August 2012
Tax Bulletin
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Highlights BIR Rulings •
Payments to a foreign corporation for services performed entirely outside the Philippines are exempt from income tax and value-added tax (VAT). (Page 4)
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Dividen ds paid by a domestic corporation to an Australian corporation Dividends corporation are subject to the 15% nal withholding tax (FWT) under Section 28(B)(5)(b) of the Tax Code. (Page 4)
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Income derived from investments in the Philippi Philippines nes by foreign governments is exempt from income tax and, consequently, from withholding tax. (Page 5)
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An upstream merger where the survivi surviving ng parent company will not issue shares in exchange for the assets of the absorbed subsidiary is not considered a tax-free merger under Section 40(C)(2) of the Tax Code. (Page 5)
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In a transaction where two persons exchanged exchanged shares of stock in two companies for shares of stock in a third corporation in separate Deeds of Assignment, as a result of which the rst person gains control of 58.15%, and the second person gains control of 24.33%, of the voting stock of the transferee-corporation, only the transfer of the rst person will be considered a tax-free exchange under Section 40(C)(2) of the Tax Code. (Page 6)
BIR Issuances
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Revenue Regulation Regulationss (RR) No. 11-2012 amends Section 3 of RR No. 1-2011 on exemption from documentary stamp tax (DST) of remittances of Overseas Contract Workers (OCWs) or Overseas Filipino Workers (OFWs). (Page 7)
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Revenue Memorandum Circular (RMC) No. 34-2012 claries the tax implication implicationss of integrating the Domestic Passenger Service Charge (DPSC) at the point of sale of airline tickets, and prescribes rules for the invoicing and recording of the DPSC in the books of airline companies and airport authorities. (Page 8)
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RMC No. 35-2012 claries the taxability of clubs organized and operated exclusively for pleasure, recreation, and other non-prot purposes. (Page 9)
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RMC No. 36-2012 claries whether document documentss mentioned mentioned in Section Section 199 of the Tax Code, as amended by Republic Act (RA) No. 9243, are subject to the P15.00 DST prescribed in Section 188 of the Tax Code. (Page 10)
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RMC No. 37-2012 claries Section Section 11 of RR No. 06-08 by by making it clear that a Certicate Authorizing Registration (CAR) is still necessary before shares of stock not traded in the stock exchange may be transferred. (Page 10)
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RMC No. 38-2012 further clari claries es in Question and Answer format the provisions of RR No. 7-2010, as amended by RR No. 8-2010, implementing the tax privileges granted under RA No. 9994, otherwise known as the “Expanded Senior Citizens Act of 2010.” (Page 11)
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RMC No. 39-2012 mandates the withhold withholding ing of income tax on backwages, allowances, and benets received by employees through garnishment of debts or credits pursuant to a labor dispute award. (Page 14)
Tax Bulletin
Highlights BIR Rulings •
Payments to a foreign corporation for services performed entirely outside the Philippines are exempt from income tax and value-added tax (VAT). (Page 4)
•
Dividen ds paid by a domestic corporation to an Australian corporation Dividends corporation are subject to the 15% nal withholding tax (FWT) under Section 28(B)(5)(b) of the Tax Code. (Page 4)
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Income derived from investments in the Philippi Philippines nes by foreign governments is exempt from income tax and, consequently, from withholding tax. (Page 5)
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An upstream merger where the survivi surviving ng parent company will not issue shares in exchange for the assets of the absorbed subsidiary is not considered a tax-free merger under Section 40(C)(2) of the Tax Code. (Page 5)
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In a transaction where two persons exchanged exchanged shares of stock in two companies for shares of stock in a third corporation in separate Deeds of Assignment, as a result of which the rst person gains control of 58.15%, and the second person gains control of 24.33%, of the voting stock of the transferee-corporation, only the transfer of the rst person will be considered a tax-free exchange under Section 40(C)(2) of the Tax Code. (Page 6)
BIR Issuances
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Revenue Regulation Regulationss (RR) No. 11-2012 amends Section 3 of RR No. 1-2011 on exemption from documentary stamp tax (DST) of remittances of Overseas Contract Workers (OCWs) or Overseas Filipino Workers (OFWs). (Page 7)
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Revenue Memorandum Circular (RMC) No. 34-2012 claries the tax implication implicationss of integrating the Domestic Passenger Service Charge (DPSC) at the point of sale of airline tickets, and prescribes rules for the invoicing and recording of the DPSC in the books of airline companies and airport authorities. (Page 8)
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RMC No. 35-2012 claries the taxability of clubs organized and operated exclusively for pleasure, recreation, and other non-prot purposes. (Page 9)
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RMC No. 36-2012 claries whether document documentss mentioned mentioned in Section Section 199 of the Tax Code, as amended by Republic Act (RA) No. 9243, are subject to the P15.00 DST prescribed in Section 188 of the Tax Code. (Page 10)
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RMC No. 37-2012 claries Section Section 11 of RR No. 06-08 by by making it clear that a Certicate Authorizing Registration (CAR) is still necessary before shares of stock not traded in the stock exchange may be transferred. (Page 10)
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RMC No. 38-2012 further clari claries es in Question and Answer format the provisions of RR No. 7-2010, as amended by RR No. 8-2010, implementing the tax privileges granted under RA No. 9994, otherwise known as the “Expanded Senior Citizens Act of 2010.” (Page 11)
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RMC No. 39-2012 mandates the withhold withholding ing of income tax on backwages, allowances, and benets received by employees through garnishment of debts or credits pursuant to a labor dispute award. (Page 14)
Tax Bulletin
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RMC No. 40-2012 prescribes a prescriptive period for rulings issued pursuant to Section 40 (C) (2) of the Tax Code. (Page 15)
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RMC No. 47-2012 prescribes the rules and deadlines for for the ling of applications for enrollment in the VAT Tax Credit Certicate (TCC) Monetization Program, pursuant to the Department of Finance (DOF), Department of Budget and Management (DBM) and BIR Joint Circular No. 2-2012 dated May 31, 2012. (Page 15)
BOC Issuances •
Customs Administrative Order (CAO) No. 1-2012 establishes the Authorized Economic Operator (AEO) Program for exporters. (Page 16)
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Customs Memorandum Order (CMO) No. 9-2012 requires prior approval from the Commissioner of Customs or the Deputy Commissioner for the Management Information System and Technology Group (MISTG) for the manual processing of import entries in order to effect the clearance and release of imported goods. (Page 18)
PSE Issuance •
Philippi ne Stock Exchange (PSE) Memorandum CN No. 2012-0046 reminds Philippine the investing public of the effects of the failure of listed companies to comply with the minimum public ownership (MPO) requirement by December 31, 2012. (Page 19)
SEC Issuances •
SEC Memorandum Circular (MC) No. 6 dispenses with some requirements in some registration activities. (Page 19)
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For a corporation to to purchase, acquire or own land in the Philippin Philippines, es, at least 60% of the total capital stock of the corporation must be wholly-owned by Filipino citizens. (Page 20)
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A corporation needs to amend its Articles of Incorporation (AOI) to reect the change of address from one building to another, even if the second building is within the same city or municipality. (Page 21)
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In determining determining the citizenship citizenship of shares being held in trust, trust, the nationality nationality of both the trustee and the beneciary should be considered. (Page 21)
BSP Issuances •
Circular No. 762 amends the regulations on Deposits Deposits for Stock Subscript Subscriptions ions of banks/quasi-banks. (Page 22)
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Circular No. No. 763 provides for regulatory relief to banks under rehabilitat rehabilitation ion program. (Page 25)
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Circular No. No. 764 prescribes the Revised Outsourcing Fr Framework amework for NonBank Financial Institutions (NBFIs). (Page 25)
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Circular No. No. 765 prescribes the Revised Outsourcing Fr Framework amework for Banks. (Page 26)
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Circular No. 766 prescribes the Guidelines in Strengthening Corporate Governance and Risk Management Practices on Trust, Other Fiduciary Business, and Investment Management Activities. (Page 27)
Court Decision •
After receiving a notice of assessment, a taxpayer may le within 60 days a written protest with the local treasurer, which shall decide on it within 60 days. The taxpayer can make an appeal to the Regional Time Court (RTC) within 30 days from receiving the denial of the protest, or from the lapse of the 60-day period to decide on the protest. Thereafter, the taxpayer can appeal the decision of the RTC to the Court of Tax Appeals (CTA) within 30 days after receiving the decision. (Page 29)
BIR Rulings BIR Ruling No. 458-2012 dated July 10, 2012
Payments to a foreign corporation for services performed entirely outside the Philippines are exempt from income tax and VAT.
Facts:
B Co., a non-resident Singaporean corporation, rendered services for F Co., a domestic corporation. These services were performed by B Co. entirely in Indonesia. F Co. paid service fees to B Co. Issue:
Are the service fees paid by F Co. to B Co. subject to Philippine income tax and VAT? Ruling:
1.
No. Under Section 23(F) of the Tax Code, a non-resident foreign corporation is taxable only on income derived from sources within the Philippines, and under Section 42(A)(3), income from services is considered derived from sources within the Philippines only if the services are performed in the Philippines. Hence, income from services performed by a non-resident foreign corporation entirely outside the Philippines is exempt from Philippine income tax.
2.
No. Under Section 108(A) of the Tax Code, payments for services are subject to VAT only if the services are performed in the Philippines.
BIR Ruling No. 465-2012 dated July 17, 2012
Dividends paid by a domestic corporation to an Australian corporation are subject to the 15% FWT under Section 28(B)(5)(b) of the Tax Code.
Facts:
P Co. declared cash dividends to its stockholders which include D Co., a nonresident Australian corporation. Under Australian tax laws, foreign dividends received in Australia are exempt from income tax. Issue:
Are the cash dividends paid by P Co. to D Co. subject to the 15% FWT under Section 28(B)(5)(b) of the Tax Code?
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Tax Bulletin
Ruling:
Yes. Under Section 28(B)(5)(b) of the Tax Code, cash and/or property dividends received by a non-resident foreign corporation from a domestic corporation shall be subject to a 15% FWT on the dividends received, subject to the condition that the country in which the non-resident foreign corporation is domiciled shall allow a credit against the tax due from the non-resident foreign corporation taxes deemed to have been paid in the Philippines equivalent to 15% of the dividend. The preferential 15% FWT rate applies since Australian laws treat foreign dividends received in Australia as exempt from income tax. However, the following requirements must be complied with within a reasonable time pursuant to RMC No. 80-91: a)
Show that the dividends received by D Co. from P Co. were not among the items considered in arriving at the income tax due from D Co;
b)
Present the income tax return of D Co. for the taxable year when the subject dividends were received; and
c)
Submit any authenticated documents showing that the Australian Government did not impose any tax on the subject dividends.
BIR Ruling No. 495-2012 dated July 31, 2012
Income derived from investments in the Philippines by foreign governments is exempt from income tax and, consequently, from withholding tax.
Facts:
K Co., an autonomous government body responsible for the management and administration of some of Kuwait’s funds, derives income from its investments in the Philippines such as government bonds, corporate bonds and bank deposits. Issue:
Is the income derived by K Co. from investments in the Philippines exempt from Philippine income tax? Ruling:
Yes. Under Section 32(B)(7)(a)(i) of the Tax Code, income derived by foreign governments from investments in the Philippines is exempt from income tax and, consequently, from withholding tax.
BIR Ruling No. 508-2012 dated August 3, 2012
An upstream merger where the surviving parent company will not issue shares in exchange for the assets of the absorbed subsidiary is not considered a tax-free merger under Section 40(C)(2) of the Tax Code.
Facts:
A Co., a domestic corporation, effected a merger with its wholly-owned subsidiary, B Co., another domestic corporation, where A Co. will be the surviving corporation. As a result of the merger, B Co. will transfer its assets to A Co. However, since B Co. is a wholly-owned subsidiary of A Co., A Co. will no longer issue any shares of stock in consideration for the assets transferred by B Co. pursuant to the merger. Issue:
Is the merger between A Co. and B Co. considered a tax-free merger under Section 40(C)(2) of the Tax Code? 5
Ruling:
No. The reorganization is an upstream merger between a parent company and a subsidiary, where the parent company will not be issuing any shares to the subsidiary in exchange for the assets to be transferred as a result of the merger. In effect, the transfer partakes of the nature of a donation made by a subsidiary to its parent company, contrary to what is contemplated in Section 40(C)(2) of the Tax Code. In the same manner, the intended merger also has the effect of dissolving and liquidating the subsidiary without payment of corresponding taxes. [Editor’s Note: This ruling revokes previous rulings such as BIR Ruling [DA (S40M-001) 007-09] dated January 13, 2009, BIR Ruling [DA-(S40-M018) 43608] dated November 14, 2008 and BIR Ruling [DA-(S40M-014) 387-08] dated November 4, 2008. In these rulings, the BIR ruled that the non-issuance of shares by the surviving corporation to the absorbed corporations does not affect the taxfree nature of the mergers since the mergers were between or among afliated companies ultimately owned by the same parent, or between a parent and a subsidiary (with the parent as the surviving corporation). In these rulings, the BIR also ruled that the transfer of properties as a consequence of mergers is not subject to donor’s tax as there is no intention to donate on the part of any of the parties to the mergers, and the mergers were undertaken for bona de business purposes.]
BIR Ruling No. 515-2012 dated August 3, 2012
In a transaction where two persons exchanged shares of stock in two companies for shares of stock in a third corporation in separate Deeds of Assignment, as a result of which the rst person gains control of 58.15%, and the second person gains control of 24.33%, of the voting stock of the transferee-corporation, only the transfer of the rst person will be considered a tax-free exchange under Section 40(C)(2) of the Tax Code.
Facts:
Mr. A owns shares in A Co., while Mr. B owns shares in B Co. Mr. A and Mr. B executed separate Deeds of Assignment to transfer their respective shares in A Co. and B Co. in favor of X Co., both in exchange for X Co. shares. As a result of the transfer, Mr. A and Mr. B will gain control of X Co. by owning 58.15% and 24.33%, respectively, of the total voting stock of X Co. Issues:
1. 2.
Is the transfer by Mr. A of his shares in A Co. to X Co. exempt from CGT and DST? Is the transfer by Mr. B of his shares in B Co. to X Co. exempt from CGT and DST?
Ruling:
1.
Yes. Under Section 40(C)(2) and 6(c) of the Tax Code, no gain or loss shall be recognized if property is transferred to a corporation by a person, in exchange for stock in such corporation, as a result of which said person, alone or together with others, not exceeding four persons, gains control of said corporation. The term “control” shall mean ownership of at least 51% of the total voting shares in the corporation. In determining the 51% stock ownership, only those persons who transferred property for stock in the same transaction may be counted up to a maximum of ve. In short, combining all the shares to be received by the transferors, the same should total to at least 51% of the voting power of all classes entitled to vote. With the exchange of shares of Mr. A alone, he already gains control of X Co. by acquiring 58.15% of its voting shares. Hence, no gain or loss shall
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Tax Bulletin
be recognized with respect to the transfer by Mr. A of his A Co. shares in exchange for shares of stock of X Co. There is no need to combine Mr. A’s shares with the shares of Mr. B to determine Mr. A’s compliance with the 51% stock ownership. However, the following requirements must be complied with: A.
Mr. A must le with his income tax return for the taxable year in which the exchange transaction was consummated a complete statement of all facts pertinent to the exchange, including: 1.
2. 3. 4.
B.
A description of the properties he transferred, or his interest in such properties, with a statement of the original acquisition cost/ adjustment cost basis or other basis at the time of transfer; The kinds of stock received and preferences, if any; The number of shares of each class received; and The fair market value per share of each class at the date of the exchange.
X Co. must le along with its income tax return for the same taxable year the following: 1. 2.
3.
A complete description of the properties received from the transferor; A statement of original acquisition cost or other basis of the properties in the hands of the transferor and the adjusted cost basis thereof at the time of the transfer; and Information with respect to the capital stock of the corporation including: i.
Total issued and outstanding capital stock immediately prior to and immediately after the exchange; ii. Classes of stock and number of shares issued to the transferor in the exchange; and iii. The fair market value as of the date of the exchange of the capital stock issued to the transferor. Lastly, within 90 days from receipt of the BIR Ruling, the parties to the transaction must submit a certied true copy of the duly annotated certicates of stock in respect of the transferred shares. 2.
No. The transfer by Mr. B, resulting in ownership of only 24.33% of the total voting shares in X Co., shall be treated as a separate transfer subject to CGT and DST.
[Editor’s Note: Section 40(C)(2) allows non-recognition of gain or loss on property-for-share transfers by transferors not exceeding ve, as long as the 51% control requirement is met. Since up to ve transferors are allowed to not recognize gain or loss on these exchanges, it stands to reason that the shares of the transferee-corporation received by the transferors not exceeding ve, would be aggregated to determine compliance with the 51% control requirement. While this particular ruling did not specically say so, it is possible that the BIR treated the transfer by Mr. B as a transfer separate from the transfer by Mr. A, and therefore did not add the X Co. shares received by Mr. B to the X Co. shares received by Mr. A as part of the 51% control requirement, because the transfers were effected in separate Deeds of Assignment.)
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BIR Issuances RR No. 11-2012 amends Section 3 of RR No. 1-2011 on exemption from DST of remittances of OCWs or OFWs.
Revenue Regulations No. 11-2012 dated August 1 7, 2012
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Section 3 of RR No. 1-2011 is amended to read as follows: “Section 3. Tax Treatment - xxx C)
Other Taxes and Fees: - xxx
The remittances of all OCWs or OFWs, upon showing of the Overseas Exit Clearance (OEC), valid Overseas Workers Welfare Administration (OWWA) Membership Certicate, or electronic receipt (e-receipt) issued by POEA, by the OCWs or OFW beneciary or recipient, shall be exempt from the payment of documentary stamp tax (DST) as imposed under Section 181 of the National Internal Revenue Code of 1997, as amended. For this purpose, in addition to the original copy, a duplicate copy or a certied true copy of the valid proof of entitlement referred to above shall be secured by the OCW or OFW from the POEA or OWWA, which shall be held and used by his/her beneciary in the availment of the DST exemption. In case of OCWs or OFWs whose remittances are sent through the banking system, credited to beneciaries or recipient’s account in the Philippines and withdrawn through an automatic teller machine (ATM), or sent through nonbank money transfer agents, it shall be the responsibility of the OCW or OFW to show the valid proof of entitlement when making arrangement for his/her remittance transfers. xxx” •
Local banks and non-bank money transfer agents are required to document remittances made by OCWs or OFWs following the format below, for monitoring purposes: OFW Remittances for the First Quarter of 2012
(Exempt from DST imposed under Sec. 181 of the NIRC, as amended, per R.A. No. 10022) Name of Name of Amount in OCW/OFW Recipient Peso or Peso Sender Equivalent
1. Juan de la Cruz
Jane de la Cruz
20,000
Proof of Entitlement to DST exemption (i.e., OEC, e-receipt, or OWWA Membership Certicate
****
Date of Transaction
Remittance Date
Encashment Date
Feb 1, 2012 Feb 1, 2012
**** [Indicate Control Number provided by the POEA] •
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The above information is required to be furnished, on a quarterly basis, to the Revenue District Ofce (RDO) or Audit Division under the Large Taxpayers Service (LTS) where the banks and non-bank money transfer agents are registered, to be submitted on or before the 20th day following the close of the quarter.
Tax Bulletin
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These Regulations shall take effect after 15 days from date of publication in a newspaper of general circulation.
(Editor’s Note: RR No. 11-2012 was published in the Manila Bulletin on August 24, 2012.)
RMC No. 34-2012 claries the tax implications of integrating the Domestic Passenger Service Charge (DPSC) at the point of sale of airline tickets, and prescribes rules for the invoicing and recording of the DPSC in the books of airline companies and airport authorities.
Revenue Memorandum Circular No. 34-2012 dated July 13, 2 012
Background
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In a Memorandum of Agreement dated May 17, 2012, the Manila International Airport Authority (MIAA) and the domestic airline companies have agreed that the DPSC, which used to be collected by MIAA from departing passengers through counters located in the airport, shall be integrated with the sale of airline tickets.
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The DPSC shall be collected from the passengers at the time they purchase airline tickets from airline companies or general sales agents/travel agents.
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The DPSC shall then be remitted to the MIAA which shall, in turn, be charged service fees by the airline companies as compensation for collecting the DPSC on behalf of the MIAA.
Collection of the DPSC from passengers
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The airline company shall collect the DPSC from the passengers and shall include the DPSC in the ofcial receipt (OR) to be issued by the airline company for the airline ticket of the passenger.
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The DPSC shall consist of the Share of Airport Authority, which shall be subject to a 12% VAT, and the Aviation Security Fee (ASF), which shall be VAT-exempt.
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The VAT receipt to be issued by the airline companies should reect the VATtaxable and VAT-exempt components of the DPSC.
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The VAT component of the DPSC should be included in the total VAT, which will include the VAT on the airline ticket.
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The Share of Airport Authority and the ASF may be reported in the nancial statements of the airline company as other income/expense.
Payment of DPSC by airline company to airport authority
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The DPSC collected by the airline company shall be paid to the airport authority, which shall then issue an OR to the airline company, indicating the full amount of the DPSC and its VAT-taxable and VAT-exempt components.
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The DPSC shall not form part of the gross receipts of the airport authority in its determination of creditable withholding taxes due.
Payment of Service Fees by airport authority to airline company
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The service fees paid by the airport authority to airline companies shall be subject to a 5% withholding VAT and 2% expanded withholding tax on gross payments.
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Upon payment of the service fees, the airline company shall issue a VAT OR.
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This circular shall take effect on August 1, 2012. 9
RMC No. 35-2012 claries the taxability of clubs organized and operated exclusively for pleasure, recreation, and other non-prot purposes.
Revenue Memorandum Circular No. 35-2012 dated August 3, 2012
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Income from whatever source, including but not limited to membership fees, assessment dues, rental income and service fees, of clubs organized and operated exclusively for pleasure, recreation, and other non-prot purposes, are subject to income tax. The provision in the Tax Code of 1977, which granted income tax exemption to recreational clubs, was omitted in the current list of tax-exempt corporations under the Tax Code of 1997, as amended.
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Gross receipts of recreational clubs, including but not limited to membership fees, assessment dues, rental income and service fees, are subject to VAT. Section 105 of the Tax Code provides that any person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services, and any person who imports goods, shall be subject to VAT. The phrase “in the course of trade or business” means the regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto, by any person regardless of whether the person engaged therein is a non-stock, non-prot private organization. Thus, even a non-stock, non-prot organization or government entity is liable to pay VAT on the sale of goods or services. This conclusion was also afrmed by the Supreme Court in Commissioner of Internal Revenue vs. Court of Appeals and Commonwealth Management and Services Corporation, G. R. No. 125355, March 30, 2000.
RMC No. 36-2012 claries whether documents mentioned in Section 199 of the Tax Code, as amended by RA No. 9243, are subject to the P15.00 DST prescribed in Section 188 of the Tax Code.
Revenue Memorandum Circular No. 36-2012 dated August 3, 2012
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Only instruments, documents and papers expressly enumerated in Section 199 of the Tax Code are exempt from DST.
•
The following certicates and other necessary documents issued by the Construction Industry Authority of the Philippines are subject to the P15.00 DST imposed in Section 188 of the Tax Code: 1. 2. 3. 4. 5. 6. 7. 8.
RMC No. 37-2012 claries Section 11 of RR No. 06-08 by making it clear that a CAR is still necessary before shares of stock not traded in the stock exchange may be transferred.
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Certicate of Registration of Overseas Contractors; Certicate of Renewal of Registration of Overseas Contractors; Contractor’s License (Original); Certicate of whether a certain contractor is licensed; Certied true copies of license certicates; Certied true copies of documents, such as Afdavit of Undertaking of Sustaining Technical Employee (STE) and Curriculum Vitae of STE; Certicate of Accreditation of Arbitrators; and Case documents to be used to support petition or appeal in the Court of Appeals.
Revenue Memorandum Circular No. 37-2012 dated August 3, 2012
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Section 11 of RR No. 06-08 provides that no sale, exchange, transfer or similar transaction intended to convey ownership of, or title to, any share of stock shall be registered in the books of the corporation unless the receipts of payment of the tax herein imposed is led with, and recorded by, the stock transfer agent or secretary of the corporation.
•
The above provision of RR No.06-08 has created confusion on whether a Certicate Authorizing Registration (CAR) is still necessary before shares of stock not traded in the stock exchange may be transferred.
Tax Bulletin
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RMC No. 38-2012 further claries in Question and Answer format the provisions of RR No. 7-2010, as amended by RR No. 8-2010, implementing the tax privileges granted under RA No. 9994, otherwise known as the “Expanded Senior Citizens Act of 2010”.
In order to transfer ownership of shares of stock not traded in the stock exchange, it is necessary to secure a CAR pursuant to Revenue Memorandum Order (RMO) No. 15-03. The receipts of payment of the tax should also be led and recorded by the secretary of the corporation pursuant to Section 11 of RR No. 06-08.
Revenue Memorandum Circular No. 38-2012 d ated August 3, 2012
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In computing the 20% discount and the exemption from VAT, the formula is: Total Billing Amount less 12% VAT x 20% No. of Customers
=
Senior Citizen Discount
The above formula will apply if no individualized food item can be ordered or if the transaction with the senior citizen is not processed separately. The total billing amount used in the computation of the 20% discount is the amount exclusive of the VAT. •
For restaurants, the discount shall be for the sale of food, drinks, dessert and other consumable items served by the establishments, including value meals and promotional meals, offered for the consumption of the general public. Condiments and side products fall within the ambit of “other consumable items served by the establishments.”
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In no case shall the discount granted to senior citizens be less than 20%. There should be no xed, maximum amount or cap which will limit the discount below the 20% rate. The 20% discount shall be given to goods purchased by senior citizens based on the selling price exclusive of VAT.
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The 20% discount and VAT exemption shall also apply to set meals purchased by senior citizens, provided, however, that the meal shall be limited to a single-serving meal with beverage for an individual senior citizen.
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The 20% discount shall apply to dine-in, take-out and take-home orders (excluding bulk orders) as long as it is the senior citizen himself/herself who is present and personally orders and can show a valid senior citizen identication (ID) card. If the senior citizen merely takes home the unnished or unconsumed dine-in order, he/she shall still be entitled to the 20% discount, provided the leftover is not part of bulk orders.
•
If the group of diners is composed of senior citizens who ordered group meals or food items for sharing in restaurants, each senior citizen with a valid senior citizen’s ID card shall be entitled to the 20% discount and VAT exemption. If not all the senior citizens have their valid senior citizen’s ID cards, the value of the food purchased attributable to senior citizens with senior citizen’s cards may be computed using the formula above.
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Bulk orders are not entitled to the 20% discount and VAT exemption since they are within the context of pre-contracted or pre-arranged group meals or packages.
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Meals primarily prepared and intentionally marketed for children and not for senior citizen’s personal consumption are not entitled to the 20% discount.
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The Most Expensive Meal Combination (MEMC) is an amount corresponding to the combination of the most expensive and biggest single-serving meal with beverage served in a quick service restaurant. The MEMC is deemed exible and is adjusted accordingly by food establishments to estimate a single food purchase of an individual senior citizen. MEMC is applied only to take-out, take-home, drive-thru and delivery orders.
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Pasalubong food items which are single-serving/solo meals for the personal and exclusive consumption of the senior citizen are entitled to the 20% discount and VAT exemption. Other pasalubong food items (e.g., box ofbiscocho, bottles of ginamos, several packets of mango preserves) which are not for the personal and exclusive consumption of the senior citizen are not entitled to the 20% discount and VAT exemption. This limitation extends to novelty items or non-consumables sold in restaurants.
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Called-in or phoned-in orders are entitled to 20% discount and VAT exemption. They are, likewise, subject to certain conditions, i.e., senior citizen ID card number must be given while making the order over the telephone; the senior citizen ID card must also be presented upon delivery to verify the identity of the senior citizen entitled to the 20% discount and VAT exemption.
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In case of called-in or phoned-in orders of group meals, the food establishments must determine the number of senior citizens comprising the group, and the 20% discount shall be computed based on the value of the food attributable to the qualied senior citizens. The senior citizen ID card number/s must be given while making the called-in or phoned-in order and the ID card/s must be presented upon delivery.
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A purchase of a whole cake or pizza may be considered as a purchase of a group meal or meal for sharing. If the whole cake or pizza purchased is good for 5 persons and the group is composed of 5 senior citizens, each with a valid senior citizen ID card, they shall be entitled to the 20% discount or the entire food purchase shall be entitled to the 20% discount. If the group is composed of senior citizens, but not all have their valid senior citizen ID card/s, or composed of senior citizens and non-senior citizens, the value of the cake or pizza attributable to the qualied senior citizen/s shall be computed using the formula above. If the senior citizen purchases a slice of cake or personal serving of cake, he shall be entitled to the 20% discount.
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The purchase by a senior citizen of alcoholic beverages if served as a single serving drink is entitled to the 20% discount and VAT exemption. The discount and exemption shall not be given to purchases “in bulk”, “in buckets”, or “in cases”. However, alcoholic beverages purchased in a bar, club or cabaret are exempt from VAT but subject to amusement tax of 18% under Section 125 of the Tax Code. The senior citizen may still be entitled to the 20% discount on the purchase of the alcoholic drink, but shall only be limited to a single serving of alcoholic drink.
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Cigarettes/cigars are not food or essential items deemed entitled to the 20% discount.
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The 20% discount and VAT exemption privilege shall also apply to medicines purchased from drug stores, hospital pharmacies, medical and optical clinics, and similar establishments, including non-traditional outlets dispensing medicines.
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A delivery fee/charge not billed separately is subject to the 20% discount. If the delivery fee/charge is billed separately, it is not entitled to the 20% discount and is subject to VAT.
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Toll fees are not subject to the 20% discount.
Tax Bulletin
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Taxi fares are subject to the 20% discount.
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In the purchase of goods and services which are on promotional discount, the senior citizen shall avail of either the promotional discount or the 20% discount, whichever is higher. However, the discount given to the senior citizen shall in no case be less than 20%. The sale of goods on promotional discount is still VAT-exempt.
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The 20% discount given by the business establishments is deductible from their gross income during the same taxable year when the said discounts are given, and the input tax attributable to the VAT-exempt sale is considered as cost or an expense account of the business establishments. Both the discount and input VAT that are treated as cost or expense accounts are absorbed by the State.
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In case of business establishments which are not subject to VAT but to percentage tax because their gross annual sales/receipts do not reach the P1,919,500.00 threshold amount under RR No. 16-2005 as amended by RR No. 16-2011, senior citizens are not exempt from the payment of the percentage tax. RA No. 9994 does not include exemption from the payment of percentage tax. The exemption does not cover other indirect taxes that may be passed-on by the seller to the senior citizen buyer, such as percentage tax. In such case, the discount must be on the total cost of the goods or services charged by the seller, exclusive of the tax.
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The amount of sales that must be reported for tax purposes is the undiscounted selling price and not the amount of sales net of discount. The gross selling price and the sales discount must be separately indicated in the ofcial receipt or sales invoice issued by the establishment for the sale of goods or services to the senior citizen.
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If the seller uses a Point of Sale Machine or Cash Register Machine, the machine tape should be able to segregate the exempt sale from the taxable sale. If the machines are incapable of segregation, they should be reprogrammed to comply with the requirement. In the meantime, a manual invoice/receipt shall be issued by the seller.
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The seller may opt to issue a separate invoice/receipt on its sale to senior citizens. The separate invoice/receipt will reect the amount of the discount and the total amount payable. The word “VAT-Exempt Sale” must be written or printed prominently on the face of the invoice/receipt.
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The seller may issue one invoice/receipt for the entire transaction if the merchandise/service was sold under a single transaction comprised of a sale to a senior citizen and a sale to a non-senior citizen, providing for a proper breakdown of the exempt sale and taxable sale. The invoice must properly reect the discount on the exempt sale. The VAT due on the taxable sale must be separately billed in the invoice/receipt.
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The income statement of the seller must reect the discount, not as a reduction of sales to arrive at net sales, but as a deduction from its gross income (sales less cost of sales). Thus, the 20% discount shall be treated as a necessary and ordinary expense duly deductible from the gross income, provided that the seller does not opt for the Optional Standard Deduction during the taxable quarter/year.
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The input tax attributable to the exempt sale shall not be allowed as an input tax credit but must be treated as a cost or an expense account by the seller.
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RMC No. 39-2012 mandates the withholding of income tax on backwages, allowances, and benets received by employees through garnishment of debts or credits pursuant to a labor dispute award.
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Business establishments giving sales discounts to qualied senior citizens are required to keep a separate and accurate record of sales, which shall include the name of the senior citizen-purchaser, Ofce for Senior Citizens AffairsID, gross sales/receipts, sales discounts granted, dates of transactions and invoice/OR number for every sale or transaction to senior citizen. The invoicing requirements in Section 4.113-1 of RR No. 16-2005 must also be complied with.
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A special discount of 5% of the regular retail price of basic necessities and prime commodities as dened under the Joint Department of Agriculture (DA) and Department of Trade and Industry (DTI) Administrative Order No. 10-02, Series of 2010, shall be granted to senior citizens on their purchases, taking into account that said purchases shall be for the personal and exclusive consumption and/or enjoyment of the Senior Citizen.
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Purchases of basic necessities and prime commodities by senior citizens as dened under Section 2 of Joint DTI-DA Administrative Order No. 10-02, Series of 2010, are not exempt from VAT.
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Toiletries, such as toothpaste, bath soap and tissue paper are not entitled to the 5% special discount. Only the items listed under RA No. 7581 or the Price Act are identied as basic necessities and prime commodities subject to the 5% special discount. However, powdered, liquid, bar laundry and detergent soap are considered basic necessities subject to the 5% special discount.
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“Maximum purchase per week” means that senior citizens shall enjoy a special discount of 5% of the regular retail price, without exception from VAT, of basic necessities and prime commodities provided under the Joint DTIDA Administrative Order No. 10-02, provided that the total amount of said purchases shall not exceed the maximum amount per calendar week. The maximum amount is P1,300.00 per calendar week, after combining set limits under prime commodities and basic necessities, without carryover of the unused amount.
Revenue Memorandum Circular No. 39-2012 dated August 3, 2012
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Backwages, allowances, and benets awarded in a labor dispute constitute remuneration for services that the employee would have performed in the year when actually received, or during the period of his dismissal from the service which was subsequently ruled as illegal. The employee should report as income and pay the corresponding income taxes by allocating or spreading his backwages, allowances and benets through the years from his separation up to the nal decision of the court awarding the backwages. The backwages, allowances and benets are subject to withholding tax on wages (WTW).
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If the judgment awarded in a labor dispute is enforced through garnishment of debts due to the employer or other credits to which the employer is entitled, the person owing such debts or having possession or control of such credits (e.g., banks or other nancial institutions) would normally release and pay the entire garnished amount to the employee. As a result, employers who are mandated to withhold taxes on wages cannot withhold the appropriate tax due thereon.
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Under Section 78(D)(1) of the Tax Code and Section 2.78.4(A) of RR No. 2-98, as amended, the term “employer” includes persons having control of the payment of wages or salaries. In this case, the garnishees are the persons
Tax Bulletin
owing debts due to the employer or in possession or control of credits to which the employer is entitled. Accordingly, they are in control of the payment of backwages, allowances and benets, and they are authorized to deduct and withhold the income tax due from the backwages, allowances, and benets to be paid to the employees, and are, therefore, liable for such deductions. •
RMC No. 40-2012 prescribes a prescriptive period for rulings issued pursuant to Section 40 (C) (2) of the Tax Code.
RMC No. 47-2012 prescribes the rules and deadlines for the ling of applications for enrollment in the VAT TCC Monetization Program, pursuant to the DOF, DBM and BIR Joint Circular No. 2-2012 dated May 31, 2012.
Garnishees of a judgment award in a labor dispute are constituted as withholding agents with the duty of deducting the corresponding WTW due thereon equivalent to 5% of the portion of the judgment award representing the taxable wages, allowances, and benets.
Revenue Memorandum Circular No. 40-2012 dated August 3, 2012
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Section 40(C)(2) of the Tax Code provides for the non-recognition of gain or loss in (i) cases of mergers or consolidations, and (ii) property-for-share swaps where the transferor, alone or together with others not exceeding four, gains control of the transferee-corporation.
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Rulings issued under Section 40(C)(2) of Tax Code shall be valid only for 90 days, counted from the date of the receipt of the ruling by any of the parties to the exchange transaction. The properties and shares of stock involved in the transfer should be conveyed to the transferee/s and transferor/s, respectively, within this period.
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Pursuant to RR No. 18-2001 and RMO No. 32-2001, a photocopy of the Transfer Certicate of Title (TCT)/ Condominium Certicate of Title (CCT)/ Share of Stock that bears the annotation of substituted basis of the real property/shares of stock transferred/received in connection with the transaction, duly certied by the Register of Deeds/Corporate Secretary, should be submitted to the Law Division, BIR, 7/F National Ofce Building, Diliman, Quezon City, also within the 90-day period from date of receipt of the ruling or certication by any of the parties to the exchange transaction; otherwise, the ruling shall be void and the Chief of the Law Division shall refer the case to the Prosecution Division for appropriate action.
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Any violation of this Circular by any of the parties to the exchange transaction, or by any public ofcer or employee, shall be subject to the appropriate penalties under Sections 269 and 275 of the Tax Code.
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Revenue District Ofces are directed not to honor such rulings beyond 90 days counted from the date of receipt of the ruling by any of the parties to the exchange transaction, unless an extension of period is granted by the Commissioner in meritorious cases.
Revenue Memorandum Circular No. 47-2012 dated August 14, 2012
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The deadline for ling applications for VAT TCC Monetization shall be as follows: Type of TCC
Filing Period
For revalidated and unexpired TCCs originally issued in 2002 and 2003
July 17, 2012 to September 1, 2012
For revalidated and/or unexpired TCCs originally issued in 2004 until April 11, 2012
July 17, 2012 to October 17, 2012
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The application for enrollment in the VAT TCC Monetization Program for VAT TCCs that were solely issued by the BIR shall be led with the BIR VAT TCC-issuing ofce, using the application form for enrollment which can be downloaded from the BIR website at www.bir.gov.ph.
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For VAT TCCs that were jointly issued by the DOF One-Stop-Shop Inter-Agency Tax Credit and Duty Drawback Center and the BIR, the application for enrollment in said program can be downloaded from the DOF website at http://taxcredit. dof.gov.ph.
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VAT TCC holders with pending applications for cash conversion of outstanding VAT TCCs pursuant to Section 204(C) of the Tax Code can still apply for enrollment in the Monetization Program by withdrawing the previously led application for cash conversion and ling a new application for enrollment with said program with the VAT TCC-issuing ofces designated as the Receiving Ofces for the Program’s Application for Enrollment.
[Editor’s Note: RMO 47-2012 was amended by RMO 51-2012 dated August 31, 2012 to extend the deadline for ling applications for monetization for revalidated and unexpired TCCs originally issued in 2002 and 2003, from September 1, 2012 to “September 15, 2012 or the expiration of the TCC, whichever comes rst.”]
BOC Issuances CAO No. 1-2012 establishes the Authorized Economic Operator (AEO) Program for exporters.
Customs Administrative Order No. 1-2012 dated June 26, 2012
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CAO No. 1-2012 shall initially apply to exporters inside the Clark Freeport Zone within the jurisdiction of the Port of Clark. Upon the directive of the BOC Commissioner, it shall cover exporters in other selected air or sea ports.
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The Commissioner of Customs shall constitute a committee headed by a Deputy Commissioner in charge of accreditation of AEOs. The committee shall perform other functions as may be determined by the Commissioner.
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Requirements under the AEO Program: 1.
Duly lled-up Application Form
2.
Disclosure of the following information: a. b. c. d. e.
3.
Company security prole including: a. b. c.
4.
A summary of the company’s security management system; A summary of the company’s risk assessment process; Measures to enhance the security of the company’s supply chain.
Supporting documents including: a. b.
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Organizational characteristics; Compliance record; Volume of business; Goods; Internal procedures related to declaration.
Tax Bulletin
Process map that illustrates the flow of goods and information through the company’s supply chain; Site plan that shows the layout of the company’s premises and clearly identifies all perimeters, access areas, buildings, structures, security and access controls.
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5.
Copy of the company’s relevant security accreditations.
6.
Other relevant supporting documents.
The summary of the security management system shall contain the following: 1. 2. 3. 4.
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The summary of risk assessment shall contain the following: 1. 2. 3. 4. 5. 6.
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Premises security and access controls; Personnel security; Business partner security; Cargo security; Conveyance security; Information and Information Technology (IT) security; Incident management and investigations; Crisis management and incident recovery.
Aside from increased visibility of goods in the supply chain, reduction in pilferages, and greater efciency in supply chain management, accredited companies shall be entitled to the following benets: 1. 2. 3. 4. 5.
6.
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Flow chart to illustrate the company’s risk assessment process; Risks and vulnerabilities identied; Countermeasures put in place to reduce the identied risks and vulnerabilities; When the risk assessment was conducted; Who conducted the risk assessment; Other relevant information.
Elements of the security measures that need to be addressed: 1. 2. 3. 4. 5. 6. 7. 8.
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Company’s security policy, security objectives and commitment to security; Procedures for ensuring that pertinent security management information is communicated to and from relevant employees and other stakeholders; Procedures for the review of the company’s security prole at planned intervals, to ensure its continuing sustainability, adequacy and effectiveness; Other relevant information.
Dedicated processing lanes resulting in reduced processing period; Renewal of exporter accreditation on a long term basis ; Last priority in post-entry audit; Recognition as a low risk company; Reduced inspection or expedited clearance by other Customs authorities should certied status be also recognized by other countries under a mutual recognition program established under a bilateral or multilateral arrangement; Other trade facilitation benets that may be afforded by the BOC under existing laws and regulations.
A trusted partner under the AEO Program shall have the following responsibilities: 1. 2. 3. 4.
Update the BOC as and when there are signicant changes to the company’s security prole and other information required to be disclosed; Submit an annual statement of commitment; Inform the BOC of any non-conformities by the company with AEOPhilippines Guidelines; Renew its accreditation as a trusted partner every two (2) years.
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The accreditation under the AEO Program may be revoked for the following grounds: 1. 2. 3. 4.
Violation of the terms and conditions of the AEO certication; Non-compliance by the company with Philippine customs laws and regulations or other laws and regulations; Supply chain security weaknesses or non-conformity with CAO No. 1-2012 and its implementing rules and regulations; Company opts to withdraw from the Program.
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A company may appeal the BOC decision denying its application under the AEO Program with the Commissioner of Customs within 15 calendar days from receipt of the decision.
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All documents or information provided by companies shall remain condential, and shall not be disclosed to a third party without the companies’ prior written consent.
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The Commissioner of Customs, upon consultation with stakeholders, shall issue the rules and regulations for the effective implementation of CAO No. 1-2012.
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All orders, memoranda, circulars or parts thereof which are inconsistent with CAO No. 1-2012 are deemed revoked, amended, or modied accordingly.
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CAO No. 1-2012 shall take effect fteen (15) days after publication in a newspaper of general circulation.
[Editor’s Note: CAO No. 1-2012 was published in the Manila Bulletin and the Philippine Star on August 15, 2012.]
CMO No. 9-2012 requires prior approval from the Commissioner of Customs or the Deputy Commissioner for the MISTG for the manual processing of import entries in order to effect the clearance and release of imported goods.
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Customs Memorandum Order No. 9-2012 dated July 26, 2012
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Existing BOC rules and regulations allow for the manual processing of import entries in the following cases: 1. 2. 3. 4.
Computer systems breakdown; Power failure which renders the computer system non-operational; The authorized agent bank is ofine; Upon authorization by the BOC Deputy Commissioner for MISTG.
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For manual processing of import entries, prior authorization from the Commissioner of Customs or in his absence, the Deputy Commissioner for MISTG, shall be obtained.
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The District or Port Collector shall be held accountable for import entries processed manually without prior approval of the Commissioner of Customs or the Deputy Commissioner for MISTG. Erring BOC ofcials and employees shall be imposed appropriate administrative, civil, and/or criminal sanctions, subject to existing laws and Civil Service rules and regulations.
Tax Bulletin
PSE Issuance PSE Memorandum CN No. 20120046 reminds the investing public of the effects of the failure of listed companies to comply with the MPO requirement by December 31, 2012.
PSE Memorandum CN No. 2012-0046 dated August 22, 2012
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Under the Amended Rule on minimum public ownership (MPO), listed companies that are not compliant with the MPO requirement are given a grace period of up to December 31, 2012 within which to comply with the MPO.
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Immediately after the grace period, the PSE will impose a trading suspension on said shares for a period of not more than 6 months.
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Consequently, the sale of said shares during the suspension period may only be effected outside the PSE’s trading system, and shall be subject to the following taxes: Applicable Tax
Capital Gains Tax
Tax Rate and Base
On net capital gains amounting to not over P100,000.00 – 5% On any amount in excess of P100,000.00 – 10%
Documentary Stamp Tax
P0.75 on each P200.00 of the par value of the stock
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Furthermore, if the fair market value (FMV) of the shares of stock sold is greater than the consideration or the selling price, the amount by which the FMV of the shares exceeds the selling price shall be deemed a gift subject to donor’s tax under Section 100 of the Tax Code. In the absence of any issuance by the BIR to the contrary, the rules prescribed in RR No. 06-08 for determining the value of listed shares of stock which were sold, transferred or exchanged outside of the trading system and/or facilities of the PSE shall apply.
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The foregoing are based on the PSE’s understanding of the existing provisions of the Tax Code and relevant BIR issuances. In case of conict or ambiguity, the BIR’s interpretation shall prevail.
SEC Issuances SEC MC No. 6 dispenses with some requirements in some registration activities.
SEC Memorandum Circular No. 6 dated August 15, 2012
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Consistent with the objectives of the Anti Red Tape Act of 2007 (RA No. 9485), the SEC resolved to dispense with the following requirements in the registration activities below: 1.
Bank Certicate of Deposit – for the registration of the Articles of Incorporation of new corporations where the subscription to the authorized capital stock is paid in cash; if a portion of the subscription is other than cash, the non-cash subscription shall be proven by the appropriate supporting documents;
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2.
Special Audit Report – for applications for increase in the authorized capital stock of corporations where the subscription to the increase is paid in cash except (a) listed companies, (b) public companies as dened in the Securities Regulation Code, (c) companies that offer or sell securities to the public, and (d) where the payment for the subscription to the increase is more than P10 million; In lieu of such report, a notarized Subscription Contract between the stockholder/s and treasurer stating the number of additional shares subscribed to and paid for shall be submitted by the corporation.
3.
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Primary Entry – for Deed of Assignment in the registration of new corporations or increase in the authorized capital stock where land or real estate property is offered as consideration for subscription to shares of stock.
SEC MC No. 6 shall take effect immediately.
(Editor’s Note: SEC MC No. 6 was published in the Manila Times on August 23, 2012.)
SEC-OGC Opinion No. 12-11 dated August 8, 2012
For a corporation to purchase, acquire or own land in the Philippines, at least 60% of the total capital stock of the corporation must be wholly-owned by Filipino citizens.
Facts:
A Co. is private corporation which is 99.995% owned by foreign individuals. Issue:
Can A Co. acquire real property in the Philippines? Ruling:
No. A Co. cannot own land in the Philippines. For a corporation to purchase, acquire or own land in the Philippines, at least 60% of the total capital stock of the corporation must be wholly-owned by Filipino citizens. As to ownership of real property other than land, foreigners can generally purchase houses or buildings unless specically prohibited by law. One example of a prohibition on ownership of interest in a building is in the case of a condominium project. Interest in a condominium may be in the form of ownership, lease or any real rights. If the condominium project is set up on leased land, the corresponding condominium corporation may be established by a corporation 100% foreign-owned. If the condominium project is situated on a land owned by the condominium corporation, which is a Filipino corporation, any interest in the condominium cannot be transferred to aliens or foreign corporations whose capital stock is more than 40% owned by aliens. If the common areas are held by a condominium corporation, the transfer to aliens of units in a project may be made only up to the point where the concomitant transfer of stockholdings in the condominium corporation would not cause the alien interest in such corporation to exceed 40% of its entire stock.
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Tax Bulletin
SEC-OGC Opinion No. 12-12 dated August 9, 2012
A corporation needs to amend its AOI to reect the change of address from one building to another, even if the second building is within the same city or municipality.
Facts:
C Co. is a holding company. It transferred its principal ofce to a new address situated in the same city where its previous ofce was located. It has a pending application for an amendment of its Articles of Incorporation (AOI). Issue:
Does C Co. need to amend its AOI to reect the change in its ofce address? Ruling:
Yes. C Co. needs to amend its AOI to reect the change of address from one building to another even if the second building is within the same city or municipality. It is not enough to reect the change in the General Information Sheet (GIS). However, if the transfer is merely to another oor of the same building, there is no need to amend the AOI. As for any penalty to be imposed, since there is a pending application for amendment of AOI, no penalty will be imposed if the board resolution effecting the change in address has the same or earlier date than the GIS. However, if the GIS is dated earlier than the board resolution, a ne of P5,000.00 will be imposed on a stock corporation.
SEC-OGC Opinion No. 12-13 dated August 9, 2012
In determining the citizenship of shares being held in trust, the nationality of both the trustee and the beneciary should be considered.
Facts:
X Co. is a holding company that owns 11% shareholdings in Y Co., an airline company which is 40% foreign-owned. At present, X Co. is 100% Filipino-owned. However, it wishes to restructure its shareholdings by allowing 51% of its shares to be subscribed by Atty. Z, a Filipino citizen. Atty. Z holds the shares in trust for Ms. A, a 14-year-old beneciary who was born out of lawful wedlock between Mr. G, a German national, and his Filipina wife; hence, Ms. A is likewise a Filipino citizen. Mr. G holds 30% out of the 40% foreign ownership in Y Co. Mr. G, Ms. A’s father and legal guardian, executed a deed of trust in favor of Atty. Z to conclude the shareholdings of Ms. A in X Co. Issues:
1. 2. 3.
Is the trust agreement between Mr. G and Atty. Z valid? If the proposed restructuring is adopted by X Co., is X Co. still considered 100% Filipino- owned? If the proposed restructuring is adopted by X Co., will Y Co. be in excess of the 40% foreign ownership limitation?
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Ruling:
1.
The SEC cannot render an opinion on the validity of contracts, such as a trust agreement.
2.
Yes. X Co. will still be considered 100% Filipino-owned if the proposed structuring is adopted. For public utility companies such as an airline company, at least 60% of its capital must be owned by Filipino citizens. In determining the citizenship of shares being held in trust, the nationality of both the trustee and the beneciary should be considered. In the proposed restructure, 51% of the shares in X Co. will be subscribed by Atty. Z, who is a Filipino trustee, in trust for Ms. A, who is a Filipino beneciary. Thus, X Co. will still be 100% Filipino-owned.
3.
No. Y Co. will not be in excess of the 40% foreign ownership limitation if the proposed structuring is adopted. At present, 40% of Y Co. is foreign-owned. If the restructuring is adopted, 11%, which is owned by X Co. will still be considered Filipino-owned. As to the remaining 49%, we assume that this is owned by Filipinos. Thus, Y Co. satises the 60% Filipino ownership requirement.
BSP Issuance Circular No. 762 amends the regulations on Deposits for Stock Subscriptions of banks/quasi-banks.
BSP Circular No. 762 dated July 25, 2012
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Section X128/4137Q and related subsections of the Manual of Regulations for Banks (MORB)/Manual of Regulations for Non-Bank Financial Institutions (MORNBFI) shall be added to read, as follows: “Section X128/4137Q – Deposits for stock subscription. Deposits for stock subscription refer to payments made by existing stockholders or new subscribers of the bank/quasi-bank (QB) on subscription to the increase in the authorized capital, which may be recognized either as a liability or equity. Deposits for stock subscription shall be recognized as part of the equity for prudential reporting purposes when all of the following conditions are met:
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1.
The deposit for stock subscription meets the definition of an equity instrument under Philippine Accounting Standards (PAS) 32 Financial Instruments: Presentation such that the deposit for stock subscription shall not be interest-bearing nor withdrawable by the subscriber.
2.
The bank/QB’s existing authorized capital is already fully subscribed;
3.
The bank/QB’s stockholders and board of directors have approved the proposed increase in authorized capital;
Tax Bulletin
4.
The bank/QB has filed an application for the amendment of its Articles of Incorporation for the increase in authorized capital with the appropriate department of the SES, BSP, duly supported by complete documents as listed in Circular Letter No. 2009-042 dated May 14, 2009; Applications for the amendment of Articles of Incorporation for the increase in authorized capital, which have been returned due to insufficiency of supporting documents, shall not qualify for recognition as an equity instrument; and
5.
The bank must have obtained approval of the Monetary Board on transactions involving significant ownership of voting shares of stock by any person, natural or juridical, or by one group of persons, as provided in Subsec. X126.2.b, if applicable.
Deposits for stock subscription, which do not meet the abovementioned conditions shall be classied as a liability. Deposits for stock subscription, which meet the conditions to be recognized as equity, shall form part of a bank’s qualifying capital for purposes of computing the risk-based capital adequacy ratio under Sections X115 for universal and commercial banks, as well as their subsidiary banks and QBs, and X118 for stand-alone thrift banks, rural banks and cooperative banks.” •
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Part II of Appendix 63b/Appendix Q-46 of the MORB/MORNBFI on the qualifying capital under the risk-based capital adequacy framework for the Philippine banking system were amended, as follows: 1.
“Deposit for common stock subscription” and “Deposit for perpetual and non-cumulative preferred stock subscription” were added as components of Core Tier 1 capital and removed from Upper Tier 2 capital;
2.
“Deposit for perpetual and cumulative preferred stock subscription” and “Deposit for limited life redeemable preferred stock subscription with the replacement requirement upon redemption” were added as components of Upper Tier 2 capital and removed from Lower Tier 2 capital;
3.
“Deposit for limited life redeemable preferred stock subscription without the replacement requirement upon redemption” was added as a component of Lower Tier 2 capital;
Part II of Appendix 63c of the MORB on qualifying capital under the riskbased capital adequacy framework for stand-alone thrift banks, rural banks and cooperative banks was amended, as follows: 1.
“Deposit for common stock subscription” and “Deposit for perpetual and non-cumulative preferred stock subscription” were added as components of Core Tier 1 capital and removed from Upper Tier 2 capital;
2.
“Deposit for perpetual and cumulative preferred stock subscription” and “Deposit for limited life redeemable preferred stock subscription with the replacement requirement upon redemption” were added as components of Upper Tier 2 capital and removed from Lower Tier 2 capital;
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3.
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“Deposit for limited life redeemable preferred stock subscription without the replacement requirement upon redemption” was added as a component of Lower Tier 2 capital;
Part VI of Appendix 63c of the MORB on denitions under the risk-based capital adequacy framework for stand-alone thrift banks, rural banks and cooperative banks was amended, as follows: “Part VI. Denitions xxx 8.
Deposit for stock subscription – This refers to the funds received as deposits for stock subscription that meet the conditions for recognition as equity provided in Sec. X128. x x x”
•
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Subsection 4116Q.2 of the MORNBFI on qualifying capital was amended as follows: 1.
“Deposit for common stock subscription” and “Deposit for perpetual and non-cumulative preferred stock subscription” were added as components of Tier 1 (core) capital and removed from Upper Tier 2 capital;
2.
“Deposit for perpetual and cumulative preferred stock subscription” was added as a component of Upper Tier 2 capital and removed from Lower Tier 2 capital;
3.
“Deposit for limited life redeemable preferred stock subscription” was added as a component of Lower Tier 2 capital;
The Financial Reporting Package (FRP), issued under Circular No. 512 dated February 3, 2006, as amended, was further amended as follows: 1.
Revision of the denition of “Deposit for stock subscription” account under “Other Liabilities” of the Manual of Accounts;
2.
Creation of “Deposit for stock subscription” account under “Equity Accounts” of the Manual of Accounts; and
3.
Revision of the reporting templates of the Balance Sheet of the FRP/ Simplied FRP.
•
The guideline governing the mode and submission of the reportorial templates of FRP, Simplied FRP and Risk-Based Capital Adequacy Frameworks shall be covered by a separate issuance.
•
This Circular shall take effect 15 days following its publication either in the Ofcial Gazette or in a newspaper of general circulation.
[Editor’s Note: Circular No. 762 was published in the Malaya Business Insight on July 30, 2012.]
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Tax Bulletin
Circular No. 763 provides for regulatory relief to banks under rehabilitation program.
BSP Circular No. 763 dated August 3, 2012
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Subsection X302.3 is added to the MORB, to read as follows: “Subsection X302.3. Regulatory Relief for Banks under Rehabilitation Program Approved by the BSP Banks may be allowed to charge their outstanding unbooked allowance for probable losses directly to retained earnings, on a onetime basis, subject to the following conditions:
•
a.
That this is in connection with a comprehensive rehabilitation program approved by the BSP; and
b.
The effect thereof, if these had been charged to profit and loss, shall be fully disclosed in the audited financial statements, annual reports and published statement of condition.”
This Circular shall take effect 15 calendar days following its publication either in the Ofcial Gazette or in a newspaper of general circulation.
[Editor’s Note: Circular No. 763 was published in the Manila Standard Today on August 11, 2012.]
Circular No. 764 prescribes the Revised Outsourcing Framework for NBFIs.
BSP Circular No. 764 dated August 3, 2012
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•
The following sections of the MORNBFI are amended to provide that the rules on outsourcing of banking functions as shown in Appendix Q-37 shall be adopted: 1.
Section 4162Q (2008 – 4190Q), insofar as they are applicable to quasi-banks (QB);
2.
Subsection 4406Q.9, insofar as they are applicable to trust departments of QBs performing trust and other duciary business and investment management activities;
3.
Subsection 4701Q.13, insofar as they are applicable to QBs’ outsourcing of internet and mobile electronic services;
4.
Section 4190S, insofar as they are applicable to non-stock savings and loan associations;
5.
Section 4190P, insofar as they are applicable to pawnshops; and
6.
Section 4190N, insofar as they are applicable to nancial institutions.
Appendix 37 of the MORNBFI is amended and re-titled as Revised Outsourcing Framework for Banks.
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This Circular shall take effect 15 calendar days following its publication either in the Ofcial Gazette or in a newspaper of general circulation.
[Editor’s Note: Circular No. 764 was published in the Business Mirror on August 13, 2012.]
Circular No. 765 prescribes the Revised Outsourcing Framework for Banks.
BSP Circular No. 765 dated August 3, 2012
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Section X162 of the MORB is re-titled and amended to reect a statement of principle which shall read as follows: “Section 162 Statement of Principle on Outsourcing. An institution may outsource banking support and marketing activities subject to the provisions set forth below. Accordingly, an institution is exposed to operational risks as a result of outsourcing. As such, an institution that avails of outsourcing should have in place appropriate mechanisms to ensure effective management of attendant risks.”
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The previous Section X162 of the MORB shall be renumbered as Subsection X162.1, Governance in All Cases of Outsourcing of Banking Functions , and amended to provide the responsibilities of a bank when outsourcing is allowed by law.
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The previous Subsection X162.1 of the MORB (2008 – X169.1), Prohibition against outsourcing certain banking functions, is renumbered as Subsection X162.2 and amended to provide inherent bank functions that no bank shall outsource. The previous Subsection X162.2 (2008 – X169.2) on Outsourcing of Information Technology Systems/Processes is amended and transferred to the Appendix of Section X162 of the MORB in relevant documentations.
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The previous Subsection X162.3 (2008 – X169.3), Outsourcing of Other Banking Functions, is deleted. The new Subsection X162.3 of the MORB reads as follows: “Subsection X162.3 Denition. Outsourcing shall refer to any contractual agreement between a bank and a qualied service provider for the latter to perform designated activities on a continuing basis on behalf of the bank.”
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The new Subsection X162.4, Managing Outsourcing-Related Risks, of the MORB focuses on the responsibility of the bank to manage the operational risks that arise from outsourcing.
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The new Subsection X162.5 reads as follows: “Subsection X162.5 Authority to Outsource. Only those banks with a CAMELS composite rating of at least “3” and a Management Rating of not lower than “3” shall be allowed to outsource designated activities without prior BSP approval. Otherwise, the bank must secure prior approval from the appropriate supervising department of the BSP whose evaluation will be based on the bank’s ability to manage risks attendant to outsourcing.”
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The new Subsection X162.6, Documentation, requires banks to keep the necessary documentation to show that outsourcing arrangements are properly reviewed and the appropriate due diligence has been undertaken prior to implementation.
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Subsections X162.11 (2008 – X169.11) and X162.12 (2008 – 169.12) of the MORB are consolidated, re-titled and renumbered as Subsection X162.7, Intragroup Outsourcing, and amended to provide the conditions in case a bank is acting as a service provider within its business group.
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The new Subsection X162.8, Offshore Outsourcing, provides for the conditions in cases of outsourcing where the service provider is located outside the country.
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The previous Subsection X162.4 (2008 – X169.4) is renumbered as the new Subsection X162.9 and amended to read as follows: “Subsection X162.9 Service Providers. The bank shall carry out due diligence in selecting service providers. It must ensure the integrity, technical expertise, operational capability, nancial capacity and suitability of the service provider to perform the outsourced activity. In cases where the clients are prejudiced due to errors, omissions and frauds by the service provider, the bank shall be liable in providing the appropriate remedies as may be allowed by laws or regulations, without prejudice to recourse by the bank to the service provider.”
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The previous Subsection X162.5 is renumbered as Subsection X162.10, retitled and amended to read as follows: “Subsection X162.10 Transitory Provision. All outsourcing agreements must be aligned with the provisions of Section X162 of the MORB. Existing outsourcing agreements which are not in accordance with this circular will not be unwound. However, it must comply with the requirements provided herein upon renewal of the agreements.”
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The previous Subsection X162.19, Penalties, is re-numbered as Subsection X162.11.
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Subsections X406.9, Outsourcing Services in Trust Departments, and X701.13 (2008 – X621.13), Outsourcing of interment and Mobile Banking Services, of the MORB are deleted.
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This Circular shall take effect 15 calendar days following its publication either in the Ofcial Gazette or in a newspaper of general circulation.
[Editor’s Note: Circular No. 765 was published in The Manila Times on August 13, 2012.]
Circular No. 766 prescribes the Guidelines in Strengthening Corporate Governance and Risk Management Practices on Trust, Other Fiduciary Business, and Investment Management Activities.
BSP Circular No. 766 dated August 17, 2012
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Section X401/4401Q, Statement of Principles, of the MORB/MORNBFI are amended to provide that policies predicated upon the cardinal principle of delity shall be directed towards the observance of prudent administration, undivided loyalty and utmost care, non-delegation of responsibilities, preserving and protecting property, and keeping and rendering accounts.
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Sections X403/4403Q, Denitions, of the MORB/MORNBFI are amended by reassigning items “a” to “u” as “b” to “v” and adding a new item “a” as follows:
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“A. Trust Entity shall refer to a (a) bank or non-bank nancial institution, through its specically designated business unit to perform trust functions, or (b) trust corporation, authorized by the Bangko Sentral ng Pilipinas (BSP) to engage in trust and other duciary business under Section 79 of R. A. No. 8791 (The General Banking Law of 2000) or to perform investment management services under Section 53 of R. A. No. 8791.” •
Subsections X406.2/4406Q.2, Composition of trust committee, of the MORB/ MORNBFI are amended to provide that the Trust Committee shall have at least ve members as follows: 1.
The president or any senior ofcer of the bank/non-bank nancial institution (NBFI);
2.
The trust ofcer;
3.
The remaining members, including the chairperson, may be any of the following: i.
Non-executive directors or independent directors who are both not part of the audit committee; or
ii.
Those considered as qualified “Independent Professionals.”
If there are more than 5 members, a majority shall be composed of qualied non-executive members. •
Subsection X406.3/4406Q.3, Qualications of committee members, ofcers and staff , of the MORB/MORNBFI are amended to provide that directors, committee members and ofcers charged with the administration of trust and other duciary activities shall have the additional requirement of relevant experience in such business. A trust ofcer, in addition to possessing at least 3 years of actual experience in trust operations or at least 5 years of actual experience as an ofcer of a bank/ NBFI, must have:
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1.
Completed at least 90 training hours in trust, other duciary business or investment management activities acceptable to the BSP; or
2.
Completed a relevant global or local professional certication program.
Item f of Sections 2404/3404 of the MORB on the authority to engage in limited trust business to thrift banks and rural banks, respectively, shall be revised to provide that a trust ofcer, in addition to possessing at least 1 year of
Tax Bulletin
actual experience in trust operations or at least 2 years of actual experience as an ofcer of a bank/NBFI, must have:
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1.
Completed a training program in trust, other duciary business or investment management activities acceptable to the BSP; or
2.
Completed a relevant global or local professional certication program.
Subsections X406.a/4406Q.4, Responsibilities of Administration, of the MORB/MORNBFI are amended to provide the specic responsibilities of the following: 1.
The Board of Directors (BOD) in relation to trust activities of a bank/NBFI;
2.
The Trust Committee, which is a special committee that reports directly to the BOD and is primarily responsible for overseeing the duciary activities of the bank/NBFI; and
3.
The Trust Ofcer, who is vested with the management of the day-to-day duciary ofcer.
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Subsections X406.10/4406Q.10, Conrmation of the appointment/ designation of trust ofcer and independent professional, of the MORB/ MORNBFI are amended to provide that an independent professional and trust ofcer must be t and proper to discharge their respective functions. Their appointment/designation shall be subject to conrmation by the Monetary Board which shall inform the concerned bank/NBFI if, after evaluation, it nds grounds for the disqualication of the independent professional and trust ofcer.
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Trust entities of banks/NFBIs that do not meet the requirements of this Circular shall be given twelve (12) months from the date of effectivity to comply.
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Non-compliance with the provisions of this Circular shall subject the bank/ NBFI and its BOD to sanctions provided under Sections 36 and 37 of R. A. 7653 without prejudice to the imposition of other sanctions as the Monetary Board may consider warranted under the circumstances that may include but not limited to curtailment of duciary activities, and/or introduction of new business, and such other sanctions as may be provided by law.
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This Circular shall take effect 15 calendar days following its publication either in the Ofcial Gazette or in a newspaper of general circulation.
[Editor’s Note: Circular No. 766 was published in the Manila Bulletin on August 24, 2012.]
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Court Decision Team Pacic Corporation vs. Josephine Daza, in her capacity as Municipal Treasurer of Taguig
Second Division, G.R. No. 167732, promulgated July 11, 2012 After receiving a notice of assessment, a taxpayer may le within 60 days a written protest with the local treasurer, which shall decide on it within 60 days. The taxpayer can make an appeal to the Regional Time Court (RTC) within 30 days from receiving the denial of the protest, or from the lapse of the 60-day period to decide on the protest. Thereafter, the taxpayer can appeal the decision of the RTC to the Court of Tax Appeals (CTA) within 30 days after receiving the decision.
Facts:
Petitioner Team Pacic Corporation (TPC), a domestic corporation engaged in the business of assembling and exporting semiconductor devices, conducts its business at the FTI Complex in Taguig. Since the start of its operations, TPC had been paying local business taxes (LBT) at 1/2 of the rates imposed on “exporters and on manufacturers, millers, producers, wholesalers, distributors, dealers or retailers of essential commodities” pursuant to the Taguig Revenue Code. When TPC renewed its business license in 2004, however, Respondent Josephine Daza, then Municipal Treasurer of Taguig, assessed LBT at the full rate on the ground that TPC is not an exporter of essential commodities. TPC paid the assessed LBT and led a written protest on January 19, 2004. On April 15, 2004, TPC led a petition for certiorari under Rule 65 of the 1997 Rules of Civil Procedure before the Regional Trial Court (RTC). TPC alleged that Daza did not act on its protest within 60 days, as prescribed under Article 195 of the Local Government Code (LGC), and that Daza acted with grave abuse of discretion in not applying the 1/2 rate provided under the Taguig Revenue Code. Daza argued that TPC erred in ling a petition for certiorari and that TPC should have, instead, led an appeal in court within 30 days from receipt of the denial. The RTC dismissed the petition. It found that there was no proof of denial of TPC’s protest. Hence, TPC had 30 days from the lapse of the 60 days allowed for the treasurer to make its decision, within which to perfect an ordinary appeal. The RTC ruled that the special civil action of certiorari is not the proper remedy of TPC. TPC appealed to the Supreme Court and argued that the remedy of appeal is not specied under Article 195 of the LGC, and therefore, a Rule 65 petition for certiorari is the proper and logical remedy, given that Daza acted with grave abuse of discretion in assessing its LBT at the full rate.
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Tax Bulletin
Issue:
Did TPC avail of the correct remedy against the assessment when it led a petition for certiorari before the RTC? Ruling:
No. TPC did not avail of the correct remedy. TPC should have led an ordinary appeal with the RTC. Within 60 days from receipt of a notice of assessment, a taxpayer may le a written protest with the local treasurer, which shall decide the same within 60 days. The taxpayer shall have 30 days from receipt of the denial of the protest, or from the lapse of the 60-day period given to the local treasurer to decide the protest, within which to appeal to the RTC. Without any formal denial of the protest, TPC’s ling of its petition before the RTC on April 19, 2004 was done in a timely manner. Reckoned from the ling of the protest on January 19, 2004, Daza had 60 days or until March 19, 2004 within which to resolve the protest. From the lapse of this 60-day period, TPC had 30 days or until April 18, 2004 within which to le its appeal to the RTC. Since the latter date fell on a Sunday, the RTC correctly ruled that TPC’s ling of its petition on April 19, 2004 was still within the prescribed period. However, a Rule 65 petition for certiorari is not the appropriate remedy from Daza’s inaction on TPC’s protest. Instead, TPC should have led an ordinary appeal with the RTC. Thereafter, an appeal from the judgment, resolution or order of the RTC shall be made within 30 days after receipt of the decision, by ling a petition for review with the CTA. The perfection of an appeal in the manner and within the period xed by law is not only mandatory but jurisdictional, and non-compliance with these legal requirements is fatal to a party’s cause.
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