Opal Portfolio Investments, (SPV-AMC), Inc.

December 12, 2007 BIR RULING [DA-641-07] 109 (E) & (U); 122; 005-2007 Opal Portfolio Investments, (SPV-AMC), Inc. All Seasons Building, 112 Aguirre Street Legazpi Village, Makati City Attention: Ms. Ida C. Tiongson General Manager Gentlemen : This refers to your letter dated August 29, 2007 requesting confirmation of your opinion that Opal Portfolio Investments (SPV-AMC), Inc. ["Opal"] is subject to gross receipt tax (GRT) under Section 122 of the Tax Code of 1997, as amended, in lieu of the value-added tax (VAT) under Title IV of the same Code on transactions [ e.g. sale of non-performing loans (NPLs) and non-performing assets (NPAs) acquired from banks] not qualified or covered by the tax exemption provisions of Republic Act (R.A.) No. 9182, as amended by R.A. No. 9343, and implemented by Revenue Regulations (RR) No. 6-2004, RR No. 9-2005 and Revenue Memorandum Circular (RMC) No. 44-2006. It is represented that Opal is a domestic corporation organized as a special purpose vehicle pursuant to R.A. No. 9182, otherwise known as "The Special Purpose Vehicle (SPV) Act of 2002." Its primary and secondary purposes are: Primary Purpose To invest in, or acquire Non-performing Assets (NPAs) of Financial Institutions (FIs) consisting of (i) Non-Performing Loans (NPLs) and (ii) subject to compliance with the requirements under the laws of the Philippines for the acquisition of land, Real and Other Properties Owned and Acquired (ROPOA), as defined under R.A. 9182. Secondary Purpose 1. To engage third parties to manage, operate, collect and dispose of NPAs acquired from an FI; 2. To rent, lease, hire, pledge, mortgage, transfer, sell, exchange, usufruct, secure, securitize, collect rents and profits, and other similar acts concerning its NPAs acquired from FIs; IcTaAH 3. In case of non-performing loans (NPLs), to restructure debt, condone debt and undertake other restructuring related activities. In restructuring the debt, the SPV may reduce the principal, interest, interest rates, and the period for calculating the interest, extend the time for debt repayment or relax the conditions for debt repayment, agree to the conversion of the borrower's debt to equity in the borrower's business, agree to a transfer of assets or claims from the borrower to repay the debt or dispose of some of the borrower's property or claims to third parties; 4. To take, transfer shares or buy shares issued by the borrower, for the purpose of business reorganization or rehabilitation of the borrower, subject to the provisions of the Corporation Code in respect of the rights of the stockholders of the borrower company, and apply any other measures or restructuring techniques with the approval of the Commission; 5. To enter into dation in payment (dacion en pago) arrangements, foreclose judicially or extra-judicially and other forms of debt settlement involving non-performing loans (NPLs); 6. To spend funds to renovate, improve, complete or alter its NPAs acquired from an FI; 7. To issue equity or participation certificates or other forms of investment unit instruments (IUIs) for the purpose of acquiring, managing, improving, and disposing of its NPAs acquired from an FI; 8. To borrow money and issue other instruments of indebtedness for the purpose of paying operational and administrative costs; 9. To guarantee credit, accept or intervene for honor the bills of the borrowers; 10. To advance funds to borrowers where required by an acquired asset or any debt restructuring agreement pursuant thereto, or under any court order or rehabilitation plan; and ITESAc 11. To entrust to third parties asset servicing company, the collection and receipt of the debt payments for debts under restructuring or business reorganization, management and disposition of assets of the SPV in accordance with the rules, procedures and conditions prescribed by the Commission or by the courts. Except in the case of real or other properties owned or acquired (ROPOAs) whose redemption periods have already expired, the SPV shall notify the borrower and all persons holding prior encumbrances upon the properties or a part thereof or are actually holding the same adversely to the borrower within fifteen (15) days from the date of the appointment of the said collection agent. In reply, please be informed that in BIR Ruling No. 005-2007 dated February 22, 2007, the Bureau had the occasion to rule that for tax purposes, an SPV shall be treated as an Other Non-Bank Financial Intermediary performing activities similar to a financing company. In view of the foregoing, given that Opal's main activity being an SPV, is to invest in and acquire non-performing assets (NPAs) and non-performing loans (NPLs) of financial institutions (FIs), Opal's activities, therefore, are deemed akin to the principal activities of non-bank financial institutions, particularly that of financing companies which are primarily organized for the purpose of extending credit by discounting or factoring commercial papers or account receivables, or by buying and selling contracts and other evidence of indebtedness. Thus, with regard to its business tax liability arising from its above-enumerated transactions, Opal, therefore, is subject to the GRT imposed under Section 122 of the Tax Code of 1997, as amended, on transactions not qualified or covered by the tax exemption provisions of R.A. No. 9182, as amended by R.A. No. 9343. Consequently, Opal is exempt from VAT pursuant to Section 109 (E) and (U) of the same Tax Code. 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. IaAEHD Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service