BIR Ruling

August 13, 1997 Atty. Sabino Padilla, Jr. 7th Floor Padilla-de los Reyes Bldg. 232 Juan Luna St., Manila S i r : This refers to your protest filed on behalf of the Bank of the Philippine Islands against the assessment of this office involving the amount of P28,020.00 as deficiency documentary stamp tax for taxable year 1985, inclusive of increments, and covered by Assessment Notice No. FAS 5-85-89-002054, dated October 23, 1989. LibLex In disputing the validity of the above assessment, you argued among others, that as established by market convention (banking industry practice), the documentary stamp tax on the buying and selling of foreign currencies shall be for the account of the purchaser; and that, as the Central Bank of the Philippines was the buyer in the foreign exchange transactions on June 6 and 14, 1985 covered by the subject assessment, the Bank of the Philippine Islands should not be held liable to the payment of the subject tax. You argued further that while it is true the under P.D. 1994, a proviso was added to Sec. 222 (now Sec. 186) of the Tax Code, as amended, "that whenever one party to a taxable document enjoys exemption from the tax herein imposed, the other party thereto who is not exempt shall be the one directly liable for the tax", this proviso (and the other amendments of P.D. 1994) took effect only on January 1, 1986, according to Sec. 49 of P.D. 1994, hence the liability for the documentary stamp tax cannot be shifted to the seller. In reply, please be informed that after a thorough and careful study of the facts of the case as well as the law and jurisprudence pertinent thereto, this Office finds the above argument to be legally untenable. It is admitted that while industry practice or market convention has the force of law between the members of a particular industry, it is not binding with the BIR since it is not a party thereto. The same should, therefore, not be allowed to prejudice the Bureau of its lawful task of collecting revenues necessary to defray the expenses of the government. (Art. 11 in relation to Art. 1306 of the New Civil Code.) Moreover, let it be stated that even before the amendment of Sec. 222 (now Sec. 173 ) of the Tax Code, as amended, the same was already interpreted to hold the other party who is not exempt from the payment of documentary stamp tax liable for the tax. This interpretation was further strengthened by the following BIR Rulings which in substance state: 1. BIR Unnumbered Ruling dated May 30, 1977 " . . . Documentary stamp taxes are payable by either the person, signing, issuing, accepting, or transferring the instrument, document, or paper. It is now well settled that where one party to the instrument is exempt from said taxes, the other party who is not exempt should be liable." 2. BIR Ruling No. 144-84 dated September 3, 1984 " . . . Thus, where one party to the contract is exempt from said tax, the other party, who is not exempt, shall be liable therefore. Accordingly, since A.J.L. Construction Corporation, the other party to the contract and the one assuming the payment of the expenses incidental to the registration in the vendee's name of the property sold, is not exempt from said tax, then it is the one liable therefore, pursuant to Sec. 245 (now Sec. 196), in relation to Sec. 222 (now Sec. 173), both of the Tax Code of 1977, as amended." cdll Premised on all the foregoing considerations, your request for reconsideration is hereby DENIED. In view thereof, you are hereby requested to urge your client, Bank of the Philippine Islands, to pay the amount of P28,020.00 as deficiency documentary stamp tax for the taxable year 1985, plus increments that may have accrued thereon, to the Revenue District Officer, BIR District Office NO. 47, Makati Avenue, Makati City, Metro Manila within fifteen (15) days from receipt hereof, otherwise, this Bureau will enforce collection through summary remedies provided by law. This constitutes the final decision of this office on the matter. llcd Very truly yours, (SGD.) LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue