7 Basic Features of Independent CPA on CTA Tax Cases Philippines

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By: Garry S. Pagaspas, CPA

Court of Tax Appeals (CTA) in Philippines, under Republic Act No. 1125, as amended (e.g. by Republic Act No. 9282) is the tax court in the Philippines handling cases on disputed assessments from electronic letters of authority, tax refunds such as on excess input VAT from zero-rating in Philippines filed by the taxpayer as petitioner. Under the Revised Rules of the Court of Tax Appeals (A.M. No. 05-11-07-CTA dated 22 November 2005 or RRCTA), Rule 13 – Trial by Commissioner, appointment of Independent Certified Public Accountant is allowed, and hereunder quoted:

“Rule 13 – Trial by Commissioner

Section 1. Appointment of Independent Certified Public Accountant (ICPA). – A party desiring to present voluminous documents in evidence before the Court may secure the services of an independent Certified Public Accountant (CPA) at its own expense. The Court shall commission the latter as an officer of the Court solely for the purpose of performing such audit functions as the Court may direct.”

From the above, petitioner in tax cases – e.g. Petition for Review on BIR tax assessment, Petition for Review on Excess Input VAT refund in Philippines, is given an option for an appointment of an Independent CPA (ICPA) as Commissioner by the CTA for purposes of verifying the voluminous pieces of documentary evidence of the Petitioner and submission of its ICPA report with recommendations relative to the issues in the CTA case. Below are the seven (7) basic features of CTA ICPA in tax cases Philippines, based on personal notes of the author:

1. ICPA is qualification based

While all CPA’s could be qualified, CTA normally looks into some other qualifications such as on the independence of the CPA with respect to the petitioner, its qualifications as a CPA, as an accredited practitioner, and its capability to implement its mandate as CTA ICPA. A Judicial Affidavit will be executed by ICPA and copies of the following documents showing ICPA’s qualifications are normally attached:

• a. PRC License;
• b. PRC – BOA CPA Certificate;
• c. PRC BOA Accreditation – Public Practice;
• d. BIR tax agent accreditation;
• e. Other accreditations, if any, – SEC, CDA, IC, etc.;
• f. Curriculum Vitae/ Resume with personal and other details along with enumeration of dealings with CTA ICPA in the past, if any; and,
• g. Accounting Firm papers/ accreditations, if ICPA is a partner.

The lawyer/ counsel of the Petitioner will normally file a Motion for Commissioning the ICPA and attach the above along with the Judicial Affidavit of the ICPA, then a hearing on Commissioning Hearing conducted where ICPA takes the witness stand for direct/ cross examination by lawyers of petitioner/BIR along with CTA justices, if any, to determine his qualifications. BIR could object the appointment if it sees grounds like independence such as if CPA has been an ICPA with the same taxpayer for more than three (3) times, qualifications, and such other grounds.

2. ICPA is an officer of the Court with specific duties under RRCTA

Upon satisfaction of qualification, CTA will require the ICPA to take an Oath in open court during the hearing, then the Clerk of Court will require ICPA to sign on such Oath for records purposes, and CTA issues an Order for such Commissioner or appointment of ICPA. Notably, the ICPA’s appointment by the CTA is as an officer of the Court where it would report directly to the CTA and serve the ends of justice in the conduct of its functions with impartiality to all parties. Section 2 of RRCTA provides that the CTA ICPA Philippines shall perform the audit in accordance with the generally accepted accounting principles, rules, and regulations which shall include the following:

• a. Examination and verification of receipts, invoices, vouchers and other long accounts;
• b. Reproduction of, and comparison of such reproduction with, and certification that the same are faithful copies of original documents, and pre-marking of documentary exhibits consisting of voluminous documents;
• c. Preparation of schedules or summaries containing a chronological listing of the numbers, dates and amounts covered by receipts or invoices or other relevant documents and the amount(s) of taxes paid;
• d. Making findings as to compliance with substantiation requirements under pertinent tax laws, regulations and jurisprudence;
• e. Submission of a formal report with certification of authenticity and veracity of findings and conclusions in the performance of the audit;
• f. Testifying on such formal report; and,
• g. Performing such other functions as the Court may direct.

CTA ICPA in Philippines should be guided with the above duties for which it has taken oath, otherwise, the CTA may hold the CTA ICPA Philippines in contempt of court for violations and be imposed criminal and/or civil liability, at the discretion of the Court.

4. ICPA files an ICPA Report in Philippines based on verification with recommendation

Upon CTA commissioning or appointment of the CTA ICPA in Philippines, the Court would normally provide for thirty (30) days or at times forty-five (45) days within which the CTA ICPA would conduct the audit and file an ICPA report with CTA in normally eight (8) sets with exhibits of supporting documents and USB/DVD drive/s containing scanned copies of the report and exhibits. The CTA ICPA report in Philippines would contain a summary of the procedures performed, its findings, statement that the exhibits attached are faithful reproduction of the original copies, supporting schedules/illustrations/tables, and recommendations on the issues like tax liabilities for tax assessment case in Philippines, or for amount refundable for excess input VAT refund CTA case in Philippines. At times, the CTA ICPA in Philippines asks for extension of time beyond the 30/45 days, if justifiable, for consideration of the CTA.

The CTA ICPA Report is under oath and false content could subject the CTA ICPA to criminal and/or civil liabilities for perjury.

5. ICPA testifies as witness in the tax case

From the CTA ICPA Report, a Judicial Affidavit of the CTA ICPA in Philippines containing such matters indicated in the CTA ICPA Report will be filed and a hearing will be scheduled for the presentation of the CTA ICPA in Philippines in open court where the CTA ICPA takes the witness stand for examination (direct/cross/re-direct/re-cross) of the counsels of petitioner and BIR.  CTA justices may also ask clarificatory questions as they may deem it necessary.

Presentation of CTA ICPA in Philippines as witness could be completed in one hearing or may continue on next schedule should there be more questions. Upon completion of the CTA ICPA’s presentation as witness, the CTA ICPA commissioning will be deemed completed thereby being excused on subsequent hearings of the CTA case, unless CTA would issue order addressed to the CTA ICPA for some issues/ concerns like submission of missed exhibits, if any, thereafter.

6. CTA not bound by ICPA’s recommendations

While the CTA ICPA in Philippines is an officer of the court and reporting directly to CTA, the CTA ICPA Report is just recommendatory and not conclusive or binding upon the CTA. CTA may or may not adopt the findings and recommendations of the CTA ICPA in Philippines. The CTA decision would normally cite CTA ICPA report on matters it would adopt and would normally mention the name of the CTA ICPA in Philippines on the CTA decision. On the same token, it seems that the petitioner’s counsel could further present documentary evidence should there be those that was not included on the CTA ICPA report for a reason or another.

7. ICPA’s professional fees paid by Petitioner

Yes, while the CTA ICPA is an officer of the court and reporting to the CTA, its professional fees for such services are being paid by the petitioner so normally, the CTA ICPA in Philippines and petitioner would agree first before CTA appointment. Expenses relative to the conduct of audit by the CTA ICPA such as field work costs on the conduct of the audit and reproduction cost of exhibits. CTA may have a say on the reasonableness of the professional fees under the rules.

Summary

The above features provides a basic overview of Independent Certified Public Accountant with Court of Tax Appeals in Philippines relative to tax cases, the process, timeline, documentation and filings aimed for easy reference of CPA practitioners, taxpayers, and the public, in general. The above features are based on author’s personal notes and not from any official enumeration of the Court of Tax Appeals or any government agency.

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Garry is a Certified Public Accountant (CPA) and a law degree holder in tax practice for almost two (2) decades now helping further taxpayers on securing BIR Rulings, appeal of BIR Ruling denials, company registrations in Philippines, tax compliance, tax savings, tax assessments, tax refunds, and other related professional tax services. He has likewise been helping out local and foreign investors/clients determine the most appropriate legal entity to register in the Philippines based on intended operations, the eventual registration of such legal business entity and other related professional services such as securing Ph Visa, payroll, and business consultancy. He was formerly with the academe and is presently a frequent speaker of Tax and Accounting Center, Inc. and other seminar entities.

Garry has repeatedly been appointed by CTA as Independent CPA on tax assessment and VAT refund cases in Philippines under the rules on Trial by Commissioner and some of those CTA tax cases have already been decided as published in CTA Philippines website.

Disclaimer: This is for purposes of academic discussions only as personally summarized by the author, not of Tax and Accounting Center, Inc. and is not a substitute for an expert opinion. Please consult your preferred tax and/or legal consultant for the specific details applicable to your circumstances. 

By: Garry S. Pagaspas, CPA. December 14, 2020

In dealing with the COVID-19 Pandemic, the Philippine legislature passed into law Republic Act No. 11469, otherwise known as “Bayanihan To Heal As One Act” and along with other matters contained therein are tax rules and implications in related dealings. Below are 10 new notable tax rules in the Philippines under COVID-19 Pandemic based on recent issuances (e.g. Revenue Regulations (RR), Revenue Memorandum Circulars (RMC), and Revenue Memorandum Orders (RMO) of the Bureau of Internal Revenue (BIR):

1. Filing extensions under various BIR issuances (RR Nos. 7/8/10/11/12-2020)

With the imposition of quarantine since mid-March 2020, work in private and government offices were suspended and mobility was limited prompting the BIR to come up with issuances extending filing deadlines during quarantine. These extensions during the quarantine period cover periodic tax returns and reports filings in Philippines – monthly and quarterly; filing of time-bound applications/ processes – tax refunds, registrations, etc.; and legal processes – filing of reply/protest to assessment notices of BIR, so take note of these BIR issuances for future reference on issues related to late filing and/or failure to file allegations. Notably, while the rest of extensions have been regularized by now, Tax Amnesty on Delinquency under Republic Act No. 11213 in Philippines as implemented by RR No. 4-2019 has been further extended until  December 31, 2020 under RMC No. 61-2020.

2. Import Exemptions on equipments, supplies, etc. for COVID-19 under RR 6-2020 dated Mar. 27,2020 and RR 28-2020

Relative to the Philippine government’s response to COVID-19, the importation of critical or needed healthcare equipment or supplies intended to combat COVID-19 such as personal protective equipment (PPE); laboratory/ medical/ surgical equipments/ devices/ supplies/ tools/ consumables; testing kits;  other supplies or equipment as may be determined by the Department of Health (DOH); and materials needed to make health equipment and supplies deemed as critical or needed to combat COVID-19 in Philippines was accorded tax exemption from value added tax (VAT), excise tax, and other fees.

Importation of these equipments, supplies, etc. are relatively exempted from the issuance of Authority to Release Imported Goods (ATRIG) under RMO 35-2002 subject to BIR post investigation/ audit. Donations of these imported articles to the government was likewise exempted from donor’s tax and subjected to ordinary rules on deductibility of charitable contributions.

Relatively, RR 28-2020 also provides for exemption from 12% VAT, excise tax, and other fees along with ATRIG, importation from June 25, 2020 to December 19, 2020 of certain goods (e.g. PPE), equipments duly approved (e.g. DENR, DOH, etc.) for waste management, and inputs/ raw materials/ equipment necessary for the manufacture of essential goods related to containment or mitigation of COVID-19.

3. IPO tax exemptions under RR 23-2020 dated Sept. 14, 2020

Normally, initial public offering (IPO) of shares of stock of closely held corporations in Philippines are subject to percentage tax under Section 127(B) of the Tax Code of 1997, as amended, at the rates ranging from 1% to 4% (Sec. 127(B), NORC, as amended) depending on volume of IPO shares to outstanding shares. Under RA 11469, Section 127(B) of the Tax Code of 1997, as amended, has been repealed so no IPO taxes will then be imposed.

4.DST exemptions on restructuring under RR 24-2020 dated Sept. 14, 2020

With the unfortunate adverse economic impact of COVID-19 where some borrowers are losing capacity to pay, loans/ credits/ amortization/ lease payment dates are allowed to be restructured and/ or extended. These are normally subject to Documentary Stamp Tax (DST) in Philippines under the Tax Code, as amended, but was exempted by RA 11469 for those made on/or before December 31, 2020, except interbank loan and bank borrowings.

5. NOLCO deduction to 5 years from usual 3 years under RR 25-2020 dated Sept. 30, 2020

Again, with the severe adverse economic impact of COVID-19, operational loss could be imperative for some businesses. Under the regular rules (Section 34(H)/ RR No. 14 – 2001), taxpayer’s operational loss is allowed recoupment within the next 3 consecutive years following the year of loss as allowable deduction from gross income. Under RA 11469, the three (3) year period for 2020 and 2021 taxable years are extended and made 5 consecutive years or until 2025 for 2020 losses, and 2026 for 2021 losses, subject to NOLCO reporting requirements in the income tax return and financial statements.

6. Donor’s Tax exemption on donations under RR 9-2020 dated Apr. 6, 2020, and to schools under RR 26-2020

Under the Tax Code of 1997, as amended, donors are taxed at 15% of taxable net gift and donations to accredited done-institutions and government for NEDA priority projects are fully deductible from gross income for income of the donor tax purposes while other donations are under limited deductibility – 5%/10% of taxable net income before donations. Relative to RA 11469, certain donations  (cash, critical and needed healthcare equipments/ supplies, relief goods, and use of property) made during the state of national emergency geared towards the sole and exclusive purpose of combatting COVID-19 in Philippines to government (even if not under NEDA priority project) and to accredited done-institutions are exempted from donor’s tax and fully deductible from gross income for income tax purposes, subject to proper documentation, as indicated in RR 9-2020. Donation of items deemed sale for value-added tax (VAT) purposes are likewise exempted from 12% VAT. These however are subject to BIR’s power to examine documentation to determine qualification.

With the resumption of classes in schools under online/ alternative learning system, donations (local or foreign – importation) of personal computers, laptops, tablets, or similar equipment (i.e. mobile phone, printers, etc.) for use in teaching and learning in public schools from September 15, 2020 up to December 19, 2020 are exempted from donor’s tax, fully deductible for income tax purposes, and exempted from 12% VAT under deemed sale rules, subject to proper documentation as indicated in RR 26-2020.  

7. Income tax exemptions on Covid-19 hazard/ allowance/ retirement under RR 29-2020 dated Oct. 15, 2020

While compensation for employer-employee relationship is taxable at 20-35% under the Tax Code, as amended, certain income payments relative to employment are exempted under COVID-19 pandemic: retirement benefits from June 5, 2020 to December 31, 2020, the amount of which is in accordance with the retirement plan duly-registered with BIR; COVID-19 special risk allowance to health workers; actual hazard duty pay to human resource for health personnel; and, compensation given or to be given from February 1, 2020 and during state of national emergency as declared by the President, to health workers who contacted COVID-19 in line of duty or dies fighting COVID-19 (P15,000 for mild/ moderate cases, P100,000 in case of severe or critical sickness, or P1M in case of death). Such income payments are required to be included in the Alphabetical List of Employees/ Payees to be filed by employers along with a one-time list of recipients not later than January 15, 2021.

8. Registration of online sellers under RMC 60-2020 dated June 1, 2020

During lockdowns under COVID-19, online selling had surged prompting the BIR to give due notice to all persons doing business and earning online in any manner or form, specially those who are into digital transactions through the use of any electronic platforms and media, and other digital means to ensure that their business is registered and tax compliant in accordance with the rules – issuance of receipts/invoices, keeping of books of accounts, withholding of applicable taxes, and paying correct taxes. Registration as set until July 31, 2020, extended until August 31, 2020, then finally extended until September 30, 2020. Sales made prior to registration voluntarily declared within the registration period are without penalty for late payment, and penalties apply beyond September 30, 2020.

Summary

Notably, COVID-19 pandemic has brought new tax rules that taxpayers should be aware of for their BIR tax compliance in Philippines. Some of these rules are time bound (co-terminus with the effectivity of RA 11949) while some extends beyond the expiration of the law such as the NOLCO. For specific details of the application, full reading of the cited BIR issuances in the Philippines is highly suggested to avoid missing out the nitty gritty of the new tax rules under COVID-19 pandemic in Philippines.

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Garry is a Certified Public Accountant (CPA) and a law degree holder in tax practice for almost two (2) decades now helping further taxpayers on securing BIR Rulings, appeal of BIR Ruling denials, company registrations in Philippines, tax compliance, tax savings, tax assessments, tax refunds, and other related professional tax services. He has likewise been helping out local and foreign investors/clients determine the most appropriate legal entity to register in the Philippines based on intended operations, the eventual registration of such legal business entity and other related professional services such as securing Ph Visa, payroll, and business consultancy. He was formerly with the academe and is presently a frequent speaker of Tax and Accounting Center, Inc. and other seminar entities.

Disclaimer: This is for purposes of academic discussions only as personally summarized by the author, not of Tax and Accounting Center, Inc. and is not a substitute for an expert opinion. Please consult your preferred tax and/or legal consultant for the specific details applicable to your circumstances. 

The COVID-19 Pandemic undoubtedly affects every aspect of our daily lives – family, work, and especially the students’ means of learning. With the school opening suspended last June, there has been a significant delay in their studies. Finally, this October, classes reopened but in a different setting and mode – the classes went virtual or online. The online classes, I might say, is not for everyone especially to those who cannot afford to purchase the necessary gadgets for this platform. Another thing is not every school is fully equipped with the proper learning materials and technology. Good thing that there are kindhearted individuals and institutions who are donating for the schools. But how can the government repay for this generosity?

BIR issued Revenue Regulations (RR) No. 26-2020 to implement Section 4 (zzz) of Republic Act (RA) No. 11494 or the Bayanihan to Recover as One Act. Under the RR,  all donations of learning and teaching equipment in public schools during the effectivity of the RA (September 15,2020 to December 19, 2020), shall be exempted from donor’s taxes and duties and taxes, if imported.

Coverage

All donations made to public schools, State Universities and Colleges (SUCs), vocational institutions under TESDA, such as personal computers, laptops, tablets, mobile phone, printer for use in teaching and learning in public schools.

Tax Incentives

1. Deduction from Gross Income

The amount of donation could be claimed as deduction from gross income subject to limit as prescribed in the Tax Code, as amended. Provided further that the following conditions are met:

• The Deed of Donation indicates the full details of the donated equipment such as quantity and value.
• The deduction is availed of within the year.
• There is proper documentation or proof of donation such as acknowledgment of receipt of the donated equipment from the donee.

2. Exemption from Donor’s Tax
3. For foreign donation, exemption from input VAT and issuance of Authority to Release Imported Goods (ATRIG) under Revenue Memorandum Order (RMO) No. 35-2002.
4. For local donation of equipment originally intended for sale or for use in the course of business by the donor, the same shall not be treated as a transaction deemed sale subject to VAT. Any input tax VAT not previously claimed as input tax shall be creditable against any output tax

This article was originally published by G. Pagaspas Partners & Co., CPAs.

By: Hergie Ann De Guzman, CPA

Bureau of Internal Revenue (BIR) issued on September 15, 2020 Revenue Memorandum Circular (RMC) No. 98-2020 to extend the deadline for compliance of the filing of BIR Form 1709 or the Related Party Transaction (RPT) Form, together with its attachments. The compliance is hereby extended as follows:

Fiscal Year End	Extended Deadline
For Fiscal Year Ending March 31, 2020 and April 30, 2020	December 29, 2020
For Fiscal Year Ending May 31, 2020 and June 30, 2020	January 31, 2021
For Fiscal Year Ending July 31, 2020 and August 31, 2020	March 1, 2021
For Fiscal Year Ending September 30, 2020 and October 31	March 31, 2021
For Fiscal Year Ending November 30, 2020 and Calendar Year Ending December 31, 2020	April 30, 2021

To know more about BIR Form 1709 compliance, you may check our previous articles as follows:

Revenue Regulations No. 19-2020: Use of BIR Form 1709 of Information Return on Related Party Transactions

RMC No. 76-2020: Clarifications on the Filing of of BIR Form 1709

Read Full Text of RMC 98-2020.

By: Hergie Ann De Guzman, CPA

The Bureau of Internal Revenue (BIR) issued Revenue Regulations (RR) No. 21-2020 on September 4, 2020 to prescribe the guidelines on the implementation of the Voluntary Assessment and Payment Program (VAPP).

What is VAPP?

VAPP is one of the programs implemented by the BIR to provide funding for the needs of the Government during the current COVID-19 Pandemic. With the name itself, it is a scheme where taxpayers are encouraged to voluntarily pay taxes. The program is crafted to benefit both the taxpayers and the BIR. Taxpayers who will avail of the VAPP will be given the privilege of “no audit” for the year whereas the BIR will significantly reduce its administrative costs due to decrease in audit.

BIR is expecting for a successful implementation and outcome of this program as it can significantly help our Government cope up with the negative economic effects of the pandemic.

Coverage

1. Covered taxable years

The VAPP applies to all internal revenue taxes covering:

• Taxable calendar year ending 2018; and,
• Fiscal year 2018 ending July 31, 2018 to June 30, 2019.

2. Covered Taxes

Taxes which can be availed with VAPP are Income Tax (IT), Value Added Tax (VAT), Percentage Tax (PT), Excise Tax (ET), Documentary Stamp Tax (DST), Final Taxes (FT) and One-time Transactions (ONETT) taxes (donor’s tax, estate tax, capital gains tax, and documentary stamp tax).

3. Who may avail?

Any natural or juridical person liable to pay for internal revenue taxes for the mentioned period, who unintentionally or erroneously paid the internal revenue tax liabilities or failed to file and pay tax returns.

4. Exceptions

The following taxpayers cannot avail the VAPP:

1. Taxpayers already issued with Final Assessment Notice (FAN) that have been final and executory on or before the effectivity of the RR;
2. Persons under investigation as a result of verified information filed by a tax informer with respect to deficiency taxes;
3. Taxpayers with cases involving tax fraud; and,
4. Taxpayer with pending tax evasion cases and other criminal offenses in the Tax Code.

Requirements for VAPP Application

The following documents are required to be submitted to signify taxpayer’s intention to apply:

1. Duly accomplished Application Form (BIR Form No. 2119);
2. Payment Form or BIR Form No. 0622, with proof of payment;
3. Filed tax returns, proof of payment of taxes paid in 2017 and 2018 and Audited Financial Statements of the covered taxable year (for VAPP for IT, VAT, PT, ET and DST);
4. Copies of remittance returns and proof of payment of final and creditable withholding taxes (for VAPP for Final Withholding Taxes on Compensation, Fringe Benefits, etc. and Creditable Withholding Taxes-non-ONETT);
5. Copy of duly paid BIR Form 0605 and proof of payment for settlement of previous deficiency tax, with or without an assessment notice, if any; and,
6. Duly accomplished ONETT tax returns and corresponding documentary requirements for the said transaction

When and where to file?

Applications for VAPP are until December 31, 2020.

The documentary requirements stated above should be filed personally or through courier service with the Large Taxpayers (LT) Office or Revenue District Office (RDO) having jurisdiction over the taxpayer. 

Instance of separate applications

There should be separate applications to be made for the following cases:

• Taxpayer is registered in an RDO different from the RDO having jurisdiction over the place where the decedent is domiciled at the time of death, for estate tax;
• Taxpayer is registered in an RDO different from the RDO having jurisdiction over the place where the donor is domiciled at the time of donation, for donor’s tax;
• Taxpayer is registered in an RDO different from the RDO having jurisdiction over the place where the property is located, for taxes involving real properties;

The Process

The BIR has thirty (30) days from date of receipt of requirements to complete the evaluation and review of the Application. The Revenue Officer shall endorse the same to the Assistant Chief of LT Office or to the Assistant Revenue District Officer for review. The Chief LT Officer and Chief Revenue District Officer shall be the approving official by signing the BIR Form No. 2119.

If there are deficiencies in the Application, BIR shall notify the taxpayer through the email address indicated on BIR Form No. 2119 to correct any errors/comply/pay the deficiencies within ten (10) working days from receipt of the email notification. Failure to comply within the 10-day period shall result in denial of the application.

Once approved, the taxpayer shall be issued a Certificate of Availment within 3 working days from date of approval. This Certificate will be the proof of entitlement of the privilege under this RR.

Privilege

The taxpayer with issued Certificate of Availment shall not be audited for 2018 for the tax types covered by the availment. Upon VAPP application, all on-going BIR audit to the taxpayer shall be temporarily suspended and shall resume once the availment is rendered invalid. If valid, the issued Letter of Authority (LOA), Tax Verification Notice (TVN), Discrepancy Notice, etc. shall be withdrawn and cancelled.

How much to pay?

Taxes to be paid depends on the type of tax to be applied. Below is a schedule on the proper determination of taxes to be paid under VAPP:

• IT, VAT, PT, ET, and DST (non-ONETT)

Increase/Decrease in Total Taxes Due (2017 to 2018)	Amount of Voluntary Tax Payment (Higher of)
Net increase of not more than 10%	3% of 2018 gross sales  or  7% of 2018 taxable net income
Net increase of more than 10% up to 30%	2% of 2018 gross sales  or  6% of 2018 taxable net income
Net increase of more than 30%	1% of 2018 gross sales  or  5% of 2018 taxable net income
Net decrease of not more than 10%	4% of 2018 gross sales  or  8% of 2018 taxable net income
Net decrease of more than 10%	5% of 2018 gross sales  or  9% of 2018 taxable net income

Minimum Amount

A. Individuals, estates and trusts – P75,000  B. Corporations a. With subscribed capital of more than P50 million – P1,000,000  b. With subscribed capital of more than P20 million up to P 50 million – P500,000  c. With subscribed capital of more than P5 million up to P20 million – P250,000  d. With subscribed capital of P5 million and less – P100,000  Other juridical entities, including but not limited to cooperatives, foundations, general professional partnerships – P75,000

• Final Withholding Taxes on Compensation, Fringe Benefits, etc. and Creditable Withholding Taxes (non-ONETT) 

5% of the total basic withholding tax remittance 

Note: VAPP application shall constitute a waiver of  claims for tax credit/refund unless taxpayer excludes in its availment the specific tax type for which it is intending to file a claim for tax credit/refund.

• ONETT Taxes (Estate Tax, Donor’s Tax, CGT, CWT/Expanded Withholding Tax, and DST)

Basic tax due of the unfiled tax return or unpaid tax due plus 5%.

Seemingly, the BIR’s offer of “no tax audit” is enticing to the taxpayers since it can save up time, efforts, and stress in dealing with BIR audits. Taxpayers could focus more on the business operation. However, taxpayers should weigh the cost and benefit of taking the VAPP option. 

Effectivity

The RR shall take effect 15 days following its publication in any newspaper of general information.

The Bureau of Internal Revenue issued RR 4-2019 on April 5, 2019 allowing natural and juridical persons with internal revenue tax liabilities covering taxable year 2017 and prior years to avail  Tax Amnesty on Delinquencies within one year from the effectivity date of the regulation. The deadline for availment however, has been further extended by RR 15-2020 to December 31, 2020 or may be extended further if the circumstances warrant an extension such as in case of country-wide economic or health reasons.

Who can avail the Tax Amnesty?

1. Delinquent Accounts as of the effectivity of RR 4-2019 including those with application for compromise settlement either on the basis of doubtful validity of assessment or financial incapacity of the taxpayer. This is regardless of whether those were denied by or still pending with the Regional or National Evaluation Board on or before the effectivity of the regulation. It also includes the delinquent Withholding Tax liabilities arising from non-withholding of tax and delinquent Estate Tax Liabilities.

2. Taxpayers with pending criminal cases with the DOJ/ Prosecutor’s Office or the courts for tax evasion and other criminal offenses under Chapter II of Title X and Section 275 of the Tax Code, as amended, with or without assessments duly issued.

3. With final and executory judgement by the courts on or before the effectivity of these Regulations

4. Withholding tax liabilities of withholding agents arising from their failure to remit withheld taxes

How to avail the Tax Amnesty?

Documentary Requirements

1. Tax Amnesty Return (TAR) BIR Form No. 2118-DA, (Annex “A”)
2. Acceptance Payment Form (APF) BIR Form No. 0621-DA, (Annex “B”) duly validated by the Authorized Agent Banks (AABs) or APF duly stamped “ received” with accompanying bank deposit slip duly validated by the concerned AABs or Revenue Official Receipt (ROR) issued by the Revenue Collection Officers (RCOs)
3. Certificate of Tax Delinquencies/ Tax Liabilities issued by the concerned BIR offices (“Annex C”)
4. For application under Section 3 (A)(2) of the regulation, a copy of the assessment found in the FAN/FDDA: Provided that, in case of applications under Section 3(D), either delinquent account or not, with or without FAN/FDDA, the Preliminary Assessment Notice (PAN)/ Notice of Formal Conference or equivalent document is sufficient.

Place of Filing

Classification	Place of Filing
Non-Large Taxpayers	Revenue District Office (RDO) where applicant-taxpayer is registered
Large Taxpayers – Cebu or Davao	Large Taxpayers Division (LTD) Office where applicant taxpayer is registered
LargeTaxpayers – Excise and Regular	Large Taxpayers Collection Enforcement Division (LTCED)

Procedures 

Taxpayer has to secure the Certificate of Delinquencies/ Tax Liabilities from the concerned BIR Office which should be released within three (3) working days. Afterwards, a presentation of TAR made under oath and APF along with other documents to the RDO/LTD/LTCED for endorsement of the AFP and payment of the tax amnesty amount with the AABs or RCs. Endorsement shall be made within one (1) working day from receipt of the complete documents. Afterwards, all the documents shall be submitted in triplicate copies not later than the availment period.

Prepared by: Hergie Anne C. De Guzman, CPA

Bureau of Internal Revenue (BIR) released Revenue Memorandum Circular (RMC) No. 79-2020 on August 6, 2020 setting guidelines for the filing of returns and payment of taxes during the Modified Enhanced Community Quarantine (MECQ) re-implemented for the period covering August 4 to 18, 2020. BIR further issued another RMC, RMC No. 80-2020, amending the covered RDOs.

Who are covered?

All taxpayers under the jurisdiction of the following Revenue District Offices (RDOs):

• RDO Nos. 24 to 34 and,
• RDO Nos. 38 to 57

Guidelines

1. Out-of-district payments of tax returns are allowed.
2. Filing and payment of  tax returns may be done in the Revenue Collection Officers (RCOs) of the nearest RDO, even in areas where there are Authorized Agent Banks (AABs). 

Note: 

In case of payment in RCOs, 

1. Cash payment of taxes shall not exceed PhP20,000.00
2. Check payment of taxes shall have no limit. 
3. Check payment shall be made payable to the Bureau of Internal Revenue (with or without the name and TIN of the taxpayer). The name and branch of the receiving AAB may no longer be indicated in the check.

3. eFPS-filers shall continue to file and pay using EFPS. Taxpayer using eBIR Forms may use any of the following payment channels:

• Development Bank of the Philippines (DBP) Pay Tax Online
• Landbank of the Philippines (LBP) Link.biz Portal 
• Unionbank Online Web and Mobile Payment Facility
• Mobile Payment (GCash/Paymaya)

4. eFPS-filers may file and pay using the above channels, if there are difficulties in using the eFPS. 

Effectivity

The RMC is effective upon lifting of MECQ and upon imposing General Community Quarantine (GCQ) in National Capital Region (NCR), Bulacan, Cavite, Laguna, and Rizal.

Are there extensions in the deadline in filing and payment of taxes?

None. The RMC did not mention any extension of deadlines.

What are the covered tax returns in the RMC?

The RMC has not specifically mentioned the covered tax returns. Looking at the effectivity of the RMC, all tax returns due on August 5  to August 18, 2020 are covered by the guidelines set. For further guidance, you may check this link for the August 2020 Calendar of BIR Deadlines.

Disclaimer: This is for purposes of academic discussions only as personally summarized by the author, not of Tax and Accounting Center, Inc. and is not a substitute for an expert opinion. Please consult your preferred tax and/or legal consultant for the specific details applicable to your circumstances.

By: Hergie Ann De Guzman

The issuance of Revenue Regulations (RR) No. 19-2020 last month created clamor among taxpayers on how they will comply with the BIR Form 1709 or the Related Party Transaction (RPT) Form. To answer the questions of the taxpayers, BIR issued this RMC. Listed below are the highlight discussions in the RMC:

Who will need to submit BIR Form 1709?

All PH taxpayers, either individual or non-individual (including non-stock non-profit organizations for the activities conducted for profit) with related party transactions (RPTs) shall complete and submit BIR Form 1709.

Effectivity of the reporting requirement

Basically, BIR Form 1709 is a new attachment in the Annual Income Tax Returns of those with RPTs. The first set of taxpayers to comply with the new reporting are those taxpayers with fiscal year ended March 31, 2020. With this, the deadline for the submission of the RPT Form, together with ITR attachments, supposedly is on July 30, 2020. However, BIR granted the said taxpayers until September 30, 2020 to file and submit the RPT Form and the required attachments.

What if the said taxpayers have already filed the Annual ITR for the fiscal year ended March 31, 2020 prior to the effectivity of the RR?

The taxpayers are still required to submit the RPT Form and its attachments. Photocopy of the filed Annual ITR should be attached when the RPT Form is submitted to BIR.

Annual ITRs prior to the fiscal year ending March 31, 2020 is not covered by the RR.

Manner of Filing of the RPT Form

Manual filing, unless a revenue issuance is released allowing electronic filing.

When and where to file?

1. For manual-filers – to be submitted at Revenue District Office (RDO)/Large Taxpayers (LT) Division where taxpayer is registered on or before the statutory due date.
2. For eFPS-filers – to be submitted to RDO/ LT Division where the taxpayer is registered within 15 days from the statutory due date or actual date of electronic filing, whichever is later. 

Are all taxpayers required to attach Transfer Pricing Documentation (TPD)?

Yes, regardless of amount and volume of transactions.

What is the required TPD?

The TPD to be submitted is the one prepared on or before the RPT or after the RP but before the filing of the annual ITR for the reporting year. 

The TPDs need not be updated unless there are significant changes in the Company’s business model and nature of the RPTs. In occasions when the parent Company already has TPD for RPTs with its subsidiary/ies, the subsidiary/ies can use this TPD as long as such was used in determining the transfer prices of the subsidiary/ies.

Proceeding year’s TPDs can still be used for subsequent RPTs provided that both have the same type of transactions and was undertaken by the same related parties. The taxpayer shall prove that the same conditions, for which the last year’s TPD was made, is also applicable to subsequent RPTs.

Can taxpayers rely on the disclosures made in the Audited Financials Statement (AFS) for the RPTs, as required Philippine Accounting Standards (PAS) 24?

No, RR 19-2020 requires more RPT details to be disclosed in the BIR Form 1709.

The enumeration of RPTs in RR No. 19-2020 is not exclusive

All transactions with related parties that result in the transfer of resources, services or obligations, irrespective of arrangement and regardless of whether a price is charged.

Clarifications on Certain Attachments in the RPT Form

1. For cost-sharing arrangements, submission of formal written agreement is needed together with documents to substantiate such.
2. All contracts are required to be submitted regardless of volume either through hardcopy or softcopy (DVD-R).
3. Proof of payment of foreign taxes (for related party income abroad) and ruling from foreign tax authority

• If the deadline for the payment of foreign taxes is after the deadline of filing the RPT Form, the income derived abroad should still be declared and the RPT Form, with proper statement that the related tax is not yet paid. 
• The PH taxpayer should have a copy and details of the foreign tax paid and the rights over the same.
• The said documents for proof of payments and the ruling should be consularized or apostilled.

Penalties for Non-Filing of RPT Form

First Offense: Penalty of not less that PhP1,000.00 but nor more that PhP25,000.00. (Section 250 of the Tax Code, as amended).

Second Offense: Penalty of PhP25,000.00 (Section 274 of the Tax Code, as amended).

With Valid Summons: Failure to still provide will have a responsible employee/party fined by not less than PhP5,000.00 but not more than PhP10,000.00 and 1-2 year imprisonment (Section 266 of the Tax Code, as amended).

Read RR 19-2020 here.

REPUBLIC OF THE PHILIPPINES

DEPARTMENT OF FINANCE                                               

BUREAU OF INTERNAL REVENUE

                                                                                                                                                                                             

REVENUE REGULATIONS NO. 19-2020 dated July 8, 2020

SUBJECT:     New BIR Form No. 1709, Replacing Form No. 1702H, Series of 1992

TO:                 All Internal Revenue Officers and Others Concerned

______________________________________________________________________________

Section 1. Objective

Pursuant to Sections 244 and 6(H) of the National Internal Revenue Code of 1997 (“NIRC”), as amended in relation to Section 50 thereof of which was implemented by Revenue Regulations (RR) No. 2-2013, this Revenue Regulations is issued to prescribe the use of the new BIR form No. 1709 or Information Return on Related Party Transactions (Domestic and/or Foreign) (Annex “A”), replacing for this purpose BIR Form 1702H – Information Return on Transactions with Related Foreign Persons, series of 1992.

Section 2. Background

Through the years, transactions around the world have become more complex and have been subject to abuse by taxpayers with intent to evade taxes by concluding transactions between them at unreasonable prices, thus eroding the tax base. Undeniably, this usually happens between related parties. While majority of related party transactions (RPTs) are not detrimental, there is a pressing worldwide concern that they can be easily abuse in the absence of a relevant framework and effective enforcement. Significant risks arise when RPTs are not conducted at arm’s length and are used as a conduit to channel funds out of the company into another related party, such as the risk material misstatement in the financial statements as a result of inappropriate accounting, and non-identification or non-disclosure.

Therefore, in order to ensure that proper disclosures of related party transactions are made and that these transactions have been conducted at arm’s length so as to protect the tax base, there should be an effective implementation of Philippine Accounting Standards (PAS) 24, Related Party Disclosures, for tax purposes. Under this PAS, an entity’s financial statements shall contain the disclosures necessary to draw attention to the possibility that its financial position and profit or loss may have been affected by the existence of related parties and by transactions and outstanding balances, including commitments, with such parties.

This Revenue Regulations requires, therefore, the submission of BIR Form No. 1709 and its supporting documents following the guidelines prescribed by the related revenue issuances for the submission of the required attachments to the Annual Income Tax Returns.

 Tax examiners are hereby enjoined to conduct a thorough examination of the related party transactions and see to it that revenues are not understated and expenses are not overstated in the financial statements as a result of these transactions.

Section 3. Definition of Terms

 The following definition of terms as used in this Regulations were adopted from the relevant PAS:

• 1)  “Associate” is an entity over which the investor has significant influence.
• 2)  “Close members of the family of a person” are those family members who may be expected to influence, or be influenced by, that person in their dealings with the entity and include:       
  • (i)  that person’s children and spouse or domestic partner;  
  • (ii) children of that person’s spouse or domestic partner; and
  • (iii) dependents of that person or that person’s spouse or domestic partner.  
• 3)  “Compensation” includes all employee benefits, i.e., all forms of consideration paid, payable or provided by the entity, or on behalf of the entity, in exchange for services rendered to the entity. It also includes such consideration paid on behalf of a parent of the entity in respect of the entity. Compensation includes: 
  • (a)  short-term employee benefits, such as wages, salaries and social security contributions, paid annual leave and paid sick leave, profit-sharing and bonuses (if payable within twelve months of the end of the period) and non-monetary benefits (such as medical care, housing, cars and free or subsidized goods or services) for current employees;
  • (b)  post-employment benefits such as pensions, other retirement benefits, post- employment life insurance and post-employment medical care; 
  • (c)  other long-term employee benefits, including long-service leave or sabbatical leave, jubilee or other long-service benefits, long-term disability benefits and, if they are not payable wholly within twelve months after the end of the period,  profit-sharing, bonuses and deferred compensation;
  • (d)  termination benefits; and 
  • (e)  share-based payment.
• 4)  “Control” refers to the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.
• 5)  “Joint Control” is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.
• 6)  “Joint Venture” is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement.
• 7)  “Key management personnel” are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly including any director (whether executive or otherwise) of that entity.
• 8)  “Post-employment Benefit Plans” are formal or informal arrangements under which an entity provides post-employment benefits for one or more employees, such as the following:   
  • (a)  retirement benefits (e.g., pensions and lump sum payments on retirement); and
  • (b)  other post-employment benefits, such as post-employment life insurance and post-employment medical care.
• 9)  “Related Party” is a person or entity that is related to the reporting entity, i.e., the entity that is preparing its financial statements.        
• 10)  “Related Party Transaction” refers to the transfer of resources, services or obligations between a reporting entity and a related party, regardless of whether a price is charged.
• 11)  “Significant influence” is the power to participate in the financial and operating policy decisions of an entity, but is not control over those policies. It may be gained  by share ownership, statute or agreement.
• 12)  “Subsidiary” is an entity that is controlled by another entity.
• 13)  “Venturer” is a party to a joint venture and has joint control over that joint venture.   

Section 4. Related Parties and Related Party Transactions

 In determining whether a person or entity is a related party, the following rules shall be considered:

• (a) A person or a close member of that person’s family is related to a reporting entity if  that person:   
  • (i)   has control or joint control of the reporting entity;
  • (ii)  has significant influence over the reporting entity; or    
  •  (iii) is a member of the key management personnel of the reporting entity or of a parent of  reporting entity.

The list of family members in Section 3(2) hereof is not exhaustive and does not preclude other family members from being considered as close members of the family of a person.

 Consequently, other family members, including parents or grandparents, could qualify as close members of the family depending on the assessment of specific facts and  circumstances.

• (b)  An entity is related to a reporting entity if any of the following conditions applies: 
  • (i)    The entity and the reporting entity are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others).
  • (ii)   One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member).
  • (iii)   Both entities are joint ventures of the same third party.
  • (iv)   One entity is a joint venture of a third entity and the other entity is an associate of the third entity. 
  •  (v)   The entity is a post-employment benefit plan for the benefit of employees of either the reporting entity or an entity related to the reporting entity. If the reporting entity is itself such a plan, the sponsoring employers are also related to the reporting entity. 
  •  (vi)   The entity is controlled or jointly controlled by a person identified in (a). 
  • (vii)  A person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity). 
  • (viii) The entity, or any member of a group of which it is a part, provides key management personnel services to the reporting entity or to the parent of the reporting entity.

In all cases, the substance of relationships between entities shall be taken into account and not merely the legal form.

 On the other hand, related party transactions shall include, but not limited to the following:     

• (a) purchases or sales of goods (finished or unfinished);    
• (b) purchases or sales of property and other assets;    
• (c) rendering or receiving of services;              
• (d) leases;           
• (e) transfers of research and development;   
• (f) transfers under license agreements;  
• (g) transfers under finance arrangements (including loans and equity contributions in cash or in kind);    
• (h) provision of guarantees or collateral; 
• (i) commitments to do something if a particular event occurs or does not occur in the future, including executory contracts, i.e., contracts under which neither party has performed any of its obligations or both parties have partially performed their obligations to an equal extent (recognized and unrecognized); and
•  (j) settlement of liabilities on behalf of the entity or by the entity on behalf of that related party.

Section 5. Related Party Disclosures

To attain the objective of the PAS to provide an understanding of the potential effect of the relationship on the financial statements, the following requirements shall be observed by the taxpayer, who may either be a reporting entity or a related party:

• (a)  The required disclosures on transactions and outstanding balances shall be made separately for each of the following categories:       
  • (i)     the parent;     
  •  (ii)    entities with joint control or significant influence over the entity;        
  • (iii)   subsidiaries;      
  • (iv)   associates;             
  • (v)    joint ventures in which the entity is a joint venture;      
  • (vi)   key management personnel of the entity or its parent; and
  • (vii)  other related parties.
• (b)  For each of said category, the following information shall be provided:     
  • (i)     the amount of the transactions;              
  •  (ii)    the amount of outstanding balances, including commitments, and their terms and conditions, including whether they are secured, and the nature of the consideration to be provided in settlement, and details of any guarantees given or received;         
  • (iii)   provisions of doubtful debts related to the amount of outstanding balances;                           
  • (iv)   the expense recognized during the period in respect of bad or doubtful debts due from related parties.

Section 6. Procedures and Guidelines

In filing out BIR Form No. 1709, the taxpayer is hereby directed to observe the following:

• 1)  BIR Form No. 1709 shall be completely and truthfully accomplished by the taxpayer or its authorized representative/s, and shall be attached to the ITRs for the current taxable year and subsequent years, making it an integral part of the latter.
• 2)  The nature of transaction and the accounts affected shall be described in detail.
• 3)  The “business overview of the ultimate parent company” referred to in Part IV (A) of BIR Form No. 1709 shall include the profile of the multinational group of which the taxpayer belongs, along with the name, address, legal status and country of tax residence of each of the related parties with whom intra-group transactions have been entered into by the taxpayer, and ownership linkages among them.
•  4)  On the other hand, the “functional profile” referred to in Part IV (B) of BIR Form No. 1709 shall include a broad description of the business of the taxpayer and the industry in which it operates, and of the business of the related parties with whom the taxpayer  has transacted;
• 5)  The following are required to be attached to BIR Form No. 1709:                             
  • a)  certified true copy of the relevant contracts or proof of transaction;   
  • b)  withholding tax returns and the corresponding proof of payment of taxes  withheld and remitted to the BIR;           
  • c)  proof of payment of foreign taxes or ruling duly issued by the foreign tax authority where the other party is a resident; and              
  • d)  certified true copy of Advance Pricing Agreement, if any; and     
  • e)  any transfer pricing documentation.
• 6)  No spaces shall be left unanswered. If one or some portions are not applicable, such fact shall be so stated.

Section 7. Penalties

Any violation of the provisions of this issuance shall be subject to penalties provided in Section 250 and other pertinent provisions of the NIRC, as amended.

Section 8. Repealing Clause

All existing revenue issuances or portions thereof inconsistent herewith are hereby revoked and/or amended accordingly.

Section 9. Effectivity

This Regulations shall take effect after fifteen (15) days following its publication in a newspaper of general publication.

CARLOS G. DOMINGUEZ                                          

Secretary of Finance

Recommending approval:

CAESAR R. DULAY        

Commissioner of Internal Revenue

(Manual encoding credits: Magdaleno Abdon, July 2020)

By: TaxAcctgCenter Ph

Bureau of Internal Revenue issued Revenue Memorandum Circular No. 57-2020 (RMC No. 57-2020) dated march 12, 2020 entitled “Streamlining of Business Registration Requirements and Revised Checklist of Documentary Requirements”.

Under RMC No. 57-2020 in Philippines, Mayor’s Permit is no longer required as one of the mandatory requirements for BIR registration of taxpayers in Philippines the way it was when the BIR Citizen’s Charter 2019 was published on BIR website. BIR likewise provide for revised checklist of documentary requirements for business registration and other types of applications in the attached Annex “A1-A11” of RMC No. 57-2020 such as on the following applications for registrations:

• Self-employed individuals, estates and trusts:
• Corporations and Partnerships;
• Cooperatives, Associations, GAIs, LGUs, etc.;
• Branch/ Facility;
• Employees – local and foreign;
• One-time T.I.N. under E.O. 398 – local and foreign (individuals and corporations);
• Under One Time Transactions (ONETT);
• Books of Accounts;
• Permit to Use Manual Loose Leaf;
• TIN Card Issuance/ Registration Information Update;
• Registration Information Updates;
• Transfer of Registration;
• Cancellation of TIN/ Registration or Closure of Business

Comments:

RMC No. 57-2020 in Philippines on removing business permit is a much welcomed revision of BIR registration rules in the Philippines as in most cases, securing business permit has been a bottleneck of BIR registrations resulting to taxpayers suffering for paying penalties for late registrations. BIR offices has been honoring duly filed or stamped Mayor’s Permit applications in the past instead of the Mayor’s Permit itself but still, delays are encountered as it is sometimes taking time before applicants are able to have their papers stamped.

At any rate, RMC No. 57-2020 in Philippines should not be taken to mean that securing mayor’s permit in Philippines is dispensed with. Notably, a business without mayor’s permit is considered illegal by such fact alone of operating without business permit, even if its nature of operations – goods or services it is dealing with are legitimate.

For your BIR applications, we suggest that you go over the list of documentary requirements of Annex “A1-A11” of RMC No. 57-2020 for easy reference.

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Disclaimer: This is for purposes of academic discussions only as personally summarized by the author, not of Tax and Accounting Center, Inc. and is not a substitute for an expert opinion. Please consult your preferred tax and/or legal consultant for the specific details applicable to your circumstances. For comments, you may also please send mail at info(@)taxacctgcenter.ph, or you may post a question at Tax and Accounting Center Forum and participate therein.