BIR Ruling [DA-236-02]

December 6, 2002 BIR RULING [DA-236-02] 27 (A); 188 DA-095-2002 Romulo Mabanta Buenaventura Sayoc & de los Angeles Law Offices 30th Flr. Citibank Tower 8741 Paseo de Roxas, Makati City Attention: Attys. Jose Salvador Y. Mirasol, Ronaldo Modesto J. Ventura and Jayson L. Fernandez Gentlemen : This refers to your letter dated October 4, 2001 requesting for a ruling that the conveyance of the common areas, including the land of Fort Bonifacio Development Corporation (FBDC) to a condominium corporation which will be organized in connection with a Memorandum of Agreement and Trust (MOA) between Daiichi Properties and Development, Inc. (Daiichi) and FBDC dated March 23, 2000 is exempt from the payment of income tax and documentary stamp tax. It is represented that FBDC is a corporation organized and existing under Philippine laws; that it is the registered owner of a lot described as Lot 4, Block 1, Lawton Road, Bonifacio South, Bonifacio Global City, Taguig, Metro Manila, covered by Transfer Certificate of Title No. 29472 of the Registry of Deeds of the Province of Rizal with a total area of 3,758 square meters (the Bonifacio Lot); that on March 23, 2000, FBDC and Daiichi entered into a MOA for the development of a residential condominium building on the Bonifacio Lot, known as the "Regent Parkway" (the Project); that under the provisions of the MOA, the parties allocated among themselves: (a) specifically designated spaces in the Project, and (b) the cost of development and condominiumization of such spaces which they individually undertook to finance in the form of cash, property, services and/or other rights or forms of property; that to finance the cost of construction and condominiumization of its allocated spaces, FBDC will provide the Bonifacio Lot for the condominium project, while Daiichi and FBDC will provide funding; that after completion of the Project and the formation and organization of the condominium corporation for the Project, FBDC will transfer the Bonifacio Lot to the condominium corporation as part of the common areas of the condominium project for the common management and benefit of the members of the condominium corporation; that the conveyance of the Bonifacio Lot by FBDC in favor of the condominium corporation will be made without consideration and solely for the purpose of complying with the requirements of Republic Act No. 4727 (the Condominium Act); that the parties intend to have the MOA annotated at the back of the TCT No. 29472 of the Registry of Deeds of Rizal, which title covers the Bonifacio Lot, in order to serve notice and bind third parties as to the existence of the MOA and the obligations of the parties thereunder; and that the MOA will not of itself transfer title over the Bonifacio Lot as this shall take place only when the condominium corporation is formed and the lots are transferred to said condominium corporation as part of the common areas. Based on the foregoing representations, you now request for confirmation that: "1. The MOA executed by DAIICHI and FBDC on March 23, 2000 is not subject to any tax imposed under the Tax Code of 1997 other than the DST of P15.00 imposed on the notarial acknowledgment. Upon presentment of proof of payment of the P15.00 DST imposed on the notarial acknowledgment, the Registry of Deeds is authorized to annotate the MOA on the back of Transfer Certificate of Title No. 29472 of the Registry of Deeds of Rizal held in the name of FBDC, and to issue the Condominium Certificates of Title covering the respective units of DAIICHI and FBDC (or its successor-in-trust), as originals owners, pursuant to the MOA; "2. The transfer of the Bonifacio Lot by FBDC to the condominium corporation will not be subject to income tax or DST." In reply, please be informed that the MOA described above is an agreement between Daiichi and FBDC to construct and fund the cost of construction of designated office floors and concomitant interests in the common areas of the Project which is neither a contract of sale over real property nor an instrument which conveys title to real property. Hence, no income tax or documentary stamp tax is due upon the execution of the MOA ( BIR Ruling Nos. 010-96 dated January 23, 1996; DA 095-2002 dated May 22, 2002; Section 186 of Revenue Regulations No. 26 ). However, the notarial acknowledgment on the MOA is subject to documentary stamp tax on certification pursuant to Section 188 of the Tax Code of 1997. Moreover, since the transfer of the Bonifacio Lot from FBDC to the condominium corporation is not in connection with a sale made to the condominium corporation to be organized in compliance with the requirements of the Condominium Act, no income will be generated and a fortiori , no income tax will be payable and collectible thereon. Finally, Section 185 of the Revised Documentary Stamp Tax Regulations (Regulations No. 26)provides that "conveyances of realty not in connection with a sale, to trustees or other persons without consideration are not taxable". Consequently, the conveyance of the Bonifacio Lot from FBDC to the condominium corporation will not be subject to documentary stamp tax imposed under Section 196 of the Tax Code of 1997. However, the notarial acknowledgment on the deed of conveyance will be subject to the documentary stamp tax on certification pursuant to Section 188 of the Tax Code of 1997. ( BIR Ruling Nos. 182-93 dated May 4, 1993; 212-93 dated May 14, 1993; DA 30-96; DA 87-96; DA 234-96 ) Accordingly, the Register of Deeds is authorized to annotate the MOA at the back of the certificate of title covering the Bonifacio Lot, and upon execution of the deed of conveyance, transfer title to the Bonifacio Lots from FBDC to the condominium corporation, without requiring the presentation of a Certificate Authorizing Registration (CAR) from the appropriate Revenue District Office of the BIR. ScHADI This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service