BIR Ruling [DA-045-97]

January 30, 1997 BIR RULING [DA-045-97] Memorandum For: The Commissioner This refers to the letter of King Capuchino Tan & Associates dated November 6, 1996 requesting, in effect for a ruling whether or not their client, Marcopper Mining Corporation (MMC) can convert to cash its Tax Credit Certificate (TCCs) Nos. 006140 and 007654 in the aggregate amount of P20,038,041.85 without prior payment of its separate tax liabilities which were settled by way of compromise agreement with the Government. aisadc It appears that MMC has filed a request to convert to cash its TCC Nos. 006140 and 007654 in the aggregate amount of P20,038,041.85; that the process of conversion of said TCC's is temporarily suspended pending resolution of the issue whether the same may proceed independently of the actual settlement of the adverted ad valorem tax liabilities; that settlement of the said tax liabilities has been previously suspended pursuant to LOI No. 1416 dated July 17, 1984 issued by then President Ferdinand E. Marcos to help and support distressed copper mining companies; that per said LOI, repayment of said tax liabilities shall commence after the world market prices has stabilized at an economically viable level adequate to sustain the operation of copper mines; that Suspension of Payment privilege under the aforementioned LOI has been lifted on October 14, 1988 by virtue of Executive Order No. 340 of the then President Corazon C. Aquino which means that payment of all obligations incurred before October 31, 1987 which was suspended by LOI No. 1416 shall be collectible subject to a schedular payment; that said Schedule of Payment was the subject of meetings and deliberations of the Ad-Hoc Committee on Copper Mining Companies created under Department Order No. 32-90 dated June 27, 1990 and the same was properly recommended by the Depart of Trade and Industry through the Board of Investments for adoption (and was likewise adopted by the Bureau of Customs and Marcopper Mining Corporation in their Compromise Agreement which was approved by the Secretary of Finance); that in November 1990, a Compromise Agreement providing for the Rules to implement the availment under par. 4 of E.O. 340 was entered into by and between the BIR, as represented by then Commissioner Jose U. Ong and the Marcopper Mining Corporation represented by its president John E. Dodge and adopting a schedule for the regular installment as it falls due and an accelerated schedule taking into account the taxpayer's capacity to pay ; that said schedule of payment, is subject to the following conditions mentioned in the Compromise Agreement, viz: 1. The monthly installment shall be paid within 120 months from the Marcopper Mining Corporation's loan for the San Antonio Project are fully paid, which should not be later than 10 years from the signing of the Compromise Agreement; 2. The monthly average price of copper as quoted by the London Metal Exchange is US $ 1.10 per pound. Thus, should the average copper price for the month falls below US $1.10 per pound, no installment payment shall be due; and 3. Marcopper Mining Corporation at its option, may make additional payments either in cash or tax credit and apply such payments in the inverse order to shorten period payment. that in connection with the foregoing stipulations Marcopper Mining Corporation submitted a copy of its Financial Statement for the year ending 1995 showing that the loan obtained from the Asian Development Bank (ADB) for the San Antonio Project still stands at US $8,250,000 and has not yet been fully paid; that starting June of the current year, the monthly average price of copper fell below the stipulated US $1.10 per pound; that copper price went down further from US $0.98 to US $0.88 per pound resulting in substantial losses to the mining industry; and that the request for conversion of the aforementioned Tax Credit Certificate Nos. 006140 and 007654 is badly needed due to the company's stoppage of operations on account of the accidental spillage of mine tailings into the Boac river. Based on the foregoing facts, it is recommended that the Compromise Agreement validly entered into by MMC and the past BIR Commissioner be left undisturbed. In other words, the terms and stipulations of the Agreement shall be implemented without additional conditions, i.e., limiting the exercise of a right to convert to cash tax credit certificate independently applied and regularly granted. Section 104 and 106 of the Tax Code, as amended, provides for refund as an option to filing an application for Tax Credit Certificate. If a tax credit certificate was granted as the taxpayer's first option, he is justified in requesting for its conversion into cash. Accordingly, MMC's request to convert to cash their TCC Nos. 006140 and 007654 in the aggregate amount of P20,038,041.85 should be given due course. Respectfully Submitted: MILAGROS V. REGALADO Chief, Law Division CONCURRING: ALICIA P. CLEMENO Assistant Commissioner (Legal Service) APPROVED: LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue