BIR Ruling

July 18, 1967 Mrs. Jovita L. Sia 710 Ludovico, Quiapo Manila M a d a m : This refers to your letter dated December 19, 1966 requesting information as to whether or not the transaction described therein can be considered a donation. LLphil In reply thereto, I have the honor to inform you that not all transfers contemplated under Section 111 of the Tax Code, a property for less than an adequate and full consideration in money or money's worth are considered a gift insofar as the amount by which the value of the property exceeded the value of the consideration is concerned. Donative intent, though not an essential factor, is relevant in determining the nature of voluntary transfers. (Mertens, Law of Federal Gift & Estate Taxation, Vol. 5, S. 34.03, p. 25). The circumstance under which the transfer is made may be taken into consideration as where the same involves an intra-family transaction of a commercial or economic nature. (Ibid, S. 34.27, p. 128). Where there is a bona fide transaction and arm's length negotiation "in the ordinary course of business", as represented by you, the transaction lacks the attributes of a taxable gift even though the consideration received in return for such transfer is not equal to it in money or money's worth, as, for example, where the transaction in question falls into the category of a "bad bargain". (Ibid, S. 34.03, p. 29). Accordingly, this Office believes and so holds that the transaction described in your letter cannot be considered a gift as it lacks the essentials of a taxable donation. It may be stated in this connection that should you sell or transfer the property in question for P150,000.00 or more, which is its fair market value, you will be liable to tax on capital gains. cdpr Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue