CREDITABLE WITHHOLDING TAX; Sale of Capital or Ordinary Asset - Pursuant to RR 1-90, the sale, exchange or transfer of real property whether capital or ordinary asset by a corporation which is habitually engaged in the real estate business, certified as such by the Chamber of Real Estate Builders Association, Inc. (CREBA) and who is registered with HUDCC shall be subject to a creditable withholding tax of two and one-half percent (2.5%) based on the gross selling price or total amount of consideration or its equivalent paid to the seller/owner. The said RR 1-90 covers all types of sale, i.e., cash sale, sale on installment basis and sale on a deferred payment basis. (Citation omitted) The above pronouncement as to the basis of the expanded withholding tax (EWT) was clarified in BIR Ruling No. 019-96, i.e., the entire gross selling price and not only on the initial or downpayments if the initial or downpayments in the year of sale exceed twenty-five percent (25%).
The term "downpayment" is not equal to the gross selling price or the total amount of consideration or its equivalent paid tot he seller/owner since it is actually a portion of the whole (i.e., of the gross selling price or the total amount of the consideration or its equivalent). The alternative use of the terms "gross selling price" or "total consideration or its equivalent paid to the seller/owner' is necessary to comprehend the payment other than money made by the buyer which, in all intents, from part of the consideration or selling price and for which the equivalent value therefor shall be considered in computing the creditable withholding tax.
Thus, in all instances, whether the basis is denominated as gross selling price or total amount of consideration or its equivalent, if initial payment thereof is equivalent to 25% or more, the transaction is considered as cash sale for which the corresponding rate of the creditable withholding tax prescribed shall be withheld based not on the amount initially paid (downpayment) but on the gross selling price or total consideration or its equivalent paid to the seller/buyer. (BIR Ruling No. 011-99 dated January 22, 1999)
INCOME TAX; Definition of Corporation; Joint Venture - Pursuant to Section 22(B) of the Tax Code of 1997, the term "corporation" shall include partnerships, no matter how created or organized, joint stock companies, joint accounts (cuental en participacion), associations or insurance companies, but does not include general professional partnerships and a joint venture or consortium formed for the purpose of undertaking construction projects or engaging in petroleum, coal, geothermal an other energy operations pursuant to an operating or consortium agreement under a service contract with the Government. Hence, the joint venture of MEGAWORLD and LA O' for the construction of "The Manhattan Square" is not subject to the corporate income tax under Section 27(A) of the Tax Code of 1997. However, the co-venturers are separately subject to the regular corporate income tax on their income during each taxable year respectively derived by them from the aforesaid construction project. Furthermore, the allocation of the units and the issuance of the corresponding Condominium Certificates of Title by the Registry of Deeds of Makati City to MEGAWORLD and LA O', representing their respective shares or participating interests in the projects as stipulated in the JVA, are not taxable events, therefore, not subject to income and/or expanded withholding tax, because it is only upon the sale or disposition of the units allocated to MEGAWORLD and LA O' to third parties that the gain realized by the parties in the said transaction will be subject to the regular 34% of income tax for the taxable year 1997 under Section 27(A) of the Tax Code of 1997 and to the expanded withholding tax under Revenue Regulations No. 6-85, as amended by RR 2-98. [BIR Ruling No. DA-488-98] (BIR Ruling No. 018-99 dated February 11, 1999)
IPO TAX; Demutualization; Listing of Shares - Pursuant to Section 127(B) of the NIRC, the IPO tax would apply only to corporations which are considered "closely held", meaning that at least 50% in value of the outstanding voting shares of all classes is owned directly or indirectly by or for not more than 20 individuals. In the case where the shares of stock in the corporation to be listed are owned by another corporation, such shares will be considered as being owned proportionately by the latter's shareholders.
Since HoldCo would be wholly-owned by SLAC prior to demutualization and at the time the application to list the HoldCo shares is filed with the PSE, the corporation shareholding of SLAC in HoldCo will be considered, as being proportionately held by SLAC's "shareholders". Since the members of SLAC, who would effectively be considered as shareholders of the company, consist of hundred of thousands of Eligible Policyholders, HoldCo will not be a "closely held corporation" prior to SLAC's demutualization. Accordingly, the listing of shares of stock in HoldCo with the PSE in connection with the demutualization of SLAC will not be subject to the IPO tax because, at all material times both before and after demutualization, HoldCo will not be a closely held corporation as defined under Section 127(B) of the NICRC. (BIR Ruling No. 035-99 dated March 25, 1999)
EXCISE TAX ON MINERAL PRODUCTS; Holders of Coal Operating Contracts under P.D. No. 972 -The preferential tax treatment privilege granted or being enjoyed by Coal Operating Contract (COC) holders under Section 16(a) of P.D. No. 972 was first repealed by EO No. 93 which encompassingly withdrew the tax and duty incentives enjoyed by all persons, whether natural or judicial, including government-owned or-controlled corporations. The aforesaid incentives enjoyed by coal operating contractors were however, effectively restored on March 10, 1987 by FIRB Resolution No. 19-87. Granting that the status quo of COC existing as of the time R.A. No. 7160 took effect on January 1, 1992 was maintained by express provision of Section 5(d) of the aforesaid Act, Section 193 thereof withdrew these preferential tax exemption privileges granted to, or enjoyed by all persons, whether natural or judicial, including government-owned or-controlled corporations, except local water districts cooperatives duly registered under R.A. No. 6938, and non-stock and non-profit hospitals and educational upon its effectivity. Furthermore, the intention to withdraw all the privileges, including those enjoyed by COC holders, was, however, bolstered by Section 534 of the same Act which expressly repealed Section 16 of P.D. No. 972, as amended. Accordingly, this Office hereby holds that under Section 151 of the Tax Code, as amended, COC holders are subject to excise tax of Ten pesos (P10.00) per metric ton of coal produced/explored and removed from the locality where mined. (BIR Ruling No. 043-99 dated March 30, 1999)
DST; Income Tax; Lease Purchase Agreement Subject to DST, Ordinary Asset Sold Subject to CWT - The Lease Purchase Agreement executed by and between Total Persons Care Foundation (TOPEC) and Mariano Gabor sometime in December, 1985, is subject to the documentary stamp tax imposed under Section 194 of the Tax Code, while on the other hand, the subsequent Deed of Sale executed in July, 1998, is likewise subject to the documentary stamp tax prescribed under Section 196 of the Tax Code of 1997. In other words, both Lease Purchase Agreement and deed of Absolute Sale are subject to the corresponding documentary stamp tax prescribed under the aforecited provisions of the Tax Code. Moreover, the tax base of documentary stamp tax due on the Deed of Absolute Sale, shall, under Section 196 of the Tax Code of 1997, be based on the consideration or value received or contracted to be paid for such realty after making proper allowance of any encumbrance or on its fair market value determined in accordance with Section 6(E) of the Tax Code of 1997 (zonal valuation), whichever is higher. Finally, since the property sold in favor of Mr. Mariano Gabor is an ordinary asset, the sale thereof is subject to the creditable withholding tax imposed under Section 4 of Revenue Regulations No. 8-98 implementing Section 57(B) of the Tax Code of 1997 based on the gross selling price/total amount of consideration or fair market value (zonal valuation) of the real property sold, whichever is higher. (BIR Ruling No. 045-99 dated April 7, 1999)
INCOME TAX; Meaning of Fringe Benefits - Fringe benefits means any goods, service or other benefit furnished or granted by an employer in cash or in kind, in addition to basic salaries, to an employee (except rank and file employee) such as housing. Section 33(a) of the Tax Code of 1997 stipulates that fringe benefits which are "required by the nature of, or necessary to the trade, business or profession of the employer, or when the fringe benefits is for the convenience or advantage of the employer" are not subject to the fringe benefit tax. If the living quarters are furnished to an employee for the convenience of the employer, the value thereof need not be included as part of compensation income subject to withholding. It appearing that the 3 kilometer distance was for purposes of complying with the state policies on the promotion of the health and welfare of workers (Articles 11, Sections 15 and 18 of the 1987 Constitution) and the constitutional mandate guaranteeing full protection to labor (Art. 13, Sections 3 and 14, ibid.), this situation falls within the purview of Section 33 of the Tax Code of 1997. Such being the case, the costs and related expenses associated with the lease of the condominium unit and residential house for the benefit of the employees are expenses directly attributable to the development, management, operation and/or conduct of the business pursuant to Section 34(A)(1) of the Tax Code, the same shall be deducted from the gross income of ABB Power, Inc. As such, and considering that it is a fringe benefit for the convenience and advantage of the employer, it shall not be included as part of compensation income of the employee subject to withholding neither will it be subject to the fringe benefit under Sec. 33 of the Tax Code of 1997 implemented by Revenue Regulations No. 3-98. (BIR Ruling No. 055-99 dated April 23, 1999)
INCOME TAX; DST; Issuance of Additional Shares of Stock - The issuance of additional shares of stock to Rodamco Philippines B.V. (RPBV) for the purpose of maintaining its 20% equity holding in KSA Realty Corporation is not a flow of wealth from KSA to RPBV. RPBV will not be enriched by the receipt of additional shares of KSA because in its books, investment in KSA will be maintained at the original cost of P1,565,000,000. There is, therefore, no income to speak of that will result in the imposition of income tax. Accordingly, the issuance of additional shares of stocks by KSA to RPBV to be effected by the reclassification of the APIC to capital stock and undertaken for the purpose of maintaining the 20% equity of RPBV in KSA pursuant to the Investment Agreement Provisions, shall not result in any income tax on the part of RPBV. Moreover, since RPBV will not pay anything for the issuance of the additional KSA shares, the cost basis of its capital investment in KSA will remain the same despite the increase in the number of KSA shares that it will hold, and RPBV's cost per share will be reduced. Accordingly, the cost basis of RPBV for all the shares of stock of KSA, including the additional shares received as a result of the reclassification of KSA's APIC to capital stock, shall be the same amount of its original investment amounting to P1,565,000,000. Finally, pursuant to Section 175 of the Tax Code, the issuance of additional shares to RPBV is subject to documentary stamp tax at the rate of Two Pesos (P2.00) for each Two Hundred Pesos (P200.00) of the par value of the said shares. (BIR Ruling No. 058-99 dated April 27, 1999)
INCOME TAX; Overtime Meal Allowance - The overtime meal allowances of P80.00/P90.00/P100.00 given by Petron to its rank and file employees, who have actually rendered overtime work, are not considered as part of compensation subject to withholding tax since the same are of relatively small value. Likewise, the overtime meal allowance of One hundred fifty pesos (P150.00)given to supervisory, professional and technical employees are not considered as part of compensation subject to withholding tax since such overtime meal allowances are furnished to the employees for the convenience of Petron.
Moreover, the said overtime meal allowances granted to rank and file employees and to supervisory, professional and technical employees are not subject to the fringe benefits tax pursuant to Section 33 (C) of the Tax Code of 1997 as implemented by Section 2.33 (C) of Revenue Regulations No. 3-98.
In fine, the overtime meal allowances granted to the rank and file employees are not subject to the fringe benefits tax as these are specifically exempted from the application thereof. Likewise, the overtime meal allowances granted to the supervisory, professional and technical employees are not subject to the fringe benefits tax since the same are granted to the employees as required by the nature of, or necessary to your trade, or business and for your convenience. (BIR Ruling No. 061-99 dated May 5, 1999)
VAT; Sale of Automobiles to PEZA, SBMA and other Eecozone Registered Enterprises - Under RMC No. 25-99 the sales of ordinary automobiles to PEZA, or SBMA and other ECOZONE registered enterprises are not entitled to VAT zero-rating because under Section 2(ii) of R.A. No. 7916, the term "Merchandise or Goods" shall collectively refer to raw materials, supplies, equipment, machineries, spare parts, packaging materials or wares of every description to be used in connection with the registered activity of an ECOZONE enterprise. The phrase "to be used in connection with the registered activity of an ECOZONE enterprise" in describing what comprises merchandise or goods imparts the presumption that the same are somehow utilized in the production activity of an ECOZONE enterprise.
Such being the case, since the sale of locally assembled motor vehicle to Daeduck Philippines, Inc. is not directly related to its registered activity as PEZA enterprise the same could not be covered within the classification of goods or merchandise entitled to the benefit of tax exemption. Moreover, since value-added tax is an indirect tax, the amount of tax may be shifted or passed on to the buyer of the goods, properties or services. Accordingly, the sale of one (1) unit of motor vehicle to Daeduck Philippines, Inc. is subject to 10% value-added tax. (BIR Ruling No. 074-99 dated June 4, 1999)
ESTATE TAX; Conjugal Partnership Property - A parcel of land covered by TCT No. 158889 and registered in the name of both spouses, the late Emigdio N. Najera, Sr. and Resalina N. Najera, is conjugal property having been acquired during the marriage. Following the rule that proof of acquisition of the property during the marriage suffices to render the statutory presumption operative, the parcel of land covered by the Deed of Extra-Judicial Settlement pertains to conjugal partnership of the late Emigdio N. Najera, Sr. and Rosalina N. Najera.
Accordingly, upon the death of the late Emigdio N. Najera, Sr. on December 1, 1986 only one-half of the property described therein shall form part of his gross estate for purposes of determining his net estate subject to estate tax which is governed by the statute in force at the time of his death and based on the value of the property at the time of his death. Under Art. 996 of the Civil Code, the share of the surviving spouse should always be computed as one child in the division of the testate estate. Consequently, upon the death of the late Emigdio N. Najera, Sr. his wife, Rosalina N. Najera was entitled to a share equal to the share of his children from his estate. In so long, the heirs of the late Rosalina N. Najera should include from the gross estate, her one-half part of the property, being a pro-indiviso owner of the property covered by the Deed of Extra-Judicial Settlement as well as her share in the estate of the late Emigdio N. Najera, Sr. Hence, the Estates of Emigdio N. Najera, Sr. and Rosalina N. Najera should be computed separately for estate tax purposes in accordance with the statute in force at that time. (BIR Ruling No. 078-99 dated June 17, 1999)
CAPITAL GAINS TAX; Pacto de retro - The terms of the agreement between CB-BOL and TMBC calling for the transfer of its assets, although denominated as Deed of Assignment with Right to Repurchase, is in reality an equitable mortgage created over the said properties. Instruments covering a sale with right to repurchase may be captioned or labeled as such. However, when any or more of the circumstances enumerated under Article 1602, Civil Code, obtain in the agreement, the contract shall be presumed as an equitable mortgage. (BIR Ruling No. 217-81 dated November 6, 1981). This is relevant in determining whether or not the transaction had is subject to the corresponding taxes, i.e. capital gains tax documentary stamp tax.
Insofar as corporations are concerned, its liability to the capital gains tax imposed on the presumed gains realized from the sale, exchange or disposition of lands and/or buildings is governed by Section 27(D)(5) of the Tax Code of 1997. Thus, for a corporation to be liable to the tax, a true sale, exchange or disposition of capital assets must have transpired. Unlike in transactions made by individuals under Section 24(D)(1) of the Code, where all sales of real property classified as capital assets, including pacto de retro or other forms of conditional sales are subject to the capital gains tax, no similar qualifications exist for capital asset transaction of a corporation. Hence, the latter is subject to such tax only upon a close and completed transaction in which income is realized.
Accordingly, this Office holds that only upon the executing of the final or absolute deed of sale covering the properties of the bank subject of the pacto de retro, will the payment of the 6% capital gains tax apply. By the same token, since no actual conveyance of real property is to be made, the stamp tax on deeds of sale and conveyances of real property imposed under Section 196 shall not apply. However, since the transaction is in the nature of an equitable mortgage and made primarily as a security for the payment of a pre-existing loan, the same is subject instead to the rate of documentary stamp tax imposed under Section 195. (BIR Ruling No. 091-99 dated July 8, 1999)
CORPORATE INCOME TAX; Expanded Withholding Tax - Revenue Regulations No. 6-85, as amended by Revenue Regulations No. 12-94 as last amended by Revenue Regulations No. 2-98, implementing Section 64(B) of the Tax Code of 1997, does not apply to transfers in complete liquidation where the assets of the liquidating corporation are transferred to its stockholders in exchange for the surrender of the latter's a shares of stock for cancellation by the corporation. This conveyance is without consideration. Hence, the transfer by Fundamental Development Corporation of its assets to its controlling stockholders by way of liquidating dividends, is not subject to the expanded creditable withholding tax and consequently, to the corporate income tax.
Under Section 189 of Revenue Regulations No. 26, a conveyance distributing in liquidation the assets of a corporation consisting of real estate without consideration to the majority owner of its capital stock is not subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997. Accordingly, the distribution in liquidation of the assets of Fundamental Development Corporation to its controlling majority stockholders, is not subject to the documentary stamp tax prescribed under Section 196 of the Tax Code in 19987.
The sale by the stockholders of Fundamental Development Corporation of the distributed asset received by them as return in investment immediately after title thereto is transferred to their names shall be subject to the final capital gains tax imposed under Section 24(D)(1) of the Tax Code of 1997. (BIR Ruling No. 092-99 dated July 8, 1999)
RP-US Tax Treaty; Income Tax - Pursuant to Section 180 of the Tax Code of 1997 (also then Section 180 of the Tax Code, as amended) there shall be collected a documentary stamp tax on loan agreements, including those signed abroad, of Thirty Centavos (P0.30) on each Two Hundred Pesos (P200.00), or fractional part thereof, of the principal amount of the loan. Hence, the US Dollar loan agreement between Morgan Guarantee Trust Company of New York (MGT) with a Philippine Domestic Corporation under the terms and conditions stated therein, whether it shall be signed in the Philippines or abroad, is subject to documentary stamp tax at rate prescribed above.
Under Section 12(2) of the RP-US Tax Treaty, the Lender shall be subject to income tax of 15% on its interest income on the loan which shall be withheld by the Borrower upon payment of the interest, i.e., either semi-annually or at the drawdown date in case of prepayment, pursuant to Section 57(A) of the Tax Code of 1997 and should be remitted to the BIR through its Collecting Agents or authorized Agent Banks subject to the conditions provided for in Section 58(A) of the same Code.
Pursuant to Section 34(B)(1) and (2) of the Tax Code of 1997, the interest paid by the Borrower is an allowance deduction from the gross income subject to the conditions thus imposed therein. In relation to this, Section 45 of the 1997 Tax Code provides for the periods for which tax deduction and credits are to be taken. Accordingly, for income tax purposes, the Borrower shall deduct the interest expense in the year such payments are made. However, if he prepays the interest at loan drawdown date, the prepaid interest may be amortized over the required period. To fully reflect the revenues generated and expenses incurred, the expired portion is deducted from the prepaid interest as the expense for the taxable year within the required period. (BIR Ruling 093-99 dated July 8, 1999)
INCOME TAX; Accounting Period - Section 43 of the Tax Code of 1997 prescribes that the taxpayer's taxable income "shall be computed upon the basis of the taxpayer's annual accounting period (fiscal year or calendar year, as the case may be) in accordance with the method of accounting regularly employed in keeping the books of such taxpayer xxx." Section 49 of the same Tax Code further provides that income from installment sales, "may" be reported for income tax purposes in the manner provided for under the said Section. This law was lifted from the old Federal Income Tax law of the United States. Being of American origin, the doctrine is that the interpretation that it received in the United States is persuasive in the Philippines. According to U.S. jurisprudence, the said law on installment reporting of income from deferred payment sale is a mere option or privilege granted by law to the seller (MERTENS § 15.05). Thus, if the taxpayer-seller does not opt to report his income from deferred payment sale transaction on installment basis as provided under Section 49 of the Code, then, he may report the same in accordance with the accounting method regularly employed in keeping his books of accounts, pursuant to Section 43 of the said Code. This rule is apparent and patent in Section 49 of the Code which used the word "may" vis-a-vis reporting of income from deferred or installment payment sales, regardless of whether or not the buyer's initial payments in the year of sale exceed or do not exceed 25% of the selling price.
However, the implementing regulations governing sales of real property on installment basis are now provided under Section 2.57.2 (J) of Rev. Regs. No. 2-98, effective January 1, 1998. Since Revenue Regulations are only prospective in application, the said rule does not apply to this case which pertains to the prior years 1991 to 1996.
This ruling modifies and further clarifies BIR Ruling No. 11-99 dated January 22, 1999. (BIR Ruling No. 112-99 dated July 29, 1999)
DONOR'S TAX - Pursuant to Section 98 of the Tax Code of 1997, a donor's tax shall be levied, assessed, collected and paid upon the transfer by any person, resident or non-resident, of the property by gift. The said tax shall apply whether the transfer is in trust or otherwise, whether the gift is direct or indirect and whether the property is real or personal, tangible or intangible. However, where the donor is a non-resident foreign corporation, its real or personal property so transferred which are situated outside the Philippines shall not be included as part of its gross gift pursuant to Section 104 of the same Code. The donor's tax is an excise tax on the transfer of property. it is not a tax on property which is the subject of the gift, although it is measured by the value of that property. It is a tax on the donor's privilege to give.
Considering that the donor is a non-resident foreign corporation, and therefore beyond the jurisdiction of the Philippine government to tax, this office holds that the proposed cash donation to a domestic corporation to be held in trust for the benefit of two resident minor who are Philippine citizens shall not be subject to any Philippine tax.
Moreover, the subsequent transfer of the trust assets from the trustee to the beneficiaries is likewise not subject to tax. (BIR Ruling No. 115-99 dated August 6, 1999)
INCOME TAX; VAT; Sale of Electricity - Under Section 24 of R.A. 7916, otherwise known as "The Special Economic Zone Act of 1995", no taxes, national and local, shall be imposed on business establishments operating within the Ecozone and that in lieu of paying taxes, five percent (5%) of the gross income earned by all businesses and enterprises from its registered operations within the Ecozone shall be remitted to the national government. Thus, EAUC which is registered in PEZA as an Ecozone Utilities Enterprise, and not a service establishment is subject to a special rate of 5% of its gross income derived from its registered operations less allowable deductions under the PEZA Rules, but exempt from 33% corporate income tax, VAT and 2% franchise tax.
However, its sale of electricity to customs territory enterprises is subject to 33% corporate income and 2% franchise tax but exempt from VAT. The expenditures of EAUC are deductible in computing its taxable income, when allocable to the production of income thereto or where a ratable part of the general expenditures is apportioned to income from these sources. (BIR Ruling No. 117-99 dated August 10, 1999)
INCOME TAX - Section 2.79 of Revenue Regulations No. 2-98, provides that every employer must withhold from compensation paid, an amount computed in accordance with these regulations. Provided, that no withholding of tax shall be required where the total compensation income of an individual does not exceed the statutory minimum wage of five thousand pesos (P5,000.00) monthly or sixty thousand pesos (P60,000.00) a year, whichever is higher. The term "employer" is defined as any person paying compensation on behalf of a non-resident alien individual, foreign partnership, or foreign corporation, who is not engaged in trade or business within the Philippines pursuant to Section 2.78.4(B) of the said Revenue Regulations.
The income earned by the project staff of the De La Salle are compensation income wherein the University has the responsibility of withholding the tax as an employer paying compensation on behalf of a non-resident alien individual, foreign partnership, or foreign corporation, who is not engaged in trade or business within the Philippines.
The incentive given to faculty members of De La Salle University who are doing research projects for the University can be equated to a productivity incentive and a productivity incentive is a fringe benefit. For supervisory and managerial employees, one of the fringe benefits that is not subject to the fringe benefits tax are "de minimis benefits."
The productivity incentive given is no longer subject to the P12,000.00 threshold but the same, plus the 13th month pay not exceeding P30,000.00 are excluded from gross income and therefore exempt from taxation pursuant to Section 32 (B)(7)(e) of the Tax Code of 1997. In excess thereof there shall be imposed a final tax of 34% beginning January 1, 1998, 33% beginning January 1, 1999 and 32% beginning January 1, 2000 and thereafter, on the grossed-up monetary value of fringe benefits pursuant to Section 33 of the Tax Code of 1997 and its implementing regulations.
In general, the relationship of the employer and employee exists when the person for whom services were performed has the right to control and direct the individual who performs the services, not only as to the result to be accomplished by the work but also as to the details and means by which the result is accomplished. An employee is subject to the will and control of the employer not only as to what shall be done, but how it shall be done. In this connection, it is not necessary that the employer actually directs or controls the manner in which the services are performed. It is sufficient that he has the right to do so.
The fact however that the Coaches and ROTC Commandant do not enjoy the benefits of a bona-fide employee of De La Salle University does not at all affect DLSU being the withholding agent of the Bureau of Internal Revenue because it is in fact the income payor of the said coaches and commandant and is fully responsible for the services performed by them on its behalf. Therefore, if the qualified faculty member is an overseas contract worker which work contract passes thru the Philippine Overseas Employment Agency (POEA), the income that will be received by the said qualified faculty members are considered income not within the Philippines, not subject to tax, hence, the University is not under obligation to withhold income tax.
On the other hand, if the qualified faculty member is considered as a non-resident citizen, then he is taxable only on income derived from sources within the Philippines. Thus, income earned by a non-resident citizen abroad is exempt from income tax.
An employer may be an individual, a corporation, a partnership, a trust, an estate, a joint-stock company, an association, or a syndicate, group, pool, joint venture, or other unincorporated organizations, group or entity. A trust or estate, rather than the fiduciary acting for or behalf of the trust or estate, is generally the employer. It can be inferred that a trust had been created between the University and the local companies in favor of the faculty members, and between the University and the graduate school students in favor of the said faculty. Hence, it is the trust that is the employer and not the University which only acts as an agent or fiduciary.
Nonetheless, being the agent, fiduciary or other person who has the control, receipt, custody or disposal of, or pays the compensation payable by another employer to such employee, the amount of tax required to be withheld on each compensation payment made through an agent, fiduciary, or person shall, whether the compensation is paid separately on behalf of all such employers, be determined based on the aggregate amount of such compensation payment or payments in the same manner as if such aggregate amount had been paid by one employer. Since the University has the control, receipt, custody or disposal of or is the one who pays the compensation payable by another employer, the University is under obligation to withhold the corresponding income tax and remit the same to the Bureau of Internal Revenue on behalf of the said employers. (BIR Ruling No. 128-99 dated August 18, 1999)
DOCUMENTARY STAMP TAX; Electronic Instruction by Non-Resident Payor-Client - Pursuant to Section 181 of the 1997 Tax Code, a documentary stamp tax shall be imposed on any bill of exchange or order for payment purporting to be drawn in a foreign country but payable in the Philippines. Under the foregoing provision, the documentary stamp tax shall be levied on the instrument, i.e., a bill of exchange or order for the payment of money, which purports to draw money from a foreign country but payable in the Philippines. In the instant case, however, while the payor is residing outside the Philippines, he maintains a local and foreign currency account in the Philippines from where he will draw the money intended to pay a named recipient. The instruction or order to pay shall be made through an electronic message, i.e., SWIFT MT 100 or MT 202 and/or MT 521. Consequently, there is no negotiable instrument to be made, signed or issued by the payee. In the meantime, such electronic instructions by the non-resident payor cannot be considered as a transaction per se considering that the same do not involve any transfer of funds from abroad or from the place where the instruction originates. Insofar as the local bank is concerned, such instruction could be considered only as a memorandum and shall be entered as such in its books of accounts. The actual debiting of the payor's account, local or foreign currency account in the Philippines, is the actual transaction that should be properly entered as such. Thus, the instruction made through an electronic message by non-resident payor-client to debit his local or foreign currency account maintained in the Philippines and to pay a certain named recipient also residing in the Philippines is not the transaction contemplated under Section 181 of the 1997 Tax Code. Such electronic instruction purporting to draw funds from a local account intended to be paid to a named recipient in the Philippines is not subject to documentary stamp tax imposed under the foregoing Section. (BIR Ruling No. 132-99 dated August 23, 1999)
ISSUANCE OF RECEIPTS - Being merely a sales and marketing division of Matsushita Electric Philippines Corporation, National Panasonic Sales Philippines is not to be treated as a separate and distinct entity and is no longer required to procure a TIN of its own, since the return or statement of the former necessarily includes that of the latter.
While it is true that National Panasonic Sales Philippines is merely a division of Matsushita Electric Philippines Corporation, it is nevertheless deemed as a marketing arm of the latter, where its activities are not limited to the advertisement of its product under the new business name but also sales are perfected therein. Consequently, National Panasonic Sales Philippines is under obligation to keep a subsidiary books of accounts and records for its purpose.
Finally, since there is no violation under Revenue Regulations No. V-1 otherwise known as the "Bookkeeping Regulations", the National Panasonic Sales Philippines, a sales and marketing division of Matsushita Electric Philippines Corporation, may be allowed to use and reflect in its invoices and documents of sales the new business name under the style of National Panasonic Sales Philippines (Division of Matsushita Electric Philippines Corporation) provided that the same are serially numbered and shall show, among others, the name, business style, Taxpayer Identification Number (TIN) and business address of Matsushita Electric Philippines Corporation pursuant to Section 238 of the Tax Code of 1997. (BIR Ruling No. 133-99 dated August 24, 1999)
INCOME TAX; Cash and/or Property Dividends - Pursuant to the Tax Code of 1997, cash and/or property dividends paid to certain taxpayers during the taxable year shall be subject to the income rates prescribed under Secs. 24(B)(2), 25(A)(2), 25(B), 28(B)(1) and 28(B)(5)(b) thereof.
In addition to this, Sec. 57(A) of the Tax Code of 1997, as implemented by Rev. Regs. No. 2-98, as amended provides, among others, that the tax imposed or prescribed by Sec. 24(B)(2), 25(A)(2), 25(B), 28(B)(l) and 28(B)(5)(b) on specified items of income shall be withheld by the payor-corporation and/or person and paid in the same manner and subject to the same conditions as provided in Sec. 58 of the Tax Code.
Accordingly, the withholding tax rates applicable to the cash dividends declared for the taxable year 1998 but payable to or actually or constructively received in 1999 are the rates prescribed in 1999 notwithstanding the fact that such cash dividends declared form part of the income or retained earnings in 1998. (BIR Ruling No. 134-99 dated August 25, 1999)
EXCISE TAX; Exemption of Ecozone-registered Enterprises - Enterprises registered in different special economic zones are exempt from all national and local taxes. In lieu thereof, these enterprises are subject to a final on their gross income. As such, any sale of goods by enterprises registered in different special economic zones to enterprises registered in other special economic zones are also exempt from all national and local taxes pursuant to Sec. 24 of R.A. 7916 otherwise known as "The Special Economic Zone Act of 1995."
Hence, EAUC which is registered with PEZA as an Ecozone Utilities Enterprise, and not a service establishment, is exempt from national and local taxes, which include, among others, excise tax. Likewise, SBFC, a SBF enterprise, is also exempt from national and local taxes, including excise tax. Hence, no excise tax attaches to the petroleum products imported or manufactured and sold by SBFC to EAUC for the latter's use and consumption within the Ecozone.
The excise tax exemption equally applies to the petroleum products used and consumed by EAUC to produce electricity sold to VECO. However, EAUC shall be subject to the 33% corporate income tax, 2% franchise tax but exempt from VAT on its sale of electricity to VECO. Since there is no provision in the Tax Code which subjects the sale of electricity to excise tax, then no excise tax can be imposed on the sale of electricity by EAUC to VECO. (BIR Ruling No. 135-99 dated August 30, 1999)
PERCENTAGE TAX - Under Section 22(I) of the Tax Code of 1997, the term "shares of stock" includes warrant and/or options to purchase shares of stock. A Philippine Depository Receipt (PDR) partakes the nature of a share of stock since PDR evidences a right on the part of the holder to purchase one share of ABS CBN from the Special Purpose Corporation (SPC) for a specified exercise price. The specified exercise price represents the consideration. The transaction applies also to other shareholders of ABS CBN, other than Benpres and Lopez, who are willing to sell their ABS CBN shares and who in return will be issued their corresponding PDRs. Furthermore, a PDR is indeed a warrant and/or option to purchase shares of stock since as represented, after the compliance with the requirements to be imposed by the SEC, particularly under the Revised Securities Act, and by the PSE, these PDRs will be listed and traded in the PSE like in the case of a share of stock.
Such being the case, a PDR is subject to the tax rate of ½ of 1% of the gross selling price or gross value in money of the shares of stock sold, bartered, exchanged or otherwise disposed which shall be paid by the seller or transferor pursuant to Section 127(A) of the Tax Code of 1997. (BIR Ruling No. 136-99 dated August 30, 1999)
INCOME TAX; NOLCO; Minimum Corporate Income Tax (MCIT) - SWI, Sanofi Philippines, Inc. ("Sanofi-Philippines") and Synthelabo Phils., Inc. ("Synthelabo-Philippines") are all domestic corporations duly organized and existing under the laws of the Philippines to engage in the manufacture and distribution of personal care, health care and consumer products; that these corporations adopt a calendar year-end and do not enjoy any tax exemption; that SWI is owned 49.9% by SANOFI ("Sanofi - France") and 50.1% by Sanofi - Philippines; that Sanofi Philippines is owned 100% by Sanofi - France. Synthelabo - Philippines is 100% owned by SYNTHELABO ("Synthelabo - France"); that on May 18, 1999, Sanofi-France, a French company which is the parent company of SWI and Sanofi-Philippines, and Synthelabo-France, another French company which is the parent company of Synthelabo-Philippines, merged into the absorbing company: Sanofi-Synthelabo, in accordance with the article 372-1 of the French Law No. 66-537 dated July 24,1966; that as a result of the said merger, SWI, Sanofi and Synthelabo are now wholly-owned by a common parent company - Sanofi-Synthelabo, a corporation organized and existing under the laws of France; that since the three companies are owned by a common parent company and are engaged in the same line of business, Sanofi-Philippines and Synthelabo-Philippines will be merged into SWI pursuant to and in accordance with Title IX of the Corporation Code of the Philippines, with SWI as the surviving corporation and Sanofi-Philippines and Synthelabo-Philippines as the absorbed corporations; that the statutory merger would allow the integration of administrative functions thereby eliminating the duplication of functions, result in greater efficiency and economy in the management of their operations, make possible the more productive use of their properties, and achieve a favorable financing and credit facilities; and that pursuant to a proposed Plan of Merger, Sanofi-Philippines and Synthelabo-Philippines will transfer all its assets and liabilities to SWI in exchange for new shares of the capital stock of SWI which shall be distributed to the stockholder of Sanofi and Synthelabo.
Pursuant to Section 34(D)(3) of the Tax Code and considering that the merger will be undertaken for a bonafide business purpose and not for the purpose of escaping the burden of taxation and there is no effective change in ownership, the surviving corporation can claim as NOLCO deduction the NOLCO balance of the absorbed corporation/s, which shall be transferred and vested in the surviving corporation by operation of law pursuant to statutory merger.
Since SWI, Sanofi-Philippines will continue to be owned by one single parent company, i.e., Sanofi-France and Synthelabo-Philippines by Synthelabo France, which as of May 18, 1998, have merged into a single parent company, i.e., Sanofi-Synthelabo of France, as the absorbing corporation, and likewise, Sanofi-Philippines and Synthelabo-Philippines will also be merged into SWI pursuant to and in accordance with Title IX of the Corporation Code, SWI can claim as NOLCO deduction for the next three consecutive years the NOLCO balance of the absorbed corporations, i.e., Sanofi -Philippines and Synthelabo-Philippines as of December 31, 1998. Such NOLCO balance is transferred to and vested in SWI by operation of law pursuant to the statutory merger and SWI's own NOLCO balance as of December 31, 1998.
Likewise, since the excess MCIT will form part of the assets transferred to and vested in SWI on the effective date of the merger, SWI may carry forward and credit the excess MCIT of Sanofi-Philippines and Synthelabo-Philippines against its normal income tax liability for three immediately succeeding taxable years pursuant to Section 27(E)(2) of the 1997 Tax Code.
Accordingly, the excess minimum corporate income tax (MCIT) of an absorbed corporation in a statutory merger will, on the effective date of the merger, be transferred to and vested in SWI, as the surviving corporation. Also, the aggregate NOLCO balances of the absorbed corporations and the surviving corporation may be claimed by the surviving corporation SWI as a deduction from gross income under Section 34(D)(3) of the 1997 Tax Code. Finally, the excess MCIT of the absorbed corporation shall be carried forward and credited against the normal income tax due of the SWI, as the surviving corporation, for the three immediately succeeding taxable years pursuant to Section 27(E)(3) of the same Code. (BIR Ruling No. 137-99 dated August 31, 1999)
INCOME TAX; VAT - Executive Order No. 72, s. of 1986 effectively amended the "payment of franchise tax of two percent (2%) in lieu of all taxes" provision of Republic Act No. 4147 (Filipinas Orient Airways Franchise) thereby subjecting Filipinas Orient Airways to the corporate income tax imposed under then Section 24(a) of the Tax Code of 1986, [now Section 27(A), Tax Code of 1997] starting February 10, 1987, the date of effectivity of Executive Order No. 72. Similarly, said R.A. 4147 was further amended by then Section 102 of the NIRC, as amended by R.A. No. 7716, otherwise known as the Expanded Vat Law (EVAT [now Section 108 of the, NIRC, as renumbered by R.A. 8424]), in respect to its domestic carriage of goods
The franchise grantees referred to under the Section 119 of the NIRC only refers to the legislative franchise grantees pertaining to "radio and/or television broadcasting, electric, gas and water utilities". Since the franchise of Filipinas Orient Airways is not embraced by Section 119 of the Code, then its domestic operations, to the extent of its carriage of goods and cargoes, became subject to the 10% VAT pursuant to the above-quoted Section 108 of the 1997 Tax Code. Moreover, since its domestic operations in respect to carriage of passengers was not amended by R.A. 7716, the revenues derived therefrom shall remain subject to the aforesaid two percent (2%) franchise tax.
Finally, since only its domestic operations had been amended by R.A. 7716, the revenue from international operations shall remain subject to the said franchise tax. (BIR Ruling No. 140-99 dated September 9, 1999)
VAT; DETERMINATION OF THE TAX - Section 108 (C) of the Tax Code of 1997 which provides that the tax shall be computed by multiplying the total amount in the invoice indicated in the official receipt by 1/11 renders the presentation or non-presentation of the VAT as separate item in the Official Receipt or Sales Invoice without any effect in the determination of the VAT-registered seller's tax liability. This simplifies the manner of extracting the VAT liability on a particular transaction, and effectively eradicates any issue related thereto in the event a different value added tax is presented in the O.R.
Thus, to the VAT registered purchaser, the tax burden passed on does not constitute cost, but input tax which is creditable against his output tax liabilities. This voids the cascading effect which is characteristic of the sales tax system of old, where the sales tax is necessarily cost to the buyer, and as such becomes a factor of cost which is a basis of the marked up seller price in turn to his customers, and so on and so forth down the distribution chain. In the VAT system, however, it is only in the case of a Non-VAT purchaser that VAT forms part of cost of the purchase.
Accordingly, the non-presentation of the VAT in the O.R. or Invoice would, negate any possible confusion in the appreciation of the input tax which the VAT purchaser may apply against his output tax liabilities, through the uniform rate of 1/11 of the O.R. or invoice. (BIR Ruling No. 141-99 dated September 13, 1999)
CREDITABLE WITHHOLDING TAX; Meaning of "Habitually Engaged in Real Estate Business" - While Rev. Regs. No. 2-98 requires membership in the Housing and Land Use Regulatory Board (HLURB) or Housing and Urban Development Coordinating Council (HUDCC) to be considered as habitually engaged in the real estate business, the same should not be the sole criterion considering that the taxpayer Bank is able to acquire numerous real estates which, by law, are being required to be disposed in the course of its business. In Section 25 of the General Banking Act, banks are required to dispose of the foreclosed properties within a period not longer than five (5) years, rather than hold them for investment or speculation. Thus, by operation of law, these properties should be included by banks in their inventory of assets to be sold in the course of their business. In this light, this Office believes that this kind of activity is a valid consideration in treating the taxpayer Bank to be habitually engaged in the real estate business.
For purposes of the above regulations, the term habitually engaged in the real estate business is not limited or restricted only to persons duly registered with the HLURB or HUDCC. The proviso simply means that any person duly accredited by the said government agencies shall be deemed habitually engaged in the real estate business. However, even in the absence of registration therewith, a person may also be treated habitually engaged in the real estate business upon showing that he is in fact actually engaged in the said business. (Citation Omitted)
Accordingly, this Office hereby holds that the Bank's inventory of foreclosed properties which are mandated by law to be disposed of within a period not longer than five (5) years are ordinary assets the gain or loss from the sale of which to be included in computing the Bank's net taxable income during the year pursuant to Section 28 (A) of the 1997 Tax Code. Moreover, and considering that the disposition of said foreclosed properties qualifies the Bank to be habitually engaged in the real estate business, income from sale or disposition of the same is subject to a creditable withholding income tax at the rate provided for in Section 2.57.2(J) of Rev. Regs. No. 2-98. (BIR Ruling No. 143-99 dated September 14, 1999)
BIR Ruling No. 144-99 dated September 14, 1999 was never implemented and was immediately revoked.
CORPORATE INCOME TAX; Interest on Zero Coupon Peso Loan - Pursuant to Section 44 of the Tax Code of 1997, the amount of all items of gross income shall be included in the gross income for the taxable year in which received by the taxpayer, unless, under methods of accounting permitted under Section 43 of the same Code, any such amounts are to be property accounted for as of a different period.
Accordingly, the interest on the zero coupon peso loan which shall be paid upon the maturity of the loan, i.e., on the 10th or 20th year, shall be subject to corporate income tax on the said periods. (BIR Ruling No. 145-99 dated September 14, 1999)
DOCUMENTARY STAMP TAX; Ecozone Enterprise Exempt on Original Issue of Stock Certificates - Section 24 of R.A. No 7916 provides that any provision of existing laws, rules and regulations to the contrary notwithstanding, no taxes, local and national shall be imposed on business establishments operating within the ECOZONE. In lieu of paying taxes, five percent (5%) of the gross income earned by all businesses and enterprises within the ECOZONE shall be remitted to the national government. This five percent (5%) shall be shared and distributed as follows: (a) Three percent (3%) to the national government; (b) One percent (1%) to the local government units affected by the declaration of the ECOZONE in proportion to their population, land area, and equal sharing factors; and (c) One percent (1%) for the establishment of a development fund to be utilized for the development of municipalities outside an contiguous to each ECOZONE; xxx.
Since Clarion is liable to the preferential tax rate of 5% on its gross income earned which shall be in lieu of local and national taxes pursuant to Section 24 of R.A. No. 7916, it is exempt from the payment of documentary stamp tax on the original issue of stocks certificates to its respective stockholders as well as on the certificates of deposits. However, Section 173 of the Tax Code of 1997, provides that "whether one party to the taxable document enjoys exemption from the tax herein imposed, the other party thereto who is not exempt shall be the one directly liable for the tax." Since Clarion is exempt from the payment of documentary stamp tax, it is respective stockholders and/or the banks, as the case may be, who are the ones liable for the tax.
Moreover, the interest income earned by Clarion from its bank deposits within the zone, whether in peso or foreign currency deposit is subject to the preferential tax rate of 5%. (BIR Ruling No. 146-99 dated September 14, 1999)
STATUTE OF LIMITATION; Period within which to Assess - It is well settled in the case of Republic vs. De la Rama, L-21108, November 29, 1966, that where a person liable for the payment of the tax did not receive the assessment, the assessment could not become final and executory. Since the said assessment notices were served and known only to the taxpayer after the lapse of the three (3) year period counted from the last day prescribed by law for filing of the returns required under Section 203 of the Tax Code of 1997, the right of the BIR to assess already prescribed and subject-taxpayer has no validly existing tax liabilities for taxable year 1995. In the case of Republic vs. Ricarte (L-46893, November 12, 1985), the Supreme Court said. "Although a subsequent notice of assessment was allegedly made and sent to appellee on January 19, 1961, it was the finding both of the former City Court of Cebu and the defunct Court of First Instance of Cebu that no evidence has been presented by the appellant that the appellee actually received a copy of the assessment notice regarding the alleged deficiency tax. Such findings, being one of fact, can no longer be reviewed by this Court. Even in the stipulation of facts entered into between the parties there is no stipulation showing that the appellant actually received the subsequent notice of assessment. Thus, the prescriptive period provided for x x x (then 5 years but now three years) should be counted from April 6, 1959, the date when the Bureau of Internal Revenue assessed the income tax return of the appellant. From the said date until the filing of the case on January 14, 1966, six years and nine months had lapsed. Verily, the action had already prescribed."
Furthermore, Section 223 of the Tax Code of 1997 which provides that the running of the statute of limitation maybe suspended when the taxpayer cannot be located in the address given by him in the return filed upon which a tax is being assessed is not applicable in the instant case since the taxpayer had duly notified the BIR on its transfer of office address.
Such being the case, the assessment notices issued by the Assessment Division of Revenue Region No. 7, Quezon City are null and void for the same were not duly and timely served and received by the taxpayer, and that since the said assessment notices were served and known only after the lapse of the three (3) year period counted from the last day prescribed by law for filing of the returns required under Section 203 of the Tax Code of 1997, the right of the BIR to assess already prescribed. (BIR Ruling No. 147-99 dated September 16, 1999)
EXCISE TAX; Sale of Petroleum Products to Foreign International Marine Vessel - For tax purposes, sales of petroleum products including lubricants, to foreign international marine vessels do not fall within the definition of "export sales" as contemplated by law. While the buyers are said to be foreign flag-registered international marine vessels and the transactions transpire in the Philippines, the circumstances surrounding the transaction do not involve exportation since there was no actual shipment to foreign country. Rather, these foreign flag-registered marine vessels buy the above goods for their own personal consumption while plying the international waters, and not for the purpose of transporting the same to a foreign destination for unloading. Thus, the sale of petroleum products by Petron Corporation to the foreign vessel without actually transporting the same from the Philippines to a foreign destination or free-port zone, is not "export sale" as contemplated by law. "While plying the international waters" is not a foreign destination, since exportation contemplates a foreign destination with intention to unload.
Since the above transactions are not "export sales" as contemplated by law, the sale of the petroleum products, including lubricants, to a foreign international marine vessels for their own consumption while plying the international waters, is subject to excise tax on petroleum products under Section 148, Chapter V, of the Tax Code of 1997.
However, under the principle of reciprocity, the Philippine Government through the Bureau of Internal Revenue may consider granting excise tax exemption to these foreign flag-registered marine vessels on their purchase of petroleum products for their own personal consumption while plying the international waters, from domestic oil companies, if they can subject to the Commissioner of Internal Revenue or his duly authorized representative a copy of a special legislation or international agreement showing that their Government allows similar tax exemption to Philippine-flag registered marine vessels purchasing similar petroleum products in their county. [BIR Ruling No. 026-99 dated March 9, 1999] (BIR Ruling No. 148-99 dated September 17, 1999)
R.A. No. 7227 - Section 291 of the Tax Code of 1997 provides that all laws, decrees, executive orders, rules and regulations or parts thereof which are contrary to or inconsistent with the said Code are hereby repealed, amended or modified accordingly. While E.O. 80 and R.A. No. 7227, as implemented by Revenue Regulations No. 1-95, and as further implemented by Revenue Regulations No. 12-97, were approved and made effective prior to January 1, 1998, the date of effectivity of R.A. No. 8424, otherwise known as the Tax Code of 1997, the same are not covered by the above-cited repealing provision of the said Code. Such being the case, the special income tax regime or tax incentives granted to enterprises registered within the secured area of Subic and Clark Special Economic Zones have not been repealed by the provisions of R.A. 8424.
Sec. 6(f) of Revenue Regulations No. 1-95 provides that interest from any Philippine currency bank deposits and yield or any other monetary benefit from deposit substitutes, and from trust fund and similar arrangements received by a registered enterprise engaged in business within the Secured Area shall be subject to the preferential tax rate. All other interests, yield of monetary benefit from deposit substitutes, trust funds and similar arrangements and royalties derived from sources within the Philippines by a person other than a registered enterprise operating within the Secured Area in the zone shall be subject to the appropriate tax law rates of the Customs Territory. Accordingly, enterprises registered within the secured area of Subic and Clark Special Economic Zones are liable to the preferential tax treatment of 5% of the gross income earned which shall be in lieu of local and national taxes pursuant to Section 12 (c) of R.A. 7227. They are therefore exempt from the final tax of 20% and 7.5% respectively imposed on the amount of interest from currency bank deposit and yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements and royalties from sources within the Philippines and the interest income they will derive from a depository bank under the expanded foreign currency deposit system as prescribed under Section 27 (D)(1) of the Tax Code of 1997. (BIR Ruling No. 149-99 dated September 17, 1999)
CREDITABLE WITHHOLDING TAX; Professional Fees of Physician - Under Revenue Regulations No. 2-98, professional fees, talent fees, etc., for services rendered by the individuals mentioned therein are subject to 10% creditable withholding tax while the persons required to deduct and withhold are those stated in Section 2.57.3 of said Regulations. However, in the case of services rendered by medical practitioners, said Regulations is silent as to who is constituted as the withholding agent.
Now comes, Revenue Regulation No. 3-99 which took effect on March 5, 1999, amending Revenue Regulations No. 12-98 which requires the physician to remit the 10% of the fee received to the accounting office of the hospital or clinic. Since it is Health Solution Corporation (HSC) which pays the professional fee of the accredited physician who rendered the medical service and withholds the 10% creditable withholding tax on the professional fee paid to the doctor pursuant to Revenue Regulations No. 2-98, the HSC patients should no longer be required by the hospital or clinic to pay the professional fee of the attending physician through the hospital or clinic. Moreover, despite the clarification in Revenue Regulations Nos. 12-98 and 3-99, the fact remains that said regulations do not apply to HSC patient, since it is HSC which pays the professional fees of the accredited physicians and is obligated to withhold the tax on the professional fee and remit the same to the Bureau in accordance with Revenue Regulations No. 2-98. (BIR Ruling No. 156-99 dated October 7. 1999)
EXCISE TAX; Dual Purpose Kerosene (DPK) being used as aviation fuel - Pursuant to Section 148(g) and (h) of the 1997 Tax Code,, an excise tax at the rate of P0.60 per liter shall be imposed on kerosene. However, if it is being used as aviation fuel, it shall be subject to the same tax rate of P3.67 per liter of volume capacity imposed on aviation turbo jet fuel provided under item (h) of the same Section 148. In such case, the tax shall be assessed on the user of such kerosene product used as aviation jet fuel.
PETRON manufactures and sells both kerosene and aviation jet fuel and for which it maintains storage tanks designated for the products thus mentioned. Likewise, it produces dual purpose kerosene which is being stored in PETRON's storage tanks for kerosene. In all its sale of aviation jet fuel to airline or aircraft customers, it pays the specific tax of P3.67/liter on aviation fuel.
On the matter of who shall be liable for the specific tax on aviation fuel for the kerosene (DPK) sold as such by PETRON but thereafter is found out to be ultimately used as jet fuel by the airline/aircraft companies, this Office hold that it shall be the user of the kerosene (DPK) who shall pay the specific tax of P3.67/liter corresponding to aviation jet fuel whenever the product is used by aviation fuel. Moreover, the above-cited proviso of Sec. 148(h) of the 1997 Tax Code will not apply in the case of sale of DPK by PETRON eventhough the ultimate usuage of the product is for aviation fuel since PETRON is the manufacturer/seller of the product and not the user thereof. (BIR Ruling No. 160-99 dated October 14, 1999)
RP-US TAX TREATY; Business Profits; VAT - Section 42(C)(3) of the Tax Code of 1997 provides that compensation for labor or personal services performed without the Philippines shall be treated as income from sources without the Philippines. For the source of income to be considered as coming from the Philippines, it is sufficient that the income is derived from an activity within the Philippines (Commissioner vs. British Overseas Airway Corporation and Court of Tax Appeals, G.R. Nos. 65773-74 dated April 30, 1987). Considering that the cost-sharing reimbursement to be made by the branch to its US affiliate is for actual services rendered in the United States by US residents, payments thereof should not be considered as income from within the Philippines and therefore not subject to Philippine income tax.
Article 8(1) of the RP-US Tax Treaty provides that business profits of a resident of one of the Contracting States shall be taxable only in that State unless the resident has a permanent establishment in the other Contracting State. If the resident has a permanent establishment in that other Contracting State, tax may be imposed by that other Contracting State on the business profits of the resident but only on so much of them as are attributable to the permanent establishment.. Since APCC does not have a permanent establishment in the Philippines to which its business profits/income is attributable, the cost-sharing reimbursements made by the branch to US residents for actual services rendered in the United States are not subject to Philippine income tax and consequently to withholding tax.
Section 105 of the Tax Code of 1997 provides that "any person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services, and any person who imports goods shall be subject to the value-added tax (VAT) imposed in Section 106 to 108 of the said Code. The intended transfer of assets of the subsidiary, other than inventories of taxable goods, to the proposed branch is not in the course of trade or business neither is it incidental thereto since the same does not necessarily follow its primary function of manufacturing, processing, importing, exporting, buying, selling and/or dealing in electronic equipment, power goods of similar nature and their accessories. Since the intended transfer of assets of the subsidiary to the proposed branch is just an isolated transaction, said transfer is not subject to value-added tax. (Citations omitted)
The transfer of inventories of taxable goods of the subsidiary to the branch shall be subject to 10% value-added tax imposed under Section 106(B)(1) of the Tax Code of 1997, if the Philippine subsidiary at the time of its liquidation is still enjoying an income tax holiday (ITH). However, if the subsidiary is no longer enjoying the ITH at the time of its liquidation, and is in fact already being taxed at the rate of 5% on gross income, then it may claim exemption from the 10% value-added tax since the 5% income tax on gross income applicable to PEZA registered enterprises is in lieu of all national and local taxes including the 10% VAT. For VAT purposes, the branch may utilized the accumulated input VAT of the subsidiary, since the conversion of the subsidiary to a branch is akin to a merger. Where there is a transfer of all the assets and the assumption of debts and liabilities of the absorbed corporation by the absorbing corporation and the legal personality of the absorbed corporation is extinguished but its interest subsists inasmuch as the transfer is in consideration for the shares of stock to be issued by the absorbing corporation. (BIR Ruling No. 165-99 dated October 21, 1999)
INCOME TAX; Interest Income Investments on Long-term Debt Securities - For the purpose of determining whether these investments in long-term debt securities such as bonds, debentures, and government securities like Treasury Bills and Central Bank Certificates of Indebtedness shall fall within the classification of "deposit substitutes", Section 1(g) of Revenue Regulations No. 12-80, as last amended by Rev. Regs. 3-97 defines the term "deposit substitutes" as an alternative form of obtaining funds from the public through the issuance of debt instruments for the borrower's account, for purpose of relending or purchasing of receivables and other obligations; and it may include, among others, promissory notes, repurchase agreements, certificates of assignment or participation, and similar instruments with recourse as may be authorized by the Bangko Sentral ng Pilipinas (BSP) for banks and for-non-bank financial intermediaries.
As a general rule, the interest income on currency bank deposit and yield or other monetary benefit from these "deposit substitutes" and similar arrangement derived by banks and non-bank financial intermediaries are being taxed at the final rate of 20% under Section 27(D)(1) of the 1997 Tax Code. However, Section 32 (B)(7)(g) of the same Code, provides an exception, thus, interest income or yields or gain from the sale of bonds, debentures and certificates of indebtedness with maturities of more than five (5) are excluded from gross income and therefore exempt from the 20% final withholding tax on deposit substitutes. (BIR Ruling No. 166-99 dated October 25, 1999)
EXCISE TAX; Importation of Premix - The importation of "pharmaceutical oil"; otherwise known as white pharma oil, liquid paraffin, white mineral oil, pharmaceutical acid and cathartic, is subject to excise tax. (BIR Ruling No. 194-93 dated May 5, 1993). Section 148 of the Tax Code of 1997 (then Section 145, NIRC) imposes excise tax upon waxes and petrolatum. Petrolatum is a semi- solid or liquid mixture of hydrocarbons derived by distillation of paraffin base petroleum fractions (Hawley's Condensed Chemical Dictionary). As confirmed by no less than the Supreme Court, "Paraffin Wax / Petrolatum" is subject to specific (excise) tax irrespective of kind, nature and purpose.
Assuming that the extent of the mineral oil content is only at 86% based on the SGS finding, that by itself would put Efficascent Premix as a petroleum based product. The taxability of petroleum product, effective August 16, 1996, is based on the percentage of petroleum content. If the Resultant product contains not less than fifty percent (50%) by weight of such petroleum product, the same is considered a petroleum product, hence, subject to excise tax. (Citation omitted) Accordingly, the importation of the Premix, effective August 16, 1996, is subject to excise tax of P3.50 per kilogram pursuant to Section 148(c) of the Tax Code of 1997 (then Section 145, NIRC) and to the 10% value-added tax under Section 107 of the same Code. (BIR Ruling No. 171-99 dated October 27, 1999)
BASES CONVERSION DEVELOPMENT ACT; Foreign Suppliers Participating in the JIT Program - Under R.A. 7227, otherwise known as the Bases Conversion Development Act, the operations of the Subic Bay Freeport (SBF), for tax purposes, is distinct and separate from the Customs Territory and is governed by special law and regulations. Being a separate customs territory, the provisions of the Tax Code imposing and prescribing regular taxes upon persons and entities in the Customs Territory would not be applicable to the SBF and SBMA administered zones insofar as the same will conflict with the provisions of RA 7227. The so-called Just-In-Time buffer stock program being sponsored by SBDMC is entirely within the jurisdiction and administration of the Subic Bay Metropolitan Authority. However, this Office remains with jurisdiction to look into the books of accounts of SBF companies, such as ACER and Circle Freight, for the purpose of determining the veracity of declared income upon which the special tax rate is based.
With respect to foreign suppliers participating under the JIT program, such as IBM, we hold that they are still subject to the jurisdiction of SBMA since their transaction would be restricted to the introduction of materials or merchandise within the confines of the Subic Bay Freeport, there to be disposed of in the manner outlined under the JIT program.
Since SBMA exercises authority and jurisdiction over all economic activity within the SBF, IBM and other foreign suppliers concerned exporting their materials under the said JIT program of Acer, as approved by the SBMA, do not come within the meaning of non-resident foreign corporations deriving taxable income within the Philippines. Therefore, its subsequent deliveries of products from the third-party warehouse and/or its receipts of payment therefor remain not subject to tax imposed under the Tax Code of 1997. (BIR Ruling No. 172-99 dated November 5, 1999)
CAPITAL GAINS TAX; DOCUMENTARY STAMP TAX; Extrajudicial foreclosure sale of capital assets by banks, finance corporation - In extrajudicial foreclosure of mortgage under Act No. 3135, as amended, the mortgagor has the right to redeem the property within one year from the date of sale. The date of sale has been construed to mean the date of registration of the certificate of sale in the Registry of Deeds. (Santos vs. Register of Deeds of Manila, L-26752, March 19, 1971; Reyes vs. Tolentino et.al., L-29142, November 29, 1971)
In the case of foreclosure of mortgage by banks, finance and insurance companies whether judicial or extrajudicial, the mortgagor has the right of legal redemption of one year from the registration of the certificate of sale. (Quimson vs. PNB, L-24920, November 24, 1970) Thus, the counting of one year period of redemption in the case of an extrajudicial foreclosure of mortgage under Section 6 of Act No. 3135, as amended, as well as judicial and extrajudicial foreclosure of mortgage by banks, finance and insurance companies shall be the date of the registration of the certificate of sale in the Registry of Deeds.
Such being the case, RR No. 4-99 amending RMO No. 29-86, as amended, relative to the payments of capital gains tax and documentary stamp tax on extrajudicial foreclosure sale of capital assets initiated by banks, finance and insurance companies shall only apply to foreclosure sales after the effective date of the said regulations. (BIR Ruling No. 177-99 dated November 17, 1999)
RESUMPTION OF PAYMENT OF SALARIES - The Decision of the Commissioner of Internal Revenue finding Ms. Nenita R. Presto guilty of Grave Misconduct and Dishonesty and confirmed by the Secretary of Finance was received on August 6, 1998 and a Motion for Reconsideration was seasonably filed on August 6, 1998 or within twelve (12) days from receipt of the Decision. Likewise, Mr. Rodulfo B. Antoy received the Decision of the Commissioner of Internal Revenue and confirmed by the Secretary of Finance finding him guilty of Grave Misconduct and Dishonesty on July 9, 1998 and a Motion for Reconsideration was seasonably filed on July 23, 1998 or within fourteen (14) days from receipt of the Decision. While they were awaiting for the resolution of their Motions for Reconsideration, Ms. Presto and Mr. Antoy rendered actual services in RDO No. 108, Kidapawan City, as evidenced by the two (2) Certifications issued by RDO Muslimen L. Maca-Agir, Al Hadj.
Applying the pronouncement of the Civil Service Commission, Ms. Presto and Mr. Antoy are entitled to the resumption of the payment of their salaries during the period covering the actual services rendered while their Motions for Reconsideration have not yet been resolved, i.e., period covering August, 1998 up to June 02, 1999 for Ms. Presto and period covering July 10, 1998 up to June 9, 1999 for Mr. Antoy. (BIR Ruling No. 178-99 dated November 17, 1999)
ADDITIONAL COMPENSATION ALLOWANCE (ACA); Taxability -After a thorough study of BIR Ruling No. 144-99, this Office holds that the "other benefits" contemplated under Section 32(B)(7) of the 1997 Tax Code, shall include, the 13th month pay, productivity incentive bonus, Christmas bonus, loyalty awards, gifts in cash or in kind and other benefits of similar nature paid to an employee. Apparently, ACA is not of similar nature with the above-enumerated benefits paid to an employee.
The term "additional compensation allowance" as its name connotes, is indeed "compensation" embraced within the term "taxable compensation income" which is being defined as "all remuneration for services performed by an employee for his employer" under Sections 31 and 78 in relation to Section 32, both of the Tax Code, unless specifically excepted under Section 32(B) of the same Tax Code. The reason therefore, for the non-withholding of the said P500 additional compensation allowance was clearly provided for under said Administrative Order No. 53, i.e., it is not yet subject to withholding tax pending its formal integration into the basic pay of government personnel. Thus, it does not necessarily mean that the additional compensation allowance is not at all subject to income tax or that it is exempt from income tax. Considering therefore, that it is a taxable compensation, the same should be included in W-2 Form as part of the gross compensation income subject to schedular rate of tax under Section 24(A) of the 1997 Tax Code [then Sec. 21(a) of the Tax Code, as amended.].
This ruling is being issued in lieu of BIR Ruling No. 144-99 dated September 14, 1999, which is hereinafter considered revoked. (BIR Ruling No. 179-99 dated November 22, 1999)
CREDITABLE WITHHOLDING TAX; Deferred-payment sale not on Installment Plan - Since the deferred payment sales in question were made during the year 1995, the basis of the CWT was on the "initial or down payment", pursuant to BIR Ruling No. 078-94. Accordingly, the said Buyers/Withholding Tax Agents have withheld and remitted the correct amounts of CWTs due thereon.
If the buyer is an individual who is not engaged in trade or business, he shall not withhold any CWT on his down payment and amortization made during the year of sale, since he is only required to withhold the tax based on his last installment payment. (RMC No. 7-90) Therefore, such individual is only a withholding tax agent vis-a-vis sale of real property, the income from which may be reported by the Seller on installment basis, because the Buyer's initial payments in the year of sale did not exceed 25% of the selling price. The term "initial payments" means "at least one other payment in addition to the initial payment." In case the real property sold is under mortgage and the Buyer, under the contract, shall assume payment of the unpaid mortgage, the excess of the unpaid mortgage over the Seller's cost basis for the property (if any) shall form part of the "initial payments". (See Sec. 175, Revenue Regulations No. 2) Conversely, the said individual was not constituted as a withholding agent vis-a-vis deferred payment sale transactions since his payment of the last installment did not constitute an income payment but, on the contrary, a mere return of capital of the Seller (supra).
The aforementioned Buyers of condominium units sold in the year 1995 under a deferred payment sale not on installment plan, hence, treated as the equivalent of cash sale transaction, are deemed to have fully withheld and remitted the corresponding CWT, the same having been deducted, withheld and remitted to the BIR, based on the "initial or down payment" pursuant to BIR Ruling No. 078-94, the applicable ruling during the year 1995. (BIR Ruling No. 182-99 dated November 24, 1999)
INCOME TAX; Fringe Benefits - Section 2.33(A)(9)(b) provides that the cost of educational assistance extended by an employer to the dependents of an employee shall be treated as taxable fringe benefits of the employee unless the assistance was provided through a competitive scheme under the scholarship program of the company. Since the educational benefit is granted through a competitive scheme, i.e. qualifying exam, such educational assistance shall not be subject to the fringe benefit tax prescribed under Section 33 of the Tax Code of 1997.
However, the exemption of any fringe benefit from the fringe benefit tax imposed under Section 33 of the Tax Code of 1997 and implemented by Revenue Regulations No. 3-98, shall not be interpreted to mean exemption from any other income tax imposed under the Code or under any other existing law. Thus, if the fringe benefit is exempted from the fringe benefit tax, the same may, however, still form part of the employees' gross compensation income which is subject to income tax, hence, likewise subject to withholding tax on compensation income.
Such being the case, the amount of the tuition waiver benefit granted to the children of full time faculty members who were in the active service before May 1987 shall be considered as part of compensation income of said faculty members which shall be subject to withholding tax prescribed under Section 79 of the Tax Code of 1997. (BIR Ruling No. 189-99 dated November 29, 1999)
INCOME TAX; Cash and/or Property Dividend - Pursuant to Section 24(B)(2) of the 1997 Tax Code dividends shall be subject to a final tax at the rates applicable in the year when such dividends are actually or constructively received by the individual Filipino shareholders as provided for under Section 24(B)(2) of the Tax Code (BIR Ruling No. 028-89 dated February 22, 1989 citing Am. Jur. 2d, 1976 Ed., Vol. 34, p. 180). However, the income forming part of retained earnings of a corporation as of December 31, 1997 shall not, even if declared or distributed as dividends on or after January 1, 1998, be subject to the final tax on dividends in the hands of the corporation's individual Filipino shareholders.
Since the distributable cash and/or property dividend by Antelope, MPI, LLP and GDI will not solely come from the 1997 retained earnings, the amount that will be declared to the extent of the accumulated profits earned in 1998 shall first be subject to the six percent (6%) final withholding tax imposed under Section 24(B)(2) of the Tax Code. Only the amount in excess thereof shall be considered to have been distributed out of the relevant corporation's retained earnings as of December 31, 1997, and shall not be subject to income tax or any withholding tax even if such dividends are so declared or distributed after January 1, 1998.
Moreover, property dividends which constitute stocks in trade or properties primarily held for sale or lease, which shall be distributed by Antelope, MPI, LLP and GDI to its stockholders and declared out of their retained earnings, beginning January 1, 1996 and thereafter, shall be subject to VAT based on the market value or zonal valuation, whichever is higher, at the time of receipt. (Citations omitted) (BIR Ruling No. 190-99 dated November 29, 1999)
WITHHOLDING TAX; Definition of International organization - Pursuant to Section 2.78.1(B)(5) of Revenue Regulations 2-98 implementing Section 78 of the Tax Code of 1997, remuneration paid for services performed as an employee of a foreign government or an international organization is exempt from withholding tax on compensation.
"International Organizations" are associations of States, established by treaties between two or more States, whose functions transcend national boundaries and which are for certain purposes subjects of international law. Public international organizations (as distinguished from "private" or "non-governmental" organizations) include global, all-purpose organizations; specialized agencies of the United Nations; other global functional organizations; and regional organizations.
On the other hand, Non-Governmental Organizations (NGO's) are private, international organizations that serve as a mechanism for cooperation among private national groups in international affairs, particularly in economic, social, cultural, humanitarian, and technical fields. Under Art. 71 of the UN Charter, the Economic and Social Council is empowered to make suitable arrangements for consultation with NGO's on matters within its competence. Except for limited purposes under international humanitarian law, NGO's are not subjects of international law. Examples of NGO's include the International Committee of the Red Cross (ICRC); consumer and producer associations; religious groups; teacher organizations; professional, legal, civic (e.g. Rotary Club of Manila), and medical societies; and trade unions. (International Law and World Politics by Edgardo L. Paras, Sr. and Edgardo C. Paras, Jr. 1994 Revised Edition)
Accordingly, Helen Keller International, Inc. is not an international organization or entity having international personality as contemplated under the aforequoted Section 2.78(B)(5) of Revenue Regulations 2-98 but rather an international non-government private voluntary organization (NGO) which was duly granted a license to transact business by the Securities and Exchange Commission. It is therefore required to withhold the corresponding withholding tax on compensation for the salaries and wages it pays to its employees. (BIR Ruling No. 198-99 dated December 10, 1999)
OPTIONAL RETIREMENT UNDER P.D. 1146; Benefits paid by GSIS - Section 5 of R.A. 6683 provides that an appointive official or employee who retires or elects to be separated from the service under this Act shall not be eligible for optional retirement with gratuity under Republic Act Nos. 1616 and 4968 or with pension under Commonwealth Act No. 186, as amended by Republic Act No. 660, or under Presidential Decree No. 1146, as amended , or vice-versa.
Mrs. Gutierrez' application for optional retirement under P.D. 1146, as amended, is without legal basis and therefore, cannot be given due course. However, Mrs. Gutierrez shall be entitled to the return of her GSIS personal contributions pertaining to her retirement only and the corresponding share of the government with interest earned pursuant to existing rules and regulations of GSIS in accordance with Section 4 of RA 6683. She shall likewise be entitled to the commutation of her unused vacation and sick leaves pursuant to the same provision. This shall include cash payment equivalent to eighteen (18) times her basic monthly pension and old-age pension benefit in accordance with Section 11, RA 8291 amending PD 1146, dividends as provided for in Section 25 of RA 8291; and premiums paid and interest earned on automatic life insurance and/or optional insurance under Section 24 and 26 of RA 8291. This is because where the benefits provided by RA 6683 for the same contingencies are less than the benefits provided under PD 1146, as amended by RA 8291, the GSIS shall pay only the difference (Section 55 of RA 8291). Moreover, the benefits paid by the GSIS shall be exempt from all taxes as provided by Section 39 of RA 8291. (BIR Ruling No. 199-99 dated December 10, 1999)
VAT; Intended Transfer of Assets - Considering that the intended transfer of assets under the Bayantel Corporate Restructuring Plan is not intended for profit or livelihood, such transfer may not be said to be in the ordinary course of business of RCPI. Moreover, the intended transfer of RCPI's assets to Bayantel is not in the course of RCPI's regular trade or business of selling telecommunication services to the public.
Neither is the transfer incidental thereto since the same is not necessary to carry out RCPI's primary function of providing telecommunication services to the general public. The intended act of transferring the assets does not follow the act of providing telecommunications services to the public (Magsaysay Lines, Inc. et al. v. Commissioner of Internal Revenue, CTA Case No. 4353, April 27, 1992) Consequently, such transfer shall not be subject to VAT. (BIR Ruling Nos. 006-97 dated January 17, 1997; 033-97 dated April 1, 1997; 054-96 dated May 14, 1996; 113-98 dated July 23, 1998) Moreover, the intended transfer arrangement shall not result in any input tax credit to Bayantel. (BIR Ruling No. 200-99 dated December 13, 1999)
EXCISE TAX; Off-gas not Covered by the definition of "Processed Gas" - Republic Act No. 8184, did not make any definition of the term "processed gas". Thus this Office is of the opinion that the construction given to the term "processed gas" prior to the promulgation of RR 8-96 should remain controlling. As is still the case in this taxing jurisdiction, excise taxes is only made to apply to certain class of goods manufactured or produced in the Philippines provided such exciseable products are "removed from its place of production". Thus, if not removed from its place of production, the tax shall not apply.
It should be stressed that excise taxes, is basically an indirect tax imposed on consumption of certain types or class of goods, whether locally manufactured or imported. While the tax is directly levied upon the manufacturer/importer upon removal of the taxable goods from its place of production (in case of locally manufactured goods) or from the customs custody (in case of importation), the tax is, in reality, actually passed on to the end consumer as part of the transfer value or selling price of the goods sold, bartered or exchanged. Thus, the phrase "or for any other disposition", may only be interpreted as a disposition of the manufactured goods in the course of the manufacturer/importer's business, for consumption of the end consumers.
By the very nature of the "off gas" said product appears to be a waste by-product of the refinery process. It is disposed of by means of destruction by burning to prevent pollution of the environment. In view hereof, this Office holds, that "off-gas" is not subject to excise tax under Section 148(b) of the Tax Code of 1997 and that the said product is not covered by the definition of "processed gas" under Revenue Regulations No. 8-96. Finally, even if assuming arguendo, that "off-gas" is indeed embraced within the category of "processed gas", still we see no application of the tax, there being no removal of such product for domestic sale or consumption as contemplated by the law. (BIR Ruling No. 201-99 dated December 16, 1999)
INCOME TAX; VAT; Tax-free Exchange of Assignment of Investment in T-Bills - The assignment by SLAC of its investments in T-Bills in exchange for 99.99% of the voting shares in the MFCs and AMC qualifies as a tax-free exchange under Section 40 (C)(2) of the Tax Code. Considering that SLAC shall own 99.99% of the voting stock in the MFCs and AMC, SLAC shall acquire control of the said companies as a result of its assignment of the investments in T-Bills. As such, no gain or loss shall be recognized by SLAC from the assignment of its investments in T-Bills in exchange for the shares in the MFCs and AMC. Also, the assignment of investments in T-Bills will not be subject to DST because it is not one of the transactions subject to DST under the Tax Code.
Since as a result of the assignment by SLAC of its investments in T-Bills to the MFCs and the AMC, it will gain control of the said companies, the transaction falls within the ambit of Section (40)(C)(2) and (6)(C) of the Tax Code, and consequently, is not subject to VAT under Sec. 4.100-5 of Revenue Regulations No. 7-95.
Finally, pursuant to Section 49(C)(5) of the Tax Code, the cost basis of the MFC and AMC shares acquired by SLAC shall be the same as the original acquisition cost or adjusted cost basis to SLAC of the T-Bills exchanged therefor. On the other hand, the cost basis to the MFCs and AMC of the T-Bills exchanged for stock shall be the same as it would be in the hands of SLAC. (BIR Ruling No. 202 dated December 16, 1999)
INCOME TAX; Cash and Property Dividends - Prior to the amendments introduced into the Tax Code by R.A. 8424, which became effective on January 1, 1998, corporate dividend distribution was, in general, exempt from income tax. Beginning on the said date, dividend became subject to final withholding tax provided, however, "that the tax on dividends shall apply on income earned on or after January 1, 1998. Income forming part of retained earnings as of December 31, 1997 shall not, even if declared or distributed on or after January 1, 1998, be subject to this tax." (Sec. 24 (B)(2), NIRC, as amended by R.A. 8424)
Hence, to reconcile the old and existing law on source of the dividend distribution with that of the proviso of Section 24 (B)(2) of the Tax Code of 1997, this Office is of the opinion that if a corporation had accumulated profits as of December 31, 1997, its distribution of dividends beginning 1998 and thereafter must come from the accumulated profits as of December 31, 1997. After full distribution thereof, Sec. 73 (C) of the Tax Code of 1997 will apply. Hence, for the prior years' accumulated profits, the rule shall be the "first in-first out" system. It follows that Sec. 73 (C) shall not yet apply. Thereafter, the "last in-first out" system shall be used.
Accordingly, cash and property dividends declared and distributed by domestic corporations to individual stockholders who are resident of the Philippines on or after January 1, 1998, but forming part of retained earnings as of December 31, 1997 as shown by a Board Resolution stating said dividends as such and as established by the corporation's books of account, shall not be subject to income tax pursuant to Section 24(B)(2) of the Tax Code. (BIR Ruling No. 203-99 dated December 16, 1999)
OVERSEAS COMMUNICATION TAX - Pursuant to Section 120(A) of the Tax Code of 1997, there shall be collected upon every overseas dispatch, message or conversation transmitted form the Philippines by telephone, telegraph, telewriter exchange wireless and other communication equipment services, a tax of ten percent (10%) on the amount paid for such services. Under Section 120(B) thereof, the 10% overseas communication tax shall not apply to the Government. Diplomatic Services, International Organizations and News Services.
However, under the basic laws which govern registered enterprises, i.e., R.A. Nos. 7916 and 7227, explicit is the provision that said enterprises are exempt from paying all taxes, whether national or local and in lieu thereof, they shall pay a 5% tax based on gross income. The Overseas Communications Tax (OCT) is without doubt a national internal revenue tax and is included in the term "all taxes, whether national or local" to which PEZA-registered and SBF Enterprises are exempted from.
Such being the case, the following enterprises, i.e. SBF, CSEZ, JHSEZ, PPSEZ and other SEZ registered under the PEZA, shall be exempt from the 10% overseas communication tax since these enterprises are liable only to the payment of the preferential tax rate of 5% in lieu of the payment of local and national taxes. (BIR Ruling Nos. 15-97 dated February 4, 1997; 70-97 dated June 9, 1997; 85-98 dated June 2, 1998)
However, it should be understood that this exemption is limited to overseas calls emanating from landlines installed within the premises and registered under the names of the Special Enterprises located and registered within the enclaves of the freeport and economic zones as authorized under R.A. Nos. 7916 and 7227. (BIR Ruling No. 204-99 dated December 27, 1999)
VAT; Documentary Stamp Tax; Transfer of Membership Certificates - Since the transfer of its membership certificates by Fantasy World Theme Parks, Amusement and Recreation Club, Inc., a non-profit organization which is not a dealer in securities through its developer, as well as its billing and collection of membership dues from its members are not the economic activity being contemplated in Section 105 of the Tax Code of 1997, the transfer of the membership certificates is not subject to the 10% VAT. However, the transfer of the membership certificates which is not listed in the local stock exchange shall be subject to capital gains tax imposed under Section 27(D)(2) of the said Code based on the their book value nearest the valuation date.
Finally, considering that the membership certificate is in the nature of a shares of stock as defined in Section 22(L) of the Tax Code of 1997, the original issuance thereof by Fantasy World Theme Parks, Amusement and Recreation Club, Inc. is subject to the documentary stamp tax imposed under Section 175 of the said Code. The sale, however, is subject to the documentary stamp tax of P1.50 on each P200, or fractional part thereof, of the par value of such membership certificate pursuant to Section 176 of the Tax Code of 1997. (BIR Ruling No. 206-99 dated December 28, 1999)
INCOME TAX; Fringe Benefits Tax - The term "fringe benefit" is defined under Section 33(B) of the Tax Code of 1997 as any good, service or other benefit furnished or granted in cash or in kind by an employer to an individual employee (except rank and file employees). It includes, among others, housing benefit granted to the managerial and supervisory employees of the company. The Directors of TAP who are at same time receiving fixed salaries as TAP officers, are considered as employees holding positions other than rank and file positions i.e. managerial and/or supervisory positions.
Accordingly, the housing assistance granted by TAP to the expatriates who are directors and at the same time holding managerial and supervisory positions, is considered as fringe benefit subject to the Fringe Benefit Tax under Section 33 (B) of the Tax Code of 1997 and implemented by Revenue Regulations No. 3-98. The source of the fringe benefit granted to the employees does not affect the taxability of the said fringe benefit. Thus, the housing allowance of the director/officer of TAP which is paid out of its Retained Earnings, is still considered as a fringe benefit subject to the fringe benefit tax imposed under Section 33 of the Tax Code of 1997 as implemented by Revenue Regulations No. 3-98.
Section 33 of the Tax Code of 1997 on fringe benefit applies to managerial and supervisory employees. Thus, where the officer/director of TAP is considered as an employee regardless of whether a fixed monthly income is given or their remuneration is determined by the Board of Directors based on the Retained Earnings of the corporation, the housing assistance granted to the said officers/directors are still subject to the Fringe Benefit Tax. On the other hand, where a director is being paid on a retainer basis, no employer-employee relationships exist between the company and the director. Thus, the housing assistance granted to him shall not be considered as fringe benefit subject to the Fringe Benefit Tax but is considered as part of his gross income which is subject to the applicable tax rates under Section 24(A)(1)(c)of the Tax Code of 1997. (BIR Ruling No. 208-99 dated December 28, 1999)
