BIR Ruling [DA-420-04]

August 4, 2004 BIR RULING [DA-420-04] RA 7353; DA 026-04 Punongbayan & Araullo 20th Floor, Tower 1 The Enterprise Center 6766 Ayala Avenue Makati City Attention: Atty. Benedicta Du-Baladad Tax Partner Gentlemen : This refers to your letter dated July 13, 2004 requesting on behalf of your client, One Network Rural Bank, Inc., for confirmation of your opinion that it is exempt from the payment of all taxes, fees and charges of whatever nature and description, such as gross receipts tax and documentary stamp tax, for a period of five (5) years pursuant to Section 15 of Republic Act (R.A.) No. 7353, otherwise known as the Rural Banks Act of 1992. It is represented that One Network Rural Bank, Inc. is registered with the Securities and Exchange Commission (SEC) on March 12, 2004; that among its purposes are "to engage in the business of extending rural credit to small farmers and tenants and to deserving rural industries, to do and perform all acts and to transact and conduct all business which may legally be had or done by rural banks under and in accordance with the Rural Banks Act, 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)"; that as required under Section 14 of R.A. No. 8791, the Monetary Board issued on February 26, 2004 a Certificate of Authority to enable the bank to register its articles of incorporation with the SEC; that the BSP, likewise, issued on March 23, 2004, a Certificate of Authority authorizing One Network Rural Bank, Inc. to operate as a rural bank pursuant to R.A. No. 7353 and by virtue of Monetary Board Resolution No. 1865 dated December 22, 2003; that the registration of One Network Rural Bank, Inc. was the result of the consolidation of Network Rural Bank, Inc., Rural Bank of Panabo (Davao), Inc. and Provident Rural Bank of Cotabato, Inc., all domestic companies authorized to engage in the business of banking under R.A. No. 7353; and that the consolidation is evidenced by a Plan of Consolidation executed on May 28, 2003 and of an Agreement and Articles of Consolidation executed on September 5, 2003 whereby these constituent banks agreed to consolidate into a single corporation, called One Network Rural Bank, Inc. In reply thereto, please be informed that Section 15 of R.A. No. 7353, as implemented by Revenue Regulations No. 16-93 provides that "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." Corollarily, Section 2(B) of Revenue Regulations No. 16-93 provides that all rural banks are exempt from the tax (GRT) imposed under Section 119 of the NIRC, on gross receipts derived from sources within the Philippines. EHDCAI SUCH BEING THE CASE, since One Network Rural Bank, Inc. is an entity created and organized under R.A. No. 7353 which was issued a Certificate of Incorporation by the SEC on March 12, 2004 and a Certificate of Authority by the BSP on March 23, 2004 to operate as a rural bank, it is entitled to all the exemptions provided in Section 15 of R.A. No. 7353. Accordingly, One Network Rural Bank, Inc. is exempt from the payment of gross receipts tax under Section 121 of the Tax Code of 1997 and from the documentary stamp tax due on the sale, exchange or disposition of acquired property through mortgage foreclosure sale as was held in BIR Ruling No. 069-99 dated May 18, 1999 for a period of five (5) years reckoned from March 23, 2004. ( BIR Ruling No. DA026-04 dated January 16, 2004 ) 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, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group