Settlement of the VAT Liabilities of Pawnshops for Taxable years 1996 to 2002

June 16, 2004 REVENUE MEMORANDUM CIRCULAR NO. 37-04 TO : All Internal Revenue Officers, Employees and Others Concerned SUBJECT : Settlement of the Value Added Tax Liabilities of Pawnshops for Taxable Years 1996 to 2002 For the information and guidance of all revenue officials, employees and others concerned, on June 4, 2004, the Commissioner of Internal Revenue, in the exercise of its authority to compromise and abate tax liabilities under Section 204 of the Tax Reform Act of 1997 (Code), have entered into a memorandum of agreement with the Chambers of Pawnbrokers of the Philippines, Inc. for a mechanism which will allow those engaged in the pawnshop business to pay and settle their value added tax (VAT) liabilities for tax years 1996 to 2002. Pawnshops who shall duly execute the Settlement Agreement and fully comply with the terms and conditions of the said Settlement Agreement, a copy of which is attached hereto as Annex A and made an integral part hereof, shall be allowed to settle in full their VAT liabilities for tax years 1996 to 2002, by paying the equivalent of twenty five percent (25%) of its value added tax due for tax years 1996 to 2002, inclusive, where the basic value added tax due shall be computed by multiplying its gross receipts for the period covered by ten percent (10%), provided that the payment and the requirement for tax years 2000 to 2002, inclusive, shall be due on or before July 15, 2004. Provided, further, that the payment and the requirement for tax years 1996 to 1999, inclusive, shall be due on or before December 15, 2004. The duly executed Settlement Agreement, the requirements contained in the Settlement Agreement, and the payment due shall be made by the pawnshops availing thereof to the Revenue District Office/Large Taxpayer Service/Large Taxpayer District Office (RDO/LTS/LTDO) having jurisdiction of said pawnshop. Thereafter said office shall forward a copy of the Settlement Agreement, together with copies of the requirements submitted by the pawnshop in compliance of said Settlement Agreement, and proof of payment of the value added tax due shall be forwarded to the Office of the Commissioner. In addition, the RDO/LTS/LTDO concerned is hereby ordered to verify the truth and correctness of the self assessment made by the pawnshop. They shall have one year from July 15, 2004 to verify the truth and correctness of the self assessment made by the pawnshop for tax years 2000 to 2002, inclusive, and one year from December 15, 2004 to verify the truth and correctness of the self assessment made by the pawnshop for tax years 1996 to 1999, inclusive. In the event they shall determine the self assessment made by the pawnshop is not true or correct, they shall forthwith inform the Office of the Commissioner in writing of such fact. After the date referred to in the foregoing paragraph, pawnshops shall no longer be allowed to settle their VAT liability for the years referred to under the terms and conditions of the Settlement Agreement. After the dates referred to, all revenue officers are hereby instructed to apply the full force of the law on such pawnshops who have not availed of the terms and conditions of the Settlement Agreement, and to collect the full amount of tax due and the increments thereto. In addition to the foregoing, all revenue officers are hereby instructed to ensure that all VAT due from pawnshops beginning January 1, 2003, including increments thereto, if any, are assessed and collected from pawnshops under its jurisdiction. This circular is to be given a wide publicity as possible. (SGD.) GUILLERMO L. PARAYNO, JR. Commissioner of Internal Revenue ANNEX A SETTLEMENT AGREEMENT On Value-Added Tax on Pawnshops For Tax Years 1996 to 2002 (inclusive) _________________________________, a member of the Chamber of Pawnbrokers of the Philippines, Inc., engaged in the business of pawnshop, with principal address at ________________________________________, with Tax Identification No. _________________________, represented herein by its ________________________________________ and hereinafter referred to as the "PAWNSHOP, hereby offer to settle its Value-Added Tax Liabilities for the tax years 1996 to 2002, inclusive, under the following terms and conditions: I. SCOPE. A. This Agreement contemplates and includes: 1. All years with VAT assessments from the Bureau of Internal Revenue (BIR), whether preliminary or final, on gross receipts of pawnshops for tax years 1996 to 2002, inclusive, 2. All years with cases pending with Court of Tax Appeals (CTA), Court of Appeals (CA), and/or Supreme Court (SC), on the VAT liability on the gross receipts of pawnshops for tax years 1996 to 2002, inclusive, 3. All open years from 1996 to 2002, inclusive. B. This Agreement shall exclude: 1. VAT liabilities on gross receipts of pawnshops for tax years 1996 to 2002, inclusive, settled by way of payment or compromises, 2. VAT liabilities on gross receipts of pawnshops for tax years 1996 to 2002, inclusive, investigated which were already paid, hence already closed, and 3. VAT liabilities on gross receipts of pawnshops for such period after taxable year 2002. II. SETTLEMENT AMOUNT: By way of full settlement of the PAWNSHOPS VAT liabilities for tax years 1996 to 2002, inclusive, the PAWNSHOPS hereby undertake to pay twenty five percent (25%) of its basic value added tax due for tax years 1996 to 2002, inclusive, where the basic value added tax due shall be computed by multiplying its gross receipts for the period covered by ten percent (10%). Provided, that the payment and Schedule 1, a copy of which is attached hereto as Annex "1" for tax years 2000 to 2002, inclusive, shall be due on or before July 15, 2004. Provided further, that the payment and Schedule 1 for tax years 1996 to 1999, inclusive, shall be due on or before December 15, 2004. III. CONDITIONS, WARRANTIES AND REPRESENTATIONS This Agreement shall become effective and valid only upon the fulfillment of all the following terms and conditions, and provided that PAWNSHOP is in full compliance of all of the following warranties and representations by the PAWNSHOPS: 1. The PAWNSHOP shall have been registered as a VAT taxpayer. 2. The PAWNSHOP undertakes and warrants to pay VAT on all of its gross receipts as of January 1, 2003. 3. In the event the PAWNSHOP have any existing protest filed with the BIR or any competent courts for any assessments made by the BIR, the PAWNSHOP undertakes to withdraw said protest. 4. For those tax years with assessments, the PAWNSHOP herein represents that the execution hereof and the payment of twenty five percent (25%) of the basic VAT assessed is by way of an offer to compromise said tax liabilities under Section 204 of the National Internal Revenue Code of 1997. 5. For those VAT liabilities for tax years 1996 to 2002, inclusive, without any assessment from the BIR, the PAWNSHOP hereby declares that the duly accomplished Schedules are true, correct and complete statement of its gross receipts for the years covered, and the payment of the twenty five percent (25%) of the basic value added tax liabilities as determined in accordance with Section II above is by way of an offer to compromise said tax liabilities. 6. The PAWNSHOP hereby agree that the BIR shall have one (1) year from July 15, 2004 for tax years 2000 to 2002, inclusive, and one (1) year from December 15, 2004 for tax years 1996 to 1999, inclusive, to verify the truth and correctness of the self assessment made by the PAWNSHOP under the immediately preceding subsection. 7. The PAWNSHOP shall attach hereto a certified true copy of its Certificate of Membership with the Chamber of Pawnbrokers of the Philippines, Inc. 8. As settlement for its VAT liabilities for tax years 2000 to 2002, inclusive, the PAWNSHOP shall, on or before July 15, 2004, a. file a duly signed and executed copy of this Agreement with the Revenue District Office having jurisdiction over it, b. file a duly accomplished Schedule 1 for said tax years, and c. pay in full the settlement amount due thereon using BIR Form No. 0605 through the Accredited Agent Banks. 9. As settlement for its VAT liabilities for tax years 1996 to 1999, inclusive, the PAWNSHOP shall, on or before December 15, 2004, a. file a duly signed and executed copy of this Agreement with the Revenue District Office having jurisdiction over it, b. file a duly accomplished Schedule 1 for said tax years, and c. pay in full the settlement amount due thereon using BIR Form No. 0605 through the Accredited Agent Banks. 10. The BIR shall issue a Revenue Memorandum Circular to direct officials and members of Bureau to desist from conducting investigation and/or issuance of assessments involving lending investors tax imposed on pawnshop in view of the case of the Commissioner of Internal Revenue vs. Michel J. Lhuillier , G.R. No. 150947. IV. OTHERS. 1. Acceptance of the compromise offer to settle the VAT liabilities of the PAWNSHOP shall be conditional, among others, upon receipt by the BIR of a duly accomplish Schedule 1 for each and every year of tax years 1996 to 2002, inclusive, and payment for each of the said tax years included therein. 2. The BIR shall conduct an evaluation of the assessments subject of this Agreement to confirm/validate the existence of the ground as claimed; and 3. Abide by the provisions of the National Internal Revenue Code, as amended. 4. Deviation from any of the above conditions shall render this Agreement without any force and effect, and any payment made shall be considered as partial settlement of the total VAT liabilities of the PAWNSHOP. Executed this ____ day of June 2004, ____________________. _______________________________ Pawnshop By ________________________________ Name: Title: ACCEPTED: GUILLERMO L. PARAYNO, JR. Commissioner of Internal Revenue Annex I Schedule 1 Value Added Tax for Taxable Years 2000-2002 Annex II Schedule 2 Value Added Tax for Taxable Years 1996-1999