Request of Philippine Phosphate Fertilizer Corporation (Philphos) for the Suspension of the Imposition of the Minimum Corporate Income Tax (MCIT)

April 14, 1999 BIR RULING [DA-231-99] MEMORANDUM FOR : Edgardo B. Espiritu Secretary of Finance FROM : Beethoven L. Rualo Commissioner of Internal Revenue SUBJECT : Request of Philippine Phosphate Fertilizer Corporation (Philphos) for the Suspension of the Imposition of the Minimum Corporate Income Tax (MCIT) DATE : March 26, 1999 This refers to the letter dated March 16, 1999 of Atty. Regulus E. Cabote, 3rd Floor, Vernida IV Bldg., Alfaro St., Salcedo Village, Makati City, on behalf of his client, Philphos requesting for the suspension of the imposition of the Minimum Corporate Income Tax (MCIT) pursuant to Section 27(E)(3) of the Tax Code of 1997. prll It is represented that since the start of the commercial operations of Philphos in January 1987, it has continuously incurred net losses; that in fact, these successive losses have resulted in an accumulated capital deficit of P34Billion as of December 31, 1997 and the unaudited financial statements for year ending December 31, 1998 show that this capital deficit has increased to P37Billion; that these losses were primarily due to substantial foreign exchange losses arising from the restatement of the peso amounts of Philphos long term loans denominated in foreign currencies, the interests on these loans and the unfavorable market prices for Philphos products in the world market; that as it is, Philphos' operating income is barely sufficient to sustain its operations and this situation is further aggravated by the volatile currency market which continually sees the devaluation of the peso against the US dollar; that Philphos survives only because the Philippine Government, which owns fifty percent (50%) of Philphos advances the amounts to cover Philphos' shortfalls in its maturing loan obligations; that to impose the MCIT on Philphos would further drain its financial resources; that since Philphos is one of the companies targeted for immediate privatization by the Philippine Government, it would be doubly difficult to entice prospective bidders if, despite its continued losses, Philphos is still obliged to pay the MCIT; and that Revenue Examiners Rosemarie A. Talanan and Evelyn M. Dinglasan of Revenue District No. 50 South Manila, have favorably recommended the granting of the request of Philphos for the suspension of the imposition of MCIT. Section 27(E)(3) of the Tax Code of 1997 as implemented by Revenue Regulations No. 9-98 provides that the Secretary of Finance is hereby authorized to suspend the imposition of the minimum corporate income tax on any corporation which suffers losses on account of prolonged labor dispute or because of force majeure , or because of legitimate business reverses. The term "legitimate business reverses" shall include substantial losses sustained due to fire, robbery, theft or embezzlement, or for other economic reason as determined by the Secretary of Finance. (Sec. 2.27(E)(4)(d), Revenue Regulations No. 9-98) In view of the foregoing, it is recommended that the request of Philphos for the suspension of the imposition of MCIT be granted for 1998. LLpr (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue APPROVED: (SGD). EDGARDO B. ESPIRITU Secretary of Finance