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Christmas celebrations in the Philippines are considered the longest in the world. With all the parties, gift-giving, food, shopping and festivities, this celebration can be the most wonderful time of the year. But we cannot forestall the inevitable -- taxes. While some may be savoring the cool Christmas air and enjoying the holidays, taxation does not stop. Every move appears to come with a tax consequence, and it pays to know the rules.

The principles of a sound tax system are fiscal adequacy, administrative feasibility, and theoretical justice. Fiscal adequacy means the sources of revenue must be sufficient to meet government expenditures and other public needs. Administrative feasibility means tax laws and regulations must be capable of being effectively enforced with the least inconvenience to the taxpayer. And theoretical justice means that a sound tax system must be based on the taxpayers’ ability to pay.

Issuance of rulings on the tax exemption of benefits paid to employees separated because of retrenchment or closure of the business are now devolved to the Revenue District Offices (RDOs) of the Bureau of Internal Revenue (BIR).

It is only 19 days to go before Christmas. But before the merriment of Christmas engulfs us, we should also prepare for the upcoming rush of renewing local government unit (LGU) registrations for businesses.

The Philippine travel and tourism industry contributed a total of P1.43 trillion to the economy in 2015, equivalent to about 10.6% of gross domestic product (GDP), according to the World Travel and Tourism Council (WTTC), a global body representing the Travel & Tourism private sector. This figure is expected to rise by 6.6% this year and is forecasted to increase further by 5.4% to P2.6 trillion by 2026.

What happens when a corporation is dissolved but the stockholders failed to liquidate the corporation and distribute the remaining assets of the corporation? May a stockholder who was deprived of his share in the remaining property demand to inspect the books of the corporation? Under Philippine laws, a corporation which has been dissolved, has three years after dissolution to continue as a body corporate but only for the purpose of liquidating its assets and winding up its affairs. During this three-year period, the corporate acts shall be limited to liquidation and it is no longer allowed to continue the business for which it was established. Dissolution of a corporation in the Philippines is quite complicated. In my long years of practice, I have seen corporate dissolution to take years and sometimes, decades. The long process requires convoluted stages of securing clearances from various government agencies. Of course, the most difficult of all the processes is getting the tax clearance which can take as long as the longest-running telenovela you can think of. Thus, it is not surprising that some stockholders become uninterested in the winding up process of their corporation and leave such task to a trusted business partner or consultant. Considering that most corporate liquidations can go beyond the three-year period, the right of such trustee to oversee the liquidation process until it is finally completed is valid even if it goes beyond the period. Sometimes, stockholders resort to dissolving a corporation as a solution to the problematic operations of the corporation or to end the disputes among the stockholders. Little do they know that it may actually exacerbate the problems and fan the flames of distrust among them. In one case (SEC-OGC Opinion No. 16-23 dated Oct. 5, 2016), it was represented that the stockholder has left the Philippines only to find out that their corporation which was supposed to have been dissolved actually continued business operations. Alleging that the assets of the dissolved corporation were never liquidated, the stockholder demanded access to the financial records and books of the corporation. However, the president of the corporation allegedly refused to grant access, noting that since the corporation has already been dissolved, the stockholder no longer has the right of inspection. The SEC refused to rule on the issues, saying that the case involves an intra-corporate controversy which is within the jurisdiction of the Regional Trial Courts. It, however, laid down related laws and jurisprudence for guidance and information. In the case of Clemente vs. Court of Appeals (G.R. No. 82407 March 27, 1995), the Supreme Court emphasized that the “(T)he termination of the life of a juridical entity does not by itself cause the extinction or diminution of the rights and liabilities of such entity... nor those of its owners and creditors.” In the case of Gokongwei vs. SEC, (G.R. No. L-45911, April 11, 1979), the Supreme Court explained that the right of inspection of the corporate books and financial records is an incident of the ownership rights of the stockholders over the assets and property of the corporation. It is necessary to afford the stockholder the right of self-protection. Such right exists even if the ownership is beneficial or equitable. The SEC also emphasized that the right should be exercised to protect the interest of the stockholders as owners such as where the purpose is to find out the actual financial condition of the corporation and how his investment is being used. As such, we can conclude that the right of the stockholder to inspect the financial records of the corporation is not terminated by the mere fact that the corporation has been dissolved. It should remain up to the time that the remaining assets are finally distributed to the stockholders. It is clear that in some cases, terminating the operations of a corporation to end the seemingly insurmountable problems often leads to new sets of challenges. The stockholders need to be ready for a long and uphill battle. Like any aspect of running a business, the stockholders should be vigilant in seeing through the stages of dissolution. They need to properly coordinate with the board of directors and/or trustees to ensure that the remaining assets are properly distributed among the stockholders. However, if all else fails, the stockholders may need to file a case in court to rule on the controversy and decide which party has the right to the remaining assets, if any. With all the changes being introduced by the new Duterte administration, perhaps it is also time to look at simplifying the dissolution process in the Philippines to better protect the rights of stockholders. Eleanor Lucas Roque is the head and principal of the Tax Advisory and Compliance Division of Punongbayan & Araullo.

With this year’s promising growth in our GDP, the Philippines has been dubbed the fastest-growing economy among Asian nations. We can achieve more if we are able to continuously improve on areas that are critical to growing the economy. The difficulty of doing business has been our long standing problem. Although the Philippines moved up to no. 99 from no. 103 last year in World Bank’s “doing business” ranking, the Philippines dropped from number 165 to number 171 in the category of starting a business. Outdated procedures and “red tape” remain the biggest obstacles towards improving doing business. From setting-up, to complying with local rules and regulations, even dissolution of a business is a lengthy and complicated process. Many procedural reforms claim to have reduced the number of days to secure certificates, licenses, and permits. Yet in reality, it still takes at least one to as long as three months to fully register in all government agencies.

With less than two months before 2016 comes to an end, employers have started the tax annualization of the withholding taxes of their employees. Former President Benigno S. C. Aquino III signed Republic Act (RA) 10754 into law, an act expanding the benefits and privileges of persons with disability (PWDs). It is worth noting that this RA provided for the classification of a PWD as a dependent subject to certain qualifications, for purposes of allowing the benefactor the privilege of claiming the P25,000 exemption in computing taxable income. The law states that employees who are entitled can benefit from the additional P25,000 exemption for PWD dependents. These refer to employees who are caring for and living with a PWD who are within the fourth civil degree of consanguinity or affinity. The PWD can be their parents, siblings or relatives within 4th degree. PWDs regardless of age, who are not gainfully employed and chiefly dependent upon the taxpayer, shall be treated as a qualified dependent. Including the dependent PWD, a maximum of four (4) qualified dependents may be claimed for the additional exemption under the Tax Code. However, while the RA 10754 is now in effect, the implementing rules and regulations (IRR) have not been promulgated as of writing. Likewise, the Bureau of Internal Revenue (BIR) has not issued any guidelines. Without the implementing rules and regulations, taxpayers and employers are at a loss as to how they can claim the benefit. Interestingly, the law provides a safety provision that in case of failure of the concerned agencies to promulgate the rules and regulations, it shall not prevent the implementation of this Act upon its effectivity. With this provision, is it safe to say that the concerned taxpayers may avail of the benefit even in the absence of the IRR, without the fear of being penalized in the future? Many employees/taxpayers with qualified PWD dependents are now wondering if they can actually avail of the additional exemption. In addition, many employers are also in doubt if the BIR will allow the PWD as dependent. Thus, without the guidelines, questions and difficulties are raised on how this law will be implemented for claiming the additional exemption provided by the new law. Since it is already in effect, the additional exemption should be available for the calendar year 2016. However, there may be some gaps on the requirements and the documents that the BIR may need to support the additional claim. Here are some of the procedures the taxpayer may undertake to avail of the benefit: The employee should apply for registration update by filing BIR Form 2305. The BIR Form 2305, however, has not been updated to include the PWD as a dependent. Hence, there is an issue as to whether the form may be used for this purpose if the BIR cannot timely revise. The taxpayer-benefactor should submit documents to support the claim which may include the following: • Identification Card (ID) of the PWD; • Certification from the City or Municipal DSWD officer that the PWD is not gainfully employed and is chiefly dependent on the taxpayer-benefactor for support; and • Proof on the relationship of the taxpayer-benefactor with the PWD, such as relevant birth certificates (law requires PWD must be within the 4th degree of consanguinity or affinity of the benefactor). With the government’s current pursuit of tax reforms, we are still hopeful that the implementing rules and regulations will be released before the year ends. We hope that the above questions and issues can be resolved so that employees who are entitled can benefit from this law. As we embrace change in our society, let us not put to waste a very significant law that favors taxpayers, especially those who have less in life. Maricel P. Katigbak is a tax manager of the Tax Advisory and Compliance Division of Punongbayan & Araullo.