Assignments of Tax Credit Certificates Not Subject to Documentary Stamp Tax

July 29, 1999 BIR RULING NO. 113-99 34 (C), 188-000-00-113-99 Luzon Hydro Corporation 6 th Floor Legaspi Building 110 Legaspi Street 1229 Makati City Attention: Mr . Jose Maria Fernandez Gentlemen : This refers to your letter dated June 30, 1999 stating that Luzon Hydro Corporation (Luzon Hydro) was granted by this Office a tax credit based on the unutilized input taxes reflected in its VAT returns; that such unutilized input taxes are booked as receivables and not as part of the cost of corporate asset; that this grant was by virtue, among others, of BIR Ruling No. DA-248-A-99 dated April 23, 1999; that since the corporation's hydro electric plant is still in the process of construction, Luzon Hydro will not be able to utilize the tax credit until maybe after two years from completion of construction of the hydro electric plant; and that since Luzon Hydro needs cash for its construction, it executed four Deeds of Assignment of the tax credit granted to it in favor of its four (4) affiliates and sister companies which advanced to Luzon Hydro the value of the tax credit assigned to each of such sister companies and affiliates. Based on the foregoing, you request for a ruling on the following: "1) Whether the four (4) deeds of assignment are subject to documentary stamp tax and if it is subject, may we know how much; "2) Whether Luzon is liable to pay income tax as a result of the grant to it of tax credit; "3.) Whether the assignees who be the present holders of the tax credit certificates i.e. Davao Light & Power Company, Inc., Northern Mini Hydro Corporation, Pilmico Foods Corporation, and Hydro Electric Development Corporation are liable for income tax upon the issuance to them of the tax credit certificates." In reply, please be informed that assignments of tax credit certificates are not one among those expressly subjected to documentary stamp tax under Title VII of the Tax Code of 1997. However, the notarial acknowledgment to said deed of assignment is subject to the documentary stamp tax of P15.00 only pursuant to Section 188 of the Tax Code of 1997 (BIR Ruling No. DA-437-98 dated September 25, 1998) On the other hand, Luzon Hydro is not liable to pay income tax as a result of the grant to it of tax credit since VAT which is the source of such tax credit is not eligible as a deduction from gross income under Section 34(C) of the Tax Code of 1997 and it has not been actually utilized as a deduction since it partakes the nature of an excess input. cdll In like manner, the assignees who are the present holders of the tax credit certificates namely: Davao Light & Power Company, Inc., Northern Mini Hydro Corporation, Pilmico Foods Corporation, and Hydro Electric Development Corporation are not liable for income tax upon the issuance to them of the tax credit certificates since they have only accommodated their affiliate or sister company by advancing the value of the tax credit assigned to each of them. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue