You are on page 1of 21

I.

New Laws

Foster Care Act of 2012


Republic Act No. 10165
Foster child law Republic Act No. 10165

Grants foster parents the privilege of claiming a foster child as an additional


dependent for tax purposes.
The definition of the term "dependent" under Section 35 (B) of the Tax Code
shall include a "foster child" (Sec. 22, RA 10165)

Foster child law Republic Act No. 10165


Conditions:
1) Period of foster care is at least a continuous period of one (1) taxable year.
2) Only one (1) foster parent can treat a foster child as a dependent for a
particular taxable year.

A foster child refers to a child placed under foster care who is abandoned,
surrendered, neglected, dependent or orphaned; a victim of sexual, physical, or any
other form of abuse or exploitation; a child with special needs; a street child, a child
in armed conflict or a victim of child labor or trafficking; or in need of special
protection, etc.
(Sec. 4, RA 10165 )

Restructuring of excise tax on alcohol and tobacco products (Republic Act


No. 10351)

RA 10351 was signed into law on December 19, 2012, and took effect on January 1,
2013
Salient features (RA 10351)

RA 10351 adopts a combination of ad valorem and specific tax for distilled


spirits and cigars and cigarettes.

Annual indexation by four percent of excise tax on wines, tobacco products


and cigars effective January 1, 2014; distilled spirits effective January 1, 2016; and
fermented liquor and cigarettes effective January 1, 2018.

Salient features (RA 10351)

Mandates a gradual shift to a unitary excise tax rate structure for fermented
liquors, and cigars and cigarettes by removing the price classification.

Revised Excise Tax Rates


Republic Act No. 10351

Distilled Spirits
Distilled spirits - subject to specific tax of P20 plus 15% ad valorem tax of the net
retail price (NRP) per proof liter, effective January 1, 2013.

The ad valorem tax shall increase to 20% starting January 1, 2015 while the specific
tax shall increase by four percent every year effective January 1, 2016.

A unitary tax of P23.50 per liter shall be imposed effective January 1, 2017 which
shall increase by 4% every year starting January 1, 2018.
Tobacco

Excise tax on tobacco products shall increase to P1.75 pesos effective on January 1,
2013 on each kilogram of the following tobacco products:
a.
Tobacco twisted by hand or reduced into a condition to be consumed in any
manner other than the ordinary mode of drying and curing;
b. Tobacco prepared or partially prepared with or without the use of any
machine or instruments or without being pressed or sweetened except as
otherwise provided hereunder; and
c. Fine-cut shorts and refuse, scraps, clippings, cuttings, stems and sweepings
of tobacco.
Tobacco specially prepared for chewing unsuitable for use in any other manner - an
excise tax of P1.50 on each kilogram shall be imposed effective on January 1, 2013.
(The excise tax rates on tobacco products shall be increased by four percent (4%)
every year effective on January 1, 2014.)
Wines

The excise tax on wines shall increase by four percent (4%) every year effective on
January 1, 2014.
Cigars
Cigars - subject to specific tax of P5.00 per cigar plus 20% ad valorem tax of the
NRP cigar effective January 1, 2013.
The P5.00 specific tax on cigar shall increase by four percent every year effective
January 1, 2014.

A. Cigarettes packed by hand

Excise tax on cigarettes packed by hand shall increase by 4% every year effective
January 1, 2018.

B. Cigarettes packed by machine

NRP = P11.50 and below

NRP = more than P11.50

Excise tax on cigarettes packed by machine shall become uniform at P30.00 per
pack effective January 1, 2017, and shall increase by 4% every year starting January
1, 2018.

Earmarking of incremental revenues


After deducting the allocations under Republic Act Nos. 7171 and 8240, 80% of the
remaining balance of the incremental revenues shall be allocated for the universal
health care under the National Health Insurance Program (NHIP) while 20% shall be
allocated nationwide for medical assistance and health enhancement facilities
program.


