BIR Ruling

December 4, 1972 2nd Indorsement Respectfully returned to the Honorable, the Secretary of Finance, Manila, the within letter dated April 7, 1972 of the Honorable, the Auditor General, to who has the authority to examine and audit the books of accounts of the Radio Communication of the Philippines, Inc. (RCPI), the Globe Mackay Cable and Radio Corporation the RCA Globe Communication and other franchise holders: The second paragraph of Section 259 of the Tax Code, as amended by Republic Act No. 6110 provides: "The taxes, charges, and percentages on franchises, shall be assessed, collected by and paid to the Commissioner of Internal Revenue or any of his collection agents, any provision in the franchise to the contrary notwithstanding, and shall be due and payable as specified in the particular franchise, or in case no time limit is specified therein, the provisions of Section one hundred eighty-three shall apply; and if such taxes, charges, and percentages remain unpaid on the date on which they be paid, twenty-five per centum shall be added to the amount of such taxes, charges, and percentages, which increase shall form part of the tax." (Emphasis ours) On the other hand, Section 9 of Republic Act No. 2036 (franchise of RCPI) provides: cdta "All the books and accounts of the grantee (RCPI) pertaining to its business shall be subject to the official inspection of the Auditor General or his authorized representatives, and the audit and approval of such accounts shall be final and conclusive evidence as to the amount of said gross receipts, except that the grantee shall have the right to appeal to the courts of the Philippines, under the terms and conditions provided in the laws of the Philippines." (Emphasis ours) After a study of the reasons adduced in the within letter, this Office believes that the Auditor General still has authority to audit and examine the books of accounts of RCPI and other franchise holders whose franchises contain provisions similar to those contained in Section of Republic Act No. 2036. In this connection, attention is also invited to Section 2 of Republic Act No. 4054, which repealed Section 14 of Republic Act No. 2036 and in lieu thereof inserted a new section reading as follows: "SEC. 14. In consideration of the franchise and rights hereby granted and any provision of law to the contrary notwithstanding, the grantee shall pay the same taxes as are now or may hereafter be required by law from other individuals, copartnerships, private, public or quasi-public associations, corporations, or joint stock companies, on real estate, buildings and other personal property except radio equipment, machinery and spare parts needed in connection with the business of the grantee, which shall be exempt from customs duties, tariffs and other taxes, as well as those properties declared exempt in this section. In consideration of the franchise, a tax equal to one and one-half per centum of all gross receipts from the business transacted under this franchise by the grantee shall be paid to the Treasurer of the Philippines each year, within ten days after the audit and approval of the accounts as prescribed in this Act . Said tax shall be in lieu of any and all taxes of any kind, nature or description levied, established or collected by any authority, whatsoever, municipal, provincial or national, from which taxes the grantee is hereby expressly exempted." (Emphasis ours) It is, therefore, clear that RCPI must pay its franchise tax within ten (10) days counted from the audit and approval of its accounts by the Auditor General as provided in the abovequoted provision of Section 9 of Republic Act No. 2036. It is noteworthy that Section 9 referred to by Section 14, both of Republic Act No. 2036, expressly provides that the audit and approval is final and conclusive as to the amount of gross receipts. Taken in connection with Section 14, the obvious intention in providing in Section 9 that the audit and approval of the account is final and conclusive is to make it clear that the tax is payable within 10 days from said audit and approval of accounts and that the amount of tax should be based on the result thereof. (Eastern Extension Australasia and Chian Telegraph Company, Inc. vs. Commissioner of Internal Revenue, CTA Case No. 1817, May 27, 1970) cdti Section 259 of Tax Code which is quoted above states that the franchise tax shall be due and payable as specified in the particular franchise. Accordingly and pursuant to Section 14 of Republic Act No. 2036, as inserted by Republic Act No. 4054, the franchise tax due from RCPI must be paid within 10 days after the audit and approval of the accounts by the Auditor General. It should be emphasized, however that the authority of the Auditor General or his authorized representatives refers only to routinary audit of the books of accounts for franchise tax purposes and, on the basis of such audit, RCPI pays the franchise tax. Upon termination of such audit by the Auditor General, the Commissioner of Internal Revenue should be furnished with a copy of the audit report, particularly inviting the attention of the latter to deficiency franchise tax due from the taxpayer in order that an assessment could be issued. Moreover, considering that this Office is the Office charged with the duty of assessing and collecting franchise taxes its examiners are authorized to examine the books of accounts of franchise grantees despite the presence of the abovecited provision in the franchise under the following circumstances: 1. If the examination is for the purpose of verifying allegations of facts in connection with the protest filed by a franchise grantee against a tax assessment, including franchise tax, issued by this Office. 2. If the examination is for the purpose of ascertaining other internal revenue tax liabilities of the franchise grantee, aside from franchise tax. MISAEL P. VERA Commissioner of Internal Revenue