Request for Waiver of Surcharge on Voluntary Offer to Pay Documentary Stamp Tax

January 5, 2000 BIR RULING NO. 007-00 SGV & Co . 6760 Ayala Avenue Makati City Attention: Atty . Ma . Victoria A . Villaluz Tax Division Gentlemen : This refers to your letter dated July 7, 1999 requesting on behalf of your client, Sampo Technology Philippines, Inc. (STPI), for the waiver of the 25% surcharge on its voluntary offer to pay the amount of P2,620,100.00, representing the documentary stamp tax (DST) due on the original issuance of shares of stock under Section 175 of the Tax Code of 1997, pursuant to Section 204 of the said Code. It is represented that STPI is a corporation duly registered with the Securities and Exchange Commission (SEC) and the Bureau of Internal Revenue (BIR) with principal office address at Gil Puyat Avenue, Industrial Estate One, Clark Special Economic Zone, Clarkfield, Pampanga; that it is a wholly-owned subsidiary of Sampo Technology Corporation (STC-Taiwan), a non-resident foreign corporation existing under the laws of Taiwan; that STPI is also registered with the Clark Development Corporation of the Clark Special Economic Zone (CSEZ); that as CSEZ-registered enterprise, STPI is entitled to the 5% preferential tax regime under RA No. 7227, otherwise known as the Bases Conversion and Development Act; that RMO No. 8-98 dated February 10, 1998 mandated all domestic corporations to pay the applicable DST on their original issuance of shares on or before the 10th day of the month following the said RMO's publication; that on the basis of the RMO, Revenue District Office (RDO) No. 21 at San Fernando, Pampanga, requested STPI to pay the DST on the latter's issuance of original shares to STC-Taiwan, the majority stockholders of STPI; that as a CSEZ-registered enterprise, STPI as such is subject only to the 5% preferential tax rate and is not subject to DST; that on February 8, 1999, the revenue examiners of RDO No. 12 issued a proposed deficiency DST assessment; and that the said proposed assessment was based on STPI's subscribed capital stock in the amount of P262,009,950.00 which amounted to a proposed total DST liability of P3,275,125.00, inclusive of increments, computed as follows: Subscribed capital stock P262,009,950.00 Tax due P2,620,100.00 Less: tax paid - Deficiency DST P2,620,100.00 Add: 25% surcharge 655,025.00 P3,275,125.00 ========= In reply, please be informed that Section 204 of the Tax Code of 1997 provides "Sec. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes . The Commissioner may "(A) Compromise the payment of any internal revenue tax, when: "(1) A reasonable doubt as to the validity of the claim against the taxpayer exists; or "(2) The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax. xxx xxx xxx" It is clear from the foregoing facts that there is indeed a reasonable doubt as to the validity of the claim against the taxpayer. Since STPI is a CSEZ-registered enterprise and is liable only to the preferential tax treatment of 5% on its gross income which shall be in lieu of local and national taxes pursuant to Section 12 (c) of RA No. 7227, STPI is exempt from the payment of the documentary stamp tax on the original issue of stock certificates to its respective stockholders. (BIR Ruling No. 077-98 dated May 28, 1998) On the other hand, Section 173 of the Tax Code of 1997 provides 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." Accordingly, it is the direct liability of STC-Taiwan, as stockholder of STPI, to pay the documentary stamp tax imposed under Section 175 of the said Code. However, since STC-Taiwan is a non-resident foreign corporation, it is not subject to Philippine income tax as well as to the documentary stamp tax imposed under said Section, since under its inherent limitations taxation may be exercised only within the territorial jurisdiction of the taxing authority. (see 51 Am. Jur. 88) llcd Such being the case, this Office hereby accepts your client's voluntary offer to pay the amount of P2,620,100.00 representing the documentary stamp tax on the original issuance of shares of stock under Section 175 of the Tax Code of 1997, excluding the 25% surcharge and compromise penalty. cdll Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue