Request for Exemption from the 1% Foreign Exchange Transaction Tax on Forward Exchange Contracts

June 19, 1986 BIR RULING NO. 080-86 260-A 216-85 080-86 Gentlemen : This refers to your letter dated October 29, 1985 requesting exemption from the 1% foreign exchange transaction tax on your forward exchange contracts. In reply, please be informed that your request cannot be granted for lack of legal basis. Under Section 260-A of the Tax Code (before its amendment by P.D. No. 1994), an additional 1% gross receipts tax is imposed on all transactions involving the sale or purchase of foreign exchange for peso by all banks, non-bank financial intermediaries and other authorized foreign exchange dealers or agents who are directly liable to the payment of the said 1% foreign exchange transaction tax. (Sec. 1, Revenue Regulations No. 16-84; Revenue Memorandum Circular No. 30-84) Consequently, you cannot claim exemption from the 1% transaction tax on your forward exchange contracts for the reason that the same is a tax directly payable by the local banks like the Philippine Commercial and Industrial Bank (PCIB), Bank of the Philippine Islands (BPI) and the Philippine National Bank (PNB) who service the National Food Authority (NFA) in its importations of grains on credit, in which case, the 1% tax passed on by said banks to NFA shall form part of the cost of purchase/sale of foreign exchange. Moreover, under P.D. No. 4, NFA is exempt from national internal revenue taxes for which it is directly liable. It may be stated in this connection however, that beginning January 1, 1986 the said 1% tax shall no longer be collected on every sale or purchase of foreign exchange by the said persons and/or institutions because the provisions of Section 260-A of the Tax Code as added by P.D. No. 1959 imposing the said 1% foreign exchange transaction tax was repealed by Section 44 of P.D. No. 1994 which took effect on January 1, 1986. (Revenue Memorandum Circular No. 1-86) Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner