Download Report

BIR Issuances
Court Decisions
Highlight on P&A services
Tax brief
November 2014
Contents
BIR Issuances
02 Extended deadline for internal revenue stamps
for cigarettes
02 Loss of BIR Form 2313 (CAR)
02 Clarifications on the processing of TCCs for
cash conversion
03 Clarifications on the FDA certification for
animal feed ingredients
03 Tax treatment of stock option plans and other
option plans
Court Decisions
05 False returns may be assessed within 10
years; 50% surcharge applies only in case of
fraud
06 Validity of a waiver
Highlight on P&A services
07 Tax compliance review
Member firm within Grant Thornton International Ltd
BIR Issuances
Court Decisions
Highlight on P&A services
BIR Issuances
Extended deadline for internal
revenue stamps for cigarettes
The October 1, 2014 deadline for the
affixture of internal revenue stamps
for locally manufactured packs
of cigarettes through the Internal
Revenue Stamp Integrated System
(IRSIS) under Revenue Regulations
No. (RR) 7-2014 was extended to
December 1, 2014.
Effective March 1, 2015 (previously
February 1, 2015), all locally
manufactured cigarettes in the local
market should have the internal
revenue stamps.
Loss of BIR Form 2313 (CAR)
The loss of one set of used but
unissued BIR Form 2313 – or
Certificate Authorizing Registration
(CAR) -- with serial number
CAR201000062404 is being
circularized. All official transactions
involving the use of said form
is therefore considered invalid.
Everyone is requested to notify the
Bureau of Internal Revenue (BIR) if
BIR Form 2313 is found, and to take
measures to prevent its improper or
fraudulent use.
Clarifications on the processing
of TCCs for cash conversion
Tax credit certificates (TCCs) are no
longer required to be revalidated for
the processing of application for cash
conversion, as long as the application
is filed with the BIR before the
expiration of the validity period of
the TCCs. Section 5(B) of RR 5-2000
has been amended accordingly.
(Revenue Memorandum Circular No. 772014, September 15, 2014)
(Revenue Memorandum Circular No. 762014, October 13, 2014)
No imported cigarettes shall be found
in the market without the new stamps
effective April 1, 2015.
(Revenue Regulations No. 9-2014,
November 5, 2014)
November 2014 2
BIR Issuances
Court Decisions
Highlight on P&A services
BIR Issuances
Clarifications on the FDA
certification for animal feed
ingredients
Under Revenue Memorandum
Circular No. (RMC) 55-2014, as
amended by RMC 66-2014, availing
of value-added tax (VAT) exemption
for the sale and importation of six
animal feed ingredients requires
a certification issued by the Food
and Drug Authority (FDA). The
certification confirms that the six
animal feed ingredients – whey
powder, skimmed milk powder,
lactose, buttermilk powder, whole
milk powder and palm olein – are
not fit for human consumption or
cannot be used for the production of
food for human consumption.
It was clarified that the list that
mentions such six feed ingredients
is exclusive as of date of the issuance
but the BIR is not precluded from
including other ingredients and
additives to that list. Such addition
shall be authorized through the
issuance of an RMC in consultation
with government agencies having
the competence to make the
determination of the nature of the
ingredient.
Tax treatment of stock option
plans and other option plans
It was also clarified that the RMC
does not give the Revenue District
Officers (RDOs) the discretion or
authority to declare whether the
feed ingredient subject of the sale or
importation has possible utilization
for human consumption.
A. Taxation of stock options
(Revenue Memorandum Circular No. 782014, October 24, 2014)
The BIR has summarized and
clarified the tax treatment of stock
options plans and other option
plans, and imposed new compliance
requirements for corporations issuing
stock options.
1. Grant of option. The grantoremployer shall be liable to
capital gains tax (CGT) if
the option is granted to the
employee-grantee for a price. If
no payment was received from
the grantee-employee, no CGT
shall be due but the grantor
cannot claim deductions for
the said option in the year
it was given. Documentary
stamp tax (DST) on the sale
of shares (Sec. 175 of the Tax
Code) is due upon issuance of
the option.
2. Sale or transfer of option.
The sale, barter or exchange of
stock option is treated as a sale,
barter, or exchange of shares
of stock. Hence, CGT shall be
due on the transfer or sale of
stock options if transferred for
a consideration. Otherwise, the
transfer of the stock options
shall be subject to donor’s tax
based on the fair market value
of the stock at the time of the
donation.
3. Exercise of options: Equitysettlement option. RMC
79-2014 reiterated the tax
treatment as provided in
RMC 88-2012. In the event
the option is exercised, the
difference between the book
value/fair market value of the
shares, whichever is higher at
the time of the exercise of the
stock option, and the price
fixed on the grant date shall be
November 2014 3
BIR Issuances
Court Decisions
Highlight on P&A services
BIR Issuances
source and other taxes.
treated as compensation/grant
to the recipient, and the tax
consequence will depend on
the relation of the grantor to
the grantee.
c.Grantee is neither an
employee nor a supplier.
In all other instances, the
amount shall be considered a
donation subject to donor’s
tax.
a.Grantee is an employee.
If the recipient is a rankand-file employee, the
amount shall be subject
to withholding tax on
compensation. For
supervisory employees, the
amount shall be subject to
fringe benefits tax.
b.Grantee is a supplier of
goods and services. If
the option is granted to
a supplier of goods and
services, the amount shall
be considered as additional
consideration for services
rendered or goods supplied
and shall be subject to the
proper withholding tax at
4. Exercise of Options: Cashsettlement option. In cashsettlement options, there is no
actual issuance of shares, but
the grantor pays the grantee the
difference of the market value
of the stock at the exercise date
and the exercise price. The tax
treatment of this option shall
be the same as that of equitysettlement option.
B. Compliance requirements for
grantors
In addition to the above
clarification, RMC 79-2014
also mandates new compliance
requirements for corporations
issuing stock options.
1. Upon grant of the option.
Within 30 days, the grantor
shall submit to the RDO
a statement under oath
indicating the following:
a.terms and conditions of the
stock option
b.names, TINs and positions
of the grantees
c.book value, fair market
value, par value of the shares
subject of the option at the
grant date
d.taxes paid on the grant, if
any
e.amount paid for the grant, if
any
option, another report on the
following shall be submitted:
a.exercise date
b.names, TINs, positions of
those who exercised the
option
c.book value, fair market
value, par value of the shares
subject of the option at the
exercise date
d.mode of settlement ( i.e.,
cash or equity)
e.taxes withheld at exercise, if
any
f. fringe benefits tax paid, if
any
(Revenue Memorandum Circular No. 792014, November 3, 2014)
2. Upon exercise of the option.
On or before the 10th day
of the month following the
month of the exercise of the
November 2014 4
BIR Issuances
Court Decisions
Highlight on P&A services
Court Decisions
False returns may be assessed
within 10 years; 50% surcharge
applies only in case of fraud
Pursuant to Section 203 of the Tax
Code, internal revenue taxes shall be
assessed within three years after the
last day prescribed by the law for the
filing of the return except as provided
in Section 222 of the same Code.
Section 222 provides that the threeyear assessment period does not
apply in three instances:
• filing a false return
• filing a fraudulent return with
intent to evade tax
• failure to file a return
In all these instances, the period
within which to assess deficiency
taxes is 10 years from discovery of
the fraud, falsification or omission.
There is a difference between false
and fraudulent return: the former
merely implies deviation from the
truth -- whether intentional or not –
while the latter implies intentional or
deceitful entry with intent to evade
the taxes due.
Failure to declare a substantial
portion of VATable receipts in the
VAT return constitutes a deviation
from truth and shall be tantamount
to filing of a false return which can be
covered by the 10-year prescription
period. However, the 50% fraud
penalty under Section 248 of the
Tax Code cannot be imposed in the
absence of a willful fraudulent act
on the part of the taxpayer. Section
248 authorizes the Commissioner of
Internal Revenue (CIR) to add a 50%
surcharge on the deficiency tax in
case a false or fraudulent return or list
is willfully made.
Fraud cannot be presumed but
must be proven. Fraudulent intent
could not be deduced from mistakes
however frequent they may be,
especially if such mistakes emanate
from erroneous entries or erroneous
classification of items in accounting
methods utilized for determination of
tax liabilities.
the deficiency VAT plus the 20%
interest per annum, but not the 50%
surcharge.
(McDonald’s Philippines Realty
Corporation v. Commissioner of Internal
Revenue, CTA Case No. 8506, October
29, 2014)
In the case at bar, the taxpayer’s
failure to declare its interest income
in its VAT returns did not arise from
a deliberate attempt on its part to
evade tax but on the honest belief that
such interest income is not subject
to VAT. This is supported by the
fact that such interest income were
disclosed in the taxpayer’s audited
financial statements and reported
as taxable income in its annual
income tax return. In such case, the
Court ruled that the BIR can assess
November 2014 5
BIR Issuances
Court Decisions
Highlight on P&A services
Court Decisions
Validity of a waiver
Revenue Memorandum Order No.
(RMO) 20-90 clearly states the
requirement for strict compliance
with the mandatory requisites for a
valid waiver. Hence, failure to comply
with such requirements will make
the waiver invalid and without any
binding effect.
by the CIR. The waiver, therefore,
is invalid and cannot suspend the
running of the prescription period for
the assessment of the deficiency taxes.
(Commissioner of Internal Revenue v.
Nikken Philippines, Inc., CTA EB Case
No. 1058, October 23, 2014)
In the case at bar, the waiver was
executed without the notarized
written authority of the company’s
accountant to sign on behalf of the
company. Furthermore, the fact of
receipt by the company of its file
copy of the waiver was not indicated
in the original copy, and no other
evidence was presented to prove the
fact of receipt of the waiver accepted
November 2014 6
BIR Issuances
Court Decisions
Highlight on P&A services
Highlight on P&A services
Tax compliance review
We evaluate clients’ overall level of compliance with
existing laws and regulations; caution them on procedures
and practices that expose them to potential tax liabilities;
quantify tax exposures, risks and penalties; and advise
them on the proper course of action and alternative
tax-efficient policies and procedures. Tax due diligence
review is particularly recommended for companies that
are contemplating expansion, mergers and consolidation,
acquisitions, change in ownership, or public listing.
If you would like to know more about our tax compliance
review services, please contact:
Vier Aznar
Partner
Tax Advisory and Compliance
T + 63 2 988 2288 loc. 500
F + 63 2 886 5506
E [email protected]
November 2014 7
Tax brief is a regular publication of Punongbayan & Araullo (P&A) that
aims to keep its clientele, as well as the general public, informed of various
developments in taxation and other related matters. This publication is not
intended to be a substitute for competent professional advice. Even though
careful effort has been exercised to ensure the accuracy of the contents of
this publication, it should not be used as the basis for formulating business
decisions. Government pronouncements, laws, especially on taxation, and
official interpretations are all subject to change. Matters relating to taxation,
law and business regulation require professional counsel.
We welcome your suggestions and feedback so that the Tax brief may be made
even more useful to you. Please get in touch with us if you have any comments
and if it would help you to have the full text of the materials in the Tax brief.
Lina Figueroa
Principal, Tax Advisory and Compliance Division
T +632 988-2288 ext. 507
F +632 886-5506
E [email protected]
www.punongbayan-araullo.com
© 2014 Punongbayan & Araullo. All rights reserved.
P&A is a member firm of Grant Thornton International Ltd (GTIL). “Grant
Thornton” refers to the brand under which the Grant Thornton member firms
provide assurance, tax and advisory services to their clients and/or refers to one or
more member firms, as the context requires. GTIL and the member firms are not
a worldwide partnership. GTIL and each member firm is a separate legal entity.
Services are delivered by the member firms. GTIL does not provide services to
clients. GTIL and its member firms are not agents of, and do not obligate, one
another and are not liable for one another’s acts or omissions.