SUBJECT: Delegation of Authority to Sign Rulings Granting and/or Confirming Tax Exemptions, Tax Incentives as well as Tax Treaty Relief Through the Ruling Process
TO : All Revenue Officials and Personnel and Others Concerned
SECTION 1. Objective. –
This Circular is issued to clarify and modify the scope of Memorandum dated April 26, 2007 as circularized in Revenue Memorandum Circular No. 32-2007, with respect to the delegation of authority to sign rulings that involve grants of tax exemptions to the Assistant Commissioner for Legal Service, and to the Deputy Commissioner for Legal and Inspection Group
SECTION 2. Delegation of Authority. –
a. Regional Directors
The delegated authority of the Regional Directors to sign rulings that involve in any manner the granting, as well as, confirmation of tax exemptions and/or tax incentives shall now be approved and signed by the Assistant Commissioner, Legal Service. Accordingly, Revenue Memorandum Order (RMO) No. 75-99 and RMC No. 3-2001 are hereby expressly modified, subject to the following exceptions, which shall continue to be approved by the Regional Directors: (i) Requests to use pre-numbered loose- leaf forms, receipts, invoices and books of accounts (manual) ; and (ii) Requests for change of accounting period (except change of accounting method) under Section 46 of the Tax Code of 1997.
The foregoing is without prejudice to the applicability of Revenue Bulletin No. 1-2003 – No-Ruling Areas – 001.
b. The Assistant Commissioner, Legal Service
The delegated authority of the Assistant Commissioner, Legal Service to sign rulings that involve in any manner the granting, as well as, confirmation of tax exemptions and/or tax incentives, including tax treaty reliefs, shall now be approved and signed by the Deputy Commissioner, Legal and Inspection Group. Accordingly, Revenue Delegation Authority Order (RDAO) No. 4-02, Revenue Memorandum Order (RMO) No. 30-02, and RMC No. 39-01 are hereby expressly modified subject to the following exceptions, which shall continue to be approved by the Assistant Commissioner, Legal Service:
i. Requests for rulings relative to tax-deferred exchanges of property for shares under Section 40(C)(2) of the Tax Code of 1997 under appropriate guidelines;
ii. Requests for rulings pertaining to transfer of property by a preneed corporation to a trustee in accordance with SEC guidelines on the establishment of trusts by pre-need companies;
iii. Requests for rulings pertaining to tax consequence of exchanges of properties made in order to correct clear mistakes of fact relating to ownership of subdivision lots;
iv. Embassy requests, either for itself or on behalf of its employees, for tax exemption;
v. Requests for confirmation of tax exempt status of non-stock nonprofit educational institutions; and
vi. Requests for rulings and/or certifications on topics covered by RMC No. 2-01 and RMC No. 10-01.
Copies of all rulings signed by the Assistant Commissioner, Legal Service, in accordance with the provisions of this Section shall be furnished to the Office of the Deputy Commissioner, Legal and Inspection Group and the Office of the Commissioner, immediately upon issuance.
c. The Deputy Commissioner, Legal and Inspection Group is hereby authorized to sign all rulings which grant as well as confirm any tax exemption and/or tax incentive including tax treaty relief, including those that are originating from the VAT Review Committee provided that they are not covered by the abovementioned exceptions to the existing issuances; and provided further, that the said rulings are clearly covered by precedent rulings and guidelines, as well as, pertinent issuances on the subject. Copies of all rulings signed by the Deputy Commissioner, Legal and Inspection Group, in accordance with the provisions of this Section shall be furnished to the Office of the Commissioner immediately upon issuance. All rulings of first impression, as defined in Revenue Administrative Order No. 1-03, shall be signed by the Commissioner. Moreover, the Commissioner may, motu propio, reverse, modify or alter any such ruling issued by the Assistant Commissioner, Legal Service or the Deputy Commissioner, Legal and Inspection Group, at any time after its issuance if he determines the same not to be in accordance with the established precedent rulings or pertinent tax laws and revenue issuances, but after due notice to the concerned taxpayer, and in accordance with Section 246 of the Tax Code of 1997, without prejudice however, to administrative sanctions relative to such actions.
SECTION 3. Interpretation of Claims for Exemptions. –
All claims and requests for tax exemptions must be strictly evaluated. Any doubt must be resolved in favor of the government.
SECTION 4. Repealing Clause. –
Any and all issuances found to be inconsistent with any of the foregoing provisions of this Order are hereby deemed amended or modified accordingly.
SECTION 5. Effectivity Clause. –
This Order shall take effect immediately and shall remain in force until such time that the Commissioner of Internal Revenue issues an Order reverting the delegation to the original designated signatories.
SECTION 6. Transitory Provision –
By way of exception to Section 5 above, all requests for rulings that have already been elevated to the Assistant Commissioner, Legal Service and/or the Deputy Commissioner, Legal and Inspection Group, as the case may be, for approval pursuant to the provisions of RMC No. 32-2007 but prior to the issuance of this Order shall be signed by them respectively, so that the signatories as indicated in the drafts for approval will not have to be changed anew.
(Original Signed)
JOSE MARIO C. BUÑAG
Commissioner of Internal Revenue
REVENUE MEMORANDUM CIRCULAR NO. 36 – 2007
SUBJECT: Circularizing the Full Text of Executive Order No. 619, an Order Creating and Designating Special Economic Zones Pursuant to Republic Act No. 7916 (RA No. 7916), as Amended by Republic Act No. 8784 (RA No. 8784), in Relation to Republic Act No. 7227 (RA No. 7227), as Amended by Republic Act No. 9400 (RA No. 9400), Inside the Clark Freeport Zone.
TO : All Internal Revenue Officials, Employees and Others Concerned
For the information and guidance of all concerned, quoted hereunder is full text of the Executive Order no. 619 issued by the President of the Philippines on April 26, 2007.
“EXECUTIVE ORDER NO. 619
CREATING AND DESIGNATING SPECIAL ECONOMIC ZONES PURSUANT TO REPUBLIC ACT NO. 7916, AS AMENDED BY RA 8784, IN RELATION TO RA 7227, AS AMENDED BY RA 9400, INSIDE THE CLARK FREEPORT ZONE.
WHEREAS, the development of Special Economic Zones (SEZ) designed to promote and accelerate a balanced and sound economic and social development of the country especially in the rural areas, is one of the major projects of the present administration;
WHEREAS, last 20 March 2007, RA 9400 was signed into law which categorically grants tax-incentives to Clark SEZ, Subic Special Economic and Freeport Zone, John Hay SEZ, Poro Point SEZ, and other SEZ to be created under RA 7227, as amended;
WHEREAS, Section 12 or RA 9400 repealed Section 50 of RA 7916, thereby recognizing that RA 7916, as amended, can now be made applicable to some SEZ created pursuant to RA 7227, as amended;
WHEREAS, the amendments in RA 9400 provides for the applicability of RA 7916, as amended, and the role of the Philippine Economic Zone Authority (PEZA) with respect to SEZ that may be created in Bataan, Zambales as well as in John Hay SEZ, but did not so provide for the applicability of RA 7916, as amended, in the Subic SEZ, Poro Point Freeport Zone, and the new Clark Freeport Zone;
WHEREAS, there is a need to make RA 7916, as amended, also applicable to the Clark Freeport Zone in areas to be specifically designated by the President by way of Proclamation;
NOW, THEREFORE, I, GLORIA MACAPAGAL-ARROYO, President of the Philippines, by virtue of the powers vested in me by law, hereby order:
Section 1. Duly registered business enterprises that will operate in special economic zones to be created by proclamation inside the Clark Freeport Zone shall be entitled to the same tax and duly incentives as provided for under R.A. 7916, as amended: Provided that for purpose of administering these incentives, the Philippine Economic Zone Authority shall register, regulate and supervise all registered enterprises within the said special economic zones.
Section 2. All laws, decrees, proclamation, rules and regulations or other issuances or parts thereof inconsistent with the provisions of this Executive Order are hereby repealed or modified accordingly.
Section 3. This Executive Order shall take effect immediately upon its publication in a national newspaper of general circulation.
Done, in the City of Manila, this 26th day of April, in the year of our Lord Two Thousand and Seven.
(Original Signed)
GLORIA MACAPAGAL-ARROYO
By the President:
(Original Signed)
EDUARDO R. ERMITA
Executive Secretary”
All concerned are hereby enjoined to be guided accordingly and give this circular a wide publicity as possible.
(Original Signed)
JOSE MARIO C. BUÑAG
Commissioner of Internal Revenue
TO : All Internal Revenue Officials, Employees and Others Concerned
For the information and guidance of all concerned, quoted hereunder is full text of the Executive Order no. 619 issued by the President of the Philippines on April 26, 2007.
“EXECUTIVE ORDER NO. 619
CREATING AND DESIGNATING SPECIAL ECONOMIC ZONES PURSUANT TO REPUBLIC ACT NO. 7916, AS AMENDED BY RA 8784, IN RELATION TO RA 7227, AS AMENDED BY RA 9400, INSIDE THE CLARK FREEPORT ZONE.
WHEREAS, the development of Special Economic Zones (SEZ) designed to promote and accelerate a balanced and sound economic and social development of the country especially in the rural areas, is one of the major projects of the present administration;
WHEREAS, last 20 March 2007, RA 9400 was signed into law which categorically grants tax-incentives to Clark SEZ, Subic Special Economic and Freeport Zone, John Hay SEZ, Poro Point SEZ, and other SEZ to be created under RA 7227, as amended;
WHEREAS, Section 12 or RA 9400 repealed Section 50 of RA 7916, thereby recognizing that RA 7916, as amended, can now be made applicable to some SEZ created pursuant to RA 7227, as amended;
WHEREAS, the amendments in RA 9400 provides for the applicability of RA 7916, as amended, and the role of the Philippine Economic Zone Authority (PEZA) with respect to SEZ that may be created in Bataan, Zambales as well as in John Hay SEZ, but did not so provide for the applicability of RA 7916, as amended, in the Subic SEZ, Poro Point Freeport Zone, and the new Clark Freeport Zone;
WHEREAS, there is a need to make RA 7916, as amended, also applicable to the Clark Freeport Zone in areas to be specifically designated by the President by way of Proclamation;
NOW, THEREFORE, I, GLORIA MACAPAGAL-ARROYO, President of the Philippines, by virtue of the powers vested in me by law, hereby order:
Section 1. Duly registered business enterprises that will operate in special economic zones to be created by proclamation inside the Clark Freeport Zone shall be entitled to the same tax and duly incentives as provided for under R.A. 7916, as amended: Provided that for purpose of administering these incentives, the Philippine Economic Zone Authority shall register, regulate and supervise all registered enterprises within the said special economic zones.
Section 2. All laws, decrees, proclamation, rules and regulations or other issuances or parts thereof inconsistent with the provisions of this Executive Order are hereby repealed or modified accordingly.
Section 3. This Executive Order shall take effect immediately upon its publication in a national newspaper of general circulation.
Done, in the City of Manila, this 26th day of April, in the year of our Lord Two Thousand and Seven.
(Original Signed)
GLORIA MACAPAGAL-ARROYO
By the President:
(Original Signed)
EDUARDO R. ERMITA
Executive Secretary”
All concerned are hereby enjoined to be guided accordingly and give this circular a wide publicity as possible.
(Original Signed)
JOSE MARIO C. BUÑAG
Commissioner of Internal Revenue
REVENUE REGULATIONS NO. 6-2007
Note: Suspended in RR 11-2007
SUBJECT : Consolidated Regulations on Advance Value Added Tax on the Sale of Refined Sugar, Amending and/or Revoking All Revenue Issuances Issued to this Effect, and for Other Related Purposes.
TO : All Internal Revenue Officers and Others Concerned.
Section 1. Scope. – Pursuant to the provisions of Sections 6 and 244, in relation to Sections 106, 109, 110, and 111(B)(1) all of the National Internal Revenue Code of 1977 (Code), as last amended by Republic Act No. 9337, in relation to Executive Order No. 18 dated May 28, 1986 (“Creating A Sugar Regulatory Administration”), Sugar Order No. 1 issued every crop year to allocate the volume of and classifying the cane sugar produced each production year, and Sugar Order No. 4, as amended by Sugar Order No. 4-A, Series of 2006 – 2007 (Conversion of “C” or Reserve Sugar into “D” or World Market Sugar and the Revised Sugar Classification and Percentage Allocation), these regulations are hereby promulgated (a) to prescribe the updated policies and procedures for the advance payment of value added tax (VAT) on the sale of refined sugar, including those made by a duly accredited and registered agricultural cooperative of good standing, (b) to prescribe policies and procedures for the classification of sugar and sugar products, (c) to provide for the monitoring system for the processing of raw sugar into refined sugar intended for the World Market (“D” sugar) or classified as “E” sugar or “A” sugar and the withdrawal thereof from the sugar refineries/mills, (d) to provide for the tax treatment of the raw sugar processed into refined sugar intended for the World Market (“D” sugar) or classified as “E” sugar or “A” sugar, and (e) for other related purposes.
Sec. 2. Definition of Terms. – For purposes of these regulations the following terms will be construed to mean:
a) Refined sugar - refers to sugar whose content of sucrose by weight, in the dry state, corresponds to a polarimeter reading of 99.5° and above. Cane sugar produced from the following shall be presumed, for internal revenue purposes, to be refined sugar:
(1) product of a refining process,
(2) products of a Sugar Refinery, or
(3) product of a production line of a sugar mill accredited by the Bureau of Internal Revenue (Bureau or BIR may be used interchangeably in these regulations) to be producing and/or capable of producing sugar with polarimeter reading of 99.5° and above, and for which the quedan issued therefore as verified by the Sugar Regulatory Administration (SRA) identifies the produced sugar to be of a polarimeter reading of 99.5° and above. Nonetheless, sugar produced from sugar production lines accredited by the Bureau to be capable of producing sugar with polarimeter reading of 99.5° or above shall be prima facie presumed to be refined sugar.
For this purpose, the Revenue District Office (RDO) having jurisdiction over the physical location of the sugar mill shall accredit the sugar mill production line as to their capability of producing sugar with a polarimeter reading of 99.5° or above. The result of said accreditation shall be published in a newspaper of general circulation.
b) Raw Sugar – refers to sugar whose content of sucrose by weight in dry state, corresponds to a polarimeter reading of less than 99.5º. Cane sugar produced each production year shall be classified, for internal revenue purposes, as follows:
(1) “A” is raw sugar which is intended for export to the United States Market.
(2) “B” is raw sugar which is intended for the Domestic Market.
(3) “C” is raw sugar which is reserved for but have not yet matured for release to the Domestic Market.
(4) “D” is raw sugar which is intended for export to the World Market.
(5) “E” is reclassified “D” sugar for sale to Customs Bonded Warehouse (CBW) Food Processors/Exporters.
For this purpose, the Bureau shall require all sugar refineries/mills to submit a Production Report (Annex “G”) every month indicating the volume of each sugar classification produced as certified by the SRA. The Bureau shall likewise monitor the volume of each class of sugar produced through the sugar quedans issued, as verified by the SRA.
c) Sugar Refinery/Mill includes refiner and/or miller of refined sugar as defined in Subsection (a) hereof.
Sec. 3. Requirement to Pay in Advance VAT on Sale of Refined Sugar. – In general, the advance VAT on the sale of refined sugar provided for under Sec. 8 hereof, shall be paid in advance by the owner/seller before the refined sugar is withdrawn from any sugar refinery/mill.
For this purpose, refined sugar shall not be released unless the owner first secures a Certificate of Advance Payment of VAT (Annex “E”) from the concerned RDO/Large Taxpayers Service (LTS), through Excise Tax Area (EXTA), or LTDO having jurisdiction over the Sugar Refinery/Mill. The Sugar Refinery/Mill shall be required to submit Monthly Report on the Quantity of Refined Sugar Milled/Produced and the Amount of Advance VAT Paid and Duly Remitted (Annex “J”) in order to confirm and/or verify that the requirements of this Section are complied with.
In cases where ownership of refined sugar is transferred by a cooperative to a buyer other than a cooperative, or by any owner to another person but the transaction would not qualify for the exemption provided for under Sec.4 hereof, the advance VAT on the sale of refined sugar shall be paid by the buyer to the Bureau through the Authorized Agent Bank (AAB), whether manually or through Electronic Filing and Payment System (EFPS) of the Bureau, or to the Revenue Collection Officer (RCO) or deputized/authorized City or Municipal Treasurer in places where there are no AABs, before any refined sugar can be withdrawn from any Sugar Refinery/Mill. The transferor/seller shall be required to submit monthly report of sugar sold (List of Buyers of Sugar marked as Annex “H” hereof) in order to confirm and/or verify that the requirements of this Section are complied with. Sec. 4. Exemption from the Payment of the Advance VAT. – The provisions of the foregoing Section to the contrary notwithstanding, the following withdrawals shall be exempt from the advance VAT:
(a) Withdrawal of Refined Sugar by Duly Accredited and Registered agricultural Cooperative of Good Standing. – In the event the refined sugar is owned and withdrawn from the Sugar Refinery/Mill by a duly accredited and registered agricultural cooperative of good standing with the Cooperative Development Authority (CDA), which cooperative is the producer of the sugar, the withdrawal is not subject to the payment of advance VAT. Upon presentation of the Authorization Allowing the Release of Refined Sugar (Annex “A”) and other documents prescribed in Sec. 5 hereof, the Sugar Refinery/Mill shall release the same but only after notifying the RDO/LTS, through EXTA, or LTDO or the assigned duty officer having jurisdiction over the Sugar Refinery/Mill of the time and date of the release of the sugar from the Sugar Refinery/Mill and the names and plate numbers of the sugar-carrying vehicles/trucks so that the release can be given proper supervision and that the advance VAT is collected from the transferee should evidence show that the refined sugar has already been sold by the cooperative.
However, withdrawal of refined sugar by the above-mentioned cooperative and sold to a trader is subject to VAT, unless the latter is a direct exporter. It is hereby made clear that if the refined sugar is owned and withdrawn from the Sugar Refinery/Mill by a duly accredited cooperative of good standing with the CDA, which cooperative is not the producer of sugar, the withdrawal of the refined sugar shall, in all instances, be subject to advance payment of VAT.
(b) Withdrawal of Refined Sugar by Duly Accredited and Registered Agricultural Cooperative which is sold to another Agricultural cooperative. – If the owner of the refined sugar as reflected in the quedan is an agricultural cooperative which is a producer of sugar, the sale to another agricultural cooperative is not subject to VAT pursuant to Sec. 109(L) of the Tax Code. Upon presentation of the Authorization Allowing the Release of Refined Sugar (Annex “A”) and other documents prescribed in Sec. 5 hereof, the Sugar Refinery/Mill shall release the same but only after notifying the RDO/LTS, through EXTA, or LTDO or the assigned duty officer having jurisdiction over the Sugar Refinery/Mill of the time and date of the release of the sugar from the Sugar Refinery/Mill and the names and plate numbers of the sugar-carrying vehicles/trucks so that the release can be given proper supervision and that the advance VAT is collected from the transferee should evidence show that the refined sugar has already been sold by the buyer cooperative to another taxable entity. However, if the seller-cooperative is not a producer but merely purchases the sugar cane from planter-members, its sale to another agricultural cooperative is subject to VAT and its withdrawal from the Sugar Refinery/Mill will only be allowed upon payment of the advance VAT. Moreover, it is to be repeatedly emphasized that when the purchaser-cooperative of the refined sugar which was not subjected to advance VAT subsequently sells the same to another, whether or not a cooperative, the sale is always subject to VAT.
(c) Withdrawal of Refined Sugar Sold to Direct Exporter. – In instances where the raw sugar, which has been classified as “A” and “D” sugar by the SRA, respectively, is further processed into refined sugar, the refined “A” sugar or “D” sugar can be withdrawn from any Sugar Refinery/Mill without the imposition of the advance VAT on the sale of refined sugar if its transferee or buyer is a direct exporter (e.g., Registered Sugar Trader) of the refined “A” and/or “D” sugar under the classification made by SRA.
(d) Withdrawal of Refined Sugar Sold to Customs Bonded Warehouse Food Processor/Exporter, or to an Enterprise Located Within a Special Export Processing Zone. – Where the raw sugar previously classified as “D” sugar is reclassified as “E” sugar and is further processed into refined sugar, the refined “E” sugar can be withdrawn from any Sugar Refinery/Mill without the imposition of the advance VAT on the sale of refined sugar if the transferee or buyer is - a Customs Bonded Warehouse (CBW) food processor/exporter, or is located within a special export processing zone. The owner of the refined sugar processed from the raw sugar classified as either “A” sugar, “D” sugar, or “E” sugar, shall present the Authorization Allowing the Release of Refined Sugar (Annex “B”) and other documents prescribed in Sec. 5 hereof, to the Sugar Refinery/Mill and the latter shall release the same but only after notifying the RDO/LTS, through EXTA, or LTDO Division Chief or the assigned duty officer having jurisdiction over the refinery/mill of the time and date of release of the sugar from the refinery/mill and the names and plate numbers of the sugar-carrying vehicles/trucks so that the release can be given proper supervision and that the advance VAT is collected from the transferee should evidence show that the refined sugar has already been sold by the owner to buyers other than the persons referred to in subsections (c) and (d) of this Section.
Sec. 5. Documents Required as a Condition for Withdrawal or Transfer of Ownership of Refined Sugar. – Except in cases of exempt withdrawals as provided in Sec. 4 hereof, the proprietor or operator of a Sugar Refinery/Mill shall not allow any withdrawal of refined sugar from its premises without the advance payment of VAT required under Sec. 3 hereof. Any person making the withdrawal or transfer shall submit proof of such payment as prescribed in Sec. 6 hereof.
Provided, that, if the withdrawal is made by a duly accredited and registered agricultural cooperative of good standing which is allowed to withdraw refined sugar without payment of advance VAT, as discussed in the preceding paragraphs, what shall be submitted to the Sugar Refinery/Mill is the evidence of ownership of the refined sugar, the Authorization Allowing the Release of Refined Sugar (Annex “A”), and the Sworn Statement (Annex “C”) prescribed for cooperatives.
Provided, further that, when the refined sugar is processed from the raw sugar which has been classified as “A” sugar, “D” sugar or “E” sugar per classification made by the SRA and the transferee or buyer of the “A” and “D” refined sugar is a direct exporter (to the U.S. market or world market), and for “E” sugar is a CBW food processor/exporter, or is located within a special export processing zone, the quedan of the “A” sugar, “D” sugar or “E” sugar from which the refined sugar is processed, will be submitted as proof of ownership and classification of the raw sugar processed. In addition, the Authorization Allowing the Release of Refined Sugar (Annex “B”) and the Sworn Statement (Annex “D”) provided in these regulations shall be presented to the Sugar Refinery/Mill.
The failure of the Sugar Refinery/Mill to comply with the foregoing shall be a ground for the imposition of deficiency VAT on the withdrawal of the aforesaid refined sugar processed from “A” sugar, “D” sugar or “E” sugar allocation by the SRA. The Regional Director, upon the recommendation of the concerned RDO having jurisdiction over the Sugar Refinery/Mill, may assign a Revenue Officer to be present during the withdrawal of refined sugar from the premises of the refinery/mill to ensure compliance with the requirements of this Section. However, for taxpayers under the jurisdiction of the LTS, the Revenue Officer assigned on premise (ROOP) by the EXTA Head shall monitor and ensure compliance thereof.
In all cases where ownership of refined sugar is transferred and the transfer does not qualify for the exemption from payment of advance VAT, no refined sugar shall be released without the presentation of the Certificate of Advance Payment of VAT (Annex “E”) duly issued by the BIR together with proof of payments, photo copies of which shall be retained on file by the seller/transferor and be made available for tax audit purposes.
Sec. 6. Proof of Advance Payment. – The concerned RDO/LTS, through EXTA, or LTDO having jurisdiction over the physical location of the Sugar Refinery/Mill shall issue a Certificate of Advance Payment of the VAT (Annex “E”) as required under Sec. 3 hereof. This certificate shall serve as the authority of the Sugar Refinery/Mill to release the refined sugar described therein, and together with the Payment Form (BIR Form No. 0605 or its equivalent) and the BIRprescribed deposit slip duly validated by the AAB (manual/EFPS) or the Revenue Official Receipt (ROR) issued by the RCO or the deputized/authorized City or Municipal Treasurer, as the case may be, shall serve as proof of the payment for the advance VAT which can be credited against the VAT liability/payable in the Monthly VAT declaration or Quarterly VAT return to be filed.
Sec. 7. Proof of Exemption from the Advance Payment. – If a duly accredited and registered agricultural cooperative of good standing which is allowed to withdraw refined sugar without advance payment of VAT claims ownership of the refined sugar stocked in the Sugar Refinery/Mill, the latter shall not release the said refined sugar unless an Authorization Allowing the Release of Refined Sugar (Annex “A”) is first secured from the concerned RDO, LTS, through EXTA, or LTDO having jurisdiction over the Sugar Refinery/Mill. In securing such authorization, the cooperative shall, in addition to that of satisfying VAT-exemption requirements under RR No. 20-2001, submit to the concerned RDO a Sworn Statement (Annex “C”) to the effect that:
(a) The refined sugar has not been bidded, sold or otherwise transferred in ownership, at anytime prior to the removal from the refinery/mill, to a trader or another entity; and
(b) The refined sugar is the property of the cooperative at the time of removal and it will not charge advance VAT or any other tax to the future buyer. If the cooperative invokes ownership over the sugar cane and the refined/milled sugar, the sugar quedans must be in the name of the duly registered cooperative. For exempt withdrawals under Sec. 4 hereof, the Sugar Refinery/Mill shall require the submission of the Authorization Allowing the Release of Refined Sugar (Annex “B”), the duly accomplished Sworn Statement (Annex “D”) specifying therein the transferee, and the quedan.
Sec. 8. Basis for Determining the Amount of Advance VAT Payment. – a) Base Price. - The amount of advance VAT payment shall be determined by applying the VAT rate of 12% on the applicable base price of P 850.00 per 50 kg. bag for refined sugar produced by a Sugar Refinery, and P 760.00 per 50 kg. bag for refined sugar produced by a Sugar Mill. b) Subsequent Base Price Adjustments. - The base price upon which the advance payment of VAT will be computed under the preceding paragraph shall be adjusted when deemed necessary by the Commissioner, upon consultation with the Chairman of the SRA.
Sec. 9. Credit for Advance VAT Payments. – In addition to the input tax credits allowed under Section 110 of the Code, the amount of advance payments made by sellers of refined sugar under these regulations shall be allowed as credit against their output tax on the actual gross selling price of refined sugar. The Certificate of Advance Payment of the VAT (Annex “E”) issued under Sec. 6 hereof shall be attached to the Monthly VAT declaration/Quarterly VAT return to support the claim for credit of advance VAT payment.
Sec. 10. Presumptive Input Tax. – Persons or firms engaged in the production and manufacturing of refined sugar for their own account shall be allowed a presumptive input tax, which is creditable against the output tax, equivalent to four (4%) percent of the gross value in money of their purchases of primary agricultural products which are used as inputs to their production. Primary agricultural products shall be limited to sugar cane and other agricultural products which are the main raw materials for the production of sugar.
Sec. 11. Place and Time of Remittance of Advance Payment of VAT. – The advance payment shall be made by the owner-seller of the refined sugar before the refined sugar is withdrawn and remit the same to any AAB (manual/EFPS) or RCO or deputized/authorized City or Municipal Treasurer of the RDO having jurisdiction over the Sugar Refinery/Mill. However, if the ownerseller of the refined sugar is under the jurisdiction of the LTS or LTDO, the remittance shall only be done through the EFPS or made to an AAB authorized to receive payment from large taxpayers to ensure proper crediting of payment.
Sec. 12. Information Returns to be Filed by the Proprietor or Operator of a Sugar Refinery/Mill, Cooperatives, and CBW Food Processors/Exporters and Others. - Every proprietor or operator of a Sugar Refinery/Mill with production line accredited by the Bureau to be capable of producing sugar with a polarimeter reading of 99.5° or above, or mill producing sugar with polarimeter reading of 99.5° or above shall render an Information Return (Annex “F”) to the RDO/LTS, through EXTA, or LTDO having jurisdiction over the said Sugar Refinery/Mill which issues the Certificate of Advance Payment of VAT (Annex “E”) or Authorization Allowing the Release of Refined Sugar (Annex “A”) not later than the 10th day following the end of the month. The aforesaid Information Return shall reflect the following information: a) Name, Address, TIN and RDO number of the owner of the refined sugar; b) Number of bags of refined sugar released; and c) Amount of advance VAT paid.
In case of refined sugar processed from “A”, “D” or “E” sugar classification, every proprietor or operator of Sugar Refinery/Mill shall likewise submit to the RDO/LTS, through EXTA, or LTDO having jurisdiction over the said refinery/mill which issues the Authorization Allowing the Release of Refined Sugar (Annex “B”) not later than the 10th day following the end of the month, a Production Report (Annex “G”) on the processing of the “A”, “D” or “E” sugar which shall reflect the following information:
a) Name, Address, TIN and RDO number of the owner of the “A”, “D” or “E” sugar classification processed;
b) Volume of “A”, “D” or “E” sugar classification processed;
c) Number of bags of refined sugar produced; and
d) Quedan for the “A”, “D” or “E” sugar processed.
The Sugar Refinery/Mill shall also be required to submit Monthly Report on the Quantity of Refined Sugar Milled/Produced and the Amount of Advance VAT Paid and Duly Remitted (Annex “J”) to the RDO/LTS, through EXTA, or LTDO having jurisdiction over the Sugar Refinery/Mill which issues the Certificate of Advance Payment of VAT (Annex “E”) or Authorization Allowing the Release of Refined Sugar (Annex “A”) not later than the 10th day following the end of the month which shall reflect the following information:
a) Name, Address, TIN and RDO number of the owner of the refined sugar;
b) Number of bags of refined sugar tolled/produced;
c) Amount of advance VAT paid/collected;
d) Total base price subjected to advance payment of VAT; and
e) Total base price not subjected to advance payment of VAT.
Likewise, every duly accredited and registered agricultural cooperative of good standing shall submit to the RDO/LTS, through EXTA, or LTDO where it is registered a List of Buyers of Sugar (Annex “H”), together with a copy of the Certificate of Advance Payment of VAT (Annex “E”) made by each of the respective buyer appearing in the list, not later than the 10th day following the end of the month with the following information:
a) Name, Address, TIN and RDO number of the buyer of sugar;
b) Number of bags of refined sugar sold/LKG;
c) Amount of sales; and
d) Amount of Advance VAT paid, if any.
Any exporter of refined sugar processed from the raw “A”, “D” or “E” sugar classification shall submit an Information Return (Annex “I”) to the RDO/LTS, through EXTA, or LTDO having jurisdictio n over the exporter, copy furnished the RDO/LTS or LTDO having jurisdiction over the Sugar Refinery/Mill which processed the raw “A”, “D” or “E” sugar into refined sugar, not later than the 10th day following the end of the month, which shall reflect the following information:
a) Volume of acquisition of refined sugar processed from raw “A”, “D” or “E” sugar;
b) Volume of exportation of refined sugar processed from raw “A”, “D” or “E” sugar;
c) Amount of sales; and
d) Name, address/location of importer/buyer.
All CBW food processors/exporters to whom the refined sugar processed from “A”, “D” or “E” sugar is transferred by its owner, and all export food processors which acquired the refined sugar processed from “A”, “D” or “E” sugar are required to liquidate their exports in the same manner as prescribed by the Bureau of Customs (BOC) and the SRA for duty- and VAT- free importation. Furthermore, advance VAT shall be collected from the transferee of the “A”, “D” or “E” sugar quedan not liquidated in accordance with the provisions mandated by the BOC and the SRA.
Sec. 13. Issuance of Tax Credit Certificate for Unutilized Advance VAT Payments. – The advance payments made by the seller/owner of refined sugar shall be allowed as credit against their output tax on the actual gross selling price of refined sugar. However, advance payments which remain unutilized at the end of taxpayer’s taxable year where the advance payment was made, which is tantamount to excess payment, may, at the option of the owner/seller, be available for the issuance of TCC upon application duly filed with the BIR by the seller/owner within two (2) years from the date of filing of the 4th quarter VAT return of the year such advance payments were made, or if filed out of time, from the last day prescribed by law for filing the return.
Advance VAT payments which have been the subject of an application for the issuance of TCC shall not be allowed as carry-over nor credited against the output tax of the succeeding quarter/year. Advance VAT payments which remained unutilized for more than one (1) year prior to the effectivity of these regulations may, at the option of the seller/owner of the refined sugar be the subject of application for TCC to be filed within two (2) years from the date of filing of the last quarterly VAT return where the unutilized advance VAT payments appeared, or if filed out of time, from the last day prescribed by law for filing the return.
Issuance of TCC shall be limited to the unutilized advance VAT payment and shall not include excess input tax. Issuance of TCC for input tax attributable to zero-rated sales shall be covered by a separate application for TCC following applicable rules.
Sec. 14. Penalty Clause. – Any violation of the provisions of these regulations shall be subject to penalties provided in Sections 254 and 275, and other pertinent provisions of the Code, as amended.
Sec. 15. Repealing Clause. – The provisions of all internal revenue issuances inconsistent herewith are hereby amended or revoked accordingly.
Sec. 16. Effectivity. – These regulations shall take effect after fifteen (15) days following its publication in a newspaper of general circulation.
(Original Signed)
MARGARITO B. TEVES
Secretary of Finance
Recommending Approval:
(Original Signed)
JOSE MARIO C. BUÑAG
Commissioner of Internal Revenue
CJU ______
EBC______
LBH______
ERA______
SUBJECT : Consolidated Regulations on Advance Value Added Tax on the Sale of Refined Sugar, Amending and/or Revoking All Revenue Issuances Issued to this Effect, and for Other Related Purposes.
TO : All Internal Revenue Officers and Others Concerned.
Section 1. Scope. – Pursuant to the provisions of Sections 6 and 244, in relation to Sections 106, 109, 110, and 111(B)(1) all of the National Internal Revenue Code of 1977 (Code), as last amended by Republic Act No. 9337, in relation to Executive Order No. 18 dated May 28, 1986 (“Creating A Sugar Regulatory Administration”), Sugar Order No. 1 issued every crop year to allocate the volume of and classifying the cane sugar produced each production year, and Sugar Order No. 4, as amended by Sugar Order No. 4-A, Series of 2006 – 2007 (Conversion of “C” or Reserve Sugar into “D” or World Market Sugar and the Revised Sugar Classification and Percentage Allocation), these regulations are hereby promulgated (a) to prescribe the updated policies and procedures for the advance payment of value added tax (VAT) on the sale of refined sugar, including those made by a duly accredited and registered agricultural cooperative of good standing, (b) to prescribe policies and procedures for the classification of sugar and sugar products, (c) to provide for the monitoring system for the processing of raw sugar into refined sugar intended for the World Market (“D” sugar) or classified as “E” sugar or “A” sugar and the withdrawal thereof from the sugar refineries/mills, (d) to provide for the tax treatment of the raw sugar processed into refined sugar intended for the World Market (“D” sugar) or classified as “E” sugar or “A” sugar, and (e) for other related purposes.
Sec. 2. Definition of Terms. – For purposes of these regulations the following terms will be construed to mean:
a) Refined sugar - refers to sugar whose content of sucrose by weight, in the dry state, corresponds to a polarimeter reading of 99.5° and above. Cane sugar produced from the following shall be presumed, for internal revenue purposes, to be refined sugar:
(1) product of a refining process,
(2) products of a Sugar Refinery, or
(3) product of a production line of a sugar mill accredited by the Bureau of Internal Revenue (Bureau or BIR may be used interchangeably in these regulations) to be producing and/or capable of producing sugar with polarimeter reading of 99.5° and above, and for which the quedan issued therefore as verified by the Sugar Regulatory Administration (SRA) identifies the produced sugar to be of a polarimeter reading of 99.5° and above. Nonetheless, sugar produced from sugar production lines accredited by the Bureau to be capable of producing sugar with polarimeter reading of 99.5° or above shall be prima facie presumed to be refined sugar.
For this purpose, the Revenue District Office (RDO) having jurisdiction over the physical location of the sugar mill shall accredit the sugar mill production line as to their capability of producing sugar with a polarimeter reading of 99.5° or above. The result of said accreditation shall be published in a newspaper of general circulation.
b) Raw Sugar – refers to sugar whose content of sucrose by weight in dry state, corresponds to a polarimeter reading of less than 99.5º. Cane sugar produced each production year shall be classified, for internal revenue purposes, as follows:
(1) “A” is raw sugar which is intended for export to the United States Market.
(2) “B” is raw sugar which is intended for the Domestic Market.
(3) “C” is raw sugar which is reserved for but have not yet matured for release to the Domestic Market.
(4) “D” is raw sugar which is intended for export to the World Market.
(5) “E” is reclassified “D” sugar for sale to Customs Bonded Warehouse (CBW) Food Processors/Exporters.
For this purpose, the Bureau shall require all sugar refineries/mills to submit a Production Report (Annex “G”) every month indicating the volume of each sugar classification produced as certified by the SRA. The Bureau shall likewise monitor the volume of each class of sugar produced through the sugar quedans issued, as verified by the SRA.
c) Sugar Refinery/Mill includes refiner and/or miller of refined sugar as defined in Subsection (a) hereof.
Sec. 3. Requirement to Pay in Advance VAT on Sale of Refined Sugar. – In general, the advance VAT on the sale of refined sugar provided for under Sec. 8 hereof, shall be paid in advance by the owner/seller before the refined sugar is withdrawn from any sugar refinery/mill.
For this purpose, refined sugar shall not be released unless the owner first secures a Certificate of Advance Payment of VAT (Annex “E”) from the concerned RDO/Large Taxpayers Service (LTS), through Excise Tax Area (EXTA), or LTDO having jurisdiction over the Sugar Refinery/Mill. The Sugar Refinery/Mill shall be required to submit Monthly Report on the Quantity of Refined Sugar Milled/Produced and the Amount of Advance VAT Paid and Duly Remitted (Annex “J”) in order to confirm and/or verify that the requirements of this Section are complied with.
In cases where ownership of refined sugar is transferred by a cooperative to a buyer other than a cooperative, or by any owner to another person but the transaction would not qualify for the exemption provided for under Sec.4 hereof, the advance VAT on the sale of refined sugar shall be paid by the buyer to the Bureau through the Authorized Agent Bank (AAB), whether manually or through Electronic Filing and Payment System (EFPS) of the Bureau, or to the Revenue Collection Officer (RCO) or deputized/authorized City or Municipal Treasurer in places where there are no AABs, before any refined sugar can be withdrawn from any Sugar Refinery/Mill. The transferor/seller shall be required to submit monthly report of sugar sold (List of Buyers of Sugar marked as Annex “H” hereof) in order to confirm and/or verify that the requirements of this Section are complied with. Sec. 4. Exemption from the Payment of the Advance VAT. – The provisions of the foregoing Section to the contrary notwithstanding, the following withdrawals shall be exempt from the advance VAT:
(a) Withdrawal of Refined Sugar by Duly Accredited and Registered agricultural Cooperative of Good Standing. – In the event the refined sugar is owned and withdrawn from the Sugar Refinery/Mill by a duly accredited and registered agricultural cooperative of good standing with the Cooperative Development Authority (CDA), which cooperative is the producer of the sugar, the withdrawal is not subject to the payment of advance VAT. Upon presentation of the Authorization Allowing the Release of Refined Sugar (Annex “A”) and other documents prescribed in Sec. 5 hereof, the Sugar Refinery/Mill shall release the same but only after notifying the RDO/LTS, through EXTA, or LTDO or the assigned duty officer having jurisdiction over the Sugar Refinery/Mill of the time and date of the release of the sugar from the Sugar Refinery/Mill and the names and plate numbers of the sugar-carrying vehicles/trucks so that the release can be given proper supervision and that the advance VAT is collected from the transferee should evidence show that the refined sugar has already been sold by the cooperative.
However, withdrawal of refined sugar by the above-mentioned cooperative and sold to a trader is subject to VAT, unless the latter is a direct exporter. It is hereby made clear that if the refined sugar is owned and withdrawn from the Sugar Refinery/Mill by a duly accredited cooperative of good standing with the CDA, which cooperative is not the producer of sugar, the withdrawal of the refined sugar shall, in all instances, be subject to advance payment of VAT.
(b) Withdrawal of Refined Sugar by Duly Accredited and Registered Agricultural Cooperative which is sold to another Agricultural cooperative. – If the owner of the refined sugar as reflected in the quedan is an agricultural cooperative which is a producer of sugar, the sale to another agricultural cooperative is not subject to VAT pursuant to Sec. 109(L) of the Tax Code. Upon presentation of the Authorization Allowing the Release of Refined Sugar (Annex “A”) and other documents prescribed in Sec. 5 hereof, the Sugar Refinery/Mill shall release the same but only after notifying the RDO/LTS, through EXTA, or LTDO or the assigned duty officer having jurisdiction over the Sugar Refinery/Mill of the time and date of the release of the sugar from the Sugar Refinery/Mill and the names and plate numbers of the sugar-carrying vehicles/trucks so that the release can be given proper supervision and that the advance VAT is collected from the transferee should evidence show that the refined sugar has already been sold by the buyer cooperative to another taxable entity. However, if the seller-cooperative is not a producer but merely purchases the sugar cane from planter-members, its sale to another agricultural cooperative is subject to VAT and its withdrawal from the Sugar Refinery/Mill will only be allowed upon payment of the advance VAT. Moreover, it is to be repeatedly emphasized that when the purchaser-cooperative of the refined sugar which was not subjected to advance VAT subsequently sells the same to another, whether or not a cooperative, the sale is always subject to VAT.
(c) Withdrawal of Refined Sugar Sold to Direct Exporter. – In instances where the raw sugar, which has been classified as “A” and “D” sugar by the SRA, respectively, is further processed into refined sugar, the refined “A” sugar or “D” sugar can be withdrawn from any Sugar Refinery/Mill without the imposition of the advance VAT on the sale of refined sugar if its transferee or buyer is a direct exporter (e.g., Registered Sugar Trader) of the refined “A” and/or “D” sugar under the classification made by SRA.
(d) Withdrawal of Refined Sugar Sold to Customs Bonded Warehouse Food Processor/Exporter, or to an Enterprise Located Within a Special Export Processing Zone. – Where the raw sugar previously classified as “D” sugar is reclassified as “E” sugar and is further processed into refined sugar, the refined “E” sugar can be withdrawn from any Sugar Refinery/Mill without the imposition of the advance VAT on the sale of refined sugar if the transferee or buyer is - a Customs Bonded Warehouse (CBW) food processor/exporter, or is located within a special export processing zone. The owner of the refined sugar processed from the raw sugar classified as either “A” sugar, “D” sugar, or “E” sugar, shall present the Authorization Allowing the Release of Refined Sugar (Annex “B”) and other documents prescribed in Sec. 5 hereof, to the Sugar Refinery/Mill and the latter shall release the same but only after notifying the RDO/LTS, through EXTA, or LTDO Division Chief or the assigned duty officer having jurisdiction over the refinery/mill of the time and date of release of the sugar from the refinery/mill and the names and plate numbers of the sugar-carrying vehicles/trucks so that the release can be given proper supervision and that the advance VAT is collected from the transferee should evidence show that the refined sugar has already been sold by the owner to buyers other than the persons referred to in subsections (c) and (d) of this Section.
Sec. 5. Documents Required as a Condition for Withdrawal or Transfer of Ownership of Refined Sugar. – Except in cases of exempt withdrawals as provided in Sec. 4 hereof, the proprietor or operator of a Sugar Refinery/Mill shall not allow any withdrawal of refined sugar from its premises without the advance payment of VAT required under Sec. 3 hereof. Any person making the withdrawal or transfer shall submit proof of such payment as prescribed in Sec. 6 hereof.
Provided, that, if the withdrawal is made by a duly accredited and registered agricultural cooperative of good standing which is allowed to withdraw refined sugar without payment of advance VAT, as discussed in the preceding paragraphs, what shall be submitted to the Sugar Refinery/Mill is the evidence of ownership of the refined sugar, the Authorization Allowing the Release of Refined Sugar (Annex “A”), and the Sworn Statement (Annex “C”) prescribed for cooperatives.
Provided, further that, when the refined sugar is processed from the raw sugar which has been classified as “A” sugar, “D” sugar or “E” sugar per classification made by the SRA and the transferee or buyer of the “A” and “D” refined sugar is a direct exporter (to the U.S. market or world market), and for “E” sugar is a CBW food processor/exporter, or is located within a special export processing zone, the quedan of the “A” sugar, “D” sugar or “E” sugar from which the refined sugar is processed, will be submitted as proof of ownership and classification of the raw sugar processed. In addition, the Authorization Allowing the Release of Refined Sugar (Annex “B”) and the Sworn Statement (Annex “D”) provided in these regulations shall be presented to the Sugar Refinery/Mill.
The failure of the Sugar Refinery/Mill to comply with the foregoing shall be a ground for the imposition of deficiency VAT on the withdrawal of the aforesaid refined sugar processed from “A” sugar, “D” sugar or “E” sugar allocation by the SRA. The Regional Director, upon the recommendation of the concerned RDO having jurisdiction over the Sugar Refinery/Mill, may assign a Revenue Officer to be present during the withdrawal of refined sugar from the premises of the refinery/mill to ensure compliance with the requirements of this Section. However, for taxpayers under the jurisdiction of the LTS, the Revenue Officer assigned on premise (ROOP) by the EXTA Head shall monitor and ensure compliance thereof.
In all cases where ownership of refined sugar is transferred and the transfer does not qualify for the exemption from payment of advance VAT, no refined sugar shall be released without the presentation of the Certificate of Advance Payment of VAT (Annex “E”) duly issued by the BIR together with proof of payments, photo copies of which shall be retained on file by the seller/transferor and be made available for tax audit purposes.
Sec. 6. Proof of Advance Payment. – The concerned RDO/LTS, through EXTA, or LTDO having jurisdiction over the physical location of the Sugar Refinery/Mill shall issue a Certificate of Advance Payment of the VAT (Annex “E”) as required under Sec. 3 hereof. This certificate shall serve as the authority of the Sugar Refinery/Mill to release the refined sugar described therein, and together with the Payment Form (BIR Form No. 0605 or its equivalent) and the BIRprescribed deposit slip duly validated by the AAB (manual/EFPS) or the Revenue Official Receipt (ROR) issued by the RCO or the deputized/authorized City or Municipal Treasurer, as the case may be, shall serve as proof of the payment for the advance VAT which can be credited against the VAT liability/payable in the Monthly VAT declaration or Quarterly VAT return to be filed.
Sec. 7. Proof of Exemption from the Advance Payment. – If a duly accredited and registered agricultural cooperative of good standing which is allowed to withdraw refined sugar without advance payment of VAT claims ownership of the refined sugar stocked in the Sugar Refinery/Mill, the latter shall not release the said refined sugar unless an Authorization Allowing the Release of Refined Sugar (Annex “A”) is first secured from the concerned RDO, LTS, through EXTA, or LTDO having jurisdiction over the Sugar Refinery/Mill. In securing such authorization, the cooperative shall, in addition to that of satisfying VAT-exemption requirements under RR No. 20-2001, submit to the concerned RDO a Sworn Statement (Annex “C”) to the effect that:
(a) The refined sugar has not been bidded, sold or otherwise transferred in ownership, at anytime prior to the removal from the refinery/mill, to a trader or another entity; and
(b) The refined sugar is the property of the cooperative at the time of removal and it will not charge advance VAT or any other tax to the future buyer. If the cooperative invokes ownership over the sugar cane and the refined/milled sugar, the sugar quedans must be in the name of the duly registered cooperative. For exempt withdrawals under Sec. 4 hereof, the Sugar Refinery/Mill shall require the submission of the Authorization Allowing the Release of Refined Sugar (Annex “B”), the duly accomplished Sworn Statement (Annex “D”) specifying therein the transferee, and the quedan.
Sec. 8. Basis for Determining the Amount of Advance VAT Payment. – a) Base Price. - The amount of advance VAT payment shall be determined by applying the VAT rate of 12% on the applicable base price of P 850.00 per 50 kg. bag for refined sugar produced by a Sugar Refinery, and P 760.00 per 50 kg. bag for refined sugar produced by a Sugar Mill. b) Subsequent Base Price Adjustments. - The base price upon which the advance payment of VAT will be computed under the preceding paragraph shall be adjusted when deemed necessary by the Commissioner, upon consultation with the Chairman of the SRA.
Sec. 9. Credit for Advance VAT Payments. – In addition to the input tax credits allowed under Section 110 of the Code, the amount of advance payments made by sellers of refined sugar under these regulations shall be allowed as credit against their output tax on the actual gross selling price of refined sugar. The Certificate of Advance Payment of the VAT (Annex “E”) issued under Sec. 6 hereof shall be attached to the Monthly VAT declaration/Quarterly VAT return to support the claim for credit of advance VAT payment.
Sec. 10. Presumptive Input Tax. – Persons or firms engaged in the production and manufacturing of refined sugar for their own account shall be allowed a presumptive input tax, which is creditable against the output tax, equivalent to four (4%) percent of the gross value in money of their purchases of primary agricultural products which are used as inputs to their production. Primary agricultural products shall be limited to sugar cane and other agricultural products which are the main raw materials for the production of sugar.
Sec. 11. Place and Time of Remittance of Advance Payment of VAT. – The advance payment shall be made by the owner-seller of the refined sugar before the refined sugar is withdrawn and remit the same to any AAB (manual/EFPS) or RCO or deputized/authorized City or Municipal Treasurer of the RDO having jurisdiction over the Sugar Refinery/Mill. However, if the ownerseller of the refined sugar is under the jurisdiction of the LTS or LTDO, the remittance shall only be done through the EFPS or made to an AAB authorized to receive payment from large taxpayers to ensure proper crediting of payment.
Sec. 12. Information Returns to be Filed by the Proprietor or Operator of a Sugar Refinery/Mill, Cooperatives, and CBW Food Processors/Exporters and Others. - Every proprietor or operator of a Sugar Refinery/Mill with production line accredited by the Bureau to be capable of producing sugar with a polarimeter reading of 99.5° or above, or mill producing sugar with polarimeter reading of 99.5° or above shall render an Information Return (Annex “F”) to the RDO/LTS, through EXTA, or LTDO having jurisdiction over the said Sugar Refinery/Mill which issues the Certificate of Advance Payment of VAT (Annex “E”) or Authorization Allowing the Release of Refined Sugar (Annex “A”) not later than the 10th day following the end of the month. The aforesaid Information Return shall reflect the following information: a) Name, Address, TIN and RDO number of the owner of the refined sugar; b) Number of bags of refined sugar released; and c) Amount of advance VAT paid.
In case of refined sugar processed from “A”, “D” or “E” sugar classification, every proprietor or operator of Sugar Refinery/Mill shall likewise submit to the RDO/LTS, through EXTA, or LTDO having jurisdiction over the said refinery/mill which issues the Authorization Allowing the Release of Refined Sugar (Annex “B”) not later than the 10th day following the end of the month, a Production Report (Annex “G”) on the processing of the “A”, “D” or “E” sugar which shall reflect the following information:
a) Name, Address, TIN and RDO number of the owner of the “A”, “D” or “E” sugar classification processed;
b) Volume of “A”, “D” or “E” sugar classification processed;
c) Number of bags of refined sugar produced; and
d) Quedan for the “A”, “D” or “E” sugar processed.
The Sugar Refinery/Mill shall also be required to submit Monthly Report on the Quantity of Refined Sugar Milled/Produced and the Amount of Advance VAT Paid and Duly Remitted (Annex “J”) to the RDO/LTS, through EXTA, or LTDO having jurisdiction over the Sugar Refinery/Mill which issues the Certificate of Advance Payment of VAT (Annex “E”) or Authorization Allowing the Release of Refined Sugar (Annex “A”) not later than the 10th day following the end of the month which shall reflect the following information:
a) Name, Address, TIN and RDO number of the owner of the refined sugar;
b) Number of bags of refined sugar tolled/produced;
c) Amount of advance VAT paid/collected;
d) Total base price subjected to advance payment of VAT; and
e) Total base price not subjected to advance payment of VAT.
Likewise, every duly accredited and registered agricultural cooperative of good standing shall submit to the RDO/LTS, through EXTA, or LTDO where it is registered a List of Buyers of Sugar (Annex “H”), together with a copy of the Certificate of Advance Payment of VAT (Annex “E”) made by each of the respective buyer appearing in the list, not later than the 10th day following the end of the month with the following information:
a) Name, Address, TIN and RDO number of the buyer of sugar;
b) Number of bags of refined sugar sold/LKG;
c) Amount of sales; and
d) Amount of Advance VAT paid, if any.
Any exporter of refined sugar processed from the raw “A”, “D” or “E” sugar classification shall submit an Information Return (Annex “I”) to the RDO/LTS, through EXTA, or LTDO having jurisdictio n over the exporter, copy furnished the RDO/LTS or LTDO having jurisdiction over the Sugar Refinery/Mill which processed the raw “A”, “D” or “E” sugar into refined sugar, not later than the 10th day following the end of the month, which shall reflect the following information:
a) Volume of acquisition of refined sugar processed from raw “A”, “D” or “E” sugar;
b) Volume of exportation of refined sugar processed from raw “A”, “D” or “E” sugar;
c) Amount of sales; and
d) Name, address/location of importer/buyer.
All CBW food processors/exporters to whom the refined sugar processed from “A”, “D” or “E” sugar is transferred by its owner, and all export food processors which acquired the refined sugar processed from “A”, “D” or “E” sugar are required to liquidate their exports in the same manner as prescribed by the Bureau of Customs (BOC) and the SRA for duty- and VAT- free importation. Furthermore, advance VAT shall be collected from the transferee of the “A”, “D” or “E” sugar quedan not liquidated in accordance with the provisions mandated by the BOC and the SRA.
Sec. 13. Issuance of Tax Credit Certificate for Unutilized Advance VAT Payments. – The advance payments made by the seller/owner of refined sugar shall be allowed as credit against their output tax on the actual gross selling price of refined sugar. However, advance payments which remain unutilized at the end of taxpayer’s taxable year where the advance payment was made, which is tantamount to excess payment, may, at the option of the owner/seller, be available for the issuance of TCC upon application duly filed with the BIR by the seller/owner within two (2) years from the date of filing of the 4th quarter VAT return of the year such advance payments were made, or if filed out of time, from the last day prescribed by law for filing the return.
Advance VAT payments which have been the subject of an application for the issuance of TCC shall not be allowed as carry-over nor credited against the output tax of the succeeding quarter/year. Advance VAT payments which remained unutilized for more than one (1) year prior to the effectivity of these regulations may, at the option of the seller/owner of the refined sugar be the subject of application for TCC to be filed within two (2) years from the date of filing of the last quarterly VAT return where the unutilized advance VAT payments appeared, or if filed out of time, from the last day prescribed by law for filing the return.
Issuance of TCC shall be limited to the unutilized advance VAT payment and shall not include excess input tax. Issuance of TCC for input tax attributable to zero-rated sales shall be covered by a separate application for TCC following applicable rules.
Sec. 14. Penalty Clause. – Any violation of the provisions of these regulations shall be subject to penalties provided in Sections 254 and 275, and other pertinent provisions of the Code, as amended.
Sec. 15. Repealing Clause. – The provisions of all internal revenue issuances inconsistent herewith are hereby amended or revoked accordingly.
Sec. 16. Effectivity. – These regulations shall take effect after fifteen (15) days following its publication in a newspaper of general circulation.
(Original Signed)
MARGARITO B. TEVES
Secretary of Finance
Recommending Approval:
(Original Signed)
JOSE MARIO C. BUÑAG
Commissioner of Internal Revenue
CJU ______
EBC______
LBH______
ERA______
REVENUE REGULATIONS NO. 5-2007
SUBJECT : Prescribing the Guidelines and Conditions for the Tax Treatment of Securities Borrowing and Lending (SBL) or Securities Lending Transactions (SLTs) Involving the Fixed-Income Securities Lending Program of the Philippine Dealing & Exchange Corp. (PDEx)
TO : All Internal Revenue Officers and Others Concerned
SECTION 1. Scope. - Pursuant to the provisions of Sections 244 and 245 of the Tax Code of 1997 (Tax Code) and Section 9 (C) of Republic Act (RA) No. 9243, these Regulations are hereby promulgated to prescribe the guidelines and conditions for the tax treatment of Securities Borrowing and Lending (SBL) transactions under the Securities Lending Transactions (SLT) Program of the Philippine Dealing & Exchange Corp. (PDEx). Specifically, for purposes of these Regulations, SBL/SLTs shall be limited to borrowing and lending of securities under the Fixed-Income Securities Lending Program of PDEx as identified in Section 3(f) hereof, unless declared to be ineligible by the Securities and Exchange Commission (SEC) for borrowing and lending under the said SLT Program. SBL or SLT of securities administered by other Exchanges other than PDEx, though duly registered with the SEC, shall be covered by separate Regulations.
SECTION 2. Concept of Securities Borrowing and Lending (SBL). - Securities Borrowing and Lending (SBL) or Securities Lending Transactions (SLTs) is an important element in securities trading and capital market development among emerging markets. It is a vita l facility behind the efficient trading settlements and growth of derivatives and options market. SBL/SLTs under these Regulations involve the lending of fixed income debt securities as identified in Section 3(f) hereof, (“Lent/Borrowed Securities”) by the Lender, who owns or controls them, to the Borrower who is driven by its needs to source specific securities to cover “short” or “oversold” securities positions from market-making activities, deliberate strategic positions or to prevent securities settlement failures, in exchange for collateral and the promise to return the equivalent securities on or before the end of the Borrowing Period.
For the duration of the SBL/SLT, the Lender temporarily transfers title over the securities lent but retains a contractual right to receive all benefits accruing to the securities. The objective is to put the Lender in the same economic position as the Lender would have, had the securities not been lent. This means that in case of corporate actions, such as coupon payments paid by the Issuer to the Borrower on the Lent/ Borrowed Securities during the duration of the SBL/SLT, and other benefits accruing in the same period, the Borrower is contractually required to pass on the same to the Lender, thereby putting the Lender in the same economic position as if the Lent/Borrowed Securities “never left his hands”. In exchange for such securities, the Borrower shall deliver the collateral in the manner prescribed in the Program Rules of PDEx to secure the return of the Lent/Borrowed Securities according to the tenor of the SBL/SLT. On or before the end of the Borrowing Period, the Borrower is obligated to return equivalent securities and the Lender, in turn, returns the collateral put up by the Borrower. In effect, an SBL/SLT is similar to a simple collateralized cash loan transaction. However, instead of cash, what is borrowed are securities and what is provided as collateral is either cash, government or equity securities, or a guaranteed letter of credit or such assets as are admitted under these Regulations as eligible collateral.
SECTION 3. Definition of Terms.
a. Borrowing Period - The period agreed upon by the parties during which an SBL/SLT should be outstanding, which period, however, shall in no case exceed one (1) year from the date of execution of the SLT Confirmation Notice allowed under the Fixed-Income Securities Lending Program of PDEx. At the end of this period, the Borrower must return to the Lender the equivalent securities borrowed, and the Lender must return the Borrower’s Collateral.
b. Collateral - Assets delivered to the Lending Pool System Operator, which shall hold the same in recognition of the Lender’s security interest therein until the loan is repaid, as prescribed under the Fixed-Income Securities Lending Program of PDEx.
The following are the only types of Collateral that may be delivered into the Collateral Management System under the said Program:
1. Fixed-Income Instruments (PhP-Denominated)
i. Securities issued by the Republic of the Philippines Bureau of Treasury;
ii. Securities issued by the Bangko Sentral ng Pilipinas (BSP);
iii. Securities issued by Municipal or Local Government Units of the Republic of the Philippines and as listed in PDEx; and
iv. Private Corporate Debt Securities listed in PDEx.
2. Fixed-Income Instruments (USD-Denominated)
i. Securities issued by the Republic of the Philippines (RoP Debt); and
ii. Private Corporate Debt Securities listed in PDEx.
3. Equity Instruments (Php-Denominated) — Equities listed as components of the Philippine Stock Exchange Composite Index (PHISIX)
4. Cash
c. Confirmation Notice - A notice in the format prescribed by PDEx but pre-cleared with the BIR which is issued and sent by the Lending Pool System Operator to the Lender and the Borrower to indicate the details of the SBL/SLT including, but not limited to, the type of securities borrowed and the terms of borrowing.
d. Equivalent Securities - Securities recognized in the Registry of Scripless Securities and/or listed in the Exchange as the equivalent of the Lent Securities, in such amount as is required under the said Program or securities with the same International Securities Identification Number (ISIN) and same tax treatment as the Lent/Borrowed Security.
e. Exchange - An entity that provides a venue for the dealing/exchange of fixed- income securities and is duly authorized by the SEC to engage in such activity.
For purposes of these Regulations, the term shall only refer to the Philippine Dealing & Exchange Corp. (PDEx).
f. Fixed-Income Securities - Types of debt securities that are acceptable to the Lending Pool System for lending under the Fixed-Income Securities Lending Program of PDEx, which shall refer only to the following--
1. Fixed-Income Instruments (Php-Denominated):
i. Securities issued by the Republic of the Philippines Bureau of Treasury;
ii. Securities issued by the Bangko Sentral ng Pilipinas (BSP);
iii. Securities issued by Municipal or Local Government Units of the Republic of the Philippines and listed in PDEx;
iv. Private Corporate Debt Securities listed in PDEx.
2. Fixed-Income Instruments (USD-denominated):
i. Securities issued by the Republic of the Philippines (RoP Debt);
ii. Private Corporate Debt Securities listed in PDEx.
g. Lender/Lending Agent - Any person or entity that lends securities from its pool of assets as principal or from the assets of its client/s in case of a Lending Agent.
h. Failed Settlement - In the context of regular sales of securities, failed settlement means the failure of the seller to deliver to the buyer the securities subject of the transaction within the required period for settlement.
i. Manufactured Income/Substitute Payment - Otherwise referred to as “ Passthrough Payment”, shall consist of both or any one of the following:
1) interest income or coupon payment received from the Lent/Borrowed Securities arising from corporate action of the Issuer thereof~ or
2) interest income that has accrued and received by the Borrower from its sale of the Lent/Borrowed Securities which the Borrower is obliged to pass on to the Lender during the life of the SBL/SLT, in accordance with the terms of the agreement.
j. Mark-to-Market. The practice of periodically re- valuing the securities on loan against the value of the Collateral based on the valuation methodology agreed upon by the Borrower and the Lender under the Fixed-Income Securities Lending Program of PDEx.
k. Master Securities Lending Agreement (MSLA). A written contract between the Borrower and the Lender (or the Lending Agent) embodying the general terms and conditions for the conduct of SBL/SLT transactions under the Fixed-Income Exchange Program of PDEx.
l. Participation Agreement - An agreement which signifies a party’s undertaking and willingness to be bound by the Program Rules of PDEx and the MSLA, as a Borrower, Lender and Lending Agent, or both as applicable.
m. Securities Return - The obligation of the Borrower to return the equivalent of the Lent/Borrowed Securities on or before the expiration of the Borrowing Period, in accordance with the requirements provided under the Fixed-Income Securities Lending Program of PDEx.
n. Short Sale or Short Selling. Any sale~ of Lent/Borrowed Securities not yet in the possession of the seller.
SECTION 4. Parties to an SBL/SLT. - The parties to an SBL/SLT are as follows:
a. Borrower - is a duly admitted Trading Participant of PDEx that is qualified in accordance with the latter’s Fixed-Income Securities Lending Program who obtains securities from a Lender’s portfolio under a Master Securities Lending Agreement (MSLA) strictly for any of the purposes specified under Section 6 (f) hereof and within the purposes of such Program.
b. Lender - is any institution qualified by PDEx under its Fixed-Income Securities Lending Program, who lends securities from his/its pool of assets or the assets of his/its clients (in the case of Lending Agents). A foreign lender is required to deal through a Lending Agent for the purpose of these Regulations.
c. Lending Agent. - is an institution accredited by the BSP or the SEC and qualified by PDEx that lends securities from the assets of its clients for SBL/SLTs under the Fixed-Income Securities Lending Program of PDEx.
d. Lending Pool System Operator - refers to the Philippine Depository and Trust Corporation (PDTC), the entity accredited by PDEx which is capable of operating a Lending Pool System and which accepts all securities intended for transactions under its Fixed-Income Securities Lending Program and delivers the same to Borrowers upon execution of an SBL/SLT. The Lending Pool System Operator shall have such other functions as are defined under such Program.
e. Collateral Management System Operator - refers to PDTC, the entity also accredited by PDEx which is capable of operating a Collateral Management System and which accepts all assets intended as collateral for transactions under its Fixed-Income Securities Lending Program, and holds the same for the benefit of Lenders during the Borrowing Period.
SECTION 5. Tax Treatment of an SBL/SLT under these Regulations . –
a. For purposes of these Regulations, the borrowing and lending of securities under a Fixed-Income Securities Lending Program of PDEx shall not be subject to the documentary stamp tax under Section 175 of the Tax Code, as amended by RA 9243. Likewise, the delivery to, and return by, the Lender of the Collateral in respect thereof shall not be subject to DST, capital gains or income tax, and other taxes, if otherwise applicable; Provided that, (a) a valid MSLA is executed by the parties and registered with and approved by the BIR; (b) the SBL/SLT involving the Fixed-Income Securities Lending Program of PDEX are in accordance with the rules and regulations of the SEC; (c) the Program is administered, supervised by PDEx; and (d) the terms and conditions of these Regulations and the subsequent issuance/s to be issued to implement these Regulations are complied with.
b. The SBL/SLTs under a Fixed-Income Securities Lending Program of PDEx should not fall within the classification of “deposit substitutes” under Section 2(g) of Revenue Regulations (Rev. Regs.) No. 12-80, as amended by Rev. Regs. 8-81, Rev. Regs. 17-84 and Rev. Regs. 3-97, except as otherwise provided in these Revenue Regulations. Furthermore, an SBL/SLT shall also not involve any regular banking unit transactions, such as cash loans, the income of which are subject to the appropriate taxes imposed under the Tax Code of 1997, as amended.
However, it is understood that an SBL/SLT conducted under a Fixed-Income Securities Lending Program of PDEx shall be treated as a deposit substitute transaction or a “sale transaction” and shall be subject to the applicable taxes on the transaction as prescribed by law, if the terms and conditions of these Regulations and the subsequent issuance/s to be issued to implement these Regulations are not strictly complied with.
c. Taxes on the Manufactured Income shall be as follows:
1. General Tax Treatment for Manufactured Income
The receipt of Manufactured Income by the Lender from the Borrower shall only be subject to the applicable taxes on the interest income or coupon payment or other benefits paid by the issuer and accruing thereon during the Borrowing Period of the Lent/Borrowed Securities as prescribed by law.
2. Manufactured Income Arising from Accrued Interest Income of Lent/Borrowed Securities received from sale of such Securities and from Corporate Action of the Issuer received by the Borrower. Payment of the Manufactured Income to the Lender derived by the Borrower from the sale of the Lent/Borrowed Securities or from a coupon payment by the Issuer of such Securities shall not be treated as a tax-deductible expense.
d. The receipt of interest income by the Borrower accruing on the Collateral shall be subject to withholding tax under Section 57 of the Tax Code of 1997, as amended.
SECTION 6. Master Securities Lending Agreement; Basic Requirements - Prior to any borrowing of debt securities as identified in Section 3(f) hereof by the Borrower and negotiating the terms of an SBL/SLT, the parties must have entered into an MSLA through execution of their respective Participation Agreements. A valid MSLA shall contain the following features:
a. Entitlement of Lender to All Income on Lent/Borrowed Securities - While there is transfer of title of the Lent/Borrowed Securities to the Borrower, the Lender continues to retain all the rights accruing thereto, such as the right to receive interest income, which the Borrower is obliged to pass on to the Lender.
b. Entitlement of Borrower to All Income on Collateral —While there is transfer of title over the Collateral to the Lender, the Borrower continues to retain ownership and all the rights accruing to the Collateral, such as the right to receive interest income or cash stock dividends which the Lender is obliged to pass on to the Borrower.
c. Collateral requirement. - There is no consideration involved unlike a regular buy and sell transaction. Instead, the Borrower merely puts up Collateral as identified in Section 3(b) to guarantee his obligations under and in accordance with the MSLA. As it is in the nature of securities to fluctuate in value, the Lent/Borrowed Securities and the Collateral shall be valued periodically using a valuation methodology agreed upon by the parties in the MSLA. Any excess in the Collateral required may be released to the Borrower. Any shortfall shall be replenished by the Borrower, in accordance with the terms of the MSLA.
d. Borrowing Period. - The period agreed upon by the parties and in accordance with the Fixed-Income Securities Lending Program of PDEx during which the specific SBL/SLT transaction under the MSLA is made effective and upon the termination of which, the specific SBL/SLT transaction is likewise ended. However, this period shall in no case exceed one (1) year from the date of execution of SLT Confirma tion Notice.
e. Return of Borrowed Securities and Collateral. - On or before the expiration of the Borrowing Period, the Borrower is bound to return the equivalent of the Lent/Borrowed Securities, in accordance with the requirements provided under the Fixed-Income Securities Lending Program of PDEx. Concomitantly, the Lender is required to return or cause the return of the Collateral.
f. Specified Purpose(s). - The purpose or purposes for which the securities will be used are specified in and accordingly limited by the MSLA, which must be any of the following:
1. Settlement of sale of Philippine securities effected in the Philippines. Securities may be borrowed to avoid failure to deliver for the settlement of a sale. This happens when the seller cannot deliver what he owns on time (failed settlement) and therefore, would need to borrow in order to fulfill his settlement obligations.
2. Settlement of a future sale whether agreed or not at the time the borrowing is effected. Securities may be borrowed in advance of a sale if it is anticipated that the borrowed securities will be required for settlement of the said future sale such as in a short sale.
3. Replacement in whole or in part of securities obtained by the Borrower under another SBL/SLT agreement. Where an early return of Lent Securities is required under the Fixed-Income Securities Lending Program of PDEx, a Borrower without sufficient quantity on hand of the securities can borrow additional securities from a third party to repay the Lender.
The replacement borrowing may be for the whole, or part only, of the previously borrowed securities in accordance with the Fixed-Income Securities Lending Program. A condition applying to such an arrangement is that the initial borrowing must itself be an SBL/SLT within the meaning of these Regulations.
4. On-lending of borrowed securities to another Borrower who has effected another SBL/SLT agreement. This occurs when an SBL/SLT is made by an Agent for on-lending to another Borrower who also effects an SBL/SLT, where such an arrangement is authorized under the Fixed Income Securities Lending Program of PDEx. However, the subsequent Borrower must use the Borrowed securities for any of the Specified Purpose specified herein.
Because of the practical difficulties an intermediary could face in determining how the subsequent Borrower had used the securities, the BIR shall look at an intermediary’s borrowings and on-lendings separately. Thus, provided an intermediary borrows for the purpose of on- lending, his borrowing transaction will qualify under a conditional tax- free status. Furthermore, as securities carrying the same rights are fungible, it is not necessary to match each of an intermediary’s SBL/SLT with each of his on- lendings on a case-by-case basis.
5. Other Authorized Specified Purposes. Other purposes similar or analogous to the foregoing, or consistent with the objectives of the SBL/SLT program as may be determined by the BIR upon favorable recommendation of PDEx.
The MSLA shall be valid for as long as the same shall not have been revoked, superceded, or otherwise terminated in effect by the act of the Exchange; and Provided further, that the MSLA shall in no case be construed to be coterminous with any SBL/SLT and/or Participation Agreement.
SECTION 7. Guidelines in the Execution of the MSLA.
a. The Borrower must obtain the securities for one or more of the Specified Purposes as defined in Section 6(f) of these Regulations. In this regard, the MSLA may refer to the Specified Purposes within the meaning of these Regulations. However, an MSLA which permits securities to be borrowed for some other purposes not defined or authorized by these Regulations shall not qualify as a valid MSLA.
b. A single MSLA may provide for the borrowing and lending of more than one type of securities and shall cover all securities borrowing and lending transaction of the participant under the Fixed-Income Securities Lending Program of PDEx. However, only securities, the sale and purchase of which are subject to the rules of PDEx, are eligible for SBL/SLT transactions under such Program. Securities not listed in and/or traded through PDEx are not eligible for SBL/SLT transactions. Except to the extent provided for under the Fixed-Income Securities Lending Program, securities not listed and/or traded through PDEx do not fall within the scope of these Regulations.
c. The Exchange shall register the MSLA with the Bureau of Internal Revenue (BIR). The Participation Agreement under the SBL/SLT Program shall be individually registered by each Participant with the BIR upon execution thereof and prior to the first SBL/SLT transaction under the Participation Agreement, with payment of applicable fees thereon. The Participation Agreement signifies the enrollment of the Participant under the Fixed-Income Securities Lending Program of PDEx and its agreement to abide and be bound by the MSLA and the said Fixed-Income Securities Lending Program.
SECTION 8. Registration of the MSLA and Participation Agreements. - The following guidelines sha ll govern the registration of the MSLA and Participation Agreements:
a. Requirements. Prior to entering into an SBL/SLT under a Fixed-Income Securities Lending Program of PDEx,
1. PDEx must provide the BIR with the following:
a. Three certified true copies of its MSLA;
b. A specimen of the Participation Agreement; and
c. The MSLA shall be registered initially prior to operation of the Fixed-Income Securities Lending Program of PDEx and for every amendment thereafter.
2. The Borrower and Lender must provide the BIR with the following:
a. Duly executed Participation Agreement with the conformity of the Exchange;
b. The prescribed registration fee of Php 5,000.00 for every Participation Agreement on a per capacity basis. Thus, a participant who undertakes to be a Borrower shall register the Agreement and pay the prescribed fee thereon. Should the same party desire to participate as a Lender, such undertaking shall be covered by a separate Participation Agreement which requires compliance with the registration requirements as stated herein; and
c. Other documents and information that the BIR may require.
The Borrower’s and Lender’s copy of the Participation Agreement endorsed with a registration number and duly stamped to acknowledge payment of registration fee, will be returned to the Borrower and Lender endorsed with the approval or denial of the BIR, as the case may be, within ten (10) working days from receipt thereof The Participation Agreement shall not bind PDEx until the Participant shall have submitted the BIR-registered Participation Agreement with PDEx, in such form as the latter shall prescribe.
b. Place and Time of Registration. The MSLA and the Participation Agreement shall be registered at the Law Division of the BIR National Office or in such other office which the Commissioner of Internal Revenue may hereafter direct upon filing of Registration Form and payment of the registration fee for the Participation Agreement with the General Services Division at the BIR National Office. Registration of the duly accomplished Participation Agreement should be made within two (2) weeks if executed in the Philippines and within one (1) month if executed outside the Philippines before an SBL/SLT can be effected. The Participation Agreement shall remain in full force and effect until the same is revoked in accordance with the Program Rules; Provided however, that registration fees due thereon shall be paid every year by the Borrower and/or Lender as the case may be; Provided further, that any interruption/changes in the Participation Agreement shall be subject to registration and payment of fees.
c. Approval of MSLA and Participation Agreement. Only SBL/SLTs under an MSLA and Participation Agreement duly registered and approved by the BIR pursuant to these Regulations shall be entitled to the tax treatment provided under Section 5 of these Regulations.
d. Failure to Register. Failure to register the MSLA and/or Participation Agreement will make the SBL/SLT transaction and the Collateral provided either a sale and purchase transaction or a deposit substitute and therefore subject to the applicable taxes on the type of transaction imposed under the Tax Code of 1997, as amended.
e. Duty of the BIR. It shall be the duty of the Law Division of the BIR National Office to determine whether or not the registered MSLA and Participation Agreement conforms with the requirements herein imposed, to recommend to the Commissioner of Internal Revenue the approval or denial of the MSLA and Participation Agreement registration, to monitor compliance of the parties with the conditions herein prescribed, and to recommend, where proper, assessment of the taxes against the parties found to have entered into an SBL/SLT transaction in violation of these Regulations.
Section 9. SBL/SLT Deemed as a Deposit Substitute — An SBL/SLT is deemed as a “Deposit Substitute”, when any of the following circumstances is present:
a. The borrowed securities, or part of it, have been used other than for any of the Specified Purpose in these Regulations;
b. The Borrower or Lender fails to comply with the essential features of a valid MSLA;
c. The Participation Agreement/s relied upon by the party/ies to the transaction is/are not registered with the BIR.
d. The transaction itself involves regular banking unit transactions that are subject to the appropriate taxes under the Tax Code of 1997, as amended.
The SBL/SLT transaction deemed as deposit substitute shall be subject to the applicable taxes on a deposit substitute imposed under Sections 24(B)(1), 25(A)(2), 25 (B), 27(D)(l), 28(A)(7)(a) and 28(B)(l) of the Tax Code of 1997, as amended and to other taxes, if otherwise applicable. Section 10. SBL/SLT Deemed as Sale — An SBL/SLT is deemed as sale and purchase of the borrowed securities, and the Collateral as well, when any of the following circumstances is present:
a. There is no return of the Lent Securities or Collateral at the end of the Borrowing Period;
b. Any actual sale of debt securities subject of the SBL/SLT such as a short sale;
c. The Borrower or Lender fails to comply with the essential features of a valid MSLA;
d. The parties to the transaction are not registered as a securities lender and /or
borrower with the BIR as evidenced by their respective Participation Agreements;
The SBL/SLT deemed as a sale shall be subject to the applicable taxes on the sale and purchase of securities imposed under Sections 24(C), 25(B), 27(A), and 28(B) of the Tax Code of 1997, as amended and to other taxes, if otherwise applicable.
Section 11. Compliance Requirements.
a. Record Keeping and Reporting - The Borrower and the Lender who have entered into an SBL/SLT transaction are required to:
1. Keep SBL/SLT ledgers and other books of account in the form prescribed by the Commissioner of Internal Revenue;
2. Enter required particulars of SBL/SLT transactions and Securities Returns into that ledger;
3. Provide the BIR with reports of SBL/SLT transactions and the accompanying Confirmation Notices and Securities Returns; and
4. Prepare and keep an SBL/SLT Report for each specific SBL/SLT. The BIR may require submission of information from PDEx, PDTC and/or any third-party service provider or collateral management system operator to validate the report of the Borrower and Lender or for such other purpose/s as it may deem necessary to monitor SBL/SLTs under these Regulations.
b. Recording Format - The SBL/SLT ledgers shall be kept in a written form or electronic form where the relevant information can be supplied in a legible hard copy format. The ledger with respect to each SBL/SLT transaction and related Securities Return should be in a format prescribed by the BIR which shall be subsequently covered by another BIR issuance.
c. Filing of Bi-Annual Summary Report of Outstanding SBL/SLT Transactions and Securities Returns. A bi-annual summary report of outstanding SBL/SLTs and Securities Returns, in the format prescribed by the BIR, must be prepared by PDTC every six months and filed with the Law Division of the BIR National Office within one (1) month after the end of the covered period.
d. Filing of Annual Reports of Liquidated SBL/SLT Transactions. In addition to the bi-annual summary report, a report of all liquidated SBL/SLTs as of December 31 of each year must be prepared in the format prescribed by the BIR and likewise filed by PDTC with the Law Division of the BIR National Office within one month after such date.
SECTION 12. Penalties. In the event that the appropriate taxes and/or tax returns are not paid and/or filed by the taxpayer concerned in the SBL/SLT, such taxpayer will be subject to the penalties provided under this Section. These penalties will attach irrespective of whether or not the transaction involving the Lent/Borrowed Securities qualifies as an SBL/SLT or not. In addition to the civil and criminal liabilities of the taxpayer for violation of the provision of Sec. 127 (A) and Sec. 175 of the Tax Code of 1997, the following administrative penalties incident to the delinquency or deficiency prescribed under Secs. 248 and 249 of the same Code shall be imposed which shall be collected at the same time, in the same manner and as part of the tax.
a. Surcharges
1. 25% surcharge - In case of any failure to make and file a return and pay the tax due thereon as required by these Regulations on the date prescribed; or unless otherwise authorized by the Commissioner of Internal Revenue, filing a return with an internal revenue officer other than those with whom the return is required to be filed; or failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment; or failure to pay the full or part of the amount of tax shown on any return required to be filed under the provisions of the Tax Code or of these Regulations, or full amount of the tax due for which no return is required to be filed on or before the date prescribed for its payment, there shall be imposed, in addition to the tax requited to be paid, a surcharge equivalent to twenty - five percent (25%) of the amount due.
2. 50 % surcharge - In case of willful neglect to file the return and/or to pay the tax due within the period prescribed by the Tax Code or these Regulations, or in case a false or fraudulent return is willfully made, the penalty to be imposed shall be fifty percent (50 %) of the tax or of the deficiency tax, in case any payment has been made on the basis of such return before the discovery of the falsity or fraud.
b. Interest - There shall be assessed and collected on any unpaid amount of tax, interest at the rate of twenty percent (20 %) per annum, or such higher rate as maybe prescribed by the rules and regulations, from the date prescribed for its payment until the full payment hereof.
1. Deficiency interest - Any deficiency in the tax due shall be subjected to interest at the rate of twenty percent (20%), which interest shall be assessed and collected from the date prescribed for its payment until the full payment thereof.
2. Delinquency interest - In case of failure to pay the amount of the tax due on the return required to be filed, or a deficiency tax, or any surcharge or interest thereon on the due date appearing in the notice and demand of the Commissioner of Internal Revenue, there shall be assessed and collected on the unpaid amount, interest at the rate of the twenty percent (20%) per annum until the amount is fully paid, which interest shall form part of the tax.
c. Failure to File Certain Information Returns — In case of each failure to file an information return, statement or list, or keep any record, or supply any information required by these Regulations on the date prescribed therefore, unless it is shown that such failure is due to reasonable cause and not to willful neglect, there shall upon notice and demand by the Commissioner of Internal Revenue, be paid by the person failing to file, keep or supply the same, One Thousand Pesos (Php 1,000) for each such failure: Provided, however, that the aggregate amount to be imposed for all such failures during a calendar year shall not exceed Twenty Five Thousand Pesos (Php 25,000).
SECTION 13. Effectivity. — These Regulations shall take effect after fifteen (15) days from publication in the Official Gazette or in any newspaper of general circulation.
(Original Signed)
MARGARITO B. TEVES
Secretary of Finance
Recommending Approval:
(Original Signed)
JOSE MARIO C. BUÑAG
Commissioner of Internal Revenue
TO : All Internal Revenue Officers and Others Concerned
SECTION 1. Scope. - Pursuant to the provisions of Sections 244 and 245 of the Tax Code of 1997 (Tax Code) and Section 9 (C) of Republic Act (RA) No. 9243, these Regulations are hereby promulgated to prescribe the guidelines and conditions for the tax treatment of Securities Borrowing and Lending (SBL) transactions under the Securities Lending Transactions (SLT) Program of the Philippine Dealing & Exchange Corp. (PDEx). Specifically, for purposes of these Regulations, SBL/SLTs shall be limited to borrowing and lending of securities under the Fixed-Income Securities Lending Program of PDEx as identified in Section 3(f) hereof, unless declared to be ineligible by the Securities and Exchange Commission (SEC) for borrowing and lending under the said SLT Program. SBL or SLT of securities administered by other Exchanges other than PDEx, though duly registered with the SEC, shall be covered by separate Regulations.
SECTION 2. Concept of Securities Borrowing and Lending (SBL). - Securities Borrowing and Lending (SBL) or Securities Lending Transactions (SLTs) is an important element in securities trading and capital market development among emerging markets. It is a vita l facility behind the efficient trading settlements and growth of derivatives and options market. SBL/SLTs under these Regulations involve the lending of fixed income debt securities as identified in Section 3(f) hereof, (“Lent/Borrowed Securities”) by the Lender, who owns or controls them, to the Borrower who is driven by its needs to source specific securities to cover “short” or “oversold” securities positions from market-making activities, deliberate strategic positions or to prevent securities settlement failures, in exchange for collateral and the promise to return the equivalent securities on or before the end of the Borrowing Period.
For the duration of the SBL/SLT, the Lender temporarily transfers title over the securities lent but retains a contractual right to receive all benefits accruing to the securities. The objective is to put the Lender in the same economic position as the Lender would have, had the securities not been lent. This means that in case of corporate actions, such as coupon payments paid by the Issuer to the Borrower on the Lent/ Borrowed Securities during the duration of the SBL/SLT, and other benefits accruing in the same period, the Borrower is contractually required to pass on the same to the Lender, thereby putting the Lender in the same economic position as if the Lent/Borrowed Securities “never left his hands”. In exchange for such securities, the Borrower shall deliver the collateral in the manner prescribed in the Program Rules of PDEx to secure the return of the Lent/Borrowed Securities according to the tenor of the SBL/SLT. On or before the end of the Borrowing Period, the Borrower is obligated to return equivalent securities and the Lender, in turn, returns the collateral put up by the Borrower. In effect, an SBL/SLT is similar to a simple collateralized cash loan transaction. However, instead of cash, what is borrowed are securities and what is provided as collateral is either cash, government or equity securities, or a guaranteed letter of credit or such assets as are admitted under these Regulations as eligible collateral.
SECTION 3. Definition of Terms.
a. Borrowing Period - The period agreed upon by the parties during which an SBL/SLT should be outstanding, which period, however, shall in no case exceed one (1) year from the date of execution of the SLT Confirmation Notice allowed under the Fixed-Income Securities Lending Program of PDEx. At the end of this period, the Borrower must return to the Lender the equivalent securities borrowed, and the Lender must return the Borrower’s Collateral.
b. Collateral - Assets delivered to the Lending Pool System Operator, which shall hold the same in recognition of the Lender’s security interest therein until the loan is repaid, as prescribed under the Fixed-Income Securities Lending Program of PDEx.
The following are the only types of Collateral that may be delivered into the Collateral Management System under the said Program:
1. Fixed-Income Instruments (PhP-Denominated)
i. Securities issued by the Republic of the Philippines Bureau of Treasury;
ii. Securities issued by the Bangko Sentral ng Pilipinas (BSP);
iii. Securities issued by Municipal or Local Government Units of the Republic of the Philippines and as listed in PDEx; and
iv. Private Corporate Debt Securities listed in PDEx.
2. Fixed-Income Instruments (USD-Denominated)
i. Securities issued by the Republic of the Philippines (RoP Debt); and
ii. Private Corporate Debt Securities listed in PDEx.
3. Equity Instruments (Php-Denominated) — Equities listed as components of the Philippine Stock Exchange Composite Index (PHISIX)
4. Cash
c. Confirmation Notice - A notice in the format prescribed by PDEx but pre-cleared with the BIR which is issued and sent by the Lending Pool System Operator to the Lender and the Borrower to indicate the details of the SBL/SLT including, but not limited to, the type of securities borrowed and the terms of borrowing.
d. Equivalent Securities - Securities recognized in the Registry of Scripless Securities and/or listed in the Exchange as the equivalent of the Lent Securities, in such amount as is required under the said Program or securities with the same International Securities Identification Number (ISIN) and same tax treatment as the Lent/Borrowed Security.
e. Exchange - An entity that provides a venue for the dealing/exchange of fixed- income securities and is duly authorized by the SEC to engage in such activity.
For purposes of these Regulations, the term shall only refer to the Philippine Dealing & Exchange Corp. (PDEx).
f. Fixed-Income Securities - Types of debt securities that are acceptable to the Lending Pool System for lending under the Fixed-Income Securities Lending Program of PDEx, which shall refer only to the following--
1. Fixed-Income Instruments (Php-Denominated):
i. Securities issued by the Republic of the Philippines Bureau of Treasury;
ii. Securities issued by the Bangko Sentral ng Pilipinas (BSP);
iii. Securities issued by Municipal or Local Government Units of the Republic of the Philippines and listed in PDEx;
iv. Private Corporate Debt Securities listed in PDEx.
2. Fixed-Income Instruments (USD-denominated):
i. Securities issued by the Republic of the Philippines (RoP Debt);
ii. Private Corporate Debt Securities listed in PDEx.
g. Lender/Lending Agent - Any person or entity that lends securities from its pool of assets as principal or from the assets of its client/s in case of a Lending Agent.
h. Failed Settlement - In the context of regular sales of securities, failed settlement means the failure of the seller to deliver to the buyer the securities subject of the transaction within the required period for settlement.
i. Manufactured Income/Substitute Payment - Otherwise referred to as “ Passthrough Payment”, shall consist of both or any one of the following:
1) interest income or coupon payment received from the Lent/Borrowed Securities arising from corporate action of the Issuer thereof~ or
2) interest income that has accrued and received by the Borrower from its sale of the Lent/Borrowed Securities which the Borrower is obliged to pass on to the Lender during the life of the SBL/SLT, in accordance with the terms of the agreement.
j. Mark-to-Market. The practice of periodically re- valuing the securities on loan against the value of the Collateral based on the valuation methodology agreed upon by the Borrower and the Lender under the Fixed-Income Securities Lending Program of PDEx.
k. Master Securities Lending Agreement (MSLA). A written contract between the Borrower and the Lender (or the Lending Agent) embodying the general terms and conditions for the conduct of SBL/SLT transactions under the Fixed-Income Exchange Program of PDEx.
l. Participation Agreement - An agreement which signifies a party’s undertaking and willingness to be bound by the Program Rules of PDEx and the MSLA, as a Borrower, Lender and Lending Agent, or both as applicable.
m. Securities Return - The obligation of the Borrower to return the equivalent of the Lent/Borrowed Securities on or before the expiration of the Borrowing Period, in accordance with the requirements provided under the Fixed-Income Securities Lending Program of PDEx.
n. Short Sale or Short Selling. Any sale~ of Lent/Borrowed Securities not yet in the possession of the seller.
SECTION 4. Parties to an SBL/SLT. - The parties to an SBL/SLT are as follows:
a. Borrower - is a duly admitted Trading Participant of PDEx that is qualified in accordance with the latter’s Fixed-Income Securities Lending Program who obtains securities from a Lender’s portfolio under a Master Securities Lending Agreement (MSLA) strictly for any of the purposes specified under Section 6 (f) hereof and within the purposes of such Program.
b. Lender - is any institution qualified by PDEx under its Fixed-Income Securities Lending Program, who lends securities from his/its pool of assets or the assets of his/its clients (in the case of Lending Agents). A foreign lender is required to deal through a Lending Agent for the purpose of these Regulations.
c. Lending Agent. - is an institution accredited by the BSP or the SEC and qualified by PDEx that lends securities from the assets of its clients for SBL/SLTs under the Fixed-Income Securities Lending Program of PDEx.
d. Lending Pool System Operator - refers to the Philippine Depository and Trust Corporation (PDTC), the entity accredited by PDEx which is capable of operating a Lending Pool System and which accepts all securities intended for transactions under its Fixed-Income Securities Lending Program and delivers the same to Borrowers upon execution of an SBL/SLT. The Lending Pool System Operator shall have such other functions as are defined under such Program.
e. Collateral Management System Operator - refers to PDTC, the entity also accredited by PDEx which is capable of operating a Collateral Management System and which accepts all assets intended as collateral for transactions under its Fixed-Income Securities Lending Program, and holds the same for the benefit of Lenders during the Borrowing Period.
SECTION 5. Tax Treatment of an SBL/SLT under these Regulations . –
a. For purposes of these Regulations, the borrowing and lending of securities under a Fixed-Income Securities Lending Program of PDEx shall not be subject to the documentary stamp tax under Section 175 of the Tax Code, as amended by RA 9243. Likewise, the delivery to, and return by, the Lender of the Collateral in respect thereof shall not be subject to DST, capital gains or income tax, and other taxes, if otherwise applicable; Provided that, (a) a valid MSLA is executed by the parties and registered with and approved by the BIR; (b) the SBL/SLT involving the Fixed-Income Securities Lending Program of PDEX are in accordance with the rules and regulations of the SEC; (c) the Program is administered, supervised by PDEx; and (d) the terms and conditions of these Regulations and the subsequent issuance/s to be issued to implement these Regulations are complied with.
b. The SBL/SLTs under a Fixed-Income Securities Lending Program of PDEx should not fall within the classification of “deposit substitutes” under Section 2(g) of Revenue Regulations (Rev. Regs.) No. 12-80, as amended by Rev. Regs. 8-81, Rev. Regs. 17-84 and Rev. Regs. 3-97, except as otherwise provided in these Revenue Regulations. Furthermore, an SBL/SLT shall also not involve any regular banking unit transactions, such as cash loans, the income of which are subject to the appropriate taxes imposed under the Tax Code of 1997, as amended.
However, it is understood that an SBL/SLT conducted under a Fixed-Income Securities Lending Program of PDEx shall be treated as a deposit substitute transaction or a “sale transaction” and shall be subject to the applicable taxes on the transaction as prescribed by law, if the terms and conditions of these Regulations and the subsequent issuance/s to be issued to implement these Regulations are not strictly complied with.
c. Taxes on the Manufactured Income shall be as follows:
1. General Tax Treatment for Manufactured Income
The receipt of Manufactured Income by the Lender from the Borrower shall only be subject to the applicable taxes on the interest income or coupon payment or other benefits paid by the issuer and accruing thereon during the Borrowing Period of the Lent/Borrowed Securities as prescribed by law.
2. Manufactured Income Arising from Accrued Interest Income of Lent/Borrowed Securities received from sale of such Securities and from Corporate Action of the Issuer received by the Borrower. Payment of the Manufactured Income to the Lender derived by the Borrower from the sale of the Lent/Borrowed Securities or from a coupon payment by the Issuer of such Securities shall not be treated as a tax-deductible expense.
d. The receipt of interest income by the Borrower accruing on the Collateral shall be subject to withholding tax under Section 57 of the Tax Code of 1997, as amended.
SECTION 6. Master Securities Lending Agreement; Basic Requirements - Prior to any borrowing of debt securities as identified in Section 3(f) hereof by the Borrower and negotiating the terms of an SBL/SLT, the parties must have entered into an MSLA through execution of their respective Participation Agreements. A valid MSLA shall contain the following features:
a. Entitlement of Lender to All Income on Lent/Borrowed Securities - While there is transfer of title of the Lent/Borrowed Securities to the Borrower, the Lender continues to retain all the rights accruing thereto, such as the right to receive interest income, which the Borrower is obliged to pass on to the Lender.
b. Entitlement of Borrower to All Income on Collateral —While there is transfer of title over the Collateral to the Lender, the Borrower continues to retain ownership and all the rights accruing to the Collateral, such as the right to receive interest income or cash stock dividends which the Lender is obliged to pass on to the Borrower.
c. Collateral requirement. - There is no consideration involved unlike a regular buy and sell transaction. Instead, the Borrower merely puts up Collateral as identified in Section 3(b) to guarantee his obligations under and in accordance with the MSLA. As it is in the nature of securities to fluctuate in value, the Lent/Borrowed Securities and the Collateral shall be valued periodically using a valuation methodology agreed upon by the parties in the MSLA. Any excess in the Collateral required may be released to the Borrower. Any shortfall shall be replenished by the Borrower, in accordance with the terms of the MSLA.
d. Borrowing Period. - The period agreed upon by the parties and in accordance with the Fixed-Income Securities Lending Program of PDEx during which the specific SBL/SLT transaction under the MSLA is made effective and upon the termination of which, the specific SBL/SLT transaction is likewise ended. However, this period shall in no case exceed one (1) year from the date of execution of SLT Confirma tion Notice.
e. Return of Borrowed Securities and Collateral. - On or before the expiration of the Borrowing Period, the Borrower is bound to return the equivalent of the Lent/Borrowed Securities, in accordance with the requirements provided under the Fixed-Income Securities Lending Program of PDEx. Concomitantly, the Lender is required to return or cause the return of the Collateral.
f. Specified Purpose(s). - The purpose or purposes for which the securities will be used are specified in and accordingly limited by the MSLA, which must be any of the following:
1. Settlement of sale of Philippine securities effected in the Philippines. Securities may be borrowed to avoid failure to deliver for the settlement of a sale. This happens when the seller cannot deliver what he owns on time (failed settlement) and therefore, would need to borrow in order to fulfill his settlement obligations.
2. Settlement of a future sale whether agreed or not at the time the borrowing is effected. Securities may be borrowed in advance of a sale if it is anticipated that the borrowed securities will be required for settlement of the said future sale such as in a short sale.
3. Replacement in whole or in part of securities obtained by the Borrower under another SBL/SLT agreement. Where an early return of Lent Securities is required under the Fixed-Income Securities Lending Program of PDEx, a Borrower without sufficient quantity on hand of the securities can borrow additional securities from a third party to repay the Lender.
The replacement borrowing may be for the whole, or part only, of the previously borrowed securities in accordance with the Fixed-Income Securities Lending Program. A condition applying to such an arrangement is that the initial borrowing must itself be an SBL/SLT within the meaning of these Regulations.
4. On-lending of borrowed securities to another Borrower who has effected another SBL/SLT agreement. This occurs when an SBL/SLT is made by an Agent for on-lending to another Borrower who also effects an SBL/SLT, where such an arrangement is authorized under the Fixed Income Securities Lending Program of PDEx. However, the subsequent Borrower must use the Borrowed securities for any of the Specified Purpose specified herein.
Because of the practical difficulties an intermediary could face in determining how the subsequent Borrower had used the securities, the BIR shall look at an intermediary’s borrowings and on-lendings separately. Thus, provided an intermediary borrows for the purpose of on- lending, his borrowing transaction will qualify under a conditional tax- free status. Furthermore, as securities carrying the same rights are fungible, it is not necessary to match each of an intermediary’s SBL/SLT with each of his on- lendings on a case-by-case basis.
5. Other Authorized Specified Purposes. Other purposes similar or analogous to the foregoing, or consistent with the objectives of the SBL/SLT program as may be determined by the BIR upon favorable recommendation of PDEx.
The MSLA shall be valid for as long as the same shall not have been revoked, superceded, or otherwise terminated in effect by the act of the Exchange; and Provided further, that the MSLA shall in no case be construed to be coterminous with any SBL/SLT and/or Participation Agreement.
SECTION 7. Guidelines in the Execution of the MSLA.
a. The Borrower must obtain the securities for one or more of the Specified Purposes as defined in Section 6(f) of these Regulations. In this regard, the MSLA may refer to the Specified Purposes within the meaning of these Regulations. However, an MSLA which permits securities to be borrowed for some other purposes not defined or authorized by these Regulations shall not qualify as a valid MSLA.
b. A single MSLA may provide for the borrowing and lending of more than one type of securities and shall cover all securities borrowing and lending transaction of the participant under the Fixed-Income Securities Lending Program of PDEx. However, only securities, the sale and purchase of which are subject to the rules of PDEx, are eligible for SBL/SLT transactions under such Program. Securities not listed in and/or traded through PDEx are not eligible for SBL/SLT transactions. Except to the extent provided for under the Fixed-Income Securities Lending Program, securities not listed and/or traded through PDEx do not fall within the scope of these Regulations.
c. The Exchange shall register the MSLA with the Bureau of Internal Revenue (BIR). The Participation Agreement under the SBL/SLT Program shall be individually registered by each Participant with the BIR upon execution thereof and prior to the first SBL/SLT transaction under the Participation Agreement, with payment of applicable fees thereon. The Participation Agreement signifies the enrollment of the Participant under the Fixed-Income Securities Lending Program of PDEx and its agreement to abide and be bound by the MSLA and the said Fixed-Income Securities Lending Program.
SECTION 8. Registration of the MSLA and Participation Agreements. - The following guidelines sha ll govern the registration of the MSLA and Participation Agreements:
a. Requirements. Prior to entering into an SBL/SLT under a Fixed-Income Securities Lending Program of PDEx,
1. PDEx must provide the BIR with the following:
a. Three certified true copies of its MSLA;
b. A specimen of the Participation Agreement; and
c. The MSLA shall be registered initially prior to operation of the Fixed-Income Securities Lending Program of PDEx and for every amendment thereafter.
2. The Borrower and Lender must provide the BIR with the following:
a. Duly executed Participation Agreement with the conformity of the Exchange;
b. The prescribed registration fee of Php 5,000.00 for every Participation Agreement on a per capacity basis. Thus, a participant who undertakes to be a Borrower shall register the Agreement and pay the prescribed fee thereon. Should the same party desire to participate as a Lender, such undertaking shall be covered by a separate Participation Agreement which requires compliance with the registration requirements as stated herein; and
c. Other documents and information that the BIR may require.
The Borrower’s and Lender’s copy of the Participation Agreement endorsed with a registration number and duly stamped to acknowledge payment of registration fee, will be returned to the Borrower and Lender endorsed with the approval or denial of the BIR, as the case may be, within ten (10) working days from receipt thereof The Participation Agreement shall not bind PDEx until the Participant shall have submitted the BIR-registered Participation Agreement with PDEx, in such form as the latter shall prescribe.
b. Place and Time of Registration. The MSLA and the Participation Agreement shall be registered at the Law Division of the BIR National Office or in such other office which the Commissioner of Internal Revenue may hereafter direct upon filing of Registration Form and payment of the registration fee for the Participation Agreement with the General Services Division at the BIR National Office. Registration of the duly accomplished Participation Agreement should be made within two (2) weeks if executed in the Philippines and within one (1) month if executed outside the Philippines before an SBL/SLT can be effected. The Participation Agreement shall remain in full force and effect until the same is revoked in accordance with the Program Rules; Provided however, that registration fees due thereon shall be paid every year by the Borrower and/or Lender as the case may be; Provided further, that any interruption/changes in the Participation Agreement shall be subject to registration and payment of fees.
c. Approval of MSLA and Participation Agreement. Only SBL/SLTs under an MSLA and Participation Agreement duly registered and approved by the BIR pursuant to these Regulations shall be entitled to the tax treatment provided under Section 5 of these Regulations.
d. Failure to Register. Failure to register the MSLA and/or Participation Agreement will make the SBL/SLT transaction and the Collateral provided either a sale and purchase transaction or a deposit substitute and therefore subject to the applicable taxes on the type of transaction imposed under the Tax Code of 1997, as amended.
e. Duty of the BIR. It shall be the duty of the Law Division of the BIR National Office to determine whether or not the registered MSLA and Participation Agreement conforms with the requirements herein imposed, to recommend to the Commissioner of Internal Revenue the approval or denial of the MSLA and Participation Agreement registration, to monitor compliance of the parties with the conditions herein prescribed, and to recommend, where proper, assessment of the taxes against the parties found to have entered into an SBL/SLT transaction in violation of these Regulations.
Section 9. SBL/SLT Deemed as a Deposit Substitute — An SBL/SLT is deemed as a “Deposit Substitute”, when any of the following circumstances is present:
a. The borrowed securities, or part of it, have been used other than for any of the Specified Purpose in these Regulations;
b. The Borrower or Lender fails to comply with the essential features of a valid MSLA;
c. The Participation Agreement/s relied upon by the party/ies to the transaction is/are not registered with the BIR.
d. The transaction itself involves regular banking unit transactions that are subject to the appropriate taxes under the Tax Code of 1997, as amended.
The SBL/SLT transaction deemed as deposit substitute shall be subject to the applicable taxes on a deposit substitute imposed under Sections 24(B)(1), 25(A)(2), 25 (B), 27(D)(l), 28(A)(7)(a) and 28(B)(l) of the Tax Code of 1997, as amended and to other taxes, if otherwise applicable. Section 10. SBL/SLT Deemed as Sale — An SBL/SLT is deemed as sale and purchase of the borrowed securities, and the Collateral as well, when any of the following circumstances is present:
a. There is no return of the Lent Securities or Collateral at the end of the Borrowing Period;
b. Any actual sale of debt securities subject of the SBL/SLT such as a short sale;
c. The Borrower or Lender fails to comply with the essential features of a valid MSLA;
d. The parties to the transaction are not registered as a securities lender and /or
borrower with the BIR as evidenced by their respective Participation Agreements;
The SBL/SLT deemed as a sale shall be subject to the applicable taxes on the sale and purchase of securities imposed under Sections 24(C), 25(B), 27(A), and 28(B) of the Tax Code of 1997, as amended and to other taxes, if otherwise applicable.
Section 11. Compliance Requirements.
a. Record Keeping and Reporting - The Borrower and the Lender who have entered into an SBL/SLT transaction are required to:
1. Keep SBL/SLT ledgers and other books of account in the form prescribed by the Commissioner of Internal Revenue;
2. Enter required particulars of SBL/SLT transactions and Securities Returns into that ledger;
3. Provide the BIR with reports of SBL/SLT transactions and the accompanying Confirmation Notices and Securities Returns; and
4. Prepare and keep an SBL/SLT Report for each specific SBL/SLT. The BIR may require submission of information from PDEx, PDTC and/or any third-party service provider or collateral management system operator to validate the report of the Borrower and Lender or for such other purpose/s as it may deem necessary to monitor SBL/SLTs under these Regulations.
b. Recording Format - The SBL/SLT ledgers shall be kept in a written form or electronic form where the relevant information can be supplied in a legible hard copy format. The ledger with respect to each SBL/SLT transaction and related Securities Return should be in a format prescribed by the BIR which shall be subsequently covered by another BIR issuance.
c. Filing of Bi-Annual Summary Report of Outstanding SBL/SLT Transactions and Securities Returns. A bi-annual summary report of outstanding SBL/SLTs and Securities Returns, in the format prescribed by the BIR, must be prepared by PDTC every six months and filed with the Law Division of the BIR National Office within one (1) month after the end of the covered period.
d. Filing of Annual Reports of Liquidated SBL/SLT Transactions. In addition to the bi-annual summary report, a report of all liquidated SBL/SLTs as of December 31 of each year must be prepared in the format prescribed by the BIR and likewise filed by PDTC with the Law Division of the BIR National Office within one month after such date.
SECTION 12. Penalties. In the event that the appropriate taxes and/or tax returns are not paid and/or filed by the taxpayer concerned in the SBL/SLT, such taxpayer will be subject to the penalties provided under this Section. These penalties will attach irrespective of whether or not the transaction involving the Lent/Borrowed Securities qualifies as an SBL/SLT or not. In addition to the civil and criminal liabilities of the taxpayer for violation of the provision of Sec. 127 (A) and Sec. 175 of the Tax Code of 1997, the following administrative penalties incident to the delinquency or deficiency prescribed under Secs. 248 and 249 of the same Code shall be imposed which shall be collected at the same time, in the same manner and as part of the tax.
a. Surcharges
1. 25% surcharge - In case of any failure to make and file a return and pay the tax due thereon as required by these Regulations on the date prescribed; or unless otherwise authorized by the Commissioner of Internal Revenue, filing a return with an internal revenue officer other than those with whom the return is required to be filed; or failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment; or failure to pay the full or part of the amount of tax shown on any return required to be filed under the provisions of the Tax Code or of these Regulations, or full amount of the tax due for which no return is required to be filed on or before the date prescribed for its payment, there shall be imposed, in addition to the tax requited to be paid, a surcharge equivalent to twenty - five percent (25%) of the amount due.
2. 50 % surcharge - In case of willful neglect to file the return and/or to pay the tax due within the period prescribed by the Tax Code or these Regulations, or in case a false or fraudulent return is willfully made, the penalty to be imposed shall be fifty percent (50 %) of the tax or of the deficiency tax, in case any payment has been made on the basis of such return before the discovery of the falsity or fraud.
b. Interest - There shall be assessed and collected on any unpaid amount of tax, interest at the rate of twenty percent (20 %) per annum, or such higher rate as maybe prescribed by the rules and regulations, from the date prescribed for its payment until the full payment hereof.
1. Deficiency interest - Any deficiency in the tax due shall be subjected to interest at the rate of twenty percent (20%), which interest shall be assessed and collected from the date prescribed for its payment until the full payment thereof.
2. Delinquency interest - In case of failure to pay the amount of the tax due on the return required to be filed, or a deficiency tax, or any surcharge or interest thereon on the due date appearing in the notice and demand of the Commissioner of Internal Revenue, there shall be assessed and collected on the unpaid amount, interest at the rate of the twenty percent (20%) per annum until the amount is fully paid, which interest shall form part of the tax.
c. Failure to File Certain Information Returns — In case of each failure to file an information return, statement or list, or keep any record, or supply any information required by these Regulations on the date prescribed therefore, unless it is shown that such failure is due to reasonable cause and not to willful neglect, there shall upon notice and demand by the Commissioner of Internal Revenue, be paid by the person failing to file, keep or supply the same, One Thousand Pesos (Php 1,000) for each such failure: Provided, however, that the aggregate amount to be imposed for all such failures during a calendar year shall not exceed Twenty Five Thousand Pesos (Php 25,000).
SECTION 13. Effectivity. — These Regulations shall take effect after fifteen (15) days from publication in the Official Gazette or in any newspaper of general circulation.
(Original Signed)
MARGARITO B. TEVES
Secretary of Finance
Recommending Approval:
(Original Signed)
JOSE MARIO C. BUÑAG
Commissioner of Internal Revenue
REVENUE MEMORANDUM CIRCULAR NO. 32 - 2007
SUBJECT : Circulating the Memorandum of the Commissioner of Internal Revenue (CIR) on the New Paradigm in Meeting Collection Target dated April 26, 2007
To : All Revenue Officials and Personnel, and Others Concerned
x ------------------------------------------------------------------------------------------------------- x
Circularized hereunder is the Memorandum of the undersigned dated 26 April 2007 issued for the strict compliance of all internal revenue officials and employees, in relation to the new paradigm mandated on the Bureau of Internal Revenue in meeting its collection target, to wit:
“MEMORANDUM
TO : ALL INTERNAL REVENUE OFFICIALS AND EMPLOYEES
SUBJECT: NEW PARADIGM IN MEETING COLLECTION TARGET
DATE : April 26, 2007
In view of the new paradigm mandated to the Bureau by the Secretary of Finance that the annual collection target must be met regardless of the realization of the underlying assumptions and that shortfalls in the projections must be compensated by collections from other sources, the following must be strictly observed:
1. All claims for exemptions, cash refunds and issuance of tax credit certificates (TCCs) must be strictly evaluated. Any doubt must be resolved in favor of the government.
· Claims for Exemptions
Ø The delegated authority of the Regional Directors to sign rulings that involve grants of tax exemptions shall now be approved and signed by the Assistant Commissioner – Legal Service. However, the Deputy Commissioner – Legal and Inspection Group shall be furnished with copies of the signed/issued rulings.
Ø The delegated authority of the Assistant Commissioner – Legal Service to sign rulings that involve grants of tax exemptions shall now be approved and signed by the Deputy Commissioner – Legal and Inspection Group. However, the OCIR shall be furnished with copies of the signed/issued rulings.
· Claims for Cash Refunds/TCCs
Ø All claims must be resolved expeditiously.
Ø All reports granting the claims involving the amount of One Million (P1M) Pesos and above but not more than Ten Million (P10M) Pesos must be cleared with the Deputy Commissioner – Operations Group as the final approving official.
Ø All reports granting the claims involving an amount that is above Ten Million (P10M) Pesos must be cleared with the Commissioner as final approving official. Reports of these claims need not be coursed through the Office of the Deputy Commissioner – Operations Group.
The foregoing changes to the signatories to the rulings granting exemptions, and grants of claims for cash refunds/TCCs shall be effective until such time that the Commissioner of Internal Revenue issues an order reverting the same to the original designated signatories.
2. All periods in the audit and assessment process must be scrupulously observed as prescribed in RMO No. 11-2006. There should be no prolonged and unnecessary discussions and negotiations with the taxpayers. The process must be expeditiously brought to the PAN/FAN stage.
3. All protests on PANs/FANs not containing substantial issues must be immediately acted upon and summarily denied without any prolonged or elaborate discussion. The process must be expeditiously brought to the payment stage, unless the taxpayer elects to go to court.
4. The load of each Revenue Officer - Assessment as fixed under RMO No. 11-2006 is increased from 20 to 30 cases as at any one time.
5. Tax mapping operations (e.g., TCVD) and third party information mining should be intensified to add new taxpayers to the rolls of taxpayers and enhance voluntary compliance. Progress reports required below shall include a list of new taxpayers added per Revenue District Office (RDO).
6. Pay attention and give audit priority to those businesses which are apparently earning more revenues this year, such as but not limited to, the following:
· hotels and other tourism-related establishments, stockbrokers, lessors/lessees and sellers/dealers/buyers/brokers of real properties, mining companies, TV stations, advertising companies, recruitment agencies;
· hospitals, clinics, medical and dental laboratories;
· business agents and their clients reporting no payment returns;
· professionals like doctors, lawyers, accountants, etc.;
· government contractors;
· duly identifie d top 10,000 private corporations under RR No. 17-2003.
· taxpayers reporting exempt, net loss/no operations in their filed returns.
7. Close establishments violating the provisions of the Tax Code.
8. Expedite the generation of discrepancy report of sales and purchases reported by taxpayers through their Summary Lists of Sales and Purchases (SLSP).
9. Expedite the database registration clean-up and build-up.
10. Intensify collection of Accounts Receivable by expediting issuance warrants of distraint and/or levy, and initiate an exhaustive audit of accounts that are closed in the Integrated Tax Systems (ITS).
11. Strictly monitor the returns of stop/non-filer taxpayers.
12. Intensify the stocktaking and surveillance activities on business establishments.
13. Intensify the development of fraud cases as prescribed under RMC No. 40-2006.
14. Intensify campaign for taxpayers to avail of the present programs of the Bureau pertaining to the Improved Voluntary Assessment Program under RR No. 18-2006, and the one-time administrative abatement under RR No. 3-2007.
15. Initiate necessary proceedings against erring financial officers/tax practitioners pursuant to RMC No. 31-2007.
Progress reports on actions taken and results thereon on the foregoing initiatives shall be submitted on a monthly basis to the undersigned every 15th day of each following month, starting on 15 June 2007. The performance of all concerned shall be strictly evaluated and shall be used, among others, as basis for the reshuffle and transfers of officials and employees concerned. Any and all existing issuances which may be inconsistent with any of the foregoing are hereby considered amended accordingly.
(SGD.) JOSE MARIO C. BUÑAG
Commissioner”
All internal revenue officials and personnel are enjoined to give this Circular as wide a publicity as possible.
(Original Signed)
JOSE MARIO C. BUÑAG
Commissioner of Internal Revenue
To : All Revenue Officials and Personnel, and Others Concerned
x ------------------------------------------------------------------------------------------------------- x
Circularized hereunder is the Memorandum of the undersigned dated 26 April 2007 issued for the strict compliance of all internal revenue officials and employees, in relation to the new paradigm mandated on the Bureau of Internal Revenue in meeting its collection target, to wit:
“MEMORANDUM
TO : ALL INTERNAL REVENUE OFFICIALS AND EMPLOYEES
SUBJECT: NEW PARADIGM IN MEETING COLLECTION TARGET
DATE : April 26, 2007
In view of the new paradigm mandated to the Bureau by the Secretary of Finance that the annual collection target must be met regardless of the realization of the underlying assumptions and that shortfalls in the projections must be compensated by collections from other sources, the following must be strictly observed:
1. All claims for exemptions, cash refunds and issuance of tax credit certificates (TCCs) must be strictly evaluated. Any doubt must be resolved in favor of the government.
· Claims for Exemptions
Ø The delegated authority of the Regional Directors to sign rulings that involve grants of tax exemptions shall now be approved and signed by the Assistant Commissioner – Legal Service. However, the Deputy Commissioner – Legal and Inspection Group shall be furnished with copies of the signed/issued rulings.
Ø The delegated authority of the Assistant Commissioner – Legal Service to sign rulings that involve grants of tax exemptions shall now be approved and signed by the Deputy Commissioner – Legal and Inspection Group. However, the OCIR shall be furnished with copies of the signed/issued rulings.
· Claims for Cash Refunds/TCCs
Ø All claims must be resolved expeditiously.
Ø All reports granting the claims involving the amount of One Million (P1M) Pesos and above but not more than Ten Million (P10M) Pesos must be cleared with the Deputy Commissioner – Operations Group as the final approving official.
Ø All reports granting the claims involving an amount that is above Ten Million (P10M) Pesos must be cleared with the Commissioner as final approving official. Reports of these claims need not be coursed through the Office of the Deputy Commissioner – Operations Group.
The foregoing changes to the signatories to the rulings granting exemptions, and grants of claims for cash refunds/TCCs shall be effective until such time that the Commissioner of Internal Revenue issues an order reverting the same to the original designated signatories.
2. All periods in the audit and assessment process must be scrupulously observed as prescribed in RMO No. 11-2006. There should be no prolonged and unnecessary discussions and negotiations with the taxpayers. The process must be expeditiously brought to the PAN/FAN stage.
3. All protests on PANs/FANs not containing substantial issues must be immediately acted upon and summarily denied without any prolonged or elaborate discussion. The process must be expeditiously brought to the payment stage, unless the taxpayer elects to go to court.
4. The load of each Revenue Officer - Assessment as fixed under RMO No. 11-2006 is increased from 20 to 30 cases as at any one time.
5. Tax mapping operations (e.g., TCVD) and third party information mining should be intensified to add new taxpayers to the rolls of taxpayers and enhance voluntary compliance. Progress reports required below shall include a list of new taxpayers added per Revenue District Office (RDO).
6. Pay attention and give audit priority to those businesses which are apparently earning more revenues this year, such as but not limited to, the following:
· hotels and other tourism-related establishments, stockbrokers, lessors/lessees and sellers/dealers/buyers/brokers of real properties, mining companies, TV stations, advertising companies, recruitment agencies;
· hospitals, clinics, medical and dental laboratories;
· business agents and their clients reporting no payment returns;
· professionals like doctors, lawyers, accountants, etc.;
· government contractors;
· duly identifie d top 10,000 private corporations under RR No. 17-2003.
· taxpayers reporting exempt, net loss/no operations in their filed returns.
7. Close establishments violating the provisions of the Tax Code.
8. Expedite the generation of discrepancy report of sales and purchases reported by taxpayers through their Summary Lists of Sales and Purchases (SLSP).
9. Expedite the database registration clean-up and build-up.
10. Intensify collection of Accounts Receivable by expediting issuance warrants of distraint and/or levy, and initiate an exhaustive audit of accounts that are closed in the Integrated Tax Systems (ITS).
11. Strictly monitor the returns of stop/non-filer taxpayers.
12. Intensify the stocktaking and surveillance activities on business establishments.
13. Intensify the development of fraud cases as prescribed under RMC No. 40-2006.
14. Intensify campaign for taxpayers to avail of the present programs of the Bureau pertaining to the Improved Voluntary Assessment Program under RR No. 18-2006, and the one-time administrative abatement under RR No. 3-2007.
15. Initiate necessary proceedings against erring financial officers/tax practitioners pursuant to RMC No. 31-2007.
Progress reports on actions taken and results thereon on the foregoing initiatives shall be submitted on a monthly basis to the undersigned every 15th day of each following month, starting on 15 June 2007. The performance of all concerned shall be strictly evaluated and shall be used, among others, as basis for the reshuffle and transfers of officials and employees concerned. Any and all existing issuances which may be inconsistent with any of the foregoing are hereby considered amended accordingly.
(SGD.) JOSE MARIO C. BUÑAG
Commissioner”
All internal revenue officials and personnel are enjoined to give this Circular as wide a publicity as possible.
(Original Signed)
JOSE MARIO C. BUÑAG
Commissioner of Internal Revenue
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