Page |1
TAX ALERTS
visit us on www.dmdcpa.com.ph
Penalty for Failure to Separately Indicate VAT in OR’s or
Invoices
Right to be Informed of the Facts and the Law on Which
Assessment is Based
January 2012
MAIN OFFICE:
7th & 8th Floors, Don Jacinto
Bldg., Dela Rosa cor. Salcedo
Streets, Legaspi Village,
Makati City
Tel no. +63 (2)894-5892
REGIONAL OFFICES:
New VAT Exemption Thresholds
Batangas Branch Office:
Unit 4-YCP Business Center
Tax Rule on VAT on Sale of Goods to Freeport Enterprise
J.P. Laurel Highway,
Lipa City, Batangas
Tax Rule on VAT on Electronic Books
Phone: +63(043)757-5241
Transaction on Unregistered Activities of PEZA Subject to
CWT
Cebu Branch Office:
Cebu Business Park, Mabolo,
Cebu City
VAT on Royalty Payments by PEZA Companies
Phone: +63(32)415-8108; 4158109; 415-8110
Rule on Commutation of Leave Credits
DST on Inter-company Advances Imputation
“Theoretical Interests” on Loan Advances
Unit 504 Cebu Holdings Center
Fax: +63(32)232-8029
of
Davao Branch Office:
3rd Floor Bldg. B. Plaza Luisa
Ramon Magsaysay Avenue,
Fringe Benefits Granted Must be Required or Necessary
to Business
Diaz Murillo Dalupan & Co. CPA’s
an independent member firm of
Davao City
Phone +63(82)222-6636
Tax and Corporate Services Division
Page |2
Receipts duly issued must be
Penalty for Failure to
Separately Indicate VAT in
OR’s or Invoices
d. If the sale involves goods,
properly filled up. Under section
properties
113 (B) of National Internal
some of which are subject
Revenue
as
to and some of which are
Code
(NIRC)
or
services
Bureau of Internal Revenue (BIR)
amended,
following
VAT zero-rated or VAT-
is now pushing its program to
information shall be indicated in
exempt, the invoice or
ensure issuance of receipts by
the VAT OR or VAT Invoice:
receipt
businessmen
to
the
shall
clearly
determine
1. A statement that the seller
indicate the breakdown of
whether they are paying the
is a VAT-registered person,
the sale price between its
correct
followed
Tax
taxable, exempt and zero-
encouraged by BIR to ask for
Identification Number (TIN);
rated components, and
receipts whenever they purchase
2. The total amount which the
the calculation of the
tax.
Consumers
are
by
his
goods or properties. On the part
purchaser
is
value-added tax on each
of consumers, they must know
obligated to pay to the
portion of the sale shall
that receipts issued to them are
seller with the indication
be shown on the invoice
proper, that is, they must know
that such amount includes
or receipt: Provided, That
the difference between Official
the
the
Receipts (ORs) or Invoices. ORs
Provided, that:
pays
value
or
–added
tax:
seller
separate
may
issue
invoices
or
are issued for lease of goods or
a. The amount of the tax
receipts for the taxable,
properties, and for every sale,
shall be shown as a
exempt, and zero-rated
barter or exchange of services
separate
components of the sale.
and invoices are issued for sale,
invoice or receipt;
barter or exchange of goods or
properties.
If
the
seller
item
in
the
3. The date of transaction,
b. If the sale is exempt from
quantity,
unit
cost
and
is
value-added tax, the term
description of the goods or
engaged in both sale of goods
“VAT-exempt sale” shall
properties or nature of the
and services, the customer must
be written or printed
service; and
determine the primary business
prominently
to know the correct receipts to
invoice or receipt;
on
the
be issued. Said receipts must be
c. If the sale is subject to
duly registered with Bureau of
zero percent (0%) value-
Internal Revenue (BIR). In order
added
to determine whether receipts
“zero-rated sale” shall be
are
written
duly
authorized
and
tax,
the
or
printed
registered, it must contain the
prominently
Authority to Print number.
invoice or receipt;
Diaz Murillo Dalupan & Co. CPA’s
an independent member firm of
term
on
the
Tax and Corporate Services Division
Page |3
4. In the case of sales in the
importation in its tax return, BIR
assessments issued against it. It
amount of one thousand
purportedly
also
(Php 1,000) or more where
declaration of importation by a
discrepancy
the sale or transfer is made
chemical company. Accordingly,
specified in the PAN vis-à-vis the
to a VAT-registered person,
BIR
amounts
the name, business style, if
Assessment Notice (PAN) and
computation sheet attached to
any, address and Taxpayer
Formal Letter of Demand with
the PAN.
Identification Number (TIN)
assessment notice (FAN) to the
of the purchaser, customer
company for VAT deficiency and
As pointed out by the CTA, the
or client.
Income tax deficiency.
BIR failed to provide the taxpayer
discovered
issued
non
Preliminary
discovered
in
an
alarming
the
amounts
appearing
in
the
with the list of its alleged
Thus, in case of VAT ORs or
However, in both the PAN and
undeclared
invoices on transactions, VAT-
FAN, the list of importations from
gave
registered taxpayers must show
the BOC used by the BIR for its
assessments issued against it.
separately the amount of VAT.
comparison was not provided to
The CTA also discovered an
Taxpayers found to have violated
the taxpayer.
alarming
the said mandate may , upon
became
the
amounts specified in the PAN vis-
conviction
or
taxpayer, having received the
à-vis the amounts appearing in
omission be fined an amount not
PAN, wrote, and requested for a
the computation sheet attached
less than Php 1,000 but not more
copy of the list.
to the PAN. These details are not
for
each
act
The list only
available
after
than Php 50,000 and suffer
rise
importations
to
the
discrepancy
that
deficiency
in
the
sufficient to afford the taxpayer
imprisonment of not less than 2
CTA held that the PAN and the
the opportunity to intelligently
years but not more than 4 years.
FAN are not valid because they
answer the assessment as well as
(Revenue Regulation No. 18-
violate Section 228 of the Tax
prepare documentary evidence
2011, November 21, 2011)
Code, which provides that a
for its protest. (BASF Philippines,
taxpayer must be informed in
Inc. v. Commissioner of Internal
writing of the legal and factual
Revenue, November 22, 2011)
Right to be Informed of the
Facts and the Law on Which
Assessment is Based
bases of the tax assessment
against
him,
otherwise,
the
assessment shall be void.
Thru the RELIEF program of the
BIR whereby a simple procedure
In the case, BIR failed to provide
like the computerized matching
the taxpayer with the list of its
of Bureau of Customs (BOC)
alleged undeclared importations
records
that gave rise to the deficiency
and
taxpayer’s
Diaz Murillo Dalupan & Co. CPA’s
an independent member firm of
Tax and Corporate Services Division
Page |4
New VAT Exemption Thresholds
On October 28, 2011, BIR issued
The new thresholds shall take effect starting January
Revenue
Regulation No. 16-2011 increasing the threshold
1, 2012. (Revenue Regulations No. 16-2011, October
28, 2011)
amounts for the VAT exemption of the following
transactions pursuant to Section 109 (P), (Q) and (V)
In understanding the difference between (Q) and
of the National Internal Revenue Code (NIRC)
(V), the former presupposes that regardless of
whether the gross annual rentals received by the
Old VAT
Exemption
Threshold
(P) Sale of real
property not
primarily held for sale
to customers or held
for lease in the
ordinary course of
trade or business; or
Real property utilized
for low-cost housing
and socialized
housing; or
Residential lot
House and lot and
other residential
dwelling
(Q) Lease of
residential unit with a
monthly rental:
** Regardless of the
amount of aggregate
rentals received by
the lessor during the
year.
(V) Sale or lease of
goods or properties
or the performance
of services other than
the transactions
mentioned above
New VAT
Exemption
Threshold
lessor exceeds Php 1, 919, 5000 as long as the
subject of lease is a residential unit, the lessor is not
subject to VAT, while the latter presupposes that if
the taxpayer’s gross annual sales and/or receipts
Php 1,500,000
and below
Php 1,919, 500
and below
exceeds Php 1, 919, 500 and the transactions
involve are sale or lease of goods or properties or
the performance of services other than leasing of
residential unit then said taxpayer will be subject to
VAT.
Tax Rule on VAT on Sale of Goods to
Freeport Enterprise
Php 2, 500,
000 and
below
Php 3, 199, 200
and below
Not exceeding
Php 10, 000
Not exceeding
Php 12, 800
In this case, a VAT-registered IT company sells its
electronic gaming machines to a Freeport zone
registered enterprise. The BIR ruled that “A VATregistered IT company is subject to 0% VAT on its
sale of electronic gaming machines to a freeport
zone-registered enterprise.”
The BIR anchored its ruling in Section 3 of RMC 50-
gross annual
sales and/or
receipts do
not exceed
Php 1,500,000
Diaz Murillo Dalupan & Co. CPA’s
an independent member firm of
Not exceeding
Php 1, 919, 500
07, which provides that sale, barter, exchange, or
lease of all goods, properties, and/or services to a
freeport zone-registered enterprise shall be subject
to 0% VAT in case the seller is a VAT
seller/contractor from the customs territory.
Tax and Corporate Services Division
Page |5
provided the following requisites
law only applies to printed
are present:
matters in hard copy. Books or
1. If these appear at regular
intervals;
2. With
to electronic or digital format in
fixed
prices
for
subscription and sale ;
and
The sale of an electronic gaming
machine qualifies for VAT zerorating
under
RMC
3. Sale
50-07
publications that are converted
CD-ROM
and
DVD-ROM,
for
example, are not embraced by
the VAT exemption under the
NIRC. (BIR Ruling 340-2011 issued
is
not
devoted
principally
to
the
considering that the equipment
publication
of
paid
was purchased by a freeport
advertisement.
on September 7, 2011)
In exempting “books” under
section 109 (R) of NIRC, the
zone-registered enterprise from a
government had in mind the
VAT-registered enterprise from
objective
the customs territory. Moreover,
dissemination.
the input tax paid attributable to
information’s of such “books” are
the zero-rated sale may be
converted into an electronic
refunded to the IT company.
copy, the objective now is for
Accordingly, the seller, in order
profit which should be taxed.
of
information
But
when
to claim for VAT refund, must
show proof of payment of VAT on
the equipment it purchased and
subsequently sold to the freeport
zone-registered enterprise. (BIR
Ruling No. 352-2011, September
28, 2011).
Tax Rule on VAT on Sale of
Electronic Books
Under section 109 (R) of NIRC,
the sale, importation, printing, or
publication of books and any
newspaper, magazine, review, or
bulletin are exempt from VAT,
Diaz Murillo Dalupan & Co. CPA’s
an independent member firm of
When BIR issued BIR Ruling 3402011 on September 7, 2011, it
ruled
that
the
sale
of
an
Transactions on Unregistered
Activities of PEZA Subject to
CWT
A call center company which is an
electronic copy of any publication
information
does
the
enterprise registered with the
purview of the terms “books,
PEZA, currently enjoying Income
newspapers,
tax
not
come
within
periodicals,
holiday,
technology
leases
its
magazine, review or bulletin”,
transmission facilities to another
which are exempt from VAT
call center company. They both
under Section 109 (R) of NIRC.
entered
BIR emphasized that the said
agreement. Its registered activity
terms, for purposes of the VAT
with
a
PEZA
master
indicates
service
only
Tax and Corporate Services Division
Page |6
customer
care
and
business
derived
by
PEZA-registered
part of the cost of goods destined
from
processing outsourcing services.
enterprises
their
for consumption outside the
Apparently, the lease of its
unregistered activities is not
territorial border of the taxing
transmission facilities does not
covered by ITH and other tax
authority. On the other hand, it
form part of its registered activity
incentives granted to them under
cannot indirectly made to bear
with PEZA.
RA 7916. As such, their income
the VAT
from unregistered activity should
exempt from internal revenue
be taxed at the rate of regular
laws under RA 7916, citing also
internal
revenue
the case of CIR vs. Seagate
should
be
taxes
and
subjected
to
withholding tax pursuant to RR
Since the lessee withhold the
02-98. (JP Morgan Chase Bank,
supposed tax on the lessor
N.A. – Philippine Customer Care
company’s rental income, the
Center
latter argued that there was
Internal Revenue and Revenue
erroneous withholding, hence, it
District
sought
Makati City, CTA Case No. 7962,
refund
for
the
tax
withheld.
Commissioner
Officer of
RDO
(G.R
153866,
February 11, 2005).
of
50,
September 23, 2011)
The CTA held that the income
payment was correctly subjected
to
v.
Technology
since it is an entity
withholding
tax
VAT on Royalty Payments by
PEZA Companies
and,
erroneous
Considering that the resident
withholding and remittance was
withholding agent is a PEZA-
made that would have given rise
registered enterprise operating
to a claim for refund by the
within an economic zone, it can
company.
neither be directly charged with
therefore,
no
Accordingly, its royalty fees to
the
nonresident
foreign
corporation shall be exempt from
VAT. (BIR Ruling No. 199-2011,
June 29, 2011)
VAT nor indirectly made to bear,
CTA explained that although
as added cost, the VAT. It cannot
PEZA-registered enterprises are
be directly charged with VAT
exempt from CWT under Section
because, by operations of law,
2.57.5
their
economic zones are deemed
exemption from withholding tax
separate customs territory. Thus,
does not cover their income from
under the cross-border principle
unregistered activities.
of VAT system, no VAT shall form
of
RR
2-98,
Income
Diaz Murillo Dalupan & Co. CPA’s
an independent member firm of
Tax and Corporate Services Division
Page |7
Rule on Commutation of
Leave Credits
BIR has ruled that commutation
vouchers. The BIR subject such
and
intercompany
payment
of
monetized
advances
for
unused sick and VL credits as a
documentary stamp tax (DST)
In commutation and payment of
result of involuntary separation
under Section 180 of the Tax
monetized unused sick leave and
of employees from the service
Code.
vacation leave credits as a result
shall only be exempt to the
of
of
extent of 10 days for VL. Thus,
SC held that the instructional
employees from the service,
the cash equivalent of VL credits
letters as well as the journal and
different tax rule applies if it
exceeding 10 days is subject to
cash vouchers evidencing the
involves private employees and
tax.
advances FDC extended to its
government
In the case of the monetized
affiliates
Monetized unused sick leave
unused
agreements
credits of private employees are
equivalent, regardless of number
documentary stamp taxes may
always
their
of monetized SL credits, is subject
be imposed.
monetized vacation leave credits
to income tax and consequently
are exempt only up to 10 days.
to withholding tax.
involuntary
separation
taxable
employees.
while
SL
credits,
its
cash
taxable. Monetized unused sick
BIR held that the principle in
leave and vacation leave credits
exempting monetized VL cannot
of government employees are
be applied to SL credits since an
always tax exempt.
employee must actually go on SL
to avail of the leave credits. (BIR
The above rule is discussed
Ruling No. 199-2011, June 29,
thoroughly by the BIR when it
2011)
which
173 of the 1993 NIRC, the same
applies to all loan agreements,
whether made or signed in the
Philippines, or abroad when the
obligation or right arises from
Philippine
or
the
property or object of the contract
located
or
used
in
the
Correlatively,
Section 3 (b) and Section 6 of
Revenue Regulations No. 9-94
Development
Corporation (FDC) extended cash
advances on its affiliates FAI, FLI,
DSCC and FCI. Such affiliates’
advances
sources
Philippines."
DST on Inter-company
Advances
intercompany
upon
loan
Section 180 of 1997 NIRC , when
is
issued BIR Ruling No. 199-2011
Filinvest
as
read in conjunction with Section
Exceeding that, it is already
on June 29, 2011.
qualified
are
covered by mere instructional
provide as follows:
Section
3.
Definition
of
Terms. – For purposes of
these
Regulations,
the
following term shall mean:
letters and/or cash and journal
Diaz Murillo Dalupan & Co. CPA’s
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Tax and Corporate Services Division
Page |8
(b) 'Loan agreement' – refers
Development Corporation (FDC)
The SC held that the CIR's powers
to a contract in writing where
on cash advances it made on its
of distribution, apportionment or
one of the parties delivers to
affiliates FAI, FLI, DSCC and FCI.
allocation of gross income and
another
other
The CIR argues that theoretical
deductions under Section 43 of
consumable thing, upon the
interests can be imputed on the
the 1993 NIRC and Section 179 of
condition
same
advances FDC extended to its
Revenue Regulation No. 2, does
amount of the same kind and
affiliates considering that, for
not include the power to impute
quality shall be paid. The
said purpose, FDC resorted to
"theoretical interests" to the
term
interest-bearing fund borrowings
controlled
be
from commercial banks. Since
transactions.
evidenced by credit memo,
considerable interest expenses
definition of “gross income” in
advice or drawings.
were deducted by FDC when said
Section 28 of the 1993 NIRC,
funds were borrowed, the CIR
there must be proof of the actual
formal
theorizes that interest income
or, at the very least, probable
agreements or promissory notes
should likewise be declared when
receipt or realization by the
have been executed to cover
the same funds were sourced for
controlled taxpayer of the item of
credit facilities, the documentary
the advances FDC extended to its
gross income sought to be
stamp tax shall be based on the
affiliates. Invoking Section 43 of
distributed,
amount of drawings or availment
the 1993 NIRC in relation to
allocated by the CIR.
of the facilities, which may be
Section
evidenced by credit/debit memo,
Regulation
advice or drawings by any form
maintains that it is vested with
of check or withdrawal slip,
the power to allocate, distribute
under Section 180 of the Tax
or
Code.
Development
deductions between or among
Corporation v. Commissioner of
controlled organizations, trades
Internal Revenue, GR 163653
or
and 167689, July 19, 2011)
absence of fraud, since said
money
shall
facilities,
In
cases
that
or
the
include
which
where
(Filinvest
credit
may
no
179(b)
No.
apportion
businesses
of
Revenue
2,
the
income
even
in
the
The
BIR
interests
imputed
and
theoretical
assessed
for
deficiency income taxes Filinvest
Diaz Murillo Dalupan & Co. CPA’s
an independent member firm of
reflect the income of any such
businesses."
trades
apportioned
to
or
or
evasion of taxes or clearly to
organizations,
Pursuant
CIR
power is intended "to prevent
Imputation of “Theoretical
Interests” on Loan Advances
taxpayer's
or
On the perusal of the record
yielded no evidence of actual or
possible
showing
that
the
advances FDC extended to its
affiliates had resulted to the
interests subsequently assessed
by the CIR. For all its harping
upon the supposed fact that FDC
Tax and Corporate Services Division
Page |9
had resorted to borrowings from
officers
under
commercial banks, the CIR had
percent (60%) of the car plan
adduced no concrete proof that
availment
said funds were, indeed, the
petitioner and the remaining
source of the advances the
forty percent (40%) for the
former provided its affiliates.
account of the officer, payable in
(Filinvest
Development
five (5) years. The BIR assessed
Corporation v. Commissioner of
PAGCOR for deficiency fringe
Internal Revenue, GR 163653
benefit tax.
is
which
shouldered
sixty
the CTA upheld the deficiency
FBT. (PAGCOR vs CIR, ibid).
by
and 167689, July 19, 2011)
Fringe Benefits Granted Must
Be Required or Necessary to
Business
Section 33 (B) of NIRC defines
Fringe benefit
as any good,
service or other benefit furnished
CTA held that PAGCOR failed to
or granted in cash or in kind by
substantiate its claim that the car
an employer to an individual
plan was required by the nature
employee (except rank-and-file
of or was necessary to its
employees) such as but not
business operation. It was unable
limited to the following: xxxx (3)
to
Vehicle of any kind xxx.
convincing evidence that the
In the case of PAGCOR vs CIR
subject
(CTA Case No. 7880, July 6, 2011),
required or necessary in the
CTA
benefits
conduct of its business or without
granted by employer to its
such fringe benefit its operation
supervisory
managerial
would be hampered or adversely
employees, to be considered as
affected. Neither was petitioner
fringe benefits, the same must
able to prove that the car plan
inure to the benefit of the
extended to its employees inured
employer.
to its benefit. For the company’s
In the said case PAGCOR provides
failure to substantiate its claim,
explains
that
and
present
fringe
sufficient
benefit
and
was
a car plan program to its qualified
Diaz Murillo Dalupan & Co. CPA’s
an independent member firm of
Tax and Corporate Services Division
P a g e | 10
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Diaz Murillo Dalupan & Co. CPA’s
an independent member firm of
Tax and Corporate Services Division