BIR Ruling [DA-483-05]

November 25, 2005 BIR RULING [DA-483-05] RA 9182; RR-6-2004, as amended by RR 9-2005; DA 407-2005 Philippine Investment Two (SPV-AMC), Inc . Unit 1615-1616 Exchange Tower I Ayala Triangle, Ayala Avenue Makati City Attention: Norman H. Macasaet Director Gentlemen : This refers to your letter dated November 18, 2005 requesting for confirmation that "1. The transfer by SPV 2 of ROPOAs to third parties is exempt from capital gains tax, documentary stamp tax, creditable withholding income tax and value-added tax, provided that SPV 2 acquired such ROPOAs from the selling FIs, within two years from the date of effectivity of the Implementing Rules and Regulations of the SPV Act (the "SPV Rules") or until April 12, 2005, and provided further, that the transfer of the ROPOAs from SPV 2 to the third party transferee occurs within five (5) years from the date of such acquisition by SPV 2 from the FI; and "2. The transfer of ROPOAs by SPV 2 as above described is likewise not subject to donor's tax." It is represented that Philippine Investment Two (SPV-AMC), Inc. ("SPV 2") is a special purpose vehicle created pursuant to the provisions of Republic Act (RA) no. 9182, otherwise known as Special Purpose Vehicle Act of 2002 ("SPV Act"). In accordance with SPV Act, SPV 2 acquired various ROPOAs from financial institutions (FIs), and now desires to transfer these ROPOAs to third parties. We reply as follows: 1. Please be informed that pursuant to Section 27(D)(5) of the Tax Code of 1997, acquisition of real property treated as capital asset is subject to capital gains tax on the gains presumed to have been realized from said transfer. However, with the enactment of the transfer of a ROPOA by an SPV to a third-party is among the enumerated transactions qualified under SPV Act 1 as exempt from taxes. Section 7(d) in relation to Item (a)(8) thereof, both of Rev. Regs. No. 6-2004, as amended by Rev. Regs. No. 9-2005, enumerates the following taxes that a qualified transaction is exempt from under the SPV Act, to wit: (a) Documentary stamp tax (DST) on any document evidencing the transfer or dation in payment as may be imposed under Title VII of the NIRC of 1997, the last phrase of Section 173 of the same Code notwithstanding; (b) Capital gains tax (CGT) imposed on the transfer of lands and/or building treated as capital asset in the hands of the transferor, as defined in Section 39(A)(1) of the NIRC of 1997; (c) Creditable withholding income taxes imposed on the transfer of land and/or buildings treated as ordinary assets in the hands of the transferor pursuant to Revenue Regulations No. 2-98, as amended: Provided, That this shall not include exemption from income tax under Title II of the NIRC of 1997. The transfer by an FI or by an SPV of its NPA which is treated as ordinary asset shall continue to be subject to the ordinary income tax or minimum corporate income tax, as the case may be, under pertinent provisions of the NIRC of 1997; and (d) Value-added tax as may be imposed under Title IV of the NIRC of 1997: Provided, that in the case of VAT-exemption and if the property being transferred is a capital good used in the trade or business of a VAT-registered person, the input tax on the said property shall be allocated as follows: the depreciated book value of the property over its acquisition cost, multiplied by the input tax directly attributed to the said property shall not be allowed as input tax to the transferor's other VAT-taxable activities. cACEaI Paragraph (c)(3) of said Section 7 further provides that " in the case of transactions (a)(7), (a)(8), (a)(11) and (a)(12) above, the NPL/ROPOA must have been acquired by the SPV or Individual from an FI within the period from April 12, 2003 April 12, 2005, 2 in the nature of, and approved by the Appropriate Regulatory Authority as, a "true sale", pursuant to the Act and its implementing rules and regulations; and that the transaction must have occurred within the period within the period of five (5) years from the date of said acquisition. Thereafter, the tax exemptions provided in paragraph (d) hereof shall no longer apply ." The foregoing rules are consistent with Rule 15 of SPV Act, which provides: "Tax Exemptions and Fee Privileges (a) Transaction Covered Only the following transactions shall be exempt from the payment of taxes and reduction of fees , as provided in Section 15 of Article IV of the Act and Section (d) and (e) of this Rule: xxx xxx xxx (8) The transfer of the ROPOA by the SPV to a third party ; xxx xxx xxx (b) Provided, That these tax exemptions and reduction of fees shall apply only if all of the following requirements are complied with: (1) The NPA has been certified by the Appropriate Regulatory Authority as an NPL or ROPOA as of June 30, 2002: Provided, That for tax purposes, a property shall be deemed acquired after the lapse of the redemption period in cases where such period still exists. (2) All transfer taxes and registration fees have been paid or subsequently paid upon assessment on ROPOAs whose redemption period has lapsed as of June 30, 2002, where legal title has not been transferred in the name of the FI; (3) The properties acquired by an SPV from the GFIs or GOCCs which are devoted to socialized or low-cost housing shall not be converted to other uses. (c) Provided, further, That these tax exemptions and reductions and reduction of fees shall apply only if the following particular requirements, where applicable are complied with: xxx xxx xxx." 2. The transfer of ROPOAs by SPV 2 as above described is likewise not subject to donor's tax. SPV Rule 15 provides that in case of (a) transfer of the NPL by the FI to an SPV; (b) transfer of the ROPOA by the FI to an SPV; (c) transfer of the NPL by the FI to an individual; and (d) transfer of the ROPOA by the FI to an individual, when the NPA of the FI is transferred to the SPV or an individual for less than an adequate and full consideration in money's worth, then the amount by which the fair market value of the property exceeded the value of the consideration shall not be considered as a gift under Title III, Chapter 2 of Republic Act No. 8424 (the "Tax Code"). HCTDIS Accordingly, if SPV 2 acquired a ROPOA from an FI for a consideration which is less than the book value of such ROPOA, the above SPV Rule provides that the same shall not be subject to donor's tax. If SPV 2 subsequently sells that ROPOA at a price which is more than its acquisition cost, but less than the book value thereof in the books of the FI, the difference between such book value and the selling price of SPV 2 should likewise not be considered as a gift under the Tax Code and hence, not subject to donor's tax. This ruling is being issued on 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 Footnotes 1. Sec. 15 of R.A. 9182 as implemented by Section 7(8) of Revenue Regulations (Rev. Regs.) No. 06-04, as amended by Rev. Regs. No. 9-2005. 2. For purposes of Tax Exemption, the 2-year period of availment, originally, from March 19, 2003 to March 19, 2005, was amended by Rev. Regs. No. 9-2005.