TAX ALERTS - dmdcpa.com.ph

1 P a g e | 1 Diaz Murillo Dalupan & Co. CPAs an independent member firm of Tax and Corporate Services Division TAX ALERTS visit us on BIR Ruling Proceeds received by a non-stock non-profit corporation as a beneficiary society is exempt from income tax Cash dividends received by non-resident foreign corporation from a domestic corporation are subject to 15% preferential tax rate NOLCO of absorbed company in a merger is not an asset that can be transferred to surviving corporation BIR Issuances RMC 35-2012: Clarifying the taxability of clubs organized and operated exclusively for pleasure, recreation, and other non-profit purposes MAIN OFFICE: 7th & 8th Floors, Don Jacinto Bldg.

2 , Dela Rosa cor. Salcedo Streets, Legaspi Village, Makati City Tel no. +63 (2)894-5892 to 95 REGIONAL OFFICES: Batangas Branch Office: Unit 4-YCP Business Center Laurel Highway, Lipa City, Batangas Phone: +63(043)757-5241 Cebu Branch Office: Unit 504 Cebu Holdings Center Cebu Business Park, Mabolo, Cebu City Phone: +63(32)415-8108; 415-8109; 415-8110 Fax: +63(32)232-8029 to 10 Davao Branch Office: 3rd Floor Bldg. B. Plaza Luisa Ramon Magsaysay Avenue, Davao City Phone +63(82)222-6636 August 2012 P a g e | 2 Diaz Murillo Dalupan & Co. CPAs an independent member firm of Tax and Corporate Services Division RMC 36-2012: clarification on whether documents mentioned in Sections 199 of the 1997 tax code are subject to DST RMC 37-2012: Clarifying Section 11 of RR 06-08, by concluding that certificate authorizing registration (car) is mandatory to transfer ownership of shares of stock RMC 38-2012: Clarifies certain privileges under the expanded senior citizens act RMC 39-2012.

3 Withholding of income tax on backwages, allowances, and benefits received by employees through garnishments of debts or credits pursuant to a labor dispute award RMC 40-2012: prescribing a period of prescription for ruling under Section 40 (c) (2) of the 1997 Tax Code Court of Tax Appeal Cases Professional fees paid to GPP are not subject to expanded withholding tax Withholding agent may file a refund should statutory taxpayer opt not to file Rental expense paid to affiliates is a valid deduction from gross income Requisites for items classified as hospital services exempt from VAT Proof of remittance of taxes withheld is the responsibility of the withholding agent P a g e | 3 Diaz Murillo Dalupan & Co.

4 CPAs an independent member firm of Tax and Corporate Services Division Proceeds Received by a Non -Stock Non- Profit Corporation as a Beneficiary Society is Exempt from Income Tax A non-stock non-profit corporation organized for charitable purpose is exempt from tax on its income received by it as a beneficiary society, order, or association under Section 30 (C) of the Tax Code. However, it will be subject to income tax on income derived from any of its real or personal properties or any activity conducted for profit, regardless of the disposition thereof as stated in the last paragraph of Section 30 of the Tax Code.

5 Interest income received from currency bank deposits and yield, from trust funds and similar arrangements, and royalties derived from sources within the Philippines are also subject to final withholding tax. (BIR Ruling 475-2012, July 30, 2012) Cash Dividends Received By Non-Resident Foreign Corporation from a Domestic Corporation Are Subject To 15% Preferential Tax Rate Dividends received by a non-resident foreign corporation from a domestic corporation shall be subject to a withholding tax of 15% of the dividends received, subject to the condition that the country in which the non-resident foreign corporation is domiciled, shall allow a credit against the tax due from the non-resident foreign corporation taxes deemed to have been paid in the Philippines equivalent to 20% which represents the difference between the regular tax on corporation (35%)

6 And the tax on dividends (15%). (BIR Ruling 465-2012, July 17, 2012 NOLCO of Absorbed Company in a Merger is not an Asset that can be Transferred to Surviving Corporation The net operating loss carry-over (NOLCO) under Section 34(D)(3) of the Tax Code, as implemented by RR No. 14-2001, of the absorbed corporation, is not one of the assets of the latter that can be transferred and absorbed by the surviving corporation as this privilege or deduction can be availed of merely by the absorbed corporation. Accordingly, the tax free merger does not cover the NOLCO of the absorbed corporation that can be transferred and absorbed by the surviving corporation.)

7 (BIR Ruling No. 214-2012 dated March 28, 2012) RMC 35-2012: Clarifying the Taxability of Clubs Organized and Operated Exclusively for Pleasure, Recreation, and Other Non-Profit Purposes Section 26 (H) of the 1977 Tax Code, provided that clubs which are organized and operated exclusively for pleasure, recreation, and other non-profit purposes were exempt from income tax. This provision, however, was deleted in the 1997 Tax Code, as amended. Hence, the income of recreational clubs from whatever source, including but not limited to membership fees, assessment dues, rental income, and service fee s are subject to income tax. Also, Section 105 of the 1997 Tax Code provides that any person who engage in the regular conduct or pursuit or commercial P a g e | 4 Diaz Murillo Dalupan & Co.

8 CPAs an independent member firm of Tax and Corporate Services Division or an economic activity, regardless of whether or not the person engaged therein is a nonstock, nonprofit private organization, or government entity is subject to VAT. Thus, from the said provision, even a nonstock, non-profit organization is liable to pay VAT on the sale of goods or services irrespective of the disposition of its net income. RMC 36-2012: Clarification on Whether Documents Mentioned in Section 199 of the 1997 Tax Code are subject to DST Only instruments, documents and papers of transactions expressly enumerated in Section 199 of the 1997 Tax Code, as amended, are exempt from DST.

9 Consequently, certificates and other necessary documents issued by the Construction Industry Authority, an agency under DTI, are not among those mentioned in Section 199 of the tax Code, thus subject to DST of P as prescribed under Section 188 of the 1997 Tax Code. RMC 37-2012: Clarifying Section 11 of RR 06-08, by Concluding that Certificate Authorizing Registration (CAR) is Mandatory to Transfer Ownership of Shares of Stocks In order to transfer ownership of shares of stock not traded in the Stock Exchange, it is necessary to secure a CAR pursuant to the process laid down on RMO 15-03. The receipts of payment of the tax should also be filed with and recorded by the secretary of the corporation pursuant to Section 11 of RR 06-08.

10 RMC 38-2012: Clarifies Certain Privileges under the Expanded Senior Citizens Act This RMC is clarifying the tax privileges provisions of Republic Act (RA) No. 9994, also known as Expanded Senior Citizens Act of 2010 . It clarifies the tax treatment of the 20% discount for different scenarios and the exemption from VAT on goods and services availed by Senior Citizens. RMC 39-2012: Withholding of Income Tax on Backwages, Allowances and Benefits Received by Employees through Garnishments of Debts or Credit pursuant to a Labor Dispute Award When judgment awarded in a labor dispute is enforced through garnishment of debts due to the employer or other credits to which the employer is entitled, the person owing such debts or having in possession or control of such credits would normally release and pay the entire garnished amount to the employee.