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 final decision that is appealable before the CTA is the Final Decision on Disputed Assessment (FDDA). Hence, failure to await the decision of the CIR in the administrative level is not tantamount to premature filing so long as the BIR already issued the FDDA.

Taxpayer, an electric cooperative, was assessed by the Bureau of Internal Revenue (BIR) for alleged deficiency taxes for taxable year 2012. BIR issued a PAN and subsequently a Formal Letter of Demand (FLD). The taxpayer was able to file a Protest but it was denied by BIR, prompting the former to file a Protest before the CIR. The taxpayer received a Final Decision on Disputed Assessment (FDDA) thereafter, so the taxpayer, without waiting for the decision of the CIR, filed its Petition for Review before the CTA. The BIR alleged the failure of the taxpayer to wait for the decision of the CIR prior to filing the Petition for Review is tantamount to premature filing. Hence, the CTA should dismiss the case for failure to exhaust administrative remedies.

CTA ruled that it has jurisdiction over the case. The final decision of the CIR or his authorized representative on disputed assessment that is appealable before this Court is the FDDA. Taxpayer received its FDDA and it timely filed its Petition within the 30-day period from such receipt. The fact that the Taxpayer failed to await the decision of the CIR prior to filing the Petition is of no moment for what is crucial in conferring jurisdiction on this Court is the whole or partial denial of the protest by the CIR or his authorized representative, which was subsequently issued and received by the taxpayer prior to the filing of the present Petition for Review. Hence, the Court acquired jurisdiction over the case. (Agusan Del Norte Electric Cooperative Inc. vs. Commissioner of Internal Revenue, CTA Case No. 9376, August 5, 2019)

The LOA must be served to the taxpayer within thirty (30) days from its date of issuance; otherwise, it becomes null and void, unless revalidated.

BIR issued a Letter of Authority (LOA) on October 22, 2012 to the taxpayer and the same was served on January 14, 2013. It subsequently issued a PAN and the taxpayer timely filed its Protest. However, BIR denied the same and issued the corresponding FLD. Taxpayer then filed a Petition for Review challenging the validity of the assessment on the ground that the tax audit was void for failure of the BIR to serve the LOA within 30 days from issuance and to revalidate the same. The BIR claimed that the failure of the Revenue Officer to serve the LOA within 30 days from issuance does not affect the validity of an assessment and it only subjects the revenue officer concerned to administrative sanctions. Hence, the LOA and the assessment are valid.

CTA ruled that for an audit and examination of books to be considered as lawful, the same must be based on a valid LOA. It must be served or presented to the concerned taxpayer within thirty (30) days from its date of issuance; otherwise, it becomes null and void, unless revalidated. In this case, while the subject LOA was issued on October 22, 2012, records reveal, however, that it was served only on January 14, 2013, or eighty-four (84) days after the date of its issuance. Thus, for failure of the concerned revenue officers to observe the 30-day mandatory period, the issued LOA has already become void. It was already without force and effect when it was served on the taxpayer. Hence, the subject tax assessment issued by the BIR is void. (Edmund U. Bermejo IV vs. Commissioner of Internal Revenue, CTA Case No. 9310, August 5, 2019)

Filing of application for merger with the BIR is not a precondition before the surviving corporate taxpayer may use the unutilized input tax of the absorbed corporation.

Taxpayer entered into a merger with Mytel Mobility Solutions, Inc. (Mytel). Subsequently, the unused input tax of Mytel was absorbed and utilized by taxpayer. The BIR then issued an assessment for deficiency value-added tax (VAT) arising from the alleged utilization of unused input tax of Mytel. The BIR alleged that taxpayer failed to file any application for merger with the BIR thus any benefits, e.g., transfer of input tax of the absorbed entity to the surviving entity cannot yet be availed of. A corresponding application for cancellation of registration should have also been filed with the BIR. Hence, for failure to fulfill the two important requisites, i.e., filing of the notice of merger and the notice of cancellation with the BIR, the merger has no legal effect as far as acquiring the unused input tax credits of the absorbed entity by the taxpayer.

The CTA held that the prior filing of an application for notice of merger and /or notification of closure with the BIR is not a precondition for the utilization of the unused input value-added tax (VAT) credits of the absorbed corporation. The merger shall take effect upon issuance by the SEC of the Certificate of Filing of the Articles and Plan of Merger and it also marks the moment when the consequences of a merger take place. Upon the issuance of the Certificate, all effects of the merger, such as transfer of rights, properties, etc. are automatically transferred to the surviving entity. Hence, there is no need for taxpayer to apply for application of merger with the BIR before utilizing the unused input VAT. Likewise, the application for cancellation of registration with the BIR pertains to the effects of a closure of a company from a tax perspective and it is separate from the effects of a statutory merger resulting to a dissolution of the absorbed company. (Commissioner of Internal Revenue vs. MY Solid Technologies & Devices Corporation, CTA En Banc No. 1767 (CTA Case No. 8854), August 9, 2019)

The BIR has no valid authority to issue a second LOA after the three (3)-year prescriptive period had expired.

The BIR issued an LOA and conducted an audit wherein taxpayer was allegedly found liable for deficiency taxes. The taxpayer paid the assessed amount of the BIR. The BIR, thereafter, issued a “second” LOA for Income Tax and VAT for the same taxable period, with the BIR claiming "first LOA did not cover the Income Tax and VAT issues on the sale of the property subject of the present case”. Taxpayer claimed that the Assessment was issued or served upon it beyond the three-year period provided by NIRC, as amended. The BIR argued that the 10-year period applies in this case since there was fraud when taxpayer deliberately misclassified the sales pertaining to a sale of land as a capital asset since the same was being leased and rented out as parking lot within two (2) years, prior to its sale, making it a capital asset. Thus, the prescriptive period applicable is 10 years instead of 3 years.

The CTA ruled that there was no fraud in this case that warrants the application of the 10-year prescriptive period to assess the Taxpayer. Citing the case of Philippine International Air Terminals Co., Inc. vs. Commissioner of Internal, the CTA ruled that where the BIR had already made an initial assessment for deficiency taxes in a taxable year, and the taxpayer paid the deficiency tax assessed, the BIR has no valid authority to issue, after the three (3)-year prescriptive period had expired, a second or third assessment for the same taxable year. Here, the first LOA which the Taxpayer settled and the second LOA covered the same taxable year 2007. Thus, the taxpayer should not have been assessed again for taxable year 2007. (The Professional Services, Inc. vs. Commissioner of Internal Revenue, CTA Case No. 9502, August 13, 2019)

The requirement that an administrative claimed be filed prior to a judicial claim is not complied if both claims were filed on the same date.

Taxpayer imported various cigarette and alcohol products for use in its international flights. It was assessed by the BIR for excise taxes and the taxpayer paid under protest. It subsequently filed a claim for refund with the CIR and on the same date, filed a Petition for Review with the CTA. The BIR alleged that the filing of the Petition was premature for the taxpayer failed to await the decision of the CIR before filing its judicial claim.

The CTA ruled that law does not require the CIR to act upon the administrative claim before claimant can file its judicial claim for refund. Section 229, as worded, only requires that an administrative claim be filed prior to the judicial claim. The primary purpose that an administrative claim be filed prior to the judicial claim is to serve as a notice of warning to the CIR that court action would follow unless the tax alleged to have been collected erroneously or illegally is refunded, was defeated. Failure to seek relief initially at the administrative level would result in dismissal of the judicial claim for refund once it is elevated to the Court of Tax Appeals (CTA). In this case, the taxpayer failed to establish that prior to the judicial claim for refund, administrative claims for refund were in fact filed with the respondent CIR. There is non-compliance considering that both the administrative claim and the judicial claim for refund was simultaneously filed on August 22, 2016. The primary purpose of filing an administrative claim prior to the judicial claim was defeated in this case. Hence, the Petition was prematurely filed by the taxpayer in the instant case. (Philippine Airlines, Inc. vs. Commissioner of Internal Revenue, CTA Case No. 9435, August 8, 2019)

There must be a "disputed assessment" that is seasonably elevated to the CTA before it can take cognizance of a case.

