AlasOplas credibilityandhonor defined.

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1 AlasOplas credibilityandhonor defined. TAXDIGEST Volume8,Series48 Thispublicationshouldnotbeusedortreatedasprofesionaladvice.Theinformationinthispublicationshouldnotbereliedto replaceprofesionaladviceonspecificmatersanditscontentsmustnotbeusedasbasisforformulatingdecisionsunderany circumstances.readersforthismaterialareadvisedtoseekprofesionaladvisebeforemakinganybusinesdecisionoryoumaycal andaskforthefultext.

2 Revenue Regulations CBA BENEFIT AND PRODUCTIVITY BONUS NO LONGER TAXABLE Fare hikes and water rate increase signals the start of the New Year. While these increase bothers most of us, the Bureau of Internal Revenue (BIR) issued a regulation that will somehow increase the amount of take home pays of each employee. Revenue Regulation issued last January 5, 2015 added new provisions on the previous issuances regarding De Minimis Benefits. Under the new regulation, amount received by an employee by virtue of a Collective Bargaining Agreement (CBA) and productivity incentive schemes is not subject to income tax as well as withholding tax on compensation provided the combined amount do not exceed Ten Thousand (P10,000) Pesos per employee per taxable year. The same, if given to employees holding managerial and supervisory position, is exempted from Fringe Benefits Tax as long as it is within the given threshold. Revenue Regulations No CWT RULES SUPPLEMENTED In December 5, 2014, BIR issued RR making additional provisions to section 57.2 of RR 2-98 creating subsection for the withholding of creditable income tax on Real Estate Investment Trust (REIT) and reclassifying the treatment of locally produced raw sugar as a separate subsection for purposes of creditable withholding tax. Below are the rates for each item listed in the regulation: 1. Income payments made to suppliers of agricultural products in excess of the cumulative amount of P300,000 within the taxable year 1% 3. Income payments to REIT corporate taxpayer registered with BIR LT Audit Division 3 1% Proprietors or operators of sugar mills/refineries on their mill share and direct buyers of Quedans or Molasses Storage Certificates from the sugar planters on locally produced raw sugar 1% based on the following based price: a. P1,000 per 50kg bag, and b. P4,000 per metric ton Revenue Regulations No IMPORTERS, BROKERS REQUIRED TO USE efps Last December 10, 2014, BIR issued Revenue Regulation expanding the coverage of taxpayers required to file and pay taxes through the electronic Filing and Payment System (efps) to include taxpayers included in the Taxpayers Account Management Program (TAMP) and accredited importers with BIR-ICC s and BIR-BCC s. Selection of taxpayers to include in the TAMP is basically based on the existing issuances, the latest of which is the Revenue Memorandum Order No These taxpayers account for at least 80% of tax collection of the District as such are the Top Taxpayers individual or juridical entity. All importers and custom brokers (individual, partnership, corporations, associations or cooperatives, whether taxable or non-taxable) unless otherwise exempted, who/which secured accreditation from the BIR following existing revenue issuances, including prospective importer required to secure the said BIR-ICC and BIR-BCC shall likewise be enrolled with the efps. Revenue Regulations No

3 BIR PRIORITY PROGRAMS FOR 2015 The revenue collected by the Bureau of Internal Revenue (BIR) support the national development initiatives of the Government. For 2015, BIR's priority programs aim to support the country's effort in the 2015 ASEAN Integration. This circular has been issued to disseminate the 27 priority programs that are intended to help the Bureau attain the [1] Php1.721 trillion collection goal. This year's priority programs are enumerated below: Online System for Transfer Tax Transactions (OST) Electronic Certificate Authorizing Registration (ecar) Electronic Tax Information System (etis) Rate Program Oplan Kandado Program Taxpayer Registration and Information Update (TRIU) Program Online System for Accreditation of Importers and Custom Brokers Online Application and Processing of Tax Clearance for Bidding Purposes Electronic Official Registry Books Internal Revenue Stamps Integrated System (IRSIS) for Alcohol Products - Distilled Spirits Automated Internal Revenue Allotment Computation (AIRAC) System Compliance Improvement Strategy Geographical Information System (GIS) Asset Information Management Program (AIM-P) Enhanced Mobile Revenue Collection Officers System (MRCOS) E-linkage with the Bureau of Treasury (BTr) Forfeited Asset Management Integrity Management Program Capacity Development and Purblic Awareness (elearning) Workflow Management System (WMS) Expansion of ISO Certification to Other District Offices Exchange of Information (EOI) Program and the Implementation of the Foreign Account Tax Compliance Act Intergovernmental Agreement Model 1 (FATCA-IGA 1) Human Resources Information System (HRIS) Procurement, Payment, Inventory, Distribution and Monitoring System Strategic Performance Management System (SPMS) Transfer Pricing Program, and Industry Issues Resolutions - Legal No SEPARATE PAYMENT FORM ISSUED TO PAY TAX DEFICIENCIES THROUGH LETTER NOTICES BIR prescribed the use of a new payment form BIR Form 0611-A through RMC , which is said to be Optical Character Recognition (OCR) ready, to be used in making payments of tax deficiencies discovered though RELIEF, BOC Data Program and TRS. No PROPER SUBSTANTIATION OF DONATION REQUIRED TO CLAIM AGAINST TAXABLE INCOME Donors claiming donations and contributions to accredited non-stock, non-profit corporation/ngo as deductions from their taxable business income should submit evidences or proofs to the BIR by showing the Certificate of Donation and indicating therein the actual receipt by the accredited organization, date of receipt and the amount/value of the donated cash/property. RMC requires donee institutions, as well as donors to accomplish BIR Form 2322 in triplicate copy, the original of which shall be given to the donor, the duplicate to the BIR and the triplicate to be retained by the donee. If the donation constitutes a donation of property, the above statement must be accompanied by the deed of sale/bill of sale to prove the acquisition cost of the properties. BIR Form 2322 can be downloaded at the below link: ations_2/bir%20form%20no.%20232pdf No [1] Revenue Memorandum Order

4 TAX TREATMENT OF STOCK OPTION PLANS Stock option may be granted to any person, natural or juridical entitling the said person to purchase shares of stocks of a corporation at a specific price to be exercised at a specific date. RMC treats the stock options as shares of stocks. Grant of Option When the option is granted to employees that is those under an employee-employer relationship, the grantor cannot claim deductions for the grant of the stock option when there was no payment/consideration received from the employee. However, if the option was granted for a price, the full price of the option shall be considered capital gains subjected to CGT The issuance of the option is subject to Documentary Stamp Tax (DST) of seventy-five centavos (P0.75) on each two hundred pesos of the par value of the stocks subject of the option, or 25% of the DST paid upon original issuance of stock in case of no-par value stocks. Sale or Transfer of Option Granted Subsequent sale barter or exchange of options is treated as sale, barter or exchange of shares of stock not listed on stock exchange. Transfer of the option for a consideration shall be subject to capital gains tax however, transfer without any consideration, capital gains shall be zero. It should be noted also that transfer of option without any consideration will treated as donations, thus subject to donor s tax. The basis of which shall be the FMV of the option at the time of donation. Exercise of the Option 1. Upon exercise of the option by a rank-and-file employee, an additional compensation equivalent to the difference of the book value/fmv of the shares, whichever is higher, at the time of the exercise of the stock option and price fixed on the grant date, shall be recognized and subjected to income tax and withholding tax on compensation as well. If the employee who exercises the option holds a supervisory and managerial position, the difference of the book value/fmv of the shares, whichever is higher, at the time of the exercise of the stock option and price fixed on the grant date, shall be treated as fringe benefits subject to FBT. 3. In the event was granted to supplier of goods or services, of the book value/fmv of the shares, whichever is higher, at the time of the exercise of the stock option and price fixed on the grant date, shall be recognized as additional consideration for the services rendered or goods and shall be subject to the relevant withholding tax at source and other taxes applicable. Reportorial Requirements 1. The issuing corporation must submit a statement under oath within 30 days from the grant of the option indicating the following: a. b. c. d. e. f. On the 10th day of month following the date of exercise period, the issuing corporation shall file a report stating the following: a. b. c. d. e. f. Terms and conditions of the stock option Names, TINs and position of the grantees Book value and FMV, par value of shares subject of the option at the grant date Exercise price and exercise date Taxes paid on the grant Amount paid for the grant Exercise date Names, TINs, position who exercise BV, FMV, Par value of shares subject of the option at the exercise date Mode settlement Taxes withheld on exercise FBT paid No NO NEED TO REVALIDATE EXPIRED TCC S DURING PENDENCY OF CASH CONVERSION REQUEST On September 15, 2014, the Bureau of Internal Revenue issued No ( the RMC ) regarding the clarification of certain requirements on the processing of applications for cash conversion of tax credit certificates (TCCs). TCC s are certifications by the Commissioner of Internal Revenue or his duly authorized representative in BIR accountable form with monetary value, the amount due to a taxpayer resulting from an overpayment of a tax liability or erroneous payment of a tax due, which acknowledges 3

5 the grantee-taxpayer to use for payment or in satisfaction of any of his internal revenue tax liability (except those excluded). It may also be converted as a cash refund, or disposed of in the manner and in accordance with the limitations, if any, as may be prescribed by the provisions of these Regulations. Who and why Concerned taxpayers have filed for the conversion and have encountered issues as the expiration of their respective TCC s fall during the pendency of the processing while the said certificates were still in the possession of the revenue Office where they applied for the conversion. The concern of the affected taxpayers is the validity period where any tax credit certificate which remains unutilized after five (5) years from date of issue shall, unless revalidated before the end of the fifth year, be considered invalid and shall not be allowed for use in payment of any of the taxpayer's internal revenue tax liability nor allowed to be transferred and the unutilized amount thereof shall revert to the General Fund of the National Government. Clarifications The provisions of Section 5 (b) of Revenue Regulations No dated July 19, 2000 is clear that: Any request for conversion into cash refund of unutilized tax credits may be allowed during the validity period of any TCC. (emphasis supplied). This circular clarifies that all applications for the cash conversion of TCCs which have been filed before the expiration of their validity with the same Office that issued the said TCC shall no longer be required to be revalidated for purposes of continuance of the processing of the respective application and shall proceed accordingly, whether for verification, approval or for payment. It was also cleared in the circular that revalidation is still required for TCC, whose validity is about to expire application for cash conversion has not been filed yet with the exception where the certificate has already been previously revalidated. No FDA CERTIFICATION REQUIRED FOR VAT EXEMPTION OF FEED INGREDIENTS As a matter of providing additional clarifications in relation to RMC , BIR issued two (2) circulars to guide every one of us determining what feed ingredients require Food and Drug Administration (FDA) certification and who has the competency to make declaration of whether or not a feed ingredient has possible utilization for human consumption. RMC issued last August 27, 2014 specifically identified six (6) feed ingredients that requires a FDA certification that it is unfit for human consumption, namely; 1. Whey Powder Skimmed Milk Powder 3. Lactose 4. Buttermilk powder 5. Whole milk powder, and 6. Palm Olein It should be noted that the list of feed ingredients that will require FDA certification is not limited to the above items. A competent authority may determine additional ingredients and additives that may have a possible utilization for human consumption. RMC cleared out that the previous circular should not be construed as giving the Revenue District Officers the discretion to make declaration of whether or not the feed ingredient subject to sale or importation is fit for human consumption. (RMC) No , RMC and RMC AMENDMENT TO DOCUMENTS REQUIRED IN FILING APPLICATION FOR CONTRACTORS FINAL PAYMENT RELEASE In relation to RMC which circularizes the BIR Form 0217 or the Application for Contractor's Final Payment Release, BIR released RMC to amend the documents required to be submitted upon filing of the said form. 4

6 The new circular removes the requirement to submit copy of the contractors Certificate of Registration (BIR Form 2303) and the contractor's breakdown of receipts or collection. It was noted also that DPWH's draft of final biling has been changed to DPWH's draft of final disbursement voucher. No WITHHOLDING TAX RATES ON DIVIDEND PAYMENTS TO PHILIPPINE CENTRAL DEPOSITORY (PCD) NOMINEES The BIR recently issued (RMC) No dated September 12, 2014 clarifying the withholding tax rates on dividend payments to PCD Nominees. Under this circular, a PCD Nominee-Filipino is deemed to be an individual subject to final withholding tax of 10% under Section 24(B)2 of the Tax Code, unless it is satisfactorily shown that the actual equity investor is a domestic corporation. A PCD Nominee Non Filipino is deemed to be a non-resident foreign corporation subject to final withholding tax of 30% under Section 28(B)1 of the Tax Code, unless it is satisfactorily shown that the actual equity investor is a resident alien, non-resident alien engaged or not engaged in trade or business in the Philippines or resident foreign corporation. The BIR Regulations did not mention anything about the applicability of reduced withholding rates under existing tax treaties. It can however be presumed that if the non-resident recipient, whether individual or corporate, is qualified to avail of the reduced treaty rates, then such should be the rate applicable. No Court Decisions TRANSFER OF REAL PROPERTY BY MERGER NOT SUBJECT TO DST In a Supreme Court (SC) decision on the case of Pilipinas Shell Petroleum Corporation (PSPC) vs. Commissioner of Internal Revenue (CIR) G.R. No dated September 29, 2014, the court upheld that conveyance of real properties by virtue of a statutory merger is not liable to pay documentary stamp tax. In April 1999, PSPC entered into a plan merger with its affiliate Shell Philippine Petroleum Corporation (SPPC) wherein all of the assets and liabilities of the latter will be absorbed by the PSPC including a real property. Believing that the transfer is subject to DST, PSPC paid to the BIR the DST but realized later on that it was an erroneous payment thus, filed a claim for refund. Due to BIR inaction, the case was lifted up to the CTA where the claim was granted on the ground that transfer does not constitute a sale of real property which is subject to DST. Finally, the SC decided on the case highlighting the provision of Section 196 of the NIRC saying that it is imposed only on the transfer of realty by way of sale and does not apply to all conveyances of real property. The decision also finds support in Section 199 of the NIRC Documents and Papers not Subject to Stamp Tax which includes transfer of property by virtue of merger or acquisition. SC DENIES DFP APPEAL TO REVIEW CERTIORARI Duty Free Philippines (DFP) lost its privilege to appeal the decision made by the Court of Tax Appeals (CTA) First Division on its case against the Commissioner of Internal Revenue (CIR) for not following the procedures in making appeal as prescribed by law. In a decision made by the Supreme Court (SC) in the case of DFP vs. CIR, docketed as G.R. No , dated October 8, 5

7 Court Decisions 2014, the higher court ruled based on Rule 45 of the 1997 Rules of Civil Procedure that it has no jurisdiction over a case filed to them involving decisions made by CTA division without passing through the CTA en banc. CWT ENOUGH PROOF OF TAXES WITHHELD In the case of Philippine National Bank (PNB) vs. the Commissioner of Internal Revenue (CIR) dated September 29, 2014, the Supreme Court (SC) upheld the already established maxim that taxpayer claimants of creditable withholding tax (CWT) need not prove the actual remittance of withheld taxes to the BIR. In November 11, 2002, PNB filed a claim for refund or the issuance of a Tax Credit Certificate for the taxable year 200 with the BIR. Due to BIR's inaction, on the administrative claim, PNB appealed before the Court of Tax Appeals (CTA) where the claim has been granted. Petition for motion for reconsideration filed by the CIR was subsequently denied by the First Division resolution on May 30, The same decision was sustained by the CTA en bancstating the fact there is claimant no longer need to present testimonies of the various withholding agents who issued the certificates and made entries therein. On the side note, it is worth reminding ourselves - as withholding agents, to be mindful in completing any BIR Forms since these documents are executed under the penalties of perjury, pursuant to Section 267 of the NIRC. CONTACT PERSON Mr. Donnies T. Alas Chairman & CEO E: donniesalas@alasoplascpas.com Ms. Marycris S. Oplas Senior Partner E: marycrisoplas@alasoplascpas.com Ms. Glesie R. Martinez Partner, Audit & Assurance - Cavite E: glesiemartinez@alasoplascpas.com Ms. Nessa S. Oplas Branch Manager - Bacolod E: nessaoplas@alasoplascpas.com Tax Digest by: Tax Advisory Services / Client Continuity & Communication Team For clarification, tax queries or if you need our assistance in securing BIR ruling, you may call us at telephone number (632) or us at aocheadoffice@alasoplascpas.com or visit us at our website 6