To: All Offices Concerned Within the AnCor Group of Companies

Re: General Consideration in Tax Returns Filing within AnCor Group

This is a memo addressed to all office concerned in relation to tax declaration which will serve
as guidelines to proper tax filing and to harmonize the accounting workflow within the AnCor
Group of companies.
With the successive tax assessments imposed to both SAR and ADC, the companies suffered a
huge deal of tax deficiencies. In response to prevent discrepancies in the tax returns filings, it is
best to be reiterated to general considerations which the company must observe before filling
its tax returns.
1. VAT-registered entities

ADC, SAR, VBGI, ABAI, ABOCGO and U1624 EDSA are all VAT-registered entities. It is
presumed that in the absence of indication to the nature of transactions all receipts
issued by these companies are inclusive of VAT and that they passed on this VAT to its
customers or clients and that they are responsible for remitting the same to the BIR
which is usually offset by the VAT paid from purchases.

Only ADC and SAR are exempt in VAT in their operations to sell residential lots which
have a selling price not exceeding Php 1,500,000.00. However, the employees in charge
in issuing receipts which are related to these transactions must explicitly signify that the
issued receipt is VAT-exempt. This can be done by ticking the box located at the right
side of the receipt.

With the new business division of selling house and lot, ADC must observe that such
sales must not exceed Php 2,500,000.00 to be VAT-exempt.

As VAT-registered entities, these companies are obliged to file Quarterly Summary List
of Sales and Purchases (SLSP), Monthly VAT Returns (2500M), and Quarterly VAT
Returns (2500Q). The taxable amount entered in the SLSP together with their
corresponding output and input VAT must be consistent to the VAT returns filed. That is,
for example, a Php 1,000.00 net of VAT sale with Php 120.00 output VAT in the SLSP
must also be the same in the VAT returns.

Quarterly SLSP can be filed thru e-submission and its deadline is every 25th day
following the third month in a quarter. Monthly VAT returns can be filed not later than 20th
day following the close of the month. Quarterly VAT returns shares the same deadline
with the Quarterly SLSP.

To be further noted, Quarterly VAT Returns reports the cumulative amount of sales and
purchases for the three months of the quarter while Monthly VAT returns are only
exclusive to the month being reported, therefore VAT paid during the first 2 months of
each quarter can be a deduction to the VAT due in the Quarterly VAT returns.
 Special Consideration:
ABO, in his capacity as a real-estate dealer, is registered to be a non-VAT entity.
Therefore, CGT (capital gains tax) as a form of final tax shall no longer be applicable to
him when he successfully completed a sale. Instead, a non-VAT receipt shall only be
issued in his receipts. Lastly, as the company tries to avoid too much tax burdens, ABO
must not exceed his annual sale to Php 3,000,000.00 in order to enjoy the 8% optional
tax and be exempt further from the mandatory 3% percentage tax.

2. Issuance of receipts to intercompany transactions

Please be reminded of the intercompany transactions which are recurring within the
AnCor Group insofar as tax declarations and external reporting are concerned:

 ADC to ABAI (Lease of equipment). ADC leases its equipment for the use of
extracting quarry resources and delivering the same to its clients and customers
to ABAI.

ADC shall issue a VAT receipt to ABAI which are already net of 5% withholding
taxes. ABAI is responsible to compel ADC or at least follow up for its receipts
before filling the corresponding tax returns. ABAI is also to issue 2307 with 5%
withheld tax from this transaction to ADC.

 ADC to ABAI (Sale of quarry). Moreover, ADC is also selling its quarry
resources to ABAI and these are VATable.

ADC is likewise obliged to issue VAT-receipt net of 5% withholding taxes to ABAI

regarding this transaction. ABAI shall in turn issue 2307 with 5% withheld tax to
ADC. ABAI is also responsible to follow up and get these receipts from ADC.

 ABAI to ADC (Sale of quarry). While it may sound absurd, ABAI is also
engaged to deliver quarry resources other than those sold formerly by ADC to
them.

The same workflow shall apply except now that it is the ADC’s duty to follow up
the receipts from ABAI and issue the latter of 2307 indicating a 5% withheld tax.

 VBGI to ADC (Contracting services). VBGI contracts with ADC to perform

construction services to the house & lot division of the ADC.

In this manner, VBGI shall issue a VAT-receipt to ADC net of 2% withheld tax. It
is the duty of the ADC to compel them for the issuance of receipts and issue
VBGI of the corresponding 2307 with 2% withheld tax.

 ABOCGO to ADC. (Lease of office space) ABOCGO is in the business of

leasing its building located in San Antonio Apartments to ADC for office space.
 In this scenario, ABOCGO shall issue a VAT-receipt to ADC net of 5% withheld
tax. It is the duty of the ADC to compel them for the issuance of receipts and
issue VBGI of the corresponding 2307 with 2% withheld tax.

The general rule in regard to issuance of VAT-receipts is that the payor has the
active duty to compel the payee in issuing the same. On the other hand, the payor
is also obliged to issue 2307 to the payee indicating the percentage of tax
withheld depending on the nature of the transaction.
To further illustrate the use of 2307 and why it is important to secure such is that these
certificates reduces the amount of the total income tax due of the company. 2307, in
relation to filling quarterly and annual income tax return (1702Q, 1702-RT), has the
effect of reducing the income tax due of the company if presented and filed.

3. Verification of the taxable amounts declared (Proposed policy)*

It is best to impose a policy within the AnCor Group that prior to tax return fillings all
intercompany transactions must be verified, i.e., a consensus must be reached first
between transacting companies.

Since amendments can come only at a later period and it is a costly action because of
the imposition of surcharges, interests and compromise fees, it is an efficient move to
ensure accurate tax reporting to require the companies within the AnCor Group to verify
the amount so purchased from the seller-company.

For efficient execution of this policy, the seller-company shall issue an in-house
statement indicating the total amount of sales to the buyer-company in a monthly
basis which must be every last Friday of the month. For example, VBGI sends a
statement to ADC for securing its contracting services to the latter indicating the total
amount involved every last Friday of the month. If ADC contends and find it lacking or
excessive, a reconciliation between them must occur.

The pro-forma statement for this policy only requires to consist the date, the
particular transaction, the corresponding gross amount, the value of output VAT
passed on, the amount of withheld tax, and the reference to the VAT-receipt. It
shall be thereafter submitted to the tax preparer of the buyer-company provided
such statement is acknowledged by the buyer-company and the immediate
supervisor of the seller-company.

The importance of verification affecting intercompany transactions within the AnCor

Group is to ensure consistent information are being filed. Inconsistency when found out
by the regulatory authorities can mean legal and financial repercussions.

Special consideration:
 Liaison officers who are directly involved in securing e-CAR for buyers must also be
alert and responsive in checking that the amounted indicated in the authorizing
registration is also the same to the official receipt being referenced.

*If this policy is approved by the management, a separate memorandum shall be

likewise issued for complete implementation.

4. Harmonization of tax returns and external reporting

To harmonize information being filed in the returns, a tax expression can be illustrated
as: 0619-E and 1601-C = SLSP = VAT = ITR.

The above expression will tell you that information filed as purchases in the withholding
taxes must also be equal to the information filed as purchases in SLSP and VAT.
Moreover, what is declared as sales to SLSP must also be the same to VAT and ITR.

In reporting to BIR and to local government for payment of national taxes and local
taxes, respectively, the basis of AFS presented to these authorities should be founded
on the tax returns filed and nowhere else.

5. Other special considerations

 No company shall issue an official receipt which is not registered before their
name. This can be subjected to penalties and shall mean also an additional tax
burden of that company whose receipts are erroneously issued or utilized.

 No company shall withheld tax from outside companies if the receipt being
referred is other than that company. For example, the purchase from
Westviltrade Corporation can be originated from SAR, ACLC, ABAI or from VBGI
and considering that only ADC which has an approved credit line with them the
receipt issued by this company only refers to ADC. Hence, no other than ADC
shall appropriately withheld a tax from this company based on the aggregate
amount of purchases regardless if that amount relates to other companies.

 VBGI, ACLC and ABOCGO are delisted as among those withholding tax agents
starting December 19, 2019 which means that they cannot withheld anymore
taxes from the purchases they so acquired from other companies. However, this
do not mean that their sales to other companies is also not subject to withheld
taxes. Such certificates secured by these companies from their buyers can be
further utilized as a reduction to their income tax due.