Tax Bulletin

May 2018

Tax Bulletin | 1
 Highlights

BIR Rulings

• Retirement gratuities granted to qualified employees under Section 13-A

of RA 8291 (GSIS Law) are exempt from income tax and withholding tax on
compensation. On the other hand, retirement gratuities granted to employees
who have not met all the qualifications shall be subject to income tax and
withholding tax on compensation. (Page 4)

• Investment earnings of a retirement fund, including those from government

securities issued by the Bureau of Treasury, shall be exempt from income taxes,
provided all the conditions stated under Section 60 (E) of the Tax Code are
met. (Page 5)

• Per diem granted to the directors of a non-stock, non-profit corporation for

every meeting attended violates the requirement that no part of the net
income or assets of the corporation shall inure to the benefit of any individual
or specific person and disqualifies the said corporation from the issuance of a
tax exemption certificate. Accordingly, it should be considered as an ordinary
corporation subject to the regular income tax rate of 30% and other internal
revenue taxes imposed under the Tax Code, as amended. (Page 5)

• Emolument for quarterly meetings paid to the trustees of a non-stock, non-

profit educational institution and hospital is not in accordance with the
definition of “non-stock” and “non-profit” and disqualifies the organization
for the issuance of a certificate of tax exemption. Accordingly, it should be
considered as a proprietary educational institution and hospital subject to the
preferential rate of 10%. (Page 6)

• Honoraria and allowances given to public school teachers and other

qualified citizens who serve during the Barangay and Sangguniang Kabataan
(SK) Elections shall not be subject to income tax and withholding tax on
compensation; provided, that the annual taxable income of such persons do
not exceed the Php250,000 threshold under the TRAIN Law. (Page 7)

• Usufructuary does not need to secure a Certificate Authorizing Registration

(CAR) before causing the annotation of the Contract of Usufruct on the title of
the subject property. (Page 7)

BIR Issuances

• Revenue Regulation (RR) No. 16-2018 further amends RR No. 10-2015 in

relation to the use of non-thermal paper for all Cash Register Machines (CRMs),
Point-of-Sale (POS) machines and other invoice or receipt generating machine
or software. (Page 8)

• Revenue Memorandum Order (RMO) No. 20-2018 amends the policies

and procedures on the processing of tax credit certificates (TCCs) for cash
conversion. (Page 8)

• RMO No. 23-2018 prescribes the policies, guidelines and procedures in availing
the 8% income tax rate option for individuals earning from self-employment
and/or practice of professions. (Page 9)

• Revenue Memorandum Circular (RMC) No. 30-2018 amends the documentary

requirements for new business registrants. (Page 12)
2 | Tax Bulletin
• RMC No. 33-2018 announces the entry into force, effectivity and applicability of
the renegotiated Philippines-Thailand Tax Treaty. (Page 13)

• RMC No. 34-2018 announces the entry into force, effectivity and applicability of
the Philippines-Sri Lanka Tax Treaty. (Page 14)

• RMC No. 36-2018 extends the validity period of the Certificate of Accreditation
issued to developers/dealers/suppliers/vendors/pseudo-suppliers of Cash Register
Machines (CRM), Point-of-Sale (POS) machines and/or other sales machines/
receipting software. (Page 14)

• RMC No. 39-2018 reiterates the imposition of VAT on goods disposed of or

existing as of the date of change in or cessation of a person’s VAT registration,
pursuant to Sec. 4.106-8 of RR No. 16-2005, implementing Sec. 106(C) of the
Tax Code, as further amended by the TRAIN Law. (Page 14)

• RMC No. 41-2018 clarifies the issuance of a Tax Identification Number (TIN) to
corporations in relation to their corporate term under the Corporation Code of
the Philippines. (Page 15)

• RMC No. 43-2018 announces the creation of a fast lane for all One-Time
Transactions (ONETT) Involving simple transactions. (Page 16)

BOC Updates

• Customs Memorandum Order (CMO) 05-2018 is supplemental to CMO No. 11-

2014 and provides for the Revised Guidelines for Registration of Importers and
Customs Brokers with the Bureau of Customs (BOC). (Page 16)

• CMO 06-2018 provides for the Submission of Advance Cargo Manifests and Other
Documents to the BOC’s Advanced Manifest System. (Page 18)

PEZA Issuances

• PEZA Memorandum Circular No. 2018-009 circularizes DENR Memorandum

Circular No. 2017-011, which clarifies the requirements for importing recyclable
materials containing hazardous substances. (Page 20)

• PEZA Memorandum Circular No. 2018-010 requests all PEZA-registered

enterprises to observe the Expanded Breastfeeding Promotion Act of 2009.
(Page 20)

BSP Issuances

• Circular No. 1001 provides for the Credit Limits for Project Finance Exposures.
(Page 21)

• Circular No. 1002 provides for Amendments to the Guidelines on Proposed

Investments from Third Party Investors (TPIs) and the Requirements on
Transactions Requiring prior Monetary Board approval involving Additional
Subscription of Shares of Stock. (Page 22)

• Circular No. 1003 provides for the Guidelines on the Establishment and
Operations of Credit Card Issuers to Implement Republic Act No. 10870 or the
Philippine Credit Card Industry Regulations Law. (Page 23)

• Circular No. 1004 provides for the Reduction in Reserve Requirements. (Page 23)

Tax Bulletin | 3
 Court Decisions

• For sale of services to qualify for VAT zero-rating, the recipient of the services
must be a foreign corporation engaged in business outside the Philippines and
not doing business in the Philippines. A foreign corporation that appointed a
local agent is deemed engaged in business in the Philippines. (Page 24)

• Under the TRAIN Law, the 12% deficiency interest is computed from the date
prescribed for its payment until the full payment thereof or upon issuance of a
notice and demand by the CIR, whichever comes earlier. (Page 25)

 
BIR Rulings

BIR Ruling No. 612-18 dated 5 April 2018

Retirement gratuities granted to Facts:

qualified employees under Section 13-A
of RA 8291 (GSIS Law) are exempt X and Y, employees of ABC Center, a government hospital, wanted to avail of the
from income tax and withholding retirement benefits under RA 8291 (GSIS Law). Section 13-A of the GSIS law grants
tax on compensation. On the other a retirement gratuity to retirees who meet the following qualifications: (1) must
hand, retirement gratuities granted have rendered at least 15 years of service; (2) must be at least 60 years of age
to employees who have not met all upon retirement; and (3) must not be permanent total disability pensioners. Only X
the qualifications shall be subject to met all the qualifications. However, both X and Y have applied for and were granted
income tax and withholding tax on retirement gratuities under the GSIS law.
compensation.
Issues:

1. Is the retirement gratuity received by X subject to withholding tax on

compensation?

2. Is the retirement gratuity received by Y subject to withholding tax on

compensation?

Ruling:

1. No. Pursuant to Sec. 32 (B) (6) (f) of the Tax Code, benefits from the GSIS under
RA 8291, including retirement gratuities received by government officials and
employees, shall not be included in their gross income and shall be exempt
from income tax. Accordingly, the gratuity pay of retiring employees, who are
qualified to avail of the retirement benefits under RA 8291, shall be excluded
from their gross income and shall not be subjected to withholding tax on
compensation.

2. Yes. For officials and employees who are not qualified to avail of the retirement
benefits under Section 13 of RA 8291, the benefits that they will receive
shall be considered as part of their compensation income, which are subject
to income tax and withholding tax on wages under Section 79 of the Tax
Code. Consequently, the retirement gratuity received by Y shall be subject to
withholding tax on compensation.

4 | Tax Bulletin
 BIR Ruling No. 613-18 dated 6 April 2018

Investment earnings of a retirement Facts:

fund, including those from government
securities issued by the Bureau of C Provident Plan (the Plan) is a non-stock, non-profit corporation established by C
Treasury, shall be exempt from income Corporation (the Corporation) as an employees’ retirement plan for the exclusive
taxes, provided all the conditions stated benefit of its officials and employees. The Plan was incorporated with the primary
under Section 60 (E) of the Tax Code are purpose of establishing and maintaining a Fund, the source of which shall be derived
met. from the individual contributions of the members and counterpart contributions
of the Corporation. All the earnings of the Fund accumulated by the Plan from
investments, including those from government securities issued by the Bureau of
Treasury, shall be distributed to the members in the form of benefits in cases of
retirement, resignation or separation from service.

Issue:

Are the earnings of the Fund accumulated by the Plan exempt from income tax?

Ruling:

Yes. Section 60 (B) of the Tax Code lays down the following requirements in
order for the earnings of a retirement fund to be exempt from income tax: (1) the
contributions are made to the trust by the employer, or employees, or both; (2)
such contributions are made for the purpose of distributing to such employees the
earnings and principal of the fund accumulated by the trust in accordance with
such plan; and (3) under the trust instrument it is impossible (in the taxable year
and at any time thereafter prior to the satisfaction of all liabilities with respect to
employees under the trust) for any part of the corpus or income to be used for, or
diverted to, purposes other than the exclusive benefit of the employees.

The Plan has met all of the above conditions that qualifies the earnings of the Fund
as exempt from income tax:

a. The Plan sources its funds from contributions made by both employer and
employees;

b. The contributions are made for the purpose of distributing to such members
in the form of benefits in cases of retirement, resignation or separation from
service, all the earnings of the Fund accumulated by the Plan from investments,
including those from government securities issued by the Bureau of Treasury.

c. The Plan was incorporated for the exclusive benefit of the member-employees/
officials or their beneficiaries.

Per diem granted to the directors of a

non-stock, non-profit corporation for BIR Ruling No. 718-18 dated 16 April 2018
every meeting attended violates the
requirement that no part of the net Facts:
income or assets of the corporation shall
inure to the benefit of any individual D Inc., a non-stock, non-profit corporation, applied with the BIR for the issuance
or specific person and disqualifies the of a tax exemption certificate pursuant to Section 30 (J) of the Tax Code, which
said corporation from the issuance of a exempts non-stock, non-profit corporations from corporate income tax in respect to
tax exemption certificate. Accordingly, income received by them as such. The by-laws of D Inc. provides that the members
it should be considered as an ordinary of the board of directors (BOD) shall receive a per diem for every board meeting
corporation subject to the regular attended, the amount of which shall be fixed by the members.
income tax rate of 30% and other
internal revenue taxes imposed under
the Tax Code, as amended.

Tax Bulletin | 5
 Issue:

Is D Inc. entitled to the issuance of a tax exemption certificate?

Ruling:

No. RMC No. 51-2014 has clarified that, in order for an entity to qualify as a non-
stock and/or non-profit corporation/association/organization exempt from income
tax under Section 30 of the Tax Code, its earnings or assets shall not inure to the
benefit of any of its trustees, organizers, officers, members or any specific person.

Giving per diem to the members of the BOD clearly violates the requirement that no
part of the net income or assets of the corporation shall inure to the benefit of any
individual or specific person. Consequently, D Inc. is not entitled to the issuance of a
certificate of tax exemption and shall be treated as an ordinary corporation subject
to the 30% income tax rate pursuant to Section 27(A) and other internal revenue
taxes imposed by the Tax Code.

BIR Ruling No. 755-18 dated 30 April 2018

Emolument for quarterly meetings Facts:

paid to the trustees of a non-stock,
non-profit educational institution and XYZ Medical School Foundation Inc. (XYZ), a non-stock, non-profit educational
hospital is not in accordance with the institution and hospital, applied with the BIR for the issuance of a tax exemption
definition of “non-stock” and “non- certificate pursuant to Section 30 (E) and (H) of the Tax Code, which exempts non-
profit” and disqualifies the organization stock, non-profit corporations or associations and non-stock, non-profit educational
for the issuance of a certificate of tax institutions, respectively, from corporate income tax. The treasurer of XYZ
exemption. Accordingly, it should be certified under oath that the members of the Board of Trustees (BOT) are receiving
considered as a proprietary educational emoluments of Php2,000 every quarterly meeting.
institution and hospital subject to the
preferential rate of 10%. Issue:

Is XYZ entitled to the issuance of a tax exemption certificate?

Ruling:

No. “Non-stock” means no part of the corporation’s income is distributable as

dividends to its members, trustees, or officers and that any profit obtained as
an incident to its operation shall, whenever necessary or proper, be used for the
furtherance of the purpose or purposes for which the corporation was organized.
“Non-profit” means that no net income or asset accrues to or benefits any member
or specific person, with all the net income or asset devoted to the institution’s
purposes and all its activities conducted not for profit.

XYZ’s payment of emoluments to the BOT is not in accordance with the definition of
“non-stock” because it is considered a distribution of equity (including net income)
of XYZ to its trustees. The payment is also not in accordance with the definition of
“non-profit” because the payment from its net income accrues to the benefit of its
trustees. Consequently, XYZ is not entitled to the issuance of a certificate of tax
exemption and shall be treated as a proprietary educational institution and hospital
subject to the 10% preferential rate pursuant to Section 27 (B) of the Tax Code.

6 | Tax Bulletin
 BIR Ruling No. 759-18 dated 8 May 2018

Honoraria and allowances given to public Facts:

school teachers and other qualified
citizens who serve during the Barangay The COMELEC pays honoraria and allowances to public school teachers and other
and SK Elections shall not be subject qualified citizens who serve during Barangay and SK Elections. Pursuant to BIR
to income tax and withholding tax on Ruling No. 494-18, honoraria and allowances, no matter how negligible the amount,
compensation; provided, that the annual are wealth that flow into the hands of the recipient, hence subject to income tax
taxable income of such persons do not and consequently, withholding tax on compensation. The Alliance of Concerned
exceed the Php250,000 threshold under Teachers (ACT) disagrees with such ruling, arguing that the compensation package
the TRAIN Law. of teachers who will serve in the upcoming Barangay and SK election will not exceed
the Php250,000 threshold under the TRAIN Law, hence should not be subject to
income tax and withholding tax on compensation.

Issue:

Are the honoraria and allowances received by the public school teachers and other
qualified citizens who serve during the Barangay and SK elections, but whose
income does not exceed the PHP 250,000 threshold, subject to income tax and
withholding tax on compensation?

Ruling:

No. If the annual taxable income, which includes the honoraria and allowances, of
teachers who will serve in the Electoral Board does not exceed Php250,000, such
honoraria and allowances shall not be subject to income tax and withholding tax
under the TRAIN Law.

BIR Ruling 810-18 dated 10 May 2018

Usufructuary does not need to secure Facts:

a CAR before causing the annotation of
the Contract of Usufruct on the title of A Co. and B Co. entered into a Contract of Usufruct over a parcel of land owned by A
the subject property. Co. The contract stipulates that A Co. reserves the right to sell, transfer, dispose of,
mortgage, charge, hypothecate, create liens over or encumber the property to, or in
favor of a third party. The contract also stipulates that the usufructuary, B Co., shall
cause the annotation of the contract on the TCT of the land. Pursuant to Section 58
(E) of the Tax Code, a CAR must be secured from the BIR stating that the transfer
of real property has been reported and the CGT or creditable withholding tax, if
any, has been paid before the Register of Deeds may effect the registration of any
document transferring real property on the title covering the same.

Issue:

Is B Co. required to secure a CAR before causing the annotation of the Contract of
Usufruct on the TCT of the subject property?

Ruling:

No. Usufruct gives the usufructuary the right to enjoy the property of another with
the obligation of preserving its form and substance, unless the title constituting it or
the law otherwise provides. Clearly, a Contract of Usufruct does not involve transfer,
conveyance or disposition of any portion of the real property or its ownership.

Tax Bulletin | 7
 Here, the Contract of Usufruct is not a sale or transfer of real property because the
A Co. retains ownership thereof as it is expressly stated in the contract that A Co.
reserves the right to sell, transfer, dispose of, mortgage, charge, hypothecate, create
liens over or encumber the property to, or in favor of a third party. Consequently,
there being no sale, conveyance, transfer or disposition of the land registered in the
name of A Co., B Co. is not required to secure a CAR before causing the annotation
the Contract of Usufruct on the TCT of the subject property.

BIR Issuances

RR No. 16-2018 further amends RR RR No. 16-2018 dated 25 May 2018

No. 10-2015 in relation to the use of
non-thermal paper for all CRMs, POS ►• All taxpayers using CRM, POS machines or other invoice or receipt generating
machines and other invoice or receipt machines have the option to use the type of paper depending on their business
generating machine or software. requirements, subject to the retention and preservation of accounting records for
the period within which the Commissioner is authorized to make an assessment
and collect taxes.

• All tape receipts issued shall now show the serial number of the CRM/POS
machine as an additional information required under Section 5 of RR No. 10-
2015.

• A buyer or customer may return the issued tape receipt to the seller and request
for the issuance of a manual invoice or receipt, if it is required as a proof of
payment to claim the amount as expense (for income tax purposes) or input tax
(for VAT purposes).

1. The corresponding sales for the tape receipts that have been replaced by
manual invoice or receipt shall be deducted from the sales to be reported in
the eSALES system of the BlR.

2. Such deduction shall be reflected as an adjustment in the CRM Sales Book/

Back end report.

3. The returned tape receipt shall be attached to the duplicate copy of the
manually issued invoice or receipt and shall be the basis in adjusting the
sales.

4. However, the sales shown in the manual invoice / receipt shall still be
included, but separately indicated, in the Summary List of Sales (SLS)
required to be submitted by VAT-registered taxpayers.

• Any person who fails to comply with the provisions of these regulations shall be
subject to penalties imposed under existing revenue issuances.

• These regulations shall take effect 15 days after their publication in a newspaper
of general circulation.

(Editor’s Note: RR No. 16-2018 was published in the Manila Bulletin on 28 May 2017.)

RMO No. 20-2018 amends the policies RMO No. 20-2018 dated 3 May 2018
and procedures on the processing of
TCCs for cash conversion. • All requests for cash conversion shall be filed with the office that originally
processed or investigated the claim for issuance of the TCC, except in the
following cases:

8 | Tax Bulletin
 1. Claims originally filed with the Revenue District Offices (RDO), but were
subjected to further review and approval by the concerned offices in the
National Office, shall be filed with the Tax Audit and Review Division (TARD)

2. Revalidated TCCs, which shall be filed with the Miscellaneous Operations

Monitoring Division (MOMD) of the Collection Service (CS) for revalidated
TCCs.

• The original copy of the TCC must be surrendered to the concerned processing
office as part of the supporting documents for cash conversion.

• If the taxpayer-claimant is found to have an Outstanding Tax Liability (OTL)

upon verification by the MOMD during the processing of the request and/or by
the Accounting Division prior to the final approval of the refund, the taxpayer-
claimant may use the TCC for payment of the OTL, if applicable.

• Any request for cash conversion of the amount reflected in the TCC or its
unutilized portion may be allowed, provided that TCCs, which remain unutilized
after five (5) years from date of issue, shall not be allowed to be converted into
cash, unless revalidated before the end of the fifth year.

• No cash conversion shall be allowed for TCCs issued under the following cases:

1. TCC issued as a result of the availment of incentives granted pursuant to

special laws for which no actual payment was made.

2. Previously transferred or assigned TCCs prior to RR No. 14-2011.

• The following are the documents required for the processing and approval of
requests for conversion of TCC into cash refund:

1. Letter request of taxpayer-claimant for conversion of TCC to cash refund;

2. Original copy of the TCC for conversion;

3. Original copy of the Secretary’s Certificate or Special Power of Attorney

(SPA) executed by the taxpayer-claimant, authorizing his/its representative
to apply for TCC cash conversion on his/its behalf, whichever is applicable;

4. Board Resolution approving the issuance of a Secretary’s Certificate/SPA to

the authorized representative, whichever is applicable; and

5. Any government-issued identification card of the taxpayer-claimant or his/

its authorized representative.

RMO No. 23-2018 prescribes policies, RMO No. 23-2018 dated 21 May 2018
guidelines and procedures in availing the
8% income tax rate option for individuals • The following criteria must be satisfied in order to qualify and avail the 8%
earning from self-employment and/or income tax rate option:
practice of professions.
1. The individual is earning from self-employment and/or practice of
profession;

2. The gross sales/receipts and other non-operating income do not exceed the
P3,000,000.00 VAT threshold during the taxable year;

Tax Bulletin | 9
 3. The taxpayer is registered and subject only to percentage tax under Section
116 of the Tax Code, or is exempt from VAT or other percentage taxes; and,

4. The taxpayer must have signified his intention to elect the 8% income tax
rate by filing any of the following:

• New Business Registrant

a. Upon registration using BIR Form No. 1901 and/or 1701Q; or

b. On the initial quarter return (BIR Form No. 2551Q and/or 1701Q)
of the taxable year after the commencement of a new business/
practice of profession.

• Existing Individual Business Taxpayers

a. Filing of BIR Form 1905 (Application for Registration Information

Update) at the beginning of the taxable year to end-date the form
type of quarterly percentage tax, provided, that the option to avail
the 8% income tax shall be selected in filing the initial quarterly
income tax return;

b. 1st Quarterly Percentage Tax Return, and/or;

c. 1st Quarterly Income Tax Return.

• The 8% income tax rate option is not available to the following individuals, who
shall be taxed based on the graduated income tax rates:

1. Purely compensation income earners;

2. VAT-registered taxpayers, regardless of the amount of gross sales/ receipts

and other non-operating income;

3. Taxpayers exempt from VAT or other percentage taxes whose gross sales/
receipts and other non-operating income exceeded the P3,000,000.00 VAT
threshold during the taxable year;

4. Taxpayers who are subject to other percentage taxes under Title V of the
Tax Code, except those subject under Section 116 of the Tax Code;

5. Partners of a General Professional Partnership (GPP);

6. Individuals enjoying income tax exemption.

• An individual who is exempt from income tax, such as registered Barangay Micro
Business Enterprises (BMBEs), is bound to its availment of the privilege under
Republic Act (RA) No. 9178 for the entire period of its BIR registration and is
not allowed to avail of the 8% income tax rate option.

• The option to avail of the 8% income tax rate by self-employed individuals

is effective only for the covered taxable year when the election was made;
otherwise, all individuals shall be subject to the graduated income tax rates at
the beginning of each taxable year:

1. The availment of the 8% income tax rate option is required to be signified

and selected every taxable year if the taxpayer wishes to be covered by
such rate.

10 | Tax Bulletin
 2. Once the 8% income tax rate option is elected, the same shall be
irrevocable, and no amendment of option shall be made for the taxable
year it was made.

• A self-employed individual, who is qualified and availed the 8% income tax rate
option, shall not be required to file the quarterly percentage tax return, but
shall be required to file the following:

1. Quarterly Income Tax Return, unless exempted by any revenue issuances;

2. Annual Income Tax Return (Financial Statement is not required to be

attached).

• The P250,000.00 reduction from taxable gross sales/ receipts and other non-
operating income is not applicable to mixed income earners since it is already
incorporated in the first tier of the graduated income tax rates applicable to
compensation income.

• The taxable income for individuals earning income from self-employment/

practice of profession shall be based on the following:

Scenario Tax Base

If the taxpayer opted to be taxed Net Taxable Income
at graduated rates or has failed
to signify the 8% income tax rate
option
If the 8% income tax rate Gross sales/ receipts and other
is availed by self-employed non-operating income in excess of
individuals earning income from P250,000.00
purely self-employment and/or
practice of profession
Mixed income earner, who Gross sales/ receipts and other
availed the 8% income tax rate non-operating income, without the
P250,000.00 reduction

• The self–employed individual availing the 8% income tax rate shall still be
registered with “Percentage Tax – Quarterly” tax type, and the BIR Form No.
2551Q form type shall be end-dated.

• The 2551Q form type shall be automatically registered in the BIR registration
system at the beginning of each following year to confirm that the taxpayer is
subject to graduated income tax rates at the beginning of the year and required
to file the quarterly percentage tax return unless:

1. An application for registration information update to avail the 8% income

tax rate for the said taxable year has been submitted to the concerned
RDO, or;

2. The 8% income tax rate option was selected in the filing of the 1st quarterly
percentage or income tax return.

• A Non-VAT individual taxpayer who availed the 8% income tax rate and
whose gross annual sales and/or receipts subsequently exceed the amount of
P3,000,000.00 anytime during the current taxable year when the option was
made, shall automatically be subjected to graduated income tax rates and be
held liable for VAT, prospectively, starting the first day of the month following
the month when the threshold was breached, subject to the following rules:

Tax Bulletin | 11
 1. The taxpayer shall attach an audited Financial Statement (FS) in filing the
annual income tax return.

2. A tax credit for the previous quarter/s income tax payments under the 8%
income tax rate option shall be allowed.

3. The taxpayer shall immediately update his registration within the month
following the month he exceeded the VAT threshold to reflect the change in
tax profile from non-VAT to a VAT taxpayer.

4. Percentage tax shall be imposed from the beginning of the taxable year or
commencement of business/ practice of profession until the taxpayer is
liable to VAT.

• A VAT-registered person whose gross sales and/or receipts for 3 consecutive

years did not exceed the VAT threshold amount of P3,000,000.00, may update
his or her registration from VAT to non-VAT in order to qualify and avail the 8%
income tax rate option, on or before the first quarter of a taxable year, following
the rules and regulations on registrations, updates, verification, and the
inventory and cancellation of VAT invoices/ receipts.

RMC No. 30-2018 amends the RMC No. 30-2018 dated 3 May 2018
documentary requirements for new
business registrants. • In line with the Data Privacy Act of 2012 and to promote ease of doing
business, the following changes have been made to Annexes A1 to A3 of
RMC No. 93-2016, prescribing documentary requirements for new business
registrants:

1. Removal of Books of Accounts in securing a Certificate of Registration

(COR) and Authority to Print (ATP).

• Books of Accounts for new business registrants shall be registered

by the taxpayer within 30 calendar days from the date of business
registration.

• Failure to register within the prescribed period shall be subject to

penalties pursuant to existing revenue issuances.

2. In case an authorized representative will transact with the BIR on behalf of

the taxpayer, the following shall be required:

• For Individual

a. Special Power of Attorney (SPA); and

b. Identification Card (ID) of the authorized person.

• For Non-Individual

a. Board Resolution indicating the name of the authorized

representative;

b. Secretary’s Certificate; and

c. ID of the authorized person.

12 | Tax Bulletin
RMC No. 33-2018 announces the entry RMC No. 33-2018 dated 17 May 2018
into force, effectivity and applicability of
the renegotiated Philippines-Thailand Tax • The renegotiated Philippines-Thailand Tax Treaty shall apply to income that
Treaty. arises in the Philippines beginning 1 January 2019.

• Below are the major amendments under the renegotiated Philippines-Thailand

Tax Treaty:

1. Article 4, Resident:

• In case a non-individual is a resident of both contracting states, its

status shall be determined based on the following order of criteria:

a. Place of incorporation;

b. Place where its effective management is situated; and

c. By mutual agreement, if place of effective management cannot be

determined.

2. Article 5, Permanent Establishment (PE):

• Preparatory or auxiliary activities shall not give rise to PE status.

• An insurance enterprise of a Contracting State shall, except in regard

to reinsurance, be deemed to have a PE in the other Contracting
State if it collects premiums in the territory of that other State or
insures risks situated therein through an employee or through a
representative, who is not an agent of an independent status.

3. Article 7, Business Profits:

• An enterprise, which has a PE in the other state, may be taxed in the

said state for its income attributable to:

a. That PE; or

b. Sales in the other State of goods or merchandise of the same or

similar kind as those sold through the PE; or

c. Other business activities carried on in the other State of the same

or similar kind as those effected through the PE.

4. Article 10, Dividends:

• Dividends are now subject to a 10% preferential withholding tax (WHT)

rate if the beneficial owner is a company (excluding partnerships),
which holds directly at least 25% of the capital of the paying company.

• In all other cases, the 15% WHT rate will apply.

5. Article 11, Interest:

• Interest is subject to a 10% preferential WHT rate if it is received by

any financial institution (including insurance company).

• In all other cases, the 15% WHT rate will apply.

Tax Bulletin | 13
 6. Article 12, Royalties:

• A standard 15% preferential WHT rate is imposed on royalties paid to a

resident of either the Philippines or Thailand.

RMC No. 34-2018 announces the entry RMC No. 34-2018 dated 17 May 2018
into force, effectivity and applicability of
the Philippines-Sri Lanka Tax Treaty. • The Philippines-Sri Lanka Tax Treaty shall apply to income that arises in the
Philippines beginning 1 January 2019.

• The highlights of the Philippines-Sri Lanka Tax Treaty are as follows:

1. Article 10, Dividends:

• Dividends are subject to a 15% WHT rate if the beneficial owner is a

company (excluding partnership).

• In all other cases, the 25% WHT rate shall apply.

2. Article 11, Interest:

• Interest is subject to a 15% WHT rate.

3. Article 12, Royalties:

• Royalties are subject to a 15% preferential WHT rate if paid by an

enterprise registered with, and engaged in preferred areas of activities.

• In all other cases, the 25% WHT rate shall apply.

RMC No. 36-2018 extends the validity RMC No. 36-2018 dated 21 May 2018
period of the Certificate of Accreditation
issued to developers/dealers/suppliers/ • The following rules shall govern the extension of the validity dates of
vendors/pseudo-suppliers of CRM, POS Certificates of Accreditation of developers/dealers/suppliers/ vendors/pseudo-
machines and/or other sales machines/ suppliers of CRM, POS machines and/or other sales machines/ receipting
receipting software. software:

1. Certificates of Accreditation issued on or before 31 July 2015 shall be valid

until 31 July 2020.

2. Certificates issued on 1 August 2015 onwards shall follow the five-year

validity period based on actual date of issuance.

• Both primary and supplementary invoices/receipts must reflect the

corresponding Date of Issuance and Validity Period of Accreditation.

RMC No. 39-2018 reiterates the RMC No. 39-2018 issued on 24 May 2018
imposition of VAT on goods disposed of
or existing as of the date of change in or • This circular emphasizes that goods or properties originally intended for sale or
cessation of a person’s VAT registration use in business, including capital goods, disposed of or existing as of the date
pursuant to Sec. 4.106-8 of RR No. of change of status of a taxpayer from VAT to Non-VAT or upon cessation of
16-2005, implementing Sec. 106(C) of operations are subject to VAT imposed under Sec. 106(C), as implemented by
the Tax Code, as further amended by the Sec. 4.106-8 of RR No. 16-2005.
TRAIN Law.

14 | Tax Bulletin
 • Thus, taxpayers who changed their status from VAT to Non-VAT, due to the
increase in the VAT threshold of P3,000,000.00 as provided under the TRAIN
Law, shall file quarterly VAT returns and pay the tax due on the inventories
existing as of the date of change of status.

RMC No. 41-2018 clarifies the issuance RMC No. 41-2018 dated 24 May 2018
of a TIN to corporations in relation
to their corporate term under the • A corporation whose corporate life has been extended by the SEC prior to the
Corporation Code of the Philippines. expiry of its corporate life, shall not be issued a new TIN. However, the taxpayer
shall update its registration record by submitting BIR Form 1905, attaching
the newly issued SEC Certificate of Registration and amended Articles of
Incorporation bearing the same name as a proof of its corporate life extension.

• A corporation or partnership that has been issued a second or new SEC COR to
correct typographical errors (Corporate Name errors, and so on) shall not be
issued a new TIN. However, it shall update its registration with the RDO where
such corporation/partnership is registered.

• A corporation or partnership whose SEC registration has been revoked or

expired shall cease to exist as an entity to do business.

• Expired corporations are those with corporate terms that have lapsed without
being renewed or extended.

1. While SEC allows the re-registration of an expired corporation using the

same corporate name as reflected in the SEC COR, such corporation is a
new corporation bearing a new SEC Registration Number and a new pre-
generated TIN as confirmation that the same is a separate and distinct
entity from the expired corporation.

2. The pre-generated TIN issued through the SEC to the newly registered
corporation, using the name of the expired corporation shall be confirmed
by the BIR using BIR Form No. 1903 for the issuance of BIR Certificate of
Registration and application for Authority to Print principal/supplementary
invoices/receipts, simultaneous with the application for cancellation of the
old TIN of the expired corporation.

3. The new TIN shall be used in all future transactions with the BIR.

4. The TIN of the expired corporation or partnership shall be used by the said
corporation in the process of liquidation/winding-up of the business and
shall be cancelled upon issuance of clearance by the BIR.

5. The registration as a Large Taxpayer (LT) shall be carried over by the newly
registered corporation that assumed the business name and operations of
the expired corporation.

6. Registration will have to be made with the LT Division where the old
corporation was registered.

• In the merger of corporations, the TIN of the surviving corporation shall be

retained while the TIN of the merged corporation shall be cancelled. In the
consolidation of corporations, a new TIN shall be issued to the new corporation
and the TINs of the consolidated corporations shall be cancelled.

Tax Bulletin | 15
RMC No. 43-2018 announces the RMC No. 43-2018 dated 28 May 2018
creation of fast lane for all ONETT
Involving simple transactions. • All One-Time Transaction (ONETT) Teams are directed to create a fast lane
to cater to individuals or corporations filing Capital Gains Tax or Donor’s Tax
Returns with only one (1) Deed of Sale/Exchange/Donation involving 1 to 3
properties.

• In compliance with the provisions of the “Anti Red Tape Act of 2007” (ARTA),
these transactions shall be processed and the corresponding eCARs released
within 3 working days upon submission of complete documentary requirements.

BOC Updates

CMO 05-2018 is supplemental to CMO CMO No. 05-2018 dated 24 April 2018
No. 11-2014 and provides for the
Revised Guidelines for Registration of • Department of Finance (DOF) Department Order (DO) No. 11-2018 dated 9
importers and Customs Brokers with the February 2018 previously provided for the reversion of the authority to accredit
BOC. and register importers and customs brokers solely to the BOC.

• The same DO removed from the list of requirements for accreditation and
registration of importers and customs brokers the submission of Bureau of
Internal Revenue (BIR) Importer Clearance Certificate (BIR-ICC) or BIR Brokers
Clearance Certificate (BIR-BCC).

• The following are the documentary requirements for accreditation of importers

and customs brokers:

1. For new importer, the following pertinent documents are to be submitted:

a. Application Form (notarized and completely filled out);

b. Bureau of Customs Official Receipt (BCOR) evidencing payment of

Processing Fee (Php 1,000);

c. Corporate Secretary Certificate (Corporation) / Affidavit (Sole

Proprietorship) / Partnership Resolution (Partnership) / BOD Resolution
(Coop) designating its authorized signatories in the import entries;

d. Two (2) valid government issued IDs (with picture) of Applicant and
Responsible Officers;

e. NBI Clearance of applicant (issued within three (3) months prior to the
application);

f. Latest General Information Sheet (Corporation) / DTI (Sole

Proprietorship) / Articles of Partnership / Cooperative Development
Authority (Cooperatives);

g. Personal Profile of Applicant, President and Responsible Officers (with

2x2 ID picture);

h. Company Profile with pictures of office w/ proper and permanent

signage;

i. Address of warehouse owned or leased by the importer where the

imported goods are intended to be stored;

16 | Tax Bulletin
 j. Proof of Lawful Occupancy of Office Address and Warehouse;

k. List of Importables;

l. Printed CPRS Record and updated “STORED’ CPRS notification;

m. Indorsement from the collector, if applicable;

n. BIR Registration (2303);

o. Latest Income Tax Return (ITR) duly received by the BIR; and

p. Valid Mayor’s Permit.

2. For renewal of importer’s application, the importer shall submit the

following pertinent documents:

a. Updated General Information Sheet (Corporations) / DTI (Sole

Proprietorship) / Articles of Partnership /Certificate of Compliance
(Cooperatives);

b. Company Profile with pictures of office with proper and permanent

signage;

c. Address of warehouse owned or leased by the importer where the

imported goods are intended to be stored;

d. Proof of Lawful Occupancy of Office Address and Warehouse;

e. Updated List of Importables;

f. Printed CPRS Record and updated “STORED” CPRS notification;

g. ITR for the past three (3) years; and

h. Valid Mayor’s Permit.

3. Customs Broker (New Applicants)

a. Application Form (notarized and completely filled out);

b. BOC Official Receipt (BCOR) evidencing payment of Processing Fee

(Php 1,000);

c. Valid Professional Regulations Commission (PRC) card;

d. List of clients with complete address and contact details;

e. List of representatives with personal details, photos and specimen

signature;

f. Printed CPRS profile with stored notification;

g. BIR Registration (2303);

h. Latest ITR duly received by the BIR;

Tax Bulletin | 17
 i. NBI Clearance; and

j. Certificate of Good Standing issued by a PRC accredited national

organization of Customs Brokers.

4. Customs Broker (Renewal Requirements)

a. Updated Professional Profile;

b. Valid PRC card;

c. Updated list of clients with complete address and contact details;

d. Updated list of representatives with personal details, photos and

specimen signature;

e. Printed CPRS profile with stored notification;

f. Printed CPRS profile with stored notification;

g. ITR for the past three (3) years;

h. NBI Clearance; and

i. Certificate of Good Standing issued by a PRC accredited national

organization of Customs Brokers.

5. This CMO shall take effect 15 calendar days after its publication at the
Official Gazette or a newspaper of national circulation.

(Editor’s Note: CMO 05-2018 was received by the UP Law Center and published in
The Manila Times on 2 May 2018.)

CMO 06-2018 provides for the CMO No. 06-2018 dated 7 May 2018
Submission of Advance Cargo Manifests
and Other Documents to the BOC’s • This Order covers sea freight and air freight in all of the Philippine Ports of
Advanced Manifest System. Entry on the submission of advance manifest and other required documents
from the foreign carriers, shipper, consignee, accredited cargo surveying
company (ACSC), and their authorized agent to the Bureau’s Advanced Manifest
System.

• Operational Provisions:

1. A true and complete copy of the cargo manifest and Consolidated Cargo
Manifest (CCM) shall be electronically sent in advance by the shipping
company, Non-vessel operating common carrier (NVOCC), freight
forwarder, cargo consolidator, or their authorized agents within the cut-off
period of 24 or 12 hours prior to the arrival of the carrying vessel at the
port of entry depending whether transit time from the port of origin to the
port of entry is at least or less than 72 hours.

2. A true and complete copy of the cargo manifest and CCM shall be
electronically sent in advance by the airline, air express operator, air freight
forwarder and de-consolidator before the cut-off period of one (1) hour
from the arrival of the aircraft at the port of entry if the port of loading is in
Asia, or four (4) hours if port of loading is outside of Asia.

18 | Tax Bulletin
 3. The electronic submission of the Cargo Manifest and CCM shall be in a
searchable Portable Document Format (PDF) through the accredited Value-
Added Service Provider (VASP)/Accredited Information Processor (AIP) of
the BOC’s Advanced Manifest System and to the Cargo Targeting System
(“CTS”).

4. The cargo description in the Cargo Manifest and the CCM shall be precise
enough to enable the BOC to identify the goods intended to be discharged
in the port and take pre-emptive action if warranted. Other required
information include information as to the value of the goods and freight
charges.

5. Failure to submit the required information within the prescribed period

shall be subject to imposition of fines prescribed under Section 1412 of
the Customs Modernization and Tariff Act (CMTA) which provides for a
fine no less than P100,000 but not more than P300,000. However, late
submission may be excused if due to force majeure, technical problems of
the BOC and other analogous circumstances.

6. Other documents for submission in searchable PDF through the VASP/AIP

to the BOC Advanced Manifest System:

Document Type Submitting Party Prescribed Period

Master Bill of The shipping At least 24 hours prior to
Lading/Airway Bill company, NVOCC, the arrival of the vessel or
and House Bill of freight forwarder, aircraft
Lading/Airway Bill, cargo consolidator,
as the case maybe or their authorized
agents
Commercial Invoice The carrier or its At least 24 hours prior to
and Packing List authorized agent shall the arrival of the vessel or
obtain the documents aircraft
from the shipper
Stowage Plan The shipping line, At least 24 hours prior to
and Containers NVOCC, or their the arrival of the vessel or
Discharging List authorized agent aircraft if the transit time
is at least 72 hours or 12
hours prior if less
Load Port Survey BOC’s accredited At least 24 hours prior to
Report cargo surveying the arrival of the vessel
company
Supplemental Cargo The shipping Not later than 48 hours (if
Manifest covering company, Non-vessel cargo container is listed
cargoes/containers operating common in the IFM but not in the
not listed in the carrier (NVOCC), Stowage Plan or 24 hours,
inward foreign freight forwarder, if not listed in both, from
manifest (IFM) and/ cargo consolidator, the date of discharge of
or Stowage Plan or their authorized the last package from the
agents vessel

• This CMO shall take effect immediately.

(Editor’s Note: The BOC issued a Memorandum dated 29 May 2018 suspending the
implementation of CMO No. 06-18 until further notice.)

Tax Bulletin | 19
 PEZA Issuances

PEZA Memorandum Circular No. 2018- PEZA Memorandum Circular No. 2018-009 dated 30 April 2018
009 circularizes DENR Memorandum
Circular No. 2017-011, which clarifies • DENR Memorandum Circular (MC) No. 11 Series of 2017 highlights the
the requirements for importing following:
recyclable materials containing
hazardous substances. 1. All importers of recyclable materials containing hazardous substances shall
be required to secure an Environmental Compliance Certificate (ECC) based
on project type;

2. The requirement to secure an ECC shall be consistent to the limiters set

under the project type “3.6.4. Storage facilities for toxic or hazardous
materials substances or products (including for those in PCL)” of DENR
MC No. 2014-005: Revised Guidelines for the Coverage Screening and
Standardized Requirements under PEIS.

• All ecozone locators with importations of recyclable materials containing
hazardous substances that have been previously issued a Certificate of Non-
Coverage (CNC) shall coordinate with their respective PEZA Environmental
Safety Group (ESG) / Environmental Health and Safety Division (EHSD) for their
ECC application following DENR MC No. 2017-011.

• Online processing of the Treatment, Storage and Disposal Facility (TSD)/

Transporter Registration Certificate (TRC) for new/renewal/amendment is
currently deferred indefinitely. Manual application of permits shall take effect.

PEZA Memorandum Circular No. PEZA Memorandum Circular No. 2018-010 dated May 4, 2018
2018-010 requests all PEZA-registered
enterprises to observe the Expanded • All PEZA-registered enterprises are requested to observe the Expanded
Breastfeeding Promotion Act of 2009. Breastfeeding Promotion Act of 2009, which requires companies to:

1. Create a written breastfeeding policy to support breastfeeding in the

workplace.

2. Establish lactation stations – Existing health clinics within the establishment

may be utilized as breastfeeding/lactation stations.

3. Allow lactation breaks – Breaks should not be less than 40 minutes for
every 8-hour working period.

4. Make information on breastfeeding available in the workplace.

• Other salient points:

1. Available incentives – Establishments may secure from DOH a “Working

Mother-Baby-Friendly Certificate” to avail of tax incentives for the provision
of suitable facilities or services within the lactation station.

2. Exemption – Enterprises who have no nursing or lactating or pregnant

employees and no female clients may secure an exemption from DOLE
subject to DOLE Department Order No. 2015-143.

20 | Tax Bulletin
 3. Sanctions for non-compliance – Administrative sanction for unjustifiable
refusal or failure to comply with the need of a nursing employee to take
lactation breaks or the establishment of lactation area includes a fine of not
less than PHP 50,000.

BSP Issuances

Circular No. 1001 provides for the Credit BSP Circular No. 1001 dated 30 April 2018
Limits for Project Finance Exposures.
• The following provisions of the Manual of Regulations for Banks (MORB)/Manual
of Regulations for Non-bank Financial Institutions (MORNBFI) were amended
to provide the credit limits that shall be applied to project finance exposures of
banks/quasi-banks (QBs).

• Item e of Section X303 of the MORB on credit exposure limits to a single

borrower was amended to provide, among others, that loans, credit
accommodations, and guarantees granted by a bank to an entity (often a special
purpose entity or SPE) for the purpose of project finance as defined under
Subsec X330.2 shall be subject to a separate individual limit of 25% of the net
worth of the lending bank.

• Section 4303Q of the MORNBFI on loan limit to a single borrower was amended
to provide, among others, the total liabilities of an entity (often a special
purpose entity or SPE) for the purpose of project finance as defined under
Subsec. 4330q.1 shall be subject to a separate individual limit of 25% of the
combined capital accounts of a quasi-bank (QB).

• Subsection X328.5/4328Q.5 of the MORB/MORNBFI was amended to impose

additional certain conditions on loans, other credit accommodations and
guarantees granted by a bank/QB an entity (often a special purpose entity or
SPE) that is a subsidiary or affiliate of the bank/QB for the purpose of project
finance.

• Subsection X303.4 of the MORB on exclusions from loan limit was amended
to: (1) insert as item “a” credit exposures considered as non-risk, which was
previously presented as item “e” of Section X303 of the MORB; (2) renumber
the existing enumerations from items “a to g” to “b to h”, and (3) transfer
existing item “h” to item “a.(6)”

• Subsection 4303Q.1 of the MORNBFI on exclusions from loan limit was

amended to: (1) insert as item “a” credit exposures considered as non-risk,
which was previously presented in the first paragraph of Section 4303Q of the
MORNBFI; and (2) renumber the existing enumerations from items “a to d” to “b
to e”.

• This Circular shall take effect 15 calendar days following its publication either in
the Official Gazette or in a newspaper of general circulation.

(Editor’s Note: Published in The Philippine Star on 8 May 2018; p.B4.)

Tax Bulletin | 21
Circular No. 1002 provides for BSP Circular No. 1002 dated 10 May 2018
Amendments to the Guidelines on
Proposed Investments from TPIs and the • The following provisions of the MORB on the proposed investments from
Requirements on Transactions Requiring third party investors (TPI) and on the requirements on transactions requiring
prior Monetary Board approval involving prior MB approval involving additional subscription of shares of stock were
Additional Subscription of Shares of amended.
Stock.
• Item b (2) of Section X111.4 of the MORB on guidelines on proposed
investments from TPIs for purposes of complying with the minimum capital
requirements was amended to require submission by banks of the following
documentary requirements for transaction which requires prior Bangko Sentral
approval under Subsec X126.2b: Certified copies of documents showing
that the amount of proposed investment of the TPI is deposited/placed in an
independent bank1, such as, certificate of escrow deposit or certificate of
deposits with hold-out agreement showing the availability/hold out of funds
for the said purpose, together with the corresponding waiver of secrecy of
deposits/investments.

• Item d of Section X111.4 of the MORB on guidelines on proposed investments

from TPIs for purposes of complying with the minimum capital requirements
was amended to provide, among others, that the investment of the TPI
would not be considered for purposes of addressing capital deficiency if the
requirements mentioned under this Section are not complied with, except in
cases when the TPI exhibits strong financial capacity and firm commitment2
to address the capital deficiency of a bank based on assessment, taking
into consideration the submitted documents and other available pertinent
information.

• Item b (3) of Subsection X126.2 of the MORB on transactions requiring prior

Monetary Board approval was amended to require that pending approval by
the Monetary Board, the fund infused by the subscriber shall be placed in an
independent bank, such as, in the form of an escrow deposit or deposit with
hold-out agreement showing availability/hold-out of funds for the said purpose.

• This Circular shall take effect 15 calendar days following its publication either
in the Official Gazette or in a newspaper of general circulation.

(Editor’s Note: Published in the Philippine Star on 19 May 2018.)

____________________________________________________________

1
Refers to a third party bank.

2
Examples are the following:

• The bank and its eligible TPI-bank communicated the TPI’s intent to
acquire/merge/consolidate with the bank but needs more time for the
completion of the due diligence audit and finalize the agreement between
the parties;

• Submission of documents showing the eligibility and seriousness of

the commitment of the TPI such as certificate of escrow deposits in
an independent bank and other documents such as audited financial
statements and income tax returns of the TPI which show its financial
capacity to acquire the bank.

22 | Tax Bulletin
Circular No. 1003 provides for the BSP Circular No. 1003 dated 16 May 2018
Guidelines on the Establishment and
Operations of Credit Card Issuers to • The following provisions of the MORNBFI and the MORB were amended to
Implement Republic Act No. 10870 provide guidelines on the establishment and operations of bank and non-
or the Philippine Credit Card Industry bank credit card issuers to implement Republic Act (RA) No. 10870 or the
Regulations Law. Philippine Credit Card Industry Regulations Law.

• Section 4301N and Appendix N-10; and Section 4320Q and Appendix Q-61
of the MORNBFI on credit card operations were deleted and superseded
by the Guidelines on the Establishment and Operations of Non-Bank Credit
Card Issuers (Annex A and its Appendices) which shall be incorporated as C
Regulations of the MORNBFI.

• The provisions of Section X320, and its Subsections, of the MORB

governing the establishment and operations of Bank Credit Card Issuers
were amended.

• This Circular shall take effect 15 days following its publication either in the
Official Gazette or in any newspaper of general circulation in the Philippines.

(Editor’s Note: Published in the Philippine Star on 22 May 2018.)

Circular No. 1004 provides for the BSP Circular No. 1004 dated 24 May 2018
Reduction in Reserve Requirements.
• The following provisions of the MORB and the MORNBFI were amended
consistent with the 100-basis-point reduction in the reserve requirement
ratios of selected reservable liabilities of universal/commercial banks (UBs/
KBs).

• Subsection X253.1 of the MORB on required reserves against deposit and

deposit substitute liabilities was amended to decrease the rates of required
reserves against deposit and deposit substitute liabilities in local currency of
UBs/KBs starting reserve week 1 June 2018.

• This Circular also amends Subsection X405.5/4405Q.5 of the MORB/

MORNBFI on reserves against trust and other fiduciary accounts (TOFA) —
Others

• Section 4253Q of the MORNBFI on reserves against deposit substitutes was

amended to provide that Non-Bank Financial Institutions Performing Quasi-
Banking Functions (NBQBs) shall maintain required reserves equivalent to
eighteen percent (18%) of deposit substitute liabilities as defined in Section
95 of R.A. No. 7653 starting reserve week 1 June 2018.

• This Circular shall take effect on 1 June 2018 after its publication either in
the Official Gazette or in a newspaper of general circulation.

(Editor’s Note: Published in The Philippine Star on 25 May 2018; p.B6.)

Tax Bulletin | 23
 Court Decisions

Amadeus Marketing Philippines, Inc. vs. Commissioner of Internal Revenue

CTA (En Banc) Case No. 1532 promulgated 5 April 2018

For sale of services to qualify for VAT Facts:

zero-rating, the recipient of the services
must be a foreign corporation engaged Petitioner Amadeus Marketing Philippines, Inc. (AMPI) filed with Respondent
in business outside the Philippines and Commissioner of Internal Revenue (CIR) a claim for refund for unutilized
not doing business in the Philippines. input VAT attributable to zero-rated sales of services for the second to fourth
A foreign corporation that appointed quarters of 2010 to Amadeus IT Group S.A. (AIGS), a corporation organized
a local agent is deemed engaged in under the laws of Spain. As the CIR failed to act on the claim within the
business in the Philippines. 2-year prescriptive period, AMPI filed a Petition for Review with the Court
of Tax Appeals (CTA). The BIR argued, among others, that AMPI’s sales are
not considered VAT zero-rated as it failed to prove that AIGS is a foreign
corporation doing business outside the Philippines.

The CTA Division ruled that AMPI is not entitled to the claim for refund since
AIGS is considered engaged in business in the Philippines. Aggrieved, AMPI
filed a Petition for Review with the CTA En Banc arguing that AIGS is not doing
business in the Philippines because it is merely collecting royalties pursuant to
a Distribution Agreement. AMPI added that AIGS performed only a singular act,
which is to grant AMPI the permission to use its intellectual property.

Issue:

Is AMPI entitled to the claim for refund?

Ruling:

No. AMPI is not entitled to the refund because AIGS is considered a foreign
corporation doing business in the Philippines.

For services to be considered VAT zero-rated under Section 108 (B) (2) of the
Tax Code, the foreign corporation who is the recipient of the services must
be engaged in business outside the Philippines and not doing business in the
Philippines. When the provider and recipient of services are both doing business
in the Philippines, their transaction falls squarely under Section 108(A)
governing domestic sale or exchange of services.

While the Articles of Association of AIGS and the Certificate of Non-Registration

issued by the Securities and Exchange Commission (SEC) established that AIGS
is a foreign entity incorporated in Spain, the court ruled that AIGS conducts
business in the Philippines. The continuity of AIGS’s commercial dealings
is exemplified by the appointment of a local agent, AMPI, who is its “sole
distributor” in the Philippines.

(Editor’s Note: Justice Manahan dissents with the majority opinion arguing
that the mere appointment of a local agent or distributor does not necessarily
constitute doing business in the Philippines as the foreign counterpart does
not play an active role in the pursuit of business. AMPI may be categorized
as an agent of independent status, thus, not deemed doing business in the
Philippines.)

24 | Tax Bulletin
 Tektite Insurance Brokers, Inc. vs. Commissioner of Internal Revenue
CTA (Fist Division) Case No. 8903 promulgated 12 April 2018

Under the TRAIN Law, the 12% Facts:

deficiency interest is computed from the
date prescribed for its payment until the Respondent CIR assessed Petitioner Tektite Insurance Brokers, Inc. (TIBI) for
full payment thereof or upon issuance deficiency taxes covering taxable year 2010. TIBI protested the assessments,
of a notice and demand by the CIR, which was denied by the BIR on the ground that TIBI’s protest was not valid
whichever comes earlier. for failure to state the facts, the applicable laws, rules and regulations in
disputing the assessments, as prescribed in Revenue Regulations (RR) 12-99,
as amended by RR 18-2013. The BIR claimed that the Final Assessment Notice
(FAN) and Final Letter of Demand (FLD), which was received by TIBI on 18 June
2014, have become final, executory and demandable.

TIBI filed a Petition for Review at the CTA, arguing that the assessment was
issued beyond the 3-year prescriptive period as there was no valid waiver
which extended the BIR’s period to assess. On 3 November 2017, the CTA First
Division ruled in favor of the BIR and sustained the assessment. In addition to
the basic deficiency tax, the court imposed 20% deficiency and delinquency
interest.

Aggrieved, TIBI file a Motion for Reconsideration.

Issues:

1. Is the waiver valid?

2. How are the deficiency interest and delinquency interest imposed under
the TRAIN Law?

Rulings:

1. Yes. The CTA First Division ruled that as long as both parties voluntarily
agreed to execute a waiver and the waiver complied with the requirements
under Revenue Memorandum Order 20-90 and Revenue Delegation
Authority Order 5-01 or when both parties are at fault, the waiver’s validity
would be upheld. Quoting the Supreme Court’s decision in CIR vs. Next
Mobile, G.R. 212825 promulgated on 7 December 2015, the court held
that by way of exception, the validity of a defective waiver may be upheld
if there is a finding that both the BIR and the taxpayer are in pari delicto in
causing the deficiencies of the waiver.

Since TIBI and the BIR continued to deal with each other despite having
knowledge of the infirmities attendant to the waiver, the waiver they
executed is valid and sufficient to extend the prescriptive period to assess.

Tax Bulletin | 25
 2. After the promulgation of the assailed decision and the filing of TIBI’s Motion
for Reconsideration, the TRAIN Law, which amends Section 249 of the NIRC,
took effect on 1 January 2018. Thus, the TRAIN Law applies in this case.

Section 249, as amended by the TRAIN Law, categorically incorporates 3

provisos that cannot be applied without setting aside the original provisions:

a. The TRAIN Law proscribes the simultaneous imposition of deficiency

interest and delinquency interest, which the old version allows;

b. The TRAIN Law prescribes a rate of double the legal interest rate for
loans or forbearance of any money in the absence of express stipulation
as set by the BSP (currently at 6% per annum), which is lower than the
20% under the old version; and,

c. Deficiency interest is allowed to be computed from the date prescribed

for its full payment until the full payment thereof or upon issuance of a
notice and demand by the CIR, whichever comes earlier, while the old
version confined its computation strictly from the date prescribed for its
payment until the full payment thereof.

Accordingly, deficiency interest is imposed at 12% per annum computed from

11 April 2011, the date prescribed for payment until 18 June 2014, the date of
TIBI’s receipt of FAN and the FLD. On the other hand, 12% delinquency interest is
imposed computed from 18 July 2014, the due date appearing in the FAN/FLD
until full payment.

(Editor’s Note: In Moog Controls Corporation – Philippine Branch vs. CIR, CTA
Case No. 9077 promulgated on 22 February 2018, the CTA Second Division
prescribed a clear delineation on the effectivity of TRAIN Law. Moog was ordered
to pay (a) 20% deficiency interest from 15 February 2010 until 31 December
2017, (b) 20 % delinquency interest from 8 June 2015 until 31 December 2017.
The 12% delinquency interest was only applied from 1 January 2018 until the
amount is fully paid.)

SGV | Assurance | Tax | Transactions | Advisory

About SGV & Co. SGV & Co. maintains offices in Makati, Cebu, Davao, Bacolod, Cagayan de Oro,
SGV is the largest professional services firm in the Philippines that provides Baguio, General Santos and Cavite.
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EY refers to the global organization, and may refer to one or more, of the member [email protected] or at telephone number 8910307 loc. 7929 and
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For more information about our organization, please visit www.ey.com/PH. This publication contains information in summary form and is therefore intended
for general guidance only. It is not intended to be a substitute for detailed
© 2018 SyCip Gorres Velayo & Co. research or the exercise of professional judgment. Neither SGV & Co. nor any
All Rights Reserved. other member of the global Ernst & Young organization can accept any responsi-
APAC No. 10000340 bility for loss occasioned to any person acting or refraining from action as a result
Expiry date: no expiry of any material in this publication. On any specific matter, reference should be
made to the appropriate advisor.

26 | Tax Bulletin