BIR Ruling

September 18, 1969 Mr. Jesus D. Chuaunsu 218 Quirino Avenue Paraaque, Rizal S i r : This refers to your letter dated April 28, 1969, requesting information as to the tax liability of a husband who acquires shares of stock during marriage and later transfers the same to his wife or vice-versa. In reply, I have the honor to inform you that transfers of property between spouses during marriage are prohibited under Articles 133 and 1490 of the New Civil Code, which for ready reference are quoted hereunder as follows: "Art. 133. Every donation between the spouses during the marriage shall be void. This prohibition does not apply to moderate gifts which the spouses may give each other on the occasion of any family rejoicing." "Art. 1490. The husband and the wife cannot sell property to each other, except: (1) When a separation of property was agreed upon marriage settlements; or (2) When there has been a judicial separation of property under Article 191." All property of the marriage is presumed to belong to the conjugal partnership, unless it be proved that it pertains exclusively to the husband or the wife. (Art. 160, NCCP) Shares of stock acquired during the marriage are conjugal. In the absence of proof to the contrary, the legal presumption arises that it was part of their conjugal property . . . . (Staples-Howe Printing Co. vs. Building & Loan Association, Inc. 36 Phil. 417). The prohibition applies even if the shares of stock were purchased exclusively with the capital of the husband or paraphernal property of the wife, as this is not included among the exceptions provided by law. If the transaction is consummated notwithstanding the Statutory prohibitions, there would be no tax consequence on the contract of transfer of property between the spouses as the same is void ab initio and has no legal effect whatsoever. If the transaction takes place under the exceptions provided in Article 1490 of the New Civil Code, the spouse who derives a gain therefrom is liable to the capital gains tax under the Tax Code. cdlex Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue