BIR Ruling [UN-172-94]

June 2, 1994 BIR RULING [UN-172-94] Artefacts, Inc. Mezzanine Floor Manila Peninsula Hotel Ayala Avenue, Makati Metro Manila Attention: Ms . Pilar C . Villanueva President SUBJECT : Deficiency Documentary Stamp Tax Assessment in the amount of P30,787 . 80 against Artefacts, Inc . Gentlemen : This refers to your protest letters of various dates regarding the assessment made by this Office against you involving the amounts of P30,787.80, P3,739.98, and P3,269.40 representing deficiency documentary stamp tax, second sales tax, and expanded withholding tax, respectively, inclusive of increments for the taxable year 1985. Records of this case disclosed that Artefacts, Inc. is a merchandiser of home decors, antiques and other art objects; that on January 16, 1989, it was assessed for the taxable year 1985 deficiency documentary stamp tax and second sales tax as per Demand Number 06-521-85B-89-B-2 as well as expanded withholding tax on February 16, 1989 under Assessment Notice No. 002557-85, viz: cdtech (1) Documentary Stamp Tax Capital Stock, Balance, End P3,411,800.00 Less: Balance, Beginning 25,000.00 Increase/Tax Base P3,386,800.00 Basic Tax Computed at (3,386,800/200 x P1.70) P28,787.80 Compromise Penalty 2,000.00 Total Documentary Stamp Tax Due P30,787.80 =========== (2) Second Sales Tax Basic Tax (3%) P1,906.13 25% Surcharge 476.53 Interest 1,257.32 Compromise Penalty & Late Payment 100.00 Tax Due P3,739.98 =========== (3) Expanded Withholding Tax (EWT) Rental 25% Surcharge P1,021.14 Interest 1,848.26 Compromise 400.00 Tax Due P3,269.40 =========== that on June 28, 1990, it paid the amount of P4,723.71 representing its second sales tax obligation as reflected in Confirmation Receipt No. B-20135363; that for the twelve months of the taxable year 1985, it had already paid the aggregate amount of P4,318.62 as expanded withholding taxes, as reflected in the submitted confirmation receipts; that the second sales tax and the EWT having been both paid, the issue at hand is now only confined to the liability of the taxpayer for the deficiency documentary stamp tax; that the basis of the assessed documentary stamp tax is the issuance of 34,118 shares of stock in 1985 amounting to P3,411,800 less the beginning balance of 25,000 shares of stock issued in 1984 amounting to P25,000, which are all clearly reflected in its financial statements for December 31, 1985 and 1984 duly examined and audited by an independent CPA; that this fact, however, was vigorously protested by its Corporate Secretary even to the point of swearing under oath that Artefacts, Inc., has not issued a single certificate of stock to its shareholders since its incorporation on July 26, 1982; and that on May 10, 1990 it filed a waiver of the defense of prescription under the statute of limitations. We would like to answer your protest against the above assessment in the negative. In a recent decision by the Supreme Court, the Highest Tribunal held that the delivery of the certificates of stocks to the (private respondent's) stockholders whether actual or constructive, is NOT ESSENTIAL for the documentary stamp tax to attach . What is taxed is the privilege of issuing shares of stock and, therefore, the taxes accrue at the time the shares are issued . (Commissioner of Internal Revenue vs. Construction Resources of Asia, Inc. and the CTA L-68230, Nov. 25, 1986) (Emphasis and capitalization supplied). Furthermore, the Secretary of Justice, in his Opinion No. 177, series of 1939, has rightly held that the documentary stamp tax prescribed in the subject section of the Tax Code accrues and is collectible at the moment the stocks are paid for by the stockholders . In view of all the foregoing, and considering that your financial statements for the years 1984 and 1985 clearly reflected that you had already issued 34,118 shares of stock in 1985 and 25,000 shares in 1984, your protest against the aforesaid deficiency documentary stamp tax assessment in the total amount of P30,787.80 has to be, as it is hereby denied for lack of legal basis. It is, therefore, requested that you pay the aforesaid amount of P30,787.80 within ten (10) days from your receipt hereof to the Revenue District Officer, Revenue District Office, #47 Makati Metro Manila in order that the case can be considered closed and terminated, otherwise we will be constrained, much to our regret, to enforce collection of the same thru summary remedies as provided for by law. cdtech This constitutes the final decision of the Office in this case. Very truly yours, VICTOR A. DEOFERIO, JR. Acting Commissioner of Internal Revenue