SMBC Metro Investment Corporation

March 10, 2009 BIR RULING [DA-(PT-001) 142-09] Sec. 122 SMBC Metro Investment Corporation 20th Floor, Rufino Pacific Tower 6748 Ayala Avenue, Makati City Attention: Irma L. de Guzman-Bolos Comptroller Gentlemen : This refers to your letter dated January 27, 2009 requesting a ruling that beginning January 1, 2004, the gross income of SMBC Metro Investment Corporation (SMBC METRO), a non-bank financial intermediary, became subject to gross receipts tax as specified under Republic Act (RA) No. 9238. 1 It is represented that SMBC Metro is an investment house without a quasi-banking license classified as a non-bank financial intermediary as evidenced by the certification issued by the Bangko Sentral ng Pilipinas (BSP) dated December 9, 2008; and that it is allowed to engage in transactions enumerated under Section 7 of the Investment House Law (P.D. No. 129), to wit: "Section 7. Powers. In addition to the powers granted to corporations in general, an Investment House is authorized to do the following: 1. Arrange to distribute on a guaranteed basis securities of other corporations and of the Government or its instrumentalities; 2. Participate in a syndicate undertaking to purchase and sell, distribute or arrange to distribute on a guaranteed basis securities of other corporations and of the Government or its instrumentalities; 3. Arrange to distribute or participate in a syndicate undertaking to purchase and sell on a best efforts basis securities of other corporations and other Government or its instrumentalities; ECaTDc 4. Participate as soliciting dealer or selling group member in tender offers, blocks sales, or exchange offering or securities; deal in options, rights or warrants relating to securities and such other powers which a dealer may exercise under the Securities Act (Act No. 83, as amended); 5. Promote, sponsor, or otherwise assist and implement ventures, projects and programs that contribute to the economy's development; and 6. Act as financial consultant, investment adviser, or broker." It is further represented that SMBC METRO is an affiliate of Metropolitan Bank & Trust Company; and that as an affiliate of the bank, SMBC METRO is under the supervision of the BSP in accordance with Section 25 of Republic Act 7653, otherwise known as "The New Central Bank Act." In reply, please be informed that in February 2000, RA 8761 was enacted imposing value added tax on certain services (including services rendered by non-bank financial intermediaries) beginning January 1, 2001, amending for the purpose Section 5 of RA 8424. Pertinent portion of Section 1 of RA 8761 is quoted below: SEC. 1. Sec. 5 of Republic Act No. 8424 is hereby amended to read as follows: "Sec. 5. Transitory Provisions. Effectivity of the Imposition of VAT on Certain Services. The imposition of the value-added tax on the following services shall take effect on January 1, 2001: "(a) . . . "(b) Services rendered by banks, non-bank financial intermediaries, finance companies, and other financial intermediaries not performing quasi-banking functions; and "(c) . . . "The taxpayers rendering services mentioned under paragraphs (a) and (b) hereof, shall pay the applicable taxes prescribed under the pertinent provisions of the National Internal Revenue Code, as amended." However, beginning January 1, 2004, services rendered by non-bank financial intermediaries were excluded from the coverage of the value-added tax system and, in lieu thereof, became subject to gross receipts tax. Section 4 of RA 9238 provides thus: DcITHE SEC. 4. Section 122 of the National Internal Revenue Code of 1997, as amended, is hereby restored with amendments to read as follows: "SEC. 122. Tax on Other Non-Bank Financial Intermediaries. There shall be collected a tax of five percent (5%) on the gross receipts derived by other non-bank financial intermediaries doing business in the Philippines from interest, commissions, discounts and all other items treated as gross income under this Code: Provided, That interests, commissions and discounts from lending activities, as well as income from financial leasing, shall be taxed on the basis of remaining maturities of the instruments from which such receipts are derived, in accordance with the following schedule: Maturity period is five (5) years or less 5% Maturity period is more than five (5) years 1% Provided, however, That in case the maturity period is shortened thru pretermination, then the maturity period shall be reckoned to end as of the date of pretermination for purposes of classifying the transaction and the correct rate shall be applied accordingly. Provided, finally, That the generally accepted accounting principles as may be prescribed by the Securities and Exchange Commission for other non-bank financial intermediaries shall likewise be the basis for the calculation of gross receipts. TSacAE Nothing in this Code shall prelude the Commissioner from imposing the same tax herein provided on persons performing similar financing activities." Based on the foregoing provisions of law and considering that SBMC Metro is a non-bank financial intermediary, it is clear that beginning January 1, 2004, all interest, commissions, discounts and all other items treated as gross income of SMBC Metro became subject to 5% gross receipts tax. Accordingly, this Office hereby confirms your opinion that the applicable business tax imposable on SMBC Metro is the gross receipts tax under Section 122 of the NIRC, as amended. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, and/or any of the requirements imposed in this letter are not complied with, then this ruling shall be considered as null and void. EAcIST Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service Footnotes 1. An Act Amending Certain Section of the National Internal Revenue Code of 1997, as amended, by Excluding Several Services from the Coverage of the Value-Added Tax System and Re-Imposing the Gross Receipts Tax on Banks and Non-Bank Financial Intermediaries Performing Quasi-Banking Functions and Other Non-Bank Financial Intermediaries Beginning JANUARY 1, 2004.