Saint Louis University

Baguio City, Philippines

A Paper on Documentary Stamp Tax for

Taxation 2

__________________

In Partial Fulfilment of the Requirements

for the Degree of

Bachelor of Laws

__________________

By

Lyndon J. Cena

2015-07-14

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DOCUMENTARY STAMP TAX

Table of Contents

I. IN GENERAL .................................................................................................................................. 3 II. TRANSACTIONS/DOCUMENTS SUBJECT TO DOCUMENTARY STAMP TAX .. 5

a. Original Issuance of Shares, Sec. 174, NIRC, as amended by Rep. Act No. 9243 ....................... 5 b. Transfer of Shares Sec. 175, NIRC, as amended by Rep. Act No. 9243 ...................................... 6 c. Foreign-Issued Bonds, Debentures, Shares or Certificates of Indebtedness, and Other Instruments, Sec. 176, NIRC .......................................................................................................................... 6 d. Issue and Transfer of Certificate of Interest in Property or Accumulations Sec. 177, NIRC . 7 e. Bank Checks, Drafts, Certificates of Deposit not Bearing Interest Sec. 178, NIRC ................... 7 f. Debt Instruments Sec. 179, NIRC, as amended by Rep. Act No. 9243 ........................................... 8 g. Bills of Exchange or Drafts Sec. 180, NIRC, as amended by Rep. Act No. 9243 ........................ 8 h. Acceptance of Foreign-Drawn Bills of Exchange Sec. 181, NIRC ............................................... 10 i. Foreign Bills of Exchange and LCs Sec. 182, NIRC ......................................................................... 10 j. Life Insurance Policies Sec. 183, NIRC, as amended by Rep. Act No. 9243 ............................... 10 k. Non-Life Insurance Policies Sec. 184, NIRC ..................................................................................... 11 l. Fidelity Bonds and Other Insurance Policies Sec. 185, NIRC ........................................................ 11 m. Annuities and Pre-Need Plans Sec. 186, NIRC, as amended by Rep. Act No. 9243 ................ 11 n. Indemnity Bonds Sec. 187, NIRC ........................................................................................................ 12 o. Certificates Sec. 188, NIRC ................................................................................................................... 12 p. Warehouse Receipts Sec. 189, NIRC .................................................................................................. 12 q. Jai-Alai, Horse Race, Lotto, etc. Sec. 190, NIRC ............................................................................ 12 r. Bills of Lading or Receipts Sec. 191, NIRC ....................................................................................... 13 s. Proxies Sec. 192, NIRC ........................................................................................................................... 13 t. Powers of Attorney Sec. 193, NIRC ..................................................................................................... 13 u. Leases of Real Property Sec. 194, NIRC ............................................................................................ 13 v. Mortgages, Pledges and Deeds of Trust Sec. 195, NIRC ................................................................ 13 w. Deed of Sale of Real Property Sec. 196, NIRC ................................................................................. 14 x. Charter Party and Similar Instruments Sec. 197, NIRC ............................................................... 16 y. Assignment, Transfer, and Renewal of Certain Instruments Sec. 198, NIRC ........................... 17

III. TRANSACTIONS/DOCUMENTS NOT SUBJECT TO DOCUMENTARY STAMP TAX, Sec. 199, NIRC, as amended by Rep. Act No. 9243 ........................................................... 17 IV. PAYMENT OF DOCUMENTARY STAMP TAX, Sec. 200, NIRC .............................. 19 V. EFFECT OF NON-PAYMENT OF DOCUMENTARY STAMP TAX, Sec. 201, NIRC 20

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DOCUMENTARY STAMP TAX

I. IN GENERAL

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 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 who is not exempt shall be the one directly liable for the tax.

The documentary stamp tax is an excise tax levied on documents, instruments, loan

agreements and papers evidencing the acceptance, assignment, sale or transfer of an

obligation, rights, or property incident thereto. The amount of tax is either fixed or based on

the par or face value of the document or instrument.

The person making, signing, issuing, accepting or transferring the documents pays

the tax. However, whenever one party to the taxable document enjoys exemption from the

tax, the other party thereto who is not exempt shall be the one directly liable for the tax.

Except as otherwise provided by rules and regulations, the tax return shall be filed

and the tax due shall be paid at the same time within 10 days after the close of the month

when the taxable document was signed, issued, accepted or transferred. In lieu of the

foregoing, the tax may be paid either through purchase of documentary stamp tax stamp and

actual affixture, or by imprinting a secured stamp on the taxable document through the web-

based Electronic Documentary Stamp Tax (eDST) System.

Failure to stamp a taxable document shall not invalidate the same. However, it shall

not be recorded (i.e. in the Registry of Deeds) or admitted or used as evidence in any court

until the requisite stamp is affixed thereto and cancelled. Furthermore, no notary or other

officer authorised to administer oaths shall add his jurat or acknowledgment to the document

unless the proper documentary stamp is affixed thereto and cancelled.

In the case of COMMISSIONER OF INTERNAL REVENUE, v. HEALD

LUMBER COMPANY1, a documentary stamp tax is in the nature of an excise tax. It is not

imposed upon the business transacted but is an excise upon the privilege, opportunity or

facility offered at exchanges for the transaction of the business. It is an excise upon the

1 G.R. No. L-16340, February 29, 1964; 10 SCRA 372

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facilities used in the transaction of the business separate and apart from the business itself.

With respect to stock certificates, it is levied upon the privilege of issuing them; not on the

money or property received by the issuing company of certificates. Neither is it imposed

upon the share of stock. As Justice Learned Hand pointed out in one case, documentary

stamp tax is levied on the document and not on the property, which it described.

In the case of MICHEL J. LHUILLIER PAWNSHOP, INC., v.

COMMISSIONER OF INTERNAL REVENUE2, a documentary stamp tax is essentially

an excise tax; it is not an imposition on the document itself but on the privilege to enter into a

taxable transaction of pledge.

Section 195 of the National Internal Revenue Code (NIRC) imposes a documentary

stamp tax on every pledge regardless of whether the same is a conventional pledge governed

by the Civil Code or one that is governed by the provisions of P.D. No. 114. All pledges are

subject to documentary stamp tax, unless there is a law exempting them in clear and

categorical language. This explains why the Legislature did not see the need to explicitly

impose a documentary stamp tax on pledges entered into by pawnshops. Section 195 already

covers these pledges and to create a separate provision especially for them would be

superfluous.

Then too, it is the exercise of the privilege to enter into an accessory contract of

pledge, as distinguished from a contract of loan, which gives rise to the obligation to pay

documentary stamp tax. If the documentary stamp tax under Section 195 were levied on the

loan or the exercise of the privilege to contract a loan, then there would be no use for Section

179 of the NIRC, to separately impose stamp tax on all debt instruments, like a simple loan

agreement. It is for this reason why the definition of pawnshop ticket, as not an evidence of

indebtedness, is inconsequential to and has no bearing on the taxability of contracts of pledge

entered into by pawnshops. For purposes of Section 195, pawnshop tickets need not be an

evidence of indebtedness nor a debt instrument because it taxes the same as a pledge

instrument. Neither should the definition of pawnshop ticket, as not a security, exempt it

from the imposition of documentary stamp tax. It was correctly defined as such because the

ticket itself is not the security but the pawn or the personal property pledged to the

pawnbroker. The fact that the entries contained in a pawnshop ticket spell out a contract of

pledge and that the exercise of the privilege to conclude such a contract is taxable under

Section 195 of the NIRC.

In both cases, the Supreme Court ruled that documentary stamp tax is an excise tax,

thus it is neither a tax on the property itself nor a tax on the document itself. Rather, it levied

on documents, instruments, loan agreements and papers evidencing the acceptance,

assignment, sale or transfer of an obligation, rights, or property incident thereto.

The difference between the two cases, is that in COMMISSIONER OF 2 CIR, G.R. No. 166786, May 3, 2006

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INTERNAL REVENUE, v. HEALD LUMBER COMPANY, the petitioner is not liable

for the additional documentary stamp tax on the surplus capital because the Tax Code only

imposed documentary stamp tax on the original issues of no par value certificates of stock.

Documentary stamp tax is an excise upon the privilege, opportunity or facility offered at

exchanges for the transaction of the business. It is an excise upon the facilities used in the

transaction of the business separate and apart from the business itself. Whereas in MICHEL

J. LHUILLIER PAWNSHOP, INC., v. COMMISSIONER OF INTERNAL

REVENUE, the Supreme Court ruled that the NIRC and P.D. No. 114 did not exclude

pledges from the imposition of documentary stamp tax and emphasised that documentary

stamp tax is not imposed on the pledge ticket but on the on the privilege to enter into a

taxable transaction of pledge.

II. TRANSACTIONS/DOCUMENTS SUBJECT TO DOCUMENTARY STAMP TAX

a. Original Issuance of Shares, Sec. 174, NIRC, as amended by Rep. Act No. 9243

SEC. 174. Stamp Tax on Original Issue of Shares of Stock. - On every

original issue, whether on organisation, reorganisation or for any lawful purpose, of

shares of stock by any association, company or corporation, there shall be collected a

documentary stamp of One peso (1.00) on each Two hundred pesos (200), or

fractional part thereof, of the par value, of such shares of stock: Provided, That in the

case of the original issue of shares of stock without par value, the amount of the

documentary stamp tax herein prescribed shall be based upon the actual

consideration for the issuance of such shares of stock: Provided, further, That in the

case of stock dividends, on the actual value represented by each share.

As mentioned in the case of COMMISSIONER OF INTERNAL

REVENUE, v. HEALD LUMBER COMPANY, the respondent corporation in a

resolution transferred the surplus available for dividends from its subscription of

stocks with no par value to its capital account. The Supreme Court ruled that the

basis for the documentary stamp tax on certificates of stocks without par value shall

only be the actual consideration received by the corporation at the time of the

original issuance of the certificates. Thus, additional considerations, which may be

received therefor in the future, are neither of any consequence.

Therefore, as is apparent from the foregoing discussion, that the tax in

question imposed on the privilege of issuing certificates, then the tax may be

collected only once: when the certificates are first or originally issued. The reason is

because a certificate is issued only once. Whatever documentary tax due is due, at

that time.

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b. Transfer of Shares Sec. 175, NIRC, as amended by Rep. Act No. 9243

SEC. 175. Stamp Tax on Sales, Agreements 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 future transfer of any stock, there shall be collected a documentary stamp tax

of Seventy-five-centavos (75) on each Two hundred pesos (200), 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 from one person to another, regardless of whether or

not a certificate of stock 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 per cent (25%) of the documentary stamp tax paid upon the original issue

of said stock.

Compagnie Financiere Sucres et Deneres v. COMMISSIONER OF

INTERNAL REVENUE3, petitioner corporation transferred its eight per cent (8%)

equity interest in the Makati Shangri-La Hotel and Resort, Incorporated to Kerry

Holdings Ltd., as shown by a Deed of Sale and Assignment of Subscription and

Right of Subscription. Petitioner paid the documentary stamps tax and capital gains

tax on the transfer under protest. Petitioner then, filed with the Commissioner of

Internal Revenue, herein respondent, a claim for refund of overpaid capital gains and

overpaid documentary stamps taxes. Petitioner alleged that the transfer of deposits on

stock subscriptions is not a sale/assignment of shares of stock subject to documentary

stamps tax and capital gains tax.

The Supreme Court Ruled that based on Section 176 of the National Internal

Revenue Code, assignment of deposit on stock subscriptions is subject to

documentary stamp tax and capital gains tax wherein it provided that, sales to secure

the future transfer of due-bills, certificates of obligation or certificates of stock are

liable for documentary stamp tax.

c. Foreign-Issued Bonds, Debentures, Shares or Certificates of Indebtedness, and Other Instruments, Sec. 176, NIRC

SEC. 176. Stamp Tax on Bonds, Debentures, Certificate of Stock or

Indebtedness Issued in Foreign Countries. On all sales, or agreements to sell, or

memoranda of sale, or deliveries, or transfer of due-bills, certificates of obligation, or

shares of certificates of stock in any association, company, or corporation, or transfer 3 G.R. No. 133834, August 28, 2006

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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 due-bills, certificates of obligation or

stock, or to secure the future payment of money, or for the future transfer of any due-

bill, certificate of obligation or stock, there shall be collected a documentary stamp

tax of One peso and fifty centavos (1.50) on each Two hundred pesos (200) or

fractional part thereof, of the par value of such due-bill, certificate of obligation or

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 documentary stamp tax herein prescribed shall be equivalent to twenty-

five per cent (25%) of the documentary stamp tax paid upon the original issue of said

stock.

Simply put, the tax rate for securities issued outside the Philippines shall be

1.50 per 200.00 or less. The documentary stamp tax shall be imposed on every

single sale or transfer of the said securities from one person to another.

In cases of stocks without par value the documentary stamp tax shall be

twenty-five per cent (25%) of the documentary stamp tax paid upon the original issue

of said stock.

In sum, every time a security is sold or transferred, documentary stamp tax is

imposed.

d. Issue and Transfer of Certificate of Interest in Property or Accumulations Sec. 177, NIRC

SEC. 177. Stamp Tax on Bonds, Debentures, Certificate of Stock or

Indebtedness Issued in Foreign Countries. On all bonds, debentures, certificates

of stock, or certificates of indebtedness issued in any foreign country, there shall be

collected from the person selling or transferring the same in the Philippines, such as

tax as is required by law on similar instruments when issued, sold or transferred in

the Philippines.

e. Bank Checks, Drafts, Certificates of Deposit not Bearing Interest Sec. 178, NIRC

SEC. 178. Stamp Tax on Certificates of Profits or Interest in Property or

Accumulations. On all certificates of profits, or any certificate or memorandum

showing interest in the property or accumulations of any association, company or

corporation, and on all transfers of such certificates or memoranda, there shall be

collected a documentary stamp tax of Fifty centavos (50) on each Two hundred

pesos (200), or fractional part thereof, of the face value of such certificate or

memorandum.

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f. Debt Instruments Sec. 179, NIRC, as amended by Rep. Act No. 9243 SEC. 179. Stamp Tax on Bank Checks, Drafts, Certificates of Deposit not

Bearing Interest, and Other Instruments. On each bank check, draft, or

certificate of deposit not drawing interest, or order for the payment of any sum of

money drawn upon or issued by any bank, trust company, or any person or persons,

companies or corporations, at sight or on demand, there shall be collected a

documentary stamp tax of One peso and fifty centavos (1.50).

In BANCO DE ORO UNIVERSAL BANK v. COMMISSIONER OF

INTERNAL REVENUE4, a time deposit transaction is covered by a certificate of

deposit while petitioner's Investment Savings Account transaction is through a

passbook. Despite the differences in the form of the documents, the CTA en banc

ruled that a time deposit and Investment Savings Account have essentially the same

attributes and features. Like time deposit, Investment Savings Account transactions

bear a fixed term or maturity because the bank acknowledges receipt of a sum of

money on deposit, which the bank promises to pay the depositor, bearer, or to the

order of a bearer on a specified period of time. Section 180 of the 1997 NIRC does

not prescribed the form of a certificate of deposit. It may be any "written

acknowledgement by a bank of the receipt of money on deposit." The definition of a

certificate of deposit is all encompassing to include a savings account deposit such as

ISA. (Emphasis supplied)

In, BELLE CORPORATION v. COMMISSIONER OF INTERNAL

REVENUE 5, the inter-company advances evidenced by inter-office memorandum,

vouchers, or board resolutions are not in the nature of a promissory note. The law

seeks to impose documentary stamp tax on loan agreements, promissory notes, bills

of exchange, drafts, instruments and securities issued by the government or any of its

instrumentalities or certificates of deposits drawing interest and others not payable on

sight or demand. Inter- office memoranda, board resolutions and cash vouchers were

not included in the list thus, they are not liable to documentary stamp tax.

g. Bills of Exchange or Drafts Sec. 180, NIRC, as amended by Rep. Act No. 9243 SEC. 180. Stamp Tax on All Bonds, Loan Agreements, promissory Notes,

Bills of Exchange, Drafts, Instruments and Securities Issued by the Government or

Any of its Instrumentalities, Deposit Substitute Debt Instruments, Certificates of

Deposits Bearing Interest and Others Not Payable on Sight or Demand. On all

bonds, loan agreements, including those signed abroad, wherein the object of the

contract is located or used in the Philippines, bills of exchange (between points

within the Philippines), drafts, instruments and securities issued by the Government

or any of its instrumentalities, deposit substitute debt instruments, certificates of

deposits drawing interest, orders for the payment of any sum of money otherwise

than at sight or on demand, on all promissory notes, whether negotiable or non- 4 G.R. 173602, January 15, 2007 5 CTA Case No. 6156, October 16, 2006

9

negotiable, except bank notes issued for circulation, and on each renewal of any such

note, there shall be collected a documentary stamp tax of Thirty centavos (30) on

each Two hundred pesos (200), or fractional part thereof, of the face value of any

such agreement, bill of exchange, draft, certificate of deposit, or note: Provided, That

only one documentary stamp tax shall be imposed on either loan agreement, or

promissory notes issued to secure such loan, whichever will yield a higher tax:

Provided, however, That loan agreements or promissory notes the aggregate of which

does not exceed Two hundred fifty thousand pesos (250,000) executed by an

individual for his purchase on instalment for his personal use or that of his family

and not for business, resale, barter or hire of a house, lot, motor vehicle, appliance or

furniture shall be exempt from the payment of the documentary stamp tax provided

under this Section.

As ruled by the CTA in BELLE CORPORATION v. COMMISSIONER

OF INTERNAL REVENUE6, documentary stamp tax is an excise tax upon

documents, instruments, loan agreements and papers, and upon acceptances,

assignments, sales and transfers of the obligation, right or property incident thereto.

As held by the Supreme Court in the case of Philippine Home Assurance

Corporation, et. al. v. Court of Appeals, 301 SCRA 447, "documentary stamp taxes

are levied on the exercise by persons of certain privileges conferred by law for the

creation, revision, or termination of specific legal relationship through the execution

of specific instruments." Since board resolutions and cash vouchers do not partake

the nature, the elements and the form of any of the specific instruments mentioned in

the law, they are not therefore subject to documentary stamp tax.

A promissory note is an unconditional promise in writing made by one person

to another, signed by the maker, engaging to pay on demand, or a fixed or

determinable future time, a sum certain in money to such other person or to bearer,

free from restrictions as to registration or transfer, and usually without coupons. It

also refers to an instrument, whether negotiable or non- negotiable, whereby the maker agrees to pay a sum certain in money or its equivalent at a definite time.

There is nothing in Section 180 that clearly and expressly declares inter-office

memorandum covering inter-company advances made by BELLE to its affiliates

making it subject to documentary stamp taxes. Section 18 seeks to impose

documentary stamp tax on loan agreements, promissory notes, bills of exchange,

drafts, instruments and securities issued by the government or any of its

instrumentalities or certificates of deposits drawing interest and others not payable on

sight or demand. Inter- office memoranda, board resolutions and cash vouchers were

not included in the list thus, they are not liable to documentary stamp taxes.

6 ibid

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h. Acceptance of Foreign-Drawn Bills of Exchange Sec. 181, NIRC SEC. 181. Stamp Tax Upon Acceptance of Bills of Exchange and Others.

Upon any acceptance or payment of any bill of exchange or order for the payment of

money purporting to be drawn in a foreign country but payable in the Philippines,

there shall be collected a documentary stamp tax of Thirty centavos (30) on each

Two hundred pesos (200), or fractional part thereof, of the face value of any such

bill of exchange, or order, or the Philippine equivalent to such value, if expressed in

foreign currency.

i. Foreign Bills of Exchange and LCs Sec. 182, NIRC SEC. 182. Stamp Tax on Foreign Bills of Exchange and Letters of Credit.

On all foreign bills of exchange and letters of credit (including orders, by telegraph

or otherwise, for the payment of money issued by express or steamship companies or

by any person or persons) drawn in but payable out of the Philippines in a set of three

(3) or more according to the custom of merchants and bankers, there shall be

collected a documentary stamp tax of Thirty centavos (30) on each Two hundred

pesos (200), or fractional part thereof, of the face value of any such bill of exchange

or letter of credit, or the Philippine equivalent of such face value, if expressed in

foreign currency.

j. Life Insurance Policies Sec. 183, NIRC, as amended by Rep. Act No. 9243 SEC. 183. Stamp Tax on Life Insurance Policies. - On all policies of

insurance or other instruments by whatever name the same may be called, whereby

any insurance shall be made or renewed upon any life or lives, there shall be

collected a documentary stamp tax of Fifty centavos (50) on each Two hundred

pesos (200), or fractional part thereof, of the amount insured by any such policy.

The Philippine Life Insurance Association (PLIA) sought reconsideration of

the policy regarding the collection of documentary stamp tax on life insurance

policies, which is being done every time the premium is paid by the insured.

According to the PLIA, there is only one documentary stamp tax (which is now

based on the premium) due on the entire life insurance policy and the amount of

documentary stamp tax should be based on the initial premium collected. Therefore,

subsequent payments of the portion of the premium should not be subject to

documentary stamp tax anymore. The BIR ruled that the law simply provides that

the documentary stamp tax shall be based on the amount of premium collected. The

BIR interpreted this to mean that each time a premium is collected, documentary

stamp tax will be paid. The premium may be payable annually or on instalment,

thus, in the case of payment by instalment, each time a portion of the premium is

paid, documentary stamp tax will be imposed thereon7.

7 BIR Ruling No. DA-182-2005, April 20, 2005

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k. Non-Life Insurance Policies Sec. 184, NIRC SEC. 184. Stamp Tax on Policies of Insurance Upon Property. On all

policies of insurance or other instruments by whatever name the same may be called,

by which insurance shall be made or renewed upon property of any description,

including rents or profits, against peril by sea or on inland waters, or by fire or

lightning, there shall be collected a documentary stamp tax of Fifty centavos (50) on

each Four pesos (4.00), or fractional part thereof, of the amount of premium

charged: Provided, however, That no documentary stamp tax shall be collected on

reinsurance contracts or on any instrument by which cession or acceptance of

insurance risks under any reinsurance agreement is effected or recorded.

In the case of the Philippine corporations branch in Hong Kong, the property

insurance policies issued by the said Hong Kong branch will be subject to

documentary stamp tax imposed under Section 14 of the Tax Code, even if such

policies are signed or issued abroad, for as long as the properties which are the object

of insurance are situated in the Philippines. Conversely, where the property is

situated outside the Philippines, the documentary stamp tax imposed on property

insurance under Section 184 will not apply8.

l. Fidelity Bonds and Other Insurance Policies Sec. 185, NIRC SEC. 185. Stamp Tax on Fidelity Bonds and Other Insurance Policies.

On all policies of insurance or bonds or obligations of the nature of indemnity for

loss, damage or liability made or renewed by any person, association, company or

corporation transacting the business of accident, fidelity, employers liability, plate,

glass, steam, boiler, burglar, elevator, automatic sprinkler, or other branch of

insurance (except life, marine, inland, and fire insurance), and all bonds,

undertakings, or recognisances, conditioned for the performance of the duties of any

office or position, for the doing or not doing of anything therein specified, and on all

obligations guaranteeing the validity or legality of any bond or other obligations

issued by any province, city, municipality, or other public body or organisation, and

on all obligations guaranteeing the title to any real estate, or guaranteeing any

mercantile credits, which may be made or renewed by any such person, company or

corporation, there shall be collected a documentary stamp tax of Fifty centavos (50)

on each Four pesos (4.00), or fractional part thereof, of the premium charged.

m. Annuities and Pre-Need Plans Sec. 186, NIRC, as amended by Rep. Act No. 9243

SEC. 186. Stamp Tax on Policies of Annuities and Pre-Need Plans. - On all

policies of annuities, or other instruments by whatever name the same may be called,

whereby an annuity may be made, transferred or redeemed, there shall be collected a

documentary stamp tax of One peso and fifty centavos (1.50) on each Two hundred

pesos (200) or fractional part thereof, of the capital of the annuity, or should this be 8 BIR Ruling No. DA-288-2005, June 27, 2005

12

unknown, then on each Two hundred (200) pesos, or fractional part thereof, of

thirty-three and one-third (33) times the annual income.

On pre-need plans, the documentary stamp tax shall be Fifty centavos (50) on

each Five hundred pesos (500), or fractional part thereof, of the value or amount of

the plan.

n. Indemnity Bonds Sec. 187, NIRC SEC. 187. Stamp Tax on Indemnity Bonds. On all bonds for indemnifying

any person, firm or corporation who shall become bound or engaged as surety for the

payment of any sum of money or for the due execution or performance of the duties

of any office or position or to account for money received by virtue thereof, and on

all other bonds of any description, except such as may be required in legal

proceedings, or are otherwise provided for herein, there shall be collected a

documentary stamp tax of Thirty centavos (30) on each Four pesos (4.00), or

fractional part thereof, of the premium charged.

o. Certificates Sec. 188, NIRC SEC. 188. Stamp Tax on Certificates. On each certificate of damages or

otherwise, and on every certificate or document issued by any customs officer,

marine surveyor, or other person acting as such, and on each certificate issued by a

notary public, and on each certificate of any description required by law or by rules

or regulations of a public office, or which is issued for the purpose of giving

information, or establishing proof of a fact, and not otherwise specified herein, there

shall be collected a documentary stamp tax of Fifteen pesos (15.00).

p. Warehouse Receipts Sec. 189, NIRC SEC. 189. Stamp Tax on Warehouse Receipts. - On each warehouse receipt

for property held in storage in a public or private warehouse or yard for any person

other than the proprietor of such warehouse or yard, there shall be collected a

documentary stamp tax of Fifteen pesos (15.00): Provided, That no tax shall be

collected on each warehouse receipt issued to any one person in any one calendar

month covering property the value of which does not exceed Two hundred pesos

(200).

q. Jai-Alai, Horse Race, Lotto, etc. Sec. 190, NIRC SEC. 190. Stamp Tax on Jai-Alai, Horse Racing Tickets, lotto or Other

Authorised Numbers Games. On each jai-alai, horse race ticket, lotto, or other

authorised number games, there shall be collected a documentary stamp tax of Ten

centavos (10): Provided, That if the cost of the ticket exceeds One peso (1.00), an

additional tax of Ten centavos (10) on every One peso (1.00, or fractional part

thereof, shall be collected.

Thus, a lotto ticket that is worth ten pesos (10.00) shall be subjected to

documentary stamp tax amounting to one peso (1.00) per ticket. Moreover, Section

13

190 provides that each jai-alai, horse race ticket, lotto, or other authorised number

games, there shall be collected a documentary stamp tax. Hence, jueteng tickets and

other numbers games whether legal or illegal should also be subjected to

documentary stamp tax. (Emphasis added)

r. Bills of Lading or Receipts Sec. 191, NIRC SEC. 191. Stamp Tax on Bills of Lading or Receipts. On each set of bills of

lading or receipts (except charter party) for any goods, merchandise or effects

shipped from one port or place in the Philippines to another port or place in the

Philippines (except on ferries across rivers), or to any foreign port, there shall be

collected documentary stamp tax of One peso (1.00), if the value of such goods

exceeds One hundred pesos (100) and does not exceed One Thousand pesos

(1,000); Ten pesos (10), if the value exceeds One thousand pesos (1,000):

Provided, however, That freight tickets covering goods, merchandise or effects

carried as accompanied baggage of passengers on land and water carriers primarily

engaged in the transportation of passengers are hereby exempt.

s. Proxies Sec. 192, NIRC SEC. 192. Stamp Tax on Proxies. On each proxy for voting at any election

for officers of any company or association, or for any other purpose, except proxies

issued affecting the affairs of associations or corporations organised for religious,

charitable or literary purposes, there shall be collected a documentary stamp tax of

Fifteen pesos (15.00)

t. Powers of Attorney Sec. 193, NIRC SEC. 193. Stamp Tax on Powers of Attorney. - On each power of attorney to

perform any act whatsoever, except acts connected with the collection of claims due

from or accruing to the Government of the Republic of the Philippines, or the

government of any province, city or municipality, there shall be collected a

documentary stamp tax of Five pesos (5.00).

u. Leases of Real Property Sec. 194, NIRC SEC. 194. Stamp Tax on Leases and Other Hiring Agreements. - On each

lease, agreement, memorandum, or contract for hire, use or rent of any lands or

tenements, or portions thereof, there shall be collected a documentary stamp tax of

Three pesos (3.00) for the first Two thousand pesos (2,000), or fractional part

thereof, and an additional One peso (1.00) for every One Thousand pesos (1,000)

or fractional part thereof, in excess of the first Two thousand pesos (2,000) for each

year of the term of said contract or agreement.

v. Mortgages, Pledges and Deeds of Trust Sec. 195, NIRC SEC. 195. Stamp Tax on Mortgages, Pledges and Deeds of Trust. On every

mortgage or pledge 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

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any definite and certain sum of money lent at the time or previously due and owing

of forborne to be paid, being payable and on any conveyance of land, estate, or

property whatsoever, in trust or to be sold, or otherwise converted into money which

shall be and intended only as security, either by express stipulation or otherwise,

there shall be collected a documentary stamp tax at the following rates:

(a) When the amount secured does not exceed Five thousand pesos (5,000),

Twenty pesos (20.00).

(b) On each Five thousand pesos (5,000), or fractional part thereof in excess of

Five thousand pesos (5,000), an additional tax of Ten pesos (10.00).

On any mortgage, pledge, or deed of trust, where the same shall be made as a

security for the payment of a fluctuating account or future advances without fixed

limit, the documentary stamp tax on such mortgage, pledge or deed of trust shall be

computed on the amount actually loaned or given at the time of the execution of the

mortgage, pledge or deed of trust, 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 shall be computed on the amount

actually loaned or given at the time of the execution of the mortgage, pledge or deed

of trust.

However, if subsequent advances are made on such mortgage, pledge or deed

of trust, 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, pledge or deed of trust, the

documentary stamp tax prescribed in this Section shall be paid and computed on the

full amount of the loan or credit granted.

w. Deed of Sale of Real Property Sec. 196, NIRC SEC. 196. Stamp tax on Deeds of Sale and Conveyances of Real Property. -

On all conveyances, deeds, instruments, or writings, other than grants, patents or

original certificates of adjudication issued by the Government, whereby any land,

tenement, or other realty sold shall be granted, assigned, transferred or otherwise

conveyed to the purchaser, or purchasers, or to any other person or persons

designated by such purchaser or purchasers, there shall be collected a documentary

stamp tax, at the rates herein below prescribed, based on the consideration contracted

to be paid for such realty or on its fair market value determined in accordance with

Section 6(E) of this Code, whichever is higher: Provided, That when one of the

contracting parties is the Government the tax herein imposed shall be based on the

actual consideration.

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(a) When the consideration, or value received or contracted to be paid for such

realty after making proper allowance of any encumbrance, does not exceed

One thousand pesos (1,000) fifteen pesos (15.00).

(b) For each additional One thousand Pesos (1,000), or fractional part thereof

in excess of One thousand pesos (1,000) of such consideration or value,

fifteen pesos (15.00).

When it appears that the amount of the documentary stamp tax payable

hereunder has been reduced by an incorrect statement of the consideration in any

conveyance, deed, instrument or writing subject to such tax the Commissioner,

provincial or city Treasurer, or other revenue officer shall, from the assessment rolls

or other reliable source of information, assess the property of its true market value

and collect the proper tax thereon.

X Co. and Y Co. are both PEZA registered companies. As part of the

restructuring of X Co., it proposes to sell some of its assets and liabilities to Y Co. at

book value. The BIR ruled that since the transfer of assets will be made at book

value, no taxable gain would be realised. Consequently, the transfer at book value,

assuming the same to beat arms length shall not result in a taxable gain or loss

pursuant to Section 40(A) of the Tax Code9.

Stockholders of a liquidating corporation owning various condominium units

shall realise capital gain or loss, as the case may be, when the latter distributes to the

former its remaining assets. Any capital gain, consisting of the difference between

the fair market value of the liquidating dividends and the adjusted cost to the

stockholders of their respective shareholdings in the corporation, shall be subject to

ordinary income tax at the rates provided under Section 24(a)(1)(c) of the Tax Code.

On the other hand, the liquidating corporation shall not be subject to tax either on the

transfer of its assets to stockholders or on the receipt of shares surrendered by

stockholders. The conveyance of condominium units in the form of liquidating

dividends and without consideration shall not be subject to documentary stamp tax10.

The transfer by stockholders of real property to a corporation in the nature of

paid-in surplus without shares being issued, being a capital investment, is not within

the purview of the term, taxable income, as defined in Section 32 of the 1997 Tax

Code. The real property transferred should not be treated as income to the

corporation. Hence, it is not subject to income tax. Furthermore, considering that the

real property was transferred without the corresponding issuance of additional shares

in favour of the stockholders, no documentary stamp tax was due. The conveyance of

realty was made not in connection with a sale11.

9 BIR Ruling No. DA-076-2005 10 BIR Ruling No. DA-084-2005, March 14, 2005 11 BIR Ruling No. DA-065-2005, February 23, 2005

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The BIR ruled that partition of properties among co-owners without any

consideration is not subject to capital gains tax, documentary stamp tax under

Section 196 of the Tax Code of 1997 and VAT considering that there is no sale,

exchange or disposition of property. The agreement is subject however to the 15.00

documentary stamp tax as prescribed in Sec. 188 of the Tax Code of 199712.

In 1964 a deed of sale was executed between Ms. A and her eldest son over a

parcel of land for the purpose of securing a housing loan from the SSS. The said deed

of sale has been executed for convenience and without monetary consideration. To

be fair among all of M. As heirs and to put everything prospectively to avoid

confusion and problems in the future, a deed of sale was executed in 1975 to revert

back the property to Ms. A, again for convenience and without monetary

consideration.

The BIR ruled that considering that the transfer of the subject property is

without consideration and was executed only as a requirement for the granting of the

SSS loan, the reconveyance of the same in Ms. As favour is exempt from the

payment of capital gains tax and documentary stamp tax prescribed under Section

196 of the Tax Code of 1997. However, the notarial acknowledgement is subject to

the 15.00 documentary stamp tax under Section 188 of the same Code13.

x. Charter Party and Similar Instruments Sec. 197, NIRC SEC. 197. Stamp Tax on Charter Parties and Similar Instruments. On

every charter party, contract or agreement for the charter of any ship, vessel or

steamer, or any letter or memorandum or other writing between the captain, master

or owner, or other person acting as agent of any ship, vessel or steamer, and any

other person or persons for or relating to the charter of any such ship, vessel or

steamer, and on any renewal or transfer of such charter, contract, agreement, letter or

memorandum, there shall be collected a documentary stamp tax at the following

rates:

(a) If the registered gross tonnage of the ship, vessel or steamer does not exceed

one thousand (1,000) tons, and the duration of the charter or contract does

not exceed six (6) months, Five hundred pesos (500); and for each month

or fraction of a month in excess of six (6) months, an additional tax of Fifty

pesos (50.00) shall be paid.

(b) If the registered gross tonnage exceeds one thousand (1,000) tons and does

not exceed ten thousand (10,000) tons, and the duration of the charter or

contract does not exceed six (6) months, One thousand pesos (1,000); and

for each month or fraction of a month in excess of six (6) months, an

additional tax of One hundred pesos (100) shall be paid.

12 BIR Ruling No. DA-640-2004, December 17, 2004 13 BIR Ruling No. DA-648-2004, Dec. 21, 2004

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(c) If the registered gross tonnage exceeds ten thousand (10,000) tons and the

duration of the charter or contract does not exceed six (6) months, One

thousand five hundred pesos (1,500); and for each month or fraction of a

month in excess of six (6) months, an additional tax of One hundred fifty

pesos (150) shall be paid.

y. Assignment, Transfer, and Renewal of Certain Instruments Sec. 198, NIRC SEC. 198. Stamp Tax on Assignments and Renewals of Certain Instruments.

Upon each and every assignment or transfer of any mortgage, lease or policy of

insurance, or the renewal or continuance of any agreement, contract, charter, or any

evidence of obligation or indebtedness by altering or otherwise, there shall be levied,

collected and paid a documentary stamp tax, at the same rate as that imposed on the

original instrument.

III. TRANSACTIONS/DOCUMENTS NOT SUBJECT TO DOCUMENTARY STAMP TAX, Sec. 199, NIRC, as amended by Rep. Act No. 9243

SEC. 199. Documents and Papers Not Subject to Stamp Tax. - The provisions of

Section 173 to the contrary notwithstanding, the following instruments, documents and

papers shall be exempt from the documentary stamp tax:

(a) Policies of insurance or annuities made or granted by a fraternal or

beneficiary society, order, association or cooperative company, operated on

the lodge system or local cooperation plan and organised and conducted

solely by the members thereof for the exclusive benefit of each member and

not for profit.

(b) Certificates of oaths administered to any government official in his official

capacity or of acknowledgment by any government official in the

performance of his official duties, written appearance in any court by any

government official, in his official capacity; certificates of the administration

of oaths to any person as to the authenticity of any paper required to be filed

in court by any person or party thereto, whether the proceedings be civil or

criminal; papers and documents filed in courts by or for the national,

provincial, city or municipal governments; affidavits of poor persons for the

purpose of proving poverty; statements and other compulsory information

required of persons or corporations by the rules and regulations of the

national, provincial, city or municipal governments exclusively for statistical

purposes and which are wholly for the use of the bureau or office in which

they are filed, and not at the instance or for the use or benefit of the person

filing them; certified copies and other certificates placed upon documents,

instruments and papers for the national, provincial, city, or municipal

governments, made at the instance and for the sole use of some other branch

of the national, provincial, city or municipal governments; and certificates of

the assessed value of lands, not exceeding Two hundred pesos (200) in

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value assessed, furnished by the provincial, city or municipal Treasurer to

applicants for registration of title to land.

In addition to the above list:

a. Loan agreements or promissory notes, the aggregate of which does not

exceed Two hundred fifty thousand pesos (250,000), or any such amount as

may be determined by the Secretary of Finance, executed by an individual for

his purchase on instalment for his personal use or that of his family and not

for business or resale, barter or hire of a house, lot, motor vehicle, appliance

or furniture: Provided, however, that the amount to be set by the Secretary of

Finance shall be in accordance with a relevant price index but not to exceed

ten per cent (10%) of the current amount and shall remain in force at least for

three (3) years.

b. Sale, barter or exchange of shares of stock listed and traded through the local

stock exchange.

c. Assignment or transfer of any mortgage, lease or policy of insurance, or the

renewal or continuance of any agreement, contract, charter, or any evidence

of obligation or indebtedness, if there is no change in the maturity date or

remaining period of coverage from that of the original instrument.

d. Fixed income and other securities traded in the secondary market or through

an exchange.

e. Derivatives; Provided, that for purposes of this exemption, repurchase

agreements and reverse repurchase agreements shall be treated similarly as

derivatives.

f. Inter-branch or interdepartmental advances within the same legal entity.

g. All forbearances arising from sales or service contracts including credit card

and trade receivables; Provided, that the exemption be limited to those

executed by the seller or service provider itself.

h. Bank deposit accounts without a fixed term or maturity.

i. All contracts, deeds, documents and transactions related to the conduct of

business of the Bangko Sentral ng Pilipinas.

j. Transfer of property pursuant to Section 40(C)(2) of the National Internal

Revenue Code of 1997, as amended.

k. Interbank call loans with maturity of not more than seven (7) days to cover

deficiency in reserves against deposit liabilities, including those between or

among banks and quasi-banks.

A Inc. and B Inc. entered into a tax-deferred exchange transaction under Section

40(C)(2) and (C)(6) of the Tax Code of 1997, whereby A Inc. transferred Receivables to

B Inc. in exchange for shares and debt instruments issued by B Inc. The BIR ruled that

the documentary stamp tax due on the issuance of the debt instruments should be subject

to 1.00 for every 200, or a fractional part thereof, of the issue value. However, the

subsequent assignment, transfer or amendment of such debt instruments by A Inc. shall

not be subject to documentary stamp tax provided that there is no increase in the amount

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or change in the maturity date from that of the original instrument pursuant to Section

199(F) of the Tax Code of 1997, as amended by Republic Act No. 924314.

As ruled by the CTA in BELLE CORPORATION v. COMMISSIONER OF

INTERNAL REVENUE15, documentary stamp tax is an excise tax upon documents,

instruments, loan agreements and papers, and upon acceptances, assignments, sales and

transfers of the obligation, right or property incident thereto. As held by the Supreme

Court in the case of Philippine Home Assurance Corporation, et. al. v. Court of Appeals,

301 SCRA 447, "documentary stamp taxes are levied on the exercise by persons of

certain privileges conferred by law for the creation, revision, or termination of specific

legal relationship through the execution of specific instruments." Since board resolutions

and cash vouchers do not partake the nature, the elements and the form of any of the

specific instruments mentioned in the law, they are not therefore subject to documentary

stamp tax.

A promissory note is an unconditional promise in writing made by one person to

another, signed by the maker, engaging to pay on demand, or a fixed or determinable

future time, a sum certain in money to such other person or to bearer, free from

restrictions as to registration or transfer, and usually without coupons. It also refers to an

instrument, whether negotiable or non- negotiable, whereby the maker agrees to pay a sum certain in money or its equivalent at a definite time.

There is nothing in Section 180 that clearly and expressly declares inter-office

memorandum covering inter-company advances made by BELLE to its affiliates making

it subject to documentary stamp taxes. Section 18 seeks to impose documentary stamp

tax on loan agreements, promissory notes, bills of exchange, drafts, instruments and

securities issued by the government or any of its instrumentalities or certificates of

deposits drawing interest and others not payable on sight or demand. Inter- office

memoranda, board resolutions and cash vouchers were not included in the list thus, they

are not liable to documentary stamp taxes.

IV. PAYMENT OF DOCUMENTARY STAMP TAX, Sec. 200, NIRC SEC. 200. Payment of Documentary Stamp Tax. -

(A) In General.The provisions of Presidential Decree No. 1045 notwithstanding, any person liable to pay documentary stamp tax upon any

document subject to tax under Title VII of this Code shall file a tax return

and pay the tax in accordance with the rules and regulations to be

prescribed by the Secretary of Finance, upon recommendation of the

Commissioner.

(B) Time for Filing and Payment of the Tax.Except as provided by rules and regulations promulgated by the Secretary of Finance, upon 14 BIR Ruling No. DA-244-2005, June 7, 2005 15 CTA Case No. 6156, October 16, 2006

20

recommendation of the Commissioner, the tax return prescribed in this

Section shall be filed within ten (10) days after the close of the month when

the taxable document was made, signed, issued, accepted, or transferred,

and the tax thereon shall be paid at the same time the aforesaid return is

filed.

(C) Where to File.Except in cases where the Commissioner otherwise permits, the aforesaid tax return shall be filed with and the tax due shall be

paid through the authorised agent bank within the territorial jurisdiction of

the Revenue District Office which has jurisdiction over the residence or

principal place of business of the taxpayer.

In places where there is no authorised agent bank, the return shall be filed

with the Revenue District Officer, collection agent, or duly authorised

Treasurer of the city or municipality in which the taxpayer has his legal

residence or principal place of business.

(D) Exception.In lieu of the foregoing provisions of this Section, the tax may be paid either through purchase and actual affixture; or by imprinting the

stamps through a documentary stamp metering machine, on the taxable

document, in the manner as may be prescribed by rules and regulations to

be promulgated by the Secretary of Finance, upon recommendation of the

Commissioner.

V. EFFECT OF NON-PAYMENT OF DOCUMENTARY STAMP TAX, Sec. 201, NIRC

SEC. 201. Effect of Failure to Stamp Taxable Document. An instrument,

document or paper which is required by law to be stamped and which has been signed,

issued, accepted or transferred without being duly stamped, shall not be recorded, nor

shall it or any copy thereof or any record of transfer of the same be admitted or used in

evidence in any court until the requisite stamp or stamps are affixed thereto and

cancelled.