VAT on importing from within

 Economy
Jun 212017
 

If a buyer in the Philippines purchases goods from a Philippine Economic Zone Authority (PEZA) registered enterprise, is the purchase subject to value-added tax (VAT)?
Under Section 107 of the Tax Code in relation to Section 26 of Republic Act No. 7916 (PEZA Law), sale of goods by a PEZA-registered enterprise to a buyer in the Philippines (i.e., domestic sales) is considered a “technical importation,” i.e. the buyer is treated as the importer and the sale shall be charged the corresponding VAT. The rationale for this tax treatment is that an ecozone is considered a separate customs territory which creates a legal fiction that it is a foreign territory, even though located within the Philippines. In essence, purchases from an ecozone are likened to purchases made from abroad. Thus, the sale is treated as a technical importation.

Regulating M&As: The intent of the law

 Economy
Jun 142017
 

Mergers, acquisitions, and other corporate combinations (or simply, “M&As”) are a big part of the modern-day business world. They help businesses grow quickly and, if put to good use, positively impact the economy. From a business standpoint, they provide a way for parties from both sides to obtain valuable assets, both tangible and intangible. They also provide an opportunity for companies to achieve synergy (i.e., be more profitable as a single entity as compared to the individual combining parties). M&As could even be beneficial to smaller firms by giving them a chance to adopt business practices of larger, more established firms. These benefits are acknowledged by our Tax Code which grants an incentive to firms seeking to enter such transactions. Considering the intent of the law and the economic benefits M&As could bring, this incentive should be made easily available to taxpayers.

Tax reform for individuals on the horizon

 Economy
Jun 072017
 

The term “Reform” comes from the Latin word “reformare,” which means to form again, alter or change. Although first usage dates back to the mid-1600s, it has been used repeatedly these past months as the Philippines’ long overdue tax reform seeks to amend select provisions of the National Internal Revenue Code of 1997 or the Tax Code.

A simple mistake

 Economy
Apr 242017
 

Can the Bureau of Internal Revenue (BIR) issue an assessment even after the lapse of the three-year prescriptive period even if it is clear that no fraud was committed? This is the question I usually received from clients. And my answer to this question is, “Yes.” The general rule is that the BIR is given three years to issue an assessment against a taxpayer. However, Section 222 of the Tax Code of 1997, as amended, provides three instances where the prescriptive period is extended to 10 years from discovery. These are: (1) if the return is false; (2) if the return is fraudulent with the intent to evade taxes; and (3) if no return is filed. Among these three cases, the issue normally lies in what constitutes a false return. Would a simple mistake make a return false for purposes of applying the 10-year prescriptive period?

Hope in pending VAT claims

 Economy
Jan 232017
 

It is usual in the Philippines that the same tax law provision has been interpreted and implemented differently by different Commissioners of Internal Revenue (CIR). This is the case of the value-added tax (VAT) claim processing. Section 112 of the Tax Code provides that a taxpayer claiming excess input VAT for refund or tax credit must file the claim with the Bureau of Internal Revenue (BIR) within two years of the close of the taxable quarter during which the sales were made. In case of full or partial denial of the claim or failure of the BIR to act on it within a period of 120 days from receipt of the claim, a taxpayer may elevate its claim to the Court of Tax Appeals (CTA) within 30 days from receipt of the decision or upon expiration of the 120-day period.

Vested interests rule

 Economy
Jan 182017
 

One may chuckle at the fact that the word “interest” is used 135 times in different parts of the Tax Code but is never defined. “Interest” as used in the Tax Code refers to: • Income earned from “deposits,” “deposit substitutes,” “trust funds” and other similar arrangements • Income generated from loans, bonds, notes, and other forms of borrowings • The additional imposition whenever a taxpayer belatedly pays a tax • Revenue received from lending activities by bank, non-bank financial intermediaries and finance companies which is subject to the gross receipts tax (GRT) of 1% to 5% depending on the remaining maturity of the underlying debt instrument, and which is subject to readjustment of tax rates under certain conditions.

New guidelines in securing tax exemption ruling for separation pay

 Economy
Dec 122016
 

Here is some good news: Issuance of rulings on the tax exemption of benefits paid to employees separated because of retrenchment or closure of the business are now devolved to the Revenue District Offices (RDOs) of the Bureau of Internal Revenue (BIR). As we all know separation pay received by an employee, or his heirs, because of death, sickness, or other physical disability, or for any cause beyond the control of the employee, is exempt from income tax, and consequently from withholding tax pursuant to Section 32(B)(6)(b) of the Tax Code. Cause beyond the control of the employee includes retrenchment due to redundancy or installation of labor-saving devices, or due to closure of the business.

‘Issue-based’ VAT audits are coming

 Economy
Sep 262016
 

Assessment and collection of taxes — these are the two chief functions of the Bureau of Internal Revenue (BIR), which is tasked to interpret and implement the provisions of the National Internal Revenue Code of 1997, as amended. To meet the objective, the Tax Code grants broad powers to the Commissioner of Internal Revenue which includes the power to authorize the examination of any taxpayer and the assessment of the correct amount of tax through the examination of any book, paper, record, or other data which may be relevant or material to such inquiry — commonly known as tax audits.

Favorable developments in deficiency and delinquency interest

 Economy
Apr 182016
 

Taxpayers may have finally been given two rays of hope by the Court of Tax Appeals when it comes to the applicability of deficiency and delinquency interest in tax assessments. Taxpayers under assessment are often faced with two types of interest under the Tax Code. The first, deficiency interest, is imposed on any deficiency tax due from the date prescribed for its payment until the full payment thereof. The second, delinquency interest, is imposed on the deficiency tax, or any surcharge or interest thereon on the due date appearing in the notice and demand of the BIR. Interest rates for both are at 20%.

Finally, peace on the PEACe bonds front

 Economy
Aug 242015
 

Taxpayers have found some interpretations of the Tax Code to be unfair. There is hope in the courts though as seen in the Supreme Court decision on the Poverty Eradication and Alleviation Certificates (PEACe bonds). More than a decade ago, the Bureau of Treasury issued to the winning bidder P35 billion worth of 10-year zero-coupon treasury bonds designated as PEACe bonds of the Caucus of Development Non-Governmental Organization Networks (CODE-NGO), the country’s largest nonstock, nonprofit organization, which is composed of six national and six regional member networks, working for social development.

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