Tax-Exempt Status of the Government Service Insurance System

December 29, 1997 BIR RULING NO. 140-97 140-97 Ponce Enrile Reyes and Manalastas 3/F Vernida IV Building Alfaro St., Salcedo Village Makati City Attention: Atty . Pericles C . Consunji & Atty . Jose Roberto L . Mamuric Gentlemen : This refers to your letter dated September 9, 1997 requesting, on behalf of your client, VPVD Holdings, Inc. (VPVD), for a ruling on the tax-exempt status of the Government Service Insurance System (GSIS). cdti It is represented that VDVP, a domestic corporation, entered into an agreement with the GSIS whereby the latter, for and in consideration of the amount of ONE HUNDRED FORTY SIX MILLION PESOS (P146,000,000.00), conveyed to the former several parcels of land located in Mandaluyong City which are covered by Transfer Certificates of Title Nos. 59974, 59975, 59976, 59977, 59978, 59979, 59980, 59981 and 59982; that the subject properties were owned and titled in the name of GSIS but were, however, subject of a litigation between GSIS and the Polymedic General Hospital, Inc. (PGHI) in Civil Case No. 59460 of Branch 153 of the Regional Trial Court of Pasig; that to end such litigation, PGHI and GSIS entered into a compromise agreement whereby, among others, VPVD was designated and authorized by PGHI to acquire the subject properties; that to implement such agreement, GSIS conveyed the subject properties to VPVD; and that the conveyance of the titles to the subject properties could not be completed since VPVD could not secure the appropriate Certificate Authorizing Registration (CAR) as GSIS maintains that it is exempt from capital gains taxes pursuant to its Charter, Presidential Decree No. 1146. In reply, please be informed that Section 39 of Republic Act No. 8291, amending P.D. No. 1146, otherwise known as the "Government Service Insurance System Act of 1997," which was published in the Manila Bulletin on June 9, 1997 provides, to wit: "SEC. 38. Exemption from Tax, Legal Process and Lien . It is hereby declared to be the policy of the State that the actuarial solvency of the funds of the GSIS shall be preserved and maintained at all times and that contribution rates necessary to sustain the benefits under this Act shall be kept as low as possible in order not to burden the members of the GSIS and their employers. Taxes imposed on the GSIS tend to impair the actuarial solvency of its funds and increase the contribution rate necessary to sustain the benefits of this Act. Accordingly, notwithstanding any law to the contrary, the GSIS, its assets, revenues, including all accruals thereto, and benefits paid, shall be exempt from all taxes, assessments, fees, charges or duties of all kinds . These exemptions shall continue unless expressly, and specifically revoked and any assessment against the GSIS as of the approval of this Act are hereby considered paid . Consequently, all laws, ordinances, regulations, issuances, opinions or jurisprudence contrary to or in derogation of this provision are hereby deemed repealed, superseded and rendered ineffective and without legal force and effect . Moreover, these exemptions shall not be affected by subsequent laws to the contrary unless this section is expressly, specifically and categorically revoked or repealed by law and a provision is enacted to substitute or replace the exemption referred to herein as an essential factor to maintain or protect the solvency of the fund, notwithstanding and independently of the guaranty of the national government to secure such solvency or liability. . . ." In view of the foregoing, it is the opinion of this Office that the GSIS is exempt from all internal revenue taxes. Accordingly, the sale or conveyance of the subject properties by GSIS to VPVD shall be exempt from the ordinary corporate income tax and consequently from the expanded creditable withholding tax. The Revenue District Office concerned is hereby mandated to issue the Certificate Authorizing Registration (CAR) or the Tax Clearance Certificate (TCL) on the subject properties. This ruling is being issued on the 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. cdta Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue