BIR Ruling No. 109-11

April 7, 2011 BIR RULING NO. 109-11 RA 9182; RA 9343; RR 06-04; BIR Ruling No. DA-483-05; BIR Ruling No. DA (OSL-034) 617-2009 MacFarlane Company, Inc. Blk. 5 Lot 10, Calanipawan Road Sagkahan, Tacloban City Province of Leyte Attention: Mark Daniel MacFarlane President Gentlemen : This refers to your letter dated November 25, 2010 requesting on behalf of MACFARLANE COMPANY, INC. for the waiver of transfer tax on the transfer of property from Philippine Distressed Asset Asia Pacific, Inc. pursuant to Republic Act (R.A.) No. 9182, otherwise known as the "Special Purpose Vehicle (SPV) Act of 2002", as amended by R.A. No. 9343, implemented by Revenue Regulations (RR) No. 06-04 and Revenue Memorandum Circular (RMC) No. 44-2006, respectively. HcACTE It is represented that the Landbank of the Philippines, a government financial institution of the Republic of the Philippines with business address at Landbank Plaza, 1593 M.H. Del Pilar cor. Dr. J. Quintos Streets, Malate, Manila with Taxpayer's Identification Number (TIN) 000-470-349, was qualified by the Bangko Sentral ng Pilipinas ("BSP") as a Financial Institution with assets qualified as Non-Performing Assets and likewise approved the transfer/sale of the Non-Performing Assets to Philippine Distressed Asset Asia Pacific (SPV-AMC) 2, Inc. ("PDAP2-SPV"), a corporation organized and existing under the laws of the Philippines, with business address at 14th Floor Tower 1, The Enterprise Center, 1766 Ayala Avenue corner Paseo de Roxas, Makati City with TIN 006-916-749, which transfer/sale appears to be in the nature of a "true sale", in accordance with RA 9182 as amended by RA 9343, and its implementing rules and regulations under BSP Certificate of Eligibility (COE) No. BSP08C01706781C dated 30 January 2009. Thereafter, the Certificate Authorizing Registration (CAR) No. 200900187903 dated 11 November 2009 was issued by LTAID 1 Real Estate, Trading and Manufacturing, this Bureau, and the titles to the said properties were issued in the name of PDAP2-SPV. Subsequently, a Deed of Absolute Sale notarized on 26 August 2010 was executed between PDAP2-SPV, represented by its Directors Noel B. Salazar and Teresita I. Andres, and MACFARLANE COMPANY, INC., represented by its President Mark Daniel MacFarlane, a corporation duly organized and existing under the laws of the Philippines under Securities and Exchange Commission (SEC) Registration No. CS200917832 dated 16 November 2009 with TIN 007-475-154, covering a parcel of land including the improvements, covering an area of two hundred thirty seven (237) square meters, more or less, covered by Transfer Certificate of Title No. 122-2010000320 registered under the name of PDAP2-SPV in consideration of the amount of Php3,760,000.00. Thereafter, the SEC issued COE No. 402 dated 27 July 2010, approving PDAP2-SPV's request for the issuance of a COE and certifying the eligibility for benefits under RA 9182 as amended by RA 9343, and its implementing rules and regulations of the subject real property which shall be sold at a total price of Php3,760,000.00. Based on the foregoing, you now request that the transfer/sale of the subject properties to MACFARLANE COMPANY, INC. be exempted from the payment of appropriate transfer taxes pursuant to SPV Act and its IRR. In support of your request, you have submitted the following documents: 1) Original copy of Board Resolution dated 21 November 2009; 2) Original copy of Deed of Absolute Sale dated 26 August 2010; 3) Original copy of Certificate of Full Payment dated 26 August 2010; 4) Certified electronic copy of Transfer Certificate of Title No. 122-2010000320; 5) Certified true copy of Tax Declaration; 6) Certified true copy of BIR Certificate of Registration of MACFARLANE COMPANY, INC.; 7) Certified true copy of SEC Certificate of Registration of MACFARLANE COMPANY, INC.; DHcTaE 8) Certified true copy of Articles of Incorporation of MACFARLANE COMPANY, INC.; 9) Certified true copy of By-laws of MACFARLANE COMPANY, INC.; 10) Certified true copy of SEC Certificate of Eligibility No. 402 dated 27 July 2010; 11) Certified true copy of BIR Certificate Authorizing Registration (CAR) No. 200900187903 dated 11 November 2009; 12) Copy of BSP Certificate of Eligibility (COE) No. BSP08C01706781C dated 30 January 2009. Please be informed that pursuant to Section 27 (D) (5) of the Tax Code of 1997, acquisition of real property treated as capital asset is subject to capital gains tax on the gains presumed to have been realized from said transfer. However, with the enactment of R.A. No. 9182 (SPV Law), as implemented by Revenue Regulations No. 6-2004, as amended by Rev. Regs. No. 9-2005, and further amended by R.A. 9343 as implemented by Revenue Memorandum Circular No. 44-2006, transactions involving the transfer of a ROPOA by an SPV to a third-party as well as those transfers qualified under the SPV law have been granted tax exemptions. In fine, Section 7 (a) (9) of Rev. Regs. No. 6-2004, as amended by Rev. Regs. No. 9-2005, specifies transfer of a ROPOA by an SPV to a third-party as among those transactions covered by the SPV law subject to certain conditions. Section 2 of R.A. 9343, amending Sec. 15, R.A. 9182, as implemented by RMC No. 44-2006 provides, viz. : "SEC. 15. Tax Exemptions and Fee Privileges. Any existing law to the contrary notwithstanding, the transfer of NPAs from the FI to an SPV, and from an SPV to a third party or dation in payment (dacion en pago) by the borrower or by a third party in favor of an FI or in favor of an SPV shall be exempt from the following taxes: "(a) Documentary stamp tax on the abovementioned transfer of NPAs and dation in payment (dacion en pago) as may be imposed under Title VII of the National Internal Revenue Code of 1997. "(b) Capital gains tax imposed on the transfer of lands and/or other assets treated as capital assets as defined under Section 39(A)(I) of the National Internal Revenue Code of 1997; "(c) Creditable withholding income taxes imposed on the transfer of land and/or buildings treated as ordinary assets pursuant to Revenue Regulations No. 2-98, as amended; "(d) Value-added tax on the transfer of NPAs as may be imposed under Title IV of the National Internal Revenue Code of 1997 or gross receipts tax under Title V of the same Code, whichever is applicable." For purposes of SPV Law, "ROPOA" shall refer to real and other properties owned or acquired by an FI in settlement of its loans and receivables, including, but not limited to real properties, shares of stock, and chattel formerly constituting collateral for secured loans, by way of dation in payment (dacion en pago) , judicial or extra-judicial foreclosure, or execution of judgment, as of June 30, 2002; and to such real and other properties acquired by an FI after June 30, 2002, through the same modes in settlement of a loan or receivable classified as NPL as of June 30, 2002; in either case as certified by the Appropriate Regulatory Authority. The foregoing rules are consistent with Rule 15 of SPV Act, which provides: "SPV RULE 15 Tax Exemptions and Fee Privileges (a) Transaction Covered Only the following transactions shall be exempt from the payment of taxes and reduction of fees, as provided in Section 15 of Article IV of the Act and Sections (d) and (e) of this Rule: HDAECI xxx xxx xxx (8) The transfer of the ROPOA by the SPV to a third party; xxx xxx xxx (b) Provided, That these tax exemptions and reduction of fees shall apply only if all of the following requirements are complied with: (1) The NPA has been certified by the Appropriate Regulatory Authority as an NPL or ROPOA as of June 30, 2002: Provided, That for tax purposes, a property shall be deemed acquired after the lapse of the redemption period in cases where such period still exists. (2) All transfer taxes and registration fees have been paid or subsequently paid upon assessment on ROPOAs whose redemption period has lapsed as of June 30, 2002, where legal title has not been transferred in the name of the FI. (3) The properties acquired by an SPV from the GFIs or GOCCs which are devoted to socialized or low-cost housing shall not be converted to other uses. (c) Provided, further, That these tax exemptions and reductions and reduction of fees shall apply only if the following particular requirements, where applicable are complied with: xxx xxx xxx (3) For purposes of a(7) to (a)(12) of this Rule, the transaction occurred within a period of not more than five (5) years from the date of acquisition of NPA by the SPV or individuals from the FIs. Provided, That the SPV or individual acquired the NPA from the FI within the two-year period provided in (c)(2) of this Rule. After the lapse of these periods, the tax exemptions and fee privileges provided for in this Rule shall not be allowed. xxx xxx xxx." Paragraph (c) (3) of said Section 7 of RR 09-05 further provides that "in the case of transactions (a)(7), (a)(8), (a)(11) and (a)(12) above, the NPL/ROPOA must have been acquired by the SPV or Individual from an FI within the period from April 12, 2003 to April 12, 2005, in the nature of, and approved by the Appropriate Regulatory Authority as, a "true sale", pursuant to the Act and its implementing rules and regulations; and that the transaction must have occurred within the period of five (5) years from the date of said acquisition. Thereafter, the tax exemptions provided in paragraph (d) hereof shall no longer apply." However, upon the enactment of RA 9343, which became effective on 14 May 2006, sale/transfer of Non-Performing Assets (NPAs) is entitled to tax exemption privileges if such transactions occur within two (2) years from the effectivity of the amendatory Act or from 14 May 2006 to 14 May 2008. Such being the case and considering your representations that the subject parcels of land are ROPOAs certified by the BSP on 30 January 2009 as contained in the issued Certificate of Eligibility (COE) No. BSP08C01706781C in favor of Landbank, such transfer of ROPOA by PDAP2-SPV to the MACFARLANE COMPANY, INC. is exempt from the abovementioned internal revenue taxes provided that the ROPOA must have been acquired by the SPV from an FI within the period from 14 May 2006 to 14 May 2008 as provided under RA 9343 as implemented by RMC 44-2006, amending RA 9182 implemented by RR 9-2005, and it is in the nature of, and approved by the Appropriate Regulatory Authority as a "true sale" pursuant to the Act and its implementing rules and regulations; and that the transfer of the ROPOA by PDAP2-SPV to the MACFARLANE COMPANY, INC. must have occurred within the period of five (5) years from the date of acquisition. Thereafter, the tax exemptions provided in paragraph (d) hereof shall no longer apply (BIR Ruling No. DA (OSL-034) 617-2009 dated October 22, 2009) . Moreover, the transfer of ROPOAs by PDAP2-SPV as above described is likewise not subject to donor's tax. SPV Rule 15 provides that in case of (a) transfer of the NPL by the FI to an SPV; (b) transfer of the ROPOA by the FI to an SPV; (c) transfer of the NPL by the FI to an individual; and (d) transfer of the ROPOA by the FI to an individual, when the NPA of the FI is transferred to the SPV or an individual for less than an adequate and full consideration in money's worth, then the amount by which the fair market value of the property exceeded the value of the consideration shall not be considered as a gift under Title III, Chapter 2 of Republic Act No. 8424. CHIaTc Accordingly, if PDAP2-SPV acquired a ROPOA from Landbank for a consideration which is less than the book value of such ROPOA, the above SPV Rule provides that the same shall not be subject to donor's tax. If PDAP2-SPV subsequently sells that ROPOA at a price which is more than its acquisition cost, but less than the book value thereof in the books of the FI, the difference between such book value and the selling price of PDAP2-SPV should likewise not be considered as a gift under the Tax Code and hence, not subject to donor's tax (BIR Ruling No. DA-483-05 dated November 25, 2005) . This will therefore serve as the authority and guide for Revenue Region No. 14, Government Center, Palo, Leyte to issue the corresponding Certificate Authorizing Registration (CAR) and/or Tax Clearance (TCL) on the aforementioned transaction upon compliance with the requirement/payment of all the taxes due, in line with the procedures provided in Section 13 of the said Regulations. The CAR is required to be issued in order that the title of the property can be transferred in the name of the new owner pursuant to Section 56 of the Tax Code of 1997. This ruling is being issued on 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 considered null and void. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue