Jimenez Gonzales Liwanag Bello Valdez Caluya & Fernandez

January 25, 2007 BIR RULING [DA-039-07] 24 (C); DA-125-97 Jimenez Gonzales Liwanag Bello Valdez Caluya & Fernandez SOL Building, 112 Amorsolo St. Legaspi Village, Makati City Attention: Attys. Ma. Cristina S. Hernandez and Norina Aileen C. Sanchez Gentlemen : This refers to your letter dated August 18, 2006 requesting for confirmation of your opinion that the transfer of Two Thousand Two Hundred Fifty (2,250) shares in Audio Print Corporation (APC) held by Toribia M. Tan by virtue of an implied trust to John C. Tan is not subject to capital gains tax. It appears that John C. Tan and Toribia M. Tan are husband and wife. John C. Tan has three (3) children on account of his former marriage. Prior to and/or during their marriage, John C. Tan acquired 2,250 shares in APC under the name of Toribia M. Tan as the shareholder/owner. The shares of stock were bought by John C. Tan using his exclusive property or money acquired from a former marriage. On January 27, 2005, Toribia M. Tan executed a Quitclaim and Waiver acknowledging that the 2,250 shares in APC registered in her name is the exclusive property of John C. Tan. At present the shares are assigned back to John C. Tan, as the trustor/beneficial owner thereof. In reply, please be informed that since the transfer of the shares is without monetary consideration, the same is not subject to the capital gains tax imposed under Section 24 (C) of the Tax Code of 1997. There being no transfer of beneficial ownership but merely a confirmation of title in favor of the beneficial owner and without monetary consideration, it is our opinion that no gain will be realize by both the transferor and the transferee from the transfer of the shares held in trust by Toribia M. Tan to John C. Tan. Consequently, the transaction will not be subjected to capital gains tax. In BIR Ruling DA-125-97, it was ruled that the conveyance by the trustee in favor of the trustor of the subject properties, which the former acquired by virtue of a trust, is not to be treated as another transfer separate and distinct from the sale between the original owner and the trustee. The conveyance is merely to be treated as a continuation and confirmation of title in favor of the ultimate and real beneficiary of the aforesaid shares, which in this case is John C. Tan. While the transfer of the subject shares was made without consideration, it is our further opinion that the same is not subject to donor's tax. Donative intent as a requisite is absent in the herein case. It has been consistently held that in a direct gift, the element of donative intent must be present in the transfer of property to be donated. Moreover, Article 87 of the Family Code, provides: "Every donation or grant of gratuitous advantage, direct or indirect between the spouses during the marriage shall be void , except moderate gifts, which the spouses may give each other on the occasion of any family rejoicing." With more reason, the transfer of the shares to John C. Tan from his spouse cannot be deemed a donation. Likewise, the conveyance of the shares from the trustee to the trustor without consideration is not taxable under Section 185 of the Revised Documentary Stamp Tax Regulations. Thus, the Waiver and Quitclaim executed by Toribia M. Tan to John C. Tan and was made without monetary consideration is not subject to the documentary stamp tax imposed under Section 175 of the 1997 Tax Code, as amended by RA 9243. However, the notarial acknowledgement to the said Waiver and Quitclaim is subject to the documentary stamp tax of P15.00 pursuant to Section 188 of the Tax Code of 1997. EcASIC This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered as null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service