Tax Update Threshing Out the Gray Areas PICPA

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Transcript of Tax Update Threshing Out the Gray Areas PICPA

Recent Court Decisions and BIR Issuances

Tax Updates: Threshing Out the Gray AreasLawrence C. Biscocho15 July 2015

www.pwc.com/phAgendaRecent court decisionsSupreme CourtCTA may decide on proper tax category in refund casesIn CWT refund, presentation of succeeding quarterly ITR is not requiredForeign equity: suspicion of dummy triggers grandfather ruleRequest for reinvestigation must be granted to toll prescriptionSC may rule on prescription even on appealGovernment may be estopped from collecting taxesWithholding agent can refund an erroneously withheld and remitted tax215 July 2015Tax Updates: Threshing Out the Gray AreasIsla Lipana & Co., PwC member firm2AgendaRecent court decisionsCourt of Tax AppealsReporting the revenues related to the CWT refund is critical; Certificates of creditable tax are sufficient proofA BIR ruling cannot amend a Revenue RegulationCockpit arena is not subject to amusement taxIssuance of FAN without considering taxpayers reply to PAN violates due processRemitting foreign currency on zero-rated sales is vital in input tax refundConsider net loss in deficiency income tax assessmentDeficiency withholding tax on compensation may be computed using employees effective tax rate315 July 2015Tax Updates: Threshing Out the Gray AreasIsla Lipana & Co., PwC member firm3AgendaRecent court decisionsCourt of Tax AppealsValid LOA a prerequisite for tax assessmentConstructive service of PAN and FAN when proper; Letter of Authority for unverified prior years is voidServices to international shipping company are zero-rated; no other proof requiredIntent to evade tax is not vital in falsityFWT paid on recalled interim dividends is refundableDeficiency withholding tax is not a penaltyFDDA issued before the 60-day period to submit documents is void415 July 2015Tax Updates: Threshing Out the Gray AreasIsla Lipana & Co., PwC member firm4AgendaRecent court decisionsCourt of Tax AppealsAn RDO letter is not a CIR decision appealable to CTA Oral testimony is not enough to support bad debts expenseThe 60-day period to submit documents is more appropriate in a request for reinvestigationZero-rating status at the time of sales crucial in a refund claimAppeal to the CIR does not refresh the 180-day periodOverpaid tax under treaty is refundableRefund claim with ITAD valid if due to tax treaty515 July 2015Tax Updates: Threshing Out the Gray AreasIsla Lipana & Co., PwC member firm5AgendaRecent BIR and SEC issuancesCARs not included in BIR list are not officialDividends paid subject to the preferential rate of 10% of the gross amountRoyalty payments subject to 10% preferential final withholding tax rate Petroleum subcontractor is not exempted from 15% branch profit remittance tax (BPRT)Verification of eCARs under LRA's PHILARISRegular corporations or partnerships cannot use investment as part of their names

615 July 2015Tax Updates: Threshing Out the Gray AreasIsla Lipana & Co., PwC member firm6Supreme Court1715 July 2015Tax Updates: Threshing Out the Gray AreasIsla Lipana & Co., PwC member firm7SMI-Ed Philippines v. CIRG.R. No. 175410 dated 12 November 2014

CTA may decide on proper tax category in refund cases815 July 2015Tax Updates: Threshing Out the Gray AreasIsla Lipana & Co., PwC member firmSMI-Ed Philippines v. CIR

In an action for refund of taxes allegedly erroneously paid, the CTA may determine whether there are other taxes that should have been paid in lieu of the taxes paid. Such is not an assessment but a determination of the proper category of tax to be paid which is merely incidental in determining the propriety of refund.If the taxpayer is found liable for taxes other than the ones alleged to be erroneously paid, the amount of taxpayers liability should be computed and deducted from the refundable amount.SC ruled that a PEZA-registered corporation that has never commenced operations may not avail of the tax incentives and preferential rates given to PEZA-registered enterprises.

915 July 2015Tax Updates: Threshing Out the Gray AreasIsla Lipana & Co., PwC member firmSMI-Ed Philippines v. CIR

The difference between individual and corporate capital gains tax on the sale of real properties:Individuals are taxed on capital gains from the sale of all real properties located in the Philippines and classified as capital assets.For domestic corporations, however, the capital gains tax is imposed only on the presumed gain realized from the sale of lands and/or buildings.

1015 July 2015Tax Updates: Threshing Out the Gray AreasIsla Lipana & Co., PwC member firmWinebrenner & Inigo Insurance Brokers, Inc. v. CIRG.R. No. 206526 dated 28 January 2015

In CWT refund, presentation of succeeding quarterly ITR is not required1115 July 2015Tax Updates: Threshing Out the Gray AreasIsla Lipana & Co., PwC member firmWinebrenner & Inigo Insurance Brokers, Inc. v. CIR

Section 76 of the Tax Code does not mandate the submission and presentation of the quarterly ITRs of the succeeding quarters of a taxable year in a claim for refund. The law merely requires the filing of the ITR/Final Adjustment Return (FAR) for the preceding not the succeeding taxable year.Likewise, RR No. 12-94 merely provides that claims for refund of income taxes deducted and withheld from income payments shall be given due course only when:it is shown on the ITR that the income payment received is being declared as part of the taxpayers gross income; and the fact of withholding is established by a copy of the withholding tax statement, duly issued by the payor to the payee, showing the amount paid and the income tax withheld from that amount.1215 July 2015Tax Updates: Threshing Out the Gray AreasIsla Lipana & Co., PwC member firmNarra Nickel Mining and Development Corp., Tesoro Mining and Development, Inc. and McArthur Mining, Inc. v. Redmont Consolidated Mines Corp.G.R. No. 195580 dated 28 January 2015

Foreign equity: suspicion of dummy triggers grandfather rule1315 July 2015Tax Updates: Threshing Out the Gray AreasIsla Lipana & Co., PwC member firmNarra Nickel Mining and Development Corp., Tesoro Mining and Development, Inc. and McArthur Mining, Inc. v. Redmont Consolidated Mines Corp.

To check compliance with the 60%-40% Filipino-foreign nationality rule for exploration of natural resources, the citizenship of the individual stockholders of each layer of corporations investing in a mining joint venture must first be determined. This is the Control Test. However, in case of doubt despite having satisfied this requirement, the Grandfather Rule (which requires that the citizenship of individuals who ultimately own or control the shares of stock of the corporation must be considered) remains applicable to accurately determine actual foreign participation, whether direct or indirect.1415 July 2015Tax Updates: Threshing Out the Gray AreasIsla Lipana & Co., PwC member firm14Narra Nickel Mining and Development Corp., Tesoro Mining and Development, Inc. and McArthur Mining, Inc. v. Redmont Consolidated Mines Corp.

Filipinos should be the principal beneficiaries in the exploration of natural resources. Suspicious indications that true beneficial ownership and control of a corporation resides in foreign stakeholders and not in Filipinos are the following:the foreign investors provide practically all the funds, they provide practically all the technological support for the joint venture, and they manage the company and prepare all economic viability studies while being minority stockholders. In these instances, computation of equity composition would be based on common shareholdings, not on preferred or redeemable shares.1515 July 2015Tax Updates: Threshing Out the Gray AreasIsla Lipana & Co., PwC member firmChina Banking Corporation v. CIRG.R. No. 172509 dated 4 February 2015

Request for reinvestigation must be granted to toll prescription

SC may rule on prescription even on appeal

Government may be estopped from collecting taxes1615 July 2015Tax Updates: Threshing Out the Gray AreasIsla Lipana & Co., PwC member firmChina Banking Corporation v. CIRRequest for reinvestigation must be granted to toll prescription

Two things must concur to suspend the statute of limitations: There must be a request for reinvestigation, and The CIR must have granted itIn this case, there was no showing from the records that the CIR ever granted the request for reinvestigation filed by the taxpayer. Hence, it cannot be said that the running of the prescriptive period was effectively suspended.1715 July 2015Tax Updates: Threshing Out the Gray AreasIsla Lipana & Co., PwC member firmChina Banking Corporation v. CIRSC may rule on prescription even on appealAs a rule, the defense of prescription cannot be raised for the first time on appeal. Exception: when the pleadings or the evidence on record show that the claim is barred by prescription.Relying on the evidence, SC ruled that prescription had set in based on: the date of receipt of the assessment notice which was not disputed, and the date of the attempt to collect as determined by merely checking the records when the response of the CIR containing the demand to pay the tax was filed.1815 July 2015Tax Updates: Threshing Out the Gray AreasIsla Lipana & Co., PwC member firmChina Banking Corporation v. CIRGovernment may be estopped from collecting taxesWhere it took more than 12 years for the BIR to take steps to collect the assessed tax and kept silent despite having the opportunity to question the defense of prescription on appeal, its claim for deficiency DST is now barred. The SC held that the BIR caused untold prejudice to the taxpayer, keeping the latter in the dark for so long as to whether it is liable for DST and, if so, for how much.While generally, the rule on estoppel or waiver does not apply to the government in a ta