Request for Temporary Suspension of RMO No. 8-98 Relative to Corporate Stock Documentary Stamp Tax Program

June 3, 1998 BIR RULING NO. 086-98 175 RMC 47-97 000-00-86-98 Jacinto & Jacinto, CPAs 3rd Floor, Lauremar Building 1458 Newton St., San Isidro Makati City Attention: Mr . Eddie Jacinto Gentlemen : This refers to your letter dated March 7, 1998 addressed to the Honorable Secretary of Finance, Salvador Enriquez, Jr., relative to your comments on Revenue Memorandum Order (RMO) No. 8-98 dated February 10, 1998 on "Corporate Stock Documentary Stamp Tax (DST) Program" as "erroneous, misleading and is an abuse of authority in interpreting the law" and consequently requesting for the temporary suspension of the effectivity of RMO No. 8-98. cdlex In reply thereto, please be informed that the documentary stamp tax on original issues of certificates of stock as provided under Section 175 of the Tax Code of 1997 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. (RMC No. 47-97) The Supreme Court in the case of Commissioner of Internal Revenue vs. Construction Resources of Asia, Inc. and the Court of Tax Appeals (L-68230, November 25, 1986, 145 SCRA 671) held that "the delivery of the certificates of stock to the . . . 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 the shares are issued . . .". Thus, the documentary stamp tax attaches upon acceptance by the corporation of the stockholder's subscription in the capital stock of the corporation, and that the meaning of the term "original issue" of the certificate of stock is the point at which the stockholder acquires and may exercise attributes of ownership over the stocks. The stocks can be alienated; the dividends or fruits derived therefrom can be enjoyed, and they can be conveyed, pledged or encumbered. The certificate, irrespective of whether or not it is in the actual or constructive possession of the stockholder, is considered issued because it is with value and hence the documentary stamp tax must be paid. A person may therefore own shares of stock without necessarily possessing a certificate of stock. (RMC No. 47-97) prcd Moreover, in SEC Opinion dated December 16, 1983 citing 11 Fletcher Cyc. Corp. 5094, it was held that a subscriber for stock in a corporation or purchaser of stock becomes a stockholder as soon as his subscription is accepted by the corporation, whether a certificate of stock is issued to him or not, and although he may have no certificate, he is thereupon entitled to all the rights and is subject to all the liabilities of a stockholder. In view thereof, your request for the temporary suspension of the effectivity of RMO No. 8-98 is hereby denied for lack of legal basis. LLcd Very truly yours, (SGD.) LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue