Proposal to Settle Hijo Plantation, Inc. and Twin Rivers Plantation, Inc. Deficiency Withholding Tax Liabilities Until December 1996 or Upon Actual Receipt of VOS Payment, Whichever Comes First, is Acceptable

March 28, 1996 BIR RULING NO. 045-96 248 249 72 000-00 045-96 Mr. Ramon M. de Vera JVA Management Corporation 2nd Floor, State Condominium 1 Salcedo Street, Legaspi Village Makati City S i r : This refers to your letter dated February 27, 1996 stating that the Hijo Plantation, Inc. (HPI) and Twin Rivers Plantation, Inc. (TRPI) have not remitted the withholding tax from the compensation income of their employees since January 1995 up to the present in the estimated amount of P6,051,455.00 and P2,578,544.00, respectively or a total of P8,629,999.00; that you were appointed President of both companies only last November 29, 1995 and it is only now that you were able to find out the amounts due to the BIR; that as a quick response to the problem, you have offered all the agricultural areas of the plantation covering 1,439.6958 hectares with an estimated value of P295 million to the government under the Voluntary Offer to Sell (VOS) scheme of the Department of Agrarian Reform (DAR); that the same will be the main source of your payment to the BIR; that the failure to remit the withholding tax was mainly caused by a general reversal of market prices for the entire industry; that the continued "banana war" that has plagued the market since 1993 resulted in the unprecedented drop of prices by as much as 60% and may below break-even levels; that the market prices could cover only the costs of boxes and shipping and left nothing for the cost of production; that in fiscal year 1994-1995, Japan, which is your major banana market, decreased its demand by 2.92 million boxes brought about by earthquakes and gas poisoning incidents that shook their economy and triggered a recession; that the consumers' low purchasing power as well as the extreme weather conditions such as droughts and floods that have hit your plantations every now and then has certainly affected the demand for bananas; that all the above situations are the principal reasons for your losses and your failure to remit the withholding tax due to the BIR; that this was further complicated by the mandated wage increase and increasing farm inputs that depleted your capital; that your present cash flow is barely enough to cover the monthly payroll, not to mention the other overheads; that despite this, it is your policy not to throw out of work hundreds of people, affecting thousands of dependents, but to try to salvage the situation; and that you are formally submitting your proposal to fully settle your obligation with the BIR, as follows: casia "1. That we will assign to BIR the full amount of our obligation up to February 1996 from the payment of our VOS. For this purpose, we shall execute a Deed of Assignment on such terms and conditions acceptable to BIR; "2. That as a result of the assignment, we be allowed to pay only our current obligation starting from the month of March 1996 onwards; "3. That we be given up to December 1996 or upon our actual receipt of the VOS payment, whichever comes first, within which to settle our obligation with BIR; and "4. That surcharges be waived and penalties be compromised within the Revised Schedule of Compromise Penalties." In reply thereto, please be informed that on the basis of the foregoing representations, your proposal to settle your companies' (HPI & TRPI) deficiency withholding tax liabilities until December 1996 or upon your actual receipt of your VOS payment, whichever comes first, is acceptable to this Office. However, your request for waiver of surcharges and penalties cannot be granted for lack of legal basis. Under Sections 73 and 74 of the Tax Code, as amended, the employer shall be liable for the withholding and remittance of the correct amount of tax required to be deducted and withheld from the compensation income of the employees. The taxes deducted and withheld by the employers shall be held in a special fund in trust for the Government until the same are paid to the appropriate collecting officers within the time provided for by law. Revenue Regulations No. 3-93 amending Revenue Regulations No. 5-85 and implementing Sections 73 and 74 of the Tax Code, requires that taxes deducted and withheld on compensation income shall be remitted to the BIR within ten (10) days after the end of each calendar month with the filing of the appropriate returns. Consequently, if any employer, as withholding agent fails to do so, it shall be liable to pay the total amount of the tax not collected, or not accounted for and remitted together with the corresponding statutory penalties. (Secs. 251 and 254, Tax Code, as amended). Finally, HPI & TRPI are required to collect and remit to the BIR the withholding tax on wages of their respective employees beginning March 1996. Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue