BIR Ruling [DA-119-02]

July 22, 2002 BIR RULING [DA-119-02] 27, 98 & 196 DA 136-00 & 14-99 Escao & Partners Law Offices Suite 1605, 16/F, The Taipan Place Emerald Ave., Ortigas Center Pasig City, Metro Manila Attention: Atty . Eduardo C. Escao Partner Gentlemen : This refers to your letter dated November 29, 2001 requesting for confirmation of your opinions as follows: 1. Since no consideration is involved in the transfer of Jimmy A. Ng to Anabelle L. Ho, married to Ferdinand Ho, Maribelle L. Chang, married to Dennis Chang, Heng Dong Lim, married to Rosario T. Lim, Eduardo C. Escao, and Emmylou C. Escao, the same being a mere confirmation of title in favor of the ultimate and real beneficiaries of the property, no corporate income tax accrued and became collectible under the creditable expanded withholding tax provisions of Revenue Regulations No. 2-98; 2. The transfer is not subject to 10% value added tax because the property is not held primarily for sale to customers or for lease in the ordinary course of business; 3. There being no donative intent on the part of Jimmy A. Ng, the transfer is exempt from the donor's tax; and 4. The Deed of Transfer is not subject to the documentary stamp tax imposed under Section 196 of the Tax code since there is no monetary consideration involved. It is represented that on April 17, 1997, Mr. Benedicto Chupungco executed a Deed of Absolute Sale in favor of Jimmy A. Ng, covering a parcel of land located in Cainta, Rizal, more particularly described as follows: "A parcel of land (as shown on plan, Psu-04-002790, L.R.C. Record No. ____) situated in the Barrio of San Isidro, Municipality of Cainta, Province of Rizal. Bounded on the SW., NW., & SE., along lines 1-2-3-4-5-6-7-8-9 by the property of Tomasa Rubio (LRC Psd-18918); on the SW., along line 9-10 by Creek (2.00 m. wide (beyond Feliciano Sta. Ana); on the N., W., & NE., along lines 10-11-12-13-14-15-16-17-18-19 by Lot 2, PI-10266 (Crispulo Fernandez); on the SE., along line 19-1 by the property of Andres dela Cruz. Beginning at a point marked "1" on plan, being N. 28 deg. 41'W., 2105.10 m. from B.L.L.M. 1 Mun. of Taytay, Rizal. thence N. 68 deg. 13'W., 50.34 m. to point 2; thence N. 16 deg. 36'E., 5.04 m. to point 3; thence N. 72 deg. 58'W., 51.98 m. to point 4; thence N. 74 deg. 53'W., 76.78 m. to point 5; thence N. 84 deg. 42'W., 14.50 m. to point 6; thence N. 79 deg. 48'W., 16.65 m. to point 7; thence S. 87 deg. 31'W., 20.32 m. to point 8; thence S. 30 deg. 42'W., 8.19 m. to point 9; thence N. 22 deg. 36'W., 55.10 m. to point 10; thence S. 88 deg. 25'E., 10.54 in. to point 11; thence N. 0 deg. 52'W., 8.64 m. to point 12; thence S. 87 deg. 02'E., 50.41 m. to point 13; thence S. 3 deg. 39'E., 6.43 m. to point 14; thence S. 81 deg. 59'E., 121.63 m. to point 15; thence S. 9 deg. 17'W., 1.61 m. to point 16; thence S. 72 deg. 50'E., 41.69 m. to point 17; thence N. 46 deg. 27'E., 1.39 m. to point 18; thence S. 70 deg. 02'E., 37.82 m. to point 19; thence S. 11 deg. 01'W., 63.66 m. to the point of beginning, containing an area of THIRTEEN THOUSAND ONE HUNDRED EIGHTY TWO (13,182) SQUARE METERS. All points referred to are indicated on the plan and are marked on the ground by P.S. cyl. Conc. Mons. 15 x 60 cm.; bearings true; date of survey, Feb. 26, 1973Jan. 12, 1975; and was approved on April 1, 1975." that the capital gains and documentary stamp taxes due were paid for; that in a Deed of Trust dated March 25, 1997, while Jimmy A. Ng appears as the recorded vendee in the aforestated Deed of Sale, he was merely acting as a co-owner (25%) and trustee on behalf of Anabelle L. Ho, married to Ferdinand Ho (12.5%), Maribelle L. Chang, married to Dennis Chang (12.5%), Heng Dong Lim, married to Rosario T. Lim (25%), Eduardo C. Escao (12.5%), and Emmylou C. Escao (12.5%), who are the true and beneficial owners of the property; that Jimmy A. Ng, acknowledged that the 75% of the funds used in acquiring the property belong to: a. Annabelle L. Ho, married to Ferdinand Ho; b. Maribelle L. Chang, married to Dennis Chang; c. Heng Dong Lim, married to Rosario T. Lim; d. Eduardo C. Escao; and e. Emmylou C. Escao that the remaining 25% of the funds were his own funds; that the Deed of Trust further states that the document of sale was recorded in Jimmy A. Ng's name as buyer only for convenience and to facilitate the transfer and registration of the land under the Torrens System of Registration, it being the intent of the parties that Jimmy A. Ng will hold whatever interest is thereby acquired in trust and for the benefit of the following: a. Annabelle L. Ho, married to Ferdinand Ho (12.5%); b. Maribelle L. Chang, married to Dennis Chang (12.5%); c. Heng Dong Lim, married to Rosario T. Lim (25%); d. Eduardo C. Escao (12.5%); and e. Emmylou C. Escao (12.5%) that Jimmy A. Ng further undertook to transfer and/or convey title to the property and execute such documents necessary to effect said transfer; that he now intends to execute a Deed of Transfer over the property in favor of the following: a. Annabelle L. Ho, married to Ferdinand Ho (12.5%); b. Maribelle L. Chang, married to Dennis Chang (12.5%); e. Heng Dong Lim, married to Rosario T. Lim (25%); d. Eduardo C. Escao (12.5%); and e. Emmylou C. Escao (12.5%) In reply, please be informed as follows: 1, 2, & 3. This Office ruled in BIR Ruling No. 116-91 dated June 21, 1991, that where the Deed of Transfer of Real Property (whether classified as ordinary or capital asset) was executed by the trustee in favor of the real owner of the subject properties, no corporate income tax accrued and became collectible. Similarly, the conveyance by the trustee, Jimmy A. Ng, to his co-owners of their respective interests in the subject real property under a Deed of Transfer that is without consideration because the latter are the real owners of their respective interests therein, is exempt from the 6% capital gains tax provided under Section 27(D)(5) of the Tax Code of 1997. (BIR Ruling No. DA-136-2000 dated March 6, 2000) For the same reason, the conveyance is not subject to 10% VAT and donor's tax. 4. Finally, the conveyances of realty not in connection with a sale, to trustees or other persons without consideration is not taxable pursuant to Section 185 of Regulations No. 26, otherwise known as the Documentary Stamp Tax Regulations. It is settled that a Deed of Transfer of Real Property executed by a trustee in favor of the real owner without consideration is not subject to the documentary stamp tax on conveyance of real property under Section 196 of the Tax Code of 1997. However, the notarial acknowledgement to the said Deed is subject to the documentary stamp tax of P15.00 pursuant to Section 188 of same Code. (BIR Ruling No. DA-136-2000 dated March 6, 2000 citing BIR Rulings Nos. 21-98 dated February 19, 1998; 116-91 dated June 21, 1991; and 118-87 dated April 24, 1987) 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.) EDMUNDO P. GUEVARA Deputy Commissioner Legal & Inspection Group