BIR Ruling [DA-411-04]

July 29, 2004 BIR RULING [DA-411-04] 27 (D) (5), 188 196 DA-385-2004 ASB Realty Corporation ASB Center 114 Benavidez St., Legaspi Village Makati City Attention: Atty. Rolando P. Domingo Senior Vice-President Gentlemen : This refers to your letter dated July 26, 2004 stating that ASB Realty Corporation (ASBRC) is a corporation organized and existing under and by virtue of the laws of the Philippines and is the trustee of various unsecured creditors of the ASB Group; that the unsecured creditors are interested to buy condominium units and parking spaces at the Malayan Tower located at ADB Avenue corner Opal Road, Ortigas Center, Pasig City; that the condominium units and parking spaces will be initially placed in the name of ASBRC, as trustee, pending completion of the aforestated condominium project; and that you now pose the following questions: 1. Is the subsequent transfer of the condominium certificates of title from ASBRC, as trustee, to the trustor/beneficiary subject to income tax and the expanded withholding tax as well as to the documentary stamp tax? 2. Is the transfer from the trustee to the trustor also subject to value added tax? In reply, please be informed that in BIR Ruling No. DA-385-2004 dated July 12, 2004, the BIR ruled that: ". . . since the transfer of the properties acquired by the trustee, . . . for and on behalf of the trustor, . . . is without monetary consideration, the same is not subject to the capital gains tax imposed under Section 27(D)(5) of the Tax Code of 1997 nor to the creditable withholding tax prescribed by Revenue Regulations No. 2-98, implementing Section 57(B) of the Tax Code of 1997. "Moreover, the transfer of the above-mentioned properties is exempt from the donor's tax imposed under Section 98 of the same Code due to lack of donative intent on the part of trustee. "Furthermore, it is not likewise subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997. However, the notarial acknowledgement to said deed is subject to the documentary stamp tax of P15.00 only pursuant to Section 188 of the Tax Code of 1997. ( BIR Ruling No. 027-93 dated January 16, 1993 )" In the same manner the transfer of the condominium certificates of title from ASBRC, as trustee, to the trustor/beneficiary is not likewise subject to income tax and the expanded withholding tax, prescribed by Revenue Regulations No. 2-98, implementing Section 57(B) of the Tax Code of 1997, as well as to the documentary stamp tax imposed under Section 196 of the same Tax Code. In addition, pursuant to Section 105 of the Tax Code of 1997, value-added tax (VAT) is collected upon any person, who in the course of trade or business, sells, barters, exchanges, leases goods or properties and renders service. The phrase "in the course of trade or business" means the regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto, by any person regardless of whether or not the person engaged therein is a non-stock, non-profit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests), or government entity. Considering that ASBRC will not sell, barter, exchange, nor lease any good or property and neither will it render service for a fee but will merely transfer the titles to the unsecured creditors, as trustor, to implement their agreement, then the conveyance by ASBRC is not subject to VAT. ( BIR Ruling No. DA-362-2000 dated October 23, 2000 ) This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered null and void. HSCcTD Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group