COMMISSIONER OF INTERNAL REVENUE vs.

 PHILIPPINE NATIONAL BANK, G.R. No. 195147, July 11,

2016
Facts:
On March 23, 2000, CIR issued a Letter of Authority which PNB received on March 28, 2000. The LOA authorized the
examination of PNB's books of accounts and other accounting records in relation to its internal revenue taxes for taxable
year 1997. In 2003, PNB received the preliminary assessment notice with details of discrepancies, which indicated that
PNB had deficiency payments of documentary stamp taxes, withholding taxes on compensation, and expanded
withholding taxes for taxable year 1997. CIR then issued a formal assessment notice, together with a formal letter of
demand and details of discrepancies, requiring PNB to pay the 2 deficiency taxes with the total of P41,724,935.75. PNB
immediately paid the 2nd Assessment (2,173,972.25), but filed a protest against the 1st assessment (P39,550,963.50). The
petitioner denied PNB's protest through the final decision on disputed assessment. In 2004, PNB filed its petition for
review in the CTA.
CTA (2009): partially granted the Petition for Review and cancelled the assessment for deficiency documentary stamp
taxes on petitioner's Interbank Call Loans for taxable year 1997, and affirmed the assessment for deficiency documentary
stamp tax on petitioner's Special Savings Account for taxable year 1997. PNB was ordered to pay CIR P14,688,463.15,
representing deficiency documentary stamp tax for taxable year 1997 and a penalty equivalent to 25% and a delinquency
interest equivalent to 20% per annum on the amount from February 15, 2004 until such amount is paid in full, pursuant to
Sections 248 and 249 of the Tax Code.
CTA in Division denied PNB’s motion for partial reconsideration but held in abeyance the resolution of PNB's motion for
partial reconsideration pending its submission of its supplemental formal offer of evidence to admit tax abatement
documents. PNB appealed to the CTA En Banc which it denied.
Issue: WON PNB's interbank call loans for taxable year 1997 are subject to DST. NO
Held:
I. The maturity of PNB's interbank call loans was irrelevant in determining its DST liability for taxable year 1997, relation
to which the applicable law was the National Internal Revenue Code of 1977, as amended by PD No. 1959 and RA No.
7660.
The five-day maturity of interbank call loans came to be introduced only by Section 22(y) of the NIRC 1997:
Deposit substitutes- an alternative from of obtaining funds from the public other than deposits, through the issuance,
endorsement, or acceptance of debt instruments for the borrowers own account, for the purpose of relending or
purchasing of receivables and other obligations, or financing their own needs or the needs of their agent or dealer. (e.g.,
Bankers' acceptances, promissory notes, repurchase agreements, including reverse repurchase agreements entered into
by and between the BSP and any authorized agent bank, certificates of assignment) Provided, however, that
debt instruments issued for interbank call loans with maturity of not more than 5 days to cover deficiency in reserves
against deposit liabilities, including those between or among banks and quasi-banks, shall not be considered as deposit
substitute debt instruments. 
NIRC 1997 can’t be given retrospective effect to the prejudice of PNB. This is because tax laws are prospective in
application, unless their retroactive application is expressly provided

II. PNB's interbank call loans are not taxable under Section 180 of the 1977 NIRC: xxx On all loan agreements 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 or certificates of deposits drawing interest, or orders for the payment of any sum of money otherwise
than at sight or on demand, or on all promissory notes, whether negotiable or non- negotiable, except bank notes
issued for circulation, and on each renewal of any such note,  xxx.
Interbank call loan- the cost of borrowings from other resident banks and non-bank financial institutions with quasi-
banking authority that is payable on call or demand. It is transacted primarily to correct a bank's reserve
requirements. Simply put, it’s considered as a deposit substitute transaction by a bank performing quasi-banking functions
to cover reserve deficiencies. It doesn’t fall under the definition of a loan agreement. Even if it does, the DST liability
under Section 180, will only attach if the loan agreement was signed abroad but the object of the contract is located or
used in the Philippines, which was not the case in regard to PNB's interbank call loans. For taxation purposes, they are not
considered as deposit substitutes by express provision of Section 20(y) of the 1977 NIRC, which means an alternative
form of obtaining funds from the public, other than deposit, through the issuance, endorsement, or acceptance of debt
instruments for the borrower's own account, for the purpose of relending or purchasing of receivables and other
obligations, or financing their own needs or the needs of their agent or dealer. Xxx Provided, however, that only debt
instruments issued for inter-bank call loans to cover deficiency in reserves against deposit liabilities including those
between or among banks and quasi-banks shall not be considered as deposit substitute debt instruments.

Cited CIR vs. Fortune Tobacco Corporation: “The rule in the interpretation of tax laws is that a statute will not be
construed as imposing a tax unless it does so clearly, expressly, and unambiguously. A tax cannot be imposed without
clear and express words for that purpose. Accordingly, the general rule of requiring adherence to the letter in construing
statutes applies with peculiar strictness to tax laws and the provisions of a taxing act are not to be extended by
implication. In answering the question of who is subject to tax statutes, it is basic that in case of doubt, such statutes are
to be construed most strongly against the government and in favor of the subjects or citizens because burdens are not to
be imposed nor presumed to be imposed beyond what statutes expressly and clearly import. As burdens, taxes should not
be unduly exacted nor assumed beyond the plain meaning of the tax laws.”
PHILIPPINE BANK OF COMMUNICATIONS vs. COMMISSIONER OF INTERNAL REVENUE, G.R. No.
194065, June 20, 2016

Facts:
Pursuant to Revenue Regulations No. 7-92, BIR a Certificate on July 31, 2001 authorizing petitioner to operate and use
the On-line Electronic Documentary Stamp Metering Machine. Petitioner purchased documentary stamps from the BIR
and loaded them to its DS metering machine. From March 23, 2004- Dec. 23, 2004, petitioner executed several repurchase
agreements with the BSP. The documentary stamps were imprinted on the Confirmation Letters corresponding to those
repurchase agreements through petitioner's DS metering machine. Petitioner claimed that the repurchase agreements were
not subject to the DST. In 2006, it filed with the BIR an administrative claim for the issuance of tax credit certificates for
the alleged erroneous payment of the DST in the total amount of P11,063,866.67. Alleging the inaction of the BIR on the
administrative claim of petitioner, the latter filed a Petition for Review with the CTA. It its claim for the refund or
issuance of its tax credit certificate for the amount erroneously paid DST for several repurchase agreements it had
executed with the BSP.

Issue: Whether the date of imprinting the documentary stamps on the document/the date of purchase of documentary
stamps for loading and reloading on the DS metering machine should be deemed as payment of the DST contemplated
under Section 200 (D) of the NIRC for the purpose of counting the two-year prescriptive period for filing a claim for a
refund or tax credit.

Held:
Sec. 229 of the NIRC of 1997, the claim for a refund of erroneously paid DST must be within 2 years from the date of
payment of the DST. When read in conjuction with Section 200 of the same Code, Section 229 shows that payment of the
DST may be done by imprinting the stamps on the taxable document through a DS metering machine, in the manner as
may be prescribed by rules & regulations. In relation thereto, the BIR has issued REVENUE REGULATIONS NO. 05-9:
“SECTION 4. New Procedure on Purchase of a Documentary Stamp for Use in BIR Registered Metering Machine. —
Purchase of Documentary Stamps for future applications not covered by Sections 2 and 3 of these Regulations shall be
allowed only to persons authorized to use BIR Registered Metering Machine under Revenue Regulations No. 7-92, dated
September 7, 1992.
SECTION 5. Documentary Stamp Tax Declaration. — The following persons are required to accomplish and file a
documentary stamp tax declaration under BIR Form 2000;
5.3 Any person duly authorized to use DST Metering Machine shall file a DST Declaration under BIR Form No.
2000 each time documentary stamps are purchased for loading or reloading on the said machine. This
declaration shall be filed with any duly Authorized Agent Bank, Revenue Recollection Officer, or duly authorized
City or Municipal Treasurer in the Philippines. The amount of documentary stamps to be reloaded on the Metering
Machine should be equal to the amount of documentary stamps consumed from previous purchase. The details of
usage or consumption of documentary stamps should be indicated on the declaration.
The DS metering machine was developed and used for businesses with material DST transactions like banks and
insurance companies for their regular transactions. These businesses authorized by the BIR may load documentary stamps
on their DS metering machine in accordance with the rules and regulations. This system allows advanced payment of the
DST for future applications. However, for purposes of determining the prescriptive period for a claim for a refund or tax
credit, this Court finds it imperative to emphasize the nature of the DST.

DST-a tax on documents, instruments, loan agreements, and papers evidencing the acceptance, assignment, sale or
transfer of an obligation, right or property incident thereto. It’s actually an excise tax, because it is imposed on the
transaction rather than on the document.
The payment of the DST and the filing of the DST Declaration Return upon loading/reloading of the DS metering
machine must not be considered as the "date of payment" when the prescriptive period to file a claim for a refund/credit
must commence. For DS metering machine users, the payment of the DST upon loading/reloading is merely an advance
payment for future application. The liability for the payment of the DST falls due only upon the occurrence of a taxable
transaction. Therefore, it is only then that payment may be considered for the purpose of filing a claim for a refund or tax
credit. Since actual payment was already made upon loading/reloading of the DS metering machine and the filing of the
DST Declaration Return, the date of imprinting the documentary stamp on the taxable document must be considered as
the date of payment contemplated under Section 229 of the NIRC.
This interpretation is more consistent with Section 200 (D) that "the tax may be paid xxx 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." The policies
issued by the Secretary of Finance were made to regulate the use of the DS metering machine, but they cannot be
interpreted to limit the prescriptive period for claims for a refund.

The DST fell due when petitioner entered into repurchase agreements with the BSP and the corresponding documentary
stamps were imprinted on the Confirmation Letters. Considering, however, that this transaction is exempt from tax,
petitioner is entitled to a refund. The prescriptive period for the filing of a claim for a refund or tax credit under Section
229 must be reckoned from the date when the documentary stamps were imprinted on the Confirmation Letters.
COMMISSIONER OF INTERNAL REVENUE vs.LA TONDENA DISTILLERS, INC. (LTDI [now GINEBRA
SAN MIGUEL], G.R. No. 175188, July 15, 2015

The transfer of real property to a surviving corporation pursuant to a merger is not subject to Documentary Stamp Tax
(DST).

Facts:

In 2001, La Tondeña Distillers, Inc. entered into a Plan of Merger with 3 other corporations. As a result of the merger, the
assets and liabilities of the absorbed corporations were transferred to respondent, the surviving corporation. It later
changed its corporate name to Ginebra San Miguel, Inc. It then requested for a confirmation of the tax-free nature of the
said merger from the BIR. The BIR issued a ruling stating that pursuant to Section 40(C)(2) and (6)(b) of the 1997
National Internal Revenue Code , no gain or loss shall be recognized by the absorbed corporations as transferors of all
assets and liabilities. However, the transfer of assets, such as real properties, shall be subject to DST imposed under
Section 196 of the NIRC.

On various dates, respondent paid to the BIR the DST with a total of 14,140,980.00. In 2003, claiming that it is exempt
from paying DST, respondent filed with petitioner Commissioner of Internal Revenue an administrative claim for tax
refund or tax credit it allegedly erroneously paid on the occasion of the merger. It also filed with the CTA a Petition for
Review.

CTA Division: Entitled to its claim for tax refund or tax credit. Section 196 of the NIRC does not apply because there is
no purchaser or buyer in the case of a merger. Citing Section 80 of the Corporation, the assets of the absorbed
corporations were not bought or purchased by respondent but were transferred to and vested in respondent as an inherent
legal consequence of the merger, without any further act or deed.

CTA En Banc: affirmed.

Issue: whether the CTA En Banc erred in ruling that respondent is exempt from payment of DST. NO

Held:

In a case decided by SC, it already ruled that Section 196of the NIRC does not include the transfer of real property from
one corporation to another pursuant to a merger, and that it only pertains to sale transactions where real property is
conveyed to a purchaser for a consideration. The phrase "granted, assigned, transferred or otherwise conveyed" is
qualified by the word "sold" which means that documentary stamp tax under Section 196 is imposed on the transfer of
realty by way of sale and does not apply to all conveyances of real property.

The transfer of SPPC’s real property to respondent was pursuant to their approved plan of merger. In a merger of 2
existing corporations, one of the corporations survives and continues the business, while the other is dissolved, and all its
rights, properties, and liabilities are acquired by the surviving corporation. Although there is dissolution of the absorbed or
merged corporations, there is no winding up of their affairs or liquidation of their assets because the surviving corporation
automatically acquires all their rights, privileges, and powers, as well as their liabilities. Here, SPPC ceased to have any
legal personality and PSPC stepped into everything that was SPPC’s, pursuant to the law and the terms of their Plan of
Merger.

In a merger, the real properties are not deemed "sold" to the surviving corporation and the latter could not be considered
as "purchaser" of realty since the real properties subject of the merger were merely absorbed by the surviving corporation
by operation of law and these properties are deemed automatically transferred to and vested in the surviving corporation
without further act or deed. Therefore, the transfer of real properties to the surviving corporation in pursuance of a merger
is not subject to documentary stamp tax. As stated at the outset, documentary stamp tax is imposed only on all
conveyances, deeds, instruments or writing where realty sold shall be conveyed to a purchaser or purchasers. The transfer
of SPPC’s real property to respondent was neither a sale nor was it a conveyance of real property for a consideration
contracted to be paid as contemplated under Section 196 of the Tax Code. Hence, Section 196 of the Tax Code is
inapplicable and respondent is not liable for documentary stamp tax.39 (Emphasis in the original)

Respondent is entitled to a refund of the DST it erroneously paid on various dates between October 31, 2001 to November
15, 2001. Likewise, without merit is petitioner’s contention that respondent cannot claim exemption under RA 9243 as
this was enacted only in 2004 or after respondent’s tax liability accrued. To be clear, respondent did not file its claim for
tax refund or tax credit based on the exemption found in RA 9243. Rather, it filed a claim for tax refund or tax credit on
the ground that Section 196 of the NIRC does not include the transfer of real property pursuant to a merger.
In closing, we must stress that taxes must not be imposed beyond what the law expressly and clearly declares as tax laws
must be construed strictly against the State and liberally in favor of the taxpayer.

REPUBLIC OF THE PHILIPPINES, represented by the DEPARTMENT OF PUBLIC WORKS AND

HIGHWAYS vs. SORIANO, G.R. No. 211666, February 25, 2015

Facts:
In 2010, the Republic, represented by DPWH, filed a Complaint for expropriation against Soriano, the registered owner of
a land in Valenzuela City w/c is covered by a TCT. Stating that pursuant to the “Act to Facilitate the Acquisition of Right-
Of-Way, Site or Location for National Government Infrastructure Projects," the property sought to be expropriated shall
be used in implementing the construction of NLEX. The Republic duly deposited to the Acting Branch Clerk of Court the
amount of ₱420,000.00 representing 100% of the zonal value of the subject property. Consequently, in an Order, the RTC
ordered the issuance of a Writ of Possession & a Writ of Expropriation for failure of Soriano to appear despite notice
during the hearing called for the purpose. In another Order, the RTC appointed 3 members of the Board of Commissioners
for the determination of just compensation. However, the trial court subsequently revoked the appointment of the Board
for their failure to submit a report as to the fair market value of the property to assist the court in the determination of just
compensation and directed the parties to submit their respective position papers.

RTC: Republic has a lawful right to acquire the possession of Soriano’s lot, and ordered to pay Soriano fair, equitable,
and just compensation with legal interest at 12% per annum from the taking of the possession of the property, subject to
the payment of all unpaid real property taxes and other relevant taxes, if there be any & consequential damages which
shall include the value of the transfer tax necessary for the transfer of the subject property from the name of the defendant
to that of the plaintiff;
The managers check issued by the DPWH are already stale so it was ordered to issue another manager’s check. The
Republic filed an MR maintaining that pursuant to BSP Circular No. 799 (2013), the interest rate imposed by the RTC on
just compensation should be lowered to 6% for the instant case falls under a loan or forbearance of money. RTC reduced
the interest rate to 6% per annum not on the basis of the aforementioned Circular, but on Article 2209 of the CC.

Issues: 1) WON the interest rate should be based under the CC; 2) WON the capital gains tax is payable by the seller; 3)
WON the documentary stamp tax is payable by the government agency.

Held:
1) In Republic vs. CA, the Court recognized that the just compensation due to the landowners for their expropriated
property amounted to an effective forbearance on the part of the State. The Court also fixed the applicable interest rate at
12% per annum, computed from the time the property was taken until the full amount of just compensation was paid, in
order to eliminate the issue of the constant fluctuation and inflation of the value of the currency over time. Therefore, the
debt incurred by the government on account of the taking of the property subject of an expropriation constitutes a
forbearance which runs contrary to the RTC’s opinion that the same is in the nature of indemnity for damages calling for
the application of Article 2209 of the CC. Nevertheless, in line with BSP-MB No. 799, the prevailing rate of interest for
loans or forbearance of money is 6% per annum, in the absence of an express contract as to such rate of interest.
The imposition of interest in this case is unwarranted for as evidenced by the acknowledgment receipt signed by the
Branch Clerk of Court, Republic was able to deposit with the RTC the amount representing the zonal value of the property
4 mos. before its taking. Hence, when there is no delay in the payment of just compensation, the imposition of interest
thereon should be deleted. The award of consequential damages should likewise be deleted for the entire area of the
subject property is being expropriated, and not merely a portion thereof.

2) SC found merit in Republic’s posture that pursuant to Sections 24(D) and 56(A)(3) of the 1997 NIRC, capital gains tax
due on the sale of real property is a liability for the account of the seller. Since capital gains is a tax on passive income, it
is the seller, not the buyer, who generally would shoulder the tax. Accordingly, the BIR constituted the DPWH as a
withholding agent to withhold the 6% final withholding tax in the expropriation of real property for infrastructure
projects.

3) SC finds inconsistent Republic’s denial of liability to payment of documentary stamp tax. Republic cites Section 196 of
the 1997 NIRC as its basis in saying that the documentary stamp tax is the liability of the seller. 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. Yet, a perusal of the provision does not explicitly impute the obligation to
pay the documentary stamp tax on the seller. In fact, according to the BIR, all the parties to a transaction are primarily
liable for the documentary stamp tax, as provided by Section 2 of BIR Revenue Regulations No. 9-2000.
In this case, there is no agreement as to the party liable for the documentary stamp tax due on the sale of the land to be
expropriated. The Citizen’s Charter, issued by petitioner DPWH itself in 2013, explicitly provides that the documentary
stamp tax, transfer tax, and registration fee due on the transfer of the title of land in the name of the Republic shall be
shouldered by the implementing agency of the DPWH, while the capital gains tax shall be paid by the affected property
owner. Thus, while there is no specific agreement between the parties, the issuance of the Citizen's Charter serves as its
notice to the public as to the procedure it shall generally take in cases of expropriation under RA 8974.
COMMISSIONER OF INTERNAL REVENUE vs. PILIPINAS SHELL PETROLEUM CORPORATION, G.R.
No. 192398, September 29, 2014

Facts:
In 1999, Shell entered into a Plan of Merger with its affiliate, Shell Philippine Petroleum Corporation which provided that
the entire assets and liabilities of SPPC will be transferred to, and absorbed by, respondent as the surviving entity. This
merger was approved by SEC. Shell then paid to the BIR documentary stamp taxes amounting to ₱524,316.00 on the
original issuance of shares of stock of respondent issued in exchange for the surrendered SPPC shares pursuant to Section
175 of the NIRC. Confirming the tax-free nature of the merger between respondent and SPPC, the BIR ruled that pursuant
to Section 40 (C)(2) and (6)(b) of the NIRC, no gain or loss shall be recognized, if, in pursuance to a plan of merger or
consolidation, a shareholder exchanges stock in a corporation which is a party to the merger or consolidation solely for the
stock of another corporation which is also a party to the merger or consolidation. The BIR ruled that no gain or loss shall
be recognized by the stockholders of SPPC on the exchange of their shares of stock of SPPC solely for shares of stock of
respondent pursuant to the Plan of Merger. The BIR, however, stated that the issuance by PSPC of its own shares of stock
to the shareholders of SPPC in exchange for the surrendered certificates of stock of SPPC, and the exchange of land and
improvements by SPPC to PSPC for the latter’s shares of stock shall be subject to the documentary stamp tax
Shell then paid to the BIR the amount of ₱22,101,407.64 as documentary stamp tax on the transfer of real property from
SPPC to respondent. Believing that it erroneously paid documentary stamp tax on its absorption of real property owned by
SPPC, respondent filed with petitioner, a formal claim for refund or tax credit of the documentary stamp tax.
CA: affirmed the Decision of the CTA ordering petitioner to refund, or in the alternative, issue a tax credit certificate in
favor of Pilipinas Shell Petroleum Corporation in the amount of 1!22,101,407.64 representing the latter's erroneously paid
documentary stamp tax for the taxable year 2000. Also, the transfer of the properties of SPPC to respondent was not in
exchange for the latter’s shares of stock but is a legal consequence of the merger. It ruled that the actual transfer of
SPPC’s real properties to respondent was not effected by or dependent upon any voluntary deed, conveyance or
assignment but occurred by operation of law.

Issues: 1) whether the transfer of SPPC’s real properties to respondent is subject to documentary stamp tax under Section
196 of the Tax Code; (2) whether respondent is entitled to the refund/tax credit in the amount of ₱22,101,407.64
representing documentary stamp tax paid for the taxable year 2000 in connection with the transfer of real properties from
SPPC to respondent.

Held:
Documentary stamp tax is imposed on all conveyances, deeds, instruments or writings whereby land or realty sold shall be
conveyed to the purchaser or purchasers. It is a rule in statutory construction that the law must not be read in truncated
parts, its provisions must be read in relation to the whole law. Section 196 doesn’t cover all transfers and conveyances of
real property for a valuable consideration. It pertains only to sale transactions where real property is conveyed to a
purchaser for a consideration. The phrase "granted, assigned, transferred or otherwise conveyed" is qualified by the word
"sold" which means that documentary stamp tax is imposed on the transfer of realty by way of sale and does not apply to
all conveyances of real property. Section 196 should be read as a whole and not phrase by phrase. The phrase granted,
assigned, transferred or otherwise conveyed clearly refers to the phrase whereby any land, tenement or other realty is sold.
This clearly shows that the legislature intended Section 196 to refer to a transfer of realty by virtue of sale. In addition, the
basis of the stamp tax is the consideration agreed upon by the parties or the property’s fair market value. Taking all of
these into consideration, it is beyond doubt that Section 196 pertains to a transfer of realty by way of sale.
It should be emphasized that in the instant case, the transfer of SPPC’s real property to respondent was pursuant to their
approved plan of merger. Although there is a dissolution of the absorbed or merged corporations, there is no winding up
of their affairs or liquidation of their assets because the surviving corporation automatically acquires all their rights
,privileges, and powers, as well as their liabilities.22 Here, SPPC ceased to have any legal personality and respondent
PSPC stepped into everything that was SPPC’s, pursuant to the law and the terms of their Plan of Merger. In a merger, the
real properties are not deemed "sold" to the surviving corporation and the latter could not be considered as "purchaser" of
realty since the real properties subject of the merger were merely absorbed by the surviving corporation by operation of
law and these properties are deemed automatically transferred to and vested in the surviving corporation without further
act or deed. Therefore, the transfer of real properties to the surviving corporation in pursuance of a merger is not subject to
documentary stamp tax.
Furthermore, it should be noted that a documentary stamp tax is in the nature of an excise tax because it is imposed upon
the privilege, opportunity or facility offered at exchanges for the transaction of the business. Documentary stamp tax is a
tax on documents, instruments, loan agreements, and papers evidencing the acceptance, assignment, or transfer of an
obligation, right or property incident thereto. Documentary stamp tax is thus imposed on the exercise of these privileges
through the execution of specific instruments, independently of the legal status of the transactions giving rise
thereto. Based on the foregoing, the transfer of real properties from SPPC to respondent is not subject to documentary
stamp tax considering that the same was not conveyed to or vested in respondent by means of any specific deed,
instrument or writing. There was no deed of assignment and transfer separately executed by the parties for the conveyance
of the real properties. The conveyance of real properties not being embodied in a separate instrument but is incorporated
in the merger plan, thus, respondent is not liable to pay documentary stamp tax.
RA 9243, entitled "An Act Rationalizing the Provisions of the Documentary Stamp Tax of the National Internal Revenue
Code of 1997" was enacted and took effect in 2004 which exempts the transfer of real property of a corporation, which is
a party to the merger or consolidation, to another corporation, which is also a party to the merger or consolidation, from
the payment of documentary stamp tax. The enactment of the said law now removes any doubt and had made clear that
the transfer of real properties as a consequence of merger or consolidation is not subject to documentary stamp tax.

THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED-PHILIPPINE BRANCHES, vs.

COMMISSIONER OF INTERNAL REVENUE, G.R. No. 166018, June 4, 2014
Facts:
HSBC performs custodial services on behalf of its investor-clients, corporate and individual, resident or non-resident of
the Philippines, with respect to their passive investments in the Philippines, particularly investments in shares of stocks in
domestic corporations. As a custodian bank, HSBC serves as the collection/payment agent with respect to dividends and
other income derived from its investor-clients’ passive investments. Its investor-clients maintain Philippine peso and/or
foreign currency accounts, which they managed through instructions given through electronic messages. The said
instructions are standard forms known in the banking industry as SWIFT. In purchasing shares of stock and other
investment in securities, the investor-clients would send electronic messages from abroad instructing HSBC to debit their
local or foreign currency accounts and to pay the purchase price therefor upon receipt of the securities. Pursuant to the
electronic messages of its investor-clients, HSBC purchased and paid DST from September to December 1997 and also
from January to December 1998 amounting to ₱19,572,992.10 and ₱32,904,437.30, respectively,
In 1999, BIR, thru its then Commissioner, Rualo, issued a BIR Ruling to the effect that instructions or advises from
abroad on the management of funds located in the Philippines which do not involve transfer of funds from abroad are not
subject to DST. Furthermore, a documentary stamp tax shall be imposed on any bill of exchange or order for payment
purporting to be drawn in a foreign country but payable in the Philippines.
a. While the payor is residing outside the Philippines, he maintains a local and foreign currency account in the Philippines
from where he will draw the money intended to pay a named recipient. The instruction or order to pay shall be made
through an electronic message.
Consequently, there is no negotiable instrument to be made, signed or issued by the payee.
b. Such electronic instructions by the non-resident payor cannot be considered as a transaction per se considering that the
same do not involve any transfer of funds from abroad or from the place where the instruction originates.
Under the Documentary Stamp Tax Law, the mere withdrawal of money from a bank deposit, local or foreign currency
account, is not subject to DST, unless the account so maintained is a current or checking account, in which case, the
issuance of the check or bank drafts is subject to the documentary stamp tax.
c. Likewise, the receipt of funds from another bank in the Philippines for deposit to the payee’s account and thereafter
upon instruction of the non-resident depositor-payor, through an electronic message, the depository bank to debit his
account and pay a named recipient shall not be subject to documentary stamp tax.
With the BIR Ruling as its basis, HSBC filed on an administrative claim for the refund of allegedly representing
erroneously paid DST to the BIR As its claims for refund were not acted upon by the BIR, HSBC subsequently brought
the matter to the CTA: favored HSBC and ordered payment of refund or issuance of tax credit.
CA: reversed CTA’s decision & ruled that electronic messages of HSBC’s investor-clients are subject to DST.

Issue: whether such electronic messages may be equated as a written document and thus be subject to tax. NO
Held:
DST under Section 181 of the Tax Code is levied on the acceptance or payment of "a bill of exchange purporting to be
drawn in a foreign country but payable in the Philippines" and that "a bill of exchange is an unconditional order in writing
addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on
demand or at a fixed or determinable future time a sum certain in money to order or to bearer.
The electronic messages of HSBC’s investor-clients containing instructions to debit their respective local or foreign
currency accounts in the Philippines and pay a certain named recipient also residing in the Philippines is not the
transaction contemplated under Section 181 of the Tax Code as such instructions are "parallel to an automatic bank
transfer of local funds from a savings account to a checking account maintained by a depositor in one bank.” The
electronic messages "cannot be considered negotiable instruments as they lack the feature of negotiability, which, is the
ability to be transferred" and that the said electronic messages are "mere memoranda" of the transaction consisting of the
"actual debiting of the [investor-client-payor’s] local or foreign currency account in the Philippines" and "entered as such
in the books of account of the local bank," HSBC.
As there was no bill of exchange or order for the payment drawn abroad and made payable here in the Philippines, there
could have been no acceptance or payment that will trigger the imposition of the DST under Section 181 of the Tax Code.
The pertinent provision of the present Tax Code has remained substantially the same for the past 100 years. The identical
text and common history of Section 230 of the 1977 Tax Code, as amended, and the 1997 Tax Code, as amended, show
that the law imposes DST on either (a) the acceptance or (b) the payment of a foreign bill of exchange or order for the
payment of money that was drawn abroad but payable in the Philippines.
DST is an excise tax on the exercise of a right or privilege to transfer obligations, rights or properties incident
thereto. Under Section 173 of the 1997 Tax Code, the persons primarily liable for the payment of the DST are those (1)
making, (2) signing, (3) issuing, (4) accepting, or (5) transferring the taxable documents, instruments or papers.
In general, DST is levied on the exercise by persons of certain privileges conferred by law for the creation, revision, or
termination of specific legal relationships through the execution of specific instruments. Examples of such privileges, the
exercise of which, as effected through the issuance of particular documents, are subject to the payment of DST are leases
of lands, mortgages, pledges and trusts, and conveyances of real property.
Revenue Regulations No. 26 recognizes that the acceptance or payment that is subjected to is done after presentment for
acceptance or presentment for payment, respectively. The electronic messages received by HSBC from its investor-clients
abroad instructing the former to debit the latter's local and foreign currency accounts and to pay the purchase price of
shares of stock or investment in securities do not properly qualify as either presentment for acceptance or presentment for
payment. There being neither presentment for acceptance nor presentment for payment, then there was no acceptance or
payment that could have been subjected to DST to speak of.