Tax brief

July 2017

Punongbayan & Araullo (P&A) is the Philippine member

firm of Grant Thornton International Ltd.
BIR ISSUANCES
RMO 42 & BIR Form 2305 for claiming PWDs as dependents
43-2017
RMC 45- 2017 Condonation of RPT of IPP facilities
RMC 48-2017 IRR on positions reserved for PWDs

BIR RULINGS
BIR Ruling 268 Importation of cargo vessels for LPG transport/hauling services is VAT-exempt
& 269 - 2017

SEC OPINIONS
SEC-OGC Nationality requirement for an online English tutorial and driving school
No. 17-05

CTA DECISIONS
CTA EB No. 1415 Validity of waiver cannot be questioned if both parties are in pari delicto
CTA Case No. Documentation of input VAT from prior periods in a claim for VAT refund
8859
CTA AC No. 152 Dividends and income from money market placements from government owned
shares not subject to LBT
CTA No. 8710 Reckoning the prescription period to collect deficiency taxes
CTA EB No. 8965 Refunding erroneously withheld taxes on income derived by foreign government
CTA No. 8818 Approval of request for reinvestigation suspends the 5-year prescription period
for collection
CTA No. 8372 Determination of prescriptive period for collection
CTA Crim. Proof of receipt of tax assessment required to prove willful non-payment
Case No. 0-394
CTA EB Nos. Corporate personality is distinct from its owners
1428 & 1439

 BIR Issuances
BIR Form 2305 for claiming PWDs as 5. Medical Certificate attesting to Local governments have taken the
dependents disability issued in accordance with the position that IPPs are not entitled to the
IRR of RA 10754; and real property tax exemption privilege of
(Revenue Memorandum Circular Nos. 42 6. Brgy. Certificate attesting to the fact GOCCs. These LGUs have assessed the
and 43-2017, June 14, 2017) that the PWD is living with the benefactor. IPPS for deficiency RPT and threatened
> BIR Issuances enforcement actions such as public
BIR has issued a new version of Form Employers shall ascertain if the claimed auction of the properties. It was noted
> BIR Rulings 2305 to accommodate the declaration PWD qualifies as an additional dependent that substantial part of the RPT being
> SEC Opinions of persons with disability (PWD) as by satisfying the following conditions, charged against affected IPPS have
dependents. The new version provides regardless of age: been contractually assumed by NPC,
> CTA Decisions for the columns for claiming of a PWD 1. Filipino citizen; PSALM and other GOCCs. EO No. 19
as dependent to entitle the taxpayer to 2. Within 4th civil degree of consanguinity seeks to address this concern on GOCC’s
> Highlight on the additional exemption pursuant to RA or affinity to the taxpayer/benefactor; contractual assumption of the IPP’s tax
P&A Grant No. 10754 (An Act Expanding the Benefits 3. Not gainfully employed; and liabilities which has a negative impact
Thornton and Privileges of PWD). The name and 4. Chiefly dependent upon and living with on their financial stability, government’s
services birthdate of the qualified dependent shall the taxpayer/benefactor. fiscal consolidation efforts and energy
be encoded in Part III of the revised form. prices.
It is also important to tick the “Mark if The maximum number of qualified
PWD/Mentally/Physically Incapacitated” dependents remains at four (4). Under the EO, RPT and any special levies
box and indicate the PWD Identification accruing to the Special Education Fund for
Number. Condonation of RPT of IPP facilities 2015 and 2016 on the property, machinery
and equipment used by IPPs for electricity
To claim the PWD as dependent, the (Revenue Memorandum Circular No. 45- production are reduced. Instead of the
following documents shall be submitted by 2017, June 20, 2017) assessment levels provided under the Local
the employees to their employers, for the Government Code of 1991, computation
first year of claiming the exemption and BIR has circularized the full text of is based on an assessment level of 15% of
three years thereafter or upon renewal of Executive Order No. 19, Reduction and the fair market value (FMV) of property,
the PWD ID whichever comes first: Condonation of Real Property Taxes machinery and equipment depreciated
1. Duly accomplished BIR form No. 2305; (RPT) and Interests/Penalties assessed at 2% per annum less any amount paid
2. Photocopy of PWD Identification Card on the Power Generation Facilities of by IPPs. Furthermore, all interests on
issued by the PDAO or the C/MSWDO of Independent Power Producers (IPP) under deficiency RPT liabilities are condoned.
the place where the PWD resides or the Build Operate Transfer (BOT) Contracts
NCDA; with Government-Owned and Controlled RPT payments in excess of the reduced
3. Sworn Declaration/ Identification of Corporations (GOCC). This is pursuant to amount for 2015 and 2016 will be applied
Qualified Dependent PWD, Support and Sec. 277 of RA No. 7160 which vests power to the succeeding years.
Relationship; on the President to condone or reduce RPT
4. Birth Certificate of PWD; and interest for any year. IPPs which are not GOCCs are not
entitled to the abovementioned privileges.

Tax brief – July 2017 3

 BIR Issuances
IRR on positions reserved for PWDs to the PWD employees. To qualify for the
incentive, the company should secure a
(Revenue Memorandum Circular No. 48- DOLE certification on its employment of
2017, June 30, 2017) the PWD and retain proof that PWD is
accredited by DOH and DOLE as to his
> BIR Issuances BIR circularized the IRR of RA No. 10524, an skills, qualification and disability.
Act Expanding the Positions Reserved for
> BIR Rulings Persons with Disability (PWD), amending Private entities shall also be entitled
> SEC Opinions RA No. 7277, Magna Carta for PWDs. to an additional deduction from net
income equivalent to 50% of direct
> CTA Decisions Hereunder are the salient provisions: cost of improvement or modification to
1. Employment of PWDs physical facilities to provide reasonable
> Highlight on accommodation to PWDs. However,
P&A Grant All qualified PWDs should be given equal this does not apply to improvements of
Thornton opportunity in the selection process and facilities under BP Blg. 344.
services suitable employment and with the same
terms and conditions of employment, A simplified system for providing tax
benefits and compensation as the non- incentives to private entities will be
PWD employee; developed by DOLE, DOH, NCDA and
the National Anti-Poverty Commission –
All government agencies should reserve Persons with Disability Sectoral Council
at least 1% of their regular and non- (NAPC-PWDSC).
regular positions available to PWDs.
Private corporations with more than 100 3. The IRR will be effective 15 days
employees are encouraged to do the after complete publication in 2 national
same. In the determination of the fitness newspapers.
of the PWD, qualification standards
established for the positions should apply
to all PWD applicants as well as labor laws
governing employment in both government
and private entities.

2. Incentives for Private Corporations

Private entities employing PWDs shall

be entitled to additional deduction from
gross income equivalent to 25% of the
total amount paid as salaries and wages

Tax brief – July 2017 4

 BIR Rulings
Importation of cargo vessels for LPG
transport/hauling services is VAT
exempt

(BIR Ruling Nos. 268 and 269-2017, June

> BIR Issuances 5, 2017)

> BIR Rulings Section 109 (1) (T) of the 1997 Tax
Code, as amended, provides that sale,
> SEC Opinions
importation or lease of passenger or
> CTA Decisions cargo vessels and aircraft, including
engine, equipment and international
> Highlight on transport operations shall be exempt
P&A Grant from the value-added tax.
Thornton
services In relation to the above-cited provision,
Section 4.109-1 (B) (1) (t) of RR No. 16-
2005 as amended by RR No. 15-2015,
provides that VAT exemption for these
importations shall be subject to the
strict compliance of the conditions
contained in the letter of approval
issued by Maritime Industry Authority
(MARINA) for the importation of the
vessel.

In the case at bar, the vessel is newly

imported and is backed up with an
authority to import issued by MARINA.
Hence, it is assumed that the vessel
complies with the conditions imposed
by MARINA.

