BIR Ruling No. 112-10

October 28, 2010 BIR RULING NO. 112-10 RA 9182; BIR Ruling No. DA (OSL-030) 475-2009 Mr. Ignacio L. Tupas No. 6 Moonlight Loop Blueridge, Quezon City Sir : This refers to your letter dated July 05, 2010 requesting on behalf of your client, Grandholdings Investment , for exemption from the payment of capital gains tax and documentary stamp tax and value added tax pursuant to Rule 15 of Republic Act No. 9182, otherwise known as the "Special Purpose Vehicle (SPV) Act of 2002." TSHcIa It is represented that Allied Banking Corporation (the Bank) had sold various Non-Performing Loans (NPL) and Non-Performing Asset (NPA) to Grandholdings Investment (SPV-AMC), Inc., (TIN: 235-865-719), a duly registered Special Purpose Vehicle Company under the SPV Act (RA 9182), last May 12, 2008 and a Certificate of Eligibility (of Non-Performing Assets) was issued by the Bangko Sentral ng Pilipinas last November 28, 2008; that among the various NPA's that was included in the sale is the non-performing loan account of Spouses Jose & Luisa Lee, with a total outstanding principal balance of Php4,500,000.00, Php22,650,000.00, Php9,570,000.00 and Php7,870,000.00 classified as Items in Litigation in the books of the Bank. Spouses Jose & Luisa Lee owned two lots located at Quezon City, covered by Transfer Certificates of Title Nos. N-175253 and N-1756254 both registered in the name of the said spouses with an area of 800 sq. m. per title issued by the Registry of Deeds for Quezon City, respectively. In reply, 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. Consistent with previous BIR rulings, real property treated as capital asset acquired by way of "dation in payment" is deemed subject to capital gains tax or, in case of dation in payment involving ordinary asset, to creditable withholding tax. However, with the enactment of Republic Act (RA) No. 9182 (SPV Law), as implemented by Revenue Regulations No. 6-2004 and Revenue Regulations No. 9-2005, and further amended by RA 9343 as circularized by Revenue Memorandum Circular No. 44-2006, transactions involving transfers of property by way of dacion en pago , as well as those transfers qualified under the SPV law have been granted tax exemptions. Section 7 (a) (4) of Rev. Regs. No. 6-2004, as amended by Rev. Regs. No. 9-2005, specifies dation in payment (dacion en pago) of a Non-Performing Loan (NPL) by a borrower to a Financial Institution (FI) as among those covered by the SPV law, although subject to certain conditions. Section 2 of RA 9343, amending Sec. 15, RA 9182, and as circularized 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: SETaHC (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) (1) 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, whichever is applicable." NPL refers to loans or receivables, such as mortgage loans, unsecured loans, consumption loans, trade receivables, lease receivables, credit card receivables and all registered and unregistered security and collateral instruments, including but not limited to, real estate mortgages, chattel mortgages, pledges and antichresis whose principal and/or interest has remained unpaid for at least one hundred eighty (180) days after they have become past due or any of the events of default under the loan agreement has occurred, as of June 30, 2002, as certified by the Appropriate Regulatory Authority (Sec. 3 (g), Rev. Regs. No. 6-2004, as amended by Rev. Regs. No. 9-2005) Sec. 7 (C) (2) of the said SPV regulations provides that in order for the dation to be entitled to tax exemption, the transaction must have occurred within the period from April 12, 2003 to April 12, 2005, as amended by Republic Act No. 9343 extending the same within eighteen months from the date of the amendatory act (RA 9343) which is May 14, 2006. Thus, all sales or transfers of NPAs from the FIs to an SPV or transfers by way of dation in payment (dacion en pago) by the borrower or by a third party to the FI shall be entitled to the privileges enumerated under the law for a period of not more than two (2) years from May 14, 2006. From the foregoing, considering that COE has already been issued by the Bangko Sentral ng Pilipinas pertaining to the transfer of the account of Spouses Jose and Luisa Lee from Grandholdings Investment (SPV-AMC), Inc. to the buying third party, Grandholdings Investment (SPV-AMC), Inc. the said transfer therefore is exempt from the above-enumerated applicable internal revenue taxes, i.e. , capital gains tax, documentary stamp tax and value-added tax. This will therefore serve as the authority and guide to issue the corresponding Certificate Authorizing Registration (CAR) and/or Tax Clearance Certificate (TCL) in the aforementioned transactions. (BIR Ruling No. DA (OSL-030) 475-2009 dated August 24, 2009) This ruling is being issued based on the foregoing representations. If it will be discovered after an investigation that the facts are different, then this ruling shall be considered null and void. aHTcDA Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue