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DOF DEVOLVES PROCESSING AND APPROVAL OF ZONAL VALUES

The Department of Finance by virtue of Department Order (DO) 6-2010 dated March 12, 2010 revised the composition of the various Committees involved in the zonal valuation process in the BIR.

Previously, a centralized Committee consisting of senior people in the DOF and the BIR was involved in the zonal valuation process. This structure resulted in a tedious and long processing and approval of real properties zonal valuations, which have not been revised for over 5 years.

With DO 6-2010, the processing and approval has been devolved to the Regional Director (RD) and the Revenue District Officers (RDO). The BIR Committees consist of the Executive Committee on Real Property (ECRPV) chaired by the Regional Director; Technical Committee on Real Property Valuation (TCRPV) chaired by the Assistant Regional Director and the Sub-TechnicalCommittee on Real Property (STCPRV) chaired by the Revenue District Officer (RDO) and co-chaired by the Assistant RDO.

The members of the Executive Committee are officials from various external agencies like the Housing and Land Use Regulatory Board (HILURB), Bureau of Local Government Finance (BLGF) and 2 licensed and competent appraisers from a reputable association/organization of realty appraisers. Consultants are officials from the Land Registration Authority (LRA), National Tax Research Center (NTRC),

National Mapping and Resource Information Authority (NMRIA) and the National Housing Authority (NHA). For the Technical Committee their members are from HLURB, Provincial /City Assessor and 2 licensed and competent appraisers from reputable association/organization or realty appraisers and consultants are representatives from LRA, NTRC, NMRIA and NHA.

The Sub-Technical Committee members are from the Municipal/Assistant City Assessor, Local Development Officer from the Office of the Mayor and 2 licensed and competent appraisers from a reputable association/organization of realty appraisers.

The Executive Committee will study and approve the proposed Schedule of Zonal Values prepared by the Sub-Technical Committee as reviewed by the Technical Committee. They will also deliberate and resolve cases referred by the Technical Committee.

The Technical Committee has a more extensive task of studying and reviewing the proposed Schedule of Zonal Values prepared by the Sub-Technical Committee and recommendation of the same to the Executive Committee; attending of public hearings relative to the establishment/revision of the Schedule of Zonal Values; deliberation and resolution of appealed cases or controversies as to valuation issues in the Regional and RDOs; assignment of zonal values of properties not listed/included in the approved Schedule of Zonal Values and the endorsement to the Executive Committee unresolved appealed cases for resolution.

The Sub-Technical Committee is tasked to study and prepare the schedule of recommended zonal values of real properties under the jurisdiction of the Revenue District Office (RDO) and conduct public hearing on the proposed zonal values.

In addition, for those with no available private appraisers in the locality; and/or if there is failure of any member of the Sub-Technical Committee to attend meetings; and/or there is failure of any of the member/s to submit their recommended values within 10 days from the date of the concluding meeting, the chairman of the said Committee shall execute an Affidavit and proceed with the establishment/revision of the Schedule of Zonal Values.

The establishment or revision of the Schedule of Zonal Values should be based on the average of the 2 highest recommended values or best data/documents available.

All provincial, city and municipal assessors are required to render assistance to the above Committees in the determination of real properties in their in their respective areas of jurisdiction. Likewise, the Committees are authorized to avail of the services of the DOF and the Bureaus and offices under it.

Commissioner Joel L. Tan-Torres said that DO 6-2010 "will now expedite the updating of all zonal valuations of real properties in the country would correspond to increase in taxes collected from transactions of these properties. All Revenue District Offices throughout the Philippines have been mandated to complete their updating of their zonal valuation not later than June 30, 2010".

The zonal value of a real property is the basis for the computation of capital gains tax and transfer taxes for sellers of real properties not used in business.

Please refer to : REYMARIE T. DE LA CRUZ, Chief, TIED

Approved for Release : AIDA S. SIMBORIO, OIC-ACIR, TAS

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Retroactivity of OSD rules to 2009 [ Let's Talk Tax ]

Posted on 09:26 PM, March 15, 2010 [ BusinessWorld Online ]

Let’s Talk Tax -- Roy N. Relato


The deadline for the filing of the annual income tax return (ITR) for taxpayers using the calendar year method for the taxable year 2009 is in less than a month.

As we all know, taxpayers have the option to use either the itemized deduction scheme or the Optional Standard Deduction (OSD) in computing the taxable income in the annual ITR. Whereas there are no limits on the amounts of deductible ordinary and necessary expenses in the itemized deduction scheme, the OSD is limited to 40% of an individual’s gross sales or receipts, or 40% of a corporation’s gross income.

Moreover, unlike in the itemized deduction scheme, a taxpayer under the OSD regime is not required to substantiate the amount of deduction with official receipts and other adequate records.

The Bureau of Internal Revenue (BIR) recently issued Revenue Regulations (RR) No. 02-2010, which amended the rules laid down by RR 16-2008 on the choice to claim the OSD or the itemized deductions. Under RR 16-2008, a taxpayer may use either the itemized deduction or the OSD in the quarterly ITR, and the taxpayer’s choice must be indicated in the annual ITR. Under RR 02-2010, however, the decision to use either the OSD or the itemized deductions must be signified in the ITR filed for the first quarter of the taxable year. Once the choice is made, the same type of deduction must be consistently applied for all the succeeding quarterly ITRs and in the annual ITR. Failure to indicate the choice to avail of the OSD in the first quarter ITR or failure to file the first quarter ITR shall mean that the taxpayer chose to avail of itemized deduction for the taxable year.

Subsequently, the BIR issued Revenue Memorandum Circular (RMC) No. 16-2010, which prescribes the rules for the disclosure of the taxpayer’s decision to avail of the OSD for the taxable year 2009. Under RMC 16-2010, taxpayers choosing to avail of the OSD are required to check the appropriate box in the first quarter ITR (BIR Form No. 1702Q) of the taxable year 2009, regardless of whether such taxpayer is adopting the calendar or fiscal year method of reporting. Failure to indicate the election to avail of the OSD in the first quarter ITR or failure to file such return shall mean that the taxpayer chose to avail of the itemized deduction for the taxable year 2009. The election to avail of the OSD or itemized deduction is irrevocable for the taxable year 2009 and such irrevocability is not affected by any amendment by the taxpayer of his first quarter ITR.

The main issue that needs to be resolved in the issuance of the RMC is whether RR 02-2010 may be given retroactive application for the taxable year 2009. In general, any revocation, modification, or reversal of any of the rules and regulations or any rulings or circulars promulgated by the BIR Commissioner shall not be given retroactive application if the revocation, modification or reversal will be prejudicial to the taxpayers (Section 246, Tax Code). As previously mentioned, the RMC requires that the decision to use the OSD be made known by the taxpayer in his first quarter ITR for the taxable year 2009. It must be noted, however, that at the time the RMC was issued, most of the taxpayers have already filed their first quarter ITR since under the Tax Code, the deadline for filing the said return is 60 days from the close of the taxable quarter. This means that for taxpayers using the calendar year as accounting period, the last day for filing was last June 1, 2009. Thus, it would be impossible to comply with the RMC since the taxpayers have already filed the first quarter ITR.

Hence, the retroactive application of the RMC to the first quarter ITR of taxable year 2009 should not be allowed because it would be prejudicial to taxpayers.

Moreover, the RMC provides that even if the taxpayers file an amended ITR for the first quarter of taxable year 2009, such amendment will not change the irrevocability of the decision of the taxpayer in the originally filed return. In effect, the RMC does not give the taxpayers a chance to exercise their right to avail of the OSD and instead deprives them of such right by judging their choice of method of deduction on the basis of a return filed prior to the release of the RMC. Such provision runs violates the due process clause of our Constitution. Hence, in addition to being prejudicial to taxpayers, the validity [Windows X1] of the RMC should also be challenged because it violates the taxpayer’s right to due process.

Then, what should the taxpayers do in the meantime? Taxpayers who failed to elect the use of the OSD in the first quarter ITR for 2009 have the option to either question the validity of the RMC before the courts or simply accept the RMC. On the other hand, since the first quarter of the current year is about to end, it would be prudent for taxpayers to evaluate the method of deduction that is beneficial to them and to signify their decision in the 2010 first quarter ITR.

(The author is a tax manager at Punongbayan & Araullo, a member firm within Grant Thornton International Ltd. Readers may e-mail Roy.Relato@pna.ph or call 886-5511 for comments or inquiries.)

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Condo buyers to lose tax breaks, incentives


March 12, 2010

by Elaine R. Alanguilan

[ manilastandardtoday.com ]

INTERNAL Revenue has revoked the tax breaks and incentives to so-called build-your-own real estate developers in a bid to collect P500 million more in revenue.

In a build-your-own project, the developer manages the construction of a condominium or property, while funds contributed by individual investors are treated as investments in a joint venture and pooled in a bank. Previously, such projects were considered non-taxable as the developed units were treated as transactions to return investors’ capital contributions.

But Internal Revenue Commissioner Joel Tan-Torres said this practice deprived the government of value-added and income taxes, saying that five or six such projects now being built could bring in as much as P500 million more into the national coffers.

He cited the joint venture transactions of Meridien East Realty & Development Corp. and Century Properties Inc.

The two companies are part of businessman Jose E.B. Antonio’s Century Properties Group, the largest privately-owned real estate company, with 40 projects in its portfolio, including Essensa East Forbes and South of Market in Fort Bonifacio.

“There are about five to six ongoing projects being developed under the same scheme,’’ Tan-Torres said.

“Under the previous [Internal Revenue] ruling, developers of these projects were only required to pay the document stamp tax and were exempted from paying VAT and income tax.”

The agency has since rectified its June 2005 ruling and now treats such projects as a form of pre-selling that is not tax-exempt.

Tan-Torres said the Housing and Land Use Regulatory Board also rejected the build-your-own scheme as being contrary to the policy behind a presidential decree that protects subdivision and condominium buyers.

“These build-your-own developers can also be seen as traditional developers and should be subject to taxes. So the tax breaks and incentives [previously granted to them] are now repealed,” Tan-Torres said.

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CTA Sustains BIR, Orders Arrest of President of Realty Corporation
Quezon City, 15 March 2010 –

The Court of Tax Appeals (CTA) has ordered the arrest of Jacqueline P. Marzan after finding that probable cause exists for the issuance of a Warrant of Arrest against her in the case filed by the Bureau of Internal Revenue against her for tax evasion.

The latest Resolution by the CTA in the said case again gave the BIR’s Run After Tax Evaders (RATE) program another reason to celebrate after securing convictions in at least four (4) cases including the case against Kintanar and the Pajero Lady. Jacqueline P. Marzan, allegedly a sibling of a high city hall official, was charged by the BIR in Court in her capacity as President of 8M Realty Corporation with business address located at 1633 Craig St., Sampaloc, Manila for the alleged failure of her realty company to pay deficiency income, withholding, and business taxes for the taxable year 1999 despite repeated demands made upon her by the bureau to do so.

In the Resolution rendered by the said court on February 24, 2010, the accused was charged for violation of Section 255 in relation to section 253(d) and 256 of the 1997 Tax Code , as amended.

The charges stemmed from willful, unlawful and felonious failure, refusal and neglect of Ms. Marzan to pay the deficiency income tax, VAT and final withholding tax in the amounts of P409,385.88, P745,975.68 and P439,332.84 respectively due from said corporation for the taxable year 1999 in the total amount of P1,594,694.40 under BIR Assessment Notice No. 32-99.

Records of the investigation showed that the accused made no formal protest or appeal despite notice of assessment served and repeated demands by the Bureau.

After filing of the complaint or information by the BIR, a Resolution dated November 18, 2009 was approved by the City Prosecutor of Manila and other documents on the preliminary investigation in support of the information.

On February 15, 2010, in compliance, the prosecution submitted true copy of the required written authority from the Commissioner of Internal Revenue.

Based on the information and supporting documents, the CTA found probable cause exists for the issuance of a Warrant of Arrest against the accused.

“This order validates the merits of the case filed by the BIR against tax evaders. Eventually , the long arm of the law will catch up with them,” BIR Legal & Inspection Group Deputy Commissioner Gregorio V. Cabantac said.

(Original Signed)
Please refer to: REYMARIE T. DE LA CRUZ
Chief, TIED

(Original Signed)
Approved for Release: GREGORIO V. CABANTAC
Deputy Commissioner, Legal & Inspection Group
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Bureau of Internal Revenue to lose P6 billion due to optional deduction


By Iris C. Gonzales (The Philippine Star) Updated March 12, 2010 12:00 AM

MANILA, Philippines - The Bureau of Internal Revenue (BIR) expects to lose up to P6 billion this year from the Optional Standard Deduction privilege allowed under RA 9504 or the Minimum Wage Law.

OSD allows corporations and individuals a 40-percent maximum deduction on gross sales or gross receipts in the case of self-employed and professionals and a standard deduction of not more than 40 percent on gross income for corporations. The deduction would result in a reduction in income tax obligations to the BIR.

The system was put in place, supposedly to simplify the filing of income-tax returns and benefits for professionals and micro, small and medium entrepreneurs. It was also designed to encourage businesses in the underground economy to pay taxes.

However, according to the BIR, the revenue losses of P6 billion would leave a huge dent on state coffers. As such, the BIR is pushing for an amendment in the reduction of OSD for corporations from 40 percent to 10 percent.

The P6 billion estimated foregone revenue is higher than the previous estimate of P4.1 billion.

As part of the implementation of the OSD provision, the BIR issued Revenue Memorandum Circular 16-2010 to remind taxpayers of the requirement to disclose their option to avail of the 40 percent OSD provision for taxable year 2009 which is due to be filed or paid for this year.

BIR Commissioner Joel Tan-Torres said that if the taxpayer decides to use OSD it should be used for the succeeding quarterly returns and in the final ITR for the taxable year. The decision to avail of the OSD as signified in the return shall be irrevocable for the taxable year 2009, he also said.

He also said that taxpayers who choose to avail of the OSD are required to indicate whether they are adopting a calendar or fiscal period. Furthermore, Tan said, failure to indicate the decision to use OSD would be considered as having availed of the Itemized Deduction or the other option in computing gross sales and receipts.

Newly-registered taxpayers should also disclose their election to avail of the OSD in their initial quarterly income tax return which is required to be filed for the taxable year 2009.

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KNOWING YOUR BIR REGULATIONS AND ISSUANCES

Revenue Regulations (RRs)
are issuances signed by the Secretary of Finance, upon recommendation of the Commissioner of Internal Revenue, that specify, prescribe or define rules and regulations for the effective enforcement of the provisions of the National Internal Revenue Code (NIRC) and related statutes

Revenue Memorandum Orders (RMOs) are issuances that provide directives or instructions; prescribe guidelines; and outline processes, operations, activities, workflows, methods and procedures necessary in the implementation of stated policies, goals, objectives, plans and programs of the Bureau in all areas of operations, except auditing.

Revenue Memorandum Rulings (RMRs) are rulings, opinions and interpretations of the Commissioner of Internal Revenue with respect to the provisions of the Tax Code and other tax laws, as applied to a specific set of facts, with or without established precedents, and which the Commissioner may issue from time to time for the purpose of providing taxpayers guidance on the tax consequences in specific situations. BIR Rulings, therefore, cannot contravene duly issued RMRs; otherwise, the Rulings are null and void ab initio

Revenue Memorandum Circular (RMCs) are issuances that publish pertinent and applicable portions, as well as amplifications, of laws, rules, regulations and precedents issued by the BIR and other agencies/offices.

Revenue Bulletins (RB) refer to periodic issuances, notices and official announcements of the Commissioner of Internal Revenue that consolidate the Bureau of Internal Revenue's position on certain specific issues of law or administration in relation to the provisions of the Tax Code, relevant tax laws and other issuances for the guidance of the public.

BIR Rulings are official position of the Bureau to queries raised by taxpayers and other stakeholders relative to clarification and interpretation of tax laws.