BIR Ruling [DA-105-04]

March 8, 2004 BIR RULING [DA-105-04] RA 7227; 077-98 Sumidenso Automotive Technologies Asia Corporation N2835 Jose Abad Santos Avenue corner Bayanihan Street Clark Special Economic Zone Clarkfield, Pampanga Attention: Yoshiki Kawamura Vice President Gentlemen : This refers to your letter dated December 18, 2001 stating that Sumidenso Automotive Technologies Asia Corporation (SAT-A) is a corporation duly organized and existing under Philippine laws; that it started its operations on April 1, 2000; that SAT-A is primarily engaged in the general consultancy service to affiliates and clients for the design of wiring harnesses and other related automotive components; that SAT-A is duly registered with the Clark Development Corporation of the Clark Special Economic Zone (CSEZ) and is entitled to the 5% preferential tax incentive under R.A. No. 7227, otherwise known as the Bases Conversion and Development Act; that SAT-A is owned 99.99% by Sumitomo Wiring Systems, Ltd. (SWS) in Yokkaichi City, Japan; that recently, SWS has decided to increase its authorized capital stock from P80 million to P150.7 million and is currently processing the filing of additional increase in capital with the Securities and Exchange Commission (SEC) of which total subscription has been fully paid; and that from the initial issuance of 400,000 shares, a documentary stamp tax of P400,000.00 had been previously paid with the BIR. Based on the foregoing representations, you now request for a ruling that SAT-A, being a duly registered CSEZ enterprise is entitled to exemption from all local and national taxes and shall only pay a tax of 5% of gross income earned (GIE), which exemption should also cover the documentary stamp tax. 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 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., SAT-A, on the original issue of certificates of stock to its stockholders. However, since ECOZONE-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", SAT-A, an ECOZONE-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 ) 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 SAT-A is exempt from the documentary stamp tax, its stockholder, SWS, a non-resident foreign corporation, is the one directly liable to pay the aforesaid tax but being a non-resident foreign corporation, SWS cannot likewise be made directly liable for the DST for being outside the territorial jurisdiction of the taxing authority and therefore is -not subject to the Philippine tax laws. ( 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. AHDTIE Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group