Membership fees, assessment dues, and fees of similar nature collected by clubs which are organized and operated exclusively for pleasure, recreation, and other non-profit purposes do not constitute as (a) the income of recreational clubs from whatever source that are subject to income tax; and (b) part of gross receipts of recreational clubs that are subject to value-added tax.

The BIR issued RMC No. 35-2012 which: (a) subjects non-profit recreational clubs to income tax; and imposes VAT on gross receipts of recreational clubs including but not limited to membership fees and assessment dues. The association assailed the circular alleging that the CIR acted beyond its rule-making authority in interpreting that payments of membership fees, assessment dues, and service fees are considered as income subject to income tax, as well as a sale of service that is subject to VAT.

The Court held that the membership fees, assessment dues, and other fees of similar nature only constitute contributions to and/or replenishment of the funds for the maintenance and operations of the facilities offered by recreational clubs to their exclusive members. They represent funds “held in trust” by these clubs to defray their operating and general costs and hence, only constitute infusion of capital which are not subject to income tax.

Likewise, before a transaction is imposed VAT, a sale, barter or exchange of goods or properties, or sale of service is required. When the dues are paid, the members are not buying services from the club; hence, there is no economic or commercial activity to speak of as these dues are devoted for the operations/maintenance of the facilities of the organization. Thus, there is no “sale, barter or exchange of goods or properties, or sale of service” to speak of, which would then be subject to VAT. (Association of Non-Profit Clubs, Inc. (ANPC), herein represented by its authorized representative, Ms. Felicidad M. Del Rosario, vs. Bureau of Internal Revenue, herein represented by Hon. Commissioner Kim S. Jacinto-Henares, G.R. No. 228539, June 26, 2019)

The failure of the Formal Letter of Demand (FLD) to state a definite amount of tax liability and a period or date certain for the payment of the tax assessed renders the assessment void for failure to comply with the due process requirement mandated by law.

The BIR conducted a deficiency assessment against the taxpayer in relation with its de facto merger transaction with Fortune Tobacco Corporation. The BIR sent the taxpayer a Formal Letter of Demand (FLD) which failed to state a definite amount of the taxpayer’s tax liability. Further, the FLD did not state the exact date for the payment of the assessed tax.

The CTA En Banc ruled that the failure of the BIR to provide for the exact amount of the tax liability and the exact date for payment of tax violates the taxpayer’s due process. Hence, the assessment is void for the failure to comply with the provisions of the NIRC (Commissioner of Internal Revenue vs. Northern Tobacco Redrying Co. Inc., CTA EB No. 1760, July 2, 2019)

All disputes and claims between government agencies and offices, including refund of internal revenue taxes are not within the jurisdiction of the CTA.

The taxpayer filed an administrative claim for refund The BIR denied the taxpayer’s refund claim. Thereafter, the taxpayer filed with CTA to reverse and set aside the BIR’s denial of its refund. The Second Division of the CTA dismissed the petition for lack of subject-matter jurisdiction, citing the Power Sector Assets and Liabilities Management Corporation vs. Commissioner of Internal Revenue case, which states that the disputes and claims between the BIR and another government entity shall be settled administratively following Presidential Decree No. 242.

The CTA En Banc agreed with the Second Division. The CTA En Banc stated that the refund of internal revenue taxes is governed by the administrative procedure in Section 2 and 3 of Presidential Decree No. 242. Further, the CTA En Banc stated that all disputes, claims and controversies solely amongst government agencies are bound by Presidential Decree No. 242, without exception. (Duty Free Philippines Corporation vs. Bureau of Internal Revenue, CTA EB Case No. 1911, July 5, 2019)

The BIR in assessing the taxpayer must follow the due process requirements mandated by law. This includes valid service of the Preliminary Assessment Notice (PAN) and issuance of a Letter of Authority.

In a Letter Notice sent to the taxpayer, the BIR noted discrepancies based on its computerized-matching system. Due to failure to reconcile the discrepancies, a PAN was issued for deficiency taxes. Thereafter, the taxpayer received a Formal Letter of Demand (FLD). Such demand was protested by the taxpayer for lack of factual and legal basis. The protest was denied and the taxpayer elevated the case to the CTA. The CTA in Division granted the protest of the taxpayer.

The CTA En Banc ruled that there was no valid service of the PAN since there was no formidable proof that the person who received the PAN is authorized to receive the same. Further the person who received the PAN was not shown to live or reside in the area or locality of the taxpayer. In addition, the Court noted that the BIR, through the revenue officer, was not authorized to conduct a tax examination and an assessment. The Court cited Medicard Philippines, Inc. vs. Commissioner of Internal Revenue, wherein the Supreme Court ruled that a Letter Notice is not a substitute for a Letter of Authority. Here, the BIR through the petitioner conducted an examination without a Letter of Authority relying solely on the Letter Notice. Hence, the issuance of the FLD is void and without legal consequence. (Hon. Thelma S. Milabao OIC Regional Director, Bureau of Internal Revenue, Region No. 18 vs. Dionisia D. Pacquiao, CTA EB No. 1782, July 5, 2019)

The failure to submit documents in the administrative level is not fatal to the case in the judicial level, as such are litigated de novo.

The BIR filed the instant Petition for Review alleging that the Court in Division erred in admitting evidence that were not submitted to the BIR in the administrative level. The Court denied the petition citing Section 8 of Republic Act No. 1125 (An Act Creating the Court of Tax Appeals) which categorically provides that the Court of Tax Appeals (CTA) shall be a court of record and as such it is required to conduct a formal trial (trial de novo).

The Court held that the CTA is authorized to receive evidence, summon witnesses, and give both parties, the Government and the taxpayer, opportunity to present and argue their sides, so that the true and correct amount of the tax to be collected may be determined and decided. (Commissioner of Internal Revenue v. Oriental Assurance Corporation, CTA EB No. 1881 (CTA Case No. 9169), July 5, 2019)

In case of re-assignment or transfer of cases to another revenue officer, it is mandatory that a new LOA be issued with the corresponding notation thereto. Otherwise, the resulting assessment is void.

Both the taxpayer and the BIR elevated the case to the Court En Banc via Petition for Review, primarily raising the issue of whether the taxpayer is liable to pay the deficiency taxes, surcharge, and interests based on the assessment issued by the BIR.

While the parties, in their respective petitions, did not include the issue of whether or not the revenue officers (ROs) who examined the taxpayer were duly authorized, the Court still found it necessary to resolve the same. This is so because it is a vital issue to achieve an orderly disposition of the consolidated case which is sanctioned under Section 1, Rule 14 of the Revised Rules of the Court of Tax Appeals.

The Court therefore cancelled the assessment stating that records disclose that the ROs and group supervisor (GS) who recommended the issuance of NIC, PAN, FLD/FAN and FDDA were not named in the LOA. The BIR admitted that the supposed authority of the ROs to conduct the audit investigation of the taxpayer was based solely on Memorandum of Assignment (MOA). The Court held that in case of re-assignment or transfer of cases to another RO, it is mandatory that a new LOA be issued with the corresponding notation thereto, in accordance with RMO No. 43-90. (Opulent Landowners, Inc. vs. Commissioner of Internal Revenue, CTA EB Nos. 1802 & 1803 (CTA Case No. 8956), July 5, 2019)

The burden of proving valid service of the LOA, NIC, PAN, and FLD/FAN devolves upon the BIR and the act of the taxpayer in filing a protest on the FAN will not cure a defective service of the same.

The taxpayer argues that the assessment was not valid because the LOA, NIC, PAN and FLD/FAN were sent through registered mail to its former office address and was received by the security guard of the current possessor of the premises. The BIR alleges, in part, that the taxpayer is estopped from denying actual receipt of the said documents because it had filed a protest to the FAN.

The Court found that the taxpayer has complied with the requirements for a change of business address and that the BIR was well-informed of the transfer of address as shown by various returns filed before it. Accordingly, it was the duty of the BIR to send the PAN and FAN to the proper address to ensure its receipt.

The Court ruled that when service of notice is an issue, as in this case, the person alleging service must prove such fact. In civil cases, service made through registered mail is proved by the registry receipt issued by the mailing office and an affidavit of the person mailing. Absent one or the other, or worse both, there is no proof of service. Since the BIR failed to prove compliance of the requirements for a valid service by registered mail, the assessment is invalid. The fact that the taxpayer was able to protest the FAN does not cure BIR’s violation of the taxpayer’s right to due process. (Vitalo Packaging International, Inc. v. Commissioner of Internal Revenue, CTA Case No. 9231, July 5, 2019)

Since the taxpayer cannot be treated as one required to pay tax as there is no valid assessment to speak of, there is no basis to sustain the criminal charge.

Taxpayers were charged with tax evasion due to alleged nonpayment of deficiency internal revenue tax liabilities for the year 2002. Subsequently, CTA Division rendered the deficiency tax assessment void. In relation to its decision, CTA Division stated that the Taxpayers, in their motion for reconsideration, have no obligation or requirement to pay the alleged deficiency tax since the deficiency tax assessment was void. Hence, this Petition.

CTA En Banc has held that there is failure to prosecute on the part of the government because it did not prove beyond reasonable doubt the guilt of the accused. The requisites in order for a Taxpayer to be criminally liable are: (1) that a corporate taxpayer is required under NIRC, among others, to pay any tax; (2) that the corporate taxpayer failed to pay the required tax; and (3) that the accused to be criminally liable must be the employee responsible for the violation and willfully failed to pay such tax. Accordingly, the second and third elements are dependent in the existence of the first.

Here, the taxpayers proved that they did not receive the PAN or the FAN from BIR upon assessment. Moreover, since there was no demand to pay tax, the first requisite above-mentioned was not satisfied. Hence, the Taxpayers were properly acquitted. (People of the Philippines vs. Bienvenido S. Dimson and Gilbert P. Dimson (Dimson Manila, Inc.) CTA EB Crim. No. 044, July 9, 2019)

Contractees and licensees of PAGCOR shall pay five percent (5%) franchise tax in lieu of all other taxes.

Taxpayer is a co-licensee of a gaming license granted by PAGCOR, which provided for the payment of PAGCOR license fees, inclusive of franchise tax, in lieu of all other taxes. Subsequently, BIR issued RMC No. 33-13, which subjected PAGCOR and its contractees and licensees to the Regular Corporate Income Tax (RCIT). Consequently, Supreme Court promulgated a decision that clarified that contractees and licensees of PAGCOR are subject to franchise tax but are exempt from payment of all other taxes, including RCIT.

CTA has held that Section 13 of PD 1869, or the PAGCOR charter, provided that the tax exemption privileges of PAGCOR extend to its contractees and licensees, i.e. the taxpayer. No tax, fees or charges of any kind shall be assessed or collected from a franchise holder, except a Franchise Tax of Five percent (5%) of the gross revenue or earnings. (Premiumleisure and Amusement, Inc. vs. Commissioner of Internal Revenue, CTA Case No. 9572, July 16, 2019)

Inaction of the local treasurer on the protest filed by the taxpayer after the lapse of the 60-day period constitutes a denial due to inaction and the taxpayer shall file an appeal within 30 days from the lapse of the 60-day period.

The taxpayer filed a petition for review on the dismissal of the RTC of the complaint against the denial of his protest by the city treasurer for being filed beyond the prescribed period under Section 195 he Local Government Code.

The CTA held that after the taxpayer filed its protest on the notice of assessment issued by the local treasurer, the local treasurer should decide within 60 days from the filing of said protest. If the local treasurer does not come up with a decision after the lapse of the 60-day period from the filing of the protest, the taxpayer shall likewise have 30 days to appeal such inaction which, in effect, constitutes a denial due to inaction. Here the taxpayer filed the complaint beyond the 30 days period to appeal. Hence, the RTC was correct in dismissing the case on the ground of prescription. (Kuehne + Nagel, Inc., vs City of Parañaque and Anthony I. Pulmano, in his capacity as the City Treasurer of Paranaque, CTA AC No. 206, July 18, 2019)

Input taxes incurred that were used for transactions or activities that are not related to taxpayer’s nature as a zero-rated cannot be claimed for VAT refund purpose.

Unsatisfied by the decision of the Court in Division, both the taxpayer and the BIR appealed to the CTA En Banc. The taxpayer argues that it is entitled for additional input tax refund on its unutilized input VAT attributed to its zero-rated sales; while the BIR argues that the taxpayer is not entitled for refund for failure to present evidence that will prove that the input taxes were directly attributable to zero-rated or effectively zero-rated sales.

The CTA En Banc finds that the taxpayer failed to comply with the basic requisite that the input taxes claimed are attributable to zero-rated or effectively zero-rated sales because the input taxes incurred were not at all related to its zero-rated sales. The CTA En Banc reasoned out that the input taxes incurred were used for transactions or activities that are not related to its nature as a zero-rated taxpayer.

NOTE: The CTA En Banc denied the total amount of claim for refund of the taxpayer. However, considering that the required affirmative votes to reverse the assailed decision was not obtained in the instant case, the assailed decision granting a partial refund are deemed affirmed. (Commissioner of Internal Revenue, vs Coral Bay Nickel Corporation, CTA EB Nos. 1735 & 1737 (CTA Case No. 8905), July 18, 2019)

PAN and FAN/FLD must be served and received by the Taxpayer stating the laws and the facts in which the assessment is based within the three-year prescriptive period to assess by the BIR in order for the assessment to be valid. Otherwise, the assessment is void for being violative of the right to due process of the Taxpayer.

BIR issued warrant of distraint/levy against the Taxpayer due to the latter’s deficiency taxes for the taxable year 2007. Taxpayer contended that it is not liable for such deficiency because it did not receive a PAN and a FAN/FLD resulting to violation of its right to due process. Moreover, the right to assess by BIR already prescribed due to the lapse of the three-year prescriptive period. Conversely, BIR contended that it served a PAN and FAN/FLD to the Taxpayer through registered mail.

Pursuant to Section 228 of the NIRC, CTA has held that the taxpayers shall be informed in writing of the law and the facts on which the assessment is made; otherwise, the assessment shall be void. Moreover, the denial by the taxpayer of the receipt of the PAN and/or FAN/FLD shifts the burden of proof to BIR that the latter served the said notices.

Here, Taxpayer denied having received the PAN and FAN/FLD within the three-year period for BIR to assess. Moreover, it also proved in court that the service of PAN and FAN/FLD were made only five (5) years after the lapse of the prescriptive period. On the other hand, BIR failed to prove with sufficient evidence that it timely served PAN and FAN/FLD to the Taxpayer. Hence, the assessment was invalid because BIR violated the right to due process of the Taxpayer. (Clark Water Corporation vs. Commissioner of Internal Revenue, CTA Case No. 8648, July 19, 2019)

In a claim for refund of input VAT attributable to zero-rated sales, the taxpayer must prove that the payment for said zero-rated sales can be traced to the document supporting the foreign currency inward remittances.

The taxpayer filed a claim for refund or issuance of tax credit certificate for its alleged excess and unutilized input VAT. The taxpayer alleged that for the 1st quarter of TY 2014, it exported 100% of its copper concentrates, the export sales proceeds thereof were paid for in acceptable foreign currency which were inwardly remitted to the Philippines.

The Court held that a VAT registered person claiming VAT zero-rated direct export sales must present at least three (3) types of documents, to wit: a) the sales invoice as proof of sale of goods; b) bill of lading or airway bill as proof of actual shipment of goods from the Philippines to a foreign country; and c) bank credit advice, certificate of bank remittance or any other document proving payment for the goods in acceptable foreign currency or its equivalent in goods and services.

In the instant case, the Court disallowed the entire zero-rated sales for VAT refund purposes. The bulk of the disallowance was due to the fact that various amounts of Customer Charges were deducted from the corresponding foreign currency inward remittances which were not supported with any documents. Since the taxpayer failed to present any documents to show that these Customer Charges were actually deducted from the total amount due per sales invoice, the Court was not convinced that the alleged corresponding foreign currency inward remittance actually pertains to the zero-rated sales. (Carmen Corporation vs. Commissioner of Internal Revenue, CTA Case No. 9457, July 23, 2019)

Revenue Memorandum Circular No. 68-2019, July 5, 2019 – This memorandum circular provides the clarification on certain issues relative to the Estate Tax Amnesty under RA 11213, as implemented by RR 6-2019.

This clarified issues regarding the estate tax amnesty. It clarified, among others, that:

• the filing and payment of the estate tax amnesty shall be done manually;
• there must be one extrajudicial settlement (EJS) for every stage of transfer or succession, or one EJS with respect to the inherited share of the common property/ies emanating from the first decedent;
• if there is no zonal valuation at the time of death, the fair market value appearing in the tax declaration issued at the date of death shall be used as reference in computing the value of the property at the time of death. A certificate of zonal valuation need not be submitted since the zonal value verification may be done online. The succeeding tax declaration nearest to the date of death shall be used if there is no available declaration at the time of death;
• A minimum amount of estate tax to be paid is Php 5,000.00 per decedent and at every stage of succession, the minimum rate is 6% based on the decedent’s total net taxable estate at the time of death. In computing the estate tax amnesty due on the undeclared properties for the previously filed estate tax return, 6% estate tax shall be imposed on the value of the undeclared properties at the time of death, without the deductions which are deemed to have been claimed in the previous estate tax return, except for the share of the surviving spouse on the undeclared conjugal property.
• Estate tax amnesty may still be availed for undeclared property even if the estate has an existing tax delinquency, provided that the undeclared property is not included in the list of properties covered in the existing estate tax delinquency, and the return must be filed in the RDO that issued the assessment.
• A partial or total withdrawal of cash in a bank for payment of the estate tax amnesty may be allowed without subjecting it to final withholding tax, if the Commissioner or the Revenue District Officer allows it, upon the taxpayer’s request. Installment payment is not allowed, as provided by this circular.
• The holder of buyer in a deed of sale transaction may avail of the tax amnesty if he presents the notarized EJS signed by all the heirs, with complete documentary requirements.

Failure to submit the validated APF with proof of payment within the two-year period from the effectivity of RR 6-2019 is tantamount to non-availment of the estate tax amnesty but any payment may be applied against the total regular estate tax due, inclusive of penalties.

Revenue Memorandum Order No. 35-2019, July 18, 2019 – This memorandum order provides the civil remedies for the collection of accounts receivable or delinquent accounts.

This states that the civil remedies under Section 205 of the National Internal Revenue Code, as amended, shall immediately be pursued as soon as the “Form 40-Collectible” report have been received by the offices responsible in the enforcement of collection remedies.

A Preliminary Collection Letter and Final Notice Before Seizure shall no longer be sent to the delinquent taxpayers. Once a properly filled out “Form 40-Collectible” is received by the concerned office, together with the dockets of the case, it shall be validated and a Warrant of Distraint and/or Levy (WDL) shall be immediately issued. The other collection procedures to implement the WDL and other collection remedies in the Collection Manual are still relevant shall continuously be adopted.

Revenue Memorandum Order No. 38-2019, July 24, 2019 – This memorandum order clarified the tax exemption of Non-Stock, Non-Profit Corporations under Section 30 of the National Internal Revenue Code of 1997, as amended.

This provided that a corporation claiming tax exemption must be able to show clearly that it is has passed the organizational and operational test, as embodied in Section 30 of the NIRC. The Organizational Test requires that the corporation or association's constitutive documents must show that its primary purpose/s of incorporation fall under Section 30 of the NIRC, while the Operational Test requires that the regular activities of the corporation or association must be exclusively devoted to the accomplishment of the purposes specified in Section 30 of the NIRC.

This reiterated that in order for an entity to qualify as a non-profit corporation exempt from income tax, it must demonstrate that its earnings or assets do not inure to the benefit of any of its trustees, organizers, officers, members or any specific person; must not be organized or operated for the benefit of private interests; and must serve a public rather than a private purpose.

NOTE: The memorandum order does not include processing of Certificate Tax Exemption for non-stock, non-profit educational institutions under Section 30(H) of the NIRC, which is covered by Revenue Memorandum Order (RMO) No. 44-2016.

Revenue Memorandum Order No. 41-2019, July 31, 2019 – This memorandum order prescribes the required documents and procedure in the processing of the request for lifting the warrant of garnishment, notice of tax lien, notice of levy, and notice of encumbrance.

This provided 12 instances wherein the issued warrant of garnishment (WG), notice of tax lien (NTL), notice of levy (NOL), or notice of encumbrance (NOE) may be extinguished. The additional instances are the following:

1. Full payment of unpaid tax liabilities, including penalties;
2. Acceptance of full payment of the taxpayer’s offer of compromise;
3. Full payment of basic tax and subsequent approval of abatement of penalties;
4. Full or partial cancellation of the original assessment and the revised assessment was already paid in full;
5. Prescription of right to assess;
6. Creation of an escrow account with the Bureau’s Authorized Agent Banks (AABs) in the amount not less than the tax liability, or has filed a surety bond issued by an accredited surety company for an amount not less than double the amount of the outstanding tax liability;
7. Full destruction of the improvement of property subject to the lien due to fortuitous events;
8. Upon a final and executory order from a competent court ordering the lifting;
9. Seized property is no longer owned by the taxpayer;
10. Garnishment of the account for the salaries of government employees;
11. Meritorious instances, provided the interest of the government is not jeopardized, but with the CIR’s prior approval; and
12. Other meritorious cases upon the discretion of the CIR.

Request for the issuance of “Notice of Lifting of WG/NTL/NOL/NOE” shall only be processed if the required documents applicable to the ground invoked are submitted and a request with incomplete documents shall be issued an acknowledgement letter within ten (10) working days from its receipt, stating the lacking documents. Those with complete documents, shall be processed within ten (10) working days from its receipt.

The processing of the application for the issuance of “Notice of Lifting of WG/NTL/NOL/NOE” shall be done by the particular office which has jurisdiction over the tax liabilities subject of the WG/NTL/NOL/NOE.

SEC Memorandum Circular No. 15 dated July 26, 2019: 2019 Revision of the GIS – This circularizes the amendment of SEC Memorandum No. 17, Series of 2018 on the Revision of the General Information Sheet (GIS) Form to Include the Beneficial Ownership Information.

This circularizes the amendment on the revision of the General Information Sheet (GIS) Form to Include the Beneficial Ownership Information. The said revision will cover all stock and non-stock corporations required to submit GIS under laws and regulations.

The Circular defines “Beneficial Owner” as any natural person(s) who ultimately own(s) or control(s) or exercise(s) ultimate effective control over the corporation. This definition covers the natural person(s) who actually own or control the corporation as distinguished from the legal owners. Such beneficial ownership may be determined on the basis of the following:

1. Category A: Natural person(s) owning, directly or indirectly or through a chain of ownership, at least twenty-five percent (25%) of the voting rights, voting shares or capital of the reporting corporation.

2. Category B: Natural person(s) who exercise control over the reporting corporation, alone or together with others, through any contract, understanding, relationship, intermediary or tiered entity.

3. Category C: Natural person(s) having the ability to elect a majority of the board of directors/trustees, or any similar body, of the corporation.

4. Category D: Natural person(s) having the ability to exert a dominant influence over the management or policies of the corporation.
5. Category E: Natural person(s) whose directions, instructions, or wishes in conducting the affairs of the corporation are carried out by majority of the members of the board of directors of such corporation who are accustomed or under an obligation to act in accordance with such person's directions, instructions or wishes.

6. Category F: Natural person(s) acting as stewards of the properties of corporations, where such properties are under the care or administration of said natural person(s).

7. Category G: Natural person(s) who actually own or control the reporting corporation through nominee shareholders or nominee directors acting for or on behalf of such natural persons.

8. Category H: Natural person(s) ultimately owning or controlling or exercising ultimate effective control over the corporation through other means not falling under any of the foregoing categories.

9. Category I: Natural person(s) exercising control through positions held within a corporation (i.e., responsible for strategic decisions that fundamentally affect the business practices or general direction of the corporation such as the members of the board of directors or trustees or similar body within the corporation; or exercising executive control over the daily or regular affairs of the corporation through a senior management position). This category is only applicable in exceptional cases where no natural person is identifiable who ultimately owns or exerts control over the corporation, the reporting corporation having exhausted all reasonable means of identification and provided there are no grounds for suspicion.

In the disclosure of beneficial owners, all SEC registered corporations are required to take reasonable measures to obtain and hold up-to-date information on their beneficial owners and disclose the same in a timely manner in the GIS.

The Circular also provides for guidelines in determining the Beneficial Owner through the following manners:

1. The identity of the natural person(s) who ultimately has controlling ownership interest in the Corporation. – In this case, the beneficial owner is someone who directly, indirectly, or through a chain of ownership, owns at least twenty-five percent (25%) of the voting shares or the capital of the corporation or least twenty-five percent (25%) of the voting rights therein. In case the one owning the 25% is a trust, estate or partnership, then the person controlling that entity.

2. The identity of the natural persons, if any, exercising control of the corporation through other means.

3. The identity of the natural persons composing the Board of Directors/Trustees or any similar body and/or the senior managing official of the reporting corporation.

Note: This is only applicable in case no natural person is identified as ultimately owning or controlling over the corporation and provided there are no grounds for suspicion.

In case of indirect ownership, the methodology in the “Grandfather Rule” shall be applied in determining the percentage of ownership of natural persons ultimately owning the corporation. The natural person who ultimately owns least twenty-five percent (25%) of the voting shares or the capital of the corporation through ownership of shares by a corporate stockholder or multiple layers of corporate stockholders. Both direct and indirect shareholdings are considered in the determination.

In case the twenty-five percent (25%) of the voting shares or the capital of the corporation is owned by a corporate shareholder after applying the Grandfather Rule Method, the natural persons composing the Board of Directors/Trustees or any similar body and/or the senior managing official of the reporting corporation are considered the ultimate owners. This is subject to strict monitoring by the SEC. If the same was resorted to despite clear evidence of actual beneficial ownership, it shall be considered is prima facie evidence of violation of this Circular.

An updated GIS must be submitted within seven (7) from the effectivity of changes or from the time it occurred in the beneficial ownership. For corporations with multiple layers of corporate stockholders, an updated GIS must be submitted within the same 7-day period. In case of failure to do so, it must submit an updated GIS within thirty (30) days from the occurrence of changes coupled with an explanation for the failure to submit within the prescribed period.