G.R. No. 192398 - Commissioner of Internal Revenue vs. Pilipinas Shell Petroleum Corp.

The petitioner, Commissioner of Internal Revenue, represents the Bureau of Internal Revenue (BIR) and is tasked with the assessment and collection of taxes.
The respondent, Pilipinas Shell Petroleum Corporation (PSPC), is a corporation engaged in the construction, operation, and maintenance of refineries and other petroleum-related facilities.

On April 27, 1999, PSPC entered into a Plan of Merger with its affiliate, Shell Philippine Petroleum Corporation (SPPC).

Under the merger, all assets and liabilities of SPPC were to be transferred and absorbed by PSPC as the surviving entity.
The Securities and Exchange Commission approved the merger on July 1, 1999.

As part of the merger, on August 10, 1999, PSPC paid documentary stamp tax (DST) of P524,316.00 on the original issuance of its shares in exchange for SPPC shares pursuant to Section 175 of the Tax Code.
The BIR issued a ruling on October 4, 1999, confirming that:

No gain or loss is recognized by SPPC stockholders when they exchange their shares for those of PSPC under the merger;
However, documentary stamp tax is imposed on the issuance of PSPC’s shares and on the transfer of real property, under specified conditions.

On May 10, 2000, PSPC paid an amount of P22,101,407.64 to the BIR as documentary stamp tax on the transfer of real property from SPPC to PSPC.
PSPC later filed a formal claim for refund or for the issuance of a tax credit certificate, asserting that the DST payment on the real property transfer was erroneously imposed.

Due to inaction by the petitioner regarding the refund claim, PSPC filed a petition for review with the Court of Tax Appeals (CTA) on May 8, 2002, seeking to suspend the two-year prescriptive period.
The CTA, in its Decision dated April 30, 2003, ruled in favor of the respondent and granted the refund or tax credit, reasoning that:

The transfer of real property in the merger was a legal consequence occurring by operation of law rather than by any voluntary conveyance;
Thus, it did not fall within transactions subject to DST under Section 196 of the Tax Code.

The Court of Appeals (CA) later dismissed the petitioner’s petition for review, denying its motion for reconsideration (Resolution dated April 13, 2010), and affirmed the CTA decision.
Finally, the petitioner filed a petition for review on certiorari before the Supreme Court, challenging the application of DST on the real property transfer transaction.

The petitioner contended that the transfer of SPPC’s real properties to PSPC, even though part of a merger, was subject to documentary stamp tax under Section 196 because it was a conveyance for shares of stock.
It argued that the merger involved voluntary acts and was not entirely by operation of law; hence, the DST should apply to the transfer of real property.
The petitioner further maintained that the separate tax treatments on different merger components were warranted.

The respondent argued that the transfer of real property was merely an automatic, statutory consequence of the merger and did not involve any separate deed or voluntary act of conveyance.
It asserted that, since no consideration was paid in money or money’s worth for the real property transfer, the transaction did not attract DST under Section 196 and should rightly be exempted, especially in light of RA 9243.

Whether the transfer of SPPC’s real properties to PSPC is subject to documentary stamp tax under Section 196 of the Tax Code.
Whether PSPC is entitled to a refund or tax credit of P22,101,407.64, representing the documentary stamp tax erroneously paid on the transfer of real property as part of the merger.