Philippine Deposit Insurance Corporation

February 15, 2007 BIR RULING [DA-095-07] Rev. Regs. No. 3-2005; DA-613-2006 Philippine Deposit Insurance Corporation PDIC Building 2228 Chino Roces Ave. Makati City Attention: Atty. Romeo M. Mendoza, Jr. Senior Vice President-LAS and General Counsel Gentlemen : This refers to your letter dated August 2, 2006 requesting for legal opinion on whether you may accept manually filed tax returns in lieu of tax returns filed through the EFPS as a requirement in government bidding. As represented, prospective bidders find it difficult to comply with the requirement of tax returns filed through Electronic Filing and Payment System (EFPS) as provided under Executive Order (E.O.) No. 398 as implemented by Revenue Regulations (Rev. Regs.) No. 3-2005. Hence, in the process you experienced numerous failed bidding, the effect of which, is more expense to the government (expenses incurred in the conduct of public bidding like advertisement, etc.). In these instances, prospective bidders can only come up with manually filed tax returns. In reply, please be informed that Section 2 of Rev. Regs. No. 3-2005 implementing E.O. No. 398 provides, viz: "2.0 General Provisions 2.1 Latest Tax Returns as Pre-Condition for Participation. ITHADC 2.1.1 EO 398 provides. "All persons, natural or juridical, local or foreign, desiring to enter into or participate in any contract with the government, its departments, bureaus, offices and agencies, including state universities and colleges, government-owned and/or controlled corporations, government financial institutions and local government units shall, as a pre-condition, submit, along with the proposal and/or bid, a copy of their latest income tax and business tax returns." 2.1.2 The above returns must be duly stamped and received by BIR and duly validated with the tax payments made thereon except in cases provided for in 4.2.2 below. 2.1.3 Returns filed with AABs or thru EFPS with corresponding reference numbers shall be deemed duly stamped and received by the Bureau of Internal Revenue (BIR)." Section 4 of the same Regulations further reads, to wit: "4.0 Specific Provisions 4.1. Mandatory EFPS Filing Effective 1 April 2005, all prospective participants to any government procurement of goods and services are mandated to file their income and business tax returns and other required information electronically using the Electronic Filing and Payment System (EFPS). ATcaHS 4.2. Acceptable Tax Return Submissions for Participation in Government Procurement 4.2.1 Effective 1 May 2005, only tax returns filed thru EFPS will be accepted as the required submission under Section 1 of EO 398. 4.2.2 Interim Procedure. From the date of effectivity of these Regulations up to April 30, 2005, Non-EFPS filed tax returns and payment documents may be submitted as compliance to par. 2.1. Provided that these documents must first be presented to the Revenue District Office with jurisdiction over the taxpayer for authenticity check and stamping." Except for paragraph 4.2.2 (on Interim Procedure), the regulations does not provide for any other required submission to the requirement that only tax returns filed through EFPS will be accepted in government bidding effective May 1, 2005. The purpose of the requirement is precisely to ensure that only tax compliant entities are allowed to enter into contracts with government, its departments, agencies and instrumentalities for the supply of goods and services. DaACIH Nevertheless, in BIR Ruling No. DA-613-2006 dated October 12, 2006, this Office ruled as follows: "We would like to emphasize that clearly RR 3-2005 requires that bidders for government projects must be EFPS registered prior to the time of the bidding and that EFPS registration should form part of the eligibility requirements for the bidding. However, RR 3-2005 does not address the situation where a bidder is a new registrant under the EFPS and consequently, will not be able to comply with the requirement under Sec. 4.2.1 in relation to Sec. 3.3 which provides that only EFPS returns for the last six months of operations may be accepted as required submission under Sec. 1 of EO 398. We recognize that to disqualify new EFPS registrants (less than six months) who simply cannot submit EFPS returns (but have manual returns to prove previous tax payments) would be detrimental to the government since the number of bidders may be unduly limited. CDAHaE Thus, in case the bidder has just registered under the EFPS (less than 6 months prior to the time of bidding), then necessarily non-EFPS or manual returns may be submitted as proof of timely and complete payment of VAT/Percentage Tax for the months prior to the EFPS registration. If the bidder has already been registered under the EFPS for six months or more, prior to the time of the bidding, then only EFPS returns may be submitted and accepted. Lastly, the Bidding Committee should adopt/incorporate the above rule in the bid documents after due deliberation and resolution." In view of the foregoing, only tax returns filed through EFPS will be accepted as provided for under E.O. No. 398 and Rev. Regs. No. 3-2005. Manually filed tax returns may be accepted in lieu of tax returns filed through the EFPS as a required submission in government bidding only in case the bidder is a new registrant under the EFPS subject to the condition prescribed in Section 2.1.2 of E.O. No. 398. Very truly yours, Commissioner of Internal Revenue By: (SGD.) GREGORIO V. CABANTAC Deputy Commissioner