BIR Ruling [DA-242-01]

November 21, 2001 BIR RULING [DA-242-01] Ramon F . Garcia & Company Certified Public Accountants Suite 410 Manila Bank Building Ayala Avenue, Makati City Attention: Mr . Josefino F . Garcia Partner Gentlemen : This refers to your letter dated October 21, 1999 stating that your client, Ms. Elizabeth P. Romualdez, had entered into a Trust Agreement with EPR Realty and Development Corporation on the 27th day of August, 1993 for two (2) condominium units covered by CCT Nos. PT-13599 and PT-13598 situated at Meralco Ave. cor. Segundo St., Pasig City with Elizabeth P. Romualdez as the trustor/beneficiary; that as stated in the Declaration of Trust (with Assignment), the trustee, EPR Realty and Development Corporation, acknowledges that the payments relative to the purchase of the aforesaid properties were actually made by Ms. Elizabeth P. Romualdez, the trustor; that eventually, on June 23, 1999 and upon the request of Ms. Elizabeth P. Romualdez, EPR Realty and Development Corporation executed a Deed of Conveyance of the above-mentioned realties in favor of Ms. Elizabeth P. Romualdez without any monetary consideration; and that in support of your representation that a trust existed between Elizabeth P. Romualdez and EPR Realty and Development Corporation, you submitted the following documents, to wit: 1. MANILA BANKERS LIFE Official receipt No. 696118 in the amount of P1,000,000 payee's name is Elizabeth Romualdez (Exhibit A). 2. PHILTRUST BANK OR No. 6788 in the amount of P2,496,944.58; payee's name is MANILA BANKERS LIFE INSURANCE (annex A1). A cashier check was purchased by Mr. Romualdez from BPI and payment was made directly to PHILTRUST so that the mortgage will be released by the bank. Please read the explanation in the "others" column of the OR. 3. Application for cashier check (Exhibit B) executed by Mrs. Romualdez for P2,496,929.38. Please note that account no. 1381-0000 87 was debited for P2,496,944.58. 1. Photocopy of cashiers check payable to PHILTRUST CORP. (exhibit C) 2. BANK OF PHILIPPINE ISLANDS CERTIFICATION THAT C/A # 0381 0000 87 is the account of Mrs. Elizabeth Romualdez (Exhibit D) 3. Audited financial statements for 1997 showing that the 2 condominium units were not booked in EPR Realty corporation. The real property presented in the balance sheet is the property in Urdaneta Village (Exhibit E). Based on the foregoing representations and documents submitted, you are now requesting for a ruling that in as mush as the Deed of Conveyance is a result of the trustor-trustee relationship and not a sale transaction, the transfer of Title from EPR Realty and Development Corporation to Elizabeth P. Romualdez is exempt from the payment of capital gains tax and documentary stamp tax. In reply, please be informed that under Section 27(D)(5) of the Tax code of 1997, a final tax of six percent (6%) is imposed on the gain presumed to have been realized on the sale, exchange or disposition of lands and/or buildings which are not actually used in the business of a corporation and are treated as capital assets, based on the gross selling price or fair market value as determined in accordance with Section 6(E) of the Same Tax Code, whichever is higher, of such lands and/or buildings. From the foregoing provision of Section 27(D)(5) of the Tax Code of 1997, it appears that the Deed of Conveyance executed by EPR Realty and Development Corporation on June 23, 1999 effecting the transfer of the condominium units covered by CCT Nos. PT-13599 and PT-13598 situated at Meralco Ave. cor. Segundo St., Pasig City in favor of your client, Ms. Elizabeth P. Romualdez, pursuant to her request, is not covered by the said Section, since the execution of said Deed of Conveyance is the result of the trustor-trustee relationship between the parties under the trust agreement entered into by Ms. Elizabeth P. Romualdez and EPR Realty and Development on August 27, 1993 with Ms. Romualdez as the trustor/beneficiary being the true and beneficial owner of the same who actually paid for the said realty as acknowledged by EPR Realty and Development Corporation, the trustee, in the said Trust Agreement. Hence, no sale transaction actually took place between Ms. Elizabeth P. Romualdez and EPR Realty and Development Corporation on the execution by the latter of the Deed of Conveyance over the said two (2) condominium units in favor of Ms. Elizabeth P. Romualdez. In other words, EPR Realty and Development Corporation could not sell the said realties to Elizabeth P. Romualdez who is actually the owner of the same. ETDAaC Accordingly, this Office is of the opinion as it hereby holds that the Deed of Conveyance executed by EPR Realty and Development Corporation transferring the two (2) condominium units covered by CCT Nos. PT-13599 and PT-13598 situated at Meralco Ave. cor Segundo St., Pasig City on June 23, 1999 in favor of Ms. Elizabeth P. Romualdez, is not subject to the capital gains tax imposed under Section 27(D)(5) of the Tax Code of 1997. (BIR Ruling No. DA-014-99 dated January 11, 1999) Moreover, the alleged transfer of the above-mentioned properties is exempt from the donor's tax imposed under Section 98 of the same Tax Code due to lack of donative intent on the part of EPR Realty and Development Corporation. Finally, the Deed of Conveyance affecting the transfer of said condominium units from EPR Realty and Development Corporation to Ms. Elizabeth P. Romualdez is not likewise subject to the documentary stamp tax prescribed under Section 196 of the 1997 Tax Code pursuant to Section 191 of Revenue Regulations No. 26, otherwise known as the "Revised and Consolidated Documentary Stamp Tax Regulations". However, the notarial acknowledgment to the said deed is subject to the documentary stamp tax of P15.00 pursuant to Section 188 of the Tax Code of 1997. (BIR Ruling No. DA-014-99 dated January 11, 1999) This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it shall be disclosed that the facts are different, then this ruling shall be considered null and avoid. Very truly yours, Commissioner of Internal Revenue By: (SGD.) EDMUNDO P. GUEVARA Deputy Commissioner Legal and Inspection Group