Tax Base and Time of Payment of Documentary Stamp Tax on Lease Contracts

February 4, 1998 BIR RULING NO. 005-98 173, 194 & 248 000-00-005-98 Shoemart, Inc. 4000 C. Palanca Street Quiapo, Manila Attention: Ms . Cecilia R . Patricio AVP , Tax Division Gentlemen : This refers to your letter dated August 8, 1997 requesting for ruling on the tax base and time of payment of documentary stamp tax (DST) on lease contracts where the following situations obtain: 1. Payment of annual rent is based on percentage of sales. Computation of DST will not be accurate if paid at the execution of the lease contract since actual sales can only be determined at the end of the year; 2. The terms of the lease contract is for a period of twenty five years. Since it is a long term contract, DST will be a huge financial burden if paid lump-sum at the time of the execution of the contract. dctai In connection therewith, you are proposing the following treatment which will result in a more accurate computation of DST and lighten the burden of paying the DST on a lump sum basis: 1. DST will be computed at the end of the year when actual sale is finally determined; 2. DST will be paid on an annual basis over a period of 25 years instead of paying the entire DST at the time of execution of lease contract for the years covered. In reply, please be informed that Section 173 of the Tax Code, as amended, provides, viz: "Sec. 173. Stamp taxes upon documents , instruments , loan agreements , and papers . Upon documents, instruments, loan agreements and papers, and upon acceptances, assignments, sales, and transfers of the obligation, right, or property incident thereto, there shall be levied, collected and paid for, and in respect of the transaction so had or accomplished, the corresponding documentary stamp taxes prescribed in the following Sections of this Title, by the person making, signing, issuing, accepting, or transferring the same wherever the document is made, signed, issued, accepted or transferred when the obligation or right arises from Philippine sources or the property is situated in the Philippines, and at the same time such act is done or transaction had; Provided, 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." In this connection, Section 194 of the Tax Code, as amended, provides, viz: "Sec. 194. Stamp tax on leases and other hiring agreements . On each lease, agreement, memorandum, or contract for hire, use or rent of any lands or tenements, or portions thereof, there shall be collected a documentary stamp of Three pesos (P3.00) for the first Two thousand pesos (P2,000.00), or fractional part thereof, and an additional One peso (P1.00) for every One thousand pesos (P1,000.00) or fractional part thereof in excess of the first two thousand pesos (P2,000.00) for each year of the term of said contract or agreement." cdlex Nothing in the Code authorizes either the installment payment of the documentary stamp tax or the computation thereof based in some mode or basis other than the consideration as appearing in the contract or document itself. Besides, when the Code or the rules thereof prescribe the time for payment of the tax, any delayed payment thereof would subject the taxpayer to civil penalties prescribed under Sections 248 and 249 of the Tax Code. Your proposal could necessarily result in late payment under existing laws and if you still wish to proceed with the same, the corresponding penalties will apply in the computation of the documentary stamp tax due in leases of a kind as stated in your letter. Very truly yours, (SGD.) LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue