Amending further pertinent provisions of Revenue Regulations No. 2-98, as last amended by Revenue Regulations 3-2004, as Amended, providing for the inclusion of Income Payments subject to Creditable Withholding Tax under Section 2.57.2(U) on Manila Electric Company (MERALCO) Refund arising from Supreme Court Case G.R. No. 14814 of April 9, 2003 to Customers under Phase IV as approved by Energy Regulatory Commission (ERC)

February 23, 2005 REVENUE REGULATIONS NO. 08-05 SUBJECT : Amending further pertinent provisions of Revenue Regulations No. 2-98, as last amended by Revenue Regulations 3-2004, as Amended, providing for the inclusion of Income Payments subject to Creditable Withholding Tax under Section 2.57.2(U) on Manila Electric Company (MERALCO) Refund arising from Supreme Court Case G.R. No. 14814 of April 9, 2003 to Customers under Phase IV as approved by Energy Regulatory Commission (ERC) TO : All Internal Revenue Officers and Others Concerned SECTION 1 . Scope . Pursuant to the provisions of Section 244 of the National Internal Revenue Code of 1997, in relation to Sections 57(B) of Republic Act No. 8424 and Sections 2.57.2 of Revenue Regulations Nos. 2-98, as amended, these Regulations are hereby promulgated to further amend pertinent provisions, providing for the inclusion of Income payments Subject to Creditable Withholding Tax under Section 2.57.1 (U) on MERALCO Refund arising from Supreme Court Case G.R. No. 14814 of April 9, 2003 to customers under Phase IV as approved by ERC. 2 . Income Payments Subject to Creditable Withholding Tax . Sec. 2.57.2 of Revenue Regulations No. 2-98, as amended, is hereby further amended to read as follows: "Sec. 2.57.2. Income payments subject to creditable tax and rates prescribed thereon . Except as herein otherwise provided, there shall be withheld a creditable income tax at the rates herein specified for each class of payee from the following items of income payments to persons residing in the Philippines: xxx xxx xxx (U) MERALCO Refund arising from Supreme Court Case G.R. No. 14814 of April 9, 2003 to customers under Phase IV as approved by ERC On gross amount of refund given by MERALCO to Customers with active contracts as classified by MERALCO Twenty Five Percent (25%); To Customers with terminated contracts Thirty Two Percent (32%); 3 . Returns and Payment of Taxes Withheld at Source . Sec. 2.58 of Revenue Regulations No. 2-98, as amended, is hereby further amended to read as follows: "Sec. 2.58. RETURNS AND PAYMENT OF TAXES WITHHELD AT SOURCE. (A.) Monthly return and payment of taxes withheld at source (1) WHERE TO FILE xxx xxx xxx (2) WHEN TO FILE xxx xxx xxx MERALCO shall submit a Monthly Alphalist of Payees (MAP) Annex "A" for each calendar quarter, which shall be electronically attached to the monthly remittance return of the calendar quarter (e.g. BIR Form 1601-E for the quarter ending March with attached MAP for January, February, March). It shall contain an alphalist of customers from whom taxes have been withheld for the return period and in whose behalf, the taxes were remitted under BIR Form No. 1601-E showing the total amount of income and taxes withheld and remitted. SECHIA xxx xxx xxx xxx xxx xxx SECTION 4 . Repealing Clause . The provisions of any revenue regulations, revenue memorandum orders or circulars or any other issuance inconsistent herewith are hereby repealed, amended, or modified accordingly. SECTION 5 . Effectivity . These regulations shall take effect fifteen (15) days following publication in a newspaper of general circulation. (SGD.) CESAR V. PURISIMA Secretary of Finance Recommending Approval: (SGD.) GUILLERMO L. PARAYNO, JR. Commissioner of Internal Revenue ANNEX A BIR REGISTERED NAME TRADE NAME ADDRESS TIN MONTHLY ALPHALIST PAYEES (MAP) RETURN PERIOD (mm/yyyy) I declare under the penalties of perjury, that this has been made in good faith, verified by me, and to the best of my knowledge and belief, is true and correct pursuant to the provisions of the NIRC, and the regulations issued under the authority thereof; that the information contained herein completely reflects all income payments with the corresponding taxes withheld from payees are duly remitted to the BIR and proper Certificates of Creditable Withholding Tax at Source (BIR Form No. 2307) have been issued to payees; that, the information appearing herein shall be consistent with the total amount remitted and that, inconsistent information shall result to denial of the claims for expenses purchases. __________________________ Signature over printed name Taxpayer/Authorized representative Attachment to BIR Form Nos. 1601-E, 1601-F, 1600, 1606 BRIEFER OF PROPOSED REVENUE REGULATION ON MERALCO'S REFUND Manila Electric Company (MERALCO) is a domestic corporation duly incorporated since May 7, 1919 under Philippine Laws, with its principal office at MERALCO Bldg., Ortigas Avenue, and Pasig City. It was formed as a utility company to engage in the production of light, heat, and power. On December 23, 1993 MERALCO filed with then Energy Regulatory Board (ERB) an application for an average rate increase of P0.21 per kilowatt-hour (KWH) in its basic distribution charge, docketed as ERB case No. 93-118. At that time, MERALCO's average rate was P2.812 per kWh. On January 28, 1994, ERB issued an order granting provisional increase of P0.184 per kWh, subject to the condition in the event, after hearing and evaluation, ERB finds that MERALCO is entitled to a lesser increase rate, all excess amounts collected shall be refunded to its customers or credited in their favor for future consumption. CTEacH However, on February 16, 1998, ERB rendered its decision granting MERALCO an increase in rates by only P0.017 per kWh and ordering MERALCO to refund or credit to its customers the amount of P0.167 per kWh beginning February 1994. MERALCO appealed the decision to the Court of Appeals, which rendered its decision dated February 24, 1999 in CA-G.R. SP No. 46888 reversing the ERB decision. However, the Supreme Court rendered its decision November 15, 2002 in G.R. Nos. 141314 and 141369 reversing the Court of Appeals decision and upholding the previous ERB decision. On April 9, 2003 the Supreme Court denied with finality MERALCO's motion for reconsideration, after which the decision of the High Court became final and executory on May 4, 2003. As a result of the Supreme Court decision to refund MERALCO's over billing to its customers, MERALCO now, in turn, request the BIR for a refund on its overpaid taxes from 1994 to 2001 amounting P7.1 B. MERALCO, in implementing the SC ruling has already started giving refund to its customers under Phase 1 to Phase 3 amounting to P12B pertaining to residential users. They are about to start giving refund to its industrial and commercial users under Phase IV in the amount of P18B beginning March 2005 as approved by Energy Regulatory Commission (ERC). Phase IV-A is to be implemented in eighteen months covering an amount of around P2.2B and the rest under Phase IV-B to be implemented from 2006 to 2009 per representation of the MERALCO officials.. In view of the above, BIR has drafted a revenue regulation to govern the withholding tax on the MERALCO refund to its customers under Phase IV. Published in Manila Bulletin on May 19, 2005.