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.

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An annual audit program is not a condition precedent for the issuance of an LOA.

The taxpayers sought for the cancellation of the LOAs issued to them by the BIR on the ground that the LOAs failed to expressly state the basis for the audit and the audit program as required by RMO No. 44-2010 and RAO No. 3-2014.

The Court held that an annual audit program is not a condition precedent for the issuance of an LOA. An LOA can still be issued despite the absence of an annual audit program as clarified under RMC No. 006-13. 

The audit program being "mandated" by the taxpayers, could not be stated in the LOA for the reason of practicality as it contains the prescribed policies, guidelines, and procedures to be observed in the audit/investigation of tax returns. Besides, the purpose of an LOA is to give notice to the taxpayer that it is under investigation for possible deficiency tax assessment; at the same time, it represents the authority given to the named/designated Revenue Officer to perform assessment functions. (St. Timothy Construction Corporation, et. al. vs. BIR, CTA Case No. 10472, November 3, 2022)

In the absence of law or ordinance, municipal treasurers are without authority to initiate suit against a claim of RPT refund.

The CBAA granted the taxpayer’s claim for RPT refund and order the municipal treasurer of Bakun, Benguet to recompute the taxpayer’s RPT in accordance with EO No. 88 s. 2019. The municipal treasurer assailed the order of the CBAA and appealed the same before the Court by way of a Petition for Review. The taxpayer argued that the municipal treasurer has no authority to file the petition.

The Court dismissed the petition. It held that although Section 183 and 266 of the LGC authorize the local treasurer to collect delinquent taxes, fees, charges or other revenues and RPT through judicial action, said provisions show that such authority applies specifically to a collection case. The instant petition does not involve collecting delinquent taxes but a case emanated from taxpayer’s claim for refund or credit of the subject RPT before the LBAA. The LGC provides that only the provincial governor has the authority to file suits on behalf of the province. However, the municipal treasurer did not present any ordinance, resolution or any other written proof of their authority to file. (Imelda Macanes, in her capacity as the Provincial Treasurer of Benguet and Merlita G. Tolito, in her capacity as OIC of the Municipal Treasury Office of Bakun Benguet v. Luzon Hydro Corporation, CTA EB No. 2407 (CBAA Case No. L-141-2018), November 7, 2022)

In assessment proceedings, if TPI discrepancies occur, the taxpayer is required to submit schedules and reconciliations, while the BIR is required to obtain sworn statements from TPI sources.

Taxpayer claims that the subject deficiency tax assessments based on third-party information (TPI) are void for being based on mere presumptions and unverified data. Thus, failure to validate such TPI (on which the alleged discrepancies were based) rendered the assessment void for lack of factual basis.

CIR, on the other hand, argues that taxpayer cannot assail the TPI's correctness since the certifications obtained from the latter are for the internal records of respondent only. The discrepancies, if any, are shared to taxpayers only through the PAN and FAN, with schedules for reconciliation. CIR further argues that he or she validated the information used in the assessment in accordance with Revenue Memorandum Order (RMO) Nos. 04-2003 and 46-2004.

The Court declared as null and void the deficiency VAT pertaining to undeclared sales due to TPI. Based on the provisions of RMO No. 04-2003 and RMO No. 46-2004, in assessment proceedings, if TPI discrepancies occur, the taxpayer is required to submit schedules and reconciliations to substantiate its claims. In addition, the taxpayer is required to execute a sworn statement to attest the veracity and authenticity of the schedules and documents presented/submitted. On the other hand, BIR is required to obtain sworn statements from TPI sources to attest the veracity of the data provided. To obtain sworn statements, BIR must first send confirmation requests to the third-party sources, or coordinate with the RDO, who has jurisdiction over the third-party sources, to course through the confirmation requests to the letter. In this case, although there are confirmation letters attached to the BIR records, CIR did not offer them as evidence. Further, no registered return cards can be found although the addressees of the confirmation letters are located outside of the jurisdiction of the investigation office. Based on the foregoing, the Court can only conclude that respondent failed to comply with his or her own regulations, thus resulting in an assessment arising from or based on unverified information. (BASF Philippines, Inc. v. The Commissioner of Internal Revenue, CTA Case No. 10221, November 3, 2022)

If no assessment notice is issued by the local treasurer, and the taxpayer claims that it erroneously paid a tax, fee, or charge, or that the tax, fee, or charge has been illegally collected from him, then Section 196 of the LGC applies

The RTC of Makati City ruled that the taxpayer is not entitled to its claim for refund for local business taxes for failure to comply with the procedures under Section 195 of the LGC. On appeal, taxpayer contends that the billing assessments issued by the Business Tax Division of Makati City were in relation to its application for renewal of its business permits; that they were not issued or made after an examination of the books and records of petitioner and a finding by the local treasurer that incorrect taxes were paid; that petitioner did not receive any letter of authority or notification letter for the conduct of an audit of its books; and that it did not receive prior notice of assessment from the City Treasurer.

The Court ruled that the RTC erroneously applied Section 195, instead of Section 196 of the LGC. If the taxpayer receives an assessment and does not pay the tax, its remedy is strictly confined to Section 195 of the LGC. On the other hand, if no assessment notice is issued by the local treasurer, and the taxpayer claims that it erroneously paid a tax, fee, or charge, or that the tax, fee, or charge has been illegally collected from him, then Section 196 applies.

The billing statements/assessments in this case do not constitute “assessments” within the ambit of Section 195 of the LGC. Hence, Section 196 of the LGC governs taxpayer's claim for refund. (Casas+ Architects vs. The City of Makati and Jesusa E. Cuneta, in her capacity as the City Treasurer of the City of Makati, CTA AC Case No. 259, 24 November 2022)

RR No. 14-2022,
November 11, 2022
This implements the provisions of RA No. 1190, relative to the importation, manufacture, sale, packaging, distribution, use, and communication of vaporized nicotine products, and novel tobacco products.

This implements the provisions of RA No. 1190, relative to the importation, manufacture, sale, packaging, distribution, use, and communication of vaporized nicotine products, and novel tobacco products.

This regulation prescribes guidelines on the following:
1. Tax rates and bases of excise taxes
2. Compliance and administrative requirements for the manufacturers or importers
3. Online trade
4. Floor price or minimum price of vaporized nicotine and non-nicotine products and novel tobacco products which shall be the total production cost/expense/landed cost of the cheapest brand per tobacco product including the sum of excise tax and VAT.
5. Usage of local tobacco products
6. Penalties for non-compliance

RMC No. 148-2022,
November 12, 2022
This circularizes the lifting of the suspension on all filed operations and other field operations of the BIR.

This circularizes the lifting of the suspension on all filed operations and other field operations of the BIR pursuant to RMC 77-2022.

All field audit, field operations, or any form of business visitation in execution of Letters of Authority/Audit Notices (LOAs) or Mission Orders (MOs) can be already conducted, and new LOAs/MOs can be further issued.

BSP Circular No. 1159, Series of 2022 Dated November 04, 2022
Implementing Rules and Regulations of the Mandatory Agriculture, Fisheries and Rural Development Financing under Republic Act (R.A.) No. 11901 or “The Agriculture, Fisheries and Rural Development Financing Enhancement Act of 2022”.

The Monetary Board, in its Resolution No. 1542 dated 21 October 2022, approved the rules and regulations governing the mandatory agriculture, fisheries and rural development financing under Republic Act (R.A.) No. 11901, otherwise known as "The Agriculture, Fisheries and Rural Development Financing Enhancement Act of 2022".

BSP Circular Letter No. CL-2022-077 Dated November 14, 2022
Bank of Commerce - Upgrade of the License to Operate from a Commercial Bank into a Universal Bank

The Monetary Board, in its Resolution No. 1798 dated 23 December 2021, approved the application of Bank of Commerce (BOC) to upgrade its banking license from a commercial bank to a universal bank under the same corporate name.

The Securities and Exchange Commission approved on 9 August 2022 the amended Articles of Incorporation bearing the universal banking license. The corresponding Certificate of Authority to Operate as a universal bank was signed by the Bangko Sentral Governor on 4 October 2022.

BOC commenced its operations as a universal bank on 2 November 2022.

Memorandum M-2022-048 Dated November 14, 2022
Guidelines on the Submission of the Report on Assets of Non-Resident Participants in Unit Investment Trust Funds

Relative to the amendment to the Manual of Regulations for Banks and the Manual of Regulations for Non-Bank Financial Institutions under Circular No. 1157 dated 14 October 2022 allowing trust entities (TEs) to participate in the secondary market for BSP Securities through unit investment trust funds (UITFs) with minimal non-resident participation, a reporting requirement is introduced for all TEs that offer UITFs. This is the Report on Assets of Non-Resident Participants in UITFs (RANRP).

The report shall consist of the prescribed data entry template (DET) and its corresponding Control Prooflist (CP).

Report submissions that do not conform with the prescribed guidelines shallnot be accepted. Beginning with the reference month of December 2022, applicable penalties will be imposed for erroneous, delayed or unsubmitted reports

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Circular Letter No. 2022-49 dated November 21, 2022
This provides for the Revised Implementation Requirements for the Valuation Standards For Health Maintenance Organization (HMO) Agreement Liabilities And Annual Reporting For HMOs.

• Membership Fee Reserve

For 2020 and 2021, companies shall be allowed to set up as Membership Fee Reserves the Unearned Membership Fee Reserves (UMFR) instead of the higher of the UMFR and Unexpired Risk Reserve (URR). The UMFR may be calculated using the 1/24th method. Starting 2022, the Membership Fee Reserves shall be determined in accordance with the valuation standards prescribed under CL No. 2020-22.

• Margin for Adverse Deviation

Companies shall be allowed to set the Margin for Adverse Deviation (MfAD) as follows:

• Reserves under an ASO Endorsement

For 2020, and 2021, companies shall be allowed to compute the Unearned Administrative Fee Reserves (UAFR) using the 1/24th method.
Starting 2022, the UAFR shall be calculated in accordance with Section 10.2 of the valuation standards.

• Reportorial Requirements

The Annual Reportorial Requirements prescribed in Section 2.1 of CL No. 2016-41 shall include the Actuarial Valuation Report in accordance with CL No. 2020-22 and shall be submitted on or before 31st of May of the succeeding year of the reporting year starting 31 December 2020.

Circular Letter No. 2022-51 dated November 28, 2022
This provides for the Insurance Commission Advance Release Calendar and Revision Policy of Statistical Reports.

The Advance Release Calendar (ARC) shall serve as basis for the release of statistical reports of the Commission:

1. The ARC provides the public of the release dates of the statistical outputs of the Commission.
2. The release of statistical outputs of the Commission shall coincide with the request of stakeholders (e.g. National Government Agencies) that use the indicators as part of their input to estimation of national indicators, or compilation of important indicators that prescribes current status of the insurance, pre-need and HMO industries.
3. The Commission shall monitor the timeliness of the release of reports.

Should the statistical reports convey preliminary data or need revisions for any reason, the revision policy is as follows:

1. The quarterly reports produced by the Commission shall be revised as needed and posted on the lC website following the schedule of release of the next quarter report.
2. The annual reports produced by the Commission shall be revised as needed in the succeeding report.
3. Revisions and the corresponding notes relative to the changes shall be posted on the lC website. The revised reports shall replace the old reports except for the lC Annual Report where an erratum or its equivalent shall instead be posted.

FIRB Advisory No. 010-2022 dated November 23, 2022
This provides for the Deadline for Submission of the Annual Tax Incentives Report (AITR) and Annual Benefits Report (ABR) for the Taxable Year 2022.

The following final deadlines shall be observed by RBEs and OREs for all annexes of ATIR and ABR, without prejudice to the Investment Promotion Agencies (IPAs) and Other Government Agencies (OGAs) imposing stricter deadlines per annex in order to validate submissions

Following the deadline for RBEs and OREs for all annexes of ATIR and ABR, the IPAs and the OGAs shall submit the consolidated ATIR and ABR per IPA to the FIRB and Bureau of Internal Revenue (BIR) on June 16, 2023.