Ruling on Income Payment to NRFC for Services Outside Phils

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Tax Bulletin August 2012

2 Tax Bulletin

HighlightsBIR Rulings

• PaymentstoaforeigncorporationforservicesperformedentirelyoutsidethePhilippinesareexemptfromincometaxandvalue-addedtax(VAT).(Page 4)

• DividendspaidbyadomesticcorporationtoanAustraliancorporationaresubjecttothe15%finalwithholdingtax(FWT)underSection28(B)(5)(b)oftheTaxCode.(Page 4)

• IncomederivedfrominvestmentsinthePhilippinesbyforeigngovernmentsisexemptfromincometaxand,consequently,fromwithholdingtax.(Page 5)

• Anupstreammergerwherethesurvivingparentcompanywillnotissuesharesinexchangefortheassetsoftheabsorbedsubsidiaryisnotconsideredatax-freemergerunderSection40(C)(2)oftheTaxCode.(Page 5)

• InatransactionwheretwopersonsexchangedsharesofstockintwocompaniesforsharesofstockinathirdcorporationinseparateDeedsofAssignment,asaresultofwhichthefirstpersongainscontrolof58.15%,andthesecondpersongainscontrolof24.33%,ofthevotingstockofthetransferee-corporation,onlythetransferofthefirstpersonwillbeconsideredatax-freeexchangeunderSection40(C)(2)oftheTaxCode.(Page 6)

BIR Issuances

• RevenueRegulations(RR)No.11-2012amendsSection3ofRRNo.1-2011onexemptionfromdocumentarystamptax(DST)ofremittancesofOverseasContractWorkers(OCWs)orOverseasFilipinoWorkers(OFWs).(Page 7)

• RevenueMemorandumCircular(RMC)No.34-2012clarifiesthetaximplicationsofintegratingtheDomesticPassengerServiceCharge(DPSC)atthepointofsaleofairlinetickets,andprescribesrulesfortheinvoicingandrecordingoftheDPSCinthebooksofairlinecompaniesandairportauthorities.(Page 8)

• RMCNo.35-2012clarifiesthetaxabilityofclubsorganizedandoperatedexclusivelyforpleasure,recreation,andothernon-profitpurposes.(Page 9)

• RMCNo.36-2012clarifieswhetherdocumentsmentionedinSection199oftheTaxCode,asamendedbyRepublicAct(RA)No.9243,aresubjecttotheP15.00DSTprescribedinSection188oftheTaxCode.(Page 10)

• RMCNo.37-2012clarifiesSection11ofRRNo.06-08bymakingitclearthataCertificateAuthorizingRegistration(CAR)isstillnecessarybeforesharesofstocknottradedinthestockexchangemaybetransferred.(Page 10)

• RMCNo.38-2012furtherclarifiesinQuestionandAnswerformattheprovisionsofRRNo.7-2010,asamendedbyRRNo.8-2010,implementingthetaxprivilegesgrantedunderRANo.9994,otherwiseknownasthe“ExpandedSeniorCitizensActof2010.”(Page 11)

• RMCNo.39-2012mandatesthewithholdingofincometaxonbackwages,allowances,andbenefitsreceivedbyemployeesthroughgarnishmentofdebtsorcreditspursuanttoalabordisputeaward.(Page 14)

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• RMCNo.40-2012prescribesaprescriptiveperiodforrulingsissuedpursuanttoSection40(C)(2)oftheTaxCode.(Page 15)

• RMCNo.47-2012prescribestherulesanddeadlinesforthefilingofapplicationsforenrollmentintheVATTaxCreditCertificate(TCC)MonetizationProgram,pursuanttotheDepartmentofFinance(DOF),DepartmentofBudgetandManagement(DBM)andBIRJointCircularNo.2-2012datedMay31,2012.(Page 15)

BOC Issuances

• CustomsAdministrativeOrder(CAO)No.1-2012establishestheAuthorizedEconomicOperator(AEO)Programforexporters.(Page 16)

• CustomsMemorandumOrder(CMO)No.9-2012requirespriorapprovalfromtheCommissionerofCustomsortheDeputyCommissionerfortheManagementInformationSystemandTechnologyGroup(MISTG)forthemanualprocessingofimportentriesinordertoeffecttheclearanceandreleaseofimportedgoods.(Page 18)

PSE Issuance

• PhilippineStockExchange(PSE)MemorandumCNNo.2012-0046remindstheinvestingpublicoftheeffectsofthefailureoflistedcompaniestocomplywiththeminimumpublicownership(MPO)requirementbyDecember31,2012.(Page 19)

SEC Issuances

• SECMemorandumCircular(MC)No.6dispenseswithsomerequirementsinsomeregistrationactivities.(Page 19)

• Foracorporationtopurchase,acquireorownlandinthePhilippines,atleast60%ofthetotalcapitalstockofthecorporationmustbewholly-ownedbyFilipinocitizens.(Page 20)

• AcorporationneedstoamenditsArticlesofIncorporation(AOI)toreflectthechangeofaddressfromonebuildingtoanother,evenifthesecondbuildingiswithinthesamecityormunicipality.(Page 21)

• Indeterminingthecitizenshipofsharesbeingheldintrust,thenationalityofboththetrusteeandthebeneficiaryshouldbeconsidered.(Page 21)

BSP Issuances

• CircularNo.762amendstheregulationsonDepositsforStockSubscriptionsofbanks/quasi-banks.(Page 22)

• CircularNo.763providesforregulatoryrelieftobanksunderrehabilitationprogram.(Page 25)

• CircularNo.764prescribestheRevisedOutsourcingFrameworkforNon-BankFinancialInstitutions(NBFIs).(Page 25)

• CircularNo.765prescribestheRevisedOutsourcingFrameworkforBanks.(Page 26)

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• CircularNo.766prescribestheGuidelinesinStrengtheningCorporateGovernanceandRiskManagementPracticesonTrust,OtherFiduciaryBusiness,andInvestmentManagementActivities.(Page 27)

Court Decision

• Afterreceivinganoticeofassessment,ataxpayermayfilewithin60daysawrittenprotestwiththelocaltreasurer,whichshalldecideonitwithin60days.ThetaxpayercanmakeanappealtotheRegionalTimeCourt(RTC)within30daysfromreceivingthedenialoftheprotest,orfromthelapseofthe60-dayperiodtodecideontheprotest.Thereafter,thetaxpayercanappealthedecisionoftheRTCtotheCourtofTaxAppeals(CTA)within30daysafterreceivingthedecision.(Page 29)

BIR Rulings

BIR Ruling No. 458-2012 dated July 10, 2012

Facts:

BCo.,anon-residentSingaporeancorporation,renderedservicesforFCo.,adomesticcorporation.TheseserviceswereperformedbyBCo.entirelyinIndonesia.FCo.paidservicefeestoBCo.

Issue:

AretheservicefeespaidbyFCo.toBCo.subjecttoPhilippineincometaxandVAT?

Ruling:

1. No.UnderSection23(F)oftheTaxCode,anon-residentforeigncorporationistaxableonlyonincomederivedfromsourceswithinthePhilippines,andunderSection42(A)(3),incomefromservicesisconsideredderivedfromsourceswithinthePhilippinesonlyiftheservicesareperformedinthePhilippines.Hence,incomefromservicesperformedbyanon-residentforeigncorporationentirelyoutsidethePhilippinesisexemptfromPhilippineincometax.

2. No.UnderSection108(A)oftheTaxCode,paymentsforservicesaresubjecttoVATonlyiftheservicesareperformedinthePhilippines.


Facts:

PCo.declaredcashdividendstoitsstockholderswhichincludeDCo.,anon-residentAustraliancorporation.UnderAustraliantaxlaws,foreigndividendsreceivedinAustraliaareexemptfromincometax.

Issue:

ArethecashdividendspaidbyPCo.toDCo.subjecttothe15%FWTunderSection28(B)(5)(b)oftheTaxCode?

PaymentstoaforeigncorporationforservicesperformedentirelyoutsidethePhilippinesareexemptfromincometaxandVAT.

DividendspaidbyadomesticcorporationtoanAustraliancorporationaresubjecttothe15%FWTunderSection28(B)(5)(b)oftheTaxCode.

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Ruling:

Yes.UnderSection28(B)(5)(b)oftheTaxCode,cashand/orpropertydividendsreceivedbyanon-residentforeigncorporationfromadomesticcorporationshallbesubjecttoa15%FWTonthedividendsreceived,subjecttotheconditionthatthecountryinwhichthenon-residentforeigncorporationisdomiciledshallallowacreditagainstthetaxduefromthenon-residentforeigncorporationtaxesdeemedtohavebeenpaidinthePhilippinesequivalentto15%ofthedividend.Thepreferential15%FWTrateappliessinceAustralianlawstreatforeigndividendsreceivedinAustraliaasexemptfromincometax.

However,thefollowingrequirementsmustbecompliedwithwithinareasonabletimepursuanttoRMCNo.80-91:

a) ShowthatthedividendsreceivedbyDCo.fromPCo.werenotamongtheitemsconsideredinarrivingattheincometaxduefromDCo;

b) PresenttheincometaxreturnofDCo.forthetaxableyearwhenthesubjectdividendswerereceived;and

c) SubmitanyauthenticateddocumentsshowingthattheAustralianGovernmentdidnotimposeanytaxonthesubjectdividends.


Facts:

KCo.,anautonomousgovernmentbodyresponsibleforthemanagementandadministrationofsomeofKuwait’sfunds,derivesincomefromitsinvestmentsinthePhilippinessuchasgovernmentbonds,corporatebondsandbankdeposits.

Issue:

IstheincomederivedbyKCo.frominvestmentsinthePhilippinesexemptfromPhilippineincometax?

Ruling:

Yes.UnderSection32(B)(7)(a)(i)oftheTaxCode,incomederivedbyforeigngovernmentsfrominvestmentsinthePhilippinesisexemptfromincometaxand,consequently,fromwithholdingtax.

BIR Ruling No. 508-2012 dated August 3, 2012

Facts:

ACo.,adomesticcorporation,effectedamergerwithitswholly-ownedsubsidiary,BCo.,anotherdomesticcorporation,whereACo.willbethesurvivingcorporation.Asaresultofthemerger,BCo.willtransferitsassetstoACo.However,sinceBCo.isawholly-ownedsubsidiaryofACo.,ACo.willnolongerissueanysharesofstockinconsiderationfortheassetstransferredbyBCo.pursuanttothemerger.

Issue:

IsthemergerbetweenACo.andBCo.consideredatax-freemergerunderSection40(C)(2)oftheTaxCode?

IncomederivedfrominvestmentsinthePhilippinesbyforeigngovernmentsisexemptfromincometaxand,consequently,fromwithholdingtax.

Anupstreammergerwherethesurvivingparentcompanywillnotissuesharesinexchangefortheassetsoftheabsorbedsubsidiaryisnotconsideredatax-freemergerunderSection40(C)(2)oftheTaxCode.

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Ruling:

No.Thereorganizationisanupstreammergerbetweenaparentcompanyandasubsidiary,wheretheparentcompanywillnotbeissuinganysharestothesubsidiaryinexchangefortheassetstobetransferredasaresultofthemerger.Ineffect,thetransferpartakesofthenatureofadonationmadebyasubsidiarytoitsparentcompany,contrarytowhatiscontemplatedinSection40(C)(2)oftheTaxCode.Inthesamemanner,theintendedmergeralsohastheeffectofdissolvingandliquidatingthesubsidiarywithoutpaymentofcorrespondingtaxes.

[Editor’s Note: This ruling revokes previous rulings such as BIR Ruling [DA-(S40M-001) 007-09] dated January 13, 2009, BIR Ruling [DA-(S40-M018) 436-08] dated November 14, 2008 and BIR Ruling [DA-(S40M-014) 387-08] dated November 4, 2008. In these rulings, the BIR ruled that the non-issuance of shares by the surviving corporation to the absorbed corporations does not affect the tax-free nature of the mergers since the mergers were between or among affiliated companies ultimately owned by the same parent, or between a parent and a subsidiary (with the parent as the surviving corporation). In these rulings, the BIR also ruled that the transfer of properties as a consequence of mergers is not subject to donor’s tax as there is no intention to donate on the part of any of the parties to the mergers, and the mergers were undertaken for bona fide business purposes.]

BIR Ruling No. 515-2012 dated August 3, 2012

Facts:

Mr.AownssharesinACo.,whileMr.BownssharesinBCo.Mr.AandMr.BexecutedseparateDeedsofAssignmenttotransfertheirrespectivesharesinACo.andBCo.infavorofXCo.,bothinexchangeforXCo.shares.Asaresultofthetransfer,Mr.AandMr.BwillgaincontrolofXCo.byowning58.15%and24.33%,respectively,ofthetotalvotingstockofXCo.

Issues:

1. IsthetransferbyMr.AofhissharesinACo.toXCo.exemptfromCGTandDST?

2. IsthetransferbyMr.BofhissharesinBCo.toXCo.exemptfromCGTandDST?

Ruling:

1. Yes.UnderSection40(C)(2)and6(c)oftheTaxCode,nogainorlossshallberecognizedifpropertyistransferredtoacorporationbyaperson,inexchangeforstockinsuchcorporation,asaresultofwhichsaidperson,aloneortogetherwithothers,notexceedingfourpersons,gainscontrolofsaidcorporation.Theterm“control”shallmeanownershipofatleast51%ofthetotalvotingsharesinthecorporation.

Indeterminingthe51%stockownership,onlythosepersonswhotransferredpropertyforstockinthesametransactionmaybecounteduptoamaximumoffive.Inshort,combiningallthesharestobereceivedbythetransferors,thesameshouldtotaltoatleast51%ofthevotingpowerofallclassesentitledtovote.

WiththeexchangeofsharesofMr.Aalone,healreadygainscontrolofXCo.byacquiring58.15%ofitsvotingshares.Hence,nogainorlossshall

InatransactionwheretwopersonsexchangedsharesofstockintwocompaniesforsharesofstockinathirdcorporationinseparateDeedsofAssignment,asaresultofwhichthefirstpersongainscontrolof58.15%,andthesecondpersongainscontrolof24.33%,ofthevotingstockofthetransferee-corporation,onlythetransferofthefirstpersonwillbeconsideredatax-freeexchangeunderSection40(C)(2)oftheTaxCode.

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berecognizedwithrespecttothetransferbyMr.AofhisACo.sharesinexchangeforsharesofstockofXCo.ThereisnoneedtocombineMr.A’sshareswiththesharesofMr.BtodetermineMr.A’scompliancewiththe51%stockownership.

However,thefollowingrequirementsmustbecompliedwith:

A. Mr.Amustfilewithhisincometaxreturnforthetaxableyearinwhichtheexchangetransactionwasconsummatedacompletestatementofallfactspertinenttotheexchange,including:

1. Adescriptionofthepropertieshetransferred,orhisinterestinsuchproperties,withastatementoftheoriginalacquisitioncost/adjustmentcostbasisorotherbasisatthetimeoftransfer;

2. Thekindsofstockreceivedandpreferences,ifany;3. Thenumberofsharesofeachclassreceived;and4. Thefairmarketvaluepershareofeachclassatthedateofthe

exchange.

B. XCo.mustfilealongwithitsincometaxreturnforthesametaxableyearthefollowing:

1. Acompletedescriptionofthepropertiesreceivedfromthetransferor;

2. Astatementoforiginalacquisitioncostorotherbasisofthepropertiesinthehandsofthetransferorandtheadjustedcostbasisthereofatthetimeofthetransfer;and

3. Informationwithrespecttothecapitalstockofthecorporationincluding:

i. Totalissuedandoutstandingcapitalstockimmediatelypriortoandimmediatelyaftertheexchange;

ii. Classesofstockandnumberofsharesissuedtothetransferorintheexchange;and

iii. Thefairmarketvalueasofthedateoftheexchangeofthecapitalstockissuedtothetransferor.

Lastly,within90daysfromreceiptoftheBIRRuling,thepartiestothetransactionmustsubmitacertifiedtruecopyofthedulyannotatedcertificatesofstockinrespectofthetransferredshares.

2. No.ThetransferbyMr.B,resultinginownershipofonly24.33%ofthetotalvotingsharesinXCo.,shallbetreatedasaseparatetransfersubjecttoCGTandDST.

[Editor’s Note: Section 40(C)(2) allows non-recognition of gain or loss on property-for-share transfers by transferors not exceeding five, as long as the 51% control requirement is met. Since up to five transferors are allowed to not recognize gain or loss on these exchanges, it stands to reason that the shares of the transferee-corporation received by the transferors not exceeding five, would be aggregated to determine compliance with the 51% control requirement. While this particular ruling did not specifically say so, it is possible that the BIR treated the transfer by Mr. B as a transfer separate from the transfer by Mr. A, and therefore did not add the X Co. shares received by Mr. B to the X Co. shares received by Mr. A as part of the 51% control requirement, because the transfers were effected in separate Deeds of Assignment.)

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BIR Issuances

Revenue Regulations No. 11-2012 dated August 17, 2012

• Section3ofRRNo.1-2011isamendedtoreadasfollows:

“Section3.TaxTreatment-xxx

C) OtherTaxesandFees:-xxx

TheremittancesofallOCWsorOFWs,uponshowingoftheOverseasExitClearance(OEC),validOverseasWorkersWelfareAdministration(OWWA)MembershipCertificate,or electronic receipt (e-receipt) issued by POEA,bytheOCWsorOFWbeneficiaryorrecipient,shallbeexemptfromthepaymentofdocumentarystamptax(DST)asimposedunderSection181oftheNationalInternalRevenueCodeof1997,asamended.Forthispurpose,inadditiontotheoriginalcopy,aduplicatecopyoracertifiedtruecopyofthevalidproofofentitlementreferredtoaboveshallbesecuredbytheOCWorOFWfromthePOEAorOWWA,whichshallbeheldandusedbyhis/herbeneficiaryintheavailmentoftheDSTexemption.

IncaseofOCWsorOFWswhoseremittancesaresentthroughthebankingsystem,creditedtobeneficiariesorrecipient’saccountinthePhilippinesandwithdrawnthroughanautomatictellermachine(ATM),or sent through non-bank money transfer agents,itshallbetheresponsibilityoftheOCWorOFWtoshowthevalidproofofentitlementwhenmakingarrangementforhis/herremittancetransfers.

xxx”

• Localbanksandnon-bankmoneytransferagentsarerequiredtodocumentremittancesmadebyOCWsorOFWsfollowingtheformatbelow,formonitoringpurposes:

OFW Remittances for the First Quarter of 2012

(ExemptfromDSTimposedunderSec.181oftheNIRC,asamended,perR.A.No.10022)

NameofOCW/OFW

Sender

NameofRecipient

AmountinPesoorPesoEquivalent

ProofofEntitlement

toDSTexemption(i.e.,OEC,e-receipt,orOWWA

MembershipCertificate

DateofTransaction

RemittanceDate

EncashmentDate

1.JuandelaCruz

JanedelaCruz

20,000 **** Feb1,2012 Feb1,2012

****[IndicateControlNumberprovidedbythePOEA]

• Theaboveinformationisrequiredtobefurnished,onaquarterlybasis,totheRevenueDistrictOffice(RDO)orAuditDivisionundertheLargeTaxpayersService(LTS)wherethebanksandnon-bankmoneytransferagentsareregistered,tobesubmittedonorbeforethe20thdayfollowingthecloseofthequarter.

RRNo.11-2012amendsSection3ofRRNo.1-2011onexemptionfromDSTofremittancesofOCWsorOFWs.

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• TheseRegulationsshalltakeeffectafter15daysfromdateofpublicationinanewspaperofgeneralcirculation.

(Editor’s Note: RR No. 11-2012 was published in the ManilaBulletin on August 24, 2012.)

Revenue Memorandum Circular No. 34-2012 dated July 13, 2012

Background

• InaMemorandumofAgreementdatedMay17,2012,theManilaInternationalAirportAuthority(MIAA)andthedomesticairlinecompanieshaveagreedthattheDPSC,whichusedtobecollectedbyMIAAfromdepartingpassengersthroughcounterslocatedintheairport,shallbeintegratedwiththesaleofairlinetickets.

• TheDPSCshallbecollectedfromthepassengersatthetimetheypurchaseairlineticketsfromairlinecompaniesorgeneralsalesagents/travelagents.

• TheDPSCshallthenberemittedtotheMIAAwhichshall,inturn,bechargedservicefeesbytheairlinecompaniesascompensationforcollectingtheDPSConbehalfoftheMIAA.

Collection of the DPSC from passengers

• TheairlinecompanyshallcollecttheDPSCfromthepassengersandshallincludetheDPSCintheofficialreceipt(OR)tobeissuedbytheairlinecompanyfortheairlineticketofthepassenger.

• TheDPSCshallconsistoftheShareofAirportAuthority,whichshallbesubjecttoa12%VAT,andtheAviationSecurityFee(ASF),whichshallbeVAT-exempt.

►• TheVATreceipttobeissuedbytheairlinecompaniesshouldreflecttheVAT-taxableandVAT-exemptcomponentsoftheDPSC.

• TheVATcomponentoftheDPSCshouldbeincludedinthetotalVAT,whichwillincludetheVATontheairlineticket.

• TheShareofAirportAuthorityandtheASFmaybereportedinthefinancialstatementsoftheairlinecompanyasotherincome/expense.

Payment of DPSC by airline company to airport authority

►• TheDPSCcollectedbytheairlinecompanyshallbepaidtotheairportauthority,whichshallthenissueanORtotheairlinecompany,indicatingthefullamountoftheDPSCanditsVAT-taxableandVAT-exemptcomponents.

►• TheDPSCshallnotformpartofthegrossreceiptsoftheairportauthorityinitsdeterminationofcreditablewithholdingtaxesdue.

Payment of Service Fees by airport authority to airline company

• Theservicefeespaidbytheairportauthoritytoairlinecompaniesshallbesubjecttoa5%withholdingVATand2%expandedwithholdingtaxongrosspayments.

• Uponpaymentoftheservicefees,theairlinecompanyshallissueaVATOR.

• ThiscircularshalltakeeffectonAugust1,2012.

RMCNo.34-2012clarifiesthetaximplicationsofintegratingtheDomesticPassengerServiceCharge(DPSC)atthepointofsaleofairlinetickets,andprescribesrulesfortheinvoicingandrecordingoftheDPSCinthebooksofairlinecompaniesandairportauthorities.

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Revenue Memorandum Circular No. 35-2012 dated August 3, 2012

• Incomefromwhateversource,includingbutnotlimitedtomembershipfees,assessmentdues,rentalincomeandservicefees,ofclubsorganizedandoperatedexclusivelyforpleasure,recreation,andothernon-profitpurposes,aresubjecttoincometax.

TheprovisionintheTaxCodeof1977,whichgrantedincometaxexemptiontorecreationalclubs,wasomittedinthecurrentlistoftax-exemptcorporationsundertheTaxCodeof1997,asamended.

• Grossreceiptsofrecreationalclubs,includingbutnotlimitedtomembershipfees,assessmentdues,rentalincomeandservicefees,aresubjecttoVAT.

Section105oftheTaxCodeprovidesthatanypersonwho,inthecourseoftradeorbusiness,sells,barters,exchanges,leasesgoodsorproperties,rendersservices,andanypersonwhoimportsgoods,shallbesubjecttoVAT.Thephrase“inthecourseoftradeorbusiness”meanstheregularconductorpursuitofacommercialoraneconomicactivity,includingtransactionsincidentalthereto,byanypersonregardlessofwhetherthepersonengagedthereinisanon-stock,non-profitprivateorganization.Thus,evenanon-stock,non-profitorganizationorgovernmententityisliabletopayVATonthesaleofgoodsorservices.ThisconclusionwasalsoaffirmedbytheSupremeCourtinCommissioner of Internal Revenue vs. Court of Appeals and Commonwealth Management and Services Corporation, G. R. No. 125355, March 30, 2000.


►• Onlyinstruments,documentsandpapersexpresslyenumeratedinSection199oftheTaxCodeareexemptfromDST.

►• ThefollowingcertificatesandothernecessarydocumentsissuedbytheConstructionIndustryAuthorityofthePhilippinesaresubjecttotheP15.00DSTimposedinSection188oftheTaxCode:

1. CertificateofRegistrationofOverseasContractors;2. CertificateofRenewalofRegistrationofOverseasContractors;3. Contractor’sLicense(Original);4. Certificateofwhetheracertaincontractorislicensed;5. Certifiedtruecopiesoflicensecertificates;6. Certifiedtruecopiesofdocuments,suchasAffidavitofUndertakingof

SustainingTechnicalEmployee(STE)andCurriculumVitaeofSTE;7. CertificateofAccreditationofArbitrators;and8. CasedocumentstobeusedtosupportpetitionorappealintheCourtof

Appeals.


►• Section11ofRRNo.06-08providesthatnosale,exchange,transferorsimilartransactionintendedtoconveyownershipof,ortitleto,anyshareofstockshallberegisteredinthebooksofthecorporationunlessthereceiptsofpaymentofthetaxhereinimposedisfiledwith,andrecordedby,thestocktransferagentorsecretaryofthecorporation.

►►• TheaboveprovisionofRRNo.06-08hascreatedconfusiononwhetheraCertificateAuthorizingRegistration(CAR)isstillnecessarybeforesharesofstocknottradedinthestockexchangemaybetransferred.

RMCNo.36-2012clarifieswhetherdocumentsmentionedinSection199oftheTaxCode,asamendedbyRANo.9243,aresubjecttotheP15.00DSTprescribedinSection188oftheTaxCode.

RMCNo.37-2012clarifiesSection11ofRRNo.06-08bymakingitclearthataCARisstillnecessarybeforesharesofstocknottradedinthestockexchangemaybetransferred.

RMCNo.35-2012clarifiesthetaxabilityofclubsorganizedandoperatedexclusivelyforpleasure,recreation,andothernon-profitpurposes.

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►►• Inordertotransferownershipofsharesofstocknottradedinthestockexchange,itisnecessarytosecureaCARpursuanttoRevenueMemorandumOrder(RMO)No.15-03.ThereceiptsofpaymentofthetaxshouldalsobefiledandrecordedbythesecretaryofthecorporationpursuanttoSection11ofRRNo.06-08.


►• Incomputingthe20%discountandtheexemptionfromVAT,theformulais:

TotalBillingAmountless12%VATx20% = SeniorCitizen

No.ofCustomers Discount

Theaboveformulawillapplyifnoindividualizedfooditemcanbeorderedorifthetransactionwiththeseniorcitizenisnotprocessedseparately.Thetotalbillingamountusedinthecomputationofthe20%discountistheamountexclusiveoftheVAT.

►• Forrestaurants,thediscountshallbeforthesaleoffood,drinks,dessertandotherconsumableitemsservedbytheestablishments,includingvaluemealsandpromotionalmeals,offeredfortheconsumptionofthegeneralpublic.Condimentsandsideproductsfallwithintheambitof“otherconsumableitemsservedbytheestablishments.”

►• Innocaseshallthediscountgrantedtoseniorcitizensbelessthan20%.Thereshouldbenofixed,maximumamountorcapwhichwilllimitthediscountbelowthe20%rate.The20%discountshallbegiventogoodspurchasedbyseniorcitizensbasedonthesellingpriceexclusiveofVAT.

►• The20%discountandVATexemptionshallalsoapplytosetmealspurchasedbyseniorcitizens,provided,however,thatthemealshallbelimitedtoasingle-servingmealwithbeverageforanindividualseniorcitizen.

►►• The20%discountshallapplytodine-in,take-outandtake-homeorders(excludingbulkorders)aslongasitistheseniorcitizenhimself/herselfwhoispresentandpersonallyordersandcanshowavalidseniorcitizenidentification(ID)card.Iftheseniorcitizenmerelytakeshometheunfinishedorunconsumeddine-inorder,he/sheshallstillbeentitledtothe20%discount,providedtheleftoverisnotpartofbulkorders.

►►• Ifthegroupofdinersiscomposedofseniorcitizenswhoorderedgroupmealsorfooditemsforsharinginrestaurants,eachseniorcitizenwithavalidseniorcitizen’sIDcardshallbeentitledtothe20%discountandVATexemption.Ifnotalltheseniorcitizenshavetheirvalidseniorcitizen’sIDcards,thevalueofthefoodpurchasedattributabletoseniorcitizenswithseniorcitizen’scardsmaybecomputedusingtheformulaabove.

►►• Bulkordersarenotentitledtothe20%discountandVATexemptionsincetheyarewithinthecontextofpre-contractedorpre-arrangedgroupmealsorpackages.

►►• Mealsprimarilypreparedandintentionallymarketedforchildrenandnotforseniorcitizen’spersonalconsumptionarenotentitledtothe20%discount.

RMCNo.38-2012furtherclarifiesinQuestionandAnswerformattheprovisionsofRRNo.7-2010,asamendedbyRRNo.8-2010,implementingthetaxprivilegesgrantedunderRANo.9994,otherwiseknownasthe“ExpandedSeniorCitizensActof2010”.

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►►• TheMostExpensiveMealCombination(MEMC)isanamountcorrespondingtothecombinationofthemostexpensiveandbiggestsingle-servingmealwithbeverageservedinaquickservicerestaurant.TheMEMCisdeemedflexibleandisadjustedaccordinglybyfoodestablishmentstoestimateasinglefoodpurchaseofanindividualseniorcitizen.MEMCisappliedonlytotake-out,take-home,drive-thruanddeliveryorders.

►►• Pasalubongfooditemswhicharesingle-serving/solomealsforthepersonalandexclusiveconsumptionoftheseniorcitizenareentitledtothe20%discountandVATexemption.Otherpasalubongfooditems(e.g.,boxofbiscocho,bottlesofginamos,severalpacketsofmangopreserves)whicharenotforthepersonalandexclusiveconsumptionoftheseniorcitizenarenotentitledtothe20%discountandVATexemption.Thislimitationextendstonoveltyitemsornon-consumablessoldinrestaurants.

►►• Called-inorphoned-inordersareentitledto20%discountandVATexemption.Theyare,likewise,subjecttocertainconditions,i.e.,seniorcitizenIDcardnumbermustbegivenwhilemakingtheorderoverthetelephone;theseniorcitizenIDcardmustalsobepresentedupondeliverytoverifytheidentityoftheseniorcitizenentitledtothe20%discountandVATexemption.

►►• Incaseofcalled-inorphoned-inordersofgroupmeals,thefoodestablishmentsmustdeterminethenumberofseniorcitizenscomprisingthegroup,andthe20%discountshallbecomputedbasedonthevalueofthefoodattributabletothequalifiedseniorcitizens.TheseniorcitizenIDcardnumber/smustbegivenwhilemakingthecalled-inorphoned-inorderandtheIDcard/smustbepresentedupondelivery.

►►• Apurchaseofawholecakeorpizzamaybeconsideredasapurchaseofagroupmealormealforsharing.Ifthewholecakeorpizzapurchasedisgoodfor5personsandthegroupiscomposedof5seniorcitizens,eachwithavalidseniorcitizenIDcard,theyshallbeentitledtothe20%discountortheentirefoodpurchaseshallbeentitledtothe20%discount.Ifthegroupiscomposedofseniorcitizens,butnotallhavetheirvalidseniorcitizenIDcard/s,orcomposedofseniorcitizensandnon-seniorcitizens,thevalueofthecakeorpizzaattributabletothequalifiedseniorcitizen/sshallbecomputedusingtheformulaabove.Iftheseniorcitizenpurchasesasliceofcakeorpersonalservingofcake,heshallbeentitledtothe20%discount.

