BIR Ruling [DA-097-04]

March 1, 2004 BIR RULING [DA-097-04] RA 7916; 007-00; 077-98 Chan Robles & Associates Suite 2205-B, 22nd Floor Philippine Stock Exchange Centre Tektite East Tower, Exchange Road Ortigas Center, Pasig City Attention: Atty. Jade Ferrer Wy Gentlemen : This refers to your letter dated September 2, 2003 stating that your client, ASE Holding Electronics (Philippines), Incorporated [ASE] is a domestic corporation duly organized and existing under and by virtue of the laws of the Philippines with principal office address at Lots 3, 4 & 5, Block 7, EPZA PEZA Zone, First Cavite Industrial Estate Bo. Langkaan, Dasmarias, Cavite; that it is a wholly-owned subsidiary of ASE Holding Ltd. of Bermuda; that ASE is organized in 1995 and was registered with the Securities and Exchange Commission (SEC) on November 24, 1995 with SEC Registration No. AS95011791; that ASE is registered with the Philippine Economic Zone Authority (PEZA) as an Ecozone Export Enterprise under Certificate of Registration No. 96-006 dated January 15, 1996 and was granted Income Tax Holiday (ITH), among other incentives, which expired last October 15, 2001; that after the lapse of the ITH, ASE shall be liable to pay 5% final tax on gross taxable income as provided in Section 24 of R.A. No. 7916, in lieu of national and local taxes; that the capital structure of ASE as of March 31, 2003 is as follows: Authorized capitals stock 255,000 shares @ P1,000.00 P255,000,000.00 Subscribed capital stock 180,000 shares @ P1,000.00 P180,000,000.00 Paid-up capital P180,000,000.00 that on April 2, 2003, the Board of Directors passed a resolution authorizing the increase of the Authorized Capital Stock of ASE and the conversion of P2,498,733,000.00 worth of advances (deposit for future subscription) from its parent company, ASE Holding Ltd. into equity; and that on August 7, 2003, ASE filed with the SEC its amended Articles of Incorporation and certificate of increase of its authorized capital stock for approval. Based on the foregoing representations, you now request for a ruling as to whether or not ASE, a PEZA registered enterprise, and ASE Holding Ltd., a non-resident foreign corporation organized and existing under the laws of Bermuda, are exempt from the payment of documentary stamp tax on the original issuance of shares as prescribed in Section 175 of the Tax Code of 1997. 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, is a direct liability of the issuing corporation, i.e. , ASE, 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", ASE, 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. 077-98 dated May 28, 1998 and 104-98 dated June 29, 1998 ) On the other hand, Section 173 of the Tax Code of 1997 provides 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." Such being the case, ASE is exempt from the documentary stamp tax, but ASE Holding Ltd., although a non-resident foreign corporation, is the one directly liable for the said tax. ( BIR Ruling No. 077-98 dated May 28. 1998 ) But in BIR Ruling No. 007-2000 dated January 5, 2000, this Office ruled that ". . . Accordingly, it is the direct liability of STC-Taiwan, as stockholder of STPI, to pay the documentary stamp tax imposed under Section 175 of the said Code. However, since STC-Taiwan is a non-resident foreign corporation, it is not subject to Philippine income tax as well as to the documentary stamp tax imposed under said Section, since under its inherent limitations taxation may be exercised only within the territorial jurisdiction of the taxing authority. (see 51 Am. Jur. 88) TSIDaH SUCH BEING THE CASE, this Office holds that ASE, a PEZA-registered enterprise subject to the preferential tax rate of 5% based on its gross income earned, and ASE Holding Ltd., a non-resident foreign corporation which is beyond the territorial jurisdiction of the taxing authority, are exempt from the payment of the documentary stamp tax on the original issuance of shares as prescribed in Section 175 of the Tax Code of 1997. 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. Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group