Department of Labor and Employment

October 23, 2007 BIR RULING [DA-553-07] 39 30-2002 Department of Labor and Employment Intramuros, Manila Attention: Ms. Violeta N. Muoz Director III Administrative Service Gentlemen : This refers to your letter dated March 9, 2007 requesting for exemption from the payment of capital gains tax relative to the transfer of the 6th Floor of BF Condominium located at A. Soriano Avenue, Intramuros, Manila from the Department of Finance (DOF) to the Department of Labor and Employment (DOLE). It is represented that in view of the DOLE's expanding functions, it is in critical need of additional office space, and at the same time, faced with greatly limited financial resources; that the DOF is the registered owner in fee simple of a condominium unit covered under CCT No. 47468 of the Register of Deeds of Manila, which is not used or needed by DOF; and that parties executed a Memorandum of Agreement whereby the DOF transfers, cedes and conveys in a manner absolute and irrevocable, unto the DOLE, the property, including the improvements found therein, free from all liens, encumbrances and charges, save for encumbrances required by law to be maintained over the property. In reply, please be informed that Section 48, Chapter 12, Book I of Executive Order No. 292 and Section 76 of Presidential Decree No. 1445 provides, viz : IHEDAT "Chapter 12 Public Contracts and Conveyances xxx xxx xxx Sec. 48 Official Authorized to Convey Real Property. Whenever real property of the Government is authorized by law to be conveyed, the deed of conveyance shall be executed in behalf of the government by the following: 1. For property belonging to and titled in the name of the Republic of the Philippines, by the President, unless the authority therefore is expressly vested by law in another officer. 2. For the property belonging to the Republic of the Philippines but titled in the name of any political subdivision or any corporate agency or instrumentality, by the executive head of the agency or instrumentality." IScaAE xxx xxx xxx "Sec. 76 Transfer of Property Between Government Agencies. Any government property that is no longer serviceable or needed by the agency to which it belongs may be transferred without cost, or at an appraised value, to other agencies of the government upon authority of the respective head of agencies in the national government, or of the governing bodies of government-owned or controlled corporation, other self-governing boards or commissions or the government, or of the local legislative bodies for local government units concerned." (emphasis supplied) Taxes are financial burdens imposed for the purpose of raising revenues with which to defray the cost of the operation of the Government. The general rule is that, independently of constitution or statute, property belonging to the state or a political division thereof is not taxable on the theory that such taxation would merely have the effect of taking money out of one pocket and putting it in another (Cooley on Taxation, Sec. 621, 4th Edition). Taxing such property would not serve, in the final analysis, the main purpose of taxation. What is more, it would tend to defeat it, on account of the paper work, time and consequently, expenses it would entail (The Law on Local Taxation, by Justiniano V. Castillo). It is axiomatic that when public property in involved exemption is the rule and taxation, the exception ( Social Security System vs. City of Bacolod , 115 SCRA 412; National Waterworks and Sewerage Authority vs. Quezon City, 23 SCRA 286; Board of Assessment Appeals vs. Court of Appeals, 8 SCRA 225). This implied exemption is generally reinforced by express provisions in the constitutions or statutes exempting such property. (Cooley. Ibid. ) TCASIH Accordingly, Section 40 of Presidential Decree No. 464, as amended (Real Property Tax Code), exempts from real property tax real property owned by the Republic of the Philippines or any of its political subdivisions and any government-owned corporation so exempt by its charter unless the beneficial use of which has been granted to a taxable person. Gifts or donations made to or for the use of the National Government or any entity created by any of its agencies which is not conducted for profit or to any political subdivision of said government are exempt from the donors (gift) tax under Section 104 (2) of the National Internal Revenue Code. Certificates placed upon documents, instruments and papers for the national, provincial, city or municipal government, made at the instance and for the sole use of some other branch of the national, provincial, city or municipal government, are exempted from documentary stamp tax (see Section 212[2], NIRC). With regard to the capital gains tax, no such tax is due because there is no capital gain to be taxed, there being no sale or exchange of capital assets involved (see Section 34[2] of the National Internal Revenue Code) since the subject properties were voluntarily surrendered to the Republic of the Philippines which is the real owner of the same. (BIR Ruling No. 30-2002 dated August 7, 2002) cHCIEA For all the foregoing, the transfer in favor of the Department of Labor of the subject property may be affected without the payment of the capital gains tax. 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.) GREGORIO V. CABANTAC Deputy Commissioner