Opal Portfolio Investments (SPV-AMC), Inc.

December 3, 2009 BIR RULING [DA-(OSL-037) 728-09] 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 Building, 112 Aguirre Street Legaspi Village, Makati City Attention: Imelda C. Tiongson General Manager Gentlemen : This refers to your letter dated July 9, 2009, requesting confirmation of your opinion that the Dation in Payment ( dacion en pago ) of an NPL by a third party on behalf of a borrower to an SPV is a tax-exempt transaction pursuant to Republic Act (RA) No. 9182, otherwise known as the Special Purpose Vehicle Act of 2002, as amended by RA 9343, implemented by Revenue Memorandum Circular (RMC) No. 44-2006. It is represented that Golden Dragon Star, Inc., acquired from the Philippine National Bank (PNB) several non-performing assets (NPAs) in accordance with the provisions of RA 9182, otherwise known as the Special Purpose Vehicle (SPV) Act of 2002; that Golden Dragon in turn assigned all its rights and obligations on the NPAs it acquired from PNB to Opal Portfolio Investments (SPV-AMC), Inc. (OPAL, for short), a SPV company; that OPAL is a wholly-owned subsidiary of Golden Dragon Star, Inc.; that among the NPAs acquired by OPAL from PNB through Golden Dragon Star, Inc. is a non-performing loan (NPL) of Deogracias Quibir Enterprises Incorporated and the Quibir Spouses in the amount of P11,600,000.00; that the Bangko Sentral ng Pilipinas approved the transfer/sale of the NPAs by PNB to OPAL pursuant to a Certificate of Eligibility dated April 2007; that on April 4, 2003, a Joint and Solidary Agreement was executed among Spouses Deogracias T. Quibir and Consorcia G. Quibir and Noe G. Quibir, as Solidary Obligors and PNB, whereby PNB agreed to restructure the loan of Deogracias Quibir Enterprises Incorporated by making Deogracias T. Quibir, along with his wife and Noe G. Quibir, jointly liable for the debt; that upon presentation of the documents pertaining to this transaction at the Revenue District Office (RDO) No. 84 (Tagbilaran, Bohol) for the issuance of the Certificate Authorizing Registration (CAR) necessary for the registration of the title in the name of OPAL, the Revenue District Officer believed that the transaction is not covered by the exemption under RA 9182 as implemented by Revenue Regulations (RR) No. 6-2004 and further amended by RA 9343, implemented by RMC 44-2006. Hence, this request. cETCID In reply, please be informed that pursuant to Section 27 (D) (5) of the Tax Code of 1997, as amended, 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 RA 9182 (SPV Law), as implemented by RR 6-2004, as amended by RR 9-2005, and subsequently by RA 9343 amending RA 9182 as implemented by RMC No. 44-2006, transactions involving dation in payment ( dacion en pago ) of an NPL by a third-party on behalf of a borrower to an SPV, as well as those transactions qualified under the SPV law have been granted tax exemptions. In fine, Section 7 (a) (10) of RR 6-2004, as amended by RR 9-2005, specifies dation in payment ( dacion en pago ) of an NPL by a third-party on behalf of a borrower, to an SPV, 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 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 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 building treated as ordinary assets pursuant to Revenue Regulations 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, through the same modes in settlement of loan or receivable classified as NPL as of June 30, 2002; in either case as certified by the Appropriate Regulatory Authority; . . . . HATICc Such being the case and considering your representations that the foregoing obligations are NPLs certified by BSP as contained in the issued COE in favor of PNB, such dation in payment ( dacion en pago ) of an NPL by a third party in behalf of a borrower to an SPV, is exempt from the above-mentioned internal revenue taxes only to the extent of the value of the property tendered as payment, which is equivalent to the amount of the NPL being paid, inclusive of interest and penalties, if any. Provided, That the dation in payment must not be intended to circumvent the intention of the Act which is to benefit solely the borrower and the FI. The value of the property being transferred as payment, is its fair market value as determined in accordance with Section 6 (E) of the NIRC of 1997, whereas, the consideration for such transfer shall be the value of the NPL including interest and other charges, if any, as stated in the Deed of Dacion. Further, it is provided that the tax exemption under paragraph (d) hereof shall not extend to any transaction or arrangement between the borrower and the third party as a result of the late paying the former's NPL on its behalf. In the instant case, the zonal value of the properties tendered for the dacion en pago is P4,849,872.00 to partially settle the P10,000,000.00 restructured loan. This will serve as the authority and guide for Revenue Region No. 13 (Cebu City) 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 being issued on the basis of the foregoing facts represented. However, if upon investigation, it will disclose 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