►►• Thepurchasebyaseniorcitizenofalcoholicbeveragesifservedasasingleservingdrinkisentitledtothe20%discountandVATexemption.Thediscountandexemptionshallnotbegiventopurchases“inbulk”,“inbuckets”,or“incases”.However,alcoholicbeveragespurchasedinabar,cluborcabaretareexemptfromVATbutsubjecttoamusementtaxof18%underSection125oftheTaxCode.Theseniorcitizenmaystillbeentitledtothe20%discountonthepurchaseofthealcoholicdrink,butshallonlybelimitedtoasingleservingofalcoholicdrink.

►• Cigarettes/cigarsarenotfoodoressentialitemsdeemedentitledtothe20%discount.

►• The20%discountandVATexemptionprivilegeshallalsoapplytomedicinespurchasedfromdrugstores,hospitalpharmacies,medicalandopticalclinics,andsimilarestablishments,includingnon-traditionaloutletsdispensingmedicines.

►►• Adeliveryfee/chargenotbilledseparatelyissubjecttothe20%discount.Ifthedeliveryfee/chargeisbilledseparately,itisnotentitledtothe20%discountandissubjecttoVAT.

►►• Tollfeesarenotsubjecttothe20%discount.

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►►• Taxifaresaresubjecttothe20%discount.

►►• Inthepurchaseofgoodsandserviceswhichareonpromotionaldiscount,theseniorcitizenshallavailofeitherthepromotionaldiscountorthe20%discount,whicheverishigher.However,thediscountgiventotheseniorcitizenshallinnocasebelessthan20%.ThesaleofgoodsonpromotionaldiscountisstillVAT-exempt.

►►• The20%discountgivenbythebusinessestablishmentsisdeductiblefromtheirgrossincomeduringthesametaxableyearwhenthesaiddiscountsaregiven,andtheinputtaxattributabletotheVAT-exemptsaleisconsideredascostoranexpenseaccountofthebusinessestablishments.BoththediscountandinputVATthataretreatedascostorexpenseaccountsareabsorbedbytheState.

►►• IncaseofbusinessestablishmentswhicharenotsubjecttoVATbuttopercentagetaxbecausetheirgrossannualsales/receiptsdonotreachtheP1,919,500.00thresholdamountunderRRNo.16-2005asamendedbyRRNo.16-2011,seniorcitizensarenotexemptfromthepaymentofthepercentagetax.RANo.9994doesnotincludeexemptionfromthepaymentofpercentagetax.Theexemptiondoesnotcoverotherindirecttaxesthatmaybepassed-onbythesellertotheseniorcitizenbuyer,suchaspercentagetax.Insuchcase,thediscountmustbeonthetotalcostofthegoodsorserviceschargedbytheseller,exclusiveofthetax.

►►• Theamountofsalesthatmustbereportedfortaxpurposesistheundiscountedsellingpriceandnottheamountofsalesnetofdiscount.Thegrosssellingpriceandthesalesdiscountmustbeseparatelyindicatedintheofficialreceiptorsalesinvoiceissuedbytheestablishmentforthesaleofgoodsorservicestotheseniorcitizen.

►►• IfthesellerusesaPointofSaleMachineorCashRegisterMachine,themachinetapeshouldbeabletosegregatetheexemptsalefromthetaxablesale.Ifthemachinesareincapableofsegregation,theyshouldbere-programmedtocomplywiththerequirement.Inthemeantime,amanualinvoice/receiptshallbeissuedbytheseller.

►►• Thesellermayopttoissueaseparateinvoice/receiptonitssaletoseniorcitizens.Theseparateinvoice/receiptwillreflecttheamountofthediscountandthetotalamountpayable.Theword“VAT-ExemptSale”mustbewrittenorprintedprominentlyonthefaceoftheinvoice/receipt.

►►• Thesellermayissueoneinvoice/receiptfortheentiretransactionifthemerchandise/servicewassoldunderasingletransactioncomprisedofasaletoaseniorcitizenandasaletoanon-seniorcitizen,providingforaproperbreakdownoftheexemptsaleandtaxablesale.Theinvoicemustproperlyreflectthediscountontheexemptsale.TheVATdueonthetaxablesalemustbeseparatelybilledintheinvoice/receipt.

►►• Theincomestatementofthesellermustreflectthediscount,notasareductionofsalestoarriveatnetsales,butasadeductionfromitsgrossincome(saleslesscostofsales).Thus,the20%discountshallbetreatedasanecessaryandordinaryexpensedulydeductiblefromthegrossincome,providedthatthesellerdoesnotoptfortheOptionalStandardDeductionduringthetaxablequarter/year.

►►• Theinputtaxattributabletotheexemptsaleshallnotbeallowedasaninputtaxcreditbutmustbetreatedasacostoranexpenseaccountbytheseller.

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►• Businessestablishmentsgivingsalesdiscountstoqualifiedseniorcitizensarerequiredtokeepaseparateandaccuraterecordofsales,whichshallincludethenameoftheseniorcitizen-purchaser,OfficeforSeniorCitizensAffairs-ID,grosssales/receipts,salesdiscountsgranted,datesoftransactionsandinvoice/ORnumberforeverysaleortransactiontoseniorcitizen.TheinvoicingrequirementsinSection4.113-1ofRRNo.16-2005mustalsobecompliedwith.

►• Aspecialdiscountof5%oftheregularretailpriceofbasicnecessitiesandprimecommoditiesasdefinedundertheJointDepartmentofAgriculture(DA)andDepartmentofTradeandIndustry(DTI)AdministrativeOrderNo.10-02,Seriesof2010,shallbegrantedtoseniorcitizensontheirpurchases,takingintoaccountthatsaidpurchasesshallbeforthepersonalandexclusiveconsumptionand/orenjoymentoftheSeniorCitizen.

►►• PurchasesofbasicnecessitiesandprimecommoditiesbyseniorcitizensasdefinedunderSection2ofJointDTI-DAAdministrativeOrderNo.10-02,Seriesof2010,arenotexemptfromVAT.

►►• Toiletries,suchastoothpaste,bathsoapandtissuepaperarenotentitledtothe5%specialdiscount.OnlytheitemslistedunderRANo.7581orthePriceActareidentifiedasbasicnecessitiesandprimecommoditiessubjecttothe5%specialdiscount.However,powdered,liquid,barlaundryanddetergentsoapareconsideredbasicnecessitiessubjecttothe5%specialdiscount.

►►• “Maximumpurchaseperweek”meansthatseniorcitizensshallenjoyaspecialdiscountof5%oftheregularretailprice,withoutexceptionfromVAT,ofbasicnecessitiesandprimecommoditiesprovidedundertheJointDTI-DAAdministrativeOrderNo.10-02,providedthatthetotalamountofsaidpurchasesshallnotexceedthemaximumamountpercalendarweek.ThemaximumamountisP1,300.00percalendarweek,aftercombiningsetlimitsunderprimecommoditiesandbasicnecessities,withoutcarryoveroftheunusedamount.


►►• Backwages,allowances,andbenefitsawardedinalabordisputeconstituteremunerationforservicesthattheemployeewouldhaveperformedintheyearwhenactuallyreceived,orduringtheperiodofhisdismissalfromtheservicewhichwassubsequentlyruledasillegal.Theemployeeshouldreportasincomeandpaythecorrespondingincometaxesbyallocatingorspreadinghisbackwages,allowancesandbenefitsthroughtheyearsfromhisseparationuptothefinaldecisionofthecourtawardingthebackwages.Thebackwages,allowancesandbenefitsaresubjecttowithholdingtaxonwages(WTW).

►►►• Ifthejudgmentawardedinalabordisputeisenforcedthroughgarnishmentofdebtsduetotheemployerorothercreditstowhichtheemployerisentitled,thepersonowingsuchdebtsorhavingpossessionorcontrolofsuchcredits(e.g.,banksorotherfinancialinstitutions)wouldnormallyreleaseandpaytheentiregarnishedamounttotheemployee.Asaresult,employerswhoaremandatedtowithholdtaxesonwagescannotwithholdtheappropriatetaxduethereon.

►►►• UnderSection78(D)(1)oftheTaxCodeandSection2.78.4(A)ofRRNo.2-98,asamended,theterm“employer”includespersonshavingcontrolofthepaymentofwagesorsalaries.Inthiscase,thegarnisheesarethepersons

RMCNo.39-2012mandatesthewithholdingofincometaxonbackwages,allowances,andbenefitsreceivedbyemployeesthroughgarnishmentofdebtsorcreditspursuanttoalabordisputeaward.

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owingdebtsduetotheemployerorinpossessionorcontrolofcreditstowhichtheemployerisentitled.Accordingly,theyareincontrolofthepaymentofbackwages,allowancesandbenefits,andtheyareauthorizedtodeductandwithholdtheincometaxduefromthebackwages,allowances,andbenefitstobepaidtotheemployees,andare,therefore,liableforsuchdeductions.

►►►• GarnisheesofajudgmentawardinalabordisputeareconstitutedaswithholdingagentswiththedutyofdeductingthecorrespondingWTWduethereonequivalentto5%oftheportionofthejudgmentawardrepresentingthetaxablewages,allowances,andbenefits.


►►►• Section40(C)(2)oftheTaxCodeprovidesforthenon-recognitionofgainorlossin(i)casesofmergersorconsolidations,and(ii)property-for-shareswapswherethetransferor,aloneortogetherwithothersnotexceedingfour,gainscontrolofthetransferee-corporation.

►►►►• RulingsissuedunderSection40(C)(2)ofTaxCodeshallbevalidonlyfor90days,countedfromthedateofthereceiptoftherulingbyanyofthepartiestotheexchangetransaction.Thepropertiesandsharesofstockinvolvedinthetransfershouldbeconveyedtothetransferee/sandtransferor/s,respectively,withinthisperiod.

►►►►• PursuanttoRRNo.18-2001andRMONo.32-2001,aphotocopyoftheTransferCertificateofTitle(TCT)/CondominiumCertificateofTitle(CCT)/ShareofStockthatbearstheannotationofsubstitutedbasisoftherealproperty/sharesofstocktransferred/receivedinconnectionwiththetransaction,dulycertifiedbytheRegisterofDeeds/CorporateSecretary,shouldbesubmittedtotheLawDivision,BIR,7/FNationalOfficeBuilding,Diliman,QuezonCity,alsowithinthe90-dayperiodfromdateofreceiptoftherulingorcertificationbyanyofthepartiestotheexchangetransaction;otherwise,therulingshallbevoidandtheChiefoftheLawDivisionshallreferthecasetotheProsecutionDivisionforappropriateaction.

►►►►• AnyviolationofthisCircularbyanyofthepartiestotheexchangetransaction,orbyanypublicofficeroremployee,shallbesubjecttotheappropriatepenaltiesunderSections269and275oftheTaxCode.

►►►►• RevenueDistrictOfficesaredirectednottohonorsuchrulingsbeyond90dayscountedfromthedateofreceiptoftherulingbyanyofthepartiestotheexchangetransaction,unlessanextensionofperiodisgrantedbytheCommissionerinmeritoriouscases.


►►►►• ThedeadlineforfilingapplicationsforVATTCCMonetizationshallbeasfollows:

Type of TCC Filing Period

ForrevalidatedandunexpiredTCCsoriginallyissuedin2002and2003

July17,2012toSeptember1,2012

Forrevalidatedand/orunexpiredTCCsoriginallyissuedin2004untilApril11,2012

July17,2012toOctober17,2012

RMCNo.40-2012prescribesaprescriptiveperiodforrulingsissuedpursuanttoSection40(C)(2)oftheTaxCode.

RMCNo.47-2012prescribestherulesanddeadlinesforthefilingofapplicationsforenrollmentintheVATTCCMonetizationProgram,pursuanttotheDOF,DBMandBIRJointCircularNo.2-2012datedMay31,2012.

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►►►►• TheapplicationforenrollmentintheVATTCCMonetizationProgramforVATTCCsthatweresolelyissuedbytheBIRshallbefiledwiththeBIRVATTCC-issuingoffice,usingtheapplicationformforenrollmentwhichcanbedownloadedfromtheBIRwebsiteatwww.bir.gov.ph.

►►►►►• ForVATTCCsthatwerejointlyissuedbytheDOFOne-Stop-ShopInter-AgencyTaxCreditandDutyDrawbackCenterandtheBIR,theapplicationforenrollmentinsaidprogramcanbedownloadedfromtheDOFwebsiteathttp://taxcredit.dof.gov.ph.

►►►►• VATTCCholderswithpendingapplicationsforcashconversionofoutstandingVATTCCspursuanttoSection204(C)oftheTaxCodecanstillapplyforenrollmentintheMonetizationProgrambywithdrawingthepreviouslyfiledapplicationforcashconversionandfilinganewapplicationforenrollmentwithsaidprogramwiththeVATTCC-issuingofficesdesignatedastheReceivingOfficesfortheProgram’sApplicationforEnrollment.

[Editor’s Note: RMO 47-2012 was amended by RMO 51-2012 dated August 31, 2012 to extend the deadline for filing applications for monetization for revalidated and unexpired TCCs originally issued in 2002 and 2003, from September 1, 2012 to “September 15, 2012 or the expiration of the TCC, whichever comes first.”]

BOC Issuances

Customs Administrative Order No. 1-2012 dated June 26, 2012

►►►►►• CAONo.1-2012shallinitiallyapplytoexportersinsidetheClarkFreeportZonewithinthejurisdictionofthePortofClark.UponthedirectiveoftheBOCCommissioner,itshallcoverexportersinotherselectedairorseaports.

►►►►►• TheCommissionerofCustomsshallconstituteacommitteeheadedbyaDeputyCommissionerinchargeofaccreditationofAEOs.ThecommitteeshallperformotherfunctionsasmaybedeterminedbytheCommissioner.

►►►►►• RequirementsundertheAEOProgram:

1. Dulyfilled-upApplicationForm

2. Disclosureofthefollowinginformation:

a. Organizationalcharacteristics;b. Compliancerecord;c. Volumeofbusiness;d. Goods;e. Internalproceduresrelatedtodeclaration.

3. Companysecurityprofileincluding:

a. Asummaryofthecompany’ssecuritymanagementsystem;b. Asummaryofthecompany’sriskassessmentprocess;c. Measurestoenhancethesecurityofthecompany’ssupplychain.

4. Supportingdocumentsincluding:

a. Processmapthatillustratestheflowofgoodsandinformationthroughthecompany’ssupplychain;

b. Siteplanthatshowsthelayoutofthecompany’spremisesandclearlyidentifiesallperimeters,accessareas,buildings,structures,securityandaccesscontrols.

CAONo.1-2012establishestheAuthorizedEconomicOperator(AEO)Programforexporters.

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5. Copyofthecompany’srelevantsecurityaccreditations.

6. Otherrelevantsupportingdocuments.

►►►►►• Thesummaryofthesecuritymanagementsystemshallcontainthefollowing:

1. Company’ssecuritypolicy,securityobjectivesandcommitmenttosecurity;2. Proceduresforensuringthatpertinentsecuritymanagementinformationis

communicatedtoandfromrelevantemployeesandotherstakeholders;3. Proceduresforthereviewofthecompany’ssecurityprofileatplanned

intervals,toensureitscontinuingsustainability,adequacyandeffectiveness;4. Otherrelevantinformation.

►►►►►• Thesummaryofriskassessmentshallcontainthefollowing:

1. Flowcharttoillustratethecompany’sriskassessmentprocess;2. Risksandvulnerabilitiesidentified;3. Countermeasuresputinplacetoreducetheidentifiedrisksand

vulnerabilities;4. Whentheriskassessmentwasconducted;5. Whoconductedtheriskassessment;6. Otherrelevantinformation.

►►►►►• Elementsofthesecuritymeasuresthatneedtobeaddressed:

1. Premisessecurityandaccesscontrols;2. Personnelsecurity;3. Businesspartnersecurity;4. Cargosecurity;5. Conveyancesecurity;6. InformationandInformationTechnology(IT)security;7. Incidentmanagementandinvestigations;8. Crisismanagementandincidentrecovery.

►►►►►• Asidefromincreasedvisibilityofgoodsinthesupplychain,reductioninpilferages,andgreaterefficiencyinsupplychainmanagement,accreditedcompaniesshallbeentitledtothefollowingbenefits:

1. Dedicatedprocessinglanesresultinginreducedprocessingperiod;2. Renewalofexporteraccreditationonalongtermbasis;3. Lastpriorityinpost-entryaudit;4. Recognitionasalowriskcompany;5. ReducedinspectionorexpeditedclearancebyotherCustomsauthorities

shouldcertifiedstatusbealsorecognizedbyothercountriesunderamutualrecognitionprogramestablishedunderabilateralormultilateralarrangement;

6. OthertradefacilitationbenefitsthatmaybeaffordedbytheBOCunderexistinglawsandregulations.

►►►►►• AtrustedpartnerundertheAEOProgramshallhavethefollowingresponsibilities:

1. UpdatetheBOCasandwhentherearesignificantchangestothecompany’ssecurityprofileandotherinformationrequiredtobedisclosed;

2. Submitanannualstatementofcommitment;3. InformtheBOCofanynon-conformitiesbythecompanywithAEO-

PhilippinesGuidelines;4. Renewitsaccreditationasatrustedpartnereverytwo(2)years.

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►►►►►• TheaccreditationundertheAEOProgrammayberevokedforthefollowinggrounds:

1. ViolationofthetermsandconditionsoftheAEOcertification;2. Non-compliancebythecompanywithPhilippinecustomslawsand

regulationsorotherlawsandregulations;3. Supplychainsecurityweaknessesornon-conformitywithCAONo.

1-2012anditsimplementingrulesandregulations;4. CompanyoptstowithdrawfromtheProgram.

►►►►• AcompanymayappealtheBOCdecisiondenyingitsapplicationundertheAEOProgramwiththeCommissionerofCustomswithin15calendardaysfromreceiptofthedecision.

►►►►►• Alldocumentsorinformationprovidedbycompaniesshallremainconfidential,andshallnotbedisclosedtoathirdpartywithoutthecompanies’priorwrittenconsent.

►►►►►• TheCommissionerofCustoms,uponconsultationwithstakeholders,shallissuetherulesandregulationsfortheeffectiveimplementationofCAONo.1-2012.

►►►►►• Allorders,memoranda,circularsorpartsthereofwhichareinconsistentwithCAONo.1-2012aredeemedrevoked,amended,ormodifiedaccordingly.

►►►►►• CAONo.1-2012shalltakeeffectfifteen(15)daysafterpublicationinanewspaperofgeneralcirculation.

[Editor’s Note: CAO No. 1-2012 was published in the ManilaBulletin and the PhilippineStar on August 15, 2012.]

Customs Memorandum Order No. 9-2012 dated July 26, 2012

►►►►►• ExistingBOCrulesandregulationsallowforthemanualprocessingofimportentriesinthefollowingcases:

1. Computersystemsbreakdown;2. Powerfailurewhichrendersthecomputersystemnon-operational;3. Theauthorizedagentbankisoffline;4. UponauthorizationbytheBOCDeputyCommissionerforMISTG.

►►►►►►• Formanualprocessingofimportentries,priorauthorizationfromtheCommissionerofCustomsorinhisabsence,theDeputyCommissionerforMISTG,shallbeobtained.

►►►►►►• TheDistrictorPortCollectorshallbeheldaccountableforimportentriesprocessedmanuallywithoutpriorapprovaloftheCommissionerofCustomsortheDeputyCommissionerforMISTG.ErringBOCofficialsandemployeesshallbeimposedappropriateadministrative,civil,and/orcriminalsanctions,subjecttoexistinglawsandCivilServicerulesandregulations.

CMONo.9-2012requirespriorapprovalfromtheCommissionerofCustomsortheDeputyCommissionerfortheMISTGforthemanualprocessingofimportentriesinordertoeffecttheclearanceandreleaseofimportedgoods.

►

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PSE Issuance

PSE Memorandum CN No. 2012-0046 dated August 22, 2012

►• UndertheAmendedRuleonminimumpublicownership(MPO),listedcompaniesthatarenotcompliantwiththeMPOrequirementaregivenagraceperiodofuptoDecember31,2012withinwhichtocomplywiththeMPO.

• Immediatelyafterthegraceperiod,thePSEwillimposeatradingsuspensiononsaidsharesforaperiodofnotmorethan6months.

►• Consequently,thesaleofsaidsharesduringthesuspensionperiodmayonlybeeffectedoutsidethePSE’stradingsystem,andshallbesubjecttothefollowingtaxes:

Applicable Tax Tax Rate and Base

CapitalGainsTax OnnetcapitalgainsamountingtonotoverP100,000.00–5%

OnanyamountinexcessofP100,000.00–10%

DocumentaryStampTax P0.75oneachP200.00oftheparvalueofthestock

►• Furthermore,ifthefairmarketvalue(FMV)ofthesharesofstocksoldisgreaterthantheconsiderationorthesellingprice,theamountbywhichtheFMVofthesharesexceedsthesellingpriceshallbedeemedagiftsubjecttodonor’staxunderSection100oftheTaxCode.IntheabsenceofanyissuancebytheBIRtothecontrary,therulesprescribedinRRNo.06-08fordeterminingthevalueoflistedsharesofstockwhichweresold,transferredorexchangedoutsideofthetradingsystemand/orfacilitiesofthePSEshallapply.

►• TheforegoingarebasedonthePSE’sunderstandingoftheexistingprovisionsoftheTaxCodeandrelevantBIRissuances.Incaseofconflictorambiguity,theBIR’sinterpretationshallprevail.

SEC Issuances

SEC Memorandum Circular No. 6 dated August 15, 2012

►►• ConsistentwiththeobjectivesoftheAntiRedTapeActof2007(RANo.9485),theSECresolvedtodispensewiththefollowingrequirementsintheregistrationactivitiesbelow:

1. BankCertificateofDeposit–fortheregistrationoftheArticlesofIncorporationofnewcorporationswherethesubscriptiontotheauthorizedcapitalstockispaidincash;ifaportionofthesubscriptionisotherthancash,thenon-cashsubscriptionshallbeprovenbytheappropriatesupportingdocuments;

PSEMemorandumCNNo.2012-0046remindstheinvestingpublicoftheeffectsofthefailureoflistedcompaniestocomplywiththeMPOrequirementbyDecember31,2012.

SECMCNo.6dispenseswithsomerequirementsinsomeregistrationactivities.

20 Tax Bulletin

2. SpecialAuditReport–forapplicationsforincreaseintheauthorizedcapitalstockofcorporationswherethesubscriptiontotheincreaseispaidincashexcept(a)listedcompanies,(b)publiccompaniesasdefinedintheSecuritiesRegulationCode,(c)companiesthatofferorsellsecuritiestothepublic,and(d)wherethepaymentforthesubscriptiontotheincreaseismorethanP10million;

Inlieuofsuchreport,anotarizedSubscriptionContractbetweenthestockholder/sandtreasurerstatingthenumberofadditionalsharessubscribedtoandpaidforshallbesubmittedbythecorporation.

3. PrimaryEntry–forDeedofAssignmentintheregistrationofnewcorporationsorincreaseintheauthorizedcapitalstockwherelandorrealestatepropertyisofferedasconsiderationforsubscriptiontosharesofstock.

►►• SECMCNo.6shalltakeeffectimmediately.

(Editor’s Note: SEC MC No. 6 was published in the ManilaTimes on August 23, 2012.)

SEC-OGC Opinion No. 12-11 dated August 8, 2012

Facts:ACo.isprivatecorporationwhichis99.995%ownedbyforeignindividuals.Issue:

CanACo.acquirerealpropertyinthePhilippines?

Ruling:

No.ACo.cannotownlandinthePhilippines.Foracorporationtopurchase,acquireorownlandinthePhilippines,atleast60%ofthetotalcapitalstockofthecorporationmustbewholly-ownedbyFilipinocitizens.

Astoownershipofrealpropertyotherthanland,foreignerscangenerallypurchasehousesorbuildingsunlessspecificallyprohibitedbylaw.Oneexampleofaprohibitiononownershipofinterestinabuildingisinthecaseofacondominiumproject.Interestinacondominiummaybeintheformofownership,leaseoranyrealrights.Ifthecondominiumprojectissetuponleasedland,thecorrespondingcondominiumcorporationmaybeestablishedbyacorporation100%foreign-owned.Ifthecondominiumprojectissituatedonalandownedbythecondominiumcorporation,whichisaFilipinocorporation,anyinterestinthecondominiumcannotbetransferredtoaliensorforeigncorporationswhosecapitalstockismorethan40%ownedbyaliens.Ifthecommonareasareheldbyacondominiumcorporation,thetransfertoaliensofunitsinaprojectmaybemadeonlyuptothepointwheretheconcomitanttransferofstockholdingsinthecondominiumcorporationwouldnotcausethealieninterestinsuchcorporationtoexceed40%ofitsentirestock.

Foracorporationtopurchase,acquireorownlandinthePhilippines,atleast60%ofthetotalcapitalstockofthecorporationmustbewholly-ownedbyFilipinocitizens.

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Facts:CCo.isaholdingcompany.Ittransferreditsprincipalofficetoanewaddresssituatedinthesamecitywhereitspreviousofficewaslocated.IthasapendingapplicationforanamendmentofitsArticlesofIncorporation(AOI).Issue:

DoesCCo.needtoamenditsAOItoreflectthechangeinitsofficeaddress?

Ruling:

Yes.CCo.needstoamenditsAOItoreflectthechangeofaddressfromonebuildingtoanotherevenifthesecondbuildingiswithinthesamecityormunicipality.ItisnotenoughtoreflectthechangeintheGeneralInformationSheet(GIS).However,ifthetransferismerelytoanotherfloorofthesamebuilding,thereisnoneedtoamendtheAOI.

Asforanypenaltytobeimposed,sincethereisapendingapplicationforamendmentofAOI,nopenaltywillbeimposediftheboardresolutioneffectingthechangeinaddresshasthesameorearlierdatethantheGIS.However,iftheGISisdatedearlierthantheboardresolution,afineofP5,000.00willbeimposedonastockcorporation.


Facts:XCo.isaholdingcompanythatowns11%shareholdingsinYCo.,anairlinecompanywhichis40%foreign-owned.

Atpresent,XCo.is100%Filipino-owned.However,itwishestorestructureitsshareholdingsbyallowing51%ofitssharestobesubscribedbyAtty.Z,aFilipinocitizen.Atty.ZholdsthesharesintrustforMs.A,a14-year-oldbeneficiarywhowasbornoutoflawfulwedlockbetweenMr.G,aGermannational,andhisFilipinawife;hence,Ms.AislikewiseaFilipinocitizen.

Mr.Gholds30%outofthe40%foreignownershipinYCo.Mr.G,Ms.A’sfatherandlegalguardian,executedadeedoftrustinfavorofAtty.ZtoconcludetheshareholdingsofMs.AinXCo.Issues:

1. IsthetrustagreementbetweenMr.GandAtty.Zvalid?2. IftheproposedrestructuringisadoptedbyXCo.,isXCo.stillconsidered

100%Filipino-owned?3. IftheproposedrestructuringisadoptedbyXCo.,willYCo.beinexcessof

the40%foreignownershiplimitation?

AcorporationneedstoamenditsAOItoreflectthechangeofaddressfromonebuildingtoanother,evenifthesecondbuildingiswithinthesamecityormunicipality.

Indeterminingthecitizenshipofsharesbeingheldintrust,thenationalityofboththetrusteeandthebeneficiaryshouldbeconsidered.

22 Tax Bulletin

Ruling:

1. TheSECcannotrenderanopiniononthevalidityofcontracts,suchasatrustagreement.

2. Yes.XCo.willstillbeconsidered100%Filipino-ownediftheproposedstructuringisadopted.Forpublicutilitycompaniessuchasanairlinecompany,atleast60%ofitscapitalmustbeownedbyFilipinocitizens.Indeterminingthecitizenshipofsharesbeingheldintrust,thenationalityofboththetrusteeandthebeneficiaryshouldbeconsidered.

Intheproposedrestructure,51%ofthesharesinXCo.willbesubscribedbyAtty.Z,whoisaFilipinotrustee,intrustforMs.A,whoisaFilipinobeneficiary.Thus,XCo.willstillbe100%Filipino-owned.

3. No.YCo.willnotbeinexcessofthe40%foreignownershiplimitationiftheproposedstructuringisadopted.

Atpresent,40%ofYCo.isforeign-owned.Iftherestructuringisadopted,11%,whichisownedbyXCo.willstillbeconsideredFilipino-owned.Astotheremaining49%,weassumethatthisisownedbyFilipinos.Thus,YCo.satisfiesthe60%Filipinoownershiprequirement.

BSP Issuance

BSP Circular No. 762 dated July 25, 2012

►►►• SectionX128/4137QandrelatedsubsectionsoftheManualofRegulationsforBanks(MORB)/ManualofRegulationsforNon-BankFinancialInstitutions(MORNBFI)shallbeaddedtoread,asfollows:

“SectionX128/4137Q–Deposits for stock subscription.Depositsforstocksubscriptionrefertopaymentsmadebyexistingstockholdersornewsubscribersofthebank/quasi-bank(QB)onsubscriptiontotheincreaseintheauthorizedcapital,whichmayberecognizedeitherasaliabilityorequity.

Depositsforstocksubscriptionshallberecognizedaspartoftheequityforprudentialreportingpurposeswhenallofthefollowingconditionsaremet:

1. ThedepositforstocksubscriptionmeetsthedefinitionofanequityinstrumentunderPhilippineAccountingStandards(PAS)32Financial Instruments: Presentationsuchthatthedepositforstocksubscriptionshallnotbeinterest-bearingnorwithdrawablebythesubscriber.

2. Thebank/QB’sexistingauthorizedcapitalisalreadyfullysubscribed;

3. Thebank/QB’sstockholdersandboardofdirectorshaveapprovedtheproposedincreaseinauthorizedcapital;

CircularNo.762amendstheregulationsonDepositsforStockSubscriptionsofbanks/quasi-banks.

23

4. Thebank/QBhasfiledanapplicationfortheamendmentofitsArticlesofIncorporationfortheincreaseinauthorizedcapitalwiththeappropriatedepartmentoftheSES,BSP,dulysupportedbycompletedocumentsaslistedinCircularLetterNo.2009-042datedMay14,2009;

ApplicationsfortheamendmentofArticlesofIncorporationfortheincreaseinauthorizedcapital,whichhavebeenreturnedduetoinsufficiencyofsupportingdocuments,shallnotqualifyforrecognitionasanequityinstrument;and

5. ThebankmusthaveobtainedapprovaloftheMonetaryBoardontransactionsinvolvingsignificantownershipofvotingsharesofstockbyanyperson,naturalorjuridical,orbyonegroupofpersons,asprovidedinSubsec.X126.2.b,ifapplicable.

Depositsforstocksubscription,whichdonotmeettheabovementionedconditionsshallbeclassifiedasaliability.

Depositsforstocksubscription,whichmeettheconditionstoberecognizedasequity,shallformpartofabank’squalifyingcapitalforpurposesofcomputingtherisk-basedcapitaladequacyratiounderSectionsX115foruniversalandcommercialbanks,aswellastheirsubsidiarybanksandQBs,andX118forstand-alonethriftbanks,ruralbanksandcooperativebanks.”

• PartIIofAppendix63b/AppendixQ-46oftheMORB/MORNBFIonthequalifyingcapitalundertherisk-basedcapitaladequacyframeworkforthePhilippinebankingsystemwereamended,asfollows:

1. “Depositforcommonstocksubscription”and“Depositforperpetualandnon-cumulativepreferredstocksubscription”wereaddedascomponentsofCoreTier1capitalandremovedfromUpperTier2capital;

2. “Depositforperpetualandcumulativepreferredstocksubscription”and“Depositforlimitedliferedeemablepreferredstocksubscriptionwiththereplacementrequirementuponredemption”wereaddedascomponentsofUpperTier2capitalandremovedfromLowerTier2capital;

3. “Depositforlimitedliferedeemablepreferredstocksubscriptionwithoutthereplacementrequirementuponredemption”wasaddedasacomponentofLowerTier2capital;

►• PartIIofAppendix63coftheMORBonqualifyingcapitalundertherisk-basedcapitaladequacyframeworkforstand-alonethriftbanks,ruralbanksandcooperativebankswasamended,asfollows:

1. “Depositforcommonstocksubscription”and“Depositforperpetualandnon-cumulativepreferredstocksubscription”wereaddedascomponentsofCoreTier1capitalandremovedfromUpperTier2capital;

2. “Depositforperpetualandcumulativepreferredstocksubscription”and“Depositforlimitedliferedeemablepreferredstocksubscriptionwiththereplacementrequirementuponredemption”wereaddedascomponentsofUpperTier2capitalandremovedfromLowerTier2capital;

24 Tax Bulletin

3. “Depositforlimitedliferedeemablepreferredstocksubscriptionwithoutthereplacementrequirementuponredemption”wasaddedasacomponentofLowerTier2capital;

►• PartVIofAppendix63coftheMORBondefinitionsundertherisk-basedcapitaladequacyframeworkforstand-alonethriftbanks,ruralbanksandcooperativebankswasamended,asfollows:

“PartVI.Definitions

xxx

8. Depositforstocksubscription–ThisreferstothefundsreceivedasdepositsforstocksubscriptionthatmeettheconditionsforrecognitionasequityprovidedinSec.X128.

xxx”

►• Subsection4116Q.2oftheMORNBFIonqualifyingcapitalwasamendedasfollows:

1. “Depositforcommonstocksubscription”and“Depositforperpetualandnon-cumulativepreferredstocksubscription”wereaddedascomponentsofTier1(core)capitalandremovedfromUpperTier2capital;

2. “Depositforperpetualandcumulativepreferredstocksubscription”wasaddedasacomponentofUpperTier2capitalandremovedfromLowerTier2capital;

3. “Depositforlimitedliferedeemablepreferredstocksubscription”wasaddedasacomponentofLowerTier2capital;

►• TheFinancialReportingPackage(FRP),issuedunderCircularNo.512datedFebruary3,2006,asamended,wasfurtheramendedasfollows:

1. Revisionofthedefinitionof“Depositforstocksubscription”accountunder“OtherLiabilities”oftheManualofAccounts;

2. Creationof“Depositforstocksubscription”accountunder“EquityAccounts”oftheManualofAccounts;and

3. RevisionofthereportingtemplatesoftheBalanceSheetoftheFRP/SimplifiedFRP.

►• TheguidelinegoverningthemodeandsubmissionofthereportorialtemplatesofFRP,SimplifiedFRPandRisk-BasedCapitalAdequacyFrameworksshallbecoveredbyaseparateissuance.

►• ThisCircularshalltakeeffect15daysfollowingitspublicationeitherintheOfficialGazetteorinanewspaperofgeneralcirculation.

[Editor’s Note: Circular No. 762 was published in the MalayaBusinessInsight on July 30, 2012.]

25

BSP Circular No. 763 dated August 3, 2012

►• SubsectionX302.3isaddedtotheMORB,toreadasfollows:

“SubsectionX302.3.RegulatoryReliefforBanksunderRehabilitationProgramApprovedbytheBSP-

Banksmaybeallowedtochargetheiroutstandingunbookedallowanceforprobablelossesdirectlytoretainedearnings,onaone-timebasis,subjecttothefollowingconditions:

a. ThatthisisinconnectionwithacomprehensiverehabilitationprogramapprovedbytheBSP;and

b. Theeffectthereof,ifthesehadbeenchargedtoprofitandloss,shallbefullydisclosedintheauditedfinancialstatements,annualreportsandpublishedstatementofcondition.”

►• ThisCircularshalltakeeffect15calendardaysfollowingitspublicationeitherintheOfficialGazetteorinanewspaperofgeneralcirculation.

[Editor’s Note: Circular No. 763 was published in the ManilaStandardToday on August 11, 2012.]


►• ThefollowingsectionsoftheMORNBFIareamendedtoprovidethattherulesonoutsourcingofbankingfunctionsasshowninAppendixQ-37shallbeadopted:

1. Section4162Q(2008–4190Q),insofarastheyareapplicabletoquasi-banks(QB);

2. Subsection4406Q.9,insofarastheyareapplicabletotrustdepartmentsofQBsperformingtrustandotherfiduciarybusinessandinvestmentmanagementactivities;

3. Subsection4701Q.13,insofarastheyareapplicabletoQBs’outsourcingofinternetandmobileelectronicservices;

4. Section4190S,insofarastheyareapplicabletonon-stocksavingsandloanassociations;

5. Section4190P,insofarastheyareapplicabletopawnshops;and

6. Section4190N,insofarastheyareapplicabletofinancialinstitutions.

►• Appendix37oftheMORNBFIisamendedandre-titledasRevisedOutsourcingFrameworkforBanks.

CircularNo.763providesforregulatoryrelieftobanksunderrehabilitationprogram.

CircularNo.764prescribestheRevisedOutsourcingFrameworkforNBFIs.

26 Tax Bulletin

►• ThisCircularshalltakeeffect15calendardaysfollowingitspublicationeitherintheOfficialGazetteorinanewspaperofgeneralcirculation.

[Editor’s Note: Circular No. 764 was published in the BusinessMirror on August 13, 2012.]


►►• SectionX162oftheMORBisre-titledandamendedtoreflectastatementofprinciplewhichshallreadasfollows:

“Section162Statement of Principle on Outsourcing.Aninstitutionmayoutsourcebankingsupportandmarketingactivitiessubjecttotheprovisionssetforthbelow.Accordingly,aninstitutionisexposedtooperationalrisksasaresultofoutsourcing.Assuch,aninstitutionthatavailsofoutsourcingshouldhaveinplaceappropriatemechanismstoensureeffectivemanagementofattendantrisks.”

►• ThepreviousSectionX162oftheMORBshallberenumberedasSubsectionX162.1,Governance in All Cases of Outsourcing of Banking Functions,andamendedtoprovidetheresponsibilitiesofabankwhenoutsourcingisallowedbylaw.

►►• ThepreviousSubsectionX162.1oftheMORB(2008–X169.1),Prohibition against outsourcing certain banking functions,isrenumberedasSubsectionX162.2andamendedtoprovideinherentbankfunctionsthatnobankshalloutsource.ThepreviousSubsectionX162.2(2008–X169.2)onOutsourcing of Information Technology Systems/ProcessesisamendedandtransferredtotheAppendixofSectionX162oftheMORBinrelevantdocumentations.

►• ThepreviousSubsectionX162.3(2008–X169.3),Outsourcing of Other Banking Functions,isdeleted.ThenewSubsectionX162.3oftheMORBreadsasfollows:

“SubsectionX162.3Definition.Outsourcingshallrefertoanycontractualagreementbetweenabankandaqualifiedserviceproviderforthelattertoperformdesignatedactivitiesonacontinuingbasisonbehalfofthebank.”

►• ThenewSubsectionX162.4,Managing Outsourcing-Related Risks,oftheMORBfocusesontheresponsibilityofthebanktomanagetheoperationalrisksthatarisefromoutsourcing.

►• ThenewSubsectionX162.5readsasfollows:

“SubsectionX162.5Authority to Outsource.OnlythosebankswithaCAMELScompositeratingofatleast“3”andaManagementRatingofnotlowerthan“3”shallbeallowedtooutsourcedesignatedactivitieswithoutpriorBSPapproval.Otherwise,thebankmustsecurepriorapprovalfromtheappropriatesupervisingdepartmentoftheBSPwhoseevaluationwillbebasedonthebank’sabilitytomanagerisksattendanttooutsourcing.”

►• ThenewSubsectionX162.6,Documentation,requiresbankstokeepthenecessarydocumentationtoshowthatoutsourcingarrangementsareproperlyreviewedandtheappropriateduediligencehasbeenundertakenpriortoimplementation.

CircularNo.765prescribestheRevisedOutsourcingFrameworkforBanks.

27

►►• SubsectionsX162.11(2008–X169.11)andX162.12(2008–169.12)oftheMORBareconsolidated,re-titledandrenumberedasSubsectionX162.7,Intra-group Outsourcing,andamendedtoprovidetheconditionsincaseabankisactingasaserviceproviderwithinitsbusinessgroup.

►• ThenewSubsectionX162.8,Offshore Outsourcing,providesfortheconditionsincasesofoutsourcingwheretheserviceproviderislocatedoutsidethecountry.

►►• ThepreviousSubsectionX162.4(2008–X169.4)isrenumberedasthenewSubsectionX162.9andamendedtoreadasfollows:

“SubsectionX162.9Service Providers.Thebankshallcarryoutduediligenceinselectingserviceproviders.Itmustensuretheintegrity,technicalexpertise,operationalcapability,financialcapacityandsuitabilityoftheserviceprovidertoperformtheoutsourcedactivity.Incaseswheretheclientsareprejudicedduetoerrors,omissionsandfraudsbytheserviceprovider,thebankshallbeliableinprovidingtheappropriateremediesasmaybeallowedbylawsorregulations,withoutprejudicetorecoursebythebanktotheserviceprovider.”

►• ThepreviousSubsectionX162.5isrenumberedasSubsectionX162.10,re-titledandamendedtoreadasfollows:

“SubsectionX162.10Transitory Provision.AlloutsourcingagreementsmustbealignedwiththeprovisionsofSectionX162oftheMORB.Existingoutsourcingagreementswhicharenotinaccordancewiththiscircularwillnotbeunwound.However,itmustcomplywiththerequirementsprovidedhereinuponrenewaloftheagreements.”

►►• ThepreviousSubsectionX162.19,Penalties,isre-numberedasSubsectionX162.11.

►►• SubsectionsX406.9,Outsourcing Services in Trust Departments,andX701.13(2008–X621.13),Outsourcing of interment and Mobile Banking Services,oftheMORBaredeleted.

►►• ThisCircularshalltakeeffect15calendardaysfollowingitspublicationeitherintheOfficialGazetteorinanewspaperofgeneralcirculation.

[Editor’s Note: Circular No. 765 was published in TheManilaTimes on August 13, 2012.]


►►• SectionX401/4401Q,Statement of Principles,oftheMORB/MORNBFIareamendedtoprovidethatpoliciespredicateduponthecardinalprincipleoffidelityshallbedirectedtowardstheobservanceofprudentadministration,undividedloyaltyandutmostcare,non-delegationofresponsibilities,preservingandprotectingproperty,andkeepingandrenderingaccounts.

►►• SectionsX403/4403Q,Definitions,oftheMORB/MORNBFIareamendedbyre-assigningitems“a”to“u”as“b”to“v”andaddinganewitem“a”asfollows:

CircularNo.766prescribestheGuidelinesinStrengtheningCorporateGovernanceandRiskManagementPracticesonTrust,OtherFiduciaryBusiness,andInvestmentManagementActivities.

28 Tax Bulletin

“A.TrustEntityshallrefertoa(a)bankornon-bankfinancialinstitution,throughitsspecificallydesignatedbusinessunittoperformtrustfunctions,or(b)trustcorporation,authorizedbytheBangkoSentralngPilipinas(BSP)toengageintrustandotherfiduciarybusinessunderSection79ofR.A.No.8791(TheGeneralBankingLawof2000)ortoperforminvestmentmanagementservicesunderSection53ofR.A.No.8791.”

►►• SubsectionsX406.2/4406Q.2,Composition of trust committee,oftheMORB/MORNBFIareamendedtoprovidethattheTrustCommitteeshallhaveatleastfivemembersasfollows:

1. Thepresidentoranyseniorofficerofthebank/non-bankfinancialinstitution(NBFI);

2. Thetrustofficer;

3. Theremainingmembers,includingthechairperson,maybeanyofthefollowing:

i. Non-executivedirectorsorindependentdirectorswhoarebothnotpartoftheauditcommittee;or

ii. Thoseconsideredasqualified“IndependentProfessionals.”

Iftherearemorethan5members,amajorityshallbecomposedofqualifiednon-executivemembers.

►►• SubsectionX406.3/4406Q.3,Qualifications of committee members, officers and staff,oftheMORB/MORNBFIareamendedtoprovidethatdirectors,committeemembersandofficerschargedwiththeadministrationoftrustandotherfiduciaryactivitiesshallhavetheadditionalrequirementofrelevantexperienceinsuchbusiness.

Atrustofficer,inadditiontopossessingatleast3yearsofactualexperienceintrustoperationsoratleast5yearsofactualexperienceasanofficerofabank/NBFI,musthave:

1. Completedatleast90traininghoursintrust,otherfiduciarybusinessorinvestmentmanagementactivitiesacceptabletotheBSP;or

2. Completedarelevantglobalorlocalprofessionalcertificationprogram.

►►• ItemfofSections2404/3404oftheMORBontheauthoritytoengageinlimitedtrustbusinesstothriftbanksandruralbanks,respectively,shallberevisedtoprovidethatatrustofficer,inadditiontopossessingatleast1yearof

29

actualexperienceintrustoperationsoratleast2yearsofactualexperienceasanofficerofabank/NBFI,musthave:

1. Completedatrainingprogramintrust,otherfiduciarybusinessorinvestmentmanagementactivitiesacceptabletotheBSP;or

2. Completedarelevantglobalorlocalprofessionalcertificationprogram.

►►• SubsectionsX406.a/4406Q.4,Responsibilities of Administration,oftheMORB/MORNBFIareamendedtoprovidethespecificresponsibilitiesofthefollowing:

1. TheBoardofDirectors(BOD)inrelationtotrustactivitiesofabank/NBFI;

2. TheTrustCommittee,whichisaspecialcommitteethatreportsdirectlytotheBODandisprimarilyresponsibleforoverseeingthefiduciaryactivitiesofthebank/NBFI;and

3. TheTrustOfficer,whoisvestedwiththemanagementoftheday-to-dayfiduciaryofficer.

►►• SubsectionsX406.10/4406Q.10,Confirmation of the appointment/ designation of trust officer and independent professional,oftheMORB/MORNBFIareamendedtoprovidethatanindependentprofessionalandtrustofficermustbefitandpropertodischargetheirrespectivefunctions.Theirappointment/designationshallbesubjecttoconfirmationbytheMonetaryBoardwhichshallinformtheconcernedbank/NBFIif,afterevaluation,itfindsgroundsforthedisqualificationoftheindependentprofessionalandtrustofficer.

• Trustentitiesofbanks/NFBIsthatdonotmeettherequirementsofthisCircularshallbegiventwelve(12)monthsfromthedateofeffectivitytocomply.

• Non-compliancewiththeprovisionsofthisCircularshallsubjectthebank/NBFIanditsBODtosanctionsprovidedunderSections36and37ofR.A.7653withoutprejudicetotheimpositionofothersanctionsastheMonetaryBoardmayconsiderwarrantedunderthecircumstancesthatmayincludebutnotlimitedtocurtailmentoffiduciaryactivities,and/orintroductionofnewbusiness,andsuchothersanctionsasmaybeprovidedbylaw.

• ThisCircularshalltakeeffect15calendardaysfollowingitspublicationeitherintheOfficialGazetteorinanewspaperofgeneralcirculation.

[Editor’s Note: Circular No. 766 was published in the ManilaBulletin on August 24, 2012.]

30 Tax Bulletin

Court Decision

Team Pacific Corporation vs. Josephine Daza, in her capacity as Municipal Treasurer of TaguigSecondDivision,G.R.No.167732,promulgatedJuly11,2012

Facts:

PetitionerTeamPacificCorporation(TPC),adomesticcorporationengagedinthebusinessofassemblingandexportingsemiconductordevices,conductsitsbusinessattheFTIComplexinTaguig.Sincethestartofitsoperations,TPChadbeenpayinglocalbusinesstaxes(LBT)at1/2oftheratesimposedon“exportersandonmanufacturers,millers,producers,wholesalers,distributors,dealersorretailersofessentialcommodities”pursuanttotheTaguigRevenueCode.

WhenTPCreneweditsbusinesslicensein2004,however,RespondentJosephineDaza,thenMunicipalTreasurerofTaguig,assessedLBTatthefullrateonthegroundthatTPCisnotanexporterofessentialcommodities.

TPCpaidtheassessedLBTandfiledawrittenprotestonJanuary19,2004.OnApril15,2004,TPCfiledapetitionforcertiorariunderRule65ofthe1997RulesofCivilProcedurebeforetheRegionalTrialCourt(RTC).TPCallegedthatDazadidnotactonitsprotestwithin60days,asprescribedunderArticle195oftheLocalGovernmentCode(LGC),andthatDazaactedwithgraveabuseofdiscretioninnotapplyingthe1/2rateprovidedundertheTaguigRevenueCode.

DazaarguedthatTPCerredinfilingapetitionforcertiorariandthatTPCshouldhave,instead,filedanappealincourtwithin30daysfromreceiptofthedenial.

TheRTCdismissedthepetition.ItfoundthattherewasnoproofofdenialofTPC’sprotest.Hence,TPChad30daysfromthelapseofthe60daysallowedforthetreasurertomakeitsdecision,withinwhichtoperfectanordinaryappeal.TheRTCruledthatthespecialcivilactionofcertiorariisnottheproperremedyofTPC.

TPCappealedtotheSupremeCourtandarguedthattheremedyofappealisnotspecifiedunderArticle195oftheLGC,andtherefore,aRule65petitionforcertiorariistheproperandlogicalremedy,giventhatDazaactedwithgraveabuseofdiscretioninassessingitsLBTatthefullrate.

Afterreceivinganoticeofassessment,ataxpayermayfilewithin60daysawrittenprotestwiththelocaltreasurer,whichshalldecideonitwithin60days.ThetaxpayercanmakeanappealtotheRegionalTimeCourt(RTC)within30daysfromreceivingthedenialoftheprotest,orfromthelapseofthe60-dayperiodtodecideontheprotest.Thereafter,thetaxpayercanappealthedecisionoftheRTCtotheCourtofTaxAppeals(CTA)within30daysafterreceivingthedecision.

31

Issue:

DidTPCavailofthecorrectremedyagainsttheassessmentwhenitfiledapetitionforcertioraribeforetheRTC?

Ruling:

No.TPCdidnotavailofthecorrectremedy.TPCshouldhavefiledanordinaryappealwiththeRTC.

Within60daysfromreceiptofanoticeofassessment,ataxpayermayfileawrittenprotestwiththelocaltreasurer,whichshalldecidethesamewithin60days.Thetaxpayershallhave30daysfromreceiptofthedenialoftheprotest,orfromthelapseofthe60-dayperiodgiventothelocaltreasurertodecidetheprotest,withinwhichtoappealtotheRTC.

Withoutanyformaldenialoftheprotest,TPC’sfilingofitspetitionbeforetheRTConApril19,2004wasdoneinatimelymanner.ReckonedfromthefilingoftheprotestonJanuary19,2004,Dazahad60daysoruntilMarch19,2004withinwhichtoresolvetheprotest.

Fromthelapseofthis60-dayperiod,TPChad30daysoruntilApril18,2004withinwhichtofileitsappealtotheRTC.SincethelatterdatefellonaSunday,theRTCcorrectlyruledthatTPC’sfilingofitspetitiononApril19,2004wasstillwithintheprescribedperiod.

However,aRule65petitionforcertiorariisnottheappropriateremedyfromDaza’sinactiononTPC’sprotest.Instead,TPCshouldhavefiledanordinaryappealwiththeRTC.Thereafter,anappealfromthejudgment,resolutionororderoftheRTCshallbemadewithin30daysafterreceiptofthedecision,byfilingapetitionforreviewwiththeCTA.

Theperfectionofanappealinthemannerandwithintheperiodfixedbylawisnotonlymandatorybutjurisdictional,andnon-compliancewiththeselegalrequirementsisfataltoaparty’scause.

32 Tax Bulletin

Wewelcomeyourcomments,ideasandquestions.PleasecontactMa.FidesA.Baliliviae-mailatMa.Fides.A.Balili@ph.ey.comorattelephonenumber894-8113andMarkAnthonyP.Tamayoviae-mailatMark.Anthony.P.Tamayo@ph.ey.comorattelephonenumber894-8391.

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