SC: Microsoft not entitled to P11M tax refund

By Tetch Torres INQUIRER.net
First Posted 10:53:00 04/27/2011

MANILA, Philippines—The Supreme Court has affirmed the decision of the Court of Tax Appeals (CTA) that Microsoft Philippines was not entitled to an P11-million tax refund for taxes paid in 2001.

In a nine-page decision dated April 5 but was made public Tuesday, the high court’s second division through Senior Associate Justice Antonio Carpio said Microsoft Philippines failed to prove that it is was entitled to a tax refund due to its non-compliance with the requirements set forth under the National Internal Revenue Regulations Code (NIRC).

Under the law, the high court explained that a VAT registered taxpayer such as Microsoft Philippines is required to comply with all the VAT invoicing requirements to be able to file a claim for input taxes on domestic purchases for goods or services attributable to zero-rated sales.

A VAT invoice meets the requirements under the law and that of the Revenue Regulations.

Microsoft argued in its petition for review that the law failed to indicate that failure to indicate the word “zero-rated” in its invoices or receipts would result in the outright invalidation of the invoices or receipts and the disallowance of a claim for tax credit or refund.

“A tax credit or refund, like tax exemption, is strictly construed against the taxpayer. The taxpayer claiming the tax credit or refund has the burden of proving that he is entitled to the refund or credit,” the high court said.

In this case, burden of proof that Microsoft Philippines was entitled to a refund or credit could be shown by compliance with the requirements set forth under the law.

An input tax is defined under the NIRC as the “VAT due from or paid by a VAT registered person in the course of his trade or business of importation of goods or local purchase of goods or services including lease or use of property from a VAT registered person.”

This is deducted from the output tax which is the “VAT due on the sale or lease of taxable goods or properties or services by any VAT registered taxpayer” in order to arrive to a VAT payable amount.

But in zero-rated transactions, output tax is multiplied by zero percent thus when input tax is deducted from output tax would result in an excess input tax which may be refunded or credited to other internal revenue taxes upon compliance with all the requirements stated under the law.

In this case, Microsoft paid a VAT input tax worth P11, 449, 814.99 on its domestic purchases of taxable goods and services in 2001.

The company claimed it as a tax credit in 2002 but due to the inaction of the Bureau of Internal Revenue (BIR), the company took their case to the CTA which ruled against them.

The CTA said Microsoft’s official receipts failed to indicate the word “zero rated” on its face thus it cannot be considered as valid evidence to prove zero-rated sales for VAT purposes.”

After their motion for reconsideration was dismissed by the CTA en banc, they went to the Supreme Court.

“The appearance of the word ‘zero-rated’ on the face of invoices covering zero-rated sales prevents buyers from falsely claiming input VAT from their purchases when no VAT is actually paid. Absent such word, the government may be refunding taxes it did not collect,” the high court said.

Option to carry-over excess income tax payments to the succeeding years once made becomes irrevocable

Under Section 76 of the 1997 National Internal Revenue Code (NIRC), once an option to carry-over excess income tax payments to the succeeding years, it becomes irrevocable. This was what the Supreme Court reiterated in its new decision in the case of Belle Corporation vs. Commissioner of Internal Revenue, G.R. No. 181298 promulgated last January 10, 2011.

The issue passed upon by the Court is whether petitioner is entitled to a refund of its excess income tax payments for the taxable year 1997 in the amount of P106,447,318.00.

In denying petitioner Belle Corp.’s Petition for Certiorari under Rule 45 of the Rules of Court, the highest tribunal of the land opined that since petitioner already carried over its 1997 excess income tax payments to the succeeding taxable year 1998, it may no longer file a claim for refund of unutilized tax credits for taxable year 1997.

The Court explained that “Under the new law, in case of overpayment of income taxes, the remedies are still the same; and the availment of one remedy still precludes the other. But unlike Section 69 of the old NIRC, the carry-over of excess income tax payments is no longer limited to the succeeding taxable year. Unutilized excess income tax payments may now be carried over to the succeeding taxable years until fully utilized. In addition, the option to carry-over excess income tax payments is now irrevocable. Hence, unutilized excess income tax payments may no longer be refunded.”

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Minimum Corporate Income Tax

"Minimum corporate tax"


By Raul J. Palabrica
Philippine Daily Inquirer
First Posted 20:55:00 04/08/2010
Filed Under: State Budget & Taxes, Economy and Business and Finance

IT’S INCOME TAX SEASON AGAIN.

This is the time of the year when accountants are busiest preparing (or as some cynics put it, “cooking”) the books of account of their clients to meet their tax obligations.

In doing so, the “bean counters” have to carefully tread the thin line that separates tax avoidance from tax evasion.

If there are gray areas in the law that can be invoked to reduce or avoid the payment of taxes, the taxpayer concerned cannot be faulted for taking advantage of them.

For making some “savings” possible, the tax adviser who spotted the loophole can expect to be rewarded handsomely for his cleverness.

And when word spreads in the industry about it, similarly situated taxpayers follow suit until the regulators get wise to the scheme and adopt the appropriate measures to stem the revenue loss.

Tax evasion, however, is a different story. The refusal to pay taxes that are due and payable can give rise to criminal and civil liabilities to the taxpayer and whoever may have advised him to willfully renege on his tax duties.

Low taxes

Until our lawmakers took notice, it was common practice by unscrupulous businessmen to form corporations that raked in huge profits during the year but reported losses at the end of their fiscal year.

Following the principle that income tax is imposable only on earned income, these companies were not, strictly speaking, obliged to pay taxes.

Behind the scenes, however, the bulk of their earnings went to the pockets of their stockholders and officers (who are also stockholders) by way of dividends, salaries, allowances and other perks and privileges.

With sleight-of-hand accounting techniques, the supposedly employment-based expenses were added to bloated operating costs that resulted, at least in the corporate books, in low income or losses.

The net effect of this slick scheme was low or zero taxes.

Either way it went, these companies availed of the services and facilities that the government made available to all companies regardless of their financial condition.

Thus, supposedly unprofitable companies enjoyed the benefits of public services and facilities without contributing any centavo to the national coffers. It was corporate parasitism and exploitation at their worst.

Taxable year

To even up the balance and to discourage avoidance of taxes by repeated reporting of losses, Republic Act No. 8424 imposed in 1998 a minimum corporate income tax (MCIT) on domestic corporations.

Basically, the law gives new corporations some breathing space by allowing them to invoke business losses to excuse the payment of the standard corporate income tax.

However, on the fourth taxable year immediately following the year in which these corporations started operating, they are required to pay the MCIT which is equivalent to two percent of their gross income as of the end of the taxable year.

The specifics on how the tax shall be computed and paid are spelled out in the regulations that the Bureau of Internal Revenue later issued to implement the law.

The bottom line of the law is, all corporations, regardless of their state of profitability, have to pay income tax using a formula that takes into account their actual income stream during the taxable year.

Understandably, the affected parties complained about the innovative tax regulation. A convenient excuse for avoiding (if not evading) taxes—business losses—was removed from the tax books.


Valid exercise

Last month, the Supreme Court settled the issue on the constitutionality of the MCIT.

Earlier, an association of real estate brokers claimed that the tax imposition is “highly oppressive, arbitrary and confiscatory.”

In its ruling, the tribunal pointedly stated that some companies deliberately manipulate their books to report negative or minimal taxable income by “under declarations in income earned or over deduction in expenses.”

With that premise, the justices said the MCIT is aimed at deterring tax evasion and reducing the incidence of tax avoidance schemes that are “achieved through sophisticated and artful manipulations of deductions and other stratagems.”

Since the MCIT is based on the companies’ gross income (or total earnings before deducting allowable expenses), the tribunal did not see anything wrong with requiring them to contribute a reasonable portion of their money to the national coffers.

The decision couldn’t have come at a more opportune time considering that the BIR is presently engaged in aggressive efforts to meet its revenue target for the year.

It has been said (and with sufficient reason) that government regulation of business activities is a catch-up game.

The regulated parties devise ways and means to go around the rules that restrict their ability to make a lot of money. In turn, the regulators try to anticipate these moves to enable them to take the appropriate remedial measures.

Mercifully, in the tax collection game, the government has in its corner the presumption that “taxes constitute the lifeblood of the State” and therefore all doubts about its power to tax are resolved in its favor.

Source: Inquirer.net

Tax raps filed vs billionaire businessman

By Tetch Torres
INQUIRER.net
First Posted 18:28:00 04/07/2011

MANILA, Philippines—The Department of Justice (DoJ) ordered the filing of tax evasion case against a billionaire businessman before the Court of Tax Appeals.

In an 8-page resolution approved by Prosecutor General Claro Arellano, the DoJ gave the go for the prosecution of Macario Lim Gaw for violation of Section 255 of the National Internal Revenue Code (NIRC); which provides penalty for a tax payer’s failure to file return; supply correct and accurate information; pay tax withhold and remit tax and refund excess taxes withheld on compensation.

The resolution is dated March 17, 2011, but was released to the media on Thursday through a press conference by Justice Secretary Leila De Lima.

In December, 2007 and from April to June, 2008, Gaw bought a total of 10 properties consisting of an aggregate area of 19.5592 hectares from which he sold in July, 2008.

The DoJ, in its resolution stated that Gaw failed to pay the corresponding tax for the income he earned for the sale of the said properties.

Gaw said that he already paid the corresponding capital gains tax as he insisted that the sold properties were capital assets and not ordinary assets as claimed by the Bureau of Internal Revenue (BIR).

Gaw paid the 6 percent capital gains tax amounting to P9,111,801.69 for 2007 and P418,746,021.11 for 2008 to evade the payment of the 32 percent income tax and the 12 percent VAT due to sale of lands classified as ordinary assets.

However, the DoJ pointed that evidence showed the transactions of Gaw, as well as his continuing transactions showed he is engaged in real estate business under the BIR revenue regulation 7-2003.

“While respondent would insist that the revenue regulation merely pertains to selling and not buying, the revenue regulation does not distinguish since the revenue regulation itself states that the property purchased for future use in the business, even though this purpose is later thwarted by circumstances beyond the taxpayer’s control, does not lose its character as an ordinary asset,” the DoJ said.

The DoJ added that Gaw himself, in an agreement to sell dated April 3, 2008, which he submitted to the DoJ showed that he is actually into business of selling real properties for profit.

The BIR said Gaw is registered as a one-time transaction tax payer which, according to the BIR are those who are selling properties which is not in the nature of a regular business transaction.

But the DoJ reiterated the statement made by the BIR that Gaw has extensive knowledge in real-estate business having handled nine real-estate transactions for various corporations.

Gaw is the president of Mega Packaging Corp. and Makro LPG.

BIR files tax evasion case against model-host Diana Menezes

Model and host Diana Menezes faces a tax evasion case for failing to file her income tax returns considering that she is a resident alien deriving income from within the Philippines and thus liable under Section 24 of the National Internal Revenue Code (NIRC) to pay income taxes.

Read article below.

"Brazilian TV host slapped with tax evasion rap"
By Tetch Torres
INQUIRER.net
First Posted 13:54:00 04/07/2011

MANILA, Philippines—The Bureau of Internal Revenue on Thursday filed a tax evasion case against Brazilian model and host Diana Menezes before the Department of Justice for her failure to file tax returns and pay taxes.

Menezes’ tax liability amounts to P983,658.07, said the BIR.

Menezes has been in the country since 2007 and has been a regular host of the noontime television show “Eat Bulaga” also since 2007.

Investigation showed that Menezes did not file any tax returns for taxable years 2007 to 2009. Under Section 24 of the National Internal Revenue Code (NIRC), a resident alien deriving income from the Philippines is required to pay income tax.

Records showed that Menezes received a total taxable income of P2.6 million from 2007 to 2009 from various modeling and hosting stints and endorsements but failed to pay taxes.

BIR Commissioner Kim Jacinto-Henares said that Menezes registered with the BIR under Executive Order No. 98 only for the purpose of securing a Taxpayer Identification Number (TIN) as part of the essential requirements in all applications for a government permit, license, clearance or any official documents.

Tax informers are entitled to 10 percent or P1 million, whichever is lower

Based on a DOJ opinion, tax informers are entitled to 10 percent or P1 million, whichever is lower.


Tax informer cries plunder, says he is entitled to P1B reward
By Leila B. Salaverria
Philippine Daily Inquirer
First Posted 19:46:00 12/17/2010

MANILA, Philippines—Failing to get what he believed was a P1.13 billion reward due him, a tax informer filed plunder charges against Justice Secretary Leila de Lima and Bureau of Internal Revenue officials led by Commissioner Kim Henares on Friday.

Danilo Lihaylihay, who earlier also claimed that he was entitled to P11.875 trillion in partial claims for helping the recovery of the Marcoses' ill-gotten wealth, said De Lima and Henares had refused to give him the reward and thus unjustly enriched themselves or the state at his expense.

Lihaylihay said he was entitled to P1.13 billion because the reward was supposed to amount to 25 percent of the amount he had helped recover.

Henares earlier said that informants should get 10 percent or P1 million, whichever is lower.

In the complaint he filed at the Office of the Ombudsman, Lihaylihay said that he had written the BIR earlier this year asking for his reward for acting as informant in tax cases where the government was able to collect the amounts due to it. He said that under the law, he was entitled to 25 percent of the recovered amount.

But he said that despite his letters to the BIR, which passed through several officials and which was backed by a referral from the Office of the President, his demand has not been met.

He said that the BIR officials, instead of giving him his money, “illegally connived” with De Lima and caused the publication of a new DOJ opinion that revoked the ruling of former Justice Secretary Raul Gonzalez saying that the reward should be 25 percent of the recovered amount.

With this DOJ opinion, the DOJ and the BIR officials misappropriated or malversed his money, Lihaylihay said.

“All public respondents illegally confederated with one another in robbing-off herein complainant's P1.130-B trust/reward monies and/or amassing, accumulating, or acquiring ill-gotten wealth through conversion, misappropriation or malversation of public trust funds (informer's reward monies), by the issuance and/or implementation of DOJ Opinion No. 48,” he said.

He added that the officials had taken advantage of their official positions, authority, connections and influence to unjustly enrich themselves or the state, to his detriment.

Tax on ‘ROI’ in a corporation

Tax on ‘ROI’ in a corporation
By Atty. Rester John Lao Nonato
Cebu Daily News
First Posted 09:52:00 04/09/2010

AS the economy improves, many of us are in a “look-out” mode for new places to invest our hard earned money other than the banks.

One choice is to invest in corporations. However, one’s return of investment in corporations in the form of dividends is taxed in the Tax Code.

Dividends comprise any distribution whether in cash or other property in the ordinary course of business made by a domestic corporation to its shareholders out of its earnings or profit [Section 250 of Revenue Regulations (“RR”) No. 2]. Dividends must come from the unappropriated retained earnings of the corporation.

Cash dividends and property dividends are subject to the final withholding dividends tax, whereas stock dividends are generally exempt from tax.

The amount of tax payable would depend on the status of the stockholder, whether they are Filipino citizens, resident alien individuals, non-resident alien individuals, or non-resident foreign corporations.

Nevertheless, dividends received by a domestic corporation and a resident foreign corporation from another domestic corporation are exempt from the dividends tax.

When cash dividends or property dividends are declared, such cash or property previously owned by the corporation becomes the absolute property of the stockholders.

Property dividends may be investments in shares of stocks of a corporation, real property, or some other property owned by the corporation. The declaration of such types of dividends would decrease the assets of the corporation.

The issuance of stock dividends on the other hand will increase the number of shares issued and outstanding in the corporation that declared said dividends. A stock dividend, when declared is merely a certificate of stock which shows the interest of the stockholder in the increased capital of the corporation.

As mentioned earlier, the issuance of stock dividends is generally exempt from tax.

A stock dividend constitutes taxable income if it gives the shareholder a higher interest compared with what his former stockholdings represented.

On the other hand, a stock dividend does not constitute taxable income if the new shares did not confer new rights nor interests than those previously existing, and that the recipient owns the same proportionate interest in the net assets of the corporation (Section 252 of RR No. 2; Mertens' Federal Income Taxation, Vol. 1, par. 9.91, p. 145).



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