BIR Ruling [DA-086-01]

May 16, 2001 BIR RULING [DA-086-01] RAs 7916 & 7279; 071-98 Punongbayan & Araullo 20th Floor, Tower 1 The Enterprise Center 6766 Ayala Avenue 1200 Makati City Attention: Atty . Vic C . Mamalateo Tax Partner Gentlemen : This refers to your letter dated March 28, 2001 requesting on behalf of your client, Harbour Centre Port Terminal, Inc . ("HCPTI") , for confirmation of your opinion that the exchange of land by the National Housing Authority (" NHA ") through the Planters Development Bank, in its capacity as Trustee of the Smokey Mountain Asset Pool (SMAP), for shares of stock of HCPTI is exempt from documentary stamp tax on Deeds of Sale and Conveyances of Property under Section 196 of the 1997 Tax Code and on Sales, Agreements to Sell of Shares or Certificates of Stock under Section 176 of the same Code. It is represented that HCPTI is a domestic corporation organized to establish and operate the harbour port terminal, a private port terminal located in Manila Harbour Centre; that HCPTI which started its commercial operations on January 1, 1998, was registered with the Philippine Economic Zone Authority (PEZA) as an economic zone facilities enterprise for the operation and maintenance of a port terminal facility at the Manila Harbour Centre Special Economic Zone; that it has been issued PEZA Certificate of Registration No. 99-04-F dated June 18, 1999 by Director General Lilia B. de Lima and a Registration Agreement; that as stated in the Certification, HCPTI enjoys the 5% preferential tax rate in lieu of national and local taxes; that the NHA is a government corporation created and organized by virtue of PD No. 757, as amended by RA No. 7279; that under Section 19 of Article V of RA 7279, the NHA, " being the primary government agency in charge of providing housing for the underprivileged and homeless shall be exempted from the payment of all fees and charges of any kind whether local or national such as income and realty taxes "; that you further averred that pursuant to said Section 19 " all documents or contracts executed by and in favor of the NHA " are also exempt from the payment of DST and registration fees, including fees required for the issuance of transfer certificates of title; that Planters Development Bank (PDB) is a banking corporation organized and existing under the laws of the Philippines and authorized to perform trust functions through its Trust Banking Group; that PDB is the Trustee of the SMAP; that in the light of the foregoing, you opined that the Deed of Sale/Transfer of the land located in the Smokey Mountain Project in Manila by NHA, through the Trustee of the SMAP, in favor of HCPTI, as well as the original issuance of shares of stock by HCPTI in favor of NHA, are exempt from documentary stamp taxes imposed in Sections 176 and 196 both of the 1997 Tax Code; and that, in support of your request, you submitted the following documents: a. Draft Subscription Agreement between Harbour Centre Port Terminal, Inc. and Planters Development Bank as Trustee of the Smokey Mountain Asset Pool; b. Draft Shareholders Agreement between Planters Development Bank as Trustee of the Smokey Mountain Asset Pool and R-II Holdings, Inc. and other individual shareholders, who are existing shareholders of HCPTI; c. Draft Deed of Conveyance of Real Properties in Payment of Subscription between Planters Development Bank as Trustee of the Smokey Mountain Asset Pool and Harbour Centre Port Terminal, Inc. In reply, please be informed that pursuant to Section 19 of RA 7279, amending P.D. 757, pertinent portion of which reads as follows: DIECTc "SEC. 19. Incentives for the National Housing Authority . The National Housing Authority, being the primary government agency in charge of providing housing for the underprivileged and homeless, shall be exempted from the payment of all fees and charges of any kind, whether local or national such as income or realty taxes. All documents or contracts executed by and in favor of the National Housing Authority shall also be exempt from the payment of the documentary stamp tax and registration fees, including fees required for the issuance of transfer certificates of title. (Emphasis supplied) all documents or contracts executed by and in favor of NHA is exempt from the payment of documentary stamp tax. It is also noteworthy to mention that the foregoing tax exemption privileges of NHA has been resolved in BIR Ruling No. 071-98 dated May 25, 1998. On the other hand, pursuant to Section 24 of R.A. 7916 otherwise known as "The Special Economic Zone Act of 1995", PEZA-registered enterprises, except persons and service enterprises referred to under Section 25 of said Act, shall, in lieu of paying national and local taxes, pay five per cent (5%) of their gross income earnings which shall be remitted to the national government and distributed as follows: a) Three percent (3%) to the national government; b) One percent (1%) to the local government units affected by the declaration of the ECOZONE; and c) One percent (1%) for the establishment of a development fund to be utilized for the development of municipalities outside and contiguous to each ECOZONE. Pursuant to the provision of R.A. 7916, as a PEZA-registered enterprise, HCPTI is entitled to the five percent (5%) preferential tax rate in lieu of national and local taxes. Considering the foregoing, this Office hereby holds that the transfer of reclaimed land located in the Smokey Mountain Project in Manila by NHA through its trustee bank, Planters Development Bank, to HCPTI in exchange for shares of stock of the latter is exempt from documentary stamp tax imposed under Section 196 of the 1997 Tax Code. Likewise, since documentary stamp tax is a national tax imposed under Title VII of the 1997 Tax Code and HCPTI is a PEZA-registered enterprise subject to 5% final tax pursuant to the provisions of R.A. 7916, the original issuance of shares of stock by HCPTI in favor of NHA is also exempt from documentary stamp tax imposed in Section 176 of the 1997 Tax Code. Moreover, considering that both parties to the transactions are exempt from the payment of documentary stamp taxes, the proviso of Section 173 of the same Tax Code shifting the burden of paying the documentary stamp tax on the taxable document to the party who is not exempt shall not apply. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it shall be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) EDMUNDO P. GUEVARA Deputy Commissioner Legal and Inspection Group