2014 INCOME TAX UPDATES AND

COMMON ERRORS TO AVOID

Atty. Vic C. Mamalateo

August 30, 2014
PICPA Cabanatuan City

 To get Taxpayer Identification Number (TIN) [Sec. 236(J), NIRC] and pay ARF.
To register as a taxpayer Income tax, Withholding agent, VAT or Non-VAT,
etc. and to update BIR Certificate of Registration [Form 2303] (Sec. 236(A), NIRC)
To register books of accounts (whether computerized or manual) [Sec. 232,
NIRC] and to keep books and records for 3 years from date of last entry (Sec.
235, NIRC)

To secure Authority To Print (Sec. 238, NIRC) and to register and issue sales
invoices, incl. delivery receipts, official receipts, incl. collection, provisional,
or acknowledgement receipts, and other accounting records (whether
computerized or manual) (Sec. 237, NIRC)
To register cash register machines and POS machines
To file tax returns (BIR Form 1701/1702; 1601/1604; 2550/2551; 2200) and
pay taxes within the dates prescribed by law; otherwise, penalties will be
imposed
To withhold and remit taxes required by law or regulations and to issue
Certificates of Tax Withheld (BIR Forms 2307 & 2306)
To submit reports and other information required by law or regulations (e.g.,
inventory, SLS, SLP, and SLI, SAWT and MAP, alpha list of employees and
2316, audited financial statements, etc.)
To post certain receipts and certificates.

 General principles arising from lifeblood

theory:
Taxation is the rule; exemption, the exception.
Exemptions are construed strictly against the
taxpayer. In case of doubt, you tax income or
disallow deductions and tax credits.
Taxes are imposed by law (e.g., NIRC), while
financial accounting are based on generally
accepted accounting standards. In case of
conflict between tax rules and accounting
rules, the former shall prevail.

 1. Cash/Property Received
Is it a return of capital or capital, or
income, gain or profit?
2. Capital or Return of Capital
Is it acquired gratuitously or for a
valuable consideration?
Gratuitous Transfer: May be subject to
estate tax (Chapter I, Title III) or donors tax
(Chapter II, Title III)
For Valuable Consideration: May be
subject to income tax (Title II)

 3. If income, gain or profit

Exempt from income tax:

Constitution, tax treaty, NIRC, or special law

Exclusion from gross income [Sec. 32(B), NIRC]
Sec. 30, NIRC: Exempt corporations and associations
Sec. 22, NIRC: GPP or JV (construction or energyrelated projects)

4. If taxable, what income tax system applies?

Schedular tax system (subject to FWT)
Global tax system
Mixed schedular and global tax systems

 5. Who is the taxpayer?

Individual (or estate or trust)
Citizen or alien

Corporation (or partnership)

Domestic or foreign

6. Where is the source of income?

Within the Philippines
Without the Philippines

7. Methods of reporting income

Cash, accrual, installment, POC, and crop year

OVERVIEW
8. Nature of income?
Compensation income
Business or professional income
Capital gain
Passive investment income
Other income

9. Type of asset and gain?

Capital asset
Ordinary asset

INCOME TAX
INCOME TAX
Tax on all yearly profits arising from property, professions,
trades or offices, or as a tax on a persons income,
emoluments, profits and the like (Fisher v. Trinidad).
Income tax is a direct tax on taxable actual or presumed
income (gross or net) of a taxpayer received, accrued or
realized during the taxable year.

WITHHOLDING TAX
It is not an internal revenue tax but a mode of collecting
income tax in advance on income of the recipient of
income thru the payor of income. [NOTE: Sec. 21, NIRC
enumerates various internal revenue taxes.]
There are 2 types of withholding taxes, namely: (1) final
withholding tax; and (2) creditable withholding tax,
including expanded withholding tax.

 LAWS THAT GRANT INCOME TAX EXEMPTION (FULL OR

PARTIAL, OR SUBJECT TO CERTAIN CONDITIONS):

Constitution (non-stock, non-profit private educational

institutions)
Tax treaties (no permanent establishment in the Phil)
Statutes
General law (National Internal Revenue Code)

Definition of terms (Sec. 22(B), NIRC)

General principles (Sec. 23, NIRC)
Exclusions from gross income (Sec. 32(B), NIRC)
Exempt corporations and associations (Sec. 30, NIRC)
Tax imposition provisions (Sec 24-28, NIRC)
Interest on long-term deposits or investments of individuals
Interest on foreign currency deposits with OBU/FCDU of NRs
Estates and trusts (Secs. 60-66, NIRC)

 Special laws
R.A. 7916 (PEZA Law) and other laws creating special economic zones, which
grant ITH for a limited period and impose 5% final tax on gross income earned, in
lieu of all national and local taxes, after ITH
R.A. 7227 (BCDA Law) imposing 5% final tax on gross income earned, in lieu of
all national and local taxes
E.O. 226 (Omnibus Investments Act), which grants ITH on registered pioneer
or non-pioneer activities
R.A. 9856 (Real Estate Investment Trust Law), which allows dividends paid
by the REIT corporation to be deducted from its gross income, and exempts
dividends paid by it to OFWs, among other benefits
R.A. 10026 exempts Local Water Districts from income tax (RMC 28-2010,
Mar 23, 2010)
R.A. 9520 (Phil Cooperative Code of 2008) exempts from any taxes and fees
on registered cooperatives which do not transact business with non-members,
and coops with accumulated reserves and undivided net savings of not more than
P10 million.
R.A. 9505 (Personal Equity and Retirement Account Act of 2008) grants
5% tax credit of the aggregate PERA contributions made in one by a qualified
contributor against his income tax liability or any national tax, if OFW.

RMC 35-2014, May 8, 2014

RMC 35-2014 circularizes portion of HUDCC

Resolution No. 1-2013, which approves the
adjustment of price ceiling for horizontal
socialized housing from P400,000 to P450,000,
beginning Dec 18, 2013
RMC 36-2014, May 8, 2014 clarifies that the
price ceiling of socialized homelot only,
pursuant to RR 11-97, 17-01, and HUDCC
Resolution No. 1-2013, shall not exceed 40% of
the maximum limit prescribed for house and
lot package, or P180,000 (40% x P450,000).

RMC 7-2014, Feb 5, 2014

RMC 7-2014 clarifies the issues on registration and
compliance requirements of Marginal Income Earners
pursuant to RR 7-2012
Marginal Income Earner refers to individuals whose business do not
realize gross sales or receipts exceeding P100,000 in any 12-month
period.
Said individual is one not deriving compensation under an E-E
relationship but who is self-employed and deriving gross sales or
receipts not over P100,000 in any 12-month period. His activities
should be principally for subsistence or livelihood.
MIE shall not include licensed professionals, consultants, artists, sales
agents, brokers and others similarly situated, including those whose
income have been subjected to withholding tax.
MIE is exempt from ARF and from payment of business taxes (VAT or
PT), but he must register, keep books, issues invoices or receipts, and
file annual 1701 and pay income tax, if applicable.

INCOME FROM PROPERTY OF

EXEMPT ASSOCIATION

The phrase any of their activities conducted for profit

does not qualify the word properties.-- The phrase any of

their activities conducted for profit does not qualify the word properties.
This makes income from the property of the organization taxable,
regardless of how that income is used whether for profit or for lofty nonprofit purposes. Thus, the income derived from rentals of real property
owned by the Young Mens Christian Association of the Philippines, Inc.
(YMCA), established as a welfare, education and charitable non-profit
corporation, is subject to income tax. The rental income cannot be
exempted on the solitary but unconvincing ground that said income is not
collected for profit but is merely incidental to its operation. The law does
not make a distinction. Where the law does not distinguish, neither should
we distinguish. Because taxes are the lifeblood of the nation, the Court has
always applied the doctrine of strict interpretation in construing tax
exemptions. YMCA is exempt from the payment of property taxes only but
not income taxes because it is not an educational institution devoting its
income solely for educational purposes. The term educational institution
has acquired a well-known technical meaning. Under the Education Act of
1982, such term refers to schools. The school system is synonymous with
formal education which refers to the hierarchically structured and
chronologically graded learnings organized and provided by the formal
school system and for which certification is required in order for the learner
to progress through the grades or move to higher levels (Commissioner vs.
Court of Appeals and YMCA of the Phils., G.R. No. 124043, Oct. 14, 1998).

To be exempt from income tax, Sec 30(e), NIRC requires

that a charitable institution be organized and operated
exclusively for charitable purposes. Due to huge amount
received from paying patients, hospital is not operated
exclusively for charitable purposes.
The last paragraph of Sec 30, NIRC provides that if a taxexempt charitable institution conducts any activity for
profit, regardless of the disposition made of such income,
such activity is not tax exempt (even as its not-for-profit
activities remain exempt from income tax). Such taxable
net income is taxed at 10% pursuant to Sec. 27(B), NIRC.
However, in view of the BIR ruling in 1990 stating that St
Lukes Hospital is exempt from income tax, no surcharge
and interest shall be imposed on the deficiency tax (CIR v.
St Lukes Med Center, Sept 2012).

RMC 51-2014, June 11, 2014

RMC 51-2014 clarifies the inurement prohibition
under Sec 30, NIRC
Sec 30 enumerates the non-stock, non-profit corporations or
associations exempt from income tax on income received by
them as such.
Non-stock means no part of its income is distributable as
dividends to its members, trustees, or officers and that any
profit obtained as an incident to its operations shall,
whenever necessary or proper, be used for the furtherance
of the purpose(s) for which the corporation was organized.
Non-profit means that no income or asset accrues to or
benefits any member or specific person, with all the net
income or asset devoted to the institutions purposes and all
its activities conducted not for profit.

RMC 51-2014, June 11, 2014

To qualify as a tax-exempt entity, its earnings or assets
shall not inure to the benefit of any of its trustees,
organizers, officers, members or specific person. The
following are considered inurements of such nature:
Payment of compensation, salaries or honorarium to its trustees or
organizers;
Payment of exorbitant or unreasonable compensation to its
employees;
Provision of welfare aid and financial assistance to its members.
An organization is not exempt if its principal activity is to receive
and manage funds associated with savings or investment
programs, including pension or retirement programs. This does not
cover a society, order, association or non-stock corporation under
Sec 30, NIRC providing for payment of life, sickness, accident
and other benefits exclusively for its members or their
dependents.

RMC 51-2014, June 11, 2014

Donation to any person or entity (except donations made
to other entities formed for the purpose(s) similar to its
own);
Purchase of goods or services for amounts in excess of
FMV of such goods or services from an entity in which one
or more of its trustees, officers or fiduciaries has an
interest; and
When upon dissolution and satisfaction of all liabilities, its
remaining assets are distributed to its trustees, organizers,
officers or members. Its assets must be dedicated to its
exempt purpose(s). Its constitutive document must
expressly provide that in the event of dissolution, its
assets shall be distributed to one or more entities formed
for the purposes similar to its own or to the Phil
government for public purpose.

RMC 8-2014, Feb 6, 2014

RMC 8-2014 requires the presentation of Tax
Exemption Certificate or Ruling by exempt individuals
and entities
Secs 57-59 and 78-83, NIRC require certain items of income to be
subject to withholding taxes. However, certain persons are exempt
from income tax and consequently, withholding taxes.
Withholding agents shall require all taxpayers claiming such
exemption to provide a copy of a valid, current and subsisting tax
exemption certificate (TEC) or ruling before payment of the related
income. Such TEC or ruling must explicitly recognize the grant of tax
exemption as well as the corresponding exemption from imposition
of withholding tax.
Failure of taxpayer to present such TEC or ruling shall subject him to
the payment of appropriate WT due on the transaction, and failure of
withholding agent to withhold shall cause the imposition of
penalties.

CIR v. Insular Life Assurance Co. Ltd, G.R. 197192, June 4, 2014

The 1997 Tax Code does not require registration

with the CDA. No tax provision requires a mutual
life insurance company to register with that agency
in order to enjoy exemption from both the
percentage tax and DST.
Although RMC 48-91 requires the submission of the
Cert of Registration with the CDA before issuance of
the tax exemption certificate, that provision cannot
prevail over the clear absence of an equivalent
requirement under the Tax Code.
The provisions of the Cooperative Code of the Phil
do not apply to mutual life insurance companies.

CIR v. Insular Life Assurance Co. Ltd, G.R. 197192, June 4, 2014

Gratia argumenti that registration is mandatory, it cannot

deprive respondent of its tax exemption privilege merely
because it failed to register.
The Insurance Code does not require registration of mutual
life insurance companies with the CDA.
While administrative agencies like the BIR may issue
regulations to implement statutes, they are without authority
to limit the scope of the statutes to less than what it
provides, or to extend or expand the statute beyond its
terms, or in any other way modify explicit provisions of the
law. Indeed, a judicial body or an administrative agency for
that matter cannot amend an Act of Congress. In case of
discrepancy between the basic law and an interpretative or
administrative ruling the basic law prevails.

EXCLUSIONS

Life insurance proceeds

Amount received by insured as return of premium
Gifts, bequests and devises (on the part of the donee)
Compensation for injuries or sickness
Income exempt under treaty
Retirement benefits, pensions, gratuities

R.A. 7641 (5 yrs & 60 yrs) and R.A. 4917 (10 yrs & 50 yrs)

Interest income of employee trust fund or accredited retirement

plan is exempt from FWT (CIR v. GCL Retirement Plan, 207 SCRA 487)

Amount received as a consequence of separation because of

death, sickness or other physical disability or for any cause
beyond the control of employee

Miscellaneous items

Income of foreign government

Income of government or its political subdivisions from any
public utility or exercise of governmental function

EXCLUSIONS
Miscellaneous items
Prizes and awards
In recognition of religious, charitable, artistic, literary
achievement, etc. (He did not enter contest and is
not required to render substantial future services)
Granted to athletes in local and international sports
competitions, sanctioned by their national sports
associations

13th month pay and other benefits (up to

P30,000)
Gains from sale of long-term (5 years and 1 day)
bonds, debentures and other certificates of
indebtedness
Gains from redemption of shares in mutual

RMC 39-2014, May 12, 2014

RMC 39-2014 clarifies the tax treatment of

payouts by employee pension plans
Sec 60(A), NIRC subjects income of any kind of property
held in trust to income tax.
Sec 60(B), NIRC exempts from income tax an
employees trust which forms part of a pension, stock
bonus or profit-sharing plan of an employer for the
benefit of some or all of the employees. However, any
amount actually distributed to employee to the extent it
exceeds the amount contributed by such employee shall
be subject to income tax.
Payments of retirement benefits under Sec 32(B)(6)(a),
NIRC are exempt from income tax.

RMC 39-2014, May 12, 2014

Non-contributory pension plan

If employees who do not contribute to the provident fund
receive dividends from en employee pension fund, the
same is subject to income tax.
If employee resigns from an employer, and he receives
benefits from the provident fund maintained by it that
does not qualify as tax-exempt, the entire amount
received by him is subject to income tax.

Contributory pension plan

Dividend distributed to employees is subject to income
tax in the year so distributed.
Benefits received by a resigning employee is exempt
only to the extent of his contribution to the pension fund.

GLOBAL TAX SYSTEM

Compensation income not subject to final withholding tax

(FWT)
Business and/or professional income
Capital gains not subject to FWT
Passive investment income not subject to FWT
Other income not subject to FWT

SCHEDULAR TAX SYSTEM

Compensation income subject to FWT

Capital gains subject to FWT
Passive investment income subject to FWT
Other income subject to FWT

The Philippines adopted the semi-global or semi-schedular

tax system. Either the global or schedular system, or both
systems, may apply on income of a taxpayer.
You apply the schedular tax system only when the income,
gain or profit is subject to FWT.

GLOBAL SYSTEM
Gross sales
Less: Cost of sales
Gross income
Less: Deductions
PAE (for
individual)
Net taxable income
Multiplied by
applicable rate
(graduated or flat)
Income tax due
Less: Creditable WT
Balance

SCHEDULAR SYSTEM
First Type: Gross selling
price or fair market value,
whichever is higher times
applicable tax rate = Tax
due (real property)
Second Type: Gross
selling price less cost or
adjusted basis = Capital
gain times applicable tax
rate = Tax due (shares of
domestic corp)
Third Type: Gross income
times applicable rate = Tax
due (passive inv income;
income paid to nonresident person)

Income payment is listed in Sec 57(A), NIRC, as subject to

FWT.
FWT withheld by the payor of income (e.g., 20% FWT on
interest income on bank deposits) represents FULL
payment of income tax due on such income of the
recipient.
Income payee (or recipient of income) does not report
income subjected to FWT in his income tax return, although
income is reflected in his audited financial statements for
the year. However, he is not allowed to claim any tax
credit on income subjected to FWT.
Withholding agent (payor of income) files the withholding
tax return, which includes the FWT deducted from the
income of payee, and pays the tax to the BIR. There is no
Certificate of Tax Withheld issued to income payee.
No Certificate of Tax Withheld (BIR Form 2307) is attached
to the income tax return of recipient of income because he
does not claim any tax credit in his tax return.

 Income tax is imposed or prescribed by:

Sec. 24(B)(1) Interests, royalties, prizes & other winnings
Sec. 24(B)(2) Cash and/or property dividends
Sec. 24(C) CGs from sale of shares not traded in PSE
Sec. 24(D)(1) CGs from sale of real property
Sec. 25(A)(2) Cash and/or property dividends from DC;
interests, royalties, prizes and other winnings
Sec. 25(A)(3) CGs from sale of shares not traded in PSE and real
property
Sec. 25(B) NRA not engaged in trade or business in the Phil
Sec. 25(C) Alien employed by RHQ and ROHQ
Sec. 25(D) Alien employed by OBU
Sec. 25(E) Alien employed by petroleum service contractor and
sub-contractor

TYPES OF INCOME TAX

1. Graduated income tax on individuals;

2. Normal corporate income tax on corporations (RCIT);
3. Minimum corporate income tax on corporations (MCIT);
4. Special income tax on certain corporations (e.g., private
educational
institutions; foreign currency deposit units; international
carriers)
5. Capital gains tax on sale or exchange of unlisted shares of
stock of a
domestic corporation classified as a capital asset;
6. Capital gains tax on sale or exchange of real property located
in the
Philippines classified as a capital asset;
7. Final withholding tax on certain passive investment incomes
(e.g., interest,
dividend, and royalty);
8. Final withholding tax on income payments made to nonresidents
(individual or corporation);
9. Fringe benefit tax (FBT);


SALE OF GOODS
Gross Sales
Less: Cost of Sales:

Beg. Inventory
+ Purchases
Total available for sale
- Ending inventory
Cost of Sales

Gross income
Times 2%
MCIT

SALE OF SERVICES
Gross Revenue
Less: Cost of Service

consisting of all
direct

costs and expenses

Gross income
Timex 2%
MCIT

MCIT
MCIT is imposed on domestic corporations, beginning on the fourth taxable
year immediately following the year in which such corporation commenced
its business operations.
2% MCIT is imposed whenever such corporation has zero or negative
taxable income, or whenever the amount of MCIT is greater than the 30%
RCIT based on its net income.
MCIT shall apply to operations of a domestic corporation subject to RCIT.
Operations covered by special income tax systems are not covered by MCIT
(e.g.: BOI-registered firm that has registered and unregistered activities).
Computation and payment of MCIT shall be made at the time of filing the
quarterly corporate income tax.
Secretary of Finance may suspend imposition of MCIT upon submission of
proof by applicant, verified by CIR, that it sustained substantial losses on
account of prolonged labor dispute, force majeure, or legitimate business
reverses (RR 9-98, as amended by RR 12-07, Oct 10, 2007).
RR 10-08, July 8, 2008 provides guidelines in determining gross receipts and
cost of services of taxpayers engaged in sales of services.

MCIT
CASE A: Quarterly MCIT is higher than quarterly RCIT
If the quarterly MCIT is higher than the quarterly RCIT, the income
tax due shall be the MCIT.
In payment of MCIT, excess MCIT from previous taxable years shall
not be allowed to be credited. The EWT, quarterly RCIT payments,
and MCIT paid in previous taxable quarters are allowed to be
applied against the quarterly MCIT due.

CASE B: Annual RCIT is higher than annual MCIT

Quarterly MCIT paid on quarterly ITR shall be credited against the
RCIT at year end, if it appears that RCIT is higher than the
computed annual MCIT.
In addition to quarterly MCIT paid and quarterly RCIT of same year,
excess MCIT in prior years (not exceeding 3 years), EWT in current
year, and excess EWT in prior years shall be allowed to be credited
against the RCIT.

MCIT
CASE C: Annual MCIT is higher than
annual RCIT
What is creditable is only the quarterly
MCIT payments of the current year, the
quarterly RCIT of the current year, the
EWT in the current year, and the excess
EWT in prior years.
Excess MCIT in previous years shall not
be allowed to be credited therefrom as
the same can only be applied against
RCIT.

CRITERIA IN IMPOSING INCOME TAX

Citizenship principle
For Filipino citizens and domestic
corporations, who are entitled to
Philippine government protection
wherever they are situated.

Residence principle
For alien individuals and foreign
corporations

Source principle
For alien individuals and foreign
corporations

 INDIVIDUAL, including estate and trust

CITIZEN

Resident (RC) Taxable on worldwide income

Non-resident immigrant, permanent worker, OFW (seamen); 183day rule

ALIEN

Resident
Non-resident

Engaged in trade or business (more than 180 days in the Phil)

Not engaged in trade or business (180 days or less stay in Phil) tax on GI

CORPORATION, including partnership

DOMESTIC (DC) Taxable on worldwide income

FOREIGN
Resident (e.g., Phil branch of foreign corporation)
Non-resident tax on gross income
TEST FOR TAX PURPOSES:

Law of incorporation
RULE: All taxpayers are taxed only on income from sources
within the Phil, except RC and DC. Non-residents are taxed
generally on GROSS INC.

PARTNERSHIPS

EXEMPT
General professional partnership (GPP)
Joint venture undertaking construction activity or energyrelated activities with operating contract with the government
TAXABLE
Partnerships, no matter how created or organized
RULES:
If taxable, partnership is taxed like a corporation.
If taxable partnership derives net income during the year, the
entire net income is deemed received by the partners in the year
it was earned by the partnership.
If GPP adopts itemized deductions during the year, partners must
use itemized deductions during the same year.

RESIDENT FOREIGN CORPS

TAXABLE: RCIT & BPRT

Ordinary branch of a foreign corporation in the Phil: 30% x net

income from sources within the Phil
PEZA- & SBMA-registered branch of foreign corporation is
exempt from 15% BPRT
Regional operating headquarters (ROHQ): 10% x net income
from sources within the Phil
Offshore banking unit (OBU) and foreign currency deposit unit
(FCDU) [ING Bank Manila v. CIR]: 10% x gross interest income
on forex loan to residents
Foreign international carriers by air or water: 2.5% x GPB
Foreign contractor or sub-contractor engaged in petroleum
operations in the Phil: 8% x gross income from sources within
the Phil

EXEMPT: Not engaged in trade or business in the Phil

Representative office
Regional headquarters (RHQ)

Interest Interest from sources within Phil and interest on bonds

and obligations of residents, corporate or otherwise; situs is
residence of the borrower
Dividend From domestic corporation and from foreign
corporation, unless less than 50% of gross income of foreign
corporation for 3 years prior to declaration of dividends was
derived from sources within the Phil, in which case, apply only
ratio of Phil-source income to gross income from all sources
Services Place where services are performed, except in
case of international air carrier and shipping lines which are taxed
at 2.5% on their Gross Phil Billings. Revenues from outbound trips
(originating from the Phil) are considered as income from sources
within the Philippines, while revenues from inbound trips are
treated as income from sources outside the Philippines.
Rentals and royalties Location or use of property or property
right in Phil
Sale of real property Located in the Philippines
Sale of personal property Located in the Philippines
Gain from sale of shares of stocks of a domestic
corporation is ALWAYS treated as income from sources within the
Philippines.
Other intangible property Mobilia sequuntur personam (e.g.,

NATURE OF INCOME
COMPENSATION INCOME

Existence of employer-employee relationship

No deduction from gross compensation income allowed

BUSINESS AND/OR PROFESSIONAL INCOME

NO employer-employee relationship

CAPITAL GAIN

Real property in the Phil and shares of stock of domestic

corporation
Other sources of capital gain

PASSIVE INVESTMENT INCOME

Interest, dividend, and royalty income

OTHER INCOME

Prizes and winnings

All other income, gain or profit not covered by the above
classes

COMPENSATION INCOME v. FRINGE

BENEFITS
COMPENSATION
INCOME
Employees compensation
income (regardless of rank) is
subject to income tax on his part
Graduated rates of 5% - 32%
No deduction from gross income
Reimbursements or advances
duly liquidated are exempt from
tax
Per diems (transportation
expenses) may be treated as
exempt income, provided
covered by BIR ruling
De minimis benefits within the
authorized ceilings are exempt

FRINGE BENEFITS
Managerial or supervisory
employees income is subject to tax,
but employer pays the fringe benefit
tax; FB paid to rank-and-file
employees are subject to income tax
on their part
Employer deducts value of fringe
benefit plus FBT paid from gross
income
Employee does not report FB in his
ITR
Education assistance (P18,000)
granted to rank and file employees
per CBA is exempt from FBT
Staff housing and car benefits to
sales persons are exempt from FBT

FRINGE BENEFITS
1. Fringe benefits paid to managerial or supervisory employees.
Managerial employee is one who is vested with powers or
prerogatives to lay down and execute management policies and/or hire,
transfer, suspend, lay-off, recall, discharge, assign or discipline
employees.
Supervisory employee is one who, in the interest of the employer,
effectively recommend such managerial actions if the exercise of such
authority is not merely routinary or clerical in nature but requires the
use of independent judgment.

2. Tax base is grossed-up monetary value of the fringe benefit,

which is arrived at by dividing the monetary value of the fringe
benefit by the applicable rate of tax.
3. Fringe benefits received by managerial or supervisory
employees in special economic zones or freeport zones are
covered by RR 3-98.

TAXABLE FRINGE
BENEFITS

1. Housing privilege: MV = [5%(FMV or ZV) x 50%

2. Expense account, unless receipted in name of employee and does not
partake the nature of personal expense of the employee
3. Vehicle of any kind: MV = [(Acq Cost/5] x 50%
4. Household personnel (maid, driver, etc) borne by employer
5. Interest on loan at less than market rate
6. Membership fees, dues and other expenses in social and athletic
clubs or similar organizations borne by the employer
7. Expense for foreign travel 30% of first class airplane ticket; inland
travel expenses not exceeding US$300 per day is not subject to FBT
8. Holiday and vacation expenses of employees borne by employer
9. Educational assistance to employees, unless it is directly connected
with employers trade or business and employee is under obligation to
remain with the employer for the agreed period, and to dependents,
unless assistance is provided thru a competitive scheme under scholarship
program of the company
10. Life or health insurance or other non-life insurance premiums
or similar amounts in excess of what the law allows, except SSS/GSIS
contributions and premiums borne by employer for group insurance of his
employees.

EXEMPT FRINGE
BENEFITS
1. Fringe benefits exempted under the Tax Code or special law
2. Contributions of employer for the benefit of the employee to
retirement, insurance and hospitalization benefit plans
3. Benefits given to rank and file, whether granted under a CBA
or not. However, exemption from FBT does not mean that it is
exempt from income tax, unless expressly exempt from tax
under the Tax Code.
4. De minimis benefits, which are exempt from FBT and IT
5. If the grant of FB to employee is granted by the nature or, or
necessary to the trade, business or profession of the employer
6. If the grant of FB is for the convenience of the employer

DE MINIMIS BENEFITS

EXEMPT DE MINIMIS BENEFITS, REGARDLESS OF RECIPIENT

(RANK AND FILE, OR MANAGERIAL OR SUPERVISORY)
a. Monetized unused vacation leave credits of private
employees not exceeding ten (10) days during the year and
the monetized value of leave credits paid to government
officials and employees;
b. Medical cash allowance to dependents of employees
not exceeding P750.00 per employee per semester or P125
per month;
c. Rice subsidy of P1,500.00 or one (1) sack of 50-kg
rice per month amounting to not more than P1,500.00;
d. Uniforms and clothing allowance not exceeding
P4,000.00 per annum;
e. Actual yearly medical benefits not exceeding
P10,000.00 per annum;
f. Laundry allowance not exceeding P300.00 per
month;

DE MINIMIS BENEFITS

g. Employees achievement awards (e.g., for length of

service or safety achievement, which must be in the form of a
tangible personal property other than cash or gift certificate,
with an annual monetary value not exceeding P10,000.00
received by the employee under an established written plan
which does not discriminate in favor of highly paid employees;
h. Gifts given during Christmas and major anniversary
celebrations not exceeding P5,000.00 per employee per annum;
i. Daily meal allowance for overtime work not exceeding
twenty-five percent (25%) of the basic minimum wage.
The amount of de minimis benefits conforming to the
ceiling herein prescribed shall not be considered in determining
the P30,000.00 ceiling of other benefits provided under Sec.
32(b)(7)(e) of the Tax Code. However, if the employer pays
more than the ceiling prescribed by these regulations, the
excess shall be taxable to the employee receiving the benefits
only if such excess is beyond the P30,000.00 ceiling. Any
amount given by the employer as benefits to its employees,
whether classified as de minimis benefits or fringe benefits,
shall constitute as deductible expense upon such employer.

DEDUCTIONS FROM GROSS

INCOME

KINDS OF DEDUCTIONS

Itemized Deductions
Optional Standard Deductions
Special Deductions

ITEMIZED DEDUCTIONS

Business expenses, incl. research and development

Interests
Taxes
Losses
Bad debts
Depreciation
Depletion
Charitable contributions
Contributions to pension trust
Health or hospitalization premium

DEDUCTIONS FROM GROSS

INCOME
BUSINESS EXPENSES

1. The expense must be ordinary and necessary;

2. Paid or incurred during the taxable year;
3. In carrying on or which are directly attributable to the
development, management, operation and/or conduct of the
trade,
business or exercise of profession;
4. Supported by adequate invoices or receipts;
5. Not contrary to law, public policy or morals. Operating
expenses
of an illegal or questionable business are deductible, but
expenses of an inherently illegal nature, such as bribery
and
protection payments, are not.
6. The tax required to be withheld on the amount paid or
payable is
shown to have been paid to the BIR.

RR 12-2013, July 12,

2013
Sec. 2.58.5, RR 2-98, as amended by RR 12-2013:
Any income payment which is otherwise deductible under
the Tax Code shall be allowed as a deduction from the
payors gross income only if it is shown that the income tax
required to be withheld has been paid to the Bureau in acc
with Secs. 57 and 58 of the Code.
No deduction will also be allowed notwithstanding
payments of withholding tax at the time of the audit
investigation or reinvestigation/reconsideration, in
cases where no withholding of tax was made in accordance
with Secs 57 and 58 of the Code.

RMC 63-2013, Sept 26, 2013, clarified that RR 122013 shall apply to tax audits for 2013 onwards.

DEDUCTIONS FROM GROSS

INCOME

Entertainment, amusement and recreation expenses are

subject to limitation
% of net sales for sellers of goods
1% of net sales for sellers of services
Club dues for membership in social or athletic clubs to
promote business of corporation paid by the corporation are
deductible from gross income. However, they will be
treated as fringe benefits subject to FBT on the part of the
employer. FBT paid by employer is deductible as business
expense of the corporation.
Rental expenses include leasehold acquired for business
purposes and cost of improvements introduced by lessee to
be allocated over the term of the lease. Realty taxes paid
by lessee for business property is part of rental expenses.

DEDUCTIONS FROM GROSS

INCOME
INTEREST EXPENSES
Loans between related parties

(Sec. 36, NIRC)

Interest income is subject to income tax, but interest expense is not

deductible from gross income

Deduction from gross income or capitalized as part

of cost of asset. Taxpayer cannot deduct interest and
treat said interest as part of cost of the capital asset.
Tax arbitrage (not deductible interest expense, where
the taxpayer has interest income on bank deposits).
Deficiency interest is not deductible as tax but as
interest.

NOLCO
Sec. 34(D)(3), NIRC.-- Net operating loss for any taxable
year immediately preceding the current taxable year which
had not been previously offset as deduction from gross
income shall be carried over as a deduction from gross
income for the next three (3) consecutive taxable years
immediately following the year of such loss.
NOLCO shall be allowed only if there has been no
substantial change in the ownership of the business or
enterprise in that
a. Not less than 75% in nominal value of outstanding issued
shares is held by or on behalf of the same persons; or
b. Not less than 75% of the paid up capital of the
corporation is held by or on behalf of the same persons.

NOLCO
Substantial change in the ownership of the
business or enterprise shall refer to a change
in the ownership of the business or enterprise as
a result of or arising from its merger or consolidation or combination with another person. A
change in ownership as a result of or arising
thereunder shall NOT be treated as a substantial
change for as long as the stockholders of the
party thereto, to whom the net operating loss is
attributable, gains or retains 75% or more interest
after such merger or consolidation or
combination.

NOLCO
By or on behalf of the same persons shall refer to
the maintenance of ownership despite change, as when:
1. No actual change in ownership is involved, in case the
transfer involves change from direct ownership to indirect
ownership, or vice-versa.
2. No actual change in ownership is involved, as in case of
merger of the subsidiary into the parent company.

The NOLCO of a BOI-registered firm that incurred NOLCO

(absorbed corporation) which subsequently merged with
another corporation (as the surviving corporation)
cannot be used by the latter. To allow this scheme is to
shelter the otherwise taxable income of the surviving
corporation, using NOLCO of the absorbed corporation.

DEDUCTIONS FROM GROSS

INCOME
NOLCO (Net Operating Loss Carry Over)
NOLCO is an asset with limited life.
It may be used as a deduction from gross income of the
next three (3) succeeding years.
NOLCO of the year should not be added back to net
income of same year during the tax audit, if taxpayer
continuously incurred losses in succeeding years and did
not use NOLCO on those years.
Taxpayer that sustained the loss shall claim NOLCO,
unless the regulations (RR 14-01) allowed the same (e.g.,
PNB).
The three-year period to claim NOLCO shall continue to
run despite the corporation paid MCIT. NOLCO cannot be
availed of if taxpayer is subject to MCIT.

DEDUCTIONS FROM GROSS

INCOME
If taxpayer enjoys ITH, it is not allowed to
avail of NOLCO, unless it also has
unregistered activities that incur losses.
If taxpayer is an individual that claims the
OSD, NOLCO is not available to him.
Failure to present NOLCO in the ITR and the
unused NOLCO in the Income Statement will
disqualify him/it from claiming NOLCO.
Substantial change shall be determined in
the year the NOLCO is to be claimed as a
deduction.

DEDUCTIONS FROM GROSS

INCOME

BAD DEBTS

1. There must be an existing indebtedness due to the

taxpayer
which must be valid and legally demandable;
2. The same must be connected with the taxpayer's trade,
business
or practice of profession;
3. The same must not be sustained in a transaction
entered into
between related parties enumerated under Sec. 36(B) of
the Tax
Code of 1997;
4. The same must be actually charged off the books of
accounts of
the taxpayer as of the end of the taxable year; and
5. The same must be actually ascertained to be worthless
and

DEDUCTIONS FROM GROSS

INCOME
In the case of banks, the BSP thru the Monetary
Board shall ascertain the worthlessness and
uncollectibility of the bad debts and approve in
writing the writing off of bad debts from the
books, without prejudice to the CIRs determination of the worthless and uncollectibility of
debts.
In no case shall a receivable from an insurance or
surety company be written off from taxpayers
books and claimed as bad debt deduction, unless
such company has been declared closed due to
insolvency or for any similar reason by the
Insurance Commission.

DEDUCTIONS FROM GROSS

INCOME
TAX BENEFIT RULE
The taxpayer is obliged to declare as taxable
income any subsequent recovery of bad debts
in the year they were collected to the extent of
the tax benefit enjoyed by the taxpayer when
the bad debts were written off and claimed as
deduction from gross income.
It also applies to taxes previously deducted
from gross income but which were
subsequently refunded or credited by the BIR.
He has to report income to the extent of the
tax benefit derived in the year of deduction.

DEDUCTIONS FROM GROSS

INCOME

DEPRECIATION

1. The allowance for depreciation must be reasonable;

2. It must be for property arising out of its use in the trade or
business, or out of its not being used temporarily during the year;
3. It must be charged off during the taxable year from the taxpayers
books of accounts;
4. Depreciation shall be computed on the basis of historical cost or
adjusted basis. While financial accounting allows computation
based on appraised value, recovery of investment for tax purposes
shall be limited to historical cost.

Depreciation for the year = Cost less salvage value divided by the
estimated useful life (number of years) of the asset
Book value of the asset = Cost or adjusted basis less accumulated
depreciation.

REV REGS NO. 12-2012

No depreciation shall be allowed for yachts, helicopters,
airplanes and/or aircrafts, and land vehicles which exceed the
threshold amount of P2.4 million, unless the taxpayers main line of
business is transport operations or lease of transport equipment and
the vehicles are used in said operations;
All maintenance expenses on account of non-depreciable
vehicles for taxation purposes are disallowed in its entirety.
The input taxes on the purchase of non-depreciable Vehicles
and all input taxes on maintenance expenses incurred thereon
are likewise disallowed for taxation purposes.
Effective Oct 17, 2012

NATURE OF ASSET

ORDINARY ASSET
(Taxed under global system)

CAPITAL ASSET
(Taxed under schedular or
global tax system)

Inventory if on hand at
end of taxable year (mfr
or dealer)

Stock-in-trade primarily
held for sale or for
lease in the course of
trade or business (real
estate dealer, developer, or
lessor)

Asset used in trade or

business, subject to
depreciation
Real property used in
trade or business
All other assets, whether
or not used in trade or
business, other than the
above-stated ordinary
assets (Sec. 39, NIRC)

ACCOUNTING PERIODS AND

METHODS
Taxable income shall be computed upon the basis of the
taxpayers annual accounting period in accordance with the
method of accounting regularly employed in keeping the books
of such taxpayer, but if the method employed does not clearly
reflect the income, the computation shall be made in
accordance with the method used by CIR (Sec. 43, NIRC).
Gross income shall be reported in the year in which received
by the taxpayer, unless it is properly accounted for as of a
different period under methods of accounting permitted under
Sec. 43, NIRC (Sec. 44, NIRC).
Deductions and credits shall be taken for the year in which
paid or accrued or paid or incurred, dependent upon the method
of accounting used, unless deductions should be taken as of a
different period in order to clearly reflect the income (Sec. 45, NIRC).

ACCOUNTING PERIODS AND

METHODS
For taxpayers using the accrual method
Accrue correct amount of income and expenses at
the end of the taxable year, pursuant to the all
events test;
Record the adjusting entries in the books of
accounts (whether made by the corporate or
external auditor);
Withhold appropriate tax and remit the same to BIR
within the prescribed period; and
Issue BIR Form 2307 (Certificate of Tax Withheld) to
the payee of income, or secure BIR Form 2307 from
your payor of income, and attach the same to ITR

ACCOUNTING PERIODS AND

METHODS
For taxpayers using the accrual method
Make a physical inventory of goods (raw materials, goods in
process, and finished goods) and supplies, in coordination with
the external auditor;
Compare the figures arrived at with the amounts shown in the
books, taking into account the method of valuation adopted
and authorized under the law and the bookkeeping regulations;
File the inventory list with the BIR not later than January 30 of
the following year;
File amended inventory list soon after filing the audited
financial statement, where the quantity or amount of inventory
shown in the inventory list filed with BIR does not jibe with the
quantity or amount shown in the audited financial statement
prepared by the external auditor.

TRANSACTIONS BETWEEN RELATED

PARTIES
ALLOCATION OF INCOME AND DEDUCTIONS
In case of two (2) or more organizations, trades or
businesses (incorporated or not, organized in the Phil or
not) owned or controlled directly or indirectly by the same
interests, the CIR is authorized to distribute, apportion, or
allocate gross income or deductions between or among
such organization, trade or business, if he determines that
such distribution, apportionment, or allocation is
necessary in order to prevent evasion of taxes or clearly to
reflect the income of any such organizations, trades, or
businesses (Sec. 50, NIRC).
Related parties are generally not prohibited from
transacting with each other, provided they are at arms
length.

TAX-FREE EXCHANGE
TRANSFER OF PROPERTY FOR SHARES OF STOCK OF A
CORPORATION
A person, alone or together with others, not exceeding four,
Transfers property (real property, shares of stocks, receivables, etc),
For shares of stock in a corporation, whether domestic or foreign
corporation
As a result of which, he/they gain control or further control of said
corporation
EXCHANGE OF PROPERTY FOR SHARES OF STOCKS
Collective control (51% or more)
Substituted basis
Gain from subsequent sale or disposition of asset
Bona-fide purpose
No further transaction within six months from date of tax-free
exchange

TAX-FREE EXCHANGE
TAX IMPLICATIONS:
INCOME TAX
No gain or loss is recognized at the time of the exchange; hence, there
is no income tax and withholding tax on the exchange of property
There is flexibility in assigning value to the property; the property
transferred which has higher value may be transferred for lower value
of shares received
But the basis upon the subsequent sale of the property or shares shall
be the historical cost or basis of the property transferred (substituted
basis)

DOCUMENTARY STAMP TAX

No DST is due on the property transferred
DST is due only on the original issue of shares of stock

VALUE ADDED TAX

Transaction is exempt from VAT, provided that the transferor and
transferee are both real estate dealers (RR 4-2007, Feb. 7, 2007). But

exchange of goods or properties, whether resulting in corporate control or not,

is subject to VAT (RR 10-2011, July 1, 2011).

REV REGS NO. 4-2014, March 20, 2014

RR 4-2014, Mar 20, 2014 -- Prescribes the policies and guidelines in
the monitoring of service fees of professionals
Self-employed professionals shall register and pay the ARF with the RDO/LTDO
having jurisdiction. In addition, they shall submit an affidavit indicating the
rates, manner of billings and the factors they consider in determining their
service fees upon registration and every year thereafter on or before Jan 31.
Self-employed professionals are obligated to register their books of accounts
and official appointment books of their practice of profession before using the
same. The OAB shall contain only the names of client and date/time of
meeting. They shall likewise register their invoices and receipts (VAT or NV)
before using them.
In cases when no professional fees are charged by professionals, a BIR receipt,
duly acknowledged by the client, shall be issued showing a discount of 100%
as substantiation of the pro-bono service.

RMC 32-2014, May 5, 2014 Extends the period to submit the

required affidavit and official appointment books under RR 4-2014
from April 6, 2014 to May 6, 2014, to give ample time for all parties.

RMC 2-2014, Jan 14, 2014

RMC 2-2014 clarifies the issuance of official receipt being required by
government auditors as evidence of receipt of payment for
disbursements, where the payee/recipient is a dealer, supplier or
business establishment required by BIR to issue the same in the
sale/lease of goods or properties, and/or sale of services. Thus:
RR 18-2012 and RMO 12-2013, in relation to Secs 106, 108, and 113, NIRC
mandates that:
Sales invoice is the principal evidence in sale of goods/properties;
Official receipt is the principal evidence in the sale of services and/or lease of
properties
Commercial receipts/invoices, such DR, PO, PR, AC, CR, CR/DR Memo, etc. shall
serve as supplementary evidence only.

Buyer of goods on account or credit evidenced by a Charge Sales

Invoice shall be entitled to claim input taxes. Upon collection by the
seller, a Collection Receipt shall be issued to the buyer to evidence
receipt thereof. In view thereof, the sales invoice shall serve in lieu of
official receipt in the sale of goods or properties for evidentiary purposes
in terms of audit.

RMC 11-2014, Feb 19, 2014

RMC 11-2014, Feb 19, 2014 clarifies certain issues
relative to due process requirement in the issuance
of deficiency tax assessment pursuant to RR 12-99,
as amended by RR 18-2013
RR 12-99, as amended by RR 18-2013, provides that CIR or his
authorized representative shall issue the PAN, FLD/FAN, and
FDDA. Auth representative refers to Regional Directors, ACIRLTS, and ACIR-EAS. Thus, pursuant to RMC 39-13, TP shall submit
their responses to PAN and protests to FLD/FAN with the
authorized representatives who signed the PAN and FLD/FAN.
Protests (request for reconsideration) arising from inactions or
adverse decisions of the authorized representatives shall be filed
with the Office of the CIR.
Prior to the issuance of the PAN, TP may be allowed to make
voluntary payments of probable deficiency taxes and penalties.

RMC 11-2014, Feb 19, 2014

An FLD/FAN issued, reiterating the immediate payment of
deficiency taxes and penalties made in the PAN, is a denial
of the response to PAN. A final demand letter for payment of
delinquent taxes may be considered a decision on a
disputed assessment (CIR v. Isabela Cultural Corp, 2001). This
includes a disputed PAN. So long as the parties are given the
opportunity to explain their side, the requirements of due
process are satisfactorily complied with (Calma v. CA, 1999).
An FLD/FAN issued beyond 15 days from submission of
taxpayers response to PAN shall be valid, provided that it is
issued within the period of limitation to assess taxes. Nonobservance by the revenue officer of the 15-day period shall
constitute an administrative infraction and shall be subject
to administrative sanctions.

RMC 11-2014, Feb 19, 2014

RR 12-99, as amended by RR 18-13, provides that for requests
for reinvestigation, the taxpayer shall submit all relevant
supporting documents in support of his protest within 60 days
from date of filing of his protest; otherwise, the assessment shall
become final. The term the assessment shall become final
means that the failure of the taxpayer to submit all relevant
supporting documents within the 60-day period shall render the
FLD/FAN final by operation of law. The TP shall be barred from
disputing the correctness of the FLD/FAN by the introduction of
newly discovered or additional evidence because he is deemed to
have lost his chance to present these evidence. The BIR shall
then deny the request for reinvestigation thru the issuance of
FDDA.
The PAN/FLD/FAN/FDDA shall first be served to the taxpayers
registered address before the same may be served to the
taxpayers known address, or it could be served simultaneously.

RMC 15-, 16- & 37-2014

RMC 15-2014, Mar 5, 2014
Reminds the non-acceptance of out-of-district filing of ITRs of
certain government officials and employees, such as members of
AFP, PNP, and public school teachers, professors or instructors,
shall no longer be allowed (RMC 29-2013).

RMC 16-2014, Mar 14, 2014

Notifies the entry into force, effectivity and applicability of the
Philippines-Nigeria Double Taxation Agreement and shall
be applicable to income derived or accrued beginning Jan 1, 2014

RMC 37-2014, May 9, 2014

Notifies the entry into force, effectivity and applicability of the
Philippines-Kuwait Double Taxation Agreement and shall be
applicable to income derived or accrued beginning Jan 1, 2014

RMC 34-2014, May 8, 2014

RMC 34-2014 clarifies the rule regarding doubtful

validity of assessment (i.e., jeopardy or arbitrary

assessment, or assessment based on best evidence
obtainable rule) relative to its application to
provisions of RR 30-2002
Assessment based on best evidence obtainable rule should not
be automatically considered as a doubtful assessment.
Taxpayers failure to present the required documents necessary
makes it incumbent upon the BIR to resort to apply the best
evidence obtainable rule. Thus, these assessments are presumed
prima facie correct and sufficient for all legal purposes.
The surrounding circumstances that led to the issuance of the
assessment (based on RMC 23-2000 or 99-2010) should be
thoroughly evaluated.

RMC 40-2014, May 15, 2014

RMC 40-2014, May 15, 2014 prescribes the use of eCARs (BIR

Form 2313-R and 2313-P) printed in a security paper upon its

rollout, and use of CARs shall be discontinued.
The same information appearing on manually issued CARs shall be
reflected in eCARs.

One eCAR shall be issued for each real property, but one eCAR
shall be issued for transfers of more than one personal
property.
Register of Deeds shall not accept manually issued CARs upon
rollout of eCARs system, but manually issued CARs within one
year before the rollout date are still valid for presentation by
taxpayers to Registers of Deeds.
Initially, eCAR system shall be rolledout on May 19, 2014 in
RDOs under Revenue Region No. 1, Calasiao, Pangasinan.

RMC 42-2014, May 21, 2014

RMO 19-2014, May 15, 2014 Amends RMO 18-2013 on issuance of CAR for
transfers of properties under RDO 6, Urdaneta, East Pangasinan, by reverting to
the RDO or ARDO, in the absence of RDO, the signing of eCARs, effective May 19,
2014.

RMC 42-2014, May 21, 2014 Issues clarification on

eCAR forms
BIR Forms 2313-R (for transactions involving transfer of real
properties) and 2313-P (for transactions involving transfer of
personal properties) in RMC 40-2014 are sample eCAR forms
for transactions subject to capital gains tax, documentary
stamp tax, and donors tax.
The body/contents of the electronically generated CAR may
vary depending on the nature and circumstances surrounding
the transactions and the applicable taxes.

RMC 44-2014, May 23, 2014

RMC 44-2014 declares BIR Form 2332 (Certificate of
Accreditation) in relation to the implementation of RMO
13-2013 (prescribing work-around procedures in the
accreditation of printers) as accountable form
BIR Form 2332 shall be accomplished in 3 copies, to
be distributed as follows:
Original: Accredited printer
Duplicate: National/Regional Accreditation Board
Triplicate: Issuing District Office

The requisition and distribution of BIR Form 2332 shall

be the responsibility of the ACIR-LTS/LTDO and
Regional Directors for RDOs.

RMC 45-2014, May 28, 2014

RMC 45-2014 prescribes the use of the enhanced and integrated
Electronic Accreditation and Registration (eAccReg) and Electronic
Sales Reporting (eSales) Systems
eAccReg System is an enhanced electronic accreditation and registration
for the issuance of permits to use CRM, POS and other business machines
generating receipts or invoices. The printing of Certificate of Accreditation
and Final Permit to Use is now available via the enhanced eAccReg.
eSales System automates the monitoring and reporting of the gross
monthly sales per registered CRM/POS or other business machines
generating receipts or invoices. Submission of monthly sales reports by
taxpayers shall be available via email, we and SMS.
All authorized users and/or authorized representatives shall be required to
submit notarized letter to enroll in the Account Enrollment Facility, which
shall be submitted to the RDO/LTDO/LTAD/ELTRD. Account enrollment
application shall be on a one (1) authorized user per TIN basis, one
authorized user in behalf of multiple branches, whichever is
applicable/convenient to the taxpayer.

RMC 48-2014, June 9, 2014

All taxpayers using CRM/POS machines are required to report their monthly
sales every 8th (for TP whose last digit of the 9-digit TIN is even number) or
10th (for TP whose last digit of the 9-digit TIN is odd number) day of the
month following the month of sales.

RMC 48-2014, June 9, 2014 extends the deadline for submission of

eSales for May 2014 to June 30, 2014
To give ample time to comply with the requirements due to the change in
the technical specifications from simply reporting the gross monthly sales
to reporting the breakdown of VATable sales, zero-rated sales, exempt sales
and sales subject to OPT in the rolled-out Systems, the deadline for
submission of monthly sales report for May, 2014 are extended until June
30, 2014 (for both taxpayers).
No penalties shall be imposed.
TPs with CRM/POS machines with manually issued MIN are hereby required
to use and re-enroll in the eAccReg and eSales Systems on or before July 1,
2014.

RMC 56-2014, July 1, 2014

RMC 56-2014, July 1, 2014 extends the
deadline for submission of reports for May and
June, 2014
Only a number of RDOs were able to access the
eAccReg and eSales systems to process all
applications.
In view thereof, deadline for sales for May and
June, 2014 is extended to July 31, 2014. No
penalties shall be imposed.
Sales for July shall be reported on or before the
8th or 10th day of August 2014.

RMC 46-2014, May 30, 2014

RMC 46-2014 clarifies the taxability of financial lease for purposes of DST
RR 9-2004 defines financial lease as a mode of extending credit thru a non-cancellable
lease contract under which the lessor purchases or acquires, at the instance of the lessee,
machinery and other property in consideration for the period payment by the lessee of a
fixed amount of money sufficient to amortize at least 70% of the purchase price,
incidental expenses and margin over an obligatory period of not less than 2 years. A
finance lease transfers substantially all the risks and rewards incident to ownership of an
asset.
RA 5980, as amended by RA 8556 (Financing Company Act of 1998) defines credit to
mean any loan, mortgage, financial lease, deed of trust, advance or discount, conditional
sales contract, contract to sell or contract of sale of property or service, either for present
or future delivery, etc.
Sec 179, NIRC imposes DST on all debt instruments, which represent borrowing and
lending operations, including but not limited to debentures, certificates of indebtedness,
etc, whether negotiable or non-negotiable, except bank notes issued for circulation.
Accordingly, financial lease is not only akin to an obligation by definition but also by
treatment. IAS 17 (Leases) is in agreement with how finance lease should be treated and
recognized.
Since DST is imposed on all debt instruments, and finance lease being in the nature of an
obligation, it is subject to DST.

RMC 49-2014, June 10, 2014

RMC 49-2014 publishes the new minimum wage and
provides advisory guidelines on productivity based pay for
private establishments in Region IVA (Calabarzon).
Upon effectivity of the Wage Order, MWE in private
establishments shall receive a daily increase in the form of basic
pay (BP) or socio-economic allowance (SEA), whichever is
applicable.
For those receiving minimum wage of less than P267 per day, a
P12 basic pay increase per day shall be effected in staggered
basis until Dec 1, 2016. The increase shall be implemented in 2
tranches.
For those receiving minimum wage rate of more than P267 to
P349.50 per day, the conditional temporary productivity
allowance of P12.50 shall receive a P13 per day SEA in full
amount upon the effectivity of the Wage Order.

RMC 50-2014, June 9, 2014

RMC 50-2014 reiterates and clarifies the requirement in the
issuance of Withdrawal Certificate for every removal of petroleum
products from the refinery, depot or any storage facility
In RR 13-77, manufacturers of petroleum products are required to prepare an
official WC for every removal, indicating therein the name and address of the
consignee, date, quantity and description of every product removed. Such
requirement has been expanded to also cover importers of finished petroleum
products.
The WC shall accompany every transfer/shipment of petroleum products,
regardless of the mode of conveyance. It shall be attached to the bill of lading, if
products are shipped thru conveyance not owned or operated by the consignor or
manufacturer.
One WC shall be prepared and issued for products removed and transported thru
the use of tankers or marine vessels. Taxpayer must indicate whether product is
bonded, exempt or tax-paid under the remarks column. If product is imported,
the OR No., amount and date of payment must be indicated. If tax is paid thru
Product Replenishment Debit Memo (PRDM), pursuant to RR 3-2008, PRDM number,
date and amount must be indicated. If removed from storage facility, indicate tank
number in WC.

RMC 50-2014, June 9, 2014

All WC shall be supported by sales invoice, delivery
invoice and/or internal transfer document, if removal
is destined to the depot or storage facility owned or
operated by the manufacturer/consignor. In case of
transfer from one depot to another, a WC must be
issued for each and every removal.
Any petroleum product found to be unaccompanied by
an official WC shall be considered illegally removed
and subject to confiscation or forfeiture, regardless
whether the same is tax-paid or not.
All WCs must be certified by the Revenue Officers on
Premise (ROOP) as to the correctness of the entries in
said WC.

RMC 51-2014, June 11, 2014

RMC 51-2014 clarifies the inurement prohibition
under Sec 30, NIRC
Sec 30 enumerates the non-stock, non-profit corporations or
associations exempt from income tax on income received by
them as such.
Non-stock means no part of its income is distributable as
dividends to its members, trustees, or officers and that any
profit obtained as an incident to its operations shall,
whenever necessary or proper, be used for the furtherance
of the purpose(s) for which the corporation was organized.
Non-profit means that no income or asset accrues to or
benefits any member or specific person, with all the net
income or asset devoted to the institutions purposes and all
its activities conducted not for profit.

RMC 51-2014, June 11, 2014

To qualify as a tax-exempt entity, its earnings or assets
shall not inure to the benefit of any of its trustees,
organizers, officers, members or specific person. The
following are considered inurements of such nature:
Payment of compensation, salaries or honorarium to its trustees or
organizers;
Payment of exorbitant or unreasonable compensation to its
employees;
Provision of welfare aid and financial assistance to its members.
An organization is not exempt if its principal activity is to receive
and manage funds associated with savings or investment
programs, including pension or retirement programs. This does not
cover a society, order, association or non-stock corporation under
Sec 30, NIRC providing for payment of life, sickness, accident
and other benefits exclusively for its members or their
dependents.

RMC 51-2014, June 11, 2014

Donation to any person or entity (except donations made
to other entities formed for the purpose(s) similar to its
own);
Purchase of goods or services for amounts in excess of
FMV of such goods or services from an entity in which one
or more of its trustees, officers or fiduciaries has an
interest; and
When upon dissolution and satisfaction of all liabilities, its
remaining assets are distributed to its trustees, organizers,
officers or members. Its assets must be dedicated to its
exempt purpose(s). Its constitutive document must
expressly provide that in the event of dissolution, its
assets shall be distributed to one or more entities formed
for the purposes similar to its own or to the Phil
government for public purpose.

RMC 54-2014, June 17, 2014

RMC 54-2014 clarifies the issues relative to the application for
VAT refund/credit under Sec 112, NIRC
The claim for refund or credit of input taxes shall be filed with the BIR Within
two (2) years after the close of the taxable quarter when the sales were made.
The written claim must be accompanied by complete supporting documents
listed in Annex A. Taxpayer shall attach a statement under oath attesting to
the completeness of the submitted documents, and such affidavit shall state
that said documents are the only documents which taxpayer will present in
support of the claim. If taxpayer is a juridical person, there should be a sworn
statement that the officer signing the affidavit has been authorized by the
Board of Directors of the company.
Upon submission of administrative claim and supporting documents, claim shall
be processed and no other documents shall be accepted/required from taxpayer
in the course of the evaluation. A decision shall be made on the basis only on
the submitted documents by the taxpayer.
CIR shall have 120 days from date of submission of complete documents to
decide, and if CIR does not act on the same, the inaction shall be deemed a
denial of the claim for refund or credit.

RMC 54-2014, June 17, 2014

In case of full or partial denial, or failure of CIR to act on the
application, taxpayer may, within 30 days from receipt of
decision denying the claim or after expiration of 120 days,
appeal it with the CTA.
As an exception to the mandatory and jurisdictional 120 + 30
day period, taxpayer need not wait for the lapse of the 120day period before it could seek judicial relief with the CTA from
the time of issuance of BIR Ruling No. DA-489-03 on Dec 10,
2003 up to its reversal by the Supreme Court in the Aichi case
on Oct 6, 2010.
In cases where taxpayer has pending petition for review with
the CTA, CIR loses jurisdiction over the administrative claim.
However, the processing office of the administrative agency
(BIR or DOF-OSC) shall still evaluate internally the
administrative claim for purposes of opposing the taxpayers
judicial claim.
Failure to file judicial claim with the CTA within 30 days from
expiration of the 120-day period rendered the CIRs decision or

CIR v. MINDANAO II GEOTHERMAL

PARTNERSHIP, GR 191498, Jan 2014
A. TWO-YEAR PRESCRIPTIVE PERIOD
1. It is only the administrative claim that must be
filed within the two-year period.
2. The proper reckoning date for the two-year
period is the close of the taxable quarter when
the relevant sales were made.
3. The only other rule is the Atlas ruling, which
applied only from June 8, 2007 to September 12,
2008. Atlas states that the two-year period for
filing of a claim for refund should be counted from
the date of filing of the VAT return and payment of
the tax.

CIR v. MINDANAO II GEOTHERMAL

PARTNERSHIP, GR 191498, Jan 2014
B. 120+30 PRESCRIPTIVE PERIOD
1. The taxpayer can appeal in one of two ways: (a) file
a judicial appeal within 30 days after CIR denies the
claim within the 120-day period, or (b) file judicial
claim within 30 days from the expiration of the 120day period, if CIR does not act within the 120-day
period.
2. The 30-day period always applies, whether there is
denial or inaction on the part of the CIR.
3. As a general rule, the 30-day period is both
mandatory and jurisdiction. [NOTE: Chief Justice
dissented on retroactive application of mandatory and
jurisdictional nature of the 120+30-period].

CIR v. MINDANAO II GEOTHERMAL

PARTNERSHIP, GR 191498, Jan 2014
4. As an exception to the general rule,
premature filing is allowed only if filed
between Dec 10, 2003 and Oct 5, 2010,
when BIR Ruling DA 489-03 was still in
force.
5. Late filing is absolutely prohibited,
even during the time when BIR Ruling
DA 489-03 was in force.

RMO 9-2014, Feb 7, 2014

RMO 9-2014 prescribes guidelines in the processing of
requests for rulings with the Law and Legislative Division
Tax rulings are official positions of BIR on inquiries of taxpayers.
Rulings are based on particular facts and circumstances
presented and are interpretations of the law at a specific point
of time.
Aside from the No ruling areas in Revenue Bulletin No. 12003, as amended by RB 2-2003, non-compliance with any of
the requirements under this Circular may prevent the BIR from
issuing an opinion on the request for ruling. BIR does not give
tax planning advice and does not approve tax planning
arrangements. Also, BIR does not resolve an issuance thru a
ruling, if the matter can be determined thru another process
(like appeal).

RMO 9-2014, Feb 7, 2014

BIR will not issue ruling on the following instances:
TP has directed a similar query to another office of BIR;
Same issue involving the same taxpayer or a related taxpayer is
pending in a case in litigation;
Same issue involving the same taxpayer, is subject of a pending
investigation, on-going audit, administrative protest, claim for
refund or credit, or collection proceeding.

Hypothetical questions are queries involving theoretical,

speculative, conjectured, conjectural, notional,
suppositional, supposed or assumed entities or
transactions. A ruling will not be issued on alternative
plans of proposed transactions or on supposed situations.
Letter request for ruling is a sworn statement executed
under oath by the person containing the following:

RMO 9-2014, Feb 7, 2014

Factual background of the request for ruling, including interested
parties, business reasons for the transaction, and detailed
description of the transaction;
Issues/questions raised or conclusions sought to be confirmed
by taxpayer;
Legal grounds and authorities supporting the position of
taxpayer;
List of documents submitted; and
Affirmations stating that a similar query has not been filed and is
not pending in another office of BIR, or there is no pending case
in litigation involving the same issue and the same taxpayer or
related taxpayer; the issue is not pending investigation, ongoing audit, administrative protest, claim for refund or credit,
collection proceeding or judicial appeal; and documents
submitted are complete and that no other documents will be
submitted in connection thereto.

RMO 9-2014, Feb 7, 2014

If the request for ruling is complete, the Law Div shall evaluate the
request, and a ruling affirming or denying the request shall be issued.
In all instances, the CIR shall approve and sign any action on the
request, be it denial or approval, unless delegated to another officer
of the BIR.
If the documents are insufficient or incomplete, same shall be denied
and communicated in writing to taxpayer.
Tax rulings cannot be cited as precedent by other taxpayers, but they
can provide useful information on how the BIR may treat a similar
transaction.
Rulings shall be used for internal revenue tax purposes only. No ruling
shall be issued involving local taxes, customs duties, fees and
charges.
A ruling may be revoked or modified for any number of reasons, such
as when the facts as represented are discovered to be different from
what is represented or not in accord with the current views of the CIR.

RMO 9-2014, Feb 7, 2014

If the request for ruling is complete, the Law Div shall evaluate the
request, and a ruling affirming or denying the request shall be issued.
In all instances, the CIR shall approve and sign any action on the
request, be it denial or approval, unless delegated to another officer
of the BIR.
If the documents are insufficient or incomplete, same shall be denied
and communicated in writing to taxpayer.
Tax rulings cannot be cited as precedent by other taxpayers, but they
can provide useful information on how the BIR may treat a similar
transaction.
Rulings shall be used for internal revenue tax purposes only. No ruling
shall be issued involving local taxes, customs duties, fees and
charges.
A ruling may be revoked or modified for any number of reasons, such
as when the facts as represented are discovered to be different from
what is represented or not in accord with the current views of the CIR.

 EFFECTIVE TAX MANAGEMENT

 Make sure that the transaction/course of action or failure of action is not

unlawful (or it does not amount to tax evasion); the opinion or advice of
Legal Division of the corporation should be helpful;
Avail of the services of professional tax expert. Caveat: Reliance on little
or inadequate knowledge of law is sometimes dangerous!
Hire competent, independent external auditor duly accredited by relevant
government agencies; review findings and recommendations made in
management report;
Employ trained tax compliance officers and/or maintain internal audit
department or outsource internal audit services;
Equip yourself with good knowledge of tax laws, treaties, regulations and
rules self-study or attendance of tax seminars/workshops is helpful;
Avail of tax privileges granted under existing laws (e.g., REIT, BOI, PEZA,
SBMA, Cooperative, UDHA, NIRC, etc, but comply with conditions.)
Secure necessary BIR ruling or tax treaty relief, tax exemption certificate
or clearance, or CAR required for the transaction(s);

 Be aware of new laws (e.g., RA 10026, 10021, 9505), the latest

jurisprudence (e.g., Aichi Forging Corp v. CIR) and regulations (e.g., RR 10-2010 on
exchange of information under tax treaty and RR 2-2011, Mar 2, 2011, on submission of AIR) that
directly or indirectly affects or impacts on the operations of your
company.
Learn the differences between tax accounting rules and financial
accounting rules (e.g., IFRIC 15), for purposes of computing the tax
liabilities and for purposes of preparing audited financial statements,
respectively. However, remember that in case of conflict between tax
rules as provided for in the Tax Code and the accounting rules as
provided for in PAS/PFRS, the former shall prevail.
Avoid transactions being considered as fraudulent by the BIR, by the
simple fact that the variance between the amount per investigation
and the amount declared by the taxpayer per tax return or other
documents filed with BIR is more than 30%. Do the reconciliation or
analysis long before the tax audit by BIR.

 Compare the BIR Certificate of Registration (Form 2303) with the tax
returns filed and tax payments made by the taxpayer. Make sure that
all tax returns are filed on time to prevent having open cases.
If taxpayer is a Top 20,000 Corporation or Top 5,000 Individual, deduct
and remit appropriate EWT due on income payments not listed in
existing regulations but subject to withholding tax. Imported
purchases are exempt from EWT, but interest on bank loan is subject
to EWT.
Make certain that the books of accounts and other accounting records
are duly registered with the BIR before use. Possession of
unregistered books and invoices and receipts is subject to criminal
action. If computerized accounting system is used, ensure that the
same is registered with the BIR. Pasting excel printouts on manual
books registered with BIR is not compliant under existing rules.
Avoid having more than one TIN for the taxpayer, except when it is a
bank that has an FCDU operations.

 Hire the services of a tax expert

Tax planning or identification of tax issues starts during negotiation stage,
or before the transaction is had, the contract is signed, or the finalization of
audited financial statements and the filing of tax returns;
Hiring of tax professionals within 30 days from date of receipt of FAN by
taxpayer is still okay, but not ideal. Take note that the help of tax
professionals are limited by the applicable law and the facts of the case.
Tax professionals are not magicians that can resolve or settle the tax case
by wagging a wand. Taxpayers must be ready to support its positions by
appropriate evidence or records.

Actions after filing annual tax return

Make reconciliation of accounts after the filing of original tax returns but
before service of letter of authority by BIR to conduct tax audit on the
books and records;
File amended tax return, if necessary, soon after discovery of the error by
the taxpayer or its external auditor, but before service of letter of authority
by BIR;

 Filing of claims for refund or tax credit should

be made at the proper time at the
administrative and/or judicial levels;
otherwise, the claim may be denied by the BIR
or the courts, for being filed prematurely or
out of time prescribed by law.
Tax amnesty law or Voluntary Assessment
Programs of the BIR have provisions that
exclude certain taxpayers from availing of the
privileges. This should be complied with by
taxpayers.

 EXPANDED WITHHOLDING TAXES

EXPANDED WITHHOLDING TAX

An item of income is subject to the expanded
withholding tax, if the following conditions concur:
a. A deduction or cost is paid or accrued by the
taxpayer, which is income to the recipient thereof
subject to income tax;
b. The item of income is one of the income
payments listed in the regulations that is subject to
withholding tax, unless the corporation is designated
as Top 20,000 Corporation or a Top 5,000 Individual;
c. The income recipient is a resident of the
Philippines liable to income tax on the item of
income; and
d. The payor-withholding agent is also a resident of
the Philippines.

WITHHOLDING TAX

EXEMPT FROM EWT

1. National government and its instrumentalities, including provincial, city

or municipal governments and barangays, except government-owned or
controlled corporations;
2. Persons enjoying exemption from payment of income taxes pursuant to
the provisions of any law, general or special, such as but not limited to the
following:
a. Sales of real property by a corporation which is registered with and
certified by HLURB or HUDCC as engaged in socialized housing project
where the selling price of the house and lot or only the lot does not exceed
P180,000 in Metro Manila and other highly urbanized areas and P150,000
in other areas;
b. Corporations registered with the BOI, PEZA, and SBMA, enjoying
exemption from income tax under E.O. 226, R.A. 7916, and R.A. 7227;
c. Corporations which are exempt from income tax under Section 30 of the
Tax Code, such as GSIS, SSS, PHIC, and PCSO;
d. General professional partnerships; and
e. Joint ventures or consortium formed for the purpose of undertaking
construction projects or engaging in petroleum, coal, geothermal and other
energy operations
f. International carriers (by air or water) subject to 2.5% Gross Phil Billings

WITHHOLDING TAX

1. Professional fees for services rendered by individuals, incl. real estate

service practitioners; and
professional entertainers and athletes, and directors:
If gross income for current year exceeds P720,000 - 15%
If gross income for current year does not P720,000 - 10%
2. If recipient of professional fees, talent fees, etc. is
a juridical person:
If gross income for current year exceeds P720,000 - 15%
If gross income for current year does not P720,000 - 10%
3. Rental income
Real properties - 5%
Personal properties of P10,000 per payment; P10,000

shall not apply when accumulated rental to same

lessor exceeds or is reasonably expected to exceed

P10,000 within a year- 5%

Poles, satellites and transmission facilities - 5%
Billboards - 5%

WITHHOLDING TAX

4. Gross payments to resident individuals and corporate cinematographic film owners, lessors, or distributors
- 5%
5. Gross payments to contractors
- 2%
6. Income distribution to beneficiaries
- 15%
7. Income payments to certain brokers and agents
- 10%
8. Income payments to partners of general professional
partnerships:
If gross income for current year exceeds P720,000 - 15%
If otherwise
- 10%
9. Professional fees paid to medical practitioners
If gross income for current year exceeds P720,000
- 15%
If otherwise
- 10%
10. Gross additional payments to government personnel from
importers, shipping and airline companies, or their
agents
- 15%
11. One-half of gross amounts paid by any credit card
company in the Philippines
- 1%

WITHHOLDING TAX

12. Income payments made by any Top 20,000 Corp

Supplier of goods - 1%
Supplier of services - 2%
13. Income payments made by government to its local/resident
supplier of goods and services other than those covered
by other rates of withholding taxes
Supplier of goods - 1%
Supplier of services - 2%
14. Commissions of independent and exclusive distributors,
and marketing agents of companies
- 10%
15. Tolling fees paid to refineries - 5%
16. Payments made by pre-need companies to funeral parlor - 1%
17. Payments made to embalmers - 1%
18. Income payments made to suppliers of agricultural products - 1%
19. Income payments on purchases of minerals, mineral products and quarry resources- 10%
20. MERALCO refund to customers
With active contracts - 25%
With terminated contracts - 32%

END OF PRESENTATION
Atty. Vic C. Mamalateo
Mobile No.: 0939-9209175; 09175280445
E-mail: vic.mamalateo@vcmlaw.com.ph

vicmamalateo@yahoo.com
Tel. No.: 3729224 Fax No.: 3729267