BIR Ruling No. 177-13

May 17, 2013 BIR RULING NO. 177-13 R.A. No. 6848 Development Bank of the Philippines Sen. Gil J. Puyat Ave. corner Makati Ave. Makati City Attention: Mr. Francisco F. del Rosario, Jr. Finance Manager Gentlemen : This refers to your letter dated 14 May 2012 requesting for a ruling allowing Al-Amanah Islamic Investment Bank of the Philippines ("AAIIBP") or its successor-entity, as the case may be, to avail of the tax exemptions under Section 37 of Republic Act No. (R.A.) 6848, otherwise known as the "Charter of Al-Amanah Islamic Investment Bank of the Philippines". IEDHAT It is represented that the Development Bank of the Philippines (DBP) is the direct and beneficial owner of stocks in AAIIBP which collectively represents 99.88% of the total outstanding capital stock of AAIIBP; that DBP plans to divest said share via a public bidding or, in the event of failed bidding, a sale thru negotiation for the purpose of transferring ownership and management of AAIIBP to strategic; that while AAIIBP has not fully operated as an Islamic Bank because of certain restrictions and limitations, it has actually nonetheless performed banking operations since 11 February 1991 per Certification by the Bangko Sentral ng Pilipinas dated 29 November 2000 attached to the letter request as Annex "A". In reply, we quote for reference the pertinent portion of Section 37, R.A. No. 6848, effective February 15, 1990, thus: "Sec. 17. n Tax Exemption . The Islamic Bank assets, profits, distributions and all contracts, deeds, documents and transactions related to the conduct of business of the Islamic Bank shall be exempted from all taxes under the National Internal Revenue Code to commence from the first taxable year, following its actual Islamic banking operation as made allowable: (1) One hundred per centum (100%) for the first five years; and (2) Seventy-five per centum (75%) for the sixth through the eighth years: Provided, however, that said exemption shall apply only to such taxes, fees, charges and assessments for which the Islamic Bank would otherwise be liable and shall not apply to the taxes, fees, charges or assessments payable by persons or other entities doing business with the Islamic Bank." xxx xxx xxx" Based on the afore-quoted provision, the tax exemption privileges cannot be availed of by AAIIBP after the eighth year of operations since the law specifically limits the period of availment of the tax incentives to eight (8)-year period only. For purposes of determining when the eight-year period should commence, the reckoning date is the date of actual banking operation regardless of whether the bank is already a fully-operated Islamic bank or not. The law is categorical that the tax exemption privileges of AAIIBP shall commence from the first taxable year, following its actual Islamic banking operation. THaCAI Accordingly, in as much as AAIIBP has actually performed banking operations on 11 February 1991, as clearly reflected in the Certification issued by the Bangko Sentral ng Pilipinas , the eight year period for the tax exemption privileges has already lapsed. Likewise, it is worthy to note that the Certification issued by the Bangko Sentral ng Pilipinas is dated 29 November 2000 which necessarily means that AAIIBP may have already commenced its banking operations or is already a fully-operated Islamic bank immediately following the said date. Thus, AAIIBP or its successor-in-interest can no longer avail of the tax exemption privileges under Section 37, R.A. No. 6848. In view of the foregoing, this Office regrets to deny your request for tax exemption for lack of legal basis. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue n Note from the Publisher: Copied verbatim from the official copy. "Sec. 17" should read as "Sec. 37".