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