Unnumbered BIR Ruling

April 29, 1998 Caltex (Philippines), Inc. 540 Padre Faura St., Manila Attention: Ms . Josefina J . Poblador General Manager Legal and Corporate Affairs Gentlemen : This refers to your protest, dated September 18, 1992, against the assessment of P61,412,726.25 as deficiency extraordinary gains tax, inclusive of surcharge and interest, for the taxable year 1989, covered by Assessment No. FAS-1-89-92-003567. In assailing the above assessment, you contend that: 1. The assessment is arbitrary having been issued without complying with Section 229 of the National Internal Revenue Code, as amended and Revenue Regulations No. 12-85 which govern the issuance of assessment notices; 2. The assessment has no legal and factual basis. Our records show, however, that pre-assessment notice dated April 20, 1990 with Annexes was sent to you covering your surtax for extraordinary gains as of August 15, 1989, and that you failed to respond to our notice. Thus, we find your contention that the assessment was issued without complying with the provisions of Section 229 of the Tax Code, as amended and Revenue Regulations No. 12-85 to be entirely without any basis. We likewise find no merit to your argument that P.D. 1889 does not apply to the Energy Regulatory Board price increase orders of August 15 and November 29, 1989 levying a surtax on extraordinary gains. You further argued that since the law provides that the tax herein imposed shall be paid within thirty (30) days from the promulgation of P.D. 1889, it cannot be made to apply to any extraordinary gains that accrued subsequent to its promulgation particularly the price increase orders in 1989 which is more than five years past the promulgation of the Decree. The law that is applicable to the windfall profit that oil companies realized as a result of the oil price orders of August 15, 1989 and November 29, 1989 is P.D. No. 1889, which imposes a surtax of 65% on said extraordinarily gains for petroleum products sold on or after November 3, 1983. And the Decree states in clear and unmistakable terms what constitutes extraordinary gain. Section 2 thereof provides: "Section 2. Computation of Extraordinary Gains . The extraordinary gains shall be measured by the difference between the approved wholesale posted prices of refined petroleum products immediately before the authorized price increases and the new posted prices multiplied by the number of units of petroleum products existing as of the day of effectivity of the price increases. Extraordinary gains shall also refer to the aggregate increases in the value of crude oil and stocks. Unless otherwise revoked, altered or amended, it is our stand that P.D. 1889 is still the applicable law to the windfall profit that oil companies realized as a result of the oil price increases as authorized by the Energy Regulatory Board. Contrary to your claim that the assessment in question is arbitrary for lack of implementing revenue regulations, it is believed that said regulation is necessary only if there are provisions in the Decree that are ambiguous and susceptible to different and conflicting, interpretations. As it is, the law clearly defines what constitutes ordinary gain and likewise states in clear language the basis of computing the surtax thereon. Accordingly, this Office did not act arbitrarily when it conducted an examination of the windfall profit derived and realized by you on account of the Energy Regulatory Board price increase orders and imposing the proper tax thereon. Finally, there is likewise no basis to your contention that the assessment has already prescribed based on the argument that since the alleged extraordinary gains assessment arose from the price increase order of August 15, 1989, and that you received the assessment notice only on August 27, 1992, it was clearly made beyond the three (3) year reglementary period. It is the stand of this Office that the right of the Commissioner to assess the windfall profit tax, as in the case of 25% surtax imposed on unreasonably accumulated surplus profits of corporations under then Section 25 of the Tax Code, as amended, is imprescriptible and there is no limit on the right of the Commissioner to assess the same. (CIR vs. Ayala Securities Corporation L-29425, November 21, 1980; United Equipment & Supply Co., vs. Commissioner G.R. No. L-35653, October 25, 1972). In view thereof, we find no cogent reason to reverse, alter, modify or disturb the disputed assessment and do hereby sustain and reiterate the same. You are therefore requested to pay the amount of P61,412,726.25 within fifteen (15) days from receipt hereof, otherwise collection thereof will be enforced thru distraint or levy as provided for by law. cdtech This constitutes the final decision of this Office on the matter. Very truly yours, (SGD.) LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue