BIR Ruling

February 25, 1997 Philam Plans, Inc. American Home Building 4th Floor, 100 Carlos Palanca Jr. cor. Dela Rosa Street Legaspi Village, Makati Metro Manila Attention: Rodolfo M . De La Rosa Corporate Secretary & Legal Consultant Gentlemen : This refers to your deficiency documentary stamp tax for 1991 in the amount of P2,138,477.50, inclusive of increments thereon, covered by Assessment No. 25-24-000629-91 dated February 6, 1995. cdtech The above assessment was based on the applicable provisions of Sec. 176 of the then National Internal Revenue Code, as amended, which imposes stamp tax on sales, agreements to sell, memoranda of sales, deliveries or transfer of bonds, due bills, certificates of obligation , or shares or certificates of stock. This Bureau's examiner classified your pre-need plans such as pension plans, life plans, educational plans and the like which you sell and issue to the public as "certificates of obligation" subject to documentary stamp tax (DST for brevity) under Sec. 176 of the Tax Code, as amended. In your protest-letters dated February 1 and 8, 1995, respectively, you contended that your pre-need plans are not liable to DST in 1991 because "it was only in the year 1994, when the amendment of Section 186 of the Internal Revenue Code, as amended, was enacted to include pre-need plans among the many instruments that are liable for documentary stamp tax (Sec. 10 of R.A. 7660)." Your case presents a very simple issue which can be translated into this very simple question: "Prior to the enactment of RA 7660 in 1994, are pre-need plans subject to DST?" RA 7660, which you cited as legal basis, it must be recalled, came into effect in 1994 with the objective of rationalizing further the structure and administration of DST, and introducing further amendments to the Tax Code relevant to stamp taxes. After careful review of the facts, law, rules and regulations applicable hereto, we come to conclude that your protest is devoid of merit for reasons discussed herein below in seriatim. ONE : The blanket provisions of Sec. 173 of the applicable NIRC in 1991, as amended, provides a general background of "what" and "which" documents are subject to DST at that time, to wit: "Sec. 173. Stamp taxes upon documents, instruments, and papers . Upon documents, instruments, and papers, and upon acceptances, assignments, sales, and transfers of the obligation, right, or property incident thereto, there shall be levied, collected and paid for, and in respect of the transaction so had or accomplished, the corresponding documentary stamp taxes prescribed in the following sections of this Title, by the person making, signing, issuing, accepting, or transferring the same, and at the same time such act is done or transaction had : Provided , That the tax herein imposed, the other party thereto who is not exempt shall be the one directly liable for the tax . (As amended by PD No. 1994) A cursory reading of the above would indicate that for as long as such documents/instruments/papers will assign, sell, transfer, or convey any obligation, right, or property, the imposition of DST to such document is proper, and ought to be collected or levied accordingly. TWO : Next comes the more pertinent provisions of Sec. 176 of the then NIRC, as amended, reading "Sec. 176. Stamp tax on sales, agreements to sell, memoranda of sales, deliveries or transfer of bonds, due-bills, certificates of obligation, or shares or certificates of stock . On all sales, agreements to sell, or memoranda of sales, deliveries, or transfer of bonds, due-bills, certificates of obligations, or shares or certificates of stock in any association, company or corporation, or transfer of securities by assignment in blank, or by delivery, or by any paper or agreement, or memorandum or other evidences of transfer or sale whether entitling the holder in any manner to the benefit of such bonds, due-bills, certificates of obligation or stock, or to secure the future payment of money, or for the future transfer of any bond, due-bill, certificates of obligation or stock, there shall be collected a documentary stamp tax of fifty centavos on each two hundred pesos, or fractional part thereof, of the par value of such bond, due-bill, certificates of obligation or stock : Provided , That only one tax shall be collected on each sale or transfer of stock or securities from one person to another, regardless of whether or not a certificate of stock or obligation is issued, indorsed, or delivered in pursuance of such sale or transfer : and provided, further , That in the case of stock without par value the amount of the documentary stamp tax herein prescribed shall be equivalent to twenty-five per centum of the documentary stamp tax paid upon the original issue of said stock . Sec. 176 is more relevant and straightforward than the first one in that it mentions specific documents that are subject to DST. cdta Are pre-need plans one of them? We believe it is. A pre-need plan, just like what you sell and issue, imposes obligations to the parties to the Plan, though in distinct terms and in a different sense depending on which side you are. This is consistent with the principle that a documentary stamp tax is an excise tax. It is a tax on the privilege to enter into a transaction just like a Plan or an Agreement. Obviously your pre-need Plans will fall under "certificates of obligations" because of the following reasons inter alia: Existence of an obligation in the Agreement from the standpoint of an Applicant of a Pre-need Plan 1. The Applicant of your Pre-Need Plan has to pay a certain consideration, called a "Pre-need Price", which goes with his chosen program; 2. The Pre-Need Agreement, which you issue to your Applicant(s), speaks of a "Paying Period" within which to pay or comply with his obligation; 3. The Pre-Need Agreement is very explicit about the word "Plan Payment" referring to the amount paid by your Applicant with respect to his obligation; 4. A close reading of the General Provisions of a sample of your Pre-need Plan/Agreement, will show that the following are stipulated: xxx xxx xxx "IV. PRE-NEED PRICE "You agree to pay the Pre-need Price of the pension program chosen, plus handling charges if any, in this Agreement, according to the selected mode of payment on the designated due date. You may pay at any of our offices or through our authorized representatives without any need of notice or demand. We only honor payment acknowledged by our official receipts." cdti "V. GRACE PERIOD If you do not pay on time, you may still do so, but not later than sixty (60) days from the due date. If you do not pay your installment by the end of the sixty (60) days grace period, this agreement will lapse and all rights and benefits will end, except the right to reinstate ." xxx xxx xxx Taken altogether, these stipulations allow no tinge of fuzziness as to the existence of the Applicant's obligation in the Agreement, with clear and concise description of the obligatory rights of the parties and the conditions created for the purpose of fulfilling these obligations. Existence of an obligation in the Agreement from the standpoint of your company 5. In another sense, it can be said that your company also has certain obligations. This is called and set forth in the Agreement, under the "Settlement Options" heading. These settlement options could be interpreted as your "set of obligations" which you have to reciprocally comply with upon full payment of the pre-need price by the Applicant. In summary, we believe that a pre-need plan is a document that falls within the purview of Sections 173 and 176 of the NIRC, as amended, because "it transfers or conveys an obligation or right" and it is clearly a document which could be classified as a "certificate of obligation." It is worth discussing that your Articles of Incorporation mentions "developing, maintaining, conducting, operating, marketing, selling any and all types of securities . . . including but not limited to life plans, educational assistance plans, pension, retirement income, or retirement plans," as your primary purpose. It goes without saying that a pre-need plan can also be classified as a type of security which would fall within the ambit of your primary purpose. That being the case, a security in a broad sense presupposes a preexisting obligation on terms agreed upon an obligation which forms or gives rise to a document evidencing certain rights of the parties in a transaction. Finally, the purpose and intent of RA 7660 in putting pre-need plans as one of the taxable documents or instruments under Section 186 of the Tax Code, as amended, was merely to erase any cloud of doubt as to its proper taxability and to abrogate the wrong notion that pre-need plans and other instruments similarly situated, are not at all subject to DST. cdpr In view of the foregoing, it is requested that you pay the amount of P2,138,477.50 representing your deficiency documentary stamp tax assessment for the year 1991 covered by Assessment No. 25-24-000629-91 to the Revenue District Office nearest your principal place of business within fifteen (15) days from your receipt hereof in order that this case may be considered closed and terminated. This constitutes the final decision of this Office on the matter. Very truly yours, (SGD.) LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue