BIR Ruling [DA-085-01]

May 11, 2001 BIR RULING [DA-085-01] 27 (A); 188 DA-015-99 Romulo Mabanta Buenaventura Sayoc & Delos Angeles 30th Flr. Citibank Tower 8741 Paseo de Roxas, Makati City Attention: Attys . Priscilla B . Vales and Jayson L . Fernandez Gentlemen : This refers to your letter dated February 1, 2001 requesting for a ruling that the conveyance of the common areas, including the land of G.A. Cu Unjieng Realty, Inc. (GACU), to a condominium corporation which will be organized in connection with a Memorandum of Agreement (MOA) between Union Properties, Inc. (UPI) and GACU dated July 18, 2000, is not subject to income tax and documentary stamp tax. It is represented that GACU is a corporation organized and existing under the Republic of the Philippines; that it is the registered owner of a parcel of land situated at the corner of Quintin Paredes and Dasmarias Streets, Binondo, Manila with a total area of 521.70 square meters (the Binondo Lot) and covered by Transfer Certificate of Title No. 103564 of the Registry of Deeds of the City of Manila; that on July 18, 2000, GACU and UPI entered into a MOA for the construction of a 21-storey office condominium building on the Binondo Lot, to be known as the "G.A. Cu Unjieng Centre" (the "Project"); that under the terms of the MOA, the parties allocated between themselves (a) specifically designated spaces in the Project, and (b) the cost of construction and condominiumization of such spaces which they individually undertook to finance in the form of cash, property, services and/or other rights or forms of property; that to finance the cost of construction and condominiumization of its allocated spaces, GACU will provide the Binondo Lot for the condominium project while UPI will provide all the cash and management necessary to construct the Project according to agreed specifications; that upon the completion of the Project and the formation of a condominium corporation for the Project, GACU will transfer the Binondo Lot to the condominium corporation as common areas of the condominium project for the common management and benefit of the members of the condominium corporation; that the conveyance of the Binondo Lot by GACU in favor of the condominium corporation will be made without consideration and solely for the purpose of complying with the requirements of Republic Act No. 4727 (the Condominium Act); that the parties intend to have the MOA annotated on the back of the certificate of title to the Binondo Lot in order to serve notice and bind third parties as to the existence of the MOA and the obligations of the parties thereunder; that the MOA will not of itself transfer title over the Binondo Lot as this shall take place only when the condominium corporation is formed and the lots are transferred to said condominium corporation as part of the common areas. Based on the foregoing representations, you now request confirmation of your opinion that: "1. The MOA executed by GACU and UPI on July 18, 2000 will not be subject to any tax imposed under the Ta x Code o f 1997 other than the DST of P15.00 imposed on the notarial acknowledgment. Upon presentment of proof of payment of the P15.00 DST imposed on the notarial acknowledgment, the Registry of Deeds is authorized to annotate the MOA on the back of Transfer Certificate of Title Nos. 103564 of the Registry of Deeds of the City of Manila held in the name of GACU; EacHSA "2. The transfer of the Binondo Lot by GACU to the condominium corporation will not be subject to income tax or DST." In reply, please be informed that the MOA described above is an agreement between GACU and UPI to construct and fund the cost of construction of designated office floors and concomitant interests in the common areas of the Project which is neither a contract of sale over real property nor an instrument which conveys title to real property. Hence, no income tax or DST is due upon the execution or the MOA (BIR Ruling Nos. 010-96 dated January 23, 1996; DA 015-99 dated January 11, 1999; Section 186 of Revenue Regulations No. 26). However, the notarial acknowledgment on the MOA is subject to the DST on certification pursuant to Section 188 of the Tax Code of 1997. Moreover, since the transfer of the Binondo Lot from GACU to the condominium corporation will be without any monetary consideration and will not be in connection with a sale made to the condominium corporation to be organized in compliance with the requirements of the Condominium Act, no income will be generated and a fortiori , no income tax will be payable and collectible thereon. Furthermore, Section 185 of the Revised Documentary Stamp Tax Regulations (Regulations No. 26)provides that "conveyances of realty not in connection with a sale, to trustees or other persons without consideration are not taxable". Consequently, the conveyance of the Binondo Lot from GACU to the condominium corporation will not be subject to the DST imposed under Section 196 of the Tax Code of 1997. However, the notarial acknowledgment on the deed of conveyance will be subject to the DST on certification pursuant to Section 188 of the Tax Code of 1997 (BIR Ruling Nos. 182-93 dated May 4, 1993; 212-93 dated May 14, 1993; DA 30-96; DA 87-96; DA 234-96) Accordingly, the Register of Deeds of Manila is authorized to annotate the MOA on the back of the certificate of title covering the Binondo Lot and, upon execution of the deed of conveyance, transfer title to the Binondo Lots from GACU to the condominium corporation without requiring the presentation of a Certificate Authorizing Registration from the proper Revenue District Office of the BIR. 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.) MILAGROS V. REGALADO Acting Assistant Commissioner Legal Service