BIR Ruling [DA-396-03]

November 4, 2003 BIR RULING [DA-396-03] 24 (D) (1) DA509-98 Pastelero Law Office E-1503B Philippine Stock Exchange Centre Exchange Road, Ortigas Center Pasig City Attention: Atty. Ma. Sharon Ramos-Peaflorida Gentlemen : This refers to your letter dated March 4, 2003 requesting for a ruling that the transfer of real property by the Trustee, Salvador L. Carlos, to the Beneficiaries, Roberto Antonio C. Romualdez, Francisco Xavier C. Romualdez, Rafael Maria C. Romualdez, Juan Martin C. Romualdez and Margarita C. Romualdez, is exempt from the payment of capital gains tax and documentary stamp tax. It is represented that on October 5, 1979, Spouses Antonio V. Romualdez and Cristina C. Romualdez, as Trustors, executed five (5) separate Trust Agreements in favor of Salvador L. Carlos, as Trustee, for the above-named beneficiaries; that it was the intention of the Trustors to provide for the sound and efficient management and administration, through the Trustee, of the properties which the Trustors may, from time to time, donate to the Trustee for the benefit and account of the beneficiaries; that the subject of the Trust Agreements is two (2) parcels of land covered by TCT Nos. 152668 and 152669 both issued by the Registry of Deeds for Manila with an aggregate area of 1,120.2 square meters; that the Trustee agreed that he shall hold the said property and all such other properties that may be added thereto together with all its increments, proceeds, additions, investments and reinvestments, in trust, for the uses and purposes and upon the terms and conditions, for the benefit and on behalf of the above-named beneficiaries, i.e. , when the beneficiaries attain the age of 25 years, the Trustee shall by proper deed, convey and transfer to the beneficiaries, free of trust, the entire balance of the trust estate; and that on May 18, 2001, after all the beneficiaries were over the age of 25, the Trustee, Salvador L. Carlos, executed an Assignment of Real Properties held in Trust in favor of the beneficiaries, to effect the intent of the trust with respect to the subject properties. In reply thereto, please be informed that Section 24(D)(1) of the Tax Code of 1997 provides that a final tax of six percent (6%) is hereby imposed on the gains presumed to have been realized on the sale, exchange or other disposition of real property located in the Philippines, classified as capital assets, including pacto de retro sales and other forms of conditional sales, by individuals, including estates and trusts. . . . In the instant case, an implied trust is deemed created by law. The transfer of the aforesaid properties in the name of Salvador L. Carlos, as Trustee, for and in behalf of the beneficiaries, Roberto Antonio C. Romualdez, Francisco Xavier C. Romualdez, Rafael Maria C. Romualdez, Juan Martin C. Romualdez and Anna Margarita C. Romualdez, without monetary consideration by way of a Deed of Reconveyance is not subject to capital gains tax imposed under Section 24(D)(1) of the Tax Code of 1997 nor to the creditable withholding tax prescribed in Revenue Regulations No. 2-98, as amended. Similarly situated is BIR Ruling No. DA100-95 dated March 9, 1995, this Office ruled ". . . there is no actual transfer, sale or exchange of ownership over the aforementioned property considering that the Spouses Juan C. Reyes, Jr. and Minerva G. Reyes, in their capacity as trustee of the property, transferred the same in favor of the Spouses Florante P. Gonzaga and Evelyn R. Gonzaga, as the trustor-beneficiaries thereof. Accordingly, the said transfer is not subject to the 5% capital gains tax imposed under Section 21(a) of the Tax Code, as amended. Likewise, the above transaction is not subject to gift tax, since there is no donative intent under the above circumstances. . . ." Moreover, Section 185 of Regulations No. 26 provides that conveyances of realty, not in connection with a sale, to trustees or other persons without consideration are not taxable. Accordingly, the Assignment of Real Properties Held in Trust in favor of the beneficiaries to effect the intent of the trust over the above-mentioned properties to be executed by Salvador L. Carlos in favor of the above-named beneficiaries, as the true and beneficial owners, is not subject to documentary stamp tax imposed under Section 196 of the Tax Code of 1997 but the acknowledgment thereof is subject to the P15.00 documentary stamp tax prescribed in Section 188 of the said Code. (BIR Ruling No. DA509-98 dated November 11, 1998) STaIHc Finally, the above transaction is not subject to donor's tax imposed under Section 99 of the Tax Code of 1997 as there is no intention to donate on the part of the parties. IN VIEW OF THE FOREGOING, the aforementioned real properties covered by TCT Nos. 152668 and 152669 may now be registered by the Registry of Deeds concerned in the name of Roberto Antonio C. Romualdez, Francisco Xavier C. Romualdez, Rafael Maria C. Romualdez, Juan Martin C. Romualdez and Anna Margarita C. Romualdez, as the true and beneficial owners of the aforesaid properties. 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.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group