Tax Law for Business

in my previous article, “the Phygital Revolution: how Fintechs should navigate,” we dipped our toes to see the prevalent impact of financial technology (Fintech) on our daily lives. Using Fintech, we can buy or pay for something with just a tap on our smartphone or a click on our mouse. it has been a staple of our daily transactions.

My article also touched on the lack of updated tax rules to specifically cater to transactions involving FinTech entities. This can lead to tax exposures and inconsistent, if not improper, implementation of existing tax regulations.

Several tax rules and regulations affecting FinTech entities that need tweaking come to mind. But for today, let us focus our attention on the tax rules and regulations involving expanded withholding taxes. To get us on the same page, we shall first go over the basic tenets of the expanded withholding tax system (EWTS, for short).

payments enumerated in Revenue Regulation 2-98. Such obligation to withhold arises at the time the income is paid or payable, whichever comes first.

The expanded withholding tax system, in its current form, is incompatible with and problematic to apply to FinTech-powered transactions.

First, the EWTS does not take into account the true nature of FinTech entities, which are pass-through entities. FinTech entities, by design, bridge the transaction between the parties (the buyer and the merchant) and charge a fee for such service.

With this, it is clear that the remittance done by the FinTech entity to the merchant is not considered as an income payment within the context of the EWTS. Not being an income payment, the FinTech entity cannot be considered as a withholding agent and should not be required to withhold taxes on the said remittance. If at all, the characterization of an income payment can be attributed to the payment by the buyer, who is the actual recipient of the goods and/or services of the merchant.

Second, the merchants are not considered as suppliers of goods and/or services to the FinTech entities. The merchants do not sell their goods and/or services to the FinTech entities. Considering that there is no sale of goods and/or services, there is also no income payment made by the FinTech entities to the merchant.

mentioned specific entities considered as “payment gateways” but it clearly did not mention FinTech entities.

If the tax authorities pursue the implementation of the EWTS to the FinTech entities, it should likewise resolve other related issues. For example, tax audits normally utilize third-party information to determine the sales and/or purchases of a particular taxpayer. If the purchaser (i.e. the buyer) and the withholding agent (i.e. the FinTech entity) are different, how will it affect the matching with the corresponding sales of the merchant? Left as it is, there would be significant disparities, which may leave taxpayers vulnerable to erroneous assessment assumptions.Seeing the incongruence between the EWTS and its application to FinTech entities, it is in the best interest of both the tax authorities and the FinTech entities if the EWTS rules and regulations are updated. This would ensure a more harmonious tax administration that would result in fewer controversies.

The author is a junior partner of Du-Baladad and Associates Law Offices (BDB Law), a memberfirm of WTS Global.

“There’s been an overreaction in the short run” in tech stocks on AI hype, Lode Devlaminck, managing director for global equities at Dupont Capital Management, said by phone.

“There’s maybe a nasty surprise in store for stock markets and credit markets in the second half of the year,” Joseph Little, global chief strategist at HSBC Asset Management, said by phone. That could stem from a “combination of the weaker fundamentals set against what is currently expected by market participants, which looks like an incredibly soft landing,” he added.

FedEx Corp. to Siemens Energy AG and European chemical firms have cut or withdrawn outlooks, and there may be more woe in store as the earnings season kicks off in earnest in two weeks. Analysts are slashing profit forecasts globally, following a period of surprising resilience earlier this year.

“I think for many sectors and many industries, this might be the last good quarter,” Luke Newman, a fund manager at Janus Henderson Investors, said by phone, noting that companies may struggle more to pass on cost increases to consumers now, compared with a year ago.

Rising interest rates are likely to remain a key theme for the rest of the year. Expectations of a Federal Reserve rate cut have now been pushed out to 2024, while European Central Bank officials have said the hiking cycle is unlikely to end anytime soon.

Almost 99 percent of respondents in a Deutsche Bank AG survey of 400 market professionals said higher rates will likely lead to more global “accidents,” with most of them expecting the moves to bring fresh strain to financial markets.

That spells trouble for the ratesensitive tech sector, in particular,

Continued from A16 the effect on businesses as “online” is more profitable? How will malls adjust to these buying changes?

How will we be able to quickly and effectively measure the impact on a macro-economic basis?

Economic observers, if not economists themselves, are developing new and non-traditional ways to measure the economy. Bloomberg uses the “Subdial Watch Index” that tracks prices for the 50 most-traded luxury watches by value on the secondary market. Subdial lists watches from $1,500 to $350,000.Prices for pre-owned watches have fallen by about 26 percent in a year, the Subdial Index shows. Watch buying activity can be used as a barometer of middle-income spending habits. If consumers have more money, they will increase purchases of discretionary items like wristwatches. The “Dia-

“I do think AI is a game changer for a lot of companies in terms of productivity gains. But looking forward, if we want the market to continue or to sustain the rally, it actually needs to broaden out because it’s too narrow right now.”

Still, worsening conditions don’t necessarily mean stocks will fully reverse their 2023 gains.

Historically, barring the Great Depression in 1929, the S&P 500 has had positive returns every single year when it has gained 10 percent or more in the first half. Thomas Schuessler, portfolio manager of DWS’s €21 billion dividend fund, sees no good reason to fully hold off from investing in stocks. “However, I don’t think that we can project the gains of the first six months onto the second half of the year,” he adds.

One factor could exacerbate any moves to the downside in the second half of the year: low trading volume.

While US equities entered bull territory in June, the run came amid thin market participation. The S&P 500 Composite Turnover Index shows a drop in volume every month in 2023 on a year-on-year basis.

Along with the seasonal summer lull, that could accelerate a market correction if traders unwind bullish bets. Patrick Grewe, portfolio manager at Van Grunsteyn, expects a correction in overvalued stocks as rates rise.

“A rock-solid conservative stance should also be maintained in the second half of the year,” he said. “In particular, trying to catch up with the market involves immense risks.” With assistance from Michael Msika / Bloomberg mond Index” from the International Diamond Exchange, since the peak in March 2022, has fallen 24 percent to pre-pandemic levels. “Another middle-class spending barometer flashes red: Rolex prices near two-year low. Mid-tier consumers are dialing back spending on luxury goods.”

What are the mid-tier discretionary consumer spending habits in the Philippines that we should be monitoring?

Economics is all individually personal. “An economic recession is when your neighbor loses his job. A depression is when you lose your job.” But government and corporate policies and plans need to be rooted in more defined terms. That has become more difficult in an environment, both globally and locally, that is in the midst of great changes. E-mail me at mangun@gmail.com. Follow me

Under the EWTS, tax is withheld by the withholding agent on income payments to its payee, which is creditable to the latter’s income tax due for the taxable quarter/year in which the particular income was earned. A payor is considered as a withholding agent, and is required to withhold tax, only in relation to income

Once a purchase has been made, the buyer will cause the corresponding payment using the facilities of the FinTech entity. The latter will then remit the said payment to the merchant to complete the transaction. In other words, FinTech entities only facilitate the settlement of the transaction between the buyer and the merchant.

Third, the obligation to withhold had already passed by the time the FinTech entity does its remittance to the merchant. The “time the income is paid or payable, whichever comes first” occurred when the buyer (who is the purchaser of the goods and/ or services) paid the purchase price through the FinTech entity. Following the requirement of the EWTS regulations, this is the time that the withholding should have occurred.

While it should be mentioned that there are also some regulations specifically requiring “payment gateways” to withhold taxes, it still does not resolve the issues mentioned above. Further, the said regulations

Celebrating milestones as friends, partners, allies

By Ambassador MaryKay Carlson

this July 4, Americans all over the world are celebrating the 247th anniversary of Us independence. here in the Philippines, we are also commemorating the 69th PhilippineAmerican Friendship Day, making July 4 doubly special—a time to celebrate all that the Philippines and the United states have accomplished together as steadfast friends, partners in prosperity, and ironclad allies.

Since I arrived in July last year, I’ve had the opportunity to see the deep, multifaceted US-Philippine relationship at work. During a recent trip to Cebu, I met talented new friends from the vibrant network of US exchange alumni in the Visayas. In Ilocos Norte, I learned how our development efforts are improving energy efficiency standards, a key part of the Philippines’ clean energy transition. Last October, I had the honor to share the stage with President Marcos in Tacloban to commemorate the Leyte Gulf landing, honoring our shared history; while during a recent visit to Isabela province, I witnessed how US and Philippine troops are working together today to modernize our alliance—training at Camp Melchor Dela Cruz. These trips and the many other milestones mark strong momentum in US-Philippine relations.

This year’s highlight in our bilateral ties was the resoundingly successful visit to Washington, D.C. by President Ferdinand R. Marcos Jr. During President Marcos’s Oval Of- fice meeting with President Biden, our leaders discussed the full spectrum of our relationship as friends, partners, and allies. President Biden reaffirmed our ironclad commitment to the Alliance and announced a first-of-its-kind Presidential Trade and Investment Mission to the Philippines. Our leaders also discussed new efforts to promote clean energy, expand science and technology cooperation, and protect the environment. President Marcos also met with multiple US cabinet members. I was particularly struck by the lively, substantive discussion President Marcos had with Secretary of Agriculture Tom Vilsack, resulting in innovative programs to tackle food and nutrition insecurity.

This year, we also saw the successful conclusion of the largest, most complex iteration of Exercise Balikatan. Over 17,000 troops from the United States and the Philippines, as well as a contingent from Australia, trained shoulder-to-shoulder on land, at sea, in the air, and—for the first time—in cyberspace. Together, we announced four new locations where our countries will make investments to improve Philippine military infrastructure and capabilities under the Enhanced Defense Cooperation Agreement, or EDCA. Projects implemented at these EDCA locations will advance the Philippine Armed Forces’ modernization goals and bring tangible economic benefits to local communities, creating jobs and opportunities for local businesses. The Philippines is the largest recipient of US security assistance in the IndoPacific. Strengthening our Alliance helps secure peace and prosperity for our peoples.

US-Philippine economic partnerships are flourishing. In May, I visited two top-tier US businesses in Cebu, Timex and Teradyne. Like many US companies operating in the Philippines, Timex and Teradyne provide thousands of Filipinos with highquality, high-paying jobs—including as managers and executives. US businesses value the talent of the Filipino workforce and, more and more, are looking to the Philippines as an attractive place to trade and invest. For example, Moderna has chosen the Philippines as its first-ever operational hub in Asia. We look forward to building on this momentum as partners in prosperity.

The United States is committed to supporting the Philippines’ growth and development goals. Through USAID, the United States recently invested P1 billion to help small and medium-sized enterprises compete in the country’s e-commerce ecosystem. This investment helps build a robust, inclusive, secure, and resilient digital economy. USAID is also supporting the Philippine government and private sector to increase access to fast and reliable Internet across the archipelago, train Filipino workers to meet the evolving requirements of the high-tech manufacturing sector, and help youth develop the skills they need to succeed.

This Fourth of July, I hope you’ll agree we have much to celebrate!

MaryKay Carlson is the US Ambassador to the Philippines.

The article is for general information only and is not intended, nor should be construed as a substitute for tax, legal or financial advice on any specific matter. Applicability of this article to any actual or particular tax or legal issue should be supported therefore by a professional study or advice. If you have any comments or questions concerning the article, you may e-mail the author at jomel.manaig@ bdblaw.com.ph or call 8403-2001 local 380. Mangun.