Go and Lim Law Offices

August 10, 2009 BIR RULING [DA-(C-172) 449-09] 27 (D) (5); 198; DA-288-2004; DA-412-2003 Go and Lim Law Offices Unit 10-F, Burgundy Corporate Tower No. 252, Sen. Gil J. Puyat Avenue Makati City Attention: Atty. Mark Anthony P. Lim For the Firm Gentlemen : This refers to your letter dated February 19, 2007 which was indorsed by Revenue Region No. 8, Makati City, requesting on behalf of your client, Standard Chartered Bank, for a ruling that no capital gains tax and documentary stamp tax are due on the assignment of rights and credit under a Deed of Assignment (Dacion en Pago) between your client and Integrated Credit and Corporate Services (ICCS) and that only one transfer of ownership is involved between Spouses Vicente and Ma. Fita Guzman and ICCS. TADCSE From the documents submitted, in particular, the Credit Line Agreement dated April 16, 2007, Standard Chartered Bank (the "Bank") extended a credit and banking facilities in the form of a revolving credit line facility/mortgaged amortized loan in the amount of USD404,000 to Spouses Vicente and Ma. Fita Guzman. Together with the execution of the Credit Line Agreement, A Real Estate Mortgage was also executed mortgaging parcels of land, together with the improvements existing thereon, covered by TCT Nos. 206465 and 118414 (Properties). When the above-mentioned facility became due and demandable with an outstanding and unpaid obligation of USD421,539.87 as of May 14, 2000, a Deed of Assignment (Dacion en Pago) was executed on June 14, 2000 among Spouses Vicente and Ma. Fita Guzman (Transferor/Debtor), Standard Chartered Bank and Integrated Credit and Corporate Services (Transferee) whereby the Bank proposed to assign unto the Transferee, in a manner absolute and irrevocable, all its rights, title and interests in the loan and credit facilities together with the real estate mortgage executed by the Transferor/Debtor. Likewise, the Transferor/Debtor proposed to cede, transfer and convey to the Transferee the properties under the mortgage in partial payment of its loan obligations. CDAHaE In view thereof, you now ask for a ruling that the assignment of rights and credit by the Bank in favor of Transferee is not subject to capital gains tax and documentary stamp tax and that the transfer of the said Properties from the Transferor to the Transferee involves only one transfer of ownership. In reply, please be informed that the assignment of rights and credit over the mortgaged Properties of Standard Chartered Bank as the mortgagee-bank in favor of ICCS is not subject to the capital gains tax imposed under Section 27 (D) (5) of the Tax Code of 1997, as amended, since in this case, ICCS, as the assignee, in effect became the creditor of the Spouses Vicente and Ma. Fita Guzman, thereby merely steps into the shoes of Standard Chartered Bank as the one having the right as creditor-mortgagee to exercise the right to enforce the fulfillment of the obligation over the aforesaid mortgaged Properties, aside from the fact that there is no transfer of title to the real properties involved in the said deed of assignment with dacion en pago. Thus, Standard Chartered Bank, in assigning its credit and mortgage rights in favor of ICCS was merely assigning whatever rights it had in said foreclosed real properties and the assignee does not acquire a better right than what the assignor-bank had in the properties to which the rights assigned pertains. (BIR Ruling Nos. DA-252-96 dated July 18, 1996 and DA-412-2003 dated November 13, 2003) However, any gain, if any, realized by Standard Chartered Bank from and as a consequence of the aforesaid assignment of rights is subject to income tax. Moreover, the transfer of the aforesaid Properties from the Spouses Vicente and Ma. Fita Guzman in favor of ICCS, pursuant to the Deed of Assignment (Dacion en Pago) involves only one transfer, since in the consequent transfer, ICCS is merely exercising its right to demand payment of obligation through Dacion en Pago and considering that no consolidation or transfer of ownership yet over the Properties was made by Standard Chartered Bank. (BIR Ruling No. 121-88 dated March 25, 1988 and BIR Ruling No. DA-252-96 dated July 18, 1996) TCIHSa Finally, the Deed of Assignment with Dacion en Pago, involving the transfer of the Properties from the Transferor to the Transferee, including the assignment of real estate mortgage over the Properties from Standard Chartered Bank to ICCS/Transferee is subject to the documentary stamp tax imposed under either Sections 196 or 198 of the Tax Code of 1997, as amended, whichever will yield a higher tax. (Revenue Regulations No. 9-94, as amended and BIR Ruling No. DA-060-2001 dated April 4, 2001) This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be discovered 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