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ISSN 2094-1226/January 2018

Not zero, VAT 12 p4 | The TRAIN is rolling p6 | TRAIN work-arounds p7 |


Much-awaited leniency p9 |

Client advisory
letter

www.pwc.com/ph/cal
At a glance IFRS IC decision
Updates, reiterations, and clarifications on
selected topics
on interest and
penalties related
Taxes, compliance matters, assessments, and refunds
Enact before you tax....................................................................... 4 to income taxes
Not zero, VAT 12............................................................................... 4
Redeemed dividends...................................................................... 4
You don’t earn capital...................................................................... 5
No magic in FDDA........................................................................... 5
Misdirected action........................................................................... 5
The TRAIN is rolling......................................................................... 6 Issue
TRAIN work-arounds....................................................................... 7
Special sweetener........................................................................... 8 The IFRS Interpretations Committee (IC) issued an
Single window policy....................................................................... 8 agenda decision in September 2017 on interest and
PEZA eCAR processing.................................................................. 9 penalties related to income taxes.
Much-awaited leniency ................................................................. 9
Tax on microfinance NGOs ............................................................ 9 IFRIC 23, ‘Uncertainty over income tax treatments’,
applies to income taxes within the scope of IAS 12,
Latest on regulatory landscape ‘Income taxes’. It does not address the accounting for
PSE TRAIN ride ............................................................................ 10 interest and penalties related to income taxes. The IC
Long-lasting gift check.................................................................. 10 considered whether it should develop guidance and
Beware of virtual currency............................................................ 10 concluded that the benefits of improvements in financial
Clearing of sugar............................................................................ 10 reporting from a project to consider interest and penalties
Good deeds....................................................................................11 would not outweigh the costs. It therefore decided that
More time to be holy ......................................................................11 it should not develop guidance, and it issued an agenda
Outside retail .................................................................................11 decision.
Acquiring control of HMOs ...........................................................11
All for one.........................................................................................11 The IC observed in the agenda decision that entities do
Entity identity.................................................................................. 12 not have an accounting policy choice between applying
New contractor’s licensing .......................................................... 12 IAS 12 and applying IAS 37, ‘Provisions, contingent
Window for registration ................................................................ 12 liabilities and contingent assets’, to interest and penalties.
Revised FX Manual ....................................................................... 13 If an entity considers that particular amount payable or
receivable for interest and penalties is an income tax, IAS
12 is applied to that amount. If an entity does not apply
IAS 12 to an amount payable or receivable for interest
About our cover photo and penalties, it applies IAS 37 to that amount.

Adam (middle, Assurance), Allan (left, Tax), and The IC also observed that:
Abram (right, Assurance) are all sons of former • an entity discloses its judgment in this respect applying
Tax Principal George J. Lavadia. With their early paragraph 122 of IAS 1, ‘Presentation of financial
statements’, if it has a significant effect on the amounts
exposure to the industry, it was a no-brainer for the
recognized in the financial statements; and
siblings to follow the footsteps of their father. Having • regardless of whether an entity applies IAS 12 or
all the support and guidance from their parents, IAS 37 when accounting for interest and penalties,
the Lavadia brothers are determined to continue the entity discloses information about those items
their father’s legacy of excellence by helping foster a if material, because both IAS 12 and IAS 37 provide
disclosure requirements.
professional and holistic workplace with their peers.

2 Client advisory letter 2017


Impact The relevant standard should be applied consistently to all
aspects of the accounting.
Who might be affected?
Any entities that receive or pay interest or penalties related • The guidance in IAS 12 (and IFRIC 23 with effect from
to income taxes might be affected by the agenda decision. 1 January 2019) should be applied to determine the unit
of account, and to the recognition and measurement
What is the impact? of amounts that are in the scope of that standard. This
In the absence of specific guidance in IAS 12, some entities would include, for example, recognizing current taxes
might currently make an accounting policy choice to outside of profit or loss if they relate to items recognized
determine whether IAS 12 or IAS 37 is applied to interest outside profit or loss and applying the entity’s accounting
and penalties related to income tax where there are policy to discounting current tax balances.
uncertain tax positions. These entities will now need to • Amounts determined to be in the scope of IAS 37 will
consider the specific nature of the interest and penalties be recognized and measured in accordance with that
to determine which standard applies. This might lead standard. Interest determined to be in the scope of IAS
to recognition, measurement and disclosure differences 37 will be recognized as finance cost, and penalties will
in some cases and to a change in income statement be recorded as operating expenses. Management should
presentation. disclose clearly in accordance with IAS 1 the standard
that has been applied to interest and penalties if the
When is the agenda decision effective? impact is material.
The agenda decision clarifies the existing guidance and is
therefore effective immediately.

Entities with a reporting date shortly after the agenda


decision was issued should assess whether the agenda
decision applies at that date. The views of any relevant
securities regulator should be considered as part of that
assessment.

What should entities do?


Affected entities should assess their approach to accounting
for interest and penalties related to income taxes, and
whether their accounting policies and presentation need
to be changed. A change in accounting policy should be
accounted for retrospectively in accordance with IAS 8,
‘Accounting policies, changes in accounting estimates and
errors’.

Insight

Entities need to decide whether a particular amount payable


or receivable for interest and penalties is an income tax.
IC agenda decisions in March 2006 and May 2009 noted
that IAS 12 defines income taxes as taxes that are based on
taxable profits, and the term ‘taxable profit’ implies a notion
of a net rather than gross amount.

Judgment is required to determine which standard applies.


Management should consider the substance and intent
of the tax law and the settlement process with the tax
authority to determine whether interest and penalties are
separate components that are accounted for by applying IAS
37 or part of an overall settlement with the tax authority
that is accounted for by applying IAS 12.

2017 Client advisory letter 3


Taxes, compliance matters,
assessments, and refunds
Enact before you tax Not zero, VAT 12
RPT imposition must be based on valid tax Sales, not eligible for zero-rating, are subject
ordinance to 12% VAT
The Provincial Assessor of Nueva Vizcaya assessed In a claim for refund of unutilized input VAT attributable
the taxpayer-corporation for RPT over the properties, to zero-rated sales, the CTA found that some of taxpayer’s
machinery and equipment used in its power generation sales are not eligible for VAT zero-rating. This is because
project. The project was under a Build-Operate-Transfer the taxpayer failed to prove that part of its sales were for
arrangement with the National Irrigation Administration. services rendered to non-resident foreign corporations
The taxpayer paid the RPT under protest, arguing that there doing business outside the Philippines.
was no valid ordinance revising the market values for the
years covering the RPT assessment, among others. The CTA reiterated that it is not enough that the recipient of
the service is a foreign corporation. Likewise, the taxpayer
The CTA EB ruled in favor of the taxpayer. On the strength must establish that the said recipient is a “non-resident”
of the Province’s own admission that there was no valid and foreign corporation or a foreign corporation “not” engaged
legal tax ordinance to support the RPT assessments, the in trade or business within the Philippines. To support its
CTA EB held that the assessment has no legal basis. In the claim, the taxpayer, at the very least, shall submit both
absence of a valid tax ordinance, the assessor is bereft of a certificate of non-registration of corporation issued by
authority to impose RPT on the taxpayer. the Philippine SEC and a certificate or articles of foreign
(CTA EB No. 1381 dated 17 November 2017) incorporation. Thus, only the sales of service to entities,
which have the two required documents, will be treated as
subject to the 0% VAT rate, while the unsubstantiated sales
are subject to 12% VAT.
(CTA EB Nos. 1374 and 1383 dated 15 December 2017)

Redeemed dividends
Gain on redemption of shares is not a
dividend, but a capital gain subject to CGT
The taxpayer redeemed its preferred shares issued to a
US resident corporation. The redemption price consisted
of par value of the shares plus the amount of dividends
accrued and unpaid at the date of redemption. The
taxpayer withheld 15% FWT on the difference between the
Glossary redemption price and the par value of the shares redeemed.
Realizing that the transaction is not a payment of dividends
CGT - Capital Gains Tax
subject to 15% FWT, the taxpayer filed a claim for refund.
CTA EB - Court of Tax Appeals En Banc
FWT - Final Withholding Tax
SEC - Securities and Exchange Commission
RPT - Real Property Tax
VAT - Value-Added Tax

4 Client advisory letter 2017


Citing an earlier SC ruling, the CTA reiterated that the gain earnings/profits of a corporation generated from the normal
realized from the redemption of its preferred shares is not and continuous operations of the business, but rather the
a dividend under Section 73(A)(B) of the Philippine Tax amount of capital in excess of the par value of the company’s
Code. Under the Tax Code, the term ‘dividends’ means any shares. Therefore, the BIR cannot impose IAET on the
distribution made by a corporation to its shareholders out of taxpayer’s APIC.
its earnings. (CTA Case No. 9106 dated 11 January 2018)

In this case, the redemption price cannot be treated as


dividends because the AFS of the taxpayer shows that it No magic in FDDA
did not have unrestricted retained earnings; in fact, it is in Issue that is not in the FLD cannot be raised
a deficit position. Since there are no unrestricted earnings,
the board of directors had no power to issue dividends. in the FDDA
While the term “dividends” was mentioned in the payment
of redemption price, it was only used to determine the A taxpayer was assessed by the BIR for deficiency income
total redemption price to be paid to the shareholder, and taxes relating to realized foreign exchange gains. The
was not meant as distribution of profits accumulated by assessment item was raised only for the first time on the
the company. Hence, the gain, if any, from the redemption FDDA; thus, it was not tackled both in the PAN and FLD.
of the preferred shares should be treated as a capital gain,
subject to the 5% or 10% capital gains tax under Section The CTA declared the assessment void for violating the
28(B)(5)(c) of the Tax Code. Nonetheless, the gain is taxpayer’s right to due process. The taxpayer was not given
exempt from CGT under the Philippine-US tax treaty. Thus, the chance to refute the said assessment item since the
the CTA granted the refund. assessment item “realized forex gain not subjected to tax” did
not appear in the PAN or in the FLD, and it was only in the
(CTA Case No. 9023 dated 7 December 2017)
FDDA that issue was raised. The CTA reiterated that for an
assessment to be valid, Section 228 of the Tax Code provides
You don’t earn capital that the taxpayer must be informed in writing of the law
and the facts on which the assessment is made.
APIC is not subject to IAET (CTA Case No. 8924 dated 3 January 2018)

The taxpayer was assessed for IAET for accumulating profits


without distributing any paying dividends. In computing the
IAET due, the BIR excluded the APIC from the reasonable
Misdirected action
amount that may be retained by the company, as provided Erroneously paid input tax is not refundable
under RMC No. 35-2011. In doing so, the BIR effectively from the BIR
imposed a 10% IAET on the taxpayer’s APIC.
The taxpayer, a BOI-registered enterprise whose products
The CTA held that APIC is part of paid-up capital and forms are 100% exported, was accorded automatic VAT zero-
part of the company’s equity. It represents the amount of rating from its purchases. It was issued a certification
money that its shareholders pay in excess of the par value allowing its local suppliers to avail of the benefits of zero-
of the shares. In other words, it is the amount over the par rating on their sales. Thus, no output tax should be shifted
value that investors are willing to pay for the stocks. It is not by the local suppliers to the taxpayer, pursuant to RMO No.
9-00. However, the taxpayer accumulated certain input
taxes on its local purchases, which was sought for refund.

The CTA explained that since the local suppliers should


not have passed the VAT onto the taxpayer, any purchases
Glossary erroneously charged with VAT cannot be claimed as input
AFS - Audited Financial Statement tax subject to refund. The taxpayer’s recourse is not against
APIC - Additional Paid-In Capital the government, but against the seller who erroneously
BIR - Bureau of Internal Revenue shifted the output VAT to it. In other words, the taxpayer has
BOI - Board of Investments the right to seek reimbursement from its supplier.
CTA - Court of Tax Appeals (CTA Case No. 9092 dated 3 November 2017)
FDDA - Final Disputed Deficiency Assessment
FLD - Formal Letter of Demand
PAN - Preliminary Assessment Notice
RMO - Revenue Memorandum Order
SC - Supreme Court
VAT - Value-Added Tax

2017 Client advisory letter 5


The TRAIN is rolling c. All metallic minerals

First few RRs of the Train Excise Tax


To partially implement RA No. 10963 or the TRAIN Law, the Locally extracted or 4% based on the actual
BIR has issued the following Revenue Regulations produced copper, gold, market value of the gross
chromite and other output at the time of
• Revised excise tax rates on mineral products metallic minerals removal
a. Domestic and imported coal and coke: Imported copper, gold, 4% based on the value
chromite and other used by the BOC in
Date of Effectivity Excise tax per Metric Ton metallic minerals determining tariff and
customs duties, net of
1 January 2018 PHP50
excise tax and VAT
1 January 2019 PHP100
1 January 2020 PHP150 d. Indigenous petroleum shall be taxed at 6% of the
and onwards fair international market price on the first taxable
sale, barter, exchange or similar transfer. The
It further provides that coal produced under Coal term ‘indigenous petroleum’ shall include locally
Operating Contracts pursuant to PD No. 972, as extracted mineral oil, hydrocarbon gas, bitumen,
well as those exempted from Excise Tax on mineral crude asphalt, mineral gas and all other similar or
products under other laws, shall now be subject to naturally associated substances, with the exception
the foregoing applicable rates beginning 1 January of coal, peat, bituminous shale and/or stratified
2018. mineral deposits.
(Revenue Regulations No. 1-2018 dated 5 January 2018)
b. All non-metallic minerals and quarry resources:
• Revised excise tax rates on petroleum products
Excise Tax
The regulation provides for the revised tax rates and bases
Locally extracted or 4% based on the actual
of specific tax on petroleum products pursuant to the TRAIN
produced market value of the gross
Law. As a stop-gap measure, the scheduled increase in the
output thereof at the time of
excise tax shall be suspended when the average Dubai crude
removal.
oil exceeds eighty dollars (US$80) per barrel. To regulate
Imported 4% based on the value used the implementation of the law, the use of an official fuel
by the BOC in determining marking or similar technology on petroleum products is
tariff and customs duties net declared mandatory, and manufacturers and/or importers
of excise tax and VAT. are required to maintain the necessary number of suitable
Locally extracted Exempt. counting or metering devices to determine the volume of
natural gas and their production and importation.
liquefied natural gas (Revenue Regulations No. 2-2018 dated 5 January 2018)

Glossary
BIR - Bureau of Internal Revenue
BOC - Bureau of Customs
PD - Presidential Decree
RA - Republic Act
RR - Revenue Regulations
TRAIN - Tax Reform for Acceleration and Inclusion
VAT - Value-Added Tax

6 Client advisory letter 2017


• Revised excise tax rates on tobacco products

The revised tax rates imposed on tobacco products, amending Section 3, Items B(4) and B(5) of RR No. 17-2012, are as
follows:

Date of effectivity of tax rates

Product 1 January 2018 1 July 2018 until 1 January 2020 until 1 January 2022 1 January 2024
until 30 June 2018 31 December 2019 31 December 2021 until 31 December onwards
2023
xxx
B. Tobacco
Products
xxx
Per Pack Per Pack Per Pack Per Pack Effective
(4) Cigarettes PHP32.50 PHP35.00 PHP37.50 PHP40.00 1 January 2024,
packed by hand the specific tax rate
shall be increased
(5) Cigarettes PHP32.50 PHP35.00 PHP37.50 PHP40.00
by 4% every year
packed by
thereafter
machine
(Revenue Regulations No. 3-2018 dated 5 January 2018)

• Revised documentary stamp tax rates


TRAIN work-arounds
The BIR has issued the rules and regulations implementing Stop-gap measures to implement the TRAIN
the rate adjustment of DST provided in the TRAIN Law.
The adjustment increased the corresponding DST on • Transition filing procedures
transactions governed by Sections 174, 175, 177, 178, 179,
180, 181, 182, 183, 186, 188, 189, 190, 191, 192, 193, 194, While BIR forms/returns are currently being developed or
195, 196, and 197 of the Tax Code. enhanced to reflect the adjustment in the tax rates and the
(Revenue Regulations No. 4-2018 dated 19 December 2017)
new ATC, the BIR has adopted the following work-around
procedures for filing of returns manually or through eFPS/
• Revised excise tax rates on automobiles eBIRForms. When filing online, taxpayers are instructed to
use the existing BIR form and then pay the corresponding
Under the TRAIN law, an ad valorem tax on automobiles taxes due. The result of these transactions may reflect a
shall be imposed based on the manufacturer’s/assembler’s deficiency tax, in view of the implementation of the new tax
or importer’s selling price, net of excise tax and VAT, in rates. To cover the deficiency tax, taxpayers shall likewise
accordance with the adjusted rates under this regulation. file and pay the deficiency tax using BIR Form No. o6o5
Hybrid electric vehicle shall be taxed at fifty percent (50%) and fill in the corresponding information in the Tax Type
of the applicable excise tax rates on automobiles subject to and ATC fields. Any deficiency taxes that will be discovered
the conditions provided in the regulation. On the contrary, in the validation process shall be subject to applicable
the removals of locally manufactured/assembled, or release penalties in accordance with existing revenue rules and
of, imported purely electric vehicles and pick-ups from the regulations.
place of production or from Customs’ custody are exempted
from excise tax on automobiles.

To determine the correct bracket under which the recently


introduced model shall be classified, a new provision was Glossary
inserted requiring the validation of the manufacturer’s or
importer’s selling price of the newly introduced models. ATC - Alphanumeric Tax Code
With the adjustment in the excise tax rate on automobiles, BIR - Bureau of Internal Revenue
RR No. 25-2003 is deemed amended by this regulation. DST - Documentary Stamp Tax
eFPS - Electronic Filing and Payment System
(Revenue Regulations No. 5-2018 dated 5 January 2018)
RR - Revenue Regulations
TRAIN - Tax Reform for Acceleration and Inclusion
VAT - Value-Added Tax

2017 Client advisory letter 7


The forms affected by the transition procedures are BIR the existing prescribed forms, to disregard the old rates
Form Nos. 1602, 1603, 2552, 2000, 2000-OT, 2200-T, 2200- reflected in the forms, and to encode the applicable new
P, 2200-AN, and 2200-M. In the meantime, two new forms excise tax rates in the “OTHERS” field, for purposes of filling
are now available for use, namely: (1) BIR Form No. 2200-S up the information/data on the Summary of Removals
(Excise Tax Return for Sweetened Beverages), and (2) BIR (found in Schedule 1 of the forms). However, for sweetened
Form No. L620-XC (Final Withholding of Excise Tax on beverages and cosmetic procedures, the prescribed excise
Cosmetic Procedures). tax forms are now available for downloading from the
(RMC No. 2-2018 dated 4 January 2018, RMC No. 3-2018 dated 4 January BIR website for purposes of manual filing. As for alcohol
2018, and RMC No. 4-2018 dated 8 January 2018) products, the excise tax rate was increased by 4% effective
1 January 2018, and every year thereafter.
• Transitory guidelines for excise tax payments filing (BIR Operations Memorandum No. 2018-01-01 dated 3 January 2018)
procedures
• Dedicated email account for attachments to excise
Pursuant to the implementation of the TRAIN law, all tax returns
manufacturers and importers of petroleum products,
automobiles, as well as sweetened beverages, subject to an In line with the implementation of TRAIN, attachments to
increase in excise tax, are required to submit, on or before BIR Form No. 2200-S (Excise Tax Return for Sweetened
30 January 2018, a Sworn Declarations of Inventory List, in Beverages) shall be sent through sb.attachment@bir.gov.
addition to the regular filing of Inventory List as of ph, while those of BIR Form No. 1620-XC (Excise Tax Return
31 December 2017. for Invasive Cosmetic Procedures) shall be sent through
xcp.attachment@bir.gov.ph
Manufacturers and importers of sweetened beverages are (BIR Memorandum dated 5 January 2018)
also directed to update their Certificate of Registration,
and secure permit to operate as manufacturer/toll
manufacturer/importer of sweetened beverages, as well as Special sweetener
an authority to release imported goods. For the accounting
of inventories of petroleum products, the tax-paid storage
Creation of ATC for sweetened beverages
depots or facilities shall be liquidated and accounted for
The Order provides for the creation of ATC to facilitate
on a “First-In, First-Out” (FIFO) method of inventory. All
the proper identification of tax collection from sweetened
Withdrawal Certificates issued, which cover the removal
beverages under BIR Form Nos. 2200-S/0605.
of petroleum products, subject to the old or previous tax
rates products, shall be stamped to identify the stocks (Revenue Memorandum Order No. 1-2018 dated 22 December 2017)
prior to applicable date of effectivity. Goods, where the
accompanying Withdrawal Certificate/s does not bear such
information, shall be subject to the new excise tax rates.
Single window policy
(BIR Operations Memorandum No. 2018-01-03 dated 8 January 2018)
Enhancing the BIR’s frontline services

• Transitory guidelines on payment and filing of excise To streamline the processing of transactions at the Revenue
tax returns District Offices and to enhance frontline services, the BIR
is adopting a Single Window Policy, which designates a
In accordance with the new excise tax rates, all concerned single counter for receiving and releasing documentary
taxpayers, subject to excise tax on cigars and cigarettes, requirements and permits to start a business. It also
petroleum products, automobiles and mineral products, mandates the revision of the queuing system to include a
and using the eFPS, must e-file and e-pay the corresponding new transaction named “New Business Registrants.”
excise taxes due on all removals effective 1 January (Revenue Memorandum Order No. 6-2018 dated 17 January 2018)
2018. The excise taxpayers are directed to continue using

Glossary
ATC - Alphanumeric Tax Code
BIR - Bureau of Internal Revenue
eFPS - Electronic Filing and Payment System
TRAIN - Tax Reform for Acceleration and Inclusion

8 Client advisory letter 2017


PEZA eCAR processing Tax on microfinance NGOs
Uniform documentary requirements for Guidelines and procedures in implementing
processing eCARs of PEZA entities the Microfinance NGOs Act
To set a uniform guideline for all Regional District Offices Consistent with the Microfinance NGOs Act (RA No. 10693),
in determining the tax treatment of the transfer of property the BIR has issued the policies, guidelines and procedures
between PEZA entities, in relation to the processing of for registration of microfinance NGOs with the BIR and for
eCAR, the BIR has issued a list of mandatory requirements filing/payment of taxes. All microfinance NGOs shall be
for submission, in addition to the requirements set forth in subject to a preferential tax rate of 2% tax based on gross
RMO No. 15-2003. receipts from microfinance operations. However, it shall
(Revenue Memorandum Circular No. 9-2018 dated 13 December 2017) refer only to lending activities and insurance commission,
bundled and forming an integral part of the qualified
lending activities of the microfinance NGOs. All other
Much-awaited leniency income by the microfinance NGOs, which are not generated
Revoking onerous penalties for failure to from the lending activities and insurance commissions, shall
be subject to all applicable taxes.
withhold and submit alphalist
The BIR further clarified that all microfinance NGOs are
• No more automatic disallowance for failure to directed to file and pay manually over the counter at the
withhold tax AABs, until such time that the new ATC PT118 is included in
the existing BIR Form No. 2551M (Monthly Percentage Tax
With the revocation of RR No. 12-2013, the provision of Return) of the eFPS and eBIRForms.
Section 2.58.5 of RR No. 14-2002, as amended by RR No.
(Revenue Memorandum Order No. 2-2018 dated 10 January 2018)
17-2003, is now reinstated. Under the reinstated provision,
certain expenses shall be allowed as a deduction from the
payor’s gross income; only if it is shown that the income
tax required to be withheld had been paid to the BIR.
Moreover, despite failure to report the income/withhold tax
or erroneous under-withholding of tax, deduction shall still
be allowed when the income tax had been paid, including
the interest and surcharges, if applicable, at the time of the
audit/investigation or reinvestigation/reconsideration.
(Revenue Regulations No. 6-2018 dated 20 November 2017)

• No more disallowance for non-submission of


alphalist

The BIR clarified that failure to file the Alphabetical List


of Payees/Employees or failure to re-submit the complete
and corrected alphabetical list after the validation
process conducted by the BIR shall not result in the non-
deductibility of the expenses, since the corresponding taxes
were already withheld and remitted. Instead, the erring
withholding agent shall be subject to a compromise penalty
of one thousand pesos (PHP1,000) for each failure to
submit the said information return. Moreover, the payment
Glossary
of the compromise penalty shall not relieve the withholding
agent from the submission of the required Alphabetical List, AAB - Authorized Agent Bank
or the complete or corrected alphabetical list. ATC - Alphanumeric Tax Code
(Revenue Memorandum Circular No. 100-2017 dated 18 December 2017) BIR - Bureau of Internal Revenue
eCAR - Electronic Certificate Authorizing Registration
eFPS - Electronic Filing and Payment System
NGO - Non-Government Organization
PEZA - Philippine Economic Zone Authority
RA - Republic Act
RR - Revenue Regulations

2017 Client advisory letter 9


Latest on regulatory landscape

PSE TRAIN ride Beware of virtual currency


Transition procedures in relation to the SEC Advisory in dealing with Initial Coin
implementation of the TRAIN Law Offerings
The memorandum seeks to inform all trading participants The SEC warns the public to be vigilant when investing in
that the necessary adjustments in the BIR forms/returns virtual currencies and in dealing with Initial Coin Offerings
under the eFPS and eBIRForms are still currently being (ICO). Considering that some of the new virtual currencies
developed or enhanced to reflect the revised rates and ATC. follow the nature of a security as defined by the Securities
(PSE Memorandum CN-No. 2018-0003 dated 8 January 2018) Regulation Code (SRC), the sales of these securities to the
public must be registered with the SEC, and the necessary
disclosures have to be made for the protection of the
Long-lasting gift check investing public. Any violators may be held criminally liable,
Gift check policy for the protection of or appropriately sanctioned or penalized, in accordance
with law.
consumers
(SEC Advisory dated 8 January 2018)

Enacted last 19 December 2017, RA No. 10962, or the Gift


Check Act of 2017, seeks to recognize gift certificates as
instruments issued for monetary consideration and must
Clearing of sugar
be honored as payment upon presentation to the merchant. Guidelines on the issuance of clearance for
Since gift certificates are considered as good as cash, release of imported sugar
merchants are prohibited from issuing gift checks with an
expiration date, so as not to unduly deprive consumers In support for the local sugar industry, the Sugar Regulatory
of the value of their money. However, gift checks issued Administration (SRA) sought the BOC’s cooperation in
under loyalty, rewards, or promotional programs, including holding the release of all imported High Fructose Corn
discount coupons or vouchers, are not covered by the law. Syrup (HFCS) and Chemically Pure Sucrose that did not
(Republic Act No. 10962 dated 19 December 2017) have the corresponding clearance from the SRA. The
request was in reference to the implementation of the
guidelines on the issuance of clearance for release of
imported HFCS and Chemically Pure Sucrose, under Sugar
Order No. 3 Series of 2016-17 dated 17 February 2017.
(Customs Memorandum Circular No. 12-2018 dated 15 January 2018)

Glossary
ATC - Alphanumeric Tax Code
BOC - Bureau of Customs
eFPS - Electronic Filing and Payment System
PSE - Philippine Stock Exchange
RA - Republic Act
SEC - Securities and Exchange Commission
TRAIN - Tax Reform for Acceleration and Inclusion

10 Client advisory letter 2017


Good deeds Acquiring control of HMOs
Submission of an Integrated Annual Requirements for the approval of acquisition
Corporate Governance Report of control of an HMO
To facilitate disclosure of compliance/non-compliance of The Insurance Commission (IC) issued the procedure and
publicly listed companies with the recommendations under documentary requirements for the approval of acquisition
the Code of Corporate Governance, all companies listed of control of an HMO. Under the guidelines, the term
in the PSE as of 31 December of a given year are directed “control” shall mean direct or indirect possession of the
to submit an Integrated Annual Corporate Governance power to direct or to cause the direction of the management
Report (I-ACGR) on 30 May of the following year. Attached and policies of a person; whether through the ownership
with the circular is a copy of Form I-ACGR and the general of voting securities by a contract, other than a commercial
instructions for answering it. contract for good or non-management services, or
(SEC Memorandum Circular No. 15 series of 2017 dated 15 December otherwise, or as defined by SC decisions.
2017)
As a prerequisite, a prior written approval from the IC must
be secured to acquire control of an HMO. The said approval
More time to be holy must be submitted and evaluated by the Deputy Insurance
No work on the Feast of the Immaculate Commissioner and the Licensing Division, who shall,
Conception of Mary (8 December) thereafter, submit a joint recommendation to the Insurance
Commissioner.
Pursuant to RA No. 10966, 8 December of every year
has been declared as a special nonworking holiday to A list of documentary requirements for submission of
commemorate the Feast of the Immaculate Conception of applicants, both corporate and individual, is likewise
Mary, Patroness of the Philippines. detailed in the guidelines.
(Insurance Commission Circular Letter No. 2017-58 dated 12 December
(Customs Memorandum Circular No 14-2018 dated 15 January 2018)
2017)

Outside retail All for one


Selling for a single manufacturer is not Policies and requirements on employee and
retail affinity group insurance
In response to a letter-inquiry, the SEC-OGC explained that To protect the interest of employees and low-income groups,
a domestic corporation that sells exclusively its products the IC issued the guidelines on group insurance of both life
in a single outlet owned by the manufacturer and does not and non-life insurance companies that, at times, involve
carry any other brand or product on consignment is not issues on transparency, disclosures, and obligations of the
considered engaged in retail trade, as defined under Section insurers and policyholders. To be insurable, a group should
3(1)(d) of the RTLA and its IRR. Thus, it is exempted from consist of persons with a commonality of purpose, interest
complying with the capitalization requirement of US$2.5m. or circumstances, or engaging in a common economic and/
or similar social activity; however, not limited to employees
Moreover, if a domestic corporation increases its paid-in of a corporation or members of a professional association.
equity capital to more than or equal to US$200,000.00, it
may be relieved from the 40% foreign equity limitation;
provided, it does not engage in any other nationalized or
partly nationalized industry, as stated in List A and List B of
the FINL-10.
Glossary
Lastly, a domestic corporation that is not engaged in FINL - Foreign Investment Negative List
retail trade, as defined under the RTLA, nor barred by the HMO - Health Maintenance Organization
regulations set under the Foreign Investment Act, may IRR - Implementing Rules and Regulations
appoint and elect foreigners to management positions of the PSE - Philippine Stock Exchange
corporation; provided further, it will not engage in wholly RA - Republic Act
or partially nationalized activities. RTLA - Retail Trade Liberization Act
(SEC-OGC Opinion No. 17-16 dated 4 December 2017) SC - Supreme Court
SEC-OGC - Securities and Exchange Commission-
Office of the General Counsel

2017 Client advisory letter 11


Likewise, there should be a clear and evident relationship
between the member and the policyholder for services
New contractor’s licensing
other than insurance. Thus, a group formed only with the Adjustment in the financial requirements for
main purpose of availing insurance is not eligible for group license categorization
insurance.
To realign the current net worth/equity requirement for
In an employee group insurance, the employer shall be license categories with the present need, PCAB issued the
treated as the policyholder with the employees being adjustment for Minimum Net worth/Equity Requirements
the insured; whereas, in an affinity group insurance, the for License Categorization, Allowable Ranges of Contract
individual group members shall be treated as the insured Costs, and Single Largest Projects Completed Requirements
and the group organizer or entity will be the holder of the for Registration of Contractors for Government Projects.
group policy.
PCAB’s adjustments for license categorization shall be
The guidelines also include provisions on obligations of the effective for application for CFY 2018–2019, while the
policyholder, premium/charges, certificate of insurance, adjustment for Registration for Government Projects shall
and termination of group policy, among others. take effect on 01 July 2018. The registration of contractors
(Insurance Commission Circular Letter No. 2017-57 dated 12 December before 1 July 2018 shall remain valid until expiration;
2017) provided, the license is valid and the licensee possesses the
license category required for the corresponding size ranges.

Entity identity (PCAB Board Resolution No. 201, series of 2017 dated 22 November 2017)

Rules on registering corporate and


partnership names Window for registration
Guidelines for registering private sector
In registering corporate and partnership names with the foreign loans
SEC, a corporate name shall contain the word “Corporation”
or “Incorporated”, or the abbreviations “Corp.” or “Inc.”, To allow room for compliance, the BSP granted a six-month
while a partnership name shall bear the word “Company” temporary window for registration of private sector foreign
or “Co.”, and “Limited” or “Ltd.” for limited partnerships. loans/borrowings obtained without prior approval from
As for professional partnership, the name may bear the the BSP, and are outstanding and booked in the borrower’s
word “Company”, “Associates”, “Partners”, or other similar records as of 15 January 2018.
descriptions.
In order to qualify for registration, the loan/borrowings
The guidelines also provide the policies in the use of names should have been used for projects, programs or purposes
of foundations, non-stock/non-profit corporations, NGOs, that are legitimate. Private sector borrowers are required
other associations and organizations, and names related to submit a duly accomplished Application for Registration
to the State, including the procedures for re-registration of of Private Sector Foreign Loans/Borrowings within the
expired corporations. six-month temporary window starting from 15 January
(SEC Memorandum Circular No. 14 dated 8 December 2017) 2018. Upon filing of the application, a registration fee in the
amount of PHP20,000.00 shall be payable to the BSP in the
form of Manager’s Check or Cashier’s Check. Thereafter,
a Bangko Sentral Registration Document (BSRD) shall
be issued to the borrower for presentation to the foreign
exchange institution.
(BSP Circular No. 985 Series of 2017 dated 22 December 2017)

Glossary
BSP - Bangko Sentral ng Pilipinas
NGO - Non-Government Organization
PCAB - Philippine Contractors Accreditation Board

12 Client advisory letter 2017


Revised FX Manual
Revised guidelines to FX transactions
The BSP has amended the following pertinent provisions
in Chapter 1 of the Manual of Regulations on Foreign
Exchange Transactions (FX Manual), namely: sale of
foreign exchange to non-residents (Section3 [2]), foreign
currency loans/borrowings (Section 22), public sector
loans/borrowings (Section 23), private sector loans/
borrowings (Section 24), servicing (Section 25), guarantees
and other similar arrangements (Section 30), other
financing schemes/arrangements (Section 31), as well as
revised/added some appendices and annexes to the Manual.
(BSP Circular No. 984 Series of 2017 dated 22 December 2017)

Glossary
FX - Foreign Exchange

2017 Client advisory letter 13


Meet us
Isla Cup 2018 successfully held for Seat of Hope project

Isla Cup 2018 players gather for a fun day of golf. Proceeds of the event go to the Seat of Hope program.

The Isla Lipana & Co. Foundation held the Isla Cup 2018
entitled “Swing for hope” at the Mount Malarayat Golf and
Country Club, Lipa City, Batangas on 18 January 2018.

PwC Philippines Chairman & Senior Partner Alex Cabrera​


led the tee-off, along with Tax Partner Carlos Carado II​, and
Foundation Trustee Willie Madarang.

Around 100 golfers and guests graced the event. Fun holes
were placed for additional prizes and bragging rights.

Isla Cup 2018 marked the second annual celebration of the


legacy of Mr. Jerry Isla, former chairman and senior partner
of Isla Lipana & Co.
Chairman & Senior Partner Alex Cabrera channel his inner Jack
This year’s beneficiaries are students from Marawi and Nicklaus and Tiger Woods during the ceremonial tee-off
typhoon-affected areas under the Seat of Hope program. It
is a flagship program of the Foundation that aims to address
the shortage of quality school chairs in public elementary
and high schools nationwide, especially in calamity-stricken
areas.

The winners of Isla Cup 2018.

14 Client advisory letter 2017


Talk to us
PwC PH, DOT hold first For further discussion on the contents of this issue of the
Client Advisory Letter, please contact any of our partners.
PH tourism event
For tax and related regulatory matters
The Department of Tourism (DOT), with PwC
Philippines (PwC) as its Knowledge Partner, in
cooperation with the Management Association of the
Philippines, held on 30 January 2018 “Invest Tourism
Philippines: The Next Big Thing in Southeast Asia”
Alexander B. Cabrera Malou P. Lim
conference. As Knowledge Partner, PwC interviewed Chairman & Senior Partner, Tax Managing Partner
tourism and related industry executives and featured concurrent Tax Partner T: +63 (2) 459 2016
them in videos. Deals and Corporate Finance Managing T: +63 (2) 459 2002 malou.p.lim@ph.pwc.com
alex.cabrera@ph.pwc.com
Partner Jade Divinagracia and Chairman & Senior
Partner Alex Cabrera moderated separate sessions. Tax
Partner Gigie Longa headed the PwC team that worked
with the DOT team in staging this event. This is in line
with the Memorandum of Understanding between
PwC and DOT to jointly work on promoting Philippine
Fedna B. Parallag Lawrence C. Biscocho Carlos T. Carado II
tourism through knowledge-sharing activities. Tax Partner Tax Partner Tax Partner
T: +63 (2) 459 3109 T: +63 (2) 459 2007 T: +63 (2) 459 2020
fedna.parallag@ lawrence.biscocho@ carlos.carado@
ph.pwc.com ph.pwc.com ph.pwc.com

Roselle Yu Caraig Harold S. Ocampo Geraldine E. Longa


Tax Partner Tax Principal Tax Partner
T: +63 (2) 459 2023 T: +63 (2) 459 2029 T: +63 (2) 459 2038
roselle.y.caraig@ harold.s.ocampo@ geraldine.c.esguerra-
ph.pwc.com ph.pwc.com longa@ph.pwc.com

PwC Philippines’ Alex Cabrera (middle) receives his For accounting matters
Certificate of Appreciation from (at left) DOT Asst. Secretary
Maria Lourdes Japson, and DOT Director Danilo B. Intong

Gina S. Detera Zaldy D. Aguirre


Assurance Partner Assurance Partner
T: +63 (2) 459 3063 T: +63 (2) 459 3023
gina.s.detera@ zaldy.aguirre@ph.pwc.com
ph.pwc.com

Request for copies of text


L-R: DOT Asst. Secretary Maria Lourdes Japson; Celso R.
Gutierrez, First Senior Vice-President, PHILEXIM/TIDCORP; You may ask for the full text of the Client Advisory Letter by writing our Tax
Department, Isla Lipana & Co., 29th Floor, Philamlife Tower, 8767 Paseo de
Jade Divinagracia, PwC Philippines; Paul D. Lazaro, First Vice
Roxas, 1226 Makati City, Philippines. T: +63 (2) 845 2728. F: +63 (2) 845 2806.
President, Development Bank of the Philippines; Atty. Paul Email lyn.golez@ph.pwc.com.
Santos, President, Philippine Retailers Association; and DOT
2017 Client advisory letter 15
Director Danilo Intong
www.pwc.com/ph
© 2018 Isla Lipana & Co. All rights reserved.

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Disclaimer
The contents of this advisory letter are summaries, in general terms, of selected issuances
from various government agencies. They do not necessarily reflect the official position of
Isla Lipana & Co. They are intended for guidance only and as such should not be regarded
as a substitute for professional advice.

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