BIR Ruling [DA-485-04]

September 10, 2004 BIR RULING [DA-485-04] Sec. 24 (c); 176-188 BIR Ruling No. 031-99 Pangilinan Britanico Sarmiento & Franco Law Offices 7th Floor, Banco De Oro Plaza, 8737 Paseo De Roxas Makati City Attention: Attys. Kennedy B. Sarmiento & Adri Anne T. Montes Gentlemen : This refers to your letter dated August 9, 2004, requesting in behalf of your client, Extra Excel International Philippines, Inc. (EEIPI) for a ruling that the Deed of Conveyance from a trustee to the trustor is exempt from taxation. It is represented that Hung-Chih Chan (a.k.a. Alex Chan) sold Three Thousand Two Hundred and Fifty (3,250) shares of stock covered by Stock Certificate No. 12 of EEIPI to Chia-Jui Lee (a.k.a. Andrew Lee J.R.) on June 19, 2002; that the capital gains tax and documentary stamp tax on the sale were paid; that on August 27, 2002, Andrew Lee executed a Declaration of Trust attesting that the 3,250 shares of stock of EEIPI registered in the name of Andrew Lee are held in trust by him as trustee for Huan-Hsin Le (a.k.a. Barry Le) as trustor; and that it is your opinion that the conveyance from the trustee to the trustor is merely a continuation and confirmation of title in favor of the ultimate and beneficial owner and trustor of the shares. 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 3,250 shares of stock of Barry Le since Barry Le is the real owner of the shares of stock involved while Andrew Lee J.R. acted merely as Trustee. Accordingly, the transfer of the shares from the Trustee Andrew Lee J.R. to the Trustor Barry Le, the real owner therefore, without monetary consideration and by virtue of a Deed of Conveyance respectively executed by Andrew Lee J.R. and Barry Le is not subject to the capital gains tax. In BIR Ruling No. UN-031-99 dated March 19, 1999, 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 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. (BIR Ruling No. 115-94) This will therefore, serve as authority for the Corporate Secretary to transfer the shares of stock of Andrew Lee in the name of Barry Le. CSAcTa 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, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group