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WITH the advent of new technologies, most of our daily transactions can now be done online. Whether buying for personal use or for business purposes, people nowadays are into online buying and selling. Because of the benefits and advantages of online shopping -- convenience, a variety of options, and access to your account anywhere -- consumers are driven from High Street to iStreet. It is about time that the Bureau of Internal Revenue (BIR) issued Revenue Memorandum Circular No. (RMC) 552013, which presents highlights of the compliance requirements of parties who are into online business transactions. Just like any other business establishments, persons who conduct business through online transactions are likewise required to register the business at the Revenue District Office (RDO) that has jurisdiction over the principal place of business or residence (for an individual), secure Authority to Print (ATP) invoices or official receipts and register books of accounts either manually or electronically, withhold the required tax on compensation of employee (s), expanded and final tax, file the applicable tax returns altogether with the required attachments and pay the corresponding tax due. The most common type of online business transaction is online shopping. This is where customers directly buy goods and services from a seller via the Internet. In some cases, the sellers are individuals with no registered business and/or registered official invoices or receipts. Just like any other sellers, online merchants are required to issue BIR-registered invoice or official receipts, whether the payment is made in cash, upon delivery of goods or through third-party payment gateways or settlement entities used for online transactions such as banks, credit card companies and bill paying services. On top of this, online merchants are also required to comply with regular bookkeeping and compliance requirements applicable to all businesses. However, nothing was mentioned on how the buyer would be able to withhold tax on purchases and how the corresponding creditable withholding tax would be provided to the retailers of online transactions, especially if payment is also made online. Other online transactions covered by the circular include: - online intermediary service, wherein a third party acts as a conduit for goods and services offered by a supplier to a consumer; - online advertisement in the form of a promotion that uses the Internet to deliver marketing messages to attract
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REVENUE Regulations No. (RR) 12-2013, which were issued more than a month ago, made a drastic impact on some taxpayers. Many got panicked and were upset by the sudden change while others remained skeptical on the seriousness of the intent of the regulation and immediately took precautionary measures to mitigate the impact of the issuance on their businesses. The regulation was issued to amend the old rule relative to the requirements for deductibility of expenses. Under the old rule, if a deficiency withholding tax is discovered by the Bureau of Internal Revenue (BIR) examiner during an investigation, the expense item to which such deficiency withholding tax relates will still be allowed as deduction against the taxable income in the year incurred, provided that the deficiency withholding tax plus interest or penalties are paid by the taxpayer during the investigation. Under the new rule (RR 12-2013), however, even if the deficiency withholding tax is paid during the investigation, the expense item to which such deficiency withholding tax relates will not be allowed as a deduction against the taxable income in the year incurred. The taxpayers, as withholding tax agents, will have to face dire consequences -- i.e., assessment on withholding tax and income tax -- once found noncompliant. Among the income payments that will be greatly affected by the regulation are the petty cash expenses and reimbursable business expenses. Note that corporations designated by the BIR as one of the Top 20,000 Corporations (TTC) are required to withhold a tax of 1% or 2% on purchases of goods and services, respectively. Time and again, withholding on reimbursements has been an issue for businesses. For instance, as for petty cash expenses, withholding on every expense incurred by officers and employees for meals, representation and entertainment, gasoline, administrative expenses, out-of town-expenses and supplies are found by the taxpayers to be impractical to do. It has been a concern that officers and employees (including company drivers and utility men) are not likely to withhold on small expenses. They are not expected to bring with them withholding tax certificates (BIR Form 2307) whenever they incur such expenses. To address these complexities, what should the taxpayers do? It is imperative among taxpayers to be more prudent and vigilant of their withholding tax obligations. It is not
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HAVE you ever done something without thinking about what you could gain from it? In the world of business, more often than not, people make decisions based on what they can get out of the situation or how they can benefit from it. It is innate in people to always want to be in a win-win situation. But, what if the thing that you have to do is imposed on you? Do you still have the pleasure of weighing the benefits before you act? On Oct. 22, 2012, the Bureau of Internal Revenue (BIR) issued Revenue Regulations (RR) No. 18-2012, which prescribes the guidelines for the processing and requirements to secure Authority to Print (ATP) invoices and official receipts (ORs); the regulations also grant exclusive authority to BIR-accredited printers to print ORs and invoices. All noncompliant unused invoices and ORs were set to be valid only until June 30, 2013, which was later on extended until Aug. 30, 2013. In Revenue Memorandum Order (RMO) No. 12-2013, the required information
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2. No definite period of processing of applications for ATPs that are already with the BIR. Another issue brought up by taxpayers is the length of time it takes the BIR to process the ATP applications. Understandably, the BIR has been deluged with applications for ATPs. Some taxpayers are saying that their applications are still pending approval from the bureau despite constant follow-ups. Now that we know the complaints of taxpayers, lets now discuss the brighter side of the story. What can companies gain if they patiently go through the process of ATP applications? 1. Be the preferred supplier with approved ATP. Obtaining an approved ATP has some perks too. I personally believe that suppliers with approved ATP will have an edge over their noncompliant competitors. Why? Because complying with ATP regulations, which also promulgate the invoicing requirements, may have a material effect on their customers claims for input taxes and claims for deduction for income tax purposes. Under the value-added tax (VAT) regulations, claims for input taxes shall be supported by documents that indicate the required information in the VAT invoices and VAT ORs. Such requirements were also reiterated in RMO No. 12-2013. Furthermore, it was provided under RMC No. 44-2013 that, after August 30, 2013, transactions supported by receipts printed prior to Jan. 18, 2013 may not be allowed as deduction. 2. Expect early payments from customers. Yes, having compliant invoices and ORs may have an effect on the collections of the suppliers. There are some customers who are stringent when it comes to invoicing requirements. Some refuse to pay unless compliant supporting documents are presented to them upon payment of their dues. This is especially true for those who are aware of the consequences of failure to comply with substantiation and invoicing requirements, and for those who expect to accrue excess input tax carry-overs over the life of their businesses. 3. Save on unnecessary penalty costs and enjoy a life outside prison bars. Failure to comply with the ATP regulations is subject to penalties prescribed under Sec. 264 of the Tax Code, which imposes a fine of not less than P1,000 but not more than P50,000. In addition to such penalty, related criminal liability may be imposed and taxpayers may suffer imprisonment of not less than two years but not more than four years. The Aug. 30 deadline is drawing near, and not all taxpayers are ready with their new ATPs, invoices and receipts. Taxpayers who have yet to secure their ATPs are crossing their fingers that the BIR will further extend the deadline. But without such an extension, taxpayers only have the remaining two weeks to process their applications and comply with the requirements of the BIR. As to whether or not they can beat the deadline, we will find out come Aug. 30. The author is a senior with Punongbayan & Araullos (P&A) tax advisory and compliance division. P&A is the Philippine member firm within Grant Thornton International Ltd. For comments and inquiries please e-mail Rose.Salvador@ph.gt.com or call 886-5511.
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Posted on July 29, 2013 10:48:00 PM Further regulating the privilege of non-stock, non-profit organizations
IN THE MIDST of its goal to increase tax collections, the Bureau of Internal Revenue (BIR) has issued new rules imposing additional requirements on taxpayers for the strict implementation of our tax laws. The most recently issued rules are directed to non-stock, non-profit organizations. Non-stock, non-profit organizations are created to achieve a specific purpose other than generating profit. They undertake activities which would otherwise have been the responsibility of the government. As a way of rewarding this social contribution, nonstock, non-profit organizations are given tax exemptions. Under the 1987 Philippine Constitution, charitable institutions, churches and parsonages or convents appurtenant thereto, mosques, non-profit cemeteries, and all lands, buildings, and improvements, actually, directly and exclusively used for religious, charitable, or educational purposes shall be exempt from taxation. For non-stock, non-profit educational institutions, all income and assets used actually, directly and exclusively for educational purposes shall be exempt from taxes and duties. A similar grant of tax exemption is also provided for in the Tax Code, which states that non-stock, non-profit educational institutions, as well as a non-stock corporation or association organized and operated exclusively for religious, charitable, scientific, athletic, or cultural purposes, or for the rehabilitation of veterans, shall be exempt from tax on income received by them as such. Note however, that the tax exemption privileges of non-stock, non-profit organizations are not absolute. It does not cover all types of income and activities. In fact, under the Tax Code, income from properties and activities conducted for profit by nonstock, non-profit corporations is subject to income tax. Thus, for proper implementation of this tax exemption, non-stock, nonprofit organizations are required to comply with certain regulatory requirements of the BIR and other government agencies. It is not unknown that there have been instances when non-stock non-profit organizations were used to escape taxation. Under Revenue Memorandum Circular No. (RMC) 76-03, the BIR initially provided guidelines for the proper implementation of taxes due to non-stock, non-profit corporations. The said RMC discussed the nature of the income exempt from and subject to tax. In connection to this, the BIR recently issued Revenue Memorandum Order No. (RMO) 20-2013, which prescribes guidelines for the applications for tax exemption, revalidation of tax exemption certificates and application for confirmatory BIR rulings. The RMO provides a list of documentary requirements and guidelines for the evaluation of the applications. Among others, the BIR requires submission of a statement under oath executed by an executive officer of the non-stock, nonprofit corporation or association containing its modus operandi. The statement shall include: (a) a full description of the past, present and proposed activities; (b) a narrative description of anticipated receipts and contemplated expenditures and; (c) a detailed description of all revenues which it seeks to be exempted from income tax.
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Initial feedback among the organizations is that compliance with this requirement may be difficult, particularly with information pertaining to future income and activities which may or may not push through depending on the circumstances. With the strict requirement that all other revenues not included in the statement shall be subject to income tax, it is possible that some unexpected sources not included in the application will be unreasonably taxed. The RMO further provides for the causes of revocation of the tax exemption certificate or ruling. A tax exemption ruling shall be deemed revoked if there are material changes in the character, purpose, or method of operation of the corporation or association which are inconsistent with the basis for its income tax exemption. In addition, non-renewal of the tax exemption ruling and nonrevalidation of tax exemption certificate shall revoke the exemption. Further, the income tax -- exempt status shall be lost if the corporation or associated which has been issued a tax exemption ruling fails to file an annual information return. For the guidance of non-stock, non-profit organizations, tax exemption rulings or certificates issued prior to June 30, 2012 shall be valid until Dec. 31, 2013. While those issued after June 30, 2012 shall continue to be valid for a period of three years from the date of issuance unless sooner revoked or cancelled. It is advised that organizations with expiring tax exemption rulings and certificates start the preparation of the lengthy list of requirements to avoid revocation of their exemption. On one hand, this issuance would, once and for all, set clear guidelines on the compliance requirements for non-profit organizations. Many times in the past, they fail to avail of their privileges for failure to comply with some requirements which they are not aware of. On the other hand, while the rules under RMO 20-2013 are necessary to ensure compliance with the conditions attached to the tax exemption, the BIR should ensure that the requirements will not be unreasonably stringent. The BIR should consider that, in addition to its rules, non-stock, non-profit organizations also have to comply with the requirements imposed by other government agencies such as the Department of Education, Department of Finance and Philippine Council for non-government organizations (NGOs). Bear in mind that regulation should not hinder the availment of the privilege afforded to non-stock, non-profit organizations under our laws. The author is a tax manager with Punongbayan & Araullos (P&A) tax advisory and compliance division. P&A is a leading audit, tax and an advisory service firm and is the Philippine member of Grant Thornton International Ltd.
Willful blindness doctrine MERE RELIANCE on another person in preparing, filing and paying income taxes is not a justification for failure to file the right information on income taxes. In People v. Gloria Kintanar (CTA EB Crim. No. 006, Dec. 3, 2010), Ms. Kintanar was charged with failure to make or file her income tax returns (ITR), violating Section 255 of the 1997 National Internal Revenue Code (NIRC), as amended. She claimed that she did not actively participate in the filing of her joint ITR with her husband since she entrusted such duty to the latter who, in turn, hired an accountant to perform their tax responsibilities. She testified that she did not know how much her tax obligation was; nor did she bother to inquire or determine the facts surrounding the filing of her ITRs. Despite several notices and subpoena received by the accused, only an unsupported protest letter made by her husband was filed with the Bureau of Internal Revenue (BIR). The Court of Tax Appeals (CTA) En Banc found her neglect or omission tantamount to deliberate ignorance or conscious avoidance. As an experienced businesswoman, her reliance on her husband to file the required ITR without ensur ing its full compliance showed clear indication of deliberate lack of concern on her part to perform her tax obligations. This ruling was sustained by the Supreme Court (SC) in 2012. Based on the foregoing, the willful blindness doctrine was applied by the CTA, as sustained by SC on cases where there is a natural presumption that the taxpayer knows his/her tax obligations under the law considering the factual circumstances of the
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Are you a legitimate tax refund claimant? WHY DOES a taxpayer go to court seeking value-added tax (VAT) refund when he knows he does not comply with the requisites for a tax refund? Out of 37 VAT refund cases which the Court of Tax Appeals (CTA) decided for the year 2013, only 10 cases were granted. In most instances, taxpayers were denied their claim for refund for failing to comply with some basic requirements. Considering the large percentage of denied cases that result from this, taxpayers are advised to ensure they have all the pertinent documents that would corroborate their claims for refund to avoid unnecessary expenses and wasted efforts. Well-settled is the rule that tax refunds are in the nature of tax exemptions and, as such, they are regarded as derogation of sovereign authority and are construed as strictly against the person or entity claiming them. Simply stated, the taxpayer seeking refund has no choice or alternative but to comply with all the administrative and substantive requisites for refund. Below are the basic requirements for VAT refunds. The taxpayer must be VAT-registered. Under Section 112 (A) of the Tax Code, in order to be entitled to refund/tax credit of unutilized input VAT, the taxpayer must be VAT-registered. Thus, a VAT-registered taxpayer that incurred input VAT or made VAT-zero rated sales prior to VAT registration is not entitled to claim refund for the unutilized input VAT. In CTA Case No. 8326, dated June 13, 2013, the input VAT that was the subject of refund refers to the VAT paid by the taxpayer on its purchase of land, while its alleged zero-rated sale of service occurred when it entered into a lease agreement with its affiliate PEZA-registered IT enterprise. The CTA remarked that the unutilized input VAT on the purchase of land was incurred by the taxpayer at a time when it was not yet registered as a VAT taxpayer. Moreover, the land lease agreement was executed before the taxpayers VAT registration. Considering the above situation, the court denied the taxpayers claim for refund on the groun d that there is no input VAT that can be a subject of refund, and the sale of service is not yet considered a VAT zero-rated sale when the taxpayer was not yet VAT-registered. There must be zero-rated or effectively zero-rated sales. In case of export sales, in order for such to qualify as zero-rated, there should be a sale and actual shipment of goods from the Philippines to a foreign country, the sale should be paid for in acceptable foreign currency, and the payment should be accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP). In CTA Case No. 8270, dated June 11, 2013, the VAT-registered taxpayer proffered documents such as official receipts, HSBC Certification and BNP Paribas Consolidated Cash statement proving its receipt of foreign currency remittance. However, the court denied the petition for refund since the taxpayer failed to submit VAT zero-rated invoices and export documents such as export declarations and bills of lading or airway bills. Consequently, it was held that the taxpayer failed to comply with the basic rules of proving the existence of zero-rated sales and actual shipment of goods. Input VAT should be properly substantiated. A VAT-registered taxpayer must substantiate its input VAT claimed in the VAT returns with sales invoices for purchases of goods and official receipts for purchase of services showing the information required in the Tax Code. The information required therein includes, among others, the amount of the tax which is separately shown in the invoice or receipt and date of transaction.
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BIR shifting burden to taxpayers? TAX compliance has never been this burdensome, as evidenced by various complaints and uproars from taxpayers that the Bureau of Internal Revenue (BIR) normally shrugs off. There have been numerous BIR regulations and issuances that seemed to have shifted too much burden to the taxpayers; noncompliance therewith even results in imposition of steep penalties. Are these issuances still in line with the BIRs functions? Are these beneficial to taxpayers or only of convenience to the B IR? How are taxpayers supposed to respond to these seemingly burdensome issuances? Is the power of taxation properly exercised? These are just some concerns taxpayers nowadays ponder on. In analyzing whether or not the BIR unduly shifts burden to taxpayers, an understanding of the role of the BIR and the reason for its issuances is necessary. The BIR and its priorities. The BIR is an administrative agency attached to the Department of Finance mandated to accomplish
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