BIR Ruling No. 157-84

September 14, 1984 BIR RULING NO. 157-84 019-000-00-157-84 This refers to your letter dated August 7, 1984 requesting for opinion on whether the DBP purchases of foreign exchange from the Central Bank and its agents, for the following purposes to wit: "1) For servicing direct obligations of the bank; "2) For servicing foreign guaranteed obligations under either of the following instances: "a) In fulfillment of the bank's guaranty when borrowers cannot pay, hence, DBP funds the peso equivalent of foreign exchange to the purchased from its own sources; "b) As a banking service, where borrowers merely use the facilities of DBP and actually provide the peso equivalent of the foreign exchange to be purchased." are covered by the exemption enumerated in Section 4 of Revenue Regulations No. 7-84, implementing P.D. No. 1928. In reply, please be informed that Section 4, Revenue Regulations No. 7-84, implementing P.D. No. 1928 provides as follows: "Sec. 4. Exceptions . The special Excise Tax shall not be levied, assessed or collected on the following sales of foreign exchange: a. for payment of imports to the Philippines; b. by the Central Bank of the Philippines to banking institutions, or interbank trading; c. as a consequence of forward contracts consummated prior to June 6, 1984; d. for capital transactions such as repatriation of capital and repayment of the principal of foreign loans but not including interests portion; e. to departing tourists or other temporary visitors to the Philippines, covering the unspent pesos converted from foreign exchange at the time of their arrival; f. conversion of the face value of foreign exchange denominated securities." Such being the case, DBP purchases the foreign exchange for the purpose of servicing its foreign direct obligations and foreign guaranteed loans when the borrowers cannot pay, shall be exempt from the 10% special excise tax under paragraphs (b) and (d) of Section 4, Revenue Regulations No. 7-84, if said foreign exchange are to be used in repayment of the principal of foreign loans, but not including the interest portion. Where the borrowers merely use DBP bank facilities and actually provide for the peso equivalent of the foreign exchange to be purchased to pay for their foreign loans, the sale of foreign exchange to DBP to cover payment of the borrower's principal obligation, but not including the interest portion shall likewise be exempt from the 10% special excise tax pursuant to paragraph (d), Section 4 of Revenue regulations No. 7-84. Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner