Mayumi Ruth Pascual, M.D.

April 2, 2008 BIR RULING [DA-215-08] 24 (C) & (D) (1); 85; 175; 196; DA-416-05; 013-05; DA-515-06 Mayumi Ruth Pascual, M.D. 34 Samar Avenue, South Triangle, Quezon City M a d a m : This refers to your letter dated January 11, 2007 requesting a ruling as to the taxability of the transfer of title of your properties in favor of the trustee of a revocable inter vivos trust. It is represented that you have established a revocable inter vivos trust and would like to change the manner of holding title to all your real properties and stocks and securities from Mayumi Ruth Pascual to CORONET TRUST, represented by its trustee Mayumi Ruth Pascual (and subsequent trustee). In reply, please be informed that under Section 24 (D) (1) of the Tax Code of 1997, 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 or other forms of conditional sales, by individuals, including estates and trust shall be taxed at the rate of 6% based on the gross selling price or the current fair market value as determined in accordance with Section 6 (E) of this Code, whichever is higher. However, considering that in the instant case there is no actual transfer of ownership resulting from the transfer of the aforementioned properties to the trustee, the said transfer, therefore, is not subject to the 6% capital gains tax nor to the donor's tax imposed under Sections 24 (D) (1) and 98, respectively, of the Tax Code of 1997, as amended. (BIR Ruling No. UN-031-96 dated January 27, 1996; BIR Ruling No. 013-2005 dated August 16, 2005 citing BIR Ruling Nos. DA-299-08-11-00 and DA-143-03-09-00). Moreover, the deed conveying the aforementioned properties to the trustee is not subject to documentary stamp tax under Section 196 of the same Code. Under Section 185 of Revenue Regulations No. 26, otherwise known as the "Documentary Stamp Tax Regulations", conveyances of realty, not in connection with a sale, to trustee or other persons without consideration, are not taxable. HCEaDI On the other hand, since the transfer of the shares of stock will be made to a trustee pursuant to a revocable inter vivos trust, the said transfer, therefore, is not subject to the capital gains tax imposed under Section 24 (C) of the Tax Code of 1997, 1 as amended. Likewise, the above transfer of securities to the trustee is not considered as a subsequent trading thereof that would warrant the imposition of the value-added tax and the income tax. Further, the said transfer of shares and securities is not subject to the documentary stamp tax imposed under Section 175 of the Tax Code. The transfer of the shares of stock and securities to Coronet Trust does not constitute a transfer subject to the documentary stamp tax. Although Coronet Trust is taking title to the shares and securities, the same are being held by it only in a capacity as a trustee, for and in behalf of you, the real owner thereof. Thus, as the real owner, you retain the beneficial ownership of the shares and the securities, thereby any and all benefits derived therefrom still redound to your benefit. Moreover, 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. Finally, Section 85 (C) of the Tax Code of 1997, as amended, provides that interest in the property of which the decedent has at any time made a transfer by trust or otherwise is included in decedent's gross estate. The value of the gross estate of the decedent shall be determined by including the value at the time of his death of all properties, real or personal, tangible or intangible, wherever situated to the extent of any interest therein, of which the decedent has at any time made a transfer by trust, where the enjoyment thereof was subject at the date of his death to any change through the exercise of a power by the decedent to alter, amend, revoke or terminate, or where any such power is relinquished in contemplation of the decedent's death. In a revocable transfer of property, such as in your case, the property continues to be owned by the transferor-trustor during his lifetime notwithstanding the transfer, as he still retains beneficial ownership. The rationale for taxing such transfer in trust at the time of death of the trustor is to reach transfers which are really substitutes for testamentary disposition and thus prevent evasion of estate tax. To be exempt from estate tax, the transfer by inter vivos must be absolute and outright with no strings attached whatsoever by the transferor, which is not the case here. CAIaHS In other words, all properties covered by the Revocable Inter Vivos Trust or Revocable Living Trust Agreement executed by you shall be considered as forming part of the decedent's gross estate subject to estate tax pursuant to Section 85 of the Tax Code of 1997, as amended, upon your death, as owner of the trust properties. The transfer of the aforesaid properties during your lifetime, as trustor, does not preclude the imposition of the estate tax prescribed under Section 84 of the Tax Code of 1997 upon the death of the owner of the property. In view of the foregoing, in case of your death, the properties under the Revocable Inter Vivos Trust shall be subject to estate tax to the extent of your interest therein, as the case may be, at the time of death pursuant to Section 85 (C) of the Tax Code of 1997. (BIR Ruling No. 013-2005, supra , and DA-515-2006 dated August 25, 2006). 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 Footnotes 1. Capital gains from sale of shares of stock not traded in the stock exchange. cISDHE