BIR Ruling [DA-475-03]

December 10, 2003 BIR RULING [DA-475-03] 195; 218-90 dated November 22, 1990 Ayala Land, Inc. Tower One, Ayala Triangle Ayala Avenue Makati City Attention: Atty. Sheila Marie L. Uriarte-Tan Senior Division Manager Legal Division Gentlemen : This refers to your letter dated December 16, 2002 stating that Ayala Land, Inc. (ALI) obtained a loan from a financial institution (Lender) and executed a promissory note with real estate mortgage (PN with REM) under the terms of which ALI constituted a mortgage on one of its real estate properties (Property); that the corresponding documentary stamp taxes on the PN with REM in an amount computed at the rate specified under Section 195 of the Tax Code of 1997 had been paid; that the PN with REM allows the substitution of the mortgage constituted therein during the term of the loan subject to a cement of the parties; that while the loan is subsisting, ALI has decided to offer the Property for sale and for said purpose, will be requesting the Lender for a substitution of the Property as collateral under the PN with REM with another real estate property (the Substituted Property); that ALI anticipates that it will obtain the Lender's approval for such substitution since the collateral value of the Substituted Property will be sufficient for the purposes of the loan amount; that for the purpose of effecting such substitution of collateral, ALI will be made to execute an amendment to the PN with REM to amend the definition and description of the mortgaged property and provisions affected thereby; and that however, there will be no change in the aggregate amount secured. In connection therewith, you now request confirmation of your opinion that the execution by ALI and the Lender of an amendment to a PN with REM for the purpose of substituting the collateral constituted therein as security is not subject to another documentary stamp tax imposed under Section 195 of the Tax Code of 1997 as long as there is no change in the aggregate amount secured. In reply thereto, please be informed that this Office has already occasioned to rule on the matter, when it said in BIR Ruling No. 218-90 dated November 22, 1990, that ". . . the documentary stamp tax shall be computed on the amount actually loaned or given at the time of the execution of the chattel mortgage on May 31, 1985 and not on the value of the Seventh Addendum. However, no documentary stamp tax is due on the seven addenda to the mortgage contract, there being no additional amount loaned but only an additional collateral as security to the original loan. The acknowledgment portion of the Seventh Addendum is subject to the P3.00 documentary stamp tax under Section 188 of the same Code." Corollarily, in BIR Ruling UN230-95 dated June 22, 1995, the BIR Ruled that ". . . Section 8 of Revenue Regulations No. 9-94, implementing. Republic Act No. 7660, it is provided that where only one instrument was prepared, made, signed and executed to cover a loan agreement/promissory note, pledge/mortgage, the documentary stamp tax prescribed in Section 195 of the Tax Code, as amended, shall be paid and computed on the full amount of the loan or credit granted and the instrument shall be treated as covering only one taxable transaction subject to the higher documentary stamp tax. Accordingly, . . . the Agreement executed by the PEC and the Lenders and the Sponsors to PEC which consolidate the loan agreements, the pledge, mortgage and other security devices shall be subject to only one documentary stamp tax based on the full amount of the loan, is hereby confirmed. (BIR Ruling No. UN320-94) Likewise, this Office confirms your opinion that any additional addendum to the Agreement for purposes of providing additional security to the Lenders will not be subject to the documentary stamp tax as long as there is no change in the original amount of the loan secured (BIR Ruling No. 218-90; 051-91) IN VIEW OF THE FOREGOING, since the execution of an amendment to the PN with REM by ALI is in all fours similar to the above-cited cases, this Office holds that the PN with REM executed for the purpose of substituting the Property as security for the loan obtained thereunder, but without changing the aggregate amount secured, is not subject to the documentary stamp tax imposed under Section 195 of the Tax Code of 1997. However, the acknowledgment is subject to the P15.00 documentary stamp tax prescribed in Section 188 of the said Code. TcADCI 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 & Inspection Group