Tax brief – July 2017 5

 SEC Opinions
Nationality requirement for an online technical vocational education, hence,
English tutorial and diving school under the jurisdiction of TESDA. It follows
that, being an educational institution, it
(SEC-OGC Opinion No. 17-05, June 8, must comply with the 60%-40% Filipino-
2017) foreign ownership requirement, subject to
> BIR Issuances limitation and exceptions prescribed by
Educational institutions are subject to the law.
> BIR Rulings 40% foreign ownership requirement under
> SEC Opinions the Constitution. There are, however, The rule also applies if the school provides
exceptions such as in the case of schools diving lessons, and regardless of whether
> CTA Decisions established by religious orders and the students are Filipinos or foreigners, or
mission boards, and those established for whether the courses are conducted online
> Highlight on foreign diplomatic personnel and their or within a regular classroom atmosphere.
P&A Grant dependents and for other temporary
Thornton residents.
services
The entity subject of the opinion is a
domestic corporation catering purely
to foreign clients abroad who wish to
enhance their English language skills
through informal on-line tutorial class
instruction.

Based on previous SEC opinions, learning

the English language is considered a
skill proficiency to which a diploma or
certificate can be issued by the school.
As such, the school can be considered as
engaged in formal technical-vocational
education or training activities, hence,
under the jurisdiction of TESDA.

Applied to the case of the company

offering online courses, if the school
shall issue any Certificate of Training
or Diploma for Program Completion to
their successful on line students, it will
be considered as engaged in formal

Tax brief – July 2017 6

 CTA Decisions
Validity of waiver cannot be questioned governing waivers, did not raise the issue official receipts can result to a denial of the
if both parties are in pari delicto on the defect and proceeded to issue an claim for refund of input VAT from current
assessment. Considering that a waiver of period.
(Hon. Commissioner Kim S. Jacinto-Henares, statute of limitations is, in law and in fact,
Hon. Ricardo B. Espiritu, Revenue District a bilateral agreement between the CIR Tax refunds/credits are construed strictly
> BIR Issuances
Officer, RDO 50 v. IP Contact Center and the taxpayer, both of them should thus against the taxpayer. Tax refunds are in
> BIR Rulings Outsourcing, Inc., CTA EB No. 1415 re: CTA be held responsible in ensuring that their the nature of tax exemptions, hence the
Case No. 8537, June 5, 2017) agreement faithfully complies with the law. taxpayer has the burden of proof through
> SEC Opinions
Failing which, they should both suffer the submission of evidence that he has
> CTA Decisions A waiver of the statute of limitations must be consequences. complied with the requirements in the NIRC
carefully and strictly construed considering and revenue regulations.
> Highlight on
that it is a derogation of the taxpayer’s Documentation of input VAT from prior
P&A Grant
right to security against prolonged and periods in a claim for VAT refund Dividends and income from money
Thornton
scrupulous investigations. Hence, it should market placements from government
services
strictly follow the format and requisites as (BJ Well Services Company (Philippines), owned shares not subject to LBT
prescribed in BIR issuances. Inc. v. Commissioner of Internal Revenue,
CTA Case No. 8859, June 5, 2017) (Toda Holdings Inc. v. City of Davao and
However, if both the BIR and the taxpayer Hon. Rodrigo S. Riola, in his official capacity
did not challenge the waiver’s defect in In order to prove that the taxpayer applying as the City Treasurer of Davao City, CTA AC
order to pursue their own interest, they are for refund has excess unutilized input VAT No. 152, June 14, 2017)
already estopped from raising the issue of in the current year, it must also prove the
the waiver’s defect. validity of its excess input VAT from prior Section 133 (o) of the Local Government
periods which were carried forward and Code (LGC) limits the taxing powers of
In this case, the first waiver was issued utilized as credit against current output VAT. local government units (LGUs). No local
beyond the prescription period. The Hence, in a claim for refund, it is important business taxes (LBTs) shall be imposed on
Court, however, noted that, by virtue of for the taxpayer to prove that it has enough taxes, fees or charges of any kind on the
the waiver, the taxpayer was given time to prior year’s excess input tax credits which National Government, its agencies and
submit additional documents and argue are valid to cover its output tax liability. instrumentalities, and LGUs.
its case. It was also able to defer payment Pursuant to Section 110 (A) (1) and (B), input
of the assessed taxes. Yet, the taxpayer tax is creditable against the output tax if In this case, the LBT was imposed on the
challenged the validity when the effect is it is evidenced by a VAT invoice or official dividends and money market placement
not in its favor. The BIR, on the other hand, receipt. Failure to support prior year’s input earnings from the dividends derived from
despite having knowledge of the rules VAT with the corresponding invoices and the San Miguel Corporation (SMC) shares.

Tax brief – July 2017 7

 CTA Decisions
Since the SMC shares are owned by within 3 years after last day prescribed Refunding erroneously withheld taxes on
the government, any earnings of the by law for the filing of the return. Further, income derived by foreign government
SMC shares therefore belong to the Section 223 provides that the BIR has 3
government. Any local tax imposed on years after issuance of the assessment (GIC Private Limited v. Commissioner of
SMC, is deemed imposed on the national within which to collect tax by distraint or Internal Revenue, CTA Case No. 8965, June
> BIR Issuances
government. levy or by a proceeding in court. 22, 2017)
> BIR Rulings
This is clearly in violation of Section 133 In the case at bar, the taxpayer was issued Under Sec. 32(B)(7)(a) of the NIRC,
> SEC Opinions
(o) of the LGC. Hence, the erroneously an assessment which it protested. The BIR investment income of the following are
> CTA Decisions paid local business tax must be refunded. approved the request for reinvestigation excluded from gross income and exempted
> Highlight on but subsequently issued a Collection Letter from tax:
Reckoning the prescription period to for the deficiency taxes. The Collection • foreign governments;
P&A Grant
collect deficiency taxes letter can be constituted as the final • financing institutions controlled, owned
Thornton
decision of the BIR on the protest/request or enjoying refinancing from foreign
services
(Island Quarry and Aggregates for reinvestigation. Hence, the three- governments or
Corporation v. Commissioner of Internal year-period to collect the deficiency tax • international or regional financial
Revenue, CTA Case No. 8710, June 19, assessments should be counted from this institutions established by foreign
2017) date. Two years after issuing the collection governments.
letter, the BIR issued a Warrant of Distraint
A Final Assessment Notice and Formal and Levy (WDL). A Final Notice Before Pursuant to the above provision, the
Letters of Demand were received by the Seizure (FNBS) was later issued but beyond Company, as a financial institution wholly-
petitioner, finding it liable for deficiency the 3-years from the date of the Collection owned and controlled by the Government of
income tax, VAT, withholding tax on Letter. Singapore, is exempt from payment of the
compensation for TY 1995, 1996 and 1997. 20% final withholding tax (FWT) on income
The issue at hand is whether the BIR’s The CTA ruled that prescription has already derived from investments in Philippine
right to collect the deficiency taxes are set in. The period to collect had already T-Bonds. Consequently, the income tax
already barred by prescription. prescribed as more than 3 years had collected was erroneously collected and the
passed from the date of the issuance of refund was granted.
The CTA decided that assessment for the the final decision (deemed the date of the
years 1995, 1996 and 1997 shall still be Collection Letter), barring the BIR from To prove its entitlement to and the amount
governed by the 1977 Tax Code. Pursuant collection of the said taxes. of refund due, the Company submitted the
to Section 203 of the 1977 Tax Code, following to the CTA:
internal revenue taxes are to be assessed

Tax brief – July 2017 8

 CTA Decisions
1. Confirmations of Sale/Trade Pursuant to Sec. 222 (c) of the NIRC, the Determination of prescriptive period
Confirmations44 and relevant Bond BIR is given 5 years following the tax for collection
Exchange Offer issued by various banks as assessment to collect internal revenue tax
proof of its Philippine T-Bond holdings by distraint or levy or by proceeding in (Acer Philippines, Inc. v. Commissioner of
court. The Supreme Court held that the Internal Revenue, CTA Case No. 8372, June
> BIR Issuances
2. Entitlement Report and Swift MT566 period for collection begins to run on the 23, 2017)
> BIR Rulings Confirmation Advices issued by its date the assessment has been released,
custodian to show the amount of interest mailed or sent to the taxpayer. However, Section 203 of the NIRC provides that tax
> SEC Opinions
income earned and final tax withheld Sec. 223 provides that the running of the should be assessed within 3 years from
> CTA Decisions statute of limitations will be interrupted filing of return or the last day prescribed
3. To prove the withholding and remittance once the Commissioner grants the by law for filing of return, whichever is
> Highlight on
of the taxes, Bureau of Treasury’s (BTR) taxpayer’s request for reinvestigation. later. Thereafter, the BIR has 5 years within
P&A Grant
Statements of Taxes Withheld on the The Supreme Court has clarified that which to enforce collection of the tax
Thornton
Coupon Due on the T-Bond Holdings of request for reinvestigation alone will not assessed.
services
Custodian and Journal Entry Vouchers suspend the statute of limitations. Clearly,
(JEVs) covering the remittance of the FWTs two things must concur: there must be a In this case, no warrant of distraint and/
to the BIR; Certificates of Final Tax Withheld request for reinvestigation and the CIR or levy has been served upon the taxpayer
(BIR Forms No. 2306) issued by the BTR in must have granted it. nor any judicial proceedings has been
favor of Citibank ; BIR Revenue Accounting initiated by the BIR. However, when the
Division (RAD) Certification No. RAD-15- 06- In this case, the taxpayer filed a letter taxpayer protested the assessment at the
139-Cert. confirming receipt of the FWTs on disputing the final assessment and CTA, the BIR was able to incorporate in
the Bureau of Treasury’s coupon payments submitting explanations and supporting its answer a prayer for the payment of
to Custodian Account. documents to show that the assessment the tax deficiency before the lapse of the
has no basis in fact. This was considered prescriptive period.
Approval of request for reinvestigation a request for reinvestigation by the BIR
suspends the 5-year prescription and approval was signified through the The CTA ruled that BIR’s answer with
period for collection issuance of a Tax Verification Notice. demand for tax payment before the court
should suffice to toll the running of the
(Prime Steel Mill, Incorporated v. Hence, the 5-year period to collect cannot prescriptive period to collect, even without
Commissioner of Internal Revenue, CTA be reckoned from the date of the FAN. issuing a Warrant of Distraint and/or Levy
Case No. 8818, June 21, 2017) or initiating judicial proceedings.

