Prescribing the Rules for the Implementation of the Surtax on Extraordinary Gains Realized by Oil Companies in Accordance with Presidential Decree No. 1709

September 9, 1980 REVENUE REGULATIONS NO. 07-80 SUBJECT : Prescribing the Rules for the Implementation of the Surtax on Extraordinary Gains Realized by Oil Companies in Accordance with Presidential Decree No. 1709 TO : All Internal Revenue Officers and Others Concerned SECTION 1. Scope . These regulations shall govern the implementation of the surtax on extraordinary gains realized by oil companies on petroleum products and is promulgated pursuant to Section 6 of Presidential Decree No. 1709. SECTION 2. Surtax Liability . Any oil company engaged in the importation, processing, refining and marketing of petroleum products, except retail petroleum dealers, who, at the time the new price increases for petroleum products were authorized, has in its inventory: (a) petroleum products valued or acquired at prices lower than the newly authorized increase in prices for each product, or (b) intermediate petroleum products which have appreciated in value due to the increase in the authorized selling prices of the ultimate finished product which are normally manufactured or processed out of said intermediate stocks; shall be liable to the surtax imposed by Section 5 of these Regulations. aisa dc SECTION 3. Definitions of Terms . For purposes of these regulations, the following definitions of terms are hereby adopted: (a) " Petroleum products " shall include hydrocarbon, crude oil, intermediate refinery stocks, base stocks (including other intermediate petroleum products such as lubricating oil base stocks which are blended into greases and lubricating oils) and all other petroleum products enumerated in Sections 153, 155 and 156 of the National Internal Revenue Code . (b) Inventory of petroleum products shall mean the actual quantity of petroleum products in the possession of an oil company at the time the new price increases referred to in Section 11 were authorized, excluding (i) imports still in transit; (ii) borrowings from other oil companies but including quantities on loan to others . (c) Wholesale posted prices shall mean the wholesale prices, ex refinery, of all petroleum products as set by the Board of Energy exclusive of: (i) specific taxes; (ii) Special Fund levies; and (iii) Consumer Cost Equalization Fund components. (d) Consumer cost equalization fund is the special fund established by the Board of Energy to reimburse the oil companies for costs incurred in the purchase of crude oil at prices in excess of the Reference Price. (e) Reference price of crude oil means the price of crude oil including the corresponding customs duties, insurance and Board of Energy fee as established by the Board of Energy for purposes of computing the amount of reimbursement that may be claimed by an oil company from the Consumer Cost Equalization Fund. SECTION 4. Computation of Extraordinary Gains . The following rules shall be followed in the computation of the amount of extraordinary gains subject to the surtax: (i) The extraordinary gain in the case of crude oils shall be measured by the difference between the Reference Price immediately before the authorized price increase and the new Reference Price for the same type of crude oil, multiplied by the corresponding quantity and type of the crude oil product in the inventory of an oil company as of the effective date of the increase; (ii) The extraordinary gain in the case of finished or partly finished petroleum products shall be measured by the difference between the wholesale posted price of each product (as defined in paragraph (c) of Section 3 above) immediately before the authorized price increase and the new wholesale posted price for the same product, multiplied by the corresponding quantity of each petroleum product in the inventory of an oil company, as of the date of effectivity of the price increase; and casia (iii) The extraordinary gain in the case of intermediate petroleum products shall be measured by the difference between the wholesale posted prices, as defined above, of the blended or finished products which would normally be processed or manufactured out of the intermediate stock immediately before and after the authorized price increase, multiplied by the ascertainable quantities of finished products that could be processed or manufactured out of the intermediate stock. (iv) In the case of the gains arising from the adoption of higher rates of specific taxes, the same shall be measured by the difference between the rates in effect immediately before the price increases and the new approved rates, multiplied by the quantities of specific tax-paid inventories as of the date of the effectivity of the increased rates. (v) To ensure consistency and accuracy in the computation of the extraordinary gains which will be the base for the computation of the surtax, the Bureau of Internal Revenue in coordination with the Bureau of Energy Utilization shall prepare and furnish the oil companies with "Basis and Method of Inventory Gain Computation", applicable to each price increase." (As amended by section 1 of Revenue Regulations No. 4-81 dated July 1, 1981.) SECTION 5. Surtax on Extraordinary Gains . A surtax of twenty (20%) per cent is imposed on the total extraordinary gains deemed realized as a result of price and internal revenue tax increases authorized for petroleum products, in addition to the regular income tax as provided for under Title II of the National Internal Revenue Code. The additional levy of 20% shall not be allowed as deduction for income tax purposes. SECTION 6. Manner and Time of Payment of Surtax . "(a) Every person liable to pay the surtax imposed by Presidential Decree No. 1709, shall file the prescribed tax return (Petroleum Surtax Return) and pay the corresponding surtax due thereon within thirty (30) days from the date the price increases were authorized. With regard to the price increases authorized last March 22, 1981, the oil companies shall file the prescribed tax return and pay the surtax due thereon within thirty (30) days from the effectivity date of these Regulations." (As amended by section 2, Ibid .) (b) Such return shall, inter alia , indicate the following information: (1) Name, address and TAN of the taxpayer; (2) Nature of business; (3) Itemized inventory list of petroleum products as of the effective date of the price increases. A separate inventory list for specific tax-paid petroleum products should also be submitted; (4) a computation of the extraordinary gains realized on existing inventory; and cdt (5) The surtax due thereon. (c) If the amount of surtax due, after off-setting any amount due to an oil company from the Consumer Cost Equalization Fund, is P500,000.00 or more, the same may be paid by installment as may be authorized by the Commissioner of Internal Revenue. Provided, however , that in case the entity or person liable thereto has a valid outstanding receivable from the Consumer Cost Equalization Fund, any such receivable may be applied as an off-set against the surtax liability under P.D. 1709 only after a certification by the Ministry of Energy has been issued confirming the amount of the receivable. SECTION 7. Programs of Investment of Balance of Gains . Pursuant to Section 5 of Presidential Decree No. 1709, each oil company shall, within a period of six (6) months from the date price increases were authorized, submit to the Minister of Finance and the Minister of Energy its own program for the investment of the balance of the extraordinary gain. The investments must be in the nature of oil refining, storage, transportation and/or pollution control facilities; such as process equipment, storage tanks, process instrumentation and control, pipeline, refinery utilities equipment, tankers, barges, tank trucks, oil receiving and handling equipment and facilities, and electronic computers. The program should plan to complete the facilities within a period of five years." (As amended by Section 3, Ibid .) SECTION 8 . Place of Filing of Return and Payment of Surtax . The surtax on extraordinary gains shall be paid upon filing of the tax return, together with the schedule of inventory of petroleum products, at the Office of the Commissioner of Internal Revenue. SECTION 9 . Penalties . The provisions of the National Internal Revenue Code, particularly Title II thereof, shall apply in case of failure to file the tax return and to pay the surtax within the period and in the manner hereinabove prescribed. SECTION 10 . Repealing Clause . All regulations, rulings, orders, or portions thereof which are inconsistent with the provisions of these regulations are hereby revoked and/or amended. P.D. 389-A further amending R.A. 6173 as amended is hereby repealed. casia "Sec. 11. Effectivity and applicability . The surtax imposed by the Decree shall apply to extraordinary gains deemed realized by oil companies as a result of the authorized price increases beginning August 1, 1979 and on every subsequent price increase thereafter." (Section 4, Ibid .) "Sec. 12. This amendatory Revenue Regulations shall take effect immediately." (Section 5, Ibid .) (SGD.) ALFREDO PIO DE RODA, JR. Acting Minister of Finance Recommended by: (SGD.) RUBEN B. ANCHETA Acting Commissioner