BIR Ruling [UN-230-95]

June 26, 1995 BIR RULING [UN-230-95] Sycip Salazar Hernandez & Gatmaitan 105 Paseo de Roxas 1200 Makati City Attention: Atty . Teresa R . Tam-Yap Gentlemen : This refers to your letter dated June 2, 1995 requesting in behalf of your client, Pangasinan Electric Corporation (PEC), confirmation of your opinion that (1) an Agreement among PEC, Cepa Pangasinan Electric Limited (CEPA Pangasinan), Consolidated Electric Power Asia Limited (CEPA) and various lenders setting out the terms and conditions for the loans to be made separately by the lenders to the PEC and at the same time constituting a pledge, real estate and chattel mortgage and certain other security for the payment of such loans, is subject to only one documentary stamp tax; and (2) Any addendum to the Agreement subsequently executed by the same parties for the purpose of including substitute or additional property under the pledge, mortgage or other security constituted by the Agreement will not be subject to DST as long as there is no change in the aggregate amount secured. It is represented that CEPA Pangasinan, a British Virgin Island company, entered into an Energy Conversion Agreement with the National Power Corporation (NPC) on May 20, 1994 for the construction and operation of a coal-fired thermal power plant to be located at Sual, Pangasinan; that pursuant to an Accession Undertaking also dated May 20, 1994, PEC became a party to the Agreement and became entitled to the rights and assumed the obligations of CEPA Pangasinan; that to partly finance the construction of the Plant and other costs and expenses related to the project, PEC will borrow money from the lenders, either as a syndicate or separately and when necessary subordinated loans from the Sponsors, i.e., CEPA Pangasinan and CEPA, under the respective terms and conditions provided for the loans in the Agreement; that as security for the repayment of such loans, the following agreements were made among PEC and the lenders, viz: a. CEPA Pangasinan will pledge to the Lenders its shareholdings in PEC, and CEPA will pledge to the Lenders its shareholding in CEPA Pangasinan. b. PEC will create a real estate and chattel estate mortgage on all of PEC's assets; c. PEC will assign to the Lenders: (i) all monies payable by NPC under the ECA and the related agreements; (ii) all monies payable by the Republic of the Philippines under the guarantee issued by the Republic in favor of PEC; and (iii) various other contract rights. and that the Agreement consolidates into one document the loan agreements and the pledge, mortgage and other security devices and will contain the (1) terms and conditions for the loans to be extended by the Lenders and the Sponsors to PEC; (2) A real estate and chattel mortgage, pledge and assignment and security arrangement; and (3) Common representations, warranties, covenants and other terms governing the loans and the security arrangement. In reply, please be informed that under Section 8 of Revenue Regulations No. 9-94 implementing Republic Act No. 7660, it is provided that where only one instrument was prepared, made, signed and executed to cover a loan agreement/promissory note, pledge/mortgage, the documentary stamp tax prescribed in Section 195 of the Tax Code, as amended, shall be paid and computed on the full amount of the loan or credit granted and the instrument shall be treated as covering only one taxable transaction subject to the higher documentary stamp tax. Accordingly, your opinion that the Agreement executed by the PEC and the Lenders and the Sponsors to PEC which consolidates the loan agreements, the pledge, mortgage and other security devices shall be subject to only one documentary stamp tax based on the full amount of the loan, is hereby confirmed. (BIR Ruling No. UN- 320-94) Likewise, this Office confirms your opinion that any additional addendum to the Agreement for purposes of providing additional security to the Lenders will not be subject to the documentary stamp tax as long as there is no change in the original amount of the loan secured. (BIR Ruling No. 218-90; 059-91) cd Very truly yours, ALICIA P. CLEMENO Assistant Commissioner (Legal Service)