The TRAIN in the eyes of the DoF and BIR

Business World - - OPINION - ERIC R. RECALDE

Tax­pay­ers must re­main vig­i­lant, and if nec­es­sary re­quest Congress for cor­rec­tive leg­is­la­tion.

The law can­not just be gauged on the ba­sis of its pro­vi­sion. One should con­sider how its ad­min­is­tra­tor views it. It should be re­called Congress re­cently passed the Tax Re­form for Ac­cel­er­a­tion and In­clu­sion (TRAIN) Act, with the veto of its cer­tain pro­vi­sions. It would thus be in­ter­est­ing to see how the gov­ern­ment, through the Depart­ment of Fi­nance (DoF) specif­i­cally the Bu­reau of In­ter­nal Rev­enue, im­ple­ments the most re­cent re­vi­sions to the Philip­pine Tax Code.

Un­der the law, the DoF is man­dated to is­sue its im­ple­ment­ing reg­u­la­tions up to Jan. 30.

Within this time­frame, the DoF was able to is­sue the im­ple­ment­ing reg­u­la­tions on petroleum prod­ucts, to­bacco prod­ucts, stamp du­ties, and au­to­mo­biles. The DoF sub­se­quently is­sued the reg­u­la­tions on in­come tax, stock trans­ac­tion tax, up­dated with­hold­ing tax, trans­fer tax, and VAT. It has not yet re­leased the reg­u­la­tions on sweet­ened bev­er­ages and cos­metic pro­ce­dures. The de­lay is un­der­stand­able given the lim­ited pe­riod given to DoF.

But how do the DoF and BIR view the TRAIN? Do they share the view of the leg­is­la­tors? There seems to be some di­ver­gence, and in cer­tain cases, a mus­cle flex­ing in­ter­pre­ta­tion of an ex­ist­ing pro­vi­sion not touched by the TRAIN.


An ex­am­ple of mus­cle flex­ing is RMC 12-2018. The BIR has adopted a stance that it may ac­cess in­for­ma­tion shared by clients with their lawyers and ac­coun­tants.

Un­der the Rules of Court, in­for­ma­tion shared with lawyers are not only con­fi­den­tial but also priv­i­leged com­mu­ni­ca­tion. In con­trast, those shared with ac­coun­tants are only re­garded as con­fi­den­tial. The Ac­coun­tancy law per­mits an ad­min­is­tra­tive tri­bunal like the BIR to sub­poena them.

The BIR cites as ba­sis the lawyers’ eth­i­cal canon. It man­dates a lawyer to re­veal clients’ se­crets “when re­quired by law.” Ac­cord­ing to BIR, it refers to the Tax Code pro­vi­sion au­tho­riz­ing the Com­mis­sioner to ob­tain third­party in­for­ma­tion. The crux of the con­tro­versy: which is more im­por­tant, the right of the BIR to gather in­for­ma­tion or the rule per­mit­ting a client to freely dis­close in­for­ma­tion to his lawyer? It should be the lat­ter.


The TRAIN eased com­pli­ance with re­port­ing re­quire­ments. It has re­moved the DoF’s au­thor­ity to pre­scribe the fil­ing of monthly re­turns. Tax­pay­ers are only man­dated to file quar­terly re­turns. The DoF has rec­og­nized this, but in­sisted tax­pay­ers should still file monthly re­mit­tance forms. They hold the amount with­held in trust for the gov­ern­ment. It re­mains to

be seen whether this will ease tax­pay­ers’ re­port­ing.

In any case, the de­lay in fil­ing these forms should not have the same con­se­quences that at­tach with the de­lay in fil­ing tax re­turns.

Em­ploy­ers must still file monthly com­pen­sa­tion with­hold­ing tax (CWT) re­turns. Congress likely failed to note the spe­cial chap­ter on CWT when it re­moved the DoF’s au­thor­ity to pre­scribe monthly re­turns. Per DoF, this re­quire­ment stays since the TRAIN did not re­move it.

The case is dif­fer­ent with re­gard to the fringe ben­e­fit tax (FBT). Even though the TRAIN ( and the pres­i­den­tial veto) did not specif­i­cally re­move the spe­cial FBT for cer­tain per­son­nel of for­eign branches ( like Re­gional Head­quar­ters), the DoF’s po­si­tion is that it has been re­moved. It is im­plied from the pres­i­dent’s veto on their pref­er­en­tial in­come tax. This is now sub­ject of a court case.

Fi­nally, the DoF is silent when the trans­fer is “made in the or­di­nary course of busi­ness ( a trans­ac­tion which is a bona fide, at arm’s length, and free from any do­na­tive in­tent),” which un­der the TRAIN should not give rise to an im­plied do­na­tion. This has been a source of dis­pute with BIR when se­cur­ing a clearance for share trans­fers. The DoF is also silent when the “tax-free ex­change” ( like cor­po­rate re­struc­tur­ing) is VAT- free. Hope­fully, the BIR would act on tax­pay­ers’ re­quests in­volv­ing these transactions with­out the is­sues they raised in the past.

It is the turn of the courts in proper cases to de­ter­mine whether the DoF has acted be­yond its man­date in mak­ing these is­suances, or the BIR in im­ple­ment­ing them. Tax­pay­ers must re­main vig­i­lant, and if nec­es­sary re­quest Congress for cor­rec­tive leg­is­la­tion.

This ar­ti­cle is for gen­eral in­for­ma­tional and ed­u­ca­tional pur­poses only and not off ered as and does not con­sti­tute le­gal ad­vice or le­gal opin­ion. ERIC R. RECALDE presently heads the Tax Depart­ment of An­gara Abello Con­cep­cion Re­gala & Cruz Law Of­fices. He as­sists clients in dif­fer­ent fields of law, in­clud­ing Tax­a­tion, Trusts & Es­tates, Merg­ers & Ac­qui­si­tions, In­vest­ment Law, Gov­ern­ment Con­tracts, Pub­lic Pri­vate Part­ner­ship Ar­range­ments and Pri­va­ti­za­tion Projects, An­titrust & Trade Reg­u­la­tion. er­recalde@ac­ (02) 830-8000

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