BIR Ruling [DA-323-99]

May 27, 1999 BIR RULING [DA-323-99] Garcia, Matienzo and Gregorio U-63 Legaspi Suites, 178 Salcedo St. Legaspi Village, Makati City Attention: Mr. Patricio A. Garcia Gentlemen : This refers to your letter dated September 1, 1998 stating that your client, Mr. Isidro Yatco, sometime in March, 1998, engaged your services to form a corporation for the purpose of dealing in real estate; that he and his wife shall have absolute control of the corporation; that before the corporation can be formed, he was offered a parcel of land at an attractive price; that not wanting to miss the opportunity, he and the other incorporators in their pre-incorporation meeting decided that the corporation should buy the land; that Mr. Isidro Yatco was designated and appointed trustee of the corporation for the transaction and was given full authority to negotiate and consummate the purchase thereof; that the incorporators also decided to set aside and utilize the funds of the projected corporation for this purchase; that the incorporators further authorized Mr. Isidro Yatco to buy the property first in his name and reconvey the same to the corporation after it shall have been incorporated; that after the sale was consummated, the capital gains tax and documentary stamp tax were duly paid; that the corporation was finally registered with the Securities and Exchange Commission on June 15, 1998; and that on July 13, 1998, pursuant to the authority granted to Mr. Isidro Yatco, he executed a Deed of Reconveyance without consideration in favor of the corporation. Based on the foregoing representations and documents submitted, you are now requesting for a ruling as to whether or not your client, Mr. Isidro Yatco, is liable to pay the capital gains and documentary stamp tax on the reconveyance of said property in favor of the corporation; and if exempted, whether he is liable to pay the donor's tax on the same. In reply, please be informed that the aforesaid Deed of Reconveyance by Mr. Isidro Yatco, as trustee, in favor of the corporation, as trustor is not subject to the 6% capital gains tax or to income tax considering that the alleged reconveyance by the trustee in favor of the trustor of the subject property 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 of the realty and the trustee. The said Reconveyance is merely to be treated as a continuation and confirmation of title in favor of the ultimate and real beneficiary of the subject realty. (BIR Ruling No. 115-94). TIDHCc Moreover, the subject alleged reconveyance is not subject to the 10% VAT because the said realty is no held primarily for sale to customers or for lease in the ordinary course of business. (VAT Ruling No. 2-96) Furthermore, the alleged Reconveyance of the subject real property is exempt from the donor's tax imposed under Section 98 of the Tax Code of 1997 due to lack of donative intent in the part of the trustee, Mr. Isidro Yatco. (BIR Ruling No. 115-94) Finally, the Deed of Reconveyance is not likewise subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997, since no monetary consideration in the subject transfer is involved. However, the Notarial Acknowledgement on same Deed is subject to the documentary stamp tax of P15.00 imposed under Section 188 of the Tax Code of 1997. (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, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)