BIR Ruling

December 4, 1975 General Motors Philippines, Inc. P. O. Box 1497, MCC Makati, Rizal Attention: Mr . L . M . Adan, Jr . Tax Counsel Gentlemen : This refers to your letter dated August 28, 1975 requesting confirmation of your opinion that your Company should not be considered a lending investor under Section 194(u) of the Tax Code should it extend a direct loan to a single finance institution at a lower rate of interest for the purpose of re-extending the same loan to your franchised dealers. It is represented that your Company is organized principally for the purpose of engaging in the manufacture and assembly and sale of cars and trucks including all parts and accessories thereof; that keen competition in the automotive industry and the crippling peso devaluation wrought economic havoc on some of your franchised dealers with limited financial resources and are in a financial distress, and therefore, needs financial assistance; that the management of your company proposed to extend credit loans to these dealers through a financial institution (Company "A") under the condition that said Company "A" will make available the loan proceeds only to your franchised dealers; that you are availing of the services of Company "A" since your company has no service facilities of its own; that the interest to be charged from Company "A" for the direct peso loan will be lower than the normal rate in order that your dealers will get their credit lines from Company "A" also at a lower rate of interest; that your company will not extend any other financial assistance or loan except to Company "A" and the transaction will be on a temporary basis to last only until such time as your franchised dealers are in good financial condition capable to meet the financial requirements of automotive dealership, that this activity will not be carried out as an independent business activity of the company but merely incidental to the accomplishment of its main activity as manufacturer of motor vehicles. In reply, I have the honor to inform you that your Company, for engaging in the activity of extending a direct loan at interest only to a single finance institution (Company "A") is not considered a lending investor within the definition of Section 194(u) of the Tax Code. Accordingly, it is not subject to the lending investor's fixed tax imposed in Section 182(A)(3)(dd) of the Tax Code and to the 3% tax prescribed in Section 195-A of the same Code, as inserted by Republic Act No. 6110. In this connection, it may be stated that the business of lending investor requires not only lending of money at interest but also habituality of the act of lending money. Thus, therefore a person may be considered a lending investor liable to tax, it is necessary that he dedicate himself habitually to the office or profession of lending money at interest and isolated cases do not mean the conduct of his business. (See Mariano Molo vs. Alfredo L. Yatco, G.R. No. 47413, April 14, 1941). Very truly yours, (SGD.) EFREN I. PLANA Actg . Commissioner of Internal Revenue TAN-1456-040-3 "TAXPAYERS SHOULD INDICATE THEIR TAN IN ALL COMMUNICATION TO THE BIR."