QuestionsQuestions (BIR REVENUE REGULATIONS NO. 6-2004)
It is issued pursuant to Section 244 of the NIRC of 1997, in relation to Section 22 of RA 9182 (SPV Act of 2002), to prescribe guidelines and procedures for availing the tax exemptions and privileges granted under the Act.
It is the agency with jurisdiction over the Financial Institution’s operations: BSP for banks and quasi-banking functions of financing companies/investment houses; DOF for PDIC and certain GOCCs (in consultation with other agencies as needed); SEC for financing companies/investment houses except their trust/quasi-banking functions and for qualified entities not under DOF or BSP.
It is a certificate issued by the Appropriate Regulatory Authority confirming that the NPL/ROPOA qualifies as an NPA under the Act and, if applicable, approves that the transfer from an FI to an SPV/individual is a “true sale.” It serves as prima facie proof without prior BIR determination/ruling.
Non-Performing Loan refers to loans/receivables where principal and/or interest has remained unpaid for at least 180 days after they became past due, or where any event of default has occurred, as of June 30, 2002, certified by the Appropriate Regulatory Authority.
ROPOA includes real/other properties owned or acquired by an FI in settlement of loans and receivables (including by dacion, judicial or extra-judicial foreclosure/execution), as of June 30, 2002, and later acquisitions of the same type in settlement of NPL classified as of June 30, 2002. For deemed acquisition: (1) notarization date of the Deed of Dacion for dacion; (2) entry of judgment for judicial foreclosure; (3) notarization date of Sheriff’s Certificate for extra-judicial foreclosure.
The covered transactions include: FI transfers of NPL/ROPOA to SPV or to an individual; FI dacion in payment of NPL by borrower or third-party on behalf of borrower to FI; SPV transfers of NPL/ROPOA to third-party; SPV dacion of NPL to SPV; transfers of NPL/ROPOA by an individual to a third-party—subject to listed conditions and COE requirements.
The tax exemptions apply only if the NPL/ROPOA has been issued with a COE by the Appropriate Regulatory Authority.
Certain transfers must be in the nature of and approved as a “true sale” pursuant to the Act and implementing rules. Transfers not in the nature of a true sale do not qualify for tax exemptions. Additionally, if transferred for less than adequate consideration, the excess is not treated as a gift under Title III, Chapter 2 of the NIRC, provided the transaction otherwise meets the true sale approval requirement.
For certain transactions, the exemption applies only if occurred from March 19, 2003 to March 19, 2005. After March 19, 2005, the tax exemptions no longer apply.
The NPL/ROPOA must be acquired by the SPV/individual from the FI within March 19, 2003 to March 19, 2005 as a true sale approved by the Appropriate Regulatory Authority, and the later transaction must occur within five (5) years from the date of acquisition.
It applies only to the extent of the value of the property tendered as payment, equivalent to the amount of the NPL being paid (inclusive of interests and penalties, if any). The dacion must not be intended to circumvent the Act’s purpose of benefiting solely the borrower and the FI.
For transactions involving individual transferees (notably those listed under Section 7(c)(8)), the exemption is limited to a single family residential unit ROPOA, or an NPL secured by a real estate mortgage on a residential unit; also, only one acquisition of NPA by an individual and the subsequent transfer of the same NPA are covered.
Under Section 7(c)(9), the tax exemptions do not apply to the transfer of any property in exchange for the NPL/ROPOA unless separately exempted by a pertinent provision of existing law (e.g., other specific exemptions not dependent on the SPV Act).
The exempted taxes include: (1) Documentary Stamp Tax (DST) on transfer/dacion documents; (2) Capital Gains Tax (CGT) on transfer of land/building treated as capital asset; (3) Creditable withholding income taxes on transfer of land/building treated as ordinary asset (excluding exemption from Title II income tax—FI/SPV transfers of ordinary assets remain subject to ordinary corporate income tax or MCIT as applicable); and (4) VAT or gross receipts tax as applicable, subject to VAT rules under Section 110(A)(3) of the NIRC.
Yes, VAT (or gross receipts tax) is exempt, but Section 110(A)(3) rules apply: input tax directly attributable to the property is not allowed to the transferor’s other VATable activities, and if capital goods are involved, unallowable input taxes are allocated using depreciated book value method; then unallowable input taxes are charged back through an adjusting entry.
An SPV is exempt from income tax on net interest income arising from new loans in excess of existing loans extended to a borrower with NPL acquired within two years from March 19, 2003, solely to rehabilitate the borrower’s business; documents evidencing these new loans are exempt from DST; and documents evidencing the SPV’s capital infusion to the borrower’s business (acquired within two years) are exempt from DST. These exemptions apply only for not more than five (5) years from acquisition of the borrower’s NPL.
Losses incurred due to transferring NPAs to an SPV within two years from March 19, 2003 (excluding accrued interest/penalties receivable and not previously offset as deduction) are treated as ordinary loss and may be carried over as deduction for five consecutive taxable years after the year of transfer, subject to conditions (e.g., restrictions on dividend declarations, and merger/consolidation control conditions). FI remains subject to MCIT.
It shall not qualify for any of the tax exemptions granted under the Act/regulations.
No registration by the Register of Deeds is effected unless the Commissioner (or authorized representative) issues a Certificate Authorizing Registration (CAR) after report and after BIR is satisfied that the transfer qualifies. After issuance of COE for each transfer, the transferee files a Capital Gains Tax Return within 30 days with supporting documents including COE, deed of transfer/dacion, titles, tax declaration proof/no improvement, loan documents, BIR CAR/TCL for previous transfer if transferor is FI, and if applicable the borrower-third party agreement.
Any person benefiting from exemptions/privileges when not entitled must refund to the government double the amount of the exemptions/privileges availed plus 12% interest per year from the date prescribed for payment until fully paid, without prejudice to penalties under the NIRC.