Whether the Negotiation/Payment of Letters of Credit Applied for by the PNOC for Its Importations of Crude Oil is Subject to Documentary Stamp Tax

February 25, 1991 BIR RULING NO. 032-91 181 000-00 032-91 Gentlemen : This refers to your letter dated May 24, 1990 requesting a ruling as to whether or not the negotiation/payment of letters of credit applied for by the Philippine National Oil Company (PNOC) for its importations of crude oil is subject to documentary stamp tax. cdtech It is represented that PNOC applied for the opening of a letter of credit (L/C) with Standard Chartered Bank, Manila Branch, (Stan Chart Manila) to cover the purchase of about 450,000 barrels of Tapis blend crude oil from Petroliam Nasional Berhad (Petronas) of Malaysia; that Stan Chart Manila issued L/C in the amount of US $10,073,250.00 and Petronas was advised of the L/C opening through Bank Bumiputra Bhd. of Malaysia; that upon issuance of the Letter of Credit, Stan Chart Manila billed PNOC for L/C opening charges which includes a billing for documentary stamp tax in the amount of P341,030.10 pursuant to Section 182 of the Tax Code. On February 2, 1990 Stan Chart Manila dispatched the Letter of Credit to its correspondent bank in Malaysia, Stan Chart Kuala Lumpur. Said letter of credit, designated as Irrevocable Letter of Credit No. 249/0271/90, states that the applicant is PNOC; that Petron is the beneficiary; that a draft will be drawn on said letter of credit thirty (30) days after the date of the bill of lading; that the negotiating (paying) bank will be authorized by Stan Chart Manila to reimburse itself by drawing on Stan Chart Manila's dollar account (Acct. No. 1700594) with Stan Chart New York; and that Petronas, the beneficiary of the L/C, shall be advised through Bank Bumiputra, Kuala Lumpur. In accordance with the terms of the L/C, Petronas shipped the aforesaid quantity of crude oil under a Bill of Lading dated February 9, 1990 which, together with the invoice showing the price of $9,683,651.50, was sent to PNOC by Petronas. Said invoice contains an instruction by Petronas that the full invoice value is to be remitted to Manufacturer's Hanover Trust Co. (Mantrust) New York to the account of Bank Bumiputra, Kuala Lumpur, for credit to the account of Petronas. On March 7, 1990, PNOC advised Stan Chart Manila that the amount of $9,683,651.50 (representing full invoice value of the crude oil) will be remitted on March 12, 1990 by Chemical Bank New York (which extended a loan to PNOC) to Stanchart New York for credit to Stanchart Manila Account No. 1700594. On March 8, 1990, Petronas drew under said L/C a bill of exchange instructing PNOC to pay the amount of $9,683,651.50 to the order of Bank Bumiputra Kuala Lumpur; thus, Stanchart New York remitted the said amount to Bank Bumiputra's dollar account with Mantrust New York; and Bank Bumiputra Kuala Lumpur in turn credited Petronas bank account. The issue whether documentary stamp tax under Section 181 of the Tax Code is to be imposed on the Bill of Exchange drawn by Petronas on March 8, 1990 under the L/C applied by Petron which actually paid it with funds obtained abroad. In reply, please be informed that since the above transaction was already taxed under Section 182 of the Tax Code, the bill of exchange drawn by Petronas abroad instructing PNOC to pay the invoice value of crude oil purchased by the latter to the order of Bank Bumiputra Kuala Lumpur is no longer taxable under Section 181 of the same Code which reads as follows: "Upon any acceptance or payment of any bill of exchange or order for the payment of money purporting to be drawn in a foreign country but payable in the Philippines, there shall be collected a documentary stamp tax of thirty centavos on each two hundred pesos, or fractional part thereof, of the face value of any such bill of exchange, or order, or the equivalent of such value, if expressed in foreign currency." cdta The bill of exchange or letter of credit involved refers to a situation wherein the drawer (PNOC) is in the Philippines, and the drawee-bank is in New York, so that Section 182 was correctly applied and payment of documentary stamp tax made pursuant thereto. Section 181 referring to the reverse situation the drawer is abroad and the drawee or payor is in the Philippines is clearly not applicable in this case. Very truly yours, (SGD.) JOSE U. ONG Commissioner