BIR Ruling [DA-162-99]

March 17, 1999 BIR RULING [DA-162-99] Romulo, Mabanta, Buenaventura Sayoc & De Los Angeles 30th Floor, Citibank Tower Citibank Plaza 8741 Paseo de Roxas Makati City Attention: Attys . Jose Salvador Y . Mirasol Edmundo P . Guevara and Benjamin R . Carale Gentlemen : This refers to your letter dated November 23, 1998 stating that Ayala Land, Inc. (Ayala) is a corporation organized and existing under the laws of the Republic of the Philippines; that it is the registered owner of two (2) contiguous lots located at the corner of Valero and Villar Streets, Makati City with a total area of 2,212 square meters (Valero Lots) and covered by TCT Nos. 176524 and 176525 of the Registry of Deeds of Makati City; that on December 8, 1992, Citibank, N.A. (Citibank), Ayala, Filipino Metals Corporation (FMC), MBS Paseo Realty Development, Inc. (MBS), DMC-Urban Properties Development, Inc. (DMC-UPDI), Reynolds Philippine Corporation (Reynolds) and the "Sugar Consortium" composed of La Perla Sugar Export Corporation, Makati Agro Trading Corporation, Hideco Sugar Mill Corporation, and Distilleria Bago, Inc. entered into a Memorandum of Agreement (MOA) providing for the terms of the Parties' participation in the construction of the Citibank Tower (the Project); that under the terms of the MOA, the Parties have allocated among themselves (a) specifically designated floors in the Project, and (b) the cost of construction of such designated floors which they will individually undertake to finance in the form of cash contributions (except for the contribution of the Valero Lots and the Floor Area Ratio Allowance as defined in the MOA); that accordingly, Ayala committed under the MOA to transfer the Valero Lots in favor of the condominium corporation, CitiTower Condominium Corporation (CTCC), once the latter has been organized and is legally qualified to own private land in the Philippines; that the Parties agreed that the amount of P175,960,000.00 shall be credited against Ayala's cost of construction of the floors designated to it pursuant to the MOA; and that the conveyance of the Valero Lots by Ayala in favor of CTCC will be made without consideration and solely for the purpose of complying with the requirements of R.A. No. 4726, otherwise known as the Condominium Act. In connection therewith, you are now requesting for a ruling that the transfer of the Valero Lots to CTCC is not subject to income tax, withholding tax and documentary stamp tax. In reply, please be informed that since the transfer of title over the Valero Lots from Ayala to CTCC is without consideration and is not in connection with a sale made to the condominium corporation and the purpose of the transfer is to comply with the requirements of the Condominium Act, no income was generated and a fortiori, no creditable withholding tax is payable and collectible. Moreover, Section 185 of the Revised Documentary Stamp Tax Regulations (Regulations No. 26) provides that "conveyances of realty not in connection with a sale, to trustees or other persons without consideration are not taxable. In view thereof, this Office is of the opinion as it hereby holds that the aforesaid transfer is not subject to any creditable withholding tax under Section 57(B) in relation to Section 27, both of the Tax Code of 1997. Neither is it subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997. However, the notarial acknowledgment on the deed of conveyance to be executed by Ayala will be subject to the documentary stamp tax of P15.00 pursuant to Section 188 of the same Code. (BIR Ruling No. DA235-96 dated July 9, 1996) 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. cdta Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)