Merger and Nolco; government withholding

THE principle involving Net Operating Loss Carryover (Nolco) in mergers has undergone changes as imposed by the incumbent administration of the Bureau of Internal Revenue (BIR).

The previous doctrine used to be that the Nolco of the surviving entity in mergers could continuously be used and deducted by it after the effective date of the merger. On the other hand, the Nolco of the absorbed entity could be carried over and utilized by the surviving entity if the shareholders of the absorbed entity will own not less than 75 percent in nominal value of the outstanding issued shares or paid up capital of the surviving company (Revenue Regulations No. 14-2001, BIR Ruling No. 137-99).

However, based on a recent BIR Ruling specifically Ruling No. 214-2012 dated March 28, 2012 issued to Greenstone Resources Corporation, the Nolco under Section 34(D)(3) of the Tax Code of the absorbed corporation is now not one of the assets of the latter that can be transferred and absorbed by the surviving corporation. The current rule is that the Nolco could no longer be transferred and absorbed by the surviving corporation.

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THE Bureau of Internal Revenue (“BIR”) issued Revenue Memorandum Circular No. 23-2012 reiterating the responsibilities of the officials and employees of government offices for the withholding of applicable taxes on certain income payments and the imposition of penalties for non-compliance thereof.

The duties and obligations of government officials as withholding agents include the following:

1. To register the government office as withholding agent.

2. To require employees to submit the duly accomplished Application for Registration for newly-hired employees and the Certificate of Update of Exemption ad of Employer’s and Employee’s Information for employees with change/s in their exemption for the calendar year.

3. To withhold the correct amount of tax on compensation payments, income payments subject to expanded withholding tax and final withholding tax, and on government money payments to VAT registered taxpayers, and Non-VAT registered taxpayers subject to percentage tax.

4. To remit on time the taxes withheld using the prescribed withholding tax remittance returns together with the necessary attachments.

5. To issue the corresponding certificates of taxes withheld.

6. To compute for the year-end adjustment of all its employees, every December of each year, and every time an employee will be separated from the employment for the particular separated employee, to ensure that taxes withheld from each employee is equivalent to his tax due.

7. To timely file with the BIR the annual information return and alphabetical lists of employees/payees, if applicable.

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