Monthly Remittance Return of Creditable Income Taxes Withheld Expanded - DOC by xtc28908


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                                                                                    June 2005    – SPECIAL ISSUE 01

                                    LAC BULLETIN
                                                 Lopez and Co.
                                         Certified Public Accountants

Metro Manila workers to receive P 25 increase in basic wage

Minimum wage earners in the private sector in Metro Manila will receive a P25 increase in their
daily basic wage upon the effectivity of the latest wage orders issued by the Regional Tripartite
Wages and Productivity Board (RTWPB) in the National Capital Region (NCR).

Department of Labor and Employment Secretary Patricia A. Sto. Tomas said that the increase is
expected to take effect on June 16 after the publication of Wage Order No. NCR-11 in a
newspaper of general circulation.

With the effectivity of Wage Order No. NCR-11, the daily basic wage of private sector workers
and employees in Metro Manila who are receiving the minimum wage will be increased from the
current amount of P250 per day to P275 per day.

The P25 increase in the daily basic wage will bring the total compensation of minimum wage
earners in non-agriculture sector in Metro Manila from P 300 per day to P325 per day, including
the daily P 50 emergency cost of living allowance.

In issuing the latest wage order, the existence of supervening conditions were considered and
determined that allowed the RTWPB-NCR to issue the wage order in less than a year after the
last issuance of wage increase.

Section 3, Rule IV of NWPC Revised Rules of Procedures on Minimum Wage Fixing provides
that any wage order issued by the RTWPBs may no be disturbed within 12 months from the
effectivity and no petition for wage increase shall be entertained within the said period, except
when there is a supervening condition such as extraordinary increases in price of petroleum
products and basic good and services which demand a review of minimum wage rates as
determined by the RTWPBs and confirmed by the National Wages and Productivity Commission.

Bureau of Internal Revenue (BIR)
Revenue Regulations (RR)

RR 10-2005 introduced the following amendments:

Reduced the criteria to three as mandated under EO 422.

1.       20% growth rate of annual income tax payment .

2.       Same ratio of income tax to gross sales or receipts for Q1 of the current
         and previous Taxable Year.

3.       Same ratio of VAT or PT to gross sales or receipts for the current and
         previous taxable year, but not less than 3% for PT or 30% of the VAT rate
         for VAT , or the industry benchmarks.

Disqualifies taxpayers whose ITRs have been amended.

Authorizes voluntary payment of additional amounts (on top of tax return
payments) to qualify for NAP. Such payment shall form part of the base
year amount for purposes of computing the growth rate for the succeeding

       - 30 days from statutory deadline for filing of ITR
       - 30 days from effectivity of RR 10-2005 (Effective immediately upon
           publication; Published June 1, 2005)

LAC Bulletin is the official newsletter of Lopez and Company, Certified Public Accountants with offices located at 2518 Leiva St.,
Sta Ana , Manila with phone no. 564-6472

                                                    RR 10-2005 (NAP)


Her Excellency Gloria Macapagal-Arroyo issued on April 26, 2005, Executive Order No. 422 (EO 422),
providing for certain enhancement to Executive Order No. 399 (EPO 399) issued on January 17, 2005
Executive Order No. 399 to encourage taxpayers to voluntarily declare and pay higher taxes thereby
reducing administrative costs that are entailed from audit and investigations conducted by the Bureau of
Internal Revenue (Bureau). Under the No Audit Program (NAP), taxpayers who qualify under its terms
and conditions shall be exempted from audit and/or investigation for the period for which they qualify. The
NAP shall be in force for taxable years 2004, 2005, 2006, 2007 and 2008.

Pursuant to Section 6 and Section 244 of the National Internal Revenue Code of 1997 (Republic Act No.
8424) in relation to Section 1 of EO 422, these regulations are hereby promulgated to amendment certain
sections of Revenue Regulations No. 6-2005.

SECTION 2. Section 2(c) of Revenue Regulations No. 6-2005 is hereby amended to
read as follow:

     (c) Taxable Year – refers to any 12-month period starting on any date from August 1 of the prior to
         the indicated year.

               Illustration: For taxpayers who are on a fiscal year basis, if his accounting period starts on
                             August 1, 2003, then returns filed for said period are considered returns for
                             Taxable year 2004.”

SECTION 3. Section 5 of Revenue Regulations No. 6-2005 is hereby amended to read
as follow:


For a taxpayer to qualify for the NAP, he must satisfy all of the following:

a) income tax payment for the Current Taxable Year must exceed the income tax payment
    for the Base Year by at least 20%;
b). ratio of income tax payment to gross/receipts for the first quarter of the Taxable Year
    immediately following the Current Taxable Year must be at least equal to that of the first
   quarter of the Current Taxable Year;
c) ratio of net value added tax or business tax actually paid to gross sales/receipts for the
   Current Taxable Year must be at least equal to that of the Base Year, provided, however,
   that in no case shall be it be less than three percent (3%) for those subject to percentage
   tax, or thirty percent (30%) of the Value-Added tax rate provided by law for any given
   period fo r those subject to value added tax, or the industry benchmark as may be
  determined from time to time by the Commissioner Intern al Revenue.

For purposes of determining the tax payments for the Current Taxable Year, only taxes actually paid in
cash as shown in the Income Tax Return, quarterly income tax return, value added tax return and
percentage tax return shall be considered. For this purpose, creditable withholding taxes for taxes withheld
for the tax year concerned, which are properly supported by a Certificate of Tax Withheld (BIR Form
2307), shall be considered as cash payments. On the other hand, TCCs/TDMs, and tax credit carried over
from prior years are considered non-cash items and shall be excluded from determining the tax payments
for the Current Taxable Year.

However, for purposes of determining tax payments for the Base Year from which the increase in tax
payments and ratio required to qualify for the NAP shall be measured, the total amount of tax due for the
Base Year shall be included regardless of the mode of payment, i.e., whether paid in cash, creditable
withholding tax , TCCs/TDMs, or tax credit carried over from prior Taxable Years.

In the event the taxpayer was not in operation for the whole period of the Base Year, the tax payments for
that period shall be annualized, and such annualized tax payments shall be used as the tax payment of the
Base Year from which the growth and ratio required shall be computed.


Taxpayer A, who is on calendar year basis of accounting, started his business on July 1, 2003, and paid
income tax amounting to P60,000.00. For purposes of computing his tax payment for the Base Year 2003,
his total income tax payment shall be divided by the number of month he is in operation and then
multiplied by 12 months. In this case, his annualized income tax payment for 2003
is P60,000/6 x 12 months, or P120,000.00.
LAC Bulletin is the official newsletter of Lopez and Company, Certified Public Accountants with offices located at 2518 Leiva St.,
Sta Ana , Manila with phone no. 564-6472


Provided further, that the growth rate and ratio provided herein shall adjusted to reflect the effect of the
increase/decrease of tax rate resulting from said legislative measures.

In the event a taxpayer shall have been issued an assessment that has become final and executory relating to
tax payments for a Base Year, the tax payment for the Base Year shall be adjusted in accordance with the

In case the tax payer amends his tax and information returns for any Base Year, the higher of the original
amount and the amended amount shall be used as the tax payment for the Base Year for purposes of this

SECTION 4. Section 9 of Revenue Regulations No. 6-2005 is hereby amended to read
as follow:

                                               “SECTION 9. DEADLINE”

A Taxpayer must file an application form, duly accomplished, together with all its attachment not later than
thirty (30) days from the statutory deadline for the filing of the annual income tax return for the year
subject of the application, or in the case of those Taxpayers whose statutory deadline for filing their annual
income tax returns occurred earlier than the date of the effectivity of these Regulations, their application
must be filed within thirty (30) days from the effectivity hereof.

