BIR Ruling No. 080-63

October 28, 1963 BIR RULING NO. 080-63 Mr. Jose C. Jose Executive Officer International Department Philippine National Bank Manila S i r : This has reference to your letter dated August 9, 1963, requesting clarification on the proper application of documentary stamp tax on letters of credit, based on the following hypothetical case: LLphil "PNB opened thru Chase Manhattan Bank, New York an import letter of credit for $10,000 for account of a Philippine corporation in favor of an American corporation in New York. The PNB collected documentary stamp tax on the letter of credit based on Section 219 of the NIRC. The Philippine corporation contends that the stamp tax should be collected only when negotiations are made against the credit and not upon the opening of the letter of credit. Q. (I) Is the PNB right in collecting documentary stamp tax? On the negotiation of the letter of credit, necessarily the beneficiary of the credit, the American corporation, will draw their draft for $10,000 on the importer, Philippine corporation, against the letter of credit on which the documentary stamp tax has already been collected. This draft is presented by the American corporation to Chase Manhattan Bank which pays it and debits the account of PNB for the amount of the draft. The draft is then sent to PNB which in turn presents it to the Philippine corporation for payment or acceptance. Q. (2) Should the PNB again collect documentary stamp tax on the draft when this is paid or accepted by the Philippine corporation? Q. (3) If the draft is subject to payment of documentary stamp tax, in effect this would be taxing the letter of credit both at the time of opening and at the time of negotiation. Does this not constitute double taxation? Q. (4) Are documentary stamps tax collected on letters of credit refundable if the letter of credit is not used?" cdpr In reply thereto, I have the honor to inform you that as follows: 1. The PNB is right in collecting the documentary stamp tax upon the opening of the letter of credit. Documentary stamp tax is levied, collected and paid for and in respect of the transaction so had or accomplished, by the person, making, signing, issuing, accepting, or transferring the same, and at the time such act is done or transaction had. (See Section 210, NIRC) The contention of the Philippine corporation that the stamp tax should be collected only when negotiations are made against the credit and not upon opening of the letter of credit, is without any legal basis. 2. The PNB should collect again documentary stamp tax on the craft when it is paid or accepted by the Philippine corporation. 3. It does not constitute double taxation because the letter of credit is a instrument subject to documentary stamp tax under Section 219, while the draft is another instrument subject to documentary stamp tax under Section 218 of the Tax Code. A draft is a negotiable bill of exchange under the Negotiable Instrument Law, hence, it falls under those documents subject to tax under Section 218 of the Tax Code as amplified by Sections 46 and 47 of Finance Regulations No. 26. 4. Taxes are refundable only when they are erroneously or illegally collected. The documentary stamp tax affixed to the unused letter of credit, was collected legally, hence, no refund is allowed. However, internal revenue stamps returned in good condition may be accepted and value thereof, refunded upon the discretion of the Commissioner of Internal Revenue. (See par. 2, Section 309, NIRC) Very truly yours, (SGD.) RAMON T. OBEN Acting Commissioner of Internal Revenue