Lessee Information Statement under RR No. 12-2011

Revenue Regulations No. 12-2011 dated July 25, 2011 entitled "Reportorial Requirements for Establishments Leasing or Renting Out Spaces for Commercial Activities" now requires a new reportorial requirement for lessors of commercial spaces.

All owners, or sub-lessors of commercial establishments/buildings/spaces to ensure that persons intending to lease is a BIR- registered taxpayer with tax identification number (TIN), BIR Certificate of Registration (COR), and duly registered official receipts or invoices.

Every 31st day of January and 31st day of July of the year, they are required to submit the following information, under oath, in hard and soft copies to the Revenue District Office (RDO) where the commercial establishment/building/space is located:

1. Building/space layout of the entire area being leased with proper unit/space address or reference;
2. Certified True Contract or Contract of Lease per tenant; and,
3. Lease Information System (LIS) in prescribed format (Printed copy and excel format in CD-R for softcopy)

The first filing of tenants profile as of July 31, 2011 through the LIS shall be on or before November 2, 2011 (As amended by Revenue Regulations No. 15-2011). Failure to submit is subject to penalties.


Resources:

Revenue Regulations No. 12-2011 dated July 25, 2011
Revenue Regulations No. 15-2011 dated August 26, 2011

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Tax Credit Certificates (TCC) under RR No. 14-2011

A Tax Credit Certificate (TCC) may be used by the grantee or his assignee in the payment of his direct internal revenue tax liability except the following:

1. payment or remittance for any kind of withholding tax;
   
2. payment arising from the availment of tax amnesty declared under a legislative enactment;
   
3. payment of deposits on withdrawal of exciseable articles;
   
4. payment of taxes not administered or collected by the Bureau of Internal Revenue; and
   
5. payment of compromise penalty.

Under Revenue Regulations 5-2000 dated August 15, 2000, BIR issued Tax Credit Certificates (TCCs) may be transferred in favor of an assignee based on the following conditions:

1. the transfer of a valid TCC must be with prior approval of the Commissioner or his duly authorized representative;
2. the transfer should be limited to one transfer only; and
   
3. the transferee shall use the TCC assigned to him strictly in payment of his direct internal revenue tax liability and in no case shall the same be available for conversion to cash in his hands.

In practice, transfers or assignment of TCCs has been an industry for quite a time. The grantee normally would transfer the same at a discount of say 10% to 15% because it is after the cash it could generate and make use in its operations. For the buyer or transferee, it is after the gain on the discount because it will utilize every peso of TCC with a lesser cost so it would benefit on the discount. The broker then, would earn a professional fee out of the completed transactions. In this instance, taxable gains and income are being realized, and a deductible loss is likewise incurred.

For the government, the use of TCCs would reduce cash collections because transferring the TCCs to taxpayers with much tax liabilities would maximize the use of the same thereby negatively affecting collections. Without transferring, grantees without much direct liabilities would tend to consume the TCC's in a long period of time. To my mind, this scenario prompted the BIR to issue the new regulations, disallowing its transfer.

Thus, in Section 2 Revenue Regulations No. 14-2011 dated July 29, 2011 amended Section 4 of the RR No. 5-00 and hereunder provides that:

"All Tax Credit Certificates (TCCs) issued by the BIR shall not be allowed to be transferred or assigned to any person"

Accordingly, grantees of the TCC would themselves use the TCCs. Without much direct liabilities, it would take them quite a long time to consume unless they could eye on some alternative tax minimization schemes in accordance with law.

Sources:

• Revenue Regulations No. 14-2011
• Revenue Regulations No. 5-2000

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Tax on Corporate Dividends

In a corporate world, dividends is not a new topic. As a matter of fact, it is one of the major consideration for an investor to purchase shares of stock of a company. It represents the share in the net earnings distribution of a stockholders who own shares of stocks of a company. It could be in the form of cash, property, company's own shares or stock dividends and liquidating dividends upon liquidation and dissolution. It is basically sourced from the unrestricted or free retained earnings of the company made available through an action of the Board of Directors.

Taxability of cash and/or property dividends would normally depend on the classification of the company and the recipient stockholders. Company for determining tax on dividends may be classified as either a domestic corporation or as a foreign corporation. Stockholders may be classified as either an individual or a corporation, and the latter may further be classified as a domestic corporation, resident foreign, and non-resident foreign corporation. Determining the classification would depend on the state where the same is organized or constituted and existing. Domestic corporations are those organized and existing under the laws of the Philippines. Those organized and existing under the laws other than the Philippines are referred to as foreign corporation. Foreign corporations doing business in the Philippines are normally classified as resident foreign corporation, otherwise, the same shall be referred to as a non-resident foreign corporation.

Dividends distributed by a DOMESTIC corporation to the following stockholders are taxed as follows:

* Individuals, whether Pinoy or not, is subject to 10%;
* Domestic corporations - exempt;
* Resident foreign corporation - EXEMPT from income tax; and
* Non-resident foreign corporation - 15% subject to the rule on tax-sparing credit and/or Tax Treaty rules

On the other hand, dividends distributed by a FOREIGN corporation to the following stockholders are taxes as follows:

* Pinoy individuals residing in Philippines is subject to 5-32% normal income tax;
* Pinoy individuals not a resident of the Philippines is EXEMPT from income tax;
* Domestic corporations subject to 30% corporate income tax;
* Resident foreign corporation is EXEMPT from income tax; and
* Non-resident foreign corporation is EXEMPT from income tax.

Stock dividends are, as a rule EXEMPT from income tax as there is no flow of wealth to the stockholder before and after the stock dividend. The increase in the number of shares as a result of the stock dividend is not necessary income until after such shares are actually sold. However, if such stock dividend distribution would constitute as an income distribution (e.g. increase in the equity percentage of a stockholder), then, the same shall be taxed in the same manner above.

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15% income tax to expats, when applicable?

Revenue Memorandum Circular No. 41 – 2009 dated July 23, 2009 (RMC 41-2009) was issued to clarify the meaning of “Managerial and Technical Positions” under Section 25(C) of the Tax Code, as amended. This RMC sets out the qualifications and requirements in order that an alien employee (or Filipino employees) of a Regional Headquarters (RHQ) or Regional Operating Headquarters (ROHQ) of a multinational corporation shall be eligible for the 15% income tax rate on its gross compensation income. Hereunder is the summary of the RMC.

Compared to the normal tax rate of 5-32% bracket 5-32%, if a resident alien or non-resident alien engaged in trade or business, or 25%, if a non-resident alien not engaged in trade or business, the 15% rate is a good break because of a material rate gap on rates of income tax on compensation of approximately 17% (32%-15%), and 10% (25%-15%), respectively. Thus, the BIR saw the need to clarify the bounds of the term “Managerial and Technical Positions” to avoid abuse and misapplication of the above rule to minimize taxes, if not escape or evade.

Under the Labor Code, employment of non-resident aliens commonly referred to as “expatriate employees”, is limited to positions which are managerial, confidential, or highly technical in nature, or where there are no Filipinos who are competent, able and willing to perform the services for which aliens are desired. To be considered managerial employee, it must possess authority to act in the interest of its employer requiring the use of independent judgment and not merely routinary or clerical in nature. The case of Villuga vs. NLRC, 225 SCRA 537 provides the following elements to be considered managerial employee:

a. primary duty consist of performance o work directly related to management policies;
b. customarily and regularly exercise discretion and independent judgment;
c. regularly and directly assist in the management of the establishment;
d. does not devote 20% of his time to work other than those prescribed above.

The employees are not managerial employees if they only execute approved and established policies, leaving little or no discretion at all whether to implement said policies or not. On the other hand, RMC did not elaborate very well on “technical position” other than saying that it is limited to positions which are highly technical in nature or where there are no Filipinos who are competent, able and willing to perform the services for which aliens are desired.

By implication, all other BIR rulings issued inconsistent with the RMC are revoked accordingly. As a matter of fact, BIR Ruling No. DA-061-04 is revoked by the RMC. Thus, it is suggested that a review of existing employee structure and job descriptions in relation to their tax treatments is hereby recommended to ensure that the same is in compliance with the RMC.

Suggested readings:
a. Villuga vs. NLRC, 225 SCRA 537
b. Republic Act No. 8756, amending E.O. No. 226

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Why are penalties imposed by the BIR?

At present, doing business is a bit an inch of perfection, if not a mastery of craft, in order to maximize the use of its finances for success. Many promising undertakings could be made on the funds wasted on penalties. Sometimes, no matter how and what measures are employed not to overlook some reportorial requirements, that they simply occurs unnoticed. This may prove that, sometimes, simple errors are big headaches in business. The question is why these penalties have to be imposed, even on honest mistakes and simple inadvertence?

Taxes are the lifeblood of the government, without which, it cannot subsist. This dictates that taxes owing to the government shall come in due time and in exact amounts so as not to cause any untoward delay and interruption in its performance of its duties and responsibilities to the citizenry. Impliedly, excuses in the delay of payment, no matter how reasonable, may not defeat the need for the government to exist. Thus, to be fair to the BIR and the government, it maybe a good start to know the rationale on the imposition of these penalties– 25%/50% surcharge, 20% interest, and compromise penalties.

Surcharge is a one-time imposition upon failure to pay the tax due in full in due time. The rate 25%, in general, except if fraudulent in character where 50% is used. It is intended to hasten tax payments or to punish evasion or neglect of duty in respect thereof.

On the other hand, the imposition of 20% interest annually from the time a basic tax due is bound to be paid until such time that it becomes fully paid, is but a just compensation to the State for the delay in paying the tax and for the concomitant use by the taxpayer of funds that rightfully should be in the government's hands. The fact that the interest charged is made proportionate to the period of delay constitutes the best evidence that such interest is not penal but compensatory for the time value of money in the government’s hands.

Finally, compromise penalty is imposed in lieu of prosecution in court. Instead of taxpayer being sued in court for the particular violation, the taxpayer and the BIR will simply agree upon the payment of compromise in order to do away with the time, effort and money that the litigation process may take.

Suggested readings:

a. Jamora vs. Meer, 74 Phil. 22
b. Castro vs. Collector of Internal Revenue, G.R. L-12174. Dec. 28, 1962
c. Aguinaldo VS. CIR, G.R. No. L-29790. February 25, 1982

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What benefits can persons with disability enjoy?

Republic Act No. 9442 or otherwise known as “AN ACT AMENDING REPUBLIC ACT NO. 7277, OTHERWISE KNOWN AS THE “MAGNA CARTA FOR DISABLED PERSONS, AND FOR OTHER PURPOSES” (RA No. 9442) had been approved on April 30, 2009 and is implemented by BIR Revenue Regulations No.: 1-2009 dated Feb. 17, 2009 (RR No. 1-09). The amendment introduced specific benefits and privileges to persons with disability in relation to its purchases of certain goods or services, protection from public ridicule (making fun or contemptuous initiating or making mockery of persons with disability whether in writing or in words, or in action due to their impairment/s) and from vilification (utterance of slanderous and abusive statements and/or activity in public which incites hatred towards serious contempt for, or severe ridicule of persons with disability), and incentives to seller establishments, to those caring for and living with persons with disability, and to those individuals or non-governmental institutions establishing homes to suit the needs of persons with disability.

Under RA No. 9442, disable persons shall be entitled to the following:

a. 20% discount on services in hotels and similar lodging establishments; restaurants and recreation centers;
b. 20% discount on admission fees charged by theaters, cinema houses, concert halls and other similar places;
c. 20% discount on purchase of medicines in all drugstores;
d. 20% discount on medical and dental services including diagnostic and laboratory fees, and professional fees attending doctors in all private hospitals and medical facilities;
e. 20% discount on fare for domestic air and sea travel;
f. 20% discount on public railways, skyways and bus fare for the exclusive use and enjoyment of persons with disability;
g. educational assistance upon qualification
h. Such other special discounts in special programs on purchases of basic commodities in accordance with established guidelines.

For tax purposes, persons with disability with valid identification (issued by the barangay captain of residence, passport, and transportation discount card issued by NCWPD or National Council for the Welfare of Disabled Persons) may be claimed as a qualified dependent for additional personal exemption of P25,000. Seller establishments are allowed to claim the 20% discount as an allowable deduction from their gross income for income tax purposes. Further, individuals or nongovernmental institutions establishing homes, residential communities or retirement villages solely to suit the needs and requirements of persons with disability shall be accorded the following:

a. Realty tax holiday for the first five years of operation; and
b. Priority in the building and/or maintenance of provincial or municipal roads leading to the aforesaid home residential community or retirement village.

Personally, the 20% discount is quite similar to that of the senior citizens discount. For the least, the law would encourage respect to persons with disability and make them feel how important they are in the community, despite, their disabilities. Let us gave them respect and help them at all times.

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What you should know about ROHQ?

Regional Operating Headquarters (ROHQ) (Section 2(3), RA No. 8756) means a foreign business entity which is allowed to derive income in the Philippines by performing the following qualifying services to its affiliates, subsidiaries or branches in the Philippines, in the Asia-Pacific Region and in other foreign markets:

1. general administration and planning


2. business planning and coordination


3. sourcing and procurement of raw materials and components


4. corporate finance advisory services


5. marketing control and sales promotion


6. training and personnel management


7. logistic services


8. research and development services and product development


9. technical support and maintenance


10. data processing and communication, and,


11. business development

Being a special entity allowed in the Philippines with certain incentives and preivileges, ROHQ's business activities are subject to the following limitations:

a. Shall offer its services only to its affiliates, branches or subsidiaries, as declared in its registration with the Securities and Exchange Commission (SEC).

b. It shall not directly and indirectly solicit or market goods and services whether on behalf of their mother company, branches, affiliates, subsidiaries or any other company.

c. It cannot directly or indirectly engage in the sale and distribution of goods and services of its mother company, branches, affiliates, subsidiaries or any other company.

Capitalization requirements. The ROHQ is required to initially remit into the country within 30 days from receipt of the Certificate of Registration with SEC through BOI such amount as may be necessary to cover its operations in the Philippines but which amount will not be less than US$200,000 or its equivalent in other currencies. This should be evidenced by a Certificate of Inward Remittance issued by the depository branch.

Taxation and Other incentives includes the following:

ROHQ

a. 10% income tax on taxable net income instead of the 30%/25% on income;

b. 12% value-added tax;

c. 15% branch profit remittance tax;

d. Tax and duty free importation of training materials and equipment, and importation of motor vehicles; and

e. Exemption from all kinds of local taxes, fees, or charges.


Expatriates

a. Multiple entry visa to expats, their spouse and children under certain conditions;

b. Travel tax exemption of expats and their dependents upon certification of the BOI;

c. Tax and duty free importation of personal and household effects ;

d. 15% withholding tax on compensation of managerial and technical alien employees instead of the 25% or 5-32%. Apply also to Filipino citizens holding the same positions.

Licensing. In order to operate and ROHQ in the Philippines, it is required to secure a License with the securities and Exchange Commission (SEC). For the purpose, endorsement by the Board of Investments (BOI) shall be submitted to the SEC along with the other requirements. Likewise, registration with the BIR, and other government agencies are required for the ROHQ.

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Tourism Act of 2009, a new WOW Phils.?

Republic Act No. 9593 otherwise known as "Tourism Act of 2009" was approved into law on May 12, 2009. This declares Philippine Tourism as an indispensable element of the national economy and an industry of national interest and importance. This is a present major step that is expected to create major changes and developments in the tourism industry gearing towards socio-economic development expected to generate new jobs and massive investments.
Along with this law, Department of Tourism as the implementing and regulating agency is bombarded with enough powers, strength, and capitalization for the effective furtherance of its purpose and implementation of various programs and policies. Certain government agencies and instrumentality were restructured and reorganized such as the Duty Free Philippines to Duty Free Philippines Tourism Corporation (DFPC), and Philippine Tourism Authority (PTA) converted to Tourism Infrastructure & Enterprise Zone Authority (TIEZA).

More importantly is the creation of the so-called Tourism Economic Zones (TEZ) somewhat similar to that of Philippine Economic Zones (PEZA under RA No. 7916), and Bases Conversion and Development Authority (BCDA under RA No. 7227) Ecozones. TEZ operators could either be a local government, itself, a private entity, or a joint venture of the two. Under this law, Tourism Enterprises within a TEZ registered under TIEZA shall be allowed certain fiscal and non-fiscal incentives under the criteria to be established by the implementing rule and regulations such as the following:

A. Fiscal Incentives:
a. Income tax holiday for 6 years, subject to extension for another six years under certain conditions;
b. 5% income tax based on gross income earned in lieu of all other national and local taxes, license fees, imposts and assessments, except real estate taxes;
c. Tax free importations of capital investments and equipment, transportation and spare parts;
d. Additional tax deductions on social responsibility expenditures not exceeding 50% of cost; and,
e. Such other incentives under certain conditions.

B. Non-fiscal incentives
a. Employment of foreign nationals;
b. Special investor's resident's visa;
c. Repatriation of Investments in foreign currency;
d. Remittance of foreign exchange;
e. Foreign loans and contracts

With the above incentives, along with the re-organization and restructuring, it is expected that more investors shall be coming in to establish a Tourism enterprise, or develop and upgrade their existing facilities to be entitled to the incentives. In the meantime, the corresponding Implementing Rules and Regulation of the said law is underway and expected to be released soon. The regulations will further state in details the requirements, conditions and procedures for the applicability of the incentives and privileges.

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How can the BIR increase collections?

At present, we read on papers the many faces of financial crisis, budget deficit, failure to meet collection target, and the likes. Philippines in on a budgetary system where collections and expenditures are budgeted ahead. Expenditure is quite easy to meet as they simply spend on many things and in many ways, while collection targets are quite hard to attain. Instead of simply reading them, what about if we try to explore on ways and means where in our thinking, could help the BIR reach their targets.

Presently, the legislature had passed some tax measures providing for some incentives that may negatively affect reaching collection targets along with some other updates tending to slow collections. I am referring to RA 9593-Tourism Act of 2009, RA 9442 - amendment to the Magna Carta for Disabled Persons, RA 9648 - DST Tax Exemption, reduction on amusement taxes to 10%, the MCIT case resolutions of PAL, transitional input tax issue of FBDC, and the MIAA real property tax case resolution this 2009. In short, the BIR is finding some measures in which it can raise collections as the target had been set to be attained despite all that. Moreso, that as we read on the papers, the senate says NO to tax measures imposing and creating new taxes which means NO helpline to BIR.

One of its (BIR) move is the expansion of the Top Ten Thousand Corporation (TTC) for mandatory withholding to Top Twenty Thousand Corporations. Wider coverage would mean a wider advance collection of income and more encouragement to payees of income payments to declare income and pay related taxes. Another notable introduction is the Top Five Thousand Individuals (TFI) for those individuals engaged in trade or business and those in the practice of profession meeting certain criteria set for the purpose. For those newly appointed TTC or TFI, these new regulations may not be simple to comply as they add some administrative duties. However, we cannot put the blame on BIR on this. Should they not comply, then, penalties are at stake. Other moves are on improved BIR assessments, and computerized matching so taxpayers are being surprised by some yearly assessments and left and right tax verification notices. In effect they are extracting for the taxpayer's last drop of tax liabilities.

The idea of what can the BIR do to improve collection had been lingering on my mind and it is only on this post that I took the courage to formalize and share with the rest what I have in mind. In the meantime, what about if the BIR applies the same principle of withholding tax on GAMBLING, like on cockfighting winning bets? For some this is simply a past time or a hobby, but we must admit many lives on it. I do not participate on cockfighting but my understanding is the admin gets commission every time the bet wins. yes, the winning is a taxable income, but who knows if this income is being declared and tax paid. In the same manner, losses from gambling is a capital loss that is not deducted from income tax purposes. This may seem weird and maybe hard to implement at first not because of its complexities, but maybe because of some influential personalities who has the love of it that may simply use power to go against it. However, looking at it and considering the volume of money flowing in and out of the cockfighting industry every Sunday, special holidays and scheduled derby, I am quite confident that tax collections from this may mean something. If they could waste money on this past time, why not share a portion of this for taxes?

You may have something in mind that may also help the BIR improve collection. We would be pleased and honored to hear it from you. Simply drop a line below and we will try to submit our collective ideas to the BIR.

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Allowable Deductions - Powerpoint

In computing the taxable income, certain deductions are allowed by the Tax Code to be deducted from the Gross Income. This is crucial to know because once you commit a mistake in deducting one that is not allowed, then you will made to suffer the penalties of 25% surcharge, 20% interest and compromise penalties. Take time to view those allowable deductions in this powerpoint presentations with references to the provisions of the Tax Code, as amended, or the corresponding implementing regulations.

Allowable deductions.feb.2011

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