Building and Loan Associations Guaranteed by Home Guaranty Corp. Exempt from Corporate Income Tax

February 12, 2003 BIR RULING NO. 002-03 20 (d) R.A. 8763 00-000 Castillo Laman Tan Pantaleon & San Jose The Valero Tower, 122 Valero Street Salcedo Village, Makati City Attention: Attys. Roberto V. San Jose and Maria Victoria D. Sarmiento Gentlemen : This refers to your letter dated June 29, 2001 requesting on behalf of your client, HomeCredit Mutual Building and Loan Association, Inc. (HomeCredit), for exemption from the payment of income tax pursuant to Section 20(d) of Republic Act No. 8763, otherwise known as the "Home Guaranty Corporation Act of 2000." It is represented that HomeCredit is a domestic mutual building and loan association duly organized and existing under the laws of the Philippines; that it is organized for the following purposes, to wit: (1) to encourage savings by means of periodical and regular accumulation of the funds of the stockholders and their return to them; (2) to encourage industry, frugality and the construction of houses among its stockholders; (3) to lend its capital and the funds which for such purpose it may obtain as a loan, to its stockholders upon the security of a first real estate mortgage of the real property of the borrowers, free from any and all encumbrances and the pledge as a collateral security of the shares of stock subscribed for by the borrowers; (4) to lend its funds upon security of free paid-up shares or installment shares, the value of which is equal to the amount of the loan, which shall be delivered to the corporation as a pledge to guarantee the payment of the loan; and (5) to obtain loans by issuing bonds, contracting obligations or other documents of credit for the purposes mentioned in subparagraphs (3) and (4), supra . that HomeCredit has been operating as a mutual benefit building and loan association whereby its stockholder-members contribute to the capital build-up of the association by way of subscription or fixed dues (regular, equal and periodical payments); that its business operations are solely for the benefit of its stockholders-members, such as providing concessional rates/subsidized credit for their housing loans; and that in support of its claim, it has submitted the following documents: (1) Contract of Mortgage Insurance, with the Home Insurance and Guaranty Corporation (presently the Home Guaranty Corporation) whereby the latter had extended a Retail Guarantee Line in the aggregate amount of One Hundred Million Pesos (P100,000,000.00) for housing loans granted by HomeCredit to individual borrowers; (2) Certification from Home Guaranty Corporation certifying that HomeCredit has enrolled for guaranty coverage of various accounts with an aggregate amount of P82,630,349.26 covering the period December 31, 2001 to December 31, 2002; and that HomeCredit has paid the corresponding premiums (P619,727.62) for said bond guaranty coverage; (3) Official Receipt of the Republic of the Philippines No. 0843990 dated January 31, 2002 and evidencing payment of insurance premiums amounting to P619,727.66. In reply thereto, please be informed that Section 20(d) of R.A. No. 8763, otherwise known as the "Home Guaranty Corporation Act of 2000," provides that when guaranteed by the Corporation, i.e., Home Guaranty Corporation, such associations including their franchises, capital reserves, surplus, and their loans, receipts, and income, shall be exempt from all taxation now or hereafter imposed by the Government. It is clear from the above-cited section that in order for associations like Home Credit to be exempt from the payment of income tax, it has to be guaranteed by the Home Guaranty Corporation by issuing contracts of guaranty with the former in accordance with the best practices of known mutual thrift and home financing institutions subject to the limitations prescribed in Section 16 of R.A. No. 8763. Accordingly, since HomeCredit has indeed been guaranteed by the Corporation as a building and loan association, its franchises, capital, reserves, surplus, and their loans, receipts, and income shall be exempt from corporate income tax prescribed in Section 27(A) of the Tax Code of 1997 pursuant to Section 20(d) of R.A. No. 8763. 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. SacTAC Very truly yours, (SGD.) GUILLERMO L. PARAYNO, JR. Commissioner of Internal Revenue