BIR Ruling [UN-025-94]

January 25, 1994 BIR RULING [UN-025-94] Tirol Law Office Nakaya Bldg., Barrios Street Kalibo, Aklan Attention: Atty . Lou F . Tirol Gentlemen : This refers to your letter dated September 17, 1993, in effect requesting that your client, the Rural Bank of Balete ,(Aklan), Inc., be exempted from the payment of the 5% capital gains tax for assets acquired thru foreclosure sales and the 5% expanded withholding tax when it disposes said acquired assets plus the documentary stamp taxes. You are of the opinion that your client is exempt from the payment of said taxes pursuant to Section 15 of RA No. 7353 otherwise known as the Rural Banks Act of 1992 but it seems that the Revenue District Officer of Aklan does not agree with your opinion pending receipt of a ruling from this office on the matter. In reply, please be informed that while Section 15 of the Rural Banks Act of 1992 exempts all rural banks created under its provisions and those already in operation as of the date of approval thereof from all taxes, charges and fees of whatever nature and description, it expressly excludes therefrom the corporate income tax. The corporate income taxes which rural banks are liable to pay include, among others, the capital gains tax (CGT) on capital gains realized from the sale, exchange or disposition of (i) shares of stock in any domestic corporation under Section 24 (e) (2), Tax Code; and (11) as statutory seller of acquired real property thru mortgage foreclosure sale, whether judicial or extrajudicial under RMO No. 6-92 dated January 15, 1992, the creditor-rural bank representing the owner-mortgagor of the real property becomes liable to pay the capital gains tax due on such foreclosure sale on the bid price in the auction sale. Such being the case, the Revenue District Officer of Aklan is correct in assessing your client the 5% capital gains tax for assets acquired thru foreclosure sales and the 5% expanded withholding tax when it (Rural Bank of Balete) disposes of its acquired assets. Your client however, its exempt from the documentary stamp tax on loans and transactions extended by it in an amount not exceeding 50,000.00 or so much amount as the Secretary of Finance, upon recommendation of the Monetary Board, may prescribe. Hence, the Register of Deeds of Aklan shall accept from the Rural Bank of Balete (Aklan), Inc. and its borrowers 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 your client in an amount not exceeding 50,000.00. (Secs. 20 and 21, RA No. 7353). It is of course understood that documentary stamp tax shall be paid on that portion of the loaned amount in excess of P50,000.00 and on instruments related to assignments of several mortgages consolidated in a single deed, the tax shall be levied only on the amount in excess of P50,000.00 of the consideration in the assignment of such mortgage. (Ibid) Such tax shall be paid by the person making, signing, issuing, accepting or transferring the document and at the same time such act is done or transaction had, provided that whenever one party to the taxable document enjoys exemption from the tax herein imposed, the other party thereto who is not exempt shall be the one directly liable for the tax. (Section 173, Tax Code). Very truly yours, JAIME M. MAZA Assistant Commissioner (Legal Service)