SGV & Co.

February 5, 2007 BIR RULING [DA-064-07] 199 (d); 006-06 SGV & Co. 8F Pryce Tower Pryce Business Park J.P. Laurel Avenue Davao City Attention: Atty. Fabian K. Delos Santos Partner, Tax Services Gentlemen : This refers to your letter dated December 4, 2006 stating that your client, Unistar Credit and Finance Corporation (UCFC), is a financing company organized and existing under the laws of the Philippines; that UCFC extends loans and other credit facilities to its clients; that among UCFC's clients are individual buyers of motorcycle units who, in order to avail of loan/credit facilities of UCFC and secure the payment of their loans, execute a "Promissory Note with Chattel Mortgage" the aggregate loan amount of which does not exceed P250,000.00; and that the proceeds of said loans are used to pay the purchase price of motorcycles bought by these individual buyers for their personal use. aDSHIC Based on the foregoing representations, you now request confirmation of your opinion that the "Promissory Note with Chattel Mortgage" executed under one instrument in favor of UCFC by the individual buyers of motorcycle units for their personnel use, the aggregate amount of which does not exceed P250,000.00 is not subject to documentary stamp tax (DST) pursuant to Section 199, as amended by Section 9 (d) of Republic Act (R.A.) No. 9243, as implemented by Revenue Regulations No. 13-2004. In reply thereto, please be informed that Section 199 (d) of Tax Code of 1997, as amended by R.A. No. 9243 provides that "Sec. 199. Documents and Papers Not Subject to Stamp Tax . The provisions of Section 173 to the contrary notwithstanding, the following instruments, documents and papers shall be exempt from the documentary stamp tax: xxx xxx xxx (d) Loan agreements or promissory notes, the aggregate of which does not exceed Two hundred fifty thousand pesos (P250,000), or any such amount as may be determined by the Secretary of Finance, executed by an individual for his purchase on installment for his personal use or that of his family and not for business or resale, barter or hire of a house, lot, motor vehicle, appliance or furniture: Provided, however, That the amount to be set by the Secretary of Finance shall be in accordance with a relevant price index but not to exceed ten percent (10%) of the current amount and shall remain in force at least for three (3) years." In stressing the rationale of the above-mentioned rule, this Office elucidated the matter in BIR Ruling No. 006-2006 dated June 19, 2006 as follows: ". . . only loan agreements executed by individual borrowers-buyers, where the aggregate amount of loan does not exceed Two hundred fifty thousand pesos (P250,000.00) per loan agreement, are exempt from documentary stamp tax. In other words, where the amount of loan exceeds Two hundred fifty thousand pesos (P250,000.00) per loan agreement, the document is subject to documentary stamp tax." Under the circumstances, since the Promissory Note with Chattel Mortgage executed under one instrument in favor of UCFC by its client-individuals, is to cover loans the aggregate amount of which does not exceed P250,000.00 and shall be used, to purchase motorcycle units for their personal use, the same is in all fours similar to the above-cited ruling and is covered by the provisions of Section 199 (d) of the Tax Code of 1997, as amended by R.A. No. 9243. SUCH BEING THE CASE, this Office hereby confirms your opinion that the above-mentioned Promissory Note with Chattel Mortgage is not subject to DST pursuant to Section 199 (d) of the Tax Code of 1997, as amended by R.A. No. 9243. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service