Gerodias Suchiangco Estrella Law Firm

March 11, 2008 BIR RULING [DA-148-08] 27 (D) (5), 199; DA-436-98; DA-090-07 Gerodias Suchiangco Estrella Law Firm Suite 2404 Discovery Center 25 ADB Avenue, Ortigas Center Pasig City Attention: Attys. Raul G. Gerodias and Jose A. Ramos, Jr. Gentlemen : This refers to your letter dated September 5, 2007 requesting on behalf of your clients, Cameron Granville Asset Management (SPV-AMC), Inc. ["Cameron SPV-AMC"], Cameron Granville 2 Asset Management, Inc. ["CGAM2"], Cameron Granville 3 Asset Management, Inc. ["CGAM3"], LNC (SPV-AMC) Corp. ["LNC SPV-AMC"], LNC Investments Holdings, Inc. ["LNC Investments"] and LNC 3 Asset Management Inc. ["LNC3"], for confirmation of opinion that the assignment of credit and mortgage rights by banks, financial institutions or asset management corporations to the aforementioned corporations are not subject to capital gains tax under Sec. 27 (D) (5) and documentary stamp tax under Sec. 199 (f) of the Tax Code of 1997, as amended by Republic Act (R.A.) No. 9243. It is represented that CGAM SPV-AMC and LNC SPV-AMC are domestic corporations duly organized and existing under the laws of the Republic of the Philippines. They are special purpose vehicles and asset management corporations organized under R.A. No. 9182, as amended, otherwise known as "The Special Purpose Vehicle (SPV) Act of 2002". CGAM2, CGAM3, LNC Investments, and LNC3 are also domestic corporations duly organized and existing under Philippine laws. While they are non-SPV entities, they are likewise involved in the acquisition, sale and management of various types of assets. In the course of their business, said corporations acquired from banks, financial institutions or asset management corporations various loan receivables with corresponding real estate mortgages. However, these transactions were not within the purview of the SPV Act of 2002, as amended, and thus the tax incentives and privileges were not availed of. In order to document their transactions, separate Deeds of Assignment were executed whereby the banks, financial institutions or asset management corporations assigned and transferred all of their right, title and interest in the loans, including the promissory notes, and all liens, mortgages and security interests securing payment of the loans to the above-named corporations. The aforesaid Deeds of Assignment of credit and mortgage rights contained no provisions changing the maturity or remaining period of coverage from that of the original instrument of indebtedness and the conditions of the corresponding mortgages. In reply, please be informed that under Section 27 (D) (5) of the 1997 Tax Code, a final tax of six percent (6%) based on the gross selling price or current fair market value as determined in accordance with Section 6 (E) of the same Code, whichever is higher, is imposed upon capital gains presumed to have been realized from the sale, exchange or other disposition of real property located in the Philippines classified as capital asset including pacto de retro sales and other form of conditional sales, by corporations. However, the assignment of mortgage rights and credits is not subject to the capital gains tax imposed under Sec. 27 (D) (5) of the 1997 Tax Code, as amended. The assignee, who in effect became the creditor, merely steps into the shoes of the original creditor-mortgagee as the one having the right to foreclose the mortgaged properties. There is no transfer of title to the real properties involved in the said deed of assignment of right to foreclose the mortgaged properties. (BIR Ruling No. DA-412-03 dated November 13, 2003, citing BIR Ruling No. DA-252-96 dated July 18, 1996) In BIR Ruling No. DA-436-98 dated September 24, 1998, this Office opined that: "In the instant case, however, your sale in favor (of) the Mr. and Mrs. Alfredo Yambao was not a sale, exchange or disposition of real property classified as capital asset located in the Philippines but rather a sale of right pertaining to such property, hence, not included within the provision of Section 24(D)(1) of the Tax Code of 1997. This is so, considering that in assignments of rights, the assignee merely steps into the shoes of the assignor without acquiring a better right than what the assignor had in the property to which the assigned right pertains. Moreover, a Deed of Assignment of Right is not a Deed of Sale because what is conveyed by the assignor is not the property itself but the rights pertaining to such property. . . . Accordingly, the sale or assignment by the Spouses Angeles in favor of the Spouses Yambao of their rights over the said property is not subject to the capital gains tax imposed under Section 24(D)(1) of the Tax Code of 1997, nor to the documentary stamp tax prescribed under Section 196 of the same Code. The notarial acknowledgment of the deed, however, is subject to the P15.00 DST pursuant to Sec. 188 of the Tax Code of 1997." Consequently, inasmuch that there was no transfer of title to the real properties involved in the Deeds of Assignment of loan and mortgage rights by the banks, financial institutions or asset management corporations, the herein transfers are exempt from the capital gains tax as imposed under Section 27 (D) (5) of the Tax Code of 1997. Moreover, Sec. 9 of Revenue Regulations (RR) No. 13-2004 (Implementing the Provisions of R.A. 9243, An Act Rationalizing the Provisions on the Documentary Stamp Tax of the National Internal Revenue Code of 1997, as amended) identifies the documents and papers not subject to Documentary Stamp Tax: "SEC. 199. Documents and Papers Not Subject to DST The provisions of Section 173 to the contrary notwithstanding, the following instruments, documents and papers shall be exempt from the DST: xxx xxx xxx (f) Assignment or transfer of any mortgage, lease or policy of insurance, or the renewal or continuance of any agreement, contract, charter, or any evidence of obligation or indebtedness, if there is no change in the maturity or remaining period of coverage from that of the original instrument." The Deed of Assignment executed merely transferred all rights, interests and participation in the promissory note and in the indenture of mortgage without any provisions changing the conditions of the mortgage nor the maturity or remaining period of coverage of the promissory note from that of the original instruments, the transfer therefore, of all its rights, interests and participation in the promissory note and the indenture of mortgage is exempt from the payment of documentary stamp tax under R.A. No. 9243. In BIR Ruling No. DA-090-07 issued on February 14, 2007, this Office had the occasion to rule that: "Pursuant to Sec. 199(f) of the Philippine Tax Code, as amended by R.A. 9 24 3, the assignment or transfer or the renewal or continuance of any evidence of obligation or indebtedness (such as a promissory note) is exempt from documentary stamp tax (DST) if there is no change in the maturity or remaining period of coverage from that of the original instrument, to wit: Section 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 (f) Assignment or transfer of any mortgage, lease or policy of insurance, or the renewal or continuance of any agreement, contract, charter or any evidence of obligation or indebtedness, if there is no change in the maturity or remaining period of coverage from that of the original instrument." As the Deeds of Assignment between the banks, financial institutions or asset management corporations and your clients merely transferred all the rights, interests and participation in the mortgage loans without any provisions changing the conditions of the mortgage nor the maturity or remaining period of coverage from that of the original instruments, then the deeds of assignment of the loans and mortgage rights are not subject to documentary stamp tax on the transfer of mortgage. Such being the case, this Office hereby confirms your opinion that the assignment of credit and mortgage rights by banks, financial institutions or asset management corporations to Cameron SPV-AMC, CGAM2, CGAM3, LNC SPV-AMC, LNC Investments and LNC3 are not subject to capital gains tax under Sec. 27 (D) (5) and documentary stamp tax under Sec. 199 (f) both of the Tax Code of 1997, the latter as amended by Republic Act (R.A.) No. 9243. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon its investigation, it will be ascertained 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