Loan Transaction and Security Arrangement of Pilipinas Shell Subj. to Single Payment of DST

October 4, 1993 BIR RULING NO. 389-93 LOAN TRANSACTION AND SECURITY ARRANGEMENT OF PILIPINAS SHELL SUBJ. TO SINGLE PAYMENT OF DST 173, 195 000-00 389-93 Joaquin Cunanan & Co. 8th Floor, BA Lepanto Building 8747 Paseo de Roxas Makati, Metro Manila Attention: Mrs . Tomasa H . Lipana Partner This refers to your letter dated August 31, 1993 requesting confirmation of your opinion that the loan transaction and the "Security Agreement" executed under the circumstances described in your letter shall be subject to payment of documentary stamp tax only once, under Section 195 of the Tax Code, as amended, regardless of the number of registration required to make the said document effective against third parties. cdta It is represented that your client, Pilipinas Shell Petroleum Corporation (PSPC), entered into separate loan agreements with several lending institutions (International Finance Corporation, Exim Lenders represented by Citibank International plc, DEG-Deutsche Investitious-und Entwicklungsgesellschaft mbh, Philippine National Bank, Far East Bank and Trust Company, and Loan Syndicate Lenders represented by the Bank of the Philippine Islands) covering foreign-currency denominated loans in the aggregate amount of US$320 million; that the loans are secured, inter alia ; by a mortgage of practically all the present and future refinery assets of PSPC, consisting of real and personal properties except inventories and stocks in trade; that the transaction is covered by several loan documents denominated as "Security Agreement", a copy of which you have submitted to this Office; that since the Security Agreement involves real and personal properties, the same shall be registered both in the primary entry book and registration book for real estate mortgage and for chattel mortgage (Chattel Mortgage Registry) with the proper Register of Deeds; that both registrations will record the full amount of US$320 million as the amount secured; that on the date of signing of the Security Agreement, i.e. August 27, 1993, PSPC duly paid the documentary stamp tax amounting to P8,937,785.00 which was computed on the basis of the aggregate loan amount of US$320 million or approximately P8.9 billion; that as proof of payment of the said tax, you furnished this Office a copy of the corresponding Authority to Accept Payment No. 810321, duly validated by the Citibank, N.A., Manila. In reply thereto, please be informed that a documentary stamp tax is levied on the document and not on the property which it described (Collector of Internal Revenue vs. Held Lumber, 10 SCRA, 372). Although, it is not intended to be a tax on the document alone. The law taxes the document because of the transaction. This is clearly provided for under Section 173 of the Tax Code, which provides in part, as follows: Sec. 173 Stamp Taxes Upon Documents, Instruments, and Papers. Upon documents, instruments and papers, and upon acceptance, assignments, sales, and transfers of the 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, and at the same time such act is done or transaction had: . . ." (emphasis supplied). Moreover, in the case of mortgage transaction, the same shall be subject to documentary stamp tax to be computed on the basis of the amount of the loan secured pursuant to Section 195 of the Tax Code which reads in part, as follows: Sec. 195. On every mortgage . . . of lands, estate or property, real or personal, heritable or movable, whatsoever, where the same shall be made as a security for the payment of any definite and certain sum of money lent at the time or previously due and owing or forborne to be paid being payable . . ., there shall be collected a documentary stamp tax at the following rates. a] When the amount secured does not exceed five thousand pesos, ten pesos. b] On each five thousand pesos, or fractional part thereof in excess of five thousand pesos, an additional tax of five pesos." On any mortgage, . . ., where the same shall be made as a security for the payment of a fluctuating account or future advances without fixed limits, the documentary stamp tax on such mortgage, . . .shall be computed on the amount actually loaned or given at the time of the execution of the mortgage, . . . . However, if subsequent advances are made on such mortgage, . . ., additional documentary stamp tax shall be paid which shall be computed on the basis of the amount advanced or loaned at the rates specified above: Provided, however, that if the full amount of the loan or credit, granted under the mortgage, pledge or deed of trust is specified in such mortgage , . . . the documentary stamp tax prescribed in this section shall be paid and computed on the full amount of the loan or credit granted ." (emphasis supplied) In view of the foregoing, this Office is of the opinion as it hereby holds that the loan transaction and the Security Agreement entered into between your client, Pilipinas Shell Petroleum Corporation, and the various creditors mentioned above, shall be subject to a single payment of documentary stamp tax based on the aggregate loan amount of US$320 million (approximately P8.9 billion) regardless of the number of registration required (whether for real estate mortgage, chattel mortgage, or otherwise) to make the same effective against the third parties. LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue