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DIGEST OF 1999 REVENUE REGULATIONS

REVENUE REGULATIONS NO. 1-99 issued January 6, 1999 prescribes the rules and regulations for the effective implementation of the tax incentives provided for qualified jewelry enterprises under Section 3 (b) and (d) of Republic Act No. 8502, otherwise known as the "Jewelry Industry Development Act of 1998". Said tax incentives are: 1) exemption from excise tax of manufactured and produced jewelries, if shown to have been purchased from a qualified jewelry enterprise; and 2) additional deduction of 50% for training expenses incurred by qualified jewelry enterprises. REVENUE REGULATIONS NO. 2-99 issued February 9, 1999 establishes the policies and procedures for the availment of immunity from audit and investigation of Income Tax, VAT and Percentage Tax returns filed for taxable year 19998 granted under the Economic Recovery Assistance Payment (ERAP) Program. The immunity from audit and investigation will not apply to withholding tax returns (whether for Income, VAT or Percentage Tax purposes). In order to avail of the immunity from audit and investigation, the taxpayer should pay or should have paid TWENTY PERCENT (20%) or more than the tax paid in 1997 for Income Tax, VAT and/or Percentage Taxes, including basic deficiency taxes paid (in cases already audited). REVENUE REGULATIONS NO. 3-99 issued February 15, 1999 amends Revenue Regulations No. 1298 to streamline and make more efficient the collection of the creditable withholding tax on income payments from medical practitioners. Specifically, it will be the duty and responsibility of the hospital or clinic to remit taxes withheld from: a) professional fees paid directly to hospitals or clinics by patients; and b) professional fees paid by patients directly to medical practitioners where the 10% expanded withholding tax will in turn be given by medical practitioners directly to the Accounting Office of the hospitals or clinics. Hospitals and clinics are required to submit the names and addresses of medical practitioners every 15th day after the end of each calendar quarter to the Collection Division of the Revenue Region where such hospital or clinic is located. Moreover, they will also be responsible for the accurate computation of professional fees paid directly to hospitals and clinic and for the timely remittance of the 10% expanded withholding taxes. The deadline for the remittance of the collected withholding tax to the Accredited Agent Banks of the BIR, whether paid directly to hospitals or clinic or paid directly to medical practitioners, is on or before the 10th day of the following month from January to November and January 25th for the month of December. REVENUE REGULATIONS NO. 4-99 issued March 16, 1999 further amends Revenue Memorandum Order No. 6-92 relative to the payment of Capital Gains Tax and Documentary Stamp Tax on extrajudicial foreclosure sale of capital assets initiated by banks, finance and insurance companies. Where the right of redemption of the mortgagor exists, the certificate of title of the mortgagor will not be cancelled yet even if the property had already been subjected to foreclosure sale. Instead, only a brief memorandum will be annotated at the back of the certificate of title, and the cancellation of the title and the subsequent issuance of a new title in favor of the purchaser/highest bidder depends on whether the mortgagor will redeem or not the mortgaged property within one year from the issuance of the certificate of sale. Thus, no transfer of title to the highest bidder can be effected yet until and after the lapse of the one-year period from the issuance of the said certificate of sale. In case the mortgagor exercises his right of redemption within one year from the issuance of the certificate of sale, no Capital Gains Tax will be imposed because no capital gains has been derived by the mortgagor and no sale or transfer of real property was realized. In case of non-redemption, the Capital Gains Tax on the foreclosure sale shall become due based on the bid price of the highest bidder, but only upon the expiration of the one-year period of redemption, and will be paid within thirty (30) days from the expiration of the said one-year redemption period. The corresponding Documentary Stamp Tax will be levied, collected and paid by the person making, signing, issuing, accepting or transferring the real property wherever the document is made, signed, issued, accepted or transferred where the property is situated in the Philippines. REVENUE REGULATIONS NO. 5-99 issued March 16, 1999 implements Section 34(E) of the Tax Code of 1997 relative to the requirements for deductibility of bad debts from gross income of a corporation

or an individual engaged in trade or business or a professional engaged in the practice of his profession. The requisites for valid deduction of bad debts from gross income are: a) there must be an existing indebtedness due to the taxpayer which must be valid and legally demandable; b) the same must be connected with the taxpayer's trade, business or practice of profession; c) the same must not be sustained in a transaction entered into between related parties enumerated under Section 36(B) of the Tax Code of 1997; d) the same must be actually charged off the books of accounts of the taxpayer as of the end of the taxable year; and e) the same must be actually ascertained to be worthless and uncollectible as of the end of the taxable year. The recovery of bad debts previously allowed as deduction in the preceding year or years will be included as part of the taxpayer's gross income in the year of such recovery to the extent of the income tax benefit of said deduction. REVENUE REGULATIONS NO. 6-99 issued April 19, 1999 extends the deadline until July 15, 1999 for the availment of the immunity from audit or investigation of Income Tax, VAT and Percentage Tax returns under the Economic Recovery Assistance Payment (ERAP) Program. Covered by the extension are the following: a) Income Tax Returns for the Taxable Year 1998 (whether on calendar year or fiscal year basis), due for filing as of April 15, 1999; b) Income Tax Returns for the Taxable Year 1998 of corporations using the fiscal year accounting period which are due for filing before July 15, 1999; and c) VAT and Percentage Tax Returns covering all quarters of the calendar year 1998. REVENUE REGULATIONS NO. 7-99 issued April 20, 1999 further amends Revenue Regulations No. 7-95, as amended, by specifying that for computerized VAT taxpayers, the Summary Lists of Sales and Purchases will be submitted in magnetic form (using 3.5-inch floppy diskettes) to the Revenue District Office having jurisdiction over the place of business of the taxpayer, or through Electronic Data Transmission to the National Office Information Systems Operations Service, on or before the last day of the month immediately following the close of each calendar quarter. The list must conform to the magnetic file format prescribed in Annex A of the Regulations. REVENUE REGULATIONS NO. 8-99 issued May 11, 1999 provides penalties for violation of the requirement that output tax on sale of goods and services should not be separately indicated in the sales invoice or official receipt. The amount appearing in the sales invoices/receipts is thus deemed inclusive of the Value-Added Tax due thereon. The penalty for violation of the said requirement is a fine of not less than One Thousand Pesos (P 1,000) but not more than Fifty Thousand Pesos (P50,000), and imprisonment of not less than two (2) years but not more than four (4) years. REVENUE REGULATIONS NO. 9-99 issued May 24, 1999 amends RMO No. 30-99 by prescribing non-resident citizens, overseas contract workers and seamen to file information returns (BIR Form 1701C or the new computerized Form 1703). Said form, together with other relevant supporting papers, shall be filed to the Foreign Post or the Revenue District Office which has jurisdiction over the place of residence of the taxpayer not later than April 15 following the taxable year. The 1998 returns filed after April 15 but not later than July 15, 1999 will not be subject to penalty charges. REVENUE REGULATIONS NO. 10-99 issued August 25, 1999 prescribes the procedures for the application and grant of permit to use cash register and point-of-sale machines in lieu of registered sales invoices or receipts. The lines of business that may qualify for the issuance of permits to use cash register and point-of-sale machines are specified in the Regulations. REVENUE REGULATIONS NO. 11-99 issued August 30, 1999 prescribes the issuance of Taxpayer Identification Number (TIN) to all taxpayers and qualified applicants, as well as the mandatory incorporation of TIN in government forms, papers or documents. Government agencies and instrumentalities, government-owned and-controlled corporations and local government units shall provide a space for the TIN in all registration and transaction forms or documents, and shall require all applicants for government permit, license and official papers to indicate their duly issued TIN thereon. As proof of possession of a valid TIN, the government agency may require the

presentation of the TIN Card. Provided, however, that it will be sufficient for those who do not yet have TIN Cards to present his/its application for TIN duly stamped by the BIR (Form 1901, 1902, 1903 and 1904). After the lapse of six (6) months from the date of the effectivity of this Regulations, no permit, license, clearance, or official documents will be released to an applicant without a duly-issued TIN or without proof of application therefore. Unauthorized production of TIN Cards or the use of spurious TIN by any person will be subject to criminal prosecution under Articles 171 and 172 of the Revised Penal Code. Only one TIN will be assigned to a taxpayer. Any person who secures and/or uses more than one TIN will be criminally liable or will be punishable by a fine of not more than One Thousand Pesos (P 1,000.00) or suffer imprisonment of not more than six (6) months, or both pursuant to Section 275 of the Tax Code of 1997. REVENUE REGULATIONS NO. 12-99 issued September 14, 1999 implements the provisions of the Tax Code of 1997 relative to the rules on assessment of national internal revenue taxes, fees and charges, as well as provides the rules for the extra-judicial settlement of a taxpayer's criminal violation of the said Code or any of its implementing Regulations through payment of a suggested compromise penalty. As a general principle, in case the tax due from the taxpayer is paid on a partial or installment basis, the interest on the deficiency tax or on the delinquency tax liability of the taxpayer will be imposed from due date of the tax until full payment thereof. The interest will be computed based on the diminishing balance of the tax, inclusive of interests. REVENUE REGULATIONS NO. 13-99 issued September 14, 1999 prescribes the regulations for the exemption of a citizen or a resident alien individual from the payment of the 6% Capital Gains Tax on the sale, exchange or disposition of his principal residence. In order for a person to be exempted from the payment of the tax, he should submit, together with the required documents, a Sworn Declaration of his intent to avail of the tax exemption to the Revenue District Office having jurisdiction over the location of his principal residence within (30) days from the date of the sale, exchange or disposition of the principal residence. The proceeds from the sale, exchange or disposition of the principal residence must be fully utilized in acquiring or constructing the new principal residence within eighteen (18) calendar months from the date of the sale, exchange or disposition. In case the entire proceeds of the sale is not utilized for the purchase or construction of a new principal residence, the Capital Gains Tax will be computed based on the formula specified in the Regulations. If the seller fails to utilize the proceeds of sale or disposition in full or in part within the 18-month reglementary period, his right of exemption from the Capital Gains Tax did not arise on the extent of the unutilized amount, in which event, the tax due thereon will immediately become due and demandable on the 31st day after the date of the sale, exchange or disposition of the principal residence. If the individual taxpayer's principal residence is disposed in exchange for a condominium unit, the disposition of the taxpayer's principal residence will not be subjected to the Capital Gains Tax herein prescribed, provided that the said condominium unit received in the exchange will be used by the taxpayertransferor as his new principal residence. REVENUE REGULATIONS NO. 14-99 issued October 13, 1999 amends Section 2 of Revenue Regulations No. 14-97 relative to the imposition of Excise Taxes on automobiles and other motor vehicles. Automobile is defined as a four (4) or more wheeled vehicle other than trucks or passenger jeepneys, which is propelled by gasoline, diesel, electricity or any other motive power, and specially designed to transport persons and not primarily to transport freight or merchandise. It will include utility or light commercial vehicles designed for passenger use with seats for less than ten (10) passengers, including the driver. Vehicles that do not have manufacturer's certification and manufacturer's catalogues or brochures or whose manufacturer's certification and manufacturer's catalogues or brochures do not contain the required

information or show that the vehicle do not meet the requirements of this Regulation will be subject to tax as an automobile under Section 149 of Tax Code. REVENUE REGULATIONS NO. 15-99 issued November 17, 1999 creates the Revenue Regional Accreditation Board in each Revenue Region and the Revenue National Accreditation Board in the National Office. The Accreditation Boards will act upon all applications for accreditation by tax practitioners to practice before the Bureau of Internal Revenue, as well as institute and provide for the conduct of accreditation, suspension or dis-accreditation proceedings. Any action or decision of the Revenue Regional Accreditation Board (RRAB) will only become final upon affirmation by the Revenue National Accreditation Board (RNAB) and/ or by the Commissioner. The accreditation requirements will apply to: a) individual tax practitioners engaged in private practice who are Certified Public Accountants (CPA); b) CPA-Lawyers who issue/sign auditor's certificate or otherwise perform functions exclusively pertaining to a CPA; c) individuals other than CPAs who meet the qualifications prescribed in the Regulations; d) partners of a general professional partnership engaged in the practice of taxation, accountancy and/or auditing, including their duly authorized officers or representatives who regularly appear or otherwise engage in tax practice before the BIR and e) officers or duly authorized representatives of incorporated business entities engaged in accounting, auditing or tax consultancy services. Those allowed to appear before the BIR without undergoing accreditation proceedings are: a) individual-taxpayers acting on their own behalf, provided they present satisfactory identification; b) members of the Philippine Bar not suffering from suspension/disbarment and c) other individuals presenting satisfactory proof of identification or authority in any one of the circumstances of limited practice or special appearances specified in the Regulations. REVENUE REGULATIONS NO. 16-99 issued November 23, 1999 amends Revenue Regulations No. 195 and other related rules and regulations relative to the grant of tax incentives to enterprises registered in the Subic Special Economic and Freeport Zone. Specifically, any multinational company whose purpose is to engage in regional and/or international trade/services and business activities may establish in the Subic Special Economic and Freeport Zone its seat of management and the situs of its business transactions, including the recording of its income, from some or all countries in the Asia-Pacific region and or other parts of the world, including the Philippines. For this purpose, the multinational company should register as a Subic Bay Regional Enterprise (SBRE) with the Subic Bay Metropolitan Authority. Once registered, the SBRE will pay a tax of 5% on gross income earned from business transactions in some or all of the countries in the Asia-Pacific region and/or other parts of the world, including the Philippines. The SBRE may generate revenues from sources within the Customs Territory up to 50% of its total revenues. The income generated from the customs territory will be subject to the tax of 5% on gross income earned, provided that, if the revenues derived from the customs territory exceed 50% of its total revenues, the excess of the income generated by the Regional Enterprise will be subject to the regular income tax rates in the customs territory. REVENUE REGULATIONS NO. 17-99 issued December 27, 1999 implements Sections 141, 142, 143 and 145 (A) and (C) (1), (2), (3) and (4) of the National Internal Revenue Code of 1997 relative to the increase of the Excise Tax on distilled spirits, wines, fermented liquors and cigars and cigarettes packed by machine by twelve percent (12%) effective January 1, 2000. The new rates of Specific Tax to be levied, assessed and collected are specified in the Regulations, provided, that the new specific tax rate for any existing brand of cigars, cigarettes packed by machine, distilled spirits, wines and fermented liquor will not be lower than the Excise Tax that is actually being paid prior to January 1, 2000. REVENUE REGULATIONS NO. 18-99 issued December 29, 1999 implements Section 5 of the Tax Reform Act of 1997 and other pertinent provisions of the National Internal Revenue Code of 1997 relative to the imposition of the Value-Added Tax on services of banks, non-bank financial intermediaries and finance companies beginning January 1, 2000. The output tax on the services rendered by banks for financial intermediation, which is an implicit fee hidden in the interest income and interest expense, will be computed by multiplying the gross receipts from financial intermediation services by 1/11. Likewise, the

output tax on the sale of other services by banks, non-bank financial intermediaries and finance companies, the compensation of which is explicitly charged from their customers (i.e. service charges, commissions, rentals, etc.), will be computed by multiplying the total amount of gross receipts during the month or quarter by 1/11. The treatment of the output tax shifted to the buyer of services and the allowable input taxes are specified in the Regulations. REVENUE REGULATIONS NO. 19-99 issued December 29, 1999 implements Section 5 of Republic Act No. 8424 and other pertinent provisions of the National Internal Revenue Code of 1997 relative to the imposition of the Value-Added Tax beginning January 1, 2000 on the sale of services by persons engaged in the practice of profession or calling and professional services rendered by general professional partnerships; services rendered by actors, actresses, talents, singers and emcees; radio and television broadcasters and choreographers; musical, radio, movie, television and stage directors; and professional athletes. For this purpose, a professional partnership will be treated as a separate and distinct taxable person from the individual partners composing the partnership. All gross receipts from the sale of services rendered by the partners for and in the name of the partnership will be entirely taxable against the partnership while sales of services made by any of the partners in his personal and individual capacity will not be attributed to the partnership, but will be taxable against such partner in his individual capacity.