DOCUMENTARY STAMP TAX

I.

In General

What is Documentary stamp tax (DST)? It is a tax on documents, instruments and papers
evidencing the acceptance, assignment, sale or transfer of an obligation, right, or property
thereto.
A documentary stamp tax is in the nature of an excise or privilege tax because it is really
imposed on the privilege to enter into a transaction rather on document.
In Commissioner v. Herald lumber co. (119 Phil 647), the court described Documentary Stamp
Tax as an Excise upon the facility used in the transaction of the Business separate and apart from
the business itself;
In Michel J. Lhuillier Pawnshop, Inc. v. CIR (G.R. No. 166786, May 3, 2006), the court also
describes DST where it states that in general, documentary stamp taxes are levied on the exercise
by persons of certain privileges conferred by law for the creation, revision, or termination of
specific legal relationships through the execution of specific instruments. Examples of such
privileges, the exercise of which, as effected through the issuance of particular documents, are
subject to the payment of documentary stamp taxes are leases of lands, mortgages, pledges and
trusts, and conveyances of real property
Therefore, as provided by the National Internal Revenue Code (NIRC), sec. 173 it describes
DST, to wit:
Section 173. Stamp Taxes Upon Documents, Loan Agreements, Instruments and Papers.
Upon documents, instruments, loan agreements and papers, and upon acceptances, assignments,
sales and transfers of the obligation, right or property incident thereto, there shall be levied,
collected and paid for, and in respect of the transaction so had or accomplished, the
corresponding documentary stamp taxes prescribed in the following sections of this Title, by the
person making, signing, issuing, accepting, or transferring the same wherever the document is
made, signed, issued, accepted, or transferred when the obligation or right arises from

Philippine sources or the property is situated in the Philippines, and the same time such act is
done or transaction had: Provided, That whenever one party to the taxable document enjoys
exemption from the tax herein imposed, the other party who is not exempt shall be the one
directly liable for the tax.
Ergo, Documentary stamp tax is a tax on documents, instruments, loan agreements, and papers
evidencing the acceptance, assignment, sale or transfer of an obligation, right or property
incident thereto. It is in the nature of an excise tax because it is imposed upon the privilege,
opportunity or facility offered at exchanges for the transaction of the business. It is an excise
upon the facilities used in the transaction of the business distinct and separate from the business
itself.
II.
Transactions/Documents Subject to DST
A. Original Issuance of shares
On every original issue whether an organization, reorganization, or for any lawful
purpose, of shares of stock by any association, company, or corporation, the rules as provided
by R.A. 9243 are as follows:

a. No documentary stamp tax is due upon certificates of stock issued to replace prior or
original certificates are issued to the same person and the tax has been paid on the
original issue.
b. R.A. No. 8424 amended Section 175 (now 174) by substituting shares for
certificates so that now the tax is imposed no longer on the original issue of certificates
of stocks but of shares of stock.
c. The DST accrues at the time the shares are issued. Issuance means that point at which the
stockholder acquires and may exercise attributes of ownership over the stock.
d. It is actually the transaction or the privilege to enter into a transaction evidenced by the
document or instrument on which the documentary stamp tax is imposed but in the
absence of the document or instrument there is nothing to which the documentary stamp
can be affixed.

In lieu of the foregoing, the tax may be paid either through purchase and actual affixture, or
by imprinting the stamps through a documentary stamp metering machine on the taxable
document.
Our Supreme Court further held that under Section 175, the certificate only need to be issued
but not delivered, actually or constructively, for the DST to attach. But if the certificate
issued is subject to a suspensive condition, it shall be liable to tax only when released from
said condition for then and only then shall it truly acquire any practical value to its owner and
be considered as originally issued.
R.A. 9243 also provided the tax rates of original issuance of shares, to wit:
a. On shares of stocks with par value on each P200.00, or fractional part thereof, of
the par value of such shares P1.00, regardless of the consideration paid by the
stockholders.
b. On shares of stock without par value, the amount of the tax is based on actual
consideration received for the issuance of such stock. Any additional consideration
which may be received for the certificates in the future is of no consequence.
c. On stock dividends, the amount of the tax is based on the actual value (or book value)
represented by each share.

R.A. No. 9243 reduces the rate of tax on the original issue of shares from P2.00 to P1.00
for every P200.0 or a fractional part thereof, of par value. It repeals Section 174 (Stamp
Tax on Debentures and Certificates of Indebtedness), adds Section 180 (Stamp Tax on All
Bills of Exchange or Drafts), amends Section 175, 176, 180, 183, 186, and 199, and then
renumbers formers Sections 175 to 180 as Sections 174 to 179, respectively.

If the certificate issued is subject to a suspensive condition, it shall be liable to tax only
when released from said condition for then and only then shall it truly acquire any

practical value to its owner and be considered as originally issued.

B. Transfer of shares

On transfers of shares, the rules as provided by Sec. 175 of the NIRC and amended by R.A.
9243 are the following, to wit:
a. Documents taxable All sales, or agreements to sell, or memoranda of sales,
or deliveries, or transfer of shares 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 f such
stock, or to secure the future payment of money, or for the future transfer of
any stock.
b. Accrual of tax The tax accrues at the time of making the sale or agreement
to sell or memorandum of sale, or delivery of or transfer of the legal title of
stock, or of the right to subscribe for or to receive such stocks, regardless of
the time or manner of the delivery of the certificate or memorandum of sale.
c. Transfer by operation of law A transfer of certificates of stock by operation
of law as in the case of intestate succession is not subject to the tax.
d. Nature of transfer If the legal and beneficial title remains with the owner of
the certificate of stock, the transfer is exempt from tax.

In the case of Compagnie Financiere Sucres et Deneres v. CIR (G.R. No. 133834, Aug.
28,2006) the court ruled that tax refunds are a derogation of the States taxing power.
Hence, like tax exemptions, they are construed strictly against the taxpayer and liberally
in favor of the State. Consequently, he who claims a refund or exemption from taxes has
the burden of justifying the exemption by words too plain to be mistaken and too
categorical to be misinterpreted. Significantly, petitioner cannot point to any specific
provision of the National Internal Revenue Code authorizing its claim for an
exemption or refund. Rather, Section 176 of the National Internal Revenue Code
applicable to the issue provides that the future transfer of shares of stocks is subject to
documentary stamp tax, thus:

SEC. 176. Stamp tax on sales, agreements to sell, memoranda of sales, deliveries
or transfer of due-bills, certificates of obligation, or shares or certificates of
stock. On all sales, or agreements to sell, or memoranda of sales, or deliveries, or
transfer of due-bills, certificates of obligation, or 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 due bills, certificates of obligation or
stock, or to secure the future payment of money, or for the future transfer of
any due-bill, certificates of obligation or stock, there shall be collected a
documentary stamp tax of fifty centavos (P1.50) on each two hundred
pesos(P200.00), or fractional part thereof, of the par value of such due-bill,
certificates of obligation or stock: Provided, That only one tax shall be collected
on each sale or transfer of stock or securities from one person to
another, regardless of whether or not a certificate of stock or obligation is
issued, indorsed, or delivered in pursuance of such sale or transfer;
and Provided, further, That in case of stock without par value the amount of the
documentary stamp tax herein prescribed shall be equivalent to twentyfive percentum (25%) of the documentary stamp tax paid upon the original issue
of the said stock. (Emphasis supplied).

Clearly, under the above provision, sales to secure the future transfer of due-bills, certificates of
obligation or certificates of stock are liable for documentary stamp tax. No exemption from such
payment of documentary stamp tax is specified therein.

Petitioner contends that the assignment of its deposits on stock subscription is not subject to
capital gains tax because there is no gain to speak of. In the Capital Gains Tax Return on Stock
Transaction, which petitioner filed with the Bureau of Internal Revenue, the acquisition cost of
the shares it sold, including the stock subscription is P69,143,630.28. The transfer price to Kerry
Holdings, Ltd. is P70,332,869.92. Obviously, petitioner has a net gain in the amount
of P1,189,239.64. As the CTA aptly ruled, a tax on the profit of sale on net capital gain is the
very essence of the net capital gains tax law. To hold otherwise will ineluctably deprive the
government of its due and unduly set free from tax liability persons who profited from said
transactions.
Furthermore, the tax basis and rates are as follows:
a. On each P200.00 or fractional part thereof, of the par value of such stock
P0.75
b. Only one tax shall be collected on each sale or transfer of stock from one
person to another regardless of whether or not a certificate of stock is issued,
indorsed or delivered in pursuance of such sale, or transfer.
c. In the case of stock without par value, the amount of the tax shall be
equivalent to 25% of the documentary stamp tax paid upon the original issue
of said stock.

C. Foreign-Issued Bonds, Debentures, Shares or Certificates of Indebtedness, and Other

Instruments
Under Section 176 of the NIRC, the following documents are taxable even if issued in a foreign
country:
a. Bond- is an obligation in writing binding the obligor to pay a sum of
money to the obligee.
b. Debenture- is a simple acknowledgement of a debt.

c. Certificate of stock- is a written instrument signed by the proper officer of

an association, company or corporation, stating or acknowledging that the
person named therein is the owner of a designated no. of shares of its stock.
d. Certificate of indebtedness- is an instrument having the general character
of investment securities issued by a corporation as distinguished from an
instrument evidencing debts arising in ordinary transactions between
individuals.

They are taxable if issued, sold, or transferred within the Philippines.

D. Issue and Transfer of Certificate of Interest in Property or Accumulations

Under Sec. 177 of the NIRC, the following documents are taxable, to wit:
a. All certificates of profits or any certificate or memorandum showing interest in the property
or accumulations of any association, company or corporation;
b. All transfers of such certificates or memoranda;
c. Sales of participation in a partnership are subject to tax because they are considered
accumulations of associations, companies, or corporations;
d. Coupons detached to certificates of stock are certificates of profits and at maturity, or when
detached should each beat the stamp.
e. Business property investment bond.
The basis of the tax rate imposed is that on each P200.00 or fractional part thereof, of the
face value of such certificate or memorandum P0.50.

E. Bank Checks, Drafts, Certificates of Deposit not Bearing Interest

For Bank Checks, certificates of deposit not bearing instrument to be taxable under sec. 178
of the NIRC, it should be an inland bank checks, drafts, or certificates of deposit not drawing
interest, or orders for the payment of any sum of money drawn upon or issued by any bank, trust

company, or any person/s companies or corporations at sight or on demand; furthermore the tax
rate is pegged at P1.50 for each such instrument.