2022 Revenue Code of the City of Bacoor

August 29, 2008 BIR RULING [DA-(C-052) 182-08] DA 591-07 Maybank Philippines, Inc. Legaspi Towers 300 Roxas Boulevard Manila Attention: Atty. Jonathan P. Ong Head, Legal and Atty. Catherine B. Villa Gentlemen : This refers to your letter dated July 16, 2008 stating that sometime in 1997, Malayan Banking Berhad (MBB), a Malaysian banking corporation, purchased more than 90% of the shares of Philippine National Bank (PNB) in PNB-Republic Bank (PNB-RB); that as a result of the purchase, PNB-RB later became Maybank Philippines, Inc. (MPI); that as a result of the said acquisition, PNB-RB had to sell its inventory of assets and real properties acquired and owned in the conduct of its business for a total consideration of P890,000,000.00; that this was evidenced by a Deed of Sale (DOS) dated November 12, 1997 executed by PNB-RB in favor of Philmay Property, Inc. (PPI); that under the terms of the DOS, PPI was obligated to pay MPI the total consideration for the inventory of assets and real properties in the following manner: (i) a downpayment equivalent to ten percent (10%) of the consideration upon the execution of the DOS; (ii) the balance to be paid by PPI to MPI in five (5) equal or as nearly equal annual amortizations; that on March 22, 2007, MPI and PPI entered into a Supplement to the Deed of Absolute Sale (Supplement to the DOS) for the purpose of extending the original five (5) year repayment period mentioned in paragraph 3.2 of the DOS, for another five (5)-year period, or such other longer period which may be mutually agreed upon by PPI and MPI; that ten (10) years have lapsed since the date of execution of the DOS and its supplement and PPI has yet to pay the full amount of the stipulated consideration in favor of MPI; that PPI has already manifested its inability to comply with its obligation to pay the full consideration of the sale even if granted an extension of the period for payment of the balance due MPI, which it appears has not been fully compensated per covenants under the DOS; that MPI and PPI has agreed in principle to enforce an equitable restitution and reconveyance of some of the properties and assets subject of the DOS, through a proposed Deed of Partial Rescission; that under the terms of the proposed Deed of Partial Rescission, PPI shall reconvey to MPI four (4) condominium units located at Metropolitan Tower, covered by CCT Nos. 20314, 20315, 2032 and 20324 issued by the Registry of Deeds for the City of Manila, which formed part of the original schedule of assets and real properties covered by the DOS; that it is further agreed that all payments by PPI to MPI pursuant to the DOS which have been applied to the Condo Units shall not be returned by MPI to PPI but shall be applied by MPI to the outstanding receivables of MPI from PPI. AaDSEC Based on the foregoing representations, you would like to request for an opinion on the tax consequences of the proposed Deed of Partial Rescission between MPI and PPI. In reply thereto, please be informed that Article 1191 of the Civil Code of the Philippines provides that the power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between the fulfillment and rescission of the obligation with the payment of damages, in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible. Corollarily, Article 1385 of the same Code provides that the rescission creates the obligation to return the things which were the object of the contract, together with their fruits, and the price with its interest, consequently, it can be carried out only when he who demands rescission can return whatever he may be obliged to restore. In applying the above-cited articles to the case in point, both PPI and MPI have mutually agreed to enforce an equitable restitution and rescind the subject DOS involving condominium units for its inability to comply with its obligation to pay the full consideration of the sale even if granted an extension of the period for the payment due. Thus, rescission gives MPI the right to rescind and render null and void the stipulation if the aforementioned DOS, as the effect of rescission is, as if no sale, transfer or exchange ever took place between the parties. Similarly situated is BIR Ruling No. DA210-01 dated October 19, 2001, where this Office ruled that ". . . the Deed of Rescission and Reconveyance was executed in order to effect the cancellation of the sale and is without monetary consideration, the transfer of the said property in favor of CMJ is not subject to the capital gains tax imposed under Section 24(D)(1) of the Tax Code of 1997 nor to the creditable withholding tax prescribed in Revenue Regulations No. 2-98, implementing Section 57(B) of the Tax Code of 1997. Furthermore, it is not likewise subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997. However, the notarial acknowledgment to the said Deed of Rescission and Reconveyance is subject to the documentary stamp tax of P15.00 only pursuant to Section 188 of the Tax Code of 1997." IN VIEW THEREOF, this Office holds that since the effect of the rescission between MPI and PPI is to cancel the DOS for failure on the part of PPI to comply with its obligations, the transfer of the above-mentioned properties by PPI to MPI by virtue of a Deed of Partial Rescission is not subject to capital gains tax and the corresponding documentary stamp tax. It is to be noted that the foregoing transaction is not subject to gift tax as there is no intention to donate on the part of PPI. Well-settled in our jurisprudence is the fact that the essential elements of a valid donation are: (1) the reduction of the patrimony of the donor, (2) the increase in the patrimony of the donee; and (3) the intent to do an act of liberality (animus donandi) . Clearly, there is no intention on the part of PPI to donate the foregoing properties to MPI, neither does the latter has the objective of giving a sum of money to PPI, since their transaction is effected solely for purposes of restitution. 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. SECAHa Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service