BIR Ruling [DA-517-05]

December 22, 2005 BIR RULING [DA-517-05] RR 6-2004; RR 9-2005; DA-242-2005; DA-021-2005 Philippine Savings Bank (PSBANK) PSBANK Center, 777 Paseo de Roxas cor. Sedeo Street Makati City Attention: Mr. Amelito B. Chavez Manager Gentlemen : This refers to your letter dated April 25, 2005 requesting a ruling on the tax consequence of the sale of real property by PSBank in favor of Spouses Antonio Jose and Martha Isabel Periquet pursuant to Republic Act No. 9182, otherwise known as the "Special Purpose Vehicle (SPV) Act of 2002" (SPV Law for brevity). Documents submitted disclosed that the real property covered by Transfer Certificate of Title No. 217466 of the Registry of Deeds for the City of Makati is part of the non-performing assets/ROPOA of PSBank; that the said realty was sold by PSBank in favor of Spouses Antonio Jose and Martha Isabel Periquet; and that said sale transaction was issued a Certificate of Eligibility (COE) by the Bangko Sentral ng Pilipinas (BSP) on January 19, 2005. In reply, please be informed that Section 7(a)(6) of Revenue Regulations (RR) No. 6-2004, as amended by RR No. 9-2005, implementing the SPV Law, specifies the transfer of a ROPOA by a financial institution (FI) to an individual as among those transactions covered by the tax exemptions specifically enumerated under Section 7(d) thereof. Thus, under Section 7(d) of RR No. 6-2004, as amended, the sale of a ROPOA by an FI, which is considered as its ordinary asset in accordance with RR No. 7-2003, is exempt from the following taxes. viz.: (1) Documentary stamp tax (DST) imposed under Title VII of the Tax Code of 1997, as amended, the last phrase of Section 173 of said Code notwithstanding; and (2) Creditable withholding tax (CWT) imposed under RR No. 2-98, as amended by RR No. 6-2001. The foregoing tax exemptions shall apply only if the following particular requirements set forth under Sec. 7(c) of RR No. 6-2004, as amended by RR No. 9-2005, are complied, to wit: a) The transfer must be 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: Provided, That, if the NPL/ROPOA is transferred to an SPV/individual for less than an adequate and full consideration in money's worth the amount by which the fair market value of the NPL/ROPOA exceeded the value of the consideration shall not be considered as a gift under Title III, Chapter 2 of the NIRC of 1997. b) The transaction must have occurred within the period from April 17, 2003 to April 12, 2005. Thereafter, the above tax exemptions shall no longer apply. TDCcAE Furthermore, the foregoing exemption shall apply if the following conditions are met, if applicable, to wit: 1) All applicable taxes on the previous transfer of the ROPOA to the FI have been duly paid when taxes became due or are paid thereafter but subject to appropriate increments and penalties. (Sec. 7(C)(5), RR No. 6-2004, as amended.) 2) The transaction shall be limited to a single family residential unit ROPOA. Provided, however, that the tax exemptions shall apply only to the acquisition of Non-Performing Asset (NPA), (in this case, the single family residential unit ROPOA) by an individual and to the subsequent transfer of the same NPA. (Sec. 7(C)(8), RR No. 6-2004, as amended.) 3) The above exemption shall not apply to the transfer of any property in exchange for such ROPOA, unless the same is exempted under a pertinent provision of an existing law. Since the above property sold was part of PSBank's ROPOA and qualified to avail of the incentives provided under the SPV Law, the transfer thereof to Spouses Antonio Jose and Martha Isabel Periquet shall be exempt from the payment of DST and CWT. This will serve as the authority for the Revenue District Officer concerned to issue the corresponding Certificate Authorizing Registration (CAR) on the aforementioned transaction. 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 as null and void. CDHacE Very truly yours, (SGD.) JOSE MARIO C. BUAG Commissioner of Internal Revenue