Commissioner of Internal Revenue vs. La Tondeña Distillers, Inc.

The transfer of real property to a surviving corporation pursuant to a merger is not subject to Documentary Stamp Tax under Section 196 of the NIRC because such transfer occurs by operation of law and does not constitute a sale, there being no purchaser or consideration as contemplated by the statute; consequently, the surviving corporation is entitled to a refund of any DST erroneously paid on such transfer.

The case arose from a Plan of Merger entered into by La Tondena Distillers, Inc. (later renamed Ginebra San Miguel, Inc.) with three other corporations. The Bureau of Internal Revenue ruled that while the merger qualified as a tax-free exchange under Section 40(C)(2) of the NIRC, the transfer of real properties was subject to DST under Section 196. Respondent paid the DST under protest and subsequently sought a refund, leading to litigation on whether the statutory exemption for transfers pursuant to merger applied.

• On September 17, 2001, respondent La Tondena Distillers, Inc. entered into a Plan of Merger with Sugarland Beverage Corporation, SMC Juice, Inc., and Metro Bottled Water Corporation.
• The Securities and Exchange Commission approved the Plan of Merger on October 15, 2001.
• As a result of the merger, the assets and liabilities of the absorbed corporations were transferred to respondent as the surviving corporation.
• Respondent subsequently changed its corporate name to Ginebra San Miguel, Inc.
• On September 26, 2001, respondent requested the Bureau of Internal Revenue to confirm the tax-free nature of the merger.
• On November 5, 2001, the BIR issued a ruling stating that pursuant to Section 40(C)(2) and (6)(b) of the 1997 NIRC, no gain or loss shall be recognized by the absorbed corporations, but the transfer of real properties shall be subject to DST under Section 196 of the NIRC.
• From October 31, 2001 to November 15, 2001, respondent paid DST in the total amount of P14,140,980.00 on the transferred real properties located in various cities.
• On October 14, 2003, respondent filed an administrative claim for tax refund or tax credit with the Commissioner of Internal Revenue.
• On the same day, respondent filed a Petition for Review with the Court of Tax Appeals.

• DST is levied on the exercise of the privilege to convey real property regardless of the manner of conveyance.
• Section 196 applies to all conveyances of realty, including realty transfers during a corporate merger, based on the phrase "granted, assigned, transferred or otherwise conveyed."
• Respondent cannot benefit from Republic Act No. 9243, which amended Section 199 of the NIRC to exempt transfers pursuant to merger from DST, because laws apply prospectively and RA 9243 was enacted in 2004, after respondent's tax liability accrued in 2001.

• DST is imposed only on conveyances, deeds, instruments, or writings where realty sold shall be conveyed to a purchaser or buyer.
• A merger is neither a sale nor a liquidation of corporate property but a consolidation of properties, powers, and facilities of constituent companies.
• There is no purchaser or buyer in a merger; the transfer occurs by operation of law under Section 80 of the Corporation Code, whereby properties are automatically vested in the surviving corporation without further act or deed.

• Procedural Issues: N/A
• Substantive Issues:
  • Whether the transfer of real property pursuant to a merger is subject to Documentary Stamp Tax under Section 196 of the National Internal Revenue Code.
  • Whether respondent is entitled to a refund of the DST erroneously paid.

• Procedural: N/A
• Substantive:
  • The transfer of real property to a surviving corporation pursuant to a merger is not subject to DST. Section 196 of the NIRC applies only to sales transactions, as evidenced by the statutory language referring to "sold," "purchaser," and "consideration."
  • In a merger, the real properties are not deemed "sold" to the surviving corporation, which cannot be considered a "purchaser" since the properties are merely absorbed by operation of law under Section 80 of the Corporation Code.
  • The transfer is deemed to be automatically vested in the surviving corporation without further act or deed, and therefore does not fall within the contemplation of Section 196.
  • Following the doctrine of stare decisis from Commissioner of Internal Revenue v. Pilipinas Shell Petroleum Corporation, respondent is entitled to a refund of the erroneously paid DST amounting to P14,140,980.00.
  • Respondent's claim was not based on RA 9243 but on the inapplicability of Section 196 to mergers; however, the subsequent enactment of RA 9243 confirms the legislative intent that such transfers are not subject to DST.
  • Tax laws must be construed strictly against the State and liberally in favor of the taxpayer; taxes must not be imposed beyond what the law expressly and clearly declares.

• Stare Decisis — When a court has reached a conclusion in one case, it should be applied to those that follow if the facts are substantially the same, even though the parties may be different. The Court applied the ruling in Pilipinas Shell Petroleum Corporation to hold that Section 196 does not cover transfers pursuant to merger.
• Strict Construction of Tax Laws — Taxes must not be imposed beyond what the law expressly and clearly declares; tax laws must be construed strictly against the State and liberally in favor of the taxpayer.
• Effects of Merger or Consolidation under Section 80 of the Corporation Code — In a merger, all property, real or personal, of the constituent corporations is deemed transferred to and vested in the surviving corporation without further act or deed, by operation of law.

• "The transfer of real property to a surviving corporation pursuant to a merger is not subject to Documentary Stamp Tax (DST)."
• "[W]e do not find merit in petitioner's contention that Section 196 covers all transfers and conveyances of real property for a valuable consideration. A perusal of the subject provision would clearly show it pertains only to sale transactions where real property is conveyed to a purchaser for a consideration."
• "In a merger, the real properties are not deemed 'sold' to the surviving corporation and the latter could not be considered as 'purchaser' of realty since the real properties subject of the merger were merely absorbed by the surviving corporation by operation of law and these properties are deemed automatically transferred to and vested in the surviving corporation without further act or deed."
• "taxes must not be imposed beyond what the law expressly and clearly declares as tax laws must be construed strictly against the State and liberally in favor of the taxpayer."

• Commissioner of Internal Revenue v. Pilipinas Shell Petroleum Corporation, G.R. No. 192398, September 29, 2014 — Controlling precedent holding that Section 196 of the NIRC does not include the transfer of real property from one corporation to another pursuant to a merger because the provision pertains only to sale transactions.
• Villena v. Spouses Chavez, 460 Phil. 818 (2003) — Cited for the principle of stare decisis.
• Philacor Credit Corporation v. Commissioner of Internal Revenue, G.R. No. 169899, February 6, 2013 — Cited for the principle that tax laws must be construed strictly against the State and liberally in favor of the taxpayer.

• Section 196 of the National Internal Revenue Code of 1997 — Imposes DST on deeds of sale and conveyances of real property where realty sold is granted, assigned, or transferred to a purchaser; held inapplicable to mergers because the words "sold," "purchaser," and "consideration" limit its application to sales.
• Section 40(C)(2) and (6)(b) of the National Internal Revenue Code of 1997 — Provides that no gain or loss shall be recognized in pursuance of a plan of merger or consolidation.
• Section 80 of the Corporation Code of the Philippines — Provides that in a merger, all property of constituent corporations is deemed transferred to and vested in the surviving corporation without further act or deed by operation of law.
• Section 199(m) of the National Internal Revenue Code of 1997 (as amended by Republic Act No. 9243) — Exempts from DST the transfer of property pursuant to Section 40(C)(2); enacted after the subject transaction but cited to confirm legislative intent that merger transfers are not subject to DST.
• Sections 204(C) and 229 of the National Internal Revenue Code of 1997 — Governing the Commissioner's authority to refund or credit taxes erroneously or illegally collected and the procedure for recovery of tax erroneously or illegally collected.