BIR Ruling [DA-107-04]

March 9, 2004 BIR RULING [DA-107-04] 27 (D); DA-245-2003 Megaworld Corporation 28/F the World Centre 330 Sen. Gil Puyat Avenue Makati City Attention: Mr . Francis C. Canuto Treasurer Gentlemen : This refers to your letter dated November 21, 2003 requesting for an opinion whether or not the transfer of a parcel of land from the Bases Conversion and Development Authority (BCDA), as the trustor to Megaworld Corporation (Megaworld), as the trustee is exempt from capital gains tax/expanded withholding tax and documentary stamp tax. The facts as you represent are as follows: 1. BCDA and Alliance Global Group (AGG) are parties to a Joint Venture Agreement (JVA) on the development for residential, commercial, office, light-industrial, recreational and/or institutional purposes of a parcel of land owned by BCDA, having an area of 250,000 sq.m., more or less, which is located at Lawton Parkway, Fort Bonifacio, Taguig, Metro Manila; 2. Pursuant to the JVA, BCDA shall contribute all its rights, title and interest in Lawton Parkway (hereinafter the Project), while AGG shall provide planning, construction and development, in consideration of the receipt of their respective allocations in the Project and/or the net proceeds thereof as a return of their respective contributions; IEcDCa 3. Likewise stated in the JVA, AGG has been expressly authorized to enter into a joint development agreement with third party entities and to delegate thereto the performance of all or any of AGG's obligations and functions in the development, marketing and management of the Project, provided that AGG shall remain fully, exclusively and primarily liable and responsible to BCDA for the due and prompt fulfillment of all its obligations under the JVA; 4. The aforesaid JVA further states that BCDA shall execute a Deed of Trust authorizing the transfer of legal title to the Lawton Parkway in favor of AGG and/or its co-developer which shall hold the same in trust for BCDA and AGG; 5. Under a Memorandum of Understanding executed by and between AGG and Megaworld, AGG has designated Megaworld and Megaworld has agreed to act as AGG's co-developer and exclusive marketing agent of the aforestated Project and in consideration for which Megaworld shall be entitled to receive fifty percent (50%) of AGG's allocation in the Project in accordance with the terms of the JVA; 6. For the purpose of facilitating the development and enhancing the marketability of the above-mentioned Project, BCDA and AGG expressly authorized the conveyance and transfer to Megaworld of the legal title to Lawton Parkway; 7. It is the intention of the parties that the title to Lawton Parkway and all titles to be derived therefrom as a result of consolidation and subdivision into parcels and/or condominiums of all or any part of the Lawton Parkway shall be issued and registered in the name of Megaworld, in trust for BCDA and AGG; 8. The Deed of Trust hereto agreed upon by the parties shall be revocable only upon agreement by the parties, except that said Trust shall be deemed terminated upon the termination of the JVA and in accordance with its provisions; and 9. The above stipulations, among others, clearly express the intention of the parties therein that the transfer of the legal title of the Project is solely for the purpose of convenience of the parties in the implementation of their JVA to develop and construct the said Project and that no consideration was paid by Megaworld in favor of BCDA or AGG. CSEHcT In reply, please be informed that in BIR Ruling No. 039-97 dated April 3, 1997, the BIR ruled that: "In reply, please be informed that pursuant to Section 27(D)(5) of the Tax Code of 1997, capital gains presumed to have been realized from the sale, exchange or other disposition of lands and/or buildings which are not actually used in the business of a corporation and are treated as capital assets shall be taxed at the rate of six percent (6%) based on the gross selling price or the fair market value prevailing at the time of sale, whichever is higher. However, on several occasions, this Office has ruled that conveyance of legal title over a realty to trustees without transfer of beneficial title and without any consideration does not involve an actual transfer of ownership over such realty, hence, not subject to the capital gains tax. (BIR Ruling Nos. 039-97, 129-93, 124-93, 125-93, 127-93, 128-93 and 129-93) "Moreover, under Section 191 of the Documentary Stamp Tax Regulations (Revenue Regulations No. 26), the conveyance of property to a trustee is exempt from documentary stamp tax. Section 191 of said Regulations provides: "Section 191. Conveyance to trustees or from trustee to cestui que trust, without consideration. Conveyances to a trustee without valuable consideration, or from a trustee to a cestui que trust without valuable consideration are not subject to tax. xxx xxx xxx" Accordingly, this Office hereby confirms your opinion that (1) the transfer of the legal title over the aforesaid Project from BCDA, as Trustor to Megaworld, as Trustee is not subject to capital gains tax/expanded withholding tax or income tax under Sec. 27 of the Tax Code, particularly Sec. 27(D)(5) thereof; and (2) the Deed of Trust conveying the aforementioned property to Megaworld, as Trustee is not subject to documentary stamp tax imposed by Sec. 196 of the Tax Code, pursuant to Section 63 and 64 of the same Tax Code and Sec. 186, Regulations No. 26 or the Revised Documentary Stamp Tax Regulations. However, the notarial acknowledgment is subject to the documentary stamp tax rate of P15.00 imposed under Section 188 of the 1997 Tax Code. (BIR Ruling No. DA-245-2003 dated July 28, 2003) aIHCSA This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained 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 Assistant Commissioner Legal Service