Unimark Investments (SPV-AMC) Corporation

July 13, 2009 BIR RULING [DA-(OSL-024) 367-09] R.A. 9182 & 9343; RR 6-2004; DA(C-002) 004-2008 dtd 7/2/08 Unimark Investments (SPV-AMC) Corporation 2/F All Seasons Bldg. 112 Aguirre St. Legaspi Village, Makati City Attention: Danilo C. Castro President Gentlemen : This refers to your letter dated February 17, 2009, requesting a confirmatory ruling on your opinion that the transfer of the ROPOA by the Philippine Bank of Communication (PBCom, for short) to Unimark Investments (SPV-AMC) Corporation is a tax exempt transaction pursuant to the Special Purpose Vehicle (SPV) Law of 2002. HTDAac Documents submitted disclosed that UNIMARK INVESTMENTS (SPV-AMC) CORPORATION, (Unimark, for short) is a domestic corporation in accordance with Republic Act No. 9182, otherwise known as "The Special Purpose Vehicle (SPV) Act of 2002"; that on January 21, 1998 and August 3, 1998, Sps. Rafael and Virginia Adango of General Santos City executed Deeds of Real Estate Mortgage in favor of then Consumer Savings Bank (CSB) over fourteen (14) parcels of land all situated at Palon, General Santos City, covered by Transfer Certificates of Title (TCT) Nos. T-30321 to T-30334, all of the Registry of Deeds for General Santos City; that CSB had merged with Philippine Bank of Communication (PBCom) likewise a domestic and commercial bank whereby CSB's entire assets and liabilities, including the loan obligation of the debtors/mortgagors and the mortgages, were transferred to and absorbed by PBCom; that for failure of the debtors/mortgagors to pay their obligations on due dates, PBCom on May and June 2004, respectively, extrajudicially foreclosed the mortgages in accordance with Act No. 3135, as amended by Act No. 4118; that the properties of the debtors/mortgagor (Sps. Rafael and Virginia Adango) were sold at public auction, PBCom, as the highest bidder, was issued a Certificate of Sale, which was annotated by the Sheriff at the back of the subject titles; that PBCom, in April, 2005 sold, transferred and conveyed all its rights, titles, benefits and interest in and to the aforesaid loan obligation of the debtor/mortgagor (Sps. Rafael & Virginia Adango), including the mortgages and the properties to UNIMARK, subject to certain tax exemptions and privileges enumerated under Republic Act No. 9182, or the Special Purpose Vehicle (SPV) Act of 2002; that the one (1) year period to redeem lapsed without the debtor/mortgagor or any person having lien on the properties exercising their right of redemption; that UNIMARK executed a Deed of Consolidation of Ownership over the 14 properties, as PBCom had already relinquished its right and interest over the properties in favor of UNIMARK pursuant to a Deed of Sale between them; that Bangko Sentral ng Pilipinas (BSP) issued a Certificate of Eligibility (COE) of Non-Performing Assets bearing COE No. BSP050216-00002 on June 26, 2005 certifying therein that PBCom is a bank that is qualified as a Financial Institution (FI) with its assets likewise qualified as Non-Performing Assets (NPA) in accordance with R.A. No. 9182; that the COE further stated that BSP has likewise approved the transfer/sale of the assets of PBCom to UNIMARK to be in the nature of a "true sale" in accordance with R.A. 9182 and its Implementing Rules and Regulations. 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. However, with the enactment of R.A. No. 9182 (SPV Law), as implemented by Revenue Regulations No. 6-2004, as amended by Rev. Regs. No. 7-2005, and further amended by R.A. 9343 as implemented by Revenue Memorandum Circular No. 44-2006, transactions involving transfers of ROPOA by an FI to an SPV, as well as those transfers qualified under the SPV law have been granted tax exemptions. In fine, Section 7 (a) (2) of Rev. Regs. No. 6-2004, as amended by Rev. Regs. No. 9-2005, specifies transfer of ROPOA by a borrower to a Financial Institution (FI) as among those transactions covered by the SPV law subject to certain conditions. Section 2 of R.A. 9343, amending Sec. 15, R.A. 9182, as implemented by RMC No. 44-2006 provides, viz. : "SEC. 15. Tax Exemptions and Fee Privileges. Any existing law to the contrary notwithstanding, the transfer of NPAs 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; SEACTH "(b) Capital gains tax imposed on the transfer of lands and/or other assets treated as capital assets as defined under Section 39(A)(I) 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 Regulation 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 of 1997 or gross receipts tax under Title V of the same Code, whichever is applicable." Furthermore, a "ROPOA" refers to real and other properties owned or acquired by an FI in settlement of its loans and receivable, including, but not limited to real properties, shares of stock, and chattel formerly constituting collateral for secured loans, by way of dation in payment (dacion en pago) , judicial or extra-judicial foreclosure, or execution of judgment, as of June 30, 2002; and to such real and other properties acquired by an FI after June 30, 2002, through the same modes in settlement of a loan or receivable classified as NPL as of June 30, 2002; in either case as certified by the Appropriate Regulatory Authority; . . . . Such being the case and considering your representations that the foregoing obligations are NPL's certified by BSP on June 26, 2005 as contained in the issued COE in favor of PBCom, such transfer of ROPOA by PBCom to Unimark, an SPV Corporation, is exempt from the above-enumerated internal revenue taxes to the extent of the NPL being settled, amounting to P10,464,000.00. However, since the fair market value (FMV) of the properties pursuant to Section 6 (E) of the Tax Code of 1997, is higher than the NPL, the difference is subject to CGT and DST, pursuant to Section 7 (C) (1) and (5) of Rev. Regs. 6-2004, as amended, in relation to Section 13 of the same Rev. Regs., as amended. Note that in the case at bar, there is a difference of the FMV, which is P23,988,560.00 and the NPL which is P10,464,000.00, amounting to P13,524,560.00 derived by subtracting the NPL balance from the appraised FMV of the property. (BIR Ruling DA-129-2007 dtd March 2, 2007; DA (C-002) 004-2008 dtd 7/2/08) This will therefore serve as the authority and guide for Revenue Region No. 9, La Trinidad, Benguet, to issue the corresponding Certificate Authorizing Registration (CAR) and/or Tax Clearance (TCL) on the aforementioned transaction upon compliance with the requirement/payment of all the taxes due, in line with the procedures provided in Section 13 of the said Regulations. The CAR on the dacion en pago transaction is required to be issued in order that the title of the property can be transferred in the name of the new owner pursuant to Section 56 of the Tax Code of 1997. This ruling is 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, Commissioner Internal Revenue By: (SGD.) GREGORIO V. CABANTAC Deputy Commissioner Legal and Inspection Group