BIR Ruling

November 25, 1976 Burden of Paying Documentary Stamp Tax This refers to your letter dated July 21, 1976 requesting opinion whether or not Air Manila Inc., (AMI for short) is exempt from the payment of documentary and science stamps in effecting the registration of a Supplemental (Amendatory) Mortgage, executed by and between AMI and the National Investment and Development Corporation. It appears that AMI has been granted a franchise under Republic Act No. 4501 and as such franchise grantee, enjoys tax exemption pursuant to Section 12 of said Act, which reads as follows "SEC. 12. In consideration of the franchise and rights hereby granted, the grantee shall pay to the national government during the life of this franchise, a tax of two per cent of the gross revenue or gross earnings derived by the grantee from its operation under this franchise. Such tax shall be payable quarterly and shall be in lieu of all taxes of any kind, nature or description levied, established, or collected by any municipal or city, provincial or national authority : Provided, That if, after the audit of the accounts of the grantee by the Commissioner of Internal Revenue, a deficiency tax in shown to be due, the deficiency tax shall be payable within ten days from the receipt of the assessment. The grantee shall pay the tax on its real property in conformity with existing laws." (Emphasis supplied) It further appears that in the Mortgage Contract entered into AMI and that corporation, the former undertook payment of all expenses of the contract, as can be gleaned from the following provisions of said contract: "6) All expenses in the execution, notarization, registration and cancellation of this mortgage and/or any renewal hereof or supplement hereto as well as any substitute or additional lien that may be executed by the MORTGAGOR shall be defrayed by the MORTGAGOR." It is clear from the foregoing that AMI assumed payment of the documentary and science stamp taxes, since said taxes are expenses in the execution of the mortgage. Such being the case, AMI is considered directly liable for the payment of said taxes, as Section 210 of the Tax Code imposes such tax on the person making, signing, issuing, accepting and transferring the documents, instruments and papers. Thus the Court of Tax Appeals held "Section 210 of the Tax Code provides that the corresponding documentary tax upon documents, instruments and papers, and upon acceptance, assignments, sales and transfers of the obligation, right, or property incident thereto shall be paid by the person making, signing, issuing, accepting, or transferring the same. It would seem from this codal provision that where the document, instrument or paper subject to the documentary stamp tax is made and signed by two or more persons or parties, the burden of paying the tax is shouldered by said persons or parties. The provision leaves the tax to be paid indifferently by either party. This conclusion finds sustenance in the fact that a stamp tax is embraced within the purview of those taxes which are denominated indirect. One of the natural characteristics of indirect taxes is that they are susceptible of being shifted from the person upon whom in the first instance the duty of payment is laid (American Express Co. vs. Maynard ex rel Moore, 177 U.S. 404, 413-414, 44 L Ed. 823, 827). There is nothing in the provisions of Section 210 of the Tax Code which, in cases of documents, instruments or papers required to be stamped, can be construed as expressly forbidding the person upon which the stamp taxes are imposed from shifting the same by contract or by any other lawful means. In the case at bar, the banks have contractually shifted the payment of the stamp tax to petitioner, the other party in the Agreement, Annex "B" . The contractual shifting of the burden of paying the stamp tax in question does not contravene any public policy . Petitioner, having legally contracted to assume the payment of the documentary stamp tax on the Agreement, Annex "B", we believe and so hold that said tax is directly payable by it . (Sta. Clara Lumber Co., Inc. vs. Aranas, CTA Case No. 502, June 12, 1959; Emphasis ours) cdasia