Tax Credit Certificates (TCC) under RR No. 14-2011

A Tax Credit Certificate (TCC) may be used by the grantee or his assignee in the payment of his direct internal revenue tax liability except the following:

1. payment or remittance for any kind of withholding tax;
   
2. payment arising from the availment of tax amnesty declared under a legislative enactment;
   
3. payment of deposits on withdrawal of exciseable articles;
   
4. payment of taxes not administered or collected by the Bureau of Internal Revenue; and
   
5. payment of compromise penalty.

Under Revenue Regulations 5-2000 dated August 15, 2000, BIR issued Tax Credit Certificates (TCCs) may be transferred in favor of an assignee based on the following conditions:

1. the transfer of a valid TCC must be with prior approval of the Commissioner or his duly authorized representative;
2. the transfer should be limited to one transfer only; and
   
3. the transferee shall use the TCC assigned to him strictly in payment of his direct internal revenue tax liability and in no case shall the same be available for conversion to cash in his hands.

In practice, transfers or assignment of TCCs has been an industry for quite a time. The grantee normally would transfer the same at a discount of say 10% to 15% because it is after the cash it could generate and make use in its operations. For the buyer or transferee, it is after the gain on the discount because it will utilize every peso of TCC with a lesser cost so it would benefit on the discount. The broker then, would earn a professional fee out of the completed transactions. In this instance, taxable gains and income are being realized, and a deductible loss is likewise incurred.

For the government, the use of TCCs would reduce cash collections because transferring the TCCs to taxpayers with much tax liabilities would maximize the use of the same thereby negatively affecting collections. Without transferring, grantees without much direct liabilities would tend to consume the TCC's in a long period of time. To my mind, this scenario prompted the BIR to issue the new regulations, disallowing its transfer.

Thus, in Section 2 Revenue Regulations No. 14-2011 dated July 29, 2011 amended Section 4 of the RR No. 5-00 and hereunder provides that:

"All Tax Credit Certificates (TCCs) issued by the BIR shall not be allowed to be transferred or assigned to any person"

Accordingly, grantees of the TCC would themselves use the TCCs. Without much direct liabilities, it would take them quite a long time to consume unless they could eye on some alternative tax minimization schemes in accordance with law.

Sources:

• Revenue Regulations No. 14-2011
• Revenue Regulations No. 5-2000

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Posted in: RR No. 14-11,RR No. 5-00,Tax Credit Certificates,TCC