SGV & Co.

August 8, 2008 BIR RULING [DA-(C-035) 127-08] SGV & Co. 6760 Ayala Avenue Makati City Attention: Atty. Romulo S. Danao, Jr. Partner, Tax Services Gentlemen : This refers to your letter dated April 23, 2008 stating that your clients, Star Accounts Management Services, Inc., Star Two Holdings, Inc., Star (SPV-AMC) Philippines, Inc., Star Two (SPV-AMC), Inc., Star Three (SPV-AMC), Inc., Star Properties (SPV-AMC) Philippines, Inc., Star Asset Management NPL, Inc., Star Asset Management ROPOAS, Inc., Starcredit Phils., Inc., and Onshore Strategic Assets (SPV-AMC), Inc. are member companies of the Star Group; that to partly fund their operations, the said member companies of Star Group have received loans and advances from their affiliate, Standard Bank Plc (SBP); and that these loans and advances are covered by inter-office memoranda. TEAaDC Based on the foregoing representations, you now request for confirmation of your opinion that the inter-company loans and advances made to member companies of the Star Group, which are covered by inter-office memoranda, are not subject to documentary stamp tax (DST) imposed under Section 179 of the Tax Code of 1997, as amended. In reply thereto, please be informed that Section 179 of the Tax Code of 1997 provides that "SEC. 179. Stamp Tax on All Debt Instruments . On every original issue of debt instruments, there shall be collected a documentary stamp tax of One peso (P1.00) on each Two hundred pesos (P200), or fractional part thereof, if the issue price of any such debt instruments: Provided, That for such debt instruments with terms of less than one (1) year, the documentary stamp tax to be collected shall be of a proportional amount in accordance with the ratio of its term in number of days to three hundred sixty-five (365) days: Provided, further, That only one documentary stamp shall be imposed on either loan agreement, or promissory notes issued to secure such loan. For purposes of this Section, the term debt instrument shall mean instruments representing borrowing and lending transactions including but not limited to debentures, certificates of indebtedness, due bills, bonds, loan agreements, including those signed abroad wherein the object of contract is located or used in the Philippines, instruments and securities issued by the government or any of its instrumentalities, deposit substitute debt instruments, certificates or other evidences of deposits that are either drawing interest significantly higher than the regular savings deposit taking into consideration the size of the deposit and the risk involved or drawing interest and having a specific maturity date, orders for payment of any sum of money otherwise than at sight or on demand, promissory notes, whether negotiable or non-negotiable, except bank notes issued for circulation." A careful scrutiny of the above definition shows that there is no mention of inter-company memorandum evidencing inter-company loans and advances. Thus, inter-company loans and advances covered by inter-office memoranda are not subject to DST. This is fortified in BIR Ruling No. 116-98 dated July 30, 1998, where it was held that "Such being the case, said inter-office memo evidencing the lending/borrowings which is neither a form of promissory note nor a certificate of indebtedness issued by the corporation-affiliate or a certificate of obligation, which are, more or less, categorized as 'securities', is not subject to documentary stamp tax imposed under Sections 180 [now Section 179], 174 and 176 of the Tax Code of 1997, respectively. Rather, the inter-office memo is being prepared for accounting purposes only in order to avoid the co-mingling of funds of the corporate affiliates." This Office justified its ruling with the following ratiocination in Commissioner of Internal Revenue vs. APC Group, Inc., CA-G.R. SP No. 69869 dated November 29, 2002, with the CA holding that: "In fine, both rulings are interpretative of Section 180 [now Section 179] of NIRC. However, a careful perusal of Section 180 reveals that BIR RulingNo.116-98 is more in accordance with the law than BIR Ruling No. 108-99. As correctly pointed out by the Court of Tax Appeals, what the law seeks to tax are merely loan agreements, promissory notes, bills of exchange, drafts, instruments and securities issued by the government or any of its instrumentalities or certificates of deposits drawing interest and others not payable on sight or demand. Clearly, board resolutions and cash vouchers were not included in the list." ITHADC Later, this Office reiterated its stance in BIR Ruling No. DA016-2008 dated January 17, 2008, where it was ruled that ". . . the inter-company advance transaction by Toyo and CCT, both joint venture partners to the CCT-Toyo Consortium are documented by mere inter-office memo and/or bank transfer forms. Since there is no loan agreement and since such cash advances are made part of their undertaking under the consortium agreement, such cash advances shall not be subject to documentary stamp tax under Section 179 of the Tax Code, as amended." SUCH BEING THE CASE, this Office hereby confirms your opinion that inter-company loans and advances covered by inter-office memoranda are not subject to DST prescribed under Section 179 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. Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service