BIR Ruling

June 13, 1973 Luneta Theatre, Inc. E & L Bldg., 444 T. M. Kalaw St. Ermita, Manila Gentlemen : This refers to your letter dated November 17, 1972 requesting information whether land bank certificates may be used in payment of taxes. In reply thereto, I have the honor to quote hereunder Sections 76 and 85 of Republic Act No. 3844 otherwise known as the "Agricultural Land Reform Code" as amended by Republic Act No. 6389: "SEC. 76. Issuance of Bonds . The Land Bank shall, upon recommendation by the Board of Trustees and approval of the Monetary Board of the Central Bank, issue bonds, debentures and other evidences of indebtedness at such terms, rates and conditions as the Bank may determine up to an aggregate amount not exceeding, at any one time, five times its unimpaired capital and surplus. Such bonds and other obligations shall be secured by the assets of the Bank and shall be fully tax exempt both as to principal and income. Said income shall be paid to the bondholders every six (6) months from the date of issue. These bonds and other obligations shall be fully negotiable and unconditionally guaranteed by the Government of the Republic of the Philippines and shall be redeemable at the option of the Bank at or prior to maturity, which in no case shall exceed twenty-five years. These negotiable instruments of indebtedness shall be mortgageable in accordance with established banking procedures and practices to government institutions, existing charters and/or laws to the contrary notwithstanding, not to exceed sixty per centum of their face value to enable the holders of such bonds to make use of them in investments in productive enterprises. They are eligible as legal reserves against deposit liabilities of banks, subject to the terms and conditions which the Central Bank of the Philippines may impose. They shall also be accepted as payments for reparation equipments and materials, the provisions of Republic Act Numbered Seventeen hundred and eighty-nine, as amended, to the contrary notwithstanding. The Board of Trustees shall have the power to prescribe rules and regulations for the registration of the bonds issued by the Bank at the request of the holders thereof." "SEC. 85. Use of Bonds . The bonds issued by the Land Bank may be used by the holder thereof and shall be accepted in the amount of their face value as any of the following: "(1) Payment for agricultural lands or other real properties purchased from the Government; "(2) Payment for the purchase of shares of stock of all or substantially all of the assets of the following Government owned or controlled corporations: The National Development Company; Philippine National Bank; Philippine National Railways; Cebu Portland Cement Company; National Shipyards and Steel Corporations; Manila Gas Corporation; and the Manila Hotel Company. "Upon offer by the bondholder, the corporation owned or controlled by the Government shall, through its Board of Directors, negotiate with such bondholder with respect to the price and other terms and conditions of the sale. In case there are various bondholders making the offer, the one willing to purchase under terms and conditions most favorable to the corporations shall be preferred. If no price is acceptable to the corporation, the same shall be determined by the Committee of Appraisers composed or three members, one to be appointed by the corporation, another by the bondholder making the highest or only offer, and the third by the two members, so chosen. The expense of appraisal shall be borne equally by the corporation and the successful purchaser. "Should the Government offer for sale to the public any or all the shares of stock or the assets of any of the Government owned or controlled corporation enumerated herein, the bidder who offers to pay bonds of the Land Bank shall be preferred provided that the various bids be equal in every respect except in the medium of payment. "(3) Surety, bail bonds for the provisional release of accused persons or performance bonds in all cases where the government may require or accept real property as bonds; "(4) Payment for reparations goods, the provisions of Republic Act Numbered Seventeen hundred and eighty-nine, as amended, to the contrary notwithstanding; "(5) Security for loans applied with the Philippines National Bank, Development Bank of the Philippines, Government Service Insurance System, Social Security System, and other government financial institution, existing charters of these institutions to the contrary notwithstanding; and "(6) Legal reserves against deposit liabilities of banks, subject to the terms and conditions which the Central Bank of the Philippines may impose pursuant to the General Banking Act." From the foregoing provisions of law, it seems clear that bonds and other obligations issued by the Land Bank cannot be used in the payment of taxes. aisadc Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue