Legal basis, policy, and purpose
- The Regulations prescribe guidelines and procedures for availing tax exemptions and privileges granted under Republic Act No. 9182, pursuant to Section 244 of the National Internal Revenue Code (NIRC) of 1997, in relation to Section 22 of the Act (Section 1).
- The Regulations implement the State’s policy to develop and maintain a sound financial sector, address non-performing asset problems, encourage private sector investment in non-performing assets, eliminate barriers in acquiring non-performing assets, assist rehabilitation of distressed businesses, and improve financial system liquidity for economic growth (Section 2).
- The tax exemptions under the Act are applied only to transactions covered and meeting the conditions set in these Regulations (Section 7).
- The Regulations require BIR pre-registration controls for conveyances of real property and transfers of shares that are claimed as exempt under the Act (Sections 13 and 14).
Key definitions for compliance
- “Act” refers to Republic Act No. 9182, the Special Purpose Vehicle Act of 2002 (Section 3(a)).
- “Appropriate Regulatory Authority” is the agency with jurisdiction over a Financial Institution’s operations, namely:
- Bangko Sentral ng Pilipinas (BSP) for banks (including Land Bank of the Philippines (LBP) and Development Bank of the Philippines (DBP)) and trust and quasi-banking functions of BSP-licensed financing companies and investment houses;
- Department of Finance (DOF) for PDIC and GOCCs, in consultation with other primary-jurisdiction agencies as deemed appropriate by DOF;
- Securities and Exchange Commission (SEC) for financing companies and investment houses except trust and quasi-banking functions, and for any qualified entity not under DOF or BSP (Section 3(b)).
- “Certificate of Eligibility or COE” is the certificate issued by the Appropriate Regulatory Authority stating the eligibility of the NPL or ROPOA for tax exemptions and privileges, and indicating approval of the transfer of the NPAs from the FI to an SPV/Individual as a “true sale” where applicable (Section 3(c)).
- “dation in payment (dacion en pago)” means payment by alienating property (real/personal; tangible/intangible) to the creditor (FI or SPV) to satisfy a non-performing loan, excluding judicial or extra-judicial foreclosure and execution of judgment (Section 3(d)).
- “Financial Institution or FI” is limited to:
- BSP;
- Banks under Republic Act No. 8791;
- Financing companies under Republic Act No. 8556;
- Investment houses under Presidential Decree No. 129;
- GFIs limited to PDIC, LBP, and DBP;
- GOCCs limited to specified entities including NHMFC, HGC, HDMF, SSS, GSIS, TIDCORP, SBGFC, TLRC, LIVECOR, NDC, QUEDANCOR, NHA, and AFP-RSBS;
- Other institutions licensed by BSP to perform quasi-banking functions (where “non-bank financial institution performing quasi-banking functions” covers financing companies, investment houses, or other BSP-licensed quasi-banking institutions) (Section 3(e)).
- “Non-Performing Asset or NPA” consists of Non-Performing Loans (NPLs) and Real and other Properties Owned or Acquired (ROPOAs) by FIs for which a COE was issued by the Appropriate Regulatory Authority (Section 3(f)).
- “Non-Performing Loan or NPL” refers to specified loans/receivables and registered/unregistered security/collateral instruments whose principal and/or interest has been unpaid for at least one hundred eighty (180) days after becoming past due or upon any default event occurrence under the loan agreement, as of June 30, 2002, as certified by the Appropriate Regulatory Authority (Section 3(g)).
- “ROPOA” refers to real and other properties acquired by an FI in settlement of its loans and receivables, including modes by dation in payment, judicial or extra-judicial foreclosure, or execution of judgment, as of June 30, 2002, and acquisitions after June 30, 2002 via the same modes for settlement of NPL classified as of June 30, 2002, as certified by the Appropriate Regulatory Authority, with acquisition dates deemed on:
- notarization date of the Deed of Dacion for dation in payment;
- entry of judgment date for judicial foreclosure;
- notarization date of the Sheriff’s Certificate for extra-judicial foreclosure; and excluding properties owned/acquired by an SPV in settlement of loans and receivables acquired from an FI (Section 3(h)).
- “Single Family Residential Unit” refers to a building or structure used for residential purposes (Section 3(i)).
SPV registration and invoicing rules
- Every SPV must register once with the appropriate Revenue District Office on or before commencement of business, following the NIRC Title IX, Chapter II registration framework (Section 4(a)).
- An SPV with a head office, branch, or facility must register with the RDO having jurisdiction over each (Section 4(a)).
- “Facility” includes sales outlets, warehouses, or storage places (Section 4(a)).
- An SPV must apply for registration with:
- SEC-issued Certificate of Registration as an SPV;
- Articles of Incorporation and By-Laws;
- Mayor’s Permit (Section 4(b)).
- An SPV must pay an annual registration fee of Five Hundred pesos (P500.00) for every separate/distinct establishment or place of business, including facility types where sales transactions occur, upon registration and every year thereafter on or before the last day of January (Section 4(c)).
- Annual registration fees must be paid to an Authorized Agent Bank (AAB) within the revenue district, or to the Revenue Collection Officer, or duly authorized Treasurer of the city or municipality where each place of business or branch is registered (Section 4(c)).
- An SPV must register each type of internal revenue tax for which it must file returns and pay taxes under the NIRC and its implementing revenue regulations, and update registrations upon changes (Section 4(d)).
- Unless exempted under the Act, an SPV is subject to all applicable NIRC taxes such as income tax, VAT, other percentage taxes, documentary stamp tax (DST), and others as applicable (Section 4(d)).
- An SPV is required to act as a withholding agent and must file withholding tax returns and remit taxes withheld for all income payments subject to withholding tax (Section 4(d)).
- If an SPV transfers its place of business, head office, or branches, it must update registration status by filing an application for registration information update in the prescribed form (Section 4(e)).
- A registered SPV must update its registration information when applicable with the registered RDO, specifying changes in tax type and taxpayer details (Section 4(f)).
- An SPV’s registration is cancelled upon filing with the registered RDO an application for cancellation in the prescribed form (Section 4(g)).
Books of accounts and thresholds
- Every SPV must keep a journal and a ledger (or equivalents) according to Chapter I of Title IX of the NIRC of 1997 and its implementing revenue regulations (Section 6).
- SPVs whose quarterly sales, earnings, receipts, or output do not exceed Fifty thousand pesos (P50,000.00) must keep and use simplified bookkeeping records allowing all transactions and results to show and from which taxes due can be readily and accurately ascertained at any time of the year (Section 6).
- SPVs whose gross sales, earnings, receipts, or output exceed One hundred fifty thousand pesos (P150,000.00) in any quarter must have their books of accounts audited and examined yearly by independent Certified Public Accountants (Section 6).
Tax-exempt transactions under the Act
- Only transactions listed are covered by the tax exemptions under the Act:
- Transfer of an NPL by an FI to an SPV (Section 7(a)(1));
- Transfer of a ROPOA by an FI to an SPV (Section 7(a)(2));
- dation in payment of an NPL by a borrower to an FI (Section 7(a)(3));
- dation in payment of an NPL by a third-party on behalf of the borrower to an FI (Section 7(a)(4));
- Transfer of an NPL by an FI to an individual (Section 7(a)(5));
- Transfer of a ROPOA by an FI to an individual (Section 7(a)(6));
- Transfer of an NPL by an SPV to a third-party (Section 7(a)(7));
- Transfer of a ROPOA by an SPV to a third-party (Section 7(a)(8));
- dation in payment of an NPL by a borrower to an SPV (Section 7(a)(9));
- dation in payment of an NPL by a third-party on behalf of the borrower to an SPV (Section 7(a)(10));
- Transfer of an NPL by an individual to a third-party (Section 7(a)(11));
- Transfer of a ROPOA by an individual to a third-party (Section 7(a)(12)) (Section 7(a)).
- “individual” means only a natural person, and “third-party” means any person (natural or juridical), unless specifically excluded in the Act (including an FI that transferred the NPA to the selling SPV, and the parent of that FI) (Section 7(a)).
- The tax exemptions apply only if the NPL/ROPOA has a COE issued by the Appropriate Regulatory Authority (Section 7(b)).
- The tax exemptions apply only if the relevant conditions in Section 7(c) are complied with:
- For transfers (a)(1), (a)(2), (a)(5), and (a)(6), the transfer must be a “true sale” approved by the Appropriate Regulatory Authority (Section 7(c)(1)).
- If the NPL/ROPOA is transferred for less than adequate and full consideration in money’s worth, the excess of fair market value over consideration is not considered a gift under Title III, Chapter 2 of the NIRC of 1997 (Section 7(c)(1)).
- Transfers for transactions (a)(1) to (a)(6) must occur from March 19, 2003 to March 19, 2005, and thereafter the tax exemptions no longer apply (Section 7(c)(2)).
- For transactions (a)(7), (a)(8), (a)(11), and (a)(12), the NPL/ROPOA must be acquired by the SPV/Individual from an FI within March 19, 2003 to March 19, 2005 as a “true sale” approved by the Appropriate Regulatory Authority, and the subsequent transaction must occur within five (5) years from the acquisition; thereafter exemptions no longer apply (Section 7(c)(3)).
- For transactions (a)(9) and (a)(10), the dation in payment must settle an NPL acquired by the SPV/Individual from an FI within March 19, 2003 to March 19, 2005 as a “true sale”, and the dation must occur within five (5) years from acquisition (Section 7(c)(4)).
- For transactions (a)(2) and (a)(6) (ROPOA transfers by an FI), all applicable taxes on the previous ROPOA transfer to the FI must be duly paid when due or paid thereafter with appropriate increments and penalties (Section 7(c)(5)).
- For ROPOAs acquired by an SPV from GFIs/GOCCs devoted to socialized or low-cost housing, such ROPOAs must not be converted to other uses (Section 7(c)(6)).
- For dation transactions (a)(3), (a)(4), (a)(9), and (a)(10), exemptions apply only up to the value of the property tendered as payment equal to the NPL being paid inclusive of interests and penalties, and the dation must not be intended to circumvent the Act’s purpose to benefit solely the borrower and the FI (Section 7(c)(7)).
- The value of the property tendered is its fair market value determined under Section 6(E) of the NIRC of 1997, while the consideration is the NPL value including interests and other charges as stated in the Deed of Dacion (Section 7(c)(7)).
- For transfers to/from individuals for (a)(5), (a)(6), (a)(11), and (a)(12), the transaction is limited to a single family residential unit ROPOA or an NPL secured by a real estate mortgage on a residential unit; exemptions apply only to one acquisition of NPA by an individual and the subsequent transfer of the same NPA (Section 7(c)(8)).
- For transactions (a)(1), (a)(2), (a)(5), (a)(7), (a)(8), (a)(11), and (a)(12), exemptions do not apply to transfer of any property in exchange for the NPL/ROPOA unless exempted under an existing law (Section 7(c)(9)).
- For transactions (a)(4) and (a)(10), exemptions do not extend to any transaction or agreement between the borrower and a third-party that results in the third-party paying the borrower’s NPL on the latter’s behalf (Section 7(c)(10)).
- Under these conditions, the covered transactions are exempt from:
- DST on documents evidencing the transfer or dation in payment, notwithstanding the last phrase of Section 173 of the NIRC of 1997 (Section 7(d)(1));
- Capital gains tax (CGT) on the transfer of land and/or building treated as capital asset under Section 39(A)(1) of the NIRC of 1997 (Section 7(d)(2));
- Creditable withholding income taxes on transfer of land/building treated as ordinary asset under Revenue Regulations No. 2-98, as amended, excluding exemption from income tax under Title II of the NIRC; FI or SPV transfers of NPA treated as ordinary asset remain subject to ordinary corporate income tax or MCIT as applicable (Section 7(d)(3));
- VAT under Title IV of the NIRC or gross receipts tax under Title V, whichever is applicable, with specific VAT-exemption computational rules under Section 110(A)(3) of the NIRC of 1997, including disallowance/apportionment of attributable input taxes and charge-back adjustments (Section 7(d)(4)).
- For “true sale” compliance, no transfer of NPAs not in the nature of a “true sale” qualifies for any tax exemptions (Section 10).
Additional SPV tax exemptions and FI privileges
- 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 from an FI within two (2) years from March 19, 2003, and solely for rehabilitating the borrower’s business (Section 8(a)).
- “Net interest income” means gross interest income less allowable deductions attributable thereto, and the allowable deductions are no longer allowed as deduction from the SPV’s other taxable gross income (Section 8(a)).
- Any document evidencing the new loans under Section 8(a) is exempt from DST (Section 8(b)).
- Any document evidencing an SPV’s capital infusion to the borrower’s business with NPL acquired from an FI within two (2) years from March 19, 2003 is exempt from DST (Section 8(c)).
- These SPV exemptions apply only for a period of not more than five (5) years from the date of acquisition of the borrower’s NPL by the SPV (Section 8(c)).
- An FI transferring its NPA to an SPV within two (2) years from March 19, 2003 may treat the ordinary loss from the transfer (excluding accrued interest and penalties receivable) as ordinary loss carry-over deductible from taxable gross income for five (5) consecutive taxable years immediately following the year of transfer that resulted to the loss (Section 9).
- The tax savings from the loss carry-over cannot be made available for dividend declaration and must be retained as a form of capital build-up (Section 9).
- The FI loss carry-over privilege is disallowed if the FI enters into a merger, consolidation, or combination with another person unless the shareholders of the FI gain control of at least 75% of the nominal value of outstanding issued shares or paid-up capital of the surviving/new corporation (Section 9).
- Regardless of the loss carry-over privilege, the FI continues to be subject to MCIT of two percent (2%) of gross income as of the end of the taxable year pursuant to Sec. 27 or Sec. 28 of the NIRC (Section 9).
- “Tax savings” is the excess of normal income tax due without the loss carry-over over normal income tax due after availing the loss carry-over for a taxable year (Section 9).
- If the FI is liable for MCIT despite loss carry-over, the excess of MCIT over normal income tax due after availing loss carry-over is not “tax savings” if it cannot be credited against normal income tax in any of the three (3) immediately succeeding taxable years (Section 9).
- “Tax savings”, if any, must be recognized in the FI’s books of accounts and appear on its financial statements (Section 9).
Procedural requirements for eligibility and registration
- A COE constitutes prima facie proof that the NPL/ROPOA is an NPA within the Act and implementing rules and regulations without need for prior BIR determination/ruling; it also constitutes prima facie proof that transfer from FI to SPV is a “true sale” within the Act and implementing rules without prior BIR determination/ruling when applicable (Section 12(a)).
- Each COE is valid for only one transfer, and every transfer requires a separate COE (Section 12(b)).
- Each COE indicates borrower name, FI owning the NPA, date granted/acquired, manner of acquisition, name of person from whom the NPA was acquired by the FI, particulars of the NPL/ROPOA, and transferee name if applicable (Section 12(b)).
- The Appropriate Regulatory Authority coordinates with and furnishes the Commissioner of BIR an original duplicate copy of each COE and the complete list of NPAs for every FI submitted by the Appropriate Regulatory Authority or by the FI itself (Section 12(c)).
Real property conveyances and share transfers controls
For exempt real property transfers, the Register of Deeds may not effect registration of any document transferring real property covered by tax exemptions under the Act unless the Commissioner of Internal Revenue (or duly authorized representative) issues a Certificate Authorizing Registration (CAR) after reporting and BIR satisfaction of qualification for exemptions (Section 13(a)).
Within thirty (30) days after issuance of a COE covering each real property transfer, the transferee must file a Capital Gains Tax Return with the RDO having jurisdiction over the property location, accompanied by the COE and required documents (Section 13(b)).
The required documents for the return include:
- TINs and SEC registration certificate of both transferor and transferee (for FI/SPV);
- notarized Deed of Dation/Transfer;
- OCT/TCT/CCT or other proof of ownership over the property tendered;
- certified true copy of latest Tax Declaration and/or sworn declaration of no improvement or assessor certificate of no improvement;
- promissory note/s and/or other loan document/s in dation in payment;
- CAR and Tax Clearance Certificate (TCL) for the previous transfer by the FI, if transferor is an FI;
- agreement between borrower and the third-party who made dation on behalf of the former, if applicable (Section 13(b)).
Upon presentation of the return, COE, and documentary requirements, the RDO must issue the corresponding TCL and CAR for registration in favor of the transferee (Section 13(c)).
If the transferor is an FI, no TCL/CAR issues unless all applicable taxes on the previous transfer to the FI have been duly paid when due or paid thereafter with appropriate increments and penalties (Section 13(c)).
For exempt share transfers in a domestic corporation, no sale, exchange, transfer, or similar transaction conveying ownership/title to covered shares may be registered in the corporation’s books unless the Commissioner or authorized representative issues a CAR after reporting and BIR satisfaction of qualification for exemptions under these Regulations (Section 14(a)).
Within thirty (30) days after issuance of a COE covering each exempt disposition of shares, the transferor must file a Capital Gains Tax Return with the RDO or collection agent or duly authorized treasurer where the person is required by law to register, accompanied by the COE and required documents (Section 14(b)).
The required documents for share disposition include:
- TINs and SEC registration certificate of both transferor and transferee (for FI/SPV);
- notarized Deed of Transfer;
- Certificate of the shares used to pay the NPL;
- for listed shares, Philippine Stock Exchange price index certification nearest the transfer date;
- for unlisted shares, audited financial statements with computation of book value per share nearest the transfer date;
- promissory note/s and/or other loan document/s in dation in payment;
- TCL and CAR for previous transfer by the FI if transferor is an FI;
- agreement between borrower and third-party who made dation on behalf of the former, if applicable (Section 14(b)).
Upon presentation of the return, COE, and documentary requirements, the RDO must issue the corresponding TCL and CAR for registering shares in favor of transferee (Section 14(c)).
If the transferor is an FI, no TCL/CAR issues unless all applicable taxes on the previous transfer to the FI have been duly paid when due or paid thereafter with appropriate increments and penalties (Section 14(c)).
Documentation support, SPV reporting, and abuse consequences
- An SPV claiming exemptions and privileges on other transactions must provide the Appropriate COE upon request to the Commissioner of BIR (or authorized representative) for purposes of examining taxpayers and assessing correct tax, in addition to the documentary requirements applicable to covered transfers (Section 15).
- An SPV must submit to the BIR, in addition to NIRC requirements,:
- List of taxable transactions;
- List of tax-exempt transactions;
- List of partly tax-exempt and partly taxable transactions (Section 16).
- If any person benefits from exemptions/privileges granted under the Act without entitlement, that person must refund to the government double the amount of tax exemptions/privileges availed plus interest of twelve percent per year, computed from the date prescribed for payment until full payment, without prejudice to penalties under the NIRC of 1997 (Section 17).
- Existing qualifying documents/instruments must be presented/submitted to the concerned RDO within thirty (30) days from the effectivity of these Regulations; otherwise, penalties incident to late filing apply (Section 18).
Related issuances, separability, and adoption
- The Regulations adopt and incorporate existing rules and regulations, rulings, orders, or parts thereof that are not inconsistent with these Regulations (Section 19).
- Inconsistent existing rules and regulations or parts thereof are revoked (Section 20).