Bureau of Local Government Finance Opinion

May 11, 2015 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION 2nd Indorsement Respectfully returned to the OIC-Regional Director for Local Government Finance, Region X, Cagayan de Oro City, the herein preceding indorsement relative to the letters dated December 8, 2014 and February 4, 2015 of Mr. Glenn C. Baez, OIC-City Treasurer of Cagayan de Oro City and Atty. Johnness O. Pasilbas-Batoy, Vice-President-Legal, First Consolidated Bank ("FCB"), respectively, bearing on the same issue of subjecting FCB to a 2% real developer's tax (sic) on the sale of real properties it foreclosed for non-payment by its clients' loan obligations. It is informed that, on top of the business tax paid by FCB as a bank, the City Treasurer's Office billed the bank as a real estate dealer's tax as stated under a letter of Mr. Baez to Atty. Batoy, dated November 3, 2014, when FCB presented the following assets: Lot Nos. G-092151, G-092151, G-092191 & G-092192 with an area of 201,195, 193 and 192 square meters, respectively, to the City assessor's Office for the transfer of title from the name of FCB to the vendees citing Section 58 (h) of City Ordinance No. 8847-2003, the revenue Code of Cagayan de Oro City, quoted as follows: cSEDTC (h) Tax on Real Estate Lessors, Real Estate Dealers and Real Estate Developers: Rate 2% of Gross Sales or Receipts Basis Gross Sales or Receipts of the preceding calendar year The FCB management contended that they should not be made liable to pay such tax because it is an inherent function of the bank to sell its foreclosed assets to recover losses out of bad loans and not as a real estate dealer. On the other hand, the OIC-City Treasurer made a stand that the selling of these acquired real properties classified FCB as engage in another line of business that of operating a business as a Real Estate Dealer. In this connection attention is invited to the provision of Section 3 of Local Finance Circular No. 1-93 dated June 16, 1993 of the Department of Finance (DOF), quoted as follows: "Section 3. Non-separability of Banking Business . Activities which are inherent, related, necessary or incidental to the banking business shall be treated as one business activity subject to the same tax thereon, which shall be computed on the basis of the combined gross receipts of all said banking activities, as defined above. In view thereof, the provisions of Art. 242 of the IRR requiring a person or entity to get a separate mayor's permit for each business activity shall not apply to the banking activities, as defined above." In view of the foregoing, FCB shall not be subject to, or liable to, pay the business tax as real estate dealer. Moreover, FBC is no longer required to get a separate Mayor's permit for each banking activity for so long as such activities are inherent, related, necessary or incidental to banking business. Be guided accordingly. SDAaTC (SGD.) SALVADOR M. DEL CASTILLO OIC-Executive Director