Tax Aspects of the Transactions of BPIL

June 3, 1988 BIR RULING NO. 237-88 29-f 000-00 237-88 Gentlemen : This refers to your letter dated May 19, 1988 requesting a ruling on the tax aspects of the transactions which your client, BPI Leasing Corporation (BPIL), intends to enter into as follows: "1. Coca-cola Bottlers Phils. Inc. which is desirous of increasing its working capital, has offered to sell to BPIL, property and equipment which it also offers to lease back from BPIL. The property will be sold to BPIL at its appraised value as determined by BPIL and acceptable to Coca-cola Bottlers Phils. Inc.; "2. BPIL will lease the property to Coca-cola Bottlers Phils. Inc. for five (5) years at a fixed rental payable in arrears every quarter. The property and equipment have an estimated useful life to twenty (20) years. The lease may be extended upon expiration of the original lease period under such terms and conditions as may be agreed upon by the parties at that time or BPIL may opt to sell the property back to Coca-cola Bottlers Phils. Inc. under such terms and conditions as they may agree at that time although BPIL is under no obligation to sell the property. "3. In case the lease is not renewed, BPIL has ninety (90) days to pull out the property from Coca-cola Bottlers Phils., Inc. "4. In the Contract of Lease, it is stipulated that BPIL as lessor will shoulder all costs such as insurance, repairs and maintenance, licenses, utility services, real estate taxes, assessments, water and sewer charges and other charges of any kind and nature related to the leased properties. "5. Coca-cola Bottlers Phils., Inc., the lessee is not granted an option to purchase and the contract of lease provides that the lease is irrevocable (subject to the lessor's right to terminate the lease in the event of default). "6. The Contract of Lease likewise provides that BPIL may assign the lease or the rental receivables and/or mortgage the lease (sic) properties for financing and other purposes." In reply thereto, I have the honor to inform you that the aforementioned transaction is a sale and leaseback transaction. Such being the case, BPIL as owner of the leased property can claim depreciation deduction during the period that the property is under lease pursuant to Section 29(f) of the Tax Code, as amended. cdtech Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner