BIR Ruling [DA-102-03]

April 1, 2003 BIR RULING [DA-102-03] 24 (D) (1) Chan Robles & Associates 21/F Philippine Stock Exchange Centre Tektite East Tower, Exchange Road Ortigas Center, Pasig City Attention: Atty. Jade Ferrer Wy Gentlemen : This refers to your letter dated June 19, 2000 requesting, on behalf of your client, Ms. Blandie Ongpauco Chiu, a ruling on the proper tax treatment of the transfer of the properties covered by Transfer/Condominium Certificates of Title registered either (1) in her name, (2) in the name of her husband, or (3) in the name of B & W Enterprises Co. to her name and in the name of her children as co-owners. Documents submitted disclose that Chiu Leen Wee and Blandie Ongpauco-Chiu were married on December 29, 1974; that their marriage was blessed with three children, Oliver, born on July 28, 1976, Aristotle, born on April 12, 1978, and Love, born on December 10, 1984; that during their marriage, the spouses acquired the following properties, namely: Registered under B & W Enterprises, Co .: 1. Unit AB 104 Atrium Bldg. (Galleria de Magallanes) covered by Condominium Certificate of Title No. 13310 of Registry of Deeds of Makati City; 2. Unit 1803 Parc Chateau Condominium covered by Condominium Certificate of Title No. PT-15900 of the Registry of Deeds of Pasig City; 3. Unit No. 52C Cluster Galanciang, Upper Bldg., 2nd Level covered by Condominium Certificate of Title No. CT-501 of the Registry of Deeds of Trece Martires, Cavite City. Registered under Blandie Ongpauco Chiu married to Chiu Leen Wee : 1. 101 William Shaw St., Caloocan City covered by Transfer Certificate of Title No. 1211300 of the Registry of Deeds of Caloocan City; 2. Unit 305 Chateau Verde Condominium covered by Condominium Certificate of Title No. PT-15900 of the Registry of Deeds of Pasig City; Registered under Chiu Leen Wee married to Blandie Ongpauco Chiu : 1. Cityland Subdivision Neogan, Tagaytay City covered by Transfer Certificate of Title No. T-30333 of the Registry of Deeds of Tagaytay City; and 2. Cityland Subdivision, Neogan, Tagaytay City covered by Transfer Certificate of Title No. T-29311 of the Registry of Deeds of Tagaytay City. that a Petition for Legal Separation was filed by Ms. Blandie Ongpauco Chiu against her husband, Chiu Leen Wee, on November, 28, 1995 with the Regional Trial Court of Makati City; and that on August 29, 1997, an Amended Decision was issued by Branch 149 of the Regional Trial Court of Makati City, granting the petition for legal separation, the dispositive portion of which reads: xxx xxx xxx Accordingly, the conjugal partnership of gains existing between the parties is hereby dissolved and liquidated and a regime of complete separation of property is hereby established without prejudice to the rights previously acquired by creditors, if there by any. The respondent, being the offending party shall have no right to any share of the net profits earned by the conjugal partnership of gains which shall be forfeited in favor of their children. xxx xxx xxx" In reply, please be informed that Article 63(2) of the Family Code provides that one of the effects of a Decree of a Legal Separation is the dissolution and liquidation of the absolute community or conjugal partnership but the offending spouse shall have no right to any share of the net profits earned by the absolute community or the conjugal partnership, which shall be forfeited in accordance with the provisions of Article 43(2) of the same Code. Spouses Chiu Leen Wee and Blandie Ongpauco-Chiu were married in the year 1974, which was before the effectivity of the Family Code, hence the property regime governing their property relationship is presumed to be conjugal partnership of gains in the absence of an agreement to the contrary. The properties of the spouses being acquired during the marriage are presumed to be conjugal. Thus, when the court issued the Decree of Legal Separation, a complete separation of property regime automatically governed their property relationship. The conjugal partnership has been dissolved and liquidated, and the net profits would be shared equally by the spouses. However, the court ruled that the share of the guilty spouse of the net profits earned by the conjugal partnership of gains shall be forfeited in favor of the children. cCTIaS Such being the case, the transfer of the properties registered under the name of Chiu Leen Wee in favor of Blandie Ongpauco-Chiu and their children shall result in the delivery of the presumptive legitimes pursuant to Article 50 of the Family Code and is not subject to capital gains tax imposed under Section 24(D)(1) of the Tax Code of 1997; to the documentary stamp tax under Section 196 of the same Code; and to the donor's tax imposed under Section 98(A) of the Tax Code of 1997, there being no donative intent on the part of Chiu Leen Wee, because the transfer is only in compliance with the order of the court. Likewise, the share of Chiu Leen Wee in the properties registered under the name of Blandie Ongpauco-Chiu, which have been forfeited in favor of their common children, shall also result in the delivery of their presumptive legitimes and because this is also in compliance with the order of the court, the same will not be subject to the capital gains tax under Section 24(D)(1), the documentary stamp tax under Section 196, and donor's tax under Section 98, all of the Tax Code of 1997. However, an annotation of the transmission of such properties to the guilty spouse's heirs must be made in the corresponding certificates of title, for estate tax purposes. Lastly, based on the above premise, the transfer of the properties registered under their partnership, B & W Enterprises Co., to Ms. Blandie Ongpauco-Chiu and to their children as co-owners is not also subject to both the capital gains tax prescribed under Section 27(D)(5) and to the documentary stamp tax under Section 196, both of the Tax Code of 1997. 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 as null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group