DST

Sections 175 and 176 of the NIRC of 1997 contemplate a subscription agreement in order for a taxpayer to be liable to DST.  However, respondent is not liable for DST on its deposit on subscription.

In Section 175 of the Tax Code, DST is imposed on the original issue of shares of stock.  The DST, as an excise tax, is levied upon the privilege, the opportunity and the facility of issuing shares of stock.  In Commissioner of Internal Revenue v. Construction Resources of Asia, Inc. [230 Phil. 76 (1986)], this Court explained that the DST attaches upon acceptance of the stockholder’s subscription in the corporation’s capital stock regardless of actual or constructive delivery of the certificates of stock.  Citing Philippine Consolidated Coconut Ind., Inc. v. Collector of Internal Revenue [162 Phil. 32 (1986)], the Court held:

The documentary stamp tax under this provision of the law may be levied only once, that is upon the original issue of the certificate.  The crucial point therefore, in the case before Us is the proper interpretation of the word ‘issue.’  In other words, when is the certificate of stock deemed ‘issued’ for the purpose of imposing the documentary stamp tax?  Is it at the time the certificates of stock are printed, at the time they are filled up (in whose name the stocks represented in the certificate appear as certified by the proper officials of the corporation), at the time they are released by the corporation, or at the time they are in the possession (actual or constructive) of the stockholders owning them?

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Ordinarily, when a corporation issues a certificate of stock (representing the ownership of stocks in the corporation to fully paid subscription) the certificate of stock can be utilized for the exercise of the attributes of ownership over the stocks mentioned on its face.  The stocks can be alienated; the dividends or fruits derived therefrom can be enjoyed, and they can be conveyed, pledged or encumbered.  The certificate as issued by the corporation, irrespective of whether or not it is in the actual or constructive possession of the stockholder, is considered issued because it is with value and hence the documentary stamp tax must be paid as imposed by Section 212 of the National Internal Revenue Code, as amended.

In Section 176 of the Tax Code, DST is imposed on the sales, agreements to sell, memoranda of sales, 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 certificates of stock, or to secure the future payment of money, or for the future transfer of certificates of stock.  In Compagnie Financiere Sucres et Denrees v. Commissioner of Internal Revenue, this Court held that under Section 176 of the Tax Code, sales to secure the future transfer of due-bills, certificates of obligation or certificates of stock are subject to documentary stamp tax.

RMO No. 08-98 provides the guidelines on the corporate stock documentary stamp tax program.  RMO No. 08-98 states that:

1.  All existing corporations shall file the Corporation Stock DST Declaration, and the DST Return, if applicable when DST is still due on the subscribed share issued by the corporation, on or before the tenth day of the month following publication of this Order.

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3.  All existing corporations with authorization for increased capital stock shall file their Corporate Stock DST Declaration, together with the DST Return, if applicable when DST is due on subscriptions made after the authorization, on or before the tenth day of the month following the date of authorization.  (Boldfacing supplied)

RMO No 08-98, reiterating RMC No. 47-97, also states that what is being taxed is the privilege of issuing shares of stock, and, therefore, the taxes accrue at the time the shares are issued.  RMC No. 47-97 also defines issuance as the point in which the stockholder acquires and may exercise attributes of ownership over the stocks.

As pointed out by the CTA, Sections 175 and 176 of the Tax Code contemplate a subscription agreement in order for a taxpayer to be liable to pay the DST.  A subscription contract is defined as any contract for the acquisition of unissued stocks in an existing corporation or a corporation still to be formed.  A stock subscription is a contract by which the subscriber agrees to take a certain number of shares of the capital stock of a corporation, paying for the same or expressly or impliedly promising to pay for the same.

Based on Rosario’s testimony and respondent’s financial statements as of 1998, there was no agreement to subscribe to the unissued shares.  Here, the deposit on stock subscription refers to an amount of money received by the corporation as a deposit with the possibility of applying the same as payment for the future issuance of capital stock.  In Commissioner of Internal Revenue v. Construction Resources of Asia, Inc. [230 Phil. 76 (1986)], we held:

We are firmly convinced that the Government stands to lose nothing in imposing the documentary stamp tax only on those stock certificates duly issued, or wherein the stockholders can freely exercise the attributes of ownership and with value at the time they are originally issued.  As regards those certificates of stocks temporarily subject to suspensive conditions they shall be liable for said tax only when released from said conditions, for then and only then shall they truly acquire any practical value for their owners. (Boldfacing supplied)

Clearly, the deposit on stock subscription as reflected in respondent’s Balance Sheet as of 1998 is not a subscription agreement subject to the payment of DST.  There is no P800,000 worth of subscribed capital stock that is reflected in respondent’s GIS.  The deposit on stock subscription is merely an amount of money received by a corporation with a view of applying the same as payment for additional issuance of shares in the future, an event which may or may not happen.  The person making a deposit on stock subscription does not have the standing of a stockholder and he is not entitled to dividends, voting rights or other prerogatives and  attributes of a stockholder.  Hence, respondent is not liable for the payment of DST on its deposit on subscription for the reason that there is yet no subscription that creates rights and obligations between the subscriber and the corporation.

~~~Commissioner of Internal Revenue vs. First Express Pawnshop Company, Inc. (G.R. Nos. 172045-46, 16 June 2009, 1st Div., J. Carpio)

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