BIR Ruling [DA-026-04]

January 16, 2004 BIR RULING [DA-026-04] R.A. 7353; 184-99 Banaria, Banaria & Company 10 Scout Bayoran Street South Triangle, Quezon City Attention: Mr. Ernesto A. Banaria Gentlemen : This refers to your letter dated May 24, 2002 requesting for a ruling in behalf of your client, LUDB Bank, Inc. (A RURAL BANK) (LUDB for brevity), [formerly LA UNION DEVELOPMENT BANK, INC.] to confirm that it is exempt from payment of the gross receipts tax for a period of five (5) years pursuant to Section 15 of Republic Act No. 7353 otherwise known as the Rural Banks Act of 1992. It is represented that LUDB was organized on August 21, 1964 as a thrift bank in accordance with the provisions of Republic Act No. 85, as amended by Republic Act Nos. 337 and 2082, with principal office address at Quezon Avenue, San Fernando City, La Union; that per Board Resolution dated December 4, 1998 which was ratified on the same date by the majority stockholders, owning or representing at least two-thirds (2/3) of the outstanding capital stock, it was resolved to convert the thrift bank to a rural bank and to change its corporate name to LUDB Bank, Inc. (A RURAL BANK); that on October 27, 2000, the Monetary Board of the Bangko Sentral ng Pilipinas (BSP) per Resolution No. 1900 approved the request of La Union Development Bank, Inc. for its conversion from a thrift bank to a rural bank and change of its corporate name to LUDB Bank, Inc. (A RURAL BANK); that the Certificate of Authority to operate as a rural bank pursuant to Republic Act No. 7353 and Monetary Board Resolution No. 1900 dated October 27, 2000 was granted by BSP on December 27, 2001; that an amended Articles of Incorporation and By-laws was filed with the Securities and Exchange Commission (SEC) to register the new corporate name LUDB Bank, Inc. (A RURAL BANK) and conversion of its business to extending rural credit organized under and in accordance with Republic Act No. 7353 (Rural Banks Act of 1992) and was approved by the SEC on August 3, 2001. In reply, please be informed that Section 15 of Republic Act No. 7353, as implemented by Revenue Regulations No. 16-93, provides, viz : "SEC. 15. All rural banks created and organized under the provisions of this Act shall be exempt from the payment of all taxes, fees and charges of whatever nature and description, except the corporate income tax and local taxes, fees and charges, for a period of five (5) years from the date of commencement of operations." IATHaS In addition, Section 2(B) of the said Revenue Regulations provides, viz : "SEC. 2. Taxes covered by the Exemption . xxx xxx xxx B. Exemption from gross receipts tax. All rural banks are exempt from the tax (GRT) imposed under Section 119 of the NIRC (now Section 121 of the Tax Code of 1997), on gross receipts from sources within the Philippines." Based on the foregoing, LUDB Bank, Inc. (A RURAL BANK) is exempt from the payment of gross receipts tax imposed under Section 119 of the NIRC (now Section 121 of the Tax Code of 1997), on gross receipts derived from sources within the Philippines for a period of five (5) years from the date of commencement of operations. (BIR Ruling No. 184-99) Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group