Closing shop

During these challenging times, foreign and local investors in the Philippines are looking into ways to cushion the effects of the global financial crisis on their businesses. For some, merger or consolidation of corporations is seen as a viable solution. But to the not so fortunate, closure or dissolution of a corporation is inevitable.

Whether merger, consolidation or closure of corporations is effected, the approval of various government agencies where the corporation is registered is required. These includes: (1) Local Government Unit (LGU); (2) Social Regulatory Agencies, i.e. Social Security System (SSS), Philippine Health Insurance Corporation (Philhealth), and Home Development Mutual Fund (HDMF); (3) Bureau of Internal Revenue (BIR); and (4) Securities and Exchange Commission (SEC). For corporations with special registrations, the approval of the Board of Investments (BOI), Philippine Economic Zone Authority (PEZA), etc., is likewise required.

Each of the above government agencies has its own set of cancellation procedures and requirements in place. In the case of the BIR, the procedure for cancellation of business registration and Taxpayer Identification Number (TIN) is provided in Section 14 of Revenue Regulations (RR) No. 11-2008 (Consolidated Revenue Regulations on Primary Registration, its Updates, and Cancellation) dated Aug. 15, 2008.

Under these regulations, the BIR cancellation process is initiated by the corporate taxpayer through the filing of a Notice of Closure or Cessation of Business to the Revenue District Office (RDO) where it is registered. Supporting documents required are as follows:

• Duly accomplished BIR Form No.1905 (Application for Information Registration Update)

• List of ending inventory of goods, supplies, including capital goods

• Inventory/list of unused sales invoices/official receipts (SI/ORs) and all other unutilized accounting forms, e.g., vouchers, debit/credit memos, delivery receipts, purchase orders, etc.

• Surrender of original copies of unused SI/ORs and all other unutilized and accounting forms for cancellation

• Surrender of original copies of business notices, permits and Certificate of Registration (COR) for cancellation

The above list notwithstanding, the BIR, as a matter of practice, likewise require the submission of all the BIR Tax Forms filed by the taxpayer for the past three years immediately preceding the date of filing of the application. Other documents may also be required in the course of the BIR’s evaluation of the application and supporting documents filed.

Upon receipt of the required notice and supporting documents, the RDO concerned will:

• “End-date” the tax types of the taxpayer;

• Destruct in the presence of the taxpayer or his authorized representative the unutilized SI/ORs and other accounting forms; and

• Return to the taxpayer the destructed SI/ORs and other accounting forms for burning or proper disposition.

The filing of closure application will normally trigger the conduct of a BIR tax audit investigation on the books of accounts and other accounting records of the taxpayer. Only where the tax liabilities of the taxpayer has been determined and settled will the BIR cancel the taxpayer’s COR and TIN and issue the corresponding Tax Clearance.

While the closure process may be tedious and protracted at times, due care must be given in the processing of the cancellation of COR and TIN of a taxpayer. After the issuance of the Tax Clearance, not only will the corporate taxpayer be saved from making further filings with the BIR, this will also pave the way for the SEC approval on its request for closure.

(Janice G. Bernabe is an Assistant Manager for Tax and Corporate Services of Manabat Sanagustin & Co., CPAs, a member firm of KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. This article is for general information only and is not intended to be, nor is it a substitute for, informed professional advice. While due care was exercised to ensure the quality of the information contained in this article, readers should carefully evaluate its accuracy, completeness and relevance for their purposes, and should obtain any appropriate professional advice relevant to their particular circumstances. For comments or inquiries, please email manila@kpmg.com.ph or jbernabe@kpmg.com).–Janice G. Bernabe, Philippine Star