Ecozone Facilities Enterprise Liable to Pay Documentary Stamp Tax on Original Issue of Shares of Stock

March 9, 1999 BIR RULING NO. 027-99 175-000-00-027-99 Mitsui & Co., Ltd. Manila Branch P.O. Box No. 2116 MCPO, Makati Metro Manila Attention: Mr . Cristobal J . Alkuino , Jr . Assistant General Manager Gentlemen : This refers to your letter dated November 6, 1998 requesting for an opinion on whether or not Mitsui Transnet (Philippines) Corporation, an Ecozone Facilities Enterprise, is liable to pay documentary stamp tax on the original issue of its shares of stock to the Corporation's stockholders. LLpr It is represented that by virtue of the exemption from national and local taxes given to an Ecozone Facilities Enterprise under R.A. No. 7916, otherwise known as the Special Economic Zone Act of 1995, i.e., the payment of the five percent (5%) modified gross income in lieu of all national and local taxes, your view is that Mitsui Transnet should be exempted from paying the documentary stamp tax on the original issuance of shares of stock, considering that such tax is a national tax; that, however, the BIR District Office in Calamba holds the view that the corporation should pay the corresponding documentary stamp tax since the imposition of the tax is not related to the registered activity of the corporation. In reply, please be informed that it is a well settled jurisprudence that the documentary stamp tax on original issues of certificates of stock, as provided under Section 175 of the Tax Code, attaches upon acceptance of the stockholder's subscription in the capital stock of a corporation regardless of the physical issuance and delivery to the stockholder of the certificate of stock evidencing his stockholding. Thus, in the case of Commissioner of Internal Revenue vs. Construction Resources of Asia, Inc. and Court of Tax Appeals (L-68230, November 25, 1986, 145 SCRA 671), it has been held that " the delivery of the certificates of stock to . . . stockholders , whether actual or constructive , is not essential for the documentary . . . stamp taxes to attach . What is taxed is the privilege of issuing shares of stock and therefore , the taxes accrue at the time of shares are issued . . ." This view has been further reinforced by the amendatory provision of Republic Act No. 8424, otherwise known as the Tax Reform Act of 1997, as embodied in Section 175 of the Tax Code which effectively replaced the phrase " certificates of stocks " to that of " shares of stocks ". cdlex Relating the aforecited provision of the Tax Code to Section 24 of Republic Act No. 7916 which states that ". . . In lieu of paying taxes , five percent (5%) of the gross income earned by all businesses and enterprises within the Ecozone shall be remitted to the national government . . ." the question now arises as to whether Mitsui Transnet, at the time the liability for the payment of documentary stamp tax accrued, is already considered as an enterprise registered pursuant to R.A. No. 7916, thus, not liable to pay documentary stamp tax on the original issue of its shares to its shareholders. Since the liability for documentary stamp tax on the original issuance of shares by a corporation, as mentioned in the preceding paragraphs, attaches from the moment such corporation accepts subscription from its stockholders which occurs during the incorporation stage of said corporation and naturally prior to its registration with PEZA under R.A. No. 7916, it can not be said, therefore, that at the time the liability of documentary stamp tax accrued, Mitsui Transnet is already a business enterprise operating within the Ecozone, thus, exempt from the payment of the said tax by virtue of the 5% preferential tax rate and the "in lieu" provisions of the said special law. Accordingly, the payment of documentary stamp tax on the original issuance of shares of stock, in this instant case, is a direct liability of Mitsui Transnet, which shall be computed at the rate of Two pesos (P2.00) on each Two hundred pesos (P200) or fractional part thereof, of the par value of such shares, provided, that, in the case of original issue of shares of stock without par value, the amount of documentary stamp tax prescribed in Section 175 of the Tax Code shall be based upon the actual consideration for the issuance of such shares, provided, further, that in the case stock dividends, on the actual value represented by each share. While it may be contended that the sole purpose of incorporating the corporation is for its eventual registration with PEZA with the view of conducting its business operations within the Ecozone and therefore should be accorded an exemption from the payment of documentary stamp tax regardless of the time when the taxable event occurred, Section 173 of the 1997 Tax Code, nevertheless, provides that " whenever one party to the taxable document enjoys exempt from the tax herein imposed , the other party thereto who is not exempt shall be the one directly liable for the tax ." It follows that the payment of documentary stamp tax is not relinquished even if PEZA-registered enterprises are made exempt from its imposition because the same is borne by the other party otherwise not exempt therefrom, which is this particular case, are the subscribers of the shares of stock. We, therefore uphold the opinion of the Revenue District Officer of Calamba in holding that Mitsui Transnet (Philippines) Corporation is liable to pay the documentary stamp tax on the original issue of its shares of stocks. Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue