BIR Ruling [DA-661-99]

November 29, 1999 BIR RULING [DA-661-99] Bengzon Narciso Cudala Jimenez Gonzales & Liwanag SOL Building, 112 Amorsolo Street Legaspi Village Makati City Attention: Attys . Ma . Melva E . Valdez and Hubert E . Molina Gentlemen : This refers to your letter dated March 29, 1999 requesting on behalf of your client, Keppel Philippines Properties, Inc. (KPPI) [formerly Cebu Shipyard & Engineering Works, Inc.] for the waiver of the surcharge proposed to be imposed by Revenue District Office No. 80-Mandaue City due to the late payment of documentary stamp tax (DST) relative to the tax free exchange transaction entered into by KPPI. LexLib It appears that on October 08, 1998, the tax free character of KPPI's exchange transaction was approved by the BIR under BIR Ruling No. S-40-216-98; that the said transaction was embodied in a duly executed Deed of Exchange dated July 8, 1998; that under the said transaction, assets of KPPI which consist of the following: Cash and cash equivalent P 52,361,622.00 Marketable equity investments 3,279,705.00 Receivables-net 64,485,367.00 Inventories-net 31,727,747.00 Due from affiliates 81,698,453.00 Prepaid expenses and other current assets 5,303,242.00 Deferred income tax 7,669,497.00 Property, Plant & Equipment 189,542,510.00 Other assets 252,431.00 Total P 436,320,574.00 ============ were transferred to Keppel Cebu Shipyard Inc. (KCSI) in exchange for the latter's shares of stock; that when KPPI tried to obtain a clearance from RDO No. 80, in compliance with the aforesaid ruling, the latter assessed KPPI for DST for imposing therein surcharge and interest for late payment; that the approval of the Securities and Exchange Commission (SEC) which is based in Cebu, on the increase in the authorized capital stock of KCSI and payment of subscription by properties (other than cash) was only issued on December 1998; that the confusion brought about by number assets involved in the exchange, more particularly property, plant and equipment, the numerous and voluminous documents/papers that needed to be examined and the difficulty in determining/classifying properties that would be subjected to DST, among other reasons, led to the payment of the aforesaid DST; and that KPPI never intended to avoid paying the aforesaid DST or any tax liability as long as the same is legally due. cdll In reply, please be informed that under Section 248(A)(1) and 249 both of the Tax Code of 1997, the imposition of the surcharge and interest on delinquency is mandatory. Strong reasons of policy support a strict observance of the rule regarding the payment of tax. The laws imposing penalties for delinquencies are clearly intended to hasten tax payments or punish evasions or neglect of duty in respect thereof. If delays in tax payments are to be condoned for light reasons, the law imposing penalties for delinquencies would be rendered nugatory and the maintenance of the government and its multifarious activities would be as precarious as taxpayers are willing or unwilling to pay their obligations to the State on time. (Jamora vs. Meer, 74 Phil. 22) However, in view of the exceptional circumstances which justifies the late payment of documentary stamp tax imposed under Sections 196 and 175 both of the Tax Code of 1997 within the time specified in Revenue Regulations No. 1-98 and Revenue Memorandum Circular No. 1-98, respectively, your request for the waiver of the surcharge is hereby granted but not the payment of interest imposed under Section 249 of the Tax Code of 1997. Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue