1.

Transfer pricing guidelines: Transfer pricing is generally defined as the pricing of cross-border, intra-firm transactions between related parties or associated enterprises. Typically, a transfer price occurs between a taxpayer of a country with high income taxes and a related or associated enterprise of a country with low income taxes. RR 2-2013 implements Section 50 of the Tax Code on the power of the Bureau of Internal Revenue (BIR) Commissioner to distribute, apportion, or allocate the gross income or deductions between or among related organizations in order to prevent evasion of taxes or clearly to reflect the income of such organization, trade or business. The regulation applies the arms length principle for cross -border and domestic transactions between associated enterprises. In applying said principle, the following three-step approach may be observed: Step 1: Conduct a comparability analysis. Step 2: Identify the tested party and the appropriate transfer pricing method. Step 3: Determine the arms length results Taxpayers must demonstrate that their transfer prices are consistent with the arms length principle by maintaining specific and adequate transfer pricing documentation. To reduce the risk of transfer pricing examination and double taxation, an Advance Pricing Arrangement (APA) is made available to taxpayers engaged in cross-border transactions. t is an agreement entered into between the taxpayer and the BIR to determine in advance an appropriate set of criteria (e.g. method, comparables and appropriate adjustments thereto) to ascertain the transfer prices of controlled transactions over a fixed period of time. 2. Clarification on deductibility of depreciation and other expenses on motor vehicles : RMC 2-2013 clarifies RR 14-2012 and indicates that the limit on deductibility applies to land vehicles purchased prior to October 17, 2012 where the purchased amount exceeded the threshold of Php2.4 million. 3. Taxability of association dues, membership fees and other assessments/charges collected by homeowners associations: The regulation states that the dues and fees are subject to income tax as well as value-added tax (VAT). Also, since homeowners associations are subject to income tax, they are subject to applicable withholding taxes under existing regulations. Association dues and income of the homeowners associations may be exempted from income tax, VAT and percentage tax if it satisfies the following conditions: 1) Must be a duly constituted Association under Republic Act 9904; 2) Must be issued a certification, by the local government unit, identifying the basic community services and facilities being rendered by the homeowners association and therein stating its lack of resources to render such service; 3) Must present proof (i.e., financial statements) that the income and dues are used for the cleanliness, safety, security and other basic services needed by the members, including the maintenance of the facilities of their respective subdivisions or villages. (RMC 9-2013) 4. Clarification on taxes due from Financial or Technical Assistance Agreement (FTTA) Contractors during Recovery Periods: FTTAs are required to pay taxes provided under the Tax Code during and after their recovery period in compliance with their tax obligations and not in compliance with their obligation to settle the government share under the FTTA. Section 81 of RA 7942 (the Philippine Mining Act of 1995) providing that collection of government share FTAA shall commence after the FTAA contractor has fully recovered its pre-operating

expenses, exploration, and development expenditures, is not tantamount to an express grant of tax exemption. (RMC17-2013) 5. Disclosures required under the Supplemental Information portion of Income Tax Return (ITR) Forms 1700, 1701 and 1702: The disclosure requirement is mandatory for income tax filing covering and starting calendar year 2013 for which a return is required to be filed in 2014. (RMC 21-2013) 6. BIR priority audit targets: Under RMO 4-2013, the BIR has identified the following taxpayers as candidates for priority tax audit and investigation by Revenue District Officers (RDOs): 1) Professionals and sole proprietorships Priority targets are professionals and sole proprietorships: (a) whose income tax due is less than P200,000 per annum; (b) whose gross revenue is less than 40% compared to the previous years reported gross revenue; or (c) whose tax payment for each tax type is less than 35% as compared to the previous years tax payment. 2) Industry taxpayers Taxpayers engaged in the following industries shall likewise be selected for priority audit: a. Importers/manufacturers/wholesalers/retailers of wrist watches and jewelry b. Petroleum/gasoline dealers c. Hotels, motels, pension houses/lodging houses/inns, dormitories/ boarding houses d. Real estate industry e. Schools, particularly for foreigners (e.g., English school for Koreans), review centers f. Contractors of non-government agencies (NGAs), local government units (LGUs) and government-owned and controlled corporations g. Retailers/wholesalers h. Restaurants, fast food chains, catering services, bars, coffee shops i. Hospitals, clinics, medical/dental laboratories j. Establishments/clinics for beauty enhancements k. Manufacturers/dealers of beauty and health supplement l. Amusement/entertainment/event centers m. Advertising agencies n. Business processing outsourcing companies o. E-commerce industry p. Manpower and other recruitment services agencies q. Other industries peculiar to the area of jurisdiction of the district office 3) Taxpayers whose tax compliance falls below the established benchmarks. 4) Taxpayers who maintained an ending inventory with value of 100% or more of its gross sales. 7. Fair Market Value (FMV) for unlisted shares of stock: In the case of shares of stock not listed and traded in the local stock exchanges, the value of the shares of stock at the time of sale shall be the fair market value. In determining the value of the shares, the Adjusted Net Asset Method shall be used whereby all assets and liabilities are adjusted to fair market values. The net of adjusted asset minus the liability values is the indicated value of the equity. (RR6-2013) 8. Payment of compromise offer required upon filing of application for compromise settlement: RR 9-2013 amends certain provisions of RR 30-2002 and requires taxpayers to pay the compromise offer upon application for compromise settlement otherwise the application will not be processed. In case the application is disapproved, the amount offered and paid upon filing shall be deducted from the taxpayers outstanding tax liabilities .

9. Filing protest to Final Assessment Notices (FANs) and Final Decision on Disputed Assessments (FDDAs): All letters of protest, requests for reinvestigation/reconsideration and similar correspondences should be filed by taxpayers or their duly authorized representative/s, in person or through registered mail with return card, with the office of the concerned Regional Director (RD), Assistant Commissioner-Large Taxpayers Service (ACIR-LTS) and Assistant Com missioner-Enforcement Service (ACIR-ES) who signed the Preliminary Assessment Notice (PAN), Final Assessment Notice (FAN) and Formal Letters of Demand (FLD) for proper recording and evaluation of the protest. If the procedures in the filing of protest are not followed, the letter of protest, requests for reinvestigation/reconsideration and similar correspondences shall be considered void and without force and effect. (RMC 39-2013) 10. Effect of filing legal petition notices of tax assessment: The BIR has clarified through RMC 38-2013 that Legal Petition Notices (LPNs)/Declarations and similar documents filed by taxpayers and practitioners questioning the validity of the electronic Letters of Authority (eLAs) will not stop or defer the normal process or procedures in the conduct of audit or investigation of taxpayers. 11. Filing/submission of hard copy of the Certificate of Compensation Payment/Tax Withheld (BIR Form 2316): RR 11-2013 provides that failure to submit/file BIR Form 2316 on or before February 28 following the close of the calendar year will merit a penalty of Php1,000.00 for each failure, or a maximum amount of P25,000 for all such failures during a calendar year. 12. Deductibility of expenses not subjected to withholding tax: Expenses not properly subjected to withholding taxes shall not be allowed as deductible expense for income tax purposes. According to RR 12-2013, this is true even if the withholding tax due on the failure to withhold on the income payment is made during the course of the BIR examination. This regulation covers the taxable year 2013, as clarified by RMC 63-2013. 13. Effects of filing a tentative tax return: A Tentative Tax Return shall be considered as a final return; unless a final amended return is filed by the concerned taxpayer. However, once an electronic Letter of Authority or any other notice of audit is received, taxpayers are barred from making amendments to the tentative tax returns filed. Pursuant to Section 6 (A) of the Tax Code, tax returns marked as tentative may also be the subject of examination by the BIR. ( RMC 502013) 14. Revalidation of tax exemption to qualified non-stock, non-profit corporations and association under Section 30 of the Tax Code: Corporations and associations enumerated under Section 30 of the Tax Code, including those which have been issued tax exemption rulings/certificates prior to June 30, 2012, shall file their respective Applications for Tax Exemption/Revalidation with the Revenue District Office (RDO) where they are registered. (RMO 20-2013) 15. BIR ruling revoking all rulings providing for the remedy of claiming as deduction from gross income the unutilized creditable input taxes attributable to VAT ze-rated sales: BIR Ruling No. 123-2013 held that the option to treat accumulated and unapplied input VAT arising from purchase of goods and services as outright expense after the expiration of the two-year prescriptive period lacks legal basis. The BIR maintained that the Tax Code does not expressly provide for another mode of recovering unapplied input taxes, particularly treating unapplied input taxes as deductible expense for income tax purposes. The Bureau has directed all revenue officials and employees engaged in the audit and review of audit cases to disallow unutilized creditable input taxes attributable to VAT zero-rated sales that are claimed as a deduction for income tax purposes. (RMC 57-2013) 16. Retention periods and preservation of books and other accounting records: RR 17-2013 provides that all taxpayers are required to preserve their books of accounts, including subsidiary

books and other accounting records, for a period of ten (10) years reckoned from the day following the deadline in filing a return, or if filed after the deadline, from the date of the filing of the return. 17. Notice of Informal Conference (NIC) deleted in revised rules on the issuance of tax assessments: The salient features of RR 18-2013 which revised the rules on issuance of tax assessment are: 1) Taxpayers will no longer receive NIC from the Revenue District Officer 2) After an eLetter of Authority is served, expect that a Preliminary Assessment Notice (PAN) shall be prepared and served. 3) The PAN shall state the fact and the laws from which the deficiency tax assessment is derived. Otherwise, the such assessment is to be considered 'Void' 4) A protest should be made within 15 days from receipt of the PAN otherwise a FLD/FAN shall be prepared and issued. 5) The protest may either be a request for reconsideration or reinvestigation which you must clearly stated in the body of the protest. 6) Although a protest against PAN is lodged on time, still FLD/FAN shall be prepared and issued which will give you a thirty day period to protest it (again?)..{ETM recommends that instead of filing a protest against PAN, a request for extension to file such protest must be prepared and submitted in order to buy time} 7) Failure to dispute all allegations in the said assessment, the amounts shown therein shall become final and collectible. 8) Failure to supply the facts and the laws from which the protest is derived, the amounts shown in such assessment shall become final and collectible 9) Failure to dispute some issues in the said assessment, the amounts pertaining to undisputed issues shall become final and collectible. 10) Failure to submit all relevant records in support of the protest shall make the amount due thereon to become final and collectible. 11) Commissioner shall not accept a request for reinvestigation but only request for reconsideration