BIR Ruling No. 174-12

March 9, 2012 BIR RULING NO. 174-12 00-000 Agricultural Credit Policy Council Department of Agriculture 28F One San Miguel Avenue (OSMA) Bldg. San Miguel Avenue cor. Shaw Boulevard Ortigas Center, Pasig City Attention: Ms. Jovita M. Corpuz Executive Director Gentlemen : This refers to your letter dated September 6, 2011 relative to your letter dated July 21, 2011 stating that Agricultural Credit Policy Council (ACPC) with TIN 001-903-888-000 was created by virtue of Executive Order (EO) No. 113 dated December 29, 1986 to assist and support the Department of Agriculture (DA) in synchronizing its credit policies and programs; that one of ACPC's strategic thrust is the management of government credit funds that are consolidated into the Agro-Industry Modernization Credit and Financing Program (AMCFP), the umbrella credit program of the DA purposely to address the refinancing needs of the agriculture and fisheries sectors; that to increase its fund base, ACPC undertakes collection activities from institutional borrowers such as banks and cooperatives that availed of loans under the different agricultural credit programs of the DA; that the fund collected is maintained in a special account at the Bureau of Treasury; that during the course of its collection efforts, it experienced difficulty of cash collection of loans since of these institutional borrowers were either declared under receivership by the Philippine Deposit Insurance Company (PDIC) or dissolved in the case of cooperatives, or are experiencing financial difficulties; that to recover the credit funds, and to minimize unpaid obligations, it has no other recourse but to accept various real properties from the institutional borrowers, like the Cooperative Bank of Nueva Ecija (CBNE), of as payments of their loan obligations to ACPC; that on February 15, 2009, a Dacion en Pago was executed by CBNE in favour of ACPC; that pursuant to the said Dacion en Pago, ACPC is an agency tasked to provide technical and financial assistance, institution building and other program interventions including, among others, strengthening of cooperative banks to ensure adequate and sustainable credit delivery to the agricultural sector in general and small farmers in particular; that CBNE was a recipient of loans from ACPC from its different lending windows but due to its capital deficiency and liquidity problems, it failed to pay its loan obligations to ACPC; that CBNE has an outstanding loan obligation with ACPC in the amount of P76,600,000.00 representing outstanding principal balance excluding interest and other charges as of November 11, 2008; that for the settlement of its outstanding obligation to ACPC, CBNE has offered to assign, transfer and convey to ACPC by way of dacion en pago the hereunder described properties, to wit: TCT No. Registered Location Lot Area Appraised Value Owner EP 21054 Agustin, Andres Gen. Luna, 17,462 523,860.00 Nueva Ecija CLOA-VLT- Alarilla, Poblacion, Gen. 58,225 1,513,850.00 10238 Renerissa Tinio, Nueva Ecija CLOA-VLT- Alarilla, Poblacion, Gen. 76,218 1,981,668.00 9830 Renerissa Tinio, Nueva Ecija NT-236950 Alombro, Platero, Gen. 231 64,680.00 Luzviminda Tinio, Nueva Ecija NT-46841 Antonio, Luna, Llanera, 274 164,400.00 Herminio Nueva Ecija CLOA-LE-9288 Bragas, Manuel Tagaytay, 1,464 292,800.00 Talavera, Nueva Ecija T-5407 Cando, Gerardo Pamaldan, 14,795 739,750.00 Cabanatuan, Nueva Ecija EP-64845 Cruz, Valentin Sto. Rosario, Sta. 911 1,822,000.00 Rosa, Nueva Ecija EP-44157 Eugenio, Callado, 125 12,500.00 Maximo Talavera, Nueva Ecija EP-44156 Eugenio, Callado, 526 52,600.00 Esamena Talavera, Nueva Ecija EP-41071 Eugenio, Rogelio Callado, 435 87,000.00 Talavera, Nueva Ecija EP-44167 Eugenio, Rogelio Callado, 99 9,900.00 Talavera, Nueva Ecija CLOA-O-4339 Garde, Marilyn Bagong Sikat, 999 149,850.00 Gabaldon, Nueva Ecija EP-44160 Marcelo, Benigro Callado, 173 17,300.00 Talavera, Nueva Ecija CLOA-GOL- Mutos, Romeo Ligaya, 307 61,400.00 8644 Gabaldon, Nueva Ecija EP-44158 Lacamba, Callado, 101 10,100.00 Eduardo Talavera, Nueva Ecija EP-81940 Pangilinan, Luyos, San 30,000 510,000.00 Juanito Antonio, Nueva Ecija T-73209 Tesoro, Rodolfo, Kalikid, 276,400.00 Jr. Cabanatuan, Nueva Ecija T-75255 Tesoro, Rodolfo, Kalikid, 256,800.00 Jr. Cabanatuan, Nueva Ecija T-88210 Zabat, Rebecca Patalac, 350 73,500.00 Cabanatuan, Nueva Ecija T-79530 Zabat, Rebecca Kalikid, 81,060.00 & Noel Cabanatuan, Nueva Ecija that ACPC has accepted the aforesaid offer of CBNE, subject to the terms and conditions as follows: AScTaD 1. For the partial satisfaction of its outstanding loan obligation to ACPC, CBNE offered by way of dacion en pago the above-mentioned properties; 2. The value of the real properties offered is P8,701,418.00; 3. CBNE warrants that it owns the aforesaid properties; 4. The said properties are free and clean from any lien or encumbrances; 5. ACPC shall have absolute ownership of the said properties on the date of execution/signing of the dacion en pago; 6. CBNE shall protect and defend the rights of ACPC against any and all claims by other persons or entities, over the properties subject matter of the dacion; 7. All costs to be incurred in relation to the execution of the dacion shall be for the account of CBNE. that on November 27, 2009, Dacion en Pago II was executed by ACPC and CBNE, wherein after considering the total market value in Dacion en Pago I, CBNE's outstanding loan obligation to ACPC amounted to P85,835,960.10 representing outstanding principal and interest balances excluding penalties; that the value of the acquired properties offered for Dacion en Pago II in favour of ACPC is P43,776,000.00; that on January 21, 2010, an Amendment to the Dacion en Pago was executed by ACPC and CBNE, wherein in the previous Dacion en Pago dated February 15, 2009, the amount of P6,000,000.00 was included representing CRB Tarlac's account under Gintong Ani II CoopBank Rehab Program in which CBNE was initially the lead bank; that as agreed upon by the participating cooperative banks and ACPC, CRB Bulacan will already be the lead bank; that the amount of P6,000,000.00 representing outstanding obligation of CRB Tarlac's account under Gintong-Ani Coop Rehab Program is now transferred to CRB Bulacan for collection management; that in the original Dacion en Pago, CBNE warrants that it owns the subject real properties but titles to the properties have not yet been transferred to CBNE's name; that to fully enforce the said original dacion en pago, an amendment has to be undertaken; that the parties mutually agree to amend the original dacion en pago, as follows: 1. Outstanding obligation of CBNE to ACPC shall be P94,537,378.10 as of September 30, 2009 including interest but excluding penalties; TIESCA 2. CBNE warrants that acquired properties are covered with registered Certificate of Sale and notarized Dacion en Pago Agreements between CBNE and the registered owners-borrowers, and it shall execute the Affidavits of Consolidation after the expiry dates of redemption and cause the annotation and transfer respectively; and that in the process of transferring the ownership of the above-mentioned properties in favour of ACPC, various taxes and expenses, specifically the creditable withholding tax/capital gains tax, documentary stamp tax, and the corresponding surcharges, interest and compromise penalties have to be paid. Based on the foregoing representations, you now request for an exemption/waiver from paying the corresponding surcharges, interest and compromise penalties that may be due for late payment of the creditable withholding tax/capital gains tax and documentary stamp tax relative to the execution of the dacion en pago between CBNE and ACPC. In reply thereto, please be informed that the imposition of the surcharge, penalties and interest on delinquency is mandatory. Strong reasons of policy support a strict observance of the rule regarding the payment of tax. The laws imposing penalties for delinquencies are clearly intended to hasten tax payments or punish evasions or neglect of duty in respect thereof. If delays in the tax payments are to be condoned, for light reasons, the law imposing penalties for delinquencies would be rendered nugatory and maintenance of the government and its multifarious activities would be as precarious as taxpayers are willing or unwilling to pay their obligations to the state on time. (Jamora vs. Meer, 74 Phil. 22) Accordingly, your request for exemption/waiver of surcharge, penalties and interest is hereby denied for lack of legal basis. 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. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue