Securities and Exchange Commission

 

The Securities and Exchange Commission (SEC) issued SEC Memorandum Circular (MC) No. 27, Series of 2020 dated 25 August 2020, to provide guidelines for the conversion of corporations either to One Person Corporation (OPC) or to Ordinary Stock Corporation (OSC).

 

A.        Conversion of OSC to OPC

• The OSC may apply for the conversion into an OPC if a natural person of legal age, a trust or an estate (“single stockholder”) has acquired all the outstanding capital stocks of an OSC, with the corresponding Certificate Authorizing Registration or tax clearance issued by the Bureau of Internal Revenue (BIR), by submitting the documentary requirements listed in the MC. The application shall be processed as an Amendment of the Articles of Incorporation.
• Upon issuance of the Certificate of Filing of Amend Articles of Incorporation by the SEC reflecting the conversion to OPC, the Articles of Incorporation and By-laws of the OSC shall be deemed superseded.
• The date of issuance of the Certificate of Filing of Amend Articles of Incorporation shall be deemed as the date of approval of the conversion
• The Certificate of Filing of Amend Articles of Incorporation shall bear and retain the OSC’s original SEC registration number
• The name of the corporation shall have the “OPC” suffix to reflect its nature as an OPC.
• The OPC shall succeed the OSC and shall be legally responsible for all the OSC’s outstanding liabilities as of the date of approval of the conversion

 

B.        Conversion of OPC to OSC

• The OPC may be converted into an OSC, when the shares of an OPC cease to be held solely by a single stockholder, after due notice to the SEC of such fact/s and circumstance/s leading to the conversion, as may be determined by the SEC. The SEC shall evaluate the submitted documentary requirements listed in the MC.
• A Notice of Conversion (Notice) of OPC into an OSC shall be filed with the SEC within sixty (60) days from the transfer/s of shares in an OPC wherein there are at least two (2) stockholders in the OPC.
• The period for filing the Notice shall be observed even though the conversion will be applied for or will take place afterwards.
• The date of transfer of shares, for purposes of the submitted Notice, shall be deemed to the date of issuance of the corresponding Certificate Authorizing Registration/tax clearance issued by the BIR.
• If the Notice is filed with the SEC beyond sixty (60) days from the transfer of shares, the conversion of the OPC to OSC may still be approved subject to prior payment of penalty.
• Upon issuance of the SEC of the Certificate of Filing of Amend Articles of Incorporation and By-laws reflecting the conversion to an OSC, the Articles of Incorporation of the OPC shall be deemed superseded.
• The date of issuance of the Certificate of Filing of Amend Articles of Incorporation shall be deemed as the date of approval of the conversion
• The Certificate of Filing of Amend Articles of Incorporation shall bear and retain the OSP’s original SEC registration number
• The name of the corporation shall not have the “OPC” suffix to reflect its nature as an OPC.
• The OSC shall succeed the OPC and shall be legally responsible for all the OPC’s outstanding liabilities as of the date of approval of the conversion

In both cases, the Consolidated Schedule of Fees and Charges under SEC MC No. 3, series of 2017 shall apply for these guidelines.

The conversion from OSC to OPC shall be deemed as optional due to the nature of these corporations. On the other hand, the conversion from an OPC to OSC shall be deemed as mandatory, unless when winding-up and dissolution are appropriate

Processing of applications for conversion shall commence only upon receipt by the Corporate Registration and Monitoring Division (CRMD) or by any of the SEC Extension Offices, nationwide, of the complete documentary requirements, including the proof of payment of the applicable fees. This shall be done manually by the SEC until further notice.

In case an opposition or dispute arises from the conversions discussed in these guidelines, the aggrieved party may file before the CRMD of a verified Petition for Cancellation of the certificate issued, on the ground of fraud in the procurement thereof in accordance with the applicable laws and other rules or issuances of the SEC.

 

Supreme Court / Court of Tax Appeals

The Supreme Court (SC) / Court of Tax Appeals (CTA) issued the following:

Revenue Regulations (RR) No. 12-99, as amended, provides that the Preliminary Assessment Notice (PAN) or the Final Assessment Notice (FAN) may be served to the taxpayer by registered mail. Under Section 3(v), Rule 131 of the Rules of Court, a disputable presumption exists that a letter duly directed and mailed is received in the regular course of the mail. However, in the case of direct denial of the taxpayer of due receipt of the PAN and the FAN, the burden is shifted to the BIR to prove that the mailed assessment notices were indeed received by the taxpayer or by its authorized representative. The mere presentation of the registry receipt will not suffice without presentation of witnesses to identify and authenticate that the signatures appearing on the registry receipts were made by the taxpayer’s authorized representatives.

 

Also, a FAN without a definite period within which to pay the assessed taxes is void and without any legal consequence.  [Commissioner of Internal Revenue (CIR) vs. T Shuttle Services, Inc., G.R. No. 240729, 29 September 2020]

Requisites for supply of services to qualify for Value-Added Tax (VAT) zero-rating:  (1) Services must be other than processing, manufacturing, or repacking of goods; (2) Payment for such services must be in acceptable foreign currency accounted for in accordance with the Bangko Sentral ng Pilipinas’ (BSP’s) rules and regulations; and (3) Recipient of such services must be doing business outside the Philippines. [CIR vs. Sabre Travel Network (Philippines), (formerly Abacus Distributions Systems Philippines, Inc.), CTA EB No. 1932, 03 September 2020; Sabre Travel Network (Philippines), (formerly Abacus Distributions Systems Philippines, Inc.) vs. CIR, CTA EB No. 1937, 03 September 2020]

 

Improperly Accumulated Earnings Tax (IAET) is not applicable when a company retains funds for compliance with a loan covenant or pre-existing obligation.  Section 3(d) of RR No. 02-01 shows that “Earnings reserved for compliance with any loan covenant or pre-existing obligation established under a legitimate business agreement” constitutes an accumulation of earnings for the reasonable needs of the business. (Fortune Tobacco Corporation vs. CIR, CTA EB No. 1971, September 22, 2020)

 

Condominium corporations are not engaged in business when they collect assessments or dues from its unit owners.  Thus, they are not subject to Local Business Tax, as well as to business plate/sticker fee/environmental impact fee which are imposable only on entities engaged in business. In Revenue Memorandum Circular No. 65-2012, it was ruled that association dues, membership fees, and other assessments/charges form part of a pool from which a condominium corporation must draw funds in order to bear the costs for maintenance, repair, improvement, reconstruction expenses and other administrative expenses. Without any clear and convincing proof that the condominium corporation had actually engaged in profit-making activities and had derived any income or profit from its collection of dues from its unit owners, the same is not engaged in trade or business. (Taguig City Government, Hon. Ma. Laarni Cayetano vs. Serendra Condominium Corporation, CTA AC No. 229, 10 September 2020; Serendra Condominium Corporation vs. Taguig City Government, Hon. Ma. Laarni Cayetano, CTA AC No. 230, 10 September 2020)

 

The Letter of Authority (LOA) is valid even if it was issued by a Regional Director who is only an Officer-In-Charge (OIC).  A BIR officer holding an OIC-Regional Director position is equally authorized to and responsible as that of a regular Regional Director for issuing eLOA and assessment/demand notices, among others.

 

Expenses of a non-bank financial intermediary should be determined on a pro-rata basis under Section 50 of the Tax Code, as implemented under Revenue Regulations (RR) No. 4-11.  Only costs and expenses attributable to the operations of the financial institution can be claimed as deduction to arrive at the taxable income of the financial institution subject to regular income tax.  The Court held that the CIR was justified to apply the method of allocation pursuant to RR No. 4-11 with reference to allocating cost and expenses among the regular tax, final tax and tax-exempt regimes of the income earned by a non-bank financial intermediary. Nonetheless, since the amount of available credits is sufficient to cover the deficiency income taxes, the total deficiency income tax assessment was cancelled.

The surrender of shares does not constitute a sale, assignment or transfer because the liquidating corporation is not taking title to the surrendered shares and the shares are retired and not retained as treasury share. Considering that the shares will be considered retired and no longer issuable upon redemption, no DST is due on the surrender and cancellation of redeemable, preferred shares. (First Philippine Utilities Corporation vs. CIR, CTA Case No. 9431, 29 September 2020)

SEC Memorandum Circular No. 27