Lets Talk Tax.docx

LET’S TALK TAX 2013 Posted on November 04, 2013 10:15:34 PM

Taxes and death -- Comparable? A FEW DAYS ago, many of us herded to the cemeteries to commemorate and pray for our departed loved ones. Being in front of a tombstone makes one think that, indeed, death is an unavoidable event. This makes me recall a cliché, that actually, it is not only death that is unavoidable; but there are actually two inescapable things in this world -- first is death, and the other one is taxes. And no less than Benjamin Franklin himself said, in one of his familiar quotes, "In this world, nothing can be said to be certain, except death and taxes." It would be too gloomy to equate taxes to death and ponder on the certainty, especially, nowadays, that there are taxpayers who feel that the enforcement of taxes is blown out of proportion. You can actually imagine some taxpayers appealing to the Bureau of Internal Revenue (BIR) pleading their sentiment in a proverbial statement -- "please don’t kill the hen that lays the golden eggs". Thus, some irate taxpayers, gloomy as they are, just make fun of the comparison between death and taxes (or tax aspects), and come up with the following: Death cannot get any worse, but enforcement of tax can. Many taxpayers believe that, currently, there are BIR audits that are not carefully done, as the usual BIR assessment preliminarily results in huge amounts of tax findings -so huge that these could already shut down a company. Although the said tax findings are consequently reduced by the taxpayers after certain explanations and discussions with the BIR examiners, the time and cost spent by the taxpayers are too valuable. Add to this the anxiety and stress of the taxpayer’s personnel from conferences with the BIR examiners, and it would not be hard to conceive of disrupted company operations. Death does not repeat itself, but tax audits do. Ask the persons who actually receive the special letter from the BIR -- the Letter of Authority (LoA). Year-in, year-out, the LoA is a customary letter, and if the BIR audits are not handled by the examiners timely, imagine a year-in/ year-out disruption of the company’s operations. A problem related to having an untimely audit is when the BIR examiners arrive just when the prescription period to assess is about to expire, wherein several years have already passed since the time that the books of a company were closed. By that time, some accounting and tax personnel may have already resigned. It needs no further explaining that the participation of a familiar accounting and tax personnel who had a hands-on participation in the bookkeeping and analysis of transactions being examined by the BIR is indispensable to an efficient reconciliation of alleged tax findings. The timing of death cannot be predicted. The interpretation of tax rules cannot also be predicted. So, both cannot be predicted. Previously there were transactions related to advances which were treated as liability transactions, but now, the said transactions are being treated by the BIR as taxable income transactions. Another example is that, in the past, there were organizations enjoying income tax exemptions, but now, these exemptions are gone. Moreover, before, if a taxpayer pays for the withholding tax deficiency at the time of BIR audit, the related expenses will already be allowed as deductible expense; now, even if the taxpayer pays for the withholding tax deficiency, the related expenses will still be disallowed. Well, one could say that, it’s too much for the predictability issue. The death of an individual begets tax in the form of estate tax, but taxes, fortunately, do not necessarily beget the death of the taxpayer. Do taxes really not beget death? Oh, this is too morbid a question. A company officer might quickly answer, "Yes, taxes do not bring death to us, but the unjust enforcement of taxes can easily hospitalize us by creating too much stress!" One could wonder -- what happens if there is a rapid accumulation of too much stress? Don’t answer.

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LET’S TALK TAX 2013 On the other hand, however, if we try to contemplate it, the unjust enforcement of tax could actually lead to the dissolution of a company, particularly if the company is always being hit by undue tax assessments. This scenario could discourage investors, particularly the foreign investors who might perceive our tax system to be not at par with what they are expecting. After death, there is a promise of eternal heavens as a reward. After paying taxes, taxpayers, in exchange for the taxes paid, don’t even know if there is any rewarding promise at all. Just read the newspapers -- pork barrel issues, scams, corruption -- name it, more or less, we have it. So, while it is true that taxes are the lifeblood of the government, the taxpayers dearly hope that the enforcement will not be a one-sided ploy to just meet the government’s revenue target; particularly now that taxpayers are very dismayed about the news on what is allegedly happening to the taxes paid out of the people’s hard-earned money. On the other hand, the taxpayers need to continue to keep abreast of tax developments from time to time. Monitor tax practices in conformity with the prescribed regulations. Be diligent in keeping tax records. Since taxes are as inescapable as death, taxpayers have to be prepared -- always. The author is a tax director with the tax advisory & compliance division of Punongbayan & Araullo. P&A is a member firm within Grant Thornton International Ltd.

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LET’S TALK TAX 2013 Posted on September 16, 2013 09:43:42 PM

Appealing a BIR ruling Let’s Talk Tax Edward D. Roguel ASIDE from the pork barrel scam issue, I think that by now, many taxpayers are aware that the Bureau of Internal Revenue (BIR) is working doubly hard to attain its collection goal. One of its strategies to achieve its target is to strictly enforce tax laws. This has resulted in the denial of request for rulings issued to some taxpayers, including the rulings on upstream merger (BIR Ruling No. 508-2012, Aug. 3, 2012), deductibility of royalties (BIR Ruling No. 014-2012, Jan. 4, 2012) and NOLCO (BIR Ruling No. 214-2012, March 28, 2012), among others. Taxpayers who received unfavorable rulings from the BIR may be wondering what their remedy could be. Can they still file a request for reconsideration of the BIR ruling issued to them? Or, can they go directly to the Court of Tax Appeals (CTA) and question the decision of the BIR? In Department Order No. 23-01, issued by the Department of Finance, a taxpayer who receives an adverse ruling from the BIR may, within 30 days from receipt of such ruling, file a request with the Secretary of Finance to review the opinion of the BIR. The request for review must be in writing and must contain all the information required under said Order. This administrative remedy must be exhausted first before a taxpayer can go to the Court and question the unfavorable ruling issued by the BIR. In a CTA decision (CTA EB Case No.874), the CTA En Banc ruled that the “jurisprudence have it that before a party is allowed to seek the intervention of the court, it is a pre-condition that he should first avail of all available administrative remedies under the rules. Hence, if a remedy within the administrative machinery can still be resorted to by giving the administrative officer concerned every opportunity to decide on a matter that comes within his jurisdiction, then such remedy should be exhausted first before the court’s judicial power can be sought. The premature invocation of the court’s intervention is lethal to one’s cause of action...” Hence, a taxpayer can seek the Court’s action only after exhausting all available administrative remedies. If after filing a request for review with the Secretary of Finance, the taxpayer still receives an unfavorable response, the question then is, where should the taxpayer file the petition for review? Does it now fall under the jurisdiction of the CTA? Based on Section 7 of Republic Act (RA) No. 1125, as amended by RA No. 9282 (an Act expanding the jurisdiction of the CTA), one of the jurisdictions of the CTA is to review by appeal the “decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue or other laws administered by the Bureau of Internal Revenue.” Based on this, it seems that with regard to issues with the BIR, the cases that may be brought to the CTA are not limited to decisions involving disputed assessments or refunds of internal revenue taxes. It may also involve other matters arising under the Tax Code or other laws administered by the BIR. Hence, it appears that the adverse ruling issued by the BIR to a taxpayer may also be filed for appeal with the CTA. The CTA, however, has a different view. In the same CTA decision, the Court ruled that if the action essentially involves the validity or constitutionality of a law or administrative ruling, the CTA has no authority to rule on it. Instead, the Regional Trial Court (RTC) has jurisdiction over the said issue. Accordingly, the case was dismissed. The same view was taken by the CTA in CTA Case No. 8360. In this particular case, the petitioner requested a ruling

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LET’S TALK TAX 2013 with the BIR to confirm the petitioner’s position that its purchases qualify for value-added tax zero rating. The BIR’s response was negative. The petitioner then filed a Request for Review of the said BIR ruling with the Secretary of Finance. The Secretary of Finance, in its letter dated Sept. 8, 2011, addressed to the petitioner, affirmed the position of the BIR. The petitioner filed a Petition for Review with the CTA to assail the validity of the said BIR ruling and the letter issued by the Secretary of Finance. The CTA, however, ruled that its jurisdiction to resolve tax disputes, in general, does not include cases where the validity or constitutionality of a law or a rule or regulation issued by the administrative agency in the performance of its quasi-legislative function is challenged. Accordingly, the issue pertaining to the validity of the BIR ruling, among others, is beyond the jurisdiction of the CTA. Other than exhausting all the administrative remedies, taxpayers should be aware of the legal remedies and the proper venue for filing a petition for review. A technicality may lead to the dismissal of a case, or worse, to significant amount of assessment against the taxpayer. The author is a partner with the tax advisory and compliance division of Punongbayan & Araullo. P&A is a member firm within Grant Thornton International Ltd.

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LET’S TALK TAX 2013 Posted on September 09, 2013 10:00:52 PM

On tax treaty relief Let’s Talk Tax Farrah Andres-Neagoe FOR YEARS, the Bureau of Internal Revenue has been very aggressive in its effort to raise revenues for the government. One of the measures used by the BIR is to impose strict conditions in availing of the preferential tax rate. As early as 2000, the Bureau of Internal Revenue (BIR) mandated that any availment of tax treaty provision must be preceded by an application for tax treaty relief with the BIR’s International Affairs Division at least 15 days before the transaction. The BIR’s objective and intent in requiring prior application is to prevent any erroneous interpretation and/or application of the treaty provision. In such case, if the taxpayer is clearly entitled to the tax treaty relief based on the conditions available and precedents, is there still a need for the tax treaty relief application? Is the requirement of prior application under RMO 01-2000 mandatory in character? Is the failure to file a prior application for tax treaty relief fatal to the taxpayer’s claim for refund for erroneously paidtax? In the recent decision of Deutsche Bank AG Manila, Brach vs. Commissioner of Internal Revenue, G.R. No. 18850 promulgated Aug. 19, 2013, the Supreme Court had the occasion to clarify all the above questions. In this case, the SC held that the Court of Tax Appeals erred when it denied outright the petitioner bank’s claim for refund of excessive payment of branch profit remittance tax (BPRT) for failure to comply with the prescribed period under the RMO 02-2000. The SC also held that CTA’s reliance on the SC’s minute resolution in Mirant vs. CIR (CTA EB No. 40, June 7, 2005), which provided that procedural requirement of prior application for tax treaty relief is mandatory, is not valid. The SC held that the minute resolution on the Mirant case is not a binding precedent. A minute resolution cannot bind non-parties to the action. The SC explained that when a minute resolution denies or dismisses a petition for failure to comply with formal and substantive requirements, the challenged decision, together with its findings of fact and legal conclusions, are deemed sustained, thus constituting res judicata. However, if it involves other parties or another subject matter, the minute resolution is not a binding precedent. The SC also clarified that the obligation of the government under the tax treaties takes precedence over the provision of RMO No. 1-2000. This is pursuant to the time-honored principle of pacta sunt servanda, which demands all contracting states that enter into an agreement to perform in good faith their treaty obligations. Also, the SC emphasized that our Constitution provides adherence to the general principles of international law as part of the law of the land and that treaties have the force and effect of law in this jurisdiction. Therefore, a state that has contracted valid international obligation is bound to make in its legislation those modifications that may be necessary to ensure the fulfillment of the obligation undertaken. Based on these mentioned principles, the SC emphasized that laws and issuances must ensure that the reliefs granted under the tax treaties are accorded to the parties entitled thereto. Thus, the BIR must not impose additional requirements that would negate the availment of reliefs provided for under the international agreement. Therefore, the period of application for the availment of tax treaty relief as required by RMO 01-2000 should not operate to divest entitlement to the relief especially in claims for refund as it would constitute a violation of the duty required by good faith in complying with the tax treaty. The SC also elaborated that noncompliance with tax treaties has negative implications on international relations and unduly discourages foreign investors, while the consequences sought to be prevented by RMO No. 01-2000 involve an administrative procedure which may be remedied through other system management processes like imposition of fine or penalty.

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LET’S TALK TAX 2013 The SC emphasized that the taxpayer who is entitled to the benefit of tax treaty cannot be totally deprived of such benefit for failure to strictly comply with an administrative issuance requiring prior application for tax treaty relief. The author is a tax associate with Punongbayan & Araullo’s (P&A) tax advisory and compliance division. P&A is the Philippine member firm within Grant Thornton International Ltd. For comments and inquiries please e-mail [email protected] or call 886-5511.

Posted on September 02, 2013 10:04:23 PM

From High Street to iStreet Let’s Talk Tax Rochier T. Yao

WITH the advent of new technologies, most of our daily transactions can now be done online. Whether buying for personal use or for business purposes, people nowadays are into online buying and selling. Because of the benefits and advantages of online shopping -- convenience, a variety of options, and access to your account anywhere -- consumers are driven from High Street to iStreet. It is about time that the Bureau of Internal Revenue (BIR) issued Revenue Memorandum Circular No. (RMC) 552013, which presents highlights of the compliance requirements of parties who are into online business transactions. Just like any other business establishments, persons who conduct business through online transactions are likewise required to register the business at the Revenue District Office (RDO) that has jurisdiction over the principal place of business or residence (for an individual), secure Authority to Print (ATP) invoices or official receipts and register books of accounts either manually or electronically, withhold the required tax on compensation of employee (s), expanded and final tax, file the applicable tax returns altogether with the required attachments and pay the corresponding tax due. The most common type of online business transaction is online shopping. This is where customers directly buy goods and services from a seller via the Internet. In some cases, the sellers are individuals with no registered business and/or registered official invoices or receipts. Just like any other sellers, online merchants are required to issue BIR-registered invoice or official receipts, whether the payment is made in cash, upon delivery of goods or through third-party payment gateways or settlement entities used for online transactions such as banks, credit card companies and bill paying services. On top of this, online merchants are also required to comply with regular bookkeeping and compliance requirements applicable to all businesses. However, nothing was mentioned on how the buyer would be able to withhold tax on purchases and how the corresponding creditable withholding tax would be provided to the retailers of online transactions, especially if payment is also made online. Other online transactions covered by the circular include: - online intermediary service, wherein a third party acts as a conduit for goods and services offered by a supplier to a consumer; - online advertisement in the form of a promotion that uses the Internet to deliver marketing messages to attract

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LET’S TALK TAX 2013 customers; and - online auctions conducted through the Internet via online service provider. Given the guidelines contained in the circular, there could be companies or individuals that are already planning to comply with the invoicing requirements or most likely to register for the first time. It should be noted that since the circular was just a mere reiteration of obligations of taxpayers transacting online, hence, the BIR may already collect the supposed tax due in arrears on late registration of business and likewise impose penalties on non-issuance of invoice and official receipts prior to the commencement of the business operation. The author is a tax manager with Punongbayan & Araullo’s (P&A) tax advisory and compliance division. P&A is the Philippine member firm of Grant Thornton International Ltd. For comments and inquiries please e-mail [email protected] or call 886-5511.

Posted on August 26, 2013 11:11:59 PM

Severe consequences of failure to withhold Let’s Talk Tax Ma. Jenny R. Serrano

REVENUE Regulations No. (RR) 12-2013, which were issued more than a month ago, made a drastic impact on some taxpayers. Many got panicked and were upset by the sudden change while others remained skeptical on the seriousness of the intent of the regulation and immediately took precautionary measures to mitigate the impact of the issuance on their businesses. The regulation was issued to amend the old rule relative to the requirements for deductibility of expenses. Under the old rule, if a deficiency withholding tax is discovered by the Bureau of Internal Revenue (BIR) examiner during an investigation, the expense item to which such deficiency withholding tax relates will still be allowed as deduction against the taxable income in the year incurred, provided that the deficiency withholding tax plus interest or penalties are paid by the taxpayer during the investigation. Under the new rule (RR 12-2013), however, even if the deficiency withholding tax is paid during the investigation, the expense item to which such deficiency withholding tax relates will not be allowed as a deduction against the taxable income in the year incurred. The taxpayers, as withholding tax agents, will have to face dire consequences -- i.e., assessment on withholding tax and income tax -- once found noncompliant. Among the income payments that will be greatly affected by the regulation are the petty cash expenses and reimbursable business expenses. Note that corporations designated by the BIR as one of the Top 20,000 Corporations (TTC) are required to withhold a tax of 1% or 2% on purchases of goods and services, respectively. Time and again, withholding on reimbursements has been an issue for businesses. For instance, as for petty cash expenses, withholding on every expense incurred by officers and employees for meals, representation and entertainment, gasoline, administrative expenses, out-of town-expenses and supplies are found by the taxpayers to be impractical to do. It has been a concern that officers and employees (including company drivers and utility men) are not likely to withhold on small expenses. They are not expected to bring with them withholding tax certificates (BIR Form 2307) whenever they incur such expenses. To address these complexities, what should the taxpayers do? It is imperative among taxpayers to be more prudent and vigilant of their withholding tax obligations. It is not

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LET’S TALK TAX 2013 unusual to find taxpayers facing BIR assessments for violation of withholding rules and regulations. Accordingly, taxpayers must familiarize themselves with the basic principles relative to withholding taxes. For petty cash expenses, employees in the business sector may consider using company credit cards -- strictly, “cashless spending”. Under this scheme, the burden to withhold is shifted to the credit card companies. Moreover, there are a lot of precautionary actions that could be specifically implemented to prevent nonwithholding of income payments and, subsequently, disallowance of expense. One of these is by regularly attending tax seminars to keep abreast of changes in the tax rules. Taxpayers should also evaluate compliance of their internal tax practices. This may be done through in-house trainings or by engaging a qualified personnel or tax practitioner to conduct tax compliance review. Outsourcing the preparation of the company’s tax returns may also be an option. Another measure which the taxpayers could adopt is the formation of a method of periodic reconciliation of the accounting records as against the tax returns. With this, in case of discrepancies noted and there are discovered mistakes of under-withholding or non-withholding of expenses, an amendment to the tax returns can immediately be done. These preventive measures may perhaps incur too much of the taxpayer’s time and resources. Conversely, the burden is nothing compared to the risk of huge amount of possible withholding tax and income tax assessments in the future. Currently, there are taxpayers who still hope that the BIR will have a change of heart and revoke this regulation. The sentiment of the taxpayers is that they merely partake in the collection effort of the government to ensure that the tax is collected in advance even before it reaches the hands of the income recipients. Unfortunately, while they are just being tasked to perform the duty of a tax collector on behalf of the government, they are the ones exposed to harsh tax penalties. Nevertheless, the best recourse for taxpayers is to be meticulous in fulfilling their withholding tax obligations to avoid the severe consequences. The author is a senior with Punongbayan & Araullo’s (P&A) tax advisory and compliance division. P&A is the Philippine member firm of Grant Thornton International Ltd. For comments and inquiries, please e-mail [email protected] or call 886-5511.

Posted on August 12, 2013 10:26:29 PM

Why should I comply? Let’s Talk Tax Rose Ann N. Salvador

HAVE you ever done something without thinking about what you could gain from it? In the world of business, more often than not, people make decisions based on what they can get out of the situation or how they can benefit from it. It is innate in people to always want to be in a win-win situation. But, what if the thing that you have to do is imposed on you? Do you still have the pleasure of weighing the benefits before you act? On Oct. 22, 2012, the Bureau of Internal Revenue (BIR) issued Revenue Regulations (RR) No. 18-2012, which prescribes the guidelines for the processing and requirements to secure Authority to Print (ATP) invoices and official receipts (ORs); the regulations also grant exclusive authority to BIR-accredited printers to print ORs and invoices. All noncompliant unused invoices and ORs were set to be valid only until June 30, 2013, which was later on extended until Aug. 30, 2013. In Revenue Memorandum Order (RMO) No. 12-2013, the required information

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LET’S TALK TAX 2013 to be reflected in the new invoices and ORs were prescribed and samples annexed therein. First, we have to understand why this was implemented and why taxpayers have to go through this exercise. Will this really achieve the BIR’s objective of (1) curbing tax evasion and smuggling; and (2) preventing some BIR personnel from blocking the ATP application of taxpayers unless the personnel’s printing services are tapped? While the regulations may address the issue of dishonorable acts by some BIR personnel by excluding the bureau’s personnel from the list of authorized printers, I personally believe that taxpayers who intend to evade taxes will just seek unauthorized printers and have them print invoices and receipts that appear very similar to legitimate invoices. And who are left to comply with the new requirements? The same compliant taxpayers who are now burdened with this new requirement. What are the documentary requirements for the application for ATP? The following are the documents to be submitted to the revenue district office (RDO) having jurisdiction over the taxpayer: • Duly accomplished BIR Form No. 1906 (Application for Authority to Print Receipts and Invoices) • Photocopy of BIR Form No. 2303 (Certification of Registration) of both the printer and the taxpayer • Photocopy of BIR Form No. 0605 (Payment Form) for the payment of the Annual Registration Fee (ARF) of both the printer and the taxpayer • Job Order (to be obtained from the printer) • Final and clear sample of the invoices, ORs and other supplementary documents • Last booklet printed • Photocopy of loose-leaf permit, if applicable • Previous ATP, or if previous ATP was lost, an affidavit of loss shall be submitted in lieu of it • BIR Form No. 0605 for the payment of P1,000 penalty for the late application for ATP, if applicable To file the application, a taxpayer just has to submit the complete documents to the RDO where it is registered. The requirements and the process for ATP application may seem simple. But what makes it hard for companies to comply? From what I have heard, some taxpayers are requesting that the BIR further extend the validity of receipts with expiring ATPs. What is hindering these taxpayers from having a smooth ATP application process? Here are the possible reasons: 1. Insufficient number of printers to accommodate taxpayers trying to comply with the regulations. Some taxpayers are having a hard time looking for printers, and some are complaining that certain accredited printers are no longer accepting job orders for printing invoices and ORs. For their part, printers are also pressed to complete all accepted job orders within 30 days from the date of the issuance of the approved ATP, which makes it difficult for them to accept additional orders from taxpayers. To address this supply and demand problem, the BIR allowed printers with provisional accreditation numbers to print invoices and ORs, as mandated under RMO No. 12-2013. However, the BIR did not provide the public with this list of alternative printers. Taxpayers have to go to their respective RDOs just to get hold of the list.

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LET’S TALK TAX 2013

2. No definite period of processing of applications for ATPs that are already with the BIR. Another issue brought up by taxpayers is the length of time it takes the BIR to process the ATP applications. Understandably, the BIR has been deluged with applications for ATPs. Some taxpayers are saying that their applications are still pending approval from the bureau despite constant follow-ups. Now that we know the complaints of taxpayers, let’s now discuss the brighter side of the story. What can companies gain if they patiently go through the process of ATP applications? 1. Be the preferred supplier with approved ATP. Obtaining an approved ATP has some perks too. I personally believe that suppliers with approved ATP will have an edge over their noncompliant competitors. Why? Because complying with ATP regulations, which also promulgate the invoicing requirements, may have a material effect on their customer’s claims for input taxes and claims for deduction for income tax purposes. Under the value-added tax (VAT) regulations, claims for input taxes shall be supported by documents that indicate the required information in the VAT invoices and VAT ORs. Such requirements were also reiterated in RMO No. 12-2013. Furthermore, it was provided under RMC No. 44-2013 that, after August 30, 2013, transactions supported by receipts printed prior to Jan. 18, 2013 may not be allowed as deduction. 2. Expect early payments from customers. Yes, having compliant invoices and ORs may have an effect on the collections of the suppliers. There are some customers who are stringent when it comes to invoicing requirements. Some refuse to pay unless compliant supporting documents are presented to them upon payment of their dues. This is especially true for those who are aware of the consequences of failure to comply with substantiation and invoicing requirements, and for those who expect to accrue excess input tax carry-overs over the life of their businesses. 3. Save on unnecessary penalty costs and enjoy a life outside prison bars. Failure to comply with the ATP regulations is subject to penalties prescribed under Sec. 264 of the Tax Code, which imposes a fine of not less than P1,000 but not more than P50,000. In addition to such penalty, related criminal liability may be imposed and taxpayers may suffer imprisonment of not less than two years but not more than four years. The Aug. 30 deadline is drawing near, and not all taxpayers are ready with their new ATPs, invoices and receipts. Taxpayers who have yet to secure their ATPs are crossing their fingers that the BIR will further extend the deadline. But without such an extension, taxpayers only have the remaining two weeks to process their applications and comply with the requirements of the BIR. As to whether or not they can beat the deadline, we will find out come Aug. 30. The author is a senior with Punongbayan & Araullo’s (P&A) tax advisory and compliance division. P&A is the Philippine member firm within Grant Thornton International Ltd. For comments and inquiries please e-mail [email protected] or call 886-5511.

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LET’S TALK TAX 2013 Posted on August 05, 2013 11:30:25 PM Mandatory and jurisdictional period exceptions ONE of the basic principles of law that is well-established in prevailing jurisprudence is that a claimant has the burden of proof to establish the factual basis of his or her claim for tax refund. This is because tax refunds are in the nature of tax exemptions that are to be construed strictissimi juris against the taxpayer. Taxpayer-claimants are admonished that although they may have the right to file a claim for tax refund, such right becomes worthless unless they are able to sufficiently prove their claim to the amount in question. Likewise, compliance with the fundamental procedural requirements is mandatory. Moreover, one of the more controversial procedural issues involving tax refund cases pertain to the periods given the taxpayer to file his administrative and judicial claims with the Bureau of Internal Revenue (BIR) and the Court of Tax Appeals (CTA), respectively. Earlier this year, the Supreme Court (SC) En Banc promulgated a consolidated decision involving separate claims for tax refund of unutilized input value-added tax (VAT) by San Roque Power Corp., Taganito Mining Corp., and Philex Mining Corp. In the aforementioned decision, the SC clarified the correct interpretation of the two-year prescriptive period provided under Section 229 of the Tax Code. In the case of San Roque, the Court denied its Petition for Refund since it was filed with the CTA without exhausting the 120day period for the Commissioner of Internal Revenue (CIR) to issue a decision on the administrative claim for refund. According to the Court, Section 112 (C) of the Tax Code grants a taxpayer a 30-day period to appeal to the CTA the decision or inaction of the Commissioner. In other words, the mandatory 30-day period starts to run 120 days from the submission by the taxpayerclaimant of complete documents in support of its administrative claim for refund. On the other hand, in the case of Taganito, the Court held that while similar to the case of San Roque, Taganito also filed its Petition for Refund with the CTA without waiting for the lapse of the 120-day period, the latter can nonetheless invoke BIR Ruling DA-489-03, dated Dec. 10, 2003, since Taganito filed its petition before the promulgation of the Aichi Doctrine on Oct. 6, 2010. The SC emphasized that BIR Ruling DA-489-03 expressly provided the “taxpayer-claimant need not wait for the lapse of the 120-day period before it could seek judicial relief with the CTA by way of Petition for Review.” The Supreme Court ruled that BIR Ruling No. DA-489-03 is a general interpretative rule, the benefits of which may be invoked by all taxpayers, and though considered as a misleading and erroneous interpretation by the Commissioner on a difficult question of law, it nevertheless provides a valid claim for equitable estoppel under Section 246 of the Tax Code. Hence, the Court said, “taxpayers acting in good faith should not be made to suffer for adhering to general interpretative rules of the Commissioner interpreting tax laws, should such interpretation later turn out to be erroneous and reversed by the Commissioner or the Court.” This effect of BIR Ruling No. DA-489-03 was further explained by the Court in the consolidated cases of Mindanao II Geothermal Partnership vs. CIR, and Mindanao I Geothermal Partnership vs. CIR, G.R. Nos. 193301 and 194637, March 11, 2013. As per the SC, “(a)ll taxpayers, however, can rely on BIR Ruling DA-489-03 from the time of its issuance on Dec. 10, 2003 up to its reversal by this Court in Aichi on Oct. 6, 2010, as an exception to the mandatory and jurisdictional 120+30 day periods.” From the foregoing pronouncements of the SC, a considerable number of taxpayer-claimants whose claims for refund were previously denied either by the CTA Division or En Banc pursuant to the Aichi Doctrine, were given a new lease on life. Nonetheless, emphasis must be made on the fact that only those taxpayer-claimants whose claims were respectively filed during the effectivity of BIR Ruling DA-489-03 (before promulgation of the Aichi case), and which claims are still pending before the Courts may benefit from this exemption to the general rule. Taxpayer-claimants who failed to file their respective timely appeals on the previous denials made by the CTA before the promulgation of the San Roque and Mindanao Geothermal decisions are barred from relying on the benefits extended by BIR Ruling DA-489-03, as their failure to file an appeal resulted to res judicata in their own case. Truly, while it is essential for a taxpayer-claimant to prove not only his entitlement to a refund but also his compliance with the

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LET’S TALK TAX 2013 procedural due process as non-observance of the prescriptive periods within which to file the administrative and the judicial claims would result in the denial of his claim, valid exceptions such as those offered under BIR Ruling DA-489-03 should also be recognized. As decided by the SC in one case, “technicalities and legalisms, however exalted, should not be misused by the government to keep money not belonging to it and thereby enrich itself at the expense of its law-abiding citizens.” The author is a tax manager with Punongbayan & Araullo’s tax advisory and compliance division. P&A is a leading audit, tax and advisory service firm and is the Philippine member of Grant Thornton International Ltd. For comments and inquiries please e-mail [email protected] or call 886-5511.

Posted on July 29, 2013 10:48:00 PM Further regulating the privilege of non-stock, non-profit organizations

IN THE MIDST of its goal to increase tax collections, the Bureau of Internal Revenue (BIR) has issued new rules imposing additional requirements on taxpayers for the strict implementation of our tax laws. The most recently issued rules are directed to non-stock, non-profit organizations. Non-stock, non-profit organizations are created to achieve a specific purpose other than generating profit. They undertake activities which would otherwise have been the responsibility of the government. As a way of rewarding this social contribution, nonstock, non-profit organizations are given tax exemptions. Under the 1987 Philippine Constitution, charitable institutions, churches and parsonages or convents appurtenant thereto, mosques, non-profit cemeteries, and all lands, buildings, and improvements, actually, directly and exclusively used for religious, charitable, or educational purposes shall be exempt from taxation. For non-stock, non-profit educational institutions, all income and assets used actually, directly and exclusively for educational purposes shall be exempt from taxes and duties. A similar grant of tax exemption is also provided for in the Tax Code, which states that non-stock, non-profit educational institutions, as well as a non-stock corporation or association organized and operated exclusively for religious, charitable, scientific, athletic, or cultural purposes, or for the rehabilitation of veterans, shall be exempt from tax on income received by them as such. Note however, that the tax exemption privileges of non-stock, non-profit organizations are not absolute. It does not cover all types of income and activities. In fact, under the Tax Code, income from properties and activities conducted for profit by nonstock, non-profit corporations is subject to income tax. Thus, for proper implementation of this tax exemption, non-stock, nonprofit organizations are required to comply with certain regulatory requirements of the BIR and other government agencies. It is not unknown that there have been instances when non-stock non-profit organizations were used to escape taxation. Under Revenue Memorandum Circular No. (RMC) 76-03, the BIR initially provided guidelines for the proper implementation of taxes due to non-stock, non-profit corporations. The said RMC discussed the nature of the income exempt from and subject to tax. In connection to this, the BIR recently issued Revenue Memorandum Order No. (RMO) 20-2013, which prescribes guidelines for the applications for tax exemption, revalidation of tax exemption certificates and application for confirmatory BIR rulings. The RMO provides a list of documentary requirements and guidelines for the evaluation of the applications. Among others, the BIR requires submission of a statement under oath executed by an executive officer of the non-stock, nonprofit corporation or association containing its modus operandi. The statement shall include: (a) a full description of the past, present and proposed activities; (b) a narrative description of anticipated receipts and contemplated expenditures and; (c) a detailed description of all revenues which it seeks to be exempted from income tax.

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Initial feedback among the organizations is that compliance with this requirement may be difficult, particularly with information pertaining to future income and activities which may or may not push through depending on the circumstances. With the strict requirement that all other revenues not included in the statement shall be subject to income tax, it is possible that some unexpected sources not included in the application will be unreasonably taxed. The RMO further provides for the causes of revocation of the tax exemption certificate or ruling. A tax exemption ruling shall be deemed revoked if there are material changes in the character, purpose, or method of operation of the corporation or association which are inconsistent with the basis for its income tax exemption. In addition, non-renewal of the tax exemption ruling and nonrevalidation of tax exemption certificate shall revoke the exemption. Further, the income tax -- exempt status shall be lost if the corporation or associated which has been issued a tax exemption ruling fails to file an annual information return. For the guidance of non-stock, non-profit organizations, tax exemption rulings or certificates issued prior to June 30, 2012 shall be valid until Dec. 31, 2013. While those issued after June 30, 2012 shall continue to be valid for a period of three years from the date of issuance unless sooner revoked or cancelled. It is advised that organizations with expiring tax exemption rulings and certificates start the preparation of the lengthy list of requirements to avoid revocation of their exemption. On one hand, this issuance would, once and for all, set clear guidelines on the compliance requirements for non-profit organizations. Many times in the past, they fail to avail of their privileges for failure to comply with some requirements which they are not aware of. On the other hand, while the rules under RMO 20-2013 are necessary to ensure compliance with the conditions attached to the tax exemption, the BIR should ensure that the requirements will not be unreasonably stringent. The BIR should consider that, in addition to its rules, non-stock, non-profit organizations also have to comply with the requirements imposed by other government agencies such as the Department of Education, Department of Finance and Philippine Council for non-government organizations (NGOs). Bear in mind that regulation should not hinder the availment of the privilege afforded to non-stock, non-profit organizations under our laws. The author is a tax manager with Punongbayan & Araullo’s (P&A) tax advisory and compliance division. P&A is a leading audit, tax and an advisory service firm and is the Philippine member of Grant Thornton International Ltd.

Posted on July 22, 2013 10:51:55 PM

Willful blindness doctrine MERE RELIANCE on another person in preparing, filing and paying income taxes is not a justification for failure to file the right information on income taxes. In People v. Gloria Kintanar (CTA EB Crim. No. 006, Dec. 3, 2010), Ms. Kintanar was charged with failure to make or file her income tax returns (ITR), violating Section 255 of the 1997 National Internal Revenue Code (NIRC), as amended. She claimed that she did not actively participate in the filing of her joint ITR with her husband since she entrusted such duty to the latter who, in turn, hired an accountant to perform their tax responsibilities. She testified that she did not know how much her tax obligation was; nor did she bother to inquire or determine the facts surrounding the filing of her ITRs. Despite several notices and subpoena received by the accused, only an unsupported protest letter made by her husband was filed with the Bureau of Internal Revenue (BIR). The Court of Tax Appeals (CTA) En Banc found her neglect or omission tantamount to “deliberate ignorance” or “conscious avoidance”. As an experienced businesswoman, her reliance on her husband to file the required ITR without ensuring its full compliance showed clear indication of deliberate lack of concern on her part to perform her tax obligations. This ruling was sustained by the Supreme Court (SC) in 2012. Based on the foregoing, the willful blindness doctrine was applied by the CTA, as sustained by SC on cases where there is a natural presumption that the taxpayer knows his/her tax obligations under the law considering the factual circumstances of the

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LET’S TALK TAX 2013 case, such as being a businesswoman or official of a company. This case set a precedent that mere reliance on a representative or agent (i.e., accountant or husband) is not a valid ground to justify any noncompliance in tax obligations. The taxpayer must inquire, check and validate whether or not his/her representative or agent has complied with the taxpayer’s tax responsibilities. However, in the recent case of People v. Judy Ann Santos (CTA Crim. Case no. 012, Jan. 16, 2013), the CTA Division seemed to have a change of heart and acquitted Ms. Santos despite having almost the same circumstances as that of the case of Ms. Kintanar. In this case, Ms. Santos was accused of failure to supply correct and accurate information in her ITR. She claimed that by virtue of trust, respect and confidence, she has entrusted her professional, financial and tax responsibilities to her manager since she was 12 years old. She participated and maintained her intention to settle the case, and thus provided all the documents needed as well as payment of her taxes. The element of willfulness was not established and the CTA found her to be merely negligent. The CTA also noted the intention of Ms. Santos to settle the case, which negates any motive to commit fraud. This was affirmed by the SC in its resolution issued April 2013. THE DIFFERENCES “Willful blindness” is defined in Black’s Law Dictionary as “deliberate avoidance of knowledge of a crime, especially by failing to make a reasonable inquiry about suspected wrongdoing, despite being aware that it is highly probable.” A “willful act” is described as one done intentionally, knowingly and purposely, without justifiable excuse. “Willful” in tax crimes means voluntary, intentional violation of a known legal duty, and bad faith or bad purpose need not be shown. It is a state of mind that may be inferred from the circumstances of the case; thus, proof of willfulness may be, and usually is, shown by circumstantial evidence alone. Therefore, to convict the accused for willful failure to file ITR or submit accurate information, it must be shown that the accused was (1) aware of his/her obligation to file annual ITR or submit accurate information, but that (2) he/she, or his/her supposed agent, nevertheless voluntarily, knowingly and intentionally failed to file the required returns or submit accurate information. Bad faith or intent to defraud need not be shown. As can be observed in the first case, the accused knew that she had to timely file and supply correct and accurate information of the joint ITR with the BIR in relation to the profession or the position she holds. The knowledge was presumed based on the fact that Ms. Kintanar is an “experienced” businesswoman, having been an independent distributor of a product for several years. However, despite this knowledge, the CTA found that she voluntarily, knowingly and intentionally failed to fulfill her tax responsibilities by not participating in the filing of the ITR and ensuring that everything was filed correctly and accurately. As compared with the Santos case, which the SC affirmed, the element of “voluntarily, knowingly and intentionally” was taken differently by the CTA in consideration of the facts of the case. Ms. Santos fully entrusted her tax obligations and finances to her manager since she was a child. It can be said that she is not an “experienced” manager of her finances and taxes since she never handled such task, as compared with the situation of Ms. Kintanar, who is considered an experienced businesswoman who manages her business as well as her financial and tax responsibilities -- which is expected of somebody in her position (i.e., president and/or businessperson). The concept of willful blindness doctrine is new in Philippine jurisprudence. The application of this doctrine by the CTA in the said cases was guided by the appreciation of the facts and the pieces of evidence produced by the prosecution and accused to prove the non-existence of willfulness. However, defined and clear standards in its application must be done as guidance for future application. This is necessary to avoid arbitrary application and to encourage proper use of the doctrine by both parties in the case. The author is a tax associate with Punongbayan & Araullo’s (P&A) Tax Advisory and Compliance Division. P&A is a leading audit, tax and an advisory service firm and is the Philippine member of Grant Thornton International Ltd. For comments and inquiries please e-mail [email protected] or call 886-5511.

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LET’S TALK TAX 2013 Posted on July 15, 2013 10:04:29 PM

Are you a legitimate tax refund claimant? WHY DOES a taxpayer go to court seeking value-added tax (VAT) refund when he knows he does not comply with the requisites for a tax refund? Out of 37 VAT refund cases which the Court of Tax Appeals (CTA) decided for the year 2013, only 10 cases were granted. In most instances, taxpayers were denied their claim for refund for failing to comply with some basic requirements. Considering the large percentage of denied cases that result from this, taxpayers are advised to ensure they have all the pertinent documents that would corroborate their claims for refund to avoid unnecessary expenses and wasted efforts. Well-settled is the rule that tax refunds are in the nature of tax exemptions and, as such, they are regarded as derogation of sovereign authority and are construed as strictly against the person or entity claiming them. Simply stated, the taxpayer seeking refund has no choice or alternative but to comply with all the administrative and substantive requisites for refund. Below are the basic requirements for VAT refunds. The taxpayer must be VAT-registered. Under Section 112 (A) of the Tax Code, in order to be entitled to refund/tax credit of unutilized input VAT, the taxpayer must be VAT-registered. Thus, a VAT-registered taxpayer that incurred input VAT or made VAT-zero rated sales prior to VAT registration is not entitled to claim refund for the unutilized input VAT. In CTA Case No. 8326, dated June 13, 2013, the input VAT that was the subject of refund refers to the VAT paid by the taxpayer on its purchase of land, while its alleged zero-rated sale of service occurred when it entered into a lease agreement with its affiliate PEZA-registered IT enterprise. The CTA remarked that the unutilized input VAT on the purchase of land was incurred by the taxpayer at a time when it was not yet registered as a VAT taxpayer. Moreover, the land lease agreement was executed before the taxpayer’s VAT registration. Considering the above situation, the court denied the taxpayer’s claim for refund on the ground that there is no input VAT that can be a subject of refund, and the sale of service is not yet considered a VAT zero-rated sale when the taxpayer was not yet VAT-registered. There must be zero-rated or effectively zero-rated sales. In case of export sales, in order for such to qualify as zero-rated, there should be a sale and actual shipment of goods from the Philippines to a foreign country, the sale should be paid for in acceptable foreign currency, and the payment should be accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP). In CTA Case No. 8270, dated June 11, 2013, the VAT-registered taxpayer proffered documents such as official receipts, HSBC Certification and BNP Paribas Consolidated Cash statement proving its receipt of foreign currency remittance. However, the court denied the petition for refund since the taxpayer failed to submit VAT zero-rated invoices and export documents such as export declarations and bills of lading or airway bills. Consequently, it was held that the taxpayer failed to comply with the basic rules of proving the existence of zero-rated sales and actual shipment of goods. Input VAT should be properly substantiated. A VAT-registered taxpayer must substantiate its input VAT claimed in the VAT returns with sales invoices for purchases of goods and official receipts for purchase of services showing the information required in the Tax Code. The information required therein includes, among others, the amount of the tax which is separately shown in the invoice or receipt and date of transaction.

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LET’S TALK TAX 2013 In CTA Case No. 7913, dated June 13, 2013, the Court reduced the amount of refundable input VAT for failure of the taxpayer to substantiate input VAT for purchases of service with official receipt. In addition, certain official receipts presented did not show that VAT was separately indicated and were not dated within the period when it was claimed. The same situation is found in CTA Case No. 8059, dated June 11, 2013 wherein the taxpayer submitted VAT official receipts and invoices and Import Entry and Internal Revenue Declaration (IEIRD) for its importation that was dated outside the period of the taxpayer’s claim. The CTA denied the claim for refund on the ground that the input VAT was supported by out-of-period VAT invoices, receipts and IEIRDs. Basis of the VAT Refund. Under Section 112 of the Tax Code, there are only two instances when excess input taxes may be claimed for refund: (a) when they are attributable to zero-rated or effectively zero-rated sales; and (b) upon cancellation of VAT registration due to retirement from or cessation of business. On the other hand, a taxpayer may also make a claim for refund on the grounds of erroneously or illegally collected/paid tax under Section 204 of the Tax Code. In CTA Case No. 8136, dated May 15, 2013, the taxpayer sought a refund of overpayment of output VAT on the ground that such VAT paid was erroneously or illegally collected/paid tax. However, it was found out that the alleged overpayment of VAT was due to input tax erroneously not declared in the quarterly VAT return. Such input tax was not credited against the output tax for the quarter it was incurred, resulting in the taxpayer paying the output VAT contended as erroneously paid tax. The court denied the claim and held that the taxes sought to be refunded represent undeclared input taxes and not erroneously paid output VAT. In light of Section 112 of the Tax Code, the court held that the taxpayer’s claim for refund or credit of its undeclared input taxes does not fall under any of the instances provided by law. Consequently, the claim for refund or issuance of tax credit certificate was denied as it does not have any basis at all. With the robust number of taxpayers seeking tax refunds, it is imperative for taxpayers to evaluate whether their claim is legitimate enough and properly substantiated. Taxpayers should also consider the amount of tax to be refunded against the cost of going to court. Taxpayers should also seek professional advice or assistance to evaluate their compliance with the requisites of tax refund before filing the claim. (The author is a tax senior with Punongbayan & Araullo’s tax advisory and compliance division. P&A is a leading audit, tax and an advisory service firm and is the Philippine member of Grant Thornton International Ltd. For comments and inquiries please e-mail [email protected] or call 886-5511.)

Posted on July 08, 2013 11:21:28 PM

BIR shifting burden to taxpayers? TAX compliance has never been this burdensome, as evidenced by various complaints and uproars from taxpayers that the Bureau of Internal Revenue (BIR) normally shrugs off. There have been numerous BIR regulations and issuances that seemed to have shifted too much burden to the taxpayers; noncompliance therewith even results in imposition of steep penalties. Are these issuances still in line with the BIR’s functions? Are these beneficial to taxpayers or only of convenience to the BIR? How are taxpayers supposed to respond to these seemingly burdensome issuances? Is the power of taxation properly exercised? These are just some concerns taxpayers nowadays ponder on. In analyzing whether or not the BIR unduly shifts burden to taxpayers, an understanding of the role of the BIR and the reason for its issuances is necessary. The BIR and its priorities. The BIR is an administrative agency attached to the Department of Finance mandated to accomplish

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LET’S TALK TAX 2013 the following tasks: 1. assessment and collection of all national taxes, fees and charges; 2. enforcement of all forfeitures, penalties, fines and execution of judgments in cases decided in its favor by the Court of Tax Appeals (CTA) and ordinary courts; and 3. administration of supervisory and police powers conferred by the Tax Code, as amended. In order to accomplish its tasks, the BIR is granted certain powers under the Tax Code. Among them are the powers to interpret tax laws, obtain information, examine taxpayers and assess the correct taxes, and prescribe additional requirements. Seemingly burdensome issuances. It is evident that the BIR is exhausting all its powers under the Tax Code to fulfill its mandate. Lately, it has issued revenue regulations and revenue memorandum circulars intended to entrust to taxpayers the duty of monitoring the tax compliance of the latter’s clients and customers, thereby addressing the difficulties encountered by the BIR in doing the monitoring on its own. It has likewise resorted to general invalidation of certain previously approved privileges or documents and thereafter requiring everyone to comply anew. In the process, even taxpayers who have been religiously complying with their obligations are effectively penalized. Invalidation of all rulings issued prior to 1998. As it reviewed some of the rulings issued and found some of them lacking in legal basis, the BIR resorted to a general invalidation of all rulings issued to all taxpayers prior to the 1997 Tax Reform Act, regardless of whether or not their legal bases have been affected by the new law. Reapplication to get a reconfirmation of the tax treatment or tax privilege will definitely entail time and resources. Requirement as to the printing of new sets of official receipts/invoices. Revenue Regulations No. (RR) 18-2012 and Revenue Memorandum Circular No. (RMC) 44-2013 required taxpayers to discard their old official receipts (ORs) or invoices, have new ones printed through accredited printers until Aug. 30, 2013, and submit an inventory listing of unused/unissued ORs and invoices. The purpose of these is to plug loopholes so that instead of the BIR doing tedious audit and investigation on taxpayers, it required that current registration be invalidated and everyone is also mandated to register anew. This requirement entailed additional cost to the taxpayers, and many claimed, resulted in wastage of unused invoices that now have to be discarded. Issuance of old ORs/invoices after Aug. 30, 2013 shall be deemed issuance of invalid receipt, as if no receipts were issued. Apart from the penalty to the issuers of invalid ORs/invoices, purchasers who transact with non-compliant sellers shall be penalized through disallowance as deduction of their purchases/expenses. Hence, purchasers are obliged to ensure that they only transact with BIR-registered sellers with newly-printed ORs/invoices. Requirement to revalidate tax exemption rulings/certificates. RMC 4-2013 invalidated all rulings issued prior to Nov. 1, 2012 granting tax exemption to proprietary non-profit hospitals or non-stock non-profit entities operating hospitals under Section 30 of the Tax Code, as amended. These tax-exempt hospitals were required to secure revalidated tax exemption rulings/certificates by submitting the required documents and any additional documents as the circumstances may warrant. Requirement for the validity of protest. RMC 29-2013 requires BIR receiving personnel to enter into the BIR’s database the taxpayer’s filing of protest. Any letter of protest, request for reinvestigation/reconsideration, or other similar communication allegedly filed by any taxpayer but are not included in the database shall be deemed not officially filed and shall not be used as basis for the grant of any request for reinvestigation/reconsideration of any Final Assessment Notice (FAN) or Final Decision on Disputed Assessment (FDDA) issued against the taxpayer. What is seemingly unfair is that this circular imposes a duty on BIR personnel yet works to the disadvantage of the taxpayers’ cause upon the former’s failure to accomplish their task. Requirement for lessors to monitor BIR registration of their lessees. RR 12-2011 requires lessors to submit to the BIR a report, under oath, on the registration profile of their lessees who are engaged in business. This submission shall be made in every Regional District Office (RDO) where the commercial establishment, building or space is located. The BIR hopes to use such information in future investigations to validate the revenues reported by the lessors and the registration profile of the lessees. Penalties are imposed on lessors who failed to comply with the reportorial requirements, willfully provided false information,

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LET’S TALK TAX 2013 and knowingly transacted with unregistered taxpayers. We would like to understand that, in this transition period, the BIR finds it necessary to make a strong statement of its seriousness in enforcing the tax laws. In fact, all of these seem to be within the BIR’s powers vested by the Tax Code. If anyone would like to question whether the BIR acted without or in excess of its jurisdiction, this is a matter falling under the realm of the judiciary. Jurisprudence provides that even as we concede the inevitability and indispensability of taxation, it is a requirement in all democratic regimes that it is exercised reasonably and in accordance with the prescribed procedure. If it is not, then the taxpayer has a right to complain, and the courts will then come to his succor. Without taxes, the government would be paralyzed for lack of the motive power to activate and operate it. Hence, despite the natural reluctance to surrender part of one’s hard-earned income to the taxing authorities, every person who is able to must contribute his share in the running of the government. The government, for its part, is expected to respond in the form of tangible and intangible benefits intended to improve the lives of the people and enhance their moral and material values. This symbiotic relationship is the rationale of taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those in the seat of power. While the Supreme Court has not ruled that any of these issuances is unconstitutional or beyond the BIR’s jurisdiction, the issuances remain to have the force and effect of law and presumed lawfully exercised. As such, it is imperative for taxpayers not only to act in accordance to the dictates of law and sound morality but to keep themselves informed and always updated to avoid liabilities and imposition of penalties. Let us hope that as compliance levels stabilize, some of these requirements can be eased. The author is a tax manager with Punongbayan & Araullo’s (P&A) tax advisory and compliance division. P&A is a leading audit, tax and an advisory service firm and is the Philippine member of Grant Thornton International Ltd. For comments and inquiries please e-mail [email protected] or call 886-5511.

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