BIR Ruling [DA-317-04]

June 10, 2004 BIR RULING [DA-317-04] R & R Espejo Corp. 2542 Lt. Garcia Street Baclaran, Paraaque Attention: Ms. Gloria A. Espejo Treasurer Gentlemen : This refers to your letter dated May 31, 2004 requesting, in effect, for a ruling that the rate of documentary stamp tax to be imposed on the original issuance of shares of stock by R & R Espejo Corp. out of its increased authorized capital stock to its stockholders shall be based on the new rate as introduced by Republic Act (R.A.) No. 9243, otherwise known as "An Act Rationalizing the Provisions on the Documentary Stamp Tax of the 1997 Tax Code, as amended." Documents submitted disclosed that on February 5, 2004, this Office issued in your favor Certificate of Exemption No. SN-025-2004, exempting from income tax, expanded withholding tax and capital gains tax, the transfer of your real properties to R & R Espejo Corp. in accordance with Section 40(C)(2) of the Tax Code of 1997; that the documentary stamp tax imposed under Sec. 196 of the Tax Code on the transfer of your real properties to the corporation amounting to P181,275.00 was already paid; that you have not paid the documentary stamp tax due on the original issuance of shares of stock by the corporation pending the approval by the Securities and Exchange Commission (SEC) of your application to increase the authorized capital stock of the corporation; that the shares of stock exchanged for your real properties are coming from the increased authorized capital stock of the corporation; that the said increase in the authorized capital stock was approved only on May 17, 2004; that when you presented the Deed of Exchange to the local revenue district office, the documentary stamp tax assessed/computed on the original issuance of shares was based on the old rate of P2.00 on each P200.00 or fractional part thereof, of the par value of the shares; that you contested said computation invoking thereon R.A. No. 9243, which introduces the new reduced rate for documentary stamp tax on original issuance of shares from P2.00 to P1.00 on each P200.00 or fractional part thereof, of the par value of the shares; and that you were advised to get a ruling from this office, hence, you are now requesting for a ruling that the documentary stamp tax on the said original issuance of shares by R & R Espejo Corp. to Gloria Espejo, coming from the increased authorized capital stock of the corporation, shall be based on the new reduced rate of P1.00 in accordance with the provision of R.A. No. 9243, as the subject shares are deemed issued only upon the approval by the SEC of the application by the corporation to increase its authorized capital stock. CTSAaH In reply thereto, please be informed that, as a general rule, the documentary stamp tax imposed on original issuance of shares of stock accrues at the time the shares are issued. 1 A certificate/share of stock is deemed `issued' for the purpose of imposing the documentary stamp tax, at the time of release of the stock certificate (document as properly filled up) to the stockholder, the actual or constructive possession by the stockholder of the certificate of stock being immaterial and of no consequence. 2 The certificate as issued by the corporation, irrespective of whether or not it is in the actual or constructive possession of the stockholder, is considered issued because it is with value, meaning, the certificate of stock can be utilized for the exercise of the attributes of ownership over the stocks mentioned on its face, and thus, the stocks, can be alienated; dividends or fruits derived therefrom can be enjoyed, and they can be conveyed, pledged or encumbered. 3 The exception to the above rule is with regards to those issued certificates of stocks temporarily subject to suspensive conditions, such as, but not limited to, conditions set forth by the SEC for the protection of the general public or when the shares issued is coming from the increased authorized capital stock which needs prior approval by the SEC. These certificates shall only be liable to the documentary stamp tax only when released from said conditions or when increase of the authorized capital stock is approved by the SEC, for then and only then shall these certificates truly acquire any practical value for their owners. 4 Moreover, under Sec. 5.1.1 of Revenue Memorandum Ruling No. 1-2002, the documentary stamp tax imposed on original issuance of shares of stock shall be paid on or before the fifth (5th) day after the close of the month of approval of the increase in authorized capital stock, in case the shares issued to the transferor-stockholder come from the increase in authorized capital stock of the transferee-corporation. Based on the foregoing, this Office hereby rules that R & R Espejo Corp. shall be liable to the documentary stamp tax imposed on original issuance of shares of stock only from the time its application to increase its authorized capital stock is approved by the SEC, which is on May 17, 2004, for only then that the shares are deemed issued for purposes of the imposition of the said documentary stamp tax. Further, considering that on March 20, 2004, R.A. No. 9243 took effect, the new reduced rate of P1.00 on each P200.00 or fractional part thereof, of the par value of the shares, shall be the rate, therefore, that will be imposed on the above transaction. 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.) MILAGROS V. REGALADO Assistant Commissioner Legal Service Footnotes 1. Revenue Regulations No. 9-94. 2. Phil. Consolidated Coconut Ind., Inc. vs. Coll. of Int. Rev. , 70 SCRA 26, 2728, March 8, 1976. 3. Phil. Consolidated Coconut Ind. Inc. vs. Coll of Int. Rev., ibid. 4. CIR vs. Construction Resources of Asia, Inc., et al. , 145 SCRA 671.