BIR Ruling [DA-111-01]

June 15, 2001 BIR RULING [DA-111-01] RA 7916; Secs. 173 & 175 077-98; 007-2000 Herrera Teehankee Faylona & Cabrera Law Offices 5/F, SGV II Building 6758 Ayala Avenue Makati City Attention: Atty . Florentino M . Herrera, III and Atty . Mary Rogelyn T . Cabrera Gentlemen : This refers to your letter dated March 8, 2001 requesting confirmation of your opinion that: (1) In view of the five percent (5%) preferential tax rate on the gross income of Philippine Economic Zone Authority ("PEZA") registered enterprises, in lieu of all local and national taxes, Lufthansa Technik Philippines, Inc . ("LTP"), a registered enterprise thereof, shall not be liable for the payment of the documentary stamp tax ("DST') due on the original issuance of One Billion One Hundred Ninety Two Million (1,192,000,000) shares of stock, of which Six Hundred Seven Million Nine Hundred Twenty Thousand (607,920,000) shares will be issued to Lufthansa Technik AG ("LHT") and Five Hundred Eighty Four Million Eighty Thousand (584,080,000) shares will be issued to Macro Asia Corporation ("MAC"), in connection with the increase in the authorized capital stock of LTP from Thirty Two Million Pesos (PHP32,000,000.00) to Two Billion Pesos (PHP2,000,000,000.00); and (2) LHT, a stockholder of LTP, shall likewise not be liable for the payment of DST due on LTP's original issuance of shares of stock to its stockholders since a non-resident foreign corporation (such as LHT) is outside the taxing jurisdiction of the Philippines. It is represented that LTP is a corporation duly organized and existing under and by virtue of the laws of the Republic of the Philippines, registered with PEZA under Certificate of Registration No. 00-070 dated August 31, 2000, as an ecozone export enterprise at the Macro Asia Ecozone; that LTP is registered with the Securities and Exchange Commission ("SEC") under SEC Registration No. A199919621, the primary purpose of which is "to maintain, repair, overhaul, restore, assemble, construct, build, develop, improve, remodel, preserve, equip and provide all kinds of services to prepare for travel and transport, all kinds of aircraft and air transportation vessels, aircraft engines, components and parts (with the exception of space vehicles, military or combat vessels, and all systems, components, weapons and ammunition for warfare); to construct, operate and maintain facilities for the performance of such services, including plants, installations, shops, warehouses, terminals, garages, office buildings and other structures; to import, export, handle, install, and assemble machinery, apparatus, tools, instruments, fixtures, accessories and appliances necessary for the conduct of the above services; and to provide technical support and other securities to those engaged in the air transport business without engaging in the business of carriage of persons and goods."; that LTP's application for increase in authorized capital stock from Thirty Two Million Pesos (PHP32,000,000.00) to Two Billion Pesos (PHP2,000,000,000.00) was approved by the SEC on February 9, 2001; and that LTP is required to file the DST Return and pay the applicable DST on the original issuance of shares on or before the 10th day of the month following the date of authorization for increase in authorized capital stock. In reply, please be informed as follows: 1. That under Section 175 of the Tax Code of 1997 , 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., LTP, on the original issue of certificates of stock to its stockholders. However, since PEZA registered enterprises are liable to the preferential tax treatment of 5% of the gross income earned which shall be in lieu of local and national taxes pursuant to Section 24 of R. A. No. 7916, otherwise known as the "Special Economic Zone Act of 1995", LTP, 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 BIR Ruling No. 104-98 dated June 29, 1998) Nevertheless, the stock certificates issued by LTP to its stockholders prior to its registration with PEZA is subject to the documentary stamp tax imposed herein. DHEACI 2. That under 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 LTP is exempt from the documentary stamp tax, its stockholders are the ones directly liable to pay the tax. However, LHT, one of the stockholders of LTP, cannot likewise be made directly liable for the DST since it is a non-resident foreign corporation outside the reach of our taxing authority and therefore is not subject to 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. Very truly yours, Commissioner of Internal Revenue By: (SGD.) EDMUNDO P. GUEVARA Deputy Commissioner Legal and Inspection Group