BIR Ruling [DA-088-97]

March 5, 1997 BIR RULING [DA-088-97] SM Prime Holdings 3rd Floor, MSE Building Ayala Avenue, Makati City Attention: Mr . Jose T . Sio Senior Vice President-Finance Gentlemen : This refers to your letter dated December 13, 1996 stating that SM Prime Holdings, Inc. (SM Prime) is a corporation duly organized and existing under Philippine laws, that SM Prime applied for and was granted the authority to publicly sell its shares of stocks through the listing thereof at the Philippine Stock Exchange; that the implementation of its decision to list its shares was implemented through the initial step of amending its Articles of Incorporation on January 28, 1994; that immediately thereafter, the corporation pursued all requisite acts preparatory to the listing, including the filing with the SEC of its Registration Statement and the holding of negotiations with its local and foreign underwriters; that in April 1994 or in the midst of the preparations for SM Prime's listing Congress enacted R.A. 7717 which in addition to modifying the rate of tax on the sale of stocks through the stock exchange, imposed a new tax upon all sales of shares of stock done through initial public offerings (IPO); that in the meantime, the shares of SM Prime were listed, through its initial public offering on July 5, 1994; that conformably with R.A. 7717, the company paid the government a total of P204,457,035.30 in IPO tax on August 4, 1994 with Revenue District Office No. 50, Makati City; that in preparing the company's income tax return for the third quarter of 1994, the IPO tax payment was included as an item of expense that was deducted from the taxable income of the company; that the inclusion was clearly an act of honest inadvertence; that the error remained undetected until the financial statements of the company were reviewed recently; that SM Prime is a listed company involved in various undertakings that are regulated by government and imbued with public interest; that the perception of its stockholders, as well as that of the general public in respect of legality of its operations and compliance with legal requirements is of primordial concern to SM Prime. In connection therewith, you are requesting in effect for a waiver of the interest and surcharge arising from your deficiency income tax for the year 1994 which you will have to pay as a result of the honest mistake committed by your employee when it deducted the IPO tax payment in the computation of your 1994 taxable income. In reply thereto, please be informed that under Sections 248(a)(3) and 249, both of the Tax Code, as amended, the imposition of the surcharge and interest on delinquency is mandatory. Strong reasons of policy support a strict observance of the rule regarding the payment of tax. The laws imposing penalties for delinquencies are clearly intended to hasten tax payments or punish evasions or neglect of duty in respect thereof. If delays in tax payments are to be condoned for light reasons, the law imposing penalties for delinquencies would be rendered nugatory and the maintenance of the government and its multifarious activities would be as precarious as taxpayers are willing or unwilling to pay their obligations to the estate on time. (Jamora vs. Meer, 74 Phil. 22) cdtech However, since your deficiency income tax for the year 1994 resulted from the honest inadvertence/mistake of your employee which deducted the IPO tax payment in the computation of your 1994 taxable income, your request for the waiver of the payment of the surcharge but not the interest on the tax deficiency is hereby granted. Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue