Baniqued & Baniqued

April 4, 2007 BIR RULING [DA-209-07] DA 113-05 Baniqued & Baniqued Suite 803, 8/F Jollibee Centre San Miguel Avenue Pasig City Attention: Atty. Terence Conrad H. Bello and Atty. Madeline L. Zialcita-Villapando Gentlemen : This refers to your letter dated March 1, 2007 stating that your client, Jardine Davies Investments, Inc. Employees' Retirement Plan (JDII-ERP), is a registered reasonable private benefit plan within the contemplation of Section 32 (B) (6) (a) of the Tax Code of 1997; that the properties owned by JDII-ERP were transferred from Jardine Davies, Inc. Multi-Employer Employees Retirement Plan (JDI-MEERP) when Jardine Davies, Inc. (JDI) underwent an internal reorganization in 2004; that pursuant to the plan of reorganization, JDI transferred its agro-chemical and construction supplies distribution business (Distribution Business) to Jardine Distribution, Inc. (Jardine Distribution) in exchange for stock of Jardine Distribution; that JDI also transferred its shareholdings in two domestic corporations, as well as certain miscellaneous corporate assets (the Head Office Holdings), in favor of JDII in exchange of stock of JDII; that these corporate assets included real properties registered in the name of JDI-MEERP situated in Paraaque City and Baguio City (the Paraaque Lot and the Baguio Property, respectively); that as a consequence of the above reorganization, Jardine Distribution and JDII absorbed JDI employees assigned to the latter's Distribution Business (Distribution Business Employees) and Head Office Holdings (Head Office Holdings Employees), respectively, as if no change was effected; that the employees continued to receive the same benefits under Jardine Distribution and JDII as in JDI; that among the benefits said employees continued to receive are those they expected to receive under JDI-MEERP as if there was no interruption of their employment and no loss of tenure or credited years of service; that the portion of JDI's retirement fund relating to, and equivalent to the accrued benefits of, the Distribution Business Employees (Jardine Distribution Retirement Fund) was transferred to Jardine Distribution, while the remaining portion of JDI's retirement fund relating to the Head Office Holdings Employees (JDII Retirement Fund) was transferred to JDII; that JDII, as successor employer, took over the JDII Retirement Fund, which includes fund investments made by JDII-MEERP in a real property located in Baguio City (i.e., the Baguio Property) under TCT No. T-26669 issued by the Register of Deeds of Baguio in the name of JDI-MEERP represented by its Trustee, Union Bank of the Philippines-Trust and Investment Services Department; that JDII-ERP, up to this date, has yet to secure a new Transfer Certificate of Title in its name covering the Baguio Property; that JDII-ERP, as the beneficial owner of the Baguio Property, also intends to sell the said property to an interested buyer; that for expediency, JDII-ERP will sell the Baguio Property without having TCT No. T-26669 cancelled by the Register of Deeds of the City of Baguio prior to the sale; and that JDII-ERP will however request the RDO No. 8 of Revenue Region No. 2 of Baguio City to issue two Tax Clearance Certificates/Certificates Authorizing Registration (TCL/CAR) in the name of JDI-MEERP and JDII-ERP to facilitate the cancellation of TCT No. T-26669, and the subsequent issuance of a new TCT in the name of the buyer. cCTaSH Based on the foregoing representations, you now request confirmation of your opinion that 1. The transfer of the Baguio Property from JDI-MEERP to JDII-ERP is exempt from income tax and documentary stamp tax (DST) under Section 196 of the Tax Code of 1997 pursuant to DA113-05 and DA316-05, said transfer not being a conveyance in connection with a sale and is without monetary consideration; 2. The sale or transfer by JDII-ERP of the Baguio Property to a third-party buyer is exempt from capital gains tax under Section 27 (D) (5) of the Tax Code of 1997 and creditable withholding tax prescribed under Revenue Regulations No. 2-98, as amended; and 3. The sale however by JDII-ERP of the Baguio Property to a third-party buyer is subject to DST under Section 196 of the Tax Code of 1997. In reply thereto, please be informed that your opinion is hereby confirmed as follows: 1. Section 185 of Revenue Regulations No. 26, otherwise known as the Documentary Stamp Tax Regulations, provides that conveyances of realty, not in connection with a sale, to trustee or other persons without consideration are not taxable. Since the transfer of the Baguio Property from JDI-MEERP to JDII-ERP is a conveyance not in connection with a sale and is without monetary consideration, said transfer is not subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997, as amended. Moreover, the transfer of the said Baguio Property from JDI-MEERP to JDI-ERP is neither subject to capital gains tax and/or creditable withholding tax considering that the transfer is without monetary consideration and was merely undertaken as a consequence of internal reorganization. 2. The sale or transfer by JDII-ERP of the Baguio Property to a third-party buyer is not subject to capital gains tax imposed under Section 27 (D) (5) of the Tax Code of 1997 and/or to the creditable withholding tax prescribed in Revenue Regulations No. 2-98, as amended. 3. Finally, however, the sale by JDII-ERP of the Baguio Property to a third-party buyer is subject to DST imposed under Section 196 of the said Code. HScDIC This will therefore serve as an authority for the Revenue District Officer concerned to issue the corresponding Certificate Authorizing Registration (CAR) so that title to the said property may now be transferred in the name of a third-party. 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