BIR Ruling [DA-522-98]

November 23, 1998 BIR RULING [DA-522-98] San Miguel Corporation 40 San Miguel Avenue Mandaluyong City, Metro Manila Attention: Mr . Jose S . Tayag , Jr . Vice President and Tax Manager Gentlemen : This refers to your letter dated January 19, 1998 filed in behalf of your subsidiary, San Miguel Properties Philippines, Inc. (SMPPI), requesting for a confirmation of your opinion that the transfer of SMPPI of its interest in a trust account to GSM Properties, Inc. (GSM), in payment for the latter's shares of stock has the following tax implications: cdlex "(a) it is subject to the documentary stamp taxes on original issuance of certificate of stocks and notarial certification under Sections 175 and 188 of the Tax Reform Act of 1997, as amended; "(b) the transfer of interest in the trust account is not subject to the expanded withholding tax under Revenue Regulations No. 6-85, as amended." It is represented that SMPPI is a domestic corporation with principal office address at 24th Floor, San Miguel Properties Center, Mandaluyong City; that it is primarily engaged in the development and marketing of real properties; that in the course of its business, it organized a joint venture corporation, GSM, with Maunong Development Corporation (MDC) and Balibago Land Corporation (BLC) for a real property development project; that GSM was incorporated on January 12, 1994; that in order to purchase real property for the project, the three corporations entered into a Trust Agreement with Far East Bank and Trust Company as Trustee and opened FEBTC Trust Account No. 203-00333; that the trust account was conceived to ascertain that the selling price will not be unduly influenced by the fact that a San Miguel subsidiary is one of the buyers; that for this reason all the purchases of real property as well as the corresponding payments were made in the name of FEBTC Trust Account; that the sellers of the real properties were individual farmers who paid the corresponding capital gains and documentary stamp taxes; that on November 29, 1995, SMPPI purchased the GSM shares of MDC and BLC making it the sole owner of GSM; that consequently, MDC and BLC transferred their GSM shares to SMPPI; that on December 1, 1995, as owner of the entire shares of GSM, SMPPI increased the GSM's authorized capital stock by assigning its right in the Trust Agreement to GSM as payment for its additional subscription; that FEBTC issued a certification dated November 29, 1995 stating that the Trust Account received from SMPPI the amount of P65,600,000.00 in cash contribution; and that the Securities and Exchange Commission considered the SMPPI's right in the Trust Agreement as equivalent to cash payment for the subscription of the increased capital stock and was no longer made subject to further appraisal and valuation. In reply, please be informed that pursuant to Sec. 175 of the Tax Code of 1997, there shall be collected a documentary stamp tax of Two Pesos (P2.00) on each Two Hundred Pesos (P200.00) or fractional part thereof, of the par value, of such shares of stock, on every original issue, whether on organization, reorganization or for any lawful purpose, of shares of stock by any association, company or corporation. On the other hand, a documentary stamp tax of Fifteen Pesos (P15.00) shall be collected on each certificate issued by a notary public. Accordingly, since the increase in the capital stock of GSM requires original issuance of the shares of stocks, there is a liability to pay a documentary stamp tax pursuant to Sec. 175 of the Tax Code of 1997. Furthermore, the notarial acknowledgment to the deed of assignment which also transfers the interest in the trust agreement is subject to a documentary stamp tax of P15.00 pursuant to Sec. 188 of the Tax Code of 1997. Moreover, concerning the transfer pursuant to the deed of assignment, this Office is of the opinion as it hereby holds that it is not subject to the creditable withholding tax in view of Section 1 of Revenue Regulations No. 6-85 (now Sec. 2.57.2 of Revenue Regulations No. 2-98) which provides, viz: "SEC. 2.57.2. Income payments subject to creditable withholding tax and rates prescribed thereon . Except as herein otherwise provided, there shall be withheld a creditable income tax at the rates herein specified for each class of payee from the following items of income payments to persons residing in the Philippines." Inasmuch as interest in a trust account is not one of the items listed in the payments subject to creditable withholding tax under Revenue Regulations No. 6-85, as amended, the same is not subject to the creditable withholding tax. 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. LLjur Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)