Ms. Salvacion M. Danao

March 20, 2007 BIR RULING [DA-164-07] DA-058-2006 Ms. Salvacion M. Danao 281 Ibuna Street Little Baguio, San Juan Metro Manila M a d a m : This refers to your letter dated February 5, 2007 stating that in 1989 your clients, YNTALCO REALTY INVESTMENT CO., INC. (YNTALCO) and GREEN CROSSINGS, INC. (GREEN CROSSINGS), referred to as the Transferors, embarked on the industrialization of its various properties and sold several parcels of land to Ayala Land, Inc. to form part of the Ayala Industrial Estate Project; that the industrialization project included properties where the Farm Workers, referred to as the Transferees, worked on, and necessitated their transfer from the said properties; that the Transferors and Transferees entered into the Commitment to Progress Through Rural Industrialization with Home and Lot Award Agreement (Agreement); that the Department of Agrarian Reform (DAR) in its Conversion Order approved the conversion of the parcels of land forming part of the Ayala Industrial Estate Project subject to the condition that the legitimate beneficiaries as determined by DAR and such other persons referred to as Awardees in the Agreement shall be paid the disturbance compensation in the form of the award of home lots, construction subsidy and financing facility specified therein; that in compliance with the DAR Order and pursuant to the Agreement, the Transferors granted to the Transferee in 1998 an initial disturbance compensation consisting of (a) three contiguous home lots with an aggregate area of 1,000 m2, more or less, located in Bian Malamig Village, Bian, Laguna, and (b) a house on the first lot, with one-half of the construction cost of the house to be paid by the Transferees through a twenty-year financing scheme: that the Agreement also provides that if the Transferee (a) houses his family in the house and lot assigned to him, (b) does not sell or dispose of the two other extra lots until after three years of occupancy, (c) complies with all the conditions of the Agreement, and (d) faithfully and absolutely cooperates with the industrialization program, then such Transferee shall be granted an additional 1,000 m2 more or less, of residential land, under the terms and conditions specified in the Agreement; and that the Transferors are now ready to grant/award the final tranche of the disturbance compensation to the Transferee through a Deed of Conveyance and are now processing the transfer of the titles to the Transferee. In connection therewith, you now request confirmation of your opinion that the award of the final tranche of disturbance compensation in the form of lots and cash to the Transferee by way of Deed of Conveyance is exempt from taxes and all other fees as contemplated under Section 66 of Republic Act (R.A.) No. 6657, otherwise known as the Comprehensive Agrarian Reform Law of 1998. In reply thereto, please be informed that Section 66 of R.A. No. 6657 provides that "SEC. 66. Exemption from Taxes and Fees of Land Transfers . Transactions under this Act involving a transfer of ownership, whether from natural or juridical persons, shall be exempted from taxes arising from capital gains. These transactions shall also be exempted from the payment of registration fees, and all other taxes and fees for the conveyance or transfer thereof: Provided, That all arrearages in real property taxes, without penalty or interest, shall be deductible from the compensation to which the owner may be entitled." In stressing the rationale of the above-mentioned provisions, this Office elucidated the matter in BIR Ruling No. DA058-06 dated February 23, 2006 as follows: "Since the conveyance of the 26 parcels of land by MRI in favor of the farmer beneficiaries is in the form of disturbance compensation to the farmer beneficiaries who were displaced from their respective areas of tillage, no capital gains tax/creditable withholding tax is due on the transaction in accordance with the afore-quoted provisions of R.A. No. 6657. Furthermore, since the transaction is without any monetary consideration and not in connection with a sale, no creditable withholding tax and documentary stamp tax imposed under Sections 27 and 196, respectively, of the Tax Code, as amended, is due on the transaction. However, the notarial acknowledgment on the Deed of Conveyance of Land and Voluntary Surrender of Leaseholding and Tenancy Rights is subject to the DST on certification pursuant to Section 188 of the Tax Code of 1997, as amended. Accordingly, this Office hereby confirms your opinion that the conveyance of the 26 parcels of land through a Deed of Conveyance of Land and Voluntary Surrender of Leaseholdings and Tenancy Rights by Moldex Realty, Inc. in favor of the farmer beneficiaries is not subject to capital gains/creditable withholding and documentary stamp taxes." In the same vein, the transfer and award of the final tranche of disturbance compensation by YNTALCO and GREEN CROSSINGS, in the form of lots and cash to the Transferees, Farm Workers, through a Deed of Conveyance, is not subject to capital gains/creditable withholding and the corresponding documentary stamp taxes. SaCIDT 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, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service