BIR Ruling [DA-267-05]

June 17, 2005 BIR RULING [DA-267-05] RA 9182; RR Nos. 6-2004 & 9-2005 DA-021-2005; 242-2005 Hon. Nestor A. Espenilla, Jr. Deputy Governor Supervision and Examination Sector Head, SPV Steering Committee Banko Sentral ng Pilipinas A. Mabini St., Malate Manila S i r : This refers to your letters dated March 9, 2005 and May 26, 2005, requesting confirmation that sale transactions involving non-performing assets which were issued Certificates of Eligibility (COEs) by the Bangko Sentral ng Pilipinas (BSP) and entered into by qualified Financial Institutions within the two-year period of availment of the tax incentives which expired on April 12, 2005, are entitled to the tax exemptions and privileges granted under Republic Act (RA) No. 9182, also known as "The Special Purpose Vehicle Act of 2002" (SPV Act); and that no penalty, interest and surcharge shall be imposed on such SPV-eligible transactions submitted to BSP although the usual date for payment of taxes shall have lapsed by the time the COE was issued by the BSP. Your request is purposely to address the discrepancy in the expiry date of the two-year period of availment of tax incentives stated in Section 7(c) of BIR Revenue Regulations (Rev. Regs.) No. 6-2004 dated March 31, 2004, vis--vis Section 15 of the Rules and Regulations implementing the SPV Act (IRR), as approved by the Congressional Oversight Committee. A perusal of BSP Memorandum to All Banks and Non-Bank Financial Institutions Performing Quasi-Banking Functions (NBQBs) dated March 4, 2005, relative to the implementation of R.A. No. 9182 (SPV Act), disclosed that transactions enumerated as items 1 to 6 of Section 15 of the IRR shall be entitled to tax exemptions and fee privileges only if such transaction/s occurred within the two (2)-year availment period reckoned from the effectivity of the IRR; that based on the information provided by the Securities and Exchange Commission the aforementioned IRR was published on March 28, 2003, hence, fifteen (15) days following such publication, it became effective on April 12, 2003; that consequently, the tax exemptions shall apply to SPV transactions until April 12, 2005; that the Monetary Board, in its Resolution No. 270 dated February 25, 2005, had authorized the Supervision and Examination Sector to accept applications for COEs from banks/NBQBs until May 12, 2005; that under Rule 12(c) of the IRR, the BSP shall issue COEs within forty-five (45) days after the deadline for submission of applications for COEs, or until June 25, 2005; and that for the purpose of determining whether a transaction is within the prescribed April 12, 2005 deadline, relevant documents supporting the transaction, e.g. Asset Sale and Purchase Agreement (ASPA), Deed of Assignment, Deed of Dacion, etc. should have been notarized not later than April 12, 2005. We reply as follows: The BIR, in Section 7(c)(2) of Rev. Regs. No. 6-2004, had initially prescribed that tax exemptions provided in paragraph (d) thereof shall apply to transactions listed in paragraph (a)(1) to (a)(6) of said Sec. 7 if the same had occurred within the period starting from March 19, 2003 to March 19, 2005. The difference in the expiration date of availment, i.e., March 19, 2005 under Rev. Regs. No. 6-2004 and April 12, 2005 prescribed by the IRR, has been resolved by this Office in Rev. Reg. No. 9-2005 dated March 19, 2005. Consequently, Rev. Regs. No. 9-2005 which adopted April 12, 2003 as the effectivity date of the IRR, reckoned the expiration date of the 2-year availment period from such date, thereby adjusting the expiration date to April 12, 2005. Consequently, for purposes of tax exemptions granted under R.A. No. 9182, as implemented both by the IRR and Rev. Reg. No. 6-2004, as amended by Rev. Regs. No. 9-2005, the transaction date appearing in the instrument (e.g., ASPA, Deed of Sale, Deed of Dacion, etc.) should be a specific date covered by the 2-year period of tax exemption availment which in no case beyond April 12, 2005. HCEcaT As regards your request for non-imposition of penalty, interest and surcharge on such SPV-eligible transactions even after the period prescribed for payment of taxes shall have lapsed on the basis of the fact that COEs may have been issued by the BSP subsequent to the due date, this Office is of the opinion that for as long as the transaction has transpired within the 2-year availment period prescribed under the IRR and Rev. Regs. No. 9-2005, and the fact of its eligibility as a SPV transaction is covered by a COE, no penalty, interest and surcharge shall be imposed on the transaction. Accordingly, an SPV-eligible transaction which complies with the aforementioned conditions and determined to be exempt from applicable internal revenue taxes shall also be exempt from penalty, interest and charges imposed under the Tax Code of 1997. Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group