BIR Ruling [DA-007-03]

January 9, 2003 BIR RULING [DA-007-03] Sec. 175; 032-01 dated July 27, 2001 Laya Mananghaya & Co. 22/F Philamlife Tower 8757 Paseo de Roxas Makati City Attention: Atty. Francisco G. Tagao Principal and Atty. Manuel P. Salvador III Director Gentlemen : This refers to your letter dated December 2, 2002 requesting on behalf of your client, Coral Bay Nickel Corporation (CBNC), for a ruling that the documentary stamp tax imposed under Section 175 of the Tax Code of 1997 is based on the total par value of the original issuance of the shares of stock out of the increase in the authorized capital stock. It is represented that CBNC is a corporation duly registered with the Securities and Exchange Commission (SEC) with an authorized capital stock of P50,000,000.00 divided into 50,000,000 shares with a par value of P1.00 per share, all of which are fully subscribed and paid-up, as follows: Name Amount Paid Sumitomo Metal Mining Co.,Ltd. P27,000,000 Mitsui and Co.,Ltd. 9,000,000 Nissho Iwai Corporation 9,000,000 Rio Tuba Nickel Mining Corp. 5,000,000 Total P50,000,000 that the capital of CBNC is divided among Sumitomo Metal Mining Co.,Ltd. (54%),Mitsui and Company Ltd. (18%),Nissho Iwai Corporation (18%) and Rio Tuba Nickel Mining Corporation; that in line with the capital requirements for its project, CBNC intends to increase its authorized capital stock from P50,000,000.00 divided into 50,000,000 shares at the par value of P1.00 per share to P587,500,000 divided into 587,500,000 shares at the par value of P1.00 per share; that the increase in the authorized capital stock is P537,500,000.00 divided into 537,500,000 shares at the par value of P1.00 per share shall be subscribed by the stockholders by contributing P2,687,453,370.00 with a premium of P2,149,953,370.00 in proportion to their current equity in CBNC, as follows: Name No. of Shares Amount Premium on Percentage of Subscribed Subscription Ownership Sumitomo Metal 290,250,000 P290,250,000.00 P1,160,974,819.00 54% Mining Co. Ltd. Mitsui and Co., 96,750,000 96,750,000.00 386,991,607.00 18% Ltd., Nissho Iwai Corp. 96,750,000 96,750,000.00 386,991,607.00 18% Rio Tuba Nickel 53,570,000 53,750,000 214,995,337.00 10% Mining Corp. Total 537,500,000 P537,500,000.00 P2,149,953,370.00 100% and that the premium on subscription in the total amount of P2,149,953,370.00 shall be treated as additional paid-in capital (APIC) in the books of CBNC. In reply thereto, please be informed that Section 175 of the Tax Code of 1997 provides that on every original issue, whether on organization, reorganization or for any lawful purpose, of shares of stock by any association, company or corporation, there shall be collected a documentary stamp tax of Two pesos (P2.00) on each Two hundred pesos (P200), or fractional part thereof, of the par value, of such shares of stock: Provided, that in the case of the original issue of shares of stock without par value, the amount of the documentary stamp tax herein prescribed shall be based upon the actual consideration for the issuance of such shares of stock: Provided, further, that in the case of stock dividends, on the actual value represented by each share. aCIHAD It is clear that only the original issue is taxable under the afore-cited section. A documentary stamp tax is imposed on every original issue of a certificate of stock (the document evidencing ownership of shares of stock in the corporation) since documentary stamp tax is in the nature of an excise tax levied upon the privilege of issuing certificates of stock. In applying Section 175 of the Tax Code of 1997, this Office in BIR Ruling No. 032-01 dated July 27, 2001, ruled that the conversion of the Philippine Stock Exchange (PSE) from a non-stock to a stock entity, where PSE would issue 9,200,000 share on the member broker's contribution of P286,627,000.00 and the subsequent issuance by PSE of shares of stock to its members is subject to documentary stamp tax under Section 175 of the Tax Code of 1997 which imposes documentary stamp tax on every original issuance of shares of stocks by association, company or corporation whether on organization, reorganization or for any lawful purpose. Similarly situated is BIR Ruling No. 058-99 dated April 27, 1999, the BIR ruled that it is the issuance of the additional shares of stock to Rodamco Philippines B.V. (RPBV) and not the reclassification of the APIC to capital stock that shall be the basis for the payment of DST. It is only when additional original shares of stock are issued that the liability to pay DST attached. Based on the foregoing, this Office holds that the documentary stamp tax shall be based on the total par value of the original issuance of the shares of stock out of the increase in the authorized capital stock of CBNC pursuant to Section 175 of the Tax Code of 1997. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service