BIR Ruling [DA-139-97]

March 31, 1997 BIR RULING [DA-139-97] Prudential Bank and Trust Company Prudential Bank Building Ayala Avenue, Makati City Attention: Mr . Jose L . Santos President Gentlemen : This refers to your letter dated December 12, 1990 offering to settle by way of compromise your internal revenue tax case involving the amount of P1,796,214.00 representing deficiency documentary stamp tax for the year 1986 under RMO 1-88 as amended by RMO 29-90. Records of this case disclosed that this Office issued against you Assessment Notice and Letter of Demand both Numbered FAS-B-8689-000-255 and both dated February 24, 1989 involving the amount of P1,796,214.00 representing deficiency documentary stamp tax for the year 1986; that the assessment arose from your sale of foreign currency to the Central Bank of the Philippines (CBP) in 1986; that on March 11, 1991, the Assistant Commissioner, Collection Office recommended that the aforesaid tax liability be compromised under Section 204 of the Tax Code, as implemented by RMO 1-88 as amended on the ground of doubtful validity of the assessment by allowing you to pay 100% of your basic tax or the amount of P1,436,731.20 minus the penalties in the amount of P359,482.80; and that you paid the amount of P1,436,731.20 under Payment Order No. 9817523 and Confirmation Receipt No. B-20706098 both dated January 21, 1991. cdtech In reply thereto, please be informed that pursuant to Section 51, Documentary Stamp Tax Regulations, if a local bank cables to a certain bank in a foreign country with which bank said local bank has a credit and directs that foreign bank to pay another bank or person in the same locality a certain sum of money, the documents for and in respect of such transaction will be regarded as a telegraphic transfer subject to the documentary stamp tax under then Section 195 (now Section 182) of the Tax Code, as amended. The basis of the deficiency documentary stamp tax assessment in this case is your order or cable instruction to your foreign correspondent bank to transfer or remit the specific amount of foreign currency for the account of the CBP to the correspondent bank of the CBP which, in turn advises the CBP that a specific sum in dollars/foreign currency is available to the Prudential Bank and Trust Company. When your bank sells a foreign currency to the CBP and orders your correspondent bank abroad to remit the dollars/foreign currency so sold to the correspondent bank of the CBP, e.g., the Federal Reserve Bank, said order is considered a telegraphic transfer subject to the documentary stamp tax under Section 182 of the Tax Code, as amended, and as amplified by Sections 51 and 50 of Regulations No. 26, otherwise known as the Documentary Stamp Tax Regulations. Moreover, under Section 173 of the Tax Code, as amended by Presidential Decree No. 1994 effective January 1, 1986 "whenever one party to the taxable documents enjoys exemption from the tax herein imposed, the other party thereto who is not exempt shall be the one directly liable for the tax." Since the CB is exempt from tax under its charter, you became directly liable for the tax under Section 173 of the Tax Code, as amended. Accordingly, the assessment is legal and proper and cannot be the subject of a compromise under Section 204 of the Tax Code as implemented by RMO 1-88 as amended by RMO 29-90 on the grounds of doubtful validity of the assessment . In view thereof, your payment of the amount of P1,436,731.20 representing 100% of the basic tax of your deficiency documentary stamp tax liability for the year 1986 shall be considered as partial payment of your said tax liability. You are requested to pay the amount of P359,482.80 representing the penalties of your aforesaid tax liability to the Revenue District Officer, Revenue District No. 48, West Makati, 5th Floor Atrium Bldg., Makati Avenue, Makati City, within fifteen (15) days from receipt hereof; otherwise, this office will execute the warrant of garnishment issued by this Office against you on March 14, 1990. This constitutes the final decision of the Office on the matter. Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue