Tax Credit Certificates Assigned by Customers to Petron Corp. in Payment of Fuel Purchases

November 23, 1998 BIR RULING NO. 165-98 E.O. 226-000-00-165-98 Petron Corporation 7901 Makati Avenue 1200 Makati City Attention: Mr . Fredesuende G . Ong Vice-President-Finance Gentlemen : This refers to your letter dated July 31, 1997 addressed to the Honorable Antonio P. Belicena, Undersecretary, Department of Finance, Central Bank Bldg.,Roxas Blvd.,Manila which was referred to this Office for comment and recommendation, relative to the Tax Credit Certificates (TCC) assigned by some of your customers to you in payment of their fuel purchases. It is represented that the assignment of the TCCs is duly approved by the Department of Finance (DOF) through the issuance of Tax Debit Memos (TDM);that to comply with the requirements for the application of the assigned TCC against your payment of specific taxes to the Bureau of Internal Revenue (BIR),you still need to request for another TDM from the Collections Programs Division of the BIR; that on July 23, 1997 when you requested for TDM from the BIR for some of the assigned TCCs previously approved by the DOF, you were advised by the Assistant Chief of the Collections Programs Division of the BIR, that it could not approve the application of the assigned TCCs against your tax payment to the BIR for lack of legal basis; and that you were advised that to qualify for assignment, the product being sold by you to the assignor/customer must be raw material component of the finished product of the assignor/customer. In connection therewith, you are requesting clarification of the stand taken by the Assistant Chief of the Collection Programs Division of the BIR to the effect that they can not approve the application of the assigned TCCs against your payment to the BIR for lack of legal basis. In reply thereto, please be informed that in BIR Ruling No. 181-94 dated December 14, 1994, this Office held that "In reply, please be informed that under Rule IX of the Rules and Regulations issued by the Board of Investments to implement P.D. 1789 and B.P. Blg. 391 stating: "Rule IX Transferability of Tax Credit Certificate "Tax Credit Certificates issued for taxes and duties that would have been paid on domestic capital equipment purchased, withholding tax on interest, raw materials used in the manufactured export products shall be issued by the Minister of Finance or his representative upon recommendation of the Board. Said certificate may be transferred only to another registered enterprise in accordance with the Memorandum of Agreement between the Ministry of Finance and the Board of Investments dated October 5, 1982. "Tax credit certificates on net local content and on net value earned shall be issued by the Chairman of the Board or his representative and may be transferred only to domestic producers of the raw material and/or component suppliers and may require compliance with local content for such raw material/component." the tax credit certificates issued by the Board of Investments is limited to one transfer by the grantee to its domestic suppliers of raw materials and/or components who are likewise BOI-registered; thus, while you can be the transferee and user of such certificate, you are not allowed to transfer the same to your own supplier, much less to Petron for your purchases of bunker fuel which is neither a raw material nor component of your finished product. aisadc Accordingly, your request for a ruling on the unrestricted transferability and use of BOI-issued Tax Credit Certificate and, in effect, to allow Petron to use the same as payment of its tax liability is hereby denied for lack of legal basis." Such being the case, the TCC being issued by the One-Stop Shop Interagency Tax Credit and Duty Drawback Center in accordance with Executive Order No. 226 otherwise known as the Omnibus Investments Act of 1987 to some of your customers can not be transferred to you in payment of their fuel purchases and in turn can not be used by you in payment of your tax liabilities. Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue