BIR Ruling [DA-314-98]

July 14, 1998 BIR RULING [DA-314-98] Clarence D. Guerrero Law Office 10/F TMBC Building 6772 Ayala Avenue Makati City Attention: Atty . Clarence D . Guerrero Gentlemen : This refers to your letter dated April 1, 1998 requesting on behalf of your client, The Manila Banking Corporation (TMBC for short) for a ruling that it is not liable to pay the excise tax under Section 121 of the Tax Code of 1997 (then Section 119 of the Tax Code, as amended). cdt It is represented that in May 1987, TMBC was placed by the Monetary Board under receivership by the Central Bank of the Philippines [now Bangko Sentral ng Pilipinas (BSP)]; that as a consequence, it was directed to cease and desist from engaging in any form of banking activity under MB Res. No. 505 dated May 26, 1987; that subsequently, the Monetary Board issued an order for the liquidation of TMBC under MB Res. No. 1003 dated November 11, 1987; that although it has not engaged in any business since its closure in 1987, it was made liable to pay the gross receipts tax imposed under Section 121 of the Tax Code of 1997; and that its assets are being conserved by a Statutory Receiver, the Central Bank-Board of Liquidators and Philippine Deposit Insurance Corporation (PDIC), for the eventual distribution to its creditors, mainly the depositors. In reply, please be informed that pursuant to Section 121 of the Tax Code of 1997 (then Section 119 of the Tax Code, as amended) the tax on banks and non-financial intermediaries is a tax on the gross receipts of all banks and non-bank financial intermediaries as well as of persons performing similar banking activities. A gross receipts tax as an excise tax is imposed on the privilege to engage in business and not on the gross receipts themselves. Considering that TMBC had already ceased its banking operations in 1987, the foregoing provision shall not apply to it. Thus, gross receipts/revenues which it may have earned during the time in which it is under receivership and/or as a result of final liquidation, are not active revenues resulting from banking operations. Furthermore, in a similar situation the Supreme Court has held that "to be held liable for the payment of privilege tax, the person or entity must be engaged in business". (CIR vs. CA, GR No. 104151, March 10, 1995) Such being the case, TMBC is no longer subject to percentage tax imposed under the foregoing Section 121 of the Tax Code. (BIR Ruling UN-311-95 dated August 22, 1995) However, it is worthy to note that TMBC could have gross receipts tax liabilities still outstanding and unpaid prior to its closure in 1987. In such case, it shall have to pay such unpaid taxes with the corresponding penalties thereon, in accordance with the order of preference set forth under the law. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it shall be disclosed that the facts are different, then this ruling shall be considered null and void. aisadc Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)