BIR Ruling [DA-227-99]

April 13, 1999 BIR RULING [DA-227-99] Lepanto Consolidated Mining Co. BA-Lepanto Building 8747 Paseo de Roxas 1226 Makati City Attention: Ms . Odette M . Atienza Assistant Corporate Secretary Gentlemen : This refers to your letter dated February 8, 1999 requesting in effect for a reconsideration of the letter of Atty. Estrella V. Martinez of the Collection Programs Division Bureau of Internal Revenue dated January 26, 1999 denying your request for the application of your TCC No. 018888 in payment of documentary stamp taxes on a mortgage/loan document; and that in your support of your request, you stated the following arguments refuting the stand of Atty. Martinez, viz: "1. There is nothing in the cited decisions, i.e., Del Rosario vs. Hamoy; CIR vs. Fireman's Fund Insurance, that states that TCCs cannot be validly used for payment of DSTs. The first cited decision concerns a court case which was dismissed by the trial judge for failure of the plaintiff to affix a documentary stamp, worth P1.00, to the Special Power of Attorney. The second case does state that the purpose of the DST is to raise revenue, but does not say or even imply that acceptance of TCCs as DST payment runs counter to said purpose. While indeed, DSTs are imposed for the purpose of raising revenues, it cannot be said that the government will lose revenues, if TCCs are used to pay DSTs. Otherwise, TCCs will no longer be honored nor even granted in the first place, as it would be of no use to the grantee. Furthermore, application of TCCs to the tax liabilities or payables of the national government and is not revenue neutral, so to speak. "2. Under Section 173 of the TRA, the DST is to be paid by the person "making, signing, issuing, accepting or transferring" the document or property. In this case, Lepanto is signing the loan document and issuing the mortgage. The DST is therefore Lepanto's direct liability. Furthermore, the parties have agreed (Clause 6.4, Volume 2 and Clause 14.06, Volume 3 of the Omnibus Agreement) that all taxes shall be shouldered by Lepanto as borrower/mortgagor. It is noteworthy that, unlike the VAT which is expressly described in Section 105 of the TRA as an indirect tax because it is a liability of the person who sells, barters, exchanges, etc. goods or property but may be passed on to the buyer, transferee or lessee, the DST is made by law (Section 173) a direct liability of the person making, signing, issuing, accepting or transferring the document property. And, as aforesaid, Lepanto is one such person. "3. There is no dispute as to what section 173 of the TRA provides. The issue however is "where does it state that Lepanto as borrower/mortgagor, is exempt from the DST" and, pursuant to Section 173, should pass on the liability to thereunder/mortgagee? We have yet to see the legal basis for the alleged exemption. "4. A claim for refund may indeed be in the nature of a claim for exemption, Lepanto however is not claiming for a refund in this instance. Lepanto has been granted a refund in the form of a TCC which it seeks to apply to the payment of a DST. "5. Against, Lepanto is not seeking a refund or exemption. It is dutifully applying for a tax debit memo upon a duly issued TCC for the payment of DST. "6. The pertinent statute is unambiguous and is not in need of any interpretation. TCCs may be utilized for the payment of any tax liability under the TRA except withholding taxes. We wish to give life to that legal provision by applying for a tax debit memo for the subject transaction. "7. With all due respect, the constructive stamping referred to in RR No. 5-97 dated January 31, 1997 as reiterated by RMO 83-98 dated October 16, 1998 is that done through metering stamps by duly authorized entities, not to stamping, through the tax debit memo, by the Bureau itself. "8. Indeed, TCCs can be utilized for all internal revenue taxes of the grantee except withholding tax. This general rule is applicable squarely to the case of Lepanto. Section 173 is not applicable because, in the first place, Lepanto is not exempt from the payment of DST on the subject transaction." In reply, please be informed that we find your arguments tenable. Furthermore, in the case of the loan agreement, the borrower is a party directly and primarily liable for the DST because it is a party who signs the loan agreement. This finds support in Section 173 of the Tax Code of 1997 which provides that the DST is a liability of the person making, signing, issuing, accepting or transferring the taxable document. The lender bank may also be equally liable for DST. It may be noted from Section 173 of the Tax Code of 1997 that the law obligates any of the parties to the transaction to pay the DST. The parties can, therefore, validly enter into agreement as to who will ultimately bear the burden of paying DST due on the document or transaction. The BIR has in the past issued rulings to the effect that then Section 222 of the Tax Code, as amended (now Section 173 of the Tax Code of 1997) places the burden of paying DST upon the parties to the contract and leaves the tax to be paid indifferently by either party and accordingly, the party assuming payment of said taxes becomes directly liable therefor. (BIR Ruling No. 232-82 dated July 19, 1982). Accordingly, by assuming the burden of paying DST on the loan agreement you became directly liable therefor. On the other hand, Section 204(C) of the Tax Code of 1997 provides that "a Tax Credit Certificate validly issued under the provisions of this Code may be applied against any internal revenue tax, excluding withholding taxes, for which the taxpayer is directly liable. . . ." In view of the foregoing, this Office is of the opinion as it hereby holds that duly issued TCC may be utilized in payment for the DST. Accordingly, Lepanto may now apply its TCC N. 018888 in the payment of its documentary taxes on its mortgaged loan document. 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, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue