Smart Communications, Inc. (SMART) Exempt from Payment of Documentary Stamp Tax on Various Documents Executed by it Which are Necessary in the Conduct of the Business Covered by the Franchise

1995 BIR RULING NO. 014-95 117 00-00 014-95 Smart Communication, Inc. 12/F Rufino Pacific Tower 6784 Ayala Avenue Makati, Metro Manila Attention: Atty . Tirso P . Tardecilla Corporate Comptroller Gentlemen : This refers to your letter dated August 3, 1994, requesting confirmation of your opinion that Smart Communications, Inc. (SMART) is exempt from the payment of documentary stamp tax on various documents executed by it which are necessary in the conduct of the business covered by the franchise. It appears that SMART (formerly Smart Information Technologies, Inc.), is a grantee of a legislative franchise under Republic Act No. 7294, to establish, install, maintain, lease and operate integrated telecommunications/computer electronic services, and stations throughout the Philippines for public domestic and international telecommunication. The said Act. which lapsed into law on March 27, 1992 pursuant to Act. VI. Sec. 27(1) of the Constitution, provides in Section 9 thereof or follows: "SEC. 9. Tax Provision . The grantee, its successors or assigns shall be liable to pay the same taxes on their real estate, buildings and personal property, exclusive of this franchise, as other persons on corporations which are now or hereafter may be required by law to pay. In addition thereto, the grantee, its successors of assigns shall pay a franchise tax equivalent to three percent (3%) of all gross receipts of the business transacted under this franchise by the grantee, its successors or assigns and the said percentage shall be in lieu of all taxes on this franchise or earnings thereof; Provided. That the grantee, its successors or assigns shall continue to be liable for income taxes payable under Title M of the National Internal Revenue Code pursuant to Section 2 of Executive Order. No. 72 unless the latter enactment is amended or repealed in which case the amended or repeal shall be applicable thereto. "The grantee shall file the return with and pay the tax due thereon to the Commissioner of Internal Revenue of his duly authorized representative in accordance with the National Internal Revenue Code and the return shall be subject to audit by the Bureau of Internal Revenue." In reply, please be informed that this Office hereby confirms your opinion. The phrase "in lieu of all taxes" declares in effect that SMART, after paying a franchise tax equivalent to 3% of all gross receipts of the business covered by its franchise, may not be required to pay the document stamp tax imposed under Title VII of the Tax Code, as amended by RA No. 7660, on various documents, papers and instruments executed by it which are necessary in the conduct of its business covered by the franchise. This finds support in the case of the Philippine Railway Company vs. William T. Nolting, 34 Phil. 401, whereby the Supreme Court, in upholding the taxpayer's exemption from documentary stamp tax on bills of lading it had issued, ruled that: xxx xxx xxx The phrase "all taxes of every name and nature" is a very inclusive statement, especially when it names, in connection therewith, the only governmental entities who have a right to collect taxes. It is not only all inclusive, but it is also well exceedingly exclusive. It not only includes all payments which may be regarded as taxes, but it excludes everything which might, by any possibility, bees denominated taxes . . .". However, SMART shall remain liable to pay the internal revenue taxes for which it is expressly made liable, i. e. 35% corporate income tax, 20% final withholding tax (FWT) on interest income derived from Philippine currency bank deposits and yield from deposit substitutes, trust funds and similar arrangements, and royalties derived from sources with the Philippines, creditable expanded withholding tax (EWT) on sale, exchange or transfer of real property whether classified as ordinary or capital asset consummated on or after January 1, 1990 and capital gains tax (CGT) on sale, exchange or disposition of shares of stock in any domestic corporation. It may also be stated in this connection, that under Republic Act No. 7716, otherwise known as the Expanded VAT Law, effective on My 28, 1994 (but implementation of which is held pending due to the Temporary Restraining Order of the Supreme Court), SMART shall no longer be subject to the 3% franchise tax on its gross receipts from business covered by the law granting its franchise but to the 10% VAT prescribed under Section 102 of the Tax Code, as amended. Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue