Correct Basis of Computing the Documentary Stamp Tax

June 13, 2001 BIR RULING NO. 021-01 Roco Buag Kapunan & Migallos Law Offices 16/F Strata 200 Building Emerald Avenue, Pasig City Attention: Attys . Jose Mario C . Buag and Luis Enrico E . Salvador Gentlemen : This refers to your letter dated January 11, 2000 requesting for a clarification on the correct basis of computing the documentary stamp tax imposed under Section 196 of the Tax Code of 1997. It is represented that you obtained two rulings exempting your clients from the payment of the capital gains tax pursuant to Section 40(C)(2) and (6)(c), namely, BIR Ruling Nos. S-40-107-99 and S-40-108-99 both dated June 4, 1999; that the corresponding documentary stamp taxes relative to the transfers of the real properties which are the subject matters of the two rulings, have been paid; that your office received a letter dated October 20, 1999 from Revenue District Officer Beltran A. Dy, RDO No. 43, Pasig City for deficiency tax assessment on the documentary stamp tax paid corresponding to TCT No. 31005 which has a fair market value of P118,230,000.00; and that the deficiency tax assessment amounts to P1,096,737.50. Based on the foregoing, you now request for a clarification as to the correct basis of computing the documentary stamp tax under Section 196 of the Tax Code of 1997. In reply, please be informed that pursuant to Section 196 of the Tax Code of 1997, a conveyance or deed whereby land is assigned or transferred to another person is subject to documentary stamp tax based on the consideration or value received or contracted to be paid for such realty or on its fair market value determined in accordance with Section 6(E) of the same Code, whichever is higher. Such being the case, for purposes of computing the documentary stamp tax under Section 196 of the Tax Code of 1997, the following values shall be used as basis: 1. consideration or value received or contracted to be paid for such realty or; 2. the fair market value of the real property as determined in accordance with Section 6(E) of the Tax Code of 1997, whichever is higher. ASHEca Thus, our rulings on tax-free exchanges provide that the foregoing values shall be interpreted to mean the consideration or the fair market value of the real property as determined in accordance with Section 6(E) of the Tax Code of 1997, whichever is higher. The term "consideration" contemplates the value of the shares of stock received in exchange for the real property/ies transferred. On the other hand, the fair market value of the real property as determined in accordance with Section 6(E) of the Tax Code of 1997 means whichever is the higher of: (a) FMV as determined by the Commissioner, or FMV as shown in the schedule of values of the Provincial or City Assessors. In view of the foregoing, this Office is of the opinion as it hereby holds that the documentary stamp tax under Section 196 of the Tax Code of 1997 in relation to transactions falling under Section 40(C)(2) and (6)(c) of the same Code, shall be computed based on either the value of the shares of stock received or the fair market value of the real property/ies transferred as determined in accordance with Section 6(E) of the Tax Code of 1997, whichever is higher. Please be guided accordingly. Very truly yours, (SGD.) REN G. BAEZ Commissioner of Internal Revenue