Case Summary (G.R. No. 247645)
Factual Background and Merger Details
La Tondeña Distillers, Inc. (respondent) entered into a Plan of Merger with Sugarland Beverage Corporation, SMC Juice, Inc., and Metro Bottled Water Corporation. Pursuant to this merger, the latter corporations' assets and liabilities were transferred to respondent as the surviving corporation, which later changed its corporate name to Ginebra San Miguel, Inc. The respondent sought confirmation from the Bureau of Internal Revenue (BIR) that the merger was tax-free, but the BIR ruled that, while no gain or loss shall be recognized on the transfer of assets under the merger (per Sections 40(C)(2) and (6)(b) of the NIRC), the transfer of real property remains subject to Documentary Stamp Tax (DST) under Section 196 of the NIRC. Respondent paid DST amounting to P14,140,980.00 on various properties acquired through the merger. Subsequently, respondent filed a claim for tax refund or credit on the ground that such DST was erroneously paid.
Ruling of the Court of Tax Appeals (CTA) Division
The CTA Second Division ruled in favor of the respondent, concluding that Section 196 of the NIRC, which imposes DST on conveyances of real property, does not apply to transfers made pursuant to a corporate merger because there is no sale or purchase involved. Citing Section 80 of the Corporation Code, the CTA clarified that the transfer of assets in a merger occurs by operation of law and without any further act or deed, distinguishing it from a sale transaction. The Division also noted that Republic Act No. 9243, which amended Section 199 of the NIRC to expressly exempt properties transferred pursuant to a merger from DST, removed any doubt about the tax-free status of such transfers. The petition for reconsideration by the Commissioner of Internal Revenue was denied.
Ruling of the Court of Tax Appeals (CTA) En Banc
The CTA En Banc affirmed the Second Division’s decision, reasoning that DST under Section 196 applies only to sales of real property to purchasers, and not to transfers by operation of law such as mergers. It emphasized that the surviving corporation automatically acquires all properties of the absorbed corporations without purchase or sale, thus the transfer is not subject to DST. The En Banc also denied the motion for reconsideration filed by petitioner.
Issue
Whether the CTA En Banc erred in ruling that respondent is exempt from payment of Documentary Stamp Tax on the transfer of real properties pursuant to the corporate merger.
Petitioner’s Arguments
The petitioner argued that DST is imposed on the privilege of conveying real property regardless of the mode of conveyance, including transfers during mergers. Further, it contested the applicability of RA 9243's exemption, asserting it applies prospectively and thus cannot benefit respondent, as the alleged tax liability accrued prior to the law’s enactment.
Respondent’s Arguments
Respondent contended that DST under Section 196 is only imposed on sales where real property is conveyed to a purchaser; a merger is not a sale but a legal consolidation of corporations where properties are absorbed by the surviving corporation by operation of law, without any purchaser involved.
Supreme Court’s Ruling
The Supreme Court denied the petition, affirming the exemption from DST for transfers of real property pursuant to mergers. It relied on the ruling in Commissioner of Internal Revenue v. Pilipinas Shell Petroleum Corporation, which clarified that Section 196 of the NIRC imposes DST solely on conveyances through sale, not on property transfers by operation of law. The Court underscored that terms like "sold," "purchaser," and "consideration" in Section 196 indicate an intention to tax sales transactions only.
The Court further explained that in a merger, the surviving corporation automatically acquires all rights, properties, and liabilities of the absorbed corporations without any need for further acts or deeds, per Section 80 of the Corporation Code. This automatic transfer b
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Facts and Procedural Posture
- On September 17, 2001, La Tondena Distillers, Inc. (respondent) entered into a Plan of Merger with Sugarland Beverage Corporation (SBC), SMC Juice, Inc. (SMCJI), and Metro Bottled Water Corporation (MBWC).
- The merger resulted in the transfer of all assets and liabilities of the absorbed corporations to La Tondena Distillers, which later changed its name to Ginebra San Miguel, Inc.
- Respondent requested confirmation from the Bureau of Internal Revenue (BIR) regarding the tax-free nature of the merger.
- On November 5, 2001, BIR ruled that although no gain or loss would be recognized by the absorbed corporations under Sections 40(C)(2) and 40(C)(6)(b) of the 1997 NIRC, the transfer of assets such as real property would be subject to Documentary Stamp Tax (DST) under Section 196 of the NIRC.
- In reliance on this ruling, respondent paid DST totaling P14,140,980.00 for several properties transferred to it in different locations as part of the merger.
- On October 14, 2003, respondent filed an administrative claim for refund or tax credit of the DST it paid, alleging exemption from the tax.
- Concurrently, respondent filed a Petition for Review with the Court of Tax Appeals (CTA) contesting the imposition of DST on the merger transaction.
Court of Tax Appeals (CTA) Decisions
- The CTA Second Division ruled on January 6, 2006, that respondent was entitled to a refund of the DST paid on the grounds that Section 196 of the NIRC did not apply to property transfers due to merger transactions.
- The CTA reasoned that the merger did not constitute a sale because no purchaser or buyer was involved; rather, assets were vested in the surviving corporation by operation of law pursuant to Section 80 of the Corporation Code.
- The CTA also noted that Republic Act No. 9243, enacted in 2004, clarified the exemption of property transfers pursuant to mergers from DST obligations.
- Petitioner's motion for reconsideration was denied by the CTA Second Division on April 4, 2006.
- The petitioner elevated the case to the CTA En Banc, which on September 26, 2006, affirmed the Second Division's ruling, emphasizing that transfers by merger are not sales but automatic vesting of properties without further act or deed.
- The CTA En Banc denied petitioner’s motion for reconsideration on October 31, 2006, thus sustaining respondent’s entitlement to the DST refund.
Issue Presented
- Whether the Court of Tax Appeals En Banc erred in ruling that respondent is exempt from payment of Documentary Stamp Tax on the transfer of real property under the merger.
Petitioner's Arguments
- DST is imposed on the privilege of convey