BIR Ruling [DA-107-98]

March 26, 1998 BIR RULING [DA-107-98] Hiyas Savings and Loan Bank, Inc. Poblacion, Sta. Maria Bulacan Attention: Ms . Angelina S . Domingo Manager Gentlemen : This refers to your letter dated January 21, 1998 requesting, in effect, exemption from the payment of documentary stamp tax on promissory notes issued by you in favor of the Land Bank of the Philippines, Sta. Maria, Bulacan Branch and from the capital gains tax on capital gains realized from the sale, exchange or disposition of acquired real property through mortgage foreclosure sale. LLcd In support of your request, you cited Section 17 of Republic Act No. 7906, otherwise known as the Thrift Banks Act of 1995, which provides as follows: "SEC. 17. Tax Exemptions . All thrift banks, whether created or organized under this Act or in operation as of the date of effectivity of this Act, shall be exempt from payment of all taxes and charges of whatever nature and description, except the corporate income taxes and local taxes, fees and charges for a period of five (5) years, counted from the date of commencement of operation for thrift banks created under this Act and from the date of the effectivity of this Act for existing thrift banks." In reply, please be informed that pursuant to Section 2 (A) (d) of Revenue Regulations No. 4-95 implementing Sections 17, 19 and 20 of R.A. No. 7906, thrift banks are liable to pay, among others, capital gains tax (CGT) on capital gains realized from the sale, exchange or disposition of (i) shares of stock in any domestic corporation under Section 24 (e) (2), NIRC (now Sec. 27(D)(2) of the Tax Code of 1997); and (ii) as statutory seller of acquired real property through mortgage foreclosure sale, whether judicial or extra-judicial under Revenue Memorandum Order No. 6-92 dated January 15, 1992, the creditor-thrift bank representing the owner-mortgagor of the real property becomes liable to pay the capital gains tax due on such foreclosure sale based on the bid price in the auction sale. Such being the case, your request for exemption from the payment of capital gains tax on extrajudicial foreclosure sale is hereby denied for lack of legal basis. On the other hand, thrift banks are exempt from the documentary stamp taxes collectible under existing laws on any loan or transaction extended by them in an amount not exceeding P50,000.00 or such amount as the Secretary of Finance upon recommendation of the Monetary Board may prescribe as may be necessary to promote and expand the economy (Section 2 (2), Revenue Regulations No. 4-95) However, although you are exempt from the documentary stamp tax imposed under Section 180 of the Tax Code of 1997 as issuer of promissory notes, the other party, e.g., Land Bank of the Philippines as acceptor of the promissory notes who is not exempt from tax shall be the one directly liable for the tax, pursuant to Section 173 of the same Code. LLpr As requested, we are enclosing herewith a copy of Revenue Regulations No. 4-95 for your guidance and ready reference. Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)