BIR Ruling [DA-367-03]

October 14, 2003 BIR RULING [DA-367-03] 24 (C) DA-013-97, DA-542-98 Aranas Consunji Barleta Unit 106 G/F Le Metropole Building 326 Tordesillas cor. De la Costa Streets Salcedo Village, Makati City Attention: Atty. Jesus Clint O. Aranas Gentlemen : This refers to your letter dated October 1, 2003 requesting for and in behalf of your client, Orion Land, Inc. (OLI) for a confirmation of your opinion that the transfer of shares of stock from Guoco Securities (Philippines), Inc. (GSPI) to your client is exempt from the capital gains tax and the documentary stamp tax. It is represented that in 1996, OLI acquired 49,998 shares of stock of Luck Hock Venture Holdings, Inc. (LHVHI); that these shares were registered in the name of GSPI Client Account; that the arrangement was covered by a Deed of Trust between GSPI Client Account and OLI; and that the beneficial owner, OLI, now intends to transfer the LHVHI shares to its name. In reply, please be informed that in BIR Ruling No. DA-542-98 dated December 2, 1998 involving the transfer of shares of stock from a trustee to a beneficial owner without consideration, this Office ruled that: "In reply, please be informed that under Section 24(C) of the Tax Code, as amended, capital gains presumed to have been realized from the sale, exchange or disposition of shares of stock in any domestic corporation shall be taxed as follows: (1) Net capital gains tax as defined in Section 39(A)(2) of the Tax Code, as amended, realized during each taxable year from the sale, exchange or other disposition of shares of stock not traded through a local stock exchange: ISTECA Not over P100,000 5% Or any amount in excess of P100,000 10% Such being the case, and considering that in the event that Messrs. Tan and Ng, as trustees of the said share of stock, convey the same in favor of the beneficial owners or their duly appointed trustees there would be no actual transfer of ownership over the aforementioned shares of stock as a result thereof, coupled with the fact that the conveyance is without any valuable consideration, this Office is hereby confirming your opinion that the said transaction is not subject to the capital gains tax imposed under Section 24(C) of the Tax Code, as amended. Moreover, your opinion that the deed conveying the aforesaid shares of stock in favor of the beneficial owners or their duly appointed trustees is not subject to documentary stamp tax pursuant to Section 191 of Revenue Regulations No. 26, is likewise hereby confirmed. However, the notarial acknowledgment is subject to the documentary stamp tax of P15.00 under Section 188 of the Tax Code, as amended by R.A. 7660. (BIR Ruling Nos. 039-97, UN-258-95, 123-93, 124-93, 126-93, 127-93, 128-83 and 129-93) " Furthermore, in BIR Ruling No. DA-013-97 dated January 10, 1997, this Office ruled that " the execution of a Declaration of Trust whereby a nominee shareholder acknowledges and states that he is holding certain shares in trust for the real owner, is not a taxable transaction/event ." In the same ruling, this Office went further by stating that the subsequent transfer by the Nominee to the beneficial owner of shares of stock, without consideration, will not involve any actual sale or conveyance of ownership since what is being transferred is merely legal title to the shares. Hence, the transfer by the Nominee to the true, actual and beneficial owner of the shares, is not subject to the capital gains tax under Section 21(d) or Section 124-A both of the Tax Code, as amended. Likewise, the transfer is not subject to donor's tax since it pertains to the transfer for trustee/Nominee to the real owner. Following the stand of this Office laid down in the foregoing rulings, we confirm your opinion that the transfer of shares of stock from GSPI to OLI is exempt from the capital gains tax and documentary stamp tax as well as the donor's tax. However, the notarial acknowledgment is subject to the documentary stamp tax of P15.00 under Section 188 of the Tax Code of 1997. (BIR Ruling Nos. 039-97, UN-258-95, 123-93, 124-93, 125-93, 127-93, 128-93 and 129-93) IEAHca This ruling is 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 consider null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service