Additional disclosure requirement in ITR, further deferred to CY 2013

The Bureau of Internal Revenue has further deferred to taxable year 2013 the requirement  for individuals to disclose their other income in the enhanced BIR income tax returns  (BIR Forms 1700 and 1701). Thus, for taxable year 2012, the disclosure of supplemental information under BIR Forms 1700 and 1701 shall be optional for individual taxpayers who are required to file their income tax returns on or before April 15, 2013.

The disclosure requirement, however, shall become mandatory for income tax filing covering and starting calendar year 2013 for which a return is required to be filed in 2014. For this purpose, individual taxpayers are advised to keep evidence or records of their tax-exempt income and income which are subjected to final withholding tax in 2013 to ensure compliance with the disclosure requirements. 

(Revenue Memorandum Circular No. 21-2013, March 5, 2013) 
Tax Alert
Punongbayan and Araullo

Tax Treatment of Deposits/Advances for Expenses Received by Taxpayers

The Bureau of Internal Revenue (BIR) issued Revenue Memorandum Circular (RMC) Nos. 89-2012 (dated December 28, 2012) and 16-2013 (dated February 15, 2013) providing for guidelines to be observed in the accounting and recording of deposits / advances for the payment of the pertinent expenses received by taxpayers.

Previous issuance, RMC No. 89-2012, clarifies the tax implications of deposits/advances, as well as accounting and liquidation of pertinent expenses specific to GPPs and/or their clients/customers.

The latest issuance, RMC 16-2013, spells out policies and guidelines on deposits/advances as part of gross receipts, claims for deduction of expenses, income payments which are subject to expanded withholding taxes, the issuance of official receipts (OR) and pro-forma accounting entries specific to taxpayers other than GPPs and their clients/customers.

The subject RMCs state that for every cash deposit or advances received by taxpayers from clients/customers, an OR covering the entire amount shall be issued and the same shall be booked as outright income and shall be subject to VAT or Percentage Tax, if applicable. The said income payment shall in turn be deductible as expense by the client/customer.

The RMCs stressed that receipts incurred, paid for an issued in the name of the taxpayer shall be recorded as its own expenses for income tax purposes and may be claimed as deductions from gross income provided that they are duly substantiated by official receipts/invoices.

All clients/customers, upon payment of deposits/advances, shall withhold, if applicable, the relevant expanded withholding tax (EWT), as prescribed in Revenue Regulations (RR) No. 2-98, as amended, and shall remit the same on or before the 10th day of the following month except those withheld on the month of December which shall be remitted on or before the 15th day of January. For the Electronic Fling and Payment System (eFPS) users, they shall follow the pertinent eFPS regulations.

The RMCs also provides pro-forma accounting entries and recording of deposits/advances of taxpayers and their clients/customers.

DOF News Correspondent

Source: http://www.dof.gov.ph/?p=5699

Reminder on issuance of withholding tax statement

The BIR reminded all withholding agents on their obligation to issue withholding tax statement on income payments subjected to final or creditable withholding taxes.

Based on Section 2.58(B) of RR 2-98, as amended, the withholding tax statement (BIR Form 2307) is required to be submitted within 20 days following the close of taxable quarter employed by the payee in filing his/its quarterly income tax return. The payor is required to retain a copy of the duly issued BIR Form 2307. Failure to furnish the same shall be grounds for the mandatory audit of payor’s income tax liabilities (including withholding tax) upon verified complaint of the payee.

For final withholding taxes, the withholding tax statement should be given to the payee on or before January 31 of the succeeding year or upon request of the payee.

(Revenue Memorandum Circular No. 85-2012, December 26, 2012)

Tax Brief – January 2013

Punongbayan and Araullo

Inheritance Taxes

GOV’T DRIVE:  The government is taking a closer look at its collection of estate taxes, especially from wealthy Filipinos.  Inheritance taxes are no longer being levied on recipients of legacies from parents or other relatives.  The tax assessments are due from the “transmitter” of wealth which is the estate itself.  Estate taxes are graduated based on the total value of the estate of the deceased.  Recent amendments of the Tax Code set rates that are kinder to those leaving smaller estates.

Finance Secretary Cesar V. Purisima noted that estate tax collections are very low – averaging only P800 million to P1 billion per year.  This is despite the escalation of zonal values of realties, which serve as basis for estate tax computation.  For net estates with values of P10 million and above, the tax rate is 20%.  For estates worth P15 million – the tax rate is 15%.  Family homes worth P1 million are exempt – and the first P1 million of the estate is also exempt.

FORMALITIES:  Within sixty (60) days from the death of a taxpayer, his heirs or administrator must file with the Revenue District of his last residence, a Notice of Death.  Counting from said date of death, the Estate Tax Return must be filed within six (6) months.  The return must be accompanied by certificates of residence and total landholdings of the decedent in every given local government unit.

Proofs of relationship between the deceased and heirs must be shown, more so in intestate succession.  Certified true copies of realty titles and tax declarations must be submitted.  The estate values of lands are based on zonal valuation – while taxable amounts of improvements are based on market values per tax declaration.  Estate tax must be paid upon filing, within the period provided.  Late filings subject the estate to surcharges (25%), interest (20 %. p.a.) and compromise penalties.

OPINIONS UNLIMITED 2013 :  Atty. Tony (APA) Acyatan : BIKOL REPORTER : Feb 17, 2013 

Minimum public ownership requirement for listed shares

In order to be subject to the ½ of 1% tax on the sale, barter or exchange of shares of stocks listed and traded through the local stock exchange under Section 127(A) of the Tax Code, publicly listed companies must meet the 10% public float or the minimum public ownership (MPO) as required by the Securities and Exchange Commission (SEC) or the Philippine Stock Exchange (PSE), whichever is higher.

Publicly listed companies that are non-compliant with the above percentages were allowed up to December 31, 2012 to comply with the MPO.

Transactions up to December 31, 2012 of publicly listed companies that failed to meet the MPO shall be subject to ½ of 1% tax on gross selling price under Section 127(A) of the Tax Code, while transactions made after December 31, 2012 shall be subject to a final tax of 5% or 10% on the net capital gains imposed on sales of shares of stocks not traded in the local stock exchange. The transfer of shares of stocks of non-compliant publicly-listed companies on their transactions after December 31, 2012 shall be subject to documentary stamp tax (DST) imposed under Section 175 of the Tax Code.

No sale, exchange, or transfer of shares of stock shall be registered in the books of the corporation unless the receipts of payment of the taxes and the Certificate Authorizing Registration (CAR) and/or Tax Clearance Certificate are filed with, and recorded by, the stock transfer agent or the secretary of the corporation.

(Revenue Regulations No. 16-2012, December 7, 2012)

Tax Brief – January 2013

Punongbayan and Araullo

Clarification on the taxation of long-term deposits

This Circular was issued to clarify the provisions of RR 14-2012 on the proper tax treatment of interest income from long-term deposits. The highlights of some of the issues and/or clarifications discussed in the Circular are as follows:

1. On investments of individuals in long-term trust invested by a bank’s trust department in a five-year corporate bond

Even if the individual does not withdraw his money from the trust agreement for at least five years, his interest income from the trust agreement will not be exempt from the final withholding tax as the underlying instrument is a corporate bond, even if such corporate bond has a maturity of five years. Corporate bonds or any other debt instrument issued by a non-bank corporation as underlying instrument will not meet the requirements of Section 22(FF) of the Tax Code since it is not issued by a bank.

2. On investments of individuals in long-term trust invested in long-term deposits placed under name of a bank’s trust department

If a bank’s trust department invests a fund in a long-term deposit or investment certificate in its own name without mentioning the particular individual for whom the investment is being made, this long-term deposit and investment are not exempt from the 20% final withholding tax. Only those made specifically in trust for the name of specific qualified individual investors may be exempt from income tax under the Tax Code.

3. On the tax treatment of investments of individuals in a long-term deposit or investments with remaining maturity of less than five years

The individual depositor or investor who acquired the instrument shall be subject to 20% final withholding tax on his interest income because the remaining maturity period is less than five years.

4. On the applicable tax rate in case of long-term deposits that have original tenor of more than five years but eventually held for less than five years upon exercise of call option

The individual depositor or investor who acquired the instrument with a maturity period of more than five years but eventually held the same for less than five years upon exercising his call option shall be subject to the graduated income tax rates of final withholding tax applicable to pre-terminated long-term deposits.

5. On the effectivity date of RR 14-2012 pertaining to the exemption of long-term deposits

Since RR 14-2012 merely implements, among others, the existing provisions of the Tax Code on long-term deposits, it shall apply to the following:

a. All pre-terminations/transfers, sale or acquisition of current outstanding long-term deposits or

investment certificates and new issues

b. All the interest coupon payments of current outstanding long-term deposits or investment certificates, as may be applicable, and new issues

c. All current outstanding underlying investments of investment certificates in the form of common or individual trust funds or investment management accounts and new issues upon the effectivity of the RR 14-2012 on November 23, 2012

(Revenue Memorandum Circular No. 81-2012, December 11, 2012)

Tax Brief – January 2013

Punongbayan and Araullo

Location restriction for tourism economic zone enterprises

Investors planning to establish tourism economic zones (TEZs) or who wish to locate as TEZ enterprises in Metro Manila, Cebu City, Mactan Island, and Boracay Island shall no longer enjoy the following tax incentives enjoyed by economic zone developers and locator enterprises:

1. 5% gross income tax incentive granted to economic zone developers of TEZs

2. Income tax holiday (ITH) and 5% gross income tax to locator enterprises of TEZs, except for tax and duty-free importation and zero-VAT rating on their local purchase of capital equipment

Existing TEZ developers/operators as well as TEZ locator enterprises in Metro Manila, Cebu City, Mactan Island and Boracay Island shall continue to enjoy the tax incentives granted to them by the Philippine Economic Zone Authority (PEZA). However, TEZ developers/operators and locator enterprises in the aforesaid areas that have not signed their registration agreements with PEZA shall be covered by the new PEZA policy.

Henceforth, no more new TEZs shall be allowed to be established in the said areas.

(PEZA Board Resolution No. 12-610, November 13, 2012)

Tax Brief – January 2013

Punongbayan and Araullo