BIR Ruling [DA-096-97]

March 14, 1997 BIR RULING [DA-096-97] Sycip, Gorres, Velayo & Co. 6760 Ayala Avenue, City of Makati Attention: Atty . C . P . Noel Tax Division Gentlemen : This refers to your letter dated December 9, 1996, requesting in behalf of your clients, SPOUSES JUAN MIGUEL VAZQUEZ and JUDITH DUAVIT VAZQUEZ (Spouses), for a ruling that the transfer of their conjugal properties to each individual spouse pursuant to their Agreement to dissolve the conjugal partnership of gains and for the separation of their common properties is exempt from capital gains tax (CGT), documentary stamp tax (DST) and donor's tax. Documents submitted to this office show that the Spouses jointly filed with the Regional Trial Court (RTC) of Makati (Branch 144) a verified petition for the dissolution of the conjugal partnership of gains and for the separation of their common properties; that the petition was filed in accordance with Article 136 of the Family Code, as amended, which provides in part that "the spouses may jointly file a verified petition with the court for the voluntary dissolution of the absolute community or the conjugal partnership of gains and for the separation of their common properties"; that in support of their petition, the Spouses jointly executed an Agreement to dissolve the conjugal partnership and to distribute the following conjugal properties in the manner described below: NO. OF MANNER OF PROPERTY SHARES DISTRIBUTION 1. Shares in Duvaz Corporation 756,198 The shares shall pertain exclusively to Mrs. Judith D. Vazquez 2. Shares in Permanent Plans, Inc. 76,850 The shares shall pertain exclusively to Mr. Juan Miguel M. Vazquez 3. Share in Baguio Country Club, Inc. covered by Certificate No. 3462 1 The share shall pertain exclusively to Mr. Juan Miguel M. Vazquez 4. Share in Manila Polo Club, Inc., covered by Proprietary Membership Certificate No. 2105 1 The share shall pertain exclusively to Mr. Juan Miguel M. Vazquez that on December 4, 1996, the RTC of Makati promulgated a decision, dissolving the conjugal partnership of the Spouses and approving their Agreement for the separation of their common properties, finding the same to be not contrary to law, morals, good customs, public order and public policy; and that in support of your request, you have attached copies of the following documents: 1) Decision of the RTC of Makati (Branch 144), dissolving the conjugal partnership of gains of the Spouses and approving the Agreement of the Spouses for the separation of their common properties: 2) Agreement of the Spouses for the dissolution of the conjugal partnership and the separation of their common properties; and 3) BIR Ruling Nos. 220-83 and 427-88 dated December 8, 1983 and August 31, 1988, respectively. llcd In reply, please be informed that since the properties involved in this case are conjugal partnership properties, the transfer of such properties by the Spouses to each individual spouse pursuant to their Agreement to dissolve the conjugal partnership of gains and for the separation of their common properties is not subject to CGT imposed under Section 21 (d) and to DST under Section 176 of the Tax Code, as amended. In other words, the transfer of conjugal properties pursuant to Article 136 of the Family Code, as amended is not among those contemplated under the aforesaid sections of the Tax Code, since the properties involved are owned in common by the Spouses. Moreover, said transfer of conjugal properties is not subject to DST since the monetary consideration from which said tax is based is wanting. Likewise, no donor's tax accrued and became collectible on the abovestated transfer because no donation took place or could take place between the Spouses. They segregated and adjudicated for their individual and separate ownership the properties which from the celebration of their marriage rightfully belonged to them equally. Accordingly, there is no clear and unmistakable intent on the part of the Spouses to part away with his or her dominion over an exclusive property. What actually happened was the appropriation to themselves of their respective shares in the dissolved conjugal partnership. Article 87 of the Family Code, as amended, provides that every donation or grant of gratuitous advantage, direct or indirect, between the spouses during the marriage shall be void. Although, there was a dissolution of the conjugal partnership, the marriage still subsists. The Spouses cannot validly donate, directly or indirectly, to each other. cdll Accordingly, the transfer of properties by the Spouses to each individual spouse pursuant to their Agreement to dissolve conjugal partnership and for the separation of their common properties is not subject to donor's tax. This ruling is 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. (BIR Ruling No. 220-83 dated December 8, 1983; BIR Ruling No. 427-88 dated August 31, 1988) Very truly yours, ALICIA P. CLEMENO Assistant Commissioner (Legal Service) By: ALICIA L. TOMACRUZ Head Revenue Executive Assistant (Legal Service)