BIR Ruling [DA-198-05]

April 21, 2005 BIR RULING [DA-198-05] Section 219 Privatization and Management Office 104 Gamboa St. Legaspi Village, Makati City Attention: Atty. Jaime Manuel F. Armonio Deputy Privatization Officer Legal Gentlemen : This refers to your letter dated October 5, 2004 requesting for cancellation of the notice of tax lien per Letter of Demand # SARD-768-810042. It is represented that the notice of tax lien annotated in Transfer Certificate of Title (TCT) No. 141759 is registered in the name of the Government of the Republic of the Philippines, and more particularly inscribed as Entry No. 2764/T-S-29773, to wit: "Entry No. 2764/T-S-29773 Notice of Tax Lien the herein registered owners registered is under the obligation to the govt. of the Rep. of the Phils. in the amount of P773,657.18, P1,058,613.21 and P4,858.60 as 1976 defeciency (sic) and income tax 1975 to 1976 deficiency withholding taxes at source on royalties and interest respectively due from it letter of demand no SARD-768-810042 dated March 30, 1981 plus omcrements (sic) incidents to delinquency Date of instrument Oct. 19, 1977 Date of inscription May 2, 1984 at 2:45 p.m. (SGD) RAMON G. MANALASTAS, Dep. Reg. of Deeds Carried over from TCT No. 72357 OFELIA E. AGUEG-STA. MARIA Register of Deeds" that the lot covered by the aforementioned title was among those assets transferred by the PNB to the National Government pursuant to Proclamation No. 50 dated December 6, 1986, as amended, Administrative Order No. 14 dated February 3, 1987 and as implemented by the Deed of Transfer dated February 27, 1987; that pursuant to the Trust Agreement dated February 27, 1987, the National Government constituted the Asset Privatization Trust (APT) as its trustee over the transferred assets, among which is the subject property; that in order to be fully apprised of the nature and circumstances behind the said encumbrance, you sought for a copy of the notice of tax lien with the different government offices concerned, e.g. Register of Deeds, RDO-BIR; and that despite diligent efforts to find the same, it cannot be located. In reply, please be informed that Section 219 of the Tax Code of 1997 provides: "If any person, corporation, partnership, joint-account ( cuentas en participacion ), association, or insurance company liable to pay an internal revenue tax, neglects or refuses to pay the same after demand, the amount shall be a lien in favor of the Government of the Philippines from the time when the assessment was made by the Commissioner until paid, with interests, penalties, and costs that may accrue in addition thereto upon all property and rights to property belonging to the taxpayer. Provided, That this lien shall not be valid against any mortgagee, purchaser, or judgment creditor until notice of such lien shall be filed by the Commissioner in the Office of the Register of Deeds of the province or city where the property of the taxpayer is situated or located." The above provision refers to a " tax lien " which denotes a legal claim or charge on property, as a security established by statute for the payment of a tax. " Tax " for purposes of a tax lien is not used in the limited sense as referring to contributions for the support of the Government. It is used in a broad sense as encompassing all Government revenues collectible by the Commissioner under the Tax Code, whether involving taxes in the strict technical sense thereof, or not. The term includes "any national internal revenue tax, fee or charge" imposed by the Tax Code ( CIR vs. Guerrero, et al ., No. L-19089, Jan. 21, 1967, 19 SCRA 205). The Supreme Court, in safeguarding revenue, held in the case of Collector of Internal Revenue vs. Pio Barreto Sons, Inc ., that the lien for forest products is not merely a legal claim or charge on the "property," the forest products felled, but the personal liability of whoever is the possessor of the forest products and on him belong the burden of proving by auxiliary and official invoices that the forest charges due had been paid. Failing to do so, he must pay the forest charges regardless of whether or not he is a concessionaire. In the case of Guerrero vs. Commissioner of Internal Revenue , the Supreme Court, reiterating the same precept it established in the Pio Barretto case , extended the rule on tax lien for forest charges so that a concessionaire no longer in possession of the forest products was made liable for payment of the tax due. There, the logs on which the forest charges being demanded were imposed, had been sold to a dealer and were no longer in the possession of the concessionaire. The Supreme Court applied the Barretto rule that these charges "are liens on the products and collectible from whomsoever is in possession thereof` unless he can show that he has the required auxiliary and official invoice and discharge permit, although taxpayer no longer possessed the property. ASaTHc In Pio Barretto Sons, Inc. vs. Collector of Internal Revenue , CTA Case No. 75, Nov. 8, 1956, the Court of Tax Appeals held that liens are extinguished by (a) payment; (b) prescription of the right to assess or collect; (c) expiration of the lien, such as the estate, inheritance and gift tax lien which expires five years after the tax becomes legally due; and (d) destruction of the property subject of the lien. The alleged merger of personality does not affect the annotated Notice of Tax Lien since the Bureau of Internal Revenue (BIR) is merely securing the possible collection of the tax. The lien serves as a security so that in case of sale or transfer of property, the tax will still be collected. Cancellation of the notice of lien is an indirect waiver of the right of the BIR to collect the tax payable to the Government, which it cannot do. Moreover, merger of personality is not one of the grounds by which a tax lien may be extinguished. In view of the foregoing, your request for the cancellation of the Notice of Tax Lien inscribed as Entry No. 2764/T-S-29773 in TCT No. 141759, is here by denied for lack of legal basis. Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group