Somera and Asiddao Law Offices

October 14, 2008 BIR RULING [DA-(C-093) 290-08] Somera and Asiddao Law Offices Unit 306, Cattleya Condominium 235 Salcedo Street, Legaspi Village Makati City Attention: Atty. Mindamar Somera and Atty. Carissa Agnes L. Olmedo Gentlemen : This refers to your letter dated July 7, 2008 stating that your client, Philippine Realty and Holdings Corporation (PhilRealty), is a corporation duly organized and existing under Philippine laws with business address at the 5th Floor, East Tektite Tower, Ortigas Center, Pasig City; that in December of 1994, PhilRealty offered stock rights to stockholders-of-record as of October 25, 1994; that the Corporation called for twenty-five percent (25%) of the amount subscribed upon signing the Subscription Agreement; that the total subscribed shares was 3,001,185,816 with P1.00 par value; that on November 12, 1997, the BIR released Revenue Memorandum Circular No. 47-97 which clarified that documentary stamp taxes on original issuance of shares must be paid upon subscription, whether or not fully paid; that the last payment for unpaid documentary stamp tax was set on March 1998; that in the same year, the Tax Fraud Division of the BIR (TFD-BIR) assessed the Corporation for documentary stamp tax in the amount of P30,011,860.00; that however, since PhilRealty was, at that time, already in financial distress, full payment could not made; that in a letter dated August 26, 2000, the TFD-BIR again assessed PhilRealty for taxes, this time with an additional amount of P15,005,930.00 representing interest until September 25, 2000, thus bringing PhilRealty's total tax liability to P45,017,790.00; that the said assessment, however, did not take into consideration PhilRealty's payments for documentary stamp tax liability in the amount of P3,397,505.00 as evidenced by the Authority to Accept Payment; that in December 2002, PhilRealty filed a petition for corporate rehabilitation with prayer for suspension of payments; that in a Decision dated April 26, 2004, the Court approved PhilRealty's petition for rehabilitation; that on June 6, 2003, a Warrant of Distraint and/or Levy was issued by the BIR for non-payment of documentary stamp tax in the amount of P45,017,790.00; that in a letter dated June 24, 2003, PhilRealty responded to the BIR by (i) stating the reasons for its inability to pay the taxes due; (ii) requesting for waiver of interest and penalties; and (iii) requesting for cancellation of the Warrant; that on September 3, 2003, PhilRealty wrote Commissioner Parayno thru Ms. Teresita M. Angeles of the Collection and Enforcement Division (CED) of BIR requesting for abatement of the interest and surcharge on the deficiency documentary stamp tax assessment; that while its request for abatement of interest and surcharge on the deficiency documentary stamp tax was pending review, PhilRealty was able to secure a refund of its unutilized creditable taxes withheld at source for the years 1997 and 1998 in the following amounts: CSAcTa Year Amount 1997 P28,744,808.15 1998 36,047,780.64 Total P64,792,588.79 that despite the pendency of its request for abatement, the BIR issued the corresponding Tax Credit Certificates (TCC) in the above-amounts; that in 2004, PhilRealty was again able to secure a refund of its unutilized creditable taxes withheld at source for the year 1999 in the amount of P12,850,653.41; that this time, however, the issuance of the corresponding TCC was withheld on the ground that it appeared in the database that PhilRealty has unpaid liability of P15,005,930.00; that since no further details of said tax liability was given by the BIR despite diligent efforts exerted by PhilRealty to ascertain the basis of said tax liability, and in order that they can be issued its TCC in the amount of P12,850,653.41, PhilRealty paid the P15,005,930.00 through Tax Debit Memo (TDM), using its earlier issued TCC; that as a result of PhilRealty's payment of the amount of P15,005,930.00 through TDM, the BIR issued the TCC representing its unutilized creditable taxes for the year 1999 in the amount of P12,850,653.41; that on September 27, 2006, Revenue Regulations No. 15-2006 was issued by the BIR, regarding a One-Time Tax Abatement Administrative Program, since PhilRealty did not receive any formal action from the BIR on its 2003 request for abatement, the company took advantage of the benefits of said One-Time Abatement Program and filed its application with the BIR-LTCED on October 26, 2006; that in determining its remaining tax liability for purposes of applying for said One-Time Abatement, PhilRealty took into account the following payments made: Initial assessment: P30,011,860.00 Less: Initial payments (P3,397,505.00) Tax Debit Memo (P15,005,930.00) Remaining Tax P11,608,425.00 Interest: P15,005,930.00 (with letter request for abatement dated September 12, 2003) that pursuant to Revenue Regulations No. 15-2006, PhilRealty then requested for (i) staggered payment of basic tax liability amounting to P11,608,425.00 for a period of twelve (12) months starting October 31, 2006, and (ii) cancellation of penalties and surcharges; that this was reiterated in a letter dated October 23, 2006; that the request was approved by the LT-CED in a letter dated June 28, 2007; that to date, PhilRealty has paid the amount of P11,608,425.00 in full; that PhilRealty was able to make partial use of its Tax Credit Certificates, of the total TCCs in the amount of P77,643,242.20 issued to it, its remaining tax credit certificates as of March 26, 2007 amounted to P15,078,803.95, as follows: Date TCC No. Amount 3-26-07 200600002381 P1,339,925.80 3-26-07 200600002382 13,738,878.15 Total P15,078,803.95 =========== that on October 26, 2007, PhilRealty assigned portion of TCC No. 200600002382, or the total amount of P4,083,011.93 to Export and Industry Bank, Inc. (Export Bank); that the amount subject of the Deed of Assignment was to be used by Export Bank in payment of the internal revenue taxes due from the Deed of Transfer which was executed by PhilRealty in favor of Export Bank in payment of its obligations to the latter; that pursuant to such Deed of Transfer, and as confirmed by the Deed of Assignment, PhilRealty, as the Transferor, assumed the obligation for the payment of all taxes, costs and expenses in connection with the said transfer; that pursuant to such Deed of Assignment, PhilRealty filed on December 14, 2007 an Application for TCC Transfer Attachment with the BIR; that on May 16, 2008, PhilRealty was again able to secure a Writ of Execution from the Court of Tax Appeals directing the BIR to issue TCC in the amount of P14,376,871.55 representing its unutilized creditable taxes withheld at source for the year 2001; that the Writ of Execution was served on the BIR on May 21, 2008. SDIaHE Thus, as of May 21, 2008, PhilRealty has a total tax credit in the amount of: TCC No. 200600002381 P1,339,925.00 TCC No. 200600002382 13,738,876.15 Writ of Execution dated May 16, 2008 14,376,871.00 (representing excess creditable Withholding taxes for the taxable Year 2001) Total P29,455,672.15 ============ that despite the availability of sufficient tax credit, the approval of PhilRealty's application for TCC Transfer in the amount of P4,083,011.93 in favor of Export Bank has been held in abeyance on the ground that no Termination Letter has yet been issued by the BIR on PhilRealty's availment of the One-Time Abatement Program; that to date, however, PhilRealty's one-time tax abatement application is still being evaluated by the Large Taxpayer's Collection and Enforcement Division, hence, no Termination Letter has been issued; that as a result, PhilRealty is unable to comply with its contractual obligation to Export Bank pursuant to aforesaid Deed of Assignment; and that considering that PhilRealty is still under corporate rehabilitation, it can comply with its obligation to assume payment of the taxes from the execution of the Deed of Transfer of Rights in favor of Export Bank only by assigning a portion of its tax credit certificates for the purpose. In a Memorandum from the Large Taxpayers Collection and Enforcement Division (LTCED) dated September 10, 2008, it is alleged that PhilRealty has a deficiency tax assessment on Documentary Stamp Tax for taxable year 1995 in the amount of P45,017,790.00; that on June 24, 2003, PhilRealty requested for the waiver of interest and penalties under Revenue Regulations No. 13-2001; that while the Technical Working Committee for abatement recommended the denial of the request, said recommendation was not finalized nor signed by then Commissioner J.M. Bunag; that when the Bureau offered the program for One Time Administrative Abatement of all Penalties/Surcharges and interest on Delinquent Accounts and Assessments (Preliminary or Final, Disputed or Not) under Revenue Regulations No. 15-2006 dated August 18, 2006, PhilRealty availed of the benefits of the said program and has paid the total amount of P30,011,860.00; that its request for One Time Administrative Abatement is still being evaluated by the Technical Working Committee (TWC); that pending review of its application for One-Time Abatement, LTCED recommends that PhilRealty's request to assign the amount of P4,083,011.93 under TCC No. 200600002382 in favor of Export and Industry Bank be GRANTED, provided that, the remaining balance of its Tax Credit amounting to P25,372,660.22 be first applied to whatever outstanding tax liability the taxpayer may have, in the event of a denial of its pending request for One-Time Abatement of its 1995 deficiency Documentary Stamp Tax Liability. aDIHCT Based on the foregoing representations, you now request for confirmation of your opinion that the assignment by PhilRealty of its TCC in the amount of P4,083,011.93 in favor of Export Bank should be allowed by the BIR on the following grounds, to wit: a. The assignment of tax credit certificates is permitted by law, subject to the limitations set forth in Revenue Regulations No. 5-2000; b. As held in the case of Pilipinas Shell Petroleum Corporation vs. Commissioner of Internal Revenue, a tax credit certificate is immediately valid and effective after issuance; c. PhilRealty has sufficient tax credit which it could assign and/or utilize; and d. Time is of the essence in the situation at bar. In reply thereto, please be informed that Section 3 of Revenue Regulations No. 5-2000 provides that "Sec. 3. Uses of Tax Credit Certificate . Whenever a Tax Credit Certificate (TCC) is issued to a taxpayer to acknowledge the existence of a valid tax credit, such Tax Credit Certificate may be used by the grantee or his assignee in the payment of his direct internal revenue tax liability, such as income tax; documentary stamp tax, excise tax, value-added tax, percentage tax and other internal revenue taxes. However, in no case shall the TCC be used in payment of the following: (a) Payment or remittance for any kind of withholding tax; (b) Payment arising from the availment of tax amnesty declared under a legislative enactment; (c) Payment of deposits on withdrawal of excisable articles; (d) Payment of taxes not administered or collected by the Bureau of Internal Revenue; (e) Payment of compromise penalty." In the same manner, Section 4, supra provides that "Sec. 4. Assignment or Transfer . a) Transferability of TCC. Taxpayers with TCCs issued by the BIR in their name hold the same in the concept of an owner. Consequently, BIR-issued TCCs may be transferred in favor of an assignee subject only to the following conditions: (i) The transfer must be with prior approval of the Commissioner or his duly authorized representative who shall verify whether or not the TCC sought to be transferred is still valid in the hands of the original holder; (ii) The transfer should be limited to one transfer only; (iii) The transferee shall use the TCC assigned to him strictly in payment of his direct internal revenue tax liability and in no case shall the same be available for conversion to cash in his hands." In Pilipinas Shell Petroleum Corporation vs. Commissioner of Internal Revenue, G.R. No. 172598, December 21, 2007, it was ruled that "A tax credit is not specifically defined in our Tax Code, but Art. 21 of E.O. 226 defines a tax credit as 'any of the credits against taxes and/or duties equal to those actually paid or would have been paid to evidence which a tax credit certificate shall be issued by the Secretary of Finance or his representative, or the Board of Investments, if so delegated by the Secretary of Finance'. Tax credits were granted under E.O. 226 as incentives to encourage investments in certain businesses. A tax credit generally refers to an amount that may be 'subtracted directly from one's total tax liability'. It is therefore an 'allowance against the tax itself' or 'a deduction from what is owed' by a taxpayer to the government. In RR 5-2000, a tax credit is defined as 'the amount due to a taxpayer resulting from an overpayment of a tax liability or erroneous payment of a tax due." A TCC is a certification, duly issued to the taxpayer named therein, by the Commissioner or his duly authorized representative, reduced in a BIR Accountable Form in accordance with the prescribed formalities, acknowledging that the grantee-taxpayer named therein is legally entitled a tax credit, the money value of which may be used in payment or in satisfaction of any of his internal revenue tax liability (except those excluded), or may be converted as a cash refund, or may otherwise be disposed of in the manner and in accordance with the limitations, if any, as may be prescribed by the provisions of these Regulations. IcaHTA From the above definitions, it is clear that a TCC is an undertaking by the government through the BIR or DOF, acknowledging that a taxpayer is entitled to a certain amount of tax credit from either an overpayment of income taxes, a direct benefit granted by law or other sources and instances granted by law such as on specific unused input taxes and excise taxes on certain goods. As such, tax credit is transferable in accordance with pertinent laws, rules and regulations. Therefore, the TCCs are immediately valid and effective after their issuance. As aptly pointed out in the dissent of Justice Lovell Bautista in CTA EB No. 64, this is clear from the Guidelines and Instructions found at the back of each TCC, which provide: 1. This Tax Credit Certificate (TCC) shall entitle the grantee to apply the tax credit against taxes and duties until the amount is fully utilized, in accordance with the pertinent tax and customs laws, rules and regulations. xxx xxx xxx 4. To acknowledge application of payment, the One-Stop Shop Tax Credit Center shall issue the corresponding Tax Debit Memo (TDM) to the grantee. The authorized Revenue Officer/Customs Collector to which payment/utilization was made shall accomplish the Application of Tax Credit portion at the back of the certificate and affix his signature on the column provided. The foregoing guidelines cannot be clearer on the validity and effectivity of the TCC to pay or settle tax liabilities of the grantee or transferee, as they do not make the effectivity and validity of the TCC dependent on the outcome of a post-audit. . . ." In applying the above principle in the instant case, since TCC No. 200600002382 was duly issued by the BIR and the same is valid until September 21, 2010, the same may be used by PhilRealty for its purpose with prior approval of the CIR of the assignment of the aforesaid TCC to the Export Bank. This is so because a TCC is an undertaking by the government through the BIR, acknowledging that a taxpayer is entitled to a certain amount of tax credit. As such, a tax credit is transferable in accordance with pertinent laws, rules and regulations and is immediately valid and effective after issuance. WHEREFORE, in view of the foregoing, this Office holds that the assignment by PhilRealty of its TCC in the amount of P4,083,011.93 in favor of Export and Industry Bank is in accordance with law and is hereby GRANTED, provided the remaining balance of its Tax Credit amounting to P25,372,660.22 be first applied to whatever outstanding tax liability it may have in the event of a denial of its pending request for One-Time Abatement of its 1995 deficiency Documentary Stamp Tax Liability. 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, then this ruling shall be considered null and void. Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service