BIR Ruling [DA-338-03]

October 7, 2003 BIR RULING [DA-338-03] Sec. 24 (C); 235-89 Schering-Plough Corporation 12/F, San Miguel Properties Centre St. Francis St., Ortigas Center Mandaluyong City Attention: Mesdames Ma. Annunciata A. Trangco & Angelita P. Sangalang Gentlemen : This refers to your letter dated October 2, 2002 requesting in effect for an exemption from the payment of capital gains tax on the transfer of a Proprietary Membership Certificate of the Manila Polo Club, Inc. held in trust by your outgoing General Manager to the new trustee, the incoming General Manager. It is represented that Schering-Plough Corporation purchased a Proprietary Membership Certificate (hereinafter referred to as "share") of the Manila Polo Club, Inc. on November 25, 1970; that in compliance with the rules and regulations of the Manila Polo Club, Inc., the said share was issued in the name of its then general manager, as the registered owner, and not of the corporation who is the real purchaser; that the company executed a deed of assignment coupled with a declaration of trust in favor of its then general manager, to show that the latter holds the said share in his capacity as trustee only and likewise, as a proof that the company maintains its ownership over the said share; that every time the company changes its general manager, it executes a declaration of trust in favor of the incoming general manager and the outgoing general manager then will execute a deed of assignment in favor of the new general manager divesting his rights as trustee of the said share and thereby terminating the trust agreement he executed with the corporation; that since the time the share was purchased, it has been transferred already to five (5) general managers; that on September 25, 2002, the outgoing general manager, Epitacio D. Titong, Jr., executed a Deed of Assignment in favor of Miguel Ribas, the incoming general manager; that on November 7, 2002, the company executed a Declaration of Trust in favor of Miguel Ribas recognizing the latter as the new trustee of the share; and that the above transfer does not involved any monetary consideration. Based on the foregoing, you are requesting in effect that the transfer of the Manila Polo Club share from the outgoing general manager, Epitacio D. Titong, Jr. to the incoming general manager, Miguel Ribas, shall be exempt from the capital gains tax imposed under Section 24(C) of the Tax Code of 1997. HTAIcD In reply, please be informed that since the transfer does not involve any monetary consideration, the same is not a taxable transaction; hence, the transferor, Mr. Epitacio D. Titong, Jr., is not subject to the capital gains tax imposed under Section 24(C) of the Tax Code of 1997. Moreover, while the above transaction may be considered as a gift since it is a valid transfer of property from one person to another without consideration or compensation therefor, the same is not subject to the donor's tax imposed under Section 98 of the same Tax Code. This is so because although there is a direct gift, there is no donative intent under the above circumstances. It has been held that in a direct gift, the element of donative intent must be present in the transfer of property to be donated. ( Perez vs. Commissioner , CTA Case No. 1707, Feb. 10, 1969) However, since the Proprietary Membership Certificate shows that the registered owner thereof shall be entitled to a pro-rata share of the assets of the Club, the same is considered a certificate showing interest in the property of a corporation. Accordingly, the transfer of said Certificate is subject to the documentary stamp tax of P0.50 on each P200.00 or fractional part thereof, of the face value of such certificate, in accordance with Section 178 of the Tax Code. 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. (BIR Ruling No. 235-89 dated November 28, 1989) Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group