Publishing Executive Order No. 1026, Amending Section 78 of the National Internal Revenue Code of 1977, to Require Dissolving Corporations to File Information Returns and Secure Tax Clearance from the Commissioner of Internal Revenue, and Providing Adequate Penalties for Violation Thereof

May 15, 1985 REVENUE MEMORANDUM CIRCULAR NO. 13-85 SUBJECT : Publishing Executive Order No. 1026, Amending Section 78 of the National Internal Revenue Code of 1977, to Require Dissolving Corporations to File Information Returns and Secure Tax Clearance from the Commissioner of Internal Revenue, and Providing Adequate Penalties for Violation Thereof TO : All Internal Revenue Officers and Others Concerned For the information and guidance of all concerned, published hereunder is the full text of Executive Order No. 1026: "EXECUTIVE ORDER NO. 1026 AMENDING SECTION 78 OF THE NATIONAL INTERNAL REVENUE CODE OF 1977, TO REQUIRE DISSOLVING CORPORATIONS TO FILE INFORMATION RETURNS AND SECURE TAX CLEARANCE FROM THE COMMISSIONER OF INTERNAL REVENUE, AND PROVIDING ADEQUATE PENALTIES FOR VIOLATION THEREOF. acd WHEREAS, corporations, particularly those with unpaid tax liabilities to the Government dissolve without prior notice to the Bureau of Internal Revenue, to the detriment of tax collection; WHEREAS, the requirement under existing law making it obligatory for said corporations to notify the Commissioner of Internal Revenue of corporate dissolution is inadequate for aside from the imposition of relatively light penalties in case of violation, no BIR tax clearance as a prerequisite to dissolution is prescribed; WHEREAS, in order to remedy this defect and thus insure adequate collection of taxes amendment of the aforecited provision of the Internal Revenue Code is necessary. NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the powers vested in me under Sec. 290-B of the National Internal Revenue Code, as amended, do hereby order as follows: cdt Sec. 1. Section 78 of the National Internal Revenue Code, as amended, is hereby amended to read as follows: "Sec. 78. Return of corporation contemplating dissolution . Every corporation shall, within thirty days after the adoption by the corporation of a resolution or plan for the dissolution of the corporation or for the liquidation of the whole or any part of its capital stock, including corporations which have been notified of possible involuntary dissolution by the Securities and Exchange Commission, render a correct return to the Commissioner of Internal Revenue, verified under oath, setting forth the terms of such resolution or plan and such other information as the Minister of Finance shall, by regulations, prescribe. The dissolving corporation prior to the issuance of the Certificate of Dissolution by the Securities and Exchange Commission shall secure a certificate of tax clearance from the Bureau of Internal Revenue which certificate shall be submitted to the Securities and Exchange Commission. Failure to render the return and secure the certificate of tax clearance as above-mentioned shall subject the officer(s) of the corporation required by law to file the return under Section 46(a) of this Code, to a fine of not less than Five Thousand pesos or imprisonment of not less than two years and shall make them liable for all outstanding or unpaid tax liabilities of the dissolving corporation." Sec. 2. The Minister of Finance shall issue such rules and regulations as are necessary to implement the provisions of this Act. Sec. 3. Rules and Regulations . All Acts, Executive Orders, rules and regulations or parts thereof which are inconsistent with the provisions of this Act are hereby repealed or amended accordingly. Sec. 4. Effectivity . This Order shall take effect upon its approval. DONE in the City of Manila, this 14th day of May in the year of Our Lord, nineteen hundred and eighty-five. (SGD.) FERDINAND E. MARCOS President of the Philippines By the President: (SGD.) JUAN C. TUVERA Presidential Executive Assistant" Salient Features of Executive Order No. 1026 . 1. The requirement on the filing of an information return relative to corporate dissolution, and the tax clearance certificate, applies not only to voluntary dissolution but even to corporations notified by the Securities & Exchange Commission of involuntary dissolution. Previous to the amendment, only voluntary corporate dissolutions were covered. 2. The tax clearance certificate from the Bureau of Internal Revenue is now required for submission to the SEC. cd i Formerly, only the information return was necessary. 3. For failure to comply with the abovementioned requirement, the penalty is a fine of not less than P5,000 or imprisonment of not less than two (2) years. Furthermore, the corporate officials under obligation to comply as aforementioned shall be personally liable for all outstanding or unpaid tax liabilities of the dissolving corporation. Also, inasmuch as Section 78 before the amendment contained no specific penalty for violation, the penalty in Sec. 337 was made applicable, consisting only of a fine not over P300 or imprisonment of six months. cd Moreover, the corporate officials responsible for the violation were not made personally liable for any unpaid corporate tax. 4. The Order took effect on May 14, 1985. Hence, all corporate dissolutions taking place on or after said date shall be governed by the new requirement. All internal revenue officials, employees and others concerned are hereby enjoined to give this Revenue Memorandum Circular the widest publicity possible. aisa dc RUBEN B. ANCHETA Acting Commissioner