BIR Ruling [DA-150-01]

September 4, 2001 BIR RULING [DA-150-01] S24 (D) (1); 108-98 Mr. Reynaldo C. Gutierrez 4143 Sun Valley Drive Sun Valley Subdivision Paraaque City S i r : This refers to your letter dated July 10, 2000 stating that on September 2, 1974, you bought a parcel of land located at Sun Valley Subdivision, Paraaque City from the Philippine Knitting Factory, Inc., represented by the Sun Valley Realty. Inc., that the title of said property was issued in your name by the register of Deeds of Rizal under TCT No. 459186, dated September 26, 1974; that sometime in 1976, you decided to build your house on the said property by securing a housing loan from the Social Security System or SSS; that not being a member of the System, you requested your brother, Mario C. Gutierrez, to secure a housing loan for your account; that to do so, however, under the Rules and Regulations of SSS, you had to transfer first the title of your property to your brother for him to be able to secure a housing loan from SSS; that on October 27, 1976, you executed a Deed of Absolute Sale in favor of your brother for him to secure the said SSS housing loan; that the application for the housing loan was filed under Application No. 03-35038 for the amount of P50,000.00; that a Special Power of Attorney was executed by your brother appointing you as his attorney-in-fact to follow up the loan application with the SSS; that although the loan was granted under your brother's name, the monthly amortization of the said obligation, including interests and surcharges, was being paid by you until the same was fully paid; that while the Official Receipts issued by SSS, evidencing the payment of the monthly amortization, were in the name of your brother, the said receipts indicate therein your name as the payor; that all the realty taxes due on the subject real property were likewise paid by you; that the Tax Declaration covering the said property remained in your name since 1974 up to the present; that before your brother Mario died on May 28, 1989, he executed a Declaration of Trust on December 15, 1988, attesting to the fact that you are the real owner of the subject real property and that he was merely acting as a nominee and holding the said property in trust for you. Based on the foregoing facts as represented, you are requesting in effect for the issuance of the Certificate Authorizing Registration (CAR) and/or Tax Clearance Certificate (TCC) in order that the Register of Deeds of Rizal can issue a new Certificate of Title in your favor based on the Declaration of Trust executed by your brother, Mario C. Gutierrez, declaring thereon that you are the true and rightful owner of the herein subject property, without need of paying the capital gains and documentary stamp taxes imposed under Sections 21 (e) and 196 of the Tax Code of 1977, as amended, the applicable provisions at the time when the said transaction took place. In reply thereto, please be informed that pursuant to Section 21 (e) of the Tax Code of 1977, as amended, capital gains presumed to have been realized from the sale, exchange, or other disposition of real property located in the Philippines classified as capital assets, including pacto de retro sales and other forms of conditional sales by individuals, including estates .and trusts, shall be taxed at the rate of 5% based on the gross selling price or the fair market value prevailing at the time of sale, whichever is higher. In the instant case, however, there is no sale, exchange or disposition of real property involved, since Reynaldo C. Gutierrez, the transferee therein, is the real owner of the subject property while Mario C. Gutierrez acted merely as a nominee and held said property as trustee. Accordingly, the transfer of the title over the above-mentioned property from the trustee, Mario C. Gutierrez, to Reynaldo C. Gutierrez, the real owner thereof, without monetary consideration under and by virtue of a Declaration of Trust executed on December 15, 1988 is not subject to the capital gains tax imposed under Section 21 (e) of the Tax Code, as amended. Moreover, the said Declaration of Trust is not subject to the documentary stamp tax on deeds of sale and conveyances of real property imposed by Section 196 of the Tax Code, as amended by R. A. 7660, but only to the documentary stamp tax on certificates of sale under Section 188 of the same Code. (BIR Ruling No. 108-98 dated June 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 null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) EDMUNDO P. GUEVARA Deputy Commissioner Legal & Inspection Group