Subic Bay Freeport-registered Enterprises Exempt from Payment of DST on Original Issue of Certificates of Stock

May 28, 1998 BIR RULING NO. 077-98 173; 175-000-00-077-98 Subic Bay Metropolitan Authority SBMA Center, Bldg. 229, Room 201 Waterfront Road, Subic Bay Freeport Zone Attention: Mr . Ferdinand M . Aristorenas Chief Operating Officer Gentlemen : This refers to your letter dated March 6, 1998 requesting for a ruling as to whether or not Subic Bay Freeport (SBF) Registered Enterprises, like SBDMC, Inc. and LKN Management Services PTE, Ltd.,are exempt from the payment of documentary stamp tax on the original issue of certificates of stock to the stockholders. In reply, please be informed that under Section 175 of the Tax Code, as amended by Republic Act No. 7660 (also Section 175, Tax Code of 1997) a documentary stamp tax is imposed on every original issue of a certificate of stock and that is in the nature of an excise tax because it is levied upon the privilege, the opportunity and the facility of issuing the stock certificate. The cost of imposition is borne by the corporation issuing the stock certificate. (Philippine Consolidated Coconut Industries vs. Collector of Internal Revenue, 70 Phil. 24) Accordingly, the payment of documentary stamp tax, in this instant case, is a direct liability of the issuing corporations, i.e., SBMDC, Inc. and LKN Management Services PTE, Ltd., on the original issue of certificates of stock to their respective stockholders. However, since SBF Freeport Registered Enterprises are liable to the preferential tax treatment of 5% of the gross income earned which shall be in lieu of local and national taxes pursuant to Section 12(c) of Republic Act No. 7227, otherwise known as the Bases Conversion and Development Act of 1992, they (SBDMC, Inc. and LKN Management Services PTE, Ltd.) are exempt from the payment of documentary stamp tax on the original issue of stock certificates to their respective stockholders. On the other hand, Section 173 of the Tax Code of 1997, provides that "whenever one party to the taxable document enjoys exemption from the tax herein imposed, the other party thereto who is not exempt shall be the one directly liable for the tax." Accordingly, since SBDMC, Inc. and LKN Management Services PTE, Ltd. are exempt from the documentary stamp tax, their stockholders are the ones directly liable for the tax. LLjur Very truly yours, (SGD.) LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue