TAX AND BUSINESS-RELATED NEWS [NOVEMBER 5-10] SEC LEGAL OPINIONS DIGEST BIR RULINGS DIGEST COURT OF TAX APPEALS CASES DIGEST
| | | 1. TAX AND BUSINESS-RELATED NEWS | 1. Pay your taxes or go to prison, Duterte warns Pharmally execs 2. BSP says national ID 'valid', sufficient proof of identity in opening bank accounts 3. BSP warns public vs fake P500 bill with face of ex-President Marcos 4. Crypto market value tops $3 trillion for first time 5. Poe files bill seeking to suspend excise tax on fuel 6. Bookshelf PH launches public domain as a service in the country 7. RCR declares P616-M cash dividend 8. SEC issues moratorium on new online lending apps in bid to curb 'abusive financing' 9. BSP, financial regulators sign deal on ease of bank mergers, acquisition 10. Coronavirus task force urged to make COVID-19 vaccinations mandatory 11. PAO lawyers do not demand payment for legal services to public — Acosta 12. Business groups’ plea: Targeted measures, not oil, power tax suspension 13. BOI seen missing lower investment’s goal for 2021 | Pay your taxes or go to prison, Duterte warns Pharmally execs [Philippine Daily Inquirer, November 10, 2021] Executives of Pharmally Pharmaceutical Corp., which is under Senate investigation for alleged anomalies in its supply contracts with the government, should pay their taxes or else face the prospect of imprisonment for tax evasion, President Rodrigo Duterte warned on Tuesday during his taped weekly “Talk to the People.” BSP says national ID 'valid', sufficient proof of identity in opening bank accounts [ABS-CBN News, November 9, 2021] Financial institutions such as banks should recognize the new Philippine Identification System (PhilSys) ID or the national ID as sufficient proof of identity when opening bank accounts, the Bangko Sentral ng Pilipinas said Tuesday. BSP warns public vs fake P500 bill with face of ex-President Marcos [ABS-CBN News, November 9, 2021] The Bangko Sentral ng Pilipinas on Tuesday warned the public against fraudulent or fake banknote designs after an alleged commemorative P500 bill went viral on social media. Crypto market value tops $3 trillion for first time [ABS-CBN News, November 8, 2021] The world cryptocurrency market is worth more than $3 trillion for the first time, according to calculations Monday, as mainstream investors increasingly jump on board. Poe files bill seeking to suspend excise tax on fuel [ABS-CBN News, November 8, 2021] Amid the volatility of crude oil price in the world market, Sen. Grace Poe will try congressional intervention by filing a bill seeking to impose “automatic suspension” of the government’s excise tax collection on fuel. Bookshelf PH launches public domain as a service in the country [Manila Bulletin, November 8, 2021] Online marketplace and boutique publisher Bookshelf PH has launched 17 individual non-fungible tokens (NFTs), each representing a chapter from its recent bestseller The E-Hustle: What the Country’s Best Digital Leaders Can Teach You About Launching and Growing Your Online Business. RCR declares P616-M cash dividend [Manila Bulletin, November 7, 2021] RL Commercial REIT Inc. (RCR), the country’s largest Real Estate Investment Trust (REIT) and backed by Robinsons Land Corporation, declared its first cash dividend amounting to P616.8 million. SEC issues moratorium on new online lending apps in bid to curb 'abusive financing' [ABS-CBN News, November 5, 2021] The Securities and Exchange Commission on Friday issued a moratorium on the registration of new online lending platforms (OLPs) ahead of the release of new rules governing the sector to clamp down on predatory practices. BSP, financial regulators sign deal on ease of bank mergers, acquisition [ABS-CBN News, November 5, 2021] Financial regulators in the country on Friday signed a deal focused on streamlining mergers, consolidation, and acquisition (MCA) among banks, the Bangko Sentral ng Pilipinas said. Coronavirus task force urged to make COVID-19 vaccinations mandatory [ABS-CBN News, November 5, 2021] Presidential Adviser for Entrepreneurship Joey Concepcion on Friday said the country's coronavirus task force should consider making COVID-19 vaccinations mandatory. PAO lawyers do not demand payment for legal services to public — Acosta [Manila Bulletin, November 5, 2021] Public Attorney’s Office (PAO) Chief Persida V. Rueda Acosta reminded the public that she and PAO lawyers do not demand payments from anyone for the legal services they render. Business groups’ plea: Targeted measures, not oil, power tax suspension [Philippine Daily Inquirer, November 5, 2021] Several business groups are asking presidential candidates and other politicians calling for the suspension of oil and electricity taxes to “carefully reconsider their request.” BOI seen missing lower investment’s goal for 2021 [Philippine Daily Inquirer, November 5, 2021] The Board of Investments (BOI) is poised to miss its target investment pledges this year by a wide margin of at least 30 percent, despite the passage this year of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act that was expected to lure in more investors. | 2. SEC LEGAL OPINIONS DIGEST ON REDEMPTION OF SHARES & VOTING THROUGH REMOTE COMMUNICATION | [NO CORPORATION SHALL REDEEM, REPURCHASE, OR REACQUIRE ITS OWN SHARES, UNLESS IT HAS AN ADEQUATE AMOUNT OF UNRESTRICTED RETAINED EARNINGS TO SUPPORT THE COST OF THE SAID SHARES] [REDEMPTION MAY NOT BE MADE IF CORPORATION IS INSOLVENT OR IF SUCH REDEMPTION WILL CAUSE INSOLVENCY OR INABILITY OF THE CORPORATION TO MEET ITS DEBTS AS THEY MATURE] [ONCE SILENT REDEEMABLE PREFERRED SHARES ARE REDEEMED, THE SAME SHALL BE CONSIDERED RETIRED AND MAY NO LONGER BE REISSUED] M Co. is seeking opinion regarding the redemption of preferred shares, retirement thereof, and the subsequent decrease of the capital stock. In rendering opinion, SEC cited Section 40 of the Revised Corporation Code (RCC) which requires that the corporation should have unrestricted retained earnings to cover the shares to be purchased; accordingly, there is an exception provided in Section 5 of the same Code: Redeemable shares may be redeemed, regardless of the existence of unrestricted retained earnings, provided that after such redemption, corporation has sufficient assets to cover debts and liabilities inclusive of capital stock. On raising of funds for the purpose of redeeming preferred shares, such decision requires the exercise of the business judgment/discretion of the management. Following the redemption is the retirement: its amended Articles of Incorporation is silent on the ‘reissuable’ nature of its redeemable preferred shares; thus, once redeemed, the same shall be considered retired and may no longer be reissued. To eliminate treasury shares, M Co. must file an application for decrease of authorized capital stock with SEC and comply with all the requirements set forth in Section 37 of the RCC which states that no decrease of authorized capital stock shall be approved by the Commission if it is prejudicial to the rights of corporate creditors. To substantiate the decrease of the authorized capital stock after retirement, audited interim financial statements (FS) can provide reasonable basis for obtaining high level of assurance that they are not materially misstated. [SEC OFFICE OF THE GENERAL COUNSEL OPINION NO. 21-10, SEPTEMBER 21, 2021] | [THE STOCKHOLDERS OR MEMBERS MAY ALSO VOTE THROUGH REMOTE COMMUNICATION OR IN ABSENTIA WHEN SO AUTHORIZED IN THE BYLAWS OR BY A MAJORITY OF THE BOD/BOT] [A STOCKHOLDER OR MEMBER WHO PARTICIPATES THROUGH REMOTE COMMUNICATION OR IN ABSENTIA SHALL BE DEEMED PRESENT FOR THE PURPOSES OF QUORUM] [EVERY MEMBER OF A NON-STOCK CORPORATION HAS A RIGHT TO BE PRESENT AND TO VOTE IN ALL CORPORATE MEETINGS] [VOTING THROUGH REMOTE COMMUNICATION IS ONLY APPLICABLE FOR THE PARTICULAR MEETING STATED IN THE RESOLUTION] CC Co., a non-stock corporation, is seeking confirmation on the validity of the participation, quorum, and voting in an annual meeting conducted via remote communication and/or in absentia. As represented, its Bylaws contain no provision that recognizes and/or allows remote communication as a valid means of conducting an annual members’ meeting, hence, the impression that the same could be invalid pursuant to the legal requirements under Section 88 of the Revised Corporation Code (RCC). In reply, SEC Memorandum Circular (MC) No. 6, Series of 2020 clarifies that attendance and voting in meetings via remote communication is generally allowed when so provided in the Bylaws or authorized by a board resolution of the board of directors. While Section 57 of the RCC on manner of voting and permission of proxies states “or by majority of the board of directors”, a reading of the provision as a whole suggests that the same is applicable to both stock and non-stock corporations. Hence, even in the absence of a provision in the Bylaws of CC Co. which allows the practice of voting through remote communication, the conduct of the same may still be valid by virtue of a resolution issued by the majority of the board of trustees. However, it should be noted that the resolution shall only be for that purpose and for the particular meeting stated in the said resolution. [SEC OFFICE OF THE GENERAL COUNSEL OPINION NO. 21-09, JUNE 22, 2021] | 3. BIR RULINGS DIGEST ON TRANSFER OF MEMBERSHIP SHARES IN GOLF CLUB, TAXABILITY OF NON-STOCK SAVINGS & LOANS ASSOCIATIONS, MERGER & SMALL-TOWN LOTTERY | [TRANSFER OF LEGAL TITLE IS NOT SUBJECT TO CGT WHEN INVOLVED NEITHER MONETARY CONSIDERATION NOR CHANGE IN BENEFICIAL OWNERSHIP] [TRANSFER OF LEGAL TITLE DOES NOT MEAN TRANSFER OF BENEFICIAL OWNERSHIP] C Co. is seeking clarification whether the transfer of its membership shares in M Polo Club from a former trustee to a new trustee is exempt from the payment of capital gains tax (CGT) and documentary stamp tax (DST). In reply, transfer of M Polo Club shares from a transferor to transferee is not subject to CGT and DST. In the Declaration of Trust executed, the transfer did not give them any kind of right, claim, or interest in the M Polo Club share and that they are holding only the legal ownership of the same with the beneficial ownership pertaining to the Company. The transfer of legal title is not subject to CGT considering that the transfer involves neither monetary consideration nor changes in beneficial ownership. Section 24(C) of the 1997 Tax Code provides that CGT is imposed on the gain or profit from the sale of capital assets. Since the beneficial ownership remains with the Company, no gain or profit shall be recognized. On DST, the BIR held that a mere transfer of a share without change in the beneficial ownership is not the taxable transaction being contemplated in the Tax Code provisions on DST. It was also noted that the transfer is without a Subscription Agreement. There being no new conveyance, there is no new exercise of privilege upon which DST may be imposed. [BIR RULING NO. 338-2021, SEPTEMBER 27, 2021] | TAX LIABILITY OF A NON-STOCK SAVINGS AND LOAN ASSOCIATION M Co., a Non-Stock Savings and Loan Association (NSSLA) organized and operated exclusively for the mutual benefit of its members, is seeking confirmation on whether it is subject to Gross Receipts Tax (GRT). In reply, BIR Revenue Memorandum Circular (RMC) No. 9-2016 provides that NSSLAs are under the direct supervision and regulation of the Bangko Sentral ng Pilipinas (BSP) and, for regulatory purposes they are classified as Non-Bank Financial Intermediaries (NBFIs) under the BSP Manual of Regulations. Hence, NSSLA is generally subject to GRT on income derived from its operations, unless otherwise exempted under special rules. The GRT imposed is under Section 122 of the Tax Code, as amended, i.e., tax on other NBFIs. The imposition of GRT is on NBFIs engaged in the lending of funds or purchasing of receivables or obligations with funds obtained from the public. On the other hand, Republic Act No. 8367 and the BSP Manual of Regulations for NSSLA mandate that an NSSLA shall accept deposit from and grant loans to its members only and shall not transact business with the public. In addition, NSSLAs must be organized and operated exclusively for the mutual benefit of its members. Since M Co. showed that it is a non-profit organization which obtains funds exclusively from its members and does not transact business with the public, the GRT imposed under RMC No. 9-2016 on its lending activities is not warranted for as long as such transactions do not fall under the contemplated activities of NBFI as defined by law and its rules and regulations. [BIR RULING NO. 333-2021, SEPTEMBER 21, 2021] | CEI, as the surviving corporation, is seeking confirmation whether its merger with CEIPI is a tax-free merger in accordance with Sections 76 to 80 of the Corporation Code and Section 40(C)(2) and (C)(6)(b) of the 1997 Tax Code. In ruling, BIR confirmed the following: a. Given that CEI shall acquire all the assets and liabilities of CEIPI and the same is necessary and advisable and to the advantage of the merging corporations and their respective shareholders, it is evident that such is being undertaken for bona fide business purpose and not for escaping the burden of taxation; hence, the non-recognition of gain or loss for income tax purposes in accordance with Section 40(C)(2) of the 1997 Tax Code qualifies the merger as tax-free within the contemplation of Section 40(C)(2) and (C)(6)(b). b. The merger is not subject to donor’s tax since there is no intention to donate and the transaction is a bona fide merger effected solely for business reasons. c. The transfer of assets is not subject to VAT as the transfer is not made in the ordinary course of business. d. No Documentary Stamp Tax (DST) is due on the transfer of assets. e. DST shall be imposed on the original issuance of shares of I Co. as a result of the merger. f. The excess and unutilized Creditable Withholding Tax (CWT), if any, of CEIPI may be used by CEI as tax credit against its income tax due. g. The excess and unexpired Minimum Corporate Income Tax (MCIT), if any, of CEIPI may be used by CEI as tax credit against its income tax due. h. Net Operating Loss Carry Over (NOLCO), if any, of CEIPI is not transferred to CEI. i. 10% Final Withholding Tax shall be imposed on dividends constructively received by the individual shareholders of the absorbed corporation. [BIR RULING NO. 330-2021, SEPTEMBER 14, 2021] | VAT EXEMPTION AND INVOICING REQUIREMENTS FOR PCSO SMALL TOWN LOTTERY Philippine Charity Sweepstake Office (PCSO) is requesting a ruling on the VAT exemption and invoicing requirements for PCSO Small Town Lottery (STL) operations. In ruling, BIR confirmed the following: a. PCSO may mandate the use of Official Retail Receipts (ORRs) in its STL operations even for transactions involving less than Php 100. b. PCSO may issue the ORR and the STL ticket in the same document for as long as there is a valid Authority To Print (ATP) for such ORR and ticket in one, and for as long as all the invoicing requirements are complied. c. PCSO will be liable to VAT even if an ORR is not issued, for as long as the transaction is found subject to VAT. d. PCSO is not authorized to print a newly designed ORR without a valid ATP from the BIR. A new application for ATP should be submitted to the BIR together with the new design, among others. If the new design meets the allowed format, then a new ATP will be issued. Only then can PCSO print using the new design. e. PCSO may not use previously printed ORRs, as these are invalid. [BIR RULING NO. 283-2021, AUGUST 2, 2021] | 4. CTA CASES DIGEST ON TIMELY FILING OF JUDICIAL CLAIM FOR REFUND & PROPER AUTHENTICATION OF FOREIGN DOCUMENTS TO QUALIFY FOR ZERO-RATING | IF THE COURT HAS NO JURISDICTION OVER THE NATURE OF AN ACTION, ITS ONLY JURISDICTION IS TO DISMISS THE CASE Petitioner Mitsuba Philippines Technical Center Corporation filed a Petition for Review seeking issuance of a tax credit certificate (TCC) in relation to its alleged excess and unutilized input value-added tax (VAT) on its local purchases of goods and services attributable to zero-rated sales of services to non-resident foreign corporations (NRFCs) doing business outside the Philippines for the 3rd and 4th quarters of the taxable year (TY) 2016. Several issues were raised by both parties; however, the case was ultimately decided on the timeliness of the Petition. Based on chronology of events, the administrative claim was filed on September 27, 2018 which was well within the prescriptive period of two (2) years pursuant to Section 112(A) of the 1997 Tax Code. As clarified in Revenue Memorandum Circular (RMC) No. 54-2014, the reckoning point should be the date of submission of complete supporting documents which should also coincide with the date of filing the administrative claim. Contrary to the aforementioned, Petitioner’s submission of supporting documents on October 22, 2018 cannot be considered for purposes of counting the 90-day (previously 120-day) period granted within which the Respondent Commissioner of Internal Revenue (CIR) should act on the administrative claim because the date of filing must coincide with the date of submission of complete supporting documents. Accordingly, Respondent had 90 days or until December 26, 2018 to decide on Petitioner's claim. Following the inaction of the Respondent, the Petitioner had 30 days or until January 25, 2019 to appeal in Court. In ruling, the Court emphasized that the judicial claim for refund or TCC was filed only on February 19, 2019 which makes it filed out of time; thus, the Court no longer has jurisdiction for such. All said, the Petition was DENIED for lack of jurisdiction. [MITSUBA PHILIPPINES TECHNICAL CENTER CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 10025, OCTOBER 06, 2021] | TO BE ENTITLED TO REFUND, CLAIMANT MUST ESTABLISH THE TWO COMPONENTS OF A CLIENT'S NRFC STATUS: (1) THAT THEIR CLIENT IS NOT A DOMESTIC CORPORATION; AND (2) THAT IT IS NOT ENGAGED IN TRADE OR BUSINESS IN THE PHILIPPINES Petitioner Financial Times Electronic Publishing Philippines, Inc. filed a Petition for Review seeking to reverse the earlier decision of the CTA 2nd Division denying its entitlement to the issuance of tax credit certificate (TCC) pertaining to the excess unutilized input VAT attributable to zero rated sales. Petitioner argued that it has discharged the burden of proving that Financial Times Limited (FTL) is a non-resident foreign corporation (NRFC) not engaged in business in the Philippines by presenting the Authenticated Articles of Incorporation (AOI) of FTL. In ruling, the Court held that Petitioner failed to discharge the burden of proving that FTL is an NRFC not engaged in business in the Philippines. For the purpose of zero-rating, Section 108 (B) (2) of the 1997 Tax Code requires the claimant to establish the two components of a client’s NRFC status, viz: (1) client is not a domestic corporation; and (2) not engaged in trade or business in the Philippines. Perusal of records showed that their SEC Certifications of Non-Registration demonstrate that their affiliates are foreign corporations. The articles of association/certificates of incorporation, on the other hand, stating that these affiliates are registered to operate in their respective home countries, outside of the Philippines, are prima facie evidence that their clients are not engaged in trade or business in the Philippines. However, the absence of any other competent evidence proving the second component shall be fatal to a claim for credit or refund of excess input VAT attributable to zero-rated sales. The Court disagreed with Petitioner's assertion that the allegedly duly authenticated AOI of FTL, consisting of the COl, COCN, and CRCE, were properly authenticated. Rule 132, Section 24 of the Revised Rules on Evidence provides that if the record is kept in a foreign country, the certificate may be made by a secretary of the embassy or legation, consul general, consul, vice consul, or consular agent, or by any officer in the Philippines' foreign service stationed in the foreign country where the record is kept and authenticated by his office's seal. Scrutiny of documents showed that these foreign documents were clearly not authenticated in accordance with Rule 132, Section 24 of the Revised Rules on Evidence. Consequently, the Petition was DENIED and the earlier Decision and Resolution were AFFIRMED. [FINANCIAL TIMES ELECTRONIC PUBLISHING PHILIPPINES, INC. VS. COMMISSIONER OF INTERNAL REVENUE, CTA EN BANC CASE NO. 2223, SEPTEMBER 23, 2021] | Thank you and best regards, WILLIE B. SANTIAGO Lawyer & Certified Public Accountant Tax & Corporate Services Division TL : (+632) 8 894-5892 Loc. 703 Website: www.dmdcpa.com.ph Don Jacinto Building De la Rosa corner Salcedo Streets Legaspi Village, Makati City 1229 Philippines | |
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