BIR Ruling No. 032-11

February 9, 2011 BIR RULING NO. 032-11 RR 5-00; BIR Ruling No. 098-95; BIR Ruling No. 192-99; BIR Ruling No. DA-017-01 Logica (Philippines), Inc. 10th Trafalgar Plaza H.V. dela Costa Street, Salcedo Village, Makati City Attention: Ms. Melani Miguel Corporate Secretary Gentlemen : This refers to your letter dated August 26, 2009, requesting the use of Logica (Philippines), Inc. of the Tax Credit Certificates of Michelin Asia Pacific Application Support Center, Inc. It is represented that Logica (Philippines), Inc. ("Logica" for brevity), with Taxpayer Identification No. 006-658-560-000, is a domestic corporation duly registered with the Securities and Exchange Commission (SEC); that it is engaged primarily in the business of software development and application including programming and adaptation of system software and middleware for business, media e-commerce, education, entertainment, IT-enabled services, data encoding, transcribing and processing and directories with supporting call center service; that Logica is a wholly-owned subsidiary of Logica CMG UK Limited which is a company organized and existing under the laws of the United Kingdom; that Logica recently acquired Michelin Asia-Pacific Application Support Center, Inc. ("Michelin"), a wholly-owned subsidiary of Michelin Asia (Hongkong) Limited of Hongkong; that Michelin has decided to cease business operations in the Philippines effective December 31, 2009; and that as of its closing, Michelin has tax credit certificates (TCC) issued by the Department of Finance One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center (DOF-OSS Center) in the total amount of Two Million Forty Six Thousand Four Hundred Eighteen and 54/100 (P2,046,418.54). In reply, please be informed that Revenue Regulations (RR) No. 5-2000 1 dated July 19, 2000 has defined tax credit certificates as follows: "Tax Credit Certificate means 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." cEHSIC Thus, the following TCCs issued in the name of Michelin show that the company is the one legally entitled to tax credit, the money value of which may either be used in payment of any of its internal revenue tax liability or be converted to cash refund or otherwise disposed pursuant to said Regulations. TCC No. Date of Issue Face Value of TCC R-018124 08-20-2008 P346,809.32 R-018125 08-20-2008 230,846.22 R-018126 08-20-2008 318,550.16 R-018127 08-20-2008 80,041.99 R-018198 09-15-2008 321,224.64 R-018830 03-27-2009 74,495.67 R-018829 03-27-2009 249,466.06 R-018828 03-27-2009 280,423.13 R-018827 03-27-2009 144,561.35 A perusal of the Sale and Purchase Agreement executed by and between Michelin (Vendor) and Logica (Purchaser) reveals that the foregoing TCCs were not part of the sale. The Agreement covered only the entire issued capital stock of Michelin as well as its Retained Assets composed of equipment, furniture, fixtures and other fixed assets. The TCCs in the name of Michelin, while treated as assets, were not included in the sale. Section 4 of RR No. 5-2000 provides: "SECTION 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. b) Assignment Procedures. The transfer or assignment of a TCC from the original holder to his or its assignee shall be subject to the following procedures: (i) The TCC sought to be assigned or transferred shall be presented before the Commissioner or his duly authorized representative for verification. If found to be valid and still with creditable balance, the TCC shall be marked "Valid for Transfer", countersigned by the said officer. (ii) Upon execution of the Deed of Assignment, the transferor shall present the same, together with the original copy of the TCC. (iii) The original copy of the TCC shall still be cancelled even if only a portion of its face value is transferred or assigned, in which case, new TCC(s) shall be issued representing the respective portions pertaining to the transferee(s) and/or the balance remaining for the account of the transferor. (iv) Any TCC issued in favor of the transferee or assignee shall by valid for five (5) years, but subject to the following conditions which must be annotated therein, as follows: 1. Not valid for further transfer; 2. Not valid for cash conversion." In BIR Ruling No. 098-95 dated June 27, 1995 and BIR Ruling No. 192-99 dated December 6, 1999 , this Office had occasion to state that: DSAacC "In the event of the issuance of tax credit certificate, the taxpayer as the owner thereof, has the exclusive right to enjoy and dispose of the certificate according to its wishes. These powers are necessarily an attribute of the taxpayer's ownership of said certificate. The free enjoyment and disposition of said certificate can only be subject to the limitations imposed by law. (Articles 427 and 428, New Civil Code of the Philippines)" Considering that the owner of the tax credit certificate has the exclusive right to enjoy and dispose of the certificate, purchase by Logica of the entire capital stock of Michelin does not automatically entitle the former to ownership of the TCCs issued in the name of the latter. There should be assignment or transfer of the aforementioned TCCs to Logica in order for it to utilize the same in accordance with the Regulation. Furthermore, the assignment and transfer of TCCs must be made in accordance with the conditions and procedures regarding the transferability of TCCs, set forth in Revenue Regulations No. 5-2000 of as stated in BIR Ruling No. DA-017-01 dated February 12, 2001 , to wit: "In reply, please be informed that this Office has ruled that a TCC validly issued pursuant to the Tax Code of 1997, can be transferred or assigned by the owner, provided of course, that the TCC sought to be transferred, must not have expired and remains valid in the hands of the original holder pursuant to the provisions of Section 230 of the Code. (BIR R uling No. 19 2-99). Moreover, please likewise be informed that in order to be valid, the transfer of TFMC's TCC to MGCI, must be made in accordance with the conditions and procedures regarding the transferability of TCCs set forth in Re venue Regulations No. 5-20 00, issued on July 19, 2000." Based on the foregoing, this Office cannot grant the request of Logica to utilize the TCCs issued in the name of Michelin. 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.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. Prescribing the Regulations Governing the Manner of the Issuance of Tax Credit Certificates, and the Conditions for their Use, Revalidation and Transfer.