Tax Bulletin

March 2019

Tax Bulletin | 1
 Highlights

BIR Ruling

• To avail of the exemption from internal revenue taxes, a Homeowners’ Association

must be issued a certification by the local government unit (LGU) concerned
specifically stating that the latter lacks resources to provide for the basic services
of its constituents. (Page 3)

BIR Issuances

• Revenue Regulation No. 2-2019 implements the imposition of excise tax on non-
essential services, as introduced by the TRAIN Law. (Page 4)

• Revenue Memorandum Circular (RMC) No. 34-2019 clarifies the treatment and
reporting requirements of input value-added tax (VAT) as of 31 December 2018
on VAT-exempt medicines pursuant to the TRAIN Law. (Page 5)

BOC Updates

• Customs Memorandum Order (CMO) No. 13-2019 provides for the Interim
Guidelines on the Return of Empty Containers at the Port of Manila (POM) and
Manila International Container Port (MICP). (Page 6)

• CMO No. 14-2019 provides for the Applicable Exchange Rate for Assessment
Purposes. (Page 7)

• CMO No. 15-2019 provides for the Operational Procedures for the
Implementation of the ASEAN Electronic Certificate of Origin (e-CO). (Page 7)

• CMO No. 16-2019 provides for the Guidelines on the Sending of Notice under
Section 1129 (Abandonment, Kinds and Effects) of the Customs Modernization
and Tariff Act (CMTA). (Page 10)

• This Memorandum provides for the Interim Guidelines in the Implementation of

Republic Act (RA) No. 11203. (Page 11)

SEC Opinions and Issuances

• A holding company is not allowed to subsequently engage in financing activities

by simply amending the primary purpose in its articles of incorporation. (Page 11)

• SEC MC. No. 5 provides for the guidelines on the implementation of ASEAN
Capital Markets Forum (ACMF) Pass under the ASEAN Capital Market Professional
Mobility Framework. (Page 12)

BSP Issuances

• BSP Circular No. 1033 provides for the amendments to the Regulations on
Electronic Banking Services and Other Electronic Operations. (Page 13)

• Circular No. 1034 provides for the Amendments to the Basel III Framework on
Liquidity Standards – Net Stable Funding Ratio. (Page 16)

• Circular No. 1035 provides for the Amendments to the Basel III Liquidity Coverage
Ratio Framework and Minimum Liquidity Ratio Framework. (Page 17)

2 | Tax Bulletin
 Court Decisions

• The issuance of the Final Assessment Notice (FAN) via electronic mail is not
sanctioned by any law, rules or regulations. (Page 19)

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

exempt from income and final withholding tax.

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 Final Withholding
Tax (FWT). (Page 20)

• 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 Agreement (LOA) justifies the cancellation of the
assessment. (Page 20)

• 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 21)

• 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 22)
 

BIR Ruling

BIR Ruling No. 0150-2019, dated 11 February 2019

To avail of the exemption from internal Facts:

revenue taxes, a Homeowners’
Association must be issued a X Co. is a Homeowners Association that generated income from association dues,
certification by the LGU concerned rentals of their facilities, trade, business and other activities. It sought confirmation
specifically stating that the latter lacks of entitlement to exemption from internal revenue taxes pursuant to the last
resources to provide for the basic paragraph of Section 18 of RA No. 9904, otherwise known as the “Magna Carta
services of its constituents. for Homeowners and Homeowners’ Associations.” In support of its request, X Co.
presented a Letter-Confirmation issued by the concerned City Mayor, which merely
states that X Co.’s rendition of basic services to constituents is without assistance of
any form from the LGU.

Issue:

Is X Co. entitled to tax exemption?

Ruling:

No. Section 18 of RA 9904 requires that the concerned LGU lacks resources to
provide for the basic services rendered by the Homeowners Association to its
constituents. The LGU’s Letter-Confirmation issued to X Co. does not reflect the
fact of lack of resources. Hence, X Co. shall be subject to the applicable internal
revenue taxes, such as income tax, VAT or percentage tax, and withholding tax, on
its income from association dues, rentals of their facilities, trade, business and other
activities.

Tax Bulletin | 3
 BIR Issuances

RR No. 2-2019 implements the RR No. 2-2019 issued on 19 March 2019

imposition of excise tax on non-essential
services, as introduced by the TRAIN • Invasive cosmetic procedures, surgeries and body enhancements directed solely
Law. to improve, alter, or enhance the patient’s appearance and do not meaningfully
promote the proper functions of the body or prevent or treat illness or disease,
shall be subject to the 5% excise tax on gross receipts and value-added tax
(VAT).

• Invasive Cosmetic Procedure refers to a cosmetic surgery that is carried out

by entering the body through the skin or through a body cavity or anatomical
opening, but with the smallest damage possible.

• “Gross Receipts” shall mean the total amount of money or its equivalent
representing the contract price or service fee, including deposits applied
as payments for services rendered and advance payments actually or
constructively received for services performed for another person, but
excluding the 5% excise tax and VAT.

• For purposes of determining the VAT base, the gross receipts shall be inclusive
of the 5% excise tax.

• “Constructive Receipt” occurs when the money consideration or its

equivalent is placed under the control of the person who rendered the service
without restrictions by the payor/ customer. This shall cover exchange deal
arrangements.

• Non-Invasive Cosmetic Procedures are excluded from the coverage of the excise
tax.

• Non-Invasive Cosmetic Procedure refers to a conservative treatment that does

not require incision into the body or the removal of tissue, or when no break
in the skin is created and there is no contact with mucosa, or skin break, or
internal body cavity beyond a natural or artificial body orifice. This procedure
includes Acupuncture Rejuvenation Therapy, Air Dissector, and similar services.

• All persons, whether natural or juridical, performing invasive cosmetic

procedures, surgeries, and body enhancements and liable to pay excise tax
imposed under Section 150-A of the NIRC, as amended, shall file a return of
its monthly gross receipts using BIR Form No. 2200-C (Excise Tax Return on
Invasive Cosmetic Procedures), together with the Monthly Summary of Cosmetic
Procedures Performed, as an attachment to the form.

• Every person subject to excise tax shall issue an Official Receipt (OR) for
services performed, whether invasive/non-invasive. The OR will show the
following information:

1. The total amount the client pays or is obligated to pay to the service
provider, including the excise tax and VAT, if applicable, subject to the
following conditions:

• The amount of VAT shall be shown as a separate item in the OR;

• Discounts given shall be indicated in the OR; otherwise the same shall
not be allowed as deduction from gross receipts;

4 | Tax Bulletin
 • If the procedure performed is non-invasive and/or invasive, but
considered exempt from excise tax, the term “Exempt from Excise
Tax” shall be shown on the OR; and

• If the services performed involve both invasive and non-invasive

procedures, a separate OR may be used for the excisable and non-
excisable services rendered.

• All persons subject to excise tax under Section 150-A shall, in addition to the
regular accounting records required, maintain a subsidiary ledger on which
every service rendered/performed on any given day is recorded.

• Every person subject to excise tax under this regulation shall register as Excise
Taxpayer engaged in the performance of Invasive Cosmetic Procedures with the
Excise LT Regulatory Division (ELTRD) for Large Taxpayers or with the Revenue
District Office (RDO) for Non-Large Taxpayers where the taxpayer is required to
be registered for the updating of its Certificate of Registration. The application
for registration shall be filed not later than 31 March 2019.

• The BIR may still enforce the collection of the corresponding excise taxes due
on invasive cosmetic procedures, surgeries, and body enhancements performed
starting 1 January 2018.

• Any violation of the provisions of the Regulations shall be subject to the

corresponding penalties under Sections 250, 251 and 255 of the NIRC, as
amended, and Revenue Memorandum Order No. 7-2015.

• Any person, who willfully attempts in any manner to evade or defeat any tax
imposed under this Regulations or the payment thereof, shall, in addition to
the other penalties provided by law, upon conviction thereof, be punished with
a fine of not less than P500,000.00 but not more than P10,000,000.00, and
imprisonment of not less than 6 years but not more than 10 years.

• Alien offenders shall be deported in accordance with immigration laws, rules

and regulations.

• All individual practitioners and juridical entities, including medical clinics and
hospitals, performing invasive cosmetic procedures, whether in a clinic or
hospital or any place other than clinic or hospital, shall update their current
Certificate of Registration (COR) to include the tax type – Excise Tax on Invasive
Cosmetic Procedure, using BIR Form 1905.

• These regulations are effective beginning 1 January 2018, the date of

effectivity of the TRAIN Law.

(Editor’s Note: RR No. 2-2019 was published in the Manila Bulletin on 21 March
2019)

RMC No. 34-2019 clarifies the treatment RMC No. 34-2019 issued on 13 March 2019
and reporting requirements of input VAT
as of 31 December 2018 on VAT-exempt • Inventory list as of 31 December 2018 of drugs and medicines, which
medicines pursuant to the TRAIN Law. became VAT-exempt beginning 1 January 2019, shall be required from all
manufacturers, wholesalers, distributors and retailers regardless of whether
there is an existing excess input VAT.

• The inventory list shall include all drugs and medicines on hand, imported and
locally manufactured, using a prescribed format.

Tax Bulletin | 5
 • The inventory list shall be filed not later than 25 April 2019 with the Large
Taxpayer Service/Revenue District Office where the taxpayer is registered, as
an attachment to the Quarterly VAT Declaration Form (BIR Form 2550Q) for the
first quarter of 2019.

• As the sale of VAT-exempt drugs and medicines is made, the input VAT
corresponding to the sale shall be closed to cost or expense.

• When filing the BIR Form 2550M/2550Q, the input VAT corresponding to the
sale shall be deducted from the taxpayer’s allowable input tax and reported
under “Input Tax allocable to Exempt Sales” found on Line 20C of such BIR
Form.

BOC Updates

CMO No. 13-2019 provides for the Customs Memorandum Order (CMO) No. 13-2019 dated 28 February 2019
Interim Guidelines on the Return of
Empty Containers at the POM and MICP. • This CAO was issued to address the problem of port congestion or high yard
utilization in the Port of Manila (POM) and Manila International Container Port
(MICP) due to the unreturned empty containers, overstaying imports stored in
the premises of the Asian Terminals Inc. (ATI) at the POM, and the International
Container Terminal Services, Inc. (ICTSI) at the MICP, and the truck ban in the
City of Manila.

• Operational Provisions

1. Temporary Prohibition on the Return of Empty Containers at the Port

Premises of POM and MICP

• Starting February 2019, the return of empty containers by importers,

truckers, brokers and other concerned port stakeholders at the port
premises of POM and MICP is temporarily disallowed until further
notice from the Bureau of Customs (BOC).

• Only empty containers covered by Special Permit to Load (SPTL) issued

by the Container Control Division (CCD) and/or the Pier Inspection
Division (PID) of the BOC will be allowed entry to the designated areas
of ATI for POM or ICTSI for MICP.

• Shipping lines (owning empty containers) and/or their agents are

ordered to coordinate with the importers, truckers and brokers as to
the return of their emptied containers to container yards, storage areas
or depots.

2. Disposition of Empty Containers Currently Stored at ATI and ICTSI

• All shipping lines and/or their agents shall see to it that all their empty
containers currently stored at ATI for POM and ICTSI for MICP, be re-
exported or shipped out within a period of 30 calendar days from date
of the effectivity of this Order at their own expense.

• Empty containers that remain at ATI for POM and ICTSI for MICP after
the expiration of the 30-day period above, shall be pulled out from
their designated areas to be transferred to container yards/depots
outside of the POM and MICP premises. The cost of transferring empty
containers, as well as payment of the attendant storage charges and all
other relevant charges, shall be the sole responsibility of the shipping
lines and/or their agents.
6 | Tax Bulletin
 • In case the empty containers are not re-exported within a period of 90
days from the date of their return, the BOC shall notify the shipping
lines and/or their agents to fill out Informal Entry for Declaration
to be processed in Section 5, Formal Entry Division (FED) for the
computation of the duties and taxes and the subsequent payment
thereof. Failure to file the said entry and to pay the duties and taxes
within the period as provided under the CMTA, shall be the basis for
the BOC to declare the said empty containers as abandoned, and shall
be forfeited in favor of the government.

• This CMO shall take effect immediately upon posting of copies in the bulletin
boards of the BOC with copy furnished to ATI, ICTSI, Philippine Ports Authority
(PPA) and all shipping lines and/or their agents in the Philippines.

(Editor’s Note: CMO No. 13-2019 was received by the UP Law Center on 5 March
2019)

CMO No. 14-2019 provides for CMO No. 14-2019 dated 8 March 2019
the Applicable Exchange Rate for
Assessment Purposes. • This Order aims to establish a uniform application of conversion rates in
harmony with the computerization program of the BOC.

• General Provisions

1. The Exchange Rate officially disseminated to the public by the Bangko

Sentral ng Pilipinas (BSP) each Friday shall be the exchange rate to be
adopted the following day, Saturday and up to Friday of the following week.

2. In the event that there is no officially published exchange rate on a Friday,

the latest rate published by BSP prior to that Friday shall apply.

3. In the computation of duties and taxes, the prevailing exchange rate for the
week on the date of entry lodgment shall be the basis in the computation
of duties and taxes of a particular shipment for Consumption and
Warehousing entries.

4. Foreign currencies shall be converted directly to Philippine Peso.

• This Order hereby repeals CMO Nos. 24-95, 24-95A and 24-95B dated 4
September 1995, 2 January 1998 and 23 June 1998, and CMO Nos. 14-2002
dated 9 March 2002.

• This CMO shall take effect immediately and shall last until revoked.

(Editor’s Note: CMO No. 14-2019 was received by the UP Law Center on 12 March
2019)

CMO No. 15-2019 provides for the CMO No. 15-2019 dated 18 March 2019
Operational Procedures for the
Implementation of the ASEAN e-CO. • This Order shall govern the application, submission and processing of all
Electronic Certificate of Origin (e-CO) pursuant to the Operational Certification
Procedure (OCP) of the ATIGA (or e-ATIGA Form D) using the TradeNet.gov.ph
platform.

• This Order aims to facilitate the transmission of e-CO for export products and
the receipt of e-CO for imported products using available technologies and
international best practices, in compliance with the CMTA.
Tax Bulletin | 7
 • Operational Provisions

1. Creation of User Account and Client Profile. The TradeNet.gov.ph website

shall be used for the application, processing and issuance of e-COs for
export, and utilization of e-COs for imports. To access this, Exporters and
Importers must first create a TradeNet Account and company profile with
their respective Usernames and Passwords. The Exporter or Importer shall
fill in all data fields required in all relevant pages.

2. Guidelines for the application and issuance of e-ATIGA Form D for export
goods

• Pre-Evaluation of Export Product

a. For export products where the origin cannot be easily ascertained

by its nature, the exporter must submit an application for pre-
evaluation of every goods for export.

b. In case of approved application, the Export Coordination Division

(ECD)/Export Division (ED) shall generate and issue a Product
Evaluation Report (PER) containing the list of qualified products
and the bases for such findings. The exporter shall be furnished a
copy of the PER.

c. In case the application does not qualify with the Rules of

Origin (ROO) and OCP of the ATIGA, the ECD/ED shall send a
formal notice to the applicant, stating therein the reason for
not qualifying, without prejudice to the exporter filing a new
application for PER.

• Upload of Product Evaluation Reports (PER) into TradeNet.gov.ph

a. After the duly authorized personnel from ECD/ED completes

the Pre-Evaluation of Export Product, they shall upload the PER
and the List of Pre-Evaluated Goods of each newly approved
application to the TradeNet.gov.ph platform.

• Application and Issuance of Outbound e-CO

a. An exporter or its duly authorized representative may apply for

an e-CO by accessing his/her TradeNet account and filling up all
relevant data fields.

b. For Wholly Obtained or Produced Goods for which no PER is

needed, the Exporter shall encode all information for each and
every item or goods into the relevant data field.

c. For goods which are not Wholly Obtained or Produced Goods, the
Exporter shall input the information only for the goods indicated in
the PER.

d. In cases where the application is disapproved, the Exporter may

file another application for e-CO.

e. In exceptional cases, such as, but not limited to, technical failures,
the Exporter may apply for and be issued a Paper ATIGA Form D in
accordance with the existing laws, rules and regulations.

8 | Tax Bulletin
 • Printing of e-ATIGA Form D

a. Until such time all ASEAN Member States (AMS) start the full
electronic sharing of e-ATIGA Form D via the ASEAN Single
Window (ASW) Gateway, and all technical failures have been
addressed, the Exporter shall download then print the e-ATIGA
Form D, place his or her signature in the appropriate space,
and submit the system-generated ATIGA Form D to the BOC for
manual execution of signature and seal.

b. The BOC shall no longer accept the system-generated ATIGA Form

D once the electronic transmission of e-ATIGA Form D is fully
implemented.

3. Guidelines in the Appreciation and Acceptance of e-ATIGA Form D for

imported goods pending full implementation of e-CO

• A Preferential Rate Unit (PRU) shall be created under the FED or its
equivalent units in all ports with the following functions:

a. Receive e-COs transmitted by the sending AMS to the Philippines

through the ASW Gateway;

b. Evaluate the authenticity of e-COs and Origin Declarations

submitted by importers for availment of preferential tariff rate on
products exported by AMS to Philippines; and

c. Recommend for the acceptance of preferential tariff rate in

accordance with the ROO.

• Pilot Testing on the issuance, acceptance, processing, and utilization of e-ATIGA

Form D using TradeNet.gov.ph shall be conducted in ports and sub-ports after
compliance with technical and functional requirements as provided for in this
CMO.

• Once the Deputy Commissioner, Management Information System and

Technology Group (MISTG) declare the start of full implementation of the
ASEAN e-CO, no outbound and inbound Paper ATIGA Form D shall be processed
or accepted, except for the following exceptions:

1. System downtime exceeding 2 hours.

2. Loss of network connectivity exceeding 2 hours.

3. Other service disruptions duly endorsed for manual processing and

approved by the Deputy Commissioner, MISTG.

• All export products that have been evaluated and with corresponding PERs
issued as of 1 January 2017 shall be uploaded to the TradeNet.gov.ph
platform. Exporters with PERs issued prior to 1 January 2017 must file a new
application for PER.

• PERs shall have a validity period of 5 years. Notwithstanding its validity, the
exporter must apply for a new PER for the same product in cases where the
tariff rate of an export product is affected by the issuance of a new ASEAN
Harmonized Tariff Nomenclature (AHTN).

Tax Bulletin | 9
 • Any Customs personnel found who, without justifiable reasons, delays the
processing and uploading of the PER and the issuance of e-CO under this Order
shall be held liable under existing laws, rules, regulations.

• Any importer or exporter who presents any false or spurious printout of e-CO
shall be subject to administrative or criminal liability pursuant to existing laws,
rules and regulations.

• This Order shall take effect 15 days after its publication in a newspaper of
general circulation.

(Editor’s Note: CMO No. 15-2019 was published in The Manila Times on 21 March
2019)

CMO No. 16-2019 provides for the CMO No. 16-2019 dated March 18, 2019
Guidelines on the Sending of Notice
under Section 1129 (Abandonment, • This Order was issued in compliance with the requirements of sending due
Kinds and Effects) of the CMTA. notice under Section 1129 of the Customs Modernization and Tariff Act (CMTA).
The following rules shall be followed:

1. Service of notice is the act of providing the owner, importer, consignee,

or interested party with a copy of the notice concerned within the specific
period provided for by the law.

2. Manner of Service:

• Electronic notice is through the use of information and communication

technologies.

a. Service is complete upon successful sending of a notice via

internet to the designated e-mail address of the owner, importer,
consignee, or interested party.

• Personal service is made by delivering personally a copy to the owner,

importer, consignee, or interested party, or by leaving it in his/her
office with his/her clerk or with a person having charge thereof.

a. Service is complete upon actual delivery.

• Service by registered mail is made by depositing the copy in the post

office in a sealed envelope, plainly addressed to the owner, importer,
consignee, or interested party at his/her known address with postage
fully prepaid, and with instructions to the postmaster to return the
mail to the sender after 10 days if undelivered.

a. Service is complete upon actual receipt by the owner, importer,

consignee, or interested party, or after 5 days from the date he/
she received the first notice of the postmaster, whichever date is
earlier.

• Failure to comply with the giving of notice under Section 1129 of the CMTA
shall constitute administrative liability against any employee or official of the
BOC and shall consider any action in relation thereto as null and void.

(Editor’s Note: CMO No. 16-2019 was received by the UP Law Center on 27 March
2019)

10 | Tax Bulletin
This Memorandum provides for the Memorandum dated 5 March 2019
Interim Guidelines in the Implementation
of RA No. 11203. • Pending the issuance of the Implementing Rules and Regulations (IRR) of RA
No. 11203 titled, “An Act Liberalizing the Importation, Exportation and Trading
of Rice, Lifting for the Purpose the Quantitative Import Restriction on Rice, And
for Other Purposes”, which took effect on 5 March 2019, the following interim
guidelines shall be implemented:

1. Under RA No. 11203, the National Food Authority (NFA) ceased to exercise
regulatory functions over international and domestic trading of rice. Thus,
all rice importations shall now be processed under the regular customs
cargo clearance procedure.

2. Payment of Advance Customs Duty/Tariff for rice importations is no longer

required.

3. All importers of rice shall secure a Sanitary and Phytosanitary Import

Clearance (SPSIC) from the Bureau of Plant Industry (BPI) prior to
importation. Rice importations should arrive prior to the expiration of the
SPSIC from the BPI.

4. For rice importations originating from the Association of Southeast Asian

Nations (ASEAN) member states, the import duty rate of 35% under the
ASEAN Trade in Goods Agreement (ATIGA) shall apply.

5. For rice importations originating from Non-ASEAN World Trade

Organization (WTO) member states, the out-quota tariff rate of 180% shall
apply.

6. Due to the perishable nature of rice importations and in order to protect

the interest of the government, District Collectors may allow release of
goods pursuant to Sections 403 on Provisional Goods Declaration and 426
on Tentative Assessment of Provisional Goods Declaration of the Customs
Modernization and Tariff Act (CMTA).

(Editor’s Note: This Memorandum was signed by the BOC Commissioner on 5 March
2019)

SEC Opinions and Issuances

SEC-OGC Opinion No. 19-04 dated 4 March 2019

A holding company is not allowed to Facts:

subsequently engage in financing
activities by simply amending the A Co., a holding company, would like to expand its corporate purpose by just simply
primary purpose in its articles of adding “financing activities” to its primary purpose as stated in its Articles of
incorporation. Incorporation.

Issue:

Can A Co. be allowed to engage in financing activities?

Tax Bulletin | 11
 Held:

No. Before a corporation can engage in financing activities, it must secure a

Certificate of Authority to Operate as a Financing Company which shall be issued
by the SEC only if the corporation complies with the requirements of the Finance
Company Act and its implementing rules and regulations (IRR). In this regard, one of
the conditions under the IRR is that a finance company must be “primarily organized
for the purpose of extending credit facilities.” Thus, merely adding the said activities
to the primary purpose of A Co. would effectively make them as secondary purposes
only.

SEC MC. No. 5 provides for the SEC Memorandum Circular No. 5 dated 26 February 2019
guidelines on the implementation of the
ACMF Pass under the ASEAN Capital In order to promote the development of the capital market and at the same time
Market Professional Mobility Framework. protect the interest of the investors, the Philippines has signed the Memorandum
of Understanding on the ASEAN Capital Markets Forum (ACMF) Pass to be
implemented as follows:

• Registered capital market professionals in the Philippines may apply for an

ACMF Pass from a Host Regulator and become a recognized representative in
other signatory countries;

• A capital market professional from other signatory countries may apply for an
ACMF Pass and become a recognized representative in the Philippines if he or
she is:

1. Licensed in his or her home country;

2. Has no pending disciplinary action or has not been censured, fined or

reprimanded by a professional regulatory body; and

3. Has not been convicted by a competent judicial or administrative body

for violation of securities, commodities, banking, real estate or insurance
laws or any offense involving moral turpitude, fraud, embezzlement,
counterfeiting, theft, misappropriation, forgery, bribery, false oath or
perjury;

• The recognized representative may give advice only on shares, bonds, and units
of collective investments scheme including units of real estate investment trust
and units of infrastructure fund;

• The recognized representative shall not be permitted to give advice to investors

by considering investor’s investment objective, financial situation and particular
needs. He or she is likewise prohibited from soliciting for sales of capital market
products;

• The recognized representative must be attached to a licensed firm in the host

jurisdiction/country;

• The ACMF Pass shall be valid only for two years unless earlier revoked or
cancelled by the SEC.

(Editor’s Note: Published in The Manila Bulletin & in The Manila Standard on 19
March 2019)

12 | Tax Bulletin
 BSP Issuances

BSP Circular No. 1033 provides for BSP Circular No. 1033 22 February 2019
the amendments to the Regulations on
Electronic Banking Services and Other • Certain provisions of the Manual of Regulations for Banks (MORB)/ Manual
Electronic Operations. of Regulations for Non-Bank Financial Institutions (MORNBFI) on electronic
banking services and other electronic operations were amended. The
amendments mainly took into account the developments in electronic payment
and financial services (EPFS).

• The following parts, sections and subsections of the MORB/MORNBFI were

amended by this Circular:

Existing Amendment
PART SEVEN. Electronic Operations PART SEVEN. Electronic Payment and
and Other Services Financial Services
Sec. 4701Q Electronic Services Sec. X701/4701Q. Policy Statement
Sec. 4701Q.1 Application Subsec. X701.1/4701Q.1 Definition of
Terms
Sec. 4701Q.2 Pre-screening of Subsec. X701.2/4701Q.2
applicants Classification of EPFS
Sec. 4701Q.3 Approval in principle Subsec. X701.3/4701Q.3 Requirement
for the Grant of Authority to Offer
EPFS
Sec. 4701Q.4 Documentary Subsec. X701.4/4701Q.4 Compliance
Requirements with Relevant Regulations
Sec. 4701Q.5 Conditions for Subsec. X701.5/4701Q.5
Monetary Board approval Enhancements and other Changes in
EPFS
Sec. 4701Q.6 Requirements Subsec. X701.6/4701Q.6 Reportorial
for quasi-banks with pending Requirements
applications
Sec. 4701Q.12 Sanctions Subsec. X701.12/4701Q.12
Enforcement Action

• The abovementioned amendments provide for the following:

1. The definitions of Electronic Payment and Financial Services (EPFS) and

Transaction Account

2. The classification of EPFS for the purpose of authorizing Bangko Sentral

supervised Financial Institutions (BSFIs) to render EPFS

• Basic EPFS

• Advanced EPFS

3. The appropriate license/authority to be obtained by BSFIs that intend to

offer EPFS

Classification Category of License/Authority

Advanced EPFS Type A/B
Basic EPFS Type C

Tax Bulletin | 13
 4. The relevant regulations that must be complied with by a BSFI that has
been granted an advanced EPFS authority

5. The enhancements and other changes in EPFS that require prior Bangko
Sentral approval

6. The reports required to be submitted by BSFIs on their EPFS and the

applicable sanctions for failure to comply with the reportorial requirements

7. The enforcement action for failure to comply with the said provisions.

• This Circular created the following sections:

1. Subsec. 4641S.1/4641P.1/4904T.1/4641N.1. Requirements for the Grant

of Authority to Offer EPFS.

2. Subsec. 4641S.2/4641P.2/4904T.2/4641N.2. Reportorial Requirements.

3. Subsec. 4641S.3/4641P.3/4641N.3/4904T.3. Enforcement Action

4. Section X1207/41207Q/4707S/4707P/4807N. Participation in Automated

Clearing Houses (ACHs). This section requires BSFIs that have been licensed
to offer funds transfer services to make these services interoperable by
participating in an Automated Clearing House (ACH). It also provides for the
guidelines to be observed prior to its participation.

• The following portions of the MORB/MORNBFI were amended by this Circular

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

Section/Subsection/Appendix Existing Phrase New Phrase

Subsection X1205.5/41205Q.5/4705S.5/4 Specific rules applicable to Specific rules applicable to
705P.5/4805N.5 transactions performed under the transactions performed under the
NRPS Framework. The following NRPS Framework. The following
rules shall xxx xxx. rules shall xxx xxx.

a. Minimum requirements to offer a. Minimum requirements to

Electronic Financial and Payment offer Electronic Payment and
Services (EFPS). EFPS, which shall Financial Services (EPFS). EPFS
require Bangko Sentral approval shall require notification to or
in accordance with Section approval by the Bangko Sentral
X701/4701.Q/4641s/4641P/4641N in accordance with Section
of the MORB/MORNBFI, refer to BSFI X701/4701.Q/4641s/4641P/4641N
products and/or services xxx xxx of the MORB/MORNBFI. To offer
through a point of interaction. To EPFS, BSFIs shall conform to the
offer EPFS, BSFIs shall conform to following requirements:
the following requirements:
(1) Xxx xxx
(1) Xxx xxx Xxx xxx
Xxx xxx (4) Xxx xxx
(4) Xxxxxx
b. Xxx xxx
b. Xxx xxx Xxx xxx
Xxx xxx

14 | Tax Bulletin
 Section/Subsection/Appendix Existing Phrase New Phrase
Subsection X266.2.a. of the MORB The bank shall have an electronic The bank shall have an electronic
banking solution to implement its banking solution to implement its
cash agent operations and comply cash agent operations and comply
with the requirements of Part Seven, with the requirements of Part Seven,
on the Guidelines on Electronic on the Guidelines on Electronic
Banking Services and Operations. Payment and Financial Services.
Subsection X780.3 of the MORB Prior Bangko Sentral approval. Prior Bangko Sentral approval.
Banks planning to be an EMI-Bank Banks planning to be an EMI-Bank
shall apply in accordance with Sec. shall apply in accordance with Sec.
X701 relating to the guidelines on X701 relating to the guidelines on
electronic banking services and with electronic payment and financial
Sec. X162 on outsourcing of banking services and with Sec. X162 on
functions, when applicable. outsourcing of banking functions,
when applicable.
Subsection Common provisions. The following Common provisions. In addition to
X780.4/4780Q.4/4642S.4/4642N.4 provisions are applicable to all EMls: the provisions under Subsections
X701.4/4701Q.4 of the MORB/
MORNBFI, EMls shall comply with
the following requirements:
Subsection X183.4 of the MORB; Compliance with relevant Compliance with relevant
Subsection 4183Q.4/4198S.4/4195P.4/41 regulations. Xxx In the event that regulations. Xxx In the event that
83N.4/41177T.4 of the MORNBFI BSFls opt to use social media for BSFIs opt to use social media for
processing financial transactions, processing financial transactions,
the applicable Bangko Sentral the applicable Bangko Sentral
rules and regulations on electronic rules and regulations on electronic
banking/electronic services and payment and financial services and
technology risk management should technology risk management should
likewise be observed to ensure likewise be observed to ensure
security, reliability and authenticity security, reliability and authenticity
of such transactions. of such transactions.
Section 4641S/4641N Electronic Services. The guidelines Electronic Payment and Financial
concerning electronic activities, as Services. The guidelines concerning
may be applicable, are found in Sec. electronic payment and financial
4701Q and its Subsections. services, as may be applicable,
are found in Sec. 4701Q and its
Subsections.
Section 4641P Sec. 4641P (2016 – 4196P) Sec. 4641P (2016 - 4196P)
Electronic Services. The guidelines Electronic Payment and Financial
concerning electronic activities as Services. The guidelines concerning
may be applicable, as found in Sec. electronic payment and financial
4701Q and its Subsections, shall be services as may be applicable,
adopted by pawnshops. as found in Sec. 4701Q and its
Subsections, shall be adopted by
pawnshops.
Section 4904T of the MORNBFI Sec. 4904T Applicable Regulations Sec. 4904T Applicable Regulations
on Trust Corporations. Trust on Trust Corporations. Trust
operations and investment operations and investment
management activities of trust management activities of trust
corporations shall be subject to the corporations shall be subject
applicable regulations in Parts Five to the applicable regulations in
(Foreign Exchange Operations), Parts Five (Foreign Exchange
Six (Treasury and Money Market Operations), Six (Treasury and
Operations), Seven (Electronic Money Market Operations), Seven
Operations and Other Services) (Electronic Payment and Financial
and Eight (Anti-Money Laundering Services), Eight (Anti-Money
Operations) of the MORNBFI, unless Laundering Operations), and Twelve
otherwise provided in this Manual. (Regulations on Payment Systems)
of the MORNBFI Q-regulations,
unless otherwise provided in this
Manual.

Tax Bulletin | 15
 • 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 “EPFSRe-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.

• 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 calendar days after its publication either in the
Official Gazette or in a newspaper of general circulation.

(Editor’s Note: BSP Circular No. 1033, s. 2019 was published in The Manila Bulletin on
1 March 2019)

Circular No. 1034 provides for the BSP Circular No. 1034 dated 15 March 2019
Amendments to the Basel III Framework
on Liquidity Standards – Net Stable • The following amendments provide for the extension of the observation period for
Funding Ratio. the Basel III Framework on Liquidity Standards – Net Stable Funding Ratio (NSFR)
for subsidiary banks /quasi-banks (QBs) of universal and commercial banks (UBs/
KBs).

• Subsection X176.5/4176Q.5 of the Manual of Regulations for Banks (MORB)/

Manual of Regulations for Non-bank Financial Institutions (MORNBFI) is hereby
amended by this Circular to provide for the reporting and monitoring requirements
that the NSFR reports shall be accompanied by a certification under oath to the
effect that a covered bank/QB has fully complied with the NSFR requirement on all
calendar days of the reference period in the form provided under Appendix 74f/Q-
44f.

• The implementation of the minimum NSFR shall be phased in to help ensure that
the covered banks/QBs concerned can meet the standard through reasonable
measures without disrupting credit extension and financial market activities. In
order to facilitate compliance, covered banks/QBs shall undergo an observation
period before the NSFR becomes a minimum requirement. The timelines are set
out in the table below:

Observation Period Minimum LCR

UBs/KBs 01 July 2018 – 31 December 2018 Starting 01 January
2019 – 100%
Subsidiary banks/ 01 July 2018 – 31 December 2019 Starting 01 January
QBs of UBs/KBs 2020 – 100%
Floor of 70% - to be applied in 2019

16 | Tax Bulletin
 • During the observation period, the Bangko Sentral is not precluded from
assessing the compliance of the banks/QBs concerned with the NSFR
requirement. The covered banks/QBs with NSFRs that are already at or near the
prescribed minimum should not view the transition period as an opportunity to
reduce their stable funding profile.

• Subsidiary banks/QBs concerned that have submitted a stable funding plan in

2018 may revise the same, if they deem necessary. The revised stable funding
build-up plan shall be adopted by the concerned bank’s/QB’s Board not later
than 30 calendar days from effectivity of this Circular

• In case of non-submission of, or non-compliance with, the said build-up plan, the
Bangko Sentral may require the covered bank/QB to undertake a set of actions.
The Bangko Sentral may likewise impose enforcement actions as provided under
Subsection X176.20/4176Q.20 of the MORB/MORNBFI.”

• 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. 1034, s. 2019 was published in Business World on
22 March 2019)

Circular No. 1035 provides for the BSP Circular No. 1035 dated 15 March 2019
Amendments to the Basel III Liquidity
Coverage Ratio Framework and Minimum • The following amendments provide for the: (1) extension of the observation
Liquidity Ratio Framework. period of the minimum Basel III Liquidity Coverage Ratio (LCR) requirement to
31 December 2019 for subsidiary banks and quasi-banks (QBs) of universal and
commercial banks (U/KBs), (2) adoption of a seventy percent (70%) LCR floor
for subsidiary banks and QBs during the observation period; (3) amendments
to the LCR framework under Subsections X176.1/4176Q1 to X176.2/4176Q.2
and Appendix 74a/Q-44b of the Manual of Regulations for Banks (MORB)/
Manual of Regulations for Non-bank Financial Institutions (MORNBFI); and
(4) amendments in the formula of the Minimum Liquidity Ratio (MIR) under
Subsection X176.3/4176Q.3 of the MORB/MORNBFI.

• Subsection X176.1/4176Q.1 of the MORB/MORNBFI is hereby amended by this

Circular to provide for the implementation of the minimum LCR to help ensure
that the banks/QBs concerned can meet the standard through reasonable
measures without disrupting credit extension and financial market activities. In
order to facilitate compliance, banks/QBs shall undergo an observation period
before the LCR becomes a minimum requirement. The timelines are set out in
the table below:

Observation Period Minimum LCR

UBs/KBs 01 July 2016 – 31 01 January 2018 Starting 01 January
December 2017 and thereafter – 2019 – 100%
90%
Subsidiary 23 February 2018 – Starting 01 January
Banks and 31 December 2019 2020 – 100%
QBs of UBs/
KBs Floor of 70% - to be
applied in 2019

Tax Bulletin | 17
 • During the observation period, the Bangko Sentral is not precluded from
assessing the compliance of the banks/QBs concerned with the LCR
requirement. Banks/QBs with LCRs that are already at or near the prescribed
minimum should not view the transition period as an opportunity to reduce their
liquidity coverage.

• Subsidiary banks/QBs concerned that have submitted a liquidity build-up plan

in 2018 may revise the same, if they deem necessary. The revised liquidity plan
shall be adopted by the concerned bank’s/QB’s Board not later than 30 calendar
days from effectivity of this Circular.

• In case of non-compliance, the Bangko Sentral may require the bank/QB

concerned to undertake a set of actions. The Bangko Sentral may likewise
impose enforcement actions as provided under Section X176.20/4176Q20 of
the MORB/MORNBFI.

• Subsection X176.2/4176Q.2 of the MORB/MORNBFI is amended to provide

for the LCR disclosure requirements. Covered banks/QBs shall publicly disclose
information related to the LCR in single currency and on solo and consolidated
bases as prescribed under Part Il of Appendix 74a/Appendix Q-44b starting year
2019 for UBs/KBs and year 2020 for subsidiary banks/QBs of UBs/KBs. The
mandatory disclosure requirements in single currency should be included in the
quarterly published balance sheet, as well as in the annual reports or published
financial reports (e.g., the audited financial statements).

• Part I of Appendix 74a of the MORB on the detailed LCR framework, particularly
on the LCR calculation, was amended by this Circular. The total net cash
outflows, which should include interests and installments that are expected to
be received and paid during the LCR period, are calculated as follows:

Total net cash outflows over the next 30 calendar days = Total expected
cash outflows
– Min {total expected cash inflows; 75% of the total expected cash outflows}

• Items 53 to 75 of Appendix 74a of the MORB were renumbered to items 52 to

74.

• The revised regulations under Appendix 74a of the MORB was adopted in
Appendix Q-44b of the MORNBFI and shall apply to QBs concerned.

• Subsection X176.3/4176Q.3 of the MORB/MORNBFI on the Minimum Liquidity

Ratio (MLR) for stand-alone thrift banks, rural banks, cooperative banks and
quasi-banks is also amended by this Circular.

• The amended MLR reporting template for Stand-Alone Thrift Banks, Rural
Banks, Cooperative Banks and QBs was provided in this Circular. The guidelines
governing the mode and manner of submission of the electronic reporting
template shall be covered by a separate issuance.

• 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. 1035, s. 2019 was published in Business World on
22 March 2019)

18 | Tax Bulletin
 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 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.

Tax Bulletin | 19
 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 (THC) for,
surcharges and interest.
among others, deficiency Documentary Stamp Tax (DST) on intercompany loans.
THC paid the basic DST not only for 2009 (the year covered by the Letter of
The conduct by the revenue officers of
Authority), but also for 2000, 2006, 2007 and 2008. However, it requested the BIR
a tax examination on years which were
to waive the surcharge and interest as the late payment of DST was due to difficulty
not covered by the LOA justifies the
in 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.

20 | Tax Bulletin
 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 for 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.

Tax Bulletin | 21
 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 to 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 Norther 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 4 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 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.

22 | Tax Bulletin
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 exceed 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 4 persons; and,

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

Tax Bulletin | 23
SGV | Assurance | Tax | Transactions | Advisory

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24 | Tax Bulletin