Monday, December 05, 2011

VAT Threshold Amounts Increased

In compliance with the Consolidated VAT Regulations of 2005, the threshold amounts to be subject to the value-added tax were adjusted to the present value using the Consumer Price Index as published by the National Statistics Office (NSO).
The threshold amounts rounded off to the nearest hundred are as follows:
Section
Amount in Pesos (2005)
Adjusted threshold amounts
Section 109 (P) – sale of residential lot
1,500,000
1,919,500
Section 109 (P) – sale of residential house and lot or other residential dwellings
2,500,000
3,199,200
Section 109 (Q) – lease of residential unit
10,000
12,800
Section 109 (V) – sale or lease of goods or properties or performance of services
1,500,000
1,919,500

This will take effect starting January 1, 2012.
(Revenue Regulations No. 16-2011, October 27, 2011)

Sunday, November 20, 2011

Tax Treatment of OFW Income

Overseas Contract Worker (OCW) commonly referred to as Overseas Filipino Worker (OFW) is taxable only on income from sources within the Philippines. This includes a seaman rendering services abroad as a member of the complement of a vessel engaged exclusively in international trade. The income of OCW or OFW’s arising out of his overseas employment is exempt from income tax.
If an OCW or OFW has income earnings from business activities or properties within the Philippines, such earnings are subject to Philippine income tax as follows:
a.      For Regular Income – Tax rate of 5%-32% of taxable income
b.      For Passive Income –
  i.               20% Final Tax on Interest Income from any currency bank deposit and yield or any monetary benefit from deposit substitutes and from trust funds and similar arrangements;
ii.               20% Final Tax on any royalties;
iii.               10% Final Tax on any royalty related on books, as well as literary works and musical compositions;
iv.               20% Final Tax on prizes (except prizes amounting to P10,000 or less which  shall be subject to regular income tax rate of 5 -32%) and other winnings (except Philippine Charity Sweepstakes and Lotto Winnings);
 v.               Exemption from 7.5% Final Tax on Interest Income from a depository bank under the expanded foreign currency deposit system upon presentation of proof of non-residency such as OEC or Seaman's Book. However, If the account is jointly in the name of the overseas contract worker or a Filipino seaman, and an individual (spouse or dependent) who is living in the Philippines, fifty percent (50%) of the interest income from such bank deposit will be treated as exempt while the other fifty percent (50%) shall be subject to a final withholding tax of seven and one-half percent (7.5%);
vi.               10% Final Tax on cash or property dividends
vii.                5%/10% Final Tax on net capital gains realized on sale, barter, exchange or other disposition of shares of stock in a domestic corporation (except shares sold or disposed of through the stock exchange);
viii.               6% Final Tax on capital gains from the sale, exchange or other disposition of real property located in the Philippines classified as capital assets  based on gross selling price or current fair market value whichever is  higher;
ix.                       5% / 12% / 20% Final Tax on interest income from long term deposits or investment in the form of savings, common or individual trust funds, deposit substitutes, investment management accounts and other  investments evidenced by certificates in such form prescribed by the  Bangko Sentral ng Pilipinas which was pre-terminated by the holder before the fifth (5th) year.

Any trade or business of an OCW or OFW, if the gross annual sales or receipts do not exceed one million five hundred thousand pesos and opted not to register as a VAT taxpayer, shall be liable to pay 3% percentage tax on his gross quarterly sales or receipt.

All migrant workers shall be exempt from payment of travel tax and airport fee upon proper showing of proof of entitlement issued by the Philippine Overseas and Employment Administration. Further, the remittances of all OCWs or OFWs are exempt from the payment of documentary stamp tax.

(Revenue Regulations No. 1-2011, February 24, 2011)

Corporate Tax Liability is not Personal to its President/Owner

In 2003, Mr. Gregorio Villamar Araño was the President of Discovery Drug-Las Piñas, Inc. (DDLPI) and as such he received income from his services. He was assessed of deficiency income tax and value-added tax not as a president of a corporation but as the sole proprietor of Discovery Drug and not Discovery Drug-Las Piñas, Inc. The assessments were the result of the computerized matching conducted by the BIR on the sales of the suppliers of Discovery Drug where a discrepancy was discovered against the purchases declared by Discovery Drug in its tax returns which amount was treated as undeclared sales and income.
The Court of Tax Appeals denied the petition of the BIR stating that Mr. Araño as president of DDLPI did not act with malice or bad faith to disregard corporate fiction, such as him. DDLPI had a separate judicial personality distinct from the persons composing it. Thus, it is not proper and legal for the BIR to assess Mr. Araño for the alleged tax liabilities of DDLPI. 
(Commissioner of Internal Revenue vs. Gregorio Villamar Araño, CTA Case No. 7491, June 8, 2011)

eDST Clarified

Filing and payment of documentary stamp tax (DST) will now be thru the internet or the so-called eDST system via BIR website.
The BIR elucidated that there will be no more further extension of the full implementation of the eDST System.
The deadline in filing DST returns and payment of the taxes should be any time between the actual dates of the transaction (i.e. making, signing, accepting or transferring of documents) up to the 5th day of the succeeding month.
ATC and DST computation are as follows:
ATC is DS 106 for Tiered Deposits. All debt instruments are subject to DST of One peso (P1.00) on each Two Hundred (P200.00) or fractional part thereof, of the issue price of any such debt instrument.
If the term of the instrument is less than one (1) year, the DST is computed by taking into consideration the number of days that the instrument is outstanding as a fraction of 265 days, DST computation is as follows:
DST = Issue price/200 x P1.00 x term/365 (rounded off to the nearest centavo)
If the debt instrument has a term of one (1) year or longer, the DST due shall be computed based on the issue price of the debt instrument, as follows:
DST = Issue price/P200 x P1.00
For Foreign Dollar or 3rd currency Telegraphic Transfer (Peso Paid), Local Peso Telegraphic transfer (PDDTS or GSRT) and Local Dollar Telegraphic Transfer (Peso Paid GSRT):


Foreign Dollar or 3rd currency Telegraphic Transfer (Peso Paid)
Section 182 of NIRC
DS108
Foreign Bills or Letters of Credit
P0.30 for every P200
Local Peso Telegraphic transfer (PDDTS or GSRT)
Section 180 of NIRC
DS126
Bills of Exchange or Drafts
P0.30 for every P200
Local Dollar Telegraphic Transfer (Peso Paid GSRT)
Section 181 of NIRC
DS126
Bills of Exchange or Drafts
P0.30 for every P200


The DSTs due on the above fund transfers are not computed based on the fixed rate of P1.50 per transaction imposed on “bank checks, drafts, certificates of deposits not bearing interest and other instruments” under Section 178 of the Tax Code but based on the values of the fund transfers under Sections 180, 181 and 182 of the same Code.
Dollar denominated telegraphic transfer shall be translated to the local currency by using the prevailing exchange rate at the Philippine Dealing System (PDS) at the time of the acceptance of the Bill or Exchange or Draft.
Further, computation of the DST in the eDST System is based on the formula indicated in the Tax Code. Fractional part of the tax base is also considered and the system computes the DST by rounding off first before multiplying by the DST rate and term.
If Principal is Php 366,755.00, the DST rate is 1/200 and the term is 30 days, DST will be computed as follows:
Php 366,755.00/200=1,833.775 rounded to 1,834 then multiplied by the tax rate and term=1,834 x 1.0 x 30/365
       = P150.739 = P 150.74
(Revenue Memorandum Circular No. 24-2011, May 16, 2011)

New Guidelines: Tax on Separation Pay

An official or employee separated from his employer because of death, sickness or other physical disability or for any cause beyond the control of the said official or employee shall be exempted from income tax and withholding tax on the amount received thereof, regardless of age or length of service.
Instead of requesting for rulings confirming that the separation pay received by an employee or by his heirs because of death, sickness or other physical disability are tax exempt, a Certificate of Tax Exemption shall be issued by the Regional Director of the BIR. However, if the reason of separation from the employer is for any other causes beyond the control of the official or employee, a request for ruling confirming tax exemption shall be processed at the Law Division in the National Office.
A letter request from the Official/Employee or by his heirs or the employer for the exemption of separation benefits from income tax and withholding tax must be submitted to the Revenue District Office where the employer is originally registered, together with a certified true copy of Death Certificate or Sworn Affidavits executed by the attending physician and the employer’s representative, clinical record or laboratory examination confirming the illness suffered by such official/employee or medical certificate confirming the physical disability of the official/employee, whichever is applicable. Other documents may also be required by the BIR to prove entitlement to the exemption.
(Revenue Memorandum Order No. 26-2011, June 13, 2011)

PEZA Registered Entity Exempt from Withholding Tax

Q: May an entity be exempted from the payment of creditable expanded withholding tax prescribed under Revenue Regulations No. 2-98, as amended, on account of registration with the Philippine Economic Zone Authority (PEZA)?
A: Yes. Section 2.57.5.(B) (2) of Revenue Regulations No. 2-98, as amended, is explicit in its provisions that the expanded withholding tax does not apply to income payments to persons enjoying exemption from payment of income taxes pursuant to the provisions of any law, general or special. PEZA-registered enterprises are granted certain preferential tax treatment under Section 24 of Republic Act No. 7916 which 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.
A PEZA-registered enterprise enjoying a 4-year-ITH, income payments made to it, with respect to its registered activity, shall not be subject to 2% expanded creditable withholding tax prescribed in Revenue Regulations No. 2-98, as amended, for the covered period of four (4) years. It must be emphasized, however, that it is constituted as withholding agent for the government. As such, it is required to withhold the tax on compensation income of its employees or the withholding tax on income payments to persons subject to tax pursuant to Section 57 of the Tax Code of 1997, as amended.
(BIR Ruling No. 142-10, December 9, 2010)

Tax Exempt Separation Pay

Q: Are separation benefits to be paid by an employer by reason of the employee’s health condition exempt from income tax and consequently from withholding tax?
A: Yes. Pursuant to Section 32 (B) (6) (b) of the Tax Code, any amount received by an official or employee or by his heirs from the employer as a consequence of separation of such official or employee from the service of the employer because of death, sickness or other physical disability or for any cause beyond the control of the said official or employee is exempt from taxes regardless of age or length of service. The phrase "for any cause beyond the control of said official or employee" connotes involuntariness on the part of the official or employee. The separation from the service of the official or employee must not be asked for or initiated by him.
This requires the presence of two (2) conditions in order that the employee benefits may be granted tax exemption, namely:
(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.
(BIR Ruling No. 131-10, December 1, 2010)

Deadline in Payment of CGT

Q: When is the reckoning date for the payment of capital gains tax?
A: For both large and non-large taxpayers, the withholding tax return, whether creditable or final, shall be filed and payments should be made, within ten (10) days after the end of each month, except for taxes withheld for the month of December of each year, which shall be filed on or before January 15 of the following year; and except for the final capital gains tax on the sale or other onerous disposition of real property considered as capital asset which must be taken/withheld from the seller by the buyer and remitted within thirty (30) days from the date of notarization of the transfer document to the collecting agent of the RDO having jurisdiction over the place where the property is located. Hence, the reckoning date for the payment of capital gains tax is, not the date of bidding, payment nor issuance of certificate of award, but the date of notarization of the transfer document or in this case, the Deed of Sale.
(BIR Ruling [DA-(C-027) 112-10], June 25, 2010)

Income Tax Exemption does not Extend to VAT

Q: Will a non-stock, non-profit corporation under Section 30 of the Tax Code be exempt from payment of VAT?
A: No. A corporation organized for charitable purposes as contemplated under Section 30 of the Tax Code is exempt from the payment of income tax on income received by it as such organization. However, the tax exemption granted to it as a non-stock, non-profit corporation covers only income taxes for which it is directly liable.
It should be noted that VAT is an indirect tax payable by the seller and not by the purchaser of goods. Being an indirect tax, it can be shifted or passed on to the buyer/purchaser, transferee or lessee of the goods, properties or services. Once shifted to the buyer/customer as an addition to the cost of goods or services sold, it is no longer a tax but an additional cost which the buyer/customer has to pay in order to obtain the goods or services.
The shifting of the VAT to a tax-exempt organization does not make it the person directly liable and therefore, said organization cannot invoke its tax exemption privilege under Section 30 (E) of the Tax Code to avoid the passing on or shifting of the VAT. Hence, a charitable organization exempt from tax under Section 30 of the Tax Code, the acquisition of equipment shall nevertheless be subject to the 12% VAT pursuant to Section 108 of the said Code, as amended by Republic Act No. 9337.   
 (BIR Ruling [DA-(VAT-019) 119-10], July 9, 2010)

Input Tax may be Charged to Expense or Cost

Q: May input taxes shifted or passed-on to an ROHQ (most of its sales are subject to VAT at 0%) by its local value-added tax (VAT) registered suppliers of goods, properties and services be recognized outright as an expense for income tax purposes, or be added to the acquisition cost upon purchase of the capital asset subject to depreciation?
A: Yes. Since it does not have other sales transactions subject to VAT against which their input taxes may be used in payment, then, it follows, that it is constituted as the final person against which the costs of the tax passed on shall legally stop and rest, hence, in this connection, the said input taxes may already be legally converted as cost available as deduction for income tax purposes.
This treatment shall likewise apply to situations involving input taxes sales already recognized in the books of the ROHQ where:
(1) the two (2) year prescriptive period had already lapsed without any claim for refund or credit having been filed;
(2) the claim for refund or credit was denied or rejected by the BIR for having been filed beyond the 2-year prescriptive period or for non-compliance with invoicing/substantiation requirements; or
(3) a claim for refund or credit is still pending with the BIR but is voluntarily withdrawn by JGC Manila ROHQ.
Provided, that in regard to input taxes attributable to the latter's zero-rated sales which it recognizes outright as an expense or charges to asset account subject to depreciation, as the case may be, (i) the input taxes shifted or passed-on to the ROHQ shall not be recorded as input tax in its books; (ii) the input taxes shifted or passed-on to it shall not be reflected/reported as input tax in its VAT returns; and (iii) the input taxes shifted or passed-on to the ROHQ shall not be claimed by the latter as tax refund or tax credit.
(BIR RULING [DA-(VAT-021) 121-10], July 9, 2010)


NOTE: BIR has new ruling in 2013 reversing this ruling.

Taxes on Foreclosed Property, When to Pay

Foreclosed asset of natural persons may be redeemed within one year from the date of registration of the sale in the Office of the Register of Deeds while those of juridical persons in an extrajudicial foreclosure may be redeemed until the registration of the certificate of foreclosure sale with the applicable Register of Deeds but not more than three (3) months after foreclosure, whichever is earlier.
Capital gains tax or Creditable withholding tax returns and payments are due within 10 days after the end of each month, except for taxes withheld for the month of December of each year which shall be filed on or before January 15 of the following year. Documentary Stamp Tax returns and payments are due within five days after the close of the month when the taxable document was made, signed, accepted, or transferred.
(Revenue Memorandum Circular No. 53-2011, November 4, 2011)

Hotel’s Other Services to Air Transport, Vatable

The BIR revoked its previous ruling in [DA-(VAT-057) 552-08] dated December 18, 2008 stating that services provided by hotels to persons engaged in international airport operations is subject to the value-added tax at zero percent (0%) rate.
The tax authority’s position with regard to this is now elucidated in BIR Ruling 099-2011 dated April 6, 2011 stating that the services provided by the Hotel to its clients engaged in international air transport operations pertain to room accommodations and food and beverage services. As they are rendered within the Hotel’s premises, they have no direct connection with the transport of goods or passengers, and as such, they cannot be considered as services directly attributable to the transport of goods and passengers from a Philippine port directly to a foreign port entitled to zero-rating, but is appropriately subject to 12% VAT.
(Revenue Memorandum Circular No. 31-2011, August 4, 2011)

VAT Threshold Amounts Increased

In compliance with the Consolidated VAT Regulations of 2005, the threshold amounts to be subject to the value-added tax were adjusted to the present value using the Consumer Price Index as published by the National Statistics Office (NSO).
The threshold amounts rounded off to the nearest hundred are as follows:

Section
Amount in Pesos (2005)
Adjusted threshold amounts
Section 109 (P) – sale of residential lot
1,500,000
1,919,500
Section 109 (P) – sale of residential house and lot or other residential dwellings
2,500,000
3,199,200
Section 109 (Q) – lease of residential unit
10,000
12,800
Section 109 (V) – sale or lease of goods or properties or performance of services
1,500,000
1,919,500


This will take effect starting January 1, 2012.
(Revenue Regulations No. 16-2011, October 27, 2011)