RR No. 1-2008: Amends certain provisions of RR No. 10-2006, which prescribes the guidelines and conditions for the tax treatment of Securities Borrowing and Lending transactions involving shares of stocks or securities listed in the Philippine Stock Exchange

Summary

RR No. 1-2008 amends RR No. 10-2006 by setting procedures for registering the Master Securities Lending Agreement (MSLA) and guidelines for multilateral MSLAs during the transition period of the Securities Borrowing and Lending (SBL) Program.

Key points

1. Scope and tax treatment. SBL is limited to shares or securities listed in the Philippine Stock Exchange (PSE), unless the SEC declares them ineligible. SBL transactions and the return of collateral or Equivalent Shares are not subject to stock transaction tax under Section 127, Capital Gains Tax under Sections 24(C), 25(A)(3), 28(A)(7)(c) and 28(B)(5)(c), or Documentary Stamp Taxes under Sections 176 and 199(c) of the NIRC. This requires a valid MSLA registered with and approved by the BIR, an SBL Program that follows SEC rules, and PSE administration and supervision. All other applicable taxes continue to apply.
2. Features of a valid MSLA. The Lender keeps rights such as Manufactured Dividends or Benefits, which are not taxable income to the Lender and not deductible for the Borrower. The Lender may recall the shares, and the Borrower returns Equivalent Shares. The Borrower puts up collateral, and the borrowing period cannot exceed two (2) years from the date of execution of the SBL Confirmation Notice.
3. Specified purposes. The MSLA must limit use of the borrowed shares to specified purposes. These include settling a sale, settling a future sale, replacing shares under another SBL, on-lending, securities financing and collateral pledging, and other purposes the BIR determines upon favorable recommendation of the SEC and the PSE.
4. Execution and registration. Every MSLA must be registered with the BIR upon payment of the prescribed fee, and only the Borrower or the Lending Agent registers it. A Multilateral MSLA may be executed by a Lender or Lending Agent with multiple borrowers, with all features of a valid MSLA. A deficient MSLA may be fixed by an addendum, and only transactions after the addendum are eligible. The Lender or Lending Agent also files a Notification of Execution of MSLA Form.
5. When SBL is treated as a sale. SBL is deemed a sale and purchase when shares are not returned at the end of the borrowing period (a partial return is allowed), when they are used for other than the specified purposes, or when the Borrower defaults. It is also deemed a sale when essential features of a valid MSLA are lacking, when registration fails or is delayed, or when transactions occur outside the borrowing period. Without registration, the SBL is a sale outside the PSE subject to Capital Gains Tax and Documentary Stamp Tax.
6. Records and reports. The Borrower keeps SBL ledgers in the form the Commissioner prescribes, enters SBL and Stock Return particulars, and prepares an SBL Transaction Report for each transaction. The Borrower gives the BIR copies of the report and the SBL Confirmation Notice. A Lending Agent gives the BIR the summary reports required in Section 12(c) of RR No. 10-2006.

Who is affected

• Lenders and Lending Agents
• Borrowers
• Parties to SBL of PSE-listed shares or securities

Deadlines and effectivity

• Borrowing period: not more than two (2) years from execution of the SBL Confirmation Notice

Summary by Tax Resources PH. It is not a substitute for the full text of the issuance or professional advice.