Meralco Employees Savings & Loan Association, Inc.

August 7, 2020 BIR RULING NO. OT-439-20 Section 5, RA No. 8367; RMC No. 9-2016; BIR Ruling No. 046-15; BIR Ruling No. 460-14; BIR Ruling No. 233-14 Meralco Employees Savings & Loan Association, Inc. Operations Building, Meralco Center Ortigas Avenue, Pasig City Attention: AAA _______________ Gentlemen : This refers to your letter dated July 09, 2019, requesting on behalf of MERALCO EMPLOYEES SAVINGS & LOAN ASSOCIATION, INC. , for revalidation of its tax exemption pursuant to Republic Act (RA) No. 8367, entitled, "An Act Providing for the Regulation of the Organization and Operation of Non-Stock Savings and Loan Associations." It is represented that MERALCO EMPLOYEES SAVINGS & LOAN ASSOCIATION, INC. , with Taxpayer's Identification No. (TIN) 000-000-000-000, is a corporation duly organized under the laws of the Philippines; that it is registered with the Securities and Exchange Commission (SEC) under Company Registration No. 962; and that it has been issued with Certificate of Authority No. C-051 to operate as a non-stock savings and loan association by the Central Bank of the Philippines (now, Bangko Sentral ng Pilipinas). HTcADC In reply, please be informed as follows: Income Tax Section 5 of RA No. 8367 provides that: "SECTION 5. Tax Exemption. An Association shall be exempt from payment of tax in respect to income it receives, including interest on its deposits with any bank; Provided, however, That income derived from any of its properties, real or personal, or any activity conducted for profit, regardless of the disposition thereof, is subject to the corresponding internal revenue taxes imposed under the National Internal Revenue Code. Interest earnings on deposits of members with Associations, as well as the shares of its members from the net income of the Associations shall be exempt from income tax." Based on the foregoing, MERALCO EMPLOYEES SAVINGS & LOAN ASSOCIATION, INC. shall be exempt from income tax with respect to income it receives. Also, interest income derived by it from its deposit and deposit substitutes is exempt from twenty percent (20%) final withholding tax. (BIR Ruling No. 046-15 dated February 11, 2015 and BIR Ruling No. 460-14 dated November 13, 2014) However, any income derived by MERALCO EMPLOYEES SAVINGS & LOAN ASSOCIATION, INC. from any of its properties, real or personal, or any activity conducted for profit, regardless of the disposition thereof, is subject to the applicable income tax and other internal revenue taxes imposed under National Internal Revenue Code of 1997, as amended. It is subject to the applicable income tax depending on the classification of its properties as capital or ordinary asset. CAIHTE Gross Receipts Tax Section 4 of Revenue Regulations (RR) No. 9-2004, as amended, implementing Section 122 of the National Internal Revenue Code of 1997, as amended, provides for the imposition of Gross Receipts Tax (GRT) on Non-bank Financial Intermediaries. Section 4 of RR No. 9-2004 states that: "SECTION 4. Imposition of Gross Receipts Tax on Other Non-bank Financial Intermediaries. Gross receipts of other non-bank financial intermediaries (non-bank financial intermediary not performing quasi-banking functions) doing business in the Philippines shall be subject to GRT at rates and on items of income provided hereunder: (a) From interest, commissions, discounts and all other items treated as gross income under the Code 5% (b) On interests, commissions and discounts from lending activities as well as income from financial leasing, on the basis of remaining maturities of the instruments from which such receipts are derived: Maturity period is five (5) years or less 5% Maturity period is more than five (5) years 1% xxx xxx xxx" Thus, MERALCO EMPLOYEES SAVINGS & LOAN ASSOCIATION, INC. is generally subject to GRT on income derived from its operations, unless otherwise exempted under special rules. Documentary Stamp Tax As provided under Section 5 of RA 8367, a non-stock savings and loan association is only exempt from income tax. Thus, MERALCO EMPLOYEES SAVINGS & LOAN ASSOCIATION, INC. , as a non-bank financial intermediary, is subject to Documentary Stamp Tax (DST) under the provisions of RR No. 13-2004 implementing Title VII of the National Internal Revenue Code of 1997, as amended, particularly on loan agreements, mortgages, pledges, foreclosures and sales, among others. Moreover, pursuant to RR No. 9-2000, whenever MERALCO EMPLOYEES SAVINGS & LOAN ASSOCIATION, INC. is one of the parties to a taxable transaction, it shall be responsible for the remittance of the DST due regardless of who will bear the burden of paying the DST. aScITE 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.) CAESAR R. DULAY Commissioner of Internal Revenue