BIR Ruling [DA-608-99]

October 22, 1999 BIR RULING [DA-608-99] MEMORANDUM FOR: Acir Melchor O. Ramos RE : Davao Light and Power Resources This is in reply to your memorandum dated October 15, 1999 on transferability of TCC by a zero-rated entity to its affiliates. Please be informed that the Transferability of TCC's is recognized under our jurisdiction pursuant to Section 112 (A) of the Tax Code of 1997. Section 112(A) of the Tax Code of 1997 reads as follows: " (A) Zero-rated or Effectively Zero-rated Sales . Any VAT-registered person, whose sales are zero-rated or effectively zero-rated may, within two (2) years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales. . .". From the above, where the law expressly authorized a VAT-registered, taxpayer, whose sales are zero-rated or effectively zero-rated to apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales, this office is of the opinion that the same shall be transferable. The term refund is defined as "to pay back by the party who has received it, to the party who has paid it, money which ought not to have been paid." (Bouvier's Law Dictionary, p. 2856, volume 2, 12th reprint). It is stressed that there is nothing in the Tax Code of 1997 which expressly or impliedly prohibits the transfer of TCC issued to a zero-rated entity. Therefore, in accordance to sound fiscal policy, where a taxpayer is entitled to a refund of taxes (by way of converting its tax credits into cash) he should be allowed to transfer or assign said TCC to an affiliate or subsidiary for purposes of paying the latter's taxes without resorting its cash conversion. Unlike other entities which are granted tax credit certificates like those with excess income tax withheld at source or those corporations with excess input tax, a zero-rated entity enjoys a preferential treatment under the Tax Code of 1997. A zero-rated entity has been afforded the option to convert its excess input tax to cash and dispose the proceeds thereof at will. Under the circumstances, the BIR can not impose a limitation on the incidence of ownership of tax credit by a zero-rated entity where none exists expressly or suppliedly under the Tax Credit Code of 1997. On the contrary; to read into the Tax Code a limitation on exercise of the right which flows from ownership of property will run counter to the preferential treatment accorded by the Tax Code on zero-rated entities. VAT Ruling No. 123-90 does not involve a zero-rated corp. but an ordinary none-zero rated importer with excess advance sales tax. The policy of the Tax Code of 1997 as explained above, on none zero-rated corp. is different from a zero-rated entity. Therefore, said ruling does not apply to the Davao Light Case. In addition, the issue involve in VAT Ruling No. 123-90 is not the transferability of TCC but the limitation of its use by the taxpayer. No transfer of TCC is involved in said ruling. Therefore, for the sake of argument, even if said ruling is correct, it is not applicable to the Davao Light Case because the latter involves a transfer of TCC by a zero-rated corp. BIR Ruling No. 214-91 is not also applicable to the case at issue because such ruling involves a none zero-rated entity. Such entity is not likewise a BOI registered export oriented entity which is authorized to claim a refund of excess input tax. The entity involved in said ruling is an ordinary corporation engaged in amusement. As explained above the policy under the Tax Code on ordinary taxpayers or corporations which are holders of TCC is different from a zero-rated and/or BOI registered exported oriented entity. Thus, in BIR Ruling dated December 14, 1989 issued by the same Commissioner Jose V. Ong who issued BIR Ruling No. 214-91, the BIR allowed the transfer of the TCC to its affiliated company, just like in the case where Luzon Hydro or zero-rated entity transferred its TCC to its affiliate Davao Light and Power Co. Inc. In Maceda vs. Macaraig, 771 SCRA 197, "the petitioner argues that the release by the BIR of the 58 million refund to the respondent NPC by way of a TCC which was assigned to respondent Caltex thru a deed of assignment approved by the BIR is patently illegal. The Supreme Court sustained such assignment, it even said that "the allegation that this is in effect allowing tax evasion by oil companies is not quite correct " Furthermore, in BIR Ruling No. 113-99 dated July 23, 1999, involving the assignment of a TCC by Luzon Hydro to its affiliate Davao Light - et al, the BIR approved said assignment. Accordingly, where the Bureau has approved the deed of assignment involving a TCC, the assignee shall be allowed to apply said TCC in payment of taxes, subject to the limitations imposed under Revenue Regulation No. 20-91. In view of the foregoing, you are authorized to issue the corresponding TDM to Davao Light and Power Company Inc. (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue