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Issue 10, October 2013
TMAP MONITOR TMAP Files Position Paper on RR 6-2013 TMAP, in partnership with the Financial Executives Institute of the Philippines, Philippine Chamber of Commerce and Industry and the Philippine Institute of Certified Public Accountants filed a position paper on Revenue Regulations No. 6-2013 (RR 6-2013) with the Bureau of Internal Revenue on October 19, 2013. RR 6-2013 prescribes the adjusted net asset method in the valuation of shares of stock not listed in the stock exchange and requires that all the assets and liabilities reflected in the audited financial statements be adjusted to fair market values. For real property assets, an appraisal report at the time of sale must be obtained.
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The position paper seeks the reconsideration and withdrawal of RR 6-2013 on the following grounds: •
The effect of the regulation is to impose the 30% donor’s tax on the difference between the adjusted net book value and actual consideration for the unlisted shares of stock, which defeats the legislative intent to encourage trading of shares of stock. Further, the actual
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consideration for shares as willingly agreed by both the purchaser and seller depends on the interplay of complicated market forces beyond the valuation of underlying assets as required in the regulation. The regulation in effect taxes a “presumed” or “unrealized” gain of the underlying assets, which is not sanctioned in the Tax Code There is no basis in the Tax Code to prescribe the fair market value of shares determined based on appraised value of underlying real property The regulation introduces administrative difficulties such as imposing additional cost of obtaining an appraisal report on the underlying real property each time there is sale of shares. This effectively restricts the free movement of capital as minority shareholders have limited resources to shoulder costs of appraisal. The regulation discourages investments in equity of unlisted corporations and increases difficulty in conducting regular equity market transactions.
TMAP Attends 2013 AOTCA in Hanoi On October 16 to 18, 2013, TMAP delegates headed by President Euney Mata-Perez flew to Hanoi, Vietnam to attend the 2013 Asia-Oceania Tax Consultants’ Association (AOTCA) General Council Meeting and International Tax Conference, which was hosted by the Vietnam Tax Consultants' Association (VTCA). TMAP is a member organization of AOTCA, which consists of 20 leading associations of tax professionals from over 16 countries within the Asian and Oceanic region. In attendance were VicePresident for External Affairs Rina Manuel, Director Precy Valer, Past President Cris Guhit, and two (2) guest representatives from the SM Group. (Continued on page 2)
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Issue 10, October 2013
TMAP Attends 2013 AOTCA in Hanoi (Continued) At the General Council Meeting held on October 16, 2013, TMAP President Euney Mata-Perez was elected as one of the two Vice-Presidents of AOTCA. It was also announced that the AOTCA Meeting and Conference for 2014 and 2015 will be held in Taipei, Taiwan and Osaka, Japan, respectively. The AOTCA International Tax Conference was opened by the Vietnam Minister of Finance and General Department of Tax and included discussion of the following topics, which exhibited the varied experiences among the member associations across the different regions: -
Tax Policy and Incentives to Promote and Attract Investment Transfer Pricing and APA Process Anti-Tax Avoidance Legislations and Impact on Tax Consultants
The delegates were invited to the Gala Night on October 17, 2013. Said night featured cultural performances showcasing the history, songs and dances of Vietnam. Some member organizations also presented entertainment numbers as part of the program to promote friendship and camaraderie among the AOTCA members. Among them was TMAP, whose delegates sang the upbeat Manila Sound song “Isang Mundo, Isang Awit” (One World, One Song), popularized by Leah Navarro. The conference also provided an opportunity to see well-known Hanoi landmarks such as Ho Chi Minh mausoleum, the Presidential Palace, the Temple of Literature, the Hanoi Opera House and the St. Joseph Cathedral. The AOTCA experience by TMAP in Hanoi was truly a fun and memorable one. Here’s looking forward to next year’s AOTCA meeting and conference in Taipei!
TMAP President Euney Mata-Perez was one of the speakers on the topic about anti-tax avoidance and she shared the Philippine experience with the current BIR administration, which makes tax practice “more fun in the Philippines.” Important developments on global tax practice were also shared by guest speakers, such as updates on the Model Taxpayer Charter, the Base Erosion and Profit Sharing concern, and OECD Principles.
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BIR Issues New Rules on Income Payment Deductibility and Record Retention
Issue 10, October 2013
New Laws For Inclusive Growth In September GMM
The BIR recently released regulations outlining new rules relative to the requirements for deductibility of certain income payments and the retention of books of accounts and other accounting records. In Revenue Regulations No. (“RR”) 12-2013, which amends Sec. 2.58.5 of RR 2-98, the BIR strictly implements the deductibility requirements under Sec. 34(K) of the National Internal Revenue Code of 1997 (“1997 NIRC”). Under the said Sec. 34(K), any income payment which is otherwise deductible shall be allowed as a deduction only if it is shown that the income tax required to be withheld has been paid to the BIR. RR 12-2013 provides further, however, that no deduction will be allowed notwithstanding payment of withholding tax at the time of audit investigation or reinvestigation/reconsideration in cases where no withholding was previously made. This means that even if the taxpayer settles the deficiency withholding tax in the course of a tax investigation, the underlying income payment would still not be allowed as a deduction. Prior to RR 122013, a taxpayer is allowed to claim as deductible expense where no withholding of tax was made if the taxpayer/withholding agent pays the tax including the interest and penalties incident to the failure to withhold the tax at the time of the audit investigation. Specifically, the following provisions of Sec. 2.58.5 of RR 298, which cured the non-withholding, were deleted: (a) the payee reported the income and pays the tax due thereon and the withholding agent pays the tax including the interest incident to the failure to withhold the tax, and surcharges, if applicable, at the time of the audit investigation or reinvestigation/reconsideration; (b) the recipient/payee failed to report the income on the due date thereof, but the withholding agent/taxpayer pays the tax, including the interest incident to the failure to withhold the tax, and surcharges if applicable, at the time of the audit/investigation or reinvestigation; (c) the withholding agent erroneously under withheld the tax but pays the difference between the correct amount of tax withheld, including the interest, incident to such error, and surcharges, if applicable, at the time of the audit/investigation or reinvestigation/reconsideration; and (d) items or deduction
Honorable Romero Federico S. Quimbo, Chairman of the Ways and Means Committee of the House of Representatives, graciously shared the legislative agenda and priority measures of the Committee with the TMAP members during the September General Membership Meeting held on 26 September 2013 at the Mandarin Oriental. Among the bills pending before the Committee that has been identified as legislative priority measures for the 16th Congress are the Rationalization of the Fiscal Incentives Law and Customs Modernization and Tariff ACT (CMTA). He noted that for both these bills, the Department of Trade and Industry (DTI) and the Department of Finance (DOF) have two opposing views that must be properly balanced when the bills are finally approved into law. He explained that the DTI, being the investments promotions agency of the government tasked in attracting more foreign investments has emphasized that incentives are essential especially in light of the ASEAN integration and globalization in the modern economy. The DOF, however, maintains that the corporate income tax is very low and that incentives distort and undermine compliance and increase difficulty in administration. Even with the two opposing views, however, Congressman Quimbo admitted that there is a need for a uniform and consistent incentive package. He expects to pass the bills within the next 16 months. (Continued on page 4)
(Continued on page 4)
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BIR Issues New Rules on Income Payment Deductibility and Record Retention (Continued)
Issue 10, October 2013
New Laws For Inclusive Growth In September GMM (Continued)
representing return of capital such as those pertaining to purchases of raw materials forming part of finished product or purchases of goods for resale, shall be allowed as deductions upon the withholding agent’s payment of the basic withholding tax and penalties incident to the nonwithholding or under-withholding. On other hand, in RR 17-2013 dated September 27, 2013, the BIR now requires taxpayers to keep their books of accounts and accounting records for a longer period of 10 years instead of the previous rule of three years. The BIR explained that while Sec. 203 of the 1997 NIRC -which sets a period of three years for the government to assess internal revenue taxes -- implies that records of the taxpayer must be preserved for a period of three years, the law allows certain exceptions. Thus, according to the BIR, Sec. 222, for instance, states that the three-year prescriptive period may be extended to 10 years in case of a false or fraudulent return with intent to evade tax or of failure to file a return, reckoned from the discovery of the falsity, fraud or omission.
The CMTA is geared towards a paradigm shift. Smuggling is one of the major source of tax leakage in the country accounting for more than P115 Billion lost annually. With the proposed bill, instead of being a gate keeper, Customs will become more of a border patrol. The goal, he says, is to lower the cost of doing business in the Philippines. "The challenge is to make the economic growth of the Philippines felt by the citizens, to have inclusive growth," the Congressman emphasized.
The three-year period may also be waived if both the BIR Commissioner and the taxpayer agree in writing that it be extended. Likewise, if there is a pending case, protest or claim for tax credit or refund of taxes and the books and records concerned are material to the case, these documents should be kept until the case is resolved, the BIR said. The BIR concluded that “it is in the best interest of both the government and the taxpayers that books of accounts and accounting records are retained for a longer period of 10 years.”
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Issue 10, October 2013
TMAP Inducts New Members TMAP continues to expand its membership base with the induction of new members for the third quarter of 2013: •
Myrna Muñoz Sison – Vice President for Finance of Healthway Medical /AB Pharma, Inc. She is a certified public accountant and a graduate of Polytechnic University of the Philippines. Prior to Healthway, she has worked as Financial Controller and Management Accountant for companies such as Unilever, Splash, and Coca Cola Bottlers.
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Eva Preciosa P. Aquino - Finance Manager of Healthway Medical /AB Pharma, Inc. She is a certified public accountant and a graduate of De La Salle University. Prior to Healthway, she held various positions at SGV, Royal Pacific Investment and De La Salle University.
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Gil A. Santos - Senior Vice President and Treasurer of United Laboratories, Inc. He is a certified public accountant and a graduate of Manuel L. Quezon University, Ateneo Graduate School of Business for Masters in Business Administration and Asian Institute of Management for Masters in Management.
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Atty. Gerardo Maximo V. Francisco – Partner, Mata-Perez & Francisco. He graduated from the Ateneo de Manila University and finished Master of Laws from Columbia University School of Law. His previous work experience includes Sycip Salazar Hernandez & Gatmaitan and Salvador & Associates.
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Atty. Jeri Alanz A. Banta - Tax Manager, Bank of the Philippine Islands. He earned a degree in BS Business Administration in UP Diliman and a Juris Doctor degree in Ateneo de Manila School of Law. He previously worked in Manabat Sanagustin & Co.
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Atty. Lindy Andre’ P. Ablaña – Associate, Tan Acut Lopez Pison Law Offices. She finished Bachelor of Laws from San Beda College. Before joining Tan Acut, she was an Associate at Nisce Mamuric Guinto Rivera & Alcantara Law Offices.
Happy birthday to the following TMAP members who are celebrating their respective birthdays in October! 4 6 7 11 13
JONGKO, Catherine BERTULFO-CARISMA, Susan SANTIAGO, Willie G. TAM-YAP, Teresa R. PO, Pepito E.
13 15 17 19 21 21 22 23 26 29
SORIANO, Sarah C. BAGA, Jewel M. ANGELES, Jocelyn Angelita C. GUERZON, Benjamin E. CALMA, Renato G. DELA PAZ, Cynthia L. LIM, Roque A. JAPITANA, Benito J. SISON, Mildo Flor C. ROQUE, Eleanor L.
TMAP Publications Committee Leilah Yasmin E. Alpad Eleanor L. Roque Terence Conrad H. Bello
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