SGV & Co.

September 16, 2008 BIR RULING [DA-(C-066) 226-08] 200; 255; DA-063-2008 SGV & Co. 6760 Ayala Avenue Makati City Attention: Atty. Romulo S. Danao, Jr. Partner, Tax Services Gentlemen : This refers to your letter dated June 10, 2008 requesting for a ruling that no penalty be imposed for late filing of creditable withholding tax ("CWT") and documentary stamp tax ("DST") returns, where no tax is due and payable, by member companies of your client, the Star Group of Companies ("Star Group"). It is represented that the member companies of the Star Group are Star Accounts Management Services 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 Assets Management ROPOAS, Inc., Starcredit Phils. Inc., and Onshore Strategic Assets (SPV-AMC) Inc.; that the said member companies function mainly as special purpose vehicle ("SPV")/asset management companies which acquire portfolios of non-performing assets ("NPAs"); and that in those instances where the portfolio of NPAs consists of various real and other properties owned or acquired ("ROPOAs"), these ROPOAs are usually located in different towns and provinces and are under the jurisdiction of various RDOs. It is further represented that some of the member companies of Star Group are formally organized as SPVs under Republic Act No. 9182 (otherwise known as "the SPV Act"). As such, they enjoy exemption from the following taxes: 1. DST on any document evidencing transfer or dation in payment as may be imposed under Title VII of the Tax Code of 1997; 2. Capital gains tax (CGT) on the transfer of land and/or building treated as a capital asset in the hands of the transferor; 3. CWT on the transfer of land and/or building treated as an ordinary asset in the hands of the transferor pursuant to Revenue Regulations No. 2-98, as amended. While the SPVs enjoy exemption from the above taxes, they are still required to file CWT and DST returns, even when there are no taxes due and payable on the transaction, for purposes of securing the necessary TCL/CAR so that title to the property may be transferred to the assignee. DHAcET Ordinary procedures require that the CWT return be filed at the RDO having jurisdiction over the place where the property is located and the DST return be filed at the RDO having jurisdiction over the residence or principal place of business of the taxpayer. However, it is finally represented that given the large number of properties involved in the acquisition of portfolios by each member company and the locations of the properties in different towns and provinces under the jurisdiction of various RDOs, it has been extremely cumbersome and time consuming for the member companies to file the CWT and DST returns at the various RDOs on time; that time, resources and manpower constraints made it difficult, if not impossible, for each member company to meet the deadlines for filing the returns at different RDOs. In view of the foregoing logistical concerns, Star Group is requesting that no penalty be imposed on the late filing of the CWT and DST returns, where no tax is due and payable, by its member companies. In reply, please be informed that Section 255 of the Tax Code of 1997, as amended, provides as follows: "SEC. 255. Failure to File Return, Supply Correct and Accurate Information, Pay Tax, Withhold and Remit Tax and Refund Excess Taxes Withheld on Compensation. Any person required under this Code or by rules and regulations promulgated thereunder to pay any tax, make a return, keep any record, or supply correct and accurate information, who willfully fails to pay such tax, make such return, keep such record, or supply such correct and accurate information, or withhold or remit taxes withheld, or refund excess taxes withheld on compensation, at the time or times required by law or rules and regulations shall, in addition to other penalties provided by law, upon conviction thereof, be punished by a fine of not less than Ten thousand pesos (P10,000) and suffer imprisonment of not less than one (1) year but not more than ten (10) years." Applying the above provision, in case of failure to file and/or pay any internal revenue tax at the time or times required by law or regulation, Annex "A" of Revenue Memorandum Order (RMO) No. 19-07 dated August 8, 2007 provides for the payment of compromise penalty in an amount ranging from P200 to P50,000, depending upon the amount of tax unpaid, with the lowest penalty of P200 applying in case the amount of tax unpaid does not exceed P500. In view of the above provisions, we regret to inform you that your client's request cannot be granted by this Office on the ground that the compromise penalty for not filing the return and paying the tax due, if any, at the time or times required by law or regulations is mandatory. Thus, your client is liable to pay a compromise penalty of P200 for every tax return not filed within the prescribed time even if there is no tax due and payable thereon. This ruling is issued on the basis of the facts as represented. However, if upon investigation it will be ascertained that the facts are different, then this ruling shall be considered as null and void. cCAaHD Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service