InTAX: January 2021 Issue 2 | Volume 1

InTAX is an official publication of R.G. Manabat & Co.'s Tax Group

InTAX is an official publication of R.G. Manabat & Co.'s Tax Group

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Bureau of Internal Revenue

 

The Bureau of Internal Revenue (BIR) issued the following:

Revenue Memorandum Circular (RMC) No. 139-2020, 18 December 2020, to provide guidelines on the utilization of the 5% tax credit for contributors provided under the Personal Equity and Retirement Account (PERA) Act of 2008. Salient portions of the issuance are as follows:

  • The PERA Tax Credit Certificate (PERA TCC) shall serve as proof of the 5% credit. This shall be issued to qualified contributors upon request from the PERA Administrator. In such cases where employers contribute a share to the account of their qualified employee, only the latter can request for the issuance of the PERA TCC.
  • Upon utilization of the TCC, the following returns should be accomplished by availing qualified contributors of the 5% credits against the following taxes:

1.  Income tax from income derived purely from business/profession or both from employment with business/profession;

2. Income tax withheld by one’s employer for those earning purely compensation income;

3. For OFWs who earn income derived purely from abroad by an Overseas Filipino, the PERA TCC may be used against any national internal revenue tax liabilities, except taxes withheld by them as withholding agents.

Relevant BIR returns which need to be accomplished to reflect the availment of the PERA TCC may be found in the issuance as well as the returns which should be used in the event of changes in the source of income of the qualified PERA contributor.

  • The amount of the PERA TCC shall be indicated in tax return as deduction from the tax due of the contributor in the "Other Tax Credits/Payments (specify)" field of the return located immediately after the line item stating "Tax Due" with a description "5% PERA TCC".
  • In case the amount of PERA TCC exceeds the tax due, net of the creditable taxes, the excess shall not be considered a refund but the same shall be eligible for the issuance of PERA TCC.
  • If the total tax actually withheld and remitted to the BIR by the employer is more than the difference between the total tax due and the gross amount of PERA TCC, the excess shall be refunded to the qualified contributor-employee.
  • However, if the gross amount of the PERA TCC shall exceed the total tax due, the excess shall be carried over and deducted from the withholding tax of the qualified contributor-employee in the next taxable year. On the other hand, the total amount actually withheld and remitted to the BIR shall be refunded by the employer to the qualified contributor-employee.
  • The employer shall keep the submitted PERA TCC and produce the same when requested for inspection or verification by authorized BIR revenue personnel and applicable details of the TCC must be reflected in the BIR Form No. 2316 and Annual Alphabetical List of Employees.
  • For employers with a share in their employee's PERA contribution, the employer's share not exceeding the total amount actually contributed may be reflected in the income tax return as deductible expense from its gross sales. For uniformity, the phrase "Share in Qualified Employee's PERA Contribution" shall be used as the account name. 

RMC No. 138-2020, 22 December 2020, to clarify the guidelines provided by Revenue Regulations No. 25-2020 on the implementation of Section 4 (bbbb) of the “Bayanihan to Recover as One Act” regarding the availment of Net Operating Loss Carry-Over (NOLCO) incurred by taxpayers adopting Fiscal Year (FY) accounting period for 2020 and 2021. Entities which incurred net operating loss for taxable years 2020 and 2021 shall be allowed to carry over such losses as a deduction from its gross income for the next five (5) consecutive taxable years immediately following the year of such loss.

  • For taxpayers adopting FY accounting periods, the rule is that an FY will fall on a particular taxable year depending on the number of months/days it has in the 2 years involved.
  • Based on this rule, the following FYs ending on the following dates would fall either on 2020 or 2021:

Taxable year 2020

Taxable year 2021

FY ending 31 July 2020

FY ending 31 August 2020

FY ending 30 September 2020

FY ending 31 October 2020

FY ending 30 November 2020

FY ending 31 January 2021

FY ending 28 February 2021

FY ending 31 March 2021

FY ending 30 April 2021

FY ending 31 May 2021

FY ending 30 June 2021

FY ending 31 July 2021

FY ending 31 August 2021

FY ending 30 September 2021

FY ending 31 October 2021

FY ending 30 November 2021

FY ending 31 January 2022

FY ending 28 February 2022

FY ending 31 March 2022

FY ending 30 April 2022

FY ending 31 May 2022

FY ending 30 June 2022

 

Moreover, enterprises with FYs ending before 31 July 2020 and ending after 30 June 2022 which incurred net operating loss are only allowed to carry over the loss as a deduction from its gross income for the next 3 consecutive taxable years under Section 34(D)(3) of the Tax Code, as amended without the benefit of the extended period to carry-over the loss for another 2 years.

RMC 136-2020, 7 December 2020, to clarify the suspension of the Statute of Limitation provided under RR No. 11-2020.

Item 32 in the matrix provided under RR No. 11-2020 pertains to the suspension of the statute of limitation provided under Section 203 and 222 of the Tax Code. The said matrix provides that the suspension shall start from 16 March 2020, when the state of emergency was declared due to COVID-19 until sixty (60) days after the lifting of the quarantine. With such suspension, the counting of the three (3)-year prescriptive period to assess and the five (5)-year period to collect, shall exclude the number of days covered by the period of suspension, which is a total of one hundred thirty-seven (137) days.

To illustrate:

 

Original Prescriptive Date

New Prescriptive Date

Case 1

15 March 2020

15 March 2020

Case 2

16 March 2020

31 July 2020

Case 3

15 April 2020

30 August 2020

Case 4

15 June 2020

30 October 2020

Case 5

15 July 2020

29 November 2020

Case 6

15 April 2021

30 August 2021

 

Revenue Memorandum Order (RMO) No. 46-2020, 23 December 2020, to prescribe the guidelines and procedures for the availment of the reduced rate of fifteen percent (15%) on intercompany dividends paid by a domestic corporation to a Non-resident Foreign Corporation (NRFC) pursuant to Section 28(B)(5) of the National Internal Revenue Code of 1997, as amended. This issuance is effective immediately.

 

Guidelines and procedures in an NRFC’s application of the 15% reduced rate

  1. The 15% reduced rate may be applied to the cash and/or property dividends declared by all corporations regardless of their corporate income tax regimes.                               
  2. The domestic corporations paying the dividends may remit outright the dividends to the NRFC and apply thereon the reduced rate of 15% without securing first a ruling from the BIR. It must determine, however, whether the existing law of the country of domicile allows the NRFC a "deemed paid" tax credit in an amount equivalent to the 15% waived by the Philippines or exempts from tax the dividends received.                               
  3. It should be noted that Philippine Courts do not take judicial notice of foreign law. Such foreign law can be established by complying with Sections 24, 25 and Rule 132 of the Revised Rules of Court with regards to certification and authentication or through securing an apostilled copy of the same.                                                                 
  4. Within ninety (90) days from the remittance of the dividends or from the determination by the foreign tax authority of the deemed paid tax credit/non-­imposition of tax because of the exemption, whichever is later, the NRFC or its authorized representative shall file with the BIR, through the International Tax Affairs Division (ITAD), a request for confirmation of the applicability of the reduced dividend rate of 15%.                                                                                                                         
  5. To streamline the process of confirming entitlement to the reduced rate, the BIR shall issue a certification duly signed  by the Assistant Commissioner for Legal Service in lieu of the usual BIR ruling.                                                                                                                 
  6. The NRFC may opt to avail of the reduced dividend rate under the Tax Code, irrespective of whether a double tax convention or tax treaty exists between the Philippines and its country of residence. If the taxpayer is not entitled to the reduced rate under the Tax Code, the treaty rate shall automatically be applied provided that the NRFC is able to prove its entitlement to the benefits provided under the treaty.              
  7. The typical Philippine Depositary Receipts (PDR) also entitle its holder to the dividends accruing to the underlying shares. For taxation purposes, these dividends may or may not be entitled to the reduced rate depending on the nature of the PDRs. The issuance provides that Holders of PDR may also be entitled to the reduced rate, subject to fulfillment of the following conditions:
  • The PDR is coupled with a right to purchase the underlying shares; and                           
  • The said right can be legally exercised without violating the provisions of the Constitution and special laws which restrict the foreign ownership of certain companies to Philippine nationals.

 

Documentary Requirements

The following documents shall accompany the application for the reduced dividend rate of 15% in a given taxable year:

General Requirements

Special Requirements

1. Letter-request which shall provide a background of the transaction, the relief sought and the legal basis;

I) If the dividend is taxable in the country of domicile:


1. Duly authenticated or apostilled copy of the law of the country of domicile allowing a tax credit for taxes actually paid in the Philippines and for taxes deemed paid in the Philippines equivalent to at least 15% of the dividends; and


2. Duly authenticated or apostilled copy of any document issued by, or filed with, the foreign tax authority showing the amount of deemed paid tax credit actually granted by the foreign tax authority.

2. Duly accomplished BIR Form No. 0901 -TS;

3. Original copy of the apostilled/duly authenticated Tax Residence Certificate issued by the tax authority of the country of domicile;

4. Apostilled/duly authenticated copy of the NRFC's articles of incorporation or proof of establishment in its country of residence;

II) If the dividend is exempt from tax in the country of domicile:


1. A duly authenticated or apostilled copy of the law of the country of domicile; and


2. A duly authenticated or apostilled copy of any document issued by the foreign tax authority confirming that the NRFC is exempt from income tax on dividends received from the Philippine corporation.

5. Original copy of apostilled/duly authenticated Special Power of Attorney (SPA) issued by the NRFC to its authorized representative;

6. Certified true copy of the Board of Directors' resolution of the domestic corporation approving the issuance of dividends, which shall include the amount of dividends, and dates of declaration, record and payment, among others;

For subsequent applications during the year involving the same NRFC:


1. Letter-request which shall provide a background of the transaction, the relief sought and the legal basis;


2. Duly accomplished BIR Form No. 0901-TS;


3. Original copy of the apostilled/duly authenticated Special Power of Attorney (SPA) issued by the NRFC to its authorized representative, if there is a change in the previous SPA;


4. Certified copy of the Board of Directors' resolution of the domestic corporation approving the issuance of dividends, which shall include the amount of dividends, and dates of declaration, record and payment, among others;


5. Certification under oath by the corporate secretary of the domestic corporation/custodian banks/depository account holders/broker dealers stating the legal and beneficial owners, if applicable, of all issued and outstanding shares as of record date, their corresponding subscriptions, date/s of acquisition, percentage of ownership and the allocation of dividend;


6. GIS for the year or period immediately preceding the date of declaration, if different from the previously submitted GIS;


7. Original copy of the apostilled/authenticated certification issued by the NRFC, or its authorized representative, confirming that there is no substantial change in the domestic law of the country of domicile of the NRFC;


8. ApostilIed or duly authenticated copy of any document issued by or filed with, the foreign tax authority showing the amount of deemed paid tax credit actually granted by the foreign tax authority; and


9. Proof of remittance of the dividend payments.

7.  Original copy of the sworn statement executed by the corporate secretary of the domestic corporation/custodian banks/depository account holders/broker dealers stating the legal and beneficial owners, if applicable, of all issued and outstanding shares as of record date, their corresponding subscriptions, date/s of acquisition, percentage of ownership and the allocation of dividend;

8. Certified true copy of the General Information Sheet (GIS) of the domestic corporation for the year or period immediately preceding the date of declaration, whichever is more applicable.

9. Certified true copy of Audited Financial Statements (AFS) of the domestic corporation stamped "received" by the BIR and Securities and Exchange Commission, which was used as the basis of such dividend declaration; and

10. Proof of remittance of the dividend payments.

III) For dividends accruing to PDRs:


1. Duly authenticated and executed PDR Agreement; and


2.    Proof of remittance of dividend payments to the PDR holder.

 

RMO No. 47-2020, 23 December 2020, to provide the consolidated and updated guidelines and procedures of claims form Value-Added Tax (VAT) Credit/Refund except those under the authority and jurisdiction of the Legal Group.

Pertinent provisions are as follows:

  • The processing offices authorized to receive “Application for VAT Credit/Refund Claims” (BIR Form No. 1914) are as follows:
    • The VAT Credit Audit Division (VCAD) in the National Office shall receive claims of direct exporters regardless of the percentage of export sales to total sales and whose claims are anchored under Section 112 (A) of the Tax Code, as amended.
    • The Revenue District Office (RDO)/Large Taxpayers Audit Division (LTAD) under the Large Taxpayers Service (LTS) with jurisdiction over the taxpayer-claimant shall receive claims of taxpayers engaged in other VAT zero-rated taxpayers, other than direct exporters.
    • The RDO/LTAD having jurisdiction over the taxpayer-claimant shall receive claims of taxpayers whose VAT registration has been cancelled and those claims for recovery of erroneously or illegally assessed or collected VAT pursuant to Sections 112 (B) and 229, respectively, of the Tax Code, as amended.
  • Only applications with complete documentary requirements, as enumerated in the Checklist of Requirements, and which are filed within the prescribed period, shall be received by the authorized processing office.
  • The Delinquency Verification Certificate (DVC) prescribed in RMC No. 64-2019  showing that the taxpayer has no outstanding (final and executory) tax liabilities shall be submitted.
  • Applications where the DVC shows delinquent accounts other than VAT shall not be received and must be settled first in order for a DVC with no tax liabilities can be issued.
  • Tax Verification Notices (TVNs) shall be issued by the head of the processing office to authorize the verification of VAT credit refund claims. The TVNs shall still be manually issued until such time that the Tax Verification Notice Monitoring System (TVNMS)/Case Management System (CMS) are fully operational.
  • The time frame to grant claims for VAT refund is ninety (90) days from the date of submission of the official receipts or invoices and other documents in support of the application. The start of the 90-day period is from the actual filing of the application with complete documents duly received by the processing office.
  • The claims shall be processed based on submitted documents for verification by the assigned Revenue Officer (RO)/Group Supervisor (GS). This process shall not be construed as an audit/investigation. The claimant may be issued subsequently an electronic Letter of Authority (LA) by an authorized office for that purpose.
  • The reports of verification from the processing offices shall be forwarded to the following offices for review prior to the approval of the approving official:
    • Tax Audit Review Division (TARD) for dockets from the VCAD
    • Regional Assessment Division for dockets from the RDO
    • Office of the concerned Head Revenue Executive Assistant of the LTS for dockets from the LTAD
  • The following are the revenue officials authorized to approve/disapprove the claims:

Processing Office

Amount of Claim

Approving Revenue Official

VCAD

Not more than P 50 million

Assistant Commissioner (ACIR) Assessment Service (AS)

 

More than P 50 million up to P 150 million

Deputy Commissioner (DCIR) – Operations Group (OG)

 

More than P 150 million

Commissioner (CIR)

LTAD under the LTS

Regardless of amount

ACIR – LTS

RDO

Regardless of amount

Regional Director

 

  • The result of the verification of the claim, whether approval or denial, shall be communicated to the taxpayer-claimant, which shall be signed by the authorized revenue official and shall be sent by the originating processing office.
  • Manually issued TCCs shall be converted by the concerned office to the Tax Credit Refund System in the ITS until any subsequent development upon the roll-out of the Internal Revenue Integrated System (IRIS).
  • Procedures for filing the refund include the following:
    • Checklisting
    • Verification of the claims filed under Section 112 (A). 112 (B) and 229 of the Tax Code
    • Review of the Reports and Dockets
    • Approval of the Report
    • Processing and Issuance of the TCC/Refund Check
    • Transmittal of the Docket of Approved Claim on Importation

 

Attached are the full texts of the issuances.

Revenue Memorandum Circular No. 138-2020

Revenue Memorandum Circular No. 139-2020

Revenue Memorandum Circular No. 2020-136

Revenue Memorandum Order (RMO) No. 47-2020

Revenue Memorandum Order (RMO) No. 46-2020

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