TAX UPDATES

1. TAX UPDATES Atty. EDUARDO T. BAJADOR Regional DirectorBIR RR No.2, Baguio City (CAR)

2. TAX JURISPRUDENCE • A proprietary non-profit hospital is subject to 10% tax under Section 27(B) of the 1997 Tax Code. • St. Luke’s fails to meet the requirements under section 30 (e) and (g) of the National Internal Revenue Code to be completely tax exempt from all its income. • St. Luke’s is therefore liable for deficiency income tax in 1998 at the preferential rate of 10 percent under Section 27 (b) being a proprietary hospital institution of the Tax Code.

3. TAX JURISPRUDENCE • The TP was convicted by the Court under Sec. 255 of the NIRC, which provides the following elements: • The accused is a person required by law to make or file a return; • The accused failed to make or file the return at the time required by law; and • Failure to make or file the return was willful.

4. TAX JURISPRUDENCE • A TP’s reliance on his supposed accountant to file his required ITR is considered as an act delegating the performance of his legal duty to the said accountant, and is tantamount to “deliberate ignorance” or “conscious avoidance” on the part of the TP. • The CTA held that the TP’s “deliberate refusal or avoidance to verify the contents of these documents and inquire on the authenticity thereof under the circumstances obtaining in this case constitutes ‘willful blindness’ on his part.” • “Willful Blindness” is defined as the “[d]eliberate avoidance of knowledge of a crime, esp. by failing to make a reasonable inquiry about suspected wrongdoing despite being aware that it is highly probable. It creates an inference of knowledge of the crime in question

5. BIR RULINGS • BIR Ruling No. 458-2012 (10 July 2012) • Payments to a foreign corporation for services performed entirely outside the Philippines are exempt from income tax and VAT.

6. BIR RULINGS • BIR Ruling No. 495-2012 (31 Jul 2012) • Income derived from investments in the Philippines by foreign governments is exempt from income tax and, consequently, from withholding tax.

7. REVENUE ISSUANCE RMC No. 32-2012 (16 Jul 2012) Clarifies the grant of tax exemption to private contractors for socialized housing projects under the "Urban Development and Housing Act of 1992“ Section 3(r) of R.A. 7279 defines “socialized housing” as follows: “(r) “Socialized housing” refers to housing programs and projects covering houses and lots or homelots only undertaken by the Government or the private sector for the underprivileged and homeless citizens which shall include sites and services development, long-term financing, liberalized terms on interest payments, and such other benefits in accordance with the provisions of this Act;”

8. REVENUE ISSUANCE • RMC No. 32-2012 (16 Jul 2012) • The tax incentive provision, granting exemption from project-related taxes and VAT to project contractors/ developers, is limited to the construction and development of houses and lots or homelotsonly with a view to reduce the cost of housing units for the benefit of the underprivileged and homeless and to encourage greater private sector participation in socialized housing. • The development and/or construction of classrooms, school buildings, multi-purpose halls/covered courts, and livelihood centersfalls outside the definition of the term “socialized housing” and cannot qualify for the tax incentives granted under Sec. 20 of RA 7279.

9. Thank you !!! Atty. EDUARDOT. BAJADOR Regional DirectorBIR RR No.2, Baguio City (CAR)