BDO Alba Romeo & Co.

December 5, 2008 BIR RULING [DA-(C-166) 503-08] Section 204 (C), NIRC BDO Alba Romeo & Co. Certified Public Accountants 7/F Multinational Bancorporation Centre 6805 Ayala Avenue, Makati City Attention: Romeo Alba This refers to your letter dated June 20, 2007, for and in behalf of your client, MAGNUS PHILIPPINES, INC. (Magnus, for short), requesting the issuance of a tax credit certificate for its unutilized tax credits for taxable year 2001. It is represented that Magnus is a corporation organized and registered under Philippine laws per Securities and Exchange Commission (SEC) Registration No. A199816281 dated November 4, 1999; that it is engaged in the business of providing expert consulting advice in the area of enterprise wide software systems selection, implementation and related activities and to provide consultancy advice in the area of logistics and supply chain management; that since the start of its commercial operations in 1999, Magnus has been operating on a negative income thereby resulting to capital deficiency; that summarized below is the result of its operations on a yearly basis starting from 1999 to 2005; TcICEA Taxable Year Income (Losses) 1999 P(2,111,302.00) 2000 (25,233,336.00) 2001 9,509,700.00 2002 (16,760,548.00) 2003 (8,034,706.00) 2004 (19,332,251.00) 2005 (21,634,451.26) 2006 No Operations that moreover, the financial ratios of Magnus for the previous years showed financial illness, which indicated serious trouble for the company; that the company's current ratio as of December 31, 2002 reveals that the company's ability to pay short-term obligations as they fall due is already a problem and the continued losses for the past operations resulted to a deficit of over P34 Million; that as shown in the attached financial statements for the taxable year 2002, the current liabilities are more than twice the current assets, and the stockholders equity shows a negative net worth of over P26 Million; that for reasons of continued losses in operations, the company was not able to utilize its creditable withholding tax or tax credits and foresees the impossibility of consuming it in succeeding taxable years, thus, the company decided to file a letter request for the existing tax credits as of December 31, 2002 which comprises of tax withheld by its clients for the taxable years 2001 and 2002 amounting to P13,408,299.22; that at the end of 2005, Magnus sold substantially all of its assets to Magnus Support Services Philippines, Inc. and has stopped commercial operations beginning January 1, 2006 as shown in its Income Tax Return. Hence, your request. In reply, please be informed that Section 204 (C) of the Tax Code provides: "Sec. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes. The Commissioner may "(A) . . . "(B) . . . "(C) Credit or refund taxes erroneously . . . . No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or refund within two (2) years after the payment of the tax or penalty: Provided, however, That a return filed showing an overpayment shall be considered as a written claim for credit or refund." Based on the foregoing, the taxpayer is required to file his claim for tax credit or refund within two (2) years from the time of payment of the tax or penalty. Consequently, since your claim involved unutilized creditable withholding taxes for the year 2001, this Office regrets to inform you that the two-year prescription period within which to file claim for TCC or refund had lapsed. 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. SCaTAc Very truly yours, (SGD.) GREGORIO V. CABANTAC Deputy Commissioner