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TAX ALERTS visit us on August 2012

BIR Ruling
7th & 8th Floors, Don Jacinto Bldg.,
Proceeds received by a non-stock Dela Rosa cor. Salcedo Streets,
non-profit corporation as a Legaspi Village, Makati City
beneficiary society is exempt from Tel no. +63 (2)894-5892 to 95
income tax
Cash dividends received by non- Batangas Branch Office:
Unit 4-YCP Business Center
resident foreign corporation from a
J.P. Laurel Highway,
domestic corporation are subject to
Lipa City, Batangas
15% preferential tax rate
Phone: +63(043)757-5241

NOLCO of absorbed company in a Cebu Branch Office:

merger is not an asset that can be Unit 504 Cebu Holdings Center
transferred to surviving corporation Cebu Business Park, Mabolo, Cebu City
Phone: +63(32)415-8108; 415-8109;
BIR Issuances Fax: +63(32)232-8029 to 10

RMC 35-2012: Clarifying the Davao Branch Office:

taxability of clubs organized and 3rd Floor Bldg. B. Plaza Luisa
operated exclusively for pleasure, Ramon Magsaysay Avenue,
recreation, and other non-profit Davao City
purposes Phone +63(82)222-6636

Diaz Murillo Dalupan & Co. CPAs Tax and Corporate Services Division
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RMC 36-2012: clarification on Court of Tax Appeal Cases

whether documents mentioned in
Sections 199 of the 1997 tax code Professional fees paid to GPP are
are subject to DST not subject to expanded
withholding tax
RMC 37-2012: Clarifying Section
Withholding agent may file a
11 of RR 06-08, by concluding that
refund should statutory taxpayer
certificate authorizing registration opt not to file
(car) is mandatory to transfer
ownership of shares of stock Rental expense paid to affiliates
is a valid deduction from gross
RMC 38-2012: Clarifies certain income
privileges under the expanded
senior citizens act
Requisites for items classified as
“hospital services” exempt from
RMC 39-2012: Withholding of VAT
income tax on backwages,
allowances, and benefits received Proof of remittance of taxes
by employees through withheld is the responsibility of
garnishments of debts or credits the withholding agent
pursuant to a labor dispute award

RMC 40-2012: prescribing a

period of prescription for ruling
under Section 40 (c) (2) of the
1997 Tax Code

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Proceeds Received by a Non - can be transferred and absorbed

Stock Non- Profit Corporation Cash Dividends Received By by the surviving corporation as
this privilege or deduction can be
as a Beneficiary Society is Non-Resident Foreign
availed of merely by the
Exempt from Income Tax Corporation from a Domestic absorbed corporation.
Corporation Are Subject To Accordingly, the tax free merger
A non-stock non-profit 15% Preferential Tax Rate does not cover the NOLCO of the
corporation organized for absorbed corporation that can be
transferred and absorbed by the
charitable purpose is exempt Dividends received by a non- surviving corporation. (BIR Ruling
from tax on its income received resident foreign corporation from No. 214-2012 dated March 28,
by it as a beneficiary society, a domestic corporation shall be 2012)
order, or association under subject to a withholding tax of
Section 30 (C) of the Tax Code. 15% of the dividends received,
However, it will be subject to subject to the condition that the RMC 35-2012: Clarifying the
income tax on income derived country in which the non- Taxability of Clubs Organized
from any of its real or personal resident foreign corporation is and Operated Exclusively for
properties or any activity domiciled, shall allow a credit Pleasure, Recreation, and
conducted for profit, regardless against the tax due from the non- Other Non-Profit Purposes
of the disposition thereof as resident foreign corporation
stated in the last paragraph of taxes deemed to have been paid Section 26 (H) of the 1977 Tax
Section 30 of the Tax Code. in the Philippines equivalent to Code, provided that clubs which
Interest income received from 20% which represents the are organized and operated
currency bank deposits and yield, difference between the regular exclusively for pleasure,
from trust funds and similar tax on corporation (35%) and the recreation, and other non-profit
arrangements, and royalties tax on dividends (15%). (BIR purposes were exempt from
derived from sources within the Ruling 465-2012, July 17, 2012 income tax. This provision,
Philippines are also subject to
however, was deleted in the
final withholding tax. (BIR Ruling
1997 Tax Code, as amended.
475-2012, July 30, 2012) NOLCO of Absorbed Company
Hence, the income of
in a Merger is not an Asset
recreational clubs from whatever
that can be Transferred to
source, including but not limited
Surviving Corporation to membership fees, assessment
dues, rental income, and service
The net operating loss carry-over fee s are subject to income tax.
(NOLCO) under Section 34(D)(3)
Also, Section 105 of the 1997 Tax
of the Tax Code, as implemented
by RR No. 14-2001, of the Code provides that any person
absorbed corporation, is not one who engage in the regular
of the assets of the latter that conduct or pursuit or commercial

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or an economic activity, RMC 37-2012: Clarifying Act (RA) No. 9994, also known as
regardless of whether or not the Section 11 of RR 06-08, by “Expanded Senior Citizens Act of
person engaged therein is a Concluding that Certificate 2010”. It clarifies the tax
nonstock, nonprofit private Authorizing Registration (CAR) treatment of the 20% discount
organization, or government for different scenarios and the
is Mandatory to Transfer
entity is subject to VAT. Thus, exemption from VAT on goods
Ownership of Shares of Stocks
from the said provision, even a and services availed by Senior
nonstock, non-profit organization Citizens.
is liable to pay VAT on the sale of In order to transfer ownership of
goods or services irrespective of shares of stock not traded in the RMC 39-2012: Withholding of
the disposition of its net income. Stock Exchange, it is necessary to Income Tax on Backwages,
secure a CAR pursuant to the Allowances and Benefits
process laid down on RMO 15-03. Received by Employees
RMC 36-2012: Clarification on The receipts of payment of the through Garnishments of
Whether Documents tax should also be filed with and
Debts or Credit pursuant to a
Mentioned in Section 199 of recorded by the secretary of the
Labor Dispute Award
the 1997 Tax Code are subject corporation pursuant to Section
to DST 11 of RR 06-08.
When judgment awarded in a
labor dispute is enforced through
Only instruments, documents garnishment of debts due to the
and papers of transactions employer or other credits to
which the employer is entitled,
expressly enumerated in Section
the person owing such debts or
199 of the 1997 Tax Code, as
having in possession or control of
amended, are exempt from DST. such credits would normally
Consequently, certificates and release and pay the entire
other necessary documents garnished amount to the
issued by the Construction employee. As such the person
Industry Authority, an agency owning such debts or having
control of such credits are
under DTI, are not among those
authorized to deduct and
mentioned in Section 199 of the RMC 38-2012: Clarifies Certain withhold upon such wages or
tax Code, thus subject to DST of P Privileges under the Expanded salaries the withholding tax due
15.00 as prescribed under Senior Citizens Act thereon in accordance with
Section 188 of the 1997 Tax Section 78 (D) (1) of the 1997 Tax
Code. Code, as amended, and Section
This RMC is clarifying the tax 2.78.4 (A) of RR 2-98, as
privileges provisions of Republic

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RMC 40-2012: Prescribing a income taxes. (CIR v COVANTA includes the authority to
Period of Prescription for ENERGY PHILIPPINE HOLDINGS, file a claim for refund and
Ruling under Section 40 (c) (2) to bring an action for
CTA EB No. 771, July 19, 2012)
of the 1997 Tax Code recovery of such claim.
Withholding Agent may File a
INC. v CIR CTA EB No. 734,
Ruling issued under Section 40 Refund should Statutory May 24, 2012)
(C) (2) of the 1997 Tax Code, as Taxpayer Opt not to File
amended, shall be valid only for
Rental Expense paid to
ninety (90) days counted from The CTA, citing the Supreme Affiliates is a Valid Deduction
the date or receipt of the ruling Court case of Commissioner of from Gross Income
by any of the parties to the Internal Revenue v. SMART
exchange transaction. The Communication, Inc., 629 SCRA Section 29(a)(1)(A) of the 1977
properties and shares of stocks 342 (2010), held that a Tax Code states that rentals may
involved in the transfer should be withholding agent has a legal be validly deducted from gross
conveyed to the transferee/s and right to file a claim for refund for income as long as the taxpayer
transferor/s respectively, within two reasons, to wit: has no equity in the property
the period. Otherwise, the ruling
being leased. Further, the said
shall be void and without effect. 1. Withholding agent is section refers to the equity in the
considered a “taxpayer” property itself and not to equity
Professional Fees Paid to GPP under the NIRC as he is in the corporations that own the
are not subject to Expanded personally liable for the property subject of lease. To
Withholding Tax withholding tax as well as extend the condition stated in
for deficiency the said provision to the property
For tax purposes, a GPP is an assessments, surcharges, owned by a corporation which
entity separate and distinct from and penalties, should the has a separate and distinct
the partners. Under Section 26 of amount of the tax juridical personality will unduly
the 1997 Tax Code, income tax withheld be finally found impose upon a taxpayer, a
exemption only covers GPP; to be less than the burden which is not in the law.
while the partners in a GPP are amount that should have (MITSUBISHI MOTORS
liable to income tax. Section been withheld under law. CTA EB No. 526 re CTA Case 6385,
2.57.5 of RR 2-98 further states September 7, 2010)
that exemption from withholding 2. As an agent of the
tax extends to income payments taxpayer, his authority to
made to persons enjoying file the necessary income
exemption from payment of tax return and to remit
the tax withheld to the
government impliedly

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Requisites for Items Classified

as “Hospital Services” Exempt
from VAT
3. The sale of drugs, claimed Proof of Remittance of Taxes
The following requisites must be to be exempt from VAT, is the Responsibility of the
established in order that the was made by said
taxpayer may claim exemption hospital’s drugstore or
Withholding Agent
on its sale of drugs or pharmacy to in-patients
pharmaceutical items classified of the hospital being Section 2.58.3 (B) of RR 2-98
as “hospital services” from VAT operated by the taxpayer. provides that proof of remittance
under section 109 (g) of the Tax (HERMANO (SAN) is the responsibility of the
Code, to wit: MIGUEL FEBRES withholding agent. On this basis,
CORDERO MEDICAL the CTA ruled that if a taxpayer-
EDUCATIONAL payee filed a claim for refund of
1. The taxpayer is operating FOUNDATION DE LA
a Hospital; SALLE – HEALTH its final withholding tax, proof of
2. Said hospital has a SCIENCES INSTITUTE, actual remittance of taxes
pharmacy or drugstore; INC. v CIR withheld by the withholding
CTA no. 8194, May 15, 2012)
and agent is not necessary to sustain
the claim.

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