BIR Ruling

May 18, 1972 Sycip, Gorres, Velayo & Co. Certified Public Accountants P. O. Box 589, Manila Attention: Mr . Jose U . Ong Tax Division Gentlemen : This refers to your letter dated April 21, 1972 requesting confirmation of your opinion to the effect that the transfer of church properties from their present registered owner, the Board of Foreign Missions of the Methodist Episcopal Church to your client, The Philippines Annual Conference of the Methodist Church with address at 900 U. N. Avenue, Manila, is not a taxable transfer and, therefore, should not be subject to the income or gift taxes. It is represented that your client, The Philippines Annual Conference of the Methodist Church is a religious corporation duly organized and existing under the laws of the Philippines; that said corporation was originally established in the Philippines by American Methodist Missionaries under its original name, the Methodist Episcopal Church; that the Church had gone a series of name changes until it was called the United Methodist Church; that the Church in the Philippines is registered with the Securities and Exchange Commission under the name of Philippines Central Conference of the Methodist Church; that the latter, in turn, is divided into several registered annual conferences as its operating arms; that one of said annual conferences is the Philippines Annual Conference of the Methodist Church having territorial jurisdiction over the City of Manila and Suburbs and Southern Luzon. It is also represented that the United Methodist Church is an international organization with headquarters in the United States and is the Mother Church of the United Methodist Church in the Philippines (Philippines Central Conference of the Methodist Church); that said Mother Church owns 3 parcels of lands with improvements in the City of Manila described as follows: 1. St. Paul's Church with TCT No. 33717 and TCT No. 33718, located at Quesada Street, Tondo, Manila; 2. Knox Memorial Church with TCT No. 43837, located at Rizal Avenue Corner Lope de Vega Sts., Manila, and 3. Central Church with TCT No. 52453, located at T.M. Kalaw Street, Manila. The aforecited church properties are registered in the name of the Board of Foreign Missions of the Methodist Episcopal Church which, as heretofore stated, is the name of the United Methodist Church at the time of the registration of its title; and that from the time the properties were acquired up to the present, the same were continuously being used for religious purposes by the United Methodist Church in the Philippines. It is now the intention of the registered owner to transfer these properties to the Philippines Annual Conference of the Methodist Church for exclusive religious purposes for which the properties were originally intended to be used. In reply, thereto, I have the honor to inform you as follows: Generally, direct or indirect transfer, in trust or otherwise, of real or personal, tangible or intangible property for anything other than an adequate and full consideration in money or money's worth shall be subject to the gift taxes. (See Sec. 108, N.I.R.C.) However, donative intent must be present in the transfer of property in order that the gift taxes can be assessed and collected. (P-R Federal Gift Tax (1956), par. 125,010) A donative intent followed by a donative act is essential to constitute a gift; and no strained and artificial construction of a supplementary statute should be indulged to tax as a gift a transfer actually lacking donative intent. (144 F 2d 78, 82) Thus, in the case of "The Christian and Missionary Alliance Churches of the Philippines vs. Collector of Internal Revenue", C.T.A. Case No. 668, promulgated August 21, 1964, the Court of Tax Appeals held that the transfer of property from one corporation to another corporation which is connected with, subordinate to, and a district or local organization or branch of the transferor corporation is not subject to the gift taxes because wanting in donative intent, such transfer of property is in name only, and merely to enable the transferee corporation to better perform its obligation to administer, apply and use the said properties for the same purposes for which the transferor was created and still exists today. The aforecited decision squarely applies to the instant case, if as represented, the prospective transferee is merely a Philippine Arm of the Mother Church and that the transferor and the transferee are not separated and distinct organizations but enjoyed a Mother-Daughter relationship. Considering that the proposed transferee is a branch or local organization of the transferor, the contemplated transfer of properties in this case of the Christian and Missionary Alliance Churches of the Philippines, supra just be "a transfer from the right hand to the left hand". Taxwise, the proposed transfer of the properties by the Mother Church is not by gift which is subject to tax within the purview of the gift tax statute. (BIR Ruling No. 72-015, May 18, 1972) In view of the foregoing consideration, this Office is of the opinion as it hereby holds that the contemplated transfer of the above listed real properties to be used exclusively for carrying on the religious work of the United Methodist Church of the Philippines is not subject to any tax. aisadc This Office may, however, reverse or modify this ruling if upon investigation, it will appear that the facts are different from those upon which the ruling is predicated. Very truly yours, MISAEL P. VERA Commissioner of Internal Revenue