Request for Certificate of Exemption from Payment of DST on the Sale of Shares of Stock and Real Property

November 9, 1998 BIR RULING NO. 157-98 173-000-00-157-98 Capitol Development Bank Pacific Place Building Pearl Drive, Ortigas Center Pasig City Attention: Ms . Lili B . Ramirez Gentlemen : This refers to your letter dated September 21, 1998 requesting for a certificate of exemption from the payment of documentary stamp tax on the sale by Capitol Development Bank (CDB) to Rizal Commercial Banking Corporation Savings Bank (RCBCSB) of shares of stock, both listed and not listed in the Philippine Stock Exchange (PSE), and real property covering both existing and future sites with transfer documents dated August 31, 1998 and September 1, 1998, respectively. It is represented that CDB and RCBCSB are both thrift banks organized and existing by virtue of Republic Act No. 7906, otherwise known as "An Act for the Regulation of the Organization and Operations of Thrift Banks and for Other Purposes." In reply, please be informed that Section 17 of R.A No. 7906 provides as follows: "SEC. 17. Tax Exemptions . All thrift banks, whether created or organized under this Act or in operation as of the date of effectivity of this Act, shall be exempt from the payment of all taxes, fees and charges of whatever nature and description, except the corporate income taxes and local taxes, fees and charges for a period of five (5) years, counted from the date of commencement of operations for thrift banks created under this Act and from the date of the effectivity of this Act for existing thrift banks." aisadc Accordingly, inasmuch as RCBCSB commenced its operations on February 27, 1996 as shown in the Certification issued by Mr. Candon B. Guerrero, Director, Department of Thrift Banks and Non-Bank Financial Institutions, Bangko Sentral ng Pilipinas and CDB is already in operation as of the date of the effectivity of R.A. No. 7906 on March 18, 1995, the aforesaid exemptions applies to both banks, for a period of five (5) years from the date of effectivity of R.A. No. 7906 on March 18, 1995 in case of CDB. However, it should be noted that the aforequoted provision of Sec. 17 of R.A No. 7906 shall continue to be in force and effect only until December 31, 1999 pursuant to Sec. 7 of the Tax Reform Act of 1997. Thus, effective January 1, 2000, all thrift banks, whether in operation as of that date or thereafter, shall no longer enjoy that exemptions as provided under Sec. 17 of R.A. No. 7906, thereby subjecting all thrift banks to taxes, fees and charges in the same manner and at the same rate as banks and other financial intermediaries. On the question as to whether or not CDB (seller) or RCBCSB (buyer) is subject to the documentary stamp tax on the sale of the former's share of stock and real property, Section 173 of the Tax Code of 1997 provides that whether one party to the taxable document enjoys exemption from the tax herein imposed, the other party thereto who is not exempt shall be the one directly liable for the tax. Therefore, considering that CDB and RCBCSB are both covered by the tax exemption provided for by R.A. 7906, neither on of them can be held liable for the payment of the documentary stamp tax on the subject sale of the shares of stocks and real properties of CBD to RCBCSB. This exemption, however, does not cover the sale of real property of CDB's future branch sites. aisadc 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