Request for Waiver of Surcharge, Interest and Other Penalties Imposed for Late Filing and Payment of CGT and DST

November 18, 1998 BIR RULING NO. 162-98 000-00-162-98 SGV & Co. 6760 Ayala Avenue Makati City Attention: Atty . C . P . Noel Gentlemen : This refers to your letter dated July 10, 1997 requesting on behalf of your client, China Banking Corporation (China Bank), for waiver of the surcharge, interest and other penalties imposed for late filing and payment of the capital gains tax and documentary stamp tax relative to the sale of its shares of stock in Bonifacio Land Corporation (BLC). It is represented that China Bank is a commercial banking corporation duly organized and existing under the laws of the Philippines with principal office address at 8745 Paseo de Roxas, Makati City; that China Bank owned 1,240,381 shares of stock in BLC with a par value of P100.00 per share and covered by Stock Certificate Nos. 102, 099, 058 and 021; that on February 23, 1996, China Bank entered into an Assignment Agreement with Metro Pacific Corporation, a corporation duly organized and existing under and by virtue of the laws of the Philippines with principal office address at 42/F Rufino Pacific Tower, Ayala Avenue corner Herrera St., Makati City; that China Bank assigned its shares in BLC for the amount of P567,000,574.13 thereby realizing a taxable gain in the amount of P70,003,700.13; that China Bank erroneously subjected the gain from the said sale to the 35% income tax instead of the 10% and 20% capital gains tax as reflected its first quarter 1996 income tax return; that said gain was reflected in the bank's annual income tax return as part of the gross income; that was no intent on the part of China Bank to evade the payment of the tax, for income taxes were paid on the gain from the sale of the shares at a much higher rate; and that there was no prejudice caused to the government as the taxes were collected by the government and at a higher rate than that which was due. In reply, please be informed that since the gain realized by China Bank from the said sale has already been reflected in its first quarter 1996 income tax return in the year of sale and was subjected to the 35% income tax, which is more than the 10%/20% capital gains to be paid, and inasmuch as the said basic capital gains tax in the amount of P14,080,740.00 and basic documentary stamp tax in the amount of P1,162,875.19 had been paid by China Bank on August 21, 1997 bearing Official Receipt Nos. 05593 and 05587, respectively, this Office has decided to forego the imposition of the 25% surcharge and compromise penalties on the basic capital gains tax in the amount of P3,497,685.00 prescribed under Section 248(a)(3) and (b) of the Tax Code (now Section 248(A) (3) and (B) of the Tax Code of 1997). However, it shall be subject to the corresponding interest that have accrued thereon up to the time of payment of the capital gains tax and documentary stamp tax imposed under Section 249 of the same Code. It is of course understood that the acceptance by the Bureau of your client's payment of the aforesaid total amount of P14,080,740.00, representing the basic capital gains tax, does not preclude us from conducting an investigation/verification of your client's tax liability for the year 1996 and for issuing an assessment notice against it if it is found out that there is a deficiency in the payments made. However, your request for the waiver of surcharge and penalties for the late payment of the documentary stamp tax is hereby denied for lack of legal basis. 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. prLL Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue