Professional Documents
Culture Documents
REGULATORY AND OPERATIONAL
ENHANCEMENTS OF THE
TELECOMMUNICATION INDUSTRY
Atty. Rachel P. Follosco, FMH
November 2007
DISCLAIMER
“The views expressed in this report are strictly those of the authors and do not necessarily reflect those of
the United States Agency for International Development (USAID) and the Ateneo de Manila University”.
WORKING DRAFT 2-16Oct07
FOR DISCUSSION PURPOSES ONLY ATTY. RACHEL P. FOLLOSCO, FMH, Consultant
Section 1. Purpose of the Regulations. – These Regulations are being issued to lay down
uniform treatment, for tax purposes, of various transactions of public mobile
telecommunications companies (Mobile Telcos) and thereby confirm, correct, or amend (as
necessary) existing industry practice to ensure fairness and equality in the treatment of
transactions across the industry and among subscribers of Mobile Telco service and
consistency with the provisions of the National Internal Revenue Code of 1997, as amended
(NIRC). These Regulations are further intended to address the issues and ambiguities in the
application/applicability of existing Regulations in view of recent developments in the
Mobile Telco industry, particularly, the fast expanding service offerings of Mobile Telcos, as
propelled by significant technological advancement in the industry.1 The intention is to
subsequently align the tax treatment of transactions of Mobile Telcos with those of landline
telecommunications service providers to the extent that the transactions are similar or
comparable.
Section 2. Scope. – Pursuant to the provisions of Section 244 of the NIRC, these
Regulations are hereby promulgated to clearly define the applicable taxes on various
transactions of all duly authorized Mobile Telcos and to establish a practical mechanism for
their effective collection.
1
These Regulations shall, to the extent possible, prescribe applicable tax treatment of Mobile Telco transactions
guided by the policy that Mobile Telco transactions shall be treated similarly as transactions of fixed-line
telecommunications companies, thus, regardless of the underlying technology used (i.e., it is intended to be
technology-neutral). Accordingly, taxation of prepaid services shall be the same as postpaid services; landline
calls should be taxed in exactly the same manner as wireless calls; internet to mobile phones and mobile phones
to internet should be taxed as similarly as possible as regular SMS/calls, to the extent that there is a termination
fee. Likewise, telephone services availed using prepaid airtime load, whether purchased through Prepaid Cards
or E-load should have the same tax implications/consequences.
With respect to activities of Mobile Telcos which are outside of their usual scope of activities as telcos,
such as e-money issuance and remittance service, Mobile Telcos should be placed on equal footing with non-
telecommunication businesses organized principally to offer the same services (such as remittance companies in
the case of remittance service or credit card companies in the case of e-money issuance).
Section 3. Definition of terms. 2 – For purposes of these Regulations, the terms hereunder
enumerated shall have the following meaning:
c. Bandwidth – is the maximum achievable data rate or amount of information or data that
can be sent or transmitted over a network connection or channel in a given period of time; it
refers to the speed at which data can be transferred over the system, as usually
measured in bits per second (bps), kilobits per second (kbps), or megabits per second (mbps)
and the higher a channel’s bandwidth, the more information it can carry. 4
d. Billing Information – appropriate network usage data of one PTE that is required by
another PTE to facilitate customer billing with attendant acknowledgement and status
reports and are exchanged between PTEs to process claims and adjustments.
2
To the extent applicable, definitions of telecommunications terms were lifted from Memorandum Circular
No. 14-7-2000 (Subject: Implementing Rules and Regulations (IRR) For the Interconnection of Authorized
Public Telecommunications).
3
Pursuant to NTC Memorandum Circular No. 14-7-2000 (Implementing Rules and Regulations (IRR) for the
Interconnection of Authorized Public Telecommunications Entities), specifically Article XII thereof, it is
provided that “The charges for basic interconnection service shall be by way of access charges for network
usage on interconnected networks and shall consist of discrete charges, for call origination, call transiting and
call termination, and a network interconnect subsidy for the LEC, if it be the other party to the interconnection
but this subsidy shall not apply where the interconnected networks are both LECs. The LEC shall be entitled to
such subsidy albeit it is at the same time an IGF and/or CMTS operator.” Is there a need to carve out the
subsidy referred to from the definition of Access Charge? It needs to be ascertained whether the subsidy is
relevant/applicable to Mobile Telcos.
4
SMS requires very little bandwidth to be transmitted compared to voice calls. Recent and emerging
applications such as multimedia messaging (MMS) adds images and audio clips to the SMS text messaging
format and therefore require considerably more bandwidth than an SMS.
Bandwidth usage is expected to further increase significantly, given the technology forecasts on fixed-mobile
convergence (FMC). In general, stationary end-user devices (e.g. desktop or laptop computers) can support
more bandwidth or higher data rates, while more mobile devices (e.g. cell phones) are expected to support less
bandwidth. Fixed-mobile convergence, made possible by internet protocol (IP), brings together mobility and
services that require more bandwidth. That is, FMC leads to empowering the cellular phone to carry more
bandwidth and therefore support such applications as internet browsing that is as fast as when using broadband
connections in stationary computers.
e. Cash Remittance Service – shall refer to the service provided by the Mobile Telcos
enabling cash received by any Mobile Telco business center or authorized
agents/remittance partners, from a sender in the Philippines or abroad, to be
transferred or remitted to a beneficiary who is a subscriber of the Mobile Telco
concerned, which the latter may receive and keep in electronic form as e-cash or
encash with any of the business centers of the Mobile Telco of the
recipient/beneficiary, or through any of the authorized agent paying centers including
ATMs of agent banks.
f. Cellular Mobile Telephone Systems (CMTS) – a wide area mobile radio telephone
systems with its own switch, base stations and transmission facilities capable of
providing high capacity mobile telecommunication by utilizing radio frequencies. 5
Providers of telecommunications services using CMTS are hereinafter referred to as
“CMTS carriers” or “Mobile Telcos”.
g. Circuit Rentals – Remuneration paid for a fully operative communication path used
for message, access or private line services.
5
Definitions in red font may not be necessary/relevant to mobile telcos.
6
All Content Providers are already required, pursuant to Memorandum Circular No. 03-03-2005-A (July 3,
2006) to be registered.
debit against the account of the person with a bank such as when the user executes the
transaction through an ATM, mobile phone, or through the internet.
q. Indirect Access – is a situation where a customer’s call is routed and billed through
the network of a PTE even though the call originated from the network of another
PTE.
r. Interconnection – the linkage by wire, radio, satellite or other means, of two or more
existing PTEs with one another for the purpose of allowing or enabling the
subscribers or customers of one PTE to access or reach the subscribers or customers
of another PTE.
s. Interconnect Usage Charge – the network usage charge applicable to direct and
indirect interconnections between networks for call origination, call termination, or
call transit, as the case may be.
7
Normally the originating party pays for the call, although at the moment, in limited instances, Mobile Telcos
are able to support collect call service, i.e., prior registration is required for this service and the caller is from the
same network and the is one of the callers specifically registered by the person called to be entitled to call
collect.
w. International Toll Calls – calls are: (1) originating from one local calling (service)
area and terminating to a foreign calling (service) area; or (2) originating from an FA
and terminating in a local public telecommunications entity, or vice-versa.
y. Load Value – shall refer to the monetary value of airtime credits that was or will be
loaded into subscriber’s account by the Mobile Telco on account of his purchase of
Prepaid Credit, irrespective of the actual consideration that he may have paid for the
Prepaid Credit, i.e., whether at a premium or at a discount. 8
z. Local Calls – Calls originating and terminating from one and the same PTE or two
(2) separate PTEs within the same local calling area.
aa. Local Exchange Carrier (LEC) – a PTE providing transmission and switching of
telecommunications services, primarily but not limited to voice-to-voice service, in a
geographic area anywhere in the Philippines. 9
bb. Multimedia Messaging Services (MMS) – are content-based services which include
pictures, text, audio, and video offerings, constituting the natural progression from
Short Messaging Service (SMS)-based product offerings.
dd. National Toll Calls – calls that are (1) originating from one local calling (service)
area and terminating in another local calling area (service) or (2) originating from
another PTE to a CMTS carrier, or vice-versa.
8
Under current industry practice, Mobile Telcos do not consider the Load Value of the Prepaid Credit that they
sell for purposes of reporting their income from the sale of Prepaid Credits. Their revenue from the sale of
Prepaid Credits is only equivalent to the price at which they sell the Prepaid Credits to Prepaid Load Dealers.
Thus, a subscriber may purchase Prepaid Credit worth Php100.00 for Php95.00 or Php100.00 from a Prepaid
Load Dealer and the Mobile Telco will accordingly load the subscriber’s account with airtime credits equivalent
to Php100.00, notwithstanding the fact that the Mobile Telco only received Php85.00 from the Prepaid Load
Dealer and that the subscriber either paid Php100.00 or PhP 95.00 for the same. However, notwithstanding
loading airtime credit valued at Php100.00 to the account of the subscriber, it only recognizes in its books, gross
revenue from the transaction of Php85.00 less the 12% VAT component thereof.
9
In the Philippines since mobile telcos or mobile carriers cover a vast almost nationwide service they really can
not fall in this “local” category. LEC’s are normally “wired” telephone exchanges.
ee. Outgoing Collect Calls – telephone calls originating from a subscriber or customer
of one PTE and paid by the subscriber or customer of the terminating PTE. 10
ff. Outgoing Paid Calls – telephone calls originating from and paid by the subscriber or
customer of the originating PTE.
gg. Payment Conduits – shall refer to banks and credit card companies or other
establishments or institutions which simply provide payment facilities for the
purchase of electronic load and do not purchase and sell e-load or issue e-money to
Mobile Phone subscriber;
ii. Premium-rated Services – shall include services rendered by or through the Mobile
Telco whether using MMS, SMS, or other format, which are charged at a premium
price, i.e., higher than the regular charge for MMS, SMS, or such other format used,
either because of a fee sharing arrangement with a third party for the content provided
or additional service rendered, such as bank balance inquiry service or the service
allows the subscriber to participate in a promotion being undertaken by a particular
company, television or radio show, or other entity, such as those required to be sent to
4-digit designated receiving numbers, e.g. 2366.
jj. Prepaid Card – refers to a card that has on its face, a value or denomination, the
payment for the privilege to use the services offered by the telecommunications
company, with an expiry date such that the value of the unused portion after expiry
date is waived in favor of the issuing telecommunications company;
kk. Paid Credit – for purposes of these Regulations, this term shall refer to pre-paid
airtime credits purchased for use to avail of telecommunications service, whether
purchased through the purchase of Prepaid Card or Electronic Loading.
ll. Prepaid Load Dealers – shall refer to those engaged in the business of buying e-load
and Prepaid Cards from the Mobile Telco and selling the same to other dealers,
retailers, and end users of E-load/Prepaid Cards, whether or not they are required to
have a special SIM for the purpose.
10
May not be applicable to mobile telcos at the moment as they offer mobile telecommunications services on a
calling-party-pays basis, under which subscribers pay only for calls that they originate, in addition to possible
roaming charges, although Globe, for example, does extend call collect feature on a limited basis and subject to
prior registration and only between or among its own subscribers and solely for local calls. This is normally
required to be operator-assisted as there is a need to get the approval of the called party to accept the charges.
time to time and consumed, subject to validity period limitations and minimum
airtime load policy of the Mobile Telco concerned, where the prepaid amount of
credits available is stated in terms of its peso equivalent and is commonly referred to
as “load”.
nn. Postpaid Subscription Plans – are mobile telephone subscriber plans which require
the Mobile Telco to bill the subscriber on a periodic basis, generally on a monthly
basis, and the amount to be paid depends on the usage or the number of credits used
per month, subject to a minimum monthly subscription fee which may or may not
include corresponding minimum airtime/service credits.
qq. Roaming – the use of a wireless phone outside of the “home” service area defined by
the service provider which in the case of Mobile Telcos shall refer to the use of a
mobile phone of a subscriber outside of the Philippines.
rr. Roaming charges – refer to the charges incurred by a subscriber of a Mobile Telco
while abroad, such as call or other service charges imposed by an FA/Mobile Telco
for telecommunications services rendered to a subscriber of a roaming partner
PTE/FA as well as the administration/service fee charged by the Mobile Telco of the
roaming subscriber.
ss. In-collect Roaming Charge – shall refer to the charges accumulated by a subscriber
of a LEC for communications services rendered by an FA while such subscriber was
outside the Philippines (airtime charges levied by a FA with respect to the use of the
FA’s system by a local Mobile Phone subscriber while roaming in the FA’s service
area).
11
Since PTE is defined as those authorized by NTC to provide telecom services, for purposes of these
Regulations, “PTE” shall be deemed to refer to a local public telecommunications entity, in contrast to an FA.
vv. Satellite – a radio relay station that orbits the earth. A complete satellite
communications system also includes earth stations that communicate with each other
via the satellite. The satellite receives a signal transmitted by an originating earth
station and retransmits that signal to the destination earth stations(s).
ww. Settlement Process – the payment system between interconnecting PTEs for jointly
providing telecommunications services by which PTEs compensate each other for
interconnection services.
xx. Subscriber Identity Module (SIM) – refers to a card which contains a unique
number identifying a particular subscriber, authorizing or enabling the same to have
access to the services provided by the telecommunications company;
zz. Telecommunications Services – services offered for a fee directly to the public, or to
such classes of users as to be effectively available directly to the public, regardless of
the facilities used, consisting wholly or partly in the transmission and routing of
signals on authorized telecommunications networks.
aaa. Termination Charges – are the charges incurred when a mobile phone call is
completed by a different carrier network. For purposes of these Regulations,
Termination Charge shall be deemed included in the definition of Access Charge.
bbb. Value-Added Service (VAS) – refers to a service which adds a feature or value to
basic telephone service not ordinarily provided by a PTE such as format, media,
conversion, encryption, enhanced security features, paging, internet protocol,
computer processing and the like. The term value-added services may be
alternatively referred to as enhanced service.
ccc. Usage Data Record – may invariably be referred to as Event Detail Record or if
intended to refer specifically to the record of the details of a voice call, Call Detail
Record.
12
The NTC Chart of Accounts has the following detailed revenue accounts which may be used in classifying
Mobile Telco income:
BASIC LOCAL SERVICE REVENUES (9110/9120/9130/9140/ 9150/9160)-Flat Rate-Business/Flat Rate-
Residential/Trunklines/Extension Stations/Local Usage- Metered Rates-Business/Local Usage-Metered Rates-
Residential - These accounts shall include revenues derived from the provision of basic area message services,
revenues derived from non-optional extended area services and revenues derived from the billed or guaranteed
portion of semi-public services. This is inclusive of recurring monthly charges and monthly billed usage
charges.
9170 - Foreign Currency Adjustment - include the net amount of rate adjustments made in cases of depreciation
or appreciation of the Philippine currency against the US dollar for the current period. The rate is generally a
percentage increase or decrease for every centavo increase or decreases in the exchange rate of the Philippine
peso vis-à-vis the US dollar.
9180 - Optional Extended Area Revenue - include total revenue derived from the provision of optional extended
area services.
9190 - Public Pay Stations Service Revenue - include message revenue (e.g., coin paid) and other revenue
derived from public and semi-public telephone services provided within the basic service area.
9200 - Subscriber's Connection Charges - includes revenue derived from the reconnection of a temporary
disconnection or the transfer of an existing communication line (pager, telephone etc.). This account also
includes the revenue from the disposal of handsets and accessories, paging receivers and accessories, trunked
radio and accessories.
9210 - Installation Charges - This refer to charges for the initial installation of communication lines.
9220 - Local Private Line Revenue - include revenue derived from local services that involve dedicated circuits,
private switching arrangements, and/or predefined transmission paths, whether virtual or physical, which
provide communications between specific locations (e.g., point-to-point communications). It includes revenue
from sub voice grade, voice grade, audio and video program grade, digital transmission and local private
network switching as well as the revenue from administrative and operational support services associated with
private network services and facilities, e.g., charges for company-directed testing, expedited installation, and
service restoration priority.
9290 - Basic Local Services Revenue- Others - This account shall include revenues from basic local services
other than those included under Account nos. 9110 through 9220.
9490 - Long Distance Network Revenue - Others - This account shall include long distance revenues other than
those included under Accounts 9410 through 9480.
TRUNKING SERVICE REVENUES -9920 - Subscription Revenue - Network Franchise Fees - This account
shall include revenue derived from subscription fees paid by trunked radio subscribers.
9930 - Service Income - This account shall include revenues derived from shop repair labor fees, installation
and relocation of mobile/base radio, and trouble call charges.
9940 - Lease Income - This account shall include revenue derived from the rental or lease of handheld and
mobile radios with option to purchase at the end of the lease.
NON-OPERATING INCOME
15110 - Dividend Income - This account shall include dividends on investments in common and preferred
stock, which is the property of the company, whether such stock is owned by the company and held in its
treasury, or deposited in trust (except in sinking or other funds) or otherwise controlled.
These accounts shall not include dividends or other returns on securities issued or assumed by the company and
held by or for it, whether pledged as collateral, or held in its treasury, in special deposits, or in sinking or other
funds.
15120 - Interest Income - This account shall include interest on securities, including notes and other evidences
of indebtedness, which are the property of the company, whether such securities are owned by the company and
held in its treasury, or deposited in trust (except in sinking fund or other funds) or otherwise controlled.
There shall be included in this account for each month the applicable amount requisite to extinguish, during the
interval between the date of acquisition and date of maturity, the difference between the purchase price and the
par value of securities owned, the income from which is included in this account. Amounts thus credited or
charged shall be concurrently included in the accounts in which the securities are carried. Any such difference
remaining at the sale or upon the maturity and satisfaction of such securities shall be cleared to Account 15190,
Other Non-Operating Income or Account 16190, Other Non-Operating Expense.
Section 4.1. Core services. 13 — These pertain to services rendered by Mobile Telcos which
are not generally allowed to be pursued other than under the authority of a
telecommunications franchise duly granted to them. Its core services are available to its
15140 - Other Interest Income - This account shall include interest earned on properties of the company other
than those included in Account 15120.
15190 - Other Non-Operating Income - This account shall include non-operating income other than those
included in Accounts 15110 through 15140.
Section 4.3. Revenues of Mobile Telcos.—Revenue of Mobile Telcos from core services
ordinarily come in the form of fixed subscription fees and variable charges, usually based on
the number or fraction of minutes consumed priced at pre-determined rates as well as Access
Charges paid to them by other PTEs/FAs. Core revenues maybe categorized as follows:
Section 4.4. Revenue from Sale of Prepaid Credit.—For purposes of these Regulations, the
sale of Prepaid Cards or E-load by a Mobile Telco does not constitute per se a separate class
of revenue of a Mobile Telco. While the proceeds of the sale of Prepaid Credit by Mobile
Telcos will have to be initially recorded as Revenue from Prepaid Credit or such equivalent
account suspense account, 14 the same shall thereafter be classified accordingly, depending on
the manner that the Prepaid Credits was ultimately used. Thus, Revenue from Prepaid Credit
may ultimately be recorded as Basic Local Service Revenue if used by the subscriber for
voice calls or Miscellaneous (Non-Core) Revenues for the amount of the Prepaid Credit that
is simply allowed to expire instead of being used to avail of telecommunications services.
Thus, the sale of Prepaid Card or E-load is just a mode of collecting payments for the
14
A "suspense" account is a separate category of account code opened to record (expenditure and/or) income
which, for the time being at least, cannot be properly allocated to a specific (budget related expenditure or)
income account code. By definition, entries in suspense accounts are transitional and there is a presumption
that there is no adequate authority for any items remaining in suspense over a period of time. For this reason,
individual entries in suspense accounts must be capable of identification and balances in suspense must be
reviewed regularly to confirm that their retention in suspense is justified.
(www.scotland.gov.uk/Topics/Government/Finance/spfm/suspense, as viewed on 19 October 2006)
ultimate services that Mobile Telco may render to a subscriber, whether these are core or
non-core services.
For tax purposes, income from Prepaid Card and E-load shall, as hereinafter
provided, be recognized at the time of sale thereof rather than at the time of the performance
of any service which may be availed using the Prepaid Credit purchased.
Sale of Prepaid Credit at the level of the Mobile Telcos should be considered as sale
of the underlying services and not as sale of goods. On the other hand, the transaction
between the Mobile Telcos and Prepaid Load Dealers who directly deal with the Mobile
Telcos may either be in the nature of outright sale or a mere sales agency, depending on the
actual nature of the relationship between them. Unless the contrary is proven, the transaction
between them shall be deemed as constituting an outright sale of Prepaid Credits such that
the Prepaid Load Dealers are assumed to acquire ownership of or title over the Prepaid
Credits and thereby have the right to sell the same as principals rather than as mere selling
agents of the Mobile Telcos.
If Prepaid Load Dealers purchase Prepaid Credits from Mobile Telcos and sell the
same to the public/other Prepaid Load Dealers under their own official receipts/account, then
they shall be deemed as engaged in the sale of tangible assets, notwithstanding the fact that
what is being purchased with every purchase of Prepaid Credits is the underlying
telecommunications service that a subscriber is able to avail. This assumption is inevitable
considering that Prepaid Load Dealers themselves who are in the business of selling Prepaid
Credit are not themselves engaged in the sale of the underlying service and they are not in the
position to recognize income therefrom only at the time the service is actually rendered to the
buying subscriber or expires owing to the fact that they do not have the means to monitor
actual usage of the Prepaid Credits to avail of telecommunications service. Necessarily,
Prepaid Load Dealers selling Prepaid Credits have to record revenue from their transaction at
the time Prepaid Credit is sold by them. 15
15
Admittedly, there is here a deviation from our position that the sale of Prepaid Credit is a sale of the
underlying service. While we maintain this position with respect to sale of Prepaid Credit by the Mobile
Telcos, it is difficult to similarly treat the sale of Prepaid Credit by Prepaid Load Dealers to other Prepaid Load
Dealers or to subscribers in the same manner for reasons already stated in the provision. The overriding
consideration here is administrative feasibility and skirt practical difficulties of adopting the position that the
sale of Prepaid Credit by Prepaid Load Dealers should be characterized as sale of the underlying service. Thus,
this is not in disregard of the opinion expressed by Justice Melencio-Herrera in her dissent in the case of CIR
vs. British Overseas Airways Corporation (GR No. L-65773-74, April 30, 1987), which reads in part, as
follows: The phrase “sale of airline tickets,” while widely used in popular parlance, does not appear to be
On the other hand, Prepaid Load Dealers may earn revenue sourced from the
performance of service rather than the sale of tangible property. Their remuneration from the
sale of Prepaid Credits is not therefore profit from sale but compensation for service
rendered, i.e., commission, whether referred to as such or as discount or some other term. If
the sale of Prepaid Credit by Mobile Telcos is done through Prepaid Load Dealers acting as
mere selling agents of the Mobile Telco, then the gross revenue to be reported by the Telco
shall be the gross selling price of the Prepaid Load Dealer(s) subject to a corresponding
recognition of commission expense or a sales discount. In this case, the Prepaid Load Dealer
shall not take title over the Prepaid Credits being sold. Whether or not the relationship
between the Mobile Telco and a Prepaid Load Dealer is one of buyer-seller or principal-
agent, will have to be established from the underlying contract between the parties as well as
the substance of their relationship. A Prepaid Load Dealer dealing with a Mobile Telco
claiming to be a mere agent of Mobile Telco and earning commission revenue from the latter
shall obtain a certification of such fact from the Mobile Telco. Without a corresponding
certification from the Mobile Telco that a Prepaid Load Dealer is its selling agent and that it
records the gross sales of such Prepaid Load Dealer in its books subject to a corresponding
claim for commission expense, a Prepaid Load Dealer cannot claim to be a mere commission
agent.
Section 5.1. Timing of Recognition of Income from Prepaid Credit – The acceptability of
reporting income on accrual basis for income tax purposes, notwithstanding, Provided—
(a) the Mobile Telco does not cease to be a going concern and
(b) the Prepaid Credits were purchased with no definite right on the part of the purchaser of
said Prepaid Credit to refund or categorical policy on the part of the Mobile Telco allowing
the refund of purchased unused Prepaid Credit,
the payment received from the sale of said credits should already be deemed earned and
reported for income tax purposes. Thus, revenue of Mobile Telcos from the sale of Prepaid
Credit, whether through Electronic Loading or sale of Prepaid Cards, shall be recognized as
income at the time the sale is made. 16
correct as a matter of tax law. The airline ticket in and of itself has not monetary value, even as scrap paper.
The value of the ticket lies wholly in the right acquired by the “purchaser”—the passenger—to demand a
prestation from BOAC, which prestation consists of the carriage of the “purchaser” or passenger from one point
to another outside the Philippines. The ticket is really the evidence of the contract of carriage entered into
between BOAC and the passenger. X x x.”
In other jurisdictions, the sale of Prepaid Credits is not being categorically characterized as sale of
tangible assets but the fact that it is increasingly being taxed at the point of sale is indicative of the intention to
characterize it more as a sale of tangible goods rather than as a sale of the underlying service.
Lastly, since Prepaid Load Dealers sell Prepaid Credit under their own account (for example, they
issue their own official receipts for the entire purchase price) or in the concept of reseller, then their relationship
vis-à-vis the Mobile Telcos is that of buyers rather than commission agents. In fact, Mobile Telcos do not book
commission expense for the revenue realized by Prepaid Load Dealers.
16
New York: Tax imposed when prepaid phone services sold rather than when call made, State Tax
Review, February 22, 2000: Recent statutory changes imposing New York sales and use tax on sales of prepaid
Revenue from Prepaid Credits shall, upon use or expiration, be properly reclassified
into the appropriate revenue account, depending on the manner that the same were used by
the subscribers.
Books of Telco of
Books of Originating Telco Termination/Interconnection
To accrue income
A/R from Subscriber 100.00 Access charge receivable – PTE 50.00
Access charge expense -PTE 50.00 Access charge revenue 44.64
- PTE
Deferred Input Tax 5.36 Deferred Output 5.36
telephone calling services (Chs. 649 (S.B. 3354) and 651 (S.B. 6170), Laws 1999, effective March 1, 2000) are
explained. Tax is imposed when services are sold rather than when a phone call is made. Tax is imposed even
if a calling card is not provided at the time of sale. Service time added to a card (recharging) also is subject to
tax at the time of sale. Under prior law, tax was imposed when a call was made.
Arkansas: Prepaid telephone calling cards taxable, State Tax Review, June 14, 1999: Effective July 1,
1999, sales of prepaid telephone calling cards or prepaid authorization numbers and the recharge of such cards
or numbers are subject to Arkansas gross receipts (sales) and compensating (use) tax. Xxx The taxable situs of
sales of prepaid calling cards and authorization numbers is at the point of sale by the retail vendor. However, if
the sale or recharge does not take place at the vendor's place of business, it is treated as occurring at the
customer's shipping address or, if not shipped, then at the customer's billing address or the location associated
with the customer's mobile telephone number.
Louisiana: Prepaid telephone calling cards subject to tax, State Tax Review, August 10, 1998: The sale of
a prepaid telephone calling card or prepaid authorization number is subject to Louisiana sales tax at the rate of
3%. However, telecommunication services paid for in advance by the purchase of a prepaid telephone calling
card or prepaid authorization number are not taxable services.
17
Requires telcos to accumulate data on the amount of interconnection expense being incurred which in turn is
income of another telco. Presently, there is no interconnection expense in the books of the paying telco that is
accumulated since interconnection charges are automatically deducted or netter out from revenues, thus, BIR
does not have any available data to enable it to cross check or verify the correctness of the amount being
reported by the telco receiving such interconnection revenue.
VAT
Revenue – Voice 89.28
Call
Deferred Output 10.72
VAT
Access charge 50.00
payable-PTE
Upon payment to PTE and receipt of the VAT receipt from PTE, the recording shall be as
follows:
Cash 100.00
Deferred Output VAT 10.72
Cash 100.00
Deferred Input Tax 10.72
Cash 100.00
Deferred OCT 9.10
A/R from Subscriber 100.00
OCT Payable 9.10
Cash 100.00
Access Charge 100.00
Receivable - FA
3. Recognition of Gross Amount.—The estimated share of the other PTE/FA for the
interconnection made to or through its network should form part of reported gross
revenue of the originating/collecting Mobile Telco; however, simultaneous with the
accrual of the gross revenue, the Mobile Telco shall recognize the corresponding
interconnection fee expense and set-up the liability for the same amount due to the other
PTE/FA. Likewise, the PTE entitled to Access Charge shall book and report as taxable
income its estimated revenue from Access Charge upon performance of the service,
regardless when the same is ultimately settled.
4. Adjustments to Revenue from Access Charges. The Settlement Process which is bound
to result to adjustments in the accruals made by the Mobile Telco as well as the other
PTE (due to discrepancies between the traffic volume per the Mobile Telco’s records and
per records of other PTE/FA) shall be completed strictly within the period provided under
NTC Memorandum Circular No. 14-7-2000, as may be amended from time to time. The
Mobile Telco is allowed to reflect the adjustments resulting from the Settlement Process
in the quarter immediately following the quarter the Settlement Process is completed or is
required to be completed, whichever is earlier. Mobile Telcos shall keep a record of the
details of the reconciliations and other bases of adjustments made in the course of
settlement of Access Charges as these may be requested in the course of audit.
5. Use of estimates. For purposes of interim financial statements and tax compliance during
the year, interconnection revenue of Mobile Telcos may be based on estimates
considering that these compliance requirements are required to be submitted prior to the
60-day deadline for the issuance of billings for interconnection charges imposed by the
NTC. However, the audited annual financial statement and the annual income tax return
of Mobile Telcos, shall be required to report the actual amounts based on billings issued,
in lieu of estimates.
6. Withholding Tax on Access Charges. To the extent that the Mobile Telco paying
Access Charge to another PTE is among the top 10,000 taxpayers, the remitting/paying
Mobile Telco shall subject the same to withholding tax at the applicable rates prescribed
under Section 2.57.2(M) of Revenue Regulations 2-98, as amended. If the settlement is
accomplished in full or in part by way of offset, the withholding tax shall be computed on
the gross amount before offsetting is made. Offsetting between PTEs with respect to
Access Charges shall not in any way affect the obligation of the paying PTE to remit the
corresponding withholding tax on the gross Access Charge. Withholding of expanded
creditable withholding tax on Access Charge shall accrue upon the actual or constructive
payment of the Access Charge to the other PTE.
Section 5.4. Reporting of Direct Costs.— Direct costs that serve to offset gross revenue
should be separately reported by Mobile Telcos and shall include outbound Access Charge
and the fee share of Content Providers. Costs shall likewise be classified in accordance with
the interconnection expense accounts prescribed under the NTC Chart of Accounts. 18
18
The NTC Chart of Accounts include: Interconnection Access Expense – International; Interconnection
Access Expense-National; Interconnection Access Expense-Local Network; Interconnection Access Expense-
Cellular Mobile Service; and Interconnection Access Expense – Others, indicating that interconnection expense
is supposed to be accumulated and will be reported as an item of operating expense to be offset against gross
revenue. This accounting practice of separately reporting interconnection expense rather than directly netting
out the same from reported gross revenue is evident in various financial statements of telcos available in the
internet and is categorically the prescribed treatment in regulations of countries such as those of Canada.
Moreover, this is consistent with the definition of Gross Receipts under RA No. 9337, which reads:
“The term ‘gross receipts’ means the total amount of money or its equivalent representing the contract price,
compensation, service fee, rental or royalty, including the amount charged for materials supplied with the
services and deposits and advanced payments actually or constructively received during the taxable quarter for
the services performed or to be performed for another person, excluding value-added tax.” This is also
consistent with the definition of “gross receipts” under Revenue Regulations No. 16-2005 as amended by RR
No. 4-2007, which reads: “SEC. 4.108-4. Definition of Gross Receipts. – ‘Gross receipts’ refers to the total
amount of money or its equivalent representing the contract price, compensation, service fee, rental or
royalty, including the amount charged for materials supplied with the services and deposits applied as
payments for services rendered and advance payments actually or constructively received during the taxable
period for the services performed or to be performed for another person, excluding the VAT, except those
amounts earmarked for payment to unrelated third (3rd ) party or received as reimbursement for advance
payment on behalf of another which do not redound to the benefit of the payer.
A payment is a payment to a third (3rd) party if the same is made to settle an obligation of another person, e.g.,
customer or client, to the said third party, which obligation is evidenced by the sales invoice/official receipt
issued by said third party to the obligor/debtor (e.g., customer or client of the payer of the obligation).
An advance payment is an advance payment on behalf of another if the same is paid to a third (3rd) party for a
present or future obligation of said another party which obligation is evidenced by a sales invoice/official
receipt issued by the obligee/creditor to the obligor/debtor (i.e., the aforementioned “another party”) for the
sale of goods or services by the former to the latter.
For this purpose ‘unrelated party’ shall not include taxpayer’s employees, partners, affiliates (parent,
subsidiary and other related companies), relatives by consanguinity or affinity within the fourth (4th) civil
degree, and trust fund where the taxpayer is the trustor, trustee or beneficiary, even if covered by an agreement
to the contrary.
Since third parties such as Content Providers who have fee-sharing arrangements with a Mobile Telco
as well as other carriers with interconnection agreements with the Mobile Telco do not issue receipts or invoices
separate and distinct from those issued by the Mobile Telco to its subscribers, then fees due to other carriers and
to parties to fee-sharing arrangements are not within the exception provided in the RR definition of “gross
receipts”. See also KPMG discussion of IFRS accounting in the Telecommunications Industry.
Section 5.6. Recognition of Revenue from the Sale of Prepaid Credits.—In general, Mobile
Telcos shall recognize revenue from Prepaid Credit equivalent to the proceeds of the sale,
less the VAT component thereof; however, if the Mobile Telcos sell through commission
agents, the gross selling price of such commission agents less the VAT component thereof
shall be recorded as its revenue from the sale of Prepaid Credit, subject to the Mobile Telco’s
right to claim deduction for commission payments to its commission agent Prepaid Load
Dealers. Any commission expense or discount extended to Prepaid Load Dealers as their
compensation for the sale/distribution of the Prepaid Credits for a Mobile Telco shall not be
netted out or automatically deducted from the gross revenue to be reported by Mobile Telcos.
In the interest of transparency of the cost and revenue components of Mobile Telco
operations, no outright set-off or netting out shall be allowed.
If the Mobile Telco treats a particular Prepaid Load Dealer as its commission agent,
then it shall be its obligation to withhold tax on the commission revenue paid at the rate
prescribed under Section 2.57.2(R) of Revenue Regulations No. 2.98, as amended.
Section 5.7. Revenue from the Sale of SIM Packs (Bundled or Unbundled).—Proceeds of
the sale of SIM packs if the same includes air time credits shall be allocated accordingly.
Airtime credits sold and bundled with the SIM pack shall be recorded in the same way as sale
of prepaid airtime credits while the sale of SIM shall be recorded as sale of goods.
Section 5.8. Revenue Subject to Fee Sharing Arrangement with Content Providers.—
Consistent with Sections 5.3. and 5.6 above, revenue from services subject to fee sharing
arrangement with third party Content Providers shall be reported at their gross amount by
Mobile Telcos, or inclusive of the revenue share of the Content Provider, subject, however,
to the right of the Mobile Telco to claim the corresponding content fee equivalent to the share
of the Content Provider from the service sold by Mobile Telco as an integral component of
its direct costs.
Only fees payable to duly licensed Content Providers pursuant to NTC Memorandum
Circular No. 03-03-2005-A (Amendment to the Rules and Regulations on Broadcast
Messaging Service dated March 15, 2005) shall be allowed to be claimed as part of the direct
costs of Mobile Telcos. Payments pursuant to fee-sharing arrangements with unlicensed
Content Providers shall be disallowed as a component of direct cost as well as deductible
business expense.
Section 5.9. Treatment of Income from Remittance Services.—Service fees collected from
performing remittance services shall be considered as non-core revenue and in no case
therefore shall they become subject to OCT, notwithstanding the fact that the remittance is
outbound. The receipt of the amount sought to be remitted shall only be acknowledged by
the Mobile Telco or its remittance partner by way of an acknowledgment or remittance
receipt. It shall only cover with its own official receipt that portion pertaining to its service
fee. The same rule shall apply to remittance partners of Mobile Telcos. However, the latter
shall not only issue a receipt for the amount of its share of the service fees but the entire
service fees, including such portion payable to the Mobile Telco. The third party remittance
partner of Mobile Telcos shall, however, be allowed to deduct the Mobile Telco’s share of
the service fees as part of its deductible direct costs.
Service fees collected abroad by remittance partners of the Mobile Telcos shall not be
subject to Philippine VAT and the share of Mobile Telcos therefrom remitted to the
Philippines shall likewise be deemed zero-rated to the extent that it constitutes fees for
services to be rendered locally for a non-resident and the same is paid for in foreign currency
accounted for in accordance with the rules of the Bangko Sentral ng Pilipinas (BSP).
Section 5.10. Treatment of Income from E-money Issuance.—Service fees earned from the
issuance of E-money shall be separately accounted for and proceeds thereof shall constitute
income from non-core services. As in the case of remittance service, money given in
exchange for the E-money issued by the Mobile Telco shall be evidenced by an
acknowledgment receipt while the service fees collected from performing this service shall
be receipted accordingly, as any other income of the a Mobile Telco. Only the amount
received in payment for the service fees, as duly receipted, shall be reported as income by the
issuing Mobile Telco and subjected to VAT.
Should Mobile Telcos earn by way of discounts from settlements made to merchants
accepting E-money issued by the Mobile Telco as payment for their services/merchandise,
such income earned by Mobile Telcos shall likewise be classified as non-core service
income. Settlement of the cash equivalent of e-money issued by Mobile Telcos accepted as
payment by merchants shall be subject to the same rules applicable to settlement payments of
credit card companies to merchants, specifically the withholding tax thereon prescribed
pursuant to Revenue Regulations No. 2-98. 19
19
Section 2.57.2(L) Revenue Regulations No. 2-98.
Cash receipts of Mobile Telcos and their agents shall not be deemed as pertaining to
the purchase of Prepaid Credits if the credits purchased are represented to be acceptable as
payment for goods and services purchased from/supplied by undefined number of merchants
which are not necessarily controlled or linked to the mobile operator. E-money may be used
to pay for Prepaid Credits but shall not be immediately available for use to avail of
telecommunications services in the same manner as Prepaid Credits. Mobile telcos issuing
E-money shall maintain separate books for this particular business activity.
Unless the Mobile Telco can categorically prove that the money or payment received
does not pertain to a purchase of Prepaid Credits or if the E-money issued can directly be
used to avail of telecommunications services without having to purchase Prepaid Credits, the
entire cash payment received shall be treated as revenue from the sale of Prepaid Credits
rather than treated as receipt in connection with E-money issuance. 20
20
It is noted that in certain jurisdictions, there is already technology that allows a single prepaid card issued by a
telco to be used for various uses (multi-use card). A transaction is deemed to be an e-money if there is a clear
trilateral relationship between the user, mobile operator, and merchant. However, whether or not the transaction
is an e-money transaction or a mere use of the prepaid card for direct transaction/sale of goods and services by
the telco, it is proposed the specific business model adopted should be analyzed: In practice, there are different
business models depending on the nature of the content and the presentation of the offered product/service. Five
examples are provided below in simplified terms.
a) A mobile operator offers content to its customers via a “portal” without specifying the origin of the content.
Therefore, the product/service belongs to the mobile operator itself, or it is re-sold and supplied by the mobile
operator, or it is sold and/or supplied by a third party but without any information to the customer. In practice,
the purchase is made using the portal as a catalogue.
In this example the customer has only one counterparty: the mobile operator. The e-value is spent to buy
something presented as an ancillary product / service of the mobile operator.
b) A mobile operator offers its customers content through a “portal” and it is clearly apparent that some
products or services are produced and/or supplied by third parties. However, the mobile operator appears as “the
seller” to the customer.
In this context, the payment is likely to be made to the mobile operator in exchange of what appears one of its
ancillary services. Again, there is no question of e-money, because the card is not used as a real multi-purpose
card (intended also to pay third parties). It will also be interesting to assess who is responsible for the product /
service in case of default, error in delivery etc. More details on these arrangements could clarify if, despite the
technical arrangement adopted to sell the product/service, the content must be considered as sold by the
third party and this third undertaking is the real counterparty.
c) A mobile operator offers content through a “portal”, and where certain products or services are clearly
produced, supplied and sold by third parties.
In this context there are three visible actors and the card is likely to be used as a real multi-purpose card. The
mobile operator appears as mere “carrier” of communications or of the digital content, if any.
d) Access to services through a channel other than the mobile operator’s portal. The customer may call a
specific phone number or connect himself to a web page, and make his purchase via voice-call, SMS, or web
message. In this case, the mobile operator appears as a mere technical intermediary for the communication
allowing the order and the delivery of the content on the handset (examples: logos, screen savers, games, news,
horoscope, music, ring tones, videos, etc).
a. In-collect Roaming Charges shall not be treated as revenue of the Mobile Telco as the
Mobile Telco has no participation in the performance of the service being paid for, as in
fact, the Mobile Telco only earns from such transactions in the form of the administration
fee/surcharge that it is collecting, usually computed as a percentage of the amounts
charged and payable by the FA servicing the Mobile Telco subscriber while the
subscriber is outside of the service area of his Mobile Telco.
b. Out-collect Roaming Charges shall be treated as revenue of the Mobile Telco as soon as
the service has been rendered.
c. Surcharge or administration fee shall be recognized as revenue at the same time that the
amount due to the FA is recorded in the books of the Mobile Telco.
Estimates may be resorted to for purposes of determining the income payable to or from the
FA, making use of the records available to the Mobile Telco and applying the terms and
conditions of the roaming agreements with the FAs concerned.
Section 5.13. Treatment of Revenue from Sale of Phone Units.—The treatment of proceeds
from sale of handsets, phone kits, SIM packs and other phone accessories shall depend on
whether the sale constitutes a straight sale or it is subject to terms and conditions linked with
the provision of telecommunications service to the buyer.
In this case, as in the case described sub c), as well as for the exception described sub b), there are three visible
actors: a customer (purchaser), a merchant (seller and supplier of the content) and the mobile operator
(technological intermediary for this new form of e-commerce). The pre-paid card becomes a multi-purpose card
and its-value is used to pay a provider other than the issuer. The requirements of the E-money Directive will be
met.
e) Finally cases exist where mobile operators are themselves in no doubt that the e-value used as mean of
payment is de facto e-money. For example, a customer may dial a phone number and pay for a parking space;
buy a soft drink from a vending machine or orders a CD or a pizza to be delivered at home. In these cases there
is no confusion or overlap between the communication service and the product / service paid, or the origin of
the product or service, neither by the customer nor by the phone company.
There is no conceptual difference between this last example and that described sub c) and d), apart from the
fact that the content is completely separated from the communication device and related services (where in the
previous cases it is delivered on the handset). Therefore, also the schemes described sub c) and d) should be
considered as fulfilling all the basic requirements to be an e-money transaction.
(a) Straight Sale – Revenue from the sale of a unit outside any promotional offer or without
any lock-up period or subscription obligation from the Mobile Telco selling the same
shall be treated as any other revenue from the sale of goods. The related costs of
handsets, phone kits, SIM packs and accessories sold to customers are recorded as “Cost
of Sales” in income statement of the selling Mobile Telco.
1. At a discount – if the unit is sold at a discount, i.e., below cost, such discount shall
not be eligible for one-time deduction but shall be allocated accordingly over the
lock-up period as marketing expense if the lock-up period exceeds one (1) year. If
the lock-up period does not exceed one (1) year, the discount extended may be
charged as outright expense in the period when availed by the Mobile Telco’s
subscriber.
subscriber, the Mobile Telco shall reflect the corresponding charges on the billing
statement of the subscriber and the same shall be recorded as revenue by the Mobile
Telco at the time revenue from Postpaid Subscriptions are ordinarily accrued.
In any case, the subsequent use of the load obtained by a subscriber from peer-
to-peer loading shall no longer constitute a revenue-generating transaction for the
Mobile Telco, for tax purposes.
1. In view of the provisions of Sections 120, 108 and 106 of the NIRC, only the following
shall not be subject to VAT:
(a) amounts earmarked for payment to FAs for their share of services performed outside
of the Philippines;
(b) gross receipts subjected to OCT, unless the Mobile Telco has elected to register such
activities subject to OCT as part of its VAT-registered operations pursuant to Section
109(2) of the NIRC in lieu of OCT;
(c) Deposits for telephone instruments to the extent that the same have not been applied
towards the payment of Mobile Telco charges/fees; and
(d) those qualifying under Section 109 of the NIRC as exempt transactions.
(a) export sales of SIM cards, telephone equipment, and other gadgets;
(b) sales of goods and services to zero-rated entities, e.g. PEZA and those exempt from
indirect taxes under special laws; and
(c) services rendered to nonresident clients paid for in acceptable foreign currency such
as Access Charges and Out-collect Roaming Charges from FAs due to Mobile Telcos.
Section 6.2. VAT Base.—Gross receipts of Mobile Telcos subject to VAT shall be computed
on the basis of Gross Receipts, as the term is defined under Revenue Regulations No. 16-
2005, as amended. 21 ‘Gross receipts’ refers to the total amount of money or its equivalent
representing the contract price, compensation, service fee, rental or royalty, including the
amount charged for materials supplied with the services and deposits applied as payments for
services rendered and advance payments actually or constructively received during the
taxable period for the services performed or to be performed for another person, excluding
the VAT, except those amounts earmarked for payment to unrelated third (3rd ) party or
received as reimbursement for advance payment on behalf of another which do not redound
to the benefit of the payer.
For this purpose ‘unrelated party’ shall not include taxpayer’s employees, partners,
affiliates (parent, subsidiary and other related companies), relatives by consanguinity or
affinity within the fourth (4th) civil degree, and trust fund where the taxpayer is the trustor,
trustee or beneficiary, even if covered by an agreement to the contrary.
Q-6 What is gross receipts for purposes of franchise grantees subject to VAT?
A-6 For purposes of franchise grantees subject to VAT, gross receipts, as defined under Revenue
Regulations No. 7-95, refer to the total amount of money or its equivalent representing the contract
price, compensation, service fee, rental or royalty, including the amount charged for materials
supplied with the services and deposits and advance payments actually or constructively received
during the taxable quarter for the services performed or to be performed for another person, excluding
VAT. However, said gross receipts subject to VAT shall not include amounts earmarked for payment to
The gross amount of the VAS/Content Provider’s share in the fees shall be
recorded accordingly by the VAS/Content Provider to reflect the gross sales as well as
the output VAT component thereof. Accordingly, on the sale of content/VAS, VAT shall
be imposed both at the level of the VAS/Content Provider and the Mobile Telco,
provided, however, that corresponding input tax may be claimed by both the Mobile
Telco and the VAS/Content Provider.
another telecommunications company; foreign administration's (FA's) share for the services
performed outside the Philippines; and amounts received from overseas dispatch, message or
conversation originating from the Philippines which is covered by Section 118, Title V of the NIRC.
Q-7 What portion of their gross receipts is not subject to VAT?
A-7 a. The share of the foreign telecommunications administration (FA) in the payment received by a
local telecommunications company from its customers in accordance with their agreement is not
subject to VAT because the related services are performed by FA outside the Philippines. The
telecommunications company shall not charge VAT on the FA's share. In billing customers, the local
telecommunications company shall present the FA's share separately with a notation that it is VAT
exempt. The FA's share may be presented on the same VAT invoice or official receipt showing the
telecommunications company's other VAT taxable charges.
b. Deposit for telephone instruments and the like are not subject to VAT. However, if the said
deposits for telephone instruments and the like are forfeited, the telecommunications company shall be
subject to VAT thereon.
Moreover, the draft RMC for the telco industry following the amendment of the VAT law in 2005,
provides:
Question 6 - What are gross receipts for purposes of Telecom services subject to VAT?
Answer 6 - For purposes of telecom services subject to VAT, gross receipts (as defined under Revenue
Regulations No. 7-95, as amended) refer to the total amount of money or its equivalent representing
the contract price, compensation, service fee, rental or royalty, including the amount charged for
materials supplied with the services and deposits and advance payments actually or constructively
received during the taxable quarter for the services performed or to be performed for another person,
excluding VAT. However, said gross receipts subject to VAT shall not include amounts earmarked for
payment to another telecommunications company; foreign administration's (FA's) share for the
services performed outside the
Philippines; and amounts received from overseas dispatch, message or conversation originating from
the Philippines which is covered by Section 120, Title V of the NIRC (Overseas Communication Tax)
unless the Telco elects to subject the same to VAT in accordance with Section 109(2) of the NIRC in
lieu of the OCT. Deposit for telephone instruments and the like are not subject to VAT. However, if the
said deposits for telephone instruments and the like are forfeited, the telecommunications company
shall be subject to VAT thereon.
Thus, whether in the previous issuance or in the 2005 draft RMC, there was no indication that the BIR has
taken the position that the fee share of third party VAS/content providers, which are generally non-telcos
are excluded from “Gross Receipts” for VAT purposes.
amended, are not likewise satisfied (considering that PTEs/FAs entitled to such Access
Charges do not issue official receipts to the subscribers of the paying Mobile Telco). 23
Moreover, to the extent that interconnection fee is not due to an “unrelated party”,
as the term is defined in Section 4.108-04 of Revenue Regulations No. 16-2005, the
interconnection charge/fee payable by the Mobile Telco shall likewise constitute part of
the Mobile Telco’s Gross Receipt subject to VAT.
Section 6.3. Timing of Reporting for VAT.—Gross receipts of Mobile Telcos subject to
VAT shall be reported for VAT purposes upon receipt of payment, whether actual or
constructive. In case the amount of Access Charge revenue receivable by a Mobile Telco
from another PTE has been used to set-off any amounts due from and payable by the Mobile
Telco to such other PTE, then payment shall be deemed to have been constructive received.
Accordingly, for VAT purposes, the amount applied by way of set-off shall already be
reported as part of Gross Receipts of the Mobile Telco for the period when the set-off was
made by the paying PTE. VAT is not yet due on interconnection charges otherwise subject
to VAT until such is actually or constructively paid to the Mobile Telco.
Revenue from the sale of Prepaid Credit shall likewise be subject to VAT at the time
payment for the same is received by the Mobile Telco, irrespective of the period or time
when the Prepaid Credit is actually used.
23
Unlike in the case of non-telco third party VAS/content providers, it appears that the BIR was previously of
the position that gross receipts “earmarked for payment to another telecommunications company”, in general,
are excluded from “Gross Receipts” subject to VAT. It would appear that the quoted clause covers
interconnection charges as these are earmarked for payment to another telco. Thus, the proposed wording of
current provision may result in a deviation from the original BIR position on this matter but it would be
consistent with RR 16-2005 as amended by RR 4-2007. (Refer to immediately preceding footnote for quoted
text of previous issuance and proposed 2005 draft RMC.)
A Mobile Telco will generally have gross receipts which represent interconnection fees/charges which are
payable to:
a. another local telco, whether Mobile or otherwise; and
b. FA for services the FA rendered abroad.
On the other hand, a Mobile Telco will generally have gross receipts representing interconnection fees earned
and receivable from:
a. another local telco; and
b. FA for services the Mobile Telco rendered locally for the FA.
Both receipts under item (a) are subject to VAT while both receipts under item (b) are NOT subject to VAT.
Interconnection fees due to FAs from Mobile Telco are (a) not within the scope of VAT for being rendered
outside the Philippines but are subject to OCT for pertaining to outbound international calls; interconnection
fees due from FAs to Mobile Telcos on the other hand, are subject to VAT but at 0% for being paid for in
foreign currency and rendered for a nonresident.
made. In any case, all settlement adjustments taken up in the books more than ninety (90) 24
days after the roaming or interconnection revenue or expense was recognized in the books of
24
The following provisions of NTC Memorandum Circular No. 14-7-2000 are relevant with
respect to the determination of the reasonableness or basis of the period herein provided:
Article VI
MEASUREMENT OF CALLS AND COLLECTION OF CHARGES
Section 16. The parties shall measure both outgoing and incoming calls from their respective
networks.
Section 17. Each party shall undertake the billing and collection of payments for all outgoing paid
calls made by its own subscriber or customer and, if agreed upon by the parties, incoming collect calls
made by a subscriber of customer of another party. Unless otherwise agreed upon, the billing and
collection of payments for outgoing calls made by a subscriber or customer of a party but using the
IXC or IGF facility of another party, shall be the responsibility of the party-IXC or party-IGF, as the
case may be.
Section 18. The parties shall submit to each other settlement statements within sixty (60) days from the
end of the month to which the statement pertains. The data required to be included in the statement
shall be mutually agreed upon by both parties. In the event a party fails to submit the settlement
statement within the said period, any available data for purposes of reconciliation and statement shall
be used. The party who failed to submit the data shall have the right to contest or dispute the
reconciled data within three (3) months from transaction month. Thereafter, said party shall be barred
to dispute the data.
If the party with a receivable does not agree with the settlement statements of the other party, it shall
send its own reconciliation statement to the latter within sixty (60) days from receipt of the statement.
A party with payable balance shall pay all undisputed calls within thirty (30) days from receipt of the
billing statement sent by the party with receivable. In cases where the statements of the parties do not
reconcile, the following rules shall govern:
a. If the variance is four percent (4%) of the amount payable as reflected in the books of the payer or
lower, the party with the (payable) balance shall pay the lower of the two amounts reflected separately
in the respective reconciliation statement of the parties;
b. If the variance is more than four percent (4%) but not more than seven percent (7%) of the amount
payable, the party with (payable) balance shall pay the lower of the two amounts reflected separately
in the respective reconciliation statements of the parties plus fifty percent 50% of the amount of the
variance;
c. If the variance exceeds seven percent (7%), the parties shall be given a period of thirty (30) days to
settle the dispute. If the parties fail to settle their dispute, the same shall be referred to the Commission
for arbitration.
d. In cases falling under (a) and (b), payment of the party with a balance shall be made within thirty
(30) days from receipt of the reconciliation statement sent by the party with receivable; Provided, that
the payment by the party with a balance shall be without prejudice to the right of the party with
receivable to collect the remaining balance and for this purpose, the parties shall be given thirty (30)
days to settle their dispute. If the parties fail to settle their dispute, the same shall be referred to the
Commission for arbitration.
The proceedings mentioned in this section shall be summary in nature and the Commission shall
resolve the matter within a period of thirty (30) days from the time the same is submitted for
resolution.
Nothing in this section shall prevent the parties from their settling their disputes among themselves by
continuous reconciliation of their statements.
the Mobile Telco days shall be sufficiently justified and substantiated upon audit to
determine whether there is basis to impose surcharge and interest for late reporting of
adjustments that prejudiced the Bureau’s effort for timely collection of taxes.
Section 6.5. Input VAT.— Mobile Telcos shall be entitled to claim as credit against output
tax all input taxes that can be directly attributed to activities subject to VAT and a ratable
portion of input tax that cannot be directly attributed to either the taxable or VAT-exempt
activity. The manner of apportionment of input tax shall be as provided under Revenue
Regulations No. 16-2005, as amended.
Section 6.6. Treatment of Deposits for VAT Purposes. Deposits shall be subject to VAT
when they become part of Gross Revenue which generally happens when the Deposit is
forfeited and applied towards the payment of an account that has not yet been recognized as
income/revenue. Thus, if the amount is applied towards the partial or full payment of unpaid
accounts, the same shall be considered part of collected revenue and thus, part of the tax base
for purposes of computing VAT on the services sold by the Mobile Telco. On the other
hand, if the Deposit is applied towards full or partial recovery of the value of the equipment
that was leased out but was not returned or was lost, the Deposit may be forfeited and
together with any additional payment demanded from the subscriber liable for the loss or
damage, shall be deemed as revenue subject to VAT.
1. The 12% VAT due on the Net Proceeds, as defined in Section 5.6 above, and
The VAT due on the Net Proceeds is the regular VAT that is imposed on
Mobile Telcos on revenue from the sale of Prepaid Credit.
Section 19. Except as provided in the preceding section, the party with a (payable)
balance shall settle the amount due within thirty (30) days after the reconciliation of the statements.
Section 20. For International Calls: The collection of payments from the Foreign Administrations for
all incoming paid calls and outgoing collect calls shall be the responsibility of the IGF operator that
received/sent said international paid calls from/to said Foreign Administration. The parties shall
settle the interconnect charges for a particular month within thirty (30) calendar days from receiving
the statements also for said particular month from all its foreign correspondents through a toll journal
mutually
agreed upon by both parties. Within fifteen (15) days from receipt of the toll journal, the party with a
payable shall send to the other party a reconciliation statement reflecting the amount computed as
payable, otherwise, the toll journal shall be deemed accepted by the party with a receivable.
Section 21. The modes of payments including the interests, penalties or surcharges for late payments
shall be mutually agreed upon by both parties.
2. The 12% VAT on the difference between the Load Value and the Net Proceeds,
collected in advance (Advance VAT) at the level of the selling Mobile Telco.
The Advance VAT shall represent the estimated VAT that remains payable
after the level of the Mobile Telcos, based on the expected, prescribed, or indicative
street value of the Prepaid Credit which in no case shall be more than the Load Value.
The Advance VAT shall be charged/billed to and paid in full by the Prepaid Load
Dealer dealing directly with the Mobile Telco. The Prepaid Load Dealer charged for
the Advance VAT shall have the right to pass on such portion of the Advance VAT as
may not be attributable to its own transaction. At each level of distribution or sale of
Prepaid Credits after the level of the Mobile Telco shall compute its share of the
Advance VAT by multiplying the value-added by the Prepaid Load Dealer concerned
by 12%. Any excess of the Advance VAT over a Prepaid Load Dealer’s share of the
Advance VAT shall be passed on to the next level Prepaid Load Dealer. A Prepaid
Load Dealer’s share of the Advance VAT shall be applied as credit against its VAT
payable. The amount of Advance VAT Credit shall be separately indicated on the
official receipt issued by the Prepaid Load Dealer seeking recovery of the Advance
VAT Credit in excess of its share of the same.
Thus, assuming the Mobile Telco sells Prepaid Credit which has a Load Value
of P100.00 for P80.00 to its major Prepaid Load Dealer (Dealer 1), which in turn sells
the same to another Prepaid Load Dealer (Dealer 2) who may either be VAT-
registered (Dealer 2-A) or non-VAT-registered (Dealers 2-B) which ultimately sells
the Prepaid Credit for P100.00 to a subscriber, the recording shall be as follows:
Book of Dealer 1
VAT shall be due upon the receipt of proceeds from the sale of Prepaid Cards
or E-load by the selling Mobile Telco. If the Prepaid Credit is subsequently used for
telecommunications services subject to OCT instead of VAT, the same shall be
addressed in accordance with Section 6.8 of these Regulations. If the Prepaid Credit
is paid by way of transfer of value from the E-wallet of a subscriber, the same shall be
reported for VAT purposes in the same manner as any sale of Prepaid Credit, i.e., at
the time of sale.
Prepaid Load Dealers shall report the gross amount of their Prepaid Credit
sales and at the same time claim as direct cost the corresponding purchase price of the
Prepaid Credit sold. Prepaid Load Dealers shall not be allowed to recognize revenue
on their sale of Prepaid Credit on the basis of the net amount realized from the
purchase and sale unless they are able to substantiate by written contract with the
Mobile Telcos or other principal that they are merely commission agents of Mobile
Telcos or such other principal. To establish that they are mere commission agents,
they shall not be purchasing Prepaid Credits from their principal since as commission
agents, they are not supposed to take title over the goods or merchandise sold by
them.
B. Foreign Sale
For purposes of these Regulations, foreign sale of Prepaid Credit shall mean the
sale of Prepaid Credit outside of the Philippines.
The sale of Prepaid Credit abroad directly by the Mobile Telco shall not be
subject to VAT if paid for in foreign currency inwardly remitted pursuant to Section
108(B) of the NIRC and Section 4.108-5 of Revenue Regulations No. 16-2005
provided such Mobile Telco is able to ensure that such Prepaid Credit sold abroad are
not subsequently resold in the Philippines. The Mobile Telco should be able to prove
that it is able to track/monitor whether the said Prepaid Credits are subsequently and
25
Admittedly, there are 2 schools of thought in this regard: (a) those that consider such transaction as a sale of
service considering that when a person buys pre-paid load electronically or through cards, their intention is to
purchase the underlying service and not the card or load per se and (b) those that consider the transaction as a
sale of goods, since the resellers are not, after all, in the telecommunications business. For tax purposes, the
latter is the more practical view considering that resellers will not be able to able to monitor when the service is
actually rendered to enable them to determine the timing of their recognition of income from their sale of the
Prepaid Credits. Moreover, if the sale of e-load is deemed as sale of the underlying service, then the resellers
will also need to monitor whether the load they sold was used for local or outbound telecommunications
services to be able to compute how much of their sale is subject to VAT and how much is subject to OCT.
Prepaid Credit sold by the Mobile Telco abroad and therefore, without any
VAT should not be allowed to be resold locally by the Mobile Telco and Mobile
Telco shall not load such corresponding credit to the local subscriber unless
corresponding value is deducted to cover the VAT which was not collected at the
time of its original sale of the Prepaid Credit to the foreign reseller.
In any case, Prepaid Credit sold, whether subjected to VAT at the sale thereof
by the Mobile Telco, shall be subject to OCT upon their use for outbound
communication.
26
This provision appears to be necessary to prevent the possible evasion by local wholesalers of the 12% VAT
on their purchases. Since the series of transactions including the sale and resale can be done electronically, this
can be easily resorted to by local wholesalers. Thus, the system of Mobile Telcos should be able to bar the
resale of Prepaid Credit to a subscriber who is in the Philippines at the time of purchase of the load from a
Prepaid Credit reseller which purchased Prepaid Credit at 0% VAT.
transfer of Prepaid Credit from one identified subscriber to another shall be deemed a
sale/resale of Prepaid Credit, taxable in accordance with these Regulations.
Section 6.8. Adjustment of Accrued VAT for Prepaid Credit Used for Overseas
Communication.—If Prepaid Credit sold and initially subjected to VAT at the time of its
sale by the Mobile Telco is ultimately used for purposes of availing of services subject to
OCT instead of VAT, the Mobile Telco shall be allowed to make the necessary adjustments
in the immediately following period. Summary of the basis of the underlying adjustments
shall be made available in case of audit. The summary shall indicate the nature of the
transaction for which it was used (i.e., Voice call, SMS, MMS) and the country of
destination.
Notwithstanding the provisions of Section 120 of the NIRC, a Mobile Telco with
transactions otherwise subject to the OCT may elect to register such activities as part of their
VAT-registered operations pursuant to Section 109(2) of the NIRC in lieu of the OCT. In
such case, even its revenue from outbound communication shall be subject to VAT.
Access Charges whether arising from voice or data transmission between two (2)
PTEs (one or both of them may be a Mobile Telco) are subject to VAT.
Collections from a PTE’s subscriber may include the share of another PTE
pursuant to an interconnection agreement. The VAT collected in such instances should
be reported by the collecting PTE in full in the month when such collection was actually
or constructively received, while the VAT passed-on by the PTE entitled to the Access
Charge shall be deducted from the gross output tax of the collecting PTE in the taxable
month when Access Charge are actually or constructively (as in the case of offsetting/set-
off) paid/settled. Correspondingly, the PTE receiving Access Charge revenue shall report
the output tax pertaining to its Access Charge revenue only in the month when
interconnection accounts are actually or constructively settled by the collecting PTE.
accounted for in accordance with the rules and regulations of the BSP. On the other
hand, the Access Charge Revenue of an FA from an interconnection agreement with a
PTE is not subject to any tax in the Philippines as such revenue of the FA is from services
rendered outside of the Philippines.
1. General Rule—
2. Specific Transactions – The VAT treatment of revenues arising from the following
types of transactions involving a subscriber on roaming and a Roaming Partner shall
be as summarized in Table A attached hereto:
The fee share of Content Providers shall be treated in exactly the same way as
Access Charge Revenues. The Mobile Telco shall report as revenue the entire amount
charged to its subscriber, without deducting that portion of the fee payable to the
VAS/Content Provider. The gross revenue collected from a subscriber is subject to VAT
at the regular rate of 12%. Input VAT shall be recognized by the Mobile Telco upon its
payment or settlement of the charges of the VAS/Content Provider. On the other hand,
output VAT shall be accrued by the VAS/Content Provider upon its receipt of payment
for its charges from the Mobile Telco.
OCT does not apply to receipts from the provision of services, such as leased
lines, that permit a subscriber to conduct international telecommunications. The OCT
similarly does not apply to income from the provision of bandwidth capacity that permits
another party to offer international communication services.
Section 6.13. VAT Treatment of Free Phone Units.—Free phone units which are given to
subscribers subject to a lock-up period with the Mobile Telco for a specified postpaid plan
shall be treated as customer acquisition cost to be charged to expense over the term of the
agreed lock-up period if the same exceeds one (1) year/twelve (12) months. However, if the
lock-up period is equal to or less than one (1) year, the same may be charged as
marketing/promotions expense on the year the free handset is delivered to a subscriber. In
either case, the delivery of the handset to a subscriber shall not be deemed to constitute a
sales transaction; accordingly, no VAT shall be due thereon. The maximum amount that can
be charged as expense by the Mobile Telco, whether recognized on a one-time basis or
amortized over the lock-up period, as applicable, shall be the acquisition cost of the handset
given.
The delivery of the handset to a subscriber shall not constitute a sales transaction In
view of the foregoing treatment, no sale is deemed to have taken place; accordingly, no VAT
shall be due thereon.
The prescribed economic useful life of the different classes of PPE shall be as
follows: 31
28
From the draft RMC on VAT on Telcos.
29
It appears important to provide a separate policy/provision on depreciation considering that a significant
portion (approximately 30%) of the operating costs of telcos can be attributed to depreciation expense.
30
"(3) Agreement as to Useful Life on Which Depreciation Rate is Based. — Where under rules and
regulations prescribed by the Secretary of Finance, upon recommendation of the Commissioner, the taxpayer
and the Commissioner have entered into an agreement in writing specifically dealing with the useful life and
rate of depreciation of any property, the rate so agreed upon shall be binding on both the taxpayer and the
National Government in the absence of facts and circumstances not taken into consideration during the adoption
of such agreement. The responsibility of establishing the existence of such facts and circumstances shall rest
with the party initiating the modification. Any change in the agreed rate and useful life of the depreciable
property as specified in the agreement shall not be effective for taxable years prior to the taxable year in which
notice in writing by certified mail or registered mail is served by the party initiating such change to the other
party to the agreement:
Provided, however, That where the taxpayer has adopted such useful life and depreciation rate for any
depreciable asset and claimed the depreciation expenses as deduction from his gross income, without any
written objection on the part of the Commissioner or his duly authorized representative, the aforesaid useful life
and depreciation rate so adopted by the taxpayer for the aforesaid depreciable asset shall be considered binding
for purposes of this Subsection.
31
Standard classification of telco PPE should be adopted, based on the classification generally used by the
telcos, per their disclosure in their notes to FS. Alternatively, classification of PPE may be made in accordance
with the classification of PPE under the NTC Chart of Accounts. Alternative classification can be based also
on FCC classification in its Uniform Chart of Accounts:
“(j) Plant Accounts to be Maintained x x x
Property, plant and equipment:
Telecommunications plant in service
Property held for future telecommunications use
Telecommunications plant under construction-short term
Telecommunications plant adjustment
Nonoperating plant.
Goodwill
Telecommunications plant in service (TPIS)
TPIS--General support assets:
Land and support assets
Land
Motor vehicles
Aircraft
Tools and other work equipment
Buildings
Furniture
Office equipment
General purpose computers
TPIS--Central Office assets:
Central Office--switching
Non-digital switching
Digital electronic switching
Operator systems
Central Office—transmission
Radio systems
Circuit equipment
TPIS--Information origination/termination
assets:
Information origination termination
Station apparatus
Customer premises wiring
Large private branch exchanges
Public telephone terminal equipment
Other terminal equipment
TPIS--Cable and wire facilities assets:
Cable and wire facilities
Poles
Aerial cable
Underground cable
Buried cable
Submarine and deep sea cable
Intrabuilding network cable
Aerial wire
Conduit systems
TPIS--Amortizable assets:
Amortizable tangible assets
Capital leases
Leasehold improvements
Intangibles
Section 7.2. Asset Retirement Policy. 33 — It is quite common for Mobile Telcos to be
contractually required to restore leased properties to their original condition and to bear the
cost of dismantling and de-installation of the same at the end of the contract period.
Notwithstanding accepted accounting practice allowing the recognition of the fair value of
the liability for these obligations and capitalization of these costs as part of the balance of the
related property and equipment accounts, which are depreciated and amortized on a straight-
line basis over the useful life of the related property and equipment or the contract period,
whichever is shorter, for income tax purposes, the same may only be claimed as deduction
from gross income when actually incurred and not before then.
32
Allowed under Revenue Regulations No. 2.
33
Note: Consider the need to include a separate provision laying down the guidelines on the treatment of asset
retirement-related costs/expenses. Telcos appear to have significant leasing agreements which require them to
restore leased property to its original condition and to bear the cost of dismantling and deinstallation at the end
of the contract period. Per the disclosure in the AFS of telcos, they recognize the fair value of the liability for
these obligations and capitalize these costs as part of the balance of the related property and equipment
accounts, which are depreciated and amortized on a straight-line basis over the useful life of the related property
and equipment or the contract period whichever is shorter.
Any amount recovered in excess of the balance of the subscriber’s account which has
not yet been written off shall be deemed as miscellaneous revenue for the period when the
same is received. Thus, any amount collected from a delinquent taxpayer shall first be
34
Under Revenue Audit Memorandum Order No. 1-98 (Audit Guidelines and Procedures in the Examination of
Interrelated Group of Companies), “controlled” shall mean any kind of control, direct or indirect, whether
legally enforceable and however exercisable or exercised. It is the reality of the control which is decisive, not
its form or the mode of its exercise or ownership. A presumption of control arises if income and expenses have
been arbitrarily shifted; while the term “controlled taxpayer” means any one or two or more organizations or
trade, or businesses owned or controlled directly or indirectly by the same interests.
applied towards the payment of the subscriber’s balance that has not been written off and the
excess recorded as recovery of receivables already written off. All such payments received
from delinquent accounts shall be subject to VAT at the time of collection since such unpaid
revenues have not been previously subjected or reported for VAT purposes.
Once a Mobile Telco decides to adopt a particular treatment, the same shall be
irrevocable for purposes only of such specific PPE acquired using such borrowed funds.
A. In the course of audit of Mobile Telcos, the BIR shall have access to and may obtain
copies of the contracts between the Mobile Telco and other PTEs/FA, dealers, and
VAS/Content Providers, among other parties with material transactions with the Mobile
Telco, such as but not limited to the following: 35
1. Interconnection agreements;
2. Fee sharing agreements with Content Providers;
3. Roaming partners;
4. Remittance partners;
5. Merchants in connection with the use of e-money; and
6. Banks, credit card companies, and other e-money issuers, in connection with the
provision of collection facility for billing payments of postpaid subscribers and more
importantly, payment facility for the purchase of Prepaid Credit.
35
Mobile Telcos may have confidentiality concerns in this regard. However, it has to be pointed out
that the NIRC has safeguards in this regard as it makes it punishable for BIR officers and employees to
divulge information obtained in the course of their performance of their functions. The relevant
provision of the NIRC reads: "SEC 278. Procuring Unlawful Divulgence of Trade Secrets. 35299 -
Any person who causes or procures an officer or employee of the Bureau of Internal Revenue to
divulge any confidential information regarding the business, income or inheritance of any taxpayer,
knowledge of which was acquired by him in the discharge of his official duties, and which it is
unlawful for him to reveal, and any person who publishes or prints in any manner whatever, not
provided by law, any income, profit, loss or expenditure appearing in any income tax return, shall be
punished by a fine of not more than two thousand pesos (P2,000), or suffer imprisonment of not less
than six (6) months nor more than five (5) years, or both.
being the basis of all customer billings, interconnection charges, and billings for fee
sharing arrangements.
Data that may be required for presentation by the BIR and to be retained for tax
purposes shall in no case include the content of any communication involving the
subscribers of the Mobile Telco, but shall be limited to information that will ultimately
have impact on the receipts/revenue of the telco and all items that are thereafter deducted
therefrom for purposes of arriving at taxable income.
36
Gary M. Weiss, in his article Data Mining in Telecommunications discussed that “[B]efore [this] data can be
effectively mined, useful “summary” features must be identified and then the data must be summarized using
these features.” Call and network data of telcos, if properly “mined” will be useful in at least three (3) areas as
far as the telcos are concerned: (a) fraud detection; (b) Marketing/Customer Profiling; and (C) Network fault
isolation. Thus, summarized data as will be required to be prepared for and submitted to the BIR are also
ordinarily used by telcos for operations and management decision-making purposes. On the part of the BIR, it
will have a way of assessing the reasonableness of the revenues and expenses being reported. Summarized
detailed information also enables the BIR to derive information that can be compared with information coming
from third-party sources.
37
Sample provision in an Interconnection Agreement concerning the manner of settlement between telcos:
the other PTE or FA in the course of the Settlement Process shall be retained by Mobile
Telcos.
Article VI
MEASUREMENT OF CALLS AND
COLLECTION OF CHARGES
Section 16. The parties shall measure both outgoing and incoming calls from their respective networks.
Section 17. Each party shall undertake the billing and collection of payments for all outgoing paid calls made
by its own subscriber or customer and, if agreed upon by the parties, incoming collect calls made by a
subscriber of customer of another party. Unless otherwise agreed upon, the billing and collection of payments
for outgoing calls made by a subscriber or customer of a party but using the IXC or IGF facility of another party
shall be the responsibility of the party-IXC or party-IGF, as the case may be.
Section 18. The parties shall submit to each other settlement statements within sixty (60) days from the end of
the month to which the statement pertains. The data required to be included in the statement shall be mutually
agreed upon by both parties. In the event a party fails to submit the settlement statement within the said period,
any available data for purposes of reconciliation and statement shall be used. The party who failed to submit the
data shall have the right to contest or dispute the reconciled data within three (3) months from transaction
month. Thereafter, said party shall be barred to dispute the data.
If the party with a receivable does not agree with the settlement statements of the other party, it shall
send its own reconciliation statement to the latter within sixty (60) days from receipt of the statement.
A party with payable balance shall pay all undisputed calls within thirty (30) days from receipt of the
billing statement sent by the party with receivable.
In cases where the statements of the parties do not reconcile, the following rules shall govern:
a. If the variance is four percent (4%) of the amount payable as reflected in the books of the payer or lower, the
party with the (payable) balance shall pay the lower of the two amounts reflected separately in the respective
reconciliation statement of the parties;
b. If the variance is more than four percent (4%) but not more than seven percent (7%) of the amount payable,
the party with (payable) balance shall pay the lower of the two amounts reflected separately in the respective
reconciliation statements of the parties plus fifty percent 50% of the amount of the variance;
c. If the variance exceeds seven percent (7%), the parties shall be given a period of thirty (30) days to settle the
dispute. If the parties fail to settle their dispute, the same shall be referred to the Commission for arbitration.
d. In cases falling under (a) and (b), payment of the party with a balance shall be made within thirty (30) days
from receipt of the reconciliation statement sent by the party with receivable; Provided, that the payment by
the party with a balance shall be without prejudice to the right of the party with receivable to collect the
remaining balance and for this purpose, the parties shall be given thirty (30) days to settle their dispute. If the
parties fail to settle their dispute, the same shall be referred to the Commission for arbitration.
The proceedings mentioned in this section shall be summary in nature and the Commission shall resolve the
matter within a period of thirty (30) days from the time the same is submitted for resolution.
Nothing in this section shall prevent the parties from their settling their disputes among themselves by
continuous reconciliation of their statements.
Section 19. Except as provided in the preceding section, the party with a (payable) balance shall settle the
amount due within thirty (30) days after the reconciliation of the statements.
Section 20. For International Calls: The collection of payments from the Foreign Administrations for all
incoming paid calls and outgoing collect calls shall be the responsibility of the IGF operator that received/sent
said international paid calls from/to said Foreign Administration. The parties shall settle the interconnect
charges for a particular month within thirty (30) calendar days from receiving the statements also for said
particular month from all its foreign correspondents through a toll journal mutually
agreed upon by both parties. Within fifteen (15) days from receipt of the toll journal, the party with a payable
shall send to the other party a reconciliation statement reflecting the amount computed as payable,
otherwise, the toll journal shall be deemed accepted by the party with a receivable.
Section 21. The modes of payments including the interests, penalties or surcharges for late payments shall be
mutually agreed upon by both parties.
D. Mobile Companies shall maintain subsidiary records of their revenue and expense
accounts, in accordance with the chart of accounts adopted by the NTC. The revenue
section of the system of accounts of Mobile Telcos shall be organized by revenue group
summary account, account and subsidiary record category, consistent with the NTC Chart
of Accounts.
E. In compliance with applicable law and NTC regulations, 38 where a Mobile Telco is
likewise engaged in another category of telecommunications service, a separate book of
accounts shall be maintained for each category or specialized qualification.
F. Mobile Telcos issuing E-money, shall have the necessary facility to fully account for its
transactions in this regard. At the least, it should maintain a record of the identity of the
person to whom the E-money is issued, the amount of E-money issued, as well as the
people and the businesses/merchants receiving the electronic money as it is used, until the
E-money is converted into conventional cash. Cash proceeds/payments from the
issuance of E-money shall be accounted for separately from payments received for the
services that it rendered or credits for use by its subscriber for telecommunications-
related services.
Mobile Telcos issuing E-money shall have a monthly reconciliation of the E-money
credits purchased with the payments made to merchants for purchases paid with the E-
money issued and the remaining E-money credits of its subscribers. Such reconciliation
statements shall be made available in the case of audits.
G. Funds being received by Mobile Telcos in connection with their money remittance
businesses shall be separately accounted for. No part of such funds received from its
clients/subscribers, other than the amount it receives as its service fee, shall be booked as
part of its revenues and acknowledged by issuance of the Mobile Telco’s official receipt.
No disbursements/payments to merchants payable from E-money account of its
subscriber shall be claimed as an expense or cost of the Mobile Telco.
38
REPUBLIC ACT NO. 7925 (AN ACT TO PROMOTE AND GOVERN THE DEVELOPMENT OF
PHILIPPINE TELECOMMUNICATIONS AND THE DELIVERY OF PUBLIC TELECOMMUNICATIONS
SERVICES) and MEMORANDUM CIRCULAR No.: 8-9-95 (SUBJECT: Implementing Rules and
Regulations for Republic Act No. 7925 Re: An Act to Promote and Govern the Development of
Philippine Telecommunications and the Delivery of Public Telecommunications Services).
I. Mobile Telcos shall require all their Prepaid Load Dealers to disclose their respective
TINs. Record of the TIN of all Prepaid Load Dealers shall be indicated in the appropriate
periodic reports required to be submitted to the BIR.
Section 10. Repealing Clause.—Any revenue issuances inconsistent with the provisions of
these Regulations are considered amended, modified or revoked accordingly.
Section 12. Effectively Clause.—These Regulations shall take effect fifteen (15) days after
publication in the Official Gazette or any newspaper of general circulation, whichever comes
first.
Secretary of Finance
Recommending Approval:
2
TABLE A ATENEO-EPRA
WORKING DRAFT 1-4Oct07 ATTY. RACHEL FOLLOSCO, FMH
FOR DISCUSSION PURPOSES ONLY
3
TABLE A ATENEO-EPRA
WORKING DRAFT 1-4Oct07 ATTY. RACHEL FOLLOSCO, FMH
FOR DISCUSSION PURPOSES ONLY
4
TABLE A ATENEO-EPRA
WORKING DRAFT 1-4Oct07 ATTY. RACHEL FOLLOSCO, FMH
FOR DISCUSSION PURPOSES ONLY
U Inbound Paid Foreign 1 Foreign 1 Mtelco Phils a. Interconnection revenue Part of Gross Revenue of Mtelco Interconnection charge paid by FA
Call 1/2 - RP from Foreign Telco 1 1/2-RP to local telco is subject to 0% VAT
if paid for in foreign currency,
otherwise, 12% VAT. What if
OFFSETTING?
W Mtelco 1- Phils Mtelco 2- Phils a. Regular call charge to a. Entire amount should be a. Entire amount should be
RP RP subscriber of another included as Gross Revenue subject to VAT
network (which is
inclusive of
interconnection fee due
to Mtelco 2/Fltelco)
X Mtelco 1- Phils Mtelco 1- Phils Same as W (is the income charge for the fact that it is long distance different for the charge for the
RP RP (LD) reason that it is terminated with another carrier? If the access/interconnection lumped together and
designated as one fee but at a higher rate?0
5
TABLE A ATENEO-EPRA
WORKING DRAFT 1-4Oct07 ATTY. RACHEL FOLLOSCO, FMH
FOR DISCUSSION PURPOSES ONLY
A Mtelco 1- Phils Fltelco 1- Phils Same as X (is the income charge for the fact that it is long distance different for the charge for the
A RP RP (LD) reason that it is terminated with another carrier? If the access/interconnection lumped together and
designated as one fee but at a higher rate?0
6
MOA NTC-BIR ATENEO-EPRA
Working Draft 1 Atty. Rachel Follosco FMH, Consultant
FOR DISCUSSION PURPOSES ONLY
MEMORANDUM OF AGREEMENT
BETWEEN
THE BUREAU OF INTERNAL REVENUE
AND
THE NATIONAL TELECOMMUNICATIONS COMMISSION
- and -
WITNESSETH: That—
WHEREAS, Section 6 of the Tax Code specifically vests in the BIR powers and
duties to assess and collect all national internal revenue taxes;
WHEREAS, Sec. 5(B) thereof authorizes the BIR Commissioner and his
subordinates to obtain on a regular basis, from any person, government agencies and
instrumentalities any information to ascertain the liability of any person for any internal
revenue tax;
MOA NTC-BIR ATENEO-EPRA
RPF Working Draft 1 Atty. Rachel Follosco FMH, Consultant
FOR DISCUSSION PURPOSES ONLY
WHEREAS, NTC is the sole body that exercises jurisdiction over the
supervision, adjudication and control over all telecommunications services throughout the
country;
WHEREAS, among the functions of the NTC under Executive Order No. 546
(EO 546) are: to establish, prescribe, and regulate areas of operation of public service
communications; determine and prescribe charges or rates pertinent to the operation of
such public utility facilities and services except in cases where charges or rates are
established by international bodies or associations of which the Philippines is a
participating member or by bodies recognized by the Philippine Government as the
proper arbiter of such charges or rates; and for the effective enforcement of this
responsibility, adopt and promulgate such guidelines, rules, and regulations relative to the
establishment operation and maintenance of various telecommunications facilities and
services nationwide;
1
It may have to be discussed with the NTC whether reports mentioned containing information relevant to
the BIR will be (a) furnished to the BIR directly by the Telco submitting said report to the NTC; (b)
furnished by NTC itself to the BIR, whether periodically or solely upon request; or (c) BIR will simply be
given access to such reports should it need the same. Alternatively, the availability of the option of
maintaining an NTC data base of information which specifically authorized officers BIR may remotely
access, may be discussed. Access authorization systems may be put in place to ensure that the BIR will
not have access to information in the NTC database which NTC has not previously agreed to share with the
BIR.
2
MOA NTC-BIR ATENEO-EPRA
RPF Working Draft 1 Atty. Rachel Follosco FMH, Consultant
FOR DISCUSSION PURPOSES ONLY
2. Endeavor to enforce stricter compliance with its Uniform Chart of Accounts for
purposes of ensuring comparability and facilitating consolidation of industry
statistics, adopted pursuant to NTC Memorandum Circular No. 12-05-00; 4
3. Give access to the BIR to information or data available to its Rates and
Regulation Division, 5 which is responsible for the formulation of criteria and
standards for the determination and formulation of rates, evaluation of
applications for rates to be charged, conduct studies on rate structures, uniform
systems of accounts; conduct economic research, compiles financial statistics and
monitors and compiles annual reports of Telcos; 6
5. Provide the BIR access to information regarding access charges and revenue
sharing arrangements;
2
Attached as Annex “A”.
3
Attached as Annex “B”. The information that is included in the Annual Reports is as summarized in
Annex “C”. The annual reports are required to be submitted not later than 30 April (previously 1 March) of
each year following the year of operation. Any extension of time granted for the submission of the annual
reports is subject to the payment of an extension fee. Please refer further to NTC Memorandum Circular
04-10-2006 attached hereto as Annex “D”.
4
Attached hereto as Annex “E”.
5
The organizational structure of the NTC is attached hereto as Annex “F”.
6
Section 5.5(c), Part C, National Telecommunications Commission Practices & Procedures Manual, April
27, 1992.
7
Section 12 of Executive Order No. 109 s. 1993 expressly required that internal subsidy flows shall be
made explicit in the financial reporting system of the telecommunications service providers. The same EO
provides that, until universal access to basic telecommunications service is achieved, and such service is
priced to reflect actual cost, local exchange service shall continue to be cross-subsidized by other
telecommunications services within the company.
3
MOA NTC-BIR ATENEO-EPRA
RPF Working Draft 1 Atty. Rachel Follosco FMH, Consultant
FOR DISCUSSION PURPOSES ONLY
8. Monthly list of service rates of PTEs whose rates have been deregulated, as
required to be submitted to the NTC pursuant to NTC Memorandum Circular No.
8-9-95;
10. Provide BIR copies of Reference Access Offer (RAO, i.e., the default offer or
agreement containing the terms and conditions, including prices, on which a
public telecommunications entity is prepared to provide access and other related
services to ay access seeker), as from time to time submitted by Telcos to NTC
pursuant to NTC Memorandum Circular No. 10-07-2007 8 (dated 19 July 2007),
which shall include those for the following services:
11. Provide BIR with a list of registered content providers (registered pursuant to
NTC Memorandum Circular No. 03-03-2005A 9 ) and VAS providers which is
8
Attached hereto as Annex “G”.
9
Attached hereto as Annex “H”.
4
MOA NTC-BIR ATENEO-EPRA
RPF Working Draft 1 Atty. Rachel Follosco FMH, Consultant
FOR DISCUSSION PURPOSES ONLY
ordinarily released by the NTC containing the name, address, name of responsible
officer, telephone numbers, fax number, registration number, nature of VAS
provided, and term/termination of registration; 10
12. Require Telcos to submit to the BIR a duly received copy of the Annual Report
required to be submitted to the NTC; 11
13. Strictly enforce the requirements prescribed under NTC MC No. 13-06-2000 on
Billing of Telecommunications Services, 12 specifically but not limited to the
following:
14. Not later than 15 February of each year, provide the BIR with an alphabetical list
of all operating telecommunications companies as well as their respective NTC
approved activities. More specifically, such listing shall have the following
column headings:
10
Sample list is attached as Annex “I”.
11
Refer to Annex “C” for the outline of information required to be included in the annual reports.
12
Attached as Annex “J”.
13
The NTC issuance does not expressly include e-load as e-loading was still non-existent (at least in the
Philippines) in 2000 when the issuance was approved.
14
The report for submission to the NTC in this regard may be negotiated by the BIR to be required to
include the complete address, TIN, telephone and fax number, name and address of president/proprietor,
and value of year-to-date transactions with the Telco.
5
MOA NTC-BIR ATENEO-EPRA
RPF Working Draft 1 Atty. Rachel Follosco FMH, Consultant
FOR DISCUSSION PURPOSES ONLY
16. Require all Telcos to register all their areas of operations (head office, branch or
facility) with the appropriate BIR Revenue District Offices (RDOs) having
jurisdiction over such area (head office, branch or facility), pursuant to the
registration requirements provided under Sec. 236 of the Tax Code, as amended,
and its implementing regulations; and
17. Require all Telcos, content providers, and VAS providers applying for registration
or licenses with the NTC to indicate in the appropriate forms of the NTC their
respective TIN;
18. Require all Telcos to submit together with their Annual Reports to the NTC, a
copy of their annual income tax returns (ITRs), together with the Audited
Financial Statements (AFS) and other required supporting attachments/schedules
filed with the BIR and duly stamped "Received" by the BIR or acknowledged to
have been electronically filed with the BIR, to ensure that the NTC is relying on
the same data/financial statement as that which has been submitted to the BIR.
1. Furnish NTC with copies of pertinent BIR regulations, rulings, other revenue
issuances, and other information within thirty (30) days from issuance thereof,
subject to the provisions of Sec. 270, in conjunction with Sec. 71 of the Tax Code,
as amended;
1. Within thirty (30) days from signing of this Agreement, create a Working Group,
with the possible inclusion of one representative each from the Department of
Finance (DOF) and Department of Transportation and Communication which
shall have the following functions:
6
MOA NTC-BIR ATENEO-EPRA
RPF Working Draft 1 Atty. Rachel Follosco FMH, Consultant
FOR DISCUSSION PURPOSES ONLY
D. Effectivity:
This Agreement shall take effect upon signing and shall remain effective until
otherwise modified thru an addendum mutually agreed, approved and duly signed by the
parties hereto.
IN WITNESS WHEREOF, the parties hereto have affixed their signatures this ___ day of
__________, 200_, in the _____________, Philippines.
7
MOA NTC-BIR ATENEO-EPRA
RPF Working Draft 1 Atty. Rachel Follosco FMH, Consultant
FOR DISCUSSION PURPOSES ONLY
By: By:
APPROVED BY:
By: By:
ACKNOWLEDGEMENT
BEFORE ME, A Notary Public for and in the ___________________ on this ___ day of
_____________, 200_, personally appeared the following:
8
MOA NTC-BIR ATENEO-EPRA
RPF Working Draft 1 Atty. Rachel Follosco FMH, Consultant
FOR DISCUSSION PURPOSES ONLY
all known to me and to me known to be the same persons who executed the foregoing
Memorandum of Agreement, which consists of ____ (_) pages, including this page and
they acknowledge the sane is their free and voluntary act and deed of the entities herein
respectively represented.
WITNESS MY HAND AND SEAL on the date and place first above written
9
Technical Assistance on Regulatory & Operational Enhancements of the Telecommunications Industry
Atty. Rachel P. Follosco, FMH
In the telecommunications industry, the use of information from third parties can be
maximized to ensure more effective tax enforcement within the industry, as well as among
those with substantial business dealings with Philippine telecommunications companies
(“telcos”).
Information from Philippine telcos can be used for purposes of evaluating the level of
tax compliance of companies with substantial business dealings with them, such as their
major prepaid card and load dealers and content providers. On the other hand, to be able to
verify the correctness and accuracy of income and expenses reported by Philippine telcos for
tax purposes, independent sources of information need to be tapped. Considering that
Philippine telcos have both locally- and foreign-sourced income as well as local and
outbound payments, third parties for purposes of securing information may include not only
local third party sources such as the other Philippine telcos but also foreign third party
sources.
A. Local Sources
1
Pursuant to Revenue Regulations (“RR”) No. 16-2005, Quarterly Summary Lists of Sales and Purchases are
required to be submitted. The guidelines in the preparation and submission of the same are provided for under
Sec. 4.114-3 of said RR. Other than the said summary lists, pursuant to RR No. 02-06, taxpayers (engaged in
business or exercise of their profession) are required to attach Summary Alphalist of Withholding Agents of
Income Payments Subjected to Withholding Tax (“SAWT”) and Monthly Alpahlist of Payees (“MAP”) when
they file specified returns. MAP is required to be filed with BIR Forms No. 1601-E (expanded withholding
tax), 1601-F (final withholding tax) and 1600 (Monthly Remittance Return of VAT/Other Percentage Taxes)
while the SAWT is required to be attached to income tax returns (quarterly and annual) as well as quarterly
VAT returns and monthly VAT declarations, and monthly percentage tax returns.
It should be noted that this is one of the areas that the draft revenue regulation
proposes to address by requiring the reporting of gross revenue at its full amount, i.e.,
inclusive of the interconnection fee component, subject however, to the right of the paying
Telco to claim interconnection expense. Although, theoretically, the present practice and the
proposed policy should yield the same reported gross income for the paying Telco, the
mandatory reporting of the interconnection fee as expense has the further tax benefit of
compelling the paying Telco to report the same in its financial statement, withhold income
tax on the revenue payment to the other Telco, and report the expense in its periodic
summary lists submitted to the BIR, thereby creating a potential source of third party
information on interconnection revenues of Philippine telcos.
It should be noted that the NTC has significant amount of information on each of the
Philippine telcos as well as on the industry, in general, which may be useful in developing
benchmarks for the industry. Pursuant to NTC regulations, several
reports/information/documents are submitted to the NTC periodically, which may contain
information relevant to the BIR (for purposes of assessing a specific Philippine telco, better
understanding the industry, and/or developing industry benchmarks), including but not
limited to the following:
2
Copies of relevant portions of the audited financial statement of Globe Telecom, Inc., Embratel Participacoes
S.A., Sibirtelecom OJSC, Telecom Corporation of New Zealand Limited, AT&T, and China Mobile (Hong
Kong) Limited as Annexes “A-1” to “A-6”, respectively.
b. copies of interconnection agreements entered into among the Philippine telcos (as
required to be submitted to the NTC pursuant to NTC Memorandum Circular No, 14-7-
2000 3 ).
Other documents and reports which may be relevant to the BIR and which are in the
possession of the NTC have been specifically mentioned in the draft MOA as among the
reports/documents to which BIR should either be given copies of or access to by the NTC.
This information sharing initiative between the NTC and the BIR is consistent with emerging
micro trends in compliance. As stated by Jeremy Andrulis in his report on revenue and fiscal
management— 4
Sharing data and streamlining services among government departments and levels
enables customers to comply with tax obligations more efficiently. One technique for
simplifying taxpayer services requires government standardization and integration
across local, regional, central and international jurisdictions. Breaking down
traditional department silos will require strong, active executive leadership.
Departments must also use common rules, technology standards, integrated service
channels and pervasive information sharing processes. Integrated government
teams, that draw resources from different functional areas, respond to all customer
needs. x x x
Revenue departments collect much of the same information (for example, name,
address, income and employment status) required by other departments. Today,
ownership of data equals power. Governments must develop a culture where
pervasive information sharing exists and address information needs from an
enterprise perspective. Integrating information from other departments will allow
revenue departments to perform more robust data analysis and validation, leading to
more efficient and effective services and compliance.
3
Implementing Rules and Regulations (IRR) for the Interconnection of Authorized Public Telecommunications
Entities, attached hereto as Annex “B”.
4
Jeremy Andrulis, Revenue and fiscal management: Tomorrow’s government at work, a publication of IBM
Institute for Business Value, copy attached hereto as Annex “C”.
B. Foreign Sources
Inasmuch as Philippine telcos have substantial dealings with FAs which are
ultimately reflected as either interconnection expense or revenue of Philippine telcos,
depending on whether the communication is inbound or outbound, it is worthwhile for
the BIR to find third party sources of information which can serve as basis for its
verification of the magnitude of interconnection expenses and revenues reported by
Philippine telcos. Considering that the BIR will not be able to easily identify and secure
information directly from FAs with which the Philippine telcos have dealings, its
alternative is to request information from the governmental agencies regulating telcos in
the different countries. The BIR can initially target the telecommunications industry
regulators in the top five (5) foreign countries where Philippine international
interconnection traffic is sourced/destined. In the United States (“U.S.”), for example,
relevant information from the Federal Communications Commission (“FCC”) may be
requested and obtained by the BIR. On the other hand, the Office of Communications
(“Ofcom”), which is the counterpart of the FCC in the United Kingdom (“U.K.”), may be
requested to provide interconnection revenue data to or from the Philippines gathered
from U.K. telecommunications companies.
If, for example, the BIR has the benefit of information concerning the number of
minutes of calls originating from the U.S. and terminating in the networks of Philippine
telcos, then the BIR can at least ascertain whether or not the Philippine telcos have been
accurately reporting their interconnection/access revenue from the U.S. Locally, the BIR
only needs to secure information, directly from the Philippine telcos, on the number of
minutes of calls from the U.S. that were terminated in their networks. This can be
obtained, for example, by requiring interconnection revenue details to be broken down
into domestic and international interconnection/access revenue, the latter further broken
down per country. This information may also be obtained from a summary of
information from the call detail records which may be required to be submitted on a
quarterly basis with the quarterly income tax return.
5
This discussion refer to information and statistics contained in various FCC reports, specifically: (1) The
International Bureau Report, September 2005 (Annex “D”); (2) 2005 International Telecommunications Data
(filed as of 31 October 2006), April 2007 prepared by the FCC Strategic Analysis and Negotiations Division
Multilateral Negotiations and Industry Analysis Branch of the International Bureau (Annex “E”); (3) Trends in
the U.S. International Telecommunications Industry prepared by Linda Blake and Jim Lande of the Industry
Analysis Division of the Common Carrier Bureau of the FCC dated August 1998 (Annex “F”); and (4) FCC
Report and Order (FCC 97-280) in the Matter of International Settlement Rates, adopted August 7, 1997,
released August 18, 1997 (Annex “G”).
Due to lack of material time, other than for the U.K., there was no opportunity to
obtain information whether the counterpart agency of the FCC in the other countries
where Philippine telcos source substantial amount of interconnection/access revenue have
statistics and reports similar or comparable to those being made available by the FCC to
the public. Assuming that the counterpart agencies of the FCC in the other countries do
not post as much useful information as the FCC does on the internet, the BIR may be able
to officially communicate directly with the foreign counterparts of the FCC and NTC in
the other countries. For this purpose, however, it is imperative for the BIR to be able to
specifically identify the information it needs. The BIR may initially refer to the FCC
categories of available information as this should be a good/reasonable guide in
determining the kind of information that is similarly collected by the telecommunications
industry regulatory agency in the other jurisdictions.
6
It appears that statistics/data/information relevant to the BIR is being collected by the Industry Analysis
Division, Common Carrier Bureau of the United States Federal Communications Commission (FCC) and
likewise, the FCC International Bureau gathers information and statistics in connection with international
telephony, including international traffic data reports containing data reported on a country-by-country basis for
international message telephone and private line services. See sample international telecommunications data
prepared by the International Bureau of the FCC attaches as Annexes “H-1” to “H-4” and tables of benchmark
rates from the Report on International Telecommunications Market prepared by the FCC dated 7 December
1998, attached as Annex “I”.
7
The Regulatory Financial Reporting Obligations on B and Kingston Communications Final Statement and
Notication (Accounting separation and cost accounting: Final statement and notification) dated 22 July 2004.
We note that the U.S. also has its counterpart Freedom of Information Act
(“FOIA”).
Barriers to Information Sharing. Whether under the FOIA or the U.K. version
of the said law, it appears that the kind of information that is relevant to the BIR are not
likely to be refused under any of the identified legal barriers to information sharing. The
discussion in the article, “The President’s National Security Telecommunications
Advisory Committee Legislative and Regulatory Group Telecommunications Outage and
Intrusion Information Sharing Report” dated June 1999 9 provides some guidance as to
what types of information are likely to be legally barred from being shared. The article
identified, among others, the following as the legal impediments to information sharing:
• Confidential information;
• Trade secrets and proprietary information;
• Classified information; and
• National security.
Other than the foreign telecommunications industry regulatory agencies, the BIR
may also obtain third party information from its counterpart internal revenue agencies
abroad. The readily available legal basis of the BIR for submitting requests for
information from its counterparts abroad is the exchange of information article
(“Exchange of Information Article”) that is in the existing tax treaties of the Philippines
with 35 countries. 10
Philippine tax treaties have more or less the following provisions on exchange of
information:
8
Freedom of Information Act 2000: Ofcom’s Publication Scheme and related pages from the Ofcom website
are attached hereto as Annex “J”.
9
The relevant portions of the article is attached hereto as Annex “K”.
10
Australia; Austria; Bahrain; Bangladesh; Belgium; Brazil; Canada; Czech Republic; Denmark; China;
Finland; France; Germany; Hungary; India; Indonesia; Israel; Italy; Japan; Korea; Malaysia; The Netherlands;
New Zealand; Norway; Pakistan; Romania; Russia; Singapore; Spain; Sweden; Switzerland; Thailand; United
Kingdom of Great Britain and Northern Ireland; United States; and Vietnam.
(2) Any information so exchanged shall be treated as secret, except that such
information may be —
(b) Made part of a public record with respect to the assessment, collection,
or enforcement of, or litigation with respect to the taxes to which this
Convention applies.
The most recent BIR issuance in connection with the implementation of the
Exchange of Information Article is Revenue Memorandum Order No. 42-97 12 which
prescribes the revised procedures in requesting information from tax treaty partners
pursuant to Philippine tax treaties. Under the said issuance, it appears that requests for
information are required to be coursed through the International Tax Affairs Division of
the BIR (“ITAD”) and approved by the BIR Commissioner.
The other countries are likely to have their own internal procedures on how
exchange of information under the tax treaties are to be addressed. Prior to making any
request pursuant to the Exchange of Information Article, it is prudent that the specific
procedures of the other treaty country in this regard be obtained. For example, in the case
of the U.S., the Internal Revenue Service has its Internal Revenue Manual (“Manual”),
Chapter 60 of which deals with International Procedures, which among others, contains
provisions governing exchange of information (4.60.1). 13 Section 4.60.1 of the said
Manual provides for the guidelines on the implementation by the U.S. of the Exchange of
Information Article which are ordinarily in its tax treaties as well as in Tax Information
Exchange Agreements with other countries. A review of the information contained in the
said section of the Manual is helpful in determining what kind of information can be
requested under the Exchange of Information Article, how requests are required to be
initiated, the request format, foreign initiated request procedures, among others. It is
also expressly noted in the said Manual that currently, the U.S. has working arrangements
with the Philippines, among other countries with respect to the implementation of the
Exchange of Information Article.
The information that is contained in the returns of Philippine telcos as well as the
required attachments to said returns in the form of alphalists/summary lists could serve as
very useful sources of third party information for use in the audit of taxpayers with
substantial dealings with Philippine telcos. However, the information required in said returns
and required attachments may still be further augmented to make the information therein
more readily useful for this purpose.
12
Copy attached as Annex “L”.
13
Copy of this Section 4.60.1 of the Manual is attached hereto as Annex “M”.
In the course of completing the previous study on retailing mobile phone credits
by electronic loading and its tax implications, it became apparent that there is difficulty in
running after the wholesale prepaid load dealers of the Philippine telcos primarily
because they cannot be readily identified from the information coming from the
Philippine telcos. Even with the list of buyers/sources of revenue of Philippine telcos
listed in the summary list of sales transactions attached to the VAT returns of Philippine
telcos, one cannot identify which of the listed customers of the Philippine telcos are
dealing with the Philippine telcos as prepaid load dealers. Thus, targeted enforcement
(i.e., directed specifically against prepaid load dealers) cannot be pursued unless the
Philippine telcos are directly requested to provide a list of their prepaid load dealers.
Alternatively, the list of prepaid load dealers of Philippine telcos may be obtained from
the NTC, assuming the NTC is strictly enforcing its requirement for Philippine telcos to
furnish the NTC with the names, among other details, of their dealers.
Likewise, despite the submission by the Philippine telcos of summary lists of their
purchases/payments, it is impossible to identify from the said lists, those doing business
with the Philippine telcos as content providers. If the BIR wants to know which of the
income payees is a content provider, it would also need to specifically request the same
information from the Philippine telcos or alternatively obtain the list of registered content
providers from the NTC, considering that the NTC now requires all content providers to
register with it.
A review of the prescribed format of summary/alpha lists indicate that the Tax
Identification Number (“TIN”) of the payors or payees of various income is required to
be indicated, however, their corresponding Revenue District Office (“RDO”) is not
required to be indicated. If the RDO of the income payee/payor appearing in the lists is
indicated, the information concerning said taxpayer can be readily directed to the
concerned RDO. The latter can use the information as an input and possible trigger for
Even if there are taxpayers which have substantial purchases or revenues from the
Philippine telcos based on the summary lists, information on the amount of the sales
made to or purchases from the Philippine telcos does not necessarily reach the RDOs
where the said taxpayers are registered. Thus, the RDOs of such taxpayers are bound to
conduct their audit of said taxpayers without the benefit of such third party information
from the Philippine telcos. While it is true that the RDOs can obtain third party
information, they have to do so at their own initiative and probably entailing significant
time and effort on their part. With an established procedure for the LTS to feed the
RDOs with third party information coming from reports submitted to it by large
taxpayers, the RDOs are compelled to act upon such information which constitutes
valuable input to any audit effort.
As it may be too cumbersome to obtain the RDO of all taxpayers included in the
summary lists/alphalists of large taxpayers, a threshold transaction value can be set which
will trigger the need to include such information.
The latest procedure in the processing and approval of applications for permits to adopt
computerized accounting systems (“CAS”) or components thereof are as laid down in
Revenue Memorandum Order (“RMO”) No. 29-02, 1 whose provisions have been further
clarified in Revenue Memorandum Circular (“RMC”) No. 71-2003 2 (RMO No. 29-02 and
RMC No. 71-2003 are hereinafter collectively referred to as the “CAS Issuances”).
The CAS Issuances as well as those which they supersede prescribe the requirement that
taxpayers desiring to adopt CAS or components thereof need to secure prior BIR approval.
We discuss our comments/recommendations in connection with specific provisions
of/procedures prescribed in these issuances below.
The actual CAS audit for purposes of approval of an application for a CAS or a component
thereof should be preceded by prior consultation with an industry specialist, aside from
involving a telecommunications audit and a computer audit specialists. The industry
specialist should be able to give the Computer Systems Evaluation Team (“CSET”) vital
background information and relevant information that is unique to the industry including any
new developments in the industry, as well as any other relevant information as will enable
the CSET to have a better understanding of the telecommunication company (“telco”)
operations as well as peculiarities. An industry specialist should be able to orient the CSET
about industry issues, practices and trends. An industry specialist will enable the CSET to
better visualize the business of a telco so they can contextualize the technical documentation
which have been submitted to the CSET.
Prior to the briefing by an industry specialist, the latter should also be properly oriented as to
what kind of information the BIR would be interested in so that the discussion of the industry
specialist could be better focused. However, the specialist should not limit itself to
addressing the specific concerns of the BIR but should likewise discuss as much information
as would be relevant to the audit of the CAS application of a telco.
We note that the engagement or involvement of an industry specialist in the CAS approval
process may not be required in all instances. However, briefings, consultations, and
1
Revised Procedures in the Processing and Approval of Applications for Permit to Adopt Computerized
Accounting System (CAS) or Components thereof Amending RMO 21-2000.
2
Subject: Clarification of Issues Affecting the Revised Procedures in the Processing and Approval of
Applications for Permit to Adopt Computerized Accounting System (CAS) or Components Thereof per RMO
No. 29-2002.
Economic Policy Reform & Advocacy
Ateneo de Manila University-USAID
Technical Assistance on Regulatory & Operational Enhancements of the Telecommunications Industry
Atty. Rachel P. Follosco, FMH
discussions with industry specialist should be held at periodic intervals during the year so
that the CSET is always kept abreast with developments in the industry as these
developments may have an impact on what the CSET will have to look into with respect to
the features of the CAS being submitted for evaluation and approval.
Under RMO No. 29-02, it is expressly mentioned that there shall be a workshop to be
undertaken by the Human Resource Development Service (“HRDS”) in coordination with
the Operation and Information Systems Group to orient both the technical and the functional
groups on the scope, substance and evaluation of CAS. We believe that the participation of
the industry specialist can be accommodated at this stage.
The BIR may need to obtain the services of an independent consultant for its telco industry
specialist requirement as the BIR may not have anyone who can qualify for the purpose. An
industry specialist is one who is familiar with the operations and business of telcos and is
well informed of the new products, trends, and prospects of the telco industry by reason of a
previous or ongoing involvement with the industry whether on a consultancy or employment
with a telco. It would be ideal if the industry specialist has/had participation in/knowledge of
the financial accounting/business side of the operation of the telco.
Walk-through/Systems Demonstration
It appears from the terms of RMO No. 29-02 that the conduct of an actual system
demonstration of the proposed CAS is discretionary on the CSET. 3 We believe that upon the
initial application for approval, it would be best that the actual system demonstration be
undertaken and dispensed with only under exceptional circumstances, the criteria for which
should be specifically identified.
Aside from the pre-approval evaluation that is conducted, it is suggested that there be a post
approval evaluation which should be made at least once a year. The scope of the post-
approval evaluation may vary, depending on the scope of previous evaluation made and the
3
The procedure is expressly qualified by the clause, “if deemed necessary”. Further, Part V(B) of RMO No.
29-02, provides:
1. Xxx
2. Determine the need for a systems demo and coordinate with LTAD I/II/TSS of
LTDO/RDO for scheduling x x x.
3. Attend systems demonstration, which may be conducted on a test or production
environment, if necessary.
4. X x x.(underscoring ours)
Economic Policy Reform & Advocacy 2
Ateneo de Manila University-USAID
Technical Assistance on Regulatory & Operational Enhancements of the Telecommunications Industry
Atty. Rachel P. Follosco, FMH
level of complexity of the system in place. Post approval examinations are best conducted on
a limited issue or focused examination basis. For example, a limited variety of test
transactions can simply be fed into the system, with or without the knowledge of the telco,
and thereafter, the CSET can simply check if the data coming from its test transactions have
been properly captured, processed, and reported by the telco.
Q-40 Who shall conduct the post system evaluation of the approved CAS of a
branch?
A-40 The CSET of LTAD I or II, LTDO or RDO having jurisdiction over the Head
Office of the branch shall conduct the post system evaluation of the approved CAS,
provided that there should be proper coordination with the concerned CSET having
jurisdiction over the branch.
Q-41 If during the Post System Evaluation, the CSET members discovered that the
taxpayer is using a system other than that of the approved CAS or a modified version
of the approved CAS, would the recommendation for revocation of permit be final?
A-41 Yes, the revocation of the previously approved permit to use CAS shall be
final and executory. Hence, it is mandatory for the taxpayer to apply for a new
permit.
Q-42 Shall the CSET members be allowed to conduct post system evaluation in
case the taxpayers modify/enhance its CAS?
A-42 The CSET shall have the authority to conduct post system evaluation through
a Mission Order that shall be secured prior to its conduct.
Q-43 What shall be the alternative course of action by CSET members in case the
taxpayer prohibits them to check into its server during the post system evaluation?
A-43 The CSET members shall report the taxpayer to the Legal and Enforcement
Service, Attention: Tax Fraud Division.
Q-44 Is the six (6) - month period of interval from the date of approval of permit
required before the CSET can conduct post system evaluation?
A-44 There is no required period of interval to post evaluate the approved CAS of
the taxpayer. The CSET can conduct post system evaluation of the approved CAS as
the need arises.
It is evident from the CAS Issuances that there is no categorical requirement for the conduct
of post approval evaluation by the CSET, although admittedly, there is discretion on the part
of the BIR to conduct the same.
In the case of telcos, for purposes of post-approval examination, it would be best to first be
able to identify the new developments in the telcos industry, including the new products that
they are offering and the new transactions/arrangements that they have been getting into.
The websites of all these telcos are rich with information on these, including the pricing
schemes for their various chargeable and value-added transactions/services. It would be
interesting to determine how these new transactions are being addressed/processed by the
previously approved CAS. It has to be ascertained whether further customization had to be
made on the CAS previously approved to be able to likewise handle its new breed of
transactions. If further customization had to be made, the CSET will have to check whether
prior approval for the same was obtained.
For example, the old generation prepaid card technology was subsequently almost
completely superseded by electronic loading. It is interesting to note what changes had to be
made, if any, to the previously approved CAS to adapt it to the new electronic loading
technology in place. It can reasonably be expected that the CAS, as previously approved by
the BIR, needs constant upgrading to be able to handle newer types of transactions. While it
is true that the telcos have been filing applications for the approval of changes to their
existing approved CAS, the CSET will also need to satisfy itself that all changes being made
are in fact being submitted for approval.
1. National Office
Economic Policy Reform & Advocacy 4
Ateneo de Manila University-USAID
Technical Assistance on Regulatory & Operational Enhancements of the Telecommunications Industry
Atty. Rachel P. Follosco, FMH
Group I
Head : Chief, Large Taxpayers Assistance Division (LTAD) I
Asst. Head: Chief, Computer Operations, Network and Engineering
Division(CONED) -Information Systems Operations Service
Data Center (ISOSDC)
Members: Representative of Information Systems Operations Service –
Data Center (ISOS-DC)
Representative of LTAD I
Representative of Large Taxpayers Audit and Investigation
Division
Group II
Head : Chief, Large Taxpayers Assistance Division (LTAD) II
Asst. Head : Chief, CONED - ISOS-DC
Members: Representative of ISOS-DC
Representative of LTAD II
Representative of Large Taxpayers Audit and Investigation
Division II
During our meeting with Ms. Janette Cruz, Head, Computerized Systems Evaluation Team –
LTAD –I, she mentioned that she is not aware how the LTS Audit and Investigation
representatives in the CSET for purposes of evaluating the CAS applications of telcos are
selected and if said representatives to the CSET are necessarily the most qualified,
particularly in terms of previous experience in auditing telcos. Moreover, Ms. Cruz is also
not certain whether the LTS auditors who are in the CSET for purposes of evaluating the
CAS applications of telcos subsequently end up performing the tax audit of the telcos. We
note that if the representatives of LTS in the CSET are subsequently tasked of perform the
tax audit on the telcos, then they will be able to capitalize on their familiarity with the CAS
of the telcos.
The CAS Issuances do not lay down any specific criteria in the selection of representatives of
the Information Systems Operations Service-Data Center and Large Taxpayers Audit and
Investigations Division. We are of the view that the representative from the LTS Audit and
Investigation in the CSET should be more methodically chosen, i.e., membership in the
CSET should be based on prior, preferably extensive, experience or exposure in the actual
audit of telcos. Further, the same representative to the CSET should be nominated for all
similar CAS applications. This will enhance the expertise of such representative in the
evaluation of telco CAS. As the telco industry systems and operations are highly technical
and specialized, it would be very difficult to have a new person in the CSET all the time.
The time allotted to complete the evaluation process, 4 given the amount of work needed for a
thorough evaluation of the CAS of telcos, a representative in the CSET may not have enough
time to learn about/familiarize himself with telco systems and operations within the same
period that evaluation is on-going. While basic auditing procedures remain applicable, one
cannot overlook the fact that a modest level of knowledge and understanding of telco systems
and operations will be very helpful in identifying what aspects of the CAS one should inquire
into, what questions to ask from the applicant, what sort of audit procedures would be best to
test the integrity of the system, and what kind of test data will best test the system.
We understand that it is not certain that the LTS representatives in the CSET in-charge of
evaluating CAS applications of telcos end up having any participation in the regular tax audit
of the telcos. It would be to the advantage of the LTS to specifically have its representative
in the CSET-Telco to likewise have direct participation in the audit of the telcos as it can
benefit from the representative’s familiarity with the CAS of the telcos. In case of rotation
among its auditors, it is important that the auditor who has had participation in the evaluation
of the CAS of telcos to conduct a briefing for the benefit of LTS auditors who may be
auditing telcos for the first time and are unfamiliar with the peculiarities of telco accounting,
recording, and data processing. This will ensure the transfer of valuable information.
Moreover, we understand that the working papers as well as all the filings being made by the
telco in relation to their applications for approval of their CAS/components thereof are on file
with the office of Ms. Cruz. The complete file is available for the reference of LTS auditors.
To the extent that LTS auditors are auditing taxpayers using CAS, part of their preparation
for such audit should be familiarization with the CAS of the taxpayer on the basis of the files
available with the CSET. The auditors do not necessarily need to get in-depth knowledge of
the CAS of the telco they will be auditing but they should at least have some working
knowledge on the same.
For purposes of this portion of our undertaking, we were furnished sample submissions by a
telco in connection with its application for the approval of a component of its CAS. By
4
RMO No. 29-02 indicates that the maximum allotted time for CAS evaluation is only forty (40) days.
Economic Policy Reform & Advocacy 6
Ateneo de Manila University-USAID
Technical Assistance on Regulatory & Operational Enhancements of the Telecommunications Industry
Atty. Rachel P. Follosco, FMH
merely reviewing the diagrams/flowcharts submitted to the CSET, one can readily prepare a
strategy on how a particular account can be audited, what reports are generated by the system
that can be examined to verify account balances in the financial statements, what
consolidations and offsetting is happening in the course of processing, recording, and
settlement. One of the flowcharts clearly indicate that there is a netting-out process that
happens between the Traffic Settlement Receivable and Traffic Settlement Payable Accounts
with respect to a particular carrier. Knowing this, an auditor should endeavor to check that
not the netted-out amount but the pre-netting values are those reflected in the accounts of the
corporation or if the amount presented is net, the auditor should endeavor to obtain the gross
amounts prior to the offsetting between the account balances and verify the
accuracy/correctness of the net amounts indicated in the telco’s financial reports.
The diagrams also tend to identify the documents/data that serve as inputs for a particular
accounting process/procedure such as the processing of customer billings. In the sample
diagrams furnished, for example, it is indicated that the inputs in billing statement processing
includes information from banks and credit card companies with respect to payments
received by them for the telco. This information should cause the auditor to consider
obtaining third party information from banks and credit card companies as to the amount of
payments which were received by them for the telco’s account. This can be compared to the
totals indicated in the billing summary/summary sheets and thereafter verified against the
gross receipts from post paid subscribers that is reported for VAT purposed.
We note that, when we inquired with Ms. Cruz if any LTS auditor has requested the CAS
application file of telcos, we were informed that, to her knowledge, no one other than those
within the CSET has requested access to the CAS-related filings/documents of the telcos.
It is one of the principal objectives of this portion of this study to identify types of test
transactions/data that should be made to go through the CAS for purposes of ascertaining that
the CAS is able to capture all data necessary for recording purposes, the data captured is
correctly recorded and processed, such that the appropriate accounts are updated and the
updated accounts are subsequently reported for accounting and tax purposes. The test data
should encompass a wide variety of transactions and should be based on the offered services
of the telco. By running test data through the CAS, the BIR is able to ascertain that there is
no leakage in the CAS, i.e., no unrecorded transaction or a transaction which is recorded but
the records of which are ultimately diverted and do not end up being reported in the
mandatory reports and statements of the telco.
With the test data, the CSET will be able to walk-through the system several times, each time
involving a different type of transaction. The entire processing of accounting data from a
transaction may not be completed on a real time basis since admittedly, there are recordings
that are made and further processing that need to be done on a periodic basis/in batches.
Economic Policy Reform & Advocacy 7
Ateneo de Manila University-USAID
Technical Assistance on Regulatory & Operational Enhancements of the Telecommunications Industry
Atty. Rachel P. Follosco, FMH
Moreover, the recording of the receipt of payment for a transaction, if involving a postpaid
subscriber, will have to await the completion of the collection.
A detailed walk-through is invaluable in that it gives the CSET ample opportunity to check
whether there is offsetting that takes place along the way and in this regard, it will have to
satisfy itself that notwithstanding the offsetting, the gross amounts are actually still being
reported so as not to understate the actual amount/volume of the telco’s transaction. As has
been the emphasis of this Study, specific steps are being recommended to ensure that—
1. all revenue sources of telcos are being declared and accurately reported;
2. interconnection revenues and expenses are fully declared and no intervening offsetting of
accounts in the course of settlement has affected the declared balances;
3. all income and expenses arising from fee sharing arrangements are likewise
independently fully reported, i.e., reported in their respective gross amounts rather than
their net amounts;
4. all sales of prepaid load, whether purchased in the form of card or electronically have
been fully reported and subjected to VAT upon their sale, subject to adjustment due to
possible applicability of overseas communications tax in lieu of VAT for a portion of
their gross revenue from prepaid load.
Test data shall consist of one or more transactions representing each and every possible
source of core and non-core revenues/income of the telco, which shall include the following:
Prepaid load
Using a prepaid mobile phone subscription, the following transactions may be completed.
The CSET will have to determine how many test transactions will be made for each of the
types of test transactions listed below.
ii. a subscriber of revenue to earned revenue upon the use of the load;
another mobile and
telco 3. records the interconnection revenue due to another
iv. a landline telco (another mobile telco or fixed line telco service
subscriber provider).
The CSET must also purchase prepaid load sold through prepaid cards and likewise complete
the transactions indicated above.
Postpaid
The CSET should also have test data from transactions in nos. 2, 3, 6, 7, 9 and 10 above but
using a postpaid mobile phone, for essentially the same objectives as indicated above, i.e.,
generally to ascertain that the CAS properly captures the necessary accounting information,
records, and process the same as represented and as appropriate under the circumstances.
Economic Policy Reform & Advocacy 13
Ateneo de Manila University-USAID
Technical Assistance on Regulatory & Operational Enhancements of the Telecommunications Industry
Atty. Rachel P. Follosco, FMH
Other Matters
Since our study is focused on ensuring that all revenues of the telcos are being reported and
that all revenue payments of the telcos are likewise fully reported so that there is a reliable
source of third party information necessary for the effective audit of the parties/merchants
dealing with telcos, we deem it best that the CSET, in reviewing the CAS of telcos, should
have a good understanding of the billing systems of telcos. 5 The billing system of telcos
presents certain peculiarities. For example, there are initially no source documents to speak
of but the charges that are ultimately recorded as revenue of the telco are based on data that is
gathered remotely and with hardly any human intervention, from the telco switches,
gateways, clearing houses and similar source.
The data that is captured by these switches include the duration of the call, the source of the
communication and the receiver of the communication, among a considerable number of
other information. Information regarding specific transactions such as calls, SMS, download
of information, among others, are summarized in what are generally referred to as usage
detail record (“UDR”) and call detail record (“CDR”) if specifically referring to call-related
billing details. The information contained in the UDR coming from the switches are
recorded in chronological sequence and these records constitute the source of the information
ultimately fed into the billing system, whether the billing system pertains to accounts payable
by its subscribers or other telcos such as in the case of interconnection revenue that it collects
from another telco.
The UDRs record all transactions of telcos in significant detail, whether the transaction
pertains to those of its prepaid or postpaid subscribers. The UDRs do not only include
information that enable the telcos to compute their charges due from their subscribers and
other telcos. It simultaneously records information that enables the telcos to ascertain how
much interconnection charges they owe to other telcos on account of the transactions of their
subscribers. It should be noted, however that the UDR does not contain financial information
as the valuation or rating of the recorded transaction is only done after the necessary data is
captured in the UDR and the same is passed through the rating engine.
In conducting the evaluation of the CAS of telcos, each completed telecommunications test
transaction should necessarily be traceable to a UDR. Thus, running a test transaction
through the system of the telco would enable the CSET to satisfy itself that the CAS of the
telco is able to accurately capture accounting data from each transaction. Assuming that the
UDR reflects the test transaction, the CSET can thereafter trace how the information in the
UDR is further processed such that the monetary consequence of the transaction is ultimately
5
Refer to the attached copy of Introduction to Telecom Billing Usage Events, Call Detail Records, and Billing
Cycles written by Avi Ofrane and Lawrence Harte.
Economic Policy Reform & Advocacy 14
Ateneo de Manila University-USAID
Technical Assistance on Regulatory & Operational Enhancements of the Telecommunications Industry
Atty. Rachel P. Follosco, FMH
captured/included in the cost/expense reported by the telco, for accounting as well as tax
purposes.
Knowing the format of the UDR and the range of information that is contained in them
should give the CSET and the LTS audit representative in the CSET an idea on what types of
information/statistics are readily available with the telcos and what information can be
requested and readily provided by the telcos. The aggregate of the number of call minutes
on a daily basis can in fact be obtained as the same can simply be derived from the
information in the UDRs. Sorting of information in the UDRs can be made to derive vital
statistics such as total outgoing international calls (in minutes), total non-revenue SMS, total
domestic mobile to landline calls, among others. These types of information can in fact be
very helpful to the BIR for purposes of its benchmarking program. Admittedly, summary
information from the UDR are not expressed in pesos and centavoss; nonetheless, the
summary statistics from UDRs can be helpful in evaluating the reasonableness of the income
and expense declarations of the telcos. In the case of call detail summaries, the BIR can
simply multiply the average charge rate for each type of call to arrive at an estimated revenue
amount.