Taxation of International Carriers
Republic Act No. ____

International carriers

International air carrier A foreign airline corporation doing business in the


Philippines having been granted landing rights in any Philippine port to perform
international air transportation services/activities or flight operations anywhere in
the world.

Types of international carrier

Off-line carrier refer to an international air carrier having no flight operations to


and from the Philippines.
On-line carrier refers to an international air carrier having or maintaining flight
operations to and from the Philippines.

Gross Philippine Billings (GPB) tax

An international air carrier having flights originating from any port or point in
the Philippines, irrespective of the place where passage documents are sold
or issued, is subject to the 2 Gross Philippine Billings (GPB) tax.

Reciprocity rule

Reciprocity rule the tax on gross Philipine billings may be reduced or


waived when home countries of foreign carriers grant a similar tax exemption
to Philippine carriers.

Common Carriers Tax (CCT) on international carriers

CCT on international air and sea carriers shall cover only their gross receipts
derived from transport of cargo from the Philippines to another country.

Transport of passengers by international carriers exempt from CCT and VAT

II. Latest BIR Issuances


New ITR Form
Revenue Regulations No.19-2011 and RMC 40-2011

December 9, 2011 and September 5, 2011

Additional disclosure requirement (

Starting calendar year 2012, the disclosures required under the Supplemental
Information portion of the new ITR Forms (BIR Form 1700 and 1701) shall become
mandatory.
Additional information under Part IV of the BIR Form 1700 and 1701 include(a)
income subjected to final tax, such as interests, royalties, dividends, and winnings,
etc., and (b) income exempt from tax.
- Revenue Memorandum Circular No. 57-2011,
Deductibility of depreciation and maintenance expenses, and input taxes
allowed on purchase of vehicles
Revenue Regulations No.12-2012
October 12, 2012

Deductibility of depreciation expenses

Conditions in claiming deduction for depreciation and other related expenses, and
input taxes on purchase and maintenance of motor vehicles:

a. The motor vehicle must be substantiated with sufficient evidence, such


as official receipts or other adequate records which contain the
following, among others, specific motor vehicle number, price of
vehicle, direct connection or relation of the vehicle.
b. Only one vehicle for land transport with value of not exceeding
P2,400,000.00 is allowed for the use of an official or employee;
c. No depreciation shall be allowed for yachts, helicopters, airplanes
and/or aircrafts and land vehicles which exceed P2,400,000, unless the
taxpayers main line of business is transport operations or lease of
transportation equipment and the vehicles purchased are used in said
operations;
d. All maintenance expenses and input taxes on non-depreciable
vehicles for taxation purposes are disallowed in its entirety.
e. Any loss that will be incurred as a result of a sale of the nondepreciable vehicles shall likewise be NOT allowed as a deduction from
gross income.
f.

All expenses related to the non-depreciable vehicles such as but not


limited to repairs and maintenance, oil and lubricants, gasoline, spare
parts, tires and accessories, premium paid for insurance and
registration fees shall not be allowed as a deduction in its entirety.

g.

Input taxes on all disallowed expenses above are likewise not allowed
to be claimed as input tax.

Clarification on taxation of clubs organized and operated exclusively for


pleasure, recreation and other non-profit purposes
Revenue Memorandum Circular No. 35-12
August 6, 2012
Taxability of clubs organized and operated exclusively for pleasure, recreation
and other non-profit purposes
Income Tax exemption of clubs organized and operated exclusively for
pleasure, recreation, and other non-profit purposes were deleted under RA
8424. Hence, its income from whatever source, including but not limited to
membership fees, assessment dues, rental income, and service fees are
subject to income tax.
VAT Gross receipts of recreational clubs including but not limited to
membership fees, assessment dues, rental income, and service fees are
subject to VAT.

- Even non-stock, non-profit organizations are subject to VAT (CIR v.


Commonwealth Management Services, GR 125355)
Tax on association dues, membership fees and other assessments/charges
collected by condominium corporations
Revenue Memorandum Circular No. 65-12
October 31, 2012

Tax on association dues, membership fees and other assessments/charges

Income Tax - association dues, membership fees and other


assessment/charges collected by a condominium corporation constitute
income payments or compensation for the beneficial services it provides to
its members and tenants.

Taxability of association dues, membership fees and other


assessments/charges

Value Added Tax (VAT) - gross receipts of condominium corporations


including association dues, membership fees and other assessments/charges
are subject to VAT

Association dues, membership fees, and other assessments/charges collected


by Homeowners' Associations
Revenue Memorandum Circular No. 9-2013
January 29, 2013

Taxation association dues, membership fees and other assessments/charges

Treatment of association dues, membership fees and other


assessment/charges collected by a homeowners' association Same as
condominium corporations

Homeowner's Associations are subject to Income Tax VAT/Percentage Tax membership fee and/or dues constitute income payments or compensation
for the beneficial services it provides to its members and tenants.


Exemption under Section 18 of RA 9904 (Homeowner's Act)
Association dues and income of the homeowners' associations may be
exempted from income tax, VAT and percentage tax subject to the following
conditions:
a. It must be a duly constituted "Association" as defined under Sec. 3(b) of RA
9904;
b. The LGU must issue a certification identifying the basic community services
and facilities being rendered by the homeowners' association and therein
stating its lack of resources to render such services; and
c. It must present proof (i.e., FS) 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.

Interest income on debt instruments not considered "deposit substitutes"


[Sec. 2.57.2 (Y), RR 2-98, as amended]

Interest income on debt instruments not considered "deposit substitutes"


Interest income derived from any other debt instruments not within the
coverage of "deposit substitutes" 20% CWT
(Introduced by RR 14-2012, issued on November 7, 2012)

Deposit substitute - Definition


Deposit substitute - an alternative form of obtaining funds from the public
(the term "public" means borrowing from twenty (20) or more individual or
corporate lenders at any one time), other than deposits, through the
issuance, endorsement, or acceptance of debt instruments for the borrower's
own account, for the purpose of relending or purchasing of receivables and
other obligations, or financing their own needs or the needs of their agent or
dealer. [Section 22(Y), Tax Code]

When is a debt instrument not considered a deposit substitute?

19-lender rule any person holding any interest, whether legal or


beneficial, on a debt instrument or holding thereof either by assignment or
participation, with or without recourse, shall be considered as lender and thus
be counted in applying such rule (Revenue Regulations No. 14-2012)

Dispositions of shares of stock of publicly-listed companies whose public


ownership levels fall below the mandatory Minimum Public Ownership level
Revenue Regulations No. 16-2012
December 7, 2012

Dispositions of shares of stock


All publicly-listed companies are required, at all times, to maintain a
minimum percentage of listed securities held by the public (or public float)
of the higher rate of 10% of the publicly-listed companies issued and
outstanding shares, exclusive of any treasury shares or at such percentage as
may be prescribed by the Securities and Exchange Commission (SEC) or
Philippine Stock Exchange (PSE).
The sale, barter, transfer and/or assignment of publicly-listed companies that
fails to meet the MPO after the lapse of the grace period (December 31,
2012) shall be subject to final tax at the rate of 5% or 10% on the net capital
gains and the DST.

a. For transactions up to December 31, 2012 under the Amended MPO Rule - a
stock transaction tax at the rate of of 1% of the gross selling price or gross
value in money of the shares of stock imposed under Section 127(A) of the
NIRC, as amended.
b. For transactions after December 31, 2012 - a final tax at either 5% or 10% on
the net capital gains, and DST under Section 175 of the Tax Code

Tax treatment of General Professional Partnerships


Revenue Memorandum Circular No. 03-2012
January 12, 2012

Imposition of business taxes on professionals


General Professional Partnership (GPP) is not subject to income tax;
not considered a taxable entity under Section 22(B) of the Tax Code.
Members of GPPs taxed in their separate and individual capacity.
- Each member shall report as gross income his distributive share,
actually or constructively received, in the net income of the partnership.

Clarifies the tax treatment of stock option plans


Revenue Memorandum Circular No. 88-2012
December 28, 2012

Tax treatment of stock option plans


Stock options benefit granted to employees which provides them
opportunity to purchase stocks
-

stock options are used for recruitment, increasing productivity, & retention of
employees

Grant Date: Initiation date of the contract. The date on which the company
grants an option to its employee.
Vesting period: Period when the options may be exercised.
Exercise Date: The date on which employees exercise the option.
Tax treatment depends on recipient of stock options
Rank-and-file employees - Income or gain subject to
income tax, and consequently, to withholding taxes on compensation.
Managerial and Supervisory employees Income or gain subject to
fringe benefit tax

Tax base:

The additional compensation or the taxable fringe benefit, as the case


may be, is the difference of the book value (BV)/fair market value (FMV) of
the shares, whichever is higher, at the time of exercise of the stock option
and the price fixed on the grant date.

Tax treatment of stock option plans


The option has value only if, at the time of the exercise, the stock is worth
more than the price fixed on the grant date. The additional compensation or
taxable fringe benefit arises whether the shares of stocks involved are that of
a domestic or foreign corporation.

Exclusion from gross income of social security contributions


Revenue Memorandum Circular Nos. 27 and 53 -2011
July 1, 2007 and November 4, 2011

Voluntary social security contributions


(RMC 27and 53-2011)
BIR: Income tax exemption of social security contributions referred to under
Section 32(B)(7)(f) of the Tax Code covers only the mandatory or
compulsory contributions to the GSIS, SSS, PHIC and Home Development
Mutual Fund (Pag-Ibig).
Not Exempt: Pag-ibig 2, GSIS Optional Insurance Premium, GSIS Educational
Paln, GSIS Memorial Plan, and other voluntary additional contributions.
Effective: July 1, 2011

Status of employees on temporary assignment


BIR Ruling No. 517-2011
December 20, 2011

Status of employees on temporary assignment


FACTS: A domestic company sends its field engineers on temporary
assignment outside the Philippines for a maximum period of 214 days per
calendar year.
ISSUE: Whether they are classified as non-resident citizens and exempt from
income on services rendered outside the Philippines.

Status of on temporary assignment


BIR: Employees on temporary assignment abroad cannot be qualified as
non-resident citizens as defined in the Tax Code. To be considered a nonresident citizen, he/she must derive income abroad and employed abroad.
While the employment of the employees requires them to be present abroad
most of the time during the year (183 days) , they are still employed in the
Philippines, and are not employees of the companies abroad for which they
render their services.
BIR: The compensation of employees on temporary assignment cannot be
considered as income derived from abroad since they are not rendering
services for another corporation but for services rendered under an employeremployee relationship with a domestic corporation. Hence, the field
engineers are to be treated as resident citizens for income tax purposes and
subject to withholding tax on compensation.

Value-Added Tax (VAT) updates


Revenue Regulations No. 03-2012 and 16-2011
February 20, 2012

New Value-Added Tax (VAT) Exemption Thresholds


Revenue Regulations No. 03-2012 and 16-2011
February 20, 2012

Business taxes on professionals


Revenue Memorandum Circular No. 64-2012
October 31, 2012

Business taxes on professionals


1. Value-Added Tax (VAT) Subject to 12% if gross receipts/professional
fees for the past 12 months is more than P1,919,500.00.
- A professional is likewise liable to register as a VAT-taxpayer if there are
reasonable grounds to believe that his gross receipts/professional fees for the
next 12 months will exceed P1,919,500.00.
Penalty for non-registration: Liable to pay the 12% output tax as if he
were a VAT-registered person, but without the benefit of input tax credits for
the period in which he was not properly registered.
2. Percentage tax - A professional is liable
to Percentage Tax at the rate of 3%
if his gross receipts/professional fees
for the past 12 months is equal to or is
below P1,919,500.00 and he is not a
VAT-registered person.

If the professional registers as a VAT-person, he shall be liable to VAT upon


registration as VAT taxpayer and not to Percentage Tax, irrespective of the
amount of his gross receipts/professional fees.

A professional who is not required to register for VAT may elect to be VATregistered but he shall not be allowed to cancel such registration for the next
3 years counted from the quarter when the election was made.

VAT treatment on sale of adjacent residential lots, house and lots or other
residential dwellings
Revenue Regulations 13-2012
October 12, 2012
VAT treatment on sale of adjacent residential lots, house and lots or other
residential dwellings

Sale, transfer or disposal of two or more adjacent residential lots and


residential house and lots within a 12-month period in favor of one buyer
from the same seller, shall be treated as a single sale.

Adjacent

Sale of parking lot

Sale of parking lot shall be considered as a separate transaction not covered


by the residential exemption threshold - Subject to VAT regardless of its
selling price.

VAT Exemption of Sale, Importation, Printing or Publication of Books,


Newspapers, Magazines, Reviews or Bulletins
Revenue Memorandum Circular 75-2012
November 22, 2012

Exempt from VAT [Section 109(1)(R), Tax Code]


1. Newspaper, magazine, review or bulletin must be:
a. Printed or published at regular intervals;
b. Available for subscription and sale at fixed prices; and
c. Are not principally devoted to the publication of paid
advertisements.
e-books
The terms "book", "newspaper", "magazine", "review" and "bulletin" refer to
printed materials in hard copies.
The term does not include those in digital or electronic format or computerized
versions, including but not limited to: e-books, e-journals, electronic copies,
inline library sources, CDs and software, hence, subject to VAT.

VAT on sale of drugs by hospitals


CTA Case No. 8194
May 15, 2012

Sale of pharmacy drugs or medicines by hospitals to in-patients is not


subject to value-added tax (VAT). The sale of drugs to a hospitals in-patients
is considered part of the term hospital services covered by the exemption
from VAT under Section 109(G) of the Tax Code.

Sale to outpatients subject to VAT !

VAT on milkfish and its by-products


Under Section 109(1)(A) of the Tax Code, the sale or importation of
agricultural and marine food products in their original state, of livestock and
poultry of a kind generally used as or yielding or producing foods for human
consumption, and of breeding stock and genetic materials is exempt from
VAT.
Original State
Meat, fruits, fish, vegetables and other agricultural and marine food products
are considered in their original state even if they have undergone the simple
processes of preparation or preservation for the market, such as freezing,
drying, salting, broiling, roasting, smoking, or stripping, including those using
advanced technological means of packaging, such as shrink wrapping in
plastics, vacuum packing, tetra-pack, and other similar packaging methods.

Original State does not include


Sale of marinated, frozen, and vacuum packed boneless milkfish (bangus) by
a tuna canning corporation is not considered in its original state hence,
subject to VAT.
ROASTED CHICKEN original state includes roasting and broiling
VAT exempt if roasted chicken is purchased on a take out basis. If roasted
chicken is offered as a menu to customers for dine-in, subject to the VAT on
sale of service similar to imposed on restaurants and other eateries.
VAT on hotel services to international air carriers

In order to qualify for value-added tax (VAT) zero rating, the services
rendered by a VAT-registered person to a person engaged in international air
transport operations must pertain or be attributable to the transport of goods
and passengers from a port in the Philippines directly to a foreign port
without docking or stopping at any port in the Philippines.

BIR ruled that only services rendered to international vessels such as


crewing, repair, catering and other similar arrangements are entitled to VAT
zero-rating.
Room accommodations and food and beverage services rendered to persons
engaged in international air transport operations do not qualify for VAT zerorating since they are rendered within the hotels premises, and as such,
cannot be considered as services directly attributable to the transport of
goods and passengers from a Philippine port directly to a foreign port.