tax issues

7/21/2019 Tax issues

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2010 BAP PRIORITY TAX ISSUES

ISSUE DETAILS/COMMENTS/RECOMMENDATIONS BANK/REMARKS

GROSS RECEIPT TAXGROSS RECEIPT TAXOn FCDUOnshoreIncome e.g.interestincomederived byFCDU fromOFW Bonds

There should be consensus so all banks ill be consistentith the basis of com!utation. Currently" e are notcom!uting #$T on FCDU Income

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Clari-ed !er BI$$uling &o. /020 in a 3etter tothe B%4 dated5e!tember 620

BI$ $uling &o. D% 7FIT128 /+120 dated %!ril 2*" 20

held that interest income on 9ulti1currency $etail TreasuryBonds 79$TB8 booked under the Foreign CurrencyDe!ository Unit 7FCDU8 is sub:ect to gross recei!ts ta;7#$T8 based on 5ection 020 of the &I$C.

%s raised by the B%4" the e;em!tion !rivilege of FCDU !riorto the e<ectivity of the &I$C of 0((6 has been restoredunder $% (2(+.Clari-cation on BI$ $uling &o. D% 7FIT128 /+120regarding the interest income derived by FCDUs from theFi;ed1=ear 9ulti1Currency $etail Treasury Bonds or >rTBs>./? #$T on OFW retail treasury bonds 7$TBs8

The BI$ should immediately release its !osition on theim!osition of #$T on the interest income from the $TBs.We understand that '49# is handling the re@uest forclari-cation for B%4.

On interestIncome fromInvestmentssuch as#overnment5ecurities

Clari-cation regarding the correct #$T rate to be im!osedon interest income from 4hili!!ine government securities.5ection 020 of the &I$C !rovides that #%%4 as !rescribedby the B54 shall be the basis for the calculation of grossrecei!ts. %s the interest income from governmentsecurities are re!orted to the B54 under >Financial %ssetsAeld for Trading>" can the interest still be considered as

income from lending activities

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%s !reviously ruled by BI$ 7$uling &o. 61+8" #overnment5ecurities are considered de!osit substitute instruments. Itmay follo that income from these instruments isconsidered income from lending activities" sub:ect to /?#$T" hoever" !er BI$ e;aminers" this is sub:ect to 6?.

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On formula forcom!utation of gross recei!tssub:ect to #$T

;ce!t for Interest Income sub:ect to Final Withholding Ta;"gross recei!ts shall mean the interest actually collected.Currently" #$T is based on actual recei!ts 7for incomesub:ected to FWT" 0? of the interest income is the #$Tbase used8. 4er the banks e;ternal auditor" com!utation is

based on accrued interest income.

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OnDeterminationof net gainfrom sale of !ro!ertiesac@uiredthroughforeclosure

$evenue $egulations 7$$8 &o. (12+ de-nes grossrecei!ts as the com!ensation for all -nancial and non1-nancial services" or combination thereof" !erformed by-nancial institutions ithin the 4hili!!ines" hich includeE7m8 &et gain from the sale of !ro!erties ac@uired throughforeclosure lodged under the account $eal and Other4ro!erties Oned and %c@uiredG 7$O4O%" no $O4%8 orunder any other a!!ro!riate account" hich is measured bythe di<erence beteen the selling !rice or the

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ISSUE DETAILS/COMMENTS/RECOMMENDATIONS BANK/REMARKSconsideration received for such sale and the carrying costor book value of the asset at the time of sale as determinedin accordance ith the generally acce!ted accounting!rinci!les !rescribed by the Banko 5entral ng 4ili!inas7B548 for banks and non1bank -nancial intermediaries!erforming @uasi1banking functions" or by the 5ecuritiesand ;change Commission 75C8 for other -nancialintermediaries.On same sub:ect" B54 Cir. &o. +(+B/ issued on 5e!tember2" 2/" stating that $O4% is sub:ect to de!reciation andim!airment. Based on the foregoing" the carrying cost orbook value of $O4% is higher net of de!reciation. %s such" itill result to high gain in case of sale.

Under 5ection + 7%8 H 7B8 of the &ational Internal $evenueCode 7&I$C8 of 0((6" original cost should be used in thecom!utation of gain or loss from sale or dis!osition of !ro!ertyE

5C. +. Determination of %mount and $ecognition of #ainor 3oss.

7%8Com!utation of #ain or 3oss. The gain from thesale or other dis!osition of !ro!erty shall be thee;cess of the amount realiJed therefrom over thebasis or ad:usted basis for determining gain" and theloss shall be the e;cess of the basis or ad:usted basisfor determining loss over the amount realiJed. Theamount realiJed from the sale or other dis!osition of !ro!erty shall be the sum of money received !lusthe fair market value of the !ro!erty 7other thanmoney8 receivedK

7B8 Basis for Determining #ain or 3oss from 5ale orDis!osition of 4ro!erty. The basis of !ro!erty shallbe

708 The cost thereof in the case of !ro!erty ac@uiredon or after 9arch 0" 0(0," if such !ro!erty asac@uired by !urchase.

DOCUMENTARY STAMP TAXDOCUMENTARY STAMP TAXOn 3ocal Wire

TransfersClari-cation on the BI$s re!ly to the B%4 7dated Lune 22"208 regarding the im!lementation of the eD5T system.

On the matter of 3ocal 4eso or Dollar Telegra!hic Transfers"the BI$ stated that the a!!licable D5T rate is 4h4 ., forevery 4h4 2" or fractional !art thereof" and not the -;edrate of 4h4 0./.

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It should be clari-ed ith the BI$ as to hether or not D5Tis im!osable on local ire transfers. If said transfers aresub:ect to D5T" the BI$ should also state hich rate to use74h!0./ or 4h!., !er 4h!2.8.

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D5T on 4DDTs and 4eso $T#5 transactions 7dollar and !esotransfers ithin the 4hili!!ines8.

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ISSUE DETAILS/COMMENTS/RECOMMENDATIONS BANK/REMARKSOn bills ofe;change.

Is D5T a!!licable on the document 7bill of e;change8 or onthe transaction)!rivilege of having the transaction7suchthat ire transfer" sift instructions" !ayment instructionsare sub:ect to D5T8. Does the actual funds Mo a<ect D5Ttreatment

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Common stand by the banking industry on the !ro!era!!lication of 5ection 0* 1 D5T on domestic bills of e;change.

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On eD5TIm!lementation

%ssuming that the Bank has com!lied ith all the BI$re@uirements" hen ill BI$ credit the D5T under the D5Tmachine to its eD5T account Is there a deadline for BI$ tocredit

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On 3Cs and T$s

This issue should also be raised again ith the BI$ in lightof the !rinci!les set forth in the !revious rulings that onlyone1D5T should a!!ly. Is it the intention of the BI$ torevoke all such rulings Can the banks still re@uest for aruling by invoking the early BI$ o!inions

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What ould be the B%4 stand on the N6)%N6 on the

$evenue 9emo Circular &o. /0120 reE im!osition of D5Ton 3Cs and on T$s

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PP For D5T" our eD5T access is fully functional for all users7e;ce!t for those ith defective !rinters1alreadycoordinated by them ith ITD8K $e@uest for transfer of unused D5I9 balance is already ith 9s. Qera of Collection 5ervice for -nal a!!roval" as of %ug 2

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5e!arate D5T on 3)C O!ening" &egotiation" Trust recei!tsdes!ite a clari-cation from BI$ Ta; 3egal Counsel in 0(((stating that only one D5T shall be collected for thesetransactions !rovided it !ertains to the same shi!ment.

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Whether or not se!arate D5T should indeed be im!osed on

letters of credit and trust recei!ts !ursuant to $9C /01207e believe there should only be one D5T !ursuant to theone1transaction rule of the BI$8K

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On TieredDe!osits

The BI$ should issue guidelines !roviding the s!eci-cmethod for com!uting the D5T on tiered de!ositsconsidering that the same have no de-nite maturity dateand the amounts may Muctuate from time to time 7unlikean ordinary debt instrument8.

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On syndicatedloans

Clari-cation on the collection of D5T on FCDU syndicatedloans here the client is located abroad" the lead

underriter is also a foreign bank and the 4hili!!ine branchis :ust one of the !artici!ants.

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CREDITABLE #IT$$OLDING TAXCREDITABLE #IT$$OLDING TAXOn TrusteeFees

Creditable ithholding ta; rate on trustee fees 1 Thetrustee fees are treated by the BI$ as fees !aid tomanagement and technical consultantsG and thus" sub:ectto the 0?)0/? ithholding ta;. We are arguing that thetrustee is not such a consultant" but merely a su!!lier of services and thus" the fees being received from the clientsill not be sub:ect to ithholding ta; unless the !ayee has

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ISSUE DETAILS/COMMENTS/RECOMMENDATIONS BANK/REMARKSbeen noti-ed by the BI$ as one of the to! 2"cor!orations.

On FCDUIncome Ta;

4er 5ec. 2,N 7L8 of the &I$C" only one Ta;!ayersIdenti-cation &umber 7TI&8 shall be assigned to a Ta;!ayer. In case of banks" to 728 TI&s are assignedE one for$egular Banking Unit 7$BU8 and one for Foreign CurrencyDe!osit Unit 7FCDU8. Is this contrary to 5ec. 2,N7L8 of the&I$C If the $BU has suRcient Creditable Withholding

Ta;es 7CWTs8" can it a!!ly the CWTs to FCDU income ta;

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On &et$evenues

Whether only ta;able income items shall be considered ingetting the net revenues as the basis for the 0? limit !er$$ 0122

&et revenues" as de-ned under $$ 0122 shall be grossrevenues less discounts. #ross $evenues shall meaninclusive of both ta;able and non1ta;able) recon items. 4er5#Q" use the ta;able income as basis for 0? limit

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On Interest;!ense

Whether Interest ;!ense incurred by banks are deductiblein full for !ur!oses of 9CIT com!utation

Interest ;!ense is considered direct cost for banks" hichshall be deductible in full for 9CIT com!utationK %rbitragea!!lied only on $CIT com!utation. 4er 5#Q" interestarbitrage may or may not be a!!lied for !ur!oses of 9CITcom!utation

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%OREIGN CURRENCY DEPOSIT UNITS%OREIGN CURRENCY DEPOSIT UNITSOn issuance of

regulation

We agree ith the rest of the members of the B%4 Ta;

Committee that it is time for the BI$ to issue regulations onthe FCDU la. It is suggested that the B%4 to assist the BI$on this endeavor.

The issuance of the FCDU regulations ould e<ectivelyclarify the coverage of the legal !rovisions in favor of FCDUs and OBUs e.g." #$T and D5T.

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Clari-ed !er BI$$uling &o. /020 in a 3etter tothe B%4 dated5e!tember 620 hiche<ectivelyrestored $evenue$egulation 016N.

With the introduction of the several changes in theOBU)FCDU ta;ation" a consolidation of the various rulesand regulations 7e.g. under 4D nos. 0,+ and 0,/" $% nos.*+2+ and (2N+8 governing the ta;ation of the OBUs andthe FCDUs ill be re@uired to establish a de-nite set of

guidelines ith res!ect to the correct FCDU)OBU ta;a!!lication.Im!lementing rules of the ne FCDU Ta; regulation7$estoration of FCDU ta; e;em!tion8 hich ill cover the#$T on multi ccy bonds

On onshore ta; Whether Onshore Income from residents but not fromforeign currency loans" is sub:ect to $egular and 9inimumCor!orate Income Ta;. There should be consensus so allbanks ill be consistent ith the basis of com!utation.Currently" these are not sub:ected to 0? Onshore ta; but

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ISSUE DETAILS/COMMENTS/RECOMMENDATIONS BANK/REMARKSare re!orted as e;em!t since e do not com!ute $CIT)9CIT for FCDU. 4er our e;ternal auditor" there is a!ossibility that these ill be sub:ected to $CIT and 9CIT

TAX TREATY TAX TREATY On relief !riorto availment of

ta; treatyrates ore;em!tion

5ecuring a ta; treaty relief from the BI$ !rior to availmentof the ta; treaty rates or e;em!tion. 5uggests that the

BI$ should look into $evenue 9emorandum Order &o. 01 and consider amending the same so that the ta;!ayersill no longer be re@uired to secure a ta; treaty relief fromthe BI$ !rior to availment of the !referential rates ande;em!tion under the ta; treaty.

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Whether or not all claims for ta; treaty relief should be!receded by ta; treaty relief a!!lications ith the BI$1IT%D7e believe this makes the claim for !referential ta; treatyrate unieldy and im!ractical and com!letely disregardsthe self1e;ecuting nature of international ta; treaties8

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On !referential

rates ondividendincomereceived from4hili!!inecor!oration

Custodian banks have been !ushing for the longest time

on the !ossible streamlining of !rocedures for theavailment by foreign investor custodian clients of ta; treaty!referential ta; rates on dividend income received from4hili!!ine cor!orations.

The custodian banks have coordinated closely ith the4hili!!ine 5tock ;change 7458 on this issue and the 45has already made several !resentations and !ro!osals for!ossible im!rovement of the ta; treaty relief availment!rocess to the BI$ in the !ast months but to no avail.

The BI$ IT%D 7International Ta; %<airs Division8 is guidedby the !rinci!le that the availment of a ta; treaty !rovision

must be !receded by an a!!lication for ta; treaty relief to!revent erroneous inter!retation of ta; treaty !rovisions.Aoever" it takes BI$ IT%D several months 7about si;months8 to !rocess an ta; treaty relief a!!lication andissue the corres!onding IT%D ruling. There is anurgent need for the BI$ to streamline the e;isting!rocedures to im!rove the eRciency and service tononresident ta;!ayers.

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