BIR Ruling [DA-173-05]

April 19, 2005 BIR RULING [DA-173-05] Section 195; Rev. Reg. No. 9-94; 13-2004; DA-105-2004 Bavaria Investment Management Corporation 500 EDSA, Greenhills, San Juan Metro Manila Attention: Mr. James J. Pinugu Chief Accountant Gentlemen : This refers to your letter dated February 14, 2005 requesting clarification and final interpretation that the execution of a promissory note with chattel mortgage is considered as one single instrument. It is represented that a Promissory Note with Chattel Mortgage was executed by Reyfidel L. Avanzado and Toyota Financial Services; and that the BIR Revenue District Office in Pampanga instructed you to pay documentary stamp tax separately on the promissory note and another on the chattel mortgage. In reply, please be informed that the documentary stamp tax is levied on the document and not on the property which it describes, although the tax is not intended to be a tax on the document alone. The law taxes the document because of the transaction. Moreover, in the case of a mortgage transaction, the same shall be subject to documentary stamp tax to be computed on the basis of the amount of the loan secured pursuant to Section 195 of the Tax Code of 1997, which provides as follows: "SEC. 195. Stamp Tax on Mortgages, Pledges and Deeds of Trust. On every mortgage or pledge of lands, estate, or property, real or personal, heritable or movable, whatsoever, where the same shall be made as a security for the payment of any definite and certain sum of money lent at the time or previously due and owing or forborne to be paid, being payable, and on any conveyance of land, estate, or property whatsoever, in trust or to be sold, or otherwise converted into money which shall be and intended only as security, either by express stipulation or otherwise, there shall collected a documentary stamp tax at the following rates: (a) When the amount secured does not exceed Five thousand pesos (P5,000.00), Twenty pesos (P20.00). (b) On each Five thousand pesos (P5,000.00), or fractional part thereof in excess of Five thousand pesos (P5,000.00), an additional tax of Ten pesos (P10.00). On any mortgage, . . . , where the same shall be made as a security for the payment of a fluctuating account or future advances without fixed limit, the documentary stamp tax on such mortgage, . . . shall be computed on the amount actually loaned or given at the time of the execution of the mortgage, . . . However, if subsequent advances are made: on such mortgage, pledge or deed of trust, additional documentary stamp tax shall be paid which shall be computed on the basis of the amount advanced or loaned at the rates specified above: Provided, however, That if the full amount of the loan or credit, granted under the mortgage, pledge or deed of trust is specified in such mortgage, . . ., the documentary stamp tax prescribed in this Section shall be paid and computed on the full amount of the loan or credit granted." The above quoted Section clearly provides for the imposition of documentary stamp tax on mortgages. If the chattel mortgage is incorporated in the promissory note, the document shall be treated as covering one taxable transaction, subject to the higher documentary stamp tax as provided in Section 195. Revenue Regulations No. 9-94 dated March 8, 1994 provides: "SEC. 8. Loan Agreements/Promissory Notes Secured by a Pledged/Mortgage . Where only one instrument was prepared, made, signed and executed to cover a loan agreement/promissory note, pledge/mortgage, the documentary stamp tax prescribed in Section 195 of the Tax Code, as amended, shall be paid and computed on the full amount of the loan or credit granted. In this regard, the instrument shall be treated as covering only one taxable transaction, subject to the higher documentary stamp tax." IN VIEW OF THE FOREGOING, this Office is of the opinion that in cases where only one instrument was prepared, made, signed and executed to cover a promissory note/mortgage, the documentary stamp tax prescribed in Section 195 of the Tax Code of 1997, as amended, shall be paid and computed on the full amount of the loan or credit granted. In this regard, the instrument shall be treated as covering one taxable transaction, subject to the higher documentary stamp tax. HIACEa 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 as null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group