BIR Ruling No. 186-99

November 29, 1999 BIR RULING NO. 186-99 Development Bank of the Philippines Sen. Gil J. Puyat Avenue Makati City Attention: Atty . Carlos R . Cruz Chief Legal Counsel Gentlemen : This refers to your letter dated March 26, 1999 stating that on February 17, 1997, Subsidiary Loan Agreements (SLAs) were entered into by and between Citizen Bank [Rural Bank of San Pascual, Inc.] (Citizen Bank) and the Development Bank of the Philippines (DBP) whereby DBP has made available to the Citizen Bank the fund by way of a Subsidiary Loan for relending to Investment Enterprises (IEs), in accordance with the guidelines of the Programs and the relending policies of the DBP; that said agreements had been previously subjected to tax under Section 180 of the Tax Code of 1997 through the promissory executed; that Citizen Bank is the payee of certain promissory notes and/or the assignee of certain receivables (Credits) and the holder and beneficiary of the collaterals securing the Credits (Collaterals) evidencing IEs obligation in respect of the Project Loan; that in accordance with the terms and conditions of the SLA, Citizen Bank and DBP executed on January 15, 1998 a Deed of Assignment covering the credits and collaterals upon the conformity of the IEs; that in consideration of the foregoing, Citizen Bank assigned its rights, titles to and interests in and to the Credits and Collaterals; that the Assigned Credits shall cover the entire principal amount of the promissory notes and receivables; that the original documents and evidences of the Assigned Credits and Collaterals shall be in the custody of Citizen Bank to be held in trust for DBP; that pursuant to the Deed of Assignment, it is the agreement of the parties that DBP shall at all times have collaterals and securities acceptable to it, which shall be current and shall have a total loan value of not less than the unpaid balance of the Subsidiary Loan of Citizen Bank including interests and other charges thereon and other obligations owned by Citizen Bank in favor of DBP; that in accordance with SLA, the administration and enforcement of the Project Loans, including all matters provided for or contemplated by the Project Loans Agreements, notes, lien instrument, insurance policies and other documents relating to Project Loans shall be handled solely by the Citizen Bank; that DBP shall, at all times for so long as the Project Loans subject of the assignment shall remain outstanding and unpaid, have the right to examine and inspect the records of Citizen Bank as well as the collaterals, the insurance policies and other documents relating to the IEs loan; that should Citizen Bank be in default under the terms of the SLA, DBP may, at its option, enforce, sue on, collect, or take over the collection of payments then or thereafter due on the notes and notify the IEs of the same to make payment to DBP or take such steps or remedies as it may deem proper or necessary to collect the proceeds of the notes or to recover upon the liens, collaterals, insurance policies and other documents relating to the Project Loans for purposes of satisfying its claim on the Subsidiary Loans; and that the Assigned Credits and Collaterals shall not be released by Citizen Bank to the IEs without the prior written consent of DBP while the promissory notes and other obligations secured thereby are still outstanding and unpaid. In connection therewith, you now request for a ruling as to whether or not the Deed of Assignment executed by Citizen Bank, as borrower-assignor in favor of DBP, as the lender-assignee, without any change in the terms and conditions of the SLAs and the promissory notes is subject only to the P15.00 documentary stamp tax imposed under Section 188 of the Tax Code of 1997 but not under Sections 196 or 198, also of the same Code. In reply thereto, please be informed that Section 180 of the Tax Code of 1997 provides that "Sec. 180. Stamp Tax on All Bonds, Loan Agreements, Promissory Notes, Bills of Exchange, Drafts, Instruments and Securities Issued by the Government or Any of its Instrumentalities, Deposit Substitute Debt Instruments, Certificates of Deposits Bearing Interest and Others Not Payable on Sight or Demand. On all bonds, loan agreements, including those signed abroad, wherein the object of the contract is located or used in the Philippines, . . ., on all promissory notes, whether negotiable or non-negotiable, . . ., there shall be collected a documentary stamp tax of Thirty centavos (P0.30) on each Two hundred pesos (P200.00), or fractional part thereof, . . .: Provided, That only one documentary stamp tax shall be imposed on either loan agreement, or promissory notes issued to secure such loan, whichever will yield a higher tax: . . . ." Considering that the SLAs have been previously subjected to documentary stamp tax imposed under the above-cited section through the promissory notes executed by Citizen Bank in favor of DBP, the subsequent execution of a Deed of Assignment between the same parties and covering the Credits and Collaterals under the SLA which is being held in trust by Citizen Bank and DBP. Consequently, the Deed of Assignment is no longer subject to the documentary stamp tax imposed under Sections 196 or 198 both of the Tax Code of 1997, but only to the documentary stamp tax on the certificate under Section 188 of the said Code. cdlex Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue