BIR Ruling No. 006-10

May 27, 2010 BIR RULING NO. 006-10 Philippine Deposit Insurance Corporation 4th-10th Floor SSS Building 6782 Ayala Avenue corner V.A. Rufino St. (formerly Herrera St.) Makati City 1226 Attention: Romeo M. Mendoza, Jr. General Counsel Gentlemen : This refers to your letter dated December 15, 2009 requesting for a ruling covering the guidelines and procedures on how to implement the tax provisions of Section 17 (c) of Republic Act (R.A.) No. 3591 (PDIC Charter), as amended, which provides that all tax obligations of the PDIC for a period of five (5) years reckoned from the date of effectivity of R.A. 9576 shall be chargeable to the Tax Expenditure Fund (TEF) in the annual General Appropriations Act pursuant to the provisions of Executive Order No. 93, series of 1986; and that, on the 6th year and thereafter, the Corporation shall be exempt from income tax, final withholding tax, value-added tax on assessments collected from member banks and local taxes. ISTHED It is, therefore, in this context that you are seeking a ruling to put into operation a mechanism for charging all tax obligations of the Philippine Deposit Insurance Corporation (PDIC) against the TEF and to provide the guidelines and procedures that will direct all entities dealing with the PDIC in observing such tax privileges granted under its amended Charter. Moreover, you seek a system that will facilitate the processing of all PDIC transactions that have tax implications. You posit that the mechanism should deal with the following items, to wit: 1. General Guidelines on the Processing of Special Allotment Release Order (SARO) 2. Procedural Guidelines on the settlement of the tax obligations of PDIC accruing or becoming due and payable during the period June 1, 2009 to May 31, 2014, namely: (i) Income Tax (IT) (ii) Value-added Tax (VAT) (iii) Final Withholding Tax (FWT) (iv) Capital Gains Tax (CGT) (v) Documentary Stamp Tax (DST) (vi) Creditable Withholding Tax (CWT) (vii) Expanded Withholding Tax (EWT) (viii) All other taxes for which the PDIC is directly liable 3) Procedures for Withholding Taxes, i.e. ,final withholding and creditable withholding tax for the period June 1, 2009 to May 31, 2014. 4) Remedies available to PDIC under the Tax Code. ICESTA 5) Guidelines on how to deal with all tax obligations of the PDIC, including withholding taxes, from June 1, 2014 onwards. In reply, this ruling is hereby promulgated to implement the provisions of Section 17 (c) of the PDIC Charter, as amended: The coverage of this ruling will be: (1) All tax obligations of the PDIC for the period June 1, 2009 to May 31, 2014 shall be chargeable to the TEF except those tax obligations that are passed on to clients, ( i.e. , CGT & DST) and all taxes withheld by PDIC that are considered trust fund ( i.e. ,EWT, FWT and WC);and, (2) PDIC's exemption from income tax, final withholding tax from income payments to PDIC, and value-added tax on assessments collected from member banks for the period starting June 1, 2014 onwards; For the period June 1, 2009 to May 31, 2014, PDIC shall request from the Fiscal Incentives Review Board (FIRB) for issuance of the Certificate of Entitlement to Subsidy (CES) for the payment of the following taxes to which PDIC is directly liable on or before their due dates, unless a different period is specifically provided herein. (1) Income Tax (2) Value-Added Tax (3) Final Withholding Tax (4) Creditable Withholding Tax on interest on loans (5) Capital Gains Tax (when borne by the PDIC) (6) Documentary Stamp Tax (when borne by the PDIC) (7) All other taxes for which PDIC is directly liable. Within a reasonable period of time from receipt of the CES issued by FIRB, the Department of Budget and Management (DBM) shall issue a SARO in favor of the Bureau of Treasury (BTr) to cover the payment of the aforesaid taxes payable to BIR. The DBM shall furnish PDIC and the Revenue District Office (RDO) having jurisdiction over the PDIC's principal office and the BTr with a copy of the SARO. TacADE Upon receipt of the SARO, the RDO having jurisdiction over PDIC's principal office shall furnish the Revenue Accounting Division (RAD) under the Collection Service with a copy of the said SARO. The RAD shall record the corresponding revenue collection upon receipt of the BTr's Journal Entry Voucher (JEV). To serve as guidelines governing the payment of PDIC's tax liabilities, outlined below are the effects of R.A. 9576 for PDIC's transactions from June 1, 2009 to May 31, 2014. (A) Income Tax and Value-Added Tax Income and Value-added Taxes, shall be filed on or before their due dates and paid through the TEF in accordance with Section 2 hereof. (B) Final Withholding Tax, Creditable Withholding Tax, Expanded Withholding Tax (a) Payor is BTr The BTr shall not withhold the FWT on its income payments to PDIC for treasury notes, treasury bonds, treasury bills and other discounted instruments of the PDIC with BTr. However, income payments to PDIC shall only be released by BTR in accordance with the following schedule: (1) eighty percent (80%) of all income payments to PDIC shall be released on coupon payment dates for treasury bonds/notes, or purchase value dates for treasury bills and other discounted instruments; (2) the remaining twenty percent (20%) shall be released to PDIC upon the issuance by the DBM of the corresponding SARO in favor of BTr to cover the payment of the FWT due to BIR. For this purpose, PDIC shall secure from BTr within five (5) banking days from end of reference month a certification on the total amount of FWT withheld on interest earnings of the PDIC on its securities holdings with the BTr for the reference month. Within five (5) working days from receipt thereof, the PDIC shall furnish a copy of this BTr certification to the FIRB and the BIR and request from the FIRB for issuance of the CES for the payment of the subject taxes. The BTr certification shall become the documentary basis for determining the amount indicated in the CES and SARO to be issued by the FIRB and the DBM, respectively, for the payment of the subject taxes. All of the foregoing should take into account the due date for the payment of the withholding taxes which is on the 10th day of the following month. Otherwise, PDIC will be subjected to penalties for failure to comply with the deadline for filing and payment of taxes. (b) Payor Other Than BTr Withholding agent/s other than BTr such as: BSP, LBP, DBP or private banks, mandated to withhold FWT, CWT and EWT on income payments to PDIC shall withhold and remit the corresponding FWT, CWT and EWT to the BIR for all income payments due to PDIC. The withholding agent/s shall furnish PDIC with a certified photocopy of the BIR Form No. 1601-F and the corresponding Monthly Alphalist of Payees (MAP) showing PDIC as one of the taxpayers subjected to the FWT, CWT and EWT. This shall become the documentary basis for determining the amount indicated in the CES and SARO to be issued by the FIRB and the DBM, respectively, for the payment of the subject taxes. cDAISC The claim for Cash Refund of excess taxes withheld shall be processed by the BIR within 120 days from the issuance of a Letter of Authority for the examination of the books of account relative to such claim. (C) Withholding Tax on Compensation (WC), Final Withholding Tax (FWT) and Expanded Withholding Tax (EWT) of Suppliers, Contractors and Service Providers of PDIC All taxes withheld that are considered trust fund ( i.e. ,WC, EWT & FWT) shall be remitted to the BIR in legal tender on their due dates. (D) Capital Gains Tax (CGT) and Documentary Stamp Tax (DST) CGT and DST borne by the PDIC shall be filed and paid through the TEF in accordance with their due dates. CGT and DST passed on to buyer/s, shall be remitted to the BIR by the buyer in legal tender on their due dates. It must be emphasized that PDIC shall still file with the BIR the appropriate tax returns in accordance with the prescribed form and within the period provided by law. All tax obligations during the covered period, including deficiency tax assessments (together with penalties and interest, in any) shall be included in the tax returns for that period. However, late payment penalties and charges shall not apply to tax obligations of PDIC on account of the delay on the part of the FIRB and DBM in the issuance of the CES and SARO, respectively. This presupposes the fact that PDIC has applied for the issuance of CES and SARO within the periods provided herein. If the delay is due to the neglect of PDIC, late payment penalties and charges will be applied to such tax obligations. On the other hand, starting June 1, 2014, PDIC shall be exempt from income tax, final withholding tax on income, value-added tax on assessments collected from member banks. Thus, income payments to PDIC shall no longer be subject to the withholding tax system pursuant to Section 2.57.5 (B) of Revenue Regulation No. 2-98, as amended, to wit: "SECTION 2.57.5. Exemption from Withholding. The withholding of creditable withholding tax prescribed in these Regulations shall not apply to income payments made to the following: ETDHSa xxx xxx xxx (B) Persons enjoying exemption from payment of income taxes pursuant to the provisions of any law, general or special, ...." (Emphasis supplied) The BTr, other government corporations and institutions and private entities, including banks that have financial dealings with PDIC shall no longer be required to withhold the withholding tax on the income/receivables of the PDIC as specified above. Consequently, the BTr, other government corporations and institutions and private entities, including banks, shall remit to PDIC the gross or full amount of PDIC's income/receivables. However, PDIC shall continue to comply with the provisions of Paragraphs (C) and (D) above. 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.) JOEL L. TAN-TORRES Commissioner of Internal Revenue