BIR Ruling [DA-498-03]

December 11, 2003 BIR RULING [DA-498-03] Alexander E. Ramos & Associates Suite 815 Cityland Herrera Tower Herrera corner Valero Street Salcedo Village Makati City Attention: Mr. Alexander E. Ramos External Auditor Gentlemen : This refers to your letter dated October 14, 2003 requesting for a waiver of the surcharge and penalties proposed to be imposed by Revenue District Office (RDO) No. 9, Makati City, due to the late payment of documentary stamp tax (DST) relative to the tax free exchange transaction entered into by Filomeno, Bienvenida, Teresita and Estelita all surnamed Espiritu, as the Transferors, and Filben Realty & Development Corporation, as the Transferee. It appears that on September 8, 2003, the tax-free character of your exchange transaction was approved by the BIR under BIR Ruling No. SN156-2003; that the said transaction was embodied in a duly executed Deed of Assignment dated February 11, 2003; that under the said transaction, three (3) parcels of land together with the improvements thereon of the above-named Transferors were transferred to Filben Realty & Development Corporation in exchange for the latter's shares of stock; that when you tried to obtain clearance from the RDO No. 049, in compliance with the aforesaid ruling, the latter assessed your client surcharge and penalties for late payment of the corresponding DST which under the Regulations should be paid within five (5) days after the close of the month following the said transaction; that on October 3, 2003, you have paid respectively the corresponding DST for the shares subscribed and the properties transferred relative to the aforesaid transaction in the amounts of P30,000.00 and P834,553.60 as evidenced by Validation Receipt No. 3402-2273-88 duly issued by the Land Bank of the Philippines, J.P. Rival Branch; and that you never intended to avoid paying the aforesaid DST or any tax liability as long as the same is legally due. In reply thereto, please be informed that Section 248(A)(1) of the Tax Code of 1997 provides that the imposition of the surcharge on delinquency is mandatory. Reproduced below is the pertinent portion of said provisions, viz : Sec. 248. Civil Penalties . "(A) There shall be imposed, in addition to the tax required to be paid, a penalty equivalent to twenty five percent (25%) of the amount due, in the following cases: "(1) Failure to file any return and pay the tax due thereon as required under the provisions of the said Code or rules and regulations on the date prescribed. "xxx xxx xxx" It is clear from the above-cited Section of the Tax Code that the imposition of the penalties is intended to discourage delay in the payment of the taxes due to the State. Revenue Memorandum Order (RMO) No. 8-89 provides that the documentary stamp tax on the original issuance of certificates of stock attaches upon acceptance of the stockholder's subscription in the capital stock of a corporation regardless of the physical issuance and delivery to the stockholders of the certificate of stock evidencing his stockholdings ( Commissioner of Internal Revenue vs. Construction Resources of Asia, Inc. 145 SCRA 677 [1986] ) which shall be paid on or before the tenth day [now five days pursuant to Revenue Regulations No. 6-2001] of the month following the date of registration with the Securities and Exchange Commission. On the other hand, Section 200 of the Tax Code provides that the tax return prescribed in the said Section shall be filed within ten (10) days [now five (5) days pursuant to Revenue Regulations No. 6-2001] after the close of the month when the taxable document was made, signed, issued, . . ., and the tax thereon shall be paid at the same time the aforesaid return is filed. Considering that the Deed of Assignment in the case at bar was executed on February 11, 2003 or after the effectivity of Revenue Regulations No. 6-2001, then it is clear that your clients have incurred delay in the filing of the returns and the payment of the aforesaid taxes. However, since the Transferors in the instant case are not subject to any pending examination for the year 2003 neither has the BIR issued any formal assessment relative to your clients' failure to pay the DST on time. But 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 their voluntary act to pay the liability, you submit that your clients have saved the government administration and collection costs that come with audit and collection efforts. In other words, your clients' late payment of the aforesaid DST 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 the tax free exchange transaction under Section 40(C)(2) and, (6)(c) of the Tax Code of 1997. SATDHE IN VIEW OF THE FOREGOING, this Office has decided to forego the imposition of the surcharge and penalty for the late payment of documentary stamp tax relative to the tax-free exchange transaction under Section 40(C)(2) and (6)(c) of the Tax Code of 1999. However, it is, of course understood that the Transferors are liable to the corresponding interest that have accrued thereon from the date of supposed payment thereof until the time it was paid and filed with the BIR. Furthermore, acceptance by this Office of your clients' payment of the DST due on the original issuance of shares in the amount of P30,000.00 as well as on the Deed of Assignment in the amount of P834,553.60 respectively prescribed in Sections 175 and 196 of the Tax Code of 1997 does not preclude the BIR from conducting an investigation/verification of your clients' DST liability for the taxable year 2003 and for issuing assessment notice against them if it is found out that there is a deficiency in the payment made. Very truly yours, (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service