BIR Ruling [UN-311-95]

August 22, 1995 BIR RULING [UN-311-95] Pioneer Savings & Loan Bank, Inc. c/o Philippine Deposit Insurance Corp. Pasong Tamo Street, Makati Gentlemen : This refers to the investigation report submitted by our investigating examiners disclosing that Pioneer Savings & Loan Bank, Inc. (Pioneer) have incurred various tax liabilities before its closure by reason of bankruptcy and insolvency. Records show that Pioneer had been ordered closed after having been found bankrupt and insolvent; that presently it is under receivership and administration by the Philippine Deposit Insurance Corporation (PDIC); that in the process of liquidating its assets, an investigation was also conducted by this Office to determine its possible tax liabilities before and after closure; that as a result thereof, the investigating examiners submitted a report dated April 6, 1994 showing the following tax deficiencies incurred by Pioneer before closure, to wit: Deficiency Tax 1990 1991 1992 Total Expanded Withholding Tax P6,934.64 P439,627.86 P446,562.50 Deficiency Business Tax a) Gross Receipts Tax P1,366,305.52 P682,299.24 P128,548.45 P2,177,153.21 b) Unremitted Tax Collections P507,318,223.93 P507,318,223.93 (August 17-October 19, 1983) (P87,871,077.00) Exclusive of Penalties Grand Total P509,941,939.64 ============ that Pioneer was found insolvent and prohibited to transact business by the Monetary Board of the Central Bank and no income was found due"; and that the investigating examiners also discovered that Pioneer had incurred an unpaid Withholding tax as of takeover date by PDIC on August 14, 1984 in the amount of P439,627.86 inclusive of penalties and had failed to remit internal revenue collections amounting to P87,871,077.00, exclusive of penalties covering the period from August 17 up to October 19, 1983. Based on the foregoing facts, PDIC raised the following issues: (1) As receiver/liquidator, is it required to file income and percentage tax returns in behalf of the closed banks? (2) As receiver/liquidator, is it required to pay the income and percentage tax liabilities of closed banks incurred before and after closure without submitting the same to the liquidation court for the application of the preference of credits? (3) As receiver/liquidator, is it required to pay the withholding tax liability of the closed banks also incurred before and after closure without submitting the same to the liquidation court for the application of the preference of credits? PDIC contended that it is not required to file income or percentage tax returns in behalf of the closed banks because such banks have ceased to operate; hence, there is no income or gross receipts that can be subject to income tax or percentage tax. Under Section 47 of the Tax Code, as amended, stating "SEC. 47. Returns of receivers, trustees in bankruptcy or assignees . In case wherein receivers, trustees in bankruptcy, or assignees are operating the property or business of a corporation, subject to the tax imposed by this Title, such receivers, trustees, or assignees shall make returns of net income as and for such corporation, in the same manner and form as such organization is herein before required to make returns, and any tax due on the income as returned by receivers, trustees, or assignees shall be assessed and collected in the same manner as if assessed directly against the organizations of whose businesses or properties they have custody and control." firms placed under receivership are still required to file through their receivers income tax returns; thus, closed banks through PDIC should declare their income of whatever kind and amount from any source and file income tax return for that purpose. Traditional revenue of banks consists of interest income, commissions, and discounts from lending activities as well as income from financial leasing. It should also include miscellaneous income, whether active or passive, which are paid and/or accrue to the closed banks before and after closure. If none of these types of income are received by the closed banks, PDIC is still required to file an information return pursuant to Section 24 of Revenue Regulations No. 2. Whether or not PDIC should declare the taxable income of the closed banks depends on whether or not the closed banks have received a taxable income during the period of receivership. If it did, then it should declare such income and file the corresponding return. With respect to the percentage tax, it is our opinion that since closed banks like Pioneer are no longer in operation and are prohibited by the Monetary Board of the Central Bank [now Bangko Sentral ng Pilipinas (BSP)] to transact business and are therefore not expected to receive active revenues resulting from banking operations, they are no longer subject to percentage tax under Section 119 of the Tax Code, as amended. Accordingly, they are not required to file any percentage tax return. With respect to the withholding tax liability of the closed banks incurred before closure, PDIC is directly liable therefor. Since taxes withheld by the taxpayer and unremitted internal revenue collections are trust funds held in behalf of and for remittance to the Government, PDIC should directly remit the amount withheld to the BIR without need of submitting the same to the liquidation court for the proper application of the preference of credits. What can be submitted to the liquidation court and be subject to the preference of credits are the assets or receivables of the bank, not its trust funds. In the case of closed banks which have not actually withheld as required by the withholding tax law and regulations, it is our opinion that since closed banks are inoperational, they cannot withhold; thus, PDIC should provide the BIR only with a summary of the transactions that are subject to withholding so that the uncollected taxes, if any, can be assessed and collected directly from the persons liable. Finally as receiver/liquidator of Pioneer Savings and Loan Bank, Inc., the PDIC should now pay in full to the Collection Office, 5th Floor, BIR Building, Quezon City, the amount of P509,941,939.64 as unremitted internal revenue tax collections, expanded withholding tax and gross receipts tax for 1990, 1991 and 1992. cdtech Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue