Services rendered abroad not subject to Philippine tax

Service fees derived by a non-resident foreign corporation for services rendered outside the Philippines are exempt from Philippine income tax and VAT.

Under Section 23(F) of the Tax Code, a foreign corporation, whether or not engaged in trade or business in the Philippines, is subject to tax only with respect to income derived from sources in the Philippines. In case the income is for sale of services, Section 42(A)(3) of the Tax Code provides that such income shall be considered derived from the Philippines only if the services are actually performed in the Philippines.

In the instant case, the services rendered by the non-resident foreign corporation, i.e., coating of pipes, were rendered abroad. Hence, considering that the services were performed entirely outside the Philippines, the service fees paid by the domestic corporation to the non-resident foreign corporation are exempt from Philippine income tax.

With respect to VAT, payments for the sale or exchange of services are subject to VAT only if the services are performed in the Philippines pursuant to Section 108(A) of the Tax Code. Accordingly, since the services are performed by the non-resident foreign corporation outside the Philippines, the service fees are likewise not subject to VAT.

BIR Ruling No. 458-2012, July 10, 2012

Tax Brief – August 2012

Punongbayan and Araullo

Unlawfully deprived

Si Ashi Behati ay nawalan ng diamond ring noong ang sinasakyan niyang bus ay hinoldap ng mga salarin na lumimas sa mga ari-arian ng mga pasahero.  Ang nasabing diamond ring ay naisanla sa Yangdon Pawnshop ng isa sa mga salarin.  Sa pagdaan ng panahon, niremata ng YangdonPawnshop ang diamond ring at isinubasta kay Margaret.

Pagkatapos ng tatlong taon mula ng nawala ang diamond ring, nakita ni Ashi Betati kay Margaret at hinihiling na ibalik ito sa kanya.  Hindi sumang-ayon si Margaret dahil wala siyang kinalaman sa pagkawala nito.

Tanong:

Sino ang may mas karapatan sa diamond ring?

Sagot:

Ayon sa Article 559 ng Civil Code, ang may-ari na nawalan dahil sa illegal na paraan ay maaaring bumawi sa bagay na nawala kahit mula sa bumili na hindi alam na ito ay nakaw.  Subalit dahil ito ay binili sa subastahan kailangan ibalik ni Ashi Behati ang perang pinambili ni Margaret bago niya mababawi ang nasabing diamond ring.

Tax implications of integration of airport terminal fee in airline tickets

The BIR issued the following clarifications on the procedure for invoicing and tax treatment of the integration of the Domestic Passenger Service Charge (DPSC) into the sale of airline tickets.

On the collection of DPSC from passengers

The airline company, which shall be responsible for collecting the DPSC, shall include the DPSC in the official receipt it shall issue to its passengers. The VAT-able and VAT exempt components of DPSC shall be separately reflected in the official receipts. This means that the share of the airport authority in the DPSC shall be shown in the airline company’s official receipts as part of receipts subject to VAT, while the Aviation Security Fee should be reflected as VAT exempt. The VAT component shall be included in the total VAT.

On the payment of DPSC by airline companies to the airport authority

The DPSC collected by the airline company shall be paid to the airport authority which, in turn, shall issue an official receipt to the airline company. The official receipt shall indicate the full amount of the DPSC. The DPSC shall not form part of the gross receipts of the airport authority for purposes of computing creditable withholding taxes.

On the payment of service fees by airport authority to the airline company

The airport authority shall pay service fees to airline companies for collecting the DPSC. This shall be governed by the rules on government money payments, i.e., subject to withholding VAT at the rate of 5% and expanded withholding tax of 2% of gross payments. The entries to record payment/receipts/remittance of the DPSC in the books of an airline company and the airport authority are illustrated in the circular.

Revenue Memorandum Circular No. 34-2012, August 1, 2012

Tax Brief – August 2012

Punongbayan and Araullo

Coverage of tax exemption of private contractors undertaking socialized housing projects

The exemption from project-related income and value-added taxes (VAT) of private contractors/developers engaged in socialized housing projects under Section 20 of Republic Act No. (RA) 7279 — or the Urban Development Housing Act of 1992 — is limited to the construction and development of houses and lots or homelots.

Under Section 3(r) of RA 7279, the term “socialized housing” refers to housing programs and projects covering houses and lots or homelots undertaken by the government or the private sector for the underprivileged and homeless citizens, which shall include sites and services development, long-term financing, liberalized terms on interest payment, and such other benefits in accordance with the provisions of the law.

Based on the definition of socialized housing under RA 7279, the BIR has clarified that the development and/or construction of classrooms, school buildings, multi-purpose halls/covered courts, and livelihood centers falls outside the definition of the term “socialized housing” and cannot qualify for the tax incentives granted under Section 20 of RA 7279.

Revenue Memorandum Circular No. 32-2012, July 16, 2012

Tax Brief – August 2012

Punongbayan and Araullo

Guidelines on uploading of ITR in the eFPS

The BIR has issued the following guidelines in the uploading in the electronic Filing and Payment System (eFPS) facility of the contents of income tax returns (ITR) previously filed by eFPS taxpayers using the prescribed Enhanced Income Tax Return (BIR Form 1702 - November 2011 ENCS).

1. All eFPS filers are required to encode the contents of the return previously filed on or before August 31, 2012.

2. ePayment shall not be required if the tax due on the e-filed return is equal to the amount previously paid. However, if there is unpaid tax, the concerned eFPS taxpayer shall pay the unpaid amount plus corresponding penalties.

3. Additional work-around procedures should be followed by eFPS filers who availed of tax relief under a special law or an international tax treaty with specific instructions provided in the naming and attaching of supplemental forms for itemized deductions or optional standard deductions (OSD).

4. The Filing Reference Number (FRN) shall be generated as proof that the return, which should be printed for future reference, has been received by the BIR. The “proceed to payment” button shall only be enabled by eFPS filers in case there is additional tax payable.

5. eFPS taxpayers who failed to submit their financial statements and other required schedules as attachments to the ITR within 15 days after the initial filing of the ITR shall be subject to late filing penalties.

Revenue Memorandum Circular No. 43-2012, August 10, 2012

Tax Brief – August 2012

Punongbayan and Araullo

Tax effect of distribution to holders of equity instruments and transaction costs

IAS 32, Financial Instruments: Presentation

• Addresses perceived inconsistencies between IAS 12 ‘Income Taxes’ and IAS 32 with regards to recognizing the consequences of income tax relating to distributions to holders of an equity instrument and to transaction costs of an equity transaction

• Clarifies that the intention of IAS 32 is to follow the requirements in IAS 12 for accounting for income tax relating to distributions to holders of an equity instrument and to transaction costs of an equity transaction. IAS 12 requires the recognition of the income tax consequences of dividends in profit or loss except to the extent that the tax arises from a business combination or from a transaction which is recognized outside profit or loss (either in other comprehensive income or directly in equity).

Accounting Alert – June 2012

Punongbayan and Araullo

Emancipation through Marriage

Si Jao, 19 taon gulang at may-asawa at gustong gawin ang mga sumusunod: (a) ipahiram ang kanyang pera na may interest, (b) i-donate ang kanyang lupa sa kanyang sanggol na anak, (c) ibenta ang kanyang kotse at (d) ihabla ang kanyang kapitbahay dahil sa pinsala.  Ang lupa, kuwarta at kotse ay pag-aari ni Jao na napasa kanya sa pamamagitan ng kanyang sariling kita.  Hindi siya tiyak kung may kakayanan na siyang gawin ang mga ito na walang pahintulot at tulong mula sa kanyang ama.

Tanong:

May kakayanan ba si Jao na gawin ang mga ito?

Sagot:

Sa ilalim ng Civil Code ang age of majority ay 25 taong gulang at maging emancipated dahil sa pag-aasawa.  Ang taong emancipated dahil sa pagpapakasal ay walang kakayanang manghiram ng kuwarta, ibenta o isanla ang kanyang lupa na walang pahintulot ang kanyang magulang.  Wala rin siyang kakayanan para maghabla na walang tulong ang kanyang magulang.

Sa ilalim ng Family Code, ang age of majority ay 18 taong gulang kung saan meron nang legal na kakayanan ang taong gumawa ng mga legal na bagay kasama ang pagpapakasal.

Fortuitous Event

Si Marco ay nagpahiram ng ilang automotive repair equipment kay Miguel na bagong bukas ang sariling talyer.  Ang kontrata ng hiraman ay pinirmahan noong February 15, 2102.  Napag-usapan na sa loob ng isang buwan ibabalik ni Miguel ang kagamitan kay Marco.  Ang nasabing kagamitan ay ibinigay noong February 15, 2012.  Noong March 15, 2012, Si Marco tumawag sa celfon kay Miguel para bawiin na ang kagamitan ng talyer.  Dahil nasira ang truck ni Miguel hindi niya naibalik ang nasabing kagamitan.  Maaga kinabukasan, nasunog ang kagamitan na nagmula sa isang kainan sa tabi ng talyer ni Miguel.  Gustong panagutin ni Marco si Miguel sa halaga ng nasunog na kagamitan sa kadahilanang hindi niya naibalik ang kagamitan sa araw na napag-usapan.

Tanong:

Tama ba si Marco?

Sagot:

Ayon sa batas, kung ang isang bagay ay mawawala dahil sa fortuitous event ang may obligasyon ay mawawalan ng obligasyon.

Sa kaso ni Miguel, nawalan siya ng obligasyon na ibalik ang kagamitan sa talyer dahil aksidente ang apoy na sumira sa kagamitan.  Isa pa hindi pa siya sumala sa panahon na ibalik ang kagamitan dahil ang isang buwan ay tatlumpong araw.  Noong aksidenting nasunog ang kagamitan ay pang dalawamput siyam na araw pa lang ng kontrata dahil ang buwan ng February ay may dalawamput walang araw lamang.

This article also appears at:
http://www.placesure.com/groups/general-public/forums/topic/fortuitous-event/#post-378

Imposition of 15% branch profit remittance tax

A registered Philippine branch of a foreign corporation was assessed for deficiency taxes on its failure to withhold the 15% branch profit remittance tax (BPRT) on its alleged indirect profit remittance under Section 28(A)(5) of the Tax Code. The BIR alleged that based on the branch’s audited financial statement, which showed the composition of its home office account, there is disclosed a net income in the head office account that partakes of the nature of indirect remittances to the head office.

In assessing the branch for BPRT, the BIR relied on its previous ruling (BIR Ruling No. 039-2005), which held that an increase in the head office’s assigned capital to its Philippine branch by transferring net profits of the branch to the assigned capital account should be subject to BPRT, despite the fact that the profit from operation will not be physically remitted to the head office abroad.

The CTA held that although the audited financial statement of the branch revealed a net income, it did not show that it was transferred or had become part of the assigned capital. The CTA agreed with the explanation made by the branch that in line with branch accounting principles of the Philippines, the home office account in the audited financial statement is comprised of different items (i.e., assigned capital, transactions with head office and accumulated income). As gleaned from the audited financial statement, the net income is separate from the assigned capital. Thus, although the net income is included in the home office account, it did not result in an increase in assigned capital account.

Considering that no transfer of the net income to the assigned capital had taken place, the CTA maintained that the ruling invoked by the BIR cannot apply to the case because the scenario (i.e., increase in the head office assigned capital to the Philippine branch by transferring net profits of the branch to the assigned capital account) is not present in the case.

The CTA also found no evidence that the branch remitted, earmarked or applied for remittance of its net income. The CTA further held that the BPRT may not be imposed just because there is income. Section 28(A)(5) of the Tax Code speaks of “any profit remitted,” which pertains to that portion of the branch profits sent to the head office as distinguished from the total net income or profits of the branch. Thus, for the provision of the law to apply, there must be a remittance of the branch profits by the branch to the head office; the mere existence of an income does not in any way justify the imposition of the BPRT.

(Commissioner of Internal Revenue v. United Parcel Service Co., CTA EB No. 721 re CTA Case No. 7667, May 16, 2012)

Tax Brief – June 2012

Punongbayan and Araullo

Payment of sickness and maternity reimbursements through SSS-accredited banks

The Social Security System (SSS) issued SSS Circular No. 2012-008 dated 23 March 2012, laying down the following guidelines concerning the payments of sickness and maternity benefits through SSS-accredited banks:

1. All employers shall be required to enroll in the program at any of the SSS-accredited banks or at their SSS servicing branch. Existing savings or current accounts may be enrolled in the program.

2. The signatory in the enrollment form shall be the authorized bank account signatory as designated by the employer or the company’s Board of Directors.

3. All sickness and maternity benefit reimbursements shall be remitted by the SSS to the employer’s designated bank, which in turn shall be credited to their enrolled savings or current account.

4. The SSS shall notify the employer through a Payment Advice each time a payment to their bank account is made.

The Circular supersedes Circular 8-P dated 20 September 2002.

Outsourcing Brief – July 2012

Punongbayan and Araullo

Tax treatment of retirement benefits under RA 7641

Under Section 32(B)(6)(a) of the Tax Code, retirement benefits received under Republic Act (RA) 7641 shall not be included in the gross income of the retiring employee and are therefore exempt from tax. However, this provision only applies in the absence of a retirement plan or agreement providing for retirement benefits of employees in the establishment. Moreover, in order to be exempt from tax, the employee should have reached 60 years of age, but should not be beyond 65 years and should have spent at least five years in the service of the same employer.

In the instant case, the company does not maintain a retirement plan and there is no existing collective bargaining agreement between the employer and employee. Hence, the conditions under RA 7641 shall govern the taxation of employees’ retirement benefits. As held by the BIR, considering that the employees have reached 60 years of age and have rendered at least five years of service in the company, the retirement benefits received by employees from the company are not subject to tax and, consequently, to withholding tax.

However, the terminal pay, i.e., commutation and payment of monetized unused vacation leave credits exceeding 10 days, and sick leave credits regardless of number of days, are subject to income tax. The exemption does not include the payment to the employees of their salaries and 13th month pay and other benefits in excess of P30,000 threshold under Section 2.78.1(A)(3)(a) and (A)(7) of RR 2-98.

BIR Ruling No. 297-2012, May 3, 2012

Tax Brief – June 2012

Punongbayan and Araullo

This article is also published at:
http://www.placesure.com/groups/general-public/forums/topic/tax-treatment-of-retirement-benefits-under-ra-7641/

Clarification on binding effect of BIR rulings issued prior to January 1, 1998

The BIR has issued the following clarifications on the proper interpretation of RR 5-2012 on the non-binding effect of BIR rulings issued prior to January 1, 1998.

A. On the use of BIR rulings as precedent

All BIR rulings issued prior to January 1, 1998 may not be used as precedent basis by taxpayers to secure their own rulings for current business transactions or tax assessments. The same rulings may also not be used by a BIR action lawyer in issuing new rulings involving current business transactions.

B. On its effect on taxpayers to whom the rulings were issued

The BIR rulings issued prior to January 1, 1988 remain valid but only to the taxpayer who was issued the ruling and covering the specific transactions that are the subject of the ruling. The rulings also stand unless the taxpayer is expressly notified of its revocation or the legal basis in law for such issuance has already been repealed/amended in the current Tax Code.

Revenue Memorandum Circular No. 22-2012, May 7, 2012

Tax Brief - June 2012

Punongbayan and Araullo 

This article is also published in:
http://www.placesure.com/groups/general-public/forums/topic/clarification-on-binding-effect-of-bir-rulings-issued-prior-to-january-1-1998/

2009 and 2010 LN guidelines

The BIR has issued the following guidelines and procedures in handling Letter Notices (LN) generated through third-party information data matching with tax returns. These guidelines shall be used for resolving issues on 2009 and 2010 LNs issued prior to the effectivity of these guidelines.

Among the significant features of the guidelines are as follows:

1. LNs shall be handled by the investigating office (Revenue District Office or Audit Division under the Large Taxpayers Service) having jurisdiction over the taxpayer.  An LN issued to a taxpayer can be considered a notice of audit of investigation, which shall disqualify the taxpayer from amending the return covering the period referred to in the LN upon its issuance.

2. A taxpayer who refutes the accuracy of the figures in the LN (due to erroneous encoding or timing difference) is given 10 days from receipt of LN to submit documentary proofs and reconciliation schedules. If the taxpayer cannot submit documentary proofs or provides incomplete documentary requirements within the prescribed period in support of his/her/its protest, the Revenue Officer (RO) shall endorse the docket and recommend the issuance of Notice of Informal Conference, which shall be served to the taxpayer within 30 days from its issuance.

3. If the taxpayer fails to settle his/her/its liabilities within five days from receipt of the Notice of Informal Conference, the investigation office shall immediately endorse the docket to the appropriate BIR office for any or a combination of the following actions:

a. Issuance of Preliminary Assessment Notice (PAN)/Final Assessment Notice (FAN) in accordance with RR 12-99

b. Imposition of administrative sanction of suspension and temporary closure of business establishments (Oplan Kandado) if the underdeclaration of sales, receipts and income amounts to 30% or more

c. Issuance and enforcement of subpoena duces tecum (SDT) in strict compliance with procedures under Revenue Memorandum Order No. (RMO) 88-2010

4. If there is an ongoing audit/investigation pursuant to an electronic Letter of Authority (eLA) prior to the LN assignment, the RO handling the eLA shall also be assigned the LN. The LN shall not be considered closed but shall be consolidated with the eLA.

5. If an eLA is terminated before an LN is issued, the investigating office shall request the tax docket from the Assessment Division or Administrative Division, as the case may be, for non-large taxpayers and Records Division for large taxpayers and shall ascertain whether the discrepancies reflected in the LN are in the report of investigation. If the discrepancies are not included, the RO shall pursue action on the LN based on the prescribed procedures.

If the discrepancies are considered, the RO shall recommend cancellation of the LN and the tax docket shall contain the LN and other required documents

6. The surcharge, interest and compromise penalty assessed against the taxpayer may be abated by paying the basic deficiency tax(es) within 30 days from receipt of the LN using BIR Form 0611-A. If deficiency tax is paid beyond the 30-day period, the taxpayer shall be assessed with the corresponding surcharge (if applicable), interest and compromise penalty. In both cases, an “Agreement Form” shall be executed by the taxpayer or his/her/its duly authorized representative indicating therein the amount and date when the deficiency tax(es) shall be paid.

7. Installment payment shall be allowed as settlement of tax deficiencies arising from LN in case the total tax liabilities exceed P500,000 for non-large taxpayers or P10 million for large taxpayers. A written request for installment payment of basic tax due plus increments using the prescribed Application for Installment Payment must be accomplished. The corresponding interest on the basic tax due per installment shall be computed up tothe date of payment as shown in the application. The payment shall be made using Payment Form, i.e., BIR Form 0611-A. In case of default of any installment payment, the remaining balance of basic tax plus the increments shall become due

and demandable immediately without prior notice to the taxpayer.

Revenue Memorandum Order No. 13-2012, May 16, 2012
Tax Brief – June 2012

Punongbayan and Araullo

This article is also published at:
http://www.placesure.com/groups/general-public/forums/topic/2009-and-2010-ln-guidelines/#post-323

Investing in Philippine Real Estate

The Republic of the Philippines has real estate business that keeps on running notwithstanding the economic crisis all over the world. For people who are new in this business, purchasing and choosing a property could be a tricky task. There is a broad variety of choices which can really be extremely confusing such as apartments, villas and houses. Given this, getting the right details will definitely be helpful for you to thrive in a very competitive business. This will also help you decide where and when to put your money in.

These guidelines must be noted before investing your money on Philippine real estate.

 Consider searching for bargain offers online about property. It will make sense to compare the prices of the properties so you can gain ideas regarding the market value. This will make you a better negotiator.

• Examine the features and the amenities of the property. Compare the cost based on the amenities and features being offered.
• With the use of Google maps, locate the area. Be cautious of places in close proximity with rivers, factories, illegal squatting and fault lines.
• Investigate the general area when it comes to ease of industries, transportation, local establishments, proximity to shopping malls and availability of electricity and water.
• When you think of working with a real estate agent, just be sure that this person has real estate license.
• Read books, magazines and newspapers regarding Philippine property and you will be able to get the appropriate property for you. Free information is also waiting for you on the internet.
• Take your time and never be in a hurry. Get more information as much as you can since this will help you make the best decision.
• Follow these simple tips and surely your time, effort and hard-earned money will not be wasted.

The Administrator

PlaceSure

http://www.placesure.com/category/news-and-events/