Request to Pay Basic Withholding Tax Liabilities Minus Surcharge and Interest

August 28, 1997 BIR RULING NO. 097-97 248 249 000-000 097-97 Europhil Textile Co., Inc. No. 11 Brixton St., Pasig City Attention: Mr . Christopher M . Gotanco President and Ms . Iluminada P . Rodriguez Executive Vice President Gentlemen : This refers to your letter dated December 9, 1996 stating that your company, Europhil Textile Co., Inc. (Europhil) is a manufacturer-exporter of knitted garments for men, ladies and children; that you have been in business for more than twenty (20) years and have experience ups and downs in your business operations; that since 1989 you have been experiencing continued losses, brought about by the increasing costs of labor and materials and further aggravated by the decline in the conversion rate of US dollars vis-a-vis the Philippine peso; that in your line of business you usually enter into sales contracts for six (6) months or more before its delivery date and when the rate goes down after six months, you get caught up with low export negotiations; that because of the accumulated losses from 1989 and just to keep operating, you requested you major stockholders for personal advances; that towards the second quarter of 1990, that advances that you were able to get from your stockholders were no longer sufficient to cover the gross payroll; that the advances were just enough to cover the net take home pay of the employees; that there was no cash available to cover remittances of BIR and SSS obligations; that no withholding was made on wages, although you made accruals for them, thus, you were not able to pay you BIR and SSS obligations; that the stockholders entered into a Memorandum of Agreement whereby assignment of shares and assumption of liabilities have been made in order to ensure the continuous operation of Europhil; that because of the losses accumulated through the years amounting to more than P58 million, Europhil was forced to present to the workers themselves the issue of whether to continue operation or close down; that the workers chose to close down the operations of Europhil; that your company is bankrupt with obligations totalling more than P60 million; that your total obligation to the BIR is P3,776,305.28 representing withholding taxes on wages and at source, from April 1990 to August 1994 and April 1995 to July 1996; and that you are prepared to issue immediately a check for P3,776,305.28 covering your basic withholding tax obligations; and that as shown in your Financial Statements for the year ended December 31, 1995 and 1994, you have incurred a net loss of about P20.0 million and P13.0 million, and your total liabilities exceeded your total assets by about P36.2 million and P16.6 million, respectively and that as assessed by your auditors, Europhil may be unable to continue as a going concern. In connection therewith, you are requesting that you be allowed to pay only your basic withholding tax liabilities minus surcharge and interest. In reply thereto, please be informed that pursuant to Section 2 of Revenue Regulation No. 5-85 as amended by Revenue Regulations No. 3-93, tax deducted and withheld on (i) compensation income; (ii) income payments subject to the creditable (expanded) withholding taxes; and (iii) income subject to final withholding taxes shall be remitted within ten (10) days after the end of each calendar month with the filing of appropriate return (BIR Form 1743-W). However, taxes withheld from the last compensation/income payment for the calendar year (December) shall be remitted on before the 25th of January of the succeeding year. Under Sections 248(a)(3) and 249, both of the Tax Code, as amended, the imposition of the surcharge and interest on delinquency is mandatory. Strong reasons of policy support a strict observance of the rule regarding the payment of tax. The laws imposing penalties for delinquencies are clearly intended to hasten tax payments or punish evasions or neglect of duty in respect thereof. If delays in tax payments are to be condoned for light reasons, the law imposing penalties for delinquencies would be rendered nugatory and the maintenance of the government and its multifarious activities would be as precarious as taxpayers are willing or unwilling to pay their obligations to the state on time. (Jamora vs. Meer, 74 Phil. 22). However, considering the aforementioned circumstances, this office hereby grants your request for the waiver of the payment of surcharge but not interest on your withholding tax liabilities for the years April 1990 to August 1994 and April 1995 to July 1996. In view of the foregoing, you are requested to pay to the Revenue District Officer, Revenue District Office No. 43, A. B. Sandoval Bldg., Orambo St. Cor. Shaw Blvd., Pasig City, your aforementioned basic withholding tax liability plus interests within fifteen (15) days from receipt hereof, otherwise, this Office will be constrained to enforce collection thereof through the summary remedies prescribed by law. LLphil Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue