BIR Ruling No. 074-14

February 28, 2014 BIR RULING NO. 074-14 R.A. 7353; Sec. 2 (B) of RR 16-93; BIR Ruling No. 443-12 Liberty Bank (A Rural Bank), Inc. Liberty Bldg., Mc Arthur Highway, Calvario Meycauayan, 3020 Bulacan Attention: Ricardo C. Hermoso II Chairman/President/Gen. Manager Gentlemen : This refers to your letter dated 25 January 2013 requesting exemption from payment of gross receipts tax pursuant to Sections 15, 20 and 21 of R.A. No. 7353, otherwise known as the Rural Banks Act of 1992. Documents submitted show that Liberty Bank (A Rural Bank), Inc. (" Liberty Bank "), with TIN 000-941-681-000, is a corporation duly created under the laws of the Philippines; that it is registered with the Securities and Exchange Commission (SEC) under SEC Registration No. 58549; and that it holds its principal office at Liberty Building, Mc Arthur Highway, Calvario, Meycauayan, Bulacan; that the primary purposes for its incorporation according to its Articles of Incorporation are the following: 1) To accept savings and time deposits, to invest them in any sound non-speculative entity, as well as in bonds, securities and other obligations issued by the Philippine Government, or any of its political subdivisions, instrumentalities or corporations including government-owned or controlled corporations subject to the rules and regulations of the Monetary Board; 2) To extend Loans and advances primarily for the purpose of meeting the normal credit needs of farmers, fishermen, or farm families as well as cooperatives, merchants, private and public employees; 3) To act as correspondent of other financial institution; 4) To rediscount paper with the Philippine National Bank, the Land Bank of the Philippines, the Development Bank of the Philippines or any banking institutions including its branches and agencies. The Bank shall specify the nature of paper deemed acceptable for rediscount, as well as the discount rate to be charged by the said institutions; HEDCAS 5) To open current or checking accounts subject to prior approval and guidelines established by the Monetary Board; 6) To act as collecting agent; 7) To act as official depository of municipal, city or provincial funds in the municipality, city or province where it is located, subject to such guidelines as may be established by the Monetary Board; 8) To charge interest within the limits allowed by law, and collect such necessary fees incidental to the grant of loans as may, by regulation, be authorized by the Monetary Board; 9) To invest in allied undertakings; and 10) In general, to do any other act or thing and to exercise other power/s as are legally inherent in the business of Rural Bank as provided under Republic Act No. 7353 known as the Rural Bank Act of 1992 and other banking services as provided in RA 8791. that a Certificate of Authority was issued by the Bangko Sentral ng Pilipinas (BSP) on February 24, 2012 granting its authority to Liberty Bank to operate as a rural bank pursuant to R.A. 7353 and Monetary Board Resolution No. 1292 dated September 16, 2010; that Liberty Bank commenced its operations officially as a rural bank on April 1, 2012 per its letter dated February 28, 2012 addressed to the BSP; and that the following documents were submitted in support of this request: 1. Certified True Copy of the SEC Certificate of Registration; 2. Certified True Copy of the Articles of Incorporation and By-laws; 3. Certified True Copy of the Certificate of Authority issued by BSP on February 24, 2012 granting authority to Liberty Bank to operate as rural bank under Monetary Board Resolution No. 1292 dated September 16, 2010; 4. Letter dated February 28, 2012 addressed to BSP informing the latter of the start of the operation of the Bank as a rural bank; and 5. Copy of the BIR Certificate of Registration. In reply thereto, please be informed that Section 15 of R.A. No. 7353, as implemented by Revenue Regulations No. 16-93, provides "Sec. 15. All rural banks created and organized under the provisions of this Act shall be exempt from the payment of all taxes, fees and charges of whatever nature and description, except the corporate income tax and local taxes, fees and charges, for a period of five (5) years from the date of commencement of operations. xxx xxx xxx" In relation thereto, Section 2 (B) of Revenue Regulations No. 16-93 provides: caAICE "SEC. 2. Taxes covered by the Exemption. xxx xxx xxx B. Exemption from gross receipts tax. All rural banks are exempt from the tax (GRT) imposed under Section 119 of the NIRC (now Section 121 of the Tax Code of 1997) on gross receipts from sources within the Philippines. C. Exemption from documentary stamp tax. Rural banks are exempt from the documentary stamp taxes collectible under existing laws on any loan or transaction extended by them in an amount not exceeding fifty thousand pesos (P50,000) or such amount as the Secretary of Finance upon recommendation of the Monetary Board may prescribe as may be necessary to promote and expand the rural economy. c.1. Any city or municipal trial court judge in his capacity as notary public ex officio shall administer the oath to or acknowledge the instruments of any rural bank and its borrowers or mortgagors, free from all charges, fees and documentary stamp tax collectible under existing laws relative to any loan or transaction not exceeding fifty thousand pesos (P50,000). c.2. Any Register of Deeds shall accept from any rural bank and its borrower and mortgagors for registration, free from all charges, fees and documentary stamp tax collectible under existing laws any instrument, whether voluntary or involuntary relating to loans or transactions extended by a rural bank in an amount not exceeding fifty thousand pesos (P50,000)." Hence, rural banks created and organized under the provisions of the said Act are exempt from the payment of all taxes, fees and charges for a period of five (5) years from the date of commencement of operations. In view of the foregoing and considering that Liberty Bank is a corporation created and organized as a rural bank under R.A. 7353 and was issued a Certificate of Authority by the BSP to operate as such, it is entitled to all the exemptions provided in Section 15 of R.A. No. 7353, except the corporate income tax and local taxes, fees and charges. (BIR Ruling No. 443-2012 dated July 5, 2012) Accordingly, Liberty Bank is exempt from the payment of gross receipts tax imposed on banks and financial institutions under Section 121 of the Tax Code of 1997, as amended, and from documentary stamp tax for a period of five (5) years reckoned from February 24, 2012. However, the bank's exemption from documentary stamp tax granted under the Act is subject to the provisions of Section 173 (Stamp Taxes Upon Documents, Loan Agreements, Instruments and Papers) of the Tax Code which states that "whenever one party to the taxable document enjoys exemption from the tax herein imposed, the other party who is not exempt shall be the one directly liable for the tax." (BIR Ruling No. 443-2012 dated July 5, 2012) This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered null and void. IaEACT Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue