BIR Ruling [DA-030-02]

March 07, 2002 BIR RULING [DA-030-02] A.M. Sison, Jr. & Associates Suite 2002-A, Security Bank Centre 6776 Ayala Avenue Makati City Attention: Atty. Antero M. Sison, Jr . Gentlemen : This refers to your letter dated July 17, 2000 requesting on behalf of your client, Marsman Estate Plantation, Inc., for a ruling that the proposed donation of its parcel of land which is covered by the Comprehensive Agrarian Reform Program (CARP) to qualified farmer beneficiaries is exempt from the payment of donor's tax. It appears and as certified to by the Department of Agrarian Reform (DAR) dated June 3, 2001, that a certain parcel of land consisting of 1021.3908 hectares covered by TCT No. T-104978 located at Tibal-og, Sto. Tomas, Davao del Norte and registered in the name of Marsman Estate Plantation Inc., were covered by the CARP as of June 15, 1998; that 784.67 hectares of the said landholdings were donated to the banana farmworkers thereat as the mode of land acquisition opted by said landowner; that the corresponding Certificate of Landownership Awards (CLOA) Nos. C-14030, C-14031 and C-14032 were already issued to some 759 farmer-beneficiaries; that the land is taken over by the provincial agrarian officer for distribution to qualified farmers; that the Land Bank of the Philippines (LBP) pays the landowner in cash and bonds; that in turn the farmers pay the LBP for the parcels of land assigned to them in easy installments; that instead of receiving compensation on the disposition of its land, the landowner simply donates the property to the qualified farmer beneficiaries, which is more advantageous to them; that it is your considered opinion that said donation is exempt from donor's tax, since the latter is designed to curb indiscriminate gifting, in order to save on or avoid estate tax on a vast estate diminished in consequence of excessive donation; and that in this case of donation to a CARP farmer beneficiary there is no estate tax to avoid because the donor is a corporation. In reply thereto, please be informed that Section 66 of RA 6657 provides, viz: "Sec. 66. Exemption from taxes and Fees of Land Transfers . Transactions under this Act [RA 6657) involving a transfer of ownership, whether from natural or juridical persons, shall be exempted from taxes arising from capital gains. These transactions shall also be exempted from the payment of registration fees, and all other taxes and fees for the conveyance or transfer thereof; Provided, that all arrearages in real property taxes, without penalty or interest, shall be deductible from the compensation to which the owner may be entitled." There can be no uncertainty that transactions involving transfer of ownership of land covered by CARP are exempt from capital gains tax and also from "other taxes". (BIR Ruling No. DA-095-98 dated March 19, 1998) In other words, the proceeds to be derived by the land owner from the sale of the land covered by CARP is exempt from capital gains tax and also from documentary stamp tax imposed under Section 196 of the Tax Code of 1997. Conversely, donation of the above-mentioned parcel of land to the tenant-beneficiaries of the comprehensive agrarian reform program is therefore exempt from all taxes and fees being imposed in connection therewith, more specifically from donor's tax. In BIR Ruling No. 100-98 dated June 29, 2000, this Office has the occasion to rule on the matter, when it said thus "xxx xxx xxx "Accordingly, pursuant to Section 66 of RA No. 6657, in relation to Section 65 of the Act, donations of homelots, including replacement houses built on the relocated site, . . . in favor of the tenants/farm workers are exempt from donor's tax imposed under then Section 91 of the Tax Code, as amended (now Section 98 of the Tax Code of 1997). "xxx xxx xxx" IN VIEW OF THE FOREGOING, this Office is of the opinion as it hereby holds that donation by Marsman Estate Plantation, Inc. of a parcel of land covered by CARP in favor of farmer beneficiaries is exempt from donor's tax. 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. Very truly yours, Commissioner of Internal Revenue By: (SGD.) EDMUNDO P. GUEVARA Deputy Commissioner Legal & Inspection Group