BIR Ruling [DA-036-97]

January 23, 1997 BIR RULING [DA-036-97] MEMORANDUM TO: The Regional Director Revenue Region No. 4-B Makati City This refers to the trust client of Bank of the Philippine Islands, a Spanish National who died in Madrid, Spain, on June 28, 1985, leaving a considerable estate in the form of shares of stock held in trust by BPI, to wit: cd Corporation No. of Shares Value Central Azucarera de la Carlota 4,690 P103,320.70 El Hogar Filipino 14 2,800.00 Kabankalan Sugar Company, Inc. 18 151.92 San Miguel Corporation C 3,925 38,857.50 San Miguel Corporation B 273,865 3,560,245.00 Total P3,705,375.12 =========== It appears that Adelaida Potous Barcelo, a Spanish national, died in Madrid, Spain on June 28, 1985; that BPI has not heard from this particular client for a long time; that sometime last year, a distant relative of the deceased client visited the country and through the latter, the decedent's heirs were informed that the deceased Adelaida Potous Barcelo has an active account in the trust department of BPI; and that it was only in November 1994 when the decedent's daughter arrived in the Philippines that BPI of Ms. Barcelo's death. BPI now request for a ruling to clarify whether or not the estate of the late Adelaida Potous Barcelo, is subject to estate tax; and if so, whether it can dispose of a portion of that estate comprising estate comprising of shares of stocks to pay for the decedent's estate tax liability. For this purpose, BPI submitted the attached estate tax return in behalf of the estate decedent showing a basic estate tax liability of P776,028.77. It is our opinion that based on the foregoing facts, the obligations of BPI to file the estate tax return of its trust client pursuant to Section 83 of the Tax Code, as amended, arises only after having acquired knowledge of her death which in this case is November, 1994; hence, the reckoning of delay and imposition of the applicable penalties should start only from such date. Considering the underlying circumstances, i.e., lack of information of the identity of the heirs of the decedent; difficulty in determining the names of the heirs entitled to the estate and securing their authority to sell a portion of the shares of stocks to answer for the estate tax; and communications problem resulting from geographic distance, it would have been legally impossible for BPI to settle the estate tax on time; hence, unjust to impose the 25% surcharge. In the case of Imus Electric Co., Inc. vs. CTA, 19 SCRA 612, 613, it was ruled that the 25% surcharge may be dispensed with where the delay in payment is attributable to the taxpayer's good faith due to a misunderstanding of the pertinent law or regulations. If misunderstanding of the pertinent law regulations justified the waiver of the 25% surcharge, then with more reason a factual impossibility of filing the estate tax return on time because of the foregoing circumstances, the waiver of the 25% surcharge in the instant case cannot be less justified. In view thereof, the 25% surcharge for late payment under Section 248 of the Tax Code is hereby waived; but a 20% interest, under Section 249 of the same Code shall be imposed starting after six months from the date the obligation to file legally arises (as of June, 1995) up to the date of payment pursuant to Section 249 of the same Code. It is observed from the estate tax return prepared by BPI that the gross estate of the decedent was correctly computed on the basis of the fair market value of the shares of stock at the time of the death of the decedent on June 28, 1985. Finding both the valuation of the decedent's gross estate and the computation of the basic estate tax liability to be correct, subject to further verification of the mathematical accuracy of the computation, authority is hereby granted to BPI to sell as many number of shares of stocks to raise the amount sufficient to pay the estate tax liability of P776,028.77 plus 20% interest. Accordingly, you should collect the adverted tax liability on the basis of this Memorandum. cdt BEETHOVEN L. RUALO Deputy Commissioner