Duty-Free Philippines Corporation

April 30, 2015 FIRB RESOLUTION NO. 003-15 SUBJECT MATTER : Duty-Free Philippines Corporation WHEREAS, Executive Order (EO) No. 46 (September 4, 1986), authorized the Department of Tourism (DOT), through then Philippine Tourism Authority (PTA), now the Tourism Infrastructure and Economic Zone Authority (TIEZA), to establish and operate a duty and tax free merchandising system in the Philippines for the purpose of augmenting service facilities for tourists and generating foreign exchange and revenue for the Government. Said authority paved the way for the operations of the first Duty Free Philippines (DFP) outlet located at the arrival area of Ninoy Aquino International Airport (NAIA); WHEREAS, the tax exemption privileges of government owned- and/or controlled-corporations (GOCCs), including the DFP, were withdrawn by EO 93 effective March 10, 1987; WHEREAS, FIRB Resolution No. 10-87 (April 22, 1987) restored the tax and duty free importation privileges of the DFP but limited to taxes and duties arising out of merchandise imported/purchased by it and subsequently sold by it through authorized tax- and duty-free shops; WHEREAS, the BIR issued Assessment Notices on April 28, 2005 covering income tax and value-added tax (VAT) for taxable years 1999 to 2002, in the aggregate amount of PhP1,452,785,087.64; WHEREAS, the June 4, 2010 decision of the Court of Tax Appeals (CTA) Special First Division held that the DFP is liable to pay the subject assessments on the ground that: (a) the DFP was not a tax-exempt entity in the absence of an express grant of tax exemption; (b) FIRB Resolution No. 10-87 restored some tax incentives to the DFP, but limited the incentives only to taxes and duties arising out of merchandise imported/purchased by the DFP and subsequently sold by it through authorized tax and duty-free shops; WHEREAS, Republic Act (RA) 9593 or the Tourism Act of 2009 reorganized the DFP into the DFPC and Section 95 of said law exempted it from the following: (a) duties and taxes, including excise and VAT, relative to the importation of merchandise for sale; (b) local taxes and fees imposed by the Local Government Units (LGUs); and (c) corporate income taxation effective May 12, 2009; WHEREAS, the DFPC was not able to make any payment relative to the various assessment notices, thus, the BIR issued a preliminary collection letter on November 6, 2014 covering the aforementioned income tax and VAT deficiencies; WHEREAS, the DFPC does not receive capital contribution or any form of subsidy from the National Government and it automatically remits to the Office of the Secretary of Tourism a minimum of fifty percent (50%) of the annual net profits to fund tourism programs and projects pursuant to Section 93 of RA 9593; WHEREAS, based on the DFPC's projected ending cash balance, inclusive of goods for sale, before the requested tax subsidy as of 2014 is not adequate to pay the income tax and VAT deficiency with the BIR; WHEREAS, the collection of deficiency taxes and interests, through administrative remedies such as the execution of the warrant of distraint and/or levy issued on January 30, 2015 will adversely affect the operations of the DFPC and may cause serious implications on the country's national tourism development program. DETACa NOW, THEREFORE, BE IT RESOLVED, AS IT IS HEREBY RESOLVED, to approve the application of the DFPC for tax subsidy in the amount of Six Hundred Ninety One Million Three Hundred Four Thousand Three Hundred Eighteen Pesos and 60/100 (PhP691,304,318.60) only to cover the basic deficiency income tax and VAT for 1999-2002, broken downs as follows: Basic Deficiency Tax (In Pesos) Year Income Tax VAT Total 1999 35,099,020.04 36,872,132.46 71,971,152.50 2000 39,915,633.52 37,351,009.27 77,266,643 2001 129,139,879.36 69,565,523.82 198,705,403.18 2002 248,232,295.36 95,128,842.77 343,361,120.13 Total 452,386,828.28 238,917,490.32 691,304,318.60 ============ ============ =========== Provided, that the DFPC shall submit to the FIRB the results of the 2015 audit of its operations by the Commission on Audit (COA): Provided, further, that such tax subsidy availment shall be in accordance with the terms and conditions of Section 14 of RA 10651 or the 2015 General Appropriations Act (GAA), subject to the availability of funds therefor, pursuant to the terms and conditions of the Rules and Regulations to Implement the Subsidy Provision under Executive Order No. 93. (SGD.) LAURA B. PASCUA Undersecretary Department of Budget and Management (SGD.) ADRIAN S. CRISTOBAL, JR. Undersecretary Department of Trade and Industry (SGD.) EMMANUEL F. ESGUERRA Deputy Director-General National Economic and Development Authority (SGD.) ESTELA V. SALES Deputy Commissioner Bureau of Internal Revenue ALEXIS F. MEDINA Director Bureau of Customs (SGD.) TRINIDAD A. RODRIGUEZ OIC-Executive Director National Tax Research Center Head, FIRB Secretariat (SGD.) JEREMIAS N. PAUL, JR. Undersecretary of Finance Presiding Officer-FIRB