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Tax on Docs - Write-up

Tax on Docs - Write-up

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Categories:Types, Research, Law
Published by: Michelle Yvonne L. Basa on Jun 19, 2012
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06/19/2012

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 The discussion below talks about the applicable laws, tax rules and articlesrelated to the
tax on documents
and the implication when a document isuntaxed.In an article dated April 28, 2012, it says “the Bureau of Internal Revenue (BIR)has cancelled its separate memoranda of agreement (MOAs) with the Boardof Investments (BOI) and the Philippine Economic Zone Authority (PEZA)which limits its power to investigate firms under their umbrella.”As supposed by BIR Commissioner Kim S. Jacinto-Henares in signing
 
RevenueMemorandum Circular No. 14-2012, “the accords signed by her predecessorin 2007 were contrary to law, and thus for this reason, the MOAs are herebyrevoked.” She also said that from now on “BOI- and PEZA- registeredenterprises will be subject to the same rules and regulations imposed onregular taxpayers.”Furthermore, the BIR chief said “these enterprises must have properlyaccomplished requirements and documents within the time frame prescribed bypertinent guidelines like schedule of sales and purchases and withholding taxes.”BOI registered companies also enjoy full tax exemption for the first five years of their operations. However, it is common knowledge in the business sector thatsome of these firms are collapsed after five years and replaced them with newones to continue getting the ITH. The government’s main tax agency, posted adouble-digit growth in collection in the first three-months of year but slightlyshort of its target for the period. ”No one can escape taxes,” said in another article dated June 18, 2010. Evendocuments are subject to tax, regardless of whether they are executed by anindividual or an entity like a corporation.As detailed in the Tax Code, the Documentary Stamp Tax (DST) is an excise taximposed on the person making, signing, issuing, accepting, or transferringthe document. As such, the “tax is imposed on the privilege of conducting aparticular business or transaction and not on the business or transactionitself.” A document, which has been imposed a DST, and has been signed,issued, accepted, or transferred without payment of the corresponding DST,will not be recorded, nor shall it be admissible as evidence in court untilsuch DST has been paid. On the other hand, the condition of Section 173 of the Tax Code shifting the burden of paying the documentary stamp tax onthe taxable document to the party who is not exempt may not apply (BIRRuling No. DA-086-01dated 16 May 2001), if both parties to thetransactions are exempt from the payment of DST.As to why the law taxes the document, it is because the transaction so the taxbecomes due and payable at the time the transaction is accomplished,usually, at the time of the issuance of the document.
 
 The implication would be, the untaxed document will not be recorded, nor will itor any copy thereof or any record of transfer of the same be admitted orused in evidence in court until the requisite stamp or stamps have beenaffixed thereto and cancelled.No notary public or other officer is authorized to administer oaths will add his jurat or acknowledgment to any document subject to Documentary Stamp Tax unless the proper documentary stamps are affixed thereto andcancelled.On Loan Agreements, Deeds of Sale, Certificate of Deposits, Issuance of Sharesof Stock, among others, the DST may be imposed.‘Certain entities may be exempt from the DST as may be provided by law.” Thus,inBIR Ruling No. DA-067-04dated 12 December 2004, the Bureau of Internal Revenue (BIR) exempted a Philippine Economic Zone Authority(PEZA)-registered firm from payment of the DST on the sale and/or lease of its PEZA registered real properties on account of the PEZA Law.Any exemption from the DST however is subject to the condition of Section 173of the Tax Code, which states that when one party to the transaction enjoysexemption from DST, the other party thereto who is not exempt shall be theone directly liable for the tax (BIR Ruling No. 0062-02-dated 19 January2002).UnderSection 24 of Republic Act No. 7816, also known as theSpecial Economic Zone Act of 1995, “companies registered with the Philippine Economic ZoneAuthority (PEZA) such as those located in the Mactan Economic ProcessingZones shall only be imposed a 5 percent special tax based on gross incomeearned, in lieu of all taxes, except the real property tax, upon the expirationof their income tax holiday.”Generally, the in lieu of all taxes provision grants exemption to PEZA-registeredenterprises from both local and national taxes including income tax, capital gainstax, documentary stamp tax (DST) and the value added tax (BIR Ruling No. 067-04 dated 12 December 2004).Here, the exemption is so broad to the extent that many investors assume thatno taxes will be imposed on the transactions that they enter into. The realizationthat this is not so usually comes out late in the game when the Bureau of Internal Revenue (BIR) has already made an assessment for deficiency taxes. Tax exemptions, in general, are to be strictly construed, that is, they are not tobe extended beyond the ordinary and reasonable intendment of the languageactually used by Congress in granting the benefit. In a Court of Tax Appeals(CTA) case involving Philippine Airlines (CTA Case No. 45 dated February 28,1956), however, the
CTA has ruled that a provision of law imposing a tax
 
in lieu of all taxes of any kind, nature or description, has been generallyconsidered a commutation tax, which is a combination of two or moretaxes, as an excise tax or franchise tax, payment of which would giverise to a privilege exemption from all other taxes
(BIR Ruling Nos. UN-075-94dated 28 February 1994; and DA-253-06 dated 12 April 2006). However, whatis controversial is that the BIR has recently taken the position that the 5 percentpreferential tax only applies to the PEZA registered enterprise’s operations withinthe Economic Zone relative to the entity’s registered activities.So, on March 5, 2008, the “BIR made public a draft Revenue MemorandumCircular (RMC) stating that income which is not related to the entity’s PEZAregistered activities shall be subject to the 30 percent regular income tax, thedocumentary stamp tax, excise tax, or the value added tax.” The draft RMChowever has yet to be finalized and implemented. Thus, the controversycontinues.Another section that isSection 112 of NIRC, also known asRefunds or Tax Credits of Input Tax, stated inparagraph (A)or theZero-rated or Effectively Zero-rated Sales, that any VAT-registered person, whose sales are zero-rated oreffectively zero-rated may, within two (2) years after the close of the taxablequarter when the sales were made, apply for the issuance of a tax creditcertificate or refund of creditable input tax due or paid attributable to such sales,except transitional input tax, to the extent that such input tax has not beenapplied against output tax: Provided, however, That in the case of zero-ratedsales under Section 106(A)(2)(a)(1), (2) and (B) and Section 108 (B)(1) and (2),the acceptable foreign currency exchange proceeds thereof had been dulyaccounted for in accordance with the rules and regulations of the Bangko Sentralng Pilipinas (BSP): Provided, further, That where the taxpayer is engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of goods of properties or services, and the amount of creditable input tax due or paid cannotbe directly and entirely attributed to any one of the transactions, it shall beallocated proportionately on the basis of the volume of sales. Andparagraph (b)or the Transactions Subject to Zero Percent (0%) Rateunder the same sectionstates the following services performed in the Philippines by VAT- registeredpersons shall be subject to zero percent (0%) rate, which are as follows:
1.
Processing, manufacturing or repacking goods for other personsdoingbusiness outside the Philippines which goods are subsequently exported,where the services are paid for in acceptable foreign currency andaccounted for in accordance with the rules and regulations of the BangkoSentral ng Pilipinas (BSP);
2.
Services other than those mentioned in the preceding paragraph, theconsideration for which is paid for in acceptable foreign currency andaccounted for in accordance with the rules and regulations of the BangkoSentral ng Pilipinas (BSP);

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