DIGEST OF 2001 BIR RULINGS
WAIVER OF
SURCHARGE, INTEREST AND COMPROMISE PENALTY
on the temporary deferment of payment by Philippine Appliance Corp.
(PHILACOR) of national taxes due to a labor strike - Under Sections
248(A)(1) and (3) and 249, both of the Tax Code of 1997, the imposition
of the surcharge and interest on delinquency is mandatory. However,
since Philacor notified its failure to file the returns and pay
the taxes thereon within the prescribed period due to the labor
strike, its request for waiver of the payment of surcharge and penalty
is granted but not to the payment of interest imposed under Sec.
249 of the Tax Code of 1997, pursuant to Section 204 of the same
Code which grants the Commissioner the authority to abate or cancel
a tax liability. (BIR Ruling No. 001-2001
dated January 8, 2001)
DOCUMENTARY STAMP
TAX; tax deferred exchange/merger -
The tax deferred exchange of properties of a corporation, which
is a party to a merger or consolidation, solely for shares of stocks
in a corporation, which is also a party to the merger or consolidation,
is subject to the Documentary Stamp Tax under Section 176 if the
properties to be transferred are shares of stocks or even certificates
of obligations, and also to the Documentary Stamp Tax under Section
196, if the properties to be transferred are real properties. The
original issuance of shares of stock of the surviving cooperative
in favor of the stockholders of the absorbed corporation as a result
of the merger is subject to the Documentary Stamp Tax under Sec.
175 of the Tax Code of 1997. (BIR Ruling
No. 002-2001 dated February 2, 2001)
DONOR'S TAX; DOCUMENTARY
STAMP TAX; donation of a parcel of
land in favor of LRTA - The LRTA is an entity created under EO No.
603 and is attached to a government agency which is the DOTC. The
donation of a parcel of land in favor of LRTA is exempt from the
payment of Donor's Tax pursuant to Section 101(A)(2) of the Tax
Code of 1997. Likewise, it is not subject to the Documentary Stamp
Tax under Section 196 but subject to the Documentary Stamp Tax of
P15.00 on certification under Section 188 of the same Code.
(BIR Ruling No. 003-2001 dated February 5, 2001)
INCOME TAX; VAT; DOCUMANTARY
STAMP TAX; rental payment from offshore
lessee of container vans - The rental payment received by PLC from
the offshore lessee of the container vans are subject to Income
Tax at the rate of 32% based on net income pursuant to Sec. 27(A)
of the Tax Code of 1997. It is entitled to claim depreciation deduction
against its rental income based on the estimated useful life of
the container vans of 5 years in accordance with Section 34(F)(1)
of the same Code. The interest payment made by PLC on its loan is
a deduction from gross income pursuant to Sec. 34(B)(1), and likewise
subject to withholding tax at 15% pursuant to Art. 11 (2) of the
RP-Japan Tax Treaty. However, the rentals received by PLC for the
lease of the container vans to an offshore entity, which in turn
will sublease the same to a foreign shipping company, which will
be primarily used outside the Philippines, are not subject to 10%
VAT for being beyond the Philippines taxing jurisdiction. The foreign
loan extended by SCD Japanese Affiliate is subject to the Documentary
Stamp Tax of P0.030 for every P200.00 fractional part thereof based
on the face value under Sec. 180 of the same Code. However, income
derived by PLC from the sale of the container vans abroad is subject
to 32% Income Tax based on net income. (BIR
Ruling No. 004-2001 dated February 16, 2001)
FINAL WITHHOLDING
TAX - The fact that the raffle is a
government - sponsored project does not constitute a valid ground
to exempt the individuals- recipient of the prize from the 20% final
tax. (BIR Ruling No. 005-2001 dated
February 21, 2001)
TAX EXEMPTION OF COOPERATIVE
- Nabunturan Integrated Cooperative was previously granted a Certificate
of Tax Exemption under BIR Ruling No. ECCP-No. 072-95 dated October
11, 1995 and the same is said to expire on March 10, 1997. However,
it was found to be erroneous, for the cooperative continues to be
exempt from Income Tax from its operation as a cooperative. Likewise
it is VAT-exempt under Section 109 paragraphs (R)(t) and (u), from
the 3% GRT under Sec. 116 of the Tax Code, from the annual registration
fee of P5,000 but not exempt from registration itself. Moreover,
it is not exempt from the VAT billed on its purchases of goods and
services, and from the 20% and 7.5% final tax on bank deposits and
expanded foreign currency deposits.
(BIR Ruling No. 006-2001 dated February 22, 2001)
SUSPENSION OF THE
MCIT - In order that cessation of business
activities as a result of being placed under involuntarily receivership
may be a basis for the recognition of the suspension of MCIT, such
a situation should be properly defined and included in the regulations.
Pending such inclusion, the same cannot yet be invoked. Nevertheless,
the counting of the fourth taxable year, insofar as TMBC is concerned,
begins in the year 1999 when TMBC re-opened subject to MCIT beginning
the year 2002. (BIR Ruling No. 007-2001
dated February 22, 2001)
TAX EXEMPTION OF COOPERATIVE
- The LADAMA Multi-Purpose Cooperative, Inc. is an agricultural
multi-purpose cooperative with Certificate of Registration CGY-319
dated August 13, 1991. As a cooperative, it is transacting business
both with members and non-members, and as such it is exempt from
the ordinary Income Tax on transactions for a period of ten (10)
years from the date of incorporation. Thereafter, Income Tax exemption
shall only pertain to transactions with members. The cooperative
is likewise exempt from VAT under Sec. 109(r), from the 3% Percentage
Tax and the annual registration fee of P500, but not exempt from
the registration itself. It is not exempt, however, from the 10%
VAT billed on its purchases of goods and services, and from the
final tax of 20% and 7.5% on currency bank deposits and the expanded
foreign currency deposits. However, it shall act as a withholding
agent on compensation received by its employees and on payments
made to individual or corporation subject to withholding tax.
(BIR Ruling No. 008-2001 dated March 5, 2001)
AMORTIZATION OF COMMISION
PAYMENT- Pursuant to Sec. 107 of RR
No. 2, commission payment may be the subject of amortization over
the period of the investment to which it relates, if the following
requisites are present: the benefit to SLAMC, although exceeding
one year, is limited, in this case to 7 years or the actual holding
period of the investment; that the period of benefit can be ascertained
with reasonable accuracy, as this is based on the holding period
of the investment; and that the commissions have ascertainable value.
(BIR Ruling No. 009-2001 dated March 6, 2001)
REQUEST FOR INCOME
TAX RETURN FOR THE PURPOSE OF INVESTIGATION
- The request cannot be granted in view of the prohibition under
Sec. 270 of the Tax Code of 1997. (BIR
Ruling No. 010-2001 dated March 9, 2001)
WAIVER OF SURCHARGE
- Sec. 5.4 and Sec. 5.5 of Revenue Regulations 12-99, implementing
Section 248 of the Tax Code of 1997, provides that no surcharge
is imposed on deficiency tax unless the amount due, inclusive of
penalties, is not paid within the time prescribed in the notice
and demand. (BIR Ruling No. 011-2001
dated March 12, 2001)
CAPITAL GAINS TAX; DOCUMENTARY
STAMP TAX; transfer of land by way of disturbance compensation
- The transfer of 27.02 hectares of land conveyed by FORFORM in
favor of the members of the FCBA is in the form of disturbance compensation
pursuant to Conversion Order No. 97-43-02 of the Department of Agrarian
Reform. No capital gain was derived by the landowner as a result
of said transaction. Such being the case, the transfer is exempt
from Capital Gains Tax and Documentary Stamp Tax pursuant to Sec.
66 of R.A. No. 6657. (BIR Ruling No.
012-2001 dated March 14, 2001)
CREDITABLE WITHHOLDING
TAX; deferred payment sales of real
property made prior to and after February 20, 1996 - A distinction
should be made if the payment was made prior to or after February
20, 1996. In case of deferred payment sales of real property, not
on installment plan, and made prior to February 20, 1996, the income
is wholly taxable to the seller in the year of sale. The buyer shall
withhold the Creditable Withholding Tax (CWT) based on the initial
or down payment. [BIR Ruling No. 0-78-94]. The CWT shall be credited
when the final income tax payable is computed at the end of the
taxable year.
Subsequent installments shall still be subject
to withholding by the buyer, if the seller-real estate dealer did
not report the entire income form the deferred payment sales in
the year of the sale, and that the tax due thereon was not fully
paid. On the other hand, if the sale was made after February 20,
1996, the basis of the CWT shall be the amount of the "selling
price" or the fair market value (FMV), whichever is higher.
(BIR Ruling No. 019-96] (BIR Ruling No. 013-2001 dated March 22,
2001)
PERCENTAGE TAX; DOCUMENTARY
STAMP TAX; taxation of insurance premium
- GE LIFE is subject to the 5% Percentage Tax on its total collections
of insurance premium pursuant to Sec. 123 of the Tax Code of 1997,
and to Documentary Stamp Tax at the rate of P0.50 on each P200.00
- or fractional part thereof. However, the premium payments to be
made by the employers of GE Life's Group Plan constitute non-taxable
fringe benefits. (BIR Ruling No. 014-2001
dated March 26, 2001)
ESTATE TAX;
extension of time to pay - Sec. 91(B) of the Tax Code of 1997 allows
the extension of time to pay the Estate Tax due but not to exceed
five (5) years or two (2) years, as the case may be; provided the
executor or administrator or beneficiary shall furnish a bond in
such amount, not exceeding double the amount of the tax and with
such sureties as the Commissioner deems necessary, conditioned upon
the payment of the said tax in accordance with the terms of the
extension (BIR Ruling No. 015-2001 dated
March 28, 2001)
CREDITABLE/WITHHOLDING
TAX; taxation of dentists - Members
of the Philippine Dental Association are among the professionals
whose fees for services rendered are subject to the 10% creditable
withholding tax. As such, the provisions of Sec. 2.257.2(1) of RR
No. 2-98, as amended by RR No. 12-98 and as further amended by RR
3-99, are applicable to them. Moreover, dentists who are receiving
self-employment income where it constitutes the sole source of their
income or in combination with salaries, wages and other fixed or
determinable income, shall make and file a declaration of their
estimated income for the current taxable year on or before April
15 of the same taxable year. (BIR Ruling
No. 016-2001 dated April 30, 2001)
TAXATION OF SALE OF
FORECLOSED PROPERTIES BY AFPSLAI -
The subject foreclosed properties of the Association were but collateral
to secure the loans granted to members. The Association sells the
foreclosed properties in the ordinary or normal course of the savings
and loans association business to recoup the amount loaned. Such
gain, if any, is exempt from taxes under Sec. 5 of R.A. No. 8367.
There is, therefore, no basis in imposing the Capital Gains Tax
under Sec. 27(D)(5) of the Tax Code or the Expanded Withholding
Tax required to be withheld under Sec. 2.57.2(I) of RR No. 2-98,
as amended. However, the sales will be subject to the Documentary
Stamp Tax under Sec. 196 of the Tax Code based on the selling price
or fair market value of the property, as determined by the Commissioner
under Sec. 6(E) of the Tax Code of 1997. (BIR
Ruling No. 017-2001 dated May 09, 2001)
EXCISE TAX;
cigarettes - Two (2) new brands of cigarettes which British American
Tobacco (BAT) intends to introduce and sell in the domestic market
shall be subject to specific tax at the rate of P5.60 and P8.96
per pack, respectively, subject to some conditions - the same Excise
Tax rates should be applied in BAT's case, which is admitted to
be similarly situated with the manufacturers of other existing brands.
BAT and other cigarette manufacturers of existing brands, being
similarly situated, should be treated alike or put on equal footing
both in privileges conferred and liabilities imposed.
(BIR Ruling No. 018-2001 dated May 10, 2001)
ACCREDITATION OF A
FOREIGN CORPORATION AS DONEE INSTITUTION
- A Foreign Corporation, whether resident or non-resident, cannot
be accredited as donee institution. As donee corporation, considering
the requirements of the Tax Code of 1997 and RR No. 13-98 that a
non-stock, non-profit corporation or organization must be created
or organized under Philippine laws, and that an NGO must be a non-profit
domestic corporation, a foreign corporation like Conservation International,
whether resident or non-resident, cannot be accredited as donee
institution (BIR Ruling No. 019-2001
dated May 10, 2001)
SALE OF PEACE BOND
TO INVENTORS AT A DEEP DISCOUNT - The
gains realized therefrom are exempt from Capital Gains Tax pursuant
to Sec. 32(B)(7)(g) of the Tax Code of 1997. The exemption from
Income Tax derived from the sale of bonds with maturity of more
than five (5) years is given by law as an incentive to encourage
cash savings in such investment securities and to develop both the
capital market as well as the secondary market for these investments.
Thus, the appellation, kind or form under which the bonds come is
immaterial for the purpose of recognition of the Income Tax for
so long as the gains are derived from bonds with maturity of more
than five (5) years. Moreover, Section 180 of the same Code specifically
provides that bonds are among those subject to Documentary Stamp
Tax. (BIR Ruling No. 020-2001 dated
May 31, 2001)
DOCUMENTARY STAMP
TAX - The Documentary Stamp Tax under
Section 196 of the Tax Code of 1997, in relation to transactions
falling under Section 40(C)(2) and (6)(c) of the same Code, shall
be computed based on either the value of the shares of stock received
or the fair market value of the real property(ies) transferred,
as determined in accordance with Section 6(E) of the Tax Code of
1997, whichever is higher. (BIR Ruling
No. 021-2001 dated June 13, 2001)
INCOME TAX; WITHHOLDING
TAX; taxation of amounts received by
reason of a valid dismissal - Section 32(B)(6)(b) of the Tax Code
of 1997 requires the presence of two (2) conditions in order that
the employee benefits may be granted tax exemption. These conditions
are: (1) the employee is separated from the service of the employer
due to death, sickness or other physical disability or for any cause
beyond the control of the said official or employee; and (2) the
employer pays benefits to the official or employee or his heirs
as a consequence of such separation. As amply stated in the decision,
BPI Family Bank was able to prove the valid and just cause of the
dismissal. The acts defied the word involuntariness and the condition
that the separation is due to any cause beyond the control of an
official or employee was not met. The granting of financial assistance
is likewise not a consequence of separation but to a cause beyond
the control of the employee. The same was due to humanitarian ground
which our courts and labor tribunals refer to as "compassionate
justice". Since the separation was not due to the causes aforementioned,
any amount received as a consequence of the dismissal from the service
is subject to Income Tax and consequently the withholding tax, as
prescribed by Section 79, Chapter XIII, Title II of the Tax Code
of 1997, as implemented by Revenue Regulations No. 2-98.
(BIR Ruling No. 022-2001 dated June 13, 2001)
25% allocation granted
to National Health Insurance Program (NHIP)
- Section 4 of R.A. No. 7654 was never intended to cancel the allocation
provided for the beneficiary provinces under R.A. 7171, such that
the 15% allocation for the provinces under RA 8240 should not, absent
any provision abolishing the 15% allocation to the former, be construed
to have any effect on the former. Conversely, it would seem that
the enactment of RA 8240 incorporating only the 15% allocation for
beneficiary provinces did not abolish the 25% allocation granted
to NHIP under RA 7654. (BIR Ruling No.
023-2001 dated June 13, 2001)
FINAL WITHHOLDING
TAX; gross income derived by subcontractors
- Persons or entities contracted by SPEX to locally supply goods
and materials that are required by and in, or that are inherently
necessary or incidental to, its exploration and development of petroleum
mineral resources, fall within the meaning of the term subcontractors
under P.D. No. 1354 and are therefore entitled to the preferential
8% final withholding tax on their gross income derived from such
contracts. (BIR Ruling No. 024-2001
dated June 13, 2001)
FRINGE BENEFITS TAX;
INCOME TAX; WITHHOLDING TAX; housing
and vehicle allowance - The P28,000.00 housing privilege granted
by BWSCMI to its expatriate employees holding managerial and supervisory
positions shall be treated as fringe benefits subject to the Fringe
Benefits Tax. If the amount of lease is less than P28, 000.00, only
the actual amount of the lease shall be treated as fringe benefits
subject to the Fringe Benefits Tax, and the difference shall be
treated as part of compensation subject to Income Tax and consequently
to the Withholding Tax prescribed under Section 79 of the Tax Code
of 1997. As to the fixed monthly vehicle maintenance allowance of
P5,000.00, this shall be treated as allowances which shall form
part of their compensation income subject to Income Tax and consequently
to the Withholding Tax prescribed under Section 79 of the Tax Code
of 1997. (BIR Ruling No. 025-2001 dated
June 13, 2001)
Minimum Corporate
Income Tax (MCIT); cost of goods sold
- The cost composition of "cost of goods sold" includes
only those items which are direct and incidental to the acquisition
of the merchandise intended for resale. Expenses for gasoline, repairs,
maintenance and depreciation of motor vehicles, the salaries and
commissions of the drivers and sales people who canvass on an office-to-office
or door-to-door selling, as well as cost of delivery of the products
sold by the trader company are not items of "cost of goods
sold" which can be deducted from the gross sales for purposes
of computing the MCIT. (BIR Ruling No.
026-2001 dated June 13, 2001)
INCOME TAX;
tax treatment of hospitalization benefits - The hospitalization
benefits paid by MMPC to its employees and the latter's dependents
represent an ordinary and necessary-business expense. For income
tax purposes, therefore, the sale is a proper deduction from the
gross income (BIR Ruling No. 370-92 dated December 23, 1992), provided
that such benefits, to the extent that the amount thereof exceeds
the amount of de minimis benefits provided under Revenue Regulations
(RR) No. 10-2000, have been subjected to the appropriate withholding
tax, in accordance with RR No. 2-98, as amended. Furthermore, an
expense to be deductible must be substantiated by official receipts
or adequate records. (BIR Ruling No.
027-2001 dated June 20, 2001)
FUND TRANSFER AS ORDERED
BY COURT - For purposes of protecting
the assets of the estate, which act was duly authorized by the Court
having jurisdiction over the Judicial Settlement proceedings, and
not for the purpose of transfer or distribution of the assets to
the heirs and/ or claimants, the BIR shall not interpose any objection
on such transfer of funds as requested and ordered by the probate
Court. (BIR Ruling No. 028-2001 dated
July 12, 2001)
DONOR'S TAX;
surcharge and interest; usufruct - A valid donation of real property
in a public instrument transfers not only ownership but possession
because the execution of such instrument is one form of delivery,
unless there is a contrary intention which can be inferred from
the deed (Ortiz vs. Court of Appeals, 97 Phil. 46). Therefore, the
donation under consideration was completed on March 27, 1989 when
the Court approved the Compromise Agreement entered into by and
between the spouses Ruby Vera-Neri and Jorge B. Neri. Upon the approval
of said document, the ownership of the said property was transferred
from Ruby Vera-Neri to the Neri children. From that time on, the
Neri children could have transferred to their name title to the
property. The fact that the Neri children decided to transfer the
title to the property in their name only when the youngest among
them reached the age of twenty (20) years old on February 6, 2000
does not negate the fact that the transfer by gift of the said property
was completed on March 27, 1989 when the Court approved the Compromise
Agreement entered into by and between the spouses Ruby Vera Neri
and Jorge B. Neri. The Donor's Tax, therefore, should have been
paid thirty (30) days from March 27, 1989 pursuant to Section 97
of the NIRC of 1997, as amended, supra. Thus the said donation is
subject to surcharges and interest computed from April 27, 1989
and not from February 6, 2000. The value of the usufruct shall not
be deducted from the value of the property as it is not provided
by law. The Donor's Tax is imposed on the transfer of the property
and not on the receipt of the property.
(BIR Ruling No. 029-2001 dated July 15, 2001)
FINAL WITHHOLDING
TAX; trust agreements; pre-termination
of long-term deposits - No income is generated simply because the
investor puts his money in the trust fund, but income is generated
only when the trustee bank makes investments by using the investor's
trust fund. The provisions of Sections 24(B)(1) and 25(A)(2) of
the Tax Code shall apply to long-term savings and investment interest
income of subject individuals beginning January 1, 1998. There is
nothing which prohibits the holder of the certificates to pre-terminate
the deposit of investment or withdraw the income earned before the
fifth (5th) year period. The withdrawal of the principal, however,
would subject the interest income to a final tax depending on the
holding period of the instrument as stated.
(BIR Ruling No. 030-2001 dated July 24, 2001)
WITHHOLDING TAX;
abatement of penalties/surcharges on late remittance - Failure to
remit the subject withholding tax liabilities on time was mainly
due to the limited Cash Allocation during the months of November
and December, 1997. Considering therefore that the activities involved
are basically governmental functions, which had eaten up most of
the DSWD cash budget allocation for the months mentioned, the request
for abatement of penalties/surcharges imposed on the late remittance
of withheld taxes as provided for under then Section 248 of the
Tax Code, as amended, is granted. However, the corresponding interest
accruing on such deficiency tax at the rate of twenty percent (20%)
per annum as imposed under Section 249 of the 1997 Tax Code shall
have to be paid until the amount is fully paid. (BIR
Ruling No. 031-2001 dated July 24, 2001)
INCOME TAX; DOCUMENTARY
STAMP TAX; tax-free exchange; demutualization
- No gain or loss shall be recognized by either the members or the
PSE on the issuance of shares of stocks to the members of PSE upon
its conversion from a non-stock to a stock corporation under its
plan for demutualization. The issuance of shares of stocks to the
members of PSE is not a flow of wealth from PSE to the members as
it is a mere reclassification of their membership rights in view
of the compulsory conversion of the PSE from a non-stock to a stock
corporation as mandated by the SRC. There is no income to speak
of that will result in the imposition of Income Tax. Likewise, the
Additional Paid-In Surplus in the amount of P277,427,000.00, which
is the balance of the Members' Contribution after deducting therefrom
the value of their subscription, is not subject to Income Tax since
the same represents a mere reclassification of a part of the Members'
Contribution to Additional Paid-In Surplus. At any rate, it is a
capital investment which is not within the purview of the term "taxable
income" as defined in Section 31 in relation to Section 32,
both of the Tax Code of 1997. However, the issuance by PSE of shares
of stock to its members is subject to the Documentary Stamp Tax
under Section 175 of the NIRC of 1997 which imposes Documentary
Stamp Tax on every original issue of shares of stocks by any association,
company or corporation whether on organization, reorganization or
for any lawful purpose. (BIR Ruling
No. 032-2001 dated July 27, 2001)
DONOR'S TAX;
issuance of CAR - Inasmuch as the Donor's Tax have already been
paid with the corresponding Certificate Authorizing Registration
(CAR) issued by the Revenue District Officer of RDO No. 42, San
Juan, Metro Manila, which is the concerned Revenue District Office
(RDO) authorized to receive Donor's Tax payment (pursuant to Section
103(B) of the 1997 Tax Code) and issue the CAR, and considering
that the property is located in a place other than the place of
the donor's residence, the BIR has issued a directive to the Revenue
District Officer of Iba, Zambales to indorse the same to the Registry
of Deeds of Iba, Zambales in order to effect the registration of
the donated property in the name of the donees. It is, however,
understood that the CAR shall still be subjected to verification/validation
by the Revenue District Officer of RDO No. 19, Iba, Zambales.
(BIR Ruling No. 033-2001 dated August 7, 2001)
ISSUANCE OF CAR
- It is the prime concern of the Bureau of Internal Revenue to collect
taxes. Since the taxpayer had already paid the corresponding taxes
on the transfer of the properties, as evidenced by ATAP and Revenue
Official Receipt, it is incumbent upon the BIR, through the Revenue
District Officer (RDO) concerned, to issue the Certificate Authorizing
Registration/Tax Clearance Certificate (CAR/TCL) of the subject
properties. The BIR, having performed its duty as mandated by law,
i.e., the collection of taxes, the concerned RDO must likewise perform
its defined duty. The concerned RDO has no discretion to further
withhold the release of the CAR/TCL solely on the basis of a letter
sent by the taxpayer opposing the transfer of the said property.
(BIR Ruling No. 034-2001 dated August
8, 2001)
TAX TREATMENT OF ISSUANCE
OF BONDS - It is noted that at the
time of issuance or origination of the PEACe Bonds, there is no
borrowing from the public, since the bonds are being issued only
to one entity, that is, RCBC. It has been the practice of the BSP
to issue debt instruments and certificates only to banks and/or
financial institutions. The required issuance to more than 20 individual
or corporate lenders in order that the transaction be considered
a borrowing from the 'public' is not present in the instant case.
At any one time covers only the origination or
original issuance of the bonds regardless of whether sale or trading
is made in the secondary market. Thus, in the case of PEACe Bonds,
the determining factor in ascertaining whether such bonds are 'deposit
substitutes' is the fact of their original issuance to a single
entity, RCBC. Under these circumstances, it is clear that the bonds
are issued to a single entity, whether such entity be RCBC, CODE-NGO
or RCBC Capital. In this regard, a representation or warranty should
be made to the effect that the bonds are acquired upon their original
issuance by the original purchaser thereof, for and on its own behalf,
or on behalf of a single purchaser only, and in the latter case,
that the purchaser is acquiring such bonds for its own account and
not for the account of other entities.
Section 32(B)(7)(g) of the 1997 Tax Code exempts
from Income Tax "(G)ains realized from the sale or exchange
or retirement" of the bonds with maturity of more than 5 years.
In this particular case, the term "gain" refers to the
gain, if any, from secondary trading, which is the difference between
the selling price of the bonds in the secondary market and the price
at which such bonds were purchased by the seller. The term "gain"
likewise includes the gain (that is, the difference between the
proceeds from the retirement of the bonds and the price at which
such last holder acquired the bonds) realized by the last holder
of the bonds when such bonds are surrendered for retirement upon
their maturity. (BIR Ruling No. 035-2001 dated
August 16, 2001)
EXCISE TAX;
petroleum service contractor - In case of domestic or local sale,
barter or transfer of indigenous petroleum, natural gas or liquefied
natural gas, the Excise Tax is paid by the first buyer, purchaser
or transferee. On the other hand, in case of export sale, the Excise
Tax is paid by the owner, lessee, concessionaire or operator of
the mining claim. Notwithstanding the foregoing, Section 12 of P.D.
No. 87, as amended, clearly exempts the contractor from all taxes,
except Income Tax. The exemption granted to service contractors
is consistent with the government's objective "to promote the
discovery and development of the country's indigenous petroleum
resources." Thus, while the privilege was repealed by Executive
Order No. 93 that took effect on March 10, 1987, the same was subsequently
restored retroactively effective March 10, 1987 under Fiscal Incentives
Review Board Resolution No. 19-87.
Accordingly, the exemption provided under Section
12(a) of P.D. No. 87 and Paragraph 6.2 of SC No. 38 necessarily
covers the exemption of the service contractors from Excise Tax
on the export of indigenous petroleum, such as natural gas and liquefied
natural gas, in consonance with P.D. No. 87, Paragraph 6.2 of SC
No. 38 and the aforementioned rulings. (BIR
Ruling No. 036-2001 dated August 20, 2001)
CAPITAL GAINS TAX;
waiver of penalty charges on the sale of real property - Antonio
Santos acquired a real property in his capacity as the highest winning
bidder in a Sheriff's Sale. Dr. Leonardo Estrada, Jr. purchased
from Antonio Santos the said property. At the time of the execution
of the Deed of Sale, there was no Owner's Duplicate of the TCT.
Dr. Estrada was not able to pay the Capital Gains Tax because the
RDO required the TCT which was destroyed in the Quezon City Hall
fire. Moreover, the filing of various cases in court led to the
delay and the failure to pay the Capital Gains Tax on time.
The request for waiver of payment of penalty charges
on the sale of said real property is denied for lack of legal basis.
Being the seller, Antonio G. Santos is the party liable to pay the
Capital Gains Tax. (BIR Ruling No. 037-2001
dated September 3, 2001)
TAXATION OF CLARK
DEVELOPMENT CORPORATION - Under Section 5, paragraph 2 of
Executive No. 80, in relation to Section 12(c) of RA No. 7227, providing
for the applicability of incentives granted to Subic Special Economic
and Free Port Zone under RA 7227 and those enterprises located in
the Export Processing Zones pursuant to PD 66 and RA 7916, or to
the registered enterprises under EO 226 or Foreign Investments Act
of 1989, to the CSEZ-registered enterprises, the Clark Development
Corporation (CDC), as the operating and implementing arm of the
BCDA formed pursuant to Section 16 of RA 7227, is entitled to the
5% preferential tax rate based on gross income earned, in lieu of
local and national internal revenue taxes.
Unlike SBMA, CDC is a corporation formed in accordance
with the Philippine Corporation Law and existing rules and regulations
promulgated by the SEC. Furthermore, its Articles of Incorporation
indicate that the activities being undertaken by CDC are proprietary
in nature, hence, it is considered a business enterprise operating
with the CSEZ. In this light, it shall pay 5% of the gross income
earned (GIE) in lieu of paying taxes.
There is no basis in saying that the Tax Code of
1997 removed the tax exemptions of CDC. CDC is not covered by any
"general, special law or charter" directed in giving a
tax exempt status since it was incorporated pursuant to the provision
of the Corporation Code. In fact, it pays the 5% preferential tax
on gross income earned similar to all other enterprises within the
Zone.
Considering that CDC is not a corporation exempt
from tax under 'general or special law' or 'charter,' it shall be
subject to the 5% preferential tax on GIE. Registration requirement
with CD is equivalent to grant of authority or license to operate
within the CSEZ. This registration requirement for enterprises operating
and located inside CSEZ done thru CDC, as the registering body,
should not be strictly imposed upon CDC considering that the authority
of CDC "to operate and perform such proprietary task"
is granted and authorized under Executive Order No. 80. However,
pursuant to Section 7 of Rev. Regs. No. 1-95, CDC is not exempt
from the requirement of withholding and remittance of tax under
Section 57(a) and (b) and 58 of the 1997 Tax Code.
(BIR Ruling No. 038-2001 dated September 10, 2001)
EXCISE TAX;
importation of methyl alcohol - Methanol is a light volatile pungent
flammable poisonous liquid alcohol usually made synthetically (as
by catalytic reaction of carbon monoxide and hydrogen under pressure)
and used chiefly as a solvent, anti freeze or formaldehyde and other
chemicals. Considering that methyl alcohol or methanol is not one
of the spirits or distilled spirits defined under Section 141 of
the Tax Code of 1997, the importation of the same is exempt from
the payment of Excise Tax. (BIR Ruling
No. 039-2001 dated September 13, 2001)
CREDITABLE WITHHOLDING
TAX; taxation of income payments made
to Regional Operating Headquarters (ROHQ) - Income payments made
to a ROHQ for qualifying services rendered by it as such are not
subject to the 5% (now 10%) Creditable Withholding Tax (CWT). ROHQs
are entitled to a reduced tax rate of 10% based on their net income.
On this basis, the 5% (now 10%) CWT ordinarily imposed on management
and technical consultants, if applied to ROHQs, will result in a
situation where the preferential income tax rate granted to them
is effectively negated or rendered meaningless. The imposition of
the 5% (now 10%) CWT is patently and grossly disproportionate to
the tax due from, or payable by, ROHQs on such income derived from
their rendition of certain qualifying services to their affiliates,
branches or subsidiaries. (BIR Ruling
No. 040-2001 dated September 18, 2001)
CAPITAL GAINS TAX;
DOCUMENTARY STAMP TAX; zonal valuation
- The Certain Guidelines in the Implementation of Zonal Valuation
of Real Properties for RDO No. 38, applying the predominant use
of property as the basis for the computation of the Capital Gains
and Documentary Stamp Taxes, shall apply only when the real property
is located in an area or zone where the properties are not yet classified
and their respective zonal valuation are not yet determined.
In the instant case, however, the classification
and valuation of the properties located in Mindanao Avenue, Bagong
Bantay have already been determined. Under Department of Finance
Order No. 6-2000, the properties along Mindanao Avenue had already
been classified as residential and commercial. The zonal valuation
thereof had already been determined. Further, the real property
under consideration is used for residential purposes as shown in
the Tax Declaration. Therefore, the Revenue District Officer of
RDO No. 38 has no discretion to determine the classification or
valuation of the properties located in the pertinent area. (BIR
Ruling No. 041-2001 dated September 18, 2001)
WAIVER OF PENALTIES
- Under Sections 248 and 249, both of the 1997 Tax Code, the imposition
of the surcharge and interest on delinquency is mandatory. The Commissioner
of Internal Revenue shall not act from motives merely out of compassion
or charity, but should consider the pecuniary interest of the government,
justice, equity and public policy. Strong reasons of policy support
a strict observance of the rule regarding the payment of tax. The
laws imposing penalties for delinquencies are clearly intended to
hasten the tax payments or punish evasions or neglect of duty in
respect thereof. The intention of the law is precisely to discourage
delay in the payment of taxes due to the State and, in this sense,
the surcharge and interest charged are not penal but compensatory
in nature. They are compensation to the State for the delay in payment
of the tax and for the concomitant use by the taxpayer of the funds
that rightfully should be in the government's hands. Thus, in the
matter of abatement of penalties, the Commissioner of Internal Revenue
should not act from motives merely out of compassion or charity,
but should consider the pecuniary interest of the government, justice,
equity and public policy. (BIR Ruling
No. 042-2001 dated September 20, 2001.)
WITHHOLDING TAX
on compensation income, cost of living allowance and amelioration
allowance - The term "Compensation Income" means all remuneration
for services performed by an employee for his employer under an
employer-employee relationship, unless specifically excluded by
the Code. The name by which the remuneration for services is designated
is immaterial. Remuneration for services constitutes compensation
even if the relationship of employer and employee does not exist
any longer at the time when payment is made between the person in
whose employ the services had been performed and individual who
performed them. Thus, the COLA and Amelioration Allowances to be
received by the PPA employees form part of their compensation income
subject to withholding tax. It is the liability of the employer,
PPA, to withhold and remit the corresponding tax due on the said
allowances to the BIR. Considering that such back benefits, i.e.,
COLA and Amelioration Allowances, constitute remunerations prior
to the year 1989 when actually received by such employees, a liberal
construction of the statute is called for in this particular case
if only to protect employees from the payment of a tax heavier than
what should have been imposed if the employer had promptly met its
obligation. Accordingly, in filing their annual income tax returns,
they should report as income and pay their respective income taxes
by allocating or spreading their back benefits for the years 1989
to 1999 or equivalent to a period of ten (10) years.
(BIR Ruling No. 043-2001 dated September 21, 2001)
CAPITAL GAINS TAX;
DOCUMENTARY STAMP TAX; execution sale
- Payment of Capital Gains Tax and Documentary Stamp Tax is not
required in the registration of a Sheriff's Certificate of Sale
in the office of the Register of Deeds. The transfer of ownership
of a property at an execution sale under Rule 39 of the Rules of
Court is not perfected until the execution and delivery of the sheriff's
final deed of sale after the expiration of the one (1) year redemption
period. A certificate of sale given to the purchaser at the time
the sale is made is different and distinct from the final deed,
which is delivered at the expiration of the period of redemption,
since the former is not intended to operate as an absolute transfer
of the property, but merely to identify the property, price paid,
and the date when the right of redemption expires. The registration
of the certificate of sale is a mere ministerial act by which an
instrument is sought to be inscribed in the records of the Office
of the Registry of Deeds and annotated at the back of the certificate
of title covering the land subject of the instrument. Therefore,
the mere sale of the property at an execution sale under Rule 39
of the Rules of Court and the corresponding registration of the
certificate of sale in the Office of the Registry of Deeds is not
subject to the Capital Gains Tax and Documentary Stamp Tax as respectively
prescribed in Sections 24(D)(1) and 196 both of the Tax Code of
1997. (BIR Ruling No. 044-2001 dated
September 25, 2001)
CAPITAL GAINS TAX;
foreclosure sale
- The Capital Gains Tax paid in a foreclosure sale cannot be deducted
from the Capital Gains Tax on the sale of the property. There being
no timely redemption, the reconveyance of the subject property from
the buyer to the seller is another sale subject to Capital Gains
Tax under Section 24(D)(1) of the Tax Code of 1997. (BIR
Ruling No. 045-2001 dated September 26, 2001)
CAPITAL GAINS TAX;
DOCUMENTARY STAMP TAX; redemption period
- The issuance of the Temporary Restraining Order by the Regional
Trial Court will not stop the running of the redemption period.
The redemption period having expired, the Capital Gains Tax and
Documentary Stamp Tax should be paid in accordance with Sections
3(2) and 4(2) of Revenue Regulations No. 4-99 dated March 9, 1999.
(BIR Ruling No. 046-2001 dated September 26, 2001)
INCOME TAX; VAT;
regional headquarters - The Regional Headquarters to be established
by Caltex (Asia) Limited (CAL) will be exempt from the Income Tax
as long as its billing to Caltex Operating Companies (COCs) will
not include any fees or compensation paid to RHQ for services rendered
or performed, but more of reimbursement of their share in the allocated
RHQ expenses, provided further that there would be no excess of
the amount received from the COCs for the costs of operating the
RHQ as its costs will be shared among the COCs and therefore should
not result to any income.
The activities of the proposed RHQ to be established
by CAL shall be exempt from VAT pursuant to Section 109(p) of the
Tax Code of 1997 but the sale or lease of goods and property and
the rendition of services to the RHQ shall be subject to zero percent
(0%) VAT pursuant to Section 14 of Republic Act No. 8756. (BIR
Ruling No. 047-2001 dated September 28, 2001.)
VALIDITY OF BIR RULING
- In tax-deferred transactions under Section 40(C)(2) of the Tax
Code of 1997, as long as the transferors gained control over the
total voting stocks of the transferee corporation, the BIR Ruling
previously issued exempting the same from the payment of Capital
Gains Tax, remains valid and effective despite the subsequent events
which transpired after the issuance of the said ruling.
(BIR Ruling No. 048-2001 dated October 22, 2001)
EXCISE TAX; VAT;
water-based lubricants - The Philippine Institute of Pure and Applied
Chemistry classified Lubricants L-A and N-A as water based lubricants
not as manufactured oils and other fuels under Section 148 of the
1997 Tax code. Hence, lubricants L-A and N-A are not subject to
Excise Tax. The importation of L-A and N-A is subject to 10% Value-Added
Tax based on the total value used by the Bureau of Customs in determining
tariff and customs duties, provided, however, that where the customs
duties are determined on the basis of the quantity and volume of
goods, the Value-Added Tax shall be based on the landed cost pursuant
to Section 107(A) of the Tax Code of 1997.
(BIR Ruling No. 049-2001 dated October 24, 2001)
FINAL
WITHHOLDING TAX; DOCUMENTARY STAMP TAX;
T-bills - The discount earned from the USD T-bills is income of
Citibank FCDU from a foreign currency transaction with a resident
pursuant to Section 28(A)(7)(b) of the 1997 Tax Code, as implemented
by Revenue Regulations No. 10-98. The Republic, through the Bureau
of Treasury shall withhold from such amount of discount, the 10%
final tax based on the aforesaid section at the time of the issuance
of the USD T-bills. Should Citibank FCDU realize a trading gain
on the subsequent sale, then the net trading gain would also be
subject to the 10% final tax. For this purpose, the par value of
the T-bills is the adjusted value, which consists of the original
purchase price plus the accumulated discount from the time of purchase
up to the time of sale. The 10% final tax on the discount shall
be imposed only on the original issuance of the bills in the primary
market but shall no longer be collected in the secondary trading
of said securities. In this respect, any gain derived by the secondary
markets from the secondary trading of the USD T-bills shall be subject
to the corresponding taxes applicable to each and every class.
The issuance of the USD T-Bills shall be subject
to Documentary Stamp Tax of P0.30 for every P200.00 or fractional
part thereof based on their face value pursuant to Section 180 of
the Tax Code. However, the transfer of treasury notes in bearer
form in the secondary market by way of simple delivery and unless
the transfer of treasury notes carries with it a renewal and issuance
of new treasury notes in the name of the transferee to replace the
old ones, the same is not subject to the Documentary Stamp Tax.
(BIR Ruling No. 050-2001 dated October 29, 2001)
MINIMUM
CORPORATE INCOME TAX; year of registration with the BIR -
A.C. Steel Industries, Inc. was registered with the Bureau of Internal
Revenue on December 29, 1995, but started commercial operations
only in January 1999. Under Sec. 2.27 (E)(5) of Revenue Regulations
No. 9-98, it is provided that for purposes of the MCIT, the taxable
year within which the business operations commenced shall be the
year in which the domestic corporation is considered registered
with the BIR. Since the taxable year of A.C. Steel Industries, Inc.
started on December 29, 1995 it shall be covered by the MCIT beginning
taxable year 1999. (BIR Ruling No. 051-2001
dated November 7, 2001)
FINAL WITHHOLDING TAX; INCOME TAX; DOCUMENTARY
STAMP TAX; interest on any currency bank deposit and yield or any
other monetary benefit from deposit substitutes
- For purposes of taxation, the returns from the investment in the
U.S. Dollar Indexed Philippine Peso Notes shall consist of the interest
earned at coupon date based on the Coupon Rate and the gain, if
any, at maturity date, which is the difference between the equivalent
Philippine Peso amount of the principal one Business Day prior to
redemption date and at issue date. Under Sections 24(B)(1), 27(D)(1),
28(A)(7) of the Tax Code of 1977, a 20% final tax shall be imposed
on "interest on any currency bank deposit and yield or any
other monetary benefit from deposit substitutes and from funds and
similar arrangements". Thus, the interest income derived on
each coupon date is subject to the twenty percent (20%) Final Withholding
Tax yield on deposit substitutes imposed in Sections 24(B)(1), 27(D)(1),
28(A)(7) of the 1997 Tax Code. The amount of interest to be received
by an investor on each Coupon Date depends in part on the PHP/USD
exchange rate prevailing at one Business Day prior to Coupon Date.
The exchange rate is therefore merely a factor in calculating the
interest or yield due on a coupon for each Coupon Date (Note:
one Business Day means Rate Calculation Date).
On the other hand, the amounts paid by the Republic
of the Philippines through the Bureau of Treasury to an investor
upon retirement of the Notes are considered payments in exchange
for such Notes. The gains, if any, on sale or exchange of the notes
shall not be subject to Final Withholding Tax but to the ordinary
Income Tax rates. However, the issuance of the Notes shall be subject
to Documentary Stamp Tax of P 0.30 for every P 200.00, or fractional
part thereof based on their face value pursuant to Section 180 of
the Tax Code of 1997. (BIR Ruling No. 052-2001
dated November 16, 2001)
Authority
to Print (ATP) Invoices and Receipts - Section 238 of the
1997 Tax Code, as implemented by Revenue Memorandum Order No. 83-99,
provides that Authority to Print (ATP) Invoices and Receipts shall
be filed with the Revenue District Office having jurisdiction over
the business establishment which will be using the invoices or receipts.
Accordingly, invoices and receipts must be printed and registered
in the Revenue District Office where the head office of Prudentialife
Plans, Inc. is located, while invoices and receipts to be used by
branches shall be approved by the respective Revenue District Offices
where the branches are located. (BIR Ruling
No. 053-2001 dated November 26, 2001)
INCOME
TAX; WITHHOLDING TAX; separation benefits - Pursuant to Section
32 (B)(6)(b) of the Tax Code of 1997, any amount received by an
official or employee from the employer as a consequence of separation
of such official or employee from the service of the employer because
of death, or sickness or other physical disability or for any cause
beyond the control of the said official or employee shall not be
included in his gross income and shall be exempt from taxation.
The registration and subsequent appointment to another office can
be properly considered as voluntary separation and therefore does
not fall within the purview of the phrase "for any cause beyond
the control of said official or employee" under Section 32(B)(6)(b)
of the Tax Code of 1997. The same falls within the purview of "abandonment
of office" and not "retirement" from the service
as contemplated under the retirement laws (CA No. 186, as amended,
RA No. 340, 910, as amended). Hence, the amount received from BSP
Provident Fund as a result of appointment to another office is subject
to Income Tax and consequently to Withholding Tax. (BIR
Ruling No. 054-2001 dated December 4, 2001)
CAPITAL
GAINS TAX; remittance not subject to Branch Profit Remittance Tax
- As represented, the Philippine branches of Oxbow-Mindanao
I Partners CV (OMP I) and Oxbow-Mindanao II Partners CV (OMP II)
were established in the Philippines only in compliance with the
condition then imposed by the SEC to qualify foreign corporations
to hold interest in Philippine partnerships, and that these foreign
investors have not engaged in a series of business transactions
aimed at gaining profits. In fact, their SEC licenses only permit
them to act as partners in a Philippine partnership and to act as
holding companies for the investments of the head offices in the
Philippines. The act of selling their partnership interests is not
a business undertaking but a single and isolated transaction for
the purpose of liquidating their investments in the Philippines.
In view of the foregoing circumstances under which the Philippine
branches of OMP I and OMP II were established, the remittance of
the capital gains derived from the sale by OMP I and OMP II of their
partnership interest in MGP I and MGP II shall not be subject to
BPRT imposed under Section 28(A)(5) of the Tax Code of 1997.
(BIR Ruling No. 055-2001 dated December 5, 2001)
INCOME
TAX; CREDITABLE WITHHOLDING TAX; CAPITAL GAINS TAX; DOCUMENTARY
STAMP TAX; release of mortgage - The Deed of Cession of Properties
in Payment of Debts (Dacion en Pago), Deed of Conditional
Sale and the Deed of Absolute Sale and Release From Liens and Encumbrances
merely established an equitable mortgage and consequently not subject
to Income Tax, Capital Gains Tax and Documentary Stamp Tax under
Section 196 of the Tax Code of 1997. Northern Cement Corporation
(NCC) is not liable for Income Tax, Creditable Withholding Tax,
or Capital Gains Tax relative to the Deed of Absolute Sale and Release
from Liens and Encumbrances executed on February 22, 2000 by the
Republic of the Philippines through its Trustee, APT. Since said
Deed is actually in the nature of a release of the mortgage initially
made by NCC to the Development Bank of the Philippines (DBP), the
mortgage itself should have been subjected to the Documentary Stamp
Tax at the rate of P 3.50 if the amount exceeds P 1,000 or an additional
tax of P 3.50 on each P 3,000 or fractional thereof in excess of
P 3,000 imposed under then Section 244 of the Tax Code, as amended,
together with the corresponding 25% surcharge from the date of the
Execution of the Deed of Cession of Properties in Payment of Debts
(Dacion en pago) on November 10, 1981 until full payment
thereof. (BIR Ruling No. 056-2001 dated December
6, 2001)
INCOME
TAX; taxation of mixed income - The phrase "shall
first deduct the allowable personal and additional exemptions from
compensation income and only the excess therefrom can be deducted,
from business or professional income" pre-supposes that
after deducting the personal and additional exemptions from the
gross compensation income, the gross income from business or profession
must be added to the resulting difference. After which, the excess
deduction (i.e. personal and additional exemptions, and premium
paid on health and or hospitalization insurance not to exceed P
2,400 per year, provided the family's gross income does not exceed
P 250,000 for the taxable year) can be deducted from the gross income
from business or profession. Thus, in cases where a person receives
mixed income, the consolidated approach in the computation of his
taxable income must be adopted. This position is being supported
by the BIR Form used for the said purpose, that is, BIR Form No.
1701. (BIR Ruling No. 057-2001 dated December
19, 2001)
Change
of tax status of withholding agents - Grants the request
of TFS Pawnshop, Inc. to update all its branches' BIR registration
by changing its tax status from withholding agents to non-withholding
agents, the same being in accordance with Sections 58 and 81 of
the Tax Code of 1997. Such being the case, compensation income and
expanded withholding taxes by TFS as well as its different branches
shall be remitted/paid to Revenue District Office No. 40, Cubao
where its principal office is located. (BIR
Ruling No. 058-2001 dated December 19, 2001)
DOCUMENTARY
STAMP TAX; assignment of subscriptions- The subsequent assignment
of Ben MWSS Holdings Limited (BMHL) of its subscription of 188,000,000
common shares in Manila Water Company (MWC) is equivalent to an
assignment of shares of stock subject to Documentary Stamp Tax (DST)
under Section 176 of the NIRC of 1977. The decision of the Supreme
Court (SC) in the case of Commissioner of Internal Revenue vs. Construction
Resources of Asia forms part of the law of the land under Article
8 of the Civil Code of the Philippines. Thus, following the cardinal
rule that laws shall have no retroactive effect unless the contrary
is provided (Article 4, Civil Code), the SC decision will apply
to transactions executed after such decision has become final. This
will include the subject transaction of MC-Japan. The SC decision
takes precedence over rulings issued by administrative agencies
such as BIR Ruling No. 173-89. However, since MC-Japan relied on
said ruling, the increments accruing from the non-payment of DST
is hereby abated pursuant to Section 204(B) of the NIRC of 1997,
as implemented by Revenue Regulations (RR) No. 13-2001, provided
that the basic DST liability under Section 176 is paid within 30
days from receipt of this ruling. For this purpose, MC-Japan is
hereby enjoined to comply with the procedural requirements of RR
13-2001. (BIR Ruling No. 059-2001 dated December
20, 2001)
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