BIR Ruling [DA-102-99]

February 18, 1999 BIR RULING [DA-102-99] Leighton Properties, Inc. ILO Building, 195 G. Araneta Avenue Quezon City Attention: Mr . Edwin F . Ong President Gentlemen : This refers to your letter dated October 29, 1998 requesting in effect for exemption from all internal revenue taxes in connection with the transfer of titles of certain properties forming part of the common areas of a residential project. Cdphil It is represented that Leighton Properties, Inc. (LPI) is the absolute owner of two parcels of land situated in New Manila, Quezon City as evidenced by TCT Nos. N-144228 and N-144229 of the Register of Deeds of Quezon City; that the said properties were developed into a townhouse project known as Leighton Place; that under a Master Deed and Declaration of Restrictions of said project, LPI is bound to transfer and convey the common areas of the said project in favor of the non-stock non-profit Homeowners Association of the townhouse project; that Leighton Place Homeowner's Association, Inc. (LPHAI) was formed for the purpose of maintaining and administering the common areas of the Leighton Place; that the common areas of the project are described in the Master Deed as follows: a) the land comprising the common areas; b) the project common areas consisting of the compound, driveways, sidewalks, swimming pool, guardhouse, administration office, open spaces, and other areas devoted to or intended for common use; c) the bearing walls, exterior walls, columns, roofs, foundations, and other structural elements of the Units; d) the compartments and installations of services and utilities such as light, water, drainage, sewerage and all pipes, conduit wires, other utility lines and all other devises and installations existing for or intended for common use or necessary for the existence, upkeep and safety of the Units, and all areas, structural elements, facilities and utilities. In reply thereto, please be informed that if the transfer of the common areas and facilities to the Association is without consideration, no income will be generated therefrom, and a fortiori, no creditable expanded withholding tax is payable and collectible. The circumstances in the instant case are very similar to that of a condominium project wherein this Office consistently held that the transfer of the common areas by the developer of the condominium project to the condominium corporation is not subject to creditable withholding tax. (BIR Rulings UN-145-94 dated April 26, 1994; UN-154-94 dated May 24, 1994; and DA-362-96 dated October 3, 1996) The transfer is also not subject to the documentary stamp tax imposed by Section 196 of the Tax Code since under Section 185 of the Revised Documentary Stamp Tax Regulations (Regulations No. 26), "conveyances of realty not in connection with a sale, to trustees or other persons without consideration are not taxable." (BIR Rulings UN 126-94, UN-145-94, UN-154-94 and DA-362-96, supra .) Furthermore, the absence of donative intent herein likewise renders the transfer not subject to donor's tax imposed under Section 98 of the Tax Code of 1997. It has been held that in a direct gift, the element of donative intend must be present in the transfer of property to be donated for it to be subject to donor's tax. (BIR Ruling No. 029-90 dated March 15, 1990 citing Perez vs. Commissioner, CTA Case No. 1707, February 10, 1969) Finally, since the value of the common areas and facilities thereat have already been included in the selling price of the salable lots/units paid for by the lot/unit owners and therefore cannot be separately sold, its transfer in favor of the Association would be a mere formality to finally effect transfer of title thereto. This ruling is being issued on the basis of the foregoing facts represented. However, if upon investigation it will be disclosed that the facts are different, then this ruling shall be considered null and void. LLjur Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal and Enforcement Group