BIR Ruling [DA-272-00]

June 28, 2000 BIR RULING [DA-272-00] Sec. 12 RA 7082 014-95 DA-272-2000 Philippine Long Distance Telephone Company 10th Floor, MGO Building Legaspi cor. Dela Rose Streets, Makati City Attention: Atty . Rene G . Baez First Vice President Support Services & Tax Gentlemen : This refers to your letter dated October 20, 1999 requesting for a confirmation of your opinion that Philippine Long Distance Telephone Company (PLDT) is exempt from documentary stamp tax imposed under Title VII of the National Internal Revenue Code. It is represented that PLDT was granted a legislative franchise to render local and international telecommunications services on November 28, 1928 under Public Act No. 3436, as amended by Commonwealth Act No. 407, for a period of 50 years or until November 28, 1978; that under Section 7 of the said Public Act No. 3436, it was provided that the payment of 1% franchise tax on all gross receipts of the telephone and other electrical transmission business transacted under the franchise shall be "in lieu of all taxes" on the franchise or earnings thereof; that on November 9, 1970, Republic Act No. 6146 was passed extending the life of PLDT's franchise granted under Public Act No. 3436 to another twenty-five years from the date of its expiration on November 28, 1978, "under the terms and conditions therein provided" and "that during the twenty-five year period herein granted as extension, the grantee, its successors or assigns shall pay its franchise tax at an increased rate of five per centum" (Section 1, R.A. No. 6146); that on June 11, 1978, Presidential Decree No. 1528 was promulgated requiring PLDT to pay a franchise tax of 2% thereby modifying the rate of 5% provided for in Republic Act No. 6146, effective immediately up to the end of the twenty-five year extended period; that said P.D. also provides that "except for the change in the rate of franchise tax herein prescribed, it shall be subject to the same terms and conditions as already provided for under existing laws"; that on August 24, 1991, the terms and conditions of PLDT's franchise were consolidated under Republic Act No. 7082, wherein Section 12 thereof provides as follows: "Section 12. 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 corporation 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 assign, 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 Executive Order No. 72 unless the latter enactment is amended or repealed, in which case the amendment or repeal shall be applicable thereto . . ." prcd In reply, please be informed that the phrase "in lieu of all taxes" under Sec. 12 of R.A. No. 7082 declares in effect that PLDT, after paying a franchise tax equivalent to 5% of all gross receipts of the telephone or other telecommunication businesses covered by its franchises 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. 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 PLDT' is enjoying tax exemption by virtue of the "in lieu of all taxes" provision of its legislative franchise, the other party to the taxable documents shall be directly liable to pay the tax. (BIR Ruling No. DA-234-97 dated July 1997) llcd On the other hand, PLDT shall continue to be liable for all income taxes payable under Title II of the Tax Code of 1997, i.e., 32% corporate income tax effective January 1, 1998, 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. It may also be stated in this connection that under Republic Act No. 7716, otherwise known as the Expanded VAT Law, as amended by R.A. No. 8241, PLDT shall no longer be subject to the 5% 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 dated March 31, 1997) 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, and/or any of the requirements imposed in this letter are not complied with, then this ruling shall be considered null and void. LexLib Very truly yours, (SGD.) LILIAN B. HEFTI Deputy Commissioner Legal & Inspection Group