BIR Ruling [DA-254-03]

August 5, 2003 BIR RULING [DA-254-03] 24 (C); 115-94; 31-99 Narciso Jimenez Gonzales Liwanag Bello Valdez & Caluya SOL Building, 112 Amorsolo Street Legaspi Village, Makati City Attention: Attys. Stephanie G. Dy and Mary Jane B. Austria-Delgado Gentlemen : This refers to your letter dated September 4, 2001 stating that your client, BK Systems Philippines, Inc. (BKSP) [formerly Regal Systems, Inc.], is a corporation registered with the Securities and Exchange Commission dated December 19, 1999; that it has an authorized capital stock of P4,000,000.00 divided into 40,000 shares with a par value of P100.00 per share; that it has a subscribed capital, fully paid-up, of P1,000,000.00 equivalent to 10,000 shares; that upon incorporation of BKSP, Domingo S. Guevarra, Malou Guillergan, Maribel Alvarez, and Leopoldo Asuncion, as incorporators and trustees, had subscribed to a total of 6,998 shares for and in behalf of GIDC, BK Entertainment, Inc. (BKEI) and Cynthia L. Picazo, the break-down of which is as follows: Subscriber No. of Shares Held in favor of Domingo S. Guevarra 2,998 GIDC Malou Guillergan 1,500 BKEI Maribel Alvarez 1,500 BKEI Leopoldo Asuncion 1,000 Cynthia L. Picazo that in view of such subscription by the aforesaid incorporators for and in behalf of their respective trustors, pertinent Deeds of Trust and Assignment were executed wherein the trustees duly recognized the right and interest of their trustors over the BKSP shares as beneficial owners thereof; that pursuant to such Deeds of Trust and Assignment, the trustors instructed its trustees to cause the transfer of the BKSP shares in the name of the trustors in the Stock and Transfer Book of BKSP; and that in support of your request, you submitted the following (1) Deed of Trust and Assignment between Domingo S. Guevarra and GIDC; (2) Deed of Trust and Assignment between Malou Guillergan and BKEI; (3) Deed of Trust and Assignment between Maribel Alvarez and BKEI; and (4) Deed of trust and Assignment between Leopoldo Asuncion and Cynthia L. Picazo. In connection therewith, you now request for confirmation of your opinion that "1. The transfer of the BKSP shares by the trustees in favor of their respective trustors, being merely a confirmation of title in favor of the beneficial owners and without monetary consideration, is not subject to either income tax, capital gains tax, donor's tax and documentary stamp tax; "2. The transfer is not subject to income and capital gains taxes since the conveyance is without any monetary consideration and is being undertaken only by virtue of the Deeds of Trust and Assignment respectively executed by the trustors and the trustees. Further, the conveyance by the trustees in favor of their respective trustors of the BKSP shares which the former acquired by virtue of trust agreement should not be treated as another transfer separate and distinct from then sale between the original owner and the trustee. The conveyance should be treated only as a continuation and confirmation of title in favor of the ultimate and real beneficiary of the shares of stock; "3. Likewise, the conveyance is not subject to donor's tax due to lack of donative intent among the parties involved; and "4. Moreover, the Deeds of Trust and Assignment are not subject to the documentary stamp tax imposed under Section 176 of the National Internal Revenue Code (NIRC), as amended, but only to the documentary stamp tax in certificates under Section 188 of the NIRC." In reply; please be informed that under Section 24(C) of the Tax Code of 1997, a final tax at the rates of 5% and 10% shall be imposed upon the net capital gains realized during the taxable year from the sale, barter, exchange or other disposition of shares of stock in a domestic corporation, except shares sold, or disposed of through the stock exchange. In the instant case, there is no sale, barter or exchange of the 6,998 shares of stock of BKSP since GIDC, BK Entertainment Inc. (BKEI), and Ms. Cynthia L. Picazo are the real owners of the shares of stock involved while Mr. Domingo S. Guevarra, Ms. Malou Guillergan, Ms. Maribel Alvarez, and Mr. Leopoldo Asuncion acted merely as Trustees. Accordingly, the transfer of the BKSP Shares from the Trustees to the Trustors, the real owners therefor, without monetary consideration and by virtue of the Deeds of Trust and Assignment is not subject to the capital gains tax. In BIR Ruling No. 31-99, this Office held that the conveyance by the Trustee in favor of the Trustor of the subject properties which the former acquired by virtue of the trust agreement is not to be treated as another transfer separate and distinct from the sale between the original owner and the trustee. The conveyance is merely to be treated as a continuation and confirmation of title in favor of the ultimate and real beneficiary of the subject properties. Moreover, the conveyance of the said shares of stock is not subject to donor's tax imposed under Section 98 of the Tax Code of 1997, due to lack of donative intent. Furthermore, the said Deeds are not subject to the documentary stamp tax imposed under Section 176 of the Tax Code of 1997, but only to the documentary stamp tax on certificates under Section 188 of the same Code. (BIR Ruling No. 115-94) This will, therefore, serve as authority for the Corporate Secretary to transfer the shares of stock of BK Systems Philippines, Inc. in the name of GIDC, BK Entertainment Inc. (BKEI), and Ms. Cynthia L. Picazo. 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, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group