ra 9520 - bir issuances
TRANSCRIPT
March 2010 11111
March 2010
Tax brief
ContentsContentsContentsContentsContents
02 New LawsNew LawsNew LawsNew LawsNew Laws
• Expanded Senior Citizens Act
of 2010
• Reduction of taxes on life
insurance policies
03 CourCourCourCourCourt Decisionst Decisionst Decisionst Decisionst Decisions
• Refund of excess creditable
VAT withheld
• VAT on cinema ticket sales
• Tax on offline international
carriers
04 BSP CircularBSP CircularBSP CircularBSP CircularBSP Circular
• Guidelines for establishing
cooperative banks
06 BIR IssuancesBIR IssuancesBIR IssuancesBIR IssuancesBIR Issuances
• Amendments to the OSD
regulations
• Submission of “statement of
management responsibility”
• 2010 BIR strategy map
• Joint IRR implementing RA
9520, otherwise known as
Philippine Cooperative Code
of 2008
• BIR RIP Project
• Guidelines for monitoring
big-ticket items
• Minimum gross sales of
motels for VAT purposes
09 BIR RBIR RBIR RBIR RBIR Rulingsulingsulingsulingsulings
• Cellular phone allowance
• Long-term UITF exempt from
20% FWT
• Ascertaining worthlessness
of bad debts
10 Highlight on P&A serHighlight on P&A serHighlight on P&A serHighlight on P&A serHighlight on P&A servicesvicesvicesvicesvices
• CTA litigation support
2 2 2 2 2 March 2010
New Laws
Expanded Senior Citizens Act ofExpanded Senior Citizens Act ofExpanded Senior Citizens Act ofExpanded Senior Citizens Act ofExpanded Senior Citizens Act of
20102010201020102010
The law grants additional benefits and
privileges to senior citizens, including
exemption from valued added tax (VAT)
on their purchases of goods and services,
which are entitled to the 20% discount.
Other incentives and benefits include,
among others, the following:
1. Free vaccination against
influenza and pneumococcal
disease for indigent senior
citizens
2. Benefit assistance in the amount
of P2,000 to the nearest kin of a
deceased indigent senior citizen
3. Grant of 5% discount on water
and electric bills registered in the
name of the senior citizen,
provided that consumption is
below 100 kilowatt-hours of
electricity and 30 cubic meters
of water a month
4. Additional government
assistance, i.e., social pension/
monthly stipend of P500,
mandatory PhilHealth coverage,
and social safety assistance
(food, medicines and financial
assistance)
5. Death benefit assistance in the
amount of P2,000 in case of
death of an indigent senior
citizen, which shall be awarded
to his or her nearest kin
In the purchase of goods and services
that are on promotional discount, the law
provides that senior citizens have the
option to avail of either the promotional
discount or the 20% discount, whichever
is higher. With regard to the 20% discount
on purchase of medicines, the law
mandates the Department of Health
(DOH) to establish a mechanism of
compulsory rebates in the sharing of
burden of discount among retailers,
manufacturers and distributors. On the
other hand, the provision of Republic Act
(RA) 7432, which grants benefactors of
senior citizens the privilege to claim the
senior citizen as a dependent for tax
purposes, has been deleted.
To ensure compliance with the law, stiffer
penalties are imposed against sellers of
goods and services who refuse to extend
the benefits granted to senior citizens.
First-time violators of the law shall be
subject to a fine of P100,000 and
imprisonment of at least two years to not
more than six years. On the other hand,
any senior citizen who abuses the privilege
granted under the law also faces a fine of
P50,000 to P100,000 and imprisonment
of not less than six months.
(Republic Act No. 9994, February 15, 2010)
RRRRReduction of taxes on life insuranceeduction of taxes on life insuranceeduction of taxes on life insuranceeduction of taxes on life insuranceeduction of taxes on life insurance
policiespoliciespoliciespoliciespolicies
With regard to life insurance policies, the
law has lowered the premium tax from
5% to 2%, and revised the documentary
stamp tax (DST).
The reduced premium tax shall apply to
all life insurance policies sold after the
effectivity of the new law, and to the
remaining balance for the remaining years
of the life insurance policies that were
issued before the law took effect but
whose premiums have not yet been fully
paid.
The new law also replaces the 0.25% DST
on premiums collected from life insurance
policies to the graduated DST rates, which
range from P10 to P100 based on the
value of the insurance policy. However,
the provision of the law that eliminates
the premium tax and DST on life
insurance policies after five years from its
effectivity was vetoed by the President.
(Republic Act No. 10001, February 23, 2010)
March 2010 33333
Court Decisions
RRRRRefund of excess creditable Vefund of excess creditable Vefund of excess creditable Vefund of excess creditable Vefund of excess creditable VAAAAATTTTT
withheldwithheldwithheldwithheldwithheld
Although the law does not expressly state
that excess creditable VAT withheld is
refundable, it may be the subject of a
claim for refund as an erroneously
collected tax under Sections 204(C) and
229 of the Tax Code.
In the instant case, the excess creditable
VAT withheld consists of amounts
withheld and remitted to the Bureau of
Internal Revenue (BIR) by government
agencies that applied the 6% withholding
rate on their payments to the
taxpayer-refund claimant. Since the
taxpayer had no more output VAT against
which the excess creditable VAT withheld
may be applied or credited, the taxpayer
claimed for refund of its excess creditable
VAT withheld.
The Supreme Court (SC) held that
creditable VAT withheld should be treated
as advance payment for the taxpayer-
refund claimant’s VAT liability payable
and, therefore, the difference should be
treated as the taxpayer’s overpaid taxes.
Citing Citibank N.A. v. Court of Appeals,
which dealt with excessive income taxes
withheld but considered applicable by the
SC, the Court held that tax withheld,
while collected legally, became untenable
and took on the nature of erroneously
collected taxes.
It was, however, clarified by the SC that its
ruling only refers to the creditable VAT
withheld imposed previously under
Section 114 of the Tax Code. After the
amendment by RA 9337, the amount
withheld under Section 114 will now be
treated as a final VAT and will thus no
longer be under the creditable
withholding tax system.
(Commissioner of Internal Revenue v. Ironcon
Builders and Development Corporation, GR
180042, February 8, 2010)
TTTTTax on offline international carriersax on offline international carriersax on offline international carriersax on offline international carriersax on offline international carriers
An offline international carrier selling
passage documents through an
independent sales agent in the Philippines
is considered engaged in trade or
business in the Philippines subject to the
32% (now 30%) tax imposed under
Section 28(A)(1) of the NIRC of 1997.
The SC held that although an offline
carrier, which does not maintain flights to
or from the Philippines, is not taxable to
the 2 ½% tax — having no gross
Philippine billings (GPB) as defined under
Sec. 28(A)(3)(a) of the 1997 NIRC — it is
not exempt from paying any income tax
for its sale of passage documents in the
Philippines. As the SC ruled, such offline
international carrier should be considered
a resident foreign corporation subject to
the 32% (now 30%) tax under Sec.
28(A)(3) of the Tax Code.
The rule promulgated by the SC is that, if
the 2 ½% tax on GPB under Sec.
28(A)(3)(a) is applicable to a taxpayer,
then the general rule imposing 32% tax
under Sec. 28(A)(1) of the Tax Code
would not apply. If, however, Sec.
28(A)(3)(a) does not apply, a resident
foreign corporation — whether an
international air carrier or not — shall be
liable to the 32% tax under Sec. 28(A)(1)
of the Tax Code. This means that an
international air carrier that maintains
flights to and from the Philippines shall
be taxed at the rate of 2 1/2% of its
GPB, while an international air carrier that
does not have flights to and from the
Philippines, although exempt from 2 ½%
tax on GPB, is subject to 32% (now 30%)
tax on its income earned from other
activities in the country.
(South African Airways v. Commissioner of
Internal Revenue, February 16, 2010, GR
180356)
VVVVVAAAAAT on cinema tickT on cinema tickT on cinema tickT on cinema tickT on cinema ticket saleset saleset saleset saleset sales
The activity of showing cinematographic
films is not a service covered by VAT under
the National Internal Revenue Code (NIRC)
of 1997, as amended, since it is not included
in the enumeration of sale or exchange of
services. The activity does not fall under the
phrase “similar services” either, which
would have subjected it to the VAT.
The SC held that the activity is instead
subject only to the amusement tax under RA
7160, otherwise known as the Local
Government Code (LGC) of 1991.
According to the SC, although it was the
national government that imposed the
amusement taxes on operators and
proprietors of theaters under the NIRC of
1939, this power to impose tax on
amusement has been transferred to, and
remains exclusively with, the local
government units (LGUs).
The SC pointed out that the legislature
never intended to impose VAT on operators
or proprietors of cinema/theater houses,
which are already covered by the
amusement tax under the LGC. It also
stressed that levying the 10% VAT, in
addition to the 30% amusement tax
imposed by Section 140 of the LGC, would
impose an unreasonable burden on
operators or proprietors of cinema/theater
houses, resulting in injustice since persons
taxed under the NIRC of 1997 would be in
a better position than those taxed under the
LGC of 1991. Hence, in the absence of any
provision of law imposing VAT on the gross
receipts of cinema/theater operators or
proprietors derived from admission tickets,
the SC upheld the cancellation of the
deficiency VAT assessment issued against
the taxpayer.
(Commissioner of
Internal Revenue v.
SM Prime Holdings
Inc., and First Asia
Realty Development
Corporation,
GR 183505,
February 26, 2010)
4 4 4 4 4 March 2010
BSP Circular
Guidelines for establishingGuidelines for establishingGuidelines for establishingGuidelines for establishingGuidelines for establishing
cooperative bankscooperative bankscooperative bankscooperative bankscooperative banks
The BSP has issued the revised rules and
regulations governing the organization,
establishment, supervision and regulation
of cooperative banks pursuant to the
provisions of RA 9520 or the Philippine
Cooperative Code of 2008. The guidelines
for establishing cooperative banks are as
follows:
A. Registration, application
procedures and pre-operating
requirements
To establish a cooperative bank,
cooperatives forming the bank should
have a minimum paid in capital of P10
million. No cooperative member shall
own or control more than 40% of total
contributions of a cooperative bank.
A prospective cooperative bank shall file
its application for licensing as a bank with
the Bangko Sentral ng Pilipinas (BSP), and
upon approval, shall be registered with the
Cooperative Development Authority
(CDA). Duly registered cooperatives
applying for authority to establish a
cooperative bank shall be required to
submit documents as well as comply with
the pre-operating requirements specified
under the Manual of Regulation for
Banks.
B. Guidelines on establishment of
cooperative banks and branches
Five cooperatives are needed to establish
a cooperative bank. The majority of the
bank’s voting shares should be held by its
member-cooperatives, which are located
in the province where the head office is
located.
Only one cooperative bank may be
established in each province. The
establishment of an additional
cooperative bank may be allowed in the
same province provided it is located in a
city or municipality other than the one
where the first cooperative is situated.
A cooperative bank may set up branches/
extension offices or other banking offices
anywhere within the province where it is
located, or in cities or municipalities
where there are no other cooperative
bank head offices, branch/extension
offices, or other banking offices. The
establishment of branches shall be subject
to the prescribed minimum combined
capital requirement, ranging from P10
million to P100 million, depending on the
location of the head office and its
branches.
C. Authorized undertakings
A cooperative shall provide financial,
banking and credit services to
cooperatives and their members, although
it may also provide similar services to
non-members or to the general public. A
cooperative bank with existing investment
in insurance companies and insurance
cooperatives may reduce, and once
reduced, may not increase its equity
holdings. The entire equity holdings of a
cooperative bank in an insurance
company must be divested within five
years from the effectivity of the circular.
D. Privileges, incentives and
assistance to cooperative banks
Cooperative banks shall be given the same
privileges and incentives granted to rural
banks, thrift banks, commercial banks,
and universal banks to rediscount notes
with the BSP, the Land Bank of the
Philippines, and other government banks.
It shall also be exempt from publication
requirement on foreclosure of mortgages
and execution of judgment involving real
properties levied upon by a sheriff.
Instead, notices of foreclosures and
execution of judgment should be posted
in conspicuous areas in the banks’
premises and other areas for a period of
60 days.
(BSP Circular No. 682, February 15, 2010)
March 2010 55555
BIR Issuances
Amendments to the OSD regulationsAmendments to the OSD regulationsAmendments to the OSD regulationsAmendments to the OSD regulationsAmendments to the OSD regulations
The BIR has amended Revenue
Regulations No. (RR) 16-08 — the
Optional Standard Deduction (OSD)
regulations — relative to the manner of
claiming the OSD, which is allowed of
general professional partnerships (GPP)
and their partners, and to the procedure
for disclosing the election to use OSD in
the taxpayer’s income tax returns.
Under the new regulations, the type of
deduction used by the GPP must be the
same type of deduction availed of by the
partners. Previously, under RR 16-08, the
GPP and each of the partners were
allowed to choose their own method of
deductions. Specific rules that should be
followed by the GPP and partners in
electing deductions are as follows:
1. If the GPP chooses itemized
deductions, the partners
comprising it must also claim
itemized deductions, which are
in the nature of ordinary and
necessary expenses for the
practice of profession that were
not claimed by the GPP during
the year.
2. If the GPP avails of the OSD in
computing its net income, the
partners can no longer claim
further deductions from their
share in the net income of the
GPP.
3. If the partner derives other
gross income from trade,
business or practice of
profession apart and distinct
from his share in the net income
of the GPP, the deduction that
he can claim from his other
gross income would follow the
same deduction availed of from
his partnership income, provided
that if the GPP opts for the
OSD, the individual partner may
still claim 40% of his gross
income but not include his share
from the net income of the GPP.
The regulations likewise mandate all
GPPs and their individual partners to
signify their intention to claim either the
OSD or the itemized deduction by
checking the appropriate box in their
income tax return filed for the first
quarter of their taxable year. Once the
election is made, the same type of
deduction must be consistently applied
for all the succeeding quarterly returns
and in the final income tax return for the
taxable year. Any taxpayer who is required
to file the quarterly income tax return but
fails to do so shall be considered as having
availed of the itemized deductions option
for the taxable year.
(Revenue Regulations No. 02-10, February 24,
2010)
Submission of “statement ofSubmission of “statement ofSubmission of “statement ofSubmission of “statement ofSubmission of “statement of
management responsibilitymanagement responsibilitymanagement responsibilitymanagement responsibilitymanagement responsibility”””””
The BIR has required all taxpayers to
attach a “statement of management
responsibility” to the annual income tax
return (ITR).
The statement affirms the responsibility
of taxpayers regarding the content and
accuracy of their ITR, including the
financial statement and other information
returns that accompany the tax return. In
the statement, the taxpayer likewise
affirms that his/its ITR was prepared in
accordance with the financial accounting
standards and the provisions of the Tax
Code.
The statement should be signed by the
individual taxpayer, president and
managing partner, the Chief Executive
Officer and Chief Financial Officer, or
any officer performing similar functions
regardless of their designation. In the case
of a foreign corporation with a branch
office in the Philippines, the local
manager who is in charge of local
operations should affix his/her signature
to the statement.
The regulations provide that the statement
should be attached to all ITRs and
information returns to be filed starting
from the date of effectivity of the
regulations; that is, on March 14, 2010. In
case of failure to submit the statement,
the taxpayer, upon conviction for each act
or omission, shall be punished by a fine or
suffer imprisonment or both as prescribed
in the Tax Code.
(Revenue Regulations No. 03-10, February 26,
2010)
6 6 6 6 6 March 2010
BIR Issuances
2010 BIR strategy map2010 BIR strategy map2010 BIR strategy map2010 BIR strategy map2010 BIR strategy map
The BIR has formulated a strategy map
that identifies the programs, activities and
projects it will undertake for 2010 to
attain its revenue goals. The strategy map
includes three priority areas, 16 programs,
108 activities and projects, and 10
strategies.
The BIR’s priority areas include people
improvement, process improvement, and
taxpayer interaction improvement. As part
of its strategy to boost its collections, the
BIR shall implement the following
measures:
1. High-visibility public awareness
campaign on the enforcement
and service programs
2. Integrated approach in
administering the large taxpayers
3. Re-invigorating the Run After
Tax Evaders (RATE) program
4. Enhanced and strategic
enforcement approaches
5. Focus on big ticket items
6. More vigorous third-party
matching campaign
7. Expanded linkage with key
institutions
8. Effective partnership with
taxpayers and practitioners
9. Close monitoring of tax eroding
measures and investment
incentives programs
10. Motivating the BIR workforce
The strategy map also lists the activities
and projects that the BIR will implement
in support of its programs, which were
identified for each of the priority areas.
These include, among others, programs to
enhance enforcement such as audit of
conglomerates, transfer pricing, big-ticket
items monitoring, and computer-assisted
audit.
(Revenue Memorandum Circular 10-10,
February 2, 2010)
Joint IRR implementing RA 9520,Joint IRR implementing RA 9520,Joint IRR implementing RA 9520,Joint IRR implementing RA 9520,Joint IRR implementing RA 9520,
otherotherotherotherotherwise known as Philippinewise known as Philippinewise known as Philippinewise known as Philippinewise known as Philippine
Cooperative Code of 2008Cooperative Code of 2008Cooperative Code of 2008Cooperative Code of 2008Cooperative Code of 2008
The Department of Finance (DOF) has
issued the joint rules and regulations that
prescribe the guidelines in availing of the
tax exemptions granted to cooperatives
under RA 9520 (Philippine Cooperative
Code of 2008).
A. Tax exemption privileges
The implementing rules and regulations
(IRR) spells out the tax exemption
privileges of cooperatives, which vary
depending on whether the cooperative
deals exclusively with members or not,
and the amount of the cooperatives’
accumulated reserves and undivided net
savings in the case of those that also
transact business with non-members.
Under the IRR, cooperatives that deal
with members only shall not be subject to
any taxes and fees imposed under the
internal revenue laws and other tax laws.
These include taxes on transactions of
cooperatives with insurance companies
and banks, and the 20% and 7.5% final
withholding taxes on Philippine and
foreign currency bank deposits,
respectively. The same tax privileges are
enjoyed by cooperatives that transact
business with both members and non-
members and have accumulated reserves
and undivided net savings of not more
than P10 million.
Pursuant to the amendment introduced by
RA 9520, the IRR removed the 10-year
income tax exemption enjoyed by
cooperatives doing business with both
members and non-members and having
P10 million and more accumulated
reserves and undivided net savings under
RA 6938. Thus, their business transactions
with non-members shall be subject to all
applicable internal revenue taxes, but
transactions with members shall remain
non-taxable pursuant to the joint IRR.
Regardless of classification of
cooperative, members and shareholders
of cooperatives are now exempt from any
tax and fee, including DST on their
deposits in the cooperative and their
patronage refund.
March 2010 77777
BIR Issuances
B. Application for BIR certificate of
exemption
To enjoy the tax exemption privileges
granted under RA 9520, the IRR requires
all cooperatives to secure a certificate of
exemption/ruling within 60 days from the
date of issuance of their certificate of
registration from the CDA. For
cooperatives registered under the old law
(RA 6938), the 60-day period shall be
counted from the issuance of a new
certificate of registration by the CDA.
In case the cooperative is unable to file its
application for certificate of registration/
ruling with the BIR within the prescribed
period, it shall be subjected to all
applicable internal revenue taxes.
However, upon issuance of its certificate
of exemption/ruling, said cooperative
may apply for tax credit/refund of taxes it
previously paid from the date of
registration with CDA up to the issuance
of its certificate of exemption/ruling.
The certificate of tax exemption/ruling
shall be valid for five years from the date
of issue or date of its effectivity as
provided in the certificate, and during
such period the cooperative is in good
standing as certified by the CDA on an
annual basis.
(Revenue Memorandum Circular 12-10,
February 12, 2010)
BIR RIP PBIR RIP PBIR RIP PBIR RIP PBIR RIP Projectrojectrojectrojectroject
To maximize estate tax collections, the
BIR has launched the project Rest in
Peace (RIP), which shall monitor potential
tax cases by establishing linkages with
private and public institutions to gain
access and secure information about
decedents.
The Revenue District Office (RDO) shall
be responsible for establishing linkages
with and securing records from civil
registers, hospitals, memorial parks,
cemeteries, funeral parlors, crematoriums,
judicial clerks of courts, obituaries, life
insurance companies and other financial
institutions. All information gathered shall
be submitted to the Audit Information
Tax Exemption and Incentives Division
(AITEID) for centralized data
warehousing.
The RDO having jurisdiction over the
decedent’s principal residence shall send a
notification letter to the relatives of the
decedent regarding the requirements and
due dates for filing of notice of death, the
estate tax return, and the payment of the
estate tax. If the relatives of the decedent
fail to file the estate tax return or pay the
estate tax due, the RDO shall undertake
the necessary action to determine the
estate tax obligation of the decedent and
to protect the interest of the BIR.
On the other hand, the National Investi-
gation Division (NID) shall be respon-
sible for tracking the obituaries in the
newspapers of general circulation. The
NID shall prepare a weekly list of names
of the decedents listed in the obituaries to
determine who among these are the “high
potential” cases. The NID shall take
jurisdiction over the “high potential” cases
and undertake the same process of
notifying and reminding the relatives of
the decedent about their obligation to file
and pay the estate tax. On the other hand,
upon submission of the NID of the list
of decedents, AITEID shall ascertain the
RDO that should have jurisdiction over
the cases not considered high potential,
and transmit the same to the RDO within
five days from receipt of list from the
NID.
(Revenue Memorandum Order No. 10-10,
February 2, 2010)
8 8 8 8 8 March 2010
Guidelines for monitoring big-tickGuidelines for monitoring big-tickGuidelines for monitoring big-tickGuidelines for monitoring big-tickGuidelines for monitoring big-ticketetetetet
itemsitemsitemsitemsitems
The order prescribes the policies and
guidelines on the monitoring, review and
determination of tax consequences of
big-ticket items (BTI).
A transaction is considered a BTI if the
amount involved exceeds P200 million.
The threshold amount is considered on a
per single and unrelated event or
transaction basis; it does not take into
account the summation or the total of
several unrelated and multiple events or
transactions. A transaction may also be
considered a BTI if it involves a request
for a BIR ruling where the amount of the
transaction is over P1 million.
The information on the occurrence of a
BTI shall be sourced from reports
published in the newspapers or
broadcasted over television and radio
stations, announcements and releases in
the websites of taxpayers, and disclosures
to and/or actions from government
regulatory authorities such as the
Securities and Exchange Commission
(SEC), the Board of Investments (BOI)
and the Bangko Sentral ng Pilipinas (BSP).
The offices that shall be responsible for
monitoring and communicating with the
taxpayer/s involved in the BTI within five
days from the date of transaction or date
of discovery of transaction, are as
follows:
a. Large Taxpayer (LT) office – if
transacting parties are a large
taxpayer and non-large taxpayer
b. Enforcement service – if
transacting parties are both non-
large taxpayers
c. Commissioner of Internal
Revenue – if transacting parties
are both large taxpayers
BIR Issuances
The concerned BIR office shall send an
Access to Records letter to the taxpayer
which, if not complied with, would result
in the issuance of subpoena duces tecum
(SDT). Upon receipt of documents, the
BIR shall evaluate the tax consequences
of the transaction and determine if the
relevant taxes are paid correctly and on
time, or if there are tax issues including
aggressive tax planning and avoiding
schemes implemented by the taxpayer. A
letter of authority for a short audit may
be issued if a more thorough verification
is needed to evaluate the transaction.
(Revenue Memorandum Order No. 11-10,
February 2, 2010)
Minimum gross sales of motels forMinimum gross sales of motels forMinimum gross sales of motels forMinimum gross sales of motels forMinimum gross sales of motels for
VVVVVAAAAAT purposesT purposesT purposesT purposesT purposes
The order sets the policies and guidelines
in determining the output VAT liabilities
of establishments like hotels, resorts and
motels that offer short time
accommodation or allow customers to
stay for less than 24 hours.
Under the order, owners of motel and
other similar establishments are required
to submit to the RDO where they are
registered, a sworn declaration stating the
room type, number of rooms and rate per
room of their establishment. These
should be submitted within 10 days from
the issuance of the order, which falls on
February 20 for 2009, and on or before
January 31 of each year in the succeeding
years.
Based on the information on the sworn
declaration submitted by the owners, the
RDOs are required to prepare an
occupancy turnover analysis report
(OTAR), which shall contain the
prescribed minimum turnover rate,
additional sales, and proposed additional
output VAT to be paid by motel owners.
The RDO shall notify the motel operator
of the discrepancy noted in the OTAR
and the proposed additional output VAT
to be paid by the motel operator for each
month, and give it/him the option to
amend its/his VAT return, and pay the
additional output tax within 10 days upon
receipt of notice.
Non-amendment of VAT return shall
subject the motel to BIR surveillance for a
period of 10 days through the issuance of
a mission order. A written report will be
submitted based on the surveillance
activities conducted by the BIR. If the
motel is found to have understated its
taxable gross sales by 30% or more, the
establishment may be subject to “Oplan
Kandado.” Appropriate tax evasion cases
under the RATE program may also be
filed against the motel.
(Revenue Memorandum Order No. 16-10,
February 5, 2010)
March 2010 99999
BIR Rulings
Cellular phone allowanceCellular phone allowanceCellular phone allowanceCellular phone allowanceCellular phone allowance
Cellular phone allowance ranging from
P500 to P2,5000 is granted to supervisory
and managerial employees of an ecozone
export enterprise engaged in the
production of computer and electronic
products. This provision allows employees
to have frequent communication with the
company in order to meet order deadlines.
The BIR held that the cellular phone
allowance is required by the nature of the
jobs and redounds to the convenience and
benefit of the company’s supervisory and
managerial employees. Hence, the phone
allowance shall not be included as part of
compensation income of the employees
subject to withholding tax prescribed
under Section 79 of the Tax Code.
Neither will it be subject to the fringe
benefit tax under Section 33 of the Tax
Code, as implemented by RR 03-98, as
amended.
[BIR Ruling No. DA (ECB-029)733-2009,
December 4, 2009]
Long-term UITF exempt from 20%Long-term UITF exempt from 20%Long-term UITF exempt from 20%Long-term UITF exempt from 20%Long-term UITF exempt from 20%
FWTFWTFWTFWTFWT
Interest income derived by individual
citizens and individual resident aliens, as
well as non-resident aliens engaged in
trade or business in the Philippines, from
long-term unit investment trust fund
(UITF) that satisfies the conditions for
tax-exempt long-term deposits are exempt
from 20% final withholding tax under
Sections 24(B)(1) and 25(A)(2) of the
1997 Tax Code.
The long-term UITF was launched by the
bank to give clients access to higher
yielding investment instruments,
investment diversification and higher yield
potential. Under the declaration of trust
that governed the establishment of the
UITF, the UITF shall be limited to
individual trustors and investors who are
Filipino citizens or resident aliens. The
declaration of trust also provides that the
participation in the UITF shall be for a
period of at least five years. If
participation lasts for less than five years,
the interest income shall be subject to a
final tax based on schedule contained in
Section 24(b)(1) of the Tax Code.
Considering that the long-term UITF is in
full compliance with the requisites of
“long-term deposits or investment
certificate” as defined under Section
22(FF) of the Tax Code, the BIR ruled
that the interest income derived from the
long-term UITF by individual clients who
are Filipino citizens, resident aliens, or
non-resident aliens engaged in trade or
business within the Philippines, are
exempt from 20% final withholding tax.
However, the BIR requires the bank to set
up a separate numbering system in its
books for the long-term UITFs for
monitoring purposes.
[BIR Ruling No. DA(FIT-025) 836-2009,
December 23, 2009]
AscerAscerAscerAscerAscertaining wortaining wortaining wortaining wortaining worthlessness of badthlessness of badthlessness of badthlessness of badthlessness of bad
debtsdebtsdebtsdebtsdebts
In ascertaining the worthlessness of bad
debts, which is one of the requisites for
deductibility of bad debts, a taxpayer does
not need to go to court to ascertain that
the bad debt is worthless. What the
taxpayer must show is that it took
reasonable steps to collect the debt. If, in
the exercise of sound business judgment,
the taxpayer believes there is no likelihood
of recovery at any time in the future, the
debt may already be considered worthless.
In the instant case, the company, which is
engaged in the marketing, supply and
trade of electronic home appliances, and
its legal counsel sent demand letters to its
buyer in order to collect its accounts
receivable. Despite the demand letters, the
buyer was unable to fulfill its obligation to
pay. Considering that the company took
reasonable steps to collect the debt and
there appeared to be no likelihood of
recovery of the accounts receivable at any
time in the future, the BIR deemed the
debt worthless, which means the accounts
receivable may be written-off and claimed
as bad deduction from the company’s
gross income.
[BIR Ruling No. DA(C-296) 727-2009,
December 3, 2009]
10 10 10 10 10 March 2010
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