BIR Ruling [DA-242-02]

December 17, 2002 BIR RULING [DA-242-02] Title VII, Tax Code of 1997 014-95, 077-95, 027-97 Castro Cadiz & Carag Law Offices Suite 2602, 26th Floor, The Atlanta Centre No. 31 Annapolis Street, Greenhills San Juan, Metro Manila Attention: Attys. Othelo C. Carag Anna Liza M. Ang-Co and Marie Christine E. Avaricio Gentlemen : This refers to your letter dated July 29, 2002 requesting for confirmation of your opinion that Bayan Telecommunications Inc. ("Bayantel") is exempt from the payment of documentary stamp tax imposed under Title VII of the Tax Code of 1997, as amended. It is represented that Bayantel (formerly International Communications Corporation) is a grantee of a legislative franchise under Republic Act No. 3259 ("R.A. No. 3259"), as amended by R.A. Nos. 4905 and 7633, to construct, maintain and operate stations for telecommunications systems throughout the Philippines and foreign countries; that Section 11 of R. A. No. 7633 approved on July 20, 1992 provides as follows: "SEC. 11. The grantee, its successors or assigns shall be liable to pay the same taxes on their real estate, buildings and personal property exclusive of this franchise, as other persons or corporations are now or hereafter may be required by law to pay. In addition thereto, the grantee, its successors or assigns shall pay a franchise tax equivalent to three percent (3%) of all gross receipts of the telephone or other telecommunications businesses transacted under this franchise by the grantee, its successors or assigns and the said percentage shall be in lieu of all taxes on this franchise or earnings thereof: Provided, That the grantee, its successors or assigns shall continue to be liable for income taxes payable under Title II of the National Internal Revenue Code pursuant to Section 2 of Executive Order No. 72 unless the latter enactment is amended or repealed, in which case the amendment or repeal shall be applicable thereto. The grantee shall file the return with and pay the tax due thereon to the Commissioner of Internal Revenue or his duly authorized representative in accordance with the National Internal Revenue Code and the return shall be subject to audit by the Bureau of Internal Revenue. The grantee shall submit a detailed annual report to the Congress of the Philippines with respect to its program, operations, accounts, and payment of taxes and compliance with the terms and conditions of its franchise." (Emphasis supplied) In reply, please be informed that this Office hereby confirms your opinion. The phrase "in lieu of all taxes" contained in the franchise of Bayantel declares in effect that Bayantel may not be required to pay the documentary stamp tax imposed under Title VII of the Tax Code of 1997, on various documents, papers and instruments executed by it which are necessary in the conduct of its business covered by the franchise. ( BIR Ruling No. 014-95 dated February 8, 1995, BIR Ruling DA-272-000 dated June 28, 2000 ). However, pursuant to Sec. 173 of the Tax Code of 1997, "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." In other words, since Bayantel is enjoying tax exemption by virtue of the "in lieu of all taxes" provision of its legislative franchise, the other party to the taxable document shall be directly liable to pay the tax. ( BIR Ruling No. 077-95 dated April 24, 1995, BIR Ruling No. 027-97 dated March 31, 1997 ) On the other hand, Bayantel shall continue to be liable for all income taxes payable under Title II of the Tax Code of 1997, i.e. , in the 32% corporate income tax, 20% final withholding tax (FWT) on interest income derived from Philippine currency bank deposits and yield from deposit substitutes, trust funds and similar arrangements, and royalties derived from sources within the Philippines, 7% of FWT on interest income from a depository bank under the expanded foreign currency deposit system, capital gains tax from the sale of shares of stock not traded in the stock exchange and from the sale, exchange or disposition of lands/or buildings, minimum corporate income tax, and improperly accumulated earnings tax. aTcSID It may also be stated in this connection that under R.A. No. 7716, otherwise known as the Expanded VAT Law, as amended by R.A. No. 8241, Bayantel shall no longer be subject to the 3% franchise tax on its gross receipts from business covered by the law granting its franchise but to the 10% VAT prescribed under Section 108 of the Tax Code of 1997. ( BIR Ruling No. 027-97, BIR Ruling DA-272-000 ) 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, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner