Bangko Sentral ng Pilipinas

April 4, 2007 BIR RULING [DA-216-07] 121; R.A. 9238 Bangko Sentral ng Pilipinas Asset Management Department A. Mabini St., Malate, Manila Attention: Mr. Ramon V. San Jose, III Asset Management Consultant Gentlemen : This refers to your letter dated December 19, 2006 requesting for a ruling that the acquired assets consisting of real properties of Bangko Sentral ng Pilipinas ("BSP") are considered as capital assets and consequently, the sale of such assets shall not be subject to VAT. It is represented that the Asset Management Department (AMD) of the BSP is charged with the administration, preservation, rehabilitation, maintenance, and disposal of real properties acquired as a result of foreclosure proceedings against bank and non-bank financial institutions with past due emergency loans/advances from the BSP or in settlement of the loans through dacion en pago arrangements. Thus, the sale of such real properties, being considered as capital assets, should not be subject to VAT. IcDCaT In reply, please be informed that Section 2 (aa) of Republic Act (RA) No. 9238 provides, to wit: "SEC. 2. Section 109 of the same Code is hereby amended by rewording paragraph (l) and inserting additional paragraphs after (z) which shall now read as follows: xxx xxx xxx (aa) Services of banks, non-bank financial intermediaries performing quasi-banking functions, and other non-bank financial intermediaries;" From the afore-quoted provision of RA 9238, it is clear that services of banks are exempt from value-added tax. In relation thereto, Section 3 of RA 9238 provides, to wit: "SEC. 3. Section 121 of the National Internal Revenue Code of 1997, as amended, is hereby restored with amendments to read as follows: "SEC. 121. Tax on Banks and Non-Bank Financial Intermediaries Performing Quasi-Banking Functions . There shall be collected a tax on gross receipts derived from sources within the Philippines by all banks and non-banks financial intermediaries in accordance with the follows schedule: (a) On interest, commissions and discounts from lending activities as well as income from financial leasing, on the basis of remaining maturities of instruments from which such receipts are derived: Maturity period is five (5) years or less 5% Maturity period is more than five (5) years 1 (b) On dividends and equity shares in net income of subsidiaries 0% (c) On royalties, rentals of property, real or personal, profits from exchange and all other items treated as gross income under Section 32 of this Code 5% (d) On net trading gains within the taxable year on foreign currency, debt securities, derivatives and other similar financial instruments 5% Provided, however, That in case the maturity period referred to in paragraph (a) is shortened thru pretermination, then the maturity period shall be reckoned to end as of the date of pretermination for purposes of classifying the transaction and the correct rate shall be applied accordingly. Provided, finally, That the generally accepted accounting principles as may be prescribed by the Bangko Sentral ng Pilipinas for the bank or non-bank financial intermediary performing quasi-judicial banking functions shall likewise be the basis for the calculation of gross receipts. Nothing in this Code shall preclude the Commissioner from imposing the same tax herein provided on persons performing similar banking activities." Conversely, while RA 9238 exempts banks from paying the value-added tax, said law expressly states that banks are subject to gross receipts in accordance with the aforecited rates depending on the nature of the bank's transaction. Accordingly, since the Bangko Sentral ng Pilipinas is classified as bank, the sale of its real properties acquired as a result of foreclosure proceedings is not subject to VAT, but the gross receipts tax. 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. aTCAcI Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service