J.C. Enterprises, Inc.

January 29, 2008 BIR RULING [DA-050-08] Sec. 58 (E); RR 8-98 J.C. Enterprises, Inc. JCS Bldg., 119 Dela Rosa cor. C. Palanca Sts., Legaspi Village Makati City Attention: Victoria Catherine G. Cochico Asst. Corporate Secretary Gentlemen : This refers to your letter dated September 7, 2007, requesting a confirmation of your opinion that in view of the issuance of the Tax Clearance Certificate (TCL) and the Certificate Authorizing Registration (CAR),the 3rd party dations in payment made by J.C. Enterprises, Inc. (JCE) and Mr. Jose Cojuangco, Jr. to Prudential Bank for the discharge of the outstanding loans of Hacienda Luisita, Inc. (HLI, for short) from the Bank, are no longer subject to further tax since the transactions have already been assessed the corresponding taxes due thereon and been cleared by the Revenue District Office. It is represented that J.C. Enterprises, Inc. and Mr. Jose Cojuangco, Jr. both received Post Reporting Notices from Revenue District Office (RDO) No. 45 (Marikina City),stating therein that J.C. Enterprises, Inc. was liable for documentary stamp tax (DST) and for expanded withholding tax (EWT) while Mr. Cojuangco was liable for capital gains tax (CGT) and DST, both on the transfer of their real properties to Hacienda Luisita, Inc. which would settle the outstanding loan of Hacienda Luisita with Prudential Bank; that you rebutted the RDO's finding, stating that there is a misappreciation of facts by the revenue officers on case, since the transfer of the properties were directly made to Prudential Bank in payment of the outstanding loan of Hacienda Luisita and not directly transferred to Hacienda Luisita then to Prudential Bank; that finding merit in your explanation, RDO # 45 released the TCL and the CAR in favor of J.C. Enterprises and Mr. Cojuangco, succinctly certifying therein that the property transactions contained in Annex A of the TCL have been settled as of January 16, 2006 and January 27, 2007 respectively; that accordingly, the CARs were issued to authorize the registration of the titles in the name of the bank; that, however, at the instigation of the Bank, you now seek a ruling confirming that the transactions are no longer subject to further taxation; that to further clarify the nature of your transaction, you filed a clarificatory letter dated October 18, 2007, explaining the fact that the Dacion en Pago Agreement between JCE, the Bank and HLI (Annex "A",hereof and the Dacion en Pago Agreement between Mr. Cojuangco, the Bank and HLI (Annex "B" hereof) involved only direct sales of real properties by JCE and Mr. Cojuangco to the Bank in consideration of which JCE and Mr. Cojuangco assumed HLI's loan obligations to the Bank with the conformity of HLI; that it is your position that technically, there was no real property transaction entered into between JCE and Mr. Cojuangco and HLI upon which capital gains tax (CGT) and documentary stamp tax (DST) may be lawfully imposed; that likewise, it can not be construed that JCE and Mr. Cojuangco donated their properties for the settlement of HLI's loan obligations to the Bank since a donation presupposes an absence or lack of consideration; that under these transactions, JCE and Mr. Cojuangco acquired HLI's loan obligation a financial asset, from the Bank for which the payment in kind involved the conveyance of their real properties to the Bank; that consequently, upon the execution of aforesaid Dacion en Pago Agreements, HLI became indebted to JCE and Mr. Cojuangco as evidenced by HLI's October 2004 Board Resolution (Annex "C" hereof),excerpts of HLI's Balance Sheet (Annex "D" hereof) and excerpts of JCE's Balance Sheet (Annex "E" hereof).Hence, your request. ISTCHE In reply, please be informed that Section 58 (E) of the Tax Code of 1997, as implemented by Revenue Regulations No. 8-98, requires that before any registration could be effected by the Register of Deeds for the transfer of the title to the new owner, the Commissioner or his duly authorized representative must have certified that such transfer has been reported, and the capital gains or creditable withholding tax has been paid, among others, to quote: Section 58 (E) of the Tax Code of 1997 "SEC. 58(E). Registration with Register of Deeds . No registration of any document transferring real property shall be effected by the Register of Deeds unless the Commissioner or his duly authorized representative has certified that such transfer has been reported, and the capital gains and creditable withholding taxes, if any, has been paid; ..." Section 6 of Revenue Regulations No. 8-98 "SEC. 6. Tax Clearance Certificate . Upon presentation of the Capital Gains Tax Return or the Creditable Withholding Tax Return with bank validation evidencing full payment of the capital gains tax or the creditable withholding tax due on the sale, transfer, barter, exchange or other disposition of the real property classified as capital or ordinary asset, as the case may be, the Revenue District Officer (RDO) of the revenue district where the property being transferred is located shall issue the corresponding Tax Clearance (TCL) or Certificate Authorizing Registration (CAR) for the registration of the real property in favor of the transferee." Accordingly, in essence, since the TCL and the CAR were already issued certifying that corresponding taxes had been fully settled and the transactions were authorized for registration with the Registry of Deeds, it would only mean that no further tax assessment could be made out of the aforesaid transactions. Thus, the daciones en pago made by J.C. Enterprises, Inc. and Mr. Jose Cojuangco, Jr. for the discharge of Hacienda Luisita's loan with Prudential Bank may now be considered closed and terminated transactions. It is however, emphasized that while the propriety of the tax payments has been determined to be in order, this will not preclude the BIR to conduct an investigation in order to determine the correctness of the computation of the amount of taxes paid. 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 considered null and void. IcCATD Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service