Biyernes, Abril 4, 2014

RMC 20-2014 Guidelines for 2013 ITRs

The BIR has issued Revenue Memorandum Circular No. 20-2014 which covers the guidelines in the filing, receiving and processing of 2013 Income Tax Returns BIR Form Nos. 1700, 1701, 1702-RT, 1702-EX and 1702-MX, All June 2013 ENCS version under Revenue Regulations No. 2-2014. 

For Non-eFPS Filers
For expediency, ease and convenience in filling-up the ITRs, all Non-eFPS taxpayers are encouraged to use the offline eBIRForms package which can be accessed and downloaded from the BIR website (www.bir.gov.ph) through the “eBIRForms” link. Taxpayers using the said package can directly encode data, validate the entries as it can do automatic computations, edit, save, delete, view, print and  submit their tax returns. 

For eFPS Filers
Taxpayers who are mandated to use eFPS, particularly the Large Taxpayers (LTs) under the jurisdiction of the Large Taxpayers Service and other eFPS users (e.g. Top 20,000 Corporations, Top 5,000 Individuals, Government bidders, etc.) shall use the eFPS facility for the filing and payment of ITRs

Lunes, Pebrero 3, 2014

Protesting a real property tax assessment

Under Section 252 of the Local Government Code (LGC) of 1991, a taxpayer who is not satisfied with the assessment or reasonableness of a real property tax assessment may file a protest in writing within 30 days from payment of the tax to the provincial or city treasurer, or municipal treasurer in the case of a municipality within Metropolitan Manila Area. However, no protest to the real property tax assessment shall be entertained unless the taxpayer first pays the tax.
If the local treasurer denies the protest or fails to act upon it within the 60-day period, the taxpayer/real property owner may then appeal or directly file a verified petition with the Local Board of Assessment Appeal (LBAA) within 60 days from denial of the protest or receipt of the notice of assessment, as provided in Section 226 of RA 7160. If the taxpayer is not satisfied with the decision of the LBAA, he may elevate the same to the Central Board of Assessment Appeal (CBAA), which exercises exclusive jurisdiction to hear and decide all appeals from the decisions, orders and resolutions of the Local Boards involving contested assessments of real properties, claims for tax refund and/or tax credits or overpayments of taxes. An appeal may be taken to the CBAA by filing a notice of appeal within 30 days from receipt thereof.
The requirement to first pay the real property tax “under protest” also applies in cases where a taxpayer or real property owner claims an exemption from payment of real property tax. According to the SC, a claim for tax exemption, whether full or partial, does not deal with the authority of the local assessor to assess real property tax, but merely raises a question regarding the reasonableness or correctness of an assessment, which requires compliance with the payment of real property tax “under protest” under Section 252 of the LGC of 1991. 

(Camp John Hay Development Corporation v. Central Board of Assessment Appeal, GR 169234, October 2, 2013)
Tax Brief – November 2013
Punongbayan and Araullo

Lunes, Enero 20, 2014

VAT on sale of feed ingredients

Under Section 109 (B) of the Tax Code, sale or importation of fertilizers; seeds, seedlings and fingerlings; fish, prawn, livestock and poultry feeds, including ingredients, whether locally produced or imported, used in the manufacture of finished feeds are exempt from VAT.

However, since the manufacture, importation, sale or distribution of feeds or feedstuff require prior registration and permit from the Bureau of Animal Industry (BAI) under Republic Act No. (RA) 1556, as amended by Presidential Decree No. 7, the certification in the nature and composition of the commodities/items as stated in the registration and import permit issued by BAI will govern the classification of the said items for purposes of VAT under Section 109(1)(B) of the Tax Code, as amended.

Considering that the BAI has issued a certification that the scrap products are no longer fit for human consumption and are indeed ingredients in the manufacture of feeds, its sale shall be exempt from the 12% VAT imposed on the sale of goods under Section 106(A) of the Tax Code, as amended.

(BIR Ruling No. 371-2013, October 10, 2013)
Tax Brief – December 2013
Punongbayan and Araullo

Lunes, Enero 13, 2014

Compliant alphalists as condition for deductibility of expenses

The submission of alphalists where the income payments and taxes withheld are lumped into one single amount (e.g. “various employees”, “various payees”, PCD nominees”, “Others”, etc.) shall no longer be allowed.  Such alphalists including any alphalist that does not conform to the prescribed format thereby resulting to the unsuccessful uploading into the BIR system shall be deemed not received and shall disqualify the deductibility of the expense for income tax purposes.

The alphalists cover those which are required to be attached in the annual information returns (BIR Forms1604CF/1604E) and monthly remittance returns (BIR Form 1601C, etc.).

Mandatory electronic submission of alphalists

Beginning January 31, 2014 and March 1, 2014, taxpayers with less than 10 employees/payees shall already be required to file their alphalists electronically.  Manual filing shall no longer be allowed. 

Hence, all withholding agents, regardless of the number of employees and payees, should submit electronically their alphabetical list of employees and list of payees using either of the following modes:       

   1) Attachment in the electronic filing and payment system (eFPS)
   2) Electronic submission using the BIR’s website (esubmission@bir.gov.ph)
   3) Electronic mail (email) at dedicated BIR address using the prescribed            CSV data file format.

Withholding agents without their own internet facility or do not have access to internet connection within their location should file their alphabetical lists through electronic mail (e-mail) using the e-lounge facility of the nearest revenue district office or revenue region of the BIR.

Tax Alerts
Punongbayan and Araullo

Planning the year ahead

AS THEY always say, the key to a fruitful year is to start the year right. Planning for the coming year is a key to starting it right. Not only do you need to plot your holiday getaways, you might also want to include in your to-do’s the submission of tax requirements related to the close of the taxable year that are in addition to the monthly requirements. Let’s go through the requirements based on the monthly deadlines.

January. Annual VAT/non-VAT registration fee of P500 is due on the 31st. However, for most companies, this is one of the requirements that is submitted and paid during the first week of the month since this is also one of the requirements for business permit renewal. The renewal of business permit is, on the other hand, due on the 20th. This involves the processing and payment of the local business tax, mayor’s permit fee, sanitary inspection fee, garbage fee, building inspection fee, fire inspection fee, mechanical inspection fee, plumbing inspection fee, business plate registration fee, and other charges imposed by different local government units (LGUs). The community tax certificate (CTC) is also one of the requirements for the renewal of business permit. The basic community tax amounts to P500, and the additional community tax is P2 for every P5,000, but the maximum amount for CTC for corporations is P10,500.

For those companies using a calendar year for its operations, books of accounts are to be submitted in January. The deadlines for submission would vary on what type of books of accounts the company maintains. Loose-leaf books of accounts are due for submission on the 15th, while the computerized books of accounts are due on the 30th.

Another requirement due for submission on the 30th is the list of inventory that remains on hand as of Dec. 31. This list is crucial since the Bureau of Internal Revenue (BIR) compares this with the amount that has been used in computing cost of goods sold in making their assessments. As much as possible, the amount to be declared should be the same as the audited figure or at least is close to the amount declared. For other companies, a notation is marked on the listing: “This is not yet the audited figure. The listing will be amended after audit procedures have been finalized.”

The annual information return of income tax withheld on compensation and final withholding taxes (BIR Form No. 1604CF) is due on the 31st. This contains a summary of withholding taxes related to compensation, final taxes, and fringe benefit taxes remitted to the government. This form includes the alphabetical list of employees for the year. As the form is finalized by the 31st, the BIR would also require the issuance of BIR Form 2316 to employees who are qualified for substituted filing. In 2013, the issue on substituted filing became a hot topic since many of the billionaires were not found on the list of top 500 individuals. To clarify the idea of substituted filing, employees are only entitled to substituted filing if the compensation income has been properly withheld during the year and that the employee receives only income from one employer in the Philippines during the year.

February. By the 28th, the BIR requires the submission of the duplicate copies of BIR Form 2316 that was furnished to its employees in January. This requirement has been disseminated through Revenue Regulations No. (RR) 11-2013. For non-compliance, it provided a penalty of P1,000 for each failure or a maximum of P25,000 for all such failures during the calendar year. However, if the employer fails to comply for two consecutive years, the employers shall be liable to a fine of P10,000 and suffer imprisonment of not less than one year but not more than 10 years upon conviction in addition to the P1,000 penalty for each failure, but this time without any maximum threshold.

March. Another annual information return that is due on the first day of March is your BIR Form 1604E, the summary of taxes withheld for your expanded withholding tax. This would include the alphabetical list of payees for both income payments wherein taxes were withheld and income payments that are exempt from withholding tax. Beware of the common mistake that the alphalist of payees for exempt income payments are not included in the items submitted.

April. On the 15th, the annual income tax return for calendar year 2013 is due for submission for both individuals and corporations. For manual filers, the attachments to the ITR are due for submission on the same day. On the other hand, EFPS filers are given until the 30th to submit all attachments, including audited financial statements, summary alphalist of withholding taxes, certificate of creditable withholding taxes, statement of management’s responsibility for annual ITR,proof of prior year’s excess credit, and proof of other tax payment/credit.

Companies that are unable to finalize their financial statements by April 15 should file a “tentative ITR” just to beat the deadline for submission. The BIR clarified last year through Revenue Memorandum Circular No. (RMC) 50-103 that the tentative ITR is considered the final ITR unless an amended return is submitted before the issuance of a Letter of Authority from the BIR. Once the Letter of Authority has been issued to the taxpayer, the Company can no longer amend the ITR. The Company’s only recourse is to wait for the assessment of the BIR for the deficiency taxes.

With regard to the supplement information to be filled out in the Annual ITR, RMC 21-2013 has clarified that for individual income tax filers, the requirement for the disclosure of supplemental information will be enforceable in taxable year 2013. For companies and other non-individual taxpayers, there have been no announcements yet if such requirement will be deferred. With these, companies must consolidate all information including its passive income for disclosure in the ITR.

With the above requirements plotted alongside our holiday getaways, may we enjoy work-life balance! Cheers to 2014!

Joanna Grace P. Manuel
Let’s Talk Tax
Punongbayan and Araullo

Huwebes, Disyembre 19, 2013

Establishing legal and factual bases of tax assessments

Under Section 228 of the Tax Code, a taxpayer must be informed in writing of the legal and factual bases of the tax assessment made against him. Otherwise, the assessment shall be considered void.

In the preliminary assessment notice (PAN) and Formal Assessment Notice (FAN) issued against the taxpayer, the BIR merely stated that per computerized matching conducted by the BIR, the taxpayer has undeclared importations as a result of comparing the Bureau of Customs (BOC) importation data and the VAT returns of the taxpayer.

The Court of Tax Appeals (CTA) held that the assessment notices issued against the taxpayer were not valid since they failed to state the legal and factual bases for the deficiency income tax and VAT arising from the alleged undeclared importation of the taxpayer. 

The CTA noted that the details in the assessment notices issued to the taxpayer are not sufficient to allow the taxpayer to intelligently answer the assessment as well as prepare the documentary evidence for its protest. Hence, it cancelled the deficiency VAT and income tax assessment arising from the alleged undeclared importation of the taxpayer.

(Commissioner of Internal Revenue v. BASF Philippines, Inc., CTA EB Case No. 872 re CTA Case No. 8128, September 12, 2013)
Tax Brief
Punongbayan and Araullo

Martes, Disyembre 17, 2013

Thinking about Christmas or taxes

WE ARE NOW in the last month of the year. At this time, companies will be closing their books, managing reconciliations of their accounting records against their tax returns, conducting year-end adjustments, preparing for the year-end withholding tax obligations, completing compliance requirements for renewal with the Bureau of Internal Revenue (BIR) and local government unit (LGU) registrations and planning for the 2014 income tax filing season.

December is also the time of the year when taxpayers evaluate certain tax positions and plan for actions that may impact not only the current taxable year but also the subsequent years.

Revisiting the significant BIR issuances and Revenue Regulations (RR) for the year is therefore a rational thing to do before we say: GOODBYE, 2013!

TRANSFER PRICING GUIDELINES (RR NO. 2-2013)

It can be recalled that, under this regulation, taxpayers are mandated to keep documentation to demonstrate that transfer prices (TP) between related parties are consistent with the arm’s length principle.

TP documentation should be an item in any taxpayer’s policy-making and tax planning assessments.

If there is still no written inter-company agreement, it is advisable to have one accomplished immediately. It is best to be prepared when the BIR requires the submission of the intercompany agreement in a transfer pricing audit.

NEW INVOICES AND ORS (RMO 12-2013)

Considering the several extensions granted by the BIR for the application of authority to print (ATP), it is a grave sin if one was unable to process one’s ATP application. Though the penalty prescribed under Sec. 264 of the Tax Code was only for a fine, which ranges from P1,000 - P50,000, the aggressiveness of the law should not be discounted: non-compliance may be considered a criminal liability for which taxpayers may suffer imprisonment of not less than two years but not more than four years.

Surely, as a supplier, you would not want to be ill-favored by your cautious customers who would likely prefer your compliant competitors.

If you have properly complied with this requirement, your next task is to ensure that you are not receiving outdated official receipts or invoices from your suppliers. This will significantly impact your claim of input taxes and deductibility of expense for income tax purposes.

WITHHOLDING REQUIREMENT FOR DEDUCTIBILITY OF EXPENSES (RR NO. 12-2013)

It can be recalled that, under the new regulations, even if the deficiency withholding tax is paid during the investigation, the expense item to which such deficiency withholding tax relates will not be allowed as a deduction against the taxable income in the year incurred.

Think of the dire consequences that taxpayers will face after the issuance of the regulation, specifically on the assessment on withholding tax and income tax.

Revisit the employee’s liquidation of cash advances and reimbursement of expenses made during the year. Aside from probing if the expenses were duly supported with official receipts under the name of the company, validate if such expenses were subjected to expanded withholding tax. 

If, currently, there are transactions that have not been subjected to withholding tax, evaluate the cost-benefit of amending the withholding tax returns and paying the withholding tax to avoid the assessment on non-withholding and further disallowance of the expense.

RECOVERY OF INPUT TAXES ATTRIBUTABLE TO VAT ZERO-RATED SALES (RMC NO. 57-2013)

By this time, taxpayers should be able to forecast if unutilized input tax attributable to value-added tax (VAT) zero-rated sales would be best reco vered through a claim for refund or tax credit certificate (TCC) or, better yet, carried over to the next taxable year.

The option was made critical because of RMC 57-2013, which prohibits expensing of unutilized input VAT attributable to VAT zero-rated sales. It was held that expensing may only be allowed if a claim for refund or tax credit has been filed and that the same was denied by the BIR for failure to comply with the invoicing requirements.

NEW DAILY MINIMUM WAGE RATES IN THE NATIONAL CAPITAL REGION (RMC NO. 71-2013)

On top of the Christmas bonus, employees have reason to cheer the new minimum wage rate in the NCR, which took effect in November.

As a consequence, employers need to revisit the compensation (basic salary plus other income including bonus) given to employees -- if these will now be within the minimum wage and considered non-taxable. 

Increasing the salary and benefits of the employees (up to the extent of the new minimum wage rate limit) without imposing additional tax is required by the issuance.

TREATMENT OF DEPOSITS AND ADVANCES (RMC NO. 16-2013)

We were surprised by the harsh treatment required on deposits or advances received by taxpayers from their clients/customers. It was mandated that any amount received as advances or deposits shall be booked as income and shall form part of the gross receipts of the taxpayer, subject to VAT or percentage tax. The advances shall, on the other hand, be considered a deductible expense by the client/customer provided that it is duly substantiated with official receipts.

Before this issuance, taxpayers first had to make a qualification if the deposit was refundable or non-refundable to be considered taxable or not. This time, the issuance says that cash deposits or advances are taxable upon receipt without qualification. 

Let’s not lose hope, though, but continue to advocate for the BIR to clarify the type of cash advances or deposits to be covered by the new requirements. This treatment has irreconcilable consequences that will place some taxpayers at a great disadvantage.

TAXABILITY OF HOMEOWNERS’ ASSOCIATIONS (RMC NO. 9-2013)

Homeowner’s associations are now subject to income tax and VAT. As a consequence, income payments to them representing membership fees and association dues are likewise subject to the applicable withholding taxes under existing regulations.

The members will feel the escalating cost of living in the city because these taxes will definitely be passed on to them.

With tax rules becoming more challenging each year and the BIR putting the pressure on taxpayers to be accountable for complete compliance, new tax issuances and regulations should be carefully revisited. 

Surely, we don’t want to be thinking about taxes during the Christmas season.

Jen R. Serrano

Let’s Talk Tax

Punongbayan and Araullo