BIR Ruling [DA-291-05]

June 27, 2005 BIR RULING [DA-291-05] Pangilinan Britanico Sarmiento & Franco 7th Floor, Banco de Oro Plaza, 8737 Paseo de Roxas Makati City Attention: Attys. Kennedy B. Sarmiento and Racquel Sienna A. Vergara Gentlemen : This refers to your letter dated January 11, 2005 requesting on behalf of your client, Alliance Career Management Consultants, Inc. ("Alliance" for brevity) for confirmation of your opinion that the transfer by a trustee of shares of stock held in trust for the trustor without consideration is not subject to capital gains, donor's and documentary stamp taxes. The facts, as represented, are as follows: 1. Upon incorporation of Alliance on October 29, 2004, Mr. Theodore C. Britanico subscribed Four Thousand (4,000) shares of stock from the original issuance. The documentary stamp tax on the original issuance has been paid. 2. On November 4, 2004, Mr. Theodore C. Britanico executed a Declaration of Trust attesting that the Four Thousand (4,000) shares of stock of Alliance registered in the name of Mr. Theodore C. Britanico are held in trust by him as trustee for Ms. Anna Fe M. Britanico as trustor. The Declaration of Trust signed by Mr. Theodore C. Britanico recognized the rights and interests of Ms. Anna Fe M. Britanico, the trustor of the said shares, as beneficial owner thereof. On December 6, 2004, Mr. Theodore C. Britanico and Ms. Anna Fe M. Britanico executed a Deed of Conveyance. The Deed of Conveyance was made without monetary consideration and as a continuation and confirmation of title in favor of the trustor, Ms. Anne Fe M. Britanico. In reply, please be informed that your opinion is hereby confirmed as follows: 1. While Section 24(C) of the Tax Code of 1997 generally imposes a final tax at the rates of 5% and 10% 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, the rule does not apply in the instant case considering that there is no sale, barter or exchange of the shares of stock in Alliance since Ms. Anna Fe M. Britanico is the real owner of the subject shares of stock which Mr. Theodore C. Britanico held as a trustee. Accordingly, the transfer of the Alliance shares of stock from the Trustee, Mr. Theodore C. Britanico, to the Trustor, Ms. Anna Fe M. Britanico, the real owner thereof, without monetary consideration and by virtue of a Declaration of Trust, is not subject to capital gains tax. ( BIR Ruling No. DA-485-2004 dated September 10, 2004 ) CcAESI Furthermore, in BIR Ruling No. 031-99 dated March 19, 1999, this Office has already ruled 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." 2. Well-settled in our jurisprudence is the fact that the essential elements of a valid donation are: (1) the reduction of the patrimony of the donor, (2) the increase in the patrimony of the donee; and (3) the intent to do an act of liberality ( animus donandi ). Clearly, there is no intention on the part of Mr. Theodore C. Britanico to donate to Ms. Anna Fe M. Britanico the Alliance shares of stock which he held in trust for the latter. Thus, the aforesaid transfer and/or assignment of the subject shares of stock will not be subject to gift tax since there is no intention to donate, and the transaction is merely to be treated as a continuation and confirmation of ownership in favor of the ultimate and real beneficiary of the Alliance shares of stock. 3. Finally, the Deed of Conveyance is 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 Tax Code, supra .( BIR Ruling No. 115-94 ) 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.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group