BIR Ruling [DA-437-05]

October 21, 2005 BIR RULING [DA-437-05] Mr. Roberto B. Tan Undersecretary Department of Finance 5th Floor Department of Finance Building Roxas Boulevard cor. Pablo Ocampo, Sr. Street Manila 1004 S i r : This has reference to your letter dated August 10, 2005 requesting for deferment of payment of documentary stamp tax arising from the loan agreement concluded by the Republic of the Philippines through the Department of Finance with Deutsche Bank AG London. It is represented that the Republic of the Philippines through the Department of Finance concluded a loan with Deutsche Bank AG London supported by the Export Credits Guarantee Department (ECGD) of the UK Government amounting to JP19,576,625,200. The loan agreement was signed on 03 August 2005 by DOF Secretary Margarito Teves on behalf of the Republic. The loan intends to finance the foreign cost component of the Tulay ng Pangulo sa Kaunlaran Bridges for Progress, Phase I Project of the Department of Public Works and Highways (DPWH).The project will entail the construction of 17 two-lane flyovers, 14 long span bridges and 16 compact bridges along congested national highways in urban centers and the Strong Republic Nautical Highway (SRNH). As you are now facilitating compliance with the conditions precedent to make the loan effective and effect subsequent loan disbursement, you are requesting BIR to issue a certificate as required under Clause 5.3.5 of the loan agreement with Deaths Bank AG London (the "Banker") that the execution and implementation of the loan agreement shall be at no cost to the Banker with respect to income, withholding, documentary stamp and other taxes that may be imposed by the Republic. In reply, please be informed that Section 180 of the Tax Code of 1997 provides, viz: "SEC. 180. Stamp Tax on All Bonds, Loan Agreements, Promissory Notes, Bills of Exchange, Drafts, Instruments and Securities Issued by the Government or Any of its Instrumentalities, Deposit Substitute Debt Instruments, Certificates of Deposits Bearing Interest and Others Not Payable on Sight or Demand . On all bonds, loan agreements, including those signed abroad, wherein the object of the contract is located or used in the Philippines, bills of exchange (between points within the Philippines),drafts, instruments and securities issued by the Government or any of its instrumentalities, deposit substitute debt instruments, certificate of deposits drawing interest, orders for the payment of any sum of money otherwise than at sight or on demand, on all promissory notes, whether negotiable or non-negotiable, except bank notes issued for circulation, and on each renewal of any such note, there shall be collected a documentary stamp tax of Thirty centavos (P0.30) on each Two hundred pesos (P200),or fractional part thereof, of the face value of any such agreement, bill of exchange, draft, certificate of deposit, or note: Provided ,That only one documentary stamp tax shall be imposed on either loan agreement, or promissory notes issued to secure such loan, whichever will yield a higher tax: Provided, however ,That loan agreements or promissory notes the aggregate of which does not exceed Two hundred fifty thousand pesos (P250,000) executed by an individual for his purchase on installment for his personal use or that of his family and not for business, resale, barter or hire of a house, lot, motor vehicle, appliance or furniture shall be exempt from the payment of the documentary stamp tax provided under this Section." AaSTIH The aforequoted provision covers all types of loan agreements and definitely subjects the aforestated transaction to the imposition of documentary stamp tax. As a basic principle of taxation, exemption from taxes is strictly construed against the person claiming it and in the absence of any provision of law providing for exemption, a particular transaction or subject cannot be exempted thereto. While Section 199 of the same Code provides for exemption from the imposition of documentary stamp tax, the Loan and Facility Agreement is not included among the exemptions, not even qualified irrespective of whoever are the parties to it. Inasmuch as the borrower Republic of the Philippines, through the Department of Finance, concurs with the provision of the Loan Agreement under Clause 5.3.5 which provides that the execution and implementation of the Agreement shall be at no cost to the Banker with respect to income, withholding, documentary stamp and other taxes that may be imposed by the Republic, it is tantamount to contractually accepting the burden of paying the taxes supposed to be imposed on the income earner, i.e. the Banker in this instance, on the basis of which the Banker can demand compliance from the borrower. Your request for deferment of documentary stamp tax payment is hereby granted but subject to the imposition of the civil penalties (surcharge) of 25%, and interest of 20% from due date of the tax to actual payment pursuant to Sec. 248 and Sec. 249 of the Tax Code of 1997, respectively. (BIR Ruling No. 049-2000 dated October 23, 2000) Very truly yours, (SGD.) JOSE MARIO C. BUAG OIC-Commissioner of Internal Revenue