CCT Constructors Corporation

January 17, 2008 BIR RULING [DA-016-08] 179; DA-320-07 CCT Constructors Corporation 3rd Floor, Princess Building 104 Esteban St., Legaspi Village Makati City Attention: Ms. Aurora D. Lantin Administration Manager Gentlemen : This refers to your letter dated November 15, 2007 requesting confirmation of your opinion that cash advances extended by the co-venturers to their construction consortium are not subject to documentary stamp tax under Sec. 179 of the 1997 Tax Code, as amended. CSaITD It is represented that CCT Constructors Corporation (CCT) is a corporation duly organized and existing under the laws of the Philippines with office address at 3rd Flr. Princess Building, Esteban St., Makati City; that it is engaged in the business of providing general and civil construction works in the Philippines; that CCT and Toyo Construction Co., Ltd.-Philippine Branch (Toyo) have entered into a joint venture agreement called CCT-Toyo Consortium for the purpose of engaging in the construction of several projects in the Philippines; that based on the consortium agreement, CCT and Toyo shall have a 60:40 sharing agreement in the consortium projects, with CCT as the lead partner; that as part of its undertaking under the consortium agreement, Toyo provides cash advances to the consortium as may be required in order to bridge the financial requirements for the construction projects of the consortium, thereby serving as its capital contribution to the project; that in some cases when the funds provided by Toyo are not enough, CCT also grants cash advances to the consortium; that there is no loan agreement of whatever kind involved in the transaction, the same being evidenced by mere inter-office memo and/or bank transfer forms; and that the cash advances are provided as part of the obligation under the consortium agreement and not intended as a loan or for the purpose of generating income from such advances. SDHAEC In reply, please be informed that Section 179 of the 1997 Tax Code, as amended by Republic Act (RA) No. 9243, provides: 1uptax08 "SEC. 179. Stamp Tax on All Debt Instruments . On every original issue of debt instruments, there shall be collected a documentary stamp tax . . . "For purposes of this section, the term debt instrument shall mean instruments representing borrowing and lending transactions including but not limited to debentures, certificates of indebtedness, due bills, bonds, loan agreements, including those signed abroad wherein the object of contract is located or used in the Philippines, instruments and securities issued by the government or any of its instrumentalities, deposit substitute debt instruments, certificates or other evidences of deposits that are either drawing interest significantly higher than the regular savings deposit taking into consideration the size of the deposit and the risks involved or drawing interest and having a specific maturity date, orders for payment of any sum of money otherwise than at sight or on demand, promissory notes, whether negotiable or non-negotiable, except bank notes issued for circulation." Revenue Regulations (RR) No. 13-2004 dated December 23, 2004, implementing RA No. 9243, confirms that under Sec. 179 which used to be Sec. 180 of the Tax Code, to be subject to the documentary stamp tax, the instrument must represent a "borrowing and lending" transaction. (BIR Ruling No. 020-05 dated October 3, 2005). The same does not apply to the instant situation which involves cash advances by joint venture partners by way of capital contribution to the consortium. ACEIac In relation thereto, BIR Ruling No. 116-98 ruled that an inter-office memo, covering an inter-company advance is not subject to documentary stamp tax. However, on July 15, 1999, BIR issued BIR Ruling No. 108-99 reversing BIR Ruling 116-98 by stating that an inter-office memo covering the advances granted by a corporation affiliate is in the nature of a promissory note subject to the documentary stamp tax. Both rulings were cited in the case of APC Group, Inc. vs. Commissioner of Internal Revenue (CTA Case No. 6155, March 11, 2002). In the said case, the Court ruled that neither BIR Ruling No. 116-98 nor BIR Ruling No. 108-99, which reversed it, is controlling Section 180 (now Section 179) of the Tax Code, as amended shall prevail. The Court's decision states in part: "There is nothing in Section 180 that provides that board resolutions, inter-office memoranda, letters of instructions, journal or cash vouchers evidencing lending/borrowings are subject to Documentary Stamp Tax. Clearly, what Section 180 taxes are loan agreements, promissory notes, bill of exchange, drafts, instruments and securities issued by the government or any of its instrumentalities or certificates of deposits drawing interest and others not payable on sight or demand." AcDHCS In the herein case, the inter-company advance transactions by Toyo and CCT, both joint venture partners to the CCT-Toyo Consortium are documented by mere inter-office memo and/or bank transfer forms. Since there is no loan agreement and since such cash advances are made as part of their undertaking under the consortium agreement, such cash advances shall not be subject to documentary stamp tax under Section 179 of the Tax Code, as amended. (BIR Ruling No. DA-320-07 dated May 31, 2007) aIcCTA This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered as null and void. DIEcHa Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service