G.R. No. 178701 - Respicio vs. People

In 1994, JAKA Investments Corporation (petitioner) sought to invest in JAKA Equities Corporation (JEC), which intended to undertake an initial public offering (IPO) and increase its authorized capital stock from ₱185 million to ₱2 billion.

Petitioner agreed to subscribe to ₱508,806,200 out of the increase through a tax-free exchange under Section 34(c)(2) of the National Internal Revenue Code (NIRC) of 1977, executed by a Subscription Agreement and Deed of Assignment of Property in Payment of Subscription.
The payment was through assignment and transfer to JEC of shares in Republic Glass Holdings Corporation (RGHC), Philippine Global Communications, Inc. (PGCI), United Coconut Planters Bank (UCPB), and Far East Bank and Trust Company (FEBTC).

The IPO and listing did not push through, but JEC proceeded with the capital increase, and petitioner subscribed under amended terms.

The Amended Subscription Agreement dated September 5, 1994, retained transfers of RGHC, PGCI, and UCPB shares and substituted FEBTC shares with a cash payment of ₱370,766,000.
On October 14, 1994, petitioner paid documentary stamp tax (DST) of ₱1,003,895.65 (inclusive of 25% surcharge), broken down as ₱803,116.72 DST plus ₱200,778.93 surcharge.

On October 17, 1994, the Revenue District Officer (RDO) issued three certifications authorizing documentary stamp taxes on the transfer of shares as follows: UCPB shares at ₱23,423.14; RGHC shares at ₱481,901.88; and PGCI shares at ₱88,203.13, totaling ₱593,528.15.

Petitioner concluded it had overpaid documentary stamp tax by ₱410,367.00 (difference between actual payment and RDO certification) and requested a refund through a letter dated October 10, 1996.

Petitioner filed a petition for refund before the Court of Tax Appeals (CTA) on October 11, 1996, which was denied in a Decision dated January 19, 1999.
The CTA also denied petitioner’s Motion for Reconsideration (March 1, 1999), and the Court of Appeals sustained these rulings in August 2000 and March 2001.

Petitioner argued the tax base for documentary stamp tax should be only the transferred shares (RGHC, PGCI, UCPB) and not the cash portion, under Section 176 of the NIRC (the New Documentary Stamps Tax Law effective in 1994).
Petitioner distinguished between:

Documentary stamp tax on original issuance of shares (Section 175), which attaches to fully paid shares of stock upon issuance of certificates; and
Documentary stamp tax on transfer of shares (Section 176), imposed on transfers whether or not certificates are issued.

Petitioner claimed that the documentary stamp tax on the cash portion should not be charged because it was not a transfer of shares, and therefore there's overpayment corresponding to that cash portion.
Petitioner asserted the documentary stamp tax on Section 175 only accrues upon issuance of certificates of stock and not upon execution of subscription agreement, which in this case was not yet approved by the SEC at the time of the amended subscription agreement.
Petitioner requested refund under Section 295 of the NIRC which allows refunds of taxes erroneously or illegally paid.

The documentary stamp tax imposed was on the original issue of the JEC shares subscribed by petitioner (Section 175), not on transfer of petitioner’s shares in the other corporations.
The RDO certificates merely authorized registration of transfer of those shares for payment purposes but do not evidence payment of documentary stamp tax on issuance.
Documentary stamp tax attaches upon acceptance of subscription regardless of actual issuance or possession of certificate (constructive or actual), validated by prior jurisprudence.
The increase in capital stock and subscription payment was considered fully made, and tax was due accordingly.
The change in wording from certificates to shares in the 1997 Tax Code clarified existing principles; the applicable 1994 provisions still applied.
Documentary stamp tax is imposed on the privilege of issuing shares (excise tax), and payment liability extends to the subscriber.

Petitioner clarified that the documentary stamp tax for original issuance as per Section 175 at 2 pesos per 200 pesos par value should have been ₱5,088,062 if the tax paid (₱803,116.72) corresponded to original issuance.
Petitioner's payment was likely computed properly by a revenue officer, and RDO certificates evidenced payment of tax on transfer only.
Since no BIR certification is required for original issuance, tax on original issuance is subject to audit and deficiency assessment later if unpaid.
Transfer tax requires BIR certification to allow recording in corporate books, thus certification were for transfer only, evidencing tax payment on the transfer of shares.

The CTA and Court of Appeals held that documentary stamp tax is levied on the document evidencing the transactions (the Amended Subscription Agreement), which fixed the rights and obligations and tax liability arises at execution of such document.

Whether petitioner is entitled to a refund of the documentary stamp tax and surcharges paid in excess, specifically on the cash portion paid in the Amended Subscription Agreement.
Whether the documentary stamp tax under Section 175 or Section 176 of the 1994 NIRC applies to the transaction described in the Amended Subscription Agreement, especially in light of the transfer of shares versus original stock issuance principles.
When does the documentary stamp tax on the original issuance of shares accrue – upon execution of subscription agreement or upon issuance and acceptance of shares?
Whether the documentary stamp tax certificates issued by the RDO evidencing payment relate to the original share issuance or to the transfer of shares used for payment.