Request for Issuance of a Tax Debit Memo for the Use of Tax Credit Certificates in Payment of CGT

August 20, 1999 BIR RULING NO. 131-99 131-99 MEMORANDUM TO : Atty. Estrella V . Martinez Head Revenue Executive Assistant (Collection Service) SUBJECT : Ayala Corporation There is returned to you herewith the letter of AYALA CORPORATION dated July 26, 1999 concerning its request for issuance of a TAX DEBIT MEMO (TDM) for the utilization of its Tax Credit Certificates (TCC) in payment of its capital gains tax liability for capital gain derived from sale of share of stock which is not listed and traded through the facilities of the Local Stock Exchange. There is no dispute that Section 204 of the National Internal Revenue Code of 1997 does not permit the use of a TCC in payment of taxpayer's withholding tax liability. However, the capital gains tax due from AYALA'S capital gain from the sale of its share of stock is not embraced by the withholding tax law, the provisions of Section 57 (A), NIRC, to the contrary notwithstanding. Therefore, subject taxpayer may use its TCC in payment of its capital gains tax liability, pursuant to Section 204 of the Code. It is true that Section 57 (A) of the said Code provides that the capital gains tax prescribed under Section 27(D) (2) (i.e., capital gains from the sale of shares of stock not traded in the Stock Exchange) shall be withheld by the payor, thereby implying that this capital tax is in the nature of a withholding tax. However, it is equally true that Section 52 (D) of the said Code also provides that the Seller of such share of stock is required to file a capital gains tax return therefore and to pay the tax due within thirty (30) days from date of sale, as follows: "(D) Return on Capital Gains Realized from Sale of Shares of Stock not Traded in the Local Stock Exchange . Every corporation deriving capital gains from the sale or exchange of shares of stock not traded thru a local stock exchange as prescribed under Sections 24 (C), 25 (A) (3), 27 (E) (2), 28 (A) (8) (c), shall file a return within thirty (30) days after each transaction and a final consolidated return of all transactions during the taxable year on or before the fifteenth (15th) day of the fourth (4th) month following the close of the taxable year." (SEC. 52, (D), NIRC of 1997). The above conflict between Section 57 (A) and 52 (D) of the Code must, therefore, be reconciled and harmonized with the intent of the capital gains tax law as a whole rather than based alone on Section 57 (A) of the said Code, taking into consideration the doctrine enunciated by the Court, as follows: "It is a cardinal rule of statutory construction that courts must give effect to the general legislative intent that can be discovered from or is unravelled by the four corners of the statute, and in order to discover said intent, the whole statute, and not only a particular provision thereof, should be considered. . . . (MANILA LODGE, NO. 761, VS. COURT OF APPEALS, 73 SCRA, Sept. 30, 1976) "The particular words, clauses and phrases should not be studied as detached and isolated expressions, but the whole and every part of the statute must be considered in fixing the meaning of any of its parts and in order to produce harmonious whole. A statute must be so construed as to harmonize and give effect to all its provisions whenever possible. The meaning of the law, it must be borne in mind, is not be extracted from any single part, portion or section or from isolated words and phrases, clauses or sentences but from a general consideration or view of the act as a whole. Every part of the statute must be interpreted with reference to the context. This means that every part of the statute must be considered together with the other parts, and kept subservient to the general intent of the whole enactment, not separately and independently. More importantly, the doctrine associated with words (noscitur a sociis) provides that where a particular word or phrase in a statement is ambiguous in itself or is equally susceptible of various meanings, its true meaning may be made clear and specific by considering the company in which it is found or with which it is associated." (AISPORNA V. COURT OF APPEALS, 113 SCRA 459, April 12, 1982) Since the capital gains tax on capital gains derived from sale of shares of stock not listed and traded in the Local Stock Exchange is computed based on the seller's capital gains, hence, a determination of the seller's deductible cost basis and expenses of sale is necessary in order to compute for his taxable amount of capital gain, and considering that such information is only known to the seller, to the exclusion of the buyer, it follows that the buyer has no means of determining the amount of capital gains tax due from the seller. For this reason, the buyer cannot be in a position to withhold the tax from the seller. cdlex In view thereof, the applicable law on payment of capital gains tax in respect of sales of such share of stock not listed and traded in the local Stock Exchange can only be governed by Section 52 (D) of the Code, in which case, the Seller shall file his capital gains tax return and pay the tax in the manner as provided thereunder. The withholding tax provision under Section 57 (A) of the Code is not applicable thereto. (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue