Imposition of VAT and Documentary Stamp Tax on Sale and Transfer of Property Clarified

November 24, 1999 BIR RULING NO. 181-99 Sec. 113 (A) (2)-000-00-181-99 Distinction Properties Development and Construction, Inc. Phoenix Heights Condominium Pasig City Attention: Mr . S . G . Del Rosario Vice President Gentlemen : This refers to your letter dated May 24, 1999 which was referred to this office on July 13, 1999 by the Regional Director of Quezon City, requesting for clarification regarding the imposition of VAT and documentary stamp tax on sale and transfer of property. cdll You stated that you are engaged in condominium development and sales; that a buyer of a condominium unit agreed to shoulder the expanded VAT equivalent to 10% of the purchase price; that the buyer has already paid the purchase price but refuses to pay the corresponding VAT amount unless you show an official receipt of the BIR that you have actually paid the VAT; that you informed the buyer that since you are a VAT-registered company, the official receipts issued to him (buyer) are sufficient proof that you are automatically obligated to pay the corresponding VAT on said payments; that the buyer still insists on a proof (official receipt) of actual payment of VAT on his purchase; and that you feel that an authoritative explanation coming from this Office on the VAT principle and reporting system may clarify the issue. You also cited another case wherein a buyer agreed to shoulder the documentary stamp tax to the deed of sale and transfer of title to her name; that for convenience, you advanced the payment of the documentary stamp tax and an official receipt was issued in your name; that the buyer refuses to reimburse the said amount as she demands to present to her an official receipt showing that she (the buyer) and not you (the seller) was the payor of the said documentary stamp tax; that she further claims that she can use such receipt as her own tax credit; and that you informed her that the procedural requirement of the BIR is that payment of the documentary stamp is the liability of the seller and hence, payment is receipted in the name of the seller and not in the buyer's name. In reply, please be informed that Section 113(A)(2) of the Tax Code of 1997, provides that a VAT-registered person shall, for every sale, issue an invoice or receipt showing, in addition to the information required under Section 237, "the total amount which the purchaser pays or is obligated to pay to the seller with an indication that such amount includes the value-added tax . This amendatory provision repealed the option of VAT-registered taxpayers to bill the tax as a separate item in the invoice or receipt. Under Section 1 of Revenue Regulations No. 8-99, all VAT-registered taxpayers who are under Section 237 of the Tax Code of 1997 to issue receipts or sales of commercial invoices are no longer allowed to separately bill the value-added tax corresponding thereto and the amount appearing in the invoice or receipt is thus deemed inclusive of the value-added tax. It must be emphasized herein that the failure or refusal to comply with this requirement is penalized under Section 2 thereof by a fine of not less than P1,000.00 and imprisonment of not less than 2 years but not more than 4 years. Accordingly, the official receipt to be issued to the buyer of your condominium unit need not show the value-added tax passed on by you to the former as part of the contract price, as said tax is deemed included therein. However, the question of whether or not the buyer can require you to show proof that you actually remitted to the BIR the amount of the VAT passed on by you as part of the contract price on the purchase of the condominium unit is a matter which you and the buyer should decide. llcd With regard to the other question, please be informed that Section 173 of the Tax Code of 1997 provides, viz: "SEC. 173. Stamp Taxes Upon Documents, Loan Agreements, Instruments and Papers . Upon documents, instruments, loan agreements and papers, and upon acceptances, assignments, sales and transfer of obligation, right or property incident thereto, there shall be levied, collected and paid for, and in respect of the transaction so had or accomplished, the corresponding documentary stamp taxes prescribed in the following Sections of this Title, by the person making, signing, issuing, accepting, or transferring the same wherever the document is made, signed, issued, accepted or transferred when the obligation or right arises from Philippine sources or the property is situated in the Philippines, and at the same time such act is done or transaction had, Provided, That whenever 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." From the aforequoted provision of the law, it is clear that you, as the seller, is the one liable to pay the documentary stamp tax and not the buyer. In fact, if a deficiency is discovered, we assess you, as the taxpayer and not the buyer. However, it has been held that an agreement such that entered into between a seller and vendee regarding the designation of the party liable to the payment of the documentary stamp tax is legal and proper. (Sta. Clara Lumber Company, Inc. vs. Araas, CTA Case No. 502, June 12, 1959) Such being the case, the liability for the payment of the documentary stamp tax, being an indirect tax, can be shifted to the other party, i.e., the buyer. However, the question of reimbursement of the documentary stamp tax is again a matter to be decided by the parties. Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue