RMC No. 62-2003: Provides guidelines for Documentary Stamp Tax evaluation on cash-settled securities swap transactions.

Key points

1. What a CSST is. A CSST is an agreement between financial institutions, or between financial institutions and the BSP, to simultaneously buy or sell government securities spot and sell or buy comparable securities at a pre-determined future date and price with the same counter-party. Comparable securities have the same credit risk, similar cash flow and/or settlement price, and similar maturity and tenor range.
2. Not a deposit substitute. No borrowing or debt instrument is involved. The sale, spot or forward, is unconditional and without recourse, and the buyer gets absolute title with the plenary right of free disposal. Only bank-owned securities are eligible as underlying securities, so the CSST is not a deposit substitute.
3. No DST under Section 180. Because a CSST falls under no other class of documents listed in Section 180 of the Tax Code, it is not subject to DST under that section.
4. Secondary transfers. Conveyance of a security in the secondary market is generally not subject to DST. There are two exceptions: a quasi-capital instrument under Section 176, and a transfer wrapped in a package that constitutes a deposit substitute, whose issuance is subject to DST under Section 180.
5. Accounting entries. The accounting entries prescribed in the Circular must be strictly complied with for the exemption from DST.

Who is affected

• Financial institutions entering into CSST
• BSP as a counter-party to CSST