Client advisory letter

ISSN 2094-1226/August 2016Redeem and be tax-free p4 | Audit as usual p5 | Touch-move, taxman p6 | “Compromise this” - CTA p7 | “Taxparency” report p10

Isla Lipana & Co.

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2 Client advisory letter 2016

At a glanceUpdates, reiterations and clarifications on selected topics

New accounting for leases – so what?An industry focus on the impact of PFRS 16

The new lease accounting standard will fundamentally change the accounting for lease transactions and is likely to have significant business implications. Almost all leases will be recognized on the balance sheet, with a right of use asset and financial liability that recognize more expenses in profit or loss during the earlier life of a lease. This will have an associated impact on key accounting metrics, and clear communication will be required to explain to the impact of changes to stakeholders.

Effects of the new standard will be felt across all industries, although the impact may differ significantlyHere are a few examples of industry specific implications that may arise:

Retail and consumer industryRetailers are heavy users of real estate leases for their stores. They are likely to experience major impact when implementing the new leases standard:

• Renewal options – leasing real estate is retailers’ core business and determining and reassessing when a retailer has an economic incentive to renew a retail lease location may require substantial judgment.

• Variable payments linked to index or rate – retailers need to put systems in place to estimate and remeasure variable payments linked to an index at the spot rate for each reporting period (e.g. CPI).

• Separating lease and non-lease elements – retailers will need to separate service charges (e.g. administrative/utilities/marketing) from lease elements with many landlords – for example, with shop-in-shop leases and large retail outlets.

Income tax, other taxes and compliance matters Redeem and be tax-free ....................................................................4Government staff, withhold or else .............................................. 4Only immediate need avoids IAET ............................................... 5Execute without delay .................................................................... 5Audit as usual .................................................................................. 5Post no bill ....................................................................................... 5

Tax assessment/refundShow me the dollar ......................................................................... 6Touch-move, taxman ..................................................................... 6Goods of the unknown .................................................................. 7“Compromise this” – CTA .............................................................. 7

Other regulatory matters Treasure to keep ............................................................................. 8Billboard is mass media ................................................................. 8Online school .................................................................................. 8No doubt? Control test applies .................................................... 9SEC registration made easy ........................................................ 10SEC fees menu ............................................................................. 10“Taxparency” report ..................................................................... 10Sheltering the house builders .......................................................11

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New accounting for leases – so what?An industry focus on the impact of PFRS 16

TelecommunicationsSome telecoms entities lease a vast number of big-ticket items, including network equipment, cell towers,satellite transponders and fibre optic cables.

• Identification of a lease – determining when an arrangement is a lease can be complex and judgmental for a telecoms entity. The new standard discusses an example of capacity/service versus lease for a fibre optic cable and an example of network services. Telecoms entities need to determine whether their leases provide control over a physically distinct portion of an asset or provide capacity.

• Separating lease and non-lease elements – telecoms entities will need to unbundle multiple-element arrangements provided to customers. As a result, they may want to combine the adoption of the new leases standard with the new revenue recognition standard (effective 1 January 2018), considering the interdependencies between the two standards for telecoms entities. This may prove to be most cost-efficient.

Transport and logisticsEntities in the Transport and Logistics sector often lease big-ticket items, including aircraft, trains, ships and real estate, but also leases such as trucks and other vehicles.

• Renewal options – entities in this industry often use leases in their revenue-generating activities. When does such an entity have economic incentive to renew a lease (e.g. airline, shipping, trucks)? This may require substantial judgment.

• Identification of a lease – determining when an arrangement is a lease can be complex and judgmental. For example, does a shipping entity have control over an identified asset when considering a time charter or bareboat charter? Under current guidance, there is not a lot of emphasis on the distinction between a service or an operating lease, as this often did not change the accounting.

• Separating lease and non-lease elements – Entities in this industry often lease assets combined with other services (e.g. maintenance, insurance, etc.). Sometimes lessors have bundled products, and lessees will need unbundled lease information to account for leases separate from service elements.

Real estate and equipment lessorsThe real estate and equipment lessor industry may not be significantly affected in their own accounting aslessors. However, they may be impacted in their business model due to changes in lessees’ behaviors.

• Changing lessee needs – lessees’ changing behaviors may result in requests for shorter lease terms and more variable lease payments, which increases risk for lessors. This also changes the economics of leases and puts pressure on pricing. Real estate and equipment lessors may find it challenging to ask for higher lease rates in the current economic environment. This could influence the performance of real estate funds and equipment lessors, and increase cash flow volatility and risk. In turn, this could impact lessors’ own ability to obtain favorable financing for their investments.

• New service opportunities – commercially, the changing needs of lessees may be more important to equipment and vehicle lessors rather than real estate. However, this depends on common terms of real estate leases which may differ by country. These changes may create a greater workload for lessors but also provide a catalyst for change in the industry. These new dynamics offer opportunities for new services and products. Various developments in the market may be accelerated by the new leases standard such as the increased focus on services. This may require a shift in some lessors’ traditional business models.

Need guidance on the implementation of PFRS 16? Please feel free to contact us through Tess Buted, Assurance and Accounting Consulting Services Director at maritess.t.buted@ph.pwc.com.

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4 Client advisory letter 2016

Income tax, other taxes and compliance matters

Redeem and be tax-freeFinally, the SC ruled that redemption of shares is not a dividend payment

The topic “redeeming dividends” in the July 2016 CAL issue tackled a CTA ruling on redemption of shares. The CTA declared that redemption of shares cannot be treated as dividends unless the shares are previously issued as stock dividends and the time and manner of such redemption is essentially equivalent to dividend distribution.

In a related case, the SC finally ruled that gains from redemption of preferred shares should not be characterized as dividends.

In this case, the BIR argued that a portion of the redemption price represents accumulated dividends in arrears, hence subject to FWT as the same was paid to a non-resident corporation.

The SC ruled that the excess of the redemption price over the par value of the preferred shares is not dividend accumulated in arrears, which would have been subject to FWT1. As defined by the Tax Code, ‘dividends’ means any distribution made by a corporation to its shareholders out of its earnings or profits. Such distribution must be declared out of the unrestricted retained earnings2 and considered as a recurring return on stock. In this case, however, the SC found that the taxpayer has no available retained earnings and therefore, cannot distribute any dividends.

1 Section 28 (B)(5)(b) of the Tax Code2 Pursuant to Section 73 (A) of the Tax Code and Section 43 of

the Corporation Code

The SC then declared that the amount received by the taxpayer did not represent a periodic distribution of dividends, but rather a payment for the redemption of its preferred shares. The amount thus distributed was not a recurring return on stock; rather, the taxpayer surrendered and relinquished its stock in return for said payment. Thus, the taxpayer is not subject to FWT on dividends.

Moreover, the SC affirmed the ruling of the CTA declaring that while the redemption of preferred shares as treasury shares is generally subject to CGT of 5% and 10%, the transaction is eligible for CGT exemption under the PH-US Tax Treaty in this case.(G.R. No. 216130 dated 3 August 2016)

Government staff, withhold or else Government pays for deficiency withholding tax but concerned officials pay for penalties

A constitutionally mandated government office was assessed by the BIR for deficiency EWT on its payments for the procurement of optical mark readers. It admits that it did not withhold EWT from its payments for an automated election system, believing that it enjoys a tax-exempt status.

The CTA ruled that the tax exemption granted to a government office under Section 8 of RA No. 8436, as amended by RA No. 9369, does not include its duty to withhold taxes from its income payments to its local suppliers. Withholding taxes are different and distinct from income tax. While an income tax is a tax on yearly profits, a withholding tax is a method of collecting income tax in advance. The payor, the government office in this case, acts no more than an agent of the government for the collection of the tax in order to ensure its payment. For failure to withhold, the government office is liable Isl

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for deficiency EWT. Nonetheless, the CTA ruled that the government office shall be liable only to the extent of the basic tax pursuant to Section 247 of the Tax Code; while the employee responsible for the withholding and remittance of the tax shall be personally liable for the accrued interest, deficiency interest and/or delinquency interest.(CTA Case No. 8929 dated 2 August 2016)

Only immediate need avoids IAET Immediacy test is applied in imposing IAET

In this case, the taxpayer was assessed for deficiency IAET, among others.

The taxpayer contends that it is not liable for IAET on its accumulated or undistributed earnings and profits as the same are retained “for reasonable needs of the business”. In ruling against the taxpayer, the CTA held that in order to justify an accumulation of earnings, one should adhere to the “immediacy test”. Accordingly, the term “reasonable needs of the business” is construed to mean immediate needs of the business, including reasonably anticipated needs. The company should be able to prove an immediate need for the accumulation of the earnings and profits, or the direct accumulation of profits. This means that it is essential that such accumulation must have definiteness of plans coupled with actions taken towards its consummation. A board resolution without specific details on the appropriation would not suffice.(CTA Case No. 8556 dated 9 August 2016)

Execute without delayTaxpayers claiming for tax credit/refund based on writ of execution exempt from tax clearance

The CIR has issued a circular exempting all taxpayers who applied and are applying for the issuance of a tax credit/refund based on the writ of execution issued by the CTA or the SC from the requirement of Certifications on Outstanding Tax Liabilities/Delinquency Verification Slips prescribed under all existing revenue regulations, rules and procedures.(Revenue Memorandum Circular No. 84-2016 dated 19 July 2016)

Audit as usualLifting the suspension of audits

The CIR lifted the suspension of the implementation of LOAs pertaining to the Run After Tax Evaders (RATE) Program. This is to continue the mandate of the BIR to investigate criminal violations of the Tax Code, to prosecute such cases to deter tax evasion practices, and to encourage voluntary compliance with the internal revenue tax laws. Field audits, field operations, any form of business visitations and all activities connected directly in the implementation of LOAs pertaining to RATE cases shall be resumed or conducted in accordance with existing rules and regulations of the BIR.

Subsequently, the CIR issued another RMC lifting the suspension of all audit under RMC No. 70-2016.

Under such circular, all field audits, field operations, or any form of business visitation in the execution of LOAs/eLOAs/audit notices, letter notices, or mission orders can already be conducted.(Revenue Memorandum Circular No. 89-2016 dated 23 August 2016 and Revenue Memorandum Circular No. 91-2016 dated 31 August 2016)

Post no billBIR issuances require approval of the CIR prior to release on media

The CIR issued an RMO addressed to revenue officers and the general public stating that all advisories, revenue actions/decisions, and policy statements substantially affecting the basic rights and remedies of the taxpayer relative to assessment and collection of taxes shall not be posted on the BIR website or released to the print and broadcast media without prior approval of the CIR.

Officials and employees found violating the said directive shall be subject to appropriate disciplinary actions.(Revenue Memorandum Order No. 46-2016 dated 8 August 2016)

BIR - Bureau of Internal RevenueCGT - Capital Gains TaxCIR - Commissioner of Internal RevenueCTA - Court of Tax AppealseLOA - Electronic Letter of AuthorityEWT - Expanded Withholding Tax FWT - Final Withholding TaxIAET - Improperly Accumulated Earnings TaxLOA - Letter of AuthorityPH - Republic of the PhilippinesRA - Republic ActRMC - Revenue Memorandum CircularRMO - Revenue Memorandum OrderSC - Supreme CourtUS - United States of America

Glossary

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Show me the dollarBank passbook is sufficient to prove forex remittance for zero-rating

A taxpayer filed a claim for VAT refund/credit arising from its zero-rated sales (i.e., export sales paid in accepted foreign currency in accordance with BSP rules). It submitted certificates of remittances issued by local banks and pages of its passbook to substantiate its claim.

The CIR argued that the taxpayer failed to comply with the third requisite of RR No. 16-2005, which is to submit a bank credit advice, certificate of bank remittance, or any other document proving payment for the goods in acceptable foreign currency or its equivalent in goods and services, in order for it to claim VAT zero-rating on direct export sales. The taxpayer also failed to submit or present relevant documents to substantiate its alleged receivables, payment of loan payable, and bank charges in dollars.

The court en banc denied the CIR’s view and ruled that the taxpayer sufficiently complied with the third requisite of RR No. 16-2005 by its submission of certificates of inward remittances from local banks and pages of its bank passbooks, all of which prove that the taxpayer’s export sales were paid for in US dollars, an acceptable foreign currency, and accounted for in accordance with BSP rules. The court added that to require the taxpayer to submit other documents, such as documents to substantiate its alleged receivables, repayment of loan payable, and bank charges, would add a fifth condition to the conditions set forth by law which by its wording does not support.(CTA EB Case No. 1296 dated 29 June 2016)

Touch-move, taxmanThe government can be estopped, too

In this case, the taxpayer protested the deficiency taxes contained in the FAN. After considering the protest letter, the CIR issued a letter expressly acknowledging the letter of protest and accepting the request for reinvestigation. Thereafter, the CIR upheld its assessment for tax deficiencies and reminded the taxpayer of his right to appeal to the tax courts. On appeal to the CTA, the CIR questioned the validity of the taxpayer’s protest for having been filed out of time and for lack of relevant supporting documents.

The court ruled that the BIR is estopped from raising the defects on the protest letter since, by the tenor and content of the FDDA, the taxpayer was led to believe that it is valid and, in pursuit of remedies, appealed to the CTA. To allow the CIR to backpedal on its representations would be contrary to the principles of equity.(CTA EB Case No. 1245 dated 21 July 2016)

BIR - Bureau of Internal RevenueBOC - Bureau of CustomsBSP - Bangko Sentral ng PilipinasCIR - Commissioner of Internal RevenueCTA - Court of Tax AppealsFAN - Final Assessment NoticeFDDA - Final Decision on a Disputed AssessmentRA - Republic ActRDO - Revenue District OfficeRR - Revenue RegulationsSC - Supreme CourtUS - United StatesVAT - Value-Added Tax

Glossary

Tax assessment/refund

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Goods of the unknown Government can forfeit goods on grounds of false declaration of the real consignee

The taxpayer, a government-owned and controlled corporation, questioned the forfeiture by the BOC claiming that it is the real consignee of the imported goods. However, the BOC found several discrepancies amounting to false declaration in the import documents. Moreover, there are no sufficient proofs that the taxpayer is the real importer of the goods.

Under Section 2530 of the Tariff and Customs Code, forfeiture of goods may be undertaken subject to the following conditions:

• Wrongful making by the owner, importer, exporter or consignee of any declaration or affidavit, or the wrongful making or delivery by the same person of any invoice, letter or paper;

• Falsity of such declaration, affidavit, invoice, letter or paper; and

• Intention on the part of the importer/consignee to evade the payment of duties due.

According to the CTA, considering the false declarations that the corporation is the ultimate consignee, the truth being the subject shipment is consigned to some other person, as well as the totality of the acts of the importer in evading the payment of any taxes and duties due, there is sufficient basis for the BOC to forfeit the shipment in favor of the government. The deceptive scheme was conducted so that the tax and duty exempt privilege exclusively granted in favor of the corporation could be usurped and applied on the subject shipment, thereby evading taxes and duties due to the government.(CTA Case No. 8663 dated 25 July 2016)

“Compromise this” – CTACTA has jurisdiction over decision of the CIR on offer of compromise

The BIR sought to collect the final and executory deficiency assessments of the income tax liabilities of a taxpayer. Consequently, the taxpayer applied for a compromise settlement of its liability, representing 10% of the basic tax assessment. The offer of compromise was, however, denied by the RDO.

Nonetheless, the taxpayer again filed an offer of compromise and paid the amount representing 40% of the basic deficiency income tax. Subsequently, the application and offer for compromise settlement of tax liability was disapproved by the National Evaluation Board on the ground of its doubtful validity. With the denial of its motion for reconsideration, the taxpayer filed a petition for review before the CTA.

The CIR filed a motion to dismiss arguing that the CTA has no jurisdiction to entertain the appeal because it is not the decision of the CIR that was protested, or a decision on any disputed assessment which was appealed, but the denial of the taxpayer’s offer of compromise. Moreover, the CIR pointed out that a compromise is consensual in nature, and its approval is discretionary.

Citing an SC decision, the CTA held that it has jurisdiction over the decision of the BIR to enter into a compromise agreement with the taxpayer pursuant to Section 7 of RA No. 11253 which states that, “The Court of Tax Appeals shall exercise exclusive appellate jurisdiction to review by appeal … other matters arising under the National Internal Revenue Code or other laws or part of law administered by the Bureau of Internal Revenue”.

The issues in the petition for review are considered as other matters arising from the Tax Code and other laws being administered by the BIR. Thus, it is appealable to the CTA and may be resolved within its appellate jurisdiction.(CTA Case No. 8731 dated 28 July 2016)

3 An Act Creating the Court of Tax Appeals

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Treasure to keepTreasury shares form part of the issued shares as long as they are not retired

A company with 28.40% subscribed shares has bought out three of its shareholders, effectively reducing its subscribed capital stock to 15.81% or less than the 25% minimum capital stock that is required to be subscribed under Section 13 of the Corporation Code. Hence, the company requested a clarification from the SEC on whether its treasury shares can still be considered as part of the issued shares and whether it has violated the Corporation Code as a result of the buy-back program.

By definition, treasury shares are shares of stock that had been issued and fully paid for but subsequently reacquired by the corporation. They do not revert to the unissued shares of a corporation and may be reissued or resold; thus, treasury shares are considered as issued shares unless retired or cancelled.

The SEC also held that no violation of Section 13 of the Corporation Code was committed by the company as the “25% and 25%” requirements4 are mandatory only during pre-incorporation period, and when the corporation undertakes to increase its authorized capital stock.

Lastly, the SEC said the treasury shares should be disclosed in the financial statements. Moreover, the SEC opined that any declaration and issuance of treasury shares as property dividend have to be properly disclosed and designated as property dividend in the books of the corporation and in its financial statements.(SEC-OGC Opinion No. 16-16 dated 27 June 2016)

4 25% authorized capital stock must be subscribed and 25% of such subscribed stock must be paid.

Billboard is mass mediaLeasing of advertising spaces subject to FINL

By leasing out or subleasing advertising spaces, such as waiting sheds, billboard structures, electronic LED displays, and other fixed or movable structures where advertisements can be displayed, a company provides a medium to disseminate or convey advertising messages to the public. Hence, a corporation with such business activity is considered a mass media entity subject to the requirement under the 1987 Constitution and EO No. 184 series of 2015 on foreign equity limitations5.(SEC-OGC Opinion No. 16-17 dated 11 July 2016)

Online schoolOnline English tutorial schools could be subject to the nationality requirement

A non-resident foreign company establishing a subsidiary in the Philippines requested for a legal opinion on whether an online English tutorial school is exempt from the 60%-40% ownership requirement for educational institutions. The company also intends to register with PEZA as an export enterprise catering primarily to foreign nationals based outside the Philippines.

The SEC was unable to rule categorically on the status of the company because of insufficient facts but discussed the following:

5 Section 11, Article XVI, 1987 Constitution. “The ownership and management of mass media shall be limited to citizens of the Philippines or corporations, cooperatives or association wholly owned and managed by such citizens.

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Other regulatory matters

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Under the Education Act of 19826, only educational institutions can engage in the private business of providing technical vocational or training programs to its students. Offering the English language as a training course or program for public consumption, in general, is considered offering “technical vocational education”. If a company is issuing any certificate of training or diploma for program completion to its successful students, then it is engaged in a formal technical vocational education and considered as an educational institution. Accordingly, an educational institution that engages in the business of providing technical vocational education or training program is subject to the 60%-40% Filipino-foreign equity requirement.

As an exception, educational institutions established by religious orders and mission boards, and established for foreign diplomatic personnel and their dependents, and for other foreign temporary residents, are not covered by the nationality restriction. Moreover, foreigners are not allowed any control and administration of educational institutions, and are barred from becoming members of the board of directors/trustees.

The SEC clarified that since the company intends to cater initially and exclusively to foreign nationals abroad, then it is considered an “export enterprise” that is allowed up to 100% foreign equity participation, provided that the services of such enterprise do not fall within Lists A and B of the FINL. However, if it be determined eventually that the company is an educational institution, then it falls under List A of the FINL, and as such, becomes subject to the nationality limitation and exceptions as discussed above.(SEC-OGC Opinion No. 16-18 dated 21 July 2016)

6 Section 25, Chapter 3 of B.P. 232, as cited in relation to G.R. No. L-12828 dated 13 April 1959

No doubt? Control test applies In the absence of any doubt, the Control Test is the prevailing mode in determining a corporation’s nationality, says SEC

A domestic company sought clarification on whether its corporate investor that is 60% Filipino-owned and 40% foreign-owned is considered Filipino for purposes of complying with the 75% nationality requirement as a manning company.

The SEC, echoing the pronouncement of the SC in a 2014 decision7, opined that there are two acknowledged tests in determining the nationality of a corporation and the nationality of the investee corporation, namely: the Control Test and the Grandfather Rule. The liberal rule, later coined by SEC as the Control Test, states that shares of corporations or partnerships which are at least 60% Filipino-owned is considered of Philippine nationality. On the otherhand, the strict rule or Grandfather Rule states that if the percentage of Filipino ownership is less than 60%, only the number of shares corresponding to such percentage shall be counted as Philippine nationality. Thus, the combined totals in the investing corporation and the investee must be traced (i.e., “grandfathered”) to determine the total percentage of Filipino nationality.

In sum, the Grandfather Rule applies only when the 60-40 ownership is in doubt (i.e., in cases where a joint venture corporation with less than 60% Filipino ownership invests in another joint venture corporation with 60% or less Filipino ownership).

In the absence of any doubt, the Control Test shall be used in determining the nationality of the corporation. Consequently, as long as the investor is 60% Filipino-owned, its shareholdings in the investee is considered Filipino equity, provided that 75% of the investee, as a manning agency, is owned by Filipinos.(SEC-OGC Opinion No. 16-19 dated 11 August 2016)

7 G.R. No. 195580 dated 21 April 2014

BP - Batas PambansaEO - Executive OrderFINL - Foreign Investment Negative ListPEZA - Philippine Economic Zone AuthoritySEC - Securities and Exchange CommissionSC - Supreme Court

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SEC registration made easyAmendment of rules on corporate registration

Consistent with the objectives of RA No. 94858, the SEC resolved to dispense with the following requirements in registration activities:

1. Bank Certificate of Deposit - for registration of the Articles of Incorporation of new corporations where the subscription to the authorized capital stock is paid in cash; if a portion of the subscription is other than cash, the non-cash subscription shall be proven by appropriate supporting documents;

2. Special Audit Report - for applications to increase the authorized capital stock of corporations where the subscription to increase is paid in cash except:

a. Listed companies;

b. Public companies defined in the Securities Regulation Code;

c. Companies that offer or sell securities to the public; and

d. Where the payment to the subscription to increase is more than PHP 50,000,000.00.

In lieu of such report, a notarized subscription contract among the stockholders/s, treasurer and president for the corporation stating the number of additional shares subscribed to and paid for shall be submitted by the corporation.

3. Primary Entry - for Deed of Assignment in the registration of new corporations or increase in the authorized capital stock where land or real estate property is offered as consideration for the subscription of shares of stock.

(SEC Memorandum Circular No. 11-2016 dated 5 August 2016)

8 Otherwise known as the Anti Red Tape Act of 2007

SEC fees menuRevised fees and charges imposed by the SEC

The SEC has issued a memorandum listing down all fees and charges to be imposed and collected by the SEC, as approved by the Department of Finance.

The circular provides the registration and filing fees for domestic corporations, foreign corporations and multinationals, financing/lending companies, capital market participants, exchanges/self-regulatory organizations/clearing houses and central depositories, and issuers of securities. The list also enumerates the accreditation, certification, registration rates, and other fees.(SEC Memorandum Circular No. 12-2016 dated 11 August 2016)

“Taxparency” reportSubmission of Annual Tax Incentives Report of Registered Business Entity as required under TIMTA

The Deputy Director General of PEZA now requires all PEZA-registered enterprises and ecozone developers/operators that are entitled to tax incentives, including those entitled only to duty and tax exemption on importations and/or VAT zero-rating of local purchases, to submit to PEZA their first Annual Tax Incentives Report of Registered Business Entity on or before 15 September 2016.

The salient portions of the Order are as follows:

1. The Annual Tax Incentives Report of Registered Business Entity shall consist of the following reports:

- Annex A.1 – Annual Tax Incentives Report: Income Based Tax Incentives

- Annex A.2 – Annual Tax Incentives Report: VAT, Excise Tax and Duty-Based Incentives

2. Within 8-15 August 2016, PEZA will email to all enterprises and ecozone developers/operators the soft copy of the required forms, which shall contain the registered activities and date of registration, tax incentives, income tax holiday (ITH) entitlement period and the start of the 5% gross income tax (GIT) incentive of each of their respective registered activities. Those who did not receive such email are advised to immediately send to timta@peza.gov.ph the name and email address of their respective official/s in charge of submitting the required report. Isl

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3. All PEZA-registered enterprises which availed of the ITH and/or the 5% GIT incentive in 2015 are required to accomplish Annex A.1 report, which shall cover any and all taxable years ending in any month of 2015.

- For projects which availed of ITH incentive, the enterprise should be able to present the amount of ITH claimed on a per project basis.

- For projects which availed of the 5% GIT incentive, the enterprise may consolidate the computation of the amount of incentive claimed for all projects that availed of the GIT.

4. All PEZA-registered enterprises availing of the VAT zero-rating on local purchases and/or tax and duty-free importation incentives are required to submit the Annex A.2 report. This report shall cover importations and local purchases during the calendar year 2015.

5. The enterprise/developer-operator should email back the accomplished forms in Excel format to PEZA through the aforementioned email address. The printed copy of the accomplished reports, certified and signed by two of the highest responsible officials of the enterprise, shall be submitted to the office of its respective PEZA Zone Administrator/Zone Manager/Office-in-Charge.

6. For taxable year 2016 and onwards, the deadline for submission of these reports shall be June 14 of the following year.

(PEZA Memorandum Order No. 2016-003 dated 4 August 2016)

GIT - Gross Income TaxITH - Income Tax HolidayPEZA - Philippine Economic Zone AuthorityRA - Republic ActSEC - Securities and Exchange CommissionTIMTA - Tax Incentives Management and Transparency ActVAT - Value-Added Tax

Glossary

Sheltering the house buildersAn Act strengthening the balanced housing development program

In order to encourage private sector participation in socialized housing and further reduce the cost of housing units, the following are the incentives extended to the private sector:

a. Reduction of qualification and accreditation requirements for participating private developers;

b. Creation of one-stop offices in the different regions of the country for the processing, approval and issuance of clearances, permits and licenses;

c. Simplification of financing procedure; and

d. Exemption from the payment of the following: (1) project-related income taxes, (2) capital gains tax on raw lands used for the project, (3) VAT for the project contractor, (4) transfer tax for both raw completed projects, and (5) donor’s tax for lands certified by the local government units to have been donated for socialized housing purposes.

(Republic Act No. 10884, lapsed into law on 17 July 2016)

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Meet us

PwC Philippines is the official tabulator and knowledge partner of Mr. and Ms. Chinatown 2016The Miss Chinatown Foundation Philippines selected PwC Philippines as its official audit and knowledge partner for Mr. and Ms. Chinatown 2016.

Knowledge partnerAs the official knowledge partner, we conducted a business and financial literacy seminar for the candidates last 28 June. The seminar helped them learn the different key elements on how to start a business, market strategies and how to prepare their financial plan. Deals and Corporate Finance Director Charles Gamo also talked about the macro-economic environment.

About Mr. and Ms. Chinatown 2016Mr. and Ms. Chinatown 2016, a brainchild of Miss Chinatown Foundation and Chinoy TV, is a month-long journey of discovery as they display strength of character, substance and share a redefined image of the beauty of Chinese-Filipino culture.

Pre-pageant competitionsFifteen men and 15 ladies showed their abilities in the Talent Competition in Lucky Chinatown Mall (10 July), paraded their cultural costumes at Eastwood Central Plaza (17 July), competed in the swimsuit competition and fashion show at Chaos in the City of Dreams Manila (20 July), and finally vied for the the crown at the Newport Performing Arts Theater in Resorts World Manila (31 July).

Popular and prestigious personalitiesChinoy TV host Gretchen Ho, ABS-CBN artist Robi Domingo, Upfront at UAAP Host Janeena Chan and Willord Chua hosted the coronation night. Some of the high profile personalities from the Filipino-Chinese community, and fashion and entertainment industries who made up the prestigious panel of judges were: Senator Risa Hontiveros, Chinese Ambassador Pan Feng, Federation of Filipino Chinese Chambers of Commerce & Industry, Inc. (FFCCCII) Vice President Henry Lim Bon Liong, ABS-CBN CFO Aldrin Cerrado, Regal Films’ Roselle Monteverde, Oriental Group’s General Manager Kevin Wong, and Fashion Designer Ditta Sandico. Singers Richard Poon and KZ Tandingan serenaded the candidates during the formal wear competition.

PwC tabulation teamLed by Assurance Partner Lois Gregorio-Abad, the tabulation team of Assurance Manager Nico Ngo, Assurance Directors Apple de Chavez, Corina Molina, Assurance Senior Managers Mary Grace Go, Ken Buzmion, Senior Associates Jasmin Fellizar, Riz Gliane, JM Respeto, Mike Baurile, Ron Quirante, Dan Rasgo, Associates Bernadette Carag, Kharen Dimayuga, Jason Aquino, Jess Mendez and Tax Consultant Nikki Lim tabulated and certified the results of the month long pageant. Lois gave the results of special awards and the top ten in sealed envelopes while Chairman and Senior Partner Alex Cabrera handed the results for 2nd runners up, 1st runners up and Mr. and Ms. Chinatown 2016.

Recording artist Shirley Vy and financial literacy advocate Jan Louie Ngo were crowned Mr. and Ms. Chinatown 2016.

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Talk to us

For further discussion on the contents of this issue of the Client Advisory Letter, please contact any of our partners.

Alexander B. CabreraChairman & Senior Partner, concurrent Tax PartnerT: +63 (2) 459 2002 alex.cabrera@ph.pwc.com

Roselle Yu CaraigTax PartnerT: +63 (2) 459 2023 roselle.y.caraig@ph.pwc.com

Request for copies of text

You may ask for the full text of the Client Advisory Letter by writing our Tax Department, Isla Lipana & Co., 29th Floor, Philamlife Tower, 8767 Paseo de Roxas, 1226 Makati City, Philippines. T: +63 (2) 845 2728. F: +63 (2) 845 2806. Email lyn.golez@ph.pwc.com.

For tax and related regulatory matters

For accounting matters

Malou P. LimTax Managing PartnerT: +63 (2) 459 2016 malou.p.lim@ph.pwc.com

Harold S. OcampoTax PrincipalT: +63 (2) 459 2029harold.s.ocampo@ph.pwc.com

Fedna B. ParallagTax PartnerT: +63 (2) 459 3109 fedna.parallag@ph.pwc.com

John-John Patrick V. LimAssurance PartnerT: +63 (2) 459 3023 john.lim@ph.pwc.com

Carlos T. Carado IITax PartnerT: +63 (2) 459 2020 carlos.carado@ph.pwc.com

Ma. Lois M. Gregorio-AbadAssurance PartnerT: +63 (2) 459 3023 ma.lois.m.gregorio@ph.pwc.com

Lawrence C. BiscochoTax PartnerT: +63 (2) 459 2007 lawrence.biscocho@ph.pwc.com

Gina S. DeteraAssurance PartnerT: +63 (2) 459 3063 gina.s.detera@ph.pwc.com

Support teamOur Global and Technical Solutions (GTS) Manager Edna Brimon, Senior GTS Specialists RR Manaois, Aron Mendoza, and GTS Specialists Jigz Contreras and Pat Manuel developed the scoring and tabulation system. Markets and Assurance Director Allan Cao, Markets Senior Manager Dennis Bautista, Corporate Responsibility Manager Edwin Padillo, GTS Senior Specialist Herbert Tuazon, Markets Senior Associates Chrissie Roque and Jagz Gonzales coordinated with the Mr. and Ms. Chinatown 2016 organizers.

Shirley Vy (third from left) and Jan Louie Ngo (fourth from left) emerged as Mr. and Ms. Chinatown 2016

The Isla Lipana & Co./PwC Philippines team during the Coronation Night at the Newport Performing Arts Theater

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www.pwc.com/ph© 2016 Isla Lipana & Co. All rights reserved.

At PwC, our purpose is to build trust in society and solve important problems. We’re anetwork of firms in 157 countries with more than 208,000 people who are committed todelivering quality in assurance, advisory and tax services. Find out more and tell us whatmatters to you by visiting us at www.pwc.com.

PwC refers to the PwC network and/or one or more of its member firms, each of which is aseparate legal entity. Please see www.pwc.com/structure for further details.

Disclaimer The contents of this advisory letter are summaries, in general terms, of selected issuances from various government agencies. They do not necessarily reflect the official position of Isla Lipana & Co. They are intended for guidance only and as such should not be regarded as a substitute for professional advice.

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