The Bureau of Internal Revenue (BIR) and the Philippine Deposit Insurance Corp. (PDIC) are renegotiating the 2006 agreement covering PDIC’s old P8-billion back taxes that it has been paying.

PDIC has been remitting P200 million a month to the BIR under the memorandum of agreement (MoA) signed three years ago to settle the tax liability.

With PDIC’s new charter which took affect last June 1, the institution gained tax-exempt status which necessitated a review of the previous MoA and possibly a refund. PDIC President Jose A. Nograles said they are back to the discussion table with the BIR. “As you know we have a new charter (signed into law last April 29) and we are now tax exempt,” he stressed. “We are in talks with the BIR while this issue is pending.”

Under the new PDIC charter, the insurer is granted tax exemptions as a “financial strengthening measure” to preserve and protect its deposit insurance fund or DIF of P60 billion.

For the first five years, PDIC’s tax obligations will be charged against the Tax Expenditure Fund administered by the Department of Budget and Management. On the sixth year from the signing of the amended PDIC law, the institution will be exempt from income tax, final withholding tax, value added tax on assessment collections as well as local taxes.

Nograles said this is consistent with the tax exemption enjoyed by other deposit insurance agencies, and will contribute to the build up of the DIF. “Sufficiency of the DIF will ensure that depositors have immediate access to their hard-earned savings in the event of bank closures.”

Before 2006 and the PDIC-BIR MoA, PDIC made a partial compromise payment of P1.7 billion for VAT claims. It was the justice department that ruled that PDIC has to settle a total of P8 billion tax liability with the government.

The original VAT assessment was P2.7 billion covering the period 1999 to 2004. But including penalties the tax liability has ballooned to P10 billion.

The agreement was that the BIR will waive penalties but would still collect the principal amount of back taxes until the DoJ makes a decision that PDIC is liable to pay taxes. If the DoJ rules that PDIC is entitled to a tax exemption, the BIR would still keep the P1.7 billion but would stop collecting from PDIC.

Under the Tax Code, compromise settlement means the BIR will collect 40 percent or 10 percent of the total tax liability of an individual or entity, depending on the capacity to pay.

The PDIC has been arguing for years that because of its regulatory functions, it is exempted from the VAT and income tax.