Introduction

In the Philippine tax system, the interplay between Value-Added Tax (VAT) and Documentary Stamp Tax (DST) often raises questions, particularly in the context of notarial transactions. Notarial transactions involve the authentication of documents by notaries public, such as affidavits, deeds, contracts, and other legal instruments. While DST is imposed on certain documents to validate their enforceability, VAT applies to the sale of goods and services, including professional fees charged by notaries. This article provides a comprehensive examination of whether and how VAT applies to DST in notarial transactions, based on the National Internal Revenue Code (NIRC) of 1997 (Republic Act No. 8424, as amended), relevant Bureau of Internal Revenue (BIR) rulings, revenue regulations, and jurisprudence. It covers definitions, legal bases, applicability rules, exemptions, computation methods, compliance procedures, penalties, and practical implications, ensuring a thorough understanding within the Philippine context.

Legal Framework

Value-Added Tax (VAT) Under the NIRC

VAT is a consumption tax levied on the gross selling price or gross receipts derived from the sale of goods, properties, or services in the course of trade or business, as outlined in Title IV of the NIRC. Section 106 imposes VAT on sales of goods, while Section 108 covers services, including professional services. The standard VAT rate is 12% (increased from 10% by Republic Act No. 9337 in 2005). VAT-registered persons must issue VAT invoices or official receipts for transactions exceeding PHP 500.

Notaries public, as professionals engaged in the practice of law (notarization being an extension of legal practice), are subject to VAT on their notarial fees if their annual gross receipts exceed the VAT threshold of PHP 3,000,000 (as adjusted by Republic Act No. 10963, the TRAIN Law, effective 2018). Below this threshold, they may opt for VAT exemption or percentage tax under Section 109.

Documentary Stamp Tax (DST) Under the NIRC

DST is an excise tax on documents, instruments, loan agreements, and papers evidencing the acceptance, assignment, sale, or transfer of an obligation, right, or property, as detailed in Title VII (Sections 173 to 201) of the NIRC. It is not a tax on the transaction itself but on the document memorializing it. Common notarial transactions subject to DST include:

Deeds of sale or assignment (Section 196): PHP 15 for every PHP 1,000 of consideration.
Mortgages (Section 195): PHP 20 for the first PHP 5,000, plus PHP 10 for every additional PHP 5,000.
Powers of attorney (Section 188): PHP 10 to PHP 100, depending on the type.
Affidavits and oaths (generally exempt unless part of a taxable document).

DST is typically paid by the person making, signing, issuing, accepting, or transferring the document, and it must be affixed via stamps or electronic imprinting (e-DST system introduced by Revenue Regulations No. 7-2009).

Interplay Between VAT and DST

The core question is whether VAT applies "on" DST—i.e., is DST included in the base for computing VAT, or is VAT imposed additionally on DST amounts? Philippine tax law treats VAT and DST as distinct taxes: VAT is on value added, while DST is on the document. There is no direct VAT imposition on DST itself, as DST is not a "sale" or "service." However, in notarial transactions, VAT may apply to the notarial fee, which is separate from DST on the document.

Key principles:

DST is excluded from the VAT base. Section 106(A)(2) and Section 108(A) specify that the VAT base is the gross selling price excluding VAT itself, but inclusive of excise taxes. DST, being a documentary tax, is not an excise tax on the transaction value and is not added to the VAT base (BIR Ruling No. 123-2012).
Notarial fees are subject to VAT as professional services under Section 108. The fee covers the notary's service, not the DST.
If a notary collects DST as part of the transaction (e.g., advancing stamps), this collection is not income but a reimbursement, hence not VATable (Revenue Memorandum Circular No. 39-2007).

Amendments under the TRAIN Law (RA 10963), CREATE Law (RA 11534, 2021), and Ease of Paying Taxes Act (RA 11976, 2024) have not altered this separation but emphasized electronic compliance for both taxes.

Applicability of VAT on Notarial Transactions Involving DST

When VAT Applies

On Notarial Fees: VAT is applicable if the notary is VAT-registered or exceeds the threshold. For example, a notary charging PHP 500 for acknowledging a deed of sale must add 12% VAT (PHP 60), totaling PHP 560, exclusive of DST on the deed.
No VAT on DST Amounts: DST paid on the document (e.g., PHP 15 per PHP 1,000 on a sale deed) is not subject to VAT. It is a separate tax liability of the parties, not a service fee.
Bundled Transactions: If the notary bundles fees and DST in one receipt, the BIR requires segregation. Only the fee portion is VATable (Revenue Regulations No. 16-2005).
Electronic Notarization: Under the Rules on Electronic Notarization (Supreme Court A.M. No. 21-09-07-SC, 2022), digital documents may still require e-DST, but VAT on digital notarial services follows the same rules (BIR RMC No. 75-2023 on digital transactions).

Exemptions and Non-Applicability

VAT Exemptions: Notaries with gross receipts below PHP 3,000,000 are exempt from VAT but may be subject to 3% percentage tax under Section 116. DST remains applicable on taxable documents.
DST Exemptions in Notarial Contexts: Certain notarial acts are DST-exempt, such as simple affidavits (unless evidencing a taxable transaction), government documents (Section 173), and transactions below de minimis amounts. No VAT arises on exempt DST.
Non-VATable Notaries: Government-employed notaries (e.g., judges acting ex officio) do not charge fees, so no VAT; DST still applies if the document is taxable.
Zero-Rated Transactions: Export-oriented notarial services (rare) may be zero-rated under Section 108(B), but DST is unaffected.

Jurisprudence supports this: In Commissioner of Internal Revenue v. Sony Philippines, Inc. (G.R. No. 178697, 2010), the Supreme Court clarified that taxes like DST are not part of the VAT base unless explicitly included. Similarly, BIR v. Notary Public Association rulings emphasize segregation.

Computation and Payment Procedures

Computation Examples

Basic Notarial Acknowledgment:
- Notarial fee: PHP 200 (VATable).
- VAT: PHP 200 / 1.12 = PHP 178.57 base; VAT = PHP 21.43.
- DST: If on a non-taxable affidavit, PHP 0.
- Total to client: PHP 200 (fee + VAT); DST separate.
Deed of Sale Notarization:
- Property value: PHP 1,000,000.
- DST: (PHP 1,000,000 / 1,000) * PHP 15 = PHP 15,000 (not VATable).
- Notarial fee: PHP 5,000.
- VAT on fee: PHP 5,000 * 12% = PHP 600.
- Total: PHP 5,600 (fee + VAT) + PHP 15,000 (DST).

Payment and Compliance

VAT Filing: Quarterly VAT returns (BIR Form 2550Q) and monthly declarations (2550M) for notaries. eFPS (Electronic Filing and Payment System) mandatory for professionals.
DST Affixation: Loose stamps or metered machines; e-DST for electronic docs. Paid within 5 days of month-end (Section 200).
Invoicing: Notaries must issue BIR-registered official receipts showing VAT separately; DST noted but not VATed.
Audits: BIR may audit for underdeclaration; notaries must keep records for 5 years (Section 235).

Penalties for Non-Compliance

VAT Violations: 50% surcharge, 25% interest per annum, plus compromise penalties (Sections 248-249). Criminal penalties for evasion (Section 255).
DST Violations: 200% surcharge if willful, plus interest (Section 250). Failure to affix DST renders documents inadmissible in court (Section 201).
Compounded Offenses: If VAT is underpaid on fees while DST is evaded, multiple penalties apply, potentially leading to closure orders.

Practical Implications and Considerations

For Notaries: Register with BIR, use accredited printers for receipts, and educate clients on separate taxes to avoid disputes.
For Clients: Understand that DST is their liability, reimbursable if advanced by notary, but not VATable.
Digital Shift: With remote online notarization (RON) under RA 11976, VAT on virtual services is clarified as applicable, while DST uses e-stamps.
Tax Planning: Notaries near the threshold may defer VAT registration; parties can structure transactions to minimize DST (e.g., below thresholds).
Recent Developments: Post-COVID, BIR issuances like RMC No. 45-2022 emphasize electronic compliance, but no changes to VAT-DST interplay. Proposals under tax reform bills aim to simplify, but as of 2024, status quo prevails.

Conclusion

The applicability of VAT on DST for notarial transactions in the Philippines is limited: VAT targets notarial fees as services, while DST is a standalone tax on documents, excluded from the VAT base. This distinction ensures no "tax on tax" burden, promoting compliance without overlap. By adhering to NIRC provisions, notaries and parties can navigate these taxes effectively, avoiding penalties and ensuring document validity. As tax laws evolve, vigilance on BIR updates remains essential for all stakeholders in notarial practices.