The tax landscape: Where we are and what is ahead

“Out with the outdated, in with the brand new” appears to be the prevailing temper. With the federal government’s time period expiring, the Philippines will quickly usher in a brand new President and set up a brand new set of directors. The Bureau of Internal Revenue (BIR) is naturally one of many authorities businesses affected by the turnover of management, with the Commissioner of Internal Revenue (CIR), who heads the BIR, being a presidential appointee.
Turning the web page may additionally be within the air for BIR laws and issuances. Looking again to the July 2016 version of this column, I want to revisit among the important adjustments in our tax panorama and look ahead at developments that we can anticipate.
SUSPENSION OF JUNE 2016 ISSUANCESUpon appointment of the then new CIR, Revenue Memorandum Circular (RMC) No. 69-2016, dated July 1, 2016, suspended the implementation of BIR issuances from June 2016. Upon evaluate, many of those issuances have been subsequently reinstated by RMC Nos. 80-2016, 88-2016, and 127-2016.
Notably, one issuance that remained suspended was Revenue Memorandum Order (RMO) No. 27-2016, dated June 23. 2016. This RMO was to set the rules for availing of tax treaty reduction on dividends, curiosity, and royalties. Instead, the protection of this RMO was tackled in newer issuances in 2017, 2020, and 2021, as mentioned under.
REINSTATEMENT OF WITHHOLDING TAX RULES ON DEDUCTIBILITY OF EXPENSESUnder Revenue Regulations (RR) No. 12-2013, no deduction for earnings tax functions was allowed in case of failure to withhold tax, however subsequent fee of such withholding tax on the time of audit investigation or reinvestigation/reconsideration. This RR was revoked in 2018 with the issuance of RR No. 6-2018, reverting to the earlier rule permitting bills as a deduction, supplied that the required withholding tax is remitted to the BIR throughout a tax audit/investigation, with the concurrent penalties from under-withholding or non-withholding.
It is noteworthy, although, that in tax circumstances, the Court of Tax Appeals has held that fee of deficiency withholding tax after the issuance of a Final Decision on Disputed Assessment is not thought-about a remittance throughout a tax audit/investigation; therefore the tax courtroom upheld the disallowance of bills and sustained the evaluation of deficiency earnings tax thereon.
REGULATIONS IMPLEMENTING TRAIN AND CREATERepublic Acts 10963 and 11534, also referred to as the Tax Reform for Acceleration and Inclusion (TRAIN) and the Corporate Recovery and Tax Incentives for Enterprises (CREATE) legal guidelines, have been signed in 2017 and 2021, respectively. These legal guidelines are two of the main tax reform packages, which primarily tackled private (TRAIN) and company (CREATE) earnings tax.
Numerous laws have been issued to implement the Tax Code amendments from these tax reforms, together with the amended RR Nos. 11-2018 and 5-2021, primarily touching upon the private and company earnings tax adjustments beneath the respective tax reform legal guidelines. Other vital issuances embody: RR No. 12-2018 (donor’s and property taxes); RR Nos. 13-2018, 4-2021 and 21-2021 (value-added tax); RMC No. 19-2022 (tax-free trade); and the CREATE Implementing Rules and Regulations overlaying Title XIII of the Tax Code.
TRANSFER PRICING AUDIT AND COMPLIANCEWhile the switch pricing pointers have been promulgated in RR No. 2-2013, which required the upkeep of contemporaneous switch pricing documentation to assist the pricing of intercompany transactions, extra switch pricing guidelines and steering have been launched beginning in 2019. Revenue Audit Memorandum Order No. 1-2019 prescribes the procedures and audit pointers to be adopted within the occasion of a switch pricing audit. Moreover, the Related Party Transaction Form (or BIR Form No. 1709) now varieties a part of annual earnings tax compliance, as mandated for sure taxpayers pursuant to RR No. 19-2020, as amended by RR No. 34-2020.
TAX TREATY RELIEF AND TAX SPARINGIn a welcome improvement, tax treaty reduction for dividends, pursuits, and royalties was initially simplified with the issuance of RMO No. 8-2017, beneath which accomplishment and submission of a Certificate of Residency for Tax Treaty Relief (CORTT) Form by the Philippine tax resident-payee and the international earnings recipient domiciled in a treaty nation can be thought-about adequate compliance. However, the 2017 RMO was outdated by RMO No. 14-2021, which gives up to date procedures for availing of tax treaty advantages overlaying all varieties of earnings funds, together with dividends, curiosity, and royalties. While the 2021 RMO was issued in compliance with the Ease of Doing Business Act in thoughts, its necessities are arguably much less easy than the CORTT Form requirement beneath the 2017 RMO.
Meanwhile, RMO No. 46-2020 gives for the rules and procedures for availing of the diminished 15% dividends tax paid to a nonresident international company beneath Section 28(B)(5)(b) of the Tax Code, also referred to as the tax sparing rule. While arguably the Tax Code provision is self-executing, this 2020 RMO nonetheless gives extra constant steering to taxpayers, who beforehand sought BIR rulings as a conservative measure when utilizing such diminished dividends tax price.
FUTURE TAX DEVELOPMENTSThere are nonetheless two pending main tax reform proposals in Congress, overlaying actual property valuation and taxation of passive earnings and monetary intermediaries. There is additionally a pending proposal to incorporate non-resident digital service suppliers inside the 12% value-added tax protection, being deliberated at the moment on the Senate Committee on Ways and Means stage, as of this writing. It stays to be seen whether or not the incoming administration will prioritize these tax measures, but when handed into regulation earlier than the brand new administration takes over, we can count on the promulgation of implementing laws overlaying the identical, maybe quickly.
The adjustments within the tax panorama these final six years have been unprecedented, and extra adjustments may very well be coming quickly. Dutifully holding on high of tax updates is a should for taxpayers and tax specialists alike.
The views or opinions expressed on this article are solely these of the writer and don’t essentially symbolize these of Isla Lipana & Co. The content material is for basic info functions solely, and shouldn’t be used as an alternative to particular recommendation.
Marion D. Castañeda is a senior supervisor on the Tax Services Department of Isla Lipana & Co., the Philippine member agency of the PwC community.

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