BDB Laws Tax Law For Business appears in the opinion section of BusinessMirror every

Thursday. BDB Law is an affiliate of Punongbayan & Araullo (P&A).

It Aint Over Till They Say So

Putting up a business involves investing ones capital and putting efforts and high hopes
into it. For many entrepreneurs, going into business after completing the registration
process, transacting with the Securities and Exchange Commission (SEC) and the
Bureau of Internal Revenue (BIR) for the issuance of Certificate of Incorporation and
Certificate of Registration, respectively, are the last steps that they will undertake as far
as compliance with the statutory requirements is concerned

Surely though, whether it is due to financial reversals, legitimate business judgment or

for whatever reason the owners may have, every business desiring to retire should first
get the nod of various government agencies before they can consider their business
officially closed.

Under existing laws and regulations, dissolving corporations, whether they are voluntary
or involuntary, are required to notify the BIR, LGU and the SEC of such fact.

The initial step in closing a business at the governments level is to secure a tax
clearance from the BIR. The dissolution or reorganization of a corporation shall, prior to
the issuance by the Securities and Exchange Commission of the Certificate of
Dissolution or Reorganization, secure a certificate of tax clearance from the BIR which
certificate shall be submitted to the Securities and Exchange Commission.

The Tax Code further states that every corporation shall, within thirty (30) days after the
adoption of a resolution or plan for its dissolution, render a correct return to the
Commissioner, verified under oath, setting forth the terms of such resolution or plan and
such other information as the Secretary of Finance, upon recommendation of the
commissioner, shall, by rules and regulations, prescribe.
In line with this, BIR-SEC Regulation No. 1 provides that every dissolving corporation
shall, within the said period, file their short period income tax returns covering the
income earned by them from the beginning of the taxable year up to the date of such
dissolution.

Furthermore, the BIR requires that the following documents are be attached to the
application for the issuance of tax clearance:
Board Resolution authorizing the dissolution;
Audited Financial Statements for the last 3 years;
Copy of the Articles of Incorporation and By Laws or license to operate issued by
the SEC;
Original Certificate of Registration;
Balance sheet as of the date of dissolution and income statement covering the
period from the beginning of the taxable year to the date of dissolution;
Annual Income Tax Returns and VAT returns for the last three (3) taxable years;
Latest Annual Registration Fee Return (BIR Form No. 0605);
List of used and unused official receipts, invoices, etc. including the last booklets,
used and unused booklets and latest authority to print; and
Last volume of registered book of accounts.

After submitting the enumerated documents, the BIR will then issue either a Letter of
Authority (LOA) or a Tax Verification Notice (TVN) authorizing its revenue officers to
determine whether the applicant has any deficiency tax liability before it issues the tax
clearance.

Interestingly, in one case, the Supreme Court made a pronouncement that the
requirement of tax clearance before the dissolution is approved by the SEC cannot be
imposed in a case involving a proceeding in receivership and liquidation of a bank,
wherein the proceedings were initiated by the Monetary Board (MB). Involuntary
dissolution by the SEC cannot be equated with involuntary receivership and liquidation
procedures of the MB since they are governed by different rules and procedures.

Simultaneous with the processing of the application for the issuance of tax clearance,
the dissolving corporation may file a notice with the LGU before whom it is registered to
request for the cancellation of its registration. Similar to the BIR, the LGU likewise
determines whether the applicant has any deficiency on local taxes and requires its
settlement before it stamps the word retire on the application for retirement.

Only after the BIR has approved the dissolution of the applicant by issuing the tax
clearance can the owner proceed to the SEC to cause the deregistration of its business
with the Commission. The most common means used to dissolve a company is by
amending its Articles of Incorporation to shorten its corporate term. This requires the
approval of the majority of the members of the board with the concurrence of at least 2/3
of the shareholders. Once the SEC approves the amended Articles of Incorporation, the
corporation is deemed closed as of the date appearing in the amended Articles.
It would seem that the procedures for the retirement of a business are more
painstakingly done compared with the steps for its initial registration. If you can walk out
of the door with the various permits to operate in your hands in just a couple of weeks, it
could take you several months or even years to secure the clearances from the same
agencies in case of dissolution. This only goes to show the governments vigilance in
protecting its own, and that of the publics interests by not letting business owners leave
their corporate shell without first settling its obligations.

It is still the government which has the final say in declaring whether your business is
dead or alive.