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receiving outdated official receipts or invoices from your suppliers.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
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