Hopewell Power vs.

CIR
C.T.A. Case No. 5310, November 18, 1998

Facts:

- On December 29, 1993, petitioner, together with Hopewell Energy International, a

foreign company under Hong Kong, entered into a Mortgage Trust Indenture (MTI) for
the mortgage of their chattel and real estate assets with the Bank America National
Trust, a company under the laws of New York, U.S.A. The execution of the MTI was
done in Hong Kong.
- On even date, petitioner paid under protest the amount of the Documentary Stamp Tax
(DST) with respondent’s Bureau (BIR) in order to register the MTI with the Register of
Deeds of Lucena, Quezon Province. On the same day, respondent received from the
petitioner a letter of request asking for confirmation on the tax exemption of the DST on
the MTI executed abroad.
- On November 17, 1995, petitioner filed the written requisite written claim for refund with
respondent for erroneous payment for the MTI’s execution in Hong Kong.
- Respondent’s inaction prompted a petition for review filed by petitioner at the Court of
Tax Appeals. Petitioner claims that a DST, being an excise tax, does not attach to the
execution of the documents in Hong Kong. Sec. 173 of the Tax Code prior to its
amendment by R.A. No. 7660 on January 14, 1994.
Issue:

- Whether the MTI document executed in Hong Kong is exempted from DST, being an
excise tax.
Ruling:
Petition Granted

- A – Yes. The agreement executed in Hong Kong is exempt from an excise tax such as
DTI.
- L – Sec. 173 of the Tax Code prior to amendment by R.A. 7660
- A – In accordance with Sec. 173 as amended Documentary Stamp Tax is no longer
directly imposed upon the act or privilege of transacting documents, instruments, papers
and loan agreements per se, but rather on the act or privilege of simply transacting on
any obligation or right arising from Philippine sources, or on any property situated in the
Philippines. As long as the MTI was executed and signed in Hong Kong prior to the
effectivity of Republic Act No. 7660 on January 14, 1994, no DST is imposable on the
same in the Philippines. This conclusion is also in keeping with one of the inherent
limitations of taxation, namely, that it may be exercised only within the territorial
jurisdiction of the taxing authority.
- C – The MTI agreement entered into by petitioners is exempt from Documentary Stamp
Tax as the agreement was effected prior to R.A. 7660.