Tax Advisory 2020-62: Redefining FMV, Tax Neutrality on Islamic Banks and Other BIR Circulars

The Bureau of Internal Revenue (BIR) released the following Revenue Regulation (RR) and Revenue Memorandum Circulars (RMCs) below to implement; give clarifications or amendments to certain provision of the law or prior issuances.



(RR No. 20-2020 amending RR No. 6-2013) 

The BIR recently redefined the term “fair market value” on shares of stock not listed or traded in the LSE for purposes of its sale, barter, exchange, or other disposition of the shares of stock as capital assets. The book value of common shares or the liquidation value of the preferred shares are not required to be adjusted to include any appraisal surplus from any property of the corporation. According to the regulation the fair market value will be defined as the following:

Below is the illustrative sample provided by in the regulation:

Illustration: Assume that Mr. A sold 10,000 shares in X Corporation on June 30, 2020. The corporation’s accounting period is on a calendar year basis. In this case, the book value as the fair market value of the shares of stock in X Corporation shall be determined based on its audited financial statements for the year ending December 31, 2019, since the audited financial statements for the taxable year 2020 is not yet existent as of the date of the sale of shares.

Assume further that based on the audited financial statements as of December 31, 2019, the total assets of X Corporation are ₱50,000,000 while its liabilities are ₱20,000,000 resulting to an equity of ₱30,000,000. Its outstanding shares are 200,000. For this purpose, the net book value as the fair market value of each share shall be computed as follows:

30,000,000 (equity)

200,000 (outstanding shares)

= ₱150 (net book value per share)

In this case, the book value of the shares of stock in X Corporation based on its latest audited financial services shall be ₱150 per share. As such, the fair market value of the shares of stocks in X Corporation shall be ₱150 per share.



(RR No. 17-2020) 

Islamic banking transactions according to its tax neutrality the implementing regulation must have a parity of tax treatment of equivalent conventional banking transaction within the boundary of the Tax Code, as amended. It covers transactions of Islamic banks, either domestic or foreign, and Islamic Banking Units (IBU) that are authorized to conduct business in accordance with the principles of Shari’ah pursuant to the guidelines prescribed by the Banko Sentral ng Pilipinas (BSP). 

The basic principles are written in the regulation to implement the tax neutrality provision of the law. However, the tax treatment on the following arrangements will be covered by a separate RMC.

  1. Murabahah (Profit disclosed sale);
  2. Tawarrue (Commodity Murabahah);
  3. Salam (Sale with deferred delivery and spot payment);
  4. Ijarah (Lease);
  5. Mudarabah Partnership (Profit Sharing Partnership);
  6. Wakalah Investment (Investment Agency);
  7. Istisna;
  8. Musharaka;
  9. Suksuk; and
  10. Other Islamic banking transactions with economically equivalent conventional finance transactions

Financial Statements of Islamic Bank shall be in accordance with the Philippines Financial Reporting Standard (PFRS) considering account the difference between Islamic and conventional banking transactions. It was said that authorized conventional banks with Islamic banking arrangements shall maintain a system segregating the transactions of the Islamic banking unit from its conventional banking business. Moreover, they are required to register with the BIR following the existing guidelines and regulation, and must issue a receipt on profits, gains, or fees derived from its banking operations.



(RMC No. 83-2020) 

Because of the current pandemic the world is facing, the BIR released a circular providing guidelines of the effect of the travel restriction of foreign employees that might subject there compensation income in the Philippines and unintentionally create a permanent establishment (PE) that were defined in the Tax Treaties. This issued guidelines reiterate the criteria for PE and provide measures regarding foreign employees that were hampered to travel back to their residency outside the Philippines due to travel restrictions. The circular talks about the following topics:

  1. Income from Employment
  2. Special Tax Residency Rules
  3. Inadvertent Creation of PE

For income from employment, the BIR reiterate the conditions in the tax treaty for the compensation of the foreign employees not to be subjected to income which are as follow:

  1. The employee has not been present in the Philippines for more than 183 days (more than 120 days for residents of Poland; at least 90 days for residents of the United States of America) in aggregate in the year of income, fiscal year, calendar year, or any twelve-month period, depending on the applicable DTA;
  1. His/her remuneration is paid to him/her by, or on behalf of, an employer that is not a resident of the Philippines; and
  1. His/her remuneration is not deductible against the profits of a permanent establishment which the foreign employer has in the Philippines.

For Special Tax Residency Rules, this portion of the guidelines provide the relaxation of the tax treaty provisions due to travel restrictions which prevented the foreign employee/individual from leaving the Philippines on his or her scheduled day of departure. According to the circular, the BIR will consider a such as “force majeure” for the purposes of establishing such individual’s tax residence. The highlight of this segment is that once the travel restriction has been lifted the individual should leave the Philippines as soon as possible.

However, it was said that whether a taxpayer is a resident for tax purposes in the Philippines is a question of fact that requires consideration of all surrounding circumstances. The BIR provided illustrative sample in the circular regarding this matter.

For Inadvertent Creation of PE, the BIR highlighted three possible PEs that might be created during the current situation in the Philippines which are as follows:

  1. Home Office
  2. Construction
  3. Dependent Agent

In all cases where restrictions imposed by COVID-19 affect the applicability of Philippine tax laws and tax treaties on a taxpayer’s tax position, records shall be maintained outlining the circumstances and submitted to the Bureau in support of the taxpayer’s application from relief double taxation.

To prove that the extended presence in the Philippines was due to COVID-related travel restrictions, the concerned individual or company shall submit to the satisfaction of the Bureau relevant Documents, including but not limited to:

  1. Authenticated sworn certification stating the relevant facts and circumstances of the bona fide presence of the employee in the Philippines;
  2. Duly executed contract/s (must be consularized or apostillized, if executed/signed in a foreign country);
  3. Certified true copy of the confirmed booking or flight itinerary for the original flight;
  4. Certified true copy of the confirmed booking or flight itinerary for the re-booked flight;
  5. Certified copy of the travel advisory on the cancellation of flight issued by the airline company;
  6. Certified true copy of boarding pass;
  7. Certified true copy of the employee’s passport, including blank pages thereof; and
  8. Other documents that the Bureau shall deem necessary depending on the circumstances.



(RMC No. 82-2020 in connection with RMC No. 49-2020) 

The eAFS system was prevalent during the time of community quarantine in certain areas within the Philippines for submission of the income tax return and its required attachments electronically rather than physically to reduce risk of being infected while traveling and to promote social distancing. Since the government is lifting and re-imposing quarantine restriction in certain areas within the country, the BIR released a guideline on how to use the eAFS for the submission of annual income tax return for fiscal years accounting period and quarterly income tax return compliance.

The manner of electronically filing the scanned documents under RMC No. 49-2020 shall still be observed except the naming convention for Annual Income Tax Compliance. Below is the new naming convention for AITR:

File 1 - Income Tax Return:                 EAFSXXXXXXXXXITRTYMMYYYY

File 2 - Audited Financial Statements:  EAFSXXXXXXXXXAFSTYMMYYYY

File 3 - Other Attachments:                  EAFSXXXXXXXXXOTHTYMMYYYY-01


Where:    XXXXXXXXXX is the 9-digit TIN

TY is the placeholder for TY to identify it as annual submission regardless if FY or CY submission

MM is the Month end of the TY

YYYY is the Year Ended

01 is the first file of other attachments, up to 99 (applicable for File 3 - Other Attachments)

Example 1 - Taxpayer submitting for Calendar year 2020 (ended December 31,2020) with TIN 123-456-789

File 1 -    EAFS123456789ITRTY122020

File 2 -    EAFS123456789AFSTY122024

File 3 -    EAFS123456789OTHTY122020-01


Example 2 - Taxpayer submitting for Fiscal year ended October 31,2020 with TIN 987-654-321

File 1 -    EAFS987654321ITRTY102020

File 2 -    EAFS987654321AFSTY102020

File 3 -    EAFS987654321OTHTY102020-01


For Quarterly Income Tax, the submission of attachments shall also be done through eAFS. The following documents shall be scanned and classified with their corresponding naming conventions of the files:



(RMC No. 80-2020 amending RMC No. 79-2020) 

The circular issued amends the previously issued circular to include the following RDOs:



(RMC No. 79-2020) 

As the National Capital Region (NCR), Bulacan, Cavite, Laguna and Rizal were once again put under the Modified Enhanced Community Quarantine (MECQ) for the period August 4, 2020 to August 18,2020, the BIR issued a circular to inform all concerned taxpayers about the manner of filing, and payment of taxes during this period. Accordingly, all concerned taxpayers under the jurisdiction of Revenue District Office (RDO) Nos. 24 to 34, 38 to 54B may:

  1. File the tax return and pay the internal revenue taxes at the nearest Authorized Agent Banks (AABs), notwithstanding RDO jurisdiction.
  2. File the tax return and pay the corresponding tax due thereon to the concerned Revenue Collection Officers (RCOs) of the nearest Revenue District Office (RD), even in areas where there are AABs. Provided that payment of internal revenue taxes in cash should not exceed Twenty Thousand Pesos (P20,000.00), while those for check payment will have no limitation if the same is made with RCO in the district office. Provided further that all check payment from any taxpayer shall be made payable to Bureau of Internal Revenue (with or without "Name and TIN of the taxpayer" written on the check as previously required) and that the name and branch of the receiving AAB may no longer be indicated therein.
  3. Taxpayers who are enrolled in eFPS shall continue to settle the tax liabilities with the AAB where the taxpayer is enrolled, while for those who will file through the eBIRForms Facility whether mandated or not mandated, may use the following payment options:
  • Development Bank of the Philippines'(DBP) Pay Tax Online
  • Land Bank of the Philippines (LBP) Portal
  • Union Bank Online Web and Mobile Payment Facility
  • Mobile Payment (GCash/PayMaya)

Taxpayer who will avail of the electronic payment (ePay) may access the above mentioned ePay facilities by accessing the BIR website. Click the ''ePay" icon, and user shall be directed to the ePayment icons. Taxpayer may also directly access the following AAB links:

  • LBP - lbp-eservices.corn/egps/portal/indexjsp
  • DBP -
  • Union Bank -

For taxpayer who will avail of GCash shall download and install the GCash or visit the App, and for those who will avail of PayMaya shall download and install the PayMaya App in the Google play Store or Apple App Store or Huawei AppGallery.

The circular shall take effect immediately until MECQ has been lifted and placed the mentioned areas under General Community Quarantine (GCQ).



(RMC No. 78-2020) 

Since the Metro Cebu is now under the MECQ, the BIR issued a circular to inform the concerned taxpayers of the manner of filing and payment of taxes during this period. All taxpayers who are under the jurisdiction of Revenue Region No. 13 - Cebu City are hereby allowed to file their respective tax returns and pay the corresponding tax due thereon to the nearest AABs via over-the-counter payment facilities or to the nearest RCO, duly authorized by the RDO to receive tax returns and accept payments of the taxes thereon.

Concerned taxpayers are encouraged to electronically file returns through the eBIR Forms System and pay the corresponding taxes due thereon using the following ePayment facilities:

  • Development Bank of the Philippines' (DBP) Pay Tax Online
  • LandBank of the Philippines (LBP) Portal
  • Union Bank Online Web and Mobile Payment Facility
  • Mobile Payment (GCash/PayMaya)

Taxpayer who will avail of the electronic payment (ePay) may access the above mentioned ePay facilities by accessing the BIR website. Click the "ePay" icon, and user shall be directed to the ePayment icons. Taxpayer may also directly access the following AAB links:

  • LBP -
  • DBP -
  • Union Bank - 

For taxpayer who will avail of GCash shall download and install the GCash or visit the App, and for those who will avail of PayMaya shall download and install the PayMaya App in the Google play Store or Apple App Store or Huawei AppGallery.



(RMC No. 77-2020 amending RMC No. 74-2020) 

The BIR clarified that the proper meaning of ECQ under RMC No. 74-2020 should be Enhanced Community Quarantine.



(RMC No. 76-2020 in connection with RR No. 19-2020) 

When the RR No. 19-2020 was issued by the BIR there were a lot of question arises from the taxpayers, many were perplexed as to why there is a need to comply and what specific requirements should be attached to the form. Because of the confusion it created among the taxpayers, the BIR clarified many of the taxpayers’ questions surrounding the regulation and its forms through the circular it issued.

The highlights of the circular are as follows:

  1. It clarifies the purpose of the BIR on requiring the related party disclosure.
  2. BIR audit guidelines for transfer pricing is already published – RAMO No. 19-2020.
  3. All taxpayers, whether individual and non-individual taxpayers, with related party transaction are required to comply
  4. For Fiscal Year ending March 31, 2020, the deadline was moved to September 30, 2020
  5. Contemporaneous Transfer Pricing Documentation (TPD) is a required to any taxpayers that have a related party transaction.
  6. There was no threshold mentioned in compliance with BIR Form No. 1709
  7. Submission of voluminous contract can be made using DVD-R accompanied by Sworn Certification.
  8. Additional sheet can be attached to the form if necessary
  9. Secondment arrangement are considered as related party transactions, thus, must comply with the same
  10. Dividends and redemption shares from related parties are to be included in the form but TPD is not required
  11. Cost-sharing arrangement should have a formal written agreement
  12. Non-filing of the form is subject to penalties
  13. Failure to produce the form and its attachments upon issuance of summons can lead to penalties and imprisonment upon conviction
  14. In case the foreign related party withheld taxes on its payment to Philippine taxpayer, the proof of payment of such taxes (e.g. similar to BIR Form No. 2307/2306) is required and should be authenticated or apostillized
  15. Tax Treaty Relief Application (TTRA) required are only those connected to related party transactions
  16. Non-Stock, Non-Profit (NSNP) corporation or organization are required to comply if they have related party transactions
  17. Revenue Officers are empowered to obtain information despite Data Privacy Rules; and
  18. Banks are also required to comply.

We suggest to completely read the circular on regarding this matter and not rely on the highlight listed above.



(RMC No. 75-2020 in connection with RMC No. 6-2020) 

As the global pandemic greatly affects our economy, forcing some of the businesses to shut down and brought a huge scale of unemployment, most individuals now tend to engage into online businesses. To effectively regulate the growing online business community the BIR issued RMC No. 60-2020, requiring individuals to register such businesses. However, due to the current problem in going to the district offices such as the means of transportation, the fear of dealing face to face interaction with others, limited open bank branches for their funding, and other related issues brought by the pandemic, the BIR issued a circular to answer the request of the online merchants to give them more time to comply.

A such, the BIR extended the date of filing for registration of business activity and/or updates from July 31, 2020 to August 31, 2020 with no penalty. In addition, those who shall voluntarily declare their past transactions subject to pertinent taxes and pay the taxes due thereon when declared and paid on or before the said date shall not be subjected to the corresponding penalty/s for payment.

The BIR warned that those who will be found later not complying with the registration or update requirements and those who failed to declare past due taxes or unpaid taxes shall be imposed with the applicable penalties under the law, and existing revenue rules and regulations.



(RMC No. 74-2020 amending RMC No. 34-2020) 

The BIR amended the certain paragraph on the previously issued circular to include the phrase “until the lifting of the extreme community quarantine (ECQ)” which shall be read as follows:

“The cited provisions and stated circumstances therefore warrant the suspension of the running of the Statute of Limitations under Section 203 and 222 of the NIRC of 1997, as amended, for a period starting on March 16, 2020 until the lifting of the extreme community quarantine (ECQ) and for sixty (60) days thereafter. The suspension of the running of the Statute of Limitations shall likewise apply with respect to the issuance and service of assessment notices, warrants and enforcement and/or collection of deficiency taxes. This circular shall apply nationwide on areas placed under ECQ”.

Please be guided accordingly.




RMC No. 74-2020RMC No. 75-2020RMC No. 76-2020  | RMC No. 77-2020RMC No. 78-2020  | RMC No. 79-2020RMC No. 80-2020  | RMC No. 82-2020RMC No. 83-2020RR No. 17-2020RR No. 20-2020





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