Assignability of BIR-Issued Tax Credit Certificates

December 6, 1999 BIR RULING NO. 192-99 Catindig Tiongco & Nibungco Law Office 4th Floor, JMT Corporate Condominium ADB Avenue, Ortigas Center 1600 Pasig City Attention: Atty . Henry S . Rojas Gentlemen : This refers to your letter dated September 10, 1999 requesting, in effect, for a ruling on the assignability of BIR-issued Tax Credit Certificates on behalf of your clients, PHILEX MINING CORPORATION and PHILEX GOLD PHILIPPINES, INC. It is represented, among others, that Philex Mining Corporation (Philex) is engaged in the sale of gold and in the export of mineral products which entitled it to the benefit of "zero-rating" for VAT purposes; that in the course of your business operations, you have accumulated a number of Tax Credit Certificates representing the amount of input taxes which you have claimed as a refund from the government; that these TCCs are supposed to represent a valid obligation of the government and should be available either for the payment of all internal revenue taxes (except withholding tax) or for cash refund; that however, you find yourselves unable to avail of the benefits of these TCCs on account of the dire conditions of your business; that you have been continuously posting negative financial results since 1997 such that you find no situation wherein you can apply your TCCs in the payment of taxes; that to ease your financial burden and support your operations, you have tried to convert these TCCs into cash refund but this proved unavailing as the government is always short of funds for cash refunds; that in the meantime, you are being required by law to first shoulder your input tax liabilities in the process of purchasing goods and services for your operations, leading to further accumulation of tax credits and perennially causing added burden to your already precarious position. LexLib It is therefore your suggestion that since both options currently available to you, i.e., use of TCCs in payment of taxes and/or cash refund of TCCs from the BIR, prove unavailing, you now propose a third option, that is, the transfer of these TCCs to other taxpayers. Finally, you submit that out of the process, an ideal situation could therefore ensue, i.e., there will be no cash outlay at all from the government and you, in turn, could realize the effective reimbursement in money's worth of your unutilized TCCs. In reply, please be advised that insofar as BIR-issued TCCs are concerned, there is no provision under the Tax Code of 1997 expressly prohibiting the transfer or assignment of duly-issued BIR TCCs. Under the Code, a Tax Credit Certificate may be validly issued for amounts representing erroneously paid taxes; excess quarterly individual or corporate income taxes paid; illegally collected taxes; VAT on Zero-rated or Effectively Zero-rated Sales; input taxes paid on capital goods imported or locally purchased; and for unused input taxes due to retirement from or cessation of business or cessation of status of a Vat-registered person. In all instances, a BIR-issued TCC presupposes the existence of a previously paid tax arising out of the normal application of the provisions of the Tax Code. In contrast to a BOI-issued Tax Credit Certificate which is in the nature of a tax incentive granted by special laws to the grantee, such TCC is transferable only under certain conditions (Article 71, Omnibus Investments Code, as implemented by Rule VII of the Rules and Regulations of E.O 226). Verily, taxpayers with TCCs issued by the BIR in their name hold the same in the concept of an owner. In BIR Ruling No. 098-95 dated June 27, 1995, this Office had an occasion to state that "(I)n 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)" As previously stated, there are no express, much less implied, limitations imposed by law on the transfer of TCCs issued under the Tax Code. On the contrary, the law specifically allows the conversion of unutilized tax credits into cash refund within five (5) years from date of issue (Sections 204 and 230, NIRC). If the taxpayer can ultimately dispose the cash proceeds of his TCCs in any manner he chooses, we see no cogent reason why the source of such proceeds should be treated differently. At any rate, the conversion into cash refund or the transfer of the TCC to another yields the same result, without any revenue loss or prejudice to the government. In view of the foregoing, this Office is of the opinion, and so holds, 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. Finding that copies of the TCCs sought to be transferred by your client, PHILEX MINING CORPORATION, i.e., TCC Nos. 007755, 007994 and 014883 are valid and with creditable balances, this Office interposes no objection to their assignment. This ruling is being issued on the basis of the foregoing facts. if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. LexLib Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue