject to the supervision of the Bureau of Customs
(BOC) and Department of Trade and Industry (DTI) representative, if
applicable.

3. Implied Abandonment. The failure or refusal of the owner or importer to

mark the goods within 30 days after due notice shall constitute an act of
abandonment and their disposition shall be governed by the provisions
of the Customs Modernization and Tariff Act (CMTA) relative to the
abandonment of imported goods.

4. Exemptions from Marking Requirement. Imported goods of foreign origin

are exempted from the marking requirements if:

• Such goods or their container are incapable of being marked;

• Such goods cannot be marked prior to shipment to the Philippines

without injury thereto;

• Such goods cannot be marked prior to shipment to the Philippines,

except at an expense economically prohibitive of their importation;

• The marking of a container of such goods will reasonably indicate the

origin of such goods;

• Such goods are crude substances which require further processing;

• Such goods are imported for use by the importer and not intended for
sale in their imported or any other form;

• Such goods are to be processed in the Philippines by the importer or

for the importer’s account other than for the purpose of concealing the
origin of such goods and in such manner that any mark contemplated
by this section would necessarily be obliterated, destroyed, or
permanently concealed;

• An ultimate purchaser, by reason of the character of such goods or

by reason of the circumstances of their importation, must necessarily
know the country of origin of such goods even though they are not
marked to indicate their origin;

8 | Tax Bulletin
 • Such goods were produced more than 20 years prior to their
importation into the Philippines; or

• Such goods cannot be marked after importation except at an expense

which is economically prohibitive, and the failure to mark the goods
before importation was not due to any purpose of the importer,
producer, seller or shipper to avoid compliance with the provision on
exemption.

5. Marking of Exempted Goods. Whenever goods are exempt from the

marking requirements, the immediate container, if any, of such goods,
or such other container or containers of such goods, shall be marked in
such manner as to indicate to an ultimate purchaser in the Philippines the
name of the country of origin of such goods in any official language of the
Philippines.

• This Order specifically amends or repeals CAO No. 228-1958, CMO No. 122-
1988 and other previously issued CAOs and CMOs which are inconsistent with
the provisions herein stated.

• This Order shall take effect 30 days after its complete publication in the Official
Gazette or a newspaper of general circulation.

(Editor’s Note: CAO No. 02-2019 was published in The Manila Times on 6 February
2019)

CMO No. 05-2019 provides for the CMO No. 05-2019 dated 4 February 2019
Rules and Regulations on Registration of
Truckers. • This Order shall apply to all truckers dealing directly with the BOC, for and on
behalf of the importer or exporter relating to the transportation of goods.

• The term “Truckers” refer to the operators of land carriers that transport
imported goods from the port of entry to another port of entry as exit point,
Customs Facilities and Warehouses (CFWs), Customs Bonded Warehouses
(CBWs), Free zones, and to the consignee’s premises.

• Operational Provisions

1. Registration of Truckers with the BOC. All Truckers are required to be

registered with the BOC before they may be authorized to transport
imported goods; provided that, prior thereto, all Truckers shall first register
with the BOC’s Client Profile Registration System (CPRS).

2. Registration Office. Truckers or their duly authorized representative shall

file their registration application with the:

• Account Management Office (AMO), if the applicant is within Metro

Manila; or

• Office of the District Collector nearest to its principal place of

business, if the applicant is outside Metro Manila.

3. Procedure of New Application for Registration. A duly accomplished

application for registration under oath and a copy thereof shall be filed
with the AMO upon payment of a P5,000 registration fee. The application
shall be accompanied with the supporting documents enumerated in the
CAO.

Tax Bulletin | 9
 4. Inspection of Office Address. The BOC may conduct an on-site verification
or a post-inspection to ascertain whether the declared office provided in
the application is correct. If during the inspection it was found out that the
applicant is not maintaining the declared office and garage, the registration
shall be disapproved.

5. Approval/Disapproval of Application for Registration. Pending the

restructuring of BOC offices, all applications for registration shall be
approved or disapproved by the Commissioner of Customs, upon the
recommendation of the Deputy Commissioner for Intelligence Group.
Applications shall be processed and evaluated by the AMO within five
working days from receipt of complete documentary requirements. In
case of discrepancy in the documents submitted, the AMO shall inform the
applicant through email to address the discrepancy.

6. Certificate of Registration. Approved application for registration shall be

evidenced by a Certificate of Registration which is automatically issued
under the CPRS.

7. Grounds for Denial of Application. Submission of spurious documents or

making untruthful statements shall warrant a denial of the application for
registration with the BOC.

• Validity Period of Registration. The registration of truckers with the BOC shall
be valid for 3 years from the date of its approval, unless sooner revoked or
suspended. In case the issued Certificate of Public Convenience (CPC) provides
for a shorter period of its validity, the period of registration with the BOC shall
be valid with the same duration as that of its CPC. Applications for renewal of
registration should be filed at least 30 days prior to the expiration of the validity
period to ensure continuous validity of accreditation.

• Security. Truckers that transport imported goods that shall be placed under
customs transit from a port of entry to other ports shall post a general
transportation security amounting to at least P50,000 to ensure the
complete and immediate delivery of goods to the customs officer at the port
of destination, and the payment of pertinent customs charges and expenses
and other transfer costs. The amount of the security may be adjusted by the
Commissioner, upon approval of the Secretary of Finance.

• Reportorial Requirements. Any change in the information provided to the

BOC in any of the documentary requirements must be reported to the AMO
by submitting an affidavit stating such change, attaching thereto the relevant
supporting document/s for said purpose. The report shall be made within 30
days from the occurrence of such change.

• Change in CPRS. In case of change of circumstance in the CPRS registration

of the Trucker, the following shall be submitted: (1) Affidavit of Change of
Circumstances with supporting documents; (2) Letter-request for amendment /
cancellation of CPRS.

• Annual Documentary Updating for Registered Truckers. Registered Truckers

shall be required annually to submit to the AMO within 15 days from the date of
approval of BOC Registration some of the updated documents submitted during
the application for registration.

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 • It shall be mandatory for registered Truckers to provide the AMO their
existing, accurate and official e-mail addresses and contact numbers, and
changes, modification or update thereto where the BOC shall send notices and
communications. Notices and communications sent to the registered Trucker’s
official e-mail addresses shall be deemed received, unless there is an electronic
system notification of non-delivery.

• Any complaint or recommendation for suspension, revocation or cancellation

and reactivation of the registration of the Trucker shall be filed with the Chief,
AMO, who shall prepare a disposition for consideration of the Commissioner
which shall be subject to the latter’s approval. The final order on the matter
shall be endorsed to the AMO for immediate implementation.

• This CMO shall take effect 30 calendar days after its publication at the Official
Gazette or a newspaper of national circulation.

(Editor’s Note: CMO No. 05-2019 was published in The Manila Times on 13 February
2019 and should be effective 15 March 2019. However, the implementation of CMO
No. 05-2019 is currently suspended until further notice based on Memorandum
dated 19 February 2019 from the BOC Commissioner)

CMO No. 06-2019 provides for the CMO No. 06-2019 dated 11 February 2019
Amendment to Section 3.1 (Issuance of
Alert Orders) of CMO No. 07-2018 on • Pursuant to Section 111, paragraph 7 of the CMTA, Sec. 3.1, paragraph 2 of
the “Revised Rules for the Electronic/ CMO No. 07-2018 is hereby amended to read as follows:
Manual Issuance and Lifting of Alert
Orders at All Ports of Entry.” Sec. 3.1 Issuance of Alert Orders.

Alert Orders shall be validated, dated, assigned a unique reference number in

series, and monitored by the Alert Order Clearing House Desk under the Deputy
Commissioner, Intelligence Group, which shall be the basis for reporting to and
monitoring by the Commissioner and the Secretary of Finance. Hence, all alert
orders for issuance shall be coursed thru the Alert Order Clearing House Desk.

• All other provisions of CMO No. 06-2018 which are not in conflict and
inconsistent with this CMO shall remain valid and in effect.

• This Order shall take effect immediately.

(Editor’s Note: CMO No. 06-2019 was received by the UP Law Center on 15 February
2019)

CMO No. 07-2019 provides for the CMO No. 07-2019 dated 14 February 2019
Use of BOC Logos and Marks by Third
Parties. • This Order aims to provide clear guidelines on the allowable usage of logos
and marks which belong to the BOC and to prevent public confusion caused by
inappropriate usage of BOC logos and marks by third parties and shall apply
to all documents, communications, or forms, whether in printed or electronic
format, that are issued by or through third parties that work with, connect to,
or anyway interact with, the BOC.

• Violation of the provisions of this Order shall be subject to the appropriate civil
and/or criminal liability, in addition to the administrative sanctions that may be
imposed by the BOC.

Tax Bulletin | 11
 • This Order shall take effect 15 days after its complete publication in the Official
Gazette or a newspaper of general circulation.

(Editor’s Note: CMO No. 07-2019 was published in The Manila Times on 15 February
2019)

CMO No. 10-2019 provides for the CMO No. 10-2019 dated 19 February 2019
Revised Procedure Governing Utilization
of TCC. • The original grantee of the Tax Credit Certificate (TCC) or the authorized
transferee/representative must file with the TCC Secretariat a written request
to utilize the TCC, attaching thereto the Affidavit of Authenticity, balance and
no outstanding obligation, original TCC/s, Debit Memos, if any, Import Entry and
Internal Revenue Declaration (IEIRD) copy, Bill of Lading/Airway Bill, Packing
List, Invoice and other pertinent documents.

• Upon approval of the Commissioner of the written request to utilize the

TCCs, the Office of the District Collector shall evaluate the completeness of
all documents before the issuance and release by the Cash Division of the
corresponding BOC Official Receipt (BCOR) to the claimant.

• This Order shall take effect immediately.

(Editor’s Note: CMO No. 10-2019 was received by the UP Law Center on 33 February
2019)

CMO No. 11-2019 provides for the CMO No. 11-2019 dated 19 February 2019
Revised Procedure for the Verification
of Outstanding Balances of VAT TCCs for • This order covers all VAT TCCs issued by the BOC pursuant to Sec. 112 of the
the Issuance and Processing of NPS. National Internal Revenue Code (NIRC) and VAT portions of TCCs issued jointly
by the BOC and the Department of Finance, and Section 900 of the CMTA.

• Operational Provisions

1. The TCC holder shall surrender the original TCC together with a letter
request for application for VAT monetization of the outstanding balance of
the TCC, and for the issuance of the corresponding NPS. All the documents
shall be submitted to the Tax Credit Committee or equivalent office.

2. The Tax Credit Secretariat shall prepare a resolution for signature of the
Tax Credit Committee members approving the request for monetization and
shall submit the same to the Commissioner for approval. Thereafter, the
TCC resolution duly approved by the Commissioner shall be indorsed to the
Financial Management Office (FMO) for preparation of the corresponding
NPS equivalent to the amount or remaining balance of the VAT TCC.

3. The Holder/Transferee may opt not to monetize the NPS immediately

subject to the condition that its conversion will only be allowed if it is
surrendered to the BOC at least 2 months before its maturity date; or
may monetize the NPS through the authorized Government Financial
Institutions (GFI) at a discounted price to be prescribed by the latter.

4. Upon maturity of the NPS, the Cashier will prepare a check corresponding
to the Disbursement Voucher prepared by the FMO and release the check.

12 | Tax Bulletin
 • This Order shall take effect immediately.

(Editor’s Note: CMO No. 11-2019 was received by the UP Law Center on 22 February
2019)

CMO No. 12-2019 provides for the CMO No. 12-2019 dated 14 February 2019
Provisional Safeguard Duty of Imported
Cement Classified under AHTN Codes • This CMO is implemented to provide the provisional safeguard duty to all imported
2523.2990 and 2523.9000. cement in compliance to the directive of the Secretary of Finance and covers all
importation of cements with HS Code 2523.2990 and 2523.9000 from various
countries, except developing countries listed in Annex A of the CMO. Further,
shipments of cement that are in transit prior to the effectivity of this Order shall
be exempted herein.

• The provisional safeguard duty in the form of cash bond amounting to Php 210/
MT is hereby imposed for all importation of cements with HS code 2523.2990
and 2523.9000 for a period of 200 days from the date of effectivity of this CMO.

• This Order shall take effect immediately until revoked.

(Editor’s Note: CMO No. 12-2019 was received by the UP Law Center on 22 February
2019)

PEZA Update

PEZA Memorandum Circular No. PEZA Memorandum Circular No. 2019-006 dated 30 January 2019
2019-006 circularizes the IRR of the
Occupational Safety and Health Act. • The Department of Labor and Employment (DOLE) issued the Implementing Rules
and Regulations (IRR) of Republic Act No. 11058 (Occupational Safety and Health
Act) under Department Order No. 198 series of 2018:

1. Link to full text: http://www.bwc.dole.gov.ph/images/

Issuances/DepartmentOrder/DO198_19_IRR_of_RA_11058__
AnACtStrengtheningCompliancewithOSHSandProvidingPenaltiesForViolationsThereof.
pdf

• Salient features -

1. Safety officers may be classified as safety officer 1 to 4, depending on hours

of Occupational Safety and Health (OSH) training and experience.

• Accreditation with DOLE is no longer necessary.

2. Workplaces are now classified as low, medium, or high risk establishments

• The company’s safety officer, in coordination with DOLE, is tasked with

identifying the level of risk of its workplace.

• The number of safety officers and occupational health personnel, and

nature of facilities, will depend on the level of risk of the workplace and
the number of workers.

3. Worker’s OSH seminars, which is an 8-hour module as prescribed by the OSH

standards, are required to be given to all workers by the company safety
officer or by a DOLE-accredited training organization.

Tax Bulletin | 13
 4. Work stoppage order (WSO) may now be implemented by the employer,
safety officer, or worker if there is imminent danger in the workplace.

• The DOLE must be immediately notified that an imminent danger

situation exists in the workplace.

5. Administrative fines may be imposed by the DOLE for any willful failure to
comply with OSH standards or with a compliance order issued by the said
agency.

SEC Opinions and Issuances

SEC-OGC Opinion No. 19-01 dated 31 January 2019

A sale or disposition of all assets of a Facts:

single branch office does not constitute a
sale or disposition of all or substantially A Co. maintains 5 branches across the country. It intends to assign all assets of one
all of the assets of a corporation that of its branches to a single proprietorship. The assets of the 5 branches are more or
would require the approval of the less about the same size.
stockholders.
Issue:

Does the sale constitute a sale of all or substantially all of the assets of A Co. that
would require the stockholders’ approval?

Held:

No. Sec. 40 of the Corporation Code defines the term ‘sale or disposition of all or
substantially all the assets’ as one which will render the corporation incapable of
continuing the business or accomplishing the purposes for which it was incorporated.
Any disposition short of this will not need stockholders’ action. Thus, since the
property to be sold constitutes merely a part of the assets of A Co., the board of
directors, even without stockholders’ approval, may dispose the same.

SEC-OGC Opinion No. 19-02 dated 28 January 2019

The term ‘foreign national’ under RA Facts:

8556 or the Financing Company Act, as
amended by RA 10881, refers to both A foreign corporation seeks to establish a 100% foreign-owned financing company in
individuals and juridical entities. the Philippines where it will be the majority stockholder.

Issue:

Can a foreign corporation hold or own the majority shares of stock of a financing
company?

Held:

Yes. Under the Foreign Investments Act, a Philippine national is an individual Filipino
citizen or a domestic corporation or partnership either wholly owned or 60% owned
by Filipino citizens. It likewise defines a non-Philippine national as the reverse of the
term Philippine national.

14 | Tax Bulletin
 Applying this rule to RA 8556, as amended by RA 10881, the term ‘foreign
national’ cannot be said to relate exclusively to individuals but shall include even
juridical entities. Thus, since the nationality requirement has been removed by RA
10881, a foreign corporation can own the majority shares of stock of a financing
company.

SEC MC. No. 2 provides for the SEC Memorandum Circular No. 2 dated 7 February 2019
amendment of the implementing rules of
the Investment Company Act pertaining The following key amendments have been incorporated in Rule 5.8.2:
to the responsibilities of independent
accountants and auditors. • Report of any non-compliance by an investment company, fund manager and/
or fund distributor with their contractual and regulatory requirement shall be
based solely on the matters discovered from performing the audit.

• The engagement contract between the company and the independent auditor
shall contain a provision that the disclosure of information by the independent
auditor shall not constitute a breach of confidentiality nor shall be a ground for
civil, criminal or disciplinary proceedings against the independent auditor.

• Independent auditors and accountants shall observe the principles on the

expectation for an effective audit function under Financial Reporting Bulletin
No. 19.

(Editor’s Note: Published in the Philippine Daily Inquirer & The Manila Times on 12
February 2019)

SEC MC. No. 3 defers the application of SEC Memorandum Circular No. 3 dated February 8, 2019
the guidelines for the implementation of
PFRS No. 15 issued by the PIC for the In order to address the issues raised by the real estate industry, the SEC resolved to
real estate industry. defer the application of PIC Q&A Nos. 2018-12(H) and 2018-14, as follows:

• The deferment shall be for a period of 3 years or until 1 January 2021;

• A real estate company may opt to defer the application of the above guidelines
but shall disclose in the Notes to the Financial Statements the accounting
policies applied and a qualitative discussion of the impact in the financial
statements had the said guidelines been adopted; and

• A change in the accounting period resulting from the deferment have to be

accounted for under Philippine Accounting Standard (PAS) 8 together with the
corresponding required quantitative disclosures.

(Editor’s Note: Published in the Manila Standard & Manila Bulletin on 21 February
2019)

SEC MC. No. 4 provides for adoption of SEC Memorandum Circular No. 4 dated 15 February 2019
the Sustainability Reporting Guidelines
for publicly-listed companies. To promote sustainability reporting and make it relevant for the publicly-listed
companies, the SEC resolved to issue the above guidelines and shall be complied as
follows:

• The report shall be submitted together with the company’s Annual Report (SEC
Form 17-A);

Tax Bulletin | 15
 • The guidelines shall be adopted on a “comply or explain” approach for the first
3 years upon implementation, i.e., companies may either attach the reporting
template to the Annual Report or provide explanations for items where they still
have no available data on; and

• Non-attachment of the report shall be subject to the penalty for Incomplete

Annual Report provided under SEC MC No. 6 series of 2005.

(Editor’s Note: Published in the Manila Standard & Manila Bulletin on 21 February
2019)

BSP Issuances

Circular No. 1030 provides for the BSP Circular No. 1030 dated 5 February 2019
amendments to the foreign exchange
regulations. • The following provisions of the Manual of Regulations on Foreign Exchange
Transactions (FX Manual, issued under Circular No. 645 dated 13 February 2009,
as amended) are further revised.

1. PART ONE. RULES ON FOREIGN EXHANGE TRANSACTIONS - Chapter 1 –

GENERAL PROVISIONS - Sections 5 and 6

2. Part TWO. CURRENT ACCOUNT TRANSACTIONS – Chapter 1 - NON-

TRADE FOREIGN EXCHANGE RECEIPTS AND DISBURSEMENTS, CROSS-
BORDER TRANSFER OF LOCAL AND FOREIGN CURRENCIES, AND GOLD
TRANSACTIONS – Section 3 – Peso Accounts of, and Sale of Foreign Exchange
to, Non-Residents

3. PART THREE. FINANCIAL ACCOUNT TRANSACTIONS –

• Chapter 1 - LOANS/BORROWINGS AND GUARANTEES – Section 22 –

General Policy; Section 24 – Private Sector Loans/Borrowings; Section
25 – Servicing; Section 30 – Guarantees and Other Similar Arrangements;
and Section 31 – Other Financing Schemes/Arrangements

• Chapter 2 – INWARD INVESTMENTS – Section 32- General Policy; Section

33 – Inward Foreign Investments in instruments issued by Residents;
Section 34 – Inward Investments in Instruments Issued by Non-Residents;
Section 35 – Other Forms of Investments; Section 36 – Registration
with BSP; Section 37 – Registration with AABs; Section 38 – Servicing
of Investments; Section 39 (Reserved); Section 40 (Reserved); Section
41 – Deposit of Peso Divestment/Sales Proceeds; and Section 42 –
Reinvestment

• Chapter 3 – OUTWARD INVESTMENTS – Section 43 – General Policy and

Section 44 – Outward Investments by Philippine Residents

4. PART FIVE. FOREIGN EXCHANGE FORWARDS AND SWAPS AND OPEN

FOREIGN EXCHANGE POSITION OF BANKS

• Chapter 1 – FOREIGN EXCHANGE FORWARDS AND SWAPS WITH AABs

INVOLVING THE PHILIPPINE PESO – Section 88 – General Policy; Section
90 – Documentation; and Section 91 – Tenor/Maturity and Settlement

5. PART SIX. GENERAL PROVISIONS

• Chapter 1 – REPORTS AND POST VERIFICATION – Section 101 –

Reportorial Requirements
16 | Tax Bulletin
 • Section 2 of this Circular enumerates Appendices/Annexes to the FX Manual
which have been revised, added and/or deleted by this Circular.

• Section 3 of this Circular on Transitory Provision provides that the submission

of the revised Annex X (Report on Foreign Investments Registered with the BSP)
and new Annex AD [Report on Foreign Direct Investments (FDIs)] Registered
with Authorized Agent Banks (AABs) shall commence six months from
effectivity of this Circular. During the transitory period, AABs shall continue to
submit the old Annex X.

• Section 4 of this Circular supersedes/amends/modifies the provisions of

existing BSP circulars, circular letters, memoranda and/or regulations that are
inconsistent herewith.

• Section 5 of this Circular provides that any violation of the provisions of this
Circular shall be subject to applicable penalties/sanctions under the Manual of
Regulations on Foreign Exchange Transactions (as amended), Republic Act No.
7653 or the New Central Bank Act, and other applicable laws.

• This Circular shall take effect 15 banking days after its publication either in the
Official Gazette or in a newspaper of general circulation in the Philippines.

(Editor’s Note: BSP Circular No. 1030, s. 2019 was published in The Manila Bulletin
on 14 February 2019)

Circular No. 1031 provides for the BSP Circular No. 1031 dated 7 February 2019
Additional Guidelines on the Grant
of Licenses/Authorities and Types of • The Circular provides for the (i) classification of existing licenses being granted
Licenses of Permissible Activities. by the Bangko Sentral in accordance with the types of licenses provided
under Subsection X1101.1 of the Manual of Regulations for Banks (MORB)
and Subsections 41101Q.1/4501S.1/4501P.1/4110N.1/4201T.1. of the
Manual of Regulations for Non-Bank Financial Institutions (MORNBFI); and
(ii) corresponding amendments to the licensing requirements of the Bangko
Sentral.

• Section X1102 of the MORB provides for the type of license attached to
permissible activities of Bangko Sentral supervised financial institutions (BSFls).

►• Section 41102Q/45O2S/45O2P/4111N/42O2T of the MORNBFI provides

for the Type of License of Permissible Activities of Bangko Sentral supervised
financial institutions (BSFls).

• Subsection X1101.2 of the MORB provides the prudential criteria in

determining the eligibility of BSFIs for the licenses/authorities being applied
for. In this respect, Sections 2404/3404 and Subsections X151.3/X151.5/
X151.10/X376.1/X376.5/X382.1/ X382.3/X4O4.1/X4O4.2/X4O4.4 of the
MORB are hereby amended to apply the prudential criteria set out under
Subsection X1101.2 and to amend the licensing requirements for each
classification as follows:

1. Permissible Activities with Type A License

• Establishment of Branches/Branch-lite Units

• Equity Investment in Allied and Non-Allied Undertaking

Tax Bulletin | 17
 • Investments in Subsidiaries and Affiliates Abroad

• Trust and Other Fiduciary Business

2. Permissible Activities with Type C License

• Relocation/Voluntary Closure of Branches/Branch-lite Units

• Outsourcing/lnsourcing of Banking Functions

• Servicing Deposits Outside Bank Premises

• Amendment of the Plan Rules of UITF

3. Permissible Activities with Type A License upon Initial Application and

Expansion of Activities/Licenses classified as Type C License

• Bank Offices as Outlet of Financial Products of Allied Undertakings/

lnvestment Houses {Cross-Selling Activities}

• Marketing, Sale and Servicing of Microinsurance Products

• Sections X11O3/41103Q/4503P/4112N/4203T of the MORB/MORNBFI are

hereby added to cover the types of fees applicant BSFIs are required to pay
consequent to its filing of an application for Types A and B license/authority.

• The following Subsections of the MORB are hereby deleted:

Deleted Title/Description Covered by Section/

Subsections Subsection
Subsection Requirements for establishing Subsection X382.1
X382.2 subsidiaries or affiliates abroad
Subsection Prerequisites for engaging in Subsection X404.1,
X404.4 trust and other fiduciary business
Subsection Tellering booths Section X213
X151.19
Subsection Other requirements/ factors to be Subsection 41101Q.2
4151Q.3 considered
Subsection Conditions precluding processing Subsection 41101Q.2
4151Q.4 of applications

►• The following provisions with reference to “special licensing fee” under

Subsection X151.5 are hereby deleted:

Subsections Deleted Provision

Sec. X152 Xxx Provided, That head offices located outside the
cities previously considered as restricted areas as
defined under Subsec. X151.4 which will be relocated
therein shall be subject to the special licensing fee under
Subsec. X151.5 upon approval of the relocation. Xxx
Subsection X153.2 Xxx Provided, That sub-branch applications in the
cities previously considered as restricted areas as
defined under Subsec. X151.4 shall also be subject
to the special licensing fee under Subsec. X151.5, as
applicable.

18 | Tax Bulletin
 • Applications filed with the Bangko Sentral prior to the effectivity of this Circular
shall not be charged with processing and licensing fees provided under Sections
X1103/ 41103Q/4503P/4112N/4203T. For applications related to branching
activities covered under Subsection X151.5, as amended, approved after
the effectivity of this Circular, the processing fees provided under the said
Subsection, as amended, shall be collected upon approval of the application.

Applications for Type C licenses received prior to the effectivity of this

Circular shall be deemed to have complied with the notification/certification
requirements if after thirty (30) banking days from the effectivity of this
Circular, the appropriate supervising department of the FSS does not advise the
BSFI concerned of any deficiency on such application.

The foregoing provision shall be incorporated as a footnote to Sections

X1102/41102 Q/4502S/4502P/4111N/4202T of the MORB/MORNBFl.

• This Circular shall take effect 15 calendar days after its publication either in the
Official Gazette or in a newspaper of general circulation.

(Editor’s Note: BSP Circular No. 1031, s. 2019 was published in The Manila Bulletin
on 19 February 2019)

Circular No. 1032 provides for the BSP Circular No. 1032 dated 15 February 2019
amendments to the Guidelines on the
Basic Security Deposit Requirement. ►• The following are the amendments to the MORB and MORNBFI on the
administration of compliance with the basic security deposit requirement.

• Subsections X405.4/4405Q.4, X415.4/4415Q.4 and X960.5/4960Q.5 on

Compliance with the basic security deposit requirement of the MORB/MORNBFI
were amended by this Circular.

• Subsections X441.14/4441Q.14/4441N.14 on Required Reports were

amended to provide that an accredited securities custodian shall comply
with the reportorial requirements, prescribe under item “b” of Subsec.
X405.4/4405Q.4

• The amendments to Appendices 34/34a and Q21/Q21a of the MORB/MORNBFI

are attached as Annex A of this Circular.

• The reportorial templates covering reports on basic security deposit

transactions and quarterly compliance were amended by this Circular in the
following annexes:

Annex Form Number Report Title

B BSD-Form-1 Quarterly Report on Compliance with the Basic
Security Deposit Requirement (with certification
from the authorized officer)
C BSD-Form-2 Report Basic Security Deposit Transaction (with
certification from the authorized officer)
D BSD-PERA-Form-1 Quarterly Report on Compliance with the Basic
Security Deposit Requirement for the PERA
Administrator (with certification from the
authorized officer)
E BSD-PERA-Form-2 Report on Basic Security Deposit Transaction for
the PERA Administrator (with certification from
the authorized officer)

Tax Bulletin | 19
 • Appendix 6 of the MORB and Appendices Q-3, T-3 and N-1 of the MORNBFI were
amended by this Circular to include the following reports:

Category Form MOR/ Report Title Frequency Submission Submission

Number MORNFI Deadline Procedure
(Annex Ref
Number)
B BSD- X405.4/ Quarterly Quarterly 20 banking e-mail to BSD-
Form-1 X415.4/ Report on days after Quarterly@
4405Q.4/ Compliance end of bsp.gov.
4112.4 with the every ph SDC
Basic quarter e-mail and to
BSD- X960.5/ Security appropriate
PERA- 4960Q.5 Deposit supervising
Form-1 Requirement departments
(with
certification
from the
Trust Officer
in the case
of trust
entities, and
designated/
authorized
officer)
B BSD- X405.4/ Report On every 3 banking/ e-mail to BSD-
Form-2 X415.4/ on Basic deposit, business Transactiona@
4405Q.4/ Security withdrawal, days prior bsp.gov.
4112T.4 Deposit replacement to date of ph and to
Transactions or securities appropriate
BSD- X960.5/ with redemption transfer supervising
PERA- 4960Q.5 certification of securities departments
Form-2 from the
designated/
authorized
officer
►
• Financial Reporting Package for Trust Institutions (FRPTI) and Financial Reporting
Package for Trust Corporation (FRPTC) were amended by this Circular.

• This Circular shall take effect 15 days after its publication either in the Official
Gazette or in a newspaper of general circulation in the Philippines.

(Editor’s Note: BSP Circular No. 1032, s. 2019 was published in the Manila Bulletin on
27 February 2019)

Circular No. 1033 provides for the BSP Circular No. 1033 dated 22 February 2019
amendments to the Regulations on
Electronic Banking Services and Other ►• The following are the amendments to the MORB and MORNBFI on electronic
Electronic Operations. banking services and other electronic operations. The amendments mainly take
into account the developments in electronic payment and financial services (EPFS).

• Section X701/4701Q on Policy Statement on Electronic and Financial Services

was amended by this Circular.

• The following Subsections were also amended by this Circular:

1. Subsection X701.1/4701Q.1 – Definition of Terms to include the definition of

“EPFS” and “Transaction Account”

2. Subsection X701.2/4701Q.2 – Classification of EPFS into 1) Basic EPFS and

2) Advanced EPFS

20 | Tax Bulletin
 3. Subsection X701.3/4701Q.3 – Requirements for the Grant of Authority to
Offer EPFS which provides that BSFIs that intend to offer EPFS shall obtain
the appropriate authority/license

4. Subsection X701.4/4701Q.4 – Compliance with Relevant Regulations of

the BFSI that has been granted an advanced EPFS authority

5. Subsection X701.5/4701Q.5 – Enhancements and Other Changes in EPFS

which provides that BFSIs shall seek prior Bangko Sentral approval in
certain changes in their licensed EPFS

6. Subsection X701.6/4701Q.6 – Reportorial Requirements

7. Subsection X701.12/4701Q.12 – Enforcement Action

8. Subsections 4641S.1/4641P.1/4904T.1/4641N.1 – Requirements for the

Grant of Authority to Offer EPFS which provide that BSFIs that intend to
offer EPFS shall obtain the appropriate authority/license

9. Subsections 4641S.2/4641P.2/4904T.2/4641N.2 – Reportorial

Requirements

10. Subsections 4641S.3/4641P.3/4904T.3/4641N.3 – Participation in

Automated Clearing Houses (ACHs) which provide that BSFIs that have
been licensed to offer funds transfer services shall make these services
interoperable by participating in an ACH. Prior to its participation, a BFSI
shall observe certain guidelines.

• Some portions of the MORB/MORNBFI were amended to reflect the revised

licensing requirements for EPFS. In particular, the rules applicable to
transactions performed under the National Retail Payment System (NRPS)
are hereby revised and all references to the previous title of Part Seven of the
MORB/MORNBFl Q-regulations are hereby changed to Electronic Payment and
Financial Services.

• Subsections X701.7 and X701.8/4701Q.7 and 4701Q.8 were deleted by this

Circular.

• BSFls shall re-register their EPFS by accomplishing the re-registration form

with covering certification (Attachment 2 of this Circular). The re-registration
form shall be electronically submitted with the subject “EPFS Re-registration
- <name of BSFl> - <date-YYYYMMDD>” to epfs-licensing@bsp. gov. ph not
later than 31 March 2019 while the covering certification shall be sent to the
Financial Technology Sub-sector of the Bangko Sentral. Failure to submit the re-
registration form by 31 March 2019 shall result in the revocation of the issued
license/s.

• Appendix 6 of the MORB and Appendix Q-3/S-2/N-1/P-13/T-13 of the MORNBFI

were amended by this Circular. The specific guidelines on the mode and
manner of submission of the abovementioned reports (including corresponding
reporting templates) shall be covered by a separate memorandum issuance.

• This Circular shall take effect 15 days after its publication either in the Official
Gazette or in a newspaper of general circulation in the Philippines.

(Editor’s Note: No publication yet as of 27 February 2019)

Tax Bulletin | 21
 Court Decisions

CIR vs. Freelife Philippines Distribution, Inc. – Philippine Branch

CTA (En Banc) Case No. 1714 promulgated 4 January 2019

The issuance of the FAN via electronic Facts:

mail is not sanctioned by any law, rules
or regulations. Petitioner CIR assessed Respondent Freelife Philippines Distribution, Inc. –
Phil. Branch (FPDI) for deficiency income tax and VAT for taxable year 2009.
FPDI protested and upon issuance of a Final Decision on Disputed Assessment
(FDDA), filed a Petition for Review with the CTA.

At the CTA, FPDI argued that the assessment is void for failure of the BIR
to strictly comply with the procedural due process as the Final Assessment
Notice (FAN) was issued even before the lapse of the 15-day period to protest
the Preliminary Assessment Notice (PAN). The CIR took the position that the
assessment was valid as FPDI was fully apprised of the facts and the law on
which it was issued. Due to FDPI’s failure to timely file a Petition for Review
at the CTA, the BIR posited that the assessment has already become final,
executory, and demandable.

The CTA Second Division ruled in favor of FPDI. Aside from the premature
issuance of the FAN, it voided the assessment as the mode of delivery of the
FAN was neither through personal service nor registered mail, as provided
under Section 3.1.4 of RR 12-99, but through electronic mail.

Issue:

Can the FAN be served to taxpayers through electronic mail?

Ruling:

No. The issuance of the FAN via electronic mail is not sanctioned by any law,
rules or regulations.

Section 3.1.4 of RR 12-99 provides that the Final Letter of Demand (FLD)
and assessment notice shall be sent to the taxpayer only by registered mail
and by personal delivery. The use of the word “shall” indicates the mandatory
nature of the requirement. It is essential for the BIR to prove that the FLD and
assessment notices were duly served to FPDI either by registered mail or by
personal service.

As found by the CTA 2nd Division and as admitted by the parties, the FLD
and assessment notices were issued through electronic mail. The BIR did not
present any evidence to prove that the FLD and assessment notices were served
either through registered mail or by personal delivery, which are the only valid
modes of service.

As the BIR failed to comply with the due process requirement in the issuance of
the FAN, the deficiency tax assessments are null and void.

22 | Tax Bulletin
 CIR vs. GIC Private Limited (Formerly, Government of Singapore Investment
Corporation Private Limited)
CTA (En Banc) Case No. 1753 promulgated 18 January 2019

Income derived by foreign governments Facts:

from investments in Philippine bonds
is exempt from income and final Respondent GIC Private Limited (formerly, Government of Singapore Investment
withholding tax. Corporation Private Limited) filed a claim for refund with Petitioner CIR for
erroneously collected final withholding tax (FWT) by the Bureau of Treasury on
Proof of actual remittance of a final interest income earned on its investments in Philippine T-Bonds for January 2013 to
withholding tax to the BIR is not a July 2014.
condition before a taxpayer can refund
erroneously or illegally collected FWT. Due to the inaction of the CIR on the administrative claim, GIC filed a Petition for
Review with the CTA. The CTA Third Division granted the FWT refund, holding
that GCI is a non-resident foreign corporation wholly owned by the Government of
Singapore and exempt from payment of income tax and consequently, from FWT.

The CIR elevated the case to the CTA En Banc.

Issues:

1. Is GIC entitled to the FWT refund?

2. Is proof of actual remittance of FWT required?

Ruling:

1. Yes. Section 32(B)(7)(a) of the NIRC provides that income derived from
investments in the Philippines in loans, stocks, bonds, or other domestic
securities in the Philippines by foreign governments or financing institutions
owned, controlled, or enjoying refinancing from foreign governments are not to
be included in gross income and shall be exempt from taxation.

2. No. Proof of actual remittance of a final withholding tax to the BIR is not a
condition before a taxpayer can claim erroneously or illegally collected FWT.

FWT is the full and final payment of income tax due from the recipient of
the income and the obligation to withhold the tax is imposed by law on the
withholding agent. However, it is incumbent upon GIC to prove that it earned
income from investments in the Philippines and that taxes were collected
thereon. In the instant case, GCI was able to present the Statements of Taxes
Withheld and BIR Forms 2306 issued by the Bureau of Treasury showing the
FWT on the interest due on the government securities.

CIR vs. Trustmark Holdings Corporation

Good faith and honest belief that one CTA (En Banc) Case No. 1697 promulgated 31 January 2019
is not subject to tax on the basis of
previous interpretation of government Facts:
agencies tasked to implement the
tax law, justify the non-imposition of Petitioner CIR assessed Respondent Trustmark Holdings Corporation for, among
surcharges and interest. others, deficiency Documentary Stamp Tax on intercompany loans. THC paid the
basic DST not only for 2009 (the year covered by the Letter of Authority), but
The conduct by the revenue officers of also for 2000, 2006, 2007 and 2008. However, it requested the BIR to waive
a tax examination on years which were the surcharge and interest as the late payment of DST was due to difficulty in the
not covered by the LOA justifies the interpretation of the law. THC subsequently filed an application for abatement
cancellation of the assessment. to cancel the interest and penalties. Upon receipt of a Final Decision on Disputed
Assessment upholding the assessment, THC filed a Petition for Review at the CTA.

Tax Bulletin | 23
 The CTA Second Division ordered the cancellation of the interest and surcharge,
ruling that intercompany advances were not subject to DST prior to 19 July 2011
when the Supreme Court promulgated its decision in CIR vs. Filinvest Development
Corporation, GR Nos. 163653 and 167689.

Aggrieved, the BIR elevated the case to the CTA En Banc.

Issue:

Is THC liable to interest and penalties on the unpaid DST?

Ruling:

No. Citing Michel J. Lhuillier Pawnshop, Inc., GR No. 166786 promulgated on 11

September 2006, the CTA En Banc held that good faith and honest belief that one
is not subject to tax on the basis of previous interpretation of government agencies
tasked to implement the tax law, justify the non-imposition of surcharges and
interest.

The CTA En Banc also noted that the BIR acted beyond the scope of its authority in
the issuance of the deficiency DST assessment. The coverage of the BIR tax audit is
2009 only. The breakdown of deficiency DST assessment shows that taxable years
2000 and 2006 – 2008 were included. No DST was even assessed for 2009.

