ELECTRONIC COPIES OF 2307 ALONE ARE NOT SUFFICIENT FOR TAX REFUND OR AUDIT PURPOSES; HARD COPIES ARE STILL REQUIRED

S Co. requested confirmation on whether submission of electronic copies of BIR Form 2307 with e-signatures is sufficient for income tax refund/Tax Credit Certificate (TCC) applications and tax audit documentation. In reply, the BIR reiterated that under Revenue Memorandum Circular (RMC) No. 29-2021, e-signatures are permitted on BIR Forms 2304, 2306, 2307, and 2316 to comply with Republic Act (R.A.) No. 11032, or the Ease of Doing Business and Efficient Government Service Delivery Act of 2018 even without prior BIR approval. In connection with this, Revenue Regulations (RR) No. 16-2021, as clarified by RMC No. 117-2021, prescribes the modes of submission of soft copies of BIR Form 2307. However, the BIR clarified that for purposes of filing applications for income tax refund/TCC or the submission of documents relating to ongoing tax audits, submission of hard copies of BIR Form 2307, even if electronically signed, is still required. Jurisprudence consistently holds that in a claim for tax refund or tax credit; the applicant must prove not only entitlement to the claim but also compliance with all the documentary and evidentiary requirements. The BIR further cited RR No. 17-2013, as amended by RR No. 05-2014, which requires taxpayers to preserve books of accounts and other accounting records for ten (10) years. During the first five (5) years, such records must be maintained in hard copy form; only thereafter may electronic copies be retained for the remaining five (5) years. Thus, submission of electronic copies of BIR Form 2307 is not sufficient compliance in applications for tax refund or tax credit or submission of documents in tax audits. Hard copies are still required. [BIR RULING NO. OT-062-2025, APRIL 15, 2025]

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VAT APPLIES TO ANY PERSON ENGAGED IN THE SALE OF GOODS OR SERVICES, EVEN IF NON-PROFIT

J Co. filed a request with the Bureau of Internal Revenue (BIR) to amend its Certificate of Tax Exemption (CTE) to expressly include exemption from Income Tax and Value-Added Tax (VAT). As a non-stock, non-profit religious organization, J Co. is already exempt from income tax on certain revenues pursuant to its existing CTE. However, it further sought VAT exemption on various revenues, arguing that such collections are not derived from business activities but are intended for general operations and evangelization, and therefore constitute capital rather than income. In reply, the BIR invoked Sections 105 and 108 of the Tax Code, which impose VAT on any person engaged in the sale of goods or services, regardless of non-profit status. The BIR opined that J Co.’s activities, such as the sale of religious items and the conduct of training, constitute the sale of services. Since these activities are not among those expressly exempt under Section 109 of the Tax Code, they are subject to VAT. The BIR further clarified that J Co.’s receipts represent income from services rendered, not capital contributions. Consequently, it is not entitled to VAT exemption on its revenues. [BIR RULING NO. OT-047-2025, APRIL 4, 2025]

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PROCEEDS FROM THE SALE OF CARBON CREDITS ARE EXEMPT FROM ALL TAXES, INCLUDING INCOME TAX & VAT

T Co. requested for confirmation on whether the assignment of its carbon credits to the Japanese Government under the Joint Crediting Mechanism (JCM) Program constitutes a sale of carbon emission credits and, consequently, qualifies for tax exemption. In reply, the BIR clarified that Republic Act (R.A.) No. 9513, or the Renewable Energy Act of 2008, expressly provides that proceeds from the sale of carbon emission credits are exempt from all taxes. In reference to the agreement between T Co. and the Japanese Government, the BIR confirms that the essential elements of a contract of sale, namely, the consent of the parties, a determinate subject matter in the form of JCM credits, and a price certain in money represented by the funding provided by the Japanese Government, are all present. As such, the assignment of the credits is deemed a sale. Thus, the proceeds from the sale of carbon emission credits are exempt from all taxes, including income tax and Value-Added Tax (VAT), subject to compliance with the requirements of R.A. No. 9513 and Revenue Regulations (RR) No. 7-2022. [BIR RULING NO. OT-045-2025, APRIL 3, 2025]

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THE TRUSTEE IS PROHIBITED FROM INVESTING THE RETIREMENT FUND IN EMPLOYER’S BUSINESS VENTURES TO AVOID COMINGLING OF FUNDS

SP Co. and SG Co. seek the reconsideration of the earlier BIR Ruling No. 312-2017 issued by requesting the deletion of the condition prohibiting the trustees from investing or depositing the retirement fund in any of the employer’s business ventures. In the said ruling, the BIR recognized SP Co. and SG Co. Multiemployer Contribution Plan as a “reasonable retirement plan” whose benefits are exempt from income tax, subject to the condition that the trustee cannot invest retirement funds in the business ventures of the employer to maintain the trust’s separate entity. In reply, the BIR, citing Revenue Regulations (RR) No. 1-68, ruled that Retirement Fund must be invested in sound, income-generating investments for the employees’ benefit. Allowing the trustee to invest the retirement fund in employer’s business ventures creates significant risks, including the possible diversion of the retirement funds, inability of the plan to meet its retirement obligations, and the comingling of funds which may open opportunities for potential tax evasion. Given these considerations, the BIR concluded that the prohibition must remain in effect to ensure fund independence and integrity. Thus, the request for reconsideration is DENIED. [BIR RULING NO. OT-019-2025, JANUARY 7, 2025]

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[THE VALUATION OF SHARES UPON SALE, TRANSFER, OR EXCHANGE DEPENDS ON THE TYPE OF SHARES INVOLVED] [ADDITIONAL PAID-IN CAPITAL (APIC), WHICH FORMS PART OF THE SUBSCRIPTION AGREEMENT, IS SUBJECT TO DOCUMENTARY STAMP TAX]

A Co. sought BIR confirmation regarding three (3) issues: the taxability of the selling price of shares sold below the published rate or without a standard price, the applicability of Documentary Stamp Tax (DST) on Additional Paid in Capital (APIC), and the application of Section 50 of the Tax Code on the power of the Commissioner of Internal Revenue (CIR) to adjust or reallocate income and expenses between related parties. A Co. maintained that for shares not listed on the stock exchange, the selling price in cases of sale, transfer, or exchange should be based on book value, which serves as primarily evidence of fair market value. On the issue of DST on APIC, it is of the position that APIC should not be subject to DST since its infusion did not result in the issuance of shares. Lastly, in relation to Section 50 of the Tax Code, it is of the position that it does not apply when the buyer and seller are not owned and controlled by the same interests and that the CIR’s authority under Section 50 is premised on evidence of fraud or evasion in the payment of taxes. In reply, the BIR clarified that share valuation depends on the type of shares involved: common shares must be valued at book value, preferred shares at liquidation value, and mixed holdings by deducting the preferred liquidation value from total equity and dividing the remainder by the number of common shares. On the imposition of DST on APIC, the BIR rejected A Co’s position stating that APIC constitutes part of the actual consideration for shares under the Subscription Agreement. As such, DST applies because APIC was predetermined as part of the share issuance terms. Lastly, on the application of Section 50 of the Tax Code, the BIR emphasized that control may be direct or indirect, and allocation can occur even without an actual transfer of shares. Moreover, the CIR’s authority under Section 50 is not confined to fraud cases but is intended to ensure that transactions adhere to the arm’s length principle. [BIR RULING NO. OT-006-2025, JANUARY 6, 2025]

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