BIR Ruling [DA-303-00]

August 11, 2000 BIR RULING [DA-303-00] 204 (C), 230, 192, 99 DA-303-2000 Shimizu Philippine Contractors, Inc. 5-F Kings Court I Building 2129 Pasong Tamo Street Makati City Attention: Mr . Kenichi Higashiguchi President and General Manager Gentlemen : This refers to your letter dated July 20, 2000 requesting, in effect, for a ruling on the assignability of BIR-issued Tax Credit Certificates in favor of third parties. It is represented that this Office has issued in your favor Tax Credit Certificate (TCC) No. SN000987 representing unutilized creditable withholding tax in the amount of P41,969,397.44; that considering your present business condition, you are certain that you will not be able to fully utilize the TCC because of its limited applicability; that you are, therefore, reviewing the option of converting the TCC into a cash refund; that however, you realize that conversion of the TCC into a cash refund will prove unavailing as the government is short of funds for cash refunds; that you fear that your business will continue to be burdened with liquidity problems despite the issuance of the aforementioned TCC; that under this situation, therefore, you are compelled to find means to be able to utilize the TCC to prevent drastic financial burden on your business operations; that you would like to transfer the TCC which remains valid and unused to an interested taxpayer; and that you believe that this is the ultimate solution given the circumstances because there will be no cash outlay at all from the government while Shimizu Philippine Contractors, Inc. (Shimizu) will be able to realize the effective reimbursement in money's worth of the unutilized TCC. In reply, please be informed that insofar as BIR-issued TCCs are concerned, there is no provision under the Tax Code of 1997 expressly prohibiting the transfer or assignment of duly-issued BIR TCCs. Under the Code, a Tax Credit Certificate may be validly issued for amounts representing erroneously paid taxes; excess quarterly individual or corporate income taxes paid; illegally collected taxes; VAT on Zero-rated or Effectively Zero-rated Sales; input taxes paid on capital goods imported or locally purchased; and for unused input taxes due to retirement from or cessation of business or cessation of status of a VAT-registered person. In all instances, a BIR-issued TCC presupposes the existence of a previously paid tax arising out of the normal application of the provisions of the Tax Code. In contrast to a BOI-issued Tax Credit Certificate which is in the nature of a tax incentive granted by special laws to the grantee, such TCC is transferable only under certain conditions (Article 21, Omnibus Investments Code, as implemented by Rule VII of the Rules and Regulations of E.O. 226). ICDcEA Verily, taxpayers with TCCs issued by the BIR in their name hold the same in the concept of an owner. In BIR Ruling No. 098-95 dated June 27, 1995, this Office had an occasion to state that " (I)n the event of the issuance of tax credit certificate, the taxpayer as the owner thereof; has the exclusive right to enjoy and dispose of the certificate according to its wishes . These powers are necessarily an attribute of the taxpayer's ownership of said certificate . The free enjoyment and disposition of said certificate can only be subject to the limitations imposed by law . As previously stated, there are no express, much less implied, limitations imposed by law on the transfer of TCCs issued under the Tax Code. On the contrary, the law specifically allows the conversion of unutilized tax credits into cash refund within five (5) years from date of issue (Sections 204 and 230, NIRC). If the taxpayer can ultimately dispose the cash proceeds of his TCCs in any manner he chooses, we see no cogent reason why the source of such proceeds should be treated differently. At any rate, the conversion into cash refund or the transfer of the TCC to another yields the same result, without any revenue loss or prejudice to the government. In view of the foregoing, this Office is of the opinion, and so holds, that a TCC validly issued pursuant to the Tax Code of 1997 can be transferred or assigned by the owner provided, of course, that the TCC sought to be transferred must not have expired and remains valid in the hands of the original holder pursuant to the provisions of Section 230 of the Code. Such being the case, BIR-issued TCC No. SN000987 can be transferred or assigned by Shimizu in favor of third parties provided that (1) said TCCs have not expired and remain valid in the hands of Shimizu; (2) such transfer of said TCCs shall be limited to one transfer only; (3) the TCC transferee/s can utilize the aforestated TCCs only in payment of its internal revenue tax liabilities and cannot be the subject of a cash refund; and (4) the new TCC issued should state that the holder receives the same by virtue of a transfer from the original transferee. (BIR Ruling No. 192-99 dated December 6, 1999) This ruling is being issued on the basis of the foregoing facts. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. cESDCa Very truly yours, Commissioner of Internal Revenue By: (SGD.) LILIAN B. HEFTI Deputy Commissioner Legal and Inspection Group