Atty.

Roberto Lock Part 2

Tax Updates

Jurisprudence 2015-June 2016 cases and 1 August 2016 case

Tax and Civil Law are interrelated

i.e. Real Property Tax – How to do we determine real property for real property tax purposes?

Do you use Art. 415 is Civil Code?

General Principles

The use of tax treaty – to totally eliminate international double taxation. If not to totally eliminate, to
minimize.

When we say to totally eliminate, there will be an exemption –

Example:

Interest Income from For. Loans by NRF Corp with debtor Domestic Corp.

Final Rate 20% Treaty Relief Rate 10%

To avail of tax treat rate, you must apply in the BIR for Tax Treaty Relief 15 DAYS before the transaction.
(RMO 1-2000)

What if you applied, but was not done within the 15 day period before the transaction? (Deutse Bank)

SC Ruling – The requirement is illogical. How can the taxpayer apply, if in the first place the
taxpayer doesn’t know that he is entitled to the lower rate. The treaty relief application must not be the
source of entitlement, but merely a confirmation of your status. Moreover, it is a requirement not found
under the tax treaty.

Income Tax

RA 10653 Increase of Tax exemption benefits (13th month pay and other benefits) from 30k to 82K

Inclusions:

Shall ONLY apply to 13th month pay and other benefits

1. Christmas Bonus
2. Productivity Incentive Bonus
 3. Christmas Bonus
4. Gifts in Cash and in kind
5. Other similar benefits (covers 14th month pay)

DOES NOT APPLY to Self-Employed persons

RR 1-2015 de minimis benefits

Benefits received under a CBA and other productivity incentives non-taxable only up to 10K per
employee

Any excess of de minimis will fill-up the 82k threshold first before it becomes taxable under 32 b7.

Each de minimis benefit is a limit on its own and cannot be mixed with other de minimis benefit limits.
(No aggregation rule)

RA 10754, RA 7277, and Magnacarta for PWD

Amendment to sec 35b in relation to qualified dependent

Under RA10754, a PWD within the 4th degree of consanguinity or affinity (by marriage) is now qualified
to be claimed as additional personal exemption.

PWD must be a Filipino Citizen, not gainfully employed, and must be chiefly dependent upon and with
the taxpayer.

Comparison between RA10754 and Sec 35B

1. Under the Tax Code, the dependent must be a child.

Under the Tax Code, the limit for qualified dependent is only up to 4 including PWD.

Note: Only one of the MARRIED spouses can claim additional exemption. Even if the spouses legally
separate, the total allowable is still 4.

Capital Gains Tax

Republic v Soriano, in expropriation proceedings, may the gov’t be complied to pay the CGT? NO, it must
be the SELLER, not the buyer to shoulder the CGT.

Question, in case of expropriation, assuming it is a capital asset, is it always subject to 6% CGT? NO, if
the seller is an INDIVIDUAL and the buyer is the gov’t, political subdivision, GOCC, the seller or individual
has the option to pay 6% CGT or Regular Income Tax.
Deposit Substitute case (BDO v Republic)

As far as taxation is concerned, there is no interest on refunds, except for 2 exceptions according to the
SC. 1. If there is a law providing for interest on refunds. 2. If tax collection was attended by arbitrariness.

Bureau of Treasury issued Peace Bonds. What is the difference between bonds and deposits? Bonds are
marketable.

Sec. Purisima questioned Comm. Henares asking whether the Peace Bonds issued by BoT are subject to
20% Final Withholding Tax. The issue then is if the Peace Bonds are considered as deposit substitute or
not. Henares said that all Government bonds are deposit substitutes. Was it a correct interpretation of
the Tax Code? According to the SC through Justice Rene, NO, because it completely disregards the 20 or
more member rule under Sec 22 Y of the Tax Code. Under 22 Y, a deposit substitute is an alternative
form of borrowing from the public by 20 or more corporate or individual lenders at one time.

Interest income is generally subject to 20% Final Withholding Tax except for long term bonds (more than
5 years)

International Air Carrier (2.5% Gross Philippine Billing Tax)

Requirement under the Tax Code (Sec28A3), in order to be subject to the 2.5% Tax:

1. It must be a Resident Foreign Corporation (FC doing business in the PH)

Air Canada is not subject to 2.5% GPBT, but subject to 30% Regular Corporate Income Tax

SC Ruling in relation to International Air Carriers – the ACTVITY TEST. The source of income/ activity
which produced the income is the sale of tickets in the PH. Thus, income in relation to sale of tickets,
even if the flight has no connection with Philippine territory is considered as income within. But if
there is a Tax Treaty, apply the Tax Treaty.

1st Scenario – With Landing Rights, Source of tickets within the PH --- 2.5% GPBT

2nd Scenario – With Landing Rights , Source of tickets outside the PH ---1.5% Tax Treaty or Exempt under
Reciprocity

3rd Scenario – Without Landing Rights , Source of tickets inside the PH ---1.5% Tax Treaty or Exempt
under Reciprocity

4th Scenario – Without Landing Rights , Source of tickets outside the PH ---Exempt (no landing rights)
Withholding Tax on Compensation specifically to bonuses (ING vs Com of BIR)

Whether Accrued Bonuses and already claimed as deductions for income Tax purposes, taking in
consideration Sec 34K and 79 of the Tax Code, the time of withholding must be when paid or accrued
whichever comes earlier.

RMC 30-2016 Political Contributions not utilized before, during, or after the campaign period is subject
to donor’s tax. In addition, political contributions made by a corporation is considered ultra vires acts
and subject to donor’s tax.

REMEDIES

Waiver of statute of limitations – NXT Mobile Case

It is not a waiver of the right to invoke the defense of prescription.

SC – statute of limitations must not be construed as a waiver to invoke the defense of prescription

What is it? An agreement between the BIR and Taxpayer that the period to collect/ assess is extended:

1. To a specific date

Purpose of waiver? BIR cannot assess and collect on time. The effect is that it totally obliterates the tax
liability of the taxpayer.

If the waiver is defective, it will not extend.

Kim Henares removed the requisites for waiver.

OLD requisites:

1. No unli waiver, there should be an expiration date (example, until the end of examination)
2. It must be signed by an authorized representative, authority must be in writing and notarized
3. Notarization became optional as amended by Kim Henares
4. Date of acceptance by BIR of waiver is essential
5. Date of execution/ acceptance must be before the prescription (not removed)
6. Taxpayer must be given a copy of the executed waiver

NEW requisites

1. Must be executed by BIR before expiration of the prescriptive period

1. RCBC 2011 – Partial Payments of Assessment

NXT Mobile Case: Taxpayer executed 5 waivers one after the other, but the one who signed was not
authorized.

Liquigas Case:

Assessment Process:

LOA authorized Examiner to make an audit

Preliminary Assessment Notice (must contain facts and law on which it is based) – 15 days to file a
protest for Reconsideration or Reinvestigation

Final Assessment Notice (facts, law, and jurisprudence) - 30 days to file a protest for Reconsideration
or Reinvestigation

Facts and Law must be stated in order for the taxpayer to file an intelligent protest.

If you file a protest, it becomes a Disputed Assessment

Final Decision on Disputed Assessment (facts, laws, and jurisprudence)– Appealable to the CTA

An invalid FDDA does ot make the FAN null and void