Debenture Bonds Not Issued as Money Market Instruments are Not "Commercial Papers"; Hence, Not Subject to 35% Transaction Tax

July 28, 1980 BIR RULING NO. 110-80 Shoemart, Inc. 627 Carlos Palanca Sr. M a n i l a Attention: Mr . Salvador E . Tuy, Jr . Corporate Secretary Gentlemen : This refers to your letter dated May 28, 1980 requesting confirmation that the Debenture Bonds worth P100 million to be issued by that corporation are not subject to the 35% transaction tax imposed by Section 210(b) of the Tax Code of 1977, as amended. cdta It is represented that the said bonds which will be offered to the public will be used to finance the expansion program of the company; that said amount of P100 million will be raised in two (2) tranches, P50 million for the first tranche and the balance of P50 million to be raised in the second tranche; that the bonds which will have a maturity of 5 years from date of issue will be issued in denominations of P1,000.00 or multiples thereof; that the bonds will bear an interest of 17% per annum payable semi-annually; and that the redemption of the said bonds which will be offered at 100% of their face value shall be guaranteed by Ayala Investment and Development Corporation. In reply, I have the honor to inform you that under the foregoing facts, the debenture bonds are not being issued as money market instruments; hence, said bonds do not come within the purview of the term "commercial papers" intended to be subject to the 35% transaction tax prescribed by Section 210(b) of the National Internal Revenue Code, as amended. Accordingly, Shoemart, Inc. is not subject to the 35% transaction tax on its issue of the aforesaid bonds. However, those buying the said bonds should be made aware of the fact that the transaction tax is not being imposed on the issuer of such bonds by printing or stamping thereon in bold letters the following statement: "ISSUER NOT SUBJECT TO TRANSACTION TAX UNDER SECTION 210 (b), TAX CODE OF 1977, AS AMENDED." Bondholders/purchasers of said notes are however subject to income tax on interest and/or gains derived from their investments or transactions in said bonds, and therefore, income payments by the Shoemart, Inc. to the holders thereof shall be subject to the expanded withholding tax of 15% pursuant to Section 1(h) of Revenue Regulations No. 13-78, as amended by Revenue Regulations No. 6-79. cdta In complying with the withholding requirements of the abovementioned Regulations, Shoemart, Inc. is required to furnish each individual payee a written statement (BIR Form 1743) showing the income payment made by it and the amount of taxes deducted and withheld therefrom, pursuant to Section 6 of Revenue Regulations No. 13-78, as amended. Very truly yours, RUBEN B. ANCHETA Acting Commissioner