BIR Ruling [DA-084-06]

March 6, 2006 BIR RULING [DA-084-06] R.A. No. 7353; BIR Ruling No. DA-420-04 Luis Caete & Company 3F Oftana Bldg., Jasmin cor Don Mariano Sui Sts. Cebu City Attention: Mr . Luis A . Caete Gentlemen : This refers to your letter dated January 10, 2006 requesting for confirmation of your opinion that 1st Valley Bank, Inc ., A Rural Bank , is exempt from payment of all taxes, fees and charges of whatever nature and description, such as gross receipts and documentary stamp taxes, for a period of five (5) years reckoned from August 30, 2005 pursuant to Section 15 of Republic Act (R.A.) No. 7353, otherwise known as the Rural Bank Act of 1992. As represented, 1st Valley Bank, Inc., A Rural Bank was registered with Securities and Exchange Commission (SEC) on August 30, 2005. The purposes for which the corporation is formed are: to carry and engage in the business of extending financial services to farmers, fisherfolk, employees, entrepreneurs, commercial, manufacturing, and industrial enterprises and to such other persons or entities that require financial intermediation; and to have and to exercise all authority and powers and to do and perform all acts and to transact all businesses which may be legally done by rural banks organized under and in accordance with the existing new Rural Bank's Act or R.A. 7353, as it exists or as may be amended, and to do all other things or acts incident thereto necessary and proper in connection with said purposes within such territory as may be determined by the Monetary Board of the Bangko Sentral ng Pilipinas (BSP). As required by Section 14 of R.A. No. 8791, otherwise known as "An Act Providing for the Regulation of the Organization and Operations of Banks, Quasi-Banks, Trust Entities and For Other Purposes," the Monetary Board issued on June 8, 2005 a Certificate of Authority to enable the bank to register its Articles of Incorporation with the SEC. The BSP, likewise, issued on September 21, 2005, a Certificate of Authority to enable 1st Valley Bank, Inc., A Rural Bank to operate as a rural bank pursuant to R.A. 7353 and by virtue of Monetary Board Resolution No. 329 dated September 21, 2005. The registration of 1st Valley Bank, Inc., A Rural Bank, was the result of the consolidation of Rural Bank of Kapatagan Valley, Inc. and Rural Bank of Sinacaban (Misamis Occidental), Inc., all domestic corporations authorized to engage in the business of banking under R.A. 7353, the consolidation being evidenced by a Plan of Consolidation executed on September 21, 2004 and of an amended Agreement and Articles of Consolidation executed on October 21, 2004 whereby these constituent banks agreed to consolidate into a single corporation called 1st Valley Bank, Inc., A Rural Bank which was approved by the SEC on August 30, 2005. In reply, please be informed that Section 15, in relation to Sections 20 and 21 of R.A. No. 7353, otherwise known as the "New Rural Banks Act" provides, viz: "Sec. 15. All rural banks created under its provisions and those already in operation as of the date of the approval thereof 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." CaDEAT In relation thereto, Section 2(B) of Revenue Regulations No. 16-93 provides that all rural banks are exempt from the Gross Receipts Tax (GRT) imposed under Section 119 of the National Internal Revenue Code on gross receipts derived from sources within the Philippines. In view of the foregoing, this Office confirms your opinion that since 1st Valley Bank, Inc., A Rural Bank was issued a Certificate of Authority by the BSP to operate as rural bank, it is entitled to all the exemptions provided in Section 15 of R.A. No. 7353 (i.e., GRT and DST) from the date of commencement of its operations as a rural bank. 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 as null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service