Philam Life sold its shares in Philam Care Health Systems to STI Investments Inc., the highest bidder. After the sale was completed, Philam life applied for a tax clearance and was informed by BIR that there is a need to secure a BIR Ruling due to a potential donor’s tax liability on the sold shares.
ISSUE on DONOR’S TAX:
W/N the sales of shares sold for
less than an adequate consideration be subject to donor’s tax?
PETITIONER’S CONTENTION:
The transaction cannot attract
donor’s tax liability since there was no donative intent and, ergo, no taxable
donation, citing BIR Ruling [DA-(DT-065) 715-09] dated November 27, 2009; that
the shares were sold at their actual fair market value and at arm’s length;
that as long as the transaction conducted is at arm’s length––such that a
bonafide business arrangement of the dealings is done in the ordinary course of
business––a sale for less than an adequate consideration is not subject to
donor’s tax; and that donor’s tax does not apply to sale of shares sold in an
open bidding process.
CIR DENYING THE REQUEST:
Through BIR Ruling No. 015-12.
As determined by the Commissioner, the selling price of the shares thus sold
was lower than their book value based on the financial statements of Philam
Care as of the end of 2008. The
Commissioner held donor’s tax became imposable on the price difference pursuant
to Sec. 100 of the National Internal Revenue Code (NIRC):
SEC. 100. Transfer for Less Than Adequate and full Consideration. - Where
property, other than real property referred to in Section 24(D), is transferred
for less than an adequate and full consideration in money or money’s worth,
then the amount by which the fair market value of the property exceeded the value
of the consideration shall, for the purpose of the tax imposed by this Chapter,
be deemed a gift, and shall be included in computing the amount of gifts made
during the calendar year.
RULING:
The price difference is subject to donor’s tax.
Petitioner’s substantive
arguments are unavailing. The absence of donative intent, if that be the case,
does not exempt the sales of stock transaction from donor’s tax since Sec. 100
of the NIRC categorically states that the amount by which the fair market value
of the property exceeded the value of the consideration shall be deemed a gift.
Thus, even if there is no actual donation, the difference in price is
considered a donation by fiction of law.
Moreover, Sec. 7(c.2.2) of RR
06-08 does not alter Sec. 100 of the NIRC but merely sets the parameters for
determining the “fair market value” of a sale of stocks. Such issuance was made
pursuant to the Commissioner’s power to interpret tax laws and to promulgate
rules and regulations for their implementation.
Lastly, petitioner is mistaken
in stating that RMC 25-11, having been issued after the sale, was being applied
retroactively in contravention to Sec. 246 of the NIRC.26 Instead, it merely
called for the strict application of Sec. 100, which was already in force the
moment the NIRC was enacted.
ISSUE on TAX
REMEDIES:
The issue
that now arises is this––where does one seek immediate recourse from the
adverse ruling of the Secretary of Finance in its exercise of its power of
review under Sec. 4?
Petitioner
essentially questions the CIR’s ruling that Petitioner’s sale of shares is a
taxable donation under Sec. 100 of the NIRC. The validity of Sec. 100 of the
NIRC, Sec. 7 (C.2.2) and RMC 25-11 is merely questioned incidentally since it
was used by the CIR as bases for its unfavourable opinion. Clearly, the
Petition involves an issue on the taxability of the transaction rather than a
direct attack on the constitutionality of Sec. 100, Sec.7 (c.2.2.) of RR 06-08
and RMC 25-11. Thus, the instant Petition properly pertains to the CTA under
Sec. 7 of RA 9282.
As a result
of the seemingly conflicting pronouncements, petitioner submits that taxpayers
are now at a quandary on what mode of appeal should be taken, to which court or
agency it should be filed, and which case law should be followed.
Petitioner’s
above submission is specious (erroneous).
CTA, through
its power of certiorari, to rule on the validity of a particular administrative
rule or regulation so long as it is within its appellate jurisdiction. Hence,
it can now rule not only on the propriety of an assessment or tax treatment of
a certain transaction, but also on the validity of the revenue regulation or
revenue memorandum circular on which the said assessment is based.
Guided by
the doctrinal teaching in resolving the case at bar, the fact that the CA
petition not only contested the applicability of Sec. 100 of the NIRC over the
sales transaction but likewise questioned the validity of Sec. 7(c.2.2) of RR
06-08 and RMC 25-11 does not divest the CTA of its jurisdiction over the
controversy, contrary to petitioner’s arguments.
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