BIR Ruling [DA-236-03]

July 23, 2003 BIR RULING [DA-236-03] 27; 57 (B); 188 DA-164-98; DA-184-2001 Ongkiko Kalaw Manhit & Acorda Law Offices 4th Floor, Cacho-Gonzalez Building, 101 Aguirre St., Legaspi Village, Makati City Attention: Atty. Mariano C. Ereso Partner Gentlemen : This refers to your letter dated July 7, 2003 requesting on behalf of your client, Corinthian Gardens Association, Inc. ("CGAI" for brevity) for a confirmation of your opinion that the annotation of the interests of CGAI on the titles to the roads, parks and open spaces and/or the transfer and conveyance of the title of all the roads, parks and open spaces, together with all the improvements therein by the developers of Corinthian Gardens Subdivision in Quezon City, to wit: (1) Sunvar Realty Development Corporation; and (2) Consuelo Madrigal, Antonio Madrigal, Heirs of Jose P. Madrigal, Pacita M. Gonzalez, Macaria M. De Leon, and the Heirs of Josefina M. Bayot ("Madrigal Family" for brevity) to CGAI is not subject to the following taxes under the Tax Code of 1997: (a) corporate income tax provided under Section 27(A); (b) final capital gains tax provided under Section 27(D)(5); and (c) documentary stamp tax provided under Section 196. The facts as represented, are as follows: 1. CGAI is a non-stock non-profit corporation organized and existing under the laws of the Philippines with principal offices at the CGAI Administration Office, Sanso corner Zalameda Streets, Corinthian Gardens, Quezon City; it is the duly organized association of homeowners of Corinthian Gardens, Quezon City, Manila; 2. On November 5, 2001, Sunvar, the Madrigal Family and CGAI, entered into a Memorandum of Agreement whereby it was agreed that "1.1 Sunvar and the Madrigal Family hereby assign, transfer and convey irrevocably in favor of CGAI the titles to and possession of all the roads, open spaces, alleys and improvements in Corinthian Gardens; 1.2 The transfer shall give CGAI the rights pertaining to the ownership of the said properties, as well as possession, management and control thereto free from all liens and encumbrances;" AaECSH 3. The roads, open spaces, alleys and improvements therein are covered by the Transfer Certificates of Title Nos. 244828, 242829, 244830, 244853, 244880, 244892, 244913, 244985, 245009, 245039, 241918, 241920, 241952, 242027, 242034, 242075, 242179, 242180, 245065, 272409, 272410, 245077, 366854, 272408, 244896, 272353, 272378, 272391, 272378, 245045, 242034, 245077, 244831, 244881, 244893, 244962, 244986, 241921, 242223, 242112, 245043 and 245046 all of the Registry of Deeds for Metro Manila District II presently registered in the name of Sunvar. 4. The transfer and conveyance by Sunvar and the Madrigal Family to CGAI of the roads, open spaces, alleys and improvements therein is without monetary consideration; and 5. Sunvar and the Madrigal Family as developers had already included the developmental cost and value of the roads, open spaces, alleys and improvements therein in the price of the residential lots sold to the homeowners in Corinthian Gardens, who are all members of CGAI. In reply, please be informed as follows: 1. Since the above-mentioned transfer and conveyance of the subject real properties was made without any monetary consideration and is not in connection with a sale made to the Corinthian Gardens Association, Inc., no income was generated and a fortiori , no creditable withholding tax is payable and collectible. In view thereof, this Office is of the opinion as it hereby holds that the aforesaid Memorandum of Agreement transferring the subject properties in favor of the Corinthian Gardens Association, Inc. is not subject to the creditable withholding tax prescribed by Revenue Regulations No. 2-98, implementing Section 57(B) in relation to Section 27(A) and (D)(5), all of the Tax Code of 1997. ( BIR Ruling No. DA-164-98 dated April 22, 1998 ) 2. If Corinthian Gardens Association, Inc. will sell the aforesaid subject properties, the said sale shall be subject to the 6% final tax imposed under Section 27(D)(5) of the Tax Code of 1997. 3. 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." Thus, it is not subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997. However, the notarial acknowledgment to said Memorandum of Agreement is subject to the documentary stamp tax of P15.00 pursuant to Section 188 of the Tax Code of 1997. ( BIR Ruling No. DA-184-2001 dated October 10, 2001 ) 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. AaIDHS Very truly yours, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service