INSIGHTS is a monthly publication of BDB LAW to inform, update and provide perspectives to our clients and readers on significant tax-related court decisions and regulatory issuances (includes BIR, SEC, BSP and various government agencies).

DISCLAIMER: The contents of this Insights are summaries of selected issuances from various government agencies, Court decisions and articles written by our experts. They are intended for guidance only and as such should not be regarded as a substitute for professional advice.

Copyright © 2019 by Du-Baladad and Associates (BDB Law). All rights reserved. No part of this issue covered by this copyright may be produced and/or used in any form or by any means – graphic, electronic and mechanical without the written permission of the publisher.

Unavailability of the eFPS requires Taxpayers to manually file and pay on or before the tax due dates in order not to incur penalties and surcharges due to late filing.

Taxpayer was required to pay for penalties and surcharges by BIR because of its two-day late filing of its annual income tax return. The Taxpayer posits that the delay was beyond its control and due to the downtime, glitch and unavailability of eFPS. Moreover, it asserts that it followed the procedure laid down by RMC No. 20-2015 which provides for alternative steps to protect the taxpayer from the assessment of penalties. On the other hand, BIR posits that the claim has no factual and legal basis because the law sanctions the penalties for late payment of taxes.

CTA has held that RMC No. 20-2015 is not applicable to taxpayers filing BIR Form No. 1702RT; and the applicable issuance is RMC No. 14-2015. The latter RMC provides for the alternative procedure in case the ITR is not submitted via eFPS, which is to manually file the ITR and pay to Authorized Agent Banks (AAB)/Collection Agents (CA), in the RDO where it is registered. Then it should also file on or before the due dates of the respective returns and attach the proof of unsuccessful eFPS attempts, then RE-FILE ELECTRONICALLY within fifteen (15) days after the statutory deadline.

Hence, the imposition of penalties and surcharges was properly made by BIR, and the Taxpayer is not entitled to the claim of refund. (BAP Credit Bureau, Inc. v. Commissioner of Internal Revenue CTA Case No. 9570, April 8, 2019)

Suppliers’ erroneous shifting of input VAT to Renewable Energy (RE) developers entitle the latter to reimbursement from the former, and not from the government.

Taxpayer filed an administrative claim from BIR for its alleged unutilized input VAT for the third quarter of 2012. Taxpayer based its claim on R.A. No. 9513, which provides tax incentives to encourage private investments in renewable energy (RE) projects by granting VAT zero-rating to their purchases of domestic goods, property of goods necessary for the development, construction or installation of its plant facilities. BIR did not respond to the administrative claim, which led its elevation to CTA Division. Nevertheless, CTA Division denied the claim for lack of merit.

CTA En Banc has held that the above-mentioned law not only entitle RE developers to VAT zero-rating of its output VAT, but also on its input VAT on purchases. In the case of Coral Bay Nickel Corporation v. CIR, RE developers should not pay any input VAT on its purchases from its suppliers; any amount of input VAT paid by RE developers can be reimbursed from the supplier due to mistake, and not from the government.

Here, the transactions paid by Taxpayer from the suppliers include the shifting of input VAT. Therefore, the Taxpayer must ask for reimbursement from its suppliers in proportion to its erroneous payment of input VAT, and not from BIR. (Hedcor, Inc. v. Commissioner of Internal Revenue CTA EB No. 1761, April 8, 2019)

Note: Justice Manahan in her Dissenting Opinion stated that the claim for refund of excess and unutilized input VAT is governed by Section 112 of the 1997 NIRC, as amended, and to require the Taxpayer to seek refund from its suppliers instead from the government which possibly received such payments is tantamount to imposing new conditions or norms for claims for refund as provided in the above-mentioned Section, instead of merely interpreting its provisions. (Hedcor, Inc. v. Commissioner of Internal Revenue CTA EB No. 1761, April 8, 2019)

Confirmation Letter from PEZA or SBMA is sufficient to prove customers’ coverage within the VAT Zero Rating under such respective laws.

The Court of Tax Appeals, in relation to Section 112 of NIRC, laid down the requisites that must be satisfied, to wit:

1. that the taxpayer is VAT-registered;
2. that the claim for refund was filed within the prescriptive period;
3. that there must be zero-rated or effectively zero-rated sales;
4. that input taxes were incurred or paid;
5. that such input taxes are attributable to zero-rated or effectively zero-rated sales; and
6. that the input taxes were not applied against any output VAT liability.

First, Taxpayer is a VAT-registered entity as evidenced by its TIN and COR. Second, CTA held that the Petition was filed on time. Third, the existence of sales to PEZA and SBMA registered corporation through a Confirmation Letter from PEZA or SBMA proves the existence of VAT Zero-rated sales. And fourth, fifth and sixth, input taxes were incurred and paid as evidenced by certified true copies of sales invoices for purchases of goods, and BOC Import Entry and Internal Revenue Declarations with confirmation receipts evidencing payment of VAT for imported goods. Moreover, the input taxes claimed were attributable to zero-rated sales of Taxpayer and not applied to its output taxes.

Therefore, Taxpayer is entitled to its claim for VAT refund for its zero-rated transactions that complied with the above-discussed requisites. (Colt Commercial, Inc. v. Commissioner of Internal Revenue CTA Case No. 9340, April 10, 2019)

Tax refunds are in the nature of tax exemptions and must be construed strictissimi juris against the person or entity claiming the refund.

The taxpayer filed with the BIR an administrative claim for refund of or issuance of a tax credit certificate for its alleged excess and unutilized Creditable Withholding Tax (CWT) for the year 2013. The BIR argued that the burden of proof is on the taxpayer who is charged with the heavy burden of proving that he has complied with and satisfied all the statutory and administrative requirements to be entitled to the tax refund.

The Court held that the taxpayer must comply with the three basic requisites for refund of excess CWT, to wit:

1. The claim for refund must be filed within the two-year prescriptive period as provided under Sections 204(C) and 229 of the Tax Code, as amended;
2. The fact of withholding must be established by a copy of a statement duly issued by the payor (withholding agent) to the payee, showing the amount paid and the amount of tax withheld therefrom; and
3. The income upon which the taxes were withheld must be included in the return of the recipient.

The Court held that the taxpayer’s properly substantiated CWT for CY 2013 is a lot higher than the tax credits, thus, there is no excess CWT available for refund. The court stressed that the taxpayer has the burden of proof to establish the factual basis of his or her claim for tax credit or refund. Tax refunds are in the nature of tax exemptions. As such, they are regarded as in derogation of sovereign authority and to be construed strictissimi juris against the person or entity claiming the refund. (Tullett Prebon (Philippines), Inc. v. Commissioner of Internal Revenue, CTA Case No. 9320, April 12, 2019)

The fifteen-day period granted to the taxpayer to reply to the PAN before a FAN can be issued is mandatory.

The taxpayer states that the FAN was issued prior to the lapse of the fifteen (15) day period granted by law to respond to the PAN. Thus, the taxpayer argues that the FAN was issued in violation of the due process requirement, thereby rendering the FAN void. Petitioner further argues the fact that the BIR already prepared, finalized and issued the FAN prior to the lapse of the reglementary period proves that the BIR could not have considered the taxpayer’s reply to the PAN when it issued the FAN.

The BIR, on the other hand, contends that it has substantially complied with the requirements under RR 12-99 when it issued the FAN sixteen (16) days after issuance of the PAN to the petitioner. The BIR also argues that a protest against the PAN is not indispensable, and the fact of non-protest of the PAN will not render the PAN final and executory.

The CTA noted that the fifteen-day period granted to the taxpayer to reply to the PAN before a FAN can be issued is mandatory. Time is essential in this entire procedure of administrative protest because any escalation in the levels of the protest, i.e., FLD/FAN, leaves the taxpayer with fewer options, such as going to the Court of Tax Appeals on appeal or entering into a compromise settlement, among others, which all entail financial costs to the taxpayer. Hence, the period granted to assail the PAN is integral to the right of due process granted by law to the taxpayer. (Monza SPV-AMC ("Asset Management Co.), Inc. v. Commissioner of Internal Revenue, CTA Case No. 9153, April 15, 2019)

Section 40(C)(2)(a) in relation to 40(C)(6)(b) of the NIRC does not require prior BIR ruling validating an exchange transaction as tax-free.

The BIR assessed the taxpayer for deficiency income tax, VAT and DST for the transfer of assets of taxpayer to Fortune Tobacco Corporation (FTC) in exchange for the latter’s shares. The BIR contends that the provisions of RR No. 18-2001 are mandatory preconditions for a taxpayer to avail of the benefits of Section 40(C)(2) of the NIRC, as amended. Specifically, a request for ruling on such matter, plus a BIR Certification/Ruling affirming the transaction as a tax-free exchange must be appended to requesting party's audited financial statement and income tax returns during the year of exchange must first be complied with.

The court ruled that nowhere in Section 40(C)(2)(a) in relation to 40(C)(6)(b) of the NIRC, as amended, that requires a prior BIR ruling validating an exchange transaction as tax-free before respondent may reap the benefits of the foregoing provisions. The statute only requires a corporation to exchange all or substantially all of its property for shares of stock of another corporation under a legitimate business objective.

Neither RR No. 18-2001 mandates a tax certification or ruling confirming the exchange as being absolved from tax as a prerequisite for the enjoyment of the benefit conferred under Section 40(C)(2) of the NIRC, as amended. It merely serves as a guide for the BIR to track the basis of a property and/or shares of stock received through an exchange transaction contemplated by the foregoing provision in the event of subsequent disposition thereof. (Commissioner of Internal Revenue vs. Premium Tobacco Redrying & Fluecuring Corporation, CTA EB No. 1755, (CTA Case No. 8897), April 22, 2019)

Subsequent submission of supporting documents made by a taxpayer will not move the commencement of the 120-day period.

Taxpayer filed a petition for review on the decision of the court division granting the Motion to Dismiss, on the ground that the court division has no jurisdiction over the case since the judicial claim for refund or tax credit was belatedly filed by taxpayer. The taxpayer contends that the BIR requested additional documents in support of the administrative claim which extended the period to file judicial claim.

The Court ruled that under RMC No. 54-2014, the reckoning of the 120-day period has been withdrawn from the taxpayer, since it requires him at the time of filing of the claim to complete the supporting documents and to attest that he will no longer submit any other document to prove the claim; and that the taxpayer is barred from submitting additional documents after filing the administrative claim. The fact that CIR, instead of deciding on the taxpayer claim, asked for additional documents is immaterial. Any subsequent submission of supporting documents made by taxpayer will not move the commencement of the 120-day period. (Asurion Hong Kong Limited-ROHQ vs. Commissioner of Internal Revenue, CTA EB No. 1736 (CTA Case No. 9593), April 29, 2019)

Absent the COC from the ERC, petitioner cannot qualify for VAT zero-rating under the EPIRA law.

Taxpayer appealed the decision of the court division denying the claim for refund of the alleged unutilized input value-added tax (VAT) on purchases of goods and services for the fourth quarter of calendar year 2007.

The Court ruled that pursuant to the EPIRA law and its implementing rules, there is a need for a company to secure a Certificate of Compliance (COC) from the Energy Regulatory Commission (ERC) in order to be registered as a generation company and to be able to engage in the generation of electricity. Once considered as a generation company under the EPIRA law, the sales of generated power by such generation company shall be VAT zero-rated. Failure to present a COC before the Courts is fatal to a taxpayer's claim.

In the present case petitioner did not present the COC from the ERC. Accordingly, absent the COC from the ERC, petitioner cannot qualify for VAT zero-rating under the EPIRA law. (Hedcor Sibulan, Inc., vs. Commissioner of Internal Revenue, CTA EB No. 1751 (CTA Case 8014), April 29, 2019)

A holding company cannot be classified as a "bank or other financial institution" and be subject to Local Business Tax.

The City Treasurer's Office of Makati City classified the taxpayer as a "Manufacturer" and assessed with deficiency local business taxes. The taxpayer filed a protest letter but was denied by the City Treasurer and reclassified taxpayer as holding company and assessed taxpayer for deficiency business taxes. Taxpayer claims that as holding company it not subject to local business tax. The Court ruled that in the Michigan Holdings, Inc. vs. The City Treasurer of Makati City, Nelia A. Barlis, this Court ruled that dividend income is not subject to LBT except when levied on banks and other financial institutions and it is clear that the taxpayer as a holding company cannot be classified as a "bank or other financial institution". The records of this case do not show that taxpayer is engaged in activities that may be classified as performing functions similar to a bank or other financial institution as defined by pertinent regulations. (South China Resources Inc. (now known as “SOCResources, Inc.”) vs. Office of the City Treasurer and/or Makati City, CTA AC No.197, April 30, 2019)

Revenue Regulations No. 4-2019, April 8, 2019. This Regulation implements the rules on Republic Act 11213, Otherwise known as the “Tax Amnesty Act”.

This RR implements rules and regulations and provides guidelines on the processing of Tax Amnesty application. Amongst other, it provides the manner of availment of Tax Amnesty on Tax delinquencies and the coverage of such amnesty.

The tax delinquency of those who avail of the Tax Amnesty on Delinquencies under the Regulations, upon full compliance with all conditions set forth in the Regulations, shall be considered settled, and the criminal case in connection therewith and its corresponding civil or administrative case, if applicable, shall be terminated. The taxpayer shall be immune from all suits or actions, including the payment of said delinquency or assessment, as well as additions thereto, and from all appurtenant civil, criminal and administrative cases, and penalties under the 1997 Tax Code, as amended, as such relate to the internal revenue taxes for taxable years that are subject of the tax amnesty availed of.

