BIR Ruling [DA-416-06]

July 5, 2006 BIR RULING [DA-416-06] R.A. 7353; RR 16-93; 119; DA-420-2004 Maharlika Rural Bank, Inc. National Road, Poblacion North Sta. Cruz, Zambales Attention: Ms. Virginia U. Merino President Gentlemen : This refers to your letter which was indorsed by the Chief, Legal Division, Revenue Region No. 4, San Fernando, Pampanga on March 21, 2006 requesting for exemption from the payment of gross receipts, documentary stamp, value-added and capital gains taxes from June 26, 2002 to June 26, 2007, pursuant to Section 15 of Republic Act (RA) No. 7353, otherwise known as the Rural Banks Act of 1992. From the documents submitted it appears that Maharlika Rural Bank, Inc. is registered with the Securities and Exchange Commission (SEC) on February 6, 2002 under SEC Registration No. A200201979; that among its purposes are "to carry and engage in the business of extending rural credit to small farmers and tenants and to deserving rural industries or enterprises; to have and exercise all authority and powers, to do and perform all acts and to transact all business which may legally to had or done by rural banks organized under and in accordance with the New Rural Banks Act, (Republic Act No. 7353) as it exists or may be amended, and to do all other things incident thereto and necessary and proper in connection with said purpose within such territory, as may be determined by the Monetary Board of the Bangko Sentral ng Pilipinas (BSP)"; and that as required under Section 14 of R.A. No. 8791, the Monetary Board issued on August 28, 2001 a Certificate of Authority to enable the bank to register its articles of incorporation with the SEC; In reply, please be informed that Section 15 of Republic Act No. 7353, as implemented by Revenue Regulations No. 16-93, provides, viz: "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." In addition, Section 2(B) of the said Revenue Regulations provides, viz: "SEC. 2. Taxes covered by the Exemption . xxx xxx xxx B. Exemption from gross receipts tax. All rural banks are exempt from the tax (GRT) imposed under Section 119 of the NIRC (now Section 121 of the Tax Code of 1997), on gross receipts from sources within the Philippines." Such being the case, since Maharlika Rural Bank, Inc. is an entity created and organized under R.A. No. 7353, it is entitled to all the exemptions provided in Section 15 of R.A. No. 7353, except the corporate income tax and local taxes, fees and charges. Accordingly, Maharlika Rural Bank, Inc. is exempt from the payment of gross receipts tax imposed on banks and financial institutions pursuant to Section 121 of the Tax Code of 1997, as amended, and from documentary stamp tax for a period of five (5) years reckoned from August 28, 2001. However, Section 173 of the Tax Code of 1997 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." ( BIR Ruling Nos. DA-420-2004 dated August 4, 2004 and DA-425-2003 dated November 21, 2003 ) 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. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service