INSIGHTS is a monthly publication of BDB LAW to inform, update and provide perspectives to our clients and readers on significant tax-related court decisions and regulatory issuances (includes BIR, SEC, BSP, and various government agencies).

DISCLAIMER: The contents of this Insights are summaries of selected issuances from various government agencies, Court decisions, and articles written by our experts. They are intended for guidance only and as such should not be regarded as a substitute for professional advice.

Copyright © 2022 by Du-Baladad and Associates (BDB Law). All rights reserved. No part of this issue covered by this copyright may be produced and/or used in any form or by any means – graphic, electronic, and mechanical without the written permission of the publisher.

A Philippine Branch or an ROHQ which is a mere extension of a foreign corporation in the Philippines cannot be a subsidiary of another foreign entity.

The Court in Division partially granted the taxpayer’s judicial claim for refund of unutilized input VAT for the four quarters of CY 2015. Not satisfied with the decision, CIR filed a Petition before the Court En Banc. In his petition, he alleged among others, that MSCI Hong Kong Limited is wholly-owned by MSCI, Inc., thus the latter cannot be said to be a non-resident foreign corporation not doing business in the Philippines. Consequently, the services rendered by MSCI Hong Kong Limited to MSCI, Inc. is not qualified as zero-rated.

The Court En Banc denied CIR’s petition. It held that the taxpayer is the Philippine Branch or an ROHQ of MSCI Hong Kong Limited and is not a subsidiary of MSCI, Inc. In ISSI Case, it was provided that an ROHQ refers to a mere administrative arm of the mother company and they may not be treated as a separate entity. Hence, a Philippine Branch or an ROHQ which is a mere extension of a foreign corporation in the Philippines cannot be considered as a subsidiary of another foreign entity. (Commissioner of Internal Revenue vs. MSCI Hongkong Limited, CTA EB No. 2258 [CTA Case No. 9661], December 15, 2021)

For forfeiture of the subject shipment in favor of the government to be justified, there must be an intention on the part of the importer/consignee to evade the payment of the duties due.

The taxpayer imported shipment wherein the article is described as aromatic hydrocarbon. It alleged that the subject shipment is, in fact, aromatic hydrocarbon However, Respondent COC contended that the subject shipment is not aromatic hydrocarbon based on the Laboratory Report No. 08-118 issued by the NSRI and U.S. Customs and Border Protection Laboratory Report. Thus, the taxpayer misdeclared the importation of the same which warrants forfeiture in favor of the Government.

In ruling against Respondent COC, the Court found its bases insufficient and unconvincing to justify the forfeiture of the subject shipment. It held that there is no clear indication that the samples examined by the said institutions were obtained from the same imported articles of the taxpayer. Thus, the Court cannot rely on the subject Laboratory Reports.

The Court further held that without clear and convincing evidence of the alleged misdeclaration by the taxpayer, it cannot be said that there is a misdeclaration on the part of the latter, insofar as the subject importation is concerned. Further, the forfeiture of the subject shipment may not be justified since there is no showing that the subject shipment is a prohibited importation or is contrary to law, in accordance with Section 2530(f) of the TCCP, as amended. Notably, Respondent COC failed to show that the taxpayer had the intention to evade the payment of the duties due. Thus, forfeiture of the subject shipment in favor of the government is not justified under Sections 2503, and 2530 (f), (1)(3), (4) & (5) of the TCCP, as amended. (Unioil Petroleum Philippines, Inc. vs. Commissioner of Customs, CTA Case No. 9583, December 1, 2021)

The following documents must be secured by a RE Developer in order to qualify for VAT zero-rating: (i) DOE Certificate of Registration; (ii) Registration with the BOI; and (iii) Certificate of Endorsement from the DOE on a per transaction basis.

The taxpayer filed a claim for refund for its unutilized input value-added tax (VAT) for the 4th quarter of the taxable year 2015. According to the taxpayer, it qualifies as a generation company under the EPIRA Law engaged in zero-rated sale of renewable energy (RE).

The CTA held that the taxpayer failed to prove compliance with the second requisite for claims for unutilized input VAT requiring that the claimant is engaged in zero-rated sales. Section 108(B)(7) of the Tax Code, as further amended by the RE Act, provides that the sale of power generated from renewal energy sources by RE Developers is subject to zero-rated VAT. Sections 25 and 26 of the RE Act further provide that the DOE Certification shall serve as a basis for the entitlement of RE developers to incentives but is without prejudice to further requirements that may be imposed by the concerned agencies charged with the administration of fiscal incentives. The following documents must be secured by a RE Developer in order to qualify for VAT zero-rating: (i) DOE Certificate of Registration; (ii) Registration with the BOI; and (iii) Certificate of Endorsement from the DOE on a per transaction basis. However, no evidence was submitted showing that the taxpayer was issued a DOE Certificate of Registration or a Certificate of Endorsement from the DOE, on a per-transaction basis. (YH Green Energy, Inc. v. Commissioner of Internal Revenue, C.T.A. Case No. 9784, December 7, 2021)

There is no legal basis to limit the source of creditable input tax on purchases or importation of goods that actually form part of the finished products or directly used in the chain of the production only.

The CTA Third Division partially granted the taxpayer’s claim for refund of its unutilized input VAT attributable to its zero-rated sales for the first and second quarters of TY 2015. CIR contends that the taxpayer was not able to prove its entitlement to the claim for refund or issuance of TCC as no attributability was established between the input VAT generated from its purchases vis-à-vis its zero-rated sales. CIR claims that only the creditable input taxes are refundable, and to be creditable, the input tax must come from purchases of goods that form part of the finished product of the taxpayer or the purchases must be directly used in the chain of the production.

The CTA En Banc disagreed with CIR's stance. There is no legal basis to limit the source of creditable input tax on purchases or importation of goods that actually form part of the finished products or directly used in the chain of the production only. It is doctrinal that when the words of a statute are clear and unambiguous, courts cannot deviate from the text of the law and resort to interpretation lest they end up betraying their solemn duty to uphold the law and worse, violating the constitutional principle of separation of powers.

A plain reading of Section 112 (A) of the NIRC of 1997, as amended, clearly shows that it merely states that the creditable input VAT should be "attributable" to the zero-rated or effectively zero-rated sales. There is nothing in the aforesaid Section which requires that the input VAT should be "directly" attributable to zero-rated or effectively zero-rated sales. While the words "directly" and "attributed" are found in Section 112 (A) of the NIRC of 1997, as amended, the Court En Banc finds that their use refers to situations where the creditable input VAT cannot be "directly and entirely attributed" to any transaction, in which case proportionate allocation must be made on the basis of the volume of sales. (Commissioner of Internal Revenue v. Chevron Holdings, Inc., C.T.A. EB Case No. 2355 [C.T.A. Case Nos. 9350 & 9430], December 9, 2021)

Neither the Court nor any other person not related to the transaction can question the business discretion employed by a taxpayer regardless of the reason for including input VAT in the billed amount to its client, provided, that such business judgment was employed without bad faith.

The Court in Division partially granted the taxpayer's judicial claim for an input VAT refund. The CIR now claims that to allow the taxpayer to claim input VAT is tantamount to double recovery and unjust enrichment. Considering that the input VAT component of taxpayer's purchases of goods and services, and those paid to its sub-contractors, have been billed and passed on to its lone client, SEMPHIL, the said input VAT should no longer be subjected to a refund claim before the CIR.

The CTA En Banc held that neither the Court nor CIR has a right to interfere with how taxpayer bills its sales of services to its lone client, SEMPHIL. This is the very essence of the business judgment rule. As long as a business decision or policy was made by a corporation or its corporate officers in good faith, neither the Court nor any other unrelated person is at liberty to question its appropriateness. Neither this Court nor any other person not related to the transaction can question such business discretion employed by taxpayer regardless of taxpayer's reason for including such input VAT in the billed amount to SEMPHIL (which may be solely for the purpose of increasing its profit margin and/or to ensure reimbursement of the input VAT it paid on its purchases), provided, of course, that such business judgment was employed without bad faith. Here, SEMPHIL consented to such manner of billing when it entered into a Construction Contract Agreement with the taxpayer.

Neither does the Court En Banc find logic behind CIR's allegation that the taxpayer's act is detrimental to the government's interest. The government's interest was in no way prejudiced by the method of billing employed by the taxpayer considering that it had declared the entire amount it billed to SEMPHIL in its VAT and Income Tax returns. In fact, through the Philippine VAT system, the government has benefitted from taxpayer's pre-payment of input VAT on its purchases of goods and services that are related to its zero-rated services to SEMPHIL. (Commissioner of Internal Revenue v. S&Woo Construction Philippines, Inc., C.T.A. EB Case No. 2340 (C.T.A. Case No. 9731), December 10, 2021)

RR No. 20-2021,
December 1, 2021
This provides for the taxation of POGOs.

This provides for the implementation of the RA No. 11590 or an Act taxing POGOs.

A. Offshore Gaming Licensees (OGLS)

B. Accredited Service Providers (ASPs)

C. Foreign Employees of POGO Entities

• Shall have a TIN;
• Pay 25% final withholding tax on their gross income;
• The minimum final withholding tax due for any taxable month from said persons shall not be lower that P12,500.00; and
• Any income earned from all other sources within the Philippines shall be subject to income tax.

RR No. 22-2021, December 31, 2021
This provides extension of the deadlines for the filing of Tax Returns and Payment of the Corresponding Taxes.

In view of Proclamation No. 1267 declaring Regions IV-B, VI, VII, VIII, X and XIII under State of Calamity, this regulation:

• Provides for a 30-day extension of the deadlines for the filing of Tax Returns and Payment of the Corresponding Taxes;
• Allow affected taxpayers within the RRs and RDOs to file their returns and pay their corresponding taxes due thereon to the nearest Authorized Agent Banks (AABs) or to the BIR Revenue Collection Officer (RCO), notwithstanding RDO jurisdiction and payment thru a Revenue Collection Officer (RCO) with the issuance of manual receipt.
• Allow affected taxpayers who are mandated users of eFPS and eBIRForms are temporarily allowed to manually file their respective tax returns within the provided extended period, without imposition of penalties for wrong venue of filing of returns and taxes.

IC Circular Letter
CL-2021-72 dated December 20, 2021
This provides the guideline for the deposit of securities for companies currently in the process of complying with Section 209 of the Amended Insurance Code.

This promulgates the following in view of the on-going pandemic:

• Every insurance company that is compliant with the existing minimum paid-up capital, Net Worth and Risk-Based Capital requirements, and are currently not compliant in amount and in form of the required Security Deposit, shall be allowed to invest in government securities monthly for a period until June 30, 2022. In relation thereto, the company shall submit a sworn undertaking which shall be duly signed by the company's President and Chairman supported with a board resolution clearly stating the action taken and authorizing the said signatories.

• This Rule shall only be allowed for financial reporting periods covering the years 2019 to 2022, unless extended or changed as deemed appropriate by the Insurance Commissioner.

IC Legal Opinion No. 2021-16 dated December 22, 2021
This is an opinion on extended warranty sold by manufacturers.

This refers to clarifications on extended warranties, particularly why the IC is not requiring the manufacturers who sell extended warranty contracts to be covered by the requirements for insurance policies and whether the manufacturers can invoke the Civil Code provisions on contracts being the source of obligations.

The IC opines that extended warranty contracts sold by manufacturers are not insurance contracts under the Insurance Code, as amended. An "extended warranty" constitutes an insurance product if it falls within the definition of an "insurance contract" under Section 2(a) of the Insurance Code, as amended. In the event that not all of the elements of an insurance contract are present but merely guarantees that the product will function as claimed and promises to provide repair or replacement as necessary, such "extended warranty" operates as a warranty governed by Republic Act No. 7394 or the Consumer Act of the Philippines ("the Consumer Act"), in relation to the Civil Code.

On the other hand, an "extended warranty" which constitutes an insurance product is offered by a party other than the manufacturer or service provider, and offers coverage beyond the terms of a manufacturer/service provider's warranty. Hence, "extended warranties" which are essentially insurance products typically cover loss or damage not arising from defect in workmanship or normal wear and tear, as in the case of theft or accidental damage.

Considering that extended warranty contracts issued by manufacturers operates as a warranty governed by the Consumer Act vis-a-vis the Civil Code and not as an insurance product, such contracts do not require prior approval from the Insurance Commission before issuance. Based on the foregoing, manufacturers may invoke Civil Code provisions insofar as their extended warranties are concerned.

BSP Circular No. 1133,
December 22, 2021
This prescribes the ceiling/s on interest rates and other fees charged by Lending
Companies (LCs), Financing Companies (FCs), and their Online
Lending Platforms (OLPs).

The Monetary Board approved the prescription of ceiling/s on interest rates and other fees charged by LCs, FCs, including their respective OLPs, as follows:

1. A nominal interest rate ceiling equivalent to 6%/month (0.2%/day).

2. An effective interest rate ceiling equivalent to 15%/month (0.5%/day), which shall include the nominal interest rate along with all other applicable fees and charges (i.e., processing fees, service fees, notarial fees, handling fees and verification fees, among others), but excluding fees and penalties for late payment or nonpayment.

3. A cap on penalties for late payment or non-payment at 5 percent per month on outstanding scheduled amount due.

4. A total cost cap of 100% of the total amount borrowed (applying to all interest, other fees and charges, and penalties) regardless of the time the loan has been outstanding.