The CTA ruled that even assuming THC could not rely on good faith on the rulings
issued by the BIR and the courts as these were not specifically issued to THC, the
DST assessment should nonetheless be cancelled as the revenue officers who
conducted the tax examination assessed alleged deficiency for years which were not
even covered by the LOA.

CIR vs. Oce Holding B.V.

CTA (En Banc) Case No. 1644 promulgated 23 January 2019

A change in the corporate name does Facts:

not make a new corporation and has no
effect on the identity of the corporation, Respondent Oce Holding B.V. filed a claim for refund of capital gains tax (CGT)
or on its property, including entitlement erroneously paid in connection with the transfer of shares in Oce Business Services
to a tax refund, rights or liabilities. Philippines, Inc. (now Canon Business Process Services Philippines, Inc.) in favor of
Oce Business Services, Inc. in November 2012. Notwithstanding the filing of a tax
treaty relief application on capital gains pursuant to Article 14 of the Philippines-
Netherlands Tax Treaty, Oce Holding still paid the CGT on the transaction.

Due to the inaction of the BIR, Oce Holding filed a Petition for Review at the CTA.
The BIR argued that the BIR Certification attesting that the transaction is exempt
from CGT does not state the CGT amount. It also averred that the seller of shares
and the exempt entity is Oce N.V., not Oce Holding. Oce Holding argued that Oce
N.V. is its former corporate name.

The CTA Second Division ruled in favor of Oce Holding and ordered the BIR to refund
the amount representing CGT of the transaction.

Upon denial of its Motion for Reconsideration, the BIR filed a Petition for Review
with the CTA En Banc.

24 | Tax Bulletin
 Issue:

Is Oce Holding entitled to the CGT refund?

Ruling:

Yes. The CTA En Banc sustained the ruling of the CTA Second Division that since
the sale or transfer of shares of stock is not subject to CGT, it is not important
whether the BIR Certification states the exact CGT amount which Oce Holding is
exempted from paying. The exemption certification specifically pertains to the
subject transaction.

The CTA also held that it was sufficiently proven that Oce Holding and Oce N.V.
are one and the same entity. Quoting the Supreme Court ruling in Javier Sons vs.
CA, GR No. 129552 promulgated on 29 June 2005, a change in the corporate
name does not make a new corporation, whether effected by a special act or
under a general law. It has no effect on the identity of the corporation, or on its
property, rights or liabilities. The corporation, upon such change in its name, is
in no sense a new corporation, nor the successor of the original corporation. It
is the same corporation with a different name, and its character is in no respect
changed.

Moreover, the CTA En Banc noted that the CIR has a judicial admission in its
Petition for Review that Oce Holding B.V. and Oce N.V. are one and the same.

CIR vs. Northern Tobacco Redrying Co., Inc.

CTA (En Banc) Case No. 1664 promulgated 31 January 2019

Gain or loss will not be recognized in Facts:

case the exchange of property for stocks
results in the control of the transferee Petitioner CIR assessed Respondent Northern Tobacco Redrying Co. (NTRC),
by the transferor, alone or with other Inc. for, among others, deficiency income tax, VAT and EWT on the transfer of
transferors not exceeding four persons. assets between NTRC with 4 other related entities and Fortune Landequities
and Resources, Inc. (FLRI) in 2010. NTRC executed a Deed of Transfer dated 25
February 2010 in favor of FLRI, transferring land parcels in Vigan , Ilocos Norte
in exchange for FLRI shares. As a result of the transaction, NTRC – together with
Fortune Tobacco Corporation, Dominium Realty and Construction Co. (DRCC),
Parity Packaging Corporation and Orecla Realty, Inc., increased their combined
ownership up to 99% resulting in their gaining control over FLRI.

NTRC protested the deficiency assessment and argued that the transaction is
a tax-free exchange under Section 40(C)(2) of the NIRC. The CIR posited that a
securing a tax-free exchange ruling is a requirement under Revenue Regulations
18-01.

Due to the inaction of the BIR, NTRC elevated the case to the CTA. The CTA
Third Division ruled that the transfer of land is a tax-free transaction, and a
portion of the assessment against NTRC for VAT, EWT and Withholding Tax on
Compensation has prescribed, thereby reducing its tax liability. It ruled that a
prior BIR ruling to exempt the transaction from income tax is not required.

Aggrieved, the BIR filed a Petition for Review at the CTA En Banc.

Tax Bulletin | 25
 Issue:

Is the transaction considered a tax-free exchange under Section 40 (C)(2) of the Tax
Code?

Ruling:

Yes. The transaction is not subject to income tax. Citing the Supreme Court ruling
in CIR vs. Filinvest Development Corp., GR 163653 and 167689 promulgated on 19
July 2011, the CTA En Banc ruled that the property-for-shares transfer qualifies
as a tax-free exchange. Gain or loss will not be recognized in case the exchange of
property for stocks results in the control of the transferee by the transferor, alone or
with other transferors not exceeding four persons.

Pursuant to Section 40 (C)(2) of the Tax Code, the requisites of non-recognition of

gain or loss are:

1. The transferee is a corporation;

2. The transferee exchanges its shares of stock for properties of the transferor;

3. The transfer is made by a person, acting alone or together with others, not
exceeding four persons; and,

4. As a result of the exchange the transferor, alone or together with others, not
exceeding four, gains control of the transferee.

The CTA En Banc held that the transaction complies with all the requisites. After the
transfers, the transferor continued to collectively control FLRI.

A tax-free exchange ruling is not necessary to claim exemption under the NIRC.

SGV | Assurance | Tax | Transactions | Advisory

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26 | Tax Bulletin