BIR Ruling [DA-421-04]

August 4, 2004 BIR RULING [DA-421-04] Sec. 2 (e); RR 17-84; DA-310-98 Bangko Sentral ng Pilipinas Office of the Deputy Governor Supervision and Examination Section 1004 Manila Attention: Mr. Alberto V. Reyes Deputy Governor Gentlemen : This refers to your letter dated March 25, 2003 requesting in behalf of Mr. Jerry B. Coloma, Jr., President of the Rural Bankers Association of the Philippines (RBAP) for a clarification that bills payable in the books of rural banks are not deposit substitutes but book entries representing obligations of rural banks to BSP. It is represented that the Updated Manual of Accounts for Rural/Cooperative Bank defines Bills Payable BSP, as follows: "This represents obligations of the bank arising from availments of rediscounting facilities and other borrowings from the BSP. Excluded from this account are borrowings incurred from sale of CBCIs (Central Bank Certificate of Indebtedness) and other government securities covered by repurchase agreements with the Bangko Sentral"; that the Manual of Accounts for Commercial Banks and Expanded Commercial Bank defines Bills Payable Deposit Substitutes as "all types of money market borrowings of the bank"; and that said borrowings provide an alternative form of obtaining funds from the public, other than deposits, through the issuance, endorsement, or acceptance of debt instruments for the borrower's own account, for the purpose of relending or purchasing of receivables and other obligations. In reply, please be informed that Section 2(e) of Revenue Regulations No. 17-84 dated October 12, 1984 provides: "In line with the foregoing definitions, the following borrowings shall be considered as deposit substitutes: (a) . . . "(e) All borrowings of thrift banks and rural banks through the credit facilities of the Central Bank of the Philippines, Philippines National Bank, Development Bank of the Philippines, Government Service Insurance System, and the Social Security System, as evidenced by deposit substitute instruments." Based on the foregoing, it is the opinion of this Office, that Bills Payable-BSP insofar as rural banks are concerned are not considered as deposit substitutes since they only represent obligations of the bank arising from availments of rediscounting facilities and other borrowings from the BSP. 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. cSIADa Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group