June 29, 2017 | MANILA, PHILIPPINES

Changes in the tax rulings

Change is inevitable, and whether we like it or not, we have to adapt and learn to handle changes that come our way.


The same goes for taxation, one area of the law that is constantly in flux. The changes in taxation are not limited to the proposed reform of income tax rates or fuel and auto taxes but these can also be seen in the procedures of the Bureau of Internal Revenue (BIR). Tax rulings, in particular, have seen significant changes throughout the years.


Tax rulings are defined as the official positions of the BIR on a taxpayer’s inquiries clarifying specific Tax Code provisions or their implementation. Simply put, a taxpayer may seek guidance from the BIR in the form of a ruling to pay the correct taxes, to be exempt from certain taxes, or to follow the correct compliance procedures.

Just last year, the Court of Tax Appeals confirmed in a case that having a prior BIR ruling on tax-free exchanges under Section 40 (c)(2) of the Tax Code is not mandatory to confirm the tax-exempt status of these exchanges. Previously, the BIR required the securing of a ruling to confirm the tax-exempt status of the exchange, otherwise it would be deemed taxable.

In the same year, the BIR also issued a memorandum excluding non-stock, non-profit educational institutions from securing a tax exemption ruling that aimed to ensure implementation of the tax exemption provided in our Constitution.

The tax ruling with the most changes concerns tax treaties. Tax treaties lay down the conditions for tax exemption or application of preferential tax rates on income from sources within the Philippines earned by non-residents. The first issuance on tax treaties was Revenue Memorandum Order (RMO) 1-2000 which requires that a Tax Treaty Relief Application (TTRA) should be filed at least 15 days before the transaction.

Later, the BIR issued RMO No. 72-2010 which requires the filing of the TTRA before the first taxable event. Under this issuance, failure to file the TTRA before the first taxable event shall have the effect of disqualifying the TTRA.

In 2013, this rule was overturned in the landmark case of Deutsche Bank vs. CIR (G.R. No. 188550) where the Supreme Court held that the failure to comply with the requirement of prior application for tax treaty relief should not deprive taxpayers who are entitled to the benefit of a tax treaty.

In the said case, the Supreme Court emphasized that the BIR must not impose additional requirements that would negate the availing of the reliefs provided under international agreements. It is worth noting that this case did not rule on the validity of the requirement of a TTRA nor did it remove the requirement; it only resolved the period of filing of the TTRA that now needs not be filed before the first taxable event.

Last year, before then BIR Commissioner Kim Jacinto Henares stepped down, she issued RMO 27-2016 removing the mandatory filing of TTRA for dividends, interest, and royalties. In effect, the applicable preferential treaty rates for dividends, interest, and royalties are granted outright by withholding final taxes at the proper tax treaty rates subject to a compliance check in a regular audit. This RMO was later suspended by now BIR Commissioner Caesar R. Dulay. He issued RMO 8-2017, amending RMO 72-2010 and reviving RMO 27-2016. Under RMO 8-2017, mandatory TTRAs shall no longer be filed. To claim tax treaty relief, the nonresident income earner shall submit to the withholding agent the Certificate of Residence for Tax Treaty Relief (CORTT) Form in lieu of the TTRA. The preferential treaty rates for dividends, interests, and royalties may be applied outright by the withholding agents upon receipt of the CORTT Form.

Based on the new guidelines, the Certificate of Residence issued by the Tax Authority is still required except that it is now incorporated within the CORTT form. The penalty for non-submission of the CORTT form is still disqualification from availing of the treaty provision applied for, similar to that of the non-filing of the TTRA. There is a high possibility that the BIR may require the TTRA attachments, however, during a compliance check. Also noteworthy is the additional obligation on the part of the withholding agent to require the CORTT form, ensure that CORTT form has complete details, and submit the same to the BIR.

The major difference which is beneficial to the taxpayer is the outright use of the applicable preferential treaty rates for dividends, interests, and royalties by the withholding agent. This effectively eliminates the prior TTRA requirement, the collation of numerous documentary requirements, and the related confirmation ruling that takes months or even years to secure.

Let’s hope that the BIR can also adopt simpler procedures for the other income types such as business profits, capital gains, and income from services. Taxpayers are advised to keep abreast of the changes in BIR processes in order to avail of the benefits and comply with the new procedures accordingly.

Charity P. Mandap-de Veyra is a lawyer and tax manager at the Cebu and Davao Branches of Punongbayan & Araullo.