BIR Ruling [DA-365-03]

October 13, 2003 BIR RULING [DA-365-03] 24 (C); 188; 196; DA-125-97; 031-99 De Guzman & Celis Law Office Suite C, 18th Floor, Strata 2000 Building Emerald Avenue, Ortigas Center Pasig City Attention: Amalia E. Dionisio Gentlemen : This refers to your letter dated April 23, 2003 requesting confirmation of your opinion that: 1. The assignment of shares of stocks by the trustee in favor of the beneficial owner is neither a sale, barter, exchange nor other disposition contemplated under Section 24(C) of the Tax Code, and therefore, no capital gains tax accrues; and DcITaC 2. The assignment of shares of stock by the trustee in favor of the beneficial owner is not a sale, or agreements to sell or memoranda of sale, or deliveries or transfer contemplated under Section 176 of the Tax Code of 1997, and therefore, no documentary stamp tax accrues thereto. It is represented that sometime in November 1995, Richard Joseph C. Dee, on behalf of DAO INVESTMENT & DEVELOPMENT CORPORATION (DIDC), subscribed 225,000 shares of the capital stock of Malayan Bank Savings and Mortgage Bank (Malayan Bank). The subscription was paid by DIDC as evidenced by its general vouchers dated November 10, 1995 and November 16, 1995. By virtue of the said transaction, it is your contention that a trust in favor of DIDC was created over the 225,000 shares of stock in Malayan that is registered in the name of Richard Joseph C. Dee. On January 25, 1996, Richard Joseph C. Dee executed a Declaration of Trust with Assignment in favor of DIDC wherein he declared that he holds all the shares of stock in Malayan Bank, including all dividends, fruits and interests accruing on or arising from any or all of the aforesaid shares of stock, as well as the shares to be issued, in trust for the beneficial owner, DIDC. Incidentally, Mr. Dee assigned all the shares of stocks issued in his name by the Malayan Bank in favor of DIDC. However, when the document was presented, the Corporate Secretary of Malayan Bank refused to effect transfer unless the appropriate capital gains and documentary stamp taxes should first be paid. Hence, this request. In reply thereto, please be informed that since the transfer of the 225,000 shares of Richard Joseph C. Dee to DIDC is without any consideration because the latter is the real owner and Mr. Dee acted only as a trustee, the same is not subject to the capital gains tax imposed under Section 24(C) of the Tax Code of 1997. In BIR Ruling DA-125-97, 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 shares of stocks. Furthermore, the Declaration of Trust with Assignment executed to this effect is not subject to the documentary stamp tax imposed under Section 196 of the same Code. However, the notarial acknowledgment to the said deed is subject to the documentary stamp of P15.00 pursuant to Section 188 of the Tax Code of 1997. (BIR Ruling No. 031-99 dated March 19, 1999) 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. cASIED Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group