BIR Ruling [DA-056-03]

February 24, 2003 BIR RULING [DA-056-03] 22 (B) 108-98 dated June 29, 1998 International Exchange Bank Ibank Exchange Building 142 Amorsolo Street Legaspi Village Makati City Attention: Mr. Michael B. Garcia Vice-President Gentlemen : This refers to your letter dated January 2, 2003 stating that the Trust Center of International Exchange Bank is a commercial banking corporation duly organized and existing under the laws of the Philippines; that on the other hand, a group of individuals (Clients) undertook to participate in the collective development of a residential condominium project known as Penhurst Parkplace Condominium (Project) to be built on a parcel of land presently covered by TCT No. 35847 of the Registry of Deeds for Taguig (Subject Land); that the Clients hired GW Architects, Engineers, Project Development Consultants (GW), a partnership duly organized and existing under and by virtue of the laws of the Philippines to act as project manager; that to begin the Project, each Client entered into a Contract to Manage and Execute the Construction of Penhurst Parkplace Condominium (the Contract); that in said Contract, each Client undertook to collectively develop the Project and to put up his/her respective construction finding contributions for the same; that in return for such participation and as part of his/her interest in the Project, each Client was assigned specific condominium units and parking units in the Project (Condominium Units and Parking Units); and that in addition, each Client was to have a proportionate undivided interest in the common areas of Project, which common areas includes the Subject Land (Common Areas); that under the terms of the Contract, each Client agreed that prior to the actual division of the Project into individual units, their respective interests in the Project would consist in a pro-indiviso, pro-rata share, held collectively with the other Clients, realizing, that it would be cumbersome and administratively difficult for all the Clients to be named as owners of the Subject Land and the Project, various trust agreements were executed by the Clients, as Trustors, and International Exchange Bank-Trust Center, as Trustee, for the purpose of allowing the Trustee to hold title to the Subject Land and the Project; that at the time of the execution of the Trust Agreements by the Trustors, their respective initial construction funding payments were remitted to the Trustee with the instructions for the Trustee to purchase the Subject Land for the collective benefit of the Clients and in proportion to their respective interests in the Project; that the Trustee was instructed to hold and disburse the funds as and when necessary for the development of the Project using the Client's additional construction funding payments; that in accordance with such direction, the Trustee then purchased the Subject Land; that as part of its functions, the Trustee shall cooperate with GW in the course of the Project's development, particularly in effecting the condominiumization of the Project and obtaining necessary registrations for the same and the individual condominium certificates of title for the Condominium and Parking Units and the Common Areas; and that under the terms of the Trust Agreement, and upon completion of the Project, the Trustee is to execute Deeds conveying in favor of the Clients their respective Condominium and Parking Units and the Common Areas in favor of a Condominium Corporation. Based on the foregoing representations, you now request confirmation of your opinion that "(1) (T)he conveyance of the Condominium Units and Parking Units by the Trustee to the individual Trustor is not subject to any tax imposed under the Tax Code and the documentary stamp tax on deeds of sale and conveyance of real property imposed under Section 196 of the Tax Code of 1997; and DAETcC "(2) (T)he conveyance of the common areas of the Project by the Trustee to the Condominium Corporation is not subject to any tax imposed under the Tax Code and the documentary stamp tax imposed under Section 196 of the same Code." In reply thereto, please be informed that your opinion is hereby confirmed as follows: 1. The conveyance of the Condominium Units and Parking Units by the Trustee to the individual Trustors does not have the effect of a sale, exchange or disposition, nor does it vest title on the real properties as the individual Trustor retains beneficial ownership over the aforesaid properties that would give rise to a taxable event. Moreover, the transfer is without monetary consideration and the trustee merely holds legal title to the Condominium Units and Parking Units. Accordingly, the conveyance of the Condominium Units and Parking Units is not subject to the 1.5% documentary stamp tax imposed under Section 196 of the Tax Code of 1997 but only to the documentary stamp tax of P15.00 provided in Section 188 of the same Code. ( BIR Ruling Nos. 108-98 dated June 29, 1998; DA154-2001 dated September 5, 2001 ) 2. The conveyance of the common areas of the Project by the Trustee in favor of the Condominium Corporation being without monetary consideration and not in connection with a sale made to the condominium corporation, no income was generated and a fortiori, no income and/or creditable withholding tax is payable and collectible. Since the said conveyance is not a sale, it is likewise not subject to the 10% VAT imposed under Section 106 of the Tax Code, neither will it be subject to the documentary stamp tax on sale or conveyance of real property imposed under Section 196 of the same Code. However, the notarial acknowledgment to said deed of conveyance is subject to the documentary stamp tax of P15.00 pursuant to Section 188 of the Tax Code of 1997. ( BIR Ruling No. DA040-2001 dated March 20, 2001 ) 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, (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service