BIR Ruling [DA-161-00]

March 21, 2000 BIR RULING [DA-161-00] 173; 175; 77-98 Chungnan Textile (Phils.) Corp. Bldg. 187, Gridley SRF Compound Subic Bay, Freeport Zone Attention: Mr . Jesus L . San Pascual Gentlemen : This refers to your letter dated October 26, 1998 received in this Office on October 13, 1999 requesting in effect for a ruling on whether or not you are exempt from the payment of documentary stamp tax (DST) on original issues of certificates of stock. It is represented that Chungnan Textile (Phils.) Corporation is a Subic Bay Freeport registered enterprise engaged in manufacturing, weaving, distributing, marketing and transporting yarn, threads, fabrics, textiles, garments and goods of similar nature; and that as a SBF registered enterprise, you are exempt from all national and local taxes including but not limited to the following: a. Customs and import duties and national internal revenue taxes, such as VAT and ad valorem taxes on foreign articles; LexLib b. Internal revenue taxes, such as VAT, ad valorem and excise taxes on sales of goods and services for which they are directly liable; c. Income tax on all income from sources within the SBF and foreign countries, Export Processing Zones Bonded Warehouses and other Special Economic Zones within the Philippines; d. Franchise, common carrier or value added taxes and other percentage taxes on public and service utilities and enterprises within the SBF. In reply, please be informed that under Section 175 of the Tax Code, as amended by Republic Act No. 7660 (also Section 175, Tax Code of 1997) a documentary stamp tax is imposed on every original issue of a certificate of stock and that is in the nature of an excise tax because it is levied upon the privilege, the opportunity and the facility of issuing the stock certificate. 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 corporations, i.e., Chungnan Textile (Phils.) Corp., on the original issue of certificates of stock to their respective stockholders. However, since SBF Freeport 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 12(c) of Republic Act No. 7227, otherwise known as the Bases Conversion and Development Act of 1992, Chungnan Textile (Phils.) Corp. is exempt from the payment of documentary stamp tax on the original issue of stock certificates to their respective stockholders. 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". Accordingly, since Chungnan Textile (Phils.) Corp. is exempt from the documentary stamp tax, its stockholders are the ones directly liable for the tax. (BIR Ruling No. 77-98 dated May 28, 1998) Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)