BIR Ruling [DA-449-03]

December 5, 2003 BIR RULING [DA-449-03] Secs. 173 & 175; BIR Ruling No. 7-2000 Castillo & Poblador Law Offices 5/F, Montepino Building 138 Amorsolo St., Legaspi Village Makati City Attention: Atty. Joseph P. San Pedro Gentlemen : This refers to your letter dated August 7, 2001 requesting in behalf of your client, Reel Service (Philippines), Inc . ( RSPI, for brevity) for exemption from the payment of the documentary stamp tax on original issue of certificate, of stock. It is represented that RSPI is a Philippine corporation registered with the Philippine Economic Zone Authority (PEZA) and enjoying a preferential tax rate of 5% on its gross income in lieu of all national and local taxes; that RSPI will issue to Reel Service Limited ( RSL, for brevity) 231,400 original shares, with an aggregate par value of P23,140,000.00, and the stock certificates therefor; that RSL is a nonresident foreign corporation owning RSPI; and that other than its investment in RSPI, RSL does not have any other business presence in the Philippines. In reply, please be informed that under Section 175 of the Tax Code, as amended by Republic Act No. 7660 (also Section 175, Tax Code of 1997) a documentary stamp tax is imposed on every original issue of a certificate of stock and that it is in the nature of an excise tax because it is levied upon the privilege, opportunity and facility of issuing the stock certificate. The cost of imposition is borne by the corporation issuing the stock certificate. ( Philippine Consolidated Coconut Industries vs. Collector of Internal Revenue, 70 Phil. 24 ) Accordingly, the payment of documentary stamp tax in this case is a direct liability of the issuing corporation, i.e. , RSPI, on the original issue of certificates of stock to the stockholders. However, since PEZA-registered enterprises enjoy the preferential tax rate of 5% on the gross income earned, which shall be in lieu of local and national taxes pursuant to Section 24 of Republic Act No. 7916, RSPI is exempt from the payment of documentary stamp tax on the original issue of stock certificates to its respective stockholders. On the other hand, Section 173 of the Tax Code of 1997, provides that "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." Accordingly, it is the direct liability of RSL, as stockholder of RSPI, to pay the documentary stamp tax imposed under Section 175 of the said Code. However, since RSL is a non-resident foreign corporation, it is not subject to Philippine income tax as well as to the documentary stamp tax imposed under said Section, since under its inherent limitations, taxation may be exercised only within the territorial jurisdiction of the taxing authority. (BIR Ruling No. 007-2000 dated January 5, 2000) 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 as null and void. THcaDA Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group