Liability for Documentary Stamp Tax for a Single Importation of Rice and Corn Covered by a Letter of Credit (LC) and Trust Receipt, and Exemption from Documentary Stamps Tax (DST) on the Negotiation of LC Based on the Import Bill and/or Trust Receipt

July 29, 1997 BIR RULING NO. 084-97 173, 182 000-00 084-97 National Food Authority 101 E. Rodriguez Sr. Avenue Quezon City Attention: Ms . Celia Z . Tan Department Manager Dept . for Treasury, Budget & Fund Management Gentlemen : This refers to your request for a ruling regarding your liability for documentary stamp tax for a single importation of rice and corn covered by a Letter of Credit (LC) and Trust Receipt, and for exemption from the payment of documentary stamps tax (DST) on the negotiation of LC based on the Import Bill and/or Trust Receipt if ruling is proven contrary to NFA's stand. It is represented that National Food Authority (NFA) is an agency of the government authorized to import rice as stop-gap measure to assume food security in times of calamities and stabilize the price and supply of the basic staple including corn, to prevent the recurrence of last year's crisis which contributed to people unrest and to a large extent, double digit inflation; and that in connection with its rice and corn importation, the following steps are involved: 1. Upon signing of contract, NFA requests a bank to open a Letter of Credit (LC) in favor of the supplier or exporter. The LC issued by the bank authorizes the beneficiary to draw a draft or drafts which will be honored by the bank if drawn in accordance with the terms and conditions in the LC. Upon opening of the LC, documentary stamp tax is paid based on the contract value pursuant to Section 182 of the Tax Code, as amended. 2. Upon completion of loading, the beneficiary presents the required documents to the negotiating/paying bank for payment based on the draft presented or import bill corresponding to the value of actual goods shipped. Based on this negotiation of the same LC, DST is again charged by banks pursuant to Section 180 of Revenue Regulations No. 9-94 as basis. 3. If payment is not made within 30 days upon negotiation, the importation cost is charged to the LC-TR line with the bank which is covered by RP guarantee. Based on the Trust Receipt, it is the bank's contention that DST is also due, citing Section 195 of the Tax Code as basis. In reply, please be informed that pursuant to Section 173 of the Tax Code, as amended, a documentary stamp tax is a tax on documents, instruments and papers evidencing the acceptance, assignment, sale or transfer of an obligation right or property incident thereto whereby both the person issuing and the person to whom the document is issued may be made liable for the tax. It is an excise tax because it is really imposed on the privilege to enter into a transaction. In this case, it may seem that there is only one transaction entered by NFA, that is the importation of rice and corn covered by a Letter of Credit for which a documentary stamp tax is levied. It now appears that for a single importation, a series of transactions have to be made by NFA, i.e. opening a Letter of Credit (LC) with the bank for the benefit of its exporter/supplier. The opening of LC is an application for a loan by NFA from the Bank to assure the supplier that the goods to be delivered shall be paid. The issuance of the LC is the approval of the loan. For this transaction, viz, the approval of the loan or opening of a credit line, DST is due and imposable on the document evidencing the transaction, in this case, the LC pursuant to Section 182 of the Tax Code, as amended. The LC issued by the Bank in favor of the supplier/exporter is not the loan itself but an instrument assigning the proceeds to the supplier as payment for the rice and corn delivered by them. The loan contract between NFA and the bank is a real contract, reflected by the delivery of the loan (see Art. 1934, New Civil Code). Upon completion of loading and payment to the supplier, a perfected loan contract arises between NFA and the bank which is consummated upon delivery of rice by the supplier. Upon completion of the loading, the beneficiary-supplier/exporter presents to the negotiating/paying bank for payment based on the draft or import bill corresponding to the actual goods shipped the Letter of Credit thus, a documentary stamp tax is again due and now levied on the same LC pursuant to Section 180 of the Tax Code, as amended. The DST is now levied on the basis of LC being negotiated, and not merely as an evidence of an existing loan. Section 7 of Revenue Regulations 9-94 which provides that where a loan agreement and a promissory note are simultaneously issued and executed, the loan having been secured, only one DST shall be imposed on either document, whichever will yield a higher tax. aisadc On the bases of the foregoing facts and clear provisions of the NIRC, as amended, a documentary stamp tax is levied only once on the following transactions relative to a single importation, viz: opening of a credit line by NFA and approval by the Bank as evidenced by a Letter of Credit; negotiation for payment of the same LC by the beneficiary; and execution of a Trust Receipt in case of non-payment of loan within 30 days from negotiation of LC. Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue