Chapter 15: PREFERENTIAL TAXATION
PREFERENTIAL TAXATION
• Senior Citizens (SC)
• Persons With Disability (PWD)
• Solo Parents (SP)
• Barangay Micro Business Enterprise (BMBE)
• Double Taxation Agreement
Background
As provided in the Constitution of the Republic of the Philippines, it is the declared policy of the State to promote a just and dynamic social order that will ensure the prosperity and independence of the nation and free the people from poverty through policies that provide adequate social services, promote full employment, a rising standard of living and an improved quality of life. In the Declaration of Principles and State Policies in Article II, Sections 10 and 11 it is further declared that the State shall provide priority to the enactment of measures that protect and enhance the right of all human beings to human dignity and reduce social, economic and political inequalities.
Article XIII, Section 11 of the Constitution provides that the State shall adopt an integrated and comprehensive approach to health development which shall endeavor to make essential goods, health and other social services available to all the people at affordable cost. There shall be priority for the needs of the underprivileged, sick, elderly, disabled, women and children. Article XV, Section 4 of the Constitution provides that it is the duty of the family and children to take care of their elderly members while the State may design programs of social security for them.
Definition of Terms
Senior Citizen (SC) refers to any Filipino citizen who is a resident of the Philippines and who is sixty (60) years old or above. It may apply to senior citizens with dual citizenship status provided they prove their Philippine citizenship and have at least six (6) months residency in the Philippines.
A resident citizen, for this purpose, shall refer to a Filipino citizen with permanent legal residence in the Philippines, and shall include one who, having migrated to a foreign country, has returned to the Philippines with a definite intention to reside therein, and whose immigrant status has been surrendered to the foreign government.
Person With Disability (PWD) shall refer to those who have long-term physical, mental, intellectual or sensory impairments which in interaction with various barriers may hinder their full and effective participation in society on an equal basis with others (RR 5-2017).
IMPAIRMENT any loss or diminution or abnormality of psychological, physiological, or anatomical structure or function.
DISABILITY means (1) a physical or mental impairment that substantially limits one or more such individual's activities of daily living; or (2) a record of such an impairment, or (3) being regarded as having such an impairment.
Solo Parent is defined under RA 8972 as any individual who falls under any of the following categories:
1. A woman who gives birth as a result of rape and other crimes against chastity even without a final conviction of the offender: Provided, That the mother keeps and raises the child;
2. Parent left solo or alone with the responsibility of parenthood while the spouse is deceased;
3. Parent left solo or alone with the responsibility of parenthood while the spouse is detained or is serving sentence for a conviction of at least one (1) year;
4. Parent left solo or alone with the responsibility of parenthood due to physical and/or mental incapacity of spouse as certified by a public medical practitioner;
5. Parent left solo or alone with the responsibility of parenthood due to legal separation or de facto separation from spouse for at least one (1) year, as long as he/she is entrusted with the custody of the children;
6. Parent left solo or alone with the responsibility of parenthood due to declaration of annulment or declaration of nullity of marriage or divorce as certified by a court or as long as he/she is entrusted with the custody of the children;
7. Any person who has the custody and care of a child or children in lieu of the parents of such child or children for at least one (1) year;
8. Unmarried mother/father who has preferred to keep and rear his/her child/children instead of having others care for them or give them up to a welfare institution;
9. Any other person who solely provides parental care and support to a child or children;
10. Any family member who assumes the responsibility of head of family as a result of the death, abandonment, disappearance or prolonged absence of the parents or solo parent.
A change in the status or circumstance of the parent claiming benefits under the law, such that he/she is no longer left alone with the responsibility of parenthood, shall terminate his/her eligibility for the benefits accorded thereto.
Income Tax of Senior Citizens, PWDs, and Solo Parents
Generally, qualified Senior Citizens, PWDs, and Solo Parents deriving income during the taxable year, whether from compensation or other sources, are subject to income tax returns and pay tax as the income of the individual.
If the returnable income of a Senior Citizen, PWD, or Solo Parent is in the nature of compensation income but he qualifies as minimum wage earner under RA No. 9504, he shall be exempt from income tax on the said compensation income subject to the rules provided under RR 10-2008 applicable to minimum wage earners. Therefore, Senior Citizens, PWDs, and Solo Parents are taxable just like an ordinary individual taxpayer as discussed in Chapter 2 of this book, "Income Taxation".
tax on Individual Taxpayer. However, unlike other individual taxpayers, Senior Citizens, PWDs and Solo Parents are exempt from value added tax (VAT) on their purchases. In addition, they are also entitled to a twenty percent (20%) discount on their purchases. However, they are not exempt from income tax on their income derived from their commissions. On the other hand, Solo Parents are entitled to exemption from vat and ten percent (10%) discount on their certain purchases of goods.
Vat exemption and discounts for Senior Citizens, PWDs, and Solo Parents are extensively discussed in Chapter 11 of this book.
Moreover, if the aggregate amount of gross income earned by the Senior Citizen, PWD, or Solo Parent during the taxable year does not exceed P250,000 as provided under RA No. 10963 (TRAIN Law), he shall be exempt from income tax and shall not be required to file an income tax return unless engaged in business. Hence, a Senior Citizen, PWD, and Solo Parent, just like an ordinary individual taxpayer, can still be liable for other taxes discussed in Chapter 2 of this book, such as:
1. The 20% final withholding tax on interest income from any currency bank deposit
2. The 15% final withholding tax on interest income from a depository bank under the expanded foreign currency deposit system (Sec. 24(B)(1), NIRC, as amended)
3. Pre-termination of long-term deposit or investment under Section 24(B)(1) of the Tax Code:
◦ Four years to less than five years: 5%
◦ Three years to less than four years: 12%
◦ Less than three years: 20%
4. The 10% withholding tax on dividends actually or constructively received from:
◦ On cash or property dividends actually or constructively received from a domestic corporation or from a joint stock company, insurance or mutual fund company and other non-taxable joint accounts;
◦ On the share of an individual in the distributable net income after tax of a partnership (except a general professional partnership) of which he is a partner;
◦ On the share of an individual in the distributable net income after tax of an association, a joint account, or a joint venture or consortium taxable as a corporation of which he is a member or co-venturer (Sec. 24(B)(2), Tax Code).
5. The Capital gains tax from sales of shares of stock not traded in the stock exchange (Sec. 24(C), Tax Code); and
6. The 6% final withholding tax on presumed capital gains from sale of real property, classified as capital asset, located in the Philippines and the sale or disposition of principal residence (Sec. 24(D), Tax Code).
OTHER TAXES. A Senior Citizen, PWD, and Solo Parent shall also be subject to the following taxes:
a) Value Added Tax or Percentage Taxes
• If he is self-employed and engaged in business or practice of profession, and his gross annual sales and/or receipts exceed the threshold of P3,000,000, he shall be liable for VAT under the provisions of the Tax Code; otherwise, he shall be subject to the Percentage Tax under Section 116 of the Tax Code, as amended.
b) Donor’s Tax on all donations made by a Senior Citizen, PWD, or Solo Parent during any calendar year, unless exempt under a specific provision of law.
c) Estate Tax. In the event of death, the estate of the Senior Citizen, PWD, and Solo Parent shall be subject to Estate Tax following the rules enumerated under Title III of the Tax Code and its implementing regulations.
d) Excise Tax on certain goods
e) Documentary stamp tax
Benefits for Senior Citizens (SC), PWDs and Solo Parents (SP)
Senior Citizens, Persons With Disability (PWD), and Solo Parents are entitled to the following benefits:
1. VAT exemption on certain purchases.
2. 20% discount and/or 10% discount, as the case may be, on their certain purchases.
3. 5% discount on purchase of primary and basic commodities for Senior Citizens (SC) and PWDs
For a more detailed discussion on the foregoing benefits, refer to the discussion in Chapter 11 of this book.
Additional Compensation Expense for Private Entities
Private entities that employ senior citizens as employees shall be entitled to an additional deduction from their gross income equivalent to fifteen percent (15%) of the total amount paid as salaries and wages to senior citizens, subject to the following conditions:
• Employment shall continue for a period of at least six (6) months;
• That the annual income of the senior citizen does not exceed the poverty threshold as determined by the National Economic and Development Authority (NEDA) for that year.
Private entities that employ disabled persons as employees shall also be entitled to an additional deduction from their gross income equivalent to twenty-five percent (25%) of the total amount paid as salaries and wages to disabled persons.
Treatment of Input tax attributable to sale to Senior Citizens, PWDs and Solo Parents
The input tax attributable to the vat exempt sales shall be treated as cost or an expense account by business establishments and shall not be allowed as input tax credit.
Barangay Micro Business Enterprise
(BMBE)
RA 9178, otherwise known as the "Barangay Micro Business Enterprises Act (BMBE) of 2002", encourages and promotes the establishment of micro business enterprises in the country. The Act primarily aims to integrate micro enterprises in the economic mainstream of the country, thereby contributing to the attainment of economic stability and a better quality of life for Filipinos. The Act was signed into law by President Gloria Macapagal-Arroyo on November 13, 2002. Its Implementing Rules and Regulations (IRR) was issued on February 7, 2003.
To strengthen MSME and integrate BMBE as one of its tools for inclusive growth on local level, RA 10644, otherwise known as the "Go Negosyo Act" was enacted on July 15, 2014.
Definition
BMBE is defined as any business enterprise engaged in production, processing, or manufacturing of products, including agro-processing, as well as in trading and services, with total assets not exceeding P3 million. Such assets shall include those which are located in the place of business, such as but not limited to, machinery and equipment, spare parts, patents, trademarks and copyrights, etc.
The DOF Department Order No. 17-04 also provides that, an enterprise can only qualify for registration if it is not a branch, division or office of a large scale enterprise and its business operations are not controlled by a large enterprise or by persons who are not owners of the enterprise (i.e., franchisees).
BARANGAY-BASED means:
1. Majority of employees are residents of the municipality where its principal place of business is located;
2. Its principal activity is within the accessibility of skill particular to the locality or community; and
3. Its business operations are confined within the territorial jurisdiction of the municipality or LGU in which its principal place of business is located.
MICRO-ENTERPRISE IN NATURE AND SCOPE means:
1. Its principal activity is primarily for livelihood, determined by the MSME Council or DTI as a priority under government assistance;
2. Its business is not a branch, subsidiary, division or office of a large scale enterprise; and
3. Its policies and business operations are not determined by a large enterprise or by persons who are not owners or employees of the enterprise.
Registration and Fees
There shall be the establishment under the supervision of the Micro, Small and Medium Enterprise Development (MSMED) Council, "Negosyo Centers" in all provinces, cities and municipalities. The MSMED Council, in partnership with the private sector, shall manage and operate the Negosyo Centers.
The Negosyo Centers shall be responsible for promoting and facilitating business registration, business operations, and shall act as a one-stop shop for business registration. The staff of the Negosyo Centers shall perform oversight functions and shall assign personnel to fulfill the functions of the Trade and Industry (DTI) staff.
FUNCTIONS OF NEGOSYO CENTERS
• Enforcement of BMBE provisions
• Business registration assistance
• Business advisory services
• Monitoring and evaluation
• Perform such other functions that may be assigned by the MSMED Council as germane to RA 10644 and other related laws.
Who are Eligible to Register as BMBE?
Any person, natural or juridical, or cooperative, or association, having the qualifications provided under this IRR may apply for registration as BMBE.
Incentives of BMBEs
REGISTERED BMBEs CAN AVAIL OF THE FOLLOWING INCENTIVES:
1. Income tax exemption from income arising from the operations of the enterprise.
To avail of the benefits and privileges of a BMBE, an applicant must secure a Certificate of Authority (CA) from the Office of the Mayor. Upon issuance of the CA, the applicant must submit the same to the BIR and apply for Income Tax Exemption.
Generally, the income of BMBE from their operations is exempt from income tax. However, if the gross income exceeds the threshold amount, they are subject to income tax under RR 17-04. BMBEs Annual Information Return, as well as cooperatives, use BIR Form 1702-AI. For corporations and partnerships, for self-employed individuals, use BIR Form 1701.
While BMBEs are generally exempt from income tax, it is subject, however, to business taxes (3% percentage tax or VAT, as the case may be) and other internal revenue taxes such as documentary stamp tax and other percentage taxes.
REVOCATION OF BMBE TAX EXEMPTIONS
• Change of business address
• Voluntary surrender of Certificate of Authority
• Death of the sole proprietor
• Merger or consolidation with an entity not registered as BMBE
• Transfer of ownership of the BMBE enterprise
• Failure to renew registration
• Retirement from business, or cessation/suspension of operations for one year
2. Exemption from the coverage of the Minimum Wage Law, among others, employees will receive the same social security and health care benefits as other employees;
3. Priority to a special credit window set up specifically for the financing requirements of BMBEs
FUNDING AGENCIES designated to set-up special credit window for BMBEs
• Land Bank of the Philippines;
• Development Bank of the Philippines;
• Small Business Guarantee and Finance Corporation;
• People's Credit and Finance Corporation;
• Quedan and Rural Credit Guarantee Corporation;
• Social Security System (for members only); and
• Government Service Insurance System (for members only); and Social Security System (for members only).
4. Technology transfer, production and management training, and marketing assistance programs for BMBE beneficiaries.
Agencies mandated to provide assistance in the areas of technology transfer, production and management training, marketing assistance:
• Department of Trade and Industry (DTI)
• Department of Science and Technology (DOST)
• University of the Philippines Institute for Small Scale Industries (UP-ISSI)
• Cooperative Development Authority (CDA)
• Technology and Livelihood Resource Center (TLRC)
• Technology and Livelihood Resource Center (TLRC)
5. The LGUs are also encouraged to either reduce the amount of local taxes, fees, and charges imposed or exempt the BMBEs from local taxes, fees, and charges.
Double Taxation Agreement (DTA)
When businesses are conducting transactions and activities across multiple jurisdictions, there is always the possibility that the same income may be subjected to double taxation. Double Taxation is an issue that can arise in various types of cross-border transactions including income arising from business profits, dividends, interest, royalties, capital gains, and others.
In the Philippines, the Bureau of Internal Revenue has issued several revenue issuances to implement the provisions of the Tax Code and provide specific tax relief procedures when double taxation is involved. The most recent issuance of the BIR is RMO No. 21-01 dated March 31, 2021.
Types of Double Taxation
1. Direct double taxation
This is objectionable and legally objectionable for being oppressive and inequitable. It violates the concept of equal protection, uniformity and equitableness of taxation in the Constitution.
Direct double taxation means:
• Taxing twice
• Of the same object or subject matter
• By the same taxing authority;
• For the same purpose;
• During the same taxable period; and
• The same kind of character
2. Indirect double taxation
It is NOT legally objectionable. It extends to all cases in which there is a burden of two or more impositions imposed by different taxing authorities, such as in the imposition of income tax. It is indirect double taxation if any of the elements described above is not present.
Methods to Eliminate or Mitigate International Double Taxation
International double taxation may be eliminated or mitigated:
a) By domestic law which is enacted by one state by unilateral withdrawal or to impose taxes on or access to object within its jurisdiction; or
b) By agreement between two or more countries to grant relief or to avoid double taxation.
1. Tax Exemption (i.e., through tax treaties)
A State may exempt from taxation certain items of income or capital which its residents have derived or may derive from sources outside its territory and which are liable to tax in the other contracting state, to recognize the national fiscal legislations of the contracting parties and in turn, help the taxpayer avoid simultaneous taxation in two different jurisdictions.
The primary purpose of Tax Treaties commonly stated or understood to be for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income.
Tax Exemption under Tax Treaties, Sec. 32(B)(5) of the Tax Code, provides:
Income Exempt under Treaty - Income of any kind, to the extent required by any treaty obligation binding upon the Government of the Philippines.
Sec. 28(A)(3) of the Tax Code, provides:
International Carrier - An international carrier doing business in the Philippines shall pay a tax of two and one-half percent (2 1/2 %) on its "Gross Philippine Billings" as defined herein.
Provided, That international carrier doing business in the Philippines shall be exempt from taxation on their gross revenue derived from the carriage of persons and their excess baggage on the basis of any applicable tax treaty or international agreement to which the Philippines is a signatory or on the basis of reciprocity, such that the taxes imposed in the country of origin on their gross revenue or income from the carriage of passengers, shall likewise be exempt from the tax imposed under this provision.
2. Tax Credit (i.e., deductible from the tax due)
c) Taxes paid or incurred outside the Philippines by its residents from another State as if it were an income tax paid in the Philippines. The tax paid abroad is deductible from the tax due of the taxpayer.
Sec. 34(C)(1) of the Tax Code, provides:
"In General - Taxes paid or incurred within the taxable year in connection with the taxpayer's profession, trade or business, shall be allowed as deduction, except..."
"(2) Credit Against Tax for Taxes of Foreign Countries. - If the taxpayer signifies in his return his desire to have the benefits of this paragraph, the tax imposed by this Title shall be credited with..."
Sec. 86(D) of the Tax Code, provides:
Tax Credit for Taxes Paid to a Foreign Country. -
"(1) In General. - The tax imposed by this Title shall be credited with the amounts of any estate tax imposed by the authority of a foreign country."
Sec. 101(C) of the Tax Code, provides:
Tax Credit for Donor's Taxes Paid to a Foreign Country. -
"(1) In General. - The tax imposed by this Title upon a donor who was a citizen or a resident at the time of donation shall be credited with the amount of any donor's tax of any character and description imposed by the authority of a foreign country."
3. Deduction (as part of operating expense)
c) State taxes and foreign income tax payments by its residents from another State as part of operating expense of the taxpayer. The tax paid abroad is deductible from the gross income of the taxpayer.
Sec. 34(C), Deductions from Gross Income, of the Tax Code, provides:
"(C) In General. - Taxes paid or incurred within the taxable year in connection with the taxpayer's profession, trade or business, shall be allowed as deduction, except..."
a. Income tax imposed by authority of any foreign country; but this deduction shall be allowed in the case of a taxpayer who does not signify in his return his desire to have the benefits of paragraph (3) of Sec. 34(C) (relating to credits for income tax war profits and excess profits taxes);
b. Estates and trust taxes; and
c. Taxes assessed against local benefits of a kind tending to increase the value of the property assessed.
Provided, That taxes allowed under this Subsection (Sec. 34C), when refunded or credited, shall be included as part of gross income in the year of receipt to the extent of the income tax benefit of said deduction.
4. Reciprocity
a) Income tax on international carriers; reciprocity on dividend income received by non-residents.
Sec. 28(A)(3) of the Tax Code, provides:
International Carrier - An international carrier doing business in the Philippines shall pay a tax of two and one-half percent (2 1/2 %) on its Gross Philippine Billings as defined hereunder...
"... Provided, That international carriers doing business in the Philippines may avail of the tax exemption on cargoes and mails, on the basis of reciprocity such that if passengers, baggage and cargoes from the Philippines are exempt from income tax in the country of origin of such international carrier, then international carriers coming from said country shall be exempt from the tax imposed under this provision."
Sec. 104 of the Tax Code, provides:
"(1) In General - The tax imposed by this Title upon a donor who was a citizen or a resident at the time of donation shall be credited with the amount of any donor's tax of any character and description imposed by the authority of a foreign country.
"... Provided, further, that no tax shall be collected under this Title in respect of intangible personal property:
(a) if the decedent at the time of his death or the donor at the time of the donation was a citizen and resident of a foreign country which at the time of his death or donation did not impose a transfer tax of any character, in respect of intangible personal property of citizens of the Philippines not residing in that foreign country, or
(b) if the laws of the foreign country of which the decedent or donor was a citizen and resident at the time of his death or donation allows a similar exemption from transfer or death taxes of every character or description in respect of intangible personal property owned by citizens of the Philippines not residing in that foreign country."
Tax Treaty Benefits
RR 77-2021 provides that only persons, natural or juridical, who are residents of one or both of the Contracting States may avail of treaty benefits. A non-resident alien individual or foreign corporation not engaged in trade or business in the Philippines cannot submit a Tax Residency Certificate (TRC) duly issued by the tax authority of the country of residence.
The Double Taxation Conventions or tax treaties provide a standard provision that "the Convention shall apply to persons who are residents of one or both of the Contracting States". In other words, the intention of the tax treaties is to limit or restrict the granting of its benefits to those who are entitled thereto, i.e., the residents of the contracting states.
The benefit of a tax treaty does not extend to a taxpayer who fails to prove his/her/its residency in either or both of the contracting states. The best proof of residency is the TRC duly issued by the competent authority of the treaty partner. Failure to submit the said document would result in the denial of the non-resident's claim.
Only one original and authenticated TRC shall be submitted to each income tax return. Alternatively, a certified true copy may be submitted, provided that the original or authenticated copy is presented for comparison. The same rule applies to the proof of establishment or incorporation, Certificate of Non-Registration License to do Business in the Philippines duly issued by the Securities and Exchange Commission, and Certificate of Business Registration/Presence duly issued by the Department of Trade and Industry.
Philippine income that may be subject to a preferential tax rate and/or tax exemption under the valid and effective Philippine Double Taxation Agreements (DTA)
1. Preferential rates:
• Dividends;
• Interests;
• Royalties;
• Profits of shipping and air transport in international traffic; and
• Branch profit remittances.
2. Exemption:
• Business profits;
• Capital gains;
• Income from employment;
• Income from independent professional services;
• Income of athletes and performers supported by public funds;
• Income from government service;
• Pensions;
• Income of visiting teachers and researchers;
• Allowances and remuneration of visiting students and trainees; and
• Other income.
REGULAR TAX RATE UNDER THE TAX CODE VS. TAX TREATY RATES
If the regular tax rate under the Tax Code, as amended, were used on an item of income of a nonresident, instead of the treaty rate(s), the nonresident or its authorized representative should file a Tax Treaty Relief Application (TTRA) to International Tax Affairs Division (ITAD) of the BIR to avail of the necessary requirements and claim for refund at any time after the payment of the withholding tax.
On the other hand, when an item of income was subjected to taxation in accordance with the provisions of the relevant tax treaty, the withholding agent/income payor shall file with ITAD a Request for Confirmation (RFC) that the tax treatment of such income was proper. The nonresident shall submit a TRC and the appropriate BIR Form No. 0901 prior to the payment of income tax.
The income payor may apply the provisions of the applicable treaty, provided that all the conditions for the availment thereof, other than residency, have been satisfied. Otherwise, the regular rates imposed under the Tax Code shall be applied.
FILING OF REQUEST FOR CONFIRMATION (RFC)
All TTRA or RFC shall only be submitted to the International Tax Affairs Division (ITAD). Depending on the type of income, the request for confirmation with complete documentary requirements shall be filed by the withholding agent, domestic or foreign, on or before the dates prescribed below:
Type of Income Due Date
Capital gains At any time after the transaction but not later than the last day of the fourth month following the close of the taxable year when the income is paid or becomes payable, or when the expense is recorded in the books, whichever comes first
Other income At any time after the close of the taxable year but not later than the last day of the fourth month following the close of the taxable year when the income is paid or becomes payable, or when the expense is recorded in the books, whichever comes first
One consolidated request for confirmation per nonresident income recipient, regardless of the number of income payors, shall be filed by the income recipient. The case folder shall, however, be pre-arranged by the filer per type of income following the sequence of documents as stated in the list of requirements.
Pursuant to Revenue Memorandum Circular No. 20-2022, however, taxpayers who were already issued with Certificate of Entitlement (COE), the threshold allows the filing of an RFC or TTRA every time an income of similar nature is paid to the same payee or withholding agent shall always be guided by the requirements mentioned in the COE.
DOCUMENTARY REQUIREMENTS
The following are the requirements to be submitted when filing a TTRA or RFC:
• The non-resident individual or corporation may submit their Tax Identification Number (TIN) from their home country or DO No. 39- South Quizon City;
• General and Specific Documentary Requirements enumerated under RMO No. 14-2021.
International Tax Affairs Division (ITAD) of the BIR
Pursuant to Revenue Administrative Order No. 1-2016, the International Tax Affairs Division (ITAD) of the Bureau of Internal Revenue (BIR) is tasked to process, work programs, study and evaluate requests for tax treaty relief and other questions involving the proper interpretation of the provisions of tax treaties and other international tax agreements, among others, rulings involving the application and interpretation of tax treaties signed originate from the ITAD.
PROCEDURES IN AVAILING RELIEF FROM DOUBLE TAXATION
The procedures and processes in availing relief from double taxation are found in RMC 44-2021, as follows:
• The withholding agent or income payor may rely on the submitted BIR Form No. 0901 or Application Form for Tax Treaty Relief Certification/Confirmation/Application, without prejudice to the provision of the applicable tax treaty on whether to apply a reduced rate of, or exemption from, withholding at source on the income derived by a nonresident from all sources within the Philippines. Therefore, it is imperative for nonresident taxpayers to submit the required documents to the withholding agent or income payor prior to the payment of income for the first time.
Failure to provide the said documents when requested may lead to withholding using the regular rates prescribed under the Tax Code, as amended, nonresident foreign corporations or nonresident aliens not engaged in trade or business, as the case may be, and not the treaty rate.
When the treaty rates have been applied by the withholding agent on the income earned by the nonresident, the former shall file with ITAD a request for confirmation (RFC) on the propriety of the withholding tax rates applied on that item of income. On the other hand, if the regular rates have been imposed on the said income, the nonresident shall file a TTRA with ITAD. In either case, each request for confirmation and TTRA shall be supported by the documentary requirements set out hereunder.
Request for Confirmation (RF) vs. Tax Treaty Relief Application (TTRA)
If the withholding agent/income payor outright applies the exemption or preferential rate based on the documents provided by the payee (BIR Form 0901, Tax Residency Certificate, and a copy of the Tax Treaty indicating the applicable preferential rate or exemption), the withholding agent shall file a Request for Confirmation (RF) with supporting documents on the propriety of the withholding tax applied.
If the withholding agent/income payor uses the regular rate, the nonresident shall file a TTRA with support documents.
The request for confirmation shall be filed by the withholding agent at any time after the payment of withholding tax but shall in no case be later than the last day of the fourth month following the close of each taxable year.
The filing of TTRA largely depends upon the nonresident who must invoke and prove his/her/its entitlement to treaty benefit. The nonresident may, at any time after the receipt of income, file a TTRA to prove its entitlement to treaty benefits. Failure to prove the same may result in the confirmation of the tax rate previously applied on the income, and in the eventual denial of the TTRA.
If the BIR determines that the withholding tax rate applied is lower than the rate that should have been applied on an item of income pursuant to the treaty, or that the nonresident taxpayer is not entitled to treaty benefits, it will issue a BIR Ruling denying the request for confirmation or TTRA. Consequently, the withholding agent shall pay the deficiency tax plus penalties.
On the contrary, if the withholding tax rate applied is proper or higher than the rate that should have been applied, the BIR will issue a certificate confirming the nonresident income recipient's entitlement to treaty benefits.
In the latter case, the taxpayer may apply for a refund of excess withholding tax.
Generally, one TTRA or request for confirmation shall be filed for each transaction except for long-term contracts (e.g. contracts for services or loan agreements, license agreements, etc.) i.e., those which are effective for more than a year, where an annual updating shall be made until the termination of the contract. To ensure that the proper rate is applied until the end of the contract, the nonresident taxpayer shall file an updated Application Form, a new TRC [if the validity period of the previously submitted TRC has already lapsed], and other relevant documents not later than the last day of the fourth month following the close of each taxable year.
Thus, for instance, if a contract for consultancy services has a term of five (5) years starting from January 1, 2020 until December 31, 2024, five (5) TRAs shall be filed on or before April 30 of the following year to determine at the earliest possible time whether or not the nonresident taxpayer already has a permanent establishment in the Philippines.
New TRAs shall be processed within four (4) months from the submission of complete documents or as soon as practicable provided that the ITAD has addressed all its backlogs.
Documentary Requirements
The original or certified true copy of documents (general and specific required under Section 5 of RMO 14-2021 shall be submitted to ITAD when claiming relief from double taxation.
The BIR, however, reserves the right to request additional documents which are deemed necessary for the proper disposition of the case, as well as the right to require the presentation of the original copy of the documents to verify the authenticity of the submitted copies thereof.
Requirement of Authentication
All documents executed in a foreign country must either be authenticated by the Philippine Embassy stationed therein or apostilled if the said foreign country is a signatory to the Convention Abolishing the Requirement of Legalization for Foreign Public Documents (HCCH 1961 Apostille Convention) in order to be acceptable in the Philippines.
Manner of Granting and Denying Treaty Benefits
To streamline the process of confirming entitlement to treaty benefit or confirming the correctness of the withholding tax rates applied on a particular item of income, the BIR shall issue a certification duly signed by the Assistant Commissioner for Legal Service in lieu of the usual BIR Ruling and Compliance Check Report. The ITAD shall always ensure that a loose documentary stamp provided by the applicant is affixed on the Certificate before releasing it.
In cases of denial or a ruling of first Impression, a BIR Ruling signed by the Commissioner or his/her authorized representative, which shall contain the factual and legal bases that led to the conclusion, shall instead be issued. ITAD shall only issue the certification or BIR Ruling to the filer (nonresident income recipient or withholding agent) or his/her/its authorized representatives) as mentioned in the Application Form. Any representative not mentioned in the said form shall be allowed to receive the certification or ruling provided he/she is equipped with a notarized Special Power of Attorney.
Appeals
All adverse rulings are appealable to the Department of Finance (DOF) within thirty (30) days from receipt thereof pursuant to existing rules and regulations.
Any request for certified true copy of the complete case docket in support of such appeal shall only be processed upon presentation of proof of payment of certification fee of P10.00 per page.
Within five (5) days from the date of payment of the certification fee, the complete case docket, i.e., each and every page of the records of the case including a copy of the subject BIR Ruling, shall be sequentially numbered, photocopied, stamped and signed by the Division Chief of the ITAD as an attestation that the said copies are authentic and true copy of the original and complete records on file.
Evaluation of Pending TRAs for Income Earned in Prior Years
While the Court held in the case of Deutsche Bank AG Manila Branch vs. Commissioner of Internal Revenue that the TRA should merely operate to confirm the entitlement of the taxpayer to the relief, it did not give a blanket authority upon the taxpayer to request for such confirmation whenever it/he/she deems appropriate.
Therefore, by virtue of this Order, taxpayers with pending TRAs for income earned in 2020 and prior years, including those with Notice of Archiving, are given three (3) months from the receipt of a Final Notice to Submit Additional Documents (Final Notice), or from the effectivity of this Order, whichever is later, to submit the lacking documents. Taxpayers who were issued a Notice of Archiving will no longer receive a Final Notice.
Failure to submit the requested documents would result in the automatic denial of the TTRA or failure of the nonresident income recipient to substantiate or prove his/her/its entitlement to treaty benefits.
Filing a Claim for Refund
If the income of the nonresident taxpayer has been subjected to regular rates, he/she/it may subsequently file a claim for refund of the difference between the amount of withholding tax actually paid in the Philippines and the amount of tax that should have been paid under the treaty after obtaining a certificate confirming his/her/its entitlement to treaty benefits. For this purpose, a duly accomplished BIR Form No. 1913 shall be filed together with the letter-request.
The claim for refund may be filed independently of, or simultaneously with, the TTRA.
If the claim was not filed simultaneously with the TTRA, the office where it was filed shall coordinate with, and defer to, ITAD the resolution of the nonresident's entitlement to treaty benefit. If, on the other hand, the claim was filed simultaneously with the TTRA, it shall be the responsibility of the ITAD to endorse the claim for refund to the proper office that handles the processing of tax refunds after the resolution of the TTRA. At any rate, all issues relating to the application and implementation of treaty provisions shall fall within the exclusive jurisdiction of the ITAD. All claims for refund shall be filed within the two-year prescriptive period provided under Section 229 of the Tax Code, as amended.
Responsibilities of the Assessment Arms of the BIR
The ITAD evaluates all requests for confirmation and TRAs based on the documents submitted by withholding agent or nonresident taxpayer. If, in the course of audit, the tax auditor finds any inconsistencies in the facts and the representations made as bases of the previously issued certificate or ruling, it shall be the responsibility of the tax auditor to inform the ITAD of such findings. In turn, the ITAD shall re-evaluate the case and accordingly issue an amendatory certificate or ruling, whichever is applicable.
Other Applicable Taxes
In processing requests for confirmation and TTRA, the BIR may likewise determine whether the subject transaction is subject to other internal revenue taxes under the Tax Code, including, but not limited to, the following:
• Value-added tax (VAT);
• Other percentage taxes;
• Documentary stamp tax (DST); and
• Donor's tax.
Penalties for Late Filing of Requests for Confirmation
Any violation of the provisions of this Order, including the failure to file a request for confirmation within the period herein prescribed shall be subject to penalties provided in Sections 250 and 255, and other pertinent provisions, of the Tax Code.
The taxpayer may likewise be charged with the crime of perjury under Article 183 of the Revised Penal Code and with other appropriate crimes or offenses as may be warranted under existing laws, in addition to the payment of deficiency taxes for failure to supply correct and accurate information in the Application Form and other documents submitted in support of such application.
OECD Model Tax Convention
The Organisation for Economic Co-operation and Development (OECD) developed a Model Tax Convention, a model for countries concluding bilateral tax conventions, plays a crucial role in removing tax related barriers to cross border trade and investment. It is the basis for negotiation and application of bilateral tax treaties between countries, designed to assist business while helping to prevent tax evasion and avoidance.
The OECD Model also provides a means for settling on a uniform basis the most common problems that arise in the field of international double taxation.
The 2017 edition of the OECD Model mainly reflects a consolidation of the treaty-related measures to equip governments with domestic and international rules and instruments to address tax avoidance, ensuring that profits are taxed where economic activities generating the profits are performed and where the value is created.
The OECD Model requires constant review to address the new tax issues that arise in connection with the evolution of the global economy. Working Party No. 1 of the OECD's Committee on Fiscal Affairs meets this need and its work results in regular changes to the Model. Updates were published in 1994, 1995, 1997, 1998, 2000, 2003, 2005, 2008, 2010, 2014, and 2017.
In the relevant commentary on Article 1 of the Organization for Economic Co-operation and Development (OECD) Model Tax Convention, the OECD made mention that a state can automatically limit the tax it levies in accordance with the relevant provisions of the double taxation convention (hereinafter referred to as tax treaty), subject to possible prior verification of treaty entitlement, or it can impose the tax provided for under its domestic law and subsequently refund the part of the tax that exceeds the amount that it can levy under the provisions of the tax treaty.
In the Philippines, availment of treaty benefits has always been an issue and has been subjected to varying interpretations. Thus, to settle all issues related to the availment of treaty benefits and to deliver efficient service to the taxpayers in compliance with the Ease of Doing Business Act, RMO 14-2021 dated March 31, 2021 was issued with the following objectives:
1. To update the guidelines and procedures in availing tax treaty relief;
2. To streamline the processing of Tax Treaty Relief Application (TTRA);
3. To reformat the manner of confirming entitlement to treaty benefits;
4. To address pending TRAs for income earned in prior years and before the effectivity of this Order;
5. To define the respective functions of the concerned offices of the Bureau in regard to the assessment and collection of the withholding tax due on the income payments to nonresident taxpayers as well as refund of withholding taxes paid in excess of the treaty rates; and
6. To prescribe the penalties for the late filing of requests for confirmation and TTRAs.
RMO 14-2021 shall cover all items of income derived by nonresident taxpayers from Philippine sources that are entitled to relief from double taxation under the relevant tax treaty.
The United Nations Model Double Taxation Convention
The United Nations Model Double Taxation Convention between Developed and Developing Countries (UN Model) forms part of the continuing international efforts aimed at eliminating double taxation. These efforts were begun by the League of Nations in 1921 and were subsequently continued by the Organisation for Economic Co-operation and Development (OECD) and later by the United Nations. The UN Model is the result of a series of meetings held in various forums, as well as in the United Nations, and have in general found concrete expression in a series of model or draft model bilateral tax conventions.
These Models, particularly the United Nations Model Convention and the OECD Model Convention on Income and on Capital, have had a profound influence on international treaty practice, and have significant common provisions. The similarities between the two Models are indeed very close, and allow a close focus upon, and permit a better understanding of, the issues and problems involved. On the other hand, the important areas of divergence exemplify, and allow a close focus upon, the important areas of difference in approach or emphasis in one country compared with another. Such differences relate, in particular, to the issue of how to enter into economic relations, under a bilateral tax convention, so as to achieve a mutually beneficial flow of international trade and investment.
The United Nations Model Convention generally favours rights of taxation or so called "source country" taxing rights, i.e., the taxing rights of the country of source of income as compared to those of the "residence country" of the investor or recipient. It is also true that this position has been regarded as being of special significance to developing countries, although it is a position that some developed countries also find in their bilateral treaties.
The United Nations Model Double Taxation Convention, in addition, broadly the general objectives of bilateral tax agreements between countries, that is:
• To eliminate double taxation;
• To prevent tax evasion and avoidance;
• To provide a legal framework which is sound and certain;
• To promote and foster international trade and investment;
• To contribute to the development of the world economy.
The UN Model also reflects the concern of developing countries to ensure that they receive a fair share of the taxes on income arising from economic activities carried on within their territories, and to ensure that the tax treatment applied does not discourage the inflow of capital and technology which are so essential for their economic development.
QUIZZER
Senior Citizens and PWDs
1. ______ refers to any Filipino citizen who is a resident of the Philippines and who is sixty (60) years old or above.
a. persons with disability
b. senior citizens
c. beneficiary
d. self-employed
2. Statement 1: A resident citizen in the preceding number, who migrated to a foreign country, has returned to the Philippines with a definite intention to reside therein, and whose immigrant status has been recognized by the Bureau of Immigration.
Statement 2: A senior citizen as defined in the preceding number may apply for senior citizen with dual citizenship status provided they prove their Filipino citizenship and have at least six (6) months residency in Philippines.
a. Statement 1 is true
b. Statement 2 is true
c. Statement 1 is false and statement 2 is true
d. Statements 1 and 2 are true
3. ______ are those who have long-term physical, mental, intellectual or sensory impairments which in interaction with various barriers may hinder their full and effective participation in society on an equal basis with others.
a. persons with disability
b. senior citizens
c. beneficiary
d. self-employed
4. Which of the following statements is correct?
a. Discount is applicable to both PWDs and their companions.
b. PWDs/CiSCs have the option to choose either promotional forms of discounts or the 20% discount provided that only one PWD discount is exempted from VAT.
c. In case that the PWD is also a SC, the PWD may opt to use either SC or PWD discount.
d. All of the above.
5. Statement 1: While the 20% senior citizen discount and VAT exemption shall not apply to "children's meals" as these are primarily prepared and intended for children, the same rule applies to the 20% PWD discount and VAT exemption as it is also intended for personal consumption.
Statement 2: Goods and services covered by the 20% discount and VAT exemption include other consumable items sold by establishments including value meals, meals and other similar food counters, fast food, cooked food and other orders including taking outs.
a. Statements 1 and 2 are false
b. Statement 1 is true and statement 2 is false
c. Statement 1 is false and statement 2 is true
d. Statements 1 and 2 are true
6. Which of the following statements regarding discounts allowed to PWDs is incorrect?
a. In case the seller provides promotional discounts, the PWD will have the option to choose
b. Only the PWD discount is exempted from VAT.
c. In cases where the PWD is also a senior citizen (SC), the PWD shall also be entitled to SC discount in order to maximize the discounts granted under Circulars for PWDs and SCs.
d. None of the above.
7.
Statement 1: The 5% discounts on electric and water consumption of senior citizens also provides tax exemption.
Statement 2: The VAT exemption granted to Senior Citizens (SC) and PWDs will not cover other indirect taxes that may be passed on by the seller to the buyer, such as percentage tax, excise tax, etc.
a. Only statement 1 is correct
b. Only statement 2 is correct
c. Only statement 3 is incorrect
d. None of the statements is correct
8.
If the taxable income of a PWD is in the nature of compensation income and he qualifies as a minimum wage earner (MWE), he shall be exempt from income tax. This income tax exemption is:
a. Tax privilege granted only to PWDs.
b. Exemption which will be lost if the PWD loses his status as PWD.
c. Privilege which will not extend to a PWD who dies and survives his status.
d. General income tax exemption without regard to the status of the taxpayer.
9.
Statement 1: If a taxpayer, classified as PWD, is unable to make his own return, the return may be made by his duly authorized agent or representative or by the guardian or other person charged with the care of his person or property.
Statement 2: The person who made the return or the representative shall assume the responsibility of making the return and incurring penalties provided for erroneous, false, or fraudulent returns.
Statement 3: The privilege in statement 1 and transfer of disability in statement 2 is likewise available to a senior citizen, if it is under some form of disability and unable to make his own return.
a. Only statement 1 is correct
b. Only statement 2 is correct
c. Only statement 3 is correct
d. None of the statements is incorrect
10.
Which of the following statements is incorrect?
a. The sales discount granted to a SC or PWD shall be treated as ordinary and necessary expense deductible from the gross income of the seller filing under the category of Optional Standard Deduction (OSD).
b. The sales discount shall not be allowed as an itemized deduction from gross income for the same taxable year that the discount is granted.
c. The sales discount shall only be allowed as itemized deduction for expenses incurred for the same taxable year that the discount is granted.
d. All of the above
11.
Which of the following statements is correct?
a. The input tax attributable to vat exempt sale to a PWD or SC is considered as cost or an expense and is not allowed as input tax credit and shall not be allowed as input tax credit.
b. The percentage tax or excise tax passed on by the seller to a SC or PWD buyer, such as percentage tax, excise tax, etc.
c. In case of letter "b", the discount must be on the total cost of the goods or services charged by the seller, exclusive of vat.
d. All of the above
12.
Which of the following statements is not a requirement in order for private establishments employing senior citizens to be entitled to additional deduction from their gross income equivalent to fifteen percent (15%) of the total amount paid as salaries and wages to senior citizens?
a. The annual taxable income of the senior citizen does not exceed the poverty level as determined by NEDA.
b. Both statements "a" and "b"
c. Neither "a" nor "b"
13.
Private entities that employ disabled persons who meet the required skills or qualifications, either as regular employee, apprentice or learner, shall be entitled to an additional deduction from gross income equivalent to:
a. 25% of the total amount paid as salaries and wages to PWDs.
b. 50% of the total amount paid as salaries and wages to PWDs.
c. 100% of the total amount paid as salaries and wages to PWDs.
14.
Lola Lita, a senior citizen, bought medicine with a selling price of P9,520 inclusive of VAT. How much is the net amount to be paid by Lola?
a. P8,500
b. P9,516
c. P7,616
d. P8,800
15.
Lolo Sot, a senior citizen went to Jollibee to treat his 4 grandchildren on account of his retirement. They consumed foods and beverages with gross amount of P1,120 inclusive of VAT. How much is the amount to be paid by Lolo Sot?
a. P960
b. P1,056
c. P920
d. P1,110
16.
Gabriana Clinic, a VAT-registered entity, performed a prosthetic surgery on behalf of Loyd, a person with disability. The total cost of medical operation was P800,000. Being a disabled person, Loyd received 20% discount from Gabriana Clinic. How much is the total amount to be paid by Loyd?
a. P448,000
b. P560,000
c. P1,000
d. P500,000
Use the following data for the next four (4) questions:
Lucky Dental Clinic rendered dental services to a PWD. The professional fee amounted to P1,120 inclusive of VAT.
17.
How much is the amount to be paid by the PWD?
a. P800
b. P900
c. P1,120
d. P1,000
18.
How much is business tax due on the clinic as its services rendered to the PWD?
a. P28.88
b. P120
c. P96
d. nil
19. Assume the dental clinic is non-vat registered and its annual gross receipts never exceeded the vat threshold. How much is the amount to be paid by the PWD?
a. P800
b. P996
c. P1,000
d. P1,120
20. Based on the assumption in the immediately preceding number, how much is the business tax due of the clinic on its services rendered to PWD?
a. P28.88
b. P120
c. P96
d. nil
21. Statement 1: The 20% discount granted to a Senior Citizen carries with it an exemption from vat.
Statement 2: The 5% special discount granted to a Senior Citizen carries with it an exemption form vat.
a. Only statement 1 is correct
b. Only statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect
22. Statement 1: The 20% discount granted to a PWDs carries with it an exemption from vat.
Statement 2: The 5% special discount granted to a PWD carries with it an exemption from vat.
a. Only statement 1 is correct
b. Only statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect
23. ______ refer to goods "vital to the needs of consumers, for their sustenance and existence" while prime commodities are goods that are "essential" to them.
a. Basic commodities
b. Prime commodities
c. Non-essential goods
d. Any of the above
24. ______ are goods not considered as basic necessities but are essential to consumers.
a. Basic necessities
b. Prime commodities
c. Non-essential goods
25. The 5% special discount granted to senior citizens on basic and prime commodities is limited to purchases not exceeding ______ per calendar week without carry-over of the unused amount.
a. P1,000
b. P1,200
c. P1,300
d. P1,500
26. The 5% special discount granted to PWDs on basic and prime commodities is limited to purchases not exceeding ______ per calendar week without carry-over of the unused amount.
a. P1,000
b. P1,200
c. P1,300
d. P1,500
27. Qualified Solo Parents are entitled to the following tax benefits for their purchase of certain goods:
VAT Exemption 10% discount
a. Yes Yes
b. Yes No
c. No Yes
d. No No
28. Baby's World, a VAT-registered entity, sold medicines to a qualified Ana, a Solo Parent. The total cost of the medicines was P5,600 inclusive of vat. Being a qualified Solo Parent, Ana received a 10% discount from Baby's World. How much is the total amount to be paid by Ana?
a. P4,100
b. P4,500
BMBE
______ is defined as any business enterprise engaged in production, processing or manufacturing of products or commodities, including agro-processing, trading and services, with total assets of not more than P3 million. Such assets shall include those arising from loans but not the land on which the plant and equipment are located.
a. Economy
b. DTI/DSWDs or MNCs
c. Cooperatives
d. Barangay Micro Business Enterprises (BMBEs)
30. Statement 1: "Services" offered by BMBEs shall exclude those rendered by any one, who is duly licensed under the government regulations after having passed the government licensure examination.
Statement 2: An enterprise shall only qualify as BMBE if it has a branch, satellite, division or office of its large scale enterprise and registration and business is not operated and duly registered in the name of the enterprise.
a. Only statement 1 is correct
b. Only statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect
31. Statement 1: The enactment of RA 10644 otherwise known as the "Go Negosyo Act", paved the way for the rationalization and the granting of incentives and benefits to generate much needed employment and alleviate poverty.
Statement 2: A Negosyo Center in all provinces, cities and municipalities shall be established under the supervision of the DTI concerned.
a. Only statement 1 is correct
b. Only statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect
32. Which of the following business entities is not allowed to register as BMBE?
a. Sole proprietorship
b. Domestic corporation
c. Partnership
d. None of the above
33. Which of the following business entities may register as BMBE?
a. Cooperative
b. One person corporation
c. All of the above
d. None of the above
Here is the text copied exactly as it is:
34. Which of the following is not allowed to register as BMBE?
a. Branch of a large-scale enterprise
b. A micro small domestic enterprise whose business mode and are determined by a large-scale enterprise
c. All of the above
d. None of the above
35. Which of the following incentives may be granted to BMBEs?
a. Income tax exemption from income arising from the operations of the enterprise
b. Exemption from the coverage of the Minimum Wage Law.
c. Technology transfer, production and management training, and marketing assistance programs for BMBE beneficiaries.
d. All of the above
36. Statement 1: Any person, cooperative, or association owning an enterprise that fits the description of a BMBE may register for the first time or renew its registration with the office of the Treasurer or functioning agency in the city or municipality where its principal place of business is located.
Statement 2: BMBEs, registration as business entity or enterprise from the appropriate government agency such as SEC, DTI, CDA is as a security business permit or license.
Statement 3: Local government units (LGUs) are encourage to either reduce the amount of local taxes, fees, and charges imposed or exempt BMBEs from local taxes, fees, and charges.
a. Only statements 1 and 2 are correct
b. Only statements 1 and 3 are correct
c. Only statements 2 and 3 are correct
d. All statements are correct
37. For BMBE purposes, the concerned officer shall cancel the registration of a BMBE for the following causes, except:
a. When the BMBE transfers its place of business to another locality.
b. When the value of its total assets as determined exceeds P3,000,000.
c. When it establishes warranty outside its locality
d. None of the above
38. One can register as a BMBE if it is a business entity or enterprise, whether operated as a sole proprietorship or a corporation, partnership, cooperative or association, organized and incorporated and existing under Philippine laws, engaged in, which activities are barangay-based and micro-business in nature and scope, except:
a. Production of products/commodities
b. Trading and services
c. Professional services
d. Any of the above
Double Taxation Agreement
39. Which of the following statements is correct?
a. Direct double taxation is the imposition of tax burden on the same object or subject.
b. Indirect double taxation is prohibited.
c. Direct double taxation is not prohibited.
d. All of the above
40. The primary purpose of ______ is commonly stated or understood to be "for the avoidance of double taxation" of income arising from cross-border transactions or "for the purpose of avoiding taxation by the same taxpayer in two different jurisdictions".
a. Reciprocity
b. Tax treaty
c. Double taxation
d. All of the above
41. Which of the following are methods used to eliminate or mitigate the effect of indirect double taxation?
a. Tax exemption (based on treaties)
b. Tax credit (deduction from tax due)
c. All of the above
d. None of the above
42. Statement 1: Cross border transactions encompasses transfer of goods, services, capital and technology resulting in an income which more than one country has a taxation claim, resulting in double taxation that cannot be eliminated or mitigated.
Statement 2: International double taxation cannot be eliminated by a State.
a. Only statement 1 is correct
b. Only statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect
43. Statement 1: The Commissioner of Internal Revenue (CIR) has sole authority to issue Tax Treaty Relief Applications (TTRAs) submitted to the International Tax Affairs Division (ITAD) of the BIR.
Statement 2: The processing of TTRAs is ministerial.
a. Only statement 1 is correct
b. Only statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect
44. Which of the following is not a method allowed under the Tax Code to curb the effects of international double taxation?
a. Tax credit
b. Tax exemption/deductions
c. Tax treaty
d. Tax abatement
45. The imposition of estate tax by the National Government and local transfer taxes by the Local Government Unit is:
a. Will result to double taxation
b. Is an example of indirect double taxation
c. Will result to direct double taxation
d. Will result to either direct or indirect double taxation at the option of the concerned LGU