February 7, 2007 REVENUE REGULATIONS NO. 04-07 SUBJECT : Amending Certain Provisions of Revenue Regulations No.

16-2005, As Amended, Otherwise Known as the Consolidated Value-Added Tax Regulations of 2005 TO : All Internal Revenue Officers and Others Concerned SECTION 1. Scope. Pursuant to the provisions of Sec. 244 and 245 of the National Internal Revenue Code of 1997, as amended, in relation to Title IV of the same Tax Code, these Regulations are hereby promulgated to amend certain provisions of Revenue Regulations (RR) No. 16-2005, as amended, otherwise known as the Consolidated Value-Added Tax Regulations of 2005. aDATHC SECTION 2. VAT on Sale of Goods or Properties. Sec. 4.106-1 of RR No. 16-2005 is hereby amended to read as follows: "SEC. 4.106-1. VAT on Sale of Goods or Properties. VAT is imposed and collected on every sale, barter or exchange, or transactions "deemed sale" of taxable goods or properties at the rate of twelve percent (12%) (starting February 1, 2006) of the gross selling price or gross value in money of the goods or properties sold, bartered, or exchanged, or deemed sold in the Philippines." SECTION 3. Sale of Real Properties. Sec. 4.106-3 of RR No. 16-2005 is hereby amended to read as follows: "SEC. 4.106-3. Sale of Real Properties. Sale of real properties held primarily for sale to customers or held for lease in the ordinary course of trade or business of the seller shall be subject to VAT. Sale of residential lot with gross selling price exceeding P1,500,000.00, residential house and lot or other residential dwellings with gross selling price exceeding P2,500,000.00, where the instrument of sale (whether the instrument is nominated as a deed of absolute sale, deed of conditional sale or otherwise) is executed on or after Nov. 1, 2005, shall be subject to ten percent (10%) output VAT, and starting Feb. 1, 2006, to twelve percent (12%) output VAT . Installment sale of residential house and lot or other residential dwellings with gross selling price exceeding P1,000,000.00, where the instrument of sale (whether the instrument is nominated as a deed of absolute sale, deed of conditional sale or otherwise) was executed prior to November 1, 2005, shall be subject to ten percent (10%) output VAT. Sale of real property on installment plan means sale of real property by a real estate dealer, the initial payments of which in the year of sale do not exceed twenty-five (25%) of the gross selling price. In case of installment sale, the seller shall be subject to output VAT on the installment payments received, including the interests and penalties for late payment, actually and/or constructively received, subject to the provisions of Sec. 4.106-4 hereof. Correspondingly, the buyer of the property can claim the input tax in the same period as the seller recognized the output tax. Installment payments, including interests and penalties, actually and/or constructively received starting February 1, 2006 shall be subject to twelve percent (12%) output VAT. Sale of real property by a real estate dealer on a deferred payment basis not on the installment plan means sale of real property, the initial payments of which in the year of sale exceed twenty-five percent (25%) of the gross selling price. DCAEcS "Initial payments" means payment or payments which the seller receives before or upon execution of the instrument of sale and payments which he expects or is scheduled to receive in cash or property (other than evidence of indebtedness of the purchaser) during the taxable year when the sale or disposition of the real property was made. It covers any down payment made and includes all payments actually or constructively received during the year of sale, the aggregate of which determines the limit set by law. Initial payments do not include the amount of mortgage on the real property sold except when such mortgage exceeds the cost or other basis of the property to the seller, in which case the excess shall be considered part of the initial payments.

Also excluded from the initial payments are notes or other evidence of indebtedness issued by the purchaser to the seller at the time of the sale. In the case of sale of real properties on a deferred-payment basis not on the installment plan, the transaction shall be treated as cash sale which makes the entire selling price taxable in the month of sale. Output tax shall be recognized by the seller and input tax shall accrue to the buyer at the time of the execution of the instrument of sale. Payments subsequent to "initial payments" shall no longer be subject to output VAT, in the case of sale on a deferred payment basis. Pre-selling of real estate properties by real estate dealers shall be subject to VAT in accordance with the rules prescribed above. Real estate dealer includes any person engaged in the business of buying, developing, selling, exchanging real properties as principal and holding himself out as a full or part-time dealer in real estate. Transmission of property to a trustee shall not be subject to VAT if the property is to be merely held in trust for the trustor and/or beneficiary. However, if the property transferred is one for sale, lease or use in the ordinary course of trade or business and the transfer constitutes a completed gift, the transfer is subject to VAT as a deemed sale transaction pursuant to Section 4.106-7(a)(1) of these Regulations. The transfer is a completed gift if the transferor divests himself absolutely of control over the property, i.e., irrevocable transfer of corpus and/or irrevocable designation of beneficiary." SECTION 4. Gross Selling Price. Sec. 4.106-4 of RR No. 16-2005 is hereby amended to read as follows: "SEC. 4.106-4. Meaning of the Term 'Gross Selling Price'. The term "gross selling price" means the total amount of money or its equivalent which the purchaser pays or is obligated to pay to the seller in consideration of the sale, barter or exchange of the goods or properties, excluding VAT. The excise tax, if any, on such goods or properties shall form part of the gross selling price. In the case of sale, barter or exchange of real property subject to VAT, gross selling price shall mean the consideration stated in the sales document or the fair market value whichever is higher. If the VAT is not billed separately in the document of sale, the selling price or the consideration stated therein shall be deemed to be inclusive of VAT. The term 'fair market value' shall mean whichever is higher of: 1) the fair market value as determined by the Commissioner/zonal value, or 2) the fair market value as shown in schedule of values of the Provincial and City Assessors (real property tax declaration). However, in the absence of zonal value/fair market value as determined by the Commissioner, gross selling price refers to the market value shown in the latest real property tax declaration or the consideration, whichever is higher. If the gross selling price is based on the zonal value or market value of the property, the zonal or market value shall be deemed exclusive of VAT. Thus, the zonal value/market value, net of the output VAT, should still be higher than the consideration in the document of sale, exclusive of the VAT. aSTAIH If the sale of real property is on installment plan where the zonal value/fair market value is higher than the consideration/selling price, exclusive of the VAT, the VAT shall be based on the ratio of actual collection of the consideration, exclusive of the VAT, against the agreed consideration, exclusive of the VAT, appearing in the Contract to Sell/Contract of Sale applied to the zonal value/fair market value of the property at the time of the execution of the Contract to Sell/Contract of Sale at the inception of the contract. Thus, since the output VAT is based on the market value of the property which is higher than the consideration/selling price in the sales document, exclusive of the VAT, the input VAT that can be claimed by the buyer shall be the separately-billed output VAT in the sales document issued by the seller. Therefore, the output VAT which is based on the market value must be billed separately by the seller in the sales document with specific mention that the VAT billed separately is based on the market value of the property. Illustration:

ABC Corporation sold a parcel of land to XYZ Company on July 2, 2006 for P1,000,000.00, plus the output VAT, with a monthly installment payment of P10,000.00, plus the output VAT. The zonal value of the subject property at the time of sale amounted to P1,500,000.00. Compute for the output tax due on the installment payment. Formula: Actual collection (exclusive of the VAT) x Zonal value x 12% Agreed consideration (exclusive of the VAT) P10,000.00 x P1,500,000.00 = P15,000.00 P1,000,000.00 P15,000.00 x 12% = P1,800.00 ======= Selling price is the amount of consideration in a contract of sale between the buyer and seller or the total price of the sale which may include cash or property and evidence of indebtedness issued by the buyer, excluding the VAT." SECTION 5. Zero-Rated Sales. Sec. 4.106-5 of RR No. 16-2005 is hereby amended to read as follows: "SEC. 4.106-5. Zero-Rated Sales of Goods or Properties. . . . . The following sales by VAT-registered persons shall be subject to zero percent (0%) rate: (a) Export Sales. . . . . (5) Transactions considered export sales under Executive Order No. 226, otherwise known as the Omnibus Investments Code of 1987, and other special laws. "Considered export sales under Executive Order No. 226" shall mean the Philippine port F.O.B. value determined from invoices, bills of lading, inward letters of credit, landing certificates, and other commercial documents, of export products exported directly by a registered export producer, or the net selling price of export products sold by a registered export producer to another export producer, or to an export trader that subsequently exports the same; Provided, That sales of export products to another producer or to an export trader shall only be deemed export sales when actually exported by the latter, as evidenced by landing certificates or similar commercial documents; Provided, further, That pursuant to EO 226 and other special laws, even without actual exportation, the following shall be considered constructively exported: (1) sales to bonded manufacturing warehouses of export-oriented manufacturers; (2) sales to export processing zones pursuant to Republic Act (RA) Nos. 7916, as amended, 7903, 7922 and other similar export processing zones; (3) sale to enterprises duly registered and accredited with the Subic Bay Metropolitan Authority pursuant to RA 7227; (4) sales to registered export traders operating bonded trading warehouses supplying raw materials in the manufacture of export products under guidelines to be set by the Board in consultation with the Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC); (5) sales to diplomatic missions and other agencies and/or instrumentalities granted tax immunities, of locally manufactured, assembled or repacked products whether paid for in foreign currency or not. xxx xxx xxx. (6) The sale of goods, supplies, equipment and fuel to persons engaged in international shipping or international air transport operations; Provided, that the same is limited to goods, supplies, equipment and fuel pertaining to or attributable to the transport of goods and passengers from a port in the Philippines directly to a foreign port, or vice versa, without docking or stopping at any other port in the Philippines unless the docking or stopping at any other Philippine port is for the purpose of unloading passengers and/or cargoes that originated from abroad, or to load passengers and/or cargoes bound for abroad; Provided, further, that if any portion of such fuel, goods or supplies is used for purposes other than that mentioned in this paragraph, such portion of fuel goods and supplies shall be subject to twelve

percent (12%) output VAT starting February 1, 2006. aDECHI (b) Foreign Currency Denominated Sale. . . . xxx xxx xxx. (c) Sales to Persons or Entities Deemed Tax-exempt Under Special Law or International Agreement. Sale of goods or property to persons or entities who are tax-exempt under special laws or international agreements to which the Philippines is a signatory, such as, Asian Development Bank (ADB), International Rice Research Institute (IRRI), etc., shall be effectively subject to VAT at zerorate." SECTION 6. Effectively Zero-Rated. Sec. 4.106-6 of RR No. 16-2005 is hereby amended to read as follows: "SEC. 4.106-6. Meaning of the term 'Effectively Zero-Rated Sale of Goods and Properties'. The term 'effectively zero-rated sale of goods and properties' shall refer to the local sale of goods and properties by a VAT-registered person to a person or entity who was granted indirect tax exemption under special laws or international agreement." SECTION 7. Transactions Deemed Sale. Sec. 4.106-7 of RR No. 16-2005 is hereby amended to read as follows: "SEC. 4.106-7. Transactions Deemed Sale. . . . xxx xxx xxx. (b) The Commissioner of Internal Revenue shall determine the appropriate tax base in cases where a transaction is deemed a sale, barter or exchange of goods or properties under Sec. 4.106-7 paragraph (a) hereof, or where the gross selling price is unreasonably lower than the actual market value. The gross selling price is unreasonably lower than the actual market value if it is lower by more than 30% of the actual market value of the same goods of the same quantity and quality sold in the immediate locality on or nearest the date of sale. Nonetheless, if one of the parties in the transaction is the government as defined and contemplated under the Administrative Code, the output VAT on the transaction shall be based on the actual selling price. xxx xxx xxx." SECTION 8. Change or Cessation of Status as VAT-Registered Person. Sec. 4.106-8 of RR No. 162005 is hereby amended to read as follows: "SEC. 4.106-8. Change or Cessation of Status as VAT-registered Person. . . . . (b) Not subject to output tax The VAT shall not apply to goods or properties existing as of the occurrence of the following: (1) Change of control of a corporation by the acquisition of the controlling interest of such corporation by another stockholder or group of stockholders. The goods or properties used in business or those comprising the stock-in-trade of the corporation, having a change in corporate control, will not be considered sold, bartered or exchanged despite the change in the ownership interest in the said corporation. Illustration: Abel Corporation is a merchandising concern and has an inventory of goods for sale amounting to Php 1 million. Nel Corporation, a real estate developer, exchanged its real estate properties for the shares of stocks of Abel Corporation resulting to the acquisition of corporate control. The inventory of goods owned by Abel Corporation (Php 1 million worth) is not subject to output tax despite the change in corporate control because the same corporation still owns them. This is in recognition of the separate and distinct personality of the corporation from its stockholders. However, the exchange of real estate properties held for sale or for lease, for shares of stocks, whether resulting to corporate control or not, is subject to VAT, subject to exceptions provided under Section 4.106-3 hereof. On the other hand, if the transferee of the transferred real property by a real estate dealer is another real estate dealer, in an exchange where the transferor gains control of the transfereecorporation, no output VAT is imposable on the said transfer. (2) Change in the trade or corporate name of the business;

(3) Merger or consolidation of corporations. The unused input tax of the dissolved corporation, as of the date of merger or consolidation, shall be absorbed by the surviving or new corporation." SECTION 9. VAT on the Sale of Services and Use or Lease of Properties. Sec. 4.108-1 of RR No. 16-2005 is hereby amended to read as follows: "SEC. 4.108-1. VAT on the Sale of Services and Use or Lease of Properties. Sale or exchange of services, as well as the use or lease of properties, as defined in Sec. 108(A) of the Tax Code shall be subject to VAT, equivalent to twelve percent (12%) of the gross receipts (excluding VAT) starting February 1, 2006." SEAHID SECTION 10. Definitions and Specific Rules on Selected Services. Sec. 4.108-3 of RR No. 16-2005 is hereby amended to read as follows: "SEC. 4.108-3. Definitions and Specific Rules on Selected Services. xxx xxx xxx. (e) Domestic common carriers by air and sea are subject to twelve percent (12%) VAT on their gross receipts from their transport of passengers, goods or cargoes from one place in the Philippines to another place in the Philippines starting Feb. 1, 2006. (f) Sale of electricity by generation, transmission, and distribution companies shall be subject to twelve percent (12%) VAT on their gross receipts starting Feb. 1, 2006; Provided, that sale of power or fuel generated through renewable sources of energy such as, but not limited to, biomass, solar, wind, hydropower, geothermal, ocean energy, and other emerging energy sources using technologies such as fuel cells and hydrogen fuels shall be subject to 0% VAT. xxx xxx xxx. (h) Services of franchise grantees . . . . Gross receipts of all other franchisees, other than those covered by Sec. 119 of the Tax Code, regardless of how their franchises may have been granted, shall be subject to the twelve percent (12%) VAT imposed under Sec. 108 of the Tax Code starting Feb. 1, 2006. This includes among others, the Philippine and Amusement Gaming Corporation (PAGCOR), and its licensees or franchisees. xxx xxx xxx. (i) Non-life insurance companies including surety, fidelity, indemnity and bonding companies are subject to VAT. They are not liable to the payment of the premium tax under Sec. 123 of the Tax Code. 'Non-life insurance companies' including surety, fidelity, indemnity and bonding companies, shall include all individuals, partnerships, associations, or corporations, including professional reinsurers defined in Sec. 280 of PD 612, otherwise known as the Insurance Code of the Philippines, mutual benefit associations and government-owned or controlled corporations, engaging in the business of property insurance, as distinguished from insurance on human lives, health, accident and insurance appertaining thereto or connected therewith which shall be subject to the percentage tax under Sec. 123 of the Tax Code. The gross receipts from non-life insurance shall mean total premiums collected whether paid in money, notes, credits or any substitute for money. Non-life insurance premiums are subject to VAT whereas non-life reinsurance premiums are not subject to VAT, the latter being already subjected to VAT upon receipt of the insurance premiums. Insurance and reinsurance commissions, whether life of non-life, are subject to VAT. (j) Pre-need Companies . . . . xxx xxx xxx." SECTION 11. Gross Receipts. Sec. 4.108-4 of RR No. 16-2005 is hereby amended to read as follows: "SEC. 4.108-4. Definition of Gross Receipts. 'Gross receipts' refers to 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 applied as payments for services rendered and advance payments actually or constructively received during the taxable

period for the services performed or to be performed for another person, excluding the VAT, except those amounts earmarked for payment to unrelated third (3rd) party or received as reimbursement for advance payment on behalf of another which do not redound to the benefit of the payor. A payment is a payment to a third (3rd) party if the same is made to settle an obligation of another person, e.g., customer or client, to the said third party, which obligation is evidenced by the sales invoice/official receipt issued by said third party to the obligor/debtor (e.g., customer or client of the payor of the obligation). An advance payment is an advance payment on behalf of another if the same is paid to a third (3rd) party for a present or future obligation of said another party which obligation is evidenced by a sales invoice/official receipt issued by the obligee/creditor to the obligor/debtor (i.e., the aforementioned "another party") for the sale of goods or services by the former to the latter. For this purpose 'unrelated party' shall not include taxpayer's employees, partners, affiliates (parent, subsidiary and other related companies), relatives by consanguinity or affinity within the fourth (4th) civil degree, and trust fund where the taxpayer is the trustor, trustee or beneficiary, even if covered by an agreement to the contrary. aHcACT 'Constructive receipt' occurs when the money consideration or its equivalent is placed at the control of the person who rendered the service without restrictions by the payor. The following are examples of constructive receipts: (1.) deposits in banks which are made available to the seller of services without restrictions; (2.) issuance by the debtor of a notice to offset any debt or obligation and acceptance thereof by the seller as payment for services rendered; and (3.) transfer of the amounts retained by the payor to the account of the contractor." SECTION 12. Zero-Rated Sale of Services. Sec. 4.108-5(b)(4) of RR No. 16-2005 is hereby amended to read as follows: "SEC. 4.108-5. Zero-Rated Sale of Services. xxx xxx xxx. (b) Transactions Subject to Zero Percent (0%) VAT Rate. . . . (4) Services rendered to persons engaged in international shipping or air transport operations, including leases of property for use thereof; Provided, however, that the services referred to herein shall not pertain to those made to common carriers by air and sea relative to their transport of passengers, goods or cargoes from one place in the Philippines to another place in the Philippines, the same being subject to twelve percent (12%) VAT under Sec. 108 of the Tax Code starting Feb. 1, 2006; xxx xxx xxx." SECTION 13. Effectively Zero-Rated Sale of Services. Sec. 4.108-6 of RR No. 16-2005 is hereby amended to read as follows: "SEC. 4.108-6. Meaning of the term 'Effectively Zero-Rated Sale of Services'. The term 'effectively zero-rated sales of services' shall refer to the local sale of services by a VAT-registered person to a person or entity who was granted indirect tax exemption under special laws or international agreement." SECTION 14. VAT-Exempt Transactions. Sec. 4.109-1(B)(1) of RR No. 16-2005 is hereby amended to read as follows: "SEC. 4.109-1. VAT-Exempt Transactions. xxx xxx xxx. (B) Exempt transactions. Subject to the provisions of Sec. 4.109-2 hereof, the following transactions shall be exempt from VAT: xxx xxx xxx. (I) Sales by agricultural cooperatives duly registered and in good standing with the Cooperative Development Authority (CDA) to their members, as well as sale of their produce, whether in its original state or processed form, to non-members, their importation of direct farm inputs, machineries

and equipment, including spare parts thereof, to be used directly and exclusively in the production and/or processing of their produce. Sale by agricultural cooperatives to non-members can only be exempted from VAT if the producer of the agricultural products sold is the cooperative itself. If the cooperative is not the producer (e.g., trader), then only those sales to its members shall be exempted from VAT; It is to be reiterated however, that sale or importation of agricultural food products in their original state is exempt from VAT irrespective of the seller and buyer thereof, pursuant to Subsection (a) hereof. xxx xxx xxx. (p) The following sales of real properties are exempt from VAT, namely: (1) Sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or business. However, even if the real property is not primarily held for sale to customers or held for lease in the ordinary course of trade or business but the same is used in the trade or business of the seller, the sale thereof shall be subject to VAT being a transaction incidental to the taxpayer's main business. xxx xxx xxx. (q) .... The term 'residential units' shall refer to apartments and houses & lots used for residential purposes, and buildings or parts or units thereof used solely as dwelling places (e.g., dormitories, rooms and bed spaces) except motels, motel rooms, hotels, hotel rooms, lodging houses, inns and pension houses. The term 'unit' shall mean an apartment unit in the case of apartments, house in the case of residential houses; per person in the case of dormitories, boarding houses and bed spaces; and per room in case of rooms for rent. AISHcD xxx xxx xxx. (t) Importation of life-saving equipment, safety and rescue equipment and communication and navigational safety equipment, steel plates and other metal plates including marine-grade aluminum plates, used for shipping transport operations; Provided, that the exemption shall be subject to the provisions of Section 4 of Republic Act No. 9295, otherwise known as 'The Domestic Shipping Development Act of 2004'; (u) Importation of capital equipment, machinery, spare parts, life-saving and navigational equipment, steel plates and other metal plates including marine-grade aluminum plates to be used in the construction, repair, renovation or alteration of any merchant marine vessel operated or to be operated in the domestic trade. Provided, that the exemption shall be subject to the provisions of Section 19 of Republic Act No. 9295, otherwise known as The Domestic Shipping Development Act of 2004'; (v) Importation of fuel, goods and supplies by persons engaged in international shipping or air transport operations; Provided, that the said fuel, goods and supplies shall be used exclusively or shall pertain to the transport of goods and/or passenger from a port in the Philippines directly to a foreign port, or vice versa, without docking or stopping at any other port in the Philippines unless the docking or stopping at any other Philippine port is for the purpose of unloading passengers and/or cargoes that originated from abroad, or to load passengers and/or cargoes bound for abroad; Provided, further, that if any portion of such fuel, goods or supplies is used for purposes other than that mentioned in this paragraph, such portion of fuel, goods and supplies shall be subject to twelve percent (12%) VAT starting February 1, 2006; (w) Services of banks, non-bank financial intermediaries performing quasi-banking functions, and other non-bank financial intermediaries, such as money changers and pawnshops, subject to percentage tax under Secs. 121 and 122, respectively, of the Tax Code; and (x) Sale or lease of goods or properties or the performance of services other than the transactions mentioned in the preceding paragraphs, the gross annual sales and/or receipts do not exceed the amount of One Million Five Hundred Thousand Pesos (P1,500,000.00). Provided, that not later than January 31, 2009 and every three (3) years thereafter, the amount of P1,500,000.00 shall be adjusted to its

present value using the Consumer Price Index, as published by the NSO. For purposes of the threshold of P1,500,000.00, the husband and the wife shall be considered separate taxpayers. However, the aggregation rule for each taxpayer shall apply, for instance, if a professional, aside from the practice of his profession, also derives revenue from other lines of business which are otherwise subject to VAT, the same shall be combined for purposes of determining whether the threshold has been exceeded. Thus, the VAT-exempt sale shall not be included in determining the threshold." SECTION 15. VAT Registered Person may Elect that Exempt Transactions Under Sec. 4.109-1 be Registered for VAT Purposes. Sec. 4.109-2 of RR No. 16-2005 is hereby amended to read as follows: "SEC. 4.109-2. Exempt Transactions May be Registered for VAT Purposes. A VAT-registered person may, in relation to Sec. 9.236-1(c) of these Regulations, elect that the exemption in Sec. 4.1091(B) hereof shall not apply to his sales of goods or properties or services. Once the election is made, it shall be irrevocable for a period of three (3) years counted from the quarter when the election was made except for franchise grantees of radio and TV broadcasting whose annual gross receipts for the preceding year do not exceed ten million pesos (P10,000,000.00) where the option becomes perpetually irrevocable." SECTION 16. Input Tax on Depreciable Goods. Sec. 4.110-3 of RR No. 16-2005 is hereby amended to read as follows: "SEC. 4.110-3. Claim for Input Tax on Depreciable Goods. . . . (a) .... (b) If the estimated useful life of a capital good is less than five (5) years The input tax shall be spread evenly on a monthly basis by dividing the input tax by the actual number of months comprising the estimated useful life of a capital good. The claim for input tax credit shall commence in the month that the capital goods were acquired. cEAIHa Where the aggregate acquisition cost (exclusive of VAT) of the existing or finished depreciable capital goods purchased or imported during any calendar month does not exceed one million pesos (P1,000,000.00), the total input taxes will be allowable as credit against output tax in the month of acquisition. Capital goods or properties refers to goods or properties with estimated useful life greater than one (1) year and which are treated as depreciable assets under Sec. 34(F) of the Tax Code, used directly or indirectly in the production or sale of taxable goods or services. The aggregate acquisition cost of depreciable assets in any calendar month refers to the total price, excluding the VAT, agreed upon for one or more assets acquired and not on the payments actually made during the calendar month. Thus, an asset acquired on installment for an acquisition cost of more than P1,000,000.00, excluding the VAT, will be subject to the amortization of input tax despite the fact that the monthly payments/installments may not exceed P1,000,000.00. xxx xxx xxx. Construction in progress (CIP) is the cost of construction work which is not yet completed. CIP is not depreciated until the asset is placed in service. Normally, upon completion, a CIP item is reclassified and the reclassified asset is capitalized and depreciated. CIP is considered, for purposes of claiming input tax, as a purchase of service, the value of which shall be determined based on the progress billings. Until such time the construction has been completed, it will not qualify as capital goods as herein defined, in which case, input tax credit on such transaction can be recognized in the month the payment was made; Provided, that an official receipt of payment has been issued based on the progress billings. In case of contract for the sale of service where only the labor will be supplied by the contractor and the materials will be purchased by the contractee from other suppliers, input tax credit on the labor contracted shall still be recognized on the month the payment was made based on a progress billings

while input tax on the purchase of materials shall be recognized at the time the materials were purchased. Once the input tax has already been claimed while the construction is still in progress, no additional input tax can be claimed upon completion of the asset when it has been reclassified as a depreciable capital asset and depreciated." SECTION 17. Input Tax on Mixed Transactions. Sec. 4.110-4 of RR No. 16-2005 is hereby amended to read as follows: "SEC. 4.110-4. Apportionment of Input Tax on Mixed Transactions. . . . . 1. All the input taxes that can be directly attributed to transactions subject to VAT may be recognized for input tax credit; Provided, that input taxes that can be directly attributable to VAT taxable sales of goods and services to the Government or any of its political subdivisions, instrumentalities or agencies, including government-owned or controlled corporations (GOCCs) shall not be credited against output taxes arising from sales to non-Government entities. EHSADa Claims for VAT refund/Tax Credit Certificate (TCC) with the Bureau of Internal Revenue, Board of Investment, and One-Stop-Shop and Duty Drawback Center of the Dept. of Finance should be deducted from the allowable input tax that are attributable to zero-rated sales. 2. ... Illustration: ERA Corporation has the following sales during the month: Sale to private entities subject to 12% P100,000.00 Sale to private entities subject to 0% 100,000.00 Sale of exempt goods 100,000.00 Sale to gov't. subjected to 5% final VAT Withholding 100,000.00 Total Sales for the month P400,000.00 ========= The following input taxes were passed on by its VAT suppliers: Input tax on taxable goods 12% P5,000.00 Input tax on zero-rated sales 3,000.00 Input tax on sale of exempt goods 2,000.00 Input tax on sale to government 4,000.00 Input tax on depreciable capital good not attributable to any specific activity (monthly amortization for 60 months) P20,000.00 ======== A. The input tax attributable to sales to private entities subject to 12%, for the month, shall be computed as follows: Input tax directly attributable to sale subject to 12% P5,000.00 Ratable portion of the input tax not directly attributable to any activity: Taxable sales (12%) x Amount of Total Sales input tax not directly attributable to any activity P100,000.00 X P20,000.00 P5,000.00 400,000.00 Total input tax attributable to sales to private entities

for the month P10,000.00 ======== B. The input tax attributable to zero-rated sales for the month shall be computed as follows: Input tax directly attributable to zero-rated sale P 3,000.00 Ratable portion of the input tax not directly attributable to any activity: Taxable sales (0% ) x Amount of Total Sales input tax not directly attributable to any activity P100,000.00 X P20,000.00 P5,000.00 400,000.00 Total input tax attributable to zero-rated sales for the month P8,000.00 ======= C. The input tax attributable to VAT-exempt sales for the month shall be computed as follows: Input tax directly attributable to VAT-exempt sale P 2,000.00 Ratable portion of the input tax not directly attributable to any activity: VAT-exempt sales x Amount of Total Sales input tax not directly attributable to any activity P100,000.00 X P20,000.00 P5,000.00 400,000.00 Total input tax attributable to VAT-exempt sales P7,000.00 ======= D. The input tax attributable to sales to government for the month shall be computed as follows: Input tax directly attributable to sale to gov't. P 4,000.00 Ratable portion of the input tax not directly attributable to any activity: Taxable sales to government x Amount of Total Sales input tax not directly attributable to any activity P100,000.00 X P20,000.00 P5,000.00 400,000.00 Total input tax attributable to sale to gov't. P9,000.00 The table below shows a summary of the foregoing transactions of ERA Corporation: Input VAT not Creditable Excess Unrecoverable Output Input VAT directly Total Input Net VAT Input Input Input VAT directly Attributable Input VAT Payable VAT for VAT for VAT Attributable to any Activity VAT carry-over refund Sale Subject to 12% VAT 12,000 5,000 5,000 10,000 10,000 2,000 0 0 0

Sale Subject to 0% VAT 0 3,000 5,000 8,000 8,000 0 0 8,000 0 Sale of Exempt Goods 0 2,000 5,000 7,000 0 0 0 0 7,000* Sale to Government subject to 5% Final withholding VAT 12,000 4,000 5,000 9,000 7,000** 5,000*** 0 0 2,000* * These amounts are not available for input tax credit but may be recognized as cost or expense. ** Standard input VAT of 7% on sales to Government as provided in SEC. 4.114-2(a). *** Withheld by Government entity as Final Withholding VAT. xxx xxx xxx." SECTION 18. Determination of the Output Tax and VAT Payable and Computation of VAT Payable or Excess Tax Credits. Sec. 4.110-6 of RR No. 16-2005 is hereby amended to read as follows: "SEC. 4.110-6. Determination of the Output Tax and VAT Payable and Computation of VAT Payable or Excess Tax Credits. . . . There shall be allowed as a deduction from the output tax the amount of input tax deductible as determined under Sec. 4.110-1 to 4.110-5 of these Regulations to arrive at VAT payable on the monthly declaration and the quarterly VAT returns." HICSaD SECTION 19. VAT Payable (Excess Output) or Excess Input Tax. Sec. 4.110-7 of RR No. 16-2005, as last amended by RR No. 2-2007, is hereby further amended to read as follows: "SEC. 4.110-7. VAT Payable (Excess Output) or Excess Input Tax. xxx xxx xxx. (b.) If the input tax inclusive of input tax carried over from the previous quarter exceeds the output tax, the excess input tax shall be carried over to the succeeding quarter or quarters; Provided, however, that any input tax attributable to zero-rated sales by a VAT-registered person may at his option be refunded or applied for a tax credit certificate which may be used in the payment of internal revenue taxes, subject to the limitations as may be provided for by law, as well as, other implementing rules. Illustration: For a given taxable quarter, XYZ Corporation has output VAT of 100 and input VAT of 110. Since input tax exceeds the output tax for such taxable quarter, there is an excess input tax at the end of the quarter of 10 which may be carried over to the next quarter or quarters." SECTION 20. Invoicing and Recording Deemed Sale Transactions. Sec. 4.113-2 of RR No. 16-2005 is hereby amended to read as follows: "SEC. 4.113-2. Invoicing and Recording Deemed Sale Transactions. xxx xxx xxx. Example: "A" at the time of retirement, had 1,000 pieces of merchandise which was deemed sold at a value of P20,000.00 with an output tax of P2,000.00. After retirement, "A" sold to "B", 500 pieces for P12,000.00. In the contract of sale or invoice, "A" should state the sales invoice number wherein the output tax on "deemed sale" was imposed and the corresponding tax paid on the 500 pieces is P1,000.00, which is included in the P12,000.00, or he should indicate it separately as follows: Gross selling price P11,000.00 VAT previously paid on "deemed sale" 1,000.00 Total P12,000.00 In this case, "B" shall be entitled only to P1,000 as input tax and not 12/112 x 12,000." DAETHc SECTION 21. Filing of Return and Payment of VAT. SEC. 4.114-1 is hereby amended to read as follows: "SEC. 4.114-1. Filing of Return and Payment of VAT. (A) Filing of Return. . . . .

xxx xxx xxx. (B) Payment of VAT I. Advance Payment. . . . . 1. Sale of Refined Sugar (a) .... (b) .... (c) Basis for Determining the Amount of Advance VAT Payment. i. Base Price. The amount of advance VAT payment shall be determined by applying VAT rate of 12% on the applicable base price of P850.00 per 50 kg. bag for refined sugar produced by a sugar refinery, and P760.00 per 50 kg. bag for refined sugar produced by a sugar mill. ii. Subsequent Base Price Adjustments. xxx xxx xxx. (d) .... (e) .... (f) .... 2. Sale of Flour (a) .... (b) .... (c) .... (d) Basis of Determining the Amount of Advance VAT Payment. i. Determination of advance VAT. The amount of advance VAT payment shall be determined by applying VAT rate of 12% on the tax base. ii. Tax Base. . . . . iii. Subsequent tax base adjustments. . . . . (e) .... (f) .... (C) .... (D) . . . ." SECTION 22. Withholding of VAT. Sec. 4.114-2 of RR No. 16-2005 is hereby amended to read as follows: "SEC. 4.114-2. Withholding of VAT on Government Money Payments and Payments to NonResidents. (a) The government or any of its political subdivisions, instrumentalities or agencies including government-owned or controlled corporations (GOCCs) shall, before making payment on account of each purchase of goods and/or of services taxed at twelve percent (12%) VAT pursuant to Secs. 106 and 108 of the Tax Code, deduct and withhold a final VAT due at the rate of five percent (5%) of the gross payment thereof. aIcDCH The five percent (5%) final VAT withholding rate shall represent the net VAT payable of the seller. The remaining seven percent (7%) effectively accounts for the standard input VAT for sales of goods or services to government or any of its political subdivisions, instrumentalities or agencies including GOCCs in lieu of the actual input VAT directly attributable or ratably apportioned to such sales. Should actual input VAT attributable to sale to government exceeds seven percent (7%) of gross payments, the excess may form part of the sellers' expense or cost. On the other hand, if actual input VAT attributable to sale to government is less than seven percent (7%) of gross payment, the difference must be closed to expense or cost. (b) The government or any of its political subdivisions, instrumentalities or agencies including GOCCs, as well as private corporation, individuals, estates and trusts, whether large or non-large taxpayers, shall withhold twelve percent (12%) VAT, starting February 1, 2006, with respect to the following payments:

(1) Lease or use of properties or property rights owned by non-residents; and (2) Other services rendered in the Philippines by non-residents. xxx xxx xxx." SECTION 23. Issuance of Tax Credit Certificates for Unutilized Advance VAT Payments. Sec. 8.229-1 is hereby added to the provisions of RR 16-2005, to read as follows: "SEC. 8.229-1. Issuance of Tax Credit Certificate for Unutilized Advance VAT Payments. The advance payments made by the seller/owner of refined sugar and importer/miller of wheat/flour shall be allowed as credit against their output tax on the actual gross selling price of refined sugar/flour. However, advance payments which remains unutilized at the end of taxpayer's taxable year where the advance payment was made, which is tantamount to excess payment, may, at the option of the owner/seller/taxpayer or importer/miller/taxpayer, be available for the issuance of TCC upon application duly filed with the BIR by the seller/owner or importer/miller within two (2) years from the date of filing of the 4th quarter VAT return of the year such advance payments were made, or if filed out of time, from the last day prescribed by law for filing the return. CDcaSA Advance VAT payments which have been the subject of an application for the issuance of TCC shall not be allowed as carry-over nor credited against the output tax of the succeeding quarter/year. Advanced VAT payments which remained unutilized for more than one (1) year prior to the effectivity of these regulations may, at the option of the seller/owner of the refined sugar or importer/miller of wheat/flour, be the subject of application for TCC to be filed within two (2) years from the date of filing of the last quarterly VAT return where the unutilized advance VAT payments appeared, or if filed out of time, from the last day prescribed by law for filing the return. Issuance of TCC shall be limited to the unutilized advance VAT payment and shall not include excess input tax. Issuance of TCC for input tax attributable to zero-rated sales shall be covered by a separate application for TCC following applicable rules." SECTION 24. Registration. Sec. 9.236-1(b) and (c) of RR No. 16-2005 is hereby amended to read as follows: "SEC. 9.236-1. Registration of VAT Taxpayers. xxx xxx xxx. (b) Mandatory: xxx xxx xxx. Moreover, franchise grantees of radio and television broadcasting, whose gross annual receipt for the preceding taxable year exceeded P10,000,000.00 shall register within thirty (30) days from the end of the taxable year. (c) Optional VAT Registration: xxx xxx xxx. The above-stated taxpayers may apply for VAT registration not later than ten (10) days before the beginning of the taxable quarter and shall pay the registration fee prescribed under sub-paragraph (a) of this Section, unless they have already paid at the beginning of the year. In any case, the Commissioner of Internal Revenue may, for administrative reason deny any application for registration. Once registered as VAT person, the taxpayer shall be liable to output tax and be entitled to input tax credit beginning on the first day of the month following registration." SECTION 25. Registration of Non-VAT or Exempt Taxpayer. Sec. 9.236-2 of RR No. 16-2005 is hereby amended to read as follows: "SEC. 9.236-2. Registration of Non-VAT or Exempt Taxpayer. . . . . 5) Radio and TV broadcasting whose gross annual receipts do not exceed ten million pesos (P10,000,000) and which do not opt to be VAT registered; 6.) PEZA and other ecozone registered enterprises enjoying the preferential tax rate of 5% in lieu of all taxes; 7.) SBMA and other free port zone-registered enterprises enjoying the preferential tax rate of 5% in

lieu of all taxes." SECTION 26. Repealing Clause. The provisions of RR 16-2005 and all other issuances inconsistent herewith are hereby repealed, modified or amended accordingly. EIaDHS SECTION 27. Effectivity. These Regulations shall take effect after fifteen (15) days following its publication in any newspaper of general circulation or in the Official Gazette. TIaDHE (SGD.) MARGARITO B. TEVES Secretary Department of Finance Recommending Approval: (SGD.) JOSE MARIO C. BUAG Commissioner of Internal Revenue Copyright 2007 CD Technologi es Asia Inc

03-06-2007 Revenue Regulations No. 05-07 March 6, 2007 REVENUE REGULATIONS NO. 05-07 SUBJECT : Prescribing the Guidelines and Conditions for the Tax Treatment of Securities Borrowing and Lending (SBL) or Securities Lending Transactions (SLTs) Involving the Fixed-Income Securities Lending Program of the Philippine Dealing & Exchange Corp. (PDEx) TO : All Internal Revenue Officers and Others Concerned SECTION 1. Scope. Pursuant to the provisions of Sections 244 and 245 of the Tax Code of 1997 (Tax Code) and Section 9 (C) of Republic Act (RA) No. 9243, these Regulations are hereby promulgated to prescribe the guidelines and conditions for the tax treatment of Securities Borrowing and Lending (SBL) transactions under the Securities Lending Transactions (SLT) Program of the Philippine Dealing & Exchange Corp. (PDEx). DAESTI Specifically, for purposes of these Regulations, SBL/SLTs shall be limited to borrowing and lending of securities under the Fixed-Income Securities Lending Program of PDEx as identified in Section 3 (f) hereof, unless declared to be ineligible by the Securities and Exchange Commission (SEC) for borrowing and lending under the said SLT Program. aSACED SBL or SLT of securities administered by other Exchanges other than PDEx, though duly registered with the SEC, shall be covered by separate Regulations. SECTION 2. Concept of Securities Borrowing and Lending (SBL). Securities Borrowing and Lending (SBL) or Securities Lending Transactions (SLTs) is an important element in securities trading and capital market development among emerging markets. It is a vital facility behind the efficient trading settlements and growth of derivatives and options market. SBL/SLTs under these Regulations involve the lending of fixed income debt securities as identified in Section 3 (f) hereof, ("Lent/Borrowed Securities") by the Lender, who owns or controls them, to the Borrower who is driven by its needs to source specific securities to cover "short" or "oversold" securities positions from market-making activities, deliberate strategic positions or to prevent securities settlement failures, in exchange for collateral and the promise to return the equivalent securities on or before the end of the Borrowing Period. For the duration of the SBL/SLT, the Lender temporarily transfers title over the securities lent but retains a contractual right to receive all benefits accruing to the securities. The objective is to put the Lender in the same economic position as the Lender would have, had the securities not been lent. This means that in case of corporate actions, such as coupon payments paid by the Issuer to the Borrower on the Lent/Borrowed Securities during the duration of the SBL/SLT, and other benefits accruing in the same period, the Borrower is contractually required to pass on the same to the Lender, thereby putting the Lender in the same economic position as if the Lent/Borrowed Securities "never left his hands". In

exchange for such securities, the Borrower shall deliver the collateral in the manner prescribed in the Program Rules of PDEx to secure the return of the Lent/Borrowed Securities according to the tenor of the SBL/SLT. On or before the end of the Borrowing Period, the Borrower is obligated to return equivalent securities and the Lender, in turn, returns the collateral put up by the Borrower. In effect, an SBL/SLT is similar to a simple collateralized cash loan transaction. However, instead of cash, what is borrowed are securities and what is provided as collateral is either cash, government or equity securities, or a guaranteed letter of credit or such assets as are admitted under these Regulations as eligible collateral. SECTION 3. Definition of Terms. a. Borrowing Period The period agreed upon by the parties during which an SBL/SLT should be outstanding, which period, however, shall in no case exceed one (1) year from the date of execution of the SLT Confirmation Notice allowed under the Fixed-Income Securities Lending Program of PDEx. At the end of this period, the Borrower must return to the Lender the equivalent securities borrowed, and the Lender must return the Borrower's Collateral. b. Collateral Assets delivered to the Lending Pool System Operator, which shall hold the same in recognition of the Lender's security interest therein until the loan is repaid, as prescribed under the Fixed-Income Securities Lending Program of PDEx. The following are the only types of Collateral that may be delivered into the Collateral Management System under the said Program: 1. Fixed-Income Instruments (PhP-Denominated) i. Securities issued by the Republic of the Philippines Bureau of Treasury; ii. Securities issued by the Bangko Sentral ng Pilipinas (BSP); iii. Securities issued by Municipal or Local Government Units of the Republic of the Philippines and as listed in PDEx; and iv. Private Corporate Debt Securities listed in PDEx. 2. Fixed-Income Instruments (USD-Denominated) i. Securities issued by the Republic of the Philippines (RoP Debt); and ii. Private Corporate Debt Securities listed in PDEx. 3. Equity Instruments (Php-Denominated) Equities listed as components of the Philippine Stock Exchange Composite Index (PHISIX) 4. Cash c. Confirmation Notice A notice in the format prescribed by PDEx but pre-cleared with the BIR which is issued and sent by the Lending Pool System Operator to the Lender and the Borrower to indicate the details of the SBL/SLT including, but not limited to, the type of securities borrowed and the terms of borrowing. AaEDcS d. Equivalent Securities Securities recognized in the Registry of Scripless Securities and/or listed in the Exchange as the equivalent of the Lent Securities, in such amount as is required under the said Program or securities with the same International Securities Identification Number (ISIN) and same tax treatment as the Lent/Borrowed Security. e. Exchange An entity that provides a venue for the dealing/exchange of fixed-income securities and is duly authorized by the SEC to engage in such activity. For purposes of these Regulations, the term shall only refer to the Philippine Dealing & Exchange Corp. (PDEx). f. Fixed-Income Securities Types of debt securities that are acceptable to the Lending Pool System for lending under the Fixed-Income Securities Lending Program of PDEx, which shall refer only to the following 1. Fixed-Income Instruments (Php-Denominated): i. Securities issued by the Republic of the Philippines Bureau of Treasury; ii. Securities issued by the Bangko Sentral ng Pilipinas (BSP); iii. Securities issued by Municipal or Local Government Units of the Republic of the Philippines

and listed in PDEx; iv. Private Corporate Debt Securities listed in PDEx. 2. Fixed-Income Instruments (USD-denominated): i. Securities issued by the Republic of the Philippines (RoP Debt); ii. Private Corporate Debt Securities listed in PDEx. g. Lender/Lending Agent Any person or entity that lends securities from its pool of assets as principal or from the assets of its client/s in case of a Lending Agent. h. Failed Settlement In the context of regular sales of securities, failed settlement means the failure of the seller to deliver to the buyer the securities subject of the transaction within the required period for settlement. i. Manufactured Income/Substitute Payment Otherwise referred to as "Pass-through Payment", shall consist of both or any one of the following: 1) interest income or coupon payment received from the Lent/Borrowed Securities arising from corporate action of the Issuer thereof; or 2) interest income that has accrued and received by the Borrower from its sale of the Lent/Borrowed Securities which the Borrower is obliged to pass on to the Lender during the life of the SBL/SLT, in accordance with the terms of the agreement. CcaASE j. Mark-to-Market The practice of periodically re-valuing the securities on loan against the value of the Collateral based on the valuation methodology agreed upon by the Borrower and the Lender under the Fixed-Income Securities Lending Program of PDEx. k. Master Securities Lending Agreement (MSLA) A written contract between the Borrower and the Lender (or the Lending Agent) embodying the general terms and conditions for the conduct of SBL/SLT transactions under the Fixed-Income Exchange Program of PDEx. l. Participation Agreement An agreement which signifies a party's undertaking and willingness to be bound by the Program Rules of PDEx and the MSLA, as a Borrower, Lender and Lending Agent, or both as applicable. m. Securities Return The obligation of the Borrower to return the equivalent of the Lent/Borrowed Securities on or before the expiration of the Borrowing Period, in accordance with the requirements provided under the Fixed-Income Securities Lending Program of PDEx. n. Short Sale or Short Selling Any sale of Lent/Borrowed Securities not yet in the possession of the seller. SECTION 4. Parties to an SBL/SLT. The parties to an SBL/SLT are as follows: a. Borrower is a duly admitted Trading Participant of PDEx that is qualified in accordance with the latter's Fixed-Income Securities Lending Program who obtains securities from a Lender's portfolio under a Master Securities Lending Agreement (MSLA) strictly for any of the purposes specified under Section 6 (f) hereof and within the purposes of such Program. b. Lender is any institution qualified by PDEx under its Fixed-Income Securities Lending Program, who lends securities from his/its pool of assets or the assets of his/its clients (in the case of Lending Agents). A foreign lender is required to deal through a Lending Agent for the purpose of these Regulations. c. Lending Agent. is an institution accredited by the BSP or the SEC and qualified by PDEx that lends securities from the assets of its clients for SBL/SLTs under the Fixed-Income Securities Lending Program of PDEx. d. Lending Pool System Operator refers to the Philippine Depository and Trust Corporation (PDTC), the entity accredited by PDEx which is capable of operating a Lending Pool System and which accepts all securities intended for transactions under its Fixed-Income Securities Lending Program and delivers the same to Borrowers upon execution of an SBL/SLT. The Lending Pool System Operator shall have such other functions as are defined under such Program. e. Collateral Management System Operator refers to PDTC, the entity also accredited by PDEx which is capable of operating a Collateral Management System and which accepts all assets intended as

collateral for transactions under its Fixed-Income Securities Lending Program, and holds the same for the benefit of Lenders during the Borrowing Period. DSEIcT SECTION 5. Tax Treatment of an SBL/SLT under these Regulations. a. For purposes of these Regulations, the borrowing and lending of securities under a FixedIncome Securities Lending Program of PDEx shall not be subject to the documentary stamp tax under Section 175 of the Tax Code, as amended by RA 9243. Likewise, the delivery to, and return by, the Lender of the Collateral in respect thereof shall not be subject to DST, capital gains or income tax, and other taxes, if otherwise applicable; Provided that, (a) a valid MSLA is executed by the parties and registered with and approved by the BIR; (b) the SBL/SLT involving the Fixed-Income Securities Lending Program of PDEX are in accordance with the rules and regulations of the SEC; (c) the Program is administered, supervised by PDEx; and (d) the terms and conditions of these Regulations and the subsequent issuance/s to be issued to implement these Regulations are complied with. b. The SBL/SLTs under a Fixed-Income Securities Lending Program of PDEx should not fall within the classification of "deposit substitutes" under Section 2 (g) of Revenue Regulations (Rev. Regs.) No. 12-80, as amended by Rev. Regs. 8-81, Rev. Regs. 17-84 and Rev. Regs. 3-97, except as otherwise provided in these Revenue Regulations. Furthermore, an SBL/SLT shall also not involve any regular banking unit transactions, such as cash loans, the income of which are subject to the appropriate taxes imposed under the Tax Code of 1997, as amended. However, it is understood that an SBL/SLT conducted under a Fixed-Income Securities Lending Program of PDEx shall be treated as a deposit substitute transaction or a "sale transaction" and shall be subject to the applicable taxes on the transaction as prescribed by law, if the terms and conditions of these Regulations and the subsequent issuance/s to be issued to implement these Regulations are not strictly complied with. c. Taxes on the Manufactured Income shall be as follows: 1. General Tax Treatment for Manufactured Income The receipt of Manufactured Income by the Lender from the Borrower shall only be subject to the applicable taxes on the interest income or coupon payment or other benefits paid by the issuer and accruing thereon during the Borrowing Period of the Lent/Borrowed Securities as prescribed by law. 2. Manufactured Income Arising from Accrued Interest Income of Lent/Borrowed Securities received from sale of such Securities and from Corporate Action of the Issuer received by the Borrower. Payment of the Manufactured Income to the Lender derived by the Borrower from the sale of the Lent/Borrowed Securities or from a coupon payment by the Issuer of such Securities shall not be treated as a tax-deductible expense. d. The receipt of interest income by the Borrower accruing on the Collateral shall be subject to withholding tax under Section 57 of the Tax Code of 1997, as amended. SECTION 6. Master Securities Lending Agreement; Basic Requirements. Prior to any borrowing of debt securities as identified in Section 3(f) hereof by the Borrower and negotiating the terms of an SBL/SLT, the parties must have entered into an MSLA through execution of their respective Participation Agreements. A valid MSLA shall contain the following features: a. Entitlement of Lender to All Income on Lent/Borrowed Securities While there is transfer of title of the Lent/Borrowed Securities to the Borrower, the Lender continues to retain all the rights accruing thereto, such as the right to receive interest income, which the Borrower is obliged to pass on to the Lender. b. Entitlement of Borrower to All Income on Collateral While there is transfer of title over the Collateral to the Lender, the Borrower continues to retain ownership and all the rights accruing to the Collateral, such as the right to receive interest income or cash stock/dividends which the Lender is obliged to pass on to the Borrower. c. Collateral Requirement There is no consideration involved unlike a regular buy and sell transaction. Instead, the Borrower merely puts up Collateral as identified in Section 3 (b) to guarantee

his obligations under and in accordance with the MSLA. As it is in the nature of securities to fluctuate in value, the Lent/Borrowed Securities and the Collateral shall be valued periodically using a valuation methodology agreed upon by the parties in the MSLA. Any excess in the Collateral required may be released to the Borrower. Any shortfall shall be replenished by the Borrower, in accordance with the terms of the MSLA. ECTIHa d. Borrowing Period The period agreed upon by the parties and in accordance with the FixedIncome Securities Lending Program of PDEx during which the specific SBL/SLT transaction under the MSLA is made effective and upon the termination of which, the specific SBL/SLT transaction is likewise ended. However, this period shall in no case exceed one (1) year from the date of execution of SLT Confirmation Notice. e. Return of Borrowed Securities and Collateral On or before the expiration of the Borrowing Period, the Borrower is bound to return the equivalent of the Lent/Borrowed Securities, in accordance with the requirements provided under the Fixed-Income Securities Lending Program of PDEx. Concomitantly, the Lender is required to return or cause the return of the Collateral. f. Specified Purpose(s) The purpose or purposes for which the securities will be used are specified in and accordingly limited by the MSLA, which must be any of the following: 1. Settlement of sale of Philippine securities effected in the Philippines. Securities may be borrowed to avoid failure to deliver for the settlement of a sale. This happens when the seller cannot deliver what he owns on time (failed settlement) and therefore, would need to borrow in order to fulfill his settlement obligations. 2. Settlement of a future sale whether agreed or not at the time the borrowing is effected. Securities may be borrowed in advance of a sale if it is anticipated that the borrowed securities will be required for settlement of the said future sale such as in a short sale. 3. Replacement in whole or in part of securities obtained by the Borrower under another SBL/SLT agreement. Where an early return of Lent Securities is required under the Fixed-Income Securities Lending Program of PDEx, a Borrower without sufficient quantity on hand of the securities can borrow additional securities from a third party to repay the Lender. The replacement borrowing may be for the whole, or part only, of the previously borrowed securities in accordance with the Fixed-Income Securities Lending Program. A condition applying to such an arrangement is that the initial borrowing must itself be an SBL/SLT within the meaning of these Regulations. HEaCcD 4. On-lending of borrowed securities to another Borrower who has effected another SBL/SLT agreement. This occurs when an SBL/SLT is made by an Agent for on-lending to another Borrower who also effects an SBL/SLT, where such an arrangement is authorized under the Fixed-Income Securities Lending Program of PDEx. However, the subsequent Borrower must use the Borrowed securities for any of the Specified Purpose specified herein. Because of the practical difficulties an intermediary could face in determining how the subsequent Borrower had used the securities, the BIR shall look at an intermediary's borrowings and on-lendings separately. Thus, provided an intermediary borrows for the purpose of on-lending, his borrowing transaction will qualify under a conditional taxfree status. Furthermore, as securities carrying the same rights are fungible, it is not necessary to match each of an intermediary's SBL/SLT with each of his on-lendings on a case-by-case basis. 5. Other Authorized Specified Purposes. Other purposes similar or analogous to the foregoing, or consistent with the objectives of the SBL/SLT program as may be determined by the BIR upon favorable recommendation of PDEx. The MSLA shall be valid for as long as the same shall not have been revoked, superceded, or otherwise terminated in effect by the act of the Exchange; and Provided further, that the MSLA shall in no case be construed to be coterminous with any SBL/SLT and/or Participation Agreement. SECTION 7. Guidelines in the Execution of the MSLA. a. The Borrower must obtain the securities for one or more of the Specified Purposes as defined in Section 6 (f) of these Regulations. In this regard, the MSLA may refer to the Specified Purposes within

the meaning of these Regulations. However, an MSLA which permits securities to be borrowed for some other purposes not defined or authorized by these Regulations shall not qualify as a valid MSLA. ScHAIT b. A single MSLA may provide for the borrowing and lending of more than one type of securities and shall cover all securities borrowing and lending transaction of the participant under the FixedIncome Securities Lending Program of PDEx. However, only securities, the sale and purchase of which are subject to the rules of PDEx, are eligible for SBL/SLT transactions under such Program. Securities not listed in and/or traded through PDEx are not eligible for SBL/SLT transactions. Except to the extent provided for under the Fixed-Income Securities Lending Program, securities not listed and/or traded through PDEx do not fall within the scope of these Regulations. c. The Exchange shall register the MSLA with the Bureau of Internal Revenue (BIR). The Participation Agreement under the SBL/SLT Program shall be individually registered by each Participant with the BIR upon execution thereof and prior to the first SBL/SLT transaction under the Participation Agreement, with payment of applicable fees thereon. The Participation Agreement signifies the enrollment of the Participant under the Fixed-Income Securities Lending Program of PDEx and its agreement to abide and be bound by the MSLA and the said Fixed-Income Securities Lending Program. SECTION 8. Registration of the MSLA and Participation Agreements. The following guidelines shall govern the registration of the MSLA and Participation Agreements: a. Requirements. Prior to entering into an SBL/SLT under a Fixed-Income Securities Lending Program of PDEx, 1. PDEx must provide the BIR with the following: a. Three certified true copies of its MSLA; b. A specimen of the Participation Agreement; and c. The MSLA shall be registered initially prior to operation of the Fixed-Income Securities Lending Program of PDEx and for every amendment thereafter. aDACcH 2. The Borrower and Lender must provide the BIR with the following: a. Duly executed Participation Agreement with the conformity of the Exchange; b. The prescribed registration fee of Php 5,000.00 for every Participation Agreement on a per capacity basis. Thus, a participant who undertakes to be a Borrower shall register the Agreement and pay the prescribed fee thereon. Should the same party desire to participate as a Lender, such undertaking shall be covered by a separate Participation Agreement which requires compliance with the registration requirements as stated herein; and c. Other documents and information that the BIR may require. The Borrower's and Lender's copy of the Participation Agreement endorsed with a registration number and duly stamped to acknowledge payment of registration fee, will be returned to the Borrower and Lender endorsed with the approval or denial of the BIR, as the case may be, within ten (10) working days from receipt thereof The Participation Agreement shall not bind PDEx until the Participant shall have submitted the BIR-registered Participation Agreement with PDEx, in such form as the latter shall prescribe. b. Place and Time of Registration. The MSLA and the Participation Agreement shall be registered at the Law Division of the BIR National Office or in such other office which the Commissioner of Internal Revenue may hereafter direct upon filing of Registration Form and payment of the registration fee for the Participation Agreement with the General Services Division at the BIR National Office. Registration of the duly accomplished Participation Agreement should be made within two (2) weeks if executed in the Philippines and within one (1) month if executed outside the Philippines before an SBL/SLT can be effected. The Participation Agreement shall remain in full force and effect until the same is revoked in accordance with the Program Rules; Provided however, that registration fees due thereon shall be paid every year by the Borrower and/or Lender as the case may be; Provided further,

that any interruption/changes in the Participation Agreement shall be subject to registration and payment of fees. caADIC c. Approval of MSLA and Participation Agreement. Only SBL/SLTs under an MSLA and Participation Agreement duly registered and approved by the BIR pursuant to these Regulations shall be entitled to the tax treatment provided under Section 5 of these Regulations. d. Failure to Register. Failure to register the MSLA and/or Participation Agreement will make the SBL/SLT transaction and the Collateral provided either a sale and purchase transaction or a deposit substitute and therefore subject to the applicable taxes on the type of transaction imposed under the Tax Code of 1997, as amended. e. Duty of the BIR. It shall be the duty of the Law Division of the BIR National Office to determine whether or not the registered MSLA and Participation Agreement conforms with the requirements herein imposed, to recommend to the Commissioner of Internal Revenue the approval or denial of the MSLA and Participation Agreement registration, to monitor compliance of the parties with the conditions herein prescribed, and to recommend, where proper, assessment of the taxes against the parties found to have entered into an SBL/SLT transaction in violation of these Regulations. SECTION 9. SBL/SLT Deemed as a Deposit Substitute. An SBL/SLT is deemed as a "Deposit Substitute", when any of the following circumstances is present: a. The borrowed securities, or part of it, have been used other than for any of the Specified Purpose in these Regulations; b. The Borrower or Lender fails to comply with the essential features of a valid MSLA; c. The Participation Agreement/s relied upon by the party/ies to the transaction is/are not registered with the BIR. d. The transaction itself involves regular banking unit transactions that are subject to the appropriate taxes under the Tax Code of 1997, as amended. DHIcET The SBL/SLT transaction deemed as deposit substitute shall be subject to the applicable taxes on a deposit substitute imposed under Sections 24(B)(1), 25(A)(2), 25(B), 27(D)(1), 28(A)(7)(a) and 28(B) (1) of the Tax Code of 1997, as amended and to other taxes, if otherwise applicable. SECTION 10. SBL/SLT Deemed as Sale. An SBL/SLT is deemed as sale and purchase of the borrowed securities, and the Collateral as well, when any of the following circumstances is present: a. There is no return of the Lent Securities or Collateral at the end of the Borrowing Period; b. Any actual sale of debt securities subject of the SBL/SLT such as a short sale; c. The Borrower or Lender fails to comply with the essential features of a valid MSLA; d. The parties to the transaction are not registered as a securities lender and/or borrower with the BIR as evidenced by their respective Participation Agreements; The SBL/SLT deemed as a sale shall be subject to the applicable taxes on the sale and purchase of securities imposed under Sections 24(C), 25(B), 27(A), and 28(B) of the Tax Code of 1997, as amended and to other taxes, if otherwise applicable. SECTION 11. Compliance Requirements. a. Record Keeping and Reporting The Borrower and the Lender who have entered into an SBL/SLT transaction are required to: 1. Keep SBL/SLT ledgers and other books of account in the form prescribed by the Commissioner of Internal Revenue; 2. Enter required particulars of SBL/SLT transactions and Securities Returns into that ledger; 3. Provide the BIR with reports of SBL/SLT transactions and the accompanying Confirmation Notices and Securities Returns; and 4. Prepare and keep an SBL/SLT Report for each specific SBL/SLT. The BIR may require submission of information from PDEx, PDTC and/or any third-party service provider or collateral management system operator to validate the report of the Borrower and Lender or for such other purpose/s as it may deem necessary to monitor SBL/SLTs under these Regulations.

b. Recording Format The SBL/SLT ledgers shall be kept in a written form or electronic form where the relevant information can be supplied in a legible hard copy format. The ledger with respect to each SBL/SLT transaction and related Securities Return should be in a format prescribed by the BIR which shall be subsequently covered by another BIR issuance. cTIESD c. Filing of Bi-Annual Summary Report of Outstanding SBL/SLT Transactions and Securities Returns. A bi-annual summary report of outstanding SBL/SLTs and Securities Returns, in the format prescribed by the BIR, must be prepared by PDTC every six months and filed with the Law Division of the BIR National Office within one (1) month after the end of the covered period. d. Filing of Annual Reports of Liquidated SBL/SLT Transactions. In addition to the bi-annual summary report, a report of all liquidated SBL/SLTs as of December 31 of each year must be prepared in the format prescribed by the BIR and likewise filed by PDTC with the Law Division of the BIR National Office within one month after such date. SECTION 12. Penalties. In the event that the appropriate taxes and/or tax returns are not paid and/or filed by the taxpayer concerned in the SBL/SLT, such taxpayer will be subject to the penalties provided under this Section. These penalties will attach irrespective of whether or not the transaction involving the Lent/Borrowed Securities qualifies as an SBL/SLT or not. In addition to the civil and criminal liabilities of the taxpayer for violation of the provision of Sec. 127 (A) and Sec. 175 of the Tax Code of 1997, the following administrative penalties incident to the delinquency or deficiency prescribed under Secs. 248 and 249 of the same Code shall be imposed which shall be collected at the same time, in the same manner and as part of the tax. a. Surcharges 1. 25% surcharge In case of any failure to make and file a return and pay the tax due thereon as required by these Regulations on the date prescribed; or unless otherwise authorized by the Commissioner of Internal Revenue, filing a return with an internal revenue officer other than those with whom the return is required to be filed; or failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment; or failure to pay the full or part of the amount of tax shown on any return required to be filed under the provisions of the Tax Code or of these Regulations, or full amount of the tax due for which no return is required to be filed on or before the date prescribed for its payment, there shall be imposed, in addition to the tax required to be paid, a surcharge equivalent to twenty-five percent (25%) of the amount due. cDTSHE 2. 50% surcharge In case of willful neglect to file the return and/or to pay the tax due within the period prescribed by the Tax Code or these Regulations, or in case a false or fraudulent return is willfully made, the penalty to be imposed shall be fifty percent (50%) of the tax or of the deficiency tax, in case any payment has been made on the basis of such return before the discovery of the falsity or fraud. b. Interest There shall be assessed and collected on any unpaid amount of tax, interest at the rate of twenty percent (20%) per annum, or such higher rate as may be prescribed by the rules and regulations, from the date prescribed for its payment until the full payment hereof. 1. Deficiency interest Any deficiency in the tax due shall be subjected to interest at the rate of twenty percent (20%), which interest shall be assessed and collected from the date prescribed for its payment until the full payment thereof. 2. Delinquency interest In case of failure to pay the amount of the tax due on the return required to be filed, or a deficiency tax, or any surcharge or interest thereon on the due date appearing in the notice and demand of the Commissioner of Internal Revenue, there shall be assessed and collected on the unpaid amount, interest at the rate of the twenty percent (20%) per annum until the amount is fully paid, which interest shall form part of the tax. c. Failure to File Certain Information Returns In case of each failure to file an information return, statement or list, or keep any record, or supply any information required by these Regulations

on the date prescribed therefore, unless it is shown that such failure is due to reasonable cause and not to willful neglect, there shall upon notice and demand by the Commissioner of Internal Revenue, be paid by the person failing to file, keep or supply the same, One Thousand Pesos (Php 1,000) for each such failure: Provided, however, that the aggregate amount to be imposed for all such failures during a calendar year shall not exceed Twenty Five Thousand Pesos (Php 25,000). ADCTac SECTION 13. Effectivity. These Regulations shall take effect after fifteen (15) days from publication in the Official Gazette or in any newspaper of general circulation. ADCEaH (SGD.) MARGARITO B. TEVES Secretary of Finance Recommending Approval: (SGD.) JOSE MARIO C. BUAG Commissioner of Internal Revenue Copyright 2007 CD Technologi es Asia Inc

03-21-2007 Revenue Regulations No. 06-07 March 21, 2007 REVENUE REGULATIONS NO. 06-07 SUBJECT : Consolidated Regulations on Advance Value Added Tax on the Sale of Refined Sugar, Amending and/or Revoking All Revenue Issuances Issued to this Effect, and for Other Related Purposes TO : All Internal Revenue Officers and Others Concerned SECTION 1. Scope. Pursuant to the provisions of Sections 6 and 244, in relation to Sections 106, 109, 110, and 111(B)(1) all of the National Internal Revenue Code of 1977 (Code), as last amended by Republic Act No. 9337, in relation to Executive Order No. 18 dated May 28, 1986 ("Creating A Sugar Regulatory Administration"), Sugar Order No. 1 issued every crop year to allocate the volume of and classifying the cane sugar produced each production year, and Sugar Order No. 4, as amended by Sugar Order No. 4-A, Series of 2006-2007 (Conversion of "C" or Reserve Sugar into "D" or World Market Sugar and the Revised Sugar Classification and Percentage Allocation), these regulations are hereby promulgated (a) to prescribe the updated policies and procedures for the advance payment of value added tax (VAT) on the sale of refined sugar, including those made by a duly accredited and registered agricultural cooperative of good standing, (b) to prescribe policies and procedures for the classification of sugar and sugar products, (c) to provide for the monitoring system for the processing of raw sugar into refined sugar intended for the World Market ("D" sugar) or classified as "E" sugar or "A" sugar and the withdrawal thereof from the sugar refineries/mills, (d) to provide for the tax treatment of the raw sugar processed into refined sugar intended for the World Market ("D" sugar) or classified as "E" sugar or "A" sugar, and (e) for other related purposes. THIECD SECTION 2. Definition of Terms. For purposes of these regulations the following terms will be construed to mean: a) Refined sugar refers to sugar whose content of sucrose by weight, in the dry state, corresponds to a polarimeter reading of 99.5 and above. Cane sugar produced from the following shall be presumed, for internal revenue purposes, to be refined sugar: (1) product of a refining process, (2) products of a Sugar Refinery, or (3) product of a production line of a sugar mill accredited by the Bureau of Internal Revenue (Bureau or BIR may be used interchangeably in these regulations) to be producing and/or capable of producing sugar with polarimeter reading of 99.5 and above, and for which the quedan issued therefore as verified by the Sugar Regulatory Administration (SRA) identifies the produced sugar to be

of a polarimeter reading of 99.5 and above. Nonetheless, sugar produced from sugar production lines accredited by the Bureau to be capable of producing sugar with polarimeter reading of 99.5 or above shall be prima facie presumed to be refined sugar. For this purpose, the Revenue District Office (RDO) having jurisdiction over the physical location of the sugar mill shall accredit the sugar mill production line as to their capability of producing sugar with a polarimeter reading of 99.5 or above. The result of said accreditation shall be published in a newspaper of general circulation. b) Raw Sugar refers to sugar whose content of sucrose by weight in dry state, corresponds to a polarimeter reading of less than 99.5. Cane sugar produced each production year shall be classified, for internal revenue purposes, as follows: (1) "A" is raw sugar which is intended for export to the United States Market. (2) "B" is raw sugar which is intended for the Domestic Market. (3) "C" is raw sugar which is reserved for but have not yet matured for release to the Domestic Market. (4) "D" is raw sugar which is intended for export to the World Market. (5) "E" is reclassified "D" sugar for sale to Customs Bonded Warehouse (CBW) Food Processors/Exporters. For this purpose, the Bureau shall require all sugar refineries/mills to submit a Production Report (Annex "G") every month indicating the volume of each sugar classification produced as certified by the SRA. The Bureau shall likewise monitor the volume of each class of sugar produced through the sugar quedans issued, as verified by the SRA. c) Sugar Refinery/Mill includes refiner and/or miller of refined sugar as defined in Subsection(a) hereof. SECTION 3. Requirement to Pay in Advance VAT on Sale of Refined Sugar. In general, the advance VAT on the sale of refined sugar provided for under Sec. 8 hereof, shall be paid in advance by the owner/seller before the refined sugar is withdrawn from any sugar refinery/mill. For this purpose, refined sugar shall not be released unless the owner first secures a Certificate of Advance Payment of VAT (Annex "E") from the concerned RDO/Large Taxpayers Service (LTS), through Excise Tax Area (EXTA), or LTDO having jurisdiction over the Sugar Refinery/Mill. The Sugar Refinery/Mill shall be required to submit Monthly Report on the Quantity of Refined Sugar Milled/Produced and the Amount of Advance VAT Paid and Duly Remitted (Annex "J") in order to confirm and/or verify that the requirements of this Section are complied with. HDAaIc In cases where ownership of refined sugar is transferred by a cooperative to a buyer other than a cooperative, or by any owner to another person but the transaction would not qualify for the exemption provided for under Sec. 4 hereof, the advance VAT on the sale of refined sugar shall be paid by the buyer to the Bureau through the Authorized Agent Bank (AAB), whether manually or through Electronic Filing and Payment System (EFPS) of the Bureau, or to the Revenue Collection Officer (RCO) or deputized/authorized City or Municipal Treasurer in places where there are no AABs, before any refined sugar can be withdrawn from any Sugar Refinery/Mill. The transferor/seller shall be required to submit monthly report of sugar sold (List of Buyers of Sugar marked as Annex "H" hereof) in order to confirm and/or verify that the requirements of this Section are complied with. SECTION 4. Exemption from the Payment of the Advance VAT. The provisions of the foregoing Section to the contrary notwithstanding, the following withdrawals shall be exempt from the advance VAT: (a) Withdrawal of Refined Sugar by Duly Accredited and Registered Agricultural Cooperative of Good Standing. In the event the refined sugar is owned and withdrawn from the Sugar Refinery/Mill by a duly accredited and registered agricultural cooperative of good standing with the Cooperative Development Authority (CDA), which cooperative is the producer of the sugar, the withdrawal is not

subject to the payment of advance VAT. Upon presentation of the Authorization Allowing the Release of Refined Sugar (Annex "A") and other documents prescribed in Sec. 5 hereof, the Sugar Refinery/Mill shall release the same but only after notifying the RDO/LTS, through EXTA, or LTDO or the assigned duty officer having jurisdiction over the Sugar Refinery/Mill of the time and date of the release of the sugar from the Sugar Refinery/Mill and the names and plate numbers of the sugarcarrying vehicles/trucks so that the release can be given proper supervision and that the advance VAT is collected from the transferee should evidence show that the refined sugar has already been sold by the cooperative. However, withdrawal of refined sugar by the above-mentioned cooperative and sold to a trader is subject to VAT, unless the latter is a direct exporter. It is hereby made clear that if the refined sugar is owned and withdrawn from the Sugar Refinery/Mill by a duly accredited cooperative of good standing with the CDA, which cooperative is not the producer of sugar, the withdrawal of the refined sugar shall, in all instances, be subject to advance payment of VAT. (b) Withdrawal of Refined Sugar by Duly Accredited and Registered Agricultural Cooperative which is sold to another Agricultural Cooperative. If the owner of the refined sugar as reflected in the quedan is an agricultural cooperative which is a producer of sugar, the sale to another agricultural cooperative is not subject to VAT pursuant to Sec. 109(L) of the Tax Code. Upon presentation of the Authorization Allowing the Release of Refined Sugar (Annex "A") and other documents prescribed in Sec. 5 hereof, the Sugar Refinery/Mill shall release the same but only after notifying the RDO/LTS, through EXTA, or LTDO or the assigned duty officer having jurisdiction over the Sugar Refinery/Mill of the time and date of the release of the sugar from the Sugar Refinery/Mill and the names and plate numbers of the sugar-carrying vehicles/trucks so that the release can be given proper supervision and that the advance VAT is collected from the transferee should evidence show that the refined sugar has already been sold by the buyer cooperative to another taxable entity. However, if the seller-cooperative is not a producer but merely purchases the sugar cane from planter-members, its sale to another agricultural cooperative is subject to VAT and its withdrawal from the Sugar Refinery/Mill will only be allowed upon payment of the advance VAT. Moreover, it is to be repeatedly emphasized that when the purchaser-cooperative of the refined sugar which was not subjected to advance VAT subsequently sells the same to another, whether or not a cooperative, the sale is always subject to VAT. (c) Withdrawal of Refined Sugar Sold to Direct Exporter. In instances where the raw sugar, which has been classified as "A" and "D" sugar by the SRA, respectively, is further processed into refined sugar, the refined "A" sugar or "D" sugar can be withdrawn from any Sugar Refinery/Mill without the imposition of the advance VAT on the sale of refined sugar if its transferee or buyer is a direct exporter (e.g., Registered Sugar Trader) of the refined "A" and/or "D" sugar under the classification made by SRA. (d) Withdrawal of Refined Sugar Sold to Customs Bonded Warehouse Food Processor/Exporter, or to an Enterprise Located Within a Special Export Processing Zone. Where the raw sugar previously classified as "D" sugar is reclassified as "E" sugar and is further processed into refined sugar, the refined "E" sugar can be withdrawn from any Sugar Refinery/Mill without the imposition of the advance VAT on the sale of refined sugar if the transferee or buyer is a Customs Bonded Warehouse (CBW) food processor/exporter, or is located within a special export processing zone. aHADTC The owner of the refined sugar processed from the raw sugar classified as either "A" sugar, "D" sugar, or "E" sugar, shall present the Authorization Allowing the Release of Refined Sugar (Annex "B") and other documents prescribed in Sec. 5 hereof, to the Sugar Refinery/Mill and the latter shall release the same but only after notifying the RDO/LTS, through EXTA, or LTDO Division Chief or the assigned duty officer having jurisdiction over the refinery/mill of the time and date of release of the sugar from the refinery/mill and the names and plate numbers of the sugar-carrying vehicles/trucks so that the

release can be given proper supervision and that the advance VAT is collected from the transferee should evidence show that the refined sugar has already been sold by the owner to buyers other than the persons referred to in subsections (c) and (d) of this Section. SECTION 5. Documents Required as a Condition for Withdrawal or Transfer of Ownership of Refined Sugar. Except in cases of exempt withdrawals as provided in Sec. 4 hereof, the proprietor or operator of a Sugar Refinery/Mill shall not allow any withdrawal of refined sugar from its premises without the advance payment of VAT required under Sec. 3 hereof. Any person making the withdrawal or transfer shall submit proof of such payment as prescribed in Sec. 6 hereof. Provided, that, if the withdrawal is made by a duly accredited and registered agricultural cooperative of good standing which is allowed to withdraw refined sugar without payment of advance VAT, as discussed in the preceding paragraphs, what shall be submitted to the Sugar Refinery/Mill is the evidence of ownership of the refined sugar, the Authorization Allowing the Release of Refined Sugar (Annex "A"), and the Sworn Statement (Annex "C") prescribed for cooperatives. Provided, further that, when the refined sugar is processed from the raw sugar which has been classified as "A" sugar, "D" sugar or "E" sugar per classification made by the SRA and the transferee or buyer of the "A" and "D" refined sugar is a direct exporter (to the U.S. market or world market), and for "E" sugar is a CBW food processor/exporter, or is located within a special export processing zone, the quedan of the "A" sugar, "D" sugar or "E" sugar from which the refined sugar is processed, will be submitted as proof of ownership and classification of the raw sugar processed. In addition, the Authorization Allowing the Release of Refined Sugar (Annex "B") and the Sworn Statement (Annex "D") provided in these regulations shall be presented to the Sugar Refinery/Mill. The failure of the Sugar Refinery/Mill to comply with the foregoing shall be a ground for the imposition of deficiency VAT on the withdrawal of the aforesaid refined sugar processed from "A" sugar, "D" sugar or "E" sugar allocation by the SRA. The Regional Director, upon the recommendation of the concerned RDO having jurisdiction over the Sugar Refinery/Mill, may assign a Revenue Officer to be present during the withdrawal of refined sugar from the premises of the refinery/mill to ensure compliance with the requirements of this Section. However, for taxpayers under the jurisdiction of the LTS, the Revenue Officer assigned on premise (ROOP) by the EXTA Head shall monitor and ensure compliance thereof. In all cases where ownership of refined sugar is transferred and the transfer does not qualify for the exemption from payment of advance VAT, no refined sugar shall be released without the presentation of the Certificate of Advance Payment of VAT (Annex "E") duly issued by the BIR together with proof of payments, photo copies of which shall be retained on file by the seller/transferor and be made available for tax audit purposes. SECTION 6. Proof of Advance Payment. The concerned RDO/LTS, through EXTA, or LTDO having jurisdiction over the physical location of the Sugar Refinery/Mill shall issue a Certificate of Advance Payment of the VAT (Annex "E") as required under Sec. 3 hereof. This certificate shall serve as the authority of the Sugar Refinery/Mill to release the refined sugar described therein, and together with the Payment Form (BIR Form No. 0605 or its equivalent) and the BIR-prescribed deposit slip duly validated by the AAB (manual/EFPS) or the Revenue Official Receipt (ROR) issued by the RCO or the deputized/authorized City or Municipal Treasurer, as the case may be, shall serve as proof of the payment for the advance VAT which can be credited against the VAT liability/payable in the Monthly VAT declaration or Quarterly VAT return to be filed. SECTION 7. Proof of Exemption from the Advance Payment. If a duly accredited and registered agricultural cooperative of good standing which is allowed to withdraw refined sugar without advance payment of VAT claims ownership of the refined sugar stocked in the Sugar Refinery/Mill, the latter shall not release the said refined sugar unless an Authorization Allowing the Release of Refined Sugar (Annex "A") is first secured from the concerned RDO, LTS, through EXTA, or LTDO having jurisdiction over the Sugar Refinery/Mill. In securing such authorization, the cooperative shall, in

addition to that of satisfying VAT-exemption requirements under RR No. 20-2001, submit to the concerned RDO a Sworn Statement (Annex "C") to the effect that: (a) The refined sugar has not been bidded, sold or otherwise transferred in ownership, at anytime prior to the removal from the refinery/mill, to a trader or another entity; and (b) The refined sugar is the property of the cooperative at the time of removal and it will not charge advance VAT or any other tax to the future buyer. If the cooperative invokes ownership over the sugar cane and the refined/milled sugar, the sugar quedans must be in the name of the duly registered cooperative. For exempt withdrawals under Sec. 4 hereof, the Sugar Refinery/Mill shall require the submission of the Authorization Allowing the Release of Refined Sugar (Annex "B"), the duly accomplished Sworn Statement (Annex "D") specifying therein the transferee, and the quedan. aTDcAH SECTION 8. Basis for Determining the Amount of Advance VAT Payment. a) Base Price. The amount of advance VAT payment shall be determined by applying the VAT rate of 12% on the applicable base price of P850.00 per 50 kg. bag for refined sugar produced by a Sugar Refinery, and P760.00 per 50 kg. bag for refined sugar produced by a Sugar Mill. b) Subsequent Base Price Adjustments. The base price upon which the advance payment of VAT will be computed under the preceding paragraph shall be adjusted when deemed necessary by the Commissioner, upon consultation with the Chairman of the SRA. SECTION 9. Credit for Advance VAT Payments. In addition to the input tax credits allowed under Section 110 of the Code, the amount of advance payments made by sellers of refined sugar under these regulations shall be allowed as credit against their output tax on the actual gross selling price of refined sugar. The Certificate of Advance Payment of the VAT (Annex "E") issued under Sec. 6 hereof shall be attached to the Monthly VAT declaration/Quarterly VAT return to support the claim for credit of advance VAT payment. SECTION 10. Presumptive Input Tax. Persons or firms engaged in the production and manufacturing of refined sugar for their own account shall be allowed a presumptive input tax, which is creditable against the output tax, equivalent to four (4%) percent of the gross value in money of their purchases of primary agricultural products which are used as inputs to their production. Primary agricultural products shall be limited to sugar cane and other agricultural products which are the main raw materials for the production of sugar. SECTION 11. Place and Time of Remittance of Advance Payment of VAT. The advance payment shall be made by the owner-seller of the refined sugar before the refined sugar is withdrawn and remit the same to any AAB (manual/EFPS) or RCO or deputized/authorized City or Municipal Treasurer of the RDO having jurisdiction over the Sugar Refinery/Mill. However, if the owner-seller of the refined sugar is under the jurisdiction of the LTS or LTDO, the remittance shall only be done through the EFPS or made to an AAB authorized to receive payment from large taxpayers to ensure proper crediting of payment. SECTION 12. Information Returns to be Filed by the Proprietor or Operator of a Sugar Refinery/Mill, Cooperatives, and CBW Food Processors/Exporters and Others. Every proprietor or operator of a Sugar Refinery/Mill with production line accredited by the Bureau to be capable of producing sugar with a polarimeter reading of 99.5 or above, or mill producing sugar with polarimeter reading of 99.5 or above shall render an Information Return (Annex "F") to the RDO/LTS, through EXTA, or LTDO having jurisdiction over the said Sugar Refinery/Mill which issues the Certificate of Advance Payment of VAT (Annex "E") or Authorization Allowing the Release of Refined Sugar (Annex "A") not later than the 10th day following the end of the month. The aforesaid Information Return shall reflect the following information: a) Name, Address, TIN and RDO number of the owner of the refined sugar; b) Number of bags of refined sugar released; and c) Amount of advance VAT paid. ECcDAH

In case of refined sugar processed from "A", "D" or "E" sugar classification, every proprietor or operator of Sugar Refinery/Mill shall likewise submit to the RDO/LTS, through EXTA, or LTDO having jurisdiction over the said refinery/mill which issues the Authorization Allowing the Release of Refined Sugar (Annex "B") not later than the 10th day following the end of the month, a Production Report (Annex "G") on the processing of the "A", "D" or "E" sugar which shall reflect the following information: a) Name, Address, TIN and RDO number of the owner of the "A", "D" or "E" sugar classification processed; b) Volume of "A", "D" or "E" sugar classification processed; c) Number of bags of refined sugar produced; and d) Quedan for the "A", "D" or "E" sugar processed. The Sugar Refinery/Mill shall also be required to submit Monthly Report on the Quantity of Refined Sugar Milled/Produced and the Amount of Advance VAT Paid and Duly Remitted (Annex "J") to the RDO/LTS, through EXTA, or LTDO having jurisdiction over the Sugar Refinery/Mill which issues the Certificate of Advance Payment of VAT (Annex "E") or Authorization Allowing the Release of Refined Sugar (Annex "A") not later than the 10th day following the end of the month which shall reflect the following information: a) Name, Address, TIN and RDO number of the owner of the refined sugar; b) Number of bags of refined sugar tolled/produced; c) Amount of advance VAT paid/collected; d) Total base price subjected to advance payment of VAT; and e) Total base price not subjected to advance payment of VAT. Likewise, every duly accredited and registered agricultural cooperative of good standing shall submit to the RDO/LTS, through EXTA, or LTDO where it is registered a List of Buyers of Sugar (Annex "H"), together with a copy of the Certificate of Advance Payment of VAT (Annex "E") made by each of the respective buyer appearing in the list, not later than the 10th day following the end of the month with the following information: a) Name, Address, TIN and RDO number of the buyer of sugar; b) Number of bags of refined sugar sold/LKG; c) Amount of sales; and d) Amount of Advance VAT paid, if any. ITDHSE Any exporter of refined sugar processed from the raw "A", "D" or "E" sugar classification shall submit an Information Return (Annex "I") to the RDO/LTS, through EXTA, or LTDO having jurisdiction over the exporter, copy furnished the RDO/LTS or LTDO having jurisdiction over the Sugar Refinery/Mill which processed the raw "A", "D" or "E" sugar into refined sugar, not later than the 10th day following the end of the month, which shall reflect the following information: a) Volume of acquisition of refined sugar processed from raw "A", "D" or "E" sugar; b) Volume of exportation of refined sugar processed from raw "A", "D" or "E" sugar; c) Amount of sales; and d) Name, address/location of importer/buyer. All CBW food processors/exporters to whom the refined sugar processed from "A", "D" or "E" sugar is transferred by its owner, and all export food processors which acquired the refined sugar processed from "A", "D" or "E" sugar are required to liquidate their exports in the same manner as prescribed by the Bureau of Customs (BOC) and the SRA for duty- and VAT-free importation. Furthermore, advance VAT shall be collected from the transferee of the "A", "D" or "E" sugar quedan not liquidated in accordance with the provisions mandated by the BOC and the SRA. SECTION 13. Issuance of Tax Credit Certificate for Unutilized Advance VAT Payments. The advance payments made by the seller/owner of refined sugar shall be allowed as credit against their output tax on the actual gross selling price of refined sugar. However, advance payments which remain

unutilized at the end of taxpayer's taxable year where the advance payment was made, which is tantamount to excess payment, may, at the option of the owner/seller, be available for the issuance of TCC upon application duly filed with the BIR by the seller/owner within two (2) years from the date of filing of the 4th quarter VAT return of the year such advance payments were made, or if filed out of time, from the last day prescribed by law for filing the return. Advance VAT payments which have been the subject of an application for the issuance of TCC shall not be allowed as carry-over nor credited against the output tax of the succeeding quarter/year. Advance VAT payments which remained unutilized for more than one (1) year prior to the effectivity of these regulations may, at the option of the seller/owner of the refined sugar be the subject of application for TCC to be filed within two (2) years from the date of filing of the last quarterly VAT return where the unutilized advance VAT payments appeared, or if filed out of time, from the last day prescribed by law for filing the return. Issuance of TCC shall be limited to the unutilized advance VAT payment and shall not include excess input tax. Issuance of TCC for input tax attributable to zero-rated sales shall be covered by a separate application for TCC following applicable rules. SECTION 14. Penalty Clause. Any violation of the provisions of these regulations shall be subject to penalties provided in Sections 254 and 275, and other pertinent provisions of the Code, as amended. ICacDE SECTION 15. Repealing Clause. The provisions of all internal revenue issuances inconsistent herewith are hereby amended or revoked accordingly. SECTION 16. Effectivity. These regulations shall take effect after fifteen (15) days following its publication in a newspaper of general circulation. cEaSHC (SGD.) MARGARITO B. TEVES Secretary of Finance Recommending Approval: (SGD.) JOSE MARIO C. BUAG Commissioner of Internal Revenue ANNEX "A" AUTHORIZATION ALLOWING THE RELEASE OF REFINED SUGAR Date ________________ The President ______________________ ______________________ Greetings! With reference to the letter dated ____________ of ____________________ requesting the issuance of clearance to effect withdrawal of refined sugar by ______________________________________________ (name of cooperative) ____________________________ without payment of the advance value added tax (VAT) in conformity with the tax exemption granted by our Office under BIR Ruling No. ______________________ dated _________________, pursuant to Republic Act No. 6938 and the pertinent provisions of Revenue Regulations No. 20 - 2001 dated ______________ and the National Internal Revenue Code of 1997, as amended, please be informed that authorization is hereby allowed for the release of __________________ LKG refined sugar processed from _____________ of the above-named cooperative without payment of the advance VAT. However, it is required that every withdrawal shall be covered with prior approval of this Office. ICTcDA Very truly yours, __________________

Name and Signature of Approving Officer Original : Sugar Refinery/Mill Duplicate : Cooperative Triplicate : Issuing RDO Quadruplicate : Home RDO of the Sugar Refinery/Mill where it is registered ANNEX "B" AUTHORIZATION ALLOWING THE RELEASE OF REFINED SUGAR Date ________________ The President ______________________ ______________________ Greetings! With reference to the letter dated _______________ of _________________________ requesting the issuance of clearance to effect withdrawal of refined sugar by ____________________________(name of owner)_________________________________ without payment of the advance value added tax (VAT) in conformity with Sections 4, 5 and 6 of Revenue Regulations No. _______ dated ___________ and the pertinent provisions of the National Internal Code of 1997, as amended, please be informed that authorization is hereby allowed for the release of __________________ LKG refined sugar processed from ____________ of the above-named establishment without payment of the advance VAT. However, it is required that every withdrawal shall be covered with prior approval of this Office. Very truly yours, __________________ Name and Signature of Approving Officer Original : Sugar Refinery/Mill Duplicate : Owner of refined sugar Triplicate : Issuing RDO Quadruplicate : Home RDO of the Sugar Refinery/Mill where it is registered ANNEX "C" SWORN STATEMENT KNOW ALL MEN BY THESE PRESENTS: THAT I, _______________________ Filipino, of legal age, and with business address at ______________________________, in my capacity as __________________ of the _____(Name of Cooperative)_____ , after being sworn to in accordance with law, hereby depose and state 1. That the Cooperative is the owner of ___(description and quantity of sugar)__ now stored at _____(name of Sugar Refinery/Mill/Warehouse)______ and covered by Sugar Quedan No. _________; 2. That the cooperative desires to withdraw the above refined sugar (describe the quantity, if partial) from the refinery/mill/warehouse without payment of the advance VAT as it is exempt from the VAT; 3. That said sugar has not been bidded, sold or otherwise transferred in ownership to a trader or other entity; 4. That the Cooperative will not collect any advance VAT or any other form of tax from the future buyer of the above-described sugar; and 5. That this sworn statement is executed to attest to the veracity of the above statements. IN WITNESS WHEREOF, I have hereunto set my hands this ___ day of _____, 200___ at ____________________________.

________________________ (Signature over Printed Name) SUBSCRIBED AND SWORN to before me this ____ day of ________ 200___ at ______________________________. Administering Officer ANNEX "D" SWORN STATEMENT KNOW ALL MEN BY THESE PRESENTS: THAT I, _______________________ Filipino, of legal age, and with business address at ______________________________, in my capacity as __________________ of the _____(Name of Owner)_____ , after being sworn to in accordance with law, hereby depose and state 1. That the _______________ is the owner of (description and quantity of sugar) now stored at ____(name of Sugar Refinery/Mill/Warehouse)_____ and covered by Sugar Quedan No. _________; 2. That the said raw ( ) "A" or U.S. Market sugar, ( ) "D" or World Market sugar, ( ) "E" or reclassified "D" sugar (check classification) has been processed into refined sugar by __(name of Sugar Refinery/Mill)___; HDAaIS 3. That the Company desires to withdraw the above refined sugar (describe the quantity, if partial) from the refinery/mill without payment of the advance VAT in accordance with the provisions of Section 4, 5 and 6 of RR No. _____ and pertinent provisions of the National Internal Revenue Code of 1997, as amended; 4. That said sugar will be sold to ___(name of buyer)_____, which is (check description) a ( ) direct exporter; ( ) CBW food processor/exporter; ( ) locator of special export processing zone; 5. That said sugar has not been bidded, sold or otherwise transferred in ownership to a trader or entity other than the above; 6. That the Company will not collect any advance VAT or any other form of tax from the buyer of the above-described sugar; and 7. That this sworn statement is executed to attest to the veracity of the above statements. IN WITNESS WHEREOF, I have hereunto set my hands this ___ day of _____, 200_ at ____________________________. ________________________ (Signature over Printed Name) SUBSCRIBED AND SWORN to before me this ____ day of ________ 200___ at ______________________________. Administering Officer ANNEX "E" CERTIFICATE OF ADVANCE PAYMENT OF VAT (Authorizing the release of Refined Sugar subject to the Advance VAT) ______________________________________________ ______________________ NAME OF OWNER OF REFINED SUGAR/PAYOR TIN: ____________________________________________________________________ ADDRESS ____________________________________________________________________ Payor has made the advance payment in the amount of ________________ for the withdrawal of ____(quantity in words)____________ (_______) LKGs of __(class of refined sugar)___ refined sugar covered by Sugar Quedan No. ____________ issued by ___(name of Sugar Refinery/Mill)___. Accordingly, release of refined sugar as described above is hereby authorized. Particulars Drawee Bank Number Date Amount Cash Check

Bank Debit Memo Tax Debit Memo Name of AAB _______________________ Name of RCO/DMT __________________ Date of Payment _____________________ _________________________ _________________________ Name of Issuing Officer Signature __________________________ __________________________ Position/Title Date Original : Sugar Refinery/Mill Duplicate : Sugar seller/owner; copies to be attached to VAT declaration/return Triplicate : File copy of the issuing RDO Quadruplicate : Home RDO of the Sugar Refinery/Mill ANNEX "F" INFORMATION RETURN (On Release of Refined Sugar) For the Month of _____________ Name of Sugar Refinery/Mill ________________________ TIN _______________ Address ____________________________________________________________ OWNER OF REFINED SUGAR NO. OF BAGS OF AMOUNT OF REFINED SUGAR ADVANCE VAT RELEASED PAID* NAME AND ADDRESS TIN RDO NO. (Per Classification) (Per Classification)

* Indicate "Exempt" if it is the case. ADEacC Certified correct: ______________________ (Signature over Printed Name) ______________________ (Designation) Original : Issuing RDO Duplicate : Sugar Refinery/Mill/Cooperative/CBW/Others Triplicate : Home RDO of the Sugar Refinery/Mill where it is registered ANNEX "G" PRODUCTION REPORT For the Month of _____________ Name of Sugar Refinery/Mill _________________________ TIN _______________ Address _____________________________________________________________ OWNER OF "A", "D" OR "E" SUGAR VOLUME OF "A", NUMBER OF QUEDAN "D" OR "E" BAGS OF FOR THE SUGAR REFINED "A", "D" OR CLASSIFICATION SUGAR "E" SUGAR NAME AND TIN RDO PROCESSED PRODUCED PROCESSED ADDRESS NO.

Certified correct: ______________________ (Signature over Printed Name) ______________________ (Designation) Original : Home RDO of the Sugar Refinery/Mill Duplicate : Sugar Refinery/Mill Triplicate : Home RDO of the Sugar Buyer where it is registered ANNEX "H" LIST OF BUYERS OF SUGAR For the Month of _____________ Name of Cooperative _____________________________ TIN _______________ Address ___________________________________________________________ BUYER OF SUGAR NO. OF BAGS AMOUNT OFAMOUNT OF OF SUGAR SALES ADVANCE VAT SOLD/LKG (Per Classification) PAID, if any NAME AND TIN RDO (Per Classification) ADDRESS NO.

Certified correct: ______________________ (Signature over Printed Name) ______________________ (Designation) Original : Issuing RDO Duplicate : Cooperative Triplicate : Home RDO of the Sugar Buyer where it is registered ANNEX "I" INFORMATION RETURN (On the Export of "A", "D" or "E" Sugar) For the Month of _____________ Name of Sugar Exporter *___________________________ TIN _______________ Address ____________________________________________________________ IMPORTER/BUYER OF "A", "D" or "E" VOLUME OF VOLUME OF AMOUNT SUGAR ACQUISITION EXPORTATION OF SALES OF REFINED OF REFINED SUGAR SUGAR PROCESSED PROCESSED FROM "A", FROM RAW "D" or "E" "A", "D" or SUGAR "E" SUGAR NAMEADDRESS/LOCATION

* Exporter can be a direct exporter, CBW food processor/exporter or locator of special export processing zone. AaCEDS

Certified correct: ______________________ (Signature over Printed Name) ______________________ (Designation) Original : Home RDO of the Exporter where it is registered Duplicate : Sugar Exporter Triplicate : Home RDO of the Sugar Refinery/Mill where it is registered ANNEX "J" Monthly Report on the Quantity of Refined Sugar Milled/Produced and the Amount of Advance VAT Paid and Duly Remitted For the Month of _____________, _____ Name of Sugar Refinery/Mill _________________________ TIN _______________ Address _____________________________________________________________ OWNER OF REFINED SUGAR NO. OF BAGS OF AMOUNT OFTOTAL BASE TOTAL BASE REFINED SUGAR ADVANCE PRICE PRICE NOT TOLLED/ VAT PAID/ SUBJECTED SUBJECTED PRODUCED (Per COLLECTED* TO TO Classification)(Per ADVANCE ADVANCE NAME AND TIN RDO NO. Classification)PAYMENT PAYMENT ADDRESS OF VAT OF VAT

* Indicate "Exempt" if it is the case. Certified correct: ______________________ (Signature over Printed Name) ______________________ (Designation) Original : Issuing RDO Duplicate : Sugar Refinery/Mill/Cooperative/CBW/Others Triplicate : Home RDO of the Sugar Refinery/Mill where it is registered Copyright 2007 CD Technologi es Asia Inc

07-09-2007 Revenue Regulations No. 07-07 July 9, 2007 REVENUE REGULATIONS NO. 07-07 SUBJECT : Amending Certain Provisions of Revenue Regulations No. 21-2002, Implementing Section 6 (H) of the Tax Code of 1997, Authorizing the Commissioner of Internal Revenue to Prescribe Additional Procedural and/or Documentary Requirements in Connection with the Preparation and Submission of Financial Statements Accompanying the Tax Returns TO : All Internal Revenue Officers and Others Concerned Pursuant to Section 244 of the Tax Code of 1997, as amended, in relation to Section 6 (H) of the Same Code, these Regulations are hereby promulgated to amend certain provisions of Revenue Regulations No. 21-2002 prescribing the manner of compliance with any documentary and/or procedural

requirements in connection with the preparation and submission of financial statements accompanying the tax returns. HTcDEa SECTION 1. Contents and Format of Financial Statements to be Attached to the Annual Income Tax Return or Information Return. The Financial Statements with accompanying Auditor's Certificate attached to the Annual Income Tax Return, or Annual Information Return for tax exempt persons, as the case may be, to be filed with the Bureau of Internal Revenue, thru its collection agents including Accredited Agent Banks, shall present/state the accounts therein in a very descriptive fashion such that the nature of the specific transactions entered in the accounts are known to the reader. The account titles to be used must be specific and not control accounts which must be completely enumerated in the financial statements and these accounts must conform to the basic framework of the financial reporting standards promulgated by the Financial Reporting Standards Council (FRSC) of the Philippines which are the Generally Accepted Accounting Principles in the Philippines which include Philippine Accounting Standards (PAS) and Philippine Financial Reporting Standards (PFRS) and the refinements introduced thereon in respect to certain types of industries as well as to the rules and requirements of regulatory agencies that have supervision over them such as the Securities and Exchange Commission (SEC), Bangko Sentral ng Pilipinas (BSP), Insurance Commission (IC), etc. The accounts prescribed in the reports required by the SEC, BSP, IC and other regulatory bodies shall likewise be the accounts to be used by individual taxpayers who are engaged in business or in the exercise of profession, except for accounts that are peculiar to corporations and other juridical persons. The Profit and Loss Statement/Income Statement shall show separately by segment (there should be proper labeling), with breakdown of the specific accounts, the following: HCDAcE I. Sales/Revenues II. Cost of Goods Sold (for seller of goods)/Cost of Services (for seller of services); III. Selling and Administrative Expenses; IV. Financial Expenses, if any; V. Other Income; and VI. Other Expenses (Note: Items I, IV, V and VI should be fully explained in the Notes to the Financial Statements; Items II and III should be supported by Schedules) SECTION 2. Coverage. The Financial Statements shall be composed of the following: a) Balance Sheet; b) Income Statement/Profit and Loss Statement; c) Statement of Changes in Equity, showing either: All changes in equity Changes in equity, other than those arising from transactions with equity holders acting in their capacity as equity holders; EIcTAD d) Statement of Cash Flow; e) Notes, comprising a summary of significant accounting policies and other explanatory notes; and e) * Schedules attached to the afore-cited statements. The submission of the above statements is mandatory even if there is no income, retained earnings, etc. All the financial statements filed with accompanying auditor's certificate as cited above shall show the comparative figures of the current year and the previous year. Thus, Financial Statements with no required Auditors Certificate as enunciated in Sec. 232 of the Tax Code of 1997, as amended, need not be presented in comparative format. Moreover, it is the responsibility of the taxpayer to reflect in its books of accounts (i.e., general, subsidiary ledgers, and journals) the adopted/accepted year-end adjusting entries made corollary to the preparation and filing of its audited financial statements and annual income tax returns. Correspondingly, all the necessary working papers prepared by the taxpayer pertinent to the year-end

adjustments shall, nevertheless be made available to the investigating officers of the Bureau upon audit and/or verification. SECTION 3. Responsibility of External Auditors. Unless a longer period of retention is required under the Tax Code or other relevant laws (e.g. the Philippine Accountancy Act of 2004, etc.), the independent CPA who audited the records and certified the financial statements of the taxpayer, equally as the taxpayer, has the responsibility to maintain and preserve copies of the audited and certified financial statements for a period of three (3) years from the due date of filing the annual income tax return or the actual date of filing thereof, whichever comes later. This is in addition to all other responsibilities of the independent CPA under other pertinent provisions of the Tax Code, as amended, and implementing regulations, including generally accepted auditing standards, and applicable, jurisprudence. aIETCA SECTION 4. Penal Provisions. Any independent Certified Public Accountant who, in his capacity as external auditor, willfully falsifies any report or statement bearing on any examination or audit, or renders a report, including exhibits, statements, schedules or other forms of accountancy work which has not been verified by him personally or under his supervision or by a member of his firm or by a member of his staff in accordance with sound auditing practices, or, certifies financial statements of a business enterprise containing a material misstatement of facts or material omission in respect of the transactions, taxable income, deduction and/or exemption of his client, shall be dealt with in accordance with Section 257 of the Tax Code, as amended, and shall be subject to the applicable penalty provisions of RR No. 11-2006. SECTION 5. Applicability of these Regulations. These Regulations shall apply to all Income Tax and Information Returns to be filed hereafter. SECTION 6. Repealing Clause. All existing rules, regulations and other issuances or portions thereof inconsistent with the provisions of these Regulations are hereby modified, repealed or revoked accordingly. SECTION 7. Effectivity Clause. These Regulations shall take effect after fifteen (15) days following complete publication in a newspaper of general circulation in the Philippines. (SGD.) MARGARITO B. TEVES Secretary of Finance Recommending Approval: (SGD.) LILIAN B. HEFTI OIC-Commissioner of Internal Revenue Copyright 2007 CD Technologi es Asia Inc

07-03-2007 Revenue Regulations No. 08-07 July 3, 2007 REVENUE REGULATIONS NO. 08-07 SUBJECT : Additional Compliance Requirements of Concerned Taxpayers in the Light of Mandatory Adoption of the Philippine Financial Reporting Standards TO : All Internal Revenue Officers and Others Concerned SECTION 1. Scope. Pursuant to Section 244, in relation to Sec. 5, both of the National Internal Revenue Code (NIRC) of 1997, these Regulations are hereby issued to prescribe additional compliance requirements from taxpayers mandated to adopt the Philippine Financial Reporting Standards (PFRS) in recording business transactions and preparing financial statements. HEASaC SECTION 2. Additional Compliance Requirements of Concerned Taxpayers in the Light of Mandatory Adoption of the Philippine Financial Reporting Standards in Recording and Presenting Business Transactions and Results. The Philippines has adopted the International Financial Reporting Standards (IFRS) as the Philippine Financial Reporting Standards (PFRS) that should be

observed by big corporate taxpayers in the recording of their business transactions and preparation of Financial Statements starting year 2005. Under the PFRS, the recording and the recognition of business transactions for financial accounting purposes, in a majority of situations, differ from the application of tax rules on the same transactions resulting to disparity of reports for financial accounting vis-a-vis tax accounting. Hence, there is a need to reconcile the disparity in a systematic and clear manner to avoid irritants between the taxpayer and the tax enforcer. Accordingly, concerned taxpayers are hereby mandated to maintain books and records that would reflect the reconciling items between Financial Statements figures and/or data with those reflected/presented in the filed Income Tax Return (ITR). The recording and presentation of the reconciling items in such books and records shall be done in such a manner that would facilitate the understanding by the examiners/auditors of the Bureau of Internal Revenue tasked to undertake audit/investigation functions, providing in sufficient detail the computation of the differences and the reasons therefor aimed at bringing into agreement the PFRS and ITR figures. TEcCHD SECTION 3. Start of Keeping of Books and Records. The keeping of books and records for the reconciling items referred to in the preceding Section shall start for taxable year 2007. For this purpose 'taxable year 2007' shall mean calendar year ending December 31, 2007 and all fiscal years ending not later than June 30, 2008. SECTION 4. Repealing Clause. The provisions of internal revenue issuances inconsistent herewith are hereby repealed, modified or amended accordingly. SECTION 5. Effectivity Clause. These regulations shall take effect after fifteen (15) days following publication in newspaper of general circulation. ETDAaC (SGD.) MARGARITO B. TEVES Secretary of Finance Recommending Approval: (SGD.) LILIAN B. HEFTI OIC-Commissioner of Internal Revenue Copyright 2007 CD Technologi es Asia Inc

07-04-2007 Revenue Regulations No. 09-07 July 4, 2007 REVENUE REGULATIONS NO. 09-07 SUBJECT : Prescribing the Updated Minimum Monthly/Quarterly Gross Receipts in Computing the Percentage Tax of Domestic Carriers and Keepers of Garages TO : All Internal Revenue Officers and Others Concerned SECTION 1. Scope. Pursuant to Section 244 of the National Internal Revenue Code of 1997 (Code), in relation to Section 128 of the same Code which provides the Commissioner the power to prescribe the minimum amount of gross receipts, sales, and taxable base of persons subject to other percentage taxes under Title V of the Code, after taking into account the sales, receipts or other taxable base of other persons engaged in similar businesses under similar situations or circumstances, or after considering other relevant information, these Regulations are hereby promulgated to update the minimum monthly/quarterly gross receipts of domestic carriers and keepers of garages subject to the three percent (3%) percentage tax imposed under Section 117 of the Code, as amended by RA 9337, and further amended by RA 9361. DcaSIH SECTION 2. Minimum Gross Receipts of Domestic Land Carriers and Keepers of Garages. Cars for rent or hire driven by the lessee; transportation contractors, including persons who transport passengers for hire, and other domestic carriers by land for the transport of passengers (except owners of animal-drawn two-wheeled vehicle), and keepers of garages shall pay a tax equivalent to three percent (3%) of their quarterly gross receipts.

Using the average consumer price index (CPI) for the transportation and communication sector in Year 2006, it is apparent that the minimum gross receipts per unit of carrier set under Section 117 of the Code, which figures were originally fixed in Year 1978, are no longer reflective of the true value of the minimum gross receipts that are being derived by domestic land carriers, as shown in the sample computation illustrated below: HAaDcS (a) Average Consumer Price Indices where Year 2000 is considered as the international base year: (1) Year 1978 P6.38 (2) Year 2000 P100.00 (3) Year 2006 P174.60 (b) Using the average consumer price index (CPI) provided in item (a) above, the formula to arrive at the present value is as follows: 2006 Gross Receipts = 1978 Gross Receipts x CPI 2006 CPI 1978 (c) Sample Computation IcAaEH Jeepneys in Manila and Other Cities 2006 Gross Receipts = P2,400 x P174.60 P6.38 = P65,680.25 ~ P65,700.00 ========= ========= Thus, after considering the foregoing relevant information, the updated minimum gross receipts per unit of carrier for purposes of computing the percentage tax provided in Section 117 of the Code as of year 2006 price index shall be as follows: Year 1978 Year 2006 Year 2006 Old Updated Updated Minimum Minimum Minimum DOMESTIC CARRIERS Gross Gross Gross Quarterly Quarterly Monthly Receipts Receipts Receipts Jeepney for hire 1. Manila and other cities P2,400.00 P65,700.00 P21,900.00 2. Provincial 1,200.00 32,900.00 10,967.00 Public Utility Bus Not exceeding 30 passengers P3,600.00 P98,600.00 P32,867.00 Exceeding 30 passengers but not exceeding 50 passengers 6,000.00 164,200.00 54,733.00 Exceeding 50 passengers 7,200.00 197,100.00 65,700.00 Taxis 1. Manila and other cities P3,600.00 P98,600.00 P32,867.00 2. Provincial 2,400.00 65,700.00 21,900.00 Car for hire (with chauffeur) P3,000.00 P82,100.00 P27,367.00 Car for hire (without chauffeur) P1,800.00 P49,300.00 P16,434.00 For clarification, common carriers which ply the routes from/to Metro Manila and/or other cities in the country shall be covered by the prescribed minimum gross receipts for Manila and other cities. ECcTaH SECTION 3. Effectivity Clause. These Regulations shall take effect beginning August 1, 2007, or after fifteen (15) days following complete publication in a newspaper of general circulation, whichever

comes later. (SGD.) MARGARITO B. TEVES Secretary of Finance Recommending Approval: (SGD.) LILIAN B. HEFTI OIC-Commissioner of Internal Revenue Copyright 2007 CD Technologi es Asia Inc

07-18-2007 Revenue Regulations No. 10-07 July 18, 2007 REVENUE REGULATIONS NO. 10-07 SUBJECT : Amending Further Section 3 of Revenue Regulations (RR) No. 9-2001, as last amended by RR No. 5-2004, Expanding the Coverage of Taxpayers Required to File Returns and Pay Taxes Through the Electronic Filing and Payment System (EFPS) of the Bureau of Internal Revenue TO : All Internal Revenue Officials and Others Concerned SECTION 1. Scope. Pursuant to the provisions of Section 244 of the National Internal Revenue Code of 1997, as amended by Republic Act No. 9337, these regulations are hereby promulgated in order to further amend Section 3 of RR No. 9-2001, as last amended by RR No. 5-2004, by expanding the coverage thereof to include: (i) corporations with paid-up capital stock of Ten Million Pesos (P10,000,000.00) and above; (ii) corporations with complete computerized system; and (iii) all government bidders pursuant to Executive Order No. 398 as implemented by RR 3-2005. It should be emphasized, however, that non-stock non-profit corporations are excluded from the coverage of this regulations. aEHTSc SECTION 2. Definition of Terms. 2.1 ... 2.2 ... 2.13 Paid-up capital stock shall mean that portion of the authorized capital stock which has been both subscribed and paid. It also refers to the amount paid for the subscription of stock in a corporation including the amount paid in excess of par value, net of treasury stock. SHIETa 2.14 Complete computerized system refers to the books of accounts and other accounting records in electronic form, in accordance with Revenue Regulations No. 16-2006. SECTION 3. Coverage. Section 3 of Revenue Regulations (RR) No. 9-2001, as amended by RR Nos. 2-2002, 9-2002 and 5-2004, is hereby further amended to read as follows: "Section 3. Coverage. . . . 3.2. Non-large taxpayers. The following Non-Large Taxpayers including their branches located in the computerized revenue district offices shall file their returns and pay their taxes thru EFPS, to wit: ECSHAD 3.2.1. The volunteering two hundred (200) or more Non-Large Taxpayers previously identified by the BIR to have availed of the option to file their returns under EFPS shall nevertheless continue to file their returns under such method. However, upon their receipt of a notification letter duly signed by the Commissioner of Internal Revenue, it becomes mandatory for them, including their branches located in the computerized revenue district offices, to file their returns and pay their taxes thru EFPS. STHAID 3.3. Other Taxpayers 3.3.1. Corporations with paid-up capital stock of Ten Million Pesos (P10,000,000.00) and above; 3.3.2. Corporations with complete computerized system; 3.3.3 Taxpayers joining public bidding pursuant to Executive Order No. 398 as implemented by RR 3-2005. xxx xxx xxx"

SECTION 4. Repealing Clause. The provisions of Revenue Regulations No. 9-2001, 2-2002, 92002, 5-2004 and all other revenue issuances inconsistent herewith are hereby repealed, modified or amended accordingly. SECTION 5. Effectivity Clause. These Regulations shall take effect on all returns to be filed in October, 2007 or after fifteen (15) days following publication in a newspaper of general circulation, whichever comes later. AHaDSI (SGD.) MARGARITO B. TEVES Secretary of Finance Recommending Approval: (SGD.) LILIAN B. HEFTI OIC, Commissioner of Internal Revenue Published in The Philippine Star on August 3, 2007. Copyright 2007 CD Technologi es Asia Inc

08-15-2007 Revenue Regulations No. 11-07 August 15, 2007 REVENUE REGULATIONS NO. 11-07 SUBJECT : Suspension of the Implementation of Revenue Regulations No. 6-2007 TO : All Internal Revenue Officers and Others Concerned BACKGROUND: The regulations and issuances on the collection of advance VAT on the sale of refined sugar have been consolidated under Revenue Regulations No. 6-2007. These regulations provide for a) updated policies and procedures for the payment of the advance VAT on the sale of refined sugar, including those made by a duly accredited and registered cooperative in good standing, b) classification of sugar and sugar products, c) the monitoring system for the processing of raw sugar into refined sugar intended for the world market and d) the tax treatment of raw sugar processed into refined sugar intended for the world market or the sugar classified as "E" sugar or "A" sugar. CHcETA The sugar industry, particularly the planters, sent numerous requests to the Department of Finance (DOF) asking for the immediate suspension of the said regulations, stating that the crop year is already approaching and that, to them, some provisions are still not so clear or not well-explained and thereby causing fear of possible non-compliance. The purpose of the suspension is to give time to both the Bureau of Internal Revenue (BIR) and the sugar industry to thresh out unclear provisions in RR 6-2007, and to introduce improved version of the Regulations to properly address the problems of the sugar industry and collect the correct taxes due from there. SECTION 1. Suspension. Pursuant to the provisions of Section 244 of the National Internal Revenue Code (NIRC) of 1997, these Regulations are hereby promulgated to suspend, until further notice, the implementation of Revenue Regulations No. 6-2007, entitled "Consolidated Regulations on Advance Value Added Tax on the Sale of Refined Sugar, Amending and/or Revoking All Revenue Issuances Issued to this Effect, and for Other Related Purposes". CIaHDc SECTION 2. Effectivity. These Regulations shall take effect after fifteen days following publication in any newspaper of general publication. (SGD.) MARGARITO B. TEVES Secretary of Finance RECOMMENDING APPROVAL: (SGD.) LILIAN B. HEFTI OIC-Commissioner of Internal Revenue

Copyright 2007

CD Technologi es Asia Inc

10-10-2007 Revenue Regulations No. 12-07 October 10, 2007 REVENUE REGULATIONS NO. 12-07 SUBJECT : Amending Certain Provisions of Revenue Regulations No. 9-98 Relative to the Due Date Within Which to Pay Minimum Corporate Income Tax (MCIT) Imposed on Domestic Corporations and Resident Foreign Corporations Pursuant to Section 27 (E) and Section 28 (A) (2) of the 1997 National Internal Revenue Code, as Amended. TO : All Internal Revenue Officers and Others Concerned. SECTION 1. Scope. Pursuant to the provisions of Sections 244, 27 (E), and 28 (A) (2) of the 1997 National Internal Revenue Code (Tax Code), as amended, in relation to Section 245 thereof which requires that the rules and regulations of the Bureau of Internal Revenue shall stipulate the manner in which internal revenue taxes shall be paid, these Regulations are hereby promulgated to amend Revenue Regulations No. 9-98, in order to align the time of payment of minimum corporate income tax (MCIT) imposed on domestic corporations and resident foreign corporations with the mandatory quarterly filing of normal corporate income tax returns pursuant to Sec. 75 and Sec. 77 of the same Tax Code. cDCaTS SECTION 2. Amendatory Provision. Pertinent portions of Sec. 2.27 (E) of Revenue Regulations No. 9-98 are hereby amended to read as follows: "Sec. 2.27(E) Minimum Corporate Income Tax (MCIT) on Domestic Corporations. "(1) Imposition of the Tax. A minimum corporate income tax (MCIT) of two percent (2%) of the gross income as of the end of the taxable year (whether calendar or fiscal year, depending on the accounting period employed) is hereby imposed upon any domestic corporation beginning on the fourth (4th) taxable year immediately following the taxable year in which such corporation commenced its business operations. The MCIT shall be imposed whenever such corporation has zero or negative taxable income or whenever the amount of minimum corporate income tax is greater than the normal income tax due from such corporation. DcICEa Notwithstanding the above provision, however, the computation and the payment of MCIT shall likewise apply at the time of filing the quarterly corporate income tax as prescribed under Section 75 and Section 77 of the Tax Code, as amended. Thus, in the computation of the tax due for the taxable quarter, if the computed quarterly MCIT is higher than the quarterly normal income tax the tax due to be paid for such taxable quarter at the time of filing the quarterly corporate income tax return shall be the MCIT which is two percent (2%) of the gross income as of the end of the taxable quarter. In the payment of said quarterly MCIT, excess MCIT from the previous taxable year/s shall not be allowed to be credited. Expanded withholding tax quarterly corporate income tax payments under the normal income tax, and the MCIT paid in the previous taxable quarter/s are allowed to be applied against the quarterly MCIT due. TaEIcS Example: Panday Corporation computed normal income tax and MCIT, and creditable income taxes withheld for the 1st to 4th quarters including excess MCIT and excess withholding taxes from prior year/s are as follows: Excess Excess Normal Taxes MCIT Taxes W/Tax Quarter Income Tax MCIT Withheld Prior Year Prior Year 1st 100,000 80,000 20,000 P30,000 10,000 2nd 120,000 250,000 30,000 3rd 250,000 100,000 40,000 4th 200,000 100,000 35,000 For the 1st quarter, the quarterly income tax payable by Panday Corporation shall be computed as

follows: Quarterly corporate income tax due (higher amount between normal income tax and MCIT) normal income tax P100,000 Less: Taxes Withheld Prior Year 10,000 Taxes Withheld 1st qtr 20,000 Excess MCIT prior year 30,000 60,000 Net Income Tax Due, 1st quarter normal income tax P40,000 ====== For the 2nd quarter, the quarterly income tax payable by Panday Corporation shall be computed as follows: Excess Excess Normal Taxes MCIT Taxes W/Tax Quarter Income Tax MCIT Withheld Prior Year Prior Year 1st 100,000 80,000 20,000 P30,000 10,000 2nd 120,000 250,000 30,000 Total 220,000 330,000 50,000 ====== ====== ===== Quarterly corporate income tax due ESITcH (higher amount between normal income tax and MCIT) MCIT P330,000 Less: Taxes Withheld Prior Year 10,000 Taxes Withheld 1st qtr 20,000 Taxes Withheld 2nd qtr 30,000 Net income tax payment 1st qtr 40 000 100,000 Net Income Tax Due, 2nd quarter MCIT P230,000 ======= For the 3rd quarter, the quarterly income tax payable by Panday Corporation shall be computed as follows: Normal Taxes MCIT Taxes W/Tax Quarter Income Tax MCIT Withheld Prior Year Prior Year 1st 100,000 80,000 20,000 P30,000 10,000 2nd 120,000 250,000 30,000 3rd 250,000 100,000 40,000 Total 470,000 430,000 90,000 ====== ====== ===== Quarterly corporate income tax due (higher amount between normal income tax and MCIT) Normal Income Tax P470,000 Less: Taxes Withheld Prior Year 10,000 Taxes Withheld 1st qtr 20,000 Taxes Withheld 2nd qtr 30,000 Taxes Withheld 3rd qtr 40,000 Net income tax payment 1st qtr 40,000 MCIT paid in the 2nd quarter230,000

Excess MCIT in prior year 30,000 400,000 Net Income Tax Due, 3rd quarter Normal Income Tax P70,000 ======= At year end, the computation of the annual income tax payable by Panday Corporation shall be computed as follows: TSacID Excess Excess Normal Taxes MCIT Taxes W/Tax Quarter Income Tax MCIT Withheld Prior Year Prior Year 1st 100,000 80,000 20,000 P30,000 10,000 2nd 120,000 250,000 30,000 3rd 250,000 100,000 40,000 4th 200,000 100,000 35,000 Total 670,000 530,000 125,000 ====== ====== ====== Annual corporate income tax due (higher amount between normal income tax and MCIT) Normal Income Tax P670,000 Less: Taxes Withheld Prior Year 10,000 Taxes Withheld 1st qtr 20,000 Taxes Withheld 2nd qtr 30,000 Taxes Withheld 3rd qtr 40,000 Taxes Withheld 4th qtr 35,000 Net income tax payment 1st qtr 40,000 Net income tax payment 3rd qtr 70,000 MCIT paid in the 2nd quarter230,000 Excess MCIT in prior year 30,000 505,000 Annual Net Income Tax Due Normal Income Tax P165,000 ======== As can be seen from the above illustrative computation, quarterly MCIT paid on the Quarterly Income Tax Return shall be credited against the normal income tax at year end if in the preparation and filing of the annual income tax return and in the final computation of the annual income tax due, it appears that the normal income tax title is higher than the computed annual MCIT. Moreover, in addition to the quarterly MCIT paid and quarterly normal income tax payments in the taxable quarters of the same taxable year excess MCIT in the prior year/s (subject to the prescriptive period allowed for its creditability), expanded withholding taxes in the current year and excess expanded withholding taxes in the prior year shall be allowed to be credited against the annual income tax computed under the normal income tax rules. AIDcTE However, if in the computation of the annual income tax due, the computed annual MCIT due appears to be higher than the annual normal income tax due, what may be credited against the annual MCIT due shall only be the quarterly MCIT payments of the current taxable quarters, the quarterly normal income tax payments in the quarters of the current taxable year, the expanded withholding taxes in the current year and excess expanded withholding taxes in the prior year. Excess MCIT from the previous taxable year/s shall not be allowed to be credited therefrom as the same can only be applied against normal income tax. Thus, in the above illustration, suppose the MCIT at year end is higher than the normal income tax, then computation of the income tax liability of Panday Corporation shall be as follows: CDScaT

Excess Excess Normal Taxes MCIT Taxes W/Tax Quarter Income Tax MCIT Withheld Prior Year Prior Year 1st 100,000 80,000 20,000 P30,000 10,000 2nd 120,000 250,000 30,000 3rd 250,000 100,000 40,000 4th 50,000 120,000 35,000 Total 520,000 550,000 125,000 ====== ====== ====== Annual corporate income tax due (higher amount between normal income tax and MCIT) MCIT P550,000 Less: Taxes Withheld Prior Year 10,000 Taxes Withheld 1st qtr 20,000 Taxes Withheld 2nd qtr 30,000 Taxes Withheld 3rd qtr 40,000 Taxes Withheld 4th qtr 35,000 Net income tax payment 1st qtr 40,000 Net income tax payment 3rd qtr 70,000 MCIT paid in the 2nd quarter230,000 475,000 Annual Net Income Tax Due MCIT P75,000 ====== "For purposes of these Regulation of the term, "normal income tax" means the income tax rates prescribed under Sec. 27 (A) and Sec. 28 (A) (1) of the Code at 34% on January l, 1998; 33% effective January l, 1999; at 32% effective January 1, 2000 and 35% effective November 1, 2005 and thereafter. Provided, however, that effective January 1, 2009 the rate of income tax shall be thirty percent (30%), pursuant to RA No. 9337. "In the case of a domestic corporation xxx xxx xxx "(2) Carry forward of excess minimum corporate income tax AcHSEa xxx xxx xxx "Illustration on how to carry forward excess minimum corporate income tax presented on annualized basis "Excess of MCIT "Normal Income Over the Normal "Year Tax MCIT Income Tax "1998 P50,000 P75,000 P25,000 "1998 amount of tax payable P75,000 "1999 P60,000 P100,000 P40,000 "1999 amount of tax payable P100,000 "2000 P100,000 P60,000 "Computation of Net Amount of Tax Payable in 2000: "Amount of tax payable P100,000 "Less: "1998 excess MCIT (25,000)

"1999 excess MCIT (40,000) P65,000 "Net amount of tax payable P35,000 "The taxpayer shall pay the MCIT whenever it is greater than the regular or normal corporate income tax which is imposed under Sec. 27 (A) and Sec. 28 (A) (1) of the Code. The final comparison between the normal income tax payable by the corporation and the MCIT shall be made at the end of the taxable year and the payable or excess payment in the Annual Income Tax Return shall be computed taking into consideration corporate income tax payment made at the time of filing of quarterly corporate income tax returns whether this be MCIT or normal income tax. Thus, under the example, the taxpayer should have paid the MCIT of P75,000.00 since this amount is greater than the normal income tax of P50,000.00 in 1998. AaCcST "xxx xxx xxx "(3) Relief from the Minimum Corporate income Tax under Certain Conditions "xxx xxx xxx "(4) Definition of Terms "(a) "Gross income" defined For purposes of the minimum corporate income tax prescribed under this Subsection, the term "gross income" means gross sales less sales returns, discounts, and allowances and cost of goods sold, in case of sale of goods, or gross revenue less sales returns, discounts, allowances and cost of services/direct cost, in case of sale of services. This rule, notwithstanding, if apart from deriving income from these core business activities there are other items of gross income realized or earned by the taxpayer during the taxable period which are subject to the normal corporate income tax, the same items must be included as part of the taxpayer's gross income for computing MCIT. This means that the term "gross income" will also include all items of gross income enumerated under Section 32(A) of the Tax Code, as amended, except income exempt from income tax and income subject to final withholding tax described in the succeeding subparagraph. "Gross sales" shall include only sales contributory to income taxable under Sec. 27 (A) of the Code." "Cost of goods sold" shall include all business expenses directly incurred to produce the merchandise to bring them to their present location and use. Gross Revenue shall include income from sale of services, likewise, taxable under Sec. 27 (A). Cost of Services or Direct Cost of Services shall include business expenses directly incurred or related to the gross revenue from rendition of services. EcAISC "Passive incomes which are subject to final tax at source shall not form part of gross income for purposes of minimum corporate income tax. xxx xxx xxx "(5) Specific Rules for Determining the Period When a Corporation Becomes Subject to the MCIT xxx xxx xxx "(6) Manner of filing and payment The minimum corporate income tax (MCIT) shall be paid in the sane manner prescribed for the payment of the normal corporate income tax which is on a quarterly and on a yearly basis. It shall be covered by a tax return designed for the purpose which will be submitted together with the corporation's annual final adjustment income tax return. Domestic corporations shall be required to pay the minimum corporate income tax on a quarterly basis, pursuant to the provisions of Sec. 75 and Sec. 77 of the Code in relation to Section 245 of the same Code, as amended. "xxx xxx xxx" SECTION 3. Transitory Provisions. In the filing of the quarterly income tax return for the taxable quarter which is due for filing after the effectivity of these Regulations, the computation of the MCIT shall be done on cumulative basis covering not only the current taxable quarter but also the previous

taxable quarters of the same taxable year. Such computed MCIT shall be compared with the cumulative normal income tax, whereupon the higher amount between the two shall be the basis of the quarterly income tax payment to be made for said taxable quarter. TcEDHa Thus, for those using calendar year basis accounting period, in the filing of the quarterly income tax return for the third quarter ended September 2007 which is due for filing on or before November 29, 2007, the gross income for the 1st and 2nd quarters shall be added to the gross income for the quarter ended September 2007, the total of which shall be the basis of the 2% MCIT which shall then be compared with the computed cumulative normal income tax. The cumulative MCIT for the three (3) said quarters shall be paid in case the same appears to be higher than the normal income tax computed for the same period. Excess normal income tax carried over from previous taxable year and payments made for the previous quarters of the same taxable year, including withholding tax credits claimed for said previous quarters of same taxable year shall be credited against the computed tax due in the cumulative quarterly tax return. SECTION 4. Repealing Clause. The provisions of Revenue Regulations No. 9-98 and all other internal revenue issuances inconsistent herewith are hereby repealed, modified or amended accordingly. SECTION 5. Effectivity Clause. These Regulations shall take effect after fifteen (15) days following publication in a newspaper of general circulation. aEDCAH (SGD.) MARGARITO B. TEVES Secretary of Finance Recommending Approval: (SGD.) LILIAN B. HEFTI Commissioner of Internal Revenue Copyri ght 2004 CD Technologi es Asia 10-15-2007 Revenue Regulations No. 13-07 October 15, 2007 REVENUE REGULATIONS NO. 13-07 SUBJECT : Prescribing the Rules on the Advance Payment of Value Added Tax/Percentage Tax on the Transport of Naturally Grown and Planted Timber Products TO : All Internal Revenue Officers and Others Concerned SECTION 1. Scope. Pursuant to the provisions of Section 6 and 244, in relation to Sections 106, 108, 109 and 110, all of the National Internal Revenue Code of 1997 (Code), as amended, these Regulations are hereby promulgated to prescribe the policies and procedures for the advance payment of value added tax (VAT) on the transport of naturally grown and planted timber products for purposes of consummating a sale. cDIaAS SECTION 2. Requirement to Pay Advance VAT on Transport of Naturally Grown and Planted Timber Products. The value added tax on transport of naturally grown and planted timber products shall be paid in advance by the owner/seller to the Bureau of Internal Revenue through the Authorized Agent Banks (AABs), or to the Revenue Collection Officers (RCOs) or deputized City or Municipal Treasurers, in places where there are no AABs, before transporting them from place of production or concession. SECTION 3. Persons Liable to Pay the Advance VAT on Naturally Grown and Planted Timber Products. Owners/sellers of naturally grown and planted timber products, whether natural or juridical, who are holders of permits issued by, or agreements entered into with, the Department of Environment and Natural Resources (DENR), are liable to pay the advance VAT on naturally grown and planted timber products harvested prior to its transport for purposes of consummating a sale. These permits and agreements are the following:

a.) Timber License agreements b.) Industrial Forest Management Agreements c.) Tree Farm Lease Agreements d.) Agro-Forestry Farm Lease Agreements e.) Private Forest Development Agreements f.) Socialized Industrial Forest Management Program AEScHa g.) Community-Based Forest Management Program h.) Timber Cutting/Salvage & Related Permits Naturally grown and planted timber products harvested from industrial tree plantations and in private lands covered by existing land titles and approved land applications are also subject to advance VAT. SECTION 4. Basis for Determining the Amount of Advance VAT Payment. a.) Base price The amount of advance payment shall be determined by applying the VAT rate of 12% on the corresponding value per cubic meter of the different species of naturally grown and planted timber products in accordance with the following schedule: LUZON VISAYAS MINDANAO a. Philippine Mahogany Group, 1,400.00/cm 1,400.00/cm 1,425.00/cm Manggasinoro Group,1,400.00/cm 1,400.00/cm 1,425.00/cm Manggachapui Group, 1,400.00/cm 1,400.00/cm 1,425.00/cm Narig Group, 1,400.00/cm 1,400.00/cm 1,425.00/cm Palosapis Group, 1,400.00/cm 1,400.00/cm 1,425.00/cm Guijo Group 1,400.00/cm 1,400.00/cm 1,425.00/cm b. Yakal Group 1,500.00/cm 1,500.00/cm 1,530.00/cm c. Apitong Group 1,260.00/cm 1,260.00/cm 1,260.00/cm d. Solfwood Species except Igem 715.00/cm 715.00/cm 715.00/cm e. Igem 1,275.00/cm 1,275.00/cm 1,275.00/cm f. Nato 1,000.00/cm 1,000.00/cm 1,000.00/cm g. Furniture/Construction 950.00/cm 950,00/cm 950.00/cm Hardwood h. Premium species, allowed cut; 3,000.00/cm 3,000.00/cm 3,000.00/cm and i. Lesser-Used 700.00/cm 700.00/cm 700.00/cm Pulpwood, chip wood and 95.00/cm 95.00/cm 95.00/cm Matchwood species (per cubic meter) TCcIaA b.) Subsequent price adjustment. The valuation upon which the advance payment of VAT is computed under the preceding paragraph shall be adjusted when deemed necessary by the Commissioner of Internal Revenue upon prior consultation with the Secretary of the Department of Environment and Natural Resources. SECTION 5. Proof of Advance VAT Payment. The concerned Revenue District Office or the duly constituted unit in its place shall issue a Certificate of Advance Payment of the VAT (Annex A), after payment of the Advance VAT as required in Section 3 of these Regulations. This certificate shall serve, together with the BIR payment form and documents issued by the DENR, like Certificate of Timber Origin (CTO), Certificate of Lumber Origin (CLO), Self Monitoring Form (SMF), or similar required certificate/form, as the authority to transport the naturally grown and planted timber products from cutting area to any destination which will be presented upon inspection by proper authorities, including officers and agents of the Department of Environment and Natural Resources (DENR) and Bureau of Internal Revenue (BIR). A separate Revenue Memorandum Order (RMO) will be issued to prescribe the details and specific manner in the issuance of Certificate of Advance Payment of VAT and reports to be submitted for

monitoring purposes. SECTION 6. Prohibition of Withdrawal. The owner/concessionaire/seller of the naturally grown or private timber products shall not allow any transport of said timber products from the cutting area without the advance payment of the VAT. DTaAHS Absence of proof of payment of advance VAT will authorize the agents of DENR and BIR to hold in abeyance transport/sale of naturally grown and planted timber products. An owner of naturally grown and planted timber products, who can present a Certificate of Registrations (BIR Form No. 2303) showing that the owner is subject only to 3% percentage tax, shall be exempt from payment of advance VAT but should pay the advance 3% percentage tax as provided in these regulations. Such Certificate of Registrations (BIR Form No. 2303) and proof of payment of the advance 3% percentage tax shall serve as the authority to transport the naturally grown/planted timber products. Provided, however that despite the presentation of the COR herein mentioned, if the aggregate value of the products to be transported exceeds P1.5 M, the same shall be subject to the advance VAT. An internal revenue officer, to be assigned by the Revenue Regional Director upon the recommendation of the Revenue District Officer (RDO) of the district having jurisdiction over the physical location where the naturally grown and planted timber products are cut may be present during the removal/transport of the said products from the premises of the cutting areas in order to ensure that the requirements of this Section are all complied with. SECTION 7. Credit for Advance VAT Payments. In addition to the input tax credits allowed under Section 110 of the Code, the amount of advance VAT payments made by sellers/owners of naturally grown and planted timber products shall be allowed as credits against their output VAT on the actual gross selling price of the timber products. In the case of advance 3% percentage tax; the advance payment shall be credited to the monthly/quarterly percentage tax return. The Certificate of Advance Payment of the VAT or Percentage Tax issued under Section 5 hereof shall be attached to the Monthly VAT Declaration/Quarterly VAT Return or Percentage Tax Return to support the claim for credit of advance VAT or Percentage Tax payment. HSaEAD SECTION 8. Penalty Clause. Any violation of the provisions of these Regulations shall be subject to the penalties provided for in Sections 254, 275 and other pertinent provisions of the Code, as amended. SECTION 9. Effectivity. These Regulations shall take effect after fifteen (15) days following its publication in a newspaper of general circulation. (SGD.) MARGARITO B. TEVES Secretary of Finance Recommending Approval: (SGD.) LILIAN B. HEFTI Commissioner of Internal Revenue ANNEX A CAP VAT NO._____ REPUBLIKA NG PILIPINAS KAGAWARAN NG PANANALAPI KAWANIHAN NG RENTAS INTERNAS Revenue Region No. _____ Revenue District No. _____ CERTIFICATE OF ADVANCE PAYMENT OF VAT/3% PERCENTAGE TAX (Authorizing the transport of forest products & planted species) ____________________________________________________________________ Name of Owner/Transporter of Forest and Planted Timber Products TIN: ____________________________________________________________________

Address: ____________________________________________________________________ Payor has made the advance payment of VAT/30% Percentage Tax in the amount of _______________________ (P ______) for the transport of ____________________ (no. of cubic meters) of ________________________. Accordingly, transport of forest and planted timber (name of specie) products described above under Certificate of Timber Origin No. ___________ dated ________________ is hereby authorized. cECaHA Particulars Drawee Bank Number Date Amount Cash ____________ ____________ ____________ ____________ Check ____________ ____________ ____________ ____________ BIR Form 0605 ____________ ____________ ____________ ____________ Official Receipt ____________ ____________ ____________ ____________ Name of AAB ________________ Name of RCO/DMT ________________ Date of Payment ________________ _____________________________ ____________________________ Name of Authorized Revenue Officer Signature _____________________________ ____________________________ Position/Title Date Original copy : Taxpayer Duplicate copy : File copy of issuing RDO Triplicate copy : Copy for Authorized Revenue Officer ECaAHS Copyri ght 2004 CD Technologi es Asia 12-11-2007 Revenue Regulations No. 14-07 December 11, 2007 REVENUE REGULATIONS NO. 14-07 SUBJECT : Tax on Non-governmental Organizations (NGOs) and Cooperatives Engaged in Microfinance Activities TO : All Internal Revenue Officers and Others Concerned SECTION 1. Background. The government has recognized the role of microfinance institutions in its poverty alleviation programs, particularly in carrying out the objectives of Republic Act 8425 (RA 8425), otherwise known as the Social Reform and Poverty Alleviation Act. With the increasing number of NGOs and cooperatives engaging in microfinance activities, there is a need to clarify the tax treatment of profits on microfinance activities derived by these entities which enjoy tax exemption under existing laws and regulations. cICHTD SECTION 2. Purpose. Pursuant to the provisions of Sec. 244 of the National Internal Revenue Code of 1997, as amended, these Regulations are hereby issued to rationalize the tax exemptions of these entities based on existing laws and regulations and the relevant tax treatment of the profits derived in relation to their delivery of microfinance services. SECTION 3. Definition of Terms. A. Microfinance is a credit and savings mobilization program exclusively intended for the poor to improve the asset base of households and expand the access to savings of the poor. It involves the use of viable alternative credit schemes and savings programs including the extension of small loans,

simplified loan application procedures, group character loans, collateral-free arrangements, alternative loan repayments, minimum requirements for savings, and small denominated savers' instruments; Consistent with the provisions of RA 8425, the maximum individual loan amount provided for microfinance loans is P150,000.00, subject to periodic determination of the Department of Trade and Industry to reflect economic changes. B. Cooperative refers to associations duly registered with the Cooperative Development Authority (CDA), composed of at least fifteen (15) persons, majority of which are poor, having a common bond of interest, who voluntarily join together to achieve a lawful common social and economic end. It is organized by the members who equitably contribute the required share capital and accept a fair share of the risks and benefits of their undertaking in accordance with the universally accepted corporate principles and practices. EaTCSA C. Credit cooperative is a type of cooperative which provides thrift among its members and creates funds in order to grant loan for productive and provident purposes. D. Multipurpose Cooperative is a type of cooperative which combines two (2) or more of the business activities of the different types of cooperatives. E. Accumulated Reserves commonly referred to as the General Reserve Fund, refers to the amount of accrued sum of money annually retained and deducted from the net surplus which is not intended for allocation and distribution to the members, usually deposited in the bank for the protection of and stability of the cooperative. F. Undivided Net Savings refers to the amount arising from net surplus or any portion thereof which the Board of Directors or the General Assembly of the cooperative decides not to divide or make available to members in the form of interest on share capital, patronage refund, reserve refund, education and training fund, optional fund or any other statutory reserve; this also includes the amount arising from the net surplus or any portion thereof which the cooperative is unable to divide because the General Assembly of the cooperative has not been convened for more than two (2) years. G. Non-governmental organizations (NGOs) Refers to duly registered nonstock, nonprofit organizations focusing on the upliftment of the basic or disadvantaged sectors of society by providing advocacy, training, community organizing, research, access to resources, and other similar activities. DISHEA SECTION 4. Tax Treatment of Microfinance Services Rendered by Cooperatives. Consistent with the provisions of Revenue Regulations No. 20-2001, the tax treatment for credit cooperatives on transactions related to its microfinance activities is as follows A. Duly registered credit cooperatives dealing/transacting with members only shall be exempt from paying the following taxes for which they are directly liable: a. Income tax from operations, b. Value-added tax (VAT), c. 3% percentage tax under Section 116 of the Tax Code of 1997, and d. Documentary stamp tax (DST) imposed under Title VII of the Tax Code of 1997, as amended, provided, however, that the other party to the taxable document/transaction who is not exempt shall be the one directly liable for the tax. e. Annual Registration Fee of P500.00 B. Duly registered cooperatives dealing/transacting business with both members and nonmembers a. For cooperatives with accumulated reserves and undivided net savings of not more than Ten Million Pesos (P10,000.000.00) i. exemption from taxes for which they are directly liable, as enumerated in paragraph A of this Section. DcSTaC b. For credit cooperatives with accumulated reserves and undivided net savings of more than Ten Million Pesos (P10,000.000.00) i. Exemption from income tax for a period of 10 years from the date of registration with the CDA,

provided, that at least twenty five percent of the net income of the cooperative is returned to the members in the form of interest and/or patronage fund. For cooperatives whose exemption were removed by Executive Order No. 93, the ten year period shall be reckoned from March 10, 1987 (i.e., the tax exemption is valid only up to March 10, 1997) After the lapse of such ten year period, they shall be subject to income tax at the full rate on the amount allocated for interests on capital, provided that the same is not consequently imposed on interest individually received by members. The tax base for credit cooperatives liable to income tax shall be the net surplus arising from business transactions with non-members, including those arising from all microfinance activities, after deducting the amounts from the statutory reserve funds as provided for in the Cooperative Code and other laws. cDCaHA ii. Exemption from VAT under Section 109 (M) and 3% tax under Section 116, both of the Tax Code, as amended. iii. Subject to all other internal revenue taxes unless otherwise provided by law. Notwithstanding the foregoing, all income of cooperatives which undertake microfinance activities in addition to their registered purpose except credit cooperatives and multi-purpose cooperatives which have one of its business activities as those performed by credit cooperatives, shall be subject to appropriate taxes under the Tax Code of 1997, as amended. This is applicable to all cooperatives, whether dealing purely with members or both members and non-members. Moreover, all cooperatives, regardless of classification, are considered as withholding agents and are required to file withholding tax returns and remit withholding taxes on all income payments that are subject to withholding. SECTION 5. Tax Treatment of Microfinance Services Rendered by Non-governmental Organizations. All NGOs falling under the enumeration of Section 30 of the Tax Code of 1997, as amended, are exempt from income taxes, in respect of income received by them as such. However, income of such NGOs from microfinance activities, and which are not in respect of their registered activities covered by Section 30 of the Tax Code of 1997, as amended, regardless of the disposition made of such income, shall be subject to tax under the Tax Code of 1997, as amended. Similarly, non-stock, non-profit NGOs, whether or not engaged in microfinance activities, are still also required to file withholding tax returns and remit withholding taxes on all income payments that are subject to withholding as specified in Revenue Memorandum Circular No. 76-2003. EacHCD SECTION 6. Repealing Clause. These Regulations shall be read in consonance with Revenue Regulations No. 20-2001 and Revenue Memorandum Circular No. 76-2003. All revenue rulings, issuances or parts thereof which are inconsistent with these Regulations insofar as microfinance activities of cooperatives and NGOs are concerned are hereby amended or repealed accordingly. SECTION 7. Effectivity. These Regulations shall take effect fifteen (15) days after publication in the Official Gazette or newspaper of general circulation, whichever comes first. ITHADC (SGD.) MARGARITO B. TEVES Secretary of Finance Copyri ght 2004 CD Technologi es Asia 11-29-2007 Revenue Regulations No. 15-07 Regulations Allowing for the Abatement of Penalties/Surcharges and Interest on Disputed/Litigated Assessments November 29, 2007

REVENUE REGULATIONS NO. 15-07 SUBJECT : Regulations Allowing for the Abatement of Penalties/Surcharges and Interest on Disputed/Litigated Assessments TO : All Internal Revenue Officers and Others Concerned SECTION 1. Purpose. Pursuant to Section 204 (B) of the National Internal Revenue Code (Code) of 1997, as amended, these Regulations are hereby promulgated in order to give the taxpayers the opportunity to settle their preliminary or final assessments, disputed/protested administratively or judicially, by way of application for payment of basic tax and abatement or cancellation of all penalties, including surcharge and interest. HAaDTE Before an assessment reaches finality, the liability of the taxpayer is not yet certain and, therefore, the imposition of penalties at this stage appears to be unjust and/or makes the assessment excessive. This paves the legal avenue for the abatement thereof because pursuant to Section 204 (B) of the Code, as amended, the Commissioner is authorized to abate or cancel tax liability and/or the penalties thereon when the tax or any portion thereof appears to be unjustly or excessively assessed, or the administration and collection costs involved do not justify the collection of the amount due. Accordingly, herein program of abatement of penalties would encourage taxpayers to pay the basic tax assessed as soon as possible to avoid the rigors of a protracted protest/litigation process. This Abatement Program is also aimed to substantially reduce the Bureau's rising inventory of disputed/litigated assessments by adopting a more pragmatic and expedient approach to convert these accounts into much needed revenue. SECTION 2. Coverage. The following cases, with duly issued Assessment Notice as of November 29, 2007, involving taxable year ending December 31, 2005 and prior years, shall be covered hereof: a) Cases under administrative protest pending in the Regional Office, Revenue District Office, Legal Service, Large Taxpayer's Service (LTS), Collection Service, Enforcement Service and other Offices in the National Office; and b) Civil tax cases being disputed before the Department of Justice and the courts, e.g., MTC, RTC, CTA, CA and SC, including cases with decision which are not yet final and executory. 1upnar08 The following cases, however, shall be excluded: a) Cases involving issues decided by the Supreme Court with finality unless the issues involved difficult question of law or issues without established precedent ruling or Supreme Court Decision at the time of the transaction; b) Cases where the Presidential Commission on Good Government (PCGG) has an interest and/or there is a need to coordinate with the PCGG; and c) Withholding tax cases. SECTION 3. Place for Filing Application for Abatement of Penalties and Interest. All applications, consisting of a letter request by the taxpayer for abatement of penalties and interest, duly accomplished Application for Abatement Form (Annex "A"), as well as copy of the Pre-assessment Notice (PAN) or Final Assessment Notice (FAN) being the subject of application for abatement, shall be filed with the following offices: a) Revenue District Office (RDO) For Regional Office Cases under the jurisdiction of the concerned district; b) Concerned Group of the Large Taxpayers Service (LTS) For Large Taxpayers Cases under the jurisdiction of the concerned group of the Large Taxpayers Service. The abatement docket or record consisting of the "Application for Abatement of Penalties and Interest" together with the copy of Assessment Notice and duly validated payment form/proof of payment (BIR Form No. 0618) of basic tax shall, thereafter, be forwarded to the appropriate Technical Working Committee (TWC) mentioned in Section 5 hereof for its review and evaluation. However, if the case is under judicial protest, a photocopy of the Application for Abatement as well as of the payment form shall be given to the concerned Legal Office for its information/coordination with appropriate

collecting office/TWC. SECTION 4. Time for Payment of the 100% Basic Tax Assessed. The filing of the application and payment of an amount equal to One Hundred Percent (100%) of the Basic Tax assessed shall be made not later than February 29, 2008, unless extended by the Commissioner on meritorious grounds, with the Accredited Agent Bank (AAB) of the RDO/LTS/Large Taxpayers District Office (LTDO) that has jurisdiction over the taxpayer. In the absence of an AAB, payment may be made with the Revenue Collection Officer/Deputized Treasurer of the concerned BIR Office that has jurisdiction over the taxpayer. cTSDAH SECTION 5. Approval of Abatement. The Commissioner has the sole authority to abate or cancel internal revenue taxes, penalties and/or interest pursuant to Section 204 (B), in relation to Section 7 (c), both of the National Internal Revenue Code of 1997. Nonetheless, this program covers just the abatement of penalties and interest, and the processing of the cases shall be coursed through the following officials: a) The Deputy Commissioner-Operations Group, who shall constitute a TWC for the evaluation and review of any application for abatement or cancellation of penalties and/or interest on disputed assessments/protested cases of taxpayers under the jurisdiction of the Region; b) The Assistant Commissioner/concerned Head Revenue Executive Assistant of the LTS, who shall constitute a TWC for the evaluation of application for abatement of penalties and interest on protested/disputed/litigated assessments of taxpayers under the jurisdiction of the Large Taxpayers Service. The recommendation of the aforementioned Officials, through their respective TWCs, shall be the basis of the approval or disapproval by the Commissioner of the application. Provided, however, that with respect to abatement of penalties and interest on protested/disputed assessments of taxpayers under the LTS, the concerned Officials, through the concerned TWC, shall first have its recommendation approved or disapproved by Management Committee (MANCOM), through a majority vote of all the members, before the same is elevated to the Commissioner for appropriate action. Upon approval by the Commissioner, the tax case is accordingly terminated through the issuance of a Termination Letter (Annex "B"), and Authority to Cancel Assessment (ATCA) pertinent to that portion of the assessment (i.e., the penalties/interest) abated. The Termination Letter and the Authority to Cancel Assessment shall be signed by the BIR Official who signs the same on audit cases that have been protested administratively or judicially. IDaCcS SECTION 6. Processing Time. The application for abatement or cancellation of penalties and/or interest, together with complete supporting documents (Assessment Notice, Payment Form), should be transmitted by the concerned Offices mentioned in Sec. 3 hereof to the respective TWCs within five (5) days from receipt by said office. The concerned TWC has fifteen (15) days within which to act on the case. SECTION 7. Effectivity Clause. These Regulation shall take effect after (15) days of publication in a newspaper of general circulation. cCEAHT (SGD.) MARGARITO B. TEVES Secretary of Finance Recommending Approval: (SGD.) LILIAN B. HEFTI Commissioner of Internal Revenue ANNEX A APPLICATION FOR ABATEMENT PROGRAM (Under Revenue Regulations No. _________) _____________ (Date) The Commissioner of Internal Revenue

_______________________________ _______________________________ _______________________________ Dear Sir/Madam: Please consider this as an application for abatement under Revenue Regulations No. _____. The following is/are my/our deficiency tax/es or assessment/s: Name of Taxpayer : ____________________________ Address : ____________________________ TIN : ____________ Taxable Year Covered: ____________ Assessment Notice No. : ________ ________ ________ Type of Tax : ________ ________ ________ Total Amount: ________ ________ ________ Basic ________ ________ ________ Surcharge ________ ________ ________ Interest ________ ________ ________ Compromise Penalty ________ ________ ________ Status of the Case : ____________________________ Attached is the triplicate copy of Abatement Program Payment Form (BIR Form No. 0618) reflecting payment of 100% of the basic tax due in the amount of P___________. Very truly yours, ______________________________ Taxpayer/Authorized Representative (Signature Over Printed Name) ______________________ Position Contact person/s: Name: __________________ Telephone No.: ___________ E-mail Address: ___________ ANNEX B QUEZON CITY TERMINATION LETTER (Abatement Program Under RR No. _______) Case No. _____________ ________________ (Date) S i r / Madam: This refers to your availment of the ADMINISTRATIVE ABATEMENT of all penalties, surcharge and interest, pursuant to the provisions of Section 204 (B) of the Tax Code, as amended, and implemented by Revenue Regulations No. ________, bearing on your internal revenue tax liabilities, to wit; NAME OF TAXPAYER : _________________________________ ADDRESS : _________________________________ TIN : _________________________________ ASSESSMENT NO. : _________ _________ _________ DATE OF ASSESSMENT : _________ _________ _________ PERIOD COVERED : _________ _________ _________ TAX TYPE : _________ _________ _________ BASIC TAX : _________ _________ _________ SURCHARGE : _________ _________ _________

INTEREST : _________ _________ _________ COMPROMISE PENALTY : _________ _________ _________ TOTAL AMOUNT DUE : _________ _________ _________ AMOUNT PAID : _________ _________ _________ BANK O.R. NO. : _________ _________ _________ BANK VALIDATION NO. : _________ _________ _________ BANK BRANCH : _________ _________ _________ ROR NO. (if applicable) : _________ _________ _________ RCO NAME (if applicable) : _________ _________ _________ In this connection, we are pleased to inform you that in view of your availment of the aforesaid benefits granted under the special provisions of Section 204 (B) of National Internal Revenue Code (NIRC), as amended, and its implementing rules and regulations, and the payment of the total amount of ____________________________, representing ONE HUNDRED PERCENT (100%) of the basic tax assessed under this ABATEMENT PROGRAM, the tax liability stated above is hereby CLOSED and TERMINATED. Very truly yours, ______________________________ Taxpayer/Authorized Representative (Signature Over Printed Name) ______________________ Position Copyri ght 2008 CD Technologi es Asia Inc . Agent at the end of the borrow