BIR Ruling

March 25, 1974 Manguera, Salvador & Duran Attorneys-at-Law Room 627, Makati Stock Exchange Bldg. Ayala Avenue, Makati, Rizal Attention: A . T . Gonzales Gentlemen : This refers to your letter dated November 2, 1973 requesting in behalf of your client, a domestic corporation, advice on whether Third Party Real Estate and/or Chattel Mortgages executed to further secure an original obligation are still subject to payment of documentary and science stamp tax in view of the last paragraph of Section 236 of the Tax Code as amended by Republic Act No. 6110 as follows: "When any bond, note, or other obligation is secured by a mortgage, pledge, deed of trust, or by the assignment or transfer of any documentary security, one tax only shall be collected upon these papers, the tax to be at the highest rate imposed on the mortgage , bond, note, obligation, or other documents, as the case may be." (Emphasis supplied). In your letter, you stated the following transaction as the typical example: "A domestic corporation through its duly authorized corporate officer executed a Real Estate or Chattel Mortgage in favor of a local Bank for P11,000,000.00 secured by its existing machinery-equipment inventory or real estate. To further secure the above obligation, two (2) other persons. In their individual capacity each executed a real estate mortgage (Third Party Estate Mortgage) in favor of the same mortgage for the amount of P11,000,000.00." In reply thereto, I have the honor to inform you that since the two third party mortgage executed to further secure the original obligation of P11,000,000.00 which was already entirely secured by the first mortgage fall within the penultimate paragraph of Section 236 of the Tax Code, the same are not subject to documentary and science stamp taxes. It should also be stated in this connection that in case a situation arises such a third party mortgage contract is executed to further guaranty an original obligation which has not yet been entirely secured by the first mortgage then the said third party mortgage is subject to documentary stamp tax based on the amount of the balance still unsecured, by the first mortgage. Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue TAN-1601-593-5