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Hopewell Power v CIR (1998) CTA Case Petitioner: Hopewell Power Philippines Respondent: CIR Hopewell contests its

s payment of P24M Documentary Stamp Tax for loan and security documents executed in Hong Kong. CTA says that the documents should be exempt from Documentary Stamp Tax. The power to levy an excise upon the performance of an act or the engaging in an occupation does NOT depend upon the domicile of the person subject to the excise, nor upon the physical location of the property, but depends upon the place in which the act is performed or occupation engaged in. Hopewell is a corporation organized and existing under Philippine laws with address at Roxas Boulevard, Pasay City. In December 1993, Hopewell, along with Hopewell Energy International Ltd (a Hong Kong company) entered into a Mortgage Trust Indenture (MTI) for the mortgage of their chattel and real estate assets with the bank America National Trust Company (corporation organized under the laws of New York) The execution of the MTI was done in Hong Kong. Hopewell was made to pay to the BIR Documentary Stamp Tax worth P24,864,781.58 over the loan and security documents executed in Hong Kong. Hopewell paid in protest and sent a letter of request asking for confirmation on the tax exemption from DST. In November 1995, it filed a written claim for refund. Because of the BIRs inaction, Hopewell filed a judicial claim for the refund of the P24M.

Hopewells contention: 1. 2. 3. The DST, being an excise tax, does not attach to the execution of the documents in Hong Kong based on previous BIR rulings At the time the MTI was executed, Sec 173 of the Tax Code did not cover documents executed abroad The subsequent enactment of RA 7660 (effective January 1994, which amended Sec 173 of the Tax Code )specifically addressed such loophole in the law by making the execution of loan agreements abroad subject to DST when the obligation or right arises from Philippine sources or the property is situated in the Philippines

CIR says: (by way of special and affirmative defenses) the DST was paid in accordance with Section 195 of the Tax Code and is therefore not refundable Hopwell failed to show that the documents subject of the DST were executed abroad Claims for refund are construed strictly against the claimant because it is in the nature of a tax exemption During trial, Hopewell offered in evidence a duly notarized copy of the MTI document together with the authentication of the Philippine consul in Hong Kong.

ISSUE: W/N the MTI documented executed in Hong Kong is exempted from Documentary Stamp Tax YES RATIO: Allied Thread Co Inc v City Mayor of Manila The power to levy an excise upon the performance of an act or the engaging in an occupation does NOT depend upon the domicile of the person subject to the excise, nor upon the physical location of the property and in connection with the act or occupation taxed, but depends upon the place in which the act is performed or occupation engaged in. Thus, the gauge for taxability . . . does not depend on the location of the office, but attaches upon the place where the respective . . . transaction(s) is perfected and consummated

In this case: Inasmuch as the MTI was executed and signed in Hong Kong prior to the effectivity of RA 7660, no DST is imposable on the same in the Philippines.

This conclusion is also in keeping with one of the inherent limitations of taxation, namely, that it may be exercised only within the territorial jurisdiction of the taxing authority

Re: Sec 173 of the Tax Code, as amended by RA 7660 The court sees Section 173 of the Tax Code, as amended by RA 7660 as imposing DST, NOT directly anymore upon the act or privilege of transacting documents, instruments, papers and loan agreements per se, BUT rather on the act or privilege of simply transacting on any obligation or right arising from Philippine sources, or on any property situated in the Philippines BEFORE the amendment: the execution of the document or instrument automatically gives rise to the imposition of DST

Petition for Review granted.

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