BIR Ruling [DA-183-04]

April 6, 2004 BIR RULING [DA-183-04] 7353; 124-98 Mount Makiling Rural Bank, Inc. Maharlika Highway Sto. Tomas, Batangas Attention: Mr. Alven D. Torres President Gentlemen : This refers to your letter dated February 19, 2003 stating that Mount Makiling Rural Bank, Inc. with principal office address at Maharlika Highway Poblacion, Sto. Tomas, Batangas has started its commercial operations on May 15, 1998 as evidenced by the Certificate of Authority duly issued by the Bangko Sentral ng Pilipinas (BSP); and that the bank has been in continual operation up to the present. In connection therewith, you now request for opinion on the following: "(1) Is your bank covered or eligible exemptions in taxes, fees and charges under RA No. 7353 specifically documentary stamp tax (DST), considering that you are still within the five (5)-year period of operation prescribed in the said Act; and "(2) If yes, does your eligibility on DST cover promissory notes and time deposits in particular." In reply thereto, please be informed that Section 15 of RA No. 7353, otherwise known as the Rural Banks Act of 1992, provides "Sec. 15. All rural banks created and organized under the provisions of this Act 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. All rural banks in operations as of the date of approval of this Act 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 approval of this Act." It is clear from the above-cited section that only taxes that are relevant to the operations of a rural bank and taxes for which it is directly liable are covered by the aforesaid tax exemption clause, including documentary stamp tax on loans not exceeding fifty thousand pesos (P50,000.00). Hence, rural banks created and organized under the provisions of the aforesaid Act are exempt from taxes for a period of five (5) years from the date of commencement of operations, while rural banks in operation as of the date of approval of said Act are exempt from the payment of taxes for a period of five (5) years from April 2, 1992, the date of approval of said Act. Accordingly, this Office holds that 1. Since Mount Makiling Rural Bank, Inc. has started its commercial operations only on May 15, 1998, it is still covered by the tax exemption clause from the payment of all taxes, fees and charges for a period of five (5) years starting from May 15, 1998, its actual operations. Consequently, it is exempt from the payment of documentary stamp tax on the loaned amount not exceeding P50,000.00 pursuant to Section 3, RA No. 7353. Conversely, if the loaned amount is in excess of P50,000.00, it shall be liable to the payment of documentary stamp tax imposed under Section 180 of the Tax Code of 1997. While generally documentary stamp tax shall be paid by the person making, signing, issuing, accepting or transferring the document, and at the same time such act is done or transaction had, Section 173 of the Tax Code of 1997 on the other hand, provides that whenever one party to the taxable document enjoys exemption from the tax herein imposed, the other party thereto, who is not exempt shall be the one directly liable for the tax. Accordingly, since Mount Makiling Rural Bank, Inc. is exempt from the payment of documentary stamp tax, the other party is the one liable for the said tax due on the loaned amount extended by the bank. ( BIR Ruling No. 124-98 dated August 31, 1998 ) cSATDC 2. Moreover, since promissory notes and time deposits are embraced within the coverage of Section 180 of the Tax Code of 1997, the same rule in number (1) above shall apply, when the promissory notes and time deposits do not exceed P50,000.00. Conversely, if the promissory notes and time deposits exceed P50,000.00, the same shall be subject to the documentary stamp tax imposed under Section 180 of the said Code. Consequently, inasmuch as the Mount Makiling Rural Bank, Inc. is exempt from the payment of all taxes, including the documentary stamp tax for a period of five (5) years from the date of its actual operations, the other party who is not so exempt shall be the one directly liable for the said tax as prescribed in Section 173 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 riling shall be considered null and void. Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group