Pag-ibig Mortgage-Backed Certificates Deemed "Long-term Deposit or Investment" Exempt from Income Tax

January 22, 1999 BIR RULING NO. 010-99 22 (FF); 24 (B) (1); 25 (A) (2)-000-00-010-99 Urban Bank Urban Bank Plaza Urban Avenue, Makati City Attention: Mr . Renato A . Claravall Senior Vice-President and Ms . Corazon M . Bejasa Senior Vice-President Gentlemen : This refers to your letter dated July 7, 1988 stating that the Urban Bank Group has been awarded a mandate by the Home Development Mutual Fund (PAG-IBIG) for the securitization of housing loans of qualified PAG-IBIG members in amounts of over P500,000 up to P3,500,000 thru the issuance of mortgage-backed securities, to be called the PAG-IBIG Mortgage-Backed Certificates; that the said securities shall have a maturity of at least (5) years and shall be denominated and marketed in units priced as low as P10,100.00; and that the said securities shall be listed and traded through the Philippine Stock Exchange (PSE) and enrolled with the Philippine Central Depository for scripless trading. LexLib Based on the foregoing, you are requesting this Office to confirm that your PAG-IBIG Mortgage-Backed Certificates, will fall under the definition of long-term deposit or investment the interest income of which is exempt from income tax pursuant to Sections 24(B)(1) and 25(A)(2) of the Tax Code of 1997. In reply, please be informed that pursuant to Section 22(FF) of the Tax Code of 1997, the term "long-term deposit or investment certificate" shall refer to certificate of time deposit or investment in the form of savings, common or individual trust funds, deposit substitutes, investment management accounts and other investments with a maturity period of not less than (5) years, the form of which shall be prescribed by the Bangko Sentral ng Pilipinas (BSP) and issued by banks only (not by nonbank financial intermediaries and finance companies) to individuals in denominations of Ten thousand pesos (P10,000) and other denominations as may be prescribed by the BSP. Although the BSP has issued BSP Circular No. 177, Series of 1998 dated September 9, 1998 regarding the issuance of long-term non-negotiable tax-exempt certificates of time deposits, it has not yet issued the prescribed form for investment certificate. This office though opines that the PAG-IBIG Mortgage-Backed Certificate (a representative sample of which is attached to your letter) conforms both as to form and to substance to the certificate by the BSP. Accordingly your opinion that the Pag-ibig Mortgage-Backed Certificates will fall under the definition of long-term deposit or investment the income of which is exempt from income tax, is hereby confirmed. It is suggested however, that before using said form, you should consult the BSP, being the administrative agency of the government which is charged with the duty to prescribe the form and manner under which the same can be issued by the banks. This ruling is 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 declared null and void. Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue