BIR Issuances

Tax brief
July 2013

BIR Rulings

Court Decisions

Highlight on P&A services

Contents
BIR Issuances
Submission of BIR Form 2316
to the BIR


02
Classification of real estate
service practitioners for
withholding tax purposes
03
Extension of validity of old
receipts and invoices
03
BIR Rulings
Tax treatment of sale of services
by a PEZA Joint Venture
04
Tax treatment of separation pay
due to retrenchment
05
Court Decisions
Refund of input VAT prior to VAT
registration


Proof establishing VAT zero-rated
direct export sales

Presentation of quarterly ITRs in
refund claims


Proper remedy in contesting LBT
assessment


Highlight on P&A services
Corporate restructuring

06
06
07
08

09

BIR Issuances

BIR Rulings

Court Decisions

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BIR Issuances

Submission of BIR Form 2316 to

the BIR
The Bureau of Internal Revenue
(BIR) has required all employers
to submit the duplicate copy of
BIR Form 2316 (Certificate of
Compensation Payment/Tax
Withheld) of their employees who
are qualified for substituted filing to
the BIR.
Under Section 2.83 of Revenue
Regulations No. (RR) 2-98, as
amended, every employer is required
to furnish its employees (including
minimum wage earners) BIR Form
2316 on or before January 31 of
the succeeding calendar year, or if
employment is terminated before
the close of such calendar year, on
the day on which last payment of

compensation is made. Failure to

furnish BIR Form 2316 shall be
grounds for the mandatory audit
of payors income tax liabilities
(including withholding tax) upon
verified complaint of the payee.
In addition to the requirement to
furnish BIR Form 2316 to employees,
the BIR now requires that all
employers submit the duplicate copy
of BIR Form 2316 to the BIR not
later than February 28 following the
close of the calendar year. Failure to
submit/file BIR Form 2316 on or
before February 28 following the
close of the calendar year will merit a
penalty of P1,000 for each failure, or
a maximum amount of P25,000 for all
such failures during a calendar year.

In case the employer fails to comply

with the filing or submission of
BIR Form 2316 for two consecutive
years, the employer shall be liable
to a fine in the amount of P10,000
and suffer imprisonment of not less
than one year but not more than 10
years upon conviction, in accordance
with Section 255 of the Tax Code.
This is in addition to other penalties
provided by law. In settlement, a
compromise fee of P1,000 for each
BIR Form 2316 not filed without any
maximum threshold shall be collected
by the BIR.
(Revenue Regulations No. 11-2013, June
6, 2013)

July 2013

BIR Issuances

BIR Rulings

Court Decisions

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BIR Issuances

Classification of real estate

service practitioners for
withholding tax purposes
Income derived by a licensed real
estate practitioner (real estate
consultant, real estate appraisers and
real estate brokers) in his practice
of profession shall be considered
professional fee subject to 15%
creditable withholding tax (CWT)
if his gross income for the current
year exceeds P720,000, and 10% if
otherwise under Section 2.57.2(A)(1)
of RR 2-98, as amended.
In the case of real estate service
practitioners (RESPs) who failed
or did not take up the licensure
examination given by the Real
Estate Service and are not registered
with the Real Estate Service under
the Professional Regulations
Commission (PRC), their income
shall be subject to 10% CWT under
Section 2.57.2(G) of RR 2-98, as
amended.

The 10% or 10%/15% withholding

tax rates shall apply to income
payments paid or payable to real
estate practitioners starting June 1,
2013.
(Revenue Regulations No. 10-2013, June
6, 2013)
Extension of validity of old
receipts and invoices
All unused and unissued principal
and supplementary receipts/invoices
printed prior to January 18, 2013,
shall be valid until August 30,
2013. Thus, beginning August 31,
2013, taxpayers who are required
to secure a new authority to print
(ATP) should already issue their new
principal and supplementary receipts/
invoices.
Issuance of old receipts starting
August 31, 2013 shall be deemed
as if no receipts were issued.
Consequently, transactions supported

by such old receipts may not be

allowed as deduction to the buyer.
All old unused principal and
supplementary invoices shall be
surrendered to the Revenue District
Office (RDO) where the taxpayer is
registered on or before the 10th day
after the date of printing of the new
principal and supplementary receipts/
invoices.
Under RR 18-2012, the ATP for the
new principal and supplementary
receipts/invoices must be secured 60
days before the expiry date of the old
ATP, which fell on April 30, 2013.
Thus, in the case of taxpayers who
failed to secure their ATP last April
30, 2013, they are required to pay
the P1,000 penalty for late filing of
application.
(Revenue Memorandum Circular No. 442013, June 11, 2013)

July 2013

BIR Issuances

BIR Rulings

Court Decisions

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BIR Rulings

Tax treatment of sale of services

by a PEZA Joint Venture
The sale of service by an
unincorporated joint venture (JV)
comprised of two IT enterprises
registered with the Philippine
Economic Zone Authority (PEZA)
that are both under the 5% tax
regime, for the exclusive purpose of
providing engineering and IT-enabled
services to a PEZA-registered
enterprise, is not considered a local
sale of service.
A PEZA economic zone is by
fiction of law considered a separate
customs territory. As such, services
rendered by the JV within the
PEZA special economic zone shall
be deemed as being performed or
rendered in foreign territory or
foreign soil, and therefore, not within

the customs territory. Hence, the

sale of IT-enabled services should
not be considered a local sale of
service. Moreover, since the ITenabled services to be rendered by
the JV are all within the scope of
the PEZA-registered activities of its
members that is subject to 5% tax,
the transaction shall be exempt from
VAT.
Being a PEZA-registered company
under the 5% preferential tax, the sale
of services, goods or properties by
VAT-registered local suppliers and/or
subcontractors shall be subject to 0%
VAT if the seller is VAT-registered,
or VAT-exempt if the supplier is nonVAT registered.

As regards the income payments

to the local suppliers and/or subcontractors by the unincorporated
JV, the same shall be subject to
the regular income tax at 30%
and, consequently, to the CWT.
Accordingly, being the party making
the payments and having control
over the payments, the JV shall act as
the withholding agent under Section
2.57.2 of RR 2-98, as amended.
(BIR Ruling No. 199-2013, May 21,
2013)

July 2013

BIR Issuances

BIR Rulings

Court Decisions

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BIR Rulings

Tax treatment of separation pay

due to retrenchment
Separation or termination from the
service as part of the companys
retrenchment program are considered
separation that is beyond the control
of the separated official or employee.
As such, any amount received by
such officials or employees as a
consequence of their separation shall
not be included in gross income
and shall be exempt from taxation
pursuant to Section 32 (B) (6) (b) of
the Tax Code, as amended.

regards monetization of sick and

vacation leave credits, only the cash
equivalent of vacation leaves not
exceeding 10 days shall be exempt
from tax, while the monetized value
of all sick leave credits of separated
employees shall be subject to income
tax.
(BIR Ruling No. 227-2013, June 20,
2013)

However, the tax exemption does not

cover the payment of the separated
employees salaries and the payment
of 13th month pay and other benefits
in excess of the P30,000 threshold
under Section 2.78.1(A)(3)(a) and
(A)(7) of RR 2-98, as amended. As

July 2013

BIR Issuances

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Court Decisions

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Court Decisions

Refund of input VAT prior to VAT

registration
A VAT-registered taxpayer that
incurred input VAT on its VATzero rated sales prior to its VAT
registration is not entitled to claim
refund for such unutilized input VAT.

when it entered into a lease agreement

with its affiliate PEZA-registered IT
enterprise. The taxpayer incurred
the VAT and the alleged zero-rated
transaction took place when the
taxpayer was not yet VAT-registered.

Under Section 112(A) of the Tax

Code, in order to be entitled to
refund/tax credit of unutilized input
VAT, the following requisites must
be satisfied: (1) the taxpayer must be
VAT-registered; (2) the taxpayer must
be engaged in sales that are zero-rated
or effectively zero-rated; (3) the claim
must be filed within the two years
after the close of the taxable quarter
when such sales were made; and
(4) the input taxes were not applied
against any output VAT liability
during and in the succeeding quarters.

Considering 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, there is no input
VAT that can be a subject of refund.
Moreover, the Court of Tax Appeals
(CTA) held that since the land lease
agreement was executed before the
taxpayers VAT registration, its sale
of service is not yet considered a VAT
zero-rated sale. Hence, for failure
to establish that it incurred input
taxes and rendered zero-rated sale
of service, the taxpayers claim for
refund was denied by the CTA.

In the instant case, 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

(Crescent Park 14-678 Property Holdings,

Inc. v. Commissioner of Internal Revenue,
CTA Case No. 8326, June 13, 2013)

Proof establishing VAT zerorated direct export sales

Under Section 112(A) of the Tax
Code, a VAT-registered taxpayer
with input taxes attributable to zerorated or effectively zero-rated sales
is entitled to claim for refund of its
unutilized input VAT within the
two-year period from the close of the
taxable quarter when such sales were
made.

As one of the transactions subject

to zero-percent rate, direct export
sales qualify as VAT zero-rated sale
pursuant to Section 106(A)(2)(a)
(1) of the Tax Code if the following
conditions are present: (1) there was
a sale and actual shipment of goods
from the Philippines to a foreign
country; (2) the sale was made by a
VAT-registered person; (3) the sale
was paid for in acceptable foreign

July 2013

BIR Issuances

BIR Rulings

Court Decisions

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Court Decisions

currency or its equivalent in goods

or services; and (4) the payment was
accounted for in accordance with the
Bangko Sentral ng Pilipinas (BSP)
rules and regulations.
On the other hand, the documents
that should be presented by the
taxpayer to prove that there is
direct export sales are: (1) sales
invoice as proof of sale of goods;
(2) export declaration and bill of
lading or airway bill as proof of
actual shipment of goods from the
Philippines to a foreign country; and
(3) the bank credit advice, certificate
of bank remittance or any other
document proving payment for the
goods in acceptable foreign currency
or its equivalent in goods and
services.
While the taxpayer-refund claimant
was able to prove that it was a VATregistered taxpayer, the CTA held
that the documents such as official
receipts, and bank certificates/cash

statements submitted by the taxpayer

cannot be linked to its export
sales due to its failure to submit its
VAT zero-rated sales invoices and
export documents, such as export
declarations and bills of lading, or
airway bills. Hence, for failure to
submit the aforesaid documents, the
CTA held that its sales cannot qualify
for VAT zero-rating and its input
VAT cannot be refunded.
(Philippine Gold Processing & Refining
Corporation v. Commissioner of Internal
Revenue, CTA Case No. 8270, June 11,
2013)
Presentation of quarterly ITRs in
refund claims
In the case of claims for refund
of excess or unutilized CWT, the
presentation of succeeding quarterly
income tax returns (ITRs) is required
to prove that the taxpayer did not
carry over and/or apply its excess
withholding taxes to the succeeding
taxable quarters.

According to the CTA, the

presentation of quarterly ITRs
is necessary to establish that the
taxpayer claiming the refund did
not exercise its option to carry over
its excess unutilized withholding
tax against its tax liabilities for the
succeeding taxable quarters.
The CTA pointed out that the option
to carry over excess withholding tax
under Section 76 of the Tax Code
is exercised against the quarterly
income taxes to the taxable quarters
of the succeeding taxable years. Since
it is against the quarterly income
taxes in the quarterly ITRs that the
option to carry over is exercised,
the CTA maintained that the best
evidence to prove that there was
really no carry over is not the final
adjustment return or annual ITR,
which may be amended at the end
of the taxable year, but the quarterly
ITR where the exercise to carry over
actually takes place.

Hence, in case of failure to present

succeeding quarterly ITRs, the CTA
cannot determine with reasonable
certainty whether the taxpayer
claiming the refund opted to carryover its excess and unutilized
CWT. In such an instance, since
the taxpayer is unable to prove its
entitlement to refund, its claim for
refund of its excess unutilized CWT
shall be denied by the CTA.
(Jardine Lloyd Thomson Insurance Brokers,
Inc. v. Commissioner of Internal Revenue,
CTA EB Case No. 861 re: CTA Case No.
7916, June 5, 2013)

July 2013

BIR Issuances

BIR Rulings

Court Decisions

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Court Decisions

Proper remedy in contesting LBT

assessment
Under Section 195 of the Local
Government Code (LGC), if a
taxpayer is dissatisfied with a local
treasurers denial of his protest or
if there is no action regarding his
protest over an assessment, the
taxpayer has 30 days within which
to appeal to the court of competent
jurisdiction.

denial of its protest with finality, the

taxpayer wrote a letter to the office
of the treasurer reiterating its stand
that it is not subject to local business
tax (LBT). It was after receiving the
notices of seizure, garnishment and
warrant of levy that the taxpayer
filed a petition with the court for the
issuance of temporary restraining
order against the notices for the
collection of its unpaid LBT.

The CTA held that the wordings

of Section 195 of the LGC is plain,
unequivocal and mandatory that
the taxpayer shall have 30 days,
reckoned from the taxpayers receipt
of the denial of his protest, within
which to appeal the denial with the
court of competent jurisdiction.
Otherwise, the assessment shall
become final and unappealable.

The CTA ruled that since no appeal

was filed by the taxpayer to the
court within the 30-day period
provided under Section 195 of the
LGC, the assessment for LBT had
become conclusive and appealable.
Considering that the taxpayer failed
to assail the validity of its LBT
assessment by filing a timely appeal
with the court, the taxpayer lost
its right to question the validity of
the assessment, and consequently,
it could not seek judicial action

Instead of filing an appeal with the

court of competent jurisdiction (i.e.,
Regional Trial Court) within the 30day period after receiving the LGUs

to enjoin the concerned LGU in

enforcing the collection of its unpaid
LBT through the civil remedies
provided under the LGC.
(Benguet Electric Cooperative v.
Municipality of La Trinidad, Benguet and
Municipal Treasurer, CTA AC No. 85,
June 7, 2013)

July 2013

BIR Issuances

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Court Decisions

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Corporate restructuring
We render advisory services and
assistance on the implementation of
and in obtaining required government
approvals for, a clients plan to
undergo various types of corporate
restructuring arrangements such
as increase or decrease of capital
stock, conversion of debt to equity,
undergoing equity restructuring
or quasi-reorganization, dividend
declaration or profit repatriation,
or any other amendments to a
companys Articles of Incorporation
and/or By-Laws. We also assist in
analyzing, implementing and securing
required government approvals for
mergers, spin-offs of business units,
and tax-deferred exchanges/transfers
of properties for shares.

If you would like to know more about our corporate

restructuring services, please contact:
Atty. Eleanor L. Roque
Division Head
Tax Advisory and Compliance
T + 632 886 5511 ext. 550
F + 632 886 5511 ext. 606
E Lea.Roque@ph.gt.com

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E Lina.Figueroa@ph.gt.com

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