NOTE: Amended in RR 5-2005
SUBJECT : Rules and Regulations on the Accreditation, Registration and Use of Cash Register Machines (CRM), Point-of-Sale (POS) Machines and/or Business Machines Generating Receipts/Invoices
TO : All CRM, POS and Other Similar Business Machine Suppliers/ Distributors/
Retailers, All Business Establishments and All Internal Revenue Officials and Employees and Others Concerned
1.0 Background
In recent years, the requirement for the inspection, evaluation and registration of Cash Register Machines (CRMs) and Point-of-Sale Machines (POSs) prior to their use, has posed increasing difficulties both to business establishments, and to the Bureau. In particular, administrative requirements and expenses have proved increasingly detrimental to the cost-effectiveness of the process, a cause for concern at a time when government is implementing austerity measures.
More importantly, the compliance burden imposed by the inspection-evaluation-registration process on taxpayer-establishments has become cumbersome for taxpayers. In addition, the increasing complexity of the CRM-POS registration process has negated its ultimate objective of having reliable data and records against which to assess the correctness of tax payments and the degree of tax compliance.
In this regard, these Regulations are being issued to:
• Re-focus the goals and objectives of the CRM-POS registration process to the effective supervision and control by the Bureau of the use of such machines,
• Simplify the registration process, and reduce the administrative requirements for the issuance of permits to use CRMs and/or POSs, thereby reducing the compliance burden shouldered by establishments submitting their CRMs and/or POSs to the process;
• Reduce administrative costs that may be incurred by the Bureau in the implementation of the registration process; and
• Ensure the speedy and efficient collation of accurate data on the transactions recorded through CRMs/POSs by the user-establishments.
2.0 Coverage
These Regulations shall cover all business machines utilized – in the conduct of business – to record sales transactions, and shall include Cash Register Machines, Point of Sales Machines, Taximeters, Handheld or Mobile Devices.
3.0 Definition of Terms
For purposes of these Regulations, the words and phrases herein provided shall be understood to mean as follows:
3.1 Cash Register Machine (CRM) – is a machine that has a memory and can record the sale/transfer of merchandise or services rendered, in lieu of a registered sales invoice or official receipt. A CRM uses a firmware, which is installed in a Electronic Programmable Read Only Memory (EPROM) chip. In electronic engineering, the term “firmware” is understood to mean a program which is burned on a non-volatile memory and which is used for the organization of an exactly-defined field of application. A machine-near program code ensures the shortest execution times, as well as highest operation and data security. Compared with traditional PC-systems, the hardware of firmware-controlled machines is usually structured to enable the machine to take ergonomic requirements into consideration.
3.2 Point-of-Sale (POS) Machine – is a computerized replacement for the CRM. The POS is much more complex than the CRM, inasmuch as the POS system has the capability to record and track customer orders, process and debit credit card accounts, link to other systems in the establishment’s network, and manage inventory. Generally, a POS terminal has in its core a personal computer, which is provided with application-specific programs and input/output (I/O) devices for the particular environment in which it will be utilized. A POS system for a restaurant, for example, is likely to have all menu items stored in a database that can be queried for information in several ways. POS terminals are used in most industries that have a point-of-sale, such as a service desk; among the enterprises that use POS terminals are restaurants, lodging, entertainment establishments, museums, etc.
3.3 CRM/POS Machines Linked to Computerized Accounting System (CAS) – Cash Register Machines/Point-of-Sale machines that are electronically connected to a CAS, or are connected to a CAS through a central server via network as described in RMO No. 29-2002.
3.4 Computerized Accounting System (CAS) – It is the integration of an establishment’s various accounting components, to generate a computerized Books of Accounts and computer-generated accounting records and documents.
3.5 Stand-Alone CRM/POS machine – are those machines that run independently and is not linked or connected to any other machine or system.
3.6 System Enhancement – Any change or modification in the system software or architecture components of a computerized application system that will change, add value or further improve the system.
3.7 Volatile Memory – Memory that loses its content when the power is turned off.
3.8 Non-Volatile Memory – Types of memory that retain their contents when power is turned off.
3.9 Sales Machine – is a machine or device that dispenses receipt/invoice for purposes of tendering sales transaction
4.0 General Provisions
The following general policies and guidelines shall be observed by taxpayerestablishments who intend to make use of CRMs and/or POSs:
4.1 New Permits for Use of CRMs, POS and Similar Machines. – Upon effectivity of these Regulations, only those CRMs / POSs that are found to be compliant with the machine specifications stated in Section 5.0, and have been duly registered in accordance with Section 9.0 hereof, shall be issued “Permits to Use”, and shall be utilized to generate invoices/receipts required under Section 6.0.
4.2 Validity of Previous Permits to Covering Machine Currently in Use. – All Business Taxpayers are encouraged to switch to machines that are compliant with the provisions of these Regulations, particularly Sections 5.0 and 6.0 hereof, the soonest.
Cognizant of the fact that an immediate change over may not be possible for all establishments, all duly existing Permits to Use CRMS / POSs issued prior to the effectivity of these Regulations shall remain valid until revoked by the Commissioner of Internal Revenue; Provided, That the establishments making use of such machines shall comply with the reportorial requirements to be prescribed by a separate Revenue Regulations.
4.3 Immediate use of CRM/POS Machines. – CRMs / POSs may be used immediately by a business establishment without the need for prior inspection and authorization by the Bureau, provided the following conditions are met:
4.3.1 The machine/system model is among those already accredited by the Bureau following the accreditation system described under Section 7.0.
4.3.2 The supplier of the machine model has already registered the machine with the Bureau on behalf of the user-business firm, in accordance with the registration procedure described under Section 9.0.
4.3.3 If the concerned machine / system model has not been previously accredited in accordance with Paragraph 4.3.1 of this Section, but it is nonetheless fully compliant with the specifications of machines/systems as provided for under Sections 5.0 and 6.0, the manager/owner of the business establishment may himself register the machine/system, in accordance with the provisions of Section 9.0 hereof. The manager/owner shall then be issued a provisional authority to use the machines/system.
4.3.4 The Bureau reserves the right to inspect any machine/system registered under these Regulations at any time during store hours, to verify compliance with the specifications of a valid machine/system the data requirements of the generated invoice, the conditions for use of machines as well as other regulations that may be subsequently issued governing use of machines. Store personnel are thus required, under the authority granted for the use of the machine/system, to present the machine for inspection and reading by the concerned revenue personnel.
4.3.5 Any machine availing of the “immediate use” provisions of this Section that shall later be found to be non-compliant following inspection may be considered subject to seizure.
5.0 Machine Control Specifications/Features
To qualify for accreditation, registration and use, CRMs/POSs and similar business machines, must comply with the specifications enumerated below, to which compliance the machine manufacturer/dealer/distributor/vendor must attest thru a sworn declaration:
5.1 General Specifications / Features
5.1.1 The machine must have a non-resettable accumulating grand total.
The accumulating grand total sales must have at least ten (10) digits (or 12 digits, including decimal points). The taxpayer must secure advance approval of the next accumulating grand total from the concerned Revenue District Office within thirty (30) days before full consumption or utilization of the previously reported accumulating grand total.
A CRM must be equipped with a reset counter that advances by one (1) every time the accumulating grand total sales is reset to zero. POS machines and other types of similar machines must be capable of generating a unique sequential number for each transaction entered.
5.1.2 The machine must be tamper-free. It must not be switchable to “training mode” or to “no-sale transaction mode” or of other manipulations that will avoid the recording of a sale transaction. Further, the words “THIS IS NOT AN OFFICIAL RECEIPT.” must be boldly printed on the paper tapes dispensed by the machine.
5.1.3 The machine and/or the central server must be able to generate a report showing the reading of daily sales and the accumulated grand total recorded therein;
5.1.4 The machine must have a non-volatile memory or must be equipped with a recovery/back-up system;
5.1.5 The machine must reflect and/or store information such as sales discounts, refunds, etc.
5.1.6 The machine must be capable of clearly indicating separately, in words, sales of taxable (VAT) and non-taxable (Non-VAT) items, in cases where the machine-user is engaged in both taxable and non-taxable business activities. Moreover, the machine must be capable of generating a report summarizing all VAT sales, and a separate report summarizing Non-VAT sales, to facilitate the review of each type of sales transactions.
5.2 For Cash Register Machines:
The machine must be equipped with two (2) rollers or their equivalent, one for the audit journal tape intended for audit and internal revenue tax purposes, and the other for the customers’ tape copies which are issued as itemized and consecutively numbered receipts;
Provided, that all tape receipts issued, and the data printed on the receipts, are of a quality that can be preserved for a period within which the Commissioner is authorized to make an assessment and collection of the taxes, as prescribed in Sections 203 and 222 of the National Internal Revenue Code (NIRC), as amended. Moreover, a safety mechanism must be installed that will prevent the operation of the machine if only one of the rollers is used.
When the machine is punched for the purpose of recording sales discounts, refunds, etc, the amount of sales discounts, refunds, etc., should automatically be printed on the customer’s tape receipt and on the audit journal tape or its equivalent.
5.3 For POS machines:
For POS machines that are connected to a server, all sales per POS must be automatically and completely recorded in the central server, where the stored data shall be preserved for a period within which the Commissioner is authorized to make an assessment and collection of the taxes pursuant to Sections 203 and 222 of the NIRC, as amended.
No machine model shall be accredited unless the distributor/dealer/vendor of the machine shall attest that the Bureau can view, validate and verify from the machine the sales/receipts summaries that will be submitted by the taxpayer pursuant to Section 6.0 of these Regulations. Monitoring controls and verification techniques must be disclosed by the distributor/dealer/vendor to the Bureau so that it can identify, among others, voided sales and actual sales not recorded in the
proprietor’s accounting records.
6.0 Receipt/Invoice Data Requirements/Structure
The sales machine shall generate receipts or invoices, which must show, among others,
the data enumerated in Items a to k of this Section. Items a to d, however, should be uniformly
provided in the Official Receipt Header. A sample design of the receipt shall be submitted upon
application for accreditation.
a) Business Name;
b) Registered Taxpayer’s Name with BIR;
c) Taxpayer’s Identification Number (12 Digits including Branch Code);
d) Address where the machine will be used;
e) Receipt/Invoice Number (Minimum of 6 Digits);
f) Machine Model Accreditation Number;
g) Date of Transaction;
h) Quantity;
i) Product Description;
j) Amount of Transaction; (Separate totals for VAT and Non-VAT transactions);
k) “THIS SERVES AS AN OFFICIAL RECEIPT”
Businesses authorized to use CRM or POS machines are exempted from showing on the
CRM/POS receipt the name, business style, address and Taxpayer Identification Number (TIN)
of the purchaser. However, in case the purchaser is a VAT-registered entity and the concerned
CRM/POS is not capable of showing the name, address and TIN of purchaser, a manually preprinted
and pre-numbered sales invoice or official receipt with approved Authority to Print
(ATP) must be requested by the purchaser and must be issued by the seller. Otherwise, the
purchaser’s claim for input tax will be disallowed.
7 of 16
In case of the issuance of manual receipts, the CRM/POS-generated receipt should be
attached to the duplicate manual receipt to avoid a double take-up of sales.
7.0 Accreditation of CRM / POS Brands and Models
7.1 Responsibility of Machine/System Suppliers. – In order to extend to prospective buyers/users of particular models the benefits of “immediate use” as described in Subsection 4.3 of these Regulations, suppliers must have the machines they intend to distribute/sell duly accredited by the Bureau prior to the actual distribution/ sale of such machines.
7.2 Accreditation of CRM/POS/Sales Generating Receipt/Invoice Machine
Brands and Models. – Every supplier/distributor/dealer/vendor of CRM/POS machines must apply for the accreditation of their machine models and/or software with:
7.2.1 The National Office CRM/POS Machine Accreditation Board (NMAB), for supplier/distributor/dealer/vendor under the jurisdiction of the Large Taxpayers Service; or,
7.2.2 The Regional Office MAB (RMAB), for supplier/distributor/dealer/vendor under the jurisdiction of the Revenue District Offices.
7.3 Sworn Declaration Contents. - The application for accreditation shall be in the form of a Sworn Declaration by the supplier/distributor/dealer/vendor of the machine (Annex A), which must contain the following information:
(a) Name, address, business name/style and TIN, VAT or Non-VAT number of the distributor/dealer or vendor of the machine;
(b) For CRMs: brand, model, type of all its parts, whether electronic or mechanical, memory feature (whether with resettable or non-resettable accumulating grand total), and machine properties (whether new or secondhand);
(c) For POSs: brand, model, machine properties (whether new or second hand), and software to be used;
(d) Maximum accumulating sales capacity;
(e) Reset counter number; and
(f) Other essential features.
7.4 Attachments. – All applications must be supported by the following documents:
(a) A copy of the machine distributor/dealer/vendor’s current Annual Registration Fee Return (BIR Form No. 0605);
(b) Copies of the Certificate of Registration of Business Name/Style of the machine distributor/dealer/vendor issued by the BIR and Bureau of Domestic Trade and Industry, and in case of corporations and partnerships, a copy of the Certificate of Registration issued by the Securities and Exchange Commission.
The aforesaid Certificates of Registration, however, shall no longer be required from a distributor/dealer/ vendor who has been previously granted accreditation of its other machine models/software.
(c) A sample receipt generated by the machine legibly showing the data required under Section 6.0 hereof.;
(d) A sample receipt showing the reading of the daily sales and accumulated grand total recorded in the machine;
(e) A Demo or Evaluation copy of the software to be used in the actual operation of the POS machines;
(f) The System Description and Design/Structure of the machine being submitted for accreditation
(g) The Master Reset Key/Password, whichever is applicable, that can be used in reading sales data of all units of the particular model being accredited;
(h) Machine brochure; and
(i) Operating manual.
An application shall not be considered as duly filed if any of the aforementioned documents have not yet been submitted together with the application.
7.5 Machine Inspection. – An actual system demonstration / machine inspection must be conducted by the applicant-distributor/dealer/vendor, and attended by the NMAB / RMAB concerned, to allow the Board members to determine if the machine is compliant with the conditions as set forth under Sections 5.0 to 7.0 of these Regulations.
7.6 Issuance of the CRM/POS Machine Accreditation. – Upon the recommendation of the C/P-MAB, the Revenue District Office / Large Taxpayers Assistance Division (LTAD) I and II / Large Taxpayers District Office (LTDO) shall issue the distributor/dealer/vendor the corresponding CRM/POS Machine Accreditation Certificate, duly signed by the Chief of the LTAD I or II, or the Chief of the LTDO concerned, if the distributor/dealer/vendor is a Large Taxpayer; or by the Revenue District Officer, if the distributor/dealer/vendor is a regular taxpayer. An accreditation number, which will be issued to the distributor/dealer/vendor, shall be used in the registration of machines/software that will be subsequently sold to the user-establishments.
A list of all duly-accredited machines shall be posted at the BIR website: www.bir.gov.ph, to inform the taxpaying public and the machine owners/buyers of the machines that have been accorded official accreditation.
The accreditation granted under these Regulations is limited to the particular brand-model/software presented for evaluation and approval. It is understood that the any upgrading, integration or modification made in the machine shall be subject to prior approval.
7.7 Revocation of Accreditation. – Any violation of the foregoing conditions shall be considered as sufficient basis for the immediate revocation of the accreditation granted, and the distributor/dealer/vendor concerned shall be subjected to the appropriate sanctions under existing internal revenue laws and regulations.
8.0 CRM/POS Machine Accreditation Board
A CRM/POS Machine Accreditation Board (MAB) shall be created at the National Office (NMAB) to service the requirements of Large Taxpayers Service; and at each of the Bureau’s Regional Offices (RMAB) to service the establishments registered thereat.
The NMAB and the RMABs shall conduct the appropriate evaluation and inspection procedures attendant to the accreditation of CRMs/POSs, and, if warranted, recommend approval of the “Application for Accreditation of CRM/POS Machine” submitted by the concerned distributors/dealers/vendors, prior to the sale / distribution of the machines being accredited to business establishments, in order to afford CRM/POS machine users the benefit of “immediate use” described in Subsection 4.3 of these Regulations.
The evaluation procedures must be undertaken and completed within five (5) working days from receipt of the application for accreditation and the complete documentary requirements.
The composition of the MABs shall be as follows:
8.1 National Office
Group I
Head : Chief, Large Taxpayers Assistance Division (LTAD) I
Asst. Head : Chief, Computer Operations, Network and
Engineering Division (CONED) — Information Systems Operations Service Data Center (ISOS–DC)
Members :
Representative of Information Systems
Operations Service — Data Center (ISOS-DC)
Representative of LTAD I
Representative of Large Taxpayers Audit and Investigation Division I
Group II
Head : Chief, Large Taxpayers Assistance Division (LTAD) II
Asst. Head : Chief, CONED – ISOS-DC
Members :
Representative of ISOS-DC
Representative of LTAD II
Representative of Large Taxpayers Audit and Investigation Division II
8.2 Large Taxpayers District Office (LTDO)
Head : Chief, LTDO Makati / Cebu
Asst. Head : Chief, CONED of the nearest RDC
(As designated by the DCIR – Information Systems Group)
Members :
Representative of the concerned RDC
Representative of Assessment Section of LTDO
Representative of Taxpayer of LTDO Service Section
8.3 Regional Office/Revenue District Office (RDO)
Head : Concerned Revenue District Officer
Asst. Head : Chief, CONED of the nearest (RDC)
(As designated by the DCIR – Information Systems Group)
Members :
Representative of the concerned RDC
Representative of Assessment Section of RDO
Representative of Taxpayer of RDO Service Section
8.4 An application for accreditation shall be processed by the NMAB / RMAB concerned only if all the documentary requirements to support the Application have been submitted or satisfactorily complied with.
8.5 Upon the favorable recommendation of the NMAB / RMAB concerned, the approval and signing of the “Accreditation of CRM/POS Machine” shall be the responsibility of:
a) The Chief, LTAD I and II / LTDOs, in the case of suppliers/distributors/dealers/vendors of machines who are Large Taxpayers;
b) The Revenue District Officer concerned, for distributors/dealers/vendors of machines who are regular taxpayers.
9.0 Registration of Cash Register and POS Machines
A manufacturer/dealer/vendor/distributor must register – on behalf of the buyer/user – the Cash Register/POS Machine (Annex B) to be sold / distributed, not later than five (5) days from the date of sale of the machine, and before it is actually used by the buyer/user.
Such registration shall be done manually with the RDO / LTAD I and II / LTDO, or electronically through the Bureau’s Electronic Mail (e-mail) or website. In registered the CRM/POS machine, the following information must be disclosed:
a. Taxpayer Identification Number (TIN) of the Buyer (12 Digits);
b. VAT or non-VAT number of the taxpayer-buyer;
c. Serial number, brand and model of the machine sold;
d. Present reading and date of reading;
If the application for Permit to Use CRM / POS Machines is filed through the Bureau’s email/website facilities, the applicant manufacturer/distributor/dealer/vendor will be issued a system-generated Permit, which may be print from the applicant’s computer.
The Permit shall then be forwarded to the buyer of the machine, and shall serve as the taxpayer’s authorization to use the machine. A Permit to Use must be securely attached to the back of the machine to which it refers, and must be conspicuously visible to the public. The serial number of the machine should also be printed in bold figures to facilitate verification.
Upon registration, an accreditation-registration number will be issued for the machine/software concerned. This number must be printed on the receipt/invoice pursuant to Section 6.0 hereof.
10.0 Conditions for the Use of CRM/POS Machines
The use by a Taxpayer of CRM/POS Machines shall be subject to the following conditions:
10.1 For users of Cash Register Machines:
10.1.1 A duly registered cash register sales book shall be maintained for each machine used, showing the columns required under Section 2.3 of RR No. 10-99.
10.1.2 No CRM be operated without the corresponding tapes installed on both rollers or its equivalent.
10.1.3 The imprint on the customers’ and audit journal tapes, or their equivalent, should be legible at all times, and preserved pursuant to Sections 203 and 222 of the NIRC, as amended.
10.1.4 The subsidiary cash register sales book shall be kept at all times at the place where the CRM is located, and shall be available at any time for verification by duly authorized internal revenue officers. All accounting records shall be preserved for a period within which the Commissioner is authorized to make an assessment and collection of the taxes so assessed as prescribed in Sections 203 and 222 of the NIRC, as amended. 10.1.5 Electronic CRMs must be equipped with non-volatile memory, or used with working recovery systems, at all times;
10.2 For users of POS Machines:
10.2.1 All users of POS Machines must secure approval from the Bureau – in writing – for the use of such machines, for the subsequent document range of serial numbers to be used at least one (1) month before the previously authorized document range numbers is consumed.
10.2.2 No POS Machine shall be operated without the corresponding electronic journal.
10.3 For users of BOTH CRM and POS Machines:
10.3.1 All number of resets must be duly recorded and reported to the Bureau as required under Paragraph 5.1.1, Subsection 5.1, Section 5.0 of these Regulations;
10.3.2 All machines shall not be switched to “training mode” or to “no-sale transaction mode”, or otherwise manipulated to impair / impede / suspend the recording of a sale transaction, unless the receipt/invoice clearly indicates the qualifier “THIS IS NOT AN OFFICIAL RECEIPT” as required under Paragraph 5.1.2, Subsection 5.1, Section 5.0 hereof ;
10.3.3 The concerned machine shall be used exclusively in the operation of only one line of business covered by the Permit to Use. If the enterprise is conducted simultaneously with another line of business for which no cash register permit has been issued, sales made in the latter line of business shall be covered with the corresponding issuance of registered sales invoices or receipts;
10.3.4 The machine user shall not change his business name or the use of the registered machine, or transfer to another business location, branch or establishment or otherwise, without prior written notice to the proper the Bureau office having jurisdiction over the principal place of business of the proprietor.
10.3.5 A machine user who has been issued a Permit to Use CRM / POS Machine shall not have the machine repaired, upgraded, changed, modified, updated, or otherwise removed from its specified location, without prior written notice to the proper Bureau office having jurisdiction over the principal place of business of the proprietor.
10.3.6 Following the repair, upgrade, change, modification, update or otherwise, and prior to the re-use of the concerned machine, the user and the person who made the repair / update / change / modification / update shall submit a joint sworn statement attesting to such development to the Chief, LTAD I or II / Chief, LTDO / RDO having jurisdiction over the concerned user (Annex B). The machine shall then be inspected and evaluated by the NMAB / concerned RMAB prior to its actual use.
10.3.7 Registered machines may be withdrawn from use, either by retirement or sale, only upon prior application of, and approval by, the Chief, LTAD I or II / Chief, LTDO / concerned RDO. Upon receipt of the application for withdrawal from use, the concerned Bureau office shall cause the immediate verification of said machine and the accounting records kept in connection therewith, to ensure that all the sales data registered in the machine up to the last day it was used are properly recorded for internal revenue purposes.
The approval for withdrawal shall show the following information as of the date of retirement or sale:
a) The reset counter number;
b) The accumulated grand total sales; and
c) The number of the last cash register receipt issued.
Upon issuance of the approval for withdrawal, the user shall submit the Permit to Use previously granted for the concerned machine, for immediate cancellation by the Bureau office concerned.
10.3.8 In no case shall a CRM or POS machine be used without the customer’s receipt clearly indicating all the data required under Section 6.0 of these Regulations, except in the case of machines where the user has been authorized by the Chief, LTAD I or II / Chief, LTDO / RDO concerned to use the same, pending the completion of the installation of the official receipt header, for a period not exceeding thirty (30) days from the date of such authority.
10.3.9 In order to maintain the consecutive sequence of the transaction numbers imprinted on the customer’s receipts and the audit journal tapes, the receipt numbering mechanism/circuit of a registered machine shall not be disturbed or tampered with. 11.0 Summary List of Machines Sold All machine distributor/dealer/vendor shall submit electronically (e-mail or Web) to the LTAD I or II / LTDO (for Large Taxpayers) or to the RDO concerned (for regular taxpayers), a Summary List of Machines Sold (Annex C), within fifteen (15) days from the end of each taxable quarter. The Summary List shall provide the following information:
a. Machine accreditation-registration number;
b. BIR Issued Provisional Permit Number;
c. Brand and Model of the machine;
d. Date of Sale;
e. Date of Registration;
f. Name and TIN VAT or non-VAT of the buyer-proprietor;
g. Kind/line of business and the address/branch where the machine is used;
h. Present reading and date of reading; and
i. Software used and customizations made thereto for POS machines.
Following submission to the appropriate Bureau office, the Summary List will be reconciled with the Registration Database of the Bureau. Any discrepancy thereof shall be subject to verification by the concerned Revenue District Officer.
12.0 Cash Register Machines Used for Internal Control
Any proprietor, owner or operator of a business establishment may use a cash register or POS machine of any type for "internal control purposes", Provided that, duly registered sales invoices or receipts are issued for every sale.
However, such proprietor, owner or operator shall first notify the machine distributor/dealer/vendor of his intention to use the machine solely for "internal control" purposes. The machine distributor/dealer/vendor shall likewise inform the appropriate Bureau office of such intention, and shall secure a poster from the said Office which shall be securely attached at the back of the machine conspicuous to the public, showing the following qualifier:
"WARNING — THIS MACHINE IS NOT AUTHORIZED TO ISSUE RECEIPT.
ASK FOR SALES INVOICE. REPORT ANY VIOLATION TO THE B.I.R.
COMMISSIONER OF INTERNAL REVENUE" (Annex "I")
At no time shall the poster be detached or covered from public view.
However, CRMs without a built-in receipt-dispensing mechanism or roller on which to mount the customers' roll may be used for internal control purposes without complying with the foregoing requirements.
13.0 Registration of Other Kinds/Types of Cash Register Machine and/or Inclusion of Other Lines of Business
A CRM with the built-in capacity to accumulate sales data of different lines of business may be authorized by the Commissioner to issue cash register receipts for all such different lines of business, Provided, however, that the distinction of sales by lines of business shall be clearly indicated on the machine paper tapes in words rather than in codes or symbols.
Applications for the use of a CRM for the aforestated purpose shall be filed by the machine distributor/dealer/vendor with the Chief, LTAD I or II / Chief, LTDO / Revenue District Officer having jurisdiction over his principal place of business.
The Chief, LTAD I or II / Chief, LTDO / Revenue District Officer concerned shall, in turn, cause the investigation of the veracity and merit of the applicant's representations on the built-in mechanisms and operating features of the machine, and on the necessity for its use on such other line or lines of business. A written report on such verification shall be submitted to the DCIR – Officer-in-Charge, Large Taxpayers Service, or to the Regional Director concerned, for further appropriate action.
13.1 Unmanned bill, coin or token-operated machines. – An unmanned machine capable of dispensing goods and services in exchange for bills, coins or tokens without the capacity for issuing cash register receipts must be registered in the same manner as provided in the foregoing provisions. Cash receipts of each machine must likewise be included in the Quarterly Summary List of Cash Receipts per Cash Register or POS machine (Annex C) prescribed under Section 6 hereof.
13.2 Taxi-Meters. – A separate Revenue Regulation shall be issued for the specification of qualified taxi meters. However, the procedure for accreditation and registration of CRM / POS machine/systems described herein shall likewise covers taxi-meters.
14.0 Transitory Provision All distributors/dealers/vendors selling business machines must submit to the Chief, LTAD I or II / Chief, LTDO / RDO concerned an inventory of machine stocks not compliant with the provisions of these Regulations, together with a time table indicating when these machine stocks will be consumed and when they will sell only those machines compliance with these Regulations.
While no penal sanctions are provided at this time, all suppliers are urged to immediately pull out of distribution/sale machines that do not comply with the provisions of these Regulations, and to warn buyers on the repercussion of using non-compliant machines.
15.0 Repealing Clause
All revenue regulations, circulars, orders or memoranda or portions thereof which are inconsistent herewith are hereby repealed or modified accordingly.
16.0 Effectivity
These Regulations shall take effect after fifteen (15) following publication in the newspaper of general circulation.
(Original Signed)
JUANITA D. AMATONG
Secretary of Finance
Recommending Approval:
(Original Signed)
GUILLERMO L. PARAYNO, JR.
Commissioner of Internal Revenue
REVENUE MEMORANDUM CIRCULAR NO. 72-2004
SUBJECT : Clarification of Issues on the Additional Transactions Subject to Creditable Withholding Tax under Revenue Regulations No. 17-2003 (RR 17-2003), as amended by RR 30-2003, RR 1-2004 and RR 3-2004
T O : All Withholding Agents, Internal Revenue Officers and Employees and Others Concerned
I. BASIS OF WITHHOLDING TAX
Q1. What shall be the basis of expanded withholding tax (EWT) or creditable withholding tax (CWT) on payments made to a Non-VAT registered supplier of goods or services?
A1. The basis shall be the gross billing.
Example of income payment to NON-VAT registered contractor:
Gross Billing on Services - P100,000.00
Less: 2% EWT x P100,000.00 - 2,000.00
Net amount due the payee - P 98,000.00
Q2. What shall be the basis of CWT to a VAT registered supplier of goods and services?
A2. The basis shall be the gross amount paid exclusive or net of VAT.
Example of income payment to VAT registered contractor:
Gross amount paid - P110,000.00
Less: 2% EWT (P110,000.00 x 10/11 x 2%) - 2,000.00
Amount due the payee - P108,000.00
Q3. What shall be the basis of EWT in case goods and services are not billed separately on purchases made by the Top 10,000 Private Corporations (TTC)/Government Office (GO)/Large Taxpayer (LT)?
A3. In cases where purchase of goods are separately billed from purchase of service, the applicable rate of 1% on goods and 2% on services shall be applied respectively. However, in case of failure to separately bill goods and services, the higher rate of 2% shall apply.
Q4. On rentals of personal property in excess of P10,000.00 per year under Section 2.57.2(C)(2) of RR 2-98 as amended by RR 17-2003, what will be the basis of the 5% EWT considering the following payments for taxable year 2003 and on what month will the payor withhold the tax?
June P 3,000.00
July 3,000.00
August 3,000.00
September 5,000.00
TOTAL P 14,000.00
A4. The basis of the 5% EWT shall be the total amount of P14,000.00 to be deducted from the September payment since it is the period when it exceeded the threshold of P10,000.00/annum. However, if the withholding agent reasonably expects that the annual rental will exceed P10,000.00, then it may start withholding on the first month in the above example (June). “Reasonably expects” is determined when it clearly shows in the documents like lease contract/agreement the amount to be received within a given period.
The basis of withholding as applied above shall also be applicable to other income payments with applicable threshold amount of income payments.
Q5. Could we consider a seller of goods or services as regular supplier if the amount per transaction is only P500.00 but has more than six (6) transactions in a taxable year?
A5. The term “regular suppliers” is defined as suppliers who are engaged in business or exercise of profession/calling with whom the taxpayer-buyer has transacted at least six (6) transactions, regardless of amount per transaction, either in the previous year or current year. The threshold amount of less than P10,000.00 applies only to a “single purchase”.
II. ON INCOME PAYMENTS TO MERALCO, COMMUNICATIONS AND OTHER UTILITY COMPANIES
Q6. Are payments to Meralco and telecommunications companies like PLDT, SMART, etc. considered payment for services and as such, subject to the 2% EWT if the payor is TTC/GO/LT?
A6. Payments to Meralco and telecommunications companies are considered payments for services and therefore subject to the 2% EWT if the payor is a TTC/GO/LT pursuant to Sections 2.57.2 (M) and (N) of RR 2-98, as amended.
Q7 For payments made to Meralco by TTC/GO/LT, what will be the tax base in the computation of the 2% EWT.
A7 It shall be the current amount due appearing in the billing statement.
Q8. Is the installation and removal cost of service application for temporary service, reimbursements made by the payor to Meralco for charges for relocation of poles and other electrical facilities, use of rubber hose for safety precaution and testing of meters considered as non-revenues subject to the 2% EWT?
A8. The payment made by the TTC/GO/LT to Meralco on installation and removal cost of service application for temporary service is subject to the 2% EWT. On the other hand, all amounts reimbursed by the payor to Meralco for relocation of poles and other electrical facilities are not subject to 2% EWT.
Q9. Is the payment to telecommunications companies by the TTC/GO/LT on overseas dispatch, message or conversation originating in the Philippines subject to the 2% EWT? What shall be the tax base?
A9. Yes. The tax base shall be the amount paid less the overseas communication tax.
Q10. Is the TTC/GO/LT-lessee required to withhold the 2% EWT on its payments to Meralco, PLDT and other utility companies which are coursed through the lessor, the electric meter being in the name of the lessor?
A10. Yes, the TTC/GO/LT-lessee shall withhold the 2% EWT whether or not the electric meter is in its name provided that valid proof that payment of a particular expense is being shouldered by the payor claiming the expense. The lessee shall present the contract of lease together with the photocopy of the notice from the BIR designating the corporation as one of the Top 10000 Private Corporations to Meralco, PLDT and other utility companies through the lessor and shall likewise issue the corresponding BIR Form No. 2307 in the name of the utility companies.
Q11. TTC/GO/LT failed to withhold tax on payments to Meralco, telecommunications companies, service providers, purchase of supplies or goods etc. as enumerated under RR 17-2003 from June, 2003 to present. May the TTC/GO/LT deduct the tax from the current billing of the said companies? Will the TTC/GO/LT be penalized for its failure to withhold for the months of June and July, 2003?
A11. No, withholding of the EWT shall be in the current month and may only be deducted in the billings for the current month. Penalties for failure to withhold the 2% EWT from prior periods shall be imposed on the payor-withholding agent but it may request for abatement of penalties under RR 13-2001 dated September 27, 2001.
III. ON INCOME PAYMENTS TO PROFESSIONALS/TALENTS ETC.
Q12. What are the prevailing withholding tax rates applicable to income payments made to professionals, talent, etc.?
A12. On gross professional, promotional and talent fees or any other form of remuneration for the services of professionals, talents, etc., the withholding tax shall be 15% if the gross income for the current year exceeds P720,000 and 10%, if otherwise. The income tax withheld are creditable against the income tax due computed at the end of the quarter or taxable year.
Q13. How will the withholding agent determine the applicable rate considering that he/it may not have knowledge of the gross earning of the payee from all sources?
A13. In order to determine the applicable rate of 10% or 15% to be applied by the withholding agent, every payee (professional/talent/corporate director/juridical person) shall periodically disclose his/its gross income for the current year to the BIR by submitting a NOTARIZED SWORN DECLARATION in three (3) copies {2copies for BIR and 1 copy for the taxpayer} to the Collection Division of the Regional Office/LTAD/LTDO where the income earner is registered. The disclosure should be filed on June 30 of each year or within 15 days after the end of the month the payee’s income reaches P720,000, whichever comes earlier. In case the total gross income is less than P720,000 as of June 30, he shall submit a second disclosure within 15 days after the end of the month when his gross income exceeded P720,000. Copies of the sworn declaration stamped “RECEIVED” by the BIR shall be furnished to each concerned withholding agent/payor.
Thus, for the period January1 to June 30, unless the payee has informed the payor/withholding agent through the sworn declaration that his gross income has exceeded P720,000, the applicable withholding tax rate is 10%. Starting July 1, if the payee fails to execute a sworn declaration or furnish a copy to the payor if one has been executed, the withholding tax shall be 15%.
In case the withholding agent has made accumulated payments within the year exceeding P720,000 to a particular payee, then subsequent payments by the payee shall be subjected to 15% even without the sworn declaration.
Q-14. Are honoraria paid to instructors of cooking lessons, martial arts and various sports and health activities subject to EWT?
A-14. Yes, they are considered talent fees subject to the 10% EWT if current annual income of the instructor is P720,000.00 and below and 15%, if otherwise.
IV. OTHER CLARIFICATION
Q15. Are payments for life and non-life insurance premium by the TTC/GO/LT to domestic/resident foreign insurance companies considered payment for services subject to the 2% EWT?
A15. Yes.
Q16. What will be the basis of the 2% EWT to be deducted on the premium for the insurance coverage of the vehicle sold to the customer of a TTC-automotive dealer to the Insurance Company considering the information on the insurance policy as follows:
Premium (CTPL, OD, TPPD, etc.) - P26,000.00
VAT - 2,600.00
Doc. Stamp Tax - 3,250.00
Local Tax - 130.00
Total amount per policy - P31,980.00
A16. The 2% EWT shall be computed based on the amount of premium paid, exclusive of the VAT and other taxes. Thus, P26,000.00 x 2% = P520.00.
Q17. Are insurance premiums paid through brokers/agents subject to the 2% EWT?
A17. Yes, premium payments to insurance companies through brokers or agents or any other person authorized to receive/collect payment on behalf of the insurance company shall be subject to the 2% EWT to be withheld by the payor or person having control over the payment. However, the payor is required to issue the corresponding certificate of taxes withheld (BIR Form No. 2307) in the name of the insurance company, not in the name of the insurance broker.
Q18. Is payment of interest on bank loans by the TTC/GO/LT and other fees paid to the bank subject to the 2% EWT?
A18. Yes. However, payment of interest to OBUs/FCDUs shall be subject to final withholding tax of 10%.
Q19. Is the payment of the principal and interest on loans, service fees and other charges considered as income extended by local banks, quasi-banks and other financial institutions to the TTC/GO/LT subject to the 2% EWT?
A19. Only the interest payments on loans, service fees and other charges considered as income are considered payment for services rendered, hence, subject to 2% EWT.
Payment corresponding to the principal amount is not subject to EWT.
Q20. If the payment for the purchase of goods or services to their regular suppliers by the TTC/GO/LT is through credit card or through company issued credit card to officers/ employees for purposes of reimbursements, will the TTC/GO/LT be required to withhold the tax when it presents the credit card to the supplier?
A20. The TTC/GO/LT is not required to withhold the tax upon presentation of the credit card to the supplier. The TTC/GO/LT, however, is required to withhold the 2% expanded withholding tax corresponding to the interest payment and/or service fee and other charges imposed by the credit card company. The credit card company, on the other hand, shall withhold 1% of 50% of the gross amount paid to any business entity pursuant to Section 2.57.2(L) of RR 2-98, as amended.
Q21. Is the payment by the TTC/GO/LT to their regular suppliers through employees/agents or any persons purchasing for or in its behalf representing reimbursable expenses by the payee subject to the EWT?
A21. Yes, the reimbursable expenses are subject to the EWT of 1% on goods or 2% on services provided that the sales invoice/official receipt shall be in the name of the persons whom the former represents and the corresponding certificate of taxes withheld at source (BIR Form No. 2307) is issued. It is reiterated that BIR Form No. 2307 shall only be issued by duly authorized representative of the employerwithholding agent.
Q22. Is the payment made by the TTC/GO/LT to a customs broker for arrastre, customs
duties, wharfage, documentation, handling fee and forwarders subject to the 2% EWT?
A22. Yes, it is subject to the 2% EWT. However, advance payment by the customs brokers for expenses such as arrastre, wharfage, documentation fee, etc. should not form part of the gross receipts if invoiced directly in the name of the broker’s client and if reimbursement to the broker is not invoiced with the broker’s VAT invoice/official receipt.
Q23. Is the payment for membership dues of the TTC/GO/LT to country clubs and/or sports club and the like considered service subject to the 2% EWT under RR 17-2003?
A23. Yes, membership fees are considered services subjected to the 2% EWT.
However, when the payee-club or organization is a non-stock, non-profit organization not subject to income tax, hence, payment is not subject to EWT upon presentation of proof of exemption issued by the BIR.
Q24. What will be the basis of the 2% EWT if the charges of hotel, motel, resort and similar establishments to TTC/GO/LT include room accommodation, food and beverage, laundry, business center charges, etc. including service charges?
A24. The basis shall be the gross billing exclusive or net of the VAT for VAT registered payees and gross billing for NON-VAT registered payees.
Q25. Are payments made by TTC/GO/LT for the purchase of movie and/or concert tickets subject to the 2% EWT?
A25. Yes, payment for movie/concert tickets are considered payment for services and therefore subject to 2% EWT.
Q26. Are the corporations previously belonging to the Top 5000 corporations still required to file the list of regular suppliers of goods? How about suppliers of services?
A26. Yes, former Top 5000 corporations are still required to submit the list of their regular suppliers of goods and services unless they have been informed by the BIR that they ceased to be included in the Top 10000 corporations. They are required to submit their 1st semester list on July 31 and 2nd semester on January 31 of the following year.
They shall continue to withhold 1% EWT for the purchase of goods and 2% for services unless informed otherwise.
Q27. Are services rendered by private hospitals and entities considered as government owned or controlled corporations (GOCC) subject to the 2% EWT if the payor is a TTC/GO/LT?
A27. Yes, since they are also engaged in the supply of services. Only GSIS, SSS, PHILHEALTH, PAGCOR & PCSO are exempted from income tax, and consequently from EWT.
Q28. Is payment by TTC/GO/LT for magazine/newspaper subscription subject to 1% EWT?
A28. Yes, it shall be considered purchase of goods subject to 1% EWT.
Q29. Is the amount paid to TV or radio stations by the TTC/GO/LT for airing commercials and payment made directly to newspaper publishers for print advertisements subject to the 2% EWT?
A29. Yes, they are considered suppliers of service and therefore subject to 2% EWT.
Q30. Is the payment made by an advertising agency for the print advertisement of TTC/GO/LT to newspaper publishers (Manila Bulletin, Manila Times, etc.) subject to EWT?
A30. The payment made by the advertising agency for the print advertisement of TTC/GO/LT to the newspaper publisher is subject to the 2% EWT provided that the advertising agency is a TTC/LT.
Q31. Is the payment made to Health Maintenance Organizations (HMOs) by TTC/GO/LT subject to EWT?
A31. Yes, the payment is subject to 2% EWT.
Q32. Are payments made by TTC/GO/LT to cooperatives for the purchase of goods and/or services subject to EWT?
A32. Yes, except when they can show proof of exemption from income tax issued by the BIR.
Q33. Are payments made to companies registered with PEZA/BOI for the purchase of goods or services subject to EWT?
A33. Yes. However, payments to PEZA/BOI registered companies which are exempt from income tax shall not be subjected to EWT pursuant to Section 2.57.5 of RR 2-98, as amended, upon presentation of proof of exemption issued by the BIR.
Q34. Are payments made to embassies for visa fees/services subject to EWT?
A34. No.
Q35. Is the payment by a TTC-bank to the Car or Automotive Dealer representing a certain percentage of the cost of the vehicle bought by a customer through financing subject to EWT? What is the rate?
A35. The payment shall be considered purchase of goods (vehicle) and shall be subject to 1% EWT.
Q36. Is the amount paid by a TTC/GO/LT to the automotive dealer representing the entire amount of a car availed of by an employee through a company car plan subject to EWT if the car will be registered with Land Transportation Office (LTO) under the name of the employee?
A36. Yes, the amount paid by the TTC/GO/LT to the automotive dealer is subject to 1% EWT.
Q37. For those availing of EFPS, what shall be the deadlines for filing of returns and remittance of taxes withheld?
A37. The date of filing of withholding tax returns shall be in accordance with the deadlines set in RR 26-2002 while the remittance of taxes withheld shall be five (5) days later than the deadlines set for taxpayer/withholding agents not availing of the EFPS.
All internal revenue officers and employees are hereby enjoined to give this Circular as wide a publicity as possible.
(Original Signed)
GUILLERMO L. PARAYNO, JR.
Commissioner of Internal Revenue
J-2
Mag/jnb
T O : All Withholding Agents, Internal Revenue Officers and Employees and Others Concerned
I. BASIS OF WITHHOLDING TAX
Q1. What shall be the basis of expanded withholding tax (EWT) or creditable withholding tax (CWT) on payments made to a Non-VAT registered supplier of goods or services?
A1. The basis shall be the gross billing.
Example of income payment to NON-VAT registered contractor:
Gross Billing on Services - P100,000.00
Less: 2% EWT x P100,000.00 - 2,000.00
Net amount due the payee - P 98,000.00
Q2. What shall be the basis of CWT to a VAT registered supplier of goods and services?
A2. The basis shall be the gross amount paid exclusive or net of VAT.
Example of income payment to VAT registered contractor:
Gross amount paid - P110,000.00
Less: 2% EWT (P110,000.00 x 10/11 x 2%) - 2,000.00
Amount due the payee - P108,000.00
Q3. What shall be the basis of EWT in case goods and services are not billed separately on purchases made by the Top 10,000 Private Corporations (TTC)/Government Office (GO)/Large Taxpayer (LT)?
A3. In cases where purchase of goods are separately billed from purchase of service, the applicable rate of 1% on goods and 2% on services shall be applied respectively. However, in case of failure to separately bill goods and services, the higher rate of 2% shall apply.
Q4. On rentals of personal property in excess of P10,000.00 per year under Section 2.57.2(C)(2) of RR 2-98 as amended by RR 17-2003, what will be the basis of the 5% EWT considering the following payments for taxable year 2003 and on what month will the payor withhold the tax?
June P 3,000.00
July 3,000.00
August 3,000.00
September 5,000.00
TOTAL P 14,000.00
A4. The basis of the 5% EWT shall be the total amount of P14,000.00 to be deducted from the September payment since it is the period when it exceeded the threshold of P10,000.00/annum. However, if the withholding agent reasonably expects that the annual rental will exceed P10,000.00, then it may start withholding on the first month in the above example (June). “Reasonably expects” is determined when it clearly shows in the documents like lease contract/agreement the amount to be received within a given period.
The basis of withholding as applied above shall also be applicable to other income payments with applicable threshold amount of income payments.
Q5. Could we consider a seller of goods or services as regular supplier if the amount per transaction is only P500.00 but has more than six (6) transactions in a taxable year?
A5. The term “regular suppliers” is defined as suppliers who are engaged in business or exercise of profession/calling with whom the taxpayer-buyer has transacted at least six (6) transactions, regardless of amount per transaction, either in the previous year or current year. The threshold amount of less than P10,000.00 applies only to a “single purchase”.
II. ON INCOME PAYMENTS TO MERALCO, COMMUNICATIONS AND OTHER UTILITY COMPANIES
Q6. Are payments to Meralco and telecommunications companies like PLDT, SMART, etc. considered payment for services and as such, subject to the 2% EWT if the payor is TTC/GO/LT?
A6. Payments to Meralco and telecommunications companies are considered payments for services and therefore subject to the 2% EWT if the payor is a TTC/GO/LT pursuant to Sections 2.57.2 (M) and (N) of RR 2-98, as amended.
Q7 For payments made to Meralco by TTC/GO/LT, what will be the tax base in the computation of the 2% EWT.
A7 It shall be the current amount due appearing in the billing statement.
Q8. Is the installation and removal cost of service application for temporary service, reimbursements made by the payor to Meralco for charges for relocation of poles and other electrical facilities, use of rubber hose for safety precaution and testing of meters considered as non-revenues subject to the 2% EWT?
A8. The payment made by the TTC/GO/LT to Meralco on installation and removal cost of service application for temporary service is subject to the 2% EWT. On the other hand, all amounts reimbursed by the payor to Meralco for relocation of poles and other electrical facilities are not subject to 2% EWT.
Q9. Is the payment to telecommunications companies by the TTC/GO/LT on overseas dispatch, message or conversation originating in the Philippines subject to the 2% EWT? What shall be the tax base?
A9. Yes. The tax base shall be the amount paid less the overseas communication tax.
Q10. Is the TTC/GO/LT-lessee required to withhold the 2% EWT on its payments to Meralco, PLDT and other utility companies which are coursed through the lessor, the electric meter being in the name of the lessor?
A10. Yes, the TTC/GO/LT-lessee shall withhold the 2% EWT whether or not the electric meter is in its name provided that valid proof that payment of a particular expense is being shouldered by the payor claiming the expense. The lessee shall present the contract of lease together with the photocopy of the notice from the BIR designating the corporation as one of the Top 10000 Private Corporations to Meralco, PLDT and other utility companies through the lessor and shall likewise issue the corresponding BIR Form No. 2307 in the name of the utility companies.
Q11. TTC/GO/LT failed to withhold tax on payments to Meralco, telecommunications companies, service providers, purchase of supplies or goods etc. as enumerated under RR 17-2003 from June, 2003 to present. May the TTC/GO/LT deduct the tax from the current billing of the said companies? Will the TTC/GO/LT be penalized for its failure to withhold for the months of June and July, 2003?
A11. No, withholding of the EWT shall be in the current month and may only be deducted in the billings for the current month. Penalties for failure to withhold the 2% EWT from prior periods shall be imposed on the payor-withholding agent but it may request for abatement of penalties under RR 13-2001 dated September 27, 2001.
III. ON INCOME PAYMENTS TO PROFESSIONALS/TALENTS ETC.
Q12. What are the prevailing withholding tax rates applicable to income payments made to professionals, talent, etc.?
A12. On gross professional, promotional and talent fees or any other form of remuneration for the services of professionals, talents, etc., the withholding tax shall be 15% if the gross income for the current year exceeds P720,000 and 10%, if otherwise. The income tax withheld are creditable against the income tax due computed at the end of the quarter or taxable year.
Q13. How will the withholding agent determine the applicable rate considering that he/it may not have knowledge of the gross earning of the payee from all sources?
A13. In order to determine the applicable rate of 10% or 15% to be applied by the withholding agent, every payee (professional/talent/corporate director/juridical person) shall periodically disclose his/its gross income for the current year to the BIR by submitting a NOTARIZED SWORN DECLARATION in three (3) copies {2copies for BIR and 1 copy for the taxpayer} to the Collection Division of the Regional Office/LTAD/LTDO where the income earner is registered. The disclosure should be filed on June 30 of each year or within 15 days after the end of the month the payee’s income reaches P720,000, whichever comes earlier. In case the total gross income is less than P720,000 as of June 30, he shall submit a second disclosure within 15 days after the end of the month when his gross income exceeded P720,000. Copies of the sworn declaration stamped “RECEIVED” by the BIR shall be furnished to each concerned withholding agent/payor.
Thus, for the period January1 to June 30, unless the payee has informed the payor/withholding agent through the sworn declaration that his gross income has exceeded P720,000, the applicable withholding tax rate is 10%. Starting July 1, if the payee fails to execute a sworn declaration or furnish a copy to the payor if one has been executed, the withholding tax shall be 15%.
In case the withholding agent has made accumulated payments within the year exceeding P720,000 to a particular payee, then subsequent payments by the payee shall be subjected to 15% even without the sworn declaration.
Q-14. Are honoraria paid to instructors of cooking lessons, martial arts and various sports and health activities subject to EWT?
A-14. Yes, they are considered talent fees subject to the 10% EWT if current annual income of the instructor is P720,000.00 and below and 15%, if otherwise.
IV. OTHER CLARIFICATION
Q15. Are payments for life and non-life insurance premium by the TTC/GO/LT to domestic/resident foreign insurance companies considered payment for services subject to the 2% EWT?
A15. Yes.
Q16. What will be the basis of the 2% EWT to be deducted on the premium for the insurance coverage of the vehicle sold to the customer of a TTC-automotive dealer to the Insurance Company considering the information on the insurance policy as follows:
Premium (CTPL, OD, TPPD, etc.) - P26,000.00
VAT - 2,600.00
Doc. Stamp Tax - 3,250.00
Local Tax - 130.00
Total amount per policy - P31,980.00
A16. The 2% EWT shall be computed based on the amount of premium paid, exclusive of the VAT and other taxes. Thus, P26,000.00 x 2% = P520.00.
Q17. Are insurance premiums paid through brokers/agents subject to the 2% EWT?
A17. Yes, premium payments to insurance companies through brokers or agents or any other person authorized to receive/collect payment on behalf of the insurance company shall be subject to the 2% EWT to be withheld by the payor or person having control over the payment. However, the payor is required to issue the corresponding certificate of taxes withheld (BIR Form No. 2307) in the name of the insurance company, not in the name of the insurance broker.
Q18. Is payment of interest on bank loans by the TTC/GO/LT and other fees paid to the bank subject to the 2% EWT?
A18. Yes. However, payment of interest to OBUs/FCDUs shall be subject to final withholding tax of 10%.
Q19. Is the payment of the principal and interest on loans, service fees and other charges considered as income extended by local banks, quasi-banks and other financial institutions to the TTC/GO/LT subject to the 2% EWT?
A19. Only the interest payments on loans, service fees and other charges considered as income are considered payment for services rendered, hence, subject to 2% EWT.
Payment corresponding to the principal amount is not subject to EWT.
Q20. If the payment for the purchase of goods or services to their regular suppliers by the TTC/GO/LT is through credit card or through company issued credit card to officers/ employees for purposes of reimbursements, will the TTC/GO/LT be required to withhold the tax when it presents the credit card to the supplier?
A20. The TTC/GO/LT is not required to withhold the tax upon presentation of the credit card to the supplier. The TTC/GO/LT, however, is required to withhold the 2% expanded withholding tax corresponding to the interest payment and/or service fee and other charges imposed by the credit card company. The credit card company, on the other hand, shall withhold 1% of 50% of the gross amount paid to any business entity pursuant to Section 2.57.2(L) of RR 2-98, as amended.
Q21. Is the payment by the TTC/GO/LT to their regular suppliers through employees/agents or any persons purchasing for or in its behalf representing reimbursable expenses by the payee subject to the EWT?
A21. Yes, the reimbursable expenses are subject to the EWT of 1% on goods or 2% on services provided that the sales invoice/official receipt shall be in the name of the persons whom the former represents and the corresponding certificate of taxes withheld at source (BIR Form No. 2307) is issued. It is reiterated that BIR Form No. 2307 shall only be issued by duly authorized representative of the employerwithholding agent.
Q22. Is the payment made by the TTC/GO/LT to a customs broker for arrastre, customs
duties, wharfage, documentation, handling fee and forwarders subject to the 2% EWT?
A22. Yes, it is subject to the 2% EWT. However, advance payment by the customs brokers for expenses such as arrastre, wharfage, documentation fee, etc. should not form part of the gross receipts if invoiced directly in the name of the broker’s client and if reimbursement to the broker is not invoiced with the broker’s VAT invoice/official receipt.
Q23. Is the payment for membership dues of the TTC/GO/LT to country clubs and/or sports club and the like considered service subject to the 2% EWT under RR 17-2003?
A23. Yes, membership fees are considered services subjected to the 2% EWT.
However, when the payee-club or organization is a non-stock, non-profit organization not subject to income tax, hence, payment is not subject to EWT upon presentation of proof of exemption issued by the BIR.
Q24. What will be the basis of the 2% EWT if the charges of hotel, motel, resort and similar establishments to TTC/GO/LT include room accommodation, food and beverage, laundry, business center charges, etc. including service charges?
A24. The basis shall be the gross billing exclusive or net of the VAT for VAT registered payees and gross billing for NON-VAT registered payees.
Q25. Are payments made by TTC/GO/LT for the purchase of movie and/or concert tickets subject to the 2% EWT?
A25. Yes, payment for movie/concert tickets are considered payment for services and therefore subject to 2% EWT.
Q26. Are the corporations previously belonging to the Top 5000 corporations still required to file the list of regular suppliers of goods? How about suppliers of services?
A26. Yes, former Top 5000 corporations are still required to submit the list of their regular suppliers of goods and services unless they have been informed by the BIR that they ceased to be included in the Top 10000 corporations. They are required to submit their 1st semester list on July 31 and 2nd semester on January 31 of the following year.
They shall continue to withhold 1% EWT for the purchase of goods and 2% for services unless informed otherwise.
Q27. Are services rendered by private hospitals and entities considered as government owned or controlled corporations (GOCC) subject to the 2% EWT if the payor is a TTC/GO/LT?
A27. Yes, since they are also engaged in the supply of services. Only GSIS, SSS, PHILHEALTH, PAGCOR & PCSO are exempted from income tax, and consequently from EWT.
Q28. Is payment by TTC/GO/LT for magazine/newspaper subscription subject to 1% EWT?
A28. Yes, it shall be considered purchase of goods subject to 1% EWT.
Q29. Is the amount paid to TV or radio stations by the TTC/GO/LT for airing commercials and payment made directly to newspaper publishers for print advertisements subject to the 2% EWT?
A29. Yes, they are considered suppliers of service and therefore subject to 2% EWT.
Q30. Is the payment made by an advertising agency for the print advertisement of TTC/GO/LT to newspaper publishers (Manila Bulletin, Manila Times, etc.) subject to EWT?
A30. The payment made by the advertising agency for the print advertisement of TTC/GO/LT to the newspaper publisher is subject to the 2% EWT provided that the advertising agency is a TTC/LT.
Q31. Is the payment made to Health Maintenance Organizations (HMOs) by TTC/GO/LT subject to EWT?
A31. Yes, the payment is subject to 2% EWT.
Q32. Are payments made by TTC/GO/LT to cooperatives for the purchase of goods and/or services subject to EWT?
A32. Yes, except when they can show proof of exemption from income tax issued by the BIR.
Q33. Are payments made to companies registered with PEZA/BOI for the purchase of goods or services subject to EWT?
A33. Yes. However, payments to PEZA/BOI registered companies which are exempt from income tax shall not be subjected to EWT pursuant to Section 2.57.5 of RR 2-98, as amended, upon presentation of proof of exemption issued by the BIR.
Q34. Are payments made to embassies for visa fees/services subject to EWT?
A34. No.
Q35. Is the payment by a TTC-bank to the Car or Automotive Dealer representing a certain percentage of the cost of the vehicle bought by a customer through financing subject to EWT? What is the rate?
A35. The payment shall be considered purchase of goods (vehicle) and shall be subject to 1% EWT.
Q36. Is the amount paid by a TTC/GO/LT to the automotive dealer representing the entire amount of a car availed of by an employee through a company car plan subject to EWT if the car will be registered with Land Transportation Office (LTO) under the name of the employee?
A36. Yes, the amount paid by the TTC/GO/LT to the automotive dealer is subject to 1% EWT.
Q37. For those availing of EFPS, what shall be the deadlines for filing of returns and remittance of taxes withheld?
A37. The date of filing of withholding tax returns shall be in accordance with the deadlines set in RR 26-2002 while the remittance of taxes withheld shall be five (5) days later than the deadlines set for taxpayer/withholding agents not availing of the EFPS.
All internal revenue officers and employees are hereby enjoined to give this Circular as wide a publicity as possible.
(Original Signed)
GUILLERMO L. PARAYNO, JR.
Commissioner of Internal Revenue
J-2
Mag/jnb
REVENUE MEMORANDUM CIRCULAR NO. 60 - 2004
SUBJECT : Clarification regarding the withholding of creditable value-added tax by government offices for purchases of P1,000.00 and below.
T O : All Internal Revenue Officers and Employees and Others Concerned.
___________________________________________________________________________
This circular is issued to clarify the withholding of creditable value-added tax withheld by government offices (GVAT) on purchase of goods and services amounting to P1,000.00 and below due to numerous queries from Regional/District Offices and taxpayers.
For the information and guidance of all internal revenue officers and employees, quoted hereunder are pertinent provisions of Revenue Regulations No. 2-98 requiring government offices to withhold value-added tax on payments to VAT registered suppliers of goods or services, viz:
“Sec. 4.114 WITHHOLDING OF CREDITABLE VALUE-ADDED TAX
x x x
(A) Rates and basis of creditable value-added tax to be withheld. - The gross payments made by the government to the sellers of goods and services shall be subject to withholding tax at the rates herein prescribed:
(1) In general, payments by the government or any of its political subdivisions, instrumentalities or agencies including government-owned or controlled corporations (GOCCs) on account of its purchase of goods from sellers and services rendered by contractors who are subject tot he value-added tax - On gross payment for the purchase of goods - 3%
On gross payment for services rendered - 6%
(2) Payments made to government public works contractors - 8.5%
(3) Payments for lease or use of property or property rights to non-resident owners - 10%
x x x”
The above provisions shall prevail since RR 2-98 was issued later and therefore all payments made by government offices, regardless of amount, shall be subject to the appropriate rate of withholding tax on VAT. Thus, the last sentence of Section 4.110-3 of RR 7-95 as amended by RR 6-97 exempting from withholding of value-added tax payment of P1,000.00 and below to VAT suppliers/payees shall no longer be applicable and are deemed revoked.
All internal revenue officials and employees are enjoined to give this Circular as wide a publicity as possible.
(Original Signed)
GUILLERMO L. PARAYNO, JR.
Commissioner of Internal Revenue
J-2
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#1732
T O : All Internal Revenue Officers and Employees and Others Concerned.
___________________________________________________________________________
This circular is issued to clarify the withholding of creditable value-added tax withheld by government offices (GVAT) on purchase of goods and services amounting to P1,000.00 and below due to numerous queries from Regional/District Offices and taxpayers.
For the information and guidance of all internal revenue officers and employees, quoted hereunder are pertinent provisions of Revenue Regulations No. 2-98 requiring government offices to withhold value-added tax on payments to VAT registered suppliers of goods or services, viz:
“Sec. 4.114 WITHHOLDING OF CREDITABLE VALUE-ADDED TAX
x x x
(A) Rates and basis of creditable value-added tax to be withheld. - The gross payments made by the government to the sellers of goods and services shall be subject to withholding tax at the rates herein prescribed:
(1) In general, payments by the government or any of its political subdivisions, instrumentalities or agencies including government-owned or controlled corporations (GOCCs) on account of its purchase of goods from sellers and services rendered by contractors who are subject tot he value-added tax - On gross payment for the purchase of goods - 3%
On gross payment for services rendered - 6%
(2) Payments made to government public works contractors - 8.5%
(3) Payments for lease or use of property or property rights to non-resident owners - 10%
x x x”
The above provisions shall prevail since RR 2-98 was issued later and therefore all payments made by government offices, regardless of amount, shall be subject to the appropriate rate of withholding tax on VAT. Thus, the last sentence of Section 4.110-3 of RR 7-95 as amended by RR 6-97 exempting from withholding of value-added tax payment of P1,000.00 and below to VAT suppliers/payees shall no longer be applicable and are deemed revoked.
All internal revenue officials and employees are enjoined to give this Circular as wide a publicity as possible.
(Original Signed)
GUILLERMO L. PARAYNO, JR.
Commissioner of Internal Revenue
J-2
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#1732
REVENUE REGULATIONS NO. 8-2004
SUBJECT : Revenue Regulations Implementing Sections 7( c), 204 (A) and 290 of the National Internal Revenue Code of 1997 on Compromise Settlement of Internal Revenue Tax Liabilities Superseding Revenue Regulations Nos. 7-2001 and 30-2002.
TO : All Internal Revenue Officers and Others Concerned.
SECTION 1. SCOPE AND OBJECTIVES. – Pursuant to Section 244 of the National Internal Revenue Code of 1997 (Code), these Regulations are hereby promulgated for the purpose of implementing Sections 7 ( c ), 204 (A) and 290 of the same Code, superseding Revenue Regulations (RR) Nos. 7-2001 and 30-2002 and giving an authority to the Commissioner of Internal Revenue to compromise the payment of internal revenue tax liabilities of certain taxpayers with outstanding receivable accounts and disputed assessments with the Bureau of Internal Revenue and the Courts.
SECTION 2. BASIS FOR ACCEPTANCE OF COMPROMISE
SETTLEMENT. Sec. 3 of Revenue Regulations No. 30-2002 is hereby amended to read as follows:
“SEC. 3. BASIS FOR ACCEPTANCE OF COMPROMISE SETTLEMENT.
– The Commissioner may compromise the payment of any internal revenue tax on the following grounds:
1. Doubtful validity of the assessment. – X X X
( a ) X X X
( b ) X X X
( c) X X X
(d) X X X
(e) X X X
(f) X X X
(g) X X X
(h) The assessment was issued within the prescriptive period for assessment as extended by the taxpayer’s execution of Waiver of the Statute of Limitations the validity or authenticity of which is being questioned or at issue and there is strong reason to believe and evidence to prove that it is not authentic; or
(i) The assessment is based on an issue where a court of competent jurisdiction made an adverse decision against the Bureau, but for which the Supreme Court has not decided upon with finality.
2. X X X .”
SECTION 3. REPEALING CLAUSE.- These Regulations supersede Revenue Regulations Nos. 7-2001 and 30-2002. All other issuances inconsistent with the provisions of these Regulations are hereby amended, modified or repealed accordingly.
SECTION 4. EFFECTIVITY. – The provisions of these Regulations shall take effect after fifteen (15) days following publication in any newspaper of general circulation except for cases the compromise of which have been confirmed by the Secretary of Finance in which case these Regulations shall take effect immediately upon publication.
(Original Signed)
JUANITA D. AMATONG
Secretary of Finance
Recommending Approval:
(Original Signed)
GUILLERMO L. PARAYNO, JR.
Commissioner of Internal Revenue
TO : All Internal Revenue Officers and Others Concerned.
SECTION 1. SCOPE AND OBJECTIVES. – Pursuant to Section 244 of the National Internal Revenue Code of 1997 (Code), these Regulations are hereby promulgated for the purpose of implementing Sections 7 ( c ), 204 (A) and 290 of the same Code, superseding Revenue Regulations (RR) Nos. 7-2001 and 30-2002 and giving an authority to the Commissioner of Internal Revenue to compromise the payment of internal revenue tax liabilities of certain taxpayers with outstanding receivable accounts and disputed assessments with the Bureau of Internal Revenue and the Courts.
SECTION 2. BASIS FOR ACCEPTANCE OF COMPROMISE
SETTLEMENT. Sec. 3 of Revenue Regulations No. 30-2002 is hereby amended to read as follows:
“SEC. 3. BASIS FOR ACCEPTANCE OF COMPROMISE SETTLEMENT.
– The Commissioner may compromise the payment of any internal revenue tax on the following grounds:
1. Doubtful validity of the assessment. – X X X
( a ) X X X
( b ) X X X
( c) X X X
(d) X X X
(e) X X X
(f) X X X
(g) X X X
(h) The assessment was issued within the prescriptive period for assessment as extended by the taxpayer’s execution of Waiver of the Statute of Limitations the validity or authenticity of which is being questioned or at issue and there is strong reason to believe and evidence to prove that it is not authentic; or
(i) The assessment is based on an issue where a court of competent jurisdiction made an adverse decision against the Bureau, but for which the Supreme Court has not decided upon with finality.
2. X X X .”
SECTION 3. REPEALING CLAUSE.- These Regulations supersede Revenue Regulations Nos. 7-2001 and 30-2002. All other issuances inconsistent with the provisions of these Regulations are hereby amended, modified or repealed accordingly.
SECTION 4. EFFECTIVITY. – The provisions of these Regulations shall take effect after fifteen (15) days following publication in any newspaper of general circulation except for cases the compromise of which have been confirmed by the Secretary of Finance in which case these Regulations shall take effect immediately upon publication.
(Original Signed)
JUANITA D. AMATONG
Secretary of Finance
Recommending Approval:
(Original Signed)
GUILLERMO L. PARAYNO, JR.
Commissioner of Internal Revenue
REVENUE REGULATIONS NO. 5-2004
NOTE: Amended in RR 10-2007
SUBJECT : Amending Further Revenue Regulations (RR) No. 9-2001, as Amended by RR No. 2-2002, RR No. 9-2002 and RR No. 26-2002, Providing for Additional Tax Returns/Forms Which Shall be Filed thru the Electronic Filing and Payment System (EFPS), Revising the Requirements for Enrollment of Taxpayers, and Expanding the Coverage Thereof to Include the Top 10,000 Private Corporations Duly Identified Under RR No. 17-2003.
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 (Code), in relation to Section 27 of Republic Act No. 8792, otherwise known as the “Electronic Commerce Act”, these Regulations are hereby promulgated to amend Sections 2, 3, 4 and 7 of RR No. 9-2001, as last amended by RR No. 26-2002, by providing for additional tax returns/forms and the manner of filing thereof, revising the requirements for enrollment and expanding the coverage of taxpayers who shall file and/or pay through the EFPS.
SEC. 2. ADDITIONAL RETURNS/FORMS WHICH SHALL BE FILED THRU EFPS. - Item 2.12 of Section 2 of RR No. 9-2001, as amended, pertaining to the returns/forms which shall be filed thru the EFPS is hereby further amended to read as follows:
“2.12 Return – refers to any of the following electronic returns/forms produced
by EFPS:
a. xxx xxx xxx
xxx xxx xxx
xxx xxx xxx
m. xxx xxx xxx
n. 2551 M - Monthly Percentage Tax;
o. 0605 - Payment Form;
p. 1600 - Monthly Remittance Return of Value-Added Tax and Other Percentage Taxes Withheld;
q. 1600WP- Remittance Return of Percentage Tax on Winnings and Prizes Withheld by Race Tracks Operators;
r. 1601F - Monthly Remittance Return of Final Income Tax Withheld;
s. 1604CF- Annual Information Return of Income Taxes Withheld on Compensation and Final Withholding Taxes;
t. 1604E - Annual Information Return of Creditable Income Taxes Withheld (Expanded)/ Income Payments Exempt from Withholding Tax;
u. 1701 - Annual Income Tax Return for Self-Employed Individuals, Estates, and Trusts (Including those with both business and Compensation and Income);
v. 1701 Q - Quarterly Income Tax Return for Self-Employed Individuals, Estates, and Trusts (Including those with both Business and Compensation and Income);
w. 1704 - Improperly Accumulated Earnings Tax Return;
x. 2000 - Documentary Stamp Tax Declaration/Return;
y. 2200AN- Excise Tax Return for Automobiles and Non-Essential Goods;
z. 2200M - Excise Tax Return for Mineral Products; and
aa. 2552 - Percentage Tax Return (for stock transactions).
In determining a taxpayer’s compliance with a particular tax liability, it is the information in the return, and not the form of such return, that governs.
All BIR-prescribed tax returns may be filed electronically or manually upon the discretion of the Commissioner of Internal Revenue (CIR) except for returns of the large taxpayers being handled by the Large Taxpayers Service which shall be filed electronically. The CIR may, through a circular, mandate the returns that shall be filed electronically by non-large taxpayers taking into consideration the capability of the computer infrastructure of the BIR, and provided further, that the requirements of (a) Section 27 of Republic Act No. 8792, including any amendments that may be enacted thereon, and (b) any other law relating to electronic filing, creation and retention of documents used or to be used in transactions with government, are fully complied with.”
SEC. 3. COVERAGE. – SEC. 3.2 of RR No. 9-2001, as amended, is hereby further amended to read as follows:
”Section 3. – COVERAGE.-
xxx xxx xxx
3.2 Non-large taxpayers. – The following Non-Large Taxpayers including their branches located in the computerized revenue district offices shall file their returns and pay their taxes thru EFPS, to wit:
3.2.1 The volunteering two hundred (200) or more Non-Large Taxpayers previously identified by the BIR to have availed of the option to file their returns under EFPS shall nevertheless continue to file their returns under such method. However, upon their receipt of a notification letter duly signed by the Commissioner of Internal Revenue, it becomes mandatory for them, including their branches located in the computerized revenue district offices, to file their returns and pay their taxes thru EFPS.
3.2.2 The top 10,000 private corporations duly identified under RR No. 17-2003 shall make use of the EFPS in filing their returns and in paying their taxes due thereon, provided, they shall be duly notified in writing by the Commissioner that they are already covered by these Regulations. Thus, for purposes of this sub-section, the term “top 10,000 private corporations” shall refer to taxpayers duly identified and notified by the Commissioner as included in such group under RR No. 17-2003. Returns of non-large taxpayers shall include those of their branches, provided, they are located in the computerized revenue district offices. The provisions hereof shall apply to returns to be filed starting July 1, 2004.
3.3 Other Taxpayers-
xxx xxx xxx”
SEC. 4. REQUIREMENTS FOR EFPS ENROLLMENT. – Section 4 of RR No. 9-2001, as amended, is hereby further amended to read as follows:
“Section 4. ENROLLMENT FOR SYSTEM USAGE. – Identified taxpayers that would like to avail of the EFPS and/or required to file certain tax returns via the EFPS shall enroll in the EFPS in accordance with the provisions of the applicable regulations, circulars and orders. For juridical entities or artificial persons, enrollment shall be made by the officers required by law to file returns. Thus, for domestic corporations, it shall either be the President, the Vice-president or other principal officers; for partnerships, the managing partner; for joint ventures, the managing head; and for resident foreign corporations, the country manager.
In addition, a taxpayer that will e-pay shall enroll with any EFPS AAB where he/it intends to pay through the bank debit system. However, Large Taxpayer’s enrollment shall be limited only to the EFPS AABs authorized to serve them and who are capable to accept e-payments.
Taxpayers required by these regulations to avail of the EFPS shall adhere to the requirements of RMC No. 24-2001, including future updates thereof or amendments thereto.
SEC. 5. FILING OF RETURNS. – Section 7 of RR No. 9-2001, as amended, is hereby further amended to read as follows:
“Section 7. TIME OF FILING OF RETURNS - For purposes of filing of returns under the EFPS, the taxpayers classified under the following business industries shall be required to file the Monthly Withholding Tax Returns, except withholding of Value Added Tax; Monthly VAT Declarations; and Monthly Percentage Tax Returns, on or before the dates prescribed and presented herein below:
xxx xxx xxx
It is reiterated and clarified, that the return for withholding of Value-added Tax and Other Percentage Taxes (BIR Form 1600) shall be filed on or before the tenth (10th) day of the following month, which is likewise the due date for the payment of this type of withholding tax. The filing of the Monthly Remittance Return of Final Income Tax Withheld (BIR Form 1601-F) which has been newly added as among the returns that may be filed under the EFPS shall follow the staggered due dates provided in the above table.
For all the other additional returns/forms included in the EFPS as enumerated in Sec. 2 hereof, the filing of the returns/forms shall be on or before the due dates provided for by applicable laws and regulations for the filing of a return/form and payment of the corresponding tax.
Non-large taxpayers shall have the option to file a consolidated return in the head office following the procedures in RR No. 1-98 or to file returns on a per branch/facility basis. Provided, however, that they shall update first their registration with the affected/concerned revenue district offices by filing BIR Registration Update Form (BIR Form 1905) before they change their manner of filing returns.
To erase any doubt and to ensure receipt by the BIR before midnight of the due dates prescribed above for the filing of a return, the electronic return shall be filed on or before 10:00 p.m. of the above prescribed due dates.
For the electronic payment of tax for the returns required to be filed earlier under the staggered filing system, the taxpayer upon e-filing shall, still using the facilities of Electronic Filing and Payment System (EFPS), likewise give instruction to the Authorized Agent Bank to debit its account for the amount of tax on or before the due date for payment thereof as prescribed under the prevailing/applicable laws/regulations.
For purposes of these regulations, the industry of the taxpayer is its primary line of business or the primary purpose of its existence as stated in the Articles of Incorporation, for corporate taxpayers.
SEC. 6. REPEALING CLAUSE. - The provisions of other revenue issuances inconsistent herewith are hereby repealed, modified or amended accordingly.
SEC. 7. EFFECTIVITY CLAUSE. - These Regulations shall take effect on July 1, 2004, or after fifteen (15) days following publication in a newspaper of general circulation, whichever comes later.
(Original Signed)
JUANITA D. AMATONG
Secretary of Finance
Recommending Approval:
(Original Signed)
GUILLERMO L. PARAYNO, JR.
Commissioner of Internal Revenue
SUBJECT : Amending Further Revenue Regulations (RR) No. 9-2001, as Amended by RR No. 2-2002, RR No. 9-2002 and RR No. 26-2002, Providing for Additional Tax Returns/Forms Which Shall be Filed thru the Electronic Filing and Payment System (EFPS), Revising the Requirements for Enrollment of Taxpayers, and Expanding the Coverage Thereof to Include the Top 10,000 Private Corporations Duly Identified Under RR No. 17-2003.
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 (Code), in relation to Section 27 of Republic Act No. 8792, otherwise known as the “Electronic Commerce Act”, these Regulations are hereby promulgated to amend Sections 2, 3, 4 and 7 of RR No. 9-2001, as last amended by RR No. 26-2002, by providing for additional tax returns/forms and the manner of filing thereof, revising the requirements for enrollment and expanding the coverage of taxpayers who shall file and/or pay through the EFPS.
SEC. 2. ADDITIONAL RETURNS/FORMS WHICH SHALL BE FILED THRU EFPS. - Item 2.12 of Section 2 of RR No. 9-2001, as amended, pertaining to the returns/forms which shall be filed thru the EFPS is hereby further amended to read as follows:
“2.12 Return – refers to any of the following electronic returns/forms produced
by EFPS:
a. xxx xxx xxx
xxx xxx xxx
xxx xxx xxx
m. xxx xxx xxx
n. 2551 M - Monthly Percentage Tax;
o. 0605 - Payment Form;
p. 1600 - Monthly Remittance Return of Value-Added Tax and Other Percentage Taxes Withheld;
q. 1600WP- Remittance Return of Percentage Tax on Winnings and Prizes Withheld by Race Tracks Operators;
r. 1601F - Monthly Remittance Return of Final Income Tax Withheld;
s. 1604CF- Annual Information Return of Income Taxes Withheld on Compensation and Final Withholding Taxes;
t. 1604E - Annual Information Return of Creditable Income Taxes Withheld (Expanded)/ Income Payments Exempt from Withholding Tax;
u. 1701 - Annual Income Tax Return for Self-Employed Individuals, Estates, and Trusts (Including those with both business and Compensation and Income);
v. 1701 Q - Quarterly Income Tax Return for Self-Employed Individuals, Estates, and Trusts (Including those with both Business and Compensation and Income);
w. 1704 - Improperly Accumulated Earnings Tax Return;
x. 2000 - Documentary Stamp Tax Declaration/Return;
y. 2200AN- Excise Tax Return for Automobiles and Non-Essential Goods;
z. 2200M - Excise Tax Return for Mineral Products; and
aa. 2552 - Percentage Tax Return (for stock transactions).
In determining a taxpayer’s compliance with a particular tax liability, it is the information in the return, and not the form of such return, that governs.
All BIR-prescribed tax returns may be filed electronically or manually upon the discretion of the Commissioner of Internal Revenue (CIR) except for returns of the large taxpayers being handled by the Large Taxpayers Service which shall be filed electronically. The CIR may, through a circular, mandate the returns that shall be filed electronically by non-large taxpayers taking into consideration the capability of the computer infrastructure of the BIR, and provided further, that the requirements of (a) Section 27 of Republic Act No. 8792, including any amendments that may be enacted thereon, and (b) any other law relating to electronic filing, creation and retention of documents used or to be used in transactions with government, are fully complied with.”
SEC. 3. COVERAGE. – SEC. 3.2 of RR No. 9-2001, as amended, is hereby further amended to read as follows:
”Section 3. – COVERAGE.-
xxx xxx xxx
3.2 Non-large taxpayers. – The following Non-Large Taxpayers including their branches located in the computerized revenue district offices shall file their returns and pay their taxes thru EFPS, to wit:
3.2.1 The volunteering two hundred (200) or more Non-Large Taxpayers previously identified by the BIR to have availed of the option to file their returns under EFPS shall nevertheless continue to file their returns under such method. However, upon their receipt of a notification letter duly signed by the Commissioner of Internal Revenue, it becomes mandatory for them, including their branches located in the computerized revenue district offices, to file their returns and pay their taxes thru EFPS.
3.2.2 The top 10,000 private corporations duly identified under RR No. 17-2003 shall make use of the EFPS in filing their returns and in paying their taxes due thereon, provided, they shall be duly notified in writing by the Commissioner that they are already covered by these Regulations. Thus, for purposes of this sub-section, the term “top 10,000 private corporations” shall refer to taxpayers duly identified and notified by the Commissioner as included in such group under RR No. 17-2003. Returns of non-large taxpayers shall include those of their branches, provided, they are located in the computerized revenue district offices. The provisions hereof shall apply to returns to be filed starting July 1, 2004.
3.3 Other Taxpayers-
xxx xxx xxx”
SEC. 4. REQUIREMENTS FOR EFPS ENROLLMENT. – Section 4 of RR No. 9-2001, as amended, is hereby further amended to read as follows:
“Section 4. ENROLLMENT FOR SYSTEM USAGE. – Identified taxpayers that would like to avail of the EFPS and/or required to file certain tax returns via the EFPS shall enroll in the EFPS in accordance with the provisions of the applicable regulations, circulars and orders. For juridical entities or artificial persons, enrollment shall be made by the officers required by law to file returns. Thus, for domestic corporations, it shall either be the President, the Vice-president or other principal officers; for partnerships, the managing partner; for joint ventures, the managing head; and for resident foreign corporations, the country manager.
In addition, a taxpayer that will e-pay shall enroll with any EFPS AAB where he/it intends to pay through the bank debit system. However, Large Taxpayer’s enrollment shall be limited only to the EFPS AABs authorized to serve them and who are capable to accept e-payments.
Taxpayers required by these regulations to avail of the EFPS shall adhere to the requirements of RMC No. 24-2001, including future updates thereof or amendments thereto.
SEC. 5. FILING OF RETURNS. – Section 7 of RR No. 9-2001, as amended, is hereby further amended to read as follows:
“Section 7. TIME OF FILING OF RETURNS - For purposes of filing of returns under the EFPS, the taxpayers classified under the following business industries shall be required to file the Monthly Withholding Tax Returns, except withholding of Value Added Tax; Monthly VAT Declarations; and Monthly Percentage Tax Returns, on or before the dates prescribed and presented herein below:
xxx xxx xxx
It is reiterated and clarified, that the return for withholding of Value-added Tax and Other Percentage Taxes (BIR Form 1600) shall be filed on or before the tenth (10th) day of the following month, which is likewise the due date for the payment of this type of withholding tax. The filing of the Monthly Remittance Return of Final Income Tax Withheld (BIR Form 1601-F) which has been newly added as among the returns that may be filed under the EFPS shall follow the staggered due dates provided in the above table.
For all the other additional returns/forms included in the EFPS as enumerated in Sec. 2 hereof, the filing of the returns/forms shall be on or before the due dates provided for by applicable laws and regulations for the filing of a return/form and payment of the corresponding tax.
Non-large taxpayers shall have the option to file a consolidated return in the head office following the procedures in RR No. 1-98 or to file returns on a per branch/facility basis. Provided, however, that they shall update first their registration with the affected/concerned revenue district offices by filing BIR Registration Update Form (BIR Form 1905) before they change their manner of filing returns.
To erase any doubt and to ensure receipt by the BIR before midnight of the due dates prescribed above for the filing of a return, the electronic return shall be filed on or before 10:00 p.m. of the above prescribed due dates.
For the electronic payment of tax for the returns required to be filed earlier under the staggered filing system, the taxpayer upon e-filing shall, still using the facilities of Electronic Filing and Payment System (EFPS), likewise give instruction to the Authorized Agent Bank to debit its account for the amount of tax on or before the due date for payment thereof as prescribed under the prevailing/applicable laws/regulations.
For purposes of these regulations, the industry of the taxpayer is its primary line of business or the primary purpose of its existence as stated in the Articles of Incorporation, for corporate taxpayers.
SEC. 6. REPEALING CLAUSE. - The provisions of other revenue issuances inconsistent herewith are hereby repealed, modified or amended accordingly.
SEC. 7. EFFECTIVITY CLAUSE. - These Regulations shall take effect on July 1, 2004, or after fifteen (15) days following publication in a newspaper of general circulation, whichever comes later.
(Original Signed)
JUANITA D. AMATONG
Secretary of Finance
Recommending Approval:
(Original Signed)
GUILLERMO L. PARAYNO, JR.
Commissioner of Internal Revenue
REVENUE REGULATIONS NO. 6-2004
NOTE: Amended per RR 9-2005
SUBJECT: Implementing The Tax Exemptions and Privileges Granted Under Republic Act No. 9182, Otherwise Known As “The Special Purpose Vehicle (SPV) Act of 2002”.
TO : All Internal Revenue Officers and Other Concerned
Chapter I
GENERAL PROVISIONS
SECTION 1. Scope. – Pursuant to Section 244 of the National Internal Revenue Code (NIRC) of 1997, in relation to Section 22 of the Act, these Regulations are hereby promulgated to prescribe the guidelines and procedures for availing the tax exemptions and privileges granted under the Act.
SEC. 2. Declaration of policy. – These regulations are promulgated consistent with the declared policy of the State:
(a) to develop and maintain a sound financial sector for the country;
(b) to address the non-performing asset problems of the financial sector;
(c) to encourage private sector investments in non-performing assets;
(d) to eliminate existing barriers in the acquisition of non-performing assets;
(e) to help in the rehabilitation of distressed businesses with the end in view of contributing to economic value added; and
(f) to improve the liquidity of the financial system which can be harnessed to propel economic growth.
SEC. 3. Definitions. – For purposes of these Regulations, the term:
(a) “Act” shall refer to Republic Act No. 9182, otherwise known as “The Special Purpose Vehicle Act of 2002”.
(b) “Appropriate Regulatory Authority” refers to the agency/authority having jurisdiction over the Financial Institution’s (FI’s) operations, which shall be the following:
(1) Bangko Sentral ng Pilipinas (BSP) – in the case of banks, which include Land Bank of the Philippines (LBP) and Development Bank of the Philippines (DBP), and trust and quasibanking functions of financing companies and investment houses licensed by the BSP;
(2) Department of Finance (DOF) – in the case of the Philippine Deposit Insurance Corporation (PDIC) and Government-owned-or-controlled-corporations (GOCCs), in consultation with other agencies that have primary jurisdiction over the said FIs whenever deemed appropriate by the DOF; and
(3) Securities and Exchange Commission (SEC) – in the case of financing companies and investment houses, except their trust and quasi-banking functions, or any qualified entity not under the DOF or BSP.
(c) “Certificate of Eligibility or COE” refers to the certificate issued by the Appropriate Regulatory Authority as to the eligibility of the NPL or ROPOA for purposes of availing of the tax exemptions and privileges, and which, if applicable, likewise indicates its approval of the transfer of the NPAs from the FI to an SPV/Individual being in the nature of a “true sale”, pursuant to the provisions of the Act and its implementing rules and regulations.
(d) “Dation in payment (dacion en pago)” refers to a payment whereby property, whether real or personal, tangible or intangible, is alienated in favor of the creditor, which could either be an FI or an SPV, in satisfaction of a non-performing loan: Provided, That the term does not include other forms of transfer such as judicial or extra-judicial foreclosure and execution of judgment.
(e) “Financial Institution or FI” shall be limited to the following credit granting institutions:
(1) Bangko Sentral ng Pilipinas (BSP);
(2) Bank as defined under Republic Act No. 8791, also known as “The General Banking Law”;
(3) Financing company as defined under Republic Act No. 8556 (also known as “The Financing Company Act of 1998”);
(4) Investment house as defined in Presidential Decree No. 129 (also known as “The Investment Houses Law”);
(5) Government financial institutions (GFIs), which shall be limited to the Philippine Deposit Insurance Corporation (PDIC), Land Bank of the Philippines (LBP), and Development Bank of the Philippines (DBP);
(6) Government-owned-or-controlled-corporations (GOCCs), which shall be limited to the National Home Mortgage Finance Corporation (NHMFC), Home Guaranty Corporation (HGC), Home Development Mutual Fund (HDMF), Social Security System (SSS), Government Service Insurance System (GSIS), Trade and Investment Development Corporation (TIDCORP), Small Business Guarantee and Finance Corporation (SBGFC), Technology and Livelihood Resource Center (TLRC), Livelihood Corporation (LIVECOR), National Development Corporation (NDC), Quedan and Rural Credit Guarantee Corporation (QUEDANCOR), National Housing Authority (NHA), and Armed Forces of the Philippines – Retirement and Separation Benefits System (AFP-RSBS); and
(7) Other institutions licensed by the BSP to perform quasi-banking functions: Provided, That a “non-bank financial institution performing quasi-banking functions” refers to a financing company, investment house or other institution licensed by the BSP to perform quasibanking functions;
(f) “Non-Performing Asset or NPA” consists of Non-Performing Loans (NPLs) of, and Real and Other Properties Owned or Acquired (ROPOAs) by, FIs for which a COE was issued by the Appropriate Regulatory Authority.
(g) “Non-Performing Loan or NPL” refers to loans and receivables, such as mortgage loans, unsecured loans, consumption loans, trade receivables, lease receivables, credit card receivables and all registered and unregistered security and collateral instruments, including, but not limited to, real estate mortgages, chattel mortgages, pledges, and antichresis whose principal and/or interest has remained unpaid for at least one hundred eighty (180) days after they have become past due or any of the events of default under the loan agreement has occurred, as of June 30, 2002, as certified by the Appropriate Regulatory Authority.
(h) “ROPOA” refers to real and other properties owned or acquired by an FI in settlement of its loans and receivables, including, but not limited to real properties, shares of stock, and chattel formerly constituting collateral for secured loans, by way of dation in payment (dacion en pago), judicial or extra-judicial foreclosure, or execution of judgment, as of June 30, 2002; and to such real and other properties acquired by an FI after June 30, 2002, through the same modes in settlement of a loan or receivable classified as NPL as of June 30, 2002; in either case as certified by the Appropriate Regulatory Authority: Provided, That, only for the purpose of this definition, a property is deemed acquired on:
(1) The date of notarization of the “Deed of Dacion” in case of dation in payment (dacion en pago);
(2) The date of the entry of judgment in case of judicial foreclosure; or
(3) The date of notarization of the “Sheriff’s Certificate” in case of extra-judicial foreclosure;
Provided, further, That this definition does not include real and other properties owned or acquired by an SPV in settlement of its loans and receivables acquired from an FI or otherwise.
i) Single Family Residential Unit – shall refer to a building or structure that will be used for residential purposes.
Chapter II
SPECIAL PURPOSE VEHICLE
SEC. 4. Registration requirements for SPV. –
(a) Requirements. – Every SPV shall register once with the appropriate Revenue District Office on or before the commencement of its business, in accordance with the provisions of Chapter II of Title IX of the National Internal Revenue Code (NIRC) of 1997 and its implementing regulations. An SPV maintaining a head office, branch or facility shall register with the Revenue District Offices having jurisdiction over the head office, branch or facility.
The term ‘facility’ shall include, but shall not be limited to, sales outlets, warehouses or storage places.
(b) Required Documents. – The SPV shall file its application for registration together with the following documents:
(1) “Certificate of Registration” as an SPV issued by the SEC;
(2) Articles of Incorporation and By-Laws; and
(3) Mayor’s Permit.
(c) Annual Registration Fee. – An annual registration fee in the amount of Five hundred pesos (P500.00) for every separate or distinct establishment or place of business, including facility types where sales transactions occur, shall be paid by an SPV upon registration and every year thereafter on or before the last day of January. The registration fee shall be paid to an authorized agent bank (AAB) located within the revenue district, or to the Revenue Collection Officer, or duly authorized Treasurer of the city or municipality where each place of business or branch is registered.
(d) Registration of Each Type of Internal Revenue Tax. – An SPV shall register each type of internal revenue tax for which it is obligated to file a return and pay such taxes in accordance with the pertinent provisions of the NIRC of 1997 and its implementing revenue regulations, and update such registration of any changes in accordance with Subsection (f) hereof: Provided, That, unless otherwise exempted under the Act, an SPV shall be subject to all applicable taxes imposed by the NIRC of 1997 such as, but not limited to, income tax, valueadded tax (VAT), other percentage taxes, documentary stamp tax (DST) etc., whichever is applicable: Provided, further, That an SPV shall be considered a withholding agent, and shall be required to file withholding tax returns and remit taxes withheld, on all income payments that are subject to withholding tax.
(e) Transfer of Registration. – In case a registered SPV decides to transfer its place of business or its head office or branches, it shall be its duty to update its registration status by filing an application for registration information update in the form prescribed therefor.
(f) Other Updates. – A registered SPV shall, whenever applicable, update its registration information with the Revenue District Office where it is registered, specifying therein any change in tax type and other taxpayer details.
(g) Cancellation of Registration. – The registration of an SPV shall be cancelled upon filing with the Revenue District Office where it is registered, an application for cancellation in a form prescribed therefor.
SEC. 5. Issuance of receipts or sales or commercial invoices. – All SPVs shall, for each sale or transfer of merchandise or for services rendered valued at Twenty-five pesos (P25.00) or more, issue duly registered receipts or sales or commercial invoices, prepared at least in duplicate, showing the date of transaction, quantity, unit cost and description of merchandise or nature of service: Provided, however, That in the case of sales, receipts or transfers in the amount of One hundred pesos (P100.00) or more, or regardless of amount, where the sale or transfer is made by an SPV liable to VAT to another person also liable to VAT; or where the receipt is issued to cover payment made as rentals, commissions, compensation or fees, official receipts or sales invoices shall be issued which shall show the name, business style, if any, and address of the purchaser, customer or client: Provided, further, That where the purchaser is a VAT-registered person, in addition to the information herein required, the invoice or receipt shall further show the Taxpayer Identification Number (TIN) of the purchaser.
The original of each receipt or invoice shall be issued to the purchaser, customer or client at the time the transaction is effected, who, if engaged in business or in the exercise of profession, shall keep and preserve the same in his place of business for a period of three (3) years from the close of the taxable year in which such invoice or receipt was issued, while the duplicate shall be kept and preserved by the SPV, also in its place of business, for a like period, unless a longer period of preservation is required by the circumstances.
SEC. 6. Keeping of books of accounts. – All SPVs shall keep a journal and a ledger or their equivalents, in accordance with the provisions of Chapter I of Title IX of the NIRC of 1997, and its implementing revenue regulations: Provided, however, That those whose quarterly sales, earnings, receipts or output do not exceed Fifty thousand pesos (P50,000.00) shall keep and use a simplified set of bookkeeping records wherein all transactions and results are shown and from which all taxes due the Government may readily and accurately be ascertained and determined any time of the year: Provided, further, That SPVs whose gross sales, earnings, receipts or output exceed One hundred fifty thousand pesos (P150,000.00) in any quarter, shall have their books of accounts audited and examined yearly by independent Certified Public Accountants.
Chapter III
TAX EXEMPTIONS & PRIVILEGES
SEC.7. Tax exempt transactions. – (a) Pursuant to Section 15 of Article IV of the Act, only the following transactions shall be covered by the tax exemptions as provided in paragraph (d) hereof:
(1) Transfer of an NPL by an FI to an SPV;
(2) Transfer of a ROPOA by an FI to an SPV;
(3) Dation in payment (dacion en pago) of an NPL by a borrower to an FI;
(4) Dation in payment (dacion en pago) of an NPL by a third-party, on behalf of a borrower, to an FI;
(5) Transfer of an NPL by an FI to an individual;
(6) Transfer of a ROPOA by an FI to an individual;
(7) Transfer of an NPL by an SPV to a third-party;
(8) Transfer of a ROPOA by an SPV to a third-party;
(9) Dation in payment (dacion en pago) of an NPL by a borrower to an SPV;
(10) Dation in payment (dacion en pago) of an NPL by a third-party, on behalf of a borrower, to an SPV;
(11) Transfer of an NPL by an individual to a third-party; and
(12) Transfer of a ROPOA by an individual to a third-party.
For purposes of the foregoing, the term “individual” refers only to a natural person; while the term “third-party” refers to any person, natural or juridical, unless specifically excluded in the Act (e.g., an FI which transferred the NPA to the selling SPV, the parent of the said FI).
(b) The tax exemptions as provided in paragraph (d) hereof shall apply to the transactions listed in paragraph (a) above only if the NPL/ROPOA has been issued with a COE by the Appropriate Regulatory Authority.
(c) The tax exemptions as provided in paragraph (d) hereof shall apply to the transactions listed in paragraph (a) above only if the following particular requirements, where applicable, are complied, to wit:
(1) In the case of transactions (a)(1), (a)(2), (a)(5) and (a)(6) above, the transfer must be in the nature of, and approved by the Appropriate Regulatory Authority as, a “true sale”, pursuant to the Act and its implementing rules and regulations: Provided, That, if the NPL/ROPOA is transferred to an SPV/individual for less than an adequate and full consideration in money’s worth, the amount by which the fair market value of the NPL/ROPOA exceeded the value of the consideration shall not be considered as a gift under Title III, Chapter 2 of the NIRC of 1997.
(2) In the case of transactions (a)(1) to (a)(6) above, the transaction must have occurred within the period from March 19, 2003 to March 19, 2005. Thereafter, the tax exemptions provided in paragraph (d) hereof shall no longer apply.
(3) In the case of transactions (a)(7), (a)(8), (a)(11) and (a)(12) above, the NPL/ROPOA must have been acquired by the SPV or Individual from an FI within the period from March 19, 2003 to March 19, 2005, in the nature of, and approved by the Appropriate Regulatory Authority as, a “true sale”, pursuant to the Act and its implementing rules and regulations; and that the transaction must have occurred within the period of five (5) years from the date of said acquisition. Thereafter, the tax exemptions provided in paragraph (d) hereof shall no longer apply.
(4) In the case of transactions (a)(9) and (a)(10) above, the dation in payment must be in settlement of an NPL that has been acquired by the SPV or Individual from an FI within the period from March 19, 2003 to March 19, 2005, in the nature of, and approved by the Appropriate Regulatory Authority as, a “true sale”, pursuant to the Act and its implementing rules and regulations; and that the dation in payment must have occurred within the period of five (5) years from the date of said acquisition.
(5) In the case of transactions (a)(2) and (a)(6) above, all applicable taxes on the previous transfer of the ROPOA to the FI have been duly paid when the taxes became due or are paid thereafter but subject to appropriate increments and penalties.
(6) In the case of ROPOAs acquired by an SPV from GFIs or GOCCs which are devoted to socialized or low-cost housing, they shall not be converted to other uses.
(7) In the case of transactions (a)(3), (a)(4), (a)(9), and (a)(10) above, the tax exemptions provided in paragraph (d) hereof shall apply only to the extent of the value of the property tendered as payment, which is equivalent to the amount of the NPL being paid, inclusive of interests and penalties, if any: Provided, That the dation in payment must not be intended to circumvent the intention of the Act which is to benefit solely the borrower and the FI.
The value of the property being transferred as payment is its fair market value as determined in accordance with Section 6(E) of the NIRC of 1997, whereas the consideration for such transfer shall be the value of the NPL including interests and other charges, if any, as stated in the Deed of Dacion.
(8) In the case of transactions (a)(5), (a)(6), (a)(11), and (a)(12) above, the transaction shall be limited to a single family residential unit ROPOA, or an NPL secured by a real estate mortgage on a residential unit: Provided, however, That the tax exemptions provided in paragraph (d) hereof shall apply only to one acquisition of NPA (either NPL or ROPOA) by an individual and to the subsequent transfer of the same NPA.
(9) In the case of transactions (a)(1), (a)(2), (a)(5), (a)(6), (a)(7), (a)(8), (a)(11), and (a)(12) above, the tax exemptions provided in paragraph (d) hereof shall not apply to the transfer of any property in exchange for such NPL/ROPOA, unless the same is exempted under a pertinent provision of an existing law such as paragraph (a) hereof.
(10) In the case of transaction (a)(4) and (a)(10) above, the tax exemptions provided in paragraph (d) hereof shall not extend to any transaction or agreement between the borrower and the third-party as a result of the latter paying the former’s NPL on its behalf.
(d) The transactions enumerated in paragraph (a) above, subject to the conditions set forth in paragraphs (b) and (c) above, shall be exempt from the following taxes:
(1) Documentary stamp tax (DST) on any document evidencing the transfer or dation in payment as may be imposed under Title VII of the NIRC of 1997, the last phrase of Section 173 of said Code notwithstanding;
(2) Capital gains tax (CGT) imposed on the transfer of land and/or building treated as capital asset in the hands of the transferor, as defined under Section 39(A)(1) of the NIRC of 1997;
(3) Creditable withholding income taxes imposed on the transfer of land and/or building treated as ordinary asset in the hands of the transferor pursuant to Revenue Regulations No. 2-98, as amended: Provided, That this shall not include exemption from income tax under Title II of the NIRC of 1997. The transfer by an FI or by an SPV of its NPA which is treated as its ordinary asset shall continue to be subject to the ordinary corporate income tax or minimum corporate income tax, as the case may be, under pertinent provisions of the NIRC of 1997.
(4) Value-added tax (VAT) as may be imposed under Title IV of the NIRC of 1997, or gross receipts tax under Title V thereof, whichever is applicable: Provided, That in case of a VAT-exemption and pursuant to Section 110(A)(3) of the NIRC of 1997, the following rules shall apply:
(i) if the property being transferred was intended for sale, for conversion into or ntended to form part of a finished product for sale, for use as supplies in connection with trade or business, or as supplies in the sale of services, by a VAT-registered person, the input tax which can be directly attributed to the said property shall not be allowed as input tax to the transferor’s other VATable activities;
(ii) if the property being transferred is a capital good used in the trade or business of a VAT-registered person, the input tax on the said property shall be allocated as follows: the depreciated book value of the property over its acquisition cost, multiplied by the input tax directly attributed to the said property shall not be allowed as input tax to the transferor’s other VATable activities; and
(iii) the amount of the unallowable input taxes as determined in paragraphs (i) and (ii) above, if previously debited to “Input Taxes”, shall be charged back to the property under the following adjusting entry:
Dr. Inventory/Supplies/Asset...... x x x
Cr. Input Taxes..................................... x x x
(e) Illustrations:
Example 1: Transfer of NPL from FI to SPV
If an FI transfers its NPL with a book value of P100,000.00 to an SPV in exchange for a land with a fair market value of P50,000.00, plus debt instrument with a face value of P20,000.00, then
(i) the loss of P30,000.00 incurred by the FI shall not be considered as a gift and, therefore, is not subject to donor’s tax;
(ii) the debt instrument transferred/issued to the FI shall be subject to DST; and
(iii) the transfer of the land to the FI shall be subject to either capital gains tax or creditable withholding tax, and DST, unless the transfer is exmepted under a pertinent provision of an existing law.
Example 2: Transfer of NPA from SPV to third-party
If an SPV transfers an NPL with a book value of P100,000.00 acquired from an FI on March 27, 2003, within 5 years therefrom, to any person other than the same FI, in exchange for a land with a fair market value of P50,000.00, plus debt instrument with a face value of P20,000.00, then
(i) the transfer of the NPL shall not be subject to VAT;
(ii) the insufficiency in the consideration received by the SPV in the amount of P30,000.00 shall be considered as a gift and, therefore, is subject to donor’s tax;
(iii) the debt instrument issued/transferred to the SPV shall be subject to DST; and
(iv) the transfer of the land to the SPV shall be subject to either capital gains tax or creditable withholding tax, and DST, unless the transfer is exempted under a pertinent provision of an existing law.
Example 3: Transfer of ROPOA from FI to SPV, then to a third-party
An FI acquired on January 31, 2003, a land through extra-judicial foreclosure of a mortgage, which was an NPL as of June 30, 2002. The land is then sold to an SPV on January 31, 2004. The SPV builds a house on the land and sells it to a third-party. Hence,
(i) the extra-judicial foreclosure sale to the FI is not covered by the exemption for it is not a dation in payment;
(ii) the transfer of the land (being a ROPOA of the FI) to the SPV is covered by the tax exemption – it was acquired by the FI in settlement of an NPL; and
(iii) the transfer of the land from the SPV to the third-party is covered by the tax exemption BUT the transfer of the house thereon is not covered by the tax exemption – it is not a ROPOA acquired from an FI.
Example 4: Dation in payment by borrower
If a borrower transfers its “PLDT shares” (classified as capital asset with a FMV of P100,000.00), which cost it P20,000.00 to acquire, to an SPV in settlement of its NPL of P70,000.00, then:
(i) the transfer is exempt from CGT but only to the extent of P70,000.00, less the expenses and the cost allocated thereto at 7/10 of P20,000.00, and also from the DST to the extent of 7/10 of the par value of the PLDT shares; and
(ii) the transfer is subject to CGT based on the difference of P30,000.00, less the expenses and the cost allocated thereto at 3/10 of P20,000.00,and to the DST based on 3/10 of the par value of the PLDT shares.
On the other hand, if a borrower transfers its truck used in business (with a book value of P90,000.00) to an SPV in settlement of an NPL of P100,000.00, then:
(i) the transfer is exempt from VAT, subject to the provisions of Sec. 110(A)(3) of the NIRC of 1997; and
(ii) the borrower is liable for income tax on the gain of P10,000.00.
Example 5: Dation in payment by third-party
If a third-party, in behalf of the borrower, transfers its land (classified as capital asset with a FMV of P100,000.00) to an FI in settlement of an NPL of P70,000.00, without any intention of claiming reimbursement from the said borrower, then:
(i) the transfer is exempt from CGT and DST, but only to the extent of P70,000.00;
(ii) the transfer is subject to CGT and DST on the difference of P30,000.00; and
(iii) the third-party is liable for donor’s tax by paying the borrower’s NPL of P70,000.00.
On the other hand, if a third-party, in behalf of the borrower transfers its VATable land (with a book value of P70,000.00 and a FMV of P120,000.00) to an FI in settlement of an NPL of P100,000.00 because the said borrower gave P80,000.00 to the said thirdparty, then:
(i) the transfer is exempt from VAT subject to the provisions of Sec. 110(A)(3) of the NIRC of 1997;
(ii) the transfer is exempt from creditable withholding income tax and DST;
(iii) the third-party is liable for income tax on its gain of P10,000.00; and
(iv) the third-party is liable for donor’s tax on the transfer for insufficient consideration where the insufficiency in the consideration amounts to P40,000.00 (P120,000.00 – P80,000.00).
SEC. 8. Additional tax exemptions for an SPV. –
(a) The SPV shall be exempt from income tax on the net interest income arising from new loans in excess of existing loans, which are extended to a borrower with NPL that has been acquired by the said SPV from an FI within two (2) years from March 19, 2003 and which are solely for the purpose of rehabilitating the borrower’s business. The term “net interest income” shall mean gross interest income less allowable deductions attributable thereto; hence, the said allowable deductions shall no longer be allowed as a deduction from the SPV’s other taxable gross income.
(b) Any document evidencing the new loans mentioned in paragraph (a) above shall be exempt from DST.
(c) Any document evidencing an SPV’s capital infusion to the business of the borrower with an NPL that has been acquired by the said SPV from an FI within two (2) years from March 19, 2003, shall be exempt from DST.
Provided, That the above-mentioned tax exemptions shall apply only for a period of not more than five (5) years from the date of acquisition of the borrower’s NPL by the said SPV.
Illustration of the “net interest income”
SPV acquires NPL with a principal amount of P100,000.00, then lends P200,000.00 to the borrower, making a total exposure of P300,000.00, and sets the interest at 20% per annum. Assuming its total annual gross income is P100,000.00 (this is different from the principal amount of P100,000.00), and its total annual allowable deductions is P80,000.00, then:
(i) The P200,000.00 new loan is exempt from DST;
(ii) The SPV shall be exempt from income tax on the “net interest income” computed as follows:
Gross income (P300,000.00 x 20% x 200Th/300Th) P40,000.00
Less: Allowable deductions (P80Th x 40Th/100Th) 32,000.00
Net interest income (income tax exempt) P 8,000.00
(iii) The SPV’s taxable gross income shall then be computed as follows:
Gross income (P100,000.00 less P40,000.00) P60,000.00
Less: Allowable deductions (P80,000.00 less P32,000.00) 48,000.00
Net taxable income P12,000.00
SEC. 9. Privileges of an FI. – Any loss that is incurred by an FI as a result of transferring its NPA to an SPV within the period of two (2) years from March 19, 2003, excluding accrued interests and penalties receivable, and which had not been previously offset as deduction from gross income, shall be treated as ordinary loss, and may be carried over as a deduction from its taxable gross income for a period of five (5) consecutive taxable years immediately following the year of the transfer that resulted to such loss: Provided, That the “tax savings” derived by the FI from such loss carry-over shall not be made available for dividend declaration, but shall be retained as a form of capital build-up: Provided, further, That the FI cannot enjoy this privilege if it enters into a merger, consolidation, or combination with another person, unless, as a result of such merger, consolidation or combination, the shareholders of the said FI gains control of at least 75% or more in nominal value of the outstanding issued shares or paid up capital of the surviving/new corporation: Provided, finally, That the FI shall continue to be subject to the minimum corporate income tax (MCIT) of two percent (2%) of its gross income as of the end of the taxable year pursuant to Sec. 27 or Sec. 28 of the NIRC of 1997, whichever is applicable, notwithstanding the above provisions.
For purposes of the foregoing, the term “tax savings” shall mean the excess of the normal income tax due from the FI without the benefit of the loss carry-over under the Act, over and above the normal income tax due after availing the said loss carry-over for a particular taxable year: Provided, however, That, in case the FI is liable for an MCIT despite the benefit of the said loss carry-over, the excess of the MCIT over and above the normal income tax due from the FI after availing the said loss carry-over for a particular taxable year shall no longer be considered as a “tax savings” if the same cannot be credited against the normal income tax for any of the three (3) immediately succeeding taxable years: Provided, further, That the “tax savings”, if there be any, shall be recognized in the books of accounts of the FI and shall appear on its financial statements.
Illustrative computations of loss carry-over and “tax savings”. – The computation of the loss carry-over and the application of the rules prescribed in the preceding paragraph are illustrated in the following examples:
(a) Sale of NPAs to SPV in 2003:
Total NPAs sold P100,000.00
Less: Total consideration received 70,000.00
Total loss from sale of NPAs P 30,000.00
Less: Accrued interests/penalties (capital loss) 20,000.00
Loss that may be carried over for 5 years P 10,000.00
Illustrative journal entry:
Dr. Cash/Property P 70,000.00
Dr. Loss from sale of NPAs 10,000.00
Dr. Loss on sale of accrued interests/penalties 20,000.00
Cr. NPLs/ROPOAs P100,000.00
To record sale of NPAs.
(b) Taxable year 2003 – gross income of P500,000.00; allowable deductions of P495,000.00; and ordinary loss carry-over of P6,000.00:
Gross income P500,000.00
Less: Allowable deductions P495,000.00
Ordinary loss carry-over (3-yr limit) 6,000.00 501,000.00
Ordinary loss to be carried over P 1,000.00
Less: Loss from sale of NPAs (5-yr limit) 10,000.00
Total net loss carry-over P 11,000.00
Normal income tax before loss Zero
Normal income tax after loss Zero
MCIT P 10,000.00
Income tax due (MCIT) P 10,000.00
Excess MCIT1 (P10,000.00 less Zero) P 10,000.00
Tax savings None2
Illustrative journal entry:
Dr. Excess MCIT 10,000.00
Cr. Income tax payable P 10,000.00
To record excess MCIT.
(c) Taxable year 2004 – gross income of P300,000.00; and allowable deductions of P295,000.00:
Gross income P300,000,000
Less: Allowable deductions P295,000.00
Ordinary loss carry-over 1,000.00 296,000.00
Net income before loss from sale of NPAs P 4,000.00
Less: Loss carry-over from sale of NPAs 10,000.00
Loss from sale of NPAs to be carried over (4-yrs) P 6,000.00
Normal income tax before loss from sale of NPAs P 1,280.00
Normal income tax after loss from sale of NPAs Zero
Minimum corporate income tax P 6,000.00
Income tax due (MCIT) P 6,000.00
Excess MCIT (P6,000.00 less Zero) P 6,000.00
Tax savings (P1,280.00 less Zero) P 1,280.003
Illustrative journal entry:
Dr. Excess MCIT P 6,000.00
Dr. Retained earnings 1,280.00
Cr. Income tax payable P 6,000.00
Cr. Reserve for capital build-up – NOLCO/SPV 1,280.00
To record the excess MCIT, and to set up the tax savings on NOLCO derived from the sale of NPAs, computed as follows: (P4,000.00 x 32%) less Zero
(d) Taxable year 2005 – gross income of P200,000.00; and allowable deductions of
P160,000.00:
1 Note: The excess MCIT of P10,000.00 shall be carried forward on an annual basis and credited against the normal income tax for the three (3) immediately succeeding taxable years. However, such excess MCIT is creditable only against the normal income tax and not against the MCIT itself.
2 Reason: There is no loss carried-over from the previous year.
3 Reason: The excess MCIT for this year should have been P4,720.00 only (P6,000.00 less P1,280.00); but with the loss carry-over from the transfer of NPAs, the excess MCIT would now be P6,000.00.
Gross income P200,000.00
Less: Allowable deductions 160,000.00
Net income before loss from sale of NPAs P 40,000.00
Less: Loss carry-over from sale of NPAs 6,000.00
Net taxable income P 34,000.00
Normal income tax before loss from sale of NPAs P 12,800.00
Normal income tax after loss from sale of NPAs P 10,880.00
Minimum corporate income tax P 4,000.00
Income tax due P 10,880.00
Less: Excess MCIT - 2003 P 10,000.00
Excess MCIT - 2004 6,000.00 P 16,000.00
Balance of excess MCIT - 2004 P 5,120.00
Tax savings (P12,800 less P10,880) P 1,920.00
Illustrative journal entry:
Dr. Income tax expense P10,880.00
Dr. Retained Earnings 1,920.00
Cr. Excess MCIT P10,880.00
Cr. Reserve for capital build-up – NOLCO/SPV 1,920.00
To record income tax expense (P34,000.00 x 32%); reduction of excess MCIT; and amortization of NOLCO/SPV (P6,000.00 x 32%).
SEC. 10. True sale. – Any transfer of NPAs not in the nature of a “true sale” as provided in the Act and its implementing rules and regulations shall not qualify for any of the tax exemptions granted under the Act.
SEC. 11. Investment Unit Instruments or IUIs. –
(a) These refer to participation certificates, debt instruments or similar instruments issued by an SPV and subscribed by Permitted Investors as provided in Section 11 of the Act, pursuant to an Approved Plan: Provided, That these shall not include the instruments to be issued by an SPV to the selling FIs as full or partial settlement of the NPAs transferred to the said SPV: Provided, further, That these shall not form part of the capital stock of the SPV.
(b) IUIs issued by an SPV shall not be considered as deposit substitutes and any interest or other monetary benefit derived from IUIs is not subject to the twenty-percent (20%) final income tax under Secs. 24(B)(1), 25(A)(2), 27(D)(1), and 28(A)(7) of the NIRC: Provided, however, That the IUI and any such income derived from IUIs shall be subject to the normal income tax and/or such other applicable taxes, including but not limited to, documentary stamp tax imposed under the NIRC and its implementing regulations.
Chapter III
PROCEDURAL GUIDELINES
SEC. 12. Certificate of Eligibility. –
(a) The COE issued by the Appropriate Regulatory Authority shall serve as a prima facie proof of an NPL/ROPOA being an NPA within the purview of the Act and its implementing rules and regulations without the need of a prior BIR determination/ruling. If applicable, it shall likewise serve as a prima facie proof that the transfer from an FI to an SPV is in the nature of a “true sale” within the purview of the Act and its implementing rules and regulations without the need of a prior BIR determination/ruling.
(b) Each COE shall be valid for only one transfer; every transfer shall require a separate COE from the Appropriate Regulatory Authority. It shall indicate, among others, the name of the borrower, the name of the FI owning the NPA, the date granted/acquired, manner of acquisition, name of the person from whom the NPA was acquired by the FI, articulars of the NPL/ROPOA, and the name of the transferee (if applicable).
(c) To ensure the authenticity of the COE, the Appropriate Regulatory Authority shall coordinate with and furnish the Commissioner of the BIR an original duplicate copy thereof, in addition to the complete list of NPAs (NPLs and ROPOAs) of every FI which may be submitted by the appropriate regulatory authority or the FI, itself.
SEC. 13. Transfers of real property located in the Philippines. –
(a) No registration of any document transferring real property covered by the tax exemptions granted under the Act shall be effected by the Register of Deeds unless the Commissioner or his duly authorized representative has issued a Certificate Authorizing Registration after such transfer has been reported, and that the BIR is satisfied that the same is qualified for tax exemptions pursuant to these Regulations.
(b) Within thirty (30) days following the issuance of a COE covering each transfer of real property as mentioned in paragraph (a) above, a Capital Gains Tax Return therefor shall be filed by the transferee with the Revenue District Office (RDO) having jurisdiction over the place where the real property being transferred is located. The return shall be accompanied by the appropriate COE and the following documentary requirements:
(i) taxpayer’s identification number (TIN) and certificate of SEC registration (in the case of an FI/SPV) of both the transferor and transferee;
(ii) notarized Deed of Dation/Transfer;
(iii) Original/Transfer Certificate of title (OCT/TCT), Condominium Certificate of Title (CCT), or any other document showing proof of ownership over the real property tendered as payment for the NPL;
(iv) certified true copy of the latest Tax Declaration for land and improvement as of the date of the transaction and/or sworn Declaration of No Improvement by the transferee or Certificate of No. Improvement issued by the assessor;
(v) the promissory note/s and/or other loan document/s, in case of dation in payment;
(vi) the Certificate Authorizing Registration (CAR) and the Tax Clearance Certificate (TCL) issued by the BIR for the previous transfer, if the transferor is an FI;
(vii) copy of the agreement between the Borrower and the third-party who made the dation in payment on behalf of the former (if applicable); and
(c) Upon presentation of the Capital Gains Tax Return, together with the corresponding COE and the documentary requirements as mentioned in the preceding paragraph, the Revenue District Office (RDO) where the property being transferred is located, shall issue the corresponding Tax Clearance Certificate (TCL) and Certificate Authorizing Registration (CAR) for the registration of the real property in favor of the transferee: Provided, That, in case the transferor is an FI, no such TCL/CAR shall be issued unless all applicable taxes on the previous transfer to the FI have been duly paid when the taxes became due or are paid thereafter but subject to appropriate increments and penalties.
SEC. 14. Transfers of shares of stocks in a domestic corporation. –
(a) No sale, exchange, transfer or similar transaction intended to convey ownership of, or title to any share of stock in a domestic corporation, covered by the tax exemptions granted under the Act, shall be registered in the books of the corporation unless the Commissioner or his duly authorized representative has issued a Certificate Authorizing Registration after such transfer has been reported, and that the BIR is satisfied that the same is qualified for tax exemptions pursuant to these Regulations.
(b) Within thirty (30) days following the issuance of a COE covering each sale, transfer or other disposition of shares of stock as mentioned in paragraph (a) above, a Capital Gains Tax Return therefor shall be filed by the transferor with the Revenue District Office (RDO) or Collection Agent or duly authorized Treasurer of the city or municipality where such person is required by law to register. The return shall be accompanied by the appropriate COE and the following documentary requirements:
(i) taxpayer’s identification number (TIN) and certificate of SEC registration (in the case of an FI/SPV) of both the transferor and transferee;
(ii) notarized Deed of Transfer;
(iii) Certificate of the shares of stock used to pay the NPL; and
(iv) for listed shares of stocks, certification from the Philippine Stock Exchange of the price index on the nearest date to the time of the transfer;
(v) for unlisted shares of stocks, audited financial statements of the issuing corporation with a computation of the book value per share, nearest the time of the transfer;
(vi) the promissory note/s and/or other loan document/s, in case of dation in payment;
(vii) the tax Clearance Certificate (TCL) and the Certificate Authorizing Registration (CAR) issued by the BIR for the previous transfer, if the transferor is an FI;
(viii) copy of the agreement between the Borrower and the third-party who made the dation in payment on behalf of the former (if applicable); and
(c) Upon presentation of the Capital Gains Tax Return, together with the corresponding COE and the documentary requirements as mentioned in the preceding paragraph, the concerned Revenue District Office (RDO) shall issue the corresponding Tax Clearance Certificate (TCL) and Certificate Authorizing Registration (CAR) for the registration of the shares of stocks in favor of the transferee in the books of the corporation: Provided, That, in case the transferor is an FI, no such TCL and CAR shall be issued unless all applicable taxes on the previous transfer to the FI have been duly paid when the taxes became due or are paid thereafter but subject to appropriate increments and penalties.
SEC. 15. Other exempt transactions and tax privileges. – An SPV claiming any of the tax exemptions and privileges under the Act on other transactions shall upon request provide the appropriate COE to the Commissioner of the BIR or his duly authorized representative for purposes of examining any taxpayer and the assessment of the correct amount of tax.
This is in addition to such other documentary requirements as stated above.
SEC. 16. Reports to be submitted by an SPV. – The SPV shall, in addition to the existing requirements under the NIRC of 1997 and its implementing regulations, for purposes of implementing the provisions of the Act, submit to the BIR the following:
(a) List of taxable transactions;
(b) List of tax-exempt transactions;
(c) List of partly tax-exempt and partly taxable transactions.
SEC. 17. Abuse of tax exemptions and privileges. – Any person, natural or juridical, who benefits from the tax exemptions and privileges herein granted, when such person is not entitled thereto, shall refund to the government double the amount of the tax exemptions and privileges availed of under the Act, plus interest of twelve percent per year from the date prescribed for its payment until the full payment thereof: Provided, That this is without prejudice to the applicable penalties under the NIRC of 1997.
SEC. 18. Transitory Provisions. – Any existing document or instrument which may qualify for the tax exemption and other privileges under the Act shall be presented/submitted to the Revenue District Office concerned within thirty (30) days from the effectivity of these regulations, otherwise the pertinent penalties incident to late filing shall be imposed.
SEC. 19. Incorporation Clause. – All existing rules and regulations, rulings, orders or parts thereof which are not inconsistent with any of the above provisions are hereby adopted and incorporated as part of these regulations.
SEC. 20. Repealing Clause. – All existing rules and regulations or parts thereof, which are inconsistent with the provisions of these regulations, are hereby revoked.
SEC. 21. Effectivity. – These Revenue Regulations shall take effect after fifteen (15) days following publication in a newspaper of general circulation.
(Original Signed)
JUANITA D. AMATONG
Secretary of Finance
Recommending approval:
(Original Signed)
GUILLERMO L. PARAYNO, JR.
Commissioner of Internal Revenue
SUBJECT: Implementing The Tax Exemptions and Privileges Granted Under Republic Act No. 9182, Otherwise Known As “The Special Purpose Vehicle (SPV) Act of 2002”.
TO : All Internal Revenue Officers and Other Concerned
Chapter I
GENERAL PROVISIONS
SECTION 1. Scope. – Pursuant to Section 244 of the National Internal Revenue Code (NIRC) of 1997, in relation to Section 22 of the Act, these Regulations are hereby promulgated to prescribe the guidelines and procedures for availing the tax exemptions and privileges granted under the Act.
SEC. 2. Declaration of policy. – These regulations are promulgated consistent with the declared policy of the State:
(a) to develop and maintain a sound financial sector for the country;
(b) to address the non-performing asset problems of the financial sector;
(c) to encourage private sector investments in non-performing assets;
(d) to eliminate existing barriers in the acquisition of non-performing assets;
(e) to help in the rehabilitation of distressed businesses with the end in view of contributing to economic value added; and
(f) to improve the liquidity of the financial system which can be harnessed to propel economic growth.
SEC. 3. Definitions. – For purposes of these Regulations, the term:
(a) “Act” shall refer to Republic Act No. 9182, otherwise known as “The Special Purpose Vehicle Act of 2002”.
(b) “Appropriate Regulatory Authority” refers to the agency/authority having jurisdiction over the Financial Institution’s (FI’s) operations, which shall be the following:
(1) Bangko Sentral ng Pilipinas (BSP) – in the case of banks, which include Land Bank of the Philippines (LBP) and Development Bank of the Philippines (DBP), and trust and quasibanking functions of financing companies and investment houses licensed by the BSP;
(2) Department of Finance (DOF) – in the case of the Philippine Deposit Insurance Corporation (PDIC) and Government-owned-or-controlled-corporations (GOCCs), in consultation with other agencies that have primary jurisdiction over the said FIs whenever deemed appropriate by the DOF; and
(3) Securities and Exchange Commission (SEC) – in the case of financing companies and investment houses, except their trust and quasi-banking functions, or any qualified entity not under the DOF or BSP.
(c) “Certificate of Eligibility or COE” refers to the certificate issued by the Appropriate Regulatory Authority as to the eligibility of the NPL or ROPOA for purposes of availing of the tax exemptions and privileges, and which, if applicable, likewise indicates its approval of the transfer of the NPAs from the FI to an SPV/Individual being in the nature of a “true sale”, pursuant to the provisions of the Act and its implementing rules and regulations.
(d) “Dation in payment (dacion en pago)” refers to a payment whereby property, whether real or personal, tangible or intangible, is alienated in favor of the creditor, which could either be an FI or an SPV, in satisfaction of a non-performing loan: Provided, That the term does not include other forms of transfer such as judicial or extra-judicial foreclosure and execution of judgment.
(e) “Financial Institution or FI” shall be limited to the following credit granting institutions:
(1) Bangko Sentral ng Pilipinas (BSP);
(2) Bank as defined under Republic Act No. 8791, also known as “The General Banking Law”;
(3) Financing company as defined under Republic Act No. 8556 (also known as “The Financing Company Act of 1998”);
(4) Investment house as defined in Presidential Decree No. 129 (also known as “The Investment Houses Law”);
(5) Government financial institutions (GFIs), which shall be limited to the Philippine Deposit Insurance Corporation (PDIC), Land Bank of the Philippines (LBP), and Development Bank of the Philippines (DBP);
(6) Government-owned-or-controlled-corporations (GOCCs), which shall be limited to the National Home Mortgage Finance Corporation (NHMFC), Home Guaranty Corporation (HGC), Home Development Mutual Fund (HDMF), Social Security System (SSS), Government Service Insurance System (GSIS), Trade and Investment Development Corporation (TIDCORP), Small Business Guarantee and Finance Corporation (SBGFC), Technology and Livelihood Resource Center (TLRC), Livelihood Corporation (LIVECOR), National Development Corporation (NDC), Quedan and Rural Credit Guarantee Corporation (QUEDANCOR), National Housing Authority (NHA), and Armed Forces of the Philippines – Retirement and Separation Benefits System (AFP-RSBS); and
(7) Other institutions licensed by the BSP to perform quasi-banking functions: Provided, That a “non-bank financial institution performing quasi-banking functions” refers to a financing company, investment house or other institution licensed by the BSP to perform quasibanking functions;
(f) “Non-Performing Asset or NPA” consists of Non-Performing Loans (NPLs) of, and Real and Other Properties Owned or Acquired (ROPOAs) by, FIs for which a COE was issued by the Appropriate Regulatory Authority.
(g) “Non-Performing Loan or NPL” refers to loans and receivables, such as mortgage loans, unsecured loans, consumption loans, trade receivables, lease receivables, credit card receivables and all registered and unregistered security and collateral instruments, including, but not limited to, real estate mortgages, chattel mortgages, pledges, and antichresis whose principal and/or interest has remained unpaid for at least one hundred eighty (180) days after they have become past due or any of the events of default under the loan agreement has occurred, as of June 30, 2002, as certified by the Appropriate Regulatory Authority.
(h) “ROPOA” refers to real and other properties owned or acquired by an FI in settlement of its loans and receivables, including, but not limited to real properties, shares of stock, and chattel formerly constituting collateral for secured loans, by way of dation in payment (dacion en pago), judicial or extra-judicial foreclosure, or execution of judgment, as of June 30, 2002; and to such real and other properties acquired by an FI after June 30, 2002, through the same modes in settlement of a loan or receivable classified as NPL as of June 30, 2002; in either case as certified by the Appropriate Regulatory Authority: Provided, That, only for the purpose of this definition, a property is deemed acquired on:
(1) The date of notarization of the “Deed of Dacion” in case of dation in payment (dacion en pago);
(2) The date of the entry of judgment in case of judicial foreclosure; or
(3) The date of notarization of the “Sheriff’s Certificate” in case of extra-judicial foreclosure;
Provided, further, That this definition does not include real and other properties owned or acquired by an SPV in settlement of its loans and receivables acquired from an FI or otherwise.
i) Single Family Residential Unit – shall refer to a building or structure that will be used for residential purposes.
Chapter II
SPECIAL PURPOSE VEHICLE
SEC. 4. Registration requirements for SPV. –
(a) Requirements. – Every SPV shall register once with the appropriate Revenue District Office on or before the commencement of its business, in accordance with the provisions of Chapter II of Title IX of the National Internal Revenue Code (NIRC) of 1997 and its implementing regulations. An SPV maintaining a head office, branch or facility shall register with the Revenue District Offices having jurisdiction over the head office, branch or facility.
The term ‘facility’ shall include, but shall not be limited to, sales outlets, warehouses or storage places.
(b) Required Documents. – The SPV shall file its application for registration together with the following documents:
(1) “Certificate of Registration” as an SPV issued by the SEC;
(2) Articles of Incorporation and By-Laws; and
(3) Mayor’s Permit.
(c) Annual Registration Fee. – An annual registration fee in the amount of Five hundred pesos (P500.00) for every separate or distinct establishment or place of business, including facility types where sales transactions occur, shall be paid by an SPV upon registration and every year thereafter on or before the last day of January. The registration fee shall be paid to an authorized agent bank (AAB) located within the revenue district, or to the Revenue Collection Officer, or duly authorized Treasurer of the city or municipality where each place of business or branch is registered.
(d) Registration of Each Type of Internal Revenue Tax. – An SPV shall register each type of internal revenue tax for which it is obligated to file a return and pay such taxes in accordance with the pertinent provisions of the NIRC of 1997 and its implementing revenue regulations, and update such registration of any changes in accordance with Subsection (f) hereof: Provided, That, unless otherwise exempted under the Act, an SPV shall be subject to all applicable taxes imposed by the NIRC of 1997 such as, but not limited to, income tax, valueadded tax (VAT), other percentage taxes, documentary stamp tax (DST) etc., whichever is applicable: Provided, further, That an SPV shall be considered a withholding agent, and shall be required to file withholding tax returns and remit taxes withheld, on all income payments that are subject to withholding tax.
(e) Transfer of Registration. – In case a registered SPV decides to transfer its place of business or its head office or branches, it shall be its duty to update its registration status by filing an application for registration information update in the form prescribed therefor.
(f) Other Updates. – A registered SPV shall, whenever applicable, update its registration information with the Revenue District Office where it is registered, specifying therein any change in tax type and other taxpayer details.
(g) Cancellation of Registration. – The registration of an SPV shall be cancelled upon filing with the Revenue District Office where it is registered, an application for cancellation in a form prescribed therefor.
SEC. 5. Issuance of receipts or sales or commercial invoices. – All SPVs shall, for each sale or transfer of merchandise or for services rendered valued at Twenty-five pesos (P25.00) or more, issue duly registered receipts or sales or commercial invoices, prepared at least in duplicate, showing the date of transaction, quantity, unit cost and description of merchandise or nature of service: Provided, however, That in the case of sales, receipts or transfers in the amount of One hundred pesos (P100.00) or more, or regardless of amount, where the sale or transfer is made by an SPV liable to VAT to another person also liable to VAT; or where the receipt is issued to cover payment made as rentals, commissions, compensation or fees, official receipts or sales invoices shall be issued which shall show the name, business style, if any, and address of the purchaser, customer or client: Provided, further, That where the purchaser is a VAT-registered person, in addition to the information herein required, the invoice or receipt shall further show the Taxpayer Identification Number (TIN) of the purchaser.
The original of each receipt or invoice shall be issued to the purchaser, customer or client at the time the transaction is effected, who, if engaged in business or in the exercise of profession, shall keep and preserve the same in his place of business for a period of three (3) years from the close of the taxable year in which such invoice or receipt was issued, while the duplicate shall be kept and preserved by the SPV, also in its place of business, for a like period, unless a longer period of preservation is required by the circumstances.
SEC. 6. Keeping of books of accounts. – All SPVs shall keep a journal and a ledger or their equivalents, in accordance with the provisions of Chapter I of Title IX of the NIRC of 1997, and its implementing revenue regulations: Provided, however, That those whose quarterly sales, earnings, receipts or output do not exceed Fifty thousand pesos (P50,000.00) shall keep and use a simplified set of bookkeeping records wherein all transactions and results are shown and from which all taxes due the Government may readily and accurately be ascertained and determined any time of the year: Provided, further, That SPVs whose gross sales, earnings, receipts or output exceed One hundred fifty thousand pesos (P150,000.00) in any quarter, shall have their books of accounts audited and examined yearly by independent Certified Public Accountants.
Chapter III
TAX EXEMPTIONS & PRIVILEGES
SEC.7. Tax exempt transactions. – (a) Pursuant to Section 15 of Article IV of the Act, only the following transactions shall be covered by the tax exemptions as provided in paragraph (d) hereof:
(1) Transfer of an NPL by an FI to an SPV;
(2) Transfer of a ROPOA by an FI to an SPV;
(3) Dation in payment (dacion en pago) of an NPL by a borrower to an FI;
(4) Dation in payment (dacion en pago) of an NPL by a third-party, on behalf of a borrower, to an FI;
(5) Transfer of an NPL by an FI to an individual;
(6) Transfer of a ROPOA by an FI to an individual;
(7) Transfer of an NPL by an SPV to a third-party;
(8) Transfer of a ROPOA by an SPV to a third-party;
(9) Dation in payment (dacion en pago) of an NPL by a borrower to an SPV;
(10) Dation in payment (dacion en pago) of an NPL by a third-party, on behalf of a borrower, to an SPV;
(11) Transfer of an NPL by an individual to a third-party; and
(12) Transfer of a ROPOA by an individual to a third-party.
For purposes of the foregoing, the term “individual” refers only to a natural person; while the term “third-party” refers to any person, natural or juridical, unless specifically excluded in the Act (e.g., an FI which transferred the NPA to the selling SPV, the parent of the said FI).
(b) The tax exemptions as provided in paragraph (d) hereof shall apply to the transactions listed in paragraph (a) above only if the NPL/ROPOA has been issued with a COE by the Appropriate Regulatory Authority.
(c) The tax exemptions as provided in paragraph (d) hereof shall apply to the transactions listed in paragraph (a) above only if the following particular requirements, where applicable, are complied, to wit:
(1) In the case of transactions (a)(1), (a)(2), (a)(5) and (a)(6) above, the transfer must be in the nature of, and approved by the Appropriate Regulatory Authority as, a “true sale”, pursuant to the Act and its implementing rules and regulations: Provided, That, if the NPL/ROPOA is transferred to an SPV/individual for less than an adequate and full consideration in money’s worth, the amount by which the fair market value of the NPL/ROPOA exceeded the value of the consideration shall not be considered as a gift under Title III, Chapter 2 of the NIRC of 1997.
(2) In the case of transactions (a)(1) to (a)(6) above, the transaction must have occurred within the period from March 19, 2003 to March 19, 2005. Thereafter, the tax exemptions provided in paragraph (d) hereof shall no longer apply.
(3) In the case of transactions (a)(7), (a)(8), (a)(11) and (a)(12) above, the NPL/ROPOA must have been acquired by the SPV or Individual from an FI within the period from March 19, 2003 to March 19, 2005, in the nature of, and approved by the Appropriate Regulatory Authority as, a “true sale”, pursuant to the Act and its implementing rules and regulations; and that the transaction must have occurred within the period of five (5) years from the date of said acquisition. Thereafter, the tax exemptions provided in paragraph (d) hereof shall no longer apply.
(4) In the case of transactions (a)(9) and (a)(10) above, the dation in payment must be in settlement of an NPL that has been acquired by the SPV or Individual from an FI within the period from March 19, 2003 to March 19, 2005, in the nature of, and approved by the Appropriate Regulatory Authority as, a “true sale”, pursuant to the Act and its implementing rules and regulations; and that the dation in payment must have occurred within the period of five (5) years from the date of said acquisition.
(5) In the case of transactions (a)(2) and (a)(6) above, all applicable taxes on the previous transfer of the ROPOA to the FI have been duly paid when the taxes became due or are paid thereafter but subject to appropriate increments and penalties.
(6) In the case of ROPOAs acquired by an SPV from GFIs or GOCCs which are devoted to socialized or low-cost housing, they shall not be converted to other uses.
(7) In the case of transactions (a)(3), (a)(4), (a)(9), and (a)(10) above, the tax exemptions provided in paragraph (d) hereof shall apply only to the extent of the value of the property tendered as payment, which is equivalent to the amount of the NPL being paid, inclusive of interests and penalties, if any: Provided, That the dation in payment must not be intended to circumvent the intention of the Act which is to benefit solely the borrower and the FI.
The value of the property being transferred as payment is its fair market value as determined in accordance with Section 6(E) of the NIRC of 1997, whereas the consideration for such transfer shall be the value of the NPL including interests and other charges, if any, as stated in the Deed of Dacion.
(8) In the case of transactions (a)(5), (a)(6), (a)(11), and (a)(12) above, the transaction shall be limited to a single family residential unit ROPOA, or an NPL secured by a real estate mortgage on a residential unit: Provided, however, That the tax exemptions provided in paragraph (d) hereof shall apply only to one acquisition of NPA (either NPL or ROPOA) by an individual and to the subsequent transfer of the same NPA.
(9) In the case of transactions (a)(1), (a)(2), (a)(5), (a)(6), (a)(7), (a)(8), (a)(11), and (a)(12) above, the tax exemptions provided in paragraph (d) hereof shall not apply to the transfer of any property in exchange for such NPL/ROPOA, unless the same is exempted under a pertinent provision of an existing law such as paragraph (a) hereof.
(10) In the case of transaction (a)(4) and (a)(10) above, the tax exemptions provided in paragraph (d) hereof shall not extend to any transaction or agreement between the borrower and the third-party as a result of the latter paying the former’s NPL on its behalf.
(d) The transactions enumerated in paragraph (a) above, subject to the conditions set forth in paragraphs (b) and (c) above, shall be exempt from the following taxes:
(1) Documentary stamp tax (DST) on any document evidencing the transfer or dation in payment as may be imposed under Title VII of the NIRC of 1997, the last phrase of Section 173 of said Code notwithstanding;
(2) Capital gains tax (CGT) imposed on the transfer of land and/or building treated as capital asset in the hands of the transferor, as defined under Section 39(A)(1) of the NIRC of 1997;
(3) Creditable withholding income taxes imposed on the transfer of land and/or building treated as ordinary asset in the hands of the transferor pursuant to Revenue Regulations No. 2-98, as amended: Provided, That this shall not include exemption from income tax under Title II of the NIRC of 1997. The transfer by an FI or by an SPV of its NPA which is treated as its ordinary asset shall continue to be subject to the ordinary corporate income tax or minimum corporate income tax, as the case may be, under pertinent provisions of the NIRC of 1997.
(4) Value-added tax (VAT) as may be imposed under Title IV of the NIRC of 1997, or gross receipts tax under Title V thereof, whichever is applicable: Provided, That in case of a VAT-exemption and pursuant to Section 110(A)(3) of the NIRC of 1997, the following rules shall apply:
(i) if the property being transferred was intended for sale, for conversion into or ntended to form part of a finished product for sale, for use as supplies in connection with trade or business, or as supplies in the sale of services, by a VAT-registered person, the input tax which can be directly attributed to the said property shall not be allowed as input tax to the transferor’s other VATable activities;
(ii) if the property being transferred is a capital good used in the trade or business of a VAT-registered person, the input tax on the said property shall be allocated as follows: the depreciated book value of the property over its acquisition cost, multiplied by the input tax directly attributed to the said property shall not be allowed as input tax to the transferor’s other VATable activities; and
(iii) the amount of the unallowable input taxes as determined in paragraphs (i) and (ii) above, if previously debited to “Input Taxes”, shall be charged back to the property under the following adjusting entry:
Dr. Inventory/Supplies/Asset...... x x x
Cr. Input Taxes..................................... x x x
(e) Illustrations:
Example 1: Transfer of NPL from FI to SPV
If an FI transfers its NPL with a book value of P100,000.00 to an SPV in exchange for a land with a fair market value of P50,000.00, plus debt instrument with a face value of P20,000.00, then
(i) the loss of P30,000.00 incurred by the FI shall not be considered as a gift and, therefore, is not subject to donor’s tax;
(ii) the debt instrument transferred/issued to the FI shall be subject to DST; and
(iii) the transfer of the land to the FI shall be subject to either capital gains tax or creditable withholding tax, and DST, unless the transfer is exmepted under a pertinent provision of an existing law.
Example 2: Transfer of NPA from SPV to third-party
If an SPV transfers an NPL with a book value of P100,000.00 acquired from an FI on March 27, 2003, within 5 years therefrom, to any person other than the same FI, in exchange for a land with a fair market value of P50,000.00, plus debt instrument with a face value of P20,000.00, then
(i) the transfer of the NPL shall not be subject to VAT;
(ii) the insufficiency in the consideration received by the SPV in the amount of P30,000.00 shall be considered as a gift and, therefore, is subject to donor’s tax;
(iii) the debt instrument issued/transferred to the SPV shall be subject to DST; and
(iv) the transfer of the land to the SPV shall be subject to either capital gains tax or creditable withholding tax, and DST, unless the transfer is exempted under a pertinent provision of an existing law.
Example 3: Transfer of ROPOA from FI to SPV, then to a third-party
An FI acquired on January 31, 2003, a land through extra-judicial foreclosure of a mortgage, which was an NPL as of June 30, 2002. The land is then sold to an SPV on January 31, 2004. The SPV builds a house on the land and sells it to a third-party. Hence,
(i) the extra-judicial foreclosure sale to the FI is not covered by the exemption for it is not a dation in payment;
(ii) the transfer of the land (being a ROPOA of the FI) to the SPV is covered by the tax exemption – it was acquired by the FI in settlement of an NPL; and
(iii) the transfer of the land from the SPV to the third-party is covered by the tax exemption BUT the transfer of the house thereon is not covered by the tax exemption – it is not a ROPOA acquired from an FI.
Example 4: Dation in payment by borrower
If a borrower transfers its “PLDT shares” (classified as capital asset with a FMV of P100,000.00), which cost it P20,000.00 to acquire, to an SPV in settlement of its NPL of P70,000.00, then:
(i) the transfer is exempt from CGT but only to the extent of P70,000.00, less the expenses and the cost allocated thereto at 7/10 of P20,000.00, and also from the DST to the extent of 7/10 of the par value of the PLDT shares; and
(ii) the transfer is subject to CGT based on the difference of P30,000.00, less the expenses and the cost allocated thereto at 3/10 of P20,000.00,and to the DST based on 3/10 of the par value of the PLDT shares.
On the other hand, if a borrower transfers its truck used in business (with a book value of P90,000.00) to an SPV in settlement of an NPL of P100,000.00, then:
(i) the transfer is exempt from VAT, subject to the provisions of Sec. 110(A)(3) of the NIRC of 1997; and
(ii) the borrower is liable for income tax on the gain of P10,000.00.
Example 5: Dation in payment by third-party
If a third-party, in behalf of the borrower, transfers its land (classified as capital asset with a FMV of P100,000.00) to an FI in settlement of an NPL of P70,000.00, without any intention of claiming reimbursement from the said borrower, then:
(i) the transfer is exempt from CGT and DST, but only to the extent of P70,000.00;
(ii) the transfer is subject to CGT and DST on the difference of P30,000.00; and
(iii) the third-party is liable for donor’s tax by paying the borrower’s NPL of P70,000.00.
On the other hand, if a third-party, in behalf of the borrower transfers its VATable land (with a book value of P70,000.00 and a FMV of P120,000.00) to an FI in settlement of an NPL of P100,000.00 because the said borrower gave P80,000.00 to the said thirdparty, then:
(i) the transfer is exempt from VAT subject to the provisions of Sec. 110(A)(3) of the NIRC of 1997;
(ii) the transfer is exempt from creditable withholding income tax and DST;
(iii) the third-party is liable for income tax on its gain of P10,000.00; and
(iv) the third-party is liable for donor’s tax on the transfer for insufficient consideration where the insufficiency in the consideration amounts to P40,000.00 (P120,000.00 – P80,000.00).
SEC. 8. Additional tax exemptions for an SPV. –
(a) The SPV shall be exempt from income tax on the net interest income arising from new loans in excess of existing loans, which are extended to a borrower with NPL that has been acquired by the said SPV from an FI within two (2) years from March 19, 2003 and which are solely for the purpose of rehabilitating the borrower’s business. The term “net interest income” shall mean gross interest income less allowable deductions attributable thereto; hence, the said allowable deductions shall no longer be allowed as a deduction from the SPV’s other taxable gross income.
(b) Any document evidencing the new loans mentioned in paragraph (a) above shall be exempt from DST.
(c) Any document evidencing an SPV’s capital infusion to the business of the borrower with an NPL that has been acquired by the said SPV from an FI within two (2) years from March 19, 2003, shall be exempt from DST.
Provided, That the above-mentioned tax exemptions shall apply only for a period of not more than five (5) years from the date of acquisition of the borrower’s NPL by the said SPV.
Illustration of the “net interest income”
SPV acquires NPL with a principal amount of P100,000.00, then lends P200,000.00 to the borrower, making a total exposure of P300,000.00, and sets the interest at 20% per annum. Assuming its total annual gross income is P100,000.00 (this is different from the principal amount of P100,000.00), and its total annual allowable deductions is P80,000.00, then:
(i) The P200,000.00 new loan is exempt from DST;
(ii) The SPV shall be exempt from income tax on the “net interest income” computed as follows:
Gross income (P300,000.00 x 20% x 200Th/300Th) P40,000.00
Less: Allowable deductions (P80Th x 40Th/100Th) 32,000.00
Net interest income (income tax exempt) P 8,000.00
(iii) The SPV’s taxable gross income shall then be computed as follows:
Gross income (P100,000.00 less P40,000.00) P60,000.00
Less: Allowable deductions (P80,000.00 less P32,000.00) 48,000.00
Net taxable income P12,000.00
SEC. 9. Privileges of an FI. – Any loss that is incurred by an FI as a result of transferring its NPA to an SPV within the period of two (2) years from March 19, 2003, excluding accrued interests and penalties receivable, and which had not been previously offset as deduction from gross income, shall be treated as ordinary loss, and may be carried over as a deduction from its taxable gross income for a period of five (5) consecutive taxable years immediately following the year of the transfer that resulted to such loss: Provided, That the “tax savings” derived by the FI from such loss carry-over shall not be made available for dividend declaration, but shall be retained as a form of capital build-up: Provided, further, That the FI cannot enjoy this privilege if it enters into a merger, consolidation, or combination with another person, unless, as a result of such merger, consolidation or combination, the shareholders of the said FI gains control of at least 75% or more in nominal value of the outstanding issued shares or paid up capital of the surviving/new corporation: Provided, finally, That the FI shall continue to be subject to the minimum corporate income tax (MCIT) of two percent (2%) of its gross income as of the end of the taxable year pursuant to Sec. 27 or Sec. 28 of the NIRC of 1997, whichever is applicable, notwithstanding the above provisions.
For purposes of the foregoing, the term “tax savings” shall mean the excess of the normal income tax due from the FI without the benefit of the loss carry-over under the Act, over and above the normal income tax due after availing the said loss carry-over for a particular taxable year: Provided, however, That, in case the FI is liable for an MCIT despite the benefit of the said loss carry-over, the excess of the MCIT over and above the normal income tax due from the FI after availing the said loss carry-over for a particular taxable year shall no longer be considered as a “tax savings” if the same cannot be credited against the normal income tax for any of the three (3) immediately succeeding taxable years: Provided, further, That the “tax savings”, if there be any, shall be recognized in the books of accounts of the FI and shall appear on its financial statements.
Illustrative computations of loss carry-over and “tax savings”. – The computation of the loss carry-over and the application of the rules prescribed in the preceding paragraph are illustrated in the following examples:
(a) Sale of NPAs to SPV in 2003:
Total NPAs sold P100,000.00
Less: Total consideration received 70,000.00
Total loss from sale of NPAs P 30,000.00
Less: Accrued interests/penalties (capital loss) 20,000.00
Loss that may be carried over for 5 years P 10,000.00
Illustrative journal entry:
Dr. Cash/Property P 70,000.00
Dr. Loss from sale of NPAs 10,000.00
Dr. Loss on sale of accrued interests/penalties 20,000.00
Cr. NPLs/ROPOAs P100,000.00
To record sale of NPAs.
(b) Taxable year 2003 – gross income of P500,000.00; allowable deductions of P495,000.00; and ordinary loss carry-over of P6,000.00:
Gross income P500,000.00
Less: Allowable deductions P495,000.00
Ordinary loss carry-over (3-yr limit) 6,000.00 501,000.00
Ordinary loss to be carried over P 1,000.00
Less: Loss from sale of NPAs (5-yr limit) 10,000.00
Total net loss carry-over P 11,000.00
Normal income tax before loss Zero
Normal income tax after loss Zero
MCIT P 10,000.00
Income tax due (MCIT) P 10,000.00
Excess MCIT1 (P10,000.00 less Zero) P 10,000.00
Tax savings None2
Illustrative journal entry:
Dr. Excess MCIT 10,000.00
Cr. Income tax payable P 10,000.00
To record excess MCIT.
(c) Taxable year 2004 – gross income of P300,000.00; and allowable deductions of P295,000.00:
Gross income P300,000,000
Less: Allowable deductions P295,000.00
Ordinary loss carry-over 1,000.00 296,000.00
Net income before loss from sale of NPAs P 4,000.00
Less: Loss carry-over from sale of NPAs 10,000.00
Loss from sale of NPAs to be carried over (4-yrs) P 6,000.00
Normal income tax before loss from sale of NPAs P 1,280.00
Normal income tax after loss from sale of NPAs Zero
Minimum corporate income tax P 6,000.00
Income tax due (MCIT) P 6,000.00
Excess MCIT (P6,000.00 less Zero) P 6,000.00
Tax savings (P1,280.00 less Zero) P 1,280.003
Illustrative journal entry:
Dr. Excess MCIT P 6,000.00
Dr. Retained earnings 1,280.00
Cr. Income tax payable P 6,000.00
Cr. Reserve for capital build-up – NOLCO/SPV 1,280.00
To record the excess MCIT, and to set up the tax savings on NOLCO derived from the sale of NPAs, computed as follows: (P4,000.00 x 32%) less Zero
(d) Taxable year 2005 – gross income of P200,000.00; and allowable deductions of
P160,000.00:
1 Note: The excess MCIT of P10,000.00 shall be carried forward on an annual basis and credited against the normal income tax for the three (3) immediately succeeding taxable years. However, such excess MCIT is creditable only against the normal income tax and not against the MCIT itself.
2 Reason: There is no loss carried-over from the previous year.
3 Reason: The excess MCIT for this year should have been P4,720.00 only (P6,000.00 less P1,280.00); but with the loss carry-over from the transfer of NPAs, the excess MCIT would now be P6,000.00.
Gross income P200,000.00
Less: Allowable deductions 160,000.00
Net income before loss from sale of NPAs P 40,000.00
Less: Loss carry-over from sale of NPAs 6,000.00
Net taxable income P 34,000.00
Normal income tax before loss from sale of NPAs P 12,800.00
Normal income tax after loss from sale of NPAs P 10,880.00
Minimum corporate income tax P 4,000.00
Income tax due P 10,880.00
Less: Excess MCIT - 2003 P 10,000.00
Excess MCIT - 2004 6,000.00 P 16,000.00
Balance of excess MCIT - 2004 P 5,120.00
Tax savings (P12,800 less P10,880) P 1,920.00
Illustrative journal entry:
Dr. Income tax expense P10,880.00
Dr. Retained Earnings 1,920.00
Cr. Excess MCIT P10,880.00
Cr. Reserve for capital build-up – NOLCO/SPV 1,920.00
To record income tax expense (P34,000.00 x 32%); reduction of excess MCIT; and amortization of NOLCO/SPV (P6,000.00 x 32%).
SEC. 10. True sale. – Any transfer of NPAs not in the nature of a “true sale” as provided in the Act and its implementing rules and regulations shall not qualify for any of the tax exemptions granted under the Act.
SEC. 11. Investment Unit Instruments or IUIs. –
(a) These refer to participation certificates, debt instruments or similar instruments issued by an SPV and subscribed by Permitted Investors as provided in Section 11 of the Act, pursuant to an Approved Plan: Provided, That these shall not include the instruments to be issued by an SPV to the selling FIs as full or partial settlement of the NPAs transferred to the said SPV: Provided, further, That these shall not form part of the capital stock of the SPV.
(b) IUIs issued by an SPV shall not be considered as deposit substitutes and any interest or other monetary benefit derived from IUIs is not subject to the twenty-percent (20%) final income tax under Secs. 24(B)(1), 25(A)(2), 27(D)(1), and 28(A)(7) of the NIRC: Provided, however, That the IUI and any such income derived from IUIs shall be subject to the normal income tax and/or such other applicable taxes, including but not limited to, documentary stamp tax imposed under the NIRC and its implementing regulations.
Chapter III
PROCEDURAL GUIDELINES
SEC. 12. Certificate of Eligibility. –
(a) The COE issued by the Appropriate Regulatory Authority shall serve as a prima facie proof of an NPL/ROPOA being an NPA within the purview of the Act and its implementing rules and regulations without the need of a prior BIR determination/ruling. If applicable, it shall likewise serve as a prima facie proof that the transfer from an FI to an SPV is in the nature of a “true sale” within the purview of the Act and its implementing rules and regulations without the need of a prior BIR determination/ruling.
(b) Each COE shall be valid for only one transfer; every transfer shall require a separate COE from the Appropriate Regulatory Authority. It shall indicate, among others, the name of the borrower, the name of the FI owning the NPA, the date granted/acquired, manner of acquisition, name of the person from whom the NPA was acquired by the FI, articulars of the NPL/ROPOA, and the name of the transferee (if applicable).
(c) To ensure the authenticity of the COE, the Appropriate Regulatory Authority shall coordinate with and furnish the Commissioner of the BIR an original duplicate copy thereof, in addition to the complete list of NPAs (NPLs and ROPOAs) of every FI which may be submitted by the appropriate regulatory authority or the FI, itself.
SEC. 13. Transfers of real property located in the Philippines. –
(a) No registration of any document transferring real property covered by the tax exemptions granted under the Act shall be effected by the Register of Deeds unless the Commissioner or his duly authorized representative has issued a Certificate Authorizing Registration after such transfer has been reported, and that the BIR is satisfied that the same is qualified for tax exemptions pursuant to these Regulations.
(b) Within thirty (30) days following the issuance of a COE covering each transfer of real property as mentioned in paragraph (a) above, a Capital Gains Tax Return therefor shall be filed by the transferee with the Revenue District Office (RDO) having jurisdiction over the place where the real property being transferred is located. The return shall be accompanied by the appropriate COE and the following documentary requirements:
(i) taxpayer’s identification number (TIN) and certificate of SEC registration (in the case of an FI/SPV) of both the transferor and transferee;
(ii) notarized Deed of Dation/Transfer;
(iii) Original/Transfer Certificate of title (OCT/TCT), Condominium Certificate of Title (CCT), or any other document showing proof of ownership over the real property tendered as payment for the NPL;
(iv) certified true copy of the latest Tax Declaration for land and improvement as of the date of the transaction and/or sworn Declaration of No Improvement by the transferee or Certificate of No. Improvement issued by the assessor;
(v) the promissory note/s and/or other loan document/s, in case of dation in payment;
(vi) the Certificate Authorizing Registration (CAR) and the Tax Clearance Certificate (TCL) issued by the BIR for the previous transfer, if the transferor is an FI;
(vii) copy of the agreement between the Borrower and the third-party who made the dation in payment on behalf of the former (if applicable); and
(c) Upon presentation of the Capital Gains Tax Return, together with the corresponding COE and the documentary requirements as mentioned in the preceding paragraph, the Revenue District Office (RDO) where the property being transferred is located, shall issue the corresponding Tax Clearance Certificate (TCL) and Certificate Authorizing Registration (CAR) for the registration of the real property in favor of the transferee: Provided, That, in case the transferor is an FI, no such TCL/CAR shall be issued unless all applicable taxes on the previous transfer to the FI have been duly paid when the taxes became due or are paid thereafter but subject to appropriate increments and penalties.
SEC. 14. Transfers of shares of stocks in a domestic corporation. –
(a) No sale, exchange, transfer or similar transaction intended to convey ownership of, or title to any share of stock in a domestic corporation, covered by the tax exemptions granted under the Act, shall be registered in the books of the corporation unless the Commissioner or his duly authorized representative has issued a Certificate Authorizing Registration after such transfer has been reported, and that the BIR is satisfied that the same is qualified for tax exemptions pursuant to these Regulations.
(b) Within thirty (30) days following the issuance of a COE covering each sale, transfer or other disposition of shares of stock as mentioned in paragraph (a) above, a Capital Gains Tax Return therefor shall be filed by the transferor with the Revenue District Office (RDO) or Collection Agent or duly authorized Treasurer of the city or municipality where such person is required by law to register. The return shall be accompanied by the appropriate COE and the following documentary requirements:
(i) taxpayer’s identification number (TIN) and certificate of SEC registration (in the case of an FI/SPV) of both the transferor and transferee;
(ii) notarized Deed of Transfer;
(iii) Certificate of the shares of stock used to pay the NPL; and
(iv) for listed shares of stocks, certification from the Philippine Stock Exchange of the price index on the nearest date to the time of the transfer;
(v) for unlisted shares of stocks, audited financial statements of the issuing corporation with a computation of the book value per share, nearest the time of the transfer;
(vi) the promissory note/s and/or other loan document/s, in case of dation in payment;
(vii) the tax Clearance Certificate (TCL) and the Certificate Authorizing Registration (CAR) issued by the BIR for the previous transfer, if the transferor is an FI;
(viii) copy of the agreement between the Borrower and the third-party who made the dation in payment on behalf of the former (if applicable); and
(c) Upon presentation of the Capital Gains Tax Return, together with the corresponding COE and the documentary requirements as mentioned in the preceding paragraph, the concerned Revenue District Office (RDO) shall issue the corresponding Tax Clearance Certificate (TCL) and Certificate Authorizing Registration (CAR) for the registration of the shares of stocks in favor of the transferee in the books of the corporation: Provided, That, in case the transferor is an FI, no such TCL and CAR shall be issued unless all applicable taxes on the previous transfer to the FI have been duly paid when the taxes became due or are paid thereafter but subject to appropriate increments and penalties.
SEC. 15. Other exempt transactions and tax privileges. – An SPV claiming any of the tax exemptions and privileges under the Act on other transactions shall upon request provide the appropriate COE to the Commissioner of the BIR or his duly authorized representative for purposes of examining any taxpayer and the assessment of the correct amount of tax.
This is in addition to such other documentary requirements as stated above.
SEC. 16. Reports to be submitted by an SPV. – The SPV shall, in addition to the existing requirements under the NIRC of 1997 and its implementing regulations, for purposes of implementing the provisions of the Act, submit to the BIR the following:
(a) List of taxable transactions;
(b) List of tax-exempt transactions;
(c) List of partly tax-exempt and partly taxable transactions.
SEC. 17. Abuse of tax exemptions and privileges. – Any person, natural or juridical, who benefits from the tax exemptions and privileges herein granted, when such person is not entitled thereto, shall refund to the government double the amount of the tax exemptions and privileges availed of under the Act, plus interest of twelve percent per year from the date prescribed for its payment until the full payment thereof: Provided, That this is without prejudice to the applicable penalties under the NIRC of 1997.
SEC. 18. Transitory Provisions. – Any existing document or instrument which may qualify for the tax exemption and other privileges under the Act shall be presented/submitted to the Revenue District Office concerned within thirty (30) days from the effectivity of these regulations, otherwise the pertinent penalties incident to late filing shall be imposed.
SEC. 19. Incorporation Clause. – All existing rules and regulations, rulings, orders or parts thereof which are not inconsistent with any of the above provisions are hereby adopted and incorporated as part of these regulations.
SEC. 20. Repealing Clause. – All existing rules and regulations or parts thereof, which are inconsistent with the provisions of these regulations, are hereby revoked.
SEC. 21. Effectivity. – These Revenue Regulations shall take effect after fifteen (15) days following publication in a newspaper of general circulation.
(Original Signed)
JUANITA D. AMATONG
Secretary of Finance
Recommending approval:
(Original Signed)
GUILLERMO L. PARAYNO, JR.
Commissioner of Internal Revenue
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