BIR Ruling [DA-095-02]

May 22, 2002 BIR RULING [DA-095-02] 27 (A) 188 DA-085-2001 Romulo Mabanta Buenaventura Sayoc and De Los Angeles Law Offices 30th Flr. Citibank Tower 8741 Paseo de Roxas, Makati City Attention: Attys. Jose Salvador Y. M irasol, Ronaldo Modesto J. Ventura and Jayson L. Fernandez Gentlemen : This refers to your letter dated January 25, 2002 requesting for a ruling that the conveyance of the common areas, including the land of Empire East Land Holdings, Inc. (EELHI), to a condominium corporation which shall be organized in connection with a Memorandum of Agreement (MOA) between (EELHI) and Citibank, N.A. (Citibank) dated August 20, 1996, is not subject to income tax and documentary stamp tax. It is represented that EELHI is a corporation organized and existing under Philippine laws; that it is the registered owner of a parcel of land situated at Libis, Quezon City with a total area of 2,000 square meters (the Libis Lot) and covered by Transfer Certificate of Title No. N-173188 of the Registry of Deeds for Quezon City; that on August 20, 1996, Citibank and EELHI entered into a MOA for the construction of an office condominium building on the Libis Lot, known as the "Citibank Square"; that under the provisions of the MOA, the parties allocated among themselves (a) specifically designated spaces in Citibank Square, 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, EELHI will provide funding and the Libis Lot for the condominium project while Citibank will provide funding; that upon the completion of the building and the formation and organization of a condominium corporation, EELHI will transfer the Libis Lot to the condominium corporation as part of the common areas of the Citibank Square for the common management and benefit of the members of the condominium corporation; that the conveyance of the Libis Lot by EELHI 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 Transfer Certificate of Title No. N-173188 of the Registry of Deeds for Quezon City, which title covers the Libis 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 Libis Lot as this shall take place only when the condominium corporation is formed and organized and the Libis Lot is 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 Citibank and EELHI on 20 August 1996 is not subject to any tax imposed under the Tax Code of 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 of Quezon City is authorized to annotate the MOA on the back of Transfer Certificate of Title No. N-173188 of the Registry of Deeds for Quezon City held in the name of EELHI, and to issue the Condominium Certificates of Title covering the respective units of Citibank and EELHI, as original owners/co-developer at the Citibank Square pursuant to the MOA; "2. The transfer of the Libis Lot by EELHI 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 Citibank and EELHI 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 documentary stamp tax is due upon the execution of the MOA (BIR Ruling Nos. 010-96 dated January 23, 1996; DA-085-2001 dated May 11, 2001; Section 186 of Revenue Regulations No. 26). However, the notarial acknowledgment on the MOA is subject to the documentary stamp tax on certification pursuant to Section 188 of the Tax Code of 1997. cTESIa Moreover, since the transfer of the Libis Lot from EELHI 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 Libis Lot from EELHI to the condominium corporation will not be subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997. However, the notarial acknowledgment on the deed of conveyance will be subject to the documentary stamp tax on certification pursuant to Section 188 of the Tax Code of 1997. Accordingly, the Register of Deeds of Quezon City is authorized to annotate the MOA at the back of the certificate of title covering the Libis Lot and, upon execution of the deed of conveyance, transfer title to the Libis Lot from EELHI to the condominium corporation without requiring the presentation of a Certificate Authorizing Registration (CAR) 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