BIR Ruling [DA-550-98]

December 4, 1998 BIR RULING [DA-550-98] Santiago, Corpuz & Ejercito 6th Floor, Pacific Center Building San Miguel Avenue, Ortigas Center Pasig City Attention: Atty . Allan Narciso P . Macasaet Gentlemen : This refers to your letter dated October 20, 1997 requesting on behalf of your client, Century Savings Bank (CSB), for a ruling that the transfer of the Proprietary Membership Fee Certificate to CSB is not subject to capital gains tax. It is represented that CSB is a banking corporation duly organized and existing under and by virtue of Philippine laws with principal office and postal address at Bloomingdale Building, Salcedo Street, Legaspi Village, Makati City; that CSB purchased a Proprietary Membership share of the Valle Verde Country Club, Inc. (VVCCI) which issued a Proprietary Membership Fee Certificate No. 4263 under the name of Ms. Josephine Ty Chua, as its nominee, who was then and still is the Chairman of CSB for the latter's use in her marketing functions in the bank; that on November 22, 1995, Ms. Josephine Ty Chua executed a Deed of Declaration of Trust in favor of CSB; that the nominee acknowledged that CSB has absolute title and ownership of the Proprietary Membership Fee Certificate, including all cash or stock dividends, subscription rights or other rights; that CSB appointed the nominee for the purpose of exercising all the voting rights and other rights accruing from time to time; that the nominee shall hold in trust for CSB all the accruing dividends, bonuses and other benefits and to remit the same to the latter; that CSB will assume or indemnify all obligations, liabilities, damages, costs and expenses, which the nominee may suffer or incur by reason of her function. In reply, please be informed that since the transfer of the Proprietary Membership Fee Certificate to the CSB does not involve any monetary consideration or other material consideration from its nominee, Ms. Josephine Ty Chua, the same is not a taxable transaction, therefore, no capital gains tax is due and payable on the aforementioned transaction. Moreover, while the said transaction is considered a gift since it is a valid transfer of property from one person to another without consideration or compensation therefor, the same is not subject to the gift tax. This is so because although there is a direct gift, there is no donative intent under the above circumstances. It has been held that in a direct gift, the element of donative intent must be present in the transfer of property to be donated. (Perez vs. Commissioner, CTA Case No. 1707, Feb. 10, 1989) [BIR Ruling No. 152-90 dated August 16, 1990] However, since the Proprietary Membership Certificate in this case indicates, in all probability, that the registered owner thereof shall be entitled to a pro-rata share of the assets of the club, the same is considered a certificate showing interest in the property of a corporation. Accordingly, the transfer of said certificate is subject to the documentary stamp tax of Fifty centavos (P0.50) on each Two hundred pesos (P200.00), or a fractional part thereof, of the face value of such certificate, in accordance with Section 178 of the Tax Code of 1997. 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. Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)