Santa Maria Town Mall Corporation

March 23, 2007 BIR RULING [DA-171-07] Conveyance/Trust DA-325-04 Santa Maria Town Mall Corporation Barrio Sta. Clara, Sta. Maria, Bulacan Attention: Mr. Robert Marie Sy V.P. Operation Gentlemen : This refers to your letter dated February 12, 2007 stating that Santa Maria Town Mall Corporation (SMTMC) is the previous owner of two (2) parcels of land, containing an area of 29,260 sq. m. and 11,046 sq. m. or an aggregate of 40,306 sq. m., located in Barrio Sta. Clara, Sta. Maria, Bulacan; that said real properties were foreclosed by the Allied Banking Corporation (Allied) and ownership thereto was transferred in its name in January, 2004; that SMTMC offered to purchase from Allied the above-mentioned parcels of land in April, 2006, which offer was accepted by the latter; that SMTMC had no funds on its own, however, its stockholders were desirous to reacquire the above parcels of land thereby they proceeded in acquiring the said properties using their own money, and as a result the above two (2) parcels of land were transferred back to SMTMC, the 11,046 sq. m. land is now covered by Transfer Certificate of Title (TCT) No. T-480547 (M) and the 29,260 sq. m. land covered by TCT No. T-480502, both of the Registry of Deeds of Meycauayan, Bulacan; that one of the stockholders of SMTMC, Mr. Alex Uson, had the intention to acquire a portion of the real property covered by TCT No. T-480502 having an area of 29,260 sq. m., thereby he provided part of the funds in buying the above properties in the equivalent amount of Twenty Five Million Pesos (P25,000,000.00), which is commensurate to an area of 25,500 sq. m., more or less; that in recognition of the intention of Mr. Uson, the stockholders of SMTMC, in a meeting held on October 6, 2006, and after the parcel of land covered by TCT No. T-480502 had been surveyed and subdivided, agreed that a Declaration of Trust will be executed acknowledging that SMTMC is holding the 25,463 sq. m. portion of TCT No. T-480502, designated in the subdivision plan as Lot No. 464-C-1-A, for and in behalf of Mr. Uson, in accordance with Article 1448 of the Civil Code of the Philippines, and to subsequently transfer the same to Mr. Uson; and that on January 16, 2007, a Declaration of Trust was executed by SMTMC and Mr. Uson. Based on the foregoing, you are requesting a ruling on the tax consequence of the conveyance of the above-mentioned property by SMTMC in favor of Mr. Uson. TaHDAS In support to your request, you submitted the following documents: (1) Proposed Deed of Conveyance; (2) Declaration of Trust dated January 16, 2007; (3) Corporate Secretary's Certificates dated February 6, 2007; (4) Articles of Incorporation of SMTMC; (5) Subdivision Plan; (6) Income Tax Returns from 2003 up to 2006 showing that SMTMC has no operations; (7) Financial Statements; (8) Transfer Certificates of Titles and Tax Declarations; and (9) Other pertinent documents. In reply, please be informed that under Section 27 (D) (5) of the Tax Code of 1997, as amended, a final tax of six percent (6%) is hereby imposed upon capital gains presumed to have been realized from the sale, exchange, or other disposition of land and/or buildings which are not actually used in the business of a corporation and are treated as capital assets, based on the gross selling price or current fair market value as determined in accordance with Section 6 (E) of this Code, whichever is higher, of such lands and/or buildings. In the instant case, however, there is no sale, exchange or disposition of real property involved, since Alex Uson is the real owner of the 25,463 sq. m. portion of TCT No. T-480502, designated in the subdivision plan as Lot No. 464-C-1-A, while SMTMC acted merely as trustee. Accordingly, the Deed of Conveyance to be executed which will effectively transfer the title over the above realty from SMTMC, the trustee, to Alex Uson, the real owner, without monetary consideration in accordance with the Declaration of Trust dated January 16, 2007, which recognizes the existence of a trust by and between the parties, is not subject to the capital gains tax, income tax and consequently, to the creditable withholding tax prescribed by Revenue Regulations No. 2-98, as amended, implementing Section 57 (B) of the Tax Code of 1997, as amended. (BIR Ruling No. 108-98 dated June 29, 1998 cited in DA-325-2004 dated June 16, 2004). Moreover, the transfer of the above-mentioned real property is exempt from the donor's tax imposed under Section 98 of the same Code due to lack of donative intent on the part of SMTMC. (BIR Ruling DA-146-2000 dated March 10, 2000) Likewise, the said transfer of realty is not subject to the value-added tax imposed under Section 106 of the Tax Code of 1997, as amended. IaHCAD Further, under Section 191 of Revenue Regulations No. 26, otherwise known as the "Documentary Stamp Tax Regulations", conveyances to a trust without valuable consideration, or from a trustee to a cestui que trust without valuable consideration are not subject to tax. From the foregoing and since the conveyance of the above-mentioned real property by SMTMC, the trustee, to Alex Uson, the real owner, is in connection and in recognition of a trust, the said transfer, therefore, is not subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997, as amended. However, the notarial acknowledgement to the said Deed of Conveyance is subject to the documentary stamp tax of P15.00 only pursuant to Section 188 of the same Code. (BIR Ruling No. 027-93 dated January 15, 1993 and BIR Ruling No. 080-02 dated April 29, 2002 cited in BIR Ruling No. DA-325-2004 dated June 16, 2004). 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.) JAMES H. ROLDAN Assistant Commissioner Legal Service