ITAD Ruling No. 023-05

March 29, 2005 ITAD RULING NO. 023-05 Article 34, Vienna Convention; Section 173, Tax Code of 1997 Revenue Regs. No. 13-2004 BIR Ruling No. DA-ITAD-55-04 Australian Embassy Level 23 Tower 2, RCBC Plaza 6819 Ayala Avenue, Makati City Attention: Mr. Alan Morrell Minister-Counsellor (Commercial) Gentlemen : This refers to your letter dated December 01, 2004 which was indorsed to this Office by the Office of Protocol, Department of Foreign Affairs, on February 9, 2005, requesting for a ruling on the taxability of the sale of one (1) Makati Sports Club share of stock of the Australian Trade Commission, Australian Embassy to Mr. Brian William Poturnak. It is represented that the Office of the Australian Trade Commissioner, Australian Embassy (ATC) is the owner of one (1) Makati Sports Club, Inc. Class B no par value share of stock evidenced by Stock Certificate No. B 1271, that on September 01, 2004, ATC and Mr. Brian William Poturnak entered into a Deed of Absolute Sale whereby ATC, represented by Senior Trade Commissioner Alan Morrell, sold to the latter the subject no par value share in Makati Sports Club for and in consideration of the amount of Three Hundred Fifty Thousand Pesos (P350,000.00);and that under the Deed of Absolute Sale, ATC obligates itself to pay the capital gains tax, documentary stamp tax and broker's fee arising in the said transaction. In reply, please be informed that Article 34 of the Vienna Convention on Diplomatic Relations, provides, viz : "ARTICLE 34 "A diplomatic agent shall be exempt from all dues and taxes, personal or real, national, regional or municipal, except: "(a) indirect taxes of a kind which are normally incorporated in the price of goods and services: "(b) dues and taxes on private immovable property situated in the territory of the receiving State, unless he holds it on behalf of the sending State for the purposes of the mission; "(c) estate, succession or inheritance duties levied by the receiving State, subject to the provisions of paragraph 4 of Article 39; "(d) dues and taxes on private income having its source in the receiving State and capital taxes on investments made commercial undertakings in the receiving State; "xxx xxx xxx" Based on the aforequoted provision, an embassy is exempt from all Philippine taxes except those specifically excluded supra . In this regard, it is worthy to note that the taxes contemplated in the above includes direct taxes such as but not limited to tax on capital gains and on documentary stamp tax (DST). (BIR Ruling No. DA ITAD-55-04 dated June 3, 2004) In view thereof, the herein capital gains derived from the sale of one (1) share of stock by the Australian Trade Commission of the Australian Embassy is exempt from tax. However, with respect to the DST, Sections 173 and 175 of the Tax Code of 1997, and as implemented by Revenue Regulations No. 13-2004, provides: "SEC. 173. Stamp Taxes Upon Documents, Loan Agreements, Instruments and Papers . Upon documents, instruments, loan agreements and papers, and upon acceptances, 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 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 .(emphasis supplied) "SEC. 175. Stamp Tax on Sales, Agreement to Sell, Memoranda of Sales, Deliveries or Transfer of Shares or Certificates of Stock . On all sales, or agreements to sell, or memoranda of sales, or deliveries, or transfer of shares or certificates of stock in any association, company, or corporation, or transfer of such securities by assignment in blank, or by delivery, or by any paper or agreement, or memorandum or other evidences of transfer or sale whether entitling the holder in any manner to the benefit of such stock, or to secure the future payment of money, or for the fixture transfer of any stock, there shall be collected a documentary stamp tax of Seventy five centavos (P.75) on each Two hundred pesos (P200),or fractional part thereof, of the par value of such stock: Provided, That only one tax shall be collected on each sale or transfer of stock or securities from one person to another, regardless of whether or not a certificate of stock or obligation is issued, indorsed, or delivered in pursuance of such sale or transfer: and Provided, further, That in the case of stock without par value the amount of the documentary stamp tax herein prescribed shall be equivalent to twenty-five percent (25%) of the documentary stamp tax paid upon the original issue of said stock .(emphasis supplied) Based on the above, a DST is imposed on the deed of sale of shares of stock at the rate equivalent to 25% of the DST paid upon the original issue of said no par value stock. It is noteworthy that Section 173 of the Tax Code of 1997 provides 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. Accordingly, and since the Australian Embassy is exempt from direct taxes, the other party to the subject sale, Mr. Brian Poturnak, shall be liable for the payment of the same. cTEICD This ruling is issued on the basis of the facts as represented. However, if upon investigation it shall be disclosed that the facts are different, then this ruling shall be without force and effect insofar as the herein parties are concerned. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group