RR No. 11-2021: Implements the tax exemptions and privileges granted under RA No. 11523 (Financial Institutions Strategic Transfer [FIST] Act)

Summary

RR No. 11-2021 implements the tax exemptions and privileges granted under RA No. 11523 (Financial Institutions Strategic Transfer [FIST] Act).

Key points

1. Registration and coverage. A Financial Institutions Strategic Transfer Corporation (FISTC) registers under Section 236 of the NIRC and complies with invoicing, books of accounts, withholding, return filing and timely payment rules. Entities created under RA No. 9182, as amended (SPV Act of 2002), may avail of the privileges if they meet the Act’s requirements, and references to FISTC also cover them.
2. Covered transactions. Twelve transactions are covered, including transfers of a Non-Performing Loan (NPL) or Real and Other Properties Acquired (ROPA) between a Financial Institution (FI), a FISTC, an individual and third parties. They also include dation in payment of an NPL by a borrower or third party to an FI, FISTC or individual.
3. Taxes exempted. The covered transactions are exempt from Documentary Stamp Tax, Capital Gains Tax on capital assets, Creditable Withholding Income Taxes on land and buildings treated as ordinary assets, and VAT or gross receipts tax. Income tax is not exempted, so transfers of ordinary-asset NPAs stay subject to regular Corporate Income Tax or MCIT.
4. Conditions. The NPL or ROPA needs a Certificate of Eligibility from the Appropriate Regulatory Authority, and many transfers must be an approved ‘true sale’ made from February 18, 2021 to February 18, 2023. Later transfers must occur within five (5) years of acquisition, and individuals are limited to a single family residential unit or empty lot ROPA, or an NPL secured by it, in one acquisition.
5. Further privileges. A FISTC is exempt from income tax on net interest income from new rehabilitation loans to a borrower with an acquired NPL, and the loan and capital infusion documents are exempt from DST for not more than five (5) years from acquisition. An FI’s loss on transferring NPAs is treated as ordinary loss carried over for five (5) consecutive taxable years, while the 2% MCIT still applies.
6. IUIs, reports and sanctions. Investment Unit Instruments issued by a FISTC are not deposit substitutes and avoid the 20% final tax, but stay subject to normal income tax and other applicable taxes. A FISTC attaches lists of taxable, tax-exempt, and partly exempt and partly taxable transactions to its Annual Income Tax Return, and a person who benefits without entitlement refunds double the amount plus 12% interest per year.

Who is affected

• Financial Institutions Strategic Transfer Corporations (FISTC)
• Special Purpose Vehicles under RA No. 9182
• Financial institutions
• Individuals acquiring an NPL or ROPA

Deadlines and effectivity

• Qualifying transactions: February 18, 2021 to February 18, 2023
• Later transfers within five (5) years from acquisition
• FI loss carry-over: five (5) consecutive taxable years

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