PDF - Punongbayan & Araullo
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PDF - Punongbayan & Araullo
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.