BIR Ruling [DA-091-03]

March 25, 2003 BIR RULING [DA-091-03] 195; 166-98 dated April 22, 1998 Puno and Puno Law Offices 12th Floor East Tower Philippine Stock Exchange Centre Exchange Road, Ortigas Center Pasig City Attention: Attys. Roderico V. Puno and Ma. Cristina M.F. Villanueva Gentlemen : This refers to your letter dated August 7, 2000 stating that your client, FGP Corporation (FGP), 60% of the capital stock of which is owned by Unified Holdings Corporation (Unified Holdings) and 40% by BG Philippines Holdings, Inc. (BG Philippines), has undertaken to build, own and operate a combined cycle power station with a design capacity of approximately 500 MW in Sta. Rita, Batangas City (Project); that to partially finance its estimated Project capital cost of Five Hundred Million Dollars, United States currency (US$500,000,000.00), FGP has, on March 8, 2000, obtained various United States dollar-denominated loans from Kreditanstalt fur Wjederaufbau (KfW) and certain international financial institutions (collectively, the Lenders) which are secured by a lien on and a security interest in: (a) substantially all of FGP's assets, including real estate, personal property and receivables; (b) rights under all Project Contracts; (c) proceeds of all insurance to the extent payable to FGP; (d) all issued and outstanding shares of common stock of FGP; and (e) all revenues to be derived from the operation of the Project; that the specific terms relating to the amounts obtained, interest and fee rates charged, and the like, including terms and conditions specifically applicable to the respective Lenders, have been made subject to separate loan facility agreements executed on March 8, 2000, except as otherwise indicated, to wit: (i) the HERMES covered Facility Agreement between FGP, as borrower, and KfW executed on February 14, 2000 in Makati City; (ii) the GKA covered Facility Agreement between FGP, as borrower, and KfW; (iii) the Commercial Loan Covered (ECGD) Facility Agreement among FGP, the international financial institutions set for therein and the facility agent party thereto; and (iv) the Revolving Credit/Working Capital Facility Agreement among FGP, the international financial institutions set forth therein and the facility agent party thereto; that FGP has, however, on March 18, 2000 in HongKong, with Unified Holdings and BG Philippines as shareholders, the Security Trustee, the Co-Security Trustee, and the Intercreditor Agent, executed an Omnibus Agreement, which consolidates and embodies all the terms and conditions relating to the aforementioned facilities and security arrangements. Incorporated in the Omnibus Agreement are: (a) the Common Terms Agreement (CTA), executed on March 8, 2000 in HongKong, which embodies the terms common to the various loan facilities such as common events of default, representations and covenants; (b) the Mortgage, Assignment and Pledge Agreement or the Master Security Agreement (MSA), executed, notarized and duly authenticated by the Philippine Consulate on March 8, 2000 in HongKong, which lays down, in detail, the rights and obligations of FGP and the Lenders with respect to the properties over which the latter shall enjoy a preferred security interest and the modes of enforcing the said interest; (c) the Trust and Retention Agreement executed on March 8, 2000 in HongKong, which provides for the utilization, priority of payment and funds flow with respect to both Project debt and revenues; and, (d) the above-mentioned loan facility agreements with the different Lenders; that on March 16, 2000, FGP duly paid the documentary stamp taxes due on the aforementioned agreements amounting to Thirty Million Seven Hundred Twenty One Thousand Eight Hundred Thirty Pesos (P30,721,830.00) which was computed at the rate prescribed by Section 195 of the Tax Code of 1997 on the basis of the aggregate loan amount of Three Hundred Seventy Five Million Two Hundred Ninety Seven Thousand Dollars, United States Currency (US$375,297,000.00); that the MSA has been registered with the appropriate real property registries of the Office of the Register of Deeds of Batangas City where the real estate subject to the mortgagee are located, by entering the same, together with all the corporate documents of FGP and its stockholders, the Original Certificates of Title (OCTs) or Transfer Certificates of Title (TCTs) evidencing ownership of the subject real estate, and certificates of proof of payment of the appropriate DST and real estate taxes, in both the primary entry and registration book of the said registries; that the MSA was likewise registered with the Chattel Mortgage Registry of the Office of the Register of Deeds of Batangas City where the various personal properties subject to the chattel mortgage are located; and that the aforementioned registrations recorded the full amount of Three Hundred Seventy Five Million Two Hundred Ninety Seven Thousand Dollars, United States currency (US$375,297,000.00) as the amount secured. Based on the foregoing representations, you now request for a ruling that the Omnibus Agreement, CTA, MSA and related facility agreements entered into by FGP with various lender banks constitute one taxable transaction and shall be subject to only one documentary stamp tax. In reply thereto, please be informed that Section 195 of the Tax Code of 1997 provides that "[o]n every mortgage or pledge of lands, estate, or property, real or personal, . . ., where the same shall be made as a security for the payment of any definite and certain sum of money lent at the time or previously due and owing or forborne to be paid, being payable, and on any conveyance of land, estate, or property whatsoever, . . . which shall be and intended only as security, . . . there shall be collected a documentary stamp tax . . . computed on the amount actually loaned or given at the time of the execution of the mortgage, pledge or deed of trust. . . ." In relation thereto, Section 8 of Revenue Regulations No. 9-94 implementing R.A. No. 7660 provides as follows: "Section 8. Loan Agreement/Promissory Notes Secured by a Pledged Mortgage . Where only one instrument was prepared, made, signed and executed to cover a loan agreement/promissory note, pledge/mortgage, the documentary stamp tax prescribed in Section 195 of the Tax Code, as amended, shall be paid and computed on the full amount of the loan or credit granted. In this regard, the instrument shall be treated as covering only one taxable transaction, subject to the higher documentary stamp tax." It is clear from the above-cited sections that notwithstanding the execution of several instruments to cover loan, mortgages, pledges, and assignments, only one documentary stamp tax is payable. In the same manner, the one-transaction rule regarding the imposition of the documentary stamp tax is applicable notwithstanding the registration of the MSA in different Registries of Deeds. Thus, in BIR Ruling No. DA-166-04-22-98 dated April 22, 1998, this Office has already occasioned to rule on the matter when it said, thus "xxx xxx xxx ". . . The loan transaction and the Security Agreement entered into between . . . and the various creditors . . ., shall be subject to a single payment of documentary stamp tax based on the aggregate amount . . . regardless of the number of registration required (whether for real estate mortgage, chattel mortgage, or otherwise) to make the same effective against the third parties. "Accordingly, this Office hereby confirms your opinion that the Omnibus Agreement, CTA, MSA and related facility agreements executed by . . ., constitute one taxable transaction which is subject to only one DST imposed under Section 195 of the Tax Code of 1997." SUCH BEING THE CASE, this Office is of the opinion as it hereby holds that Omnibus Agreement, CTA, MSA and related facility agreements although executed different books of the appropriate registries of the Register of Deeds, constitute only one taxable transaction subject to one documentary stamp tax prescribed in Section 195 of the Tax Code of 1997. 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. TCHcAE Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group