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 © 2022 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.

In establishing a claim for refund of CWT, the claimant need only prove that taxes were actually withheld.

The taxpayer had unutilized CWT for the CY 2012 and 2013. It filed an administrative claim, and subsequently a petition before the CTA, for the issuance of TCC for its alleged unutilized CWT for CY 2012 and 2013. The CTA partially granted the claim for issuance of TCC for the unutilized CWT.

Aggrieved, the BIR appealed to the Supreme Court insisting that proof of actual remittance of the withholding taxes is required for the claim for refund to prosper. In insisting proof of actual remittance, the BIR opined that it is incumbent upon the taxpayer-claimant to prove that the taxes withheld were actually remitted to the BIR by the withholding agents, not for the BIR to prove non-remittance of the same.

The Supreme Court upheld the decision of the CTA En Banc in that proof of actual remittance is not necessary for the taxpayer’s claim for refund of excess or unutilized CWT to prosper. Notably, it is the payor-withholding agent, and not the payee-refund claimant such as the taxpayer, who is vested with the responsibility of withholding and remitting income taxes. In establishing a claim for refund of CWT, the claimant need only prove that taxes were actually withheld through the presentation of the certificates of withholding issued by the corresponding withholding agents. (Commissioner of Internal Revenue vs. Ayala Corporation, G.R. No. 256539, July 28, 2021 [Date uploaded: 9/22/2021])

There is no indefiniteness in the amount of tax liability even with the statement that the interest shall be adjusted if paid beyond the due date provided.

The CTA Division voided the subject assessments as the amount due remains indefinite because the FLD states that the interest “will be adjusted if paid beyond the date specified therein.” The CTA En Banc reversed the CTA Division explaining that the basic deficiency tax liability remains the same regardless of when the taxpayer chooses to pay the assessment. The interest, and only the interest, may be adjusted if the taxpayer pays before or after the due date. What is important is that there is a due date contained in the FLD/FDDA/assessment notice. Thus, even with the statement that the interest shall still be adjusted if paid beyond the due date provided, there is no indefiniteness, since it is only the interest that shall be adjusted. (Commission of Internal Revenue v. Robinsons True Serve Hardware Philippines, Inc., CTA EB No. 2293, March 1, 2022)

The Mission Order cannot replace, supplant, or be converted to an LOA.

The use of a Mission Order is different from an LOA. A Mission Order is issued to authorize the surveillance, not the audit and assessment, of the taxpayer. Revenue Memorandum Order ("RMO'') No. 003-09 provides that if the result of the surveillance made indicates that the taxpayer has not been reporting its correct income for tax purposes, and/or the veracity of its accounting records is not reliable, an LOA must still be issued in order to cause the audit and assessment of the taxpayer.

The Mission Order cannot replace, supplant, or be converted to an LOA, considering that the functions of both issuances are different from each other. (Formula Sports Inc. v. Commission of Internal Revenue, CTA Case No. 9625, March 2, 2022)

Compensatory interest, or the legal interest imposed by the courts on a judgment award in favor of a party litigant, is considered a form of penalty or indemnity for damages, it cannot rightfully be considered as taxable income.

The taxpayer obtained a favorable ruling from the Supreme Court finding that as a consequence of Land Bank’s failure to prove the source of the "miscredited" fund, it had no right to debit the amount from the taxpayer’s trust fund account and must, therefore, return the same with legal interest. Land Bank finally paid the taxpayer the judgment award less the 20% final tax withheld on interest/yield from bank deposits/deposit substitutes. The taxpayer filed a written claim for refund or tax credit for the said amount alleging that the interest awarded should not be subject to income tax.

It was established and remains undisputed that the monetary award received by the taxpayer was based on Land Bank of the Philippines v. Emmanuel Onate, consisting of the undocumented withdrawals from his trust accounts plus interest. The legal interests imposed in the Supreme Court's judgment award was imposed by the Supreme Court as a form of indemnity for the interest of the funds or capital lost by the taxpayer and would have earned had they not been wrongfully withdrawn by Land Bank. Considering that compensatory interest, or the legal interest imposed by the courts on a judgment award in favor of a party litigant, is considered a form of penalty or indemnity for damages, it cannot rightfully be considered as taxable income. (CIR v. Oñate, CTA EB No. 2370, March 18, 2022)

RMC No. 23-2022,
March 9, 2022
This suspends the Income Tax incentives granted to Registered Business Enterprises (RBEs) for violating the Work-From-Home (WFH) threshold as prescribed by the Fiscal Incentives Review Board.

The non-compliance with all the conditions prescribed under FIRB Resolution Nos. 19-21 and 23-21 shall be meted with suspension of the Income Tax incentive on the revenue corresponding to the months of non-compliance. Hence, RBE shall pay the Income Tax using the regular rate of either twenty-five percent (25%) or twenty percent (20%) based on the taxable net income corresponding to the months the RBE has violation. For RBEs with no existing transactions subject to the regular Income Tax rate, BIR Form 1702-MX shall be used for the voluntary payment of the Income Tax due on the months with reported violation.

However, for RBEs which have existing transactions subject to regular Income Tax rate, the voluntary payment shall be made through BIR Form 0605 and bank-validated copy of which shall be attached in the Annual Income Tax Return (AITR) to be filed. In both cases, the computation of the Income Tax due shall be:

Net taxable income* for the year / 12 months ……………….. ₱ xxxx.xx
Multiply by the applicable rate of either 25% or 20% …….. X %
Income Tax Due ……………………………………………………………… ₱ xxxx.xx

*Computed based on existing policies which is net of allowable deduction

In the absence of voluntary payment by RBEs or the voluntary payments made is not sufficient, the RBE shall be subjected to an audit pursuant to a Letter of Authority (LOA).

RMC No. 28-202,
March 16, 2022
This prescribes the guidelines in the submission of Certificate of Entitlement to Tax Incentives (CETI) under RA No. 11534 (CREATE Law).

Pursuant to the provisions of Section 3 under Rule 8 of the Implementing Rules and Regulations (IRR) of the CREATE Law, all Registered Business Enterprises (RBEs) shall apply for a CETI with their concerned Investment Promotion Agency (IPA) prior to the filing of Annual Income Tax Return (AITR). The CETI shall then be attached to the AITR filed with the BIR.

The CETI is a requirement for all RBEs in order to avail of the Income Tax Holiday or preferential rate granted by the CREATE Law. This repeals the provisions stated in Revenue Memorandum Circular No. 14-2012, which required the submission of the Certificate for Entitlement to Income Tax Holiday (now CETI), within thirty (30) days from filing of the RBE's AITR.

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RMC No. 35-2022,
March 31, 2022
This prescribes the tax treatment of Murabahah (Profit Disclosed Sale) and Tawarruq (Commodity Murabahah) as Islamic Banking Arrangements.

This prescribes the tax treatment of Murabahah (Profit Disclosed Sale) and Tawarruq (Commodity Murabahah) as Islamic Banking Arrangements pursuant to the tax neutrality provision of RA No. 11439 (An Act Providing for the Regulation and Organization of Islamic Banks) and as implemented by RR No. 17-2020.

Any reference to interest shall apply to gains or profits received and expenses incurred in Islamic banking arrangements, in lieu of interest income and/or expenses under the conventional banking transactions.

The economic substance of a Murabahah Financing (Profit Disclosed Sale) is equivalent to a conventional mortgage loan.

Tax Neutrality (in Murabahah Financing):

The economic substance of a Tawarruq (Commodity Murabahah) Financing is equivalent to a conventional cash line facility.

Tax Neutrality (in Tawarruq Financing):

Commodity Murabaha financing may also be used for by an IB/IBU to replicate a term deposit product/facility. The same tax treatment applies.

SEC MC No. 03 s. 2022,
March 1, 2022
This implements BSP Circular No. 1133 s. 2021 on the ceiling/s on interest rates and other fees charged by lending companies, financing companies, and other online lending platforms.

This Circular shall apply to unsecured, general-purpose loans offered by Lending Companies (LCs), Financing Companies (FCs), and their Online Lending Platforms (OLPs), that do not exceed the amount of P10,000.00 and loan tenor of up to four (4) months that are entered into, restructured, or renewed beginning March 3, 2022.

Applicable ceiling/s on interest rates and other fees for specific loans offered by LCs, FCs, and their OLPs.

1. A Nominal Interest Rate ceiling equivalent to 6 percent per month (~0.2 percent per day).

2. An Effective Interest Rate ceiling equivalent to 15 percent per month (~0.5 percent per day), which shall include the Nominal Interest Rate along with all other applicable fees and charges (i.e., processing fees, service fees, notarial fees, handling fees and verification fees, among others), but excluding fees and penalties for late payment and non-payment.

3. A cap on penalties for late payment or non-payment at 5 percent per month on outstanding scheduled amount due.

4. A total cost cap of 100 percent of total amount borrowed (applying to all interest, other fees and charges, and penalties) regardless of time the loan has been outstanding.

Administrative Sanctions

SEC MC No. 05 s. 2022,
March 2, 2022
This provides for the guidelines on Corporate Dissolution under Sections 134, 136 and 138 of the Revised Corporation Code (RRC).

This provides for the guidelines on Corporate Dissolution under Sections 134, 136 and 138 of the RRC, as follows:

Voluntary Dissolution Where No Creditors are Affected

Verified Request for Dissolution.
If dissolution of a corporation does not prejudice the rights of any creditor having a claim against it, a verified request for dissolution signed by the corporation's duly authorized representative must be filed with the CRMD or SEC Extension Office.

Favorable Recommendation
The application for dissolution of banks, banking and quasi-banking institutions, pre-need, insurance and trust companies, NSSLAs, pawnshops, and other financial intermediaries shall be accompanied by a favorable recommendation of the appropriate government agency.

Withdrawal of Request for Dissolution
Within 15 days from receipt by the Commission of the Verified Request for Dissolution, a withdrawal of the said request may be made in writing, duly verified by any incorporator, director, trustee, shareholder, or member, and signed by the majority of the directors or trustees, and stockholders owning or controlling at least majority of the outstanding capital stock or majority of the members who voted for the dissolution of the corporation.

Approval and Issuance of Certificate
After 15 days from receipt of the Verified Request for Dissolution, and in the absence of any withdrawal of request for dissolution within said period, the Commission shall approve the request and issue the Certificate of Dissolution.

The dissolution shall take effect only upon the issuance by the Commission of a Certificate of Dissolution.

Change in the Ownership, Membership, and/or Composition of the Board
Sufficient documentary evidence of a change in the ownership, membership, and/or composition of the board of directors or trustees must be filed together with and attached to the withdrawal of request for dissolution if there has been a change in the ownership, membership, and/or composition of the board of directors or trustees prior to the filing of the withdrawal of request for dissolution.

Dissolution by Shortening Corporate Term
A voluntary dissolution may be effected by amending the articles of incorporation to shorten the corporate term pursuant to the provisions of the RCC.

The proposed expiration of corporate term must contemplate a future date
No application for amendment under Section 136 of the RCC shall be accepted if the proposed expiration of corporate term had already lapsed at the time of filing of the application.

Effectivity of Dissolution
Upon the expiration of the shortened term, as stated in the approved amended articles of incorporation, the corporation shall be deemed dissolved without any further proceedings, subject to the provisions of the RCC on liquidation. Dissolution shall automatically take effect on the day following the last day of the corporate term stated in the amended articles of incorporation, without the need for the issuance by the Commission of a certificate of dissolution.

Involuntary Dissolution

Grounds under Section 138 of the RCC
The Commission may, motu proprio, or upon filing of a verified complaint by any interested party, dissolve a corporation based on the following:

a. Non-use of corporate charter as provided under Section 21 of the RCC;
b. Continuous inoperation of a corporation as provided under Section 21 of the RCC;
c. Upon receipt of a lawful court order dissolving the corporation;
d. Upon finding by final judgment that corporation procured its incorporation through fraud; and
e. Upon finding by final judgment that the corporation:

i. Was created for the purpose of committing, concealing or aiding the commission of securities violations, smuggling, tax evasion, money laundering or graft and corrupt practices;
ii. Committed or aided in the commission of securities violations, smuggling, tax evasion, money laundering, or graft and corrupt practices, and its stockholders knew; and
iii. Repeatedly and knowingly tolerated the commission of graft and corrupt practices or other fraudulent or illegal acts by its directors, trustees, officers, or employees.

In addition, revocation of certificate of registration on the grounds provided in Section 6 (i) of PD 902-A likewise fall within the jurisdiction of the CRMD and SEC Extension Office:

a. Fraud in the procurement of certificate of registration;
b. Failure to file or register any of the following for a period of at least five (5) years: 1.) Financial Statements; 2.) General Information Sheet; and 3.) Stock and Transfer Book or Membership Book.

IC Circular Letter 2022-09, 
March 2, 2022
This provides for the guidelines on the licensing requirements of Insurance and/or Reinsurance Brokers engaged in Health Maintenance Organization (HMO) Business.

This provides for the guidelines on the licensing requirements of Insurance and/or Reinsurance Brokers engaged in HMO Business, as follows:

• An individual must have at least three (3) years of experience in the HMO industry and occupying a managerial position or licensed as a general agent for at least three (3) years to be qualified as a Soliciting Official.
• No person licensed as an insurance agent, HMO agent or general agent shall be licensed as an insurance/HMO broker, nor shall a person licensed as an insurance/HMO broker be licensed as an insurance agent, HMO agent or general agent.
• No official or employee of an insurance/HMO broker shall be licensed to act as an insurance agent, HMO agent or general agent.
• No broker or its stockholders and officers shall have controlling interest in any insurance or reinsurance company, HMO or insurance adjustment company or vice versa.
• The applicant shall pay a licensing fee in the amount of Php90,900.00 upon approval of the application for issuance of new or renewal of license as an HMO broker with one (1) Soliciting Officia. ln case there are more than one (1) Soliciting Official, the applicant shall pay a licensing fee of Php30,300.00 for each additional Soliciting Official.

IC Circular Letter 2022-14,
March 14, 2022
This provides for the Adoption of Philippine Financial Reporting Standards (PFRS) 4 – Insurance Contracts.

The relevant rules and regulations are as follows:

• All government-owned or-controlled corporations or entities engaged in social or private insurance or simply referring to Government Insurance Institutions (GIIs) shall adopt the requirements of PFRS 4 - Insurance Contracts on classifying, measuring, recognizing the contractual obligations and the appropriate presentation and disclosure requirements on the statutory reporting and AS submission to the Commission.
• GIIs covered shall apply the financial reporting framework issued by the Commission on Audit (COA) in preparing their general purpose financial statements.
• The general-purpose financial statements as audited by the COA shall be used as basis for the preparation of the AS, which will be subjected to examination of the IC.

This Letter shall apply for annual periods beginning on or after January 1, 2023.

For the purposes of the transition requirements of this Circular:

a. the date of initial application is the beginning of the annual reporting period in which an entity first applies PFRS 4; and
b. the transition date is the beginning of the annual reporting period immediately preceding the date of initial application.

An entity shall apply PFRS 4 retrospectively unless it is impracticable to do so.

IC LO-2022-09
March 23, 2022
This is a request for a legal opinion on queries regarding its designation as a policyholder
of the group insurance.

The following are the queries and answers regarding its designation as a policyholder of the group insurance:

1. Whether the lending company is allowed or is not prohibited under the Insurance Code or its rules to act as policyholder in a group policy covering its customers?

YES. Considering that lending companies were expressly mentioned in Section 1.2 and are clearly classified as part of the Affinity group, the client-lending company is therefore allowed to act as a policyholder in a group policy covering its customers.

2. Whether the lending company as policyholder of the group policy is not required to be licensed as an insurance agent?

NO. The client-lending company as a policyholder of a group policy is not required to be licensed as an insurance agent. Section 1.7 of the IC CL no. 2017-57 valid certificate of registration from the Securities and Exchange Commission. However, it must be noted that the certificate requirement does not apply to recognized and legal foreign entities which have offices or branches in the Philippines such as diplomatic, foreign or international organizations.

3. Whether the lending company is authorized or is not prohibited from collecting a service fee from the insurance company for providing services in the administration of the group policy for its customers?

YES. Section 5.5 of the IC CL no. 2017-57 is clear in authorizing and allowing a policyholder to collect service fees from the insurance company for providing services in the administration of the group policy for its customers, stating that

"a service fee or collection fee may be paid by the Insurer to the policyholder. is understood that the payment of a fee or collection fee to the policyholder is necessary to help defray the costs for servicing and administering the plan" However, please note that a service fee or collection fee is not a matter of right which can be required from the insurer as this would still be subject to an agreement between the contracting parties.

BSP Circular No. 1139,
March 23, 2022
This provides for the guidelines for reporting Islamic Banking and Finance Transactions / Arrangements.

As a general rule, the provisions of existing regulations under the MORB, as well as other standards of conduct prescribed by the BSP for conventional banks shall also apply to an (Islamic Bank) IB and (Islamic Banking Unit (IBU) of a conventional bank, unless otherwise expressly specified.

The funds of the IBU shall not be invested in, or commingled with other funds held by, the conventional bank. The books and records of the IBU shall contain full information relative to its lslamic banking and financing transactions and activities and shall be kept separate and distinct from the books and records of transactions performed by the other departments/units of the conventional bank.

BSP CL-2022-026,
March 15, 2022
This informs all BSP-Supervised Financial Institutions (BSFIs) of the Financial Action Task Force (FATF) Publications on High-Risk and Other Monitored Jurisdictions.

This is to inform all BSFIs of the updated statements of the FATF on high-risk jurisdictions subject to a call for action and jurisdictions under increased monitoring:

1. High-Risk Jurisdictions subject to a Call for Action:

a. On Democratic People’s Republic of Korea (DPRK) – The FATF calls on its members and urges all jurisdictions to advise their financial institutions (FIs) in their respective jurisdictions to give special attention to business relationships and transactions, directly or indirectly, with the DPRK, including DPRK companies, FIs, and those acting on their behalf.
b. On Iran – The FATF fully lifts the suspension of counter-measures and calls on its members and urges all jurisdictions to apply effective countermeasures against Iran.

2. Jurisdictions under Increased Monitoring - The FATF has issued an updated list of jurisdictions under increased monitoring or with strategic deficiencies. These countries are actively working with the FATF and have committed to resolve swiftly the identified strategic deficiencies in their regimes to counter money laundering, terrorist financing, and proliferation financing within agreed timelines and are subject to increased monitoring.

BSP M-2022-015,
March 22, 2022
This recommends control measures against cyber fraud and attacks on retail Electronic Payments and Financial Services (EPFS).

BSFIs are advised to adopt the following supplementary control measures:

1. Removal of clickable links in emails or SMS sent to retail customers followed by an information campaign that the BSFI will no longer be sending clickable links.
2. Customer notification through existing mobile or email registered with the BSFI whenever there is a request to change a customer’s mobile number, email address, or account credentials.
3. After the conduct of a thorough risk analysis and assessment, the implementation of the following controls:

a. Mandatory fund transfer transaction notification to customers through SMS and/or email for transactions exceeding a predefined amount;
b. Holding period or delay before activation of a new soft token on a mobile device; and
c. Cooling-off period before the implementation of requests for key account changes such as those for the mobile number and email address.

4. Personalized SMS/Email OTP messages for device registration, fund transfer, and profile update, among others.
5. Restriction to any BSFI officer or representative from manually obtaining or inquiring about critical authentication information such as customer password and/or one-time password/pin (PIN).
6. Creation of dedicated and well-resourced customer assistance teams that deal with feedback on potential fraud cases on a priority basis.
7. Conduct of regular customer education campaigns against online scam and phishing schemes with mechanisms to monitor their effectiveness and relevance; and
8. Adoption of strong fraud surveillance mechanisms to ensure prompt responses in dealing with the growing threat of online scams.

CMC No. 41-2022
March 2, 2022
This provides for the extension of the transitory period and provision of interim guidelines for the implementation of FDA circular no. 2020-025 through the issuance of FDA circular No. 2021-011-A.

The transitory period for full implementation of FDA Circular No. 2020-025, which provides the guidelines for the licensing and registration of Household/Urban Hazardous Substances (HUHS) establishments and products, respectively, shall be extended from January 22 to December 31, 2023 by virtue of FDA Circular No. 2021-011-A. However, this transitory period shall not apply to licensing of HUHS establishments. It is applicable only to HUHS Product Registration wherein companies are allowed to continue with the manufacture, importation, exportation, distribution, sale, offer for sale, transfer, promotion, advertisement and/or sponsorship of their HUHS products not yet registered with FDA as long as they have managed to secure a License to Operate as HUHS establishment.

For the purpose of importation of HUHS products intended to be placed in the market, the following documents must be presented before the BOC for the purpose of clearing shipments containing HUHS products:

1. A valid LTO as HUHS Distributor-Importer; and
2. A copy of FDA Circular No. 2021-011-A (in lieu of an FDA-issued valid Certificate of Product Registration)

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FIRB Resolution No. 006-22,
March 21, 2022
This clarifies the period of imposition of penalty for violating the conditions prescribed under FIRB Resolution 19-21.

The following are the clarifications resolved by the Board:

• The penalty for non-compliance with the provisions found in FIRB Resolution No. 19-21 shall be effective from September 13, 2021, until the expiration of the effectivity of FIRB Resolution No. 19-21.
• All projects or activities must be conducted inside the economic zone or freeport pursuant to Section 309 of the NIRC of 1997, as amended.
• The FIRB may cancel, withdraw, or suspend the enjoyment of fiscal incentives of concerned RBEs for violating any provisions of the CREATE Act pursuant to Section 297 (E) thereof.
• The work arrangement found in FIRB Resolution No. 19-21 for RBEs in the IT-BPM sector shall be allowed until March 31, 2022 only.