Taxpayer is the proprietor of JG Builders. Various notices were sent by the BIR through registered mail to JG Builders and to the taxpayer, however, the BIR did not receive any reply. Hence, the administrative process of collection was initiated by the BIR. The taxpayer challenged the validity of the assessments alleging, amongst others, that the assessment notices are void because the it was served to a wrong address, hence, she never received the same.

The CTA dismissed the case for lack of jurisdiction. The law mandates that there must be a "disputed assessment" that is seasonably elevated to this Court for review. An assessment becomes a disputed assessment after a taxpayer has validly filed its protest to the assessment in the administrative level. The Protest must be compliant with the requirements of the law and regulations which include, among others, that the protest must be filed within thirty (30) days from receipt of the assessment. Hence, there can be no disputed assessment without a valid protest being filed by the taxpayer to dispute the findings in the assessment. Here, the subject assessments did not become "disputed assessment" since the taxpayer failed to dispute and protest the assessment issued by the BIR. Taxpayer set a letter for reconsideration after the lapse of 194 days, hence, it was filed out of time. (Jovita G. Panopio vs. Commissioner of Internal Revenue, CTA Case No. 9464, August 6, 2019)

The decisions of the CIR over disputed assessments are separate and independent from his decisions over "other matters" arising under the NIRC. Thus, the fact that the taxpayer failed to Protest the FAN is not important if the latter questions the validity of the imposition of taxes.

The BIR in this case alleged that the taxpayer failed to file its protest on the FAN within the time provided for by the NIRC, as amended. Since taxpayer admitted having received the FLD/FAN on January 10, 2011, it had the opportunity until February 9, 2011, within which to file a valid protest on the assessment. However, it allegedly failed to file said protest within such period. The taxpayer on the other hand, argued that the Letter of Authority is invalid for the failure of the revenue officer to finish the audit within 120 days. There was a re- assignment of the undertaking to a new Revenue Officer (RO), and the same done by mere internal indorsement hence the assessments are void for lack of authority of the examining RO.

The RO who continued the audit and the examination has no authority to conduct the same, in the absence of the issuance of a new LOA specifically naming the new RO. Any re-assignment of cases requires the issuance of a new LOA, its fatal infirmity is further highlighted by the fact that it was signed and issued by the RDO only and not by the Revenue Regional Director. Thus, the Court ruled in favor of the Taxpayer. (Commissioner of Internal Revenue vs. Royal Class Trading and Transport Corporation, CTA En Banc No. 1832 (CTA Case No. 8844), July 29, 2019)

Only documents duly identified by a competent witness and formally offered in evidence will merit admission for the consideration and evaluation by the Court.

On March 27, 2014, taxpayer filed its administrative claim for refund or issuance of TCC for its alleged unutilized/unclaimed excess input VAT for the four quarters of TY 2012. On August 22, 2014, taxpayer filed before the CTA a Petition for Review.

The CTA denied the claim for refund of the taxpayer ruling that the taxpayer failed to prove that it is a VAT-registered entity. To prove that it is a VAT-registered taxpayer, the taxpayer offered in evidence a certified true copy of BIR Certificate of Registration. However, since the taxpayer failed to have it identified by any of its witnesses, it was denied admission. The said BIR Certificate of Registration was not admitted since it was not identified by a competent witness during the trial on the merits. It does not even appear in any of the Judicial Affidavits executed and identified by the taxpayer's witnesses, precisely it is not found in the minutes of the proceedings during which petitioner's witnesses were presented on the witness stand. (Nokia (Philippines), Inc., vs. Commissioner of Internal Revenue, CTA EB No. 1824 (CTA Case No. 8876), August 16, 2019)

DISSENTING OPINION (J. Del Rosario): BIR Certificate of Registration, being a public document, is admissible in evidence notwithstanding that it was not identified by any of taxpayer’s witnesses during the trial. A public document is admissible in evidence even without further proof of its due execution and genuineness. The said document is self-authenticating and thus, petitioner is not actually required to have it identified by its witness to prove its genuineness and due execution.

Like PAGCOR, its contractees and licensees shall likewise pay corporate income tax for income derived from such “other related services”.

This is an Omnibus Motion for Reconsideration filed by the taxpayer. It argues that the Court sweepingly concluded that any income from junket gaming operations is subject to corporate income tax. According to the taxpayer the Court's reliance on RMC No. 13-2013 is misplaced and glaringly inconsistent with the provisions under Section 13(2) (a) and (b) of P.D. No. 1869.

The CTA ruled that taxpayer's argument that it is exempt from corporate income tax pursuant to Section 13 of P.D. No. 1869, insofar as its income from its junket gaming operations under the Junket Agreement and the Supplement to Junket Agreement both entered into with PAGCOR is concerned, is without legal basis. It is without a doubt that, like PAGCOR, its contractees and licensees shall likewise pay corporate income tax for income derived from such "other related services", including income from junket operations, considering that Section 14(5) of P.D. No. 1869 is clear that any income that may be realized from these related services shall not be included as part of the income for the purpose of applying the franchise tax, but the same shall be considered as a separate income and shall be subject to income tax. (Prime Investment Korea, Inc. vs Commissioner of Internal Revenue, CTA CASE NO. 9573, August 20, 2019)

In disputed assessments, taxpayer had the option to either file a petition for review with the Court a quo within thirty (30) days after the expiration of the 180-day period or wait for the final decision of the Commissioner of Internal Revenue on the disputed assessment, even after the expiration of the 180-day period fixed by law.

Taxpayer was assessed by the BIR for calendar year 2007 covering deficiency income tax, value-added tax, expanded withholding tax and withholding tax on compensation. When the case reached the CTA, BIR argues that subject assessments had become final, executory, and demandable by reason of the failure of the taxpayer to timely file its Petition for Review pursuant to the provisions of Section 228 of the National Internal Revenue Code ("NIRC") of 1997, as amended.

The CTA ruled that in the present case where there was inaction on a disputed assessment, taxpayer chose the second option under Section 228 of the NIRC of 1997, as amended. It opted to await the final decision on the protested assessment. On September 03, 2013, taxpayer received the Final Decision dated August 28, 2013 signed by the Regional Director. Accordingly, taxpayer timely filed a "Petition for Review on October 03, 2013, preventing the assessment from becoming final, executory and demandable. (Commissioner of Internal Revenue vs. Rieckermann Philippines, Inc, CTA EB No.1855 (CTA Case No. 8715)

Transfer of shares is not a transfer of real property ownership contemplated under Section 135 of the LGC.

The corporation is being assessed of tax on transfer of real property ownership under Section 135 of the Local Government Code (LGC) because of the sale of shares of stock of the corporation resulting to change of ownership and name of the corporation.

The CTA En Banc ruled the transfer of shares is not a transfer of real property ownership under Section 135 of the LGC. Clearly, shares are equities and, by definition, not real properties under the contemplation of Section 135 in relation to Article 415 of the Civil Code. Furthermore, with respect to the corporate assets of the corporation, no conveyance transpired between one person to another, which would have had a real property tax consequence. While there was evidence to prove the conveyance of shares, no evidence was uncovered for the alleged conveyance of the corporate assets subject to Section 135. The legal title to the machineries and buildings remained in the same owner, under these indirect shareholders (Province of Pangasinan & Marilou E. Utanes in her Capacity as the Provincial Treasurer of Pangasinan vs Team Sual Corporation, CTA EB NO. 1883 (CTA AC No. 173), August 30, 2019)

Service by the BIR of assessment notices to a taxpayer's old address despite having earlier knowledge about its new address is no valid notice for purposes of tax assessment.

The BIR contends that the PAN and FAN sent through mail to taxpayer’s old address should be deemed valid as the taxpayer failed to notify in writing the RDOs having jurisdiction over its old and new business locations, as well as the BIR computer center as required in Section 11 of RR No. 12-85.

The CTA En Banc ruled that in BPI case (G.R. No. 135446, September 3, 2003), the Supreme Court invalidated the assessment issued by the BIR against a taxpayer for sending the assessment notice to its old address, despite previous knowledge of its new principal place of business. In the BPI case, the assessment was nullified though it was not shown that the taxpayer therein notified in writing the BIR offices enumerated in Section 11 of RR No. 12-85 of its change of address. The quintessence of the said case-law is that service by the BIR of assessment notices to a taxpayer's old address despite having earlier knowledge about its new address is no valid notice for purposes of tax assessment. Succinctly stated, when the BIR acquires information of a taxpayer's new address, notices should be sent to that address alone, lest the assessment shall be invalid and without force and effect. (Commissioner of Internal Revenue vs Daewoo Engineering & Construction Company Limited, CTA EB NO. 1799 (CTA Case No. 8829), August 29, 2019)

Non-compliance with the mandatory period of 120+30 days is fatal to its claim for refund on the ground of prescription.

The taxpayer filed a Petition for Review against the decision of the Court in Division dismissing the Petition for lack of jurisdiction. The taxpayer insists that the Petition was timely filed within thirty (30) days counted from June 30, 2014 or the date when it was notified by BIR revenue officers of the issuance of RMC No. 54-2014 which denied all pending VAT refund claims. Thus, allegedly it had until July 30, 2014 to file the Petition.

The CTA En Banc ruled that the pronouncements made in RMC No. 54-2014 applies to administrative cases filed after June 11, 2014 only. It must be noted, however, that in the instant case, all administrative claims for refund were filed prior to June 11, 2014, the date of issuance of RMC No. 54-14 and as such, what is applicable to the instant case is 120+30 days rule. Thus, the taxpayer’s non-compliance with the mandatory period of 120+30 days is fatal to its claim for refund on the ground of prescription. Accordingly, the Court in Division has no jurisdiction over the taxpayer’s judicial claim for refund. (Ibex Philippines, Inc. vs Commissioner of Internal Revenue, CTA EB No. 1850 (CTA Case No. 8849) August 28, 2019)

Revenue Memorandum Circular No. 81-2019, July 16, 2019 – This informs the availability of new payment facility utilizing PESONet.

This was issued to inform the taxpayers, tax practitioners, and others concerned about the availability of the new payment facility utilizing the PESONet Payment system under the National Retail Payment System (NRPS) policy framework of the Bangko Sentral ng Pilipinas (BSP) for the payment of internal revenue taxes.

The PESONet payment system enables taxpayers with an account in any of Bangko Sentral-regulated Financial Institutions to pay their taxes online through the Land Bank of the Philippines’ Link.Biz Portal. However, the facility will only be available initially to the depositors of Rizal Banking Corporation (RCBC).

Taxpayers filing their tax returns using the eBIR Forms and taxpayers mandated to use the eFPS may also make use the said payment facility.

Revenue Memorandum Order No. N. 44-2019, August 6, 2019 – This provides policies, guidelines and procedures on the transmittal of BIR.

This was issued to ensure the integrity, retention, and availability of BIR records for any legal action and collection of deficiency taxes.

The states that the original or certified true copies (CTC) of the entire BIR records/docket shall be made within fifteen (15) days from receipt of the request of the concerned Legal Division as required by the Department of Justice and/or the CTA for any legal action under the Tax Code. The original or CTC of the BIR records/docket shall be retained by the assessing office for the purpose of enforcing collection action, if necessary, while the case is still pending before the court or while a request for reconsideration is pending before the Commissioner.

Accordingly, upon receipt of the request for transmittal of the entire BIR docket by the RDO, it shall reproduce the entire docket. The docket must contain an index of contents numbered chronologically, with correct pagination, the top page being the latest dated document. The total number of pages contained in the docket must be certified in the transmittal letter. Within 15 days from receipt of the request, said docket must be transmitted to the requesting division, retaining a copy for file. However, in case there is a need to immediately enforce collection procedures, the RDO shall retain either the original or CTC of the entire BIR Records.

Revenue Regulations No. 9-2019, August 27, 2019 - This amends Sections 2, 3 and 7 of RR 5-2017 relative to the tax privileges of PWD.

This is issued to amend RR No. 05-2017 and insert new paragraphs to be known as paragraph 2.8 and 2.9 which defined the term “Basic Necessities” and “Prime Commodities” in relation to R.A. No. 10754 entitled “An Act Expanding the Benefits and Privileges of Persons with Disability (PWD). RR. No. 05-2017 is the implementing rule relative to the tax privileges of PWDs and tax incentives for establishments granting sales discounts, and prescribing guidelines for the availment thereof.

The RR No. 9-2019 defined basic necessities as goods vital to the needs of consumers for their sustenance and existence. On the other hand, prime commodities was defined as goods not considered basic necessities but are essential to consumers.

RR No. 9-2019 amended Section 3 of RR No. 5-2017 to include a new paragraph which provides that all other goods and services sold by the establishments not included in the enumeration expressly provided by law shall not considered for the 20% discount privilege even if they exclusive use and enjoyment or availment of the PWD. Instead, every PWD shall enjoy a special discount of five percent (5%) of the regular retail price, without exemption from VAT as regards basic necessities and prime commodities enumerated under Sec. 2 (2.8) and (2.9). This is on the condition that total amount of the purchase for personal use and consumption of the PWD shall not exceed the Php 1,300.00 per calendar week, without carry-over of the unused amount, containing at least four kinds of items listed as basic necessities and prime commodities.
Consequently, Section 7.1 of Section 7 of RR No. 5-2017, was also amended to read:

“SECTION 7. EXEMPTION FROM VALUE-ADDED TAX (VAT) ON SALE OF GOODS OR SERVICES TO QUALIFIED PERSONS WITH DISABILTY.
7.1 sales of any goods and services under Section 3 of these Regulations to PWD, except sale of basic necessities and prime commodities enumerated under Sec. 2 (2.8) and (2.9) hereof, shall be exempt from the value-added tax. xxx xxx xxx”

SEC Memorandum Circular No. 17 series of 2019, August 6, 2019 - This provides the guidelines on securities deposit of branch offices of foreign corporations.

This covers branch offices of foreign corporations duly licensed to operate in the Philippines that are mandated to deposit securities with the SEC. It further provides that sales returns, allowances and discounts, and direct costs and expenses incurred with foreign entities and related parties are deductible items from the gross income computation of certain types of branch offices. The deductions for the direct costs and expenses incurred with foreign entities and related parties are subject to the submission of certain requirements like the branch office’s Audited Special or Annual Income Statement showing separately the amounts of direct cost and expenses actually incurred with foreign entities and foreign related parties; the solvency ratio of the foreign corporation and Philippine Branch indicating the sufficiency of assets to cover the branch’s obligations; and the property and equipment should consist of large, permanent, and non-mobile items.

The formula for the computation of the security deposits of foreign airline companies’ branch offices has been modified as follows:

Revenue Allocated to the Philippine Operations = Total Direct Operating Cost
                                                                               and Expenses Incurred in
                                                                               the Phil. for the Entire
                                                                               Operation
                                                                           = Rate Derived Above x
                                                                              Gross Revenue in the
                                                                              Philippine Operations
Amount of Security Deposit                               = Revenue in the Philippine
                                                                             Operations x 2%

This circular also provides an exclusive list of acceptable securities which are classified into two, namely, government debt instruments and equity instruments. For the second classification, only the following are acceptable: shares of stock in registered enterprises under EO 226, shares of stock in domestic corporations registered in the stock exchange, shares of stock in domestic insurance corporations under the supervision and regulation of the Office of the Insurance Commissioner, and shares of stock in banks licensed by the BSP. These securities may be substituted, released, and returned, so long as the conditions to do so are met. Finally, fines and penalties may be imposed for non-compliance with this circular, without prejudice to the filing of criminal charges against the persons responsible for the violation.

SEC Memorandum Circular No. 18 series of 2019, August 23, 2019 - This circular provides the prohibition on unfair debt collection practices of financing companies and lending companies.

This lays down the conduct constituting unfair collection practices which shall then be subject to penalties. These practices are enumerated in this Memorandum Circular.

For purposes of collection, Financing Companies (FCs) and Lending Companies (LCs) shall keep strictly confidential the data on the borrower, except under the certain circumstances which justify the disclosure of such information, such as a written or recorded consent of the borrower; release, submission, or exchange of customer information with other financial institutions, credit information bureaus, lenders (potential or actual), their agents and/or representatives; upon orders of a court of competent jurisdiction or any government office or agency authorized by law; disclosure to collection agencies, counsels and other agents of the FCs and LCs to enforce the latter's rights against the borrower; disclosure to third party service providers solely for the purpose of assisting or rendering services to the FCs and LCs in the administration of its lending or financing business; and disclosure to third parties such as insurance companies, solely for the purpose of insuring the FCs and LCs from borrower default or other credit loss, and the borrower from fraud or unauthorized charges.

Violation of this Circular shall subject FCs and LCs to the payment of fines, without prejudice to any other penalties that may be imposed by the Commission pursuant to Presidential Decree No. 902-A, Republic Act No. 11232, otherwise known as the Revised Corporation Code of the Philippines, and all other relevant laws, rules and regulations being implemented by the Commission, which may include the suspension or revocation of the FC/LC's primary license and/or disqualification of its directors and officers; and further, to the penalties that may be imposed by the courts or other government agencies in the exercise of their respective mandates.

Insurance Commission (IC) Circular Letter (CL) No. 2019-39, August 8, 2019 – This circular letter revises the framework on the selection of external auditors.

This provides that IC-regulated entities shall engage the services of an external auditor included in the List of Accredited External Auditors. A regulated entity shall only appoint an external auditor belonging to the same category or from categories higher than the category of the concerned regulated entity. The external auditor appointed by the regulated entity shall likewise audit its subsidiaries and affiliates engaged allied and related services. The performance of the accredited external auditor shall be periodically evaluated through an assessment of the quality of the regulated entity's financial statements and the supplemental report requirements to be issued by the IC. The results of assessment shall serve as the basis for their continuing inclusion in the List of Accredited External Auditors. The external auditor shall be changed or the lead and concurring partner of the audit firm shall be rotated every five (5) years or earlier and regulated entities shall observe a cooling off period of at least two (2) years before the re-engagement of the same lead and concurring partner of the audit firm or individual external auditor.

The IC may issue directives, orders, or impose sanctions for non-compliance with this circular letter. So long as there is notice and an opportunity to be heard, the accredited external auditor/auditing firm may be delisted. The imposition of sanctions shall be without prejudice to the sanctions or penalty that the other FSF member regulators may impose on concerned external auditor pursuant to their respective rules and regulations.

Bangko Sentral ng Pilipinas (BSP) Circular No. 2019-1045, August 2, 2019 – This provides the amendments to minimum capitalization of Non-stock Savings and Loan Associations (NSSLAs) and capital contributions of members.

The Monetary Board approved the amendments to Sections 4106S of the Manual of Regulations for Non-Bank Financial Institutions (MORNBFI) on the minimum capitalization of NSSLAs and capital contributions of members. Section 4116S was amended to provide that for purposes of computing CAR, the aggregate amount of capital contribution buffer that shall be allowed to form part of an NSSLA's total capital accounts shall be capped at ten times (10x) the aggregate amount of fixed capital contributions.

Section 4106S pertains to the policy of the BSP to ensure that NSSLAs operate in a safe and sound manner. Towards this end, the BSP shall set requirements for NSSLAs that is capable to support the NSSLAs as a going concern, commensurate to the risk exposures of the NSSLA and provides loss absorption mechanism, for both expected and unexpected losses.

Subsection 4106S.3 pertains to the administration of capital contributions of members wherein an NSSLA shall ensure that each member has a capital contribution account representing the member's capital contributions and it shall issue to its member a member's ownership document evidencing the member's capital contribution, containing the member’s capital contribution balance with a breakdown showing separately the fixed and capital contribution buffer balances. Receipt of funds from persons not belonging to the well-defined group of an NSSLA is strictly prohibited and in cases of violations pertaining to receipts of funds intended as capital contribution and/or deposits from such persons, the funds shall not be considered as capital contributions, and/or deposits, as the case may be, and shall be treated as payables and presented under other liabilities in the financial reporting package.

Bangko Sentral ng Pilipinas (BSP) Memorandum No. M-2019-22, August 22, 2019 – This submits the revised Annex X and the new Annex AD of the Manual of Regulations on Foreign Exchange Transactions, as amended by BSP circular No. 1030 dated 5 February 2019.

This provides that pursuant to Section 3 of Circular No. 1030, all foreign exchange selling/remitting AABs and registering MBs shall submit to the BSP, through the International Operations Department, reports on Foreign Investments Registered with the BSP (Annex X) and reports on Foreign Direct Investments Registered with AAB (Annex AD) commencing on 04 September 2019 using the prescribed forms.