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.

The CTA can rule on the validity of the revenue regulation or revenue memorandum circular on which the said assessment is based

This case involves a claim for refund of erroneous, excessive or illegal payments of excise taxes based on RMC No. 90-2012 and RR No. 17-2012. Taxpayer assailed the validity of RMC No. 90-2012 and RR No. 17-2012. The BIR opposed, arguing that the CTA has no jurisdiction since taxpayer is collaterally assailing the validity of revenue issuances. It argued that the validity or constitutionality of a revenue issuance cannot be collaterally attacked in claims for refund. A separate action must be filed solely for that purpose.

In upholding its jurisdiction over this case, the CTA ruled that it has the power of certiorari in cases within its appellate jurisdiction. Thus, the CTA can rule not only on the propriety of an assessment or tax treatment of a certain transaction, but also on the validity of the revenue regulation or revenue memorandum circular on which the said assessment is based. (San Miguel Brewery Inc. v. Commissioner of Internal Revenue, CTA Case No. 9513, June 13, 2019)

In sales of other services subject to 0% VAT, it must be established that the recipient is a non-resident foreign corporation doing business outside the Philippines.

To be considered as a non-resident foreign corporation doing business outside the Philippines, the following documents must be presented: (a) Certificate of Non-registration of Corporation/ Partnership issued by the Philippine Securities and Exchange Commission (SEC) to establish that the recipient of the service has no registered business in the Philippines and (b) a Certificate/Articles of Foreign Incorporation/Association to prove that the recipient is a indeed foreign entity.

The Intra Group Service Agreements presented by the taxpayer, showing the names of its customers to whom it rendered services, would not establish that the service recipients are non-resident foreign corporations doing business outside the Philippines. (Deutsche Knowledge Services, Pte. Ltd. v. Commissioner of Internal Revenue CTA EB Case No. 1763 (CTA Case Nos. 8623, 8656, 8661 & 8685), June 7, 2019)

The disallowed/denied claim for input tax may be recovered and deducted as loss.

In this case, the CTA allowed taxpayer to recover as loss the amount of its claim for refund of unutilized input VAT, which was denied for failure to comply with the invoicing requirements. The amount of claim was allowed as deduction from taxpayer’s gross income in the year of denial of claim (2010).

The CTA held that under RR No. 09-89, which provides the journal entries for the recording of transactions if there are disallowed/denied input taxes, the disallowed/denied claim for input tax is recorded as Purchases or Cost of Sales, which is classified as an expense account and a deduction from the taxpayer’s sales/revenue.

The CTA further held that the requisites for deductibility of such claim as a loss were all complied with. The taxpayer actually sustained a loss when its claim for refund was denied and the same can no longer be recovered. The loss was sustained in 2010 when the taxpayer received the denial letter. Taxpayer was not compensated for the loss. It also incurred the loss in the conduct of its trade or business as the denied input taxes arose from its zero-rated sales of services.

Finally, the loss arose from a closed and completed transaction in that it was specifically stated in the denial letter that taxpayer’s claim “cannot be given due course.” (Commissioner of Internal Revenue v. Maersk Global Service Centres (Philippines) Ltd. CTA EB Case No. 1786 (CTA Case No. 8934), June 13, 2019)

NOTE: In this case, the CTA applied the old RR No. 09-89 since there is no explicit rule as to the treatment of disallowed/denied application for refund or issuance of tax credit certificate on input VAT attributable to zero-rated sales under the Tax Code. This position runs counter that contained in RMC No. 57-2013, which circularizes BIR Ruling No. 123-2013 dated March 25, 2013, stating that unutilized creditable input taxes attributable to VAT zero-rated sales cannot be claimed as a deduction for income tax purposes.

In claims for tax refund, the CTA as a court of record is required to conduct a formal trial (trial de novo) to prove every minute aspect of the claim.

The CTA, in denying the taxpayer’s claim, reiterated that in claims for tax refund, it is required to conduct a formal trial to prove the claim. The claims are litigated and decided based on what has been presented and formally offered and presented during the trial. The CTA held that the exhibits presented by the taxpayer were denied since these were not identified and authenticated by a competent witness. Thus, the CTA cannot consider the documents as evidence since evidence which has not been admitted cannot be validly considered by the courts in arriving at their judgments. (Philippine Associated Smelting and Refining Corporation v. Commissioner of Internal Revenue, CTA Case Nos. 9579 & 9580, June 24, 2019)

Revenue Regulations No. 7-2019 (July 13, 2019)

There is now a different criteria to qualify as a top withholding agent. RR No. 7-2019 has amended RR No. 11-2018.

This publishes the full text of Joint Administrative Order No. 1-2019 entitled "Rules and Regulations Implementing Section 3 of Republic Act (RA) No. 10963, Otherwise Known as the Tax Reform Acceleration and Inclusion Law, In Relation to Section 5(b) of RA No. 8424 of the National Internal Revenue Code, as amended”

Under the circular:

1. For purposes of availing income-tax based incentives, only electronically filed tax returns shall be considered except when manual filing is allowed in accordance with BIR revenue issuances.
2. Notwithstanding the manual filing, the registered cooperatives are still required to file electronically within thirty days (30) days reckoned from the time the electronic filing/payment system is operational/available.
3. All registered cooperatives which were issued a Certificate of Tax Exemption (CTE) and availed of tax incentives shall submit to the CDA the Annual Tax Incentives Report. The Annual Tax Incentives Report shall be submitted within 15 days from the due date of filing the Annual Income Tax Return.
4. Submission of the reportorial requirements shall be a continuing requirement for the effectivity of the CTE of a registered cooperative. Failure to comply the same shall be a ground for revocation of CTE and it shall also be a cause for prohibition of availment of tax exemption for the following given periods, depending on the number of violations:

a. First Offense – prohibited to avail of tax exemption for a period of one (1) year from date of revocation;
b. Second Offense – prohibited to avail of tax exemption for a period of three (3) years from date of revocation;
c. Third Offense – prohibited to avail of tax exemption for a period of five (5) years from date of revocation; and
d. Fourth Offense – prohibited from re-application.

RMC No. 64-2019, June 18, 2019

This clarified the policy regarding the issuance of Delinquency Verification Certificate for claims for VAT credit/refund, pursuant to Section 112 of the Tax Code. It emphasized that under RMC No. 47-2019, those taxpayers who shall have no outstanding liabilities (Accounts Receivable/Delinquent Account or AR/DA) as defined under Sec. II (1) of RMO No. 11-2014 are those which do not have the following liabilities:

1. Self-assessed tax liability:

a. Dishonored checks;
b. Tax due per return filed by taxpayer who failed to pay the same within the time prescribed for payment; or
c. Non-payment of the 2nd instalment due from individual taxpayers who availed of the instalment payments of income tax under the Tax Code.

2. Those arising from deficiency assessment which became final and executory due to:

a. Failure to file a request for reinvestigation/reconsideration within 30 days from receipt of the FAN;
b. Failure to submit documents in support of the request for reinvestigation within 60 days from filing of the request;
c. Failure to appeal to the Court of Tax Appeals (CTA) within 30 days from receipt of the decision of the BIR or in case of inaction;
d. Failure to appeal the CTA’s decision; or
e. Final and executory decision/resolution by the CTA/Supreme Court in favor of the BIR.
“Open stop-filer cases” and deficiency tax assessments which are timely protested, subject to reconsideration/reinvestigation, or pending judicial appeal are not considered as AR/DA, and shall not prevent the processing of VAT refund.

The circular likewise indicated that under RMC No. 47-2019, only the following offices shall issue delinquency verification certificates to the claimants of credit/refund:

1. The Collection Division of the respective Regional Office and Accounts Receivable Monitoring Division (ARMD) for non-large taxpayers;
2. The Large Taxpayers Collection Enforcement Division (LTCED) and ARMD for taxpayers under the jurisdiction of the LT Service of the National Office; or
3. The LT division-Cebu/LT Division-Davao and their respective ARMD for large taxpayers under the jurisdiction of LT Division-Cebu or Davao.

Finally, RMC No. 64-2019 ordered that the concerned offices should not issue any format that deviates from the format prescribed under the same RMC. If there is no outstanding tax liability, or if the assessed tax liability is under protest/appeal or if there are “open stop-filer cases,” the box that should be checked is that which indicates “HAS NO DELINQUENT TAX LIABILITY”. Thus, there is no need to state the details of the said cases in the DVC.

SEC-OGC Opinion No. 19-23, June 17, 2019

This opinion was issued at the request of Toyota Manila Bay Corporation, an unlisted corporation, to confirm whether or not written approval/advice of the SEC is required before it may validly issue cash and stock dividends to its stockholders.

The SEC responded in the negative. It ruled that Sec. 42 (1) of the Revised Corporation Code did not require prior approval/advice from the SEC in order to declare cash and stock dividends. For the declaration of cash dividends, the only requirements are (1) the approval of the Board of Directors and (2) sufficient unrestricted retained earnings for the last fiscal or calendar year. The same requirements are imposed for the declaration of stock dividends plus the stockholders’ approval representing at least 2/3 of the outstanding capital and sufficient portion of the present authorized capital.

However, a corporation still has the option to apply for an acknowledgement notice from the SEC of its declaration of cash and/or stock dividends, if it wishes to do so, subject to submission of documentary requirements and payment of filing fee.

SEC Memorandum Circular No. 13, Series of 2019, June 21, 2019

This amended the guidelines and procedures on the use of corporate and partnership names.

The substantial changes from the previous guidelines and procedures are as follows:

1. The name of a One Person Corporation shall contain the word “OPC” either below or at the end of the name;

2. A single stockholder of a One Person Corporation (OPC) may use his/her name; provided that said name shall be accompanied with descriptive words aside from the suffix OPC. A single stockholder may also use the name of another person, provided that consent was given by the said person or if deceased, by his estate, and provided further that the name shall be accompanied by the descriptive words other than the suffix OPC;

3. The name shall be distinguishable (previously should not be identical, misleading, or confusingly similar) from other corporate or partnership name registered with the SEC, or with the Department of Trade and Industry, in the case of sole proprietorships;

4. The registration of name bearing the word ASEAN shall be in accordance with the protection given by Article 6ter of the Paris Convention of Industrial Property, adopted in 1883 and revised in Stockholm in 1967;

5. The name of a corporation or partnership that has been dissolved or whose registration has been revoked shall not be used by another corporation or partnership within five (5) years from the approval of dissolution or date of revocation, unless its use has been allowed at the time of dissolution or revocation by the stockholders, members, or partners who represented a majority of the outstanding capital stock or membership of the dissolved corporation or partnership, as the case may be;

6. In order that the name of a corporation whose registration has expired may be used, the application for re-registration must be accompanied by the following documents:

1. Board Resolution executed and signed by the hold-over board of directors/trustees attesting that:

a. The applicant for re-registration is a new corporation intending to use the name of the expired corporation;

b. The re-registration is approved by the majority vote of the directors or trustees and the vote of stockholders representing the majority of the outstanding capital stock or membership;
c. They shall include a statement in the articles of incorporation of the new corporation that the same is using the name of the expired corporation; and
d. If applicable, they will no longer file a petition to set aside the order of revocation.

2. Latest General Information Sheet of the expired corporation, received by the SEC;
3. Affidavit, executed under oath by the hold-over corporate secretary , attesting that:

a. There are no properties owned by the dissolved/revoked corporation due for liquidation, or in case there are properties owned by the expired corporation, no property is transferred to the new corporation or, in case of stock corporations, used for subscription payment without undergoing corporate liquidation process;
b. There is no pending intra-corporate dispute or claim involving the expired corporation; and
c. That the expired corporation has no derogatory information with the SEC at the time of its application for re-registration.

Upon approval of the re-registration, the certificate of registration to be issued to the new corporation shall indicate its new SEC registration number and pre-generated Tax Identification Number (TIN) as confirmation that the same is a separate and distinct entity from the expired corporation.

7. A corporate or partnership name, which was previously used but become the subject of amendment, shall not be re-registered or used by another corporation or partnership for a period of three (3) years from the date of the approval of the adoption of the new corporate or partnership name. However, an earlier period may be allowed if the corporation or partnership which previously owned the used name give its consent as proven by the following:
For Corporations:

a. Directors/Trustees’ Certificate approved by the majority of the Directors/Trustees approving the use of the former name by another corporation or partnership; and

b. Secretary’s Certificate of non-existence of intra-corporate dispute from the Corporation that used the former corporate name.

For Partnerships:

a. Partnership’s Resolution approved by the majority of the partners approving the use of the former name by another corporation or partnership.

For One Person Corporations:

a. The consent of the sole stockholder or, in cases of incapacity or death, his/her designated nominee, given in notarized instrument and countersigned by the Corporate Secretary.

8. Names of absorbed/constituent corporation may not be used unless it is the surviving corporation intending to use the said absorbed/constituent corporate name. Provided, however, that another corporation may use the names of the absorbed/constituent corporation if the consent of the surviving corporation is obtained, as proven by the following:

a. Directors’ Certificate of the surviving corporation permitting the usage of the said absorbed/constituent corporation by another corporation; and
b. Secretary’s Certificate of non-existence of intra-corporate dispute of the corporation from the surviving corporation.

IC-CL No. 2019-23, June 17, 2019

This requires that all applications for license of new insurance adjusters must first be endorsed by either the Association of Philippine Adjustment Companies (APAC) (for adjusting companies) or the Philippine Institute of Loss Adjusters (PILA) (for individual adjusters). Endorsement from APAC or PILA must be attached together with the application for license of insurance adjusters and be submitted to the Licensing Division.

Failure to secure endorsement and non-submission of other requirements will result to non-acceptance of application

Membership, non-payment of association dues and other fees to APAC or PILA shall not hinder the approval of endorsement from the two associations.

Should the endorsement be not forthcoming, the applicant shall be duly notified for the reasons thereof. Should the applicant find the reason/s to be uniustified, the matter shall be elevated to the lnsurance Commission, who may direct the issuance of the license even without the endorsement if he finds that the non-endorsement is unjustified.

IC-LO No. 2019-08-A, June 19, 2019

As a rule, the tractor head and the trailer are treated as separate vehicles for insurance purposes. Hence, they should be covered by separate comprehensive insurance.
However, with regard to Liability to the Public, No Fault lndemnity and Excess Liability Provisions under a standard Comprehensive lnsurance, having a separate comprehensive insurance for the tractor head and the trailer is not material, for any injury or death to any third party by reason which is directly attributable to driver. While the trailer is attached to and is being towed by the tractor head, it is the tractor head's driver who has direct control of the movement of both the tractor head and the trailer attached to it. As such, the Comprehensive lnsurance of the tractor head shall be held liable for third party liability arising from death, bodily injury or third party property damage.

The separate insurance coverage matters in case the proximate cause of the injury or death is directly attributable to the trailer, e.g., when the injury or death is specifically attributable to the defects of the trailer's equipment such as its wheel/s, bearing/s, lock/s, etc. ln this case, the insurance policy of the trailer, if any, should be held liable for death or bodily injury to third party. The comprehensive insurance of the tractor is not answerable in this instance. A separate Comprehensive lnsurance for the tractor head and the trailer becomes also material when it comes to loss or damage to the insured vehicle.

BSP-CL No. CL-2019, June 27, 2019

Effective July 1, 2019, a new Bangko Sentral Registration Document (BSRD) template in registering investments falling under Section 37 of the Manual of Regulations on Foreign Exchange Transactions, as amended, shall now be used.

Copy of which may be downloaded from the BSP website at http://www.bsp.gov.ph/downloads/Retulations/MORFXf/MORFXT-faas.zip.