BIR Ruling [DA-056-04]

February 6, 2004 BIR RULING [DA-056-04] Sec. 175; DA 007-00; 077-98 Nippon Antenna (Philippines), Inc. Block 12, Lots 3 & 4, First Cavite Industrial Estate Dasmarias, Cavite Attention: Tamotsu Noguchi President Gentlemen : This refers to your letter dated December 4, 2002 requesting for a ruling as to whether or not Nippon Antenna (Philippines), Inc. (Nippon), a Philippine Economic Zone Authority (PEZA) registered enterprise is exempt from the payment of documentary stamp tax on the original issuance of its shares of stock to its stockholders. It is represented that Nippon a PEZA registered enterprise is engaged in the manufacture of car radio antennas and other related product solely for export; that it undertakes its business activities exclusively at First Cavite Industrial Estate, a special economic zone under PEZA; that Nippon is a wholly-owned subsidiary of Nippon Antenna Co. Ltd., a non-resident foreign corporation organized and operating under the laws of Japan; and that Nippon plans to increase its additional paid-up capital by issuing additional shares of stock to Nippon Antenna Co., Ltd, its stockholder. In reply thereto, please be informed that Section 175 of the Tax Code of 1997 provides that a documentary stamp tax is imposed on every original issue of a certificate of stock by any association, company or corporation, whether on organization, reorganization or for any lawful purpose. The cost of imposition is borne by the corporation issuing the stock certificate (Philippine Consolidated Coconut Industries vs. Collector of Internal Revenue, 70 Phil. 24) Accordingly, the payment of documentary stamp tax, in this instant case, as a direct liability of the issuing corporation, i.e. , Nippon, on the original issue of certificates of stock to its stockholders. However, since PEZA registered enterprises are liable to the preferential tax rate of 5% of the gross income earned which shall be in lieu of national and local taxes pursuant to Section 24 of R.A. No. 7916, otherwise known as the "Special Economic Zone Act of 1995", Nippon, a PEZA-registered enterprise is therefore exempt from the payment of documentary stamp tax on the original issue of stock certificates to its stockholders. (BIR Ruling No. 007-98 dated May 28, 1998 and 104-98 dated June 29,1998) However, pursuant to Section 173 of the Tax Code of 1997, the burden of paying the corresponding documentary stamp tax is passed to the other party not enjoying any exemption. Accordingly, since Nippon is exempt from the documentary stamp tax, its stockholder, Nippon Antenna Co. Ltd., a non-resident foreign corporation, is the one directly liable to pay the aforesaid tax. But being a non-resident foreign corporation, Nippon Antenna Co. Ltd. cannot likewise be made directly liable for the DST for being outside the territorial jurisdiction of the taxing authority. (BIR Ruling No. 007-2000 dated January 5, 2000) 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. acIASE Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group