December 29, 1988

BIR RULING NO. 604-88

204(1)(b) 000-00 604-88

Gentlemen:

        This refers to your letter dated June 29, 1988 in relation to your follow-up letter dated December 16, 1988 stating that your client, the Aguinaldo Development Corporation (ADECOR), Legazpi Towers, 7th Floor, Paseo de Roxas, Makati, Metro Manila, has assessments for basic percentage, sales, forest charges, fixed, documentary and withholding taxes which were the subject of a compromise, duly approved by the Commissioner with an outstanding balance of P980,000.00; that ADECOR proposes to liquidate this amount by way of assignment of its cash receivables, Land Bank bonds and tax credits representing its compensation for the voluntary transfer of its agricultural properties located in Davao in accordance with the Comprehensive Agrarian Reform Law of 1988; that the total estimated valuation of such properties is P1,343,348.04 (484,677.32 + 858,670.72) which is greater than your outstanding tax liability of P980,000.00; that the BIR has levied a tax lien on these properties to answer for the satisfaction of said tax liabilities sought to be settled by way of assignment herein offered..  cdta

        You now request confirmation that the proposed assignment to the Government of the compensation consisting of cash receivables, Land Bank bonds and tax credits from the Land Bank of the Philippines is an acceptable settlement of the aforesaid tax liability.

        In reply, please be informed that pursuant to Section 204(1)(b) of the Tax Code, the proposal to settle said tax liability by assignment of your client's cash receivables, Land Bank bonds and tax credits in accordance with the foregoing facts, is hereby accepted in accordance with Section 18 of the Comprehensive Land Reform Law of 1988, pertinent portion of which is quoted hereunder as follows:

"Section 18.   Valuation and Mode of Compensation. — The LBP shall compensate the landowner in such amount as may be agreed upon by the landowner and the DAR and the LBP in accordance with the criteria provided for in Section 16 and 17 and other pertinent provisions hereof, or as may be finally determined by the court as the just compensation for the land.

"The compensation shall be paid in one of the following modes, at the option of the landowner:

(1)     Cash payment;

(2)     Tax credits which can be used against any tax liability;

(3)     LBP bonds, which shall have the following features:

(a)     . . .

(b)     Transferability and negotiability,

xxx                    xxx                    xxx

(v)     Pay for various taxes and fees to government: Provided, That the use of these bonds for these purposes will be limited to a certain percentage of the outstanding balance of the financial instruments: Provided, further, That the PARC shall determine the percentage mentioned above." cdt

        It is understood, however, that our acceptance of your client's proposal is subject to the following conditions:

1.         That it will execute a Deed of Assignment of its cash receivables Land Bank Bonds and Tax Credits in favor of the Bureau of Internal Revenue pursuant to Article 1625 of the Civil Code.

2.         That the Bureau shall conduct a verification of its cash receivables and the face value of its Land Bank bonds and tax credits. If the total proceeds is not sufficient to cover its tax liabilities, the Bureau reserves the right to levy its other properties.

Very truly yours,

(SGD.) BIENVENIDO A. TAN, JR.

Commissioner