Imposition of DST on Loan and Facility Agreements Between Rep. of the Phil. and Deutsche Bank AG of London

October 23, 2000 BIR RULING NO. 049-00 Sec. 180 NIRC Mr. Roberto B. Tan Assistant Secretary International Finance Group Department of Finance 5th Flr. Department of Finance Bldg., Roxas Boulevard cor. Vito Cruz Sts. Manila Dear ASEC Tan : This has reference to your letter dated October 6, 2000 requesting for a certificate of exemption from documentary stamp tax on the Loan and Facility Agreements concluded between the Republic of the Philippines and the Deutsche Bank AG of London for the financing of the "Tulay ni Erap sa Barangay". In reply, please be informed that Section 180 of the Tax Code of 1997 provides: "Sec. 180. Stamp Tax on All Bonds, Loan Agreements, Promissory Notes, Bills of Exchange, Drafts, Instruments and Securities Issued by the Government or Any of Its Instrumentalities, Deposit Substitute, Debt Instruments, Certificates of Deposit Bearing Interest and Others Not Payable on Sight or Demand . On all bonds, loan agreements, including those signed abroad, wherein the object of the contract is located or used in the Philippines, bills of exchange (between points within the Philippines), drafts, instruments and securities issued by the Government or any of its instrumentalities, deposit substitute, debt instruments, certificates of deposits drawing interest, orders for the payment of any sum of money otherwise than at sight or on demand, on all promissory notes, whether negotiable or non-negotiable, except bank notes issued for circulation, and on each renewal of any such note, there shall be collected a documentary stamp tax of Thirty centavos (P0.30) on each Two hundred pesos (P200), or fractional part thereof, of the face value of any such agreements, bill of exchange, draft, certificate of deposit or note: xxx xxx xxx" The aforequoted provision covers all types of loan agreements and definitely subjects the aforestated transaction to the imposition of documentary stamp. tax. aHIDAE As a basic principle of taxation, exemption from taxes is strictly construed against the person claiming it and in the absence of any provision of law providing for exemption, a particular transaction or subject cannot be exempted thereto. While Sec. 199 of the same Code provides for exemption from the imposition of documentary stamp tax, the Loan and Facility Agreement is not included among the exemptions, not even qualified irrespective of whoever are the parties to it. Inasmuch as the borrower-Republic of the Philippines, through its representative, concurs with the provision of the Loan Agreement, Sec. 142 of which states: "14.2 The Borrower agrees to pay or cause to be paid directly to the appropriate governmental authority in the Republic of the Philippines or Japan and to reimburse the banker for the cost of any and all present and future taxes (other than tax on the overall net income of the Banker) duties fees and other charges of any nature whatsoever (including any additional taxes duties fees or other charges due as a consequence of such reimbursement) levied or imposed by that authority on or in respect of any right obligation or action granted imposed or undertaken pursuant to this Agreement." it is tantamount to accepting the burden of paying the taxes supposed to be imposed on the income earner which automatically accrues against the borrower. As regards your request for deferment of documentary stamp tax payment until December, 2000, please be informed that the same is hereby granted but subject to the imposition of the civil penalties (surcharge) of 25%, and interest of 20% from due date of the tax to actual date of payment pursuant to Sec. 248 and Sec. 249 of the Tax Code of 1997, respectively. Very truly yours, (SGD.) DAKILA B. FONACIER Commissioner of Internal Revenue