Puyat Jacinto & Santos Law Offices

May 8, 2007 BIR RULING [DA-287-07] Sec. Nos. 24 (D) (1) & 196; DA-435-2000 Puyat Jacinto & Santos Law Offices 12/F Manilabank Building, 6772 Ayala Avenue, Makati City Attention : Atty. Roy Enrico C. Santos Partner Gentlemen : This refers to your letter dated March 16, 2007 requesting a ruling that the transfer of title to a condominium unit pursuant to an agreement to distribute communal property from one spouse to another, which was executed in the course of proceedings for the annulment of the spouses' marriage and which was later approved by the court, is not subject to donor's tax, capital gains tax or documentary stamp tax. It is represented that on September 13, 1988, Nicanor Pablo M. Vergara and Anna Marie F. Padilla were married without having executed an ante-nuptial agreement; that pursuant to applicable law, the parties' property relations are governed by the absolute community of property ("ACP"); that on January 20, 2003, Anna Marie P. Vergara filed a petition for declaration of nullity of marriage before the Regional Trial Court of Quezon City; that during the pendency of the proceedings, the spouses executed on July 13, 2003 an Agreement on Distribution of Communal Property whereby, among other stipulations, the parties agreed that the condominium unit with parking slot located at Platinum Condominiums, Annapolis Street, Greenhills, San Juan, denominated Unit 11D and covered by Condominium Certificate of Title No. 5080-R issued by the Registry of Deeds of the City of San Juan, would belong to Anna Marie P. Vergara; that the said condominium unit is presently registered under the name of Nicanor Pablo M. Vergara. It is further represented that on October 11, 2004, the court issued a Decision granting the petition for declaration of nullity of marriage; that the court also dissolved the parties' absolute community property relations and approved the Agreement on Distribution of Communal Property, incorporating the same as part of the Decision; that it is the intention of Anna Marie F. Padilla to transfer the title covering the subject condominium unit in her name, as per the parties' agreement. In reply, please be informed that this office ruled in BIR Ruling No. DA-435-00 dated December 18, 2000, that no donation had taken place when former spouses appropriate to themselves separately the properties which belong to their community property as a consequence of the liquidation of the partnership. The parties merely segregated and adjudicated for their own individual and separate ownership the properties which, from the celebration of their marriage, rightfully belong to them equally. (BIR Ruling No. 220-83 dated December 8, 1983) In the instant case, since the parties merely appropriated to themselves their respective shares in the community property, such appropriation of the properties covered by the Agreement on distribution thereof is not subject to donor's tax. Moreover, the transfer of the condominium unit to Ms. Padilla is also not subject to capital gains tax, as such transfer is equivalent to a conveyance but without any monetary consideration, made in compliance with the court's Decision granting the parties' agreement for the distribution of communal property (BIR Ruling No. DA-092-01 dated May 6, 2001). Neither is the said transfer subject to documentary stamp tax since the monetary consideration in the conveyance of said condominium unit from which tax shall be based is wanting. HETDAa Accordingly, the aforestated Agreement executed by and between Nicanor Pablo M. Vergara and Anna Marie P. Vergara to transfer the title covering the subject condominium unit may be registered with the Register of Deeds of the City of San Juan without the necessity of paying the donor's tax, capital gains tax, and documentary stamp tax. 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, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service