p5 valid p6 | the counting of 120-day period in a vat refund .... cash payments for the principal...

Client advisory letter

ISSN 2094-1226/January 2016Sales to COMELEC are effectively VAT zero-rated p5 | “Mutually” defective waiver was held valid p6 | The counting of 120-day period in a VAT refund clarified p7 | Teleconferencing for stockholders’ meeting not allowed p12

Isla Lipana & Co.

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2 Client advisory letter 2016

At a glanceUpdates, reiterations and clarifications on selected topics

IFRS 16 - Leases

Latest on income tax and other taxesEstate tax for CARP properties .................................................... 4Fees for technical assistance and loan guarantee are business profits under the PH-Japan Tax Treaty .................. 4Amended RR on common carriers ............................................... 4Processing of ATRIGs is now centralized ..................................... 5RO cannot be taxed as ROHQ ...................................................... 5Sales to COMELEC are effectively VAT zero-rated ...................... 5Corporate officers are personally liable in a willful nonpayment of tax ............................................................... 6

Latest on tax assessments/ refund procedures “Mutually” defective waiver was held valid ................................... 6RDO’s demand letter clearly stating final decision is an FDDA .. 6The counting of 120-day period in a VAT refund clarified............ 7

Latest on regulatory landscapeRules under the new compensation scheme for AABs ............... 8Rules on related party transactions of banks ............................... 8Mediation of complaints filed against HMOs ............................... 8Renewal of HMO clearances and licenses ................................... 9Quarterly reportorial requirements for pre-need companies ...... 9Regulations on clean note and coin policy amended .................. 9Operational risk management for BSP-supervised FIs ............... 9Outsourcing of certain bank activities ........................................ 10The CARS Program approved ..................................................... 10A law to speed up labor cases .....................................................11Filing of AFS and GIS still on number coding ..............................11Teleconferencing for stockholders’ meetings not allowed ........ 12

The long wait is over

On 13 January 2016, the International Accounting Standards Board (IASB) finished its long-standing project on lease accounting and published IFRS 16, ‘Leases’, which replaces the current guidance in IAS 17. This will require far-reaching changes in accounting by lessees in particular.

The standard applies to annual periods beginning on or after 1 January 2019, with earlier application permitted if IFRS 15, ‘Revenue from Contracts with Customers’, is also applied.

Key provisions

Under IAS 17, lessees were required to make a distinction between a finance lease (on balance sheet) and an operating lease (off balance sheet). IFRS 16 now requires lessees to recognize a lease liability reflecting future lease payments and a ‘right-of-use asset’ for virtually all lease contracts. The IASB has included an optional exemption for certain short-term leases and leases of low-value assets; however, this exemption can only be applied by lessees.

For lessors, the accounting stays almost the same. However, as the IASB has updated the guidance on the definition of a lease (as well as the guidance on the combination and separation of contracts), lessors will also be affected by the new standard. At the very least, the new accounting model for lessees is expected to impact negotiations between lessors and lessees.

Under IFRS 16, a contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Isl

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IFRS 16 - Leases

Impact

IFRS 16 is likely to have a significant impact on the financial statements of a number of lessees.

• Statement of financial position

The new standard will affect both the balance sheet and related ratios, such as debt/equity ratios. Depending on the particular industry and the number of lease contracts previously classified as operating leases under IAS 17, the new approach will result in a significant increase in debt on the balance sheet.

• Statement of comprehensive income

Lessees will have to present interest expense on the lease liability and depreciation on the right-of-use asset in their income statement. In comparison with operating leases under IAS 17, this will change not only the allocation of expenses but also the total amount of expenses recognized for each period of the lease term. The combination of a straight-line depreciation of the right-of-use asset and the effective interest method applied to the lease liability will result in a higher total charge to profit or loss in the initial years of the lease, and decreasing expenses during the latter part of the lease term.

• Statement of cash flows

The new guidance will also change the cash flow statement, because lease payments that relate to contracts that have previously been classified as operating leases are no longer presented as operating cash flows in full. Only the part of the lease payments that reflects interest on the lease liability can be presented as an operating cash flow (if it is the entity’s policy to present interest payments as operating cash flows). Cash payments for the principal portion of the lease liability are classified within financing activities. Payments for short-term leases, for leases of low-value assets and variable lease payments not included in the measurement of the lease liability are presented within operating activities.

Transition

IFRS 16 is effective for annual reporting periods beginning on or after 1 January 2019. Earlier application is permitted, but only in conjunction with IFRS 15, ‘Revenue from Contracts with Customers’. In order to facilitate transition, entities can choose a ‘simplified approach’ that includes certain reliefs related to the measurement of the right-of-use asset and the lease liability, rather than full retrospective application; furthermore, the ‘simplified approach’ does not require a restatement of comparatives. In addition, as a practical expedient entities are not required to reassess whether a contract is, or contains, a lease at the date of initial application (that is, such contracts are “grandfathered”).

Start preparing now

Entities should ensure that they have implemented systems and processes to identify all lease contracts, to capture the information needed to determine the measurement of the right-of-use asset and the lease liability, and to prepare the new disclosures.

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Fees for technical assistance and loan guarantee are business profits under the PH-Japan Tax TreatyThe BIR was asked to rule on the tax treatment of the income of an NRFC from (1) a Memorandum for Technical Assistance to provide technical assistance to a PEZA company; and (2) letters of guarantee in favor of the PEZA company to guarantee payment of loans obtained from a Japanese bank.

According to the BIR, under the Philippines-Japan tax treaty, the service fee under the Memorandum for Technical Assistance is considered as business profits exempt from income tax since the NRFC has no permanent establishment (PE) in the Philippines. The contract is for the performance of services rather than for the supply of know-how or existing information; hence, the service fees are considered business profits rather than royalties.

As for the guarantee fees which do not arise from the primary business activities of the NRFC, these are covered by Article 22 of the tax treaty. This provides that items of income of a resident of Japan from wherever sources and not dealt with in any specific article of the treaty are taxable only in Japan. However, these may be taxed in the Philippines if effectively connected to a PE, in which case, the provision on business profits would apply. Accordingly, since the NRFC had no PE in the Philippines, the guarantee fees are exempt from income tax.(BIR Ruling No. ITAD 375-15 dated 29 December 2015)

Amended RR on common carriersUpon recommendation of the CIR, the DOF further amended RR No. 16-2005, otherwise known as the Consolidated Value-Added Tax Regulations, to essentially reflect the VAT exemptions of the following:

1. Transport of passengers and cargo by international carriers. The international carriers are not allowed to register for VAT purposes; and

Latest on income tax and other taxes

Estate tax for CARP properties • No penalties and surcharges on late payment of estate tax for

CARP-covered properties

To supplement the 2013 Joint DAR-DOF-DOJ-LBP Memorandum Circular, the BIR issued a new RR to streamline the procedure of collecting estate tax on CARP-covered properties of deceased landowners. In summary, the RR laid down the following procedures for processing of estate tax returns:

• DAR Provincial Office shall provide the BIR a list of CARP-covered landholdings.

• The RDO having jurisdiction on the residence of the deceased landowners shall require the heir/successor-in-interest to submit the prescribed documents1 and any other additional documents necessary to determine the correct estate tax liability.

• The RDO shall provide to the LBP and to the heirs a computation of the gross estate and the estate tax liability within five working days from receipt of the prescribed documents, or within three working days from receipt of additional documents. No penalties and surcharges shall be imposed except for non-CARP covered properties.

• The heir/successor-in-interest shall file the estate tax return (BIR Form No. 1801) within three days from receipt of the computation sheet, and pay the estate tax through the LBP. The bank shall then deduct the amount of tax from the compensation payable to the heir.

• Within two working days upon receipt of the proof of tax remittance from the bank, the RDO shall issue the Certificate Authorizing Registration to the heir, executor/administrator, or authorized representative of the estate.

(Revenue Memorandum Circular No. 77-2015 dated 2 November 2015)

1 Prescribed under Revenue Memorandum Order No. 15-2003 dated 15 May 2003

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ATRIG - Authority to Release Imported GoodsBIR - Bureau of Internal RevenueCARP - Comprehensive Agrarian Reform ProgramCIR - Commissioner of Internal Revenue COMELEC - Commission on ElectionsCTA - Court of Tax AppealsDAR - Department of Agrarian ReformDOF - Department of FinanceDOJ - Department of JusticeLBP - Land Bank of the PhilippinesNRFC - Nonresident Foreign CorporationPE - Permanent EstablishmentPEZA - Philippine Economic Zone AuthorityRA - Republic ActRDO - Revenue District OfficeRHQ - Regional HeadquartersRMO - Revenue Memorandum OrderRO - Representative OfficeROHQ - Regional Operating HeadquarterRR - Revenue RegulationsSEC - Securities and Exchange CommissionVAT - Value-Added Tax

Glossary

2. Sale, importation or lease of vessels and aircrafts for domestic or international transport operations. The exemption from VAT on the importation and local purchase of passenger and/or cargo vessels shall be subject to the requirements on restriction on vessel importation and mandatory vessel retirement program of the Maritime Industry.

(Revenue Regulation No. 15-2015 dated 28 December 2015)

Processing of ATRIGs is now centralizedTo ensure that importation of excisable products is fully accounted for, the CIR implemented the centralized policy of processing and issuance of Authority to Release Imported Goods (ATRIGs) subject to the following rules:

1. All applications for ATRIGs for excisable products shall be processed and issued centrally at the Excise Large Taxpayers Regulatory Division of the BIR National Office.

2. ATRIGs issued by the Regional Offices and Excise Tax Areas, upon the effectivity of this Order, shall be deemed null and void.

3. All ATRIGs manually processed and issued by the Regional Offices for VAT-exempt transactions shall be stamped with the phrase “NOT VALID FOR ALL EXCISABLE PRODUCTS”.

This RMO is effective immediately.(Revenue Memorandum Order No. 1-2016 dated 6 January 2016)

RO cannot be taxed as ROHQThe CTA en banc voided the tax assessment against a representative office. The court explained that under RA No. 8179 or the Foreign Investment Act of the Philippines, a Representative Office (RO) does not derive income from the host country and is fully subsidized by its head office. Similarly, it is treated as a Regional Headquarters (RHQ) which also does not derive income in the Philippines and which acts as supervisory, communications and coordinating center for its affiliates, subsidiaries, or branches. Both RHQ and RO are not subject to income tax under the Tax Code2.

The CTA denied the attempt of the BIR to treat the RO as a Regional Operating Headquarters (ROHQ). According to the CTA, an ROHQ is allowed to derive income in the Philippines by performing qualifying services such as marketing control and sales promotion, among others, to affiliates, subsidiaries, or branches of its head office in the Asia-Pacific Region (including the Philippines) and other foreign markets.

In this case, the CTA found that the taxpayer does not have its own Articles of Incorporation. This strengthens the contention that it is a mere RO of a foreign company as stated in its SEC registration. The phrase “promotion of the parent company’s products” stated in the RO’s SEC Registration does not make it a sales office nor one engaged in marketing control and sales promotion, as well as research and development services, and product services – all qualifying services a representative office cannot legally render. Considering this, it cannot be taxed as an ROHQ.

Accordingly, the assessment was cancelled on the premise that the company is an RO not subject to income tax and VAT.(CTA EB No. 1180 dated 4 January 2016)

Sales to COMELEC are effectively VAT zero-ratedUnder Section 12 of RA No. 9369, the COMELEC is authorized to procure necessary equipment “free from taxes and import duties” for the implementation of the automated election system program. This, according to the CTA, makes the sales to COMELEC subject to zero percent VAT.

This finds basis in the Tax Code3, which essentially provides that services rendered to persons or entities who are exempted under special laws are effectively subject to zero percent VAT.(CTA Case No. 8643 dated 4 January 2016)

2 Section 28(A)(6)(7) of the Tax Code3 Section 108(B)(3) of the Tax Code

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BIR - Bureau of Internal RevenueCIR - Commissioner of Internal Revenue CTA - Court of Tax AppealsFDDA - Final Decision on Disputed AssessmentRDAO - Revenue Delegation Authority OrderRDO - Revenue District OfficesRMC - Revenue Memorandum CircularRMO - Revenue Memorandum OrderVAT - Value-Added Tax

Glossary

Corporate officers are personally liable in a willful nonpayment of taxIn determining whether the tax liability of a corporation should be extended to its responsible officers, the act of non-payment of tax must be “willful”. To be deemed a criminal act under Section 255 of the Tax Code, there must be a voluntary and intentional violation of a known legal duty. Willfulness implies the existence of “knowledge” and “voluntariness”, i.e., the taxpayer intentionally refused to pay the tax liability despite being aware of his obligation to pay.

In addition, willfulness must be proven beyond reasonable doubt. It is not upon the accused to prove his/her innocence. Rather, it is the obligation of the prosecution to show, with moral certainty and through its own evidence, that the accused is guilty of the criminal charges. For failure of the prosecutor to present proof of “willfulness”, the liability of the corporation cannot extend to its corporate officers.(CTA Criminal Case No. O-087 dated 4 January 2016)

“Mutually” defective waiver was held validFailure to strictly comply with the requirements in the execution of a waiver under RMO No. 20-90 and RDAO No. 05-01 renders the waiver to be defective. However, an exception to the rule arises when the parties, i.e. both the taxpayer and the BIR, are in pari delicto or “in equal default”. In which case, the court may interfere and grant relief at the suit of one of them, where public policy requires its intervention, even though the result may be that the benefit will be derived by one party who is in equal guilt with the other.

Because both the BIR and the corporate-taxpayer were in default, the court upheld the validity of the waivers since the taxpayer allowed the BIR to rely on them without raising any objection against their validity until the BIR assessed taxes and penalties against the company. Hence, the taxpayer should not be allowed to question the defects in its own waivers and benefit from the flaws to evade responsibility in paying taxes.(G.R. No. 212825 dated 7 December 2015)

RDO’s demand letter clearly stating final decision is an FDDAThe CTA denied the taxpayer’s appeal for having been filed beyond 30 days from receipt of the demand letter of the RDO. The letter of the RDO dated 20 May 2010, while in a form of a demand letter, already satisfied the requirements to be considered a final decision since it is a denial of the protested assessment. The said letter provided the total amount of taxes and penalties due, as well as a demand for the taxpayer to settle them. Thus, for all intents and purposes, the demand letter from the RDO should be considered the final decision on the assessment from which the taxpayer should appeal within 30 days from its receipt.(CTA Case No. 8200 dated 8 December 2015)

Latest on tax assessments/ refund procedures

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The counting of 120-day period in a VAT refund clarified• For tax credit or refund claims filed prior to 11 June 2014,

the 120-day period given to the CIR should be counted from the submission by the taxpayer of his complete documents.Generally, it should be made within 30 days from filing of the application.

The Supreme Court clarified the reckoning point of the 120-day period granted to the CIR to act upon an administrative claim for refund involving unutilized input VAT. The rule is that from the date an administrative claim for excess unutilized VAT is filed, a taxpayer has 30 days4 within which to submit the documentary requirements sufficient to support his claim, unless given further extension by the CIR. Upon filing by the taxpayer of his complete documents to support his application, the CIR has 120 days within which to decide the claim for tax credit or refund. Should the taxpayer, on the date of his filing, manifest that he no longer wishes to submit any additional documents to complete his administrative claim, the 120-day period given to the CIR begins to run from the date of filing. In all cases, whatever documents a taxpayer intends to file to support his claim must be completed within the two-year period under Section 112(A) of the Tax Code. The taxpayer may appeal within 30 days to the CTA from the denial of the claim or from the inaction of the CIR upon expiration of the 120-day period.

For purposes of determining when the supporting documents have been completed, it is the taxpayer who will ultimately determine when complete documents have been submitted. Should the taxpayer manifest that he has no additional documents to submit in his administrative claim, the 120-day period given to the CIR shall commence to run.

However, the summarized rule should only be made applicable to those claims for tax credit or refund filed prior to 11 June 2014 or before the issuance of RMC No. 54-2014.

4 Pursuant to RMC No. 49-2003

Under the current policy, the prerogative to determine the reckoning point of the 120-day period has been withdrawn from the taxpayer. RMC No. 54-2014 now requires the taxpayer to complete his supporting documents at the time he files his claim and to attest that no additional documents will be submitted to prove his claim. Thus, the taxpayer is barred from submitting additional documents after filing his administrative claim.(G.R. No. 207112 dated 8 November 2015)

Latest on tax assessments/ refund procedures

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AAB - Authorized Agent BanksAHMOPI - Association of Health Maintenance Organizations of the PhilippinesBIR - Bureau of Internal RevenueBSFI - BSP-Supervised Financial InstitutionBSP - Bangko Sentral ng PilipinasDOH - Department of HealthFI - Financial InstitutionHMO - Health Maintenance OrganizationIC - Insurance CommissionIRR - Implementing Rules and RegulationsMORB - Manual of Regulations for BanksRMO - Revenue Memorandum OrderRPT - Related-Party TransactionTSA - Treasury Single Account

Glossary

Latest on regulatory landscape

Rules under the new compensation scheme for AABsUnder the Treasury Single Account (TSA), the mode of compensation of AABs for services in the collection of national taxes had shifted from collection float to a transaction fee-based scheme. Under the new scheme, AABs have to remit tax collections to the TSA on the day following the date of collection and shall be compensated based on the number of electronic and over-the-counter transactions processed.

The RMO further prescribes the guidelines, procedures and reporting requirements to facilitate the BIR collections. It also identifies the concerned offices and BIR personnel responsible in validating the number of transactions reported by AABs each month and those tasked to implement the provisions of the RMO.(Revenue Memorandum Order No. 25-2015 dated 22 July 2015)

Rules on related party transactions of banksIn November last year, the BSP, through the Monetary Board, issued guidelines on related party transactions (RPTs) of banks. Generally, RPTs of banks and their non-bank financial subsidiaries and affiliates are allowed, provided that these are done on an arm’s length basis. However, the BSP expects banks and their affiliates to exercise appropriate oversight and implement effective control systems for managing exposures and preventing abuses.

Under Section X146 of the MORB, the BSP provides the duties and responsibilities of the board of directors, the RPT Committee (to be created if the bank is part of a conglomerate or if mandated by the BSP), and the senior management. It also provides the rules on disclosure and regulatory reporting of banks. Except for the reportorial requirement on conglomerate structure, the requirements and governance principles for RPT shall also apply to branches of foreign banks.(BSP Circular No. 895 dated 14 December 2015)

Mediation of complaints filed against HMOsIn view of the transfer of regulatory functions over HMOs from the DOH to the IC5, the latter is tasked to formulate the IRR for the effective implementation of the turnover. During the transition period, all complaints filed against HMOs will be endorsed by the IC to the grievance machinery of the Association of Health Maintenance Organizations of the Philippines, Inc. (AHMOPI) for mediation. The AHMOPI is enjoined to conclude all mediation proceedings within 30 days from receipt of the endorsements. Should the parties fail to reach an amicable settlement, the complaint shall be forwarded by the AHMOPI to the IC for appropriate action.(Insurance Commission Circular Letter No. 2015-59 dated 22 December 2015)

5 Pursuant to Executive Order No. 192, Series of 2015

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Renewal of HMO clearances and licensesThe Licensing Division of the IC’s Legal Services Group is now accepting applications for renewal of HMO Clearance to Operate/Licenses that expired last 31 December 2015. Regular applications for renewal may be submitted until the last working day of January 2016. Late applications will be accepted starting on the first working day of February 2016 subject to appropriate penalties. The requirements for renewal are the following:

• Copy of the 2015 Clearance to Operate/License issued by the DOH;

• A statement of the HMO’s financial reserves in liquid securities duly certified by an external auditor;

• Submission of auditor or actuary-certified (1) list of officers/board of directors/stockholders, (2) audited financial reports which include the balance date on active members and claims experience, (3) operational reports, and (4) any amendment/change in the documents submitted to the DOH on initial application; and

• Payment of renewal fee.

Renewed licenses shall be valid until 31 December 2016.(Insurance Commission Circular Letter No. 2015-60 dated 23 December 2015)

Quarterly reportorial requirements for pre-need companiesTo regulate its operations and management, every pre-need company is now mandated to file its quarterly financial statements starting 2016. Due dates for submission are on the 30th of the following month after the end of each quarter.

The financial statements to be filed must be: (1) complete with a balance sheet, income statement and cash flows with comparative figures from the immediately preceding audited financial statements duly signed by the President and Finance Officer of the company; (2) prepared in accordance with the Pre-need Uniform Chart of Accounts; and (3) submitted together with the Consolidated Trust Fund Statements.

Late filers shall be penalized with a PHP5,000 basic fine plus PHP500 for each day of delay.(Insurance Commission Circular Letter No. 2015-61 dated 23 December 2015)

Regulations on clean note and coin policy amendedAs authorized agents of the BSP, banks are enjoined to accept unfit Philippine currency notes and coins from the depositing public. Non-mutilated coins, regardless of domination, shall also be accepted without handling fees or charges.

To expedite withdrawal from circulation of unfit Philippine currency notes, all banks and their branches should observe the following guidelines and procedures when making cash deposits with the Cash Department or any of the regional offices/branches of the BSP.

a. Provincial branches may make direct deposits of currency notes.

b. An arrangement regarding the shipment of unfit and dirty notes shall be made with their respective head offices in areas with no BSP regional offices/branches.

c. Expenses shall be solely for the account of the bank concerned.

d. Coins for deposit should be packed/bagged.

Banks are required to incorporate implementation measures to ensure compliance with the requirements.(BSP Circular No. 897 dated 6 January 2016)

Operational risk management for BSP-supervised FIsBSFIs are required to adopt an operational risk management framework that is effective and efficient in identifying, assessing, monitoring, and controlling or mitigating operational risk. The term ‘operational risks’ refers to the risks of loss due to failed processes, people and systems.

To ensure that the framework is commensurate with the complexity of the operation, BSFIs must conduct: (1) effective identification and assessment of risk; (2) regular risk monitoring and reporting; and (3) risk control and mitigation.

Moreover, BSFIs shall notify the appropriate department of the Supervision and Examination Sector of the BSP, within 10 calendar days from the date of discovery of any operational risk event. The BSP may deploy enforcement actions to promote adherence with the requirements under

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this Circular and bring about timely corrective actions6.BSFIs must comply with the foregoing standards on operational risk management within a period of two years from the effectivity date of the Circular.(BSP Circular No. 900 series of 2016 dated 18 December 2015)

Outsourcing of certain bank activitiesA bank may outsource to third parties or to related companies in the group certain services or activities provided that it has in place appropriate processes, procedures and information system that can address operational risks. The bank’s board of directors and senior management shall remain responsible for ensuring that activities are conducted appropriately and in compliance with applicable laws, rules and regulations. However, outsourcing of inherent banking functions are prohibited.

Only those banks with CAMELS composite rating of at least three, and a Management rating of not lower than three shall be allowed to outsource certain activities without prior BSP approval; otherwise, the bank must secure prior approval from the Supervision and Examination Sector of the BSP.

To evaluate key risk areas, banks shall: (1) perform risk assessment of a business activity, (2) establish policies and criteria to select the “best” service provider, (3) establish, maintain and regularly test business continuity and contingency plans, (4) ensure that it has adequate resources and (5) ensure that designated personnel are competent to oversee and manage the service providers. The same rule applies to intra-group and offshore outsourcing.

The BSP may deploy enforcement actions to promote adherence with the requirements set forth in this Circular and bring about timely corrective actions.(BSP Circular No. 899 series of 2016 dated 18 December 2015)

6 BSP Circular No. 875 dated 15 April 2015

The CARS Program approvedPresident Benigno Aquino III approved the Comprehensive Automotive Resurgence Strategy Program (CARS Program) under EO No. 182 as the country’s new automotive industry plan which aims to:

• groom the Philippines as a regional production hub;

• provide time-bound and performance-based fiscal incentives to support new investments in fixed capital expenditures; and

• encourage large-scale production in vehicle assembly.

The criteria for enrollment of a Model shall be based on, but not limited to, the following:

• Track record and competitiveness;

• New investments in Body Shell Assembly and Large Plastic Parts Assemblies;

• Planned volume not lower than 200,000 vehicles over a maximum of six years model life;

• Economic impact of the investment plan for the Model;

• Impact on overall competitive environment and long-term industry development; and

• Compliance with safety, fuel efficiency and emission level standards.

The DTI-BOI and the Inter-agency Committee are the lead agencies in administering the Program. The BOI is now accepting applications for participation to the said program from existing and new assemblers who intend to manufacture any of the three Models of four-wheeled motor vehicles. Applicants may enroll only one Model during the application period.

The application shall include the following: (1) duly notarized application form, (2) certified true copies of all appropriate government registration certificates, (3) business plan including all required attachments, (4) joint letter of intent to participate under the CARS Program duly authenticated by the nearest Philippine Consulate Office, and (5) payment of PHP100,000 non-refundable application fee.

Applicants may secure the prescribed application forms from the BOI CARS Project Management Office and file the application together with all the requirements not later than 15 March 2016, after which the period for acceptance shall be closed.(Executive Order No. 182 dated 29 May 2015 and DTI-BOI Memorandum Circular No. 1 Series of 2016 dated 15 January 2016)

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AFS - Audited Financial StatementsBOI - Board of InvestmentsBIR - Bureau of Internal RevenueBSFI - BSP-Supervised Financial InstitutionBSP - Bangko Sentral ng PilipinasCARS - Comprehensive Automotive Resurgence Strategy ProgramCOA - Commission on AuditDTI - Department of Trade and IndustryEO - Executive OrderGIS - General Information SheetNLRC - National Labor Relations CommissionRHQ - Regional HeadquartersROHQ - Regional Operating HeadquartersSEC - Securities and Exchange CommissionSRC - Securities Regulation Code

Glossary

A law to speed up labor casesTo strengthen the legal staff of the National Labor Relations Commission (NLRC), Articles 220 and 221 of the Labor Code had been amended to increase the number of Commission Attorneys assigned to each Commissioner from the existing three to a maximum of five.

The amendment removed the prohibition on assigning Labor Arbiters to the functions of the Commission Attorney or to the office of any Commissioner. It also removed the requirement that Labor Arbiters be appointed to a specific arbitration branch and the preference that they be residents from a particular region. The measure of increasing NLRC lawyers aims to reduce the volume of pending cases and the time for resolving appealed cases. (RA No. 10741 dated 27 July 2015)

Filing of AFS and GIS still on number codingThe following are the guidelines in the filing of annual reports for 2016:

1. All corporations, including branch offices, representative offices, RHQs, and ROHQs of foreign corporations, shall file their Audited Financial Statements (AFS) based on the last numerical digit of their SEC registration or license number under the following schedule:

Filing dates Last digit of SEC registration/license number

18-22 April 1 and 2

25-29 April 3 and 4

2-6 May 5 and 6

10-13 May 7 and 8

16-20 May 9 and 0

2. All SEC satellite offices and extension offices in Cebu, Iloilo, Baguio, and Davao shall also observe the above coding schedule for 2016. Any corporation may file on or before its respective filing dates.

3. The coding schedule does not apply to the following corporations: (i) Those whose fiscal year (FY) ends on a date other than 31 December 2015. Instead, these entities shall file their AFS within 120 calendar days from the end of their FY; (ii) Those whose securities are listed on the Philippine Stock Exchange. These entities shall continue to file their AFS as attachment to their Annual Reports, in accordance with the Securities

Regulation Code (SRC); and (iii) Those whose AFS are being audited by the Commission on Audit (COA), provided that an affidavit is attached attesting to the fact that the company timely provided their financial statements and the audit of COA has just been concluded, along with a letter from COA confirming the information.

4. Late filings shall be accepted starting 23 May 2016 and shall be subject to penalties computed from the date of the last day of the filing schedule.

5. The AFS, other than the consolidated financial statements, should bear the stamp “received” by the BIR or its authorized banks, unless the BIR allows an alternative proof of submission for its authorized banks.

6. The basic components prescribed under SRC Rule 68 should be submitted by filers. Non-compliance shall be considered sufficient ground for imposition of penalties by the SEC.

7. All corporations may directly file their reports in the SEC Head Office and/or all satellite offices. Filers may choose to avail of courier filing options and select any courier of their choice. The procedures for filing through the SEC Express Nationwide Submission and any other courier/regular mail are provided in the Circular.

8. All corporations should file their General Information Sheet within 30 calendar days from the date of annual stockholders’ or members’ meeting per By-Laws (for stock or non-stock corporations) or from the anniversary date of the issuance of the SEC License (for foreign corporations).

(SEC Memorandum Circular No. 1 s. 2016 dated 11 January 2016)

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Alex Cabrera exchanges views on real estate issuesPhilippine launch of Emerging Trends in Real Estate® Asia Pacific 2016 report

PwC Philippines Chairman and Senior Partner Alex Cabrera shared his views on real estate issues as a panelist during the Philippine launch of Emerging Trends in Real Estate® Asia Pacific 2016 last 14 January 2016 at the Ascott Bonifacio Global City, Taguig City.

Emerging Trends, jointly published by the Urban Land Institute (ULI) and PwC, has been released at a series of events across Asia over the last several weeks. It provides an outlook on Asia Pacific real estate investment and development trends, real estate finance and capital markets, and trends by property sector and metropolitan area. Now on its tenth edition, the report is based on the opinions of 343 internationally renowned real estate professionals, including investors, developers, property company representatives, lenders, brokers and consultants.

Ariel Shtarkman, Senior Content Advisor of ULI Asia Pacific, presented the report highlights. The response panel, moderated by CBRE Philippines Chairman & Founder Rick Santos, then discussed different issues and factors affecting

Meet us

The response panel, L-R: Alex Cabrera, Edgar “Injap” Sia (Co-Chairman & CEO, DoubleDragon Properties), Bobby Dy (President, Ayala Land), Dennis Montecillo (EVP, Bank of the Philippine Islands), Eric Manuel (VP, Daiichi Properties), Ariel Shtarkman (Senior Content Advisor, ULI Asia Pacific), and Rick Santos (Chairman & Founder, CBRE Philippines).

Teleconferencing for stockholders’ meetings not allowedAppearance and voting in a stockholders’ meeting cannot be conducted via teleconferencing or videoconferencing. Section 51 of the Corporation Code requires that the stockholders are in the same place during the meeting. This is in contrast to teleconferencing where the participants are in different places, although their presence is “virtual” or through electronic medium. In an SEC Opinion dated 4 August 1998, the Commission maintained that in cases where the law requires a duly called meeting to carry out a corporate transaction, ‘constructive’ or ‘electronic presence’ is not a substitute for ‘actual presence’.

However for board of directors (BOD) or trustees’ meeting, teleconferencing is allowed since Section 47 of the Corporation Code permits the “place” of the directors’ meeting to be stipulated in the corporations’ by-laws, which may be held anywhere in or outside the Philippines. Thus, the SEC issued Memorandum Circular No. 15, s. 2001, providing the guidelines for the conduct of BOD meetings through teleconferencing. (SEC Opinion No. 16-01 dated 19 January 2016)

BOD - Board of DirectorsSEC - Securities and Exchange Commission

Glossary

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the industry. Aside from Ariel, his co-panelists were:

• Edgar “Injap” Sia (Co-Chairman and CEO, DoubleDragon Properties)

• Bobby Dy (President, Ayala Land)• Eric Manuel (Vice President, Daiichi Properties)• Dennis Montecillo (EVP, Bank of the Philippine Islands).

Some of Alex’s opinions during the panel discussion:• When asked what his views were on the upcoming

presidential elections, Alex cited two positive things that the next government can do to welcome foreign investors: foster trust in public-private partnerships, and remove the restrictive clauses in the Constitution on foreign ownership of property, particularly for commercial purposes.

• The report ranks 22 cities within Asia Pacific across different categories, and he agrees that rankings affect perception. For the Philippine cities in the list — Manila and Cebu — to become global cities, he believes that the next government must maintain transparency.

• Alex sees that business process outsourcing (BPO) companies will further proliferate in the Philippines, and their locations outside of Metro Manila will be helped by infrastructure and railway systems that will soon be constructed.

• Rick asked each panelist on the greatest opportunity and greatest threat in the next six years (during the next administration). For the greatest opportunity, Alex cites the indirect benefit from the common ASEAN market, in which the Philippines will be under pressure to change investment rules and policy to be competitive. On the flip side, he sees natural disasters as a great threat, noting that Manila and Cebu are not only prone to natural disasters and but are also among the least resistant in so far as structures and infrastructure are concerned.

ULI Philippines Chairman Charlie Rufino (third from right) presents the tokens of appreciation to the panelists.

L-R: Alex with Berck Cheng of Capitol Steel, David Leechiu of Leechiu Property Consultants, and Edgar “Injap” Sia of DoubleDragon Properties.

PwC Philippines has been an event partner since ULI Philippines organised the annual report launch in the country a few years ago. To complement Emerging Trends, we gave all participants copies of “Building Better Cities” report that PwC produced for the APEC 2015 CEO Summit.

Assurance & Markets Director Allan Cao, Tax Director Brando Cabalsi, Business Development Manager Maila Villadelgado, Corporate Responsibility Manager Edwin Padillo, and Markets Senior Manager Rocky Saldajeno supported Alex on this speaking engagement.

You may download the following report here:

Emerging Trends in Real Estate® Asia Pacific 2016 http://goo.gl/kAtJPA

PwC Building Better Cities: Competitive, sustainable and livable metropolises in APEC http://goo.gl/fFJIvc

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Talk to us

For further discussion on the contents of this issue of the Client Advisory Letter, please contact any of our partners.

For tax and related regulatory matters

For accounting matters

Request for copies of text

You may ask for the full text of the Client Advisory Letter by writing our Tax Department, Isla Lipana & Co., 29th Floor, Philamlife Tower, 8767 Paseo de Roxas, 1226 Makati City, Philippines. T: +63 (2) 845 2728. F: +63 (2) 845 2806. Email [email protected].

John-John Patrick V. LimAssurance PartnerT: +63 (2) 459 3023 [email protected]

Alexander B. CabreraChairman & Senior Partner, concurrent Tax PartnerT: +63 (2) 459 2002 [email protected]

Gina S. DeteraAssurance PartnerT: +63 (2) 459 3063 [email protected]

Ma. Lois M. Gregorio-AbadAssurance Partner T: +63 (2) 459 3023 [email protected]

Roselle Yu CaraigTax PartnerT: +63 (2) 459 2023 [email protected]

Harold S. OcampoTax PrincipalT: +63 (2) 459 2029 [email protected]

Fedna B. ParallagTax PartnerT: +63 (2) 459 3109 fedna.parallag@ ph.pwc.com

Lawrence C. BiscochoTax PartnerT: +63 (2) 459 2007 lawrence.biscocho@ ph.pwc.com

Carlos T. Carado IITax PartnerT: +63 (2) 459 2020 carlos.carado@ ph.pwc.com

Malou P. LimTax Managing PartnerT: +63 (2) 459 2016 [email protected]

PwC holds tax updates seminar for accountancy professorsPwC conducted a tax update seminar entitled “Stepping up to the challenges of 2016” at the University of Santo Tomas Alfredo M. Velayo (UST-AMV) Multipurpose Hall last 14 December 2015 for accountancy professors.

Hosted by the UST-AMV College of Accountancy, the event gathered 52 professors from De La Salle University – Dasmariñas, De La Salle Lipa, Far Eastern University, National University, St. Scholastica’s College – Manila, San Beda College – Alabang, Technological Institute of the Philippines - Manila, University of the East – Manila & Caloocan campuses, University of the Philippines – Diliman, and UST. All received CPE credits.

UST-AMV College of Accountancy Dean, Dr. Patricia Empleo, opened the program and introduced our Chairman and Senior Partner Alex Cabrera as the first speaker. Alex talked about Base Erosion and Profit Shifting (BEPS). Tax Director Brando Cabalsi followed with a discussion on recent jurisprudence and BIR issuances affecting corporate entities. Tax Executive Director Gigie Longa completed the course with a discussion on BIR issuances and jurisprudence affecting individual taxpayers.

The seminar was made possible by Tax and HC Partner Roselle Yu Caraig, Assurance and HC Partner Lois M. Gregorio-Abad, HC Director Pam Gregorio, L&D Senior Manager Ron Melendres, HC Officers Jing Saliendra and Giane Aquino, HC Associates Art Buena and Kench Milante, L&D Administrative Assistant Jonadine Dy, and Tax Consultant Jan Margaret Francisco.

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www.pwc.com/ph© 2016 Isla Lipana & Co. All rights reserved.

At PwC, our purpose is to build trust in society and solve important problems. We’re a network of firms in 157 countries with more than 208,000 people who are committed to delivering quality in assurance, advisory and tax services. Find out more and tell us what matters to you by visiting us at www.pwc.com.

PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further details.

Disclaimer The contents of this advisory letter are summaries, in general terms, of selected issuances from various government agencies. They do not necessarily reflect the official position of Isla Lipana & Co. They are intended for guidance only and as such should not be regarded as a substitute for professional advice.

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