BIR Ruling No. 481-14

December 3, 2014 BIR RULING NO. 481-14 R.A. 7353; RR 16-93 Section (B), (C); BIR Ruling No. 124-98; BIR Ruling No. 069-99; BIR Ruling No. 184-99 First Integrity Bank, Inc. (Rural Bank of Bailen) 1655 Real St.,Poblacion I, Gen. Aguinaldo, Cavite 4124 Attention: Mr. Vicente R. Romasanta General Manager Gentlemen : This refers to your letter dated July 31, 2012, requesting on behalf of First Integrity Bank, Inc. (Rural Bank of Bailen) the issuance of a confirmatory ruling on the exemption of rural banks from payment of gross receipts tax pursuant to Sec. 15 of Republic Act No. 7353 otherwise known as the Rural Banks Act of 1992 as implemented by Revenue Regulations No. 16-93. Documents submitted disclose that FIRST INTEGRITY BANK, INC. (Rural Bank of Bailen),with TIN 007-854-139-000, is registered with the Securities and Exchange Commission (SEC) under SEC Registration No. CS201013448; that it holds its principal office at 1655 Real St.,Poblacion I, Gen. Aguinaldo, Cavite; that its primary purposes according to its Articles of Incorporation are the following: "To carry and engage in the business of extending rural credit to small farmers and tenants and to deserving rural industries or enterprises; to have and exercise all authority and powers, to do and perform all acts, and to transact all business which may legally be had or done by rural banks organized under and in accordance with Republic Act No. 7353 (Rural Banks Act of 1992) as it exists or may be amended and to do all other things incident thereto and necessary and proper in connection with said purposes within such territory, as may be determined by the Monetary Board of the Bangko Sentral ng Pilipinas"; and that a Certificate of Authority was issued to FIRST INTEGRITY BANK, INC. (Rural Bank of Bailen),by the Bangko Sentral ng Pilipinas (BSP) on October 22, 2010 granting authority to operate as a rural bank pursuant to R.A. No. 8791 and the Monetary Board Resolution No. 257 dated February 25, 2010; and that the following documents were submitted in support of this request: 1. SEC Articles of Incorporation and By-laws; 2. Copy of the Certificate of Authority issued by the BSP; 3. Copy of the bank's BIR Certificate of registration; and 4. BSP Supervision and Examination Sector Certified Copy of Document on File of the Bank's Certification as to the actual date of commencement of commercial operations. In reply, please be informed that Section 15 of Republic Act No. 7353, as implemented by Revenue Regulations (RR) No. 16-93, provides, viz. : "SEC. 15. All rural banks created and organized under the provisions of this Act shall be exempt from the payment of all taxes, fees and charges of whatever nature and description, except the corporate income tax and local taxes, fees and charges, for a period of five (5) years from the date of commencement of operations. cDIaAS "xxx xxx xxx" In relation thereto, Section 2 (B) of Revenue Regulations No. 16-93 provides: "SEC. 2. Taxes covered by the Exemption . xxx xxx xxx B. Exemption from gross receipts tax. All rural banks are exempt from the tax (GRT) imposed under Section 119 of the NIRC (now Section 121 of the Tax Code of 1997), on gross receipts from sources within the Philippines. C. Exemption from documentary stamp tax. Rural banks are exempt from the documentary stamp taxes collectible under existing laws on any loan or transaction extended by them in an amount not exceeding fifty thousand pesos (P50,000) or such amount as the Secretary of Finance upon recommendation of the Monetary Board may prescribe as may be necessary to promote and expand the rural economy. c.1. Any city or municipal trial court judge in his capacity as notary public ex officio shall administer the oath to or acknowledge the instruments of any rural bank and its borrowers or mortgagors, free from all charges, fees and documentary stamp tax collectible under existing laws relative to any loan or transaction not exceeding fifty thousand pesos (P50,000). c.2. Any Register of Deeds shall accept from any rural bank and its borrower and mortgagors for registration, free from all charges, fees and documentary stamp tax collectible under existing laws any instrument, whether voluntary or involuntary relating to loans or transactions extended by a rural bank in an amount not exceeding fifty thousand pesos (P50,000)." Hence, rural banks created and organized under the provisions of the said Act are exempt from the payment of all taxes, fees and charges for a period of five (5) years from the date of commencement of operations. In view of the foregoing and considering that since FIRST INTEGRITY BANK, INC. (Rural Bank of Bailen), is a corporation created and organized as a rural bank under R.A. No. 7353 and was issued a Certificate of Authority by the BSP to operate as such, it is subject to corporate income tax and local taxes, fees and charges, and for a period of five (5) years commencing on October 26, 2010 , it is entitled to all exemptions provided in Section 15 of R.A. No. 7353. ( BIR Ruling No. 069-99 dated May 18, 1999; BIR Ruling No. 184-99 dated November 24, 1999 ) Accordingly, FIRST INTEGRITY BANK, INC. (Rural Bank of Bailen), is exempt from the payment of gross receipts tax imposed on banks and financial institutions under Section 121 of the Tax Code of 1997, as amended, and from documentary stamp tax for a period of five (5) years reckoned from the date of its commencement of operations, on October 26, 2010. ( BIR Ruling No. 069-99 dated May 18, 1999 ) However, the bank's exemption from documentary stamp tax granted under the Act is subject to the provisions of Section 173 ( Stamp Taxes upon Documents, Loan Agreements, Instruments and Papers ) of the Tax Code which states that "whenever one party to the taxable document enjoys exemption from the tax herein imposed, the other party who is not exempt shall be the one directly liable for the tax." ( BIR Ruling No. 124-98 dated August 31, 1998; BIR Ruling No. 069-99 dated May 18, 1999 ) 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. EHSTDA Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner Bureau of Internal Revenue