BIR Ruling [DA-484-06]

August 9, 2006 BIR RULING [DA-484-06] Section 24 (C), 176-188; BIR Ruling No. DA 485-04 & DA-228-05 Siguion Reyna Montecillo & Ongsiako 4th & 6th Floors, Citibank Center 8741 Paseo de Roxas Makati City Attention: Atty. Ferdinand M. Hidalgo Atty. Julie Ann S. Terrado Gentlemen : This refers to your letter dated April 7, 2006 requesting on behalf of your client, I sland Power Corporation ("IPC") for confirmation of your opinion that 1. the transfer of IPC shares by the trustee in favor of the trustor, being merely a confirmation of title in favor of the beneficial owner and without monetary consideration, should not be treated as another transfer separate and distinct from the sale between the original owner and the trustee, and should not, therefore, be subject to capital gains tax and documentary stamp tax; and 2. the conveyance of the IPC shares from the trustee to the trustor is not subject to donor's tax due to lack of donative intent among the parties involved. As represented, on September 1, 2005, the Philippine National Bank (PNB) sold Two Hundred Forty Five Thousand (245,000) shares of stock, covered by Stock Certificate Nos. 40, 41, 42 and 43 of IPC, to Danilo M. Relucio, as trustee for and on behalf of the trustor, Leonardo Siguion-Reyna, pursuant to a Deed of Trust also executed on said date. Having filed the required return and paid the corresponding taxes, the Certificate Authorizing Registration was issued by Revenue District Office (RDO) No. 51 (Pasay City) on October 24, 2005. On November 24, 2005, by virtue of a Deed of Assignment executed between the trustee and the trustor, the latter instructed the former to cause the transfer of the 245,000 IPC shares in the name of the trustor in the Stock and Transfer Book of IPC. In reply, please be informed that under Section 24(C) of the Tax Code of 1997, a final tax at the rates of 5% and 10% shall be imposed upon the net capital gains realized during the taxable year from the sale, barter, exchange or other disposition of shares of stock in a domestic corporation, except shares sold, or disposed of through the stock exchange. In the instant case, there is no sale, barter or exchange of the 245,000 IPC common shares of stock of Leonardo Siguion-Reyna since Leonardo Siguion-Reyna is the real owner of the shares involved while Danilo M. Relucio acted merely as trustee. Accordingly, the transfer of the shares from the Trustee Danilo M. Relucio to the Trustor Leonardo Siguion-Reyna, the real owner thereof, without monetary consideration and by virtue of a Deed of Assignment executed between the Trustee Danilo M. Relucio and the Trustor Leonardo Siguion-Reyna is not subject to capital gains tax. The conveyance by the trustee in favor of the trustor of the subject properties which the former acquired by virtue of a 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 subject properties. Moreover, the said Deed is not subject to the donor's tax and the documentary stamp tax imposed under Section 176 of the Tax Code of 1997, but only to the documentary stamp tax on certificates under Section 188 of the same Code. This serves as authority for the Corporate Secretary to transfer the shares of stock of Danilo M. Relucio in the name of Leonardo Siguion-Reyna in the Stock and Transfer Book of IPC. 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 as null and void. AEIcTD Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service