BIR Ruling [DA-125-06]

March 16, 2006 BIR RULING [DA-125-06] 27; 98; 196; #046-92; 176-91 Atty. Mariano C. Ereso, ESQ 149 Roxas Boulevard Paraaque City S i r : This refers to your letter dated January 11, 2006 requesting on behalf of your client, Head, Missionaries of the Sacred Heart, Inc . ("HMSHI") for confirmation of the following opinions: 1) The transfer of the assets by the Sacred Heart Missionaries, Inc. ("SHMI") and the Sacred Heart Mission Seminary, Inc. ("SHMSI") to HMSHI is exempt from income, donor's and value-added taxes; and 2) The documents evidencing the transfer of the assets by SHMI and SHMSI to HMSHI consisting of real properties are not subject to the documentary stamp tax (DST) under Section 196 of the Tax Code of 1997, as amended, but only to the DST under Section 188 of the same Code. As represented, SHMI is a non-stock, non-profit religious corporation of the Roman Catholic Faith organized and existing under the laws of the Philippines with principal office at #8-4th Street, New Manila, Quezon City, Metro Manila for the following purposes: ". . . to do missionary, church, hospital, charitable and educational work in the Philippines; to disseminate Catholic doctrines and make known the catholic way of life through various media of mass communications; and, incidental to as well as in furtherance of this purpose, to print, publish, circulate and distribute periodicals, magazines, books or any other printed matter for the dissemination of Catholic doctrines and the propagation of the Catholic way of life, and, to accomplish said purpose, to acquire and operate printing press or establishment; and to engage in such other activities as will assist, support and promote any of the aforementioned activities." (Second Paragraph, Articles of Incorporation) SHMSI is likewise a non-stock, nonprofit religious corporation of the Roman Catholic Faith organized and existing under the laws of the Philippines with principal offices also at #8-4th Street, New Manila, Quezon City, Metro Manila for the following purposes: ". . . to educate young men to priesthood and incidental to as well as in furtherance of this purpose, to purchase, acquire, hold, sell, lease, exchange, mortgage or otherwise deal in real and personal properties and to build, acquire, lease, purchase, mortgage any buildings and offices as may be necessary or useful to carry out the objects and purposes of this corporation." (Second Paragraph, Articles of Incorporation) HMSHI is a religious corporation sole organized and existing under the laws of the Philippines with principal offices also at #8-4th Street, New Manila, Quezon City, Metro Manila headed by Provincial Superior of the Missionaries of the Sacred Heart (MSC) Philippine Province, a religious congregation under the laws of the Roman Catholic Church for the purpose as provided in paragraph 4 of the Articles of Incorporation, to wit: "4. That as such Head, he is charged with the administration of the temporalities and the management of the affairs, estate and properties of his religious denomination within his territorial jurisdiction the Philippine Province of the Missionaries of the Sacred Heart;" SHMI is registered owner of the following real properties listed below: Location TCT No. Area (sq.m.) 17th Street, New Manila, Q.C. RT-94992 3,063* Surigao City T-9148 20,001* Surigao City T-7577 3,979* Surigao City T-15804 200 Surigao City T-15805 104 Triala, Guimba, Nueva Ecija N-9564 26,866* Canlanipa, Surigao City (right of way) 234 Butuan City RT-20140 300* Butuan City RT-20141 300* SHMI is registered owner of the following real properties listed below: Location TCT No. Area (sq.m.) 14th Street, New Manila, Q.C. 198795 1,038* Gilmore Avenue, New Manila, Q.C. 306043 2,316* Valenzuela, Metro Manila V-24247 1,000* Malolos, Bulacan T-97250 21,818* Location TCT No. Area (sq.m.) Unidos, Tago, Surigao Del Sur 9 70,160 10 70,159 55 86,044 Del Monte, Agusan Del Sur D-1051 44,398 Banahaw Hills, Cebu 76655 400* 76656 460* 76657 472* 77752 330* Pitos, Cebu 122553 18,500 * with improvement consisting of buildings used for religious purposes HMSHI was organized and incorporated to consolidate the ownership of all the real estate holdings of the religious congregation in the name of the two (2) non-stock, nonprofit corporations (SHMI and SHMSI) for better control and cost efficient management and administration. The transfer of the properties will be by way of a deed of conveyance and not by way of sale executed by SHMI and SHMSI in favor of HMSHI without monetary consideration considering that the ownership of the properties while registered separately in the names of SHMI and SHMSI, are actually beneficially owned by the MISSIONARIES OF THE SACRED HEART (MSC) Philippine Province, a religious congregation of the Roman Catholic Church, headed by its Provincial Superior, Reverend Father Tito Y. Maratas, Jr. constituted as a corporation sole. In reply, please be informed as follows: Since the transfer of the real properties to HMSHI is without any monetary consideration, no income will be generated therefrom, and a fortiori , no creditable withholding tax is payable and collectible. The transfer by SHMI and SHMSI of their properties to HMSHI is not subject to the DST imposed by Section 196 of the Tax Code of 1997, as amended 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 " but the notarial acknowledgment is subject to the P15.00 DST imposed under Section 188 of the Tax Code of 1997, as amended. Pursuant to Section 105 of the Tax Code of 1997, as amended, VAT is collected upon any person, who in the course of business, sells, barters, exchanges, leases goods or properties, renders services. The phrase "in the course of trade or business" means the regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto, by any person regardless of whether or not the person engaged therein is a non-stock, nonprofit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests), or government entity. Considering that SHMI and SHMSI do not sell, barter, exchange, lease goods or property and neither do they render service for a fee and the transfer of the properties to HMSHI was merely to consolidate the ownership of all the real estate holdings of the religious congregation in the name of SHMI and SHMSI for better control and cost efficient management and administration pursuant to HMSHI's corporate purpose to administer the temporalities and manage the affairs, estate and properties of his religious denomination within his territorial jurisdiction, SHMI and SHMSI are not subject to the VAT on such transfer. ( BIR Ruling No. 046-92 dated February 13, 1992 ) The absence of donative intent shall likewise render the transfer not subject to donor's tax imposed under Section 99 of the Tax Code of 1997, as amended. It has been held that in a direct gift, the element of donative intent must be present in the transfer of property to be donated for it to be subject to donor's tax. ( BIR Ruling No. 075-97 dated July 10, 1997 ) 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.) JAMES H. ROLDAN Assistant Commissioner Legal Service