Philippines
9-94 which states that the documentary stamp taxes will be based on the amount of drawings or availment of the facilities, which may be evidenced by credit/debit memo, advice or drawings by any form of cheque or withdrawal slip. This seems to mean that in the absence of an inter-company memo, a loan agreement would have been entered into upon the recipient company’s withdrawal of the advances, and in that situation the date of the withdrawal slip is relevant. But, notwithstanding Filinvest, it seems the BIR should examine not only the time of withdrawal but also the intention of the parties. Revenue Regulation 9-94 itself defines a loan agreement as a contract in writing where one of the parties delivers to another money or other consumable thing, upon the condition that the same amount of the same kind and quality is paid. Therefore, unless the parties clearly intended to enter into a loan agreement (that is, money remit- ted by a shareholder to the company was intended and received as a loan/advance), the transaction should not be deemed as such. Filinvest was also silent as regards a situation
where there is no inter-company memo and the advances to the corporation are made in tranches spanning several months but only a portion of the amount is actually accepted and used by the corpo- ration as an advance. That situation may likewise result in uncertainty as to which amount given by a stockholder the advance corresponds to. Notwithstanding the silence of Filinvest as regards the payment of documentary stamp taxes made in tranches, the ruling by the First Division of the Court of Tax Appeals in Manila Electric Company v Commissioner of Internal Revenue (issued on March 22 2010) may shed some light on the issue. In that case, the court stated that documentary stamp taxes
are “due and payable at the time the transaction is had or accomplished, i.e., at the time of the issuance of the document.” There, an Omnibus [Loan] Agreement was composed of voluminous documents and various securities corresponding to such documents. The court treated each document – although comprising one loan agreement – as separate taxable documents and separate transac- tions. Thus, it ruled that payment of documentary stamp taxes on each document was proper. The Court of Tax Appeals en banc affirmed the decision of the First Division on September 21 2011, and ruled that while all documents pertain to one loan, each tranche pertained to a separate transaction and was thus separately subject to the imposition of documentary stamp tax. Following Filinvest andMeralco, where there is no
specific inter-company memo, the advances are made by the shareholder in tranches, and the corporation withdraws the advances also in tranches, then each amount withdrawn by the corporation should be treated as a separate transaction. Thus, the amount of the documentary stamp tax due should only be in proportion to the amount withdrawn by the corporation. This also means that that the correspon- ding documentary stamp tax is due on or before the fifth day from the close of the month when the with- drawal was made (as evidenced by the date of the withdrawal slip).
Other considerations If only on the basis of payment of documentary stamp taxes, it appears that using deposits for future subscription is the better option for corporations looking to increase their authorised capital stock. In addition to the fact that documentary stamp taxes need not be paid until such time as the subscription
is actually made, the money already deposited may already be used even if the SEC’s approval of the increase of authorised capital stock is pending. As early as December 9 1981 the SEC opined that amounts deposited as additional paid-in capital may be used by the company pending the verification of the increase of the authorised capital stock by the SEC. In practice, however, it takes longer for the SEC to verify the application for increase of authorised capital stock when the deposits have been used as the SEC would scrutinise the documents of the compa- ny to determine whether the deposits have been used solely for purely business operations and every expense has been accounted for or recorded in the books of the company. Companies increasing their authorised capital
stock (whether by way of utilisation of deposits or conversion of advances/liabilities to equity) should also be aware that the SEC may conduct an on-site verification of their financial records based on SEC Memorandum Circular No. 6, s. of 2008, applica- tions for the increase of authorised capital stock. In practice, if the SEC is dissatisfied with the documen- tation of the company, it may require the company to produce additional documents or even reject the application for increase of authorised capital stock. Following the Supreme Court’s ruling in Teves,
companies engaged in partly nationalised activities which have foreign investors will be constrained to reconsider their shareholding structure to comply with the latest interpretation of the term ‘capital’. Increasing their authorised capital stock is a possible solution, and to that end, converting shareholders advances into equity or using deposits for future sub- scription are available options. The choice between these options will have to be guided by, among other factors, the rules discussed above.
About the author Aris L Gulapa is a partner at Caguioa & Gatmaytan, specialising in corporate and commercial transactions, particularly mergers and acquisitions, banking, corporate finance, and corporate restructuring. He has advised and assisted leading banks, financial institutions, and multinational corporations in the course of his practice in Manila, Singapore, Vietnam, and Tokyo. Gulapa recently advised a publicly-listed French company and an
Indonesian pharmaceutical company on restructuring their Philippine subsidiaries. He is assisting a leading US-based IT company in a potential share acquisition in the Philippines. Gulapa graduated with honours from Ateneo Law School in 2003 (ranking
fifth in his class) and was admitted to the Philippine Bar in 2004. He obtained his Master of Laws (LLM) in 2011 from New York University, where he was a recipient of the Vanderbilt scholarship. He passed the New York bar in 2011 and is awaiting admission.
About the author Pamela Joy L Alquisada is an associate at Caguioa & Gatmaytan, specialising in corporate and commercial transactions, particularly mergers and acquisitions and general corporate housekeeping. She advises multinational companies in relation to incorporation, structuring, and regulatory compliance. She provides corporate housekeeping and general corporate advisory services to several foreign-invested Philippine companies. Recently, Alquisada led a team in closing an acquisition by a large US-based
manufacturing company of the assets of one of the pioneer equipment manufacturing enterprises in the Philippines. She is assisting a global lighting company in setting up a subsidiary in the Philippines. Alquisada graduated with honours from the Ateneo de Manila University
School of Law in 2009. She was admitted to the Philippine bar in 2010.
www.iflr.com IFLR|FOREIGN DIRECT INVESTMENT 031 Contact information
Aris L Gulapa Caguioa & Gatmaytan
30/F 88 Corporate Center Sedeño cor. Valero Streets Salcedo Village, Makati City 1227, Philippines T: +632 894 0377 F: +632 552 1978 W:
www.cagatlaw.com
Contact information
Pamela Joy L Alquisada Caguioa & Gatmaytan
30/F 88 Corporate Center Sedeño cor. Valero Streets Salcedo Village, Makati City 1227, Philippines T: +632 894 0377 F: +632 552 1978 W:
www.cagatlaw.com
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