The Lawphil Project - Arellano Law Foundation
DIGEST OF 1999 BIR RULINGS


DIGEST OF 1999 BIR RULINGS


RP-NETHERLANDS TAX TREATY; Interest Payments - Hercules Ultramarine, Inc. (HUI) is a duly registered BOI enterprise while Heclem B.V. (HBV) is a non-resident foreign corporation organized under the laws of the Kingdom of Netherlands. To facilitate the importation of vital and specialized machineries and equipment, HUI decided to avail of HBV's standing offer of financial assistance in the form of a loan, in consideration of which HUI agreed to pay HBV interest at the prevailing rate. Considering that such interest payments is not in connection with any sale on credit of machineries and equipment or in respect of public issues of bonds, debentures or similar obligations plus the fact that HBV is not a banking institution, such interest payments to HBV is subject to the withholding tax rate of 15% pursuant to Art. 11(2)(b) of the RP-Netherlands Tax Treaty. (BIR Ruling No. 001-99 dated January 7, 1999)

1.a MINIMUM CORPORATATE INCOME TAX - Taxpayer who is liable to the Minimum Corporate Income Tax (MCIT) and at the same time has an Expanded Withholding Tax (EWT) may deduct the EWT from the MCIT and if there is still an excess EWT, he may request for tax credit or refund of the tax withheld. (BIR DA-No. 001-99 dated January 5, 1999)

INCOME TAX; GSIS Optional and PAG-IBIG 2 Contributions - Section 2.78(B)(12) of Revenue Regulations No. 2-98 explicitly exempts from withholding tax GSIS, SSS, Medicare, Pag-Ibig contributions. It is safe to conclude that GSIS Optional and Pag-Ibig 2 contributions are likewise excluded from the gross income of the taxpayer, hence, exempt from income tax. Under Sec. 34(M) of the Tax Code, only premiums payments in health and/or hospitalization insurance not exceeding P2,400.00 per family or P200.00 a month paid during the taxable year by the taxpayer for himself, including his family, is allowed as deduction from the gross income. The GSIS Educational Plan Premium and GSIS Memorial Plan Premium shall be considered as part of employee's compensation subject to withholding tax. (BIR Ruling No. 002-99 dated January 12, 1999)

ISSUANCE OF RECEIPTS; Banks and Financial Institutions not Exempt - The practice of a bank in Davao City of requiring the client who availed of financing plan for the purchase of a motor vehicle to deposit the payments in the financier's account for which he was given a copy of the deposit slips in lieu of the corresponding receipts is not allowed. Under Section 238 of the Tax Code, banks and financial institutions are not exempt from issuing official receipts for payment made by their clients. (BIR Ruling No. 003-99 dated January 12, 1999)

WITHHOLDING AGENTS; Individual Buyers Not Engaged In Trade - Under Section 2 of Revenue Regulations No. 6-85 as amended by Revenue Regulations No. 12-94, individual buyers not engaged in trade or business are also constituted as withholding agents, but they need not register as such. (BIR Ruling No. 004-99 dated January 15, 1999)

VAT; Sale of Housing Units Valued at P1,000,000.00 - The sale of housing units by Laguna Properties Holdings, Inc.(LPHI) valued at P1,000,000.00 and below and which falls under the term "other residential dwellings" shall be exempt from VAT. Moreover, considering that LPHI is engaged in the real estate business and the selling of built-up housing units of a particular model constitutes the sale of real property, such activity is in the nature of real estate business and not as service contractor. (BIR Ruling No. 005-99 dated January 18, 1999)

VAT; Importation of Passenger or Cargo Vessel - Under Sec. 109(g) of the Tax Code, the importation of a vessel shall be exempt from VAT if it is a passenger or cargo vessel of more than five thousand tonnage whether coastwise or oceangoing. Since the imported ship is intended to be used for cleaning the Pasig River, the same cannot be considered as passenger or cargo vessel, hence shall be subject to 10% VAT imposed under Sec. 107(A) of the Tax Code. (BIR Ruling No. 006-99 dated January 18, 1999)

INCOME TAX; Multinational Company - Iwatani International Corporation (ITC), a corporation formed under the laws of Japan, is registered as a representative office in the Philippines to gather information and disseminate information on the company and its products and not authorized to generate income in the Philippines. Pursuant to Section 25(C) of the Tax Code, the term "multi-national company" means a foreign firm or entity engaged in international trade with affiliates or subsidiaries or branch office is the Asia Pacific Region and other foreign markets. Accordingly, the income tax rate applicable to the resident manager of ITC is 15% pursuant to said Section 25(C) of the Tax Code. (BIR Ruling No. 007-99 dated January 15, 1999)

INCOME TAX; Sale of Factory Building by Ecozone Enterprise - R.A. 7916 is a special law which grants exemption from payment of national taxes to PEZA-registered business establishments operating within the Ecozone except payment of the preferential tax rate of 5% on the gross income earned. Hence, the gross income earned by Kishi Philippine Corporation (KPC) on the sale of its factory building located within the ECOZONE in the course of winding up its registered business within the ECOZONE is subject to the 5% preferential tax rate based on the gross selling price minus the depreciated cost of the building as of the date of commercial operations. Moreover, as a duly registered ECOZONE export enterprise, KPC is not subject to documentary stamp tax on the sale of its building since the buyer is also a PEZA-registered company. (BIR Ruling No. 008-99 dated January 19, 1999)

ESTATE TAX; Allowable Deductions - All items enumerated in Sec. 86(A) of the Tax Code are allowable deductions from the value of the gross estate of a resident decedent in computing the net estate. The enumerated items are authorized by law to be deducted as independent, separate and distinct items of deduction which may properly be deducted from the gross estate of a resident subject to limitations provided under each item. (BIR Ruling No. 009-99 dated January 22, 1999)

INCOME TAX; Long-term Deposit or Investment - PAG-IBIG Mortgage Certificates having maturity of at least five (5) years and shall be denominated and marketed in units priced as low as P10,000.00, and which are listed and traded through the Philippine Stock Exchange (PSE) and enrolled with the Philippine Central Depository for scripless trading falls under the definition of long-term deposit or investment, the interest income of which is exempt from income tax pursuant to Section 24(B)(1) and 25(2) of the Tax Code of 1997. (BIR Ruling No. 010-99 dated January 22, 1999)

CREDITABLE WITHHOLDING TAX; Sale of Capital or Ordinary Asset - Pursuant to RR 1-90, the sale, exchange or transfer of real property whether capital or ordinary asset by a corporation which is habitually engaged in the real estate business, certified as such by the Chamber of Real Estate Builders Association, Inc. (CREBA) and who is registered with HUDCC shall be subject to a creditable withholding tax of two and one-half percent (2.5%) based on the gross selling price or total amount of consideration or its equivalent paid to the seller/owner. The said RR 1-90 covers all types of sale, i.e., cash sale, sale on installment basis and sale on a deferred payment basis. (Citation omitted) The above pronouncement as to the basis of the expanded withholding tax (EWT) was clarified in BIR Ruling No. 019-96, i.e., the entire gross selling price and not only on the initial or downpayments if the initial or downpayments in the year of sale exceed twenty-five percent (25%).

The term "downpayment" is not equal to the gross selling price or the total amount of consideration or its equivalent paid tot he seller/owner since it is actually a portion of the whole (i.e., of the gross selling price or the total amount of the consideration or its equivalent). The alternative use of the terms "gross selling price" or "total consideration or its equivalent paid to the seller/owner' is necessary to comprehend the payment other than money made by the buyer which, in all intents, from part of the consideration or selling price and for which the equivalent value therefor shall be considered in computing the creditable withholding tax.

Thus, in all instances, whether the basis is denominated as gross selling price or total amount of consideration or its equivalent, if initial payment thereof is equivalent to 25% or more, the transaction is considered as cash sale for which the corresponding rate of the creditable withholding tax prescribed shall be withheld based not on the amount initially paid (downpayment) but on the gross selling price or total consideration or its equivalent paid to the seller/buyer. (BIR Ruling No. 011-99 dated January 22, 1999)

INCOME TAX; Maternity Benefits - Section 28(b)(7)(E) of the National Internal Revenue Code of 1997 [now Section 32(B)(6)(e) of the Tax Code of 1997] excludes from gross income and exempts from taxation payments of benefits made under the Social Security Act of 1954, as amended. Maternity benefits are among those benefits provided under the Social Security Act of 1954, as amended by Republic Act 8282, more particularly Section 14-A of the said Act. Accordingly, the maternity benefits advanced by the employer to the employee are excluded from gross income, hence, exempt from withholding tax. (BIR Ruling No. 012-99 dated January 18, 1999)

EXCISE TAX; Petroleum products imported by PAL - Petroleum products purchased or imported by PAL from abroad can be used by it in its domestic operations without payment of tax since the said products were not a domestic purchase. The intention of LOI No. 1483 is to impose a tax on domestic petroleum products purchased by PAL for use in its domestic operations. The grant of such exemption is not contrary to E.O. No. 93 withdrawing the tax and duty, including the preferential treatment of all units of government and private entities, in view of Sec. 24 of P.D. 1590. (BIR Ruling No. 013-99 dated January 29, 1999)

VAT; Local Purchases of Goods and Properties by PNRC - PNRC is exempt from the payment of the 10% VAT on its importation of goods under Section 107 of the Tax Code of 1997. Local purchases by PNRC of goods or properties, services and use or lease of properties are exempt from VAT pursuant to Section 109(q) of the Tax Code of 1997; and interest income derived by PNRC from currency bank deposits and yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements are exempt from the 20% final tax imposed under Section 27(D)(1) of the Tax Code of 1997. This revokes BIR Rulings Nos. 026-96 and 064-98. (BIR Ruling No. 014-99 dated February 1, 1999)

DOCUMENTARY STAMP TAX; Pledge Agreement -The Pledge Agreement is subject to the payment of documentary stamps tax imposed under Section 195 of the Tax Code of 1997. However, the execution of a supplemental Pledge Agreement by Teletronic System, Inc. (TSI) in favor of Qualcom which will only substitute the New Timco shares pledged under the original pledge agreement with a corresponding number of Retelcom shares owned by New Timco, without any change in the terms and conditions of the pledge agreement as well as the amount of the loan of TSI from Citibank N.A. guaranteed by Qualcom is no longer subject to the documentary stamp tax imposed under Section 195 of the Tax Code of 1997. (BIR Ruling No. 015-99 dated February 3, 1999)

RP-NETHERLANDS TAX TREATY; Royalty Payments - Since Maple does not have a permanent establishment in the Philippines, the amount of $150,000.00 to be derived by Maple from Megalicious for the lost development opportunities in the Designated Territory and as a technical service fee for the services that Maple is obligated to provide under the MFA, and the 25% of any and all product commissions that will be collected and remitted by Megalicious from the franchised businesses as well as the unit franchise fees are considered business profits not subject to Philippine income tax consequently to the withholding tax under Section 28(B)(1) in relation to Section 57(A) both of the Tax Code of 1997.

Moreover, since Maple is a non-resident foreign corporation and is not engaged in trade or business in the Philippines as envisioned under Section 28(B)(1) of the Tax Code of 1997, royalty payments made by Megalicious in the amount of $100,000.00 for the use of its trademarks and intellectual property rights including the system of Country Style donuts in the Philippines and the 2% franchised business monthly gross sales are subject to the Philippine income tax at the rate of 10% pursuant to Art. XII(2)(b)(ii) of the RP-Canada Tax Treaty in relation to Article 12(2)(b) of the RP-West Germany Tax Treaty. The said tax shall be withheld and paid in the same manner and subject to the same condition as provided in Section 57(B) of the Tax Code of 1997. (BIR Ruling No. 016-99 dated February 4, 1999)

AUTHORITY TO ADMINISTER OATHS - The phrase "shall have the power to administer oaths "includes the power to certify that a document was executed, sworn to or acknowledged before a competent officer. "JURAT" is that part of an affidavit where the officer certifies that the same was "sworn" to before him. Accordingly, all BIR Forms containing a "JURAT", e.g., ATRIG, Manufacturer's Declaration, can be subscribed and sworn to before any of the BIR officers authorized to administer oaths under Section 14 of the Tax Code. (BIR Ruling No. 017-99 dated February 5, 1999)

INCOME TAX; Definition of Corporation; Joint Venture - Pursuant to Section 22(B) of the Tax Code of 1997, the term "corporation" shall include partnerships, no matter how created or organized, joint stock companies, joint accounts (cuental en participacion), associations or insurance companies, but does not include general professional partnerships and a joint venture or consortium formed for the purpose of undertaking construction projects or engaging in petroleum, coal, geothermal an other energy operations pursuant to an operating or consortium agreement under a service contract with the Government. Hence, the joint venture of MEGAWORLD and LA O' for the construction of "The Manhattan Square" is not subject to the corporate income tax under Section 27(A) of the Tax Code of 1997. However, the co-venturers are separately subject to the regular corporate income tax on their income during each taxable year respectively derived by them from the aforesaid construction project. Furthermore, the allocation of the units and the issuance of the corresponding Condominium Certificates of Title by the Registry of Deeds of Makati City to MEGAWORLD and LA O', representing their respective shares or participating interests in the projects as stipulated in the JVA, are not taxable events, therefore, not subject to income and/or expanded withholding tax, because it is only upon the sale or disposition of the units allocated to MEGAWORLD and LA O' to third parties that the gain realized by the parties in the said transaction will be subject to the regular 34% of income tax for the taxable year 1997 under Section 27(A) of the Tax Code of 1997 and to the expanded withholding tax under Revenue Regulations No. 6-85, as amended by RR 2-98. [BIR Ruling No. DA-488-98] (BIR Ruling No. 018-99 dated February 11, 1999)

CREDITABLE WITHHOLDING; Seller not Registered with HLURB - Since the seller, Bagong Lipunan Community Association of Valle Verde and Valle Verde 1 (BLCA) Condominium Corporation is not registered with the HLURB as engaged in the socialized housing projects under RA No. 7279 but is engaged in the real estate business with a selling price of more than P2,000,000.00 per unit, the said sale shall be subject to the 5% creditable withholding tax imposed under said Regulations. Consequently, the buyer is hereby constituted as withholding agent and is required to withhold the 5% creditable withholding tax based on the gross selling price or total amount of consideration or its equivalent paid to Bagong Lipunan Community Association of Valle Verde and Valle Verde I (BLCA) Condominium Corporation. (BIR Ruling No. 019-99 dated February 19, 1999)

RP-SINGAPORE TAX TREATY; Royalties - The payments to be made by SMART to Fujitsu Asia Pte. Ltd. as the assignee of WE SERV for the supply and delivery of Hardware and Software comprised within the Smart Integrated Business System are not in the nature "royalties" within the purview of Art. 12(3) of the RP-Singapore Tax Treaty.

However, if Fujitsu Asia Pte Ltd. has a permanent establishment in this country as the term is defined in Article 5 of the aforesaid tax treaty, the profits of Fujitsu Asia Pte Ltd. may be taxed in this country but only so much of it as is attributable to the permanent establishment. However, it shall be understood that the delivery of the hardware and software comprised under the Smart Integrated Business System is subject to 10% VAT. (BIR Ruling No. 020-99 dated February 24, 1999)

CAPITAL GAINS TAX; Sale of Capital Assets - Under Section 27(D)(5) of the Tax Code of 1997, a final tax of six percent (6%) is imposed on the gains presumed to have been realized in the sale, exchange or disposition of lands and/or buildings which are not actively used in the business of a corporation and which are treated as capital assets based on the gross selling price or fair market value as determined in accordance with Section 6(E) of the Tax Code of 1997, whichever is higher. Accordingly, the real properties located at Pioneer Street, Mandaluyong City, consisting of land with an aggregate area of 42, 223 square meters and the buildings and other improvements therein, may qualify as capital assets, and the sale thereof may be subject to the final tax of six percent (6%). (BIR Ruling No. 021-99 dated February 25, 1999)

VAT; Processing of Meat - Facilitator Foods Processing Philippines, Inc. which is engaged in the processing of meat imported from the U.S.A. and other countries, is exempt from VAT pursuant to Sec. 109(c) of the Tax Code of 1997. (BIR Ruling No. 022-99 dated February 25, 1999)

EXCISE TAX; Purchase of Petrolem Products by ADB - Asian Development Bank, being an international organization is entitled to tax exemption privilege on the purchase of petroleum products for its official use. Accordingly, ADB is covered by the exempting provision of Section 135(c) of the Tax Code of 1997 which provides that entities which are by law exempt from direct and indirect taxes are exempt from excise tax. (BIR Ruling No. 023-99 dated February 25, 1999)

CREDITABLE WITHHOLDING TAX; Specialty Contractor - Section 2.57.2(E)(3) of Revenue Regulations No. 2-98 provides that those whose operations pertain to the performance of construction work requiring special skill and whose principal contracting business involves the use of specialized building trades or crafts shall be subject to the 1% creditable withholding tax based on the gross payments of the contractors, whether individual or corporate. Since a national artist for sculptural works falls within the category of specialty contractor under Section 2.57.2(E)(3) of said Regulations, payments made by the Department of Foreign Affairs to a national artist, are subject to the 1% creditable withholding tax. (BIR Ruling No. 024-99 dated February 25, 1999)

DOCUMENTARY STAMP TAX; Policies of Insurance - The purchase and affixture of documentary stamp tax by ISAP on all its policies of insurance or other instruments by whatever name the same may be called, by which insurance shall be made or renewed upon property of any description, including rents or profits, against peril by sea or in inland waters, or by fire or lighting, shall be in accordance with the provisions of Revenue Regulations No. 5-97. (BIR Ruling No. 025-99 dated March 09, 1999)

INCOME TAX; Principle of Reciprocity; Salaries of Diplomatic Officials - The tax exemptions of diplomatic agents/representatives do not include exemption from dues and taxes on their private income having its source in the receiving State and capital taxes on investments made in commercial undertakings in the receiving State. However, under the principle of reciprocity, the Philippine Government through the Bureau of Internal Revenue may consider granting tax exemption to the Embassy of the Federative Republic of Brazil and their personnel on such private income having source in the receiving State and capital taxes on investments made in commercial undertakings in the receiving State, provided that they can submit to the Commissioner of Internal Revenue or his duly authorized representative a copy of the special designation or international agreement showing that their Government allows similar tax exemption to Filipino Embassy personnel receiving similar income in their territory.

Moreover, since the salaries of the diplomatic officials and agents are not among the enumerated exceptions of exemption from taxes, the same are deemed exempt from income tax and consequently from the withholding tax on the host country, i.e., the Philippines. (BIR Ruling No. 026-99 dated March 9, 1999)

DOCUMENTARY STAMP TAX; Original issue of Shares of Stock by Ecozone Enterprise - Mitsui Transnet (Phils.) Corporation, an Ecozone Facilities Enterprises, is liable to pay documentary stamp tax on the original issue of its shares of stock to the Corporation's stockholders since the liability for DST on the original issuance of shares by a corporation attaches from the moment such as corporation accepts subscription from its stockholders which occurs during the incorporation stage of the corporation and naturally prior to its registration with PEZA under RA 7916. Hence, Mitsui Transnet cannot be said to be already a business enterprise operating within the ECOZONE and thus exempt from DST by virtue of the 5% preferential tax rate and the "in lieu" provisions of RA 7916. (BIR Ruling No. 027-99 dated March 9, 1999)

VAT; Aboitiz Air and Transport Corp. No Longer Subject to 5% Franchise Tax but to 10% VAT - Under Sec. 11 of R.A. No. 7583, Aboitiz Air & Transport Corporation (AATC), a domestic corporation engaged in the business of carriage of goods, mail, cargoes & other property by air, is liable to pay 5% franchise tax on its gross revenues. However, the 5% franchise tax was replaced by 10% VAT hence, AATC is no longer subject to the 5% franchise tax but to the 10% VAT. Moreover, since VAT is an indirect tax AATC can pass on to its customers or shippers the said 10% VAT. (BIR Ruling No. 028-99 dated March 10, 1999)

INCOME TAX; Filipinos Occupying Managerial or Technical Positions - Filipinos employed and are occupying managerial or technical positions as those of aliens employed by the Asian Development Bank which is not only a Regional Area Headquarters, but the Headquarters itself are subject to the preferential tax rate of 15% on their compensation income pursuant to Section 25(C) of the Tax Code of 1997. (BIR Ruling No. 029-99 dated March 11, 1999)

INCOME TAX; Tax-Free Merger - The merger of Roche (Phils.) Inc. with Boehringer Mannhelm (Philippines), Inc. qualifies as tax-free merger within the contemplation of Sec. 40(C)(2) and (6)(b) of the Tax Code of 1997 because Roche acquired all the assets and liabilities of BMPI, the transaction undertaken being for a bona fide business purpose and not for the purpose of engaging the burden of taxation. Since no Roche shares of stock will be issued, no DST are due from such transaction but the transfer by BMPI of its certificates of stock and real properties to Roche shall be subject to DST imposed under Secs. 176 and 196 of the Tax Code of 1997.

Moreover, the reorganization is not subject to gift tax as there is no intention to donate on the part of any of parties. Finally, the transactions are not subject to VAT (output tax) under Sec. 4.100-5(b)(1) of Rev. Regs. No. 7-95. (BIR Ruling No. 030-99 dated March 12, 1999)

INCOME TAX; Conveyance by Trustee of Properties in Favor of Trustor - The transfer of the Pepsi Shares from the Trustee, Guoco Securities (Phils.), Inc. to the Trustors, HWI and GAPI, the real owners therefor, without monetary consideration and by virtue of the Deeds of Trust respectively executed by HWHI and GAPI is not subject to the capital gains tax. In BIR Ruling DA-125097, this Office held that the conveyance by the trustee in favor of the trustor of the subject properties which the former acquired by virtue of the trust agreement is not to be treated as another transfer separate and distinct from the sale between the original owner and the trustee. The conveyance is merely to be treated as a continuation and confirmation of title in favor of the ultimate and real beneficiary of the subject properties.

Moreover, the said Deeds are not subject to the documentary stamp tax imposed under Section 176 of the Tax Code of 1997, but only to the documentary stamp tax on certificates under Section 188 of the same Code. (BIR Ruling No. 031-99 dated March 19, 1999)

VAT; Donation of Farm Equipment and Printed Religious Materials - The donation of farm equipment and printed religious materials by the Korean Firefight Youth Society for Rural Restoration in favor of the Philippine Firefight Youth Society for Rural Restoration and Multi-Purpose Cooperative is exempt from VAT pursuant to Sec. 109 (r) of the Tax Code of 1997 and Sec. 4. 103-1 (B)(u) of Revenue Regulations No. 7-95. (BIR Ruling No. 032-99 dated March 23, 1999)

VAT; Income Tax; Lease of Office Space Located Outside PEZA -From the provision of R.A. No. 7916, it is clear that the sale of services to PEZA-registered enterprises, for income and VAT purposes, should be rendered within the PEZA boundaries to be entitled to the benefits of Section 24 of R.A. No. 7916. Since the Liaison office space and Exacts house are located outside PEZA boundaries, the lease thereof is therefore subject to the 10% VAT imposed under Section 108(a) and to the corporate income tax prescribed under Section 27(A) both of the Tax Code of 1997. (BIR Ruling No. 033-99 dated March 23, 1999)

RETIREMENT PAY; Benefits Paid by GSIS - The application for optional retirement of Mrs. Erlinda L. Gutierrez under P.D. 1146, as amended is without legal basis and therefore, cannot be given due course. However, Mrs. Gutierrez shall be entitled to the return of her GSIS personal contributions pertaining to her retirement only and the corresponding shares of the government with interest earned pursuant to existing rules and regulations of GSIS in accordance with Section 4 of RA 6683. She shall likewise be entitled to the commutation of her unused vacation and sick leaves pursuant to the same provision. This shall include cash payment equivalent to eighteen (18) times her basic monthly pension and old-age pension benefit in accordance with Section 11, RA 8291 amending PD 1146, dividends as provided for in Section 25 of RA 8291; and premiums paid and interest earned on automatic life insurance and/or optional insurance under Section 24 and 26 of RA 8291. This is because where the benefits provided by RA 6683 for the same contingencies are less than the benefits provided under PD 1146 as amended by RA 8291, the GSIS shall pay only the difference (Section 55 of RA 8291). Moreover, the benefits paid by the GSIS shall be exempt from all taxes as provided by Section 39 of RA 8291. (BIR Ruling No. 034-99 dated March 24, 1999)

IPO TAX; Demutualization; Listing of Shares - Pursuant to Section 127(B) of the NIRC, the IPO tax would apply only to corporations which are considered "closely held", meaning that at least 50% in value of the outstanding voting shares of all classes is owned directly or indirectly by or for not more than 20 individuals. In the case where the shares of stock in the corporation to be listed are owned by another corporation, such shares will be considered as being owned proportionately by the latter's shareholders.

Since HoldCo would be wholly-owned by SLAC prior to demutualization and at the time the application to list the HoldCo shares is filed with the PSE, the corporation shareholding of SLAC in HoldCo will be considered, as being proportionately held by SLAC's "shareholders". Since the members of SLAC, who would effectively be considered as shareholders of the company, consist of hundred of thousands of Eligible Policyholders, HoldCo will not be a "closely held corporation" prior to SLAC's demutualization. Accordingly, the listing of shares of stock in HoldCo with the PSE in connection with the demutualization of SLAC will not be subject to the IPO tax because, at all material times both before and after demutualization, HoldCo will not be a closely held corporation as defined under Section 127(B) of the NICRC. (BIR Ruling No. 035-99 dated March 25, 1999)

EXCISE TAX; Sale of Petroluem Products to NPC - Section 135 of the Tax Code of 1997 provides that the sale of petroleum products shall be exempt from excise tax if sold to an entity that enjoys exemption from indirect taxes. Hence, the sale of petroleum products by Petron Corporation to the National Power Corporation (NPC) to be used by Edison Bataan Cogeneration Corporation (EBCC) in generating electricity for the Bataan EPZA is exempt from excise tax. (BIR Ruling No. 036-99 dated March 29, 1999)

VAT; Gross Receipts of MWSS from Connection Fees - The P3,000.00 fees charged for connections or reconnections to a water main or a public sewer which are located less than 25 meters from the connection point under Article 9.5(1) of the Concession Agreement of MWSS privatization is subject to the 10% value added tax based on the gross receipts from such "connection fees" which shall be exclusive of the value-added tax, pursuant to Sec. 108(A) of the Tax Code of 1997. (BIR Ruling No. 037-99 dated March 29, 1999)

VAT; Remittance of Royalties - Since Technol Eight Philippines (TEP) is duly registered with the BOI and engaged in preferred areas of investment under the investment incentives laws of the Philippines, the payment of royalties by TEP to TEC will be subject to the preferential tax rate of 10% Philippine income tax based on the gross amount of royalties. However, the remittance by TEP to TEC of the said royalties shall be subject to the 10% value-added tax pursuant to Section 108(A)(1) of the Tax Code of 1997.

TEP shall, before making payment of royalties to TEC, withhold and remit to this Bureau of 10% VAT due thereon by filing a separate VAT return for and in behalf of TEC. (BIR Ruling No. 038-99 dated March 30, 1999).

ESTATE TAX; Foreign Currency Deposits of Non-Resident Alien - The foreign currency deposits of a non-resident alien decedent including interest and all other income or earnings of such deposits are exempt from estate and all other taxes whatsoever as long as the deposits are eligible or allowed under R.A. No. 6426, as amended. (BIR Ruling No. 039-99 dated March 30, 1999).

CAPITAL GAINS TAX; Sale of Principal Residence - Granting the request of Ms. Eufemia Lazaro for exemption from the payment of 6% capital gains tax on the sale of her principal residence in favor of the Republic of the Philippines through the Department of Public Works and Highways since she has manifested her intention to fully utilize the proceeds of the sale to buy another parcel of land where she will construct her new principal residence within the time required by law and has notified the Commissioner of Internal Revenue of the same within 30 days from the sale or deposition of the property. (BIR Ruling No. 040-99 dated March 30, 1999)

INVENTORIES; Average Cost or Weighted Average Method - Orion-Square Capital, Inc., a non-stock and bond broker and dealer in securities, has been using the "first-in-first out" method in costing its inventories; that in order to accurately reflect its income, it has decided to shift its method of costing inventories to the "average cost" method of considering that the marketable securities which comprise its inventory are generic in nature, intangible and usually indistinguishable from each other; and that this method conforms with industry accounting practices and lends to a more accurate indication of income and financial position at any given period. The BIR allowed Orion to adopt the "average cost" or "weighted average" method pursuant to Section 41 of the Tax Code of 1997 and Section 148 of Revenue Regulations No. 2. (BIR Ruling No. 041-99 dated March 30, 1999)

RP-JAPAN TAX TREATY; Payment of Royalties - The payments made by Mitsubishi Heavy Industries Phils. (Inc.) (MHIPI) to Mitsubishi Heavy Industries, Ltd. (MHIL) for the right to use its industrial knowledge and experience in manufacturing automobile air conditioning systems and parts under the inventions, drawings, specifications and other manufacturing and/or services information that it has gained over the years under the license and Technical Assistance Agreement shall be subject to the preferential tax rate of 25% under Article 12(2)(b) of the RP-Japan Tax Treaty. However, the remittance by MHIPI to MHIL of the said royalties shall be subject to the 10% value-added tax pursuant to Section 108(A)(1) of the Tax Code of 1997. MHIPI shall, before making payments of royalties to MHIL, withhold and remit to this Bureau the 10% VAT due thereon by filing a separate VAT return for in behalf of MHIL. (Sec. 4.110-3(b), Revenue Regulations No. 7-95) (BIR Ruling No. 042-99 dated March 30, 1999)

EXCISE TAX ON MINERAL PRODUCTS; Holders of Coal Operating Contracts under P.D. No. 972 -The preferential tax treatment privilege granted or being enjoyed by Coal Operating Contract (COC) holders under Section 16(a) of P.D. No. 972 was first repealed by EO No. 93 which encompassingly withdrew the tax and duty incentives enjoyed by all persons, whether natural or judicial, including government-owned or-controlled corporations. The aforesaid incentives enjoyed by coal operating contractors were however, effectively restored on March 10, 1987 by FIRB Resolution No. 19-87. Granting that the status quo of COC existing as of the time R.A. No. 7160 took effect on January 1, 1992 was maintained by express provision of Section 5(d) of the aforesaid Act, Section 193 thereof withdrew these preferential tax exemption privileges granted to, or enjoyed by all persons, whether natural or judicial, including government-owned or-controlled corporations, except local water districts cooperatives duly registered under R.A. No. 6938, and non-stock and non-profit hospitals and educational upon its effectivity. Furthermore, the intention to withdraw all the privileges, including those enjoyed by COC holders, was, however, bolstered by Section 534 of the same Act which expressly repealed Section 16 of P.D. No. 972, as amended. Accordingly, this Office hereby holds that under Section 151 of the Tax Code, as amended, COC holders are subject to excise tax of Ten pesos (P10.00) per metric ton of coal produced/explored and removed from the locality where mined. (BIR Ruling No. 043-99 dated March 30, 1999)

VAT; Non-Technical Day to Day, Administration Services - Kuehne & Nagel (Asia Pacific) will merely support the operations of Kuehne & Nagel (Phils.) in Asia Pacific excluding Philippines, through a non-technical day to day administration services which shall thereafter be charged to the latter on a reimbursement-of-cost- basis, is not subject to VAT. (BIR Ruling No. 044-99 dated March 30, 1999)

DST; Income Tax; Lease Purchase Agreement Subject to DST, Ordinary Asset Sold Subject to CWT - The Lease Purchase Agreement executed by and between Total Persons Care Foundation (TOPEC) and Mariano Gabor sometime in December, 1985, is subject to the documentary stamp tax imposed under Section 194 of the Tax Code, while on the other hand, the subsequent Deed of Sale executed in July, 1998, is likewise subject to the documentary stamp tax prescribed under Section 196 of the Tax Code of 1997. In other words, both Lease Purchase Agreement and deed of Absolute Sale are subject to the corresponding documentary stamp tax prescribed under the aforecited provisions of the Tax Code. Moreover, the tax base of documentary stamp tax due on the Deed of Absolute Sale, shall, under Section 196 of the Tax Code of 1997, be based on the consideration or value received or contracted to be paid for such realty after making proper allowance of any encumbrance or on its fair market value determined in accordance with Section 6(E) of the Tax Code of 1997 (zonal valuation), whichever is higher. Finally, since the property sold in favor of Mr. Mariano Gabor is an ordinary asset, the sale thereof is subject to the creditable withholding tax imposed under Section 4 of Revenue Regulations No. 8-98 implementing Section 57(B) of the Tax Code of 1997 based on the gross selling price/total amount of consideration or fair market value (zonal valuation) of the real property sold, whichever is higher. (BIR Ruling No. 045-99 dated April 7, 1999)

AUTHORITY TO PRINT RECEIPTS - Granting the request of Meralco to forego the requirement of pre-printed number in its computerized collection operation under a system called Customer Management System (CMS) using the Portable Rover 200 Machine Receipt Generator usually brought along by the bill collectors in the remote areas where there are no authorized agent bank servicing facilities. (BIR Ruling No. 046-99 dated April 7, 1999)

VAT; Tax Exemption of ICLARM does not Extend to Indirect Taxes - The tax exemption of ICLARM covers only taxes for which it is directly liable and does not extend to indirect taxes, like VAT. Pursuant to Section 105 of the Tax Code of 1997, VAT is an indirect tax and the amount of tax may be shifted or passed on to the buyer, transferee of goods, properties or services. The VAT on the sale of car is the direct tax liability of Nissan Southwood. However, when passed on to ICLARM, it is no longer a tax but an additional cost which becomes a part of the amount of the contract price to be paid by ICLARM. (BIR Ruling No. 047-99 dated April 13, 1999)

CAPITAL GAINS TAX; Venue of Payment -- Since the seller-transferor is registered or is required to be registered in the Marikina RDO or RDO No. 45 the payment of the capital gains tax including the documentary stamp taxes due on the sale transaction between Mr. Augusto Cruz as vendor and New Ventures Realty Corporation in December, 1997 should have been paid at RDO No. 45, Marikina City, and not at RDO No. 50, Makati City. On the other hand, the documentary stamp tax payment made by the vendee at RDO No. 50-Makati City relative to the above-mentioned sale transaction although made at a wrong venue should not, however, be subjected to the corresponding penalty provided for under then Section 248(a)(2) of the Tax Code, as amended. (BIR Ruling No. 048-99 dated April 13, 1999)

R.A. No. 7916; Businesses Operating within the ECOZONE - The request of Mayor Ernest H. Weigel, Jr. to amend Section 2(i) of RR No. 12-97 by excluding therefrom "real estate taxes" was denied. Although the heading of Section 24 of RA No. 7916 states "Exemption from taxes under the National Internal Revenue Code", the body of the provisions in question also mentions "local taxes". Obviously, the local taxes referred to therein pertain not only to the business taxes, fees and charges imposed by LGUs by means of local ordinances but also to local taxes authorized to be levied by them pursuant to R.A. No. 7160, otherwise known as the "Local Government Code of 1991". In short, businesses operating within the ECOZONE are no longer subject to the internal revenue taxes imposed under the Local Government Code but only to the preferential tax rate of 5% based on the gross income earned. The 5% in lieu of all taxes is a commutation tax which effectively accords the grantee exemption from all other taxes. (BIR Ruling No. 049-99 dated April 13, 1999)

AUTHORITY OF CIR TO COMPROMISE - Pursuant to Sec. 204 of the Tax Code, the request of the Development Bank of the Philippines (DBP) for the waiver of the aforementioned interest, penalties and surcharges is hereby granted. This waiver of penalties and interest however, shall not extend to interests and surcharges that may hereafter be assessed or charged on any GRT and DST which the DBP may be liable to pay. (BIR Ruling No. 050-99 dated April 14, 1999)

EXCISE TAX; Petroleum Products Sold to Tax-exempt Entities -The petroleum product withdrawals by Petron Corporation are for use by entities or agencies exempt from excise tax under Section 135 of the Tax Code of 1997, and that the petroleum products are to be delivered to the tax-exempt entities within ten (10) days (for the period of January 1, 1998 to June 30, 1998); within five (5) days (for the period July 1, 1998 to December 31, 1998) from the date of removal of such products; and before removal from the place of production of such products (from January 1, 1999 and thereafter). Accordingly, Petron is allowed to claim a tax credit/refund of the excise taxes paid on petroleum products sold to tax-exempt entities or agencies, subject to the two-year prescriptive period under Section 229 of the Tax Code of 1997. (BIR Ruling No. 051-99 dated April 19, 1999)

DST; Issuance of Shares by a Foreign Corporation Outside of the Philippines -DST being in the nature of an excise tax, is imposed on the privilege of conducting a particular transaction or executing a particular document within the Philippines. The issuance of shares should be subject to DST under Sec. 175 only if the corporation issuing the shares is a domestic corporation whose principal office is within the Philippines. Consequently, where a foreign corporation whose principal office is outside the Philippines issues shares of stock, where the subscribers of the shares are residents of the Philippines, the DST should not be imposed because the transaction occurs outside of the Philippines since the Holdco shares which are to be exchanged for the membership rights of the eligible Philippine policyholders of Manulife, a Canadian corporation, and which right arose pursuant to the corporate charter of Manulife and the Canada corporate and regulatory regime which govern Manulife, are issued in Canada pursuant to the demutualization of Manulife under the Canadian corporate law, the provision of Section 175 of the 1997 Tax Code shall not apply to such issuance of Holdco common shares to eligible Philippine policyholders. Neither will the provision of Section 177 of the same Tax Code shall apply. The Holdco shares are issued in Canada, hence, the issuance did not arise from Philippine source. However, the sale by the eligible policyholders of their Holdco shares through the PSE is subject to the documentary stamp tax calculated pursuant to Section 176 of the Tax Code of 1997. Correspondingly, the original issue price of a no par value shares of stock shall be determined in accordance with the proviso of Section 175 of the same Tax Code. Such being the case, the DST on the sale of the shares shall be calculated as 25% of 1% (i.e., P2.00 on each P200.00) of the foreign issuance price or IPO price of the Holdco shares, whichever is higher. (BIR Ruling No. 052-99 dated April 19, 1999)

INCOME TAX; Tax-free Exchange for Shares of Stock -No gain or loss shall be recognized both on the part of Sun Life Assurance Company of Canada (SLAC), the transferor, and Philco, the transferee, on the transfer by SLAC of its Philippine branch business in exchange for shares of stock in Philco, considering that after the exchange and as a result thereof, SLAC will gain control of Philco, the transferee, in accordance with Section 40(C)(2) of the Tax Code; SLAC shall not be considered to have withdrawn the remittable profits of its Philippine Branch when the same are transferred to Philco and therefore the 15% Branch Profits Remittance Tax (BPRT) on remittable profits of SLAC as of the date of transfer of its Philippine branch business to Philco shall not be imposed; The transfer of assets of the Philippine branch to Philco shall not be subject to the 10% Value Added Tax pursuant to Section 4.100-5(b) of Revenue Regulations No. 7-95, as amended; The transfer of Philco shares by SLAC to BVCo is exempt from Philippine income tax pursuant to Article 13(3) and (4) of the RP-Canada Tax Treaty Considering that the transfer of Philco shares will be made to BVCo, a wholly owned subsidiary of SLAC, there is no transfer of Philco shares to an unrelated third party. Therefore, the transfer of Philco shares to BVCo should not result in the 15% BPRT; The transfer of its investments in shares of stock in domestic corporations by SLAC to Philco shall be subject to documentary stamp tax (DST) pursuant to Section 176 of the Tax Code. The transfer of any real property by SLAC to Philco shall be subject to DST pursuant to Section 196 of the Tax Code. The issuance of shares of stock by Philo to SLAC shall be subject to DST under Section 175 of the Tax Code; and finally, the transfer by SLAC of Philco shares to BVCo shall be subject to DST under Section 176 of the Tax Code. (BIR Ruling No. 053-99 dated April 19, 1999)

INCOME TAX; Abandonment Losses - Section 34(D)(7)(a) of the Tax Code of 1997 allows as deduction from gross income losses actually sustained during the taxable year and not compensated for by insurance or otherwise. Accordingly, Coenco's writing of all its interests in Geophysical Survey & Exploration Contract (GSEC 72 and 92), the same being classified as abandonment losses, are deductible from its gross income under Sec. 34(D)(7)(a) of the Tax Code of 1997. (BIR Ruling No. 054-99 dated April 19, 1999)

INCOME TAX; Meaning of Fringe Benefits - Fringe benefits means any goods, service or other benefit furnished or granted by an employer in cash or in kind, in addition to basic salaries, to an employee (except rank and file employee) such as housing. Section 33(a) of the Tax Code of 1997 stipulates that fringe benefits which are "required by the nature of, or necessary to the trade, business or profession of the employer, or when the fringe benefits is for the convenience or advantage of the employer" are not subject to the fringe benefit tax. If the living quarters are furnished to an employee for the convenience of the employer, the value thereof need not be included as part of compensation income subject to withholding. It appearing that the 3 kilometer distance was for purposes of complying with the state policies on the promotion of the health and welfare of workers (Articles 11, Sections 15 and 18 of the 1987 Constitution) and the constitutional mandate guaranteeing full protection to labor (Art. 13, Sections 3 and 14, ibid.), this situation falls within the purview of Section 33 of the Tax Code of 1997. Such being the case, the costs and related expenses associated with the lease of the condominium unit and residential house for the benefit of the employees are expenses directly attributable to the development, management, operation and/or conduct of the business pursuant to Section 34(A)(1) of the Tax Code, the same shall be deducted from the gross income of ABB Power, Inc. As such, and considering that it is a fringe benefit for the convenience and advantage of the employer, it shall not be included as part of compensation income of the employee subject to withholding neither will it be subject to the fringe benefit under Sec. 33 of the Tax Code of 1997 implemented by Revenue Regulations No. 3-98. (BIR Ruling No. 055-99 dated April 23, 1999)

DONOR'S TAX; Exemption of US Embassy on Donation of Vehicle - The donation of a vehicle by the US Embassy in favor of the Central Records Division of the Department of Foreign Affairs is exempt from the payment of donor's tax pursuant to Section 101(A)(2) of the Tax Code of 1997 considering that the donee is a political subdivisions of the Government. The aforesaid Deed of Donation is also not subject to the documentary stamp tax of P15.00 imposed under Section 188 of the same Code. (BIR Ruling No. 056-99 dated April 23, 1999)

VAT; Transaction "deemed sale" - First Unibond Food Corporation (FUFC) is a domestic corporation incorporated in 1996 by the same principals of Nikon Industrial Corporation (Nikon). Due to the Asian crisis, FUFC had to suspend its operation and as part of the rehabilitation plan of the company, Nikon being the parent company is proposing to buy all the machineries of FUFC. Held: pursuant to Section 106(B)(1) of the Tax Code of 1997, the sale not in the course if business of all properties which are originally intended for use in the ordinary course of business is transaction "deemed sale" which is subject to VAT. Hence, the sale by FUFC of all its machineries to Nikon is subject to the 10% VAT under Section 106(A) of the Tax Code. FUFC, may however, pass on the 10% VAT to Nikon. (BIR Ruling No. 057-99 dated April 27, 1999)

INCOME TAX; DST; Issuance of Additional Shares of Stock - The issuance of additional shares of stock to Rodamco Philippines B.V. (RPBV) for the purpose of maintaining its 20% equity holding in KSA Realty Corporation is not a flow of wealth from KSA to RPBV. RPBV will not be enriched by the receipt of additional shares of KSA because in its books, investment in KSA will be maintained at the original cost of P1,565,000,000. There is, therefore, no income to speak of that will result in the imposition of income tax. Accordingly, the issuance of additional shares of stocks by KSA to RPBV to be effected by the reclassification of the APIC to capital stock and undertaken for the purpose of maintaining the 20% equity of RPBV in KSA pursuant to the Investment Agreement Provisions, shall not result in any income tax on the part of RPBV. Moreover, since RPBV will not pay anything for the issuance of the additional KSA shares, the cost basis of its capital investment in KSA will remain the same despite the increase in the number of KSA shares that it will hold, and RPBV's cost per share will be reduced. Accordingly, the cost basis of RPBV for all the shares of stock of KSA, including the additional shares received as a result of the reclassification of KSA's APIC to capital stock, shall be the same amount of its original investment amounting to P1,565,000,000. Finally, pursuant to Section 175 of the Tax Code, the issuance of additional shares to RPBV is subject to documentary stamp tax at the rate of Two Pesos (P2.00) for each Two Hundred Pesos (P200.00) of the par value of the said shares. (BIR Ruling No. 058-99 dated April 27, 1999)

CWT; Meaning of the term "Habitually Engaged in the Real Estate Business" - For purposes of RR No. 2-98, the term habitually engaged in the real estate business is not limited or restricted only to persons duly registered with the Housing and Land Use Regulatory Board (HLURB) or Housing & Urban Development Coordinating Council (HUDCC). This proviso simply means that any person duly accredited by the said government agencies shall be deemed habitually engaged in the real estate business. However, even in the absence of registration therewith, a person may also be treated habitually engaged in the real estate business upon a showing that he is in fact actually engaged in the said business. For example, a lessor of real properties may not be registered with the HLURB or the HUDCC. Nevertheless, such person is engaged in business as a lessor of real properties, hence, embraced by the provision "habitually engaged in the real estate business." There is no doubt that ACL Development Corporation is habitually engaged in the real estate business for purposes of Section 2.57.2(J) of Revenue Regulations No. 2-98. (BIR Ruling No. 059-99 dated April 30, 1999)

VAT; Payment of Service Fees in Foreign Currency - Under Section 108(B)(2) of the Tax Code of 1997, services other than the processing, manufacturing or repacking of goods for other persons doing business outside the Philippines, the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas, shall be subject to the value-added tax at zero percent (0%). Accordingly, since the payment of the services fees to Software Ventures International shall be in acceptable foreign exchange and accounted for in accordance with Section 1 of BSP Circular No, 1389, as amended, the said service fees shall be subject to VAT at 0%. (BIR Ruling No. 060-99 dated May 3, 1999)

INCOME TAX; Overtime Meal Allowance - The overtime meal allowances of P80.00/P90.00/P100.00 given by Petron to its rank and file employees, who have actually rendered overtime work, are not considered as part of compensation subject to withholding tax since the same are of relatively small value. Likewise, the overtime meal allowance of One hundred fifty pesos (P150.00)given to supervisory, professional and technical employees are not considered as part of compensation subject to withholding tax since such overtime meal allowances are furnished to the employees for the convenience of Petron.

Moreover, the said overtime meal allowances granted to rank and file employees and to supervisory, professional and technical employees are not subject to the fringe benefits tax pursuant to Section 33 (C) of the Tax Code of 1997 as implemented by Section 2.33 (C) of Revenue Regulations No. 3-98.

In fine, the overtime meal allowances granted to the rank and file employees are not subject to the fringe benefits tax as these are specifically exempted from the application thereof. Likewise, the overtime meal allowances granted to the supervisory, professional and technical employees are not subject to the fringe benefits tax since the same are granted to the employees as required by the nature of, or necessary to your trade, or business and for your convenience. (BIR Ruling No. 061-99 dated May 5, 1999)

INCOME TAX; Exemption of PHIC - Philippine Health Insurance Corporation (PHIC) is exempt from the payment of income tax, and that all donations, contributions, bequest, subsidy or financial aid which may be made to it shall be exempt from donor's tax and shall be allowable as deduction from the gross income of the donor for income tax purposes subject to the conditions set forth under Section 34 (H)(I) of the Tax Code of 1997. (BIR Ruling No. 062-99 dated May 5, 1999)

RETURN OF CORPORATION CONTEMPLATING DISSOLUTION - The dissolution of the Joint Operating Agreement entered into on January 14, 1974 between Lepanto Consolidated Mining Company and Filmag (Phils.), Inc. for the mining and marketing of Bentonite ore from the mineral lobe and placer claims of Lepanto, with Filmag as the operator, is not within the scope of Section 52 (C) of the Tax Code of 1997. Since the dissolution of the Joint Operating Agreement will not result in the corporate dissolution of any or all of the parties in the Joint Operating agreement, the parties are not required to secure a dissolution clearance from the Securities and Exchange Commission and a tax clearance from the Bureau of Internal Revenue. (BIR Ruling No. 063-99 dated May 5, 1999)

INCOME TAX; Interest income from foreign currency deposits - The interest income to be earned by various investors from foreign currency denominated deposits shall not be applicable to foreign currency bonds. A bond is a security as provided for by Section 22 (T) of the Tax Code of 1997. Moreover, the interest income to be receive by said investors shall be governed by tax treaties entered into by the Philippines with their respective countries. (BIR Ruling No. 064-99 dated May 7, 1999)

INCOME TAX; Exemption of a non-stock, non-profit educational institution - The Blessed Child Montessori Foundation, being a non-stock, non-profit educational institution is exempt from taxes and duties on all its revenues and assets used actually, directly and exclusively for educational purposes. However, it shall be subject to internal revenue taxes on its income from trade, business and other activity the conduct of which is not related to the exercise or performance of its educational purposes or functions. It must be emphasized that the tax exemption does not cover withholding taxes. As an educational institution, it is constituted as withholding agent for the government and required to withhold the tax on compensation income of its employees, or the expanded withholding tax on income payment to persons subject to tax pursuant to Section 59(b) of the Tax Code, as amended. (BIR Ruling No. 065-99 dated May 13, 1999)

INCOME TAX; Local Compensation of a Jewelry Consultant - Under Article VII (5) of the Agreement on Cooperation between the International Organization for Migration and the Government of the Philippines, the latter will exempt Integrated Expert from personal income or other direct taxes on salary and stipends received solely and by reason of services rendered under the Official Development Assistance Program. Since the obligation to exempt the salary of an Integrated Expert is binding upon the Government of the Philippines, the local compensation income in the amount of P10,000.00 for a month of a jewelry consultant working at the San Eligious Jewelry Training Center as an Integrated Expert under the Program is exempt from income tax pursuant to Sec. 32 (B)(5) of the Tax Code of 1997. (BIR Ruling No. 066-99 dated May 13, 1999)

INCOME TAX; Documentary Stamp Tax; Exemption of rural banks - The Garments and Textile Export Board (GTEB) is a government regulatory body which does not perform any business similar to a government-owned or controlled corporation; it does not exercise proprietary function like other agencies of the governments and it is performing strictly governmental functions. It also disclosed that the GTEB has been created and organized pursuant to the provisions of P.D. No. 1440, promulgated on June 10, 1978.

Since the GTEB is an agency under the Office of the President and performing only purely governmental function, its revenue as such is exempt from income tax, pursuant to the provisions of Section 32(B)(7)(b) of the NIRC of the 1997. (BIR Ruling No. 067-99 dated May 13, 1999)

CAPITAL GAINS TAX - Revenue Regulations No. 8-98 dated August 25, 1998 already repealed, amended or modified any revenue regulations, memorandum order, circular or any other issuance of the Bureau of Internal Revenue regarding the date and venue for the filing of capital gains tax returns and payment of taxes on transactions involving real properties classified as capital assets and likewise the date and venue for the filing and payment of creditable withholding tax on transaction involving real properties classified as ordinary assets. In the case of sale or disposition of a capital asset, the Capital Gains Tax Return shall be filed by the seller and payment made to an Authorized Agent Bank (AAB) located within the Revenue District Office having jurisdiction over the place where the property being transferred is located (Sec. 3, Rev. Regs. No. 6-98). On the other hand, the creditable withholding taxes deducted and withheld by the withholding agent/buyer on the sale, transfer or exchange of real property classified as ordinary asset shall be paid upon filing of the return with the Authorized Agent Bank located within the Revenue District Office having jurisdiction over the place where the property being transferred is located within ten (10) days following the end of the month in which the transaction occurred (Sec. 5, Revenue Regulations No. 80-98). Accordingly, Resolution No. 98-24 of the Cordillera Regional Assembly calling for the non-implementation of Revenue Memorandum order No. 17-97 has been rendered moot and academic by Revenue Regulations No. 8-98. (BIR Ruling No. 068-99 dated May 18, 1999)

INCOME TAX; Documentary Stamp Tax; Exemption of Rural Banks - Pursuant to Section 15 of R.A. No.7353, the Rural Bank of Alabang (Muntinlupa), Inc. is subject to the payment of corporate income tax and local taxes, fees and charges, but is exempt from the payment of all other taxes including documentary stamp tax imposed under Section 196 of the Tax Code of 1997 on the sale, exchange or disposition of real property through mortgage foreclosure sale but only for a period of 5 years from the date of commencement of its operations, which is from January 15, 1997. However, Section 173 of the same Code provides that, "whenever one party to the taxable document enjoys exemption from the tax herein imposed, the other party thereto, who is not exempt shall be the one directly liable for the tax." Accordingly, since Rural bank of Alabang (Muntinlupa), Inc. is exempt from the documentary stamp tax, the owner-mortgagor is the one liable for the payment of the documentary stamp tax due on said foreclosure sale. (BIR Ruling No. 069-99 dated May 18, 1999)

CAPITAL GAINS TAX; Redemption of Shares - The redemption by Keppel Fels Energy Holdings, Inc. (FEHI) of its 433,330 shares of stock from BV Power Limited (BVPL) and 66,665 shares from Okachi Investments, Limited (OIL) at the issue price of P2,500.00 per share or its equivalent of US$95.27 converted at the exchange rate of P26,241 to a US dollar, which is the same as the issue price or adjusted basis of said shares will not result to any capital gain on the part of BVPL and OIL.

Since there is no taxable gain, the redemption by FEHI of the shares of BVPL and OIL will not be subject to capital gains tax. (BIR Ruling No. 070-99 dated May 19, 1999)

INCOME TAX; Sale of Condominium Units - Hooven Philippines, Inc. has been holding the real estate properties (condominium units) conveyed to it by way of dacion en pago as part of its inventory, not intended for capital investment but carried as part of inventory available for sale or immediate liquidation. Accordingly, since the aforementioned condominium units are ordinary assets in the hands of HOOVEN pursuant to Sec. 39(A) of the Tax Code of 1997, the sale of these condominium units is not subject to the final capital gains tax imposed under Section 27(D)(5) of the said Code. Rather, the income from the sale of these real properties shall be subject to the normal corporate income tax imposed under Section 27(A) of the said Code. (BIR Ruling No. 071-99 dated May 25, 1999)

VAT; Excise Tax; Importation of PVD Iodized Salt - Sodium Chloride/Pure Vacuum Dried (PVD) Iodized Salt does not fall under the definition of mineral products under Section 51(B)(3) of the Tax Code of 19897. Such being the case, the importation of Sodium Chloride/Pure Vacuum Dried (PVD) Iodized Sale is subject only to the 10% value-added tax prescribed under Sec. 107(A) of the Tax Code of 1997 but not to the excise tax imposed under Section 151 of the same Code. (BIR Ruling No. 072-99 dated May 24, 1999)

EXCISE TAX; INCOME TAX; Sale of Topped Crude Oil, Wax, Asphalt - As a purchaser of topped crude oil, Engr. Benjamin 'Santos is not liable to pay any tax on said purchases. Furthermore, the sale of crude oil not being among those enumerated under Section 148 of the Tax Code of 1997 as excisable petroleum product, is not subject to excise tax. However, Shell, as seller of the said crude oil, shall be subject to income tax on whatever gain it may derive on the transaction. By buying and paying for the topped crude oil, Engr. Santos is technically the owner of the material . Hence, if instead of removing it, the same is further processed by Shell and out of which process base stocks become the yield, the removal of the latter is not subject to excise tax imposed under Section 148 of the Code because an inventor is exempt from excise taxes pursuant to Section 3 (c) of Revenue Regulations No. 1998 implementing R.A. No. 7459. As regards other yield not used for the commercialization such as, wax and asphalt, the sale shall be subject to the corresponding excise tax imposed under section 148 of the Tax Code of 1997, and the gains derived therefrom shall likewise be subject to the income tax imposed under Section 24(A)(c) of the Tax Code of 1997. (BIR Ruling No. 073-99 dated May 27, 1999)

VAT; Sale of Automobiles to PEZA, SBMA and other Eecozone Registered Enterprises - Under RMC No. 25-99 the sales of ordinary automobiles to PEZA, or SBMA and other ECOZONE registered enterprises are not entitled to VAT zero-rating because under Section 2(ii) of R.A. No. 7916, the term "Merchandise or Goods" shall collectively refer to raw materials, supplies, equipment, machineries, spare parts, packaging materials or wares of every description to be used in connection with the registered activity of an ECOZONE enterprise. The phrase "to be used in connection with the registered activity of an ECOZONE enterprise" in describing what comprises merchandise or goods imparts the presumption that the same are somehow utilized in the production activity of an ECOZONE enterprise.

Such being the case, since the sale of locally assembled motor vehicle to Daeduck Philippines, Inc. is not directly related to its registered activity as PEZA enterprise the same could not be covered within the classification of goods or merchandise entitled to the benefit of tax exemption. Moreover, since value-added tax is an indirect tax, the amount of tax may be shifted or passed on to the buyer of the goods, properties or services. Accordingly, the sale of one (1) unit of motor vehicle to Daeduck Philippines, Inc. is subject to 10% value-added tax. (BIR Ruling No. 074-99 dated June 4, 1999)

DST; Original Issuance by a Non-resident Foreign Corporation - Since both EG & G International Ltd. (transferor) and EG & G Vaetee Philippines Ltd. (transferee) are both non-resident foreign corporation, the original issuance by the transferee of its shares of stock to the transferor in exchange for its Philippine branch assets and liabilities is not subject to the documentary stamp tax imposed under Section 175 of the Tax Code of 1997. Moreover, considering that the "Asset Transfer Agreement" executed by the transferor in favor of the transferee does not include shares of stock of the transferor, the "Asset Transfer Agreement" is not subject to the documentary stamp tax imposed under Section 176 of the Tax Code of 1997. (BIR Ruling No. 075-99 dated June 16, 1999)

FRINGE BENEFITS TAX; Car Plans to Managers and Executives - A company is granting ear plan to the managers and sales executive; that the company buys the car and retains the title for five years; that sixty percent (60%) of the cost is recorded as asset and depreciated for rive (5) years in the books of accounts; that forty percent (40%) of the cost is recorded as receivable from the employee and collected within five (5) years interest-free; and that at the end of the five (5) year period, when sixty percent (60%) of the cost of the ear is fully depreciated and the forty percent (40%) share of the employee is fully paid, title is transferred to the employee.

The fringe benefit in this particular case is to be computed as follows:

Acquisition cost x 60% x 50%
5 Years
= Annual FBT on motor vehicle

Additionally, the company is further liable to fringe benefits tax under Section 2.33(B)(5)(a) on interest free loan to the employee computed at the benchmark interest rate of twelve percent per annum. Thus, the annual fringe benefit tax on interest-free loan for the 40% of the acquisition cost of the car should likewise be computed, as follows:

40% of the acquisition cost x 12% p,.a. x 5 years
5 Years
= Annual FBT on interest

(BIR Ruling No. 076-99 dated June 16, 1999)

INCOME TAX; Exemption of Home Insurance and Guaranty Corporation - Pursuant to the pertinent provision of Section 32 paragraph (b) of R.A. No. 7279, Home Insurance and Guaranty Corporation (HIGC) as trustee for the National Center Housing Project is exempt from the payment of capital gains tax and the creditable withholding tax imposed under Revenue Regulations No. 2-98 on the sale of properties intended for socialize housing projects.

However, the documentary stamp tax is not one of the taxes covered by the tax exemption clause in Section 20 of R.A. No. 7279. Such being the case, HIGC shall be liable to pay the documentary stamp tax on the documents conveying the aforementioned properties imposed under Section 196 of the Tax Code of 1997, based on the actual consideration thereof. (BIR Ruling No. 077-99 dated June 16, 1999)

ESTATE TAX; Conjugal Partnership Property - A parcel of land covered by TCT No. 158889 and registered in the name of both spouses, the late Emigdio N. Najera, Sr. and Resalina N. Najera, is conjugal property having been acquired during the marriage. Following the rule that proof of acquisition of the property during the marriage suffices to render the statutory presumption operative, the parcel of land covered by the Deed of Extra-Judicial Settlement pertains to conjugal partnership of the late Emigdio N. Najera, Sr. and Rosalina N. Najera.

Accordingly, upon the death of the late Emigdio N. Najera, Sr. on December 1, 1986 only one-half of the property described therein shall form part of his gross estate for purposes of determining his net estate subject to estate tax which is governed by the statute in force at the time of his death and based on the value of the property at the time of his death. Under Art. 996 of the Civil Code, the share of the surviving spouse should always be computed as one child in the division of the testate estate. Consequently, upon the death of the late Emigdio N. Najera, Sr. his wife, Rosalina N. Najera was entitled to a share equal to the share of his children from his estate. In so long, the heirs of the late Rosalina N. Najera should include from the gross estate, her one-half part of the property, being a pro-indiviso owner of the property covered by the Deed of Extra-Judicial Settlement as well as her share in the estate of the late Emigdio N. Najera, Sr. Hence, the Estates of Emigdio N. Najera, Sr. and Rosalina N. Najera should be computed separately for estate tax purposes in accordance with the statute in force at that time. (BIR Ruling No. 078-99 dated June 17, 1999)

INCOME TAX; Ordinary and Necessary Expences - All ordinary and necessary expenses paid or incurred during the taxable year in carrying on or which are directly attributable to the development, management, operation and/or conduct of the trade, business or exercise of a profession are deductible from gross income pursuant to Section 34(A)(1)(a) of the Tax Code of 1997. Considering that the Regional Management Fees paid by Kuehne & Nagel (Philippines), Inc. to the central headquarters is directly connected with and the proximately resulting from carrying on the business of Kuehne & Nagel (Philippines), Inc. and are appropriate and helpful in the development of its business, the said Regional Management Fees falls within the contemplation of ordinary and necessary expenses under Section 34(A)(1)(a) of the Tax Code of 1997 and is a deductible item in computing the taxable income subject to income tax, pursuant to Section 34(A)(1) of the Tax code of 1997. (BIR Ruling No. 079-99 dated June 22, 1999)

INCOME TAX; Single and Isolated Sale of Property - The proceeds of the sale of a portion of property along Aurora Boulevard by the Good Shepherd Convent , Inc. a non-stock, non-profit religious corporation, to the Light Rail Transit authority (LRTA), which sale is not voluntary but compelled by public authority, is exempt from capital gains tax. Having been derived from a single and isolated transaction in furtherance of the purposes for which the Good Shepherd Convent, Inc. is organized, the proceeds from the sale of a portion of its property in Aurora Blvd., cannot be considered income from the productive use of its property. Moreover, on the basis of the same arguments, the use of the proceeds of the sale to redevelop its remaining property for the general improvement thereof, is in effect, use of the proceeds of the sale of real property for the furtherance of the purpose for which Good Shepherd Convent, Inc. was organized. Thus, the same shall be treated as a transaction of incidental character which does not constitute engaging in business and not subject to capital gains tax. However, the said transaction is subject to documentary stamp tax imposed under Section 196 of the Tax Code of 1997. (BIR Ruling No. 080-99 dated June 22, 1999)

VAT; Input Taxes - Section 4.104-5 of Revenue Regulations No. 7-95 provides that input taxes shall be allowed only if the domestic purchase of goods, properties or services is made in the course of trade or business. However, the input tax should be duly supported by an invoice or receipt showing the information required under Sections 113-(A) and 237 of the Tax Code of 1997. Since the invoices or receipts issued by the individual contractors who undertook the renovation of the building are admittedly in the name of the condominium corporation, the unit owners although VAT-registered companies cannot apply their payments for the renovation of the condominium as input VAT to be credited against their output VAT. Moreover, there is no law, rule or regulations prohibiting the condominium corporation from issuing a certification certifying the share of the individual unit owner in every official receipt issued by the contractor and attaching the photo copy of the said official receipt. However, the said certification cannot be used for the purpose of claiming input VAT by the unit owners although they can use the same as substantiation for deductibility of business expenses for income tax purposes. (BIR Ruling No. 081-99 dated June 22, 1999)

SURCHARGE AND INTEREST - The imposition of surcharge and interest on delinquency is mandatory. The fact that the taxpayer filed his 1999 income tax return and paid the taxes due thereon merely for the sake of beating the deadline shows lack of good faith and neglect of duty in respect of payment of taxes on time. Accordingly, taxpayer's request for waiver of surcharges and interest on his deficiency taxes is denied. (BIR Ruling No. 082-99 dated June 22, 1999)

CAPITAL GAINS TAX; Sale of Rights over Realty - The provision of Section 24(D)(1) of the Tax Code of 1997 is clear that the sale of rights over realty although classified as real property under the Civil Code, is not the realty contemplated in the said Section considering that to be subject to the capital gains tax imposed therein, the realty in question must be located in the Philippines while right over real property may or may not be located in the Philippines since such kind of realty follows the owner thereof who may or may not be located in the Philippines. Such being the case, this Office holds that transfer of rights over realty, is not subject to the capital gains tax. In this case, what is actually being sold is the right which the seller has over the said realty, so much so that whomsoever buys the said rights merely steps into the shoes of the seller and acquire whatever right he may have over the realty concerned, but title thereto, remains with the seller (realty company). (BIR Ruling No. 083-99 dated June 22, 1999)

CREDITABLE WITHHOLDING TAX; Losses during the immediately preceding two (2) years - Under Section 4(d) of Revenue Regulations No. 12-94, the withholding of 1% creditable withholding tax shall not apply to income payments made to a payee who suffered net operating losses during the immediately preceding two (2) years. This provision is no longer provided under Section 2.57.5 of Revenue Regulations No. 2-98, hence the taxpayer's request for exemption from the 1% creditable withholding tax on the ground that he suffered net operating losses during the years 1996 and 1997 is denied for lack of legal basis. (BIR Ruling No. 084-99 dated June 22, 1999)

VAT; Definition of Gross Receipts - Section 108(A) of the Tax Code of 1997 provides that there shall be levied, assessed and collected, a value-added tax equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of services, including the use or lease of properties. On the hand, Section 108(A)(8) of the a same Code defines "gross receipts" as "the total amount of money or its equivalent representing the contract price, compensation, service fee, rental or royalty, including the amount charged for materials supplied with the services and deposits and advanced payments actually or constructively received during the taxable quarter for the services performed or to be performed for another person, excluding value-added tax. WG&A, being the domestic corporation engaged in the transport of cargoes, is well within the coverage of Section 108(A)(8) of the Tax Code of 1997. Accordingly, WG& A is required by the Tax Code of 1997 to pay its VAT output liability based on its gross receipts pursuant to the aforecited provision. Furthermore, WG&A can book the said output VAT as deferred output VAT, apply the same upon payment of the output VAT on services actually collected from the customers, amend all VAT returns which incorrectly recognized the transaction on an accrual basis so as to reflect the deferred output VAT as advance payment; and file the same in the RDO of Cebu where the principal place of business of WG&A is situated. (BIR Ruling No. 085-99 dated June 29, 1999)

CREDITABLE WITHHOLDING TAX; Leasing of Motor Vehicle - YEP Rent-A-Car which is engaged in the business of leasing motor vehicle is a lessor of motor vehicles or a transportation contractor subject to 1% creditable withholding tax imposed under Section 2.57.2(E)(4)(c ) of Revenue Regulations No. 2-98; hence the lessee, Bonifacio Construction Management Corporation, is not required to withhold 5% from its gross payment to YEP Rent-A-Car but only 1%. (BIR Ruling No. 086-99 dated July 1, 1999)

VAT; Exemption of Cooperatives - Pursuant to Articles 61 and 62 of the Cooperative Code in relation to Section 109(R) of the Tax Code of 1997, the Confederation of Sugar Producers Cooperatives, being a national umbrella organization representing primary agricultural cooperatives among sugar producers duly registered with the Cooperative Development Authority, is exempt from all taxes and fees imposed under the internal revenue laws including the Value Added Tax (VAT). (BIR Ruling No. 087-99 dated July 1, 1999)

EXCISE TAX - Confirming BIR Ruling No. 072-99 dated May 24, 1999 to the effect that Sodium Chloride/Pure Vacuum Dried (PVI) Iodized Salt is not a mineral product under Section 157(B)(3) of the Tax Code of 1997, hence not subject to the excise tax imposed therein (BIR Ruling No. 088-99 dated July 6, 1999)

INCOME TAX; Separation of Employee due to Redundancy - Under Section 32(B)(6)(b) of the Tax Code of 1997, any amount received by an official or employee or by his heirs from the employer as a consequence of separation of such official or employee from the service of the employer due to death, sickness or other physical disability or for any cause beyond the control of the said official or employee shall not be included in the gross income and shall be exempt from taxation under Title II of the Tax Code of 1997 regardless of age or length of service. The phrase "for any cause beyond the control of said official or employee" connotes involuntariness on the part of the official or employee. The separation from the service of the official or employee must not be asked for or initiated by him.

Since the separation of the employees/workers is due to redundancy program resulting in restructuring/reorganization, such separation is beyond the control of employees/workers. Hence, any and all amounts received as a result thereof, are exempt from all taxes and consequently from the withholding tax prescribed by Section 79, Chapter XIII, Title II of the Tax Code of 1997 and implemented by Revenue Regulations No. 2-98. (BIR Ruling No. 089-99 dated July 6, 1999)

CAPITAL GAINS TAX; Reconveyance of Foreclosed Properties - By virtue of R.A. No. 7202 the foreclosure sales made by the Philippine National Bank, the Republic Planters Bank, the Development Bank of the Philippines and various government financial institutions over the mortgaged properties securing crop loans taken for years 1974-1975 to 1984-1985 by the sugar planters (as debtor-mortgagors) were deemed abrogated when the loans granted to the latter were effectively extended. While there was a valid foreclosure sale that had transpired at the time but on account of subsequent abrogation of the same by mandate of the said RA 7202, the foreclosure was revoked by operation of law. Essentially, therefore RA 7202 retroactively nullified the foreclosure sale through extension of loans, condonation of interest charged by the banks in excess of 12% per annum and the recomputation and amortization for another thirteen (13) years of said loans, it being admitted by the Government that the losses suffered by the sugar planters during the crop years 1974-1975 to 1984-1985 were due to fault/inaction on the part of the government agencies that had direct recourse in avoiding the losses.

Such being the case, the reconveyance of the foreclosed properties to the original owner pursuant to the mandate of RA 7202, is not subject to the capital gains tax imposed under Sec. 27(D)(5) of the Tax Code of 1997 nor to the documentary stamp tax imposed under Section 196 also of the Tax Code of 1997) (BIR Ruling No. 090-99 dated July 7, 1999)

CAPITAL GAINS TAX; Pacto de retro - The terms of the agreement between CB-BOL and TMBC calling for the transfer of its assets, although denominated as Deed of Assignment with Right to Repurchase, is in reality an equitable mortgage created over the said properties. Instruments covering a sale with right to repurchase may be captioned or labeled as such. However, when any or more of the circumstances enumerated under Article 1602, Civil Code, obtain in the agreement, the contract shall be presumed as an equitable mortgage. (BIR Ruling No. 217-81 dated November 6, 1981). This is relevant in determining whether or not the transaction had is subject to the corresponding taxes, i.e. capital gains tax documentary stamp tax.

Insofar as corporations are concerned, its liability to the capital gains tax imposed on the presumed gains realized from the sale, exchange or disposition of lands and/or buildings is governed by Section 27(D)(5) of the Tax Code of 1997. Thus, for a corporation to be liable to the tax, a true sale, exchange or disposition of capital assets must have transpired. Unlike in transactions made by individuals under Section 24(D)(1) of the Code, where all sales of real property classified as capital assets, including pacto de retro or other forms of conditional sales are subject to the capital gains tax, no similar qualifications exist for capital asset transaction of a corporation. Hence, the latter is subject to such tax only upon a close and completed transaction in which income is realized.

Accordingly, this Office holds that only upon the executing of the final or absolute deed of sale covering the properties of the bank subject of the pacto de retro, will the payment of the 6% capital gains tax apply. By the same token, since no actual conveyance of real property is to be made, the stamp tax on deeds of sale and conveyances of real property imposed under Section 196 shall not apply. However, since the transaction is in the nature of an equitable mortgage and made primarily as a security for the payment of a pre-existing loan, the same is subject instead to the rate of documentary stamp tax imposed under Section 195. (BIR Ruling No. 091-99 dated July 8, 1999)

CORPORATE INCOME TAX; Expanded Withholding Tax - Revenue Regulations No. 6-85, as amended by Revenue Regulations No. 12-94 as last amended by Revenue Regulations No. 2-98, implementing Section 64(B) of the Tax Code of 1997, does not apply to transfers in complete liquidation where the assets of the liquidating corporation are transferred to its stockholders in exchange for the surrender of the latter's a shares of stock for cancellation by the corporation. This conveyance is without consideration. Hence, the transfer by Fundamental Development Corporation of its assets to its controlling stockholders by way of liquidating dividends, is not subject to the expanded creditable withholding tax and consequently, to the corporate income tax.

Under Section 189 of Revenue Regulations No. 26, a conveyance distributing in liquidation the assets of a corporation consisting of real estate without consideration to the majority owner of its capital stock is not subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997. Accordingly, the distribution in liquidation of the assets of Fundamental Development Corporation to its controlling majority stockholders, is not subject to the documentary stamp tax prescribed under Section 196 of the Tax Code in 19987.

The sale by the stockholders of Fundamental Development Corporation of the distributed asset received by them as return in investment immediately after title thereto is transferred to their names shall be subject to the final capital gains tax imposed under Section 24(D)(1) of the Tax Code of 1997. (BIR Ruling No. 092-99 dated July 8, 1999)

RP-US Tax Treaty; Income Tax - Pursuant to Section 180 of the Tax Code of 1997 (also then Section 180 of the Tax Code, as amended) there shall be collected a documentary stamp tax on loan agreements, including those signed abroad, of Thirty Centavos (P0.30) on each Two Hundred Pesos (P200.00), or fractional part thereof, of the principal amount of the loan. Hence, the US Dollar loan agreement between Morgan Guarantee Trust Company of New York (MGT) with a Philippine Domestic Corporation under the terms and conditions stated therein, whether it shall be signed in the Philippines or abroad, is subject to documentary stamp tax at rate prescribed above.

Under Section 12(2) of the RP-US Tax Treaty, the Lender shall be subject to income tax of 15% on its interest income on the loan which shall be withheld by the Borrower upon payment of the interest, i.e., either semi-annually or at the drawdown date in case of prepayment, pursuant to Section 57(A) of the Tax Code of 1997 and should be remitted to the BIR through its Collecting Agents or authorized Agent Banks subject to the conditions provided for in Section 58(A) of the same Code.

Pursuant to Section 34(B)(1) and (2) of the Tax Code of 1997, the interest paid by the Borrower is an allowance deduction from the gross income subject to the conditions thus imposed therein. In relation to this, Section 45 of the 1997 Tax Code provides for the periods for which tax deduction and credits are to be taken. Accordingly, for income tax purposes, the Borrower shall deduct the interest expense in the year such payments are made. However, if he prepays the interest at loan drawdown date, the prepaid interest may be amortized over the required period. To fully reflect the revenues generated and expenses incurred, the expired portion is deducted from the prepaid interest as the expense for the taxable year within the required period. (BIR Ruling 093-99 dated July 8, 1999)

VAT; Documentary Stamp Tax; Excess Baggage - The additional amount collected by Times Transportation Co., Inc. for the excess baggage of passengers by issuing ordinary bus tickets is subject to the 10% VAT pursuant to Section 108 of the Tax Code of 1997. However, freight tickets covering goods, merchandise or effects carried as accompanied baggage of passengers on land and water carriers primarily engaged in the transportation of passengers are not subject to the documentary stamp tax pursuant to Section 191 of the Tax Code of 1997. (BIR Ruling No. 094 dated July 8, 1999)

DONOR'S TAX - Under Section 34(H)(2)(a) of the National Internal Revenue Code of 1997, the donor may deduct in full from his gross income, for income tax purposes, any donation to the government, subject to the conditions stated therein. Since TESDA is a government entity and the competition under its auspices is deemed embraced by the proviso "exclusively to finance, to provide for, or to be used in undertaking priority activities in education," this Office hold that donations to TESDA for the above mentioned purpose may be fully claimed by the donor as deduction from his gross income for income tax purposes, pursuant to Section 32(H)(2)(a) of the National Internal Revenue Code of 1997. (BIR Ruling No. 095-99 dated July 8, 1999).

INCOME TAX; Withholding Tax on Wages - An official receipt is required to all persons engaged in sale or transfer of merchandise or for services. As a government employee, subject-taxpayer received fixed salary and the services rendered to the inter-island vessels docking at the North Harbor is part of the veterinary quarantine service for the control of the FMD in compliance with DA Administrative Order No. 7. The flat rate of P600.00 received by the Quarantine personnel to cover overtime services, transport, lodging and meal allowances is given out by inter-island vessels based on DA Administrative Order No. 22. Receipt of the said amount does not oblige Quarantine personnel to issue official receipt since they are not engaged in the sale of goods or services. The flat rate of P600.00 to cover overtime services, transport, lodging and meal allowances partakes the nature of a compensation embraced within the term compensation income subject to withholding tax on wages under Section 79 in relation to Section 24(A) both of the Tax Code of 1997. Furthermore, under Section 2.57.2 of Revenue Regulations No. 2-98 the flat rate of P600.00 to cover overtime services, transport, lodging and meal allowances is subject to withholding tax pursuant to the aforecited provision. (BIR Ruling No. 096 dated July 8, 1999)

ESTATE TAX; Extension of Time to File Return - The request of the heirs of Soledad Carino dela Paz for extension of time to file the estate tax return was denied since the request was filed beyond the time prescribed for filing, i.e. within six (6) months from the decedent's death. However, the request for extension to pay the estate tax was granted subject to the condition that the administrator, executor or beneficiary shall file a bond not to exceed twice the amount of the estate tax due. (BIR Ruling No. 097-99 dated July 9, 1999)

VAT Registration; Exemption of Senior Citizen - Pursuant to Revenue Regulations No. 7-95, the term "in the course of business" was further qualified in the light of the declared policy of the government to provide, as much as possible, an equitable relief to a greater number of taxpayers in order to improve levels of disposable income and increase economic activity. Hence, this Office held that "any business or businesses pursued by an individual where the aggregate gross sales or receipts do not exceed P100,000.00 during any 12-month period shall be considered principally for subsistence or livelihood and not in the course of business." Accordingly, as a senior citizen qualified under the aforestated definition, although still required to register, Mr. Jaime Truinforte shall nevertheless be exempted from the payment of registration fee as prescribed under Section 236(B) of the Tax Code of 1997, and from the payment of value-added tax (VAT) under Title IV, Chapter I and percentage taxes under Title V, both of the same Code, in accordance with Revenue Memorandum Circular No. 4-98 dated January 21, 1998. (BIR Ruling No. 098-99 dated July 8, 1999).

CREDITABLE WITHHOLDING TAX; Income Payments made to National Government - Section 2.56.2(A) of Revenue Regulations No. 2-98 provides that the withholding of creditable withholding tax shall not apply to income payments made to the National Government and its instrumentalities, including provincial, city or municipal governments. It will be noted that, unlike Revenue Regulations No. 12-94 which amended Revenue Regulations No. 6-85, government-owned or controlled corporations are excluded in the enumeration. This is so, because under Section 27(C ) of the Tax Code of 1997, all corporations, agencies or instrumentalities owned or controlled by the Government, except the Government Service Insurance System (GSIS), the Social Security System (SSS), the Philippine Health Insurance Corporation (PHIC), the Philippine Charity Sweepstakes Office (PCSO) and the Philippine Amusement and Gaming Corporation (PAGCOR) are now subject to such rate of tax upon their taxable income as are imposed upon corporations or associations engaged in similar business, industry or activity. Since DBP is not habitually engaged in real estate business, it is subject to the 7.5% creditable withholding tax on the sale of real property covered by TCT No. N-55172 to Mr. Lorenzo, pursuant to Section 2.57.2 (j) of the Revenue Regulations No. 2-98. (BIR Ruling No. 099-99 dated July 9, 1999)

INCOME TAX; Permanent Establishment - Since Integraph Systems South East Asia Pte., Ltd. does not have a permanent establishment in the Philippines does not perform maintenance services in this country for a period exceeding 90 days, the remittance by C & E Corporation of the maintenance service fees to Integraph is not subject to Philippine income tax and consequently to the withholding tax imposed under Section 28(B)(1) in relation to Section 57(A) both of the Tax Code of 1997. (BIR Ruling No. 100-99 dated July 9, 1999)

INCOME TAX; Interest Income from Bank Deposits of Personnel of United Nations residing in the Philippines - Notwithstanding the provisions of Arts. V and VI of the Convention on the Privilege and Immunities of the Specialized Agencies of the United Nation on the privileges of officials of the United Nations, interest income from bank deposits of the personnel of the United Nations residing in the Philippines, whether resident citizen or resident alien, is subject to the 20% final withholding tax on interest income on bank deposits pursuant to Section 24(B)(1) of the Tax Code of 1997 considering that the interest income is derived from passive investments of the said United Nations personnel and not from the salaries or emolument from the United Nations. (BIR Ruling No. 101-99 dated July 9, 1999)

CAPITAL GAINS TAX; Documentary Stamp Tax When Actual Consideration is Issued as Taxable Base - In cases where the State or any of its instrumentalities in the exercise of its power of eminent domain, acquires through expropriation proceedings, private real property for public use upon payment of "just compensation" to the owner, the actual consideration appearing in the Deed of Sale shall be an acceptable tax base in the computation of not only the capital gains tax but also of the documentary stamp tax as enunciated in Revenue Memorandum Order No. 41-91. The case at bar partakes the nature of an exercise of eminent domain of an instrumentality of the State. Furthermore, Section 196 of the Tax Code of 1997 provides that when one of the contracting parties is the Government, the documentary tax herein imposed shall be based on the actual consideration. Accordingly, both capital gains tax and documentary stamp tax shall be computed based on said "just compensation" as actual consideration. (BIR Ruling No. 102-99 dated July 13, 1999)

FINAL WITHHOLDING TAX; Income derived by FCDU or OBU from Foreign Currency Transaction - Section 2.27 (A) of Revenue Regulations No. 10-98 explicitly provides that interest income actually or constructively received by a domestic corporation or a resident foreign corporation from a foreign currency bank deposit shall be subject to a final withholding tax at the rate of 7.5% based on the gross amount of such interest income. On the other hand, par. (C) of said Section provides that income derived by an FCDU or an OBU from foreign currency transaction with residents of the Philippines, including local commercial banks, local branches of foreign banks, and other depository banks under the foreign currency deposit system, shall be subject to a final withholding tax of 10% based on gross income. In short, par. (A) refers to interest income derived by a domestic corporation or a resident foreign corporation from a depository bank under the foreign currency bank deposit system while (C) pertains to income derived by an FCDU or OBU from foreign currency transactions, such as interest income from lending operations including bank charges, commissions, service fees, and net foreign exchange transaction gains. Therefore, the interest income derived by Westmont Bank from foreign currency bank deposit with Asian Bank shall be subject to 7.5% final withholding tax while the interest income it derives from foreign currency transactions shall be subject to 10% final withholdings tax. (BIR Ruling No. 103-99 dated July 13, 1999)

ESTATE TAX; Extension of Time to File Return - The request of the heirs of the late Bobby C. Coyukiat, who dies on January 9, 1999, for an extension of thirty (30) days within which to file the Estate Tax Return was granted pursuant to Section 90(C) of the Tax Code of 1997 based on the justifiable reasons. (BIR Ruling No. 104-99 dated July 13, 1999)

ESTATE TAX; Waiver by Heirs of their Respective Shares - The gross estate of the late Antigono A. Rosil which consists merely of bank accounts in the total amount of P153,478.01 which is even lower than the P200,000.00 tax exempt portion of the net estate bracket as imposed under Section 84 of the same Code is indeed exempt from estate tax. However, the executor, administrator or any of the legal heirs of the late Antigono A. Rosil shall be required to file the corresponding estate tax return within six (6) months from the decedent's death with the Revenue District Officer (RDO) of the revenue district where the decedent was previously registered.

On the other hand, the waiver by the three (3) legitimate children of their respective share in the above-mentioned estate in favor of their mother is not subject to donor's tax as prescribed under Section 98 of the Tax Code of 1997 because in legal succession, accretion takes place in case of repudiation among heirs of the same degree. In other words, when the three (3) legitimate children renounced their share in the inheritance, they did not donate the property/share to their mother, since the said property/share has never become their own. (BIR Ruling No. 105-99 dated July 13, 1999)

VAT; ZERO-RATING - Section 108(B)(5) of the Tax Code of 1997 provides that services performed by subcontractors and/or contractors in processing, converting, or manufacturing goods for an enterprise whose export sales exceed seventy percent (70%) of total annual production shall be subject to value-added tax at zero percent (0%) rate. Accordingly, the services contracted by SVI, a BOI registered enterprise as an export producer of computer software and whose export sales exceed 70% of its total production, shall be subject to zero percent (0%) provided that SVI has an approved application for zero-rating and that at least 70% of its finished products are exported. (citation omitted) (BIR Ruling No. 106-99 dated July 15, 1999)

CAPITAL GAINS TAX; Waiver of Penalties - Granting the request of Mr. Antonio Te Jong Tian and Ms. Julie Grace E. Te to pay the 6% capital gains tax and waiver of the penalties/surcharges for late payment of he capital gains tax on the sale of their principal residence situated at Binondo Terrace Condominium II, Alvaro Street, Binondo, Manila on the ground that the delay in the payment of the said tax was not intentional but was due to an honest belief that the regulation implementing Section 24(D)(2) of the Tax Code of 1997 exempt them from the payment thereof is enforceable. (BIR Ruling No. 107-99 dated July 15, 1999)

DOCUMENTARY STAMP TAX; Inter-Office Memo - After a careful restudy of BIR Ruling No. 116-98, this office holds that inter-office memo covering the advances granted by a corporation affiliate company, i.e., or inter-office memo evidencing lendings/borrowings is in the nature of a promissory note subject to the documentary stamp tax imposed under Section 180 of the Tax Code of 1997. BIR Ruling No. 116-98 dated July 30, 1998 is therefore, modified insofar as inter-office memo covering the advances granted by a corporation affiliate company. (BIR Ruling No. 108-99 dated July 15, 1999)

ESTATE TAX; Extension of Time to File Return - Granting the request of the wife of the late Salvador M. Lazo for an extension of time to file its estate tax return pursuant to Section 90(C) of the Tax Code of 1997 on the ground that it is represented that the late Salvador M. Lazo died on January 2, 1999; and that the wife still in the process of making an inventory of the estate of the decedent. (BIR Ruling No. 109-99 dated July 20, 1999)

FRANCHISE TAX; Exemption of Cebu Air - Under the pertinent provisions of Section 11 of RA No. 7151 (franchise of CAI) in relation to Section 13 of P.D. No. 1590 (franchise of Philippine Airlines) the tax exemption privileges granted to Philippine Airlines, Inc. (PAL) shall automatically become part of CAI's franchise and shall operate equally in CAI's favor. (BIR Ruling No. 3-95 dated Janeiro 6, 1995) Accordingly, the aviation gas, fuel, oil and other petroleum products purchased or imported by CAI from abroad for use in its domestic operations are likewise exempt from all taxes imposed under the NIRC, pursuant to Section II of RA No. 7151 in relation to Section 13 of PD No. 1590 and LOI No. 1483. (BIR Ruling No. 110-99 dated July 20, 1999)

ABATEMENT OF PENALTIES - The BIR is not empowered to grant a general amnesty in respect of any tax liability incurred by a particular class of taxpayers. Only Congress possesses this Authority under its plenary power. However, pursuant to Section 204(B) of the Tax Code of 1997, the Commissioner may abate or cancel tax liability on a case-to-case basis, taking into account the presence of the statutory basis therefore, i.e., (a) when the tax or any portion thereof appears to be unjustly or excessively assessed; or (b) when the administration and collection costs, involved do not justify the collection of the amount due. This means that any application for abatement of any tax liability, such as the penalties requested for by the concerned barangays in the City of Manila, would have to be appreciated on the merit of each individual case. (BIR Ruling No. 111-99 dated July 22, 1999)

INCOME TAX; Accounting Period - Section 43 of the Tax Code of 1997 prescribes that the taxpayer's taxable income "shall be computed upon the basis of the taxpayer's annual accounting period (fiscal year or calendar year, as the case may be) in accordance with the method of accounting regularly employed in keeping the books of such taxpayer xxx." Section 49 of the same Tax Code further provides that income from installment sales, "may" be reported for income tax purposes in the manner provided for under the said Section. This law was lifted from the old Federal Income Tax law of the United States. Being of American origin, the doctrine is that the interpretation that it received in the United States is persuasive in the Philippines. According to U.S. jurisprudence, the said law on installment reporting of income from deferred payment sale is a mere option or privilege granted by law to the seller (MERTENS 15.05). Thus, if the taxpayer-seller does not opt to report his income from deferred payment sale transaction on installment basis as provided under Section 49 of the Code, then, he may report the same in accordance with the accounting method regularly employed in keeping his books of accounts, pursuant to Section 43 of the said Code. This rule is apparent and patent in Section 49 of the Code which used the word "may" vis-a-vis reporting of income from deferred or installment payment sales, regardless of whether or not the buyer's initial payments in the year of sale exceed or do not exceed 25% of the selling price.

However, the implementing regulations governing sales of real property on installment basis are now provided under Section 2.57.2 (J) of Rev. Regs. No. 2-98, effective January 1, 1998. Since Revenue Regulations are only prospective in application, the said rule does not apply to this case which pertains to the prior years 1991 to 1996.

This ruling modifies and further clarifies BIR Ruling No. 11-99 dated January 22, 1999. (BIR Ruling No. 112-99 dated July 29, 1999)

DOCUMENTARY STAMP TAX; Assignment of Tax Credits - The assignments of tax credit certificates are not one among those expressly subjected to documentary stamp tax under Title VII of the Tax Code of 1997. However, the notarial acknowledgement to said deed of assignment is subject to the documentary stamp tax of P15.00 only pursuant to Section 188 of the Tax Code of 1997. (BIR Ruling No. DA-437-98 dated September 25, 1998)

On the other hand, Luzon Hydro is not liable to pay income tax as a result of the grant to it of tax credit since VAT which is the source of such tax credit is not eligible as a deduction from gross income under Section 34(C) of the Tax Code of 1997 and it has not been actually utilized as a deduction since it partakes the nature of an excess input.

In like manner, the assigned who are the present holders of the tax credit certificates are not liable for income tax upon the issuance to them of the tax credit certificates since they have only accommodated their affiliate or sister company by advancing he value of the tax credit assigned to each of them. (BIR Ruling No. 113-99 dated July 29, 1999)

CAPITAL GAINS TAX; Dacion en pago - Since the consideration of P750 million, equivalent to the dacion price agreed upon between the Consortium and Metrobank, is still higher than that determined under current zonal valuation pursuant to Department Order No. 10-97 of the Department of Finance and considering that this is not disadvantageous to the government, this Office hereby holds that the same can serve as the basis in computing the capital gains tax and documentary stamp tax relative to the said dacion en pago transaction. Moreover, due to strong clamor from the government and private sectors in view of the depressed condition of the real estate market, this Office is currently undergoing a review of the existing zonal valuation to align the same within a realistic market range. (BIR Ruling No. 114-99 dated July 29, 1999)

DONOR'S TAX - Pursuant to Section 98 of the Tax Code of 1997, a donor's tax shall be levied, assessed, collected and paid upon the transfer by any person, resident or non-resident, of the property by gift. The said tax shall apply whether the transfer is in trust or otherwise, whether the gift is direct or indirect and whether the property is real or personal, tangible or intangible. However, where the donor is a non-resident foreign corporation, its real or personal property so transferred which are situated outside the Philippines shall not be included as part of its gross gift pursuant to Section 104 of the same Code. The donor's tax is an excise tax on the transfer of property. it is not a tax on property which is the subject of the gift, although it is measured by the value of that property. It is a tax on the donor's privilege to give.

Considering that the donor is a non-resident foreign corporation, and therefore beyond the jurisdiction of the Philippine government to tax, this office holds that the proposed cash donation to a domestic corporation to be held in trust for the benefit of two resident minor who are Philippine citizens shall not be subject to any Philippine tax.

Moreover, the subsequent transfer of the trust assets from the trustee to the beneficiaries is likewise not subject to tax. (BIR Ruling No. 115-99 dated August 6, 1999)

ESTATE TAX; Extension of Time to File Return - Granting the request of the heirs of the late Uy An Teng, for an extension of thirty (30) days within which to file the estate tax return pursuant to Section 90(C) of the Tax Code of 1997 but the estate shall be liable to the corresponding interest that have accrued thereon up to the time of filing of the return and payment of the estate tax due on the transmission of the said estate to the heirs pursuant to Section 249 of the Tax Code of 1997. (BIR Ruling No. 116-99 dated August 10, 1999)

INCOME TAX; VAT; Sale of Electricity - Under Section 24 of R.A. 7916, otherwise known as "The Special Economic Zone Act of 1995", no taxes, national and local, shall be imposed on business establishments operating within the Ecozone and that in lieu of paying taxes, five percent (5%) of the gross income earned by all businesses and enterprises from its registered operations within the Ecozone shall be remitted to the national government. Thus, EAUC which is registered in PEZA as an Ecozone Utilities Enterprise, and not a service establishment is subject to a special rate of 5% of its gross income derived from its registered operations less allowable deductions under the PEZA Rules, but exempt from 33% corporate income tax, VAT and 2% franchise tax.

However, its sale of electricity to customs territory enterprises is subject to 33% corporate income and 2% franchise tax but exempt from VAT. The expenditures of EAUC are deductible in computing its taxable income, when allocable to the production of income thereto or where a ratable part of the general expenditures is apportioned to income from these sources. (BIR Ruling No. 117-99 dated August 10, 1999)

ESTATE TAX; Extension of Time to File Return - Granting the request of the heirs of the Estate of the late Exaltacion Ocampo for an extension of thirty (30) days within which to file the estate tax return pursuant to Section 90(C) of the Tax Code of 1997 as they are still gathering the pertinent documents regarding the estate of the deceased.

However, the estate shall be liable to the corresponding interest that have accrued thereon up to the time of filing of the return and payment of the estate tax due on the transmission of the said estate to the heirs pursuant to Section 249 of the Tax Code of 1997. (BIR Ruling No. 118-99 dated August 10, 1999)

RETIREMENT PAY; Backwages - In view of the fact that Mr. Cresenciano F. Esquivel can no longer be reinstated because he has already reached retirement age and inasmuch as the charge for malversation against Mr. Esquivel was dismissed due to insufficiency of evidence and since this Office favorably recommended that executive clemency be granted him with respect to his administrative case, the grant of his retirement benefits is in order. Considering further that the administrative case filed against Mr. Esquivel, for which an order of suspension was issued on July 5, 1983, was already terminated, the payment of his retirement benefits, must take into consideration the date of his suspension from work up to the date of his compulsory retirement. He shall also be entitled to backwages from the date that his salary was stopped during the pendency of the administrative and criminal charges against him up to the date of his compulsory retirement. (BIR Ruling No. 119-99 dated August 11, 1999)

PERCENTAGE TAX - Modifying BIR Ruling No, 110-98 dated July 7, 1998 insofar as it subjects the taxpayer's gross sales or receipts from the sale of condominium units valued at less than P1,000,000.00 each to the 3% gross receipts tax imposed under Section 116 of the Tax Code of 1997. Under Section 109(w) of the Tax Code of 1997, the taxpayer is exempt not only from VAT but also from the 3% gross receipts tax. (BIR Ruling No. 120-99 dated August 11, 1999)

INCOME TAX; Interest Income of Senior Citizen - Certain passive income derived by a qualified senior citizen from interest income from currency bank deposits, yield and other monetary benefit from deposit substitutes, trust fund and similar arrangements; royalties, prizes and winnings and interest income from a depository bank under the expanded foreign currency deposit system shall not be included in the determination of his income/annual taxable income which should not exceed the poverty level of P60,000.00 or such amount as may thereafter be determined by the NEDA for a certain taxable year inasmuch as said income are subject to income tax under Section 24(B)(1) of the Tax Code of 1997.

Accordingly, interest income derived by a qualified senior citizen from a depository bank under the expanded foreign currency deposit system shall be subject to final tax at the rate of seven and one half percent (71/2%) of such interest income pursuant to Section 24(B)(1) of the Tax Code of 1997. (BIR Ruling No. 121-99 dated August 11, 1999)

SURCHARGE AND INTEREST - Denying the request of General Vehicle Parts Manufacturing & Rebuilding Center, Inc. for a waiver of the surcharges and interest on your deficiency taxes. Under Sections 248(a)(1) and (3) and 249, both of the Tax Code, as amended, the imposition of the surcharge and interest on delinquency is mandatory. Strong reasons of policy support a strict observance of the rule regarding the payment of tax. The laws imposing penalties for delinquencies are clearly intended to hasten tax payments or punish evasions or neglect of duty in respect thereof. If delays in tax payments are to be condoned for light reasons, the law imposing penalties for delinquencies would be rendered nugatory and the maintenance of the government and its multifarious activities would be as precarious as taxpayers are willing or unwilling to pay their obligations to the state on time (Jamora vs. Meer, 7 Phil. 22). This is justified because the intention of the law is precisely to discouraged delay in the payment of taxes due to the State and, in this case, the surcharge and interest charged are not penal but compensatory in nature. They are compensation to the State for the delay in payment or for the concomitant use of the funds by the taxpayer beyond the date he is supposed to have paid them to the State. (Castro vs. Col., etc. Resolution on Motion for Reconsideration, G.R. No. L-12174, Dec. 1962) (BIR Ruling No. 122-99 dated August 11, 1999)

ESTATE TAX; Extension of Time to File Return - Granting the request on behalf of the Estate of the late Juan K. Cabrieto for an extension of thirty (30) days within which to file the estate tax return pursuant to Section 90(C) of the Tax Code of 1997 but the estate shall be liable to the corresponding interest that have accrued thereon up to the time of filing of the return and payment of the estate tax on the transmission of the said estate to the heirs pursuant to Section 249 of the Tax Code of 1997. (BIR Ruling No. 123-99 dated August 16, 1999)

WAIVER OF PENALTIES - The Commissioner of Internal Revenue is authorized to waive or dispense with the collection of surcharges under Section 204 of the Tax Code of 1997. Conversely, if the Commissioner may compromise and/or abate the basic tax then there is no reason why the 25% surcharge may not be abated.

Finally, in the exercise of discretion by the Commissioner, the waiver of penalties may be allowed only under the circumstances enumerated in Section 204 of the Tax Code of 1997. (BIR Ruling No. 124-99 dated August 17, 1999)

ESTATE TAX; Extension of Time to File Return - Granting the request on behalf of Ms. Flora Rayos Lopez, for an extension of thirty (30) days within which to file the estate tax return of her father, Manuel B. Rayos, Sr. pursuant to Section 90(C) of the Tax Code of 1997. However, that the estate shall be liable to the corresponding interest that have accrued thereon up to the time of filing of the return and the payment of the estate tax due on the transmission of the said estate to the heirs pursuant to Section 249 of the Tax Code of 1997. (BIR Ruling No. 125-99 dated August 17, 1999)

TRANSFER OF ASSETS - It is a general rule that the State can levy a tax only upon persons, property, income or acts of business that are within its territorial limits and bans it from collecting a tax on subject or objects outside those limits (Manila Gas Corporation vs. Comm. of Int. Rev., 62 Phil 895). There being no physical transfer of assets to the Philippines were made during the acquisition of the Netherlands corporation by SPI Technologies, Inc. but only a recording in the books of the latter was made to reflect such acquisition, the subsequent transfer of such assets in the books of its subsidiary does not involve any Philippine tax liability or consequence. (BIR Ruling No. 126-99 dated August 17, 1999)

TAX AMNESTY - Presidential Decree No. 1740 dated September 17, 1980 and as amended by Executive Order No. 695 dated May 27, 1981, allowed a taxpayer who failed to file a return for taxable years 1974 to 1979, to file a return and accurately declare therein the true and correct income, deductions and exemptions and pay the income tax due per return. The same law likewise allowed a taxpayer who filed a false or fraudulent return for any taxable year in the period mentioned to amend his return and pay the correct amount of tax due after deducting the taxes already paid, if any, in the original declaration. Upon voluntary disclosure of undeclared income, the taxpayer is granted immunity from the penalties, civil or criminal, imposed under the National Internal Revenue Code of 1977. Having availed of the Government's tax amnesty pursuant to P.D. 1740 as amended by E.O. 695, subject-taxpayer is immune from civil or criminal penalties, hence, rendering the Warrant of Distraint of personal property dated December 16, 1983 pertaining to his income tax deficiency for taxable year 1976 without effect. (BIR Ruling No. 127-99 dated August 17, 1999)

INCOME TAX - Section 2.79 of Revenue Regulations No. 2-98, provides that every employer must withhold from compensation paid, an amount computed in accordance with these regulations. Provided, that no withholding of tax shall be required where the total compensation income of an individual does not exceed the statutory minimum wage of five thousand pesos (P5,000.00) monthly or sixty thousand pesos (P60,000.00) a year, whichever is higher. The term "employer" is defined as any person paying compensation on behalf of a non-resident alien individual, foreign partnership, or foreign corporation, who is not engaged in trade or business within the Philippines pursuant to Section 2.78.4(B) of the said Revenue Regulations.

The income earned by the project staff of the De La Salle are compensation income wherein the University has the responsibility of withholding the tax as an employer paying compensation on behalf of a non-resident alien individual, foreign partnership, or foreign corporation, who is not engaged in trade or business within the Philippines.

The incentive given to faculty members of De La Salle University who are doing research projects for the University can be equated to a productivity incentive and a productivity incentive is a fringe benefit. For supervisory and managerial employees, one of the fringe benefits that is not subject to the fringe benefits tax are "de minimis benefits."

The productivity incentive given is no longer subject to the P12,000.00 threshold but the same, plus the 13th month pay not exceeding P30,000.00 are excluded from gross income and therefore exempt from taxation pursuant to Section 32 (B)(7)(e) of the Tax Code of 1997. In excess thereof there shall be imposed a final tax of 34% beginning January 1, 1998, 33% beginning January 1, 1999 and 32% beginning January 1, 2000 and thereafter, on the grossed-up monetary value of fringe benefits pursuant to Section 33 of the Tax Code of 1997 and its implementing regulations.

In general, the relationship of the employer and employee exists when the person for whom services were performed has the right to control and direct the individual who performs the services, not only as to the result to be accomplished by the work but also as to the details and means by which the result is accomplished. An employee is subject to the will and control of the employer not only as to what shall be done, but how it shall be done. In this connection, it is not necessary that the employer actually directs or controls the manner in which the services are performed. It is sufficient that he has the right to do so.

The fact however that the Coaches and ROTC Commandant do not enjoy the benefits of a bona-fide employee of De La Salle University does not at all affect DLSU being the withholding agent of the Bureau of Internal Revenue because it is in fact the income payor of the said coaches and commandant and is fully responsible for the services performed by them on its behalf. Therefore, if the qualified faculty member is an overseas contract worker which work contract passes thru the Philippine Overseas Employment Agency (POEA), the income that will be received by the said qualified faculty members are considered income not within the Philippines, not subject to tax, hence, the University is not under obligation to withhold income tax.

On the other hand, if the qualified faculty member is considered as a non-resident citizen, then he is taxable only on income derived from sources within the Philippines. Thus, income earned by a non-resident citizen abroad is exempt from income tax.

An employer may be an individual, a corporation, a partnership, a trust, an estate, a joint-stock company, an association, or a syndicate, group, pool, joint venture, or other unincorporated organizations, group or entity. A trust or estate, rather than the fiduciary acting for or behalf of the trust or estate, is generally the employer. It can be inferred that a trust had been created between the University and the local companies in favor of the faculty members, and between the University and the graduate school students in favor of the said faculty. Hence, it is the trust that is the employer and not the University which only acts as an agent or fiduciary.

Nonetheless, being the agent, fiduciary or other person who has the control, receipt, custody or disposal of, or pays the compensation payable by another employer to such employee, the amount of tax required to be withheld on each compensation payment made through an agent, fiduciary, or person shall, whether the compensation is paid separately on behalf of all such employers, be determined based on the aggregate amount of such compensation payment or payments in the same manner as if such aggregate amount had been paid by one employer. Since the University has the control, receipt, custody or disposal of or is the one who pays the compensation payable by another employer, the University is under obligation to withhold the corresponding income tax and remit the same to the Bureau of Internal Revenue on behalf of the said employers. (BIR Ruling No. 128-99 dated August 18, 1999)

ABATEMENT OF PENALTY - Tax exemption a highly disfavored in law and are construed strictissimi juris against the taxpayer. He also claims an exemption from taxation must be able to justify his claim by the clearest grant of organic law or statute. The alleged problem of subject-taxpayer that his son is subject for kidney transplant very soon and the amount needed for his operation is so erroneous that his family has resorted to borrowings from any source available; that because of the problem he is facing, every that he can save counts and that he has no other means of income except the salaries he receives every month, cannot legally support the grounds by which, the Commissioner can abate or cancel taxpayer's tax liability under Section 204 of the Tax Code of 1997. Hence, the taxpayer's request for exemption from the payment of income tax for the year 1999 is denied for lack of legal basis. (BIR Ruling No. 129-99 dated August 20, 1999)

VOLUNTARY ASSESSMENT PROGRAM - Under Item 11 (2) of RMO No. 63-97, any person liable to pay any internal revenue tax for the taxable year 1996 and prior years, who due to inadvertence or otherwise, has under-declared his internal revenue tax liabilities or has not filed the acquired tax return may avail of the benefits under the VAP. Said Item II 1(2) also provides that a taxpayer under audit pursuant to a duly issued LA or Revenue Verification Order (RVO) to whom a final notice of assessment has not been issued may also avail of the VAP. Upon availment of the VAP, LAs or RVOs are automatically revoked. Such being the case, the LA issued to H.R. Lopez Co., Inc. has been automatically revoked pursuant to the aforecited provision of RMO Mo. 63-97. Accordingly, the Subpoena Duces Tecum issued by virtue of LA No. 149308 has no force and effect.

However, the tax liability of a taxpayer who availed of the VAP under RMO No. 59-97, as amended, can still be investigated upon approval and authorization of the Commissioner if there is an evidence or finding of misdeclaration of any information on the return filed by the taxpayer under the VAP. (BIR Ruling No. 130-99 dated August 20, 1999)

CAPITAL GAINS TAX ; Sales of Shares of Stock Not Traded in Local Stock Exchange - Since the capital gains tax on capital gains derived from sale of shares of stock not listed and traded in the Local Stock Exchange is computed based on the seller's capital gain, hence, a determination of the seller's deductible cost basis and expenses of sale is necessary in order to compute for his taxable amount of capital gain, and considering that such information is only known to the seller, to the exclusion of the buyer, it follows that the buyer has no means of determining the amount of capital gains tax due from the seller. For this reason, the buyer cannot be in a position to withhold the tax from the seller.

Accordingly, the applicable law on payment of capital gains tax in respect of sales of such share of stock not listed and traded in the Local Stock Exchange can only be governed by Section 52(D) of the Code, in which case, the Seller shall file his capital gains tax return and pay the tax in the manner as provided thereunder. The withholding tax provision under Section 57(A) of the Code is not applicable thereto. (BIR Ruling No. 131-99 dated August 20, 1999)

DOCUMENTARY STAMP TAX; Electronic Instruction by Non-Resident Payor-Client - Pursuant to Section 181 of the 1997 Tax Code, a documentary stamp tax shall be imposed on any bill of exchange or order for payment purporting to be drawn in a foreign country but payable in the Philippines. Under the foregoing provision, the documentary stamp tax shall be levied on the instrument, i.e., a bill of exchange or order for the payment of money, which purports to draw money from a foreign country but payable in the Philippines. In the instant case, however, while the payor is residing outside the Philippines, he maintains a local and foreign currency account in the Philippines from where he will draw the money intended to pay a named recipient. The instruction or order to pay shall be made through an electronic message, i.e., SWIFT MT 100 or MT 202 and/or MT 521. Consequently, there is no negotiable instrument to be made, signed or issued by the payee. In the meantime, such electronic instructions by the non-resident payor cannot be considered as a transaction per se considering that the same do not involve any transfer of funds from abroad or from the place where the instruction originates. Insofar as the local bank is concerned, such instruction could be considered only as a memorandum and shall be entered as such in its books of accounts. The actual debiting of the payor's account, local or foreign currency account in the Philippines, is the actual transaction that should be properly entered as such. Thus, the instruction made through an electronic message by non-resident payor-client to debit his local or foreign currency account maintained in the Philippines and to pay a certain named recipient also residing in the Philippines is not the transaction contemplated under Section 181 of the 1997 Tax Code. Such electronic instruction purporting to draw funds from a local account intended to be paid to a named recipient in the Philippines is not subject to documentary stamp tax imposed under the foregoing Section. (BIR Ruling No. 132-99 dated August 23, 1999)

ISSUANCE OF RECEIPTS - Being merely a sales and marketing division of Matsushita Electric Philippines Corporation, National Panasonic Sales Philippines is not to be treated as a separate and distinct entity and is no longer required to procure a TIN of its own, since the return or statement of the former necessarily includes that of the latter.

While it is true that National Panasonic Sales Philippines is merely a division of Matsushita Electric Philippines Corporation, it is nevertheless deemed as a marketing arm of the latter, where its activities are not limited to the advertisement of its product under the new business name but also sales are perfected therein. Consequently, National Panasonic Sales Philippines is under obligation to keep a subsidiary books of accounts and records for its purpose.

Finally, since there is no violation under Revenue Regulations No. V-1 otherwise known as the "Bookkeeping Regulations", the National Panasonic Sales Philippines, a sales and marketing division of Matsushita Electric Philippines Corporation, may be allowed to use and reflect in its invoices and documents of sales the new business name under the style of National Panasonic Sales Philippines (Division of Matsushita Electric Philippines Corporation) provided that the same are serially numbered and shall show, among others, the name, business style, Taxpayer Identification Number (TIN) and business address of Matsushita Electric Philippines Corporation pursuant to Section 238 of the Tax Code of 1997. (BIR Ruling No. 133-99 dated August 24, 1999)

INCOME TAX; Cash and/or Property Dividends - Pursuant to the Tax Code of 1997, cash and/or property dividends paid to certain taxpayers during the taxable year shall be subject to the income rates prescribed under Secs. 24(B)(2), 25(A)(2), 25(B), 28(B)(1) and 28(B)(5)(b) thereof.

In addition to this, Sec. 57(A) of the Tax Code of 1997, as implemented by Rev. Regs. No. 2-98, as amended provides, among others, that the tax imposed or prescribed by Sec. 24(B)(2), 25(A)(2), 25(B), 28(B)(l) and 28(B)(5)(b) on specified items of income shall be withheld by the payor-corporation and/or person and paid in the same manner and subject to the same conditions as provided in Sec. 58 of the Tax Code.

Accordingly, the withholding tax rates applicable to the cash dividends declared for the taxable year 1998 but payable to or actually or constructively received in 1999 are the rates prescribed in 1999 notwithstanding the fact that such cash dividends declared form part of the income or retained earnings in 1998. (BIR Ruling No. 134-99 dated August 25, 1999)

EXCISE TAX; Exemption of Ecozone-registered Enterprises - Enterprises registered in different special economic zones are exempt from all national and local taxes. In lieu thereof, these enterprises are subject to a final on their gross income. As such, any sale of goods by enterprises registered in different special economic zones to enterprises registered in other special economic zones are also exempt from all national and local taxes pursuant to Sec. 24 of R.A. 7916 otherwise known as "The Special Economic Zone Act of 1995."

Hence, EAUC which is registered with PEZA as an Ecozone Utilities Enterprise, and not a service establishment, is exempt from national and local taxes, which include, among others, excise tax. Likewise, SBFC, a SBF enterprise, is also exempt from national and local taxes, including excise tax. Hence, no excise tax attaches to the petroleum products imported or manufactured and sold by SBFC to EAUC for the latter's use and consumption within the Ecozone.

The excise tax exemption equally applies to the petroleum products used and consumed by EAUC to produce electricity sold to VECO. However, EAUC shall be subject to the 33% corporate income tax, 2% franchise tax but exempt from VAT on its sale of electricity to VECO. Since there is no provision in the Tax Code which subjects the sale of electricity to excise tax, then no excise tax can be imposed on the sale of electricity by EAUC to VECO. (BIR Ruling No. 135-99 dated August 30, 1999)

PERCENTAGE TAX - Under Section 22(I) of the Tax Code of 1997, the term "shares of stock" includes warrant and/or options to purchase shares of stock. A Philippine Depository Receipt (PDR) partakes the nature of a share of stock since PDR evidences a right on the part of the holder to purchase one share of ABS CBN from the Special Purpose Corporation (SPC) for a specified exercise price. The specified exercise price represents the consideration. The transaction applies also to other shareholders of ABS CBN, other than Benpres and Lopez, who are willing to sell their ABS CBN shares and who in return will be issued their corresponding PDRs. Furthermore, a PDR is indeed a warrant and/or option to purchase shares of stock since as represented, after the compliance with the requirements to be imposed by the SEC, particularly under the Revised Securities Act, and by the PSE, these PDRs will be listed and traded in the PSE like in the case of a share of stock.

Such being the case, a PDR is subject to the tax rate of of 1% of the gross selling price or gross value in money of the shares of stock sold, bartered, exchanged or otherwise disposed which shall be paid by the seller or transferor pursuant to Section 127(A) of the Tax Code of 1997. (BIR Ruling No. 136-99 dated August 30, 1999)

INCOME TAX; NOLCO; Minimum Corporate Income Tax (MCIT) - SWI, Sanofi Philippines, Inc. ("Sanofi-Philippines") and Synthelabo Phils., Inc. ("Synthelabo-Philippines") are all domestic corporations duly organized and existing under the laws of the Philippines to engage in the manufacture and distribution of personal care, health care and consumer products; that these corporations adopt a calendar year-end and do not enjoy any tax exemption; that SWI is owned 49.9% by SANOFI ("Sanofi - France") and 50.1% by Sanofi - Philippines; that Sanofi Philippines is owned 100% by Sanofi - France. Synthelabo - Philippines is 100% owned by SYNTHELABO ("Synthelabo - France"); that on May 18, 1999, Sanofi-France, a French company which is the parent company of SWI and Sanofi-Philippines, and Synthelabo-France, another French company which is the parent company of Synthelabo-Philippines, merged into the absorbing company: Sanofi-Synthelabo, in accordance with the article 372-1 of the French Law No. 66-537 dated July 24,1966; that as a result of the said merger, SWI, Sanofi and Synthelabo are now wholly-owned by a common parent company - Sanofi-Synthelabo, a corporation organized and existing under the laws of France; that since the three companies are owned by a common parent company and are engaged in the same line of business, Sanofi-Philippines and Synthelabo-Philippines will be merged into SWI pursuant to and in accordance with Title IX of the Corporation Code of the Philippines, with SWI as the surviving corporation and Sanofi-Philippines and Synthelabo-Philippines as the absorbed corporations; that the statutory merger would allow the integration of administrative functions thereby eliminating the duplication of functions, result in greater efficiency and economy in the management of their operations, make possible the more productive use of their properties, and achieve a favorable financing and credit facilities; and that pursuant to a proposed Plan of Merger, Sanofi-Philippines and Synthelabo-Philippines will transfer all its assets and liabilities to SWI in exchange for new shares of the capital stock of SWI which shall be distributed to the stockholder of Sanofi and Synthelabo.

Pursuant to Section 34(D)(3) of the Tax Code and considering that the merger will be undertaken for a bonafide business purpose and not for the purpose of escaping the burden of taxation and there is no effective change in ownership, the surviving corporation can claim as NOLCO deduction the NOLCO balance of the absorbed corporation/s, which shall be transferred and vested in the surviving corporation by operation of law pursuant to statutory merger.

Since SWI, Sanofi-Philippines will continue to be owned by one single parent company, i.e., Sanofi-France and Synthelabo-Philippines by Synthelabo France, which as of May 18, 1998, have merged into a single parent company, i.e., Sanofi-Synthelabo of France, as the absorbing corporation, and likewise, Sanofi-Philippines and Synthelabo-Philippines will also be merged into SWI pursuant to and in accordance with Title IX of the Corporation Code, SWI can claim as NOLCO deduction for the next three consecutive years the NOLCO balance of the absorbed corporations, i.e., Sanofi -Philippines and Synthelabo-Philippines as of December 31, 1998. Such NOLCO balance is transferred to and vested in SWI by operation of law pursuant to the statutory merger and SWI's own NOLCO balance as of December 31, 1998.

Likewise, since the excess MCIT will form part of the assets transferred to and vested in SWI on the effective date of the merger, SWI may carry forward and credit the excess MCIT of Sanofi-Philippines and Synthelabo-Philippines against its normal income tax liability for three immediately succeeding taxable years pursuant to Section 27(E)(2) of the 1997 Tax Code.

Accordingly, the excess minimum corporate income tax (MCIT) of an absorbed corporation in a statutory merger will, on the effective date of the merger, be transferred to and vested in SWI, as the surviving corporation. Also, the aggregate NOLCO balances of the absorbed corporations and the surviving corporation may be claimed by the surviving corporation SWI as a deduction from gross income under Section 34(D)(3) of the 1997 Tax Code. Finally, the excess MCIT of the absorbed corporation shall be carried forward and credited against the normal income tax due of the SWI, as the surviving corporation, for the three immediately succeeding taxable years pursuant to Section 27(E)(3) of the same Code. (BIR Ruling No. 137-99 dated August 31, 1999)

DOCUMENTARY STAMP TAX; Exemption of Qualified Beneficiaries of NGCHC - The National Government Center Housing Project (NGCHP) which came about by virtue of Presidential Proclamation No. 137 issued by then President Aquino, segregating from the National Government Center Site a portion thereof consisting of one hundred fifty (150) hectares for disposition to qualified beneficiaries in consonance with its socialized housing project and thereafter creating the National Government Center Housing Committee (NGCHC), had effectively became one of this country's "areas for priority development" falling within the coverage of RA 7279. Thus, qualified beneficiaries of NGCHP are entitled to benefits provided for under Section 25 of RA No. 7279 otherwise known as the Urban Development and Housing Act of 1992, among others, exemption for payment of documentary stamp tax, registration fees, and other fees for the issuance of the certificates of title. (BIR Ruling No. 138-99 dated August 31, 1999)

REVOCATION OF RULINGS - Pursuant to Sec. 246 of the Tax Code of 1997, "any revocation, modification or reversal of any of the rules and regulations promulgated in accordance with the preceding Sections or any of the rulings or circulars promulgated by the Commissioner shall not be given retroactive application if the revocation, modification or reversal will be prejudicial to the taxpayers, except x x x." Applying the foregoing provision, the rule enunciated in BIR Ruling No. 101-98 which did not categorically preclude the transfer of the right to the invention by an individual inventor to the corporation which he owns and control shall not affect Engr. Santos. Such being the case, BIR Ruling No. 181-95 dated September 6, 1995 upholding the regularity of the transfer by the individual inventor to the corporation which bears his name (Benjamin Santos) remains valid. Hence, since Engr. Santos is the owner of Bensan Industries, Inc., the transfer of his privilege to the latter fall squarely under BIR Ruling No. 181-95. After all the subject of the right being transferred belongs to both the transferor and the transferee. The corporation is merely a practical means of commercializing his invention - a logical consequence of his creativity that the government appreciates and the reason why the law granted him tax incentives. In other words, the tax incentives in R.A. 7459 is not a limitation to the right of the inventor to transfer his invention to the corporation he owns or controls for commercial exploitation, but a statement of a stand-by grant to the heirs to step into and enjoy the statutory inventor's privilege after his death. (BIR Ruling No. 139-99 dated September 7, 1999)

INCOME TAX; VAT - Executive Order No. 72, s. of 1986 effectively amended the "payment of franchise tax of two percent (2%) in lieu of all taxes" provision of Republic Act No. 4147 (Filipinas Orient Airways Franchise) thereby subjecting Filipinas Orient Airways to the corporate income tax imposed under then Section 24(a) of the Tax Code of 1986, [now Section 27(A), Tax Code of 1997] starting February 10, 1987, the date of effectivity of Executive Order No. 72. Similarly, said R.A. 4147 was further amended by then Section 102 of the NIRC, as amended by R.A. No. 7716, otherwise known as the Expanded Vat Law (EVAT [now Section 108 of the, NIRC, as renumbered by R.A. 8424]), in respect to its domestic carriage of goods

The franchise grantees referred to under the Section 119 of the NIRC only refers to the legislative franchise grantees pertaining to "radio and/or television broadcasting, electric, gas and water utilities". Since the franchise of Filipinas Orient Airways is not embraced by Section 119 of the Code, then its domestic operations, to the extent of its carriage of goods and cargoes, became subject to the 10% VAT pursuant to the above-quoted Section 108 of the 1997 Tax Code. Moreover, since its domestic operations in respect to carriage of passengers was not amended by R.A. 7716, the revenues derived therefrom shall remain subject to the aforesaid two percent (2%) franchise tax.

Finally, since only its domestic operations had been amended by R.A. 7716, the revenue from international operations shall remain subject to the said franchise tax. (BIR Ruling No. 140-99 dated September 9, 1999)

VAT; DETERMINATION OF THE TAX - Section 108 (C) of the Tax Code of 1997 which provides that the tax shall be computed by multiplying the total amount in the invoice indicated in the official receipt by 1/11 renders the presentation or non-presentation of the VAT as separate item in the Official Receipt or Sales Invoice without any effect in the determination of the VAT-registered seller's tax liability. This simplifies the manner of extracting the VAT liability on a particular transaction, and effectively eradicates any issue related thereto in the event a different value added tax is presented in the O.R.

Thus, to the VAT registered purchaser, the tax burden passed on does not constitute cost, but input tax which is creditable against his output tax liabilities. This voids the cascading effect which is characteristic of the sales tax system of old, where the sales tax is necessarily cost to the buyer, and as such becomes a factor of cost which is a basis of the marked up seller price in turn to his customers, and so on and so forth down the distribution chain. In the VAT system, however, it is only in the case of a Non-VAT purchaser that VAT forms part of cost of the purchase.

Accordingly, the non-presentation of the VAT in the O.R. or Invoice would, negate any possible confusion in the appreciation of the input tax which the VAT purchaser may apply against his output tax liabilities, through the uniform rate of 1/11 of the O.R. or invoice. (BIR Ruling No. 141-99 dated September 13, 1999)

INCOME TAX; Payment of Separation Assistance Plan under R.A. 8291 - Pursuant to Section 32(B)(6)(f) of the Tax Code of 1997, benefits from the GSIS under Republic Act No. 8291, including retirement gratuity received by government officials and employees shall not be included in gross income and shall be exempt from income tax. For officials and employees of the Philippine Tourism Authority (PTA) who are already qualified to avail of the optional and/or compulsory retirement under Republic Act No. 8291, the payment of the Separation Assistance Plan benefits shall be considered as part of their retirement gratuity and therefore exempt from the payment of income tax pursuant to Section 32(B)(6)(f) of the Tax Code of 1997. However, for official/employees of the PTA who are not yet qualified to avail of the optional and/or compulsory retirement and who want to avail of the Separation Assistance Plan by resigning from their position, the benefits that they will receive under the Plan shall be considered as part of their compensation income which are subject to income tax and consequently to the withholding tax on wages under Section 79, Chapter XIII, Tittle II of the Tax Code of 1997. (BIR Ruling No. 142-99 dated September 13, 1999)

CREDITABLE WITHHOLDING TAX; Meaning of "Habitually Engaged in Real Estate Business" - While Rev. Regs. No. 2-98 requires membership in the Housing and Land Use Regulatory Board (HLURB) or Housing and Urban Development Coordinating Council (HUDCC) to be considered as habitually engaged in the real estate business, the same should not be the sole criterion considering that the taxpayer Bank is able to acquire numerous real estates which, by law, are being required to be disposed in the course of its business. In Section 25 of the General Banking Act, banks are required to dispose of the foreclosed properties within a period not longer than five (5) years, rather than hold them for investment or speculation. Thus, by operation of law, these properties should be included by banks in their inventory of assets to be sold in the course of their business. In this light, this Office believes that this kind of activity is a valid consideration in treating the taxpayer Bank to be habitually engaged in the real estate business.

For purposes of the above regulations, the term habitually engaged in the real estate business is not limited or restricted only to persons duly registered with the HLURB or HUDCC. The proviso simply means that any person duly accredited by the said government agencies shall be deemed habitually engaged in the real estate business. However, even in the absence of registration therewith, a person may also be treated habitually engaged in the real estate business upon showing that he is in fact actually engaged in the said business. (Citation Omitted)

Accordingly, this Office hereby holds that the Bank's inventory of foreclosed properties which are mandated by law to be disposed of within a period not longer than five (5) years are ordinary assets the gain or loss from the sale of which to be included in computing the Bank's net taxable income during the year pursuant to Section 28 (A) of the 1997 Tax Code. Moreover, and considering that the disposition of said foreclosed properties qualifies the Bank to be habitually engaged in the real estate business, income from sale or disposition of the same is subject to a creditable withholding income tax at the rate provided for in Section 2.57.2(J) of Rev. Regs. No. 2-98. (BIR Ruling No. 143-99 dated September 14, 1999)

BIR Ruling No. 144-99 dated September 14, 1999 was never implemented and was immediately revoked.

CORPORATE INCOME TAX; Interest on Zero Coupon Peso Loan - Pursuant to Section 44 of the Tax Code of 1997, the amount of all items of gross income shall be included in the gross income for the taxable year in which received by the taxpayer, unless, under methods of accounting permitted under Section 43 of the same Code, any such amounts are to be property accounted for as of a different period.

Accordingly, the interest on the zero coupon peso loan which shall be paid upon the maturity of the loan, i.e., on the 10th or 20th year, shall be subject to corporate income tax on the said periods. (BIR Ruling No. 145-99 dated September 14, 1999)

DOCUMENTARY STAMP TAX; Ecozone Enterprise Exempt on Original Issue of Stock Certificates - Section 24 of R.A. No 7916 provides that any provision of existing laws, rules and regulations to the contrary notwithstanding, no taxes, local and national shall be imposed on business establishments operating within the ECOZONE. In lieu of paying taxes, five percent (5%) of the gross income earned by all businesses and enterprises within the ECOZONE shall be remitted to the national government. This five percent (5%) shall be shared and distributed as follows: (a) Three percent (3%) to the national government; (b) One percent (1%) to the local government units affected by the declaration of the ECOZONE in proportion to their population, land area, and equal sharing factors; and (c) One percent (1%) for the establishment of a development fund to be utilized for the development of municipalities outside an contiguous to each ECOZONE; xxx.

Since Clarion is liable to the preferential tax rate of 5% on its gross income earned which shall be in lieu of local and national taxes pursuant to Section 24 of R.A. No. 7916, it is exempt from the payment of documentary stamp tax on the original issue of stocks certificates to its respective stockholders as well as on the certificates of deposits. However, Section 173 of the Tax Code of 1997, provides that "whether one party to the taxable document enjoys exemption from the tax herein imposed, the other party thereto who is not exempt shall be the one directly liable for the tax." Since Clarion is exempt from the payment of documentary stamp tax, it is respective stockholders and/or the banks, as the case may be, who are the ones liable for the tax.

Moreover, the interest income earned by Clarion from its bank deposits within the zone, whether in peso or foreign currency deposit is subject to the preferential tax rate of 5%. (BIR Ruling No. 146-99 dated September 14, 1999)

STATUTE OF LIMITATION; Period within which to Assess - It is well settled in the case of Republic vs. De la Rama, L-21108, November 29, 1966, that where a person liable for the payment of the tax did not receive the assessment, the assessment could not become final and executory. Since the said assessment notices were served and known only to the taxpayer after the lapse of the three (3) year period counted from the last day prescribed by law for filing of the returns required under Section 203 of the Tax Code of 1997, the right of the BIR to assess already prescribed and subject-taxpayer has no validly existing tax liabilities for taxable year 1995. In the case of Republic vs. Ricarte (L-46893, November 12, 1985), the Supreme Court said. "Although a subsequent notice of assessment was allegedly made and sent to appellee on January 19, 1961, it was the finding both of the former City Court of Cebu and the defunct Court of First Instance of Cebu that no evidence has been presented by the appellant that the appellee actually received a copy of the assessment notice regarding the alleged deficiency tax. Such findings, being one of fact, can no longer be reviewed by this Court. Even in the stipulation of facts entered into between the parties there is no stipulation showing that the appellant actually received the subsequent notice of assessment. Thus, the prescriptive period provided for x x x (then 5 years but now three years) should be counted from April 6, 1959, the date when the Bureau of Internal Revenue assessed the income tax return of the appellant. From the said date until the filing of the case on January 14, 1966, six years and nine months had lapsed. Verily, the action had already prescribed."

Furthermore, Section 223 of the Tax Code of 1997 which provides that the running of the statute of limitation maybe suspended when the taxpayer cannot be located in the address given by him in the return filed upon which a tax is being assessed is not applicable in the instant case since the taxpayer had duly notified the BIR on its transfer of office address.

Such being the case, the assessment notices issued by the Assessment Division of Revenue Region No. 7, Quezon City are null and void for the same were not duly and timely served and received by the taxpayer, and that since the said assessment notices were served and known only after the lapse of the three (3) year period counted from the last day prescribed by law for filing of the returns required under Section 203 of the Tax Code of 1997, the right of the BIR to assess already prescribed. (BIR Ruling No. 147-99 dated September 16, 1999)

EXCISE TAX; Sale of Petroleum Products to Foreign International Marine Vessel - For tax purposes, sales of petroleum products including lubricants, to foreign international marine vessels do not fall within the definition of "export sales" as contemplated by law. While the buyers are said to be foreign flag-registered international marine vessels and the transactions transpire in the Philippines, the circumstances surrounding the transaction do not involve exportation since there was no actual shipment to foreign country. Rather, these foreign flag-registered marine vessels buy the above goods for their own personal consumption while plying the international waters, and not for the purpose of transporting the same to a foreign destination for unloading. Thus, the sale of petroleum products by Petron Corporation to the foreign vessel without actually transporting the same from the Philippines to a foreign destination or free-port zone, is not "export sale" as contemplated by law. "While plying the international waters" is not a foreign destination, since exportation contemplates a foreign destination with intention to unload.

Since the above transactions are not "export sales" as contemplated by law, the sale of the petroleum products, including lubricants, to a foreign international marine vessels for their own consumption while plying the international waters, is subject to excise tax on petroleum products under Section 148, Chapter V, of the Tax Code of 1997.

However, under the principle of reciprocity, the Philippine Government through the Bureau of Internal Revenue may consider granting excise tax exemption to these foreign flag-registered marine vessels on their purchase of petroleum products for their own personal consumption while plying the international waters, from domestic oil companies, if they can subject to the Commissioner of Internal Revenue or his duly authorized representative a copy of a special legislation or international agreement showing that their Government allows similar tax exemption to Philippine-flag registered marine vessels purchasing similar petroleum products in their county. [BIR Ruling No. 026-99 dated March 9, 1999] (BIR Ruling No. 148-99 dated September 17, 1999)

R.A. No. 7227 - Section 291 of the Tax Code of 1997 provides that all laws, decrees, executive orders, rules and regulations or parts thereof which are contrary to or inconsistent with the said Code are hereby repealed, amended or modified accordingly. While E.O. 80 and R.A. No. 7227, as implemented by Revenue Regulations No. 1-95, and as further implemented by Revenue Regulations No. 12-97, were approved and made effective prior to January 1, 1998, the date of effectivity of R.A. No. 8424, otherwise known as the Tax Code of 1997, the same are not covered by the above-cited repealing provision of the said Code. Such being the case, the special income tax regime or tax incentives granted to enterprises registered within the secured area of Subic and Clark Special Economic Zones have not been repealed by the provisions of R.A. 8424.

Sec. 6(f) of Revenue Regulations No. 1-95 provides that interest from any Philippine currency bank deposits and yield or any other monetary benefit from deposit substitutes, and from trust fund and similar arrangements received by a registered enterprise engaged in business within the Secured Area shall be subject to the preferential tax rate. All other interests, yield of monetary benefit from deposit substitutes, trust funds and similar arrangements and royalties derived from sources within the Philippines by a person other than a registered enterprise operating within the Secured Area in the zone shall be subject to the appropriate tax law rates of the Customs Territory. Accordingly, enterprises registered within the secured area of Subic and Clark Special Economic Zones are liable to the preferential tax treatment of 5% of the gross income earned which shall be in lieu of local and national taxes pursuant to Section 12 (c) of R.A. 7227. They are therefore exempt from the final tax of 20% and 7.5% respectively imposed on the amount of interest from currency bank deposit and yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements and royalties from sources within the Philippines and the interest income they will derive from a depository bank under the expanded foreign currency deposit system as prescribed under Section 27 (D)(1) of the Tax Code of 1997. (BIR Ruling No. 149-99 dated September 17, 1999)

ESTATE TAX; Extension of Period to File Return - Granting the request on behalf of the Estate of the late Clementina Posadas for an extension of thirty (30) days within which to file the estate tax return pursuant to Section 90 ( C) of the Tax Code of 1997 for reasons stated therein which appear to be justifiable.

However, that the estate shall be liable to the corresponding interest that have accrued thereon up to the time of filing of the return and payment of the estate tax due on the transmission of the said estate to the heirs pursuant to Section 249 of the Tax Code of 1997. (BIR Ruling No. 150-99 dated September 23, 1999)

VAT; Dressing of Chicken for a Fee - The process of dressing chicken for others for a fee, remuneration or consideration is subject to the 10% VAT pursuant to Section 108 of the Tax Code of 1997. Such being the case, 3J Food Corporation, which is engaged in the business of dressing chicken for a fee for Vitarich Corporation, is liable to the payment of 10% VAT on its gross receipts. (BIR Ruling No. 151-99 dated October 5, 1999)

EXCISE TAX; Efficascent Premix Classified as Petrolatum - Under Section 4(g) of Republic Act 8180 in relation to Republic Act 8184 as implemented by Revenue Regulations 8-96, "Efficascent Pemix" falls under the definition of petroleum product classified as petrolatum. Moreover, based on the Supreme Court Decision (MEGA GENERAL MERCHANDISING CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE, G.R. L-69136, September 30, 1988) "paraffin wax/petrolatum" is subject to specific (excise) tax irrespective of kind, nature and purpose EFFICASCENT PREMIX is, therefore, subject to excise tax under Section 148 (c) of the National Internal Revenue Code of 1997 at P3.50 per kilogram. (BIR Ruling No. 152-99 dated October 5, 1999)

CAPITAL GAINS TAX - The assignment of FFC share representing HTL's 20% share transferring title of the land directly to HTL is exempt from the capital gains tax imposed under Section 24(D)(1) and Section 27(D)(5) both of the Tax Code of 19977 and to the creditable withholding tax prescribed under Revenue Regulations No. 2-98 implementing among others, Section 57(B) of same Code, considering that the assignment in this case, is merely an act of partitioning the commonly owned property. It is nothing more than an act of terminating the co-ownership by making each co-owner, owner of specific identifiable developed lot or unit. No taxable income has not yet been realized by the co-owners since the process constitutes a single act of retaining their contributed capital.

Moreover, Sta. Lucia Realty and Development, Inc. could assign portion of the input tax it has accumulated in connection with the development of the Project to its Joint Venture Partners in proportion to their contribution to the Join Venture Project since the landowners share in the developed subdivision includes the cost of development (gross area is reduced by 50%). Hence, could be apportioned among the Join Venture Partners considering that each co-venturer was charged with the cost of development on their respective share of the developed subdivision lots which necessarily includes any input VAT that was accumulated in connection with the development of the Project. (BIR Ruling No. 153-99 dated October 6, 1999)

CAPITAL GAINS TAX; Republic of Vietnam Exempt on the Exchange of its Property - Pursuant to Article 23, paragraph 1 of the Vienna Convention on Diplomatic Relations adopted on April 18, 1961 the Embassy of the Socialist Republic of Vietnam is exempt from the capital gains on the exchange of its property situated at Vito Cruz, Malate, Manila. Moreover, the Embassy shall be exempt from the documentary stamp tax imposed under Section 196 of the Tax Code of 1997. (BIR Ruling No. 154-99 dated October 6, 1999)

EXEMPTION FROM TAX OF A REGISTERED INVENTOR OF HOUSEHOLD PESTICIDE - As a registered inventor of household insecticide, Mr. Gonzalo G. Catan, Jr. Is exempt from the payment of income tax on net income derived from the sale of invention products, VAT on the gross receipts/revenues derived from the sale of his invention products and excise taxes directly payable in connection with the sale of invention products. His exemption shall be during the first ten (10) years from the date of the first sale on a commercial scale, provided that this exemption/privilege pertaining to the invention shall be extended to the legal heir or assignee upon the death of the inventor. (BIR Ruling No. 155-99 dated October 7. 1999)

CREDITABLE WITHHOLDING TAX; Professional Fees of Physician - Under Revenue Regulations No. 2-98, professional fees, talent fees, etc., for services rendered by the individuals mentioned therein are subject to 10% creditable withholding tax while the persons required to deduct and withhold are those stated in Section 2.57.3 of said Regulations. However, in the case of services rendered by medical practitioners, said Regulations is silent as to who is constituted as the withholding agent.

Now comes, Revenue Regulation No. 3-99 which took effect on March 5, 1999, amending Revenue Regulations No. 12-98 which requires the physician to remit the 10% of the fee received to the accounting office of the hospital or clinic. Since it is Health Solution Corporation (HSC) which pays the professional fee of the accredited physician who rendered the medical service and withholds the 10% creditable withholding tax on the professional fee paid to the doctor pursuant to Revenue Regulations No. 2-98, the HSC patients should no longer be required by the hospital or clinic to pay the professional fee of the attending physician through the hospital or clinic. Moreover, despite the clarification in Revenue Regulations Nos. 12-98 and 3-99, the fact remains that said regulations do not apply to HSC patient, since it is HSC which pays the professional fees of the accredited physicians and is obligated to withhold the tax on the professional fee and remit the same to the Bureau in accordance with Revenue Regulations No. 2-98. (BIR Ruling No. 156-99 dated October 7. 1999)

AD VALOREM TAX - Since the transfer of the motor vehicle which Mr. Ashok Ramnani purchased from David Greeberg of the U.S. Embassy was executed on June 26, 1996, Section 149 in relation to Section 128, both of the Tax Code, as amended shall apply in the determination of the excise tax due to be imposed thereon.

Such being the case, Mr. Ramnani is subject to ad valorem tax on automobiles based on the manufacturer's or importer's selling price, net of excise and value-added taxes pursuant to Section 149 of the Tax Code, as amended by Executive Order No. 273 and not to compensating tax. (BIR Ruling No. 75-89 dated April 14, 1989) Said ad valorem tax is in addition to the 10% value-added tax in accordance with Section 126 of the same Code. (BIR Ruling No. 157-99 dated October 7, 1999)

EXEMPTION FROM TAX OF INVENTOR OF BULLET MAGAZINE - Engr. Jaime U. Gosiaco, is a bonafide member of the Filipino Inventors Society (FIS) and the inventor/registered patentee of a utility model "Bullet Magazine" and also the President and Chairman of the Board of Aaron Group of Co., Inc., a domestic corporation doing business under the name and style "Alloy Engineering Works". The corporation where Engr. Gosiaco and his wife hold the majority shares, is exempt from income tax on its net income and value-added tax on gross receipts derived from the sale of "Bullet Magazine", as well as from excise taxes, if any, for which he is directly payable in connection with such sale, for a period of ten (10) years reckoned from the date of its (Bullet Magazine) first sale on a commercial scale. (BIR Ruling No. 158-99 dated October 8, 1999)

VAT; Input Taxes Generated from Purchase of Goods - Section 110(A)(3)(b) of the Tax Code of 1997 provides that input taxes are generated from the purchase of VAT taxable goods or services from a VAT-registered taxpayer without distinguishing whether the input taxes are sourced from the purchase of goods or services. In other words, input taxes generated from the purchase of goods or services can be used without distinction as a credit against the output tax due from VAT-registered person. Such being the case, the commission earner who is liable to the output tax on commission incomed may claim the input tax generated from his/its importation of goods or trading activity subject to the condition that such input taxes have not been applied against output taxes. (BIR Ruling No. 159-99 dated October 14, 1999)

EXCISE TAX; Dual Purpose Kerosene (DPK) being used as aviation fuel - Pursuant to Section 148(g) and (h) of the 1997 Tax Code,, an excise tax at the rate of P0.60 per liter shall be imposed on kerosene. However, if it is being used as aviation fuel, it shall be subject to the same tax rate of P3.67 per liter of volume capacity imposed on aviation turbo jet fuel provided under item (h) of the same Section 148. In such case, the tax shall be assessed on the user of such kerosene product used as aviation jet fuel.

PETRON manufactures and sells both kerosene and aviation jet fuel and for which it maintains storage tanks designated for the products thus mentioned. Likewise, it produces dual purpose kerosene which is being stored in PETRON's storage tanks for kerosene. In all its sale of aviation jet fuel to airline or aircraft customers, it pays the specific tax of P3.67/liter on aviation fuel.

On the matter of who shall be liable for the specific tax on aviation fuel for the kerosene (DPK) sold as such by PETRON but thereafter is found out to be ultimately used as jet fuel by the airline/aircraft companies, this Office hold that it shall be the user of the kerosene (DPK) who shall pay the specific tax of P3.67/liter corresponding to aviation jet fuel whenever the product is used by aviation fuel. Moreover, the above-cited proviso of Sec. 148(h) of the 1997 Tax Code will not apply in the case of sale of DPK by PETRON eventhough the ultimate usuage of the product is for aviation fuel since PETRON is the manufacturer/seller of the product and not the user thereof. (BIR Ruling No. 160-99 dated October 14, 1999)

WITHHOLDING TAX ON COMPENSATION; When to File BIR Form 1604 - Section 2.83.2 of Revenue Regulations No. 2-98 provides that every employer or other person required to deduct and withhold the tax shall, on or before January 31 of the succeeding year, file with either the Collection Agent or Authorized Municipal Treasurer or Revenue District Officer or Commissioner, the Annual Information Return of Income Tax Withheld on Compensation (BIR Form No. 1604), to be submitted with an alphabetical list of employees, both in duplicate copies. Since the Mother Company (Founding Company) of a foundation is paying the salaries of those performing service, it is the one which is charged with the duty to deduct, withhold and remit the withholding tax due from the compensation paid to its employees and necessarily to file BIR Form No. 1604 as additional document for purposes of securing a Certificate of Accreditation from the Philippine Council for NGO Certification (PCNC). (BIR Ruling No. 161-99 dated October 15, 1999)

BIR Ruling No. 162-99 dated October 15, 1999 which denied the request of World Bank for exemption from the payment of VAT and ad valorem tax on the purchase by Mr. Ramesh Bhatia of one (1) unit motor vehicle for his personal use, was expressly revoked by BIR Ruling No. 187-99.

RP-US TAX TREATY; Most Favored Nation Clause - Under Article 8 of the Civil Code of the Philippines, judicial decisions, though not laws, are evidence however, of what the laws mean, and this is the reason why they are part of the legal system of the Philippines. It becomes a part of the law as of the date that was originally passed since the court's application or interpretation merely establishes the contemporaneous legislative intent that the construed law purports to carry into effect. However, a reversal of the interpretation cannot be given retroactive effect to the prejudice of parties who had relied on the first interpretation. On this basis, this Office holds that the doctrine laid down by the Supreme Court in the case of Commissioner of Internal Revenue vs. S.C. Johnson & Son, Inc. and Court of Appeals, G.R. No. 127105 promulgated on June 25, 1999, anent the most favored nation clause, under Article 13(2)(b)(iii) of the RP-US Tax Treaty would not entitle U.S. recipients of royalty income to the lower rate of tax enjoyed by German recipients under the RP-West Germany Tax Treaty, should be applied prospectively. (BIR Ruling No. 163-99 dated October 20, 1999)

EXPANDED WITHHOLDING TAX; Manufacturing and Repacking Services - Pursuant to Revenue Regulations No. 2-98 implementing Section 57(B) of the Tax Code of 1997, payments only to persons enumerated therein are subject to the expanded withholding tax. Even prior to the promulgation of the said Regulations, income payments for manufacturing and repacking services, particularly of biscuits, are not one of them. It is well settled in our jurisprudence that what the law does not include, it excludes. Since manufacturing and repacking services are not among those specified in said Regulations, the amount which Croley pays to Hebron and Biles are not, therefore, subject to the expanded withholding tax. However, since the aforesaid payments are not subject to withholding, the payor shall render an information return on such payments pursuant to Section 78 of the Tax Code of 1997. (citations omitted) (BIR Ruling No. 164-99 dated October 20, 1999)

RP-US TAX TREATY; Business Profits; VAT - Section 42(C)(3) of the Tax Code of 1997 provides that compensation for labor or personal services performed without the Philippines shall be treated as income from sources without the Philippines. For the source of income to be considered as coming from the Philippines, it is sufficient that the income is derived from an activity within the Philippines (Commissioner vs. British Overseas Airway Corporation and Court of Tax Appeals, G.R. Nos. 65773-74 dated April 30, 1987). Considering that the cost-sharing reimbursement to be made by the branch to its US affiliate is for actual services rendered in the United States by US residents, payments thereof should not be considered as income from within the Philippines and therefore not subject to Philippine income tax.

Article 8(1) of the RP-US Tax Treaty provides that business profits of a resident of one of the Contracting States shall be taxable only in that State unless the resident has a permanent establishment in the other Contracting State. If the resident has a permanent establishment in that other Contracting State, tax may be imposed by that other Contracting State on the business profits of the resident but only on so much of them as are attributable to the permanent establishment.. Since APCC does not have a permanent establishment in the Philippines to which its business profits/income is attributable, the cost-sharing reimbursements made by the branch to US residents for actual services rendered in the United States are not subject to Philippine income tax and consequently to withholding tax.

Section 105 of the Tax Code of 1997 provides that "any person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services, and any person who imports goods shall be subject to the value-added tax (VAT) imposed in Section 106 to 108 of the said Code. The intended transfer of assets of the subsidiary, other than inventories of taxable goods, to the proposed branch is not in the course of trade or business neither is it incidental thereto since the same does not necessarily follow its primary function of manufacturing, processing, importing, exporting, buying, selling and/or dealing in electronic equipment, power goods of similar nature and their accessories. Since the intended transfer of assets of the subsidiary to the proposed branch is just an isolated transaction, said transfer is not subject to value-added tax. (Citations omitted)

The transfer of inventories of taxable goods of the subsidiary to the branch shall be subject to 10% value-added tax imposed under Section 106(B)(1) of the Tax Code of 1997, if the Philippine subsidiary at the time of its liquidation is still enjoying an income tax holiday (ITH). However, if the subsidiary is no longer enjoying the ITH at the time of its liquidation, and is in fact already being taxed at the rate of 5% on gross income, then it may claim exemption from the 10% value-added tax since the 5% income tax on gross income applicable to PEZA registered enterprises is in lieu of all national and local taxes including the 10% VAT. For VAT purposes, the branch may utilized the accumulated input VAT of the subsidiary, since the conversion of the subsidiary to a branch is akin to a merger. Where there is a transfer of all the assets and the assumption of debts and liabilities of the absorbed corporation by the absorbing corporation and the legal personality of the absorbed corporation is extinguished but its interest subsists inasmuch as the transfer is in consideration for the shares of stock to be issued by the absorbing corporation. (BIR Ruling No. 165-99 dated October 21, 1999)

INCOME TAX; Interest Income Investments on Long-term Debt Securities - For the purpose of determining whether these investments in long-term debt securities such as bonds, debentures, and government securities like Treasury Bills and Central Bank Certificates of Indebtedness shall fall within the classification of "deposit substitutes", Section 1(g) of Revenue Regulations No. 12-80, as last amended by Rev. Regs. 3-97 defines the term "deposit substitutes" as an alternative form of obtaining funds from the public through the issuance of debt instruments for the borrower's account, for purpose of relending or purchasing of receivables and other obligations; and it may include, among others, promissory notes, repurchase agreements, certificates of assignment or participation, and similar instruments with recourse as may be authorized by the Bangko Sentral ng Pilipinas (BSP) for banks and for-non-bank financial intermediaries.

As a general rule, the interest income on currency bank deposit and yield or other monetary benefit from these "deposit substitutes" and similar arrangement derived by banks and non-bank financial intermediaries are being taxed at the final rate of 20% under Section 27(D)(1) of the 1997 Tax Code. However, Section 32 (B)(7)(g) of the same Code, provides an exception, thus, interest income or yields or gain from the sale of bonds, debentures and certificates of indebtedness with maturities of more than five (5) are excluded from gross income and therefore exempt from the 20% final withholding tax on deposit substitutes. (BIR Ruling No. 166-99 dated October 25, 1999)

ESTATE TAX; Extension of Time to File Return - Granting the request on behalf of the heirs of the late Elisa V. Romero for an extension of thirty (30) days within which to file the estate tax return pursuant to Section 90 (C) of the Tax Code of 1997 based on justifiable reason. However, the estate shall be liable to the corresponding interest that have accrued thereon up to the time of filing of the return and payment of the estate tax due on the transmission of the said estate to the heirs pursuant to Section 249 of the Tax Code of 1997. (BIR Ruling No. 167-99 dated October 26, 1999)

EXCISE TAX; Polyethylene (P.E.) Wax - The result of the laboratory analysis forwarded to this Office September 3, 1999, by the BIR Tax Fraud Division effectively classifies Polyethylene (P.E.) Wax article as a synthetic wax produced by high pressure polymerization of ethylene (gas), and which is, therefore, not a petroleum based wax. This Office is of the opinion as it hereby holds that POLYETHYLENE (P.E.) WAX, not being a petroleum based wax, is not subject to excise tax imposed under Section 148(c) of the 1997 Tax Code. (BIR Ruling No. 168-99 dated October 26, 1999)

ESTATE TAX; Extension of Time to File Return - Granting the request on behalf of the heirs of the late Florencia Jaranilla for an extension of thirty (30) days within which to file the estate tax return pursuant to Section 90(C) of the Tax Code of 1997 based on justifiable reason. However, the estate shall be liable to the corresponding interest that have accrued thereon up to the time of the filing of the return and payment of the estate tax due on the transmission of the said estate to the heirs pursuant to Section 249 of the Tax Code of 1997. (BIR Ruling No. 169-99 dated October 26, 1999)

AD VALOREM TAX; Pick-up Type Vehicles with Seating Capacity of more than ten (10) - An ad valorem tax is imposed on the production assembly or importation of conventional automobile including LCV's or utility vehicles classified as automobiles. A public passenger transport type vehicles with seating capacity of ten (10) passengers or more persons, including the driver is exempt from the ad valorem pursuant to Revenue Regulations No. 14-97. Hence, the "pick-up type" vehicles with seating capacity of more than ten (10) passengers being manufactured and assembled by World Star Philippines, Inc. shall be exempt from the ad valorem tax imposed under Sec. 149 of the Tax Code of 1997. (BIR Ruling No. 170-99 dated October 26, 1999)

EXCISE TAX; Importation of Premix - The importation of "pharmaceutical oil"; otherwise known as white pharma oil, liquid paraffin, white mineral oil, pharmaceutical acid and cathartic, is subject to excise tax. (BIR Ruling No. 194-93 dated May 5, 1993). Section 148 of the Tax Code of 1997 (then Section 145, NIRC) imposes excise tax upon waxes and petrolatum. Petrolatum is a semi- solid or liquid mixture of hydrocarbons derived by distillation of paraffin base petroleum fractions (Hawley's Condensed Chemical Dictionary). As confirmed by no less than the Supreme Court, "Paraffin Wax / Petrolatum" is subject to specific (excise) tax irrespective of kind, nature and purpose.

Assuming that the extent of the mineral oil content is only at 86% based on the SGS finding, that by itself would put Efficascent Premix as a petroleum based product. The taxability of petroleum product, effective August 16, 1996, is based on the percentage of petroleum content. If the Resultant product contains not less than fifty percent (50%) by weight of such petroleum product, the same is considered a petroleum product, hence, subject to excise tax. (Citation omitted) Accordingly, the importation of the Premix, effective August 16, 1996, is subject to excise tax of P3.50 per kilogram pursuant to Section 148(c) of the Tax Code of 1997 (then Section 145, NIRC) and to the 10% value-added tax under Section 107 of the same Code. (BIR Ruling No. 171-99 dated October 27, 1999)

BASES CONVERSION DEVELOPMENT ACT; Foreign Suppliers Participating in the JIT Program - Under R.A. 7227, otherwise known as the Bases Conversion Development Act, the operations of the Subic Bay Freeport (SBF), for tax purposes, is distinct and separate from the Customs Territory and is governed by special law and regulations. Being a separate customs territory, the provisions of the Tax Code imposing and prescribing regular taxes upon persons and entities in the Customs Territory would not be applicable to the SBF and SBMA administered zones insofar as the same will conflict with the provisions of RA 7227. The so-called Just-In-Time buffer stock program being sponsored by SBDMC is entirely within the jurisdiction and administration of the Subic Bay Metropolitan Authority. However, this Office remains with jurisdiction to look into the books of accounts of SBF companies, such as ACER and Circle Freight, for the purpose of determining the veracity of declared income upon which the special tax rate is based.

With respect to foreign suppliers participating under the JIT program, such as IBM, we hold that they are still subject to the jurisdiction of SBMA since their transaction would be restricted to the introduction of materials or merchandise within the confines of the Subic Bay Freeport, there to be disposed of in the manner outlined under the JIT program.

Since SBMA exercises authority and jurisdiction over all economic activity within the SBF, IBM and other foreign suppliers concerned exporting their materials under the said JIT program of Acer, as approved by the SBMA, do not come within the meaning of non-resident foreign corporations deriving taxable income within the Philippines. Therefore, its subsequent deliveries of products from the third-party warehouse and/or its receipts of payment therefor remain not subject to tax imposed under the Tax Code of 1997. (BIR Ruling No. 172-99 dated November 5, 1999)

CREDITABLE WITHHOLDING TAX; Presentation of CAR before Motor Vehicle can be registered no longer required - The withholding of 1% and 2% creditable income tax prescribed under RR No. 6-85, as amended by RR No. 8-90, as further amended by RR No. 2-91 is no longer provided for under Sec. 2.57.2 of RR No. 2-98 implementing Section 57(B) of the Tax Code of 1998. Considering that only payments made to persons enumerated therein are subject to the creditable withholding tax, payments made to the seller/owner for the sale, exchange or transfer of motor vehicle are not, therefore, subject to the creditable withholding tax. Accordingly, the presentation of a Certificate Authorizing Registration pursuant to RMC No. 35-91 before a motor vehicle can be registered by the Land Transportation Office is no longer required. (BIR Ruling No. 173-99 dated November 5, 1999)

BIR Ruling No. 174-99 dated November 17, 1999 refers to the proper computation of book value per share of shares of stock in case the subscription is not fully paid and the corporation has retained earnings; hence, the same is not reproduced.

VAT; Donated Religious Articles/Statues from Italy - Religious statues/articles are not original works of art of statuary or sculpture but common items of a commercial items of a commercial character. Moreover, the indorsement from the Department of Finance specifically states that such shipment of religious statues/articles "may be released duty-free x x x but subject to the payment of the value-added tax (VAT) imposed under the National Internal Revenue Code x x x". Clearly, the exemption from VAT of such importation was never the declared intention of the Department of Finance, the competent authority in this country which validated the tax exemption privilege of a taxpayer.

Accordingly, the request of the Sociedad Espanola de Beneficencia for the exemption from the payment of VAT of the donated religious statues/articles from Italy cannot be granted for lack of legal basis. (BIR Ruling No. 175-99 dated November 12, 1999)

ESTATE TAX; Extension of Time to File Return - Granting the request on behalf of the Estate of the late Virginia Y. Yaptinchay, for an extension of thirty (30) days within which to file the estate tax return pursuant to Section 90(C) of the Tax Code of 1997 based on justifiable reasons. However, that the estate shall be liable to the corresponding interest that have accrued thereon up to the time of filing of the return and the payment of the estate tax due on the transmission of the said estate to the heirs pursuant to Section 249 of the Tax Code of 1997. (BIR Ruling No. 176-99 dated November 17, 1999)

CAPITAL GAINS TAX; DOCUMENTARY STAMP TAX; Extrajudicial foreclosure sale of capital assets by banks, finance corporation - In extrajudicial foreclosure of mortgage under Act No. 3135, as amended, the mortgagor has the right to redeem the property within one year from the date of sale. The date of sale has been construed to mean the date of registration of the certificate of sale in the Registry of Deeds. (Santos vs. Register of Deeds of Manila, L-26752, March 19, 1971; Reyes vs. Tolentino et.al., L-29142, November 29, 1971)

In the case of foreclosure of mortgage by banks, finance and insurance companies whether judicial or extrajudicial, the mortgagor has the right of legal redemption of one year from the registration of the certificate of sale. (Quimson vs. PNB, L-24920, November 24, 1970) Thus, the counting of one year period of redemption in the case of an extrajudicial foreclosure of mortgage under Section 6 of Act No. 3135, as amended, as well as judicial and extrajudicial foreclosure of mortgage by banks, finance and insurance companies shall be the date of the registration of the certificate of sale in the Registry of Deeds.

Such being the case, RR No. 4-99 amending RMO No. 29-86, as amended, relative to the payments of capital gains tax and documentary stamp tax on extrajudicial foreclosure sale of capital assets initiated by banks, finance and insurance companies shall only apply to foreclosure sales after the effective date of the said regulations. (BIR Ruling No. 177-99 dated November 17, 1999)

RESUMPTION OF PAYMENT OF SALARIES - The Decision of the Commissioner of Internal Revenue finding Ms. Nenita R. Presto guilty of Grave Misconduct and Dishonesty and confirmed by the Secretary of Finance was received on August 6, 1998 and a Motion for Reconsideration was seasonably filed on August 6, 1998 or within twelve (12) days from receipt of the Decision. Likewise, Mr. Rodulfo B. Antoy received the Decision of the Commissioner of Internal Revenue and confirmed by the Secretary of Finance finding him guilty of Grave Misconduct and Dishonesty on July 9, 1998 and a Motion for Reconsideration was seasonably filed on July 23, 1998 or within fourteen (14) days from receipt of the Decision. While they were awaiting for the resolution of their Motions for Reconsideration, Ms. Presto and Mr. Antoy rendered actual services in RDO No. 108, Kidapawan City, as evidenced by the two (2) Certifications issued by RDO Muslimen L. Maca-Agir, Al Hadj.

Applying the pronouncement of the Civil Service Commission, Ms. Presto and Mr. Antoy are entitled to the resumption of the payment of their salaries during the period covering the actual services rendered while their Motions for Reconsideration have not yet been resolved, i.e., period covering August, 1998 up to June 02, 1999 for Ms. Presto and period covering July 10, 1998 up to June 9, 1999 for Mr. Antoy. (BIR Ruling No. 178-99 dated November 17, 1999)

ADDITIONAL COMPENSATION ALLOWANCE (ACA); Taxability -After a thorough study of BIR Ruling No. 144-99, this Office holds that the "other benefits" contemplated under Section 32(B)(7) of the 1997 Tax Code, shall include, the 13th month pay, productivity incentive bonus, Christmas bonus, loyalty awards, gifts in cash or in kind and other benefits of similar nature paid to an employee. Apparently, ACA is not of similar nature with the above-enumerated benefits paid to an employee.

The term "additional compensation allowance" as its name connotes, is indeed "compensation" embraced within the term "taxable compensation income" which is being defined as "all remuneration for services performed by an employee for his employer" under Sections 31 and 78 in relation to Section 32, both of the Tax Code, unless specifically excepted under Section 32(B) of the same Tax Code. The reason therefore, for the non-withholding of the said P500 additional compensation allowance was clearly provided for under said Administrative Order No. 53, i.e., it is not yet subject to withholding tax pending its formal integration into the basic pay of government personnel. Thus, it does not necessarily mean that the additional compensation allowance is not at all subject to income tax or that it is exempt from income tax. Considering therefore, that it is a taxable compensation, the same should be included in W-2 Form as part of the gross compensation income subject to schedular rate of tax under Section 24(A) of the 1997 Tax Code [then Sec. 21(a) of the Tax Code, as amended.].

This ruling is being issued in lieu of BIR Ruling No. 144-99 dated September 14, 1999, which is hereinafter considered revoked. (BIR Ruling No. 179-99 dated November 22, 1999)

RECKONING OF DATE OF SALE FOR PURPOSES OF TAXATION - Article 1475 of the Civil Code provides that a contract of purchase and sale is perfected from the moment the parties have agreed upon a determinate thing i.e., the object of the contract and a price certain therefor even if neither is delivered. Thus, the delivery of the thing sold is not necessary for the perfection of the contract. In the case at bar, there is indeed a perfected sale as the seller QCDFC has agreed to sell and had actually sold the above-mentioned lots to the respective buyers while the latter had agreed to pay the contract price therefor, although delivery had not been effected until no less the Supreme Court has resolved the case in favor of QCDFC, but from that time on, the vendees/buyers are given the right to compel the vendor/seller QCDFC to deliver the lots sold where it not for the inhibition filed by the government that the properties sold are for use as road.

Since the Deeds of Absolute Sale executed by QCDFC and its buyers involving the above-mentioned lots are in itself perfected contracts, the reckoning date of the sale for purposes of taxation is the date of the execution of the aforementioned Deeds of Absolute Sale. Accordingly, the said deeds are governed by the laws, rules and regulations prevailing at the time of its execution. (BIR Ruling No. 180-99 dated November 24, 1999)

VAT; DOCUMENTARY STAMP TAX; Invoice or Receipt need to show VAT - Section 113(A)(2) of the Tax Code of 1997, provides that a VAT-registered person shall, for every sale, issue an invoice or receipt showing, in addition to the information required under Section 237, "the total amount which is the purchaser pays or is obligated to pay to the seller with an indication that such amount includes the value-added tax. This amendatory provision repealed the option of VAT-registered taxpayers to bill the tax as a separate item in the invoice or receipt. Accordingly, the official receipt to be issued to the buyer of the condominium unit need not show the value-added tax passed on as part of the contract price, as the said tax is deemed included therein. As regards documentary stamp tax, it is the seller who is the one liable to pay the tax and not the buyer. However, an agreement such that entered into between the seller and vendee regarding the designation of the party liable to the payment of documentary stamp tax is legal and proper. Such being the case, the liability for the payment of documentary stamp tax can be shifted to the other party, i.e., the buyer. (BIR Ruling No. 181-99 dated November 24, 1999)

CREDITABLE WITHHOLDING TAX; Deferred-payment sale not on Installment Plan - Since the deferred payment sales in question were made during the year 1995, the basis of the CWT was on the "initial or down payment", pursuant to BIR Ruling No. 078-94. Accordingly, the said Buyers/Withholding Tax Agents have withheld and remitted the correct amounts of CWTs due thereon.

If the buyer is an individual who is not engaged in trade or business, he shall not withhold any CWT on his down payment and amortization made during the year of sale, since he is only required to withhold the tax based on his last installment payment. (RMC No. 7-90) Therefore, such individual is only a withholding tax agent vis-a-vis sale of real property, the income from which may be reported by the Seller on installment basis, because the Buyer's initial payments in the year of sale did not exceed 25% of the selling price. The term "initial payments" means "at least one other payment in addition to the initial payment." In case the real property sold is under mortgage and the Buyer, under the contract, shall assume payment of the unpaid mortgage, the excess of the unpaid mortgage over the Seller's cost basis for the property (if any) shall form part of the "initial payments". (See Sec. 175, Revenue Regulations No. 2) Conversely, the said individual was not constituted as a withholding agent vis-a-vis deferred payment sale transactions since his payment of the last installment did not constitute an income payment but, on the contrary, a mere return of capital of the Seller (supra).

The aforementioned Buyers of condominium units sold in the year 1995 under a deferred payment sale not on installment plan, hence, treated as the equivalent of cash sale transaction, are deemed to have fully withheld and remitted the corresponding CWT, the same having been deducted, withheld and remitted to the BIR, based on the "initial or down payment" pursuant to BIR Ruling No. 078-94, the applicable ruling during the year 1995. (BIR Ruling No. 182-99 dated November 24, 1999)

UNLAWFUL DIVULGENCE - Furnishing a law firm with a certification to the effect that the income tax return, Balance Sheet, Income Statement and Audit Certificate of a taxpayer were filed received and recorded in the BIR and that the TINs indicated therein have been issued to subject-taxpayers, to be used as reference in connection with the authenticity of the said accounts to be taken in a Civil Code pending with the Regional Trial Court of Quezon City, does not violate Section 270 of the Tax Code of 1997. (BIR Ruling No. 183-99 dated November 24, 1999)

EXEMPTION OF RURAL BANKS FRO PAYMENT OF ALL TAXES - Pursuant to Section 15 of Republic Act No. 7353 otherwise known as the Rural Banks Act of 1992, rural banks created and organized under the provisions of the said Act are exempt from the payment of all taxes, fees and charges for a period of five (5) years from the date of commencement of operations while all rural banks in operation as of the date of approval of said Act are exempt from the payment of all taxes, fees and charges for a period of five (5) years April 2, 1992, the date of approval of said Act. Hence, Central Equity Rural Bank, Inc. is still exempt from the payment of all taxes, fees and charges for a period of five (5) years from the date of its commencement of operations on March 14, 1997. (BIR Ruling No. 184-99 dated November 24, 1999)

UNLAWFUL DIVULGENCE - Furnishing the Office of the Ombudsman certified true copies of Cash Collection of Oil Firms from 1998 to 1999 violates Section 270 of the Tax Code of 1997 which prohibits unlawful divulgence of trade secrets. (BIR Ruling No. 185-99 dated November 26, 1999)

DOCUMENTARY STAMP TAX; Subsequent Execution of Deed of Assignment - Considering that the SLAs have been previously subjected to documentary stamp tax imposed under Section 180 of the Tax Code, through the promissory notes executed by Citizen Bank in favor of DBP, the subsequent execution of a Deed of Assignment between the same parties and covering the Credits and Collaterals under the SLA which is being held in trust by Citizen Bank of DBP without any change in the terms and conditions of the promissory notes to be treated as another transfer separate and distinct from the SLA and the promissory notes between Citizen Bank and DBP. Consequently, the Deed of Assignment is no longer subject to the documentary stamp tax imposed under Sections 196 nor 198 both of the Tax Code of 1997, but only to the documentary stamp tax on the certificate under Section 188 of the said Code. (BIR Ruling No. 186-99 dated November 29, 1999)

VAT; Exemption of World Bank on Local Purchase of Goods - Under Section VII, Article XIII(h) of the Agreement between the Republic of the Philippines and International Bank for Reconstruction and Development (The World Bank) concerning Establishment of a Resident Mission in the Republic of the Philippines, the Officers, Exports and Consultant of World Bank is entitled to exemption not only from direct taxes but also from indirect taxes, e.g., VAT and ad valorem tax on his local purchase of goods. The evident intention of the aforequoted provisions of the Establishment Agreement is to place the officers of World Bank at par with the officers of other international organizations in so far as exemption from indirect taxes is concerned. This revokes BIR Ruling No. 162- 99. (BIR Ruling No. 187-99 dated November 29, 1999)

DOCUMENTARY STAMP TAX; New Pledge Agreement not Subject - The exemption of the proposed agreements like Substituting the Pledgers under the New Pledge Agreement and the shares of stock under the Agreement on Substitution of Pledged Shares without any change in the terms and conditions of the original pledge agreement as well as the original amount of the loan secured are not subject to the documentary stamp tax imposed under Section 195 of the Tax Code of 1997. The said proposed agreements are within the coverage of BIR Ruling No. 015-99 dated February 3, 1999 wherein it was that Pledge Agreement is subject to the payment of documentary stamp tax imposed under Section 195 of the Tax Code of 1997. However, the execution of a supplemental Pledge Agreement by TSI in favor of Qualcom which will only substitute the New Timco Shares pledged under the original pledge agreement with a corresponding number of Retelcom shares owned by New Timco, without any change in the terms and conditions of the pledge agreement as well as the amount of the loan of TSI from Citibank N.A. guaranteed by Qualcom is no longer subject to the documentary stamp tax imposed under Section 195 of the Tax Code of 1997. xxx xxx (BIR Ruling No. 188-99 dated November 29, 1999)

INCOME TAX; Fringe Benefits - Section 2.33(A)(9)(b) provides that the cost of educational assistance extended by an employer to the dependents of an employee shall be treated as taxable fringe benefits of the employee unless the assistance was provided through a competitive scheme under the scholarship program of the company. Since the educational benefit is granted through a competitive scheme, i.e. qualifying exam, such educational assistance shall not be subject to the fringe benefit tax prescribed under Section 33 of the Tax Code of 1997.

However, the exemption of any fringe benefit from the fringe benefit tax imposed under Section 33 of the Tax Code of 1997 and implemented by Revenue Regulations No. 3-98, shall not be interpreted to mean exemption from any other income tax imposed under the Code or under any other existing law. Thus, if the fringe benefit is exempted from the fringe benefit tax, the same may, however, still form part of the employees' gross compensation income which is subject to income tax, hence, likewise subject to withholding tax on compensation income.

Such being the case, the amount of the tuition waiver benefit granted to the children of full time faculty members who were in the active service before May 1987 shall be considered as part of compensation income of said faculty members which shall be subject to withholding tax prescribed under Section 79 of the Tax Code of 1997. (BIR Ruling No. 189-99 dated November 29, 1999)

INCOME TAX; Cash and/or Property Dividend - Pursuant to Section 24(B)(2) of the 1997 Tax Code dividends shall be subject to a final tax at the rates applicable in the year when such dividends are actually or constructively received by the individual Filipino shareholders as provided for under Section 24(B)(2) of the Tax Code (BIR Ruling No. 028-89 dated February 22, 1989 citing Am. Jur. 2d, 1976 Ed., Vol. 34, p. 180). However, the income forming part of retained earnings of a corporation as of December 31, 1997 shall not, even if declared or distributed as dividends on or after January 1, 1998, be subject to the final tax on dividends in the hands of the corporation's individual Filipino shareholders.

Since the distributable cash and/or property dividend by Antelope, MPI, LLP and GDI will not solely come from the 1997 retained earnings, the amount that will be declared to the extent of the accumulated profits earned in 1998 shall first be subject to the six percent (6%) final withholding tax imposed under Section 24(B)(2) of the Tax Code. Only the amount in excess thereof shall be considered to have been distributed out of the relevant corporation's retained earnings as of December 31, 1997, and shall not be subject to income tax or any withholding tax even if such dividends are so declared or distributed after January 1, 1998.

Moreover, property dividends which constitute stocks in trade or properties primarily held for sale or lease, which shall be distributed by Antelope, MPI, LLP and GDI to its stockholders and declared out of their retained earnings, beginning January 1, 1996 and thereafter, shall be subject to VAT based on the market value or zonal valuation, whichever is higher, at the time of receipt. (Citations omitted) (BIR Ruling No. 190-99 dated November 29, 1999)

INCOME TAX; Intercorporate Advances - The inter-corporate advances between the Aboitiz Group of Companies and the stockholders advances of individual stockholders to the corporate borrowers are not covered by the provisions of Revenue Memorandum Order No. 63-99 dated July 19, 1999. Section 2.3 of the RMO states that it does not apply to indebtedness which was in fact a contribution to capital. The foregoing inter-corporate advances are analogous to capital contribution since it is based on percentage of stockholdings of the stockholders making the advances. The fact that some individual stockholders in some instances are not able to contribute to the fund constituting the advances does not destroy its character as an analogous capital contribution. In other instances where the advances are made due to financial need of borrowing company and the financial ability of the lending company, it is clear that these are emergency loans to help a related company which is short of capital. These are not the instances covered by Section 4.1 of the RMO which would authorize the Commissioner of Internal Revenue to allocate interest income under Section 50 of the Tax Code of 1997 because such inter-corporate loans are clearly not transactions done for tax avoidance or evasion purposes. (BIR Ruling No. 191-99-A dated December 3, 1999)

TRANSFEREBILITY OF TAX CREDIT CERTIFICATES - Insofar as BIR-issued TCCs are concerned, there is no provision under the Tax Code of 1997 expressly prohibiting the transfer or assignment of duly-issued BIR TCCs. Under the Code, a Tax Credit Certificate may be validly issued for amounts representing erroneously paid taxes; excess quarterly individual or corporate income taxes paid: illegally collected taxes: VAT on Zero-rated or effectively Zero-rated Sales; input taxes paid on capital goods imported or locally purchased; and for unused input taxes due to retirement from or cessation of business or cessation of status of a Vat-registered person. In all instances, a BIR-issued TCC presupposes the existence of a previously paid tax arising out of the normal application of the provisions of the Tax Code. In contrast to a BOI-issued Tax Credit Certificate which is in the nature of a tax incentive granted by special laws to the grantee, such TCC is transferable only under certain conditions (Article 21, Omnibus Investment Code, as implemented by Rule VII of the Rules and Regulations of E.O. 226).

Accordingly, this Office holds, that a TCC validly issued pursuant to the Tax Code of 1997 can be transferred or assigned by the owner provided, of course, that the TCC sought to be transferred must not have expired and remains valid in the hands of the original holder pursuant to the provisions of Section 230 of the Tax Code. (BIR Ruling No. 192-99 dated December 6, 1999)

ESTATE TAX; Extension of Time to File Return - Granting the request on behalf of the Estate of the late wife Concepcion Claudio Gatmaitan, for an extension of thirty (30) days within which to file the estate tax return pursuant to Section 90(C) of the Tax Code of 1997 based on justifiable reasons. However, the estate shall be liable to the corresponding interest that have accrued thereon up to the time of filing of the return and the payment of the estate tax due on the transmission of the said estate to the heirs pursuant to Section 249 of the Tax Code of 1997. (Citations omitted) (BIR Ruling No. 193-99 dated December 6, 1999)

ESTATE TAX; Computation of Retirement Benefits - Our existing laws on succession provide that when the widow or widower survives with legitimate children or their descendants and illegitimate children or their descendants, whether legitimate or illegitimate, such widow or widower shall be entitled to the same share as that of a legitimate child (Article 999, Civil Code); and the share of the illegitimate child shall be one-half (1/2) of the share of the legitimate child (Article 176, Family Code). Accordingly, the total retirement benefits shall be divided in the following proportion: 2/8 each for Corazon C. Alamis and Alexander A. Granada, 1/8 each for Alberto F. Granada, Jr., Meschelle F. Granada, Ma. Cristina F. Granada and Marjorie F. Granada. (BIR Ruling No. 194-99 dated December 6, 1999)

ESTATE TAX; Extension of Time to File Return - Granting the request on behalf of the Estate of the late Francisca V. Cabrieto, for an extension of thirty (30) days within which to file the estate tax return pursuant to Section 90(C) of the Tax Code of 1997 based on justifiable reasons. However, the estate shall be liable to the corresponding interest that have accrued thereon up to the time of filing of the return and the payment of the estate tax due on the transmission of the said estate to the heirs pursuant to Section 249 of the Tax Code of 1997. (Citations omitted) (BIR Ruling No. 195-99 dated December 9, 1999)

DONEE INSTITUTION; Accreditation - Pursuant to Section 2(b),(e) and (f) of Revenue Regulations newly organized and existing non-stock, non-profit corporations and NGO's shall apply for accreditation and submit to a process of examination and evaluation from the Philippine Council for NGO Certification (PCNC) as a pre-requisite for their registration with the BIR as qualified-donee institutions under Section 34(H)(1) and (2)(c) of the Tax Code of 1997. Hence, the request for registration as a donee institution under Section 34(H)(1) and (2)(c) of the Tax Code of 1997 even without the requisite certification from the PCNC is hereby denied for lack of legal basis. (BIR Ruling No. 196-99 dated December 9, 1999)

RETIREMENT LAW; Gratuity and Terminal Leave Benefits - It is basic principle of Public Offices Law that retirement laws are always construed liberally in favor of the employee. This is so because the level of retirement compensation is usually below the cost of living requirements of a retiree and it is received at a period in his life when he needs compensation the most. A grateful nation owes the retiree at the very least, a liberal interpretation. (Application for Gratuity Benefits of Associate Justice Efren I. Plana, Adm. Mat. 5460-RET. 24 March 2 88, En Banc, Minute Resolution) The liberal approach would achieve the humanitarian purposes of the retirement law which seeks to enhance the efficiency, security, and well-being of government employees xxx who after giving all their working years to the government and the people, look forward to receiving the full measure of the nation's gratitude for their dedicated faithful service. (ibid; Beronilla v. Government Service Insurance System, 36 SCRA 44) Applying the above rule of liberality, the heirs of the late Carolino Yray are entitled to claim the gratuity and terminal leave benefits due the deceased since the resolution modifying the decision does not carry with it any condition relative to the forfeiture of leave credits and retirement benefits. (BIR Ruling No. 197-99 dated December 10, 1999)

WITHHOLDING TAX; Definition of International organization - Pursuant to Section 2.78.1(B)(5) of Revenue Regulations 2-98 implementing Section 78 of the Tax Code of 1997, remuneration paid for services performed as an employee of a foreign government or an international organization is exempt from withholding tax on compensation.

"International Organizations" are associations of States, established by treaties between two or more States, whose functions transcend national boundaries and which are for certain purposes subjects of international law. Public international organizations (as distinguished from "private" or "non-governmental" organizations) include global, all-purpose organizations; specialized agencies of the United Nations; other global functional organizations; and regional organizations.

On the other hand, Non-Governmental Organizations (NGO's) are private, international organizations that serve as a mechanism for cooperation among private national groups in international affairs, particularly in economic, social, cultural, humanitarian, and technical fields. Under Art. 71 of the UN Charter, the Economic and Social Council is empowered to make suitable arrangements for consultation with NGO's on matters within its competence. Except for limited purposes under international humanitarian law, NGO's are not subjects of international law. Examples of NGO's include the International Committee of the Red Cross (ICRC); consumer and producer associations; religious groups; teacher organizations; professional, legal, civic (e.g. Rotary Club of Manila), and medical societies; and trade unions. (International Law and World Politics by Edgardo L. Paras, Sr. and Edgardo C. Paras, Jr. 1994 Revised Edition)

Accordingly, Helen Keller International, Inc. is not an international organization or entity having international personality as contemplated under the aforequoted Section 2.78(B)(5) of Revenue Regulations 2-98 but rather an international non-government private voluntary organization (NGO) which was duly granted a license to transact business by the Securities and Exchange Commission. It is therefore required to withhold the corresponding withholding tax on compensation for the salaries and wages it pays to its employees. (BIR Ruling No. 198-99 dated December 10, 1999)

OPTIONAL RETIREMENT UNDER P.D. 1146; Benefits paid by GSIS - Section 5 of R.A. 6683 provides that an appointive official or employee who retires or elects to be separated from the service under this Act shall not be eligible for optional retirement with gratuity under Republic Act Nos. 1616 and 4968 or with pension under Commonwealth Act No. 186, as amended by Republic Act No. 660, or under Presidential Decree No. 1146, as amended , or vice-versa.

Mrs. Gutierrez' application for optional retirement under P.D. 1146, as amended, is without legal basis and therefore, cannot be given due course. However, Mrs. Gutierrez shall be entitled to the return of her GSIS personal contributions pertaining to her retirement only and the corresponding share of the government with interest earned pursuant to existing rules and regulations of GSIS in accordance with Section 4 of RA 6683. She shall likewise be entitled to the commutation of her unused vacation and sick leaves pursuant to the same provision. This shall include cash payment equivalent to eighteen (18) times her basic monthly pension and old-age pension benefit in accordance with Section 11, RA 8291 amending PD 1146, dividends as provided for in Section 25 of RA 8291; and premiums paid and interest earned on automatic life insurance and/or optional insurance under Section 24 and 26 of RA 8291. This is because where the benefits provided by RA 6683 for the same contingencies are less than the benefits provided under PD 1146, as amended by RA 8291, the GSIS shall pay only the difference (Section 55 of RA 8291). Moreover, the benefits paid by the GSIS shall be exempt from all taxes as provided by Section 39 of RA 8291. (BIR Ruling No. 199-99 dated December 10, 1999)

VAT; Intended Transfer of Assets - Considering that the intended transfer of assets under the Bayantel Corporate Restructuring Plan is not intended for profit or livelihood, such transfer may not be said to be in the ordinary course of business of RCPI. Moreover, the intended transfer of RCPI's assets to Bayantel is not in the course of RCPI's regular trade or business of selling telecommunication services to the public.

Neither is the transfer incidental thereto since the same is not necessary to carry out RCPI's primary function of providing telecommunication services to the general public. The intended act of transferring the assets does not follow the act of providing telecommunications services to the public (Magsaysay Lines, Inc. et al. v. Commissioner of Internal Revenue, CTA Case No. 4353, April 27, 1992) Consequently, such transfer shall not be subject to VAT. (BIR Ruling Nos. 006-97 dated January 17, 1997; 033-97 dated April 1, 1997; 054-96 dated May 14, 1996; 113-98 dated July 23, 1998) Moreover, the intended transfer arrangement shall not result in any input tax credit to Bayantel. (BIR Ruling No. 200-99 dated December 13, 1999)

EXCISE TAX; Off-gas not Covered by the definition of "Processed Gas" - Republic Act No. 8184, did not make any definition of the term "processed gas". Thus this Office is of the opinion that the construction given to the term "processed gas" prior to the promulgation of RR 8-96 should remain controlling. As is still the case in this taxing jurisdiction, excise taxes is only made to apply to certain class of goods manufactured or produced in the Philippines provided such exciseable products are "removed from its place of production". Thus, if not removed from its place of production, the tax shall not apply.

It should be stressed that excise taxes, is basically an indirect tax imposed on consumption of certain types or class of goods, whether locally manufactured or imported. While the tax is directly levied upon the manufacturer/importer upon removal of the taxable goods from its place of production (in case of locally manufactured goods) or from the customs custody (in case of importation), the tax is, in reality, actually passed on to the end consumer as part of the transfer value or selling price of the goods sold, bartered or exchanged. Thus, the phrase "or for any other disposition", may only be interpreted as a disposition of the manufactured goods in the course of the manufacturer/importer's business, for consumption of the end consumers.

By the very nature of the "off gas" said product appears to be a waste by-product of the refinery process. It is disposed of by means of destruction by burning to prevent pollution of the environment. In view hereof, this Office holds, that "off-gas" is not subject to excise tax under Section 148(b) of the Tax Code of 1997 and that the said product is not covered by the definition of "processed gas" under Revenue Regulations No. 8-96. Finally, even if assuming arguendo, that "off-gas" is indeed embraced within the category of "processed gas", still we see no application of the tax, there being no removal of such product for domestic sale or consumption as contemplated by the law. (BIR Ruling No. 201-99 dated December 16, 1999)

INCOME TAX; VAT; Tax-free Exchange of Assignment of Investment in T-Bills - The assignment by SLAC of its investments in T-Bills in exchange for 99.99% of the voting shares in the MFCs and AMC qualifies as a tax-free exchange under Section 40 (C)(2) of the Tax Code. Considering that SLAC shall own 99.99% of the voting stock in the MFCs and AMC, SLAC shall acquire control of the said companies as a result of its assignment of the investments in T-Bills. As such, no gain or loss shall be recognized by SLAC from the assignment of its investments in T-Bills in exchange for the shares in the MFCs and AMC. Also, the assignment of investments in T-Bills will not be subject to DST because it is not one of the transactions subject to DST under the Tax Code.

Since as a result of the assignment by SLAC of its investments in T-Bills to the MFCs and the AMC, it will gain control of the said companies, the transaction falls within the ambit of Section (40)(C)(2) and (6)(C) of the Tax Code, and consequently, is not subject to VAT under Sec. 4.100-5 of Revenue Regulations No. 7-95.

Finally, pursuant to Section 49(C)(5) of the Tax Code, the cost basis of the MFC and AMC shares acquired by SLAC shall be the same as the original acquisition cost or adjusted cost basis to SLAC of the T-Bills exchanged therefor. On the other hand, the cost basis to the MFCs and AMC of the T-Bills exchanged for stock shall be the same as it would be in the hands of SLAC. (BIR Ruling No. 202 dated December 16, 1999)

INCOME TAX; Cash and Property Dividends - Prior to the amendments introduced into the Tax Code by R.A. 8424, which became effective on January 1, 1998, corporate dividend distribution was, in general, exempt from income tax. Beginning on the said date, dividend became subject to final withholding tax provided, however, "that the tax on dividends shall apply on income earned on or after January 1, 1998. Income forming part of retained earnings as of December 31, 1997 shall not, even if declared or distributed on or after January 1, 1998, be subject to this tax." (Sec. 24 (B)(2), NIRC, as amended by R.A. 8424)

Hence, to reconcile the old and existing law on source of the dividend distribution with that of the proviso of Section 24 (B)(2) of the Tax Code of 1997, this Office is of the opinion that if a corporation had accumulated profits as of December 31, 1997, its distribution of dividends beginning 1998 and thereafter must come from the accumulated profits as of December 31, 1997. After full distribution thereof, Sec. 73 (C) of the Tax Code of 1997 will apply. Hence, for the prior years' accumulated profits, the rule shall be the "first in-first out" system. It follows that Sec. 73 (C) shall not yet apply. Thereafter, the "last in-first out" system shall be used.

Accordingly, cash and property dividends declared and distributed by domestic corporations to individual stockholders who are resident of the Philippines on or after January 1, 1998, but forming part of retained earnings as of December 31, 1997 as shown by a Board Resolution stating said dividends as such and as established by the corporation's books of account, shall not be subject to income tax pursuant to Section 24(B)(2) of the Tax Code. (BIR Ruling No. 203-99 dated December 16, 1999)

OVERSEAS COMMUNICATION TAX - Pursuant to Section 120(A) of the Tax Code of 1997, there shall be collected upon every overseas dispatch, message or conversation transmitted form the Philippines by telephone, telegraph, telewriter exchange wireless and other communication equipment services, a tax of ten percent (10%) on the amount paid for such services. Under Section 120(B) thereof, the 10% overseas communication tax shall not apply to the Government. Diplomatic Services, International Organizations and News Services.

However, under the basic laws which govern registered enterprises, i.e., R.A. Nos. 7916 and 7227, explicit is the provision that said enterprises are exempt from paying all taxes, whether national or local and in lieu thereof, they shall pay a 5% tax based on gross income. The Overseas Communications Tax (OCT) is without doubt a national internal revenue tax and is included in the term "all taxes, whether national or local" to which PEZA-registered and SBF Enterprises are exempted from.

Such being the case, the following enterprises, i.e. SBF, CSEZ, JHSEZ, PPSEZ and other SEZ registered under the PEZA, shall be exempt from the 10% overseas communication tax since these enterprises are liable only to the payment of the preferential tax rate of 5% in lieu of the payment of local and national taxes. (BIR Ruling Nos. 15-97 dated February 4, 1997; 70-97 dated June 9, 1997; 85-98 dated June 2, 1998)

However, it should be understood that this exemption is limited to overseas calls emanating from landlines installed within the premises and registered under the names of the Special Enterprises located and registered within the enclaves of the freeport and economic zones as authorized under R.A. Nos. 7916 and 7227. (BIR Ruling No. 204-99 dated December 27, 1999)

WAIVER OF SURCHARGE AND PENALTY - Granting the request for reconsideration of BIR Ruling No. 122-99 dated August 11, 1999 relative to the taxpayer's request for a waiver of the surcharges and interest on its deficiency taxes. The actions of the subject-taxpayer show that there was no intention whatsoever on its part of not filing and paying the income tax liability on time. On the contrary, it displayed its zeal in fulfilling its duty under the law despite its financial predicament. However, the granting of the waiver of the payment of surcharge and penalty does not include the payment of interest imposed under Section 249 of the Tax Code of 1997. This modifies BIR Ruling No. 122-99 dated August 11, 1999 in so far as it subjects the taxpayer to payment of surcharges and penalty. (BIR Ruling No. 205-99 dated December 28, 1999)

VAT; Documentary Stamp Tax; Transfer of Membership Certificates - Since the transfer of its membership certificates by Fantasy World Theme Parks, Amusement and Recreation Club, Inc., a non-profit organization which is not a dealer in securities through its developer, as well as its billing and collection of membership dues from its members are not the economic activity being contemplated in Section 105 of the Tax Code of 1997, the transfer of the membership certificates is not subject to the 10% VAT. However, the transfer of the membership certificates which is not listed in the local stock exchange shall be subject to capital gains tax imposed under Section 27(D)(2) of the said Code based on the their book value nearest the valuation date.

Finally, considering that the membership certificate is in the nature of a shares of stock as defined in Section 22(L) of the Tax Code of 1997, the original issuance thereof by Fantasy World Theme Parks, Amusement and Recreation Club, Inc. is subject to the documentary stamp tax imposed under Section 175 of the said Code. The sale, however, is subject to the documentary stamp tax of P1.50 on each P200, or fractional part thereof, of the par value of such membership certificate pursuant to Section 176 of the Tax Code of 1997. (BIR Ruling No. 206-99 dated December 28, 1999)

VAT; Definition of Gross Income - Section 2(nn) of the Rules and Regulations To Implement Republic Act No. 7916, Otherwise known as "The Special Economic Zone Act of 1995 provides that "Gross Income" refers to gross sales or revenues derived from business activity within the ECOZONE, net of sales discounts, sales returns and allowances and minus costs of sales or direct costs but before any deduction is made for administrative expenses or incidental losses during a given taxable period. Thus, upon the expiration of the income tax holiday and for the proper determination of the income tax due, DKP's gross income must refer to gross sales or revenues derived from business activity within the ECOZONE, net of sales discounts, sales returns and allowances and minus costs of sales or direct costs but before any deduction is made for administrative expenses or incidental losses during a given taxable period following the month of the expiration of the income tax holiday.

As regards the lease of DKP's building B to some companies , the same is exempt from VAT or any other percentage tax pursuant to Sec. 5(4)(a) of RMC No. 74-99. (BIR Ruling No. 207-99 dated December 28, 1999)

INCOME TAX; Fringe Benefits Tax - The term "fringe benefit" is defined under Section 33(B) of the Tax Code of 1997 as any good, service or other benefit furnished or granted in cash or in kind by an employer to an individual employee (except rank and file employees). It includes, among others, housing benefit granted to the managerial and supervisory employees of the company. The Directors of TAP who are at same time receiving fixed salaries as TAP officers, are considered as employees holding positions other than rank and file positions i.e. managerial and/or supervisory positions.

Accordingly, the housing assistance granted by TAP to the expatriates who are directors and at the same time holding managerial and supervisory positions, is considered as fringe benefit subject to the Fringe Benefit Tax under Section 33 (B) of the Tax Code of 1997 and implemented by Revenue Regulations No. 3-98. The source of the fringe benefit granted to the employees does not affect the taxability of the said fringe benefit. Thus, the housing allowance of the director/officer of TAP which is paid out of its Retained Earnings, is still considered as a fringe benefit subject to the fringe benefit tax imposed under Section 33 of the Tax Code of 1997 as implemented by Revenue Regulations No. 3-98.

Section 33 of the Tax Code of 1997 on fringe benefit applies to managerial and supervisory employees. Thus, where the officer/director of TAP is considered as an employee regardless of whether a fixed monthly income is given or their remuneration is determined by the Board of Directors based on the Retained Earnings of the corporation, the housing assistance granted to the said officers/directors are still subject to the Fringe Benefit Tax. On the other hand, where a director is being paid on a retainer basis, no employer-employee relationships exist between the company and the director. Thus, the housing assistance granted to him shall not be considered as fringe benefit subject to the Fringe Benefit Tax but is considered as part of his gross income which is subject to the applicable tax rates under Section 24(A)(1)(c)of the Tax Code of 1997. (BIR Ruling No. 208-99 dated December 28, 1999)

VAT; Merchant Service Fee - The merchant service fees paid by the Shell dealers to PSPC for brokering the sale, helping generate higher sale, and for assuming the risk of collecting from the Fleet Cardholders and the attendant administrative burden, and the charges collected by PSPC from the Fleet Cardholders which represent various fees such as annual fees, joining fees, late payment penalties and others, shall be considered as payments for services rendered in the Philippines. Thus, the same shall be subject to the 10% VAT prescribed under Section 108 of the Tax Code of 1997.

Moreover, since the merchant service fees and charges are payments for services rendered in the Philippines and PSPC is not a financing company, the 5% gross receipts tax prescribed under Section 122 of the Tax Code of 1997 shall not be imposed. (BIR Ruling No. 209-99 dated December 28, 1999)

ESTATE TAX; Extension of Time To File Return - Granting the request for (1) an extension of time to file the estate tax return of the estate of Fernanda S. Balboa and (2) an extension of 24 months within which to pay the tax on the ground that the payment of estate tax or any part thereof on the due date would impose undue hardship upon the estate or any of the heirs, your request for an extension of twenty-four (24) months counted from the time of the filing of the return (December 24, 1999) is hereby granted.

However, it shall be understood that the said estate shall be liable to the corresponding interest that have accrued thereon up to the time of filing of the return and payment of the estate tax due on the transmission of the said estate to the heirs. [Citation omitted] (BIR Ruling No. 210-99 dated December 20, 1999)

ESTATE TAX; Extension of Time To File Return - Granting the request on behalf of the heirs and the Estate of the late Antonio Pereyra Baltazar for an extension of thirty (30) days within which to file the estate tax return pursuant to Section 90 (C) of the Tax Code of 1997 based on justifiable reasons. However, that the estate shall be liable to the corresponding interest that have accrued thereon up to the time of the filing of the return and the payment of the estate tax due on the transmission of the said estate to the heirs pursuant to Section 249 of the Tax Code of 1997. [Citation omitted] (BIR Ruling No. 211-99 dated December 28, 1999)

AUTHORITY OF THE COMMISSIONER TO PRESCRIBE REAL PROPERTY VALUES - Section 6(E) of the Tax Code of 1997 empowers the BIR Commissioner to determine the fair market value of real properties in specific zones or areas upon consultation with competent appraisers. Since the properties located in Bacolod reclamation area had been considered as falling under the "General Purpose" classification and were reappraised at P2,000.00 per square meter by the Commissioner of the Bureau of Internal Revenue and the members of the Technical Committee on Real Property Valuation and is in accordance with the above-mentioned Section, it is therefore safe to conclude that the properties of Belinda G. Ong, Helen Edith L. Tan, and Bacolod Real Estate Development Corporation which are contiguous and adjoining to the properties owned by Bacolod Commercial and Industrial Park, Inc. are covered by the appraised value of P2,000.00 per square meter. (BIR Ruling No. 212-99 dated December 28, 1999)

AUTHORITY OF THE COMMISIONER TO PRESCRIBED PROPERTY VALUES - Section 6(E) of the Tax Code empowers the BIR Commissioner to determine the fair market value of real properties in specific zones or areas upon consultation with competent appraisers. Since the properties located in Bacolod reclamation area had been considered as falling under the "General Purpose" classification and were reappraised at P2,000.00 per square meter by the Commissioner of the Bureau of Internal Revenue and the members of the Technical Committee on Real Property Valuation and is in accordance with the above-mentioned Section, it is therefore safe to conclude that the properties of Bacolod Waterfront Development Corporation which are contiguous and adjoining to the properties owned by Bacolod Commercial and Industrial Park, Inc. are covered by the appraised value of P2,000.00 per square meter. (BIR Ruling No. 213-99 dated December 28, 1999)


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