BIR Ruling [DA-035-97]

January 23, 1997 BIR RULING [DA-035-97] The Honorable Ma. Cecilia G. Soriano Undersecretary of Finance Manila M a d a m : This refers to your letter dated October 17, 1996 relative to the request of Marcopper Mining Corporation (Marcopper) for the Asian Development Bank (ADB) to assign its rights and interest under the Loan and Complementary Loan Agreement entered into between them, to M.R. Holdings Ltd. (the Company), a subsidiary of Placer Dome Inc. (PDI), thereby making the Company the creditor of record over a loan in the aggregate amount of $40,000,000.00. It appears that under the original Loan and Complementary Loan Agreement, both dated November 2, 1992, Marcopper obtained a loan from ADB in the respective amounts of $15,000,000.00 and $25,000,000.00 to finance Marcopper's San Antonio Project; that the loan were secured by real estate and chattel mortgages over Marcopper's properties located in Marinduque, Pasay and Makati; that they were also guaranteed by Placer Dome, Inc. (PDI), which holds 40% of Marcopper's outstanding capital stock, pursuant to a Support and Standby Credit Agreement; that meanwhile Marcopper had decided to restructure its finances and thus would like PDI to replace ADB as lender of record; that the reason given for such proposed assignment is to enable Marcopper to continue to avail of the compromise agreement with the Bureau of Internal Revenue (BIR) for the deferment of its liabilities under LOI 1416 and PD 2027; and that payment of these loans to ADB would trigger settlement of taxes earlier than Marcopper otherwise would have to. A perusal of the Compromise Agreement between BIR and Marcopper reveals that settlement of the latter's tax liabilities which was suspended pursuant to LOI 1416 is dependent upon full payment of its loan for the San Antonio Project, but which should not be later than ten (10) years from the signing of the Agreement. In this connection, we view that the designation of ADB as creditor for the San Antonio Project in the books of Marcopper was merely to distinguish it from the other creditors and will not affect the right of the BIR to collect the deferred tax liabilities of the latter. The collection, however, is subject to a schedular payment provided for under the Compromise Agreement. Therefore, what is being emphasized in the books of Marcopper is the existence of the loan for the San Antonio Project and not on ADB as a creditor. This fact is properly supported by stipulation No. 1 of the Compromise Agreement which did not mention ADB as creditor for the San Antonio Project. The existence of ADB as the creditor for the San Antonio Project did not, in anyway, affect the signing of the Compromise Agreement as the same was already signed when the Loan and Complementary Loan Agreement between Marcopper and ADB were entered into. Thus, the contemplated assignment of credit by ADB to MR Holdings Ltd. will involve only a change of creditor and will not change the terms of the Compromise Agreement between the BIR and Marcopper. Since the terms and conditions of the conditions of the aforesaid loan were embodied in the Loan and Complementary Loan Agreement and for which the same shall be used by MR Holdings Ltd. as the document to govern its relationship with Marcopper, it can be said that, the parties practically do not contemplate to amend or revise any provision stipulated therein. Be that as it may, any further agreement that Marcopper and PDI may enter into shall not prejudice the right of the Government, particularly the BIR, to collect the taxes due; and any arrangement that will necessarily extend the payment of the loan as to further extend payment of unpaid taxes already extended under the compromise Agreement will not prejudice the right of the Government to collect the aforesaid tax liabilities at the end of 10 years. The limitation, viz, the payment of the tax liabilities shall be made upon the full payment of Marcopper's loan for the San Antonio Project, but which should not be later then 10 years from the signing of the Agreement guarantees the collection of the unpaid tax liabilities either upon full payment of the loan for the Project or in 10 years time from the signing of the Compromise, whichever comes earlier. On this basis, we pose no objection to the proposed assignment by ADB of its rights and interests to a PDI, subsidiary, thus, making the later as the creditor of record. Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue