BIR Ruling

October 11, 1972 Messrs. Sycip, Gorres, Velayo & Co. Certified Public Accountants P. O. Box 589, Manila Attention: Mr . M . Gutierrez Tax Division Gentlemen : This refers to your letter dated September 7, 1972 requesting information as to whether or not your client, Makati Leasing Corporation (MLC) is subject to the fixed and percentage taxes as a financing company for engaging in the following activities. cdtech It is represented that your client is engaged primarily in direct leasing of all kinds of equipment, machines, vehicles, appliances, facilities and other types of personal and real properties; that in its leasing business, your client buys the equipment specified by the lessee and leases the same to the lessee for a fixed period under such conditions specified in the lease contracts; that maintenance and other costs are for the account of the lessee; that upon expiration of the term, your client may lease the equipment to other prospective lessees or dispose of the used equipment in the most economic manner possible. It is further represented that since your client is relatively a new company and has had only two years of direct leasing operation, it has to finance its growth through loans obtained from lending institutions; that in obtaining such loans, your client issues a regular promissory note in favor of the lending institution and assigns the lease contract as additional security for the loan. In reply, I have the honor to inform you that under Section 249-A of the Tax Code, finance companies refers to corporations or partnerships other than a bank, or insurance company, primarily organized for the purpose of extending credit facilities to consumers and to industrial, commercial or agricultural enterprises whether by granting direct loans or by discounting or factoring commercial papers or accounts receivables for profit, buying and selling contracts, leases, chattel mortgages and other evidences of indebtedness arising out of one or more of the steps in the distribution and sale of commodities. From your representations and considering the foregoing provision of Section 249-A of the Tax Code, your client does not fall under the category of a financing company. Accordingly, it is not subject to the fixed and percentage taxes prescribed in Sections 182(A)(3)(gg) and 249-A of the Tax Code. However, for leasing real properties your client is a real estate dealer, subject to the annual fixed tax prescribed in Section 182(A)(3)(aa) of the Tax Code. cd Very truly yours, MISAEL P. VERA Commissioner of Internal Revenue