Request for a Waiver of Payment of Surcharge and Interest for Late Payment of Capital Gains Tax Due

February 5, 1997 BIR RULING NO. 017-97 248 249 000-0 017-97 Universal Molasses Corporation TRB Tower, Roxas Blvd. Pasay City, Metro Manila Attention: Mr . Severino P . Buan, Jr . Authorized Representative Gentlemen : This refers to your letter dated December 26, 1996 requesting for the issuance of a Certificate Authorizing Registration relative to the sale by Universal Molasses Corporation of its 196,000 shares of stock of Eastern Telecommunications (Phil.), Inc. (ETPI) to Smart Communications, Inc. in view of your payment of the capital gains tax on the said transaction on December 24, 1996 in the amount of P41,434,400.00) as well as the letter dated December 20, 1996 of Mr. Andres L. Africa, the authorized representative of Universal Molasses Corporation to Atty. Jaime Concepcion, Revenue District Officer, Revenue District Office No. 33, Intramuros, Manila, requesting in effect for a waiver of the payment of surcharge and interest for late payment of the capital gains tax due on the aforementioned transaction. It is represented that on July 24, 1996 Universal Molasses Corporation sold its 196,000 shares of stock in ETPI in favor of Smart Communications, Inc. for a total consideration of P226,772,000.00; that there was a delay in the payment of the capital gains tax since the sale needs the confirmation of Sandiganbayan (Third Division) under the case entitled "Republic of the Philippines vs. Jose L. Africa, et. al, "Civil Case No. 009; that although the Deed of Absolute Sale was dated July 24, 1996, the seller cannot effect payment of the tax without the order of the Sandiganbayan allowing the entry of said sale in the corporate records of ETPI in accordance with the enclosed "Motion for Entry of Sale in ETPI Stock and Transfer Book" filed on July 31, 1996 by the seller; that if the seller will pay the capital gains tax before the receipt of the Court Order, then it stands to lose a very substantial amount of P41,424,400.00 in the event the court does not grant the said motion; that it was only on December 17, 1996 when the Order was issued by the court granting the said Motion, as shown by the enclosed "Certificate of Entry" dated December 17, 1996 signed by Atty. Lily V. Biton, Acting Clerk of Court III, Third Division, Sandiganbayan; and that it is your opinion, that under the circumstances, the 30 day revenue regulation pertaining to the payment of capital gains tax should commenced to run not from the date (July 24, 1996) of the Deed of Absolute Sale but from date (December 13, 1996) of the Order issued by Sandiganbayan (Third Division) allowing the entry of the sale in the corporate records of ETPI. In connection therewith, you are requesting confirmation of your opinion that under the foregoing circumstances you are not liable for the payment of surcharge and interest for late payment of the capital gains tax on said transaction. In reply thereto, please be informed that by the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent. A contract of sale may be absolute or conditional. (Art. 1458 Civil Code of the Philippines). Moreover, a contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price. From that moment, the parties may reciprocally demand performance, subject to the provisions of the law governing the form of contracts. (Art. 1475 Civil Code of the Philippines). It will be observed that Universal Molasses Corporation and Smart Communications, Inc. entered into a Deed of Absolute Sale of Shares of Stock on July 24, 1996 subject to no condition relative to the "Entry of Sale in the ETPI Stock and Transfer Book" which will affect the sale. Furthermore, under Sections 248 (a)(3) and 249, both of the Tax Code, as amended, 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) aisadc Such being the case, and considering that the capital gains tax on the aforementioned Deed of Absolute Sale of Shares of Stock executed on July 24, 1996 was paid only on December 20, 1996, the seller, Universal Molasses Corporation shall be subject to the payment of surcharge and interest on said transaction pursuant to Sections 248 and 249 both of the Tax Code, as amended. Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue