REVENUE REGULATIONS NO. 12-2010 issued on November 18, 2010 prescribes the policies, guidelines and procedures in the implementation of the tax subsidy to be granted by the Fiscal Incentives Review Board (FIRB) to the Millennium Challenge Account-Philippines (MCAPhilippines) for the Philippine Compact Program. The Regulations shall cover only the tax subsidy, as limited by the Certificate of Entitlement to Subsidy (CES) and the FIRB resolution granting the tax subsidy with respect to amount, scope and period of the tax subsidy. As provided in the Compact, the assumption of taxes will not apply to taxes on the income, profit or gross receipts of natural persons who are citizens or permanent residents of the Philippines and legal persons organized under Philippine laws except (a) MCA-Philippines and (b) any Philippine-registered subsidiary, branch or representative office of a foreign legal person. With respect to other taxes, however, the tax subsidy (i.e. subsidy for VAT, Percentage and Excise) shall be applicable to all Vendors. MCA-Philippines shall not withhold final VAT when making payments to any Vendor who has contracted with MCA-Philippines for the provision of Millennium Challenge Corporation (MCC) Funded Goods and Services to MCA-Philippines. The tax subsidy shall account for the 12% output VAT liability of the Vendors, which they can pass on to MCA-Philippines. The tax subsidy for VAT may be enjoyed by the Vendors, whether foreign or Filipino nationals or entities. The tax subsidy for Percentage Tax may be used by any Vendor subject to Percentage Tax on the provision of MCC Funded Goods and Services. The tax subsidy for Income Tax, including Capital Gains Tax and Final Withholding Tax, may be used by (a) MCA-Philippines; and (b) any Covered Employee or Vendor, as qualified under Section 2 of the Regulations, with respect to income earned for providing MCC Funded Goods and Services. For ease in the administration of the tax subsidy for Income Tax, (a) income payments to MCA-Philippines; (b) income payments to a Vendor, and (c) income payments to a Covered Employee, shall not be subject to the following withholding taxes: (i) Creditable Withholding Tax, including as described at Section 57(B) of the National Internal Revenue Code (NIRC) and Revenue Regulations (RR) No. 02-98, as amended; (ii) Withholding Tax on government money payments, including as described at Republic Act No. 1051 and RR No. 02-98, as amended; (iii)Final Withholding Tax, including as described at Sections 24(B)(1), 24(B)(2), 25(A)(2), 25(B), 27(D)(1), 28(A)(5), 28(A)(7)(a), 28(B)(1), 28(B)(5)(b) and 33 of the NIRC and RR No. 02-98, as amended; (iv)Withholding Tax on wages, including as described at Section 79(A) of the NIRC and RR No. 02-98, as amended. The tax subsidy for Excise Tax may be used by (a) any Vendor subject to Excise Tax on its manufacture or other production of goods for a Project or otherwise in connection with the Compact, and (b) MCA-Philippines or any Vendor for their purchase of petroleum products subject to Excise Tax for a project or otherwise in connection with the Compact. Excise Tax on importations of goods for a project or otherwise in connection with the Compact shall not be covered by the Regulations. MCA-Philippines or any Vendor may use the tax subsidy for Excise Tax to pay the Excise Tax Portion; provided, that the petroleum product was purchased from a Vendor who is (a) the local refiner of said petroleum product, or (b) a dealer who acquired said petroleum product directly from the local refiner of the same. In case of late payment of an Assumed Tax due to delay on the part of the Department of Budget and Management in the release of the Special Allotment Release Order, or on the part of Large Taxpayers Regular Audit Division 4 in the release of the Tax Subsidy Availment Certificate or the Tax Subsidy Debit Memo, the payment for the Assumed Tax shall be accepted by BIR without the imposition of penalty for late payment.