Estate Tax Amnesty extended until 14 June 2025

Legal Updates

Authors:  Attys. Mary Elizabeth M. Belmonte and Patrick Anthony L. Caldo

The deadline for the availment of the Estate Tax Amnesty was extended until 14 June 2025 by virtue of Republic Act (R.A.) No. 11956 which lapsed into law last 5 August 2023. R.A. No. 11956 also extends the coverage of the Estate Tax Amnesty to include the estates of decedents who died on or before 31 May 2022.

With the passage of R.A. No. 11956, the heirs of decedents, who died on or before 31 May 2022 and whose estates have not yet been settled, may avail of the six percent (6%) estate tax amnesty rate without any penalties or interest until 14 June 2025. The Bureau of Internal Revenue (BIR) issued Revenue Regulation (R.R.) No. 10-2023, amending certain provisions of R.R. No. 6-2019, to implement the extension of the availment of the Estate Tax Amnesty.

Under Section 2 of R.R. No. 10-2023, those who wish to avail of the Estate Tax Amnesty may file a sworn Estate Tax Amnesty Return and pay the corresponding estate tax due, either electronically or manually, with any authorized agent bank, through revenue collection officer of any Revenue District Office (RDO), or authorized tax software provider as defined in Revenue Memorandum Order No. 8-2019. The estate tax due may be paid in installment within two (2) years from the statutory date for its payment without civil penalty or interest subject to certain conditions.

The estate tax due shall be based on the value of the gross estate at the time of the decedent’s death. Gross estate shall consists of all properties and interests in properties of the decedents but shall exclude the land awarded to agrarian reform beneficiaries (ARBs) pursuant to R.A. No. 11953. ARBs are the farmers or farmworkers who were granted lands under Presidential Decree No. 27, R.A. No. 6657, as amended, and R.A. No. 9700, and who have outstanding loan balances payable to the Land Bank of the Philippines and to private landowners as of the effectivity of R.A. No. 11953.

The mandatory requirements for the availment of the Estate Tax Amnesty are provided under of Section 2 of R.R. No. 10-2023 and shall be limited to the following:

  1. Certified true copy of the Death Certificate; 
  2. Tax Identification Number of decedent and heir/s;
  3. For claims against the estate arising from contract of loan, notarized promissory note, if applicable;
  4. Proof of the claimed property previously taxed, if any;
  5. Proof of the claimed transfer for public use, if any; and 
  6. At least one (1) government-issued identification card (ID) of the executor/administrator of the estate, the heirs, transferees, beneficiaries or authorized representative. 

Section 2 of R.R. No. 10-2023 also enumerates the documentary requirements for real and personal properties included in the gross estate of the decedent.

Significantly, the proof of settlement of the estate, whether judicial (Court Order) or extrajudicial (Extra-Judicial Settlement of Estate), shall not be required for purposes of availing the Estate Tax Amnesty. It shall only be required for the issuance of the Electronic Certificate Authorizing Registration (eCAR) for the transfer of properties. 

The passage of R.A. No. 11956 is a much welcomed relief to all taxpayers whose estates have not yet been settled. This encourages taxpayers to avail of the Estate Tax Amnesty and finally put to rest the settlement of the estates of their beloved and departed relatives. 

Links: 

Republic Act No. 11956

Revenue Regulation No. 10-2023

Similarity of Evidence and Res Judicata

Legal Updates

Author: Atty. Reynaldo T. Dizon

A test to determine whether causes of action are identical is to ascertain whether the same evidence which is necessary to sustain the second action would have been sufficient to authorize a recovery in the first, even if the forms or nature of the two actions be different.  This was the basis of the Supreme Court in granting a Petition for Review filed by Bank of Commerce (BOC) in the case of Bank of Commerce v. DHN Construction and Development Corporation, G.R. No. 225299.  MVGS acted as counsel to BOC.

In a 13-page decision promulgated on 1 December 2021 and penned by Presiding Justice Rodil V. Zalameda, MVGS secured a favorable SC decision where the SC granted the Petition for Review, reversed and set aside the decision of the Court of Appeals, and dismissed the Civil Case for declaration of nullity of contract filed by DHN Construction and Development Corporation (DHN) against BOC with the Regional Trial Court of Makati City (Makati-RTC) on the ground of res judicata.

Prior to the filing of the Civil Complaint for declaration of nullity of contract before the Makati-RTC, DHN filed a Civil Complaint for annulment of contract with damages before the Quezon City RTC (QC-RTC) against BOC. DHN sought to evade liability from the two promissory notes signed by its President which gave rise to its loan obligations. BOC filed a Motion to Dismiss, and the QC-RTC dismissed the complaint on the ground of failure to state a cause of action.  The court agreed with BOC that DHN freely and knowingly entered into the loan contract. The QC-RTC Order attained finality as it was not timely challenged by DHN.

When DHN filed the subsequent action for declaration of nullity of contract before the Makati-RTC, BOC filed a Motion to Dismiss on the ground of res judicata. Siding with BOC’s arguments, the Makati-RTC granted BOC’s motion and dismissed the complaint, finding that res judicata applies as the QC-RTC’s Order ruled into the very substance of the relief sought by DHN, which is the nullity of the promissory notes. The dismissal must be regarded as an adjudication on the merits.

On appeal, the Court of Appeals (CA) set aside the Makati-RTC Order as it found that res judicata does not apply. This was reversed by the SC, as it agreed with BOC that res judicata applies in the case.

Before the SC, DHN argued that there was no identity of causes of action since the prior case it filed before the QC-RTC was one for annulment of loan contract, while the subsequent case it filed before the Makati-RTC was one for declaration of nullity of loan contract. However, the SC sided with BOC and ruled that the test to determine whether the causes of action are identical so as to warrant the application of the rule on res judicata is to ascertain whether the same evidence which is necessary to sustain the second action would have been sufficient to authorize a recovery in the first, even if the forms or nature of the two actions are different. The SC agreed with BOC’s position that the evidence necessary to sustain the annulment of the loan contracts will be the same as the evidence required to sustain a declaration of said contracts’ nullity.

The ruling that “a change in the form of the action or relief sought does not remove a proper case from the application of res judicata” has mostly been applied to cases dealing with real property wherein the forms of the actions vary from quieting of title, reconveyance, partition, recovery of possession, and annulment of deed of sale, but the evidence to determine either possession or ownership of property will be the same. This case enriches jurisprudence as such ruling has been extended to contracts, whereby one party seeks to challenge its validity by resorting to different forms of action, but ultimately the cause of action is the same, such as when the evidence consisting of one party’s consent required to sustain one action will also sustain the other.

BOC is represented by MVGS lawyers Attys. Eduardo A. Martinez, Reynaldo T. Dizon, and Kristine R. Bongcaron.

Regulating the Practice of Independent Contracting

Legal Updates

Author Atty. Reynaldo T. Dizon  

DO No. 18-A: Regulating the Practice of Independent Contracting

Independent contracting is a global trend and has become an accepted business practice. Contracting out various auxiliary services enables companies to concentrate their resources and place more focus on their primary business purpose.

Although outsourcing allows companies to increase operations while retaining the flexibility to cut back should profits take an unexpected downturn, this practical and efficient means of conducting business is prone to exploitation by companies that treat workers as contractors for the benefits and yet treat them as employees when it comes to work duties.

In the Philippines, Department Order No. 18-A, a regulation issued by the Department of Labor and Employment, sets in place increased legal mechanisms to hold accountable both companies and their contractors for their outsourcing practices. The said order gives definition to the term “independent contracting” and gives recognition to the trilateral relationship that is formed among the principal, the contractor, and the contractual workers under the contractor’s employ.

Two contracts govern the relationship between the parties: the Service Agreement between the principal and the contractor, which defines the terms and conditions of the contract for services between the contractor and the principal, and the Employment Contract between the contractor and the worker, which provides for the terms and conditions of employment of the contractual worker. DO No. 18-A creates legal requirements that spell out the rights, obligations, and liabilities of the principal, contractor, and workers who are parties to a job contracting arrangement.

The principal, as the indirect employer or the user of the services of the contractor, has limited liability over the employees of the contractor, being jointly and severally liable with the contractor for payment of the employees’ wages to the extent of the work performed under the contract. The principal likewise has absolute and direct liability in the case of labor-only contracting, where the principal shall be responsible to the workers in the same manner and extent as if it directly employed the contractual workers.

The contractor, to be considered legitimate, must have a minimum capitalization of at least P3 Million and must be registered with the Regional Office of the DOLE where it principally operates. The contractor’s failure to register shall give rise to the presumption that the contractor is engaged in labor-only contracting. The contractor must also be able to present proof of ownership or lease agreement on tools, equipment, machineries and work premises, as well as proof of financial capacity to pay the wages and benefits of its workers, and control over the performance of the work of the employee deployed or assigned to render the contracted work or services.

Contractual workers are entitled to all the rights and privileges as provided for in the Labor Code, as well as retirement benefits under the SSS or retirement plans of the contractor, if there are any. It is understood that all of a contractor’s employees enjoy security of tenure regardless of whether the contract of employment is co-terminus with the service agreement, or for a specific job, work or service, or phase thereof.

This article is prepared by Atty. Reynaldo T. Dizon, a partner and head of the Labor and Employment Practice Group. This article is for general information purposes only and does not purport to contain a complete and comprehensive information of the subject matter discussed. The Firm expressly disclaims any and all liability for loss or damage for actions taken or not taken based on any or all of the contents of this article. Readers should seek specific legal advice as to their particular circumstances or situations.

CREATE-ing the Corporate Tax Reform (Part Two)

Legal Updates

Author Atty. Mary Elizabeth M. Belmonte, Atty. Rhoel Recheta, Atty. Stephen Vera Cruz

On March 26, 2021, after several years of waiting, the Corporate Recovery and Tax Incentives for Enterprises (CREATE) as Republic Act No. 11534 was enacted and signed into law albeit with line veto items by President Duterte. CREATE was published on March 27, 2021 and became effective on April 11, 2021.
 
CREATE is the second package of the comprehensive tax reform program of the Duterte administration. It aims to improve the corporate tax system, rationalize the fiscal incentives system, and provide support to businesses to aid them in their recovery from the COVID-19 pandemic.
 
President Duterte vetoed some important provisions of CREATE. First, the proposed increased on the VAT-exempt threshold for the sale of residential lot from P1.5 million to P2.5 million and house and lot from P2.5 million to P4.2 million, which, according to him, is highly distortive and prone to abuse. Second, the 90-day period of processing general tax refunds, which may cause damage to the government or more delays to the prejudice of the taxpayers. Thus, he suggested that the legislature, the Department of Finance, and the Bureau of Internal Revenue (BIR) come up with mechanisms to streamline the process of tax refunds. Third, specific industries mentioned under the activity tiers to keep CREATE flexible and to be able keep up with the changing times. Fourth, the limitation on the power of the Fiscal Incentives Review Board (FIRB) since the oversight functions of the FIRB should ensure the proper grant and monitoring of tax incentives. Fifth, the grant of power to the President to exempt any investment promotion agency from the reform, which could be used for political gains. Finally, the automatic approval of applications for incentives, which is contrary to the declared policy to approve or disapprove applications based on merit.
 
The comparison of the provisions of the 1997 Tax Code and its corresponding amended provisions in CREATE and the new provisions on Tax Incentives may be accessed through the links below.
 
While the reduced corporate income tax rates significantly affect the Annual Income Tax Return (AITR) for the year 2020, the BIR did not extend the deadline of the filing of the AITR which is due on April 15, 2021. Instead, the BIR issued Revenue Memorandum Circular (RMC) No. 46-2021 states that the AITR may be amended on or before May 15, 2021 without any imposition of increments. Moreover, taxpayers whose amended AITRs result in overpayment of taxes paid may opt to carry over the overpaid tax against the tax due in the succeeding period or file a claim for refund. Furthermore, in RMC No. 41-2021, the BIR adopted a file and pay anywhere system for taxes falling within the period March 22, 2021 to April 30, 2021. The BIR also encouraged taxpayers to pay taxes through any ePayment channels.
 
Lastly, the BIR has already started issuing regulations, beginning with Revenue Regulations No. 2 to 5-2021 on final tax, VAT, and income tax, to implement the provisions of CREATE but with certain controversial provisions. Hence, let’s await the succeeding regulations of the BIR which hopefully will clarify any controversies and fully implement CREATE.
 
For the meantime, we hope that the amendments brought about by CREATE will encourage more corporations to set up their businesses in the Philippines and create jobs for the public as this is certainly a welcome incentive to help the Philippine economy wade through the challenges brought by the pandemic. We look forward to seeing these gains soon.

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