BIR Ruling [DA-111-06]

March 16, 2006 BIR RULING [DA-111-06] 24 (C); 176 031-99; DA 485-04 DeGuzman Celis & Dionisio Law Offices Suite C, 15th Floor, Strata 2000 Building Emerald Ave., Ortigas Center Pasig City Attention: Atty. Amalia E. Dionisio Gentlemen : This refers to your letter dated February 21, 2006 requesting on behalf of your client, NUTRICON, INC., for confirmation that the assignment of shares of stock in a domestic corporation by a trustee in favor of the beneficial owner is not subject to the capital gains tax nor to creditable withholding tax under Section 24(C) and to the documentary stamp tax under Section 176, both of the Tax Code of 1997. It is represented that on June 25, 1996, Messrs. Joselito D. Campos, Jr., Rafael V. De Guzman, Edgardo M. Cruz, Jr., Apolonio J. Matic and Ms. Ang Tin Yu, subscribed to 500,000 shares each from the shares of stock of Nutri-Asia, Inc. with a par value of P100.00 per share. Upon full payment of the said shares, Nutri Asia, Inc., issued the corresponding stock certificates in the name of the said subscribers. On July 3, 1996, Messrs. Joselito D. Campos Jr., Rafael V. De Guzman, Edgardo M. Cruz, Jr., Apolonio J. Matic and Ms. Ang Tin Yu (collectively called as trustees), individually executed a Declaration of Trust with Deed of Assignment in favor of the beneficial owner. All of them, however, declared that they hold the shares of stocks in Nutri-Asia, Inc., including all dividends, fruits and interests accruing on or arising from any or all of the aforesaid shares of stock, as well as the shares to be issued, in trust for the beneficial owner, Nutricon, Inc. In reply, please be informed that under Section 24(C) of the Tax Code of 1997, a final tax at the rates of 5%-and 10% shall be imposed upon the net capital gains realized during the taxable year from the sale, barter, exchange or other disposition of shares of stock in a domestic corporation, except shares sold, or disposed of through the stock exchange. In the instant case, there is no sale, barter or exchange of the shares of stock, since Nutricon, Inc. is the real owner of the shares of stock involved while Messrs. Joselito D. Campos, Jr., Rafael V. De Guzman, Edgardo M. Cruz, Jr., Apolonio J. Matic and Ms. Ang Tin Yu acted merely as Trustees. Accordingly, the transfer of the Nutri-Asia Shares from the Trustees to Nutricon, Inc., the real owner thereof, without monetary consideration and by virtue of the Deeds of Trust respectively executed by the trustees is not subject to the capital gains tax. In BIR Ruling 031-99, this Office held that the conveyance by the trustee in favor of the trustor of the subject properties which the former acquired by virtue of the trust agreement is not to be treated as another transfer separate and distinct from the sale between the original owner and the trustee. The conveyance is merely to be treated as a continuation and confirmation of title in favor of the ultimate and real beneficiary of the subject properties. aSCHIT Moreover, the said Deeds are not subject to the documentary stamp tax imposed under Section 176 of the Tax Code of 1997, but only to the documentary stamp tax on certificates under Section 188 of the same Code. (BIR Ruling No. 115-94). This will, therefore, serve as authority for the Corporate Secretary to transfer the shares of stock of Messrs. Joselito D. Campus, Jr., Rafael V. De Guzman, Edgardo M. Cruz, Jr., Apolonio J. Matic and Ms. Ang Tin Yu in the name of Nutricon, Inc. 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 null and void. Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service