Universal Storefront Services Corporation

December 14, 2007 BIR RULING [DA-649-07] DA 197-00 Universal Storefront Services Corporation 8th Floor, RCPI Building 711 EDSA corner New York Street Cubao, Quezon City Attention: Mr. Reynaldo A. Go Chief Finance Officer & Executive Vice-President Gentlemen : This refers to your letter dated July 11, 2007 stating that Universal Storefront Services Corporation (USSC) is engaged in the money transfer business as an agent of Western Union; that USSC and Western Union executed an International Representation Agreement under which USSC, as an agent, has to provide, among others, Western Union branded money transfer services in the Philippines; that USSC maintains numerous branch offices all over the Philippines; that a customer may claim from any branch, funds sent from abroad through Western Union; that a customer may also send money within and outside the Philippines through Western Union; that the funds sent to the Philippines from abroad are sent by Western Union customers who are non-resident individuals, either aliens or Filipino citizens, whose income are derived from sources outside the Philippines; that Western Union remits to USSC the money sent from abroad net of the money sent from the Philippines through the banking system; that the remittance is done through telegraphic transfer from Western Union's account maintained in a foreign-based international bank to USSC's account maintained in a Philippine based local bank. Based on the foregoing representations, you now request for an opinion as to whether or not the transfer of funds from Western Union's account, which is comprised entirely of money sent by customers from abroad, and maintained in a foreign-based international bank, to USSC's local bank account does not give rise to any documentary stamp tax (DST). DcITaC In reply thereto, please be informed that Section 182 of the Tax Code of 1997, as amended, provides that "Sec. 182. Stamp Tax on Foreign Bills of Exchange and Letters of Credit . On all foreign bills of exchange and letters of credit (including orders, by telegraph or otherwise, for the payment of money issued by express or steamship companies or by any person or persons) drawn in but payable out of the Philippines in a set of three or more according to the custom of merchants and bankers, 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 bill or exchange or letter of credit, or the Philippine equivalent of such face value, if expressed in foreign currency." Corollarily, Section 51 of Regulations No. 26 defines telegraphic transfer as follows "If a local bank cables to a certain bank in a foreign country with which bank said local bank has a credit, and directs that foreign bank to pay another bank or person in the same locality a certain sum of money, the document for and in respect of such transaction will be regarded as a telegraphic transfer, taxable under the provisions of Section 1449(i) of the Administrative Code." HAaDTI The material element, which gives rise to liability for DST, is the order for payment or transfer of funds, and not the underlying agreement which led to said payment being made. This transmission is characterized as a telegraphic transfer for which DST is imposed. In essence, the payment of DST is required on the order/cable executing or implementing a prior agreement and not on the document embodying said agreement. Thus, DST applies only upon the execution stage, when an order is given to cover the forward transaction or to cover the spot sale of foreign exchange. SUCH BEING THE CASE, this Office holds that transfer of funds from Western Union's account to USSC's local bank account which said transmission is characterized as a telegraphic transfer is subject to DST imposed in Section 182 of the Tax Code of 1997. 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. AIaDcH Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service