BIR Ruling [DA-021-98]

January 28, 1998 BIR RULING [DA-021-98] MEMORANDUM FOR : The Assistant Commissioner Collection Service RE : DOLE-Philippines, Inc. This refers to the Memorandum of Estrella V. Martinez, Assistant Chief, Collection Programs Division dated January 23, 1998 reiterating her position in an earlier memorandum dated November 24, 1997, sustaining her denial of the request of Dole Philippines, Inc. , through its external auditors, SGV & Co. , for the issuance of a Tax Debit Memo (TDM) for purposes of using a Tax Credit Certificate (TCC) to pay its DST liabilities, which you referred to this Office for comment as follows: "1 The nature of tax credits partake of the nature of tax exemption, hence, Sec. 173 of the NIRC, should be the prevailing section in construing the applicability of tax exemption to the parties of a taxable transaction under said Section. "2. RMO No. 28-91 and RMO No. 11-73 have not yet been expressly repealed by any superseding RMOs; "3. The TCCs were granted because of excess input taxes and these were accounted for in the books as Other Assets. If a corresponding TDM is issued based on a TCC (input taxes), in payment of documentary stamps, the latter are treated as Taxes and Licenses, which are expenses deductible from income tax. According to the generally accepted accounting principle, Other Assets account cannot be diminished in amount in the use of TCCs for the payment of documentary stamps since this account comprises only of input taxes." Please be informed as follows: 1. Section 173 of the Tax Code , as amended,, provides that: "SEC. 173. Stamp taxes upon documents, instruments, loan agreements, and papers. Upon documents, instruments, loan agreements, and papers, and upon acceptances, assignments, sales, and transfers of obligation, right, or property incident thereto, there shall be levied, collected and paid for, and in respect of the transaction so had or accomplished, the corresponding documentary stamp taxes prescribed in the following sections in this Title, by the person making, signing, issuing, accepting, or transferring the same wherever the document is made, signed, issued, accepted or transferred when their obligation or right arises from Philippine sources or the property is situated in the Philippines, and at the same time such act is done or transaction had: Provided, that whenever one party to the taxable document enjoys exemption from the tax herein imposed, the other party thereto who is not exempt shall be the one directly liable for the tax. " (Emphasis ours) This provision defines the general nature of DST, its applicability and limitations. For this purpose, we limit our interpretation on the proviso found under Section 173 of the Tax Code, as amended, as used in the memorandum of Atty. Martinez. Accordingly, the consequential question that would arise from the foregoing is whether or not a TCC is a form of an exemption. A tax credit is defined as a type of offset in which the taxpayer is allowed a deduction from his tax for other taxes paid. (Black's Dictionary, Fifth Edition) In the Philippine setting, we submit that there is no clear cut definition of the term "tax credit". However, its application finds basis in Section 204 (3) of the Tax Code, as amended, which provides: IaHAcT "Section 204. Authority of the Commissioner to compromise, abate, and refund/credit taxes . The Commissioner may: xxx xxx xxx (3) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the value of internal revenue stamps when they are returned in good condition by the purchaser, and, in his discretion, redeem or change unused stamps that have been rendered unfit for use and refund their value upon proof of destruction. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or refund within two years after the payment of the tax or penalty." It can be inferred from the said definition that the grounds for claiming refund or tax credit are as follows: a. The tax or taxes have been erroneously or illegally assessed or collected; b. The penalty or penalties have been collected without authority; and c. Any sum which has been excessive or in any manner wrongfully collected; and d. The tax was paid by mistake. Clearly, tax credits are issued in favor of taxpayers to recompense or restore to the aggrieved taxpayer the amounts paid for erroneous, illegal, unauthorized, and excessive assessment and collection of taxes by the government and its agents. In this case, the BIR issues a TCC in favor of the taxpayer reflecting the amount erroneously and illegally collected or paid. It is a settled rule of law that exemptions from taxation are looked upon with disfavor and one who claims exemption from taxation must be able to justify his claim by clearest grant of organic or statute law. Conversely, the intention to exempt must be expressed in clear and unmistakable language or must appear by necessary implication from the terms used. Furthermore, when a special privilege or exemption is claimed under a statute, charter or act of incorporation, it is to be construed strictly against the property owned and in favor of the public. Clearly, an exemption from the common burden cannot be permitted to exist on vague implication otherwise state revenues will suffer. ( Western Minolco Corporation v. CIR , 124 SCRA 121, 131) Based on the foregoing, this Office holds that a TCC is not a form of exemption absent any law which expressly declares it to be as such. Likewise, we find that reference to Section 173 of the Tax Code, as amended, as a ground for denying the use of TCCs to pay DST is without basis in law or in fact. HIAcCD 2. Paragraph B of Revenue Memorandum Order No. 28-91 dated September 10, 1991, provides that: "B. Use of manager's checks in payment of tax liabilities. Existing rules allow taxpayer's to issue personal checks in payment of their internal revenue tax liabilities, except documentary stamp taxes which must be paid in manager's, cashier's, or certified checks under RMO No. 11-73 dated March 2, 1973. xxx xxx xxx In order to ensure payment of taxes from individual taxpayer's selling or disposing real properties classified as capital assets, henceforth all collection officers, including the accredited agent banks, are enjoined to accept only cash and/or manager's, cashier's, or certified checks, showing that name of the taxpayer, for the payment of the individual's capital gains tax and documentary stamp tax." CSTDEH This Office believes that TCCs are not personal checks by their very nature, hence, RMO Nos. 11-73 and 28-91 finds no application to prohibit the utilization of TCCs in payment of DST liabilities. A check is defined as "a draft drawn upon a bank and payable on demand, signed by the maker or drawer, containing an unconditional promise to pay a sum certain in money to the order of the payee". (Black's Dictionary, 5th Edition) Clearly, a check is negotiable instrument which has two important features, namely: negotiability and accumulation of secondary contracts as they pass from one person to another. Accordingly, this Office believes that a TCC lacks the attributes of a negotiable instrument since it is incapable of negotiation from one person to another nor is it capable of accumulating secondary contracts. 3. On issue No. 3, this Office believes that such ground cannot be validly raised against the taxpayer being hypothetical and without basis. Furthermore, the existing prohibitions to TCC payments for tax liabilities are, as follows: 1. Payment or remittance for any kind of withholding tax by taxpayers; 2. Payment to a tax reduced by way of compromise authorized under Section 204 of the Tax Code; 3. Payment of deficiency taxes arising from confidential information. (RMO. No. 20-91) Accordingly, the utilization of TCCs as payments for tax liabilities other than those enumerated under RMO. No. 20-91 is proper. EHITaS (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)