BIR Ruling [DA-015-99]

January 11, 1999 BIR RULING [DA-015-99] Romulo, Mabanta, Buenaventura Sayoc & De Los Angeles 30th Floor, CITIBank Tower CITIBANK Plaza 8741 Paseo de Roxas Makati City Attention: Attys . J . Salvador Y . Mirasol Edmundo P . Guevara and Jayson L . Fernandez Gentlemen : This refers to your letter dated November 4, 1998 requesting for a ruling that the transfer of the common areas, including the land of Perf Realty Corporation (Perf) to a condominium corporation which will be organized in connection with a Memorandum of Agreement (MOA) dated March 9, 1998 is not subject to income tax and documentary stamp tax. cdta It is represented that Perf is a corporation organized and existing under the laws of the Republic of the Philippines; that it is the registered owner of three lots situated along Paseo de Roxas, Makati City containing a total land area of 3,757 square meters and covered by Transfer Certificates of Title Nos. 131922, 120823 and 120824 issued by the Registry of Deeds for Makati City; that on March 9, 1998, The Philippine American Life and General Insurance Company (Philamlife), Philam Properties Corporation, Perf Realty, Carmona Realty & Development Corporation, Steel Asia Manufacturing Corporation, Frigate Holdings & Management Corporation, Frabelle Fishing Corporation, Far East Bank & Trust Company, Republic City Development Corporation and the Social Security System (Parties) entered into a MOA for the construction of a 46-storey office condominium tower on the Paseo de Roxas lots, to be known as the Philamlife Tower or such other name as Philamlife may subsequently adopt (Project); that under the terms of the MOA, the Parties have allocated among themselves (a) specifically designated spaces in the Project, and (b) the cost of construction and condominiumization of such spaces which they will individually undertake to finance in the form of cash, property, services and/or rights or forms of property; that to finance the cost of construction and condominiumization of its allocated spaces, Perf will provide the Paseo de Roxas Lots for the condominium project, which Philamlife, as the lessee of the Paseo de Roxas Lots, will provide its leasehold right over the Paseo de Roxas Lots; that upon the completion of the Project and the formation of a condominium corporation for the Project, Perf will transfer the Paseo de Roxas Lots to the condominium corporation, free of the leasehold rights as part of the common areas of the condominium tower for the common management and benefit of the members of the condominium corporation; that the conveyance of the Paseo de Roxas Lots by Perf in favor of the condominium corporation will be made without consideration and solely for the purpose of complying with the requirements of R.A. No. 4727, otherwise known as the Condominium Act. In connection therewith, you now request confirmation of your opinion that "1. The MOA executed by the Parties on March 8, 1998 will not be subject to any tax imposed under the Tax Code of 1997 other than the documentary stamp tax (DST) of P15.00 imposed on the notarial acknowledgment. Upon presentment of proof of payment of the P15.00 DST imposed on the notarial acknowledgment, the Registry of Deeds is authorized to annotate the MOA on the back of the Transfer Certificates of Title Nos. 131922, 120823 and 120824 of the Registry of Deeds of Makati City held in the name of Perf Realty Corporation; prll "2. The transfer of the Paseo de Roxas Lots by Perf Realty to the condominium corporation will not be subject to income tax or DST." In reply, please be informed that the MOA described above is an agreement among the Parties to construct and fund the cost of construction of designated office floors and concomitant interests in the common areas of the Project which is neither a contract of sale over real property nor an instrument which conveys title to real property. Hence, no income tax or DST is due upon the execution of the MOA (Section 186 of Revenue Regulations No. 26). However, the notarial acknowledgment on the MOA is subject to the DST on certification pursuant to Section 188 of the Tax Code of 1997. Moreover, since the transfer of the Paseo de Roxas Lots from PERF Realty to the condominium corporation is without consideration and is not in connection with a sale made to the condominium corporation to be organized in compliance with the requirements of the Condominium Act, no income will be generated and a fortiori , no income tax will be payable and collectible thereon. Furthermore, Section 185 of the Revised Documentary Stamp Tax Regulations (Regulations No. 26) provides that "conveyances of realty not in connection with a sale, to trustee or other persons without consideration are taxable". Consequently, the conveyance of the Paseo de Roxas Lots from PERF Realty to the condominium corporation is not subject to the DST imposed under Section 196 of the Tax Code of 1997. However, the notarial acknowledgment on the deed of conveyance will be subject to the DST on certification pursuant to Section 188 of the Tax Code of 1997 (BIR Ruling Nos. 182-93 dated May 4, 1993; 212-93 dated May 14, 1993; DA 30-96; DA 87-96; DA 234-96) Accordingly, the Register of Deeds of Makati City is authorized to annotate the MOA on the back of the certificates to title covering the Paseo de Roxas Lots and, upon execution of the deed of conveyance, transfer title to the Paseo de Roxas Lots from PERF Realty to the condominium corporation without requiring the presentation of a Certificate Authorizing Registration from the proper Revenue District Officer of the BIR. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will disclosed that the facts are different, then this ruling shall be considered null and void. cdlex Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)