BIR Ruling [DA-136-00]

March 6, 2000 BIR RULING [DA-136-00] 27 (D) (5); 196; 188; 98 21-98; 116-91; 118-87 Ongkiko Kalaw Manhit & Acorda Law Offices 4F Cacho-Gonzalez Building 101 Aguirre Street, Legaspi Village Makati City Attention: Atty . Mariano C . Ereso , ESQ . Partner Gentlemen : This refers to your letter dated February 9, 2000 requesting for confirmation of your opinion that the transfer of the two (2) parcels of real property, including improvements thereon, from the trustee to your client, Far Eastern University , Inc. [TIN-000-225-442], the trustor and hereinafter referred to as "FEU", is not subject to any capital gains tax and documentary stamp tax related thereto. cdlex It is represented that FEU requested Raisebeck Mining Resources Corporation ("RMRC") to acquire on its behalf from FEU-Dr. Nicanor Reyes Medical Foundation ("FEU-DNRMF") two (2) parcels of real property with improvements thereon situated at the Nicanor Reyes, Sr. Street, Sampaloc, Manila, covered by Transfer Certificate of Title Nos. 244564 and 244565 issued by the Registry of Deeds for the City of Manila; that in accordance with the nominee/trustee arrangement between FEU and RMRC, the latter bought the aforementioned two (2) parcels of real property from FEU-DNRMF for the sum of P185,000,000.00; that funds used by RMRC to purchase the two (2) parcels of real property were provided by FEU; that in order to convey to FEU as the beneficial owner of the two (2) parcels of real property, RMRC executed a Deed of Conveyance in favor of FEU; and that in relation to the foregoing facts, you have submitted the following documents to support the transaction: 1. Resolution of the Board of Directors of FEU approved during its meeting on 12 May 1999 authorizing the Corporation (a) to acquire by purchase from FEU-DNRMF the aforementioned two (2) parcels of real property with all the improvements existing thereon through RMRC as its nominee/trustee and (b) to provide RMRC with the funds necessary for the acquisition of the aforesaid two (2) parcels of real property and for all expenses required for the transfer of ownership to, and registration of the titles of the two (2) parcels of real property in the name of the Corporation certified under oath by Angelina P. Jose, the Corporate Secretary of FEU; prcd 2. Resolution of the Board of Directors of RMRC approved on 14 May 1999 authorizing the Corporation to purchase and acquire all the rights to, title and interest of FEU-DNRMF over the two (2) parcels of real property as nominee/trustee of FEU, certified under oath by Mr. Ricardo L. Yabut, the Corporate Secretary of RMRC; 3. Xerox copy of the letter-agreement by and between FEU and RMRC confirming the terms for the acquisition by the latter of the two (2) parcels of real property as nominee/trustee of FEU; In reply, please be informed that on the basis of the foregoing facts, this Office is hereby confirming your opinion on the following: 1. The conveyance of the two parcels of land by RMRC to FEU which is the real owner is exempt from capital gains tax under Section 27(D)(5) of the Tax Code of 1997 . 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 RMRC of the two (2) parcels of real property to FEU under the Deed of Conveyance that is without consideration because the latter is the real owner of the said two (2) parcels of real estate property, is exempt from the 6% capital gains tax provided under Section 27(D)(5) of the Tax Code, as amended. 2. The Deed of Conveyance of Real Property shall only be subject to the documentary stamp tax of P15.00 under Section 188, and not to the documentary stamp tax on conveyance of real property under Section 196 of the Tax Code of 1997 . The conveyance of realty not in connection with a sale, to trustees or other persons without consideration is not taxable under Section 185 of the Revised Documentary Stamp Tax Regulations. Accordingly, it is now settled that a Deed of Transfer of Real Property executed by a trustee in favor of the real owner is without consideration and therefore, it 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 acknowledgment to the said Deed is subject to the documentary stamp tax of P15.00 pursuant to Section 188 of the same Code (BIR Rulings Nos. 21-98 dated February 19, 1998; 116-91 dated June 21, 1991; 118-87 dated April 24, 1987.) 3. In view of the lack of donative intent for the conveyance of property, no donor's tax under Section 98 of the Tax Code of 1997 shall be imposed on the transaction . Finally, the transfer of the real properties, including the improvements thereon, is exempt from the donor's tax under Section 98 of the Tax Code of 1997. There being no donative intent on the part of the trustee, RMRC, in the conveyance of the two (2) parcels of real property, there can be no donor's tax imposed under Section 98 of the Tax Code ( Ibid .) Accordingly, this serves as the basis for and authority of the Revenue District Officer that has jurisdiction over the said properties to issue the Certificate Authorizing Registration in favor of Far Eastern University, Inc., the real owner of the two (2) parcels of real property with improvements thereon situated at the Nicanor Reyes, Sr. Street, Sampaloc, Manila. cdlex This ruling is being issued on the basis of the facts as represented. If; however, it will be discovered upon investigation that the facts are otherwise, then this ruling will be rendered null and void and therefore, of no legal effect. Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)