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(NAR) VOL. 19 NO. 3 / JULY - SEPTEMBER 2008
[ BIR REVENUE MEMORANDUM CIRCULAR NO. 65-2008, September 05, 2008 ]
CLARIFYING THE BUSINESS TAXATION ON THE ACTIVITIES UNDERTAKEN BY THE BANGKO SENTRAL NG PILIPINAS (BSP) IN PURSUANCE OF ITS MANDATES AS THE INDEPENDENT CENTRAL MONETARY AUTHORITY OF THE REPUBLIC OF THE PHILIPPINES
BACKGROUND:
This Revenue Memorandum Circular is issued to clarify the taxation of the Bangko central ng Piljpinas ("BSP") with respect to activities it undertakes in pursuance of its constitutional and statutory mandates as the country's independent central monetary authority. It has been determined that these activities which BSP engages in, including Actions it undertakes, are geared towards the attainment of these mandates.
This Circular also aims to identify such activities and transactions undertaken by t|l6 BSP, which are not incompatible with its defined mandates, thereby rationalizing {], imposition of applicable taxes on those activities. The functions that BSP exercises j, pursuance of its mandates as independent central monetary authority are vital in th determination of the taxability of the transactions 01 activities on which it is engaged in
In fine, both constitutional and statutory provisions outlining BSP's primary objective and responsibilities have been thoroughly considered in determining the status of Bsp and the taxability of its activities and transactions. There is no issue that BSP was created both as regulatory agency and chartered institution.[1] Accordingly, its activities and transactions are defined within the context of BSP's chartered activities as the independent central monetary authority and regulatory body.
SECTION 1. The Bangko Sentral ng Piiipinas: its Responsibility and Primary Objective as the Independent Central Monetary Authority.
Article XII, Section 20 of the 1987 Constitution has mandated Congress to establish an independent central monetary authority that shall be responsible in providing policy directions in the areas of money, banking, and credit. The authority shall also exercise supervision over the operations of banks and exercise such regulatory powers as may be provided by law over the operations of finance companies and other institutions performing similar functions.
Republic Act ("R.A.") No. 7653 (the "BSP Charter") was enacted reiterating these constitutional policy and objective, as well as defining the core functions of the BSP. As the central monetary authority, BSP shall function and operate as an independent and accountable body corporate in the discharge of its mandated responsibilities concerning money, banking and credit. As such, it shall provide policy direction in these areas. As a regulatory body, BSP shall exercise supervision over the operations of banks and exercise such regulatory powers as may be provided by law over the operations of finance companies and other institutions performing similar functions.[2]
SECTION 2. BSP is Not a Bank nor a Non-Bank-Financial Intermediary Performing Quasi-Banking Functions. BSP is a Government Instrumentality Organized as a Chartered Institution.
Consistent with its constitutional and statutory mandates, it is evident that the BSP is not a bank. As defined under Section 3 of R.A. No. 8791 or the General Banking Law of 2000 relation to Section 22 (v) of the Tax Code, "banks" shall refer to those entities engaged lending of funds obtained from the public in the form of deposits, and are classified into universal banks, commercial banks, thrift banks (savings and mortgage banks, stock savings and loan associations, and private development banks), cooperative banks, rural banks, Islamic banks and other classifications of banks as may be determined by the Monetary Board of the BSP.
BSP cannot likewise be considered as a non-bank financial intermediary performing Quasi-banking functions. "Non-bank financial intermediaries" shall refer to persons or entities Whose principal function include lending, investing or placement of funds or evidence of indeptedness or equity deposited with them, acquired by them or otherwise coursed through 'h m either for their own account or for the account of others. The term also includes all f ties regularly engaged in lending of funds or purchasing of receivables or other obligations 6 th funds obtained from the public through the issuance, endorsement or acceptance of debt instruments of any kind for their own account, or through the issuance of certificates, or of repurchase agreements, whether any of these means of obtaining funds from the public is done on a regular basis or only occasionally.
Anent the term "non-bank financial intermediaries", the term "quasi-banking functions" means the borrowing of funds from twenty (20) or more persons or corporate lenders at any one time, through the issuance, endorsement or acceptance of debt instruments of any kind, other than deposits, for the borrower's own account or through the issuance of certificates of assignment or similar instruments with recourse, or of repurchase agreements, for purposes of relending or purchasing receivables or other similar obligations: provided, however, that commercial, industrial and other non-financial companies, which borrow funds through any of these means for the limited purpose of financing their own needs or the needs of their agents or dealers, shall not be considered as performing quasi-banking functions. In the same manner, the term "deposit substitutes" shall refer to an alternative form of obtaining funds from the public (i.e., twenty [20] or more individual or corporate lenders at any one time), other than deposits, through the issuance, endorsement, or acceptance of debt instruments for the borrower's own account, for the purpose of relending or purchasing receivables and other obligations, or financing their own needs or the needs of their agent or dealer.
"Banking activities" refer to the functions or operations conducted to carry on the business of commercial banking, such as accepting drafts and issuing letters of credit; accounting and negotiating promissory notes, drafts, bills of exchange, and other evidences of debt; accepting or creating demand deposits; receiving other types of deposits and deposit substitutes; buying and selling foreign exchange and gold or silver bullion; acquiring Marketable bonds and other debt securities; and extending credit, subject to such rules as the Monetary Board of the BSP may promulgate. Thus, for an activity to be considered s a banking activity, it should comply with the rules promulgated by the Monetary Board of the BSP.
If is clear, therefore, that the BSP is not a bank nor a quasi-bank; neither is it deemed engaged in banking activities since the operations it undertakes are geared towards the attainment of its constitutional and statutory mandates, and not in pursuit of commercial business activities. However, as a chartered institution or body corporate, it is also fitted to engage in proprietary activities not incompatible with its defined mandates as a government instrumentality. These proprietary activities of the BSP are necessary u sustain its existence as a body corporate enjoying fiscal and administrative autonomy
SECTION 3. Taxation Status of the BSP: Legal Bases that Authorized the lmposition Taxes on BSP Activities and Transactions.
The constitutional provision authorizing the creation of BSP does not provide any rule, of taxation. The law creating it, R.A. No. 7653, has provided for its limited tax exemption to wit:
The plain and manifest intention of the law is to impose taxes on BSP after the expiration of its tax exemption, which is five (5) years from the approval of the Act creating it, i.e., on July 3, 1993. The imposition of taxes upon it, however, is neither absolute nor unlimited, but subject to the inherent and constitutional limitations on the power to tax. One of the inherent limitations of the power to tax is the exemption of government from taxes.[3] Nonetheless, only revenues, receipts or transactions of the government resulting from the exercise of governmental functions will be exempt from taxes. Hence, if the government engages in proprietary functions, it exposes it self to the imposition of taxes as if the same is undertaken by an ordinary taxpayer
The imposition of business taxes on the BSP shall take into account the foregoing basic principles. Accordingly, BSP shall be exempt from business taxes for its revenues and receipts derived from the exercise of essential governmental functions but subject to business taxes in the exercise of purely proprietary functions.
However, the performance by the BSP of proprietary functions will still not warrantee imposition of GRT under Sections 121 and 122 of the Tax Code because it is not one of those taxpayers stated under the same Code to be liable for said taxes. But, if in the
performance of its properiety function, BSP engages in any of the transaction enumerated under Section 105 of the Tax Code, then it becomes liable to value added tax (VAT) imposed under Section 106 to 108 of the same Code.
This Circular shall be given as wide a publicity as possible.
Adopted: 05 Sept. 2008
(SGD.) LILIAN B. HEFTI
Commissioner of Internal Revenue
[1] Sec.2, E.O. 292 (Administrative Code of 198/ defines the following terms, to wit -
[3] It is axiomatic that when public property [or the Government itself is involved, exemption is the rule taxation is the exception (Social Security System vs. City of Bacolod, 115 SCRA412; National WatentfOf and Sewerage Authority vs. Quezon City, 23 SCRA 286; Board of Assessment Appeals vs. C°jr Appeals, 8 SCRA 225). This implied exemption is generally reinforced by express provisions in the cons tion or statutes exempting the Government. (Cooley, Ibid.)
This Revenue Memorandum Circular is issued to clarify the taxation of the Bangko central ng Piljpinas ("BSP") with respect to activities it undertakes in pursuance of its constitutional and statutory mandates as the country's independent central monetary authority. It has been determined that these activities which BSP engages in, including Actions it undertakes, are geared towards the attainment of these mandates.
This Circular also aims to identify such activities and transactions undertaken by t|l6 BSP, which are not incompatible with its defined mandates, thereby rationalizing {], imposition of applicable taxes on those activities. The functions that BSP exercises j, pursuance of its mandates as independent central monetary authority are vital in th determination of the taxability of the transactions 01 activities on which it is engaged in
In fine, both constitutional and statutory provisions outlining BSP's primary objective and responsibilities have been thoroughly considered in determining the status of Bsp and the taxability of its activities and transactions. There is no issue that BSP was created both as regulatory agency and chartered institution.[1] Accordingly, its activities and transactions are defined within the context of BSP's chartered activities as the independent central monetary authority and regulatory body.
SECTION 1. The Bangko Sentral ng Piiipinas: its Responsibility and Primary Objective as the Independent Central Monetary Authority.
Article XII, Section 20 of the 1987 Constitution has mandated Congress to establish an independent central monetary authority that shall be responsible in providing policy directions in the areas of money, banking, and credit. The authority shall also exercise supervision over the operations of banks and exercise such regulatory powers as may be provided by law over the operations of finance companies and other institutions performing similar functions.
Republic Act ("R.A.") No. 7653 (the "BSP Charter") was enacted reiterating these constitutional policy and objective, as well as defining the core functions of the BSP. As the central monetary authority, BSP shall function and operate as an independent and accountable body corporate in the discharge of its mandated responsibilities concerning money, banking and credit. As such, it shall provide policy direction in these areas. As a regulatory body, BSP shall exercise supervision over the operations of banks and exercise such regulatory powers as may be provided by law over the operations of finance companies and other institutions performing similar functions.[2]
SECTION 2. BSP is Not a Bank nor a Non-Bank-Financial Intermediary Performing Quasi-Banking Functions. BSP is a Government Instrumentality Organized as a Chartered Institution.
Consistent with its constitutional and statutory mandates, it is evident that the BSP is not a bank. As defined under Section 3 of R.A. No. 8791 or the General Banking Law of 2000 relation to Section 22 (v) of the Tax Code, "banks" shall refer to those entities engaged lending of funds obtained from the public in the form of deposits, and are classified into universal banks, commercial banks, thrift banks (savings and mortgage banks, stock savings and loan associations, and private development banks), cooperative banks, rural banks, Islamic banks and other classifications of banks as may be determined by the Monetary Board of the BSP.
BSP cannot likewise be considered as a non-bank financial intermediary performing Quasi-banking functions. "Non-bank financial intermediaries" shall refer to persons or entities Whose principal function include lending, investing or placement of funds or evidence of indeptedness or equity deposited with them, acquired by them or otherwise coursed through 'h m either for their own account or for the account of others. The term also includes all f ties regularly engaged in lending of funds or purchasing of receivables or other obligations 6 th funds obtained from the public through the issuance, endorsement or acceptance of debt instruments of any kind for their own account, or through the issuance of certificates, or of repurchase agreements, whether any of these means of obtaining funds from the public is done on a regular basis or only occasionally.
Anent the term "non-bank financial intermediaries", the term "quasi-banking functions" means the borrowing of funds from twenty (20) or more persons or corporate lenders at any one time, through the issuance, endorsement or acceptance of debt instruments of any kind, other than deposits, for the borrower's own account or through the issuance of certificates of assignment or similar instruments with recourse, or of repurchase agreements, for purposes of relending or purchasing receivables or other similar obligations: provided, however, that commercial, industrial and other non-financial companies, which borrow funds through any of these means for the limited purpose of financing their own needs or the needs of their agents or dealers, shall not be considered as performing quasi-banking functions. In the same manner, the term "deposit substitutes" shall refer to an alternative form of obtaining funds from the public (i.e., twenty [20] or more individual or corporate lenders at any one time), other than deposits, through the issuance, endorsement, or acceptance of debt instruments for the borrower's own account, for the purpose of relending or purchasing receivables and other obligations, or financing their own needs or the needs of their agent or dealer.
"Banking activities" refer to the functions or operations conducted to carry on the business of commercial banking, such as accepting drafts and issuing letters of credit; accounting and negotiating promissory notes, drafts, bills of exchange, and other evidences of debt; accepting or creating demand deposits; receiving other types of deposits and deposit substitutes; buying and selling foreign exchange and gold or silver bullion; acquiring Marketable bonds and other debt securities; and extending credit, subject to such rules as the Monetary Board of the BSP may promulgate. Thus, for an activity to be considered s a banking activity, it should comply with the rules promulgated by the Monetary Board of the BSP.
If is clear, therefore, that the BSP is not a bank nor a quasi-bank; neither is it deemed engaged in banking activities since the operations it undertakes are geared towards the attainment of its constitutional and statutory mandates, and not in pursuit of commercial business activities. However, as a chartered institution or body corporate, it is also fitted to engage in proprietary activities not incompatible with its defined mandates as a government instrumentality. These proprietary activities of the BSP are necessary u sustain its existence as a body corporate enjoying fiscal and administrative autonomy
SECTION 3. Taxation Status of the BSP: Legal Bases that Authorized the lmposition Taxes on BSP Activities and Transactions.
The constitutional provision authorizing the creation of BSP does not provide any rule, of taxation. The law creating it, R.A. No. 7653, has provided for its limited tax exemption to wit:
"SECTION 125. Tax Exemptions. — The Bangko Sentral shall be exempt for a period of five (5) years from the approval of this Act from all national, provincial, municipal and city taxes, fees, charges and assessments.
The exemption authorized in the preceding paragraph of this section shall apply to all property of the Bangko Sentral, to the resources, receipts, expenditures, profits and income of the Bangko Sentral, as well as to all contracts, deeds, documents and transactions related to the conduct of the business of the Bangko Sentral: Provided, however, That said exemptions shall apply only to such taxes, fees, charges and assessments for which the Bangko Sentral itself would otherwise if be liable, and shall not apply to taxes, fees, charges, or assessments payable by persons or other entities doing business with the Bangko Sentral: Provided, further, That foreign loans and other obligations of the Bangko Sentral shall be exempt, both as to principal and interest, from any and all taxes if the payment of such taxes has been assumed by the Bangko Sentral.
The plain and manifest intention of the law is to impose taxes on BSP after the expiration of its tax exemption, which is five (5) years from the approval of the Act creating it, i.e., on July 3, 1993. The imposition of taxes upon it, however, is neither absolute nor unlimited, but subject to the inherent and constitutional limitations on the power to tax. One of the inherent limitations of the power to tax is the exemption of government from taxes.[3] Nonetheless, only revenues, receipts or transactions of the government resulting from the exercise of governmental functions will be exempt from taxes. Hence, if the government engages in proprietary functions, it exposes it self to the imposition of taxes as if the same is undertaken by an ordinary taxpayer
The imposition of business taxes on the BSP shall take into account the foregoing basic principles. Accordingly, BSP shall be exempt from business taxes for its revenues and receipts derived from the exercise of essential governmental functions but subject to business taxes in the exercise of purely proprietary functions.
However, the performance by the BSP of proprietary functions will still not warrantee imposition of GRT under Sections 121 and 122 of the Tax Code because it is not one of those taxpayers stated under the same Code to be liable for said taxes. But, if in the
performance of its properiety function, BSP engages in any of the transaction enumerated under Section 105 of the Tax Code, then it becomes liable to value added tax (VAT) imposed under Section 106 to 108 of the same Code.
This Circular shall be given as wide a publicity as possible.
Adopted: 05 Sept. 2008
Commissioner of Internal Revenue
[1] Sec.2, E.O. 292 (Administrative Code of 198/ defines the following terms, to wit -
"(11) "Regulatory agency" refers to any agency expressly vested with jurisdiction to regulate, administer or adjudicate matters affecting substantial rights and interests of private persons, the principal powers of which are exercised by a coflective body, such as a commission, board or council.[2] Section 1 (Declaration of Policy) and Section 3 (Responsibility and Primary Objective of BSP), R.A. 7653.
(12) "Chartered institution" refers to any agency organized or operating under a special charter, and vested by law with functions relating to specific constitutional policies or objectives. This term includes the state universities and colleges and the monetary authority of the State."
[3] It is axiomatic that when public property [or the Government itself is involved, exemption is the rule taxation is the exception (Social Security System vs. City of Bacolod, 115 SCRA412; National WatentfOf and Sewerage Authority vs. Quezon City, 23 SCRA 286; Board of Assessment Appeals vs. C°jr Appeals, 8 SCRA 225). This implied exemption is generally reinforced by express provisions in the cons tion or statutes exempting the Government. (Cooley, Ibid.)