DEC.

2016 Q U A L I T Y A S S U R A N C E B U L L E T I N

SECURITIES AND EXCHANGE COMMISSION (SEC) BUREAU OF INTERNAL REVENUE (BIR)

Memorandum Circulars

MC 7-2017. Limiting the Requirement for Group “C”

Accredited Independent Auditors/Certified Public

Accountants of Financing and Lending Companies per

Asset Size

Revenue Memorandum Orders

RMO No. 8-2017. Procedure for claiming tax treaty

benefits for dividend, interest and royalty income of

non-resident income earners

Revenue Memorandum Circulars

RMC No. 33-2017. Over-the-Counter Acceptance of

Certain Tax Returns/Payment of Internal Revenues

Due to Unavailability of eFPS

RMC No. 34-2017. Clarifies Paragraph 6 of RMC No.

28-2017 re: guidelines in the filing, receiving and pro-

cessing of 2016 Income Tax returns, including its

attachments.

RMC No. 35-2017. Clarifies the imposition of Capital

Gains Tax on Sale, Exchange and other disposition of

real properties.

APR.

2017

Notices

Rules and Regulations on the Implementation of the

Securities and Exchange Commission Oversight

Assurance Review Inspection Program

Issue 2017-4 Page 2

REVENUE MEMORANDUM ORDER NO. 8-2017 issued

on March 28, 2017 prescribes the procedures for claiming tax

treaty benefits for dividend, interest and royalty income of

non-resident income earners.

The mandatory Tax Treaty Relief Applications (TTRA)

shall no longer be filed with the International Tax Affairs

Division (ITAD). In lieu of the TTRA, preferential treaty rates

for dividends, interests and royalties shall be applied and used

outright by the withholding agents upon submission of a

Certificate of Residence for Tax Treaty Relief (CORTT) Form by

the non-resident. The use of the preferential rates shall be

done through Withholding Final Taxes at applicable treaty

rates.

Non-residents are allowed to use the prescribed

certificate of residency of their country of residence.

However, non-residents are still required to accomplish A, B

and C of Part I of the CORTT Form, for monitoring purposes. If

the prescribed certificate of residency is used, it shall be

attached to the CORTT Form.

For dividend income purposes, the CORTT Form shall

be valid for two (2) years from date of issuance. However, if a

prescribed certificate of residency of the country of residence

is used, the date of validity of the latter document will prevail

over the two (2) year period given. For interest and royalty

income purposes, the CORTT Form shall be valid per contract.

Withholding agents or income payors can withhold at

a reduced rate or exempt the non-resident based on the duly

accomplished CORTT Form to the withholding agent/income

payor would mean that the non-resident is not claiming any

Procedure for claiming tax treaty benefits for dividend,

interest and royalty income of non-resident income

earners

tax treaty relief and, therefore, such income shall be subject

to the normal rate provided under the National Revenue

Code (NIRC) of 1997, as amended.

The ITAD and Revenue District Office (RDO) No. 39

shall be in charge of appropriateness of receiving and

recording information stated in the CORTT. Compliance

check and post reporting validation on Withholding Tax

obligations and confirmation of appropriateness of

availment of treaty benefits shall be part of BIR’s regular

audit investigations conducted by the RDO where the do-

mestic withholding agent is registered.

Any violation of the provisions of this order shall be

subject to the penalties provided in Section 250 and other

pertinent provisions of the NRIC, as amended.

Failure to supply accurate and complete

information stated in the CORTT Form and BIR Forms 1601F

and 1604-CF will render the non-resident and withholding

agent non-compliant. Noncompliance shall be a ground for

the denial of the use of preferential treaty rates and the

disallowance of the pertinent expense/s of the withholding

agent.

Furthermore, withholding agents/income payors

that wilfully fail to pay any tax, make a return, keep any

record, or supply correct and accurate information or

withhold or remit taxes withheld, or aids or abets any man-

ner to evade any such tax or the payment thereof shall be

liable under Sections 251 and 255 of the NIRC.

Issue 2017-4 Page 3

Over-the-Counter Acceptance of Certain Tax Returns/

Payment of Internal Revenues Due to Unavailability of

eFPS

REVENUE MEMORANDUM CIRCULAR NO.33-2017

issued on April 26-2017 allows all taxpayer who are mandated

to use the Electronic Filing and Payment System (eFPS) to file

their BIR Form Nos. 2550Q, 2550M and 2551M thru the

eBIRForms facility, as well as to pay the corresponding taxes

due therefrom, if any, thru “over-the-counter” transaction

with any Authorized Agent Bank falling under the jurisdiction

of the Revenue District Office where the taxpayers are

registered without the corresponding payment of penalties for

late filing, until April 26, 2017.

Non-residents who already filed TTRAs with the BIR on

dividend, interest and royalty income prior to the effectivity of

this Order will be allowed to use the tax treaty rates invoked

based on effective tax treaties of the Philippines with other

countries. However, the same will be subjected to compliance

check.

For existing TTRAs with the BIR with supporting

documents, ITAD will use the submitted information in creating

a database for purposes of tax treaty relief availment. If the

requisite certificate of residency is not available in the

submitted documents, the withholding agents/income payor

will be requested to submit the same.

This order shall take effect 90 days upon signing to

afford non-resident income earners time to secure the required

CORTT Form or prescribed certificate of residency from their

respective countries of residence.

Clarifies Paragraph 6 of RMC No. 28-2017

re: guidelines in the filing, receiving and processing

of 2016 Income Tax returns, including its

attachments.

REVENUE MEMORANDUM CIRCULAR NO.34-

2017 issued on April 27-2017 clarifies Paragraph 6 of

RMC No. 28-2017 re: guidelines in the filing, receiving

and processing of 2016 Income Tax returns, including its

attachments.

The required attachments (Annexes “B1 to B5”)

and accompanying schedules shall be submitted to the

Large Taxpayers Division (LTD/Revenue District Office

(RDO) or Authorized Agent Banks located within the

territorial jurisdiction of the LTD/RDO where the taxpayer

is registered.

Taxpayers who electronically-filed shall also

submit a copy of electronically filed ITR with Filing

Reference Number thru eFPS facility or an email Tax

Return Receipt Confirmation and a copy of

electronically-filed ITR thru eBIRForms Facility, together

with the required attachments within fifteen (15) days

from the deadline of filing or date of electronic filing or

date of electronic filing of the return, whichever comes

later.

The Summary Alphalist of Withholding Tax

(SAWT) using the Data Entry Module of the BIR shall be

emailed to esubmission@bir.gov.ph, if applicable.

Issue 2017-4 Page 4

Clarifies the imposition of Capital Gains Tax on Sale, Exchange and other disposition of real properties. REVENUE MEMORANDUM CIRCULAR NO. 35-2017 issued on April 27, 2017 clarifies the imposition of Capital Gains Tax on the sales, exchanges or transfer of real properties classified as capital asset. A final tax of six percent (6%) is imposed on capital gains presumed to have been realized by the seller from the sale, exchange or other disposition of real properties located in the Philippines, classified as capital assets, including pacto de retro sales and other forms of conditional sales based on the gross selling price or fair market value, whichever is higher. This implies that in order to be liable for the payment of Capital Gains Tax, there must be presumed gain from the sale, exchange or disposition of the real property. The mere issuance of tax declaration in the absence of any sale, exchange or other form of conveyance is not subject to Capital Gains Tax. The payment of Capital Gains Tax is dependent and is a direct consequence of the sale, transfer, or exchange. It is not the transfer of ownership or possession per se that subjects the sale/transfer/exchange to the 6% Capital Gains Tax, but the profit or gain that was presumed to have been realized by the seller by means of said transfer.

Issue 2016-1 Page 6

Issue 2017-4 Page 5

Limiting the Requirement for Group “C” Accredited

Independent Auditors/Certified Public Accountants

of Financing and Lending Companies per Asset Size

WHEREAS, Part I (3) (A) (i) of the Securities Regulation Code (SRC) Rule 68, as amended, states that the Financial Statements required to be submitted by the corporations covered by the said Rule shall be accompanied by an auditor’s report issued by an independent auditor and presented in accordance with the requirements of the said Rule.

WHEREAS, Part I (3) (B) (i) (c) and (3) (b) (iii) (f) of the same Rule require that independent auditors of financing companies (FCs) and lending companies (LCs) shall be those accredited by this Commission under category “C” or higher.

WHEREAS failure to comply with this requirement subjects be concerned company to a Twenty Five Thousand Pesos (P25,000.00) penalty per year as provided under Section 12.4 of SEC Memorandum Circular No. 13, Series of 2009.

WHEREAS, there have been several cases where financing companies and lending companies were penalized for this violation because of the limited number of accredited external auditors under Group “C” category compared to huge number of financing and lending companies in particular areas.

WHEREAS, because of apparent disparity between the number between the number of FCs and LCs with valid CA and the number of accredited auditors under group “C” category who can accommodate only so many number of said companies, more and more FCs and LCs fail to comply with subject requirement.

WHEREAS, most of the FCs and LCs which are penalized for this violation are those whose asset size is so small that requiring them to pay out of whatever asset is left will jeopardize their continuous operations.

WHEREAS, there is a need to limit the unnecessary burden imposed upon these financing companies and lending companies so as to promote further investments and economic contributions by them.

IN VIEW OF THE FOREGOING, the mandatory requirement for Group “C” accredited External Auditors/Certified Public Accountants for the following shall no longer be required:

1. Financing companies whose asset in the preceding fiscal year is Ten Million Pesos (Php10,000,000.00) and below;

2. Lending companies whose asset in the preceding fiscal year is Five Million Pesos (Php5,000,000.00) and below.

Rules and Regulations on the Implementation of the

Securities and Exchange Commission Oversight Assurance

Review Inspection Program

Notice is hereby given that the Commission intends to

roll out another initiative this June 2017 which is the SEC

Oversight Assurance Review (SOAR) Inspection Program. The

program is an investor protection initiative by the SEC in

connection with the declared State policy under the Securities

Regulation Code (SRC) to protect investors and to ensure full

and fair disclosures about securities and pursuant to the powers

and functions vested to the Commission under Section 5 of the

SRC and its authority to make, amend, and rescind such

accounting rules and regulations as may be necessary to carry

out the provisions of the SRC as provided for under Section 68

thereof. This is also in line with one of the International

Organization of Securities Commissions’ principles on securities

regulations, i.e. auditors should have adequate levels of

oversight.

All interested parties are invited to submit their

comments/ recommendations/ suggestions on the attached

proposed Rules and Regulations on the Implementation of the

Securities and Exchange Commission Oversight Assurance

Review (SOAR) Inspection Program not later than May 10, 2017.

Comments/ recommendations/ suggestions can be

submitted to the Office of the General Accountant at 3rd Floor,

Secretariat Building, Philippine International Convention Center

Complex, Pasay City or can be emailed at secoga@sec.gov.ph

Issue 2016-1 Page 6

Issue 2017-4 Page 6

In summary, the SOAR Inspection Program is the initiative of the SEC to do an on-site review of the quality control

policies and procedures of accredited firms auditing publicly listed companies (PLCs) and review of portions of the audit

work of their selected audit engagements from time to time. It will be conducted by the Office of the General Accountant

and will follow “risk based” approach in the selection of firm and engagements to be inspected.

Initially accredited auditing firms engaged by the Philippines PLCs and portions of the audit work of their selected

audit engagements shall be reviewed and covered under the SOAR Inspection Program.

The auditing firms and engagement partners shall be subjected to the SOAR Inspection. Both Office Level and

Engagement Level Review shall be conducted by the Commission.

Unit 3207 Cityland Pasong Tamo Building,

Pasong Tamo St., Barangay Pio del Pilar,

Makati City

Phone: +63 2 950-9854

Fax: +63 2 950-9854

E-mail: info@paguiodumayasassoc.com

We are a team of Certified Public Accountants, who

aim to be the accounting firm of choice for business

entities in terms of:

Audit and Assurance

Taxation

Business Process Outsourcing

Management Consultancy

Editorial Board

Floyd C. Paguio

Managing Partner

This bulletin is a compilation of relevant issuances, rulings and memoranda from various government agencies to en-

hance the technical skills of the professional staff of Paguio, Dumayas and Associates, CPAs and is not intended to

replace the original issuances of the related government agencies.

Ken John B. Asadon

Senior Tax Specialist

Aileen P. Melchor

Tax Specialist