Tax brief – July 2017 9

 CTA Decisions
Proof of receipt of tax assessment properties found of the Company. Corporate personality is distinct from its
required to prove willful non-payment owners
Hence, judicial proceedings were initiated, a
(People of the Philippines v. Neil S. criminal case was filed. (The City of Makati and the City Treasurer
Bautista and Cecilia V. Aquino, CTA of Makati City v. Cityland, Inc., CTA EB No.
> BIR Issuances
Crim. Case No. 0-394, June 28, 2017) However, the accused denied receipt of the 1428, Cityland, Inc. v. The City of Makati
> BIR Rulings assessment notices. and the City Treasurer of Makati City, CTA
Criminal charges were filed against the EB No. 1439, June 28, 2017)
> SEC Opinions
partners/co-owners of a company for The CTA cited provisions of the Tax Code
> CTA Decisions failure to pay the deficiency taxes from which requires among others that, to be Sec. 129 of the Local Government Code
an assessment which has become final liable for the alleged crime, the accused (LGC) of 1991 vests LGUs with the power to
> Highlight on
and executory. should have willfully failed to pay the create their own sources of revenue and
P&A Grant
Thornton corporate taxes. Willfulness is a state of levy taxes, fees and charges.
According to the BIR, the Company did mind and it is imperative for the court to
services
not submit the required accounting carefully determine whether the failure to The City of Makati reclassified the
records requested under the LOA. Hence, pay the tax was willful or just due to non- Company as a real estate developer from
deficiency taxes were assessed based receipt of notice of assessment. Should its registration as real estate dealer, and
on the best evidence obtainable. A Post the taxpayer deny having received an subjected it to a higher local business tax.
Reporting Notice (PRN), Preliminary assessment, the burden of proof lies upon Pursuant to Sec. 3A.02(m) of the revised
Assessment Notice (PAN) and Final the BIR to prove by contrary evidence that Makati Revenue Code, local business tax
Assessment Notice (FAN) were issued and the taxpayer received the assessment in the shall be imposed on owners or operators of
sent by registered mail, which were never due course of mail. real estate developer.
refuted by the taxpayer.
To prove the fact of mailing, it is essential The provision of the Makati Revenue Code is
Since the assessment became final and to present the Registry Return Notices. clear that the tax is imposed on the “owners
executory, collection proceedings were However, the latter showed that the one or operators”. While the Company can be
initiated. Preliminary Collection Letter who received the PAN, FAN and FLD is considered a real estate developer, it is not,
and Final Notice Before Seizure were neither the accused nor the duly authorized however, the owner or operator of the real
served but the two owners cannot be representative of the partnership. Hence, estate developer. Sec. 131(s) of the LGC
found. A Warrant of Distraint and Levy without any proof of receipt, the element of includes in the definition of operator, the
was subsequently prepared and served willfulness cannot be proven. The guilt of owner, manager, administrator or any other
and was received by one of the two the accused has not been proven beyond person who operates or is responsible for
owners. However, there were no reasonable doubt. the operation of a business establishment.

Tax brief – July 2017 10

 CTA Decisions
However, City of Makati failed to establish
that the Company is an operator of real
estate developer. Hence, the subject
provision in the Makati Revenue Code is
inapplicable.
> BIR Issuances
> BIR Rulings On the contrary, Sec. 3A.02(m) of the
Revised Makati Revenue Code is in
> SEC Opinions
violation of Sec. 146 of the LGC which
> CTA Decisions provides that “the tax on a business must
be paid by the person conducting the
> Highlight on
same”. A corporation has a separate
P&A Grant
and distinct personality apart from
Thornton
its directors, officers or owners; mere
services
ownership by a single stockholder or by
another corporation of all or nearly all
of capital stock is not sufficient ground
for disregarding the separate corporate
personality. The Court, however, noted
that it does not have the power to delete
the “owners and operators” clause
because such authority belongs to the
Sangguniang Panglungsod ng Makati.

Tax brief – July 2017 11

 Highlight on P&A Grant Thornton services
CTA litigation support
> BIR Issuance
To avoid prolonged trials, we offer independent verification of
> BIR Ruling financial and other pertinent documents that are presented as
> SEC Opinion evidence in tax cases/disputes or claims for refund before the Court
> CTA Decision of Tax Appeals (CTA). This involves an evaluation of the completeness
> Highlight on and validity of the documents and the correctness of the claims
P&A Grant involved or other representations made by the taxpayer based on
Thornton the requirements provided under applicable laws and regulations.
services

If you would like to know more about our services

Edward D. Roguel
Partner
Tax Advisory and Compliance
T +63 2 988 2255
E [email protected]

12
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pronouncements, laws, especially on taxation, and official
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touch with us if you have any comments and if it would help
you to have the full text of the materials in the Tax brief.

Lina Figueroa
Principal, Tax Advisory and Compliance Division
T +632 988-2288 ext. 520
E [email protected]

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