Grant of Request for Waiver of Surcharge and Penalty

January 7, 2000 BIR RULING NO. 012-00 Ungco and Ungco Attorneys-at-Law P.Y. Herrera cor. B. Moncilla Sts. Pateros, Metro Manila 1620 Attention: Atty . Eduardo Ungco, Jr . Gentlemen : This refers to your letter dated December 2, 1999 requesting on behalf of your clients, Spouses Pacifico B. Tuazon and Eli M. Tuazon and El Patu Property Holdings Corporation, for reconsideration of the assessment requiring your client to pay the amounts of P1,591,871.70 and P278,534.25 representing deficiency documentary stamp tax on Deed of Assignment and Penalties for late payment of documentary stamp tax on stock subscription, respectively, as proposed by the revenue officers of Revenue District No. 44, Taguig and Pateros. In your said letter, you stated that the land subject-matter of the Deed of Assignment of Property in Payment of Subscription executed by and between the abovenamed parties was agricultural in nature with a zonal value of P1,500.00 but was appraised at P1,800.00 per square meter pursuant to the Appraisal Report of a Licensed Real Estate Appraiser; the Deed of Assignment used the fair market value of P1,800.00 per square meter because the parties relied in good faith that the true value of the land in question was the appraised value of P1,800.00 per Appraisal Report which value was higher than the zonal value of P1,500.00 for agricultural lands; that out of the total value of P89,674,200.00 of the property as appearing in the Deed of Assignment, your clients paid the amount of P1,345,113.00 as documentary stamp tax; that the revenue officers of RDO No. 44 computed the value of the said parcel of land at P3,500.00 per square meter pursuant to BIR Ruling No. S40-058-99 and assessed deficiency documentary stamp tax in the amount of P1,591,871.70. LexLib In the same letter, you also requested for the condonation of the surcharge, interest and compromise penalty for the delay in the payment of documentary stamp tax for the subscribed capital of El Patu Property Holdings Corporation. It appears that the SEC approved the incorporation of El Patu Property Holdings Corporation on May 5, 1998; that at that time, the corporation had cash in bank only in the amount of P325,800.00 because the bulk of the investment was the property exchanged by the Spouses Tuazon with shares of El Patu Property Holdings Corporation; that there are two (2) documentary stamp taxes payable, i.e., the 1.5% on the Deed of Assignment in the amount of P1,345,116.00 and the documentary stamp tax of P2.00 for every P200 on the subscribed capital in the amount of P900,000.00; that the company decided to raise money from outside sources and paid first the bigger amount of P1,345,116.00 on July 23, 1998 and subsequently paid on August 17, 1998 the amount of P900,000.00; and that the revenue officers of RDO No. 44 claimed that the DST on the subscribed capital should have been paid at the time of the incorporation of the corporation on June 10, 1998 and accordingly assessed your clients the corresponding penalties in the amount of P248,534.25. In reply please be informed as follows: Section 6(E) of the Tax Code of 1997 provides that for purposes of computing any internal revenue tax, the value of the property shall be whichever is the higher of (1) the fair market value as determined by the Commissioner; or (2) the fair market value as shown in the schedule of values of the Provincial and City Assessors. The zonal value of agricultural lands in Brgy. Ususan, Municipality of Taguig is P2,000.00 per square meter as determined by this Office effective December 12, 1997. Based on documentary evidences submitted by you, there is no doubt that the parcel of land subject-matter of the exchange transaction between the Spouses Tuazon and El Patu Property Holdings Corporation is agricultural and, hence, with a zonal value of P2,000.00 per square meter. Accordingly, portion of BIR Ruling No. S40-058-99 dated June 26, 1999 is hereby modified to read as follows: ". . . that the original or historical cost of acquisition of the said property is P348,733.00 but now said property has zonal valuation of P2,000.00 per sq. m.; xxx xxx xxx This will, therefore, serve as authority for the Revenue District Officer of Taguig-Pateros to recompute the documentary stamp tax due on the Deed of Assignment executed by the Spouses Tuazon transferring a parcel of land covered by the TCT No. 2944 containing an area of 49,819 sq. m. in exchange for shares of stock in El Patu Property Holdings Corporation. Regarding your request for the condonation of surcharge, interest and compromise penalty for late payment by your clients of the documentary stamp tax on the subscribed capital of El Patu Property Holdings Corporation, please be informed that under Sections 248 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 circumstance which justifies the late payment of documentary stamp tax imposed under Section 175 of the Tax Code of 1997 within the time specified in Section 200(B) of the same Code and considering further that you had already paid the amount of P900,000.00 representing the documentary stamp tax on the subscribed capital of El Patu Property Holdings Corporation, your request for the waiver of the surcharge and penalty is hereby granted but not the payment of interest. Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue