REVENUE MEMORANDUM CI RCULAR ( RMC) 2 0 1 2 by NELSON M. ASPE - - PowerPoint PPT Presentation

12/ 10/ 2012 1

REVENUE MEMORANDUM CI RCULAR ( RMC) 2 0 1 2

by

NELSON M. ASPE

Deputy Commissioner Operations Group

12/ 10/ 2012 12/ 10/ 2012 2

Clarification

• n

the im plem entation

• f

Revenue Regulations No. 5 -2 0 1 2 REVENUE MEMORANDUM CI RCULAR

• No. 2 2 - 2 0 1 2

12/ 10/ 2012 3

1. All BIR Rulings issued prior to Jan. 1, 1998 are not to be used as precedent by any taxpayer as a basis to secure rulings for themselves for current business transaction/ s or in support of their position against any assessment. 2. All BIR Rulings issued prior to Jan. 1, 1998 are not to be used by any BIR action lawyer in issuing new rulings for request for rulings involving current business transaction/ s. 3. However, BIR Rulings issued prior to Jan. 1, 1998 rem ains to be valid but only:

• a. to the taxpayer w ho w as issued the ruling; and
• b. covering the specific transaction/ s w hich is the

subject of the sam e ruling

• 4. BIR Rulings issued prior to Jan. 1, 1998, shall remain valid as

mentioned above, unless expressly notified of its revocation or unless the legal basis in law for such issuance has already been repealed / amended in the current Tax Code. RMC No. 2 2 -2 0 1 2 ( con’t.)

12/ 10/ 2012 12/ 10/ 2012 4

Reiteration of the Responsibilities

• f

the Officials and Em ployees

• f

Governm ent Offices for the W ithholding

• f

Applicable Taxes

• n

Certain I ncom e Paym ents and the I m position

• f

Penalties for Non- Com pliance Thereof REVENUE MEMORANDUM CI RCULAR

• No. 2 3 -2 0 1 2

12/ 10/ 2012 12/ 10/ 2012 5

Reiteration of the Responsibilities

• f

the Officials and Em ployees

• f

Governm ent Offices for the W ithholding

• f

Applicable Taxes

• n

Certain I ncom e Paym ents and the I m position

• f

Penalties for Non- Com pliance Thereof REVENUE MEMORANDUM CI RCULAR

• No. 2 3 -2 0 1 2

12/ 10/ 2012 12/ 10/ 2012 6

• A. ACCOUNTABLE GOVERNMENT OFFI CI ALS / EMPLOYEES

Item II(1) of Revenue Memorandum Order (RMO) No. 8-2003 provides that the following government

• fficials/ employees

are personally charged with the duty to correctly withhold taxes and timely remit the same: “a. Local Governm ent Units ( LGUs) : a.1 Provinces

• Governor, Provincial Treasurer and

Provincial Accountant a.2 Cities

• Mayor, City Treasurer and City

Accountant a.3 Municipalities

• Mayor, Municipal Treasurer and

Municipal Accountant a.4 Barangays

• Barangay Chairman and Brgy.

Treasurer

RMC No. 2 3 -2 0 1 2 ( con’t.)

12/ 10/ 2012 12/ 10/ 2012 7

• a. National Governm ent Agencies ( NGAs) -

Heads of Offices (officials holding the highest position) and Chief Accountant/ s or other person/ s holding similar positions in departments, bureaus, agencies, instrumentalities officially designated as such by the head office.

• b. Governm ent Ow ned or Controlled Corporations

( GOCCs) – Heads of Offices (officials holding highest position) and Chief Accountant/ s or other person/ s holding similar positions officially designated as such by the head of office. RMC No. 2 3 -2 0 1 2 ( con’t.)

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• c. Other Governm ent Offices -

Heads of Offices (officials holding the highest position) and Chief Accountant/ s or other person/ s holding similar positions officially designated as such by the head of office.

• d. Governm ent Offices w ith Decentralized Accounting

System and/ or Branches/ Regional Offices/ District Offices Registered w ith their Respective Revenue District Offices ( RDOs) - Heads of such Offices/ Regional or District Offices/ Other Offices (officials holding the highest position) and Chief Accountant/ s or other persons holding similar positions

• fficially designated as such by the head of office. [ Example :

a) In case of BIR Regional Offices, it shall be the Regional Director and Chief, Finance Division and b) in the case of DepEd, it shall be the Regional Director and Chief, Budget and Finance Division] ”.

RMC No. 2 3 -2 0 1 2 ( con’t.)

12/ 10/ 2012 12/ 10/ 2012 9

• B. RESPONSI BI LI TI ES OF THE GOVERNMENT OFFI CI ALS /

EMPLOYEES AS W I THHOLDI NG AGENTS. The aforesaid government officials/ employees have the following duties and obligations as withholding agents:

• 1. To register the governm ent office as w ithholding
• agent. The government officials/ employees should ensure

that the government office is registered as withholding agent with the BIR through their respective RDOs in conformity with the requirements under Section236(A) of the Tax Code of 1997 and the pertinent provisions of Revenue Regulations (RR) No. 11-2008.

RMC No. 2 3 -2 0 1 2 ( con’t.)

12/ 10/ 2012 12/ 10/ 2012 10

• 2. To require em ployees to subm it the duly accomplished

Application for Registration (BIR Form No. 1902) for newly- hired employees and the Certificate of Update of Exemption and of Employer’s and Employee’s Information (BIR Form No. 2305) for employees with change/ s in their exemption for the calendar year, within ten (1) days upon commencement of employment or after the change in exemption pursuant to Section 2.79.1 of RR 2-98, as amended, and to subm it the same within thirty (30) days from receipt to the concerned RDO.

RMC No. 2 3 -2 0 1 2 ( con’t.)

12/ 10/ 2012 12/ 10/ 2012 11

• 3. To w ithhold the correct am ount of tax. Based on the
• ffice’s registration and where applicable, the government

withholding agent should withhold tax on compensation (WTC) [ based on the exemption in the Application for Registration (BIR Form No. 1902) or the Certificate of Update of Exemption and of Employer’s and Employee’s Information (BIR Form No. 2305) submitted by the employee] , on income payments subject to expanded withholding tax (EWT) and final withholding tax (FWT) and

• n government money payment to VAT registered taxpayer

(GVAT) and Non-VAT registered taxpayers subject to percentage tax (GPT) pursuant to Sections 80(A), 57 and 114, all of the Tax Code.

RMC No. 2 3 -2 0 1 2 ( con’t.)

12/ 10/ 2012 12/ 10/ 2012 12

• 4. To rem it on tim e taxes w ithheld. The responsible
• fficials and employees, as withholding agents, should see

to it that taxes withheld are accordingly remitted on or before their due dates using the prescribed monthly/ quarterly withholding tax remittance returns, together with

• ther attachments.
• 5. To issue the corresponding certificates of taxes

w ithheld. Certificates corresponding to the taxes withheld from the income payments should be issued by the government withholding agents to employees/ payees on or before their due dates of issuance, whether the taxes withheld are creditable or not.

RMC No. 2 3 -2 0 1 2 ( con’t.)

12/ 10/ 2012 12/ 10/ 2012 13

• 6. To do the year-end adjustm ent. The government

withholding agent shall compute for the year-end adjust- ment of all its employees, every December of each year, and every time an employee will be separated from the employment for the particular separated employee, to ensure that taxes withheld from each employee is equivalent to his tax due. Deficiency in taxes withheld as against the tax due for the calendar year shall be deducted from the December salary while excess of taxes withheld

• ver the tax due for the calendar year shall be refunded to

the concerned employee not later than January 25 of the following year. In case of separation from employment before December, the refund shall be given to the separated employee upon payment of the last compensation during the year. Taxes refunded by the

RMC No. 2 3 -2 0 1 2 ( con’t.)

12/ 10/ 2012 12/ 10/ 2012 14

employer-government agency can be deducted from the remittable amount of taxes withheld in the current month in which the refund was made and in the succeeding months thereafter until the full amount refunded is fully recovered.

• 7. To tim ely file w ith the BI R, the annual inform ation

return and alphabetical lists of em ployees/ payees, if applicable. The government officials/ employees should ensure that the Annual Information Return of Income Taxes Withheld on Compensation and Final Withholding Taxes (BIR Form No. 1604-CF) and the required Alpha- betical Lists of Employees/ Payees and Annual Information Return of Creditable Income taxes Withheld (Expanded)/ Income Payments Exempt from Withholding Tax (BIR Form

• No. 1604-E) and the required Alphabetical List of Payees

are filed with their respective RDOs on or before January 31 and March 1 of the following year, respectively.

RMC No. 2 3 -2 0 1 2 ( con’t.)

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• C. Applicable Penalties for Specific Violations
• 1. The following penalties (additions to the tax) are applicable to

the following violations involving all types of withholding taxes:

RMC No. 2 3 -2 0 1 2 ( con’t.)

VIOLATION

APPLICABLE/PENALTY ADDITIONS TO THE TAX

BASIS

• 1. Non-withholding of

tax

• a. Collection of the

amount the with- holding agent failed to withhold

• b. 20% interest

Section 251, Tax Code Section 249, Tax Code

• 2. Under-withholding
• f tax
• a. Collection of the

underwithheld tax

• b. 20% interest

Section 251, Tax Code Section 249, Tax Code

12/ 10/ 2012 12/ 10/ 2012 16

RMC No. 2 3 -2 0 1 2 ( con’t.)

VIOLATION

APPLICABLE/PENALTY ADDITIONS TO THE TAX

BASIS

• 3. Non-remittance of

tax withheld

• a. Collection of the

amount withheld but not remitted

• b. 20% interest

Section 251, Tax Code Section 249, Tax Code

• 4. Late remittance
• a. 25% surcharge
• b. 20% interest

Section 248, Tax Code Section 275, Tax Code

• 5. Failure to refund

excess taxes with- held (WTC only)

• a. Collection of excess

tax not refunded

• b. Failure to do the

year-end adjustment Section 252, Tax Code Section 275, Tax Code

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• D. Crim inal Liabilities -

Aside from the additions to the tax under Title X, Chapter I of the Tax Code as enumerated above, criminal liabilities shall likewise be imposed for the violations under the following provisions of the Code, as follows:

• 1. Section 2 5 5 . Failure to File Return, Supply Correct and Accurate

I nform ation, Pay Tax, W ithhold and Rem it Tax and Refund Excess Taxes W ithheld on Com pensation. - Any person required under this Code or by rules and regulations promulgated thereunder to pay any tax, make a return, keep any record, or supply correct and accurate information, who willfully fails to pay such tax, make such return, keep keep such record, or supply such correct and accurate information, or withhold or remit taxes withheld or refund excess taxes withheld on compensation, at the time or times required by law or rules and regulations shall, in addition to other penalties provided by law, upon conviction thereof, be punished by a fine of not less than Ten Thousand pesos (P10,000) and suffer imprisonment of not less than one (1) year but not more than ten (10) years.

RMC No. 2 3 -2 0 1 2 ( con’t.)

12/ 10/ 2012 12/ 10/ 2012 18

• 2. Section

2 5 6 . Penal Liability

• f

Corporations

• Any corporation, association
• r general co-partnership liable for any of the

acts or omissions penalized under this Code, in addition to the penalties imposed herein upon the responsible corporate

• fficers,

partners, or employees, shall, upon conviction for each act or omission, be punished by a fine of not less than Fifty thousand pesos

(P50,000) but not more than One

hundred thousand pesos

(P100,000). RMC No. 2 3 -2 0 1 2 ( con’t.)

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W aiver of the Defense of Prescription under the Statute of Lim itations

A w aiver of the statute of lim itations under the Tax Code m ust conform strictly w ith the provisions

• f

Revenue Mem orandum Order No. 2 0 -9 0 in

• rder

to be valid and binding.

REVENUE MEMORANDUM CI RCULAR

• No. 2 9 -2 0 1 2

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REVENUE MEMORANDUM CI RCULAR

• No. 3 2 -2 0 1 2

Requests for tax exem ption

• f

private contractors for socialized housing projects under Section 2 0

• f Republic Act ( R.A.) No. 7 2 7 9 or

the “Urban Developm ent and Housing Act of 1 9 9 2 ”

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RMC No. 3 2 -2 0 1 2 ( con’t.)

Section 3 ( r)

• f

R.A. 7 2 7 9 defines “socialized housing” as follow s:

“( r) “Socialized housing” refers to housing program s and projects covering houses and lots or hom elots only undertaken by the Governm ent or the private sector for the underprivileged and hom eless citizens w hich shall include sites and services developm ent, long-term financing, liberalized term s on interest paym ents, and such other benefits in accordance w ith the provisions of this Act;” ( Underscoring supplied)

12/ 10/ 2012 12/ 10/ 2012 22

REVENUE MEMORANDUM CI RCULAR

• No. 3 4 -2 0 1 2

Clarifying the Tax I m plications

• f

I ntegrating the Dom estic Passenger Service Charge at the Point of Sale of Airline Tickets

12/ 10/ 2012 12/ 10/ 2012 23

REVENUE MEMORANDUM CI RCULAR

• No. 3 5 -2 0 1 2

Clarifying the Taxability

• f

Clubs Organized and Operated Exclusively for Pleasure, Recreation, and Other Non-Profit Purposes

12/ 10/ 2012 12/ 10/ 2012 24

REVENUE MEMORANDUM CI RCULAR

• No. 3 6 -2 0 1 2

Clarification on w hether docum ents m entioned in Section 1 9 9 of the Tax Code

• f

1 9 9 7 , as am ended by Republic Act ( RA) No. 9 2 4 3 , are subject to the docum entary stam p tax

• f P1 5 .0 0 as prescribed in Section 1 8 8
• f the said Code.

12/ 10/ 2012 12/ 10/ 2012 25

REVENUE MEMORANDUM CI RCULAR

• No. 3 7 -2 0 1 2

Clarifying Section 1 1

• f

Revenue Regulations ( RR)

• No. 0 6 -0 8

This Circular is issued to clarify Section 11 of RR No. 06-08 or the “Consolidated Regulations Prescribing the Rules on the Taxation of Sale, Barter, Exchange or Other Disposition of Shares

• f Stock Held as Capital Assets.”

12/ 10/ 2012 12/ 10/ 2012 26

RMC No. 3 7 -2 0 1 2 ( con’t.)

“SECTION 11. Effect of Non-Payment of Tax.

• No sale,

exchange, transfer or similar transaction intended to convey

• wnership
• f,
• r

title to any share

• f

stock shall be registered in the books of the corporation unless the receipts of paym ent of the tax herein im posed is filed w ith and recorded by the stock transfer agent

• r

secretary of the corporation. It shall be the duty of the aforesaid persons to inform the BIR in case of non-payment

• f

tax. Any stock transfer agent

• r

secretary

• f

the corporation or the stockbroker, who caused the registration

• f transfer of ownership or title on any share of stock in

violation

• f

the aforementioned requirements shall be punished in accordance with the provisions

• f

Title X, Chapters I and II of the Tax Code, as amended.” (Emphasis supplied)

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REVENUE MEMORANDUM CI RCULAR

• No. 3 8 -2 0 1 2

Questions and Answ ers Further Clarifying the Provisions of RR No. 7 - 2 0 1 0 , as am ended by RR No. 8 -2 0 1 0 , I m plem enting the Tax Privileges Provisions of RA No. 9 9 9 4 , Otherw ise Know n as the “Expanded Senior Citizens Act of 2 0 1 0 ”

12/ 10/ 2012 12/ 10/ 2012 28

RMC No. 3 8 -2 0 1 2 ( con’t.)

• A. ON THE TW ENTY PERCENT ( 2 0 % ) SENI OR

CI TI ZEN DI SCOUNT ON THE SALE OF GOODS AND SERVI CES

The 20% discount granted to Senior Citizens on the sale

• f

goods and services provided under the Rules and Regulations implementing RA No. 9994 or the Expanded Senior Citizens Act of 2010 are discount privileges subject to the guidelines established by the Department of Social Welfare and Development (DSWD). However, this Office deemed it necessary to include in this Circular commonly asked questions on the 20% Senior Citizen discount to clarify issues which are interrelated to the implementation

• f exemption from the payment of 12% VAT.

12/ 10/ 2012 12/ 10/ 2012 29

W ithholding of I ncom e Tax on Backw ages, Allow ances, and Benefits Received by Em ployees through Garnishm ents of Debts or Credits Pursuant to a Labor Dispute Aw ard

REVENUE MEMORANDUM CI RCULAR

• No. 3 9 -2 0 1 2

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Prescribing a Period

• f

Prescription for Rulings under Section 4 0 ( C) ( 2 )

• f the National

I nternal Revenue Code

• f 1 9 9 7 ,

as am ended

REVENUE MEMORANDUM CI RCULAR

• No. 4 0 -2 0 1 2

12/ 10/ 2012 12/ 10/ 2012 31

Publishing the Full Text

• f

Joint Circular No. 2 - 2 0 1 2 dated May 3 1 , 2 0 1 2 of the Departm ent

• f

Finance ( DOF) , Departm ent

• f

Budget and Managem ent ( DBM) and BI R Entitled Providing for the Establishm ent

• f

the VAT Tax Credit Certificate ( TCC) Monetization Program in Relation to the Special Provisions

• f

Republic Act No. 1 0 1 5 5

• r

the General Appropriations Act of 2 0 1 2

REVENUE MEMORANDUM CI RCULAR

• No. 4 4 -2 0 1 2

12/ 10/ 2012 12/ 10/ 2012 32

Prescribes the I ssuance of Certificate

• f

Tax Clearance to Public Transport Operators as a Pre-requisite for Acceptance by the Land Transportation Franchising and Regulatory Board ( LTFRB)

• f an Application for Approval of Sale and

Transfer

• f

a Certificate

• f

Public Convenience

REVENUE MEMORANDUM CI RCULAR

• No. 5 0 -2 0 1 2

12/ 10/ 2012 12/ 10/ 2012 33

Am ending Revenue Mem orandum Circular No. 4 7 -2 0 1 2

• n

the Deadline for the Filing

• f

Applications for VAT Tax Credit Certificates ( TCCs) Monetization

REVENUE MEMORANDUM CI RCULAR

• No. 5 2 -2 0 1 2

12/ 10/ 2012 12/ 10/ 2012 34

RMC No. 5 2 -2 0 1 2 ( con’t.) Type of TCC Filing Period For revalidated and unexpired TCCs

• riginally

issued in 2002 and 2003 July 17, 2012 up to September 15, 2012 or the expiration

• f

the TCC, whichever comes first For unexpired and/or revalidated TCCs

• riginally

issued in 2004 until April 11, 2012 July 17, 2012 up to October 17, 2012

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REVENUE MEMORANDUM CI RCULAR

• NO. 6 1 -2 0 1 2

Authorizing the Use of Electronic BIR Forms (eBIRForms) Package in the Preparation and Filing of Tax Returns

12/ 10/ 2012 12/ 10/ 2012 36

RMC No. 6 1 -2 0 1 2 ( con’t.)

Form No. Latest Revision Date Form Name 1 0605 July 1999 (ENCS) Payment Form 2 1600 September 2005 (ENCS) Monthly Remittance Return of VAT and Other Percentage Taxes Withheld 3 1600WP January 2010 (ENCS) Remittance Return of Percentage Tax

• n Winnings and Prizes Withheld by

Race Track Operators 4 1601-C July 2008 (ENCS) Monthly Remittance Return of Income Taxes Withheld on Compensation 5 1601-E August 2008 (ENCS) Monthly Remittance Return of Final Income Taxes Withheld

12/ 10/ 2012 12/ 10/ 2012 37

RMC No. 6 1 -2 0 1 2 ( con’t.)

Form No. Latest Revision Date Form Name 6 1601-F September 2005 (ENCS) Monthly Remittance Return of Final Income Taxes Withheld 7 1602 August 2001 (ENCS) Monthly Remittance Return of Final Income Taxes Withheld on Interest Paid on Deposits and Yield on Deposits substitutes / Trusts / Etc. 8 1603 November 2004 (ENCS) Quarterly Remittance Return of Final Income Taxes Withheld on Fringe Benefits Paid to Employees Other than Rank and File 9 1604-CF July 2008 (ENCS) Annual Information Return of Income Taxes Withheld on Compensation and Final Withholding Taxes

12/ 10/ 2012 12/ 10/ 2012 38

RMC No. 6 1 -2 0 1 2 ( con’t.)

Form No. Latest Revision Date Form Name 10 1604-E July 1999 (ENCS) Annual Information Return of Creditable Income Taxes Withheld (Expanded) / Income Payments Exempt from Withholding Tax 11 1606 July 1999 (ENCS) Withholding Tax Remittance Return for Onerous Transfer of Real Property Other than Capital Asset (Including Taxable and Exempt) 12 1701Q July 2008 (ENCS) Quarterly Income Tax Return For Self-employed Individuals, Estates and Trusts (Including those with both Business and Compensation Income)

12/ 10/ 2012 12/ 10/ 2012 39

RMC No. 6 1 -2 0 1 2 ( con’t.)

Form No. Latest Revision Date Form Name 13 1702Q July 2008 (ENCS) Quarterly Income Tax Return for Corporations, Partnerships and Other Non-Individual Taxpayers 14 1704 May 2001 Improperly Accumulated Earnings Tax Return 15 1706 July 1999 (ENCS) Capital Gains Tax Return for Onerous Transfer of Real Property Classified as Capital Asset 9both Taxable and Exempt) 16 1707 July 1999 (ENCS) Capital Gains Tax Return for Onerous Transfer of Shares of Stock Not Traded Through the Local Stock Exchange

12/ 10/ 2012 12/ 10/ 2012 40

RMC No. 6 1 -2 0 1 2 ( con’t.)

Form No. Latest Revision Date Form Name 17 1800 July 1999 (ENCS) Donor’s Tax Return 18 1801 July 2003 (ENCS) Estate Tax Return 19 2000 June 2006 (ENCS) Documentary Stamp Tax Declaration / Return 20 2000-OT June 2006 (ENCS) Documentary Stamp Tax Declaration / Return (One-Time Transactions) 21 2200A May 2006 (ENCS) Excise Tax Return for Alcohol Products 22 2200AN August 2003 (ENCS) Excise Tax Return for Automobiles & Non-Essential goods 23 2200M September 2005 (ENCS) Excise Tax Return for Mineral Products

12/ 10/ 2012 12/ 10/ 2012 41

RMC No. 6 1 -2 0 1 2 ( con’t.)

Form No. Latest Revision Date Form Name 24 2200P September 2005 (ENCS) Excise Tax Return for Petroleum Products 25 2200T May 2006 (ENCS) Excise Tax Return for Tobacco Products 26 2550M February 2007 (ENCS) Monthly Value-Added Tax Return 27 2550Q February 2007 (ENCS) Quarterly Value-Added Tax Return 28 2551M September 2005 (ENCS) Monthly Percentage Tax Return 29 2551Q February 2002 (ENCS) Quarterly Percentage Tax Return

12/ 10/ 2012 12/ 10/ 2012 42

RMC No. 6 1 -2 0 1 2 ( con’t.)

Form No. Latest Revision Date Form Name 30 2552 July 1999 (ENCS) Percentage Tax Return for Transactions Involving Shares of Stock Listed and Traded Through the Local Stock Exchange or Through Initial and/or Secondary Public Offering 31 2553 July 1999 (ENCS) Return of Percentage Tax Payable Under Special Laws

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REVENUE MEMORANDUM CI RCULAR

• NO. 6 3 -2 0 1 2

Clarifying the issues affecting invoicing and recording

• f

income payments for media advertising placements

12/ 10/ 2012 12/ 10/ 2012 44

RMC No. 6 3 -2 0 1 2 ( con’t.)

Advertising agencies, media suppliers and advertisers compromise the tripartite institutional structure

• f

the advertising industry. Depending on their industry practice, advertising agencies have different procedures in billing their clients/ advertisers. Clients / advertisers make income payments for media advertisement contracts directly to the advertising agency or directly to the media services, advertising commission or service fees and VAT. Issues thus arise from the invoicing of income payments and recording of gross receipts such that the reporting thereof does not accurately reflect the income recipients and which may affect the computation of taxes due on the transaction.

12/ 10/ 2012 12/ 10/ 2012 45

REVENUE MEMORANDUM CI RCULAR

• NO. 6 4 -2 0 1 2

Business Taxes on Professionals

Professional, classified as self-employed, refers to an individual or a group, practicing his o their profession or calling, with or without license under a regulatory board or body. Apart from applicable income taxes and withholding taxes, he or they are subject to the following business taxes :

12/ 10/ 2012 12/ 10/ 2012 46

RMC No. 6 4 -2 0 1 2 ( con’t.)

Value-Added Tax ( VAT) - A professional is liable to VAT at the rate of twelve percent (12% ) if his gross receipts / professional fees for the past twelve (12) months is more than P1,919,500. Percentage Tax – A professional is liable to percentage tax at the rate

• f

three percent (33% ) if his gross receipts / professional fees for the past twelve 912) months is equal to or is below P1,919,500 and he is not a VAT-registered person.

12/ 10/ 2012 12/ 10/ 2012 47

REVENUE MEMORANDUM CI RCULAR

• NO. 6 5 -2 0 1 2

Clarifying the Taxability of Association Dues, Membership Fees, and Other Assessments / Charges Collected by Condominium Corporations

12/ 10/ 2012 12/ 10/ 2012 48

RMC No. 6 5 -2 0 1 2 ( con’t.)

I ncom e Tax -- The amounts paid in as dues or fees by members and tenants of a condominium corporation form part of the gross income of the latter subject to income tax. This is because a condominium corporation furnishes its members and tenants with benefits, advantages, and privileges in return for such payments. For tax purposes, the association dues, membership fees, and

• ther

assessments / charges collected by a condominium corporation constitute income payments or compensation for beneficial services it provides to its members and tenants. The previous interpretation that the assessment dues are funds which are merely held in trust by a condominium corporation lacks legal basis and is hereby abandoned.

12/ 10/ 2012 12/ 10/ 2012 49

RMC No. 6 5 -2 0 1 2 ( con’t.)

Moreover, since a condominium corporation is subject to income tax, income payments made to it are subject to applicable withholding taxes under existing regulations. VALUE-ADDED TAX ( VAT)

• Association

dues, membership fees, and

• ther

assessments / charges collected by a condominium corporation are subject to VAT since they constitute income payment or compensation for the beneficial services it provides to its members and tenants.

12/ 10/ 2012 12/ 10/ 2012 50

RMC No. 6 5 -2 0 1 2 ( con’t.)

Section 105 of the National Internal Revenue Code of 1997, as amended, provides :

“Section 105. Persons Liable.

• Any person who, in the

course

• f

trade

• r

business, sells, barters, exchanges, leases goods

• r

properties, renders services, and any person who imports goods shall be subject to the value- added tax (VAT) imposed in Sections 106 to 108 of this Code. xxx The phrase ‘in the course of trade or business’ means the regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto, by any person regardless

• f

w hether

• r

not the person engaged therein is a nonstock, nonprofit private

• rganization ( irrespective of the disposition of its net

incom e and w hether

• r

not it sells exclusively to m em bers or their guests) , or government entity.

12/ 10/ 2012 12/ 10/ 2012 51

RMC No. 6 5 -2 0 1 2 ( con’t.)

The above provision is clear – even a non-stock, non-profit

• rganization or government entity is liable to ay VAT on the

sale of goods or services. This conclusion was affirmed by the Supreme Court in Commissioner of Internal Revenue v. Court of Appeals and Commonwealth Management and Services Corporation, G.R. No. 125355, March 30, 2000. In this case, the Supreme Court held:

“Even a non-stock, non-profit

• rganization
• r

government entity, is liable to pay VAT on the sale of goods or services. VAT is a tax on transactions, imposed at every stage of the distribution process on the sale, barter, exchange of goods or property, and on the performance

• f

services, even in the absence

• f

profit attributable thereto. The term “in the course of trade or business” requires the regular conduct or pursuit of a commercial or an economic activity, regardless of whether or not the entity is profit-

• riented.

12/ 10/ 2012 12/ 10/ 2012 52

REVENUE MEMORANDUM CI RCULAR

• NO. 6 7 -2 0 1 2

Circularization of the pertinent portions of the Supreme Court Decision in G.R. Nos. 195909 and 195960 dated 26 September 2012, entitled “Commissioner of Internal Revenue vs. St. Luke’s Medical Center, Inc.,”

• n the

income tax treatment of proprietary non-profit hospitals under Section 27(B) vis-à-vis Sections 30[ E] and [ G] of the National Internal Revenue Code (NIRC), as amended, and

• n

the 1998 deficiency income tax liability

• f

St. Luke’s Medical Center Inc.,

• n

the revenues it derived from services to paying patients pursuant to Section 27[ B] of the NIRC, as amended, and their tax implications and the implementation thereof

12/ 10/ 2012 12/ 10/ 2012 53

RMC No. 6 7 -2 0 1 2 ( con’t.)

For the information and guidance of all internal revenue

• fficials and employees concerned, quoted hereunder are the

relevant portions of the Supreme Court Decision in G.R. Nos. 195909 and 195960 dated 26 September 2012, entitled “Commissioner

• f

Internal Revenue vs. St. Luke’s medical Center, Inc.” involving the following: a. Private non-profit hospitals and educational institutions whose gross income from unrelated trade, business or

• ther activity exceeds fifty percent

(50% ) of their total gross income derived from all sources, or b. Hospitals and educational institutions claiming to be within the coverage of Section 27[ B] of the NIRC that fails to meet the above definition of “proprietary” and “non-profit.”

12/ 10/ 2012 12/ 10/ 2012 54

RMC No. 6 7 -2 0 1 2 ( con’t.)

In all cases, whether their income tax rates fall under Section 27[ A] or 27[ B] of the NIRC, the aforesaid institutions are likewise subject to other applicable taxes, if warranted. 2. On the definition of “charitable” institutions for purposes

• f enjoying income tax exemption under Section 30[ E] of the NIRC,

as amended: I n other w ords, charitable institutions provide for free goods and services to the public w hich w ould

• therw ise fall on the shoulders of governm ent.

Thus, as a matter of efficiency, the government forgoes taxes which should have been spent to address public needs, because certain private entities already assume a part of the burden. This is the rationale for the tax exemption

• f

charitable institutions. The loss

• f

taxes by the government is compensated by its relief from doing public works which would have been funded by appropriations from the Treasury.

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RMC No. 6 7 -2 0 1 2 ( con’t.)

“Section 30(E) of the NIRC provides that a charitable institution must be: (1)A non-stock corporation or association; ( 2 ) Organized exclusively for charitable purposes; ( 3 ) Operated exclusively for charitable purposes; and (4)No part of its net income or asset shall belong to or inure to the benefit of any member, organizer, officer or any specific person. Thus, both the

• rganization

and

• perations
• f

the charitable institution must be devoted “exclusively” for charitable purposes. Even if St. Luke’s meets the test of charity, a charitable institution is not ipso facto tax exempt. To be exempt from income taxes, Section 30(E)

• f

the NIRC requires that a charitable institution must be “organized and

• perated

exclusively” for charitable purposes. Likewise, to be exempt from income taxes, Section 30(G) of the NIRC requires that the institution be “operated exclusively” for social welfare.”

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RMC No. 6 7 -2 0 1 2 ( con’t.)

Henceforth, non-stock, non-profit corporations or associations which claim to be charitable or social welfare but do not organized and operated “exclusively” for charitable or social welfare purposes as above-defined are not entitled to the income tax-exemption under Sections 30[ E] and [ G] of the NIRC, as amended, and their taxable income shall be subject to

• rdinary

30% corporate rate under Section 27(A) of the NIRC, as amended. They are likewise subject to other applicable taxes, if warranted.

• 4. On

the taxability pursuant to Section 27[ B]

• f

the NIRC, as amended, of revenues derived by proprietary non-profit hospitals from services to paying patients and by proprietary non-profit educational institutions from the same or similar services: Clearly, revenues from paying patients are income received from “activities conducted for profit.” … xxx xxx xxx

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RMC No. 6 7 -2 0 1 2 ( con’t.)

Services to paying patients are activities conducted for

• profit. They cannot be considered any other way. There is

a “purpose to make profit over and above the cost” of services. … .. Activities for profit should not escape the reach of taxation. Being a non-stock and non-profit corporation does not, by this reason alone, completely exempt an institution from tax. An institution cannot use its corporate form to prevent its profitable activities from being taxed. The Court finds that St. Luke’s is a corporation that is not “operated exclusively” for charitable or social w elfare purposes insofar as its revenues from paying patients are concerned.

12/ 10/ 2012 12/ 10/ 2012 58

RMC No. 6 7 -2 0 1 2 ( con’t.)

• St. Luke’s fails to meet the requirements under Section

30(E) and (G)

• f the NIRC to be completely tax exempt from

all its income. However, it remains a proprietary non-profit hospital under Section 27(B) of the NIRC as long as it does not distribute any of its profits to its members and such profits are reinvested pursuant to its corporate purposes.

• St. Luke’s, as a

proprietary non-profit hospital, is entitled to the preferential tax rate of 10% on its net income from its for-profit activities. All concerned revenue

• fficials and

employees are hereby directed to fully implement the decision of the Supreme Court in G.R. Nos. 195909 and 195960 dated 26 September 2012, entitled “Commissioner of Internal Revenue vs. St. Luke’s Medical Center, Inc.” by ensuring that the proper taxes are collected from private non-profit hospitals and educational institutions starting from January 1, 1998.

12/ 10/ 2012 12/ 10/ 2012 59

REVENUE MEMORANDUM CI RCULAR

• NO. 6 8 -2 0 1 2

Condonation of Tax Liabilities of Local Water Districts

Republic Act (R.A.) No. 10026 allows the condonation of tax liabilities of local water districts subject to certain conditions. The law added a new Section in the National Internal Revenue Code of 1997 (NIRC) which reads: “Sec. 289-A. Support for Local Water Districts. -- The amount that would have been paid as income tax and saved by the local water district by virtue of its exemption to the income taxes shall be used by the local water district concerned for capital equipment expenditure in

• rder

to expand water services coverage and improve water quality in order to provide safe and clean water in the provinces, cities, and municipalities:

12/ 10/ 2012 12/ 10/ 2012 60

RMC No. 6 8 -2 0 1 2 ( con’t.)

Provide, That, the water district shall adopt internal control reforms that would bring about their economic and financial viability: Provided, further, That the water district shall not increase by more than twenty percent (20% ) a year its appropriation for personal services, as well as for travel, transportation

• r

representation expenses and purchase of motor vehicles. All unpaid taxes or any portion thereof due from a local w ater district for the period starting August 1 3 , 1 9 9 6 until the effectivity of this Act are hereby condoned by the Governm ent subject to the following conditions: (1) that the Bureau of Internal Revenue, after careful review of the financial statements of a water district applying for condonation of taxes due, establishes its financial incapacity, after providing for its maintenance and

• perating

expenses, debt servicing and reserved fund, to meet such obligations for the period stated herein; and (2) that the water district availing

• f such condonation shall submit to Congress of the Philippines a

program of internal reforms, duly certified by the local water utilities administration, that would bring about its economic and financial viability.

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RMC No. 6 8 -2 0 1 2 ( con’t.) Local water districts that intend to avail of condonation of tax liabilities must file with the Technical Working Committee on Abatement through the

• Asst. Commission – Collection Service as Chairman a letter application

stating: i. That it is a duly organized local water district; ii. That it intends to apply for condonation of unpaid tax liabilities; iii. A detailed statement of the unpaid tax liabilities which it seeks to be condoned including the amount/ s of basic taxes, penalties and surcharges, taxable year/ s involved, and other relevant data; The following documents must be submitted together with the application: i. Conditional Certificate of Conformance issued by the Local Water Utilities Administration; ii. Proof of its financial incapacity; and iii. Proof that it has submitted to Congress of the Phils. a program of internal reforms, duly certified by the local water utilities administration, that would bring about its economic and financial viability.

12/ 10/ 2012 12/ 10/ 2012 62

RMC No. 6 8 -2 0 1 2 ( con’t.)

All applications for condonation must be filed on or before April 30, 2013. No application for condonation may be processed after the said date.

12/ 10/ 2012 12/ 10/ 2012 63

REVENUE MEMORANDUM CI RCULAR

• NO. 7 1 -2 0 1 2

Clarification on the Implementation of RMC

• No. 62-2012 dated October 25, 2012

12/ 10/ 2012 12/ 10/ 2012 64

• Atty. Nelson M. Aspe

Deputy Com m issioner Operations Group

Tel Nos. ( 0 2 ) 9 2 6 -5 4 2 5 ;( 0 2 ) 0 2 4 -3 2 4 2 Fax No.: 9 2 8 -3 5 6 2

• Cel. No: 0 9 1 7 -5 5 7 -2 3 0 4

Em ail: nelson.aspe@bir.gov.ph

12/ 10/ 2012 12/ 10/ 2012 65

THANK YOU and GOD Bless !!!