RULES AND REGULATIONS TO IMPLEMENT THE GUIDELINES ON TRANSFERABILITY OF TAX CREDIT CERTIFICATES ISSUED UNDER ARTICLE 21 OF THE OMNIBUS INVESTMENT CODE OF 1987

Pursuant to Sec. 7 of the Memorandum of Agreement (MOA) dated
October 13, 2000 executed by and between the Board of Investments and
the Department of Finance, the following rules and regulations on the
transfer of tax credit certificates issued under Art. 21 of the Omnibus
Investment Code are hereby adopted as an integral part of the said MOA:

SECTION 1.        The tax credit certificate to be
transferred shall be subject to validation upon the filing of request
for transfer thereof, through reference to previous basis of its
issuance as well as to the findings of the post audit made thereon.

SECTION 2 .       The status of the BOI registration of
both the transferor and the transferee shall be established based on
active records and/or verification with BOI.

SECTION 3.        For tax credits on raw materials:

a.         The transferee should be a producer of raw materials,
supplies or consumables, per its registration with BOI, and it supplies
said materials to the transferor who uses said materials in the
production of finished products under its own BOI registration.

b.         The materials being used as basis for the transfer
need not form part of the transferor’s finished product, and may include
such materials for own production of inputs and utilities.

c.         The amount of tax credits to be transferred shall be
limited to an inventory level of three (3) months for major materials or
six (6) months for minor materials based on the transferor’s average
monthly consumption of the materials being supplied by the transferee as
obtained from the transferor’s audited financial statements for the
last two (2) years. For this purpose, a material is considered major if
its cost reaches at least 10% of the transferor’s total raw material
cost; otherwise, it is considered minor.

d.         For new companies who have not attained two (2) full
years of commercial operations, the amount of tax credits to be
transferred shall be based on the consumption rate of the materials
derived from transferor’s BOI registered capacity, subject to the
inventory limits set in the preceding paragraph.

e.         Projected levels of consumption, for whatever
reasons, shall not be accepted as basis for allowing the amount of
transfer that exceeds the limits set in the preceding paragraphs.

SECTION 4.        For tax credits on domestic capital equipment,

a.         The transferee is registered with BOI as
manufacturer/producer of the capital equipment, or component or parts
thereof which it supplies or has supplied to the transferor.

b.         The capital equipment, components or parts subject of
the transaction being used as basis for the transfer are or will be
used by the transferor for the production of its BOI registered finished
product. Construction materials for civil works in the transferor’s
factory/plant buildings as well as equipment for selling and
administrative operation of the transferor shall not qualify for
transfer purposes.

c.         The amount of tax credits to be transferred shall be
limited to the actual cost of acquisition of the capital equipment,
component or parts declared as basis of the request for transfer.

SECTION 5.        For transfers involving supply for
materials or equipment, transferors should submit to the Center a
liquidation report for each approved transfer, to show the consummation
of the transaction used as basis for the transfer, attaching the
documents evidencing the same, as well as a report on utilization of the
items supplied. The transferor’s succeeding request for transfer will
only be accepted upon submission of the liquidation report on the
previously approved transfer(s) and will only be approved if the report
shows that the transferor has consummated the transaction as
represented.

SECTION 6.        For transfers to parent company, sister
companies or affiliates, the transferor and the transferee should
establish the basis of the request for transfer through submission of
applicable documents, such as SEC papers, secretary’s certification,
etc. For this purpose, a parent company is one who has a controlling
interest in the transferor; sister companies and affiliates are those
where either party has substantial interests in the other, or have
substantial common ownership, of at least 30% based on either party’s
stockholdings.

SECTION 7.        Companies who have permanently closed
their operation must provide proofs of such closure, to include relevant
rulings from the Board of Investments, Securities and Exchange
Commission, Department of Labor and Employment, Department of Trade and
Industry, and other concerned offices that show that the closure is due
to valid reasons.

SECTION 8.        The documents to be submitted in requesting for transfer of tax credits are:

a.    Letter request signed by the highest executive officer of the transferor;
b.    Original tax credit certificate and one photocopy;
c.    Notarized deed of assignment signed by responsible officers of
the transferor and the transferee. This document must state the
consideration for the transfer.
d.    Secretary’s certification on the board resolutions of both
parties on the authorized signatories to the deed of assignment;
e.    Specific documents to support the consideration for the transfer as stated in the deed of assignment, such as:

—        Commercial documents like sales contract, invoices,
proforma invoices, covering the trader transaction declared as basis for
the transfer;
—        Audited financial statements of the transferor for the
last two (2) years, with breakdown of manufacturing cost indicating the
cost of the particular materials subject of the transfer, if the
transfer is based on supply of materials;
—        Secretary’s certification on the present ownership
profiles of the companies, for transfers to related companies;
—        Other documents/information as prescribed in the foregoing guidelines.

f.     Copy of the BOI registration certificates of both parties;
g.    Clearances from BIR and BOC;
h.    Liquidation Report on previously approved transfer(s).

A G R E E M E N T

KNOW ALL MEN BY THESE PRESENTS:

This Agreement made and entered into at City of Manila, Metro
Manila, this 13th day of October 2000 by and between the:   HDITCS

BOARD OF INVESTMENTS (BOI), with principal office at 385 Sen. Gil
Puyat Avenue, Makati; Metro Manila, duly represented herein by
Undersecretary RAUL C. HERNANDEZ, Vice-Chairman and Managing Head;

—and—

DEPARTMENT OF FINANCE (DOF), with principal office at Roxas Blvd.
Manila, represented herein by Undersecretary CORNELIO C. GISON of the
Revenue Operations Group,

WITNESSETH THAT:

WHEREAS , under Art. 21 of E.O. 226, otherwise
known as the Omnibus Investments Code of 1987, tax credit certificates
issued under the said E.O. are transferable under such conditions as may
be determined by the Board after consultation with DOF;

WHEREAS , the transferability of said tax credit
certificates are presently governed by the guidelines provided for under
the Memorandum of Agreement between the herein Parties dated October 5,
1982, as amended by Memorandum of Agreement dated August 29, 1989, also
between the herein Parties;

WHEREAS, there are provisions in the said
Memoranda of Agreement that require clarification, revision or
simplification as a result of new policies and thrusts adopted and being
implemented to resolve specific issues and concerns that were raised or
identified in the course of implementation of the said guidelines;

WHEREAS, it is necessary, and it is to the best
interest of both the private sector as beneficiary, and of the
Government as the administrator of the tax credit system, to adopt a
consolidated document integrating the existing guidelines and the
amendments thereto, for the efficient and effective implementation of
the same;

NOW, THEREFORE , for and in consideration of the
foregoing premises, the Parties herein, through their respective
representatives, do hereby agree and adopt the following guidelines on
transferability of tax credit certificates issued to BOI-registered
companies under Art. 21 of E.O. 226;

SECTION 1.       Tax credit certificates shall be allowed for transfer under conditions stated herein:

a.         The tax credit certificate is valid at the time the request for transfer is filed;

b.         Both the transferor and the transferee are
BOI-registered and their respective registrations have not been
cancelled by BOI. Enterprises whose entitlement to tax credits has
lapsed under the ten-year limit as provided under Article 2 of EO 226
shall still qualify as transferors or transferees for as long as they
remain registered with BOI;

c.         For tax credit certificates on raw materials and
supplies, the transferee should be a supplier of the transferor of raw
materials, supplies and consumables, whether or not forming part of the
latter’s export products, for as long as these are used by the latter in
the production of export products, as registered with the BOI; provided
that the amount of tax credit certificate to be transferred shall be
limited to the latter’s actual consumption of the specific material
being declared as basis of the transfer and to acceptable inventory
level;

d.         For tax credit on domestic capital equipment, the
transferee should be a supplier of the transferor of capital equipment,
or its components or parts supplied or to be supplied;

e.         If the transferee is the parent company, a sister
company or an affiliate of the transferor, the transfer of tax credit
certificates may be allowed, regardless of non-compliance with the
conditions as prescribed in the preceding paragraphs c) and d), provided
that the transfer is deemed to be a form of assistance to either party
currently deemed in distress; provided further that this transfer shall
be approved by the Executive Committee of the One Stop Shop for Tax
Credit and Duty Drawback Center (the Center);

f.          In case an enterprise has permanently closed or
permanently stopped its BOI-registered activity for valid reasons as
certified by BOI, it may be allowed to transfer its outstanding and
valid tax credits only if the transferee is a BOI-registered parent,
sister or affiliate company, provided that in the absence of such
parent, sister or affiliate companies, the transfer of tax credits to
any BOI-registered companies may be allowed if the transferor had
operated its BOI-registered activity for at least five (5) years prior
to closure; provided further that the transfer will still be allowed
under this provision even if the transferor’s registration has been
cancelled by BOI only if the cancellation is due to the said closure or
ceasing of operation and not for any other violations.

SECTION 2.       Second transfer from the first transferee of the
same transferred tax credit certificates may be allowed only as strategy
to assist a distressed industry sector, but never a distressed
individual company, upon endorsement by BOI and upon approval as well as
adoption of appropriate guidelines by the Executive Committee of the
Center;

SECTION 3.       All approved transfers of tax credit certificates shall be subject to liquidation.

SECTION 4.       The transferee may apply such transferred tax
credits as payment of taxes, duties, charges or fees directly due to the
national government for as long as the tax credit certificate is valid.

SECTION 5.       The request for transfer shall be filed with the
Center which shall review compliance of the request to the herein
guidelines.

SECTION 6.       All requests for transfer of tax credit
certificates shall be accompanied by a certification from the Bureau of
Internal Revenue and the Bureau of Customs that the transferor has no
pending obligations with the said agencies.

SECTION 7.       The parties also agree to adopt as an integral
part of this Agreement the attached Implementing Rules and Regulations,
prescribing specific guidelines for processing and approving transfer of
tax credits, including the relevant documents and information to be
submitted by the transferor, and the systems and procedures to be
followed.

SECTION 8.       This Agreement shall take effect fifteen (15)
days after publication in a newspaper of general circulation in the
Philippines.

SECTION 9.       The parties shall consult with each other and
with relevant agencies and private sector entities and organizations for
the efficient and effective implementation of this Agreement, including
review and amendment thereof when deemed necessary.

IN WITNESS WHEREOF, The Parties hereto have signed this Agreement this 13th Day of October, 2000 at the City of Manila, Metro Manila.

BOARD OF INVESTMENTS	DEPARTMENT OF FINANCE
(SGD.) RAUL C. HERNANDEZ Vice-Chairman & Managing Head	(SGD.) CORNELIO C. GISON Undersecretary
Signed in the Presence of:
(SGD.) OFELIA V. BULAONG Governor Board of Investments	(SGD.) ALBERTO S. SALANGA Executive Director One Stop Shop Inter-Agency Tax Credit & Duty Drawback Center