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Tax Training Concerns

1. Is royalty from franchise subject to 2% or 1% withholding tax or is it subject to 20% withholding tax? >If it has been determined that the royalty other than from books, literary works and musical composition is a passive income shall be subjected to 20% final tax (except if the payee is a Nonresident Alien not engaged in trade or business in the Philippines and Non-Resident Foreign Corporation).Note also that there are two classifications of withholding tax at source: (1) Final Withholding Tax and (2) Creditable withholding tax, royalty falls under the first classification. >per Confirmation with Withholding Tax Division it has been verified that the royalty from franchise and other kinds of royalty is subject to 20% withholding tax. *Revenue Regulation No. 2-98* 2. Clear limitation of RA9994? Is the 20% discount extends to purchase of vehicles? >No clear limitation, as each provision has its own limit, e.g. 20% discount on the purchase of medicines, including the purchase of influenza and pneumococcal vaccines, and such other essential medical supplies, accessories and equipment to be determined by the Department of Health (DOH). >20% discount does not extend to purchase of vehicles. The RA clearly mentions specific goods and services for which the Senior Citizen may avail of the 20% discount and Exemption from VAT. *RA 9994* 3. Is gain on sale of vehicle an ordinary asset subject to VAT? >Gain on sale of ordinary asset-vehicle which is a personal property is not subject to VAT, what is subject to VAT is the sale of vehicle. >per confirmation with the BIR the sale of vehicle is subject to VAT. >REVENUE REGULATIONS NO. 16-05 SECTION 4.106-1.VAT on Sale of Goods or Properties. VAT is imposed and collected on every sale, barter or exchange, or transactions "deemed sale" of taxable goods or properties at the rate of 10% of the gross selling price or gross value in money of the goods or properties sold, bartered, or exchanged, or deemed sold in the Philippines. SECTION 4.106-2. Meaning of the Term "Goods or Properties". The term "goods or properties" refers to all tangible and intangible objects which are capable of pecuniary estimation and shall include, among others: (1) Real properties held primarily for sale to customers or held for lease in the ordinary course of trade or business;

(2) The right or the privilege to use patent, copyright, design or model, plan, secret formula or process, goodwill, trademark, trade brand or other like property or right; (3) (4) (5) The right or the privilege to use any industrial commercial or scientific equipment; The right or the privilege to use motion picture films, films, tapes and discs; and Radio, television, satellite transmission and cable television time.

*Revenue Regulation No. 04-07* 4. Is purchase of jewelries/gold subject to VAT? Any exemption? >Purchase of jewelries/gold is subject to VAT if the seller is a VAT registered. >RR No. 16-2005 did not mention jewelries or gold as exemption from payment of VAT, therefore it should be subject to VAT. 5. How to withhold travels of directors who use credit cards? >The credit card companies in the Philippines are required to withhold % on the gross amounts paid to any business entity representing the sales of goods/services made by the aforesaid business entity to cardholders. >per verification with the BIR withholding tax division there is a similar complain about this matter and there has been no resolution yet

*Revenue Regulation No. 2-98* 6. How to withhold tax for foods or supplies being paid over the counter by to 10,000 Corporations. >There are no regulations/rulings regarding the procedure of withholding in case payment is made over the counter. Probably the procedure would be the same as those made to local suppliers. >per inquiry with the BIR tax division if the purchase is over the counter and it is made to regular/supplier, the customer should bring certificate and withhold the proper amount. But most cases the supplier do not allow the withholding of tax since this is an over the counter purchase, in that case the burden now rest on the buyer. The expenses claimed would possibly be disallowed, in some instances the buyer shoulders the withholding tax so that the expenses would not be disallowed and the corresponding penalty would not be impose upon them.

*Revenue Regulations No. 17-03*

7. What if you are transacting with government agencies and the said agency delayed on giving creditable tax certificates despite consistent follow up, what will be the course of action of the taxpayers? > per inquiry with BIR withholding tax division the taxpayer who was not given the creditable tax certificate may file a complain that the said government agencies, individuals or corporations fail to give the tax certificates in which case they would be subject to examination by the BIR upon verifying the complain. 8. Can the creditable tax be claimed forever? Is there no prescription? >Yes, as long as you follow the requirements set by BIR. > The amount of creditable tax withheld shall be allowed as a tax credit against the income tax liability of the payee in the quarter of the taxable year in which income was earned or received. *Revenue Regulations No. 02-98* 9. How to withhold tax on transportation for taxis and buses if you are under top 10,000 Corporations? >Withholding tax on that case is not necessary because most of the time it involves small amounts and the payment is made to different taxis and buses. > Purchases of services do not necessarily mean that you have to withhold 2% on every purchase of the said entity. The Regulation regarding this speaks of income payments made by top 10k private corporations (now top 20K) to their local/resident supplier of goods and local/resident supplier of services. > "local/resident supplier of goods" pertains to a supplier from whom any of the top ten thousand (10,000) private corporations, as determined by the Commissioner, regularly makes its purchases of goods. As a general rule, this term does not include a casual purchase of goods, that is, purchases made from non-regular suppliers and oftentimes involving single purchases. However, a single purchase which involves ten thousand pesos (P10,000.00) or more shall be subject to a withholding tax. The term "regular suppliers" refers to suppliers who are engaged in business or exercise of profession/calling with whom the taxpayer-buyer has transacted at least six (6) transactions, regardless of amount per transaction, either in the previous year or current year. The same rules apply to local/resident supplier of services other than those covered by separate rates of withholding tax. *Revenue Regulations No. 17-03* 10. Tax on profit sharing? Is it subject to withholding tax on compensation? >per inquiry with BIR withholding tax division profit share is part of compensation and therefore subject to withholding tax on compensation >SECTION 2.78.1. (A) Withholding of Income Tax on Compensation Income.

Compensation Income Defined

The basis upon which the remuneration is paid is immaterial in determining whether the remuneration constitutes compensation. Thus, it may be paid on the basis of piece-work, or a percentage of profits; and may be paid hourly, daily, weekly, monthly or annually (1) Compensation paid in kind. Compensation may be paid in money or in some medium other than money, as for example, stocks, bonds or other forms of property. If services are paid for in a medium other than money, the fair market value of the thing taken in payment is the amount to be included as compensation subject to withholding... *Revenue Regulations No. 02-98* 11. Is summer outing and x-mas party under representation expenses? How to account it properly? >the expenses incurred in company outing and Christmas party is not classified as representation expense rather it should be classified as de minimis benefits which is not subject to fringe benefits tax. >In general, expenses incurred by the employee but which are paid by his employer shall be treated as taxable fringe benefits, except when the expenditures are duly receipted for and in the name of the employer and the expenditures do not partake the nature of a personal expense attributable to the employee. "The term 'de minimis benefits' which is exempt from the fringe benefit tax shall, in general, be limited to facilities or privileges (such as entertainment, Christmas party and other cases similar thereto; medical and dental services; or the so-called courtesy discount on purchases), furnished or offered by an employer to his employees, provided such facilities or privileges are of relatively small value and are offered or furnished by the employer merely as a means of promoting the health, goodwill, contentment, or efficiency of his employees." Since the annual Christmas party and company outing are sponsored by the company to foster goodwill and camaraderie among the employees, which redound to the convenience of the employer, the said Christmas party and company outing are exempt from the fringe benefit tax (BIR Ruling No. 061-99 dated May 5, 1999; BIR Ruling No. 128-99 dated August 18, 1999; and BIR Ruling No. DA-331-2000 dated August 28, 2000). *BIR RULING [DA-335-03]* Section 32 & 33 BIR Rulings Nos. 23-02 & 25-01 12. What is the withholding in case a top 10,000 corporation approached a financing company who automatically pays the supplier of a computer? >The company who instructed the payment is the one required by BIR to deduct and withhold taxes; in that case the Company should have instructed the financing company to pay a certain amount net of withholding tax >SECTION 2.57.3. Persons Required to Deduct and Withhold. The following persons are hereby constituted as withholding agents for purposes of the creditable tax required to be withheld on income payments enumerated in Section 2.57.2: (A) In general, any juridical person, whether or not engaged in trade or business;

(B) An individual, with respect to payments made in connection with his trade or business. However, insofar as taxable sale, exchange or transfer of real property is concerned, individual buyers who are not engaged in trade or business are also constituted as withholding agents; (C) All government offices including government-owned or controlled corporations, as well as provincial, city and municipal governments. 13. Basis of claiming input VAT O.R. or invoice? >Invoice is the supporting document for the claim of input tax on purchase of goods whereas official receipt is the supporting document for the claim of input tax on purchase of services. *Revenue Regulation No. 16-2005* 17. Is interest income from loan to affiliate subject to 12% VAT? >When a company that is engaged in managing, promoting, administering or assisting in any business or activities of other corporations or entities extends loan assistance to its affiliates, it shall be deemed to have performed services incidental to its business. The loan assistance shall therefore be considered performed in the course of trade or business. Hence, interest income generated from the loan assistance to its affiliates shall be subject to VAT. This is also consistent with the rule that if the income from the main business activity is subject to VAT, the incidental income shall also be subject to VAT. Considering that the companys income from management services is VATable, the interest income, being incidental income, shall also be subject to VAT. The VAT applies notwithstanding the fact that the company does not profit from lending to its affiliates because it only passes on to the affiliates the interest that is charged by the bank from which the funds are sourced. The Tax Code defines sale of service as the performance of all kinds of services for others for a fee, remuneration or consideration. In BIR Ruling No. 10-98, the BIR emphasized that payments received for services rendered to affiliates on reimbursement-ofcost basis, without intention of realizing profits, is subject to VAT. As long as the entity provides a service for a fee, remuneration or consideration, the service rendered issubject to VAT. [Lapanday Foods Corporation v. Commissioner of Internal Revenue, CTA EB No. 367 (Re: CAT Case No. 7097), January 29, 2009] Disclaimer: Any tax advice contained in the body of this document is based on the available information, references provided and foregoing facts as presented and is not binding as evidence against SCP. Furthermore, answers to tax queries are specific and does not consider tax situations, limitations and other tax planning strategies or methods to be employed by the Company.