BIR Ruling

October 25, 1973 Pacis, Cayaga, La Via & Garcia Attorneys-at-Law 7th Floor, Comtrust Bldg. Ayala Avenue, Makati, Rizal Attention: Atty . Antonio C . Pacis Gentlemen : This is with reference to your letter dated June 29, 1973, requesting a ruling in behalf of your client, a private commercial bank on its liability to the documentary and science stamp taxes on foreign exchange purchase/sale contracts under the following facts: cdtech "When a commercial bank purchases foreign exchange from the Central Bank of the Philippines, the Central Bank executes a transfer instrument instructing one of its depository banks abroad to pay the foreign exchange so purchased directly to the account of the purchasing bank, or to credit the same to the latter's account with a designated depository bank abroad. The instrument evidencing said transaction is affixed with documentary stamps in proper amounts, and the expense thereof invariably charged to the purchasing bank. It is sufficiently clear that in the above-described transaction, the Central Bank is the seller , while the commercial bank is the purchaser . The purchasing bank is not a signatory party to the transfer instrument; neither does the transfer instrument stipulate that liability for stamp taxes should be for the account of the purchasing bank. It appears, therefore, that from a contractual standpoint, our banking client is entitled to refuse to bear the cost of documentary stamps. We believe this entitlement, however, to be tenuous for the reason that the Central Bank may simply amend transactional documentation and: (a) require a purchasing bank to be a signatory to the transfer instrument; and (b) insert a stipulation in the transfer instrument requiring the purchasing bank to bear the cost of stamp taxes. To be able to counsel our banking client meaningfully under these circumstances, we would have to be able to maintain the proposition that even if a purchasing bank were made a signatory party to the transfer instrument, and even if it were also expressly stipulated that the purchasing bank would have to assume liability for stamp taxes, said purchasing bank could, nevertheless, still lawfully decline paying for the stamp taxes." In reply thereto, I have the honor to inform you that Section 210 of the Tax Code provides that the documentary stamp tax may be paid either by the person making, signing, issuing, accepting, or transferring the document, instrument, and papers and/or acceptances, assignments, sales, and transfer of the obligation, right and property incident to the transaction to had or accomplished. Hence, this Office had consistently ruled that where a tax exempt person is party to a taxable transaction, the tax is nonetheless due and payable, the same to be paid by the other party to the transaction. In the instant cases, therefore, considering that the Central Bank of the Philippines is exempt from all taxes, the documentary and science stamp taxes shall be due from and payable by the purchasing bank, the other party to the transaction. Accordingly, said purchasing bank cannot lawfully decline payment of its tax liability. aisadc Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue TAN 1601-593-5 "TAXPAYERS SHOULD INDICATE THEIR TAN IN ALL COMMUNICATIONS TO THE BIR."