Percentage Tax Liabilities — AIDC

January 8, 1981 BIR RULING NO. 005-81 260-00 000-00 005-81 Guzman, Bocaling & Co. Certified Public Accountants 416 Regina Bldg. Escolta, Manila Gentlemen : This refers to your letter dated October 2, 1980 requesting a ruling on the percentage tax liabilities of your client, Ayala Investment & Development Corporation (AIDC). You have represented that your client was incorporated to engage in the business of investment banking; that in the pursuit of the activities authorized in its articles of incorporation, it engages in, among other things, securities dealership; lending operations, underwriting, etc.; and that it also applied for and was granted a license to engage in quasi-banking. You also represented that your client had been paying the fixed and percentage taxes as dealer in securities and as lending investor. You now request for a ruling on whether the income derived by your client on its activities as dealer in securities and as lending investor is subject to the same rate of percentage tax payable by it in connection with its quasi-banking activities. In reply, please be informed that, for purposes of the fixed and percentage taxes imposed by Section 192(3) (z) and Section 209 both of the Tax Code, a dealer in securities "includes all persons who for their own account are engaged in the sale of stock, bonds, exchange bullion, coined money, bank notes promissory notes, or other securities," [Sec. 187(r), Tax Code]. For purposes of the fixed and percentage taxes imposed by Section 192(3) (dd) 209 of the Tax Code, a lending investor "includes all persons who make a practice of lending money for themselves or others at interest." [Section 187(u), Ibid .] cdtech On the other hand, for purposes of the percentage tax on gross receipts derived by financial intermediaries on their quasi-banking activities, said activities shall refer to "borrowing funds from twenty or more personal or corporate lenders at any one time, through the issuance, endorsement of acceptance of debt instruments of any kind other than deposits for the borrower's own account, or through the issuance certificates of assignment or similar instruments, with recourse, or of repurchase agreements for purposes of relending or purchasing receivable and other similar obligations." (Section 260, Tax Code, before its amendment by P.D. No. 1739). From the foregoing provisions of the Tax Code, quasi-banking activities and the activities of a dealer in securities or a lending investor may be distinguished. The distinction lies in the source of the funds used in the particular transaction. If the funds used are generated under the terms specified in the definition of quasi-banking activities, then the transaction may be characterized as one in the pursuit of quasi-banking activities. On the other hand, if the funds used in purchasing securities for resale or in lending money at interest come from sources other than that stated in the definition of quasi-banking activities, then the transaction may be characterized as one in the pursuit of activities either as a dealer in securities or as a lending investor, as the case may be. Thus, the gross receipts derived by your client, from its quasi-banking activities prior to the effectivity of P.D. No. 1739 are subject to the 5% percentage tax in accordance with rate prescribed in Section 260 of the Tax Code, before its amendment by said P.D. No. 1739. On the other hand, the gross income derived by your client from its activities as a lending investor or as a dealer in securities is subject to the 3% percentage tax prescribed in Section 209 of the Tax Code, prior to P.D. No. 1739 which increased such rate to 5%. However, for purposes of the percentage taxes , the distinction between gross receipts from quasi-banking activities and gross income from activities as a dealer in securities or as a lending investor has ceased to be material insofar as your client is concerned , with respect to transactions effected from and after the effectivity date of P.D. No. 1739. From said date, your client, as a non-banking financial intermediary, became subject to the percentage tax rates prescribed in Section 260 of the Tax Code, as amended by said P.D. No. 1739, on all its gross receipts whether derived from its quasi-banking activities or from its activities as a dealer in securities, lending investor or otherwise. cdta Very truly yours, RUBEN B. ANCHETA Acting Commissioner