BIR Ruling [DA-219-06]

April 7, 2006 BIR RULING [DA-219-06] Sections 98 & 27 (D) (5) BIR Ruling No. DA-164-98; DA-473-99 & DA-236-03 Wilson Circle Village Association, Inc. Greenhills Wilson Circle Village San Juan, Metro Manila Attention: Mr. Jaime Koa President Gentlemen : This refers to your letter dated October 20, 2005 requesting for confirmation of your opinion that the transfer without monetary compensation by Augvil Realty and Development Corporation ("ARDC") of road lots, parks, basements, and open spaces situated in Greenhills Wilson Circle Village ("GWCV") San Juan, Metro Manila, to the Greenhills Wilson Circle Village Association, Inc. ("GWCVAI"), is exempt from the capital gains and donor's taxes. As represented, ARDC is a corporation duly organized and existing under the laws of the Philippines, with principal address at 2/F, FUBC Building, Escolta, Manila. It is engaged in the business of real estate development, and is the developer of the GWCV. It is the absolute owner of certain road lots, park easements, and open space situated in said subdivision project. The buyers-homeowners is GWCV formed a community association called GWCVAI duly registered with the Securities and Exchange Commission (SEC) on December 22, 2000 under SEC Registration No. A200019199, for the purpose of holding ownership of the aforesaid road lots, park, easements and open space situated in said GWCV. On February 9, 2004, the Board of Directors resolved to authorized ARDC to transfer to GWCVAI without any monetary consideration all the pertinent titles of the following roads lots, park, easements and open space situated in GWCV and covered by TCT Nos. 11542, 11543 and 11544, all of the Register of Deeds for San Juan, Metro Manila, for the common enjoyment and safety of the subdivision homeowners. On April 22, 2004, ARDC executed a Deed of Conveyance without any monetary consideration of the aforesaid properties in favor of GWCVAI. In support of your request, you attached photocopies of the following documents: 1) Secretary's Certificate authorizing the transfer of properties by ARDC in favor of GWCVAI; and 2) Deed of Conveyance In reply, please be informed as follows: Transfer is not subject to withholding tax. Since the above-mentioned transfer and conveyance of the subject real properties from ARDC to GWCVAI was made without any monetary consideration and is not in connection with a sale made to GWCVAI, no income was generated by ARDC and a fortiori , no creditable withholding tax is payable and collectible. Thus, the Deed of Conveyance is not subject to the creditable withholding tax prescribed by Revenue Regulations No. 2-98, as amended, implementing Section 57(B) in relation to Section 27(A) and (D)(5), all of the Tax Code of 1997. However, if GWCVAI is going to sell the aforesaid properties, the sale shall be subject to the 6% tax imposed under Section 27(D)(5) of the Tax Code of 1997. Transfer is not subject to donor's tax . "Conveyances of realty not in connection with a sale, to trustees or other persons without consideration are not taxable." (Section 185, Regulations No. 26). The Deed of Conveyance is not in connection with a sale made to GWCVAI. In fact, the purpose of the conveyance to GWCVAI of the subject properties is for the common enjoyment and safety of the subdivision homeowners. Accordingly, the transfer of the aforesaid properties without monetary consideration is not subject to donor's tax imposed under Section 98 of the Tax Code of 1997. HTcADC 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 as null and void. Very truly yours, (SGD.) PABLO M. BASTES, JR. OIC-Head Revenue Executive Assistant Legal Service