BIR Ruling [DA-049-04]

February 6, 2004 BIR RULING [DA-049-04] 27 (D); 101; 106; 196 DA-072-97; 033-97; DA-473-99 DA-212-02; DA-256-01 Atty. Francisco B. Gonzalez V, CPA 429-D Shaw Blvd. Mandaluyong City Gentlemen : This refers to your letter dated November 5, 2002, requesting for a ruling on the tax consequences of the proposed assignment and conveyance of real properties by the Communication Foundation for Asia, Inc. (CFA) to the Missions for Social Communications, Inc. (MISOCOM). The facts as represented are as follows: "COMMUNICATION FOUNDATION FOR ASIA, INC. is a non-stock, non profit organization established for the purpose of developing spiritual, social, civic and economic consciousness and conditions of the common man through the use and development of communication skills, techniques and media as a means of formal and non-formal education in the Philippines and throughout asia (sic); that it was established in 1968 under the name ANG TAO FOUNDATION, INC., and later renamed SCC DEVELOPMENT AND RESEARCH FOUNDATION, INC., and this was again later amended to COMMUNICATION FOUNDATION FOR ASIA, INC., its present name, hereinafter referred to as "CFA". "The late Rev. Cornelio Lagerway, MSC and his Congregation of the Missionaries of the Sacred Heart, together with representatives of the National Council of Churches, the Archdiocese of Manila, and the other bishops were the driving force of CFA until Rev. Lagerways' demise. . . . "Sometime in April 26, 1990, before the expiration of the corporate life of CFA was to become effective on April 30, 1990, the board of trustee's composed of Atty. Leonardo Sigeon Reyna, Atty. Sabino Padilla, Dr. Juan Flavier, Rev. Cornelio Lagerway, MSC and Rev. Filoteo C. Pelingon, MSC, moved and voted to appoint Rev. Filoteo C. Pelingon, MSC as the Liquidating Officer of CFA. . . . "HEAD, MISSION FOR SOCIAL COMMUNICATIONS, INC. is a corporation sole for the MISSIONARIES OF THE SACRED HEART (MSC), Philippine Province, a religious congregation under the laws of the Roman Catholic Church. It was established in 1985 and was then headed by its procurator Fr. Danilo Ceballos, MSC. At present, it is headed by the Father Provincial, Fr. Narciso Abellana, MSC, hereinafter referred to as "MISOCOM". . . . "During the operation of the CFA, particularly during the time when it was still called SCC DEVELOPMENT AND RESEARCH FOUNDATION, INC. it was able to acquire several parcels of land which it utilized in the purpose of evangelization, particularly the real properties and improvements located in 4427 Interior Old Sta. Mesa, Manila which were covered by several titles namely TCT No. 110324, 110325, 110326, 110327, 110349, 110350, 110351, 110352 all from the Registry Deeds of Manila. . . . "When CFA was renamed COMMUNICATION FOUNDATION FOR ASIA INC., a petition was filed with the Court of First Instance of Manila Branch IV, asking for the amendment of the above mentioned titles be changed from the name of SCC DEVELOPMENT AND RESEARCH FOUNDATION INC. to COMMUNICATION FOUNDATION FOR ASIA, INC. The courts under LRC Record No. 7680, dated April 16, 1977, . . . granted the said petition. "The said titles were never submitted to the Registry of Deeds of Manila for purposes of transferring title thereto until present and TCT No. 110349 and 110350 were later transferred to third parties. CFA currently holds title to TCT No. 110324, 110325, 110326, 110327, 110351, 110352 but still under the name of SCC DEVELOPMENT AND RESEARCH FOUNDATION INC. "At present, CFA is no longer in operations, its activities being taken over by other foundations established by the MSC congregation which were organized to specialize for the different types and modes of communications media, while still using the same facilities. CFA is contemplating on the transfer and assignment of the above mentioned real properties, including improvements thereon, to MISOCOM in order that the congregation of the MSC may fully utilize the said properties in furtherance of its evangelization work. . . ." Based on the above facts, it is your opinion that the contemplated transaction between CFA and MISOCOM on the assignment and conveyance of the above-mentioned real properties shall have the following tax consequences: 1. That the above assignment and conveyance of real properties covered by TCT Nos. 110324, 110325, 110326, 110327, 110351 and 110352 from Communication Foundation for Asia, Inc. (formerly SCC Development and Research Foundation, Inc.) to Mission for Social Communication, Inc., a corporation sole for the Missionaries of the Sacred Heart, is without consideration and the conveyance is not in connection with a sale, the same is not subject to the creditable withholding tax on sale, exchange or transfer of real property pursuant to Revenue Regulations No. 6-85, as amended, otherwise known as the Expanded Withholding Tax Regulations. 2. That the assignment and/or transfer of the said property is not subject to the Value-Added Tax provisions of the Tax Code of 1997. 3. That the said Deed of Assignment and Conveyance is not subject to the documentary stamp tax under Section 196 of the same Tax Code. 4. The assignment is not subject to donor's tax for the reason that said transfer is considered a gift in favor of an educational and/or charitable, religious, cultural or social welfare corporation under Section 101(A)(3) of the 1997 Tax Code. 5. That the transfer of title from SCC Development and Research Foundation, Inc. to Communication Foundation for Asia, Inc. being in the nature of a change in corporate name shall also not be subject to taxes. In reply, please be informed that: 1. Since the aforementioned transfer by CFA of its parcels of land covered by TCT Nos. 110324, 110325, 110326, 110327, 110351 and 110352 to MISOCOM is without consideration and the conveyance is not in connection with a sale, the same is not subject to the creditable withholding tax on sale, exchange or transfer of real property under Revenue Regulations No. 2-98, as amended. (BIR Ruling No. DA-072-2-20-97 dated February 18, 1997) 2. Pursuant to Section 109(w) of the Tax Code of 1997, sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or business of the seller is exempt from VAT. Considering that the aforestated properties are not primarily held for sale to customers or held for lease in the ordinary course of trade or business, the transfer of the said properties by CFA to MISOCOM is not subject to VAT under Section 106 of the Tax Code of 1997. (BIR Ruling No. 033-97 dated April 1, 1997) 3. Section 185 of Regulations No. 26 provides that conveyances of realty not in connection with a sale, to trustees or other persons without consideration are not taxable. Inasmuch as the aforesaid transfer is made without monetary consideration and not in connection with a sale, the conveyance is not subject to documentary stamp tax under Section 196 of the same Tax Code. The notarial acknowledgment of the deed, however, is subject to P15.00 documentary stamp tax pursuant to Section 188 of the same Tax Code. (BIR Ruling No. DA-473-99 dated August 17, 1999) 4. Gifts or donations made in favor of an educational and/or charitable, religious, cultural or social welfare corporation, institution, accredited non-government organization, trust or philanthropic organization or research institution or organization shall be exempt from donor's tax pursuant to Section 101(A)(3) of the Tax Code of 1997. As a religious organization, donations in favor of MISOCOM, are exempt from payment of the donor's tax, subject to the condition that not more than 30% of the said gifts shall be used by MISOCOM, for administration purposes. (BIR Ruling No. DA-212-02 dated November 21, 2002) ASICDH 5. The transfer of titles from SCC Development and Research Foundation, Inc. to Communication Foundation for Asia, Inc. did not result in any taxable sale, barter, exchange or other disposition of properties, said conveyance being the result of a change in corporate name, hence it is not subject to capital gains tax or creditable withholding tax and to the documentary stamp tax imposed under Sections 27(D) and 196 both of the Tax Code of 1997. (BIR Ruling No. DA-256-01 dated December 5, 2001) This will therefore, serve as an authority to the Register of Deeds to transfer the title of the aforementioned six (6) parcels of land covered by TCT Nos. 110324, 110325, 110326, 110327, 110351 and 110352 from the name of SCC Development and Research Foundation, Inc. to MISOCOM. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group