The Lawphil Project - Arellano Law Foundation
DIGEST OF 1998 BIR RULINGS


DIGEST OF 1998 BIR RULINGS


ESTATE TAX; Extension of time to file return - Granting the request for extension of 30 days within which to file estate tax return of the late Alexander Tan in view of the difficulty of reconstructing the records of asset and liabilities which were destroyed by fire. (BIR Ruling No. 001-98 dated January 5, 1998)

EXCISE TAX; Cement not subject to 2% excise tax - Revenue Regulations No. 13-94 dated July 20, 1994 which govern the taxation of Minerals and Mineral Products includes in its coverage under the term "Other Non-Metal", cement materials but not the finished product cement. Accordingly, not being a mineral product, cement is exempt from the 2% excise tax but subject to the 10% VAT imposed under Section 107(A) of the Tax Code of 1997. (BIR Ruling No. 002-98 dated January 8, 1998)

DOCUMENTARY STAMP TAX - Granting the request of Philippine Deposit Insurance Corporation (PDIC) that the expanded creditable withholding tax and documentary stamp tax on the sale of Arcya Commercial Corporation (ARCYA) of the three (3) floors of the condominium building of Echelor Tower Corporation then owned by PDIC should be based on the dates when the sales were consummated as an exception to the general rule that in cases involving sale, exchange or any disposition of real property, the tax base for DST shall be same as the tax base used in the computation of capital gains tax, creditable expanded withholding tax or corporate income tax. (BIR Ruling No. 003-98 dated January 16, 1998)

RP-ITALY TAX TREATY - Interest payment to be made by PLDT on loans to be extended by the Republic of Italy through its instrumentality, Mediocredito Centrale S.P.A. not subject to income and consequently withholding taxes pursuant to the RP-Italy Tax Treaty. (BIR Ruling No. 004-98 dated January 28, 1998)

DOCUMENTARY STAMP TAX; Installment payment of DST - Denying the proposals of Shoemart, Inc. that DST will we computed at the end of the year when actual sale is finally determined and that DST will be paid on an annual basis over a period of 25 years instead of paying the DST at the time of execution of lease contract for the years covered because the Tax Code does not authorize either the installment payment of DST or the computation thereof based on some mode or basis other than the consideration appearing in the contract or document itself. (BIR Ruling No. 005-98 dated February 4, 1998)

Exemption from Tax Liabilities of Foreign-based corporation which ships goods through SBSEZ - A foreign-based corporation which ships goods via the Philippines through the Subic Bay Special Economic Zone (SBSEZ) for transshipment purposes, not being engaged in any taxable activity in the Philippines, is not subject to any Philippine tax because the presence of its agent is merely for monitoring purposes of its activities. Moreover, in transshipment, bond is collected instead of duties and taxes. (BIR Ruling No. 006-98 dated February 4, 1998)

CAPITAL GAINS TAX; Payment can be made by either party under exceptional circumstances - The claim of Mr. Cosino on the nullity of sale due to non-payment of the consideration when the Deed of Sale and the Affidavit submitted show otherwise, did not extinguish the right of this office to collect the capital gains tax and the corresponding surcharges thereon.

On the other hand, the RDO's duty is limited to what is clearly defined in Section 10 of the Tax Code. Thus, the concerned RDO cannot refuse the payment being tendered by Ms. Alcazar through Primetown Property Group on the basis of the claim of the seller which has to be proven in the proper forum. Once a taxable transaction is shown, the duty to collect is imperative.

Logically, the payment of capital gains tax must be done by the seller. However, experience has proven that there are instances when the seller does not assume, or does not want to pay the capital gains tax and the buyer is thereby left at the mercy of the seller if the latter does not or as a matter of fact refuses to pay. Equity and justice therefore, dictate that Sec. 49 of the Tax Code be construed to benefit both parties, extending the same right to pay the tax to either party under exceptional circumstances. (BIR Ruling No. 007-98 dated February 4, 1998)

CWT; Sale or exchange of real property by a corporation not habitually engaged in real estate business - Pursuant to RR No. 1-90 as amended by RR No. 12-94 any sale, exchange or transfer of real property whether capital or ordinary asset by a corporation which is not habitually engaged in the real estate business as certified by CREBA and which is not registered with HLURB as engaged in socialized housing projects under RR 7279 the selling price of which is over P2,000,000.00 shall be subject to a creditable withholding tax of 5% based on the gross selling price or total amount of consideration or its equivalent paid to the seller/owner. RR 1-90 as amended by RR 12-94 covers all types of sales, whether cash sale, sale on installment basis and sale on a deferred project basis. Thus, sales or installment basis are subject to the creditable withholding tax under RR 12-94 based on the gross selling price.

Moreover, the creditable expanded withholding and documentary stamp tax on sale of real property shall be based on the consideration or gross selling price exclusive of the 10% VAT. (BIR Ruling No. 008-98 dated February 5, 1998)

VAT; Exemption of Marine Solar Salt - Importation of marine solar salt is exempt from VAT pursuant to Section 103(c) of the Tax Code, as amended by RA 7716 and RA 8241 (now Section 107(c) of the Tax Code of 1997). This is based on the certifications by Cargill Australia Ltd. that machine solar salt is an ordinary salt since its production is thru the process of solar evaporation of ordinary sea water (brine) over large areas of enclosed ponds and earthen dikes and does not undergo further processing except washing with high concentrated brine. (BIR Ruling No. 009-98 dated February 5, 1998)

INCOME TAX; VAT - TIPCO-BATAAN GROUP, INC., a domestic corporation which provides technical, research, management and personnel assistance to its affiliates on a purely reimbursement-of-cost basis without any intention of realizing profit is still subject to income tax under Section 24 (a) of the Tax Code, as amended. Moreover, since it receives payments for such services, it is subject to VAT on such services rendered. (BIR Ruling No. 010-98 dated Feb. 5, 1998)

RP-THAILAND TAX TREATY - The remittance by Marine Colloids (Phil.) Inc. of sales commissions to Wang Chemical Co. Ltd., a non-resident foreign corporation with principal office in the Kingdom of Thailand is not subject to Philippine income withholding tax pursuant to RP-Thailand Tax Treaty considering that the obligations of Wang to develop, promote and sell products under the Sales Representative Agreement will be rendered entirely in Thailand and since Wang has no permanent establishment in the Philippines, the sales commissions are not considered as income from sources within the Philippines. (BIR Ruling No. 011-98 dated Feb. 5, 1998)

INCOME TAX; DND cannot withhold tax from agent's commissions - Since the payment by the Department of National Defense (DND) through an irrevocable Letter of Credit in the total amount of US$214,410 in favor of Olin Brass of N. Shamerock St. East Alton, 12.62024, USA for the supply of 50 dons Brass strips and 7 tons commercial bronze, the latter being the one who pays DND's agent commissions without communicating the amount other paid, DND cannot withhold tax from such agent's commission. It must be noted that the BIR has no existing regulations designating a non-resident foreign corporation as a withholding agent on behalf of the Government of the Philippines income payments made to an agent residing in the Philippines. DND cannot be required to withhold tax from the agent's commission since the payment is settled through a Letter of Credit and that the Purchase Order did not mention that the agent has to be paid in commission nor does DND has direct means of ascertaining the tax base. (BIR Ruling No. 012-98 dated February 5, 1998)

CAPITAL GAINS TAX - A single sale of different shares of stock of several corporations by Marcopper in favor of the bidder, MR Holdings, in the public auction last September 15, 1997 constitutes only one (1) sale transaction having been done at the same time by the same parties. Accordingly, only one (1) capital gains tax return is required in view of Section 7(a)(2) of Revenue Regulations No. 2-82. (BIR Ruling No. 013-98 dated February 5, 1998)

VAT; PIA subject to VAT on TV airtime - The Philippine Information Agency (PIA) being a government agency, is subject to VAT if in the course of trade or business, it sells, barters, exchanges or leases goods or properties or render services and import goods. Moreover, although TV and radio broadcasting station owners are the ones primarily liable to the payment of VAT for buying and selling TV airline, the amount of tax can be passed on to PIA. Finally, P.D. 1362 allowing broadcasting and TV station to import radio and television equipment without prepayment of custom duty and compensating tax (now VAT) has been repealed by E.O. No. 273. (BIR Ruling No. 014-98 dated February 6, 1998)

SENIOR CITIZENS; Bank deposits subject to 20% final tax - Under R.A. No. 7432 otherwise known as the Senior Citizens Act, one of the privileges and benefits of senior citizens is exemption from the payment of individual income taxes for those whose income is below P60,000.00 per annum. Interest income on bank deposit of senior citizens does not fall within the purview of the exemption; hence, the request of Mr. Rafael Dondoyano of Zamboanga City for exemption from 20% final tax on interest income of his bank deposit is denied for lack of legal basis. (BIR Ruling No. 015-98 dated February 6, 1998)

WITHHOLDING TAX; VAT - (1) Payments made by MTI to Sumitomo on the ISP and OSP portions of their contract and the payments made by Sumitomo to Nissho-Iwai on the ISP of the Contract, are subject to the 1% creditable withholding tax imposed on realty constructions under Sec. 19e)(1)(c) of RR No. 6-85, as amended.

(2) Sumitomo and Nissho-Iwai, being foreign corporations existing under the laws of Japan and having branches in the Philippines are considered "doing business in the Philippines and shall be taxed at 35% of their net income from sources within the Philippines.

(3) The total gross sale and receipts of Sumitomo on the contract with MTI is subject to 10% VAT. Likewise, the gross sale and receipts on the ISP of the sub-contract with Nissho-Iwai shall be subject to VAT. (BIR Ruling No. 016-98 dated February 6, 1998)

WITHHOLDING TAX; Payment/remittance of withholding taxes on corporation by SMC - Revoking the authority previously granted to San Miguel Corporation which decentralized the payment/remittances of withholding taxes on compensation income and expanded withholding taxes to the nearest revenue district offices where the difference SMC until relocated for being contrary to Sec. 2 of RR No. 3094 amending Sec. 3 (a) of RR 12-93 implementing RA 7646. Taxes deducted and withheld from compensation income and withholding tax of SMC as well as its different units shall be remitted to RDO Mandaluyong City where is principal office is located. (BIR Ruling No. 017-98 dated Feb. 6, 1998)

RP-US TAX TREATY - The issuance by Quezon Power (Philippines) Limited, Co. (QPLC for brevity) of certain collaterized Notes through a public offering that will require its registration as securities under the U.S. securities act and will be secured by QPLC's rights under the Power Purchase Agreement, the project contracts and substantially all its fixed assets, shall qualify as a "public issue of bonded indebtedness"; hence, the interest income to be paid to the registered holders of the Notes shall be subject to the preferential tax rate of 10% pursuant to RP-US Tax Treaty. (BIR Ruling No. 018-98 dated February 10, 1998)

VAT; Sale of real properties primarily held for sale or lease to customers - Under Sec. 4.100-1 of RR No. 7-95 sale of real properties held primarily for sale to customers or held for lease in the ordinary course of trade or business of the seller shall be subject to 10% VAT based on the gross selling price. Being a CREBA member would only affirm the fact that a person is engaged in real estate business and, therefore, would fall within the purview of those where sale of realty are subject to 10% VAT. (BIR Ruling No. 019-98 dated February 11, 1998)

Capital gains tax; Documentary stamp tax - Amending BIR Ruling No. DA-282-97 dated August 20, 1997. The RDO of Marikina has been authorized to issue the TCL in favor of spouses Francis and Victoria Gatchitorena over the transfer of the property of spouses Cesar and Zoilo Magpayo upon payment of CGT and DST based on the fair market value a zonal value whichever is higher prevailing at the time of the execution of the Deed of Exchange on December 16, 1981. (BIR Ruling No. 020-98 dated Feb. 18, 1998)

Capital gains tax; Transfer of land without consideration by Trustee to a Trustor - The transfer of one-half (1/2) portion of five (5) parcels of land without consideration by virtue of a Deed of Transfer executed by and between a trustee and a trustor and considering further that the execution of the Deed of Transfer was in compliance with the Order of the Regional Trial Court which already became final and executory, is exempt from the 6% capital gains tax imposed under Section 24 (D)(1) of the Tax Code of 1997. Moreover, the said transfer is also exempt from the donor's tax imposed under Section 98 of the same Code due to lack of donative interest on the part of the Estate of Roy B. Padilla. Finally, the Deed of Transfer is not subject to the DST imposed under Section 196 also of the Tax Code of 1997 but only the notarial acknowledgment thereof. (BIR Ruling No. 021-98 dated February 19, 1998)

Effectivity of RA 8424; Assessments issued prior to January 1, 1998 - Republic Act No. 8424 otherwise known as the Tax Reform Act of 1997 took effect on January 1, 1998; hence, the sixty (60)- day and the one hundred eighty (180)-day periods referred to in Section 228 of the Tax Code of 1997 took effect and/or covered only Assessments issued on or after January 1, 1998. Accordingly, the deficiency ad-valorem, value-added and income taxes assessment issued against Fortune Tobacco Corporation on August 13, 1993 shall be governed by Revenue Regulations No. 12-85 and other prior pertinent issuances. (BIR Ruling No. 022-98 dated February 19, 1998)

Effectivity of RA 8424; Personal and additional exemptions - The provisions of the NIRC of 1997 became effective on January 1, 1998 as prescribed under Section 8 of R.A. No. 8424. Accordingly, the personal and additional exemptions prescribed under Section 34 (A) and (B) of the Tax Code of 1997 cannot be made to apply to the 1997 income of individual taxpayers but to their income which have been earned and/or received for the year 1998 and thenceforth. (BIR Ruling No. 023-98 dated February 24, 1998)

RMO No. 41-97; Even returns - RMO No. 41-97, Prescribed the Policies and Procedures in the implementation of "Even Returns" will not apply to the following: (1) corporation withholding tax for taxable year 1995 and prior years; (2) Individual income tax returns of expatriates voluntarily filing then returns but whose salaries are credited and received offshore; (3) Entities voluntarily remitting withholding tax on behalf of alien individuals who are not their employees and do no have control over the payment of the compensation of said alien individuals; and (4) Individual income tax returns of expatriates who are employed locally by a Philippine entity but who also receive income from offshore employer. (BIR Ruling No. 025-98 March 6, 1998)

Tax credit certificates issued by BOI - A Tax Credit Certificate (TCC) duly issued by the Board of Investment (BOI) pursuant to Article 21 of the Omnibus Investments Code of 1987 (E.O. 226) shall, upon proper application be allowed to be used in payment of documentary stamp tax liability. (BIR Ruling No. 026-98 dated March 6, 1998 citing BIR Ruling No. 115-96 dated October 31, 1996)

VAT; Exemption of electric cooperatives - The exemption from VAT of electric cooperatives duly registered with the CDA or NEA under Section 107 (s) of the Tax Code of 1997 covers only their sales of electricity and importation of machineries and equipment, including spare parts thereof, which shall be used in the generation and distribution of electricity. However, local purchases by electric cooperatives of machineries, equipment and spare parts shall be subject to VAT even if the same are to be used in the generation of electricity, Accordingly, electric cooperatives should pay the 10% VAT being passed on by the local suppliers on the former's purchases of machineries and equipment. (BIR Ruling No. 027-98 dated March 6, 1998)

Capital gains tax; Documentary stamp tax; Sale of townhouse unit covered by TCT - For purposes of computing the capital gains tax and documentary stamp tax relative to the sale of a townhouse unit covered by a Transfer Certificate of Title, the land and the improvements thereon should be given separate values pursuant to Department Order No. 66-96 dated April 10, 1996 relative to the "Implementation of the Revised Zonal Values of Real Properties in Quezon City under RDO No. 38, Revenue Region No. 7, for Internal Revenue Tax Purposes." (BIR Ruling No. 028-98 dated March 6, 1998)

INCOME TAX; Income tax paid or accrued (now incurred) by a company within a taxable year not allowed as deduction - (a) BIR is prohibited from issuing further comments on Questions Nos. 1, 2, 3, 7 and 8 issued by the Energy Regulatory Board in relation to ERB Case No. 93-118 entitled "Meralco vs. Energy Regulatory Board, et. al." in so far as the rate fixing issue is concerned considering that the issues are all sub judice pending before the Court of Appeals. With regard to the question of whether the appraisal increase of property, plant and equipment of electric utilities is taxable, the general rule is that, mere increase in the value of property without actual realization, either through sale or other disposition, is not taxable. However, if by reason of appraisal, the cost basis of property is increased and the resulting basis is used as the new tax base for purposes of computing the allowable depreciation expense, the net difference between the original cost basis and new basis due to appraisal is taxable under the economic benefit principle.

(b) BIR is not following American Laws on taxation because we have our tax laws, including rules and regulations implementing our tax laws. However, under the doctrine of precedent, a court may apply American Laws or Court Decisions.

(c) The amendments introduced by EO No. 37 to then Section 21(c)(2) of the Tax Code of 1997 provides that dividend received by a citizen or resident alien from a domestic corporation is subject to income tax at the rate of 15% in 1986, 10% effective January 1, 1987, 5% effective January 1, 1988 and 0% effective January 1, 1989. However, Sec. 22 (a) and (b) of the same Code provides that dividends received by a non-resident alien individual, whether engaged or not in trade or business in the Philippines, from a domestic corporation is subject to final withholding tax of 30% of such dividend income.

(d) For purposes of computing the taxable income of domestic corporation derived form within and without the Philippines, the allowable deductions are limited to those provided under Section 29 of the Tax Code of 1997 for taxable year 1997 and prior years but for taxable year 1998, Section 34 of the Tax Code of 1997 governs.

(e) Pursuant to then Section 117 of the Tax Code of 1997, as amended by RA 8241, the 2% franchise tax of electric, gas and water utilities is based on gross receipts derived from the business covered by the law granting the franchise. (BIR Ruling No. 029-98 dated March 19, 1998)

EXCISE TAX; Specially denatured alcohol - BIR Ruling No. 063-97 exempting Philippine Aslam Corporation from excise tax for its specially denatured alcohol is not in any way affected by the proviso of Section 131 of the Tax Code of 1997. The specially denatured alcohol, although it has undergone fermentation, dilution, purification or mixing process does not make it an alcoholic drink suitable for oral intake. The resultant vinegar after denaturing, cannot be regarded as reprocessed spirit since it no longer contains ethyl alcohol, the same having been converted into acetic acid. Moreover, vinegar cannot be taken orally in volumes but merely as condiment or as preservative. (BIR Ruling No. 030-98 dated March 10, 1998)

EXCISE TAX; Denatured vinegar - Specially denatured alcohol although it has undergone fermentation, dilation, purification or mixing process does not make it an alcoholic drink fit for oral intake. The resultant vinegar after denaturing cannot be reported as reprocessed spirit since it no longer contains alcohol, the same having been converted into acetic acid. Hence, ethyl alcohol specially denatured for the manufacture of vinegar and the resultant clear vinegar are exempt from the excise tax but subject to the 10% VAT under Sec. 106 of the Tax Code of 1997. (BIR Ruling No. 031-98 dated March 20, 1998)

EXCISE TAX; Importation of Cherokee Jeep - The Presidential Memorandum of May 23, 1995 which granted the request of Philmotors Corporation for the classification of Cherokee Jeep as "Jeep" not subject to excise tax was authorized for market test purposes only. The fact that the restriction on the maker of imported Cherokee Jeep for market testing purposes has been lifted by the BOI does not necessarily mean that the subsequent importation of Cherokee Jeep in excess of the quantity limit of 25 units is exempt from the ad valorem tax. (BIR Ruling No. 032-98 dated April 13, 1998)

VAT; Sale of construction services to PEZA enterprises - Under Sec. 4:102-2(b)(3) of RR No. 7-95 as amended by RR 6-97, services rendered by VAT-registered persons to persons or entities whose exemption under special laws or international agreements to which the Philippine is a signatory effectively subjects the supply of such services tax to zero-rate. The sale of construction services to export enterprises registered within the Philippine Export Authority (PEZA) are effectively zero-rated transactions. (BIR Ruling No. 033-98 dated April 13, 1998)

INCOME TAX; Sale of property by Phil. Tubercolosis Society - Income derived by the Philippine Tuberculosis Society, Inc. (PTSI), a non-stock, non-profit, private charitable organization which operates the Quezon Institute and fifty (50) TB Centers nationwide, from the sale of its property in Zamboanga City to be used in the furtherance of its services in the prevention, control and treatment of tuberculosis and for charitable and social welfare purposes is not considered income from the productive use of its property because a single transaction of incidental character does not constitute PTSI as engaged in business. Said income is not subject to income tax imposed under Section 27 (c) of the Tax Code of 1997 subject to documentary stamp tax. (BIR Ruling No. 034-98 dated April 13, 1998 citing BIR Ruling Nos. 388-93 and 543-93; Xavier School, Inc., CTA Cast No. 1682 October 8, 1969)

INCOME TAX; Fees received for further maintenance services - Fees received in advance by FANUC Philippines Corporation from FANUC Ltd., a resident of Japan, for future maintenance services as embodied in their Maintenance Service Agreement, are not subject to income tax in the year of receipt, but should be considered earned income subject to income tax upon the performance or rendition of said service. (BIR Ruling No. 035-98 dated April 13, 1998)

Tax Credit Certificates - Under Section 204(C) of the Tax Code of 1997, a tax credit certificate validly issued under the permission of the Code may be applied against any internal revenue tax, excluding withholding taxes, for which the tax payer is directly liable. Chemfields, Inc. can therefore apply its Tax Credit Certificate No. SN00062 as erroneously paid advance sale tax for 1987 in payment of its VAT liability on importation of raw material. (BIR Ruling No. 036-98 dated April 13, 1998)

CAPITAL LOSSES - Capital losses sustained during the taxable year 1997 from sales or exchange of shares of stock classified as capital assets may be deducted currently (as opposed to year-end) from capital gains derived during the same taxable year from sales or exchanges of shares of stock classified as capital assets. (BIR Ruling No. 037-98 dated April 13, 1998)

VAT; International Trunkline Products and Services to Internet Users of PLDT - PLDT's "International Trunkline (IT) Products" and "services to Internet users" fall within the contemplation of the term "sale or exchange of services" which are subject to VAT pursuant to Sec. 108(A) of the Tax Code of 1997 based on PLDT's "gross receipt" derived from telephone, telegraph, telewriter exchange, wireless and other communication equipment services because although said products involve the usage of "International Trunklines", said services would still be considered as being rendered in the course of trade or business in the Philippines since the rendition of the same starts in the Philippines. However, overseas dispatch, message, or conversation originating from the Philippines then the Internet or the "International Trunklines" is subject to the 10% percentage tax based on the amount paid for such services payable by the Internet or Trunkline user/s to PLDT, pursuant to Sec. 120 of the Tax Code of 1997. (BIR Ruling No. 038-98 dated April 13, 1998)

National Power Corporation; Coverage of exemption - The exemption of National Power Corporation under Sec. 13 pars. (a) and (d) of RA 6395, as amended by PD 380, from all taxes, duties, fees imports and other charges, cannot be transferred by it to another person with binding effect on the government. NPC's intention to direct itself of the full supply, risks by transferring its exemption from the payment of specific tax in favor of the respective IPP may only be binding between the parties in respective private capacities but cannot legally bind the BIR. In short, the Oil Suppliers should bill IPP on their fuel purchases the corresponding specific tax imposed under Sec. 148(1) and (l) of the Tax Code of 1997. (BIR Ruling No. 039-98 dated April 13, 1998)

NPC; Indirect tax exemption - Under Section 13, pars. (a) and (d) of R. A. No. 6395, as amended by P.D. No. 380, National Power Corporation (NPC) is exempt from such taxes, duties, fees, imports and other charges imposed directly or indirectly on all petroleum products used by NPC in its operation. The indirect tax exemption of NPC covers only its purchase of petroleum products to be used in its operation. NPC may not rely upon that provision in order to make its independent contractor similarly exempt from the payment of specific tax by assuming the responsibility of supplying tax-free petroleum products to be used by the independent contractor in its operation. (BIR Ruling No. 040-98 dated April 13, 1998)

Excise Tax; Processed Gas - Liquefied petroleum products (LPG) is a separate and distinct product from processed gas. Processed gas is subject to excise tax at the rate of P0.05 per liter while LPG is subject to excise tax at the rate of P0.00 per liter (except LPG used for motive power which is subject to specific tax at the rate of P1.63 per liter) pursuant to Section 148 (b) and (j) of the Tax Code of 1997. Moreover, the sale or importation of petroleum products, which include LPG, is exempt from VAT under Section 109(e), also of the Tax Code of 1997. (BIR Ruling No. 041-98 dated April 13, 1998)

Capital gains tax; Sale of parcel of land by SSS - Sale by Social Security System (SSS) of a parcel of land to Mr. Everendo Medina is exempt from capital gains tax and documentary stamp tax pursuant to Section 16 of Republic Act No. 8282. However, since SSS is exempt from the documentary stamp tax, the buyer, who is not exempt, shall be the one directly liable to the DST pursuant to Section 173 of the Tax Code of 1997. (BIR Ruling No. 042-98 dated April 13, 1998)

VAT; Exchange of Notes between Government of Japan and Philippines - Under the Exchange of Notes dated July 1, 1996 between the Government of the Philippines and Japan, the Philippine Government obligated itself to make the necessary measures to exempt Japanese nationals who may be involved in the construction of the National Vocational Training and Development Center for Women from internal revenue taxes with respect to the supply of products and services. Mitsubishi Corporation, which is a corporation organized and existing under the laws of Japan shall be exempt from the payment of VAT on the supply of goods, such as materials and equipment for the construction of the Project considering that under par. (6)(1)(g) of the Exchange of Notes, the Government of the Philippines shall "bear all the expenses other than those covered by the Grant necessary for the execution of the Project." Moreover, under Section 12 of R.A. No. 8174, otherwise known as the "General Appropriations Act of 1996", the Philippine Government (thru TESDA) will bear the payment of VAT on the supply of materials and equipment by Mitsubishi Corporation used for the project and the said taxes are deemed automatically appropriated. (BIR Ruling No. 043-98 dated April 13, 1998)

DONOR'S TAX; Zonal values of Real Properties - Since the zonal values of the real properties to be donated by Laguna Estates Development Corporation, West Concourse Industrial Development Corporation and South Industrial Facilities, Inc. to the De La Salle University, Inc. have already been determined and established under Dept. Order No. 18-86, the same shall be the basis in determining the value of the gifts/donation that shall be deducted the donors in computing their taxable income under Sec. 24(a) of the Tax Code, in the year of donation. (BIR Ruling No. 044-98 dated April 14, 1998)

CREDITABLE WITHHOLDING TAX; Privatization of Manila Hotel - The Manila Hotel Corporation, which is no longer a government-owned or controlled corporation, is no longer constituted as a withholding agent for purposes of deducting and withholding the taxes on money payments to private individuals, corporations, partnerships and/or associations as required under R.A. No. 1051 but rather, it is now required to withhold creditable withholding taxes on income payments to persons residing in the Philippines as provided for in Revenue Regulations No. 6-85, as amended. (BIR Ruling No. 045-98 dated April 14, 1998)

ESTATE TAX; Extension of Time to File Return - Granting the request of the Estate of Benigno P. Toda, Jr. for the waiver of surcharge considering that the preparation of the estate tax return interest with difficulties and payment cannot be effected due to financial constraints. However, interest must be paid to compensate for the concomitant use of the funds when it is supposed to those been paid. (BIR Ruling No. 046-98 dated April 14, 1998)

CAPITAL GAINS TAX; Deed of Sale executed and notarized on March 27, 1979 -The sale of piece of land subject to a Deed of Sale executed and notarized on March 27, 1979 is not subject to the 5% capital gains tax because the provision of the Tax Code on the 5% capital gains tax under then Section 21 (e) of the Tax Code was not yet in existence because the Capital Gains Tax Law (BP Blg. 37) took effect only on September 7, 1979. Therefore, capital gains derived from the sale or transfer of real property classified as capital assets were then subject to the regular income tax rates. Likewise, it is not subject to the 7.5% EWT because EWT on the sales or transfers of real property other than capital assets was first introduced by Revenue Regulations No. 12-89 on December 21, 1989 only and the said Regulations provides that the same shall apply only to sales, exchanges or transfers of real properties classified as ordinary assets consummated after January 1, 1990. However, the Deed of Sale shall be subject to the documentary stamp tax based on the consideration stipulated in the Deed of Sale at the rate prevailing on March 27, 1979. (BIR Ruling No. 047-98 dated April 14, 1998)

VAT; Waiver of Surcharge for Late Filing & Payment of VAT - Granting the request of Dow Jones Tolerate (Asian Pacific) for the waiver of the payment of surcharge and penalties relative to the late filing and payment of VAT for the 1st quarter of 1996 and for the month of April 1996 but subject to the interest that have accrued thereon up to the payment of the VAT. (BIR Ruling No. 048-98 dated April 14, 1998)

FINAL WITHHOLDING TAX; Interest income from personal deposits of United Nations Personnel - The tax exemption privileges extended to United Nations personnel under Section (b), Article V and Sections 18 and 19 (b) of Article VI of the Convention on the Privileges and Immunities of the United Nations do not include exemption from the final withholding tax the interest income from personal deposits of the personnel of the United Nations residing in the Philippines, whether Filipino or resident alien, considering that the interest income is derived from passive investments in the Philippines and not from their salaries or emolument as personnel of the united Nations. (BIR Ruling No. 049-98 dated April 27, 1998)

Retirement Benefits under RA 7641 - Pursuant to Section 32 (B)(6)(a) of the Tax Code of 1997, the retirement benefits to be paid the retiring workers under R.A. No. 7641 are not subject to income tax and consequently, to withholding tax prescribed by Section 79, Chapter XIII, Title II of the Tax Code of 1997. (BIR Ruling No. 050-98 dated April 27, 1998)

RP-JAPAN TAX TREATY - Apallo Shipping Co., Ltd., a non-resident Japanese Shipping company operating in international traffic, shall be subject to the preferential tax rate of 1-1/2% tax on Gross Philippine Billings, pursuant to Art. 8(1) of the RP-Japan Tax Treaty. (BIR Ruling No. 051-98 dated May 5, 1998)

DOCUMENTARY STAMP TAX; Notes to be issued qualify as public issue of bonds indebtedness - The Notes which will be used in a particular form, indicating therein the undertaking of Benpres Holding Corporation to pay interest at the rate of 7.875% per annum, is considered as a bonded indebtedness. Moreover, since the Notes will be offered to interested buyers who must be an institutional buyer (investment houses, securities firms, banks, etc.) and will be deposited with a custodian for the Depository Trust Company, the Notes justify as a public issue of bonds indebtedness.

The Notes which qualify as bonds or bonded indebtedness shall be subject to the documentary stamp tax under Sec. 174 of the Tax Code.

Interest income derived from the Notes by corporate residents of countries which have no tax treaty with the Philippines shall be subject to 20% withholding tax pursuant to Sec. 25(b)(5)(A) of the Tax Code. Interest income derived from the Notes by corporate residents of countries which have a tax treaty with the Philippines shall be subject to the tax rate provided in the treaty. (BIR Ruling No. 052-98 dated May 5, 1998)

FINAL WITHHOLDING TAX; Phil. Centennial Commission - The Philippine Centennial Commission/Cultural Center of the Philippines is authorized to forego the withholding of the 20% final tax on the cash prizes of the winners in the Centennial Decor Competition among government buildings in Manila. However, if the winner is an individual, the same would be subject to 20% final withholding tax on passive income. (BIR Ruling No. 053-98 dated May 8, 1998)

CAPITAL GAINS TAX - Since the heirs of the late Angel and Sarah dela Paz signed the Project of Partition in 1984, they are liable to pay the final capital gains tax imposed under then Sec. 34(h) of the Tax Code based on the "net capital gains" in 1984 which shall mean the capital gains from the sale or other disposition of real property which is equal to the excess of the amount realized over the adjusted basis of the property, undiminished by any capital loss sustained from other capital asset transaction. (BIR Ruling No. 054-98 dated May 21, 1998)

EXCISE TAX; VAT; Quarrying and selling boulders or stones - A VAT-registered company engaged in quarrying business and currently selling boulders or stones quarried from its land shall be subject to 2% excise tax based on the actual market value of the gross output thereof at the time of removal pursuant to Section 151 (A)(2) of the Tax Code of 1997 and to the 10% VAT under Section 106(A) of the same Code. This is so, because boulders or stones cannot be considered as non-food agricultural products and/or products in their original state. (BIR Ruling No. 055-98 dated May 22, 1998)

RP-US TAX TREATY - Cash Dividend No. 185 declared by China Banking Corporation to its stockholders who are all residents of the United States, is subject to the preferential tax rate of 25% pursuant to Art. 11(2)(a) of the RP-US Tax Treaty. (BIR Ruling No. 056-98 dated May 21, 1998)

FRINGE BENEFIT TAX - Fringe benefit in the form of Educational Assistance granted by the PLDT Management to the members of MKP, is in all cases exempt from the imposition of fringe benefits tax imposed under Section 33 (A) of the Tax Code of 1997 since it is one of those enumerated under Subsection ( C)(3) which provides for the non-taxability of benefits given to rank-and-file employees whether under a CBA or not. Such benefits, regardless of the amount, provided that the same fall under the definition of ordinary and necessary business expense, are considered as valid deductible expenses of PLDT. (BIR Ruling No. 057-98 dated May 21, 1998)

RP-NETHERLANDS TAX TREATY - Under Article 5 of the RP-Netherlands Tax Treaty, Accessa B.V. does not have a permanent establishment in the Philippines for the purpose of performing its activities because the consultancy days for the project would last for 166 days only. Such being the case, the consultancy fees to be paid to Accessa B.V. is not subject to Philippine income tax and consequently to the withholding tax under Section 25(b)(1) in relation to Section 50(a) of the Tax Code (now Sections 28(B)(1) and 57(A), respectively, of the Tax Code of 1997) (BIR Ruling No. 058-98 dated May 20, 1998)

INCOME TAX; Income derived by EYS & Associates exempt - Pursuant to Section 25(b)(1) of the Tax Code, as amended, to be subject to Philippine income tax, such income of non-resident foreign corporation not engaged in trade or business in the Philippines must have been derived in the Philippines. If the services are performed within the Philippines, such income is subject to a withholding tax of 35% on the gross income of the said non-resident foreign corporation. Since the services rendered by EYS & Associates were done outside the territorial jurisdiction of the Philippines, the retainer fee of $1,000 per month and override fee of 5% for shipments over $240,000 derived therein are considered as income from without the Philippines pursuant to Sec. 36(c)(3) of the Tax Code, as amended. Moreover, under existing treaty between the Philippines and the United States, a non-resident foreign corporation based in the US may be taxed and only by the latter if does not have a permanent establishment in the Philippines. Such being the case, the income earned by EYS & Associates from Company B is not subject to Philippine income tax. (BIR Ruling No. 059-98 dated May 21, 1998)

VAT; Sale of goods and services to BOC subject to VAT - Sale of goods and services to the Bureau of Custom (BOC) by Unisys Public Sector Services Corporation is subject to 10% VAT which may be shifted or passed on to BOC, VAT being an indirect tax. Being a government agency, BOC is required to deduct and withhold the VAT due at the rate of 3% on the purchase of goods and 6% on the gross receipts for services rendered by UPSS which shall be creditable against the VAT liability of the latter, pursuant to Section 110 (c), now Section 14 (C) of the Tax Code of 1997. (BIR Ruling No. 060-98 dated May 21, 1998)

DONOR'S TAX; Exemption of DAR on donation of a parcels of land - The request of the Department of Agrarian Reform (DAR) for availment of tax deductions under Section 29 (h) of the Tax Code and exemption of Southern Luzon Coconut Oil Mills, Inc. (formerly ORCAR) from the donor's tax on the donation of four (4) parcels of land under section 94 (a)(2) [now Secs. 34(H) and 101(A)(2) of the Tax Code of 1997] were granted since the transfer in favor of the State is sanctioned by law, falling under the very purpose of the Comprehensive Agrarian Reform Law under the provision of Section 66 thereof. (BIR Ruling No. 061-98 dated May 21, 1998)

RP-US TAX TREATY - The interest income which Bauang Private Power Corporation (BPPC) will pay to the registered holders of the Notes which BPPC will issue is subject to the preferential tax rate of 10% pursuant to the RP-US Tax Treaty. This is so, because the Notes qualified as a "public issue of bonded indebtedness" since they are issued primarily for the continued existence, operation and maintenance of Bauang's Plant which supplies electrical energy to the Luzon Distribution Grid. The Notes however, are subject to the documentary stamp tax under Section 174 of the Tax Code of 1997. (BIR Ruling No. 062-98 dated May 21, 1998)

EXPANDED WITHHOLDING TAX; Dacion en pago - The delay of the Technology and Livelihood Resource Center to pay on time the corresponding expanded withholding tax and documentary stamp tax relative to the dacion en pago executed with Pontevedra Pawn Producers, Inc. (Borrower) was brought about by the fact that the Center was saddled with serious problems, particularly the unlawful detainer issue at that time; and that the Center is a government institution; proceeds from the ultimate disposal of the properties will form part of the government's payment to OECF, Japan from where the development funds were sourced. For being meritorious, this Office grants the request of the Center to pay the basic expanded withholding tax and documentary stamp tax, excluding the 25% surcharge but subject to 20% interest per annum and payment of compromise penalty. (BIR Ruling No. 063-98 dated May 21, 1998)

VAT; Importation/Local purchases of PNRC vatable - Reiterating BIR Ruling No. 026-96 dated February 27, 1996 to the effect that the privileges enjoyed by the Philippine National Red Cross (PNRC) under Section 4 (b) of PD No. 1264 were already withdrawn by EO No, 93 effective March 10, 1987 before the effectivity of the VAT law on January 1, 1988; hence, PNRC can no longer invoke its exemption from VAT on its importation and local purchases. However, local and foreign donations, like donations for disaster relief work and other Philippine Red Cross services shall be exempt from the donor's tax provided that not more than 30% of said donations shall be used by PNRC for administration purposes. Furthermore, being a non-profit and charitable organization, PNRC is exempt from income tax on income received by it as such organization. But income received by PNRC from any of its properties, real or personal, or from any of its activities conducted for profit regardless of the disposition thereof, shall be subject to income tax. (BIR Ruling No. 064-98 dated May 21, 1998)

INCOME TAX; VAT; Sasktel Int'l. exempt pursuant to General Agreement on Development Cooperation between RP and Canada - Sasktel International, the Canadian Prime Contractor undertaking the development of a telecommunication system pursuant to a Memorandum of understanding (MOU) entered into by the Government of the Republic of the Philippines represented by DOTC and the Government of Canada, represented by CIDA, is not liable to the corporate income tax imposed under Sec. 25 (a)(1) of the Tax Code (now Sec. 28 (A)(1) of the Tax Code of 1997) on resident corporation engaged in trade or business in the Philippines; and to the 10% VAT on its imported equipment as well as its sale of services relative to the Projects, under Article V of the General Agreement on Development Cooperation between the Governments of the Philippines and Canada. (BIR Ruling No. 065-98 dated May 21, 1998)

ESTATE TAX; Extension of time file return - Granting the request of the heirs of the late Ponciano L. Almeda for (1) an extension of 30 days within which to file the estate tax returns; (2) an extension of 2 years to pay the corresponding estate tax in the amount of P222,505,432.00; and (3) waiver and non-payment of the 25% surcharge. The basis is Section 90(c) of the Tax Code of 1997 authorizing the Commissioner to grant, in meritorious cases, a reasonable extension not exceeding 30 days for filing estate tax return. Moreover, the payment of the estate tax on date would impose undue hardship for the estate or any of the heirs, thus, the request for extension to pay and for a waiver of the 25% surcharge was also granted pursuant to Section 91(B) of the Tax Code but the estate is liable to the corresponding interest that have accrued up to the time of filing of the return and payment of the estate tax. (BIR Ruling No. 066-98 dated May 21, 1998)

CAPITAL GAINS TAX; Exemption by virtue of DARAB decision - The execution of a Deed of Absolute Sale over a portion of an agricultural land falling under the coverage of the agrarian reform program by vendee Elocia Sales in favor of agricultural lessees-redemptioneers, Graciano Solomon and Maximino, in pursuance to the decision of the Department of Agrarian Reform Adjudication Board (DARAB) promulgated on January 11, 1995, upholding the latter's rights to redeem under R.A. 3844, is exempt from capital gains tax and other taxes under Section 66 of R.A. 6657 since the transfer was made during the effectivity of the said Comprehensive Agrarian Reform Law. (BIR Ruling No. 067-98 dated May 21, 1998)

ESTATE TAX - Authorizing the widow of the late Jesus B. Soliman to withdraw the amount of P20,000.00 from the bank account maintained by the decedent for the basic needs of the heir pending the extrajudicial settlement of the estate between the deceased's widow and their only child, pursuant to Sec. 97 of the Tax Code. (BIR Ruling No. 068-98 dated May 21, 1998)

FRANCHISE TAX; VAT; Exemption of Electric Cooperatives - The 2% tax imposed under Sec. 119 of the Tax Code of 1997 is due and payable by electric utilities who are holders of electric franchises. An electric cooperative is not subject to the said 2% franchise tax by reason of the fact that it is not an electric franchise but is created under RA 6938, otherwise known as the Cooperative Code of the Philippines. Moreover, pursuant to Sec. 109(s) also of the Tax Code, sales by electric cooperatives duly registered with the CDA or NEA relative to the generation and distribution of electricity as well as importation of machineries and equipment including spare parts, shall be exempt from VAT. Hence, among payments made to Sorsogon II Electric Cooperative by the government including any of its political subdivision, instrumentalities or agencies, including government-owned or controlled corporation, shall not be subject to the 3% creditable VAT under Sec. 110(c) of the Tax Code. Neither is said income payment subject to the creditable withholding tax under RR 6-85 as amended by RR 12-94. (BIR Ruling No. 069-98 dated May 21, 1998)

INCOME TAX; OWWA subject to income tax - The Overseas Workers Welfare Administration (OWWA), a government entity created under PD 1694, as amended by PD 1809, is a quasi-corporation specially created to manage the Welfare Fund for the purpose of providing protection and promoting the welfare of the overseas Filipino Workers and their Filipino beneficiaries, hence, its taxable income derived from all sources within and without the Philippines shall be subject to the tax imposed upon associations or corporations engaged in similar business, industry or activity under Sec. 27(c) of the Tax Code of 1997. (BIR Ruling No. 070-98 dated May 21, 1998)

INCOME TAX; VAT; Documentary stamp tax; Exemption of NHA by virtue of RA 7279 - The general rule enumerated in Sec. 27(c) of the Tax Code of 1997 subjecting all corporations, government agencies, or instrumentalities and government-owned or controlled corporation, with the exemption of certain entities, if engaged in similar business, industry or activity as ordinary taxable corporation, is subject to further exception under Sec. 32(B)(7)(b) thereof. Pursuant thereto, income derived by the Government and its political subdivision from any public utility or from the exercise of governmental function, is excluded from their gross income.

Based on the definition of what constitutes the term government under Section 2 of the Introductory Provisions of Administrative Code of 1987 (E.O. 292), the National Housing Authority (NHA) is a government entity which undertakes various projects for mass housing and socialized housing and in the process of performing an essential government function is entitled to tax exemption. Pursuant to Sec. 19 of RA 7279, the NHA is exempt from payment of all taxes and charges of any kind, whether national or local, such as income and real taxes, VAT and documentary stamp tax and registration fees, including fees for the issuance of transfer certificate of titles. NHA is likewise exempt from the creditable withholding tax.

Finally, the tax exemption of NHA under RA 7279 on the sale of lots to the socialized housing project is not repealed by RA No. 8424. (BIR Ruling No. 071-98 dated May 25, 1998)

VAT; Exemption of Davao Light & Power Co. Inc. on importation of importation etc. - Under Sec. 10 of Act No. 3632 (Model Electric Light and Power Franchise Act dated December 7, 1929) which was incorporated as part of the legislative Franchise of Davao Light & Power Company, Inc., it shall pay a franchise tax of 2% of its gross earnings from the electric current sold or supplied, which shall be in lieu of any and all taxes of any kind , nature or description levied, by any authority, now or in the future on its rights and privileges. The enactment of the EVAT law, did not in any way alter, amend nor repeal the terms and conditions under which Davao Light is required to pay 2% of its gross earnings in lieu of any and all taxes of taxes of any kind, from which taxes the grantee is exempted. Moreover, RA 7716 as amended by RA 8241 specifically subject franchise grantee of electric utilities to only 2% franchise tax and thereby expressly exempting them from VAT.

Accordingly, Davao Light is exempt from VAT on its importation of machineries, equipment, spare parts, and implements exclusively used in the business of generating and selling electric light and power and shall be subject only to the 2% franchise tax imposed under Sec. 117 of the Tax Code of 1997. (BIR Ruling No. 072-98 dated May 27, 1998)

VAT; Refined sugar not agri-food product in original state - The request of NFA for exemption from 10% VAT on its sugar operations denied for lack of legal basis. Products classified under Sec. 103(a) and (c) shall be considered in their original state even if they have undergone the simple process of preparation or preservation for the market such freezing, drying, salting, broiling, roasting, smoking and stripping. Polished and/or husked rice, corn grits, raw cane sugar and ordinary salt shall be considered in their original state. Refined sugar cannot be considered as agricultural food product in its original state. (BIR Ruling No. 073-98 dated May 27, 1998)

INCOME TAX; Local Water District subject to income tax - Pursuant to Sec. 27(C) of the Tax Code of 1997, only the GSIS, SSS, PHIC, PCSO and PAGCOR are exempt from the regular corporate income tax. All other government owned or controlled corporations, agencies or instrumentalities engaged in similar business, industry or activity as that of an ordinary taxable corporation are taxable on their gross income Thus, Local Water Districts are subject to the corporate income tax imposed under Sec. 27(A) of the Tax Code of 1997 because they are not composite of the National Government or its political subdivision performing essential government function. (BIR Ruling No. 074-98 dated May 27, 1998)

FINAL WITHHOLDING TAX; DOCUMENTARY STAMP TAX; Gains/losses on SWAP of shares - The gains that will be realized by EAHDI from the transfer of the M & M shares of MHC in exchange for the latter's shares shall be determined by considering that the selling/transfer price of the M & M shares to MHC in exchange for the latter's shares shall be the fair market value of the shares received and not the fair market value of the shares transferred or exchanged.

Considering that the MHC shares are listed in the PSE., the fair market value of the MHC shares shall be the highest closing price in the stock exchange on the day of the execution of the Deed of Exchange between EAHDI and MHC.

Considering further that the M & M shares is unlisted shares, the gains to be realized by EAHDI from the intended transfer of shares of MHC shall be subject to the final tax of 5%/10% capital gains tax under Sec. 27 (1)(2) of the Tax Code of 1997.

Finally, the original issuance of MHC shares gives rise to neither taxable gain nor deductible loss, whether the subscription price of the MHC shares is in excess of or less than the par value of the MHC shares. However, the original issuance of MHC shares are subject to the documentary stamp tax under Section 175 of the Tax Code. (BIR Ruling No. 075-98 dated May 27, 1998)

INCOME TAX; VAT; Exemption of MV Aboitiz Jebsen - The net income derived from the operation of the vessel is exempt from income tax because the actual reinvestments required by RA 7471 may include expenditure for the cost of dry docking for the major repairs and improvement of the vessel and the setting aside of any net income to service the loans related to the acquisition of the vessel.

Moreover, the sale of the vessel is not subject to VAT because said sale was entered into, pursued and consummated outside the Philippines taxing jurisdiction; hence can be treated as an export sale under Sec. 106(A)(2)(a)(1) of the Tax Code of 1997. (BIR Ruling No. 076-98 dated May 27, 1998)

INCOME TAX; SBF Freeport Registered Enterprises - SBF Freeport Registered Enterprises are liable to the preferential tax treatment of 5% of the gross income earned which shall be in lieu of local and national taxes pursuant to Sec. 12)(c) of RA 7227. Hence, SBDMC, Inc. and LKN Management Services PTE Ltd. are exempt from documentary stamp tax on the original issue of stock certificates to the respective stockholders. However, the stockholders are the ones directly liable to the tax pursuant to Sec. 173 of the Tax Code 1997. (BIR Ruling No. 077-98 dated May 28, 1998)

Waiver of penalties - Granting the request of Salesiana Publisher Incorporated for waiver of penalties and surcharges on late remittances of its withholding taxes due to the confusion that arose in the initial implementation of the new payment system on withholding tax. (BIR Ruling No. 078-98 dated May 28, 1998)

RP-US TAX TREATY; Public issues of Treasury Bills and Notes - Interest derived by Bear Stearns Securities Corporation, a US resident, from public issues of Treasury Bills & Treasury Notes shall be subject to a tax of 10% of the gross amount of such interest, whereas interest derived from public issues of long term Commercial Paper, Short Term Commercial Paper and Promissory Notes shall be subject to a tax of 15% pursuant to Art. 12 of the RP-US Tax Treaty. (BIR Ruling No. 079-98 dated May 28, 1998)

EXPANDED WITHHOLDING TAX; Rate of tax if seller is CREBA member - Metrobank is habitually engaged in the real estate business as shown by its Certificate of Accreditation issued by CREBA. Such being the case, MSA Group, Inc. which bought a parcel of land from Metrobank should pay only 3% EWT and not 7.5% which is the tax rate imposed if the seller-corporation is not habitually engaged in real estate business. (BIR Ruling No. 080-98 dated May 28, 1998)

DONORS TAX; Donation Mortis Causa - Donations/gifts made which are intended to take effect upon the death of the donor partake the nature of testamentary provision and the same shall remain part of the donor-decedent's gross estate at the time of his/her death even if the same have been donated in favor of the donee. Hence, the provision relative to the imposition of estate tax on transfers in contemplation of death shall apply but the donation/gifts are exempt from donor's tax.

However, since a donation mortis causa takes effect only upon the death of the donor, the real properties subject to the donation cannot be transferred in the name of the donee and shall thereby remain the properties of the donor. Meanwhile, the Donation Mortis Causa can be properly annotated at the back of the TCT by the concerned Register of Deeds to protect the right of any person who may be affected by the said donation. (BIR Ruling No. 081-98 dated May 28, 1998)

EXPANDED WITHHOLDING TAX; DOCUMENTARY STAMP TAX; Valuation of Townhouses - Pursuant to par. 5 of Dept. Order No. 66-96 dated April 30, 1996, relative to the implementation of the Revised Zonal Values of Real Properties in Quezon City, in determining the zonal values for condominiums and townhouses, the value of the land as well as the value of the building shall be treated as one if the title is a Condominium Certificate of Title (CCT). However, if the Title is a Transfer Certificate of Title (TCT) land and improvements shall be given separate values. Thus, if townhouse unit sold in 1997 is covered by a TCT, then the land and improvement should be given separate values for purposes of computing the expanded withholding tax and documentary stamp tax. (BIR Ruling No. 082-98 dated May 25, 1998)

RP-US TAX TREATY; Royalties - Royalties payable by a domestic corporation to a US corporation shall be subject to the preferential tax treaty of 10% under Art. 13 (2)(b)(iii)of the RP-US Tax Treaty in relation to Art. 12 (2)(b) of the RP-West Germany Tax Treaty. The said tax shall be withheld and paid in the same manner and subject to the same condition as provided for in Sec. 50(b) of the Tax Code.

Moreover, the remittance of the 5% franchise fees arising in the Philippines as royalties shall be subject to 10% VAT which shall be withheld and remitted to the BIR by filing a separate VAT return for and in behalf of the non-resident foreign corporation. The duly validated VAT declaration/return shall be sufficient evidence in claiming input tax credit. (BIR Ruling No. 083-98 dated May 28, 1998)

VAT; GTZ Projects - Section 3 of RR No. 6-97 implementing RA 8241 provides that only those services rendered to persons or entities whose exemption is clearly provided under international agreements to which the Philippines is a signatory, are effectively subject to 0% VAT. The Bilateral Agreement between the German Federal Government and the Government of the Philippines partakes the nature of an international agreement and is a valid source of tax exemption even without legislative concurrence. Moreover, the restriction on the use of funds under the Bilateral Agreement is, in effect, a grant of tax exemption.

Accordingly, GTZ Projects/Project Consultant may not legally be passed on with the Vat otherwise due from DAP for conducting Training Needs Analysis with the BIR. (BIR Ruling No. 084-98 dated June 2, 1998)

INCOME TAX; BCDA firm subject only to 5% preferential tax rate - CJH Dev. Co., a domestic corporation organized under Philippine laws, is registered with the Bases Conversion Development Authority (BCDA) on May 21, 1997; that it won the right to lease, develop and operate a portion of the John Hay Special Economic Zone consisting of 246,9967 hectares in a public bidding conducted by BCDA. CJH Dev. Co. has undertaken the full-scale development of the leased portion of the John Hay Special Economic Zone into a world-class, family oriented and tourism complex which is to be completed within a maximum of 3 years Thus, CJH Dev. Co. is subject only to the preferential tax rate of 5% of its gross income in lieu of national and local taxes for the right to lease, develop and operate part of Camp John Hay Special Economic Zone. (BIR Ruling No. 085-98 dated June 2, 1998)

DOCUMENTARY STAMP TAX; RMO 8-98 - Denying the request of Jacinto & Jacinto for the temporary suspension of RMO No. 8-98 for lack of legal basis, citing the Supreme Court decision in the case of Commissioner of Internal Revenue vs. Construction Resources of Asia, Inc. and CTA, L-68230, Nov. 25, 1986, 14 SCRA 671) that " the delivery of the certificates of stock to the x x x stockholders, whether actual or constructive, is not essential for the documentary stamp taxes to attach. What is taxed is the privilege of issuing shares of stock and, therefore, the tax accrue at the time the shares are issued x x x." (BIR Ruling No. 086-98 dated June 3, 1998)

VAT; Asphalts - Pursuant to Section 109 (e) of the Tax Code of 1997, the sale or importation of coal and natural gas, in whatever form and state and petroleum products shall be exempt from VAT. Revenue Regulations No. 5-96 includes asphalts, among others, as petroleum product subject to excise tax at the rate of P0.56 per kilogram. Since the sale of asphalts is exempt from VAT, the withholding of the creditable VAT on payments to Petrophil on its purchases of asphalts has no legal basis. (BIR Ruling No. 087-98 dated June 10, 1998)

DOCUMENTARY STAMP TAX; Metering Machines - RMO No. 21-93 prescribes the uniform guidelines and procedures to be used for the required monthly report in the management of DST metering machines used by the authorized taxpayers pursuant to Revenue Regulations No. 7-92 in relation to Revenue Regulations No. 5-97 (BIR Ruling No. 088-98 dated June 10, 1998)

RP-JAPAN TAX TREATY - Income payments made by ATS Construction International, Inc. to Showa Astec Co.,Ltd., a non-resident foreign corporation organized and existing under the laws of Japan, for technical supervision rendered during the period July 25 to October 31, 1996 which is equivalent to 98 days shall be subject to tax in Japan pursuant to Art. 14 (1) and (2) of the RP-Japan Tax Treaty. However, the sale of services by Showa Astec Co., Ltd. to ATS Construction International, Inc. is subject to the 10% VAT pursuant to Sec. 102 of the Tax Code, as amended RA No. 7716. (BIR Ruling No. 089-98 dated June 15, 1998)

EXPANDED WITHHOLDING TAX; Payment of Retainer Fees - The payment of retainer fees and additional processing fees to SMC Stock Transfer Corporation (STSC), a domestic corporation engaged in business as a stock transfer agent, by San Miguel Corporation (SMC) is not subject to the expanded withholding tax considering that such payments are not among those specified in Revenue Regulations No. 6-85, as amended, implementing Sec. 50 (b) of the Tax Code, [now Section 57 (B) of the Tax Code of 1997] (BIR Ruling No. 090-98 dated June 15, 1998)

WAIVER OF SURCHARGE AND PENALTY - Denying the request of California Manufacturing Company, Inc. for the waiver of surcharge and penalty for the delay in the remittance of value-added tax on royalties because under Section 204 of the Tax Code, the Commissioner may abate or compromise a tax liability only when a reasonable doubt as to the validity of the claim exist. (BIR Ruling No. 091-98 dated June 15, 1998)

SURETY BOND - Granting the request of Transpacific Towage, Inc. to pay its VAT liability, including interest without surcharge in eight (8) quarterly installments commencing May 31, 1998 up to February 28, 2000 on the ground that taxpayer was burdened with overhead plus banking charges on financial obligations but required to post Surety Bond. (BIR Ruling No. 092-98 dated June 15, 1998)

REGISTRATION OF RECEIPTS - All receipts and invoices must be duly registered with the RDO where the place of business is located. The registration of the same is evidenced by appropriate stamp on the face of the taxpayer's copy of the authority to print as well as on the front cover, on the back of the middle invoice or receipt and on the back of the last invoice or receipt. Absence of the required appropriate stamp is prima facie evidence that the receipts or invoices are not registered; hence, they cannot validly support the claim for legitimate expenses or input VAT relating to purchases made. (BIR Ruling No. 093-98 dated June 15, 1998)

INCOME TAX; Non-resident professionals and entertainers - Professionals and entertainers who have gone to work in Hongkong and are considered residents of Hongkong on account of their employment in Hongkong registered-companies with their residency being co-terminus with their employment, as well as professionals and entertainers who have gone to work in Hongkong for more than seven (7) years and had been granted permanent residency pursuant to Hongkong Immigration Ordinance on the right of abode are considered as non-resident citizens pursuant to Section 22 (E) (2) of the Tax Code of 1997. Hence, income of said non-resident derived from Hongkong for taxable year 1998 is exempt from the payment of income tax under Section 23 (B) of the Tax Code. However, income for taxable year 1997 is still subject to income tax under Section 21 (b) of the same Code. (BIR Ruling No. 094-98 dated June 19, 1998)

ESTATE TAX - The estate of the late Paciencia M. Sto. Domingo is liable to pay the estate tax imposed under then Section 99 of the Tax Code, the law then enforced at the time of her death on May 19, 1978, based on the fair market value at that time as determined by the City Assessor and not on the zonal valuation since the tentative valuation of real properties started only in 1986 under RAMO 1-86. Accordingly, the estate of the late Pacencia M. Sto. Domingo is liable to pay the estate tax plus penalties consisting of delinquency interest in the maximum rate of 42% for three (3) years in lieu of criminal liability for failure to pay tax, make the return or supply such information. (BIR Ruling No. 095-98 dated June 19, 1998)

CAPITAL GAINS TAX; DOCUMENTARY STAMP TAX; Buy-back/reconveyance of properties - Borland Development Corporation, as the Developer, is exempt from the payment of capital gains tax and documentary stamp tax on the reconveyance by the delinquent borrowers/buyers of the houses and lots previously sold in their favor and are mortgaged to the NHMFC and HDMF Pag-ibig. In other words, the individual delinquent borrower who is now the seller is liable to pay the CGT and DST in case the developer buy-back the mortgaged properties of the delinquent borrowers/buyers. (BIR Ruling No. 096-98 dated June 23, 1998)

CAPITAL GAINS TAX; Sale of Principal Residence - The sale by Mr. Marcelo De Guzman of his principal residence wherein the proceeds of the sale or disposition will be fully utilized to buy another parcel of land including improvements thereon as his new principal residence within 18 calendar months reckoned from the date of sale and has notified the Commissioner about the sale within 30 days from the sale or disposition of the property, is exempt from the 6% capital gains tax imposed under Section 24 (1)(I) of the Tax Code of 1997. (BIR Ruling No. 097-98 dated June 24, 1998)

RP-THAILAND TAX TREATY - The gains that will be realized by Shinawatra International Public Company Limited, a company organized and existing under the laws of Thailand, from the contemplated sale of its shareholdings in Isla Communication, Inc. to Deutsche Telekon AG, shall be taxable in Thailand, pursuant to RP-Thailand Tax Treaty. Islacom's real property interest is less than 50% of its entire assets, hence the gains, if any, realized from this sale of its Class "B" shares are not subject to Philippine income tax but subject to DST imposed under Sec. 176 of the Tax Code. (BIR Ruling No. 098-98 dated June 29, 1998)

VAT; Sale of Services - Best Telephone Directories, Inc. (BTDI) which is engaged in the sale of services, was awarded the exclusive contract to publish the Bayantel and the Globe Telecom Telephone Directories to solicit advertisements and to include and print such advertisements in the yellow pages of the Directories. Payment terms for the foreign advertisers differ in that Best Telephone Directories entered into a Sales Agency Agreement with Bizlink Communications Pte., Singapore, pursuant to which BTDI received the 50% initial payment from the Singapore advertiser in 1998. Thus, BTDI is engaged in the sale of services and therefore subject to 10% VAT and is required to file VAT return covering the fees received from the advertisers. (BIR Ruling No. 099-98 dated June 29, 1998)

DONOR'S TAX; CARL; Exemption of displaced farmers/tenants - Pursuant to Section 66 of RA No. 6657, otherwise known as the Comprehensive Agrarian Reform Law of 1988, transactions involving transfer of ownership shall be exempted from the payment of registration fees and all other taxes and fees for the conveyance or transfer thereof. The subsequent donation of homelots, including the building of replacement houses at the relocation site, to the displaced beneficiaries which was made to comply with the relocation of the displaced workers as required by Administrative Order No. 1 S.1990, is exempt from donor's tax since the same is deemed to be within the coverage of the comprehensive agrarian reform process. On the other hand, entitlement to disturbance compensation does not pertain to transactions involving transfer of ownership but to the income/produce as a result of conversion, thus, is subject to income tax. Accordingly, donations of homelots, including replacement houses built on the relocated site, made by the Science Park of the Philippines, Inc. in favor of tenants/farm workers are exempt from donor's tax imposed under then Sec. 91 of the Tax Code [now Sec. 98, Tax Code of 1997] (BIR Ruling No. 100-98 dated June 29, 1998)

VAT; Exemption of Inventor - Mr. Rafel Teotico, as the inventor of Pre-Stressed Concrete Post and Product therefor, is exempt from the payment of income tax, VAT and excise taxes directly payable in connection with the sale of invention product, pursuant to RA No. 7459 otherwise known as the Inventors and Inventions Incentives Act of the Philippines. The exemption shall be for the first ten (10) years from the date of the first sale of the invention on commercial scale, provided that the invention shall be extended to the legal heir or assignee, upon the death of the inventor. However, the corporation selling the invention shall not be entitled to the tax incentives previously granted to individual inventor. (BIR Ruling No. 101-98 dated June 19, 1998)

CAPITAL GAINS TAX; Foreclosure Sale - In a foreclosure sale at public auction or a forced sale which has been the subject of Examiner's Verification on capital gains, the date of execution or signing of the documents should be reckoned on the date of issuance of the Certificate of Sale and not on the date of the Notice of Sale. Hence, the assessment for surcharges and interests against Crown Savings and Loan Associations, Inc. on its payment of documentary stamp tax and capital gains tax on the foreclosure sale of its mortgaged property should be reconsidered. (BIR Ruling No. 102-98 dated June 29, 1998)

CAPITAL GAINS TAX; Definition of Capital Assets; Exemption of ROPOA - Section 39 of Republic Act No. 8424 defines capital assets as property held by the taxpayer (whether or not connected with his trade or business), but does not include stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year and property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business. Based on the said definition, real or other properties owned or acquired (ROPOA) by the Philippine National Bank which represents real or other properties, other than those used for banking purposes or held in the investment portfolio, acquired in statements of loan and/or for other reasons, most of which were acquired through foreclosure of collaterals of client borrowers who were unable to pay their warrants with PNB, should be treated as "ordinary asset," which sale, exchange or other disposition will not be subject to the capital gains tax imposed under Section 27(D)(5) of the Tax Code of 1997. (BIR Ruling No. 103-98 dated June 29, 1998)

RA 7917; ECOZONE enterprise liable to 5% preferential tax rate - Section 24 of Republic Act No. 7917, otherwise known as "Special Economic Act of 1993" provides that business and enterprises within the ECOZONE shall, in lieu of paying local and national taxes, be liable to the payment of five percent (5%) preferential tax rate based on gross income earned. The aforementioned preferential tax is a commutation of all the national and local taxes otherwise due from businesses and enterprises operating within the Zone. Such being the case, the services rendered by a non-resident foreign licensor to Dae Ryung Ind., Inc. (Philippines) is considered exempt from all and indirect taxes and from the value-added tax. (BIR Ruling No. 104-98 dated June 29, 1998)

VAT; PAGCOR liable to pay VAT passed on by PLDT - Executive Order No. 93 dated March 10, 1987 withdrew all tax and duty incentives granted to government and private entities. Thus, the Philippine Amusement and Gaming Corporation (PAGCOR) shall be subject to value added tax being passed on to it by the Philippine Long Distance Telephone Company (PLDT) for the sale of telecommunication services considering that VAT is an indirect tax which may be shifted or passed on to the buyer of goods, properties or services, considering further that once shifted, it is no longer a tax but an additional cost which PAGCOR has to pay for the use of telecommunication services rendered by PLDT. (BIR Ruling No. 105-98 dated June 29, 1998)

EXPANDED WITHHOLDING TAX; Buyer-Withholding Agent subject to 3% EWT - In a Deed of Absolute Sale, whether the property is held as a capital or ordinary asset, by a corporation habitually engaged in real estate business, the buyers/payors shall be subjected to 3% expanded withholding tax. Moreover, under Section 2(a) of Revenue Regulations Nos. 6-85, as amended by Revenue Regulations No. 12-94, the individual buyers who are not engaged in trade or business shall be required to withhold and deduct the said tax but is not required to register. Failure on the part of the buyer/payor to withhold and remit the 3% expanded withholding tax shall be subject to the corresponding surcharge, interest and penalties. (BIR Ruling No. 106-98 dated June 29, 1998)

INCOME TAX; Transfer of heirs hereditary right - The transfer of the heir's hereditary shares in favor of their own partnership, represents their additional capital contributions. It is considered as capital investment which is not included within the purview of the term "taxable income" as defined in Section 31, in relation to Section 32 of the Tax Code of 1997, hence, not subject to income tax. (BIR Ruling No. 107-98 dated June 29, 1998)

CAPITAL GAINS TAX; DOCUMENTARY STAMP TAX; Transfer without consideration - There is no sale, exchange or disposition of real property in the transfer of properties from Grimm and Parsons to G-P & Company, since G-P & Company is the real owner of the aforesaid real properties while Grim and Parsons acted merely as trustees. Since there is no monetary consideration, the same is not subject to capital gains tax and documentary stamp tax imposed by Section 196 of the Tax Code of 1997, but only to the documentary stamp tax on certificates of sale under Section 188 of the same Tax Code. (BIR Ruling No. 108-98 dated June 29, 1998)

FRANCHISE TAX; Exemption of PAGCOR, Centennial Gaming Corporation - The exemption from payment of all taxes in lieu of the 5% franchise tax for earnings derived from operations conducted under the franchise shall inure to the benefit of and extend to corporations, associations, agencies or individuals with whom the Corporation or operator has any contractual relationship in connection with the operation of casinos. When PAGCOR granted National Centennial Commission's request to conduct bingo games for fund-raising purposes of the Centennial Celebration, the requisite authority necessary to operate bingo games has been effectively approved. Such being the case, the exemption from taxes, fees and charges in lieu of paying the 5% franchise tax of the gross receipt being enjoyed by PAGCOR was effectively extended to Centennial Gaming Corporation, it being an agent/operator of NCC. (BIR Ruling No. 109-98 dated July 6, 1998)

VAT; Sale of House and Lot valued at P1,000,000.00 below - The sale by real estate dealers and/or lessors of house and lot and other residential dwellings valued at One Million Pesos (P1,000,000.00) and below shall be exempt from Value Added Tax pursuant to Section 4.103-1(B)(w)(4) of Revenue Regulations No. 7-95 and Section 109(w) of the Tax Code of 1997. Moreover, since Alakor Corporation is a non-VAT taxpayer, it shall pay a tax equivalent to three percent (3%) of its quarterly gross sales or receipts pursuant to Section 116 of the same Code. (BIR Ruling No. 110-98 dated July 7, 1998)

CAPITAL GAINS TAX; Sale of Principal Residence - The sale or disposition of a principal residence, which proceeds shall be fully utilized in acquiring or constructing a new principal residence within eighteen calendar months from the date of sale or disposition shall be exempt from the capital gains tax imposed under Section 24(D)(2) of the Tax Code of 1997, provided that the Commissioner shall have been duly notified by the taxpayer within thirty days from the date of sale or disposition of his intention to avail of the said tax exemption, which exemption can only be availed of once every Ten (10) years. Moreover, if there is no full utilization of the proceeds of sale or disposition, the portion of the gain presumed to have been realized shall be subject to capital gain tax, based on the gross selling price or fair market value at the time of sale, whichever is higher. (BIR Ruling No. 111-98 dated July 8, 1998)

EXCISE TAX - The excise tax due on imported cigarettes shall be due and payable to the Bureau of Customs before the cigarettes are withdrawn from the customshouse while the internal revenue stamps to be affixed on each pack of imported cigarette shall be issued by the BIR to the importer upon approval of the Permit to Import as required under Revenue Regulations No. 1-97, as amended by Revenue Regulations No.16-97. (BIR Ruling No. 112-98 dated July 13, 1998)

VAT; Isolated Sale of Microwave Backbone Transmission network - The sale of a microwave backbone transmission network by Liberty Broadcasting Network, Inc., a domestic corporation holding a congressional franchise to provide the public with wireless radio communication services and to operate radio communication stations nationwide, to another wireless communications carrier, being an isolated transaction, is not in the course of its trade or business of selling communication services. Thus, not subject to VAT. Moreover, the subject sale shall not result in any input tax credit to the buyer. (BIR Ruling No. 113-98 dated July 23, 1998)

CAPITAL GAINS TAX; Sale of Principal Residence - Capital gains presumed to have been realized from the sale or disposition of their principal residence by natural persons, the proceeds of which is fully utilized in acquiring or constructing a new principal residence within eighteen (18) calendar months from the date of sale or disposition, shall be exempt from the capital gains tax imposed under Section 24(D)(1) of the Tax Code of 1997, provided that the historical or adjusted cost basis of the real property sold or disposed shall be carried over to the new principal residence built or acquired and the Commissioner shall have been duly notified by the taxpayer within thirty (30) days from the date of sale or disposition through a prescribed return of his intention to avail of the tax exemption, which exemption can only be availed of once every ten (10) years. (BIR Ruling No. 114-98 dated July 7, 1998)

PERCENTAGE TAX; DOCUMENTARY STAMP TAX; Gains from Transfer of Receivables - The gain to be realized by EADPC from the assignment of its receivables to Solivest Corporation in exchange for the latter's common shares of stock of EAPRC shall be the excess of the amount realized therefrom over the cost or adjusted cost of said receivables, and the loss to be recognized by EADPC from the assignment of said receivables shall be the excess of the cost or adjusted cost of the receivables over the amount realized, which amount is determined by considering the selling/transfer price based on the fair market value of the property received and not the fair market value of the receivables transferred, pursuant to Section 40 (A) of the Tax Code of 1997

Moreover, considering that the EAPRC shares are listed shares and their transfer to EADPC shall be coursed through a cross-sale in the stock exchange, the fair market value of the shares shall be the actual selling price as shown in the sale confirmation issued by the member of the stock exchange, wherein a percentage tax of of 1% shall be imposed on the gross selling price. The transfer of EAPRC shares shall also be subject to documentary stamp tax at the rate of One Peso and Fifty Centavos (P1.50) on each Two Hundred Pesos (P200.00), or a fractional part thereof, of the par value of said shares pursuant to Section 176 of the same Code. (BIR Ruling No. 115-98 dated July 28, 1998)

LENDING INVESTOR; Definition of - A lending investor is one who makes practice of lending money for themselves or others at interest. Borrowings and lendings obtained by a lending investor is in the nature of a deposit substitute. Moreover, the act of ASB Development of lending and/or borrowing from its affiliates to finance its project and vice-versa, is in the nature of cash advances wherein the interest that is being charged to the affiliate-borrower is substantially the same interest the bank or financing institution charges the corporate debtor, the latter having merely passed on the same to its affiliate. Hence, ASB Development Corporation is not a lending investor and its activity of borrowing from or lending money to its affiliate is not a "deposit substitute" contemplated under Section 22(Y) of the Tax Code of 1997. Furthermore, the interests which ASB Realty Corp. or its affiliates charges each from each other, depending as to who is the affiliate-borrower do not constitute additional or real income to the affiliate-borrower since it merely passes on to affiliate-borrower the interest which the creditor bank actually charges nor it is required to withhold the 20% final tax on the said interest paid considering that neither of them is a lending investor. (BIR Ruling No. 116-98 dated July 30, 1998)

FINAL TAX; DOCUMENTARY STAMP TAX; Meaning of the terms "lending investor", "similar arrangement", "lending or gross-lending activities", Inter-office Memo - Section 27(D)(1) of the Tax Code of 1997 refers to the 20% final tax being imposed on the interest income on currency bank deposit and yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangement derived by lending institutions and banks. Thus, it has been ruled that borrowings/lendings obtained by a lending investor is in the nature of deposit substitutes. As to who is considered lending investor, this Office defined the term as "as one who makes practice of lending money for themselves or others at interest".

In view of the above-mentioned BIR rulings, this Office hereby holds that since the arrangement between ASB and its affiliate is in the nature of cash advances wherein the interest that is being charged to the affiliate-borrower is substantially the same interest the bank or financing institution charges the corporate debtor, the latter having merely passed on the same to its affiliate, ASB Realty Corporation is not a lending investor and its activity of borrowing from or lending money to its affiliate is not a "deposit substitute" contemplated under Section 22(Y) of the Tax Code of 1997. Neither will this kind of arrangement between affiliates be considered as "similar arrangement" mentioned in said Section 27(D)(1) of the same Code.

The term "similar arrangement" must necessarily be within the context of the definition of "Deposit Substitutes". But since the activity of borrowing and lending is exclusive to ASB and its affiliate, it cannot be categorized as activity falling under "similar arrangement" nor shall ASB and its affiliate be considered as non-bank financial intermediaries performing quasi-banking functions.

Moreover, the interests which ASB Realty Corp. or its affiliate charges from each other, depending as to who is the affiliate-borrower, do not constitute additional or real income to the affiliate-lender since it merely passes on to affiliate-borrower the interest which the creditor bank actually charges. While ASB or its affiliate charges the corresponding interest from either of them depending on who is the affiliate-borrower, the same is computed in such number of days the fund is actually used by the affiliate-borrower. Hence, the customary practice of borrowing/lending with interest being charged or paid by ASB or its affiliate, as the case may be, at the rate substantially equal to the rate the affiliate-debtor is liable to pay to the creditor bank , does not constitute as being engaged in lending or quasi-lending activities. Likewise, there being no income attributable from such arrangement, ASB Realty Corp. or its affiliate-borrower, as the case may be, is not required to withhold the 20% final tax on the said interest paid considering that neither of them is a lending investor.

On the matter of whether the corresponding interest on the amount so borrowed can be deducted as legitimate business expense, this Office opines that the corporate-debtor (i.e., the affiliate-lender) which initially borrowed the fund from the bank or any lending/financing institution and thereafter pays the corresponding interest thereon, may claim the same as legitimate business expense provided, however, that such interest receive from its affiliate-borrower but which thereafter is paid to the bank/financial institution, is reported as interest income for the purpose of computing the regular corporate income tax.

However, if the first borrower does not make use of its fund but instead relends it to an affiliate, it shall only be allowed interest expense duly deductible from its gross income if such relending activity actually generates income to it as the affiliate-lender. Otherwise, if no interest income is reported by an affiliate-lender from such activity, it cannot deduct as legitimate business expense the interest it initially paid to the bank since it did not actually assume such interest.

Finally, inter-office memo evidencing the lendings/borrowings which is neither a form of promissory note nor a certificate of indebtedness issued by the corporation-affiliate or a certificate of obligation, which are, more or less, categorized as "securities", is not subject to documentary stamp tax imposed under Sections 180, 174 and 176 of the Tax Code of 1997, respectively. Rather, the inter-office memo is being prepared for accounting purposes only in order to avoid the co-mingling of funds of the corporate affiliates. (BIR Ruling No. 117-98 dated July 30, 1998)

CAPITAL GAINS TAX; Sheriff's Certificate of Sale - A certified xerox copy attested by the sheriff-executor concerned of a Certificate of Sale over a real property is a sufficient basis for payment of capital gains tax, the original of which has been lost, considering that under Section 24, Rule 132 of the Revised Rules of Court, secondary evidence of a public document may be used as evidence, when it appears that the officer by whom they purport to be certified had the right to the custody of the record and had authority to furnish authenticated copies.

In settling the corresponding tax liability/ies arising from the latest auction sale, the present successor-in-interest, is not under any obligation to pay the tax liability of the predecessor-in-interest before being allowed to pay the tax due from the latest sale transaction. However, for purposes of registration of the Sheriff Certificate of Sale with the Registry of Deeds, both the tax liabilities of the predecessor-in-interest (seller) and that of the present successor-in-interest must first be settled before registration may be effected, pursuant to Section 56(A)(3) of the Tax Code of 1997. Should payment of both tax liabilities be made by the present successor-in-interest, the portion of such payment to the tax liability of the predecessor-in-interest may be reimbursed by the predecessor-in-interest pursuant to Article 22 of the Civil Code, should the former seek reimbursement of the same. (BIR Ruling No. 118-98 dated August 6, 1998)

RMO No. 17-97; Issuance of Tax Clearance Certificates (TCLs) and Certificate Authorizing Registration (CARs) - Paragraph 3.1 and 3.2 of Revenue Memorandum Order No. 17-97 provides that every sale, exchange, or transfer of real property whether classified as ordinary or capital asset made by an individual estate or trust or by a corporation, a TCL/CAR shall be issued by the Revenue District Officer where the seller-transferor is registered or is required to be registered. The tax returns and all taxes due on the transaction involving transfer of real property should be filed and paid with the RDO where the seller-transferor is likewise registered. Moreover, considering that Filipinas Daewoo Industries Corporation was made to believe by RDO No. 32 that it had jurisdiction to receive payments on the transaction and the issuance of the corresponding CAR, the additional amount being proposed to be assessed to the corporation for paying at the wrong venue is hereby waived. (BIR Ruling No. 119-98 dated August 13, 1998)

WITHHOLDING TAX ON DIVIDENDS - The dividends to be received by Mr. Go Bun Pin from MERALCO is not subject to 30% withholding tax but to a final withholding tax of 6% beginning Jan. 1, 1998, 8% beginning Jan. 1, 1999 and 10% beginning Jan. 1, 2000 pursuant to Section 24(B)(2) of the Tax code of 1997, with the proviso that such tax on dividends shall apply only on income earned on or after January 1, 1998. Moreover, income forming part of retained earnings as of December 31, 1997 shall not, even if declared or distributed on or after January 1, 1998, be subject to the said withholding tax. (BIR Ruling No. 120-98 dated August 14, 1998)

LARGE TAXPAYER - The average monthly withholding tax remittance of P1,600,000.00 by C.F. Sharp Crew Management, Inc. makes it to be within the bracket of the country's large taxpayers. Thus, it can avail of the privilege of remitting its monthly withholding taxes on the 25th day of the month following the month in which the withholding was made subject to the condition that it should re-apply with the Large Taxpayers Division for re-enlistment in the List of large Taxpayers. (BIR Ruling No. 121-98 dated August 18, 1998)

VAT; Exemption of cooperative on importation of agricultural equipment - The importation of Philippine Producer's Cooperative Marketing Association, Inc. of one unit of Backhoe, not locally available, which is used as an agricultural equipment designed for digging and preparing drainage for irrigation of farms and plantation is not subject to value-added tax pursuant to Section 103 of the Tax Code of 1997. (BIR Ruling No. 122-98 dated August 18, 1998)

VAT; Cancellation of registration - Section 4.107-6 of Revenue Regulations No. 7-95, as amended by Revenue Regulations No. 6-97, provides that a VAT-registered taxpayer whose gross sales or receipts did not exceed P500,000.00 during the first 12 months in business beginning calendar year 1997 may apply for cancellation of registration by filing a duly accomplished Application for Cancellation of Registration with the Revenue District Officer concerned. However, Mrs. Beatrice A. Dimayuga is liable to value added tax from the time she registered as VAT Taxpayer up to the time of the cancellation of her VAT Registration. (BIR Ruling No. 123-98 dated August 27, 1998)

DOCUMENTARY STAMP TAX; Exemption of rural banks on original issuances of shares of stock - Rural Banks are exempt from the documentary stamp tax imposed under Section 175 of the Tax Code of 1997 on the original issuance of shares of stock of stockholders. However, the same Code provides that whenever one party to the taxable document enjoys exemption from the tax, the other party, who is not exempt shall be the one directly liable for the tax. Accordingly, since rural banks are exempt from documentary stamp tax, the stockholders are the ones liable for the payment of the documentary stamp tax due on said certificates of stock to be issued by the bank. (BIR Ruling No. 124-98 dated August 31, 1998)

INCOME TAX; Exemption of retirement benefits - The retirement benefits/gratuities to be received by Mr. Angel Q. Yoingco from the Lyceum of the Philippines, under Section 32(B)(6)(a) of the Tax Code of 1997 shall be exempt from income tax and consequently from the withholding tax prescribed in Section 79, Chapter XIII, Title II of the Tax Code of 1997, since the retirement benefits/gratuities received by him in 1990 was from the GSIS and not from the same or another employer who have a qualified private retirement plan. (BIR Ruling No. 125-98 dated September 4, 1998)

INCOME TAX; Gains derived by a non-resident corporation not engaged in trade or business in RP- exempt from income tax - Any gain derive by Maha Ahmed Al-Juffali Food Distribution Systems Establishment (MAJ), a non-resident foreign corporation engaged in the wholesale of foodstuff/confectionery products, from selling Gandour products to Gandour Philippines, Inc. (GPI), a domestic corporation engaged in the manufacture, export and wholesale of goods such as candies, gums, sweets, chocolates, preserved fruits and confectionary goods in Saudi Arabia, under a Distributorship Agreement, will not be considered as Philippine source income and therefore exempt from the Philippine corporate income tax and withholding tax under Section 28(B)(1) of the Tax Code of 1997 and to the final withholding tax imposed under Section 57 of the same Code except capital gains tax under subparagraph 5(c) at the rate of 35% based on gross income during each taxable years, provided that effective January 1, 1998, the rate of income tax shall be thirty-four percent, January 1, 1999, 33% and January 1, 2000 and thereafter, 32%. (BIR Ruling No. 126-98 dated September 8, 1998)

RP-SINGAPORE TAX TREATY; Interest Income - The interest income of Banker's Trust Company Singapore and Bankers Trust International Asia Ltd, both non-resident foreign corporations, from peso placements or deposits in the Philippines is subject to the preferential tax rate of 15% withholding tax pursuant to Article 11(2) of the RP-Singapore Tax Treaty, as implemented by Revenue Regulations No. 7-82 considering further that peso placement partakes the nature of an ordinary deposit. (BIR Ruling No. 127-98 dated September 8, 1998)

EXCISE TAX; Exemption of Banole - The importation of Banole, an agricultural chemical for use as co-adjuvant that improves the penetration of fungicide to combat banana sigatoka diseases and not to generate power or energy or to be used as fuel, is not subject to the excise tax imposed under Section 148(a) of the Tax Code of 1997. (BIR Ruling No. 128-98 dated September 10, 1998)

RP-NETHERLANDS TAX TREATY; Royalty payments --The royalty payments made by Studio Ventures, Incorporated to Warner Bros. Consumer Products, a limited partnership organized under the laws of Delaware, USA, for the right to establish and operate Stores in the Philippines as well as for the exclusive right to use the WB Intellectual Property and the WBSS System in connection with the ownership and operation of the Stores and the sale of the WB Merchandise, are subject to the preferential tax rate of 15% pursuant to the most favored nation clause (Article 13(2)(b)(iii) of the RP-US Tax Treaty) in relation to Article 12, paragraphs 2(b) and (4) of the RP-Netherlands Tax Treaty. Moreover, the VAT on rental and/or royalties payable to non-resident foreign corporations or owners for the sale of services and use or lease of properties in the Philippines shall be based on the contract price agreed upon by the licensor and licensee, wherein the latter shall be responsible for the payment of VAT. (BIR Ruling No. 129-98 dated September 10, 1998)

ESTATE TAX - A parcel of land acquired by Mrs. Luz S. Espiritu during her marriage with Perfecto Espiritu by gratuitous title, having been donated to her by her brother alone, for being the youngest and only sister shall not be deemed part of the gross estate of the deceased Perfecto Espiritu for estate tax purposes pursuant to Section 78(h) of the Tax Code as restructured by Republic Act No. 7499 (now Section 85(H) of the Tax code of 1997). (BIR Ruling No. 130-98 dated September 10, 1998)

RP-JAPAN TAX TREATY ; Interest Payments - The interest payments of San Pascual Cogeneration Corporation (SPCC) for loans obtained from Japanese Commercial banks and guaranteed by the Ministry of International Trade and Industry of the Government of Japan (MITI), to the extent of 95% thereof are taxable only in Japan. Accordingly, said interest payments are exempt from Philippine income tax pursuant to Article 11(4) of RP-Japan Tax Treaty. However, interest payments of SPCC with respect to 5% of the loans not covered by the MITI shall be subject to Philippine Income Tax. (BIR Ruling No. 131-98 dated September 10, 1998)

RP-US TAX TREATY; Interest payments - The interest payments by Cypress Semiconductor Philippines, Inc. to Cypress Semiconductor Corporation, a corporation not doing business in the Philippines which is organized and existing under the laws of Delaware, U.S.A., in consideration of a loan, is subject to a final withholding tax at the preferential rate of 15% pursuant to Article 12(2) of the RP-US Tax Treaty. (BIR Ruling No. 132-98 dated September 10, 1998)

CAPITAL GAINS TAX; Capital Assets - The piece of land belonging to Security Trading Company that has never been leased to anybody nor used for any other business purpose is considered a capital asset. Accordingly, the sale thereof shall be subjected to a 6% capital gains tax based on the gross selling price or the fair market value at the time of sale, whichever is higher, which is a final tax. Hence, the gains presumed to be realized, are no longer includible in the other items of gross income in computing the taxable income. (BIR Ruling No. 133-98 dated September 15, 1998)

UNLAWFUL DIVULGENCE - The prohibition set forth by Section 269 of the Tax Code prohibits any officer or employee of the Bureau of Internal Revenue from making known or providing any information, except those that are provided by the law, any trade secrets of individuals. Hence, the request of the Office of the Ombudsman for certified true and clear copies of the Income Tax Returns of different Commission on Audit employees can not be granted. (BIR Ruling No. 134-98 dated September 15, 1998)

EXCISE TAX; Basis of Computation - The tax base for the computation of specific tax for cigarettes is on a "per pack" basis pursuant to Section 3 of Revenue Regulations No. 1-97. (BIR Ruling No. 135-98 dated September 24, 1998)

RETROACTIVITY OF RULING - BIR Ruling No. UN 135-94 dated April 11, 1994 which states that the business profits derived by Time-Life International shall not be subject to the Philippine income tax and consequently to the withholding tax since it does not have a permanent establishment in the Philippines, is given retroactive effect. (BIR Ruling No. 136-98 dated September 24, 1998)

DOCUMENTARY STAMP TAX; Voting Trust Agreement exempt - Documentary stamp tax shall be imposed on the Land Bank Note based on the face value of the Note actually issued and equivalent to the amount of the loan actually disbursed as of drawdown date. The assignment or transfer of shares in favor of a trustee designated in the Voting Trust Agreement is not subject to the documentary stamp tax under Section 196 of the Tax Code of 1997 but only to the documentary stamp tax of P15.00 on notarial acknowledgment under Section 188 of the same Code. (BIR Ruling No. 137-98 dated September 24, 1998)

PAGCOR; Exemption from taxes - The exemption from taxes, fees and charges enjoyed by PAGCOR is extended to its contractors, like AB Leisure Exponent, Inc. which is doing business under the name and style of Bingo Bonanza. (BIR Ruling No. 138-98 dated September 25, 1998)

PERCENTAGE TAX; Shares of Stock listed through the local stock exchange - Sale, barter or exchange of shares of stock listed and traded through the local stock exchange by residents of countries with which the Philippines has a tax treaty, shall continue to be exempt from percentage tax under Section 127 (A) of the Tax Code of 1997 in spite of the reclassification of the tax on shares of stock listed and traded through the local stock exchange as subject to percentage tax under Title V of the Tax Code of 1997. (BIR Ruling No. 139-98 dated September 28, 1998)

INCOME TAX; Salaries of DSWD workers covered by MOA - Workers hired by the Department of Social Welfare and Development (DSWD) which is covered by a Memorandum of Agreement (MOA) are considered employees of DSWD. As such, salaries of hired personnel workers of DSWD under the MOA are subject to the regular income tax imposed under Section 24(A)(1)(a) of the Tax Code of 1997. (BIR Ruling No. 140-98 dated September 29, 1998)

CAPITAL GAINS TAX; EXPANDED WITHHOLDING TAX - Under Section 196 of the Tax Code which speaks if a "block sale" of real and personal properties, only the consideration attributed to the real property shall be subject to the documentary stamp tax. The block sale of three (3) sugar mills on as "as-is-where-is basis" is in line with the Asset Privatization Program contemplated under Proclamation No. 50, hence, exempt from capital gains tax and from withholding tax pursuant to Section 4(a) of Revenue Regulations No. 6-85 as amended by Revenue Regulations No. 10-94 implementing Section 50(b) of the Tax Code as amended. (BIR Ruling No. 141-98 dated September 29, 1998)

VAT; Retention money - VAT is based on gross receipts whether actually or constructively received pursuant to Section 3 of Revenue Regulations No. 6-85, as amended by Revenue Regulations No. 2-98. Since the retention money is not paid at the time the progress payments are made, the said retention money should not be included in the computation of the 8.5% creditable VAT as provided by Section 102 of the Tax Code of 1997. (BIR Ruling No. 142-98 dated September 29, 1998)

INCOME TAX; Terminal leave pay of co-terminus employees - Terminal leave pay of co-terminus employees in the Senate is not subject to income tax and consequently to the withholding tax pursuant to Section 32(B)(6)(b) of the Tax Code of 1997. However, the tax exemption does not include the payment of the staff's salary, if any, which is subject to income tax and consequently to the withholding tax. (BIR Ruling No. 143-98 dated September 30, 1998)

UNLAWFUL DIVULGENCE - Request by the Office of the Ombudsman for the production and submission of the certified true and clear copies of the Income Tax Return filed by Mr. Tito Nabua is denied in view of the prohibition under Section 270 of the Tax Code of 1997. (BIR Ruling No. 144-98 dated September 30, 1998)

ESTATE TAX - Dissolution by the co-owners of the co-ownership of real properties by an Agreement to divide among the co-owners of the properties is not subject to capital gains tax imposed under Section 24 (D)(1) of the Tax Code of 1997. However, that portion of the properties of the co-ownership which is designated to be the properties belonging a deceased co-owner shall be subject to estate tax under then Sec. 99 of the Tax Code or the law enforced at the time of the death of the decedent. (BIR Ruling No. 145-98 dated October 9, 1998)

CAPITAL GAINS TAX; Sale of sale of shares of stock not traded in local exchange - The net capital gains derived by the seller on the sale of the shares of stock of a domestic corp. not traded in the local stock exchange is subject to the capital gains tax under Section 27 (D)(2) of the Tax Code of 1997. The transfer of the shares or the certificates of stock representing the shares is subject to documentary stamp tax under Section 176 of the Tax Code of 1997. (BIR Ruling No. 146-98 dated October 14, 1998)

INCOME TAX; Filipinos employed and occupying managerial or technical positions - Filipinos employed and are occupying managerial or technical positions as those of aliens employed by the same Offshore Banking Units are subject to the preferential tax rate of 15% on their gross compensation income pursuant to Section 25(D) of the Tax Code of 1997. (BIR Ruling No. 147-98 dated October 16, 1998)

CAPITAL GAINS TAX; Capital gains tax paid on a sale of real property which transaction was rescinded may be credited as payment fro new Dedd of Sale to be executed by some parties - The capital gains tax on the sale of a real property previously paid and which sale transaction was rescinded due to the erroneous computation of the taxes, may be credited as payment for the new Deed of Sale to be executed by the parties involving the same property. However, the documentary stamp tax cannot be credited to the new Deed of Sale nor refunded since there has been a valid sale transaction which was subsequently rescinded. (BIR Ruling No. 148-98 dated October 16, 1998)

VAT; ADB; Personnel of embassies - Embassies or personnel of embassies with which the Phil. Government has diplomatic relations are exempt from tax including indirect taxes based on the principle of reciprocity. Furthermore, Asian Development Bank (ADB) is exempt from Phil. Taxation based on Article 56(1) and (2) of the Charter of ADB. But ADB is subject to VAT at 0% pursuant to Revenue Regulations No. 7-95, implementing Section s 10-2(c ) and 100-3 of the Tax Code, as amended by RA No. 7716. (BIR Ruling No. 149-98 dated October 19, 1998)

CAPITAL GAINS TAX; Transfer of a "road lot" to an affiliate - The proposed transfer by Standard Electric Manufacturing Corp. of a "road lot" to its affiliate, Wellton Corp., a realty holding company, is subject to capital gains tax and documentary stamp tax based on the actual consideration pursuant to RMO 41-91. It shall not be subject to VAT since Standard is not engaged in real estate business and subject property is virtually withdrawn from the commerce of man by virtue of the restriction annotated on the title thereof. (BIR Ruling No. 150-98 dated October 19, 1998)

CAPITAL ASSET; Sale of Phil. Stock Exchange Membership Seat - Collection of the 2nd installment of the tax due from the sale of a Phil. Stock Exchange membership seat cannot be made before July 15, the deadline set by law under Section 49 of the Tax Code of 1997. The membership seat in the PSE is considered as "capital asset" and the gains realized from such sale is includible as part of gross income and taxable under then Section 21(f) of the Tax Code, as amended. (BIR Ruling No. 151-98 dated October 19, 1998)

VAT; Sale of lot which is less than P1,000,000.00 - Sale by Atlanta Land Corp. of a house and lot at the Grand Victoria Estates subdivision which is less than P1,000,000 is exempt from VAT pursuant to Section 109 (w) of the Tax Code of 1997. (BIR Ruling No. 152-98 dated October 19, 1998)

INCOME TAX; Separation benefits - The separation benefits to be received by Mr. Antonio A. Avis, Jr. from Peninsula Hotel Manila are exempt from income tax and consequently from the withholding tax. The separation being the result of his involuntary termination/separation from the service which is a cause beyond his control under Section 32 (B)(6)(b) of the Tax Code of 1997. (BIR Ruling No. 153-98 dated October 19, 1998)

EXPANDED WITHHOLDING TAX; Tax base in the computation of 1% EWT and 6% Creditable VAT - The 1% expanded creditable withholding tax imposed under Section 1(e)(2)(I) of Revenue Regulations No. 6-85, as amended and the 6% creditable VAT prescribed under Section 3 of Revenue Regulations No. 10-93 as payments made by the Government to sellers of services shall be computed based on gross payments, which means total payments inclusive of the Commission Privilege fund. (BIR Ruling No. 154-98 dated October 19, 1998)

INCOME; VAT; Excise tax; Purchase of Crude Oil by an Inventor - Purchase of crude oil (raw or in its natural and unprocessed state) by an inventor and patentholder of various petroleum products invention from Pilipinas Shell Petroleum Corp. is not subject to any tax, including excise tax. Pilipinas Shell Petroleum Corp. as seller, is subject to income tax on the gains derived from such transaction. The removal of diesel and gasoline products from Shell Refinery to be used as raw materials for the inventions are not subject to excise tax under Section 148 of the Tax Code of 1997 and income tax imposed under Section 24 (A)(1) of the same Code. However, in case of sale of the yields, diesel and gasoline products by the inventor, an excise tax under Section 148 of the Tax Code of 1997 shall be imposed and the gains therefrom will be subject to income tax under Section 24(A)(1) of the same Code. The sale or exchange of services by Pilipinas Shell Petroleum Corps. Refinery Plant is subject to VAT under Section 108 of the Tax code of 1997 which may be shifted to the buyer or transferee of the services. Removal of kerosene and LPG which are not utilized as raw materials in the invention which are subsequently sold shall be subject to excise tax under Section 148 of the Tax Code of 1997 and gains derived therefrom shall be subject to income tax under Section 24(A)(c ) of the Tax Code of 1997 notwithstanding inventor's exemption under Section 5 of RA No. 7459. (BIR Ruling No. 155-98 dated October 21, 1998)

CAPITAL GAINS TAX; Gains realized on the transfer of 1/3 shareholders in exchange for real property - The gains realized by Ms. Leticia L. del Rosario on the transfer of her 1/3 shareholdings in Eglen Development Corporation (Eglen) in exchange for the latter's real property is subject to the regular income tax imposed under Section 24 of the Tax Code of 1997 based on the difference between the fair market value of the property received and the value of the 1/3 shares of stock in Eglen as of the time of transfer. (BIR Ruling No. 156-98 dated November 9, 1998)

DOCUMENTARY STAMP TAX; Sale of Sahres of Stocks and real property to Thrift Bans - Sale of shares of stock, both listed and not listed with the Philippine Stock Exchange, and sale of real property covering the existing branch sites of Capitol Development Bank to Rizal Commercial Banking Corporation Savings Bank, both Thrift banks, are not subject to documentary stamp tax pursuant to Section 173 of the Tax code of 1997 in relation to Section 17 of RA 7906. (BIR Ruling No. 157-98 dated November 9, 1998)

DOCUMENTARY STAMP TAX; Conversion of preferred shares to common shares - The conversion of preferred shares to common shares which was granted under the subscription contract is not subject to the documentary stamp tax imposed under Section 176 of the Tax Code of 1997. It is considered as a mere continuation of the initial transaction and for which the documentary stamp tax has been paid. (BIR Ruling No. 158-98 dated November 10, 1998)

EXEMPTION PRIVILEGESE OF NON-STOCK, NON-PROFIT EDUCATIONAL INSTITUTIONS - Non-stock, non-profit educational institutions are not required to comply with the following:

a.) to maintain and keep BIR-registered books of accounts;
b.) to register with the BIR their business names; and
c.) to issue BIR-registered sales invoices.

as prescribed under Sections 232, 237 and 238, all of the Tax Code of 1997. (BIR Ruling No. 159-98 dated October 11, 1998)

INCOME TAX; Liability of Thrift Banks to 20% Final Withholding Tax - Thrift Banks are not exempt from payment of corporate income taxes and local taxes, fees and charges of whatever nature and description. Thus, they are liable to pay the 20% final withholding tax on interest income derived from Philippine currency bank deposits and yield or any other monetary benefit from deposit substitutes, trust funds and similar arrangements and royalties derived from sources within the Philippines. (BIR Ruling No. 160-98 dated November 12, 1998)

INCOME TAX; SBF ENTERPRISES - The Philippine branches of Biwater International Limited (BIL) and Biwater Supply Limited (BSL) which are both SBF enterprises which will provide or render management and construction services are only subject to the 5% final tax on their gross income earned in lieu of any and all other taxes pursuant to Section 43 of the implementing rules and regulations of RA 7227, otherwise known as the "Bases Conversion and Development Act of 1992" (BIR Ruling No. 161-98 dated November 18, 1998)

WAIVER OF SURCHARGE AND PENALTIES - Granting the request for waiver of the 25% surcharge and compromise penalties imposed on China Bank for its failure to pay the 10%/20% capital gains tax on the gain realized from the Assignment of its shares in Bonifacion Land Corporation. Such has been granted due to the fact that the gain has already been subjected to the 35% income tax instead of the 10%/20% capital gains tax. (BIR Ruling No. 162-98 dated November 18, 1998)

VAT; Thrift Banks subject to VAT on importation - Thrift Banks are exempt from the payment of all taxes, fees and charges of whatever nature and description, except corporate income taxes and local taxes, fees and charges pursuant to Section 17 of RA No. 7906, otherwise known as the Thrift Banks Act of 1995. However, it shall be subject to VAT on their importations as imposed under Section 107 (A) of the Tax Code of 1997. (BIR Ruling No. 163-98 dated November 20, 1998)

TAX CREDIT CERTIFICATES - The Tax Credit Certificate issued by the One-Stop Shop Interagency Tax Credit and Duty Drawback Center in accordance with EO 226 otherwise known as the Omnibus Investments Act of 1987 to some of the customers of Pilipinas Shell cannot be transferred to Pilipinas Shell in payment of their fuel purchases and in turn cannot be used by Pilipinas Shell in payment of its tax liabilities. (BIR Ruling No. 164-98 dated November 23, 1998)

TAX CREDIT CERTIFICATES - The Tax Credit Certificate issued by the One-Stop Shop Interagency Tax Credit and Duty Drawback Center in accordance with EO 226 otherwise known as the Omnibus Investments Act of 1987 to some of the customers of Petron Corporation (Petron) cannot be transferred to Petron in payment of their fuel purchases and in turn cannot be used by Petron in payment of its tax liabilities. (BIR Ruling No. 165-98 dated November 23, 1998)

FINAL TAX; Non-resident alien interest income from FCDU - A non-resident alien is exempt from the 7.5% final income tax on his interest income from foreign currency deposit account with Bank of the Philippine Islands, which is being imposed under Section 24(B)(1) of the Tax Code of 1997, as implemented by Revenue Regulations No. 10-98 dated August 25, 1998. (BIR Ruling No. 166-98 dated November 23, 1998)

CAPITAL GAINS TAX; TRU - The creditor-bank as statutory seller in foreclosure sales of mortgaged real properties becomes liable for the payment of capital gains tax due in such foreclosure sale. As such, the Taxpayers Record Update of the mortgagee-bank may be used for purposes of payment of the capital gains tax, creditable withholding tax and documentary stamp tax. The returns shall be filed and paid with the Authorized Agent Bank located within the Revenue District Office having jurisdiction over the place where the property is located. (BIR Ruling No. 167-98 dated November 20, 1998)

PERCENTAGE TAX; DOCUMENTARY STAMP TAX; Securities Borrowing and Lending (SBL) Transactions - Only the sale barter or exchange of shares of stock listed and traded through the Philippine Stock Exchange is subject to the percentage tax and documentary stamp tax. The transaction involved in the Securities and Borrowing lending (SBL) scheme can be properly classified as a lending of securities rather than a sale on account of the qualifications xx in such a transaction. Resolution on the proper taxation treatment to govern SBL ands short-selling transactions shall be covered by a regulation to be recommended for approval by Secretary of Finance. (BIR Ruling No. 168-98 dated November 20, 1998)

ESTATE TAX; DOCUMENTARY STAMP TAX - The right to redeem by various lot owners of foreclosed properties which were assigned to Atty. Norberto Quisumbing through various Deeds of Assignment of property executed in favor of Atty. Quisumbing shall be included as part of the estate of the decedent. Furthermore, a Deed of Assignment of the right to redeem is a conveyance of real property which shall be subject to the documentary stamp tax under Section 196 of the Tax Code of 1997. (BIR Ruling No. 169-98 dated November 25, 1998)

CAPITAL GAINS TAX; Meaning of "Demutualization" - The distribution of shares of Manulife to its qualified policy holders worldwide, as part of the conversion to the stock-company-form-of-ownership, does not represent income or capital gain to the recipient but rather, the distribution of shares to the qualified policy holders represent an exchange by the policyholders of their propriety interest in the Company for the shares received. Section 40 of the Tax Code shall apply considering that in the course of demutualization, the policyholders will have to surrender their membership interest in the Company as a mutual company, in exchange for the publicly-traded shares issued by the new Manulife company or Holdco. Furthermore, the steps to be taken to effect demutualization of Manulife constitute as de facto merger or consolidation under Sec. 40 of the Tax Code and considering further that the demutualization is clearly for a bonafide business purpose. Hence, no gain or loss shall be recognized on the issuance of shares of a newly organized holding company to the eligible policyholders of Manulife in exchange for the connection of their membership interest. (BIR Ruling No. 170-98 dated December 2, 1998)

DONOR'S TAX; Lot awarded to National Children's Hospital by virtue of Proclamation No 439 - Lot awarded to National Children's Hospital by virtue of Proclamation No 439 dated December 23, 1953 is exempt from donor's and donee's tax pursuant to Section 112(3) of Commonwealth Act No. 466. (BIR Ruling No. 171-98 dated December 2, 1998)

BIR Ruling No. 172-98 dated December 3, 1998 issued to Sun Life Assurance Company of Canada (SLAC) is a reiteration of BIR Ruling No. 170-98 issued to Manulife to the effect that no gain or loss shall be recognized on the issuance of shares of a newly-organized holding company to the eligible policyholders of SLAC in exchange for the cessation of their membership rights and interest in SLAC as a mutual company considering that demutualization is clearly for a bonafide business purpose.

EXPANDED WITHHOLDING TAX; Technical and management consultants - The commission for services to be paid by a local firm to Mitsubishi Corporation of Japan shall be subject to the expanded withholding tax of 5% applicable to technical and management consultants since Mitsubishi has a permanent establishment in the Philippines (BIR Ruling No. 173-98 dated December 2, 1998)

VAT; Sale of fish in original state - Exemption from VAT under Section 109 (d) of the Tax Code of 1997 on the sale of fish in their original state covers only the direct tax liability. Any input VAT being passed on by suppliers on purchases of supplies, jewels, etc. to Frabelle fishing Corporation cannot be claimed as an exemption. (BIR Ruling No. 174-98 dated December 11, 1998)

CAR; Issuance of - The capital gains tax and documentary stamp tax due on the sale of house and lot owned by Spouses Ernesto and Jocelyn Baliwag were paid by the buyer, Upholder Landing Corporation (Upholder) in Revenue District Office No. 33, where Upholder is registered. RDO of Las Piñas-Muntinlupa should to issue the Certificate Authorizing Registration (CAR) since RMO 17-97 provides that the CAR shall be issued by the RDO where the seller-transferor is registered. (BIR Ruling No. 175-98 dated December 11, 1998)

CHANGE OF COMPUTING DEPRECIATION EXPENSE - Canon Marketing Phils., Inc. (formerly Datagraphics, Inc.) was given authority to change its method of computing depreciation expense of its property equipment from sum-of-the-years digits method of costing supplies and spare parts inventories from first-in-first-out (FIFO) method to the monthly average method. (BIR Ruling 176-98 dated December 14, 1998)

CAPITAL GAINS TAX; DOCUMENTARY STAMP TAX; Foreclosure of properties under CARP - In a foreclosure sale of agricultural lands covered under the CARP (RA 6657 and other agrarian reform laws), the mortgage bank as statutory seller representing the owner mortgagor of the real property shall be liable for the payment of the capital gains tax due the mortgagor pursuant to RMO 6-92. Thus, DAR and/or Land Bank of the Philippines may deduct the capital gains tax obligation from the proceeds of the landowner-mortgagor's claim and remit the same to the BIR. (BIR Ruling No. 177-98 dated December 24, 1998)

PREMIUM TAX; National Home Mortgage Financial Corporation not the authorized withholding agent - NHMFC is not the authorized withholding agent with respect to the 5% premium tax relative to the insurance premiums remitted to MRI Pool of insurers. NHMFC is merely a conduit and not the payor-insured. It is Pag-ibig MRI Pool which initially receives the premium from NHMFC and thereafter distributes the same to the participating member insurers, for a fee. Thus, Pag-ibig MRI Pool is the duly constituted withholding agent pursuant to Section 2.116 (A)(7) of Revenue Regulations No. 2-98 since it has control of the premium payments. (BIR Ruling No. 178-98 dated 12-24-98)

CAPITAL GAINS TAX; Transfer of real property without monetary consideration - Transfer of real property to Spouses Neri without any monetary consideration which merely acknowledges and confirms their title and ownership over the 100 sq. m. lot covered by TCT No. 4940 is not subject to capital gains tax prescribed under Section 21 (D) of the Tax Code of 1997 nor to the creditable withholding tax imposed under Revenue Regulations No. 12-94, as amended by Revenue Regulations No. 2-98. Likewise, the Deed of Conveyance is not subject to the documentary stamp tax under Section 196 but only to documentary stamp tax of P15.00 under Section 188, both of the Tax Code of 1997. (BIR Ruling No. 179-98 dated December 28, 1998)


The Lawphil Project - Arellano Law Foundation