One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center

May 30, 2008 BIR RULING [DA-330-08] Sec. 230; RR No. 5-2000 One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center Department of Finance Roxas Boulevard cor. Pablo Ocampo, Sr. St. Manila Attention: Ernesto Q. Hiansen Executive Director Gentlemen : This has reference to your letters dated February 9, 2007 and November 22, 2007 requesting for confirmation of a Memorandum issued by this Office dated September 8, 2005 addressed to the Assistant Commissioner, Collection Service regarding the determination of the validity period/expiry date of transferred/assigned Tax Credit Certificates (TCCs). This Office issued the said Memorandum stating a legal opinion on the expiry dates of the TCCs of World Imports (Phils.), Inc. that were assigned and transferred in favor of Cityland, Inc. Relative to the first issue on the validity period and expiration date of a transferred/assigned TCC, this Office opined: "Section 4 (b) (iv) of RR No. 5-2000 provides: "(iv) Any TCC issued in favor of the transferee or assignee shall be valid for five years , but subject to the following conditions which must be annotated therein, as follows: IEaHSD 1. Not valid for further transfer; 2. Not valid for cash conversion." (Emphasis supplied) The regulations is clear that a transferred/assigned TCC is valid in the hands of the transferee/assignee for five years. What this means is that the five-year period is to be counted from the date the TCC is issued to the transferee/assignee. In other words, the issue date of the original TCC has no significance anymore because the transferred TCC is considered a new TCC in the hands of the transferee/assignee with a validity period of five years from the date of issuance." Please be informed that this Office hereby confirms the applicability of the foregoing legal opinion to all transferred/assigned TCCs. In your follow-up letter dated November 26, 2007, it is represented that the aforementioned legal opinion affected the pending applications of transferees/assignees ZiLOG Electronics Philippines, Inc. and Benguet Ebara Real Estate Corporation such that their applications for special revalidation under D.O. No. 20-06 have been recommended for denial. Zilog Electronics Philippines, Inc. TCC No. 023118 was originally issued on May 10, 2000 to its original owner and was subsequently transferred to ZiLOG Electronics Philippines, Inc. ("ZiLOG"), the transferee. Upon its transfer to ZiLOG, TCC No. 023118 was replaced with TCC No. 004165 issued on April 4, 2002 in the name of ZiLOG. Thereafter, this TCC underwent special revalidation in 2003 pursuant to D.O. No. 19-03 and was replaced with TCC No. R-010509 issued on December 1, 2003. On August 28, 2006, ZiLOG applied for the special revalidation of TCC No. R-010509 pursuant to D.O. No. 20-06. On March 22, 2007, ZiLOG also applied for the regular revalidation of TCC No. R-010509 under Revenue Regulations No. 5-2000. 1 DacTEH Applying the opinion made by this Office in the September 8, 2005 Memorandum, TCC No. 004165 that was issued on April 4, 2002 to ZiLOG as transferee is valid for 5 years from the date of issuance or until April 4, 2007. Upon its special revalidation under D.O. No. 19-03, TCC No. 004165 was replaced by TCC No. R-010509 issued on December 1, 2003. Section 3 (c) of D.O. 19-03 provides for the General Procedure on the Special Revalidation, to wit: "c. The Center shall prepare the revalidated TCC using the new forms equivalent to the validated remaining balance. These revalidated TCCs shall be forwarded for the signature by the authorized signatory at the BIR or the BOC. The revalidated TCC shall indicate the date of original issuance, date of revalidation and the TCC maturity date. The maturity date of the TCC shall be the same as that of the original issuance and shall undergo regular revalidation as provided by law". This provision should be construed in relation to Section 4 (b) (iv) of RR No. 5-2000 since the TCC being applied for special revalidation is a transferred TCC or TCC issued to the transferee (TCC No. 004165) and not an originally issued TCC. Thus, TCC No. R-010509 should bear the same expiry date/maturity date as transferred TCC No. 004165, which is April 4, 2007. On August 28, 2006, ZiLOG applied for special revalidation of TCC No. R-010509 pursuant to D.O. No. 20-06 dated June 16, 2006. The revalidation period was from August 1 to December 31, 2006. Since the application of ZiLOG for special revalidation under D.O. No. 20-06 was within the revalidation period, and considering that the TCC sought to be revalidated has not yet expired, this Office is of the opinion that ZiLOG's application for special revalidation of TCC No. R-010509 should be given due course. The maturity/expiry date of the transferred TCC after special revalidation in accordance with D.O. 20-06 is clearly stated as follows: "IV. Policies xxx xxx xxx 14. The maturity date of the replacement TCC shall be the same as the maturity/expiry date of the TCC subject of the special revalidation and shall still undergo regular revalidation as provided for under Sec. 230 of the 1997 NIRC, if warranted and legally feasible, and if the original version of TCC has not yet been subjected to the regular revalidation. . . ." (Emphasis supplied) cASEDC Therefore, the maturity/expiry date of the replacement TCC of TCC No. R-010509 will still be April 4, 2007. Benguet Ebara Real Estate Corporation TCC No. 023392 was originally issued on January 19, 2001 to its original owner and was subsequently transferred to Benguet Ebara Real Estate Corporation ("BEREC"), the transferee. Upon its transfer to BEREC, TCC No. 023392 was replaced with TCC No. 004256 which was issued on April 20, 2002 in the name of BEREC. Thereafter, this TCC underwent special revalidation in 2003 pursuant to D.O. No. 19-03 and was replaced with TCC No. R-010879 issued on January 20, 2004. On December 13, 2006, BEREC applied for the special revalidation of TCC No. R-010879 pursuant to D.O. No. 20-06. On April 17, 2007, BEREC also applied for the regular revalidation of TCC No. R-010879 under RR 5-2000. Again, applying the opinion made by this Office in the September 8, 2005 Memorandum, TCC No. 004256 that was issued on April 20, 2002 to BEREC as transferee is valid for 5 years from the date of issuance or until April 20, 2007. Upon its special revalidation under D.O. No. 19-03, TCC No. 004165 was replaced by TCC No. R-010879 issued on January 20, 2004. TCC No. R-010879 should bear the same expiry date/maturity date of the replaced TCC No. 004165 which is April 20, 2007 in accordance with the provisions of Section 3 (c) of D.O. 19-03 in relation to Section 4 (b) (iv) of RR No. 5-2000 as already discussed. Considering that the application of BEREC for special revalidation under D.O. No. 20-06 was made on December 13, 2006 which is still within the revalidation period, and that the TCC sought to be revalidated has not yet expired, this Office is of the opinion that BEREC's application for special revalidation of TCC No. R-010509 should be given due course. After special revalidation of TCC No. R-010879 pursuant to D.O. No. 20-06, the replacement TCC that will be issued shall have the same maturity/expiry date as that of the transferred TCC after special revalidation in accordance with IV (4) of D.O. 20-06 as discussed above. STDEcA Therefore, the maturity/expiry date of the replacement TCC of TCC No. R-010879 will still be April 20, 2007. Applications for Regular Revalidation of TCC Nos. R-010509 and R-010879 It is further represented that ZiLOG applied for regular revalidation of TCC No. R-010509 on March 22, 2007, and that BEREC also applied for regular revalidation of TCC No. R-010879 on April 17, 2007, both applications were pursuant to RR 5-2000. Regular Revalidation defined under Revenue Memorandum Order (RMO) No. 15-06 2 dated July 17, 2006 refers to the one-time extension of the validity period of TCCs prior to their expiration at the end of the fifth (5th) year from the date of issue of the original TCC. Section 5 of RR 5-2000 provides: "SEC. 5. Period of Validity, Conversion and Revalidation . a) Validity Period. Any Tax Credit Certificate (TCC) issued in accordance with the pertinent provision of the Tax Code of 1997 which remains unutilized after five (5) years from date of issue shall, unless revalidated before the end of the fifth year, be considered invalid and shall not be allowed for use in payment of any of the taxpayer's internal revenue tax liability nor allowed to be transferred and the unutilized amount thereof shall revert to the General Fund of the National Government. The revalidated TCC shall be valid for a period of five years from the date of issue." The above provision was taken from Section 230 of the Tax Code of 1997, which states: "SEC. 230. Forfeiture of Cash Refund and of Tax Credit . xxx xxx xxx (B) Forfeiture of Tax Credit. A tax credit certificate issued in accordance with the pertinent provision of this Code, which remains unutilized after five (5) years from date of issue shall, unless revalidated before the end of the fifth year, be considered invalid and shall not be allowed for use in payment of any of the taxpayer's internal revenue tax liability nor allowed to be transferred and the unutilized amount thereof shall revert to the General Fund of the National Government". (Emphasis supplied) Stated otherwise, a tax credit certificate (TCC) that is issued in accordance with the pertinent provision of the Tax Code shall be considered invalid and shall not be allowed for use in payment of the taxpayer's internal revenue tax liability nor allowed to be transferred if it remains unutilized after five (5) years from date of issue. This is the rule. However, the provision admits of an exception, i.e. , the TCC should be revalidated before the end of the fifth year, thus extending the life of the TCC in order that the owner thereof may utilize the same. It is clear therefore, that regular revalidation applies only to a TCC that is "issued in accordance with the pertinent provision of the Tax Code". Section 2 (4) of Revenue Memorandum Order No. 86-98 3 dated November 10, 1998 defined the above stated phrase as follows: "SEC. 2. Coverage . All concerned are hereby enjoined to strictly implement the above provisions of law, as follows: xxx xxx xxx 4. Meaning of a TCC "issued under the provisions of the Code"; Exception. (a) This term is limited only to any TCC issued under the pertinent provisions of the National Internal Revenue Code, such as, but not limited to, a TCC duly issued by the Commissioner of Internal Revenue, or his duly authorized representative, for taxes erroneously paid by or illegally collected from the taxpayer, excess credit for creditable income taxes withheld from income derived, or a TCC duly issued to a VAT-registered taxpayer on account of his transactions subject to zero percent (0%) value-added tax. (b) Exception. The term "issued under the provisions of the Code" does not include any TCC issued pursuant to the provisions of any law, other than the National Internal Revenue Code, such as a TCC issued pursuant to the provisions of the Omnibus Investments Code, the Tariff and Customs Code, or other general or special law." (Emphasis supplied) EHaCTA It is apparent then that TCCs issued to transferees/assignees by virtue of assignment by the original owners do not qualify for regular revalidation due to the fact that the TCCs were not issued under the provisions of the Tax Code as enumerated above. Moreover, issuance of TCCs to transferees or assignees is not found in the Tax Code of 1997 but rather, under Section 4 of RR 5-2000 providing for assignment and transfer of TCCs as well as the procedure therefor. Based on the foregoing, there is no legal basis for the regular revalidation of ZILOG's TCC No. R-010509 and BEREC's TCC No. R-010879. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, and/or any of the requirements set forth in this letter are not complied with, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service Footnotes 1. RR No. 5-2000: Prescribing the Regulations Governing the Manner of the Issuance of Tax Credit Certificates, and the Conditions for their Use, Revalidation and Transfer. 2. RMO 15-06: Prescribing the Policies and Procedures in the Implementation of Special Revalidation Covering All Outstanding Tax Credit Certificates (TCCs) Issued by the Bureau of Internal Revenue (BIR) and Those Jointly Issued by the One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center (OSS-Center) and the BIR Pursuant to Department of Finance Order No. 20-06 Dated June 16, 2006. HDIATS 3. RMO 86-98: Payment of National Internal Revenue Taxes in the Form of Tax Credit Certificate (TCC), Under Certain Conditions, Pursuant to Section 204 of the Tax Code of 1997.