BIR Ruling No. 135-12

February 24, 2012 BIR RULING NO. 135-12 R.A. 7353; Sec. 2 (B) of RR 16-93; BIR Ruling No. 124-98; BIR Ruling No. 069-99; BIR Ruling No. 184-99 D' Asian Hills Bank, Inc. (A Rural Bank) (Formerly: D' Asian Hills Bank, Inc.) Barangay 3 Fortich St.,Malaybalay City, Bukidnon Attention: Mr. Estelito R. Marabe, CPA President & CEO Gentlemen : This refers to your letter dated November 8, 2010, received by this Office on December 20, 2010 via 2nd Indorsement dated December 6, 2010 from Revenue Region 16-Cagayan de Oro City, requesting exemption from payment of all taxes, fees and charges for a period of five (5) years pursuant to Section 15 of R.A. No. 7353, otherwise known as the Rural Banks Act of 1992. Documents submitted disclose that D' ASIAN HILLS BANK, INC. (A Rural Bank), with TIN 005-207-276-00, is registered with the Securities and Exchange Commission (SEC) under SEC Registration No. CS201007303 dated July 12, 2010; that it holds its principal office at Barangay 3 Fortich St.,Malaybalay City, Bukidnon; that its primary purposes according to the Amended Articles of Incorporation are the following: 1) To carry and engage in the business of extending rural credit to small farmers and tenants and to deserving rural industries or enterprises. 2) To engage in the business of rural banking and allied undertaking as defined and authorized under Republic Act No. 7353, Republic Act No. 8791, as amended and other existing laws. that prior to the amendment of its Articles of Incorporation, D' ASIAN HILLS BANK, INC. (A Rural Bank) was initially a commercial bank under the name "D' Asian Hills Bank, Inc." and commenced operations on July 7, 2010; that a Certificate of Authority was issued by the Bangko Sentral ng Pilipinas (BSP) on September 2, 2010 granting its authority to D' ASIAN HILLS BANK, INC. (A Rural Bank) to operate as a rural bank pursuant to R.A. 7353 and Monetary Board Resolution No. 867 dated June 11, 2009; that D' ASIAN HILLS BANK, INC. (A Rural Bank) started its operations as a rural bank on October 24, 2010; and that the following documents were submitted in support of this request: AIDSTE 1. SEC Registration Certification inclusive of the Articles of Incorporation and By-laws; 2. Copy of the Certificate of Authority issued by BSP on September 2, 2010 granting authority to operate as rural bank under Monetary Board Resolution No. 867 dated June 11, 2009; 3. Copy of the bank's BIR Certificate of Registration; and 4. Copy of the Secretary's Certificate dated October 14, 2010 relative to the start of actual operations of the rural bank. 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: "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." In view of the foregoing and considering that since D' ASIAN HILLS BANK, INC. (A Rural Bank) is a corporation created and organized as a rural bank under Republic Act (R.A.) No. 7353 and was issued a Certificate of Authority by the BSP to operate as such, it is subject to corporate income tax and local taxes, fees and charges, and for a period of five (5) years commencing on October 24, 2010, it is entitled to all the exemptions provided in Section 15 of R.A. No. 7353. (BIR Ruling No. 069-99 dated May 18, 1999; BIR Ruling No. 184-99 dated November 24, 1999) Accordingly, D' ASIAN HILLS BANK, INC. (A Rural 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 the dated of its commencement of operations, October 24, 2010. (BIR Ruling No. 069-99 dated May 18, 1999). 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. 124-98 dated August 31, 1998; BIR Ruling No. 069-99 dated May 18, 1999) CcHDaA 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. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue