BIR Ruling [DA-109-05]

April 5, 2005 BIR RULING [DA-109-05] 27 (D) (5), 196, 98, 106 DA-646-2004 Angping and Associates Securities, Inc. Units 2003-2004, The Peak, 107 L.P. Leviste St. Salcedo Village, Makati City Attention: Mr. Jerry C. Angping President Gentlemen : This refers to your letter dated January 26, 2005 requesting for a confirmation of your opinion that the conveyance of a real property held in trust by a trustee (Euro-Pacific Trade Ltd. or EPTL) to a trustor (Angping and Associates Securities, Inc. or AASI) is not subject to capital gains tax/creditable withholding tax, documentary stamp tax, donor's tax and value-added tax (VAT). The facts as you represented are as follows: AASI, a corporation duly organized and existing under and by virtue of Philippine laws had requested EPTL, a limited company organized under the laws of the British Virgin Islands, whose representative office is located at Units 2003-2004, The Peak, 107 L.P. Leviste St., Salcedo Village, Makati City to purchase in its name and as trustee of AASI, a condominium unit described as Unit COM-4 (2204) The Peak, 107 L.P. Leviste St., Salcedo Village, Makati City; that pursuant to a Deed of Trust executed between AASI and EPTL on January 23, 2002, the former shall provide the necessary funds and expenses required for the purchase of the subject property, and EPTL has agreed to negotiate and acquire the aforesaid condominium unit as nominee/trustee of AASI; that since EPTL is at present in the process of closing its operation here in the Philippines, both parties have agreed that the above-quoted property acquired by EPTL for and on behalf of AASI be transferred without monetary consideration to the real and beneficial owner thereof which is AASI; and that on January 19, 2005, a Deed of Conveyance was executed by and between EPTL and AASI whereby the former transfers the condominium unit to AASI. In reply, please be informed that since the transfer of the property is without monetary consideration, the same is not subject to the capital gains tax imposed under Section 27(D)(5) of the Tax Code of 1997, nor to the creditable withholding tax prescribed by Revenue Regulations No. 2-98, implementing Section 57(B) of the Tax Code of 1997. (DA-385-2004 dated July 16, 2004) In BIR Ruling No. 116-91 dated June 21, 1991, this Office has ruled that no corporate income tax will accrue and will become collectible when a Deed of Transfer of Real Property (whether classified as ordinary or capital asset) will be executed by the trustee in favor of the real owner of the subject properties. Likewise, the conveyance of realty to trustees or other persons without consideration is not taxable under Section 185 of the Revised Documentary Stamp Tax Regulations. Thus, the Deed of Conveyance executed by EPTL to AASI and was made without monetary consideration is not subject to the documentary stamp tax imposed under Section 196 of the 1997 Tax Code. However, the notarial acknowledgement to the said deed is subject to the documentary stamp tax of P15.00 pursuant to Section 188 of the Tax Code of 1997. The transfer of the above-mentioned property is exempt from the donor's tax imposed under Section 98 of the same Code due to lack of donative intent on the part of the trustee. EADSIa Furthermore, the transfer is not subject to VAT, since under Section 105 of the Tax Code of 1997, any person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services and any person who imports goods shall be subject to VAT imposed in Sections 106 to 108 of the same Tax Code. Hence, by transferring said realty EPTL neither sells, barters, exchanges goods or properties nor renders services to be subject to VAT. (BIR Ruling No. DA-646-2004 dated December 21, 2004) 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.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group