BIR Ruling [DA-492-99]

August 31, 1999 BIR RULING [DA-492-99] Sycip Gorres Velayo & Co. 6760 Ayala Avenue Makati City Attention: Atty . J . A . Osana Partner - Tax Division Gentlemen : This refers to your letter dated February 3, 1999 requesting reconsideration of BIR Ruling No. DA-476-98 dated November 4, 1998 relative to the denial of your client's request for waiver of surcharge amounting to P2,692,000 incident to late payment of Documentary Stamp Tax (DST). cdlex It appears that in BIR Ruling DA-476-98 dated November 4, 1998, this Office denied the request of Fujitsu Computer Products Corporation of the Philippines ("Fujitsu") for the waiver of surcharge amounting to P2,692,000 relative to its deficiency DST liability for lack of legal basis, citing as reasons, among others, the following: ". . . the actual or constructive delivery of shares of stock to the taxpayer is not essential for the DST to be imposed. What is taxed is the privilege of issuing shares of stock and therefore, the tax accrues upon the original issuance of shares. (Sec. 5, Revenue Regulations No. 9-94). . . . ". . . The documentary stamp tax on original issues of shares of stock shall attach upon acceptance by the corporation of the stockholder's subscription regardless of the actual delivery of the certificates of stock pursuant to the Section 175 of the Tax Code of 1997. . . . cdlex ". . . Under Section 248 and 249, both of the Tax Code, as amended, the imposition of the surcharge and interest on delinquency is mandatory. Strong reasons of policy support the strict observance of the rule regarding the payment of tax. . . ." In your letter dated February 3, 1999, you contended that the aforesaid Ruling should be reconsidered and your client's surcharge incident to late payment of DST be eventually waived based on the following grounds, to wit: "1. Revenue Memorandum Order (RMO) No. 8-98, otherwise known as the Corporate Stock Documentary Stamp Tax Program issued by the BIR on February 10, 1998, has the effect of granting amnesty to taxpayers with deficiency DST liability once the taxpayers duly complied with the requirements therein. Since your client duly complied with these requirements even before the deadline on March 31, 1998 (RMO 25-98) you submit that the benefits of the amnesty program should be extended to it. "2. Your client's late payment was not borne by any intention to defraud the government but by an honest mistake and confusion in the absence of clear and complete guidelines in the payment of DST relative to original issuance of shares of stocks. In support thereof, you cited Section 175 of the old Tax Code and BIR Ruling Nos. 236-88, 031-89 and UN-017-1-14-94 where it is stated that the DST on original issuance of stock shall only be due upon issuance of certificates of stocks. This rule became blurred when Revenue Regulations No. 9-94 dated March 8, 1994 was issued and interpreted in BIR Ruling Nos. 12-97 and DA-476-98. These conflicting rules and regulations were laid to rest by the Tax Reform Act of 1997 where it is now provided that the DST shall attach upon every original issue of shares of stock. You also cited a recent case promulgated by the Supreme Court on July 23, 1998 entitled Lincoln Philippine Life Insurance Co ., Inc ., ( now Jardine-CMG Life Insurance Co ., Inc .) vs . Court of Appeals and Commissioner of Internal Revenue , G . R . No . 118043 , said court stated, among others, that: "xxx xxx xxx Indeed, a reading of then Section 224 of the NIRC as quoted earlier, starting from its heading, will show that the documentary stamp tax is not levied upon the shares of stock per se but rather on the privilege of issuing certificates of stock. xxx xxx xxx . . . With respect to stock certificates it is levied upon the privilege of issuing them; not on the money or property received by the issuing company for such certificates. Neither it is imposed upon the share of stock. As Justice Learned Hand pointed out in one case, documentary stamp tax is levied on the document and not on the property which it described. (Empire Trust Co., v. Hoey, 103 F 2d. 430) cdll "Third. Settled is the rule that, in case of doubt, tax laws must be construed strictly against the State and liberally in favor of the taxpayer. This is because taxes, as burdens which must be endured by the taxpayers, should not be presumed to go beyond what the law expressly and clearly declares. That such strict construction is necessary in this case is evidenced by the change in the subject provision as presently worded, which now expressly levies the said tax on shares of stock as against the privilege of issuing certificates of stock as formerly provided: . . ." 3. The BIR itself is not averse to extending such clemency to taxpayers where justifiable reasons and good faith are proven to exist. In support thereof, you cited BIR Ruling Nos. 229-92, UN 242A-94 and 48-98 where the circumstances attendant to these cases are analogous if not similar to those obtaining in the rulings cited. 4. You also note that your client is not the subject of any pending examination for the year 1997. Neither has the BIR issued any formal assessment relative to your client's failure to pay the DST. Instead, your client has voluntarily paid the liability without the benefit of audit, which if conducted would translate to unnecessary costs and expenses to the government. By its voluntary act to pay the liability, you submit that your client has saved the government administration and collection costs that come with audit and collection efforts." cdll In reply, please be informed that after a careful restudy of the aforementioned ruling and the justifiable circumstances you discussed above, particularly RMO No. 8-98, as amended by RMO No. 25-98, which basically granted abatement of penalties to delinquent taxpayers with DST liabilities, and the fact that your client duly complied with the requirements set forth in said RMO 8-98, as amended by RMO No. 25-98, this Office has decided to forego the imposition of the 25% amounting to Two Million Six Hundred Ninety-Two Thousand (P2,692,000) under Section 248 (A) of the Tax Code of 1997. It is, of course understood that the acceptance by this Office of your client's payment of the DST due on the original issuance of its fully paid shares of stocks in the total amount of Fourteen Million Two Hundred Thirty-Six Thousand Six Hundred Ninety-Five Pesos & 80/100 (P14,236,695.80) in 1997 does not preclude us from conducting an investigation/verification of your client's DST liability for taxable year 1997 and for issuing an assessment notice against it if it is found out that there is a deficiency in the payment made. This revokes BIR Ruling DA-476-98 dated November 4, 1998. cdll Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue