The CTA ruled that forex gain earned or realized from converting dollar to peso under a hedging contract is not part of the PEZA or BOI-registered activities of an entity, and hence, it is not entitled to income tax holiday or preferential tax treatment. Such income shall be subject to the regular corporate income tax. The taxpayer tried to convince the court that the forex gains are necessarily related to its PEZA-registered activity.

Tax Consequences of Foreign Currency Transactions

The taxpayer explained that it earns service fee in dollars and pays in peso significant portion of expenses for it to carry on its PEZA-registered activity i. In view thereof, it had to convert some of its dollar revenues into peso and in the process, it realized forex gain.

However, the CTA found that the forex gains are derived from the hedging contract of the taxpayer with a bank and not from its registered activity as a contact center or any activity necessarily related to it. Thus, such forex gains are not covered by the PEZA incentives and therefore are subject to the regular corporate income tax.

In this case, the taxpayer transferred its POS terminals and merchant acquiring business, together with the underlying business goodwill, in exchange for shares of a newly established company. Such transfer was covered by a taxfree exchange ruling. Subsequently, it sold the shares to another and paid the CGT thereon. The BIR attempted to re-characterize the sale of shares as a sale of business and goodwill subject to ordinary income tax instead of CGT.

The BIR alleged that the tax-free exchange transaction was undertaken as a scheme to evade tax. The CTA en banc did not agree with the BIR. Affirming the decision of its division, it upheld the validity of the transaction as sale of shares subject to CGT. According to the CTA, goodwill clearly falls within the definition of capital asset under the Tax Code.

PEZAregistered entities should be allowed to deduct expenses which are in the nature of direct costs even though the same are not included in the list.

If the cost or expense can be directly attributed in conducting the PEZA-registered activities, then it should be treated as direct cost.

Fees paid by a Subic Bay Freeport Enterprise to a nonresident foreign entity for satellite communication time, are considered income derived from within the Philippines. The CTA was not convinced that satellite airtime services were performed outside the Philippines just because the service facilities, such as network control center and satellite, are located in Indonesia and in outer space.

Since the undertaking of providing satellite communication time is offered and subscribed in the Philippines, the CIR is correct in imposing FWT.

The CTA confirmed that the corporate taxpayer, as the manufacturer and seller of the inventions of an inventor, is entitled to tax incentives under RA No. Any income derived from these technologies, including gains from the sale on a commercial scale of a manufacturer, shall be exempted from all kinds of taxes.

The tax exemption privilege pertaining to inventions also extends to the legal heir or assignee upon the death of the inventor. Home Publications Advisory publications and insights as easy as ABC Philippine business and investment guides Building Better VisMin CEO insights and surveys Client Advisory Letters Taxwise or Otherwise Tax Alerts Tax calendar Corporate Responsibility report PwC's Needles in a haystack Industries Services Audit and Assurance Risk Assurance Tax Client Accounting Services Consulting Deals and Corporate Finance Accounting Buzz Careers About us History Our partners Alumni page Profiles Corporate responsibility News and events.

Latest on income tax and other taxes. Client Advisory Letter June FOREX gains from hedging not entitled to PEZA or BOI perks The CTA ruled that forex gain earned or realized from converting dollar to peso under a hedging contract is not part of the PEZA or BOI-registered activities of an entity, and hence, it is not entitled to income tax holiday or preferential tax treatment. CTA EB Case No. Transfer of goodwill via sale of shares is subject to CGT In this case, the taxpayer transferred its POS terminals and merchant acquiring business, together with the underlying business goodwill, in exchange for shares of a newly established company.

TAXABLE AND NON TAXABLE ALLOWANCES UNDER SALARY | SIMPLE TAX INDIA

Satellite airtime is taxable in the Philippines Fees paid by a Subic Bay Freeport Enterprise to a nonresident foreign entity for satellite communication time, are considered income derived from within the Philippines.

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