Revenue Memorandum Circular No. 47-2019, April 16, 2019. This Circular provides for the Revised Guidelines and Mandatory Requirements for the Processing and Grant of Value-Added Tax (VAT) Refund Claims Within the 90-Day Period Pursuant to Section 112 of the Tax Code of 1997, as Amended

This Circular is issued to provide uniform guidelines and prescribe the revised mandatory documentary requirements in the processing and grant of VAT refund claims under Section 112 of the Tax Code of 1997, as amended, except claims processed under the jurisdiction of the Legal Service, thereby amending certain provisions in Revenue Memorandum Circular (RMC) Nos. 5- 2011 and 17-2018.

BSP Circular No. 1038, April 22, 2019. This Circular amends the regulations on the election and employment of Foreign National as Directors and Officers.

This Circular is issued to amend the Manual of Regulations for Non-bank Financial Institutions (MORNBFI) on the election of election of foreign nationals as directors of quasi-banks and/or other Bangko Sentral ng Pilipinas – supervised financial institutions and the employment of foreign nationals as officers or employees of financing companies.

Under this Circular, non-Filipino citizens may become members of the board of directors of a BSFI. 

SEC Memorandum Circular No. 6, April 4, 2019. This Circular discusses the Philippines Interpretations Committee Questions & Answers (PIC Q&A) No. 2019-03 serving as Revenue Recognition Guidance for Sugar Millers.

This Memorandum Circular provide for a one (1) year relief to the Philippine sugar industry by deferring the implementation of the PIC Q&A 2019-03 on the milling/out sharing arrangements of sugar millers and its planters. A sugar miller may opt not to avail of the relief provided. Sugar millers who opted to avail of the relief s required to make a disclosure in the Notes to the Financial Statements the accounting policies applied, discussion of the deferral of the subject implementation issues in the PIC Q&A and a qualitative discussion of the impact in the Financial Statements had the PIC Q&A been adopted. If such deferral will result to a change in accounting policy, it should be accounted for.

SEC Memorandum Circular No. 9, April 25, 2019. This Circular serves as Guidelines on the Issuance of Social Bonds under the ASEAN Sustainability Bonds Standards in the Philippines.

This Memorandum provides for the guidelines that will primarily govern the issuance of ASEAN Social Bonds where proceeds will be exclusively applied to finance or refinance in part, or in full, new and/or existing eligible Social Projects. The Guidelines provides for the eligibility requirements of the Issuer and the issuance per se. It also discussed the use and management of the proceeds including its disclosures, the eligible projects, the process of project selection and evaluation, the reporting requirements and the conduct of external review thereafter.

IC Circular Letter No. 2019-15, April 22, 2019. This Circular provides for Guidelines for the Filing of HMO’s 2018 Financial Statements (FS).

This Circular is issued pursuant to EO No. 192 (s. 2015) transferring the jurisdiction over HMO’s from DOH to IC, requiring all HMO’s to comply with the guidelines for the submission of their 2018 FS. The FS must be submitted to the HMO Division of the IC and comply with the pro forma template provided by the Commission. Failure to follow the pro-forma template, incomplete documents and lacking information will warrant the non-acceptance of the Submission. A filing fee of Twenty Thousand Pesos (Php20,000.00) and a Legal Research Fee of Two Hundred Pesos (Php200.00) is imposed in every submission. Failure to submit the documents within the prescribed deadline shall cause the imposition of penalty of Five Thousand Pesos (Php5,000.00) per day of delay pursuant to CL No. 2016-41.

IC Circular Letter No. 2019-17, April 22, 2019. This Circular provides for the Discount Rates for Life Insurance Policy Reserves as of 31 March 2019.

This Circular provides for the schedule of Peso and Dollar Spot and Forward rates which will be used in discounting the cash flows in the calculation of policy reserves as of March 31, 2019. The Peso Spot and Forward rates derived from the PHP BVAL Reference rates from Bloomberg and the Dollar Spot and Forward rates derived from the International Yield Curve from Bloomberg, shall be used for Peso-denominated and Dollar-denominated policies, respectively. The Peso and Dollar Spot and Forward rates to be used for discounting cash flows with duration of more than 20 years were determined using the 2-year moving-average of the 20-year government bond yield rate.

IC Legal Opinion No. 2019-06, April 2, 2019. Inquiry on whether CCT MBA members may validly designate KKMC as beneficiary of their insurance policy with CCT MBA’s Basic Life Insurance Plan or BLIP.

In this legal opinion, CCT MBA intends to name KMMC (a cooperative advocating the welfare of street dwellers) as beneficiary of the insurance coverage with BLIP. The insurance policies were taken by CCT MBA members who are likewise members of KMMC, who can no longer designate their beneficiaries. The IC opined that CCT MBA members have insurable interest over his own self, hence, they can insure their own life. Since these members are likewise KMMC members, KMMC may be validly designated as their beneficiary. However, KMMC cannot take an insurance policy over the lives of its members since the latter has no insurable interest over the lives of its members.