Opal Portfolio Investments (SPV-AMC), Inc.

October 22, 2009 BIR RULING [DA-(OSL-034) 617-09] RA 9182 & 9343; RR 6-2004; DA (OSL-024) 367-2009 dtd 7/13/09 Opal Portfolio Investments (SPV-AMC), Inc. 6/F All Seasons Bldg., 112 Aguirre St., Legaspi Village, Makati City Attention : Imelda C. Tiongson General Manager Gentlemen : This refers to your undated letter seeking confirmation of your opinion that the transfer or sale of a non-performing loan (NPL) acquired by Opal Portfolio Investments (SPV-AMC), Inc. from a financial institution (FI) and subsequently sold the same to the original borrower is considered a transfer of Non-performing Asset (NPA) from FI to SPV, and from SPV to a third party under Section 15 of Republic Act (RA) No. 9182, as amended by RA No. 9343. It is represented that OPAL PORTFOLIO INVESTMENTS (SPV-AMC), INC., (Opal, for short), is a domestic corporation organized as a special purpose vehicle company pursuant to RA No. 9182, otherwise known as "The Special Purpose Vehicle (SPV) Act of 2002"; that on February 12, 2007, Opal purchased 208 NPLs from a Financial Institution (FI), the Philippine National Bank (PNB) for the amount of P1,450,000,000.00; that these were covered with Certificate of Eligibility (COEs) issued by the Bangko Sentral ng Pilipinas (BSP); that currently, Opal is disposing/selling these NPLs to prospective buyers; that one of the prospective buyers is Modern Time Marketing Corporation; that Modern Time Marketing Corporation was a borrower/debtor in one of the NPLs it proposes to sell. In other words, Modern Time Marketing Corporation executed earlier a promissory note over this subject NPL, in favor of PNB, it being the borrower/debtor and PNB (FI) as the creditor prior to the acquisition by Opal of the subject NPL. 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 the said transfer. HDAaIS 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. 9-2005, and further amended by RA 9343, as implemented by Revenue Memorandum Circular No. 44-2006, transactions involving transfers of NPL by an SPV to a third-party, as well as those transfers qualified under the SPV law have been granted tax exemptions. In fine, Section 7 (a) (7) of Rev. Regs. No. 6-2004, as amended by Rev. Regs. No. 9-2005, specifies transfer of NPL by an SPV to a third-party as among those transactions covered by the SPV law subject to certain conditions. Section 2 of RA 9343, amending Sec. 15, RA 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 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 in payment (dacion en pago) as may be imposed under Title VII of the National Internal Revenue Code of 1997. "(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; . . . SDIaHE Such being the case and considering your representations that the foregoing obligations are NPL's certified by BSP on April 25, 2007 as contained in the issued COE No. BSP07B00484624C in favor of PNB, such transfer of NPL by Opal to Modern Time Marketing Corporation is exempt from the above-mentioned internal revenue taxes provided that the NPL must have been acquired by the SPV from an FI within the period from May 14, 2006 to May 14, 2008 as provided by RA 9343 as implemented by RMC 44-2006, amending RA 9182 implemented by RR 9-2005, and it is in the nature of, and approved by the Appropriate Regulatory Authority as a "true sale" pursuant to the Act and its implementing rules and regulations; and that the transaction (transfer of the NPL by OPAL to Modern Time Marketing Inc.) must have occurred within the period of five (5) years from date of acquisition. Thereafter, the tax exemptions provided in paragraph (d) hereof shall no longer apply. This will therefore serve as the authority and guide for the respective Revenue Regions having jurisdiction of the property 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 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 of Internal Revenue By: (SGD.) GREGORIO V. CABANTAC Deputy Commissioner Legal and Inspection Group