Problems relating to Trade and Investment on The Philippines
14. Taxation Systems |
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Issue |
Issue details |
Requests |
Reference |
| (1) Vexatiously Complex VAT Levy and Excessive Burden | - Upon cargo arrival 12% VAT is payable on the Invoice Amount. Payment due: Upon cargo arrival for the invoice amount, converted into peso at the prevailing rate on the date of cargo arrival, 12% of which is payable in Peso. calculation of customs duty: Apply the duty rate to the highest of: (1) invoice amount, (2) home consumption value on SGS's clean report of finding, or (3) actual home consumption value in the exporting country [customs owns price lists of major countries] to calculate the customs duty amount. Then, recalculate at the prevailing exchange rate on the date of cargo arrival as final, and settle the differences. |
- It is requested that GOP repeals the VAT levy. | |
| (Action) - In November 2005, GOP enforced the new VAT Act that includes the raise of VAT from 10% to 12% and setting up of the limit of the deductible amount of the purchase tax. - Effective 1 February 2006, GOP raised the VAT from 10% to 12%. |
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| (2) Un-refunded and Delayed Refund of Value Added Tax | - VAT exempted PEZA enterprises are uncertain when the VAT provisionally paid is refunded by GOP, as such refund is long overdue. - VAT (Value Added Tax) reaching the refund position never gets refunded smoothly. Frequently, prompt letters requesting refund have been sent to GOP via chamber of commerce and industry, and Japan embassy. - Up to now on VAT refund, its non-smooth refund has been pointed out. Last year BIR promulgated revenue memorandum circulars (RMC), providing: If the claim for VAT refund or credit is not acted upon by the commissioner within 120-day period as required by law, such 'inaction shall be deemed a denial' automatically. Moreover, failure to file complaint within 30-days of denial determines the denial, so that by retroactive application, the pending case past 150-days from the filing date of refund request automatically confirms the refund denial. - VAT refunds are lagging behind. Revenue memorandum circulars RMC-54-2014, enforced last year, sets forth, among others: (1) BIR (Bureau of Internal Revenue) decides whether or not to execute refund within 120-days of the filing date of the refund request (2) No refund decision past 120-days automatically means denial. (3) Failure to file complaint with The Court of Tax Appeals of the Philippines (CTAP) within 30-days of denial voids the right for the VAT refund. (4) Appeal to CTAP may not be made within 120-days of refund request filing date. (5) RMC-54-2014 applies retroactively to all past tax returns. - GOP fails to process MFS's VAT returns smoothly. |
- It is requested that GOP: -- secures the adequate fund that enable VAT refund, and -- expedites the tax authority's examination. - It is requested that GOJ takes steps to have GOP appreciates: -- smooth VAT refund is the fundamental requisite step for introduction of value added tax, and -- the failure to complete the VAT refund process smoothly gives negative impact upon business transactions. - It is requested that GOP: -- sincerely accepts the rebuttals filed by Japanese chamber of commerce & industry of the Philippines, embassy of each country in the Philippines, and -- repeals the RMC-54-2014, revenue memorandum circulars. - While the negotiation stage has gone up to the bilateral ministerial Level, it is requested that GOJ powerfully press on to get the RMC54-2014 repealed. - It is requested that GOP taxation authority secures adequate fund and expedites VAT examination to execute the VAT refund promptly. |
- National Internal Revenue Code of the Philippines, Sec.112 - RMC-54-2014, Revenue Memorandum Circulars, Clarifying Issues relative to the application for Value Added Tax (VAT) Refund/Credit under Section 112 of the Tax Code, as Amended |
| (Action) - In 1988, VAT Act was enforced. - Due to the deficit balance of GOP, there is much delay in GOP's executing the VAT refund as regards enterprises to which 0% VAT is imposed. Moreover, in lieu of cash refund, in many cases, GOP issues a certificate for tax deductions, which can be offset against the tax liability of enterprises. - New VAT Act enforced in November 2005 stipulates the limit on the deductible amount from the purchase tax (The limit of the deductible VAT from the VAT amount received is 70% of the VAT amount received). The new VAT Act compels enterprises to carry forward to next quarterly fiscal term the amount of the input VAT exceeding 70% of the output VAT. - A survey conducted in September 2006 by the Philippine Chamber of Commerce And Industry in the U.S. cites refund of VAT is one of the three most burdensome procedures. - Republic Act No.9361 that removes the 70% cap on the input VAT is enforced on December 13, 2006. By virtue of this removal, enterprises are able to transfer the full 100% input VAT from raw materials to the output VAT at point of sales, assuring compatibility in the profit and loss. - The VAT refund delays are on the agenda of Business Environment Committee established under Japan-Philippines Economic Partnership Agreement (JPEPA). Bureau of Internal Revenue (BIR), Philippines has committed to check individual refund requests, providing information to Japanese Embassy. BIR is using its best efforts to expedite the VAT refund. (20 May 2010 JETRO News Letter (TSUSHO KOHO) - Since 2008, GOP has imposed import duty on raw plastic compounds imported by the BOI registered enterprises, which were imported duty free up to 2007. While VAT refund may be obtained by filing application for re-export, the delay of its refund has become chronic, due to the vexatiously complex refund procedures. - Since July 2011, GOP has prohibited transfer to third parties of Tax Credit Certificate (TCC). - On 2 July 2012, GOP released the guideline concerning discount of Tax Credit Certificate (TCC) of VAT. - At the fourth meeting of the Subcommittee convened on 28 March 2013 on the Improvement of Business Environment under the Japan-Philippines Economic Partnership Agreement (JPEPA), the discussion was held over the VAT refund issue. |
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| (3) Arbitrary Tax Investigation, Back Taxes and Penalties | - Enterprises must put up with considerable amount of time and expenses at each tax investigation that involves submission of a vast amount of documents, notification for imposing unilateral, illogical additional taxes, etc. The manner of conducting tax investigation requires renovation, such as one-sidedly compelling the burden of proof entirely upon taxpayers. | - It is requested that GOP makes a thorough overhaul of the essential renovation that includes the institutional restructuring and the fundamental manners of tax investigation. | |
| (4) Vexatiously Complex Procedures Required in Filing Request for Application of the Maximum Tax Rate on License Fees under JPTT | - Despite the affixed withholding tax rate (on technical service fees and service engineer service fees) being stipulated under the Japan-the Philippines Tax Treaty (JPTT), BIR continues requirement for production of a set of documents, including Technical Assistance Agreement (TAA, requiring apostille formally signed by the Philippines Consul in Japan). Moreover, such apostille is necessary for TAA each amendment. Failures to produce the documents will void the benefit under JPTT, and the 30% withholding tax rate will apply. - The procedures under JPTT are complex and time consuming on both sides including GOJ on filing application for reduction in the withholding tax rate concerning licence fees, etc. It takes more than one-year before the approval is obtained. - Change in equity participant and payment of royalty have both delayed, due to the inadequate instructions given by the competent authority at the prior confirmation. Member firm's subsidiary (MFS) had to submit documents, which were newly added, including the consular apostille certificate. |
- It is requested that GOP: -- repeals the requirement for apostille by the Philippines consul in Japan, and -- accepts, when amending the TAA, the submission of only the new contract without requiring other certificates by the Philippines Consul in Japan. -- streamlines and expedites the application procedures. - It is requested that GOP streamlines and expedites the procedures related to the application. - It is requested that GOP clearly identifies the requisite documents. |
- Japan-Philippines Tax Treaty - 2010 BIR Memorandum Circular Directing prior filing of application minimum 15 days before remittance of Dividends, Royalties, etc. on which Reduced Tax Rate(s) applies(y) (2010 BIR Memorandum Circular) |
| (Action) - On 25 August 2010, BIR promulgated RMO No. 72-2010, the Guidelines on the Processing of Tax Treaty Relief Applications (TTRA) pursuant to existing Japan-Philippine Tax Treaties, amending TTRA forms and the required documentary attachments. TTRA forms, newly established, comprise of the 8-categories in accordance with the classification of income (business profits, profits from shipping and air transport, dividend income, interest income, royalty income, capital gains, income from services, and other income earnings), the general documentary attachments required are newly classified in accordance with the classification of income, newly adding proof of residency, articles of incorporation (for income earner other than an individual), special power of attorney, certification of business presence in the Philippines, and certificate of no pending case. |
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| (5) RMO remains Uncensored Despite the Supreme Court's Unconstitutional Judgement | - BIR requires prior filing of request for application of vexatiously complex preferential tax rate(s), the failure of which results in BIR's refusal of tax refund. Despite the Supreme Court's Decision (SCD) of August 2013, holding procedural irregularities under RMO-1-2000 are incapable of depriving the preferential treatment under the tax treaty, BIR has failed to issue new RMO reflecting the supreme court's decision. | - It is requested that GOP takes step to: -- simplifies and expedites the going procedures for prior filing of request, and -- amends RMO-1-2000 in accordance with the SCD of August 2013. |
- Japan-the Philippines Tax Treaty - Revenue Memorandum Order, RMO-1-2000 |
| (6) Unjustified Denial of VAT Exemption on a Renewable Energy Project | - Under Renewable Energy Law (RE Law) various tax exemption measures are available on power generation projects for renewable energy. VAT, which is one of them, however, does not apply, unless the importer is also the end user. In other words, only the first player gets the VAT exemption. Under the EPC (Engineering, Procurement & Construction) contract, no VAT refund is available, if the contractor acts as importer. It drives up the total cost. It is the same if the contractor is a Filipino company, as it restricts the contract formation. Consequently, it is rather difficult for contractors to participate in the renewable energy project in the Philippines. | - It is requested that GOP takes step to implement VAT exemption not in the perspective importer, but rather from the standpoint of who is the end user, the customer. | - Republic Act No. 9513, also known as the Renewable Energy Act of 2008 (RE Law) |
| (7) Double Taxation Risk under Transfer Price Taxation System | - A member firm, as a group of companies, faces the risk of double taxation, especially under transfer price taxation system, about which the rules vary by country, while their views also vary from one to the other. | - It is requested that GOP/GOJ take step to: -- refurbish the legislation on harmonised transfer price taxation system worldwide, and -- embellish prior approval scheme. |
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| (8) High Withholding Tax levied on Remittance of Dividends to Hong Kong | - An enterprise in the Philippines, with its parent company incorporated in Hong Kong, pays dividends from its operation in the Philippines to its parent in Hong Kong. Withholding tax of high 30% is payable upon remittance, as tax treaty remains unprepared. | - It is requested that tax treaty is ratified between the Philippines and Hong Kong to reduce the rate of the withholding tax. | - Tax Treaty between Hong Kong and the Philippines |
| (9) Too Brief Deductible Period | - Loss carry forward deductible period (LCFDP) is only for 3-years. | - It is requested that GOP takes step to grant minimum 10-years for LCFDP. | - Republic Act No. 8424 - Tax Reform Act of 1997, Article 34(D)(3) |
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