Requirements for Deductibility of Certain Income Payments

The CIR has issued Revenue Regulations No. 12-2013 amending Section 2.58.5 of Revenue Regulations No. 2-98, as amended, relative to the Requirements for Deductibility of Certain Income Payments:

SECTION 2. Amendment. - Section 2.58.5 of RR 2.98, as amended, is hereby further amended to read as follows:

"Sec. 2.58.5. Requirements for Deductibility. - Any income payment which is otherwise deductible under the Code shall be allowed as a deduction from the payor's gross income only if it is shown that the income tax required to be withheld has been paid to the Bureau in accordance with Secs. 57 and 58 of the Code.

No deduction will also be allowed notwithstanding payments of withholding tax at the time of the audit investigation or reinvestigation/reconsideration in cases where no withholding of tax was made in accordance with Secs. 57 and 58 of the Code."

Please refer http://www.bir.gov.ph/images/bir_files/old_files/pdf/73009RR%2012-2013.pdf of the full text of RR No. 12-2013.

Tax Implications Of General Professional Partnership (GPP)

Revenue Memorandum Circular (RMC) No. 3-2012 was issued by CIR of the bureau to clarify the Tax Implications of General Professional Partnership.

Under Sec 26 of the National Internal Revenue Code (NIRC) of 1997, as amended, a general professional partnership as such shall not be subject to income tax. However, persons engaging in business as partners in a general professional partnership shall be liable for income tax only in their separate and individual capacities, thus:

"SEC. 26. Tax Liability of Members of General Professional Partnerships. - A general professional partnership as such shall not be subject to the income tax imposed under this Chapter. Persons engaging in business as partners in a general professional partnership shall be liable for income tax only in their separate and individual capacities.

For purposes of computing the distributive share of the partners, the net income of the partnership shall be computed in the same manner as a corporation.

Each partner shall report as gross income his distributive share, actually or constructively received, in the net income of the partnership."

In relation thereto, Section 2.57.5 of Revenue Regulations No. 2-98, as amended, provides that:

"SECTION 2.57.5. Exemption from Withholding. - The withholding of creditable withholding tax prescribed in these Regulations shall not apply to income payments made to the following:

(A) . . . 

(B) Persons enjoying exemption from payment of income taxes pursuant to the provisions of any law, general or special, such as but not limited to the following:

(1) . . .

(4) General Professional Partnerships

XXX          XXX          XXX"

Tax implications_General Professional Partnership

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Clearly, a general professional partnership shall not be subject to income tax since it is the individual partners who shall be subject to income tax in their separate and individual capacities. A general professional partnership is defined in Section 22 (B) of the 1997 Tax Code, as amended, as follows:

"SEC. 22. Definitions. - When used in this Title:

(A) . . . 

(B) The term 'corporation' shall include partnerships, no matter how created or organized, joint-stock companies, joint accounts (cuentas en participation), associations, or insurance companies, but does not include general professional partnerships and a joint venture or consortium formed for the purpose of undertaking construction projects or engaging in petroleum, coal, geothermal and other energy operations pursuant to an operating or consortium agreement under a service contract with the Government. 'General professional partnerships' are partnerships formed by persons for the sole purpose of exercising their common profession, no part of the income of which is derived from engaging in any trade or business.

XXX          XXX          XXX"

Relative thereto, income payments made to a General Professional Partnership in consideration for its professional services are not subject to income tax and consequently to withholding tax prescribed in Revenue Regulations No. 2-98, as amended.

It is the individual partners who shall be subject to income tax, and consequently, to withholding tax, in their separate and individual capacities pursuant to Section 26 of the 1997 Tax Code, as amended. Furthermore, each partner shall report as gross income his distributive share, actually or constructively received, in the net income of the partnership.

However, it is worth mentioning that income payments made periodically or at the end of the axable year by a general professional partnership to the partners, such as drawings, advances, sharings, allowances, stipend and the like, are subject to the Fifteen percent (15%), if the payments to the partner for the current year exceeds P720,000.00; and Ten percent (10%) creditable withholding tax, if otherwise, pursuant to Section 2.57.2 (H) of Revenue Regulations No. 2-98, as amended by Revenue Regulations No. 30-03.

Please refer http://www.bir.gov.ph/images/bir_files/old_files/pdf/61821RMC%20No%203-2012.pdf of the full text of RMC No. 3-2012.

Power To Extend Or Shorten Corporate Term

A private corporation may extend or shorten corporate term as stated in SEC. 37 of Batas Pambansa Blg. 68 "The Corporation Code of the Philippines as follows:

SEC. 37. Power to extend or shorten corporate term. - A private corporation may extend or shorten its term as stated in the articles of incorporation when approved by a majority vote of the board of directors or trustees and ratified at a meeting by the stockholders representing at least two-thirds (2/3) of the outstanding capital stock or by at least two-thirds (2/3) of the members in case of non-stock corporations. Written notice of the proposed action and of the time and place of the meeting shall be addressed to each stockholder or member at his place or residence as shown on the books of the corporation and deposited to the addressee in the post office with postage prepaid, or served personally: Provided, That in case of extension of corporate term, any dissenting stockholder may exercise his appraisal right under the conditions provided in this Code.

Powers And Capacity Of Corporations

What are the Powers and Capacity of Corporations?

In SEC. 36 of Batas Pambamsa Blg. 68 "The Corporation Code of the Philippines" refers to the Powers of Corporations with details as follows:

SEC. 36. Corporate powers and capacity. - Every corporation incorporated under this Code has the power and capacity:

1. To sue and be sued in its corporate name;

2. Of succession by its corporate name for the period of time stated in the articles of incorporation and the certificate of incorporation;

3. To adopt and use a corporate seal;

4. To amend its articles of incorporation in accordance with the provisions of this Code;

5. To adopt by-laws, not contrary to law, morals, or public policy, and to amend or repeal the same in accordance with this Code;

6. In case of stock corporations, to issue or sell stocks to subscribers and to sell treasury stocks in accordance with the provisions of this Code; and to admit members to the corporation if it be a non-stock corporation

7. To purchase, received, take or grant, hold, convey, sell, lease, pledge, mortgage and otherwise deal with such real other corporations, as the transaction of the lawful business of the corporation may reasonably and necessarily require, subject to the limitations prescribed by law and the Constitution;

8. To enter into merger or consolidation with other corporations as provided in this Code;

9, To make reasonable donations, including those for the public welfare or for hospital, charitable, cultural, scientific, civic, or similar purposes: Provided, That no corporation, domestic or foreign, shall give donations in aid of any political party or candidate or for purposes of partisan political activity;

10. To establish pension, retirement, and other plans for the benefit of its directors, trustees, officers and employees; and

11. To exercise such other powers as may be essential or necessary to carry out its purpose or purposes as stated in its articles of incorporation.

Executive Committee Of A Corporation

It is stated in SEC. 35 of Batas Pambansa Blg. 68 "The Corporation Code of the Philippines", about the creation of Executive of committee as follows:

SEC. 35. Executive committee. - The by-laws of a corporation may create an executive committee, composed of not less than three member of the board, to be appointed by the board. Said committee may act, by majority vote of all its members, on such specific matters within the competence of the board, as may be delegated to it in the by-laws or on a majority vote of the board, except with respect to: (1) approval of any action for which shareholders' approval is also required; (2) the filling of vacancies in the board; (3) the amendment or repeal of by-laws or the adoption of new by-laws; (4) the amendment or repeal of any resolution of the board which by its express terms is not so amendable or repealable; and (5) a distribution of cash dividends to the shareholders.

What Is The Effect Of Disloyalty Of A Director In A Corporation?

What is the effect of the disloyalty of a director in a corporation?

In SEC. 34 of Batas Pambansa Blg. 68 "The Corporation Code of the Philippines" refers to the Disloyalty of a director with details as follows:

SEC. 34. Disloyalty of a director. - Where a director, by virtue of his office, acquires for himself a business opportunity which should belong to the corporation, thereby obtaining profits to the prejudice of such corporation, he must account to the latter for all such profits by refunding the same, unless his act has been ratified by a vote of the stockholders owning or representing at least two-thirds (2/3) of the outstanding capital stock. This provision shall be applicable, notwithstanding the fact that the director risked his own funds in the venture.

Availability Of The Update Of Exemption Of Employees (UEE) Data Entry Module In Filing Of The BIR Form No. 2305 and 2305 Batch File Validation Module

The CIR of the bureau has issued Revenue Memorandum Circular No. 59-2015 in relation to RR 7-2012 to circularize the availability of Updated of Exemption Of Employees (UEE) (BIR Form No. 2305) Data Entry Module and 2305 Batch File Validation Module which shall be used for the following:

 

1. Updating of Employee's Additional Exemption for Dependents;

2. Change of Status; and

3. Execution of the "Waiver to Claim the Additional Exemption" by the husband; or revocation of the previously executed "Waiver to Claim the Additional Exemption by the Husband". 

 

The filing of BIR Form No. 2305 shall be coursed through the employer and shall be electronically filed containing all the required information in the prescribed electronic format using any of the following:

 

Option 1 Microsoft Excel CSV format;

Option 2 Taxpayer's own extract program; or

Option 3 BIR's UEE Data Entry Module.

 

For those who will be using Option 1 or Option 2 are required to use the 2305 Batch File Validation Module. The UEE Data Entry Module and 2305 Batch File Validation Module are available at http://www.bir.gov.ph/index.php/downloadables.html

 

For the Submission of Report, Submission of Supporting Documents, Venue of Submission and Other Concerns, please refer http://www.bir.gov.ph/images/bir_files/internal_communications_2/RMC%20No%2059-2015_copy.pdf of the full text of RMC No. 59-2015.

 

 

 

BIR Audit Program: Audit/Investigation Of Taxpayers of Mandatory Cases and Priority Taxpayers/Industries

The CIR of the BIR just recently issued Revenue Memorandum Order (RMO) No. 19-2015 of the BIR Audit Program that prescribes the policies, guidelines and procedures to be observed in the audit/investigation of tax returns to enhance taxpayers' voluntary compliance by encouraging the correct payment of internal revenue taxes through the exercise of the enforcement function of the Bureau.

 

It is stated in the RMC that in general, all taxpayers are considered as possible candidates for audit. To cover such audit/investigation of taxpayers, electronic Letters of Authority (eLAs) shall be issued. The said audit/investigation shall include, but not limited to, the following cases:

 

1. Mandatory Cases

 

1.1 Taxpayers with claims for income tax refund or issuance of tax credit certificate (Selection Code: ITR for income tax refund and ITC for tax credit certificate)

 

1.2 Taxpayers with claims for Value-Added Tax (VAT) refund/credit (Selection Code: VTR for VAT refund and VTC for VAT credit certificate)

 

1.3 Claims for tax refund/credit of excise tax under Title VI of the Tax Code, as amended, regardless of amount (election Code: ETRS for excise tax refund and ETCS for Excise tax credit certificate)

 

1.4 Claims for tax refund/credit on erroneously/double payment of taxes regardless of amount (Selection Code: ERTR claims for tax refund and ERTC for claims for tax credit certificate)

 

1.5 Request for tax clearance of taxpayers due to retirement/cessation of business with gross sales/receipts exceeding P1,000,000.00 or gross assets exceeding P3,000,000.00 (Selection Code: TRC)

 

1.6 Request for tax clearance of taxpayers undergoing merger/consolidation/split-up/spin-off and other types of corporate reorganizations (Selection Code: TMC)

 

1.7 Cases with unresolved Letter Notices (LNs) (Selection Code: LNA)

 

1.8 Estate tax returns with other tax liabilities (Selection Code: EOT)

 

1.9 Policy cases covered by written directive of the Commissioner (Selection Code: CIR)

 

2. Priority Taxpayers/Industries - Unless revised through the issuance of a Revenue Memorandum Order (RMO), the tax returns to be audited shall be based on the following criteria.

 

Please refer the link:  http://www.bir.gov.ph/images/bir_files/internal_communications_3/Full%20Text%20of%20RMO%202015/RMO%20No%20%2019-2015.pdf of the Priority Taxpayers/Industries, policies & procedures and full text of RMO No. 19-2015

Use of Non-Thermal Paper For All Cash Register Machines (CRMs) / Point-Of-Sales (POS) Machines And Other Invoice/Receipt Generating Machine/Software

The CIR of the BIR just recently issued Revenue Regulations (RR) No. 10-2015 to inform all Business Establishments, Internal Revenue Officials and Employers and Others Concerned about SECTION 1 of the Regulations that pursuant to the provisions of section 244, in relation to Sections 203, 222 and 235 of the National Internal Revenue Code of 1997 (NIRC, as amended, these Regulations is hereby promulgated to mandate the use of Non-thermal paper for all CRM/POS and other invoice/receipt-generating machine/software.

 

For Retention Periods of books of account, including subsidiary book and other accounting records; information and other concerns please refer http://www.bir.gov.ph/images/bir_files/internal_communications_1/Full%20Text%20RR%202015/RR%20No.%2010-2015.pdf of the full text of Revenue Regulations No. 10-2015

Contracts Between Corporations With Interlocking Directors

Contracts Between Corporations With Interlocking Directors is stated in SEC. 33 of Batas Pambansa Blg. 68 "The Corporation Code of the Philippines" with details as follows:

SEC. 33. Contracts between corporations with interlocking directors. - Except in cases of fraud, and provided the contract is fair and reasonable under the circumstances, a contract is fair and reasonable under the circumstances, a contract between two or more corporations having interlocking directors shall not be invalidated on that ground alone: Provided, That if the interest of the interlocking director in one corporation is substantial and his interest in the other corporation or corporations is merely nominal, he shall be subject to the provisions of the preceding section insofar as the latter corporation or corporations are concerned.

Stockholdings exceeding twenty (20%) percent of the outstanding capital stock shall be considered substantial for purposes of interlocking directors.