ACC 178: Updates in Tax and Business Regulations

Module #8 Student Activity Sheet

Lesson title: Materials:

• Omnibus Investments Code for purposes of Pen, paper, calculator
determining tax liabilities and tax incentives
• Basic principles of the tax treaty and specific References:
provisions of Double Taxation Agreement (DTA) Tax Reviewer by Enrico Tabag
models in determining the tax implications of various Taxation Reviewer by Manuel, Soriano
income items of non-residents and Laco
• Tax implications of transactions applying the tax rules REO Reviewer
and regulations, and sound tax planning strategies
within legal and ethical bounds to efficiently manage
tax liabilities.
Learning Targets:
At the end of the module, students will be able to:
1. To recall and apply learnings in Omnibus Investments
Code, Basic Principles of the Tax Treaty.

A. LESSON PREVIEW/REVIEW

Hello students! You are now in your module 6 of your review subject. Your topic in this module is Local
Government Taxation and Real Property Taxation Under Local Government Code. You already finish this
during your lower years. This time, you need to recall and apply your learnings with the topic.

“When you have a dream, you’ve got to grab it and never let go.”

[Link] LESSON
Content and Skill-Building

Omnibus Investments Code of 1987 (EO 226), as amended

What is the Omnibus Investments Code of 1987 or EO 226? When did it become effective?
The Omnibus Investments Code of 1987, as amended, integrates the basic laws on investments, clarifying and
harmonizing their provisions to encourage and guide domestic and foreign investors. It was passed through EO
226, which took effect on 13 August 1987.

Who can qualify for incentives under EO 226? What is the IPP?
Qualified proponents who will invest in priority areas of activity listed in the Investment Priorities Plan (IPP) can
qualify for incentives. The IPP, which is issued on a yearly basis, identifies the investment areas eligible for
incentives under the Code. For 2012, these priority areas include: preferred activities; mandatory list; export
activities; and Autonomous Region of Muslim Mindanao (ARMM) list.

What are the preferred areas of activities under the 2012 IPP?
The 2012 IPP listed the following preferred areas of investments:
a. Agriculture/Agribusiness and Fishery − covers commercial production and commercial processing of
agricultural, herbal and fishery products (including their by-products and wastes), and agriculture- and fishery-
related activities such as irrigation, post harvest, cold storage, blast freezing, and the production of fertilizers and
pesticides.
b. Creative Industries/ Knowledge-Based Services − covers business process outsourcing (BPO) activities,
and IT and IT-enabled services that involve original content.

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 ACC 178: Updates in Tax and Business Regulations
Module #8 Student Activity Sheet

c. Shipbuilding − covers the construction and repair of ships, and

shipbreaking or shiprecycling.
d. Mass Housing − covers the development of low-cost mass housing and the manufacture of modular
housing components preferably using indigenous materials.
e. Iron and Steel − covers basic iron and steel products, long steel products (billets and reinforcing steel
bars), and flat hot/cold-rolled products.
f. Energy − covers the exploration, development, and/or utilization of
energy adopting environmentally-friendly technologies.
g. Infrastructure − covers transport, water, logistics, waste management facilities, physical infrastructure
(tollways, railways, and telecommunication facilities), and Public Private Partnership (PPP) projects.
h. Research and Development − covers R&D activities and the establishment of research/testing
laboratories, Centers of Excellence (COE), and technical vocational education and training institutions.
i. Green projects − covers the manufacture/assembly of goods and the establishment of energy efficiency-
related facilities (such as district cooling systems), where utilization of which would significantly lead to either
the efficient use of energy, natural resources, or raw materials; minimize/
prevent pollution; or reduce greenhouse gas emissions.
j. Motor Vehicles − covers the manufacture/assembly of motor vehicles, including alternative fuel vehicles
(AFVs) and electric vehicles (EVs) but excluding 2-stroke motorcycles, and manufacture of motor vehicles parts
and components.
k. Strategic Projects − covers projects that exhibit very high social economic returns that will significantly
contribute to the country’s economic development.
l. Hospital Medical Services − covers the establishment and operation of
primary secondary hospitals.
m. Disaster Prevention, Mitigation and Recovery Projects − covers projects that will prevent or mitigate
adverse impacts of calamities and disasters (e.g., installation of flood control systems, installation of early
warning systems for typhoons, earthquake occurrences, tsunami, volcanic eruptions, dikes, etc.), and rehabilitate
areas affected by calamities and disasters (e.g., rebuilding of roads and bridges after earthquakes/ flooding,
volcanic eruptions, oil spill clean-up, etc.).

This preferred activity likewise covers training for disaster preparedness, mitigation or
recovery/rehabilitation/reconstruction.

What are the mandatory inclusions?

These are areas/activities provided for under existing laws which specifically require their inclusion in the IPP,
such as: tree plantation; exploration, mining, quarrying, and processing of minerals; printing and publications;
and solid waste management, among others.

What are considered export activities under the 2012 IPP?

Export activities cover the production/manufacture of non-traditional export products and services and activities
in support of exporters as identified under the Medium-Term Philippine Development Plan for 2011-2016 and/or
the Philippine Export Development Plan for 2011-2013.
To qualify, the export requirement is 50% of the registered company’s output if Filipino-owned, or at least 70% if
foreign-owned.

What are the covered activities under ARMM List for 2012?
The ARMM List includes: export activities; agriculture; agribusiness/ aquaculture & fishery; basic industries (e.g.,
pharmaceuticals, textile and textile products, mining, cement, etc.); consumer manufactures; infrastructures and
services; industrial service facilities; engineering industries; logistics; BIMP - EAGA trade and investment
enterprises; tourism; health and education services and facilities; and Halal industry.

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 ACC 178: Updates in Tax and Business Regulations
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What is the equity ownership requirement?

Except as provided under the 1987 Philippine Constitution and the Foreign Investment Act (RA 7042, as
amended), there are no restrictions on the extent of foreign ownership of export oriented and/or pioneer
enterprise that will engage in the activities listed in the IPP.
In general, the minimum equity requirement to finance the project applied for registration with the Board of
Investments (BOI) shall be equal to 25% of the project cost. Equity could be in the form of paid-up capital or
retained earnings that has been converted into paid-up capital of the applicant firm. Excluded from the equity
requirement are projects with good track record in implementation, projects of publicly-listed companies, and
projects not entitled to ITH.
For large projects with a gestation period of more than one (1) year, the 25% equity requirement shall be based
on the annual capital requirement of the project, provided that the total equity requirement of 25% is complied
with on the first year of ITH availment.

Which government agency is authorized to register companies for incentive purposes under EO 226?
The BOI is the government agency tasked to accept and evaluate applications for registration to avail of
incentives under EO 226.

What are the incentive privileges that may be enjoyed by BOI- registered enterprises?
Incentive privileges may be enjoyed only upon registration. Registered enterprises are entitled to the following
incentives:

Tax Exemptions
a. Income Tax Holiday (ITH)
1. BOI registered enterprises shall be exempt from the payment of income tax reckoned from the approved
target or actual date of commercial operations, whichever comes first, but in no case earlier than the date of
registration, as follows:
• Six (6) years for new projects granted pioneer status;
• Six (6) years for projects located in Less Developed Areas (LDAs), regardless of status (pioneer or non-
pioneer) or type of projects (new or expansion);
• Four (4) years for new projects granted non-pioneer status; and
• Three (3) years for expansion and modernization projects. (As a general rule, ITH shall be limited only to
incremental sales given a specified base year).
2. New registered pioneer and non-pioneer enterprises and those located in LDAs may avail of a bonus
year in any of the following cases:
• The indigenous raw materials used in the manufacture of the registered product is at least fifty percent
(50%) of the total cost of raw materials for the preceding years prior to the extension unless the BOI prescribes
a higher percentage; or
• The ratio of total imported and domestic capital equipment to the number of workers for the project does
not exceed US$25,000 to one (1) direct labor; or
• The net foreign exchange savings or earnings amount to at least
US$500,000 annually during the first three (3) years of operation.
In no case shall a registered firm avail of ITH for a period exceeding
eight (8) years.

b. Exemption from taxes and duties on imported spare parts

A registered enterprise with a bonded manufacturing warehouse shall be exempt from customs duties and
national internal revenue taxes on its importation of required supplies/spare parts for consigned equipment or
those imported with incentives. The availment period shall not exceed ten
(10) years from date of registration.
c. Exemption from wharfage dues and export tax, duty, impost, and fees

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 ACC 178: Updates in Tax and Business Regulations
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All enterprises registered under the IPP will be given a ten (10) year period from the date of registration to avail
of the exemption from wharfage dues and any export tax, impost, and fees on its non-traditional export products.
d. Tax and duty-free importation of breeding stocks and genetic materials
Agricultural production and processing projects will be exempt from the payment of all taxes and duties on their
importation of breeding stocks and genetic materials within ten (10) years from the date of registration or
commercial operations.

Tax Credits
a. Tax credit on the purchase of domestic breeding stocks and genetic materials
A tax credit equivalent to one hundred percent (100%) of the value of national internal revenue taxes and
customs duties that would have been waived (had these been imported) on the purchase of local breeding stocks
and genetic materials within ten (10) years from the date of registration or commercial operations.
b. Tax credit on raw materials and supplies
Tax credit equivalent to the national internal revenue taxes and duties paid on raw materials, supplies, and semi-
manufactured products used in the manufacture of export products and forming part thereof.

Additional Deductions from Taxable Income

a. Additional deduction for labor expense (ADLE)
For the first five (5) years from date of registration, a registered enterprise shall be allowed an additional
deduction from taxable income equivalent to fifty percent (50%) of the wages of additional skilled and unskilled
workers in the direct labor force. This incentive shall be granted only if the enterprise meets a prescribed capital
to labor ratio and shall not be availed of simultaneously with ITH.
This additional deduction shall be doubled or become one hundred percent (100%) if the activity is located in an
LDA. The privilege, however, is not

granted to mining and forestry-related projects as they would naturally be located in certain areas to be near
their source of raw materials.
ADLE cannot be simultaneously availed of with ITH.
b. Additional deduction for necessary and major infrastructure work
A registered enterprise locating in LDAs or in areas deficient in infrastructure, public utilities, and other facilities
may deduct from taxable income an amount equivalent to the expenses incurred in the development of necessary
and major infrastructure works.

Zero-rated Value-Added Tax (VAT)

The BOI endorses to the BIR two types of zero percent (0%) VAT applications:
a. For purchases of raw materials and supplies used in the manufacture and which form part of the
registered export product; and
b. For purchases of goods, services, or properties of firms exporting one hundred percent (100%) of their
product. (Motor vehicles are not covered, except specialized vehicles such as backhoe, forklift, etc.)

Non-fiscal Incentives
a. Employment of foreign nationals
A registered enterprise may be allowed to employ foreign nationals in supervisory, technical, or advisory
positions for five (5) years from the date of registration. The position of president, general manager, and treasurer
of foreign-owned registered enterprises or their equivalent shall not, however, be subject to the foregoing
limitations.
b. Simplification of customs procedures for the importation of equipment,
spare parts, raw materials, and supplies and exports of processed products.
c. Importation of consigned equipment for a period of ten (10) years from the date of registration, subject to
posting of a re-export bond.

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 ACC 178: Updates in Tax and Business Regulations
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d. The privilege to operate a bonded manufacturing/trading warehouse subject to Customs rules and
regulations.

What is the policy on industry dispersal?

The BOI uses the incentive package under EO 226 to influence industry and encourage enterprises to locate
outside the National Capital Region (NCR). In this connection, the BOI limits incentives to firms that locate in
congested urban centers. Further, the law provides maximum incentives to registered enterprises that will locate
in LDAs or in the thirty (30) poorest Philippine provinces.

Projects that otherwise may not be covered by ITH may become entitled if the projects will be located in LDAs.

What is the most recent government initiative to promote priority industries?

The government has applied its model project of “industry clustering” to
the listed activities in the IPP. Clustering is the geographic concentrations of interconnected business entities
and support institutions, and encompasses an array of linked industries and other entities important to
competition. These may include suppliers of inputs, support facilities and service providers, and providers of
specialized infrastructures.
Clustering is seen as an effective strategy in contributing to the attainment of regional goals such as poverty
alleviation and enhancing economic productivity, within the context of the regional development strategies.

DOUBLE TAXATION AGREEMENTS

Nature and Purpose of DTAs

a. Avoidance of double taxation
b. Prevention of fiscal evasion with respect to taxes on income

Manner of Giving Relief from Double Taxation

In order to eliminate double taxation, a tax treaty resorts to several methods.

First, it sets out the respective rights to tax of the state of source or situs and of the state of residence with regard
to certain classes of income or capital. In some cases, an exclusive right to tax is conferred and one of the
contracting states; however, for other items of income or capital, both states are given the right to tax, although
the amount of tax that may be imposed by the state of source is unlimited.

The second method for the elimination of double taxation applies whenever the state of source is given a full or
limited right to tax together with the state of residence. In this case, the treaties make it incumbent upon the state
of residence to allow relief in order to avoid double taxation. There are two methods of relief the exemption
method and the credit method. In the exemption method, the income or capital which is taxable in the state of
source or situs is exempted in the state of residence, although in some instances it may be taken into account
in determining the rate of tax applicable to the taxpayer's remaining income or capital. On the other hand, in the
credit method, although the income or capital which is taxed in the state of source is still taxable in the state of
residence, the tax paid in the former is credited against the tax levied in the latter. The basic difference between
the two methods is that in the exemption method, the focus is on the income or capital itself, whereas the credit
method focuses upon the tax.

Procedure for Availment of Tax Treaty Benefits

The taxpayer must secure a ruling from the Bureau of Internal Revenue (BIR) through the International Tax
Affairs Division (ITAD) that he may avail himself of preferential rates under existing tax treaties.

Under RMO 1-2000, taxpayers who wish to avail themselves of tax- treaty relief should accomplish BIR Form
0901-Application for Relief from Double Taxation-and file the same together with the supporting documents to

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the ITAD at least 15 days before the transaction, I.e., payment of royalties, dividends, etc. RMO 1-2000, however,
does not specify the types of documents needed to support an application for tax-treaty relief.

Tax Treaty Relief Application

Notes: Thus, BIR Form No. 0901 [Application for Relief from Double Taxation] prescribed under RMO 1-2000
and BIR Form No. 1928 [Gains from Sale or Transfer of Shares of Stock in Philippine Corporation] prescribed
under RMO 30-2002 are hereby superseded.

The following Tax Treaty Relief Applications (TTRAs) forms shall henceforth be adopted to implement this RMO:

Form No. Purpose

BIR Form No. 0901-P For Business Profits
BIR Form No. 0901-T For Profits from Shipping and Air Transport
BIR Form No. 0901-D For Dividend Income
BIR Form No. 0901-I For Interest Income
BIR Form No. 0901-R For Royalty Income
BIR Form No. 0901-C For Capital Gains
BIR Form No. 0901-S For Income from Services
BIR Form No. 0901-0 For Other Income Earnings

In Case of Conflict between Tax Treaty and Domestic Laws

a. As a general rule, the provisions of the Philippine Tax Code (domestic law) shall apply on the income,
gain or profit of any person liable to income tax.
b. In case of conflict between the provisions of a tax treaty and domestic law the provisions of the tax treaty
generally prevail over the provisions of the domestic law.
c. Where the rate of tax imposed under the domestic law is lower than the rate imposed under the tax treaty,
the lower tax rate under the domestic law prevail.

SUMMARY OF RULES
In the Philippines: Filipino Citizens Aliens
Foreign embassy, missions or
organizations Taxable*
*Taxpayer must prove if there is an exemption grant under Exempt
contract or special law.
Philippine embassy or consulate
office N/A N/A

Abroad: Filipino Citizens Aliens

Foreign embassy, missions or
Exempt Exempt
organizations
Philippine embassy or consulate
Taxable Exempt
office

Documentary Requirements for the Tax Treaty Relief Application

(RM0 72-2010): SEC. 3 The 1. Proof of Residency Original copy of a consularized certification
following documents are the issued by the tax authority of the country of the
general documentary income earner to the effect that such income
requirements which shall be earner is a resident of such country for

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attached to all duly purposes of the tax treaty being invoked in the
accomplished TTRAs (3 tax year concerned.
copies) which must be signed 2. Articles of Photocopy of the Articles of Incorporation
by the applicant who may Incorporation (For income (A0I) (or equivalent Fact of
either be the income earner or earner other than an Establishment/Creation/Organization) of the
the duly authorized individual) income earner with the original copy of a
representative of the income consularized certification from the issuing
earner, pursuant to existing agency, office or authority that the copy of
Philippine tax treaties: Articles of Incorporation (A0I) (or equivalent
Fact of Establishment/Creation/Organization)
is a faithful reproduction or photocopy.
3. Special Power of a. If applicant/filer is the withholding
Attorney agent of the income earner or the local
representative in the Philippines of the income
earner –
• Original copy of a
consularized Special Power
of Attorney (SPA) or a
consularized written
authorization duly executed by
the income earner authorizing
its withholding agent or local
representative in the
Philippines to file tax treaty
relief application.
b. If applicant/filer is the local
representative of the withholding
agent of the income earner
• Original copy of a
consularized Special Power
of Attorney (SPA) or a
consularized written
authorization duly executed by
the income earner authorizing
its withholding agent or local
representative in the
Philippines to file tax treaty
relief application; and
• Original copy of Letter of
Authorization from the
withholding agent authorizing
the local representative to file
the tax treaty relief application.

4. Certification of a. For Corporation or Partnership

Business Presence in the • Original copy of a
Philippines certification from the
Philippine Securities and
Exchange Commission that
the income earner is or is not

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registered to engage in
business in the Philippines.
b. For an Individual
• Original copy of a
certification from the
Department of Trade and
Industry that the income
earner is or is not registered to
engage in business in the
Philippines.

5. Certificate of No Original copy of a sworn statement

Pending Case providing information on whether the
issue(s) or transaction involving directly or
indirectly the same taxpayer(s) which is/are the
subject of the request for ruling is/are under
investigation; covered by an on-going audit,
administrative protest, claim for refund or
issuance of tax credit certificate, collection
proceedings, or subject of a judicial appeal.
The following documents shall be submitted in addition to documents required
under Section 3 hereof together with three (3) copies of duly accomplished
BIR Form No. 0901-P when the "Business Profits" Article in relation to the
"Permanent Establishment" Article of the appropriate tax treaty is being
invoked, viz:
1. Original or certified copy of notarized contract.
2. Certified copy of passport (whole booklet) of the concerned
employee(s) of the income earner. If there are more than two
Business Profits employees concerned, the certified copy of their respective passports
must be accompanied by a notarized summary of the contents of the
passports, specifying the dates of arrival in and departure from the
Philippines, whenever applicable.
3. Notarized certification by the Philippine contractor as to the duration
of the service to be performed in the Philippines by the concerned
employee(s) of the income earner for the entire duration of the subject
contract.

The following documents shall be submitted in addition to the documents

required under Section 3 hereof together with three (3) copies of duly
accomplished BIR Form No. 0901-T when the "Shipping" Article, or its
equivalent Article, of the appropriate tax treaty is being invoked, viz:
Shipping 1. Certified copy of proof of Registry of Vessel.
2. Certified copy of notarized charter party or engagement contract.
3. Certified copy of the License to Transact Business in the Philippines,
as applicable.

The following documents shall be submitted in addition to the documents

required under Section 3 hereof together with three (3) copies of duly
Air Transport accomplished BIR Form No. 0901-T when the "Air Transport" Article, or its
equivalent Article, of the appropriate tax treaty is being invoked, viz:
1. Certified copy of proof of Registry of Airplane.

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2. Certified copy of the License to Transact Business in the Philippines,

as applicable.

The following documents shall be submitted in addition to the documents

required under Section 3 hereof together with three (3) copies of duly
accomplished BIR Form No. 0901-D when the "Dividends" Article of the
appropriate tax treaty is being invoked, viz:
1. Certification from Corporate Secretary Original copy of a duly
notarized certificate executed by the Corporate Secretary of the
domestic corporation showing all the following information:
a. Details of dividend declaration (with attached related Board
Resolution);
b. Number, value and type of shares of the nonresident income earner
Dividend income as of the date of record/transaction, and as of the date of payment of the
subject dividends;
c. Percentage of ownership of the nonresident income earner as of the
date of record/transaction, and as of the date of the payment of subject
dividends;
d. Acquisition date(s) of the subject shares; and
e. Mode of acquisition of the subject shares.
2. Board of Investments (BOI) Registration, if applicable Certified copy
of Board of Investments registration of the payor of the dividends, including a
Sworn Statement that such registration has not been cancelled at the time of
the transaction.

The following documents shall be submitted in addition to the documents

required under Section 3 hereof together with three (3) copies of duly
accomplished BIR Form No. 0901-I when the "Interest" Article of the
appropriate tax treaty is being invoked, viz:
1. If Interest Earnings a. Certification from the Corporate
are from Secretary Original copy of a duly notarized
Loans/Borrowings: certificate executed by the Corporate
Secretary of the corporate-borrower
showing all the following information:
1. Number, value and type of shares of
the nonresident income earner as of
the date of record/transaction;
2. Percentage of ownership of the
nonresident income earner as of the
date of record/transaction.
b. Loan Agreement
Original or certified copy of the
notarized contract of loan or loan
agreement. For Bangko Sentral ng
Pilipinas (BSP)-registered loans, the
contract need not be notarized, but a
certified copy of the BSP registration
must be submitted with the loan
document.
c. Proof of Inward Remittances

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Interest Income Certified copy of proof inward

remittances of the proceeds of the
foreign loan.
d. Board of Investments (BOI)
Registration, if applicable
Certified copy of Board of Investments
registration of the payor of the interest,
including a Sworn Statement that such
registration has not been cancelled at
the time of the transaction.
e. Proof of Loan Guarantee
Certified copy of proof of loan
guarantee or insurance, or a
certification of financing (direct or
indirect) by the foreign government or
any financial institution wholly owned
by the foreign government or any
financial institution designated in the
treaty, if applicable.
f. Fact of Establishment (for the
guarantor/insurer), if applicable.
Certified copy of documents
establishing the foreign government
owned financial institution which
guaranteed or insured the subject loan
on instances when the name of the
financial institution is now different (i.e.
instances of change in name) from the
name indicated in the tax treaty being
invoked.

2. If Interest Earnings are Original copy of Bank Certification attesting to

from Investments or the nature/type and presence of
Deposits: investments/deposits on said bank including
the date the investments/accounts were
placed/opened.
The following documents shall be submitted in addition to the documents
required under Section 3 hereof together with three (3) copies of duly
accomplished BIR Form No. 0901-R when the "Royalties" Article of the
appropriate tax treaty is being invoked, viz:
1. Original or certified copy of the duly notarized Royalty Agreement,
Technology Transfer Agreement, or Licensing Agreement.
2. When applicable,
Royalties
a. Certified copy of Board of Investments registration of the payor of the
royalties, including a Sworn Statement that such registration has not been
cancelled at the time of the transaction.
b. A certified copy of the registration of the payor of the income or
withholding agent with the Philippine Economic Zone Authority (PEZA) of the
payor of the royalties including a Sworn Statement that such registration has
not been cancelled at the time of the transaction.

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c. Certified copy of Intellectual Property Office (IPO) registration.

Applications for relief from double taxation on gains from sale or transfer or
shares of stock in a Philippine Corporation as to the fees, are still covered by
Revenue Memorandum Order No. 30-2002 dated November 4, 2002. The
Capital gains following document shall be submitted in addition to the documents required
under Section 3 hereof together with three (3) copies of duly accomplished
BIR Form No. 0901-C when the "Capital Gains" Article of the appropriate tax
treaty is being invoked, viz:
Original or certified copy of the notarized Deed
of Absolute Sale or notarized Deed or Contract
a. Contract e.g. Deed of Assignment, which actually
transfers the ownership of the subject shares
of stock.
Certified copy of the Stock Certificate's or
b. Stock Certificates Subscription Contract covering the subject
shares of stock
Certified copy of the General Information
Sheet (GIS) filed with the SEC, showing the
c. General Information
name of the subscriber (when shares are not
Sheet
yet fully paid and as a consequence, stock
certificates have not been issued).
Original copy of the duly notarized certificate
executed by the Corporate Secretary of the
Philippine corporation whose shares of stock
were sold showing the following information:
a. number and value of the subject shares
of the seller as of the date of sale;
b. seller's percentage of ownership as of
d. Corporate Secretary the date of sale;
Certificate c. acquisition date(s) of the subject
shares;
d. mode of acquisition of the subject
shares, including dates of previous transfers
and parties involved in said transfers; and
e. buyer's percentage of ownership after
the transfer of the subject shares.

Original copy of the comparative schedule duly

certified by a responsible officer' of the
Philippine corporation, of the "real property or
real property interests" of the domestic
e. Comparative Schedule
corporation, reflecting the necessary
of Comparative Schedule
adjustment for the period from the last audited
of Property, Plant &
financial statement to the date of the interim
Equipment
unaudited financial statement submitted under
letter (f) of this Section, using the format and
observing the guidelines set forth in Part VII of
BIR Form No. 0901-C.
a. Certified copy of the audited financial
f. Financial Statement
statements of the Philippine corporation for the

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year prior to the sale or transfer of the subject

shares of stock; and b. Original copy of the
audited financial statement of the Philippine
corporation as of the date of sale. In case the
audited financial statement as of the date of
the sale is not available, the most recent
unaudited or interim financial statement as of
the date of sale may be used. Necessary
adjustments made to reflect transactions made
during the period from the date of such
financial statement to the date of the sale must
be indicated in a Comparative Schedule of
Property, Plant and Equipment.'
g. Certified copy of BIR Form No. 0605 and the official receipt reflecting the
payment of the processing and certification fee with an authorized agent bank
under jurisdiction of Revenue District Office No. 39.

h. Certified copy of BIR Form No. 2000-OT and the official receipt reflecting
the payment of documentary stamp tax on the subject sale or transfer of the
shares stocks. If the documentary stamp tax shall be borne by the nonresident
seller and/or nonresident buyer, the tax shall be paid and the return shall be
filed with an authorized agent bank under the jurisdiction of Revenue District
Office No. 39. In case the buyer is a resident of the Philippines, the return
shall be filed and the tax shall be paid in accordance with Section 200(C) of
the National Internal Revenue Code of 1997, as implemented by the
prevailing Revenue Regulations.

For all other transactions not considered as a straight sale, as hereunder

defined, the applicant income earner, in addition to the abovementioned
documents, shall submit the contracts/agreements or any other document
evidencing the entire transaction, , e.g. transfers of shares of stock. A long
form ruling in lieu of the certification prescribed under RMO 30-2002 shall be
issued for applications involving the shares of stock that are not considered
as a straight sale.
The following documents shall be submitted in addition to the documents
required under Section 3 hereof together with three (3) copies of duly
accomplished BIR Form No. 0901-S when the "Independent Personal
Service" Article or the "Dependent Personal Service" Article, as the case may
be, or any of their equivalent Article, of the appropriate tax treaty is being
invoked, viz:
1. Original or certified copy of the notarized service contract.
Personal Services 2. 2. Certified copy of passport (whole booklet) of the concerned
employee(s) of the income earner. If there are more than two
employees concerned, the certified copy of their respective passports
must be accompanied by a notarized summary of the contents of the
passports, specifying the dates of arrival in and departure from the
Philippines, whenever applicable. 3. Original copy of notarized
certification by the Philippine contractor/employer as to the duration of
the service performed in the Philippines by the applicant.

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The following document shall be submitted in addition to the documents

required under Section 3 hereof together with three (3) copies of duly
accomplished BIR Form No. 0901-0 when any Article of the appropriate tax
treaty, other than those above-mentioned is being invoked, viz:
1. A letter request signed by the income earner or the duly authorized
representative of the income earner is required providing information
on the subject transaction covered by the relevant tax treaty
provision(s), the requested tax treaty treatment for such transaction
Other Types of Income as well as the legal justification for the preferential tax treatment being
requested.
2. Original or certified copy of the subject contract, or other document(s)
(in its original or certified copies) pertaining to the transaction.
3. Notarized certification by the Philippine contractor as to the duration
of the service to be performed in the Philippines by the concerned
employee(s) of the income earner for the entire duration of the subject
contract.

• All tax treaty relief applications (updated BIR Forms No. 0901-D,
0901-1, 0901-R, 0901-P, 0901-S, 0901-T, 0901-0 and 0901-C)
relative to the implementation and interpretation of the provisions of
Philippine tax treaties shall only be submitted to and received by the
International Tax Affairs Division (ITAD).
• If the forms or any necessary documents are submitted to any other
When and Where to File the
TTRA BIR Office, the application shall be considered as improperly filed.
• Filing should always be made BEFORE the transaction. Transaction
for purposes of filing the TTRA shall mean before the occurrence of
the first taxable event.
• Failure to properly file the TTRA with ITAD within the period prescribed
herein shall have the effect of disqualifying the TTRA under this RMO.

• All rulings relative to the application, implementation and interpretation

of the provisions of Philippine tax treaties shall emanate from ITAD.
• ITAD is the sole office charged with the receiving of TTRA, so all filers
of TTRA are enjoined to submit their TTRA complete with all the
necessary documentary requirements as mentioned in Section 3 and
related Section of this RMO to The Chief, International Tax Affairs
Division.
• Within seven (7) working days from the actual receipt by ITAD of the
TTRA, ITAD shall notify the filer of lacking/missing/insufficient
documentary requirements with an instruction to submit within fifteen
Receiving and Processing
(15) working days from filer's receipt of the Notice of Submission of
of TTRA
Documents [format herein attached as Annex "B"] in accordance with
this RMO.
• If the taxpayer/applicant fails to submit the necessary documents on
the designated date mentioned in the Notice of Submission of
Documents, the TTRA shall be archived without prejudice to re-filing
of TTRA to be reckoned from the date of original TTRA filing covering
exactly the same transaction. A Notice of TTRA Archiving shall be
issued by ITAD to properly notify the taxpayer of such archiving of
TTRA. Taxpayers/applicants, re-filing an archived TTRA must submit
a copy of the original filing of TTRA together with the complete

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documentary requirements as earlier required for the continuance of

its processing.
• Taxpayer/applicant shall not be allowed to withdraw any
TTRA/documents already filed with ITAD including those subjected for
archiving. In the event that the transaction is discontinued,
taxpayer/filer shall file a letter informing such fact to properly close the
TTRA but the filer/taxpayer shall not be allowed to withdraw as well,
all documents already filed with ITAD, the same shall remain with
ITAD for custodianship and safekeeping.
• Applications for confirmation of use of preferential tax treaty rates
under the treaty, shall be governed by the following rules:

Period Within Which To Issue The Ruling — The ruling must be

available for release after sixty (60) working days from the date of
receipt of the TTRA or from the date the complete documentary
requirements are received by ITAD, whichever comes later.

As for matters without issue on income characterization, the ruling

must be available for release after thirty (30) working days from the
date of receipt of the TTRA or from the date the complete
documentary requirements are received by ITAD, whichever comes
later. Of the said periods, the ITAD shall have forty (40) or twenty (20)
working days as the case may be to process and evaluate the said
application, while the Legal Service/Legal and Inspection Group shall
have twenty (20) or ten (10) working days, respectively.

Signatory Of The Ruling — The rulings issued under this Order shall
be signed by the Assistant Commissioner for the Legal Service and/or
the Deputy Commissioner for Legal and Inspection Group in
accordance with existing Revenue Delegation Authority Order
(RDAO). However, rulings of first impression or any ruling which will
cause the reversal, revocation or modification of any existing ruling
shall be signed by the Commissioner of Internal Revenue in
accordance with Section 7(B) of the Tax Code as amended.

Request For Review Of Rulings Adverse To The Taxpayer — Any

ruling issued which is adverse to the nonresident income earner may,
within thirty (30) days from the date of receipt of such ruling, seek its
review by the Secretary of Finance in accordance with Department
Order No. 23-01. No request for reconsideration of the said adverse
ruling shall be entertained by this Bureau.

• Requests for rulings not accompanied by complete documents as

herein prescribed and those which are based on hypothetical
transactions or future transactions are construed and identified as
"No Ruling" Area "No-Ruling Area"3.
• For this purpose, any request for ruling construed and identified as
such shall not be accepted by the ITAD. ITAD shall strictly implement
this rule.

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• In the course of review of the tax treaty relief applications, the Bureau
thru ITAD reserves the right to request additional documents/revise or
Request for Additional update documentary requirements to properly process TTRA's
Documents keeping it abreast with changes/modernization of way transactions
are done by taxpayers through the issuance of an amendatory RMO
to be applied prospectively.

• The case and reviewing officers shall not disclose to any person,
including the tax treaty relief applicant or his/its representatives, the
draft BIR Ruling or recommendation for the action taken on the TTRA,
Confidentiality of the Draft unless and until the same has been signed by the proper
Rulings or signatory of this Bureau. [Section 3(d), Rules IV, Rules
Recommendations Implementing Republic Act No. 6713]. However, for transparency of
information, any applicant/filer can rightfully know the status of his/its
TTRA without disclosing the stand of the Bureau (i.e. whether the
same will be granted or denied) on the TTRA.

• The Chief, ITAD thru the ACIR, Legal Service shall prepare a monthly
report of signed and issued rulings, including a list of archived and
Reporting discontinued taxpayer transactions covered by a TTRA due every
10th day of the following month.

Individual Taxpayer
Employee benefits of non-filipino nationals and or non-permanent residents of the
Benefits Exempt Under Philippines from foreign government, embassies or diplomatic missions and
Treaty or International international organizations in the Philippines are exempt from income tax.
Agreements
Foreign embassies, diplomatic missions and international organizations are
immune from income tax including the obligation to withhold income tax by virtue
of international comity as embodied in several international agreements to which
the Philippine is a signatory.

However, this exemption from the obligation to withhold tax does not mean
income tax exemption to their Filipino employees. In fact, most of the international
agreements to which the Philippine is signatory limit exemption only to non-
Filipino nationals and/or non-residents of the Philippines.
Exemption from
withholding tax does Filipino employees of foreign governments, international missions and
not mean income tax organizations are taxable as a rule, except only to employees of the following
exemption organizations:
1. United Nations (UN)
2. Specialized Agencies of the United Nations
3. Australian Agency of International Development (AUSAID)
4. Food and Agriculture Organization (FAO)
5. World Health Organization (WHO)
6. United Nations Development Programme (UNDP)
7. International Organization for Migration (ION)
8. International Seabed Authority (ISA)

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These organizations have exemption provision that extends even to their Filipino
employees. Other aid agencies or international organization may have tax free
provision in their articles of agreement on Filipino employees.

The exemption of Filipino employees is not automatic. Filipino claiming

exemptions under the terms of international agreements or under provisions of
special laws granting privileges to international organizations shall file an
Confirmation of Tax application for confirmation of tax exemption with the BIR's International Tax
Exemptions Affairs Divisions (ITAD). The confirmation shall serve as proof of exemption.
Without the confirmation certificate, the employee is taxable.

Employees of Philippine It should be recalled that employees working on Philippine embassies or

Embassies or Philippine consulate offices are not considered non-resident citizen and are
Consulate Offices therefore subject to Philippine income tax.

Check for Understanding

1. The Philippine Board of Investment is an agency under the

a. National Economic Development Authority
b. Department of Trade and Industry
c. Office of the President
d. Bureau of Domestic Trade

2. Which of the following is not a fiscal incentive to BOI-registered enterprises?

a. Exemption from VAT
b. Exemption from custom duty on importation of breeding stocks
c. Exemption from income tax
d. Tax credit on raw materials and supplies

3. Refers to the overall plan prepared by the Board of Investments

a. Comprehensive Land Use Plan
b. Investment Priorities Plan
c. Housing and Urban Development Plan
d. National Development Plan

4. The following are the requirements for registering with BOI, except
a. SEC Certificate of Registration
b. Audited Financial Statement (feasibility report that contains projected financial reports for the next five
(5) years) and Income Tax Return (for the past three (3) years if applicable
c. Board Resolution of a duly authorized company representative/signatory
d. Accomplished BOI Application Form 501 (has various versions per industry sector) and Project Report (a
report that contains activities listed or are related to those listed in the IPP)
e. All are requirements for registration with BOI.

5. Which of the following is a non-fiscal incentive to BOI-registered enterprises?

a. employment of Foreign Nationals
b. simplification of customs procedures for imported products
c. importation of consigned equipment
d. privilege to operate a bonded manufacturing/trading warehouse (subject to custom rules and regulations)

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 ACC 178: Updates in Tax and Business Regulations
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e. All are non-fiscal incentives.

II.

1. The following are the general documentary requirements for the Tax Treaty Relief Applications, except
a. Proof of Residency
b. Articles of Incorporation (for individual income earner)
c. Special Power of Attorney
d. All are general documentary requirements

2. What is/are the purpose(s) of Double Taxation Agreements?

a. Avoidance of double taxation
b. Prevention of fiscal evasion with respect to business taxes
c. Both A and B
d. None of the above

3. The following are the methods in order to eliminate double taxation, except
a. Exemption method
b. Credit method
c. Both A and B
d. Elimination method

4. In the Philippines, the income of Filipino citizens employed in foreign embassy, diplomatic missions, and
international organizations is
a. Exempt
b. Taxable
c. Taxable, but can be exempt if the taxpayer can prove that there is an exemption grant under contract or
special law.
d. None of the above

5. Abroad, income of aliens employed in foreign embassy, diplomatic missions, and international
organizations is
a. Exempt
b. Taxable
c. Taxable, but can be exempt if the taxpayer can prove that there is an exemption grant under contract or
special law.
d. None of the above

C. LESSON WRAP-UP

Thinking about Learning

Congratulations for finishing this module! Shade the number of module that you finished.

Did you have challenges learning the concept in this module? If none, which parts of the module helped
you learn the concepts?
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 ACC 178: Updates in Tax and Business Regulations
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Some question/s I want to ask my teacher about this module is/are:

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Key to Corrections:
I. 1. B 2. A 3. B 4. E 5. E
II. 1. D 2. A 3. D 4. C 5. A

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