COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs. PILIPINAS SHELL PETROLEUM CORPORATION, Respondent.
FACTS
Respondent Pilipinas Shell Petroleum Corporation (PSPC) entered into a Plan of Merger with its affiliate, Shell Philippine Petroleum Corporation (SPPC), approved by the SEC on July 1, 1999, with PSPC as the surviving entity. On August 10, 1999, PSPC paid documentary stamp taxes (DST) amounting to ₱524,316.00 on the original issuance of its shares in exchange for surrendered SPPC shares pursuant to Section 175 of the NIRC. A BIR ruling dated October 4, 1999, confirmed the tax-free nature of the merger under Section 40(C)(2) and (6)(b) of the NIRC but stated that the issuance of PSPC shares was subject to DST under Section 175 and the exchange of land and improvements by SPPC to PSPC for the latter’s shares was subject to DST under Section 196. On May 10, 2000, PSPC paid ₱22,101,407.64 representing DST on the transfer of real property from SPPC to PSPC. Believing this payment was erroneous, PSPC filed a claim for refund or tax credit on September 18, 2000. Due to inaction, PSPC filed a petition with the Court of Tax Appeals (CTA) on May 8, 2002. The CTA granted the refund, holding that the transfer of real property in a merger occurs by operation of law without a deed or conveyance, and thus is not subject to DST under Section 196. The Court of Appeals affirmed the CTA decision. The Commissioner of Internal Revenue filed the present petition.
ISSUE
Whether the transfer of real properties from the absorbed corporation (SPPC) to the surviving corporation (PSPC) pursuant to a merger is subject to documentary stamp tax under Section 196 of the National Internal Revenue Code.
RULING
The Supreme Court DENIED the petition and AFFIRMED the decisions of the Court of Appeals and the Court of Tax Appeals. The transfer of real property in a statutory merger is not subject to documentary stamp tax under Section 196. The Court held that in a merger, the transfer of assets from the absorbed to the surviving corporation occurs by operation of law, without the need for a deed or instrument. Documentary stamp tax is an excise tax on the privilege to enter into a transaction evidenced by a document. Since the transfer is effected automatically by law and is not a sale or conveyance for money or money’s worth, no taxable document exists. The merger is a single transaction, and the DST already paid on the issuance of shares covers the entire exchange. Therefore, PSPC is entitled to a refund of the erroneously paid DST.
