Despite a Supreme Court (SC) ruling saying that the Bureau of Internal Revenue (BIR) may no longer impose additional requirements on foreign taxpayers seeking to avail themselves of tax benefits under a treaty signed by the Philippines, Internal Revenue Commissioner Kim Jacinto-Henares has issued a circular requiring applications to be filed before reliefs under a tax treaty can be availed.
Henares issued Revenue Memorandum Circular (MC) 72-2015, announcing the entry into force of the tax treaty signed by the Philippines and Qatar starting in January 2016, but reiterating the requirement that tax-treaty reliefs should be applied for before such may be enjoyed.
“Tax Treaty Relief Applications invoking the Philippines-Qatar Double Taxation Agreement should be filed with and addressed to the International Tax Affairs Division [ITAD]. For this purpose, the concerned Qatari resident income earner, or an authorized representative of the latter should file a duly accomplished BIR Form 0901, together with the required documents specified at the back of the form, pursuant to Revenue Memorandum Order 72-2010,” the circular said.
Last year identical circulars were issued, announcing the entry into force of tax treaties with Nigeria and Kuwait, and requiring Nigerians and Kuwaitis availing of benefits under the treaties to apply with the ITAD.
The tax-treaty benefits are often in the form of creditable withholding tax withheld on the income of nonresident taxpayers here in the Philippines, if the country where the nonresident resides also allows Filipino taxpayers to credit the tax they pay in that country.
However, tax practitioners are of the opinion that such circulars requiring foreign taxpayers to apply for tax-treaty relief meant to avoid double taxation are merely directory and not mandatory.
PricewaterhouseCoopers Philippines chairman and senior partner Alexander Cabrera said that the circulars are meant only to allow the BIR to know about the financial transactions of the affected foreign taxpayers, but cannot stop such taxpayers from actually availing of the benefits of the tax treaties even before their applications with the ITAD had been acted upon.
Thus, he said, their clients also file their applications with ITAD, but do not have to wait for the application to be approved or denied before proceeding with transactions for which the tax-treaty reliefs are applied.
Under an earlier SC ruling in the case of Deutsche Bank AG Manila Branch vs Commissioner of Internal Revenue, the SC ruled the BIR cannot impose additional requirements on taxpayers availing of a tax-treaty relief because such requirements violate the international mandate, saying countries should comply with their treaty obligations in good faith.
During the Asia-Pacific Economic Cooperation (Apec) economic leaders summit last week, the Apec Business Advisory Council (Abac) raised the issue of taxation as part of its lobbying for transparency and predictability of government regulations that could attract more foreign investments to the Philippines because of the certainty that rules are applied fairly and evenly across sectors.
SC Chief Justice Maria Lourdes Sereno, who spoke before the Apec Abac’s annual Women’s Luncheon, said the SC is even now strengthening the rule of law, including the predictability of the application of the laws and tax regulations, by making sure there are no more contradicting rulings by the different divisions of the SC.