Metropolitan Bank & Trust Company

June 16, 2010 BIR RULING [DA-(FIT-005) 096-10] RA 8291; BIR Ruling No. 280-82; BIR Ruling No. 140-97; BIR Ruling Nos. DA143-05; DA167-02 Metropolitan Bank & Trust Company Metrobank Plaza, Sen. Gil Puyat Avenue Makati City Attention: Ms. Pollyanna B. Diokno, AVP Head, Corporate Trust Division and Mr. Jose Antonio S. Lontok, MGR Head, Business Trust Department Gentlemen : This refers to your letter dated November 6, 2009 stating that Metropolitan Bank & Trust Company (MBTC) is a domestic banking corporation duly registered and licensed in accordance with the laws of the Philippines and is authorized to engage in trust and other fiduciary business; that pursuant to said Authority, MBTC, through its Trust Banking Group (MBTC Trust), has been appointed by the Government Service Insurance System (GSIS) as its Investment Manager through an Investment Management Agreement (IMA) executed in February 2007; that as its Investment Manager, MBTC Trust is authorized to invest and reinvest all or any part of the GSIS fund by buying, selling, exchanging, converting or otherwise effecting transactions in any stocks, bonds and other investment instruments; and that MBTC Trust is currently enrolling the GSIS IMA account with the Bureau of Treasury (BTr) in order to recognize GSIS as a tax exempt institution (TEI) insofar as its investments in government securities through an over the counter transactions are concerned. In connection therewith, you now request for confirmation that the investments of GSIS in the form of stocks, bonds and other investment instruments, through the IMA as managed by the MBTC Trust, are exempt from income tax and consequently from withholding tax. In reply thereto, please be informed that Section 39 of Republic Act (RA) No. 8291, otherwise known as the Government Service Insurance System Act of 1997, provides that "SEC. 39. Exemption from Tax, Legal Process and Lien . It is hereby declared to be the policy of the State that the actuarial solvency of the funds of the GSIS shall be preserved and maintained at all times and that contribution rates necessary to sustain the benefits under this Act shall be kept as low as possible in order not to burden the members of the GSIS and their employers. Taxes imposed on the GSIS tend to impair the actuarial solvency of its funds and increase the contribution rate necessary to sustain the benefits of this Act. Accordingly, notwithstanding any laws to the contrary, the GSIS, its assets, revenues including all accruals thereto, and benefits paid, shall be exempt from all taxes, assessments, fees, charges, or duties of all kinds. These exemptions shall continue unless expressly and specifically revoked and any assessment against the GSIS as of the approval of this Act are hereby considered paid. Consequently, all laws, ordinances, regulations, issuances, opinions or jurisprudence contrary to or in derogation of this provision are hereby deemed repealed, superseded and rendered ineffective and without legal force and effect. DEHaAS Moreover, these exemptions shall not be affected by subsequent laws to the contrary unless this Section is expressly, specifically and categorically revoked or repealed by law and a provision is enacted to substitute or replace the exemption referred to herein as an essential factor to maintain or protect the solvency of the fund, notwithstanding and independently of the guaranty of the national government to secure solvency or liability. The funds and/or the properties referred to herein as well as the benefits, sum or monies corresponding to the benefits under this Act shall be exempt from attachment, garnishment, execution, levy or other processes issued by the courts, quasi-judicial agencies or administrative bodies including Commission on Audit (COA) disallowances and from all financial obligations of the members, including his pecuniary accountability arising from or caused or occasioned by his exercise or performance of his official functions or duties, or incurred relative to or in connection with his position or work except when his monetary liability, contractual or otherwise, is in favour of the GSIS." Corollarily, Section 27 (C) of the Tax Code of 1997 provides that "(C) Government-owned or controlled Corporations, Agencies or Instrumentalities . The provisions of existing special or general laws to the contrary notwithstanding, all corporations, agencies, or instrumentalities owned or controlled by the Government, except the Government Service and Insurance System (GSIS), the Social Security System (SSS), the Philippine Health Insurance Corporation (PHIC), and the Philippine Charity Sweepstakes Office (PCSO), shall pay such rate of tax upon their taxable income as are imposed by this Section upon corporations or associations engaged in a similar business, industry, or activity." In stressing the rationale of the above-mentioned provisions, particularly the tax exempt status of the GSIS, this Office elucidated the matter in BIR Ruling No. DA-(C-042) 170-09 dated March 26, 2009, which is a reiteration of BIR Ruling Nos. 143-05 dated April 12, 2005 citing BIR Ruling No. DA-167-02 dated September 17, 2002, as follows: "It is clear from the foregoing provisions, that in cases of sale, exchange or disposition by a corporation of lands and/or buildings classified as capital assets/ordinary assets, the burden of paying the 6% capital gains tax/creditable withholding tax rests upon the (seller/transferor because the latter is the one who realized the capital gains tax/ordinary income subject to tax, unless there is a stipulation to the contrary. In the instant case, GSIS is the one directly liable to pay the corresponding taxes due on the sale transaction, it being the registered owner of the subject properties. However, Section 27(C) of the Tax Code of 1997 provides, among others, that GSIS is not liable to pay such rate of tax as are imposed on other domestic corporations which necessarily includes the payment of capital gains tax. AacCHD Wherefore, in view of the foregoing, this Office holds that the sale of the aforesaid 78 lots by GSIS to GMC is not subject to income tax nor to capital gains tax. However, GMC, as Vendee, and which is not exempt from the payment of any tax arising from the above-mentioned transaction shall be the one liable to pay the documentary stamp tax imposed under Section 196 of the Tax Code of 1997." In applying the above-quoted rulings in relation to Section 39 of RA No. 8291 vis-a-vis Section 27 (C) of the Tax Code of 1997, it is undisputed that GSIS is exempt from income tax and consequently from withholding tax. Accordingly, its investment in the form of stocks, bonds and other investment instruments with the MBTC Trust through its IMA is indeed EXEMPT from income tax and consequently from withholding tax. 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.) GREGORIO V. CABANTAC Deputy Commissioner Legal & Inspection Group