1.

BIR to close tax leakage from online sellers

https://www.manilatimes.net/2019/10/04/business/business-top/bir-to-close-tax-leakage-
from-online-sellers/626392/
• The Department of Finance (DoF) has directed the Bureau of Internal Revenue
(BIR) to study on how to effectively close the tax leakage from online sellers.
• Deputy commissioner Guballa explained that the reason behind the Finance
department directive was the “substantial” tax leakage from the industry to boost
our revenue
• Guballa admitted that the BIR found it difficult to collect taxes from the said
industry despite the existing tax regulations for online business transactions, this
was because some of these online sellers did not issue receipts to consumers, a proof
that they did not pay taxes to the government, he explained.

o BIR shuts down warehouse complex in Bulacan for tax law violations

▪ "Results of the investigation showed that the five establishments

located in the said complex were not compliant with the registration
requirements of posting of the Annual Registration Fee, Payment
Form (0605), original Certificate of Registration and the poster 'Ask
for Receipts' or Notice to the Public," the BIR said.

▪ Section 115(b) of the Tax Code, as implemented through Revenue

Memorandum Order (RMO) No. 03-2009, authorizes the BIR to
suspend or close the business operations of a taxpayer for a period of
not less than five days for failure to register; issue VAT official
receipts or sales invoices; file correct VAT returns; or pay the correct
VAT.

2. Revenue Memorandum Circular 55 (2013)

https://www.bir.gov.ph/images/bir_files/old_files/pdf/73941RMC%2055-2013.pdf

• Reiterates taxpayers’ obligations in relation to online business transactions.

• Types of online business transactions:

o Online business or online retailers

An online seller is required to issue an Official Receipt (if the sale

relates to a service) or a Sales Invoice (if the sale relates to a
product/good) to a buyer in all cases as proof of sale.

Where payment is received through a credit card company or a bank,

additional compliance obligations apply. A seller must issue an
acknowledgment receipt to the credit card company or bank for the
amount received. Additionally, the seller is required to pay
commission to the credit card company net of a 10% Expanded
Withholding Tax (EWT).

The generation of BIR forms and sales

o Online intermediary service providers

Tax obligations for online intermediaries: An intermediary, acting as an

agent of the merchant, is required to send Official Receipts to each customer.
However, the receipt that will be provided is that of the merchant and not the
intermediary. The merchant can assign some of its pads of receipts to the
intermediary to enable it to issue the receipt. The intermediary must ensure
the safe delivery of the goods and services by the merchant, along with the
receipt of the merchants. The intermediary must also provide an Official
Receipt to the merchant for the amount of the commission received by the
intermediary for the sales. Importantly, if the online intermediary controls
the collection of payments from clients and receives commission or markets
multiple products for the intermediate’s own account, it will be considered
as the principal seller/retailer. As such it is obliged to follow the obligations
of an online seller as referenced above. So if you are operating as an online
seller or an online intermediary, it is important to understand your status in
the tax compliance system.

o Online auctions

An online auctioneer must provide Official Receipts for all payments from
buyers of bid packs (a bid pack is purchased prior to participating in an
auction and enables the purchaser to participate). As with other online
businesses, an online auction must issue acknowledgment receipts to banks
 and credit card companies and pay the required 10% commission of the credit
card company.

The online auction store is required to issue an Invoice or Official Receipt

for the value of the winning bid to the winning bidder.

o Online advertisements

Businesses who earn through online advertisements have similar tax

obligations to online retail stores. An advertising entity must issue an invoice
or Official Receipt to the merchant for the advertising fee and must also
receive from the merchant a Certificate of Creditable Tax Withheld at
Source.

The merchant/retailer must however deduct 2% EWT from the advertising

fees of an online advertiser (i.e. the advertising entity) and remit this to the
BIR.

• RMC 055-13 clarifies that, similar to any other type of business in the Philippines,
online stores and online intermediaries are required to pay tax for their e-commerce
activities.

• The specific obligations and duties/basic compliance of parties to different types of

online transactions (whether payment is thru credit card companies, thru banks, or
cash on delivery or in the office of merchant) are specified in the Circular.

• The existing tax laws and revenue issuances on the tax treatment of purchases (local
or imported) and sale (local or international) of goods (tangible or intangible) or
services shall be equally applied with no distinction on whether or not the marketing
channel is the internet/digital media or the typical and customary physical medium.

• RMC 055-13 also makes specific reference to the tax obligations applicable to the
use of payment gateways, payment settlement entities, freight forwarders and online
website administrators.
• Tax-wise, the total amount of taxes that an online retailer would pay should be the
same as a seller with a brick-and-mortar store. As a general rule, any person or entity
who, in the course of trade or business, sells, exchanges, or leases goods or
properties, or renders services, and any person who imports goods, shall be liable to
value-added tax (VAT). Thus, for both an online seller and a store owner, the sale
transaction shall generally be subject to 12 percent VAT.

• Furthermore, under RR 2-98, if the buyer is a registered withholding agent, it is

likewise required to furnish the online seller, in triplicate, with a Certificate of
Creditable Tax Withheld at Source (BIR Form No. 2307) showing the amount of
payment and amount of taxes withheld. The said certificate shall serve as proof of
withholding, which shall be used by the online seller to claim tax credit. This
withholding tax requirement does not apply to individuals, who are not registered
withholding agents, purchasing online.

• The tax shall be based on the total value used by the Bureau of Customs (BOC) in
determining tariff and customs duties, plus customs duties, excise tax, if any, and
other charges, such as postage, commission, and similar charges, prior to the release
of the goods from customs custody.

• In case the valuation used by the BOC in computing customs duties is based on
volume or quantity of the imported goods, the landed cost shall be the basis for
computing VAT. Landed cost consists of the invoice amount, customs duties,
freight, insurance and other charges.

• If the goods imported are subject to excise tax, the excise tax shall form part of the
tax base. So don’t be surprised if the amount of taxes you have to pay is significantly
higher when you purchase from an international website, compared with purchasing
the same product locally; customs duties figure in the computation.

• Payment to a non-resident online seller for the purchase of goods is not subject to
the 30 percent final tax. Under the Civil Code Article 1475, the perfection of the
contract of sale happens when there is a meeting of minds upon the thing, which is
the object of the contract and upon the price. Thus, it can be presumed that the
perfection of the contract of sale between the international online seller and local
buyer happened outside the Philippines when the seller acknowledged the order of
the buyer and agreed on the price.
 3. Understanding How The Philippines Taxes Online Sellers

https://www.aseanbriefing.com/news/2014/10/10/understanding-how-the-philippines-
taxes-online-sellers.html

• Those entities that are conducting business through online transactions are required
to register at their local Revenue District Office and pay a registration fee. Once this
has been completed, a BIR Certificate of Registration will be issued – this document
will make clear the types of tax that need to be filed and paid by the taxpayer. An
additional requirement is that online sellers must be granted an Authority to Print
for invoices, receipts, and register books of accounts. The types of official invoices
and receipts that are required to be issued include:

o Sales invoices
o Delivery receipts
o Charge invoices
o Other commercial receipts for goods or services

• Another additional requirement states that online sellers must withhold the required
creditable/expanded withholding tax, final tax, tax on compensation of employees,
and other withholding taxes. Once this has been done, the revenue collected must
be remitted to the BIR and the customers should be issued a Certificate of Tax
Withheld.

4. How are online merchants and intermediaries taxed?

https://www.bworldonline.com/how-are-online-merchants-and-intermediaries-taxed/

• The same report noted that five out of 10 Filipinos recently bought something from
the Internet, including games, music, apps, services, and physical goods.
• Like-minded entrepreneurs have welcomed this digital phenomenon with open
arms, judging from the popularity of e-commerce websites such as Lazada, Zalora,
and Shoppee, which have millions of pesos in sales.

• Since these are new business platforms that were not even present a few decades
ago, the Bureau of Internal Revenue (BIR) has seen fit to remind the transacting
parties of their tax obligations while keeping in mind the shared interests of the
government, that is, to ensure the proper collection of taxes from profits gained in
the conduct of online business transactions. These policies are intended to
complement the Electronic Commerce Act of 2000, otherwise known as Republic
Act 8792.

• “Online merchant” - an e-commerce business owner that owns a website and sells
his own products and services, appearing like a virtual store. Likewise, it also
defined “online intermediaries” as third parties that offer intermediation services
between two trading parties. The intermediary acts as a conduit for goods or services
offered by a supplier to a consumer, for which it receives commission.

o For online merchants, the tax obligation is straightforward. Online merchants

are basically covered by existing tax regulations, as an entity directly selling
goods or services. Specifically, online merchants are required to: register the
business at the Revenue District Office (RDO); secure Authority to Print
invoices/receipts, which may either be manual or computerized accounting
system; issue registered invoices/receipts for every sales transaction;
withhold required creditable withholding tax (CWT)/expanded withholding
tax (EWT) and remit tax to the BIR; file applicable tax returns or other
reports required for compliance and pay correct taxes; and keep books of
account as required by law, making them available anytime for inspection
and verification by the BIR for compliance with tax rules.

• However, complications arise when the online platform provider is not the actual
merchant. RMC 055-13 foresaw this, and stipulated no exceptions for filing tax for
e-commerce platforms, even if online intermediaries are given different
 requirements. Their tax responsibilities may differ as to whether they actually act as
an agent of the merchant, or are considered the merchant itself.

• The instances when the online intermediary is considered the actual merchant itself
are:

1) When consumers buy goods or services from an intermediary service

provider who controls such collection of buyers’ payments, and thereafter
receives commission from the merchant/retailer, and;

2) When the intermediary markets multiple products for its own account.

• According to RMC 055-13, an Online Intermediary which acts as an agent of the

merchant is obligated to:

a. Issue the merchant’s acknowledgement receipt (for goods)/official receipt

[OR] (for services) for the buyer to claim the goods/service (in this case, the
merchant acting as the principal shall assign a number of pads of such
receipts to the intermediary/agent);

b. Ensure the merchant delivers the goods to the buyer with an accompanying
invoice or merchant performs the purchased service, and;

c. Issue an OR to the merchant for the full amount of the agreed commission,
and reflecting therein the amount withheld by the merchant.

• However, if the Online Intermediary controls the collections/payments of buyers or

markets products/services for its own account, and is therefore considered the
retailer/merchant for the purpose of taxation, it is required to:

a. Issue the invoice/OR for the full amount of the sale to the buyer — if paid
through a bank, or issue electronically the invoice/OR for the full amount of
the sale to the buyer -if paid by credit card;
 b. Issue the acknowledgment receipt to the bank (or through the credit card
company) for the amount received;

c. Remit the amount to the merchant retailer net of intermediary’s agreed

mark-up/commission (include in the said remittance to merchant/retailer the
10% EWT) — if paid through a bank, or pay the commission of the credit
card company net of the 10% EWT and remit the balance to the merchant
retailer net of intermediary’s agreed mark-up/commission — if paid by credit
card.

• Note that this regulation explicitly subjects the income payments made to online
intermediaries to 10% EWT. Interestingly, it effectively amends RR 2-98, by
specifying the applicable EWT rate for commissions or service fees paid to online
intermediaries.

• Without this regulation, the income payments to online intermediaries may be

subjected to 2% EWT which is the rate imposed on contractors engaged in other
computer-related activities under RR 2-98.

• Given the above requirements of RMC 055-13, entities offering intermediary

services, and those partnering with them, should always take into consideration the
proper classification of online intermediaries for taxation purposes in order to
comply with the tax rules.

• Both RA 8792 and RMC 055-13 were considered ahead of their time when they
were enacted/issued. However, in the last five years, the e-commerce community
has attracted even more budding entrepreneurs to the market, and virtual shopping
is still evolving. As technological innovations continue, let us remain hopeful that
taxing authorities will remain on top with timely and updated revenue regulations.

5. Online Businesses and Value-Added Tax

https://businessmirror.com.ph/2018/05/23/online-businesses-and-value-added-tax/

• This brings us to the topic on value-added tax (VAT). As so provided in our Internal
Revenue Code, any person or entity, who, in the course of trade or business, sells,
exchanges or leases goods or properties, or renders services, and any person who
imports goods shall be liable for VAT. VAT is generally imposed on sale of goods
in the Philippines as well as importation of goods into the Philippines. Likewise,
VAT is imposed on receipts from services rendered in the Philippines. Instead of
the VAT, the 3-percent percentage tax may be imposed upon persons selling items
and services who make sales/receipts of not more than P3,000,000 a year.

• How would the government be able to ensure compliance with the remittance of
VAT or percentage tax for online transactions? RMC 55-2013 reminds that business
establishments or persons who conduct business have certain obligations to fulfill,
one of which would be to register with the BIR and another to file applicable tax
returns on due dates and pay the corresponding taxes. However, this would address
only the situations where the sellers are actually situated in the Philippines.

• In cases of cross-border transactions, where our tax authority has no jurisdiction

over the seller, requiring the sellers to register and pay their taxes will be difficult if
not impossible to implement. As a result, many online transactions remain untaxed.
The challenge is more apparent in cases of services sold through the Internet.

• First, receipts from services are subject to VAT only if the service is rendered in the
Philippines. In determining whether a service fee is subject to VAT in the
Philippines or not, the important question to be addressed is—is the service
considered rendered in the Philippines? Specifically, in cases of Internet-related
transactions, are the online services that are viewable and accessible in the
Philippines by the intended customers considered rendered in the Philippines?

• Unfortunately, the Philippine tax laws had not caught up with the developments in
the Internet commerce. Tax laws were not developed to address the changes that
continue to take place with the developments/changes in technology. Although these
are already common situations that are usually encountered by taxpayers and by the
 tax authorities/tax implementing agencies, our laws are still far from addressing
these issues.

• Second, even if the service is considered rendered in the Philippines and therefore
subject to VAT, usually, the sellers involved are non-residents. The rules require
that in such case, the payor of the service fee shall be considered as a withholding
agent and be responsible in remitting the VAT. This may be easier to comply in a
business-to-business transaction. Individuals, however, constitute a significant
number of online customers, making it difficult for the tax authority to implement
the payment through the withholding-tax system. This is just among the many
situations involving online transactions where tax rules are deficient.