BIR Ruling [DA-032-04]

January 20, 2004 BIR RULING [DA-032-04] 200; 218-89 Feria Feria Lao Tantoco 8th Floor, DPC Place 2322 Chino Roces Avenue Makati City Attention: Atty. Ma. Cecilia C. Katigbak Gentlemen : This refers to your letter dated August 5, 2003 stating that a Deed of Assignment dated September 18, 2001 was executed by and between your clients, Spouses Oscar Y. Arguelles and Priscilla Y. Arguelles in favor of Pomelo Property Holdings, Inc.; that on the same date, they filed with the Law Division a request for exemption from the payment of capital gains tax under Section 40(C)(2) and (6)(c) of the Tax Code of 1997: that on December 14, 2001, a ruling was issued by the BIR under BIR Ruling No. S-40-278-01 which was received by your client only in 2002; that on October 11, 2002, the Deed of Assignment was notarized; that the documentary stamp tax (DST) due thereon was paid on October 22, 2002; that thereafter, TVN No. 0009549 dated February 20, 2003 was issued to your client relative to the processing of the tax clearance; that on March 18, 2003, a Post Reporting Notice from the Office of Mr. Perfecto L. Aranas. RDO 050 was sent to your client, wherein a penalty for late payment of DST was being imposed: and that in protest to the Post Reporting Notice, you wrote a letter to Atty. Cesar A. Pangilinan, Chief of the Legal Division of Revenue Region No. 8, requesting that the assessment of RDO No. 050 be set aside, but the Office of Regional Director Anselmo G. Adriano referred the matter to the Law Division for being beyond its jurisdiction. Based on the foregoing representations, you now request for an opinion whether the documentary stamp tax is due upon the notarization of the Deed of Assignment relative to the tax free exchange transaction after securing a favorable ruling from the BIR where it was declared that the aforesaid documentary stamp tax shall be paid within five (5) days after the close of the month of the said transaction without the corresponding penalties. In reply thereto, please be informed that Section 173 of the Tax Code of 1997 provides that "Sec. 173. Stamp Taxes Upon Documents, Loan Agreements, Instruments and Papers . Upon documents, instruments, loan agreements and papers, and upon, acceptances, assignments, sales and transfers of the 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 . . ., by the person making, signing, issuing, accepting or transferring the same wherever the document is made, signed, issued, accepted or transferred when the 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: . . ." Corollarily, Section 200 of the Tax Code of 1997, as implemented by Revenue Regulations No. 6-2001 provides that the documentary stamp tax return shall be filed within five (5) days after the close of the month when the taxable document was made, signed, accepted, or transferred, and the tax thereon shall be paid at the same time the aforesaid return is filed. (Sec. 5(1), Revenue Regulations No. 6-2001) It can be gleaned from the foregoing provisions that while Section 173 fixes the time and payment of the documentary stamp tax by the person making, signing, issuing, accepting or transferring the property or right at the same time such act is done or transaction had, Section 200 of the said Code, as implemented by Revenue Regulations No. 6-2001 prescribed a period of five (5) days after the close of the month when the taxable document was made, signed, accepted or transferred within which a return shall be filed and the tax due thereon be paid. HDATSI Thus, in BIR Ruling No. 218-89 dated October 26, 1989, this Office ruled that ". . . under Article 1358(i) of the Civil Code the sale of property or of an interest therein must appear in public instrument. When the sale is made through a public instrument, the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract, if from the deed the contrary does not appear or cannot be clearly inferred. (Article 1498, Civil Code) Obviously, the date of execution of a public instrument is the date of notarization because it is notarization that makes a Deed of Sale a public instrument. "xxx xxx xxx" It is the firm stand of this Office that for purposes of counting the five (5) day period after the close of the month when the taxable document was made, signed, accepted or transferred within which to pay the documentary stamp tax, relative to the Deed of Assignment, the date of execution of which does not appear or cannot be clearly inferred thereon but which was notarized on October 11, 2002, the reckoning date shall be the date of notarization, since it is only from this date that the document can be considered executed. IN VIEW OF THE FOREGOING, this Office holds that any penalty assessed on your client for late payment of documentary stamp tax due on the Deed of Assignment should be SET ASIDE for lack of legal basis. Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group