In this Issue


orders and


• SEC opinions

• Tax trivia,
jokes and

July 2004

In this issue of the Tax bits, we extensively examined current tax and
corporate jurisprudence to provide our clients and colleagues with a
brief but comprehensive set of information intended to keep them
abreast of the latest guidelines that affect the corporate world.


Implementation of Republic Act No. 9238, Re-imposing the Gross Receipts Tax
on 1) Banks and Non-Bank Financial Intermediaries Performing Quasi-Banking
Functions and 2) Other Non-Bank Financial Intermediaries Beginning January
1, 2004.

Pursuant to the provisions of Section 244 in relation to Sections 121 and 122 of the
National Internal Revenue Code of 1997 (Code), the Bureau of Internal Revenue has
promulgated Revenue Regulations No. 9-2004 on J une 21, 2004, implementing
Republic Act No. 9238 (An Act amending certain sections of the National Internal
Revenue Code of 1997, as amended, by excluding several services from the
coverage of the Value-Added Tax and Re-imposing the Gross Receipts Tax on Banks
and Non-Bank Financial Intermediaries Performing Quasi-Banking Functions and
Other Non-Bank Financial Intermediaries Beginning J anuary 1, 2004).

For the purpose of the regulations, the term gross receipts shall refer to the
compensation for all financial and non-financial services, or combination thereof,
performed by financial institutions within the Philippines, which include:

(a) Financial intermediation service fee;
(b) Financing leasing income;
(c) Rentals on properties, real or personal;
(d) Royalties;
(e) Commissions;
(f) Trust fees;
(g) Estate planning fees;
(h) Service fees;
(i) Other charges or fees received as compensation for services;
(j) Net trading gains;
(k) Net foreign exchange gains;
(l) Gain on sale or redemption of investments;
(m) Net gain from the sale of properties acquired through foreclosure lodged
under the account “Real and Other Properties Owned and Acquired”
(ROPOA) or under any other appropriate account, which is measured by the
difference between the selling price or the consideration received for such
sale and the carrying cost or book value of the asset at the time of sale as
determined in accordance with the generally accepted accounting principles
prescribed by the BSP for banks and non-bank financial intermediaries

C. L. Manabat & Co. Page - 1
performing quasi-banking functions, or by the
Securities and Exchange Commission (SEC)
for other financial intermediaries; and

(n) All other receipts of gross income specified in
Section 32(A) of the Code not otherwise
enumerated above.

Gross Receipts Tax (GRT) on Banks and Non-Bank
Financial Intermediaries Performing Quasi-banking

The GRT on banks and non-bank financial
intermediaries performing quasi-banking functions
shall be collected on gross receipts from sources
within the Philippines in accordance with the
following schedule:

(a) On interest, commissions and discounts from
lending activities as well as income from
financial leasing, on the basis of remaining
maturities of instruments from which such
receipts are derived:

Maturity period of five (5) years or less
Maturity is more than five (5) years
(b) On dividends and equity shares in the net
income of subsidiaries

(c) On royalties, rentals of property, real or
personal, profit from exchange and all
other items treated as gross income
under Section 32 of the Code

(d) On net trading gains within the taxable
year on foreign currency, debt securities,
derivatives and other similar financial

In computing for the net trading gain within the
taxable year on items of income provided in (d)
above, the figure to be reported in the monthly
percentage tax return (GRT) shall be the cumulative
total of the net trading gain/loss since the first month
of the applicable taxable year less the figures already
reflected in the previous months of the same taxable
year. Provided, that net trading loss on items of income
in (d) above may only be deducted from net trading gain
on items of income provided also in (d) above, but not
from any other items of gross receipt to arrive at the total
monthly gross receipts tax due.

Accordingly, if a bank shall have by the end of the year, a
cumulative net trading loss, said trading loss could no
longer be carried over to the succeeding taxable year
and deducted against any trading gain earned on any
taxable year other than the year it was incurred.

GRT on Other Non-bank Financial Intermediaries.

The gross receipts of other non-bank financial
intermediaries doing business in the Philippines shall be
subject to GRT on the following items of income at their
corresponding rates:

(a) From interest, commissions, discounts and
all other items treated as gross income
under the Code 5%

(b) On interest, commissions and discounts from
lending activities as well as income from financial
leasing, on the basis of remaining maturities of
instruments from which such receipts are derived:

Maturity period of five (5)
Years or less 5%
Maturity is more than five (5) years 1%

Provisions Common to Banks and Non-bank Financial
Intermediaries, Whether or Not Performing Quasi-
banking Functions.

In the case of financial leasing, the taxable gross receipts
shall consist of the interest income only whereas in the
case of transactions under operating lease agreements,
the gross receipts are the gross rental.

If the maturity period from lending activities as well as
financial leasing is shortened thru pretermination, then
the maturity period shall be reckoned to end as of the
date of pretermination for purposes of classifying the
transaction and the application of the correct tax rate.

C. L. Manabat & Co. Page - 2
Time and Venue of Filing and Payment of GRT.

The GRT due under the regulations shall be paid
monthly within 20 days following the end of the
taxable month using BIR Form 2551M to the
concerned AAS of the RDO/LTDO/LTAID where the
taxpayer is registered or required to be registered. If
the taxpayer is an EFPS taxpayer, the rules and
regulations to be observed are those that govern the
filing of returns and payment of taxes under EFPS.

Other Matters

Affected VAT-registered entities are required to
update their corresponding registration records with
the concerned BIR Office by filing the necessary
registration update forms, converting their status from
VAT-registered taxpayer to that of Non-VAT taxpayer
on or before J uly 31, 2004.

Settlement of the Value Added Tax Liabilities of
Pawnshops for Taxable Years 1996 to 2002.

On J une 4, 2004, the Commissioner of Internal
Revenue, have entered into a memorandum of
agreement with the Chambers of Pawnbrokers of the
Philippines, Inc. for a mechanism which will allow
those engaged in the pawnshop business to pay and
settle their value added tax (VAT) liabilities for
taxable years 1996 to 2002. For which purpose,
Revenue Memorandum Circular (RMC) 37-2004 was
issued on J une 16, 2004.

The RMC provides that Pawnshops who shall duly
execute the Settlement Agreement and fully comply
with the terms and conditions of the said Settlement
Agreement shall be allowed to settle in full their VAT
liabilities for taxable years 1996 to 2002, by paying
the equivalent of twenty five percent (25%) of its
value added tax due for taxable years 1996 to 2002,
where the basic value added tax due shall be
computed by multiplying its gross receipts for the
period covered by ten percent (10%).

The payment for taxable years 2000 to 2002 shall be
due on or before J uly 15, 2004. While the payment
for taxable years 1996 to 1999 shall be due on or
before December 15, 2004. After these dates,
pawnshops shall no longer be allowed to settle their
VAT liability for the years referred to under the terms and
condition of the Settlement Agreement.

The duly executed Settlement Agreement, the
requirements contained in the Settlement Agreement,
and the payment due shall be made by the pawnshops
availing thereof to the Revenue District Office / Large
Taxpayer Service / Large Taxpayer District Office
(RDO/LTS/LTDO) having jurisdiction of said pawnshop.

Other BIR issuances

Revenue Memorandum Orders (RMO)

RMO 26-2004 prescribes the house rules for the BIR
contact center.

RMO 27-2004 sets the guidelines and procedures in
granting the Accredited Agent Bank’s (AAB) request for
refund of over-remittance of tax collection. It provides,
among others, the substantiation requirements for refund
and the duties of the Revenue Accounting Division
(RAD) of the BIR and the Revenue District Officer
concerned. Further, as declared by the RMO, the said
refunds of over-remittances should not be construed as
refund of tax payments as a taxpayer.

RMO 30-2004 clarifies the provision on the extension of
Centennial Taxpayers Recognition Program (CTRP) as
covered by RMO 25-2004.

Revenue Memorandum Circulars (RMC)

RMC 31-2004 specifies that the Bangko Sentral ng
Pilipinas (BSP) is currently implementing its Checkless
Payment System, where the BSP can pay its internal
revenue taxes nationwide by directly crediting the
account of the Treasurer of the Philippines.

RMC 33-2004 prescribes the revised rules and
regulations implementing Republic Act (RA) 8502,
otherwise known as the “J ewelry Development Act of

RMC 36-2004 circularizes the Supreme Court's decision
that pawnshops are not subject to the 5% lending
investor's tax.

C. L. Manabat & Co. Page - 3


Circular No. 435 provides for the amendment of
Annex "A" of BSP Circular No. 407 dated 30
September 2003 on "Minimum Documentary
Requirements for Foreign Exchange (FX) Forward
and Swap Transactions.”

Circular No.436 issues a policy guideline requiring
banks to adopt minimum prescribed guidelines that
contain the salient and relevant policies and
procedures related to correspondent banking
transactions and to electronic fund transfers.

Circular No. 437 amends Section X163.11a (10) of
the Manual of Regulations for Banks (MORB) to read
as follows: “All current account statements shall be
mailed or sent electronically via electronic mail (e-
mail), or such other electronic means direct to
depositors provided that banks using the electronic
means of sending the current account statements
shall have prior BSP-approved internet banking
service and shall strictly observe the required
retention of electronic data messages or electronic
documents under section 13 of R.A. No. 8792,
otherwise known as the "Electronic Commerce Act.”

Circular No. 438 likewise amends certain provisions
of the MORB, Subsection 1381.2 item (a) in
particular, to read: “The equity investment of a
universal bank, or of its wholly or majority-owned
subsidiaries, in a single non-allied enterprise shall not
exceed thirty-five percent (35%) of the total equity in
that enterprise nor shall it exceed thirty-five percent
(35%) of the voting stock in that enterprise.” For the
purpose of determining compliance with the ceiling
prescribed the equity investment of the bank; and the
equity investment of the bank's subsidiaries, shall be

Circular Letters

Circular Letter dated June 18, 2004 clarifies Circular
No. 222 to the effect that Overseas Filipino Workers
(OFW’s) are considered "residents" and accordingly
could avail of peso loans from Philippine Banks for
utilization in the Philippines.

Circular Letter dated June 25, 2004 makes a call for the
publication, by all thrift banks and all non-bank financial
institutions with quasi-banking functions, of its
Consolidated Statement of Condition and its subsidiaries
and affiliates side-by-side with its Statement of Condition
(head office, branches and other offices, domestic or
foreign) as of 23 J une 2003 pursuant to Section 61 of
R.A. 8791. The original and a copy of the Statements of
Condition (Solo and Consolidated) shall be submitted to
the appropriate supervising and examining department of
the BSP before the publication within twelve (12) banking
days from receipt of the call. Copies of the Statement of
Condition (Solo and Consolidated) as published, together
with the publisher's certificate, shall likewise be
submitted to the appropriate supervising and examining
department of the BSP within twenty (20) banking days
from receipt of the call.


Memorandum dated June 4, 2004 interprets the term
“twelve (12) months salary”, with respect to the granting
of loans of Non-Stock Savings of Loan Associations, to
include other regular benefits, such as 13th month pay
and bonuses mandated under collective bargaining
agreement, which bonuses, by their mandatory nature
impress a characteristic of regularity."


Foreign Equity in Massage Clinics / Alternative
Health Care Should be Limited to Forty Percent
(40%) of Equity Capital

Fortune Pacific Medical Corporation (Fortune), which is
engaged in the establishment of aesthetic salons,
acupuncture, check-up and massage clinics proposed a
change in its ownership structure from twenty percent
(20%) to one-hundred percent (100%) foreign equity.

The SEC rendered an opinion to the effect that Fortune
can increase its foreign equity only up to forty percent
(40%) of the equity capital as said company is engaged
in activities regulated by law for reason of risks posed to
public health.

Number 2(4) List B of the Fifth Regular Foreign
Investment Negative List under Executive Order No. 139
provides that foreign ownership is limited up to forty

C. L. Manabat & Co. Page - 4
percent (40%) of massage clinics and other like
activities regulated by law for reason of risks posed
to public health.

Consequently, under the Traditional and Alternative
Medicine Act of 1997, acupuncture, massage,
reflexology, acupressure, chiropractices, nutritional
therapy and other similar methods are considered as
alternative health care modalities. Presumably,
because of implications to public health of such
alternative health care modalities, the operation of
establishments offering such methods are regulated
by the Philippine Institute of Traditional and
Alternative health Care, an agency attached to the
Department of Health. Further, the government
regulates even the operation of spa offering
reflexology, body treatment and massage services.
(SEC Opinion No. 04-33, May 25, 2004).

Doing Business Implies Continuity of Commercial
Dealings with Performance of Acts Normally
Incident to a Corporate Purpose

The opinion of the honorable Commission (SEC) was
sought on whether the UBE Industries, Ltd. (UBE)
need not register with the SEC taking into
consideration the scope of its participation in the
Toyo-Obayashi-Ube Consortium (Consortium), one
of the bidders for the Casecnan Multi-Purpose and
Power Project-Irrigation Component of the National
Irrigation Administration.

In its opinion, the SEC consistently upheld its former
ruling that a foreign corporation is deemed not doing
business and thus exempt from the requirement of
license if its commercial dealing is limited to a single
agreement or is isolated or an occasional transaction
and indicates no element of continuity of conduct in
that respect.

The SEC further states that while it is true that the
duration of contract under consideration is within 910
days from receipt of the notice to proceed by the
Consortium, nonetheless UBE’s act of supplying
gates shall be done once and not continually. UBE’s
participation is limited to providing advice on the
proper installation of gates, which are fully
manufactured in J apan. The contractual obligation of
UBE in the consortium is confined to the design,
manufacture, supply, test, delivery, commissioning, and
others in connection with gates operation.

Applying the earlier pronounced yardstick to the case of
UBE, the SEC has opined that it may well be said that
UBE’s transaction is an isolated transaction for which a
license to operate its business in the country need not be
secured. (SEC Opinion No. 04-34, J une 08, 2004).



Interesting Things That Have Been Taxed
• Bachelors (England in 1695 A.D., and Missouri in
1820 A.D.)
• Beards (Russia, 1702 A.D.)
• Cooking Oil (Ancient Egypt, approximately 2000
• Souls (Russia, approximately 1682 A.D.)
• Urine (Rome, 1 A.D.)
Besides taxing beards and souls, Peter the Great of
Russia also taxed: hats, boots, beehives, basements,
chimneys, food, clothing, birth, marriage, and burial.


The Golden Fish

How have you managed to buy such a luxurious villa
while your income is so low?" asked the IRS auditor.

"Well," the taxpayer answered, "while fishing last
summer I have caught a large golden fish. When I took it
off the hook, the fish opened his mouth and said, 'I am a
magical fish. Throw me back to the sea and I'll give you
the most luxurious villa you have ever seen'. So I threw
the fish back to the sea, and got the villa.”

"How can you prove such an unbelievable story?"

"Well, you can see the villa, can't you?"

C. L. Manabat & Co. Page - 5
Now You Have Everything

A businessman on his deathbed called his friend and
said, "Bill, I want you to promise me that when I die
you will have my remains cremated.”

"And what," his friend asked, "do you want me to do
with your ashes?"

The businessman said, "J ust put them in an envelope
and mail them to the Internal Revenue Service and
write on the envelope, "Now you have everything."


“A taxpayer is someone who works for the federal
government but who doesn't have to take a civil
service examination.”

Ronald Reagan
“The trick is to stop thinking of it as 'your' money.”
Revenue Auditor
“Unofficial Motto of the Internal Revenue Service:
"We have what it takes to take what you have."


C. L. Manabat & Co. Page - 6

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