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Tax Guidelines for E-Commerce Entrepreneurs

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Presented by Atty. Elenita B. Quimosing, Chief of Staff, Office of the Deputy Commissioner-Operations Group - Bureau of Internal Revenue last February 23, 2016 during the BIR Consultation on E-Commerce Taxation forum.

Published in: Government & Nonprofit

Tax Guidelines for E-Commerce Entrepreneurs

  1. 1.     ONLINE  BUSINESS   Tax  Updates   February  23,  2016                  A>y.  Elenita  B.  Quimosing                                                                                                                                                                        Chief  of  Staff                                                  Office  of  the  Deputy  Commissioner-­‐Opera8ons  Group   1
  2. 2. 1st Canon of Taxation 1st: The subject of every state ought to contribute towards the support of government nearly as possible in proportion to their respective abilities, that is in proportion to the revenue which they respectively enjoy under the protection of the state.   Adam Smith (Wealth of Nations)         2
  3. 3. BASIS OF TAXATION — found on the reciprocal duties of protection and support between the state and its inhabitants. The state collects taxes from the subjects so that it may be able to perform the functions of government. The citizen, on the other hand, pays taxes so that he may be secured in the enjoyment of the benefits of an organized society.     3
  4. 4.   What are taxes for? The prevalent idea is, taxes serve mainly to finance the govt. Taxes can be viewed along other objectives: •  Social justice attribute of taxation – re-distribution of income or wealth •  Regulatory purposes – like taxes on sin products; non-essential items like luxury cars, jewelries, perfume. 4
  5. 5. “TAXES    ARE  THE  PRICE  WE  PAY                                                    FOR  CIVILIZATION”                .  .  .JusHce  OLIVER  WENDELL  HOLMES   5
  6. 6. Tax compliance and your finances      AVOID PENALTIES, NOT “AVOID TAXES” 6
  7. 7.   RMC 55-2013 - Online Business Transactions Policies & Guidelines •  Primary Registration – COR •  Secondary Registration – ATP, books of accounts •  Issuance of Invoices, ORs •  Withholding from payees & employees, Remittances •  Filing of returns and payment of taxes; submission of required information returns, lists, etc. •  Keeping of books of accounts and other business/ acctg. records 7
  8. 8.   RMC 55-2013 - Online Business Transactions Obligations of Parties to Online Transactions •  Merchant/Retailer •  Buyer/Customer •  Payment Gateways •  Freight Forwarders •  Online Website Administrators 8
  9. 9.   RR 10-2015 – Use of non- thermal paper •  Non-thermal paper shall be used for all CRM/POS & other invoice/receipt-generating machine/software •  Staggered implementation dates on use of non- thermal paper for machines already registered •  Information required to appear at the OR/SI/other commercial invoices to include “This Invoice/Receipt shall be valid for five (5) years from the date of the permit to use.”; other info for senior citizens/pwd •  Covered also are those machines generating electronic receipts which are connected to a network or linked to CAS or components thereof •  Penalty provisions under NIRC •  Adjustments: Oct. 1, 2015/Oct. 31/Dec. 31, 2015 9
  10. 10.   RMC 68-2015 – Accreditation of CRM/POS/Other Sales Machines/Receipting Software •  Accreditation at the BIR National Office Level only through the National Accreditation Board (NAB) •  Only BIR-accredited sales machines/receipting software shall be used by business taxpayers •  Accreditation shall be valid for 5 years from the date of issuance of the Certificate of Accreditation. Application for renewal shall be within 60 days prior to expiration of the validity period •  Tp-users of sales receipting system software or any similar software acquired/subscribed via Cloud application service provider shall likewise secure an accreditation, provided provision for storage and backup of all required data including authorized access for BIR Rev. Officers shall be locally available for audit purposes. 10
  11. 11. 2/25/16   11   REVENUE MEMORANDUM Circular No. 56-2015 Monthly eSales Report via eSales Reporting System Ø  eSales is a real time reporting online of actual sales transactions recorded by: •  CRM •  POS •  Other sales machines and/or software Ø The above are required to be tamper-proof thus should contain the original data that should serve as basis for tax assessments by Rev. Officers Ø Sales records are not allowed to be altered or amended, except on meritorious cases, where it will require justification addressed to the concerned to the Revenue Office with corresponding adjusting entries properly recorded in the Books of Accounts.
  12. 12. 2/25/16   12   REVENUE MEMORANDUM ORDER No. 20-2015 Registration of Employees Ø  eREG System is required to be used in generating TIN for employees by: •  LT Employers •  Corporations under TAMP •  TPs enrolled in eFPS Ø Employees shall be registered at the RDO where the employer is registered or at the local RDO of the bus. address where the LT-Employer is physically located Ø Penalty – imposed to employers who are required to use eReg but instruct their new employees to visit RDOs (P1,000 per employee); also penalty for those who supplied erroneous/invalid information in eReg/Update module
  13. 13. 2/25/16   13   REVENUE MEMORANDUM CIRCULAR No. 85-2012 Withholding Tax Statement for Taxes Withheld at Source Ø Every payor required to deduct and withhold taxes - furnish in triplicate, each payee, whether individual or corporate, with a withholding tax statement, BIR Form No. 2307, showing the income payments made and the amount of taxes withheld therefrom, for every month of the quarter, within twenty (20) days following the close of taxable quarter •  Failure- ground for the mandatory audit of payor’s income tax liabilities (including withholding tax) •  For final withholding taxes-the statement given to the payee on or before January 31 of the succeeding year •  Upon request of the payee, however, payor must furnish such certificate simultaneously with the income payment
  14. 14. 14 REVENUE REGULATIONS No. 11-2013 Filing / Submission of Hard Copy of the Certificate of Compensation Payment / Tax Withheld (BIR Form 2316) Covering Employees Who are Qualified for Substituted Filing... Ø  Employers of MWEs are still required to issue BIR Form No. 2316 (June 2008 ENCS version) to the MWEs on or before January 31 of the following year. Ø  Employees covered by substituted filing: the employer shall furnish each employee with the original copy of BIR Form No. 2316 and file / submit to the BIR the duplicate copy not later than February 28 following the close of the calendar year. Ø  Failure – subject to applicable penalties
  15. 15. 15 REVENUE REGULATIONS No. 2-2015 amending RR 11-2013 & RR 2-2006 Submission of Copies of BIR Form 2307 & 2316 Ø  For CWT: in lieu of the hard copies of 2307, as attachment to SAWT, scanned copies stored in a DVD-R using pdf file format may be submitted together with a notarized Certification Ø  For Employees covered by substituted filing: the employer shall furnish each employee with the original copy of 2316, and file / submit the scanned copies stored in a DVD-R, using pdf file format, may be submitted together with a notarized Certification Ø  RMC 24-2015 – retention of the hard copies of the said forms shall remain in force & effect, & presentation may be requested during audit
  16. 16. 16 REVENUE REGULATIONS NO. 1-2014 Amending the provisions of RR 2-98, as further amended by RR 10-2008, specifically on the submission of alphabetical list of employees / payees of income payments Requirement to submit an alphabetical list of employees and list of payees on income payments subject to creditable and final withholding taxes as attachments to the Annual Information Returns (BIR Form No. 1601CF / 1604E) and Monthly Remittance Returns (BIR Form No 1601C, etc.). Covered are ALL withholding agents •  regardless of the number of employees and payees •  whether the employees / payees are exempt or not
  17. 17. 17 RR NO. 1-2014 (clarified by RMC 5-2014) submission of alphabetical list of employees / payees… Modes of submission: •  As attachment in the Electronic Filing and Payment System (eFPS); •  Through Electronic Submission - BIR’s website address at esubmission@bir.gov.ph; and •  Through Electronic Mail (email) at dedicated BIR addresses. Alphalist that does not conform with the prescribed format thereby resulting to the unsuccessful uploading •  deemed not received, and •  not qualify as a deductible expense for income tax purposes
  18. 18. The SAWT and MAP —  Summary Alphalist of Withholding Tax at Source (SAWT)              !List of the contents of Certificates of Taxes W/held at Source ( Form 2307) like income received; period when income earned, amount of tax w/held. All 2307 shall be attached to SAWT. !SAWT attached by recipient of income to 1701, 1701Q (individuals) and 1702, 1702Q (GPPs) —  Monthly Alphalist of Payees (MAP) !List of the contents of all 2307 issued by you !MAP attached by payor of income to remittance returns like 1601-E, 1601-C 18
  19. 19.   VAT under the Tax Code SEC. 105. Persons Liable. - Any person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services, and any person who imports goods … Ø  VAT is an indirect tax and the amount of tax may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services. Ø  "in the course of trade or business" means the regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto, by any person regardless of whether or not the person engaged therein is a non-stock, nonprofit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests), or government entity. 19
  20. 20.   VAT under the Tax Code SEC. 106. Value-Added Tax on Sale of Goods or Properties. - (A) Rate and Base of Tax. - There shall be levied, assessed and collected … 12% VAT •  Threshold : P1,919,500 •  Below threshold : subject to 3% tax on gross pursuant to Sec. 109 (W)   20
  21. 21.   VAT under the Tax Code SEC. 106. (2) The following sales by VAT-registered persons shall be subject to zero percent (0%) rate: (a)  Export Sales. - The term "export sales" means: (1) The sale and actual shipment of goods from the Philippines to a foreign country, irrespective of any shipping arrangement that may be agreed upon which may influence or determine the transfer of ownership of the goods so exported and paid for in acceptable foreign currency or its equivalent in goods or services, and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP); 21
  22. 22.   VAT under the Tax Code Continuation >>>SEC. 106. (Export Sales) (2) Sale of raw materials or packaging materials to a nonresident buyer for delivery to a resident local export-oriented enterprise to be used in manufacturing, processing, packing or repacking in the Philippines of the said buyer's goods and paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP); (3) Sale of raw materials or packaging materials to export-oriented enterprise whose export sales exceed seventy percent (70%) of total annual production; (4) Sale of gold to the Bangko Sentral ng Pilipinas (BSP); and (5) Those considered export sales under Executive Order NO. 226, otherwise known as the "Omnibus Investment Code of 1987", and other special laws; and (6) The sale of goods, supplies, equipment and fuel to persons engaged in international shipping or international air transport operations 22
  23. 23.   VAT under the Tax Code Continuation >>>SEC. 106. (0%) (b) Foreign Currency Denominated Sale- means sale to a nonresident of goods, except those mentioned in Sections 149 and 150, assembled or manufactured in the Philippines for delivery to a resident in the Philippines, paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP). (c) Sales to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects such sales to zero rate. 23
  24. 24.   RR 1-2012 SLSP Mandatory Submission of Quarterly Summary List of Sales and Purchases (SLSP) by All VAT Registered : •  Persons Required to Submit Summary Lists of Sales (SLS): All persons liable for VAT such as manufacturers, wholesalers, service-providers, among others are required •  Persons Required to Submit Summary Lists of Purchases and/or Importations (SLP/I): All persons liable for VAT such as manufacturers, service- providers, among others are required 24
  25. 25. 25 Preservation of Books of Accounts and Other Accounting Records Ø  RETENTION PERIODS - 10 years reckoned from the day following the deadline in filing a return, or if filed after the deadline, from the date of the filing of the return, for the taxable year when the last entry was made in the books of accounts Ø  EXAMINATION AND INSPECTION. - All books, registers, records, vouchers and other supporting papers: •  kept at all times at the place of business •  subject to inspection by any internal revenue officer, and upon demand, the same must be immediately be produced and submitted for inspection REVENUE REGULATIONS No. 17-2013
  26. 26. 26 EXAMINATION AND INSPECTION - may be examined and inspected for purposes of •  regular audit or extraordinary audit •  requests for exchange of information by a foreign tax authority, and •  in the exercise of the Commissioner’s power to obtain information under Section 5 of the NIRC, among others. Ø  Examination and inspection of books of accounts and other accounting records shall be done •  in the taxpayer’s office or •  place of business or •  in the office of the BIR. RR No. 17-2013 (cont.)
  27. 27. 27 Amending RR No 17-2013 on the “Preservation of Books of Accounts and Other Accounting Records” RETENTION PERIODS •  period of ten (10) years reckoned from the day following the deadline in filing a return, or if filed after the deadline, from the date of the filing of the return •  within the first five (5) years, shall retain hardcopies of the books of accounts, including subsidiary books and other accounting records; thereafter, may retain only an electronic copy of the hardcopy in an electronic storage system which complies with prescribed conditions, otherwise must preserve the original copy of all records REVENUE REGULATIONS No. 5-2014
  28. 28. 28 Preservation of Books of Accounts and Other Accounting Records… RETENTION PERIODS •  the independent CPA has the responsibility to preserve electronic copies of the audited and certified FS including the audited working papers for 10 years ELECTRONIC STORAGE SYSTEM to be used by the taxpayer or independent CPA: •  An accurate and complete transfer of the images of the hardcopy of the books of accts, subsidiary books and other acctg records to an electronic storage media; and •  Index, store, preserve, retrieve, and reproduce the electronically stored images of the hardcopy of records RR No. 5-2014
  29. 29. 29 Preservation … Ø The stored data in the electronic storage system must be highly legible and readable when displayed in a video display terminal and when reproduced in hardcopy. Ø For each electronic storage system used, the taxpayer must maintain, and make available to the BIR upon request, complete descriptions of: •  the electronic storage system, including all procedures relating to its use; and •  the indexing system. Ø  BIR may periodically initiate tests of a taxpayer’s electronic storage system (tests not qualified as “examination”/“inspection” as these do not involve determination of tax liability) RR No. 5-2014
  30. 30. 2/25/16   30   REVENUE MEMORANDUM CIRCULAR No. 6-2013 Clarifies taxpayers’ concerns on the audit program and their responsibility in selecting tax agents / practitioners to make representation in the BIR in their behalf •  Per RR No. 11-2006, as amended - BIR can refuse to transact official business with tax agents/practitioners who are not accredited before it; all taxpayers shall ensure that the tax agents/practitioners whom they will engage are accredited with the BIR.
  31. 31. 2/25/16   31   REVENUE MEMORANDUM CIRCULAR No. 6-2013 (con’t.) •  Further, taxpayers should be aware of their responsibilities, which are as follows: a. Before engaging the service of a tax agent/ practitioner- secure a copy of his/its BIR certificate of accreditation; take note of the TIN, Accreditation Number, date of issuance and date of expiry b. Constantly visit the BIR website for the publication of the updated master list of the accredited tax agents/practitioners.
  32. 32.   Enforcement Activities • Modified Tax Compliance Verification Drive (MTCVD) under Rmo 31-2003 - campaign to expand the tax base and enhance taxpayer compliance in the areas of business registration, invoicing & bookkeeping. • Letter Notices – issued based on result of data matching from RELIEF and BOC • Reconciliation of Listing for Enforcement (RELIEF) supports the third party information program of the Bureau through the cross referencing of third party information from the taxpayers' Summary Lists of Sales and Purchases prescribed to be submitted on a quarterly basis. 32
  33. 33.   RMO 5-2012 Benchmarking Conduct of Performance Benchmarking Method •  Objective: to address tax leakages, or the schemes being applied by some taxpayers and tax practitioners in reducing tax payments to the government. •  Benchmarking of taxpayers -the process of setting a standard to determine the performance level of taxpayers in a given line of industry or sector. •  In this case, the ratios of Net VAT Due and Income Tax Due in relation to gross sales/receipt, vis-à-vis profit margin rate is to be used for the purpose of setting the industry standard for taxpayers’ compliance. 33
  34. 34. Tax Forms & Filing Deadlines   NOTE: TP needs to file a return even when there’s no tax due to pay. Tax Type Form Type Tax Base/Remarks Deadlines 1. Annual Reg’n Fee 0605 Fixed P500.00 January 31st 2. % Tax 2551M 3% on gross if 1.9M & below 20th ff taxable month 3. VAT (monthly) VAT(quarterly) 2550M 2550Q 12% gross sales if above 1.9M Same 20th ff taxable month 25th ff end of qtr. 4. W/holding Taxes 1601E See back of tax form 10th ff taxable month 5. Annual Information Return on WHT 1604-E w/ alpha list of payees March 1, the ff year. 5. Income Tax (Q) 1701Q 45 days ff end of qtr, except Q1 due on April 15 34
  35. 35. BIR : Top “GO IT” — Call Center : 981-8888 — Website: www.bir.gov.ph 35
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