New Rates on Documentary Stamp Tax on Mortgage Redemption Insurance (MRI) Coverage

January 6, 2004 BIR RULING [DA-006-04] R.A. 6426, as amended by PD 1246; 039-99 Philippine National Bank 9/F PNB Financial Center Pres. Diosdado Macapagal Boulevard 1305 Pasay City Attention: Atty. Benilda V. Abrasia-Tejada SVP and Chief Legal Counsel Gentlemen : This refers to your letter dated October 20, 2003 stating that your clients, Alejandra M. Delovino ("Alejandra") and her late daughter, Ella M. Delovino ("Ella"), opened on January 19, 1996 a joint Dollar Time Deposit account (the "Dollar Account") with the Philippine National Bank (PNB)-Makati Poblacion Branch under the name Alejandra M. Delovino and/or Ella M. Delovino ; that on the same date, both co-depositors signed a Survivorship Agreement wherein they agreed that each of them can withdraw from the Dollar Account to the full amount of the same not only during their lifetime but also after the death of either; that at the time the Dollar Account was opened, Ella was already married to Demosthenes O. Fernandez; that Ella passed away on July 28, 2003; that she is survived by her husband and her son, who is still a minor; that in view of Ella's death, Alejandra, who is now 91 years old, came to the Bank requesting for the release of the outstanding balance of the Dollar Account and the transfer thereof to a new account in her name alone; that further, Alejandra claims that the money deposited in the Dollar Account belongs exclusively to her being her earnings as a babysitter and sewer and those received from the United States government, during her stay in the United States of America; that she further claims that Ella was made a co-depositor to the Dollar Account solely for convenience; that Alejandra is, in effect, claiming ownership over the funds deposited with the PNB; that in support of her claim, Alejandra executed an Affidavit of Sole Ownership; that the Legal Group of PNB advised Alejandra that although she is entitled to receive the outstanding balance of the Dollar Account by virtue of the survivorship agreement, she must first submit to the Bank, among others, a certification from the Bureau of Internal Revenue that the estate tax has been paid or that the estate is exempt from the payment of the said tax in compliance with Section 97 of the National Internal Revenue Code (NIRC) which states in part, viz. : "SEC. 97. Payment of Tax Antecedent to the Transfer of Shares; Bonds or Rights . There shall not be transferred to any new owner in the books of any corporation, sociedad anonima , partnership, business, or industry organized or established in the Philippines any share, obligation, bond or right by the way of gift inter vivos or mortis causa , legacy or inheritance, unless a certification from the Commissioner that the taxes fixed in this Title and due thereon have been paid is shown. If the bank has knowledge of the death of a person, who maintained a bank deposit account alone, or jointly with another, it shall not allow any withdrawal from the said deposit account, unless the Commissioner has certified that the taxes imposed thereon by this Title has been paid; . . . . " and that based on the foregoing, you are requesting for a ruling on whether joint "and" or "and/or" accounts with a valid Survivorship Agreement are still subject to the provisions of Section 97 of the NIRC which requires a BIR Certification that the estate tax has been paid or that the estate is exempt from the payment of said tax considering that in the instant case the surviving co-depositor is claiming complete ownership of the proceeds of the Dollar Account and, therefore, no portion thereof shall form part of the estate of the deceased co-depositor. In reply thereto, please be informed that pursuant to Section 85 of the Tax Code of 1997, the value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated. Moreover, interest on a deposit account maintained by two persons is deemed to be equally owned by them for income tax purposes. The same presumption may likewise apply for estate tax purposes, thus, only half of the balance of the deposit should be reported for estate tax purposes pertaining to the decedent. 1 From the foregoing, it would seem that if there will be no evidence controverting the above presumption, or showing to the effect that the deposit belongs only to one of the persons named in the deposit account then half of the balance of the said deposit shall be included in the gross estate of the deceased co-depositor. In the instant case, it is claimed by the surviving co-depositor, Alejandra M. Delovino, that the above subject dollar account exclusively belongs to her. Thus, with the submission of documents that would substantiate her claim, the entire dollar account shall be declared to be her exclusive property thereby no part of said account shall belong to the deceased co-depositor, Ella M. Delovino-Fernandez. ASEcHI On the other hand, granting that the heirs of the decedent namely, her surviving spouse and her minor child, would adduce evidence to the contrary, still the one-half portion of the balance of the said dollar account shall not be included in the computation of the gross estate of the decedent. Under Section 1 of Presidential Decree (P.D.) No. 1246, amending Section 6 of R.A. 6426, all foreign currency deposits made under the said Act, as amended by Presidential Decree No. 1035, as well as foreign currency deposits authorized under Presidential Decree No. 1034, including interest and all other income or earnings of such deposits, are exempted from any and all taxes whatsoever irrespective of whether or not these deposits are made by residents or non-residents so long as the deposits are eligible or allowed under aforementioned laws and, in the case of non-residents, irrespective of whether or not they are engaged in trade or business in the Philippines. 2 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. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group Footnotes 1. BIR Ruling No. 060-81 dated April 1, 1981. 2. Cited in BIR Ruling No. 039-99.