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BIR Rulings
2018 BIR RULINGS also instituted a civil case for the annulment of a sale of real
property. The Court granted the annulment of the sale with
BIR Ruling No. 1211-2018 dated 28 September 2018 damages and ordered the transfer of the subject property to A.

Facts: Issues:
1. Are the damages awarded by the Court classified as taxable
A Co., B Co. and C C o. (collectively referred to as the income?
“Contractors”) are engaged in the business of construction 2. Is the transfer of the real property in satisfaction of the Court’s
services. They entered into an agreement with D Energy Co. for award for
the construction of the latter’s coal-fired power plant under an damages taxable?
engineering and construction contract. Under the contract,
should the Contractors fail to deliver the plant at a guaranteed Ruling:
completion date, they will be held liable for reasonable 1. It depends. Pursuant to Section 32 (B) (4) of the Tax Code,
liquidated damages. compensatory damages, actual damages, moral damages,
exemplary damages, attorney’s fees, and the cost of the suit are
On the guaranteed completion date, the Contractors were excluded from gross income. However, consequential damages
delayed in the delivery of the project. They were made to pay representing loss of the victim’s earning capacity are not
liquidated damages in favor of D Energy Co. excluded from gross income. Such consequential damages are
mere replacements of income which would have been subjected
Issues: to tax, if earned. Thus, only the consequential damages is subject
1. Are liquidated damages subject to VAT? to income tax.
2. Are liquidated damages subject to income tax?
2. It depends. The phrase “other disposition” includes within its
Ruling: purview all kinds of dispositions of real property under Section
1. No. Section 105 of the Tax Code, as amended, provides that 24 (D) (1) of the Tax Code, unless specifically excluded
any person who, in the course of trade or business, sells, barters, therefrom or subjected to another tax treatment. Considering,
exchanges, leases goods or properties, renders services, and any however, that the transfer of the subject property is for the
person who imports good shall be subject to VAT. The phrase satisfaction of the Court’s award for damages in favor of Ms. A,
“in the course of trade or business” means the regular conduct or the taxability of said transfer must be qualified. The current fair
pursuit of commercial or an economic activity, including market value of the property, determined in accordance with
transactions incidental thereto, by any person. The liquidated Section 6 (E) of the Tax Code, which corresponds to the award
damages for failure of the of compensatory, actual, moral, exemplary damages, attorney’s
Contractors to meet the guaranteed completion date are not fees, and the cost of the suit is exempt from CGT and DST. On
considered transactions subject to VAT since they represent the the other hand, the current fair market value of the property
indemnification for unexpected loss of assets. corresponding to the amount of consequential damages
representing loss of the victim’s earning capacity including legal
2. Yes. Liquidated damages are subject to income tax, the same interest is subject to CGT and DST.
being compensation for the loss of anticipated profits.
The Rule is:
Rule:
Liquidated damages for failure to deliver an obligation at a Compensatory damages, actual damages, moral damages,
guaranteed date represent indemnification for the exemplary damages, attorney’s fees, and the cost of the suit
unexpected loss of assets, and are not subject to VAT. They are excluded from gross income. However, consequential
are, however, subject to income tax, the same being damages representing loss of the victim’s earning capacity
compensation for loss of anticipated profits. are not excluded from gross income.

BIR Ruling No. 1212-2018 dated 28 September 2018 BIR Ruling No. 032-2018 dated 23 January 2018

Facts: Facts:
Q Co., a domestic corporation, is a common carrier for cargo ABC Co. is engaged in the business of manufacturing,
and passengers in coastwise trade, and is registered with the processing, packing and
Maritime Industry Authority (MARINA). It imported one repacking tobacco cut rags for use in pipe tobacco, roll your own
unit of cargo ship with an Authority to Import issued by and make your
MARINA. own, wholesale, retail and export tobacco, and sale of related
tobacco products. It sells cigarette tubes and loose tobacco
Issue: directly to end users/consumers.
Is the importation of the cargo ship exempt from VAT?
Issues:
Ruling: 1. Is the sale of cigarette tubes subject to excise tax?
Yes. Section 109 (1) (T) of the Tax Code, as amended, provides 2. Is the sale of loose tobacco directly to end users or consumers
that the sale, importation or lease of passenger or cargo vessel subject to excise tax?
and aircraft, including engine, equipment and spare parts thereof,
for domestic or international transport operations shall be Ruling:
exempt from VAT. 1. No. An empty cigarette tube, without any tobacco or
substitute smoking material in it, is not covered by Section 144
Rule: of the Tax Code. Likewise, an empty cigarette tube does not
The sale, importation or lease of passenger or cargo vessel qualify as cigarette or cigar that is subject to excise tax under
and aircraft, including engine, equipment and spare parts Section 145 of the Tax Code. Thus, the sale of empty cigarette
thereof for domestic or international transport operations tube, without any tobacco or substitute smoking material in it, is
shall be exempt from VAT. not subject to excise tax.

BIR Ruling No. 026-2018 dated 18 January 2018 2. Yes. Generally, the sale of loose tobacco is subject to excise
tax under Section
Facts: 144 of the Tax Code. However, when the same is exported or
Ms. A and her minor children instituted an action for damages used in the manufacture of cigars, cigarettes, or other tobacco
arising from a crime. The Court awarded them with actual, products on which the excise tax will eventually be paid on the
consequential, moral and exemplary damages. Separately, Ms. A finished product, no excise tax shall be due. In the instant case,
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BIR Rulings
since the loose tobacco shall be sold directly to end users or that such income and dues shall be used for the provision of
consumers, the sale shall be subject to excise tax. basic community services and the local government lacks
resources to provide for such basic community services.
Rule:
The sale of an empty cigarette tube, without any tobacco or BIR Ruling No. 070-2018 dated 25 January 2018
substitute smoking material in it, is not subject to excise tax.
Loose tobacco, when sold directly to end users or consumers, Facts:
is subject to excise tax. ABC is a central bank and statutory board established under the
laws of Singapore. The BIR previously issued a ruling in favor
BIR Ruling No. 061-2018 dated 24 January 2018 of ABC stating that the income derived by ABC from the sale of
its investments in the Philippines is not subject to Philippine
Facts: income tax, and consequently, to withholding tax.
A, B, and C are Japanese nationals who are long term residents ABC requested for confirmation of the validity of said BIR
of the Philippines by virtue of Special Retiree Resident visa ruling for taxable year
issued by the Philippine Retirement Authority. C died intestate 2016 and subsequent years, without need for subsequent
in 2015. During the lifetime of C, A and B opened various revalidation, as long as it remains qualified for tax exemption
accounts together with C, where each of them owns one third of under Section 32 (B) (7) (a) of the Tax Code.
the bank accounts under an “OR” joint account. A and B
urgently need to withdraw from the accounts but the Bank Issue:
refuses to allow them to withdraw or close the deposits unless Does ABC remain qualified for tax exemption?
there is a certification from the BIR stating that the estate tax has
been paid or that the estate is exempt from the payment of tax. Ruling:
Yes. ABC is a financial institution owned, controlled, and
Issue: financed by the State of
Are the deposits subject to estate tax? Singapore as contemplated under Section 32 (B) (7) (a) (ii) of
the Tax Code. Any
Ruling: income derived by it in the Philippines in loans, stocks, bonds or
Yes. Pursuant to Section 85 of the Tax Code, the value of the other domestic
gross estate of a securities, sale of its investments in the Philippines, or from
decedent shall be determined by including the value, at the time interest on its deposits in bank in the Philippines, is exempt from
of his death, of all property, real or personal, tangible or Philippine income tax, and consequently, from withholding tax.
intangible, wherever situated. Thus, only 1/3 of the balance of
the deposit should be reported for estate tax purposes pertaining Any income to be derived by ABC from its future investments in
to C, the decedent, and the 2/3 portion of the balance of the said the Philippines in loans, stocks, bonds or other domestic
accounts shall not be included in the computation of the gross securities, sale of its investments in the Philippines, or from
estate of the decedent. interest on its deposits in bank in the Philippines shall likewise
be exempt from Philippine income tax.
Rule:
Rule:
The value of the gross estate of a decedent shall be Income derived from investments in the Philippines in loans,
determined by including the value, at the time of his death, stocks, bonds or other domestic securities, or from interest
of all property, real or personal, tangible or intangible, on deposits in banks in the Philippines, including sale of
wherever situated. investments by foreign governments and financing
institutions wholly owned, controlled, or enjoying
BIR Ruling No. 063-2018 dated 24 January 2018 refinancing from foreign governments, shall be exempt from
income tax, and consequently, from withholding tax.
Facts:
ABC Homeowners’ Association requested for a Certificate of BIR Ruling No. 075-2018 dated 29 January 2018
Tax Exemption enjoyed by Homeowners’ Associations under
RA No. 9904, as enunciated in RMC No. 9-2013. The Office of Facts:
the Municipal Mayor of Nasugbu, Batangas certified that ABC AAA Co., BBB Co., and CCC Co. agreed to merge, with AAA
Homeowners’ Association funds the basic services for its Co. as the surviving
homeowners or members and that the local government cannot corporation. Pursuant to the Plan of Merger, BBB Co. and CCC
cater to such services for lack of resources. Co. shall transfer all their assets and liabilities to AAA Co. as a
consequence of the merger, for which AAA Co., by way of
Issue: original issue, shall issue common shares of stocks to BBB Co.
Is ABC Homeowners Association entitled to tax exemption? and CCC Co.

Ruling: Issues:
Yes. Considering that ABC Homeowners’ Association is a duly 1. Is the statutory merger among AAA Co., BBB Co., and CCC
registered Homeowners Association with the Housing and Land Co. a merger within
Use Regulatory Board (HLURB); that its financial statements the contemplation of Section 40 (C) (2) (a) and (b) in relation to
show the delivery of basic community services defined under Section 40 (C)
Section 3 (d) of RA No. 9904; and that the local government unit (6) (b) of the Tax Code?
covering the jurisdiction of the Homeowners Association has
issued a Certificate that it lacks the resources to provide these 2. Is the transfer of properties subject to VAT and DST?
services to the Association, the income of ABC Homeowners’ Ruling:
Association derived from association dues and rental facilities is
exempt from income tax and VAT or percentage tax, whichever 1. Yes. The merger of AAA Co., BBB Co., and CCC Co. is a
is applicable, provided that such income and dues shall be used merger within the contemplation of Section 40 (C) (2) (a) and
for the cleanliness, safety, security and other basic services (b) in relation to Section 40 (C) (6) (b) of the Tax Code, because
needed by the members, including the maintenance of the AAA Co. shall acquire and assume all the assets and liabilities
facilities of their respective subdivisions or villages. of BBB Co. and CCC Co. and the same is advisable, expedient
and in the best interest of the merging corporations and their
Rule: respective stockholders. The merger, being undertaken for a
Association dues and income derived from rentals of a bona fide business purpose and not for the purpose of escaping
homeowners’ association shall be exempt from tax, provided the burden of taxation, qualifies for nonrecognition of gain or
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BIR Rulings
loss for income tax purposes in accordance with Section 40 (C) Issue:
(2) of the Tax Code, where no gain or loss shall be recognized Is the exchange of properties subject to CGT and DST?
by BBB Co. and CCC Co. as the transferors of all assets and
liabilities to AAA Co. pursuant to the Plan of Merger. Ruling:
Yes. The phrase “other disposition” under Section (D) (1) of the
2. No. Pursuant to Section 4.106-8 (b) (3) of RR No. 16-2005, as Tax Code includes within its purview all kinds of dispositions of
amended, no VAT shall be due on the transfer made pursuant to real property unless specifically excluded therefrom or subject to
the Plan of Merger. Likewise, no DST is due on the transfer in another tax treatment pursuant to other provisions of the Tax
accordance with Section 199 (m) in relation to Section 40 (C) (2) Code or other special tax laws. In the absence of an express
of the Tax Code. However, DST shall be imposed on the original statutory provision exempting from tax the said exchange of
issuance of shares by AAA Co. to the stockholders of BBB Co. properties, the same is subject to CGT. Moreover, the
and CCC Co. as a consequence of the merger as provided under conveyance, being a disposition of real property, is likewise
Section 174 of the Tax Code. subject to DST.

Rule: Rule:
A merger undertaken for a bona fide business purpose and not The phrase “other disposition” includes within its purview
for the purpose of escaping the burden of taxation qualifies for all kinds of dispositions of real property, including exchange
non-recognition of gain or loss for income tax purposes in of properties.
accordance with Section 40 (C) (2) of the Tax Code.
BIR Ruling No. 123-2018 dated 2 February 2018
BIR Ruling No. 109-2018 dated 31 January 2018
Facts:
Facts: ABC Co. is engaged in the business of providing documentation
ABC Co. is a domestic corporation engaged in the business of and liaison services as well as consulting services to its
publishing newspapers, journals, magazines, books and other customers. ABC Co. requested for a ruling to provide clarity on
literary works and undertakings and also to carry on the business the applicable withholding tax rate for the services it renders to
as printers, booksellers, bookbinders, paper makers, stationers, its clients.
engraver photographs, photographic printers, stereotypes,
electro-typers, lithographers, machinists, silkscreeners or any Issue:
business that may seem expedient. ABC Co. requested for a What is the applicable withholding tax rate for the income
VAT exemption certificate pursuant to Section 109 (I) (R) of the payments received by
Tax Code. ABC Co.?

Issue: Ruling:
Is ABC Co. exempt from VAT and the 3% percentage tax under Income payments to certain contractors residing in the
Section 116 in relation to Section 109 of the Tax Code? Philippines, such as messengerial, janitorial, private detective
and/or security agencies, credit and/or collection agencies, and
Ruling: other business agencies shall be subject to 2% CWT based on
Yes. ABC Co. is exempt from VAT and the 3% percentage tax gross payments, pursuant to Section 1.57.2 (E) (4) (g) of RR No.
under Section 116 in relation to Section 109 (1) (R) of the Tax 2-98,
Code, provided that, in case of publication and sale of any as amended. Accordingly, income payments to ABC Co. on the
newspaper, magazines, reviews or bulletins, they appear at documentation and liaison services to its clients are subject to
regular intervals with fixed prices for subscription and sale and 2% CWT. Payments to ABC Co. for consulting services shall be
which are not devoted principally to the publication of paid subject to CWT at the rate of 10% or 15%, as the case may be.
advertisements.
However, if ABC Co. is engaged in other non-exempt activities Rule:
such as printing of brochures, bookbinding, engraving, Payments for documentation and liaison services shall be
stereotyping, electrotyping, lithographing of various reference subject to 2% CWT. Payments for consulting services shall
books, trade books, journals and other literary works, said also be subject to CWT at the rate of 10% or 15%, as the
transactions are subject to VAT, and the taxpayer is required to case may be.
register its business as VAT business entity and must issue a
separate VAT invoice/receipt thereof to record the same. Also, BIR Ruling No. 134-2018 dated 8 February 2018
the sale of books, newspapers, magazines, reviews and bulletin
in digital and electronic format or computerized versions, Facts:
including but not limited to e-books, e-journals, electronic XYZ Co., a foreign corporation, engaged the services of ABC
copies, online library services, CDs and software shall be subject Co., a domestic
to VAT. corporation, to perform consultancy services in the areas of
planning, organization, management, logistics, training,
Rule : sustainment support, technical expertise, advisory on host nation
For the publication and sale of any newspaper, magazines, law and regulations, standards evaluation, studies and reports,
reviews or bulletins to be exempt from the coverage of VAT, among others. In consideration of the various consultancy
they must appear at regular intervals with fixed prices for services to be rendered by ABC Co., XYZ Co. agreed to pay
subscription and sale and which are not devoted principally ABC Co. in US dollars.
to the publication of paid advertisements.
Issues:
1. Are the consultancy services rendered in the Philippines by
BIR Ruling No. 122-2018 dated 2 February 2018 ABC Co. subject to
VAT zero-rating?
Facts: 2. Is ABC Co. entitled to a refund of any excess or unutilized
Mr. X, owner of a parcel of land described as Lot 9-A, and Ms. input VAT due or paid attributable to its zero-rated sale of
Z, owner of a services to XYZ Co.?
parcel of land described as Lot 9-B, executed a Deed of
Exchange for the purpose of exchanging property ownership of Ruling:
the said two parcels of land. The Deed of Exchange provides 1. Yes. The consultancy services rendered by ABC Co. to XYZ
that Mr. X will transfer and convey ownership over his lot with Co., which are paid
an additional cash consideration of Php100,000.00. for in acceptable foreign currency, will qualify for VAT zero-
rating pursuant to
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Section 108 (B) (2) of the Tax Code, as implemented by Section marketing efforts subject to 12% VAT?
4.108-5 (b) (2)
of RR No. 16-2005, as amended, provided that the payment is Ruling:
remitted inwardly 1. No. Since the value of the eGCs does not constitute income on
and accounted for in accordance with the rules and regulations the part of XYZ
of the BSP. Co., but a fund held in trust for reimbursing accredited
merchants, and therefore,
2. Yes. Considering that the consultancy services rendered by does not redound to the benefit of the Company, said amounts
ABC Co. to XYZ Co. qualify for VAT zero-rating, ABC Co. is shall not form part of its gross receipts subject to income tax
likewise entitled to apply for the refund of any excess or imposed under Section 27(A) of the Tax Code, as amended.
unutilized input VAT due or paid attributable to its zero-rated Accordingly, the same is also not subject to EWT.
sale of services to XYZ Co., subject to the conditions provided
in Section 112 (A) of the Tax Code. 2. No. Since the amount received by XYZ Co. from its
individual clients for the face value of the eGCs does not fall
Rule: within the purview of the term “gross income” and the money
Consultancy services, which are paid for in acceptable received by XYZ Co. from its clients is not compensation for
foreign currency, will qualify for VAT zero-rating, provided services rendered by the Company but a liability or deposit for
that the payment is remitted inwardly and accounted for in reimbursement at the participating establishments, such amount
accordance with the rules and regulations of the BSP. is not subject to VAT. Thus, XYZ Co. shall have to issue
separate Non-VAT official receipts.
BIR Ruling No. 148-2018 dated 13 February 2018
3. Yes. The service fees paid to XYZ Co. by the merchants
Facts: constitute gross income subject to income tax, and consequently,
AB Construction and CD Construction formed an to EWT, pursuant to Section 27 (A) of the Tax Code. XYZ Co.
unincorporated joint venture (“JV”) to undertake the shall also be subject to 12% VAT and shall be required to issue
construction of school classrooms pursuant to a contract with the VAT official receipts on the amount it received from the
government through the DPWH. merchant stores for the service fees, where eGCs were utilized
for facilitation or administration fee and/or marketing efforts or
Issue: commission.
Is the JV taxable as a corporation?
Rule:
Ruling: The value of a gift certificate does not constitute income on
No. The JV is not taxable as a corporation under Section 27 (A) the part of the issuer but a fund held in trust for reimbursing
of the Tax Code as it complies with the conditions provided for accredited participating stores.
in RR No. 10-2012, i.e., (1) the JV is for the undertaking of a
construction project; (2) the JV involves joining or pooling of BIR Ruling No. 245-2018 dated 21 February 2018
resources by licensed local contractors (licensed as general
contractor by the Philippine Contractors Accreditation Board); Facts:
(3) the local contractors are engaged in construction business; ABC Co., an agricultural cooperative, was formed after several
and (4) the JV itself is duly licensed by PCAB. It is therefore not sugarcane farmers agreed to pool their resources to form a
subject to the corporate income tax under Section 27 (A) of the cooperative for the purpose of undertaking an economic
Tax Code. enterprise to meet common needs of its members. ABC Co. sells
sugar produce to members and non-members.
Furthermore, the gross payments to the JV on the Project are
likewise not subject to the 2% CWT prescribed under Section 57 Issue:
(B) of the Tax Code. Is the sale of agricultural products to members and non-members
However, the co-venturers are separately subject to the regular exempt from VAT?
corporate income tax on the taxable income derived by them
from the aforesaid construction project. The respective net Ruling:
income of the co-venturers derived from the joint venture project Yes. Pursuant to RA No. 9337 and RR No. 8-2015, as clarified
is also subject to CWT under Section 57 of the Tax Code. under RMC No. 40-2015, the sale by agricultural cooperatives of
their agricultural products to their members is exempt from
Rule: VAT. As to the sale of products to non-members, such sale will
A joint venture formed for the purpose of undertaking be exempt from VAT if the following requisites are present: (1)
construction projects is not considered a taxable corporation the agricultural cooperative is of good standing and duly
under the Tax Code, provided it complies with the conditions accredited and registered with the Cooperative Development
laid down in RR No.10-2012. Authority; (2) the agricultural cooperative must be a holder of a
valid, current and subsisting Certificate of Tax Exemption; and
BIR Ruling No. 242-2018 dated 21 February 2018 (3) the seller-agricultural cooperative is the producer of sugar,
i.e., it is the tiller, thru its members, of the land it owns, or leases
Facts: and it incurs cost of agricultural production of the sugar and
XYZ Co., a domestic corporation, is a service provider that produces the sugar cane to be refined.
operates a platform for paperless gift cards, also known as
electronic gift cards (eGC), and runs digital card eGC storefronts Considering that ABC Co. meets all the requisites to qualify for
for various merchants in the Philippines. In the operation of such VAT exemption, its sale of sugar produce to its members as well
eGC platform, XYZ Co. earns revenue by charging service fees as non-members is exempt from VAT.
to the merchants and not from the issuance of eGCs to individual
clients. Rule:
Sale of agricultural products by agricultural cooperatives to
Issues: nonmembers may be exempt from VAT, provided that the
1. Are the proceeds from the issuance of eGCs by XYZ Co. to cooperative meets the requirements set forth under RMC
individual clients No. 40-2015.
taxable?
2. Is the issuance of eGCs by XYZ Co. to individual clients
subject to VAT?
3. Is the amount received by XYZ Co. from merchant stores for
facilitation or