All returns and payment made by a taxpayer who applied to participate in the NAP are deemed final and
conclusive, and by applying to participate in the NAP, the taxpayer shall be deemed to have waived all of
his rights to claim any refund pertaining thereto.

 Only taxpayers whose annual income tax returns were not amended may apply to participate in the NAP.
In the event the amount of taxes paid shall not be sufficient to qualify a tax payer for the NAP, he may still
qualify by making a voluntary payment in amount not less than the deficiency required for him to qualify.
Provided, that said payment shall be non-refundable nor deductible against his income. Provided, further,
that said voluntary payment shall form part of the base of the tax year for which it was for purposes of
determining his qualification for NAP in the subsequent tax year


         VAT exemption thresholds increased

Section 109 of the Tax Code contains several VAT exemption thresholds that should be adjusted annually
to reflect changes in the Consumer Price Index, but implementing regulations have not previously been

         RR 01-05 increases the exemption thresholds as follows:

• The exemption for sales by real estate dealers and lessors of house and lot and other residential dwellings
is increased by 50% from P1,000,000 to P1,500,000. The regulations also specify explicit thresholds for
sales of low-cost and socialized housing.
• The exemption for leases of residential units has increased 25% from P8,000 to P10,000 per month.
• The turnover threshold below which persons are VAT-exempt has been increased by 36% from P550,000
to P750,000 per year.

The regulations do not indicate how persons with gross sales or receipts of between P550,000 and
P750,000 per year should transition out of the VAT base.

(RR 01-05, dated December 28, 2004)

         Significant changes for ecozone enterprises

The BIR has issued Revenue Regulations No. 02-2005 summarizing the tax treatment of transactions for
ecozone enterprises. However, since there are a number of concerns with the regulations, including the
extent to which they are consistent with the laws they seek to implement, the Department of Finance
deferred its implementation.

         Prospective government contractors must demonstrate tax compliance

EO 398 requires all persons desiring to participate in any contract with the government to submit a copy of
their latest income tax return (ITR) and business returns with their proposal or bid. RR 3-05 outlines the
process required for prospective contractors to obtain a tax clearance from the BIR.

LAC Bulletin is the official newsletter of Lopez and Company, Certified Public Accountants with offices located at 2518 Leiva St.,
Sta Ana , Manila with phone no. 564-6472

(RR 03-05, dated February 16, 2005)

The regulations offer no insights on how the BIR will deal with a foreign contractor who is not yet
registered to business in the Philippines so has not previously filed a tax return. It also makes no comment
on the remedies available to taxpayers if the BIR does not act on applications for tax clearance in a timely

         Information requirements when banks grant loans

BSP Revised Circular No. 472 Series of 2005 requires banks and financial institutions to obtain various
information from credit applicants (see page 10 for details).

RR 4-05 outlines the procedures for banks and financial institutions to verify income tax returns with the
BIR. It also encourages prospective credit applicants to file their income and financial statement and other
required information electronically using the BIR's Electronic Filing and Payment System (EFPS).

(RR 04-05, dated February 16, 2005)

         CRM/POS machine reports and information to be submitted monthly

RR 5-05 applies to all business establishments using Cash Register Machines (CRMs), Point of Sales
(POS) Machines or any sales generating receipt/invoice machine, whether or not those machines are
registered with the BIR.

For each machine, businesses are required to submit on or before the 10 th day of the month, the gross sales
recorded at the end of the prior month and other information. A breakdown of sales as to VAT and Non-
VAT is required only when the machine is used for VAT and Non-VAT purposes. Reporting may be done
in the manner prescribed by the regulation by SMS, email, or through the BIR portals transactions, and is
capable of segregation. Otherwise, the amount reflected in the machine as the monthly sales total should be

(RR 05-05, dated February 16, 2005)

         Delegated Authority (DA) rulings

No DST on loan agreement between PEZA firm and non-resident

A loan agreement was entered into between a non-resident foreign corporation and a PEZA registered
domestic corporation. The foreign corporation was not engaged in trade or business, nor did it have a
permanent establishment, in the Philippines.

The BIR ruled that no DST is payable on the loan agreement. The domestic company is subject to the
preferential rate of 5% on its gross income, so is exempt from payment of all other national and local taxes.
The foreign corporation will also not be liable to DST, as it is outside the taxing jurisdiction of the
Philippines. A PEZA registered company and a non-resident foreign corporation that is in a loan agreement
are both exempt from the payment of DST imposed on debt instruments. The PEZA-registered company is
exempt because of its preferential tax privilege while the nonresident foreign corporation is exempt because
of the absence of a permanent establishment.

(BIR DA Ruling No. 550-2004, dated November 5, 2004)

Interest paid by top 10,000 corporations not subject to 2% CWT when 20% tax
already withheld.

A banking institution as trustee of trust accounts for various clients invested client funds in bonds, loans,
and notes of the top ten thousand corporations, resulting to earned interests for these funds. The trustee
bank withheld 20% final withholding tax (FWT) on the interest income upon release of the funds or income
to each trust account.

The BIR ruled that the interest payments are not made in favor of the trustee bank but of the clients who
hold beneficial title to the fund, even if legal title is with the trustee bank. Since the income payments were
already covered by the 20% FWT, it is not anymore subject to the 2% creditable withholding tax on
payments for services made by the top ten thousand corporations.

(BIR DA Ruling No. 576-04, dated November 12, 2004)

         VAT liability can be the subject of stipulation

A lease agreement provided that all taxes, government fees and charges due on the land subject of the lease
are to be paid by the lessor. Relying on the stipulation, the lessee argues that VAT cannot be legally passed
on its rental payments to the lessor.
LAC Bulletin is the official newsletter of Lopez and Company, Certified Public Accountants with offices located at 2518 Leiva St.,
Sta Ana , Manila with phone no. 564-6472

The BIR upheld the lessee's position. According to the BIR, while VAT is an indirect tax and can be shifted
to the lessee, the seller may elect to absorb the tax himself, which is what he is considered to have done
when he agreed to the stipulation in the contract.

(BIR DA Ruling No. 597-04, dated November 24, 2004)

         Non-resident foreign corporation not required to withhold on income payments

A domestic company received commission for its services as a general commercial agent. The nonresident
foreign principal seeks confirmation as to whether it is required to withhold from its commission payments.
The foreign principal is BIR registered and was issued a Taxpayer's Identification Number (TIN), for
purposes of remittance of taxes due on its Philippine sourced income.

The BIR ruled that while the commission is subject to income tax, it is not subject to withholding tax since
the foreign payor is not a duly authorized withholding agent for the government.

(BIR DA Ruling No. 626-04, dated December 10, 2004)

Court and other issuances
Court of Tax Appeals (CTA)

         CTA denies "out of period" claims for VAT refund

The taxpayer sought a refund of unutilized input VAT on its domestic purchases of goods and services. The
refund claim represents the portion earlier disallowed by the BIR as the supporting invoices were dated
"out of the period" of the claim.

The taxpayer argued that the reason for the out of period claim was the late issuances and deliveries of the
invoices from the suppliers. Thus, the transactions were only recorded on receipt and actual payment of the
invoices. The CTA upheld the BIR and denied the out of the period refund claim. According to the CTA,
the language of the Tax Code is explicit, allowing for credits of input tax to the purchaser "upon
consummation of the sale" in case of purchases of goods, and "upon payment" in case of purchases of
services. There is no qualification allowing for input tax credit "upon delivery of receipt or invoice". The
CTA thus concluded that:

"… it is indubitable on the part of the taxpayer to declare the input VAT on domestic purchases of goods
and services at the end of the corresponding taxable quarter where purchases of goods were consummated,
as evidenced by VAT invoice and for payment of services, as evidenced by VAT official receipt."

(CTA Case Nos. 6368 & 6480, dated December 15, 2004)

         Income earner remains liable to tax if withholding agent fails to withhold

The taxpayer was assessed under the 1993 Tax Code for deficiency tax under the expanded foreign
currency deposit system on onshore interest income derived from loans granted to residents.

The taxpayer contended that the borrowers are liable for the final tax as the constituted withholding agents
of the BIR. In disputing the assessment, the taxpayer presented a computation of its onshore income for the
years covered by the assessment, showing the final taxes it presumed to have been 'absorbed and withheld
by the borrowers.' The taxpayer argued that it could not be held liable on a mere presumption that the
withholding agents failed to remit the withheld tax to the BIR. However, the taxpayer failed to present the
certificate of withholding taxes issued by the income payors.

The CTA upheld the assessment, giving credence to the failure of the taxpayer to prove the alleged
withholding of the tax by its borrowers. The CTA ruled that:

"while the payor-borrower is the one constituted by law to withhold and remit the 10% final tax on onshore
income, the obligation of paying the 10% final tax on onshore income rests on the taxpayer being the one
directly liable for it . The law and jurisprudence do not dispense the liability of the taxpayer with respect to
the payment of 10% final tax on onshore income if the withholding agent fails to deduct and remit the same
to the BIR. After all, it is the taxpayer who earns the income."

The CTA further commented that in case the withholding agent is also assessed for the same tax, the
assessment is not for the payment of the required tax which remains the liability of the income earner but is
predicated on its failure to withhold the taxes as required by law.

(CTA Case No. 6201, dated December 15, 2004)

Office of the President (OP)
LAC Bulletin is the official newsletter of Lopez and Company, Certified Public Accountants with offices located at 2518 Leiva St.,
Sta Ana , Manila with phone no. 564-6472

Task force for a globally competitive Philippine service industry created Recognizing the importance of
global competitiveness, the President created a Public-Private Sector Task Force aimed at developing a
globally competitive Philippine service industry.

The Task Force shall primarily identify the service industries with global competitiveness potentials and
formulate a plan, providing for public-private sector partnership for their development. For this purpose,
the task force shall closely coordinate with the Senior Adviser on International Competitiveness who will
ensure that the President's directives are efficiently implemented.
(Executive Order No. 372, dated October 18, 2004)

          Sixth foreign investment negative list promulgated

The Foreign Investment Act of 1991 provides for the formulation of a regular foreign investment negative
list covering investments which may be opened to foreign investors and/or reserved to Filipino nationals.

Following the expiration of the existing negative list last November 8, 2004, the President issued Executive
Order No. 389 promulgating the sixth regular foreign investment negative list for the next two years
following its effectivity. The list contains no changes from the previous one.

(Executive Order No. 389, dated November 30, 2004)

          Duty rates on certain import products modified

The Tariff and Customs Code grants the President authority to increase, reduce or remove existing
protective rates of import duty, as well as to modify the form of duty and tariff nomenclature. Pursuant to
that authority, the President has issued the following executive orders:

a. Executive Order No. 395, modifies the nomenclature and rates of import duty on Information
Technology (IT) products, with effect from January 1, 2005.
b. Executive Order No. 396, reduces the rates of import duty on compressed natural gas motor vehicles and
natural gas vehicle industry-related equipment, parts and components. The order is effective February 11,

c. Executive Order No. 397, reduces the rates of import duty on completely knocked down parts and
components for assembly of low engine displacement and hybrid vehicles. This order is effective for one
year only, and applies from February 11, 2005.

(Executive Order Nos. 395, 396 and 397, dated December 31, 2004 published
January 12, 2005)

Bangko Sentral Ng Pilipinas
            Monetary Board approves adoption of ASC accounting and financial reporting standards

The Monetary Board recently approved the adoption of Accounting Standards Council (ASC) approved
Philippine Accounting Standards (PAS) and Philippine Financial Reporting Standards (PFRS), which were
based on International Accounting Standards and the International Financial Reporting Standards. The
standards are effective for annual financial statements beginning 1 January 2005.

Interim financial reports to be submitted to BSP for 2005, however, need not be in compliance with the
provisions of the Standards.

(Memorandum to all banks and other BSP supervised financial institutions, dated January 11, 2005)

          Bank guidelines for granting loans

The BSP issued guidelines for banks to ascertain that the borrower, co-maker, endorser, surety and/or
guarantor, is financially capable of fulfilling his/their commitments to the bank before loans may be

Banks shall obtain adequate information on an applicant's credit standing and financial capacities. For this
purpose, in addition to the usual information sheet about the borrower, a bank shall require a statement of
his assets and liabilities and of his income and expenses together with the following:

a. A copy of the latest income tax return (ITR) of the borrower and his co-maker, duly stamped as received
by the Bureau of Internal Revenue (BIR);

b. A copy of the borrower's latest financial statements as submitted for taxation purposes to the BIR, in case
the borrower is engaged in business; and

c. A waiver of confidentiality of client information and/or authority of the bank to conduct random
verification with the BIR in order to establish authenticity of the ITR and accompanying financial
statements submitted by the client.
LAC Bulletin is the official newsletter of Lopez and Company, Certified Public Accountants with offices located at 2518 Leiva St.,
Sta Ana , Manila with phone no. 564-6472

The consistency of the data/figures in the ITR and statements shall also be checked and considered in the
evaluation of the financial capacity and credit worthiness of credit applicants. Further, the bank may
terminate any loan granted on the basis of documents later proved to be incorrect in any material detail, and
demand the immediate liquidation of the obligation. Loans and other credit accommodations shall be under
the signature of the principal borrower and, in the case of unsecured loans to individual borrower, of at
least one co-maker, except when the principal borrower has the financial capacity and a good track record
of paying his obligation.

(BSP Circular No. 472, series of 2005, dated January 26, 2005)

Intellectual property Office (IPO)
         Publication of Trademarks in the IPO e-Gazette

The Intellectual Property Office (IPO) issued Office Order No. 124, requiring the publication of trademarks
electronically through the IPO Website, referred to as the IPO e-Gazette. The Order covers, but is not
limited to, Notice of Allowance of Trademark Application, issuance of Certificate of Registration of
Trademarks, and Notice of Cancellation, Surrender, Amendment, Disclaimer and Correction of Trademark
Applications or Registrations.

The Trademark regulation was further amended to reflect the required publication in the IPO e-Gazette.

(IPO Office Order No. 124, series of 2004, dated November 25, 2004)

Bureau of Customs (BOC)

         Use of RosettaNet global electronic messaging for Exports

Following a Memorandum of Agreement between the Bureau of Customs (BOC), the Philippine Economic
Zone Authority (PEZA) and the Semi-Conductors and Electronics Industries in the Philippines, Inc.
(SEIPI), the BOC promulgated regulations to govern the use of RosettaNet global electronic messaging
system as one of the facilities in the processing of export shipments of semi-conductors and electronic

The regulations aim to simplify the conduct of export operations in all PEZA economic zones and develop
an effective exports monitoring system and date verification for the BOC. The regulations apply to:

a. All export shipments of semiconductor and electronic products made by the members of the SEIPI
   adopting RosettaNet for electronic lodgments of export declarations; and
b. NAIA, and subsequently to other airports, upon the recommendation of the Deputy Commissioner of
   MISTG and approval of the Commissioner of Customs.

  (Customs Memorandum Order No. 38-2004, dated December 3, 2004)

         Implementation of Customs Brokers Act deferred

The Secretary of Finance has ordered the deferral of the implementation of the Customs Brokers Act of
2004 pending the review and approval of implementing guidelines recently submitted to the Department of

(Customs Memorandum Order No. 39-2004, dated December 10, 2004)

LAC Bulletin is the official newsletter of Lopez and Company, Certified Public Accountants with offices located at 2518 Leiva St.,
Sta Ana , Manila with phone no. 564-6472

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