BIR Ruling [DA-407-05]

October 3, 2005 BIR RULING [DA-407-05] RA 9182; RR 6-04, 9-2005; DA-545-2004; DA-002-2005 Global ISPAT Holdings (SPV-AMC) Inc . Unit 2703, 27th Floor, 88 Corporate Center 141 Sedeo St., Salcedo Village Makati City Attention: Atty. Victoria G. De Los Reyes Chief of Legal Gentlemen : This refers to your letter dated August 23, 2005 requesting confirmation of your opinion that a Special Purpose Vehicle (SPV) is exempt from documentary stamp tax and capital gains tax on the transfer of titles over parcels of land pursuant to Republic Act (RA) No. 9182, also known as "The Special Purpose Vehicle Act of 2002" (SPV Act). Factual Background As represented and as disclosed in the documents submitted to this Office, Global ISPAT Holdings (SPV-AMC) Inc. [formerly Global ISPAT Holdings, Inc.] (or "GIHI") is a SEC-registered corporation with Certificate of Registration No. CS200404719 and has its office address at Unit 2703 27th Floor, 88 Corporate Center, Sedeo corner Valero Sts., Salcedo Village, Makati City. Global Steelworks International (SPV-AMC) Inc. [formerly Global Steelworks International Inc. (or "GSII")] is a corporation organized and existing under Philippines laws with SEC Certificate of Registration No. CS200401164. It has its office address at 12th Floor SGV I Building, 6760 Ayala Avenue, Makati City. It is a wholly owned subsidiary of Global Steel Holdings Limited (or "GSHL"), a foreign corporation registered under the laws of the Isle of Man. GSII is presently leasing the land where the plant facilities are situated. By virtue of the Asset Purchase Agreement (APA) dated September 10, 2004, the Liquidator of the National Steel Corporation (NSC) assigned the NSC Plant Land Assets to GIHI while the NSC Plant Non-Land Assets were assigned to GSII. On October 15, 2004, the Liquidator of National Steel Corporation and GIHI executed a Deed of Assignment (NSC Plant Land) whereby the former, to fully settle NSC's outstanding obligations with the latter, transferred and conveyed by way of dacion en pago all rights, title and interests in and to certain parcels of land located in Iligan City covered by TCT Nos. 25959, 36667 and 36668 and OCT No. SP-06 of the Registry of Deeds of Iligan in favor of the latter. Anent the above, the Bangko Sentral ng Pilipinas (BSP) had issued Certificates of Eligibility of qualified Financial Institutions with respect to their qualified Non-Performing Assets, to wit: Certificate of Eligibility (COE) No. BSP041013-00001 1 Bank Address TIN Philippine National Bank PNB Financial Center, President 000-188-209 Diosdado Macapagal Blvd., Pasay City Metropolitan Bank & Trust Metro Bank Plaza, Sen. Gil J. Puyat 000-477-863 Company Avenue, Makati City, Metro Manila Certificate of Eligibility (COE) No. BSP041013-0002 Bank Address TIN Philippine National Bank PNB Financial Center, President 000-188-209 Diosdado Macapagal Blvd., Pasay City Land Bank of the Land Bank Plaza, 1598 M.H. Del Pilar 000-470-349-000 Philippines cor. Dr. J. Quintos St., Malate Manila China Banking Corporation China Bank Bldg. 8745 Paseo de Roxas 000-444-210-000 cro. Villar St., Makati City Rizal Commercial Banking RCBC Plaza, Yuchengco Tower 6819 320-000-599-760 Corporation Ayala Ave., Makati City Metropolitan Bank & Trust Metro Bank Plaza, Sen. Gil J. Puyat 000-477-863 Company Avenue, Makati City Equitable PCI Bank Equitable PCI Bank Tower I, Makati 000-453-086 Avenue cor. H.V. Dela Costa St., Makati City United Coconut Planters UCPB Bldg., 7907 Makati Avenue, 000-507-736 Bank Makati City Export & Industry Bank Export Bank Plaza, Chino Roces 000-509-006-000 Avenue cor. Sen. Gil J. Puyat Ave., Makati City Bank of Commerce Banker's Centre, 6764 Ayala Avenue, 000-440-440-000 Makati City Development Bank of the DBP Building, Sen. Gil J. Puyat 000-449-609-000 Philippines Avenue, Makati City Allied Banking Corporation Allied Bank Center, 6754 Ayala Ave., 000-432-755-000 Makati City FEB Investments Inc. (c/o BPI Building, Ayala Ave. 000-438-366-000 Bank of the Philippine cor. Paseo de Roxas, Makati City Islands Security Bank Security Bank Centre, 6776 Ayala 000-498-020 Avenue, Makati City Solid Bank (Metropolitan Metro Bank Plaza, Sen. Gil J. Puyat 000-477-863 Bank & Trust Company) Avenue, Makati City Philippine Banking Metro Bank Plaza, Sen. Gil J. Puyat 000-477-863 Corporation (c/o Avenue, Makati City Metropolitan Bank & Trust Company) East West Bank 20th Floor, PBCom Tower, 6795 Ayala 003-921-057-000 Avenue, Makati City PCI Capital Corporation 20/F Equitable PCIBank Tower I, 320-000-486-027 Makati Avenue cor. H.V. Dela Costa St., Makati City RCBC Capital Corporation 7/F Yuchengco Tower RCBC Plaza, 000-487-961-000 6819 Ayala Avenue, Makati City Further, the BSP had likewise approved the transfer/sale of the aforementioned Non-Performing Loans to GIHI (SPV-AMC) and GSII (SPV-AMC), under the aforementioned COE Nos. BSP041013-00001 and BSP041013-0002, respectively. TEDHaA In the meantime, GIHI is in the process of transferring title over the aforementioned parcels of land (NSC Plant Land Assets) hence, this request for the purpose of securing CAR/s. In reply, please be informed that pursuant to Section 27(D)(5) of the Tax Code of 1997, acquisition of real property treated as capital asset is subject to capital gains tax on the gains presumed to have been realized from said transfer. Consistent with previous BIR rulings, 2 real property treated as capital asset acquired by way of "dation in payment" is deemed subject to capital gains tax or, in case of dation in payment involving ordinary asset, to the creditable withholding tax. However, with the enactment of R.A. No. 9182 (SPV Law), as implemented by Revenue Regulations (Rev. Regs.) No. 6-2004, as amended by Rev. Regs. No. 9-2005, the transfer of property/ies or Non-Performing Assets (NPAs) by way of dacion en pago in favor of the creditor, which could either be a Financial Institution (FI) or an SPV, in satisfaction of a Non-Performing Loan (NPL) is a transaction qualified under the SPV law 3 as exempt from taxes. Likewise, the transfer of NPAs from the FI to an SPV/Individual being in the nature of a "true sale" is a qualified transaction entitled to tax exemptions under the said law. In fine, Section 7(a)(9) of Rev. Regs. No. 6-2004, as amended by Rev. Regs. No. 9-2005, specifically mentions dation in payment ( dacion en pago ) of a Non-Performing Loan (NPL) by a borrower to an SPV as among those transactions contemplated and covered by the SPV law. In connection therewith, Sec 7(d) of same Rev. Regs. No. 6-2004 enumerates the following taxes that a qualified transaction is exempt from under the SPV law, to wit: 1. Documentary stamp tax (DST) on any document evidencing the transfer or dation in payment as may be imposed under Title VII of the NIRC of 1997, the last phrase of Section 173 of the same Code notwithstanding; 2. Capital gains tax (CGT) imposed on the transfer of land and/or building treated as capital asset in the hands of the transferor, as defined under Section 39(A)(1) of the NIRC of 1997; 3. Creditable withholding taxes imposed on the transfer of land and/or building treated as ordinary assets in the hands of the transferor pursuant to Revenue Regulations No. 2-98, as amended; and 4. Value-added tax as may be imposed under Title IV of the NIRC of 1997: Provided , that in case of VAT-exemption and if the property being transferred is a capital good used in the trade or business of a VAT-registered person, the input tax on the said property shall be allocated as follows: the depreciated book value of the property over its acquisition cost, multiplied by the input tax directly attributed to the said property shall not be allowed as input tax to the transferor's other VAT-taxable activities. For this purpose, an NPL refers to loans or receivables, such as mortgage loans, unsecured loans, consumption loans, trade receivables, lease receivables, credit card receivables and all registered and unregistered security and collateral instruments, including but not limited to, real estate mortgages, chattel mortgages, pledges and antichresis whose principal and/or interest has remained unpaid for at least one hundred eighty (180) days after they have become past due or any of the events of default under the loan agreement has occurred, as of June 30, 2002, as certified by the Appropriate Regulatory Authority [Sec. 3(g), RR 6-2004]. Such being the case and on the basis of the aforementioned COEs issued by the BSP that the foregoing obligations are NPLs, the dation in payment thereof executed between the Liquidator of NSC and GIHI (SPV-AMC), and between the Liquidator of NSC and GSII, within the covered period from April 12, 2003 to April 12, 2005 are exempt from the above enumerated taxes. 4 This will therefore serve as the authority and guide for Revenue Region concerned to issue the corresponding Certificate Authorizing Registration (CAR) and/or Tax Clearance Certificate (TCL) on the aforementioned transactions. This ruling is being issued based on the foregoing representations. If it will be discovered after an investigation that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) JOSE MARIO C. BUAG OIC-Commissioner of Internal Revenue Footnotes 1. Certificate of Eligibility (of Non-Performing Assets) was also issued by the SEC to this effect under Control No. 002 in reference to the Non-Performing Loans of the National Steel Corporation with the aforementioned Banks/Financial Institutions. 2. BIR Ruling Nos. DA-459-88 dated September 19, 1988 and DA-049-00 dated January 21, 2000, both citing BIR Ruling No. 123-86 dated July 23, 1986. 3. Sec. 15 of R.A. No. 9178. 4. Sec. 7(c)(4) of Rev. Regs. No. 6-2004, as amended by Rev. Regs. No. 9-2005.