Settlement of the Income and Franchise Tax Liabilities of Local Water Districts

July 2, 2004 REVENUE MEMORANDUM CIRCULAR NO. 39-04 TO : All Internal Revenue Officers, Employees and Others Concerned SUBJECT : Settlement of the Income and Franchise Tax Liabilities of Local Water Districts Organized under then Presidential Decree 198 for Taxable Years 1996 to 2002 For the information and guidance of all revenue officials, employees and others concerned, the Commissioner of Internal Revenue, in the exercise of its authority to abate or cancel internal revenue taxes, penalties and/or interest pursuant to Section 204(B) in relation to Section 7(c) both of the Tax Reform Code (Code), have provided for a mechanism which will allow Local Water Districts (LWD) to pay and settle their income and franchise tax liabilities for tax years 1996 to 2002. LWD 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 income and franchise tax liabilities for the years 1996 to 2002, by paying the equivalent of forty (40%) percent of its income and franchise tax liabilities due for the years 1996 to 2002 inclusive, provided that the payment and the requirement for tax years 2000 to 2002, inclusive, shall be due on or before July 30, 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. However, the Commissioner may on a case to case basis allow the abatement or cancellation of the tax liabilities, penalties and/or interest lower than forty (40%) percent upon application by the LWD showing its financial incapacity to pay the aforesaid taxes, penalties and/or interest. The duly executed Settlement Agreement, and the payment due shall be made by the LWD availing thereof to the Revenue District Office (RDO) having jurisdiction of said LWD. Thereafter said Office shall forward a copy of the Settlement Agreement, together with copies of the requirement submitted by the LWD in compliance of said Settlement Agreement and proof of payment of the income and franchise taxes due shall be forwarded to the Office of the Commissioner. In addition, the RDO concerned is hereby ordered to verify the truth and correctness of the self assessment made by the LWD. They shall have one year from July 30, 2004 to verify the truth and correctness of the self assessment made by the LWD for the 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 LWD for the years 1996 to 1999 inclusive. In the event, they shall determine the self assessment made by the LWD is not true or correct, they shall forthwith inform the Commissioner in writing of such fact. After the date referred to in the foregoing paragraph, LWD shall no longer be allowed to settle their tax liabilities 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 LWD who have not availed of the terms and conditions of the Settlement Agreement, and to collect the full amount of the tax due and the increments thereto. In addition to the foregoing, all revenue officers are hereby instructed to ensure that all income and franchise tax liabilities due from LWD beginning January 1, 2003, including increments thereof, if any, are assessed and collected from the LWD 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 Income and Franchise Taxes of Local Water District (LWD) For Tax Years 1996 to 2002 (inclusive) ______________________, a member of the Philippine Association of Local Water Districts, Inc., engaged in the business of water utilities with principal address at _________________________________________ with Tax Identification No. _______________, represented herein by its President, Mr. Ranulfo C. Feliciano, and hereinafter referred to as the "LWD", hereby offer to settle its Income and Franchise Tax Liabilities for the tax years 1996 to 2002, inclusive, pursuant to Section 204(B) of the Tax Code of 1997 under the following terms and conditions: I. SCOPE. A. This Agreement contemplates and includes: 1. All years with Income and Franchise Tax assessments from the Bureau of Internal Revenue (BIR), whether preliminary or final for tax years 1996 to 2002, inclusive; and 2. All open years from 1996 to 2000, inclusive. II. SETTLEMENT AMOUNT. By way of full settlement of the LWD income and franchise tax liabilities for tax years 1996 to 2002, inclusive, the LWD hereby undertake to pay forty percent (40%) of its basic income and franchise taxes due for tax years 1996 to 2002, inclusive. However, the Commissioner may on a case to case basis allow the abatement or cancellation of the tax liabilities, penalties and/or interest lower than forty (40%) percent upon application by the LWD showing its financial incapacity to pay the aforesaid taxes, penalties and/or interest. 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 30, 2004. Provided further, that the payment and Schedule 2 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 LWD is in full compliance of all of the following warranties and representations by the LWD. 1. For those tax years with assessments the LWD herein represents that the execution hereof and the payment of forty percent (40%) of the basic income and franchise taxes assessed is by way of an abatement of said tax liabilities under Section 204(B) of the National Internal Revenue Code of 1997; 2. For those income and franchise tax liabilities for tax years 1996 to 2002, inclusive, without any assessment from the BIR, the LWD hereby declares that the duly accomplished Schedules are true, correct and complete statement of its income and gross receipts for the years covered, and the payment of the forty (40%) percent of the basic income and franchise tax liabilities is by way of abatement of said tax liabilities; 3. The LWD hereby agree that the BIR shall have one (1) year from July 30, 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 LWD under the immediately preceding subsection; 4. The LWD shall attach hereto a certified true copy of its Certificate of Membership with the Philippine Association of Local Water Districts, Inc. 5. As settlement for its income and franchise tax liabilities for tax years 2000 to 2002, inclusive, the LWD shall, on or before July 30, 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 years; and c. Pay in full the settlement amount due thereof using BIR Form No. 0605 through the Accredited Agent Banks. 6. As settlement for its income and franchise tax liabilities for tax years 1996 to 1999, inclusive, the LWD 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 2 for said years; and c. Pay in full the settlement amount due thereof using BIR Form No. 0605 through the Accredited Agent Banks. IV. OTHERS. 1. Acceptance of the Settlement of Agreement to settle the income and franchise tax liabilities of the LWD shall be conditional, among others, upon receipt by the BIR of a duly accomplished Schedules 1 and 2 for each and every year of tax years 1996 to 2002, inclusive, and payment for each of the said tax years included therein. 2. Abide by the provisions of the National Internal Revenue Code, as amended; and 3. 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 income and franchise tax liabilities of the LWD. Executed this ____________ day of June, 2004. ______________. _________________________ Local Water District By: _________________________ Name: Title: ACCEPTED: GUILLERMO L. PARAYNO, JR. Commissioner of Internal Revenue ANNEX 1 ____________________ LWD _________________________________________ Address ____________________ TIN SCHEDULE 1 INCOME AND FRANCHISE TAXES FOR TAXABLE YEARS 20002002 I hereby certify under oath that the above is true, correct and accurate statement of our income and franchise tax liabilities for taxable years 20002002. Certified by: _____________________________ Name: Title: ANNEX 2 ____________________ LWD ______________________________________________ Address ____________________ TIN SCHEDULE 2 INCOME AND FRANCHISE TAXES FOR TAXABLE YEARS 19961999 I hereby certify under oath that the above is true, correct and accurate statement of our income and franchise tax liabilities for taxable years 19961999. Certified by: _____________________________ Name: Title: