BIR Ruling [DA-132-02]

August 16, 2002 BIR RULING [DA-132-02] 27 & 101 398-93 & DA28-98 Taytay United Methodist Church Taytay, Rizal Attention: Atty. Alicia L. Tomacruz Chairperson, Church Council, TUMC Gentlemen : This refers to your letter dated November 25, 1999 requesting for confirmation of your opinion that 1) The reconveyance of certain properties without consideration to PAC or PACE, the religious legal entities of the United Methodist Church in the Philippines are exempt from internal revenue taxes except the documentary stamp tax on the Deed of Reconveyance without consideration; and 2) The proposed Deed of Donation by PAC-UMC of the property covered by TCT No. 547947 to TUMCs, a duly registered non-stock, non-profit educational institution organized by TUMC members be exempt from the donor's gift tax pursuant to Section 101(3) of the 1997 Tax Code. It is represented that Taytay United Methodist Church (TUMC) is a local church established in Taytay, Rizal, under the umbrella of the Philippines Annual Conference of the United Methodist (PAC-UMC), a domestic non-stock religious corporation duly registered with the Securities and Exchange Commission (SEC), with principal office address at No. 900 U.N. Avenue, Manila; that PAC-UMC has organized a separate Annual Conference name the Philippines Annual Conference East (PACE), also a duly registered religious corporation, which directly supervises religious and educational activities of local United Methodist Churches; that as a local church, TUMC members elect annually the officers of the Church Council (formerly the Administrative Board) during the Charge Conference held for the purpose by the Bishop, through the District Superintendent; that under the Methodist Discipline, local churches make a report of their activities to the Annual Conference; that it is also a policy that properties purchased through funds contributed and/or donated by members of a local church shall be registered in name of PAC-UMC or PACE as the legal entities in the organization of the United Methodist Church, although the use thereof are allowed to the local Methodist church; that through funds raised from the members of TUMC, the following real properties were purchased for religious and educational purposes: "1. In February, 1984, the property located in Barrio Maningning, Municipality of Taytay, Province of Rizal, originally containing an area of Three Thousand Nine Hundred (3,900) square meters, more or less covered by Transfer Certificate of Title No. 482713, issued by the Registry of Deeds of Pasig, Because the said property was originally mortgaged by the Vendor to the Rural Bank of Taytay, Inc. (now defunct), and since the Deed of Absolute Sale was with Assumption of Mortgage, a portion of the said property was sold by the Church, and the proceeds thereof paid to the Rural Bank of Taytay, Inc. The remaining portion, consisting of One thousand seven hundred seventeen (1,717) square meters, more or less, covered by TCT No. 547947 was registered in the names of former officers of the TUMC Administrative Board, namely: AUGUSTO N. AGUILAR, Chairman, Administrative Board, AQUILINO E. CRUZ, Lay Leader, and NENA M. Vda. De ATANACIO, Treasurer. 2. In November, 1989, property situated at Barrio Maningning, Taytay, Rizal, consisting of Two hundred (200) square meters, more or less, covered by TCT No. 592589 of the Registry of Deeds of Pasig, Metro Manila, was purchased, but the TCT was also issued in the names of the spouses Augusto N. Aguilar (then Chairman Administrative Board of TUMC) & Leticia Clemente, member, and the spouses Araceli E. Habacon then Chairperson, Board of Trustees) & Gorgonio Habacon, member. 3. In February, 1994, property situated at Barangay Dolores, Taytay, Rizal, consisting of One hundred fifty (150) square meters, more or less, covered by TCT No. 612691 of the Registry of Deeds of Pasig, Metro Manila. The TCT was likewise issued in the names of Araceli E. Habacon and Enriqueta G. Ignacio, BOT Chairperson and member, respectively." that during the financial audit of TUMC and its properties used for religious and educational purposes, the above facts were discovered; that while the aforenamed officers/trustees and members acted only as such when the properties were acquired using Church funds, their positions, designations were not stated in Deed of Absolute Sale, and therefore it would seem that they bought the properties in their individual capacities; that to correct the mistake, attempts were made to donate the properties to PAC or PACE; that the general membership of the Church Council did not allow such act of donating the said properties, since they are not actually the owners thereof; that to correct the mistake, Deeds of Reconveyance to PAC-UMC or PACE were executed by the said former officers/trustees of TUMC in order to transfer and register the TCTs from their own names to that of PAC or PACE; and that Joint Waivers of Interest have been executed attesting to the fact that they do not own the properties although their names appear in the TCTs. In reply, please be informed as follows: 1) In a related case, this Office ruled that the transfer of a parcel of land by an NGO to its members without consideration is exempt from capital gains tax because what is being transferred is property the ownership of which actually belongs to the members. Similarly, considering that the transfers of the said properties are without any consideration being mere formality to finally effect transfer of title of the said properties to its members who actually bought the same through the officers/trustees and members of your association, the Deeds of Reconveyance to the members of TUMC through PAC-UMC or PACE, the legal entities in the name of which, properties purchased through funds contributed and/or donated by members of your local church shall be registered, are not subject to capital gains tax. In other words, the transfers are without consideration because what is being transferred are properties the ownership of which actually belongs to the members of TUMC. Moreover, the deed/document is not subject to documentary stamp tax under Section 196 of the 1997 Tax Code since there was no monetary consideration involved in said transaction upon which the tax is imposed in said section could be based. However, the notarial acknowledgement is subject to the documentary stamp tax imposed under Section 188 of the same Code. ( BIR Ruling No. 398-93 dated October 11, 1993 ) 2) The proposed donation by PAC-UMC of the property covered by TCT No. 547947 to TUMC, an educational institution, is exempt from the payment of donor's tax pursuant to Section 101(A)(3) of the Tax Code of 1997, subject to the condition that not more than thirty percent (30%) of said gift shall be used for administration purposes. Finally, the proposed Deed of Donation is not subject to documentary stamp tax prescribed under Section 196 of the Tax Code of 1997, but only to the documentary stamp tax of P15.00 imposed under Section 188 of the same Code. ( BIR Ruling No. DA-28-98 dated January 29, 1998 ) 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, (SGD.) EDMUNDO P. GUEVARA Deputy Commissioner Legal & Inspection Service