BIR Ruling No. 005-09

March 25, 2009 BIR RULING NO. 005-09 RA 6395; Sec. 99 NIRC; 000-00 National Power Corporation Quezon Avenue corner BIR Road, Diliman, 1100 Quezon City Attention: Mr. Froilan A. Tampinco President Gentlemen : This refers to your letters dated February 5, 2008, February 20, 2008 and July 2, 2008 requesting for exemption from payment of transfer, capital gains and documentary stamp taxes. Likewise, exemption from payment of donor's tax and other transfer taxes related thereto is also requested. It is represented that at present, National Power Corporation (NPC) is in the process of transferring lots developed at its resettlement sites that are to be donated/awarded to the families affected by the construction of NPC's power generation plants (Pagbilao Coal Fired Thermal, Masinloc Coal Fired Thermal, Sual Coal Fired Thermal and San Roque Multi-Purpose Power Plants); that under the NPC existing policy and guidelines, resettlement site/s will be developed for the families displaced by its power generation projects; that these sites were to be provided with 200 sq.m. residential lots as well as amenities such as power supply, water system, open spaces, livelihood area/s road networks, etc., which will then be awarded/transferred to the affected families and the concerned LGUs as part of NPC's corporate social responsibility; NPC is likewise in the process of transferring the TCTs to the relocates for its Camanggaan and Lagpan Resettlement Sites of the San Roque Multi-Purpose Power Plant; that the same was committed to the Japan Bank for International Cooperation (JBIC) as part of the loan agreement that TCTs will be awarded by the 1st quarter of 2008; and that this request is being made to forestall any delay in the transfer of the said lots to the qualified beneficiaries/recipients as a result of any confusion that may arise later on regarding NPC's exemption from payment of donor's and other transfer taxes related thereto. In reply, please be informed that Section 13 of Republic Act (R.A.) No. 6395, as amended, provides viz.: "Non-profit Character of the Corporation; Exemption from All Taxes, Duties, Fees, Imposts and Other Charges by the Government and Government Instrumentalities. The Corporation shall be non-profit and shall devote all its returns from its capital investment as well as excess revenues from its operation, for expansion. To enable the Corporation to pay its indebtedness and obligations and in furtherance and effective implementation of the policy enunciated in Section One of this Act, the Corporation, including its subsidiaries, is hereby declared exempt: (a) From the payment of all forms of taxes, duties, fees, imposts, charges, costs and service fees in any court or administrative proceedings in which it may be a party, restrictions and duties to the Republic of the Philippines, its provinces, cities, municipalities and other government agencies and instrumentalities. . . . ." SEDIaH The passage of the 1997 Tax Code accordingly removed the tax exemption privileges contained in the charters of government-owned and controlled corporations, except for some. Section 27 (C) of the 1997 Tax Code explicitly subjects government-owned and controlled corporation to income tax, as follows: "SEC. 27. Rates of Income tax on Domestic Corporations. xxx xxx xxx (C) Government-owned or -Controlled Corporations, Agencies or Instrumentalities. The provisions of existing special or general laws to the contrary notwithstanding, all corporations, agencies, or instrumentalities owned or controlled by the Government, except the Government Service Insurance System (GSIS), the Social Security System (SSS), the Philippine Health Insurance Corporation (PHIC), and the Philippine Charity Sweepstakes Office (PCSO), shall pay such rate of tax upon their taxable income as are imposed by this Section upon corporations or associations engaged in a similar business, industry, or activity." Based on the foregoing, NPC is liable for the payment of income tax as a government-owned and controlled corporation. It must be noted that Section 101 of the Tax Code of 1997, as amended, does not include donations/gifts made by government owned or controlled corporation as exempt from the imposition of donor's tax provided for under Section 99 of the same Tax Code. Regardless of its non-profit character, NPC is not authorized to give donations as it is mandated to devote all its returns from its capital investment as well as revenues from its operation for expansion (Sec. 13, R.A. 6395, supra ). Hence, the lots developed at NPC's resettlement sites which are to be donated/awarded to the families affected by construction of its power generation plants (Pagbilao Coal Fired Thermal, Masinloc Coal Fired Thermal, Sual Coal Fired Thermal and San Roque Multi-Purpose Power Plant) shall be subject to donor's tax of 30% imposed under Section 99 (B) of the Tax Code of 1997. However, the Deed of Donation executed for the purpose is not subject to the documentary stamp tax, but the notarial acknowledgment on said deed is subject to the documentary stamp tax of P15.00 imposed under Section 188 of the Tax Code of 1997. (BIR Ruling No. DA-481-98 dated November 9, 1998) EITcaH Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Commissioner of Internal Revenue