BIR Ruling [DA-011-98]

January 22, 1998 BIR RULING [DA-011-98] Mr. Danilo V. De la Cruz Revenue Officer III Bureau of Internal Revenue Revenue Region No. 6 Manila S i r : This refers to your letter dated September 15, 1997 requesting for ruling whether or not LAGOS DEL SOL RESORT HOTEL, INC., which you are investigating, is liable to pay surcharge for failure to pay the documentary stamp tax on time. It is represented that you are investigating the records of LAGOS DEL SOL RESORT HOTEL, INC. ; that upon examination of the records of the said corporation, you found out that it is organized sometime in 1994; and that it has a paid up capital of P22,000,000.00 as of December 31, 1995; that as of this date the said corporation has not paid its documentary stamp tax on its capital stocks; that upon discussion with the Finance Manager-Controller, it was agreed upon that they will pay the documentary stamp tax due but that they refuse to pay the corresponding surcharge on the premise that the corporation has not as yet issued the capital stock certificate. In reply thereto, please be informed that pursuant to Revenue Memorandum Circular No. 47-97 dated November 12, 1997, "the delivery of the certificates of stock to the stockholders, whether actual or constructive, is not essential for the documentary stamps taxes to attach. What is taxed is the privilege of issuing shares of stock and, therefore, the taxes accrue at the time the shares are issued . . . ." (Commissioner of Internal Revenue vs. Construction Resources of Asia, Inc. and the Court of Tax Appeals, L-68230, November 25, 1986, 145 SCRA 671) It simply means therefore that the documentary stamp tax attaches upon acceptance by the corporation of the stockholder's subscription in the capital stock of the corporation, and that the meaning of the term "original issue" of the certificate of stock is the point at which the stockholders acquires and may exercise attributes of ownership over the stocks. The stocks can be alienated; the dividends or fruits derived therefrom can be enjoyed, and they can be conveyed, pledged or encumbered. The certificate irrespective of whether or not it is in the actual or constructive possession of the stockholder, is considered issued because it is with value and hence the documentary stamp tax must be paid . A person may therefore own shares of stock without possessing a certificate of stock. Moreover, under Sections 248(a)(1) and (3) and 249, both of the Tax Code, as amended, the imposition of the surcharge and interest on delinquency is mandatory. Strong reasons of policy support a strict observance of the rule regarding the payment of tax. The laws imposing penalties for delinquencies are clearly intended to hasten tax payments or punish evasions or neglect of duty in respect thereof. If delays in tax payments are to be condoned for light reasons, the law imposing penalties for delinquencies would be rendered nugatory and the maintenance of the government and its multifarious activities would be as precarious as taxpayers are willing or unwilling to pay their obligations to the state on time. (Jamora vs. Meer, 74 Phil. 22) LLphil Accordingly, since the refusal of LAGOS DEL SOL RESORT HOTEL, INC. to pay the surcharge for failure to pay the documentary stamp tax on time is without any legal basis, this Office hereby upholds your position that the subject taxpayer is liable to the payment of interest and surcharge, plus the documentary stamp tax, on the "issuance" of certificates of stock. (BIR Ruling No. 012-97 dated February 4, 1997; BIR Ruling DA-201-97 dated May 13, 1997) Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)