G.R. No. 175188 - Commissioner of Internal Revenue vs. La Tondena Distillers, Inc.

Petitioner: Commissioner of Internal Revenue (CIR)
Respondent: La Tondena Distillers, Inc. (LTDI), later renamed Ginebra San Miguel, Inc. (GSMI)
Subject: Whether the transfer of real property to a surviving corporation pursuant to a merger is subject to Documentary Stamp Tax (DST) under Section 196 of the National Internal Revenue Code (NIRC).

On September 17, 2001, LTDI entered into a Plan of Merger with Sugarland Beverage Corporation (SBC), SMC Juice, Inc. (SMCJI), and Metro Bottled Water Corporation (MBWC).
The merger transferred all assets and liabilities of the absorbed corporations to LTDI as the surviving entity.
The Securities and Exchange Commission (SEC) approved the Plan of Merger on October 15, 2001.

On September 26, 2001, respondent requested confirmation from the Bureau of Internal Revenue (BIR) on the tax-free nature of the merger.
On November 5, 2001, the BIR ruled that under Sections 40(C)(2) and 40(C)(6)(b) of the NIRC, no gain or loss shall be recognized by the absorbed corporations; however, transfer of assets such as real properties is subject to DST under Section 196 of the NIRC.
Consequently, between October 31, 2001 and November 15, 2001, respondent paid a total of P14,140,980.00 in DST based on the fair market value of real properties transferred.

On October 14, 2003, respondent filed a claim for refund or tax credit of the DST paid, asserting exemption from DST.
On the same day, respondent filed a Petition for Review with the Court of Tax Appeals (CTA), docketed as C.T.A. Case No. 6796.

On January 6, 2006, the CTA 2nd Division granted the refund, ruling that Section 196 does not apply to mergers because there is no purchaser or sale involved; property is transferred by law without further act or deed.
Citing Section 80 of the Corporation Code, it held that all property of the constituent corporations is deemed transferred and vested in the surviving corporation by operation of law upon merger.
The division also referenced Republic Act No. 9243 (enacted in 2004), which amended Section 199 of the NIRC to specifically exempt merger-related transfers from DST.
Petitioner’s motion for reconsideration was denied.

On September 26, 2006, the CTA En Banc affirmed the CTA 2nd Division decision, holding that merger transfers are not subject to DST because such transfers are not sales but automatic transfers by operation of law.
Petitioner’s motion for reconsideration was denied by the CTA En Banc on October 31, 2006.

Petitioner elevated the case to the Supreme Court via Petition for Review on Certiorari under Rule 45, raising the sole issue whether the CTA erred in exempting respondent from DST on the property transfer pursuant to the merger.

Whether the transfer of real properties to a surviving corporation pursuant to a corporate merger is subject to Documentary Stamp Tax under Section 196 of the National Internal Revenue Code.