This page offers an overview of tax developments being reported globally by KPMG member firms in response to the Novel Coronavirus (COVID-19).
The content will be updated regularly. However, due to the fast-moving pace of change, it may not always reflect the most current developments in a given jurisdiction. Please refer to the date of accuracy and refer to the relevant links, under additional information, for original source information.
Republic Act (RA) No. 11494, referred to as the “Bayanihan II Act” (An Act Providing For Covid-19 Response And Recovery Interventions And Providing Mechanisms To Accelerate The Recovery And Bolster The Resiliency Of The Philippine Economy, Providing Funds Therefor, And For Other Purposes) took effect on 14 September 2020.
Similar to the Bayanihan Act, the Bayanihan II Act provides the basis for all subsequent government actions to address the Covid-19 situation. The Bayanihan II Act shall be in full force and effect until the next adjournment of the Philippine Eighteenth Congress on 19 December 2020.
The salient TAX features of the Bayanihan II Act are as follows:
1. Exemption from income tax, and subsequently withholding taxes (when applicable), for:
2. Exemption from import duties, taxes, and other fees for manufacture or importation of critical equipment or essential goods
3. Moving of statutory deadlines and timelines for the filing and submission of any document, the payment of taxes, fees, and other charges required by law, and the grant of any benefit, in order to ease the burden on individuals under community quarantine (CQ).
4. Exemption from documentary stamp tax (DST) on loan term extensions or restructuring of loans for (but not limited to) salary, personal, housing, commercial, and motor vehicle loans, amortizations, financial lease payments and premium payments, as well as credit card payments, but the exemption from DST will not be applicable to interbank loans and bank borrowings
5. Exemption from donor’s tax, and exemption from import duties and taxes, on the donation or importation (for donation) of personal computers, laptops, tablets, or similar equipment appropriate for use in schools, donated for distribution to public schools regardless of level, including state universities and colleges and vocational institutions under the Technical Education and Skills Development Authority (TESDA)
6. Allowing the net operating loss of the business or enterprise for taxable years 2020 and 2021 to be carried over as a deduction from gross income for the next five (5) consecutive taxable years immediately following the year of such loss
7. Removal of the percentage tax on shares of stock sold or exchanged through Initial Public Offering (IPO)
The Philippine Bureau of Internal Revenue (BIR) and other concerned government agencies are currently drafting the necessary rules and regulations to implement the above provisions.
Revenue Memorandum Circular (RMC) No. 98-2020, dated 15 September 2020
This RMC clarifies the submission of BIR Form No. 1709 or the Related-Party Transaction (RPT) Form and its attachments, as prescribed in Revenue Regulations (RR) No. 19-2020. BIR Form No. 1709 is required to be attached to the Annual Income Tax Returns (AITRs) effective taxable year 2020.
In indirect relation to the moving of statutory deadlines and timelines for the filing and submission of any document, the payment of taxes, fees, and other charges required by law, as provided in the Bayanihan II Act, RMC No. 98-2020 extends the deadline of submission of BIR Form No. 1709 and its required documents as follows:
Revenue Memorandum Circular (RMC) No. 83-2020, dated 17 August 2020
This RMC prescribes the guidelines on the application of the relevant treaty provisions and, ultimately, on the allocation of taxing rights between treaty partners in relation to international tax issues related to cross-border workers or individuals who are stranded or quarantined in a country that is not their country of residence, and to unintended creation of permanent establishment (PE) of foreign enterprises as a consequence of the extended stay of their employees in the Philippines.
Income from Employment
Under the effective tax treaties of the Philippines with other countries, the residence State has an exclusive right to tax the employment income derived by its resident taxpayers except when the employment is exercised in another Contracting State, in which case, the latter State may tax the employment income subject to the provision of relief by the former State.
However, even if employment is exercised in the Philippines, the employment income will not be subject to tax in the Philippines if the following conditions concur:
1. The employee has not been present in the Philippines for more than 183 days (more than 120 days for residents of Poland; at least 90 days for residents of the United States of America) in aggregate in the year of income, fiscal year, calendar year, or any twelve-month period, depending on the applicable Double Taxation Agreement (DTA);
2. His/her remuneration is paid to him/her by, or on behalf of, an employer that is not a resident of the Philippines; and
3. His/her remuneration is not deductible against the profits of a permanent establishment which the foreign employer has in the Philippines.
Conversely, the Philippines may tax the employment income of an individual who is a resident of another contracting state only if any of the following three tests is met:
1. The employee is present for more than 183 days (more than 120 days for residents of Poland; at least 90 days for residents of the United States of America) in the Philippines; or
2. The employer is a resident of the Philippines; or
3. A non-resident employer has a permanent establishment in the Philippines which bears the remuneration.
Special Tax Residency Rules
Where an individual is prevented from leaving the Philippines on his or her scheduled day of departure as a result of the travel restrictions imposed by the government as a safety measure to contain COVID-19, the individual will not be regarded as being present in the Philippines for tax residence purposes for the period after the scheduled day of departure. The BIR will consider this as "force majeure" for the purpose of establishing such individual's tax residence, provided that he or she leaves the Philippines as soon as the circumstances would permit, such as when the travel restrictions and/or quarantine measures have been lifted. Whether a taxpayer is a resident for tax purposes in the Philippines is a question of act that requires consideration of all surrounding circumstances. Each case will be assessed and evaluated independently based on factual and unaltered evidence.
Inadvertent Creation of PE
1. Home Office PE
Working from home would not create a PE of the foreign enterprise in the Philippines because the conduct of business activities thereat lacks a certain degree of permanency and the home office is not at the disposal of the foreign enterprise. The intermittent conduct of business of the foreign enterprise at the home office of its employees in the Philippines due to COVID-19 will not, in any way, make such home office a location at the disposal of the enterprise.
If, however, the home office is used on a continuous basis for carrying on the business activities of the foreign enterprise even after the COVID-19 crisis, and it is clear from the facts and circumstances that the enterprise has required the individual to use that location to carry on its business, the home office may be considered to be at the disposal of the enterprise.
2. Construction PE
Temporary interruptions of construction activities due to the COVID-19 pandemic should be included in computing the duration of a site and in determining whether such construction site constitutes a PE.
3. Dependent Agent PE
Where an employee, partner or agent of a non-resident foreign corporation continues to be present in the Philippines and that presence is shown to result from travel restrictions related to COVID-19, the BIR shall disregard such presence in the Philippines for income tax purposes for the company on whose behalf the employee, partner or agent has been acting. In other words, the extended period of stay of the employee, partner or agent shall not be considered in counting the taxable presence of the non-resident foreign corporation in the Philippines.
In sum, the effects of COVID-19 will not result in the creation of a PE if the following requirements are met:
1. The non-resident foreign company did not have a permanent establishment in the Philippines before the effects of COVID-19;
2. There are no other changes in the company's circumstances save for the extended stay of its employee, partner or agent in the Philippines because of travel restrictions; and
3. The employee, partner or agent should leave the country as soon as the circumstances would permit.
A different approach will be applied. However, if the employee, partner or agent was habitually concluding contracts on behalf of enterprise in the Philippines before the COVID-19 crisis.