An Ordinance Amending the Provincial Revenue Code of 2004 of the Province of Agusan del Sur

December 1, 2009 BIR RULING [DA-(C-293) 719-09] 24 (C); BIR Ruling Nos. DA-254-03; 367-03; 284-08 Aranas Consunji Barleta Law Offices Ground Floor Le Metropole Building 326 Tordesillas Street cor. De la Costa Street Salcedo Village, Makati City Attention: Atty. Ma. Louella M. Aranas Gentlemen : This refers to your letter dated November 25, 2009, requesting on behalf of your client, Polaris Marketing Corp. ("PMC"), for confirmation of your opinion that: 1. The transfer of Medical Doctors, Inc. ("MDI") shares from the nominee to PMC, the beneficial owner of such shares, is not a taxable transfer, and, thus, not subject to capital gains tax, donor's tax, estate tax, and documentary stamp tax ("DST"); and 2. MDI's Corporate Secretary may transfer such MDI shares to PMC upon the issuance of a favorable ruling from this office, without the necessity of securing a tax clearance. It is represented that MDI is a domestic corporation organized and existing under the laws of the Philippines; that the corporate books and records of MDI show that Dr. Lorenzo M. Hocson ("Dr. Hocson") owns 847 shares of stock of the said company, with par value of P100.00 per share; that Dr. Hocson held the said shares only as a nominee of PMC, a domestic corporation organized and existing under the laws of the Philippines; that this fact is clearly shown on the Declaration of Trust, dated July 4, 2006, executed by Dr. Hocson in favor of PMC; that in compliance with his undertakings in the Declaration of Trust, Dr. Hocson executed a Deed of Assignment transferring the said 847 MDI shares in favor of PMC; that Dr. Hocson endorsed and delivered to PMC the corresponding stock certificate; On 2008, Dr. Hocson passed away, without the foregoing transfer being reflected in the corporate books and records of MDI; and that PMC now intends to have the subject shares registered in its name, and has requested MDI's Corporate Secretary to effect such registration. caCSDT In reply, please be advised as follows: 1. Transfer of MDI Shares not Subject to Capital Gains Tax Section 24 (C) of the Tax Code, as amended, provides: SEC. 24. (C) Capital Gains from Sale of Shares of Stock not Traded in the Stock Exchange. The provisions of Section 39(B) notwithstanding, a final tax at the rates prescribed below is hereby imposed upon the net capital gains realized during the taxable year from the sale, barter, exchange or other disposition of shares of stock in a domestic corporation, except shares sold, or disposed of through the stock exchange. Not over P100,000 5% On any amount in excess of P100,000 10% However, in Bureau of Internal Revenue ("BIR") Ruling No. 031-99 [March 19, 1999], it was held that "the conveyance by the Trustee in favor of the Trustor of the subject properties which the former acquired by virtue of the trust agreement is not to be treated as another transfer separate and distinct from the sale between the original owner and the trustee. The conveyance is merely to be treated as a continuation and confirmation of title in favor of the ultimate and real beneficiary of the subject properties." This was the consistent ruling of the BIR in (i) BIR Ruling Nos. 039-97 [April 3, 1997]; (ii) DA-367-03 [October 14, 2003]; (iii) 365-03 [December 13, 2003]; (iv) DA-080-02 [April 19, 2002]; and (v) DA-284-08 [May 12, 2008]. 2. Transfer of MDI Shares not Subject to Donor's Tax In BIR Ruling No. DA-254-03 [August 5, 2003], we held that the conveyance of shares of stock from the trustee to the beneficial owner is not subject to donor's tax imposed under Section 98 of the Tax Code, due to lack of donative intent. Moreover, BIR Ruling No. DA-367-03 [October 14, 2003] states that the transfer by the nominee to the true, actual and beneficial owner of the shares, is not subject to donor's tax since it pertains to the transfer from the trustee/nominee to the real owner. [ See also BIR Ruling Nos. 21-98, February 19, 1998; DA-062-03, March 3, 2003; 013-05, August 16, 2005; and DA-284-08, May 12, 2008]. ICDSca 3. Transfer of MDI Shares not Subject to Estate Tax The estate tax is due on the net estate of the decedent at the time of his death. The value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated. [ See Section 85, Tax Code]. In the instant case, since the above-mentioned shares of stock were held by Dr. Hocson only in his capacity as trustee of PMC, the same did not form part of Dr. Hocson's gross estate. Consequently, the aforesaid properties are not subject to estate tax upon the death of Dr. Hocson. The BIR has previously ruled to this effect in BIR Ruling Nos. 021-98 [February 19, 1998]; and BIR Ruling No. DA-062-03 [March 3, 2003]. [ See also BIR Ruling Nos. DA-013-97 [January 10, 1997]; and DA-367-03 [October 14, 2003] where the BIR held that transfers of property pursuant to a Declaration of Trust, whereby a nominee shareholder acknowledges and states that he is holding certain shares in trust for the real owner, is not a taxable transaction/event.] 4. Transfer of MDI Shares not Subject to Documentary Stamp Tax Section 175 of the Tax Code, as amended, by Republic Act No. 9243, provides that the transfer of shares of stock is subject to DST. However, BIR Ruling No. 031-99 [March 19, 1999] provides that the Deeds of Trust and Assignment, pursuant to which the trustors instructed the trustees to transfer the shares in the name of the trustors, are not subject to the DST imposed under Section 175 of the Tax Code, but only to the documentary stamp tax on certificates under Section 188 of the same Code. This was reiterated by the BIR in subsequent rulings, including: (i) BIR Ruling Nos. DA-080-02 [April 29, 2002; (ii) DA-254-03 [August 5, 2003; (iii) DA-365-03 [October 13, 2003]; (iv) DA-367-03 [October 14, 2003]; and DA-284-08 [May 12, 2008]. 5. Registration of the Shares in PMC's Name Section 8 of Revenue Regulations No. 2-82, as amended, provides that the transfer of shares of stock can be recorded in the Stock and Transfer Book of a corporation only upon showing of proof of payment of taxes. ScCEIA However, in BIR Ruling Nos. 031-99 [March 19, 1999]; DA-142-03 [May 5, 2003]; DA-254-03 [August 5, 2003]; DA-485-04 [September 10, 2004]; and DA-284-08 [May 12, 2008], the BIR held that the ruling issued by the BIR serves as authority for the Corporate Secretary to transfer the shares of stock transferred by the trustee to the beneficial owners thereof since said transfer is not subject to tax, and hence, no tax clearance certificate can be presented to the Corporate Secretary for the registration of said shares. Thus, MDI's Corporate Secretary can register the transfer of 847 DMI shares from Dr. Hocson to PMC upon presentation of the favorable ruling hereby requested, and consequently, cancel the stock certificates in the name of Dr. Hocson and issue new certificates of stock in the name of PMC as transferee. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service