BIR Ruling [DA-125-97]

March 21, 1997 BIR RULING [DA-125-97] R. S. Bernaldo & Associates Unit 1810 Cityland Condominium 10 Tower I 6815 Ayala Avenue cor. H. V. Dela Costa Ext. 1200 Makati City Attention: Atty . Rosario S . Bernaldo Managing Partner Gentlemen : This refers to your letter dated December 1, 1996 requesting for confirmation of your opinion that the transfer of real properties from a trustee to a trustor without consideration is not a taxable event and therefore not subject to the following taxes: (1) Capital gains tax/Income tax; (2) Value-added tax; (3) Donor's tax; and (4) Documentary stamp tax It is represented that your client, BALIBAGO LAND CORPORATION (the "Trustor") is a realty holding company organized and existing under the laws of the Philippines; that on July 6, 1989, it entered into an Agreement with Mr. Carlos C. Ejercito (the "Trustee"), wherein the latter was appointed and given the exclusive and absolute right to purchase six (6) parcels of land located in Barrio Don Jose, Sta. Rosa, Laguna and covered by Transfer Certificate of Title Nos. 106932 to 106937 in trust for the Trustor; that on August 25, 1989, the Trustee executed a Declaration of Trust and Deed of Assignment wherein he acknowledged that he holds the right to purchase the aforementioned properties in trust for the Trustor and that he agrees to transfer all his rights and interest in the above properties to the Trustor without consideration and that he therein fully and unconditionally transferred said right to purchase the Property in favor of the Trustor; that the above-mentioned properties were originally and previously owned by Producers Bank of the Philippines (now known as PDCP Bank) which entered into a "Contract to Buy and Sell" the said properties with Jose A. Janolo and Demetrio Demetria as Buyers; that on account of the failure of the said Bank to comply with the contract, the buyers sued the bank for the enforcement of the contract (docketed as Civil Case No. 88-858); that during the pendency of the case, the Trustee, in pursuance of the Agreement and Declaration of Trust, was able to acquire from the buyers-plaintiffs the right to purchase said properties using funds of the Trustor and accordingly was substituted as plaintiff in the case; that on October 21, 1996, by virtue of the Order of the Court issued by the Hon. Judge Lucia Violago Isnani of RTC-Makati (Branch 59), the Clerk of Court executed a Deed of Absolute Sale covering the said properties in favor of the Trustee at a decreed price of Five Million Five Hundred Thousand Pesos (P5,500,000.00); that on October 29, 1996, the Bureau of Internal Revenue issued a Certificate Authorizing Registration No. 516637-A confirming the payment of the Creditable Withholding Tax and Documentary Stamp Tax of P412,500 and P82,520.00, respectively, applicable to the sale; that on October 30, 1996, the Trustee was able to register the said properties in his name under Transfer Certificate of Title Nos. 176972 to 176977; that in pursuance of the agreement and Declaration of Trust and Deed of Assignment dated July 6, 1989 and August 25, 1989, respectively, the Trustor and the Trustee now desire to transfer and convey the title to the said properties in favor of the Trustor without any consideration. LibLex In reply thereto, please be informed as follows: 1. Your opinion that the conveyance of the properties by the Trustee in favor of the Trustor is not subject to the 5% capital gains tax or to income tax is hereby confirmed considering that the alleged 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 of the land and the Trustee. The said 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 (BIR Ruling No. 115-94 dated July 1, 1994). 2. Furthermore, your opinion that the subject alleged conveyance is not subject to the 10% VAT because the real property is not held primarily for sale to customers or for lease in the ordinary course of business is also confirmed. (VAT Ruling No. 2-96) cdta 3. Your opinion that the alleged conveyance of the subject real properties is exempt from the donor's tax imposed under Section 91 of the Tax Code, as amended, due to lack of donative intent is likewise confirmed. (BIR Ruling No. 115-94) 4. Finally, your opinion that the Deed of Conveyance is not subject to the documentary stamp tax imposed under Section 196 of the Tax Code, as amended, because there is no monetary consideration in the subject transfer is also confirmed. However, the said Deed of Conveyance is subject to the documentary stamp tax in the amount or P15.00 imposed on the notarial acknowledgment of the said deed pursuant to Section 188 of the Tax Code, as last amended by Section 12 of RA No. 7660. (BIR Ruling No. 115-94) 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 from the aforestated representations, this ruling shall be automatically considered null and void from the date of issuance. Very truly yours, ALICIA P. CLEMENO Assistant Commissioner By: ALICIA L. TOMACRUZ Head Revenue Executive Assistant Legal Service