Jabla Borja Cabrera Olalia Retoriano Tan Law Offices

December 19, 2007 BIR RULING [DA-669-07] 27 (D) (5); RR 9-2005 Jabla Borja Cabrera Olalia Retoriano Tan Law Offices Suite 906 Richmonde Plaza San Miguel Avenue cor. Lourdes Road Ortigas Center, Pasig City Attention: Atty. Celestino Gerald Cabrera Partner Gentlemen : This refers to your letter dated December 18, 2007 requesting exemption from the payment of capital gains tax and documentary stamp tax and value added tax in favor of Onshore Stategic Assets (SPV-AMC), Inc. (OSAI) pursuant to Rule 15 of Republic Act No. 9182, otherwise known as the "Special Purpose Vehicle (SPV) Act of 2002." It is represented that Onshore Strategic Assets, Inc. is a duly organized and qualified special purpose vehicle under the SPV Act of 2002, as amended; that last January 30, 2006, OSAI acquired from United Overseas Bank Philippines (UOBP), a Financial Institution, under the SPV Act, various Non-Performing Assets (NPAs ) consisting of Non-Performing Loans (NPL) and Real and Other Properties Owned or Acquired (ROPOAs); that among the NPAs acquired by OSAI from UOBP is the account of AIC Realty Corporation; that OSAI obtained a favorable opinion dated November 29, 2007 from the SEC-Office of the General Accountant which affirmed the eligibility of the OSAI SPV to operate as a special purpose vehicle under the SPV Act; and that it was likewise noted in the said opinion that a Certificate of Eligibility from the BSP is no longer needed since all the taxes and fees for the transfer of the assets from UOBP to OSAI have already been paid. In reply, 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. Consistent with previous BIR rulings, real property treated as capital asset acquired by way of "dation in payment" is deemed subject to capital gains tax or, in case of dation in payment involving ordinary asset, to creditable withholding tax. However, with the enactment of Republic Act (RA) No. 9182 (SPV Law), as implemented by Revenue Regulations No. 6-2004 and Revenue Regulations No. 9-2005, and further amended by RA 9343 as circularized by Revenue Memorandum Circular No. 44-2006, transactions involving transfers of property by way of dacion en pago, as well as those transfers qualified under the SPV law have been granted tax exemptions. Section 7 (a) (4) of Rev. Regs. No. 6-2004, as amended by Rev. Regs. No. 9-2005, specifies dation in payment (dacion en pago) of a Non-Performing Loan (NPL) by a borrower to a Financial Institution (FI) as among those covered by the SPV law, although subject to certain conditions. Section 2 of RA 9343, amending Sec. 15, RA 9182, and as circularized by RMC No. 44-2006 provides, viz .: "SEC. 15. Tax Exemptions and Fee Privileges. Any existing law to the contrary notwithstanding, the transfer of NPA's from the FI to an SPV, and from an SPV to a third party or dation in payment (dacion en pago) by the borrower or by a third party in favor of an FI or in favor of an SPV shall be exempt from the following taxes: "(a) Documentary stamp tax on the abovementioned transfer of NPAs and dation in payment (dacion en pago) as may be imposed under Title VII of the National Internal Revenue Code of 1997. (b) Capital gains tax imposed on the transfer of lands and/or other assets treated as capital assets as defined under Section 39 (A) (1) of the National Internal Revenue Code of 1997; (c) Creditable withholding income taxes imposed on the transfer of land and/or buildings treated as ordinary assets pursuant to Revenue Regulations No. 2-98, as amended; (d) Value-added tax on the transfer of NPAs as may be imposed under Title IV of the National Internal Revenue Code, whichever is applicable." NPL refers to loans or receivables, such as mortgage loans, unsecured loans, consumption loans, trade receivables, lease receivables, credit card receivables and all registered and unregistered security and collateral instruments, including but not limited to, real estate mortgages, chattel mortgages, pledges and antichresis whose principal and/or interest has remained unpaid for at least one hundred eighty (180) days after they have become past due or any of the events of default under the loan agreement has occurred, as of June 30, 2002, as certified by the Appropriate Regulatory Authority (Sec. 3 (g), Rev. Regs. No. 6-2004, as amended by Rev. Regs. No. 9-2005) Sec. 7 (C) (2) of the said SPV regulations provides that in order for the dation to be entitled to tax exemption, the transaction must have occurred within the period from April 12, 2003 to April 12, 2005, as amended by Republic Act No. 9343 extending the same within eighteen months from the date of the amendatory act (RA 9343) which is May 14, 2006. Thus, all sales or transfers of NPAs from the FIs to an SPV or transfers by way of dation in payment (dacion en pago) by the borrower or by a third party to the FI shall be entitled to the privileges enumerated under the law for a period of not more than two (2) years from May 14, 2006. From the foregoing, as long as the appropriate COE issued by the SEC is presented with the BIR pertaining to the transfer of the AIC Account from OSAI to the buying third party, OSAI shall be exempt from the above-enumerated applicable internal revenue taxes, i.e. capital gains tax, documentary stamp tax and value-added tax. This will therefore serve as the authority and guide to issue the corresponding Certificate Authorizing Registration (CAR) and/or Tax Clearance Certificate (TCL) in the aforementioned transactions. This ruling is being issued based on the foregoing representations. If it will be discovered after an investigation 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