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70 BANCO DE OROb. 10% VAT will remain unchanged, with the President having a stand-by authority effective January 1, 2006 to increase the VAT rate to12% under certain conditions (the rate was increased by the President to 12% effective February 1, 2006);c. 10% (12% starting February 1, 2006) VAT will now be imposed on certain goods and services that were previously zero-rated or subjectto percentage tax;d. Input tax on capital goods shall be claimed on a staggered basis over 60 months or the useful life, whichever is shorter; and,e. Creditable input VAT is capped by a maximum of 70% of output VAT per quarter.21.4 Gross Receipts Tax (GRT)/Value Added Tax (VAT)Beginning January 1, 2003, the imposition of VAT on banks and financial institutions became effective pursuant to the provisions ofRepublic Act 9010. The Bank and BDO Private Bank became subject to the VAT of 10% based on their gross receipts, in lieu of the GRTunder Sections 121 and 122 of the Tax Code which was imposed on banks, non-banks financial intermediaries and finance companies inprior years.On January 29, 2004, Republic Act 9238 reverts the imposition of GRT on banks and financial institutions. This law is retroactive toJanuary 1, 2004. The Bank and BDO Private Bank complied with the transitional guidelines provided by the BIR on the final dispositionof the uncollected Output VAT as of December 31, 2004.On May 24, 2005, the amendments on RA 9337 was approved amending, among others, the gross receipts tax on royalties, rentals ofproperty, real or personal, profits from exchange and on net trading gains within the taxable year on foreign currency, debt securities,derivatives and other similar financial instruments from 5% to 7% effective November 1, 2005.21.5 Documentary Stamp Tax (DST)Documentary stamp taxes (at varying rates) are imposed on the following:a. Bank checks, drafts, or certificate of deposit not bearing interest, and other instruments;b. Bonds, loan agreements, promissory notes, bills of exchange, drafts, instruments and securities issued by the Government or any of itsinstrumentalities, deposit substitute debt instruments, certificates of deposits bearing interest and other not payable on sight ordemand;c. Acceptance of bills of exchange and letters of credit; and,d. Bills of lading or receipt.On February 7, 2004, RA 9243 was passed amending the rates of DST, the significant provisions of which are summarized below:a. On every issue of debt instruments, there shall be collected a DST of P1.00 on each P200 or fractional part thereof of the issue priceof any such debt instrument. Provided, that for such debt instruments with terms of less than one year, the DST to be collected shallbe of a proportional amount in accordance with the ratio of its term in number of days to 365 days. Provided further that only oneDST shall be imposed on either loan agreement or promissory notes to secure such loan.b. On all sales or transfer of shares or certificates of stock in any corporation, there shall be collected a DST of P0.75 on each P200, orfractional part thereof, of the par value of such stock.c. On all bills of exchange or drafts, there shall be collected a DST of P0.30 on each P200, or fractional part thereof, of the face value ofany such bill of exchange or draft.d. The following instruments, documents and papers shall be exempt from DST:• Borrowings and lending of securities executed under the Securities Borrowing and Lending Program of a registered exchange, orin accordance with regulations prescribed by the appropriate regulatory authority;• Loan agreements or promissory notes, the aggregate of which does not exceed P250,000 or any such amount as may bedetermined by the Secretary of Finance, executed by an individual for his purchase on installment for his personal use;• Sale, barter or exchange of shares of stock listed and traded through the local stock exchange for a period of five years from theeffectivity of R.A. 9243;• Fixed income and other securities traded in the secondary market or through an exchange;• Derivatives including repurchase agreements and reverse repurchase agreements;• Bank deposit accounts without a fixed term or maturity; and,• Interbank call loans with maturity of not more than seven days to cover deficiency in reserve against deposit liabilities.
2005 ANNUAL REPORT7122. TRUST OPERATIONSThe following securities and other properties held by the Bank in fiduciary or agency capacity (for a fee) for its customers are not includedin the accompanying statements of condition since these are not properties of the Bank (see Note 27).ConsolidatedParent2005 2004 2005 2004Investments P 89,485,077 P 69,380,206 P 89,485,077 P 69,380,206Others 22,298,065 19,085,798 22,297,995 19,085,798P 111,783,142 P 88,466,004 P 111,783,072 P 88,466,004In compliance with the requirements of the General Banking Act relative to the Bank’s trust functions:a. Investment in government securities (shown as part of Held-to-Maturity Investments) with a total face value of P889,400 as ofDecember 31, 2005 and P837,310 as of December 31, 2004 are deposited with BSP as security for the Bank’s faithful compliance withits fiduciary obligations (see Note 9); andb. A certain percentage of the Bank’s trust income is transferred to surplus reserve. This yearly transfer is required until the surplusreserve for trust function is equivalent to 20% of the Bank’s authorized capital stock. As of December 31, 2005, the reserve for trustfunctions amounted to P135,725 and is shown as Surplus Reserves in the statements of changes in capital funds.Income from trust operations is reported net of the related expenses and amounted to P422,777 and P375,516 for the years endedDecember 31, 2005 and 2004, respectively, and shown under Trust Fees in the statements of income.23. MERGERS AND ACQUISITIONS23.1 United Overseas Bank PhilippinesOn May 6, 2005, the Bank and United Overseas Bank Philippines (UOBP) and United Overseas Bank Limited (UOBL) signed a Memorandumof Agreement (MOA) whereby the Bank acquired the 66 branches of UOBP for a total cash consideration of P600,000. As part of theMOA, the Bank assumed the deposit liabilities of UOBP in consideration of an equivalent amount of related assets of UOBP, includingcash payment in case the assets would be lower than the assumed liabilities. Also under the MOA, the P600,000 payment of the Bankwill be used by UOBL to subscribe for the Bank’s shares of common stock valued at P26.75 per share, or equivalent to 22,429,906 shares.On December 19, 2005, the transfer of the assets including cash payment made by UOBP to fully offset the assumed liabilities by the Bankwas carried out.The accounts assumed by the Bank and the resulting goodwill are determined as follows:Cash consideration P 600,000Assets acquired and liabilities assumed:Assets acquired:Cash 279,960Due from other banks 10,649Held-to-maturity investments 693,768Loans and receivables 5,418,411Bank premises, furniture, fixtures and equipment 209,400Other resources 1,857,222Total assets acquired 8,469,410Liabilities assumed:Deposit liabilities 8,414,278Other liabilities 55,132Total liabilities assumed 8,469,410Net assets acquired over liabilities assumed -Goodwill P 600,000The goodwill amounting to P600,000 is presented as part of Other Resources in the 2005 statement of condition (see Note 14) while theBank’s liability to UOBL relating to the acquisition amounting to P600,000 is presented as part of Other Liabilities in the 2005 statementof condition (see Note 17).The UOBP acquisition was approved by the BSP on September 8, 2005 while the shares to be subscribed by UOBL were subsequently issuedin February 2006.
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Page 28 and 29: 26 BANCO DE OROStatements of Income
Page 30 and 31: 28 BANCO DE OROStatements of Cash F
Page 32 and 33: 30 BANCO DE OROThe following reconc
Page 34 and 35: 32 BANCO DE OROb. The re-measuremen
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Page 38 and 39: 36 BANCO DE OROWith regard to inves
Page 40 and 41: 38 BANCO DE OROThe financial statem
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Page 66 and 67: 64 BANCO DE OROBills payable bears
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Page 70 and 71: 68 BANCO DE OROThe reconciliation o
Page 74 and 75: 72 BANCO DE OROAs part of the MOA,
Page 76 and 77: 74 BANCO DE OROb. Secured Liabiliti
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